CONFORMED COPY

GEF TRUST FUND GRANT NUMBER TF090845-HR

Global Environment Facility
Trust Fund
Grant Agreement

(Agricultural Pollution Control Project)

between

REPUBLIC OF CROATIA

and

INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT

acting as an Implementing Agency of the Global Environment Facility

Dated March 11, 2008

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GEF TRUST FUND GRANT NUMBER TF090845-HR

GLOBAL ENVIRONMENT FACILITY TRUST FUND
GRANT AGREEMENT

AGREEMENT dated March 11, 2008, entered into between the REPUBLIC OF
CROATIA ("Recipient") and the INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT ("Bank"), acting as an implementing
agency of the Global Environment Facility ("GEF").

The Recipient and the Bank hereby agree as follows:

Article I
Standard Conditions; Definitions

1.01. The Standard Conditions for Grants Made by the World Bank Out of Various
Funds, dated July 20, 2006 ("Standard Conditions") constitute an integral part of
this Agreement.

1.02. Unless the context requires otherwise, the capitalized terms used in this
Agreement have the meanings ascribed to them in the Standard Conditions or in
the Appendix to this Agreement.

Article II
The Project

2.01.
The Recipient declares its commitment to the objectives of the Project described
in Schedule 1 to this Agreement ("Project"). To this end, the Recipient: (i)
through the MAFRD, shall carry out Parts 1 and 4 of the Project; and (ii) shall
cause Parts 2 and 3 of the Project to be carried out by CAEI ("Project
Implementing Entity"), all in accordance with the provisions of Article II of the
Standard Conditions and the agreement of even date herewith between the Bank
and the Project Implementing Entity, as such agreement may be amended from
time to time ("Project Agreement").

2.02. Without limitation upon the provisions of Section 2.01 of this Agreement, and
except as the Recipient and the Bank shall otherwise agree, the Recipient shall
ensure that the Project is carried out in accordance with the provisions of
Schedule 2 to this Agreement.

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Article III
The Grant

3.01.
The Bank agrees to extend to the Recipient, on the terms and conditions set forth
or referred to in this Agreement, a grant in an amount equal to five million
United States Dollars ($5,000,000) ("Grant") to assist in financing the Project.

3.02. The Recipient may withdraw the proceeds of the Grant in accordance with
Section IV of Schedule 2 to this Agreement.

Article IV
Additional Remedies: Suspension

4.01. The Additional Events of Suspension referred to in Section 4.02 (i) of the
Standard Conditions consist of the following:

(a)
The Recipient has failed to make payment (notwithstanding the fact that
such payment may have been made by a third party) of principal,
interest, service charge or any other amount due to IDA or the Bank: (i)
under a Financing Agreement; or (ii) under any other agreement
between the Recipient and IDA; or (iii) under any agreement between the
Recipient and the Bank; or (iv) in consequence of any guarantee
extended or other financial obligation of any kind assumed by IDA or the
Bank to any third party with the agreement of the Recipient.

(b)
The Project Implementing Entity's Legislation has been amended,
suspended, abrogated, repealed or waived so as to affect materially and
adversely the ability of the Project Implementing Entity to perform any
of its obligations under the Project Agreement.

(c)
The Recipient has taken or permitted to be taken any action which would
prevent or interfere with the performance by the Project Implementing
Entity of its obligations under the Project Agreement.

(d)
The Project Implementing Entity has failed to perform any obligation
under the Project Agreement.

(e)
IBRD or IDA has declared the Project Implementing Entity ineligible to be
awarded a contract financed by IBRD or IDA.

(f)
As a result of events which have occurred after the date of this
Agreement, an extraordinary situation has arisen which makes it
improbable that the Project Implementing Entity will be able to perform
its obligations under the Project Agreement.

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Article V
Effectiveness; Termination

5.01.
This Agreement shall not become effective until evidence satisfactory to the Bank
has been furnished to the Bank that:

(a)
The Recipient shall have appointed a Livestock/Nitrates Management
Technical Specialist to the PIU with qualifications and under terms of
reference satisfactory to the Bank.

(b)
The execution and delivery of this Agreement on behalf of the Recipient
and the Project Agreement on behalf of the Project Implementing Entity
have been duly authorized or ratified by all necessary governmental and
corporate action.

(c)
The Recipient shall have completed, in form and substance satisfactory to
the Bank, the preparation of the Project accounting software to include the
GEF funding and generate automatically interim financial reports.

5.02.
As part of the evidence to be furnished pursuant to Section 5.01, there shall be
furnished to the Bank an opinion or opinions satisfactory to the Bank of counsel
acceptable to the Bank or, if the Bank so requests, a certificate satisfactory to the
Bank of a competent official of the Recipient, showing the following matters:

(a)
on behalf of the Recipient, that this Agreement has been duly authorized or
ratified by, and executed and delivered on its behalf and is legally binding
upon it in accordance with its terms; and

(b)
on behalf of the Project Implementing Entity, that the Project Agreement
has been duly authorized or ratified by, and executed and delivered on its
behalf and is legally binding upon it in accordance with its terms.

5.03.
Except as the Recipient and the Bank shall otherwise agree, this Agreement shall
enter into effect on the date upon which the Bank dispatches to the Recipient notice
of its acceptance of the evidence required pursuant to Section 5.01 ("Effective
Date"). If, before the Effective Date, any event has occurred which would have
entitled the Bank to suspend the right of the Recipient to make withdrawals from
the Grant Account if this Agreement had been effective, the Bank may postpone
the dispatch of the notice referred to in this Section until such event (or events) has
(or have) ceased to exist.

5.04.
This Agreement and all obligations of the parties under it shall terminate if it has
not entered into effect by the date ninety (90) days after the date of this Agreement,
unless the Bank, after consideration of the reasons for the delay, establishes a later

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date for the purpose of this Section. The Bank shall promptly notify the Recipient
of such later date.

Article VI
Recipient's Representative; Addresses

6.01.
The Recipient's Representative referred to in Section 7.02 of the Standard
Conditions is the Minister of Finance of Croatia.
6.02.
The Recipient's Address referred to in Section 7.01 of the Standard Conditions
is:

Ministry of Finance

Katanciceva 5

10000 Zagreb

Republic of Croatia

Facsimile:

(385-1) 4922-598

6.03.
The Bank's Address referred to in Section 7.01 of the Standard Conditions is:

International Bank for Reconstruction

and Development

1818 H Street, N.W.
Washington, D.C. 20433

United States of America

Cable:
Telex:
Facsimile:

INTBAFRAD
INDEVAS

248423 (MCI) or
(1-202) 477-6391

Washington, D.C.
64145 (MCI)

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AGREED at Zagreb, Republic of Croatia, as of the day and year first above
written.

REPUBLIC OF CROATIA
By: /s/ Ivan Suker
Authorized Representative

INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

acting as an Implementing Agency of the

Global Environment Facility

By: /s/ Andras Horvai
Authorized Representative

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SCHEDULE 1
Project Description
The objective of the Project is to significantly increase the use of environmentally
friendly agricultural practices by farmers in the Recipient's Danube River basin in order
to reduce nutrient discharge from agricultural sources to surface and ground water bodies,
by: (i) promoting mitigating measures for nutrient reduction from agricultural sources to
surface and ground water bodies (manure management); (ii) implementing a national
Agri-environment policy (Code of Good Agricultural Practices) and the national water
protection policy, particularly concerning nitrates; (iii) carrying out of a public awareness
campaign that would disseminate the benefits of Project activities with the aim of
replication at the national and regional levels; and (iv) efficient Project management.
The Project consists of the following parts:
Part 1: Mitigating Nutrient Loads to Water Bodies from Point-Source Pollution
Carrying out of a program to promote sustainable manure management practices
with the objective of reducing nutrient loads to the surface and ground water bodies of
the Recipient, and encompassing the following:
A.
Nitrates Mitigation Investment Fund

Establishment of a Nitrates Mitigation Investment Fund within the MAFRD to
finance Sub-Grants in the counties of Osije ko-Baranjska, Vukovarsko-Srijemska, and
Vara dinska, and provision of two (2) technical staff to support the management of the
Fund.
B.
Water and Soil Monitoring and Impact Analysis
Development and implementation of a water and soil monitoring program aimed
at assessing the reduction of nutrient loads to surface and ground waters from Sub-
projects, including impact analysis, through: (i) the installation of up to twenty-seven (27)
piezometers sets in selected representative sites to monitor the quality of water flowing
out of livestock farms implementing Sub-projects; (ii) systematic sampling and testing of
well water in rural areas, both as a goodwill measure for participating Farms as well as to
demonstrate the risk to rural communities from inappropriate nitrates management; (iii)
the preparation and adoption of a Quality Control and Quality Assurance Operational
Manual to bring coherence and uniformity in the work of all measuring stations and
monitoring programs; (iv) the provision of data logging equipment for piezometer
monitoring and sampling; and (v) the installation of three (3) sets of three (3) lysimeters
in Vara dinska county in the vicinity of selected livestock farm with a view to measure
nitrite and other parameters leaching into the soil.

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Part 2: Development and Promotion Agri-Environment Measures
Strengthening of CAEI's capacity to advice and train the farmers working in the
counties of Osije ko-Baranjska, Vukovarsko-Srijemska, and Vara dinskaon on the most
cost-effective on-farm technologies for complying with the Nitrates Directive, including
the financing of the salaries of the three (3) nitrates management staff in CAEI, the
carrying out of field demonstration trips, the provision of training, international technical
assistance, equipment and installation costs of soft-ware, and encompassing the
following:
A.
Dissemination of Code of Good Agriculture Practice
Provision of assistance to the MAFRD: (i) to disseminate the CGAP, through the
carrying out of mass media campaigns and the distribution of brochures, agricultural
periodicals and journals; (ii) the adaptation of the CGAP to the dominant farming
systems in the counties of Osije ko-Baranjska, Vukovarsko-Srijemska, and Vara dinska;
and (iii) the development of an interpretation of its provisions that ensure farmers' buy-
in, including the provision of information and training on, inter alia, nutrient remedial
measures, EU principles of project financing, and measures to secure funding from non-
Bank resources.
B. Applied
Research
Program
Implementation of a broad-based multi-locational four-year plot trial program to
develop fertilizer response curves for the three (3) most economically important crop
types in each of the three Project counties.
C. CGAP
Demonstration
Program
Implementation, and support to the CAEI in the implementation, of a broad-
based program to promote the adoption and implementation of environmentally friendly
agricultural practices to reduce non-point source nutrient pollution from agriculture
through reducing nutrient discharge into water bodies, through the provision of: (i)
technical assistance to Farms receiving Sub-Grants; (ii) nutrient management planning in
the project counties to promote optimum use of organic and mineral fertilizers in order to
reduce the loss of nitrogen and phosphorus to the water bodies; and (iii) demonstration of
cover crop technology that reduces nutrient loss, protects soil from compaction and
erosion, maintains soil organic matter, enhances biodiversity and provides additional
fodder and/or green manure.
Part 3: Public Awareness and Replication Strategy
Carrying out of a Project county and nationwide public information campaign to
disseminate the benefits of the proposed Project activities for their replication with
IPARD support, with particular emphasis on the implementation of good agricultural

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practices and the promotion of improved rural sanitation in the Project counties, and
including:
A. Public
Awareness

Organization of national and regional workshops, field trips, and study tours for
sharing knowledge and skills on effective low-cost environmentally friendly
technologies, carrying out of dissemination activities through the use of the media
(television, radio, agricultural and environmental journals) for disseminating the benefits
of proposed activities, organization of fora, all as required to familiarize the population
with the Project and its benefits and thereby raise the interest of potential future clients.
B. Website
Creation of a website linked to those of the MAFRD, CAEI and MEPPPC and
dedicated to the management of nitrate pollution from agricultural sources.
C. Knowledge
Sharing

Participation and attendance by Project staff of conferences and workshops of the
GEF's International Waters Learning Exchange and Resource Network, meetings of the
Danube and Black Sea Commission, and related nitrates management international
experiential training.
Part 4: Project Management
Support to the PIU to manage the Project and to mainstream Project
implementation functions within the MAFRD by gradually transferring component
management to responsible MAFRD departments and institutions, including the
employment of a livestock/nitrates management technical specialist and the provision of
goods.

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SCHEDULE 2
Project Execution
Section I.
Institutional, Implementation and Other Arrangements
A.
Institutional Arrangements
1.
The MAFRD and its PIU
The Recipient, through the MAFRD, shall maintain, throughout Project
implementation, the PIU headed by a Project Manager and with staff, resources and
under terms of reference satisfactory to the Bank. The PIU shall be responsible for the
implementation of Parts 1 and 4 of the Project and the overall Project coordination and
monitoring for Parts 2 and 3 of the Project in close cooperation with CAEI. The PIU
shall disburse Sub-Grants from the Nitrates Mitigation Investment Fund which shall have
been previously authorized by the Payment Directorate.

2.
The MAFRD Payment Directorate
The Payment Directorate shall be responsible for approving Subprojects and Sub-
Grants under the Nitrates Mitigation Investment Fund under Part 1.A of the Project,
including authorizing the disbursement of Sub-Grants pursuant to the provisions of the
Beneficiary and Public Procurement Guide. For such purposes, the Recipient shall
appoint, not later than ninety (90) days after the Effective Date, two (2) additional
technical staff with responsibility for overseeing management of the Fund, and who will
be integrated into the Payment Directorate to provide long term capacity.
3.
Project Steering Committee
The Recipient, through the MAFRD, shall maintain throughout Project
implementation a Project Steering Committee (PSC) composed of representatives from
the MAFRD, the Ministry of Finance, the MEPPPC, and the Project Implementing
Entity, and which shall be responsible for providing overall guidance and advice on
Project issues. To that end, this Committee shall meet at least three (3) times a year.
4.
Croatian Waters and the Water Policy and International Projects Directorate
The Recipient, through the WPIPD, shall work closely with CW to establish
systems for monitoring surface and groundwater pollution, including the establishment
under Part 1.B of the Project of a network of piezometers to form part of the national
water quality monitoring system.

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B. Implementation
Arrangements: Procedures for, and Terms and Conditions
of, Sub-Grants under the Nitrates Mitigation Investment Fund
1.
The Recipient, through the PIU and upon previous authorization of the Payment
Directorate, shall make Sub-Grants available to Farms to finance up to seventy-five
percent (75%) of the cost of each Subproject, including the cost of taxes.

2.
Except as the Recipient and the Bank may otherwise agree, each Sub-Grant shall
be made only to a Farm which shall have established to the satisfaction of the Payment
Directorate and on the basis of guidelines satisfactory to the Bank, that the Farm: (i) is
registered in the Croatian Farm Registry; (ii) has a sound financial structure; (iii) has
organization, management, staff and other resources required for the efficient carrying
out of its operations and the carrying out of the Subproject; (iv) in the counties of
Osije ko-Baranjska and Vukovarsko-Srijemska, the Farm is a medium-scale livestock
farm having about 10-100 cows, 15-150 fattening beef cattle, and 40-400 sows or 100-
1000 grower/fattening pigs, and in the Vara dinska county, the Farm fulfils such criteria
or is a cattle farm of about 2,500-12,500 layers or 10,000-100,000 broilers per annum.

3.
Each Sub-Grant shall be made available only for a Subproject which, on the basis
of appraisal procedures carried out in accordance with the Beneficiary and Public
Procurement Guide, including, if necessary, the preparation of an environmental impact
assessment, is: (i) determined to be technically feasible and commercially, economically
and financially viable; and (ii) designed in accordance with appropriate safety, health,
water and environmental guidelines satisfactory to the Bank.

4.
The Sub-Grant shall: (i) be denominated in the currency of the Recipient; (ii) be
made on terms and conditions agreed upon on a case-by-case basis by the Payment
Directorate and the Farm in accordance with the provisions of the Beneficiary and Public
Procurement Guide; and (iii) be associated with additional contributions by the Farm as
required by the Payment Directorate.

5.
When presenting a Sub-Grant to the Payment Directorate for approval, the Farm
shall furnish an application, in the form stipulated in the Beneficiary and Public
Procurement Guide, together with: (i) a summary description of the Farm, including its
scope of activities and ownership structure; (ii) an appraisal of the Subproject, including a
description of the expenditures proposed to be financed out of the proceeds of the Sub-
Grant; and (iii) such other information as the Payment Directorate shall reasonably
request.

6.
Sub-Grants shall be made on terms whereby the Recipient, through the MAFRD,
shall obtain, by written contract with the Farm or by other appropriate legal means, rights
adequate to protect the interests of the Recipient and the Bank, including the right to:

(a)
require the Farm to carry out and operate the Subproject with due
diligence and efficiency and in accordance with sound technical,

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financial, environmental and managerial standards and the provisions of
the Anti-Corruption Guidelines and to maintain adequate records;

(b)
require that: (i) the works, goods and services to be financed out of the
proceeds of the Sub-Grant shall be procured in accordance with the
provisions of Section III of this Schedule; and (ii) such works, goods and
services shall be used exclusively in the carrying out of the Subproject;

(c)
inspect, by itself or jointly with representatives of the Bank if the Bank
shall so request, such goods and the sites, works, plants and construction
included in the Subproject, the operation thereof, and any relevant
records and documents;

(d)
obtain all such information as the Recipient or the Bank shall reasonably
request relating to the foregoing and to the administration, operations and
financial condition of the Farm and to the benefits to be derived from the
Subproject; and

(e)
suspend or terminate the right of the Farm to the use of the proceeds of
the Sub-Grant upon failure by such Farm to perform its obligations under
its contract with the Payment Directorate.

C. Other
Arrangements
1.
Environmental Management Plan
The Recipient, through the MAFRD, shall take all action required to follow and
apply at all times the provisions of the Environmental Management Plan in a timely
manner, ensuring that: (i) mitigation and monitoring measures acceptable to the Bank are
designed and implemented with due diligence and employing appropriate environmental
expertise; and (ii) adequate information on the implementation of the measures contained
in the EMP is suitably included in the Progress Reports referred to below in Section
II.A.1.

2. Operational
Manual
(a)
The Recipient, through the MAFRD, shall take all action required to
carry out Parts 1 and 4 of the Project in accordance with the requirements
set forth or referred to in the Operational Manual.

(b)
Unless the Bank may otherwise agree, the Recipient may not assign,
amend, abrogate or waive the Operational Manual or any of the
provisions thereof.

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3.
Transfer of Grant Proceeds for Parts 2 and 3 of the Project
(a)
For the purposes of carrying out Parts 2 and 3 of the Project, the
Recipient, through the MAFRD, shall reimburse CAEI through the state
budget and out of the proceeds of the Grant, the incremental costs
detailed in the agreed AWPB and incurred for the carrying out Parts 2
and 3 of the Project.
(b)
For the purposes of the preceding subparagraph (a), the term
"incremental costs" means expenditures to finance: (i) goods, services
(other than consultants' services), consultants' services and training
under Part 2.C (ii) of the Project; and (iii) the Recurrent Costs listed in
the table in paragraph 2 of Section IV.A of this Schedule.
4.
Annual Work Program and Budget under Parts 2 and 3 of the Project
The Recipient, through the PIU, shall:

(a)
prepare, on the basis of proposals submitted by the Project Implementing
Entity, a draft AWPB for each fiscal year, including, inter alia: (i) a
detailed description of planned Project activities for the following fiscal
year; (ii) the sources and uses of funds therefor; and (iii) responsibility
for execution of the Project activities, budgets, start and completion date,
outputs, and monitoring indicators to track progress of each activity;
(b)
not later than November 30, submit to the Bank for its comments and
approval, the draft AWPB and, promptly thereafter, finalize the AWPB
taking into account the Bank's views and recommendations thereon; and

(c)
adopt and sign the final version of the AWPB in the form approved by
the Bank not later than December 31 of each fiscal year.

Section II.
Project Monitoring, Reporting and Evaluation
A.
Project Reports; Completion Report
1.
The Recipient shall monitor and evaluate the progress of Parts 1 and 4 of the
Project and prepare Project Reports in accordance with the provisions of Section 2.06 of
the Standard Conditions and on the basis of the Monitoring and Evaluation Indicators for
Parts 1 and 4 of the Project. Each Project Report shall cover the period of one (1)
calendar semester, and shall be furnished to the Bank not later than forty-five (45) days
after the end of the period covered by such Report.

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2.
The Recipient shall prepare the Completion Report in accordance with the
provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be
furnished to the Bank not later than five (5) months after the Closing Date.
B.
Financial Management; Financial Reports; Audits
1.
The Recipient, through the MAFRD, shall ensure that a financial management
system is maintained for the Project in accordance with the provisions of Section 2.07 of
the Standard Conditions.
2.
The Recipient, through the MAFRD, shall ensure that interim unaudited financial
reports for the Project are prepared and furnished to the Bank as part of the Project
Report not later than forty-five (45) days after the end of each calendar semester,
covering the semester, in form and substance satisfactory to the Bank. The first
unaudited financial report shall cover the calendar semester in which this Agreement
becomes effective.
3.
The Recipient, through the MAFRD, shall have its Financial Statements for the
Project audited in accordance with the provisions of Section 2.07 (b) of the Standard
Conditions. Each audit of the Financial Statements shall cover the period of one (1)
fiscal year or other period that may be agreed to by the Bank. The audited Financial
Statements for each such period shall be furnished to the Bank not later than six (6)
months after the end of such period or other period that may be agreed to by the Bank.
C. Mid-Term
Review

The Recipient, through the MAFRD, shall:

(a)
maintain policies and procedures adequate to enable it to monitor and
evaluate on an ongoing basis, in accordance with the Monitoring and
Evaluation Indicators for Parts 1 and 4 of the Project, the carrying out of
Parts 1 and 4 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 October 31, 2009, a report integrating the results of
the monitoring and evaluation activities: (i) performed pursuant to the
preceding paragraph (a) on the progress achieved in the carrying out of
Parts 1 and 4 of the Project during the period preceding the date of said
report; and (ii) on the progress achieved in the carrying out of Parts 2 and
3 of the Project performed by the Project Implementing Entity pursuant
to the provisions of Section II.C (a) of the Schedule to the Project
Agreement, and setting out the measures recommended to ensure the
efficient carrying out of the Project and the achievement of the objectives
thereof during the period following such date; and

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(c)
review with the Bank, on or about December 31, 2009 or such later date
as the Bank shall request, the report referred to in the preceding
paragraph (b), and, thereafter, take all measures required to ensure the
efficient completion of Parts 1 and 4 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.

Section III.
Procurement
A. General

1. Works,
Goods and Services (Other than Consultants' Services). All works,
goods and services (other than consultants' services) required for the Project and to be
financed out of the proceeds of the Grant shall be procured in accordance with the
requirements set forth or referred to in Section I of the Procurement Guidelines and the
provisions of this Section.

2.
Consultants' Services. All consultants' services required for the Project and to
be financed out of the proceeds of the Grant shall be procured in accordance with the
requirements set forth or referred to in Sections I and IV of the Consultant Guidelines and
the provisions of this Section.

3.
Definitions. The capitalized terms used below in this Section to describe
particular procurement methods or methods of review by the Bank of particular contracts
refer to the corresponding method described in the Procurement Guidelines, or
Consultant Guidelines, as the case may be.

B.
Particular Methods of Procurement of Works, Goods and Services (Other
than Consultants' Services)
1.
International Competitive Bidding. Except as otherwise provided in paragraph
2 below, goods and services (other than consultants' services) shall be procured under
contracts awarded on the basis of International Competitive Bidding.
2.
Other Methods of Procurement of Works, Goods and Services (Other than
Consultants' Services). The following methods, other than International Competitive
Bidding, may be used for procurement of works, goods and services (other than
consultants' services) for those contracts and under the circumstances specified in the
Procurement Plan: (a) National Competitive Bidding, subject to the additional provisions
set forth in the Annex to this Schedule); (b) Shopping; and (c) Procurement in Loans to
Financial Intermediaries in accordance with the Beneficiary and Public Procurement
Guide.

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C.
Particular Methods of Procurement of Consultants' Services

1.
Quality- and Cost-based Selection. Except as otherwise provided in paragraph
2 below, consultants' services shall be procured under contracts awarded on the basis of
Quality- and Cost-based Selection.
2.
Other Methods of Procurement of Consultants' Services.
The following
methods, other than Quality- and Cost-based Selection, may be used for procurement of
consultants' services for those assignments which are specified in the Procurement Plan:
(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)
Commercial Practices; (g) Selection of Individual Consultants; and (h) Sole Source
Procedures for the Selection of Individual Consultants.

D.
Review by the Bank of Procurement Decisions
1.
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.
Section IV.
Withdrawal of Grant Proceeds
A. General
1.
The Recipient may withdraw the proceeds of the Grant in accordance with the
provisions of: (a) Article III of the Standard Conditions; (b) this Section; and (c) such
additional instructions as the Bank may specify by notice to the Recipient (including the
"World Bank Disbursement Guidelines for Projects" dated May 2006, as revised from
time to time by the World Bank and as made applicable to this Agreement pursuant to
such instructions), to finance Eligible Expenditures as set forth in the table in paragraph 2
below.
2.
The following table specifies the categories of Eligible Expenditures that may be
financed out of the proceeds of the Grant ("Category"), the allocations of the amounts of
the Grant to each Category, and the percentage of expenditures to be financed for Eligible
Expenditures in each Category:

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Amount of the Grant
Percentage of
Allocated
Expenditures
Category
(expressed in USD)
to be Financed

(1) Sub-Grants
2,660,000
75%

(2) Goods, Services (other
2,060,000 100%
than Consultants'
Services), consultants'
services and training
under Parts 1, 2.A, 2.B,
2.C (i) and (ii), 3 and 4
of the Project

(3) Goods, Services (other
190,000 70%
than Consultants'
Services), Consultants'
Services and Training
under Part 2.C (iii) of the
Project
(4) Recurrent Costs
90,000
100%
TOTAL AMOUNT
5,000,000
3.
For the purposes of this Section, the term "Recurrent Costs" means expenditures
incurred to finance the cost of operation and maintenance of equipment and travel
allowances of the staff of the Payment Directorate, the PIU and the CAEI under all Parts
of the Project, the mileage allowances and operation and maintenance of vehicles under
Parts 2 and 3 of the Project, and bank charges related to the Grant.

B.
Withdrawal Conditions; Withdrawal Period

1.
Notwithstanding the provisions of Part A of this Section no withdrawal shall be
made for payments made prior to the date of this Agreement.

2.
The Closing Date referred to in Section 3.06 (c) of the Standard Conditions is
July 31, 2012.

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ANNEX
to
SCHEDULE 2

For the purposes of following National Competitive Bidding procedures for
goods and services (other than consultants' services) to be financed under the Grant, the
following modifications and additions shall apply:
(i) Procedures
The public bidding method shall apply to all contracts. Invitations to bid shall be
advertised in the Recipient's Official Gazette (Narodne Novine) and in at least one
widely circulated national daily newspaper or at the MAFRD's website, allowing a
minimum of thirty (30) days for the preparation and submission of bids.
(ii)
Assessment of Bidders' Qualifications
When pre-qualification shall be required for large or complex works contracts,
invitations to pre-qualify for bidding shall be advertised in the Recipient's Official
Gazette (Narodne Novine) and at least one widely circulated national daily newspaper or
at the MAFRD's website a minimum of thirty (30) days prior to the deadline for the
submission of pre-qualification applications. Minimum experience, technical and
financial requirements shall be explicitly stated in the pre-qualification documents, which
shall be determined by a `pass/fail' method, not through the use of a merit point system.
Where pre-qualification is not used, the qualifications of the bidder who is recommended
for award of contract shall be assessed by post-qualification, applying minimum
experience, technical and financial requirements which shall be explicitly stated in the
bidding documents.
(iii)
Participation of Government-owned Enterprises
Government-owned enterprises located and operating on the Recipient's territory
shall be eligible to participate in bidding only if they can establish, to the Bank's
satisfaction, that they are legally and financially autonomous, operate under commercial
laws and are not a dependent agency of the Recipient's Government. Said enterprises
shall be subject to the same bid and performance security requirements as other bidders.
(iv) Bidding
Documents
The Project Implementing Entity acting as procuring entity shall use the
appropriate standard bidding documents for the procurement of goods or services, as
defined in the paragraph 1.1 of the Guidelines, which shall contain draft contract and
conditions of contract acceptable to the Bank.

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(v)
Bid Submission, Opening and Evaluation
(1)
Bids shall be submitted in a single envelope containing the
bidder's qualification information, technical and price bids,
which shall be opened simultaneously at the public bid opening.
(2)
Bids shall be opened in public, immediately after the deadline
for submission of bids. The name of the bidder, the total amount
of each bid and any discounts offered shall be read aloud and
recorded in the minutes of the public bid opening.
(3)
The evaluation of bids shall be done in strict adherence to the
monetarily quantifiable criteria specified in the bidding
documents and a merit point system shall not be used.
(4)
Extension of bid validity shall be allowed once only for not more
than thirty (30) days. No further extensions should be granted
without the prior approval of the Bank.
(5)
Contracts shall be awarded to qualified bidders having submitted
the lowest evaluated substantially responsive bid.
(6)
No preference shall apply under National Competitive Bidding.
(vi) Price
Adjustment
Civil works contracts of long duration (e.g., more than eighteen (18) months)
shall contain an appropriate price adjustment clause.

(vi)
Rejection of All Bids
(1)
All bids shall not be rejected and new bids solicited without the
Bank's prior written concurrence.
(2)
When the number of bids received is less than two, re-bidding
shall not be carried out without the Bank's prior concurrence.
(vii) Securities
Bid securities should not exceed two percent (2%) of the estimated cost of the
contract; and performance securities - not more than ten percent (10%). No advance
payments shall be made to contractors without a suitable advance payment security. The
wording of all such securities shall be included into the bidding documents and shall be
acceptable to the Bank.

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APPENDIX
Definitions
1.
"AACP" means the Agricultural Acquis Cohesion Project, a project financed by
the Bank under the Loan Agreement (Loan No. 7360-HR) between the Recipient
and the Bank dated May 8, 2006.

2.
"AWPB" means an Annual Work Program and Budget for the carrying out of
Parts 2 and 3 of the Project during a particular fiscal year (as hereinafter defined)
to be concluded each year between the Recipient and the Project Implementing
Entity.

3.
"Anti-Corruption Guidelines" means the "Guidelines on Preventing and
Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA
Credits and Grants", dated October 15, 2006.

4.
"Beneficiary and Public Procurement Guide" means the manual prepared and
adopted by the Payment Directorate (as hereinafter defined) incorporating the
key elements of EU best practices for the management of the Nitrates Mitigation
Investment Fund under Part 1.A of the Project, and setting forth the procedures
for the application, selection and granting of Sub-Grants (as hereinafter defined)
thereunder.

5.
"CAEI" means the Recipient's Croatian Agricultural Extension Institute
(Hrvatski zavod za poljoprivrednu savjetodavnu slu bu), a specialized institution
for the provision of agricultural advisory services and the Project Implementing
Entity (as hereinafter defined).

6.
"Category" means a category of items set forth in the table in the table in Section
IV of Schedule 2 to this Agreement.

7.
"Code of Good Agriculture Practices" means the Code currently under
preparation by the MAFRD on good agricultural practices and measures to
reduce nutrient loads to water bodies from agricultural sources as mandated by
the Nitrates Directive (as hereinafter defined).

8.
"Consultant Guidelines" means the "Guidelines: Selection and Employment of
Consultants by World Bank Borrowers" published by the Bank in May 2004 and
revised in October 2006.

9.
"CW" means the Croatian Waters, a public institution in the Recipient's territory
responsible for water management.

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10.
"Environmental Management Plan" and "EMP" mean the Recipient's
environmental management plan acceptable to the Bank dated July 30, 2007,
describing the environmental, mitigation, monitoring and institutional measures
to be undertaken under the Project.

11.
"EU" means the European Union.

12.
"Fiscal Year" means the twelve (12) month period corresponding to any of the
Recipient's or Project Implementing Entity's (as hereinafter defined) fiscal years,
which period commences on January 1 and ends on December 31 in each
calendar year.

13.
"Farm" means a physical or legal person established and operating in the territory
of the Recipient which is eligible to receive a Sub-Grant (as hereinafter defined)
pursuant to the provisions of paragraph 2 of Section I.B. (Implementation
Arrangements) of Schedule 2 to this Agreement.

14.
"GEF's International Waters Learning Exchange and Resource Network" means
the GEF operational program focusing on seriously threatened waterbodies and
the most imminent transboundary threats to their ecosystems and aimed at
undertaking a series of projects that involve helping groups of countries to work
collaboratively in achieving changes in sectoral policies and activities so that
transboundary environmental concerns degrading specific international
waterbodies can be resolved.

15.
"IPARD" means the Instrument for Pre-accession Assistance for Rural
Development, the EU's financial instrument to help prepare candidate countries
for the pre-accession process during the 2007-2013 period.

16.
"MAFRD" means the Recipient's Ministry of Agriculture, Fishery and Rural
Development, or any successor thereto.

17.
"MEPPPC" means the Recipient's for Ministry of Environmental Protection,
Physical Planning and Construction, or any successor thereto.

18.
"Monitoring and Evaluation Indicators for Parts 1 and 4 of the Project" means
the agreed monitoring and evaluation indicators set forth in a letter of even date
herewith to be utilized by the Recipient under Parts 1 and 4 of the Project to
measure the progress in the implementation of Parts 1 and 4 of the Project and
the degree to which the objectives thereof are being achieved.

19.
"Monitoring and Evaluation Indicators for Parts 2 and 3 of the Project" means
the agreed monitoring and evaluation indicators set forth in a letter of even date
herewith to be utilized by the Project Implementing Entity under Parts 2 and 3 of

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the Project to measure the progress in the implementation of Parts 2 and 3 of the
Project and the degree to which the objectives thereof are being achieved.

20.
"Nitrates Directive" means the EU Nitrates Directive No. 91/676/EEC dated
December 12, 1991, concerning the protection of waters against pollution caused
by nitrates from agricultural sources.

21.
"Operational Manual" means the Manual adopted by the MAFRD under the
AACP as supplemented and adjusted to account for the GEF's funding and
sponsoring of this Project, and setting forth the procedures to be followed and
applied for the administrative, accounting, procurement, financial management,
and monitoring and evaluation aspects of the Project.

22.
"Payment Directorate" means the Unit established within the MAFRD to
disburse government and EU market and structural funds to farmers.

23.
"PIU" means the Project Implementation Unit established within the Department
of Policy, EU and International Relations of the MAFRD for the purposes of the
AACP.

24.
"Procurement Guidelines" means the "Guidelines: Procurement under IBRD
Loans and IDA Credits" published by the Bank in May 2004 and revised in
October 2006.

25.
"Procurement Plan" means the Recipient's procurement plan for the Project,
dated October 25, 2007, and referred to in paragraph 1.16 of the Procurement
Guidelines and paragraph 1.24 of the Consultant Guidelines, as the same shall be
updated from time to time in accordance with the provisions of said paragraphs.

26.
"Project Implementing Entity" means CAEI.

27.
"Project Implementing Entity's Legislation" means, jointly and/or individually,
the Regulation on the CAEI (Official Gazette No. 6/97), as amended, and its
Bylaws dated April 22, 1997.

28.
"Standard Conditions" means the Standard Conditions for Grants Made by the
World Bank Out of Various Funds, dated July 20, 2006.

29.
"Subproject" means a specific development project for the rehabilitation of
existing manure platforms, the construction of impervious manure storage
platforms and manure pits and manure pumping to be carried out by a Farm
under Part 1.A of the Project utilizing the proceeds of a Sub-Grant.

30.
"Sub-Grant" means a grant made or proposed to be made by the PIU, upon
previous authorization of the Payment Directorate, out of the proceeds of the

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Grant to a Farm for purposes of carrying out a Subproject under Part 1.A of the
Project.

31.
"WPIPD" means the Water Policy and International Projects Directorate within
the MAFRD.

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