Common use of Policy and Legal Reform; Procedural Changes or Regulatory Actions Clause in Contracts

Policy and Legal Reform; Procedural Changes or Regulatory Actions. (a) The Parties have identified the following policy, legal and regulatory reforms and actions that the Government shall pursue in support, and to reach the full benefits, of the Regional Infrastructure Rehabilitation Project, the satisfactory implementation of which will be conditions precedent to certain MCC Disbursements as provided in the Disbursement Agreement: (i) Related to the Road Rehabilitation Activity: (1) Authorization of the use of road design and construction standards consistent with modern European geometrical and physical standards having international applicability, acceptable to MCC; (2) Maintenance of the Project Road in accordance with measurable performance standards acceptable to MCC and the Government, including winter maintenance and snow removal to keep the Project Road open; and (3) Prior to the first disbursement in any fiscal year, the Government will approve the road maintenance budget for routine and periodic maintenance for the maintainable road network the forthcoming fiscal year providing for funding of at least the amount set out below, and will expend such amounts for the intended purpose and make-up any budget shortfall from the prior year’s road maintenance budget: (A) fiscal year 2006: Georgian Lari (“GEL”) 60 million; (B) fiscal year 2007: GEL 70 million; (C) fiscal year 2008: GEL 80 million; (D) fiscal year 2009: GEL 90 million; and (E) fiscal year 2010: GEL 100 million. (ii) Related to the Energy Rehabilitation Activity: (1) Prior to the first disbursement for Pipeline rehabilitation, the Ministry of Energy will provide documentation satisfactory to MCC outlining the Ministry’s plans and strategy for resolving the following four issues currently facing GGIC: (A) Kazbegigazi non-payment to GGIC; (B) Tbilgazi non-payment to GGIC; (C) Physical gas losses by GGIC; and (D) GGIC’s tax liabilities; (2) Prior to the first disbursement for Pipeline rehabilitation, the Georgia Tax Restructuring Committee will have granted tax relief to GGIC, acceptable to MCC, for past tax liabilities accrued through June 30, 2005 in the form of a fifteen year restructuring plan for such tax liabilities (including a five-year freeze and a ten-year payment period); (3) The Government shall not sell or transfer, or permit to be sold or transferred, the Pipeline and/or a controlling interest in the GGIC group (GGIC and its subsidiaries and affiliates) and shall not place or permit to be placed any Lien on the Pipeline, in each case until the expiration of the Compact Term, except as may be otherwise agreed by MCC in writing (the “Non-Transfer Condition”); (4) Prior to the each disbursement for Pipeline rehabilitation on or after July 1, 2007: (A) GGIC will demonstrate in a form acceptable to MCC that it is maintaining the Pipeline in accordance with satisfactory standards agreed by MCC and the Government that cover the design and construction of gas networks (“Agreed Standards”); and (B) GGIC will have obtained authorization, in a form acceptable to MCC, from the Georgian National Energy Regulatory Commission that allows GGIC, starting from July 1, 2007, to withhold gas as payment in kind from its customers for transmission charges owed to GGIC to the extent needed to ensure that collection rates (for all services provided) are at least 95% throughout the remainder of Compact Term; and GGIC will utilize this in-kind payment mechanism to the extent needed to ensure that collection rates (for all services provided) are at least 95% throughout the remainder of Compact Term; (5) In the event that: (A) The GGIC collection rate after July 1, 2007 is below 95% for two consecutive quarters throughout the Compact Term; (B) GGIC does not maintain the Pipeline in accordance with the Agreed Standards; and/or (C) The Government does not comply with the Non-Transfer Condition; then: (A) Prior to any further disbursement for Pipeline rehabilitation or for any other Project Activity, the Government agrees to reimburse promptly to MCC, in MCC’s discretion, all or a portion of Compact Funding disbursed for the Pipeline; and/or (B) MCC may suspend all or a portion of further disbursements in connection with the Pipeline rehabilitation and/or other Project Activities under the Compact. (b) To improve its level of performance under the policy criteria identified in Section 607 of the Act and the MCA Eligibility Criteria and to support the Regional Infrastructure Rehabilitation Project, the Government will pursue the following legislative and policy reforms: (i) Support GGIC to realize the sale of emission reductions in order to fund additional pipeline rehabilitation activities; (ii) Undertake policy reform and improve legislation governing the infrastructure sectors, including adoption of user fees, as may be appropriate to cover the costs of operations and maintenance; (iii) Develop, as part of the ongoing decentralization process, appropriate policies and/or legislation on local government budgeting; (iv) Undertake measures to safeguard the rehabilitated infrastructure from any laws, regulations or policies that may undermine the results of individual projects, including those that adversely restrict local control over budgets for operations and maintenance; and (v) Such other legal or policy reforms as may be needed to improve efficiency of the infrastructure sectors, including those that are identified through the ongoing consultative process.