Malagasy - Morondava Irrigation And Rural Development Project : Credit 0322 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 322 MAG Development Credit Agreement (Morondava Irrigation and Rural Development Project) BETWEEN MALAGASY REPUBLIC AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JUNE 30, 1972 CONFORMED COPY CREDIT NUMBER 322 MAG Development Credit Agreement (Morondava Irrigation and Rural Development Project) BETWEEN MALAGASY REPUBLIC AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JUNE 30, 1972 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated June 30, 1972, between MALAGASY REPUBLIC (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) The Borrower has requested the Association to assist in the financing of the foreign exchange cost of the Project described in Schedule 2 to this Development Credit Agreement by extending the Credit as hereinafter provided; (B) The Borrower has, by Decree No. 61,593, dated November 2, 1961, established the Aire de Mise en Valeur Rurale de Morondava; and WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Development Credit Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated January 31, 1969, with the same force and effect as if they were fully set forth herein, subject, however, to the deletion of Sections 5.01 and 6.02 (h) thereof and to the renumbering of Section 6.02 (i) into 6.02 (h) thereof (said General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Development Credit Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Area" means the areas within the territories of the Borrower, west of Dabara, north of the Morondava River, east of the Marovoay-Andranomena road and south of the Andranomena River, comprising a total of about 10,000 4 ha, which areas shall be further defined on a map to be agreed upon between the Borrower and the Association; (b) "AMVRM" means the Aire de Mise en Valeur Rurale de Morondava referred to in paragraph (B) of the preamble to this Development Credit Agreement; (c) "SCMV" means the Service Central de Mise en Valeur of the Ministry of Agriculture of the Borrower; (d) "Delta rice area" means the portion of the territories of the Borrower comprising a total of about 900 hectares west of Marovoay and between the Morondava and Kabatomena Rivers. (e) "BNM" means "Banque Nationale Malagasy de Developpement", a socite financidre et de crdit d'intrdt national of the Borrower, established pursuant to Law No. 61-029 of the Borrower, dated October 18, 1961 and to Statuts published in the Journal Officiel of the Borrower on February 9, 1963; (f) "GR" means the Genie Rural, the rural engineering services of the Ministry of Agriculture of the Borrower; (g) "SODEMO" means "SocitW pour le Dgveloppement Economique de la Rggion de Morondava ", a Soci9t9 d'economie mixte of the Borrower, established pursuant to Decree No. 72-043 of the Borrower, dated February 22, 1972; (h) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and SODEMO pursuant to Section 3.01 (b) (ii) of this Development Credit Agreement, under terms and conditions satisfactory to the Association, as the same may be amended from time to time and such term includes all schedules to the Subsidiary Loan Agreement; (i) "FMG" means Malagasy Francs in the currency of the Borrower; and (j) "ha" means "hectares". ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in this Development Credit Agreement set forth or referred to, 5 an amount in various currencies equivalent to fifteen million three hundred thousand dollars ($15,300,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Development Credit Agreement, as such Schedule shall be amended from time to time, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Development Credit Agreement and to be financed under this Development Credit Agreement; provided, however, that, except as the Association shall otherwise agree, no withdrawal shall be made on account of expenditures in the territories of any country which is not a member of the Bank (other than Switzerland) or for goods produced in, or services supplied from, such territories. Section 2.03. Except as the Association shall otherwise agree, the goods and services (other than services of consultants) required for the Project and to be financed out of the proceeds of the Credit, shall be procured on the basis of international competition under procedures consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in April 1972, and in accordance with, and subject to, the provisions set forth in Schedule 3 to this Development Credit Agreement. Section 2.04. The Closing Date shall be June 30, 1979 or such other date as shall be agreed between the Borrower and the Association. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-quarters of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semi-annually on April 15 and October 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 15 and October 15 commencing October 15, 1982 and ending April 15, 2022, each installment to and including the installment payable on April 15, 1992 to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. 6 ARTICLE I Execution of the Project Section 3.01. (a) The Borrower shall carry out Parts A and B of the Project through GR and Part F of the Project through SCMV, and shall cause SODEMO to carry out Parts C and D of the Project and to carry out or cause to be carried out Part E of the Project with due diligence and efficiency and in conformity with sound administrative, agricultural and financial practices, and shall provide, and cause SODEMO to be provided with, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Borrower shall: (i) make available to SODEMO in the form of a grant an amount equivalent to such proceeds of the Credit as it shall withdraw from the Credit Account for the carrying out of Parts C.5, C.6 and E of the Project; and (ii) lend to SODEMO such other amounts equivalent to the proceeds of the Credit as it shall withdraw from the Credit Account for the carrying out of Parts C.1, C.2, C.3, C.4 and D of the Project, under the Subsidiary Loan Agreement; and (iii) exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Association and, except as the Association shall otherwise agree, not take any action which may have the effect of amending, assigning, abrogating, terminating or waiving the Subsidiary Loan Agreement or any provision thereof. (c) Without in any way restricting or limiting its obligations under paragraphs (a) and (b) of this Section, the Borrower shall cause BNM to provide credit to SODEMO and, through SODEMO, to the farmers participating in Part C.3 of the Project in such additional amounts as shall be required to carry out Parts C.1, C.2, C.3, C.4 and D of the Project and to operate efficiently the agricultural production units included in Parts C.1, C.2 and C.3 of the Project, under such terms and conditions as shall be agreed from time to time between the Borrower, the Association and BNM. 7 Section 3.02 (a) In order to assist SCMV, GR and SODEMO in the carrying out of the Parts of the Project respectively entrusted to them, the Borrower shall cause SCMV, GR and SODEMO to employ engineering, agricultural, management and accounting consultants acceptable to the Association to an extent and upon terms and conditions satisfactory to the Association. (b) In order to assist SODEMO in the carrying out of the research programs included in Part C.6 of the Project, the Borrower shall cause SODEMO to enter into a contract with the Institut de la Recherche Agronomique Malgache, under terms and conditions satisfactory to the Association, within six months from the date of this Development Credit Agreement. Section 3.03. In carrying out the civil works included in the Project, the Borrower shall employ and cause GR and SODEMO to employ contractors acceptable to the Association to an extent and upon terms and conditions satisfactory to the Association. Section 3.04. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credx . -ainst hazards incident to the acquisition, transportation and delivery thereof ' Lhe place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section 3.05. (a) The Borrower, through SCMV, shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules, for the Project, and any mateial modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain, and cause SCMV, GR and SODEMO to set up and maintain, records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to inspect the Project, the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish to the Association all such information as the 8 Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.06. The Borrower shall take or cause SODEMO to take all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall cause SODEMO to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of SODEMO; such records to reflect, independently from all operations of SODEMO, the operations and financial condition of the agricultural production units included in Parts C. 1 and C.2 of the Project. (b) The Borrower shall cause SODEMO to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of such accounts and financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and financial statements and the audit thereof as the Association shall from time to time reasonably request. Section 4.02. The Borrower shall cause SODEMO to: (a) at all times conduct its operations under experienced and competent management, in accordance with sound financial, agricultural and commercial practices and with the assistance of adequate, competent and experienced staff; (b) consult with the Association prior to making any appointment to the post of General Manager; ) 9 (c) replace non-Malagasy personnel with Malagasy personnel only after the Borrower, the Association and SODEMO shall have agreed, in each case, upon the qualifications and experience of the candidate; (d) be able to offer to its Malagasy personnel in key positions in the field such salaries or other related benefits as shall be necessary to attract the qualified personnel required in the Project Area; (e) at all times operate, renew, repair and maintain all irrigation and drainage works and :ssociated facilities within the Project Area; (f) continue to provide the agricultural support services referred to in Part C.4 of the Project after the completion of the Project; and (g) take out and maintain with responsible insurers, or make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with sound practice. Section 4.03. The Borrower shall (a) take all feasible measures to ensure that the execution and operation of the Project are carried out with due regard to ecological and environmental factors and (b) not permit (i) the water flow of the Morondava River or of other rivers supplying water to the Project Area to be depleted, unless the Association shall otherwise agree, below the minimum water requirements of the agricultural production units referred to in Parts C. 1, C.2 and C.3 of the Project and of the rice farmers in the Delta rice area; or (ii) that the waters of such rivers be polluted in any way which might have an adverse effect on the agricultural development of the Project Area or the sanitary conditions prevailing therein. Section 4.04. (a) As and when the irrigation and drainage facilities required for the Project are completed, the Borrower shall distribute land plots of about (i) I ha for dry-farming, near the area referred to in Part C. 1 of the Project, to permanent laborers working in the agricultural production unit therein referred to; (ii) 0.3 ha for irrigated rice cultivation, to permanent laborers working in the agricultural production unit referred to in Part C.2 of the Project; and (iii) 2 ha for irrigated rice cultivation, in the area referred to in Part C.3 of the Project, to farmers settled therein and working thereat. (b) The land distribution referred to in sub-paragraph (iii) of the preceding paragraph (a) shall be in accordance with the terms and conditions of a contract, acceptable to the Association, to be entered into between the Borrower, SODEMO 10 and each such farmer in respect of each such plot; such contract to provide, inter alia, that: (i) each such farmer or his successors shall pay to SODEMO over a period of 40 years beginning one year after completion of Part C.3 of the Project an annual charge equivalent, on the average, to 600 kilograms of rice paddy for each cropped hectare per harvest, as compensation for improvements and services provided by SODEMO; and (ii) upon completion of such payments and compliance with the other terms and conditions of the relevant contract over a period of 15 years, each such farmer, or his successors, shall become the owner of the plot to which the contract applies. Section 4.05. The Borrower shall cause SODEMO to: (a) collect from the Bezezika citrus state farm, beginning on January 1, 1979, or such other later date as shall be agreed between the Borrower, the Association and SODEMO, one annual irrigation and drainage service charge equivalent to FMG 4,000 for each cultivated and irrigated ha or such other amount as shall be agreed between the Borrower, the Association and SODEMO by September 30, 1978 and at least every five years thereafter; and (b) pay to the Borrower, on April 1, 1981 and every year thereafter until 2012, an amount equivalent to the net cash surplus of the preceding fiscal year obtained by SODEMO. For the purposes of the preceding paragraph (b): (i) "net cash surplus" means gross cash revenues from operations less all cash operating expenses, after the constitution of a working capital fund equivalent to $1,000,000; (ii) "gross cash revenues from operation" means the aggregate gross cash revenues of SODEMO, including in particular the operation surplus of the agricultural production units referred to in Parts C.1 and C.2 of the Project and the charges paid to SODEMO in accordance with Sections 4.04 (b) (i) and 4.05 (a) of this Development Credit Agreement; 11 (iii) "operation surplus", for the purposes of the preceding sub-paragraph (ii), means gross revenues from the marketing of the agricultural products of the relevant production unit less depreciation and the costs of operation and management of such unit; and (iv) "cash operating expenses" means the aggregate expenditures of SODEMO, including in particular its operating costs, debt service, replacement of equipment and dividends paid to its shareholders at a rate agreed to between the Borrower, the Association and SODEMO. Section 4.06. The Borrower shall (a) operate the educationce and sanitary facilities included in Parts E.3 and E.4 of the Project in accordance with sound administrative, educational and sanitary practices; (b) staff such facilities with competent and qualified staff in adequate numbers; (c) adequately maintain all such facilities and make all necessary repairs and renewals therein; and (d) provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 4.07. The Borrower shall cause GR at all times to operate, renew, repair and maintain all irrigation and drainage works and associated facilities within the Delta rice area. ARTICLE V Consultation, Information and Inspection Section 5.01. The Borrower and the Association shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Borrower and the Association shall from time to time, at the request of either party: (a) exchange views through their representatives with regard to the performance of their respective obligations under this Development Credit Agreement, the administration, operations and financial condition of SODEMO and, in respect of the Project, of SCMV, GR and any other departments or agencies of the Borrower responsible for carrying out the Project or any part theireof, and other matters relating to the purposes of the Credit; and 12 (b) furnish to the other all such information as it shall reasonably request with regard to the general status of the Credit. On the part of the Borrower, such information shall include information with respect to financial and economic conditions in the territories of the Borrower, including its balance of payments, and the external debt of the Borrower, of any of its political subdivisions and of any agency of the Borrower or of any such political subdivision. Section 5.02. (a) The Borrower shall furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the administration, operations and financial condition of SODEMO and, in respect of the Project, of SCMV, GR and any other departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower and the Association shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the maintenance of the service thereof or the performance by either of them of its obligations under this Development Credit Agreement. Section 5.03. The Borrower shall afford all reasonable opportunity for accredited representatives of the Association to visit any part of the territories of the Borrower for purposes related to the Credit. ARTICLE VI Taxes and Restrictions Section 6.01. The principal of, and service charges on, the Credit shall be paid without deduction for, and free from, any taxes imposed under the laws of the Borrower or laws in effect in its territories. Section 6.02. This Development Credit Agreement shall be free from any taxes on or in connection with the execution, delivery or registration thereof, imposed under the laws of the Borrower or laws in effect in its territories. Section 6.03. The payment of the principal of, and service charges on, the Credit shall be free from all restrictions, regulations, controls and moratoria of any nature imposed under the laws of the Borrower or laws in effect in its territories. 13 ARTICLE VII Remedies of the Association Section 7.01. If any event specified in Section 7.01 of the General Conditions or in Section 7.03 of this Development Credit Agreement shall occur and shall continue for the period, if any, therein set forth, then at any subsequent time during the continuance thereof, the Association, at its option, may by notice to the Borrower declare the principal of the Credit then outstanding to be due and payable immediately together with the service charges thereon and upon any such declaration such principal and service charges shall become due and payable immediately, anything to the contrary in this Development Credit Agreement notwithstanding. Section 7.02. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) SODEMO shall have failed to make payment of principal, interest or any other payment required under the Subsidiary Loan Agreement; (b) a default shall have occurred in the performance of any other obligation on the part of the Borrower or SODEMO under the Subsidiary Loan Agreement; (c) any creditor of SODEMO shall have demanded payment of monies lent to SODEMO, prior to the agreed maturity of any loan having an original maturity of one year or longer, in accordance with the terms of such loan; and (d) the Decree No. 72-043 of the Borrower, dated February 22, 1972, or the Statuts of SODEMO shall have been suspended, terminated, repealed or amended in such way as to impair the ability of SODEMO to carry out Parts C, D, and E of the Project or its obligations under the Subsidiary Loan Agreement. Section 7.03. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: (a) any event specified in paragraph (a) or in paragraph (c) of Section 7.02 of this Development Credit Agreement shall occur and shall continue for a period of thirty days; (b) any event specified in paragraph (b) of Section 7.02 of this Development Credit Agreement shall occur and shall continue for a period of sixty 14 days after notice thereof shall have been given by the Association to the Borrower and SODEMO; and (c) any event specified in paragraph (d) of Section 7.02 of this Development Credit Agreement shall occur. ARTICLE VIII Effective Date; Termination Section 8.01. The following events are specified as additional conditions to the effectiveness of this Development Credit Agreement within the meaning of Section 10.01 (b) of the General Conditions: (a) the Statuts of SODEMO, in form and substance satisfactory to the Borrower and the Association, have been duly approved by all necessary corporate and governmental action; (b) a financial plan to enable SODEMO to carry out Parts C, D and E of the Project, consistent with the provisions of Section 3.01 (b) and (c) of this Development Credit Agreement and in all other respects satisfactory in form and substance to the Borrower, the Association and SODEMO, has been agreed between the Borrower and SODEMO and has been duly approved by all necessary corporate and governmental action; and (c) the Subsidiary Loan Agreement has been duly authorized or ratified by all necessary corporate and governmental action, executed and delivered and has become effective; and (d) the consultants referred to in Section 3.02 (a) of this Development Credit Agreement have been employed by SODEMO and GR. Section 8.02. The following are specified as additional matters, within the meaning of Section 10.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that all acts, consents and approvals required in connection with the Statuts of SODEMO have been validly performed or given; (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and SODEMO, 15 respectively, and constitutes a valid and binding obligation of the Borrower and SODEMO in accordance with its terms; and (c) that the other contractual arrangements, if any, required to carry out, initially, the financial plan referred to in Section 8.01 (b) of this Development Credit Agreement, have been duly authorized or ratified by, and executed and delivered on behalf of, SODEMO and all other parties thereto, respectively, and that such arrangements constitute valid and binding obligations of SODEMO and such parties in accordance with their respective terms. Section 8.03. The date of September 28, 1972, is hereby specified for the purposes of Section 10.04 of the General Conditions. Section 8.04. The obligations of the Borrower under paragraph (c) of Section 3.01 and Article IV (except paragraph (e) of Section 4.02 and Section 4.05) of this Development Credit Agreement shall cease and determine on the date on which this Development Credit Agreement shall terminate or on a date twenty-five years after the date of this Development Credit Agreement, whichever shall be the earlier. ARTICLE IX Representative of the Borrower; Addresses Section 9.01. The Ministre des Finances of the Borrower is designated as representative of the Borrower for the purposes of Section 9.03 of the General Conditions. Section 9.02. The following addresses are specified for the purposes of Section 9.01 of the General Conditions: For the Borrower: Ministre des Finances Tananarive Malagasy Republic Cable address: Minfin Tananarive 16 For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Indevas Washington, D.C. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Development Credit Agreement to be signed in their respective names and to be delivered in the District of Columbia, United States of America, as of the day and year first above written. MALAGASY REPUBLIC By /s / Ch. Randrianasolo Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / M. Shoaib Vice President 17 SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of amounts of the Credit to each Category and the percentage of eligible expenditures so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed I. Equipment 1,300,000 100% of foreign ex- penditures or 75% of local expendi- tures (representing the estimated foreign expenditure component) II. Civil Works for: (a) Parts A and B 5,000,000 ) 73% of total expendi- of the Project ) tures (representing ) the estimated foreign (b) Part C of the 3,900,000 ) expenditure component) Project ) (c) Part E of the 900,000 30% of total expendi- Project tures (representing the estimated foreign expenditure component) III. Consultants' Ser- vices for: 18 Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (a) Parts A and B 450,000 ) of the Project ) ) 82% of total expendi- (b) Parts C, D and 1,450,000 ) tures (representing E of the Proj- ) the estimated foreign ect ) expenditure component) (c) Part F of the 300,000 ) Project ) IV. Unallocated 2,000,000 TOTAL 15,300,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures for goods produced in, or services supplied from, the territories, and in the currency, of any country other than the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower, or for goods produced in, or services supplied from, the territories of the Borrower; and (c) the term "total expenditures" means the aggregate of foreign and local expenditures. 3. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of: (a) expenditures prior to the date of this Development Credit Agreement, except that withdrawals may be made in respect of Categories III (a) and (b) on 19 account of expenditures incurred after May 1, 1972, in an amount not exceeding in the aggregate the equivalent of $200,000; and (b) payments for taxes imposed directly under the laws of the Borrower or laws in effect in its territories on goods or services, or on the importation, manufacture, procurement or supply thereof. To the extent that the amount represented by the percentage set forth in the third column of the table in paragraph I above in respect of any Category would exceed the amount payable net of all such taxes, such percentage shall be reduced to ensure that no proceeds of the Credit will be withdrawn on account of payments for such taxes. 4. Notwithstanding the allocation of an amount of the Credit set forth in the second column of the table in paragraph I above: (a) if the estimate of the expenditures under any Category shall decrease, the amount of the Credit then allocated to such Category and no longer required therefor will be reallocated by the Association by increasing correspondingly the unallocated amount of the Credit; (b) if the estimate of the expenditures under any Category shall increase, the percentage set forth in the third column of the table in paragraph I above in respect of such expenditures shall be applied to the amount of such increase, and a corresponding amount will be allocated by the Association, at the request of the Borrower, to such Category from the unallocated amount of the Credit, subject, however, to the requirements for contingencies, as determined by the Association, in respect of any other expenditures; and (c) if the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in Section 2.03 of this Development Credit Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under this Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. 5. Notwithstanding the percentages set forth in the third column of the table in paragraph I above, if the estimate of total expenditures under Category II or III shall increase and no proceeds of the Credit are available for reallocation to 20 such Category, the Association may, by notice to the Borrower, adjust the percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 21 SCHEDULE 2 Description of the Project The Project is the first phase of a development plan of the Borrower for the Worondava region and it consists of providing irrigation and associated services to three new agricultural production units, totalling in the aggregate about 9,300 ha. The Project comprises the following Parts: A. Main Irrigation Works 1. Construction of a diversion dam on the Morondava River, at Dabara. 2. Rehabilitation of about 64 km of the Dabara Canal and the North Canal. 3. Deepening and widening of the Tandila, Tsivavy and Mande Rivers for drainage purposes, and excavation of two main drains at Kabatomena and Androvakely, in the Delta rice area. 4. Construction of secondary irrigation and drainage canals to serve the Project Area. 5. Detailed engineering for the above works. B. Road Works 1. Reconstruction of the Bevoay-Mahabo road, including about 12.5 km of macadam surfacing. 2. Construction of a rural road through Analaiva tobacco area, to connect Betsinefo and Betsipotika. 3. Construction of about 69 km of farm roads along the secondary canals and about 14 km of feeder roads throughout the Project Area. 4. Rehabilitation of all existing service roads along the main canals. 5. Detailed engineering for the above works. C. Farm Development, Ancillary Buildings, Equipment and Staff Housing 22 1. Organization of a tobacco and peanuts farm at Analaiva, with an approximate cultivated area of 2,700 ha, including construction of a sprinkler irrigation system. 2. Organization of a cotton farm at Ankilivalo, with an approximate cultivated area of 1,900 ha, including construction of tertiary and quaternary gravity irrigation and drainage systems. 3. Land consolidation and distribution to rice farmers in the vicinity of Mahabo, Tsivalaka and Ambohibary, in an aggregate of about 4,700 ha of cultivated land, including construction of tertiary and quaternary gravity irrigation and drainage systems. 4. Provision of agricultural support services to rice farmers, including, but without limitation: (a) irrigation management and distribution; (b) assistance in obtaining agricultural credit; (c) assistance in procuring agricultural machinery and equipment, seeds, fertilizers, pesticides and other required inputs; (d) agricultural extension services; and (e) training and organization of farmers into cooperatives or other intermediate associations capable of assuming managerial responsibilities. 5. Construction of an applied research station of about 15 ha within the Analaiva tobacco farm. 6. Carrying out at the new Analaiva station and at the existing stations at Ankilivalo and Antevamena of applied research, mainly on tobacco, peanuts, cotton and forage crops. 7. Detailed engineering for works described in paragraphs 1, 2, 3 and 5 hereof. D. Main tenance Preparation and initial execution of an operations and maintenance program for the foregoing irrigation, drainage, road and farm development works, including equipment therefor. 23 E. Settlement and Health Services 1. Recruitment and selection of about 2,100 settler families to participate in the Project; provision of transportation and subsistence allowances to such families; and reception and location of such families throughout the Project Area. 2. Expansion and improvement of about 10 existing villages and construction of about 10 villages, with an average capacity of 150 families each, at locations to be agreed from time to time between the Borrower and the Association. 3. Construction, equipping and furnishing of about 20 elementary schools at the foregoing villages with an aggregate enrollment capacity of about 4,200 student places and of a technical training center with an enrollment capacity of about 100 student places. 4. Expansion of the hospital at Mahabo to double its capacity to about 50 beds; construction, equipping and furnishing of an epidemiological center,, adjacent to such hospital and of one new dispensary each at Analaiva, Ankilivalo and Bezezika, including staff housing. 5. The carrying out of health control services, including, inter alia: (a) a six-year program to control the incidence of a urinary bilharzia in the Project Area and consisting of: (i) the preparation of a map of all bodies of water in the Project Area and the periodic sanitary inspection thereof; (ii) educational hygiene campaigns and selective parasitological testing of residents in the Project Area; and (iii) treatment of residents and bodies of water as may be necessary in accordance with sound public health standards and practices; and (b) the preparation of a long-term plan for the control and eradication of urinary bilharzia, to be implemented after consultation with the Association. 6. The provision of professional services to assist in carrying out the settlement and works, and to provide the services, herein described. 24 F. Feasibility Studies Feasibility studies for the second phase of development of the Morondava region. The Project is expected to be completed by December 31, 1978. 25 SCHEDULE 3 Procurement 1. With respect to any contract for civil works estimated to cost the equivalent of $100,000 or more or any contract for the supply of equipment estimated to cost the equivalent of $10,000 or more: (a) Goods and services shall be grouped, whenever practicable, for the purposes of inviting bids in amounts sufficiently large to attract international competitive bidding. (b) Before bids are invited, the Borrower shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (c) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Association of the name of the bidder to whom it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, by the engineering and agricultural consultants referre.J to in Section 3.02 (a) of this Development Credit Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of such consultants, and the reasons for the intended award. The Association shall, if it determines that the intended award would be inconsistent with the procedures set forth or referred to in Section 2.03 of this Development Credit Agreement, promptly inform the Borrower and state the reasons for such determination. (d) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (e) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract. 2. In the case of any contract for civil works estimated to cost less than the equivalent of $100,000 or of any contract for the provision of equipment estimated 26 to cost less than the equivalent of $10,000, competitive bidding may be limited to firms doing business within the territories of the Borrower and the award shall be made in accordance with the Borrower's procurement procedures; provided, however, that (i) the total aggregate amount of such contract shall not, unless the Association shall otherwise agree, exceed the equivalent of $1,000,000 in the case of contracts for civil works or of $400,000 in the case of contracts for the provision of equipment; and (ii) the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. 3. No amendments shall be made without the prior written approval of the Association to any contract referred to in the preceding paragraphs 1 and 2 if such amendment involves a price increase of more than 10% of the original contract price. 4. For the purpose of evaluating bids for goods and associated services included in Category I of the table in paragraph 1 of Schedule 1 to this Development Credit Agreement, bid prices shall be determined and compared in accordance with the following rules: (a) the term "Local Bid" means a bid submitted by a manufacturer established in the territories of the Borrower for goods manufactured or processed to a substantial extent (as reasonably determined by the Association) in such territories; any other bid shall be deemed to be a "Foreign Bid"; (b) the bid price under a Local Bid shall be the sum of the following amounts: (i) the ex-factory price of such goods; and (ii) inland freight, insurance and other costs of delivery of such goods to the place of their use or installation; (c) for the purpose of comparing any Foreign Bid with any Local Bid, the bid price under a Foreign Bid shall be the sum of the following amounts: (i) the c.i.f. (port of entry) price of such goods; (ii) the amount of any taxes on the importation of such goods into the territories of the Borrower which generally apply to 27 non-exempt importers, or 15% of the amount specified in (i) above, whichever shall be the lower; and (iii) inland freight, insurance and other costs of delivery of such goods to the place of their use or installation.