CONFORMED COPY

CREDIT NUMBER 946 IND

Development Credit Agreement(Yogyakarta Rural Development Project)

between

REPUBLIC OF INDONESIA

and

INTERNATIONAL DEVELOPMENT ASSOCIATION

Dated August 13, 1979

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CREDIT NUMBER 946 IND

DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated August 13, 1979, between REPUBLIC OF

INDONESIA (hereinafter called the Borrower) and INTERNATIONAL

DEVELOPMENT ASSOCIATION (hereinafter called the Association).

ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all

the provisions of the General Conditions Applicable to Development

Credit Agreements of the Association, dated March 15, 1974,with the same force and effect as if they were fully set forthherein (said General Conditions Applicable to Development CreditAgreements of the Association being hereinafter called the

General Conditions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in the

General Conditions have the respective meanings therein set forth

and the following additional terms have the following meanings:

(a) "ATDC" means the Agricultural Technical Development

Center referred to in Part A.1 (b) of Schedule 2 to this Agree-ment;

(b) "ATDSC" means the Agricultural Technical DevelopmentSubcenters referred to in Part A.1 (b) of Schedule 2 to this

Agreement;

(c) "BAPPEDA" means the Borrower's Provincial DevelopmentPlanning Agency for the Special Province of Yogyakarta;

(d) "BRI" means Bank Rakyat Indonesia;

(e) "GK" means Gunung Kidul District of the Special Province

of Yogyakarta;

(f) "KP" means Kulon Progo District of the Special Provinceof Yogyakarta;

(g) "PHS" means the Dinas Kesehatan Propinsi (ProvincialHealth Service) of the Special Province of Yogyakarta; and

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(h) "TDC" means the Technical Development Cell referred

to in Part A.1 (a) of Schedule 2 to this Agreement.

ARTICLE II

The Credit

Section 2.01. The Association agrees to lend to the Borrower,

on the terms and conditions in the Development Credit Agreement

set forth or referred to, an amount in various currencies equiv-alent to twelve million dollars ($12,000,000).

Section 2.02. The amount of the Credit may be withdrawn

from the Credit Account in accordance with the provisions of

Schedule 1 to this Agreement, as such Schedule may be amended from

time to time by agreement between the Borrower and the Associa-

tion, for expenditures made (or, if the Association shall so

agree, to be made) in respect of the reasonable cost of goods and

services required for the Project and to be financed out of the

proceeds of the Credit.

Section 2.03. Except as the Association shall otherwise

agree, procurement of the goods and civil works required for the

Project and to be financed out of the proceeds of the Credit,

shall be governed by the provisions of Schedule 3 to this Agree-ment.

Section 2.04. The Closing Date shall be March 31, 1987

or such later date as the Association shall establish. The

Association shall promptly notify the Borrower of such later

date.

Section 2.05. The Borrower shall pay to the Association

a service charge at the rate of three-fourths of one per cent

(3/4 of 1%) per annum on the principal amount of the Credit

withdrawn and outstanding from time to time.

Section 2.06. Service charges shall be payable semiannuallyon April 1 and October 1 in each year.

Section 2.07. The Borrower shall repay the principal amount

of the Credit in semiannual installments payable on each April 1

and October 1 commencing October 1, 1989, and ending April 1,

2029, each installment to and including the installment payable on

April 1, 1999, to be one-half of one per cent (1/2 of 1%) of such

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principal amount, and each installment thereafter to be one andone-half per cent (1-1/2%) of such principal amount.

Section 2.08. The currency of the United States of Americais hereby specified for the purposes of Section 4.02 of theGeneral Conditions.

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out the Projectwith due diligence and efficiency and in conformity with appro-priate administrative, agricultural, engineering and financialpractices, and shall provide, promptly as needed, the funds,facilities, services and other resources required for the purpose.

(b) Without limitation on the foregoing subsection (a)the Borrower shall provide, or cause to be provided, (i) creditfacilities sufficient to meet the additional demand for agricul-tural credit generated by Project activities, and (ii) creditfacilities through Bank Rakyat Indonesia to meet the additionaldemand generated by the Project for loans to small-scale enter-preneurs.

Section 3.02. (a) The Borrower undertakes to insure, ormake adequate provision for the insurance ,f, the imported goodsto be financed out of the proceeds of the Credit against hazardsincident to the acquisition, transportation and delivery thereofto the place of use or installation, and for such insuranceany indemnity shall be payable in a currency freely usable bythe Borrower to replace or repair such goods.

(b) Except as the Association shall otherwise agree, theBorrower shall cause all goods and services financed out ofthe proceeds of the Credit to be used exclusively for the Project.

Section 3.03. (a) The Borrower shall furnish to the Associ-ation, promptly upon their preparation, the plans, specifications,reports, contract documents and work and procurement schedules forthe Project, and any material modifications thereof or additionsthereto, in such detail as the Association shall reasonablyrequest.

(b) The Borrower: (i) shall maintain records and proceduresadequate to record and monitor the progress of the Project

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(including its cost and the benefits to be derived from it), toidentify the goods and services financed out of the proceeds ofthe Credit, and to disclose their use in the Project; (ii) shallenable the Association's accredited representatives to visit thefacilities and construction sites included in the Project and toexamine the goods financed out of the proceeds of the Credit andany relevant records and documents; and (iii) shall furnish to the

Association at regular intervals all such information as theAssociation shall reasonably request concerning the Project, its

cost and, where appropriate, the benefits to be derived from it,the expenditure of the proceeds of the Credit and the goods andservices financed out of such proceeds.

(c) The Borrower shall review, in consultation with the

Association, the progress and activities of the Project on orabout December 1, 1981, and shall initiate the additi.onal agricul-tural program only after such review and consultation has takenplace.

(d) Promptly after completion of the Project, but in anyevent not later than six months after the Closing Date or such

later date as may be agreed for this purpose between the Borrower

and the Association, the Borrower shall prepare and furnish to theAssociation a report, of such scope and in such detail as the

Association shall reasonably request, on the execution and initial

operation of the Project, its cost and the benefits derived and tobe derived from it, the performance by the Borrower and the

Association of their respective obligations under the DevelopmentCredit Agreement and the accomplishment of the purposes of the

Credit.

Section 3.04. The Borrower shall take, or cause to be taken,

all such action as shall be necessary to acquire as and when

needed all such land and rights in respect of land as shall berequired for carrying out the Project and shall furnish to the

Association, promptly after such acquisition, evidence satis-

factory to the Association that such land and rights in respect of

land are available for purposes related to the Project.

Section 3.05. In order to assist in carrying out the Project,

the Borrower shall employ, or cause to be employed, consultantswhose qualifications, experience and terms and conditions of

employment shall be satisfactory to the Borrower and the Associa-

tion.

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ARTICLE IV

Other Covenants

Section 4.01. (a) The Borrower shall maintain or cause tobe maintained records adequate to reflect in accordance withconsistently maintained appropriate accounting practices theoperations, resources and expenditures, in respect of the Project,of the departments or agencies of the Borrower responsible forcarrying out the Project or any part thereof, including, withoutlimitation to the foregoing, separate accounts reflecting allexpenditures described in Categories 5 and 6 of the table inparagraph 1 of Schedule 1 to this Agreement on account of whichwithdrawals are requested from the Credit Account on the basis ofcertificates of expenditure.

(b) The Borrower shall retain, until one year after theClosing Date, all records (orders, invoices, bills, receiptsand other documents) evidencing the expenditures on account ofwhich withdrawals are requested from the Credit Account on thebasis of certificates of expenditure and shall enable the Associ-'ation's accredited representatives to examine such records.

(c) The Borrower shall cause the Provincial Bureau ofFinance to: (i) establish a separate account for the purposes ofthe Project; (ii) have such account for each fiscal year audited,in accordance with appropriate auditing principles consistentlyapplied, by independent auditors acceptable to the Association;(iii) furnish to the Association as soon as available, but in anycase not later than six months after the end of each such year,(A) certified copies of the said accounts for such year as soaudited and (B) the report of such audit by said auditors, of suchscope and in such detail as the Association shall have reasonablyrequested, including, without limitation to the foregoing, aseparate opinion by said auditors in respect of the expendituresand records referred to in Section 4.01 (b) of this Agreement asto whether the proceeds of the Credit withdrawn from the CreditAccount on the basis of certificates of expenditure have been usedfor the purpose for which they were provided; and (iv) furnish tothe Association such other information concerning such accountsand the audit thereof as the Association shall from time to timereasonably request.

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ARTICLE V

Effective Date; Termination

Section 5.01. The following event is specified as an addi-tional condition to the effectiveness of the Development CreditAgreement within the meaning of Section 12.01 (b) of the GeneralConditions, namely, that the Project Coordination Unit referredto in Part E of the Project shall have been established andthe project coordinator, project financial officer and projectbudgetary officer shall have been appointed.

Section 5.02. The date November 13, 1979, is hereby speci-fied for the purposes of Section 12.04 of the General Conditions.

Section 5.03. The obligations of the Borrower shall cease and

determine on the date on which the Development Credit Agreementshall terminate or on a date twenty years after the date of thisAgreement, whichever shall be the earlier.

ARTICLE VI

Representatives of the Borrower; Addresses

Section 6.01. The Ministry of Finance of the Borrower

is designated as representative of the Borrower for the purposesof Section 11.03 of the General Conditions.

Section 6.02. The following addresses are specified forthe purposes of Section 11.01 of the General Conditions:

For the Borrower:

Ministry of Financec/o Director General for International

Monetary AffairsJalan Lapangan Banteng Timur 4Jakarta, Indonesia

TFlex:

DITJMON JKT 46415DEPKEU JKT 44319

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For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INDEVAS 440098 (ITT)Washington, D.C. 248423 (RCA)

64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting throughtheir representatives thereunto duly authorized, have causedthis Agreement to be signed in their respective names in theDistrict of Columbia, United States of America, as of the day and

year first above written.

REPUBLIC OF INDONESIA

By /s/ D. AshariAuthorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

By Is/ S. S. HusainRegional Vice President

East Asia and Pacific

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SCHEDULE 1

Withdrawal of the Proceeds of the Credit

1. The table below sets forth the Categories of items to be

financed out of the proceeds of the Credit, the allocation of the

amounts of the Credit to each Category and the percentage of

expenditures for items so to be financed in each Category:

Amount of the

Credit Allocated % of

(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Civil works 1,700,000 70%

(2) Equipment and 200,000goods

(i) imported 100% of foreigndirectly expenditures

(ii) procured 70%locally

(iii) locally manu- 100% of localfactured expenditures

(ex-factory)

(3) Vehicles 300,000

(i) procured 40%locally

(ii) imported 100% of foreigndirectly expenditures

under inter-

national

competitive

bidding

(4) Consultancy and 2,000,000 100%

training

(5) Operating costs 5,400,000 70%

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Amount of theCredit Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(6) Project Preparation 400,000 70%and related activities

(7) Unallocated 2,000,000

TOTAL 12,000,000

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expendituresin the currency of any country other than the Borrower and forgoods or services supplied from the territory of any country otherthan the Borrower; and

(b) the term "local expenditures" means expenditures inthe currency of the Borrower and for goods or services suppliedfrom the territory of the Borrower.

3. The disbursement percentages have been calculated in com-pliance with the policy of the Association that no proceeds of theCredit shall be disbursed on account of payments for taxes leviedby, or in the territory of, the Borrower on goods or services, oron the importation, manufacture, procurement or supply thereof; tothat end, if the amount of any such taxes levied on or in respectof any item to be financed out of the proceeds of the Creditdecreases or increases, the Association may, by notice to theBorrower, increase or decrease the disbursement percentage thenapplicable to such item as required to be consistent with theaforementioned policy of the Association.

4. Notwithstanding the provisions of paragraph 1 above, no

withdrawals shall be made in respect of:

(a) payments made for expenditures prior to the date of

this Agreement;

(b) expenditures with respect to the agricultural component(Part A of Project) until the TDC referred to in Part A.1 (a) of

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the Project shall have been established and staffed by an agri-

cultural economist, senior agronomist, land use/soil conservation

specialist and tree crop specialist, one of whom shall have been

appointed component manager;

(c) expenditures with respect to the small-scale enterprise

component (Part B of Project) until the technical cell referred

to in Part B of the Project shall have been established and

staffed by senior specialists, one of whom shall have been

appointed component manager;

(d) expenditures with respect to the rural health component

(Part C.1 of Project) until a contract satisfactory to the

Association shall have been signed between PHS, on behalf of the

Provincial Government, and the Comprehensive Community Health Care

Department of Gadjah Mada University's Faculty of Medicine, to

provide the training staff for Part C.1 of the Project and a

qualified and experienced full-time component manager shall have

been appointed;

(e) expenditures with respect to the rural water supply

component (Part C.2 of Project) until a contract satisfactory to

the Association shall have been signed by PHS, on behalf of the

Provincial Government, for the provision of the services referred

to in Part C.2 of the Project and a qualified and experienced

full-time component manager shall have been appointed;

(f) expenditures with respect to the rural roads component

(Part C.3 of Project) until a qualified and experienced full-time

component manager shall have been appointed in each district;

and

(g) expenditures with respect to the community participa-

tion training component (Part D of Project) until a contract

satisfactory to the Association shall have been signed by the

Directorate of Rural Development in Yogyakarta for the provision

of the services referred to in Part D of the Project and a quali-

fied and experienced full-time component manager shall have

been appointed.

5. Notwithstanding the allocation of an amount of the Credit

or the disbursement percentages set forth in the table in para-

graph 1 above, if the Association has reasonably estimated

that the amount of the Credit then allocated to any Category

will be insufficient to finance the agreed percentage of all

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expenditures in that Category, the Association may, by notice tothe Borrower: (i) reallocate to such Category, to the extentrequired to meet the estimated shortfall, proceeds of the Creditwhich are then allocated to another Category and which in theopinion of the Association are not needed to meet other expen-ditures, and (ii) if such reallocation cannot fully meet theestimated shortfall, reduce the disbursement percentage thenapplicable to such expenditures in order that further withdrawalsunder such Category may continue until all expenditures thereundershall have been made.

6. If the Association shall have reasonably determined thatthe procurement of any item in any Category is inconsistent withthe procedures set forth or referred to in this Agreement, noexpenditures for such item shall be financed out of the proceedsof the Credit and the Association may, without in any wayrestricting or limiting any other right, power or remedy of theAssociation under the Development Credit Agreement, by notice tothe Borrower, cancel such amount-of the Credit as, in the Associa-tion's reasonable opinion, represents the amount of such expendi-tures which would otherwise have been eligible for financing outof the proceeds of the Credit.

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SCHEDULE 2

Description of the Project

The Project, the first phase of a long-term development

program in the Special Province of Yogyakarta designed to improve

rural living conditions, focuses on Gunung Kidul District (GK) and

Kulon Progo District (KP) and consists of the components listed

below:

A. Agricultural Development

The agricultural development component consists of a combi-nation of technical development, including the development andinitial implementation of programs for preservation and optimum

use of existing land resources; improvement of inland fisheries;and livestock development.

1. Technical Development: (a) In order to supervise the

implementation of the Project's agricultural activities a Tech-nical Development Cell (TDC) will be established within the Dinas

Pertanian (Provincial Agriculture Service) in Yogyakarta. The

following qualified and experienced personnel will be employedfor the TDC, and with respect to non-Indonesians whose servicesare financed from the proceeds of the Credit, on terms and condi-

tions satisfactory to the Borrower and the Association: (i) not

later than November 1, 1979, an agricultural economist, senior

agronomist, land use/soil conservation specialist and tree cropsspecialist; and (ii) not later than April 1, 1980, an agronomist,

land use officer, animal husbandry officer and training coordi-nator/planner. TDC will liase closely with provincial and

national research and development bodies and will prepare, and

assist with the implementation of, annual work programs; and will,

through BAPPEDA (the Provincial Development Planning Agency),arrange for the allocation and timely release of appropriate

budgets and funds.

(b) The Borrower will establish (including the provision of

buildings, equipment and staff housing for) an Agricultural

Technical Development Center (ATDC) at Nglipar in GK to undertake

technical development and adaptive trials for upland farming. Two

Agricultural Technical Development Sub-centers (ATDSC), in HargoTirto and Banjar Oyo in KP, will be established with functions

similar to those of the ATDC but focusing on specific needs of

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those areas. The ATDC and ATDSCs will, no later than January 1,1980, and throughout the Project, be staffed by two qualified andexperienced (i) agronomists, (ii) land use/soil conservationspecialists, and (iii) tree crops specialists.

(c) Two central nurseries will be established, one at theATDC and one at the ATDSC in Hargo Tirto, to provide plantingmaterial for tree-farming improvement. A reforestation andsilvipasture program will be undertaken, including the provi-sion of credit and a cash subsidy to participating farmers.

(d) Soil conservation practices will be improved through,inter alia, the provision of terraces, the construction of whichwill be carried out by groups of local farmers who will be paid awage on the basis of a percentage of the market price of theirlabor sufficient to ensure effective participation. As part of theland development for the first crop after terrace construction,fertilizers will be provided free of charge. Plans for the main-tenance of soil conservation works shall be submitted to theAssociation for review not later than April 1, 1982.

(e) Adaptive research and technical development of a foodcrop program, including field trials, will be carried out atthe ATDC and each ATDSC.

(f) Staff training, design and support for the agriculturaldevelopment component will be provided, in relevant parts, amongothers, by the Central Research Agricultural Institute in Bogor;the Research Institutes in Estate Crops, Horticulture, and AnimalHusbandry; the Agency for Agricultural Extension, Training andEducation; the Watershed Management Project in Solo; and theGadjah Mada University.

2. The fisheries portion of this component is designedto increase the fresh water fish hatchery capacities in GK andKP, by rehabilitating and expanding two existing hatcheriesand building two new hatcheries (one in Bejiharjo and one inSedangsari). The hatchery plans and specifications will beprepared by the Dinas Perikanan (Provincial Fisheries Service) notlater than October' 1, 1979, and rehabilitation or constructionwill not begin until the Directorate General of Fisheries hasapproved such plans and specifications. All activities under thefisheries portion of the Project will be the responsibility of theProvincial Fisheries Service.

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3. The livestock portion of this component will aid in(a) improving genetic quality of beef cattle through artificialinsemination; (b) modernizing the facilities at Siyono cattlemarket; and (c) controlling diseases and parasites. The plans andspecifications for modernizing the cattle market will be preparedby the Dinas Peternakan (Provincial Livestock Service) not laterthan October 1, 1979, and such modernization will not begin untilthe Directorate General of Animal Husbandry has approved suchplans and specifications.

B. Small-Scale Enterprise Development

In order to formulate recommendations for development ofsmall-scale enterprises the Borrower will form a technical cellwhich will be responsible for establishing an information base.The technical cell will be composed of three qualified andexperienced senior specialists (an industrial economist, businessmanagement specialist and a technical officer), and six fieldstaff. The specialists, staff and a small-scale enterprise deve-lopment advisor shall be employed no later than February 1, 1980.A Small-Scale Enterprise Promotion Committee will coordinate thework of the participating parties and agencies.

C. Social Services Support and Rural Roads

The social services component will assist in improvingand providing a low-cost preventive health system, and improvingrural water supply. The rural roads component will strengthendistrict capabilities in low-cost village road construction.

i. The Provincial Health Service (PHS) will providecomprehensive training in health and nutrition to approximately3,200 kaders (volunteer health workers) and to approximately1,500 teachers. The training programs will be supported bythe provision of basic medicines and medical kits, teachingaids, equipment and vehicles. PHS will designate no later thanOctober 1, 1979, the following qualified and experienced person-nel: a component manager and three part-time assistant componentmanagers (one for the Kader program, one for School Health and onefor Water Supplies). PHS will be responsible for implementationof the health portion of the Project.

2. Accessible and safe drinking water will be providedto about 75,000 people in southern GK by construction of rainwatercatchment tanks. On or before September 1, 1979, the Borrower

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will furnish the Association with a list of criteria to be used

in selecting sites for installation of the water tanks, and

will also furnish a work plan for the first year of operation.

This portion of the Project will be executed by an appropriate

organization under contract to PHS. Under the contract a qualified

and experienced coordinator and six qualified and experienced

senior technicians will be employed by October 1, 1979.

3. District capabilities in road construction and main-

tenance will be strengthened, and low-cost village road con-

struction designs and techniques will be demonstrated, emphasizing

labor intensive methods. Overall management of this portion of

the Project will be with each District's Head of Public Works.

The Public Works Service in each District, in consultation with

villagers, will select roads to be improved, schedule work to be

done, and will formulate a long-term village road maintenance

plan. By April 1, 1982, this long-term plan will be submitted to

the Association for review.

D. Community Participation Training

The community participation training component assists in

strengthening the Borrower's capabilities in training staff on how

to elicit farmer involvement and ensuring that the communities

affected by the Project participate in Project decision-making.Training, follow-up and technical assistance will be provided by

an appropriate organization under contract with the Directorate

of Rural Development in Yogyakarta. In addition a fund for com-

munity mini-projects as identified by Directorate Pembangunan

Desa (Directorate of Rural Development) will be set up to encou-

rage hamlet involvement in development activities. The fund will

be established and administered, and expenditures made, pursuant

to policies and procedures formulated by the Directorate. Such

policies and procedures will be submitted to the Association for

review.

E. Project Organization Coordination and Evaluation

1. Responsibility for overall project management and

implementation guidance will rest with the Governor who will be

assisted by BAPPEDA, the relevant Bupatis and the heads of the

participating agencies. BAPPEDA, on behalf of the Governor, shall,

by January 1 of each year, send to the Association for review

copies of the approved annual work programs for the coming year.

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In order to strengthen BAPPEDA's capabilities in project manage-ment, organization and evaluation, BAPPEDA will establish aProject Coordination Unit (PCU) in its Evaluation and CoordinationDivision. The head of this Division will be the Project Coordi-nator. BAPPEDA will employ the following qualified and experiencedstaff for the PCU: (a) a project coordinator, a project financialofficer and a project budget officer; (b) not later than Janu-ary 1, 1980, a project monitoring officer, a project evaluationofficer, a procurement/disbursement officer, and two bookkeepers;and (c) not later than July 1, 1981, a project planning officer.

BAPPEDA will be responsible for overall project coordina-tion and for ensuring participation of the managers of eachProject component or sub-component in the coordination process.For these purposes, such managers will meet at least quarterlywith the Chairman of BAPPEDA, the relevant Bupatis and the head ofthe PCU to review and discuss implementation matters.

2. A fund will be established to assist in preparingfollow-up projects and to assist in solving specific problems ofProject implementation, such as financing services relating totechnical assistance, training and technical innovations. TheBorrower will submit detailed proposals for the use of this fundto the Association for approval. Any expenditures from this fundin excess of $15,000 equivalent will only be made after priorconsultation with, and approval of the Association.

The Project is expected to be completed by September 1, 1986.

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SCHEDULE 3

Procurement

A. International Competitive Bidding

1. Except as provided in Part B hereof, goods shall be procuredunder contracts awarded in accordance with procedures consistentwith those set forth in the "Guidelines for Procurement underWorld Bank Loans and IDA Credits" published by the Bank in March1977 (hereinafter called the Guidelines), on the basis of inter-national competitive bidding as described in Part A of the Guide-lines.

2. For goods to be procured on the basis of internationalcompetitive bidding, in addition to the requirements of paragraph1.2 of the Guidelines, the Borrower shall prepare anA forward tothe Association as soon as possible, and in any event not laterthan 60 days prior to the date of availability to the public ofthe first tender or prequalification documents relating thereto,as the case may be, a general procurement notice, in such form anddetail and containing such information as the Association shallreasonably request; the Association will arrange for the publi-cation of such notice in order to provide timely notificationto prospective bidders of the opportunity to bid for the goodsin question. The Borrower shall provide the necessary informationto update such notice annually so long as any goods remain to beprocured on the basis of international competitive bidding.

3. For the purpose of evaluation and comparison of bids forthe supply of goods to be procured on the basis of internationalcompetitive bidding, (i) bidders shall be required to statein their bid the c.i.f. (port of entry) price for imported goods,or the ex-factory price for domestically manufactured goods;(ii) customs duties and other import taxes on imported goods,and sales and similar taxes on domestically supplied goods, shallbe excluded; and (iii) the cost to the Borrower of inland freightand other expenditures incidental to the delivery of goods tothe place of their use or installation shall be included.

4. Contracts for vehi-les and equipment and goods shall begrouped in packages of $100,000 equivalent or more so as toencourage competition and to permit bulk procurement consistentwith appropriate technical and procurement practices.

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B. Other Procurement Procedures

1. Contracts for civil works shall be grouped so as to encouragecompetition and shall be awarded on the basis of competitivebidding advertised locally.

2. Contracts for equipment and goods which cannot be grouped toform packages estimated to cost $100,000 equivalent or more may beawarded on the basis of the Borrower's normal procedures; providedthat the aggregate amount of such contracts shall not exceed$500,000 equivalent.

3. Contracts for not more than eight vehicles for start-uppurposes may be awarded on the basis of the Borrower's normalprocedures.

4. Construction of rural roads may be carried out by forceaccount.

C. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proceduresdescribed in Part A of this Schedule, goods manufactured inthe Republic of Indonesia may be granted a margin of preference inaccordance with, and subject to, the following provisions:

1. All bidding documents for the procurement of goodsshall clearly indicate any preference which will be granted,the information required to establish the eligibility of a bidfor such preference and the following methods and stages that willbe followed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classifiedin one of the following three groups:

(1) Group A: bids offering goods manufactured inthe Republic of Indonesia if the bidder shallhave established to the satisfaction of theBorrower and the Association that Lhe manufacturingcost of such goods includes a value added in theRepublic of Indonesia equal to at least 20% of theex-factory bid price of such goods.

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(2) Group B: all other bids offering goods manufacturedin the Republic of Indonesia.

(3) Group C: bids offering any other goods.

3. All evaluated bids in each group shall be first compared

among themselves, excluding any customs duties and other importtaxes on goods to be imported and any sales or similar taxes

on goods to be supplied domestically, to determine the lowestevaluated bid of each group. Such lowest evaluated bids shallthen be compared with each other, and if, as a result of thiscomparison, a bid from group A or group B is the lowest, it shallbe selected for the award.

4. If, as a result of the comparison under paragraph3 above, the lowest bid is a bid from group C, all group C bidsshall be further compared with the lowest evaluated bid fromgroup A after adding to the evaluated bid price of the importedgoods offered in each group C bid, for the purpose of this furthercomparison only, an amount equal to: (i) the amount of customs

duties and other import taxes which a non-exempt importer wouldhave to pay for the importation of the goods offered in suchgroup C bid; or (ii) 15% of the c.i.f. bid price of such goodsif said customs duties and taxes exceed 15% of such price. If

the group A bid in such further comparison is the lowest, it

shall be selected for the award; if not, the bid from groupC which as a result of the comparison under paragraph 3 is thelowest evaluated bid shall be selected.

D. Review of Procurement Decisions by the Association

1. Review of invitations to bid and of proposed awards andfinal contracts:

With respect to all contracts for vehicles and equipment

and goods estimated to cost the equivalent of $100,000 or more

and all contracts for studies and innovations estimated to costthe equivalent of $15,000 or more:

(a) Before bids are invited, the Borrower shall furnish

to the Association, for its comments, the text of the invitations

to bid and the specifications and other bidding documents,together with a description of the advertising procedures to befollowed for the bidding, and shall make such modifications in thesaid documents or procedures as the Association shall reasonably

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request. Any further modification to the bidding documents shallrequire the Association's concurrence before it is issued to theprospective bidders.

(b) After bids have been received and evaluated, theBorrower shall, before a final decision on the award is made,inform the Association of the name of the bidder to which itintends to award the contract and shall furnish to the Associ-ation, in sufficient time for its review, a detailed reporton the evaluation and comparison of the bids received, togetherwith the recommendations for award and such other information asthe Association shall reasonably request. The Association shall,if it determines that the intended award would be inconsistentwith the Guidelines or this Schedule, promptly inform the Borrowerand state the reasons for such determination.

(c) The terms and conditions of the contract shall not,without the Association's concurrence, materially differ fromthose on which bids were asked or prequalification invited.

(d) Two conformed copies of the contract shall be furnishedto the Association promptly after its execution and prior tothe submission to the Association of the first application forwithdrawal of funds from the Credit Account in respect of suchcontract.

3. With respect to each contract not governed by the precedingparagraph, the Borrower shall furnish to the Association, promptlyafter its execution and prior to the submission to the Associationof the first application for withdrawal of funds from the CreditAccount in respect of such contract, two conformed copies of suchcontract, together with the analysis of the respective bids,recommendations for award and such other information as theAssociation shall reasonably request. The Association shall, if itdetermines that the award of the contract was not consistent withthe Guidelines or this Schedule, promptly inform the Borrower andstate the reasons for such determination.

4. Before agreeing to any material modification or waiverof the terms and conditions of a contract, or granting an exten-sion of the stipulated time for performance of such contract, orissuing any change order under such contract (except in cases ofextreme urgency) which would increase the cost of the contract bymore than 10% of the original price, the Borrower shall informthe Association of the proposed modification, waiver, extension or

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change order and the reasons therefor. The Association, if itdetermines that the proposal would be inconsistent with theprovisions of this Agreement, shall promptly inform the Borrowerand state the reasons for its determination.