[Federal Register Volume 75, Number 191 (Monday, October 4, 2010)]
[Notices]
[Pages 61197-61216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24820]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 10-11]


Notice of Entering Into a Compact With the Republic of the 
Philippines

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Republic of the Philippines. Representatives of the United States 
Government and the Republic of the Philippines executed the Compact 
documents on September 23, 2010.

    Dated: September 29, 2010.
Melvin F. Williams, Jr.,
VP/General Counsel and Corporate Secretary, Millennium Challenge 
Corporation.

Summary of Millennium Challenge Compact With the Republic of the 
Philippines

    The five-year Millennium Challenge Compact with the Republic of the 
Philippines (``Compact'') will provide up to $433,910,000 million to 
reduce poverty and accelerate economic growth. The Compact is intended 
to support: (i) Reforms and investments to modernize the Bureau of 
Internal Revenue to increase fiscal space for public investment and to 
reduce opportunities for corruption in tax administration; (ii) 
expansion and improvement of a community-driven development project, 
Kalahi-CIDSS; and (iii) rehabilitation of a secondary national road in 
Samar province.

Revenue Administration Reform Project ($54.3 million)

    The Revenue Administration Reform Project addresses two problems: 
(i) the need to raise tax revenues and (ii) the need to reduce tax 
evasion and revenue agent-related corruption. A key constraint to 
economic growth in the Philippines is the lack of fiscal space for 
growth-enhancing investments in public goods such as infrastructure and 
social services (e.g., education and health). This project will focus 
on the Bureau of Internal Revenue within the Department of Finance to 
increase the efficiency and sustainability of revenue collection 
through a redesign and computerization of business processes, thereby 
helping to relieve some pressure on the Government of the Republic of 
the Philippines' (``GRP's'') fiscal position. This project will narrow 
the gap between potential and actual collections by reducing the 
discretion of individual revenue (i.e., tax and customs) collection 
officers, and help improve the predictability and impartiality with 
which revenue laws and regulations are enforced. Some of these 
activities are extensions of the Philippines' threshold program 
activities that concluded in May 2009. The project is expected to reach 
the entire Philippine population and has an economic rate of return of 
40 percent.

Kalahi-CIDSS Community Development Project ($120.0 million)

    The Kalahi-CIDSS Project will improve welfare in rural areas by 
targeting communities where poverty incidence exceeds the national 
average for small-scale, community-driven development projects. The 
project does this through the direct provision of infrastructure and 
services associated with community-selected and managed sub-projects, 
strengthened community participation in development and governance 
activities at the village and municipal level, and improved 
responsiveness of local government to community needs. The project will 
build on and support the application of the participatory planning, 
implementation, and evaluation methodology developed by GRP's 
Department of Social Welfare and Development (DSWD) in collaboration 
with the World Bank.
    Grants for the community sub-projects are provided directly to the 
local communities, which are responsible for sub-project selection, the 
procurement of goods and services for their sub-project, and, in most 
cases, the operations and maintenance of the physical assets. DSWD will 
implement the project, overseen by a National Steering Committee that 
includes representatives from government departments and NGOs, and in 
collaboration with local governments.
    Typical sub-projects will include small-scale transportation 
infrastructure such as village access roads and bridges, school 
buildings, health clinics, drinking water systems, pre-and post-harvest 
facilities, and other economic assets. The project is expected to 
benefit over five million beneficiaries over the next 20 years and has 
an estimated economic rate of return of 13 percent.

Secondary National Roads Development Project ($214.4 million)

    The Secondary National Roads Development Project is designed to 
reduce transportation costs through the rehabilitation of an existing 
222 kilometer road segment. By bringing about savings in vehicle 
operating cost and time for both passengers and goods, and by reducing 
road maintenance costs, the investment will facilitate increased 
commerce in and between the provinces of Samar and Eastern Samar,

[[Page 61198]]

and ultimately contribute to the Compact's objective of increasing 
incomes.
    This project will incorporate enhanced safety measures in the final 
road designs, including: (i) Paved shoulders intended to improve 
conditions for vehicles and provide space for pedestrians; (ii) 
construction of sidewalks and curbs where pedestrian activity is 
higher, such as near schools and other public facilities; (iii) 
improved gateway treatments to indicate where lower speeds are 
required, typically in more developed communities and urban areas; and 
(iv) increased use of road narrowing, median islands, and traffic humps 
to slow traffic speeds. The project is expected to reach 290,000 
beneficiaries and has an economic rate of return of 14 percent.

Administration

    The Compact also includes program management and oversight costs 
estimated at $36.91 million over a five-year time frame, including the 
costs of administration, management, auditing, and fiscal and 
procurement agent services. In addition, the cost of monitoring and 
evaluation of the Compact is budgeted at approximately $8.26 million.

Millennium Challenge Compact

Between the United States of America Acting Through the Millennium 
Challenge Corporation and the Republic of the Philippines

Table of Contents

Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Program Objective
    Section 1.3 Project Objectives
Article 2. Funding and Resources
    Section 2.1 Program Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 MCC Funding
    Section 2.4 Disbursement
    Section 2.5 Interest
    Section 2.6 Government Resources; Budget
    Section 2.7 Limitations of the Use of MCC Funding
    Section 2.8 Taxes and Contributions
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters
    Section 3.6 Procurement
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
Article 5. Termination; Suspension; Refunds
    Section 5.1 Termination; Suspension
    Section 5.2 Refunds; Violation
    Section 5.3 Survival
Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Amendments
    Section 6.3 Inconsistencies
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web site
    Section 6.7 References to Laws, Regulations, Policies, and 
Guidelines
    Section 6.8 MCC Status
    Section 6.9 Counterparts; Electronic Delivery
Article 7. Entry Into Force
    Section 7.1 Conditions Precedent to Entry Into Force
    Section 7.2 Date of Entry Into Force
    Section 7.3 Compact Term
    Section 7.4 Provisional Application
Article 8. Additional Government Covenants
    Section 8.1 Project Covenants
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Description of the Monitoring and Evaluation Plan
Annex IV: Conditions to Disbursement of Compact Implementation 
Funding
Annex V: Definitions

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
United States of America, acting through the Millennium Challenge 
Corporation, a United States government corporation (``MCC''), and the 
Republic of the Philippines (``the Philippines''), acting through its 
government (the ``Government''), represented by its Department of 
Finance.
    MCC and the Government are individually referred to in this Compact 
as a ``Party'' and together, as the ``Parties.'' Capitalized terms used 
in this Compact will have the meanings specified in Annex V hereto.
    Recalling that the Government consulted with the private sector and 
civil society of the Philippines to determine the priorities for the 
use of Millennium Challenge Account assistance and developed and 
submitted to MCC a proposal for such assistance to achieve lasting 
economic growth and poverty reduction; and
    Recognizing that MCC wishes to help the Philippines implement a 
program to achieve the goal and objectives described herein (the 
``Program'').
    The Parties agree as follows:

Article 1. Goal and Objectives

Section 1.1 Compact Goal

    The goal of this Compact is to reduce poverty through economic 
growth in the Philippines (the ``Compact Goal'').

Section 1.2 Program Objective

    The objective of the Program is to: (a) Increase the incomes of 
Filipinos through the benefits of community-driven sub-projects; (b) 
obtain time savings and lower transportation costs for road users in 
Program areas; and (c) increase investment and government expenditure 
due to an increase in tax revenue and a reduction in corruption (as 
further described in Annex I, the ``Program Objective'').

Section 1.3 Project Objectives

    The objectives of the Projects (as further described in Annex I) 
(each a ``Project Objective'' and collectively, the ``Project 
Objectives'') are as follows:
    (a) The objectives of the KALAHI-CIDSS Project (as defined in Annex 
I) are to: (i) Improve the responsiveness of local governments to 
community needs; (ii) encourage communities to engage in development 
activities; and (iii) deliver benefits to barangay residents through 
individual sub-projects.
    (b) The objectives of the Secondary National Roads Development 
Project (as defined in Annex I) are to: (i) save time; and (ii) lower 
vehicle operating costs for those Filipinos living near the roads.
    (c) The objectives of the Revenue Administration Reform Project (as 
defined in Annex I) are to: (i) increase tax revenues over time; and 
(ii) support the Department of Finance's initiatives to detect and 
deter corruption within its revenue agencies.

Article 2. Funding and Resources

Section 2.1 Program Funding

    Upon entry into force of this Compact, MCC will grant to the 
Government, under the terms of this Compact, an amount not to exceed 
Four Hundred Eight Million Eight Hundred Fifty Thousand United States 
Dollars (U.S. $408,850,000) to support the Program (``Program 
Funding''). The allocation of Program Funding is generally described in 
Annex II to this Compact.

Section 2.2 Compact Implementation Funding

    (a) Upon signature of this Compact, MCC hereby grants to the 
Government, under the terms of this Compact, in addition to the Program 
Funding described in Section 2.1, an amount not to exceed Twenty-Five 
Million Sixty Thousand United States Dollars (U.S. $25,060,000) 
(``Compact Implementation Funding'') under Section 609(g) of the 
Millennium Challenge Act of 2003, as amended (the ``MCA Act''), for use 
by the Government as agreed by the Parties, which may include use for 
the following purposes:

[[Page 61199]]

    (i) Project management activities for the KALAHI-CIDSS Project;
    (ii) Procurement and establishment of a project management company 
for the Secondary National Roads Development Project; and
    (iii) Technical assistance for advisory services for the Revenue 
Administration Reform Project.
    The allocation of Compact Implementation Funding is generally 
described in Annex II to this Compact.
    (b) In accordance with Section 7.4 of this Compact, this Section 
2.2 and other provisions of this Compact necessary to make use of 
Compact Implementation Funding for the purposes set forth herein, will 
be effective, for purposes of Compact Implementation Funding only, as 
of the date this Compact is signed by MCC and the Government.
    (c) Each Disbursement of Compact Implementation Funding is subject 
to satisfaction of the conditions to such Disbursement as set forth in 
Annex IV.
    (d) If, after the first anniversary of this Compact entering into 
force, MCC determines that the full amount of Compact Implementation 
Funding under Section 2.2(a) of this Compact exceeds the amount which 
reasonably can be utilized for the purposes and uses set forth in 
Section 2.2(a) of this Compact, MCC, by written notice to the 
Government, may withdraw the excess amount, thereby reducing the amount 
of the Compact Implementation Funding as set forth in Section 2.2(a) 
(such excess, the ``Excess CIF Amount''). In such event, the amount of 
Compact Implementation Funding granted to the Government under Section 
2.2(a) will be reduced by the Excess CIF Amount, and MCC will have no 
further obligations with respect to such Excess CIF Amount.
    (e) MCC, at its option by written notice to the Government, may 
elect to grant to the Government an amount equal to all or a portion of 
such Excess CIF Amount as an increase in the Program Funding, and such 
additional Program Funding will be subject to the terms and conditions 
of this Compact and any relevant supplemental agreement applicable to 
Program Funding.

Section 2.3 MCC Funding

    Program Funding and Compact Implementation Funding are collectively 
referred to in this Compact as ``MCC Funding.''

Section 2.4 Disbursement

    In accordance with this Compact and the Program Implementation 
Agreement, MCC will disburse MCC Funding for expenditures incurred in 
furtherance of the Program (each instance, a ``Disbursement''). Subject 
to the satisfaction of all applicable conditions, the proceeds of such 
Disbursements will be made available to the Government, at MCC's sole 
election, by (a) deposit to one or more bank accounts established by 
the Government through MCA-Philippines and acceptable to MCC (each, a 
``Permitted Account'') or (b) direct payment to the relevant provider 
of goods, works or services for the implementation of the Program. MCC 
Funding may be expended only to fund Program expenditures as provided 
in this Compact and the Program Implementation Agreement.

Section 2.5 Interest

    Except as otherwise agreed by MCC, the Government will transfer to 
MCC any interest or other earnings that accrue on MCC Funding (whether 
by directing such payments to a bank account outside the Philippines 
that MCC may from time to time indicate or as otherwise directed by 
MCC).

Section 2.6 Government Resources; Budget

    (a) The Government will provide all funds and other resources, and 
will take all actions, that are necessary to carry out the Government's 
responsibilities and obligations under this Compact.
    (b) The Government will provide suitable and adequate office space 
for MCA-Philippines, the Fiscal Agent, the Procurement Agent, and the 
MCC resident country mission.
    (c) The Government will ensure that all MCC Funding it receives or 
is projected to receive in each of its fiscal years is fully accounted 
for in its annual budget on a multi-year basis.
    (d) 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.
    (e) 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.
    (f) Without limitation of its obligations under Section 2.6(a) 
above, the Government shall: (i) Contribute funding to MCA-Philippines 
as described in Section 16 of the Establishment Decree and in 
compliance with Section 2.13 of the Program Implementation Agreement; 
and (ii) fund all costs in excess of those budgeted for the Program, as 
set forth in Annex II (as such may be modified in accordance with the 
terms thereof), in order to ensure the full and complete implementation 
of the Program.

Section 2.7 Limitations on the Use of MCC Funding

    The Government will ensure that MCC Funding (or any refunds or 
reimbursements of MCC Funding paid by the Government in accordance with 
this Compact that MCC permits to be used in connection with the 
Program) 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 from time to time 
on the MCC Web site at www.mcc.gov (the ``MCC Web site''), including, 
but not limited to, the following purposes:
    (a) For assistance to, or training of, the military, police, 
militia, national guard or other quasi-military organization or unit;
    (b) For any activity that is likely to cause a substantial loss of 
United States jobs or a substantial displacement of United States 
production;
    (c) To undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard, 
as further described in MCC's environmental and social guidelines 
posted from time to time on the MCC Web site or otherwise made 
available to the Government by MCC (the ``MCC Environmental 
Guidelines''); or
    (d) To pay for the performance of abortions as a method of family 
planning or to motivate or coerce any person to practice abortions, to 
pay for the performance of involuntary sterilizations as a method of 
family planning or to coerce or provide any financial incentive to any 
person to undergo sterilizations or to pay for any biomedical research 
which relates, in whole or in part, to methods of, or the performance 
of, abortions or involuntary sterilization as a means of family 
planning.

Section 2.8 Taxes and Contributions

    The Government will ensure that no MCC Funding will be used for the 
payment of any existing or future taxes, customs duties, social 
security and other employment-related contributions, or other similar 
charges of the Government or any other governmental entity (national or 
sub-national, including of provinces, cities, municipalities, 
barangays, and other local governmental entities) in the Philippines 
(``Taxes and Contributions''), in accordance with

[[Page 61200]]

Section 2.4 of the Program Implementation Agreement.

Article 3. Implementation

Section 3.1 Program Implementation Agreement

    Prior to entry into force of this Compact, the Government and MCC 
will enter into an agreement relating to, among other matters, 
implementation arrangements, fiscal accountability, and the 
disbursement and use of MCC Funding (the ``Program Implementation 
Agreement'' or ``PIA''). The Government will implement the Program in 
accordance with the Compact and the PIA.

Section 3.2 Government Responsibilities

    (a) The Government has principal responsibility for overseeing and 
managing the implementation of the Program.
    (b) The Government hereby designates MCA-Philippines, an entity 
established through the issuance of Executive Order No. 849 of the 
Government (as amended, the ``Establishment Decree''), as the 
accountable entity to implement the Program and to exercise and perform 
the Government's rights and responsibilities with respect to the 
oversight, management, and implementation of the Program, including, 
without limitation, managing the implementation of Projects and their 
Activities, allocating resources, and managing procurements. Such 
entity will be referred to herein as Millennium Challenge Account-
Philippines (``MCA-Philippines''), and has the authority to bind the 
Government with regard to all Program Activities. The Establishment 
Decree will remain in form and substance satisfactory to MCC. For the 
avoidance of doubt, the designation of MCA-Philippines as set forth in 
this Section 3.2(b) will not relieve the Government of any of its 
obligations or responsibilities as set forth hereunder, under any 
related agreement (including, upon execution thereof, the PIA), or 
under the Program Guidelines, for which the Government remains fully 
responsible. MCC hereby acknowledges and consents to the designation in 
this Section 3.2(b).
    (c) The Government will ensure that no law or regulation in the 
Philippines now or hereinafter in effect makes or will make unlawful or 
otherwise prevent or hinder the performance of any of the Government's 
obligations under this Compact, the PIA, or any other related agreement 
or any transaction contemplated hereby or thereby.
    (d) The Government will ensure that any assets or services funded 
in whole or in part (directly or indirectly) by MCC Funding are used 
solely in furtherance of this Compact and the Program unless otherwise 
agreed by MCC in writing.
    (e) The Government will take all necessary or appropriate steps to 
achieve the Program Objective and the Project Objectives during the 
Compact Term.
    (f) The Government will fully comply with the Program Guidelines, 
as applicable, in its implementation of the Program.

Section 3.3 Policy Performance

    In addition to undertaking the specific policy, legal, and 
regulatory reform commitments identified in Annex I (if any), the 
Government will seek to maintain and to improve its level of 
performance under the policy criteria identified in Section 607 of the 
MCA Act, and the selection criteria and methodology used by MCC.

Section 3.4 Government Assurances

    The Government assures MCC that, as of the date this Compact is 
signed by the Government, the information provided to MCC by or on 
behalf of the Government in the course of reaching agreement with MCC 
on this Compact is true, correct and complete in all material respects.

Section 3.5 Implementation Letters

    From time to time, MCC may provide guidance to the Government in 
writing on any matters relating to this Compact, MCC Funding, or 
implementation of the Program (each, an ``Implementation Letter''). The 
Government will apply such guidance in implementing the Program. 
Without limiting the foregoing, either Party may, through its Principal 
Representative or any Additional Representative, as the case may be, 
initiate discussions that may result in a jointly agreed-upon 
Implementation Letter to confirm and record their mutual understanding 
on aspects related to the implementation of this Compact, the PIA, or 
other related agreements.

Section 3.6 Procurement

    The Government will ensure that the procurement of all goods, 
works, and services by the Government, or any applicable provider 
providing goods, works, and services, to implement the Program will be 
consistent with the program procurement guidelines posted from time to 
time on the MCC Web site (the ``MCC Program Procurement Guidelines''). 
The MCC Program Procurement Guidelines include, among others, 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;
    (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; and
    (e) Such procurement of goods, works, and services by the 
Government, or any applicable provider providing goods, works, and 
services, to implement the Program will not be subject to any domestic 
preference, local content, or local labor requirements.

Section 3.7 Records; Accounting; Covered Providers; Access

    (a) Government Books and Records. The Government will maintain, and 
will use its best efforts to ensure that all Covered Providers 
maintain, accounting books, records, documents, and other evidence 
relating to the Program adequate to show, to MCC's satisfaction, the 
use of all MCC Funding (``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 Board, or (ii) 
then prevailing in the Philippines. 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) Providers and Covered Providers. Unless the Parties agree 
otherwise in writing, a ``Provider'' is (i) any entity of the 
Government that receives or uses MCC Funding or any other Program Asset 
in carrying out activities in

[[Page 61201]]

furtherance of this Compact, or (ii) any third party that receives at 
least Fifty Thousand United Stated Dollars (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 (1) a non-United States Provider that receives (other 
than pursuant to a direct contract or agreement with MCC) Three Hundred 
Thousand United States Dollars (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, Three Hundred Thousand 
United States Dollars (US$300,000) or more of MCC Funding from any 
Provider in such fiscal year, or (2) any United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) Five Hundred Thousand United States Dollars (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, Five Hundred 
Thousand United States Dollars (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 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 addition, upon MCC's request, the Government 
will ensure that such audits are conducted by an independent auditor 
approved by MCC and named on the list of local auditors approved by the 
Inspector General of MCC (the ``Inspector General'') or a United 
States-based certified public accounting firm selected in accordance 
with the ``Guidelines for Financial Audits Contracted by MCA'' (the 
``Audit Guidelines'') issued and revised from time to time by the 
Inspector General, which are posted on the MCC Web site. Audits will be 
performed in accordance with the Audit Guidelines and be subject to 
quality assurance oversight by the Inspector General. Each audit must 
be completed and the audit report delivered to MCC no later than 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 
nonprofit organization is subject to the applicable audit requirements 
contained in OMB Circular A-133, ``Audits of States, Local Governments, 
and Non Profit Organizations,'' issued by the United States Government 
Office of Management and Budget. 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 for-profit 
organization is subject to audit by the applicable United States 
Government agency, unless the Government and MCC agree otherwise in 
writing.
    (c) Corrective Actions. The Government will (i) use its best 
efforts to ensure that Covered Providers take, where necessary, 
appropriate and timely corrective actions in response to audits, (ii) 
consider whether the results of a Covered Provider's audit necessitates 
adjustment of the Government's records, and (iii) 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.

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. The Government will provide to MCC any 
information that is missing from below.
    To MCC:
    Millennium Challenge Corporation, Attention: Vice President, 
Compact Operations, (in each case, with a copy to the Vice President 
and General Counsel), 875 Fifteenth Street, NW., Washington, DC 20005, 
United States of America, Facsimile: (202) 521-3700, Telephone: (202) 
521-3600, e-mail: <a href="/cdn-cgi/l/email-protection#ffa9afb08f9a8d9e8b9690918cbf929c9cd1989089"><span class="__cf_email__" data-cfemail="5e080e112e3b2c3f2a3731302d1e333d3d70393128">[email protected]</span></a> (Vice President, Compact 
Operations), <a href="/cdn-cgi/l/email-protection#9bcdcbdcfef5fee9faf7d8f4eef5e8fef7dbf6f8f8b5fcf4ed"><span class="__cf_email__" data-cfemail="9bcdcbdcfef5fee9faf7d8f4eef5e8fef7dbf6f8f8b5fcf4ed">[email protected]</span></a> (Vice President and General 
Counsel).
    To the Government:
    Attention: Secretary of Finance, (in each case, with a copy to the 
Undersecretary for International Finance Group), Address: 6/F, DOF 
Building, Department of Finance, Bangko Sentral ng Pilipinas Complex, 
Roxas Boulevard, Manila 1004 Philippines, Facsimile: (632) 523-9495/
(632) 523-9216, Telephone: (632) 523-9215/(632) 523-9911, e-mail: 
<a href="/cdn-cgi/l/email-protection#abc6c8c8c8c4c6dbcac8dfebcfc4cd85ccc4dd85dbc3"><span class="__cf_email__" data-cfemail="3a5759595955574a5b594e7a5e555c145d554c144a52">[email protected]</span></a>.
    To MCA-Philippines:
    Attention: Managing Director, Address: Room Nos. 602-604, 6/F EDPC 
Building, Bangko Sentral ng Pilipinas Complex, Roxas Boulevard, Manila 
1004 Philippines, Contact details on the facsimile number, telephone 
number, and e-mail address will be provided in writing to MCC by MCA-
Philippines

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 Secretary of Finance and MCC will be represented by the individual 
holding the position of, or acting as, Vice President, Compact 
Operations (each of the foregoing, a ``Principal Representative''). 
Each Party, by written notice to the other Party, may designate one or 
more additional representatives (each, an ``Additional 
Representative'') for all purposes other than signing amendments to 
this Compact. The Government hereby irrevocably designates the Managing 
Director of MCA-Philippines as an Additional Representative. A Party 
may change its Principal Representative to a new representative that 
holds a position

[[Page 61202]]

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

Article 5. Termination; Suspension; Refunds

Section 5.1 Termination; Suspension

    (a) Either Party may terminate this Compact without cause in whole 
by giving the other Party thirty (30) days written notice. MCC may also 
terminate this Compact without cause in part by giving the Government 
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 in writing to the Government as a basis 
for suspension or termination 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 or series of events has occurred that MCC determines 
makes it probable that the Program Objective or any of the Project 
Objectives will not be achieved during the Compact Term or that the 
Government will not be able to perform its obligations under this 
Compact;
    (iii) A use of MCC Funding or continued implementation of this 
Compact or the Program violates applicable law or United States 
Government policy, whether now or hereafter in effect;
    (iv) The Government or any other person or entity receiving MCC 
Funding or using 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 the Philippines 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 Philippines is classified as a Tier 3 country in the 
United States Department of State's annual Trafficking in Persons 
Report;
    (vii) The Government has engaged in a pattern of actions 
inconsistent with the criteria used to determine the eligibility of the 
Philippines for assistance under the MCA Act; or
    (viii) 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 may permit MCC 
Funding to be used, in compliance with this Compact and the PIA, to pay 
for (i) expenditures for goods, works, or services that are properly 
incurred under or in furtherance of the Program 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 one hundred twenty 
(120) days after the expiration, suspension, or termination of this 
Compact, so long as, with respect to (i) and (ii) herein, the request 
for such expenditures is submitted within ninety (90) days after such 
expiration, suspension, or termination.
    (d) Subject to Section 5.1(c), upon the expiration, suspension, or 
termination of this Compact, (i) any amounts of MCC Funding not 
disbursed by MCC in accordance with the Compact and the PIA will be 
automatically released from any obligation in connection with this 
Compact, and (ii) any amounts of MCC Funding disbursed to the Permitted 
Account 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. For the avoidance of doubt, interest will accrue from the date 
of the violation and will be calculated at the 10-year U.S. Treasury 
Note rate prevailing as of the close of business in Washington, DC as 
of the date of MCC's request for payment.
    (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 or the PIA, 
including, but not limited to, any violation of the Program Guidelines, 
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. For the avoidance of doubt, 
interest will accrue from the date of the violation and will be 
calculated at the 10-year U.S. Treasury Note rate prevailing as of the 
close of business in Washington, DC as of the date of MCC's request for 
payment. The Government will not use MCC Funding, proceeds thereof or 
Program Assets to make such payment.
    (b) Notwithstanding any other provision in this Compact or any 
other 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 (5) years thereafter, or (ii) one (1) 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, 
2.8, 3.7, 3.8, 5.1(c), 5.1(d), 5.2, 5.3, 6.2, and 6.4 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 to this Compact constitutes an integral part hereof, and 
references to ``Annex'' mean an annex to this Compact unless otherwise 
expressly stated.

Section 6.2 Amendments

    (a) The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives.
    (b) Without amending this Compact, the Government hereby 
acknowledges and agrees that the Parties may, through the Principal 
Representative or any Additional Representative, in writing agree to 
modify any Annex to this Compact to (i) suspend, terminate (including 
the termination of a Project Objective), or modify any project 
described in Annex I (each, a ``Project'' and collectively, the 
``Projects'') or to create a new project, (ii) change the allocations 
of funds from what is set forth in Annex II as of the date hereof, or 
(iii) add, delete, or waive any condition precedent described in Annex

[[Page 61203]]

IV, provided that any such modification, (1) is consistent in all 
material respects with the Program Objective, (2) does not cause the 
amount of Program Funding to exceed the aggregate amount specified in 
Section 2.1 of this Compact (as may be modified by operation of Section 
2.2(e) of this Compact), (3) does not cause the amount of Compact 
Implementation Funding to exceed the aggregate amount specified in 
Section 2.2(a) of this Compact, (4) does not cause the Government's 
responsibilities or contribution of resources to be less than specified 
in this Compact, (5) does not extend the Compact Term, and (6) in the 
case of a modification to change allocations of funds among Projects or 
the creation of a new Project, does not materially adversely affect any 
components under the Program Administration and Audits or Monitoring 
and Evaluation line items in Annex II.
    (c) Any modification of any Annex to this Compact signed in 
accordance with Section 6.2(b), or any modification of any other 
provision of this Compact pursuant to Section 6.2(a), will be binding 
on the Government without the need for further action by the 
Government, any further Congressional action, or satisfaction of any 
additional legal requirements of the Philippines.

Section 6.3 Inconsistencies

    In the event of any conflict or inconsistency between:
    (a) Any Annex to this Compact and any of Article 1.1 and Articles 2 
through 8, such Article 1.1 and Articles 2 through 8, as applicable, 
will prevail; or
    (b) This Compact and any other agreement between the Parties 
regarding the Program, this Compact will prevail.

Section 6.4 Governing Law

    This Compact is an international agreement and as such will be 
governed by the principles of international law.

Section 6.5 Additional Instruments

    Any reference to activities, obligations, or rights undertaken or 
existing under or in furtherance of this Compact or similar language 
will include activities, obligations, and rights undertaken by or 
existing under or in furtherance of any agreement, document, or 
instrument related to this Compact and the Program.

Section 6.6 References to MCC Web site

    Any reference in this Compact, the PIA, or any other agreement 
entered into in connection with this Compact, to a document or 
information available on, or notified by posting on, the MCC Web site 
will be deemed a reference to such document or information as updated 
or substituted on the MCC Web site from time to time.

Section 6.7 References to Laws, Regulations, Policies, and Guidelines

    Each reference in this Compact, the PIA, or any other agreement 
entered into in connection with this Compact, to a law, regulation, 
policy, guideline, or similar document (including, but not limited to, 
the Program Guidelines) will be construed as a reference to such law, 
regulation, policy, guideline, or similar document as it may, from time 
to time, be amended, revised, replaced, or extended and will include 
any law, regulation, policy, guideline, or similar document issued 
under or otherwise applicable or related to such law, regulation, 
policy, guideline, or similar document.

Section 6.8 MCC Status

    MCC is a United States government corporation acting on behalf of 
the United States government in the implementation of this Compact. MCC 
and the United States government have no liability under this Compact, 
the Program Implementation Agreement, or any related agreement, are 
immune from any action or proceeding arising under or relating to any 
of the foregoing documents, and the Government hereby waives and 
releases all claims related to any such liability. In matters arising 
under or relating to this Compact, the Program Implementation 
Agreement, or any related agreement, neither MCC nor the United States 
government will be subject to the jurisdiction of the courts of the 
Philippines or of any other jurisdiction or of any other body.

Section 6.9 Counterparts; Electronic Delivery

    (a) Counterparts. Signatures to this Compact, the Program 
Implementation Agreement, and any amendments to these agreements will 
be signed on the same page, except in the case of amendment via 
exchange of letters or diplomatic notes. Any other documents arising 
out of this Compact may be signed in one or more counterparts. Such 
counterparts when delivered and taken together will constitute a single 
document.
    (b) Electronic Delivery. A signature to this Compact, the Program 
Implementation Agreement, and any amendments to such agreements, will 
be an original signature. With respect to any other documents arising 
out of this Compact, a signature delivered by facsimile or electronic 
mail in accordance with Section 4.1 of this Compact will be deemed an 
original signature and will be binding on the Party delivering such 
signature, and the Parties hereby waive any objection to such signature 
or to the validity of the underlying document, certificate, notice, 
instrument, or agreement on the basis of the signature's legal effect, 
validity or enforceability solely because it is in facsimile or 
electronic form.

Article 7. Entry Into Force

Section 7.1 Conditions Precedent to Entry Into Force

    Before this Compact enters into force:
    (a) The PIA must have been signed by the parties thereto;
    (b) The Government must have delivered to MCC:
    (i) A legal opinion from the Secretary of Justice of the 
Philippines (or such other legal representative of the Government 
acceptable to MCC), in form and substance satisfactory to MCC; and
    (ii) Complete, certified copies of all decrees, legislation, 
regulations, or other governmental documents relating to the 
Government's domestic requirements for this Compact to enter into 
force, which MCC may post on the MCC Web site or otherwise make 
publicly available; and
    (c) MCC must determine that, after signature of this Compact, the 
Government has not engaged in a pattern of actions inconsistent with 
the eligibility criteria for MCC Funding.

Section 7.2 Date of Entry Into Force

    This Compact will enter into force on 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 that the conditions precedent to 
entry into force of Section 7.1 have been met. The letter from the 
Government will contain an affirmation of the Government's commitment 
to its obligations hereunder and under the Program Implementation 
Agreement.

Section 7.3 Compact Term

    This Compact will remain in force for five (5) years after its 
entry into force, unless terminated earlier under Section 5.1 (the 
``Compact Term'').

Section 7.4 Provisional Application

    Upon signature of this Compact and until this Compact has entered 
into force in accordance with Section 7.2, the Parties will 
provisionally apply the terms of this Compact and the PIA; provided 
that, no Program Funding will be made available or disbursed before 
this Compact enters into force.

[[Page 61204]]

Article 8. Additional Government Covenants

Section 8.1 Project Covenants

    (a) KALAHI-CIDSS Project. With regard to the KALAHI-CIDSS Project, 
the Government agrees that:
    (i) Throughout the Compact Term, the Department of Social Welfare 
and Development (``DSWD'') will use the classification system approved 
by MCC to assess and classify every proposed sub-project, and provide 
the engineering design and oversight support appropriate to the 
classification of such sub-project; and
    (ii) For those municipalities that are randomly selected to be 
included in the control group, DSWD will not (1) provide KALAHI-CIDSS 
funding, or (2) provide other programs of DSWD on a systematic basis, 
in both cases for the duration of the Compact Term.
    (b) Revenue Administration Reform Project. With regard to the 
Revenue Administration Reform Project, the Government agrees to 
implement the following prior to the initial disbursement of any 
Program Funding for the Revenue Administration Reform Project:
    (i) To the full extent allowed by existing law, procedures shall be 
put in place wherein decisions of the Commissioner of Internal Revenue 
and the Commissioner of Customs in all graft-related cases shall be 
transmitted promptly to the Secretary of Finance, the head of the 
Revenue Integrity Protection Service created under Executive Order No. 
259, s. 2003, who shall then immediately forward them to the Revenue 
Integrity Protection Service to review the said cases and determine 
their compliance with existing laws and procedures. If warranted by the 
evidence on record and any additional evidence it gathers, the Revenue 
Integrity Protection Service shall file the necessary complaint(s) with 
the office of the ombudsman or other appropriate administrative body or 
agency of competent jurisdiction.
    (ii) The Revenue Integrity Protection Service shall actively 
exercise its powers pursuant to Executive Order No. 259, to ensure the 
proactive pursuit of graft-related programs, policies and procedures by 
the internal inspection units of the revenue agencies under the 
Department of Finance. These actions shall include, but may not be 
limited to, the conduct of operational audits of said units.
    (iii) The Bureau of Internal Revenue and the Bureau of Customs 
internal audit units will be reorganized directly under the Office of 
the Commissioner.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact.

    Done at New York, NY, this 23rd day of September 2010, in the 
English language only.
    For Millennium Challenge Corporation, on behalf of the United 
States of America.

Daniel W. Yohannes,
Chief Executive Officer.

    For the Republic of the Philippines.
Cesar V. Purisima,
Secretary of Finance.

Annex I Program Description

    This Annex I describes the Program that MCC Funding will support 
in the Philippines during the Compact Term.

A. Program Overview

1. Background and Consultative Process

    The Philippines was declared eligible for MCC assistance in 
March 2008. With a population of approximately 90 million 
inhabitants, the 7,107 islands of the Philippines cover a combined 
area of 115,830 square miles. Despite unprecedented growth gains 
over the past decade, accompanied by moderate inflation, the 
Philippines continues to face severe constraints to reducing 
poverty. In an effort to prioritize its development spending, the 
Government elaborated a national medium-term development plan and 
several sector strategies, and undertook an analysis of constraints 
to economic growth. Priorities were identified for increased social 
sector spending, improvements to basic infrastructure, and 
improvements to governance, and were confirmed through a number of 
national, regional, and local consultations from early 2007 through 
early 2009.
    The Program has been designed by the Government, building upon 
initiatives from numerous donors, non-governmental organizations, 
and the domestic private sector to spur growth in economically 
depressed or vulnerable regions and to provide a platform for 
continued poverty reduction efforts. The Program will enable the 
Government to increase resources available for high-priority 
expenditures and target Government initiatives toward some of the 
poorest regions and municipalities in the archipelago.

2. Program Objective

    The Program Objective is to: (a) Increase the incomes of 
Filipinos through the benefits of community-driven sub-projects; (b) 
obtain time savings and lower transportation costs for road users in 
Program areas; and (c) increase investment and government 
expenditure due to an increase in tax revenue and a reduction in 
corruption.

3. Environmental and Social Safeguards

    The Program will be implemented in compliance with the MCC 
Environmental Guidelines, MCC guidance on the integration of gender 
in program implementation, and MCC's guidance on the implementation 
of resettlement activities (or any other MCC policy comparable to 
the World Bank's Operational Policy on Involuntary Resettlement in 
effect as of July 2007) (``OP 4.12''). The Government will also 
ensure that the Projects comply with all national environmental laws 
and regulations, licenses and permits, except to the extent such 
compliance would be inconsistent with this Compact. The Government 
will: (a) Cooperate with any ongoing environmental review, or if 
necessary undertake and complete any additional environmental 
reviews required by MCC or under the laws of the Philippines; (b) 
implement to MCC's satisfaction environmental and social mitigation 
measures identified in such environmental review; and (c) fund the 
costs of environmental mitigation (including costs of resettlement) 
that exceed the MCC Funding specifically allocated for such costs in 
the budget for any Project. To maximize the positive social impacts 
of the program, the Government will take steps to address cross-
cutting social and gender-specific issues, including, but not 
limited to, combating human trafficking and HIV/AIDS, during Compact 
implementation.

B. Description of the Projects

    Set forth below is a description of each of the Projects that 
the Government will implement, or cause to be implemented, using MCC 
Funding to advance the applicable Project Objective. In addition, 
specific activities that will be undertaken within each Project 
(each, an ``Activity''), including sub-activities, are described.

1. KALAHI-CIDSS Project

    (a) Background.
    The Philippines lags significantly behind other countries in the 
region with respect to government development expenditures as a 
percentage of GDP and infrastructure investment and quality. The 
Asian Development Bank's 2007 growth diagnostic report found that 
inadequacies in infrastructure are a critical constraint to growth 
and that the availability of basic infrastructure (water, 
sanitation, roads, electricity) is regressive. While human capital 
was not found to be a critical constraint to growth, inadequate 
human capabilities are often an underlying cause of poverty. 
Provision and use of education and health services were found to 
vary across regions, particularly as a function of incomes. 
Community driven development projects are a strategy for addressing 
these constraints and providing community empowerment and poverty 
reduction. In the past, they have been used to support a wide range 
of community priority needs including provision of water supply and 
nutrition programs for women and children; building of school, day 
care and health facilities, farm to market roads, foot bridges, and 
drainage systems; and support for productive enterprises such as 
pre- and post-harvest facilities as well as community capacity 
building.
    Kapit bisig Laban sa Kahirapan (``Linking Arms Against 
Poverty'')--Comprehensive Integrated Delivery of Social Services 
(``KALAHI-CIDSS'') is a community driven development project 
implemented by DSWD of the Philippines. Through KALAHI-CIDSS, 
communities (``barangays'' or villages) are trained, together with 
their local

[[Page 61205]]

governments, both at the barangay and the municipal level, to 
choose, design and implement sub-projects that are intended to 
address their most pressing needs. This is done through a four-year 
program, which includes one year of ``social preparation'' training 
for communities, barangays and municipalities, followed by 3 
``cycles'' of sub-project implementation. The KALAHI-CIDSS project 
to be funded by MCC (the ``KALAHI-CIDSS Project'') is an expansion 
of an initial KALAHI-CIDSS project (``KC1'') that was implemented 
between 2003 and 2010. KC1 was funded by a loan from the World Bank. 
During KC1 implementation, the World Bank and DSWD were able to 
ensure that the project incorporated lessons learned and reinforced 
elements that had been shown to work well.
    The KALAHI-CIDSS Project is particularly well suited to the 
sociopolitical environment in the Philippines. Following 
decentralization, local governments have a responsibility to provide 
basic services, yet suffer from a lack of development resources. 
This issue is compounded by the geographic distribution of poverty 
in the Philippines. Poverty in the country is correlated with rural 
isolation and distance from towns and urban centers, meaning that 
the communities that have the greatest needs for basic services are 
the ones that are most difficult to reach. Community-driven 
development offers an alternative, needs-based approach that 
provides development resources for basic services directly to the 
poorest communities, specifically targeting those in far-flung 
areas, while at the same time building the capacity of local 
government to be responsive to these needs over time. It is because 
of this contextualized approach that KC1 has already met with 
considerable success.
    (b) Project.
    The objectives of the KALAHI-CIDSS Project are to:
    <bullet> Improve the responsiveness of local governments to 
community needs;
    <bullet> Encourage communities to engage in development 
activities; and
    <bullet> Deliver benefits to barangay residents through the 
individual sub-projects.
    In conjunction with DSWD, MCC will incorporate a number of 
enhancements to KC1 into the KALAHI-CIDSS Project, all of which are 
supported by lessons learned from KC1 and desires expressed by 
KALAHI-CIDSS Project stakeholders. These refinements include, but 
are not limited to: (i) Dedicated gender staff positions and gender-
focused activities, including the provision of ``gender incentive 
grants'' to communities; (ii) reinforced financial controls on the 
Project, including an additional set of transaction and technical 
audits; (iii) dedicated staff positions to explore private-sector 
involvement opportunities within municipalities included in the 
KALAHI-CIDSS Project; (iv) development of a set of user-friendly 
community tools to assess environmental impact and ensure the 
KALAHI-CIDSS Project's environmental sustainability; (v) a 
management information system to enable a much greater level of data 
capture at the barangay and municipal level, including a 
``geographic information system'' component; (vi) a rigorous impact 
evaluation to assess the KALAHI-CIDSS Project's impact on social 
capital and welfare measures using a rigorous random selection 
technique that allows the measurement of attribution; and (vii) 
support for a joint advisory board to oversee the impact evaluation, 
composed of members from MCC, MCA-Philippines, the World Bank, DSWD, 
the National Economic Development Authority, and local academics.
    The KALAHI-CIDSS Project will cover municipalities that have a 
poverty incidence higher than the national average and that are not 
in the Mindanao island group. The KALAHI-CIDSS Project consists of 
the following Activities:
    (i) Capacity Building and Implementation Support Activity.
    MCC Funding will be granted to DSWD to provide the staff 
salaries and trainings for the DSWD frontline workers, known as the 
area coordinating teams. These teams are made up of a standard 
staffing complement and there will be one team for each municipality 
in the KALAHI-CIDSS Project. The role of the area coordinating team 
is to carry out the ``Community Empowerment Activity Cycle.'' This 
framework follows a progression of strategies and activities as a 
gradual ``hand off'' to local government of responsibilities takes 
place over the course of three cycles. During each cycle, barangays 
hold a series of meetings that are facilitated by members of the 
area coordinating team at which barangay residents identify and 
prioritize constraints to economic activities within their 
communities and then identify and prioritize solutions to these 
constraints. Finally, the barangay selects one constraint and 
associated solution for presentation by elected community 
representatives to the ``Municipal Inter-Barangay Forum.'' At the 
municipal level, two Municipal Inter-Barangay Forums are held, the 
first to determine the criteria by which the community 
representatives will prioritize the barangay sub-projects for 
funding and the second to prioritize them according to such 
criteria. At the conclusion of each of the three cycles of sub-
project implementation, there is a transition and reporting period. 
The entire Community Empowerment Activity Cycle process is 
facilitated by the area coordinating team, with various team members 
responsible for ensuring that processes are transparent and in 
accordance with the KALAHI-CIDSS Project manuals as revised by MCC. 
This Activity also supports the existing grievance redress system.
    (ii) Grants for Community Projects Activity.
    MCC Funding will be granted to DSWD, to be used by DSWD to plan 
and implement community-chosen sub-projects in accordance with the 
KALAHI-CIDSS Project manuals approved by MCC. Specifically, the 
KALAHI-CIDSS Project provides grants for livelihood activities and 
the construction, repair and improvement/upgrading of small-scale 
rural infrastructure sub-projects identified by the community. The 
municipalities and barangays in which sub-project activities will 
occur will make cash and in-kind contributions (including partially-
paid labor and local materials) to the sub-projects equal, in each 
case, to at least 30 percent of the total sub-project costs. The 
grant allocated to the municipal local governments to fund sub-
project implementation is proportionate in size to the number of 
barangays within that municipality. Suppliers and contractors will 
be selected according to the procedures in the ``Community-Based 
Procurement System.'' This procurement system was specifically 
designed for implementing the KALAHI-CIDSS Project taking into 
account the nature of the procurements, the local market conditions 
and the local capacities. At the community level an ``Audit and 
Inventory Committee'' is responsible for auditing the financial 
records and reports of the community and conducting a regular 
inventory of all properties acquired by the community. The 
community's books and records are open at all times to all members 
of the community for inspection.
    Communities have the opportunity to select from a variety of 
sub-projects, many which involve the selection, design, and 
construction of small infrastructure sub-projects. DSWD--in 
cooperation with local governments--will build the capacity of 
communities through trainings and other methods and provide guidance 
and oversight throughout the process. In cooperation with DSWD, MCC 
will create a detailed risk profiling system for sub-projects and a 
complementary risk-based management approach to oversight that may 
affect the way that the grants are spent within the Grants for 
Community Project Activity.
    (iii) Project Management Activity.
    MCC Funding will be granted to DSWD to provide salaries and 
training for DSWD project management staff at the regional and 
national level. These funds will also be used for the office space, 
conferences, capacity building and project monitoring associated 
with the project management activity. Goods to support this activity 
will be procured by MCA-Philippines.
    (c) Beneficiaries.
    In the project catchment areas (i.e. those municipalities that 
will receive support from the KALAHI-CIDSS Project), 16 to 20 
percent of the households have a female head, while the young and 
elderly constitute a significant fraction of the expected 
beneficiaries. The Project is expected to benefit approximately 5.2 
million Filipinos 20 years after the Compact enters into force. Of 
these, 39 percent consume below the poverty line of US$2 (in 2005 
PPP US dollars) per day (compared to 28 percent of the national 
population). As for the extreme poor, 13 percent of the Project's 
beneficiaries consume below US$1.25 a day (compared to 9 percent of 
the national population). And as for the non-poor, only 26 percent 
of this Project's beneficiaries consume above US$4 a day (as opposed 
to 38 percent of the national population). Overall, the Project is 
well-targeted to the poor.
    (d) Donor Coordination.
    MCC worked closely with the World Bank on issues of targeting 
and impact evaluation strategy over the course of project 
development in 2009. As of January 2010, the World Bank intends to 
provide an additional loan to expand KC1. The World Bank and MCC 
plan to continue close collaboration

[[Page 61206]]

during and beyond the scope of this additional funding and share 
lessons learned with each other and with DSWD as KALAHI-CIDSS 
continues to mature and develop towards a potential national 
expansion that could involve many other donors. MCC will also be 
joining DSWD's donor forum related to KALAHI-CIDSS.
    (e) USAID.
    The United States Agency for International Development 
(``USAID'') has had significant experience with community-based 
development that targets poor communities, and the ``Growth with 
Equity in Mindanao'' Program has provided a number of lessons for 
the implementation of the KALAHI-CIDSS Project as it relates to 
small-infrastructure construction specifically. Approximately 60 
percent of USAID's program funding is provided to Mindanao and the 
agency aims to continue these investments and others like it in the 
region. Therefore, USAID, the World Bank and MCC agreed that MCC 
would concentrate its KALAHI-CIDSS Project in the Luzon and Visayas 
regions thereby broadening the reach of such programs throughout the 
Philippines.
    (f) Sustainability.
    The implementation methods used in this Project emphasize 
transparency and accountability in local decision making, attributes 
which enable small infrastructure sub-projects to contribute to a 
more empowered citizenry, a more responsive government and 
ultimately to more sustainable community assets. The process of 
involving communities in sub-project activities builds their 
capacity to take charge of their own development within the KALAHI-
CIDSS Project and beyond, reduces corruption, increases 
accountability for the use of resources and results in more and 
better distributed assets as communities build a sense of ownership 
around these assets.
    DSWD will use a set of sustainability and functionality 
evaluation tools to assess MCC-funded sub-projects and will target 
those sub-projects experiencing sustainability-related difficulties 
with additional resources to resolve them. MCC's risk profiling and 
risk management approach described above will also contribute to 
sub-project sustainability by ensuring that the most risk-prone 
projects are designed and constructed to minimize risk, reducing the 
likelihood of sub-project failure.
    The sustainability of the KALAHI-CIDSS Project and its ability 
to attract new and continued resources from both the Government and 
other donors is closely related to its ability to demonstrate 
continuing project successes as it moves towards a national scale. 
MCC Funding will be used for a robust impact evaluation that will 
assist the Government in evaluating the effectiveness of the 
community-driven development model.

2. Secondary National Roads Development Project

    (a) Background.
    Road transportation is the dominant transport mode in the 
Philippines, accounting for 53 percent of freight ton-kilometers and 
89 percent of passenger ton-kilometers. The Philippines has a total 
road network of about 200,000 km, including about 29,000 km of 
national roads. Approximately 79 percent of the national arterial 
roads are paved, and 48 percent of these require rehabilitation.\1\
---------------------------------------------------------------------------

    \1\ ``Philippines: Critical Development Constraints,'' Asian 
Development Bank, December 2007.
---------------------------------------------------------------------------

    Inter- and intra-island transport systems have a crucial role in 
supporting the economic development of the widely dispersed regions 
of the Philippine archipelago. However, the present inadequate 
condition of infrastructure facilities and lack of reliable, safe, 
and efficient transport services significantly hamper the movement 
of passengers and cargo throughout the country, thus limiting direct 
internal and external trade links and tourism, and constituting a 
major constraint to increased regional economic growth. This is 
particularly true in many poor areas of the Philippines, where 
adequate accessibility has the potential to lower marketing costs 
for local agricultural products, improve access of the local 
population to social services and economic opportunities, and be a 
catalyst for investments to develop local resources.
    (b) Project.
    The objectives of the Project to be funded by MCC in respect of 
the sections of the Samar road described below (the ``Secondary 
National Roads Development Project'') are to: (i) Save time; and 
(ii) lower vehicle operating costs for those Filipinos living near 
the roads. This Project consists of the following Activity:
    (i) Samar Road Activity.
    MCC Funding will be used to reconstruct and rehabilitate 220 km 
of the Samar road crossing the provinces of Samar and Eastern Samar, 
of which approximately 180 km will undergo reconstruction/major 
rehabilitation while 40 km will receive only minor rehabilitation, 
as well as the replacement or upgrading of associated structures, 
such as bridges and culverts, to eliminate flooding and improve road 
safety. The road begins at the junction of Highway-Buray Wright (km 
827 + 200) in Samar, and traverses eastward along primarily 
mountainous terrain to Taft (km 890 + 000). From Taft, it continues 
southward, along the coastline of Eastern Samar, ending in the town 
of Guiuan (km 1047 + 300). The section of road from Wright to Taft 
is an important east-west corridor providing inter-provincial 
connection between Samar and Eastern Samar. The section of the road 
from Taft to Guiuan provides the only access to 13 coastal 
municipalities. The capital of Eastern Samar, Borongan, is located 
centrally on this section of the road.
    (1) Construction costs. These costs include, without limitation, 
pavement rehabilitation and strengthening, embankment construction, 
road safety improvements, replacement or upgrading of associated 
structures, such as bridges, drainage systems and culverts, and any 
activity associated with the environmental management plan developed 
with respect to the Samar Road Activity.
    (2) Non-construction costs. These costs include, without 
limitation, studies, construction supervision, environmental and 
social mitigation (including resettlement), and other project 
management costs and technical assistance to be incurred in 
connection with the Samar Road Activity.
    (c) Beneficiaries.
    A 2006 household survey shows that in this Project's regions, 
two of the most common occupations for household heads are farmers 
and drivers. These people would be expected to rely significantly on 
transportation infrastructure. The survey indicates, in addition, 
that from 16 to 20 percent of households have a female head, while 
the young and elderly constitute significant fractions of household 
members in the Project regions. Improvement of the road will benefit 
the users and owners of motorized vehicles, including laborers, 
enterprises, consumers and tourists. Estimates of the total number 
of beneficiaries are based upon a percentage of the populations of 
municipalities through which this road will pass.
    The beneficiary analysis conducted as part of the project 
appraisal process has estimated that approximately 282,000 people 
will benefit from rehabilitation of the Samar road. Thirteen percent 
of the beneficiaries are estimated to consume below the poverty line 
of US$1.25 per day in 2005 PPP US dollars, while 42 percent of 
project beneficiaries are estimated to consume below US$2 per day. 
Relative to the national distribution of consumption, the 
beneficiaries of the Samar road are substantially poorer. Aggregated 
over 25 years, beneficiaries are expected to accumulate an increment 
equal to 86 percent of their 2009 annual (median) income due to this 
Project.
    (d) Donor Coordination.
    The Secondary National Road Development Project is anchored on 
preliminary work undertaken with the assistance of Japan Bank for 
International Cooperation (now known as the Japan International 
Cooperation Agency), which was instrumental in identifying viable 
priority road segments eligible for MCC investments.
    MCC has coordinated closely with the World Bank on the ongoing 
efforts in: (i) Road sector reform; (ii) improving the adequacy of 
the ``Special Road Support Fund'' (as described below); (iii) 
improving governance structure for the Special Road Support Fund; 
(iv) standardizing measures and approaches used to combat corruption 
and to increase accountability (funded by the Australian Agency for 
International Development) during project execution; and (v) 
standardizing technical audits.
    (e) USAID.
    While USAID is not currently active in secondary national road 
rehabilitation in the Philippines, USAID's ``Growth with Equity in 
Mindanao'' Program mentioned above includes the development of road 
infrastructure.
    (f) Sustainability.
    There are two main sources of public finance for the national 
road network: (i) The General Appropriations Act; and (ii) a 
``Special Road Support Fund'' that is financed by the imposition of 
a motor vehicle user charge. The overall resources devoted to the 
national road sector have increased considerably since 2004.

[[Page 61207]]

    Despite the large increases, there remains a considerable gap 
(about 30 billion Philippine pesos) between the sector's need and 
the projected resource allocation. To meet the overall needs of the 
sector and reduce the existing gap, greater funding is required from 
three sources. The first source is increased government budgetary 
allocations for the sector. The second source is the private sector, 
the resources of which can be utilized for network expansion when 
roads involve expressways that can be subject to tolling 
arrangements. The third source of revenue is the Special Road 
Support Fund. To improve sustainability, the Government needs to 
augment revenues from the motor vehicle user charge through raising 
the current charge, indexing such charge to the general price level, 
and by introducing a fuel levy.

3. Revenue Administration Reform Project

    (a) Background.
    The Asian Development Bank cited the Philippines' tight fiscal 
situation as one of its most significant constraints to growth.\2\ 
One consequence of the Philippines' tight fiscal situation is its 
limited ability to fund its growing needs for basic infrastructure 
and social programs and, thereby, to reduce poverty. The Philippines 
has seen a declining rate of tax effectiveness, i.e. tax revenues 
divided by GDP, in recent years due in part to legislated reductions 
in corporate tax rates and increases in personal exemptions.
---------------------------------------------------------------------------

    \2\ ``Philippines: Critical Development Constraints,'' Asian 
Development Bank, December 2007, p. 49.
---------------------------------------------------------------------------

    In addition, tax-related patterns of non-compliance and tax 
administration inefficiencies contribute to a poor business climate 
and, ultimately, to a reduced rate of domestic investment. Since the 
Asian financial crisis of 1997, the Philippines has ranked the 
lowest among its major regional neighbors in foreign direct 
investment.\3\ The Philippines has struggled in recent years to 
improve its international rankings with regard to corruption.
---------------------------------------------------------------------------

    \3\ Ibid. p. 26.
---------------------------------------------------------------------------

    MCC supported some of the Government's anti-corruption efforts 
through MCC's Philippines Threshold Program that sought to improve 
the Government's office of the ombudsman's pursuit of tax evaders 
and smugglers as well as to roll out nationwide the Integrated Tax 
System in offices of the Bureau of Internal Revenue (``BIR''). 
Several of the themes of MCC's Philippines Threshold Program have 
carried over into this Project.
    (b) Project.
    The objectives of the Project to be supported by MCC Funding in 
connection with the reform of tax collection in the Philippines (the 
``Revenue Administration Reform Project'') are to increase tax 
revenues over time and to support the Department of Finance's 
initiatives to detect and deter corruption within its revenue 
agencies. The Project consists of two Activities as further 
described below: (i) An Activity focused on BIR's efforts to re-
engineer its policies and practices and to implement the electronic 
Tax Information System (``eTIS''); and (ii) an Activity focused on 
supporting the Philippines' Revenue Integrity Protection Service 
(``RIPS'') the anti-graft investigation unit within the Department 
of Finance. In turn, the BIR-focused Activity will consist of three 
sub-activities as further described below: (1) The implementation of 
eTIS; (2) the utilization of automated auditing tools in the large 
taxpayer unit; and (3) a public awareness campaign to disseminate 
information about BIR's reform and enforcement activities.
    (i) BIR Revenue Administration Reform Activity.
    (1) eTIS sub-Activity.
    MCC Funding will provide an International Monetary Fund 
(``IMF'') resident advisor on tax administration, and support the 
cost of short-term IMF tax administration specialists as well as 
other systems and technology consultants, the training of BIR staff, 
and the procurement of equipment related to the implementation of 
eTIS. This sub-Activity will improve the trustworthiness of data, 
increase access to that data, and improve the actions and decisions 
based on that data. From a tax administration perspective these 
results can be described as improving compliance monitoring, 
reducing client contact and the concomitant opportunities for 
negotiated assessments, increasing the likelihood of the detection 
of misreporting, and improving the value of reports. These are the 
components that will contribute to a sustainable program of tax 
administration with improved compliance, audit and enforcement 
tools.
    (2) Automated Auditing Tools Sub-Activity.
    MCC Funding will purchase software licenses for automated 
auditing tools and provide computers to run them. MCC Funding will 
also pay for a subscription to a data base service to provide BIR 
with transfer pricing information and provide training for the use 
of these tools. The automated auditing tools will leverage a recent 
BIR decision that requires large taxpayers to maintain and submit 
tax records in digital form and will also expand on a pilot program 
sponsored by the Swedish International Development Agency that 
demonstrates the values of these tools. These auditing tools have 
demonstrated their revenue-raising potential, and they also reduce 
by half the number of days it takes to complete an audit. These 
tools also remove one taxpayer concern about the fairness of an 
audit that is based on sampling rather than a review of all 
transactions. The reduction in man days per audit will help the BIR 
to reduce its backlog of unfinished audits.
    (3) Public Awareness Campaign Sub-Activity.
    MCC Funding will provide consulting services and support the 
costs of implementing a public awareness campaign regarding BIR 
services and programs. Individuals and businesses in the Philippines 
have a limited understanding of their tax obligations and BIR 
programs. Many BIR services--particularly on-line services--are 
under-utilized. Greater understanding of tax obligations, and an 
increased ability to access tax information, should lead to better 
compliance. It is also hoped that, as with the eTIS sub-Activity, 
utilization of on-line services will reduce the opportunities for 
corruption that in-person transactions may provide. The public 
awareness campaign is intended to promote increased compliance with 
tax rules and thus increased revenue collection through better 
public and business awareness of the BIR's plans, programs, 
initiatives, policies and practices.
    (ii) RIPS Activity.
    MCC Funding will fund the acquisition and customization of case 
management software, a related data depository system, and training. 
This will support RIPS, a relatively new unit within the Department 
of Finance, and is intended to strengthen surveillance and 
discipline of the Department of Finance and its attached agencies 
through administrative actions such as temporary suspensions or 
dismissals. Experience in MCC's Philippines Threshold Program showed 
that actions taken through the courts in the Philippines are slow 
and that, even when a conviction is secured, punishment is likely to 
be deferred and/or reduced through subsequent appeals. For that 
reason, this Activity focuses on trying to detect and punish those 
forms of malfeasance that permit revenue agents to reap financial 
rewards from taxpayers. By increasing the likelihood of detection 
and punishment, the frequency of such incidents will decline. If 
effective, this should improve the image of revenue generating 
agencies and also support increased collections and improve the 
business climate within the Philippines.
    (g) Beneficiaries.
    Beneficiary analysis for the Revenue Administration Reform 
Project is undertaken at the level of the overall Project since the 
incidence of benefits from each Activity is expected to be spread 
broadly throughout the Philippine population. Accordingly, 
aggregation at the Project level is reasonable.
    Identifying beneficiaries in this broad-based, national program 
is challenging. It is reasonable to expect, however, that a majority 
of the population of the Philippines will--due to increased public 
revenues and expenditures or domestic investments--enjoy at least a 
small increase to their incomes over the benefits horizon of 2011 to 
2030. Accordingly, MCC estimates (conservatively) that 85 percent of 
the country's population, which will be approximately 125 million 
people, are beneficiaries of this Project by 2030. Consequently, the 
distribution of the Revenue Administration Reform Project's benefits 
by poverty level mirrors the national population's poverty 
distribution.
    Since rates of access to health and education services are 
already relatively high in the Philippines, most Project impacts 
will be realized as increases in quality and reliability of existing 
services. As a consequence, and also due to the large number of 
beneficiaries expected for the project, per-beneficiary benefits are 
fairly modest.
    (h) Donor Coordination.
    The due diligence for the tax administration aspects of the 
Revenue Administration Reform Project was undertaken in close 
cooperation with the IMF's Fiscal Affairs Division as well as with 
the World Bank's National Program Supporting Tax Administration 
Reform program to support tax reform efforts in the

[[Page 61208]]

Philippines. The outlines of the eTIS sub-Activity and its emphasis 
on process redesign and training are based on long-standing 
recommendations that have been made by the IMF and World Bank to the 
BIR.
    It is anticipated that the tax administration advisors provided 
to the BIR under the Compact will be sourced through the IMF and 
coordinated by a resident IMF advisor in Manila, the Philippines.
    The Automated Audit Tools sub-Activity builds on the previous 
efforts of the Swedish International Development Agency and the 
World Bank. Both donors have sponsored pilot programs in the 
utilization of automated audit tools.
    (i) USAID.
    MCC's due diligence relied heavily on the reports and findings 
of MCC's Philippines Threshold Program administered by USAID. That 
program included support for anti-corruption activities under the 
aegis of the office of the ombudsman, and assistance to the 
Department of Finance's anti-corruption units, as well as the 
extension of the Integrated Tax System (eTIS' predecessor) to 
regional offices that had not previously been able to implement that 
system. The lessons learned under MCC's Philippines Threshold 
Program were the basis for decisions to focus on internal 
administrative disciplinary procedures (the focus of the RIPS 
Activity) rather than the pursuit of tax evaders and smugglers 
through the courts, to broaden the scope of tax administration, and 
to focus more resources on training and process redesign than on 
hardware and software.
    (j) Sustainability.
    A critical ingredient to the success of this complex undertaking 
is the continued commitment of the Department of Finance to embark 
on a program that is likely to meet with staff as well as taxpayer 
resistance and to manage the personnel, organizational and technical 
issues that will require both vision and resolve. Maintaining that 
commitment over the course of the Compact Term will be a test of 
BIR's and the Department of Finance's management skills and staff 
capacity.
    (k) Policy, Legal, Regulatory and Other Reforms.
    The Department of Finance has completed or committed to complete 
a number of policy, legal, regulatory and other reforms in order to 
achieve success under this Project. These reforms are referenced in 
the Compact, the Program Implementation Agreement, and in other 
documents.

4. Implementation Framework

    (a) Overview.
    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring and evaluation, and 
fiscal accountability for the use of MCC Funding are summarized 
below. MCC and the Government will enter into the Program 
Implementation Agreement, and any other agreements in furtherance of 
this Compact, all of which, together with this Compact, set out 
certain rights, responsibilities, duties and other terms relating to 
the implementation of the Program.
    (b) MCC.
    MCC will take all appropriate actions to carry out its 
responsibilities in connection with this Compact and the Program 
Implementation Agreement, including the exercise of its approval 
rights in connection with the implementation of the Program.
    (c) MCA-Philippines.
    In accordance with Section 3.2(b) of this Compact, MCA-
Philippines will act on the Government's behalf to implement the 
Program and to exercise and perform the Government's rights and 
responsibilities with respect to the oversight, management, 
monitoring and evaluation, and implementation of the Program, 
including, without limitation, managing the implementation of 
Projects and their Activities, allocating resources, and managing 
procurements. The Government will ensure that MCA-Philippines takes 
all appropriate actions to implement the Program, including the 
exercise and performance of the rights and responsibilities 
designated to it by the Government pursuant to this Compact and the 
Program Implementation Agreement. Without limiting the foregoing, 
the Government will also ensure that MCA-Philippines has full 
decision-making autonomy, including, inter alia, the ability, 
without consultation with, or the consent or approval of, any other 
party, to: (i) Enter into contracts in its own name; (ii) sue and be 
sued; (iii) establish Permitted Accounts in a financial institution 
in the name of MCA-Philippines and hold MCC Funding in such 
accounts; (iv) expend MCC Funding; (v) engage a fiscal agent who 
will act on behalf of MCA-Philippines on terms acceptable to MCC; 
(vi) engage one or more procurement agents who will act on behalf of 
MCA-Philippines, on terms acceptable to MCC, to manage the 
acquisition of the goods, works, and services required by MCA-
Philippines to implement this Compact; and (vii) competitively 
engage one or more auditors to conduct audits of its accounts. The 
Government will take the necessary actions to establish and maintain 
MCA-Philippines, in accordance with the terms hereof including the 
applicable conditions precedent to the Disbursement of Compact 
Implementation Funding set forth in Annex IV to this Compact.
    MCA-Philippines will be administered and managed by a Board of 
Trustees and a Management Unit. In addition, MCA-Philippines will 
have a Stakeholders' Committee to continue the consultative process 
during implementation of the Program. The governance of MCA-
Philippines will be set forth in more detail in the Establishment 
Decree, the Program Implementation Agreement, and the internal 
regulations of MCA-Philippines (``MCA-Philippines Bylaws''), which 
will, collectively, set forth the responsibilities of the Board of 
Trustees, the Stakeholders' Committee and the Management Unit. The 
MCA-Philippines Bylaws will be developed and adopted in accordance 
with MCC's Guidelines for Accountable Entities and Implementation 
Structures, published on the MCC Web site (the ``Governance 
Guidelines''), and will be in form and substance satisfactory to 
MCC.
    (i) Board of Trustees.
    (1) Composition. MCA-Philippines will be governed by a board of 
trustees (the ``Board of Trustees''), which will consist of voting 
members representing those Government departments and civil society 
and private sector organizations set forth in the Establishment 
Decree and the MCA-Philippines Bylaws. The Board of Trustees will 
also consist of those non-voting observers set forth in the MCA-
Philippines Bylaws. All voting members will be selected in 
accordance with the MCA-Philippines Bylaws and must be sufficiently 
senior and qualified to make decisions on behalf of their respective 
ministries and civil society and private sector organizations, as 
applicable. Each voting member named to serve on the Board of 
Trustees, and any replacement for any voting member or any 
alteration of the size or composition of the Board of Trustees, will 
be subject to MCC prior approval.
    (2) Roles and Responsibilities. The Board of Trustees will be 
responsible for overseeing the implementation of the Program and 
will have final decision-making authority over the implementation of 
the Program. The Board of Trustees will meet regularly; the 
frequency of meetings will be set forth in the MCA-Philippines 
Bylaws and will be in accordance with the Governance Guidelines. The 
specific roles of the voting members and non-voting observers will 
be set forth in the Establishment Decree and the MCA-Philippines 
Bylaws.
    (ii) Stakeholders' Committee.
    (1) Composition. The composition of the Stakeholders' Committee 
will be selected in accordance with the MCA-Philippines Bylaws and 
the Governance Guidelines and subject to MCC approval (the 
``Stakeholders' Committee''). Without limiting the foregoing, the 
Establishment Decree provides that the Stakeholders' Committee will 
be composed of, inter alia, representatives from non-governmental 
organizations, civil society, private sector, and local and regional 
government Program beneficiaries.
    (2) Roles and Responsibilities. Consistent with the Governance 
Guidelines, the Stakeholders' Committee will be responsible for 
continuing the consultative process throughout implementation of the 
Program. While the Stakeholders' Committee will not have any 
decision-making authority, it will be responsible for, inter alia, 
reviewing, at the request of the Board of Trustees or the Management 
Unit, certain reports, agreements, and documents related to the 
implementation of the Program in order to provide advice and input 
to MCA-Philippines regarding the implementation of the Program.
    (iii) Management Unit.
    (1) Composition. The management unit, which will be led by a 
competitively selected Managing Director, will be composed of 
competitively selected staff with expertise in the key components of 
the Program, including, without limitation, a KALAHI-CIDSS Project 
Director, a Secondary National Roads Development Director, a Revenue 
Administration Reform Director, as well as a Deputy Managing 
Director and other key Directors, including, without limitation, a 
Director for Finance, a Director for Legal/General Counsel, a 
Director for Procurement,

[[Page 61209]]

a Director for Social and Environmental Assessment, and a Director 
for Monitoring and Evaluation, (the ``Management Unit''). The 
Management Unit will also include such other personnel as provided 
for in the MCA-Philippines Bylaws. The directors will be supported 
by appropriate additional staff to enable the Management Unit to 
execute its roles and responsibilities.
    (2) Roles and Responsibilities. The Management Unit will be 
based in Manila, the Philippines, and will be responsible for 
managing the day-to-day implementation of the Program, with 
oversight from the Board of Trustees. The Management Unit will serve 
as the principal link between MCC and the Government, and will be 
accountable for the successful execution of the Program, each 
Project, and each Activity. As a Government entity, MCA-Philippines 
will be subject to Government audit requirements. As a recipient of 
MCC Funding, MCA-Philippines will also be subject to MCC audit 
requirements.
    (d) Implementing Entities.
    Subject to the terms and conditions of this Compact and any 
other related agreements entered into in connection with this 
Compact, the Government and MCC have identified certain principal 
public institutions that may or will serve as implementing entities 
(each, an ``Implementing Entity''), to implement and carry out 
certain Projects, Activities or components thereof in furtherance of 
this Compact. Any Implementing Entity will be subject to review and 
approval by MCC. The Government will ensure that the roles and 
responsibilities of each Implementing Entity and other appropriate 
terms are set forth in an agreement between MCA-Philippines and each 
Implementing Entity, which agreement must be in form and substance 
satisfactory to MCC (each an ``Implementing Entity Agreement'').
    (e) Fiscal Agent.
    Unless MCC otherwise agrees in writing, the Government, directly 
or through MCA-Philippines, will engage a fiscal agent (a ``Fiscal 
Agent''), who will be responsible for assisting the Government with 
its fiscal management and ensure appropriate fiscal accountability 
of MCC Funding, and whose duties will include those set forth in the 
Program Implementation Agreement.
    (f) Procurement Agent.
    Unless MCC otherwise agrees in writing, the Government, directly 
or through MCA-Philippines, will engage one or more procurement 
agents (each, a ``Procurement Agent'') to carry out and certify 
specified procurement activities in furtherance of this Compact. The 
roles and responsibilities of each Procurement Agent will be set 
forth in the Program Implementation Agreement or such agreement as 
the Government, directly or through MCA-Philippines, enters into 
with each Procurement Agent, which agreement will be in form and 
substance satisfactory to MCC. Each Procurement Agent will adhere to 
the procurement standards set forth in the MCC Program Procurement 
Guidelines and ensure procurements are consistent with the 
procurement plan adopted by MCA-Philippines pursuant to the Program 
Implementation Agreement, unless MCC otherwise agrees in writing.

Annex II Multi-Year Financial Plan Summary

    This Annex II summarizes the multi-year financial plan for the 
Program.

1. General

    A multi-year financial plan summary (``Multi-Year Financial Plan 
Summary'') is set forth below. By such time as is specified in the 
Program Implementation Agreement, the Government will adopt, subject 
to MCC approval, a multi-year financial plan that includes, in 
addition to the multi-year summary of estimated MCC Funding, the 
annual and quarterly funding requirements for the Program (including 
administrative costs) and for each Project, projected both on a 
commitment and cash requirement basis. The Multi-Year Financial Plan 
Summary below does not include the contributions by the Government 
to the Program.

                                        Multi-Year Financial Plan Summary
                                                [Millions of US$]
----------------------------------------------------------------------------------------------------------------
              Project                   CIF       Year 1     Year 2     Year 3     Year 4     Year 5     Total
----------------------------------------------------------------------------------------------------------------
1. Revenue Administration Reform
 Project:
    (a) BIR Revenue Administration        7.30      11.50      15.90       9.00       5.60       1.00      50.30
     Reform Activity...............
    (b) Revenue Integrity            .........       0.50       3.35       0.15  .........  .........       4.00
     Protection Services (RIPS)
     Activity......................
                                    ----------------------------------------------------------------------------
        Sub-Total..................       7.30      12.00      19.25       9.15       5.60       1.00      54.30
----------------------------------------------------------------------------------------------------------------
2. KALAHI-CIDSS:
    (a) Capacity Building and        .........       4.91       2.84       1.48       1.11       0.28      10.62
     Implementing Support..........
    (b) Grants for Community         .........       1.82      20.43      17.99      30.81      24.46      95.51
     Projects......................
    (c) Project Management.........       2.31       3.06       2.31       1.93       1.87       2.39      13.87
                                    ----------------------------------------------------------------------------
        Sub-Total..................       2.31       9.79      25.58      21.40      33.79      27.13     120.00
----------------------------------------------------------------------------------------------------------------
3. Secondary National Roads
 Development Program:
    (a) Samar road.................       5.66       6.61      36.01      54.38      57.30      40.22     200.18
    (b) Environmental and Social          5.09       6.53       0.82       0.87       0.95  .........      14.26
     Mitigation....................
        Sub-Total..................      10.75      13.14      36.83      55.25      58.25      40.22     214.44
4. Monitoring and Evaluation:
    Monitoring and Evaluation......       0.24       2.13       1.44       1.13       1.59       1.73       8.26
                                    ----------------------------------------------------------------------------
        Sub-Total..................       0.24       2.13       1.44       1.13       1.59       1.73       8.26
----------------------------------------------------------------------------------------------------------------
5. Compact Administration &
 Oversight:
    (a) Program Administration.....       4.46       3.24       3.28       3.33       3.42       3.38      21.11
    (b) Program Audits.............  .........       0.36       0.46       0.46       0.46       0.46       2.20
    (c) Fiscal Agent...............  .........       1.50       1.50       1.50       1.50       1.50       7.50
    (d) Procurement Agent..........  .........       1.40       1.40       1.10       1.10       1.10       6.10
                                    ----------------------------------------------------------------------------
        Sub-Total--Compact                4.46       6.50       6.64       6.39       6.48       6.44      36.91
         Administration & Audit....
                                    ============================================================================
            Total Estimated MCC          25.06      43.56      89.74      93.32     105.71      76.52     433.91
             Contribution..........
----------------------------------------------------------------------------------------------------------------


[[Page 61210]]

Annex III Description of the Monitoring and Evaluation Plan

    This Annex III (this ``M&E Annex'') generally describes the 
components of the Monitoring and Evaluation Plan (``M&E Plan'') for 
the Program. The actual content and form of the M&E Plan will be 
agreed to by MCC and the Government in accordance with the Program 
Implementation Agreement. The M&E Plan may be modified from time to 
time with MCC approval without requiring an amendment to this Annex 
III.

1. Overview

    MCC and the Government will formulate and agree to, and the 
Government will implement, or cause to be implemented, an M&E Plan 
that specifies (a) how progress toward the Compact Goal, Program 
Objective and Project Objectives will be monitored (``Monitoring 
Component''), (b) a process and timeline for the monitoring of 
planned, ongoing, or completed 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, evaluation, and other 
reports, will be made publicly available on the Web site of MCA-
Philippines and elsewhere.

2. Program Logic

    The M&E Plan will be built on a logic model which illustrates 
how the Program, Projects and Activities contribute to the Compact 
Goal, the Program Objective and the Project Objectives. The goal of 
this Compact is to reduce poverty through economic growth. The 
Program Objective is to (a) increase the incomes of Filipinos 
through the benefits of community-driven sub-projects, (b) obtain 
time savings and lower transportation costs for road users in 
Program areas, and (c) increase investment and government 
expenditure due to an increase in tax revenue and a reduction in 
corruption. The corresponding Project Objectives are:
    (a) The KALAHI-CIDSS Project expects to improve the 
responsiveness of local governments to community needs, encourage 
communities to engage in development activities and deliver benefits 
to barangay residents through the individual sub-projects.
    (b) The Secondary National Roads Development Project expects to 
lower vehicle operating costs and save the time of those Filipinos 
living near the roads.
    (c) The Revenue Administration Reform Project expects to 
increase tax revenues over time and support the Department of 
Finance's initiatives to detect and deter corruption within its 
revenue agencies.

3. Monitoring Component

    To monitor progress toward the achievement of the desired impact 
and outcomes of the Compact, the Monitoring Component of the M&E 
Plan will identify (a) the Indicators (as defined below), (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, and (f) the timeline for reporting on each 
Indicator to MCC.
    Further, the Monitoring Component will track changes in the 
selected Indicators as a means for measuring progress towards the 
achievement of the objectives during the Compact Term. The M&E Plan 
will establish baselines which measure the situation prior to a 
development intervention, against which progress can be assessed or 
comparisons made (including evaluations and special studies) (each, 
a ``Baseline''). MCA-Philippines will collect Baselines on the 
selected Indicators or verify already collected Baselines where 
applicable and as set forth in the M&E Plan.
    (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 prepared in 
accordance with the MCC Policy for Monitoring and Evaluation of 
Compacts and Threshold Programs. 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-Philippines may add Indicators or refine the definitions 
and Targets of existing Indicators.
    (i) Compact Indicators.
    (1) Goal. The M&E Plan will contain the following Indicators 
related to the Compact Goal. These Indicators of national goals are 
specified in the ``Medium-Term Philippine Development Plan'' to 
which the Projects contributes, but are not solely attributable to 
the Projects:
    (A) Annual growth in Gross National Product.
    (B) Percent of households living below the subsistence poverty 
line.
    (2) Other Indicators. The M&E Plan will contain the Indicators 
listed in the following tables.
---------------------------------------------------------------------------

    \4\ As the municipalities are due to be randomly selected, 
baseline figures are not yet known.
    \5\ These figures are indicative.
    \6\ The baseline levels for these indicators will be determined 
by the initial round of data collection in the selected 
municipalities. The targets will be informed by this information and 
by the results of the endline data collection in KC1 areas.
    \7\ The precise indicators, definitions, baseline level and 
final targets will be determined by the initial round of data 
collection in the selected control and treatment municipalities. The 
targets will be informed by this information and by the results of 
the endline data collection in KC1 areas.

                                Table 1--M&E Indicators for KALAHI-CIDSS Project
----------------------------------------------------------------------------------------------------------------
                                                                                          Baseline
              Result                       Indicator           Definition of indicator      \4\       Year 5 \5\
----------------------------------------------------------------------------------------------------------------
                                                 Objective Level
----------------------------------------------------------------------------------------------------------------
Increased responsiveness of Local  Use of inclusive           Percentage of project             TBD          80%
 Government Units (LGUs) to         Community Driven           municipal local
 community needs.                   Development (CDD)          government units
                                    processes by local         (MLGUs) that have
                                    governments.               meetings with community
                                                               representatives to
                                                               solicit inputs to
                                                               municipal development
                                                               plans and/or percentage
                                                               of barangays that
                                                               reflect community
                                                               priorities in their
                                                               barangay development
                                                               plans.
                                   LGU provision of funds     Percentage of MLGUs that           0%          80%
                                    for O&M.                   provide funding support
                                                               for KALAHI-CIDSS sub-
                                                               project O&M.
                                   LGU application of CDD     Number of project MLGUs           TBD          TBD
                                    practices to non-KALAHI-   that pass ordinances/
                                    CIDSS activities.          resolutions adopting
                                                               CDD principles.
Increased community engagement in  Participation of women in  Number of women                   TBD          TBD
 development activities.            local government.          representatives in
                                                               targeted areas.
                                   Community engagement in    Percentage of MCC-funded           0%          80%
                                    development activities.    KALAHI-CIDSS-developed
                                                               community organizations
                                                               that have satisfactory
                                                               organizational
                                                               performance ratings.

[[Page 61211]]

 
                                                              Percentage of                      0%          30%
                                                               communities that
                                                               attract additional
                                                               funding for development
                                                               activities after the
                                                               KALAHI-CIDSS Project is
                                                               completed.
Increased value of sub-project     Aggregate value of         (Varies, please see       ...........  ...........
 benefits \6\.                      benefits of sub-           below).
                                    projects..
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Increased LGU engagement.........  LGU provision of funds...  Percentage of LGUs that            0%          90%
                                                               provide at least 80% of
                                                               Memorandum of Agreement
                                                               (MOA) funding
                                                               requirements.
                                   LGU provision of           Percentage of LGUs that            0%          90%
                                    technical support.         provide at least 80% of
                                                               MOA technical support
                                                               requirements.
Increased community engagement...  Barangay assembly          Percentage of barangay            TBD          80%
                                    participation.             assemblies with 80% of
                                                               community households
                                                               represented.
                                   Marginalized group         Percentage of barangay            TBD          80%
                                    participation.             assemblies with 65% of
                                                               youth, women,
                                                               indigenous people and
                                                               poorest households
                                                               represented.
Increased value of sub-project     Time savings.............  ........................          TBD          TBD
 benefits \7\.
                                   Labor force participation  ........................          TBD          TBD
                                    (by age and gender).
                                   School enrollment........  ........................          TBD          TBD
                                   Number of beneficiary      ........................          TBD          TBD
                                    farming households.
                                   Yield of paddy rice......  ........................          TBD          TBD
                                   Water consumption (by      ........................          TBD          TBD
                                    use).
                                   Use of barangay health     ........................          TBD          TBD
                                    facilities.
                                   Post-harvest losses......  ........................          TBD          TBD
----------------------------------------------------------------------------------------------------------------
                                                  Output Level
----------------------------------------------------------------------------------------------------------------
Sub-projects delivered...........  Sub-projects completed...  Number of completed sub-            0         3400
                                                               projects (by type).
Sub-projects sustained...........  Sub-projects sustained...  Percentage of sub-                 0%          80%
                                                               projects that pass
                                                               functionality audits or
                                                               receive satisfactory or
                                                               higher ratings of
                                                               sustainability.
----------------------------------------------------------------------------------------------------------------


                    Table 2--M&E Indicators for Secondary National Roads Development Project
----------------------------------------------------------------------------------------------------------------
                                                Definition of
           Result                Indicator        indicator           Road        Baseline    Year 5    Year 20
----------------------------------------------------------------------------------------------------------------
                                                 Objective Level
----------------------------------------------------------------------------------------------------------------
Net incomes of road users     Costs to road    Aggregate value  Wright-Taft-            NA        5.2        9.5
 increased.                    users.           of time          Borongan-
                                                savings (in      Guiuan.
                                                2009US$m) \8\.
                                               Change in        Wright-Taft-            NA        9.4       16.5
                                                aggregate        Borongan-
                                                vehicle          Guiuan.
                                                operating cost
                                                (in 2009US$m)
                                                \9\.
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Improved road quality.......  Roughness......  International    Wright-Taft-      \10\ 7.1        1.8        5.8
                                                Roughness        Borongan-
                                                Index of the     Guiuan.
                                                road segments
                                                supported by
                                                the Compact.
Increased vehicle activity..  Average Annual   AADT on the      Wright-Taft-         1,179      1,450      2,720
                               Daily Traffic    road segments    Borongan-
                               (AADT).          supported by     Guiuan.
                                                the Compact.
Lower maintenance costs.....  Maintenance      Reduction in     Wright-Taft-            NA        0.4        0.3
                               savings.         annual           Borongan-
                                                maintenance      Guiuan.
                                                spending (in
                                                2009US$m) \11\.
----------------------------------------------------------------------------------------------------------------

[[Page 61212]]

 
                                                  Output Level
----------------------------------------------------------------------------------------------------------------
Roads rehabilitated or built  Total length...  KM of road       Wright-Taft-             0        222        222
                                                sections         Borongan-
                                                completed--reh   Guiuan.
                                                abilitated.
----------------------------------------------------------------------------------------------------------------


                        Table 3--M&E Indicators for Revenue Administration Reform Project
----------------------------------------------------------------------------------------------------------------
              Result                        Indicator           Definition of indicator    Baseline     Year 5
----------------------------------------------------------------------------------------------------------------
                                             Project-wide Indicators
----------------------------------------------------------------------------------------------------------------
                                                 Objective Level
----------------------------------------------------------------------------------------------------------------
Increased tax revenues over time..  Tax gap..................  Percentage of tax            \12\ TBD         TBD
                                                                potential that is
                                                                actually collected (VAT
                                                                only).
Decreased incidence of corrupt      Perceptions of corruption  DOF staff and the general         TBD         TBD
 activities within Department of                                public's perceptions
 Finance (DOF).                                                 that DOF staff are
                                                                engaged in corrupt
                                                                activities.
                                                               Perceptions that DOF is           TBD         TBD
                                                                taking action to fight
                                                                corruption.
----------------------------------------------------------------------------------------------------------------
                                                eTIS sub-Activity
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Increased number of returns.......  Number of returns filed..  Number of tax returns             TBD         TBD
                                                                filed by individuals and
                                                                corporate business at
                                                                BIR Revenue District
                                                                Offices that have
                                                                implemented eTIS.
Corruption perceptions............  Perceptions of change in   Perceptions of corruption         TBD         TBD
                                     incidence of corruption    as specifically related
                                     among BIR employees.       to eTIS implementation
                                                                e.g. use of electronic
                                                                audit.
Efficiency perceptions............  Perceptions of             Perceptions of efficiency         TBD         TBD
                                     organizational             as specifically related
                                     efficiency among BIR       to eTIS implementation.
                                     employees.
----------------------------------------------------------------------------------------------------------------
                                                  Output Level
----------------------------------------------------------------------------------------------------------------
Increased number of automatically-  Number of audits.........  Automatically-generated             0         TBD
 generated audits.                                              (by eTIS) audits broken
                                                                down by large taxpayer
                                                                unit and RDOs that have
                                                                implemented eTIS.
----------------------------------------------------------------------------------------------------------------
                                    Automated Audit Tools (AATs) sub-Activity
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Increased revenue.................  Revenue collection per     Average collection per      2,500,000   4,300,000
                                     audit.                     firm using Automated
                                                                Audit Tools AATs (in
                                                                pesos).
----------------------------------------------------------------------------------------------------------------
                                                  Output Level
----------------------------------------------------------------------------------------------------------------
Decreased time to complete an       Time to complete an audit  Calendar days from start          117          44
 audit.                                                         of audit to completion.
Increased percentage of audits      Percentage of audit cases  Large taxpayer unit audit        2.9%        100%
 using AATS.                         performed using AATS.      cases performed using
                                                                only AATS.
Reduced opportunities for           Time spent at taxpayer     Hours to perform all              335          50
 discretion.                         premises per audit.        audit functions needed
                                                                at taxpayer premises.
----------------------------------------------------------------------------------------------------------------
                                     Public Awareness Campaign sub-Activity
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Increased revenue.................  Revenue from target group  Target group to be                TBD         TBD
                                                                defined based on project
                                                                type.
Increased satisfaction............  Taxpayer satisfaction      Improvement in customer           TBD         TBD
                                     with BIR services.         satisfaction survey
                                                                scores.

[[Page 61213]]

 
 Increased awareness..............  Perception of change       Awareness of the                  TBD         TBD
                                     based on specific          campaign, the available
                                     message.                   BIR services and/or
                                                                taxpayer obligations.
----------------------------------------------------------------------------------------------------------------
                                                  RIPS Activity
----------------------------------------------------------------------------------------------------------------
                                                  Outcome Level
----------------------------------------------------------------------------------------------------------------
Increased number of resolved cases  Number of ``successful''   Number of personnel                28         140
                                     case resolutions           charged by RIPS who are
                                     (cumulative).              then suspended,
                                                                dismissed or convicted.
Corruption perceptions............  Perceptions of corrupt     Perceptions among DOF             TBD         TBD
                                     activities within DOF      staff and the general
                                     agencies.                  public.
----------------------------------------------------------------------------------------------------------------
                                                  Output Level
----------------------------------------------------------------------------------------------------------------
Increased number of investigations  Number of complaints       Number of cases opened...         110         400
                                     investigated
                                     (cumulative).
Decreased time to complete an       Time taken to complete     Days from case opened to          120          60
 investigation.                      investigation (average).   resolution.
Increased number of DOF personnel   Personnel charged          Number of DOF personnel            67         500
 charged.                            (cumulative).              charged with either
                                                                graft or corruption.
----------------------------------------------------------------------------------------------------------------
Note: Many of these indicators are in draft form as the development of a full set of indicators, baselines and
  targets is proposed as part of the eTIS sub-Activity and the Public Awareness Campaign sub-Activity. For
  indicators of perceptions of corruption, a baseline survey will be developed and conducted as soon as possible
  and the indicators and corresponding targets will be developed for relevant sub-Activities at that time.

    (b) Data Collection and Reporting. The M&E Plan will establish 
guidelines for data collection and reporting, and identify the 
responsible parties. Compliance with data collection and reporting 
timelines will be conditions for Disbursements for the relevant 
Activities as set forth in the Program Implementation Agreement. The 
M&E Plan will specify the data collection methodologies, procedures, 
and analysis required for reporting on results at all levels. The 
M&E Plan will describe any interim MCC approvals for data 
collection, analysis, and reporting plans.
---------------------------------------------------------------------------

    \8\ These indicators are defined as the actual cost or spending 
minus what they were estimated to be in the without project 
scenario, as calculated by the model of the feasibility study.
    \9\ These indicators are defined as the actual cost or spending 
minus what they were estimated to be in the without project 
scenario, as calculated by the Highway Development and Management 4 
model used by the feasibility study. These indicators will not be 
measured directly in year 5 of the Compact. Instead they will be 
recalculated using the same model, based on actual data on traffic, 
roughness, and maintenance spending (see below).
    \10\ This baseline is a visual estimation, not an International 
Roughness Index measure.
    \11\ These indicators are defined as the actual cost or spending 
minus what they were estimated to be in the without project 
scenario, as calculated by the model of the feasibility study.
    \12\ There have been several calculations of the VAT tax gap in 
the last 15 years and these have produced a wide range of estimates 
depending on the methodology employed. We are aware of no more 
recent estimate by the IMF than 1999, when it was estimated at 50%. 
The IMF will be responsible for producing a more current baseline 
figure for the tax gap indicator.
---------------------------------------------------------------------------

    (c) Data Quality Reviews. As determined in the M&E Plan or as 
otherwise requested by MCC, the quality of the data gathered through 
the M&E Plan will be reviewed to ensure that data reported are as 
valid, reliable, and timely as resources will allow. The objective 
of any data quality review will be to verify the quality and the 
consistency of performance data across different implementation 
units and reporting institutions. Such data quality reviews also 
will serve to identify where those levels of quality are not 
possible, given the realities of data collection.
    (d) Management Information System. The M&E Plan will describe 
the information system that will be used to collect data, store, 
process and deliver information to relevant stakeholders in such a 
way that the Program information collected and verified pursuant to 
the M&E Plan is at all times accessible and useful to those who wish 
to use it. The system development will take into consideration the 
requirement and data needs of the components of the Program, and 
will be aligned with existing MCC systems, other service providers, 
and relevant Implementing Entities.
    (e) Role of MCA-Philippines. The monitoring and evaluation of 
this Compact spans discrete Projects and will involve a variety of 
governmental, non-governmental, and private sector institutions. 
Subject to Section 3.2(b) of the Compact, MCA-Philippines is 
responsible for implementation of the M&E Plan. MCA-Philippines will 
oversee all Compact-related monitoring and evaluation activities 
conducted for each of the Projects, ensuring that data from all 
implementing entities is consistent, accurately reported and 
aggregated into regular Compact performance reports as described in 
the M&E Plan.

4. Evaluation Component

    The evaluation component of the M&E Plan will contain three 
types of evaluations: (a) Impact evaluations; (b) final evaluations; 
and (c) special studies. The evaluation component of the M&E Plan 
will describe the purpose of the evaluation, methodology, timeline, 
required MCC approvals, and the process for collection and analysis 
of data for each evaluation. The results of all evaluations will be 
made publicly available in accordance with MCC's guidelines for 
monitoring and evaluation plans posted from time to time on the MCC 
Web site (the ``MCC Policy for Monitoring and Evaluation of Compacts 
and Threshold Programs'').
    (a) Impact Evaluation. The M&E Plan will include a description 
of the methods to be used for impact evaluations and plans for 
integrating the evaluation method into Project design. Based on in-
country consultation with stakeholders, the 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 included in the M&E Plan. The following is a summary of the 
current impact evaluation methodology:
    (i) KALAHI-CIDSS Project.
    The planned impact evaluation will cover new municipalities 
across both MCC-supported and World Bank-supported areas. Although 
the final design and implementation of the impact evaluation will be 
contracted to an independent consultant firm, a joint advisory 
board, with members from MCC, MCA-Philippines, the World Bank, DSWD, 
the National Economic Development Agency, and local academics will 
oversee the impact evaluation, which will be made publically 
available upon completion.
    MCC and the World Bank cannot provide sufficient funding for all 
eligible municipalities. Thus the proposed approach will randomly 
select some pairs of municipalities to serve as treatment and 
controls from the eligible list. The specific municipalities will be 
randomly selected

[[Page 61214]]

from that list by an independent party. Several of the Government's 
obligations are related to the methodology and implementation of 
this Impact Evaluation.
    Key Impact Evaluation questions will include: How does receiving 
KALAHI-CIDSS support (from either the KALAHI-CIDSS Project or KC1) 
influence individual and community measures of:
    (1) Social capital (participation in meetings, membership in 
groups, trust, etc);
    (2) Welfare (consumption expenditure, labor force participation 
(including for women), hours on household production, enrollment, 
etc.); and
    (3) The link between social capital and welfare (operations and 
maintenance practices, sustainability, project costs, congruence of 
preferences with sub-projects selected, etc.).
    (ii) Secondary National Roads Development Project.
    A rigorous impact evaluation is not currently planned for the 
Secondary National Roads Development Project due to the lengthy time 
of construction and the corresponding time required for the economy 
to adapt to the improvement.
    (b) Final Evaluation. The M&E Plan will make provision for final 
Project level evaluations (``Final Evaluations''). With the prior 
written approval of MCC, MCA-Philippines will engage independent 
evaluators to conduct the Final Evaluations at the end of each 
Project. The Final Evaluations will review progress during Compact 
implementation and provide a qualitative context for interpreting 
monitoring data and impact evaluation findings. They must at a 
minimum (i) evaluate the efficiency and effectiveness of the 
Activities, (ii) determine if and analyze the reasons why the 
Compact Goal, Program Objective and Project Objective(s), outcome(s) 
and output(s) were or were not achieved, (iii) identify positive and 
negative unintended results of the Program, (iv) provide lessons 
learned that may be applied to similar projects, and (v) assess the 
likelihood that results will be sustained over time.
    (c) Special Studies. The M&E Plan will include a description of 
the methods to be used for special studies, as necessary, funded 
through this Compact or by MCC. Plans for conducting the special 
studies will be determined jointly between MCA-Philippines and MCC 
before the approval of the M&E Plan. The M&E Plan will identify and 
make provision for any other special studies, ad hoc evaluations, 
and research that may be needed as part of the monitoring and 
evaluating of this Compact. Either MCC or MCA-Philippines may 
request special studies or ad hoc evaluations of Projects, 
Activities, or the Program as a whole prior to the expiration of the 
Compact Term. When MCA-Philippines engages an evaluator, the 
engagement will be subject to the prior written approval of MCC. 
Contract terms must ensure non-biased results and the publication of 
results.
    As of the date hereof, two special studies are planned: For the 
KALAHI-CIDSS Project, an evaluation is planned to measure the 
various benefits of the sub-projects; for the Secondary National 
Roads Development Project, evaluations are planned to focus on 
measuring changes in travel times and transportation costs.
    (i) Request for Ad Hoc Evaluation or Special Study. If MCA-
Philippines 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 Activity or to seek funding from other donors, no MCC 
Funding or MCA-Philippines 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 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; and
    (b) Assumptions and Risks. Any assumption or risk external to 
the Program that underlies the accomplishment of the Program 
Objective, Project Objectives and Activity outcomes and outputs. 
However, such assumptions and risks will not excuse any Party's 
performance unless otherwise expressly agreed to in writing by the 
Parties.

6. Approval and Implementation of the M&E Plan

    The approval and implementation of the M&E Plan, as amended from 
time to time, will be in accordance with the Program Implementation 
Agreement and any other relevant supplemental agreement, and the MCC 
Policy for Monitoring and Evaluation of Compacts and Threshold 
Programs.

Annex IV Conditions to Disbursement of Compact Implementation Funding

    This Annex IV sets forth the conditions precedent applicable to 
Disbursements of Compact Implementation Funding (each a ``CIF 
Disbursement''). Capitalized terms used in this Annex IV and not 
defined in this Annex IV or in the Compact have the meanings 
assigned to such terms in the Program Implementation Agreement.

1. Conditions to the Initial CIF Disbursement

    Each of the following conditions precedent must have been met to 
MCC's satisfaction prior to the initial CIF Disbursement:
    (a) MCA-Philippines will have delivered to MCC a complete, 
correct, and fully executed Disbursement Request for the relevant 
Disbursement Period, in form and substance satisfactory to MCC and 
submitted in accordance with the Reporting Guidelines. Each 
Disbursement Request will include the following reference number: 
GR10PHL10010.
    (b)(i) Each Activity being funded by such CIF Disbursement will 
facilitate implementation of the Compact, (ii) there has been no 
violation of, and the use of the requested funds for the purposes 
requested will not violate, the limitations on the use or treatment 
of (1) MCC Funding, as set forth in this Compact, including under 
Section 2.7, or (2) Compact Implementation Funding, and (iii) no 
material breach of any covenant, obligation, or responsibility of 
the Government or MCA-Philippines under this Compact, the Program 
Implementation Agreement, any supplemental agreement, or any Program 
Guidelines has occurred or is continuing.
    (c) The Government will have published the Establishment Decree, 
and such decree will remain in full force and effect, without 
modification, alteration, rescission, or suspension of any kind 
unless otherwise agreed by MCC. Without limitation of the foregoing, 
MCA-Philippines will have delivered to MCC (i) evidence of the 
adoption and publication of the Establishment Decree, and (ii) an 
up-to-date extract from the state registry verifying that MCA-
Philippines is a fully-formed and registered public institution 
under the laws of the Philippines.
    (d) MCA-Philippines will be sufficiently mobilized in order for 
MCA-Philippines to be able to fully perform its obligations and to 
act on behalf of the Government.
    (e) MCA-Philippines will have adopted a Procurement Plan, in 
form and substance satisfactory to MCC, with respect to the Compact 
Implementation Funding, and such Procurement Plan remains in full 
force and effect.
    (f) MCA-Philippines will have adopted a Fiscal Accountability 
Plan, in form and substance satisfactory to MCC, and such Fiscal 
Accountability Plan remains in full force and effect.
    (g) The Government will have adopted and published such decrees 
and regulations as necessary to implement the tax assumption 
mechanisms set forth in the Program Implementation Agreement, and 
such decrees and regulations will remain in full force and effect 
without modification, alteration, rescission, or suspension of any 
kind, unless otherwise agreed by MCC.
    (h) The Fiscal Agent will have been duly appointed, and MCA-
Philippines will have duly executed the Fiscal Agent Agreement, and 
such agreement will be in full force and effect without 
modification, alteration, rescission, or suspension of any kind, 
unless otherwise agreed by MCC, and no material breach has occurred 
or is continuing thereunder.
    (i) The Procurement Agent will have been duly appointed, and 
MCA-Philippines will have duly executed an agreement with the 
Procurement Agent, and such agreement will be in full force and 
effect without modification, alteration, rescission, or suspension 
of any kind, unless otherwise agreed by MCC, and no material breach 
has occurred or is continuing thereunder.
    (j) The Bank will have been duly appointed, and MCA-Philippines 
and the Fiscal Agent will have duly executed the Bank Agreement, and 
such agreement will be in full force and effect without 
modification, alteration, rescission, or suspension of any kind, 
unless otherwise agreed by MCC, and no material breach has occurred 
or is continuing thereunder.
    (k) The Permitted Account will be established.
    (l) Prior to the deployment of the resident tax administration 
technical assistance lead advisor, the IMF resident advisor will be 
designated as a senior advisor to the head of

[[Page 61215]]

the BIR's Project Implementation & Monitoring Office. Said resident 
advisor will coordinate all tax administration-related technical 
assistance from all donors.

2. Conditions to Each CIF Disbursement

    Each of the following conditions precedent must have been met to 
MCC's satisfaction prior to the applicable CIF Disbursement:
    (a) MCA-Philippines will have delivered to MCC a complete, 
correct, and fully executed Disbursement Request for the relevant 
Disbursement Period, together with any applicable Periodic Reports 
covering such Disbursement Period, in each case in form and 
substance satisfactory to MCC and submitted in accordance with the 
Reporting Guidelines. Each Disbursement Request will include the 
following reference number: GR10PHL10010.
    (b)(i) Each Activity being funded by such CIF Disbursement will 
facilitate implementation of the Compact, (ii) there has been no 
violation of, and the use of the requested funds for the purposes 
requested will not violate, the limitations on the use or treatment 
of (1) MCC Funding, as set forth in this Compact, including under 
Section 2.7, or (2) Compact Implementation Funding, (iii) no 
material breach of any covenant, obligation, or responsibility of 
the Government or MCA-Philippines under this Compact, the Program 
Implementation Agreement, any supplemental agreement, or any Program 
Guidelines has occurred or is continuing, and (iv) any Taxes and 
Contributions paid with MCC Funding prior to or on the date ninety 
(90) days prior to the start of the applicable Disbursement Period 
have been assumed by the Government in full in accordance with this 
Compact.
    (c) The MCA-Philippines Procurement Plan will be in full force 
and effect.
    (d) The MCA-Philippines Fiscal Accountability Plan will be in 
full force and effect.
    (e) Each of the Fiscal Agent Agreement, the MCA-Philippines 
agreement with the Procurement Agent, and the Bank Agreement will be 
in full force and effect without modification, alteration, 
rescission, or suspension of any kind, unless otherwise agreed by 
MCC, and no material breach has occurred or is continuing 
thereunder.
    (f) The Permitted Account will be in existence.
    (g) The tax assumption mechanism set forth in the Program 
Implementation Agreement will be in full force and effect.

Annex V Definitions

    Activity has the meaning provided in Part B of Annex I.
    Additional Representative has the meaning provided in Section 
4.2.
    Audit Guidelines has the meaning provided in Section 3.8(a).
    Baseline has the meaning provided in paragraph 3 of Annex III.
    BIR has the meaning provided in paragraph 3(a) of Part B of 
Annex I.
    Board of Trustees has the meaning provided in paragraph 
4(c)(i)(1) of Part B of Annex I.
    CIF Disbursement has the meaning provided in Annex IV.
    Compact has the meaning provided in the Preamble.
    Compact Goal has the meaning provided in Section 1.1.
    Compact Implementation Funding has the meaning provided in 
Section 2.2(a).
    Compact Records has the meaning provided in Section 3.7(a).
    Compact Term has the meaning provided in Section 7.3.
    Covered Provider has the meaning provided in Section 3.7(c).
    Disbursement has the meaning provided in Section 2.4.
    DSWD has the meaning provided in Section 8.1(a)(i).
    Establishment Decree has the meaning provided in Section 3.2(b).
    eTIS has the meaning provided in paragraph 3(b) of Part B of 
Annex I.
    Evaluation Component has the meaning provided in paragraph 1 of 
Annex III.
    Excess CIF Amount has the meaning provided in Section 2.2(d).
    Final Evaluations has the meaning provided in paragraph 4(b) of 
Annex III.
    Fiscal Agent has the meaning provided in paragraph 4(e) of Part 
B of Annex I.
    Governance Guidelines has the meaning provided in paragraph 4(c) 
of Part B of Annex I.
    Government has the meaning provided in the Preamble.
    IMF has the meaning provided in paragraph 3(b)(i)(1) of Part B 
of Annex I.
    Implementation Letter has the meaning provided in Section 3.5.
    Implementing Entity has the meaning provided paragraph 4(d) of 
Part B of Annex I.
    Implementing Entity Agreement has the meaning provided in 
paragraph 4(d) of Part B of Annex I.
    Indicators has the meaning provided in paragraph 3(a) of Annex 
III.
    Inspector General has the meaning provided in Section 3.8(a).
    KALAHI-CIDSS has the meaning provided in paragraph 1(a) of Part 
B of Annex I.
    KALAHI-CIDSS Project has the meaning provided in paragraph 1(a) 
of Part B of Annex I.
    KC1 has the meaning provided in paragraph 1(a) of Part B of 
Annex I.
    M&E Annex has the meaning provided in Annex III.
    M&E Plan has the meaning provided in Annex III.
    Management Unit has the meaning provided in paragraph 
4(c)(iii)(1) of Part B of Annex I.
    MCA Act has the meaning provided in Section 2.2(a).
    MCA-Philippines has the meaning provided in Section 3.2(b).
    MCA-Philippines Bylaws has the meaning provided in paragraph 
4(c) of Part B of Annex I.
    MCC has the meaning provided in the Preamble.
    MCC Environmental Guidelines has the meaning provided in Section 
2.7(c).
    MCC Funding has the meaning provided in Section 2.3.
    MCC Policy for Monitoring and Evaluation of Compacts and 
Threshold Programs has the meaning provided for in paragraph 4 of 
Annex III.
    MCC Program Procurement Guidelines has the meaning provided in 
Section 3.6.
    MCC Web site has the meaning provided in Section 2.7.
    Monitoring Component has the meaning provided in paragraph 1 of 
Annex III.
    Multi-Year Financial Plan Summary has the meaning provided in 
paragraph 1 of Annex II.
    OP 4.12 has the meaning provided in paragraph 3 of Part A of 
Annex I.
    Party and Parties has the meaning provided in the Preamble.
    Permitted Account has the meaning provided in Section 2.4.
    The  Philippines has the meaning provided in the Preamble.
    Principal Representative has the meaning provided in Section 
4.2.
    Procurement Agent has the meaning provided in paragraph 4(f) of 
Part B of Annex I.
    Program has the meaning provided in the Preamble.
    Program Assets include MCC Funding, interest accrued thereon, 
and any assets, goods or property (real, tangible or intangible) 
purchased or financed in whole or in part (directly or indirectly) 
by MCC Funding.
    Program Funding has the meaning provided in Section 2.1.
    Program Guidelines means collectively the Audit Guidelines, the 
MCC Environmental Guidelines, the Governance Guidelines, the MCC 
Program Procurement Guidelines, the Reporting Guidelines, the MCC 
Policy for Monitoring and Evaluation of Compacts and Threshold 
Programs, and any other guidelines, policies or guidance papers from 
time to time published on the MCC Web site.
    Program Implementation Agreement or PIA has the meaning provided 
in Section 3.1.
    Program Objective has the meaning provided in Section 1.2.
    Project(s) has the meaning provided in Section 6.2(b).
    Project Objective(s) has the meaning provided in Section 1.3.
    Provider has the meaning provided in Section 3.7(c).
    Reporting Guidelines means the MCC ``Guidance on Quarterly MCA 
Disbursement Request and Reporting Package'' posted by MCC on the 
MCC Web site or otherwise publicly made available.
    Revenue Administration Reform Project has the meaning provided 
in paragraph 3(b) of Part B of Annex I.
    RIPS has the meaning provided in paragraph 3(b) of Part B of 
Annex I.
    Secondary National Roads Development Project has the meaning 
provided in paragraph 2(b) of Part B of Annex I.
    Stakeholders' Committee has the meaning provided in paragraph 
4(c)(ii)(1) of Part B of Annex I.
    Target has the meaning provided in paragraph 3(a) of Annex III.
    Taxes and Contributions has the meaning provided in Section 2.8.
    United States Dollars or US$ means the lawful currency of the 
United States of America.

[[Page 61216]]

    USAID has the meaning provided in paragraph 1(e) of Part B of 
Annex I.

[FR Doc. 2010-24820 Filed 10-1-10; 8:45 am]
BILLING CODE 9211-03-P


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