On the ratification of the Letter of Agreement between the Republic of Kazakhstan and the International Bank for Reconstruction and Development on the allocation of a grant for the preparation of the second stage of the project "Post-privatization support for agriculture"

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On the ratification of the Letter of Agreement between the Republic of Kazakhstan and the International Bank for Reconstruction and Development on the allocation of a grant for the preparation of the second stage of the project "Post-privatization support for agriculture"

Law of the Republic of Kazakhstan dated June 9, 2004 No. 559

To ratify the Letter of Agreement between the Republic of Kazakhstan and the International Bank for Reconstruction and Development on the allocation of a grant for the preparation of the second stage of the project "Post-privatization support for Agriculture", signed in Astana on November 27, 2003.

President of the Republic of Kazakhstan

Unofficial translation

World Bank 1818 N. Street N.W. (202) 477-1234 International Bank Washington, D.C. Cable Address: INTBAFRAD Reconstruction and 20433 USA Cable Address: INDEVAS Development Association for International Development

September 16, 2003

To Mr. A.S. Yessimov, Deputy Prime Minister - Minister of Agriculture, 49 Abaya St., Astana 473000 Republic of Kazakhstan

Dear Mr. Yessimov,

Cas.: Grant from the Government of Japan for the Republic of Kazakhstan for the preparation of the second stage of the agricultural post-privatization support project Grant TF051894

On behalf of the International Bank for Reconstruction and Development (the Bank) and as the administrator of grants provided by the Government of Japan, we hereby express our consent to the allocation of a grant (Grant) in the amount not exceeding six hundred eighty thousand fifty US dollars (680 050) to the Republic of Kazakhstan (Recipient). The Grant is provided in response to the Recipient's request for financial assistance, as well as for the purposes and in accordance with the terms and conditions of the Annex to this Letter of Agreement. The Recipient, further confirming his consent, declares that he is authorized to conclude an agreement and withdraw Grant funds for the purposes and under the conditions specified above. Please note that according to the Bank's policy, this Letter of Agreement and any information on this issue must be published after the entry into force of this Letter of Agreement and receipt of the Recipient's consent to the disclosure of information. By signing this Letter of Agreement, the Recipient hereby gives his consent to such disclosure. I ask you to confirm your agreement with the above on behalf of the Recipient by affixing your signature and date and returning the attached copy of the Letter of Agreement to the Bank. This Letter of Agreement shall enter into force on the date on which the Bank notifies the Recipient of (1) receipt of a copy of the Letter of Agreement signed by you and (2) acceptance of confirmations satisfactory to the Bank indicating that the Letter of Agreement has been duly authorized or ratified, signed and delivered on behalf of the Recipient and It is legally binding on the Recipient in accordance with the terms of the Letter of Agreement.

Sincerely yours,

On behalf of the International Bank for Reconstruction and Development

_________________________ Dennis de Trey Director, Central Asia Regional Office, Europe and Central Asia Region

Agreed

Republic of Kazakhstan

Signature _____________ Name: A. Yessimov, Position: Deputy Prime Minister of the Republic of Kazakhstan - Minister of Agriculture of the Republic of Kazakhstan Date: 11/27/2003

Application

Objectives, terms and conditions of the Grant

1. Goals and activities

1.1. The purpose of the Grant is to assist in the preparation of the second phase of the Agricultural Post-Privatization Support Project (PPSH II), the main objectives of which are: (a) to further develop rural financial markets and expand the access of small and medium-sized businesses in rural areas to commercial financial services; (b) supporting sustainable microfinance schemes in rural areas providing financial services to the poorest rural populations who do not have access to banking services; (c) improving the legislative and institutional framework for rural lending; and (d) building institutional capacities for the development of consulting services in rural areas (Project). The activities for which the Grant(s) is being provided are listed below: (a) provision of technical assistance to: (1) simplify the rural loan approval procedure that was established during Phase I and prepare revised loan approval guidelines, (2) prepare revised rural loan guidelines for Participating Financial Institutions (UFA), taking into account the redirection of the project's focus to small enterprises, (3) strengthening opportunities, established in commercial banks to evaluate and monitor lending to rural enterprises and the referral of existing loans to suitable farmers, and the successful operation, (4) reviewing existing loan/credit operations in the country, supported by the Government and donors, and providing recommendations for improving the loan processing and approval process, and (5) training the UFA loan staff with an indicative worth 128,500 USD; (b) support microfinance institutions by: (1) preparing the design of a small Rural Microfinance Center (Center) to be established within the framework of the PPSH II project, (2) building confidence in selected microfinance institutions and increasing their sustainability, (3) defining the functions and responsibilities of the Center, writing the charter, operational guidelines and staff training, (4) strengthening financial management, accounting and reporting skills, (5) strengthening the capacity of small rural microfinance institutions to achieve financial sustainability, with an estimated cost of US$ 233,300; (c) providing technical assistance for the development of the information and consulting component of the project with an implementation plan, identifying the needs of the population through seminars for stakeholders, as well as the conclusion of improved contractual agreements between consultants, donors and beneficiaries, with an estimated cost of US$ 57,750; (d) developing the basis for a sustainable financial scheme in rural areas, including institutional and legal reforms to improve rural lending and implement a risk management system, with an estimated cost of US$ 133,800; (e) technical assistance to carry out: (1) social analysis of the project; (2) environmental assessment; (3) preparation of project documents and implementation plans; (4) Grant audit, with an estimated cost of 126,700 USD.

2. General implementation issues

2.1. The Recipient, through the Ministry of Agriculture, must: (a) carry out Activities with due diligence and efficiency; (b) provide timely financing, equipment, services and other resources required for this purpose; (c) provide all information related to Activities and the use of Grant funds in response to reasonable requests from the Bank; (d) exchange views from time to time with representatives of the Bank on the progress and results of the Activities; (e) take the necessary measures to enable the Bank to visit the territory of Kazakhstan for purposes related to the Grant; and (f) ensure that the goods and services funded by the Grant are used exclusively for Project purposes. Not limited to the above, the Recipient will, at the request of the Bank, prepare and submit to the Bank as soon as possible after the completion of the Events a report on the results and impact of the Events that meets the Bank's requirements in form and content.

3. Purchases

3.1. Except in special cases agreed with the Bank, the procurement of consultants' services and goods required for the implementation of events, which will be financed from the Grant funds, must be carried out in accordance with the provisions of Appendix I to this Annex. 3.2. The Recipient shall ensure that all imported goods subject to Grant financing are insured against the risks associated with their purchase, transportation and delivery to the place of use or installation, and that the corresponding insurance indemnity is paid in freely convertible currency in order to ensure the replacement or repair of such goods. The Recipient shall ensure that the operation and maintenance of any facilities related to the performance of Activities is always carried out using appropriate methods and that any repairs or upgrades to such facilities are carried out promptly as necessary.

4. Withdrawal of Grant funds from the account

4.1. The Grant funds will be deposited into an account opened by the Bank at its expense in the name of the Recipient (Grant Account), and may be withdrawn from it by the Recipient in accordance with the terms of this Section 4 for the cost of services, at a reasonable price, necessary for the implementation of activities funded by the Grant. 4.2. The table below sets out the Categories of Expenditures to be funded from the Grant funds, the allocation of Grant funds for each category, as well as the percentage of expenditures by type funded in each Category.:

Cost category Amount of expenses allocated as % of the Grant funds ( in US dollars )

Consulting services, 630,800 100% including audit

Seminars 12,750,100%

Goods 12,500 100% of expenses in foreign currency, 100% of expenses in local currency (cost free- factory) and 85% of expenses in local currency for other items in the framework of purchases on the domestic market

Operating expenses 24,000 85%

Total 680,050

For the purposes of this paragraph, the term: (a) "Expenses in foreign currency" means expenses in the currency of any country other than the Republic of Kazakhstan for the payment of goods or services supplied from the territory of any country other than the Republic of Kazakhstan, and the term "expenses in local currency" means any expenses other than expenses in foreign currency. currency, provided, however, that if the currency of the Republic of Kazakhstan is also the currency of another country from whose territory goods and services are supplied, expenses in such currency for these goods and services will be considered as expenses in foreign currency; b) "Seminars" means seminars conducted by interested parties with the participation of local executive authorities, farmers, and local businessmen to determine the needs of the rural population for consulting services provided under the project; c) "Operating expenses" means overhead costs incurred as a result of the grant implementation and management, including office appliances and communications; as well as the operational costs incurred by the Center during its initial period of operations, including office supplies, preparation, translation, publication and distribution of technical assistance and information materials, and other reasonable and necessary activities directly related to the preparation, management and monitoring of the Project, for which the Bank's consent may be obtained. 4.3. Contrary to the terms of clause 4.2 above: (a) it is not permitted to withdraw funds from the Grant account: (1) for payments for expenses incurred prior to the date of signing this Letter of Agreement by the Bank; (2) for payment of any taxes levied by the Recipient or in the Recipient's territory; (3) for expenses incurred in the territory any country that is not a member of the Bank, or for goods produced in these territories or services provided by them; or (4) for the purpose of making payments to individuals or legal entities, if such payments, in the opinion of the Bank, are prohibited by a decision of the United Nations Security Council under Chapter VII of the Charter of the United Nations; (b) funds are not withdrawn from the account after March 30, 2004 or a later date (Closing Date) set by the Bank in accordance with written notification to the Recipient, except in special circumstances when the Closing Date may be postponed beyond the date of the initial approval by the Bank of the Project financing. However, funds may be withdrawn from the account after the Closing Date to pay for expenses incurred prior to the Closing Date if the relevant application is received by the Bank within four months after the Closing Date, after which any amount of unused Grant funds in the Grant account will be cancelled.; (c) if, in the opinion of the Bank, the amount of the Grant allocated under any item specified in the table in paragraph 4.2 proves insufficient to finance the costs of this item, the Bank, by sending a written notification to the Recipient, may transfer to this item such amount of the Grant funds allocated for another item, which, in accordance with the according to the Bank, it will not be required to finance other expenses. 4.4. When the Recipient wishes to withdraw a certain amount of funds from the Grant account, he must send to the Bank a written request for withdrawal of this amount in the form specified by the Bank. Withdrawal requests must be: (a) signed on behalf of the Recipient by the Minister of Finance or another person authorized by him in writing; and (b) accompanied, at the reasoned request of the Bank, by confirmation of support for the application. Certified signature samples of the person authorized to sign withdrawal requests must be submitted with the first application containing his or her signature. Each request for withdrawal of Grant funds and confirmation of its support must be sufficient in form and content to convince the Bank that the Recipient has the right to withdraw this amount of funds that will be used for Events. The Bank pays the funds withdrawn by the Recipient from the Grant account only to the Recipient or at his request. 4.5. The Bank may require that withdrawals from the Grant Account be made on the basis of expense statements to pay for the costs of contracts for: (a) consulting firms with a value of less than the equivalent of USD 50,000; (b) the services of individual consultants worth less than the equivalent of US$20,000; and (c) the supply of goods; (d) training and seminars; and (e) operating expenses; and all this is carried out in accordance with the conditions that the Bank defines in the notification to the Recipient. 4.6. Withdrawal of Grant funds is made in the Grant currency. The Bank, at the request of the Recipient and acting as the Recipient's representative, buys with the Grant currency withdrawn from the Grant Account those currencies that are necessary to pay for expenses financed from the Grant funds. If, for the purposes of this Letter of Agreement, it is necessary to determine the value of one currency in relation to another, this value is reasonably determined by the Bank. 4.7. To facilitate the implementation of Measures, the Recipient may open and maintain a special deposit account in US dollars (Special Account) with a commercial bank of the Republic of Kazakhstan on terms and conditions satisfactory to the Bank, including appropriate protection against bankruptcy, confiscation or seizure. Deposits to a Special Account and payments must be made in accordance with the provisions of Appendix II to this Annex.

5. Reports and audits

5.1. (a) The Recipient will maintain or motivate the financial management system, including records and reports, and prepare official financial reports in a form acceptable to the Bank that adequately reflect, in accordance with clear accounting, operations, resources and expenses related to Events. (b) The Recipient must: (1) audit the records, accounts and financial statements referred to in subparagraph (a) above, as well as the records and reports on the Special Account, in accordance with auditing standards acceptable to the Bank and consistently applied. The audit should be conducted by independent auditors acceptable to the Bank; (2) provide the Bank, as soon as possible, but no later than 6 months after the end of each such year, (A) certified copies of the official financial statements specified in paragraph (a) of this section for each audited year., and (B) an opinion on these reports, records and accounts and a report on this audit conducted by these auditors, to the extent and in detail reasonably requested by the Bank; and (3) provide the Bank from time to time with other information related to the said records and reports and their audit, as well as the said auditors, in response to reasonable requests from the Bank. (c) for all expenses for which funds have been withdrawn from the Grant account based on expense statements, the Recipient must: (1) maintain or ensure that records or reports reflecting such expenses are maintained in accordance with subparagraph (a) above.; (2) keep all records (contracts, orders, invoices, receipts, and other documents) confirming these expenses for at least one year after the Bank receives the audit report for the financial year in which the Grant account was last withdrawn; (3) give Bank representatives the opportunity to verify these records; and (4) ensure that these records and reports are included in the annual audit referred to in subparagraph (b) above, and that such audit report contains a separate opinion from the aforementioned auditors on the reliability of the information in the expense statements provided during the financial year, as well as the procedures and internal controls for their preparation., to confirm the validity of the withdrawal.

6. Suspension and termination

6.1. The Bank may at any time, by notifying the Recipient, suspend the Recipient's right to further withdraw money from the Grant Account if the following occurs and continues: (a) the Recipient fails to fulfill any of the obligations set forth here; or (b) suspends the Recipient's right or any other organization to which the Bank has provided a loan under the guarantee of the Republic of Kazakhstan, to withdraw funds under any Bank Loan Agreement or any development loan agreement with the International Development Association. 6.2. The Bank may, by notifying the Recipient in writing, revoke the Recipient's right to further withdraw funds from the Grant Account: (a) at any time after the Recipient's right to withdraw funds from the Grant Account has been suspended for the reasons set out in paragraph 6.1 above; or (b) if the Recipient has not taken actions to the satisfaction of the Bank, implementation of the Activities, within six months after the actual date of their start; or (c) if the Bank has decided, at any time, after consultation with the Recipient, to terminate its support for this Project; or (d) if the Recipient has withdrawn his request for the Bank's assistance in financing the Project.

Appendix I

Purchases

Section I. Consulting services

Part A: General provisions

Consultant services are procured in accordance with the provisions of Sections I and IV of the Guidance on the Selection and Hiring of Consultants by World Bank Borrowers, published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002 (Consultant Guidance), as well as in accordance with paragraph 1 of Annex 1 to the Guidance on consultants, Appendix 2 to the Consultant Manual and the following provisions of this section.

Part B: Selection based on quality and cost

1. With the exception of other provisions of Part B of this section, consultant services are purchased under contracts awarded in accordance with the provisions of Section II of the Consultant Guidelines and the provisions of paragraphs 3.13-3.18 of the Guidelines, which apply to the selection of consultants based on quality and cost.

Part B: Other procedures for the selection of Consultants

1. Quality selection The services for the preparation of the institutional development component under paragraph 1.1 (d) of the Annex may be procured under contracts awarded in accordance with paragraphs 3.1 to 3.4 of the Consultant Guidelines.

2. Minimum cost selection Financial audit services under paragraph 1.1 (e) of the Annex, with an estimated cost of less than $200,000, may be procured under contracts awarded in accordance with paragraphs 3.1 and 3.6 of the Consultant Guidelines.

3. Selection based on the qualifications of consultants Services for the preparation of the rural credit facility component under paragraph 1.1 (a), the microfinance component under paragraph 1.1 (b), and the consulting component under paragraph 1.1 (c) of the Annex, with an estimated cost of less than US$ 100,000 per contract, may be procured under contracts, awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines.

4. Individual consultants The services of individual consultants for: (a) financial management under paragraph 1.1 (b), project management, social and environmental assessment, project preparation assistance and translation under paragraph 1.1 (e) of the Annex are procured under contracts awarded in accordance with the provisions of paragraphs 5.1-5.3 of the Consultant Manual; and (b) the project coordinator under paragraph 1.1 (e) of the Annex may be selected if there is a single applicant company in accordance with the provisions of paragraphs 5.3 and 5.4 of the Consultant Guidelines, subject to approval by the Bank.

Part D: The Bank's review of the selection of consultants

1. Selection planning Before sending any invitations to bid to the consultants, a selection plan for consultants should be submitted for consideration and approval by the Bank, including the estimated cost of contracts, the layout of contract packages, and applicable selection criteria and procedures. This plan should be updated every 6 months throughout the period of implementation of the Measures and each updated version should be sent for consideration and approval by the Bank. All advisory services should be selected in accordance with this plan (subject to periodic clarifications), which must be approved by the Bank.

2. Preliminary review (a) For each contract involving the hiring of consulting firms with an estimated value of US$ 50,000 or higher, the procedures set out in paragraphs 2, 3 and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) for each contract providing for the hiring of individual consultants, the estimated cost of whose services is equivalent to 20,000 US dollars or more, and a consultant selected if there is one applicant company, a report on the results of comparing the qualifications and experience of candidates, as well as terms of reference and conditions of hiring consultants, is submitted for preliminary review and approval by the Bank.. The contract is awarded only after obtaining the Bank's consent. Such contracts are subject to the provisions of paragraph 3 of Annex 1 to the Guidance on Consultants.

3. Follow-up review Each contract that is not governed by the provisions of paragraph 2 of this Part is subject to the procedures set out in paragraph 4 of Annex 1 to the Guidance on Consultants.

Section II. Purchase of goods

The goods are purchased: (a) in accordance with the provisions of Section I of the IBRD Loans and MAP Loans Procurement Guidelines, published by the Bank in January 1995 and reviewed in January and August 1996, September 1997 and January 1999 (Guidelines); and (b) for contracts awarded using procedures procurement in free trade in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. Such contracts are subject to the review procedures set out in paragraph 4 of Annex 1 to the Guidelines, provided that the word "proposals" in this paragraph is read as "prices".

Appendix II

Special account

1. For the purposes of this Addendum: (a) the term "eligible items" means the items listed in the table in paragraph 4.2 of the Annex to this Letter of Agreement; (b) the term "eligible expenses" means expenses for the payment of a reasonable cost of goods and services necessary for the implementation of Activities and to be funded from the Grant; and (c) The term "Authorized Contribution" means an amount equivalent to US$ 75,000 that must be withdrawn from the Grant Account and deposited into a Special Account in accordance with paragraph 3 (a) of this Addendum. 2. Payments from a Special Account are made solely to finance eligible expenses in accordance with the provisions of this Addendum. 3. Upon receipt by the Bank of documents satisfactory to it confirming that the Special Account is properly opened, the withdrawal of the Authorized Amount and subsequent withdrawal of funds to replenish the Special Account shall be carried out as follows: (a) the Recipient shall send to the Bank an application or requests for depositing into the Special Account an amount or amounts not exceeding the total amount of the Authorized Amount. Based on such an application or applications, the Bank, on behalf of the Recipient, withdraws from the Grant Account and deposits into the Special Account the amount or amounts requested by the Recipient; (b) (1) in order to replenish the Special Account, the Recipient sends requests to the Bank for depositing funds into the Special Account, the frequency of which is determined by the Bank; (2) prior to or together with the submission of such an application, the Recipient shall send to the Bank the documentation and other supporting documents required in accordance with paragraph 4 of this Addendum for making the payment or payments in connection with which funds are requested to replenish the Special Account. Based on each application received, the Bank, on behalf of the Recipient, withdraws from the Grant Account and deposits into a Special Account the amount requested by the Recipient, which, as shown by the above-mentioned and other documents, will be paid from a Special Account to pay acceptable expenses. All funds deposited in this way are withdrawn by the Bank from the Grant Account within the framework of the eligible articles and in appropriate equivalent amounts, confirmed by the above and other documents. 4. With respect to each payment made by the Recipient from a Special Account, the Recipient must, at the reasonable request of the Bank, submit to the Bank documents and other evidence that this payment was made solely to cover eligible expenses. 5. Despite the provisions of paragraph 3 of this Addendum, the Bank is not obligated to deposit additional funds into a Special Account: (a) if at some stage the Bank decides that in the future the Recipient must withdraw all funds directly from the Grant Account; (b) if the Recipient does not submit to the Bank, within the time period specified in sub-paragraph (2) of paragraph 5.1 (b) of the Annex to this Letter of Agreement, any audit report that must be submitted to the Bank in accordance with this paragraph in connection with the audit of accounting documents and accounting accounts related to the Special (c) if at any stage the Bank notifies the Recipient of its intention to suspend, in whole or in part, the Recipient's right to withdraw the Grant from the Account in accordance with the provisions of paragraph 6.1 of the Annex to this Letter of Agreement; or (d) as soon as the total amount of the withdrawn Grant funds is equal to the equivalent of twice the Authorized Deduction. After that, the remaining unspent Grant amount is withdrawn from the Grant Account using the procedures that the Bank will determine in the appropriate notification to the Recipient. Such further withdrawals are made only after and to the extent that the Bank is satisfied that all funds remaining in the Special Account at the time of such notification will be used to pay eligible expenses. 6. (a) If the Bank decides at any stage that any payment from the Special Account: (1) was made to cover expenses or amounts that are not acceptable in accordance with paragraph 2 of this Addendum; or (2) was not confirmed by documents submitted to the Bank, the Recipient, upon receiving the appropriate notification from the Bank, must immediately: (A) submit additional supporting documents requested by the Bank; or (B) deposit to a Special Account (or, at the request of the Bank, refund to the Bank) an amount equal to the amount of such payment or that part of it that is not valid or has not been confirmed. In the absence of other arrangements with the Bank, the Bank will not deposit any additional funds into the Special Account until the Recipient submits such supporting documents or deposits the funds or returns them. (b) If the Bank decides at any stage that any amount remaining in the Special Account will not be required to make further payments to finance eligible expenses, the Recipient, upon receiving the appropriate notification from the Bank, must immediately refund the remaining amount to the Bank.

I hereby certify the authenticity of the translation of this text from English into Russian.

Vice Minister of Agriculture of the Republic of Kazakhstan

I hereby certify that this text is a complete and authentic copy of the text of the Letter of Agreement between the Republic of Kazakhstan and the International Bank for Reconstruction and Development on the allocation of a grant for the preparation of the second stage of the project "Post-privatization Support for Agriculture" dated November 27, 2003 (in English and unofficial translations of the document in Kazakh and Russian).

Advisor to the International Law Department of the Ministry of Foreign Affairs of the Republic of Kazakhstan

(RCPI note: the following text is in English (see the paper version).

President

Republic of Kazakhstan

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