f CONFORMED COPY

NUMBER 4956-LK

Financing Agreement

(Second and Third Additional Financing for Community Livelihoods inConflict Affected Areas Project) i

between

DEMOCRATIC SOCIALIST REPUBLIC OF SII LANKA

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FINANCING AGREEMENT

AGREEMENT dated November 29, 2011, entered into between DEMOCRATICSOCIALIST REPUBLIC OF SRI LANKA ("Recipient") tnd INTERNATIONALDEVELOPMENT ASSOCIATION ("Association"). The Recipient and the Associationhereby agree as follows: 1.

ARTICLE I — GENERAL CONDITIONS;

1.01. The General Conditions (as defined in the Appen ix to this Agreement)constitute an integral part of this Agreement.

1.02. Unless the context requires otherwise, the capitali d terms used in thisAgreement have the meanings ascribed to them in the G neral Conditions, in thisAgreement, or, where not otherwise defined, in lihe Original FinancingAgreement. I

ARTICLE II— FINANCING

2.01. The Association agrees to extend to the Recipient, on 4ie terms and conditionsset forth or referred to in this Agreement, a credit in n amount equivalent tothirty million three hundred thousand Special Drawing 1ights (SDR 30,300,000)(variously, "Credit" and "Financing") to assist in financi g the project describedin Schedule I to this Agreement ("Project").

2.02. The Recipient may withdraw the proceeds of the Finan ing in accordance withSection IV of Schedule 2 to this Agreement.

2.03. The Maximum Commitment Charge Rate payable b the Recipient on theUnwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) perannum.

2.04. The Service Charge payable by the Recipient on the Withdrawn Credit Balanceshall be equal to three-fourths of one percent (3/4 of 1%) er annum.

2.05. The Payment Dates are May 15 and November 15 in each

2.06. The principal amount of the Credit shall be repaid accordance with therepayment schedule set forth in Schedule 3 to this Agree nt.

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2.07. The Payment Currency is Dollars.

ARTICLE III — PROJECT

3.01. The Recipient declares its commitment to the objective of the Project. To thisend, the Recipient shall carry out the Project through t e Ministry of EconomicDevelopment, and in accordance with the provisions of rticle IV of the GeneralConditions.

3.02. Without limitation upon the provisions of Section 3.01 of this Agreement, andexcept as the Recipient and the Association shall otherwise agree, the Recipientshall ensure that the Project is carried out in accordancewith the provisions ofSchedule 2 to this Agreement.

ARTICLE IV — EFFECTIVENESS; TERMIWATION

4.01. The Effectiveness Deadline is the date ninety (90) da 's after the date of thisAgreement.

4.02. For purposes of Section 8.05(b) of the General Conditio s, the date on which theobligations of the Recipient under this Agreement (other han those providing forpayment obligations) shall terminate is twenty (20) years after the date of thisAgreement.

ARTICLE V — REPRESENTATIVE; ADD

5.01. The Recipient's Representative is its Secretary, Mitistry of Finance andPlanning, or any other person nominated for this purpose y said Secretary.

5.02. The Recipient's Address is:

Ministry of Finance and PlanningThe SecretariatColombo 1, Sri Lanka

Telex:

Facsimile:

FINMIN 21409

94-112-449823FORAID21232

94-112-447633

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SCHEDULE 1

Project Description

The objective of the Project is to help the confliccommunities and villages in the Recipient's North, East and(i) restoring their livelihood; (ii) enhancing agricultural prod(iii) building their capacity for sustainable social and economic ri

The Project consists of Parts A and B of the Originalmodified to read as follows:

Part B: Rehabilitation of Irrigation Schemes and Ru

Rehabilitation of the irrigation and water supplyinfrastructure damaged by flood within major irrigation prod

and/or flood affectedie adjoining areas by:Lion and income; and

except that Part B is

Infrastructure

;s, roads, and otherareas.

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SCHEDULE 2

Project Execution

Section I. Implementation Arrangements

A. Institutional Arrangements

The Recipient shall carry out the Project in accordsSection 3.01 of, and Paragraphs 1-7 of Schedule 4Agreement.

B. Anti-Corruption

with the provisions ofthe Original Financing

The Recipient shall ensure that the Project, including th provision of Sub-grantsthereunder, is carried out in accordance with the çfrovisions of the Anti-Corruption Guidelines.

C. Safeguards

(a) Without limitation upon the provisions of paragraphs A and B of this Section,the Recipient shall carry out the Project in accordance 4vith the ESMF, and anyEMP or resettlement action plan prepared thereunder; 4id (ii) shall not amend,suspend or waive any provisions of the afore-mentioned instruments without theprior written consent of the Association.

(b) Without limitation upon the provisions of the pi ;ceding paragraph, theRecipient shall: (i) prepare, in accordance with the E MF, an environmentalimpact assessment and a social impact assessment for each activity under theProject and, where appropriate, prepare an EMP or a r ;settlement action plan;(ii) ensure that such activities are carried out in ac ordance with the saiddocuments; (iii) ensure that, whenever provisions of suc h documents are variedor altered, such variation/alteration shall be appr^ priate, necessary andminimized, and that adequate mitigation measures c fall be identified andincorporated in the design of the Project, as shall be acceptable to theAssociation; and (iv) undertake regular environment, and social appraisal,supervision, monitoring and evaluation of the Project': implementation, all inaccordance with guidelines and procedures satisfactory tc the Association.

The Recipient shall, by December 31, 2011, conduct an 'ironmental audit, onthe basis of terms of reference agreed with the As iation, covering theactivities supported under the Original Project and the supported under theAdditional Financing Agreement.

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Section II. Project

A. Project Reports

The Recipient shall monitor and evaluate the progress o the Project and prepareProject Reports in accordance with the provisions of Se tion 4.08 of the GeneralConditions and on the basis of the indicators set forth in Attachment 1 to thisSchedule. Each Project Report shall cover the period of ne (1) calendar quarter,and shall be furnished to the Association not later than orty-five (45) days afterthe end of the period covered by such report.

B. Financial Management, Financial Reports and

The Recipient shall maintain or cause to be maintained a financial managementsystem in accordance with the provisions of Sectio 4.09 of the GeneralConditions.

Without limitation on the provisions of Part A of this Se tion, the Recipient shallprepare and furnish to the Association as part of the Proj ct Report not later thanforty-five (45) days after the end of each calendar qu rter, interim unauditedfinancial reports for the Project covering the quarter, in form and substancesatisfactory to the Association.

The Recipient shall have its Financial Statements audite in accordance with theprovisions of Section 4.09(b) of the General Conditi ns. Each audit of theFinancial Statements shall cover the period of one (1) fiscall year of the Recipient.The audited Financial Statements for each such period• hall be furnished to theAssociation not later than six (6) months after the end of uch period.

Section III. Procurement

A. General

Goods, Works and Non-consulting Services. All goods, works and non-consulting services required for the Project and to be fins ced out of the proceedsof the Financing shall be procured in accordance with th requirements set forthor referred to in Section I of the Procurement Guidelines, and with the provisionsof this Section.

Consultants' Services. All consultants' services requir d for the Project and tobe financed out of the proceeds of the Financing shall be procured in accordancewith the requirements set forth or referred to in Se ions I and IV of theConsultant Guidelines, and with the provisions of this Se ion.

Definitions. The capitalized terms used below in t is Section to describeparticular procurement methods or methods of review by the Association of

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particular contracts, refer to the corresponding m thod described in theProcurement Guidelines, or Consultant Guidelines, as th case may be.

B.Services

International Competitive Bidding. Except as otherwi e provided in paragraph2 below, goods, works and non-consulting services hall be procured undercontracts awarded on the basis of International Compet tive Bidding, subject tothe following additional procedures.

2. Other Methods of Procurement of Goods, Worl4s and Non -consultingServices. The following table specifies the methods of procurement, other thanInternational Competitive Bidding, which may be use4l for goods, works andnon-consulting services. The Procurement Plan shall sitecify the circumstancesunder which such methods may be used:

Procurement Methods(a) National Competitive Bidding subject to the pro

to this Schedule 2isions of Attachment 2

(b) Shopping(c) Direct Contracting(d) Force Account(e) Community Participation

C.

Quality- and Cost-based Selection. Except as otherwis provided in paragraph2 below, consultants' services shall be procured under c ntracts awarded on thebasis of Quality- and Cost-based Selection.

2. Other Methods of Procurement of Consultants' Servi es. The following tablespecifies methods of procurement, other than Quality- and Cost-based Selection,which may be used for consultants' services. The Procurement Plan shall specifythe circumstances under which such methods may be use 4.Procurement Methods(a) Quality Based Selection(b) Selection under a Fixed Budget(c) Least Cost Selection(d) Selection Based on Consultants' Qualifications(e) Single Source Selection(f) Individual Consultants

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D. Review by the Association of Procurement Decisions

The Procurement Plan shall set forth those contracts whi h shall be subject to theAssociation's Prior Review. All other contracts shall b subject to Post Reviewby the Association.

Section IV. Withdrawal of the Proceeds of the Financing

A. General

The Recipient may withdraw the proceeds of the Finan ;ing in accordance withthe provisions of Article II of the General Conditions. this Section, and suchadditional instructions, as the Association shall specify b, • notice to the Recipient(including the "World Bank Disbursement Guidelines f it Projects" dated May2006, as revised from time to time by the Association at d as made applicable tothis Agreement pursuant to such instructions), to finance :ligible Expenditures asset forth in the table in paragraph 2 below.

2. The following table specifies the categories of Eligible Expenditures that may befinanced out of the proceeds of the Financing ("Category'), the allocations of theamounts of the Credit to each Category, and the percent e of expenditures to befinanced for Eligible Expenditures in each Category: p

Category

Amount of the CreditAllocated (Expressed in

SDR Equivalent)

°/ of Expenditures to be& Financed(inclusive of taxes)

(1) Civil Works 20,200,000 I 100%

(2) Sub-Grants 10,100,000 100%

TOTAL 30,300,000

B. Withdrawal Conditions; Withdrawal Period

Notwithstanding the provisions of Part A of this Section,! withdrawal shall bemade for payments made prior to the date of this 4greement, except thatwithdrawals up to an aggregate amount not to exceed $9600,00 equivalent maybe made for payments made prior to this date but on or fter February 18, 2011,for Eligible Expenditures.

2. The Closing Date is December 31, 2014.

I2

The Closing Dates specified in the Original Financing Agreement and in theAdditional Financing Agreement are hereby revised o read "December 31,2014".

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ATTACHMENT

TO

SCHEDULE2

Performance Indic:

Results Framework and

SRI LANKA: Community Livelihoods in Conflict Af ing) Project

Revisions to the Results Framework Comments/Rationale for Chan e

PDO

Current (PAD) ProposedTo help the conflict-affected communities To help conflict and/or ood The change is a specificand villages in the Project areas by restoring affected communities an L villages in intervention to deal withtheir livelihoods; enhancing agricultural North, East and the adjo iing areas flood damage that is beyondproduction and income; and building their by restoring their livelih ods, the area of the existingcapacity for sustainable social and economic enhancing agricultural p oduction project.reintegration, and income, and buildin their

capacity for sustainable ocial andeconomic reintegration.

PDO indicators

Current PAD Proposed an a*-50 Percentage of targeted households Number of households b nefiting The project seeks to restore(50,000) which have increased their net from improved livelihoo livelihood opportunities forincome (farm and non-farm) by at least opportunities villagers who had lost their30percent. livelihood due to flood

damage. Incomes may notincrease as a result of theintervention, butopportunities will improveabove the baseline case ofpost-flood damage.

70 Percentage of targeted households Dropped Relegated as an intermediate(50,000) which are active members of outcome indicator forCBOs/VDOs/SHGs with satisfactory (Grade Component 1B and above) performance ratings.At least 32,000ha of irrigable area Number of hectares of ii igable area Additional 100,000 ha addedrehabilitated for cultivation rehabilitated to the original target of

32,000 ha. Indicator is notchanged but the target is acumulative measure of farmrehabilitated area for theentire project, including

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Revisions to the Results Framework Comments/Rationale for Change

additional financingcomponents.

At least 80 percent vulnerable people are Continued However, not monitoredVDO members and at least 50 percent of under this Additionalthem obtain financing for livelihood Financing, because VDOdevelopment members are not specifically

targeted.At least 30 ppercentof village youth and ex- Continued However, this indicator iscombatants assisted, applicable to conflict

affected areas only, and hasreduced significance in theproject under additionalfinancing

At least 1,000 jobs created Continued However, not monitored inthis Additional Financing,because job creation is notspecifically targeted.

Rural roads rehabilitatefi New. Improve consistencywith defined core sectorindicators

Improved community w tter points New. Improve consistencyconstructed or rehabilitated under with defined core sectorthe project indicatorsPiped household water onnections New. Improve consistencyaffected by rehabilitatio works with defined core sectorundertaken by the proje t indicators

Intermediate Results indicators

Current PAD Proposed change*Component 1: Village Rehabilitation andDevelopmentDirect project beneficiaries (100,000), of Direct project beneficia ies Improve consistency withwhich female (percentage) is over 50 (number), of which fern le defined core sector indicatorspercent (percentage) is

At least 70 percent of CBOs rated Number of community ased These indicators have beensatisfactory in sub-project planning and organizations formed or revived and simplified to monitorimplementation, and O&M of completed satisfactorily engaged in subproject performance of communityinfrastructure implementation and O&

levelvi at village organizations

At least 70 percent of Small Groups ratedsatisfactory in members' participation,group dynamics, and saving behaviorIncremental acreage cultivated for Maha, Dropped. Captured by the PDOYala & intermediate seasons indicator, "Number of

hectares of irrigation arearehabilitated"

Increased no. of households (including poor Dropped. Captured by the PDO

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Revisions to the Results Framework Comments/Rationale for Chan e

and vulnerable) have assured access to indicator, "Number ofirrigation hectares of irrigation area

rehabilitated"Increased agricultural productivity (crop Dropped Captured by the PDOyields in tons or bushels/ acre), per season indicator, "Number of

hectares of irrigation arearehabilitated"

No. of additional people in project areas Dropped Captured under Componentwith access to improved water sources 2.No. of improved community water points Continued N/Aconstructed or rehabilitated under theprojectNo of persons utilizing infrastructure in wet Dropped This indicator has beenand dry seasons dropped to simplify

monitoring.No of persons reporting decreased time or Dropped This indicator has beencost of transportation dropped to simplify

monitoring.Rural roads constructed/rehabilitated (km) Continued, but disaggre ated to (i) N/A

Village roads rehabilitat d and (ii)Rural agricultural roadsrehabilitated

Average no of persons utilizing Dropped This indicator has beeninfrastructure or equipment per month, by dropped to simplifypurpose monitoring.At least 50 percentage of targeted Dropped This indicator has beenhouseholds (vulnerable, poor/very poor, dropped to simplifymale/female-headed) have engaged (or re- monitoring. Livelihoodengaged) in farm, off farm and non-farm activities are captured by thelivelihood activities/ enterprises PDO indicator "Number of

households benefiting fromimproved livelihoodopportunities"

At least 30percent of LSAs supported by the Dropped This indicator has beenproject rated as profitable and sustainable dropped to simplifyover time monitoring.At least 50percent persons (disadvantaged Continued N/Ayouths/ vulnerable) obtain employmentfollowing skill training, by enderAt least 50 percent of persons/ households Dropped This indicator has beenqualifying for and/or receiving credit from dropped to simplifycommercial banks/ financial institutions. monitoring.

Number of greenhouse i terventions New interventioncompletedNumber of hectares servi ed by Rehabilitated irrigationrehabilitated small scale Tigation service area is disa re ated

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Revisions to the Results Framework Comments/Rationale for Change

schemes into minor and smallschemes.

Number of hectares serviced by Rehabilitated irrigationrehabilitated minor irrig tion service area is disaggregatedschemes into minor and small

schemes.Component 2 Rehabilitation of Irrigation Schemes and Rural Infra tructure

Percentage of dams and other infrastructure Continued But not monitored under thisin each major scheme receive satisfactory Additional Financingreport by Dam Safety PanelIncremental acreage cultivated per season Dropped Captured by a PDO indicator(Maha, Yala & intermediate)Increased cropping intensity of farm Continued But not monitored under thisholdings Additional FinancingIncreased no of households (top, middle, Continued But not monitored under thisbottom ends of scheme) have assured access Additional Financingto irrigation, by seasonIncreased agricultural productivity (crop Continued But not monitored under this

field in tons or bushels/acre, by season). Additional FinancingPiped household water connections affected New Core sector indicatorby rehabilitation works undertaken by theproject (number)Component 3 Cluster Level Livelihood ActivitiesAt least 4 business linkages created with Continued But not monitored in thisprivate and / or public organizations for Additional Financingcluster commercial enterprisesVolume (LKR) of business annual turnover Continued But not monitored in thisof village! cluster organizations Additional FinancingIncreased quantity and 80 percent of high Continued But not monitored in thisquality village products (farm and non- Additional Financingfarm) sold for domestic and internationalmarkets80 percentage of villages report higher Continued But not monitored in thisand/or stable prices for major village Additional FinancingproductsComponent 4 Institutional Capacity Building and Project Implementation Support80 percent of approval processes and fund Continued Not financed under thisdisbursement (various tranches) to village Additional Financingorganizations and counterpart technicalagencies undertaken within 2 weeks ofrequest submission80 percent of Project financial management, Continued Not financed under thisaudit statements, MIS/ M&E and Additional Financingenvironmental reports delivered within 2weeks of due date.All districts collaborate between the project Continued Not financed under this

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Revisions to the Results Framework Comments/Rationale for Change

and government agencies/ programmes Additional Financingtabled at Provincial Council, DistrictSecretariat and Pradeshi a Sabha meetin s.

* Indicate if the indicator is Dropped, Continued, New, Revised, or if thee is a change in the end ofproject target value

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ATTACHMENT 2

TO

SCHEDULE 2

Requirements under National Competitive Bidding (NCB)

In order to ensure economy, efficiency, transparency and bro d consistency with theprovisions of the Procurement Guidelines, goods, works, and ion consultant servicesprocured under the National Competitive Bidding procedures shall be subject to thefollowing requirements:

1. Only the model bidding documents for NCB agreed with ithe Association shall beused for bidding;

2. Invitations for bids will be advertised in at least one widely irculated national dailynewspaper, and bidding documents will be made available it least twenty-one (21)days before, and issued up to, the deadline for submission of bids;

3. Qualification criteria will be stated in the bidding docume4ts, and if a registrationprocess is required, a foreign firm declared as the Lowe t evaluated responsivebidder shall be given a reasonable time for registering, witho t let or hindrance;

4. Bids will be opened in public in one location, immediately ajfter the deadline for thesubmission of bids, as stipulated in the bidding document (the bidding documentwill indicate the date, time and place of bid opening);

5. Except in cases of force majeure or exceptional situations b yond the control of theimplementing agency, the extension of bid validity will not b allowed;

6. Bids will not be rejected merely on the basis of a comp rison with an officialestimate;

7. Except with the prior concurrence of the Association, there vf will be no negotiation ofprice with bidders, even with the lowest evaluated bidder;

8. A bidder's bid security will apply only to the specific id, and a contractor'sperformance security will apply only to the specific contra under which they arefurnished; and

9. Bids will not be invited on the basis of percentage premium or discount over theestimated cost, unless agreed with the Association.

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SCHEDULE 3

Repayment Schedule

Pr ncipal Amount of theCredit repayable

Date Payment Due (exp essed as percentage)*

On each May 15 and November 15 commencing 5%November 15, 2021 to and including May 15, 2031

* The percentages represent the percentage of the principal am unt of the Credit to berepaid, except as the Association may otherwise specify pursu t to Section 3.03(b) ofthe General Conditions.

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APPENDIX

Definitions

"Additional Financing Agreement" means the finan,Emergency Additional Financing for the CommunityAffected Areas Project) (Yali Pibedemu Viyapruthiya)between the Recipient and the Association, dated Januaito the date of this Agreement (Credit 4671-LK).

"Anti-Corruption Guidelines" means the "GuidelinCombating Fraud and Corruption in Projects Financed 1Credits and Grants", dated October 15, 2006 and revised

"Category" means a category set forth in the table in Sthis Agreement.

ing agreement for an,ivelihoods in ConflictMaru Eluchchithittam)1 11, 2010, as amended

on Preventing andIBRD Loans and IDAJanuary 2011.

IV of Schedule 2 to

4. "Consultant Guidelines" means the "Guidelines: Select on and Employment ofConsultants by World Bank Borrowers" published by th Bank in May 2004 andrevised in October 2006.

"Environmental and Social Management Framework" rid "ESMF" mean, theEnvironmental Management Framework and Social Saf ;guards Framework (asdefined in the Original Financing Agreement), accepta )le to the Association,publicly disclosed on May 8, 2004 and comprising the Re ,ipient's framework forundertaking environmental and social analysis and developing mitigationmeasures for all Project activities, and providing, among >ther things, for: (a) theinstitutional arrangements for implementation and moni Dring of environmentalsafeguards in the carrying out of the Project; (b details of potentialenvironmental issues that may arise under civil works pr< posed under the Projectand the necessary background for environmental consid ;rations to be built intothe design of the Project, including plans and procedure to ensure dam safety;(c) detailed guidelines on when and how to prepare Envi •onmental ManagementPlans (EMPs); (d) guidelines and procedures for social afeguard screening andimpact assessment, including guidelines and proce lures for stakeholderconsultation and participation; (e) land acquisition and resettlement principlesand objectives, and design criteria to be applied to resettle ment under the Project,including guidelines for preparation of any resettlement z :.tion plans that may berequired pursuant to the ESMF; (f) measures to monitor activities for significantsocial impacts, and, if necessary, to assist in mitig^ Lion of such impacts;(g) guidelines for preparation of resettlement action pla is required pursuant tothe ESMF; (h) a compensation/entitlement matrix devek ped to compensate anypersons affected by any such resettlement; and (i a grievance redressmechanism; as such ESMF has been revised up the date o this Agreement.

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Q

"General Conditions" means the "International De elopment AssociationGeneral Conditions for Credits and Grants", dated July 31j, 2010.

7. "Original Financing Agreement" means the developmen credit agreement for aCommunity Livelihoods in Conflict-Affected Areas P oject) (Yali PibedemuViyapruthiya) (Maru Eluchchithittam) between th Recipient and theAssociation, dated July 23, 2004, as amended to the ate of this Agreement(Credit 3935-CE).

8. "Original Project" means the Project described inAgreement.

9. "Procurement Guidelines" means the "Guidelines:Loans and IDA Credits" published by the Bank inOctober, 2006.

Original Financing

rement under IBRD2004 and revised in

10. "Procurement Plan" means the Recipient's procuremer Lt plan for the Project,dated April 27, 2011 and referred to in paragraph 1. 18 of the ProcurementGuidelines and paragraph 1.25 of the Consultant Guidelir ies, as the same shall beupdated from time to time in accordance with the provisic ns of said paragraphs.