Mexico - Integrated Rural Development Project - Pider : Loan 1110 - Guarantee Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1110 ME Guarantee Agreement (Integrated Rural Development Project - PIDER) BETWEEN UNITED MEXICAN STATES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED MAY 22, 1975 CONFORMED COPY LOAN NUMBER 1110 ME Guarantee Agreement (Integrated Rural Development Project - PIDER) BETWEEN UNITED MEXICAN STATES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED MAY 22, 1975 GUARANTEE AGREEMENT AGREEMENT, dated May 22, 1975, between UNITED MEXICAN STATES (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank and Nacional Financiera, S.A. (hereinafter called the Borrower) the Bank has agreed to make to the Borrower a loan in various currencies equivalent to one hundred ten million dollars ($110,000,000), on the terms and conditions set forth in the Loan Agreement, and in an agreement of even date herewith between the Bank and Banco de Mexico, S.A., but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan as hereinafter provided; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to enter into this Guarantee Agreement; 0 NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the Loan Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual 4 payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, all as set forth in the Loan Agreement. Section 2.02. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes, whenever there is reasonable cause to believe that the funds available to Banxico for purposes of Part 4 of the Project will be inadequate to meet the estimated expenditures required for carrying out such part of the Project, to make arrangements, satisfactory to the Bank, promptly to provide Banxico or cause Banxico to be provided with such funds as are needed to meet such expenditures. ARTICLE III Execution of the Project Section 3.01. (a) The Guarantor shall carry out the Project described in Schedule 1 to this Agreement, or cause the Project to be carried out, with due diligence and efficiency and in conformity with sound administrative, financial, engineering, agricultural and other relevant technical practices. (b) The Project shall be carried out in such regions as the Guarantor and the Bank shall agree. (c) The Project shall be carried out in accordance with such investment plans for each region as the Guarantor and the Bank shall agree; it being understood: (i) that not less than 70% of the total cost of each such investment plan shall be for investments included in Parts I to 10, both included, of the Project; and (ii) that the estimated return thereon shall not be less than 10%. Except as the Bank shall otherwise agree, any decrease in such investments, and any increase or decrease of more than 30% in any of the planned investments included in Parts 11 to 13, both included, of the Project, shall require the prior concurrence of the Bank. (d) Within one year after the date of this Agreement, or such other period as the Bank shall agree, the Guarantor shall cause the formulation of a budget for selected villages or ejidos in each of the regions included in the Project so as to have an adequate representation of the investment plan in the villages and ejidos to be developed in the regions included in the Project. Such budgets shall include estimated cash flow of, and labor demand induced by, the planned investments. 5 Section 3.02. The Guarantor shall formulate the investment plans referred to in Section 3.01 hereof, and shall carry out the Project, or cause the Project to be carried out, through the organizational arrangements made by the Guarantor under its Programa de Inversiones Pblicas para el Desarrollo Rural (PIDER), with the agencies set forth in the Annex to Schedule I hereto, as such Annex shall be amended from time to time by agreement between the Guarantor and the Bank. Section 3.03. (a) The Guarantor shall include in Part I of the Project only such facilities as shall be justified in the light of technical and socio-economic appraisal studies carried out in accordance to the criteria currently applied by the Guarantor through its Plan Nacional de Obras de Riego para el Desarrollo Rural. (b) Except as the Bank shall otherwise agree, such facilities, to be included in Part I of the Project, shall satisfy the following conditions: (i) facilities to supply water for domestic use and for livestock watering purposes: their investment cost must not exceed the equivalent of $32,000 and such facilities must benefit at least eight families of beneficiaries; (ii) facilities to supply water for irrigation purposes to an area up to 25 hectares: their investment cost must not exceed the equivalent of $32,000 and such facilities must benefit at least eight families of beneficiaries, except that if the net agricultural a..nual income of the beneficiaries' families does not exceed the equivalent of $2,500, the investment cost of such facilities per family of beneficiaries must not exceed the equivalent of $24,000; and (iii) facilities to supply water for irrigation purposes to an area exceeding 25 hectares: their investment cost per family of beneficiaries must not exceed the equivalent of $24,000. (c) The Guarantor shall collect such water charges in respect of water supplied through the facilities referred to in sub-paragraphs (b)(ii) and (iii) hereof as shall be necessary to recover all the operation and maintenance costs of such facilities, and, with respect to water supplied through the facilities referred to in sub-paragraph (b)(iii) hereof, as much of their investment cost as it shall be reasonable taking into account the ability of said farmers to pay and the need to maintain an incentive for them to make best use of the land and water available to them. 6 Section 3.04. The Guarantor shall carry out soil and water conservation works included in the Project only after (i) preparing detailed conservation plans on a watershed basis, and (ii) obtaining assurances that the beneficiaries of such works will maintain them under the Guarantor's supervision. Section 3.05. The Guarantor shall construct the facilities included in Part 3 of the Project in accordance with economic design standards. Section 3.06. (a) The Guarantor recognizes that in order to be able to make full productive use of their land and other resources, farmers in the regions included in the Project must have access to short-, medium- and long-term agricultural credit, fertilizer and improved seeds, on reasonable terms. To this end, the Guarantor shall take all measures necessary to ensure that such credit, fertilizer and improved seeds will be made available in such regions in the quantities and at the time required to utilize fully the other resources available. (b) The Guarantor shall take all action which shall be necessary or advisable to enable Banxico to apply and cause to be applied the credit policies provided in the Project Agreement in respect of the medium- and long-term loans included in the Project. (c) Without limitation or restriction on the obligations of the Borrower pursuant to the Loan Agreement, the Guarantor shall transfer to the Borrower such funds as the Borrower shall be required to pay to the Bank on account of principal, interest, and other charges on the Loan; provided that the funds to be so transferred on account of interest and other charges on the proceeds of the Loan transferred by the Borrower to Banxico for purposes of carrying out Part 4 of the Project shall be withdrawn by the Guarantor from the Fondo Especial de Asistencia T&cnica y Garantia para Crditos Agropectiarios. Section 3.07. The Guarantor shall cause the facilities included in Part 10 of the Project to be adequately operated. Section 3.08. The Guarantor shall, in carrying out Part 8 of the Project, (i) cause teams which are expected to include agronomists, sociologists and lawyers to assist ejidatarios as well as other farmers in the regions included in the Project, and (ii) cause the members of such teams to receive not less than one month's training prior to their working in the Project. Section 3.09. The Guarantor shall carry out Part 9 of the Project in accordance with an operational program satisfactory to the Guarantor and the Bank. 7 Section 3.10. Except as the Bank shall otherwise agree, investments for health facilities included in the Project shall be carried out only in those villages where the beneficiaries shall contribute not less than 10% to their construction cost. Section 3.11. The Guarantor shall at all times cause the educational and health facilities included in the Project to be adequately staffed and operated. Section 3.12. Except as the Bank shall otherwise agree: (a) the investment costs per capita for the works included in Part 7 of the Project, including transmission from the main power grid to any village and of distribution to the consumers, shall not exceed the equivalent of $150; and (b) the Guarantor shall cause the rates for the sale of electricity distributed in the regions included in the Project to be charged and collected according to the rates for the sale of electricity applied generally in Mexico. Section 3.13. Except as the Bank shall otherwise agree: (i) investments for rural water supply included in Part 13 of the Project shall be carried out only in those villages where the beneficiaries shall contribute not less than 15% of the investment cost, and provided that the remainder of the investment cost shall not exceed the equivalent of $100 per beneficiary; (ii) in the case of water supply systems with household connections, beneficiaries shall pay for all expenditures for investments within their property; and (iii) beneficiaries shall be charged for the sale of water at such rates as shall be -iecessary to recover the full cost of operation and maintenance of the water supply facilities. Section 3.14. Materials costing not more than the equivalent of $40 per beneficiary shall be distributed on a grant basis to participants in the self-help programs included in the Project. Section 3.15. The Guarantor shall cause the works and facilities included in the Project to be maintained and repaired in accordance with sound engineering, public utility and other pertinent standards. Section 3.16. (a) Except as the Bank shall otherwise agree, the goods, works and services for the Project to be financed out of the proceeds of the Loan, shall be purchased, carried out or obtained in accordance with the provisions of Schedule 2 to this Agreement. (b) The Guarantor shall use, or cause to be used, economic and efficient labor intensive methods in the construction of Project works. 8 Section 3.17. (a) The Guarantor undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Guarantor to replace or repair such goods. (b) Except as the Bank may otherwise agree, the Guarantor shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.18. (a) The Guarantor shall, at the Bank's request, furnish to the Bank the plans, specifications, contract documents and work schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Guarantor: (i) shall maintain or cause to be maintained records adequate to record the progress and cost of the Project, to identify the goods and services financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to show the results achieved by the Project, and to show the extent to which the investment, operation and maintenance costs of the services provided under the Project have been recovered as required by the provisions of this Agreement; (ii) shall enable the Bank's representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish or cause to be furnished to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. Section 3.19. The Guarantor shall: (i) maintain, or cause to be maintained, separate accounts to reflect in accordance with consistently maintained sound accounting practices the financial situation of the Project; (ii) cause such accounts to be audited annually, applying sound auditing principles, in conformity with the laws of the Guarantor; (iii) promptly make available to the Bank copies of such accounts, as so audited; and (iv) furnish to the Bank such other pertinent information concerning such accounts as the Bank shall reasonably request from time to time. Section 3.20. The Guarantor shall obtain and keep such information on each of the regions included in the Project, as shall bs required to evaluate the results of the investments carried out in them under the Project. 9 ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any governmental assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Guarantor, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Guarantor shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other governmental assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "governmental assets" means assets of the Guarantor, of any of its political subdivisions or of any agency; and the term "agency" means any agency or instrumentality of the Guarantor or of any political subdivision of the Guarantor and shall include any institution or organization which is owned or controlled directly or indirectly by the Guarantor or by any political subdivision of the Guarantor or the operations of which are conducted primarily in the interest of or for the account of the Guarantor or any political subdivision of the Guarantor. Section 4.02. The Guarantor covenants that it will not take, or cause or permit any of its political subdivisions or any of its agencies or any agency of any such political subdivisions to take, any action which would prevent or interfere with the performance by Banxico of its obligations contained in the Project 10 Agreement, and will take or cause to be taken all reasonable action necessary or appropriate to enable Banxico to perform such obligations. ARTICLE V Representative of the Guarantor Section 5.01. Nacional Financiera, S.A. is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 5.02. The Guarantor hereby agrees that all notices and requests given or made by the Bank to the Borrower shall be deemed to have been given or made also to the Guarantor. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. UNITED MEXICAN STATES BY: NACIONAL FINANCIERA, S.A. By /s/ Hugo Cervantes del Rio Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean 11 SCHEDULE I Description of the Project The Project consists of the development of about 30 regions in the main ecological zones of Mexico. It is expected that the regions will, on the average, have about 50,000 inhabitants. The Project includes: 1. Irrigation. Construction and rehabilitation of small-scale water facilities, including small wells, small dams, deep wells, pumping plants, and ancillary distribution facilities to irrigate about 30,000 hectares of farm land and to provide for domestic and livestock use. 2. Soil and Water Conservation. Construction of contour ridges, terraces and checkdams for gully protection and other conservation works to maintain and improve about 90,000 hectares of farm land. 3. Infrastructure for Livestock Development. Land clearing, pasture establishment, perimeter fencing, and construction of watering and handling facilities for the development of beef, dairy, sheep, pig, rabbit, poultry, and goat production, and construction of beekeeping facilities. 4. Agricultural Credit. A program of seasonal and medium- and long-term credit for small farmers, including that required to achieve the full use of productive infrastructure. 5. Fruit Production, Forestry, and Fishery Development. Development of orchard infrastructure and planting of fruit trees on about 9,500 hectares; aforestation and reforestation; and construction of infrastructure for fishery development. 6. Feeder Roads. Construction of about 2,000 km. of feeder roads. 7. Rural Electrification. Construction of the facilities required to make electricity available to about 35,000 rural households. 8. Farmers' Organization. A program of assistance to improve the social and economic organization of farmers. 9. Extension and Field Demonstration. Provision of agricultural extension services, including field testing and demonstration. 12 10. Rural Marketing. Provision of mobile shops and construction of small shops and warehouses. 11. Educational Facilities. Construction or renovation, and furnishing of about 1,150 primary level classrooms. 12. Health Facilities. Construction or renovation, and equipping of rural health posts and centers. 13. Rural Water Supply. Construction of water supply systems to benefit about 250,000 persons. 14. Self-help Programs. Provision of materials for self-help activities in the ejidos and villages, such as housing and sanitation improvements, community centers, and village workshops. 15. Evaluation. Evaluation of the effects of the above components of the Project in the development o ' the regions. This part of the Project will not be financed out of the proceeds of the Loan. The Project is expected to be completed by June 30, 1978. 13 ANNEX Organization Plan 1. The Secretarfa de la Presidencia will have overall responsibility for the formulation and execution of the investment plans included in the Project, including the coordination of the activities in respect of the Project of the other Secretarfas of the Guarantor and of the agencies of the Guarantor. 2. There will be a Central Coordinating Committee chaired by a representative of the Secretarfa de la Presidencia (SP), which will include senior representatives of, among others, Secretarfa de Agricultura y Ganaderia (SAG), Secretarfa de Recursos Hidrdulicos (SRH), Secretarfa de Obras P6blicas (SOP), Secretarfa de la Reforma Agraria (SRA), Secretarfa de Salubridad y Asistencia (SSA), Secretarfa de Hacienda y Cr6dito P6blico, and of Banco Nacional de Cr6dito Ejidal, Comisi6n Federal de Electricidad (CFE), Compania Nacional de Subsistencia Popular (CONASUPO), Comit6 Administrador del Programa Federal de Construcci6n de Escuelas (CAPFCE), and Instituto Nacional para el Desarrollo de la Comunidad (INDECO). This Committee will be responsible for selecting the regions that would be included in the Project, for approving the investment plans for each region, and for coordinating the policies and general plans, with respect to the Project, of the Secretarfas and agencies represented in the Committee. 3. There will be a Central Permanent Working Group, chaired by a representative of Secretarfa de la Presidencia and made up of senior technical representatives of all the Secretarfas and agencies represented at the Central Coordinating Committee. This Group will be responsible for making recommendations to the Central Coordinating Committee, and for formulating the guidelines, including the determination of the appropriate methods, for preparing, appraising, monitoring and evaluating the investment plans for each region. This Central Permanent Working Group will be supported by an adequate number of qualified staff, who will be responsible for the day-to-day administration and monitoring of the execution of the investment plans. 4. There will be a State Rural Development Committee in each of the States where the Project will be carried out, chaired by the Governor of the State or his representative, and made up of the officials of the Secretarfas and agencies mentioned in paragraph 2 responsible for the work of their respective Secretaria or agency in that State. The State Rural Development Committees will be responsible for the coordination of said Secretarfas and agencies in the State. Management responsibility will be delegated in a Vocal Ejecutivo, assisted by a Technical Support Group of qualified staff, which is expected to include mainly 14 staff members of Secretarfa de la Presidencia. The Vocales Ejecutivos will, through their respective Technical Support Group and through the Secretarfas and agencies abovementioned, maintain close contact with, and will try to maximize the participation of, municipal, village, and ejido authorities and local committees in the formulation, review and carrying out of the investment plans. 5. The Secretarfas and agencies participating in the execution of the investment plans included in the Project will be reimbursed for their expenditures incurred pursuant to such plans on a monthly basis, through the regional banks that Secretarfa de Hacienda y Cr6dito Piblico will determine. 6. The following Secretarfas and agencies referred to in paragraph 2 will be responsible for the execution of the following parts of the Project: 1. Irrigation : SRH and SAG 2. Soil and water conservation : SAG and Comisi6n Nacional de Investigaciones en Zonas Arides 3. Infrastructure for livestock development : SAG, Banco Nacional Agropecuario, and Banco Nacional de Cr6dito Ejidal 4. Agricultural credit: Banco de M6xico, S.A., as Trustee, and as further set forth in the Project Agreement 5. Fruit production, forestry and fishery development: SAG 6. Feeder roads: SOP 7. Rural electrification: CFE 8 and 9. Farmers' organization and extension and field demonstration: SP (Comisi6n Coordinadora del Istmo de Tehuantepec), SRA, and Instituto Nacional Indigenista 10. Rural marketing: CONASUPO 11. Educational facilities: CAPFCE and Instituto Nacional Indigenista 12. Health facilities: SSA 13. Rural water supply: SRH and SSA 14. Self-help programs: INDECO 15. Evaluation: Centro de Investigaciones de Desarrollo Rural 15 SCHEDULE 2 Procurement A. General Procedures 1. Except as provided in Part A.3 hereof, contracts shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. For purposes of procurement, items to be procured shall, to the extent possible, be grouped together in groups having a minimum value of $250,000 equivalent. 3. (i) Goods estimated to cost less than the equivalent of $250,000 shall be acquired either under the procedures referred to in paragraph I hereof or under the Guarantor's ordinary procedures; and (ii) civil works estimated to cost less than the equivalent of $250,000 shall be either carried out by the Guarantor by force account or contracted either under the procedures referred to in paragraph I hereof or under the Guarantor's ordinary procedures.* In the latter case, the Guarantor may award the contract to the contractor it shall deem to be the best qualified to carry out the works at unit prices. B. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Guarantor of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Mexico may be granted a margin of preference in accordance with, and subject to, the following provisions: * See paragraph 3(ii) of Schedule I to the Loan Agreement. 16 (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Mexico if the bidder shall have established to the satisfaction of the Guarantor and the Bank that the manufacturing cost of such goods includes a value added in Mexico equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Mexico. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid, or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. C. Review of Procurement Decisions by Bank 1. Review of invitation to bid and of proposed awards and final contracts. 17 With respect to all contracts estimated to cost the equivalent of $250,000 or more: (a) Before bids are invited, the Guarantor shall furnish to the Bank, 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 Bank shall reasonably request in consultation with the Guarantor. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. 2. With respect to each contract to be financed out of the proceeds of the Loan, the Guarantor shall, promptly after the execution of each contract and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect thereof, furnish to the Bank two conformed copies of such contract, together with the analysis of bids, recommencations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Guarantor and state the reasons for such determination.