Philippines - Smallholder Tree Farming And Forestry Project : Loan 1506 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1506 PH Loan Agreement (Smallholder Tree Farming and Forestry Project) between REPUBLIC OF THE PHILIPPINES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated January 23, 1978 LOAN NUMBER 1506 PH LOAN AGREEMENT AGREEMENT, dated January 23, 1978, between REPUBLIC OF THE PHILIPPINES (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). ARTICLE 1 General Cunditions; 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 of the Bank 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 General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "DBP" means Development Bank of the Philippines, an agency of the Borrower as established under the Borrower's Act No. 85 dated June 14, 1958, as amended; (b) "DA" means the Borrower's Department of Agriculture; (c) "DNR" means the Borrower's Department of Natural Resources; (d) "BPI" means the Bureau of Plant Industry in DA; (e) "BFD" means the Bureau of Forest Development in DNR; (f) "PCARR" means the Philippine Council for Agricultural and Resources Research; (g) "Natural Resources Projects Preparation Unit" means the unit referred to in Section 3.09 (a) of this Agreement; (h) "Agricultural Projects Preparation Unit" means the unit referred to in Section 3.09 (b) of this Agreement; -2- (i) "Steering Committee" means the committee referred to in Section 3.09 (c) of this Agreement; (j) "Project Area A" means regions of about 28,600 ha of which about 10,100 ha are in Mindanao, 5,500 ha in Visayas and 8,000 ha in Ilocos and about another 5,000 ha in areas selected by the Borrower, in which Part A of the Project as described in Schedule 2 to this Agreement is to be carried out; (k) "Project Area B" means regions of about 13,000 ha in Abra in which Part B.1 of the Project is to be carried out; (1) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and DBP pursuant to Section 3.02 of this Agreement; (m) "Sub-loan" means a loan made or proposed to be made by DBP under Part A.1 (a) of the Project, to a beneficiary for an Investment Project, and to be financed in part out of the proceeds of the Loan; (P) "beneficiary" means a .mallholder in Project Area A to which DBP proposes to make or has made a sub-loan for tree farming; (o) "Investment Project" means a specific investment proj- ect, as approved by DBP pursuant to this Loan Agreement and the Subsidiary Loan Agreement, to be carried out by a beneficiary and to be financed in part by means of a sub-loan; (p) "Participating Companies" means companies selected by the Borrower, DBP and the Bank for the purpose of assisting DBP in carrying out Part A.1 (a) of the Project in accordance with the relevant Memorandum of Agreement; (q) "Memorandum of Agreement" means the agreement entered into by DBP with each of the Participating Companies, on terms and conditions satisfactory to the Bank, including those set forth in Part C of Schedule 5 to this Agreement; (r) "BPI Memorandum of Agreement" means the agreement entered into by DBP with BPI, on terms and conditions satisfactory to the Bank, including those set forth in Part D of Schedule 5 to this Agreement; -3- (s) "Prior Loan Agreement" means the loan agreement (Indus- trial Investment and Smallholder Tree Farmers Project) between the Borrower and the Bank dated June 12, 1974; (t) "ha" means hectares; and (u) "V" means Peso in the currency of the Borrower. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to eight million dollars ($8,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expendi- tures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 4 to 'this Agreement. Section 2.04. The Closing Date shall be December 31, 1983 or such later date as the Bank shall otherwise establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of seven and nine-tenths per cent (7.9%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. -4- Section 2.07. Interest and other charges shall be payable semiannually on June 15 and December 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. The Borrower shall cause to be carried out: (i) Part A.1 of the Project by DBP, (ii) Part A.2 of the Project by BPI, (iii) Part A.3 of the Project by PCARR, (iv) Part B.1 of the Project by BFD, (v) Part B.2 of the Project by DNR, and (vi) Part B.3 of the Project by DA, with due diligence and efficiency and in conformity with appro- priate administrative, financial, agricultural and silvicultural practices, and shall provide or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. (a) The Borrower shall relend to DBP the pro- ceeds of the Loan allocated under Category (1) (a) of Schedule 1 to this Agreement under a subsidiary loan agreement to be entered into between the Borrower and DBP, under terms and conditions which shall have been approved by the Bank, including those set forth in Schedule 5 to this Agreement. (b) The Borrower shall exercise its rights under the Subsid- iary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, nor amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. (c) The Borrower shall take -nd shall cause all its agencies to take all action which shall be necessary on their part to -5- enable DBP zo perform all of its obligations under the Subsidiary Loan Agreement and shall not take or permit to be taken any action which might interfere with such performance. Section 3.03. The Borrower shall cause DBP: (a) to make sub-loans on terms and conditions satisfactory to the Bank and, except as the Bank shall otherwise agree, in accordance with the Operating Policies and Procedures set forth in Part B of Schedule 5 hereto, as such Schedule may be amended from time to time by agreement between the Bank and the Borrower, represented for these purposes by DBP, and to exercise its rights under the agreements providing for sub-loans so as to achieve the purposes of Part A.1 (a) of the Project and enable the Borrower to comply with its obligations under this Agreement; (b) to establish and maintain a separate account to be used exclusively for Part A.1 (a) of the Project; and (c) to record in such account all receipts and payments for or in connection with Part A.1 (a) of the Project, in accor- dance with sound accounting principles consistently applied, including the following: (i) amounts received from and payments made to the Borrower under the Subsidiary Loan Agreement; and (ii) amounts paid and received on account of sub-loans. Section 3.04. In order to assist in carrying out the Project, the Borrower shall employ or cause to be employed, consultants and specialists whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Bank, including but not limited to: (a) a consultant to commence assisting BFD, on or before March 31, 1978, in planning planting layouts; (b) forestry specialists to commence assisting BFD, on or before November 30, 1978, in implementing Part B.1 of the Project; and (c) consultants to commence assisting DNR, on or before December 31, 1978, in implementing Part B.2 (b) of the Project. -6- Section 3.05. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the 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 Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.06. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records and pro- cedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose their use in the Project; (ii) shall enable the Bank's accredited representatives to visit the facili- ties and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any rele- vant records and documents; and (iii) shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of 'he Loan and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reason- ably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respec- tive obligations under the Loan Agreement and the accomplishment of the purposes of the Loan. -7- (d) The Borrower shall cause: ( ) the Steering Committee to submit to the Bank, not later than three months after the end of each of the Borrower's fiscal years, an annual progress repo7 on Part B.1 of the Project. (ii) DBP to submit to the Bank, not later than three months after the end of each of the Borrower's fiscal years, the annual progress report on the monitoring activities referred to in Section 3.10 of this Agreement; and (iii) PCARR to submit to the Bank, not later than three months after the end of each of the Bor-rower's fiscal years, the annual progress report on the research program referred to in Section 3.13 of this Agreement. Section 3.07. The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project and shall furnish to the Bank, promptly after such acquisition, evidence satisfactory to the Bank that such land and rights in respect of land are avail- able for purposes related to the Project. Section 3.08. The Borrower shall, whenever necessary, make arrangements satisfactory to the Bank, to assist in the resettle- ment and employment of any residents of Project Areas A and B, who are required to relocate for the n.-pose of the carrying out of the Project. Section 3.09. The Borrower shall .e to he established and maintained with powers, membership, stt,Z ,nd resources satis- factory to the Bank: (a) a Natural Resources Projects Preparation Unit in DNR, responsible for planning and preparing natural resources, includ- ing forestry, projects; (b) an Agricultural Projects Preparation Unit in DA, respon- sible for planning and preparing agricultural projects; and (c) a Steering Committee in BFD, responsible for approving and monitoring the work program designed to implement Part B.1 of the Project. -8- Section 3.10. The Borrower shall cause DBP to monitor an- nually, in accordance with monitoring methods satisfactory to the Bank, a randomly selected sample of Investment Projects financed out of the proceeds of the Loan and of the loans made by the Bank to the Borrower for tree farm development pursuant to the Prior Loan Agreement. Section 3.11. The Borrower shall cause BPI to expand its nursery capacity and production of Giant Ipil Ipil seedlings, principally in Ilocos, in accordance with a program satisfactory to the Bank. Section 3.12. The Borrower shall: (i) cause BFD not to issue or renew pasture permits and pasture leases; and (ii) prohibit cattle grazing and unauthorized cultivation in Project Area B. Section 3.13. The Borrower shall cause PCARR to submit to the Bank on or before May 31, 1978, a program of research satis- factory to the Bank, on aspects related to tree farm development. ARTICL IV Other Covenants Section 4.01. (a) It is the mutual intention of the Borrower and the Bank that no other external debt shall enjoy any priority over the Loan by way of a lien on governmental assets. (b) To that end the Borrower: (i) represents that at the date of this Agreement no lien exists on any governmental assets as security for any external debt except as otherwise disclosed in writing by the Borrower to the Bank; and (ii) undertakes that, except as the Bank shall otherwise agree, if any such lien shall be created, it will ipso facto equally and ratably, and at no cost to the Bank, secure the payment of the principal of, and interest and other charges on, the Loan and in the creation of any such lien express provision will be made to that effect. The Borrower shall promptly inform the Bank of the creation of any such lien. (c) The foregoing representation and 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. - 9 - (d) As used in this Section, the term "governmental assets" means assets of the Borrower or of any agency of the Borrower including the Central Bank of the Philippines or any institution performing the functions of a central bank for the Borrower. (e) The Borrower further undertakes that, within the limits of the laws in force in its territories, it will make the fore- going undertaking effective with respect to liens on the assets of its political subdivisions and their agencies, and to the extent that the Borrower is unable within the limits of the laws in force in its territories to make this undertaking effective, the Bor- rower will give to the Bank an equivalent lien satisfactory to the Bank. Section 4.02. (a) The Borrower shall cause DBP, BPI, PCARR, BFD, DNR and DA to maintain separate records adequate to reflect in accordance with consistently maintained appropriate accounting practices their operations in respect of the Project. (b) The Borrower shall cause DBP, BPI, PCARR, BFD, DNR and DA to: (i) have such accounts and financial statements (DBP balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by indepen- dent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than three months after the end of each such year, (A) certified copies of their 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning such accounts and financial statements, and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) each Memorandum of Agreement, and the BPI Memorandum of Agreement, have been signed; and - 10 - (b) the execution of the Subsidiary Loan Agreement on behalf of the Borrower and DBP, respectively, has been duly authorized or ratified by all necessary corporate and governmental action. Section 5.02. The following is specified as an idditional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and DBP, respectively, and is legally binding upon the Borrower and DBP in accordance with its terms. Section 5.03. The date April 25, 1978, is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. The Secretary of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Secretary of Finance De. -tment of Finance Manila, Philippines Cable address: Telex: SECFINANCE 7550 CBP-PH Manila 0268 CB-CONF For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America - 11 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) 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. REPUBLIC OF THE PHILIPPINES By Is/ Eduardo Z. Romualdez Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /sf S. Shahid Husain Regional Vice President East Asia and Pacific - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures CategoKy Dollar Equivalent) to be Financed (1) DBP 40% (a) Sub-loans under 3,775,000 Part A.1 (a) of the Project (b) Equipment and 25,000 materials for Part A.1 (b) of the Project (2) BPI 40% Equipment and mate- 40,000 rials for Part A.2 of the Project (3) PCARR 85% Equipment, materials, 300,000 staff salaries and consultants' services for Part A.3 of the Project (4) BFD 40% Civil works, equip- 1,760,000 ment, materials, salaries for staff and labor, consul- tants' and specialists' services, and training for Part B.1 of the Project - 13 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (5) 80% (a) DNR (i) Equipment, 350,000 materials, staff salaries and consultants' services for Part B.2 (a) of the Project (ii) Consultants' services for Part B.2 (b) of the Project 600,000 (b) DA Equipment, materials, 350,000 staff salaries and consultants' services for Part B.3 of the Project (6) Unallocated 800,000 TOTAL 8,000,000 2. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item - 14- as required to be consistent with the aforementioned policy of the Bank. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement; and (b) on account of expenditures incurred for salaries for staff and labor: (i) in respect of Category (3) exceeding the equivalent of $150,000; (ii) in respect of Category (4) exceeding the equivalent of $105,000; (iii) in respect of Category (5) (a) (i) exceeding the equivalent of $300,000; and (iv) in respect of Category (5) (b) exceeding the equi- valent of $300,000. 4. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insuffi- cient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures, and (ii) if such realloca- tion cannot fully meet the estimated shortfall, reduce the dis- bursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 5. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under - 15 - the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. 6. The Bank may, on such conditions as it shall determine, permit withdrawals by the Borrower from the Loan Account in respect of expenditures for which sufficient evidence of expendi- ture has not been furnished to the Bank at the time of withdrawal; at the Bank's request, the Borrower shall promptly repay to the Bank, in advance of maturity, any amount of the Loan so withdrawn for which satisfactory evidence of expenditure for the Project in accordance with the Loan Agreement shall not have been furnished to the Bank at its request. - 16 - SCHEDULE 2 Description of the Project The Project is designed to assist the Borrower's program of reforestation and protection of forest resources, and consists of the following Parts: A. Smallholder Tree Farming in Project Area A 1. DBP (a) Provision of credit and technical services for tree farm development to about 7,400 beneficiaries occupying about 28,600 ha of land. (b) Provision of motorcycles, other vehicles and office equipment to DBP branches servicing Project Area A. 2. BPI Provision of facilities in the Ilocos region to increase the capacity to facilitate production and distribution of Giant Ipil Ipil seedlings to beneficiaries. 3. PCARR Research in fields referred to in Section 3.13 of this Agreement. B. Plantation Development in Project Area B 1. BFD (a) Provision of nursery facilities, including work- sheds, irrigation and imported seed. (b) Development of about 3,000 ha of trial Pinus caribaea plantations as the first stage of a planting program and surveys for some further 10,000 ha of planting in Abra. (c) Construction and maintenance of forest roads, firebreaks, watchtowers and headquarter buildings, including staff quarters and supporting facilities. - 17 - (d) Provision of technical services and incremental staff. 2. DNR (a) Strengthening of the management, operations and finances of the DNR Natural Resources Projects Prepara- tion Unit. (b) Study of wood industries development. 3. DA Strengthening of the management, operations and finances of the DA Agricultural Projects Preparation Unit. The Project is expected to be completed by December 31, 1982. - 18 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each June 15 and December 15 beginning June 15, 1983 through June 15, 1997 265,000 On December 15, 1997 315,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of withdrawal. - 19 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.20% More than three years but not more than six years before maturity 2.35% More than six years but not more than eleven years before maturity 4.35% More than eleven years but not more than sixteen years before maturity 6.30% More than sixteen years but not more than eighteen years before maturity 7.10% More than eighteen years before maturity 7.90% - 20 - SCHEDULE 4 Procurement A. Equipment and Macerials (including vehicles and fertilizer) 1. Except as provided in Part A.2 hereunder, equipment and materials for the Project shall be procured in accordance with the Borrower's procurement procedures satisfactory to the Bank. 2. (a) For other than Part A.1 of the Project, contracts for procurement of equipment and materials, including procurement of fertilizer, each estimated to cost more than the equivalent of $50,000 shall be carried out in accordance with competitive bidding procedures satis- factory to the Bank. (b) Pinus caribaea seed shall be procured after negotiations following solicitation of quotations from suppliers. B. Civil Works Contracts for civil works under Part B of the Project each estimated to cost more than the equivalent of $50,000, shall be carried out in accordance with competitive bidding procedures satisfactory to the Bank. C. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower 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. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. - 21 - (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) 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. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan 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 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 Borrower and state the reasons for such determination. - 22 - SCHEDULE 5 Operating Policies and Procedures A. Subsidiary Loan Repayment : 20 years, including 5 years of grace Rate of Interest 7.9% per annum on outstanding amounts Exchange risk the Borrower shall bear it B. Sub-loans DBP shall, in making sub-loans, utilize the form of sub-loan agreement agreed upon with the Bank. The sub-loan agreement shall provide, among other things, for the following: 1. An interest rate of not less than twelve per cent (12%) a year on the amount withdrawn and o--standing on sub-loans secured by land, and of not less than fourteen per cent (14%) on all sub-loans not secured by land; penal interest at the rate of three per cent (3%) per month in any amount in arrears of 60 days or more. 2. Sub-loans shall be secured in accordance with DBP procedures satisfactory to the Bank. 3. (a) Sub-loans shall be extended to beneficiaries with Investment Projects each covering an area of not more than 50 ha; (b) Not more than 25% of the amount of sub-loans shall be extended to beneficiaries with Investment Projects each covering an area of more than 25 ha. 4. Sub-loans shall be disbursed substantially in accordance with the specifications set forth in the Annex to this Schedule. 5. With regard to the areas of about 5,000 ha selected by the Borrower referred to in Section 1.02 (j) of this - 23 - Agreement, DBP and the Bank shall be satisfied of the financial viability of tree farm development in such areas, and that the lands so selected are at best only marginally suited to the development of agricultural crops. C. Memorandum of Agreement The terms and conditions of each Memorandum of Agreement shall include the following undertakings: 1. DBP: (a) Processing of sub-loan applications, administra- tion disbursement and repayment; and (b) Investment Project appraisal and supervision. 2. Participating Company: (a) Purchase all wood and leafmeal production of beneficiaries; (b) Pay for tree farm products at the prevailing competitive market price, and in any case a minimum stumpage price of P15 per cubic meter for wood- products, and PO.20 per kilogram for leaves; (c) Review annually such minimum price, starting March 31, 1979, and to revise it, if necessary, to ensure that producers can obtain a reasonable return on their investment; (d) Provide tree seedlings at cost to beneficiaries, as required by them to carry out their Investment Project; and (e) Provide beneficiaries with adequate technical assistance. D. BPI Memorandum of Agreement The terms and conditions of the BPI Memorandum of Agreement shall include the following undertakings: - 24 - 1. DBP: (a) Processing of sub-loans; (b) Provide BPI periodically with a list of sub-loan applications; (c) Consider BPI technical assistance in sub-loan application reviews; (d) Annual monitoring of Investment Projects; and (e) Provide BPI with current data on Giant Ipil Ipil production. 2. BPI: (a) Establishment of Giant Ipil Ipil nurseries at selected sites, and provide means to transport seedlings to beneficiaries; (b) Inform prospective beneficiaries through DBP of the availability of BPI technical assistance; (c) Submit to DBP reports on Investment Projects; and (d) Assist DBP in monitoring Investment Projects. - 25 - ANNEX TO SCHEDULE 5 Sub-loan Disbursements and Repayment Terms ------------Loan Amount (P/ha)------------ Giant Ipil-Ipil Albizzia and Others Release Firewood Particle Board Timing & Purpose & charcoal Leafmeal & pulpwood 0 First Release Land clearing 200 400 250 6 Second Release weeks Planting 1,250 1,100 400 Fertilizing Weeding 3 Third Release months Weeding 400 300* 300 6 Fourth Release months Weeding 150 - 250 Total Loan Amount 2,000 1,800 1,200 Grace period 4 years 1 year 7 years Subsequent repayment period 4 years 1 year 7 years * Third Release for leafmeal production comes at 12 months.