ISPA Measure No:

2001/LV/16/P/PE/007

Financing Memorandum Agreed between the Government of the Republic of Latvia and the European Commission Concerning the grant of assistance from the Instrument for Structural Policies for Pre-accession to the following measure “Development of water services in the river basins of Eastern Latvia located in Latvia”

The European Commission, hereinafter referred to as “the Commission”, acting for and on behalf of the European Community, hereinafter referred to as “the Community” represented by the Commissioner for Regional Policy, Mr. Michel Barnier, for the Commission

on the one part, and

The Government of the Republic of Latvia, hereinafter referred to as “the beneficiary”

on the other part,

have agreed as follows:

Article 1

The measure referred to in Article 2 below shall be implemented and financed out of the budgetary resources of the Community in accordance with the provisions set out in this Memorandum. The measure referred to in Article 2 below shall be implemented in line with the General Conditions annexed to the Framework Agreement signed between the Commission and the beneficiary and supplemented by the terms of this Memorandum and the provisions annexed hereto.

Article 2

Identification of the measure

The Instrument for Structural Policies for Pre-accession shall contribute, by way of a grant, towards the financing of the following measure as described in Annex I:

Measure number: 2001/LV/16/P/PE/007

Title: Development of water services in the river basins of Eastern Latvia

Duration: Start date: The date of signature of the financing memorandum by the Commission

End date: Until 31 December 2006

Location: municipalities of Aluksne, Cesis, Cesvaine, Dagda, Kekava, Kegums, Lielvarde, Limbazi, Livani, Ogre, Preili, Priekuli, Salacgriva, Salaspils, Sigulda, Smiltene, Valka and Valmiera in the catchments of the rivers Daugava, Gauja and Salaca (districts of Aluksne, Cesis, Kraslava, Limbazi, Madona, Ogre, Preili, Riga, Valka and Valmiera)

Group: Daugava, Salaca and Gauja river basins areas

Article 3

Commitment

1. The maximum public or equivalent expenditure which may be taken into account for the purpose of calculating assistance shall be e 67 600 000;

2. The rate of Community assistance granted to the measure is fixed at 66 % of total public or equivalent expenditure as indicated in the financing plan in Annex II;

3. The maximum amount of assistance from the Instrument for Structural Policies for Pre-accession is fixed at e 44 616 000;

4. An amount of e 10 339 544 is committed from the 2001 budget under budgetary line B7-020. Commitments in respect of subsequent instalments shall be based on the initial or revised financing plan for the measure, subject to the state of implementation of the measure and to budgetary availability.

Article 4

Payments

1. Community assistance shall cover payments on the measure for which legally binding commitments have been made by the beneficiary and for which the requisite finance has been specifically allocated. These payments must relate to the works described in Annex I.

2. Payments made before the date of signature of this financing memorandum by the Commission shall not be eligible for assistance from the Instrument for Structural Policies for Pre-accession.

3. The measure described in Annex I and payments by the body responsible for the implementation of the measure shall be completed no later than 31 December 2006.

The report required for the payment of the final balance should be submitted not later than 6 months after this date.

4. The advance payment is fixed at e 8 923 200, which shall be transferred as follows:

— An amount of e 4 461 600 is paid out after signature of this memorandum by the beneficiary;

— The remainder is paid out following the signing of the contract indicated in the procurement plan under Annex Ia as n°1 by the beneficiary, as well as fulfillment of the additional condition laid down in Article 8.3 as regards environmental impact assessment.

Article 5

Respect of Community law and policies

The measure shall be carried out in compliance with the relevant provisions set out in the Europe Agreements and shall contribute to the achievement of Community policies, in particular those concerning environmental protection and improvement.

Article 6

Intellectual property

The Beneficiary and the authority responsible for implementation mentioned in Annex I point 3 shall ensure that they acquire all necessary intellectual property rights to studies, drawings, plans, publicity and other material made in conjunction with planning, implementation, monitoring and evaluation of the project. They shall guarantee that the Commission, or any body or person delegated by the Commission shall have access and the right to use such material. The Commission will only use such material for its own purpose.

Article 7

Permits and authorisations

Any type of permits and or authorisations required for the implementation of the measure must be provided by the competent authorities of the Beneficiary in due time and in accordance with national law.

Article 8

Specific conditions related to the measure

Without prejudice to the general provisions specified in Annex III the Community grant for the measure is subject to the following conditions:

1. Condition on the assumptions and the status of the assets:

The Commission reserves the right to revise the amount of the assistance for ISPA set out in Article 3 if, within five years of the date of the completion of works, the operating conditions (tariffs, revenues, etc.) vary significantly relative to the original assumptions made in determining the level of the grant and/or there is a substantial modification:

a) affecting the nature of the operation or its implementing conditions, or giving to a private or public body an undue advantage; and

b) resulting either from a change in the nature of the ownership of any part of the financed infrastructure, or a cessation or material change in the operating arrangements.

The beneficiary country shall inform the Commission of any such change, and shall seek the ex-ante agreement of the Commission to these changes.

2. Condition on viability:

The Community grant for the measure is subject to the authorities concerned making available sufficient resources in order to ensure the effective operation and maintenance of the assets.

3. Condition relating to the environmental impact assessments:

The second instalment of the advance payment is conditional on confirmation that the determination made by the competent authorities not to perform EIAs for the modernisation of the wastewater treatment plants and groundwater abstraction covered by the measure was performed in a fashion similar to the screening criteria laid down in Annex III of Directive 97/11/EC.

The second instalment of the advance payment is conditional on evidence by the competent authorities that EIAs for the modernisation of the wastewater treatment plants in Salacgriva and Valmiera (if required) have been performed according to Directive 97/11/EC. If no EIA would be required for these two projects, the previous paragraph applies.

4. Condition relating to the structure of charges:

The final report should include a new financial assessment based on the finally decided structure of charges (especially concerning the possibility to rise tariffs in Salaspils).

5. Condition relating to a leakage and infiltration reduction programme:

The final report should describe how the leakage and infiltration problems have been addressed.

6. Condition relating to metering:

The final report should describe how metering has been improved (especially concerning Lielvarde).

7. Condition relating to dangerous substances discharged into the aquatic environment:

The final report shall include an inventory and a programme by the competent authorities for the pollution reduction of substances covered by list I and list II of Directive 76/464/EEC and its specific directives 82/176/EEC, 83/513/EEC, 84/156/EEC, 84/491/EEC, 86/280/EEC (as amended by 88/347/EEC and 90/415/EEC) for each agglomeration covered by the measure. The inventory and the programmes shall cover dangerous substances being discharged indirectly into the aquatic environment via sewerage system and waste water treatment plant. These programmes should focus on the authorisation of indirect discharges of small and medium sized enterprises and the more generic pollution reduction from multiple sources, as mentioned in Directive 86/280/EEC, Article 5.

8. Condition relating to ensuring full compliance with EC legislation on waste water and drinking water:

The final report shall include an inventory of areas within the agglomerations covered by the present projects where full compliance with the directive 91/271/EEC on urban waste water treatment, the directives on discharge of dangerous substances (76/464/EEC and its specific directives for list I substances 82/176/EEC, 83/513/EEC, 84/156/EEC, 84/491/EEC, 86/280/EEC as amended by 88/347/EEC and 90/415/EEC) and the directive on drinking water (80/778/EEC as amended by 98/83/EC) have been achieved.

For municipalities where full compliance with these directives have not yet been achieved in the whole of the agglomeration, the final report shall include a detailed programme for how and by when full compliance will be achieved.

Article 9

The implementation provisions described in the Annexes to this financing memorandum form an integral part of it.

Non-compliance with the conditions and implementation provisions shall be dealt with by the Commission according to the procedure stipulated in Annex III.1. Section VIII.

Article 10

The authentic text of this financing memorandum is the present document as signed hereunder.

List of Annexes

Annex I Description of measure

Annex II Financing plan

Annex III

Annex III.1 ISPA Financial Implementation provisions

Annex III.2 Provisions governing eligibility of expenditure for measures

assisted by ISPA

Annex III.3 Model for Payment Claims, for reporting on financial and

physical progress and request for modification

Annex III.4 Agreement on minimum requirements for financial control

applicable to ISPA assisted measures

Annex III.5 Agreement with respect to irregularities and recovery of sums

wrongly received under ISPA

Annex III.6 Information and Publicity requirements