Honduras - Agricultural Credit Project : Credit 0628 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 628 - HO PROJECT AGREEMENT (Agricultural Credit Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BANCO CENTRAL DE HONDURAS Dated July 2, 1976 PROJECT AGREEMENT AGREEMENT, dated July 2, 1976, between INTERNATIONAL DEVELOP- MENT ASSOCIATION (hereinafter called the Association) and BANCO CENTRAL DE HONDURAS (hereinafter called Banco Central). WHEREAS by the Development Credit A3reement of even date herewith between Republic of Honduras (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to fourteen million dollars ($14,000,000), on the iterms and conditions set forth in the Development Credit Agree- ment, but only on condition that Banco Central agree to under- tal,e such obligations toward the Association as hereinafter set forth; Y1HEREAS by a subsidiary agreement of even date herewith be- tween the Borrower and Banco Central, the proceeds of the credit provided for under the Development Credit Agreement will be made available to Banco Central on the terms and conditions therein Eet forth; and WHEREAS Banco Central, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: 01) -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. Banco Central shall carry out the Project de- scribed in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate admin- istrative, financial, agricultural and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 2.02. In order to assist Banco Central in carrying out Part C of the Project and except as the Association shall otherwise agree, Banco Central shall: (i) For Part C (1) (i) of the Project, cause Ministerio to employ not later than 180 days from the Effective Date two experts in applied research in rice and annual oil crops, two experts in produc- tion extension techniques and training and one in crop seeds production, certification and multipli- cation; (ii) For Part C (1) (ii) of the Project, cause Ministerio to contract not later than 180 days from the Effec- tive Date the services of consultants in the field of regional and rural development; -4- (iii) For Part C (2) of the Project, cause Instituto to employ not later than 180 days from the Effec- tive Date four experts in, respectively, rural ad- ministration, campesino training, business organi- zation and project management; and (iv) For Part C (4) of the Project, if such expertise shall have been determined necessary by Banco Central in consultation with the Association, an expert in monitoring and evaluating the impact of the carrying out of specific aspects of the Project; all such experts and consultants to have qualifications and experi- ence and to be employed, or the services thereof to be contracted, on terms and conditions satisfactory to the Association. Section 2.03. Except as the Association shall otherwise agree, the goods and works for the Project to be financed out of the pro- ceeds of the Credit, allocated from time to time to (i) Categories (3) and (4) of the table in paragraph 1 of Schedule 1 to the De- velopment Credit Agreement, shall be procured in accordance with the provisions of Schedule 1 to this Agreement; and (ii) Cate- gories (1) and (2) of such table, shall be procured in accordance with the applicable provisions of each Farm Sub-loan Contract, Agro-Industry Sub-loan Contract and Heavy-Machinery Sub-loan Con- tract. Section 2.04. Banco Central undertakes to insure, or make adequate provision for the insurance of, the imported goods to be -5- financed out of the proceeds of the Credit made available to it by the Borrower against hazards incident to the acquisition, trans- portation 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 Banco Central to replace or repair such goods. Section 2.05. (a) Banco Central shall furnish and cause Minis- terio and each Project Institution to furnish to the Association, promptly upon their preparation, the plans, specifications, re- ports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) Banco Central: (i) shall maintain and cause Ministerio and each Project Institution to maintain records adequate to re- cord the progress of the Project (including the cost thereof) and to identify the goods, works and services financed out of the proceeds of the Credit made available to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall en- able and cause Ministerio and each Project Institution to enable the Association'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 and cause Ministerio and each Project Institution to furnish to the Association all such in- formation as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so made available to it and the goods, works and services financed out of such proceeds. -6- (c) Banco Central shall enable and shall cause Ministerio and each Project Institution to enable the Association's repre- sentatives to examine, in respect of the Project, jointly with Banco Central's representatives, all plants, installations, sites, works, buildings, property and equipment of Banco Central, Mini- sterio and each Project Institution and any relevant records and documents. Section 2.06. Except as the Association shall otherwise agree, Banco Central shall: (i) enter into the Subsidiary Agreement with the Borrower; (ii) for the purposes of carrying out Part A of the 0 Project, enter into lending contracts with each Participating Bank (the Project Administration Contracts) on such terms and conditions as shall be satisfactory to the Association, including such terms and conditions as are set forth in paragraph B of Schedule 2 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower, the Association and Banco Central; (iii) for the purpose of carrying out Part B of the Project, enter into a contract with Banco Fo- mento and COHBANA (the Isleta Administration Contract), on such terms and conditions as shall be satisfactory to the Association, including ... ... ..0 such terms and conditions as are set forth in para- graph C of Schedule 2 to this Agreement, as such Schedule may be amended from time to time by agree- ment between the Borrower, the Association and Banco Central; (iv) enter, respectively, with Ministerio, Instituto and Escuela, not later than 60 days from the Effec- tive Date, into contracts satisfactory to the Asso- ciation (the Technical Assistance Contracts); such contracts shall, inter alia, make available, on a grant basis, the proceeds of the Credit allocated from .ime to time to each such institution for pur- poses of carrying out, respectively, sub-Parts (1), (2) and (3) of Part C of the Project and provide for the employment of experts and the contracting of consultant services and the procurement of goods as required, respectively, by Sections 2.02 and 2.03 of this Agreement; (v) duly perform its obligations under the Subsidiary Agreement, each Project Administration Contract, the Isleta Administration Contract and each Tech- nical Assistance Contract and exercise its rights thereunder, in such a manner as to protect the in- terests of the Borrower, the Association and Banco Central and to accomplish the purposes of the Credit, and except as the Association shall other- wise agree, Banco Central shall not assign, nor amend, abrogate, waive or fail to enforce, the -8- Subsidiary Agreement, each Project Administation Contract, the Isleta Administration Contract, each Technical Assistance Contract or any provision thereof; (vi) open and maintain on its books a Project Account, such Project Account to have as many sub-Project Accounts as shall be satisfactory to the Associa- tion, to which the proceeds of the Credit made available to Banco Central by the Borrower under the Subsidiary Agreement shall be credited and through which all payments under the Subsidiary Agreement, each Project Administration Contract, the Isleta Administration Contract and each Tech- nical Assistance Contract shall be made; and (vii) ensure that all amounts paid by (A) the Partici- pating Banks to Banco Central under each Project Administration Contract and (B) Banco Fomento to Banco Central under the Isleta Administration Contract, less (C) any charge paid by Banco Central to the Borrower under the Subsidiary Agreement, less (D) such direct operating expenses of Banco Central which are attributable to the administration of the Project and less (E) such payments of prin- cipal made to the Borrower under the Subsidiary Agreement for purposes of servicing the Credit, shall be used for further lending for the same pur- poses of Parts A and B of the Project for a period of 18 years from the date of this Agreement on such 419- terms and conditions as shall be agreed from time to time between the Association and Banco Central. Section 2.07. (a) Banco Central shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreernt and under the Subsidiary Agreement, and other matters relating to the purposes of the Credit. (b) Banco Central shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by Banco Central of its obligations un- der this Agreement, the Subsidiary Agreement, each Project Adminis- tration Contract, the Isleta Administration Contract and each Technical Assistance Contract. Section 2.08. Banco Central shall furnish to the Association, (i) promptly upon their execution, certified copies of every Proj- ect Administration Contract, of the Isleta Administration Contract, every Technical Assistance Contract and of the Isleta Sub-loan Contract, and shall furnish to the Association upon request, copies of any Farm Sub-loan Contract, Agro-Industry Sub-loan Contract and Heavy-Machinery Sub-loan Contract; and (ii) promptly after its ap- proval by the Project Director, the feasibility studies for every Agro-Industry Plan to be approved by the Association for purposes of Part A (6) (ii) of the Project. -10- ARTICLE III Management and Operations of Banco Central Section 3.01. (a) Banco Central shall conduct the Project activities through a Project Credit Unit, such unit to be staffed as set forth in Schedule 3 to this Agreement, to be provided with facilities in a manner satisfactory to the Association, and to be headed, until every Farm Sub-loan, Agro-Industry Sub-loan and Heavy- Machinery Sub-loan shall have been wholly disbursed, by the Project Director. (b) The Project Director shall be acceptable to the Associ- ation, shall be employed upon terms and conditions of employment satisfactory to the Association, and shall perform, inter alia, the functions referred to in Schedule 3 to this Agreement. (c) Banco Central shall at all times take all action nec- essary or advisable to enable the Project Commission to carry out its functions as provided in the Regulations and in Section 3.02 of the Development Credit Agreement. - 11 - ARTICLE IV Financial Covenants Section 4.01. Banco Central shall maintain and cause Banco Fomento and each Participating Bank, to maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. Banco Central shall: (i) have and cause Banco Fomento and each Participating Bank, to have its accounts and fi- nancial statements (balance sheets, statements of income and ex- penses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by Banco Central's Superintendencia de Bancos or other independent auditors acceptable to the Association; (ii) furnish and cause Banco Fomento and each Participating Bank, to furnish to the Asso- ciation as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its 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 As3ociation shall have reasonably requested; and (iii) furnish and cause Banco Fomento and each Participating Bank, to furnish to the Association such other information concerning the respective accounts and financial statements of Banco Central, Banco Fomento and each Participating Bank and the audit thereof as the Association shall from time to time reasonably request. -12- ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of Banco Central thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date 18 years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accor- dance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify Banco Central of this event. Section 5.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. 0 -13- 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 de- signated by notice to the party giving such notice or making such request. The addresses so specified are: 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. For Banco Central: Banco Central de Honduras Tegucigalpa, D.C. Honduras C.A. Cable address: BANTRAL Tegucigalpa 141 - 1~4- Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement or the Development Credit Agreement on behalf of Banco Central may be taken or executed by its President or such other person or persons as such President shall designate in writing. Section 6.03. Banco Central shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of Banco Central, take any action or execute any documents required or permitted to be taken or executed by Banco Central pursuant to any of the provisions of this 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. -15 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 DEVELOPMENT ASSOCIATION By /s/ Enrique Lerdau Acting Regional Vice President Latin America and the Caribbean BANCO CENTRAL DE HONDURAS By /s/ Roberto Lazarus Benhard Authorized Representative ......1.......... -161 SCHEDULE 1 Procurement A. General Procedures 1. Except as provided in paragraph 3 hereof, contracts for the acquisition of equipment, machinery and vehicles for Parts B and C of the Project shall be awarded in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Equipment, machinery and vehicles for the Project shall be so grouped so as to permit such bulk procurement as shall be consistent with appropriate technical and procurement practices. Whenever possible each bid package for such items shall be for not less than the equivalent of $35,000. 3. Equipment, machinery and vehicles which cannot be grouped in bid packages estimated to cost the equivalent of $35,000 or more may be procured in accordance with the Borrower's procedures accept- able to the Association, provided that the aggregate cost of the equipment, machinery and vehicles so procured shall not exceed the & equivalent of $200,000. -17- B. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for the acquisition of equipment, machinery and vehicles estimated to cost the equivalent of $75,000 or more: (a) Before bids are invited, Banco Central 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 re- quest. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, Banco Cen- tral shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in suf- ficient time for its review, a detailed report by the Project Director referred to in Section 3.01 (b) of this Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of the said Project Director and such other information as the Association shall reasonably re- quest. The Association shall, if it determines that the intended 181 award would be inconsistent with the Guidelines or this Schedule, promptly inform Banco Central and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bid were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and before de- livery to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract to be financed out of the pro- ceeds of the Credit and not governed by the preceding paragraph, Banco Central shall furnish to the Association, promptly after its execution and before delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Association shall rea- sonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform Banco Central and state the reasons for such determination. - 19 - SCHEDULE 2 Lending and Operating Policies and Procedures A. Subsidiary Agreement The Borrower will make available the proceeds of the Credit to Banco Central on the following terms and conditions: 1. Promptly, after any withdrawal by the Borrower from the Credit Account, the Borrower will deposit such amounts in the relevant sub-Project Account. 2. All amounts withdrawn for purposes of Parts A and B of the Project will be lent to Banco Central; withdrawals for Part C of the Project will be made available to Banco Central on a grant basis. 3. Every loan made to Banco Central from time to time in accordance with sub-paragraph 2 herein, will be denominated and repayable in Lempiras on the basis of rates of exchange determined, at the time such loan is made, in a manner satisfactory to the Bor- rower, the Association and Banco Central. 4. Each loan made to Banco Central under the Subsi- diary Agreement will be repayable on adate not later than 18 years from the date of the disbursement of each such loan, including a ten year grace period. 01 -20- 5. Banco Central will pay to the Borrower a charge at the rate of 2% per annum on the principal amount of the Credit withdrawn from the Credit Account for Parts A and B of the Project and outstanding from time to time. B. Project Administration Contracts Banco Central will relend the proceeds of the Credit to each Participating Bank on the following terms and conditions: 1. Banco Central will rediscount, under each Project Administration Sub-loan, 70% of each Farm Sub-loan, Agro-Industry Sub-loan and Heavy-Machinery Sub-loan; and such rediscounting by Banco Central to a Parti- cipating Bank will be made only after the approval of the technical and financial aspects of each respective Farm Plan, Agro-Industry Plan and Heavy-Machinery Plan by (i) the Project Director or his authorized representative and (ii) by the Association also, (A) in respect of each such Agro- Industry Plan and (B) whenever any loan to finance any such Farm Plan or Heavy-Machinery Plan, by itself or together with any other loan to the same Benefi- ciary under the Project Agreement or under any Prior Agreement will exceed the equivalent of $100,000. 2. Each Project Administration Loan will be repayable to Banco Central within the same period or periods 01 -21 - provided by such Participating Bank for the repay- ment of the amounts disbursed by such Participat- ing Bank under the respective Farm Sub-loan, Agro- Industry Sub-loan, or Heavy-Machinery Sub-loan, as the case may be, and each Project Administration Contract will include clauses foreseeing advanced repayments of principal under any such Farm Sub- loan, Agro-Industry Sub-loan or Heavy-Machinery Sub-loan. 3. The outstanding principal amount of each Project Admin- istration Loan will bear interest at the rate of 6% per annum. 4. Each Participating Bank will undertake to make Farm Sub- loans, Agro-Industry Sub-loans and Heavy-Machinery Sub- loans in accordance with the relevant provisions of para- graph D of this Schedule. 5. Each Participating Bank will undertake to make additional short-term loans to each Beneficiary for the financing of working capital requirements of such Beneficiary, if the Project Director so determines. Such short-term loans will bear interest at a rate of 11% per annum on balances of unpaid principal outstanding from time to time. 6. Banco Central will provide adequate financial facilities (other than the proceeds of the Credit) to refinance short-term loans in accordance with the preceding sub- paragraph. -22 0 7. Each Participating Bank will undertake: (a) to employ an adequate number of qualified technicians; and (b) to provide adequate logistic and administrative support therefor, all as required by the Project Director, and approved by the Project Commission. 8. (a) Each Participating Bank will undertake that any Farm Sub-loan, Agro-Industry Sub-loan or Heavy-Machinery Sub-loan will be made on terms whereby the Participa- ting Bank will obtain, by written contract with the Benefic,ary or by other appropriate legal means. rights adequate to protect the interest of the Bor- rower, the Association, Banco Central and the Parti- cipating Bank, including the right of the Participa- ting Bank to: (i) require the Beneficiary to carry out the Farm Plan, the Agro-Industry Plan or the Heavy-Machinery Plan, as the case may be, with due diligence and efficiency and in accordance with ap- propriate technical, financial, agricultural, and if so required, industrial practices and to main- tain adequate records; (ii) require that (A) goods and services to be financed out of the proceeds of each Farm Sub-loan, Agro-Industry Sub-loan and Heavy-Machinery Sub-loan be purchased through reg- ular commercial channels at a reasonable price, ac- count being taken also of other relevant factors such as time of delivery, efficiency and reliability of the goods so to be purchased, availability of spare parts and service facilities for such goods -23- and, if so required by the Beneficiary, of standard- ization preferences, (B) the goods financed by each Farm Sub-loan or Agro-Industry Sub-loan or Heavy- Machinery Sub-loan will be used exclusively in the carrying out of the respective Farm Plan or Agro- Industry Plan or Heavy-Machinery Plan; (iii) inspect, by itself or jointly with representatives of the Association if the Association shall so request, the goods financed under each Farm Sub-loan, Agro- Industry Sub-loan or Heavy-Machinery Sub-loan and the farms, sites and other facilities included in each Farm Plan, Agro-Industry Plan or Heavy-Machinery Plan, the operation thereof, and any relevant records and documents; (iv) require the Beneficiary, only in respect of every Agro-Industry Sub-loan or Heavy- Machinery Sub-loan, to take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with appropriate practice; (v) obtain all such in- formation as the Borrower, the Association, Banco Central or the Participating Bank shall reasonably request relative to the foregoing and to the admini- stration, operations and financial condition of such Beneficiary; and (vi) suspend and terminate the right of such Beneficiary to use the proceeds of the Farm Sub-loan, the Agro-Industry Sub-loan or the Heavy- Machinery Sub-loan, upon failure by such Benefi- ciary to perform any of its obligations under the respective Farm Sub-loan Contract, Agro-Industry Sub-loan Contract or Heavy-Machinery Sub-loan Contract. 01 -24- (b) Each Participating Bank will exercise its rights in relation to each Farm Sub-loan Contract, Agro- Industry Sub-loan Contract or Heavy-Machinery Sub- loan Contract in such a manner as to: (i) protect the interests of the Borrower, the Association, Banco Central and such Participating Bank; (ii) comply with its obligations under the Project Administration Contract; and (iii) achieve the purposes of the Project. 9. Each Participating Bank will establish and maintain a separate account through which all amounts withdrawn from, and to be paid into, the Project Account by such Participating Bank will flow, such account to (i) iden- tify each Farm Sub-loan; Agro-Industry Sub-loan and Heavy-Machinery Sub-loan made by such Participating Bank; (ii) identify the goods and services financed out of each such Farm Sub-loan, Agro-Industry Sub-loan and Heavy-Machinery Sub-loan; and (iii) reflect, in ac- cordance with consistently maintained appropriate ac- counting practices, the administration of such account and of each such Farm Sub-loan, Agro-Industry Sub-loan and Heavy-Machinery Sub-loan. 10. Each Participating Bank will have: (i) the account referred to in the preceding paragraph for each res- pective fiscal year audited, in accordance with appro- priate auditing principles consistently applied, by Banco Central's Superintendencia de Bancos or other in- dependent auditors acceptable to the Association; (ii) .. .. .. .. -25- furnished to the Association as soon as available, but in any case not later than four months after the end. of such fiscal year, (A) certified copies of such account as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Asso- ciation shall have reasonably requested; and (iii) fur- nished to the Association such other information concern- ing such account and the audit thereof as the Association shall from time to time reasonably request. C. Isleta Administration Contract Banco Central will lend the proceeds of the Credit allocated from time to time for purposes of Part B of the Project, to Banco Fomento, on the following terms: 1. Banco Fomento will undertake to make Isleta Sub-loans to the Beneficiary under the Isleta Sub-loan Contract and in accordance with the provisions of paragraph D.4 of this Schedule. 2. Banco Central will rediscount to Banco Fomento, 100% of each Isleta Sub-loan, provided that such rediscount- ing will be made only if (i) Banco Central has given its prior approval to the applicable Isleta Sub-plan; and (ii) the refinancing application is made for a particular Isleta Sub-loan which has been made by Banco Fomento for the purpose of financing works to be carried out or goods to be procured under such Isleta Sub-plan. -26- 3. Banco Fomento will undertake that, unless the Associa- tion shall otherwise agree, the Isleta Sub-loan Con- tract will ensure Banco Fomento the right to require that goods and services to be financed out of the pro- ceeds of each Isleta Sub-loan be purchased in accor- dance with provisions of Section 2.03 of this Agreement. 4. Sub-paragraphs 2 and 3, and, except for provisions under (a) (i) and (ii) therein, 8 of the preceding paragraph B will apply, mutatis mutandi, to this paragraph C. 5. Either Banco Fomento or COHBANA will undertake to pro- vide the Beneficiary with the necessary short-term working capital, from sources other than the proceeds of the Credit, as and when required by the Beneficiary or COHBANA for purposes of carrying out each Isleta Sub-plan. 6. COHBANA will undertake to employ or to continue to employ, as the case may be, the experts referred to in Section 3.04 (b) of the Development Credit Agree- ment, and to use the services thereof for Part B of the Project. 7. COHBANA will prepare with the Beneficiary each Isleta Sub-plan, which will include, inter alia, evidence of availability of labor, capital equipment, and supplies of planting materials, fertilizers and pesticides, and the specification of the amounts of short-term working capital required to carry out such Isleta Sub-plan, and will furnish, jointly with each Beneficiary, such Isleta Sub-plan to Banco Central for approval. -27- 8. COHBANA will undertake to provide adequate administra- tive and technical assistance to the Beneficiary for purposes of each Isleta Sub-plan and to supervise the carrying out of each such Sub-plan. 9. In the absence of other legal arrangements satisfactory to the Association, COHBANA vill undertake, in form and substance satisfactory to the Association, to guarantee to Banco Fomento the repayment of each Isleta Sub-loan and the interest and other charges on such Isleta Sub- loan. D. Farm Sub-loan Contracts, Agro-Industry Sub-loan Contracts, Heavy-Machinery Sub-loan Contracts and Isleta Sub-Loan Con- * tract 1. Farm Sub-loan Contracts (a) To qualify for the granting of a Farm Sub-loan, each applicant will show to the satisfaction of the respective Participating Bank that such ap- plicant meets creditworthiness criteria estab- lished by such Participating Bank. (b) Every Farm Sub-loan will be made on the basis of the applicable Farm Plan prepared by qualified technicians employed by each Participating Bank; each such Farm Plan to take into account farm size and location and to demonstrate, inter alia, the possibility of increased production, and that -28 0 within the estimated time for completion of each such Plan, the applicant will meet the efficiency standards required by the Agrarian Reform Law. (c) Every.Farm Sub-loan will be denominated and repay- able in Lempiras. (d) Repayment of the principal of each Farm Sub-loan will be made on the anniversaries of the first dis- bursement under such Farm Sub-loan; payments of interest under each Farm Sub-loan will be made at the rate of interest of 11% per annum (to be computed on the basis of a year of 360 days) on outstanding balances of disbursed principal, on such dates as will be indicated in each Farm Sub-loan Contract. (e) Every Farm Sub-loan will require the approval of the Project Director or his authorized representa- tive; in addition, any Farm Sub-loan which by itself or together with any other loan to the same Bene- ficiary under the Project Agreement or under any Prior Agreement will exceed the equivalent of $100,000, ill also require the prior approval of the Association. (f) The staff of each Participating Bank and of the Project Credit Unit will regularly visit the re- spective farm for which each Farm Plan has been financed by such Participating Bank, to ensure 01 -29- that each Beneficiary is effectively and punctual- ly carrying out each such Farm Plan and is comply- ing with the provisions of each respective Farm Sub-loan Contract. Each Participating Bank will have the right (i) to suspend disbursements under a Farm Sub-loan Contract if, in the judgment of such Participating Bank and the Project Director, any Beneficiary shall have failed to perform its obligations to carry out the respective Farm Plan, and (ii) to cancel any undisbursed portion of such Farm Sub-loan if in the judgment of such Participa- ting Bank and the Project Director it will be im- possible to carry out such Farm Plan. (g) Every Farm Sub-loan will finance up to 90% of the respective Farm Plan and will be repaid over a pe- riod commensurate with each Beneficiary's estimated cash flow arising from the carrying out of such Farm Plan, including an appropriate grace period, provided that such periods will not exceed the following terms: Farm Loan Grace Period Repayment Period Total (Part of the Project) (Years) (Years) (Years) Part A (1) 5 7 12 Part A (2) 3 3 6 Part A (3) 2 5 7 Part A (4) 3 6 9 -30 0 (h) Each Farm Sub-loan for purposes of Part A (1) of the Project will primarily finance pasture development, perimeter and internal fencing, stock watering facilities, building and equip- ment and purchases of breeding cattle. (i) Each Farm Sub-loan for purposes of Part A (2) of the Project will primarily finance improved pasture development, fencing, cattle water supply and yards, and spraying equipment; (cattle for fattening will be purchased with short-term loans for working capital to be supplied by Participating Banks from sources other than the proceeds of the Credit). (j) Each Farm Sub-loan for purposes of Parts A (3) and (4) of the Project will primarily finance, respec- tively, (i) for banana farms, purchases of planting materials, tools, tractors, trailers and irrigation equipment, land clearing works and road building and bridge and canal construction and rehabilita- tion; (ii) for irrigated rice farms, purchases of tractors, cultivation, seeding and irrigation equip- ment, basic equipment, seeds and fertilizers, land design, clearing and levelling, provision of an appropriate irrigation supply point or basic build- ings for storage; (iii) for other crop farms, for which the availability of seeds and expertise there- for will have been determined in consultation be- tween Ministerio and the Project Credit Unit, similar -31- goods and services as indicated in (ii) above; and (iv) for other crop farms, (other than those men- tioned in (iii) above) goods and services to be determined in consultation between Ministerio and the Association after Part C (1) (ii) of the Project is carried out. (k) Each Farm Sub-loan for purposes of Part A (5) of the Project may finance such combination of goods and services under (h), (i) and (j) above, as will be determined by the Project Director who will also de- termine the applicable grace and repayment period. 2. Agro-Industry Sub-loan Contracts (a) To qualify for the granting of an Agro-Industry Sub- loan, each applicant will show to the satisfaction of the respective Participating Bank that such applicant meets creditworthiness and other eligibility criteria established by such Participating Bank. (b) Each Agro-Industry Sub-loan will be made on the basis of the respective Agro-Industry Plan prepared by the Beneficiary with the assistance of a Participating Bank and Project Credit Unit staff or ad-hoc experts or consultants, such Agro-Industry Plans to demon- strate, inter alia, the feasibility thereof, the benefit for the agricultural sector derived there- from and that the applicant meets the criteria re- ferred to in (a) above. -32- (c) Each Agro-Industry Sub-loan will finance up to 80% of each Agro-Industry Plan and will be repaid over a period commensurate with each Beneficiary's es- timated cash flow arising from the carrying out of such Agro-Industry Plan, such period not to exceed nine (9) years and to include an appropriate grace period of not more than three (3) years. (d) Sentences (c), (d) and (f) of sub-paragraph 1 of this paragraph D will apply, mutatis mutandi, to this sub-paragraph 2. (e) Each Agro-Industry Sub-loan for purposes of Part A (6) (i) of the Project will finance the con- struction of a rice mill such financing to be primarily for machinery, buildings and storage, vehicles and miscellaneous items such as office equipment (working capital, including the purchase of paddy rice will be provided by the respective Participating Bank from sources other than the proceeds of the Credit). One mill will be located in the Pacific zone and the other in the Atlantic zone of Honduras. (f) Each Agro-Industry Sub-loan for purposes of Part A (6) (ii) of the Project will finance either dairy processing plants or plants for the processing of bacon, hams, sausages, broiler slaughtering and packaging or egg packing plants or feed mills of small capacity, or plants in such other fields as the Project Credit Unit and the Association will agree. -33- (g) Every Agro-Industry Sub-loan will require the ap- proval of the Project Director and the Association. 3. Heavy-Machinery Sub-loan Contracts (a) To qualify for the granting of each Heavy-Machinery Sub-loan each applicant will show to the satisfac- tion of the respective Participating Bank that such applicant meets creditworthiness criteria estab- lished by such Participating Bank and that such ap- plicant has previous experience (or that he will be assisted by some party showing such previous experi- ence) in operating the equipment referred to in sentences (e) and (f) below. (b) Each Heavy-Machinery Sub-loan will be made on the basis of each respective Heavy-Machinery Plan pre- pared by the Beneficiary with the assistance of a Participating Bank and Project Credit Unit staff or ad-hoc experts or consultants; such Heavy- Machinery Plans to demonstrate, inter alia, the feasibility thereof, the previous experience in operating the equipment to be financed by such Plan, and that the applicant meets the creditworthi- ness criteria referred to in (a) above. (c) Each Heavy-Machinery Sub-loan will finance up to 80% of the cost of each Heavy-Machinery Plan and will be repaid over a period commensurate with each Beneficiary's estimated cash flow arising 01 341) from the carrying out of such Heavy-Machinery Plan, including an appropriate grace period, provided that such periods will not exceed the following terms: Heavy-Machinery Sub-loans Grace Period Repayment Period Total (Part of the Project) (Years) (Years) (Years) Part A (7) Ci) 2 5 7 Part A (7) (ii) 2 6 8 (d) Sentences (c), (d), (e) and (f) of sub-paragraph 1 of paragraph D will apply, mutatis mutandi to this sub-paragraph 3. (e) Each Heavy-Machinery Sub-loan for purposes of Part A (7) (i) of the Project vill finance the purchase of one well-drilling rig, together with ancillary equipment and major spare parts therefor. Each drilling rig will be a self-contained mobile unit, one to operate in the Atlantic zone and the other in the Pacific zone of Honduras, (Working capital will be provided by the respective Participating Bank from sources other than the proceeds of the Credit.) (f) Each Heavy-Machinery Sub-loan for purposes of Part A (7) (ii) of the Project will finance the purchase of one heavy equipment unit for land clearing and development. Such unit will consist, primarily, of -35- a crawler type or heavy tractor, blade, scoop, plough, truck, welding equipment and spare parts. (Working capital will be provided by the respective Participating Bank from sources other than the pro- ceeds of the Credit). 4. Isleta Sub-loan Contract (,) Each Isleta Sub-loan will be made on the basis of an Isleta Sub-plan prepared by COHBANA, and submit- ted for approval to Banco Central. (b) Each Isleta Sub-loan will finance 100% of the re- spective Isleta Sub-plan and will be repaid over a period commensurate with the Beneficiary's es- timated cash flow arising from the carrying out of such Isleta Sub-plan, such period not to ex- ceed seven (7) years and to include a grace period of not more than two (2) years. (c) Financing of investments under the Isleta Sub-loan Contract will be, primarily, for vehicles to trans- port fruit from the fields to packing sheds, trucks for general supply hauling and maintenance works, pick-ups for work control and similar activities, irrigation equipment, packing shed equipment, spray pumps, fertilizers and pesticides (as required during the investment period), radio installations and office furnishing and vehicles for administrative and advisory staff. -36 0 (d) Financing of rehabilitation works unqer the Isleta Sub-loan Contract will be, primarily, for replant- ing damaged areas, removing surplus suckers and re- newing of the drainage system, repair of existing and installation of new irrigation pipes, repair of roads and bridges, and repair of packing sheds and loading facilities. (e) The Beneficiary will undertake to carry out each Isleta Sub-plan approved by Banco Central with due diligence and in conformity with appropriate agricultural practices, to receive therefor the technical and administrative assistance of COHBANA, and to maintain adequate records for each Isleta Sub-plan. (f) Sentences (c), (d) and (f) of sub-paragraph 1 of paragraph D above will apply, mutatis mutandi, to this sub-paragraph 4. -37- SCHEDULE 3 Project Credit Unit The Project Credit Unit and the Project Director will operate within, and be subordinated to, Banco Central. Banco Central's staff serving the Second Livestock Project will serve in the Project Credit Unit, provided, however, that such staff will be enlarged to give better geographical coverage and to diversify expertise in order to include cropping as well as livestock activities. For such purposes: two offices, in addition to those present- ly existing in Tegucigalpa, San Pedro Sula and La Ceiba, u-ill be established and located after consultation with the Association; and not less than four additional staff assistants will be employed, including an agricultural economist who will organize and be res- ponsible for data retrieval and evaluation until completion of the Project. Additional staff will be recruited and additional offices opened at the recommendation of the Project Director and with the approval of the Project Commission. The Project Director's functions will be, inter alia: (a) Analyze and approve, on technical, financial and economic grounds, every Farm Sub-loan, Agro-Industry Sub-loan and Heavy- Machinery Sub-loan and the respective plans therefor. -38- (b) Advise in respect of investments and recruitment of specialists for the Project. (c) Monitor and evaluate the impact of the carrying out of every Farm Plan, Agro-Industry Plan and Heavy-Machinery Plan. (d) Furnish terms and conditions of employment for consul- tants and experts to be employed in respect of the Project to the Association as required by Section 2.02 of this Agreement. (e) Advise in respect of additional staffing of Participating Banks and desirability of suspension of disbursements under any Project Administration Contract. (f) Decide, jointly with the respective Participating Bank, the suspension of disbursements under, or the cancellation of, each Farm Sub-loan Contract, Agro-Industry Sub-loan Contract and Heavy-Machinery Sub-loan Contract in accordance with sentence (f) of paragraph D.1 of Schedule 2 to this Agreement. (g) Prepare all reports, statements, specifications and any other -documents to be furnished to the Association pursuant to this Agreement and the Development Credit Agreement.