The Millenium Challenge Compact 2013

Link to law: http://www.parliament.gov.zm/node/3102

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Millennium Challengge Act, 2013.pmd
Millennium Challenge Compact [No. 6 of 2013 181

THE MILLENNIUM CHALLENGE COMPACT
ACT, 2013

ARRANGEMENT OF SECTIONS

PART I
PRELIMINARY

Section
1. Short title and commencement
2. Scope
3. Interpretation
4. Application

PART II
IMPLEMENTAION FRAMEWORK

5. Oversight and management of Project
6. Vesting and delegation of rights and responsibilities

PART III
ACCOUNTING, AUDITING, TAX, PROCUREMENT AND FUNDS

7. Accounting principles
8. Records
9. Audits

10. Public procurement
11. Exemptions
12. Sequestration, compulsory acquisition and liquidation and

receivership proceedings
13. Sale, donation or disposal of assets

PART IV
GENERAL PROVISIONS

14. Indemnity, liability and claims
15. Funds of Project and annual reports
16. Regulations
17. Repeal of Act

FIRST SCHEDULE
SECOND SCHEDULE

Single copies of this Act may be obtained from the Government Printer,
P.O. Box 30136, 10101 Lusaka, Price K45.00 each.

An Act to give effect to the Millennium Challenge Compact
and Program Implementation Agreement; expand access
to, and improve reliability of, water supply, sanitation and
drainage services in select urban and periurban areas of
the City of Lusaka in order to reduce the incidence of
waterborne and water related diseases; generate time
savings for households and businesses and reduce non-
revenue water in the water supply network by improving
water supply and sanitation and drainage services; and
provide for matters connected with, or incidental to, the
foregoing.

[22nd March, 2013

ENACTED by the Parliament of Zambia.

PART I
PRELIMINARY

1. This Act may be cited as the Millennium Challenge Compact
Act, 2013, and shall come into operation on such date as the Minister
may, by statutory instrument, appoint.

2. (1) This Act shall apply to the areas, in the city of Lusaka,
stipulated in Annex 1 of the Millennium Challenge Compact.

(2) This Act shall bind the Republic.
3. In this Act, unless the context otherwise requires—

“ Articles ” means the Articles of Association of the MCA-
Zambia as registered under the Companies Act;

“ Board of Directors ” means the governing body of the
MCA-Zambia, as constituted under section five;

“ Compact Implementation Funding ” means the funding, in
the amount specified under the Millennium Challenge
Compact, to facilitate the implementation of the Millennium
Challenge Compact for purposes specified under section
five and the Millennium Challenge Compact;

Millennium Challenge Compact [No. 6 of 2013 183

Enactment

Short title
and com-
mencement

Scope

Interpretation

Cap. 388

GOVERNMENT OF ZAMBIA

ACT
No. 6 of 2013

Date of Assent: 21st March, 2013

“ Compact term ” means the five year period that the
Millennium Challenge Compact shall be in force, unless
terminated in accordance with the Millennium Challenge
Compact;

“ established entity ” means any person or body empowered
by law to regulate or perform any function relating to water
and sanitation, solid waste, water resources management,
natural resources, public procurement, public audits, finance,
accounting and construction, and includes a Minister;

“ implementing entity ” means an entity or institution appointed
under section six as an implementing entity;

“ MCC ” means the Millennium Challenge Corporation, a
United States Government corporation established under
the laws of the United States of America;

“ MCC Funding ” means the Program Funding and Compact
Implementation Funding, and includes any refunds or
reimbursements of Program Funding or Compact
Implementation Funding paid by the Government of Zambia
in accordance with the Millennium Challenge Compact;

“ Millennium Challenge Account Zambia ” or “ MCA-
Zambia” means the company incorporated in Zambia under
the Companies Act for purposes of this Act and the
Millennium Challenge Compact;

“ Millennium Challenge Compact ” means the five year
agreement entered into by and between the Republic of
Zambia and the United States of America, through the
MCC, on 10th May, 2012, and signed in Lusaka, Zambia,
as set out in the First Schedule;

“ permitted assignee or designee ” means any entity to whom
the Government has delegated rights and responsibilities
under section six and the Millennium Challenge Compact
and Program Implementation Agreement;

“ Program ” means the activities, actions and processes to be
undertaken or observed for the Project under the Millennium
Challenge Compact and the Program Implementation
Agreement;

“ Program Funding ” means the funding, in the amount
specified under the Millennium Challenge Compact, for the
use of the Government in implementing the Program;

184 No. 6 of 2013] Millennium Challenge Compact

Cap. 388

Millennium Challenge Compact [No. 6 of 2013 185

“Program Guidelines” means such guidelines as are stipulated
in the Millennium Challenge Compact and the Program
Implementation Agreement, including accounting, auditing,
procurement, governance, reporting, policy, monitoring and
evaluation, administration, Program implementation, gender
and environment, as the case may be;

“Program Implementation Agreement” means the agreement
entered into by and between the United States of America,
acting through MCC, and the Republic of Zambia, dated
10th May, 2012, as set out in the Second Schedule; and

“Project” means the Lusaka Water Supply, Sanitation and
Drainage Project as stipulated in the Millennium Challenge
Compact.

4. Notwithstanding the provisions of any other law, except the
Constitution, this Act shall govern the implementation of the program.

PART II
IMPLEMENTATION FRAMEWORK

5. (1) The Board of Directors as constituted under the Articles
are as follows:

(a) the Secretary to the Treasury;
(b) the Permanent Secretary from the Ministry responsible

for finance;
(c) the Permanent Secretary from the Ministry responsible

for local government;
(d) the Chairperson of the Board of Directors of the Lusaka

Water and Sewerage Company;
(e) the Town Clerk of the Lusaka City Council;
(f) the Chairperson of the Zambia Environmental Management

Agency Board;
(g) the Executive Director of the Non-Governmental

Organisation Coordinating Council;
(h) the Executive Director of the Civil Society for Poverty

Reduction; and
(i) a representative from the private sector selected in

accordance with the Articles.

(2) Subject to section six, the rights, obligations and
responsibilities of the Government under the Millennium Challenge
Compact and the Program Implementation Agreement shall be
overseen and undertaken by the Board of Directors.

Application
Cap. 1

Oversight
and
management
of Project

(3) Without prejudice to the generality of subsection (2), the
Board of Directors shall be responsible for—

(a) securing the proper and effective utilisation of the MCC
Funding;

(b) ensuring that funds and other resources that are necessary
for the implementation of the Government’s obligations
and responsibilities as specified under the Millennium
Challenge Compact and Program Implementation
Agreement are budgeted for;

(c) ensuring that all MCC Funding received or that is projected
to be received by the Government, for each financial
year, is accounted for in the Government’s annual budget;

(d) ensuring that the MCC Funding is used in the manner and
for the purposes specified under the Millennium
Challenge Compact and Program Implementation
Agreement and is not used for any purpose that may
contravene the United States law or policy as specified
under the Millennium Challenge Compact and Program
Guidelines;

(e) ensuring that measures are put in place for the active
participation of the private sector in the implementation
of the Millennium Challenge Compact;

(f) putting in place activities and measures to build human
resource capacity for the successful implementation of
the Millennium Challenge Compact;

(g) ensuring that the procurement of goods, works and services
for the implementation of the Millennium Challenge
Compact comply with this Act and any relevant Program
Guidelines;

(h) ensuring compliance with the Program Guidelines; and
(i) ensuring that MCA-Zambia is and remains, throughout the

Compact term duly organised, sufficiently staffed and
empowered to exercise the Government’s rights,
obligations and responsibilities.

(4) For purposes of subsection (2), the MCA-Zambia shall have
the following rights, obligations and responsibilities:

(a) the power and authority to bind the Government with, the
approval of Cabinet, to the full extent of the
Government’s rights, obligations and responsibilities
under the Millennium Challenge Compact and the
Program Implementation Agreement;

186 No. 6 of 2013] Millennium Challenge Compact

(b) to execute and deliver each agreement, certificate or
instrument contemplated by the Millennium Challenge
Compact, the Program Implementation Agreement, any
other supplemental agreement or Program Guidelines;

(c) to perform the Government’s rights, obligations and
responsibilities under this Act, the Millennium Challenge
Compact, the Program Implementation Agreement, any
other supplemental agreement and Program Guidelines;

(d) to confirm each representation that it makes on behalf of
the Government in any agreement, certificate or
instrument delivered by MCA-Zambia with all relevant
implementing entities prior to providing such
representation to MCC; and

(e) to the MCC’s satisfaction, to cause all assets of the Project
and risks or liabilities associated with the operations of
the Program to be insured, in accordance with the
Program Implementation Agreement.

(5) The Board of Directors shall ensure that any assets or
services funded in whole or in part under the MCC Funding are
used solely in furtherance of the purposes specified under the
Millennium Challenge Compact and are procured and maintained
in accordance with the terms and procedures provided under the
Millennium Challenge Compact and the Program Implementation
Agreement, including for the following purposes:

(a) financial management and procurement activities;
(b) administrative activities and administrative support;
(c) monitoring and evaluation;
(d) feasibility, design and other studies; and
(e) other activities to facilitate the implementation of the

Project.

(6) Except as provided under this Act, the Board of Directors
shall not assign, delegate or otherwise transfer any of the
Government’s rights, obligations responsibilities, as specified under
this Act, the Millennium Challenge Compact or the Program
Implementation Agreement, without the prior written consent of
the MCC and the Government;

(7) The Board of Directors shall not undertake any activities,
duties or responsibilities, other than those stipulated in this Act, the
Millennium Challenge Compact and the Program Implementation
Agreement, without the prior written consent of MCC and the
Government;

Millennium Challenge Compact [No. 6 of 2013 187

188 No. 6 of 2013] Millennium Challenge Compact

6. (1) Notwithstanding section five, MCC and the Minister
may identify and appoint one or more entities as implementing
entities, in accordance with the Millennium Challenge Compact and
the Program Implementation Agreement, and shall delegate to such
implementing entities such responsibilities as may be necessary for
the effective execution of the Project.

(2) An implementing entity shall be eligible to receive technical
assistance or other support under the Millennium Challenge
Compact.

PART III
ACCOUNTING, AUDITING, TAX, PROCUREMENT AND FUNDS

7. Notwithstanding anything to the contrary in the Accountants
Act, 2008, the Public Finance Act, 2004, or any other law, the Project
accounts shall be maintained in accordance with generally accepted
accounting principles prevailing in the United States of America, or
after the MCC’s approval, with other accounting principles such as
those prescribed by the International Accounting Standards Board.

8. The records relating to the Project shall be kept for at least
five years after the end of the Compact term or for such longer
period as may be required for—

(a) the resolution of any litigation or claims;
(b) auditing; or
(c) any other legal purpose.

9. Notwithstanding the Accountants Act, 2008, Public Audits
Act or any other written law, the Project’s accounts shall be audited
in accordance with the Millennium Challenge Compact, the Program
Implementation Agreement and relevant Program Guidelines and
shall be subject to quality assurance oversight in accordance with
the Millennium Challenge Compact and the Program Implementation
Agreement.

10. (1) Notwithstanding the Public Procurement Act, 2008,
or any other written law, the procedures for procurement of works,
goods and services for the Project shall be as provided under the
relevant Program Guidelines.

(2) The following principles shall apply to the procurement of
works, goods and services for the Project:

(a) open, fair and competitive tender procedures shall be used
in a transparent manner to solicit, award and administer
and manage procurement contracts;

(b) solicitation shall be based on a clear and accurate
description of the goods, works and services to be
procured;

Vesting and
delegation of
rights and
responsibilities

Accounting
principles
Act No. 13
of 2008
Act No. 15
of 2004

Records

Audits
Act No. 13
of 2008
Cap. 378

Public
procurement
Act No. 12
of 2008

Millennium Challenge Compact [No. 6 of 2013 189

(c) contracts shall be awarded to qualified contractors that
have the capability and willingness to perform the
procurement contract on a cost effective and timely
basis;

(d) value for money shall be obtained for all procurements of
works, goods and services; and

(e) no preferential treatment shall be given to any contractor
or group of contractors.

11. (1) Notwithstanding the Income Tax Act, the Value Added
Tax Act, the Customs and Excise Act, the Property Transfer Tax
Act, the Control of Goods Act, the Local Government Act or any
other law, any goods, works and services procured under MCC
Funding or imported or exported in connection with the Program
shall be exempt from any existing or future taxes, property transfer
taxes, tariffs, customs duties, excise duties, import taxes or duties,
export taxes or duties, levies, contributions and other similar charges,
as provided under the Millennium Challenge Compact.

(2) Notwithstanding the generality of subsection (1), the
following exemptions shall be granted with respect to the use of
MCC Funding:

(a) existing and future taxes and other similar charges on
income for work performed in relation to the Millennium
Challenge Compact as specified under the Income Tax
Act;

(b) existing and future social security taxes and other similar
charges on all natural or legal persons performing work
in connection with the Millennium Challenge Compact:

Provided that where any tax or charge under
paragraphs (a) and (b) apply to natural persons who
are citizens or permanent residents of Zambia, and
legal persons incorporated under the Laws of Zambia,
other than MCA-Zambia and any other implementing
entity, those persons shall not be exempt from such
taxes or charges.

12. (1) Notwithstanding the Land Acquisition Act or any other
written law, the assets of the Project shall not be subject to
compulsory acquisition, other than as provided under the Millennium
Challenge Compact or the Program Implementation Agreement.

(2) Notwithstanding any other law that would have the effect
of allowing any impoundment, rescission or sequestration of assets,
the assets of the Project shall not be subject to such impoundment,
rescission or sequestration, other than as provided under the
Millennium Challenge Compact or the ProgramImplementation
Agreement.

Sequestration,
compulsory
acquisition
and
liquidation
and
receivership
proceedings

Exemptions
Cap. 323
Cap. 331
Cap. 322
Cap. 340
Cap. 421
Cap. 281

Cap. 323

Cap. 189

190 No. 3 of 2013] Millennium Challenge Compact

(3) Notwithstanding the Companies Act or any other written
law, MCA-Zambia shall not be subject, during the Compact term,
to proceedings or actions for its liquidation or receivership, other
than as provided under the Millennium Challenge Compact or the
Program Implementation Agreement.

(4) Notwithstanding any other written law that would have the
effect of allowing a lien, attachment, enforcement of judgment,
pledge or encumbrance of assets, the assets of the Project shall
not be subject to such lien, attachment, enforcement of judgment,
pledge or encumbrance, other than as provided under the Millennium
Challenge Compact or the Program Implementation Agreement.

13. Notwithstanding any other written law, the assets of the
Project shall not be sold, donated or otherwise disposed of, other
than as provided under the Millennium Challenge Compact or the
Program Implementation Agreement.

PART IV
GENERAL PROVISIONS

14. (1) Where MCA-Zambia is held liable under any
indemnification or other similar provisions of any agreement, the
Minister shall pay the indemnity in full on behalf of MCA-Zambia
out of funds appropriated by Parliament and not MCC Funding.

(2) The Minister shall indemnify and hold harmless each
member of the Board of MCA-Zambia, each member of any
stakeholder committee and each of the officers, employees and
agents of MCA-Zambia from any claim, loss, action, liability, cost,
damage or expense incurred by such person in the performance of
their duties on behalf of MCA-Zambia out of funds appropriated
by Parliament and not MCC Funding:

Provided that the Minister shall not indemnify any such
person if and to the extent that any claims, losses, actions,
liabilities, costs, damages or expenses are attributable to the
fraud, gross negligence or willful misconduct of such person.

(3) Notwithstanding anything to the contrary in any other
written law, no liability or claim shall attach to, or lie against, MCC
and the United States of America government with respect to the
implementation of, or arising as a result of, the Millennium Challenge
Compact or the Program Implementation Agreement.

Sale,
donation or
disposal of
assets

Indemnity,
liability and
claims

Cap. 388

Millennium Challenge Compact [No. 6 of 2013 191

15. (1) In addition to the MCC Funding, the funds for the
Project shall consist of such moneys as may be appropriated by
Parliament for the purposes of MCA-Zambia and the execution of
the Program in accordance with the Millennium Challenge Compact
and Program Implementation Agreement.

(2) As soon as practicable, but not later than ninety days after
the end of each financial year, the MCA-Zambia shall submit to
the Minister a report concerning the Program and the progress
achieved in executing the Project during the financial year.

(3) The report referred to in subsection (2), shall include
information on the financial affairs of the Project, including the
status of MCC Funding, and there shall be appended to the report—

(a) an audited balance sheet;
(b) an audited statement of income and expenditure; and
(c) such other information as the Minister may require.

(4) The Minister shall not later than seven days after the first
sitting of the National Assembly next after receipt of the report
referred to in subsection (2), lay the report before the National
Assembly.

16. The Minister may, by statutory instrument, make regulations
to give effect to this Act.

17. (1) The Minister shall, by statutory order, provide for an
appointed date for the completion of the winding-up of the activities
of the MCA-Zambia.

(2) This Act shall stand repealed on the appointed date referred
to in subsection (1) and the MCA-Zambia shall be deemed to have
been deregistered under the Companies Act.

Funds of
project and
annual
reports

Regulations

Repeal of
Act

Cap. 388

192 No. 6 of 2013] Millennium Challenge Compact

FIRST SCHEDULE
(Section 2)

MILLENNIUM CHALLENGE COMPACT

MILLENNIUM CHALLENGE COMPACT

Between

THE REPUBLIC OF ZAMBIA

And

THE UNITED STATES OF AMERICA

Acting Through

THE MILLENNIUM CHALLENGE CORPORATION

Millennium Challenge Compact [No. 6 of 2013 193

TABLE OF CONTENTS
Page

Article 1—Goal and Objectives .................................................................................................. 17
Section 1.1 Compact Goal ............................................................................................. 17
Section 1.2 Project Objective ...................................................................................... 17

Article 2—Funding and Resources .............................................................................................. 17
Section 2.1 Program Funding ......................................................................................... 17
Section 2.2 Compact Implementation Funding ............................................................ 17
Section 2.3 MCC Funding ............................................................................................. 18
Section 2.4 Disbursement .............................................................................................. 18
Section 2.5 Interest ........................................................................................................ 19
Section 2.6 Government Resources; Budget ................................................................. 19
Section 2.7 Limitations on the Use of MCC Funding .................................................. 19
Section 2.8 Taxes ........................................................................................................... 19

Article 3—Implementation ........................................................................................................ 20
Section 3.1 Program Implementation Agreement .......................................................... 20
Section 3.2 Government Responsibilities ..................................................................... 20
Section 3.3 Policy Performance .................................................................................... 21
Section 3.4 Accuracy of Information ............................................................................ 21
Section 3.5 Implementation Letters .............................................................................. 21
Section 3.6 Procurement and Grants ............................................................................. 21
Section 3.7 Records; Accounting; Covered Providers; Access ..................................... 22
Section 3.8 Audits; Reviews ......................................................................................... 23

Article 4—Communications ........................................................................................................ 24
Section 4.1 Communications ......................................................................................... 24
Section 4.2 Representatives .......................................................................................... 24
Section 4.3 Signatures .................................................................................................... 24

Article 5—Termination; Suspension; Expiration ........................................................................ 24
Section 5.1 Termination; Suspension ............................................................................ 24
Section 5.2 Consequences of Termination, Suspension or Expiration ......................... 25
Section 5.3 Refunds; Violation ...................................................................................... 25
Section 5.4 Survival ....................................................................................................... 26

Article 6—Compact Annexes; Amendments; Governing Law ................................................... 26
Section 6.1 Annexes ...................................................................................................... 26
Section 6.2 Amendments ............................................................................................... 26
Section 6.3 Inconsistencies ............................................................................................ 26
Section 6.4 Governing Law ........................................................................................... 27
Section 6.5 Additional Instruments .............................................................................. 27
Section 6.6 References to MCC Website ...................................................................... 27

194 No. 6 of 2013] Millennium Challenge Compact

Section 6.7 References to Laws, Regulations, Policies and Guidelines ........................ 27
Section 6.8 MCC Status ................................................................................................ 27

Article 7—Entry Into Force ........................................................................................................ 27
Section 7.1 International Agreements ............................................................................ 27
Section 7.2 Conditions Precedent to Entry into Force ................................................. 27
Section 7.3 Date of Entry into Force ............................................................................ 28
Section 7.4 Compact Term ............................................................................................ 28
Section 7.5 Provisional Application .............................................................................. 28

Annex 1—Program Description
Annex II—Multi-Year Financial Plan Summary
Annex III—Description of the Monitoring and Evaluation Plan
Annex IV—Conditions Precedent to Disbursement of Compact Implementation Funding
Annex V —Definitions
Annex VI—Tax Schedules

Millennium Challenge Compact [No. 6 of 2013 195

MILLENNIUM CHALLENGE COMPACT
PREAMBLE

This MILLENNIUM CHALLENGE COMPACT (this “Compact”) is between the Republic
of Zambia (“Zambia”), acting through its Government (the “Government”), and the United
States of America, acting through the Millennium Challenge Corporation, a United States
Government Corporation (“MCC’), (individually a “Party” and collectively, the “Parties”).
Capitalized terms used in tills Compact will have the meanings provided in Annex V.

Recognizing that the Parties are committed to the shared goals of promoting economic growth
and the elimination of extreme poverty in Zambia and that MCC assistance under this Compact
supports Zambia’s demonstrated commitment to strengthening good governance, economic freedom
and investments in people;

Recalling that the Government consulted with the private sector and civil society of Zambia to
determine the priorities for the use of MCC assistance and developed and submitted to MCC a
proposal for such assistance to achieve lasting economic growth and poverty reduction; and

Recognizing that MCC wishes to help Zambia implement the program described herein to
achieve the goal and objectives described herein (as such program description and objectives may
be amended from time to time in accordance with the terms hereof, the “Program”);
The Parties hereby agree as follows:

ARTICLE 1
GOAL AND OBJECTIVES

Section 1.1—Compact Goal
The goal of this Compact is to reduce poverty through economic growth in Zambia (the

“Compact Goal’). MCC’s assistance will be provided in a manner that strengthens good
governance, economic freedom and investments in the people of Zambia.

Section 1.2—Project Objective
The objective of the Project (the “Project Objective”) is to expand access to, and improve the

reliability of, water supply and sanitation, and improve drainage services in select urban and peri-
urban areas of the city of Lusaka in order to decrease the incidence of water-borne and water-
related diseases, generate time savings for households and businesses and reduce non-revenue
water in the water supply network.

ARTICLE 2
FUNDING AND RESOURCES

Section 2.1—Program Funding
Upon entry into force of this Compact in accordance with Section 7.3, MCC will grant to the

Government, under the terms of this Compact, an amount not to exceed Three Hundred and
Thirty-Nine Million Four Hundred and Sixty-Eight Thousand Seven Hundred and One United
States Dollars (US$339,468,701) (“Program Funding”) for use by the Government to implement
the Program. The allocation of Program Funding is generally described in Annex II.

Section 2.2—Compact Implementation Funding
(a) Upon signing of this Compact, MCC will grant to the Government, under the terms of

this Compact and in addition to the Program Funding described in Section 2.1, an
amount not to exceed Fifteen Million Two Hundred and Eighty-Eight Thousand
Nine Hundred and Thirty- Nine United States Dollars (US$15,288,939) (“Compact
Implementation Funding”) under Section 609(g) of the Millennium Challenge Act of
2003, as amended (the “MCA Act”), for use to facilitate implementation of the
Compact, including for the following purposes:

196 No. 6 of 2013] Millennium Challenge Compact
(i) financial management and procurement activities;
(ii) administrative activities (including start-up costs such as staff salaries) and

administrative support expenses such as rent, computers and other
information technology or capital equipment;

(iii) monitoring and evaluation activities;
(iv) feasibility, design, and other studies; and
(v) other activities to facilitate Compact implementation as approved by MCC.

The allocation of Compact Implementation Funding is generally described in Annex II—
(b) Without limiting the generality of Section 2.2(a), the Government agrees that MCC will

directly administer and manage a portion of the Compact Implementation Funding
in order to develop any detailed designs and resettlement action plans required for
the Project, and to facilitate any other uses of the Compact Implementation Funding
contemplated in clause (a) above, as may be agreed in writing by the Parties (the
“MCC Contracted CIF Activities”).
Notwithstanding anything to the contrary in this Compact or the Program
Implementation Agreement, MCC will utilize applicable United States government
procurement rules and regulations in any procurements it administers and manages
in connection with the MCC CIF Contracted Activities, and will disburse MCC
Funding from time to time for the MCC CIF Contracted Activities directly to the
relevant provider upon receipt of a valid invoice approved by MCC.

(c) Each Disbursement of Compact Implementation Funding (other than any Disbursement
for the MCC CIF Contracted Activities) is subject to satisfaction of the conditions
precedent to such disbursement as set forth in Annex IV.

(d) If MCC determines that the full amount of Compact Implementation Funding available
under Section 2.2(a) exceeds the amount that reasonably can be utilized for the
purposes set forth in Section 2.2(a), MCC, by written notice to the Government,
may withdraw the excess amount, thereby reducing the amount of the Compact
Implementation Funding available under Section 2.2(a) (such excess, the “Excess
CIF Amount”). In such event, the amount of Compact Implementation Funding
granted to the Government under Section 2.2(a) will be reduced by the Excess CIF
Amount, and MCC will have no further obligations with respect to such Excess CIF
Amount.

(e) MCC, at its option by written notice to the Government, may elect to grant to the
Government an amount equal to all or a portion of such Excess CIF Amount as an
increase in the Program Funding, and such additional Program Funding will be subject
to the terms and conditions of this Compact applicable to Program Funding.

Section 2.3—MCC Funding
Program Funding and Compact Implementation Funding are collectively referred to in this

Compact as “MCC Funding,” and includes any refunds or reimbursements of Program Funding
or Compact Implementation Funding paid by the Government in accordance with this Compact.

Section 2.4—Disbursement
In accordance with this Compact and the Program Implementation Agreement, MCC will

disburse MCC Funding for expenditures incurred in furtherance of the Program (each instance, a
“Disbursement”). Subject to the satisfaction of all applicable conditions precedent, the proceeds
of Disbursements will be made available to the Government, at MCC’s sole election, by (a)
deposit to one or more bank accounts established by the Government and acceptable to MCC
(each, a “Permitted Account”) or (b) direct payment to the relevant provider of goods, works or
services for the implementation of the Program. MCC Funding may be expended only for Program
expenditures.

Millennium Challenge Compact [No. 6 of 2013 197
Section 2.5—Interest

The Government will pay or transfer to MCC, in accordance with the Program Implementation
Agreement, any interest or other earnings that accrue on MCC Funding prior to such funding
being used for a Program purpose.

Section 2.6—Government Resources: Budget
(a) The Government will provide all funds and other resources and will take all actions that

are necessary to carry out the Government’s responsibilities under this Compact.
(b) The Government will use its best efforts to ensure that all MCC Funding it receives or

is projected to receive in each of its fiscal years is fully accounted for in its annual
budget on a multi-year basis.

(c) The Government will not reduce the normal and expected resources that it would
otherwise receive or budget from sources other than MCC for the activities
contemplated under this Compact and the Program.

(d) Unless the Government discloses otherwise to MCC in writing, MCC Funding will be
in addition to the resources that the Government would otherwise receive or budget
for the activities contemplated under this Compact and the Program.

Section 2.7—Limitations on the Use of MCC Funding
The Government will ensure that MCC Funding is not used for any purpose that would violate

United States law or policy, as specified in this Compact or as further notified to the Government
in writing or by posting from time to time on the MCC website at “www.mcc.gov (the “MCC
Website”), including but not limited to the following purposes:

(a) for assistance to, or training of, the military, police, militia, national guard or other quasi
-military organization or unit;

(b) for any activity that is likely to cause a substantial loss of United States jobs or a
substantial displacement of United States production;

(c) to undertake, fund or otherwise support any activity that is likely to cause a significant
environmental, health or safety hazard, as further described in MCC’s environmental
and social assessment guidelines and any guidance documents issued in connection
with the guidelines posted from time to time on the MCC Website or otherwise
made available to the Government (collectively, the “MCC Environmental
Guidelines”); or

(d) to pay for the performance of abortions as a method of family planning or to motivate
or coerce any person to practice abortions, to pay for the performance of involuntary
sterilizations as a method of family planning or to coerce or provide any financial
incentive to any person to undergo sterilizations or to pay for any biomedical
research which relates, in whole or in part, to methods of, or the performance of,
abortions or involuntary sterilization as a means of family planning.

Section 2.8—Taxes
(a) Unless the Parties specifically agree otherwise in writing, the Government will ensure

that all MCC Funding is free from the payment or imposition of any existing or future
taxes, duties, levies, contributions or other similar charges (but not fees or charges for
services that are generally applicable in Zambia, reasonable in amount and imposed on
a non-discriminatory basis) (“Taxes”) of or in Zambia (including any such Taxes imposed
by a national, regional, local or other governmental or taxing authority of or in Zambia).
Specifically, and without limiting the generality of the foregoing, MCC Funding will be
free from the payment of—

(i) any tariffs, customs duties, import taxes, export taxes and other similar charges
on any goods, works or services introduced into Zambia in connection
with the Program;

198 No. 6 of 2013] Millennium Challenge Compact
(ii) sales tax, value added tax, excise tax, property transfer tax and other similar

charges on any transactions involving goods, works or services in connection
with the Program;

(iii) taxes and other similar charges on ownership, possession or use of any
property in connection with the Program; and

(iv) taxes and other similar charges on income, profits or gross receipts attributable
to work performed in connection with the Program and related social
security taxes and other similar charges on all natural or legal persons
performing work in connection with the Program except (x) natural persons
who are citizens or permanent residents of Zambia; and (y) legal persons
formed under the laws of Zambia (but excluding MCA-Zambia and any
other entity formed for the purpose of implementing the Government’s
obligations hereunder),

(b) The mechanisms that the Government will use to implement the principal tax exemptions
required by Section 2.8(a) are set forth in Annex VI. Such mechanisms may include
exemptions from the payment of Taxes that have been granted in accordance with
applicable law, refund or reimbursement of Taxes by the Government to MCC,
MCA-Zambia or to the taxpayer, or payment by the Government to MCA-Zambia
or MCC, for the benefit of the Program, of an agreed amount representing any
collectible Taxes on the items described in Section 2.8(a).

(c) If a Tax has been paid contrary to the requirements of Section 2.8(a) or Annex VI, the
Government will refund promptly to MCC (or to another party as designated by
MCC) the amount of such Tax in United States Dollars or the currency of Zambia
within thirty (30) days (or such other period as may be agreed in writing by the
Parties) after the Government is notified in writing (whether by MCC or MCA-
Zambia) that such Tax has been paid.

(d) No MCC Funding, proceeds thereof or Program Assets may be applied by the
Government in satisfaction of its obligations under Section 2.8(c).

ARTICLE 3
IMPLEMENTATION

Section 3.1—Program Implementation Agreement
The Parties will enter into an agreement providing further detail on the implementation

arrangements, fiscal accountability and disbursement and use of MCC Funding, among other
matters (the “Program Implementation Agreement”); and the Government will implement the
Program in accordance with this Compact, the Program Implementation Agreement, any other
Supplemental Agreement and any Implementation Letter.
Section 3.2—Government Responsibilities

(a) The Government has principal responsibility for overseeing and managing the
implementation of the Program.

(b) The Government hereby designates Millennium Challenge Account-Zambia as the
accountable entity to implement the Program and to exercise and perform the
Government’s right and obligation to oversee, manage and implement the Program,
including without limitation, managing the implementation of the Project and its
Activities, allocating resources and managing procurements. Such entity will be
referred to herein as “MCA-Zambia,” and will have the authority to bind the
Government with regard to all Program activities. The designation of MCA-Zambia
contemplated by this Section 3.2(b) will not relieve the Government of any obligations
or responsibilities hereunder or under any related agreement, for which the
Government remains fully responsible. MCC hereby acknowledges and consents to
the designation in this Section 3.2(b).

Millennium Challenge Compact [No. 6 of 2013 199
(c) The Government will ensure that any Program Assets or services funded in whole or in

part (directly or indirectly) by MCC Funding are used solely in furtherance of this
Compact and the Program unless MCC agrees otherwise in writing.

(d) The Government will take all necessary or appropriate steps to achieve the Project
Objective during the Compact Term (including, without limiting Section 2.6(a),
funding all costs that exceed MCC Funding and are required to carry out the terms
hereof and achieve such objectives, unless MCC agrees otherwise in writing).

(e) The Government will fully comply with the Program Guidelines, as applicable, in its
implementation of the Program.

(f) The Government grants to MCC a perpetual, irrevocable, royalty-free, worldwide,
fully paid, assignable right and license to practice or have practiced on its behalf
(including the right to produce, reproduce, publish, repurpose, use, store, modify or
make available) any portion or portions of Intellectual Property as MCC sees fit in
any medium, now known or hereafter developed, for any purpose whatsoever.

Section 3.3—Policy Performance
In addition to undertaking the specific policy, legal and regulatory reform commitments identified

in Annex I (if any), the Government will seek to maintain and to improve its level of performance
under the policy criteria identified in Section 607 of the MCA Act, and the selection criteria and
methodology used by MCC.

Section 3.4—Accuracy of Information
The Government assures MCC that, as of the date this Compact is signed by the Government,

the information provided to MCC by or on behalf of the Government in the course of reaching
agreement with MCC on this Compact is true, correct and complete in all material respects.

Section 3.5—Implementation Letters
From time to time, MCC may provide guidance to the Government in writing on any matters

relating to this Compact, MCC Funding or implementation of the Program (each, an
“Implementation Letter”). The Government will use such guidance in implementing the Program.
The Parties may also issue jointly agreed-upon Implementation Letters to confirm and record
their mutual understanding on aspects related to the implementation of this Compact, the Program
Implementation Agreement or other related agreements.

Section 3.6—Procurement and Grants
(a) The Government will ensure that the procurement of all goods, works and services by

the Government or any Provider to implement the Program will be consistent with
the “MCC Program Procurement Guidelines” posted from time to time on the MCC
Website (the “MCC Program Procurement Guidelines”). The MCC Program
Procurement Guidelines include the following requirements, among others:

(i) open, fair, and competitive procedures must be used in a transparent manner
to solicit, award and administer contracts and to procure goods, works and
services;

(ii) solicitations for goods, works, and services must be based upon a clear and
accurate description of the goods, works and services to be acquired;

(iii) contracts must be awarded only to qualified contractors that have the
capability and willingness to perform the contracts in accordance with
their terms on a cost effective and timely basis; and

(iv) no more than a commercially reasonable price, as determined, for example,
by a comparison of price quotations and market prices, will be paid to
procure goods, works and services.

200 No. 6 of 2013] Millennium Challenge Compact
(b) The Government will ensure that any grant issued in furtherance of the Program (each,

a “Grant’) is awarded, implemented and managed pursuant to open, fair and
competitive procedures administered in a transparent manner acceptable to MCC.
In furtherance of this requirement, and prior to the issuance of any Grant, the
Government and MCC shall agree upon written procedures to govern the identification
of potential Grant recipients, including without limitation appropriate eligibility
and selection criteria and award procedures. Such agreed procedures shall be posted
on the MCA-Zambia website.

Section 3.7—Records; Accounting; Covered Providers; Access
(a) Government Books and Records: The Government will maintain, and will use its best

efforts to ensure that all Covered Providers maintain, accounting books, records,
documents and other evidence relating to the Program adequate to show, to MCC’s
satisfaction, the use of all MCC Funding and the implementation and results of the
Program (“Compact Records”). In addition, the Government will furnish or cause to
be furnished to MCC, upon its request, originals or copies of such Compact Records.

(b) Accounting: The Government will maintain and will use its best efforts to ensure that
all Covered Providers maintain Compact Records in accordance with generally
accepted accounting principles prevailing in the United States, or at the Government’s
option and with MCC’s prior written approval, other accounting principles, such as
those prescribed by the International Accounting Standards Board. Compact Records
must be maintained for at least five (5) years after the end of the Compact Term or
for such longer period, if any, required to resolve any litigation, claims or audit
findings or any applicable legal requirements.

(c) Providers and Covered Providers. Unless the Parties agree otherwise in writing, a
“Provider” is—

(i) any entity of the Government that receives or uses MCC Funding or any
other Program Asset in carrying out activities in furtherance of this
Compact; or

(ii) any third party that receives at least fifty thousand United States dollars
(US$50,000) in the aggregate of MCC Funding (other than as salary or
compensation as an employee of an entity of the Government) during the
Compact Term.

A “Covered Provider” is—
(i) a non-United States Provider that receives (other than pursuant to

a direct contract or agreement with MCC) three thousand United
Stated dollars (US$300,000) or more of MCC Funding in any
Government fiscal year or any other non-United States person or
entity that receives, directly or indirectly, three thousand United
Stated dollars (US$300,000) or more of MCC Funding from any
Provider in such fiscal year; or

(ii) any United States Provider that receives (other than pursuant to a
direct contract or agreement with MCC) five thousand United Stated
dollars (US$500,000) or more of MCC Funding in any Government
fiscal year or any other United States person or entity that receives,
directly or indirectly, five thousand United Stated dollars
(US$500,000) or more of MCC Funding from any Provider in such
fiscal year.

(d) Access: Upon MCC’s request, the Government, at all reasonable times, will permit, or
cause to be permitted, authorised representatives of MCC, an authorized Inspector
General of MCC (“Inspector General’), the United States Government

Millennium Challenge Compact [No. 6 of 2013 201

Accountability Office, any auditor responsible for an audit contemplated herein or
otherwise conducted in furtherance of this Compact and any agents or representatives
engaged by MCC or the Government to conduct any assessment, review or evaluation
of the Program, the opportunity to audit, review, evaluate or inspect facilities,
assets and activities funded in whole or in part by MCC Funding.

Section 3.8—Audits; Reviews
(a) Government Audits: Except as the Parties may agree otherwise in writing, the Government

will, on at least a semi-annual basis, conduct, or cause to be conducted, financial
audits of all disbursements of MCC Funding covering the period from signing of this
Compact until the earlier of the following December 31 or June 30 and covering each
six-months period thereafter ending December 31 and June 30, through the end of
the Compact Term. In addition, upon MCC’s request, the Government will ensure
that such audits are conducted by an independent auditor approved by MCC and
named on the list of local auditors approved by the Inspector General or a United
States-based certified public accounting firm selected in accordance with the
“Guidelines for Financial Audits Contracted by MCA” (the “Audit Guidelines”)
issued and revised from time to time by the Inspector General, which are posted on
the MCC Website. Audits will be performed in accordance with the Audit Guidelines
and be subject to quality assurance oversight by the Inspector General. Each audit
must be completed and the audit report delivered to MCC no later than ninety (90)
days after the first period to be audited and no later than ninety (90) days after each
June 30 and December 31 thereafter, or such other period as the parties may otherwise
agree in writing.

(b) Audits of Other Entities: The Government will ensure that MCC-financed agreements
between the Government or any Provider, on the one hand, and—

(i) a United States non-profit organisation, on the other hand, state that the
United States non-profit organisation is subject to the applicable audit
requirements contained in OMB Circular A-133, “Audits of States, Local
Governments, and Non-Profit Organisations,” issued by the United States
Office of Management and Budget;

(ii) a United States for-profit Covered Provider, on the other hand, state that the
United States for-profit organization is subject to audit by the applicable
United States Government agency, unless the Government and MCC agree
otherwise in writing; and

(iii) a non-US Covered Provider, on the other hand, state that the non-US Covered
Provider is subject to audit in accordance with the Audit Guidelines.

(c) Corrective Actions: The Government will use its best efforts to ensure that each
Covered Provider—

(i) takes, where necessary, appropriate and timely corrective actions in response
to audits;

(ii) considers whether the results of the Covered Provider’s audit necessitates
adjustment of the Government’s records; and

(iii) permits independent auditors to have access to its records and financial
statements as necessary.

(d) Audit by MCC: MCC will have the right to arrange for audits of the Government’s use
of MCC Funding.

(e) Cost of Audits, Reviews or Evaluations: MCC Funding may be used to fund the costs
of any audits, reviews or evaluations required under this Compact.

202 No. 6 of 2013] Millennium Challenge Compact

ARTICLE 4
COMMUNICATIONS

Section 4.1.—Communications
Any document or communication required or submitted by either Party to the other under this

Compact must be in writing and, except as otherwise agreed with MCC, in English. For this
purpose, the address of each Party is set forth below:
To the Government (with a copy to the MCA-Zambia):

Minister of Finance
Ministry of Finance
P.O. Box 50062, Chimanga Road
Lusaka
Republic of Zambia
Facsimile: +260211 251078
Telephone: +260211 250481

+260211 254263
To MCC:
Millennium Challenge Corporation
Attention: Vice President, Compact Operations

(with a copy to the Vice President and General Counsel, and the MCC resident
country mission in Zambia)

875 Fifteenth Street, NW
Washington, DC 20005
United States of America
Facsimile: +1 (202) 521-3700
Telephone: +1 (202) 521-3600
Email: VPOperations@mcc.gov(Vice-President,Compact Operations)

VPGeneralCounsel@mcc.gov (Vice President and General Counsel)
Section 4.2—Representatives

For all purposes of this Compact, the Government will be represented by the individual
holding the position of, or acting as, the Minister of Finance, and MCC will be represented by the
individual holding the position of, or acting as, Vice President, Compact Operations (each of the
foregoing, a “Principal Representative”). Each Party, by written notice to the other Party, may
designate one or more additional representatives (each, an “Additional Representative”) for all
purposes other than signing amendments to this Compact. The Government hereby designates
the chairperson of the Board of MCA-Zambia as an Additional Representative. A Party may
change its Principal Representative to a new representative that holds a position of equal or
higher authority upon written notice to the other Party.
Section 4.3—Signatures

Signatures to this Compact and to any amendment to this Compact will be original signatures
appearing on the same page or in an exchange of letters or diplomatic notes. With respect to all
documents arising out of this Compact (other than the Program Implementation Agreement) and
amendments thereto, signatures may, as appropriate, be delivered by facsimile or electronic mail
and in counterparts and will be binding on the Party delivering such signature to the same extent
as an original signature would be.

ARTICLE 5
TERMINATION; SUSPENSION; EXPIRATION

Section 5.1—Termination: Suspension
(a) Either Party may terminate this Compact without cause in its entirety by giving the

other Party thirty (30) days’ prior written notice. MCC may also terminate this
Compact or MCC Funding without cause in part by giving the Government thirty
(30) days’ prior written notice.

Millennium Challenge Compact [No.6 of 2013 203

(b) MCC may, immediately, upon written notice to the Government, suspend or terminate
this Compact or MCC Funding, in whole or in part, and any obligation related
thereto, if MCC determines that any circumstance identified by MCC, as a basis for
suspension or termination (whether in writing to the Government or by posting on
the MCC Website) has occurred, which circumstances include but are not limited to
the following:

(i) the Government fails to comply with its obligations under this Compact or
any other agreement or arrangement entered into by the Government in
connection with this Compact or the Program;

(ii) an event or series of events has occurred that makes it probable that the
Project Objective will not be achieved during the Compact Term or that
the Government will not be able to perform its obligations under this
Compact;

(iii) a use of MCC Funding or continued implementation of this Compact or the
Program violates applicable law or United States Government policy,
whether now or hereafter in effect;

(iv) the Government or any other person or entity receiving MCC Funding or
using Program Assets is engaged in activities that are contrary to the
national security interests of the United States;

(v) an act has been committed or an omission or an event has occurred that would
render Zambia ineligible to receive United States economic assistance under
Part I of the Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151
et seq.), by reason of the application of any provision of such act or any
other provision of law;

(vi) the Government has engaged in a pattern of actions inconsistent with the
criteria used to determine the eligibility of Zambia for assistance under the
MCA Act;

(vii) Zambia is classified as a Tier three (3) country in the United States
Department of State’s annual Trafficking in Persons Report; and

(viii) the Government or another person or entity receiving MCC Funding or
using Program Assets is found to have been convicted of a narcotics offence
or to have been engaged in drug trafficking.

Section 5.2—Consequences of Termination, Suspension or Expiration
(a) Upon the suspension or termination, in whole or in part, of this Compact or any MCC

Funding, or upon the expiration of this Compact, the provisions of Section 4.2 of
the Program Implementation Agreement will govern the post-suspension, post-
termination or post-expiration treatment of MCC Funding, any related
Disbursements and Program Assets. Any portion of this Compact, MCC Funding,
the Program Implementation Agreement or any other Supplemental Agreement that
is not suspended or terminated will remain in full force and effect.

(b) MCC may reinstate any suspended or terminated MCC Funding under this Compact if
MCC determines that the Government or other relevant person or entity has
committed to correct each condition for which MCC Funding was suspended or
terminated.

Section 5.3—Refunds; Violation
(a) If any MCC Funding, any interest or earnings thereon, or any Program Asset is used for

any purpose in violation of the terms of this Compact, then MCC may require the
Government to repay to MCC in United States Dollars the value of the misused
MCC Funding, interest, earnings, or asset, plus interest within thirty (30) days after
the Government’s receipt of MCC’s request for repayment. The Government will
not use MCC Funding, proceeds thereof or Program Assets to make such payment.

204 No. 6 of 2013] Millennium Challenge Compact

(b) Notwithstanding any other provision in this Compact or any other existing agreement
to the contrary, MCC’s right under Section 5.3(a) for a refund will continue during
the Compact Term and for a period of—

(i) five (5) years thereafter; or
(ii) one (1) year after MCC receives actual knowledge of such violation, whichever

is later.

Section 5.4—Survival
The Government’s responsibilities under this Section and Sections 2.7, 3.2(f), 3.7, 3.8, 5.2, 5.3

and 6.4 will survive the expiration, suspension or termination of this Compact.

ARTICLE 6
COMPACT ANNEXES; AMENDMENTS; GOVERNING LAW

Section 6.1—Annexes
Each annex to this Compact constitutes an integral part hereof, and references to “Annex” mean

an annex to this Compact unless otherwise expressly stated.

Section 6.2—Amendments
(a) The Parties may amend this Compact only by a written agreement signed by the

Principal Representatives (or such other government official designated by the
relevant Principal Representative).

(b) Notwithstanding Section 6.2(a), the Parties may agree in writing, signed by the Principal
Representatives (or such other government official designated by the relevant Principal
Representative) or any Additional Representative, to modify any Annex to this
Compact in order to, without limitation—

(i) suspend, terminate or modify the Project or any Activity, or to create a new
project;

(ii) change the allocations of funds as set forth in Annex II as of the date hereof
(including to allocate funds to a new project);

(iii) modify the Implementation Framework described in Annex I;
(iv) add, delete or waive any condition precedent described in Annex IV; or
(v) modify the mechanisms for exempting MCC Funding from Taxes as set forth

in Annex VI;
provided that, in each case, any such modification:

(l) is consistent in all material respects with the Project Objective;
(2) does not cause the amount of Program Funding to exceed the aggregate amount specified

in Section 2.1 (as may be modified by operation of Section 2.2(e));
(3) does not cause the amount of Compact Implementation Funding to exceed the aggregate

amount specified in Section 2.2(a);
(4) does not reduce the Government’s responsibilities or contribution of resources required

under Section 2.6; and
(5) does not extend the Compact Term.

Section 6.3—Inconsistencies
In the event of any conflict or inconsistency between:

(a) any Annex and any of Articles 1 through 7, such Articles 1 through 7, as applicable, will
prevail; or

(b) this Compact and any other agreement between the Parties regarding the Program, this
Compact will prevail.

Millennium Challenge Compact [No. 6 of 2013 205
Section 6.4—Governing Law

This Compact is an international agreement and as such will be governed by the principles of
international law.

Section 6.5—Additional Instruments
Any reference to activities, obligations or rights undertaken or existing under or in furtherance

of this Compact or similar language will include activities, obligations and rights undertaken by, or
existing under or in furtherance of any agreement, document or instrument related to this Compact
and the Program.

Section 6.6—References to MCC Website
Any reference in this Compact, the Program Implementation Agreement or any other agreement

entered into in connection with this Compact, to a document or information available on, or
notified by posting on the MCC Website will be deemed a reference to such document or information
as updated or substituted on the MCC Website from time to time.

Section 6.7—References to Laws, Regulations, Policies and Guidelines
Each reference in this Compact, the Program Implementation Agreement or any other agreement

entered into in connection with this Compact, to a law, regulation, policy, guideline or similar
document will be construed as a reference to such law, regulation, policy, guideline or similar
document as it may, from time to time, be amended, revised, replaced, or extended and will include
any law, regulation, policy, guideline or similar document issued under or otherwise applicable or
related to such law, regulation, policy, guideline or similar document.

Section 6.8—MCC Status
MCC is a United States government corporation acting on behalf of the United States

Government in the implementation of this Compact. MCC and the United States Government
assume no liability for any claims or loss arising out of activities or omissions under this Compact.
The Government waives any and all claims against MCC or the United States Government or any
current or former officer or employee of MCC or the United States Government for all loss,
damage, injury, or death arising out of activities or omissions under this Compact, and agrees that
it will not bring any claim or legal proceeding of any kind against any of the above entities or
persons for any such loss, damage, injury, or death. The Government agrees that MCC and the
United States Government or any current or former officer or employee of MCC or the United
States Government will be immune from the jurisdiction of all courts and tribunals of Zambia for
any claim or loss arising out of activities or omission under this Compact.

ARTICLE 7
ENTRY INTO FORCE

Section 7.1—International Agreements
The Parties understand that each of the Compact and the Program Implementation Agreement,

upon its entry into force, will, in the event of any conflict, prevail over the domestic laws of
Zambia (other than the Constitution of Zambia).

Section 7.2—Conditions Precedent to Entry into Force
Before this Compact enters into force—

(a) the Program Implementation Agreement must have been signed by the parties thereto;
(b) the Government must have delivered to MCC—

(i) a letter signed and dated by the Principal Representative of the Government,
or such other representative of the Government as may be duly authorised
in a manner acceptable to MCC, confirming that the Government has
completed its domestic requirements for this Compact to enter into force
and that the other conditions precedent to entry into force in this Section
7.2 have been met;

206 No. 6 of 2013] Millennium Challenge Compact
(ii) a signed legal opinion from the Attorney General of Zambia (or such other

legal representative of the Government acceptable to MCC), in form and
substance satisfactory to MCC; and

(iii) complete, certified copies of all decrees, legislation, regulations or other
governmental documents relating to the Government’s domestic
requirements for this Compact to enter into force, which MCC may post
on its website or otherwise make publicly available;

(c) MCC will not have determined that, after signature of this Compact, the Government has
engaged in a pattern of actions inconsistent with the eligibility criteria for MCC Funding;

(d) the Government must have delivered to MCC a plan (the “GRZ Sanitation Connection
Action Plan”), consistent with LWSC’s “Sanitation Marketing Program” approved by
the Government, describing how the Government will administer the supplemental
Government funding to be set aside to assist beneficiaries that are unable to pay for
household connections to the sanitation infrastructure assets to be financed under this
Compact, which plan must be in form and substance satisfactory to MCC;

(e) the Government must have delivered to MCC a certified copy of a resolution of the board
of directors of LWSC (or such similar instrument as may be proposed by the Government
and is acceptable to MCC) demonstrating, to MCC’s satisfaction, that at least fifty
percent (50 percent) of LWSC’s Retained Earnings will be reserved for asset renewal
and capital expansion;

(f) MCC will have determined that the Government has verified a reasonable amount of its
outstanding payment obligations to LWSC (as evidenced to MCC’s satisfaction) in
connection with the provision of water supply and sanitation services, and that such
obligations have been satisfied (to MCC’s satisfaction); and

(g) The Government and LWSC must have entered into an agreement (the “LWSC Sustainability
Agreement’), in form and substance satisfactory to MCC, setting forth performance
requirements or milestones designed to assure the continued technical efficiency and
financial and commercial sustainability of LWSC, including, without limitation,
requirements or milestones related to LWSC’s corporate governance, operational and
financial performance and improved customer service, which agreement must also include
semi –annual benchmarks against which the Government and LWSC will measure their
respective progress in satisfying such performance requirements or milestones and
which must also provide for periodic technical audits of the Government’s and LWSC’s
performance under or compliance with such agreement.

Section 7.3—Date of Entry into Force
This Compact will enter into force on the date of the letter from MCC to the Government in an

exchange of letters confirming that MCC has completed its domestic requirements for entry into
force of this Compact and that the conditions precedent to entry into force in Section 7.2 have
been met.

Section 7.4—Compact Term
This Compact will remain in force for five (5) years after its entry into force, unless terminated

earlier under Section 5.1 (the “Compact Term”).

Section 7.5—Provisional Application
Upon signature of this Compact and until this Compact has entered into force in accordance

with Section 7.3, the Parties will provisionally apply the terms of this Compact; provided that,
no MCC Funding, other than Compact Implementation Funding, will be made available or disbursed
before this Compact enters into force.

Millennium Challenge Compact [No. 6 of 2013 207

IN WITNESS WHEREOF, the undersigned, duly authorised by their respective governments, have
signed this Compact.

Done at Lusaka, Zambia, this 10th day of May, 2012, in the English language only.

FOR THE REPUBLIC OF ZAMBIA FOR THE UNITED STATES OF AMERICA,
ACTING THROUGH THE MILLENNIUM
CHALLENGE CORPORATION

Name: ALEXANDER B. CHIKWANDA Name: DANIEL W. YOHANNES
Title: Minister of Finance Title: Chief Executive Officer

208 No. 6 of 2013] Millennium Challenge Compact

ANNEX I
PROGRAM DESCRIPTION

This Annex I describes the Program that MCC Funding will support in Zambia during the
Compact Term.

A. PROGRAM OVERVIEW
1. Background and Consultative Process

The MCC Board of Directors originally selected Zambia as eligible for MCC assistance in
December 2008, and has re-selected Zambia as eligible for MCC assistance in each subsequent
year. In October 2009, the Government initiated a constraints analysis that identified three main
binding constraints to Zambia’s economic growth—

(i) low quality of human capital;
(ii) poor infrastructure services; and
(iii) coordination failures.

To elicit feedback on these constraints, the Government undertook a targeted consultative
process in accordance with all applicable MCC policies and guidelines, which included over 500
representatives from the government, private sector and civil society, as well as the donor
community. Feedback from these consultations resulted in a list of prioritised sectors deemed to
be key to Zambia’s economic development, including ecotourism, hydropower, roads, vocational
and secondary education and water and sanitation, from which the Government developed and
submitted six concept papers for MCC consideration.

After a thorough examination of the economic and operational feasibility of the Government’s
concept papers, MCC and the Government elected to focus solely on improvements to the water
supply, sanitation and drainage sectors in the capital city of Lusaka, a key constraint to economic
growth for the country. This examination included further consultations with national and local
government representatives, technical specialists, non-governmental organisations and the donor
community, including gender-responsive and socially inclusive consultations with community
members in each of the thirty-three (33) wards directly impacted by the Program. As with the
initial consultative process, this effort also was conducted in accordance with all applicable MCC
policies and guidelines.

The city of Lusaka currently has a population of over one million eight hundred (1,800,000)
people, representing over ten (10) percent of Zambia’s total population, and is projected to have
nearly five million (5,000,000) residents by 2035. This rapidly increasing population is served by
a water supply, sanitation and drainage system that was constructed in the 1960s and 1970s to
serve a much smaller population, and which has not benefited from major capital investment or
proper maintenance in the intervening years. As a result, the system’s core infrastructure assets
are outdated, dilapidated and unable to meet current or future demand. Currently, only
approximately seventy (70) percent of Lusaka residents have access to treated water supply, and
only approximately sixty-five (65) percent have access to water-borne sanitation (either through
a connection to the network or with septic tanks). Those without water-borne sanitation typically
rely on pit latrines, most of which are not properly designed and therefore result in groundwater
contamination, primarily impacting the shallow wells used for drinking water by the population
without access to treated water supply. All of these factors contribute to a high prevalence and
incidence of water-borne disease, which is exacerbated by endemic flooding resulting from
insufficiently maintained and inadequate drainage infrastructure. In addition to poor health, the
degraded and inadequate condition of the system’s core infrastructure also forces Lusaka’s residents
and businesses to waste substantial time and resources resolving water supply shortages and
delays, as well as flood losses, resulting in further lost productivity.

Millennium Challenge Compact [No. 6 of 2013 209

The Program is designed to address this constraint to economic growth by supporting
infrastructure investments and continued institutional strengthening and reform in order to expand
access to, and improve the reliability of, water supply and sanitation, and improve drainage
services in select urban and peri-urban areas of the city of Lusaka. To this end, the Program has
been developed within the broader framework of, and is consistent with, Zambia’s “National
Urban Water Supply and Sanitation Program,” and, as further described in paragraph 7 of Part B
of this Annex I, complements the Government’s longstanding and successful efforts to reform the
water and sanitation and drainage sectors. These reform efforts have produced a variety of key
outcomes, which have laid the foundation for the Program, including, for example, the privatisation
of state-owned enterprises to create commercial utilities throughout the country, as well as the
implementation of cost reflective tariffs, as facilitated through the creation of an autonomous
water utility regulator, the National Water Supply and Sanitation Council (“NWASCO”).

2. Project Objective
The Program consists of the Lusaka Water Supply, Sanitation And Drainage Project, (the

“LWSSD Project” or the “Project”), which in turn consists of the Infrastructure Activity and
the Institutional Strengthening Activity, as each is further described in this Annex 1.

The Project Objective is to expand access to, and improve the reliability of, water supply and
sanitation, and improve drainage services in select urban and peri-urban areas of the city of
Lusaka in order to decrease the incidence of water-borne and water-related diseases, generate time
savings for households and businesses and reduce non-revenue water in the water supply network.

3. Environmental and Social Safeguards
The Program will be implemented in compliance with the MCC Environmental Guidelines, the

International Finance Corporation’s Social and Environmental Performance Standards (the “IFC
Performance Standards”), the MCC Gender Policy and the MCC Gender Integration Guidelines
and Operational Procedures. Any involuntary resettlement will be carried out in accordance with
IFC Performance Standard 5 on Land Acquisition and Involuntary Resettlement in a manner
acceptable to MCC. The Government will also ensure that the Program complies with all national
environmental laws and regulations, licences and permits, except to the extent such compliance
would be inconsistent with this Compact. Specifically, the Government will:

(a) cooperate with or complete, as the case may be, any on-going environmental and social
impact assessments, or, if necessary, undertake and complete any additional
environmental and social assessments, environmental and social management plans,
health and safety management plans, environmental and social audits and resettlement
action plans required under the laws of Zambia, the MCC Environmental Guidelines,
the IFC Performance Standards, this Compact, the Program Implementation
Agreement, or any other Supplemental Agreement, or as otherwise required by
MCC, each in form and substance satisfactory to MCC;

(b) ensure that Project-(and, as applicable Activity-) specific environmental and social
management plans and health and safety management plans are developed and all
relevant measures contained in such plans are integrated into project design, the
applicable procurement documents and associated finalised contracts, in each case,
in form and substance satisfactory to MCC; and

(c) implement to MCC’s satisfaction appropriate environmental, social, health and safety
mitigation measures identified in such assessments or plans or developed to address
environmental, social, health and safety issues identified during implementation.
Unless MCC agrees otherwise in writing, the Government will fund all necessary
costs of environmental and social mitigation measures (including, without limita-
tion, costs of resettlement) not specifically provided for, or that exceed the MCC
Funding specifically allocated for such costs, in the Detailed Financial Plan for the
Program.

210 No. 6 of 2013] Millennium Challenge Compact
To maximise the positive social impacts of the Program, address cross-cutting social and gender

issues such as human trafficking, child and forced labour and HIV/AIDS, and ensure compliance
with the MCC Gender Policy, the Government will—

(a) adhere to the MCC Gender Integration Guidelines and Operational Procedures;
(b) develop a comprehensive social and gender integration plan (“Social and Gender

Integration Plan”), in form and substance satisfactory to MCC and reflecting the
MCC Social and Gender Integration Plan Guidelines, which, at a minimum, identifies
approaches for regular, meaningful and inclusive consultations with women and
other vulnerable/under-represented groups, consolidates the findings and
recommendations of the Project- (and, as applicable, Activity-) specific social and
gender analyses and social and gender-focused sub-activities, and sets forth strategies
for incorporating findings of the social and gender analyses into final designs, as
appropriate; and

(c) ensure, through monitoring and coordination during implementation, that final Project
(and Activity) designs, construction tender documents, other bidding documents
and implementation plans are consistent with and incorporate the outcomes of the
social and gender analyses and the Social and Gender Integration Plan.

B. LUSAKA WATER SUPPLY, SANITATION AND DRAINAGE PROJECT
Set forth below is a description of the LWSSD Project that the Government will implement, or

cause to be implemented, using MCC Funding;
1. Summary of Project and Activities

The LWSSD Project is comprised of the fol1owing activities (each, an “Activity”):
Investments in infrastructure development and rehabilitation, including interventions

to rehabilitate the core water supply network, rehabilitate and expand select water supply
and sewage networks, reduce Non-Revenue Water (“NRW’) and improve select drainage
infrastructure (the “Infrastructure Activity”).

The provision of technical assistance to the Lusaka Water and Sewerage Company
(“LWSC”), the provincial utility responsible for the management of Lusaka’s water and
sanitation assets and for the provision of water and sanitation services, and the Lusaka
City Council (“LCC’), the Government entity that manages the city’s drainage infrastructure
and services. This Activity will also include support for comprehensive information,
education and communication campaigns, and a competitive grant program designed to
spur innovation in the sectors (the “Institutional Strengthening Activity”).

(a) Infrastructure Activity
The Infrastructure Activity consists of a series of infrastructure improvements to

prioritized water supply, sanitation and drainage assets in Lusaka. Each component of this
Activity related to water supply and sanitation was selected based on the results of
mutually agreed, comprehensive investment master plans, while the component of this
Activity related to drainage was selected based on the results of priorities identified in the
“Study on Comprehensive Urban Development Plan for the City of Lusaka in the Republic
of Zambia” funded by the Japanese International Cooperation Agency (the “Comprehensive
Urban Development Plan”). All components were also selected based on the results of
mutually agreed, substantially completed feasibility studies on a subset of priority projects
identified in the plans. Collectively, during the Compact Term, the investments under this
Activity are expected to increase available water supply from 225 to 240 million liters per
day and reduce NRW from 48 percent to an estimated 25 percent. In addition, approximately
150,000 new people are expected to benefit from the water system (either through new
household connections or kiosks) and the number of sanitation connections is expected to
increase from approximately 22,000 to approximately 38,000. Specifically, the Infrastructure
Activity includes the following sub-activities:

Millennium Challenge Compact [No. 6 of 2013 211
(i) Core Water Network Rehabilitation: This sub-activity is designed to rehabilitate

the core water supply network in Lusaka in order to upgrade key treatment
and distribution centers and distribution lines and to reduce NRW. Primary
infrastructure works to be supported by MCC Funding under this sub-activity
are expected to include, without limitation:

(1) the rehabilitation of the Iolanda treatment plant and the Chilanga booster
pump station;

(2) the rehabilitation of segments of water transmission mains and the
installation of segments of parallel transmission mains;

(3) the rehabilitation of select distribution centers and the construction of
up to two new reservoirs;

(4) the supply and installation of bulk and consumer water meters;
(5) the supply of leak repair materials and related tools and equipment, as

well as the provision of appropriate training; and
(6) the replacement of unsuitable and inefficient distribution network and

connection pipes.
(ii) Chelston Distribution Line Rehabilitation and Expansion: This subactivity is

designed to expand the water supply network serving the Mtendere, Kamanga,
Kwamwena and Ndeke-Vorna Valley areas of Lusaka. Primary infrastructure
works to be supported by MCC Funding under this sub-activity are expected
to include, without limitation:

(1) the installation of new pipes;
(2) the construction of new water kiosks;
(3) the construction of new household connections and water meters; and
(4) the drilling and equipping of boreholes.

(iii) Chelston and Kaunda Square Sewersheds Rehabilitation and Expansion:This
sub-activity is designed to expand the sanitation network in the targeted
areas. Primary infrastructure works to be supported by MCC Funding under
this sub-activity are expected to include, without limitation:

(1) the rehabilitation of the Chelston pump station, including the
rehabilitation or replacement of a portion of the related force main;

(2) upgrading and expanding the Kaunda Square treatment ponds;
(3) upgrading the Salama pump station;
(4) the construction of new pump stations;
(5) the rehabilitation or replacement of the Kaunda Square sewer interceptor;

and
(6) the extension of the Mtendere sewer system in order to expand

household sanitation connections.
(iv) Central Distribution Line Rehabilitation and Expansion: This sub-activity is

designed to expand the water supply network serving the Ng’ombe, SOS East
and Chipata areas of Lusaka. Primary infrastructure works to be supported
by MCC Funding under this subactivity are expected to include, without
limitation:

(1) the installation of new pipes;
(2) the construction of new water kiosks; and
(3) the construction of new household collections and water meters.

(v) Bombay Drain Improvements: This sub-activity is designed to reduce flooding
through infrastructure improvements to the Bombay drain, which conveys
the runoff from the majority of the downtown business district areas of
Lusaka. Primary infrastructure works to be supported by MCC Funding
under this sub-activity are expected to include, without limitation:

212 No. 6 of 2013] Millennium Challenge Compact
(l) the upsizing of the existing primary outfall and main drain channels;
(2) the stabilization of the newly up sized drainage channels; and
(3) as needed, the installation of protective handrails.

(b) Institutional Strengthening Activity
The Institutional Strengthening Activity consists of a series of investments designed to

increase the ability of LWSC and LCC to maintain and manage their respective infrastructure
assets and to more effectively and equitably deliver services to Lusaka residents, as well as
to support innovation in water, sanitation and drainage-related activities.

Specifically, the Institutional Strengthening Activity includes the following sub-activities:
(i) Support to LWSC: This sub-activity is focused on strengthening the capacity of

LWSC to, without limitation, undertake comprehensive asset management
planning and execution, carry out effective environmental management and
monitoring, institutionalize and improve gender mainstreaming and conduct
effective outreach to ensure pro-poor water sanitation service delivery. MCC
Funding for this sub-activity is intended to support:

(1) The provision of technical assistance and related equipment to improve
LWSC’s maintenance capacity and capability, including, without
limitation, the creation of an asset register and improvement of
LWSC’ s electronic data and management systems, and the provision
of comprehensive training to improve maintenance budgeting and
forecasting, as well as to determine the most effective modality for
carrying out LWSC’s maintenance responsibilities.

(2) The provision of technical assistance and, potentially, related equipment
to strengthen LWSC’ s capacity to ensure effective environmental
monitoring, quality management and compliance.

(3) The provision of technical assistance to better institutionalize and
strengthen LWSC’s capacity for gender mainstreaming and social
inclusion, and to develop and implement policies that will increase
LWSC’ s capacity and incentives to provide affordable services to
the peri-urban poor and vulnerable populations.

(4) Support for LWSC-managed information, education and
communications (“IEC’) efforts to promote behavior change and
care of physical assets, including financial obligations.

(ii) Support to LCC: This sub-activity is focused on strengthening the capacity of
LCC to, without limitation, better manage and maintain its drainage assets, to
improve environmental management and monitoring, to institutionalize and
improve gender mainstreaming and to conduct effective outreach. MCC
Funding for this sub-activity is intended to support:

(1) The provision of technical assistance to increase LCC’s capacity to
plan and maintain Lusaka’s overall drainage system, including,
without limitation, the development of a comprehensive operations
and maintenance program, the completion of an institutional needs
assessment and support to implement the recommendations thereof,
and support for a detailed ground water study to guide future
system-wide operation and maintenance decision-making and
coherent, further infrastructure investments.

(2) The provision of technical assistance and, potentially, related equipment
to strengthen LCC’s capacity to ensure effective environmental
monitoring, quality management of drainage infrastructure and to
integrate environmental management into its broader governance
structure.

Millennium Challenge Compact [No. 6 of 2013 213
(3) The provision of technical assistance to better institutionalize and

strengthen LCC’s capacity for gender mainstreaming and to better
understand and mitigate social and behavioral conditions that may
contribute to degraded drainage infrastructure.

(4) Support for LCC-managed IEC efforts to promote behavior change
and care of physical assets to ensure the realization of expected
Project-related health benefits and the sustain ability of the
Compact’s infrastructure investments.

(iii) Innovation Grant Program for Pro-Poor Service Delivery: This subactivity
will support a competitive grant and partnership program designed to identify,
and provide assistance to, innovative partnership opportunities, particularly
through private sector engagement. This sub-activity is intended to increase
and sustain the poor’s access to quality water and sanitation, improve water
use, sanitation and hygiene practices among the poor, strengthen tenure security
and capacity for community-based planning, provide significant access by
women and vulnerable groups to Project benefits and expand opportunities
for entrepreneurship and income generating activities related to water,
sanitation and drainage.
Activities will thus enhance the functioning of the systems, complementing
and supplementing the Compact’s other investments. Grants issued under
this sub-activity will be awarded, implemented and managed pursuant to
open, fair and competitive procedures administered in a transparent manner
in accordance with all relevant MCC policies and guidelines (including the
Program Guidelines, the MCC Gender Integration Guidelines and Operational
Procedures and the IFC Performance Standards). Prior to the Disbursement
of any MCC Funding for a Grant, MCC and the Government will agree on an
operations manual including procedures to govern the identification of potential
Grant recipients, including, without limitation, appropriate eligibility and
selection criteria and award procedures. The Parties will also agree on the
possibility of appointing an outside grant program manager. Unless otherwise
approved by MCC, Grants awarded under this component will not be used
to support infrastructure investments.

2. Beneficiaries
The LWSSD Project is expected to benefit approximately 1,240,000 individuals over twenty

years, which represents the projected total population in Lusaka expected to benefit from at least
one of the Activities. Of these beneficiaries, approximately 73 percent are expected to be poor,
which is defined as living on less than US$2.00 per day on a purchasing power parity basis. The
main channels through which these beneficiaries are expected to benefit from the LWSSD Project
are through time savings, improved health outcomes and a reduction in NRW.
3. Environmental and Social Mitigation Measures

The Infrastructure Activity under the LWSSD Project has been classified as a Category “B”
project in accordance with the MCC Environmental Guidelines and the IFC Performance Standards.
This categorization is based on a number of risks and impacts, most of which are site-specific,
relatively minor and can be readily mitigated through site-specific environmental and social
management plans. Specifically, environmental and social impacts assessments completed for the
Infrastructure Activity have confirmed that the majority of the anticipated environmental and
social impacts are positive in nature. However, these assessments also identified the following
potential environmental- and social-related challenges and impacts that must be managed carefully
through effective project design, implementation and monitoring:

214 No. 6 of 2013] Millennium Challenge Compact

Involuntary Resettlement: The Infrastructure Activity is anticipated to result in the
physical and/or economic displacement of approximately 1,800 households due to Project-
related land use and acquisition, although most of these households will only experience
minor or temporary resettlement or displacement. A resettlement policy framework has
already been developed for the Project and site-specific resettlement action plans will be
developed once project designs are complete.

Community and Worker Health and Safety: In addition to the typical occupational
health and safety risks for construction workers, the major risks involve ensuring the
safety of residents in the areas where construction activities will require the excavation of
trenches, which may involve the use of explosives, in densely populated areas. Mitigation
of these risks will be addressed through health and safety management plans, which will
include requirements for intense safety training and supervision and extensive on going
coordu1ation with local community organizations.

Sludge Removal and Disposal: The upgrade and expansion of the sewerage network
and the rehabilitation and expansion of the sewage stabilization ponds will generate additional
sewage sludge. LWSC’s ability to adequately monitor and manage, and properly dispose
of, this additional sewage sludge will be strengthened through the environmental management
sub-activity of the Institutional Strengthening Activity.

Water Quality and Effluent Monitoring: In order to ensure the well-being and
environmental health of Lusaka residents it is critical that drinking water and effluent from
the sewage ponds regularly meet national standards. LWSC’s, and, as appropriate, LCC’s,
ability to adequately monitor and manage water and effluent quality will be strengthened
through the environmental management sub-activity of the Institutional Strengthening
Activity.

Waste collection and Management: One of the principal issues affecting effective drain
operation is the blockage of culverts by accumulated solid waste. In order to mitigate the
risk associated with underperforming drainage infrastructure due to inadequate solid waste
management, the Institutional Strengthening Activity includes support to enhance LCC’s
drainage-related solid waste and environmental management capabilities.

The Institutional Strengthening Activity has been classified as a Category “D” project, as it will
involve, among other components, an innovation Grant sub-activity through which MCC Funding
will be used to provide assistance to selected Grant recipients for projects that may result in
adverse environmental and social impacts. However, unless otherwise approved by MCC, Grants
awarded under this component will not be used to support infrastructure-based investments, and
as such, are not expected to result in any significant environmental, health or safety hazards.
Nonetheless, prior to disbursing any Grants under the innovation Grant subactivity, MCA-
Zambia will be required to develop and implement an environmental management system that is
consistent with the MCC Environmental Guidelines and the IFC Performance Standards, as well
as any applicable Government regulatory requirements.

4. Donor Coordination
MCC and the Government have actively communicated and coordinated with other donors

throughout the development of the Compact, and these efforts will continue during implementation.
The World Bank is one of the main donors currently working in Lusaka’s water sector. In fact, the
Government’s “Water Sector Performance Improvement Project,” which has been implemented
with assistance from the World Bank, has laid much of the sector reform groundwork that has led
to improved performance by LWSC.

In addition to the World Bank’s sector reform efforts, and as noted elsewhere, each component
of the Infrastructure Activity related to water supply and sanitation was selected based on the
results of mutually agreed, comprehensive investment master plans financed by MCC during
development of this Compact, while the component of the Activity related to drainage was
selected based on the results of priorities identified in the Comprehensive Urban Development

Millennium Challenge Compact [No. 6 of 2013 215
Plan. MCC and the Government have used these investment master plans to stimulate interest in
the water supply and sanitation sector among the donor community, including by hosting a donor
forum. While firm commitments have not yet been made for additional investments outlined in the
investment master plans, the Government has been in dialogue with donors such as the European
Investment Bank, the African Development Bank and the Japanese International Cooperation
Agency with regard to further investments in Lusaka’s water supply and sanitation sector.
5. USAlD

MCC has been in a continuing dialogue with the United States Agency for International
Development (“USAID”) throughout the development of this Compact. Specifically, MCC and
USAID have discussed potential, complementary investments by USAlD through its “Sustainable
Water and Sanitation in Africa Program,” which may include focused capacity building for NWASCO
that would support the Compact objectives.
6. Sustainability

The long-term sustainability of the water and sanitation infrastructure improvements funded
under the Infrastructure Activity is expected to be reinforced by several factors and elements of
the Project’s design. First, LWSC currently recovers 102 percent if its operating costs, and the
new water connections anticipated under the Infrastructure Activity are expected to increase the
financial health of the utility. In addition, the Government, with support from the World Bank,
has implemented the “Water Sector Performance Improvement Project,” which has positively
contributed to the financial performance of LWSC. Related to this, the Government and LWSC
have agreed to enter into the LWSC Sustainability Agreement as a condition precedent to the entry
into force of this Compact, which will set forth certain operational and financial performance
milestones for LWSC and the sector. The continued effectiveness of, and compliance with, the
LWSC Sustainability Agreement, including satisfaction of the applicable performance milestones,
is a condition precedent to the Disbursement of MCC Funding under the Program Implementation
Agreement. Also, the technical assistance provided under the Institutional Strengthening Activity
is designed to help LWSC better plan for maintenance and asset renewal. Finally, as a condition to
entry into force of this Compact and as a condition to subsequent Disbursements of MCC
Funding, LWSC will be required to devote a minimum of 50 percent of its annual retained earnings
to asset renewal.

The long-term sustainability of the drainage infrastructure improvements funded under the
Infrastructure Activity is expected to be reinforced by several factors and elements of the Project’s
design. First, the Program includes a condition precedent requiring LCC to allocate a minimum of
US$I.5 million on an annual basis to be used exclusively for repair and maintenance of drains, as
further described in the Program Implementation Agreement. Similarly, technical assistance
provided to LCC under the Institutional Strengthening Activity is designed to improve its ability
to manage and maintain its assets.

In addition, sustainability will be addressed across the entire Program through the IEC activities
under the Institutional Strengthening Activity. These include the IEC focus on maintenance and
care of community-level infrastructure and payment for services, and the focus on health and
hygiene-related knowledge and behavior, both of which are critical to ensuring the sustainability
of the Program’s infrastructure investments and benefits over time.

7. Policy, Legal and Regulatory Reforms
The Government has been pursuing a reform agenda of privatization and deregulation of state

owned enterprises since the advent of a new democratic government in 1991. Following this
trend, the Government developed its first comprehensive National Water Policy in 1994. The
policy was followed by the enactment of the Water Supply and Sanitation Act in 1997, which led
to the creation of NWASCO. To harmonize various water sector issues, the Government updated
its National Water Policy in 2010, and also enacted the Water Resources Management Act in
2011. Key outcomes of these developments have been the creation of commercial utilities
throughout the country, including LWSC, a move towards full cost recovery tariffs, better water
resource management and more independent regulation of the water supply and sanitation utilities.

216 No. 6 of 2013] Millennium Challenge Compact

By embracing a reform agenda, the Government has invested political capital to build a strong
foundation for the water sector in order to expand and serve the needs of its population. As a
result of the Government’s policy reform efforts and the creation of appropriate regulatory and
institutional foundations, LWSC and other commercial utilities are starting to perform better, and
the sector is being more effectively regulated. Where LWSC and other commercial utilities need
assistance now is in the area of new capital to expand their networks and rehabilitate old
infrastructure.

Given the significant policy reform already undertaken by the Government in this area, including
through continued, sustained support from other donors, such as the World Bank, no major
specific sector policy reforms are included under the Compact. However, MCC will monitor the
Government and LWSC’s compliance with the reform requirements, performance milestones and
related best practices required under the LWSC Sustainability Agreement, which must be entered
into by the Government and LWSC as a condition precedent to the entry into force of this
Compact.

In addition, in light of concerns about the ability of poor households to afford the household
sanitation connections constructed under the Compact, the Government is required to deliver the
GRZ Sanitation Connection Action Plan as a condition precedent to the entry into force of this
Compact, and satisfactory implementation of the GRZ Sanitation Connection Action Plan,
including the commitment of appropriate funding by the Government, is a condition precedent to
subsequent Disbursements of MCC Funding, as further described in the Program Implementation
Agreement. The GRZ Sanitation Connection Action Plan must include, without limitation, a
methodology for determining who qualifies for such assistance and a plan for administering such
assistance and ensuring that such beneficiaries obtain household connections.

C. IMPLEMENTATION FRAMEWORK
1. Overview

The implementation framework and the plan for ensuring adequate governance, oversight,
management, monitoring and evaluation and fiscal accountability for the use of MCC Funding are
surnmarized below. MCC and the Government will enter into the Program Implementation
Agreement and any other agreements in furtherance of this Compact, all of which, together with
this Compact, set out certain rights, responsibilities, duties and other terms relating to the
implementation of the Program.

2. MCC
MCC will take all appropriate actions to carry out its responsibilities in connection with this

Compact and the Program Implementation Agreement, including the exercise of its approval
rights in connection with the implementation of the Program.

3. Accountable Entity
The Government has established MCA-Zambia as a company limited by guarantee under the

laws of Zambia. In accordance with Section 3.2(b) of this Compact, MCA-Zambia will act on the
Government’s behalf to implement the Program and to exercise and perform the Government’s
rights and responsibilities with respect to the oversight, management and implementation of the
Program, including, without limitation, managing the implementation of the Project and its Activities,
allocating resources and managing procurements. The Government will ensure that MCA-Zambia
takes all appropriate actions to implement the Program, including the exercise and performance of
the rights and responsibilities designated to it by the Government pursuant to this Compact and
the Program Implementation Agreement. Without limiting the foregoing, the Government will
also ensure that MCA-Zambia has full decision making autonomy, including, without limitation,
the ability, without consultation with, or the consent or approval of, any other party, to:

(i) enter into contracts, grants, cooperative agreements or any other agreement in its own
name;

(ii) sue and be sued;

Millennium Challenge Compact [No. 6 of 2013 217
(iii) establish an account in a financial institution in the name of MCA-Zambia and hold

MCC Funding in that account;
(iv) expend MCC Funding;
(v) engage a fiscal agent who will act on behalf of MCA Zambia on terms acceptable to

MCC;
(vi) engage one or more procurement agents who will act on behalf of MCA-Zambia, on

terms acceptable to MCC, to manage the acquisition of the goods, works and services
required by MCA-Zambia to implement the activities funded by this Compact; and

(vii) competitively engage one or more auditors to conduct audits of its accounts.
The Government will take all the necessary actions to manage and operate MCA-Zambia in

accordance with the applicable conditions precedent to the Disbursement of Compact
Implementation Funding set forth in Annex IV to this Compact.

In accordance with the laws of Zambia, the Minister of Finance and the Secretary to the
Treasury, Ministry of Finance and National Planning, will serve as the members of MCA-
Zambia, but will not have any control over, or oversight of, the administration or management of
MCA-Zambia in their capacity as members of MCA-Zambia. Rather, MCA-Zambia will be
administered and managed by a board of directors (the “Board’) and a management unit (the
“Management Unit”). In addition, MCA-Zambia will be supported by one or more stakeholders
committees (each, a “Stakeholders Committee”) to continue the consultative process during
implementation of the Program.

The governance of MCA-Zambia is set forth in more detail in the MCA-Zambia Articles of
Association (the “Bylaws”), the Program Implementation Agreement and the Governance
Guidelines, which, collectively, set forth the responsibilities of the Board, the Management Unit
and the Stakeholders Committee(s).

(a) Board
(i) Composition: The Board is initially comprised of the following nine members, including

six representatives from Government entities and three representatives from civil
society and private sector organizations: (1) the Secretary to the Treasury, Ministry
of Finance and National Planning; (2) the Permanent Secretary, Ministry of Finance
and National Planning; (3) the Permanent Secretary, Ministry of Local Government
and Housing; (4) the Chair of LWSC’s Board of Directors; (5) the Town Clerk, LCC;
(6) the Chair of the Board of Directors for the Zambia Environmental Management
Agency; (7) the Executive Director, Non-Governmental Organization Coordinating
Committee; (8) the Executive Director, Civil Society for Poverty Reduction; and (9)
a representative from the private sector. The Chief Executive Officer (“CEO”) of
MCA-Zambia and an MCC representative will serve as observers.

(ii) Roles and Responsibilities: The Board will be responsible for overseeing the
implementation of the Program and will have final decision-making authority over
the implementation of the Program. The Board will hold regular meetings, at a
minimum once per quarter. The specific roles of the members and observers are set
forth in the Bylaws and the Governance Guidelines.

(b) Management Unit
(i) Composition: The Management Unit will initially include the following key officers:

(1) the CEO;
(2) the Deputy CEO Operations;
(3) the Deputy CEO Administration;
(4) the Finance and Administration Director;
(5) the Procurement Director;
(6) the Infrastructure Development Director;
(7) the Environment and Social Performance Director;

218 No. 6 of 2013] Millennium Challenge Compact
(8) the Social and Gender Assessment Director;
(9) the Monitoring and Evaluation and Economics Director;
(10) the Communications and Outreach Director;
(11) the Information Technology Director;
(12) the Legal Director;
(13) the Internal Auditor; and
(14) Grants Director.

These key officers will be supplied by appropriate additional staff to enable the Management
Unit to execute its roles and responsibilities, in accordance with any applicable staffing plan
approved by MCC.

(ii) Roles and Responsibilities: The Management Unit will be based in Lusaka, Zambia,
and will be responsible for managing the day-to-day implementation of the Program,
with oversight from the Board. The Management Unit will serve as the principal
link between MCC and the Government, and will be accountable for the successful
execution of the Project and each Activity. MCA-Zambia will be subject to
Government audit requirements. As a recipient of MCC Funding, MCA-Zambia
will also be subject to MCC audit requirements.

(c) Stakeholders’ Committee(s)
(i) Composition: The Stakeholders Committee (or, if appropriate and approved by MCC,

committees) will provide input to the Board and the Management Unit on matters
that relate to the Program, promoting transparency and ongoing consultation. The size,
composition and manner of selection of members of the Stakeholders Committee(s) are
subject to ongoing discussions between the Government and MCC, and will be dictated
by the project areas of the Program. Membership will at least reflect the non-
governmental organizations, private sector, civil society and local and regional
governments that were consulted by the Government in developing its proposal for
the Compact.

(ii) Roles and Responsibilities: Consistent with the Governance Guidelines, the Stakeholders
Committee(s) will be responsible for continuing the consultative process throughout
implementation of the Program. While the Stakeholders Committee(s) will not have
any binding decision-making authority, it will be responsible for, among other things,
reviewing, at the request of the Board or the Management Unit, certain reports,
agreements and documents related to the implementation of the Program in order to
provide advice and input to MCA Zambia regarding the implementation of the
Program.

4. Implementing Entities
Subject to the terms and conditions of this Compact, the Program Implementation Agreement

and any other related agreement entered into in connection with this Compact, MCC and the
Government may identify certain entities or institutions to receive technical assistance or other
support under this Compact, or to assist MCA-Zambia with the implementation of the Project
or any Activity (or any component thereof) in furtherance of this Compact (each, an “Implementing
Entity”). The identification of any Implementing Entity will be subject to review and approval by
MCC. As of the date of this Compact, the Government and MCC have identified LWSC and LCC
as Implementing Entities with respect to the Project. The Government will ensure that the roles
and responsibilities of each Implementing Entity and other appropriate terms are set forth in an
agreement, in form and substance satisfactory to MCC (each an “Implementing Entity
Agreement”).

Millennium Challenge Compact [No. 6 of 2013 219
5. Fiscal Agent

Unless MCC agrees otherwise in writing, the Government, through MCA-Zambia, will appoint
a fiscal agent (the “Fiscal Agent’), which will be responsible for assisting the Government with its
fiscal management and assuring appropriate fiscal accountability of MCC Funding. The roles and
responsibilities of the Fiscal Agent will be set forth in the Program Implementation Agreement
and such agreement as MCA-Zambia enters into with the Fiscal Agent, which agreement will be
in form and substance satisfactory to MCC.

6. Procurement Agent
Unless MCC agrees otherwise in writing, the Government, through MCA-Zambia, will appoint

a procurement agent (the “Procurement Agent’) to carry out and certify specified procurement
activities in furtherance of this Compact. The roles and responsibilities of the Procurement Agent
will be set forth in the Program Implementation Agreement and such agreement as MCA Zambia
enters into with the Procurement Agent, which agreement will be in form and substance satisfactory
to MCC. The Procurement Agent will adhere to the procurement standards set forth in the MCC
Program Procurement Guidelines and ensure procurements are consistent with the procurement
plan adopted by the Government pursuant to the Program Implementation Agreement, unless
MCC agrees otherwise in writing.

220 No. 6 of 2013] Millennium Challenge Compact

ANNEX II
MULTI-YEAR FINANCIAL PLAN SUMMARY

This Annex II summarises the Multi-Year Financial Plan for the Program.
A multi-year financial plan summary (“Multi-Year Financial Plan Summary”) is attached

hereto as Exhibit A to this Annex II. By such time as specified in the Program Implementation
Agreement, the Government will adopt, subject to MCC approval, a multi-year financial plan
that includes, in addition to the multi-year summary of estimated MCC Funding and the
Government’s contribution of funds and resources, the annual and quarterly funding requirements
for the Program (including administrative costs) and for the Project, projected both on a
commitment and cash requirement basis.

Millennium Challenge Compact [No. 6 of 2013 221

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222 No. 6 of 2013] Millennium Challenge Compact

ANNEX III
DESCRIPTION OF MONITORING AND EVALUATION PLAN

This Annex III generally describes the components of the monitoring and evaluation plan
(“M&E Plan”) for the Program. The actual content and form of the M&E Plan will be agreed to
by MCC and the Government in accordance with the MCC Policy for Monitoring and Evaluation
of Compacts and Threshold Programs posted from time to time on the MCC Website (the “MCC
Policy for Monitoring and Evaluation of Compacts and Threshold Programs”). The M&E Plan
may be modified from time to time with MCC approval without requiring an amendment to this
Annex III.

1. Overview
MCC and the Government will formulate and agree to, and the Government will implement or

cause to be implemented, an M&E Plan that specifies:
(a) how progress toward the Compact Goal and the Project Objective will be monitored,

(“Monitoring Component’),
(b) a process and timeline for the monitoring of planned, ongoing, or completed Activities

to determine their efficiency and effectiveness, and
(c) a methodology for assessment and rigorous evaluation of the outcomes and impact of

the Program (“Evaluation Component’). Information regarding the Program’s
performance, including the M&E Plan, and any amendments or modifications thereto,
as well as progress and other reports, will be made publicly available on the website
of MCA-Zambia and elsewhere.

2. Program Logic
The M&E Plan will be built on the logic model below, which illustrates how the Program, the

Project and the Activities contribute to the Compact Goal and the Project objective.

Millennium Challenge Compact [No. 6 of 2013 223

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224 No. 6 of 2013] Millennium Challenge Compact


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Millennium Challenge Compact [No. 6 of 2013 225


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226 No. 6 of 2013] Millennium Challenge Compact

(a) Data Collection and Reporting: The M&E Plan will establish guidelines for data collection
and reporting, and identify the responsible parties. Compliance with data collection
and reporting timelines will be conditions for Disbursements for the relevant Activities
as set forth in the Program Implementation Agreement. The M&E Plan will specify
the data collection methodologies, procedures, and analysis required for reporting
on results at all levels. The M&E Plan will describe any interim MCC approvals for
data collection, analysis, and reporting plans;

(b) Data Quality Reviews: As determined in the M&E Plan or as otherwise requested by
MCC, the quality of the data gathered through the M&E Plan will be reviewed to
ensure that data reported are as valid, reliable, and timely as resources will allow.
The objective of any data quality review will be to verify the quality and the
consistency of performance data across different implementation units and reporting
institutions. Such data quality reviews also will serve to identify where those levels
of quality are not possible, given the realities of data collection;

(c) Management Information System: The M&E Plan will describe the information system
that will be used to collect data, store, process and deliver information to relevant
stakeholders in such a way that the Program information collected and verified
pursuant to the M&E Plan is at all times accessible and useful to those who wish to
use it. The system development will take into consideration the requirement and
data needs of the components of the Program, and will be aligned with existing MCC
systems, other service providers, and ministries;

(d) Role of MCA-Zambia: The monitoring and evaluation of this Compact spans one
Project and will involve governmental, nongovernmental, and private sector
institutions. In accordance with the designation contemplated by Section 3.2(b) of
this Compact, MCA-Zambia is responsible for implementation of the M&E Plan.
MCA-Zambia will oversee all Compact related monitoring and evaluation activities
conducted for the Project, ensuring that data from all implementing entities is
consistent, accurately reported and aggregated into regular Compact performance
reports as described in the M&E Plan.

4. Evaluation Component
The Evaluation Component of the M&E Plan will contain three types of evaluations: (i)

impact evaluations; (ii) project performance evaluations; and (iii) special studies. The Evaluation
Component of the M&E Plan will describe the purpose of the evaluation, methodology, timeline,
required MCC approvals, and the process for collection and analysis of data for each evaluation.
The results of all evaluations will be made publicly available in accordance with the MCC Policy
for Monitoring and Evaluation of Compacts and Threshold Programs.

Possible evaluations include:
Infrastructure Activity: An evaluation of this activity would focus on household level

impacts including health outcomes and expenditures; time savings; property values; and
the availability and reliability of water, sanitation, and drainage services. Although a specific
methodology has not been identified, due to the high potential for learning from these
investments, MCC and MCA-Zambia will work together to develop as rigorous an
evaluation of the infrastructure investments as possible.

Institutional Strengthening Activity. The Institutional Strengthening Activities would
likely undergo performance evaluations aimed at assessing their effectiveness and contribution
to the overall sustainability of the infrastructure investments.

Innovation Grant Program: The innovation grant (IG) program under the Institutional
Strengthening Activity will seek opportunities to rigorously evaluate the activities that are
proposed for funding. To the extent the IG program supports innovative ideas in the realm
of water, sanitation, and drainage services, rigorous evaluations would serve an accountability
function and, if possible, a learning function.

Millennium Challenge Compact [No. 6 of 2013 227

(a) Impact Evaluation: The M&E Plan will include a description of the methods to be used
for impact evaluations and plans for integrating the evaluation method into Project
design. Final impact evaluation strategies are to be included in the M&E Plan.

(b) Final Evaluation: The M&E Plan will make provision for final Project-level evaluations
(“Final Evaluations”). With the prior written approval of MCC, the Government
will engage independent evaluators to conduct the Final Evaluations at the end of the
Project. The Final Evaluations will review progress during Compact implementation
and provide a qualitative context for interpreting monitoring data and impact evaluation
findings. They must at a minimum—

(i) evaluate the efficiency and effectiveness of the Activities;
(ii) determine if and analyze the reasons why the Compact Goal and the Project

Objective, outcome(s) and output(s) were or were not achieved;
(iii) identify positive and negative unintended results of the Program;
(iv) provide lessons learned that may be applied to similar projects; and
(v) assess the likelihood that results will be sustained over time.
(i) Special Studies: The M&E Plan will include a description of the methods to be

used for special studies, as necessary, funded through this Compact or by
MCC. Plans for conducting the special studies will be determined jointly
between the Government and MCC before the approval of the M&E Plan.
The M&E Plan will identify and make provision for any other special
studies, ad hoc evaluations, and research that may be needed as part of the
monitoring and evaluating of this Compact. Either MCC or the Government
may request special studies or ad hoc evaluations of the Project, the
Activities, or the Program as a whole prior to the expiration of the Compact
Term. When the Government engages an evaluator, the engagement will be
subject to the prior written approval of MCC. Contract terms must ensure
non-biased results and the publication of results.

(c) Request for Ad Hoc Evaluation or Special Study, If the Government requires an ad hoc
independent evaluation or special study at the request of the Government for any
reason, including for the purpose of contesting an MCC determination with respect
to the Project or any Activity or to seek funding from other donors, no MCC
Funding resources may be applied to such evaluation or special study without
MCC’s prior written approval.

5. Other Components of the M and E Plan
In addition to the monitoring and evaluation components, the M&E Plan will include the

following components for the Program, the Project and the Activities, including, where appropriate,
roles and responsibilities of the relevant parties and providers:

(a) Costs: A detailed cost estimate for all components of the M and E Plan; and
(b) Assumptions and Risks: Any assumption or risk external to the Program that underlies

the accomplishment of the Project Objective and Activity outcomes and outputs.
However, such assumptions and risks will not excuse any Party’s performance
unless otherwise expressly agreed to in writing by the other Party.

6. Approval and Implementation of the M and E Plan
The approval and implementation of the M&E Plan, as amended from time to time, will be in

accordance with the Program Implementation Agreement, any other relevant Supplemental
Agreement and the MCC Policy for Monitoring and Evaluation of Compacts and Threshold
programme

228 No. 6 of 2013] Millennium Challenge Compact

ANNEX IV
CONDITIONS PRECEDENT

To Disbursement of Compact Implementation Funding
This Annex IV sets forth the conditions precedent applicable to Disbursements of Compact

Implementation Funding other than Disbursements for MCC CIF Contracted Activities (each a
“CIF Disbursement”). Capitalized terms used in this Annex IV and not defined in this Compact
will have the respective meanings assigned thereto in the Program Implementation Agreement.

Upon execution of the Program Implementation Agreement, each CIF Disbursement will be
subject to the terms of the Program Implementation Agreement.
1. Conditions Precedent to Initial ClF Disbursement

Each of the following must have occurred or been satisfied prior to the initial CIF Disbursement:
(a) The Government (or MCA-Zambia) has delivered to MCC:

(i) an interim fiscal accountability plan acceptable to MCC; and
(ii) a CIF procurement plan acceptable to MCC.

2. Conditions Precedent to all CIF Disbursements (Including Initial ClF Disbursement)
Each of the following must have occurred or been satisfied prior to each CIF Disbursement:

(a) The Government (or MCA-Zambia) has delivered to MCC the following documents, in
form and substance satisfactory to MCC:
(i) a completed Disbursement Request, together with the applicable Periodic Reports,

for the applicable Disbursement Period, all in accordance with the Reporting
Guidelines;

(ii) a certificate of MCA-Zambia, dated as of the date of the Disbursement Request,
in such form as provided by MCC;

(iii) if a Fiscal Agent has been engaged, a Fiscal Agent Disbursement Certificate; and
(iv) if a Procurement Agent has been engaged, a Procurement Agent Disbursement

Certificate.
(b) If any proceeds of the CIF Disbursement are to be deposited in a bank account, MCC

has received satisfactory evidence that—
(i) the Bank Agreement has been executed, and
(ii) the Permitted Accounts have been established.

(c) Appointment of an entity or individual to provide fiscal agent services, as approved by
MCC, until such time as the Government provides to MCC a true and .complete
copy of a Fiscal Agent Agreement, duly executed and in full force and effect, and the
Fiscal Agent engaged thereby is mobilized.

(d) Appointment of an entity or individual to provide procurement agent services, as
approved by MCC, until such tune as the Government provides to MCC a true and
complete copy of the Procurement Agent Agreement, duly executed and in full force
and effect, and the Procurement Agent engaged thereby is mobilized.

(e) MCC is satisfied, in its sole discretion, that—
(i) the activities being funded with such CIF Disbursement are necessary, advisable

or otherwise consistent with the goal of facilitating the implementation of the
Compact and will not violate any applicable law or regulation;

(ii) no material default or breach of any covenant, obligation or responsibility by the
Government, MCA-Zambia or any Government entity has occurred and is
continuing under this Compact or any other Supplemental Agreement;

Millennium Challenge Compact [No. 6 of 2013 229

(iii) there has been no violation of, and the use of requested funds for the purposes
requested will not violate, the limitations on use or treatment of MCC Funding
set forth in Section 2.7 of this Compact or in any applicable law or regulation;

(iv) any Taxes paid with MCC Funding through the date 90 days prior to the start
of the applicable Disbursement Period have been reimbursed by the
Government in full in accordance with Section 2.8(c) of this Compact; and

(v) the Government has satisfied all of its payment obligations, including any
insurance, indemnification, tax payments or other obligations, and contributed
all resources required from it, under this Compact and any other Supplemental
Agreement.

(f) For any CIF Disbursement occurring concurrently with or after the Initial Disbursement
of Program Funding in accordance with Section 3.3 and 3.4 of the Program
Implementation Agreement: MCC is satisfied, in its sole discretion, that—

(i) MCC has received copies of any reports due from any technical consultants
(including environmental auditors engaged by MCA-Zambia) for any
Activity since the previous Disbursement Request, and all such reports
are in form and substance satisfactory to MCC;

(ii) the Implementation Plan Documents and Fiscal Accountability Plan are current
and updated and are in form and substance satisfactory to MCC, and there
has been progress satisfactory to MCC on the components of the
Implementation Plan for any relevant Projects or Activities related to such
CIF Disbursement;

(iii) there has been progress satisfactory to MCC on the M&E Plan and Social
and Gender Integration Plan for the Program or relevant Project or Activity
and substantial compliance with the requirements of the M&E Plan and
Social and Gender Integration Plan (including the targets set forth therein
and any applicable reporting requirements set forth therein for the relevant
Disbursement Period);

(iv) there has been no material negative finding in any financial audit report
delivered in accordance with this Compact and the Audit Plan, for the
prior two quarters (or such other period as the Audit Plan may require);

(v) MCC does not have grounds for concluding that any matter certified to it in
the related MCA Disbursement Certificate, the Fiscal Agent Disbursement
Certificate or the Procurement Agent Disbursement Certificate is not as
certified; and

(vi) if any of the officers or key staff of MCA-Zambia have been removed or
resigned and the position remains vacant, MCA-Zambia is actively engaged
in recruiting a replacement.

(g) MCC has not determined, in its sole discretion, that an act, omission, condition, or
event has occurred that would be the basis for MCC to suspend or terminate, in
whole or in part, the Compact or MCC Funding in accordance with Section 5.1 of
this Compact.

230 No. 6 of 2013] Millennium Challenge Compact

ANNEX V
DEFINITIONS

“Activity” has the meaning provided in paragraph 1 of Part B of Annex I;
“Additional Representative” has the meaning provided in Section 4.2;
“Applicable Acts” has the meaning provided in Annex VI;
“Audit Guidelines” has the meaning provided in Section 3.8(a);
“Baseline” has the meaning provided in paragraph 3 of Annex III;
“Board” has the meaning provided in paragraph 3 of Part C of Annex I;
“Bylaws” has the meaning provided in paragraph 3 of Part C of Annex I;
“CEO” has the meaning provided in paragraph 3(a)(i) of Part C of Annex I;
“CIF” Disbursement has the meaning provided in Annex IV;
“Compact” has the meaning provided in the Preamble;
“Compact Contract” has the meaning provided in Annex VI;
“Compact Goal” has the meaning provided in Section 1.1;
“Compact Implementation Funding” has the meaning provided in Section 2.2(a);
“Compact Records” has the meaning provided in Section 3.7(a);
“Compact Term” has the meaning provided in Section 7. 4;
“Comprehensive Urban Development Plan” has the meaning provided in paragraph 1 (a) of Part

B of Annex I;
“Covered Provider” has the meaning provided in Section 3.7 (c);
“Disbursement” has the meaning provided in Section 2.4;
“Eligible Entities” has the meaning provided in Annex VI;
“Eligible Individuals” has the meaning provided in to Annex VI;
“Evaluation Component” has the meaning provided in paragraph 1 of Annex III;
“Excess ClF Amount” has the meaning provided in Section 2.2(d);
“Final Evaluations” has the meaning provided in paragraph 4(b) of Annex III;
“Fiscal Agent” has the meaning provided in paragraph 5 of Part C of Annex I;
“Governance Guidelines” means MCC’s Guidelines for Accountable Entities and Implementation

Structures, as such may be posted on MCC’s Website from time to time;
“Government” has the meaning provided in the Preamble;
“Grant” has the meaning provided in Section 3.6 (b);
“GRZ Sanitation Connection Action Plan” has the meaning provided in Section 7.2 (d);
“IEC” has the meaning provided in paragraph 1 (b)(i)(4) of Part B of Annex I;
“IFC Performance Standards” has the meaning provided in paragraph 3 of Part A of Annex I;
“Implementation Letter” has the meaning provided in Section 3.5;
“Implementing Entity” has the meaning provided in paragraph 4 of Part C of Annex I;
“Implementing Entity Agreement” has the meaning provided in paragraph 4 of Part C of Annex I;
“Indicators” has the meaning provided in paragraph 3(a) of Annex III;
“Infrastructure Activity” has the meaning provided in paragraph 1 of Part B of Annex I;
“Inspector General” has the meaning provided in Section 3.7(d);
“Institutional Strengthening Activity” has the meaning provided in paragraph 1 of Part B of Annex I;
“Intellectual Property” means all registered and unregistered trademarks, service marks, logos,

names, trade names and all other trademark rights; all registered and unregistered copyrights;
all patents, inventions, shop rights, know how, trade secrets, designs, drawings, art work,
plans, prints, manuals, computer files, computer files, computer software, hard copy files,
catalogues, specifications, and other proprietary technology and similar information; and all
registrations for, and applications for registration or any of the foregoing, that are financed, in
whole or in part, using MCC Funding;

Millennium Challenge Compact [No. 6 of 2013 231

“LPO” has the meaning provided in Schedule D to Annex VI;
“LCC” has the meaning provided in paragraph 1 of Part B of Annex I;
“LWSC” has the meaning provided in paragraph 1 of Part B of Annex I;
“LWSC’s Retained Earnings” means, as calculated at the end of any fiscal year, the Retained

Earnings at the beginning of such fiscal year plus the portion of net income retained after
payment of any dividends;

“LWSC Sustainability Agreement” has the meaning provided in Section 7.2 (g);
“LWSSD Project” has the meaning provided in paragraph 2 of Part A of Annex I;
“M&E Plan” has the meaning provided in Annex III;
“Management Unit” has the meaning provided in paragraph 3 of Part C of Annex I;
“MCA Act” has the meaning provided in Section 2.2 (a);
“MCA-Zambia” has the meaning provided in Section 3.2 (b);
“MCC” has the meaning provided in the Preamble;
“MCC Contracted CIF Activities” has the meaning provided in Section 2.2 (b);
“MCC Environmental Guidelines” has the meaning provided in Section 2.7 (c);
“MCC Funding” has the meaning provided in Section 2.3;
“MCC Gender Policy” means the MCC Gender Policy (including any guidance documents issued

in connection with the guidelines) posted from time to time on the MCC Website, or otherwise
made available to the Government;

“MCC Gender Integration Guidelines and Operational Procedures” means MCC Gender Integration
Guidelines and Operational Procedures, as such may be posted on MCC Website from time to
time;

“MCC Policy for Monitoring and Evaluation of Compacts and Threshold Programs” has the
meaning provided in Annex III;

“MCC Program Procurement Guidelines” has the meaning provided in Section 3.6(a);
“MCC Social and Gender Integration Plan Guidelines” means MCC’s Social and Gender Integration

Plan Guidelines, as such may be posted on MCC’s Website, or otherwise provided by MCC,
from time to time;

“MCC Website” has the meaning provided in Section 2.7;
“Monitoring Component” has the meaning provided in paragraph I of Annex III;
“Multi-Year Financial Plan Summary” has the meaning provided in paragraph I of Annex II;
“NWASCO” has the meaning provided in paragraph I of Part A of Annex I;
“NRW” has the meaning provided in paragraph I of Part B of Annex I;
“Party and Parties” have the meaning provided in the Preamble;
“Permitted Account” has the meaning provided in Section 2.4;
“Principal Representative” has the meaning provided in Section 4.2;
“Procurement Agent” has the meaning provided in paragraph 6 of Part C of Annex 1;
“Program” has the meaning provided in the Preamble;
“Program Assets” means any assets, goods or property (real, tangible or intangible) purchased

financed in whole or in part (directly or indirectly) by MCC Funding;
“Program Funding” has the meaning provided in Section 2.1;
“Program Guidelines” means collectively the Audit Guidelines, the MCC Environmental

Guidelines, the MCC Gender Policy, the Governance Guidelines, the MCC Program
Procurement Guidelines, the Reporting Guidelines, the MCC Policy for Monitoring and
Evaluation of Compacts and Threshold Programs, the MCC Cost Principles for Government
Affiliates Involved in Compact Implementation (including any successor to any of the foregoing)
and any other guidelines, policies or guidance papers relating to the administration of MCC-
funded compact programs, and, in each case, as from time to time published on the MCC
Website;

232 No. 6 of 2013] Millennium Challenge Compact

“Program Implementation Agreement” has the meaning provided in Section 3.1;
“Project” means the LWSSD Project;
“Project Objective” has the meaning provided in Section 1.2;
“Provider” has the meaning provided in Section 3.7(c);
“Reporting Guidelines” means the MCC “Guidance on Quarterly MCA Disbursement Request
and Reporting Package” posted by MCC on the MCC Website or otherwise publicly made
available;
“Retained Earnings” means the portion of net income retained after payment of any dividends;
“Social and Gender Integration Plan” has the meaning provided in paragraph 3 of Part A of Annex I;
“Stakeholders Committee” has the meaning provided in paragraph 3 of Part C of Annex I;
“Supplemental Agreement” means any agreement between

(a) the Government (or any Government affiliate, including MCA-Zambia) and MCC
(including, but not limited to, the Program Implementation Agreement) or

(b) MCC and/or the Government (or any Government affiliate, including MCA-Zambia),
on the one hand, and any third party, on the other hand, including any of the
Providers, in each case, setting forth the details of any funding, implementing or
other arrangements in furtherm1ce of this Compact;

“Statutory Instrument” has the meaning provided in Annex VI;
“Target” has the meaning provided in paragraph 3(a) of Annex Ill;
“Taxes” has the meaning provided in Section 2.8(a);
“Third Schedule” has the meaning provided in Schedule E to Annex VI;
“United States Dollars or US$” means the lawful currency of the United States of America;
“USAID” has the meaning provided in paragraph 5 of Part B of Annex I;
“VAT” has the meaning provided in Schedule D to Annex VI;
“Vendor” has the meaning provided in Annex VI;
“Zambia” has the meaning provided in the Preamble; and
“ZRA” has the meaning provided in Schedule D to Annex VI.

Millennium Challenge Compact [No. 6 of 2013 233

ANNEX VI
TAX SCHEDULES

1. Introduction
In accordance with, and without limiting the generality of, Section 2.8 of the Compact, the

Government will ensure that all MCC Funding is free from the payment or imposition of any
existing or future Taxes in or of Zambia. This will include any interest or earnings on MCC
Funding, and any MCC Funding disbursed, directly or indirectly, to or for:

(i) MCA-Zambia;
(ii) any goods, works, services, technology and other assets and activities under the Program

or the Project;
(iii) any persons and entities, including without limitation any Implementing Entity,

contractor (prime and subcontractors), consultant or grantees, that provide such
goods, works, services, technology and assets, or perform such activities (each, a
“Vendor”); and/or

(iv) any income, profits, and payments with respect to the foregoing, except as otherwise
allowed pursuant to Section 2.8 of the Compact.

This Annex VI sets out the mechanisms for exempting MCC Funding from the principal Taxes
otherwise imposed by the Government. Should any potential liability for Taxes on MCC Funding
arise that is not contemplated by the mechanisms set out in this Annex VI, the Parties will, in
accordance with Section 2.8 of the Compact, agree to the means by which MCC Funding will be
exempt from such Taxes.

For the purposes of this Annex VI, MCA-Zambia and any Vendor are referred to variously as
“Eligible Entities” or “Eligible Individuals,” as appropriate.

In addition, for the purposes of this Annex VI, any Compact-related contracts, agreements or
grants with an Eligible Entity or Eligible Individual are referred to as a “Compact Contract.”

2. General Background
For most Tax exemptions or Tax rebates, the applicable tax-related laws of Zambia (the

“Applicable Acts”) have vested powers in the Minister of Finance and National Planning to grant
such exemptions or rebates through the issuance of subsidiary legislation, each referred to as a
“Statutory Instrument.” For every Statutory Instrument that is issued in respect of a tax exemption
or rebate, the Minister of Finance and National Planning submits an explanatory memorandum to
the Committee on Delegated Legislation of Parliament. The memorandum explains why the
Statutory Instrument has been issued.

In general, MCC Funding will be treated in accordance with the provisions of donor-funded
projects, under which there is authority to exempt any goods, services or works that are purchased
using such funds from taxation in Zambia. In terms of income tax and other exemptions, for which
existing exemption mechanisms are not specifically referenced in the Applicable Acts, the Minister
of Finance and National Planning will issue a specific Statutory Instrument.

3. Miscellaneous Additional Requirements
For the purposes of determining if a natural person is a permanent resident of Zambia or if a

legal person has been formed under the laws of Zambia under Section 2.8(a) of the Compact, the
taxable status of such natural or legal person will be based on its status at the time it is awarded
or executes a Compact-related agreement, contract, or grant, and such initial determination will
not change regardless of:

(i) the type of agreement, contract or grant used to employ or engage such natural or legal
person;

(ii) any laws of Zambia that purport to change such status based on period of contract or
grant performance, or period of time residing and/or working in Zambia; and/or

(iii) any requirement under the laws of Zambia that a company or other legal person must
establish a branch office in Zambia, or otherwise register or organize itself under the
laws of Zambia, in order to provide goods, works or services in Zambia.

In addition, in complying with the tax exemption obligations set forth in the Compact, the
Government will also exempt MCA-Zambia, the Fiscal Agent, the Procurement Agent and/or any
other Vendor from any obligation imposed by the laws of Zambia, including the Applicable Acts,
to withhold any Taxes from any payments made to any Eligible Entities or Eligible Individuals.

4. General Mechanism Exemption
The general mechanism that the Government will use to implement its tax exemption obligations

under the Compact is as follows:
(a) The Minister of Finance and National Planning and MCA-Zambia will cooperate

drafting an explanatory memorandum to the Committee on Delegated Legislation of
Parliament explaining the policy behind the issuance of the Statutory Instrument to
exempt MCC Funding from the payment or imposition of any Taxes, and specifically
the requirement to exempt Eligible Entities and/or Eligible Individuals from the
following types of Taxes with respect to MCC Funding:

(i) Corporate Income Tax;
(ii) Personal Income Tax;
(iii) Withholding Tax;
(iv) Excise Tax on Fuel; and
(v) Any other taxes that require Statutory Instrument for exemption.

(b) The explanatory memorandum will, at a minimum, specify:
(i) The project or activity that will benefit from the exemption;
(ii) The expected timeframe of each project or activity;
(iii) The expected cost of each project or activity; and
(iv) A complete list of Taxes that will be exempted.

(c) For tax exemptions not provided for by means of a Statutory Instrument, the exemption
will be provided by the means set out in this Annex VI, or as otherwise agreed by the
Parties.

234 No. 6 of 2013] Millennium Challege Compact

SCHEDULE A
CORPORATE INCOME TAX

1. Procedures
(a) The Minister of Finance and National Planning will issue a Statutory Instrument to

exempt Eligible Entities receiving MCC Funding from payment of corporate income
tax on any income derived from that MCC Funding, in accordance with the Income
Tax Act.

(b) Any Eligible Entity earning income derived from MCC Funding in Zambia in any given
tax year will be exempt from the payment or imposition of any Zambian income
(and other) taxes on such income, and as such will not be required to have any taxes
withheld on any income derived from MCC Funding during the tax year.

(c) At the end of a given tax year, any Eligible Entity earning only income derived from
MCC Funding in Zambia in that tax year will file a tax return indicating that such
income is not subject to taxation in Zambia in accordance with the Compact, the
Statutory Instrument issued by the Minister of Finance and National Planning and
the Compact Contract. The Eligible Entity will include a copy of the applicable
Compact Contract and the Statutory Instrument with its tax return.

(d) Any Eligible Entity earning both income derived from MCC Funding and non-Compact-
related income in Zambia in any given tax year will:

(i) Maintain its books and records to segregate financial activity related to its
Compact-funded activities from those financial activities that are not related
to the Compact; and

(ii) At the end of any such tax year, file its tax return on income that is not derived
from MCC Funding, as applicable, providing the documentation required
in paragraph 3 above.

Millennium Challege Compact [No. 6 of 2013 235

SCHEDULE B
PERSONAL INCOME TAX

1. Procedures
(a) The Minister of Finance and National Planning will issue a Statutory Instrument to

exempt Eligible Individuals receiving MCC Funding from payment of personal income
tax on any income earned from that MCC Funding, in accordance with the Income
Tax Act.

(b) MCA-Zambia will send a letter to the Minister of Finance and National Planning listing
any exempt natural persons (as determined by Section 2.8(a) of the Compact and
this Annex VI working on Compact-related projects or activities, and will attach a
copy of the agreement or contract under which the exempt natural person will be
working. The letter should also include a request to exempt such natural person from
any social security and other related benefits required under the laws of Zambia.

(c) Any Eligible Individual earning only income derived from MCC Funding in Zambia in
any given tax year will be exempt from the payment or imposition of any Zambia
taxes on such income, and as such will not be required to have taxes withheld on any
such income earned during the tax year. At the end of the tax year, such Eligible
Individual will file a tax return indicating that such income is not subject to taxation
in Zambia, in accordance with the Compact, the Statutory Instrument issued by the
Minister of Finance and National Planning and the Compact Contract. The Eligible
Individual will include a copy of the applicable Compact Contract and the Statutory
Instrument with its tax return.

(d) Any Eligible Individual earning both income derived from MCC Funding and non-
Compact-related income in Zambia in any given tax year will be permitted to exclude
the gross amount of personal income derived from MCC Funding for the purposes
of filing his/her year-end individual income taxes in Zambia for any such tax year.
Such Eligible Individual will include a copy of the applicable Compact Contract and
the Statutory Instrument with its tax return.

236 No. 6 of 2013] Millennium Challenge Compact

SCHEDULE C
WITHHOLDING TAX

1. Description
The withholding tax is a flat, general tax at the rate of 15 percent withheld at the source of

payment in connection with such things as interest, dividends, royalties, rents, management and
consultancy fees, commissions and public entertainment fees.

2. Procedure
The Minister of Finance and National Planning will issue a Statutory Instrument to exempt

Eligible Entities and Eligible Individuals receiving MCC Funding from the requirement to have
withholding tax withheld at the source of payment for management and consultancy fees, as well
as other payments that would otherwise be subject to the withholding tax that are paid with MCC
Funding. For the avoidance of doubt, the Statutory Instrument will also exempt MCA-Zambia
from the requirement to withhold and remit such tax.

Millennium Challenge Compact [No. 6 of 2013 237

SCHEDULE D
VALUE ADDED TAX

1. Description
The value added tax (“VAT’’) is a consumption-based tax that is levied in the supply chain at

each point where value is added to a good or service. VAT is incurred by the final person or entity
in the chain of supply that is not registered for VAT. Persons registered for VAT will claim back,
through their respective tax return, the input VAT incurred in the course of their business, and
remit to the Zambia Revenue Authority (“ZRA”) the output VAT collected in excess of their
input VAT paid. Therefore, registered suppliers do not pay VAT.

2. Procedure
(a) For the purposes of VAT, the tax exemption required under the Compact will be

provided via the zero rating of goods or services supplied or imported under a
technical aid program or project which is:

(i) Paid for through donor funding, such as MCC Funding through the Compact;
and

(ii) Provided by the donor, or by a contractor of the donor, under a written
agreement with the Government.

(b) Each applicable Compact Contract will explicitly state that goods, works or services
purchased using MCC Funding under the Compact are zero rated for the purposes
of V AT. The zero rating will then be implemented through the issuance of Local
Purchase Orders (each an “LPO”).

(c) MCA-Zambia will provide the following information, on MCA-Zambia official
letterhead, for each Compact Contract to the Permanent Secretary (Budget and
Economic Affairs), Ministry of Finance and National Planning, P.O. Box 50062,
Lusaka, Zambia:

(i) Name of Eligible Entity or Eligible Individual;
(ii) Name of the Project! Activity undertaken through Compact Contract;
(iii) Total contract value;
(iv) Location(s) where the goods, works or services will be provided; and
(v) Name and address of the senior official of the Eligible Entity or Eligible

Individual who will be responsible and accountable for the issuance of the
LPO.

(d) The Ministry of Finance and National Planning will direct ZRA to issue an LPO
booklet to the Eligible Entity or Eligible Individual in the amount of the total value
of the Compact Contract.

(e) The Eligible Entity or Eligible Individual will pay for Compact-funded purchases less
VAT, complete the LPO certificate in the amount of the VAT for that particular
purchase, and provide the LPO certificate to the vendor as proof for VAT zero-
rating of the purchase.

238 No. 6 of 2013] Millennium Challenge Compact

SCHEDULE E
EXCISE DUTY ON FUEL

1. Description
The excise duty is a tax on particular goods or products, whether imported or produced

domestically, imposed at any stage of production or distribution, Excise duties are determined by
reference to weight, strength or quantity of the goods or products, or by reference to their value.
The excise duty is charged on the “Excisable Value” (i.e., the customs value plus customs duty).
Fuel is generally subject to an excise duty under the laws of Zambia, including the Applicable
Acts.

2. Procedure
Fuel that will be purchased for official use under the Compact using MCC Funding will be

exempt from the payment or imposition of any Taxes, including excise duties.
Subject to the procedures below, ZRA will advise MCA-Zambia, and each Eligible Entity and

Eligible Individual, of the designated fuel suppliers/filling stations where fuel is deemed to be
supplied in bond (i.e., from bonded premises or filling stations).

MCA-Zambia will be listed in the “Third Schedule of the “Customs and Excise (General)
Regulations, 2000” (the “Third Schedule”) as exempt from customs and excise taxes. Accordingly,
MCA-Zambia will be entitled to purchase fuel free from taxation at the designated fuel suppliers/
filling stations when such fuel is purchased using MCC Funding.

With regard to Eligible Entities and Eligible Individuals, a letter of rebate confirmation will be
issued by the Ministry of Finance and National Planning to ZRA. To facilitate issuance of this
letter, MCA-Zambia will send a letter to the Ministry of Finance and National Planning confirming
those entities or individuals eligible for the exemption, providing a copy of the applicable Compact
Contract.

Upon issuance of the letter of rebate confirmation by the Ministry of Finance and National
Planning, the Eligible Entity and/or Eligible Individual will be entitled to purchase fuel free from
taxation at the designated fuel suppliers/filling stations when such fuel is purchased using MCC
Funding.

Millennium Challenge Compact [No. 6 of 2013 239

SCHEDULE F
CUSTOMS DUTY AND TARIFF TAXES

1. Description
Customs duty is charged on the “Customs Value” of imported capital equipment and raw

materials (0 to 5 percent), intermediate goods (15 percent), and finished goods (25 percent).

2. Procedure
(a) Goods imported by MCA-Zambia

The Minister of Finance and National Planning will issue a Statutory Instrument to list MCA
Zambia in the Third Schedule. The listing of MCA-Zambia in the Third Schedule will enable
MCA-Zambia to qualify for an exemption from the payment of customs duty and tariffs on all
goods that will be imported for the official use of MCA-Zambia for Compact-related purposes.
Accordingly, all imports for official use by MCA-Zambia will be cleared free of customs duties
and tariffs by ZRA on the basis of MCA-Zambia being listed as exempt on the Third Schedule.
(b) Goods imported by Eligible Entities and Eligible Individuals

With regard to goods imported by Eligible Entities and Eligible Individuals, a letter of rebate
confirmation will be issued by the Ministry of Finance and National Planning to ZRA. To
facilitate issuance of this letter, MCA-Zambia will send a letter to the Ministry of Finance and
National Planning confirming those entities or individuals eligible for the exemption, providing a
copy of the applicable Compact Contract, including the approved bills of quantities.

Upon issuance of the letter of rebate confirmation by the Ministry of Finance and National
Planning, the Eligible Entity and/or Eligible Individual will be cleared free of customs duties and
tariffs by ZRA to the extent of the Compact Contract, including the approved bill of quantities.
(c) Goods imported by staff to take up employment

The “Customs and Excise (General) Regulations, 2000” provides for an exemption from the
payment of custom duties and tariffs on household and personal effects, including one motor
vehicle per household, for new residents in Zambia. The individual requiring the exemption will
need to inform ZRA on arrival in Zambia that they are new residents and show proof (normally
passport and any other documentation that may be required). The Applicable Acts provide that
such persons must import these items within six months of arrival to benefit from this rebate.
(d) Machinery and Equipment imported by Eligible Entities and Eligible Individuals for use on

Compact-related projects or activities
The “Customs and Excise (General) Regulations, 2000” provide for an exemption from payment

of custom duties and tariffs on machinery and equipment imported for any Compact-related
projects or activities when such machinery and equipment will remain on the project or activity
or will be the property of either MCA-Zambia or the Government at the end of the Program.

Regarding machinery or equipment imported for use in connection with any Compact-related
projects or activities, the Applicable Acts separately provide for the temporary importation of
machinery or equipment by Eligible Entities and Eligible Individuals using machinery or equipment
that they already own, but which is located outside Zambia. Such machinery or equipment may
be imported exempt from the payment of custom duties or tariffs.

Subject to the conditions indicated above, the procedure for the exemption of custom duties or
tariffs on machinery and equipment imported by Eligible Entities or Eligible Individuals for use on
Compact-related activities or projects will be as follows:

Importation of equipment on short term projects (i.e., twelve months or less): In such
cases, machinery or equipment can be imported into the country through a Temporal
Import Permit. The applicable Eligible Entity or Eligible Individual will apply to ZRA by
providing proof (normally a copy of the Compact Contract, together with confirmation
from MCA-Zambia and any other documentation that may be required) that such entity or

240 No. 6 of 2013] Millennium Challenge Compact

individual will be carrying out Compact-related projects or activities, and that such machinery
or equipment is being imported for twelve months or less for the purposes of implementing
such Compact-related projects or activities.

Importation of equipment on long term projects (i. e., more than twelve months): In such
cases, MCA-Zambia will send a letter to the Ministry of Finance and National Planning to
request a temporal exemption from the payment of custom duties and tariffs on such
machinery and equipment, and will provide a copy of the applicable Compact Contract,
including the bill of quantities.

In any case, the provisions of the “Customs and Excise (General) Regulations, 2000” will
apply to the disposal of all machinery and equipment imported by an Eligible Entity or an Eligible
Individual in connection with its Compact-related projects and activities when such machinery
and equipment will no longer be used to carry out Compact-related projects or activities.

Millennium Challenge Compact [No. 6 of 2013 241

SCHEDULE G
IMPORT VAT

1. Description
Import VAT is collected on behalf of the VAT Division and is applied to imported goods that

attract VAT. VAT is charged on the “Taxable Value” (i.e., the customs value plus customs duty,
plus excise duty, where applicable) at the rate of 16 percent.

For equipment imported from outside Zambia on a temporary basis (i. e., for the duration of
the Compact) the Eligible Entity or Eligible Individual must remove the equipment from Zambia
within a reasonable period of time after the end of the Compact (or the applicable period of
perfom1ance) or pay any residual taxes that had been exempted (see related provisions in Schedule
F above).
2. Procedure MCA-Zambia and any Eligible Entities or Eligible Individuals

(a) MCA-Zambia will send letter to Ministry of Finance and National Planning requesting
exemption from import VAT, either for itself or on behalf of the Eligible Entity or the
Eligible Individual. This letter must include:

(i) Copy of the Compact Contract; and
(ii) Copy of the bill of quantities for goods to be implied by MCA-Zambia, or

the Eligible Entity or Eligible Individual (as the case may be).
(b) Ministry of Finance and National Planning will direct ZRA to issue an exemption

certificate to MCA-Zambia, or the Eligible Entity or the Eligible Individual (as the
case may be).

(c) MCA-Zambia, or the Eligible Entity or Eligible Individual (as the case may be), will
present the following to the Bureau of Customs:

(i) Bill of lading;
(ii) Invoice for goods; and
(iii) Certificate of exemption issued by ZRA.

(d) The Credibility and Controls Unit of the Bureau of Customs is responsible for clearance
of the implied items. The Credibility and Controls Unit will issue instructions to the
Port Authority to allow the import VAT exemption and release the goods.

(e) Estimated time for this clearance is three (3) to four (4) days.

242 No. 6 of 2013] Millennium Challenge Compact

SCHEDULE H
MEDICAL LEVY TAX

1. Description
The medical levy was introduced through the “Medical Levy Act, 2003” in an effort to raise

additional revenue for the health sector. Banks and other financial institutions are required to
deduct the Medical Levy from gross interest earned by any person and partnership on any
savings or deposit accounts, treasury bills or government bonds. The Medical Levy (1 percent) is
charged on all interest earnings from banks and other financial institutions.
2. Procedure

The Minister of Finance and National Planning will issue a Statutory Instrument to exempt
MCA-Zambia from payment of the medical levy.

Millennium Challenge Compact [No. 6 of 2013 243

SECOND SCHEDULE
(Section 2)

PROGRAM IMPLEMENTATION AGREEMENT

PROGRAM IMPLEMENTATION AGREEMENT

By and Between

THE UNITED STATES OF AMERICA

Acting Through

THE MILLENNIUM CHALLENGE CORPORATION

and

THE REPUBLIC OF ZAMBIA

Dated as of 10, 2012

244 No. 6 of 2013] Millennium Challenge Compact

PROGRAM IMPLEMENTATION AGREEMENT
PREAMBLE

This PROGRAM IMPLEMENTATION AGREEMENT (this “Agreement”) is made on May
10, 2012, by and between the United States of America, acting through the Millennium Challenge
Corporation (“MCC”), and the Republic of Zambia (“Zambia”), acting through its government
(the “Government”) (individually a “Party” and collectively, the “Parties”).

RECITALS
WHEREAS, the Millennium Challenge Compact between the United States of America, acting

through MCC, and Zambia, acting through the Government, signed in Lusaka, Zambia on May
10, 2012 (the “Compact”) sets forth the general terms on which MCC will provide assistance of
up to Three Hundred and Fifty Four Million Seven Hundred and Fifty Seven Thousand Six
Hundred and Forty United States Dollars (US$354,757,640) to the Government for a program to
reduce poverty through economic growth in Zambia;

WHEREAS, pursuant to Section 3.2 (b) of the Compact, the Government has designated MCA-
Zambia to carry out certain rights and obligations of the Government under the Compact and
related agreements; and
WHEREAS, the Parties wish to specify further the terms for implementing the Compact and the
Program;

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set
forth herein, the Parties hereby agree as follows:

ARTICLE 1
GENERAL RESPONSIBILITIES OF THE PARTIES

Section 1.1—Definitions
Capitalized terms used in this Agreement and not defined in this Agreement have the meanings

provided in the Compact. All other capitalized terms have the meanings provided in Schedule 1.
Section 1.2—Role of the Government
(a) Government Responsibilities.

The Government will promptly take all necessary or appropriate actions to carry out all of its
obligations under the Compact, this Agreement and any other Supplemental Agreement (including
any post-Compact Term activities, audits or other responsibilities), and to delegate its rights and
responsibilities to entities, including MCA Zambia, adequate to enable them (each a “Permitted
Designee”) to oversee and manage the implementation of the Program on behalf of the Government.
(b) Government Undertakings

The Government hereby affirms as follows:
(i) Power, Authorization, Etc. The Government has the power and authority to execute,

deliver and perform its obligations under this Agreement and under each other
agreement, certificate or instrument contemplated by this Agreement, the Compact,
any other Supplemental Agreement or the Program Guidelines.

(ii) Binding Obligation. This Agreement is a legally binding obligation of the Government.
(iii) Impoundment; Liens or Encumbrances; Disposition of Project Assets The Government

will ensure that (1) no Program Assets are subject to any impoundment, rescission,
sequestration, liquidation or to any provision of law now or hereafter in effect in
Zambia that would have the effect of allowing any such impoundment, rescission or
sequestration, (2) no Program Asset is subject to any lien, attachment, enforcement
of judgment, pledge or encumbrance of any kind (including any lease or sub-lease, in
whole or in part) (each a “Lien”), and (3) no Program Asset is sold, donated or
otherwise disposed of, in whole or in part; except, in each of the foregoing cases,

Millennium Challenge Compact [No. 6 of 2013 245

with MCC’s prior written approval. In the event any Lien not so approved is
imposed, the Government will promptly seek the release of such Lien and, if such
Lien is required by a final and non-appealable court order, will pay any amounts due
in order to obtain such release; provided, however, that the Government must apply
national funds (and not Program Assets) to satisfy any such obligation.

Section 1.3—Role of MCC.
MCC hereby affirms that this Agreement is a legally binding obligation of MCC.

Section 1.4—Role of MCA-Zambia
(a) Designation of MCA-Zambia—

(i) Pursuant to Section 3.2(b) of the Compact, the Government has designated
MCA Zambia as the primary agent of the Government to implement the
Program and to exercise and perform the Government’s right and obligation
to oversee, manage and implement the Program, including, without
limitation, managing the implementation of the Project and its Activities,
allocating resources and managing procurements (the “Designated Rights
and Responsibilities”). The Government will remain ultimately
responsible for the performance of the Government’s obligations under or
in relation to the Compact and this Agreement.

(ii) The Government will ensure that MCA-Zambia is and remains throughout
the Compact Term duly organized, sufficiently staffed and empowered to
exercise the Designated Rights and Responsibilities.

(iii) The “Accountable Entity” referenced in the Program Guidelines will be
deemed to refer to MCA-Zambia, and all obligations assigned to the
“Accountable Entity” in the Program Guidelines will be obligations of
MCA-Zambia.

(b) Additional Government Undertakings with Respect to MCA-Zambia. The Government
hereby affirms to MCC as follows:

(i) Power and Authorization. MCA-Zambia has the power and authority to—
(1) bind the Government to the full extent of the Designated Rights and

Responsibilities;
(2) execute and deliver each agreement, certificate or instrument

contemplated by this Agreement, the Compact, any other
Supplemental Agreement or the Program Guidelines; and

(3) perform its obligations under this and each such other agreement,
certificate or instrument contemplated by this Agreement, the
Compact, any other Supplemental Agreement or the Program
Guidelines.

(ii) Government Responsibilities. MCA-Zambia—
(1) will properly and fully carry out the Designated Rights and

Responsibilities (including all obligations specified as MCA-Zambia
obligations in the Compact, this Agreement, any other Supplemental
Agreement or the Program Guidelines);

(2) except as provided in Section 2.9 (a) or with respect to an Implementing
Entity, will not assign, delegate or otherwise transfer any of the
Designated Rights and Responsibilities without the prior written
consent of MCC; and

(3) will not undertake any activities, duties or responsibilities other than
the Designated Rights and Responsibilities without the prior written
consent of MCC.

246 No. 6 of 2013] Millennium Challenge Compact

(iii) Government Representations. MCA-Zambia will confirm each representation
that it makes on behalf of the Government in any agreement, certificate or
instrument delivered by MCA-Zambia with all necessary Permitted
Designees prior to providing such representation to MCC.

(iv) Autonomy. The Government will ensure that (1) no decision of MCA-Zambia
is modified, supplemented, unduly influenced or rescinded by any
governmental authority, except by a final and non-appealable judicial
decision or as required pursuant to Section 1.4(b)(v); and (2) the authority
of MCA-Zambia will not be expanded, restricted or otherwise modified,
except in accordance with this Agreement, the Compact, any other
Supplemental Agreement or the Governing Documents.

(v) Constitution and Governance of MCA-Zambia. MCA-Zambia will conduct
its operations and management in accordance with its Articles of
Association (the “Bylaws”), which shall be in form and substance
satisfactory to MCC, any other Governing Documents and the Governance
Guidelines.

(vi) Funded Agreements. MCA-Zambia will provide the Fiscal Agent (and MCC
if it so requests) a copy of each agreement that is funded (directly or
indirectly) with MCC Funding, regardless of whether MCC has approval
rights with respect to such agreement.

(vii) Insurance; Performance Guaranties. MCA-Zambia will, to MCC’s
satisfaction, cause all Program Assets to be insured (including, without
limitation, through self-insurance) and will arrange such other appropriate
insurance to cover against risks or liabilities associated with the operations
of the Program, including by requiring Providers to obtain adequate
insurance and to post adequate performance bonds or other guarantees.
With MCC’s prior consent, MCC Funding may be used to pay the costs
of obtaining such insurance. MCA Zambia (or, as appropriate and with
MCC’s prior approval, another entity) will be named as the payee on any
such insurance and the beneficiary of any such guaranty or bonds. If not
already named as the insured party, MCA-Zambia (and MCC, if it so
requests) will be named as additional insureds on any such insurance. The
Government will promptly notify MCC of the payment of any proceeds
from claims paid under such insurance or guaranty, and will ensure that
such proceeds will be used to replace or repair any lost or damaged Program
Assets; provided, however, that, at MCC’s election, such proceeds will be
deposited in a Permitted Account as designated by MCA-Zambia or as
otherwise directed by MCC.

(viii) MCA-Zambia Indemnity. If MCA-Zambia is held liable under any
indemnification or other similar provision of any agreement, then the
Government will pay such indemnity in full on behalf of MCA-Zambia
and will do so with national funds (and not with Program Assets). In
addition, the Government will indemnify and hold harmless each member
of MCA-Zambia’s Board (including each Observer), each member of any
Stakeholder Committee and each of MCA-Zambia’s Officers, employees
and agents from any claim, loss, action, liability, cost, damage or expenses
incurred by such person in the performance of its duties on behalf of
MCA-Zambia; provided, however, that the Government will have no
obligation to indemnify any such person if and to the extent that any such
claims, losses, actions, liabilities, costs, damages or expenses are attributable
to the fraud, gross negligence or wilful misconduct of such person; and

Millennium Challenge Compact [No. 6 of 2013 247

provided, further, that the Government will apply national funds to satisfy
its obligations under this Section 1.4(b) (viii) and no MCC Funding, accrued
interest thereon or Program Asset may be applied by the Government in
satisfaction of its obligations under this Section 1.4(b ) (viii).

Section 1.5—General Provisions Annex.
(a) Unless otherwise instructed by MCC, MCA-Zambia will include in each agreement (a

“Program Agreement”) executed by it with a third party (a “Counter-party”) that
will receive any portion of MCC Funding—

(i) a covenant that such Counter-party will comply with—
(1) the General Provisions Annex and
(2) any instruction received by it from MCC in respect of such Counter-

party’s performance of, and compliance with, the requirements of
the General Provisions Annex, notwithstanding any other
instruction given by MCA-Zambia; and

(ii) a right for MCA-Zambia to terminate such Program Agreement if such Counter-
party fails to comply with the requirements of the General Provisions
Annex or any such instruction of MCC under sub-clause (i) of this Section
1.5 (a).

(b) MCA-Zambia will exercise all rights relating to the General Provisions Annex under a
Program Agreement to which it is a party in accordance with the instructions of
MCC.

248 No. 6 of 2013] Millennium Challenge Compact

ARTICLE 2
IMPLEMENTATION FRAMEWORK

Section 2.1—Implementation Plan.
The framework for implementation of the Program will be further elaborated in a set of documents,

in form and substance approved by MCC, consisting of (i) a Work Plan, (ii) a Detailed Financial
Plan, (iii) an Audit Plan, and (iv) a Procurement Plan (each, an “Implementation Plan Document”
and collectively the “Implementation Plan”). MCA-Zambia will submit its proposed
Implementation Plan for review and approval by MCC before the initial Disbursement of Program
Funding and at least on an annual basis thereafter (or in such other interval as may be required by
the Program Guidelines). MCC will review the proposed Implementation Plan and as necessary
may request MCA-Zambia to submit clarifications or adjustments. MCA-Zambia will submit an
updated Implementation Plan or updated Implementation Plan Document during any quarter in
which significant changes or modifications are made to the Project or to the Program, or when
MCA-Zambia determines that the expected results, targets and milestones for the specified year
are not likely to be achieved; provided, however, that an updated Detailed Financial Plan will be
submitted each quarter. In such instances, MCA-Zambia will submit to MCC for approval a
proposed revised Implementation Plan or updated Implementation Plan Document (as applicable)
on the same date as the next Periodic Report is due. MCA-Zambia will ensure that the
implementation of the Program is conducted in accordance with the Implementation Plan.

(a) Work Plan. MCA-Zambia will develop, adopt and implement a work plan, in form and
substance satisfactory to MCC, for the overall administration of the Program (the
“Work Plan”).

(b) Detailed Financial Plan. The Multi-Year Financial Plan Summary for the Program,
which is set forth in Annex II to the Compact, shows the estimated annual contribution
of MCC Funding to administer, monitor and evaluate the Program and to implement
the Project (the “Multi-Year Financial Plan”). Except as MCC agrees otherwise
in writing, MCA-Zambia will develop, adopt and implement for each quarter for the
upcoming year and on an annual basis for each year of the remaining years of the
Compact, a detailed financial plan (substantially in the form of the “Detailed Financial
Plan” posted on the MCC Website and as approved by MCC), setting forth funding
requirements for the Program (including administrative costs) and for the Project,
broken down to the sub-activity level (or lower, where appropriate), and projected
both on a commitment and cash requirement basis (each a “Detailed Financial
Plan”).

(c) Audit Plan. MCA-Zambia will develop, adopt and implement a plan, in accordance with
the Audit Guidelines, for the audit of the expenditures of the entities that are subject
to audit pursuant to the Audit Guidelines (the “Audit Plan”). The Audit Plan will
be inform and substance satisfactory to MCC and will be developed no later than
sixty (60) days before the end of the first period to be audited.

(d) Procurement Plan. MCA-Zambia will prepare periodic procurement plans for acquiring
the goods, works and consultant and non-consultant services needed to implement
the Compact (each a “Procurement Plan”). Each Procurement Plan will be prepared
and updated in accordance with the MCC Program Procurement Guidelines. In
addition, no later than six months after the Compact enters into force as provided in
Article 7 of the Compact, MCA-Zambia will develop, adopt and implement a bid
challenge system (“BCS”) that provides suppliers, contractors and consultants
that are interested parties the ability to seek review of procurement actions and
decisions. The organization, rules and procedures of such BCS will be subject to
MCC approval. Upon MCC’s approval of the BCS, MCA-Zambia will publish the
BCS on the MCA-Zambia Website.

Millennium Challenge Compact [No. 6 of 2013 249

Section 2.2—Fiscal Accountability Plan
Except as MCC agrees otherwise, MCA-Zambia will develop, adopt and implement a manual

(as approved by MCC) setting forth the principles, mechanisms and procedures (the “Fiscal
Accountability Plan”) that MCA-Zambia will use to ensure appropriate fiscal accountability for
the use of MCC Funding, including the process to ensure that open, fair and competitive procedures
will be used in a transparent manner in the administration of grants or cooperative agreements and
in the procurement of goods, works and services. The Fiscal Accountability Plan will also include,
among other things, requirements with respect to—

(a) budgeting;
(b) accounting;
(c) cash management;
(d) financial transactions (receipts and .payments);
(e) opening and managing Permitted Accounts;
(f) personnel and payroll;
(g) travel and vehicle use;
(h) asset and inventory control;
(i) audits; and
(j) reporting.

The Fiscal Accountability Plan will be revised periodically, subject to review and approval by
MCC.
Section 2.3—M&E Plan

Unless MCC agrees otherwise, no later than ninety (90) days after the Compact enters into
force as provided in Article 7 of the Compact, MCA-Zambia will develop, adopt and implement
an M&E Plan that will serve as the primary governing document for monitoring and evaluation
activities for the Program over the Compact Term. The M & E Plan will be developed and updated
in accordance with the MCC Policy for Monitoring arid Evaluation of Compacts and Threshold
Programs.
Section 2.4—Environmental and Social Accountability

(a) Unless MCC and the Government agree otherwise in writing, MCA-Zambia will ensure
that activities undertaken, funded or otherwise supported in whole or in part (directly
or indirectly) by MCC Funding comply with the MCC Environmental Guidelines
and the IFC Performance Standards, including the provisions related thereto in the
Compact.

(b) Unless MCC and the Government agree otherwise in writing, MCA-Zambia will ensure
that activities undertaken, funded or otherwise supported in whole or in part (directly
or indirectly) by MCC Funding comply with the MCC Gender Policy and the MCC
Gender Integration Guidelines and Operational Procedures. MCA-Zambia will on
an annual basis, review and update the Social and Gender Integration Plan as needed
to reflect lessons learned and project-specific analysis.

Section 2.5—MCC Program Procurement Guidelines
In accordance with Section 3.6 of the Compact, MCA-Zambia will comply with the MCC

Program Procurement Guidelines in the procurement (including solicitation) of all goods, works
and services and the award and administration of contracts in furtherance of the Compact. In
addition, the Government will ensure that any bid challenges are conducted in accordance with the
MCC Program Procurement Guidelines and the BCS.
Section 2.6—Notice to Providers; Incorporation

(a) MCA-Zambia will notify all Providers (and all other entities or individuals receiving
MCC Funding in connection with the Program) of the requirements of Section 2.7
of the Compact and will include, or ensure the inclusion of, the requirements of
Section 2.7 of the Compact in all agreements with a Provider if MCC is not a party
to such agreements.

250 No. 6 of 2013] Millennium Challenge Compact

(b) MCA-Zambia will include, or ensure the inclusion of, the requirements of:
(i) Sections 2.1 (c) and 2.7 (c) of this Agreement and Section 3.7 of the Compact

and paragraphs (b), (c) and (d) of Section 3.8 of the Compact in all
agreements financed with MCC Funding between the Government or any
entity of the Government, on the one hand, and a Covered Provider that is
not a non-profit organization domiciled in the United States, on the other
hand;

(ii) Section 3.7 of the Compact and paragraphs (b) and (d) of Section 3.8 of the
Compact in all agreements financed with MCC Funding between the
Government or any entity of the Government, on the one hand, and a
Provider that does not meet the definition of a Covered Provider, on the
other hand; and

(iii) Section 3.7 of the Compact and paragraphs (b), (c) and (d) of Section 3.8 of
the Compact in all agreements financed with MCC Funding between the
Government or any entity of the Government, on the one hand, and a
Covered Provider that is a non-profit organization domiciled in the
United States, on the other hand.

Section 2.7—Reports; Notices
(a) Unless MCC agrees otherwise in writing, MCA-Zambia will periodically provide to

MCC, in form and substance satisfactory to MCC, the reports and information
required by the Reporting Guidelines (each, a “Periodic Report”). MCA-Zambia
will provide the Periodic Reports to MCC on the schedule specified in the Reporting
Guidelines, and the Periodic Reports will be consistent with the Reporting Guidelines
in all respects. As of the date hereof, the following Periodic Reports are required to
be submitted under the Reporting Guidelines on a quarterly basis:

(1) a narrative report setting forth the proposed use for the disbursement in the
upcoming quarter together with an explanation of the use of funds of the
previous quarter and any adjustments to the Implementation Plan,
substantially in the form of the “Narrative Report” posted on the MCC
Website;

(2) a quarterly financial report of MCA-Zambia’s financial activities during the
preceding quarter and documentation supporting any proposed cash
requirements for the upcoming quarter, substantially in the form of the
“Form of Quarterly Financial Report” posted on the MCC Website (the
“Quarterly Financial Report”);

(3) an updated Detailed Financial Plan;
(4) a procurement performance report, setting forth a cumulative summary of

executed procurement actions compared to the Procurement Plan approved
by MCC for the preceding quarter, substantially in the form of the
“Procurement Performance Report” posted on the MCC Website;

(5) a conditions precedent report, describing progress toward meeting conditions
precedent to Disbursements proposed for the upcoming quarter,
substantially in the form of the “Conditions Precedent Report” posted on
the MCC Website; and

(6) an indicator tracking table, setting forth the performance indicators contained
in the M&E Plan and tracking MCA-Zambia’s progress against said
indicators, substantially in the form of the “Indicator Tracking Table”
posted on the MCC Website.

(b) Unless MCC agrees otherwise in writing, on October 30 of each year of the Compact
Term (or within thirty (30) days of any written request by MCC), MCA-Zambia
will provide to MCC an annual supplemental report containing the following
information:

Millennium Challenge Compact [No. 6 of 2013 251

(i) the progress made by the Government toward achieving the Compact Goal,
the Program Objective and the Project Objective;

(ii) additional information on accomplishments not presented in the Periodic
Reports;

(iii) developments in Compact implementation related to the consultative process,
donor coordination and lessons learned; and

(iv) any report or document required to be delivered to MCC in connection with
the Program under the MCC Environmental Guidelines, any Audit Plan or
any Implementation Plan Document.

(c) MCA-Zambia will furnish, or use its best efforts to furnish, to MCC an audit report in
a form satisfactory to MCC for each audit required under the Compact, other than
audits arranged for by MCC, no later than ninety (90) days after the end of the
period under audit, or such other time as may be agreed by MCC from time to time.

(d) If at any time during the Compact Term, the Government materially re-allocates or
reduces the allocation in its national budget or any other governmental authority of
Zambia at a departmental, municipal, regional or other jurisdictional level materially
re-allocates or reduces the allocation in its budget of the normal and expected
resources that the Government or such governmental authority, as applicable, would
have otherwise received or budgeted, from external or domestic sources, or fails to
timely distribute an allocation budgeted for the activities contemplated under the
Compact or the Program, the MCA-Zambia must notify MCC in writing within
thirty (30) days of such reallocation, reduction or failure to distribute, such notification
to contain information regarding the amount of the reallocation, reduction or failure
to distribute, the affected activities, and an explanation for the re-allocation or
reduction.

(e) In addition to the Periodic Reports, MCA-Zambia will provide to MCC within thirty
(30) days of a written request by MCC, or as otherwise agreed by MCC and MCA-
Zambia in writing, such other reports, documents or information as MCC may
request from time to time related to the Program, including any component of the
Implementation Plan, the Fiscal Accountability Plan, the Program Guidelines or any
Disbursement.

(f) MCA-Zambia will submit the Periodic Reports and any other reports required hereunder
electronically if requested by MCC or otherwise required by the Reporting Guidelines.

Section 2.8—Transactions Subject to MCC Approval
Each of the following transactions, activities, agreements and documents requires MCC’s prior

written approval:
(a) Disbursements;
(b) the Implementation Plan (including each element or component thereof), the Fiscal

Accountability Plan and the M&E Plan, and any modification of any of the foregoing;
(c) agreements between the Government and MCA-Zambia, and agreements in which any

of the following are appointed, hired or otherwise engaged (each of the foregoing, a
“Material Agreement”):

(i) Auditor or Reviewer;
(ii) Fiscal Agent;
(iii) Procurement Agent;
(iv) Bank;
(v) Implementing Entity;
(vi) Outside Project Manager; and

252 No. 6 of 2013] Millennium Challenge Compact

(vii) a member of the Board (including any Observer) or any Officer of MCA
Zambia (including agreements regarding compensation for any such person);

(d) any modification, termination or suspension of a Material Agreement, or any action
that would have equivalent effect;

(e) any agreement or transaction of MCA-Zambia that is not arm’s-length;
(f) any pledge of any MCC Funding or any Program Assets, or any incurrence of material

indebtedness, or any guarantee, directly or indirectly of any indebtedness;
(g) any decree, legislation, regulation, charter, contractual arrangement or other document

establishing or governing (other than public laws of general application to all public
institutions), or relating to the formation, organization or governance of, MCA-
Zambia (including the By-laws and any staffing plan), and any amendment,
supplement, modification, repeal or other alteration thereof or thereto (each, a
“Governing Document”);

(h) any disposition, in whole or in part, liquidation, dissolution, winding up, reorganization
or other change of MCA-Zambia, including any revocation or modification of or
supplement to any Governing Document related thereto;

(i) any change in character or location of any Permitted Account;
(j) (i) any change of any member of MCA-Zambia, as described in Section 1.2 of the By-

laws;
(ii) any change of any member of the Board, any Observer, the chairperson of

the Board, the composition or size of the Board or the filling of any
vacant seat on the Board, or the replacement of any Observer;

(iii) any change of any Officer of MCA-Zambia or in the composition or size of
its management unit, and the filling of any vacant position of any Officer
of MCA-Zambia; and

(iv) any change in the composition or size of any Stakeholder Committee;
(k) any decision by MCA-Zambia to engage, accept or manage any funds in addition to

MCC Funding (including from any donor agencies or organizations) during the
Compact Term, or to engage in any activities or undertake any duties or responsibilities
other than the Designated Rights and Responsibilities; and

(l) any decision to amend, supplement, replace, terminate or otherwise change any of the
foregoing documents or arrangements.

Section 2.9—Role of Certain Entities in Implementation
(a) Outside Project Manager. MCA-Zambia may engage qualified persons or entities to

serve as outside project managers (each, an “Outside Project Manager”) in the
event that it is advisable to do so for the proper and efficient day-to-day management
of the Project or any Activity; provided, however, that, if so required by the MCC
Program Procurement Guidelines, the appointment or engagement of any Outside
Project Manager will be made using a competitive selection process and, if required
by the MCC Program Procurement Guidelines, will be subject to approval by the
Board and by MCC prior to such appointment or engagement. Upon such approval,
MCA-Zambia may delegate, assign or contract to the Outside Project Managers
such duties and responsibilities as it deems appropriate with respect to the
management of the Implementing Entities and the implementation of the Project or
the Activity; and provided, further, that MCA-Zambia will remain accountable for
those duties and responsibilities and all reports delivered by the Outside Project
Manager notwithstanding any such delegation, assignment or contract and the Outside
Project Manager will be subject to the oversight of the Fiscal Agent and Procurement
Agent. The Board may determine that it is advisable to engage one or more Outside
Project Managers and instruct MCA-Zambia and, where appropriate, the
Procurement Agent to commence and conduct the competitive selection process for
such Outside Project Manager.

Millennium Challenge Compact [No. 6 of 2013 253

(b) Fiscal Agent. MCA-Zambia will engage a Fiscal Agent, who will be responsible for,
among other things—

(i) ensuring and certifying that Disbursements are properly authorised and
documented in accordance with established control procedures set forth in
the Fiscal Agent Agreement and the Bank Agreement;

(ii) instructing the Bank to make Disbursements from a Permitted Account or
requesting Disbursement be made directly to a provider as payment for
goods, works or services in accordance with the Common Payment System
or any alternate payment system approved by MCC, as the case may be,
and in each case following applicable certification by the Fiscal Agent;

(iii) providing applicable certifications for Disbursement Requests;
(iv) maintaining proper accounting of all MCC Funding financial transactions;

and
(v) producing reports on Disbursements in accordance with established procedures

set forth in the Fiscal Agent Agreement or the Bank Agreement. MCA-
Zambia will enter into an agreement with the Fiscal Agent, in form and
substance satisfactory to MCC, which sets forth the roles and
responsibilities of the Fiscal Agent and other appropriate terms and
conditions (the “Fiscal Agent Agreement”). Unless MCC agrees otherwise
in writing, the Fiscal Agent will be a third party, independent of the
Government.

(c) Auditors and Reviewers. MCA-Zambia will engage one or more auditors as contemplated
in the Audit Guidelines (each, an “Auditor”). As requested by MCC in writing from
time to time, MCA-Zambia will also engage an independent—

(i) reviewer to conduct reviews of performance and compliance under the
Compact, which reviewer will have the capacity to—
(1) conduct general reviews of performance or compliance;
(2) conduct environmental and social audits; and
(3) conduct data quality assessments in accordance with the M&E Plan,

as described more fully in Annex III to the Compact; and/or
(ii) evaluator to assess performance as required under the M&E Plan (each, a

“Reviewer”). MCA-Zambia will select the Auditor(s) and/or Reviewer(s)
in accordance with the Audit Guidelines and the M & E Plan, as applicable.
MCA-Zambia will enter into an agreement with each Auditor or Reviewer,
inform and substance acceptable to MCC, that sets forth the roles and
responsibilities of the Auditor or Reviewer with respect to the audit,
review or evaluation, including access rights, required form and content of
the applicable audit, review or evaluation and other appropriate terms and
conditions (the “Auditor / Reviewer Agreement”).

(d) Procurement Agent. MCA-Zambia will engage a Procurement Agent to carry out and/or
certify specified procurement activities in furtherance of the Compact and this
Agreement. MCA-Zambia will enter into an agreement with the Procurement Agent,
in form and substance satisfactory to MCC, which sets forth the roles and
responsibilities of the Procurement Agent with respect to the conduct, monitoring
and review of procurements and other appropriate terms and conditions (the
“Procurement Agent Agreement”). Unless MCC agrees otherwise in writing, the
Procurement Agent will be a third party, independent of the Government.

254 No. 6 of 2013] Millennium Challenge Compact

Section 2.10—Publicity and Transparency.
(a) Subject to Section 2.11, MCA-Zambia will give appropriate publicity to the Compact

as a program to which the United States, through MCC, has contributed, including
by identifying Program sites, and marking Program Assets, all in accordance with the
MCC Standards for Global Marking. Upon the termination or expiration of the
Compact, the Government, upon MCC’s request, will cause the removal of any
such references and markings on the MCA-Zambia Website or in any Government
or MCA-Zambia publicity materials.

(b) MCA-Zambia will make information concerning implementation of the Compact publicly
available, including by posting the following documents in English, on the website
operated by MCA-Zambia (the “MCA-Zambia Website”), all to the extent
contemplated by and in accordance with the Governance Guidelines:

(i) Compact;
(ii) this Agreement;
(iii) minutes of the meetings of the Board, and minutes of the meetings of the

Stakeholders Committees as they relate to MCA-Zambia;
(iv) the M & E Plan, along with periodic reports on Program performance;
(v) all environmental and social impact assessments for the Project and supporting

documents;
(vi) all audit reports by an Auditor and any periodic reports or evaluations by a

Reviewer;
(vii) all Disbursement Requests;
(viii) all reports required to be submitted to MCC under the terms of this

Agreement (including the quarterly reports pursuant to Section 2.7 (a)
(i));

(ix) all procurement policies and procedures (including standard documents,
procurement plans, contracts awarded and the BCS) and any other
procurement documents required to be made publicly available under the
MCC Program Procurement Guidelines;

(x) a copy of any legislation or other documents related to the formation,
organisation or governance of MCA-Zambia (except to the extent
classified), including the Governing Documents and any amendments
thereto; and

(xi) such other materials as MCC may request; provided, however, that any
press release or announcement regarding MCC or the fact that MCC is
funding the Program or any other publicity materials referencing MCC
will be subject to MCC’s prior approval and must be consistent with any
instructions provided by MCC in relevant Implementation Letters.

(c) Notwithstanding Section 2.10(b), information relating to procurements prior to the
award of a contract and confidential information relating to MCA-Zambia’s
agreements with employees, contractors and consultants will be excluded from the
information and documents made publicly available; provided, however, that MCC
and MCA-Zambia will mutually determine whether any information to be excluded
is confidential.

Section 2.11—Branding and Enforcement
(a) For the period set forth in Section 5.7 (d), MCC hereby grants MCA-Zambia a revocable,

royalty-free, fully paid and non-exclusive right and license to use—
(i) the names “Millennium Challenge Corporation” and “MCC”; and

Millennium Challenge Compact [No. 6 of 2013 255

(ii) MCC’s logo, in each case of (i) and (ii) solely in accordance with the MCC
Standards for Global Marking. Any such use of the names and the logo
will solely be for the benefit of MCC, and not inure to the benefit of MCA
Zambia. The use of MCC’s names and logo will not create any agency or
legal representation, and MCA-Zambia has no authority to bind MCC in
any way.

(b) MCA-Zambia will—
(i) create its own logo, and
(ii) use such logo as well as the names “Millennium Challenge Account – Zambia”

and “MCA-Zambia”, in each case of (i) and (ii) solely in accordance with
the MCC Standards for Global Marking. MCA-Zambia hereby grants
MCC an irrevocable, royalty-free, fully paid and non-exclusive right and
license to use (1) the names “Millennium Challenge Account – Zambia”
and “MCA-Zambia,” and (2) MCA-Zambia’s logo.

(c) MCA-Zambia will take all reasonable steps to ensure that the names “Millennium
Challenge Account-Zambia” and “MCA-Zambia,” as well as its own logo, will enjoy
maximum protection under the laws now or hereafter in effect in Zambia throughout
the term of this Agreement. This includes the registration of the names and the logo
as a trademark, if appropriate, the monitoring of unauthorized use by third parties,
and, in case of detection of unauthorised use, the enforcement of such rights. MCA-
Zambia will inform MCC as soon as practicable if it becomes aware of any
infringement, threat of infringement, or any other use by a third party that has not
been authorized by MCC of any of (i) the names “Millennium Challenge Account -
Zambia,” “MCA-Zambia” and/or MCA-Zambia’s logo; or (ii) the names “Millennium
Challenge Corporation,” “MCC” and/or MCC’s logo. MCA-Zambia will provide
MCC assistance to enforce MCC’s rights to the names “Millennium Challenge
Corporation” and “MCC,” as well as to MCC’s logo.

256 No. 6 of 2013] Millennium Challenge Compact

ARTICLE 3
DISBURSEMENT OF MCC FUNDING

Section 3.1—Disbursement Process
(a) Disbursement Requests MCA-Zambia may request Disbursements to be made under

the Compact by submitting a written request substantially in the form of the
“Disbursement Request and Quarterly Financial Report” posted on the MCC Website
(each a “Disbursement Request”), duly completed, to MCC not later than twenty
(20) days (or such other period of time as may be agreed by MCC) prior to the
commencement of each Disbursement Period. Requests for Disbursement of Program
Funding and Compact Implementation Funding for any Disbursement Period will be
made by separate Disbursement Requests using the applicable form. Unless MCC
agrees otherwise, MCA-Zambia may submit only one Disbursement Request for
Program Funding, and one Disbursement Request for Compact Implementation
Funding, for each quarter (such quarter, or any other period of time as agreed by
MCC, the “Disbursement Period”). Each Disbursement Request submitted must be
accompanied by the Periodic Reports covering the corresponding Disbursement
Period.

(b) Approval of Disbursement Requests; Release of Proceeds
(i) Upon receipt of a Disbursement Request, MCC will determine the appropriate

amount of the Disbursement to be made based on, among other things—
(1) the progress achieved under the Implementation Plan,
(2) the amount of funds required to complete the activities described in the

accompanying Periodic Reports during the corresponding
Disbursement Period, and

(3) the satisfaction, waiver or deferral of applicable conditions to such
Disbursement. MCC reserves the right to reduce the amount of any
Disbursement below that proposed in a Disbursement Request in
accordance with this Section 3.1(b) and Section 3.5.

(ii) Upon MCC’s approval of a Disbursement Request, the proceeds of the
Disbursement may be transferred, at MCC’s sole election—
(1) to a Permitted Account, or
(2) directly to a provider as payment for goods, works or services received

by MCA-Zambia in accordance with the Common Payment System
or any alternate payment system approved by MCC; provided,
however, that expenditures of such proceeds (including amounts
transferred directly to a provider) are authorised by MCA-Zambia,
and the related payment complies, as certified by the Fiscal Agent,
with the most recently approved Detailed Financial Plan and the
standards and procedures set forth in the Fiscal Agent Agreement
and the Fiscal Accountability Plan.

(c) Permitted Accounts
(i) Any MCC Funding to be disbursed to a bank account must be deposited in an

interest-bearing account established by MCA-Zambia in the local currency
of Zambia (the “Local Account”) at a financial institution acceptable to
MCC. The Local Account will be a Permitted Account. MCC and MCA-
Zambia also may mutually agree in writing to the establishment of additional
Permitted Accounts from time to time at financial institutions acceptable
to MCC. MCA-Zambia will notify MCC promptly if any account
information for a Permitted Account changes during the Compact Term
and provide MCC with the updated information.

Millennium Challenge Compact [No. 6 of 2013 257

(ii) Unless otherwise authorised by MCC, no funds will be co-mingled in a
Permitted Account other than MCC Funding and accrued interest and
earnings thereon. MCC will have the right, among other things, to view
any Permitted Account statements and activity directly on-line, and where
such viewing is not feasible, MCA-Zambia will provide copies of such
statements to MCC upon its request. Before any MCC Funding is deposited
into a Permitted Account, MCA-Zambia will enter into an agreement, in
form and substance satisfactory to MCC, with the financial institution
approved by MCC to hold such Permitted Account (the “Bank”) that
sets forth the signatory authority, access rights, anti-money laundering
and anti-terrorist financing provisions, and other terms related to such
Permitted Account (the “Bank Agreement”). The Fiscal Agent will be the
sole signatory on each Permitted Account.

(iii) MCC Funding held in a Permitted Account will accrue interest or other
earnings in accordance with the Bank Agreement. On a quarterly basis and
upon the termination or expiration of the Compact or the Bank Agreement,
MCA-Zambia will ensure the transfer of all accrued interest to MCC.

(iv) Unless MCC agrees otherwise, if MCC Funding is held in any Permitted
Account other than the Local Account, MCA-Zambia will ensure that
such MCC Funding will be denominated in the currency of the United
States of America prior to its expenditure or transfer to the Local Account.
To the extent that any amount of MCC Funding held in United States
Dollars must be converted into the currency of Zambia for any purpose,
MCA-Zambia will ensure that such amount is converted consistent with
the requirements of the Bank Agreement or any other applicable
Supplemental Agreement.

Section 3.2—Conditions Precedent to Disbursement of Compact Implementation Funding
Prior to the initial Disbursement of Compact Implementation Funding or any subsequent

Disbursement of Compact Implementation Funding, the applicable conditions set forth in Annex
IV to the Compact must have been met to MCC’s satisfaction.
Section 3.3—Conditions Precedent to the Initial Disbursement of Program Funding

Unless waived or deferred by MCC, the conditions of this Section 3.3 and the conditions set
forth in Section 3.4 must have been met to MCC’s satisfaction prior to the initial Disbursement
of Program Funding:

(a) Entry into Force. The Compact has entered into force as provided in Article 7 of the
Compact.

(b) Officers. Each of the Officers has been selected and engaged by MCA-Zambia and
approved by MCC.

(c) MCA-Zambia Initial Disbursement Certificate. MCA-Zambia has delivered a duly executed
certificate substantially in the form provided by MCC, together with any required
attachments thereto.

(d) Fiscal Accountability Plan. MCA-Zambia has developed and, adopted the Fiscal
Accountability Plan (or an interim version).

(e) Implementation Plan. MCA-Zambia has developed and adopted a complete
Implementation Plan.

(f) Implementing Entity Agreements. MCA-Zambia has duly executed an Implementing
Entity Agreement, in form and substance satisfactory to MCC, and such
Implementing Entity Agreement is in full force and effect without modification,
alteration, rescission or suspension of any kind, unless otherwise agreed to in writing
by MCC, and no material default will have occurred or be continuing thereunder.

258 No. 6 of 2013] Millennium Challenge Compact

(g) Installation of Pre-Paid Meters. Pre-paid meters have been installed, and are operational,
for each of LWSC’s government institutional customers, and the Government has
verified a reasonable amount of its outstanding payment obligations to LWSC (as
evidenced to MCC’s satisfaction) in connection with the provision of water supply
and sanitation services that may have accumulated prior to the installation and
operation of such pre-paid meters, and such obligations have been satisfied.

Section 3.4—Conditions Precedent to Each Disbursement of Program Funding
Unless waived or deferred by MCC, the following conditions must have been met to MCC’s

satisfaction prior to each Disbursement of Program Funding (including the initial Disbursement of
Program Funding):

(a) Deliveries. MCA-Zambia has delivered to MCC the following documents, in form and
substance satisfactory to MCC:

(i) a completed Disbursement Request, together with the Periodic Reports covering
the related Disbursement Period;

(ii) copies of any reports from any technical (including environmental) auditors
engaged by MCA-Zambia for any Activity delivered since the previous
Disbursement Request;

(iii) except with respect to the initial Disbursement of Program Funding (for
which a separate certificate is required to be delivered pursuant to Section
3.3(c) above), a certificate of MCA-Zambia, dated as of the date of such
Disbursement Request, substantially in the form provided by MCC (the
“MCA Disbursement Certificate”);

(iv) a certificate of the Procurement Agent, substantially in the form provided by
MCC (the “Procurement Agent Disbursement Certificate”); and

(v) a certificate of the Fiscal Agent, substantially in the form provided by MCC
(the “Fiscal Agent Disbursement Certificate”).

(b) Other Conditions Precedent. MCC has determined in its sole discretion that:
(i) all applicable conditions precedent in Schedule 2 have been duly satisfied,

deferred or waived as provided in this Agreement;
(ii) no material default or breach of any covenant, obligation or responsibility by

the Government, MCA-Zambia or any Government entity has occurred
and is continuing under this Agreement, the Compact or any other
Supplemental Agreement;

(iii) the activities to be funded with such Disbursement will not violate any
applicable law or regulation;

(iv) the Implementation Plan Documents and Fiscal Accountability Plan are
current and updated and are in form and substance satisfactory to MCC,
and there has been progress satisfactory to MCC on the components of
the Implementation Plan for the Project or the Activities related to such
Disbursement;

(v) there has been progress satisfactory to MCC on the M&E Plan and Social and
Gender Integration Plan for the Program, the Project or any Activity and
substantial compliance with the requirements of the M&E Plan and Social
and Gender Integration Plan (including the targets set forth therein and
any applicable reporting requirements set forth therein for the relevant
Disbursement Period);

(vi) there has been no material negative finding in any financial audit report
delivered in accordance with the Compact and Audit Plan, for the prior
two quarters (or such other period as the Audit Plan may require);

Millennium Challenge Compact [No. 6 of 2013 259

(vii) any Taxes paid with MCC Funding through the date ninety (90) days prior
to the start of the applicable Disbursement Period have been reimbursed
by the Government in full in accordance with Section 2.8(c) of the Compact;

(viii) the Government has satisfied all of its payment obligations, including any
insurance, indemnification, tax payments or other obligations, and
contributed all resources required from it, under the Compact, this
Agreement and any other Supplemental Agreement;

(ix) MCC does not have grounds for concluding that any matter certified to it in
the related MCA Disbursement Certificate, Procurement Agent
Disbursement Certificate or Fiscal Agent Disbursement Certificate is not
as certified;

(x) no act, omission, condition or event has occurred that would be the basis for
MCC to suspend or terminate, in whole or in part, the Compact or MCC
Funding in accordance with Section 5.1 of the Compact;

(xi) each of the Officers remains engaged, or if a position is vacant, MCA-Zambia
is actively engaged, to MCC’s satisfaction, in recruiting a replacement;

(xii) MCA-Zambia has complied in all material respects with’ its obligations set
forth in Section 2,1 (d) with respect to the establishment of a BCS and its
obligations set forth in Section 2.3 with respect to the establishment of an
M & E Plan;

(xiii) LWSC continues to reserve at least fifty percent (50 percent) of LWSC’s
Retained Earnings for asset renewal and capital expansion pursuant to a
resolution of LWSC’s board of directors (or any similar instrument
proposed by the Government and acceptable to MCC), and such board
resolution (or other instrument, as the case may be) remains in full force
and effect without modification, alteration, rescission or suspension of
any kind (except as approved by MCC);

(xiv) LWSC has allocated, expended or committed an appropriate amount of
LWSC’s Retained Earnings reserved for asset renewal and capital expansion
for such purposes;

(xv) LWSC has allocated, expended or committed an appropriate amount of
funding for the repair and maintenance of the water supply and sanitation
infrastructure assets for which it is responsible;

(xvi) The LWSC Sustainability Agreement remains in full force and effect without
modification, alteration, rescission or suspension of any kind (except as
approved by MCC), and no material default or breach of any covenant,
obligation or responsibility by the Government or LWSC has occurred
and is continuing thereunder, including, without limitation, any failure by
either the Government or LWSC to satisfy the applicable performance
requirements or milestones set forth therein or to take any corrective
action recommended by any technical audit assessing the Government’s
or LWSC’s performance under or compliance with the LWSC Sustainability
Agreement; and

(xvii) NWASCO continues to operate autonomously and independently from
the Government, with the authority to modify tariffs without requiring
any further review or approval from the Government or any other
Government entities.

260 No. 6 of 2013] Millennium Challenge Compact

Section 3.5—Failure to Satisfy Conditions Precedent; Partial Disbursements
MCC may, in its sole discretion, disapprove any Disbursement completely or reduce the

amount of any Disbursement requested for the Project or any Activity for which the relevant
conditions precedent have not been satisfied, waived or deferred.
Section 3.6—Authorised Expenditures

Except as MCC otherwise agrees, a Disbursement, or financial commitment involving MCC
Funding may be made, and a Disbursement Request may be submitted, only if the related expense
is provided for in the Detailed Financial Plan and sufficient uncommitted funds exist in the
Detailed Financial Plan for the relevant period.

Millennium Challenge Compact [No. 6 of 2013 261

ARTICLE 4
ENTRY INTO FORCE OF THIS AGREEMENT; CONSEQUENCES OF COMPACT TERMINATION,

SUSPENSION AND EXPIRATION
Section 4.1—Entry into Force of this Agreement

This Agreement will enter into force upon the later of—
(a) the signing of this Agreement by each of the Parties to this Agreement, and
(b) the date that the Compact enters into force as provided in Article 7 of the Compact;

provided, however, that the Parties agree that upon signature of this Agreement and
until this Agreement enters into force, the Parties will provisionally apply the terms
of this Agreement.

Section 4.2—Consequences of Compact Termination, Suspension or Expiration
(a) Upon the suspension, in whole or in part, of the Compact or any MCC Funding, all

applicable Disbursements will be suspended, and MCC may request the Government
to return any MCC Funding (or portion thereof) on deposit in any Permitted Account;
provided, however, MCC Funding may be used, in compliance with the Compact
and this Agreement and with written consent of MCC, to pay for—

(i) reasonable expenditures for goods, works or services that were properly
incurred under or in furtherance of the Program before the suspension of
the Compact or any MCC Funding; and

(ii) reasonable costs incurred in connection with the suspension of the Compact
or any MCC Funding.

(b) Upon the termination, in whole or in part, of the Compact or any MCC Funding, all
applicable Disbursements will cease; provided, however, MCC Funding may be
used, in compliance with the Compact and this Agreement and with written consent
of MCC, to pay for—

(i) reasonable expenditures for goods, works or services that were properly
incurred under or in furtherance of the Program before termination of the
Compact or any MCC Funding; and

(ii) reasonable expenditures (including administrative expenses) properly incurred
in connection with the winding up of the Program (or any part thereof)
within 120 days after the termination of the Compact or any MCC Funding.

(c) Upon expiration of the Compact, all Disbursements will cease; provided, however,
MCC Funding may be used, in compliance with the Compact and this Agreement, to
pay for—

(i) reasonable expenditures for goods, works or services that were properly
incurred under or in furtherance of the Program before expiration of the
Compact; and

(ii) reasonable expenditures (including administrative expenses) properly incurred
in connection with the winding up of the Program within 120 days after
the expiration.

(d) Subject to Sections 4.2 (b) and (c), upon the expiration or termination of the Compact
or MCC Funding, the Government will return to MCC any amounts of MCC
Funding on deposit in any Permitted Account but not expended before the expiration
or termination, plus accrued interest thereon within thirty (30) days after the
Government receives MCC’s request for such return; provided, however, that if the
Compact is terminated in part, only the amount of MCC Funding allocated to the
terminated portion of the Compact will be subject to return.

262 No. 6 of 2013] Millennium Challenge Compact

(e) Upon the full or partial termination of the Compact or any MCC Funding, MCC may,
at its expense, direct that title to any Program Assets be transferred to MCC if such
Program Assets are in a deliverable state, and the Government will promptly effect
such transfer upon such direction; provided, however, that, for any Program Asset
not in a deliverable state and any Program Asset partially purchased or funded with
MCC Funding, the Government, upon MCC’s request, will reimburse MCC in
United States Dollars the cash equivalent of the fair market value of such Program
Asset or portion thereof, as such is determined by MCC.

(f) Prior to expiration, or upon termination, of the Compact, the Parties will consult in
good faith with a view to reaching an agreement in writing on—

(i) the post-Compact Term treatment of MCA-Zambia,
(ii) the process for ensuring the refunds of Disbursements that have not yet been

released from a Permitted Account or committed in accordance with
Sections 4.2 (b) and (c), and

(iii) any other matter related to the winding up of the Program and the Compact.

Millennium Challenge Compact [No. 6 of 2013 263

ARTICLE 5
GENERAL PROVISIONS

Section 5.1—Representatives
The provisions of Section 4.2 of the Compact are incorporated herein by reference as if fully

set forth herein.
Section 5.2—Communications

The provisions of Section 4.1 of the Compact are incorporated herein by reference as if fully
set forth herein.
Section 5.3—Assignment

The Government may not assign, delegate or contract its rights or obligations under this
Agreement without MCC’s prior written consent. The Government agrees, upon request by
MCC, to execute an assignment to MCC of any of contractual right or cause of action which may
accrue in connection with or arising out of the contractual performance or breach of performance
by a party to a contract financed in whole or in part by MCC Funding.
Section 5.4—Amendment; Waivers

This Agreement may be amended only by a written agreement signed by the Principal
Representative (or such other government official designated by the relevant Principal
Representative) of the Government and MCC; provided, however, that the Parties may agree in
a writing signed by the Principal Representatives or any Additional Representative of a Party, to
modify any Schedule to this Agreement without amending this Agreement. Any waiver of a right
or obligation arising under this Agreement will be effective only if provided in writing.
Section 5.5—Attachments

Each schedule attached to this Agreement constitutes an integral part of this Agreement.
Section 5.6—Inconsistencies

In the event of any conflict or inconsistency between this Agreement and the Compact, the
terms of the Compact will prevail. In the event of any conflict or inconsistency between this
Agreement and any other Supplemental Agreement or any Implementation Plan Document the
terms of this Agreement will prevail.
Section 5.7—Termination of this Agreement

(a) MCC may terminate this Agreement in whole or in part, without cause, by giving the
Government thirty (30) days’ written notice. This Agreement will terminate
simultaneously with the termination of the Compact by the Government in accordance
with Section 5.1(a) of the Compact.

(b) MCC may immediately terminate this Agreement, in whole or in part, by written notice
to MCA-Zambia and the Government, if MCC determines that any event that
would be a basis for termination or suspension of the Compact or MCC Funding
under Section 5.1(b) of the Compact has occurred.

(c) Unless terminated earlier in accordance with the terms hereof or the Compact, this
Agreement will expire upon the expiration or termination of the Compact; provided,
however, that, if MCC determines, consistent with Section 4.2 (b) or (c), that
obligations incurred (and previously approved by MCC in a Disbursement Request)
prior to the expiration or termination of the Compact remain to be paid, then the
provisions of this Agreement will apply until such date as such obligations are
satisfied.

(d) No later than 120 days after the expiration or termination of this Agreement, unless
MCC agrees otherwise—

(i) the licenses granted to MCA-Zambia in Section 2.11(a) will terminate with
immediate effect;

(ii) the Government will ensure that MCA-Zambia ceases to be named “Millennium
Challenge Account-Zambia” and/or “MCA-Zambia;” and

264 No. 6 of 2013] Millennium Challenge Compact

(iii) the Government will ensure that such names and any associated logo, as well
as the names “Millennium Challenge Corporation” and “MCC,” as well
as any logo associated therewith, are no longer used by MCA-Zambia or
any other entity for any purpose not authorised by MCC. Furthermore,
upon expiration or termination of this Agreement, MCA-Zambia will assign
and hereby assigns and transfers to MCC all right, title, and interest to the
names “Millennium Challenge Account - Zambia,” “MCA-Zambia,”
“Millennium Challenge Corporation,” “MCC,” as well as MCA-Zambia’s
logo and MCC’s logo that it might have acquired during the term of this
Agreement.

Section 5.8—Survival
Notwithstanding any expiration, suspension or termination of this Agreement, the following

provisions of this Agreement will survive: Sections 1.2(b) (ii), 2.10(a), 2.11, 4.2, 5.1, 5.2, 5.3,
5.7(d), 5.8, 5.9 and 5.1 0.
Section 5.9—Information Provided to MCC

MCC may use or disclose any information in any Disbursement Request, report or document
developed or delivered in connection with the Program—

(a) to its employees, contractors, agents and representatives;
(b) to any United States inspector-general or the US Government Accountability Office or

otherwise for the purpose of satisfying MCC’s own reporting requirements;
(c) to post on the MCC Website for the purpose of making certain information publicly

available and transparent;
(d) in connection with publicising MCC and its programs; or
(e) in any other manner.

Section 5.10—Governing Law
The Parties acknowledge and agree that this Agreement is an international agreement entered

into for the purpose of implementing the Compact and as such will be interpreted in a manner
consistent with the Compact and will be governed by the principles of international law.
Section 5.11—Counterparts; Electronic Delivery

Signatures to this Agreement and to any amendment to this Agreement will be original signatures
appearing on the same page or in an exchange of letters or diplomatic notes. With respect to all
documents arising out of this Agreement and amendments thereto, signatures may, as appropriate,
be delivered by facsimile or electronic mail and in counterparts and will be binding on the Party
delivering such signature to the same extent as an original signature would be.

IN WITNESS WHEREOF, EACH Party has caused this Program Implementation Agreement to be
executed by a duly authorised representative as of the date first written above.

FOR THE UNITED STATES OF AMERICA,
Acting through the Millennium Challenge Corporation

By:
Name: Enie W. Yohannes
Title: Chief Executive Officer

FOR THE REPUBLIC OF ZAMBIA,
acting through the Government

By:
Name: Alexander B. Chikwanda
Title: Minister of Finance

Millennium Challenge Compact [No. 6 of 2013 265

SCHEDULE 1
DEFINITIONS

“Agreement” has the meaning provided in the Preamble.
“Audit Plan” has the meaning provided in Section 2.1 (c).
“Auditor” has the meaning provided in Section 2.9(c).
“Auditor Reviewer Agreement” has the meaning provided in Section 2.9(c).
“Bank” has the meaning provided in Section 3.1 (c)(ii).
“Bank Agreement” has the meaning provided in Section 3.1 (c) (ii).
“BCS” has the meaning provided in Section 2.1 (d).
“Bylaws” has the meaning provided in Section 1.4(b) (v).
“Common Payment System” means the system pursuant to which payments of MCC Funding are
made directly to vendors as further described in the Fiscal Accountability Plan.
“Compact” has the meaning provided in the Recitals.
“Counter-party” has the meaning provided in Section 1.5(a).
“Designated Rights and Responsibilities” has the meaning provided in Section 1.4(a)(i).
“Detailed Financial Plan” has the meaning provided in Section 2.1 (b).
“Disbursement Period” has the meaning provided in Section 3.1 (a).
“Disbursement Request” has the meaning provided in Section 3.1 (a).
“Fiscal Accountability Plan” has the meaning provided in Section 2.2.
“Fiscal Agent Agreement” has the meaning provided in Section 2. 9(b).
“Fiscal Agent Disbursement Certificate” has the meaning provided in Section 3.4 (a) (v).
“General Provisions Annex” means the annex entitled “General Provisions” posted from time to
time on the MCC Website or otherwise made available to the Government.
“Governing Document” has the meaning provided in Section 2. 8 (g).
“Government” has the meaning provided in the Preamble.
“Implementation Plan” has the meaning provided in Section 2.1.
“Implementation Plan Document” has the meaning provided in Section 2.1.
“LCC Drainage Maintenance Amount” has the meaning provided in paragraph 2 (f) of Schedule
2.
“Lien” has the meaning provided in Section 1. 2 (b) (iii).
“Local Account” has the meaning provided in Section 3.1 (c) (i).
“LWSC Sanitation Connection Funds” has the meaning provided in paragraph 2(c) of Schedule
2.
“Material Agreement” has the meaning provided in Section 2. 8(c).
“MCA Disbursement Certificate” has the meaning provided in Section 3.4 (a)(iii).
“MCA-Zambia Website” has the meaning provided in Section 2.0 (b), with an address to be
provided to MCC promptly upon establishment of the website.
“MCC” has the meaning provided in the Preamble.
“MCC Standards for Global Marking” means the MCC “Standards for Global Marking” posted
from time to time on the MCC Website or otherwise made available to the Government.
“Multi-Year Financial Plan” has the meaning provided in Section 2.1 (b).
“Observer” has the meaning provided in the Governance Guidelines.
“Officer” has the meaning provided in the Governance Guidelines.

266 No. 6 of 2013] Millennium Challenge Compact

“Outside Project Manager” has the meaning provided in Section 2.9 (a).
“Party and Parties” have the meaning provided in the Preamble.
“Periodic Report” has the meaning provided in Section 2.7 (a).
“Permitted Designee” has the meaning provided in Section 1.2 (a).
“Procurement Agent Agreement” has the meaning provided in Section 2.9 (d).
“Procurement Agent Disbursement Certificate” has the meaning provided in Section 3.4 (a) (iv).
“Procurement Plan” has the meaning provided in Section 2.1 (d).
“Program Agreement” has the meaning provided in Section 1.5 (a).
“Quarterly Financial Report” has the meaning provided in Section 2. 7 (a) (i) (2).
“Reviewer” has the meaning provided in Section 2.9 (c).
“Work Plan” has the meaning provided in Section 2.1 (a).
“Zambia” has the meaning provided in the Preamble.

Millennium Challenge Compact [No. 6 of 2013 267

SCHEDULE 2
CONDITIONS PRECEDENT TO PROGRAM FUNDING

1. Introduction
(a) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,

any funding for construction under the Project (or any component or segment thereof,
as the case may be) (and, with respect to sub-clause (ii) hereof, prior to each such
Disbursement thereafter), MCA-Zambia will have submitted to MCC evidence in
form and substance satisfactory to MCC that—

(i) an Environmental Social Impact Assessment (ESIA), an Environmental Social
Management Plan (ESMP), and a Health and Safety Management Plan
(HSMP), each in accordance with MCC Environmental Guidelines and
the IFC Performance Standards, and/or a Resettlement Action Plan (RAP),
in accordance with IFC Performance Standard 5 on Land Acquisition and
Involuntary Resettlement (as appropriate), has been developed and
adopted with respect to the Project (or component or segment thereof, as
the case may be); and

(ii) MCA-Zambia or the appropriate Government entity is in compliance with
the requirements of, and is implementing, any applicable ESIA, ESMP,
HSMP or RAP, as appropriate, consistent with the MCC Environmental
Guidelines, the IFC Performance Standards, the MCC Gender Policy and
the MCC Gender Integration Guidelines and Operational Procedures.

(b) Prior to the second Disbursement of Program Funding, MCA-Zambia will have developed
a comprehensive Social and Gender Integration Plan, in form and substance
satisfactory to MCC.

(c) Prior to any Disbursement of Program Funding on or after the commencement of year
five (5) of the Compact Term, the Government will have presented a Compact
Closure Plan in accordance with MCC’s Guidance for the Program Closure of
Millennium Challenge Compacts, or similar MCC guidance then in effect.

2. Condition Precedent Related to the LWSSD Project
(a) (i) Prior to the initial Disbursement of Program Funding that includes, in whole or in

part, any funding for the construction of sanitation infrastructure, Eight Hundred
Thousand United States Dollars (US$800,000) will be deposited into a dedicated
bank account (or will be otherwise segregated in a manner satisfactory to MCC) to
be used exclusively by LWSC to implement the GRZ Sanitation Connection Action
Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan.

(b) (i) Prior to any Disbursement of Program Funding occurring one (1) year after the
signing of the first contract for the construction of sanitation infrastructure, an
additional Four Hundred Thousand United States Dollars (US$400,000) will be
deposited into the dedicated bank account (or will be otherwise segregated in a
manner satisfactory to MCC) to be used exclusively by LWSC to implement the
GRZ Sanitation Connection Action Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan.

268 No. 6 of 2013] Millennium Challenge Compact

(c) (i) Prior to any Disbursement Program Funding occurring two (2) years after the signing
of the first contract for the construction of sanitation infrastructure, an additional
Four Hundred Thousand United States Dollars (US$400,000) will be deposited into
the dedicated bank account (or will be otherwise segregated in a manner satisfactory
to MCC) to be used exclusively by LWSC to implement the GRZ Sanitation
Connection Action Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan. The amounts referred to in paragraph 2 (a), paragraph 2 (b), and this
paragraph 2 (c) of this Schedule 2 will be referred to collectively as the “LWSC
Sanitation Connection Funds” and, for the avoidance of doubt, will total, in the
aggregate, One Million Six Hundred Thousand United States Dollars(US$1,600,000).

(d) Prior to any Disbursement of Program Funding on or after the commencement of year
five (5) of the Compact Term, the Government will have submitted to MCC a report
in form and substance satisfactory to MCC demonstrating that the GRZ Sanitation
Connection Action Plan is being successfully implemented, utilising the L WSC
Sanitation Connection Funds, to assist eligible beneficiaries obtain household
connections to the sanitation infrastructure assets financed under the Compact.

(e) Prior to any Disbursement of Program Funding occurring after the availability of
recommendations or findings regarding preventive or corrective maintenance from
the asset management study conducted under the Institutional Strengthening Activity,
LWSC will have implemented such recommendations or findings to MCC’s
satisfaction.

(f) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,
any funding for the construction of drainage infrastructure, LCC will have adopted
a binding budget allocation for the then current fiscal year equal to at least One
Million Five Hundred Thousand United States Dollars (US$1,500,000) (the “LCC
Drainage Maintenance Amount”) for use by LCC for the repair and maintenance
of the drainage infrastructure assets for which it is responsible.

(g) Prior to the initial Disbursement of Program Funding in each subsequent fiscal year
during the Compact Term that includes, in whole or in part, any funding for the
construction of drainage infrastructure, LCC will have—

(i) adopted a binding budget allocation for such fiscal year equal to at least the
LCC Drainage Maintenance Amount, indexed annually for inflation in a
manner acceptable to MCC, for use by LCC for the repair and maintenance
of the drainage infrastructure assets for which it is responsible, and

(ii) submitted to MCC evidence in form and substance satisfactory to MCC that
the LCC Drainage Maintenance Amount allocated for use by LCC in the
previous fiscal year has been fully expended by LCC for such purposes
(or if not fully expended, will have submitted to MCC documentation in
form and substance satisfactory to MCC detailing the reasons such funds
were not expended).

(h) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,
any funding for a Grant under the Institutional Strengthening Activity, MCC and the
Government will have agreed on written procedures to govern the identification of
potential Grant recipients, including, without limitation, appropriate eligibility and
selection criteria and award procedures.

Millennium Challenge Compact [No. 6 of 2013 269

IN WITNESS WHEREOF, each Party has caused this. Program Implementation Agreement to be
executed by a duly authorized representative as of the date first written above.

FOR THE UNITED STATES OF AMERICA,
acting through the Millennium Challenge Corporation

By:
Name: Daniel W. Yohannes
Title: Chief Executive Officer

FOR THE REPUBLIC OF ZAMBIA,
Acting through the Government

By:
Name: Alexander B. Chikwanda
Title: Minister of Finance

270 No. 6 of 2013] Millennium Challenge Compact

SCHEDULE 1
DEFINITIONS

“Agreement” has the meaning provided in the Preamble.
“Audit Plan” has the meaning provided in Section 2.1 (c).
“Auditor” has the meaning provided in Section 2.9(c).
“Auditor”/Reviewer Agreement has the meaning provided in Section 2.9 (c).
“Bank” has the meaning provided in Section 3.1 (c) (ii).
“Bank Agreement” has the meaning provided in Section 3.1 (c) (ii).
“BCS” has the meaning provided in Section 2.1 (d).
“Bylaws” has the meaning provided in Section 1.4(b )(v).
“Common Payment System” means the system pursuant to which payments of MCC Funding are
made directly to vendors as further described in the Fiscal Accountability Plan.
“Compact” has the meaning provided in the Recitals.
“Counter-party” has the meaning provided in Section J.5(a).
“Designated Rights and Responsibilities” has the meaning provided in Section 1.4 (a) (i).
“Detailed Financial Plan” has the meaning provided in Section 2.1 (b).
“Disbursement Period” has the meaning provided in Section 3.1 (a).
“Disbursement Request” has the meaning provided in Section 3.1 (a).
“Fiscal Accountability Plan” has the meaning provided in Section 2.2.
“Fiscal Agent Agreement” has the meaning provided in Section 2.9(b).
“Fiscal Agent Disbursement Certificate” has the meaning provided in Section 3.4 (a) (v).
“General Provisions Annex” means the annex .entitled “General Provisions” posted from time
to time on the MCC Website or otherwise made available to the Government.
“Governing Document” has the meaning provided in Section 2.8 (g).
“Government” has the meaning provided in the Preamble.
“Implementation Plan” has the meaning provided in Section 2.1.
“Implementation Plan Document” has the meaning provided in Section 2.1.
“LCC Drainage Maintenance Amount” has the meaning provided in paragraph 2(f) of Schedule
2.
“Lien” has the meaning provided in Section 1. 2 (b)(iii).
“Local Account” has the meaning provided in Section 3.1 (c)(i).
“LWSC Sanitation Connection Funds” has the meaning provided in paragraph 2 (c) of Schedule
2.
“Material Agreement” has the meaning provided in Section 2.8 (c).
“MCA Disbursement Certificate” has the meaning provided in Section 3.4 (a) (iii).
“MCA-Zambia Website” has the meaning provided in Section 2.10 (b), with an address to be
provided toMCC promptly upon establishment of the website.
“MCC” has the meaning provided in the Preamble.
“MCC Standards /or Global Marking” means the MCC “Standards for Global Marking”
posted from time to time on the MCC Website or otherwise made available to the Government.
“Multi-Year Financial Plan” has the meaning provided in Section 2.1 (b).
“Observer” has the meaning provided in the Governance Guidelines.
“Officer” has the meaning provided in the Governance Guidelines.

Millenium Challege Compact [No. of 2013 91

“Outside Project Manager” has the meaning provided in Section 2.9 (a).
“Party and Parties” have the meaning provided in the Preamble.
“Periodic Report” has the meaning provided in Section 2.7 (a).
“Permitted Designee” has the meaning provided in Section 1.2 (a).
“Procurement Agent Agreement” has the meaning provided in Section 2.9 (d).
“Procurement Agent Disbursement Certificate” has the meaning provided in Section 3.4 (a) (iv).
“Procurement Plan” has the meaning provided in Section 2.1 (d).
“Program Agreement” has the meaning provided in Section 1.5 (a).
“Quarterly Financial Report” has the meaning provided in Section 2.7(a) (i) (2).
“Reviewer” has the meaning provided in Section 2.9 (c).
“Work Plan” has the meaning provided in Section 2.1 (a).
“Zambia” has the meaning provided in the Preamble.

92 No. of 2013] Millenium Challege Compact

Millenium Challege Compact [No. of 2013 93

SCHEDULE 2
CONDITIONS PRECEDENT TO PROGRAM FUNDING

1. Introduction
(a) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,

any funding for construction under the Project (or any component or segment thereof,
as the case may be) (and, with respect to sub-clause (ii) hereof, prior to each such
Disbursement thereafter), MCA-Zambia will have submitted to MCC evidence in
form and substance satisfactory to MCC that—

(i) an Environmental Social Impact Assessment (ESIA), an Environmental Social
Management Plan (ESMP), and a Health and Safety Management
Plan(HSMP), each in accordance with MCC Environmental Guidelines
and the IFC Performance Standards, and/or a Resettlement Action Plan
(RAP), in accordance with IFC Performance Standard 5 on Land Acquisition
and Involuntary Resettlement (as appropriate), has been developed and
adopted with respect to the Project (or component or segment thereof, as
the case may be); and

(ii) MCA-Zambia or the appropriate Government entity is in compliance with
the requirements of, and is implementing, any applicable ESIA, ESMP,
HSMP or RAP, as appropriate, consistent with the MCC Environmental
Guidelines, the IFC Performance Standards, the MCC Gender Policy and
the MCC Gender Integration Guidelines and Operational Procedures.

(b) Prior to the second Disbursement of Program Funding, MCA-Zambia will have developed
a comprehensive Social and Gender Integration Plan, in form and substance
satisfactory to MCC.

(c) Prior to any Disbursement of Program Funding on or after the commencement of year
five (5) of the Compact Term, the Government will have presented a Compact
Closure Planning accordance with MCC’s Guidance for the Program Closure of
Millennium Challenge Compacts, or similar MCC guidance then in effect.

2. Condition Precedent Related to the LWSSD Project
(a) (i) Prior to the initial Disbursement of Program Funding that includes, in whole or in

part, any funding for the construction of sanitation infrastructure, Eight Hundred
Thousand United States Dollars (US$800,000) will be deposited into a dedicated
bank account (or will be otherwise segregated in a manner satisfactory to MCC) to
be used exclusively by LWSC to implement the GRZ Sanitation Connection Action
Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan.

(b) (i) Prior to any Disbursement of Program Funding occurring one (1) year after the
signing of the first contract for the construction of sanitation infrastructure, an
additional Four Hundred Thousand United States Dollars (US$400,000) will be
deposited into the dedicated bank account (or will be otherwise segregated in a
manner satisfactory to MCC) to be used exclusively by LWSC to implement the
GRZ Sanitation Connection Action Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan.

(c) (i) Prior to any Disbursement of Program Funding occurring two (2) years after the
signing of the first contract for the construction of sanitation infrastructure, an
additional Four Hundred Thousand United States Dollars (US$400,000) will be
deposited into the dedicated bank account (or will be otherwise segregated in a
manner satisfactory to MCC) to be used exclusively by LWSC to implement the
GRZ Sanitation Connection Action Plan; and

(ii) prior to each subsequent Disbursement, MCA-Zambia will have submitted evidence
satisfactory to MCC that such amount remains in place and available to LWSC or
has been appropriately expended in accordance with the GRZ Sanitation Connection
Action Plan. The amounts referred to in paragraph 2(a), paragraph 2(b), and this
paragraph 2(c) of this Schedule 2 will be referred to collectively as the “LWSC
Sanitation Connection Funds” and, for the avoidance of doubt, will total, in the
aggregate, One Million Six Hundred Thousand United States Dollars (US$1,600,000).

(d) Prior to any Disbursement of Program Funding on or after the commencement of year
five (5) of the Compact Term, the Government will have submitted to MCC a report
in form and substance satisfactory to MCC demonstrating that the GRZ Sanitation
Connection Action Plan is being successfully implemented, utilising the LWSC
Sanitation Connection Funds, to assist eligible beneficiaries obtain household
connections to the sanitation infrastructure assets financed under the Compact.

(e) Prior to any Disbursement of Program Funding occurring after the availability of
recommendations or findings regarding preventive or corrective maintenance from
the asset management study conducted under the Institutional Strengthening Activity,
LWSC will have implemented such recommendations or findings to MCC’s
satisfaction.

(f) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,
any funding for the construction of drainage infrastructure, LCC will have adopted
a binding budget allocation for the then current fiscal year equal to at least One
Million Five Hundred Thousand United States Dollars (US$1,500,000) (the “LCC
Drainage Maintenance Amount’) for use by LCC for the repair and maintenance
of the drainage infrastructure assets for which it is responsible.

(g) Prior to the initial Disbursement of Program Funding in each subsequent fiscal year
during the Compact Term that includes, in whole or in part, any funding for the
construction of drainage infrastructure, LCC will have—

(i) adopted a binding budget allocation for such fiscal year equal to at least the
LCC Drainage Maintenance Amount, indexed annually for inflation in a,
manner acceptable to MCC, for use by LCC for the repair and maintenance
of the drainage infrastructure assets for which it is responsible, and

(ii) submitted to MCC evidence in form and substance satisfactory to MCC that
the LCC Drainage Maintenance Amount allocated for use by LCC in the
previous fiscal year has been fully expended by LCC for such purposes
(or if not fully expended, will have submitted to MCC documentation in
form and substance satisfactory to MCC detailing the reasons such funds
were not expended).

(h) Prior to the initial Disbursement of Program Funding that includes, in whole or in part,
any funding for a Grant under the Institutional Strengthening Activity, MCC and the
Government will have agreed on written procedures to govern the identification of
potential Grant recipients, including, without limitation, appropriate eligibility and
selection criteria and award procedures.

94 No. of 2013] Millenium Challege Compact