CONFORMED COPY

GEF TRUST FUND GRANT NUMBER TF 055978-HU

Global Environment Facility
Trust Fund Grant Agreement

(Nutrient Reduction Project)

between

REPUBLIC OF HUNGARY

and

INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT

(Acting as an Implementing Agency of the Global Environment Facility)

Dated May 15, 2006

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GEF TRUST FUND GRANT NUMBER TF 055978-HU
GLOBAL ENVIRONMENT FACILITY TRUST FUND GRANT AGREEMENT
AGREEMENT, dated May 15, 2006, between the REPUBLIC OF HUNGARY
(the Recipient) and the INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (the Bank) acting as an implementing agency of the Global
Environment Facility (GEF) in respect of grant funds provided to the GEF Trust Fund by
certain members of the Bank as participants of the GEF.
WHEREAS (A) the Bank, pursuant to Resolution No. 91-5 of March 14, 1991, of
the Executive Directors of the Bank, established the GEF to assist in the protection of the
global environment and promote thereby environmentally sound and sustainable
economic development;
(B)
following the restructuring of the GEF, such arrangements continued in
place on the basis set forth in Resolution No. 94-2 of May 24, 1994, of the Executive
Directors of the Bank which, inter alia, established the GEF Trust Fund and appointed
the Bank as trustee of the GEF Trust Fund (Resolution 94-2);
(C)
the Recipient, having satisfied itself as to the feasibility and priority of
the project described in Schedule 2 to this Agreement (the Project), has requested
assistance from the resources of the GEF Trust Fund for funding the Project, and said
request having been approved in accordance with the provisions of the Instrument for the
Establishment of the Restructured Global Environment Facility approved under
Resolution 94-2;
(D)
Part A of the Project will be carried out by the Municipality of Budapest
(MOB, as further defined in paragraph (l) of Section 1.02 of this Agreement): (i) utilizing
a portion of the financing made available by the Bank, acting in its own capacity, under
the Loan Agreement No. 4512-HU (Municipal Wastewater Project) between the Bank
and the MOB, as amended as of even date herewith (the MOB Loan Agreement, as
further defined in paragraph (n) of Section 1.02 of this Agreement); and (ii) with the
Recipient's assistance and, as part of such assistance, the Recipient will make a portion of
the proceeds of the GEF Trust Fund Grant available to the MOB, as provided in this
Agreement; and
WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to
extend the GEF Trust Fund Grant to the Recipient upon terms and conditions set forth in
this Agreement and in the agreement of even date herewith between the Bank and the
MOB (the MOB Project Agreement, as further defined in paragraph (o) of Section 1.02
of this Agreement);

NOW THEREFORE, the parties hereto hereby agree as follows:

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ARTICLE I
General Conditions; Definitions
Section 1.01.
(a) The following provisions of the "General Conditions
Applicable to Loan and Guarantee Agreements for Single Currency Loans" of the Bank,
dated May 30, 1995 (as amended through May 1, 2004), with the modifications set forth
in paragraph (b) of this Section (the General Conditions) constitute an integral part of this
Agreement:
(i) Article
I;
(ii)
Sections 2.01 (2), (3), (4), (5), (6), (7), (8), (14), (15), (16), (18)
and (21), 2.02 and 2.03;
(iii) Section
3.01;
(iv)
Sections 4.01 and 4.06;
(v) Article
V;
(vi)
Sections 6.01, 6.02 (a), (c), (d), (e), (f), (i), (l), (m), (n), (o) and
(p), 6.03, 6.04 and 6.06;
(vii)
Section 8.01 (b);
(viii)
Sections 9.01 (a) and (c), 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09;
(ix)
Sections 10.01, 10.03 and 10.04; and
(x)
Article XI; and
(xi)
Sections 12.01 (c), 12.03 and 12.04.
(b)
The General Conditions shall be modified as follows:
(i)
the term "Bank", wherever used in the General Conditions, other
than in Sections 2.01 (6), 6.02 (f) and 5.01 (a) thereof, means
the Bank acting as an implementing agency of the GEF, except
that in Section 6.02, the term "Bank" shall also include the Bank
acting in its own capacity;
(ii)
the term "Borrower", wherever used in the General Conditions,
means the Recipient;

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(iii)
the term "Loan Agreement", wherever used in the General
Conditions, means this Agreement;
(iv)
the term "Loan" and "loan", wherever used in the General
Conditions, means the GEF Trust Fund Grant;
(v)
the term "Loan Account", wherever used in the General
Conditions, means the GEF Trust Fund Grant Account;
(vi)
a new sub-paragraph is added after sub-paragraph (o) in
Section
6.02 of the General Conditions, as follows: "an
extraordinary situation shall have arisen in which any further
disbursement under the GEF Trust Fund Grant would exceed the
resources available for disbursement from the GEF."; and
(vii)
the words "corrupt or fraudulent" in paragraph (c) of
Section 6.03 are replaced with the words "corrupt,
fraudulent, collusive or coercive".
Section 1.02.
Wherever used in this Agreement, unless the context otherwise
requires, the several terms defined in the General Conditions and in the Recitals to this
Agreement have the respective meanings therein set forth, and the following additional
terms have the following meanings:
(a)
"BMSC" means the Budapest Municipal Sewerage Company, Ltd, a
limited liability company established pursuant to Act No. LV of 1992 of the Recipient
based on regulations established in Act No. LIV of 1992 of the Recipient pursuant to
resolution No.1317/1993 (XI.25) of the General Assembly of the MOB (as hereinafter
defined in paragraph (l) of this Section) and to the Deed of Foundation dated December
1, 1993, or any successor thereto;
(b)
"DDNP" means the Duna Drava National Park, a protected area in
accordance with the Decree of the Recipient's Ministry of Environment and Area
Development 7/1996 (IV.17) dated April 17,1996, under the responsibility of the
DDNPD (as hereinafter defined in paragraph (c) of this Section);
(c)
"DDNPD" means the Duna-Drava National Park Directorate, the
Recipient's regional governmental body primary responsible for nature conservation,
established and operating as an organization of the Recipient's administration under the
supervision of the MOEW (as hereinafter defined in paragraph (p) of this Section), as a
separate, self-managing body of the central budget pursuant to the provisions of the
Government Decree 341/2004 dated October 22, 2004;
(d)
"Eligible Categories" means Categories (1), (2), (3) and (4) set forth in
the table in Part A.1 of Schedule 1 to this Agreement;

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(e)
"Eligible Expenditures" means the expenditures for goods, works and
consultants' services referred to in Section 2.02 of this Agreement;
(f)
"Environmental Management Plan for Part A of the Project" and "EMP
Part A" mean the MOB environmental management plan dated June 29, 2005, describing
the environmental, mitigation, monitoring and institutional measures to be undertaken by
the MOB (as hereinafter defined in paragraph (l) of this Section) under Part A of the
Project to ensure that all environmental concerns are adequately taken into account in the
carrying out of the works and activities thereunder;
(g)
"Environmental Management Plan for Part B of the Project" and "EMP
Part B" mean the DDNPD environmental management plan dated June 25, 2005,
describing the environmental, mitigation, monitoring and institutional measures to be
undertaken by the DDNPD and the WD (as hereinafter defined in paragraph (z) of this
Section) under Part B of the Project to ensure that all environmental concerns are
adequately taken into account in the carrying out of the works and activities thereunder;
(h)
"Environmental Management Plan" means, indistinctively, the EMP Part
A or the EMP Part B; and the term "Environmental Management Plans" means the EMP
Part A and the EMP Part B collectively;
(i)
"Financial Monitoring Report" means each report prepared in accordance
with the provisions of Section 4.02 of this Agreement;
(j)
"Fiscal Year" means the twelve (12) month period corresponding to any
of the Recipient's fiscal years, which period commences on January 1 and ends on
December 31 in each calendar year;
(k)
"Implementation Grant Agreement" means the Implementation Grant
Agreement to be concluded between the MOEW (as hereinafter defined in paragraph (p)
of this Section), on behalf of the Recipient, the MOB (as hereinafter defined in paragraph
(l) of this Section), the DDNPD and the WD (as hereinafter defined in paragraph (z) of
this Section) pursuant to the provisions of Section 3.01 (c) of this Agreement: (i) defining
the main roles and responsibilities, respectively, of the MOB, the MOEW, the DDNPD
and the WD in the implementation of the Project; and (ii) setting forth the arrangements
necessary for the making of a portion of the proceeds of the GEF Trust Fund Grant
available to the MOB and the WD for the said purposes; and such term includes all
schedules to the Implementation Grant Agreement;
(l)
"MOB" means the Municipality of Budapest;
(m)
"MOB Enabling Legislation" means the Recipient's Law on Local
Governments (Act No. LXV) dated 1990 according to which the MOB has been
established and is functioning, as the same may be amended from time to time;

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(n)
"MOB Loan Agreement" means the Loan Agreement dated September
22, 1999, between the Bank and the MOB for the Municipal Wastewater Project (Loan
No. 4512-HU), and such term includes all schedules and agreements supplemental to the
MOB Loan Agreement;
(o)
"MOB Project Agreement" means the agreement of even date herewith
between the Bank and the MOB, as such agreement may be amended from time to time;
and such term includes all schedules and agreements supplemental to the MOB Project
Agreement;
(p)
"MOEW" means the Recipient's Ministry of Environment and Water;
(q)
"MOEW Monitoring and Evaluation Indicators" means the agreed
performance indicators set forth in a letter of even date herewith to be utilized by the
MOEW and the WD, on behalf of the DDNPD, under Part B of the Project to measure
the impacts of Part B of the Project on the reduction of nutrients in the DDNPD and the
degree to which the objectives thereof are being achieved;
(r)
"MOEW Project Management Unit" or "PMU" means the unit
established by and within the MOEW, and referred to in paragraph 1 of Section A of
Schedule 4 to this Agreement;
(s)
"Operational Manual" means the manual to be developed and adopted by
the MOEW, the MOB, the WD (as hereinafter defined in paragraph (z) of this Section)
and the DDNPD, setting forth the institutional, implementation, administrative and
monitoring arrangements for the Project, as the same may be updated and amended from
time to time in accordance with the provisions of paragraph 3 of Section B of Schedule 4
to this Agreement;
(t)
"Procurement Plan" means the Recipient's procurement plan, dated
February 16, 2006, covering the initial eighteen-month period (or longer) of Project
implementation, as the same shall be updated from time to time, at least every twelve
months, or as required in accordance with the provisions of Section 3.02 of this
Agreement, to cover succeeding twelve-month periods of Project implementation;
(u)
"Project Implementation Unit of the WD" or "PIU-WD" means the unit
established by and within the WD (as hereinafter defined in paragraph (z) of this Section)
for the implementation of Part B of the Project, on behalf of the DDNPD, and referred to
in paragraph 3 of Section A of Schedule 4 to this Agreement;
(v)
"Project Implementation Unit of the MOB" or "PIU-MOB" means the
unit established by and within the MOB to carry out, among others, the implementation
of Part A of the Project, and referred to in paragraph 1 of Section A of Schedule 2 to the
Project Agreement;

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(w)
"Project Steering Committee" or "PSC" means the Committee
established and referred to in paragraph 2 of Section A of Schedule 4 to this Agreement;
(x)
"Report-based Disbursements" means the Recipient's option for
withdrawal of funds from the GEF Trust Fund Grant Account referred to in Part A.5 of
Schedule 1 to this Agreement;
(y)
"Special Account" means the account referred to in Part B of Schedule 1
to this Agreement; and
(z)
"WD" means the South-Transdanubian Environmental Protection and
Water Management Directorate, a regional state institution under the supervision of the
MOEW operating as an independent legal entity on the central state budget pursuant to
the provisions of the Government Decree 341-2004 dated October 22, 2004, and its
Founding Charter No. 7496/18/2003 dated December 23, 2003.
Section
1.03. Each reference in the General Conditions to the Project
implementation entity shall be deemed as a reference, respectively: (i) under Part A of the
Project, to the MOB; (ii) under Part B of the Project, to the WD; and (iii) under Part C of
the Project, to the MOEW.
ARTICLE II
The GEF Trust Fund Grant
Section 2.01.
The Bank agrees to make available to the Recipient, on the terms
and conditions set forth or referred to in this Agreement, the GEF Trust Fund Grant in an
amount equal to twelve million five hundred thousand Dollars ($12,500,000).
Section 2.02. The amount of the GEF Trust Fund Grant may be withdrawn
from the GEF Trust Fund Grant Account in accordance with the provisions of Schedule 1
to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in
respect of the reasonable cost of goods, works and services required for the Project and to
be financed out of the proceeds of the GEF Trust Fund Grant.
Section 2.03.
The Closing Date shall be December 31, 2011, or such later date
as the Bank shall establish. The Bank shall promptly notify the Recipient of such later
date.
ARTICLE III
Execution of the Project
Section 3.01.
(a) The Recipient declares its commitment to the objectives of
the Project as set forth in Schedule 2 to this Agreement and, to this end: (i) shall carry out
Parts B and C of the Project through the MOEW with due diligence and efficiency and in

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conformity with appropriate administrative, economic, engineering, technical and water
management practices and with due regard to ecological and environmental factors as
stipulated in the Bucharest Convention on the Protection of the Black Sea Against
Pollution and the Ramsar Convention on Wetlands, and shall provide, promptly as
needed, the funds, facilities, services and other resources required for Parts B and C of
the Project; and (ii) without any limitation or restriction upon any of its other obligations
under the GEF Trust Fund Grant Agreement, shall cause the MOB to carry out Part A of
the Project and perform in accordance with the provisions of the MOB Project
Agreement all the obligations of the MOB therein set forth, shall take or cause to be
taken all action, including the provision of funds, facilities, services and other resources,
necessary or appropriate to enable the MOB to perform such obligations, and shall not
take or permit to be taken any action which would prevent or interfere with such
performance.
(b)
Without limitation upon the provisions of paragraph (a) of this Section
and except as the Recipient and the Bank shall otherwise agree, the Recipient shall carry
out Parts B and C of the Project in accordance with the Implementation Program set forth
in Schedule 4 to this Agreement.
(c)
The Recipient shall make the proceeds of the GEF Trust Fund Grant
allocated from time to time for Part A of the Project available to the MOB, and for Parts
B and C of the Project to the MOEW and the WD, respectively, in both cases on a grant
basis and under the terms of an Implementation Grant Agreement.

(d)
The Recipient shall exercise its rights under the Implementation Grant
Agreement in such manner as to protect the interests of the Recipient and the Bank and to
accomplish the purposes of the GEF Trust Fund Grant, and, except as the Bank shall
otherwise agree, the Recipient shall not amend, abrogate or waive the Implementation
Grant Agreement or any provision thereof.
Section 3.02. (a) Except as the Bank shall otherwise agree, procurement of
goods, works and services required for Parts B and C of the Project and to be financed
out of the proceeds of the GEF Trust Fund Grant shall be governed by the provisions of
Schedule 3 to this Agreement, as said provisions may be further elaborated in the
Procurement Plan.
(b)
The Recipient, through the MOEW, shall update the Procurement Plan
for Parts B and C of the Project in accordance with guidelines acceptable to the Bank,
and furnish such update to the Bank not later than twelve (12) months after the date of the
preceding Procurement Plan, for the Bank's approval.
Section 3.03.
For the purposes of Section 9.07 (c) of the General Conditions
and without limitation thereto, the Recipient, through the MOEW, shall:

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(a)
prepare, on the basis of guidelines acceptable to the Bank, and furnish to
the Bank not later than six (6) months after the Closing Date or such later date as may be
agreed for this purpose between the Recipient and the Bank, a plan designed to ensure the
future sustainability of Parts B and C of the Project; and
(b)
afford the Bank a reasonable opportunity to exchange views with the
Recipient on said plan.

Section 3.04.
The Bank and the Recipient hereby agree that the obligations set
forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating
to insurance, use of goods and services, plans and schedules, records and reports,
maintenance and land acquisition, respectively) in respect of Part A of the Project shall
be carried out by the MOB pursuant to the provisions of Section 2.03 of the MOB Project
Agreement.
ARTICLE IV
Financial Covenants
Section 4.01. (a) The Recipient, through the MOEW, shall maintain a
financial management system for Parts B and C of the Project, including records and
accounts, and prepare financial statements in accordance with consistently applied
accounting standards acceptable to the Bank, adequate to reflect the operations, resources
and expenditures related to the Project.
(b)
The Recipient, through the MOEW, shall:
(i)
have the financial statements referred to in paragraph (a) of this
Section for each Fiscal Year (or other period agreed to by the
Bank), audited, in accordance with consistently applied auditing
standards acceptable to the Bank, by independent auditors
acceptable to the Bank;
(ii)
furnish to the Bank as soon as available, but in any case not later
than six (6) months after the end of each such year (or such other
period agreed to by the Bank): (A) certified copies of the
financial statements referred to in paragraph (a) of this Section
for such year (or other period agreed to by the Bank), as so
audited; and (B) an opinion on such statements by said auditors,
in scope and detail satisfactory to the Bank; and
(iii)
furnish to the Bank such other information concerning such
records and accounts, and the audit of such financial statements,
and concerning said auditors, as the Bank may from time to time
reasonably request.

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(c)
For all expenditures with respect to which withdrawals from the GEF
Trust Fund Grant Account were made on the basis of the reports referred to in Part A.5 of
Schedule 1 to this Agreement (Report-based Disbursements) or on the basis of statements
of expenditure, the Recipient, through the MOEW, shall:
(i)
retain, until at least one (1) year after the Bank has received the
audit report for, or covering, the Fiscal Year in which the last
withdrawal from the GEF Trust Fund Grant Account was made,
all records (contracts, orders, invoices, bills, receipts and other
documents) evidencing such expenditures;
(ii)
enable the Bank's representatives to examine such records; and
(iii)
ensure that such reports and statements of expenditure are
included in the audit for each Fiscal Year (or other period agreed
to by the Bank), referred to in paragraph (b) of this Section.
Section 4.02.
(a) Without limitation upon the Recipient's progress reporting
obligations set out in paragraph 1 of Section C of Schedule 4 this Agreement, the
Recipient, through the MOEW, shall prepare and furnish to the Bank a financial
monitoring report, in form and substance satisfactory to the Bank, which:
(i)
sets forth sources and uses of funds of the Project, both
cumulatively and for the period covered by said report, showing
separately funds provided under the GEF Trust Fund Grant, and
explains variances between the actual and planned uses of such
funds;
(ii)
describes physical progress in the implementation of the Project,
both cumulatively and for the period covered by said report, and
explains variances between the actual
and planned
implementation of Parts B and C of the Project;
(iii)
sets forth the status of procurement under of the Project, as at the
end of the period covered by said report; and
(iv)
consolidates the financial monitoring reports provided to the
MOEW by the MOB for Part A of the project under Article IV
of the MOB Project Agreement with the financial monitoring
reports prepared by the MOEW for Parts B and C of the Project.
(b)
The first FMR shall be furnished to the Bank not later than forty-five
(45) days after the end of the first calendar quarter after the Effective Date, and shall
cover the period from the incurrence of the first expenditure under the Project through the
end of such first calendar quarter; thereafter, each FMR shall be furnished to the Bank not

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later than forty-five (45) days after each subsequent calendar quarter, and shall cover
such calendar quarter.
ARTICLE V
Remedies of the Bank
Section 5.01. Pursuant to Section 6.02 (p) of the General Conditions, the
following additional events are specified:
(a)
The MOB shall have failed to perform any of its obligations under the
MOB Project Agreement.

(b)
(i)
Subject to sub-paragraph (ii) of this paragraph:
(A)
the right of the MOB to withdraw the proceeds of the
Loan No. 4512-HU shall have been suspended, canceled
or terminated in whole or in part, pursuant to the terms
of the MOB Loan Agreement, or
(B)
Loan No. 4512-HU shall have become due and payable
prior to the agreed maturity thereof.
(ii)
Sub-paragraph (i) of this paragraph shall not apply if the MOB
establishes to the satisfaction of the Bank that: (A) such
suspension, cancellation, termination or prematuring is not
caused by the failure of the MOB to perform any of its
obligations under the MOB Loan Agreement; and (B) adequate
funds for Part A of the Project are available to the MOB from
other sources on terms and conditions consistent with the
obligations of the MOB under the MOB Project Agreement.
ARTICLE VI
Effectiveness; Termination
Section 6.01. The following event is specified as an additional condition to
the effectiveness of the GEF Trust Fund Grant within the meaning of Section 12.01 (c) of
the General Conditions, namely that the Implementation Grant Agreement has been
executed.
Section 6.02. The following are specified as additional matters, within the
meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or
opinions to be furnished to the Bank:

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(a)
that the MOB Project Agreement has been duly authorized by the MOB
and is legally binding upon the MOB in accordance with its terms; and

(b)
that the Implementation Grant Agreement has been duly authorized or
ratified and is legally binding upon its parties in accordance with its terms.
Section 6.03. The date ninety (90) days after the date of this Agreement is
hereby specified for the purposes of Section 12.04 of the General Conditions.
Section 6.04. This Agreement shall continue in effect until the GEF Trust
Fund Grant has been fully disbursed and the parties to this Agreement have fulfilled their
obligations hereunder.
ARTICLE VII
Representative of the Recipient; Addresses
Section 7.01. The Minister of Finance of the Recipient is designated as
representative of the Recipient for the purposes of Section 11.03 of the General
Conditions.
Section 7.02. The following addresses are specified for the purposes of
Section 11.01 of the General Conditions:
For the Recipient:
Ministry of Finance
Joszef nador ter 2-4
1369 Budapest
Republic of Hungary

Facsimile:

(36-1) 318-3305
For the Bank:
International Bank for
Reconstruction and Development
1818 H Street, N.W.
Washington, D.C. 20433
United States of America

Cable
address:
Telex:
Facsimile:

INTBAFRAD
248423 (MCI)
(1-202) 477-6391
Washington, D.C.
64145 (MCI)

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IN WITNESS WHEREOF, the parties hereto, acting through their duly
authorized representatives, have caused this Agreement to be signed in their respective
names in Budapest, Republic of Hungary, as of the day and year first above written.

REPUBLIC OF HUNGARY

By: /s/ Tamas Katona
Authorized Representative
INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
(Acting as an Implementing Agency of the Global Environment
Facility)

By: /s/ Daniela Gressani
Authorized Representative

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SCHEDULE 1
Withdrawal of the Proceeds of the GEF Trust Fund Grant
A. General
1.
The table below sets forth the Categories of items to be financed out of the
proceeds of the GEF Trust Fund Grant, the allocation of the amounts of the GEF Trust
Fund Grant to each Category, and the percentage of expenditures for items so to be
financed in each Category:

Amount of the

GEF Trust Fund Grant Allocated
% of

(Expressed in
Expenditures
Category
Dollars)
to be Financed
(1)
Goods, works and
6,500,000

80%
Consultants' services under

Part A of the Project

(2)
Goods, works and
4,860,000

80%

Consultants' services under

Part B of the Project

(3) Goods
and
330,000

80%

Consultants' services

and Training under Part C

of the Project

(4) Unallocated
810,000
TOTAL 12,500,000
2.
For the purposes of this Schedule, the term "Training" means expenditures
incurred by the Recipient to finance the cost of training related to the Project and carried
out under Part C of the Project.
3.
Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be
made in respect of payments made for expenditures prior to the date of this Agreement.
4.
The Bank may require withdrawals from the Grant Account to be made on the
basis of statements of expenditure for all expenditures under contracts for goods, works,
services and training not subject to the Bank's Prior Review, as stipulated in the

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Procurement Plan, all under such terms and conditions as the Bank shall specify by notice
to the Recipient.
5.
The Recipient may request withdrawals from the GEF Trust Fund Grant Account
to be made on the basis of reports to be submitted to the Bank in form and substance
satisfactory to the Bank, such reports to include the FMR and any other information as
the Bank shall specify by notice to the Recipient (Report-based Disbursements). In the
case of the first such request submitted to the Bank before any withdrawal has been made
from the GEF Trust Fund Grant Account, the Recipient shall submit to the Bank only a
statement with the projected sources and applications of funds for the Project for the six-
month period following the date of such request.
B. Special
Account
1.
The Recipient may open and maintain in Dollars a special deposit account in the
State Treasury of Hungary, on terms and conditions satisfactory to the Bank, including
appropriate protection against set-off, seizure and attachment.
2.
After the Bank has received evidence satisfactory to it that the Special Account
has been opened, withdrawals from the GEF Trust Fund Grant Account of amounts to be
deposited into the Special Account shall be made as follows:

(a)
if the Recipient is not making Report-based Disbursements, withdrawals
shall be made in accordance with the provisions of Annex A to this Schedule 1; and

(b)
if the Recipient is making Report-based Disbursements, withdrawals
shall be made in accordance with the provisions of Annex B to this Schedule 1.
3.
Payments out of the Special Account shall be made exclusively for Eligible
Expenditures. For each payment made by the Recipient out of the Special Account, the
Recipient shall, at such time as the Bank shall reasonably request, furnish to the Bank
such documents and other evidence showing that such payment was made exclusively for
Eligible Expenditures.
4.
Notwithstanding the provisions of Part B.2 of this Schedule, the Bank shall not
be required to make further deposits into the Special Account:

(a)
if the Bank, at any time, is not satisfied that the reports referred to in Part
A.5 of this Schedule 1 adequately provide the information required for Report-based
Disbursements; or
(b)
if the Recipient shall have failed to furnish to the Bank, within the period
of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports
required to be furnished to the Bank pursuant to said Section in respect of the audit of:
(A) the records and accounts for the Special Account; or (B) the records and accounts
reflecting expenditures with respect to which withdrawals were Report-based

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Disbursements or were made on the basis of statements of expenditure, as the case may
be.
5.
The Bank shall not be required to make further deposits into the Special Account
in accordance with the provisions of Part B.2 of this Schedule if, at any time, the Bank
shall have notified the Recipient of its intention to suspend in whole or in part the right of
the Recipient to make withdrawals from the GEF Trust Fund Grant Account pursuant to
Section 6.02 of the General Conditions. Upon such notification, the Bank shall
determine, in its sole discretion, whether further deposits into the Special Account may
be made and what procedures should be followed for making such deposits, and shall
notify the Recipient of its determination.
6.
(a)
If the Bank determines at any time that any payment out of the Special
Account was made for an expenditure which is not an Eligible Expenditure, or was not
justified by the evidence furnished to the Bank, the Recipient shall, promptly upon notice
from the Bank, provide such additional evidence as the Bank may request, or deposit into
the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal
to the amount of such payment. Unless the Bank shall otherwise agree, no further deposit
by the Bank into the Special Account shall be made until the Recipient has provided such
evidence or made such deposit or refund, as the case may be.

(b)
If the Bank determines at any time that any amount outstanding in the
Special Account will not be required to cover payments for Eligible Expenditures during
the six-month period following such determination, the Recipient shall, promptly upon
notice from the Bank, refund to the Bank such outstanding amount.

(c)
The Recipient may, upon notice to the Bank, refund to the Bank all or
any portion of the funds on deposit in the Special Account.

(d)
Refunds to the Bank made pursuant to sub-paragraph (a), (b) or (c) of
this paragraph 6 shall be credited to the GEF Trust Fund Grant Account for subsequent
withdrawal or for cancellation in accordance with the provisions of the GEF Trust Fund
Grant Agreement.

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Annex A
to
SCHEDULE 1

Operation of Special Account
When Withdrawals Are Not
Report-based Disbursements
1.
For the purposes of this Annex, the term "Authorized Allocation" means the
amount of $1,250,000 to be withdrawn from the GEF Trust Fund Grant Account and
deposited into the Special Account pursuant to paragraph 2 of this Annex.
2.
Withdrawals of the Authorized Allocation and subsequent withdrawals to
replenish the Special Account shall be made as follows:

(a)
For withdrawals of the Authorized Allocation, the Recipient shall furnish
to the Bank a request or requests for deposit into the Special Account of an amount or
amounts which in the aggregate do not exceed the Authorized Allocation. On the basis of
each such request, the Bank shall, on behalf of the Recipient, withdraw from the GEF
Trust Fund Grant Account and deposit into the Special Account such amount as the
Recipient shall have requested.

(b)
For replenishment of the Special Account, the Recipient shall furnish to
the Bank requests for deposit into the Special Account at such intervals as the Bank shall
specify. Prior to or at the time of each such request, the Recipient shall furnish to the
Bank the documents and other evidence required pursuant to Part B.3 of Schedule 1 to
this Agreement for the payment or payments in respect of which replenishment is
requested. On the basis of each such request, the Bank shall, on behalf of the Recipient,
withdraw from the GEF Trust Fund Grant Account and deposit into the Special Account
such amount as the Recipient shall have requested and as shall have been shown by said
documents and other evidence to have been paid out of the Special Account for Eligible
Expenditures. Each such deposit into the Special Account shall be withdrawn by the
Bank from the GEF Trust Fund Grant Account under one or more of the Eligible
Categories.
3.
The Bank shall not be required to make further deposits into the Special Account,
once the total unwithdrawn amount of the GEF Trust Fund Grant minus the total amount
of all outstanding special commitments entered into by the Bank pursuant to Section 5.02
of the General Conditions shall equal the equivalent of twice the amount of the
Authorized Allocation. Thereafter, withdrawal from the GEF Trust Fund Grant Account
of the remaining unwithdrawn amount of the GEF Trust Fund Grant shall follow such
procedures as the Bank shall specify by notice to the Recipient. Such further withdrawals
shall be made only after and to the extent that the Bank shall have been satisfied that all
such amounts remaining on deposit in the Special Account as of the date of such notice
will be utilized in making payments for Eligible Expenditures.

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Annex B
to
SCHEDULE 1

Operation of Special Account
When Withdrawals Are
Report-based Disbursements
1.
Withdrawals from the GEF Trust Fund Grant Account shall be deposited by the
Bank into the Special Account in accordance with the provisions of Schedule 1 to this
Agreement. Each such deposit into the Special Account shall be withdrawn by the Bank
from the GEF Trust Fund Grant Account under one or more of the Eligible Categories.
2.
Upon receipt of each application for withdrawal of an amount of the GEF Trust
Fund Grant, the Bank shall, on behalf of the Recipient, withdraw from the GEF Trust
Fund Grant Account and deposit into the Special Account an amount equal to the lesser
of: (i) the amount so requested; and (ii) the amount which the Bank has determined,
based on the reports referred to in Part A.5 of this Schedule 1 applicable to such
withdrawal application, is required to be deposited in order to finance Eligible
Expenditures during the six-month period following the date of such reports.
.

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SCHEDULE 2
Description of the Project
The objectives of the Project are: (i) to reduce Budapest's discharge of nutrients
(nitrogen and phosphorous) into the Danube river, and consequently into the Black Sea;
(ii) to enhance the nutrient trapping capacity of Gemenc and Beda-Karapancsa wetlands
situated in the lower Hungarian part of the Danube river; and (iii) to serve as a model for
similar nutrient reduction initiatives in Hungary and other Danube basin countries.

The Project consists of the following parts, subject to such modifications thereof
as the Recipient and the Bank may agree upon from time to time to achieve such
objectives:
Part A: Development of Tertiary Treatment Capability at the North Budapest Wastewater
Treatment Plant
Upgrading of the North Budapest Wastewater Treatment Plant to the tertiary
level of treatment for nitrogen and phosphorous reduction, including provision of works
and the required equipment, through the use of technology compliant with the European
Union and Hungarian legislation and regulations.
Part B: Wetland Restoration in the Duna-Drava National Park
Rehabilitation of about ten thousand (10,000) hectares of wetlands to develop
their nutrient trapping capacity in the areas of Gemenc and Beda-Karapancsa within the
DDNP, including the provision of works for clearing, dredging and construction
/installation of regulating water structures and equipment and: (i) carrying out of a
comprehensive baseline study to assess the areas' environmental quality, to help
determine the precise location of two pilots, and to provide recommendations on the
design of a water quality monitoring and evaluation system; (ii) on the basis thereof,
design and installation of a monitoring and evaluation system for the evaluation of
Project impacts in terms of reduction of nutrients and phosphorous; (iii) adapt a
methodology of impact evaluation; and (iv) development of a DDNPD Special Area
Management Plan aimed at develop measures to best accommodate authorized uses and
protection measures in the DDNP area.
Part C: Dissemination and Replication
Carrying out of: (i) a comprehensive end-of-Project impact evaluation and result
analysis study of Parts A and B of the Project, including a cost-benefit analysis; (ii) on
the basis thereof, dissemination, public awareness and replication activities, such as
workshop and public communication campaigns, including for dissemination activities to
foster replication in the Recipient's territory or in other parts of the Danube river basin;
(iii) a Project launch workshop; (iv) auditing services under the Project; and (v) training

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to strengthen the MOEW, the MOB and the WD's Project implementation capabilities
and to build the capacity of the DDNPD staff for the efficient development and operation
of wetlands for nutrient trapping.
* * *
The Project is expected to be completed by June 30, 2011.

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SCHEDULE 3
Procurement and Consultants' Services
Section I.
General
A.
All goods, works and services (other than consultants' services) shall be procured
in accordance with the provisions of Section I of the "Guidelines: Procurement under
IBRD Loans and IDA Credits" dated May 2004 (the Procurement Guidelines), and with
the provisions of this Schedule.
B.
All consultants' services shall be procured in accordance with Sections I and IV
of the "Guidelines: Selection and Employment of Consultants by World Bank
Borrowers" dated May 2004 (the Consultant Guidelines), and with the provisions of this
Schedule.
C.
The capitalized terms used below in this Schedule to describe particular
procurement methods or methods of review by the Bank of particular contracts, have the
meanings ascribed to them in the Procurement Guidelines, or Consultant Guidelines, as
the case may be.
Section II.
Particular Methods of Procurement of Goods and Works and Services
(other than Consultants' Services)
A. International
Competitive
Bidding. Except as otherwise provided in Part B of
this Section, contracts shall be awarded on the basis of International Competitive
Bidding. The provisions of paragraphs 2.55 and 2.56 of the Procurement Guidelines,
providing for domestic preference in the evaluation of bids, shall apply to goods
manufactured in the territory of the Recipient.
B.
Other Procurement Procedures
1.
National Competitive Bidding.
Goods estimated to cost less than $300,000
equivalent per contract and works estimated to cost less than $2,000,000 equivalent per
contract may be procured under contracts awarded on the basis of National Competitive
Bidding and the following additional provisions: draft NCB documents shall be provided
to the Bank in English for its review and prior no-objection.
2. Shopping. Goods estimated to cost less than $100,000 equivalent per contract
may be procured under contracts awarded on the basis of Shopping.
Section III.
Particular Methods of Procurement of Consultants' Services
A.
Quality- and Cost-based Selection. Except as otherwise provided in Part B of
this Section, consultants' services shall be procured under contracts awarded on the basis
of Quality- and Cost-based Selection. For purposes of paragraph 2.7 of the Consultant

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Guidelines, the short list of consultants for services estimated to cost less than $200,000
equivalent per contract may comprise entirely national consultants.
B. Other
Procedures
1. Least-cost
Selection. Services for assignments which the Bank agrees meet the
requirements of paragraph 3.6 of the Consultant Guidelines may be procured under
contracts awarded on the basis of Least-cost Selection in accordance with the provisions
of paragraphs 3.1 and 3.6 of the Consultant Guidelines.
2.
Selection Based on Consultants' Qualifications. Services estimated to cost less
than $200,000 equivalent per contract may be procured under contracts awarded in
accordance with the provisions of paragraphs 3.1, 3.7 and 3.8 of the Consultant
Guidelines.
3. Individual
Consultants. Services for assignments that meet the requirements set
forth in the first sentence of paragraph 5.1 of the Consultant Guidelines may be procured
under contracts awarded to individual consultants in accordance with the provisions of
paragraphs 5.2 through 5.3 of the Consultant Guidelines. Under the circumstances
described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded
to individual consultants on a sole-source basis.
Section IV.
Review by the Bank of Procurement Decisions
The procurement Plan shall set forth those contracts which shall be subject to the
Bank's prior review. All other contracts shall be subject to Post Review by the Bank.

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SCHEDULE 4
Implementation Program
Section A:
Institutional Arrangements
1.
The MOEW and its PMU
The Recipient, through the MOEW, shall have overall responsibility for the
Project's implementation management, including Project oversight and reporting to the
Bank, inter-agency coordination and direct responsibility for implementation of Parts B
(with the cooperation of the WD) and C of the Project. For such purposes, the Recipient
shall maintain throughout Project implementation the Project Management Unit with
adequate financial and human resources to ensure quality and timely coordination. More
specifically, the PMU shall oversee, coordinate, administer, monitor and evaluate Project
implementation, acting as the Bank's counterpart for any Project implementation
requirement.
2.
Project Steering Committee
In order to ensure appropriate inter-agency coordination, provide overall
guidance, facilitate integration and address potential conflicts, the Recipient shall
maintain throughout Project implementation a Steering Committee chaired by a senior
level official of the MOEW and comprising representatives from the MOF, the MOEW,
the MOB, the DDNPD and the WD. The PSC shall be responsible for bringing the
collective expertise of sectors at the national, regional and municipal level and
stakeholders to help ensure that Project implementation proceeds toward its objectives
and for channeling the dissemination of experiences and lessons generated under the
Project.
3. PIU
-
WD
Specific implementation activities for Part B of the Project shall be vested in the
PIU-WD. To those ends, the MOEW shall maintain the PIU-WD throughout Project
implementation with financial and human resources adequate to enable it to appropriately
carry out its responsibilities under Part B of the Project. The PIU-WD shall be
responsible for the technical and financial management of Part B of the Project and the
carrying out of the procurement, disbursement and reporting responsibilities.
Section B:
Implementation Modalities
1.
Part B of the Project
The Recipient, through the MOEW, shall cause the WD:

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(a)
to carry out, supervise and monitor Part B of the Project, including the
development of a water quality monitoring system to measure the impact of the Part B of
the Project on the reduction of nutrients in the DDNP, with due diligence and efficiency
and in conformity with appropriate administrative, economic, engineering, technical and
water management practices and with due regard to ecological and environmental factors
as stipulated in the Bucharest Convention on the Protection of the Black Sea Against
Pollution and the Ramsar Convention on Wetlands;
(b)
to take out and maintain with responsible insurers, or to make other
provision satisfactory to the Bank for, insurance against such risks and in such amounts
as shall be consistent with appropriate practice;
(c)
to carry on its operations and conduct its affairs in accordance with
sound administrative, economic, environment, financial, water management and technical
practices under the supervision of qualified and experienced management assisted by
competent staff in adequate numbers; and
(d)
upon Project completion, to transfer to the DDNPD the ownership and
the responsibility for the operation and maintenance of the facilities constructed, areas
rehabilitated and water quality monitoring system developed under Part B of the Project
in accordance with a time action plan agreed by the Recipient and the Bank.
2.
In order to assess and assist the WD authorities in the selection and monitoring of
the planned interventions under Part B of the Project, the Recipient, through the MOEW,
shall ensure that a panel of internationally recognized experts in the area of wetlands
restoration and management shall provide appropriate advice and recommendations, all
in accordance with the Operational Manual.
3. Operational
Manual
(a)
The Recipient, through the MOEW, shall take all action required to
ensure that the Operational Manual is applied and followed at all times in the
implementation, monitoring and evaluation of Parts B and C of the Project.
(b)
Except as the Bank shall otherwise agree, the Recipient, through the
MOEW, shall not amend, abrogate or waive the Operational Manual or any provision
thereof.
4. Environmental
Management
Plans
The Recipient shall take all measures necessary on its behalf to carry out, or to
enable the WD, as the case may be, to carry out, the measures identified under the
Environmental Management Plans at all times in a timely manner, ensuring that adequate
information on the implementation of said measures is suitably included in the Project

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progress reports to be prepared by the WD pursuant to the provisions of the
Implementation Grant Agreement.
Section C:
Reporting on Progress and Mid-Term Review
1. Progress
Reporting
Without limitation upon the provisions of Section 9.07 of the General
Conditions, the Recipient, through the MOEW shall, commencing on November 30,
2006, and thereafter, not later than November 30 and May 31 in each calendar year and
until Project completion, prepare and furnish to the Bank a semi-annual progress report,
of such scope and in such detail as the Bank shall reasonably request, describing, in
accordance with the MOEW Monitoring and Evaluation Indicators, the progress achieved
in the implementation of Parts B and C of the Project during the preceding calendar
semester and the updated MOEW Monitoring and Evaluation Indicators for the upcoming
calendar semester.
2. Mid-Term
Review
The Recipient, through the MOEW, shall:
(a)
maintain policies and procedures adequate to enable it to monitor and
evaluate on an ongoing basis, in accordance with the MOEW Monitoring and Evaluation
Indicators, the carrying out of Parts B and C of the Project and the achievement of the
objectives thereof;

(b)
prepare, under terms of reference satisfactory to the Bank, and furnish to
the Bank, on or about November 30, 2008, a mid-term report integrating the results of the
monitoring and evaluation activities performed pursuant to paragraph (a) of this
paragraph, on the progress achieved in the carrying out of Parts B and C of the Project
during the period preceding the date of said report and setting out the measures
recommended to ensure the efficient carrying out of Parts B and C of the Project and the
achievement of the objectives thereof during the period following such date; and

(c)
review with the Bank, by February 28, 2009, or such later date as the
Bank shall request, the report referred to in paragraph (b) of this paragraph, and,
thereafter, take all measures required to ensure the efficient completion of Parts B and C
of the Project and the achievement of the objectives thereof, based on the conclusions and
recommendations of the said report and the Bank's views on the matter.

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