Notice of Entering Into a Compact With the Republic of Zambia, 29369-29391 [2012-11993]

Agencies

• Millennium Challenge Corporation

[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Notices]
[Pages 29369-29391]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-11993]


=======================================================================
-----------------------------------------------------------------------

MILLENNIUM CHALLENGE CORPORATION

[MCC FR 12-05]


Notice of Entering Into a Compact With the Republic of Zambia

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Republic of Zambia. Representatives of the United States Government and 
the Republic of Zambia executed the Compact documents on May 10, 2012.

    Dated: May 14, 2012.
Melvin F. Williams, Jr.,
VP/General Counsel and Corporate Secretary, Millennium Challenge 
Corporation.

Summary of Millennium Challenge Compact With the Republic of Zambia

    The five-year, $354.8 million Compact with the Republic of Zambia 
is aimed at reducing poverty through economic growth (the ``Compact''). 
The Compact addresses one of Zambia's most binding constraints to 
economic growth through investment in the water sector (i.e., water 
supply, sanitation, and drainage systems). The Compact is designed to 
build on more than 15 years of water sector reform through which Zambia 
has developed a strong, commercially-operated utility, an independent 
regulator and a sound legal and regulatory structure. Through these 
reforms, the Government of Zambia (the ``Government'') has established 
a firm foundation for a Compact targeted to assist the nation's rapidly 
urbanizing capital of Lusaka. MCC investments are designed to continue 
the Government's sector reform efforts through institutional 
strengthening to improve the health and economic productivity of more 
than 1.2 million Lusaka residents and to help the country reduce 
poverty on a sustainable basis. The Compact has an economic rate of 
return of approximately 13.7 percent.

1. Background

    Zambia continues to strengthen its democracy as evidenced most 
recently by free and fair elections and the smooth and peaceful 
transition of power in 2011 from the ruling party to the main 
opposition party. The country has also experienced nearly six percent 
real GDP growth over the last ten years, inflation has moderated, and 
the exchange rate has become increasingly stable and competitive. 
Despite these positive outcomes, the incidence of poverty nationwide, 
driven in part by widespread water-related disease, remains high at 82 
percent of the population based on a $2 per day poverty line.
    At independence in 1964, Lusaka's population was just over 100,000, 
representing less than four percent of the country's population. The 
city of Lusaka currently has a population of over 1.8 million people, 
representing over 10 percent of Zambia's total population and is 
projected to have nearly five million residents by 2035. This rapidly 
increasing population is served by a water supply and sanitation and 
drainage system constructed in the 1960s and 1970s to serve a much 
smaller population.
    While the sector has seen a major investment in policy and 
institutional reform over the past 15 years, the municipal water system 
has not benefited from major capital investment in the intervening 
years. As a result, the system's core infrastructure assets are 
outdated, dilapidated and unable to meet current or future demand. This 
contributes to a high prevalence and incidence of water-related 
diseases, which is exacerbated by endemic flooding resulting from 
insufficiently maintained and inadequate drainage infrastructure. For 
example, Lusaka's infectious diarrhea rate (including cholera) is 
estimated at 138 per 1,000 residents, while the city's malaria rate is 
estimated at 120 per 1,000 residents. In addition to poor health, the 
degraded and inadequate condition of the system's core infrastructure 
forces Lusaka's residents and businesses to waste substantial time and 
resources seeking alternative sources of water, as well as incurring 
lost time and property damage due to flooding, resulting in further 
losses to productivity and well-being.

2. Program Overview and Budget

    The Compact 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 to 
improve drainage services in select urban and peri-urban areas of 
Lusaka.
    To that end, the Compact includes a single-sector Water Supply, 
Sanitation,

[[Page 29370]]

and Drainage Project (the ``Project'') comprised of two activities: (i) 
The Infrastructure Activity, and (ii) the Institutional Strengthening 
Activity. MCC's corporate priorities of policy reform, gender 
integration and private sector engagement have been captured in the 
Compact design of both activities. To mitigate the risk of a slow down 
or reversal of the Government's ongoing sector reforms efforts, the 
Compact includes an agreement from the Government to enter into a 
``Sustainability Agreement'' with operational, financial and sector 
milestones tied to funding disbursements to ensure ongoing reforms 
continue. The Government has also agreed in the Compact to fund, 
install and make operational pre-paid meters at each Government 
institutional customer. This will help ensure the continued sector 
performance and financial strength of partner institutions.
    The following table presents the allocation of funding across the 
Compact.

------------------------------------------------------------------------
                                                             Budget ($
                 Project and activities                      millions)
------------------------------------------------------------------------
Water Supply, Sanitation, and Drainage Project..........          $310.6
Monitoring & Evaluation.................................             5.8
Program Administration..................................            38.4
                                                         ---------------
    Total...............................................           354.8
------------------------------------------------------------------------

3. Summary of the Project's Activities

    Infrastructure Activity: This activity incorporates interventions 
designed to support infrastructure managed by: (i) The Lusaka Water and 
Sewerage Company (LWSC), the utility primarily responsible for managing 
the city's water and sanitation infrastructure; and (ii) Lusaka City 
Council (LCC), the local government entity responsible for managing 
Lusaka's drainage infrastructure. A major portion of the investment is 
focused on rehabilitation of Lusaka's core water supply network, 
including components designed specifically to reduce non-revenue water. 
This activity also includes interventions designed to expand the city's 
water supply network; rehabilitate and enlarge select sewer networks; 
improve select drainage infrastructure; and provide support for 
engineering and resettlement professional services.
    Each of the water supply and sanitation components was considered 
based on the results of investment master plans supported by MCC during 
the Compact development process, which chart a three-phase, more than 
$3.0 billion overall plan through which Lusaka can meet the needs of 
its current and future projected population through 2035. The drainage 
component was selected based on the results of priorities identified in 
a separate comprehensive urban development plan funded by Japanese 
International Cooperation Agency. All components were also selected 
based on the results of substantially completed feasibility studies.
    Institutional Strengthening Activity: In addition to the 
infrastructure improvements, the Compact includes investments to 
support sector and institutional strengthening for both LWSC and LCC. 
The institutional strengthening activity builds on more than 15 years 
of reform in the water and sanitation sector--during which Zambia has 
developed a viable commercial utility, an independent regulator, and a 
sound legal and regulatory structure. This activity will provide 
technical assistance to LWSC and LCC to continue ongoing Government 
sector reform efforts and pursue new ones designed to ensure improved 
sector management and sustainability of MCC investments. This activity 
includes support for better asset and environmental management by LWSC. 
It also provides technical assistance for LCC to improve its strategic 
planning and to conduct better maintenance and environmental management 
for the city's drainage network. Further, support under this activity 
will be provided to LWSC and LCC for mainstreaming gender policies; 
improving service delivery to poor and underserved populations; and 
carrying out well-designed and coordinated information, education and 
communications (IEC) campaigns. The activity will include efforts to 
increase innovation in pro-poor service delivery in the water sector 
through, among other possibilities, grants to community-based 
organizations, civil society and/or private sector entities to enhance 
and support the Compact's sustainability through an innovation grant 
component.
    The Compact also includes program administration costs estimated at 
$38.4 million over a five-year timeframe, including the costs of 
administration, management, auditing, and fiscal and procurement 
services. In addition, the cost of monitoring and evaluation of the 
Compact is budgeted at $5.8 million.

4. Expected Results, Beneficiaries, and Benefits

    The Compact aims to increase incomes in Lusaka by creating 
conditions for a healthier population, which would result in more time 
available for productive economic activity. More specifically, in 
addressing health conditions, the investment seeks to have significant 
impact on reducing: (i) The incidence and prevalence of water-related 
diseases; (ii) productive days lost due to water-borne and water-
related diseases; (iii) the cost of water and new sanitation 
connections (for some beneficiaries); (iv) the time to collect water; 
and (v) business and residential flood losses. The Compact is designed 
to address these aims by: (i) improving service provider operating 
efficiency; (ii) increasing water storage capacity; (iii) enhancing 
water delivery capacity; (iv) upgrading wastewater collection and 
treatment capacity and quality; and (v) modernizing and expanding 
primary and secondary network components.
    By the end of the Compact, the Project is expected to benefit 
approximately 1,240,000 people in the city of Lusaka, 73 percent of 
whom currently have incomes of less than $2 per day. As noted above, 
the Compact has an economic rate of return of approximately 13.7 
percent.

Millennium Challenge Compact Between the United States of America 
Acting Through the Millennium Challenge Corporation and the Republic of 
Zambia

Millennium Challenge Compact

Table of Contents
Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Project Objective
Article 2. Funding and Resources
    Section 2.1 Program Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 MCC Funding
    Section 2.4 Disbursement
    Section 2.5 Interest
    Section 2.6 Government Resources; Budget
    Section 2.7 Limitations of the Use of MCC Funding
    Section 2.8 Taxes
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Accuracy of Information
    Section 3.5 Implementation Letters
    Section 3.6 Procurement and Grants
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
    Section 4.3 Signatures
Article 5. Termination; Suspension; Expiration
    Section 5.1 Termination; Suspension
    Section 5.2 Consequences of Termination, Suspension or 
Expiration
    Section 5.3 Refunds; Violation
    Section 5.4 Survival

[[Page 29371]]

    Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Amendments
    Section 6.3 Inconsistencies
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web site
    Section 6.7 References to Laws, Regulations, Policies, and 
Guidelines
    Section 6.8 MCC Status
Article 7. Entry Into Force
    Section 7.1 International Agreements
    Section 7.2 Conditions Precedent to Entry into Force
    Section 7.3 Date of Entry into Force
    Section 7.4 Compact Term
    Section 7.5 Provisional Application
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Description of the Monitoring and Evaluation Plan
Annex IV: Conditions to Disbursement of Compact Implementation 
Funding
Annex V: Definitions
Annex VI: Tax Schedules

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
United States of America, acting through the Millennium Challenge 
Corporation, a United States government corporation (``MCC''), and the 
Republic of Zambia (``Zambia''), acting through its government (the 
``Government'') (individually a ``Party'' and collectively, the 
``Parties''). Capitalized terms used in this 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:
    (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

[[Page 29372]]

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.

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 Web site at www.mcc.gov (the ``MCC 
Web site''), 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 Web site 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; (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.

[[Page 29373]]

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).
    (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 Web site (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.
    (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 Web site.

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 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) 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, 
US$300,000 or more of MCC Funding from any Provider in such fiscal year 
or (ii) any United States Provider that

[[Page 29374]]

receives (other than pursuant to a direct contract or agreement with 
MCC) 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, 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, authorized 
representatives of MCC, an authorized Inspector General of MCC 
(``Inspector General''), the United States Government 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-
month 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 Web 
site. 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 90 days after the first period to be audited and no later 
than 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 nonprofit organization, on the other 
hand, state that the United States nonprofit organization is subject to 
the applicable audit requirements contained in OMB Circular A-133, 
``Audits of States, Local Governments, and Non-Profit Organizations,'' 
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.

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 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)
    To the Government (with a copy to the MCA-Zambia): Minister of 
Finance, Ministry of Finance and National Planning, P.O. Box 50062, 
Chimanga Road, Lusaka, Republic of Zambia, Facsimile: +260 211 251078, 
Telephone: +260 211 250481, +260 211 254263

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.
    (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 Web site) has occurred, which circumstances include but are not 
limited to the following:
    (i) The Government fails to comply with its obligations under this 
Compact

[[Page 29375]]

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 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 offense 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.
    (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: (1) 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.

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 Web site

    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 Web site will be deemed a reference to such document or information 
as updated or substituted on the MCC Web site 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,

[[Page 29376]]

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 omissions 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 authorized 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;
    (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 Web site 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.

    In Witness Whereof, the undersigned, duly authorized 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 United States of America, acting through the Millennium 
Challenge Corporation,

Name: Daniel W. Yohannes,
Title: Chief Executive Officer.
    For the Republic of Zambia,

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

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: low quality of 
human capital; poor infrastructure services; and 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,

[[Page 29377]]

private sector and civil society, as well as the donor community. 
Feedback from these consultations resulted in a list of prioritized 
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 organizations and the donor 
community, including gender-responsive and socially inclusive 
consultations with community members in each of the 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 1.8 million 
people, representing over 10 percent of Zambia's total population, and 
is projected to have nearly five million 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 70 percent of Lusaka residents have access to 
treated water supply, and only approximately 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.
    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 privatization 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 I.
    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, licenses 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 ongoing 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 finalized 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 limitation, 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.
    To maximize the positive social impacts of the Program, address 
cross-cutting social and gender issues such as human trafficking, child 
and forced labor 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

[[Page 29378]]

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/underrepresented 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 following 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:
    (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 
sub-activity 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 sub-activity 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 connections 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:
    (1) The upsizing of the existing primary outfall and main drain 
channels;
    (2) The stabilization of the newly upsized drainage channels; and

[[Page 29379]]

    (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 and quality management of drainage 
infrastructure and to integrate environmental management into its 
broader governance structure.
    (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 sustainability of the Compact's 
infrastructure investments.
    (iii) Innovation Grant Program for Pro-Poor Service Delivery. This 
sub-activity 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:
     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

[[Page 29380]]

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 ongoing coordination 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 sub-activity, 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 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. USAID
    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 USAID 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 of 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$1.5 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

[[Page 29381]]

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.
    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's 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 summarized 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; (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.

[[Page 29382]]

    (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; (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 supported 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'').
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.

Annex II Multi-Year Financial Plan Summary

    This Annex II summarizes 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.

[[Page 29383]]



                                                      Exhibit A--Multi-Year Financial Plan Summary
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        (US$)
                         Component                         ---------------------------------------------------------------------------------------------
                                                               CIF\1\       Year 1       Year 2       Year 3       Year 4       Year 5         Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Lusaka Water Supply, Sanitation, and Drainage Project
    (A) Infrastructure Activity...........................  ...........  ...........  ...........  ...........  ...........  ...........  ..............
    (B) Institutional Strengthening Activity..............  ...........  ...........  ...........  ...........  ...........  ...........  ..............
                                                           ---------------------------------------------------------------------------------------------
        Subtotal..........................................   10,561,039   21,307,520   67,592,363   84,753,880   80,808,204   45,524,334     310,547,340
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. Monitoring and Evaluation (M&E)
    Monitoring and Evaluation.............................  ...........  ...........  ...........  ...........  ...........  ...........  ..............
                                                           ---------------------------------------------------------------------------------------------
        Subtotal..........................................       58,000    1,627,000    1,852,000    2,052,000      177,000       75,000       5,841,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Program Administration and Audit
    (A) Program Management and Oversight..................  ...........  ...........  ...........  ...........  ...........  ...........  ..............
    (B) Fiscal Agent/Procurement Agent....................  ...........  ...........  ...........  ...........  ...........  ...........  ..............
    (C) Audits............................................  ...........  ...........  ...........  ...........  ...........  ...........  ..............
                                                           ---------------------------------------------------------------------------------------------
        Subtotal..........................................    4,669,900    7,436,000    6,651,000    6,518,200    6,506,700    6,587,500      38,369,300
                                                           ---------------------------------------------------------------------------------------------
            Grand Total...................................   15,288,939   30,370,520   76,095,363   93,324,080   87,491,904   52,186,834     354,757,640
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Pursuant to Section 2.2(b) of the Compact, MCC will directly administer and manage a portion of the Compact Implementation Funding.

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 Web 
site (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 Web site 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.
[GRAPHIC] [TIFF OMITTED] TN17MY12.001

3. Monitoring Component

    To monitor progress toward the achievement of the impact and 
outcomes, the Monitoring Component of the M&E Plan will identify (a) 
the Indicators (as defined below), (b) the definitions of the 
Indicators, (c) the sources and methods for data collection, (d) the 
frequency for data collection, (e) the party or parties responsible, 
and (f) the timeline for reporting on each Indicator to MCC.
    Further, the Monitoring Component will track changes in the 
selected Indicators for measuring progress towards the achievement of 
the objectives during the Compact Term. The M&E Plan will establish 
baselines

[[Page 29384]]

that measure the situation prior to a development intervention, against 
which progress can be assessed or comparisons made (each a, 
``Baseline''). The Government will collect Baselines on the selected 
Indicators or verify already collected Baselines where applicable and 
as set forth in the M&E Plan.
    (a) Indicators. The M&E Plan will measure the results of the 
Program using quantitative, objective and reliable data 
(``Indicators''). Each Indicator will have benchmarks that specify the 
expected value and the expected time by which that result will be 
achieved (``Target''). All Indicators will be disaggregated by gender, 
income level and age, and beneficiary types to the extent practicable. 
Subject to prior written approval from MCC, the Government may add 
Indicators or refine the definitions and Targets of existing 
Indicators.
    (i) Compact Indicators.
    (1) Goal. The M&E Plan will contain the following Indicator related 
to the Compact Goal. Although the Project will contribute to this goal, 
the results are attributable to many factors in the economy:
    (A) Increased incomes of households in Project areas.
    (2) Other Indicators. The M&E Plan will contain the Indicators 
listed in the following tables.

----------------------------------------------------------------------------------------------------------------
            Result                  Indicator            Definition         Baseline  value     End of  compact
----------------------------------------------------------------------------------------------------------------
                                             Cross-Cutting Outcomes
----------------------------------------------------------------------------------------------------------------
Improved household health.....  Incidence of       Number of cases of     138 per 1,000       32 per 1,000
                                 water-borne        infectious diarrhea
                                 diseases.          and cholera per
                                                    1,000 population.
Decreased economic impact of    Days of work       Average Number of      TBD                 18% reduction
 water-related diseases.         missed due to      days of work missed
                                 illness.           per beneficiary, per
                                                    year (disaggregated
                                                    by sex).
                                Days of school     Average Number of      TBD                 20% reduction
                                 missed due to      days of school
                                 illness.           missed per school
                                                    age beneficiary, per
                                                    year (disaggregated
                                                    by sex).
----------------------------------------------------------------------------------------------------------------
                            Water Supply Infrastructure Rehabilitation and Expansion
----------------------------------------------------------------------------------------------------------------
Improved water service          Access to          Number of new          0                   16,790
 coverage.                       improved water     household
                                 supply.            connections to the
                                                    water network made
                                                    possible through the
                                                    Compact.
Improved quality of service     Continuity of      Average hours of       17                  24
 delivery.                       service.           service per day for
                                                    water supply.
                                Volume of water    Total volume of water  225,000             240,000
                                 produced.          produced in cubic
                                                    meters per day for
                                                    the service area.
Reduced water losses..........  Non-revenue water  The difference         48%                 25%
                                                    between water
                                                    supplied and water
                                                    sold (i.e. volume of
                                                    water ``lost'')
                                                    expressed as a
                                                    percentage of water
                                                    supplied..
Time savings for households...  Time spent         Average time spent by  16                  9.5
                                 fetching water.    household members to
                                                    fetch water in the
                                                    past week (hours)
                                                    (disaggregated by
                                                    sex).
Improved water supply           Length of the      Total length of the    1,372               1,547
 infrastructure.                 water              distribution network
                                 distribution       in km.
                                 network (km).
                                Water points       The number of non-     532                 596
                                 constructed.       networked, stand-
                                                    alone water supply
                                                    systems constructed
                                                    (kiosks).
----------------------------------------------------------------------------------------------------------------
                             Sanitation Infrastructure Rehabilitation and Expansion
----------------------------------------------------------------------------------------------------------------
Improved sanitation coverage..  Access to          Number of new          0                   13,147
                                 improved           household
                                 sanitation.        connections to
                                                    sewage network made
                                                    possible through the
                                                    Compact.
Improved sanitation             Length of the      Total length of the    408                 490
 infrastructure.                 sewer system.      sewerage network in
                                                    km.
----------------------------------------------------------------------------------------------------------------
                                     Drainage Infrastructure Rehabilitation
----------------------------------------------------------------------------------------------------------------
Improved drainage system......  Length of the      Total km of drainage   0                   30
                                 drainage system.   channel
                                                    rehabilitation
                                                    funded by the
                                                    Compact.
----------------------------------------------------------------------------------------------------------------

    (b) 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.
    (c) 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.
    (d) 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.
    (e) 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.

[[Page 29385]]

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.
    (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&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&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&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 Programs.

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 CIF 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 CIF 
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

[[Page 29386]]

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 time 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; (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.

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 CIF 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 
Web site 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

[[Page 29387]]

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 software, hard copy files, catalogues, specifications, 
and other proprietary technology and similar information; and all 
registrations for, and applications for registration of, any of the 
foregoing, that are financed, in whole or in part, using MCC Funding.
    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 Web site or otherwise made available to 
the Government.
    MCC Gender Integration Guidelines and Operational Procedures means 
MCC's Gender Integration Guidelines and Operational Procedures, as such 
may be posted on MCC's Web site 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 Web site, or otherwise provided by MCC, from time to time.
    MCC Web site has the meaning provided in Section 2.7.
    Monitoring Component has the meaning provided in paragraph 1 of 
Annex III.
    Multi-Year Financial Plan Summary has the meaning provided in 
paragraph 1 of Annex II.
    NWASCO has the meaning provided in paragraph 1 of Part A of Annex 
I.
    NRW has the meaning provided in paragraph 1 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 I.
    Program has the meaning provided in the Preamble.
    Program Assets means any assets, goods or property (real, tangible 
or intangible) purchased or 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 Web site.
    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 
Web site 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 
furtherance of this Compact.
    Statutory Instrument has the meaning provided in Annex VI.
    Target has the meaning provided in paragraph 3(a) of Annex III.
    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.
    ZRA has the meaning provided in Schedule D to Annex VI.

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.

[[Page 29388]]

    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 in 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 a 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.

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.
    (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.

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

[[Page 29389]]

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.

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.

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 VAT. 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.

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.

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

[[Page 29390]]

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 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.

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 performance) 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 imported 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 imported 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.

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

[[Page 29391]]

Instrument to exempt MCA-Zambia from payment of the medical levy.

[FR Doc. 2012-11993 Filed 5-16-12; 8:45 am]
BILLING CODE 9211-03-P