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Loan Covenants

1. Overview

The legal documents covering the donor support for the Project are the ADB Loan Agreement (LA) and the IDA Financing Agreement (FA). Each document contains a number of covenants related to the implementation of the Project, which must be complied with. These are summarized below. To the extent possible, these requirements have been referred to where applicable in the PIP/PAM. For further information, please consult that ADB LA and the IDA FA.

2. List of ADB Loan Covenants

A. Sector Covenants

1. The Borrower, through MPWT, shall ensure that the Project roads are properly maintained and that proper technical supervision and adequate routine funds shall be provided. The Borrower and MPWT shall prepare annual road maintenance plans prepared throughout Project period and after the Project is completed based on the agreed maintenance standards, traffic volume and assessment of needs. [LA, Schedule 5, Para. 6]

B. Financial Covenants

1. The Borrower shall (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose  qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than 6 months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the financial covenants of this Loan Agreement as well as on the use of the procedures for imprest accounts/statement of expenditures), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADb shall from time to time reasonably request. [LA, Section 4.02(a)]

2. The Borrower shall enable ADB, upon ADB's request, to discuss the Borrower's financial statements f or the Project and its financial affairs related to the Project from time to time with the auditors appointed by the Borrower pursuant to Section 4.02(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of the Borrower unless the Borrower shall otherwise agree. [LA, Section 4.02(b)]
3. The Borrower shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents. [LA, Section 4.03]
4. The Borrower shall provide counterpart funds for Project implementation on time. MPWT shall make timely submission of annual budgetary appropriation request to MEF and MEF shall ensure prompt disbursement of appropriated funds during each year of Project implementation.  [LA, Schedule 5, Para. 5]

C. Environmental Covenants

5. The Borrower and MPWT shall ensure that the Project shall be carried out in accordance with the IEE and the EMP prepared under the IEE, and shall comply with the Borrower's environmental laws and regulations and ADB's Environmental Policy (2002). If there is any discrepancy between the Borrower's laws and regulations, and ADB's environment policy, the ADB's policy shall prevail. The Borrower shall implement the environmental mitigation and management measures, and other recommendations specified in the EMP to minimize any adverse environmental impacts arising from the implementation of the Project. MPWT shall be responsible for the implementation of the EMP and shall be responsible for monitoring during resurfacing of the pavements, associated pavement works such as edge repair, line marking and repair and surfacing of shoulders and during the operation phases. MPWT shall monitor the contractor's compliance with the provisions of the EMP. The Borrower shall ensure that the portion of the Project that is to be funded by other cofinanciers shall adopt the provisions of the IEE and EMP. [LA, Schedule 5, Para. 11]

6. When Project roads pass through or near protected or sensitive areas (nature reserve parks, conservation areas, biodiversity reserves, cultural and historical sites, etc.), the Borrower shall ensure cooperation between MPWT and the area authority responsible for preparing and implementing the protective measure. The measures may include any combination of area demarcation, fencing, checkpoints, speed bumps, wildfire passage zones, patrols, or other measures to preserve the integrity of the area from encroachment or environmental degradation due to road improvement and increased access. [LA, Schedule 5, Para. 12]

D. Social Covenants

7. The Borrower and MPWT shall ensure that civil works contractors engaged under the Project (i) provide for equal pay to men and women for equal work and make prompt payment of wages; (ii) provide safe working conditions and water and sanitation facilities for male and female workers; (iii) do not violate any prohibitions against child labor under the Borrower's laws and international treaty obligations; and (iv) require the contractor to include information on the risk of transmission of sexually-transmitted diseases, including HIV/AIDS, in health and safety programs for all construction workers employed under the Project. Specific provisions to this effect shall be included in bidding documents and civil works contracts, and compliance shall be monitored by MPWT. [LA, Schedule 5, Para. 10]

8. The Borrower and MPWT shall ensure that the Project shall not involve or implement any works that will require involuntary resettlement according to ADB's Policy in Involuntary Resettlement (1995). The Project shall only involve resurfacing of the pavements, associated pavement works such as edge repair, line marking and repair and resurfacing of shoulders of existing roads. All of the periodic maintenance work under the Project shall not involve any widening, heightening or realignment of the roads. [LA, Schedule 5, Para. 13]

E. Other Covenants

9. DGPW shall be the Implementing Agency and shall be responsible for the direct supervision and say-to-day implementation of the Project. The Project shall be carried out under the existing MPWT structure. No separate project management unit will be established. A Project Director shall be appointed by the Minister of MPWT from one of the Deputy Director Generals for Public Works. [LA, Schedule 5, Para. 3]

10. The Borrower shall recruit individual consultants for the first year implementation consultnat and the technical audit consultant in accordance with procedures acceptable to ADB for recruiting individual consultants. [LA, Schedule 4, Para. 7]

11. MPWT shall be the Project Executing Agency and shall be responsible for the overall technical supervision and execution of the Project. [LA, Schedule 5, Para. 1]
12. ICRRM shall be the Project Steering Committee and shall be responsible for overseeing the execution of the Project. [LA, Schedule 5, Para. 2]

13. The Project Director shall (i) coordinate the work of the involved line organizations in MPWT, including RAMO; (ii) provide overall construction supervision; (iii) carry out public awareness campaign on HIV/AIDS and human trafficking; (iv) monitor and supervise all project management activities; (v) engage consultants and carry out procurement; (vi) organize monitoring and evaluation activities; (vii) prepare necessary project progress and project completion reports to be submitted to ICRRM, ADB, AusAID and IDA; and (viii) ensure full compliance with ADB's resettlement, environment and other safeguards policies. The Project Director shall receive support from other DGPW staff and the
implementation support consultants. [LA, Schedule 5, Para. 4]

14. All Goods, Works and consulting services to be financed out of the proceeds of the AusAID Grant shall be subject to and governed by the Procurement Guidelines, and the Consulting Guidelines, respectively. [LA, Schedule 4, Para. 2]

15. Within 9 months after the Effective Date, MPWT shall create a Project website to disclose information about various matters on the Project, including procurement. With regard to procurement, the website shall include information on the list of participating bidders, name of the winning bidder, basic details on bidding procedures adopted, amount of contract awarded, and the list of goods/services procured. [LA, Schedule 5, Para. 7]

16. Within 9 months after the Effective Date, MPWT shall prepare a grievance redress mechanisms, acceptable to ADB, and establish a task force at the DGPW to receive and resolve complaints/grievances or act upon reports from stakeholders on misuse of funds and other irregularities, including grievances due to resettlement and environmental issues. The task force shall (i) make public the existence of this grievance redress mechanisms, through a public awareness campaign; (ii) review and address grievances of stakeholders of the Project, in relation to either the Project, any of the service providers, or any person responsible for carrying out any aspect of the Project; and (iii) proactively and  constructively respond to them. [LA, Schedule 5, Para. 8]

17. The Borrower and MPWT shall sign and implement the Good Governance Framework. With respect to the several requirements under the Good Governance Framework that are similar to the requirements stated in paragraphs 7 and 8 of this Schedule 5 to this Loan Agreement, such as the requirements to establish a project website and grievance redress mechanisms, the Borrower and MPWT shall only establish one Project website and one grievance redress mechanisms to meet the conditions under the Good Governance Framework and this Loan Agreement. MPWT shall consult with both ADB and IDA to ensure that the project website and the grievance redress mechanisms are acceptable to both ADB and IDA. [LA, Schedule 5, Para. 9]

3. IDA Credit Covenants

(As set out in IDA Financing Agreement SCHEDULE 2 Project Execution)

Section I. Implementation Arrangements

A. Institutional Arrangements

1. The Recipient shall:
(a) (i) maintain, throughout the period of implementation of the Project the ICRRM, which will act as the steering committee for the Project for the purposes of achieving the development objectives, mobilization of the required financial resources, including counterpart funding allocations, and support for donor coordination;
(ii) ensure that the ICRRM shall meet on a regular basis at least once every six months during the term of the Project; and
(iii) ensure that the project director referred to in sub-paragraph (d) below participates in the ICRRM;
(b) establish and maintain, throughout the period of implementation of the Project a Project Technical Committee, chaired by the director general of the GDPW, with the deputy director general of the GDAP as the Deputy chair and the project director as the permanent secretary, to be provided with sufficient resources and competent staff in adequate numbers with terms of reference satisfactory to the Association, which will be responsible for the overall coordination of the various project activities implemented by various MPWT departments;
(c) maintain within the MPWT, throughout the period of implementation of the Project, the GDPW and the GDAP to be provided with sufficient resources and competent staff in adequate numbers with terms of reference satisfactory to the Association, which will be responsible for the day-to-day execution of the Project;
(d) ensure that: (i) a deputy director general of GDPW be appointed as project director; and (ii) a project manager with skills and experience acceptable to the Association is appointed, both to be maintained throughout the period of implementation of the Project.

2. The Recipient shall:
(a) adopt and thereafter carry out a Project Implementation Plan satisfactory to the Association, which plan shall include, inter alia: (i) a financial management manual incorporating policy and procedures satisfactory to the Association regarding accounting, reporting and internal control mechanisms and procedures in respect of the Project, including the management, control and auditing of the Designated Accounts; (ii) criteria for the selection of roads for inclusion in the maintenance program under the Project; (iii) all measures required under the Environmental Management Plan, the Environmental and Safeguards Policy, the Resettlement Policy Framework and the Indigenous Peoples Development Policy; (iv) procurement procedures, as set forth in Section III of this Schedule; and (v) monitoring requirements and processes, including those referred to in Section II of this Schedule; and
(b) undertake not to amend, suspend, abrogate, repeal or waive any provisions of the Project Implementation Plan without the prior agreement of the Association;
(c) submit to the Association the annual work program and training program by the end of March of each year commencing in March 2009;
(d) ensure that the MPWT, (i) carries out the annual work plan for the first year of the Project; (ii) prepares and furnish an annual work plan acceptable to the Association not later than March 31, 2009; (iii) prepares and furnish an annual work plan acceptable to the Association not later than March 31 of each subsequent year of the Project; and (iv) carries out the works under Parts A of the Project in accordance with such work plans; not later than September 30, 2009 and subsequently each year;
(e) provide annual funding for periodic maintenance contracts of the annual work plans in an amount of no less than: (i) for 2009; US$300,000; (ii) for 2010: US$2,500,000; (iii) for 2011: US$3,750,000; (iv) for 2012: US$4,000,000; and (v) for 2013 US$4,250,000;
(f) provide annual funding for routine maintenance, periodic maintenance and spot rehabilitation of MPWT road networks and ensure such funding is available for MPWT as follows: (i) for 2009: US$30,000,000; (ii) for 2010: US$35,000,000; (iii) for 2011: US$40,000,000, (iv) for 2012: US$40,000,000; and (v) for 2013: US$40,000,000, to carry out the following:
(i) routine maintenance on all the national roads and on at least thirty percent (30%) of the maintainable secondary and provincial road networks; and
(ii) periodic maintenance on five percent (5%) percent of the national roads and on at least four percent (4%) of the secondary and provincial road networks;
(g) have technical audits of the civil works, goods and services financed by the Project and on work referred to in sub-paragraph (f) of this paragraph undertaken annually by independent auditors acceptable to the Association and furnish the audit reports to the Association and the Co-financier not later than six months after the end of each period;
(h) submit annual evidence of the work referred to in sub-paragraph (f) of this paragraph through the provision of reports to the Association;
(i) ensure that the technical auditors referred to in sub-paragraph (h) of this paragraph can access the roads where work was undertaken;
(k) ensure that, by March 31, 2013, at least twenty five percent (25%) of routine maintenance and twenty five percent (25%) of periodic maintenance works, by value, is contracted to the private sector;
(l) adopt and apply a Merit Based Performance Incentive Manual for the Project;
(m) take such actions to establish a formal reporting relationship for the Road Data Collection and Management Unit which shall be fully operational by December 31, 2010;
(n) by December 31, 2010, adopt a strategic plan for divestiture of force accounts units; and
(o) by October 1, 2008, complete a financial management strengthening plan for GDAP.

B. Anti-Corruption

1. The Recipient shall carry out the Project in accordance with the provisions of the Good Governance Framework, and the Anti-Corruption Guidelines in a manner satisfactory to the Association.

C. Safeguards

1. The Recipient shall:
(a) ensure that all civil works to be financed through the Project are technically and economically viable, and have been designed and appraised, with due regard for public health, safety, social and environmental standards acceptable to the Association, and pursuant to the Environmental and Social Safeguards Framework;
(b) (i) ensure that an environmental screening of each civil works has been carried out and, if necessary on the basis of such screening, an appropriate environmental impact assessment has been carried out by the Recipient, in terms satisfactory to the Association, in order to determine any measures to be taken to prevent, minimize, mitigate or compensate any environmentally adverse effects; and (ii) in
the event that any civil works would require any such mitigation measures, prior to commencing such civil works, ensure that an action plan for the implementation of the Environmental Management Plan is prepared by the Recipient, in accordance with the Environment and Social Safeguards Framework, and thereafter implement the said action plan, in a manner and substance satisfactory to the Association;
(c) (i) ensure that a social screening of each civil works has been carried out and, if necessary on the basis of such screening, all necessary actions have been taken in order to minimize to the extent possible any involuntary loss by persons of shelter, productive assets or access to productive assets, or income, or means of livelihood, temporarily or permanently; and (ii) in the event that the civil works would give rise to Displaced Persons ensure that a compensation and resettlement action plan has been prepared prior to commencing such civil works, in
accordance with the Environment and Social Safeguards Framework, and thereafter implement the Compensation and Resettlement Action Plan in a manner and substance satisfactory to the Association;
(d) (i) ensure that a social screening of each civil works has been carried out; and (ii) if on the basis of such screening it is determined that Ethnic Groups reside, cultivate, hunt or undertake any other similar social activity within the proposed civil works area, ensure that an Indigenous People Development Plan has been prepared prior to commencing such civil works. in accordance with the Environment and Social Safeguards Framework and with full participation and informed consultation of the affected Ethnic Groups, and with due regard to their cultural preferences, and thereafter implement the indigenous people development plan in a manner and substance satisfactory to the Association;
(e) furnish to the Association for its prior approval any revisions proposed to be introduced into the Environment and Social Safeguards Framework and the Environmental Management Plan, Compensation and Resettlement Action Plan, and the Indigenous People Development Plan prepared pursuant thereof, in order to achieve their objectives; and thereafter introduce such revisions into and implement such Environment and Social Safeguards Framework, Environmental Management Plan, Compensation and Resettlement Action Plan and Indigenous
People Development Plan in a manner and substance satisfactory to the Association; and
(f) maintain policies and procedures adequate to enable it to monitor and evaluate, in accordance with guidelines acceptable to the Association, the implementation of said Environment and Social Safeguards Framework, Environmental Management Plan, Compensation and Resettlement Action Plan and Indigenous People Development Plan, and the achievement of their objectives.

Section II. Project Monitoring, Reporting and Evaluation

A. Project Reports

1. The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions and on the basis of the indicators agreed with the Association. Each Project Report shall cover the period of one calendar quarter, and shall be furnished to the Association not later than one month after the end of the period covered by such report.

B. Financial Management, Financial Reports and Audits

1. The Recipient shall maintain or cause to be maintained a financial management system in accordance with the provisions of Section 4.09 of the General Conditions.
2. The Recipient shall prepare and furnish to the Association as part of the Project Report, interim un-audited financial reports for the Project covering the quarter, in form and substance satisfactory to the Association.
3. The Recipient shall have its Financial Statements audited in accordance with the provisions of Section 4.09(b) of the General Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the Association not later than six months after the end of such period.

Section III. Procurement

A. General

1. Goods and Works. All goods and works required for the Project and to be financed out of the proceeds of the Financing shall be procured in accordance with the requirements set forth or referred to in Section I of the Procurement Guidelines, and with the provisions of this Section.
2. Consultants’ Services. All consultants’ services required for the Project and to be financed out of the proceeds of the Financing shall be procured in accordance with the requirements set forth or referred to in Sections I and IV of the Consultant Guidelines,
and with the provisions of this Section.
3. Definitions. The capitalized terms used below in this Section to describe particular procurement methods or methods of review by the Association of particular contracts, refer to the corresponding method described in the Procurement Guidelines, or Consultant Guidelines, as the case may be.

B. Particular Methods of Procurement of Goods and Works

1. International Competitive Bidding. Except as otherwise provided in paragraph 2 below, goods and works shall be procured under contracts awarded on the basis of International Competitive Bidding.
2. Other Methods of Procurement of Goods and Works. The following table specifies the methods of procurement, other than International Competitive Bidding, which may be used for goods and works. The Procurement Plan shall specify the circumstances under which such methods may be used:
Procurement Method
(a) National Competitive Bidding subject to procedures listed in the Annex to this Schedule 2
(b) Shopping

C. Particular Methods of Procurement of Consultants’ Services

1. Quality- and Cost-based Selection. Except as otherwise provided in paragraph 2 below, consultants’ services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection.
2. Other Methods of Procurement of Consultants’ Services. The following table specifies methods of procurement, other than Quality- and Cost-based Selection, which may be used for consultants’ services. The Procurement Plan shall specify the circumstances under which such methods may be used.
Procurement Method
(a) Quality-Based Selection
(b) Selection Based on Consultants’ Qualifications
(c) Individual Consultants
(d) Single-Source Selection
(e) Least Cost Selection

D. Review by the Association of Procurement Decisions
The Procurement Plan shall set forth those contracts which shall be subject to the Association’s Prior Review. All other contracts shall be subject to Post Review by the Association.

Section IV. Withdrawal of the Proceeds of the Financing

A. General

1. The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of Article II of the General Conditions, this Section, and such additional instructions as the Association shall specify by notice to the Recipient (including the “World Bank Disbursement Guidelines for Projects” dated May 2006, as revised from time to time by the Association and as made applicable to this Agreement pursuant to
such instructions), to finance Eligible Expenditures as set forth in the table in paragraph 2 below.
1. The following table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Financing (“Category”), the allocations of the amounts of the Financing to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category:

Category                                                                        Amount of the Credit                Percentage of
                                                                                                 Allocated                     Expenditures to be
                                                                                        (expressed in SDR)                       Financed
                                                                                                                                      (inclusive of Taxes)

(1) Works under Parts A(1) and A(2)(b) of the Project            14,630,000                                100%
(2) Goods under Parts A(2)(b), B(1) and B(2) of the Project         300,000                                100%
(3) Consultants’ Services under Parts A(2)(b), A(2)(c),
A(2)(d), B(1), B(2), B(3), and B(6) of the Project                          2,430,000                                100%
(4) Training under Part B(1), of the Project                                    70,000                                 100%
(5) Incremental Operating Costs under Part A(2)(b)                     330,000                                  80%
(6) MBPI Payments under Part C of the Project                            540,000                            90% for 2008
                                                                                                                                            85% for 2009
                                                                                                                                            80% for 2010
                                                                                                                                            75% for 2011
                                                                                                                                            70% for 2012
                                                                                                                                             65% for 2013
                                                                            TOTAL         18,300,000

B. Withdrawal Conditions; Withdrawal Period

1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made:
(a) for payments made prior to the date of this Agreement; or
(b) under Category (6) until the Recipient has adopted the MBPI Manual referred to Paragraph A 2 (l) of Section I of Schedule 2 to this Agreement; and provided an agreement confirming financing the MBPI for this Project, satisfactory to the Association.
2. The Closing Date is June 30, 2013.

Section V. Other Undertakings

1. Unless otherwise agreed to between the Recipient and the Association, and for the purposes of Section III of Schedule 2 to this Agreement, the Recipient shall use the services of a procurement agent engaged by the MEF under terms of reference satisfactory to the Association for all procurement to be undertaken under the Project.
2. For the purposes of Section III of Schedule 2 to this Agreement, guidance for implementing the Procurement Guidelines and the Consultant Guidelines is provided in the Kingdom of Cambodia’s Externally Assisted Project Procurement Manual: Goods, Works and Services, issued under Sub-Decree 14 dated February 26, 2007, on Promulgating of the Standard Procedure for Implementing the World Bank and the Asian Development Bank Assisted Projects.