Gef Trust Fund Grant Number 052188-Ph

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CONFORMED COPY

GEF TRUST FUND GRANT NUMBER 052188-PH

Global Environment Facility

Trust Fund Grant Agreement

(Rural Power Project)

between

REPUBLIC OF THE PHILIPPINES

and

INTERNATIONAL BANK FOR RECONSTRUCTION

AND DEVELOPMENT

acting as an Implementing Agency of the Global Environment Facility

Dated December 8, 2003

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GEF TRUST FUND GRANT NUMBER 052188-PH

GLOBAL ENVIRONMENT FACILITY TRUST FUND GRANT AGREEMENT

AGREEMENT, dated December 8, 2003 , between THE REPUBLIC OF THE PHILIPPINES (the Recipient) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) acting as an implementing agency of the Global Environment Facility (GEF) in respect of grant funds provided to the GEF Trust Fund by certain members of the Bank as participants of the GEF.

WHEREAS (A) the Bank, pursuant to Resolution No. 915 of March 14, 1991 of the Executive Directors of the Bank, established the GEF to assist in the protection of the global environment and promote thereby environmentally sound and sustainable economic development;

(B)following the restructuring of the GEF, such arrangements continued in place on the basis set forth in Resolution No. 942 of May 24, 1994, of the Executive Directors of the Bank which, inter alia, established the GEF Trust Fund and appointed the Bank as trustee of the GEF Trust Fund (Resolution No. 94-2);

(C)the third replenishment of the GEF Trust Fund was approved on the basis set forth in Resolution No. 2002-0005 of December 19, 2002, of the Executive Directors of the Bank (Resolution No. 2002-0005);

(D)the Recipient, having satisfied itself as to the feasibility and priority of the project described in Schedule 2 to this Agreement (the Project), has requested assistance from the resources of the GEF Trust Fund: (a) in an amount equivalent to nine million Dollars ($9,000,000) (the Bank-GEF Grant) for funding Parts A.4 and C of the Project on the terms and conditions set forth in this Agreement; and (b) in an amount equivalent to one million Dollars ($1,000,000) (the UNDP-GEF Grant) for funding Part B of the Project on the terms and conditions set forth in the UNDP-GEF Grant Agreement; and said requests having been approved in accordance with the provisions of the Instrument for the Establishment of the Restructured Global Environment Facility approved under Resolution 94-2, and to be funded from contributions to the GEF Trust Fund under Resolution No. 2002-0005, which may include funds carried over from the second replenishment of the GEF Trust Fund under Resolution No. 98-2;

(E)by an agreement of even date herewith between the Recipient and the United Nations Development Programme (UNDP) acting as an implementing agency of the GEF (the UNDP-GEF Grant Agreement) the Recipient has undertaken certain obligations as set forth therein in respect of the carrying out of Part B of the Project;

(F)Part C.1 of the Project will be carried out by the Development Bank of the Philippines (DBP), through its Project Management Office, with the Recipient’s assistance and, as part of such assistance, the Recipient will make available to DBP the proceeds of the Bank-GEF Grant as provided for in this Agreement;

(G)the Development Bank of the Philippines has also requested the Bank to provide additional financing towards the financing of Part A of the Project (except for Part A. 4 of the Project) by an agreement of even date herewith entered into between the Bank, acting in its own capacity, and DBP (in such capacity, the Borrower) (the Loan Agreement), the Bank has agreed to provide such assistance in an aggregate principal amount equivalent to one billion, one hundred eighty-eight million, two hundred thousandYen (JPY1,188,200,000) (the Loan);

(H)by an agreement (the Guarantee Agreement) of even date herewith entered into between the Republic of the Philippines (in such capacity, the Guarantor) and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan; and

WHEREAS, the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Bank-GEF Grant to the Recipient upon the terms and conditions set forth in this Agreement and in the agreement of even date herewith between the Bank and DBP (the GEF Project Agreement);

NOW, THEREFORE, the parties hereto hereby agree as follows:

ARTICLE I

General Conditions; Definitions

Section 1.01 (a) The following provisions of the “General Conditions Applicable to Loan and Guarantee Agreements for Fixed-Spread Loans” of the Bank, dated September 1, 1999, with the modifications set forth in paragraph(b) of this Section (the General Conditions) constitute an integral part of this Agreement:

(i)Article I;

(ii)Sections 2.01 (1), (2), (3), (4), (5), (6), (15), (16), (19), (34), (35), and (45), 2.02 and 2.03;

(iii)Sections 3.01, 3.08, and 3.11;

(iv)Article V;

(v)Sections 6.01, 6.02 (a), (c), (d), (e), (f), (i), (k), (m), (n), (o), and (p), 6.03, 6.04 and 6.05;

(vi)Section 8.01 (b);

(vii)Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09;

(viii)the second sentence of Section 10.01 and Sections 10.03 and 10.04;

(ix)Article XI; and

(x)Sections 12.01 (c), 12.03 and 12.04.

(b)The General Conditions shall be modified as follows:

(i)Section 2.01 (1) is modified to read as follows: “Currency” includes the currency of a country, the Special Drawing Right of the International Monetary Fund, and any unit of account which represents a debt service obligation of the Bank to the extent of such obligation. “Currency of a country” means the coin or currency which is legal tender for the payment of public and private debts in that country”;

(ii)the term “Bank”, wherever used in the General Conditions, other than in Sections2.01 (1) and 6.02 (f) thereof and the last use of such term in Section5.01 thereof, means the Bank acting as an implementing agency of the GEF, except that in Section6.02, the term “Bank” shall also include the Bank acting in its own capacity;

(iii)the term “Borrower”, wherever used in the General Conditions, means the Recipient;

(iv)the term “Loan Agreement”, wherever used in the General Conditions, means this Agreement;

(v)the term “Loan” and “loan”, wherever used in the General Conditions, means the Bank-GEF Grant;

(vi)the term “Loan Account”, wherever used in the General Conditions, means the Bank-GEF Grant Account;

(vii)a new subparagraph (q) is added to Section 6.02 of the General Conditions, as follows: “an extraordinary situation shall have arisen in which any further disbursement under the Bank-GEF Grant would exceed the resources available for disbursement from the GEF”; and

(viii)Section 10.04 is modified to read as follows: “Any dispute arising out of or relating to this Agreement which is not settled by agreement of the parties shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules in force on the date of this Agreement. The place of arbitration shall be Washington, D.C. In the event of a conflict between UNCITRAL Arbitration Rules and the terms of this Agreement, the terms of this Agreement shall govern”.

Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions (as herein defined) and in the Recitals to this Agreement have the respective meanings therein set forth; and the following additional terms have the following meanings:

(a)“Bangko Sentral ng Pilipinas” means the Central Bank of the Republic of the Philippines, and any successor thereto.

(b)“DBP Charter” means the charter of the Development Bank of the Philippines, dated December 3, 1986, as amended to the date of this Agreement.

(c)“DBP-GEF Memorandum of Agreement” means the agreement to be entered into between the Recipient and DBP for implementing Part C.1 of the Project, including all schedules, and supplemental agreements, as said agreement may be amended from time to time with the prior agreement of the Bank;

(d)“DBP-GEF Project Implementation Plan” means the time-bound action plan adopted by DBP on September 1, 2003, satisfactory to the Bank, for the carrying out of Part C.1 of the Project, as such plan may be amended from time to time with the prior agreement of the Bank.

(e)“DBP Project Management Office” and the acronym “DBP-PMO” mean the project management office established by DBP in July 2002, and to be maintained pursuant to paragraph 1 of Schedule 2 to the GEF Project Agreement.

(f)“Displaced Person” means a person who, on account of the execution of the Project, has experienced or would experience direct economic and social impacts caused by: (i)the involuntary taking of land, resulting in (A)relocation or loss of shelter; (B)loss of assets or access to assets or (C)loss of income sources or means of livelihood, whether or not such person must move to another location; or (ii)the involuntary restriction to access to legally designated parks and protected areas, resulting in adverse impacts on the livelihood of such person, and “Displaced Persons” means, collectively, the plural thereof.

(g)“DOE” means the Recipient’s Department of Energy and any successor thereto.

(h)“DOE Operational Manual” means the manual, satisfactory to the Bank, to be adopted by the Recipient in accordance with paragraph 3 of Schedule 4 to this Agreement, which manual shall provide, inter alia, for: (i) environmental requirements for GEF-Assisted Subprojects; (ii) eligibility criteria for the carrying out of GEF-Assisted Subprojects, including those set forth in paragraph 4 of Schedule 4 to this Agreement; (iii) the procedure and criteria for appraisal and selection of GEF-Beneficiaries and GEF-Assisted Subprojects, including those set forth in paragraph 5 of Schedule 4 to this Agreement; (iv) terms and conditions governing the GEF Sub-grant Agreements, including those set forth in Schedule 5 to this Agreement; (v) procurement procedures for goods, works and services under GEF-Assisted Subprojects; (vi) financial management and disbursement arrangements; (vii) the DOE Project Implementation Plan; (viii) the Environmental Policy Framework; (ix) the Policy Framework: Land Acquisition, Resettlement and Rehabilitation of Displaced Persons; and (x) the Project Policy Framework on Indigenous People; as said manual may be revised from time to time with the prior agreement of the Bank.

(i)“DOE Project Implementation Plan” means the time-bound action plan adopted by the Recipient on September 1, 2003, satisfactory to the Bank, for the carrying out of Parts C.2, C.3, and C.4 of the Project, as such plan may be amended from time to time with the prior agreement of the Bank.

(j)“DOE Project Management Office” and the acronym “DOE-PMO”mean the project management office established within the Recipient’s Department of Energy on July 16, 2003, and to be maintained with responsibilities for purposes of the carrying out of Parts A.4, C.2, C.3, and C.4 of the Project, pursuant to paragraph 1 of Schedule 4 to this Agreement.

(k)“Environmental Policy Framework” means the framework, satisfactory to the Bank, which was adopted by the Recipient on June 30, 2003, describing the rules, guidelines and procedures to assess environmental impacts under Parts A and B of the Project and defining measures to reduce, mitigate or offset adverse environmental impacts and enhance positive impacts of Parts A and B of the Project, as such framework may be amended from time to time with the prior agreement of the Bank.

(l)“Fiscal Year” and the acronym “FY” mean the twelve (12)-month period corresponding to any of the Recipient’s financial years, which period commences on January 1 and ends on December 31 in each calendar year, and the term “Fiscal Years” means, collectively, each of said Fiscal Year.

(m)“GEF-Assisted Subproject” means a specific renewable energy technology project under Part A.4 of the Project to be carried out by a GEF Beneficiary utilizing the proceeds of a GEF Sub-grant, in accordance with the provisions of Schedule 5 to this Agreement, and “GEF-Assisted Subprojects” means, collectively, the plural thereof.

(n)“GEF Beneficiary” means an individual, LGU, or other legal entity, which meets the eligibility criteria set forth in paragraph 5 of Schedule 4 to this Agreement, to receive a GEF Sub-grant from DOE, out of the proceeds of the Bank-GEF Grant, for purposes of market development, sales, and installation of renewable energy technology (RET) systems, and “GEF Beneficiaries” means, collectively, the plural thereof.

(o)“GEF Category” means a category of items set forth in the table in paragraph 1 of Schedule 1 to this Agreement, and “GEF Categories” means, collectively, the plural thereof.

(p)“GEF-DBP Financial Monitoring Report” and the acronym “GEF-DBP FMR” mean each report prepared in accordance with Section 4.02 of the GEF Project Agreement.

(q)“GEF-DOE Financial Monitoring Report” and the acronym “GEF-DOE FMR” mean each report prepared in accordance with Section 4.02 of this Agreement.

(r)“GEF Eligible Categories” means: (i) in respect of the GEF-DOE Special Account, Categories (1), (2)(b), (3)(b), (4)(b), (4)(c), and (5)(b), all set forth in the table in paragraph 1 of Part A of Schedule 1 to this Agreement; and (ii) in respect of the GEF-DBP Special Account, Categories (2)(a); (3)(a); (4)(a); and (5)(a), all set forth in said table.

(s)“GEF Eligible Expenditures” means the expenditures in respect of the reasonable cost of goods and services required for Parts A.4, C.2, C.3, and C.4 of the Project and to be financed out of the proceeds of the Bank-GEF Grant allocated from time to time to the GEF Eligible Categories in accordance with the provisions of Schedule 1 to this Agreement.

(t)“GEF Project Agreement” means the agreement of even date herewith between the Bank and DBP for the carrying out of Part C.1 of the Project, as such agreement may be amended from time to time; and such term includes all schedules and agreements supplemental to said agreement;

(u)“GEF Sub-grant” means a grant made or proposed to be made by the Recipient, through DOE, to a GEF Beneficiary, out of the proceeds of the Bank-GEF Grant, through a GEF Sub-grant Agreement, satisfactory to the Bank, to finance the carrying out of a GEF-Assisted Subproject, in accordance with the relevant provisions of the DOE Operational Manual.

(v)“GEF Sub-grant Agreement” means the agreement to be entered into between the Recipient, through DOE, and a GEF Beneficiary for purposes of providing a GEF Sub-grant, as the same may be amended from time to time with the prior agreement of the Bank, and “GEF Sub-grant Agreements” means, collectively, the plural thereof.

(w)“Indigenous Peoples” means social groups with a distinct social and cultural identity that makes them vulnerable to being disadvantaged in the development process, including the presence in varying degrees of the following characteristics: (i)a close attachment to ancestral territories and to the natural resources in these areas; (ii)self-identification and identification by others as members of a distinct cultural group; (iii)an indigenous language, often different from Pilipino, the Recipient’s national language; (iv)presence of customary social and political institutions; and (v)primarily subsistence-oriented production.

(x)“Loan Agreement” means the agreement of even date herewith entered into between the Bank and DBP for the carrying out of Part A of the Project (except Part A.4 of the Project), as such agreement may be amended from time to time; and such term includes the “General Conditions Applicable to Loan and Guarantee Agreements for Fixed-Spread Loans” of the Bank, dated September 1, 1999, as applied to such agreement, and all schedules and agreements supplemental to the Loan Agreement.

(y)“Local Government Unit” and the acronym “LGU” mean a local government unit which is a political subdivision of the Republic of the Philippines at the provincial, city, municipal, or Barangay level, and “Local Government Units” and the acronym “LGUs” mean, collectively, the plural thereof.

(z)“Policy Framework: Land Acquisition, Resettlement and Rehabilitation of Displaced Persons” means the framework, satisfactory to the Bank, which was adopted by the Recipient on June 30, 2003, providing procedures, rules, and guidelines for: (i) the involuntary taking of land and other assets from Displaced Persons, (ii)resettlement and rehabilitation of, and compensation to, Displaced Persons, and (iii)reporting and monitoring arrangements to ensure compliance with such framework, as such framework may be amended from time to time with the prior agreement of the Bank.

(aa)“Project Policy Framework on Indigenous Peoples” means the framework, satisfactory to the Bank, which was adopted by the Recipient on June 30, 2003, providing procedures, rules, and guidelines for: (i) the informed involvement of Indigenous Peoples, through a process of informed consultation, in the design and implementation of Part A of the Project in locations in which such people reside or which they use for their livelihood, and (ii) designing and implementing measures to provide benefits which are socially and culturally acceptable to them, and reduce, mitigate and offset adverse impacts, under Part A of the Project, as such framework may be amended from time to time with the prior agreement of the Bank.

(bb)“Project Supervisory Committee” and the acronym “PSC” mean the committee to be established and maintained in accordance with the provisions of Section 3.03 of the Guarantee Agreement, to be responsible for the overall policy direction, guidance, and supervision of policy and institutional reforms under the Program.

(cc)“Renewable Energy Technologies” and the acronym “RET” mean an energy system using renewable energy resources including wind, hydro, biomass, and solar energy.