Turkey - Third Livestock Development Project : Loan 1265 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1265 TU PROJECT AGREEMENT (Third Livestock Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and TURKIYE CUMHURIYETI ZIRAAT BANKASI Dated May 26, 1976 PROJECT AGREEMENT AGREEMENT, dated May 26, 1976, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and TURKIYE CUMHURIYETI ZIRAAT BANKASI (hereinafter called TCZB). WHEREAS (A) by the Loan Agreement of even date herewith be- tween the Republic of Turkey (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-one million five hundred thousand dollars ($21,500,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that TCZB agree to undertake such obligations toward the Bank as hereinafter set forth; (B) by a subsidiary loan agreement between the Borrower and TCZB, part of the aggregate proceeds of the loan provided for un- der the Loan Agreement will be made available to TCZB on the terms and conditions therein set forth; and WHEREAS TCZB, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the ob- ligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the General Conditions (as so defined) and in the Preamble hereof have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) TCZB shall (i) carry out Part A of the Project described in Schedule 2 to the Loan Agreement with due diligence and efficiency and in conformity with appropriate admin- istrative, financial, economic and agricultural practices, and provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose, and (ii) acquire, maintain and renew all rights, powers, privileges and franchises as shall be, from time to time, necessary or useful in the conduct of its business and the carrying out of Part A of the Project. (b) In the carrying out of Part A of the Project, TCZB under- takes that it shall at all times follow lending and operating poli- cies and procedures satisfactory to the Bank including those set forth in the Schedule to this Agreement, as such Schedule may be modified from time to time by agreement among the Borrower, the Bank and TCZB. (c) TCZB undertakes that it shall not finance any investments in dairy farm development proposed by an investor eligible for a Sub-loan, on terms more favorable than the terms and conditions applicable to Sub-loans. -4- (d) TCZB shall enter into arrangements, satisfactory to the Bank, with IDPD to define in detail the responsibilities, functions and administrative procedures of TCZB and IDPD for the carrying out of Part A of the Project. Section 2.02. TCZB shall: (i) review its annual lending pro- gram under the Project for each of the Project Areas with the man- ager of IDPD; and (ii) assist IDPD in the preparation of the prog- ress and evaluation reports referred to in Section 3.05 (c) of the Loan Agreement regarding such lending program. Section 2.03. Except as the Bank shall otherwise agree, con- tracts for the purchase of goods required for the Project to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to the Loan Agree- ment. Section 2.04. Except as the Bank shall otherwise agree, TCZB shall cause all goods and services financed out of the proceeds of any Sub-loan to be used exclusively in carrying out the Dairy-farm Development Plan for thich such Sub-loan was made. Section 2.05. TCZB undertakes to insure or cause to be insured the imported goods to be financed out of the proceeds of any Sub- loan against marine, transit and other hazards incident to the ac- quisition, transportation and delivery thereof to the place of use or installation. Section 2.06. TCZB: (i) shall maintain records adequate to record the progress of Part A of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall enable the Bank's re- presentatives to visit the facilities and construction sites included in the Project and see the goods financed out of such proceeds and any relevant records end documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning Part A of the Project, the expenditure of the proceeds of the Loan so relent to it and the goods and services financed out of such proceeds. Section 2.07. TCZB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall other- wise agree, TCZB shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.08. (a) TCZB shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other mat- ters relating to the purposes of the Loan. (b) TCZB shall promptly inform the Bank of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by TCZB of its obligations under this Agreement and under the Subsidiary Loan Agreement. -6- ARTICLE III Management and Operations of TCZB Section 3.01. TCZB shall, with respect to Part A of the Proj- eat, at all times manage its affairs, maintain its financial posi- tion, plan its future expansion and carry on its operations, all in accordance with appropriate business, financial and agricultural practices and under the supervision of qualified and experienced management assisted by qualified and experienced staff in adequate numbers. -7- ARTICLE IV Financial Covenants Section 4.01. TCZB shall: (a) establish and maintain separate accounts on its records to be used exclusively for Part A of the Project; (b) register in such accounts all its receipts and payments for or in connection with its lending operations under Part A of the Project, in accordance with appropriate accounting principles consistently applied, including the following: (i) amounts received from and payments made to the Borrower under the Subsidiary Loan; (ii) amounts disbursed to and received from each farmer under a Sub-loan; and (iii) amounts provided by the Borrower or TCZB from their own resources to finance Sub-loans. (c) (i) have the accounts referred to in paragraph (a) hereof and related statements for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by in- dependent auditors acceptable to the Bank; (ii) furnish to the Bank, in the English language, as soon as available, but in any case not later than seven months after the end of TCZB's fiscal year, (A) certified copies of such accounts and related 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning such accounts and related statements of TCZB and the audit thereof as the Bank shall from time to time reasonably request. -8- Section 4.02. TCZB shall set aside, out of each payment to TCZB of interest on Sub-loans under Part A of the Project, and promptly credit to the Special Operational Fund amounts calculated in the same manner and on the same principal amount as such inter- est, but at the rate of one-half of one per cent (1/2 of 1%) per annum. AMICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of TCZB thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. Section 5.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the General Conditions or the Loan Agreement. - 10 - ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have desig- nated by notice to the party giving such notice or making such re- quest. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington,, D.C. 248423 (RCA) or 64145 (wUI) For TCZB: T.C. Ziraat Bankasi Genel Mudurlugu Bankalar Caddesi Ankara, Turkey Cable address: Telex: ZERBANK 43 333 Ankara - 11 - Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of TCZB or by TCZB on behalf of the Borrower under Section 2.09 of the Loan Agreement, may be taken or executed by the Secretary General or such other person or persons as TCZB shall designate in writing. Section 6.03. TCZB shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of TCZB, take any action or execute any documents required or permitted to be taken or executed by TCZB pursuant to any of the provisions of this Agreement or Section 2.09 of the Loan Agreement. Section 6.04. This Agreement may be executed in several coun- terparts, each of which shall be an original, and all collectively but one instrument. - 12 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Is/ W. A. Wapenhans Regional Vice President Europe, Middle East and North Africa TURKIYE CUMKURIYETI ZIRAAT BANKASI By Is/ Muammer Akinci Authorized Representative - 13 - SCHEDULE Lending and Operating Policies and Procedures for Part A of the Project Request for and approvals of Sub-loans 1.1 TCZB will make Sub-loans only to Beneficiaries making the eligibility tests specified hereunder in the Project Areas and only following the procedures and approvals stipulated below. 1.2 Sub-loan applications will be submitted to the nearest branch of either TCZB or IDPD, after which an initial credit evaluation of the applicant will be made by TCZB. 1.3 If the applicant's creditworthiness is found to be satisfactory by TCZB, the local technician of IDPD will prepare a Dairy-farm Development Plan with the applicant, which plan will include de- tailed technical and financial projections and the amount of the proposed Sub-loan, and will form the basis for any Sub-loan by TCZB financed out of the proceeds of the Loan. The Dairy-farm Development Plan will be prepared in such format and include such information as may be required by the Project Manager, who will have given due consideration to any advice given by the technical specialists referred to in Section 3.01 (b) of the Loan Agreement. 1.4 Copies of the Dairy-farm Development Plan as approved by the local technician of IDPD will be submitted to the local TCZB branch and to the Project Manager. -14- 1.5 Except as the Bank shall otherwise agree, each Dairy-farm Development Plan will, in order to qualify for a Sub-loan, have endorsed thereon the recommendation for approval of the local tech- nician who has prepared the plan, and of the Project Manager, or his authrrized representative. The staff of IDPD will be assisted in the appraisal and review of Dairy-farm Deve,Lopment Plans by a technical specialist appointed pursuant to Section 3.01 (b) of the Loan Agreement. Final approval of Sub-loans will be in accordance with normal procedures of TCZB. 1.6 The approval or rejection of a Sub-loan by TCZB, will be based solely on the creditworthiness of the applicant. 1.7 It is intended that as the local staff of the IDPD and TCZB gains experience, the Bank will agree that final approval of Dairy- farm Development Plans for Sub-loans may be made at the provincial office of IDPD, and that final approval of Sub-loans may be made by TCZB at the provincial or branch level. Eligibility of Beneficiaries 2.1 In order to qualify for the granting of a Sub-loan, each applicant will: (i) have previous experience in dairying; (ii) have use of tillable land suitable for forage production (approximately 0.5 ha/milking cow); and (iii) meet all creditworthiness criteria as will be reasonably established from time to time by TCZB. (1 - 15 - 2.2 TCZB will accept as security, from Beneficiaries for Sub- loans up to LT100,000, chattel mortgages on livestock and machinery plus the guarantee of acceptable third parties in cases where a land title is not available. Sub-loans over LTl00,000 would be secured partially by land title and partially by a chattel mort- gage on livestock and machinery and/or a guarantee of third parties. In evaluating the adequacy of collateral offered to it, TCZB will take into account the estimated increase in real estate values from any developments to be financed from the proceeds of its Sub-loans. Procedures 3.1 TCZB will make at least 66% of all Sub-loans to farmers who own ten cows or less before development and who will own twenty cows or less at full development. 3.2 Except as the Bank shall otherwise agree, TCZB will not make to any single Beneficiary any Sub-loan which by itself or aggregated with any other Sub-loan to any such Beneficiary, exceeds the equi- valent of $80,000. 3.3 TCZB will not make Sub-loans to cover incremental costs of labor and forage cropping unless specifically recommended in writ- ing by the local technician who prepared the Dairy-farm Develop- ment Plan and with the written approval of the Project Manager. - 16 - Terms and Conditions of Sub-loans 4.1 Sub-loan Contracts will include, inter alia, the following terms and conditions; at such time as the Borrower, the Bank or TCZB may request, the terms and conditions to be applied to fu- ture Sub-loan contracts under the Project will be reviewed by TCZB with the Borrower and the Bank in the light of prevailing conditions at the time of such review: (i) Sub-loans will be made and be repayable in liras; (ii) interest on the outstanding principal of each Sub- loan will be payable at the rate of not less than 11% per annum inclusive of all commissions, taxes and any other charges, or at such other rates as shall be agreed among the Borrower, the Bank and TCZB, provided, however, that TCZB should be allowed a spread of not less than 2-1/4% (inclusive of 1/2% to be paid by TCZB to LDP for the Special Operational Fund and Section 4.02 of this Agreement); (iii) the repayment periods and repayment schedules will reflect the capacity of the Beneficiary to repay and the cash flow position of the Dairy-farm Devel- opment Plan and will be between ten to twelve years, including two to four years of grace; - 17 - iv) the amount of an individual Sub-loan will not ex- ceed the equivalent of approximately 80% of the total cost of the Dairy-farm Development Plan, excluding incremental costs of labor and forage cropping (with the exception provided for in para- graph 3.3 of this Schedule), and will include no more than 25% of the cost of farm buildings except that, in special cases, Sub-loans in excess of 25% of the estimated cost of farm buildings may be made to farmers who own twenty cows or less at full development on specific written recommenda- tion of the local technician who prepared the Dairy-farm Development Plan and on the written approval of the Project Manager; (v) the goods and services financed out of the proceeds of the Sub-loan will be used exclusively for the purposes approved by TCZB; (vi) the Bank and TCZB will have the right to see the premises, the improvement of which is financed by the Sub-loan, any equipment, materials or inputs financed by the Sub-loan, the business of the Bene- ficiary, the operation thereof, and any relevant records and documents; (vii) the Bank and TCZB will have the right to obtain all such information as they may reasonably request re- lating to the foregoing and to the operations and financial condition of the Beneficiary; - 18 - (viii) TCZB will have the right to deny the use of the pro- ceeds of the Sub-loan for goods produced in, or services supplied from, any country which is not a member of the Bank (other than Switzerland); (ix) the goods to be financed out of the proceeds of the Sub-loan will be procured in accordance with the provisions of Schedule 4 to the Loan Agreement; (x) the Beneficiary will carry out his Dairy-farm Development Plan, as approved, and will carry on his business, with due diligence and efficiency and in accordance with appropriate technical, agricultural, commercial and financial practices and standards, and vill maintain adequate records; and (xi) TCZB will have the right to suspend or terminate access by the Beneficiary to the use of the proceeds of the Sub-loan upon failure by him to perform his obligations under the Sub-loan Contract and, in appropriate cases, to premature the Sub-loan. Disbursements and Records 5.1 TCZB will promptly inform the Beneficiaries of the amounts charged to their respective Sub-loan accouuts on account of goods procured, and financed under Sub-loans, such information to be supported with copies of the receipts for such goods in the amounts so charged. - 19 - 5.2 TCZB will furnish semi-annual statements to each Beneficiary showing the amounts drawn on the Beneficiary's Sub-loan account, including interest, payments made and the outstanding balance of the respective Sub-loan. Supervision 6.1 TCZB will ensure that amounts drawn on Sub-loan accounts are applied exclusively to expenditures on the Dairy-farm Development Plan for which such Sub-loan was granted. 6.2 IDPD's and/or TCZB's staff will regularly visit the farms where Dairy-farm Development Plans financed with Sub-loans are being carried out, to ensure that Beneficiaries are effectively and punctually carrying out such plans and complying with the provisions of their respective Sub-loan Contracts with TCZB.