TREATIES AND OTHER INTERNATIONAL ACTS SERIES 08-922 

________________________________________________________________________ 

ECONOMIC ASSISTANCE 

 Millennium Challenge Compact 

 Between the 

UNITED STATES OF AMERICA 

and MOZAMBIQUE 

Signed at Washington July 13, 2007 

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.” 
MOZAMBIQUE 

Economic Assistance 

 Millennium Challenge Compact 

 signed at Washington July 13, 2007; 

 Entered into force September 22, 2008. 

 With annexes. 
MILLENNIUM CHALLENGE COMPACT

BETWEEN

THE UNITED STATES OF AMERICA

ACTING THROUGH

THE MILLENNIUM CHALLENGE CORPORATION

AND

THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE
MILLENNIUM CHALLENGE COMPACT

TABLE OF CONTENTS

Article 1. Goal And Objectives

Page

1

Section 1.1

Section 1.2

Section 1.3

Compact Goal 1

Program Objectives 1

Project Objectives 1

Article 2. Funding and Resources 2

Section 2.1

Section 2.2

Section 2.3

Section 2.4

Section 2.5

Section 2.6

Section 2.7

MCC Funding 2

Compact Implementation Funding 2

Disbursement 2

Interest 3

Government Resources; Budget 3

Limitations on the Use of MCC Funding 3

Taxes 4

Article 3. Implementation 4

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 4

Government Responsibilities 4

Policy Performance 5

Government Assurances 5

Implementation Letters 5

Procurement 5

Records; Accounting; Covered Providers; Access 6

Audits; Reviews 6

7 Article 4. Communications

Section 4.1

Section 4.2

Section 4.3

Communications 7

Representatives 8

Signatures 8

Article 5. Termination; Suspension; Refunds 8

Section 5.1

Section 5.2

Section 5.3

Termination; Suspension 8

Refunds; Violation 10

Survival 10

Article 6. Compact Annexes; Amendments; Governing Law 10

Section 6.1

Section 6.2

Section 6.3

Section 6.4

Section 6.5

Annexes 10

Inconsistencies 10

Amendments 10

Governing Law 10

Additional Instruments 10
Section 6.6 References to MCC Website 10

Article 7. Entry Into Force 11

Section 7.1 Domestic Requirements 11

Section 7.2 Conditions Precedent 11

Section 7.3 Date of Entry into Force 11

Section 7.4 Compact Term 11

Article 8. Additional Government Covenants 12

Section 8.1 Designated Entity 12

Section 8.2 Administrative Court 12

Section 8.3 Certain Financial Practices 12

Section 8.4 Procurement 12

Annex I: Program Description

Annex II: Summary of Multi-Year Financial Plan

Annex III: Description of the Monitoring and Evaluation Plan

TOC - ii
MILLENNIUM CHALLENGE COMPACT

PREAMBLE

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

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

States government corporation ("MCC"), and the Government of the Republic of Mozambique

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

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

of Mozambique ("Mozambique") to determine the priorities for the use of Millennium Challenge

Account assistance and developed and submitted to MCC a proposal based on the integrated

Government development strategy to reduce poverty and increase household incomes by

increasing the productive capacity of the population in selected provinces in northern

Mozambique (Cabo Delgado, Nampula, Niassa and Zambezia); and

Recognizing that MCC wishes to help Mozambique implement a program to achieve the goal

and objectives described herein (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 in Mozambique

through economic growth.

Section 1.2 Program Objectives. The objective of the Program (as further described in

Annex I) (the "Program Objective") is to increase the productive capacity of the population in

selected provinces in northern Mozambique.

Section 1.3 Project Objectives. The objectives of the Projects (as further described in

Annex I) (collectively, the "Project Objectives" and each a "Project Objective") are to:

(a) increase the accessibility, reliability and quality of water and sanitation services;

(b) improve access to productive resources and markets;

(c) establish more efficient and secure access to land, particularly in the four

provinces included in the Program; and

(d) improve productivity of coconut products and encourage diversification into other

cash crop production.

The Government will take all the steps necessary or appropriate to achieve the Program

Objective and Project Objectives during the Compact Term (as defined in Section 7.4).
ARTICLE 2.

FUNDING AND RESOURCES

Section 2.1 MCC Funding.

(a) MCC grants to the Government, under the terms of this Compact, an amount not

to exceed Five Hundred Six Million, Nine Hundred Twenty-Four Thousand, Fifty-Three United

States Dollars (US$506,924,053) ("MCC Funding") to help the Government implement the

Program.

(b) Annex II of this Compact describes the use of MCC Funding.

Section 2.2 Compact Implementation Funding.

(a) Of the total amount of MCC Funding, MCC will make up to Twenty-Five

Million, Three Hundred Forty-Six Thousand, Two Hundred United States Dollars

(US$25,346,200) ("Compact Implementation Funding") available to the Government under

Section 609(g) of the Millennium Challenge Act of 2003 for activities which may include:

(i) fiscal and procurement administration 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) baseline surveys for monitoring and evaluation;

(iv) additional work for feasibility studies and development of technical

scopes; and

(v) other Compact implementation activities approved by MCC.

(b) Notwithstanding anything to the contrary in this Compact, this Section 2.2 will

provisionally apply, after MCC and the Government sign this Compact, without regard to

whether this Compact has entered into force under Section 7.3.

(c) Compact Implementation Funding is subject to (i) the limitations on the use or

treatment of MCC Funding set forth in Sections 2.6 and 2.7 as if such provisions were in full

force and effect, and (ii) any other requirements and limitations as may be required by MCC in

writing in accordance with this Compact, the Program and relevant legislation.

Section 2.3 Disbursement. In accordance with this Compact and the Program Implementation

Agreement (as defined in Section 3.1), MCC will disburse MCC Funding for expenditures

incurred in furtherance of the Program (each instance, a "Disbursement"). The proceeds of such

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

to a bank account established by the Government and acceptable to MCC (a "Permitted

Account") or (b) through direct payment to a provider of goods, works or services under this

Compact. MCC Funding may be expended only to cover Program expenditures as provided in

this Compact and the Program Implementation Agreement.

2
Section 2.4 Interest. The Government will pay to MCC any interest or other earnings that

accrue on MCC Funding in accordance with the Program Implementation Agreement (including

by directing such payments to the bank account outside Mozambique that MCC may from time

to time indicate).

Section 2.5 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 and obligations under

this Compact.

(b) The Government will use its best efforts during each year it receives MCC

Funding to ensure that all MCC Funding it receives or is projected to receive in such year is fully

accounted for in the annual budget of Mozambique on a multi-year basis.

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

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

this Compact and the Program.

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

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

the activities contemplated under this Compact and the Program.

Section 2.6 Limitations on the Use of MCC Funding. The Government will ensure that MCC

Funding will not be 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 on the

MCC website at www.mcc.gov/implementation, 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, where the phrase "likely to cause a significant

environmental, health, or safety hazard" has the meaning set forth in environmental guidelines

delivered by MCC to the Government or posted by MCC on its website at

www.mcc.gov/implementation or otherwise publicly made available, as the guidelines may be

amended from time to time (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.

3
Section 2.7 Taxes.

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

ensure that each of the following is free from the payment of any taxes, duties, levies,

contributions or other comparable charges ("Taxes") of or in Mozambique: (i) the Program; (ii)

MCC Funding; (iii) interest or earnings on MCC Funding; (iv) any Project or activity

implemented under the Program; (v) goods, works, services and other assets and activities under

the Program or any Project; (vi) persons and entities that provide such goods, works, services

and assets or perform such activities; and (vii) income, profits and payments with respect thereto.

The Parties acknowledge and agree that the foregoing includes, inter alia, value added and other

transfers, property and ad valorem items and import and export of goods (including for goods

imported and re-exported for personal use).

(b) Before any Disbursement, the Government and MCC must have entered into one

or more agreements setting forth the mechanisms for implementing this Section 2.7, including (i)

waivers of certain filing and compliance requirements relating to Taxes and (ii) an agreement on

exceptions to paragraph (a) above for (1) Taxes on and contributions for certain individuals who

are nationals or residents of Mozambique; (2) Taxes other than transfer Taxes and import and

export Taxes on certain entities that are constituted under the laws of Mozambique; and (3) fees

or charges for services that are generally applicable in Mozambique, reasonable in amount and

imposed on a non-discriminatory basis.

ARTICLE 3.

IMPLEMENTATION

Section 3.1 Program Implementation Agreement. The Government will implement the

Program in accordance with this Compact and as further specified in an agreement to be entered

into by MCC and the Government dealing with, among other matters, implementation

arrangements, fiscal accountability, disbursement and use of MCC Funding and procurement

(the "Program Implementation Agreement" or "PIA").

Section 3.2 Government Responsibilities.

(a) The Government has principal responsibility to oversee and manage the

implementation of the Program.

(b) With the prior written consent of MCC, the Government may designate an entity

to implement some or all of the Government's obligations or to exercise any rights of the

Government under this Compact or the PIA. Such a designation will not relieve the Government

of any designated obligations and rights, for which the Government will retain full responsibility.

(c) The Government will ensure that no law or regulation in Mozambique now or

hereinafter in effect makes or will make unlawful or otherwise prevent or hinder the performance

of any obligation under this Compact, the PIA or any other agreement related thereto or any

transaction contemplated thereunder.

4
(d) The Government will ensure that any assets or services funded in whole or in part

(directly or indirectly) by MCC Funding will be used solely in furtherance of this Compact and

the Program unless otherwise agreed by MCC in writing.

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

commitments identified in Annex I, the Government will seek to maintain and to improve its

level of performance under the policy criteria identified in Section 607 of the Millennium

Challenge Act of 2003 and the selection criteria and methodology used by MCC.

Section 3.4 Government Assurances. The Government assures MCC that:

(a) 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;

(b) this Compact does not, and will not, conflict with any other international

agreement or obligation of the Government or any of the laws of Mozambique; and

(c) the Government will not invoke any of the provisions of its internal law to justify

or excuse a failure to perform its duties or responsibilities under this Compact.

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

Government through implementation letters on the frequency, form or content of requests for

Disbursements or on any other matter relating to MCC Funding, this Compact or implementation

of the Program (each, an "Implementation Letter"). The Government will apply such

information in implementing this Compact.

Section 3.6 Procurement. The Government will ensure that the procurement of all goods,

works and services by the Government or any Provider (as defined in Section 3.7(c)) in

furtherance of this Compact will be consistent with the procurement guidelines (the "MCC

Program Procurement Guidelines") of which MCC will inform the Government in writing or

by posting on the MCC website at www.mcc.gov/implementation, or otherwise make publicly

available, as the guidelines may be amended from time to time, which MCC Program

Procurement Guidelines will include, but will not be limited to, the following requirements:

(a) 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;

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

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

(c) 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

(d) 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.

5
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 (as defined in subsection (c) below) maintain,

accounting books, records, documents and other evidence relating to this Compact adequate to

show to MCC's satisfaction the use of all MCC Funding ("Compact Records"). In addition, the

Government will furnish or cause to be furnished to MCC upon its request all 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 (i) prescribed by the

International Accounting Standards Committee (an affiliate of the International Federation of

Accountants) or (ii) then prevailing in Mozambique. 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 statutory requirements.

(c) Covered Provider. Unless the Parties agree otherwise in writing, a "Provider" is

(i) any entity of the Government that receives or uses MCC Funding or any other Program asset

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

least US$50,000 in the aggregate of MCC Funding (other than as salary or compensation as an

employee of an entity of the Government) during the Compact Term. A "Covered Provider" is

(i) a non-United States Provider that receives (other than pursuant to a direct contract or

agreement with MCC) US$300,000 or more of MCC Funding in any Government fiscal year or

any other non-United States person or entity that receives, directly or indirectly, US$300,000 or

more of MCC Funding from any Provider in such fiscal year, or (ii) any United States Provider

that receives (other than pursuant to a direct contract or agreement with MCC) US$500,000 or

more of MCC Funding in any Government fiscal year or any other United States person or entity

that receives, directly or indirectly, US$500,000 or more of MCC Funding from any Provider in

such fiscal year.

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

permit, or cause to be permitted, authorized representatives of MCC, an authorized United States

government inspector general, the United States Government Accountability Office, any auditor

responsible for an audit contemplated herein or otherwise conducted in furtherance of this

Compact, and any agents or representatives engaged by MCC or the Government to conduct any

assessment, review or evaluation of the Program, the opportunity to audit, review, evaluate or

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

Section 3.8 Audits; Reviews.

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

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

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

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

thereafter ending December 31 and June 30, through the end of the Compact Term, in

accordance with the terms of the Program Implementation Agreement. As requested by MCC in

writing, the Government will use, or cause to be used, to conduct such audits an auditor

6
approved by MCC and named on the list of local auditors approved by the Inspector General of

the Millennium Challenge Corporation (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 and posted on the MCC website at www.mcc.gov/implementation . Audits

will be performed in accordance with the Audit Guidelines and be subject to quality assurance

oversight by the Inspector General. An audit must be completed and the audit report delivered to

MCC no later than ninety (90) days after the first period to be audited and no later than ninety

(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 United States Entities. The Government will ensure that agreements

between the Government or any Provider, on the one hand, and a United States nonprofit

organization, on the other hand, that are financed with MCC Funding state that the United States

organization is subject to the applicable audit requirements contained in the United States Office

of Management and Budget Circular A-133. The Government will ensure that agreements

between the Government or any Provider, on the one hand, and a United States for-profit

Covered Provider, on the other hand, that are financed with MCC Funding state that the United

States organization is subject to audit by the cognizant United States Government agency, unless

the Government and MCC agree otherwise in writing.

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

Covered Providers take, where necessary, appropriate and timely corrective actions in response

to audits, consider whether a Covered Provider's audit necessitates adjustment of the

Government's records, and require each such Covered Provider to permit independent auditors to

have access to its records and financial statements as necessary.

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

Government's use of MCC Funding.

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

costs of any audits, reviews or evaluations required under this Compact, including as reflected on

Annex II.

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.

7
To MCC:

Millennium Challenge Corporation

Attention: Vice President for Operations

(with a copy to the Vice President and General Counsel)

875 Fifteenth Street, N.W.

Washington, DC 20005

United States of America

Facsimile: (202) 521-3700

Telephone: (202) 521-3600

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

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

To the Government:

The Government of the Republic of Mozambique

Attention: The Honorable Minister

Ministry of Planning and Development

Av. Ahmed Sekou Toure N. 21

Maputo, Mozambique

Facsimile: +258-21-495-463

Telephone: +258-21-492-268

E-mail: aiuba@zebra.uem.mz

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 the Ministry of

Planning and Development of the Republic of Mozambique, and MCC will be represented by the

individual holding the position of, or acting as, Vice President for Operations (each, a "Principal

Representative"), each of whom, by written notice to the other Party, may designate one or more

additional representatives for all purposes other than signing amendments to this Compact. A

Party may change its Principal Representative to a new representative that holds a position of

equal or higher rank upon written notice to the other Party.

Section 4.3 Signatures. With respect to all documents other than this Compact or an

amendment to this Compact, a signature delivered by facsimile or electronic mail will be binding

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

ARTICLE 5.

TERMINATION; SUSPENSION; REFUNDS

Section 5.1 Termination; Suspension.

(a) Either Party may terminate this Compact in its entirety by giving the other Party

thirty (30) days' written notice.

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

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

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

8
termination (whether in writing to the Government or by posting on the MCC website at

www.mcc.gov/implementation) has occurred, which circumstances include but are not limited to

the following:

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

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

with this Compact or the Program;

(ii) an event has occurred that MCC determines makes it improbable that the

Program Objective or any of the Project Objectives will be achieved during the Compact Term

or that the Government will be able to perform its obligations under this Compact;

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

would violate 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 assets acquired in whole or in part with MCC Funding 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 Mozambique 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 the Foreign Assistance Act of 1961 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 Mozambique for assistance under the Millennium

Challenge Act of 2003; and

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

using assets acquired in whole or in part with MCC Funding is found to have been convicted of a

narcotics offense or to have been engaged in drug trafficking.

(c) All Disbursements will cease upon expiration, suspension, or termination of this

Compact; provided, however, MCC Funding may be used, in compliance with this Compact and

the PIA, to pay for (i) reasonable expenditures for goods, works or services that are properly

incurred under or in furtherance of this Compact before expiration, suspension or termination of

this Compact; and (ii) reasonable expenditures (including administrative expenses) properly

incurred in connection with the winding up of the Program within 120 days after the expiration,

suspension or termination of this Compact.

(d) Subject to subsection (c) of this Section 5.1, upon the expiration, suspension or

termination of this Compact, (i) any amounts of MCC Funding not disbursed by MCC to the

Government will be automatically released from any obligation in connection with this Compact

and (ii) any amounts of MCC Funding disbursed by MCC but not expended before the

expiration, suspension or termination of this Compact, plus accrued interest thereon will be

returned to MCC within thirty (30) days after the Government receives MCC's request for such

return; provided, however, that if this Compact is suspended or terminated in part, MCC may

request a refund for only the amount of MCC Funding allocated to the suspended or terminated

portion.

9
(e) 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 5.2 Refunds; Violation.

(a) If any MCC Funding, any interest or earnings thereon, or any asset acquired in

whole or in part with MCC Funding 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 must use

national funds (and no assets of the Program) to make such payment.

(b) Notwithstanding any other provision in this Compact or any other agreement to

the contrary, MCC's right under this Section 5.2 for a refund will continue during the Compact

Term and for a period of (i) five years thereafter or (ii) one year after MCC receives actual

knowledge of such violation, whichever is later.

Section 5.3 Survival. The Government's responsibilities under Sections 2.4, 2.6, 2.7, 3.7, 3.8,

5.1(c), 5.1(d), 5.2 and 5.3 of this Compact will survive the expiration, suspension or termination

of this Compact.

ARTICLE 6.

COMPACT ANNEXES; AMENDMENTS; GOVERNING LAW

Section 6.1 Annexes. Each annex attached hereto constitutes an integral part of this Compact.

Section 6.2 Inconsistencies. In the event of any conflict or inconsistency between:

(a) any annex to this Compact and any of Articles 1 through 8, such Articles 1

through 8 will prevail; or

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

this Compact will prevail.

Section 6.3 Amendments. The Parties may amend this Compact only by a written agreement

signed by the Principal Representatives and subject to the respective domestic approval

requirements to which this Compact was subject.

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, 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 PIA or any

other agreement entered into in connection with this Compact, to a document or information

1 0
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.

ARTICLE 7.

ENTRY INTO FORCE

Section 7.1 Domestic Requirements. The Government will take all steps necessary to ensure

that (a) this Compact and the PIA and all of the provisions of this Compact and the PIA are valid

and binding and are in full force and effect in Mozambique and (b) each such agreement along

with any other agreement entered into in connection with this Compact to which the Government

and MCC are parties, if stipulated in such agreement, will be given the status of an international

agreement.

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

(a) the Government and MCC must have executed the PIA and it must be effective;

(b) the Government will have delivered to MCC:

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

Government, or such other duly authorized representative of the Government acceptable to

MCC, that the Government has completed all of its domestic requirements in order that the

requirements of Section 7.1 have been satisfied;

(ii) a legal opinion from the Attorney-General of Mozambique (or other legal

opinion 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 its domestic requirements for this Compact to enter into

force and the satisfaction of Section 7.1, which MCC may post on its website or otherwise make

publicly available; and

(c) MCC must determine that after signature of this Compact, the Government has

not engaged in any action or omission that is inconsistent with the eligibility criteria for MCC

Funding.

Section 7.3 Date of Entry into Force. This Compact will enter into force on the later of (a) the

date of the last letter in an exchange of letters between the Principal Representatives confirming

that each Party has completed its domestic requirements for entry into force of this Compact and

(b) the date that all conditions set forth in Section 7.2 have been satisfied.

Section 7.4 Compact Term. This Compact will remain in force for five years after its entry

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

11
ARTICLE 8.

ADDITIONAL GOVERNMENT COVENANTS

Section 8.1 Designated Entity. The Government affirms that:

(a) If and to the extent the Government elects to designate an entity to implement

some or all of the Government's obligations or to exercise any rights of the Government under

this Compact or the PIA (any such entity the "Accountable Entity"), the Government will create

such entity in accordance with the terms described in Annex I.

(b) The Accountable Entity will have the authority to bind the Government to the full

extent of the powers delegated thereto.

(c) The Accountable Entity will be a public institution under Mozambican law with

distinct legal personality and administrative and patrimonial autonomy within the meaning of

Law n° 9/2002 of 12 February (the SISTAFE Law) and the regulations made thereunder. The

Accountable Entity will have the power fully to control its financial management as required by

the PIA and any related agreement notwithstanding anything to the contrary in the SISTAFE

Law.

Section 8.2 Administrative Court. The Government affirms that under the law of

Mozambique:

(a) This Compact is a "cooperation agreement" within the meaning of Article 4,

paragraph 1, clause c of Law n° 13/1997 of 10 July (the "Administrative Court Prior Review

Law").

(b) MCC Funding does not "generate public expenditure" within the meaning of

Article 3 of the Administrative Court Prior Review Law.

Section 8.3 Certain Financial Practices.

(a) The Government affirms that MCC Funding does not comprise Government funds

and will be held separately from and never commingled with Government funds.

(b) The Government will make explicit provision in the law containing the annual

governmental budget for Mozambique for an amount necessary and adequate to cover the valueadded tax, customs duties and other tax obligations it assumes under this Compact, the PIA and

any related agreement.

Section 8.4 Procurement. The Minister of Finance of the Government will adopt the MCC

Program Procurement Guidelines as the rules governing procurement using MCC Funding under

the terms of Article 8, paragraph 2 of Decree n° 54/2005 of 13 December and will ensure that

such guidelines are published in the official gazette of Mozambique, the Boletim da RepUblica.

SIGNATURE PAGE BEGINS ON THE NEXT PAGE

12
IN WITNESS WHEREOF, the undersigned, duly authorized by their respective

governments, have signed this Compact this 13th day of July, 2007.

Done at Washington, D.C.

FOR MILLENNIUM CHALLENGE

CORPORATION, ON BEHALF OF THE

UNITED STATES OF AMERICA

FOR THE GOVERNMENT OF THE

REPUBLIC OF MOZAMBIQUE

‘:7/^'-■„ '

0 4

l

ame: ohn J. Danilovich

Title: hief Executive Officer

Name: Aiuba Cuereneia

Title: Minister of Planning and Development

SIGNATURE PAGE TO MILLENNIUM CHALLENGE COMPACT

BETWEEN THE UNITED STATES OF AMERICA

ACTING THROUGH THE MILLENNIUM CHALLENGE CORPORATION

AND THE GOVERNMENT OF THE REPUBLIC OF MOZAMBIQUE
ANNEX I

PROGRAM DESCRIPTION

A. OVERVIEW

This Annex Ito this Compact describes the Program that MCC Funding will support in

Mozambique during the Compact Term and the results to be achieved using MCC Funding.

The Parties may agree to modify, amend, terminate or suspend the projects described herein

(collectively, the "Projects") or to create a new project by written agreement signed by the

Principal Representative of each Party without amending this Compact; provided, however, any

such modification or amendment of a Project or creation of a new project does not (1) cause the

amount of MCC Funding to exceed the aggregate amount specified in Section 2.1(a) of this

Compact, or (2) cause the Government's responsibilities or contribution of resources to be less

than specified in this Compact, or (3) extend the Compact Term.

1. Program Background and Context - Country Background and the Poverty

Reduction Strategy.

With a population of 20 million people living in Mozambique, approximately 70 percent are

located in rural areas. The urban population represents about 30 percent of the national total.

Emerging from a devastating three-decade civil war in 1992, Mozambique has grown rapidly.

Since 2000, its growth rate has stabilized between 7 and 8 percent. As the Country Partnership

Strategy (2007) notes, Mozambique has achieved the highest average growth rate in the past 10

years among the non-oil producing countries in Africa. Despite Mozambique's rapid growth,

half of the Mozambican population still lives in poverty. Mozambique's next stage of economic

recovery cannot succeed without well-functioning public services in its cities, given

Mozambique's rapid urbanization.

The Government's action plans for poverty reduction in the past decade, the Action Plan for the

Reduction of Absolute Poverty ("PARPA"), PARPA I (2001-2005) and PARPA II (2005-2009)

are based on the premise that broad-based economic growth is critical to poverty reduction. In

PARPA I. lack of basic infrastructure services was identified as one of the major determinants of

poverty in Mozambique, and it focused on infrastructure investments to meet the Government's

ambitious growth objectives detailed in PARPA I. Building on the lessons learned from PARPA

I, the Government outlines investment in human capital, including water and sanitation services,

as one of the three pillars to meet its sustained growth agenda in PARPA II. As PARPA II notes,

investing in water and sanitation services contributes to meeting not only the short-term

objectives of the Millennium Development Goals, but also Mozambique's long-term growth and

poverty reduction intentions.

2. Program Description.

(a) Compact Goal.

This Compact's goal is to reduce poverty in Mozambique through economic growth, and

increase economic opportunities for Mozambicans living in the northern region.
(b) Program Objective.

The Program Objective is to increase the productive capacity of the population in selected

provinces in northern Mozambique with the intended impact of reducing the poverty rate,

increasing household income, and reducing chronic malnutrition in the targeted districts.

(c) Program Results (Expected Impact).

The Program will increase regional Gross Domestic Product (GDP) across four targeted northern

Mozambique provinces — Cabo Delgado, Nampula, Niassa and Zambezia — by nearly

US$75,000,000 in 2015 and US$180,000,000 in 2025. A projected 33 percent of the population

of these provinces would have been poor in 2015 without the Program. The Program can be

expected to reduce the projected poverty rate by over 7 percent by 2015 and by over 16 percent

by 2025. More than 270,000 persons will have been lifted out of poverty by 2015 and 440,000

persons will no longer be poor by 2025 as a result of Program implementation.

(d) Beneficiaries Description.

The Program is expected to benefit nearly 5.0 million persons by 2015 both poor and non-poor,

amounting to one half of the projected population in the affected four provinces.

Over half of all the beneficiaries reside in Nampula, while the rest reside in the other provinces.

Activities specifically targeted to rural areas account for around one third of Program

beneficiaries, while those focused specifically on urban areas account for another one third. The

roads activities benefit both rural and urban dwellers and account for the remaining beneficiaries.

Approximately 20 percent of the households benefiting from the Program are headed by women.

The Land Project (as defined below) alone assists 2.6 million persons, but many of these are also

likely to benefit from road reconstruction, farmer income support, and improved water and

sanitation. Thus, to avoid double-counting, the beneficiaries of the Land Project are not added to

the 5.0 million person total.

3. Consultative Process.

Consultation has been an integral part of the development of the Program. For the initial

proposal submitted by the Government in July 2005, the Government conducted its MCC

consultative process through two organizations, the Poverty Observatory, a group of civil society

organizations and non-governmental organizations (NGOs), and the Confederaccio das

AssociacOes EconOmicas de Mocambique, a private sector trade association (the "CTA"). The

Poverty Observatory and CTA together represent the preponderance of NGOs, not-for-profit, and

domestic for-profit businesses in Mozambique.

During the pre-Compact program preparation and definition process, ongoing consultation

continued through various forms including: input from a wide variety of stakeholders in the

development of terms of reference for key consultants; information dissemination and exchange

during kickoff sessions for the public of the key consultancies; and circulation of the interim and

final reports of these key consultants. The Government also held informational sessions

throughout this Compact development process with interested stakeholder groups, including

national, provincial and municipal government representatives, private sector meetings, donor

working groups and other interested parties. The Program will undergo further timely,

ANNEX - 2
participatory, and meaningful public consultation during the development of the environmental,

social, and resettlement impact studies during implementation of the Program.

B. WATER SUPPLY AND SANITATION PROJECT

The Water Supply and Sanitation Project (the "WSS Project") interventions include rural and

urban water supply, sanitation and drainage, rehabilitation of the Nacala dam and reservoir, and

capacity building and institutional strengthening for water sector entities. The objective of the

WS S Project is to increase the accessibility, reliability, and quality of water and sanitation

services. The WSS Project encompasses water supply and sanitation (including sewerage and

drainage) in cities and towns and an extensive rural water supply program in three provinces.

WSS Project activities address small rural communities and large provincial capitals — but will

notably include a heretofore neglected market segment in Mozambique — small to mid-sized

town water supply and sanitation. The WSS Project will reduce the onerous costs associated with

the existing provision of water supply; increase the reliability of water service; and improve the

health and productivity of individuals, households, and firms.

1. Background.

Lack of access to water and sanitation is a major barrier to growth and health, and this critical

infrastructure is a major policy priority of the Government. Mozambique has one of the lowest

levels of per-capita water consumption in the world. With an average of less than 10 liters per

day, the country is far below global benchmarks. In addition, girls and women spend hours

fetching water which leaves little time for child care, income-generating activities, or school

attendance.

Meeting the Millennium Development Goals is a major challenge for Mozambique as coverage

levels for water and sanitation services would have to almost double for all categories by 2015.

The Government estimates that it would need to at least double its sector investments in the next

ten years in order to meet the Millennium Development Goals for water and sanitation. Cholera

is endemic in major urban areas mainly due to inadequate sanitation and sewerage services,

compounded by poor water supply services. This prevalence of cholera and other health impacts

caused by poor sanitation also jeopardizes meeting the Millennium Development Goal of

reducing infant and child mortality.

2. Summary of Project and Related Activities.

The WSS Project will improve access to safe, reliable water supply and sanitation services. This

project will thereby increase productivity, reduce water-borne diseases — one of the causes of

death in children under five — and specifically benefit women and girls.

The WSS Project encompasses (a) water supply and sanitation services in three large cities and

three mid-sized towns in the provinces of Zambèzia, Nampula and Cabo Delgado and (b) a water

supply program in Nampula and Cabo Delgado provinces covering rural areas and small towns.

The water supply interventions will be divided into interventions in cities where water supply

services are owned and managed by the Fundo de Investimento e PatrimOnio do Abasticemento

de Agua (FIPAG) and cities where they will be managed by a new Ministry of Public Works and

Housing agency, the Asset Management Unit (AMU). The AMU will be created by the

Government consistent with its policies and with the support of the World Bank and MCC as its

ANNEX 1- 3
key development partners by the end of March 2009. The AMU will also manage the

implementation of the sanitation program.

The water supply interventions will focus on the sustainable utilization of available water

resources, maximizing connections to the network, control of "unaccounted for water," and will

be designed based on results of complete feasibility studies.

As a means of complementing the enhanced water supply, the WSS Project will improve

sanitation systems by investigating feasible opportunities to expand wastewater treatment,

improve the piped sewage network, and increase the usage of septic systems in the urban centers

and latrines in the peri-urban areas. In addition, storm drains will be rehabilitated or added to

improve drainage efficiency which protects urban land usage.

The rural water supply component is developed from the Government's policy of demandresponsive planning, which is predicated on (a) community articulation of demand and (b) local

responsibility for operations and maintenance. Taking into consideration the lack of local

capacity and concerns over the availability of spare parts and specialized expertise to carry out

complex repairs in rural areas, the implementation plan will include procurements of wellconstruction services in small lots in order to promote the development of local construction and

repair businesses.

The WSS Project includes the following activities:

(a) Improve water supply networks of Nampula, Pemba, and Quelimane, currently

operated by FIPAG.

(b) Build the capacity of local institutions to develop policies and manage programs.

(c) Construct or rehabilitate water supply systems in Montepuez and Monapo.

(d) Construct or rehabilitate water supply and sanitation systems in Nacala, Gurue,

and Mocuba under the management of AMU.

(e) Repair and raise the Nacala Dam and reservoir, the main bulk water source for a

city of 290,000 people.

(f) Install and rehabilitate approximately 600 rural water supply points in Nampula

and Cabo Delgado provinces.

3. Beneficiaries.

The WSS Project is expected to assist some 1.9 million beneficiaries by 2015 through improved

water systems, wastewater disposal and storm water drainage. Among the beneficiaries

impacted by the WSS Project by 2015, around one third is expected to be poor. Nearly 1.6

beneficiaries in six large cities — Gurue, Mocuba, Nacala, Nampula, Pemba and Quelimane --

will have improved infrastructure from both water supply and sanitation interventions. Virtually

the entire population of each city will be covered by effective storm water drainage

improvements. New beneficiaries covered by water systems will vary depending upon existing

coverage, but, in general, water system gains are considerable with coverage rates relative to

projected populations in 2015 reaching from 40 to 70 percent.

ANNEX I - 4
Economic benefits accrue through improved water and sanitation for a number of reasons.

Households with access to house and yard connections will pay less for the water they consume

and, because of easier access, are likely to use more water for cooking and bathing, thereby

improving health outcomes. In particular, with better access to water and sanitation, children

will benefit from reductions in morbidity and mortality from diarrhea and malaria. Adults will

spend less of their time incapacitated or caring for sick children. Further, women will have more

time to spend in productive activities when their sources of water are closer to home, either

through house connections or neighborhood water points.

Improved water supplies also will be provided to 300,000 beneficiaries through small piped

systems and rural water-points. These improvements will reduce the incidence of disabling

diarrhea and save time for women that can be spent on more productive activities. Other benefits

that are not easily measured include improved opportunities for girls to go to school, rather than

assisting their mothers in household tasks, and reductions in other diseases such as cholera.

4. Sustainability.

The WSS Project will be sustainable if it is economically justified, financially sound, and

technologically appropriate and includes the appropriate institutional arrangements.

Institutional Sustainability

For urban water, the WSS Project will help promote the sector's evolution and solidify its

institutions. The WSS Project will work in collaboration with the Water Services and

Institutional Support Project (WASIS) funded by the World Bank to mitigate as many serious

institutional risks as possible. In large cities presently under the responsibility of FIPAG, the

WSS Project will facilitate graduating from the World Bank's successfully piloted management

contract structure to leases that entail greater risk/reward for private operators. For smaller cities

and towns, the MCC program will pilot and roll out an AMU based on the delegated

management model. The AMU will be empowered to manage assets and to plan and oversee the

execution of investments. The AMU will assist in the engagement of third-party operators for

these smaller cities and towns through contracts with the Provincial Water Boards established to

contract services on behalf of their constituent municipalities. The AMU addresses the

institutional capacity gap for smaller cities and market towns, and will be established in

Zamb6zia, Nampula, and Cabo Delgado where the WSS Project is focused.

Financial Sustainability

Design and planning of water supply and sanitation services for the WSS Project will be based

on the demand-responsive (rather than a supply-led) approach and will be based on consumer

preferences and willingness to pay. In the FIPAG cities, tariffs will be set to ensure full cost

recovery. In the AMU municipalities and the rural areas, tariffs will be set to recover, at a

minimum, 100 percent of operations and maintenance (including the replacement of all assets

with a useful economic life of less than seven years) after a period of tariff adjustments, but no

later than 2015.

Environmental and Social Sustainability

The key to ensuring environmental and social sustainability of the WSS Project is ongoing public

consultation. MCA-Mozambique (described below) will ensure that comprehensive public

ANNEX I - 5
consultation plans are developed such that WSS Project stakeholders, including women and

vulnerable groups, are afforded consultation and an opportunity to provide their inputs to WSS

Project design and implementation. MCA-Mozambique will also take steps to ensure that the

interests and views of women and vulnerable groups are represented in any of the provincial or

community water boards or other entities responsible for advising on design, ownership,

management, and operation of water and sanitation systems funded under this Compact.

MCA-Mozambique will ensure that environmental and social mitigation measures are followed

for all Project activities in accordance with the provisions set forth in this Compact and in

relevant supplemental agreements. The Stakeholders Forums (as defined in Section F of this

Annex I) will incorporate representatives of civil society that will serve as a link between local

NGOs and program managers.

5. Environmental and Social Issues.

Overall, the WSS Project is classified as "Category A" according to MCC Environmental

Guidelines due to potential social and environmental impacts associated with several Project

activities, including the rehabilitation of a large dam and the construction of municipal sanitation

systems and off-site wastewater treatment facilities. However, a number of the individual

Project activities will be classified "Category B" and, as such, may not require full

Environmental Impact Assessments ("EIAs") as defined in the MCC Environmental Guidelines.

All Project activities will require Environmental Management Plans ("EMPs") and, as

applicable, Project activity-specific Resettlement Action Plans ("RAPs") will be developed and

implemented in compliance with the World Bank Policy on Involuntary Resettlement (OP 4.12)

prior to the start of construction activities.

Environmental and Social Impacts

The rehabilitation of the Nacala Dam (considered a "large" dam according to MCC

Environmental Guidelines) has the potential for resettlement, alteration of river flows and

aquatic habitat, and the significant but temporary reduction of the region's primary source of

potable water during re-construction and will thus require a full EIA. Although the construction

or rehabilitation of sanitation systems will provide significant positive environmental benefits,

the scope of potential negative environmental and social impacts that may arise from

constructing off-site wastewater treatment facilities and potential pollution problems related to

discharges and operation of the systems necessitate preparation of an EIA. Investments in

expanding and improving water supply networks have the potential for (a) limited resettlement,

(b) rehabilitation of several small dams, (c) over-extraction of surface and/or groundwater

resources, and (d) project proximity to important cultural, natural, and archeological resources.

The rural water supply points activity may have potentially adverse impacts resulting from

limited resettlement and over-extraction of ground water resources.

Potential direct, indirect, induced, and cumulative environmental impacts of each of the WSS

Project activities will be further examined through the EIAs and environmental assessments that

will be conducted during the feasibility and design phase for each WSS Project activity. For the

water supply activities, MCA-Mozambique will ensure that feasibility studies include efforts to

identify the most appropriate and environmentally sustainable water sources to meet future

demand. In addition, MCA-Mozambique will ensure that for all WSS Project activities EMPs

are developed, implemented and monitored in accordance with the provisions of this Compact

ANNEX I - 6
and any relevant supplemental agreements. MCA-Mozambique will ensure that environmental

and social assessment responsibilities are included in the bidding documents for the design or

supervisory firms, construction firms, independent technical auditing firms and any project

management advisors, as needed. Disbursement of MCC Funding for the WSS Project will be

contingent upon issuance of environmental licenses, as needed, or any other required permits.

WSS Project activities, for which MCC disburses funds, should be consistent with the outcomes

of the relevant EIAs, MCC Environmental Guidelines, and in compliance with applicable

Mozambique environmental law and regulations.

To maximize the positive social impacts of the WSS Project and ensure compliance with MCC's

Gender Policy, MCA-Mozambique is required to (a) develop a gender integration plan that

includes approaches for meaningful and inclusive consultations with women and

vulnerable/underrepresented groups; Project activity-specific gender analyses, as appropriate;

and strategies for incorporating findings of the gender analyses into final Project designs; and (b)

ensure that final Project activity designs are consistent with and incorporate the outcomes of the

gender integration plan.

Environmental Permitting and Oversight

Through this Compact MCC has the option of providing a capacity building grant to the Ministry

of Coordination on Environment ("MICOA") to facilitate their ability to respond to the increased

workload arising from the Government's implementation of this Compact. This assistance

would enhance MICOA's ability to, inter alia, adequately review all Compact-related

environmental studies; issue environmental permits on a timely basis as provided in

Mozambique environmental law and regulations; and hire, train and appropriately resource

additional staff, as needed, in the provincial offices to carry-out effective environmental

oversight and auditing of the implementation of Compact Projects.

6. Consultative Process.

AMU operation is envisioned to have strong municipal representation through the creation of

functioning Provincial Water Boards, and represents the Government's preferred alternative to

delegate the management of water supply and sanitation in towns and smaller cities. This

representative structure for municipal services was the product of consultation and discussion,

including forums to solicit input from stakeholders.

7. Donor Coordination.

In developing the WSS Project, MCC participated in numerous donor meetings to explain and

receive comments on the Government proposal as it changed over time. Through meetings with

the Water Donors Working Group and the Municipal Development Working Group, MCC was

able to gather information on how the WSS Project will fit into the planned activities of other

donors. The geographical focus of the WSS Project complements the other water sector

interventions financed by other donors. The institutional development activities funded by MCC

and the World Bank will facilitate future operations by the Government and development

partners in the sector.

Successful execution of the WSS Project requires close coordination with other donors and

actors in the water sector. The Government and the Water Donors Working Group are

developing a Rural Water Supply Sector Wide Approach and are beginning the process for an

ANNEX I - 7
Urban Water Strategy and Sanitation Strategy (as discussed below). The Government through

the WSS Project will work closely with the World Bank's WASIS project, which will support

institutional development of the AMU and the Provincial Water Boards.

While United States Agency for International Development (USAID) is not directly active in the

Water Sector Working Group it does participate in the Municipal Development Working Group

and is active in health related issues, both of which are strongly linked to water supply and

sanitation. MCC has coordinated with the USAID Mission in Maputo and with the Global

Health Bureau in Washington. Although USAID will not be directly involved in the

implementation of the WSS Project, close coordination will be maintained to ensure synergies

between existing and future activities and to capitalize on USAID's long term in-country

presence.

8. Policy, Legal and Regulatory Reforms.

In order to reach the full benefits of the WSS Project:

(a) Urban Water Strategy. The Government agrees to finalize an Urban Water

Strategy, which will be vetted and agreed to by the major Government stakeholders (Direceio

Nacional de Agua (DNA), Fundo de Investimento e Patrimemio do Abastecimento de AguaWater Supply Investment Fund (FIPAG), Conselho de Regulaccio de Agua (National Regulatory

Authority) (CRA), Ministerio da Administraceio Estatal (Ministry of State Administration

(MAE), and others) and have broad consultation with the major water sector donors, as set out in

the WSS Project work plans.

(b) Sanitation Strategy. The Government agrees to finalize a Sanitation Strategy,

which will be vetted and agreed to by the major Government stakeholders (DNA, CRA, MAE,

and others) and have consultation with the major water and sanitation sector donors, as set out in

the WSS Project work plans.

(c) Creation of the Asset Management Unit. The Government will create an AMU

according to the criteria set out in the PIA in the form of conditions to Disbursements of MCC

Funding.

(d) Expansion of CRA. The Government agrees to expand the regulatory authority of

CRA to cover delegated management under the AMU for both water supply and sanitation, in

addition to undertaking other legal or regulatory measures as described in the PIA in the form of

conditions to Disbursements of MCC Funding.

(e) Operation and Maintenance Costs for Sanitation. The Government agrees to

develop the procedures to incorporate the operation and maintenance costs for the sanitation

activities into the FIPAG's water supply billing.

(f) Rural Water Supply Strategy. The Government will create a public and

publishable Rural Water Supply Implementation Manual (MIPAR).

C. ROADS PROJECT

The roads project interventions include key segments of the Estrada Nacional/National Route 1

("Ni") in Zambezia, Nampula and Cabo Delgado Provinces (the "Roads Project").

ANNEX I - 8
1. Background.

Two-thirds of Mozambique's population depend on agriculture (and out of these about 90

percent on subsistence agriculture) for their livelihood. The cash crop sector is in a

reconstruction stage and is experiencing development problems, especially the cashew sector.

Other planted cash crops are sugar cane, tea, tobacco, and coconut. The importance of roads in

agriculture is highlighted in the World Bank's Mozambique Agriculture Strategy, 2006, which

notes that "Rebuilding roads and bridges is now a priority and a necessary condition for any

growth in the agriculture sector."

Extraction of timber is limited because of lack of infrastructure including poor road conditions

but has a high development potential due to the richness of high quality timber species.

Fisheries, particularly shrimp and prawn, are of importance, with a high potential for production

increases. Mozambique has considerable mineral resources, such as coal, tantalite, ilmenite,

graphite, iron ore, bauxite, salt, and potentially developable resources such as gold, petroleum,

and gas. All of these sectors depend upon reliable transportation networks and roads in

particular.

The Administraccio Nacional de Estradas (ANE) and the Fundo de Estradas, an independent

agency that manages road maintenance funding (the "Road Fund"), prepared a Road Sector

Strategy 2007 — 2011 ("RSS") report. That strategy lays out the Government's plan to enhance,

improve, and preserve the classified road network of the country.

The RSS provides the broad framework for the Government's road sector development for the

entire country. The Government and MCC worked together to identify appropriate investments

in the provinces of the Roads Project based upon the strategic work of the Government under an

MCC grant and through other donors' efforts.

2. Summary of Project and Related Activities.

The objective of the Roads Project is to improve access to markets, resources, and services;

reduce transport costs for the private sector to facilitate investment and commercial traffic;

expand connectivity across the northern region and down towards the southern half of the

country; and increase public transport access for individuals to take advantage of job and other

economic opportunities.

It is planned that the Roads Project will rehabilitate 491 kilometers of high-priority roads in three

(3) provinces. The road segments will include Rio Lurio — Metoro in Cabo Delgado (74

kilometers), Namialo — Rio Lurio (148 kilometers) and Nampula — Rio Ligonha (102 kilometers)

in Nampula, and Nicoadala — Chimuara (167 kilometers) in Zambezia.

Specifically, MCC Funding for the Roads Project will support the following:

(a) design, environmental assessment, as needed (to include, if necessary,

supplemental EIAs), and construction activities for the improvement of the N1;

(b) implementation of environmental and social mitigation measures as identified in

the EIA, or as otherwise may be appropriate, to include compensation for physical and economic

displacement of individuals, residences and businesses affected by such rehabilitation and

ANNEX 1 - 9
construction, consistent with the World Bank's Operational Policy on Involuntary Resettlement

(OP 4.12), and implementation of HIV/AIDS awareness plans;

(c) design and construction of drainage structures, as may be required;

(d) design and construction of all necessary new bridges and rehabilitation of existing

bridge structures, as may be required;

(e) posting of signage and incorporating other safety improvements; and

(f) project management, supervision and auditing of such improvements and

upgrades.

3. Beneficiaries.

In total, by 2015, nearly 2.3 million beneficiaries in districts adjoining the roads will have

improved access in the three provinces affected. Over one third of those beneficiaries are likely

to be poor. More than 60 percent of the beneficiaries are in Nampula; somewhat less than 40

percent are in the other two provinces. The beneficiaries in Cabo Delgado are proportional to

population, while relatively fewer beneficiaries are in Zambdzia. Benefits will accrue to vehicle

users on the rehabilitated and resurfaced roads as vehicle operating costs go down, and time

spent in travel is reduced with vehicles traveling safely at higher speeds. In addition, road

improvements will induce additional growth in traffic as better roads make transportation more

affordable for agriculture, industry and commerce. These benefits should result in reductions in

the prices of goods and improvement in farm-gate prices if savings in fuel and other vehicle

operating costs are passed on to producers and consumers. It is also expected that bus operations

will become more efficient, improving access to public transportation. This should make it easier

for the population to secure access to health, education, and employment. Over half of the

population is of working age and will be able to take advantage of improved employment

opportunities.

4. Sustainability.

Sustainability on the Roads Project is dependent on three factors. First, the establishment of

functional provincial ANE offices will be crucial, since road maintenance will largely be

implemented by such offices. Secondly, the Programa Integrado do Sector de Estradas

("PRISE") is also critical to sustainability, because this sector-wide approach for the road sector

is designed to support a coherent Mozambican-owned and led road program, which should be

equipped to plan, finance, implement, monitor and evaluate the road sector. Third, the Road

Fund established by the Government has been designed to manage the financial resources

intended for the road sector and to allocate the resources for the maintenance of various

categories of roads. The Road Fund also has responsibility for road sector monitoring and

evaluation.

Environmental and Social Sustainability

The key to ensuring environmental and social sustainability of the Roads Project is ongoing

public consultation. MCA-Mozambique will ensure that comprehensive public consultation plans

are developed such that Roads Project stakeholders, including women and vulnerable groups, are

afforded consultation and an opportunity to provide their inputs to Roads Project design and

ANNEX I - 10
implementation. MCA-Mozambique will ensure that environmental and social mitigation

measures are followed for all Project activities in accordance with the provisions set forth in this

Compact and in relevant supplemental agreements. The Stakeholders Forums will incorporate

representatives of civil society that will serve as a link between local NGOs and program

managers.

5. Environmental and Social Issues.

The Roads Project is classified as "Category B" according to the MCC Environmental

Guidelines given the potential for: (a) increased deforestation and related flooding; (b)

resettlement; and (c) increased human trafficking and disease transmission, including HIV/AIDS,

along the routes to be upgraded. All Roads Project activities will require environmental

assessments, EMPs, and, as applicable, Road-specific RAPs that will be developed and

implemented in compliance with the World Bank Policy on Involuntary Resettlement (OP 4.12)

prior to the start of construction activities.

Environmental and Social Impacts

It is unlikely that the proposed Roads Project activities will result in any significant negative

environmental impacts given that the Roads Project involves the rehabilitation and paving of

existing roads and not the construction of new roads. However, the potential direct, indirect,

induced, and cumulative environmental impacts of the Roads Project activities will be further

examined through the execution of environmental assessments that will be conducted during the

feasibility and design phase of the Roads Project. In addition, MCA-Mozambique will ensure

that EMPs are developed, implemented and monitored during the project in accordance with the

provisions of this Compact and any relevant supplemental agreements. MCA-Mozambique will

ensure that environmental and social assessment responsibilities are included in the bidding

documents for the design or supervisory firms, construction firms, independent technical

auditing firms and any project management advisors, as needed. Disbursement of MCC Funding

for the Roads Project will be contingent upon issuance of environmental licenses, as needed, or

any other required permits. Roads Project activities, for which MCC disburses funds, should be

consistent with the outcomes of the relevant environmental assessments, MCC Environmental

Guidelines, and in compliance with applicable Mozambique environmental law and regulations.

Given the strong evidence linking transport routes to the spread of HIV/AIDS, MCAMozambique will also develop an action plan for incorporating sustainable and well-targeted

HIV/AIDS awareness programs into all phases of road works implementation. To help address

concerns that the expansion/upgrade of the road network in northern Mozambique does not

exacerbate human trafficking problems in the region by opening up or improving routes used by

traffickers, MCA-Mozambique will develop an action plan for incorporating targeted antitrafficking in persons awareness programs into the execution of road activities.

To maximize the positive social impacts of the Roads Project and ensure compliance with

MCC's Gender Policy, MCA-Mozambique is required to (a) develop a gender integration plan

that includes approaches for meaningful and inclusive consultations with women and other

vulnerable/underrepresented groups; a Project-specific gender analysis, as appropriate; and

strategies for incorporating findings of the gender analysis into final Project designs; and (b)

ensure that final Project activity designs are consistent with and incorporate the outcomes of the

gender integration plan.

ANNEX I - 1 1
Environmental Permitting and Oversight

Through this Compact MCC has the option of providing a capacity building grant to the MICOA

to facilitate their ability to respond to the increased workload arising from the Government's

implementation of this Compact. This assistance would enhance MICOA's ability to, inter alia,

adequately review all Compact-related environmental studies; issue environmental permits on a

timely basis as provided in Mozambique environmental law and regulations; and hire, train, and

appropriately resource additional staff in the provincial offices to carry-out effective

environmental oversight and auditing of the implementation of Compact projects.

6. Consultative Process.

In addition to the process mentioned in the WSS Project section for the PARPA, the

Government, in developing the PRISE, consulted a wide range of stakeholders. The consultative

process was timely, meaningful, and participatory. It involved three different methods of

obtaining information, including: (a) a formal survey among donors and road sector

professionals; (b) consultations with provincial authorities; and (c) focus groups with road users,

government officials, and other stakeholders. The stakeholder consultations included provincial

consultations with provincial government leaders, provincial road authorities, directors of public

works, ANE provincial delegates, provincial roads consultants, and donors. They also included

18 focus groups which were comprised of contractors, public servants, agricultural bodies,

tourism operators, transporters and road users, public transport passengers, and private sector

non-transporters.

7. Donor Coordination.

In developing the Roads Project, MCC held coordination meetings with many stakeholders in the

donor community. MCC participated actively in the planning meetings for the PRISE and, since

November 2005, attended the Road Sector Donors meetings whenever MCC representatives

were in Mozambique. The interventions financed by other entities do not conflict with the

interventions of the Roads Project; they contribute to create a more comprehensive road network

by incorporating roads that connect to the northern sections of the Ni that will be improved.

Donors with major commitments and experience in the road sector include: European Union,

World Bank, Japan, the Swedish International Development Cooperation Agency, the African

Development Bank, Agence Francaise de Developpement, the International Fund for

Agricultural Development, Irish Aid, Italian Cooperation, Germany's Kreditanstalt fur

Wiederaufbau, USAID, the United Kingdom's Department for International Development

(DFID), the Danish International Development Agency, the Norwegian Agency for Development

Cooperation, the Arab Bank for Economic Development in Africa, the Islamic Development

Bank, the Nordic Development Fund, and the Organization of Petroleum Exporting Countries'

Overseas Fund for International Development.

USAID is involved with the Roads Sector Working Group and has historically provided technical

assistance and investments in the rural road network. MCC has coordinated with the USAID

Mission in Maputo. Although USAID will not be directly involved in the implementation of the

Roads Project, close coordination will be maintained to ensure synergies between existing and

future activities and to capitalize on USAID's long-term in-country presence.
8. Policy, Legal and Regulatory Reforms.

In order to reach the full benefits of the Roads Project:

(a) The Government will ensure compliance of the roles and responsibilities of the

Road Fund and ANE, as set out in the PIA in the form of conditions to Disbursement of MCC

Funding.

(b) The Government will undertake the necessary policies to ensure that they

continue to meet all of the PRISE Performance Assessment Framework indicators.

(c) The Government will undertake a program to ensure periodic maintenance of the

entire paved road system.

D. LAND TENURE SERVICES PROJECT

1. Background.

Land is an important asset for income generation and wealth creation. Land has been at the

center of a long-standing debate about different choices and visions for growth in rural areas, and

is of increasing importance to urban development as well. In 1997 Mozambique adopted a new

legal framework on land tenure aiming to address equitable access to land tenure security for

local communities and private sector including recognition of customary rights. This new legal

setup has been recognized by a broad range of actors as a good policy and legal framework.

However, implementation of this framework has been slow and requires an efficient land

administration system to play the primary role in increasing land tenure security and improving

access to land, thereby enabling the use of this asset most effectively for economic growth.

On one hand, the lack of simple, fair and clear procedures for acquiring and transferring rights to

land is a constraining factor for private sector investment. On the other hand, there have been

concerns about improving and securing local community and small farmer land-use rights. As

Mozambique has moved on from post-war reconstruction toward a market-based economy, there

is an increasing demand for land access and for issuance of registered titles to land rights. This

is placing increased pressure on the land administration services, which are already limited in

their ability to effectively implement the existing legislation.

The Land Tenure Services Project (the "Land Project") will work on improving policy,

upgrading the public land administration agencies (the title registry and cadastre), and facilitating

site-specific land access. These three main pillars will address concerns widely shared across

private sector, the Government, and civil society with solutions that bring together their diverse

perspectives. The benefits will reach private sector and local communities in the four selected

provinces. The policy work and precedent set by the investments made in northern Mozambique

will have a national impact, thereby contributing to an improved investment climate in the

country and broader participation in the rural economy. The Land Project will enable people to

increase their incomes and wealth as: (a) risk and transactions costs are reduced; and (b) more

secure access to land induces increased investment and more productive land uses.
2. Summary of Project and Related Activities.

The objective of the Land Project is to establish more efficient and secure access to land

particularly in the four provinces included in the Program. The Land Project will support the

unified advance by the Government and stakeholders on both policy development and its

implementation. This will enable the translation of local and international best practices into an

improved policy and regulatory framework. At the same time, the Land Project will help specific

beneficiaries meet their immediate needs for registered land rights and better access to land for

investment.

The Land Project is comprised of three mutually reinforcing activity areas: (a) support for an

improved policy environment, including addressing implementation problems for the existing

land law and engaging in regulatory review to improve upon it (the "Policy Activity"); (b)

building the institutional capacity to implement policies and provide quality public land-related

services (the "Capacity Building Activity"); and (c) facilitating access to land use by helping

people and business with (i) clear information on land rights and access; (ii) resolution of

conflict with more predictable and speedy resolution of land and commercial disputes — which in

turn creates better conditions for investment and business development; and (iii) registering their

grants of land use (land titles to long-term or perpetual-use rights) (the "Site Specific Activity").

(a) Land Policy Monitoring (the Policy Activity).

The Land Law adopted in Mozambique in 1997 made significant improvements to the legal,

institutional and technical framework for providing more secure land use rights and access to

land for all groups in society. However, land policy today is also under stress due to the

implications of having only partially implemented this framework. These two trends suggest that

Mozambique stands to significantly benefit from a participatory engagement in monitoring

progress; development of a new, coherent vision that links together all levels of responsibility

and capacity for the provision of land services; and, the pursuit of an agenda of regulatory and

administrative change. Additionally, an aggressive approach to non-judicial dispute resolution

(conciliation, mediation and arbitration) as well as legal professional training and public

education about land administration and land rights is important to the transformational goals of

the Land Project. Land tenure disputes are plentiful, yet, there are few sources of legal support

for rural people. Even private enterprises find it difficult to access high quality legal services

related to land issues. The Policy Activity will help address these issues.

Specifically, MCC Funding will support the following five sub-activities under the Policy

Activity: (i) the further development of a national land administration vision and a coherent

implementation strategy based on a needs assessment that will examine regulations,

administrative processes, information systems, institutional structure, and human resources; (ii)

the provision of technical and logistical support for a process to assess and monitor progress on

land legislation, in coordination with the Land Policy Consultative Forum created with support

from the Land Project; (iii) the development and implementation of a broad campaign of public

education, outreach and awareness raising of non-judicial dispute resolution methods with

partners, including but not limited to Centro de Arbitragem, ConciliaVio e Mediactio, as

effective cost and time-saving mechanisms to resolve disputes; (iv) investment in expanding an

on-going program for legal and judicial training, training for mediators and arbitrators, studies

and advocacy of the Legal and Judicial Training Center ("CFJJ"), as well as developing new

curriculum on mediation and arbitration training for CFJJ's paralegal students working in the

ANNEX I - 14
northern provinces on commercial and land issues; and (v) provision of advisory services,

including international best-practice knowledge transfer, to the National Directorate of Lands

and Forests.

(b) Land Administration Capacity Building (the Capacity Building Activity).

The institutional capacity to implement and enforce the present land law and its regulations and

to provide high quality efficient services to clients is limited. Limitations include procedural

complexity, insufficiently trained personnel and inadequate information, communications and

profession-specific technology access at the national, regional and local offices. Addressing

these limitations to establish an effective land registry system will yield more transparent,

reliable and faster processes for accessing land and meet — as well as further motivate — a

growing demand for formal land rights registration. This, in turn, will improve the investment

climate while ensuring security of tenure for land-holding households and local communities. At

the same time, while allowing for more affordable service fees, these improvements will

generate the revenue base to sustain high quality services over time. At the municipal level,

effective land administration capacity will reinforce decentralization by bolstering the

information base for investment and fiscal planning. Under the Capacity Building Activity,

MCC Funding will support investments and reform processes that will go a long way toward

strengthening public land administration services.

Specifically, MCC Funding will support the following intervention areas: (i) implementation of a

comprehensive approach to professional development and training (including in local

requirements and international best practices in cadastral and registration information systems,

surveying and titling procedures, land law, and other topics) at the national, provincial and local

levels, thereby increasing knowledge and awareness of land tenure issues, land records

management and surveying techniques, and providing a better understanding of development

trends in land policy and in the demand for their services; (ii) the further development of the

National Land Information System (LIMS), which was first funded by the Italian government but

still requires strategic planning, final design and completion of implementation at the provincial

level; (iii) investment in and technical assistance to the upgrading of facilities for four provincial

and selected district land service offices; (iv) investment in and technical assistance for cadastral

development in selected municipalities, including pilot implementation of cadastral registration

in selected neighborhoods within each municipality. The Land Project will develop methods and

criteria to select the particular districts, municipalities and neighborhoods. Such criteria and

methods will be subject to approval by MCC.

(c) Site Specific Facilitation of Land Access (the Site Specific Activity).

In the PARPA, the Government committed to undertaking a mapping and inventory initiative to

identify and record the actual legal and economic situation of land holdings including the type of

land rights (by state authorization, good faith and community) and existing land uses. In the

selected, more economically dynamic areas, this will result in readily available information for

many purposes including for the planning and the management of access to natural resources

(including land), a reduction in the risk of land disputes, and quicker and easier access to land for

investors and small businesses (farm and non-farm). At the same time and often in these same

dynamic areas, communities increasingly seek to enhance the security of their tenure or to

engage in business relations with investors through joint ventures or the leasing out of their lands

(as allowed for in the land law upon boundary delimitation and title issuance). Several donors

ANNEX I - 15
worked with the Government to establish the Community Land Initiative. This "land fund"

responds to demand with grants of financial support and technical assistance, ensuring an

approach fully compliant with the technical annex to the land law and thereby reducing the risk

of disputes and errors. Finally, it is important to provide immediate solutions to help investors

and small businesses more expediently meet their land access and registration needs.

Discussions with CTA and others suggests that some simple information and facilitation services

will allow progress within the current institutional and regulatory climate while the other Land

Project activities work to transform the land administration system.

Specifically, MCC Funding will support: (i) the implementation of the mapping and inventory

exercise and, as part of that process, the piloting of a sound approach to area-wide registration of

land rights in selected areas characterized as more dynamic and/or conflictive; (ii) provision of

additional funding to the existing program of support for the Community Land Initiative to allow

its operation in Zambezia, Nampula and Niassa Provinces (the land fund is already operating in

Gaza, Manica and Cabo Delgado with support from other donors); and (iii) make available

simple informational tools to streamline investor and farmer access to land in northern

Mozambique, such as legal information, guidelines regarding the requirements for negotiating

land access with local communities, printed site maps showing land use and existing titles, and

other tools, e.g., specialized seminars.

3. Beneficiaries.

The Land Project supports the national policy monitoring and reform process by introducing

improved approaches to land registration and records management. Broadly speaking, the

Project will assist anyone (local community and private sector) who has or acquires land-use

rights. In particular, the Land Project is projected to benefit 1.9 million people by 2015 and 2.6

million people by 2029 by assisting four groups of beneficiaries. As a result, the value of

investment on land affected by the Project will increase and the time and cost to register a land

use right will be reduced.

Local communities that solicit assistance from the Community Land Initiative will benefit from

registration of land rights and reduced transaction costs through improved security for productive

activities on their land and increased opportunity for arrangements with outside investors for

business development. Approximately 200 communities are projected to have their lands

delimited over four years under the Land Project, enabling an estimated average of 3000 hectares

per community to become available for commercial uses. Urban households in selected

municipalities and rural smallholders in selected districts and sites selected for land service

upgrading and mapping will save time and expense when accessing and/or registering land

rights. These beneficiaries include nearly half a million urban parcel holders and over 220,000

rural smallholders. Investors (both local and foreign), who currently can face high transactions

costs in gaining access to a registered land use right, will also have substantial savings. Benefits

are expected to accrue to more than 150 firms. Additional value added can be expected from

reduced conflict and increased job creation over time as a result of new commercial investments

encouraged by a more efficient land use regime; however, these benefits are not easily

quantifiable.
4. Sustainability.

The Land Project addresses sustainability by supporting the development of an overall strategy

for modernization of land services that emphasizes client service, adoption of technology

solutions adapted to the local context, and financial and human resource capacity. Reestablishing trust and creating efficiency in public land services will increase citizen and

business use of services, thereby contributing to records being kept up-to-date. The increased

ability to collect land rents from leases of public land and expanded collection of rationalized

service fees will provide a major improvement in capacity to fund public land services at the

national, provincial, and municipal levels. Finally, the program will enable significant progress

toward access to and security of land tenure, which will help facilitate sustainable economic

development.

5. Environmental and Social Issues.

The Land Project is classified as "Category C" according to the MCC Environmental Guidelines

as Project activities are unlikely to have immitigable, adverse environmental or social impacts.

Environment and Social Impacts

Given that the major proposed interventions in the Land Project do not contemplate the

construction of new, or the significant expansion of existing buildings or structures, or the

introduction of new technologies or productive processes, this Project is unlikely to generate any

significant adverse environmental, health or safety impacts or risks. While the implementation

of the Land Project will likely lead to an increase in the demand of certain public services (e.g.,

electricity, potable water, waste disposal) and products (e.g., office supplies, printed materials)

for the operation of new equipment or the performance of training, consultation and information

activities, this increase in demand would be negligible. Thus, neither specific environmental

studies nor environmental impact management measures are anticipated for the Land Project.

The Land Project includes several activities that will deliver positive social impacts, such as the

delimitation of 'common hold' land rights held by local communities, which can protect the

long-term tenure security of many rural dwellers and reduce the potential for conflict with

smallholders and investors. However, several Land Project activities could potentially induce

some negative social and gender-based impacts. This risk will be managed through adequate

approaches to implementation and the impacts properly mitigated during implementation. For

example, plans to adjudicate and register individual titles to smallholder plots may pose risks to

the tenure security of certain vulnerable groups including women and those affected indirectly or

directly by HIV/AIDS. Adjudication and registration of plots can lead to cancellation of access

agreements and therefore greater tenure insecurity for these vulnerable groups. Initial project

design has taken into account most of these potential negative impacts and gender-based

constraints to participation. These issues will be furthered explored and appropriate mitigation

strategies incorporated into final activity/sub-activity designs, which will be reflected in the

gender integration plan. Finally, the Land Project is not expected to negatively impact public

health and safety, child labor or human trafficking.

6. Consultative Process.

In addition to the overall Compact development consultative process, extensive consultations

were conducted on the conceptual framework for the Land Project objectives and approaches, as

ANNEX - 17
well as on specific aspects of the design. Consultations were conducted at both an individuallevel with representatives of the proposed implementing agents, NGOs and the private sector, as

well as at a national and provincial level, in all four of the northern provinces, usually through

the Permanent Secretaries in the office of the Provincial Governor. Donors were also involved in

the consultations, such as the National Program for Agrarian Development ("PROAGRI")

Working Group and donor focus groups at a Southern African Development Community

(SADC) conference.

7. Donor Coordination.

MCC has consulted with many donors, most extensively with USAID, DFID and the World

Bank. As designed, the Land Project builds on prior initiatives and complements existing ones.

For example, this Compact will support the expansion of a multi-donor program called the

Community Land Initiative (which is supported by DFID, the Swiss Agency for Development

and Cooperation, the Danish Embassy, The Swedish International Development Cooperation

Agency and the Development Cooperation Ireland). The Land Project also benefited from

technical support from Food and Agriculture Organization of the United Nations (FAO),

Deutsche Gesellschaft far Technische Zusammenarbeit (GTZ), the United Nations Development

Programme, and USAID. As a part of this Compact's support to expand a paralegal training and

legal education through the CFJJ, MCC will be working alongside FAO and the Government of

the Netherlands. The African Development Bank is supporting efforts to make the registry of

deeds more efficient and this will link to the land administration strategy and information system

development under this Compact. Finally, the Land Project indirectly complements the

Government use of budget support (e.g., from the Irish and Spanish Cooperation and previous

initiatives of the Italian Cooperation, GTZ, the International Fund for Agricultural Development

(IFAD) and others). In fact, measures such as the ones to be supported under this Land Project

are consistent with discussions held by the donor working group on agriculture (PROAGRI)

under the Program Aid Partnership's (G-18) joint review of progress on the PARPA in 2007 as

well as in previous years' joint review of progress on the PARPA.

USAID was particularly engaged throughout the development and review of the Land Project.

Improved efficiency and security of land access is relevant to its programs in private sector

development, trade, rural incomes, and municipal development. USAID and its stakeholders

provided information useful to the design of activities, including technical guidance from

USAID Washington. An area for potential coordination under this Compact will be the USAID

funded pilot cadastre activity in five municipalities in northern Mozambique.

8. Policy, Legal and Regulatory Review.

The Government agrees to engage in a process of regulatory and administrative reform to

significantly improve the efficiency, transparency and security of the processes for transferring

and acquiring land rights, in both rural and urban areas. The Government also agrees to support a

related regulatory reform, which will result from a list of targeted reforms proposed in the design

study "Land Tenure Services Final Report (February 2007)" and as refined by additional

analyses and efforts under this Compact.

ANNEX I - 18
E. FARMER INCOME SUPPORT PROJECT

1. Background.

Mozambique is an internationally significant exporter of coconuts and coconut products. These

are grown in Zambezia and Nampula Provinces. Coconut is one of the few crops growing on the

impoverished, sandy, and sometimes saline coastal soils of northern Mozambique. It has unique

value as a low input, environmentally beneficial, year-round source of nutrition, income and

shelter for coastal communities. In the late 1990s, outbreaks of Coconut Lethal Yellowing

Disease ("CLYD") were confirmed in areas of commercial smallholder plantings in coastal

Zambezia. By 2003 about one percent of the total area was affected but with several new disease

foci in both provinces. Disease-affected areas in Zambezia have expanded considerably since

2003, and new foci are present in Nampula as well. At the present rate of spread, more than 50

percent of the coconut area is likely to be lost over the next nine years. As the infection rate is

considerably slower than that experienced in Florida and the Caribbean, the disease could be

controlled by the same type of phytosanitary measures that were used in Ghana. Currently,

about five percent of the total coconut area of Zambezia is likely to be affected, although in

certain areas there is no remaining production. Trees that are no longer productive must be

removed and replaced. Technical support is necessary to assist farm enterprises in recovering

income that they formerly had from coconut trees. Unless sustained measures are taken over a

large area, coconut cultivation will cease in large areas of central Mozambique, with the resulting

loss of export earnings and rural livelihood for over 1.7 million people in coastal Zambezia and

Nampula.

In conjunction with tree removal and replacement, this Project would assist farmers adopt new

cropping systems and develop alternative sources of cash income during the time the coconut

trees reach productive age at seven years and beyond (the "Farmer Income Support Project").

Chickpeas, pigeon peas, cowpeas and pineapples have the potential to generate alternative

income for these farm enterprises, compatible with rehabilitation of coconut and diversification

to reduce risks and improve livelihood options. Pulses have become increasingly significant

exports, increasing by over 400 percent per year from 2000-2004. Like coconuts, they are suited

to the sandy and loamy soils that are dominant in the coastal region. They are advantageous

because they fix nitrogen in the soil. At the same time, crop yields in the region are extremely

low due to poor practices including lack of crop rotation, poor seed selection, inadequate field

preparation, untimely weeding, and other practices. Technical support to introduce better

practices would increase yields considerably.

2. Summary of Project and Related Activities.

The objective of the Farmer Income Support Project is to improve productivity of coconut

products and encourage diversification into other cash crop production. The Project will

eliminate biological and technical barriers hindering economic growth among farms and targeted

enterprises located in this Compact area's eastern coastal belt (Zambezia and Nampula

provinces), and it will increase incomes lost to CLYD through crop diversification and improved

farming practices.

The Project will deliver two essential services to farm enterprises over the duration of this

Compact to significantly improve and sustain incomes derived from cash crops and newly

introduced crop diversification options: (a) CLYD control and mitigation will provide the shortANNEX I - 19
term control measures of surveillance, prompt eradication of diseased palms and replanting with

the less susceptible Mozambican Green Tall coconut variety. The Project will replant all cleared

coconut trees. In the endemic areas, this activity will support planting 160,000 new coconut

seedlings, the equivalent of 2,000 hectares, benefiting 7,500-10,000 smallholder families. In the

epidemic areas, this activity will support clearing and also replanting of 650,000 seedlings on

6,100 hectares; and (b) Technical Advisory Services will introduce alternate crop-diversification

options that demonstrate strong market demand and income generation potential, especially for

farm enterprises participating in the CLYD control and mitigation program that are seeking

short-term income alternatives during period of coconut tree re-growth. These services will

supply productive inputs and training to small farm enterprises operating on some 4,000 hectares

(2,000 in epidemic areas and 2,000 in endemic areas).

The Farmer Income Support Project activities are as follows:

(a) Activity 1 (CLYD Control and Mitigation Services).

The objective of this activity is to control and mitigate the spread of CLYD among the holdings

of commercial farmers in Zambezia and Nampula Provinces. The first step under this activity

will be a Government-led public awareness campaign about the disease and the measures needed

to mitigate its effects. Short-term control measures include surveillance and scouting to detect

early cases of disease; prompt eradication of diseased palms (by cutting and burning); and

replanting with selected seedlings from local Mozambique Green Tall coconut types (some of

which show a measure of resistance).

CLYD control and mitigation strategies will be tailored to different stages of the disease

epidemic and are likely to be most effective at, or in advance of, the margins of active spread of

disease. Infected trees must be culled since they attract populations of rhinoceros beetle that

breed in dead palm trunks and will kill or damage replacement palms. There is thus a need for

collective and continuous action - by all growers and over a sustained period - not just to prevent

infection moving from diseased to healthy palms, but also to remove and destroy dead palm

trunks. Three sub-activities are envisioned: (i) in the endemic zone, help smallholders to clear

their land of dead palms and, replant with selected Mozambique Green Tall seedlings and

alternative short-term crops; (ii) in the epidemic zone, control spread of disease by prompt

removal and destruction of infection sources and provision of new planting material; and (iii) a

research initiative that will emphasize germplasm resistance screening, epidemiological analysis,

and early disease detection.

(b) Activity 2 (Technical Advisory Services).

The Farmer Income Support Project will target smallholders impacted by CLYD control and

mitigation measures to engage in crop diversification to generate income during the period of

coconut tree re-growth. Emphasis will be given to improving farming practices that will increase

yields and link farmers to processors and other buyers in the supported value chains. They will

be provided options to diversify their production in response to proven market demand, which

will lead to additional revenue streams. Dissemination of improved farming practices and

market linkages will be done by experienced field agents to: (i) support demonstration trials; (ii)

strengthen producer organizations' marketing capacities; and (iii) provide extensive on-farm

training in intercropping methods, integrated pest management practices, and CLYD surveillance

capabilities. The principal sub-activities will be: (i) in zones with lower risk profiles, improve

ANNEX I - 20
the productivity and yield of existing aging and under-productive palms in smallholder plantings;

and (ii) enable stakeholders, through business development support, to help safeguard and/or

improve profitability of the coconut industry for smallholders through innovative strategies,

including linking them to carbon offset credit investment initiatives.

The Farmer Income Support Project Manager will be located in MCA-Mozambique. The

Coconut Working Group, composed of Government entities in the agricultural area, will provide

the Project Manager with guidance on technical matters concerning project implementation.

DNEA is the entity responsible for Government public outreach to communities about the CLYD

mitigation and control activities. DNEA will mobilize the outreach campaign through media

(radio, television, bulletins, posters), extension agents, coconut estate employees and other

means of information dissemination as appropriate.

3. Beneficiaries.

The Farmer Income Support Project benefits 1.7 million smallholders in the coconut belts of

Zambezia and Nampula who depend on coconut tree-products for cash and in-kind income. Half

of these smallholders would be in poverty by 2015 even without income losses from CLYD. If

CLYD is allowed to proliferate, the poverty rate would undoubtedly be higher. Coconuts are

also produced on estates, which account for some 5,000 workers as additional Project

beneficiaries. In addition, the Farmer Income Support Project provides targeted technical

assistance to over 3,000 smallholders to mitigate significant income loss due to CLYD and assist

them in improving the quality of other crops planted on their holdings. With their families, over

15,000 persons directly benefit from this technical assistance. While about two thirds of the

financial benefits accrue to the estates, the estates do not receive technical assistance and benefit

entirely from disease eradication. If eradication were not to include infected trees on both

smallholder plots and the larger estates, CLYD would continue to spread.

4. Sustainability.

The Farmer Income Support Project is envisioned as a short-term intervention to eliminate

significant biological and technical barriers to economic growth of farm enterprises located in

the Program target areas. Through the delivery of the CLYD control and mitigation service, the

spread of a highly contagious disease that could have significant negative repercussions on the

coconut industry, a key agricultural business in the coastal belt, will be halted. This, in turn, will

help ensure the sustainability of a healthy coconut industry in Zambèzia and Nampula Provinces.

Without ridding the area of the disease, healthy coconut groves will be susceptible to infection or

re-infection, thereby affecting the continued commercial viability of the raw material suppliers

and processors. Applied research and replanting of the selected variety will improve

productivity of the region's "coconut economy." Research on varietal improvements will be

done in conjunction with the Ministry of Agriculture, thereby transferring skills and technology

in coconut-resistance trials, screening and selection. Sustainability is linked to the overall

market performance of coconuts and alternate crops. The market for coconuts and its processed

products is growing domestically and internationally, as are markets for targeted alternate crops.

Yield improvements will be sustainable through smallholders' adoption of improved farming

practices and crop diversification, which reduces their risks and vulnerability. And, there may be

opportunities to improve smallholder incomes through carbon offset, which may be monetizable

over five years to supplement smallholders' income until replanted trees reach productive age.

ANNEX I - 21
MCC is consulting with carbon credit experts and will be providing MCA-Mozambique with

guidance on options for Mozambique to pursue to qualify for carbon offset credits.

Environment and Social Sustainability

The key to ensuring environmental and social sustainability of the Farmer Income Support

Project is ongoing public consultation. MCA-Mozambique will ensure that comprehensive

public consultation plans are developed such that Project stakeholders, including women and

vulnerable groups, are afforded consultation and an opportunity to provide their inputs to Project

design and implementation. MCA-Mozambique will ensure that environmental and social

mitigation measures are followed for all Project activities in accordance with the provisions set

forth in this Compact and in relevant supplemental agreements. MCA-Mozambique will serve as

the point of contact for comments and concerns of parties affected by the implementation of all

Project activities under this Compact and will lead the effort to find feasible resolutions to those

problems. MCA-Mozambique will convene periodic public meetings to provide implementation

updates and to identify and address public concerns. The Stakeholders Forum for this Project

will also incorporate representatives of civil society that will serve as a link between local NGOs

and program managers.

5. Environmental and Social Issues.

The Farmer Income Support Project is classified as "Category B" according to the MCC

Environmental Guidelines. An environmental assessment and an EMP that includes provisions

to address (a) safety and health risks related to the handling, use, and disposal of pesticides and

fertilizers; (b) tree-cutting and disposal equipment; and (c) integrated pest and nutrient

management strategies will be developed prior to full Project implementation.

Environmental and Social Impacts

Although it is unlikely that the Farmer Income Support Project will generate any significant

environmental, health or safety hazards, the potential negative direct, indirect, induced, and

cumulative environmental impacts of the Project will be assessed through an environmental

assessment that will be conducted prior to the implementation of the Project. A number of

positive environmental and social benefits should emerge from this Project. As stated, coconut is

regarded as an environmentally benign and often beneficial, low-input, crop which tolerates and

can help to stabilize nutrient-poor and saline soils, especially in coastal regions that are often

subject to periodic floods that destroy other crops. In addition, MCA-Mozambique will ensure

that a Project-specific EMP is developed, implemented and monitored during the Project in

accordance with the provisions of this Compact and any relevant supplemental agreements.

Per the MCC Environmental Guidelines, the use of the following pesticides is prohibited under

the Project: (a) Persistent Organic Pollutants that the United States Environmental Protection

Agency has identified as of greatest concern to the global community; or (b) any pesticide listed

by the United States Environmental Protection Agency as "banned" or "severely restricted"

under the Prior Informed Consent Program. MCA-Mozambique will ensure that Project

operators require pesticides to be handled, stored, applied, and disposed of in accordance with

FAO's International Code of Conduct on the Distribution and Use of Pesticides.

To maximize the positive social impacts of the Farmer Income Support Project and ensure

compliance with MCC's Gender Policy, MCA-Mozambique is required to: (a) develop a gender

ANNEX 1 - 22
integration plan that includes: (i) approaches for meaningful and inclusive consultations with

women and vulnerable/under-represented groups; (ii) Project-specific gender analyses, as

appropriate; and (iii) strategies for incorporating findings of the gender analyses into final

Project designs; and (b) ensure that final Project activity designs are consistent with and

incorporate the outcomes of the gender integration plan. MCA-Mozambique will also take steps

to ensure that the interests and views of women and vulnerable groups are represented in any

entities responsible for advising on design, ownership, management, and operation of the Project

activities.

Environmental Permitting

MCA-Mozambique will ensure that environmental and social assessment responsibilities are

included in the bidding documents for the procurement of Project implementers and advisors, as

needed. Disbursement of MCC Funding for activities under this Project requiring environmental

licenses will be contingent upon issuance of such environmental licenses, as needed, or any other

required permits. Project activities, for which MCC disburses funds, should be consistent with

the outcomes of the relevant environmental assessments, and MCC Environmental Guidelines,

and comply with applicable Mozambique environmental law and regulations.

6. Consultative Process.

During the development of the Farmer Income Support Project in the pre-Compact program

definition process, the consultant, working on behalf of the Government, consulted with a broad

spectrum of stakeholders, including government officials (national and provincial), NGOs and

the private sector, through local Chambers of Commerce and the coconut trade association.

Ongoing consultation is envisioned through the Project Advisory Group that will be established

during the Compact Implementation Funding period.

7. Donor Coordination.

Although the Centre de cooperation internationale en recherche agronomique pour le

developpement (CIRAD) has provided support to combat against CLYD in Zambezia in the past,

there are currently no other donors providing support to address this issue in the northern

provinces. Through the Farmer Income Support Project, there are opportunities to work with

other donors in the future. In particular, USAID provides assistance through its Title II

Implementing Partners in Zambezia to introduce nutrient-rich crops as a means of improving

their food security. In addition, USAID is providing technical assistance to the Ministry of

Agriculture for strengthening institutional capacity in policy analysis. USAID also adapted one

new agricultural technology in 2006 through continued assistance to the National Agricultural

Research Institute and the agricultural zonal research centers and its continued funding is helping

to replicate the producer-owned trading company model in other geographic areas. Moreover,

USAID will continue to provide technical assistance in management and marketing to farmers

and rural enterprises.

F. OVERVIEW OF IMPLEMENTATION FRAMEWORK

1. Overview of Implementation.

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

management, monitoring and evaluation and fiscal accountability for the use of MCC Funding is

ANNEX 1 - 23
summarized below and will be described in more detail in the internal regulations of MCAMozambique ("Internal Regulations") or as otherwise agreed in writing by the Parties.

2. Government.

The Government will empower the Minister of Planning and Development in conjunction with

the Minister of Finance to create a public institution within the Ministry of Planning and

Development ("MCA-Mozambique"), which will be the Accountable Entity and will be

authorized to act on behalf of the Government in order to manage and oversee the

implementation of this Compact and the Program. MCA-Mozambique will have administrative

and patrimonial autonomy, in addition to the financial control to engage in practices such as (a)

establishing an account in a financial institution in the name of MCA-Mozambique and holding

MCC funds in that account; (b) expending MCC funds without an appropriation in the national

budget; (c) engaging a fiscal agent to undertake expenditures and to account for them; (d)

engaging a procurement agent who will act on behalf of MCA-Mozambique to manage the

acquisition of the goods, works and services requested by MCA-Mozambique to implement the

activities funded by this Compact; and (e) engaging an auditor competitively to conduct audits of

its accounts.

The Government will grant the Minister of Planning and Development oversight authority or

"tutela" over MCA-Mozambique, whereby the Minister will ensure that MCA-Mozambique is

complying with the terms of this Compact, fulfilling the Government's responsibilities under this

Compact, and other duties of MCA-Mozambique as described in the Internal Regulations.

MCA-Mozambique will be headquartered in Maputo, with initially one regional office in

Nampula, and other provincial offices in northern Mozambique, as determined in the Internal

Regulations.

MCA-Mozambique will be composed of (a) a supervisory decision-making body, the Board of

Directors (the "Board"); (b) a smaller working group of representatives from the Board or an

executive committee (the "Executive Committee"); and (c) the day-to-day management body or

management unit (the "Management Unit"). The Internal Regulations will define the

governance details of MCA-Mozambique.

3. MCC.

MCC will provide technical oversight and accountability in the implementation of the Program.

MCC will establish a small office in Mozambique, designed to provide feedback and increased

communication between MCC and the Government throughout Compact implementation.

MCC will require prior approval of certain transactions, activities, agreements and documents, as

described in the PIA.

ANNEX 1 - 24
4. MCA-Mozambique Description.

(a) Board of Directors.

(i) Composition.

The Board will be composed of nine voting members; six of which are governmental

representatives, two civil society representatives and one private sector representative. There

will be three non-voting members, consisting of an MCC representative, a representative from an

environmental NGO and the executive director of the Management Unit. The governmental

representatives will be Ministers from certain Ministries involved in the Program, as agreed and

defined in the Internal Regulations. The Minister of Planning and Development will serve as the

chair of the Board, while the executive director of the Management Unit will serve as secretary.

The civil society representatives and the private sector representatives will be determined as

defined in the Internal Regulations. In the event that one of the civil society voting members is

not from an environmentally focused NGO, an additional observer from such an organization,

subject to the prior receipt of a no-objection notice from MCC, will be appointed. No

remuneration will be paid to any Government representative on the Board, although other Board

members may receive remuneration as set out in the Governance Guidelines (as defined in the

PIA).

(ii) Location.

The Board will be based in Maputo, but may also conduct rotating meetings in one of the four

northern provinces from time to time.

(iii) Roles and Responsibilities.

The Board will be responsible for exercising oversight and taking major decisions, such as

approving annual implementation plans, Disbursement requests, annual progress reports, key

contracts and policy reforms, as well as other responsibilities defined in the Internal Regulations.

The Board will meet once every three months and may meet more frequently as necessary for

extraordinary meetings. The specific roles of the voting and non-voting members will be set out

in the Internal Regulations.

(b) Executive Committee.

(i) Composition.

The Executive Committee will be composed of seven members, who represent certain Ministries

or organizations on the Board, as further defined in the Internal Regulations. The Secretariat of

the Executive Committee will be the executive director of the Management Unit. Governmental

members on the Executive Committee will be represented by the relevant Ministries' National

Director. The private sector representative will be the same as on the Board.

(ii) Location.

The Executive Committee will be located in Maputo, but may also conduct rotating meetings in

one of the four northern provinces from time to time.

ANNEX I - 25
(iii) Roles and Responsibilities.

The Executive Committee is a smaller working group of the Board that will be empowered to

take certain limited actions normally required to be taken by the Board, such as approving

quarterly implementation plans, quarterly progress reports, certain procurement decisions, as

well as other actions defined in the Internal Regulations. The Executive Committee will meet as

often as necessary to adequately perform its functions.

(c) Management Unit.

(i) Composition.

The Management Unit will be responsible for assisting the Board and the Executive Committee

in managing and overseeing the day-to-day operations of the Program. The Management Unit

will be composed of staff, competitively selected. Key staff members of the Management Unit

include: the executive director, deputy director, chief financial officer, M&E/planning officer,

procurement officer, environmental and social manager, legal advisory service, and Project

managers for each of the four Projects will be defined in the Internal Regulations.

(ii) Location.

The Management Unit will have offices in at least two locations. One office will be based in

Maputo and initially one office will be located in Nampula. If justified, other regional offices

may be opened in the northern provinces, as provided for in the Internal Regulations.

(iii) Roles and Responsibility.

The Maputo office of the Management Unit will provide "back office support" services, such as

financial management, legal, procurement, administrative, public relations and other activities

defined in the Internal Regulations. The Nampula office and other provincial offices that may be

established as part of the Management Unit will provide direct support to the programs being

implemented in the provinces. The regional Management Unit offices will be responsible for

preparing reports, implementation plans and budgets, preparing Disbursement requests,

reviewing and approving bidding and contract documents, monitoring and evaluating project

implementation, ensuring technical support to Implementing Entities (as defined in the PIA),

coordinating stakeholder participation and other functions as defined in the Internal Regulations

of MCA-Mozambique.

(d) Stakeholders' Participation.

Stakeholders will continue to be involved and participate throughout Compact implementation.

Through semi-annual and/or annual participatory monitoring and evaluation forums,

stakeholders will be able to provide feedback to the overall Program (the "Stakeholders

Forums"). In addition, the mechanisms for ensuring this consultative process occurs will be

structured at a Project-level, allowing representatives of the private sector, civil society and local

and regional governments to provide advice and input to MCA-Mozambique. In the WSS

Project, autonomous Provincial Water Boards will be created, which will incorporate stakeholder

participation on their respective boards.

ANNEX I - 26
In the Roads Project, stakeholder participation will be incorporated through the Stakeholders

Forums.

In the Land Project, there are two forums designed to facilitate feedback and input from

interested stakeholders. First, the Land Policy Consultative Forum, comprised of relevant

governmental ministries, civil society organizations and academic institutions will conduct

regular semi-annual meetings. Secondly, the National Land Project Advisory Group provides a

forum for both national and local governmental representatives to provide meaningful feedback

throughout Compact implementation.

In the Farmer Income Support Project, stakeholder participation is incorporated through the

Coconut Working Group, whereby relevant governmental agencies, the private sector and civil

society organizations may provide regular input to the implementation of the Project.

ANNEX I - 27
ANNEX II

SUMMARY OF MULTI-YEAR FINANCIAL PLAN

1. General.

The Multi-Year Financial Plan Summary below sets forth the estimated annual contribution of

MCC Funding for Program administration, Program monitoring and evaluation, and

implementing each Project. The Government's contribution of resources will consist of "inkind" and other contributions or amounts required effectively to satisfy the requirements of

Section 2.5(a) of this Compact. In accordance with the PIA, the Government will develop and

adopt on a quarterly basis a detailed financial plan (as approved by MCC) setting forth annual

and quarterly funding requirements for the Program (including administrative costs) and for each

project, projected both on a commitment and cash requirement basis.

2. Modifications.

To preserve administrative flexibility, the Parties may by written agreement (or as otherwise

provided in the PIA), without amending this Compact, change the designations and allocations of

funds among the Projects, the Project activities, or any activity under Program administration or

monitoring and evaluation, or between a Project identified as of the entry into force of this

Compact and a new project; provided, however, that any such change (a) is consistent with the

Program Objective and Project Objectives and the PIA, (b) does not materially adversely affect

the applicable Project or any activity under Program administration or monitoring and

evaluation, (c) does not cause the amount of MCC Funding to exceed the aggregate amount

specified in Section 2.1(a) of this Compact, and (d) does not cause the Government's obligations

or responsibilities or overall contribution of resources to be less than specified in Section 2.5(a)

of this Compact.
MULTI-YEAR FINANCIAL PLAN SUMMARY*

Projects Year 1** Year 2 Year 3 Year 4 Year 5 Total

1. Water Supply and Sanitation

A. Technical Assistance and Capacity Building

to Water Supply and Sanitation Project 6,675,220 5,095,804 3,293,268 3,137,075 2,814,675 21,016,042

B. Rehabilitation/expansion of water supply

systems in urban areas 6.377,175 6,783,982 34,182,450 25,553,040 18,187,233 91,083,880

C. Rehabilitation/expansion of six municipal

sanitation and drainage systems 

D. Construction/reconstruction of wells and

bore holes (rural water points)

2.291,750 19,294,284 19,770,123 20,563,193 20,576,077 82,495,427

906,441 2,312,470 3,108,668 2,324,169 338,296 8,990,044

Sub-Total 16,250,586 33,486,540 60,354,509 51,577,477 41,916,281 203,585,393

2. Rehabilitation/Construction of Roads

A. Technical Assistance for Roads Proiect 507,700 688,914 710,817 733,374 374,925 3,015,730

B. Rehabilitation Costs 4,922,862 3,731,628 39,023,067 78,845,125 46,769,068 173,291,750

Sub-Total 5,430,562 4,420,542 39,733,884 79,578,499 47,143,993 176,307,480

3. Land Tenure Services

A. Support for National Policy monitoring

process 2,186,408 2,521,723 2,049,460 1,929,674 1.757,958 10,445,223

B. Land administration capacity building 1.812,980 5,552,512 3,769,560 1,534,915 757,829 13,427,796

C. Site specific secure land access 1,261,886 4,295,706 3,722,369 3,359,342 2,555,985 15,195,288

Sub-Total 5,261,274 12,369,941 9,541,389 6,823,931 5,071,772 39,068,307

4. Farmer Income Support

A. Rehabilitation of endemic areas 704.022 676,612 624,771 636,683 210,505 2,852,593

B. Control of epidemic disease 2,099,262 1,660,535 1,450,524 868,610 914.518 6,993,449

C. Research and Development Support 444,405 435,548 519.295 513,503 529.612 2,442,363

D. Improvement of productivity 252,728 427,022 737,993 1,097,880 1,168,584 3,684,207

E. Business Development Support 254.000 291,915 519,295 258,770 135,619 1,459,599

Sub-Total 3,754,417 3,491,632 3,851,878 3,375,446 2,958,838 17,432,211

5. Monitoring and Evaluation

Monitoring and Evaluation 2,195,000 955,000 1,880,000 920,000 2,255,000 8,205,000

Sub-Total 2,195,000 955,000 1,880,000 920,000 2,255,000 8,205,000

6. Program Administration and Oversight

A. MCA-Mozambique 9,651,474 5,012,630 5,583,165 5,254,627 5,379,999 30,881,895

B. Fiscal and Procurement Agent 12,300,000 4,800,000 3,300,000 2,550,000 2,050,000 25,000,000

C. Bank Contract 10,000 5,000 5,000 5,000 5,000 30,000

D. Auditing 1,440,000 1,140,000 1,140,000 1,140,000 1.140.000 6,000,000

E. Environmental Management - MICOA

Capacity Building 176,000 57,344 58,720 60,130 61,573 413,767

Sub-Total 23,577,474 11,014,974 10,086,885 9,009,757 8,636,572 62,325,662

Total Estimated MCC Contribution 56,469,313 65,738,629 125,448,545 151,285,110 107,982,456 506,924,053

*It is anticipated that there will be at least a one-quarter lag in disbursements of these budget totals.

**Year 1 amounts include amounts for Compact Implementation Funding.

ANNEX II - 2
Project: Water and Sanitation

Project Objective:

To Increase access to reliable

and quality water and

sanitation facilitates

Build the capacity of local

institutions to develop policies

and manage programs

Improve water supply

networks in selected

urban towns

Construct or rehabilitate

water supply systems in

selected small towns.

Construct or rehabilitate

sanitation systems in

selected towns

Repair and raise the Nacala

Darn and reservoir

Instal and rehabilitate rural

water supply points

ANNEX III

DESCRIPTION OF THE MONITORING AND EVALUATION PLAN

This Annex III to this Compact (the "M&E Annex") generally describes the components of the

monitoring and evaluation plan for the Program (the "M&E Plan"). Each capitalized term in

this Annex III will have the same meaning given such term elsewhere in this Compact.

1. Overview.

MCC and the Government (or a mutually acceptable Government affiliate or permitted designee)

will formulate, agree to and the Government will implement, or cause to be implemented, an

M&E Plan that specifies (a) how progress toward the program goal and Program Objective will

be monitored ("Monitoring Component"); (b) process and timeline for the monitoring of

planned, ongoing, or completed Project activities to determine their efficiency and effectiveness;

and (c) a methodology for assessment and rigorous evaluation of the outcomes and impact of the

Program ("Evaluation Component"). Information regarding the Program's performance,

including the M&E Plan, and any amendments or modifications thereto, as well as progress and

other reports, will be made publicly available on the MCA-Mozambique Website and elsewhere.

Compact Goal:

To contribute to poverty reduction through economic growth

in Northern Mozambique

Program Overall Objective:

To increase the Productive Capacity in

Selected districts in Northern Mozambique

•

Project: Roads Rehabilitation

Objective: To Increase access to

productive resources

and markets

Project: Land Tenure Services

Objective: To establish efficient,

secure land access

for households and investors

Project:

Fanner Income Support

Objective: To improve coconut

productivity and diversification

into cash crop

Rehabitate high priority

roads in selected provinces

Improve land

policy environment

Control and mitigate the spread

of CLYD in commercial

and smallholder coconut farms

Improve institutional

capacity to implement policies

and provide quality services H

Provision of Technical Advisory

Services

Facilitation of Site Specific

Secure Land Access
2. Program Logic.

The Mozambique M&E Plan will be built on the program logic model described above showing

how the Program is intended to work. The program logic is a visual representation of the

Program showing the sequence of outcomes and intended causality from the Project Objectives.

The overall goal of the Program is to contribute to poverty reduction in Mozambique through

economic growth. The stated Program Objective is to increase the productive capacity of the

population in selected districts of northern Mozambique with the intended impact of reducing the

poverty rate, increasing household income, and reducing chronic malnutrition in the targeted

districts.

3. Monitoring Component.

To monitor progress toward the achievement of the impact and outcomes, the Monitoring

Component of the M&E Plan will identify (a) the indicators, (b) the definitions of the indicators,

(c) the sources and methods for data collection, (d) the frequency for data collection, (e) the party

or parties responsible, (f) the timeline and format for reporting on each Indicator (as defined

below) to MCA-Mozambique, and (g) the method by which the reported data will be validated.

(a) Indicators. The M&E Plan will measure the results of the Program using

quantitative, objective and reliable data ("Indicators"). Each Indicator will have benchmarks

that specify the expected value and the expected time by which that result will be achieved

("Target"). The M&E Plan will be based on a logical framework approach that classifies

indicators as impact, outcome, output, process and input. The impact indicators ("Goal and

Program Objective Level") will measure the results for the overall Program. Second, the

outcome indicators ("Project Objective Level") will measure the final and the intermediate

results of the Projects in order to monitor their success in meeting each of the Project Objectives,

including results for the intended beneficiaries identified in accordance with Annex I

(collectively, the "Beneficiaries"). Third, output indicators ("Project Activity Level") will

measure the direct outputs of the Project activities in order to provide an early measure of the

likely impact of the Project activities. A forth level of indicators, input and process indicators

("Institutional Process Level") will be included in the M&E Plan to measure the delivery of

materials, goods and actions necessary to carry out the primary Project activities. All Indicators

will be disaggregated by gender, income level and age, and beneficiary types to the extent

practicable. Subject to prior written approval from MCC, MCA-Mozambique may add Indicators

or refine the Targets of existing Indicators.

(i) Impact Indicators (Goal and Program Objective Level). The M&E Plan

will contain the impact indicators listed in the table below, with their definitions and unit of

observation, baseline, and targets for the end of the compact year.

ANNEX 111-2
Indicator Definition of Indicators Unit ofObsersation , Baseline Year 5

Poverty Rate

Percentage of the population in northern Mozambique who lack

the ability and opportunity to have access to satisfy the

necessary basic nutritional and non-nutritional requirements

(2150 nutritional calories plus basic non food items)

Household 45.80% 36.64%

Increased Household

Income

The total value of household food production for consumption,

all crop and livestock sales, cash and in-kind pay received from

off-the-farm activities and remittances, net cash and in-kind

payments made to hired members of household

Household $202.30 $264.12

Percent of stunted

children, 0-59 months

(height/age z-score)

Percentage of children under 5 years in northern Mozambique

who show chronic malnutrition as a result of cumulative

inadequacies in nutrition status

Household 41% 28%

contain the outcome

outcome indicators

observation.

ndicators

(ii) Outcome Indicators (Project Objective Level). The M&E Plan will

and

Baseline

levels. The

units of

Year 5

indicators which will measure the results

for the four main Projects are listed below

Project I: NN ate!. and Sanitation

Definition

at the project objective

with their definitions

Unit Observation

Value of productive

days gained due to less

diarrhea illness

Value of time gained by household members due to not having

to attend to other household members with diarrhea or not

being absent from productive activities due to incidence of

diarrhea (number of days multiplied by the value of average

adult household consumption )

Household 0 US$3.04

Value of productive

days gained due to less

malaria

Value of time gained by household members due to not having

to attend to household members with malaria or not being

absent from productive activities due to incidence of malaria

(number of days multiplied by the value of average adult

household consumption )

Household 0 US$3.04

School attendance days

gained due to less

diarrhea

Days gained by each school-aged child in household to attend

school due to less incidence of diarrhea

Number of schoolaged children in

household

0 3

School attendance days

gained due to less

malaria

Days gained by each school-aged child in household to attend

school due to less incidence of malaria

Number of schoolaged children in

household

0 3

Number of businesses

connected to an

improved water source

Number of formal businesses in target districts with water

connection Business 495 947

Time to get to water

source (Urban- / Rural)

Number of minutes to water source, by source Household 32 / 39 15 / 27

Percent of urban

population with

improved water

sources (percent

increase)

Proportion of the urban population in the target districts with

access to improved water sources, defined as access to private

connections or standpipes.

Urban households 30% 47%

(17%)

Percent of rural

population with access

to improved water

sources (number of

persons)

Proportion of the rural population in the target districts with

access to improved water sources, defined as access to potable

water from a deep-well

Rural households 31%

(1,417,439)

33%

(1,657,439)

Percent of urban

population with

improved sanitation

facilities

Proportion of urban population with access to improved

sanitation facilities, defined as access to networked sanitation.

septic tanks, or an improved pit-latrine

Urban households TBD TBD

* Targets for water and sanitation indicators are for end of year 5 / start of year 6.

ANNEX 111-3
indicators

Project II: Road Rehabilitation

Definition Unit of Observation Basefiee Year 5

Value of net agricultural

production (yield per

hectare)

Net value of new agricultural production for both cash and

subsistence crops in the road economic area of influence (15km

radius each side of targeted roads)

Rural households TBD TBD

Change in vehicle

operating cost

($$/vehicle-km)

Average change in the fixed and variable cost of operating

vehicles on a km of target upgraded roads Target roads 0.47 0.37

Total time savings

(US$m)

Value of travel time savings for road users due to change in

speed on target roads Target Roads 0 US$1.15

Change in International

Roughness Index (IRI)

Measurement of pavement roughness on targeted roads

(correlated with vehicle operating costs)

IRI units of either

rn/km or m/ml 10 3.5

Average annual daily

traffic volume Number of vehicles by type on the target upgraded roads

Target roads

(disaggregated by

vehicle type)

1908 2558

Indicators

Project III: Land Tenure Seri lets

Definition Unit of Observation Baseline Year 5

Percent increase in value

of new investments on

land

Summation of investments including agricultural investments.

fixed investments, and improvements to existing structures.

Rural households

(small- mediumholder); businesses;

urban parcels;

communities

0 10%

Number of new

businesses Number of new businesses formally registered and established Businesses (small,

medium, large) TBD TBD

Percent reduction in time

to get land usage rights

(DUAT)

Number of days required to obtain land usage rights (DUAT),

disaggregated by beneficiary type

Community,

individual, urban,

commercial

0 50%

Percent reduction in

costs to get land usage

rights (DUAT)

Amount of money required, in local currency, to obtain land

usage rights (DUAT), disaggregated by beneficiary type

Community,

individual, urban,

commercial

0 50%

Indicators

Project I\ : Farmer Income Support

Definition Unit of

Observation Baseline Year 5

Reduction in loss of coconut

and coconut products' sales

Total household and estate sales of coconuts and coconut products

within a calendar year

Rural households

(small- medium

holders) & Estates

0 3.75%

Percent increase in sales

from intercropping

Total household sales of surplus crops intercropped in replanted

coconut farms

Rural households

(small- mediumholders)

US$65,000 167%

Percent increase in yield

among fertilized coconut

trees in risk areas (number of

fruits per tree)

Additional production of coconuts per tree resulting from adoption

of CLYD control and mitigation measures

Rural households

(small- mediumholders)

0

(30)

167%

(80)

Percent increase in yield of

selected intercropping crops

Additional production of cash and food crops intercropped in

replanted coconut farms

Rural households

(small- mediumholders)

0 TBD

Increase in improved

coconut trees 2 years old or

greater

Total number of recently-planted resistant, healthy coconut trees

that are 2 or more years old

Rural households

(small- mediumholders)

0 224,000

Percent change of the area

infested by CLYD

Total endemic and epidemic land area, in trees per hectare, with

CLYD control and mitigation measures

Rural land (trees

per hectare)

5036

hectares 71%

Destruction of infected

coconut palms Total number of CLYD infected palms cleared (in millions) Trees 0 1.225

Number of farmers adopting

improved varieties of

coconut trees

Total number of smallholders adopting the planting of the

improved variety of coconuts

Rural households

(small- mediumholders)

0 2260

TBD = To be determined

ANNEX 111-4
(iii) Process and Output Indicators. The M&E Plan will describe the process

and timeline for developing a full and comprehensive activity monitoring plan that will outline

most of the process and output indicators, the instruments for collecting data for the indicators,

and the frequency for collecting and reporting on those indicators. The M&E Plan budget will

make provision for resources to support and build on the capacity of service providers and other

service agencies to collect and report the output and process indicators that will be outlined in the

activity monitoring plan. Technical assistance will be provided when needed to facilitate the

development of the activity monitoring plan.

(b) Data Collection and Reporting. The M&E Plan will establish guidelines for data

collection and a reporting framework, including a schedule of Program reporting and responsible

parties. The M&E Plan will use both qualitative and quantitative methods for data collection.

The plan will outline various data collection methodologies, assessments, and surveys necessary

to reporting on the results of the outcome indicators. It will also develop and establish

instruments and procedures as part of the regular project monitoring activities to track Project

activity output indicators. It will also draw quantitative information from the INE (National

Statistics Institute) surveys such as the IAF (Household Survey), QUIBB (Questionnaire on

Basic Indicators of Well-Being), and DHS (Demographic and Health Survey) and the TIA

(National Agricultural Survey) for most of the outcome and impact indicators.

(c) Collaboration with National Statistic Institute and the National Directorate of

Studies and Policy Analysis, Ministry of Planning and Development. The M&E Plan will

identify areas of collaboration with INE and the National Directorate of Studies and Policy

Analysis, Ministry of Planning and Development (MPD) on surveys and other data collection

initiatives. The plan will specify and contain an agreement with the INE and MPD on a schedule

of surveys and other data collection activities and the types of economic analysis that will be

obtained by MCA-Mozambique as part of reporting requirements. The M&E Plan budget will

make provision for funding for such collaborative initiatives.

(d) Data Quality Reviews. From time to time, 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.

(e) Participatory Monitoring and Evaluation. The M&E Plan will outline a process

for encouraging participation of program stakeholders in the collection and dissemination of the

information about progress being made towards the achievement of the program objectives. The

effectiveness and efficiency of the Program will be jointly monitored with the beneficiary

population and various stakeholders at different levels of decision-making The M&E Plan will

foster national "ownership" of the Program and will periodically disseminate program results and

achievement through transparent strategies and a format of communication with the public.

(f) 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 is at all times accessible and useful to

those who wish to use it. The system development will take into consideration the requirement

ANNEX 111-5
and data needs of the components of the Program, and will be aligned with MCC existing

systems, other service providers, and government ministries.

4. Evaluation Component.

The Evaluation Component of the M&E Plan will contain two types of evaluations: ProjectLevel impact evaluations and Program-Level impact evaluations. The evaluation plans will be

finalized before Disbursement for specific Program or Project activities. The Evaluation

Component will contain a methodology and timeline for analyzing data in order to assess

planned, ongoing, or completed Project activities to determine their contribution to the

Program's intended impact.

(a) Impact Evaluation. The M&E Plan will outline rigorous design methods that will

be used to evaluate the impact of the Program's four components. Based on in-country

consultation with stakeholders, the following strategies outlined below were jointly determined

as having the strongest potential for rigorous impact evaluation. The M&E Plan will further

outline in detail these methodologies. Final impact evaluation strategies are to be jointly

determined before the approval of the M&E Plan and before entry into force (EIF) of this

Compact. The following are a summary of the potential impact evaluation methodologies:

(i) The WSS Project could be evaluated using rigorous randomized design

methods. In the rural water component, communities could be selected randomly over time to

allow for comparison between unbiased control and treatment groups. In the urban water and

sanitation components, randomized allocation of instruments such as private connection

subsidies (where subsidy demand outstrips subsidy supply) and health and hygiene outreach

efforts, but not direct services, could serve as the basis for an instrumental variable approach to

evaluating the urban and peri-urban W&S interventions.

(ii) The Roads and Land Projects could be evaluated using propensity score

matching methods with treatment and control groups. Additionally, the Land Tenure Services

Project also demonstrated potential, contingent on favorable conditions at EIF, for randomized

evaluations of the site specific interventions.

(iii) The Farmer Income Support Project's inter-cropping and Technical

Advisory Services components could be evaluated through rigorous randomized design methods.

Favorable conditions at EIF permitting, randomized allocation of particular interventions such as

agricultural information will allow for comparison between unbiased control and treatment

groups.

(iv) Additionally, linkages between the water, roads, and land interventions

could be rigorously evaluated. For example, areas that receive more than one intervention will

be compared to areas that only receive one of the interventions.

Impact evaluations will be used to assess Program and Project progress and effectiveness. The

M&E Plan will take into consideration the time period various projects will demonstrate their

benefits and impacts. It is anticipated that the impact evaluations' lifespan could extend well

beyond the five-year implementation period and flexibility of design should be a priority. The

M&E Plan also will specify different modes of contracting to carry out the evaluations, including

independent and specialized contractors and agreements where necessary. If deemed

appropriate, MCC or MCA-Mozambique may request ad-hoc evaluations or special studies of

ANNEX 111-6
Projects, Project activities, or the Program as a whole at any time during or after the

implementation.

(b) Program-Level Evaluation. The M&E Plan will make provision for programlevel evaluation. MCA-Mozambique, with the prior written approval of MCC, will engage an

independent evaluator to conduct an evaluation at the expiration or termination of the Compact

Term ("Final Evaluation") or at MCC's election, MCC will engage such an independent

evaluator. The program-level evaluation must at a minimum (i) evaluate the efficiency and

effectiveness of the Program activities; (ii) estimate, quantitatively and in a statistically valid

way, the causal relationship between the expected impact (to the extent possible), the intended

outcomes and outputs; (iii) determine if and analyze the reasons why the Compact goal, Program

Objective and Project Objectives were or were not achieved; (iv) identify positive and negative

unintended results of the Program; (v) provide lessons learned that may be applied to similar

projects; (vi) assess the likelihood that results will be sustained over time; and (vii) any other

guidance and direction that will be provided in the M&E Plan. To the extent engaged by MCA -

Mozambique, such an independent evaluator will enter into an auditor/reviewer agreement with

MCA - Mozambique in accordance with this Compact.

(c) Special Studies. The M&E Plan will identify and make provision for special

studies, ad-hoc evaluations, and research that may be needed as part of the monitoring and

evaluating of this Compact. Either MCC or MCA-Mozambique may request special studies or

ad-hoc evaluations of Projects, Project activities, or the Program as a whole prior to the

expiration of the Compact Term. If MCA-Mozambique engages an evaluator, the evaluator will

be an externally contracted independent source selected by MCA-Mozambique, subject to the

prior written approval of MCC, following a tender in accordance with the MCC Program

Procurement Guidelines, and otherwise in accordance with any relevant Implementation Letter

or supplemental agreement. The cost of an independent evaluation or special study may be paid

from MCC Funding.

(d) Government Request for Ad hoc Evaluation or Special Study. If MCAMozambique 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 a Project or Project activity or to seek funding from other donors, no MCC Funding or

MCA-Mozambique 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, Projects and Project activities, including, where

appropriate, roles and responsibilities of the relevant parties and Providers:

(a) Costs. A detailed cost estimate for all components of the M&E Plan.

(b) Assumptions and Risks. Any assumptions and risks external to the Program that

underlie the accomplishment of the Program and Project Objectives and Project activity

outcomes; provided, however, such assumptions and risks will not excuse performance of the

Parties, unless otherwise expressly agreed to in writing by the Parties.

ANNEX 111-7
6. Implementation of the M&E Plan.

(a) Approval and Implementation. The approval and implementation of the M&E

Plan, as amended from time to time, will be in accordance with this M&E Annex, the PIA, and

any other relevant supplemental agreement.

(b) Modifications. Notwithstanding anything to the contrary in this Compact,

including the requirements of this M&E Annex, MCC and the Government (or a mutually

acceptable Government Affiliate or Permitted Designee) may modify or amend the M&E Plan or

any component thereof, including those elements described herein, without amending this

Compact; provided, any such modification or amendment of the M&E Plan has been approved

by MCC in writing and is otherwise consistent with the requirements of this Compact and any

relevant supplemental agreement between the Parties.

ANNEX 111-8