TREATIES AND OTHER INTERNATIONAL ACTS SERIES 13-1115

________________________________________________________________________

ECONOMIC ASSISTANCE

Millennium Challenge Compact 

Between the 

UNITED STATES OF AMERICA

and ZAMBIA

Signed at Lusaka May 10, 2012

with

Annexes 
 NOTE BY THE DEPARTMENT OF STATE

 Pursuant to Public Law 89—497, approved July 8, 1966

(80 Stat. 271; 1 U.S.C. 113)—

“. . .the Treaties and Other International Acts Series issued

under the authority of the Secretary of State shall be competent

evidence . . . of the treaties, international agreements other than

treaties, and proclamations by the President of such treaties and

international agreements other than treaties, as the case may be, 

therein contained, in all the courts of law and equity and of maritime

jurisdiction, and in all the tribunals and public offices of the

United States, and of the several States, without any further proof

or authentication thereof.”
 ZAMBIA

 Economic Assistance

 Millennium Challenge Compact

 signed at Lusaka May 10, 2012;

 Entered into force November 15, 2013.

 With annexes.
MILLENNIUM CHALLENGE COMPACT 

BETWEEN 

THE UNITED STATES OF AMERICA 

ACTING THROUGH 

THE MILLENNIUM CHALLENGE CORPORATION 

AND 

THE REPUBLIC OF ZAMBIA 
MILLENNIUM CHALLENGE COMPACT 

TABLE OF CONTENTS 

Article 1. Goal and Objectives ................................................................................................ 1 

Section 1.1 

Section 1.2 

Compact Goal ............................................................................................. 1 

Project Objective ......................................................................................... 1 

Article 2. Funding and Resources ........................................................................................... 1 

Section 2.1 

Section 2.2 

Section 2.3 

Section 2.4 

Section 2.5 

Section 2.6 

Section 2.7 

Section 2.8 

Program Funding ........................................................................................ 1 

Compact Implementation Funding ............................................................. 2 

MCC Funding ............................................................................................. 3 

Disbursement .............................................................................................. 3 

Interest ......................................................................................................... 3 

Government Resources; Budget ................................................................. 3 

Limitations on the Use ofMCC Funding ................................................... 4 

Taxes ........................................................................................................... 4 

Article 3. Implementation ....................................................................................................... 5 

Section 3.1 

Section 3.2 

Section 3.3 

Section 3.4 

Section 3.5 

Section 3.6 

Section 3.7 

Section 3.8 

Program Implementation Agreement .......................................................... 5 

Government Responsibilities ...................................................................... 5 

Policy Performance ..................................................................................... 6 

Accuracy of Information ............................................................................. 6 

Implementation Letters ............................................................................... 6 

Procurement and Grants .............................................................................. 6 

Records; Accounting; Covered Providers; Access ..................................... 7 

Audits; Reviews .......................................................................................... 8 

Article 4. Communications ..................................................................................................... 9 

Section 4.1 

Section 4.2 

Section 4.3 

Communications .......................................................... -............................... 9 

Representatives ........................................................................................... 9 

Signatures .................................................................................................. 10 

Article 5. Termination; Suspension; Expiration ................................................................... 10 

Section 5.1 

Section 5.2 

Section 5.3 

Section 5.4 

Termination; Suspension .......................................................................... 10 

Consequences of Termination, Suspension or Expiration ........................ 11 

Refunds; Violation .................................................................................... 11 

Survival ..................................................................................................... 11 

Article 6. Compact Annexes; Amendments; Governing Law .............................................. 11 

Section 6.1 

Section 6.2 

Annexes ..................................................................................................... 11 

Amendments ............................................................................................. 12 
Section 6.3 

Section 6.4 

Section 6.5 

Section 6.6 

Section 6.7 

Section 6.8 

Inconsistencies .......................................................................................... 12 

Governing Law ......................................................................................... 12 

Additional Instruments .............................................................................. 12 

References to MCC Website ..................................................................... 12 

References to Laws, Regulations, Policies and Guidelines ...................... 12 

MCC Status ............................................................................................... 13 

Article 7. Entry Into Force .................................................................................................... 13 

Section 7.1 

Section 7.2 

Section 7.3 

Section 7.4 

Section 7.5 

International Agreements .......................................................................... 13 

Conditions Precedent to Entry into Force ................................................. 13 

Date of Entry into Force ........................................................................... 14 

Compact Term .......................................................................................... 14 

Provisional Application ............................................................................ 14 

Annex I: Program Description 

Annex II: Multi-Year Financial Plan Summary 

Annex III: Description of the Monitoring and Evaluation Plan 

Annex IV: Conditions Precedent to Disbursement of Compact Implementation Funding 

Annex V: Definitions 

Annex VI: Tax Schedules 

Toe - ii 
MILLENNIUM CHALLENGE COMPACT 

PREAMBLE 

This MILLENNIUM CHALLENGE COMPACT (this "Compact') is between the United 

States of America, acting through the Millennium Challenge Corporation, a United States 

government corporation ("MCC'), and the Republic of Zambia ("Zambia"), acting through its 

government (the "Government') (individually a "Party" and collectively, the "Parties"). 

Capitalized terms used in this Compact will have the meanings provided in Annex V. 

Recognizing that the Parties are committed to the shared goals of promoting economic 

growth and the elimination of extreme poverty in Zambia and that MCC assistance under this 

Compact supports Zambia's demonstrated commitment to strengthening good governance, 

economic freedom and investments in people; 

Recalling that the Government consulted with the private sector and civil society of 

Zambia to determine the priorities for the use ofMCC assistance and developed and submitted to 

MCC a proposal for such assistance to achieve lasting economic growth and poverty reduction; 

and 

Recognizing that MCC wishes to help Zambia implement the program described herein 

to achieve the goal and objectives described herein (as such program description and objectives 

may be amended from time to time in accordance with the terms hereof, the "Program"); 

The Parties hereby agree as follows: 

ARTICLE 1. 

GOAL AND OBJECTIVES 

Section 1.1 Compact Goal. The goal of this Compact is to reduce poverty through economic 

growth in Zambia (the "Compact Goaf'). MCC's assistance will be provided in a manner that 

strengthens good governance, economic freedom and investments in the people of Zambia. 

Section 1.2 Project Objective. The objective of the Project (the "Project Objective") is to 

expand access to, and improve the reliability of, water supply and sanitation, and improve 

drainage services in select urban and peri-urban areas of the city of Lusaka in order to decrease 

the incidence of water-borne and water-related diseases, generate time savings for households 

and businesses and reduce non-revenue water in the water supply network. 

ARTICLE 2. 

FUNDING AND RESOURCES 

Section 2.1 Program Funding. 

Upon entry into force of this Compact in accordance with Section 7.3, MCC will grant to the 

Government, under the terms of this Compact, an amount not to exceed Three Hundred and 
Thirty Nine Million Four Hundred and Sixty Eight Thousand Seven Hundred and One United 

States Dollars (US$339,468, 701) ("Program Funding") for use by the Government to 

implement the Program. The allocation of Program Funding is generally described in Annex II. 

Section 2.2 Compact Implementation Funding. 

(a) Upon signing of this Compact, MCC will grant to the Government, under the 

terms of this Compact and in addition to the Program Funding described in Section 2.1, an 

amount not to exceed Fifteen Million Two Hundred and Eighty Eight Thousand Nine Hundred 

and Thirty Nine United States Dollars (US$15,288,939) ("Compact Implementation Funding") 

under Section 609(g) of the Millennium Challenge Act of2003, as amended (the "MCA Act"), 

for use to facilitate implementation of the Compact, including for the following purposes: 

(i) financial management and procurement activities; 

(ii) administrative activities (including start-up costs such as staff salaries) and 

administrative support expenses such as rent, computers and other information technology or 

capital equipment; 

(iii) monitoring and evaluation activities; 

(iv) feasibility, design, and other studies; and 

(v) other activities to facilitate Compact implementation as approved by 

MCC. 

The allocation of Compact Implementation Funding is generally described in Annex II. 

(b) Without limiting the generality of Section 2.2(a), the Government agrees that 

MCC will directly administer and manage a portion of the Compact Implementation Funding in 

order to develop any detailed designs and resettlement action plans required for the Project, and 

to facilitate any other uses of the Compact Implementation Funding contemplated in clause (a) 

above, as may be agreed in writing by the Parties (the "MCC Contracted CIF Activities"). 

Notwithstanding anything to the contrary in this Compact or the Program Implementation 

Agreement, MCC will utilize applicable United States government procurement rules and 

regulations in any procurements it administers and manages in connection with the MCC CIF 

Contracted Activities, and will disburse MCC Funding from time to time for the MCC CIF 

Contracted Activities directly to the relevant provider upon receipt of a valid invoice approved 

by MCC. 

(c) Each Disbursement of Compact Implementation Funding (other than any 

Disbursement for the MCC CIF Contracted Activities) is subject to satisfaction of the conditions 

precedent to such disbursement as set forth in Annex IV. 

(d) IfMCC determines that the full amount of Compact Implementation Funding 

available under Section 2.2(a) exceeds the amount that reasonably can be utilized for the 

purposes set forth in Section 2.2( a), MCC, by written notice to the Government, may withdraw 

the excess amount, thereby reducing the amount of the Compact Implementation Funding 

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available under Section 2.2(a) (such excess, the "Excess CIF Amount"). In such event, the 

amount of Compact Implementation Funding granted to the Government under Section 2.2(a) 

will be reduced by the Excess CIF Amount, and MCC will have no further obligations with 

respect to such Excess CIF Amount. 

(e) MCC, at its option by written notice to the Government, may elect to grant to the 

Government an amount equal to all or a portion of such Excess CIF Amount as an increase in the 

Program Funding, and such additional Program Funding will be subject to the terms and 

conditions of this Compact applicable to Program Funding. 

Section 2.3 MCC Funding. 

Program Funding and Compact Implementation Funding are collectively referred to in this 

Compact as "MCC Funding," and includes any refunds or reimbursements of Program Funding 

or Compact Implementation Funding paid by the Government in accordance with this Compact. 

Section 2.4 Disbursement. 

In accordance with this Compact and the Program Implementation Agreement, MCC will 

disburse MCC Funding for expenditures incurred in furtherance of the Program (each instance, a 

"Disbursemenf'). Subject to the satisfaction of all applicable conditions precedent, the proceeds 

of Disbursements will be made available to the Government, at MCC's sole election, by (a) 

deposit to one or more bank accounts established by the Government and acceptable to MCC 

(each, a "Permitted Account") or (b) direct payment to the relevant provider of goods, works or 

services for the implementation of the Program. MCC Funding may be expended only for 

Program expenditures. 

Section 2.5 Interest. The Government will payor transfer to MCC, in accordance with the 

Program Implementation Agreement, any interest or other earnings that accrue on MCC Funding 

prior to such funding being used for a Program purpose. 

Section 2.6 Government Resources: Budget. 

( a) The Government will provide all funds and other resources and will take all 

actions that are necessary to carry out the Government's responsibilities under this Compact. 

(b) The Government will use its best efforts to ensure that all MCC Funding it 

receives or is projected to receive in each of its fiscal years is fully accounted for in its annual 

budget on a multi-year basis. 

(c) The Government will not reduce the normal and expected resources that it would 

otherwise receive or budget from sources other than MCC for the activities contemplated under 

this Compact and the Program. 

(d) Unless the Government discloses otherwise to MCC in writing, MCC Funding 

will be in addition to the resources that the Government would otherwise receive or budget for 

the activities contemplated under this Compact and the Program. 

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Section 2.7 Limitations on the Use ofMCC Funding. The Government will ensure that MCC 

Funding is not used for any purpose that would violate United States law or policy, as specified 

in this Compact or as further notified to the Government in writing or by posting from time to 

time on the MCC website at www.mcc.gov (the "MCC Website"), including but not limited to 

the following purposes: 

(a) for assistance to, or training of, the military, police, militia, national guard or 

other quasi-military organization or unit; 

(b) for any activity that is likely to cause a substantial loss of United States jobs or a 

substantial displacement of United States production; 

(c) to undertake, fund or otherwise support any activity that is likely to cause a 

significant environmental, health or safety hazard, as further described in MCC's environmental 

and social assessment guidelines and any guidance documents issued in connection with the 

guidelines posted from time to time on the MCC Website or otherwise made available to the 

Government (collectively, the "MCC Environmental Guidelines"); or 

(d) to pay for the performance of abortions as a method of family planning or to 

motivate or coerce any person to practice abortions, to pay for the performance of involuntary 

sterilizations as a method of family planning or to coerce or provide any financial incentive to 

any person to undergo sterilizations or to pay for any biomedical research which relates, in whole 

or in part, to methods of, or the performance of, abortions or involuntary sterilization as a means 

of family planning. 

Section 2.8 Taxes. 

(a) Unless the Parties specifically agree otherwise in writing, the Government will 

ensure that all MCC Funding is free from the payment or imposition of any existing or future 

taxes, duties, levies, contributions or other similar charges (but not fees or charges for services 

that are generally applicable in Zambia, reasonable in amount and imposed on a nondiscriminatory basis) ("Taxes") of or in Zambia (including any such Taxes imposed by a 

national, regional, local or other governmental or taxing authority of or in Zambia). Specifically, 

and without limiting the generality of the foregoing, MCC Funding will be free from the 

payment of (i) any tariffs, customs duties, import taxes, export taxes and other similar charges on 

any goods, works or services introduced into Zambia in connection with the Program; (ii) sales 

tax, value added tax, excise tax, property transfer tax and other similar charges on any 

transactions involving goods, works or services in connection with the Program; (iii) taxes and 

other similar charges on ownership, possession or use of any property in connection with the 

Program; and (iv) taxes and other similar charges on income, profits or gross receipts attributable 

to work performed in connection with the Program and related social security taxes and other 

similar charges on all natural or legal persons performing work in connection with the Program 

except (x) natural persons who are citizens or permanent residents of Zambia; and (y) legal 

persons formed under the laws of Zambia (but excluding MCA-Zambia and any other entity 

formed for the purpose of implementing the Government's obligations hereunder). 

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(b) The mechanisms that the Government will use to implement the principal tax 

exemptions required by Section 2.8(a) are set forth in Annex VI. Such mechanisms may include 

exemptions from the payment of Taxes that have been granted in accordance with applicable 

law, refund or reimbursement of Taxes by the Government to MCC, MCA-Zambia or to the 

taxpayer, or payment by the Government to MCA-Zambia or MCC, for the benefit of the 

Program, of an agreed amount representing any collectible Taxes on the items described in 

Section 2.8(a). 

(c) Ifa Tax has been paid contrary to the requirements of Section 2.8(a) or Annex VI, 

the Government will refund promptly to MCC (or to another party as designated by MCC) the 

amount of such Tax in United States Dollars or the currency of Zambia within thirty (30) days 

(or such other period as may be agreed in writing by the Parties) after the Government is notified 

in writing (whether by MCC or MCA-Zambia) that such Tax has been paid. 

(d) No MCC Funding, proceeds thereof or Program Assets may be applied by the 

Government in satisfaction of its obligations under Section 2.8( c). 

ARTICLE 3. 

IMPLEMENTATION 

Section 3.1 Program Implementation Agreement. The Parties will enter into an agreement 

providing further detail on the implementation arrangements, fiscal accountability and 

disbursement and use ofMCC Funding, among other matters (the "Program Impiementation 

Agreemenf'); and the Government will implement the Program in accordance with this 

Compact, the Program Implementation Agreement, any other Supplemental Agreement and any 

Implementation Letter. 

Section 3.2 Government Responsibilities. 

(a) The Government has principal responsibility for overseeing and managing the 

implementation of the Program. 

(b) The Government hereby designates Millennium Challenge Account-Zambia as 

the accountable entity to implement the Program and to exercise and perform the Government's 

right and obligation to oversee, manage and implement the Program, including without 

limitation, managing the implementation of the Project and its Activities, allocating resources 

and managing procurements. Such entity will be referred to herein as "MeA-Zambia," and will 

have the authority to bind the Government with regard to all Program activities. The designation 

ofMCA-Zambia contemplated by this Section 3.2(b) will not relieve the Government of any 

obligations or responsibilities hereunder or under any related agreement, for which the 

Government remains fully responsible. MCC hereby acknowledges and consents to the 

designation in this Section 3.2(b). 

(c) The Government will ensure that any Program Assets or services funded in whole 

or in part (directly or indirectly) by MCC Funding are used solely in furtherance of this Compact 

and the Program unless MCC agrees otherwise in writing. 

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(d) The Government will take all necessary or appropriate steps to achieve the Project 

Objective during the Compact Term (including, without limiting Section 2.6(a), funding all costs 

that exceed MCC Funding and are required to carry out the terms hereof and achieve such 

objectives, unless MCC agrees otherwise in writing). 

(e) The Government will fully comply with the Program Guidelines, as applicable, in 

its implementation of the Program. 

(f) The Government grants to MCC a perpetual, irrevocable, royalty-free, worldwide, 

fully paid, assignable right and license to practice or have practiced on its behalf (including the 

right to produce, reproduce, publish, repurpose, use, store, modify or make available) any portion 

or portions of Intellectual Property as MCC sees fit in any medium, now known or hereafter 

developed, for any purpose whatsoever. 

Section 3.3 Policy Performance. In addition to undertaking the specific policy, legal and 

regulatory reform commitments identified in Annex I (if any), the Government will seek to 

maintain and to improve its level of performance under the policy criteria identified in 

Section 607 of the MCA Act, and the selection criteria and methodology used by MCC. 

Section 3.4 Accuracy of Information. The Government assures MCC that, as of the date this 

Compact is signed by the Government, the information provided to MCC by or on behalf of the 

Government in the course of reaching agreement with MCC on this Compact is true, correct and 

complete in all material respects. 

Section 3.5 Implementation Letters. From time to time, MCC may provide guidance to the 

Government in writing on any matters relating to this Compact, MCC Funding or 

implementation of the Program (each, an "Implementation Letter"). The Government will use 

such guidance in implementing the Program. The Parties may also issue jointly agreed-upon 

Implementation Letters to confirm and record their mutual understanding on aspects related to 

the implementation of this Compact, the Program Implementation Agreement or other related 

agreements. 

Section 3.6 Procurement and Grants. 

(a) The Government will ensure that the procurement of all goods, works and 

services by the Government or any Provider to implement the Program will be consistent with 

the "MCC Program Procurement Guidelines" posted from time to time on the MCC Website (the 

"MCC Program Procurement Guidelines"). The MCC Program Procurement Guidelines 

include the following requirements, among others: 

(i) open, fair, and competitive procedures must be used in a transparent 

manner to solicit, award and administer contracts and to procure goods, works and services; 

(ii) solicitations for goods, works, and services must be based upon a clear and 

accurate description of the goods, works and services to be acquired; 

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(iii) contracts must be awarded only to qualified contractors that have the 

capability and willingness to perform the contracts in accordance with their terms on a cost 

effective and timely basis; and 

(iv) no more than a commercially reasonable price, as determined, for 

example, by a comparison of price quotations and market prices, will be paid to procure goods, 

works and services. 

(b) The Government will ensure that any grant issued in furtherance of the Program 

(each, a "Granf') is awarded, implemented and managed pursuant to open, fair and competitive 

procedures administered in a transparent manner acceptable to MCC. In furtherance of this 

requirement, and prior to the issuance of any Grant, the Government and MCC shall agree upon 

written procedures to govern the identification of potential Grant recipients, including without 

limitation appropriate eligibility and selection criteria and award procedures. Such agreed 

procedures shall be posted on the MCA-Zambia website. 

Section 3.7 Records: Accounting: Covered Providers: Access. 

(a) Government Books and Records. The Government will maintain, and will use its 

best efforts to ensure that all Covered Providers maintain, accounting books, records, documents 

and other evidence relating to the Program adequate to show, to MCC's satisfaction, the use of 

all MCC Funding and the implementation and results of the Program ("Compact Records"). In 

addition, the Government will furnish or cause to be furnished to MCC, upon its request, 

originals or copies of such Compact Records. 

(b) Accounting. The Government will maintain and will use its best efforts to ensure 

that all Covered Providers maintain Compact Records in accordance with generally accepted 

accounting principles prevailing in the United States, or at the Government's option and with 

MCC's prior written approval, other accounting principles, such as those prescribed by the 

International Accounting Standards Board. Compact Records must be maintained for at least 

five (5) years after the end of the Compact Term or for such longer period, if any, required to 

resolve any litigation, claims or audit findings or any applicable legal requirements. 

(c) Providers and Covered Providers. Unless the Parties agree otherwise in writing, a 

"Provider" is (i) any entity of the Government that receives or uses MCC Funding or any other 

Program Asset in carrying out activities in furtherance of this Compact or (ii) any third party that 

receives at least US$50,OOO in the aggregate ofMCC Funding (other than as salary or 

compensation as an employee of an entity of the Government) during the Compact Term. A 

"Covered Provider" is (i) a non-United States Provider that receives (other than pursuant to a 

direct contract or agreement with MCC) US$300,OOO or more ofMCC Funding in any 

Government fiscal year or any other non-United States person or entity that receives, directly or 

indirectly, US$300,OOO or more ofMCC Funding from any Provider in such fiscal year or (ii) 

any United States Provider that receives (other than pursuant to a direct contract or agreement 

with MCC) US$500,OOO or more ofMCC Funding in any Government fiscal year or any other 

United States person or entity that receives, directly or indirectly, US$500,OOO or more ofMCC 

Funding from any Provider in such fiscal year. 

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(d) Access. Upon MCC's request, the Government, at all reasonable times, will 

permit, or cause to be permitted, authorized representatives ofMCC, an authorized Inspector 

General ofMCC ("Inspector Generaf'), the United States Government Accountability Office, 

any auditor responsible for an audit contemplated herein or otherwise conducted in furtherance 

of this Compact and any agents or representatives engaged by MCC or the Government to 

conduct any assessment, review or evaluation of the Program, the opportunity to audit, review, 

evaluate or inspect facilities, assets and activities funded in whole or in part by MCC Funding. 

Section 3.8 Audits; Reviews. 

(a) Government Audits. Except as the Parties may agree otherwise in writing, the 

Government will, on at least a semi-annual basis, conduct, or cause to be conducted, financial 

audits of all disbursements ofMCC Funding covering the period from signing of this Compact 

until the earlier of the following December 31 or June 30 and covering each six-month period 

thereafter ending December 31 and June 30, through the end of the Compact Term. In addition, 

upon MCC's request, the Government will ensure that such audits are conducted by an 

independent auditor approved by MCC and named on the list of local auditors approved by the 

Inspector General or a United States-based certified public accounting firm selected in 

accordance with the "Guidelines for Financial Audits Contracted by MCA" (the "Audit 

Guidelines") issued and revised from time to time by the Inspector General, which are posted on 

the MCC Website. Audits will be performed in accordance with the Audit Guidelines and be 

subject to quality assurance oversight by the Inspector General. Each audit must be completed 

and the audit report delivered to MCC no later than 90 days after the first period to be audited 

and no later than 90 days after each June 30 and December 31 thereafter, or such other period as 

the Parties may otherwise agree in writing. 

(b) Audits of Other Entities. The Government will ensure that MCC-financed 

agreements between the Government or any Provider, on the one hand, and (i) a United States 

nonprofit organization, on the other hand, state that the United States nonprofit organization is 

subject to the applicable audit requirements contained in OMB Circular A-133, "Audits of 

States, Local Governments, and Non-Profit Organizations," issued by the United States Office of 

Management and Budget; (ii) a United States for-profit Covered Provider, on the other hand, 

state that the United States for-profit organization is subject to audit by the applicable United 

States Government agency, unless the Government and MCC agree otherwise in writing; and 

(iii) a non-US Covered Provider, on the other hand, state that the non-US Covered Provider is 

subject to audit in accordance with the Audit Guidelines. 

( c) Corrective Actions. The Government will use its best efforts to ensure that each 

Covered Provider (i) takes, where necessary, appropriate and timely corrective actions in 

response to audits; (ii) considers whether the results of the Covered Provider's audit necessitates 

adjustment of the Government's records; and (iii) permits independent auditors to have access to 

its records and financial statements as necessary. 

(d) Audit by MCC. MCC will have the right to arrange for audits of the 

Government's use ofMCC Funding. 

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(e) Cost of Audits. Reviews or Evaluations. MCC Funding may be used to fund the 

costs of any audits, reviews or evaluations required under this Compact. 

ARTICLE 4. 

COMMUNICATIONS 

Section 4.1 Communications. Any document or communication required or submitted by 

either Party to the other under this Compact must be in writing and, except as otherwise agreed 

with MCC, in English. For this purpose, the address of each Party is set forth below. 

To MCC: 

Millennium Challenge Corporation 

Attention: Vice President, Compact Operations 

(with a copy to the Vice President and General Counsel, and the MCC 

resident country mission in Zambia) 

875 Fifteenth Street, NW 

Washington, DC 20005 

United States of America 

Facsimile: +1 (202) 521-3700 

Telephone: +1 (202) 521-3600 

Email: VPOperations@mcc.gov (Vice President, Compact Operations) 

VPGeneraICounsel@mcc.gov (Vice President and General Counsel) 

To the Government (with a cOPY to the MCA-Zambia): 

Minister of Finance 

Ministry of Finance and National Planning 

P.O. Box 50062, Chimanga Road 

Lusaka 

Republic of Zambia 

Facsimile: +260211 251078 

Telephone: +260211 250481 

+260211 254263 

Section 4.2 Representatives. For all purposes of this Compact, the Government will be 

represented by the individual holding the position of, or acting as, the Minister of Finance, and 

MCC will be represented by the individual holding the position of, or acting as, Vice President, 

Compact Operations (each of the foregoing, a "Principal Representative"). Each Party, by 

written notice to the other Party, may designate one or more additional representatives (each, an 

"Additional Representative") for all purposes other than signing amendments to this Compact. 

The Government hereby designates the chairperson of the Board ofMCA-Zambia as an 

Additional Representative. A Party may change its Principal Representative to a new 

representative that holds a position of equal or higher authority upon written notice to the other 

Party. 

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Section 4.3 Signatures. Signatures to this Compact and to any amendment to this Compact 

will be original' signatures appearing on the same page or in an exchange of letters or diplomatic 

notes. With respect to all documents arising out of this Compact (other than the Program 

Implementation Agreement) and amendments thereto, signatures may, as appropriate, be 

delivered by facsimile or electronic mail and in counterparts and will be binding on the Party 

delivering such signature to the same extent as an original signature would be. 

ARTICLES. 

TERMINATION; SUSPENSION; EXPIRATION 

Section 5.1 Termination: Suspension. 

( a) Either Party may terminate this Compact without cause in its entirety by giving 

the other Party thirty (30) days' prior written notice. MCC may also terminate this Compact or 

MCC Funding without cause in part by giving the Government thirty (30) days' prior written 

notice. 

(b) MCC may, immediately, upon written notice to the Government, suspend or 

terminate this Compact or MCC Funding, in whole or in part, and any obligation related thereto, 

ifMCC determines that any circumstance identified by MCC, as a basis for suspension or 

termination (whether in writing to the Government or by posting on the MCC Website) has 

occurred, which circumstances include but are not limited to the following: 

(i) the Government fails to comply with its obligations under this Compact or 

any other agreement or arrangement entered into by the Government in connection with this 

Compact or the Program; 

(ii) an event or series of events has occurred that makes it probable that the 

Project Objective will not be achieved during the Compact Term or that the Government will not 

be able to perform its obligations under this Compact; 

(iii) a use ofMCC Funding or continued implementation of this Compact or 

the Program violates applicable law or United States Government policy, whether now or 

hereafter in effect; 

(iv) the Government or any other person or entity receiving MCC Funding or 

using Program Assets is engaged in activities that are contrary to the national security interests of 

the United States; 

(v) an act has been committed or an omission or an event has occurred that 

would render Zambia ineligible to receive United States economic assistance under Part I of the 

Foreign Assistance Act of 1961, as amended (22 U.S.C. 2151 et seq.), by reason of the 

application of any provision of such act or any other provision of law; 

(vi) the Government has engaged in a pattern of actions inconsistent with the 

criteria used to determine the eligibility of Zambia for assistance under the MCA Act; 

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(vii) Zambia is classified as a Tier 3 country in the United States Department of 

State's annual Trafficking in Persons Report; and 

(viii) the Government or another person or entity receiving MCC Funding or 

using Program Assets is found to have been convicted of a narcotics offense or to have been 

engaged in drug trafficking. 

Section 5.2 Consequences of Termination. Suspension or Expiration. 

(a) Upon the suspension or termination, in whole or in part, of this Compact or any 

MCC Funding, or upon the expiration of this Compact, the provisions of Section 4.2 of the 

Program Implementation Agreement will govern the post-suspension, post-termination or postexpiration treatment of MCC Funding, any related Disbursements and Program Assets. Any 

portion of this Compact, MCC Funding, the Program Implementation Agreement or any other 

Supplemental Agreement that is not suspended or terminated will remain in full force and effect. 

(b) MCC may reinstate any suspended or terminated MCC Funding under this 

Compact if MCC determines that the Government or other relevant person or entity has 

committed to correct each condition for which MCC Funding was suspended or terminated. 

Section 5.3 Refunds; Violation. 

(a) If any MCC Funding, any interest or earnings thereon, or any Program Asset is 

used for any purpose in violation of the terms of this Compact, then MCC may require the 

Government to repay to MCC in United States Dollars the value of the misused MCC Funding, 

interest, earnings, or asset, plus interest within thirty (30) days after the Government's receipt of 

MCC's request for repayment. The Government will not use MCC Funding, proceeds thereof or 

Program Assets to make such payment. 

(b) Notwithstanding any other provision in this Compact or any other existing 

agreement to the contrary, MCC's right under Section 5.3(a) for a refund will continue during 

the Compact Term and for a period of (i) five (5) years thereafter or (ii) one (1) year after MCC 

receives actual knowledge of such violation, whichever is later. 

Section 5.4 Survival. The Government's responsibilities under this Section and Sections 2.7, 

3.2(f), 3.7, 3.8, 5.2, 5.3 and 6.4 will survive the expiration, suspension or termination of this 

Compact. 

ARTICLE 6. 

COMPACT ANNEXES; AMENDMENTS; GOVERNING LAW 

Section 6.1 Annexes. Each annex to this Compact constitutes an integral part hereof, and 

references to "Annex" mean an annex to this Compact unless otherwise expressly stated. 

11 
Section 6.2 Amendments. 

(a) The Parties may amend this Compact only by a written agreement signed by the 

Principal Representatives (or such other government official designated by the relevant Principal 

Representative) . 

(b) Notwithstanding Section 6.2(a), the Parties may agree in writing, signed by the 

Principal Representatives (or such other government official designated by the relevant Principal 

Representative) or any Additional Representative, to modify any Annex to this Compact in order 

to, without limitation: (i) suspend, terminate or modify the Project or any Activity, or to create a 

new project; (ii) change the allocations of funds as set forth in Annex II as of the date hereof 

(including to allocate funds to a new project); (iii) modify the Implementation Framework 

described in Annex I; (iv) add, delete or waive any condition precedent described in Annex IV; 

or (v) modify the mechanisms for exempting MCC Funding from Taxes as set forth in Annex VI; 

provided that, in each case, any such modification: (1) is consistent in all material respects with 

the Project Objective; (2) does not cause the amount of Program Funding to exceed the aggregate 

amount specified in Section 2.1 (as may be modified by operation of Section 2.2(e)); (3) does not 

cause the amount of Compact Implementation Funding to exceed the aggregate amount specified 

in Section 2.2(a); (4) does not reduce the Government's responsibilities or contribution of 

resources required under Section 2.6; and (5) does not extend the Compact Term. 

Section 6.3 Inconsistencies. In the event of any conflict or inconsistency between: 

(a) any Annex and any of Articles 1 through 7, such Articles 1 through 7, as 

applicable, will prevail; or 

(b) this Compact and any other agreement between the Parties regarding the Program, 

this Compact will prevail. 

Section 6.4 Governing Law. This Compact is an international agreement and as such will be 

governed by the principles of international law. 

Section 6.5 Additional Instruments. Any reference to activities, obligations or rights 

undertaken or existing under or in furtherance of this Compact or similar language will include 

activities, obligations and rights undertaken by, or existing under or in furtherance of any 

agreement, document or instrument related to this Compact and the Program. 

Section 6.6 References to MCC Website. Any reference in this Compact, the Program 

Implementation Agreement or any other agreement entered into in connection with this 

Compact, to a document or information available on, or notified by posting on the MCC Website 

will be deemed a reference to such document or information as updated or substituted on the 

MCC Website from time to time. 

Section 6.7 References to Laws. Regulations. Policies and Guidelines. Each reference in this 

Compact, the Program Implementation Agreement or any other agreement entered into in 

connection with this Compact, to a law, regulation, policy, guideline or similar document will be 

construed as a reference to such law, regulation, policy, guideline or similar document as it may, 

from time to time, be amended, revised, replaced, or extended and will include any law, 

12 
regulation, policy, guideline or similar document issued under or otherwise applicable or related 

to such law, regulation, policy, guideline or similar document. 

Section 6.8 MCC Status. MCC is a United States government corporation acting on behalf of 

the United States Government in the implementation of this Compact. MCC and the United 

States Government assume no liability for any claims or loss arising out of activities or 

omissions under this Compact. The Government waives any and all claims against MCC or the 

United States Government or any current or former officer or employee ofMCC or the United 

States Government for all loss, damage, injury, or death arising out of activities or omissions 

under this Compact, and agrees that it will not bring any claim or legal proceeding of any kind 

against any of the above entities or persons for any such loss, damage, injury, or death. The 

Government agrees that MCC and the United States Government or any current or former officer 

or employee ofMCC or the United States Government will be immune from the jurisdiction of 

all courts and tribunals of Zambia for any claim or loss arising out of activities or omissions 

under this Compact. 

ARTICLE 7. 

ENTRY INTO FORCE 

Section 7.1 International Agreements. The Parties understand that each of the Compact and 

the Program Implementation Agreement, upon its entry into force, will, in the event of any 

conflict, prevail over the domestic laws of Zambia (other than the Constitution of Zambia). 

Section 7.2 Conditions Precedent to Entry into Force. Before this Compact enters into force: 

(a) the Program Implementation Agreement must have been signed by the parties 

thereto; 

(b) the Government must have delivered to MCC: 

(i) a letter signed and dated by the Principal Representative of the 

Government, or such other representative of the Government as may be duly authorized in a 

manner acceptable to MCC, confirming that the Government has completed its domestic 

requirements for this Compact to enter into force and that the other conditions precedent to entry 

into force in this Section 7.2 have been met; 

(ii) a signed legal opinion from the Attorney General of Zambia (or such other 

legal representative of the Government acceptable to MCC), in form and substance satisfactory 

to MCC; and 

(iii) complete, certified copies of all decrees, legislation, regulations or other 

governmental documents relating to the Government's domestic requirements for this Compact 

to enter into force, which MCC may post on its website or otherwise make publicly available; 

(c) MCC will not have determined that, after signature of this Compact, the 

Government has engaged in a pattern of actions inconsistent with the eligibility criteria for MCC 

Funding; 

13 
(d) the Government must have delivered to MCC a plan (the "GRZ Sanitation 

Connection Action Plan"), consistent with LWSC's "Sanitation Marketing Program" approved 

by the Government, describing how the Government will administer the supplemental 

Government funding to be set aside to assist beneficiaries that are unable to pay for household 

connections to the sanitation infrastructure assets to be financed under this Compact, which plan 

must be in form and substance satisfactory to MCC; 

(e) the Government must have delivered to MCC a certified copy of a resolution of 

the board of directors of L WSC (or such similar instrument as may be proposed by the 

Government and is acceptable to MCC) demonstrating, to MCC's satisfaction, that at least fifty 

percent (50 percent) ofLWSC's Retained Earnings will be reserved for asset renewal and capital 

expansion; 

(f) MCC will have determined that the Government has verified a reasonable amount 

of its outstanding payment obligations to LWSC (as evidenced to MCC's satisfaction) in 

connection with the provision of water supply and sanitation services, and that such obligations 

have been satisfied (to MCC's satisfaction); and 

(g) The Government and L WSC must have entered into an agreement (the "L WSC 

Sustainability Agreemenf'), in form and substance satisfactory to MCC, setting forth 

performance requirements or milestones designed to assure the continued technical efficiency 

and financial and commercial sustainability of L WSC, including, without limitation, 

requirements or milestones related to LWSC's corporate governance, operational and financial 

performance and improved customer service, which agreement must also include semi-annual 

benchmarks against which the Government and L WSC will measure their respective progress in 

satisfying such performance requirements or milestones and which must also provide for 

periodic technical audits of the Government's and LWSC's performance under or compliance 

with such agreement. 

Section 7.3 Date of Entry into Force. This Compact will enter into force on the date of the 

letter from MCC to the Government in an exchange of letters confirming that MCC has 

completed its domestic requirements for entry into force of this Compact and that the conditions 

precedent to entry into force in Section 7.2 have been met. 

Section 7.4 Compact Term. This Compact will remain in force for five (5) years after its 

entry into force, unless terminated earlier under Section 5.1 (the "Compact Term"). 

Section 7.5 Provisional Application. Upon signature of this Compact and until this Compact 

has entered into force in accordance with Section 7.3, the Parties will provisionally apply the 

terms of this Compact; provided that, no MCC Funding, other than Compact Implementation 

Funding, will be made available or disbursed before this Compact enters into force. 

SIGNATURE PAGE FOLLOWS ON THE NEXT PAGE 

14 
IN WITNESS WHEREOF, the undersigned, duly authorized by their respective 

governments, have signed this Compact. 

Done at Lusaka, Zambia, this 10th day of May, 2012, in the English language only. 

FOR THE UNITED STArES OF AMERICA, FOR THE REPUBLIC OF ZAMBIA 

ACTING THROUGH THE MILLENNIUM 

CHALLENGE CORPORATION 

1 

\ VV\~ If" 

\oj IV'''' 

Nalne: D ·el W.Wohannes 

Title: Ch fExecutive Officer 

Name: Alexander B. Chikwanda 

Title: Minister of Finance 

SIGNATURE PAGE TO MILLENNWM CHALLENGE COMfACT 

BElWEEN THE UNITED STATES OF AMERICA 

ACTING THROUGH THE MILLENNIUM CHALLENGE CORPORA nON 

AND THE REpUBLIC OF ZAMBIA 
ANNEX I 

PROGRAM DESCRIPTION 

This Annex I describes the Program that MCC Funding will support in Zambia during the 

Compact Term. 

A. PROGRAM OVERVIEW 

1. Background and Consultative Process. 

The MCC Board of Directors originally selected Zambia as eligible for MCC assistance in 

December 2008, and has re-selected Zambia as eligible for MCC assistance in each subsequent 

year. In October 2009, the Government initiated a constraints analysis that identified three main 

binding constraints to Zambia's economic growth: low quality of human capital; poor 

infrastructure services; and coordination failures. To elicit feedback on these constraints, the 

Government undertook a targeted consultative process in accordance with all applicable MCC 

policies and guidelines, which included over 500 representatives from the government, private 

sector and civil society, as well as the donor community. Feedback from these consultations 

resulted in a list of prioritized sectors deemed to be key to Zambia's economic development, 

including ecotourism, hydropower, roads, vocational and secondary education and water and 

sanitation, from which the Government developed and submitted six concept papers for MCC 

consideration. 

After a thorough examination of the economic and operational feasibility of the Government's 

concept papers, MCC and the Government elected to focus solely on improvements to the water 

supply, sanitation and drainage sectors in the capital city of Lusaka, a key constraint to economic 

growth for the country. This examination included further consultations with national and local 

government representatives, technical specialists, non-governmental organizations and the donor 

community, including gender-responsive and socially inclusive consultations with community 

members in each of the 33 wards directly impacted by the Program. As with the initial 

consultative process, this effort also was conducted in accordance with all applicable MCC 

policies and guidelines. 

The city of Lusaka currently has a population of over 1.8 million people, representing over 10 

percent of Zambia's total population, and is projected to have nearly five million residents by 

2035. This rapidly increasing population is served by a water supply, sanitation and drainage 

system that was constructed in the 1960s and 1970s to serve a much smaller population, and 

which has not benefited from major capital investment or proper maintenance in the intervening 

years. As a result, the system's core infrastructure assets are outdated, dilapidated and unable to 

meet current or future demand. Currently, only approximately 70 percent of Lusaka residents 

have access to treated water supply, and only approximately 65 percent have access to waterborne sanitation (either through a connection to the network or with septic tanks). Those without 

water-borne sanitation typically rely on pit latrines, most of which are not properly designed and 

therefore result in groundwater contamination, primarily impacting the shallow wells used for 

drinking water by the population without access to treated water supply. All of these factors 

contribute to a high prevalence and incidence of water-borne disease, which is exacerbated by 
endemic flooding resulting from insufficiently maintained and inadequate drainage 

infrastructure. In addition to poor health, the degraded and inadequate condition of the system's 

core infrastructure also forces Lusaka's residents and businesses to waste substantial time and 

resources resolving water supply shortages and delays, as well as flood losses, resulting in 

further lost productivity. 

The Program is designed to address this constraint to economic growth by supporting 

infrastructure investments and continued .institutional strengthening and reform in order to 

expand access to, and improve the reliability of, water supply and sanitation, and improve 

drainage services in select urban and peri-urban areas of the city of Lusaka. To this end, the 

Program has been developed within the broader framework of, and is consistent with, Zambia's 

"National Urban Water Supply and Sanitation Program," and, as further described in paragraph 7 

of Part B of this Annex I, complements the Government's longstanding and successful efforts to 

reform the water and sanitation and drainage sectors. These reform efforts have produced a 

variety of key outcomes, which have laid the foundation for the Program, including, for example, 

the privatization of state-owned enterprises to create commercial utilities throughout the country, 

as well as the implementation of cost reflective tariffs, as facilitated through the creation of an 

autonomous water utility regulator, the National Water Supply and Sanitation Council 

("NWASCO"). 

2. Project Objective. 

The Program consists of the Lusaka water supply, sanitation and drainage Project, (the "LWSSD 

Projecf' or the "Projecf'), which in turn consists of the Infrastructure Activity and the 

Institutional Strengthening Activity, as each is further described in this Annex I. 

The Project Objective is to expand access to, and improve the reliability of, water supply and 

sanitation, and improve drainage services in select urban and peri-urban areas of the city of 

Lusaka in order to decrease the incidence of water-borne and water-related diseases, generate 

time savings for households and businesses and reduce non-revenue water in the water supply 

network. 

3. Environmental and Social Safeguards. 

The Program will be implemented in compliance with the MCC Environmental Guidelines, the 

International Finance Corporation's Social and Environmental Performance Standards (the "[FC 

Performance Standards"), the MCC Gender Policy and the MCC Gender Integration Guidelines 

and Operational Procedures. Any involuntary resettlement will be carried out in accordance with 

IFC Performance Standard 5 on Land Acquisition and Involuntary Resettlement in a manner 

acceptable to MCC. The Government will also ensure that the Program complies with all 

national environmental laws and regulations, licenses and permits, except to the extent such 

compliance would be inconsistent with this Compact. Specifically, the Government will: (a) 

cooperate with or complete, as the case may be, any ongoing environmental and social impact 

assessments, or, if necessary, undertake and complete any additional environmental and social 

assessments, environmental and social management plans, health and safety management plans, 

environmental and social audits and resettlement action plans required under the laws of Zambia, 

the MCC Environmental Guidelines, the IFC Performance Standards, this Compact, the Program 

ANNEX I - 2 
Implementation Agreement, or any other Supplemental Agreement, or as otherwise required by 

MCC, each in form and substance satisfactory to MCC; (b) ensure that Project-(and, as 

applicable Activity-) specific environmental and social management plans and health and safety 

management plans are developed and all relevant measures contained in such plans are 

integrated into project design, the applicable procurement documents and associated finalized 

contracts, in each case, in form and substance satisfactory to MCC; and (c) implement to MCC's 

satisfaction appropriate environmental, social, health and safety mitigation measures identified in 

such assessments or plans or developed to address environmental, social, health and safety issues 

identified during implementation. Unless MCC agrees otherwise in writing, the Government 

will fund all necessary costs of environmental and social mitigation measures (including, without 

limitation, costs of resettlement) not specifically provided for, or that exceed the MCC Funding 

specifically allocated for such costs, in the Detailed Financial Plan for the Program. 

To maximize the positive social impacts of the Program, address cross-cutting social and gender 

issues such as human trafficking, child and forced labor and HIV / AIDS, and ensure compliance 

with the MCC Gender Policy, the Government will: (a) adhere to the MCC Gender Integration 

Guidelines and Operational Procedures; (b) develop a comprehensive social and gender 

integration plan ("Social and Gender Integration Plan"), in form and substance satisfactory to 

MCC and reflecting the MCC Social and Gender Integration Plan Guidelines, which, at a 

minimum, identifies approaches for regular, meaningful and inclusive consultations with women 

and other vulnerable/underrepresented groups, consolidates the findings and recommendations of 

the Project-( and, as applicable, Activity-) specific social and gender analyses and social and 

gender-focused sub-activities, and sets forth strategies for incorporating findings of the social 

and gender analyses into final designs, as appropriate; and (c) ensure, through monitoring and 

coordination during implementation, that final Project (and Activity) designs, construction tender 

documents, other bidding documents and implementation plans are consistent with and 

incorporate the outcomes of the social and gender analyses and the Social and Gender Integration 

Plan. 

B. LUSAKA WATER SUPPLY, SANITATION AND DRAINAGE PROJECT 

Set forth below is a description of the L WSSD Project that the Government will implement, or 

cause to be implemented, using MCC Funding. 

1. Summary of Project and Activities. 

The L WSSD Project is comprised of the following activities (each, an "Activity"): 

• Investments in infrastructure development and rehabilitation, including interventions to 

rehabilitate the core water supply network, rehabilitate and expand select water supply 

and sewage networks, reduce Non-Revenue Water ("NRW") and improve select drainage 

infrastructure (the "Infrastructure Activity"). 

• The provision of technical assistance to the Lusaka Water and Sewerage Company 

("LWSC'), the provincial utility responsible for the management of Lusaka' s water and 

sanitation assets and for the provision of water and sanitation services, and the Lusaka 

City Council ("Lee'), the Government entity that manages the city's drainage 

ANNEXI- 3 
infrastructure and services. This Activity will also include support for comprehensive 

information, education and communication campaigns, and a competitive grant program 

designed to spur innovation in the sectors (the "Institutional Strengthening Activity"). 

(a) Infrastructure Activity. 

The Infrastructure Activity consists of a series of infrastructure improvements to prioritized 

water supply, sanitation and drainage assets in Lusaka. Each component of this Activity related 

to water supply and sanitation was selected based on the results of mutually agreed, 

comprehensive investment master plans, while the component of this Activity related to drainage 

was selected based on the results of priorities identified in the "Study on Comprehensive Urban 

Development Plan for the City of Lusaka in the Republic of Zambia" funded by the Japanese 

International Cooperation Agency (the "Comprehensive Urban Development Plan"). All 

components were also selected based on the results of mutually agreed, substantially completed 

feasibility studies on a subset of priority projects identified in the plans. Collectively, during the 

Compact Term, the investments under this Activity are expected to increase available water 

supply from 225 to 240 million liters per day and reduce NR W from 48 percent to an estimated 

25 percent. In addition, approximately 150,000 new people are expected to benefit from the 

water system (either through new household connections or kiosks) and the number of sanitation 

connections is expected to increase from approximately 22,000 to approximately 38,000. 

Specifically, the Infrastructure Activity includes the following sub-activities: 

(i) Core Water Network Rehabilitation. This sub-activity is designed to 

rehabilitate the core water supply network in Lusaka in order to upgrade key treatment and 

distribution centers and distribution lines and to reduce NR W. Primary infrastructure works to 

be supported by MCC Funding under this sub-activity are expected to include, without 

limitation: 

(1) the rehabilitation of the Iolanda treatment plant and the Chilanga 

booster pump station; 

(2) the rehabilitation of segments of water transmission mains and the 

installation of segments of parallel transmission mains; 

(3) the rehabilitation of select distribution centers and the construction 

of up to two new reservoirs; 

(4) the supply and installation of bulk and consumer water meters; 

(5) the supply of leak repair materials and related tools and equipment, 

as well as the provision of appropriate training; and 

(6) the replacement of unsuitable and inefficient distribution network 

and connection pipes. 

(ii) Chelston Distribution Line Rehabilitation and Expansion. This subactivity is designed to expand the water supply network serving the Mtendere, Kamanga, 

ANNEXI-4 
Kwamwena and Ndeke-Voma Valley areas of Lusaka. Primary infrastructure works to be 

supported by MCC Funding under this sub-activity are expected to include, without limitation: 

(l) the installation of new pipes; 

(2) the construction of new water kiosks; 

(3) the construction of new household connections and water meters; 

and 

(4) the drilling and equipping of boreholes. 

(iii) Chelston and Kaunda Square Sewersheds Rehabilitation and Expansion. 

This sub-activity is designed to expand the sanitation network in the targeted areas. Primary 

infrastructure works to be supported by MCC Funding under this sub-activity are expected to 

include, without limitation: 

(1) the rehabilitation of the Chelston pump station, including the 

rehabilitation or replacement of a portion of the related force main; 

(2) upgrading and expanding the Kaunda Square treatment ponds; 

(3) upgrading the Salama pump station; 

(4) the construction of new pump stations; 

(5) the rehabilitation or replacement of the Kaunda Square sewer 

interceptor; and 

(6) the extension of the Mtendere sewer system in order to expand 

household sanitation connections. 

(iv) Central Distribution Line Rehabilitation and Expansion. This sub-activity 

is designed to expand the water supply network serving the Ng'ombe, SOS East and Chipata 

areas of Lusaka. Primary infrastructure works to be supported by MCC Funding under this subactivity are expected to include, without limitation: 

(1) the installation of new pipes; 

(2) the construction of new water kiosks; and 

(3) the construction of new household connections and water meters. 

(v) Bombay Drain Improvements. This·sub-activity is designed to reduce 

flooding through infrastructure improvements to the Bombay drain, which conveys the runoff 

from the majority of the downtown business district areas of Lusaka. Primary infrastructure 

works to be supported by MCC Funding under this sub-activity are expected to include, without 

limitation: 

ANNEXI-5 
channels; 

(1) the upsizing of the existing primary outfall and main drain 

(2) the stabilization of the newly upsized drainage channels; and 

(3) as needed, the installation of protective handrails. 

(b) Institutional Strengthening Activity. 

The Institutional Strengthening Activity consists of a series of investments designed to increase 

the ability of L WSC and LCC to maintain and manage their respective infrastructure assets and 

to more effectively and equitably deliver services to Lusaka residents, as well as to support 

innovation in water, sanitation and drainage-related activities. 

Specifically, the Institutional Strengthening Activity includes the following sub-activities: 

(i) Support to L WSC. This sub-activity is focused on strengthening the, 

capacity ofLWSC to, without limitation, undertake comprehensive asset management planning 

and execution, carry out effective environmental management and monitoring, institutionalize 

and improve gender mainstreaming and conduct effective outreach to ensure pro-poor water 

sanitation service delivery. MCC Funding for this sub-activity is intended to support: 

(1) The provision of technical assistance and related equipment to 

improve LWSC's maintenance capacity and capability, including, without limitation, the 

creation of an asset register and improvement ofL WSC's electronic data and management 

systems, and the provision of comprehensive training to improve maintenance budgeting and 

forecasting, as well as to determine the most effective modality for carrying out LWSC's 

maintenance responsibilities. 

(2) The provision of technical assistance and, potentially, related 

equipment to strengthen LWSC's capacity to ensure effective environmental monitoring, quality 

management and compliance. 

(3) The provision of technical assistance to better institutionalize and 

strengthen LWSC's capacity for gender mainstreaming and social inclusion, and to develop and 

implement policies that will increase LWSC's capacity and incentives to provide affordable 

services to the peri-urban poor and vulnerable populations. 

(4) Support for LWSC-managed information, education and 

communications ("lEe') efforts to promote behavior change and care of physical assets, 

including financial obligations. 

(ii) Support to LCC. This sub-activity is focused on strengthening the 

capacity ofLCC to, without limitation, better manage and maintain its drainage assets, to 

improve environmental management and monitoring, to institutionalize and improve gender 

mainstreaming and to conduct effective outreach. MCC Funding for this sub-activity is intended 

to support: 

ANNEX I - 6 
(1) The provision of technical assistance to increase LCC's capacity to 

plan and maintain Lusaka's overall drainage system, including, without limitation, the 

development of a comprehensive operations and maintenance program, the completion of an 

institutional needs assessment and support to implement the recommendations thereof, and 

support for a detailed ground water study to guide future system-wide operation and maintenance 

decision-making and coherent, further infrastructure investments. 

(2) The provision of technical assistance and, potentially, related 

equipment to strengthen LCC' s capacity to ensure effective environmental monitoring and 

quality management of drainage infrastructure and to integrate environmental management into 

its broader governance structure. 

(3) The provision of technical assistance to better institutionalize and 

strengthen LCC' s capacity for gender mainstreaming and to better understand and mitigate social 

and behavioral conditions that may contribute to degraded drainage infrastructure. 

(4) Support for LCC-managed IEC efforts to promote behavior change 

and care of physical assets to ensure the realization of expected Project-related health benefits 

and the sustainability of the Compact's infrastructure investments. 

(iii) Innovation Grant Program for Pro-Poor Service Delivery. This subactivity will support a competitive grant and partnership program designed to identify, and 

provide assistance to, innovative partnership opportunities, particularly through private sector 

engagement. This sub-activity is intended to increase and sustain the poor's access to quality 

water and sanitation, improve water use, sanitation and hygiene practices among the poor, 

strengthen tenure security and capacity for community-based planning, provide significant 

access by women and vulnerable groups to Project benefits and expand opportunities for 

entrepreneurship and income generating activities related to water, sanitation and drainage. 

Activities will thus enhance the functioning of the systems, complementing and supplementing 

the Compact's other investments. Grants issued under this sub-activity will be awarded, 

implemented and managed pursuant to open, fair and competitive procedures administered in a 

transparent manner in accordance with all relevant MCC policies and guidelines (including the 

Program Guidelines, the MCC Gender Integration Guidelines and Operational Procedures and 

the IFC Performance Standards). Prior to the Disbursement of any MCC Funding for a Grant, 

MCC and the Government will agree on an operations manual including procedures to govern 

the identification of potential Grant recipients, including, without limitation, appropriate 

eligibility and selection criteria and award procedures. The Parties will also agree on the 

possibility of appointing an outside grant program manager. Unless otherwise approved by 

MCC, Grants awarded under this component will not be used to support infrastructure 

investments. 

2. Beneficiaries. 

The L WSSD Project is expected to benefit approximately 1,240,000 individuals over twenty 

years, which represents the projected total population in Lusaka expected to benefit from at least 

one of the Activities. Of these beneficiaries, approximately 73 percent are expected to be poor, 

which is defined as living on less than US$2.00 per day on a purchasing power parity basis. The 

ANNEX I -7 
main channels through which these beneficiaries are expected to benefit from the L WSSD 

Project are through time savings, improved health outcomes and a reduction in NRW. 

3. Environmental and Social Mitigation Measures. 

The Infrastructure Activity under the L WSSD Project has been classified as a Category "B" 

project in accordance with the MCC Environmental Guidelines and the IFC Performance 

Standards. This categorization is based on a number of risks and impacts, most of which are 

site-specific, relatively minor and can be readily mitigated through site-specific environmental 

and social management plans. Specifically, environmental and social impacts assessments 

completed for the Infrastructure Activity have confirmed that the majority of the anticipated 

environmental and social impacts are positive in nature. However, these assessments also 

identified the following potential environmental- and social-related challenges and impacts that 

must be managed carefully through effective project design, implementation and monitoring: 

• Involuntary Resettlement. The Infrastructure Activity is anticipated to result in the 

physical and/or economic displacement of approximately 1,800 households due to 

Project-related land use and acquisition, although most of these households will only 

experience minor or temporary resettlement or displacement. A resettlement policy 

framework has already been developed for the Project and site-specific resettlement 

action plans will be developed once project designs are complete. 

• Community and Worker Health and Safety. In addition to the typical occupational health 

and safety risks for construction workers, the major risks involve ensuring the safety of 

residents in the areas where construction activities will require the excavation of trenches, 

which may involve the use of explosives, in densely populated areas. Mitigation of these 

risks will be addressed through health and safety management plans, which will include 

requirements for intense safety training and supervision and extensive ongoing 

coordination with local community organizations. 

• Sludge Removal and Disposal. The upgrade and expansion of the sewerage network and 

the rehabilitation and expansion of the sewage stabilization ponds will generate 

additional sewage sludge. LWSC's ability to adequately monitor and manage, and 

properly dispose of, this additional sewage sludge will be strengthened through the 

environmental management sub-activity of the Institutional Strengthening Activity. 

• Water Quality and Effluent Monitoring. In order to ensure the well-being and 

environmental health of Lusaka residents it is critical that drinking water and effluent 

from the sewage ponds regularly meet national standards. L WSC' s, and, as appropriate, 

LCC's, ability to adequately monitor and manage water and effluent quality will be 

strengthened through the environmental management sub-activity of the Institutional 

Strengthening Activity. 

• Waste collection and Management. One of the principal issues affecting effective drain 

operation is the blockage of culverts by accumulated solid waste. In order to mitigate the 

risk associated with underperforming drainage infrastructure due to inadequate solid 

ANNEXI- 8 
waste management, the Institutional Strengthening Activity includes support to enhance 

LCC's drainage-related solid waste and environmental management capabilities. 

The Institutional Strengthening Activity has been classified as a Category "D" project, as it will 

involve, among other components, an innovation Grant sub-activity through which MCC 

Funding will be used to provide assistance to selected Grant recipients for projects that may 

result in adverse environmental and social impacts. However, unless otherwise approved by 

MCC, Grants awarded under this component will not be used to support infrastructure-based 

investments, and as such, are not expected to result in any significant environmental, health or 

safety hazards. Nonetheless, prior to disbursing any Grants under the innovation Grant subactivity, MCA-Zambia will be required to develop and implement an environmental management 

system that is consistent with the MCC Environmental Guidelines and the IFC Performance 

Standards, as well as any applicable Government regulatory requirements. 

4. Donor Coordination. 

MCC and the Government have actively communicated and coordinated with other donors 

throughout the development of the Compact, and these efforts will continue during 

implementation. The World Bank is one of the main donors currently working in Lusaka's water 

sector. In fact, the Government's "Water Sector Performance Improvement Project," which has 

been implemented with assistance from the World Bank, has laid much of the sector reform 

groundwork that has led to improved performance by L WSC. 

In addition to the World Bank's sector reform efforts, and as noted elsewhere, each component 

of the Infrastructure Activity related to water supply and sanitation was selected based on the 

results of mutually agreed, comprehensive investment master plans financed by MCC during 

development of this Compact, while the component of the Activity related to drainage was 

selected based on the results of priorities identified in the Comprehensive Urban Development 

Plan. MCC and the Government have used these investment master plans to stimulate interest in 

the water supply and sanitation sector among the donor community, including by hosting a donor 

forum. While firm commitments have not yet been made for additional investments outlined in 

the investment master plans, the Government has been in dialogue with donors such as the 

European Investment Bank, the African Development Bank and the Japanese International 

Cooperation Agency with regard to further investments in Lusaka's water supply and sanitation 

sector. 

5. USAID. 

MCC has been in a continuing dialogue with the United States Agency for International 

Development ("USAfD") throughout the development of this Compact. Specifically, MCC and 

USAID have discussed potential, complementary investments by USAID through its 

"Sustainable Water and Sanitation in Africa Program," which may include focused capacitybuilding for NW ASCO that would support the Compact objectives. 

6. Sustainability. 

The long-term sustainability of the water and sanitation infrastructure improvements funded 

under the Infrastructure Activity is expected to be reinforced by several factors and elements of 

ANNEX I -9 
the Project's design. First, LWSC currently recovers 102 percent if its operating costs, and the 

new water connections anticipated under the Infrastructure Activity are expected to increase the 

financial health of the utility. In addition, the Government, with support from the World Bank, 

has implemented the "Water Sector Performance Improvement Project," which has positively 

contributed to the financial performance ofL WSC. Related to this, the Government and L WSC 

have agreed to enter into the L WSC Sustainability Agreement as a condition precedent to the 

entry into force of this Compact, which will set forth certain operational and financial 

performance milestones for L WSC and the sector. The continued effectiveness of, and 

compliance with, the LWSC Sustainability Agreement, including satisfaction of the applicable 

performance milestones, is a condition precedent to the Disbursement ofMCC Funding under 

the Program Implementation Agreement. Also, the technical assistance provided under the 

Institutional Strengthening Activity is designed to help L WSC better plan for maintenance and 

asset renewal. Finally, as a condition to entry into force of this Compact and as a condition to 

subsequent Disbursements ofMCC Funding, L WSC will be required to devote a minimum of 50 

percent of its annual retained earnings to asset renewal. 

The long-term sustainability of the drainage infrastructure improvements funded under the 

Infrastructure Activity is expected to be reinforced by several factors and elements of the 

Project's design. First, the Program includes a condition precedent requiring LCC to allocate a 

minimum ofUS$I.5 million on an annual basis to be used exclusively for repair and 

maintenance of drains, as further described in the Program Implementation Agreement. 

Similarly, technical assistance provided to LCC under the Institutional Strengthening Activity is 

designed to improve its ability to manage and maintain its assets. 

In addition, sustainability will be addressed across the entire Program through the IEC activities 

under the Institutional Strengthening Activity. These include the IEC focus on maintenance and 

care of community-level infrastructure and payment for services, and the focus on health and 

hygiene-related knowledge and behavior, both of which are critical to ensuring the sustainability 

of the Program's infrastructure investments and benefits over time. 

7 . Policy, Legal and Regulatory Reforms. 

The Government has been pursuing a reform agenda of privatization and deregulation of stateowned enterprises since the advent of a new democratic government in 1991. Following this 

trend, the Government developed its first comprehensive National Water Policy in 1994. The 

policy was followed by the enactment of the Water Supply and Sanitation Act in 1997, which led 

to the creation ofNW ASCO. To harmonize various water sector issues, the Government 

updated its National Water Policy in 2010, and also enacted the Water Resources Management 

Act in 2011. Key outcomes of these developments have been the creation of commercial utilities 

throughout the country, including L WSC, a move towards full cost recovery tariffs, better water 

resource management and more independent regulation of the water supply and sanitation 

utilities. 

By embracing a reform agenda, the Government has invested political capital to build a strong 

foundation for the water sector in order to expand and serve the needs of its population. As a 

result of the Government's policy reform efforts and the creation of appropriate regulatory and 

institutional foundations, L WSC and other commercial utilities are starting to perform better, and 

ANNEX I -10 
the sector is being more effectively regulated. Where L WSC and other commercial utilities need 

assistance now is in the area of new capital to expand their networks and rehabilitate old 

infrastructure. 

Given the significant policy reform already undertaken by the Government in this area, including 

through continued, sustained support from other donors, such as the World Bank, no major 

specific sector policy reforms are included under the Compact. However, MCC will monitor the 

Government's and LWSC's compliance with the reform requirements, performance milestones 

and related best practices required under the L WSC Sustainability Agreement, which must be 

entered into by the Government and L WSC as a condition precedent to the entry into force of 

this Compact. 

In addition, in light of concerns about the ability of poor households to afford the household 

sanitation connections constructed under the Compact, the Government is required to deliver the 

GRZ Sanitation Connection Action Plan as a condition precedent to the entry into force of this 

Compact, and satisfactory implementation of the GRZ Sanitation Connection Action Plan, 

including the commitment of appropriate funding by the Government, is a condition precedent to 

subsequent Disbursements of MCC Funding, as further described in the Program Implementation 

Agreement. The GRZ Sanitation Connection Action Plan must include, without limitation, a 

methodology for determining who qualifies for such assistance and a plan for administering such 

assistance and ensuring that such beneficiaries obtain household connections. 

c. IMPLEMENTATION FRAMEWORK 

1. Overview. 

The implementation framework and the plan for ensuring adequate governance, oversight, 

management, monitoring and evaluation and fiscal accountability for the use ofMCC Funding 

are summarized below. MCC and the Government will enter into the Program Implementation 

Agreement and any other agreements in furtherance of this Compact, all of which, together with 

this Compact, set out certain rights, responsibilities, duties and other terms relating to the 

implementation of the Program. 

2. MCC. 

MCC will take all appropriate actions to carry out its responsibilities in connection with this 

Compact and the Program Implementation Agreement, including the exercise of its approval 

rights in connection with the implementation of the Program. 

3. Accountable Entity. 

The Government has established MCA-Zambia as a company limited by guarantee under the 

laws of Zambia. In accordance with Section 3.2(b) of this Compact, MCA-Zambia will act on 

the Government's behalf to implement the Program and to exercise and perform the 

Government's rights and responsibilities with respect to the oversight, management and 

implementation of the Program, including, without limitation, managing the implementation of 

the Project and its Activities, allocating resources and managing procurements. The Government 

will ensure that MCA-Zambia takes all appropriate actions to implement the Program, including 

ANNEXI-ll 
the exercise and performance of the rights and responsibilities designated to it by the 

Government pursuant to this Compact and the Program Implementation Agreement. Without 

limiting the foregoing, the Government will also ensure that MCA-Zambia has full decisionmaking autonomy, including, without limitation, the ability, without consultation with, or the 

consent or approval of, any other party, to: (i) enter into contracts, grants, cooperative 

agreements or any other agreement in its own name; (ii) sue and be sued; (iii) establish an 

account in a financial institution in the name of MCA-Zambia and hold MCC Funding in that 

account; (iv) expend MCC Funding; (v) engage a fiscal agent who will act on behalf of MCAZambia on terms acceptable to MCC; (vi) engage one or more procurement agents who will act 

on behalf of MCA-Zambia, on terms acceptable to MCC, to manage the acquisition of the goods, 

works and services required by MCA-Zambia to implement the activities funded by this 

Compact; and (vii) competitively engage one or more auditors to conduct audits of its accounts. 

The Government will take all the necessary actions to manage and operate MCA-Zambia in 

accordance with the applicable conditions precedent to the Disbursement of Compact 

Implementation Funding set forth in Annex IV to this Compact. 

In accordance with the laws of Zambia, the Minister of Finance and the Secretary to the 

Treasury, Ministry of Finance and National Planning, will serve as the members ofMCAZambia, but will not have any control over, or oversight of, the administration or management of 

MCA-Zambia in their capacity as members ofMCA-Zambia. Rather, MCA-Zambia will be 

administered and managed by a board of directors (the "Boartf') and a management unit (the 

"Management Unif'). In addition, MCA-Zambia will be supported by one or more stakeholders 

committees (each, a "Stakeholders Committee") to continue the consultative process during 

implementation of the Program. 

The governance ofMCA-Zambia is set forth in more detail in the MCA-Zambia Articles of 

Association (the "Bylaws"), the Program Implementation Agreement and the Governance 

Guidelines, which, collectively, set forth the responsibilities of the Board, the Management Unit 

and the Stakeholders Committee(s). 

(a) Board. 

(i) Composition. The Board is initially comprised of the following nine 

members, including six representatives from Government entities and three representatives from 

civil society and private sector organizations: (1) the Secretary to the Treasury, Ministry of 

Finance and National Planning; (2) the Permanent Secretary, Ministry of Finance and National 

Planning; (3) the Permanent Secretary, Ministry of Local Government and Housing; (4) the 

Chair ofL WSC's Board of Directors; (5) the Town Clerk, LCC; (6) the Chair of the Board of 

Directors for the Zambia Environmental Management Agency; (7) the Executive Director, NonGovernmental Organization Coordinating Committee; (8) the Executive Director, Civil Society 

for Poverty Reduction; and (9) a representative from the private sector. The Chief Executive 

Officer ("CEO") of MCA-Zambia and an MCC representative will serve as observers. 

(ii) Roles and Responsibilities. The Board will be responsible for overseeing 

the implementation of the Program and will have final decision-making authority over the 

implementation of the Program. The Board will hold regular meetings, at a minimum once per 

ANNEXI-12 
quarter. The specific roles of the members and observers are set forth in the Bylaws and the 

Governance Guidelines. 

(b) Management Unit. 

(i) Composition. The Management Unit will initially include the following 

key officers: (1) the CEO; (2) the Deputy CEO Operations; (3) the Deputy CEO Administration; 

(4) the Finance and Administration Director; (5) the Procurement Director; (6) the Infrastructure 

Development Director; (7) the Environment and Social Performance Director; (8) the Social and 

Gender Assessment Director; (9) the Monitoring and Evaluation and Economics Director; (10) 

the Communications and Outreach Director; (11) the Information Technology Director; (12) the 

Legal Director; (13) the Internal Auditor; and (14) Grants Director. These key officers will be 

supported by appropriate additional staff to enable the Management Unit to execute its roles and 

responsibilities, in accordance with any applicable staffing plan approved by MCC. 

(ii) Roles and Responsibilities. The Management Unit will be based in 

Lusaka, Zambia, and will be responsible for managing the day-to-day implementation of the 

Program, with oversight from the Board. The Management Unit will serve as the principal link 

between MCC and the Government, and will be accountable for the successful execution of the 

Project and each Activity. MCA-Zambia will be subject to Government audit requirements. As 

a recipient ofMCC Funding, MCA-Zambia will also be subject to MCC audit requirements. 

(c) Stakeholders' Committee(s). 

(i) Composition. The Stakeholders Committee (or, if appropriate and 

approved by MCC, committees) will provide input to the Board and the Management Unit on 

matters that relate to the Program, promoting transparency and ongoing consultation. The size, 

composition and manner of selection of members of the Stakeholders Committee(s) are subject 

to ongoing discussions between the Government and MCC, and will be dictated by the project 

areas of the Program. Membership will at least reflect the non-governmental organizations, 

private sector, civil society and local and regional governments that were consulted by the 

Government in developing its proposal for the Compact. 

(ii) Roles and Responsibilities. Consistent with the Governance Guidelines, 

the Stakeholders Committee(s) will be responsible for continuing the consultative process 

throughout implementation of the Program. While the Stakeholders Committee(s) will not have 

any binding decision-making authority, it will be responsible for, among other things, reviewing, 

at the request of the Board or the Management Unit, certain reports, agreements and documents 

related to the implementation of the Program in order to provide advice and input to MCAZambia regarding the implementation of the Program. 

4. Implementing Entities. 

Subject to the terms and conditions of this Compact, the Program Implementation Agreement 

and any other related agreement entered into in connection with this Compact, MCC and the 

Government may identify certain entities or institutions to receive technical assistance or other 

support under this Compact, or to assist MCA-Zambia with the implementation of the Project or 

any Activity (or any component thereof) in furtherance of this Compact (each, an "Implementing 

ANNEX I -13 
Entity"). The identification of any Implementing Entity will be subject to review and approval 

by MCC. As of the date of this Compact, the Government and MCC have identified LWSC and 

LCC as Implementing Entities with respect to the Project. The Government will ensure that the 

roles and responsibilities of each Implementing Entity and other appropriate terms are set forth in 

an agreement, in form and substance satisfactory to MCC (each an "Implementing Entity 

Agreemenf'). 

5. Fiscal Agent. 

Unless MCC agrees otherwise in writing, the Government, through MCA-Zambia, will appoint a 

fiscal agent (the "Fiscal Agenf'), which will be responsible for assisting the Government with its 

fiscal management and assuring appropriate fiscal accountability of MCC Funding. The roles 

and responsibilities of the Fiscal Agent will be set forth in the Program Implementation 

Agreement and such agreement as MCA-Zambia enters into with the Fiscal Agent, which 

agreement will be in form and substance satisfactory to MCC. 

6. Procurement Agent. 

Unless MCC agrees otherwise in writing, the Government, through MCA-Zambia, will appoint a 

procurement agent (the "Procurement Agenf') to carry out and certify specified procurement 

activities in furtherance of this Compact. The roles and responsibilities of the Procurement 

Agent will be set forth in the Program Implementation Agreement and such agreement as MCAZambia enters into with the Procurement Agent, which agreement will be in form and substance 

satisfactory to MCC. The Procurement Agent will adhere to the procurement standards set forth 

in the MCC Program Procurement Guidelines and ensure procurements are consistent with the 

procurement plan adopted by the Government pursuant to the Program Implementation 

Agreement, unless MCC agrees otherwise in writing. 

ANNEX 1-14 
ANNEX II 

MULTI-YEAR FINANCIAL PLAN SUMMARY 

This Annex II summarizes the Multi-Year Financial Plan for the Program. 

A multi-year financial plan summary ("Multi-Year Financial Plan Summary") is attached 

hereto as Exhibit A to this Annex II. By such time as specified in the Program Implementation 

Agreement, the Government will adopt, subject to MCC approval, a multi-year financial plan 

that includes, in addition to the multi-year summary of estimated MCC Funding and the 

Government's contribution offunds and resources, the annual and quarterly funding 

requirements for the Program (including administrative costs) and for the Project, projected both 

on a commitment and cash requirement basis. 




(c) Data Quality Reviews. As determined in the M&E Plan or as otherwise requested 

by MCC, the quality of the data gathered through the M&E Plan will be reviewed to ensure that 

data reported are as valid, reliable, and timely as resources will allow. The objective of any data 

quality review will be to verify the quality and the consistency of performance data across 

different implementation units and reporting institutions. Such data quality reviews also will 

serve to identify where those levels of quality are not possible, given the realities of data 

collection. 

(d) Management Information System. The M&E Plan will describe the information 

system that will be used to collect data, store, process and deliver information to relevant 

stakeholders in such a way that the Program information collected and verified pursuant to the 

M&E Plan is at all times accessible and useful to those who wish to use it. The system 

development will take into consideration the requirement and data needs of the components of 

the Program, and will be aligned with existing MCC systems, other service providers, and 

ministries. 

(e) Role ofMCA-Zambia. The monitoring and evaluation of this Compact spans one 

Project and will involve governmental, nongovernmental, and private sector institutions. In 

accordance with the designation contemplated by Section 3.2(b) of this Compact, MeA-Zambia 

is responsible for implementation of the M&E Plan. MCA-Zambia will oversee all Compactrelated monitoring and evaluation activities conducted for the Project, ensuring that data from all 

implementing entities is consistent, accurately reported and aggregated into regular Compact 

performance reports as described in the M&E Plan. 

4. Evaluation Component. 

The Evaluation Component of the M&E Plan will contain three types of evaluations: (i) impact 

evaluations; (ii) project performance evaluations; and (iii) special studies. The Evaluation 

Component of the M&E Plan will describe the purpose of the evaluation, methodology, timeline, 

required MCC approvals, and the process for collection and analysis of data for each evaluation. 

The results of all evaluations will be made publicly available in accordance with the MCC Policy 

for Monitoring and Evaluation of Compacts and Threshold Programs. 

Possible evaluations include: 

• Infrastructure Activity. An evaluation of this activity would focus on household level 

impacts including health outcomes and expenditures; time savings; property values; and 

the availability and reliability of water, sanitation, and drainage services. Although a 

specific methodology has not been identified, due to the high potential for learning from 

these investments, MCC and MCA-Zambia will work together to develop as rigorous an 

evaluation of the infrastructure investments as possible. 

• Institutional Strengthening Activity. The Institutional Strengthening Activities would 

likely undergo performance evaluations aimed at assessing their effectiveness and 

contribution to the overall sustainability of the infrastructure investments. 

ANNEX III -4 
• Innovation Grant Program. The innovation grant (IG) program under the Institutional 

Strengthening Activity will seek opportunities to rigorously evaluate the activities that 

are proposed for funding. To the extent the IG program supports innovative ideas in the 

realm of water, sanitation, and drainage services, rigorous evaluations would serve an 

accountability function and, if possible, a learning function. 

(a) Impact Evaluation. The M&E Plan will include a description of the methods to 

be used for impact evaluations and plans for integrating the evaluation method into Project 

design. Final impact evaluation strategies are to be included in the M&E Plan. 

(b) Final Evaluation. The M&E Plan will make provision for final Project-level 

evaluations ("Final Evaluations"). With the prior written approval ofMCC, the Government 

will engage independent evaluators to conduct the Final Evaluations at the end of the Project. 

The Final Evaluations will review progress during Compact implementation and provide a 

qualitative context for interpreting monitoring data and impact evaluation findings. They must at 

a minimum (i) evaluate the efficiency and effectiveness of the Activities; (ii) determine if and 

analyze the reasons why the Compact Goal and the Project Objective, outcome(s) and output(s) 

were or were not achieved; (iii) identify positive and negative unintended results of the Program; 

(iv) provide lessons learned that may be applied to similar projects; and (v) assess the likelihood 

that results will be sustained over time. 

(i) Special Studies. The M&E Plan will include a description of the methods 

to be used for special studies, as necessary, funded through this Compact or by MCC. Plans for 

conducting the special studies will be determined jointly between the Government and MCC 

before the approval of the M&E Plan. The M&E Plan will identify and make provision for any 

other special studies, ad hoc evaluations, and research that may be needed as part of the 

monitoring and evaluating of this Compact. Either MCC or the Government may request special 

studies or ad hoc evaluations of the Project, the Activities, or the Program as a whole prior to the 

expiration of the Compact Term. When the Government engages an evaluator, the engagement 

will be subject to the prior written approval of MCC. Contract terms must ensure non-biased 

results and the publication of results. 

(c) Request for Ad Hoc Evaluation or Special Study. If the Government requires an 

ad hoc independent evaluation or special study at the request of the Government for any reason, 

including for the purpose of contesting an MCC determination with respect to the Project or any 

Activity or to seek funding from other donors, no MCC Funding resources may be applied to 

such evaluation or special study without MCC's prior written approval. 

5. Other Components of the M&E Plan. 

In addition to the monitoring and evaluation components, the M&E Plan will include the 

following components for the Program, the Project and the Activities, including, where 

appropriate, roles and responsibilities of the relevant parties and providers: 

ANNEX III - 5 
(a) Costs. A detailed cost estimate for all components of the M&E Plan; and 

(b) Assumptions and Risks. Any assumption or risk external to the Program that 

underlies the accomplishment of the Project Objective and Activity outcomes and outputs. 

However, such assumptions and risks will not excuse any Party's performance unless otherwise 

expressly agreed to in writing by the other Party. 

6. Approval and Implementation of the M&E Plan. 

The approval and implementation of the M&E Plan, as amended from time to time, will be in 

accordance with the Program Implementation Agreement, any other relevant Supplemental 

Agreement and the MCC Policy for Monitoring and Evaluation of Compacts and Threshold 

Programs. 

ANNEX III- 6 
ANNEX IV 

CONDITIONS PRECEDENT 

TO DISBURSEMENT OF COMPACT IMPLEMENTATION FUNDING 

This Annex IV sets forth the conditions precedent applicable to Disbursements of Compact 

Implementation Funding other than Disbursements for MCC CIF Contracted Activities (each a 

"elF Disbursemenf'). Capitalized terms used in this Annex IV and not defined in this Compact 

will have the respective meanings assigned thereto in the Program Implementation Agreement. 

Upon execution of the Program Implementation Agreement, each CIF Disbursement will be 

subject to the terms of the Program Implementation Agreement. 

1. Conditions Precedent to Initial CIF Disbursement. 

Each of the following must have occurred or been satisfied prior to the initial CIF Disbursement: 

(a) The Government (or MCA-Zambia) has delivered to MCC: 

(i) an interim fiscal accountability plan acceptable to MCC; and 

(ii) a CIF procurement plan acceptable to MCC. 

2. Conditions Precedent to all CIF Disbursements (Including Initial CIF 

Disbursement). 

Each of the following must have occurred or been satisfied prior to each CIF Disbursement: 

(a) The Government (or MCA-Zambia) has delivered to MCC the following 

documents, in form and substance satisfactory to MCC: 

(i) a completed Disbursement Request, together with the applicable Periodic 

Reports, for the applicable Disbursement Period, all in accordance with the Reporting 

Guidelines; 

(ii) a certificate of MCA-Zambia, dated as of the date of the Disbursement 

Request, in such form as provided by MCC; 

(iii) if a Fiscal Agent has been engaged, a Fiscal Agent Disbursement 

Certificate; and 

(iv) if a Procurement Agent has been engaged, a Procurement Agent 

Disbursement Certificate. 

(b) If any proceeds of the CIF Disbursement are to be deposited in a bank account, 

MCC has received satisfactory evidence that (i) the Bank Agreement has been executed, and (ii) 

the Permitted Accounts have been established. 
(c) Appointment of an entity or individual to provide fiscal agent services, as 

approved by MCC, until such time as the Government provides to MCC a true and complete 

copy of a Fiscal Agent Agreement, duly executed and in full force and effect, and the Fiscal 

Agent engaged thereby is mobilized. 

(d) Appointment of an entity or individual to provide procurement agent services, as 

approved by MCC, until such time as the Government provides to MCC a true and complete 

copy of the Procurement Agent Agreement, duly executed and in full force and effect, and the 

Procurement Agent engaged thereby is mobilized. 

(e) MCC is satisfied, in its sole discretion, that (i) the activities being funded with 

such CIF Disbursement are necessary, advisable or otherwise consistent with the goal of 

facilitating the implementation of the Compact and will not violate any applicable law or 

regulation; (ii) no material default or breach of any covenant, obligation or responsibility by the 

Government, MCA-Zambia or any Government entity has occurred and is continuing under this 

Compact or any other Supplemental Agreement; (iii) there has been no violation of, and the use 

of requested funds for the purposes requested will not violate, the limitations on use or treatment 

of MCC Funding set forth in Section 2.7 of this Compact or in any applicable law or regulation; 

(iv) any Taxes paid with MCC Funding through the date 90 days prior to the start of the 

applicable Disbursement Period have been reimbursed by the Government in full in accordance 

with Section 2.8(c) of this Compact; and (v) the Government has satisfied all of its payment 

obligations, including any insurance, indemnification, tax payments or other obligations, and 

contributed all resources required from it, under this Compact and any other Supplemental 

Agreement. 

(f) F or any CIF Disbursement occurring concurrently with or after the Initial 

Disbursement of Program Funding in accordance with Section 3.3 and 3.4 of the Program 

Implementation Agreement: MCC is satisfied, in its sole discretion, that (i) MCC has received 

copies of any reports due from any technical consultants (including environmental auditors 

engaged by MCA-Zambia) for any Activity since the previous Disbursement Request, and all 

such reports are in form and substance satisfactory to MCC; (ii) the Implementation Plan 

Documents and Fiscal Accountability Plan are current and updated and are in form and substance 

satisfactory to MCC, and there has been progress satisfactory to MCC on the components of the 

Implementation Plan for any relevant Projects or Activities related to such CIF Disbursement; 

(iii) there has been progress satisfactory to MCC on the M&E Plan and Social and Gender 

Integration Plan for the Program or relevant Project or Activity and substantial compliance with 

the requirements of the M&E Plan and Social and Gender Integration Plan (including the targets 

set forth therein and any applicable reporting requirements set forth therein for the relevant 

Disbursement Period); (iv) there has been no material negative finding in any financial audit 

report delivered in accordance with this Compact and the Audit Plan, for the prior two quarters 

(or such other period as the Audit Plan may require); (v) MCC does not have grounds for 

concluding that any matter certified to it in the related MCA Disbursement Certificate, the Fiscal 

Agent Disbursement Certificate or the Procurement Agent Disbursement Certificate is not as 

certified; and (vi) if any of the officers or key staff of MCA-Zambia have been removed or 

resigned and the position remains vacant, MCA-Zambia is actively engaged in recruiting a 

replacement. 

ANNEX IV-2 
(g) MCC has not determined, in its sole discretion, that an act, omission, condition, or 

event has occurred that would be the basis for MCC to suspend or terminate, in whole or in part, 

the Compact or MCC Funding in accordance with Section 5.1 of this Compact. 

ANNEX IV-3 
ANNEX V 

DEFINITIONS 

Activity has the meaning provided in paragraph 1 of Part B of Annex 1 

Additional Representative has the meaning provided in Section 4.2. 

Applicable Acts has the meaning provided in Annex VI 

Audit Guidelines has the meaningprovided in Section 3.8(a). 

Baseline has the meaning provided in paragraph 3 of Annex III 

Board has the meaning provided in paragraph 3 of Part C of Annex 1 

Bylaws has the meaning provided in paragraph 3 of Part C of Annex 1 

CEO has the meaning provided in paragraph 3(a)(i) of Part C of Annex 1 

CIF Disbursement has the meaning provided in Annex IV. 

Compact has the meaning provided in the Preamble. 

Compact Contract has the meaning provided in Annex VI 

Compact Goal has the meaning provided in Section 1.1. 

Compact Implementation Funding has the meaning provided in Section 2.2(a). 

Compact Records has the meaning provided in Section 3. 7 (a). 

Compact Term has the meaning provided in Section 7.4. 

Comprehensive Urban Development Plan has the meaning provided in paragraph l(a) of Part B of 

Annex 1 

Covered Provider has the meaning provided in Section 3.7(c). 

Disbursement has the meaning provided in Section 2.4. 

Eligible Entities has the meaning provided in Annex VI 

Eligible Individuals has the meaning prOVided in to Annex VI 

Evaluation Component has the meaning provided in paragraph 1 of Annex III 

Excess elF Amount has the meaning provided in Section 2.2(d). 

Final Evaluations has the meaning provided in paragraph 4(b) of Annex III 

Fiscal Agent has the meaning provided in paragraph 5 of Part C of Annex 1 
Governance Guidelines means MCC's Guidelines for Accountable Entities and Implementation 

Structures, as such may be posted on MCC's Website from time to time. 

Government has the mean ing provided in the Preamble. 

Grant has the meaning provided in Section 3.6(b). 

GRZ Sanitation Connection Action Plan has the meaning provided in Section 7.2(d). 

IEC has the meaning provided in paragraph J(b)(i)(4) of Part B of Annex 1 

IFC Performance Standards has the meaning provided in paragraph 3 of Part A of Annex 1 

Implementation Letter has the meaning provided in Section 3.5. 

Implementing Entity has the meaning provided in paragraph 4 of Part C of Annex 1 

Implementing Entity Agreement has the meaning provided in paragraph 4 of Part C of Annex 1 

Indicators has the meaning provided in paragraph 3(a) of Annex 111 

Infrastructure Activity has the meaning provided in paragraph J of Part B of Annex 1 

Inspector General has the meaning provided in Section 3. 7(d). 

Institutional Strengthening A ctivity has the meaning provided in paragraph J of Part B of Annex 1 

Intellectual Property means all registered and unregistered trademarks, service marks, logos, names, 

trade names and all other trademark rights; all registered and unregistered copyrights; all patents, 

inventions, shop rights, know how, trade secrets, designs, drawings, art work, plans, prints, manuals, 

computer files, computer software, hard copy files, catalogues, specifications, and other proprietary 

technology and similar information; and all registrations for, and applications for registration of, any of 

the foregoing, that are financed, in whole or in part, using MCC Funding. 

LPO has the meaning provided in Schedule D to A nnex VI 

LCC has the meaning provided in paragraph J of Part B of Annex 1 

LWSC has the meaning provided in paragraph J of Part B of Annex 1 

LWSC's Retained Earnings means, as calculated at the end of any fiscal year, the Retained Earnings at 

the beginning of such fiscal year plus the portion of net income retained after payment of any divide nds. 

LWSC Sustainability Agreement has the meaning provided in Section 7.2(g). 

LWSSD Project has the meaning provided in paragraph 2 of Part A of Annex 1 

M &E Plan has the meaning provided in Annex III 

Management Unit has the meaning provided in paragraph 3 of Part C of Annex 1 

MCA Act has the meaningprovided in Section 2.2(a). 

ANNEX V -2 
MCA-Zambia has the meaning provided in Section 3.2(b). 

MCC has the meaning provided in the Preamble. 

MCC Contracted CIF Activities has the meaning provided in Section 2.2(b). 

MCC Environmental Guidelines has the meaning provided in Section 2. 7(c). 

MCC Funding has the meaning provided in Section 2.3. 

MCC Gender Policy means the MCC Gender Policy (including any guidance documents issued in 

connection with the guidelines) postedfrom time to time on the MCC Website or otherwise made 

available to the Government. 

MCC Gender Integration Guidelines and Operational Procedures means MCC's Gender Integration 

Guidelines and Operational Procedures, as such may be pos ted on MCC's Website from time to time. 

MCC Policy for Monitoring and Evaluation of Compacts and Threshold Programs has the meaning 

provided in Annex III 

MCC Program Procurement Guidelines has the meaning provided in Section 3.6(a). 

MCC Social and Gender Integration Plan Guidelines means MCC's Social and Gender Integration Plan 

Guidelines, as such may be posted on MCC's Website, or otherwise provided by MCC, from time to time. 

MCC Website has the meaning provided in Section 2.7. 

Monitoring Component has the meaning provided in paragraph 1 of Annex III 

Multi-Year Financial Plan Summary has the meaning provided in paragraph 1 of Annex II 

NWASCO has the meaning provided in paragraph 1 of Part A of Annex 1 

NRW has the meaning provided in paragraph 1 of Part B of Annex 1 

Party and Parties have the meaning provided in the Preamble. 

Permitted Account has the meaning provided in Section 2.4. 

Principal Representative has the meaning provided in Section 4.2. 

Procurement Agent has the meaning provided in paragraph 6 of Part C of Annex 1 

Program has the meaning provided in the Preamble. 

Program Assets means any assets, goods or property (real, tangible or intangible) purchased or financed 

in whole or in part (directly or indirectly) by MCC Funding. 

Program Funding has the meaning provided in Section 2.1. 

Program Guidelines means collectively the Audit Guidelines, the MCC Environmental Guidelines, the 

MCC Gender Policy, the Governance Guidelines, the MCC Program Procurement Guidelines, the . 

ANNEX V -3 
Reporting Guidelines, the MCC Policy for Monitoring and Evaluation of Compacts and Threshold 

Programs, the MCC Cost Principles for Government Affiliates Involved in Compact Implementation 

(including any successor to any of the foregoing) and any other guidelines, policies or guidance papers 

relating to the administration of MCC-funded compact programs, and, in each case, as from time to time 

published on the MCC Website. 

Program Implementation Agreement has the mean ing provided in Section 3.1. 

Project means the LWSSD Project. 

Project Objective has the meaning provided in Section 1.2. 

Provider has the meaning provided in Section 3.7(c). 

Reporting Guidelines means the MCC "Guidance on Quarterly MCA Disbursement Request and 

Reporting Package" posted by MCC on the MCC Website or otherwise publicly made available. 

Retained Earnings means the portion of net income retained after payment of any dividends. 

Social and Gender Integration Plan has the meaning provided in paragraph 3 of Part A of Annex 1 

Stakeholders Committee has the meaning provided in paragraph 3 of Part C of Annex 1 

Supplemental Agreement means any agreement between (a) the Government (or any Government 

affiliate, including MCA-Zambia) and MCC (including, but not limited to, the Program Implementation 

Agreement) or (b) MCC and/or the Government (or any Government affiliate, including MCA-Zambia), 

on the one hand, and any third party, on the other hand, including any of the Providers, in each case, 

setting forth the details of any funding, implementing or other arrangements in furtherance of this 

Compact. 

Statutory Instrument has the meaning provided in Annex VI 

Target has the meaning provided in paragraph 3 (a) of Annex III. 

Taxes has the meaning provided in Section 2.8(a). 

Third Schedule has the meaning provided in Schedule E to Annex VI 

United States Dollars or US$ means the lawful currency of the United States of America. 

USAID has the meaning provided in paragraph 5 of Part B of Annex 1 

VAT has the meaning provided in Schedule D to Annex VI 

Vendor has the meaning provided in Annex VI 

Zambia has the meaning provided in the Preamble. 

ZRA has the meaning provided in Schedule D to Annex VI 

ANNEX V -4 
1. Introduction. 

ANNEX VI 

TAX SCHEDULES 

In accordance with, and without limiting the generality of, Section 2.8 of the Compact, the 

Government will ensure that all MCC Funding is free from the payment or imposition of any 

existing or future Taxes in or of Zambia. This will include any interest or earnings on MCC 

Funding, and any MCC Funding disbursed, directly or indirectly, to or for: (i) MCA-Zambia; (ii) 

any goods, works, services, technology and other assets and activities under the Program or the 

Project; (iii) any persons and entities, including without limitation any Implementing Entity, 

contractor (prime and subcontractors), consultant or grantees, that provide such goods, works, 

services, technology and assets, or perform such activities (each, a "Vendor"); and/or (iv) any 

income, profits, and payments with respect to the foregoing, except as otherwise allowed 

pursuant to Section 2.8 of the Compact. 

This Annex VI sets out the mechanisms for exempting MCC Funding from the principal Taxes 

otherwise imposed by the Government. Should any potential liability for Taxes on MCC 

Funding arise that is not contemplated by the mechanisms set out in this Annex VI, the Parties 

will, in accordance with Section 2.8 of the Compact, agree to the means by which MCC Funding 

will be exempt from such Taxes. 

For the purposes of this Annex VI, MCA-Zambia and any Vendor are referred to variously as 

"Eligible Entities" or "Eligible Individuals," as appropriate. 

In addition, for the purposes of this Annex VI, any Compact-related contracts, agreements or 

grants with an Eligible Entity or Eligible Individual are referred to as a "Compact Contract." 

2. General Background. 

For most Tax exemptions or Tax rebates, the applicable tax-related laws of Zambia (the 

"Applicable Acts") have vested powers in the Minister of Finance and National Planning to grant 

such exemptions or rebates through the issuance of subsidiary legislation, each referred to as a 

"Statutory Instrument." For every Statutory Instrument that is issued in respect of a tax 

exemption or rebate, the Minister of Finance and National Planning submits an explanatory 

memorandum to the Committee on Delegated Legislation of Parliament. The memorandum 

explains why the Statutory Instrument has been issued. 

In general, MCC Funding will be treated in accordance with the provisions of donor-funded 

projects, under which there is authority to exempt any goods, services or works that are 

purchased using such funds from taxation in Zambia. In terms of income tax and other 

exemptions, for which existing exemption mechanisms are not specifically referenced in the 

Applicable Acts, the Minister of Finance and National Planning will issue a specific Statutory 

Instrument. 

3. Miscellaneous Additional Requirements. 

F or the purposes of determining if a natural person is a permanent resident of Zambia or if a 

legal person has been formed under the laws of Zambia under Section 2.8(a) of the Compact, the 

taxable status of such natural or legal person will be based on its status at the time it is awarded 
or executes a Compact-related agreement, contract, or grant, and such initial determination will 

not change regardless of: (i) the type of agreement, contract or grant used to employ or engage 

such natural or legal person; (ii) any laws of Zambia that purport to change such status based on 

period of contract or grant performance, or period of time residing and/or working in Zambia; 

and/or (iii) any requirement under the laws of Zambia that a company or other legal person must 

establish a branch office in Zambia, or otherwise register or organize itself under the laws of 

Zambia, in order to provide goods, works or services in Zambia. 

In addition, in complying with the tax exemption obligations set forth in the Compact, the 

Government will also exempt MCA-Zambia, the Fiscal Agent, the Procurement Agent and/or 

any other Vendor from any obligation imposed by the laws of Zambia, including the Applicable 

Acts, to withhold any Taxes from any payments made to any Eligible Entities or Eligible 

Individuals. 

4. General Mechanism Exemption. 

The general mechanism that the Government will use to implement its tax exemption obligations 

under the Compact is as follows: 

(a) The Minister of Finance and National Planning and MCA-Zambia will cooperate 

in drafting an explanatory memorandum to the Committee on Delegated Legislation of 

Parliament explaining the policy behind the issuance of the Statutory Instrument to exempt MCC 

Funding from the payment or imposition of any Taxes, and specifically the requirement to 

exempt Eligible Entities and/or Eligible Individuals from the following types of Taxes with 

respect to MCC Funding: 

(i) Corporate Income Tax; 

(ii) Personal Income Tax; 

(iii) Withholding Tax; 

(iv) Excise Tax on Fuel; and 

(v) Any other taxes that require a Statutory Instrument for exemption. 

(b) The explanatory memorandum will, at a minimum, specify: 

(i) The project or activity that will benefit from the exemption; 

(ii) The expected time frame of each project or activity; 

(iii) The expected cost of each project or activity; and 

(iv) A complete list of Taxes that will be exempted. 

(c) For tax exemptions not provided for by means of a Statutory Instrument, the 

exemption will be provided by the means set out in this Annex VI, or as otherwise agreed by the 

Parties. 

ANNEXVI-2 
1. Procedures. 

SCHEDULE A 

CORPORATE INCOME TAX 

(a) The Minister of Finance and National Planning will issue a Statutory Instrument 

to exempt Eligible Entities receiving MCC Funding from payment of corporate income tax on 

any income derived from that MCC Funding, in accordance with the Income Tax Act. 

(b) Any Eligible Entity earning income derived from MCC Funding in Zambia in any 

given tax year will be exempt from the payment or imposition of any Zambian income (and 

other) taxes on such income, and as such will not be required to have any taxes withheld on any 

income derived from MCC Funding during the tax year. 

(c) At the end of a given tax year, any Eligible Entity earning only income derived 

from MCC Funding in Zambia in that tax year will file a tax return indicating that such income is 

not subject to taxation in Zambia in accordance with the Compact, the Statutory Instrument 

issued by the Minister of Finance and National Planning and the Compact Contract. The Eligible 

Entity will include a copy of the applicable Compact Contract and the Statutory Instrument with 

its tax return. 

(d) Any Eligible Entity earning both income derived from MCC Funding and nonCompact-related income in Zambia in any given tax year will: 

(i) Maintain its books and records to segregate financial activity related to its 

Compact-funded activities from those financial activities that are not related to the Compact. 

(ii) At the end of any such tax year, file its tax return on income that is not 

derived from MCC Funding, as applicable, providing the documentation required in paragraph 3 

above. 

ANNEX VI -3 
1. Procedures. 

SCHEDULEB 

PERSONAL INCOME TAX 

(a) The Minister of Finance and National Planning will issue a Statutory Instrument 

to exempt Eligible Individuals receiving MCC Funding from payment of personal income tax on 

any income earned from that MCC Funding, in accordance with the Income Tax Act. 

(b) MCA-Zambia will send a letter to the Minister of Finance and National Planning 

listing any exempt natural persons (as determined by Section 2.8(a) of the Compact and this 

Annex VI) working on Compact-related projects or activities, and will attach a copy of the 

agreement or contract under which the exempt natural person will be working. The letter should 

also include a request to exempt such natural person from any social security and other related 

benefits required under the laws of Zambia. 

(c) Any Eligible Individual earning only income derived from MCC Funding in 

Zambia in any given tax year will be exempt from the payment or imposition of any Zambia 

taxes on such income, and as such will not be required to have taxes withheld on any such 

income earned during the tax year. At the end of the tax year, such Eligible Individual will file a 

tax return indicating that such income is not subject to taxation in Zambia, in accordance with 

the Compact, the Statutory Instrument issued by the Minister of Finance and National Planning 

and the Compact Contract. The Eligible Individual will include a copy of the applicable 

Compact Contract and the Statutory Instrument with its tax return. 

(d) Any Eligible Individual earning both income derived from MCC Funding and 

non-Compact-related income in Zambia in any given tax year will be permitted to exclude the 

gross amount of personal income derived from MCC Funding for the purposes of filing hislher 

year-end individual income taxes in Zambia for any such tax year. Such Eligible Individual will 

include a copy of the applicable Compact Contract and the Statutory Instrument with its tax 

return. 

ANNEXVI-4 
1. Description. 

SCHEDULEC 

WITHHOLDING TAX 

The withholding tax is a flat, general tax at the rate of 15 percent withheld at the source of 

payment in connection with such things as interest, dividends, royalties, rents, management and 

consultancy fees, commissions and public entertainment fees. 

2. Procedure. 

The Minister of Finance and National Planning will issue a Statutory Instrument to exempt 

Eligible Entities and Eligible Individuals receiving MCC Funding from the requirement to have 

withholding tax withheld at the source of payment for management and consultancy fees, as well 

as other payments that would otherwise be subject to the withholding tax that are paid with MCC 

Funding. For the avoidance of doubt, the Statutory Instrument will also exempt MCA-Zambia 

from the requirement to withhold and remit such tax. 

ANNEXVI-5 
1. Description. 

SCHEDULED 

VALUE ADDED TAX 

The value added tax ("VAT') is a consumption-based tax that is levied in the supply chain at 

each point where value is added to a good or service. VAT is incurred by the final person or 

entity in the chain of supply that is not registered for V AT. Persons registered for V AT will 

claim back, through their respective tax return, the input V AT incurred in the course of their 

business, and remit to the Zambia Revenue Authority ("ZRA") the output VAT collected in 

excess of their input VAT paid. Therefore, registered suppliers do not pay VAT. 

2. Procedure. 

(a) For the purposes of VAT, the tax exemption required under the Compact will be 

provided via the zero rating of goods or services supplied or imported under a technical aid 

program or project which is: 

(i) 

Compact; and 

Paid for through donor funding, such as MCC Funding through the 

(ii) Provided by the donor, or by a contractor of the donor, under a written 

agreement with the Government. 

(b) Each applicable Compact Contract will explicitly state that goods, works or 

services purchased using MCC Funding under the Compact are zero rated for the purposes of 

VAT. The zero rating will then be implemented through the issuance of Local Purchase Orders 

(each an "LPO"). 

(c) MCA-Zambia will provide the following information, on MCA-Zambia official 

letterhead, for each Compact Contract to the Permanent Secretary (Budget and Economic 

Affairs), Ministry of Finance and National Planning, P.O. Box 50062, Lusaka, Zambia: 

(i) Name of Eligible Entity or Eligible Individual; 

(ii) Name of the Project/Activity undertaken through Compact Contract; 

(iii) Total contract value; 

(iv) Location(s) where the goods, works or services will be provided; and 

(v) Name and address of the senior official of the Eligible Entity or Eligible 

Individual who will be responsible and accountable for the issuance of the LPO. 

(d) The Ministry of Finance and National Planning will direct ZRA to issue an LPO 

booklet to the Eligible Entity or Eligible Individual in the amount of the total value of the 

Compact Contract. 

ANNEXVI-6 
(e) The Eligible Entity or Eligible Individual will pay for Compact-funded purchases 

less VAT, complete the LPO certificate in the amount of the VAT for that particular purchase, 

and provide the LPO certificate to the vendor as proof for VAT zero-rating of the purchase. 

ANNEXVI-7 
1. Description. 

SCHEDULEE 

EXCISE DUTY ON FUEL 

The excise duty is a tax on particular goods or products, whether imported or produced 

domestically, imposed at any stage of production or distribution. Excise duties are determined 

by reference to weight, strength or quantity of the goods or products, or by reference to their 

value. The excise duty is charged on the "Excisable Value" (i.e., the customs value plus customs 

duty). Fuel is generally subject to an excise duty under the laws of Zambia, including the 

Applicable Acts. 

2. Procedure. 

Fuel that will be purchased for official use under the Compact using MCC Funding will be 

exempt from the payment or imposition of any Taxes, including excise duties. 

Subject to the procedures below, ZRA will advise MCA-Zambia, and each Eligible Entity and 

Eligible Individual, of the designated fuel suppliers/filling stations where fuel is deemed to be 

supplied in bond (i.e., from bonded premises or filling stations). 

MCA-Zambia will be listed in the "Third Schedule of the "Customs and Excise (General) 

Regulations, 2000" (the "Third Schedule") as exempt from customs and excise taxes. 

Accordingly, MCA-Zambia will be entitled to purchase fuel free from taxation at the designated 

fuel suppliers/filling stations when such fuel is purchased using MCC Funding. 

With regard to Eligible Entities and Eligible Individuals, a letter of rebate confirmation will be 

issued by the Ministry of Finance and National Planning to ZRA. To facilitate issuance of this 

letter, MCA-Zambia will send a letter to the Ministry of Finance and National Planning 

confirming those entities or individuals eligible for the exemption, providing a copy of the 

applicable Compact Contract. 

Upon issuance of the letter of rebate confirmation by the Ministry of Finance and National 

Planning, the Eligible Entity and/or Eligible Individual will be entitled to purchase fuel free from 

taxation at the designated fuel suppliers/filling stations when such fuel is purchased using MCC 

Funding. 

ANNEXVI-8 
SCHEDULEF 

CUSTOMS DUTY AND TARIFF TAXES 

1. Description. 

Customs duty is charged on the "Customs Value" of imported capital equipment and raw 

materials (0 to 5 percent), intermediate goods (15 percent), and finished goods (25 percent). 

2. Procedure. 

(a) Goods imported by MCA-Zambia. 

The Minister of Finance and National Planning will issue a Statutory Instrument to list MCAZambia in the Third Schedule. The listing ofMCA-Zambia in the Third Schedule will enable 

MCA-Zambia to qualify for an exemption from the payment of customs duty and tariffs on all 

goods that will be imported for the official use ofMCA-Zambia for Compact-related purposes. 

Accordingly, all imports for official use by MCA-Zambia will be cleared free of customs duties 

and tariffs by ZRA on the basis ofMCA-Zambia being listed as exempt on the Third Schedule. 

(b) Goods imported by Eligible Entities and Eligible Individuals. 

With regard to goods imported by Eligible Entities and Eligible Individuals, a letter of rebate 

confirmation will be issued by the Ministry of Finance and National Planning to ZRA. To 

facilitate issuance of this letter, MCA-Zambia will send a letter to the Ministry of Finance and 

National Planning confirming those entities or individuals eligible for the exemption, providing a 

copy of the applicable Compact Contract, including the approved bills of quantities. 

Upon issuance of the letter of rebate confirmation by the Ministry of Finance and National 

Planning, the Eligible Entity and/or Eligible Individual will be cleared free of customs duties and 

tariffs by ZRA to the extent of the Compact Contract, including the approved bill of quantities. 

(c) Goods imported by staff to take up employment. 

The "Customs and Excise (General) Regulations, 2000" provides for an exemption from the 

payment of custom duties and tariffs on household and personal effects, including one motor 

vehicle per householti, for new residents in Zambia. The individual requiring the exemption will 

need to inform ZRA on arrival in Zambia that they are new residents and show proof (normally 

passport and any other documentation that may be required). The Applicable Acts provide that 

such persons must import these items within six months of arrival to benefit from this rebate. 

(d) Machinery and Equipment imported by Eligible Entities and Eligible Individuals 

for use on Compact-related projects or activities. 

The "Customs and Excise (General) Regulations, 2000" provide for an exemption from payment 

of custom duties and tariffs on machinery and equipment imported for any Compact-related 

projects or activities when such machinery and equipment will remain on the project or activity, 

or will be the property of either MCA-Zambia or the Government at the end of the Program. 

ANNEXVI-9 
Regarding machinery or equipment imported for use in connection with any Compact-related 

projects or activities, the Applicable Acts separately provide for the temporary importation of 

machinery or equipment by Eligible Entities and Eligible Individuals using machinery or 

equipment that they already own, but which is located outside Zambia. Such machinery or 

equipment may be imported exempt from the payment of custom duties or tariffs. 

Subject to the conditions indicated above, the procedure for the exemption of custom duties or 

tariffs on machinery and equipment imported by Eligible Entities or Eligible Individuals for use 

on Compact-related activities or projects will be as follows: 

• Importation of equipment on short term projects <i.e., twelve months or less). In such 

cases, machinery or equipment can be imported into the country through a Temporal 

Import Permit. The applicable Eligible Entity or Eligible Individual will apply to 

ZRA by providing proof (normally a copy of the Compact Contract, together with 

confirmation from MCA-Zambia and any other documentation that may be required) 

that such entity or individual will be carrying out Compact-related projects or 

activities, and that such machinery or equipment is being imported for twelve months 

or less for the purposes of implementing such Compact-related projects or activities. 

• Importation of equipment on long term projects (i.e., more than twelve months). In 

such cases, MCA-Zambia will send a letter to the Ministry of Finance and National 

Planning to request a temporal exemption from the payment of custom duties and 

tariffs on such machinery and equipment, and will provide a copy of the applicable 

Compact Contract, including the bill of quantities. 

In any case, the provisions of the "Customs and Excise (General) Regulations, 2000" will apply 

to the disposal of all machinery and equipment imported by an Eligible Entity or an Eligible 

Individual in connection with its Compact-related projects and activities when such machinery 

and equipment will no longer be used to carry out Compact-related projects or activities. 

ANNEX VI -10 
1. Description. 

SCHEDULEG 

IMPORT VAT 

Import VAT is collected on behalf of the VAT Division and is applied to imported goods that 

attract VAT. VAT is charged on the "Taxable Value" (i.e., the customs value plus customs duty, 

plus excise duty, where applicable) at the rate of 16 percent. 

For equipment imported from outside Zambia on a temporary basis (i.e., for the duration of the 

Compact) the Eligible Entity or Eligible Individual must remove the equipment from Zambia 

within a reasonable period of time after the end of the Compact (or the applicable period of 

performance) or pay any residual taxes that had been exempted (see related provisions in 

Schedule F above). 

2. Procedure MCA-Zambia and any Eligible Entities or Eligible Individuals. 

(a) MCA-Zambia will send letter to Ministry of Finance and National Planning 

requesting exemption from import VAT, either for itself or on behalf of the Eligible Entity or the 

Eligible Individual. This letter must include: 

(i) Copy of the Compact Contract; and 

(ii) Copy of the bill of quantities for goods to be imported by MCA-Zambia, 

or the Eligible Entity or Eligible Individual (as the case may be). 

(b) Ministry of Finance and National Planning will direct ZRA to issue an exemption 

certificate to MCA-Zambia, or the Eligible Entity or the Eligible Individual (as the case may be). 

(c) MCA-Zambia, or the Eligible Entity or Eligible Individual (as the case may be), 

will present the following to the Bureau of Customs: 

(i) Bill of lading; 

(ii) Invoice for goods; and 

(iii) Certificate of exemption issued by ZRA. 

(d) The Credibility and Controls Unit of the Bureau of Customs is responsible for 

clearance of the imported items. The Credibility and Controls Unit will issue instructions to the 

Port Authority to allow the import V AT exemption and release the goods. 

(e) Estimated time for this clearance is three (3) to four (4) days. 

ANNEX VI -11 
1. Description. 

SCHEDULEH 

MEDICAL LEVY TAX 

The medical levy was introduced through the "Medical Levy Act, 2003" in an effort to raise 

additional revenue for the health sector. Banks and other financial institutions are required to 

deduct the Medical Levy from gross interest earned by any person and partnership on any 

savings or deposit accounts, treasury bills or government bonds. The Medical Levy (1 percent) . 

is charged on all interest earnings from banks and other financial institutions. 

2. Procedure. 

The Minister of Finance and National Planning will issue a Statutory Instrument to exempt 

MeA-Zambia from payment of the medical levy. 

ANNEX VI -12