[Federal Register Volume 72, Number 142 (Wednesday, July 25, 2007)]
[Notices]
[Pages 40926-40953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-14130]



[[Page 40925]]

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Part II





Millennium Challenge Corporation





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

  Federal Register / Vol. 72, No. 142 / Wednesday, July 25, 2007 / 
Notices  

[[Page 40926]]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 07-06]


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

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 Mozambique. Representatives of the United 
States Government and the Government of the Republic of Mozambique 
executed the Compact documents on July 13, 2007.

    Dated: July 17, 2007.
William G. Anderson Jr.,
Vice President & General Counsel, Millennium Challenge Corporation.

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

A. Introduction

    Since emerging in 1992 from three decades of nearly continuous 
conflict, Mozambique has experienced one of the fastest growth rates in 
Africa, averaging eight percent per year over the last decade. To 
sustain this growth, it is necessary to unlock the potential of the 
economically lagging Northern provinces, which are home to 
approximately 10 million people. Moreover, given Mozambique's rapid 
urbanization, its next stage of economic recovery cannot succeed 
without well-functioning public services in its cities, where coverage 
levels for water and sanitation, for example, are declining.

B. Program

1. Goal and Objectives
    The $506.9 million Compact focuses on water, sanitation, roads, 
land tenure, and agriculture (the ``Program''), as summarized in the 
table below. The Program involves crucially needed investments in 
physical assets, policy reforms, capacity building, and institutional 
strengthening.

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                         Program                            CIF/Year 1        Year 2          Year 3          Year 4          Year 5           Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Water Supply & Sanitation Project....................     $16,250,586     $33,486,540     $60,354,509     $51,577,477     $41,916,281    $203,585,393
2. Roads Project........................................       5,430,562       4,420,542      39,733,884      79,578,499      47,143,993     176,307,480
3. Land Tenure Services Project.........................       5,261,274      12,369,941       9,541,389       6,823,931       5,071,772      39,068,307
4. Farmer Income Support Project........................       3,754,417       3,491,632       3,851,878       3,375,446       2,958,838      17,432,211
5. Monitoring and Evaluation............................       2,195,000         955,000       1,880,000         920,000       2,255,000       8,205,000
6. Program Administration & Oversight...................      23,577,473      11,014,974      10,086,885       9,009,757       8,636,572      62,325,661
                                                         -----------------------------------------------------------------------------------------------
    Total MCC Contribution..............................      56,469,312      65,738,629     125,448,545     151,285,110     107,982,456     506,924,053
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Program's goal is to reduce poverty in Northern Mozambique 
through economic growth. The Program's objective is to increase the 
productive capacity of the population in selected districts, with the 
intended impact of reducing the poverty rate, increasing household 
income and employment, and reducing chronic malnutrition in the 
targeted districts. The various interventions are designed to foster 
investment and increase economic opportunities for Mozambicans living 
in the North.
2. Program Rationale
    The Program addresses key constraints to growth in Mozambique, 
which include:
     An inadequate stock of infrastructure--particularly for 
roads, water, and sanitation--that has degraded because of years of war 
and lack of maintenance;
     A poor investment climate, including land tenure 
administration;
     Limited human capacity and poor health; and
     Low levels of productivity affecting agriculture.
    The Program is consistent with two key themes of the Government of 
Mozambique's (``GOM'') development strategy: (a) Decentralization and 
urban-based growth; and (b) meeting the Millennium Development Goals 
for water and sanitation. It also is consistent with and a key part of 
the United States Government's (``USG'') foreign policy and public 
diplomacy objectives.

C. Program Description

1. Water and Sanitation Project ($203.6 million)
    Lack of access to water and sanitation is a major barrier to growth 
and health. Mozambique has one of the lowest levels of per-capita water 
consumption in the world. With an average of less than 10 liters per 
day, the country is far below global benchmarks. Moreover, due to 
existing gender norms, girls and women are responsible for collecting 
most of the water at the household level. They spend hours fetching 
water, leaving little time for child care, attending school, or income-
generating activities.
    The Water Supply and Sanitation Project will improve access to 
safe, reliable water supply and sanitation services, thereby increasing 
productivity and reducing water-borne diseases--one of the causes of 
death in children under five. It involves: (a) Water supply and 
sanitation services in three large cities (Quelimane, Nampula, and 
Pemba) and three mid-sized towns (Guru[eacute], Mocuba, and Nacala) in 
the provinces of Zamb[eacute]zia, Nampula and Cabo Delgado; (b) water 
supply services in two small towns (Monapo and Montepuez) and 600 rural 
villages in the provinces of Nampula and Cabo Delgado; (c) capacity 
building of local institutions; and policy development.
    MCC's capital investments in water and sanitation will build on the 
pioneering work begun in the mid-1990s and funded by the World Bank to 
put in place the key sectoral institutions and regulatory frameworks. 
MCC funding will also address some key heretofore neglected market 
segments--small-town water supply and sanitation--and, in so doing, 
will help consolidate and advance the GOM's water sector strategy. In 
urban water supply, the strategy is based on a separation of asset 
ownership and operations and maintenance (``O&M''). Under the so-called 
system of delegated management, the state owns the water assets; O&M is 
carried out by the private sector; and an independent regulatory 
authority (``CRA'') sets service standards and regulates tariffs. 
Accordingly, the MCC program is predicated on private sector 
participation to reduce operating costs and improve service--factors 
that are key to sustainability.

[[Page 40927]]

2. Roads Project ($176.3 million)
    The objective of the Roads Project is to: (a) Improve access to 
markets, resources, and services; (b) reduce transport costs for the 
private sector to facilitate investment and commercial traffic; (c) 
expand connectivity across the Northern region and down toward the 
southern half of the country; and (d) increase public transport access 
for individuals to take advantage of job and other economic 
opportunities. Specifically, MCC funding will rehabilitate 491 km of 
key segments of the National Route 1, which forms the backbone of 
country's transportation network, in three provinces. The road segments 
will include Rio Lurio--Metoro in Cabo Delgado (74 km); Namialo--Rio 
Lurio (148 km) and Nampula--Rio Ligonha (102 km) in Nampula; and 
Nicoadala--Chimuara (167 km) in Zamb[eacute]zia.
    These roads are part of the GOM's five-year master plan for roads, 
known as the Integrated Road Sector Program (PRISE), a sector-wide 
initiative for developing the national road network. The PRISE's first 
three-year rolling investment program (covering 2007-2009) is budgeted 
at more than US$1 billion, and includes: (i) The building, 
rehabilitation, and maintenance of roads and bridges; (ii) the 
development of pilot projects to test low-cost materials; and (iii) the 
implementation of a road-safety initiative.
    MCC funding will support the following types of interventions:
     Design, environmental assessment, and construction 
activities;
     Implementation of environmental and social mitigation 
measures, including compensation for physical and economic displacement 
of individuals and businesses affected by the rehabilitation and 
construction;
     Design, construction and rehabilitation of drainage and 
bridge structures;
     Posting of signage and incorporation of other safety 
improvements;
     Project management, supervision, and auditing; and
     Technical assistance and capacity building.
3. Land Tenure Services Project ($39.1 million)
    The objective of the Land Tenure Services Project (``Land 
Project'') is to establish more efficient and secure access to land by 
improving the policy and regulatory framework and helping beneficiaries 
meet their immediate needs for registered land rights and better access 
to land for investment. The Land Project--which would operate in all 
four provinces, but could have a national impact--is comprised of three 
mutually reinforcing activity areas: (a) A Policy Support Pillar to 
help improve the policy environment by addressing implementation 
problems in the existing land law and regulatory reviews to improve 
upon it; (b) a Capacity Building Pillar to build the institutional 
capacity to implement policies and provide quality public land-related 
services; and (c) a Site-specific Pillar to facilitate access to land 
use by helping people and business with: (i) Clear information on land 
rights and access; (ii) more predictable and speedy resolution of land 
and commercial disputes, thereby creating better conditions for 
investment and business development; and (iii) registering their grants 
of land use.
4. Farmer Income Support Project ($17.4 million)
    Coconuts and coconut products form an important part of the economy 
in Northern Mozambique. However, outbreaks of Coconut Lethal Yellowing 
Disease (``CLYD'') now threaten the industry and the livelihood of over 
1.7 million people in the provinces of Zamb[eacute]zia and Nampula. At 
the present rate of spread, more than 50 percent of the coconut area is 
likely to be lost over the next nine years. Affected trees cease 
producing and threaten the productivity of healthy trees; therefore 
they must be removed and replaced.
    The objective of the Farmer Income Support Project is to improve 
productivity of coconut products, and encourage diversification into 
other cash-crop production. The Project will eliminate biological and 
technical barriers hindering economic growth among farms and targeted 
enterprises, while supporting diversification into other cash crops and 
improved farming practices to assist smallholders and producers to 
recover lost income. In conjunction with tree removal and replacement, 
the Project will assist farmers in adopting new cropping systems and 
developing alternative sources of cash income during the time required 
for new coconut trees to reach productive age, i.e., seven years and 
beyond. The Project will also provide technical support to introduce 
better practices aimed at increasing crop yields.

D. Impacts

    Four strategic elements coalesce to form a platform to achieve the 
overall Program objectives:
     Increase the accessibility, reliability, and quality of 
water and sanitation facilities;
     Increase access to productive resources and markets;
     Make land access more efficient and secure for households, 
smallholders, and investors; and
     Improve productivity of coconut products and diversify 
into other cash crops.
    The four strategic objectives, if achieved, will result in 
increased investment and employment. Overall, the Program will increase 
regional gross domestic product across the targeted provinces in 
Northern Mozambique--Cabo Delgado, Nampula, Zamb[eacute]zia, and 
Niassa--by nearly $75 million in 2015 and $180 million in 2025. A 
projected 33 percent of the population of these provinces would have 
been poor in 2015 without the Program. The Program can be expected to 
reduce the projected poverty rate by over 7 percent by 2015 and by over 
16 percent by 2025. As a result of Program implementation, nearly 
270,000 persons will be lifted out of poverty by 2015 and 440,000 
persons by 2025. The net present value of the net economic benefits of 
the Program comes to more than $420 million discounted at the MCC 
hurdle rate for Mozambique.
    At the project level, the Water Supply and Sanitation Project is 
expected to assist some 1.9 million beneficiaries by 2015 through 
improved water systems, wastewater disposal, and storm water drainage. 
Around one-third of these beneficiaries are among the poor. The net 
present value of the net economic benefits for all of the water and 
sanitation activities (for large cities and towns, small towns, and 
rural stand posts) amounts to close to $360 million discounted at the 
MCC hurdle rate for Mozambique.
    By 2015, nearly 2.3 million people--of whom more than one-third is 
likely to be poor--will benefit from the Roads Project, by having 
improved access to markets and services. The net present value of the 
net economic benefits for all of the roads activities amounts to more 
than $20 million discounted at the MCC hurdle rate for Mozambique.
    The Land Project will assist anyone who has or acquires land-use 
rights. Improved land tenure services are projected to benefit 1.9 
million people by 2015, the first year after the end of the Compact, 
and to benefit 2.6 million people, 15 years after the end of the 
Compact. The net present value of the net economic benefits for the 
Land Project amounts to more than $4 million discounted at the MCC 
hurdle rate for Mozambique.

[[Page 40928]]

    The Farmer Income Support Project will benefit 1.7 million 
smallholders as well as workers on coconut estates, which employ some 
5,000 workers. Half of these smallholders would be in poverty even 
without income losses from CLYD. The net present value of the net 
economic benefits for the Farmer Income Support Project amounts to $38 
million discounted at the MCC hurdle rate for Mozambique.

E. Program Management

1. Governance Structure
    The implementation and management arrangements are designed to 
ensure strong governance, oversight, management, monitoring and 
evaluation (``M&E''), and fiscal accountability in the use of MCC 
funds. The GOM will create MCA-Mozambique as a public institution to 
oversee and manage the program as an autonomous accountable entity. 
MCA-Mozambique will have: (1) A Board of Directors to oversee 
implementation, make strategic decisions, and ensure the execution of 
agreed policy reforms; (2) an Executive Committee, composed of a 
smaller working group of Board members or their representatives, to 
facilitate implementation by assisting in decisions regarding technical 
matters; and (3) a Management Unit to handle the day-to-day operations. 
The Board will be composed of representatives from government, private 
sector, and civil society. It will also include as non-voting members, 
a representative from MCC, a representative of an environmental NGO, 
and the Executive Director of MCA-Mozambique. The Management Unit will 
be composed of professional staff hired through an open and competitive 
recruitment. MCA-Mozambique will have an office in Maputo and a field 
office in Nampula.
    Stakeholder participation will occur at both the Program and 
Project levels. At the Program level, stakeholders will be able to 
provide feedback through participatory M&E fora. Mechanisms will also 
be structured at the Project-level to allow the private sector, civil 
society, and local/regional governments to provide advice and input for 
implementation.
2. Implementation Arrangements
    Line ministries and public institutions will serve as Implementing 
Entities (``IEs'') and service providers for the various projects. IEs 
will be responsible for developing the operational requirements for the 
Projects and performance monitoring of contractors. Teams will be 
located within the IEs to ensure institutional strengthening and close 
collaboration and communication. To help ensure Program success, the 
Compact has budgeted nearly $40 million for technical assistance, 
capacity building, and institutional strengthening. In addition, 
competitively selected external service providers will perform the 
Procurement and Fiscal Agent functions.

F. Other Highlights

1. Transformational Change
    The Program has the potential for significant transformational 
change to help unlock the economic potential of the northern part of 
the country by addressing key binding constraints to growth. Overall, 
the Program is expected to reach a total of five million people, many 
of whom will benefit from multiple Projects. In addition, the Program 
will have an important qualitative developmental impact, by helping to 
develop and consolidate key sectoral institutions and improve water and 
sanitation services, road maintenance, and land tenure.
2. Consultative Process
    The Compact is derived from Mozambique's Poverty Reduction Strategy 
Paper, known as PARPA in Portuguese, which was submitted to a domestic 
consultation involving a wide variety of sectors and an extensive range 
of stakeholder groups, including the poor. For the MCC program, the GOM 
conducted a consultative process through two organizations: The Poverty 
Observatory, an umbrella group of non-governmental organizations 
(``NGOs''), and the Federation of Economic Associations (the ``CTA''), 
a private sector trade association. The Poverty Observatory and CTA 
together represent the preponderance of NGOs, not-for-profit, and 
domestic for-profit businesses in Mozambique.
Government Commitment and Effectiveness
    The GOM has demonstrated commitment by showing a willingness and 
flexibility to develop solutions for inefficient government procedures 
that affect implementation of donor-funded programs. It also has 
already initiated institutional reform and organizational restructuring 
processes in the water and sanitation and roads sectors and in land. 
The GOM is working with MCC and the World Bank to carry out the 
necessary policy reforms for program success, building on the crucial 
institutional developments identified by the GOM as part of the Compact 
development work funded by an MCC 609(g) grant. Over the past two 
years, the GOM has developed a new road strategy and investment program 
that includes an organizational restructuring of the road agency and 
performance-based disbursements linked to measurable indicators for 
routine maintenance, among others. To supplement this, MCC also 
successfully negotiated a commitment by the GOM to implement a rigorous 
periodic maintenance program covering the country's entire paved road 
network, upon which disbursement of MCC funding is contingent. In 
December 2006, the GOM passed a decree approving urban land 
regulations, which establish the rules governing the use and enjoyment 
of land in towns and cities.

G. Sustainability

1. Water and Sanitation
    For urban water, the Water and Sanitation Project will help promote 
the sector's evolution and solidify its institutions, while addressing 
the institutional capacity gap for smaller cities and towns and for 
sanitation. The sustainability of the water supply projects in the 
three large cities (Nampula, Quelimane, and Pemba) is assured through 
the existing state-owned asset-holding company for water (``FIPAG''), 
which operates on a self-sustaining basis. The proposed investments 
will help consolidate the financial sustainability of FIPAG by 
providing additional assets and water sales volume without adding 
additional debt. The GOM is establishing a FIPAG-like entity, the Asset 
Management Unit (``AMU''), as part of the National Water Directorate, 
with the assistance of World Bank funding to improve service delivery 
in the smaller cities and towns (Nacala, Guru[eacute], Mocuba, Monapo, 
and Montepuez). The AMU--along with the expansion of the scope of the 
independent regulatory authority--will provide the basis for cost-based 
tariffs to ensure commercially sustainable operations and maintenance 
services. For the largest cities, CRA will continue to set tariffs to 
ensure full cost recovery. In smaller towns and in rural areas, as well 
as for sanitation, tariffs will be set to recover, at a minimum, 100 
percent of O&M costs. This is projected to occur by 2015, after a 
period of tariff adjustments.
2. Roads
    The Roads Project's sustainability depends upon the functioning of 
the two major institutions in the sector--the National Road Agency 
(``ANE'') and the Road Fund. ANE is undergoing reorganization in order 
to provide more

[[Page 40929]]

efficient maintenance and system management. On the financial side, 
responsibility for revenue collection, identifying sources of funding, 
and financial management is the purview of the Road Fund, which is 
under the Ministry of Finance. The Road Fund is capitalized by a fuel 
levy, which enables the roads sector to meets its routine maintenance 
requirements. Nevertheless, to help ensure asset preservation, MCC 
obtained a government commitment from the GOM during Compact 
negotiations to fully fund and execute periodic maintenance, which 
should occur on a seven-year cycle for paved roads. As a condition 
precedent to disbursements for civil works, the GOM will present--to 
MCC's satisfaction--a rigorous plan for periodic maintenance covering 
the entire paved road network. Under this plan, the near-term periodic 
maintenance funding will come from user fees, GOM funds, and donor 
funds. Over a 10-year period, however, the plan would phase out donor-
funded periodic maintenance and replace it with user fees.
3. Land
    The Land Project addresses sustainability by supporting the 
development of an overall strategy for modernization of land services 
that emphasizes client service, adoption of technology solutions 
adapted to the local context, and strengthening of financial and human 
resource capacity. Re-establishing trust and creating efficiency in 
public land services will increase citizen and business use of 
services, thereby contributing to high-quality, up-to-date records. The 
GOM's increased ability to collect land rents from leases of public 
land and expanded collection of rationalized service fees will provide 
a major improvement in capacity to fund public land services at the 
national, provincial, and municipal levels. Finally, the Project will 
enable significant progress to improving access to and security of land 
tenure, which will help facilitate sustainable economic development 
through increased investment.
4. Farmer Income Support Project
    Sustainability for the Farmer Income Support Project is linked to 
the overall market performance of coconuts and alternate crops. The 
market for coconuts and its processed products is growing domestically 
and internationally, as are markets for targeted alternate crops. Yield 
improvements should help foster sustainability, as should the adoption 
by smallholders of improved farming practices and crop diversification, 
which can help reduce their risks and vulnerability. The Project would 
also promote environmental sustainability, as coconut trees are 
particularly productive at carbon sequestration.
5. Environment and Social Impacts
    MCC requires that all Projects comply with national laws and 
regulations, MCC's Environmental Guidelines and Gender Policy, and 
World Bank Operational Procedure 4.12 on Involuntary Resettlement (WB 
OP 4.12). None of the Projects is likely to generate significant 
adverse environmental, health, or safety impacts. However, several of 
the Water and Sanitation Project (``Category A,'' according to MCC's 
Environmental Guidelines) activities have the potential for limited 
resettlement, alteration of river flows and aquatic habitat, and over-
extraction of surface and/or groundwater resources that may require 
mitigation. Since the Roads Project (``Category B'') involves the 
rehabilitation and paving of existing roads and not the construction of 
new roads, any negative environmental or social impacts are expected to 
be mitigatable. Similarly, any potential negative environmental and 
social impacts of the Land Project (``Category C'') and the Farmer 
Income Support Project (``Category B'') are expected to be mitigatable. 
The full scope of the impacts of each Project will be further examined 
through various environmental and social assessments that the GOM will 
conduct during the first year of implementation. Any negative impacts 
or risks identified through these assessments would be mitigated or 
managed through adequate approaches to implementation, including 
preparing and implementing environmental management plans, resettlement 
action plans, and gender analyses, as necessary.
    It is important to note that a number of positive environmental and 
social benefits should emerge from many of the Compact activities, most 
notably from the Water and Sanitation and the Farmer Income Support 
Projects. Furthermore, to maximize the positive social impacts of the 
Compact and ensure compliance with MCC's Gender Policy, the GOM will 
develop: (a) A Gender Integration Plan that includes approaches for 
meaningful and inclusive consultations with women and vulnerable and 
under-represented groups; and (b) Project-specific gender analyses, the 
results of which will be incorporated into final Project designs.
    To promote environmental and social sustainability, MCA-Mozambique 
will ensure that comprehensive public consultations are developed so 
that Project stakeholders, including women and vulnerable groups, are 
afforded consultation and an opportunity to provide their inputs to 
Project design and implementation. MCA-Mozambique will ensure that 
environmental and social mitigation measures are followed for all 
Project activities in accordance with the provisions set forth in the 
Compact and supplemental agreements.

H. Donor Coordination

    MCC has worked closely with various multilateral, bilateral, and 
private donors to facilitate Program design. MCC has not only built off 
existing successful programs, but has also catalyzed financial support 
from several donors. In water and sanitation, MCC coordinated closely 
with the water sector working group of donors throughout all stages of 
Compact development. For land tenure, MCC coordinated closely with many 
donors, including most extensively with USAID, DFID, and the World 
Bank. The Land Project is designed to build on prior schemes and to 
complement existing initiatives. Specifically, it will support a ``buy-
in'' to a multi-donor program called the Land Fund to allow its 
expansion into three more provinces. MCC funds will add greater 
emphasis on women's land rights. Finally, the Compact will support 
municipal cadastre work, and will draw lessons from the experience 
gained under USAID's local governance project, which is piloting 
cadastre work in five municipalities currently. In roads, MCC 
resources, like all major donor and GOM investments going into the 
sector, will fund road improvements in the context of the GOM's five-
year master plan, called the Integrated Road Sector Program 
(``PRISE''). MCC's participation in the PRISE would be in the form of 
project finance, while other donors will use a mixture of both project 
finance and pooled funding.
    MCC has also taken a proactive approach to coordinating with 
various USG agencies throughout the Compact development and due 
diligence process, including: USAID, State Department, USTR, USTDA, 
Africa Development Foundation, Treasury Department, Department of 
Commerce, Department of Justice, USDA Forest Service, OPIC, U.S. 
Export-Import Bank, and the HELP Commission.

I. The ``MCC Effect'' in Mozambique

    The ``MCC Effect'' has been pronounced in Mozambique in several 
different ways, including: (1) Creating space to increase the voice of 
civil society in developing the original proposal; (2) mobilizing other 
donor

[[Page 40930]]

activity; and (3) catalyzing the implementation of an urban water and 
sanitation strategy for small towns.
    In the water/sanitation sector, the prospect of a large MCC 
investment led the World Bank to assemble a package of up to $40 
million in funding to complement MCC's interventions and invest in 
areas beyond MCC's scope. This package will help leverage the impact of 
MCC's investments, and is estimated to reach approximately two million 
beneficiaries at the national level. Combined with MCC investments in 
water/sanitation, which will reach more than 1.9 million people, nearly 
four million people in total will benefit from improved water and 
sanitation services.
    In addition, through the 609(g)-funded Compact development process, 
MCC has already succeeded in pushing to develop further Mozambique's 
land policy and to make it more effective in practice. This was not 
easy given the post-war legacy of extreme sensitivity around land 
issues. As a result, other donors are contemplating ramping up their 
own initiatives to support interventions on land policy and to engage 
the government on needed policy and institutional reform.

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

Table of Contents

Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Program Objectives
    Section 1.3 Project Objectives
Article 2. Funding and Resources
    Section 2.1 MCC Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 Disbursement
    Section 2.4 Interest
    Section 2.5 Government Resources; Budget
    Section 2.6 Limitations of the Use of MCC Funding
    Section 2.7 Taxes
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters
    Section 3.6 Procurement
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
    Section 4.3 Signatures
Article 5. Termination; Suspension; Refunds
    Section 5.1 Termination; Suspension
    Section 5.2 Refunds; Violation
    Section 5.3 Survival
Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Inconsistencies
    Section 6.3 Amendments
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web site
Article 7. Entry Into Force
    Section 7.1 Domestic Requirements
    Section 7.2 Conditions Precedent
    Section 7.3 Date of Entry into Force
    Section 7.4 Compact Term
Article 8. Additional Government Covenants
    Section 8.1 Designated Entity
    Section 8.2 Administrative Court
    Section 8.3 Certain Financial Practices
    Section 8.4 Procurement
Annex I: Program Description
Annex II: Summary of Multi-Year Financial Plan
Annex III: Description of the Monitoring and Evaluation Plan

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
Government of the United States of America, acting through the 
Millennium Challenge Corporation, a United States government 
corporation (``MCC''), and the Government of the Republic of Mozambique 
(the ``Government'') (individually a ``Party'' and collectively, the 
``Parties'').
    Recalling that the Government consulted with the private sector and 
civil society of the Republic of Mozambique (``Mozambique'') to 
determine the priorities for the use of Millennium Challenge Account 
assistance and developed and submitted to MCC a proposal based on the 
integrated Government development strategy to reduce poverty and 
increase household incomes by increasing the productive capacity of the 
population in selected provinces in northern Mozambique (Cabo Delgado, 
Nampula, Niassa and Zamb[eacute]zia); and
    Recognizing that MCC wishes to help Mozambique implement a program 
to achieve the goal and objectives described herein (the ``Program'');
    The Parties hereby agree as follows:

Article 1. Goal and Objectives

Section 1.1 Compact Goal
    The goal of this Compact is to reduce poverty in Mozambique through 
economic growth.
Section 1.2 Program Objectives
    The objective of the Program (as further described in Annex I) (the 
``Program Objective'') is to increase the productive capacity of the 
population in selected provinces in northern Mozambique.
Section 1.3 Project Objectives
    The objectives of the Projects (as further described in Annex I) 
(collectively, the ``Project Objectives'' and each a ``Project 
Objective'') are to:
    (a) Increase the accessibility, reliability and quality of water 
and sanitation services;
    (b) Improve access to productive resources and markets;
    (c) Establish more efficient and secure access to land, 
particularly in the four provinces included in the Program; and
    (d) Improve productivity of coconut products and encourage 
diversification into other cash crop production.
    The Government will take all the steps necessary or appropriate to 
achieve the Program Objective and Project Objectives during the Compact 
Term (as defined in Section 7.4).

Article 2. Funding and Resources

Section 2.1 MCC Funding
    (a) MCC grants to the Government, under the terms of this Compact, 
an amount not to exceed Five Hundred Six Million, Nine Hundred Twenty-
Four Thousand, Fifty-Three United States Dollars (US$506,924,053) 
(``MCC Funding'') to help the Government implement the Program.
    (b) Annex II of this Compact describes the use of MCC Funding.
Section 2.2 Compact Implementation Funding
    (a) Of the total amount of MCC Funding, MCC will make up to Twenty-
Five Million, Three Hundred Forty-Six Thousand, Two Hundred United 
States Dollars (US$25,346,200) (``Compact Implementation Funding'') 
available to the Government under Section 609(g) of the Millennium 
Challenge Act of 2003 for activities which may include:
    (i) Fiscal and procurement administration activities;
    (ii) Administrative activities including start-up costs such as 
staff salaries and administrative support expenses such as rent, 
computers and other information technology or capital equipment;
    (iii) Baseline surveys for monitoring and evaluation;
    (iv) Additional work for feasibility studies and development of 
technical scopes; and
    (v) Other Compact implementation activities approved by MCC.
    (b) Notwithstanding anything to the contrary in this Compact, this 
Section 2.2 will provisionally apply, after MCC and the Government sign 
this Compact, without regard to whether this Compact has entered into 
force under Section 7.3.
    (c) Compact Implementation Funding is subject to (i) the 
limitations on the

[[Page 40931]]

use or treatment of MCC Funding set forth in Sections 2.6 and 2.7 as if 
such provisions were in full force and effect, and (ii) any other 
requirements and limitations as may be required by MCC in writing in 
accordance with this Compact, the Program and relevant legislation.
Section 2.3 Disbursement
    In accordance with this Compact and the Program Implementation 
Agreement (as defined in Section 3.1), MCC will disburse MCC Funding 
for expenditures incurred in furtherance of the Program (each instance, 
a ``Disbursement''). The proceeds of such Disbursements will be made 
available to the Government, at MCC's sole election, (a) by deposit to 
a bank account established by the Government and acceptable to MCC (a 
``Permitted Account'') or (b) through direct payment to a provider of 
goods, works or services under this Compact. MCC Funding may be 
expended only to cover Program expenditures as provided in this Compact 
and the Program Implementation Agreement.
Section 2.4 Interest
    The Government will pay to MCC any interest or other earnings that 
accrue on MCC Funding in accordance with the Program Implementation 
Agreement (including by directing such payments to the bank account 
outside Mozambique that MCC may from time to time indicate).
Section 2.5 Government Resources; Budget
    (a) The Government will provide all funds and other resources, and 
will take all actions, that are necessary to carry out the Government's 
responsibilities and obligations under this Compact.
    (b) The Government will use its best efforts during each year it 
receives MCC Funding to ensure that all MCC Funding it receives or is 
projected to receive in such year is fully accounted for in the annual 
budget of Mozambique on a multi-year basis.
    (c) The Government will not reduce the normal and expected 
resources that it would otherwise receive or budget from sources other 
than MCC for the activities contemplated under this Compact and the 
Program.
    (d) Unless the Government discloses otherwise to MCC in writing, 
MCC Funding will be in addition to the resources that the Government 
would otherwise receive or budget for the activities contemplated under 
this Compact and the Program.
Section 2.6 Limitations on the Use of MCC Funding
    The Government will ensure that MCC Funding will not be used for 
any purpose that would violate United States law or policy, as 
specified in this Compact or as further notified to the Government in 
writing or by posting on the MCC Web site at www.mcc.gov/implementation, including but not limited to the following purposes:
    (a) For assistance to, or training of, the military, police, 
militia, national guard or other quasi-military organization or unit;
    (b) For any activity that is likely to cause a substantial loss of 
United States jobs or a substantial displacement of United States 
production;
    (c) To undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard, 
where the phrase ``likely to cause a significant environmental, health, 
or safety hazard'' has the meaning set forth in environmental 
guidelines delivered by MCC to the Government or posted by MCC on its 
Web site at http://www.mcc.gov/implementation or otherwise publicly 
made available, as the guidelines may be amended from time to time (the 
``MCC Environmental Guidelines''); or
    (d) To pay for the performance of abortions as a method of family 
planning or to motivate or coerce any person to practice abortions, to 
pay for the performance of involuntary sterilizations as a method of 
family planning or to coerce or provide any financial incentive to any 
person to undergo sterilizations or to pay for any biomedical research 
which relates, in whole or in part, to methods of, or the performance 
of, abortions or involuntary sterilization as a means of family 
planning.
Section 2.7 Taxes
    (a) Unless the Parties otherwise specifically agree in writing, the 
Government will ensure that each of the following is free from the 
payment of any taxes, duties, levies, contributions or other comparable 
charges (``Taxes'') of or in Mozambique: (i) The Program; (ii) MCC 
Funding; (iii) interest or earnings on MCC Funding; (iv) any Project or 
activity implemented under the Program; (v) goods, works, services and 
other assets and activities under the Program or any Project; (vi) 
persons and entities that provide such goods, works, services and 
assets or perform such activities; and (vii) income, profits and 
payments with respect thereto. The Parties acknowledge and agree that 
the foregoing includes, inter alia, value added and other transfers, 
property and ad valorem items and import and export of goods (including 
for goods imported and re-exported for personal use).
    (b) Before any Disbursement, the Government and MCC must have 
entered into one or more agreements setting forth the mechanisms for 
implementing this Section 2.7, including (i) Waivers of certain filing 
and compliance requirements relating to Taxes and (ii) an agreement on 
exceptions to paragraph (a) above for (1) Taxes on and contributions 
for certain individuals who are nationals or residents of Mozambique; 
(2) Taxes other than transfer Taxes and import and export Taxes on 
certain entities that are constituted under the laws of Mozambique; and 
(3) fees or charges for services that are generally applicable in 
Mozambique, reasonable in amount and imposed on a non-discriminatory 
basis.

Article 3. Implementation

Section 3.1 Program Implementation Agreement
    The Government will implement the Program in accordance with this 
Compact and as further specified in an agreement to be entered into by 
MCC and the Government dealing with, among other matters, 
implementation arrangements, fiscal accountability, disbursement and 
use of MCC Funding and procurement (the ``Program Implementation 
Agreement'' or ``PIA'').
Section 3.2 Government Responsibilities
    (a) The Government has principal responsibility to oversee and 
manage the implementation of the Program.
    (b) With the prior written consent of MCC, the Government may 
designate an entity to implement some or all of the Government's 
obligations or to exercise any rights of the Government under this 
Compact or the PIA. Such a designation will not relieve the Government 
of any designated obligations and rights, for which the Government will 
retain full responsibility.
    (c) The Government will ensure that no law or regulation in 
Mozambique now or hereinafter in effect makes or will make unlawful or 
otherwise prevent or hinder the performance of any obligation under 
this Compact, the PIA or any other agreement related thereto or any 
transaction contemplated thereunder.
    (d) The Government will ensure that any assets or services funded 
in whole or in part (directly or indirectly) by MCC Funding will be 
used solely in furtherance of this Compact and the

[[Page 40932]]

Program unless otherwise agreed by MCC in writing.
Section 3.3 Policy Performance
    In addition to the specific policy and legal reform commitments 
identified in Annex I, the Government will seek to maintain and to 
improve its level of performance under the policy criteria identified 
in Section 607 of the Millennium Challenge Act of 2003 and the 
selection criteria and methodology used by MCC.
Section 3.4 Government Assurances
    The Government assures MCC that:
    (a) As of the date this Compact is signed by the Government, the 
information provided to MCC by or on behalf of the Government in the 
course of reaching agreement with MCC on this Compact is true, correct 
and complete in all material respects;
    (b) This Compact does not, and will not, conflict with any other 
international agreement or obligation of the Government or any of the 
laws of Mozambique; and
    (c) The Government will not invoke any of the provisions of its 
internal law to justify or excuse a failure to perform its duties or 
responsibilities under this Compact.
Section 3.5 Implementation Letters
    From time to time, MCC may provide information to the Government 
through implementation letters on the frequency, form or content of 
requests for Disbursements or on any other matter relating to MCC 
Funding, this Compact or implementation of the Program (each, an 
``Implementation Letter''). The Government will apply such information 
in implementing this Compact.
Section 3.6 Procurement
    The Government will ensure that the procurement of all goods, works 
and services by the Government or any Provider (as defined in Section 
3.7(c)) in furtherance of this Compact will be consistent with the 
procurement guidelines (the ``MCC Program Procurement Guidelines'') of 
which MCC will inform the Government in writing or by posting on the 
MCC Web site at http://www.mcc.gov/implementation, or otherwise make 
publicly available, as the guidelines may be amended from time to time, 
which MCC Program Procurement Guidelines will include, but will not be 
limited to, the following requirements:
    (a) Open, fair, and competitive procedures must be used in a 
transparent manner to solicit, award and administer contracts and to 
procure goods, works and services;
    (b) Solicitations for goods, works, and services must be based upon 
a clear and accurate description of the goods, works and services to be 
acquired;
    (c) Contracts must be awarded only to qualified contractors that 
have the capability and willingness to perform the contracts in 
accordance with their terms on a cost effective and timely basis; and
    (d) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
will be paid to procure goods, works and services.
Section 3.7 Records; Accounting; Covered Providers; Access
    (a) Government Books and Records. The Government will maintain, and 
will use its best efforts to ensure that all Covered Providers (as 
defined in subsection (c) below) maintain accounting books, records, 
documents and other evidence relating to this Compact adequate to show 
to MCC's satisfaction the use of all MCC Funding (``Compact Records''). 
In addition, the Government will furnish or cause to be furnished to 
MCC upon its request all such Compact Records.
    (b) Accounting. The Government will maintain, and will 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 MCC's 
prior written approval, 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 Mozambique. Compact Records must 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) Covered Provider. Unless the Parties agree otherwise in 
writing, a ``Provider'' is (i) any entity of the Government that 
receives or uses MCC Funding or any other Program asset in carrying out 
activities in furtherance of this Compact or (ii) any third party that 
receives at least US$50,000 in the aggregate of MCC Funding (other than 
as salary or compensation as an employee of an entity of the 
Government) during the Compact Term. A ``Covered Provider'' is (i) a 
non-United States Provider that receives (other than pursuant to a 
direct contract or agreement with MCC) US$300,000 or more of MCC 
Funding in any Government fiscal year or any other non-United States 
person or entity that receives, directly or indirectly, US$300,000 or 
more of MCC Funding from any Provider in such fiscal year, or (ii) any 
United States Provider that receives (other than pursuant to a direct 
contract or agreement with MCC) US$500,000 or more of MCC Funding in 
any Government fiscal year or any other United States person or entity 
that receives, directly or indirectly, US$500,000 or more of MCC 
Funding from any Provider in such fiscal year.
    (d) Access. Upon MCC's request, the Government, at all reasonable 
times, will permit, or cause to be permitted, authorized 
representatives of MCC, an authorized United States government 
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 the Government to conduct any 
assessment, review or evaluation of the Program, the opportunity to 
audit, review, evaluate or inspect facilities and activities funded in 
whole or in part by MCC Funding.
Section 3.8 Audits; Reviews
    (a) Government Audits. Except as the Parties may otherwise agree in 
writing, the Government will, on at least a semi-annual basis, conduct, 
or cause to be conducted, financial audits of all disbursements of MCC 
Funding covering the period from signing of this Compact until the 
earlier of the following December 31 or June 30 and covering each six-
month period thereafter ending December 31 and June 30, through the end 
of the Compact Term, in accordance with the terms of the Program 
Implementation Agreement. As requested by MCC in writing, the 
Government will use, or cause to be used, to conduct such audits an 
auditor approved by MCC and named on the list of local auditors 
approved by the Inspector General of the Millennium Challenge 
Corporation (the ``Inspector General'') or a United States-based 
certified public accounting firm selected in accordance with the 
``Guidelines for Financial Audits Contracted by MCA'' (the ``Audit 
Guidelines'') issued and revised from time to time by the Inspector 
General and posted on the MCC Web site at www.mcc.gov/implementation. 
Audits will be performed in accordance with the Audit Guidelines and be 
subject to quality assurance oversight by the Inspector General. An 
audit must be completed

[[Page 40933]]

and the audit report delivered to MCC no later than ninety (90) days 
after the first period to be audited and no later than ninety (90) days 
after each June 30 and December 31 thereafter, or such other period as 
the Parties may otherwise agree in writing.
    (b) Audits of United States Entities. The Government will ensure 
that agreements between the Government or any Provider, on the one 
hand, and a United States nonprofit organization, on the other hand, 
that are financed with MCC Funding state that the United States 
organization is subject to the applicable audit requirements contained 
in the United States Office of Management and Budget Circular A-133. 
The Government will ensure that agreements between the Government or 
any Provider, on the one hand, and a United States for-profit Covered 
Provider, on the other hand, that are financed with MCC Funding 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.
    (c) Corrective Actions. The Government will 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 the Government's 
records, and require each such Covered Provider to permit independent 
auditors to have access to its records and financial statements as 
necessary.
    (d) Audit by MCC. MCC will have the right to arrange for audits of 
the Government's use of MCC Funding.
    (e) 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 Annex II.

Article 4. Communications

Section 4.1 Communications
    Any document or communication required or submitted by either Party 
to the other under this Compact must be in writing and, except as 
otherwise agreed with MCC, in English. For this purpose, the address of 
each Party is set forth below.
    To MCC: Millennium Challenge Corporation, Attention: Vice President 
for Operations (with a copy to the Vice President and General Counsel), 
875 Fifteenth Street, NW., Washington, DC 20005, United States of 
America, Facsimile: (202) 521-3700, Telephone: (202) 521-3600, E-mail: 
[email protected] (Vice President for Operations), 
[email protected] (Vice President and General Counsel).
    To the Government: The Government of the Republic of Mozambique, 
Attention: The Honorable Minister, Ministry of Planning and 
Development, Av. Ahmed Sekou Tour[eacute] N. 21, Maputo, Mozambique, 
Facsimile: +258-21-495-463, Telephone: +258-21-492-268, E-mail: 
[email protected].
Section 4.2 Representatives
    For all purposes of this Compact, the Government will be 
represented by the individual holding the position of, or acting as, 
the Minister of the Ministry of Planning and Development of the 
Republic of Mozambique, and MCC will be represented by the individual 
holding the position of, or acting as, Vice President for Operations 
(each, a ``Principal Representative''), each of whom, by written notice 
to the other Party, may designate one or more additional 
representatives for all purposes other than signing amendments to this 
Compact. A Party may change its Principal Representative to a new 
representative that holds a position of equal or higher rank upon 
written notice to the other Party.
Section 4.3 Signatures
    With respect to all documents other than this Compact or an 
amendment to this Compact, a signature delivered by facsimile or 
electronic mail will be binding on the Party delivering such signature 
to the same extent as an original signature would be.

Article 5. Termination; Suspension; Refunds

Section 5.1 Termination; Suspension
    (a) Either Party may terminate this Compact in its entirety by 
giving the other Party thirty (30) days' written notice.
    (b) MCC may, immediately upon written notice to the Government, 
suspend or terminate this Compact or MCC Funding, in whole or in part, 
and any obligation related thereto, if MCC determines that any 
circumstance identified by MCC as a basis for suspension or termination 
(whether in writing to the Government or by posting on the MCC Web site 
at http://www.mcc.gov/implementation) has occurred, which circumstances 
include but are not limited to the following:
    (i) The Government fails to comply with its obligations under this 
Compact, the PIA or any other agreement or arrangement entered into by 
the Government in connection with this Compact or the Program;
    (ii) An event has occurred that MCC determines makes it improbable 
that the Program Objective or any of the Project Objectives will be 
achieved during the Compact Term or that the Government will be able to 
perform its obligations under this Compact;
    (iii) A use of MCC Funding or continued implementation of this 
Compact would violate applicable law or United States government 
policy, whether now or hereafter in effect;
    (iv) The Government or any other person or entity receiving MCC 
Funding or using assets acquired in whole or in part with MCC Funding 
is engaged in activities that are contrary to the national security 
interests of the United States;
    (v) An act has been committed or an omission or an event has 
occurred that would render Mozambique 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;
    (vi) The Government has engaged in a pattern of actions 
inconsistent with the criteria used to determine the eligibility of 
Mozambique for assistance under the Millennium Challenge Act of 2003; 
and
    (vii) The Government or another person or entity receiving MCC 
Funding or using assets acquired in whole or in part with MCC Funding 
is found to have been convicted of a narcotics offense or to have been 
engaged in drug trafficking.
    (c) All Disbursements will cease upon expiration, suspension, or 
termination of this Compact; provided, however, MCC Funding may be 
used, in compliance with this Compact and the PIA, to pay for (i) 
reasonable expenditures for goods, works or services that are properly 
incurred under or in furtherance of this Compact before expiration, 
suspension or termination of this Compact; and (ii) reasonable 
expenditures (including administrative expenses) properly incurred in 
connection with the winding up of the Program within 120 days after the 
expiration, suspension or termination of this Compact.
    (d) Subject to subsection (c) of this Section 5.1, upon the 
expiration, suspension or termination of this Compact, (i) any amounts 
of MCC Funding not disbursed by MCC to the Government will be 
automatically released from any obligation in connection with this 
Compact and (ii) any amounts of MCC Funding disbursed by MCC but not 
expended before the expiration, suspension or termination of

[[Page 40934]]

this Compact, plus accrued interest thereon will be returned to MCC 
within thirty (30) days after the Government receives MCC's request for 
such return; provided, however, that if this Compact is suspended or 
terminated in part, MCC may request a refund for only the amount of MCC 
Funding allocated to the suspended or terminated portion.
    (e) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact if MCC determines that the Government or other relevant 
person or entity has committed to correct each condition for which MCC 
Funding was suspended or terminated.
Section 5.2 Refunds; Violation
    (a) If any MCC Funding, any interest or earnings thereon, or any 
asset acquired in whole or in part with MCC Funding is used for any 
purpose in violation of the terms of this Compact, then MCC may require 
the Government to repay to MCC in United States Dollars the value of 
the misused MCC Funding, interest, earnings, or asset, plus interest 
within thirty (30) days after the Government's receipt of MCC's request 
for repayment. The Government must use national funds (and no assets of 
the Program) to make such payment.
    (b) Notwithstanding any other provision in this Compact or any 
other agreement to the contrary, MCC's right under this Section 5.2 for 
a refund will continue during the Compact Term and for a period of (i) 
five years thereafter or (ii) one year after MCC receives actual 
knowledge of such violation, whichever is later.
Section 5.3 Survival
    The Government's responsibilities under Sections 2.4, 2.6, 2.7, 
3.7, 3.8, 5.1(c), 5.1(d), 5.2 and 5.3 of this Compact will survive the 
expiration, suspension or termination of this Compact.

Article 6. Compact Annexes; Amendments; Governing Law

Section 6.1 Annexes
    Each annex attached hereto constitutes an integral part of this 
Compact.
Section 6.2 Inconsistencies
    In the event of any conflict or inconsistency between:
    (a) Any annex to this Compact and any of Articles 1 through 8, such 
Articles 1 through 8 will prevail; or
    (b) This Compact and any other agreement between the Parties 
regarding the Program, this Compact will prevail.
Section 6.3 Amendments
    The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives and subject to the respective 
domestic approval requirements to which this Compact was subject.
Section 6.4 Governing Law
    This Compact is an international agreement and as such will be 
governed by the principles of international law.
Section 6.5 Additional Instruments
    Any reference to activities, obligations or rights undertaken or 
existing under or in furtherance of this Compact or similar language 
will include activities, obligations and rights undertaken by, existing 
under or in furtherance of any agreement, document or instrument 
related to this Compact and the Program.
Section 6.6 References to MCC Web site
    Any reference in this Compact, the PIA or any other agreement 
entered into in connection with this Compact, to a document or 
information available on, or notified by posting on the MCC Web site 
will be deemed a reference to such document or information as updated 
or substituted on the MCC Web site from time to time.

Article 7. Entry Into Force

Section 7.1 Domestic Requirements
    The Government will take all steps necessary to ensure that (a) 
this Compact and the PIA and all of the provisions of this Compact and 
the PIA are valid and binding and are in full force and effect in 
Mozambique and (b) each such agreement along with any other agreement 
entered into in connection with this Compact to which the Government 
and MCC are parties, if stipulated in such agreement, will be given the 
status of an international agreement.
Section 7.2 Conditions Precedent
    Before this Compact enters into force:
    (a) The Government and MCC must have executed the PIA and it must 
be effective;
    (b) The Government will have delivered to MCC:
    (i) A certificate signed and dated by the Principal Representative 
of the Government, or such other duly authorized representative of the 
Government acceptable to MCC, that the Government has completed all of 
its domestic requirements in order that the requirements of Section 7.1 
have been satisfied;
    (ii) A legal opinion from the Attorney-General of Mozambique (or 
other legal opinion acceptable to MCC), in form and substance 
satisfactory to MCC; and
    (iii) Complete, certified copies of all decrees, legislation, 
regulations or other governmental documents relating to its domestic 
requirements for this Compact to enter into force and the satisfaction 
of Section 7.1, which MCC may post on its Web site or otherwise make 
publicly available; and
    (c) MCC must determine that after signature of this Compact, the 
Government has not engaged in any action or omission that is 
inconsistent with the eligibility criteria for MCC Funding.
Section 7.3 Date of Entry into Force
    This Compact will enter into force on the later of (a) the date of 
the last letter in an exchange of letters between the Principal 
Representatives confirming that each Party has completed its domestic 
requirements for entry into force of this Compact and (b) the date that 
all conditions set forth in Section 7.2 have been satisfied.
Section 7.4 Compact Term
    This Compact will remain in force for five years after its entry 
into force, unless terminated earlier under Section 5.1 (the ``Compact 
Term'').

Article 8. Additional Government Covenants

Section 8.1 Designated Entity
    The Government affirms that:
    (a) If and to the extent the Government elects to designate an 
entity to implement some or all of the Government's obligations or to 
exercise any rights of the Government under this Compact or the PIA 
(any such entity the ``Accountable Entity''), the Government will 
create such entity in accordance with the terms described in Annex I.
    (b) The Accountable Entity will have the authority to bind the 
Government to the full extent of the powers delegated thereto.
    (c) The Accountable Entity will be a public institution under 
Mozambican law with distinct legal personality and administrative and 
patrimonial autonomy within the meaning of Law n[deg] 9/2002 of 12 
February (the SISTAFE Law) and the regulations made thereunder. The 
Accountable Entity will have the power fully to control its financial 
management as required by the PIA and any related agreement 
notwithstanding anything to the contrary in the SISTAFE Law.

[[Page 40935]]

Section 8.2 Administrative Court
    The Government affirms that under the law of Mozambique:
    (a) This Compact is a ``cooperation agreement'' within the meaning 
of Article 4, paragraph 1, clause c of Law n[deg] 13/1997 of 10 July 
(the ``Administrative Court Prior Review Law'').
    (b) MCC Funding does not ``generate public expenditure'' within the 
meaning of Article 3 of the Administrative Court Prior Review Law.
Section 8.3 Certain Financial Practices
    (a) The Government affirms that MCC Funding does not comprise 
Government funds and will be held separately from and never commingled 
with Government funds.
    (b) The Government will make explicit provision in the law 
containing the annual governmental budget for Mozambique for an amount 
necessary and adequate to cover the value-added tax, customs duties and 
other tax obligations it assumes under this Compact, the PIA and any 
related agreement.
Section 8.4 Procurement
    The Minister of Finance of the Government will adopt the MCC 
Program Procurement Guidelines as the rules governing procurement using 
MCC Funding under the terms of Article 8, paragraph 2 of Decree n[deg] 
54/2005 of 13 December and will ensure that such guidelines are 
published in the official gazette of Mozambique, the Boletim da 
Republica.

    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact this 13th day of 
July, 2007.
    Done at Washington, DC.
    For Millennium Challenge Corporation, on behalf of the United 
States of America, Name: John J. Danilovich, Title: Chief Executive 
Officer.
    For the Government of the Republic of Mozambique, Name: Aiuba 
Cuereneia, Title: Minister of Planning and Development.

Annex I--Program Description

A. Overview

    This Annex I to this Compact describes the Program that MCC Funding 
will support in Mozambique during the Compact Term and the results to 
be achieved using MCC Funding.
    The Parties may agree to modify, amend, terminate or suspend the 
projects described herein (collectively, the ``Projects'') or to create 
a new project by written agreement signed by the Principal 
Representative of each Party without amending this Compact; provided, 
however, any such modification or amendment of a Project or creation of 
a new project does not (1) cause the amount of MCC Funding to exceed 
the aggregate amount specified in Section 2.1(a) of this Compact, or 
(2) cause the Government's responsibilities or contribution of 
resources to be less than specified in this Compact, or (3) extend the 
Compact Term.
1. Program Background and Context--Country Background and the Poverty 
Reduction Strategy
    With a population of 20 million people living in Mozambique, 
approximately 70 percent are located in rural areas. The urban 
population represents about 30 percent of the national total. Emerging 
from a devastating three-decade civil war in 1992, Mozambique has grown 
rapidly. Since 2000, its growth rate has stabilized between 7 and 8 
percent. As the Country Partnership Strategy (2007) notes, Mozambique 
has achieved the highest average growth rate in the past 10 years among 
the non-oil producing countries in Africa. Despite Mozambique's rapid 
growth, half of the Mozambican population still lives in poverty. 
Mozambique's next stage of economic recovery cannot succeed without 
well-functioning public services in its cities, given Mozambique's 
rapid urbanization.
    The Government's action plans for poverty reduction in the past 
decade, the Action Plan for the Reduction of Absolute Poverty 
(``PARPA''), PARPA I (2001-2005) and PARPA II (2005-2009) are based on 
the premise that broad-based economic growth is critical to poverty 
reduction. In PARPA I, lack of basic infrastructure services was 
identified as one of the major determinants of poverty in Mozambique, 
and it focused on infrastructure investments to meet the Government's 
ambitious growth objectives detailed in PARPA I. Building on the 
lessons learned from PARPA I, the Government outlines investment in 
human capital, including water and sanitation services, as one of the 
three pillars to meet its sustained growth agenda in PARPA II. As PARPA 
II notes, investing in water and sanitation services contributes to 
meeting not only the short-term objectives of the Millennium 
Development Goals, but also Mozambique's long-term growth and poverty 
reduction intentions.
2. Program Description
    (a) Compact Goal.
    This Compact's goal is to reduce poverty in Mozambique through 
economic growth, and increase economic opportunities for Mozambicans 
living in the northern region.
    (b) Program Objective.
    The Program Objective is to increase the productive capacity of the 
population in selected provinces in northern Mozambique with the 
intended impact of reducing the poverty rate, increasing household 
income, and reducing chronic malnutrition in the targeted districts.
    (c) Program Results (Expected Impact).
    The Program will increase regional Gross Domestic Product (GDP) 
across four targeted northern Mozambique provinces--Cabo Delgado, 
Nampula, Niassa and Zamb[eacute]zia--by nearly US$75,000,000 in 2015 
and US$180,000,000 in 2025. A projected 33 percent of the population of 
these provinces would have been poor in 2015 without the Program. The 
Program can be expected to reduce the projected poverty rate by over 7 
percent by 2015 and by over 16 percent by 2025. More than 270,000 
persons will have been lifted out of poverty by 2015 and 440,000 
persons will no longer be poor by 2025 as a result of Program 
implementation.
    (d) Beneficiaries Description.
    The Program is expected to benefit nearly 5.0 million persons by 
2015 both poor and non-poor, amounting to one half of the projected 
population in the affected four provinces.
    Over half of all the beneficiaries reside in Nampula, while the 
rest reside in the other provinces. Activities specifically targeted to 
rural areas account for around one third of Program beneficiaries, 
while those focused specifically on urban areas account for another one 
third. The roads activities benefit both rural and urban dwellers and 
account for the remaining beneficiaries. Approximately 20 percent of 
the households benefiting from the Program are headed by women. The 
Land Project (as defined below) alone assists 2.6 million persons, but 
many of these are also likely to benefit from road reconstruction, 
farmer income support, and improved water and sanitation. Thus, to 
avoid double-counting, the beneficiaries of the Land Project are not 
added to the 5.0 million person total.
3. Consultative Process
    Consultation has been an integral part of the development of the 
Program. For the initial proposal submitted by the Government in July 
2005, the Government conducted its MCC consultative process through two 
organizations, the Poverty Observatory, a group of civil society 
organizations

[[Page 40936]]

and non-governmental organizations (NGOs), and the Confederacao das 
Associacoes Economicas de Mocambique, a private sector trade 
association (the ``CTA''). The Poverty Observatory and CTA together 
represent the preponderance of NGOs, not-for-profit, and domestic for-
profit businesses in Mozambique.
    During the pre-Compact program preparation and definition process, 
ongoing consultation continued through various forms including: Input 
from a wide variety of stakeholders in the development of terms of 
reference for key consultants; information dissemination and exchange 
during kickoff sessions for the public of the key consultancies; and 
circulation of the interim and final reports of these key consultants. 
The Government also held informational sessions throughout this Compact 
development process with interested stakeholder groups, including 
national, provincial and municipal government representatives, private 
sector meetings, donor working groups and other interested parties. The 
Program will undergo further timely, participatory, and meaningful 
public consultation during the development of the environmental, 
social, and resettlement impact studies during implementation of the 
Program.

B. Water Supply and Sanitation Project

    The Water Supply and Sanitation Project (the ``WSS Project'') 
interventions include rural and urban water supply, sanitation and 
drainage, rehabilitation of the Nacala dam and reservoir, and capacity 
building and institutional strengthening for water sector entities. The 
objective of the WSS Project is to increase the accessibility, 
reliability, and quality of water and sanitation services. The WSS 
Project encompasses water supply and sanitation (including sewerage and 
drainage) in cities and towns and an extensive rural water supply 
program in three provinces. WSS Project activities address small rural 
communities and large provincial capitals--but will notably include a 
heretofore neglected market segment in Mozambique--small to mid-sized 
town water supply and sanitation. The WSS Project will reduce the 
onerous costs associated with the existing provision of water supply; 
increase the reliability of water service; and improve the health and 
productivity of individuals, households, and firms.
1. Background
    Lack of access to water and sanitation is a major barrier to growth 
and health, and this critical infrastructure is a major policy priority 
of the Government. Mozambique has one of the lowest levels of per-
capita water consumption in the world. With an average of less than 10 
liters per day, the country is far below global benchmarks. In 
addition, girls and women spend hours fetching water which leaves 
little time for child care, income-generating activities, or school 
attendance.
    Meeting the Millennium Development Goals is a major challenge for 
Mozambique as coverage levels for water and sanitation services would 
have to almost double for all categories by 2015. The Government 
estimates that it would need to at least double its sector investments 
in the next ten years in order to meet the Millennium Development Goals 
for water and sanitation. Cholera is endemic in major urban areas 
mainly due to inadequate sanitation and sewerage services, compounded 
by poor water supply services. This prevalence of cholera and other 
health impacts caused by poor sanitation also jeopardizes meeting the 
Millennium Development Goal of reducing infant and child mortality.
2. Summary of Project and Related Activities
    The WSS Project will improve access to safe, reliable water supply 
and sanitation services. This project will thereby increase 
productivity, reduce water-borne diseases--one of the causes of death 
in children under five--and specifically benefit women and girls.
    The WSS Project encompasses (a) water supply and sanitation 
services in three large cities and three mid-sized towns in the 
provinces of Zamb[eacute]zia, Nampula and Cabo Delgado and (b) a water 
supply program in Nampula and Cabo Delgado provinces covering rural 
areas and small towns. The water supply interventions will be divided 
into interventions in cities where water supply services are owned and 
managed by the Fundo de Investimento e Patrimonio do Abasticemento de 
Agua (FIPAG) and cities where they will be managed by a new Ministry of 
Public Works and Housing agency, the Asset Management Unit (AMU). The 
AMU will be created by the Government consistent with its policies and 
with the support of the World Bank and MCC as its key development 
partners by the end of March 2009. The AMU will also manage the 
implementation of the sanitation program.
    The water supply interventions will focus on the sustainable 
utilization of available water resources, maximizing connections to the 
network, control of ``unaccounted for water,'' and will be designed 
based on results of complete feasibility studies.
    As a means of complementing the enhanced water supply, the WSS 
Project will improve sanitation systems by investigating feasible 
opportunities to expand wastewater treatment, improve the piped sewage 
network, and increase the usage of septic systems in the urban centers 
and latrines in the peri-urban areas. In addition, storm drains will be 
rehabilitated or added to improve drainage efficiency which protects 
urban land usage.
    The rural water supply component is developed from the Government's 
policy of demand-responsive planning, which is predicated on (a) 
community articulation of demand and (b) local responsibility for 
operations and maintenance. Taking into consideration the lack of local 
capacity and concerns over the availability of spare parts and 
specialized expertise to carry out complex repairs in rural areas, the 
implementation plan will include procurements of well-construction 
services in small lots in order to promote the development of local 
construction and repair businesses.
    The WSS Project includes the following activities:
    (a) Improve water supply networks of Nampula, Pemba, and Quelimane, 
currently operated by FIPAG.
    (b) Build the capacity of local institutions to develop policies 
and manage programs.
    (c) Construct or rehabilitate water supply systems in Montepuez and 
Monapo.
    (d) Construct or rehabilitate water supply and sanitation systems 
in Nacala, Gurue, and Mocuba under the management of AMU.
    (e) Repair and raise the Nacala Dam and reservoir, the main bulk 
water source for a city of 290,000 people.
    (f) Install and rehabilitate approximately 600 rural water supply 
points in Nampula and Cabo Delgado provinces.
3. Beneficiaries
    The WSS Project is expected to assist some 1.9 million 
beneficiaries by 2015 through improved water systems, wastewater 
disposal and storm water drainage. Among the beneficiaries impacted by 
the WSS Project by 2015, around one third is expected to be poor. 
Nearly 1.6 beneficiaries in six large cities--Gurue, Mocuba, Nacala, 
Nampula, Pemba and Quelimane--will have improved infrastructure from 
both water supply and sanitation interventions. Virtually the entire 
population of each city will be covered by effective storm water 
drainage

[[Page 40937]]

improvements. New beneficiaries covered by water systems will vary 
depending upon existing coverage, but, in general, water system gains 
are considerable with coverage rates relative to projected populations 
in 2015 reaching from 40 to 70 percent.
    Economic benefits accrue through improved water and sanitation for 
a number of reasons. Households with access to house and yard 
connections will pay less for the water they consume and, because of 
easier access, are likely to use more water for cooking and bathing, 
thereby improving health outcomes. In particular, with better access to 
water and sanitation, children will benefit from reductions in 
morbidity and mortality from diarrhea and malaria. Adults will spend 
less of their time incapacitated or caring for sick children. Further, 
women will have more time to spend in productive activities when their 
sources of water are closer to home, either through house connections 
or neighborhood water points.
    Improved water supplies also will be provided to 300,000 
beneficiaries through small piped systems and rural water-points. These 
improvements will reduce the incidence of disabling diarrhea and save 
time for women that can be spent on more productive activities. Other 
benefits that are not easily measured include improved opportunities 
for girls to go to school, rather than assisting their mothers in 
household tasks, and reductions in other diseases such as cholera.
4. Sustainability
    The WSS Project will be sustainable if it is economically 
justified, financially sound, and technologically appropriate and 
includes the appropriate institutional arrangements.
Institutional Sustainability
    For urban water, the WSS Project will help promote the sector's 
evolution and solidify its institutions. The WSS Project will work in 
collaboration with the Water Services and Institutional Support Project 
(WASIS) funded by the World Bank to mitigate as many serious 
institutional risks as possible. In large cities presently under the 
responsibility of FIPAG, the WSS Project will facilitate graduating 
from the World Bank's successfully piloted management contract 
structure to leases that entail greater risk/reward for private 
operators. For smaller cities and towns, the MCC program will pilot and 
roll out an AMU based on the delegated management model. The AMU will 
be empowered to manage assets and to plan and oversee the execution of 
investments. The AMU will assist in the engagement of third-party 
operators for these smaller cities and towns through contracts with the 
Provincial Water Boards established to contract services on behalf of 
their constituent municipalities. The AMU addresses the institutional 
capacity gap for smaller cities and market towns, and will be 
established in Zamb[eacute]zia, Nampula, and Cabo Delgado where the WSS 
Project is focused.
Financial Sustainability
    Design and planning of water supply and sanitation services for the 
WSS Project will be based on the demand-responsive (rather than a 
supply-led) approach and will be based on consumer preferences and 
willingness to pay. In the FIPAG cities, tariffs will be set to ensure 
full cost recovery. In the AMU municipalities and the rural areas, 
tariffs will be set to recover, at a minimum, 100 percent of operations 
and maintenance (including the replacement of all assets with a useful 
economic life of less than seven years) after a period of tariff 
adjustments, but no later than 2015.
Environmental and Social Sustainability
    The key to ensuring environmental and social sustainability of the 
WSS Project is ongoing public consultation. MCA-Mozambique (described 
below) will ensure that comprehensive public consultation plans are 
developed such that WSS Project stakeholders, including women and 
vulnerable groups, are afforded consultation and an opportunity to 
provide their inputs to WSS Project design and implementation. MCA-
Mozambique will also take steps to ensure that the interests and views 
of women and vulnerable groups are represented in any of the provincial 
or community water boards or other entities responsible for advising on 
design, ownership, management, and operation of water and sanitation 
systems funded under this Compact.
    MCA-Mozambique 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 Stakeholders Forums (as defined in Section F of this 
Annex I) will incorporate representatives of civil society that will 
serve as a link between local NGOs and program managers.
5. Environmental and Social Issues
    Overall, the WSS Project is classified as ``Category A'' according 
to MCC Environmental Guidelines due to potential social and 
environmental impacts associated with several Project activities, 
including the rehabilitation of a large dam and the construction of 
municipal sanitation systems and off-site wastewater treatment 
facilities. However, a number of the individual Project activities will 
be classified ``Category B'' and, as such, may not require full 
Environmental Impact Assessments (``EIAs'') as defined in the MCC 
Environmental Guidelines. All Project activities will require 
Environmental Management Plans (``EMPs'') and, as applicable, Project 
activity-specific Resettlement Action Plans (``RAPs'') will be 
developed and implemented in compliance with the World Bank Policy on 
Involuntary Resettlement (OP 4.12) prior to the start of construction 
activities.
Environmental and Social Impacts
    The rehabilitation of the Nacala Dam (considered a ``large'' dam 
according to MCC Environmental Guidelines) has the potential for 
resettlement, alteration of river flows and aquatic habitat, and the 
significant but temporary reduction of the region's primary source of 
potable water during re-construction and will thus require a full EIA. 
Although the construction or rehabilitation of sanitation systems will 
provide significant positive environmental benefits, the scope of 
potential negative environmental and social impacts that may arise from 
constructing off-site wastewater treatment facilities and potential 
pollution problems related to discharges and operation of the systems 
necessitate preparation of an EIA. Investments in expanding and 
improving water supply networks have the potential for (a) limited 
resettlement, (b) rehabilitation of several small dams, (c) over-
extraction of surface and/or groundwater resources, and (d) project 
proximity to important cultural, natural, and archeological resources. 
The rural water supply points activity may have potentially adverse 
impacts resulting from limited resettlement and over-extraction of 
ground water resources.
    Potential direct, indirect, induced, and cumulative environmental 
impacts of each of the WSS Project activities will be further examined 
through the EIAs and environmental assessments that will be conducted 
during the feasibility and design phase for each WSS Project activity. 
For the water supply activities, MCA-Mozambique will ensure that 
feasibility studies include efforts to identify the most appropriate 
and environmentally sustainable water sources to meet future demand. In 
addition, MCA-Mozambique will ensure that for all WSS Project 
activities EMPs are developed, implemented and

[[Page 40938]]

monitored in accordance with the provisions of this Compact and any 
relevant supplemental agreements. MCA-Mozambique will ensure that 
environmental and social assessment responsibilities are included in 
the bidding documents for the design or supervisory firms, construction 
firms, independent technical auditing firms and any project management 
advisors, as needed. Disbursement of MCC Funding for the WSS Project 
will be contingent upon issuance of environmental licenses, as needed, 
or any other required permits. WSS Project activities, for which MCC 
disburses funds, should be consistent with the outcomes of the relevant 
EIAs, MCC Environmental Guidelines, and in compliance with applicable 
Mozambique environmental law and regulations.
    To maximize the positive social impacts of the WSS Project and 
ensure compliance with MCC's Gender Policy, MCA-Mozambique is required 
to (a) develop a gender integration plan that includes approaches for 
meaningful and inclusive consultations with women and vulnerable/
underrepresented groups; Project activity-specific gender analyses, as 
appropriate; and strategies for incorporating findings of the gender 
analyses into final Project designs; and (b) ensure that final Project 
activity designs are consistent with and incorporate the outcomes of 
the gender integration plan.
Environmental Permitting and Oversight
    Through this Compact MCC has the option of providing a capacity 
building grant to the Ministry of Coordination on Environment 
(``MICOA'') to facilitate their ability to respond to the increased 
workload arising from the Government's implementation of this Compact. 
This assistance would enhance MICOA's ability to, inter alia, 
adequately review all Compact-related environmental studies; issue 
environmental permits on a timely basis as provided in Mozambique 
environmental law and regulations; and hire, train and appropriately 
resource additional staff, as needed, in the provincial offices to 
carry-out effective environmental oversight and auditing of the 
implementation of Compact Projects.
6. Consultative Process
    AMU operation is envisioned to have strong municipal representation 
through the creation of functioning Provincial Water Boards, and 
represents the Government's preferred alternative to delegate the 
management of water supply and sanitation in towns and smaller cities. 
This representative structure for municipal services was the product of 
consultation and discussion, including forums to solicit input from 
stakeholders.
7. Donor Coordination
    In developing the WSS Project, MCC participated in numerous donor 
meetings to explain and receive comments on the Government proposal as 
it changed over time. Through meetings with the Water Donors Working 
Group and the Municipal Development Working Group, MCC was able to 
gather information on how the WSS Project will fit into the planned 
activities of other donors. The geographical focus of the WSS Project 
complements the other water sector interventions financed by other 
donors. The institutional development activities funded by MCC and the 
World Bank will facilitate future operations by the Government and 
development partners in the sector.
    Successful execution of the WSS Project requires close coordination 
with other donors and actors in the water sector. The Government and 
the Water Donors Working Group are developing a Rural Water Supply 
Sector Wide Approach and are beginning the process for an Urban Water 
Strategy and Sanitation Strategy (as discussed below). The Government 
through the WSS Project will work closely with the World Bank's WASIS 
project, which will support institutional development of the AMU and 
the Provincial Water Boards.
    While United States Agency for International Development (USAID) is 
not directly active in the Water Sector Working Group it does 
participate in the Municipal Development Working Group and is active in 
health related issues, both of which are strongly linked to water 
supply and sanitation. MCC has coordinated with the USAID Mission in 
Maputo and with the Global Health Bureau in Washington. Although USAID 
will not be directly involved in the implementation of the WSS Project, 
close coordination will be maintained to ensure synergies between 
existing and future activities and to capitalize on USAID's long term 
in-country presence.
8. Policy, Legal and Regulatory Reforms
    In order to reach the full benefits of the WSS Project:
    (a) Urban Water Strategy. The Government agrees to finalize an 
Urban Water Strategy, which will be vetted and agreed to by the major 
Government stakeholders (Dire[ccedil]ao Nacional de Agua (DNA), Fundo 
de Investimento e Patrimonio do Abastecimento Auga- Water Supply 
Investment Fund (FIPAG), Conselho de Regula[ccedil]ao de Agua (National 
Regulatory Authority) (CRA), Ministerio da Administra[ccedil]ao Estatal 
(Ministry of State Administration (MAE), and others) and have broad 
consultation with the major water sector donors, as set out in the WSS 
Project work plans.
    (b) Sanitation Strategy. The Government agrees to finalize a 
Sanitation Strategy, which will be vetted and agreed to by the major 
Government stakeholders (DNA, CRA, MAE, and others) and have 
consultation with the major water and sanitation sector donors, as set 
out in the WSS Project work plans.
    (c) Creation of the Asset Management Unit. The Government will 
create an AMU according to the criteria set out in the PIA in the form 
of conditions to Disbursements of MCC Funding.
    (d) Expansion of CRA. The Government agrees to expand the 
regulatory authority of CRA to cover delegated management under the AMU 
for both water supply and sanitation, in addition to undertaking other 
legal or regulatory measures as described in the PIA in the form of 
conditions to Disbursements of MCC Funding.
    (e) Operation and Maintenance Costs for Sanitation. The Government 
agrees to develop the procedures to incorporate the operation and 
maintenance costs for the sanitation activities into the FIPAG's water 
supply billing.
    (f) Rural Water Supply Strategy. The Government will create a 
public and publishable Rural Water Supply Implementation Manual 
(MIPAR).

C. Roads Project

    The roads project interventions include key segments of the Estrada 
Nacional/National Route 1 (``N1'') in Zamb[eacute]zia, Nampula and Cabo 
Delgado Provinces (the ``Roads Project'').
1. Background
    Two-thirds of Mozambique's population depend on agriculture (and 
out of these about 90 percent on subsistence agriculture) for their 
livelihood. The cash crop sector is in a reconstruction stage and is 
experiencing development problems, especially the cashew sector. Other 
planted cash crops are sugar cane, tea, tobacco, and coconut. The 
importance of roads in agriculture is highlighted in the World Bank's 
Mozambique Agriculture Strategy, 2006, which notes that ``Rebuilding 
roads and bridges is now a priority and a necessary condition for any 
growth in the agriculture sector.''
    Extraction of timber is limited because of lack of infrastructure 
including poor road conditions but has

[[Page 40939]]

a high development potential due to the richness of high quality timber 
species. Fisheries, particularly shrimp and prawn, are of importance, 
with a high potential for production increases. Mozambique has 
considerable mineral resources, such as coal, tantalite, ilmenite, 
graphite, iron ore, bauxite, salt, and potentially developable 
resources such as gold, petroleum, and gas. All of these sectors depend 
upon reliable transportation networks and roads in particular.
    The Administrac[atilde]o Nacional de Estradas (ANE) and the Fundo 
de Estradas, an independent agency that manages road maintenance 
funding (the ``Road Fund''), prepared a Road Sector Strategy 2007-2011 
(``RSS'') report. That strategy lays out the Government's plan to 
enhance, improve, and preserve the classified road network of the 
country.
    The RSS provides the broad framework for the Government's road 
sector development for the entire country. The Government and MCC 
worked together to identify appropriate investments in the provinces of 
the Roads Project based upon the strategic work of the Government under 
an MCC grant and through other donors' efforts.
2. Summary of Project and Related Activities
    The objective of the Roads Project is to improve access to markets, 
resources, and services; reduce transport costs for the private sector 
to facilitate investment and commercial traffic; expand connectivity 
across the northern region and down towards the southern half of the 
country; and increase public transport access for individuals to take 
advantage of job and other economic opportunities.
    It is planned that the Roads Project will rehabilitate 491 
kilometers of high-priority roads in three (3) provinces. The road 
segments will include Rio Lurio--Metoro in Cabo Delgado (74 
kilometers), Namialo--Rio Lurio (148 kilometers) and Nampula--Rio 
Ligonha (102 kilometers) in Nampula, and Nicoadala--Chimuara (167 
kilometers) in Zamb[eacute]zia.
    Specifically, MCC Funding for the Roads Project will support the 
following:
    (a) Design, environmental assessment, as needed (to include, if 
necessary, supplemental EIAs), and construction activities for the 
improvement of the N1;
    (b) Implementation of environmental and social mitigation measures 
as identified in the EIA, or as otherwise may be appropriate, to 
include compensation for physical and economic displacement of 
individuals, residences and businesses affected by such rehabilitation 
and construction, consistent with the World Bank's Operational Policy 
on Involuntary Resettlement (OP 4.12), and implementation of HIV/AIDS 
awareness plans;
    (c) Design and construction of drainage structures, as may be 
required;
    (d) Design and construction of all necessary new bridges and 
rehabilitation of existing bridge structures, as may be required;
    (e) Posting of signage and incorporating other safety improvements; 
and
    (f) Project management, supervision and auditing of such 
improvements and upgrades.
3. Beneficiaries
    In total, by 2015, nearly 2.3 million beneficiaries in districts 
adjoining the roads will have improved access in the three provinces 
affected. Over one third of those beneficiaries are likely to be poor. 
More than 60 percent of the beneficiaries are in Nampula; somewhat less 
than 40 percent are in the other two provinces. The beneficiaries in 
Cabo Delgado are proportional to population, while relatively fewer 
beneficiaries are in Zamb[eacute]zia. Benefits will accrue to vehicle 
users on the rehabilitated and resurfaced roads as vehicle operating 
costs go down, and time spent in travel is reduced with vehicles 
traveling safely at higher speeds. In addition, road improvements will 
induce additional growth in traffic as better roads make transportation 
more affordable for agriculture, industry and commerce. These benefits 
should result in reductions in the prices of goods and improvement in 
farm-gate prices if savings in fuel and other vehicle operating costs 
are passed on to producers and consumers. It is also expected that bus 
operations will become more efficient, improving access to public 
transportation. This should make it easier for the population to secure 
access to health, education, and employment. Over half of the 
population is of working age and will be able to take advantage of 
improved employment opportunities.
4. Sustainability
    Sustainability on the Roads Project is dependent on three factors. 
First, the establishment of functional provincial ANE offices will be 
crucial, since road maintenance will largely be implemented by such 
offices. Secondly, the Programa Integrado do Sector de Estradas 
(``PRISE'') is also critical to sustainability, because this sector-
wide approach for the road sector is designed to support a coherent 
Mozambican-owned and led road program, which should be equipped to 
plan, finance, implement, monitor and evaluate the road sector. Third, 
the Road Fund established by the Government has been designed to manage 
the financial resources intended for the road sector and to allocate 
the resources for the maintenance of various categories of roads. The 
Road Fund also has responsibility for road sector monitoring and 
evaluation.
Environmental and Social Sustainability
    The key to ensuring environmental and social sustainability of the 
Roads Project is ongoing public consultation. MCA-Mozambique will 
ensure that comprehensive public consultation plans are developed such 
that Roads Project stakeholders, including women and vulnerable groups, 
are afforded consultation and an opportunity to provide their inputs to 
Roads Project design and implementation. MCA-Mozambique 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 Stakeholders 
Forums will incorporate representatives of civil society that will 
serve as a link between local NGOs and program managers.
5. Environmental and Social Issues
    The Roads Project is classified as ``Category B'' according to the 
MCC Environmental Guidelines given the potential for: (a) Increased 
deforestation and related flooding; (b) resettlement; and (c) increased 
human trafficking and disease transmission, including HIV/AIDS, along 
the routes to be upgraded. All Roads Project activities will require 
environmental assessments, EMPs, and, as applicable, Road-specific RAPs 
that will be developed and implemented in compliance with the World 
Bank Policy on Involuntary Resettlement (OP 4.12) prior to the start of 
construction activities.
Environmental and Social Impacts
    It is unlikely that the proposed Roads Project activities will 
result in any significant negative environmental impacts given that the 
Roads Project involves the rehabilitation and paving of existing roads 
and not the construction of new roads. However, the potential direct, 
indirect, induced, and cumulative environmental impacts of the Roads 
Project activities will be further examined through the execution of 
environmental assessments that will be conducted during the feasibility 
and design phase of the Roads Project. In

[[Page 40940]]

addition, MCA-Mozambique will ensure that EMPs are developed, 
implemented and monitored during the project in accordance with the 
provisions of this Compact and any relevant supplemental agreements. 
MCA-Mozambique will ensure that environmental and social assessment 
responsibilities are included in the bidding documents for the design 
or supervisory firms, construction firms, independent technical 
auditing firms and any project management advisors, as needed. 
Disbursement of MCC Funding for the Roads Project will be contingent 
upon issuance of environmental licenses, as needed, or any other 
required permits. Roads Project activities, for which MCC disburses 
funds, should be consistent with the outcomes of the relevant 
environmental assessments, MCC Environmental Guidelines, and in 
compliance with applicable Mozambique environmental law and 
regulations.
    Given the strong evidence linking transport routes to the spread of 
HIV/AIDS, MCA-Mozambique will also develop an action plan for 
incorporating sustainable and well-targeted HIV/AIDS awareness programs 
into all phases of road works implementation. To help address concerns 
that the expansion/upgrade of the road network in northern Mozambique 
does not exacerbate human trafficking problems in the region by opening 
up or improving routes used by traffickers, MCA-Mozambique will develop 
an action plan for incorporating targeted anti-trafficking in persons 
awareness programs into the execution of road activities.
    To maximize the positive social impacts of the Roads Project and 
ensure compliance with MCC's Gender Policy, MCA-Mozambique is required 
to (a) develop a gender integration plan that includes approaches for 
meaningful and inclusive consultations with women and other vulnerable/
underrepresented groups; a Project-specific gender analysis, as 
appropriate; and strategies for incorporating findings of the gender 
analysis into final Project designs; and (b) ensure that final Project 
activity designs are consistent with and incorporate the outcomes of 
the gender integration plan.
Environmental Permitting and Oversight
    Through this Compact MCC has the option of providing a capacity 
building grant to the MICOA to facilitate their ability to respond to 
the increased workload arising from the Government's implementation of 
this Compact. This assistance would enhance MICOA's ability to, inter 
alia, adequately review all Compact-related environmental studies; 
issue environmental permits on a timely basis as provided in Mozambique 
environmental law and regulations; and hire, train, and appropriately 
resource additional staff in the provincial offices to carry-out 
effective environmental oversight and auditing of the implementation of 
Compact projects.
6. Consultative Process
    In addition to the process mentioned in the WSS Project section for 
the PARPA, the Government, in developing the PRISE, consulted a wide 
range of stakeholders. The consultative process was timely, meaningful, 
and participatory. It involved three different methods of obtaining 
information, including: (a) A formal survey among donors and road 
sector professionals; (b) consultations with provincial authorities; 
and (c) focus groups with road users, government officials, and other 
stakeholders. The stakeholder consultations included provincial 
consultations with provincial government leaders, provincial road 
authorities, directors of public works, ANE provincial delegates, 
provincial roads consultants, and donors. They also included 18 focus 
groups which were comprised of contractors, public servants, 
agricultural bodies, tourism operators, transporters and road users, 
public transport passengers, and private sector non-transporters.
7. Donor Coordination
    In developing the Roads Project, MCC held coordination meetings 
with many stakeholders in the donor community. MCC participated 
actively in the planning meetings for the PRISE and, since November 
2005, attended the Road Sector Donors meetings whenever MCC 
representatives were in Mozambique. The interventions financed by other 
entities do not conflict with the interventions of the Roads Project; 
they contribute to create a more comprehensive road network by 
incorporating roads that connect to the northern sections of the N1 
that will be improved.
    Donors with major commitments and experience in the road sector 
include: European Union, World Bank, Japan, the Swedish International 
Development Cooperation Agency, the African Development Bank, Agence 
Fran[ccedil]aise de D[eacute]veloppement, the International Fund for 
Agricultural Development, Irish Aid, Italian Cooperation, Germany's 
Kreditanstalt f[uuml]r Wiederaufbau, USAID, the United Kingdom's 
Department for International Development (DFID), the Danish 
International Development Agency, the Norwegian Agency for Development 
Cooperation, the Arab Bank for Economic Development in Africa, the 
Islamic Development Bank, the Nordic Development Fund, and the 
Organization of Petroleum Exporting Countries' Overseas Fund for 
International Development.
    USAID is involved with the Roads Sector Working Group and has 
historically provided technical assistance and investments in the rural 
road network. MCC has coordinated with the USAID Mission in Maputo. 
Although USAID will not be directly involved in the implementation of 
the Roads Project, close coordination will be maintained to ensure 
synergies between existing and future activities and to capitalize on 
USAID's long-term in-country presence.
8. Policy, Legal and Regulatory Reforms
    In order to reach the full benefits of the Roads Project:
    (a) The Government will ensure compliance of the roles and 
responsibilities of the Road Fund and ANE, as set out in the PIA in the 
form of conditions to Disbursement of MCC Funding.
    (b) The Government will undertake the necessary policies to ensure 
that they continue to meet all of the PRISE Performance Assessment 
Framework indicators.
    (c) The Government will undertake a program to ensure periodic 
maintenance of the entire paved road system.

D. Land Tenure Services Project

1. Background
    Land is an important asset for income generation and wealth 
creation. Land has been at the center of a long-standing debate about 
different choices and visions for growth in rural areas, and is of 
increasing importance to urban development as well. In 1997 Mozambique 
adopted a new legal framework on land tenure aiming to address 
equitable access to land tenure security for local communities and 
private sector including recognition of customary rights. This new 
legal setup has been recognized by a broad range of actors as a good 
policy and legal framework. However, implementation of this framework 
has been slow and requires an efficient land administration system to 
play the primary role in increasing land tenure security and improving 
access to land, thereby enabling the use of this asset most effectively 
for economic growth.
    On one hand, the lack of simple, fair and clear procedures for 
acquiring and

[[Page 40941]]

transferring rights to land is a constraining factor for private sector 
investment. On the other hand, there have been concerns about improving 
and securing local community and small farmer land-use rights. As 
Mozambique has moved on from post-war reconstruction toward a market-
based economy, there is an increasing demand for land access and for 
issuance of registered titles to land rights. This is placing increased 
pressure on the land administration services, which are already limited 
in their ability to effectively implement the existing legislation.
    The Land Tenure Services Project (the ``Land Project'') will work 
on improving policy, upgrading the public land administration agencies 
(the title registry and cadastre), and facilitating site-specific land 
access. These three main pillars will address concerns widely shared 
across private sector, the Government, and civil society with solutions 
that bring together their diverse perspectives. The benefits will reach 
private sector and local communities in the four selected provinces. 
The policy work and precedent set by the investments made in northern 
Mozambique will have a national impact, thereby contributing to an 
improved investment climate in the country and broader participation in 
the rural economy. The Land Project will enable people to increase 
their incomes and wealth as: (a) Risk and transactions costs are 
reduced; and (b) more secure access to land induces increased 
investment and more productive land uses.
2. Summary of Project and Related Activities
    The objective of the Land Project is to establish more efficient 
and secure access to land particularly in the four provinces included 
in the Program. The Land Project will support the unified advance by 
the Government and stakeholders on both policy development and its 
implementation. This will enable the translation of local and 
international best practices into an improved policy and regulatory 
framework. At the same time, the Land Project will help specific 
beneficiaries meet their immediate needs for registered land rights and 
better access to land for investment.
    The Land Project is comprised of three mutually reinforcing 
activity areas: (a) Support for an improved policy environment, 
including addressing implementation problems for the existing land law 
and engaging in regulatory review to improve upon it (the ``Policy 
Activity''); (b) building the institutional capacity to implement 
policies and provide quality public land-related services (the 
``Capacity Building Activity''); and (c) facilitating access to land 
use by helping people and business with (i) clear information on land 
rights and access; (ii) resolution of conflict with more predictable 
and speedy resolution of land and commercial disputes--which in turn 
creates better conditions for investment and business development; and 
(iii) registering their grants of land use (land titles to long-term or 
perpetual-use rights) (the ``Site Specific Activity'').
(a) Land Policy Monitoring (the Policy Activity)
    The Land Law adopted in Mozambique in 1997 made significant 
improvements to the legal, institutional and technical framework for 
providing more secure land use rights and access to land for all groups 
in society. However, land policy today is also under stress due to the 
implications of having only partially implemented this framework. These 
two trends suggest that Mozambique stands to significantly benefit from 
a participatory engagement in monitoring progress; development of a 
new, coherent vision that links together all levels of responsibility 
and capacity for the provision of land services; and, the pursuit of an 
agenda of regulatory and administrative change. Additionally, an 
aggressive approach to non-judicial dispute resolution (conciliation, 
mediation and arbitration) as well as legal professional training and 
public education about land administration and land rights is important 
to the transformational goals of the Land Project. Land tenure disputes 
are plentiful, yet, there are few sources of legal support for rural 
people. Even private enterprises find it difficult to access high 
quality legal services related to land issues. The Policy Activity will 
help address these issues.
    Specifically, MCC Funding will support the following five sub-
activities under the Policy Activity: (i) The further development of a 
national land administration vision and a coherent implementation 
strategy based on a needs assessment that will examine regulations, 
administrative processes, information systems, institutional structure, 
and human resources; (ii) the provision of technical and logistical 
support for a process to assess and monitor progress on land 
legislation, in coordination with the Land Policy Consultative Forum 
created with support from the Land Project; (iii) the development and 
implementation of a broad campaign of public education, outreach and 
awareness raising of non-judicial dispute resolution methods with 
partners, including but not limited to Centro de Arbitragem, 
Concilia[ccedil][atilde]o e Media[ccedil][atilde]o, as effective cost 
and time-saving mechanisms to resolve disputes; (iv) investment in 
expanding an on-going program for legal and judicial training, training 
for mediators and arbitrators, studies and advocacy of the Legal and 
Judicial Training Center (``CFJJ''), as well as developing new 
curriculum on mediation and arbitration training for CFJJ's paralegal 
students working in the northern provinces on commercial and land 
issues; and (v) provision of advisory services, including international 
best-practice knowledge transfer, to the National Directorate of Lands 
and Forests.
(b) Land Administration Capacity Building (the Capacity Building 
Activity)
    The institutional capacity to implement and enforce the present 
land law and its regulations and to provide high quality efficient 
services to clients is limited. Limitations include procedural 
complexity, insufficiently trained personnel and inadequate 
information, communications and profession-specific technology access 
at the national, regional and local offices. Addressing these 
limitations to establish an effective land registry system will yield 
more transparent, reliable and faster processes for accessing land and 
meet--as well as further motivate--a growing demand for formal land 
rights registration. This, in turn, will improve the investment climate 
while ensuring security of tenure for land-holding households and local 
communities. At the same time, while allowing for more affordable 
service fees, these improvements will generate the revenue base to 
sustain high quality services over time. At the municipal level, 
effective land administration capacity will reinforce decentralization 
by bolstering the information base for investment and fiscal planning. 
Under the Capacity Building Activity, MCC Funding will support 
investments and reform processes that will go a long way toward 
strengthening public land administration services.
    Specifically, MCC Funding will support the following intervention 
areas: (i) Implementation of a comprehensive approach to professional 
development and training (including in local requirements and 
international best practices in cadastral and registration information 
systems, surveying and titling procedures, land law, and other topics) 
at the national, provincial and local levels, thereby increasing 
knowledge and awareness of

[[Page 40942]]

land tenure issues, land records management and surveying techniques, 
and providing a better understanding of development trends in land 
policy and in the demand for their services; (ii) the further 
development of the National Land Information System (LIMS), which was 
first funded by the Italian government but still requires strategic 
planning, final design and completion of implementation at the 
provincial level; (iii) investment in and technical assistance to the 
upgrading of facilities for four provincial and selected district land 
service offices; (iv) investment in and technical assistance for 
cadastral development in selected municipalities, including pilot 
implementation of cadastral registration in selected neighborhoods 
within each municipality. The Land Project will develop methods and 
criteria to select the particular districts, municipalities and 
neighborhoods. Such criteria and methods will be subject to approval by 
MCC.
(c) Site Specific Facilitation of Land Access (the Site Specific 
Activity)
    In the PARPA, the Government committed to undertaking a mapping and 
inventory initiative to identify and record the actual legal and 
economic situation of land holdings including the type of land rights 
(by state authorization, good faith and community) and existing land 
uses. In the selected, more economically dynamic areas, this will 
result in readily available information for many purposes including for 
the planning and the management of access to natural resources 
(including land), a reduction in the risk of land disputes, and quicker 
and easier access to land for investors and small businesses (farm and 
non-farm). At the same time and often in these same dynamic areas, 
communities increasingly seek to enhance the security of their tenure 
or to engage in business relations with investors through joint 
ventures or the leasing out of their lands (as allowed for in the land 
law upon boundary delimitation and title issuance). Several donors 
worked with the Government to establish the Community Land Initiative. 
This ``land fund'' responds to demand with grants of financial support 
and technical assistance, ensuring an approach fully compliant with the 
technical annex to the land law and thereby reducing the risk of 
disputes and errors. Finally, it is important to provide immediate 
solutions to help investors and small businesses more expediently meet 
their land access and registration needs. Discussions with CTA and 
others suggests that some simple information and facilitation services 
will allow progress within the current institutional and regulatory 
climate while the other Land Project activities work to transform the 
land administration system.
    Specifically, MCC Funding will support: (i) The implementation of 
the mapping and inventory exercise and, as part of that process, the 
piloting of a sound approach to area-wide registration of land rights 
in selected areas characterized as more dynamic and/or conflictive; 
(ii) provision of additional funding to the existing program of support 
for the Community Land Initiative to allow its operation in 
Zamb[eacute]zia, Nampula and Niassa Provinces (the land fund is already 
operating in Gaza, Manica and Cabo Delgado with support from other 
donors); and (iii) make available simple informational tools to 
streamline investor and farmer access to land in northern Mozambique, 
such as legal information, guidelines regarding the requirements for 
negotiating land access with local communities, printed site maps 
showing land use and existing titles, and other tools, e.g., 
specialized seminars.
3. Beneficiaries
    The Land Project supports the national policy monitoring and reform 
process by introducing improved approaches to land registration and 
records management. Broadly speaking, the Project will assist anyone 
(local community and private sector) who has or acquires land-use 
rights. In particular, the Land Project is projected to benefit 1.9 
million people by 2015 and 2.6 million people by 2029 by assisting four 
groups of beneficiaries. As a result, the value of investment on land 
affected by the Project will increase and the time and cost to register 
a land use right will be reduced.
    Local communities that solicit assistance from the Community Land 
Initiative will benefit from registration of land rights and reduced 
transaction costs through improved security for productive activities 
on their land and increased opportunity for arrangements with outside 
investors for business development. Approximately 200 communities are 
projected to have their lands delimited over four years under the Land 
Project, enabling an estimated average of 3000 hectares per community 
to become available for commercial uses. Urban households in selected 
municipalities and rural smallholders in selected districts and sites 
selected for land service upgrading and mapping will save time and 
expense when accessing and/or registering land rights. These 
beneficiaries include nearly half a million urban parcel holders and 
over 220,000 rural smallholders. Investors (both local and foreign), 
who currently can face high transactions costs in gaining access to a 
registered land use right, will also have substantial savings. Benefits 
are expected to accrue to more than 150 firms. Additional value added 
can be expected from reduced conflict and increased job creation over 
time as a result of new commercial investments encouraged by a more 
efficient land use regime; however, these benefits are not easily 
quantifiable.
4. Sustainability
    The Land Project addresses sustainability by supporting the 
development of an overall strategy for modernization of land services 
that emphasizes client service, adoption of technology solutions 
adapted to the local context, and financial and human resource 
capacity. Re-establishing trust and creating efficiency in public land 
services will increase citizen and business use of services, thereby 
contributing to records being kept up-to-date. The increased ability to 
collect land rents from leases of public land and expanded collection 
of rationalized service fees will provide a major improvement in 
capacity to fund public land services at the national, provincial, and 
municipal levels. Finally, the program will enable significant progress 
toward access to and security of land tenure, which will help 
facilitate sustainable economic development.
5. Environmental and Social Issues
    The Land Project is classified as ``Category C'' according to the 
MCC Environmental Guidelines as Project activities are unlikely to have 
immitigable, adverse environmental or social impacts.
Environment and Social Impacts
    Given that the major proposed interventions in the Land Project do 
not contemplate the construction of new, or the significant expansion 
of existing buildings or structures, or the introduction of new 
technologies or productive processes, this Project is unlikely to 
generate any significant adverse environmental, health or safety 
impacts or risks. While the implementation of the Land Project will 
likely lead to an increase in the demand of certain public services 
(e.g., electricity, potable water, waste disposal) and products (e.g., 
office supplies, printed materials) for the operation of new equipment 
or the performance of training, consultation and information 
activities, this increase

[[Page 40943]]

in demand would be negligible. Thus, neither specific environmental 
studies nor environmental impact management measures are anticipated 
for the Land Project.
    The Land Project includes several activities that will deliver 
positive social impacts, such as the delimitation of `common hold' land 
rights held by local communities, which can protect the long-term 
tenure security of many rural dwellers and reduce the potential for 
conflict with smallholders and investors. However, several Land Project 
activities could potentially induce some negative social and gender-
based impacts. This risk will be managed through adequate approaches to 
implementation and the impacts properly mitigated during 
implementation. For example, plans to adjudicate and register 
individual titles to smallholder plots may pose risks to the tenure 
security of certain vulnerable groups including women and those 
affected indirectly or directly by HIV/AIDS. Adjudication and 
registration of plots can lead to cancellation of access agreements and 
therefore greater tenure insecurity for these vulnerable groups. 
Initial project design has taken into account most of these potential 
negative impacts and gender-based constraints to participation. These 
issues will be furthered explored and appropriate mitigation strategies 
incorporated into final activity/sub-activity designs, which will be 
reflected in the gender integration plan. Finally, the Land Project is 
not expected to negatively impact public health and safety, child labor 
or human trafficking.
6. Consultative Process
    In addition to the overall Compact development consultative 
process, extensive consultations were conducted on the conceptual 
framework for the Land Project objectives and approaches, as well as on 
specific aspects of the design. Consultations were conducted at both an 
individual-level with representatives of the proposed implementing 
agents, NGOs and the private sector, as well as at a national and 
provincial level, in all four of the northern provinces, usually 
through the Permanent Secretaries in the office of the Provincial 
Governor. Donors were also involved in the consultations, such as the 
National Program for Agrarian Development (``PROAGRI'') Working Group 
and donor focus groups at a Southern African Development Community 
(SADC) conference.
7. Donor Coordination
    MCC has consulted with many donors, most extensively with USAID, 
DFID and the World Bank. As designed, the Land Project builds on prior 
initiatives and complements existing ones. For example, this Compact 
will support the expansion of a multi-donor program called the 
Community Land Initiative (which is supported by DFID, the Swiss Agency 
for Development and Cooperation, the Danish Embassy, The Swedish 
International Development Cooperation Agency and the Development 
Cooperation Ireland). The Land Project also benefited from technical 
support from Food and Agriculture Organization of the United Nations 
(FAO), Deutsche Gesellschaft f[uuml]r Technische Zusammenarbeit (GTZ), 
the United Nations Development Programme, and USAID. As a part of this 
Compact's support to expand a paralegal training and legal education 
through the CFJJ, MCC will be working alongside FAO and the Government 
of the Netherlands. The African Development Bank is supporting efforts 
to make the registry of deeds more efficient and this will link to the 
land administration strategy and information system development under 
this Compact. Finally, the Land Project indirectly complements the 
Government use of budget support (e.g., from the Irish and Spanish 
Cooperation and previous initiatives of the Italian Cooperation, GTZ, 
the International Fund for Agricultural Development (IFAD) and others). 
In fact, measures such as the ones to be supported under this Land 
Project are consistent with discussions held by the donor working group 
on agriculture (PROAGRI) under the Program Aid Partnership's (G-18) 
joint review of progress on the PARPA in 2007 as well as in previous 
years' joint review of progress on the PARPA.
    USAID was particularly engaged throughout the development and 
review of the Land Project. Improved efficiency and security of land 
access is relevant to its programs in private sector development, 
trade, rural incomes, and municipal development. USAID and its 
stakeholders provided information useful to the design of activities, 
including technical guidance from USAID Washington. An area for 
potential coordination under this Compact will be the USAID funded 
pilot cadastre activity in five municipalities in northern Mozambique.
8. Policy, Legal and Regulatory Review
    The Government agrees to engage in a process of regulatory and 
administrative reform to significantly improve the efficiency, 
transparency and security of the processes for transferring and 
acquiring land rights, in both rural and urban areas. The Government 
also agrees to support a related regulatory reform, which will result 
from a list of targeted reforms proposed in the design study ``Land 
Tenure Services Final Report (February 2007)'' and as refined by 
additional analyses and efforts under this Compact.

E. Farmer Income Support Project

1. Background
    Mozambique is an internationally significant exporter of coconuts 
and coconut products. These are grown in Zamb[eacute]zia and Nampula 
Provinces. Coconut is one of the few crops growing on the impoverished, 
sandy, and sometimes saline coastal soils of northern Mozambique. It 
has unique value as a low input, environmentally beneficial, year-round 
source of nutrition, income and shelter for coastal communities. In the 
late 1990s, outbreaks of Coconut Lethal Yellowing Disease (``CLYD'') 
were confirmed in areas of commercial smallholder plantings in coastal 
Zamb[eacute]zia. By 2003 about one percent of the total area was 
affected but with several new disease foci in both provinces. Disease-
affected areas in Zamb[eacute]zia have expanded considerably since 
2003, and new foci are present in Nampula as well. At the present rate 
of spread, more than 50 percent of the coconut area is likely to be 
lost over the next nine years. As the infection rate is considerably 
slower than that experienced in Florida and the Caribbean, the disease 
could be controlled by the same type of phytosanitary measures that 
were used in Ghana. Currently, about five percent of the total coconut 
area of Zamb[eacute]zia is likely to be affected, although in certain 
areas there is no remaining production. Trees that are no longer 
productive must be removed and replaced. Technical support is necessary 
to assist farm enterprises in recovering income that they formerly had 
from coconut trees. Unless sustained measures are taken over a large 
area, coconut cultivation will cease in large areas of central 
Mozambique, with the resulting loss of export earnings and rural 
livelihood for over 1.7 million people in coastal Zamb[eacute]zia and 
Nampula.
    In conjunction with tree removal and replacement, this Project 
would assist farmers to adopt new cropping systems and develop 
alternative sources of cash income during the time the coconut trees 
reach productive age at seven years and beyond (the ``Farmer Income 
Support Project''). Chickpeas, pigeon peas, cowpeas and pineapples have 
the potential to generate alternative income for these farm 
enterprises, compatible with rehabilitation of coconut and

[[Page 40944]]

diversification to reduce risks and improve livelihood options. Pulses 
have become increasingly significant exports, increasing by over 400 
percent per year from 2000-2004. Like coconuts, they are suited to the 
sandy and loamy soils that are dominant in the coastal region. They are 
advantageous because they fix nitrogen in the soil. At the same time, 
crop yields in the region are extremely low due to poor practices 
including lack of crop rotation, poor seed selection, inadequate field 
preparation, untimely weeding, and other practices. Technical support 
to introduce better practices would increase yields considerably.
2. Summary of Project and Related Activities
    The objective of the Farmer Income Support Project is to improve 
productivity of coconut products and encourage diversification into 
other cash crop production. The Project will eliminate biological and 
technical barriers hindering economic growth among farms and targeted 
enterprises located in this Compact area's eastern coastal belt 
(Zamb[eacute]zia and Nampula provinces), and it will increase incomes 
lost to CLYD through crop diversification and improved farming 
practices.
    The Project will deliver two essential services to farm enterprises 
over the duration of this Compact to significantly improve and sustain 
incomes derived from cash crops and newly introduced crop 
diversification options: (a) CLYD control and mitigation will provide 
the short-term control measures of surveillance, prompt eradication of 
diseased palms and replanting with the less susceptible Mozambican 
Green Tall coconut variety. The Project will replant all cleared 
coconut trees. In the endemic areas, this activity will support 
planting 160,000 new coconut seedlings, the equivalent of 2,000 
hectares, benefiting 7,500-10,000 smallholder families. In the epidemic 
areas, this activity will support clearing and also replanting of 
650,000 seedlings on 6,100 hectares; and (b) Technical Advisory 
Services will introduce alternate crop-diversification options that 
demonstrate strong market demand and income generation potential, 
especially for farm enterprises participating in the CLYD control and 
mitigation program that are seeking short-term income alternatives 
during period of coconut tree re-growth. These services will supply 
productive inputs and training to small farm enterprises operating on 
some 4,000 hectares (2,000 in epidemic areas and 2,000 in endemic 
areas).
    The Farmer Income Support Project activities are as follows:
(a) Activity 1 (CLYD Control and Mitigation Services)
    The objective of this activity is to control and mitigate the 
spread of CLYD among the holdings of commercial farmers in 
Zamb[eacute]zia and Nampula Provinces. The first step under this 
activity will be a Government-led public awareness campaign about the 
disease and the measures needed to mitigate its effects. Short-term 
control measures include surveillance and scouting to detect early 
cases of disease; prompt eradication of diseased palms (by cutting and 
burning); and replanting with selected seedlings from local Mozambique 
Green Tall coconut types (some of which show a measure of resistance).
    CLYD control and mitigation strategies will be tailored to 
different stages of the disease epidemic and are likely to be most 
effective at, or in advance of, the margins of active spread of 
disease. Infected trees must be culled since they attract populations 
of rhinoceros beetle that breed in dead palm trunks and will kill or 
damage replacement palms. There is thus a need for collective and 
continuous action--by all growers and over a sustained period--not just 
to prevent infection moving from diseased to healthy palms, but also to 
remove and destroy dead palm trunks. Three sub-activities are 
envisioned: (i) In the endemic zone, help smallholders to clear their 
land of dead palms and replant with selected Mozambique Green Tall 
seedlings and alternative short-term crops; (ii) in the epidemic zone, 
control spread of disease by prompt removal and destruction of 
infection sources and provision of new planting material; and (iii) a 
research initiative that will emphasize germplasm resistance screening, 
epidemiological analysis, and early disease detection.
(b) Activity 2 (Technical Advisory Services)
    The Farmer Income Support Project will target smallholders impacted 
by CLYD control and mitigation measures to engage in crop 
diversification to generate income during the period of coconut tree 
re-growth. Emphasis will be given to improving farming practices that 
will increase yields and link farmers to processors and other buyers in 
the supported value chains. They will be provided options to diversify 
their production in response to proven market demand, which will lead 
to additional revenue streams. Dissemination of improved farming 
practices and market linkages will be done by experienced field agents 
to: (i) Support demonstration trials; (ii) strengthen producer 
organizations' marketing capacities; and (iii) provide extensive on-
farm training in intercropping methods, integrated pest management 
practices, and CLYD surveillance capabilities. The principal sub-
activities will be: (i) In zones with lower risk profiles, improve the 
productivity and yield of existing aging and under-productive palms in 
smallholder plantings; and (ii) enable stakeholders, through business 
development support, to help safeguard and/or improve profitability of 
the coconut industry for smallholders through innovative strategies, 
including linking them to carbon offset credit investment initiatives.
    The Farmer Income Support Project Manager will be located in MCA-
Mozambique. The Coconut Working Group, composed of Government entities 
in the agricultural area, will provide the Project Manager with 
guidance on technical matters concerning project implementation.
    DNEA is the entity responsible for Government public outreach to 
communities about the CLYD mitigation and control activities. DNEA will 
mobilize the outreach campaign through media (radio, television, 
bulletins, posters), extension agents, coconut estate employees and 
other means of information dissemination as appropriate.
3. Beneficiaries
    The Farmer Income Support Project benefits 1.7 million smallholders 
in the coconut belts of Zamb[eacute]zia and Nampula who depend on 
coconut tree-products for cash and in-kind income. Half of these 
smallholders would be in poverty by 2015 even without income losses 
from CLYD. If CLYD is allowed to proliferate, the poverty rate would 
undoubtedly be higher. Coconuts are also produced on estates, which 
account for some 5,000 workers as additional Project beneficiaries. In 
addition, the Farmer Income Support Project provides targeted technical 
assistance to over 3,000 smallholders to mitigate significant income 
loss due to CLYD and assist them in improving the quality of other 
crops planted on their holdings. With their families, over 15,000 
persons directly benefit from this technical assistance. While about 
two thirds of the financial benefits accrue to the estates, the estates 
do not receive technical assistance and benefit entirely from disease 
eradication. If eradication were not to include infected trees on both 
smallholder plots and the larger estates, CLYD would continue to 
spread.

[[Page 40945]]

4. Sustainability.
    The Farmer Income Support Project is envisioned as a short-term 
intervention to eliminate significant biological and technical barriers 
to economic growth of farm enterprises located in the Program target 
areas. Through the delivery of the CLYD control and mitigation service, 
the spread of a highly contagious disease that could have significant 
negative repercussions on the coconut industry, a key agricultural 
business in the coastal belt, will be halted. This, in turn, will help 
ensure the sustainability of a healthy coconut industry in 
Zamb[eacute]zia and Nampula Provinces. Without ridding the area of the 
disease, healthy coconut groves will be susceptible to infection or re-
infection, thereby affecting the continued commercial viability of the 
raw material suppliers and processors. Applied research and replanting 
of the selected variety will improve productivity of the region's 
``coconut economy.'' Research on varietal improvements will be done in 
conjunction with the Ministry of Agriculture, thereby transferring 
skills and technology in coconut-resistance trials, screening and 
selection. Sustainability is linked to the overall market performance 
of coconuts and alternate crops. The market for coconuts and its 
processed products is growing domestically and internationally, as are 
markets for targeted alternate crops. Yield improvements will be 
sustainable through smallholders' adoption of improved farming 
practices and crop diversification, which reduces their risks and 
vulnerability. And, there may be opportunities to improve smallholder 
incomes through carbon offset, which may be monetizable over five years 
to supplement smallholders' income until replanted trees reach 
productive age. MCC is consulting with carbon credit experts and will 
be providing MCA-Mozambique with guidance on options for Mozambique to 
pursue to qualify for carbon offset credits.
Environment and Social Sustainability
    The key to ensuring environmental and social sustainability of the 
Farmer Income Support Project is ongoing public consultation. MCA-
Mozambique will ensure that comprehensive public consultation plans are 
developed such that Project stakeholders, including women and 
vulnerable groups, are afforded consultation and an opportunity to 
provide their inputs to Project design and implementation. MCA-
Mozambique 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. MCA-Mozambique will serve as the point of contact for 
comments and concerns of parties affected by the implementation of all 
Project activities under this Compact and will lead the effort to find 
feasible resolutions to those problems. MCA-Mozambique will convene 
periodic public meetings to provide implementation updates and to 
identify and address public concerns. The Stakeholders Forum for this 
Project will also incorporate representatives of civil society that 
will serve as a link between local NGOs and program managers.
5. Environmental and Social Issues
    The Farmer Income Support Project is classified as ``Category B'' 
according to the MCC Environmental Guidelines. An environmental 
assessment and an EMP that includes provisions to address (a) safety 
and health risks related to the handling, use, and disposal of 
pesticides and fertilizers; (b) tree-cutting and disposal equipment; 
and (c) integrated pest and nutrient management strategies will be 
developed prior to full Project implementation.
Environmental and Social Impacts
    Although it is unlikely that the Farmer Income Support Project will 
generate any significant environmental, health or safety hazards, the 
potential negative direct, indirect, induced, and cumulative 
environmental impacts of the Project will be assessed through an 
environmental assessment that will be conducted prior to the 
implementation of the Project. A number of positive environmental and 
social benefits should emerge from this Project. As stated, coconut is 
regarded as an environmentally benign and often beneficial, low-input, 
crop which tolerates and can help to stabilize nutrient-poor and saline 
soils, especially in coastal regions that are often subject to periodic 
floods that destroy other crops. In addition, MCA-Mozambique will 
ensure that a Project-specific EMP is developed, implemented and 
monitored during the Project in accordance with the provisions of this 
Compact and any relevant supplemental agreements.
    Per the MCC Environmental Guidelines, the use of the following 
pesticides is prohibited under the Project: (a) Persistent Organic 
Pollutants that the United States Environmental Protection Agency has 
identified as of greatest concern to the global community; or (b) any 
pesticide listed by the United States Environmental Protection Agency 
as ``banned'' or ``severely restricted'' under the Prior Informed 
Consent Program. MCA-Mozambique will ensure that Project operators 
require pesticides to be handled, stored, applied, and disposed of in 
accordance with FAO's International Code of Conduct on the Distribution 
and Use of Pesticides.
    To maximize the positive social impacts of the Farmer Income 
Support Project and ensure compliance with MCC's Gender Policy, MCA-
Mozambique is required to: (a) Develop a gender integration plan that 
includes: (i) Approaches for meaningful and inclusive consultations 
with women and vulnerable/under-represented groups; (ii) Project-
specific gender analyses, as appropriate; and (iii) strategies for 
incorporating findings of the gender analyses into final Project 
designs; and (b) ensure that final Project activity designs are 
consistent with and incorporate the outcomes of the gender integration 
plan. MCA-Mozambique will also take steps to ensure that the interests 
and views of women and vulnerable groups are represented in any 
entities responsible for advising on design, ownership, management, and 
operation of the Project activities.
Environmental Permitting
    MCA-Mozambique will ensure that environmental and social assessment 
responsibilities are included in the bidding documents for the 
procurement of Project implementers and advisors, as needed. 
Disbursement of MCC Funding for activities under this Project requiring 
environmental licenses will be contingent upon issuance of such 
environmental licenses, as needed, or any other required permits. 
Project activities, for which MCC disburses funds, should be consistent 
with the outcomes of the relevant environmental assessments, and MCC 
Environmental Guidelines, and comply with applicable Mozambique 
environmental law and regulations.
6. Consultative Process
    During the development of the Farmer Income Support Project in the 
pre-Compact program definition process, the consultant, working on 
behalf of the Government, consulted with a broad spectrum of 
stakeholders, including government officials (national and provincial), 
NGOs and the private sector, through local Chambers of Commerce and the 
coconut trade association. Ongoing consultation is envisioned through 
the Project Advisory Group that will be established during the Compact 
Implementation Funding period.

[[Page 40946]]

7. Donor Coordination
    Although the Centre de coop[eacute]ration internationale en 
recherche agronomique pour le d[eacute]veloppement (CIRAD) has provided 
support to combat against CLYD in Zamb[eacute]zia in the past, there 
are currently no other donors providing support to address this issue 
in the northern provinces. Through the Farmer Income Support Project, 
there are opportunities to work with other donors in the future. In 
particular, USAID provides assistance through its Title II Implementing 
Partners in Zamb[eacute]zia to introduce nutrient-rich crops as a means 
of improving their food security. In addition, USAID is providing 
technical assistance to the Ministry of Agriculture for strengthening 
institutional capacity in policy analysis. USAID also adapted one new 
agricultural technology in 2006 through continued assistance to the 
National Agricultural Research Institute and the agricultural zonal 
research centers and its continued funding is helping to replicate the 
producer-owned trading company model in other geographic areas. 
Moreover, USAID will continue to provide technical assistance in 
management and marketing to farmers and rural enterprises.

F. Overview of Implementation Framework

1. Overview of Implementation
    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring and evaluation and fiscal 
accountability for the use of MCC Funding is summarized below and will 
be described in more detail in the internal regulations of MCA-
Mozambique (``Internal Regulations'') or as otherwise agreed in writing 
by the Parties.
2. Government
    The Government will empower the Minister of Planning and 
Development in conjunction with the Minister of Finance to create a 
public institution within the Ministry of Planning and Development 
(``MCA-Mozambique''), which will be the Accountable Entity and will be 
authorized to act on behalf of the Government in order to manage and 
oversee the implementation of this Compact and the Program. MCA-
Mozambique will have administrative and patrimonial autonomy, in 
addition to the financial control to engage in practices such as (a) 
establishing an account in a financial institution in the name of MCA-
Mozambique and holding MCC funds in that account; (b) expending MCC 
funds without an appropriation in the national budget; (c) engaging a 
fiscal agent to undertake expenditures and to account for them; (d) 
engaging a procurement agent who will act on behalf of MCA-Mozambique 
to manage the acquisition of the goods, works and services requested by 
MCA-Mozambique to implement the activities funded by this Compact; and 
(e) engaging an auditor competitively to conduct audits of its 
accounts.
    The Government will grant the Minister of Planning and Development 
oversight authority or ``tutela'' over MCA-Mozambique, whereby the 
Minister will ensure that MCA-Mozambique is complying with the terms of 
this Compact, fulfilling the Government's responsibilities under this 
Compact, and other duties of MCA-Mozambique as described in the 
Internal Regulations.
    MCA-Mozambique will be headquartered in Maputo, with initially one 
regional office in Nampula, and other provincial offices in northern 
Mozambique, as determined in the Internal Regulations.
    MCA-Mozambique will be composed of (a) a supervisory decision-
making body, the Board of Directors (the ``Board''); (b) a smaller 
working group of representatives from the Board or an executive 
committee (the ``Executive Committee''); and (c) the day-to-day 
management body or management unit (the ``Management Unit''). The 
Internal Regulations will define the governance details of MCA-
Mozambique.
3. MCC
    MCC will provide technical oversight and accountability in the 
implementation of the Program. MCC will establish a small office in 
Mozambique, designed to provide feedback and increased communication 
between MCC and the Government throughout Compact implementation.
    MCC will require prior approval of certain transactions, 
activities, agreements and documents, as described in the PIA.
4. MCA-Mozambique Description
    (a) Board of Directors.
    (i) Composition.
    The Board will be composed of nine voting members; six of which are 
governmental representatives, two civil society representatives and one 
private sector representative. There will be three non-voting members, 
consisting of an MCC representative, a representative from an 
environmental NGO and the executive director of the Management Unit. 
The governmental representatives will be Ministers from certain 
Ministries involved in the Program, as agreed and defined in the 
Internal Regulations. The Minister of Planning and Development will 
serve as the chair of the Board, while the executive director of the 
Management Unit will serve as secretary. The civil society 
representatives and the private sector representatives will be 
determined as defined in the Internal Regulations. In the event that 
one of the civil society voting members is not from an environmentally 
focused NGO, an additional observer from such an organization, subject 
to the prior receipt of a no-objection notice from MCC, will be 
appointed. No remuneration will be paid to any Government 
representative on the Board, although other Board members may receive 
remuneration as set out in the Governance Guidelines (as defined in the 
PIA).
    (ii) Location.
    The Board will be based in Maputo, but may also conduct rotating 
meetings in one of the four northern provinces from time to time.
    (iii) Roles and Responsibilities.
    The Board will be responsible for exercising oversight and taking 
major decisions, such as approving annual implementation plans, 
Disbursement requests, annual progress reports, key contracts and 
policy reforms, as well as other responsibilities defined in the 
Internal Regulations. The Board will meet once every three months and 
may meet more frequently as necessary for extraordinary meetings. The 
specific roles of the voting and non-voting members will be set out in 
the Internal Regulations.
    (b) Executive Committee.
    (i) Composition.
    The Executive Committee will be composed of seven members, who 
represent certain Ministries or organizations on the Board, as further 
defined in the Internal Regulations. The Secretariat of the Executive 
Committee will be the executive director of the Management Unit. 
Governmental members on the Executive Committee will be represented by 
the relevant Ministries' National Director. The private sector 
representative will be the same as on the Board.
    (ii) Location.
    The Executive Committee will be located in Maputo, but may also 
conduct rotating meetings in one of the four northern provinces from 
time to time.
    (iii) Roles and Responsibilities.
    The Executive Committee is a smaller working group of the Board 
that will be empowered to take certain limited actions normally 
required to be taken by the Board, such as approving quarterly 
implementation plans, quarterly

[[Page 40947]]

progress reports, certain procurement decisions, as well as other 
actions defined in the Internal Regulations. The Executive Committee 
will meet as often as necessary to adequately perform its functions.
    (c) Management Unit.
    (i) Composition.
    The Management Unit will be responsible for assisting the Board and 
the Executive Committee in managing and overseeing the day-to-day 
operations of the Program. The Management Unit will be composed of 
staff, competitively selected. Key staff members of the Management Unit 
include: The executive director, deputy director, chief financial 
officer, M&E/planning officer, procurement officer, environmental and 
social manager, legal advisory service, and Project managers for each 
of the four Projects will be defined in the Internal Regulations.
    (ii) Location.
    The Management Unit will have offices in at least two locations. 
One office will be based in Maputo and initially one office will be 
located in Nampula. If justified, other regional offices may be opened 
in the northern provinces, as provided for in the Internal Regulations.
    (iii) Roles and Responsibility.
    The Maputo office of the Management Unit will provide ``back office 
support'' services, such as financial management, legal, procurement, 
administrative, public relations and other activities defined in the 
Internal Regulations. The Nampula office and other provincial offices 
that may be established as part of the Management Unit will provide 
direct support to the programs being implemented in the provinces. The 
regional Management Unit offices will be responsible for preparing 
reports, implementation plans and budgets, preparing Disbursement 
requests, reviewing and approving bidding and contract documents, 
monitoring and evaluating project implementation, ensuring technical 
support to Implementing Entities (as defined in the PIA), coordinating 
stakeholder participation and other functions as defined in the 
Internal Regulations of MCA-Mozambique.
    (d) Stakeholders' Participation.
    Stakeholders will continue to be involved and participate 
throughout Compact implementation. Through semi-annual and/or annual 
participatory monitoring and evaluation forums, stakeholders will be 
able to provide feedback to the overall Program (the ``Stakeholders 
Forums''). In addition, the mechanisms for ensuring this consultative 
process occurs will be structured at a Project-level, allowing 
representatives of the private sector, civil society and local and 
regional governments to provide advice and input to MCA-Mozambique. In 
the WSS Project, autonomous Provincial Water Boards will be created, 
which will incorporate stakeholder participation on their respective 
boards.
    In the Roads Project, stakeholder participation will be 
incorporated through the Stakeholders Forums.
    In the Land Project, there are two forums designed to facilitate 
feedback and input from interested stakeholders. First, the Land Policy 
Consultative Forum, comprised of relevant governmental ministries, 
civil society organizations and academic institutions will conduct 
regular semi-annual meetings. Secondly, the National Land Project 
Advisory Group provides a forum for both national and local 
governmental representatives to provide meaningful feedback throughout 
Compact implementation.
    In the Farmer Income Support Project, stakeholder participation is 
incorporated through the Coconut Working Group, whereby relevant 
governmental agencies, the private sector and civil society 
organizations may provide regular input to the implementation of the 
Project.

Annex II--Summary of Multi-Year Financial Plan

1. General

    The Multi-Year Financial Plan Summary below sets forth the 
estimated annual contribution of MCC Funding for Program 
administration, Program monitoring and evaluation, and implementing 
each Project. The Government's contribution of resources will consist 
of ``in-kind'' and other contributions or amounts required effectively 
to satisfy the requirements of Section 2.5(a) of this Compact. In 
accordance with the PIA, the Government will develop and adopt on a 
quarterly basis a detailed financial plan (as approved by MCC) setting 
forth annual and quarterly funding requirements for the Program 
(including administrative costs) and for each project, projected both 
on a commitment and cash requirement basis.

2. Modifications

    To preserve administrative flexibility, the Parties may by written 
agreement (or as otherwise provided in the PIA), without amending this 
Compact, change the designations and allocations of funds among the 
Projects, the Project activities, or any activity under Program 
administration or monitoring and evaluation, or between a Project 
identified as of the entry into force of this Compact and a new 
project; provided, however, that any such change (a) is consistent with 
the Program Objective and Project Objectives and the PIA, (b) does not 
materially adversely affect the applicable Project or any activity 
under Program administration or monitoring and evaluation, (c) does not 
cause the amount of MCC Funding to exceed the aggregate amount 
specified in Section 2.1(a) of this Compact, and (d) does not cause the 
Government's obligations or responsibilities or overall contribution of 
resources to be less than specified in Section 2.5(a) of this Compact.

                                       Multi-Year Financial Plan Summary *
----------------------------------------------------------------------------------------------------------------
            Projects              Year 1 **      Year 2       Year 3       Year 4       Year 5         Total
----------------------------------------------------------------------------------------------------------------
1. Water Supply and Sanitation:
    A. Technical Assistance and    6,675,220    5,095,804    3,293,268    3,137,075    2,814,675      21,016,042
     Capacity Building to Water
     Supply and Sanitation
     Project...................
    B. Rehabilitation/expansion    6,377,175    6,783,982   34,182,450   25,553,040   18,187,233      91,083,880
     of water supply systems in
     urban areas...............
    C. Rehabilitation/expansion    2,291,750   19,294,284   19,770,123   20,563,193   20,576,077      82,495,427
     of six municipal
     sanitation and drainage
     systems...................
    D. Construction/                 906,441    2,312,470    3,108,668    2,324,169      338,296       8,990,044
     reconstruction of wells
     and bore holes (rural
     water points).............
                                --------------------------------------------------------------------------------
        Sub-Total..............   16,250,586   33,486,540   60,354,509   51,577,477   41,916,281     203,585,393
2. Rehabilitation/Construction
 of Roads:
    A. Technical Assistance for      507,700      688,914      710,817      733,374      374,925       3,015,730
     Roads Project.............

[[Page 40948]]

 
    B. Rehabilitation Costs....    4,922,862    3,731,628   39,023,067   78,845,125   46,769,068     173,291,750
                                --------------------------------------------------------------------------------
        Sub-Total..............    5,430,562    4,420,542   39,733,884   79,578,499   47,143,993     176,307,480
3. Land Tenure Services:
    A. Support for National        2,186,408    2,521,723    2,049,460    1,929,674    1,757,958      10,445,223
     Policy monitoring process.
    B. Land administration         1,812,980    5,552,512    3,769,560    1,534,915      757,829      13,427,796
     capacity building.........
    C. Site specific secure        1,261,886    4,295,706    3,722,369    3,359,342    2,555,985      15,195,288
     land access...............
        Sub-Total..............    5,261,274   12,369,941    9,541,389    6,823,931    5,071,772      39,068,307
4. Farmer Income Support:
    A. Rehabilitation of             704,022      676,612      624,771      636,683      210,505       2,852,593
     endemic areas.............
    B. Control of epidemic         2,099,262    1,660,535    1,450,524      868,610      914,518       6,993,449
     disease...................
    C. Research and Development      444,405      435,548      519,295      513,503      529,612       2,442,363
     Support...................
    D. Improvement of                252,728      427,022      737,993    1,097,880    1,168,584       3,684,207
     productivity..............
    E. Business Development          254,000      291,915      519,295      258,770      135,619       1,459,599
     Support...................
                                --------------------------------------------------------------------------------
        Sub-Total..............    3,754,417    3,491,632    3,851,878    3,375,446    2,958,838      17,432,211
5. Monitoring and Evaluation:
    Monitoring and Evaluation..    2,195,000      955,000    1,880,000      920,000    2,255,000       8,205,000
                                --------------------------------------------------------------------------------
        Sub-Total..............    2,195,000      955,000    1,880,000      920,000    2,255,000       8,205,000
6. Program Administration and
 Oversight
    A. MCA-Mozambique..........    9,651,474    5,012,630    5,583,165    5,254,627    5,379,999      30,881,895
    B. Fiscal and Procurement     12,300,000    4,800,000    3,300,000    2,550,000    2,050,000      25,000,000
     Agent.....................
    C. Bank Contract...........       10,000        5,000        5,000        5,000        5,000          30,000
    D. Auditing................    1,440,000    1,140,000    1,140,000    1,140,000    1,140,000       6,000,000
    E. Environmental                 176,000       57,344       58,720       60,130       61,573         413,767
     Management--MICOA Capacity
     Building..................
                                --------------------------------------------------------------------------------
        Sub-Total..............   23,577,474   11,014,974   10,086,885    9,009,757    8,636,572      62,325,662
                                ================================================================================
        Total Estimated MCC       56,469,313   65,738,629  125,448,545  151,285,110  107,982,456    506,924,053
         Contribution..........
----------------------------------------------------------------------------------------------------------------
* It is anticipated that there will be at least a one-quarter lag in disbursements of these budget totals.
** Year 1 amounts include amounts for Compact Implementation Funding.

Annex III--Description of The Monitoring And Evaluation Plan

    This Annex III to this Compact (the ``M&E Annex'') generally 
describes the components of the monitoring and evaluation plan for the 
Program (the ``M&E Plan''). Each capitalized term in this Annex III 
will have the same meaning given such term elsewhere in this Compact.

1. Overview.

    MCC and the Government (or a mutually acceptable Government 
affiliate or permitted designee) will formulate, agree to and the 
Government will implement, or cause to be implemented, an M&E Plan that 
specifies (a) how progress toward the program goal and Program 
Objective will be monitored (``Monitoring Component''); (b) process and 
timeline for the monitoring of planned, ongoing, or completed Project 
activities to determine their efficiency and effectiveness; and (c) a 
methodology for assessment and rigorous evaluation of the outcomes and 
impact of the Program (``Evaluation Component''). Information regarding 
the Program's performance, including the M&E Plan, and any amendments 
or modifications thereto, as well as progress and other reports, will 
be made publicly available on the MCA-Mozambique Web site and 
elsewhere.
BILLING CODE 9211-03-P

[[Page 40949]]

[GRAPHIC] [TIFF OMITTED] TN25JY07.000

2. Program Logic

    The Mozambique M&E Plan will be built on the program logic model 
described above showing how the Program is intended to work. The 
program logic is a visual representation of the Program showing the 
sequence of outcomes and intended causality from the Project 
Objectives. The overall goal of the Program is to contribute to poverty 
reduction in Mozambique through economic growth. The stated Program 
Objective is to increase the productive capacity of the population in 
selected districts of northern Mozambique with the intended impact of 
reducing the poverty rate, increasing household income, and reducing 
chronic malnutrition in the targeted districts.

3. Monitoring Component

    To monitor progress toward the achievement of the impact and 
outcomes, the Monitoring Component of the M&E Plan will identify (a) 
the indicators, (b) the definitions of the indicators, (c) the sources 
and methods for data collection, (d) the frequency for data collection, 
(e) the party or parties responsible, (f) the timeline and format for 
reporting on each Indicator (as defined below) to MCA-Mozambique, and 
(g) the method by which the reported data will be validated.
    (a) Indicators. The M&E Plan will measure the results of the 
Program using quantitative, objective and reliable data 
(``Indicators''). Each Indicator will have benchmarks that specify the 
expected value and the expected time by which that result will be 
achieved (``Target''). The M&E Plan will be based on a logical 
framework approach that classifies indicators as impact, outcome, 
output, process and input. The impact indicators (``Goal and Program 
Objective Level'') will measure the results for the overall Program. 
Second, the outcome indicators (``Project Objective Level ``) will 
measure the final and the intermediate results of the Projects in order 
to monitor their success in meeting each of the Project Objectives, 
including results for the intended beneficiaries identified in 
accordance with Annex I (collectively, the ``Beneficiaries''). Third, 
output indicators (``Project Activity Level'') will measure the direct 
outputs of the Project activities in order to provide an early measure 
of the likely impact of the Project activities. A fourth level of 
indicators, input and process indicators (``Institutional Process 
Level'') will be included in the M&E Plan to measure the delivery of 
materials, goods and actions necessary to carry out the primary Project 
activities. All Indicators will be disaggregated by gender, income 
level and age, and beneficiary types to the extent practicable. Subject 
to prior written approval from MCC, MCA-Mozambique may add Indicators 
or refine the Targets of existing Indicators.
    (i) Impact Indicators (Goal and Program Objective Level). The M&E 
Plan will contain the impact indicators listed in the table below, with 
their definitions and unit of observation, baseline, and targets for 
the end of the compact year.

[[Page 40950]]



----------------------------------------------------------------------------------------------------------------
             Indicator                Definition of indicators    Unit of observation     Baseline      Year 5
----------------------------------------------------------------------------------------------------------------
Poverty Rate.......................  Percentage of the           Household............       45.80%       36.64%
                                      population in northern
                                      Mozambique who lack the
                                      ability and opportunity
                                      to have access to satisfy
                                      the necessary basic
                                      nutritional and non-
                                      nutritional requirements
                                      (2150 nutritional
                                      calories plus basic non
                                      food items).
Increased Household Income.........  The total value of          Household............      $202.30      $264.12
                                      household food production
                                      for consumption, all crop
                                      and livestock sales, cash
                                      and in-kind pay received
                                      from off-the-farm
                                      activities and
                                      remittances, net cash and
                                      in-kind payments made to
                                      hired members of
                                      household.
Percent of stunted children, 0-59    Percentage of children      Household............          41%          28%
 months (height/age z-score).         under 5 years in northern
                                      Mozambique who show
                                      chronic malnutrition as a
                                      result of cumulative
                                      inadequacies in nutrition
                                      status.
----------------------------------------------------------------------------------------------------------------

    (ii) Outcome Indicators (Project Objective Level). The M&E Plan 
will contain the outcome indicators which will measure the results at 
the project objective levels. The outcome indicators for the four main 
Projects are listed below with their definitions and units of 
observation.

----------------------------------------------------------------------------------------------------------------
             Indicators                      Definition           Unit of observation     Baseline      Year 5
----------------------------------------------------------------------------------------------------------------
                                         Project I: Water and Sanitation
----------------------------------------------------------------------------------------------------------------
Value of productive days gained due  Value of time gained by     Household............            0      US$3.04
 to less diarrhea illness.            household members due to
                                      not having to attend to
                                      other household members
                                      with diarrhea or not
                                      being absent from
                                      productive activities due
                                      to incidence of diarrhea
                                      (number of days
                                      multiplied by the value
                                      of average adult
                                      household consumption).
Value of productive days gained due  Value of time gained by     Household............            0      US$3.04
 to less malaria.                     household members due to
                                      not having to attend to
                                      household members with
                                      malaria or not being
                                      absent from productive
                                      activities due to
                                      incidence of malaria
                                      (number of days
                                      multiplied by the value
                                      of average adult
                                      household consumption).
School attendance days gained due    Days gained by each school- Number of school-aged            0            3
 to less diarrhea.                    aged child in household     children in
                                      to attend school due to     household.
                                      less incidence of
                                      diarrhea.
School attendance days gained due    Days gained by each school- Number of school-aged            0            3
 to less malaria.                     aged child in household     children in
                                      to attend school due to     household.
                                      less incidence of malaria.
Number of businesses connected to    Number of formal            Business.............          495          947
 an improved water source.            businesses in target
                                      districts with water
                                      connection.
Time to get to water source (Urban-  Number of minutes to water  Household............        32/39        15/27
 /Rural).                             source, by source.
Percent of urban population with     Proportion of the urban     Urban households.....          30%    47% (17%)
 improved water sources (percent      population in the target
 increase).                           districts with access to
                                      improved water sources,
                                      defined as access to
                                      private connections or
                                      standpipes.
Percent of rural population with     Proportion of the rural     Rural households.....          31%          33%
 access to improved water sources     population in the target                          (1,417,439)  (1,657,439)
 (number of persons).                 districts with access to
                                      improved water sources,
                                      defined as access to
                                      potable water from a deep-
                                      well.
Percent of urban population with     Proportion of urban         Urban households.....          TBD          TBD
 improved sanitation facilities.      population with access to
                                      improved sanitation
                                      facilities, defined as
                                      access to networked
                                      sanitation, septic tanks,
                                      or an improved pit-
                                      latrine.
----------------------------------------------------------------------------------------------------------------
                                         Project II: Road Rehabilitation
----------------------------------------------------------------------------------------------------------------
Value of net agricultural            Net value of new            Rural households.....          TBD          TBD
 production (yield per hectare).      agricultural production
                                      for both cash and
                                      subsistence crops in the
                                      road economic area of
                                      influence (15km radius
                                      each side of targeted
                                      roads).
Change in vehicle operating cost     Average change in the       Target roads.........         0.47         0.37
 ($$/vehicle-/km).                    fixed and variable cost
                                      of operating vehicles on
                                      a km of target upgraded
                                      roads.
Total time savings (US$m)..........  Value of travel time        Target Roads.........            0      US$1.15
                                      savings for road users
                                      due to change in speed on
                                      target roads.
Change in International Roughness    Measurement of pavement     IRI units of either m/          10          3.5
 Index (IRI).                         roughness on targeted       km or m/mi.
                                      roads (correlated with
                                      vehicle operating costs).

[[Page 40951]]

 
Average annual daily traffic volume  Number of vehicles by type  Target roads                  1908         2558
                                      on the target upgraded      (disaggregated by
                                      roads.                      vehicle type).
----------------------------------------------------------------------------------------------------------------
                                        Project III: Land Tenure Services
----------------------------------------------------------------------------------------------------------------
Percent increase in value of new     Summation of investments    Rural households                 0          10%
 investments on land.                 including agricultural      (small- medium-
                                      investments, fixed          holder); businesses;
                                      investments, and            urban parcels;
                                      improvements to existing    communities.
                                      structures.
Number of new businesses...........  Number of new businesses    Businesses (small,             TBD          TBD
                                      formally registered and     medium, large).
                                      established.
Percent reduction in time to get     Number of days required to  Community,                       0          50%
 land usage rights (DUAT).            obtain land usage rights    individual, urban,
                                      (DUAT), disaggregated by    commercial.
                                      beneficiary type.
Percent reduction in costs to get    Amount of money required,   Community,                       0          50%
 land usage rights (DUAT).            in local currency, to       individual, urban,
                                      obtain land usage rights    commercial.
                                      (DUAT), disaggregated by
                                      beneficiary type.
----------------------------------------------------------------------------------------------------------------
                                        Project IV: Farmer Income Support
----------------------------------------------------------------------------------------------------------------
Reduction in loss of coconut and     Total household and estate  Rural households                 0        3.75%
 coconut products' sales.             sales of coconuts and       (small-medium
                                      coconut products within a   holders) & Estates.
                                      calendar year.
Percent increase in sales from       Total household sales of    Rural households         US$65,000         167%
 intercropping.                       surplus crops               (small-medium-
                                      intercropped in replanted   holders).
                                      coconut farms.
Percent increase in yield among      Additional production of    Rural households                 0         167%
 fertilized coconut trees in risk     coconuts per tree           (small- medium-              (30)         (80)
 areas (number of fruits per tree).   resulting from adoption     holders).
                                      of CLYD control and
                                      mitigation measures.
Percent increase in yield of         Additional production of    Rural households                 0          TBD
 selected intercropping crops.        cash and food crops         (small- medium-
                                      intercropped in replanted   holders).
                                      coconut farms.
Increase in improved coconut trees   Total number of recently    Rural households                 0      224,000
 2 years old or greater.              planted resistant,          (small- medium-
                                      healthy coconut trees       holders).
                                      that are 2 or more years
                                      old.
Percent change of the area infested  Total endemic and epidemic  Rural land (trees per         5036          71%
 by CLYD.                             land area, in trees per     hectare).                hectares
                                      hectare, with CLYD
                                      control and mitigation
                                      measures.
Destruction of infected coconut      Total number of CLYD        Trees................            0        1.225
 palms.                               infected palms cleared
                                      (in millions).
Number of farmers adopting improved  Total number of rural       Rural households                 0        2260
 varieties of coconut trees.          holders adopting the        (small- medium-
                                      planting of the improved    holders).
                                      variety of coconuts.
----------------------------------------------------------------------------------------------------------------
TBD = To be determined.
*Targets for water and sanitation indicators are for end of year 5/start of year 6.

    (iii) Process and Output Indicators. The M&E Plan will describe the 
process and timeline for developing a full and comprehensive activity 
monitoring plan that will outline most of the process and output 
indicators, the instruments for collecting data for the indicators, and 
the frequency for collecting and reporting on those indicators. The M&E 
Plan budget will make provision for resources to support and build on 
the capacity of service providers and other service agencies to collect 
and report the output and process indicators that will be outlined in 
the activity monitoring plan. Technical assistance will be provided 
when needed to facilitate the development of the activity monitoring 
plan.
    (b) Data Collection and Reporting. The M&E Plan will establish 
guidelines for data collection and a reporting framework, including a 
schedule of Program reporting and responsible parties. The M&E Plan 
will use both qualitative and quantitative methods for data collection. 
The plan will outline various data collection methodologies, 
assessments, and surveys necessary to reporting on the results of the 
outcome indicators. It will also develop and establish instruments and 
procedures as part of the regular project monitoring activities to 
track Project activity output indicators. It will also draw 
quantitative information from the INE (National Statistics Institute) 
surveys such as the IAF (Household Survey), QUIBB (Questionnaire on 
Basic Indicators of Well-Being), and DHS (Demographic and Health 
Survey) and the TIA (National Agricultural Survey) for most of the 
outcome and impact indicators.
    (c) Collaboration with National Statistic Institute and the 
National Directorate of Studies and Policy Analysis, Ministry of 
Planning and Development. The M&E Plan will identify areas of 
collaboration with INE and the National Directorate of Studies and 
Policy Analysis, Ministry of Planning and Development (MPD) on surveys 
and other data collection initiatives. The plan will specify and 
contain an agreement with the INE and MPD on a schedule of surveys and 
other data collection activities and the types of economic analysis 
that will be obtained by MCA-Mozambique as part of reporting 
requirements. The M&E Plan budget will make provision for funding for 
such collaborative initiatives.
    (d) Data Quality Reviews. From time to time, as determined in the 
M&E Plan or as otherwise requested by MCC, the quality of the data 
gathered through the M&E Plan will 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

[[Page 40952]]

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.
    (e) Participatory Monitoring and Evaluation. The M&E Plan will 
outline a process for encouraging participation of program stakeholders 
in the collection and dissemination of the information about progress 
being made towards the achievement of the program objectives. The 
effectiveness and efficiency of the Program will be jointly monitored 
with the beneficiary population and various stakeholders at different 
levels of decision-making. The M&E Plan will foster national 
``ownership'' of the Program and will periodically disseminate program 
results and achievement through transparent strategies and a format of 
communication with the public.
    (f) Management Information System. The M&E Plan will describe the 
information system that will be used to collect data, store, process 
and deliver information to relevant stakeholders in such a way that the 
program information is at all times accessible and useful to those who 
wish to use it. The system development will take into consideration the 
requirement and data needs of the components of the Program, and will 
be aligned with MCC existing systems, other service providers, and 
government ministries.

4. Evaluation Component

    The Evaluation Component of the M&E Plan will contain two types of 
evaluations: Project-Level impact evaluations and Program-Level impact 
evaluations. The evaluation plans will be finalized before disbursement 
for specific Program or Project activities. The Evaluation Component 
will contain a methodology and timeline for analyzing data in order to 
assess planned, ongoing, or completed Project activities to determine 
their contribution to the Program's intended impact.
    (a) Impact Evaluation. The M&E Plan will outline rigorous design 
methods that will be used to evaluate the impact of the Program's four 
components. Based on in-country consultation with stakeholders, the 
following strategies outlined below were jointly determined as having 
the strongest potential for rigorous impact evaluation. The M&E Plan 
will further outline in detail these methodologies. Final impact 
evaluation strategies are to be jointly determined before the approval 
of the M&E Plan and before entry into force (EIF) of this Compact. The 
following are a summary of the potential impact evaluation 
methodologies:
    (i) The WSS Project could be evaluated using rigorous randomized 
design methods. In the rural water component, communities could be 
selected randomly over time to allow for comparison between unbiased 
control and treatment groups. In the urban water and sanitation 
components, randomized allocation of instruments such as private 
connection subsidies (where subsidy demand outstrips subsidy supply) 
and health and hygiene outreach efforts, but not direct services, could 
serve as the basis for an instrumental variable approach to evaluating 
the urban and peri-urban W&S interventions.
    (ii) The Roads and Land Projects could be evaluated using 
propensity score matching methods with treatment and control groups. 
Additionally, the Land Tenure Services Project also demonstrated 
potential, contingent on favorable conditions at EIF, for randomized 
evaluations of the site specific interventions.
    (iii) The Farmer Income Support Project's inter-cropping and 
Technical Advisory Services components could be evaluated through 
rigorous randomized design methods. Favorable conditions at EIF 
permitting randomized allocation of particular interventions such as 
agricultural information will allow for comparison between unbiased 
control and treatment groups.
    (iv) Additionally, linkages between the water, roads, and land 
interventions could be rigorously evaluated. For example, areas that 
receive more than one intervention will be compared to areas that only 
receive one of the interventions.
    Impact evaluations will be used to assess Program and Project 
progress and effectiveness. The M&E Plan will take into consideration 
the time period various projects will demonstrate their benefits and 
impacts. It is anticipated that the impact evaluations' lifespan could 
extend well beyond the five-year implementation period and flexibility 
of design should be a priority. The M&E Plan also will specify 
different modes of contracting to carry out the evaluations, including 
independent and specialized contractors and agreements where necessary. 
If deemed appropriate, MCC or MCA-Mozambique may request ad-hoc 
evaluations or special studies of Projects, Project activities, or the 
Program as a whole at any time during or after the implementation.
    (b) Program-Level Evaluation. The M&E Plan will make provision for 
program-level evaluation. MCA-Mozambique, with the prior written 
approval of MCC, will 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 will engage such an 
independent evaluator. The program-level evaluation must at a minimum 
(i) evaluate the efficiency and effectiveness of the Program 
activities; (ii) estimate, quantitatively and in a statistically valid 
way, the causal relationship between the expected impact (to the extent 
possible), the intended outcomes and outputs; (iii) determine if and 
analyze the reasons why the Compact goal, Program Objective and Project 
Objectives 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-Mozambique, such an independent evaluator will enter 
into an auditor/reviewer agreement with MCA-Mozambique in accordance 
with this Compact.
    (c) Special Studies. The M&E Plan will identify and make provision 
for special studies, ad-hoc evaluations, and research that may be 
needed as part of the monitoring and evaluating of this Compact. Either 
MCC or MCA-Mozambique may request special studies or ad-hoc evaluations 
of Projects, Project activities, or the Program as a whole prior to the 
expiration of the Compact Term. If MCA-Mozambique engages an evaluator, 
the evaluator will be an externally contracted independent source 
selected by MCA-Mozambique, subject to the prior written approval of 
MCC, following a tender in accordance with the MCC Program 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.
    (d) Government Request for Ad hoc Evaluation or Special Study. If 
MCA-Mozambique 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-Mozambique resources may be applied to such 
evaluation or special study without MCC's prior written approval.

[[Page 40953]]

5. Other Components of the M&E Plan

    In addition to the Monitoring and Evaluation Components, the M&E 
Plan will 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 Program and Project 
Objectives and Project activity outcomes; provided, however, such 
assumptions and risks will not excuse performance of the Parties, 
unless otherwise expressly agreed to in writing by the Parties.

6. 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, will be in accordance with 
this M&E Annex, the PIA, and any other relevant supplemental agreement.
    (b) Modifications. Notwithstanding anything to the contrary in this 
Compact, including the requirements of this M&E Annex, MCC and the 
Government (or a mutually acceptable Government Affiliate or Permitted 
Designee) may modify or amend the M&E Plan or any component thereof, 
including those elements described herein, without amending this 
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. E7-14130 Filed 7-24-07; 8:45 am]
BILLING CODE 9211-03-P