Treaty (14 October 2005)

October 14, 2005

ADDENDUM NO. 1 TO FINANCING AGREEMENT NO. PHI/B7- 3000/IB/ALA 97/68; ASIE 1997/2733 BETWEEN THE EUROPEAN COMMUNITY AND THE REPUBLIC OF THE PHILIPPINES "UPLAND DEVELOPMENT PROGRAMME IN SOUTHERN MINDANAO/UDP"

The Commission of the European Communities, hereinafter referred to as "THE COMMISSION", acting for and on behalf of the European Community, hereinafter referred to as 'THE COMMUNITY" of the one part, and The Republic of the Philippines hereinafter referred to as "the Beneficiary", represented by the Department of Foreign Affairs of the other part, have agreed as follows: the following provisions of Financing Agreement (FA) N°PHI/B7-3000/IB/ALA 97/68;ASIE 1997/2733) "Upland Development Programme in Southern Mindanao/UDP with Project Number ALA 97/68 concluded between the Community and The Republic of the Philippines, on October 20, 1998, are hereby replaced/amended as follows:

ARTICLE 3: THE COMMUNITY'S COMMITMENT

The total cost of the project is estimated at € 47,650,000. Community financing shall not be more than € 17,300,000. The expiry date of this financial commitment for implementation of the activities is hereby set at 31 July 2007.

ARTICLE 4: THE BENEFICIARY'S COMMITMENT

The .beneficiary shall contribute € 12, 520,000 to the project. The present agreement specifies if this contribution, or part of it, is in kind.

ARTICLE 5: CORRESPONDENCE:

Correspondence relating to the implementation of this Agreement should be marked with the number and the title of the project and be sent to:

(a) for the COMMISSION Europe-Aid Cooperation Office, Rue dela Loi, 200 L-41 03/169, Brussels Belgium Tel. No. +322 29 90775/59918(b) for the BENEFICIARY Department of Foreign Affairs 2330 Roxas Boulevard Pasay City, Philippines Tel. No.+63 2 834-4000 ANNEX A TECHNICAL AND ADMINISTRATIVE PROVISIONS Annex A, Technical and Administrative Provisions, is amended as set out in Annex 1 to this Addendum. This Amendment shall enter into force on the date on which it is signed by the latter of the two parties. All reference to ECU shall be read as Euro. For the Beneficiary For the Community Name (Sgd.) Alberto G. Romulo Name (Sgd.)Erich Muller Secretary, Director, Department of Foreign Affairs Directorate Asia incl. Central Asia Europe Aid Cooperation Office Date Nov. 29, 2005 Date Oct. 14, 2005

ANNEX 1

TO ADDENDUM N° 1 TO FINANCING AGREEMENT PHI/B7-3000/IB/ALA 97/68

ANNEX A, Technical and Administrative Provisions, is hereby amended as follows: (Text Unchanged)

ARTICLE 1.4 COST AND FINANCING

The total direct cost of the project over 8 years and 7 months is estimated at Euro 47.65 Million of which Euro 17.30 Million will be covered by the EC grant, Euro 7.68 Million from the National Government budget, Euro 9.60 Million from the LGU budget, Euro 0.55 Million from Partner Financial Institutions and Euro 12.52 Million contribution from beneficiaries.

ARTICLE 2.3 PROJECT OUTPUTS

(First paragraph unchanged) 2.3.1 a replicable model for sustainable management of the natural resources in the uplands developed and tested (First bullet-point a.) unchanged) b.) Community management of natural resources improved; The expected outputs are:• Community-based watershed management schemes established in identified small watersheds in 30 municipalities in 5 provinces by 31 July 2007; (Remaining text unchanged) 2.3.2. Upland communities producing new marketable surpluses through sustainable market-led agricultural development (Bullet-points a.) and b.) unchanged) c.) On-farm and off-farm enterprises diversified The expected outputs are:

• Establishment, diversification and intensification of farm enterprises • Production increases of coconuts, fruit crops and agri-industrial crops achieved by 31 July 2007 • Establishment of on-farm processing enterprises by 31 July 2007 (Remaining text unchanged)

ARTICLE 2.4 TIME SCHEDULE

The project will be implemented until 31 July 2007. Validity of the Community's financial commitment will be over an 8 years and 7 months period calculated from the date of the signature of the Financing Agreement. The phase out process should start in year 6. Years 7 and 8 will concentrate on ensuring a full consolidation of the process.

ARTICLE 2.5.1. COST ESTIMATES

The total cost of the project is estimated at Euro 47.65 million of which the EC contribution is fixed at Euro 17.3 million, and of which the National Government Agencies (DA, DENR) contribution is estimated to be Euro 7.68 million: (EURO) Category Breakdown EC NGAs**** LGUs PFIs Beneficiaries Total 1 Services 1.1 European TA* 3,692,467 3,692,467 1.2 Local TA** 340,000 340,000 1.3 Audit and 324,542 Evaluation* 1.4 Research and 1,229,300 1,229,300 Studies 1.5 Training 2,064,066 2,064,066 2 Equipment and Vehicles 544,374 544,374 3 Works/Infrastructure 1,692,344 600,000 3,020,000 5,312,3444 Information-communication 644,761 644,761 5 Operating Cost 0 5.1 Local Staff 7,320,0008,360,000 15,680,000 5.2 Recurrent 3,862,907 3,862,907 Costs 6 Credit 0 6.1 Credit 240,545 240,545 Administration 6.2 Enterprise 588,182 10,000 598,182 Development 6.3 Revolving 2,076,512 170,000550,000 7,560,00010,356,512 Funds 7 Beneficiaries' in-kind 1,940,000 1,940,000 contribution Total Base Costs 17,300,000 7,320,0009,140,000550,000 12,520,00046,830,000 8 Contingencies 0 360,000 460,000 820,000 TOTAL 17,300,000 7,680,0009,600,000550,000 12,520,00047,650,000 * The European TA and the Audit and Evaluation categories will be managed directly by the European Commission. ** Local TA is considered the personnel which are hired in the open labour market by the PMO following the GOP selection criteria. *** Contingencies can only be used after the written agreement by the Commission. *** National Government Agencies (DA, DENR) Indicative Financial Breakdown by Component Indicative Cost by EC Change New EC GOP LGUs Beneficiaries TOTAL Project Component (Original) Budget Sustainable 1.767.000 23.353 1.743.647 172.000 7.560.000 9.475.647 Agriculture 2.381.000 37.174 2.343.826 1.940.000 4.283.826 Resource Management 976.000 15.396 960.604 13.000 973.604 Marketing and 1.163.000 4.211 1.158.789 550.0001.708.789 Enterprise Development 920.000 26.414 893.586 893.586 0 Support to Rural 1.726.000 29.965 1.696.35 595.000 3.020.000 5.311.035 Finance 8.532.000 28.487 8.503.513 7.320.0008.360.000 24.183.513 Community, Institutional 835.000 835.000 0 360.000 460.000 820.000Development and Extension Agriculture Support Infrastructure Project Management/M&E Contingencies Total 18.300.0001.000.00017.300.0007.680.0009.600.00012.520.000 550.00047.650.000 ATTACHMENT 1 TO ADDENDUM NO. 1 TO THE FINANCING AGREEMENT ALA/PH/9768; ASIE 1997/2733 EC GRANT ONLY (In EURO) Category Original Cost Modification Amendment European TA 1/ 3.230.000 462.467 3.692.467 Local TA 230.000 110.000 340.000 Audit and Evaluation 350.000 -25.458 324.542 Research and Studies 1.050.000 179.300 1.229.300 Training 1.940.000 124.066 2.064.066 Equipment and Vehicles 2/ 1.330.000 -785.626 544.374 Works/Infrastructure 2.000.000 -307.656 1.692.344 Information-Communication 690.000 -45.239 644.761 Recurrent Costs 3.380.000 482.907 3.362.907 Credit Administration 250.000 -9.455 240.545 Enterprise Development 3/ 940.000 -351.818 588.182 Revolving Funds 2.080.000 -3.488 2.076.512 Total Base Costs 17.470.000 -170.000 17.300.000 Contingencies 830.000 -830.000 0 TOTAL 18.300.000 -1.000.000 17.300.000 Notes: 1/ Additional requirement taken from contingencies 2/ Reallocated to Local TA (€110,000) and Recurrent Costs (€670,000) 3/ Reallocated to Research and Studies (£200,000) and Training (€140,000)