, OFFICIAL. The World Bank Office, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION.

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1 Public Disclosure Authorized The World Bank Office, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION, OFFICIAL 28 March, 2014 Public Disclosure Authorized Public Disclosure Authorized Mr. Christos Patsalides Permanent Secretary Ministry of Finance M. Karaoli and G. Afxentiou Corner 1439 Nicosia Cyprus Dear Sir, Re: CYPRUS: Amendment No. I to the Advisory Service Agreement On Reform Option, Best Practices And Proposed Priority Actions to Improve the Functions and Structure of Ministries and Agencies Identified by the Government of Cyprus (P146719) We refer to the Agreement for Advisory Services between the Republic of Cyprus, represented by the Ministry of Finance (the "Client") and the International Bank for Reconstruction and Development (the "Bank") dated September 5, 2013 (the Agreement). Please note that capitalized terms used in this letter (the "Amendment Letter") and not defined herein have the meaning ascribed in them in the Agreement. We also refer to Section 13 of the Agreement (Amendments), which states that "Any amendment or waiver of, or any consent given under, any provision of this Agreement shall be in writing and, in case of an amendment, signed by the Parties". Pursuant to our recent conversations on the subject, the Bank hereby agrees to amend the Agreement as follows (revisions are in italics): 1. Section 3 (a) to the Agreement is hereby amended to read as follows: Public Disclosure Authorized "(a) The Client shall pay the Bank a fixed fee of one million thirty one thousand and eighty Euro (61,031,080) in accordance with the following schedule of payment: Amount of Installment Event upon which Payment is Due 1. f 86, date of signature of this Agreement by both Parties (PAID) 2. C432, on the date of the presentation of interim Sector Reports and HRM/Salaries Report as set forth in step 5 of the table in Section B.1 of the Schedule to this Agreement (PAID) 3. C82, on the date of the presentation of the

2 -2- interim reports for Health and Education public entities (SOEs), as set forth in step 19 of the table in Section B.1 of the Schedule to this Agreement 4. C82, on the date of the presentation of the final reports for Health and Education public entities (SOEs), as set forth in step 21 of the table in Section B.1 of the Schedule to this Agreement 5. C346, on the date of the presentation of the final HRM Report as set forth in step 14 of the table in Section B. 1 of the Schedule to this Agreement 2. Section A of the Schedule to the Agreement is hereby amended to include a new subsection 3.5 to read as follows: "3.5: PREPARATION OF FUNCTIONAL REVIEWS FOR SELECTED PUBLIC ENTITIES, IDENTIFIED BY THE CLIENT. The functional reviews to be carried out by the Bank with regard to public entities selected by the Client' will comprise the following activities: Assess the rationale for public provision of services currently under the mandate of the selected public entities. * Examine whether the policy goals and objectives are clearly defined in measurable and achievable terms Analyze the functions and services currently performed and provided by the selected public entity. The analysis shall include, but not limited to, an examination of the following issues: * The existing legal framework under which the Organization is functioning. * The functions and activities currently being undertaken by the organization. * The rationale of the above functions. How do they relate to any strategic objectives or priorities stated for the Organization, if such objectives and priorities exist? Assess whether the functions are needed. * Assess the rationale for public provision of services currently under the mandate of the selected public entities Review of options for reforms, taking into consideration practice of other EU countries, Cypriot and EU legislation and advice on alternative options for 'Health Sector SOE's: (i) Health Insurance Organization (ii) The Cyprus Anti-Drugs Council. Education Sector SOE's: (i) The Cyprus Youth Board (ii) The Cyprus Sports Organization. MANRE SOE's: (i) Agricultural Insurance Organization (ii) Cyprus Agricultural Payments Organization.

3 -3- public provision of the above-listed functions and services. The alternative of merging with ministries or other public agencies, as well alternatives for the performing of functions and provision of services will be considered Review the current or planned organizational structure of the selected public entities and advise on alternative organizational structure. Review whether the management systems, policies, staffing and structure are appropriate to meet the objectives of the selected public entities. Review the functions of the departments and units of such entities to meet its objectives and assess whether there is no major overlap within or outside said public entities Assessment of cost implications of structural changes anticipated by the proposed reform options, through the following methodology: (a) Identification of the organizational reform options that would result in additional expenditures or savings. (b) Review of the costing impact of the reform options identified through activity (a), which will provide estimates be based on the characteristics of the proposed new structures in terms of general cost trends. (c) Provision of indicative information on the costing impact of new structures through the staffing analysis and the relevant benchmarking exercise The analysis on staffing will use the same methodology proposed by the Bank for the staffing analysis on sectors, including a benchmark exercise to compare organization and operation in similar agencies from other EU countries with comparable functions Outputs and Deliverables: 1. A report of the selected Public Entities that will cover issues listed in Sections to above, and in particular: (i) A review of the current situation (organization, structure and functions); (ii) Recommendations on whether the selected Public Entities should continue to carry out these functions or whether some of these functions should be eliminated or remain in the public sector and integrated in the Government Budget; (iii) Assessment of cost implications of structural changes anticipated by the proposed reform options; (iv) a detailed proposed organizational structure as stated in Section above; and (v) a detailed action plan for the implementation of the reform options proposed." 3. Section B of the Schedule to the Agreement is modified to read as follows: "Section B. Timetable. 1. Except as the Client and the Bank may otherwise agree, the Bank shall endeavor to perform the Reimbursable Advisory Services in accordance with the following tentative timetable:

4 -4- Indicative Deliverables and Tentative Dates Milestones* For Activities 3.1, 3.2, 3.3 and Client delivers all the relevant One week after the information identified by the effective date of this Bank for each of the areas of Agreement work during pre-contract meetings 2 Client appoints the task teams One week after effective for each of the 4 components date of this Agreement 3 First Bank mission to Cyprus- Two weeks after Collection of information, milestone 1 and 2 are interviews of stakeholders, fulfilled identification of additional (Health, Education and sources of information Agriculture Sectors, hereinafter "Sectors") (HRM/Salaries, joint mission with UK-NSGI) 4 Client delivers additional One week after first relevant information requested Bank mission is closed by Bank in First mission 5 Bank delivers interim Sector and Eight weeks after Step 4 HRM/Salaries Reports is fully completed by Client: (Sector ReportS 2 Nine weeks after Step 4 is fully completed by Client (HRM/Salaries Report) 6 Second Bank Mission - Two weeks after draft Technical workshops with each reports are delivered sector to discuss content and (Sectors Reports) recommendations of draft reports Two weeks after draft report is delivered (HRM/Salaries Report, joint mission with UK- NSGI) 7 Client provides substantial Four weeks after Second feedback on interim Sector and Bank mission first draft HRM/Salaries Reports 8 Bank sends revised version of January 31, 2014 HRM/Salaries Interim Report 9 Client sends written comments March 21,2014, after the on revised version Ministerial Committee HRM/Salaries Interim Report completes the review of 2 "Sector Reports" refers to a Health Sector Report (Section ), Agriculture Sector Report (Sec ) and Education Sector Report (Section 3.3.3), collectively. "HRM Report" refers to the report described in Section of this Schedule.

5 -5- the report 10 Client sends written comments January 28, 2014 on Sector Interim Reports 11 Bank delivers final sector March reports for MANRE, Health and Education Sector 12 Third Bank Mission to present To be confirmed final sector reports for MANRE, Education and Health 13 Third Bank Mission Two weeks after (HRM/Salaries) - liaison with comments from Client HRM sector issues included in on revised version of the the WB sectors' final reports report are delivered. and conclusions and discussions To be confirmed with the Client on implications for cross-cutting HRM 14 Bank Mission to deliver and April 30, 2014 present final HRM/salaries reports, together with UK-NSGI report on performance appraisal system For Activity Client delivers all the relevant 3 days after the information identified by the Amendment Letter No. 1 Bank for each of the areas of is signed work during pre-contract meetings 16 Client appoints the task teams 3 days after the for each of the 6 public entities Amendment Letter No. 1 is signed 17 Bank mission -provided the One week after the Bank considers such Mission Amendment Letter No.1 necessary for Activity is signed Collection of information, interviews of stakeholders, identification of additional sources of information 18 Bank delivers first draft reports Two weeks after for Health and Education and milestone 17 is fulfilled MANRE public entities (SOEs). 19 The Client provides substantial One week after feedback on draft reports milestone 18 is fulfilled 20 Bank delivers final reports for April 30, 2014 Health and Education public _ entities (SOEs) * The timely and completed delivery of outputs by the Bank depends on the timely provision of information and feedback from the Client

6 -6- The Bank shall prepare, throughout the implementation of this Agreement, two progress reports in English in the form provided for in the Attachment 2 to this Agreement to be delivered by December 23, 2013 and March , respectively. The progress reports shall list the following: (a) types of activities to date; (b) a brief summary of findings and conclusions carried out to date and (c) an anticipated timeline for remaining activities to be carried out. The progress reports shall be in the format provided as Attachment to this Agreement. The formats of the report may be modified upon mutual agreement between the Bank and the Client. The Client shall have 10 business days after submission of a progress report by the Bank to respond to the progress report, after which time it is considered accepted. The Bank agrees to respond to any comments on the progress report received by the Client within 5 business days." All other terms and conditions of the Agreement, except as amended herein, remain unchanged. Please confirm your agreement with the foregoing, on behalf of the Recipient, by signing, dating and returning to us the enclosed copy of this letter. This amendment will become effective upon the date of your countersigning of this letter. Sincerely, INTERNATIONAL BANK FOR RECONSTRU ION AND DEVELOPMENT AGREED: The World Bank REPUBLIC OF CYPRUS, as represented by the MINISTRY OF FINANCE By: Name: Christos Patsalides Title: Permanent Secretary of Ministry of Finance Date: 28 March, 2014