Peru - Irrigation Rehabilitation Project : Loan 1403 - Loan Agreement - Conformed

77-%3 CONFORMED COPY LOAN NUMBER 1103 PE LOAN AGREEMENT (Irrigation Rehabilitation Project) between REPUBLIC OF PERU and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated May 20, 1977 LOAN AGREEMENT AGREEMENT, dated May 20, 1977, between REPUBLIC OF PERU (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). - 2 - ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said Gen- eral Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Condi..Ions). 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) "BAP" means Banco Agrario del Peru, and includes any successor thereto; (b) "Project Area" means an area of about 68,300 hectares located in the valleys of Mala, Cai"ete, Pisco, Camang, Majes and Tambo; (c) "sub-borrower" means a farmer or an association of farmers to which a sub-loan is made or proposed to be made; (d) "sub-loan" means a loan to finance a farm development plan in the Project Area made or proposed to be made to a sub- borrower in accordance with the provisions of Section 3.02 of this Agreement and to be partly financed out of the proceeds of the Loan; and - 3 - (e) "farm development plan" means a plan consisting of on- farm improvements to be carried out by a sub-borrover and to be financed in part by means of a sub-loan. -4- 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 re- ferred to, an amount in various currencies equivalent to twenty- five million dollars ($25,000,000). 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 The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between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 expen- ditures 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 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 this Agreement. Section 2.04. The Closing Date shall be June 30, 1983 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Sectlon 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%) -5- 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 eight and one-half per cent (8-1/2%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on April 1 and October 1 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. -6- ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project through its Ministry of Agriculture with due diligence and efficiency and in conformity with appropriate agricultural, administrative, eco- nomic, financial and engineering practices and shall provide, promptly as needed, the funds, facilities, services and other re- sources required for the purpose. Section 3.02. (a) For the purpose of carrying out Part B of the Project the Borrower shall enter into a legally binding agree- ment, satisfactory to the Bank, with BAP --ppointing BAP as the Borrower's banking agent for such purpose and providing, inter alia, for: (i) the making of sub-loans by BAP in accordance with the operating policies and procedures set forth in Schedule 5 to this Agreement; (ii) the payment by the Borrower to BAP of a service charge representing the cost to BAP of carrying out Part B of the Project and not exceeding the equi- valent to 4% per annum of the outstanding principal amount of the sub-loans. (b) The Borrower shall exercise its rights under the agree- ment referred to in paragraph (a) hereof in such manner as to pro- tect the interests of the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Bor- rower shall not change or fail to enforce any provision of such agreement. Section 3.03. In order to assist the Borrower in carrying out Parts A.3, A.4, B, C, D and E of the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 3.04. The Borrower shall take such action as shall be required or desirable to complete the application of its Decreto- Ley No 17716, dated June 24, 1969, to the Project Area not later than December 31, 1982 or such other date as the Bank shall agree. Section 3.05. The Borrower shall: (a) cause its Servicio'Nacional de Mecanizaci6n Agrfcola to (i) organize and manage the operation and maintenance services of the facilities included in the Project; (ii) carry out on-farm development work in one or more of the salinized and waterlogged areas included in the Project Area; and (iii) provide such mechani- zation services in the Project Area as shall be required; all start- ing not later than a year after the Effective Date or such other date as the Bank shall agree; and (b) (i) not later than a year after the Effective Date or such other date as the Bank shall agree, prepare a plan to deter- mine the extension services requirements in the Project Area taking into account the progress made in the carrying out of the Project and the number of farms in the Project Area; (ii) furnish, promptly upon its preparation, such plan to the Bank; (iii) give -8- the Bank a reasonable opportunity to comment thereon; (iv) cause its agency or agencies responsible for the provision of extension services to farmers to carry out such plan; and (v) annually re- view such plan taking into account the progress made in the carry- ing out of the Project. Section 3.06. The Borrower shall: (a) not later than six months before the completion of Project works in each one of the six valleys included in the Project Area, carry out a socio-economic study of each such valley, in accordance with terms of reference satisfactory to the Bank, to determine the extent to which the investment cost of the irrigation and drainage systems included in Part A of the Project (the systems) can be recovered over a period of 40 years and at which annual interest rate taking into account the ability of the users of the systems (the users) to pay for such cost and the need to maintain economic incentives for them; (b) promptly upon completion of each of the studies carried out in accordance with paragraph (a) above review its conclusions and recommendations with the Bank; (c) as the Project works are completed and irrigation and drainage services become available, charge and collect from the users such water charges as shall be required to: (i) cover the operating and maintenance costs of the systems, and (ii) as much as practicable of their investment cost on the basis of the results of the review referred to in paragraph (b) above; and -9- (d) thereafter, at least once every two years (i) review with the Bank such water charges taking into account the users' income and the effect of price changes on the value of the systems investment; and (ii) promptly make adjustments in such water charges as required. Section 3.07. (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 3.08. (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 or cause to be maintained records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited represen- tatives to visit the facilities and construction sites included - 10 - in the Project and to examine the goods financed out of the pro- ceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as~the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. Section 3.09. 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 the construction (and operation) of the facilities included in 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 available for purposes related to the Project. Section 3.10. The Borrower shall take all measures necessary to ensure that sub-borrowers have adequate short-term financing available at appropriate terms and conditions as required for the carrying out of their farm development plans. - 11 - 'ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in. normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of for- eign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or per- mitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or admini- strative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfac- tory to the Bank. - 12 - (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdi- vision thereof and of any entity owned or controlled by, or oper- ating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. (a) The Borrower shall maintain or cause to be maintained such separate accounts and records as shall be adequate to reflect in accordance with consistently maintained sound account- ing practices the operations, resources and expenditures, in re- spect of the Project, of BAP and the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall cause: (i) the accounts referred to in paragraph (a) hereof for each fiscal year to be audited, in accor- dance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) to be fur- nished to the Bank as soon as possible, but in any case not later than six months after the end of each such year, (A) certified - 13 - copies 07 such accounts 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) to be furnished to the Bank such other information concerning the accounts and the audit thereof as the Bank shall from time to time reasonably request. Section 4.03. The Borrower shall (i) cause all facilities included in the Project to be adequately maintained; (ii) cause all necessary renewals and repairs to be made thereto; and (iii) provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) BAP shall have failed to perform any of its obligations under the agreement referred to in Section 3.02 (a) of this Agree- ment; (b) an extraordinary situation shall have arisen which shall make it improbable that BAP will be able to perform its obligations under such agreement; (c) a change in the legislation of the Borrower shall have occurred vhich shall materially and adversely affect the ability of BAP to perform its obligations under such agreement; and (d) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of BAP or for the suspension of its operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: - 15 - (a) any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower and BAP; and (b) any event specified in paragraphs (c) and (d) of Section 5.01 of this Agreement shall occur. - 16 - ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an addi- tional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely, that the execution of the agreement referred to in Section 3.02 (a) of this Agreement on behalf of the Borrower and BAP has been duly authorized or ratified by all necessary corporate and govern- mental action. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be fur- nished to the Bank, namely, that the agreement referred to in Sec- tion 3.02 (a) of this Agreement is legally binding on the parties thereto. Section 6.03. The date July 20, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. - 17 - ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Ministro de Economfa y Finanzas and the Director General de Cr4dito Pdblico of the Ministerio de Economfa y Finanzas of the Borrower are designated as representatives of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministerio de Economfa Y Finanzas Avda. Abancay 50 Cuadra Lima, Peru Cable address: MINDEF Lima For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. - 18 - 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. REPUBLIC OF PERU By /s/ Carlos Garcia Bedoya Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean - 19 - 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 ex- penditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil works 8,ooo,ooo 60% (Parts A and F of the Project) (2) Sub-loans (Part 6,000,000 75% of amounts B of the Project) disbursed by BAP (3) Equipment 7,000,000 (a) directly 100% of foreign imported expenditures (b) imported and 80% (represent- locally pur- ing the estimated chased foreign expendi- ture component) (c) locally pro- 90% of ex-fac- duced (other tory cost than vehicles and wheel trac- tors) - 20 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (4) Consultants' services 600,000 100% of foreign for Parts C, D and E expenditures and of the Project 100% of local ex- penditures (pro- fessional salaries only) (5) Unallocated 3,400,000 TOTAL 25,000,000 - 21 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. 3. 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 as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of - 22 - the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Ca%j.cry, 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) in the case of Category (1), if such reallo- cation 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. 6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- ditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or lim- iting any other right, power or remedy of the Bank under 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. - 23 - SCHEDULE 2 Description of the Project The Project will: (a) rehabilitate and construct irrigation and drainage systems and improve their operation and maintenance, (b) provide credit to reclaim salinized and waterlogged lands, and (c) provide agricultural extension services to farmers or farmers associations, all in the Project Area. The Project consists of the following: Part A: Rehabilitation and construction of main and secondary irrigation and drainage systems for about 33,000 hectares 1. Construction of about 11 river intake structures. 2. Construction of about 340 kilometers of main and secondary irrigation canals and rehabilitation of about 65 kilome- ters of existing irrigation canals. 3. Construction of about 235 kilometers of open drainage canals and rehabilitation of about 109 kilometers of existing drainage canals. 4. Construction of four drainage pumping plants for the valleys of Can"ete, Camang and Tambo. 5. Construction of about 16 bridges or culverts at the intersections of main and secondary drainage canals and the Pan-American Highway. -24- Part B: Sub-loans Making of sub-loans to sub-borrowers to reclaim about 19,000 hectares of salinized and waterlogged land, including: 1. Construction of about 527 kilometers of open or pipe on-farm drains to lover the groundwater level to a minimum of 1.5 meters below ground surface. 2. Construction of about 44 kilometers of open or pipe collector drains. 3. Land clearing, leveling (about 8,000 hectares) and pre- paration for cultivation, including the construction of bunds for the flooding and leaching process, deep plowing and planting of windbreaks. 4. Construction of tertiary irrigation canals and structures. Part C: Operation and maintenance 1. Establishing one entity in each one of the valleys in- cluded in the Project Area to operate and maintain the irrigation and drainage systems therein. 2. Training of personnel in the methods and procedures for the operation and maintenance of irrigation and drainage systems, and in the operation and maintenance of equip- ment therefor. - 25 - Part D: Groundwater Investigation Investigation of the effect of the underground flow on the salination of lands in the lover parts of the valleys included in the Project Area, and evaluation of the feasibility of developing groundwater as an additional source of water for irrigation. Part E: Extension Services Establishing extension services in the Project Area and training of extension agents. Part F: Service Centers Construction of one service center in each one of the valleys included in the Project Area. Part G: Feasibility Study A study to determine the feasibility of an irrigation rehabilitation project in irrigated coastal valleys of Peru other than those included in the Project Area. * * e The Project is expected to be completed by December 31, 1982. - 26 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each April 1 and October 1 beginning April 1, 1981 through October 1, 1993 925,000 On April 1, 1994 950,000 * 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. - 27 - Premiums on Prepayment The following percentages are specified as the premiums pay- able 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 1.50% More than three years but not mre than six years before maturity 3.00% More than six years but not more than eleven years before maturity 5.50% More than eleven years but not more than fifteen years before maturity 7.50% More than fifteen years before maturity 8.50% SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the pur- chase of goods or for civil works shall be procured 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 Guide- lines), on the basis of international competitive bidding. B. Other Procurement Procedures Contracts for civil works for Part F of the Project, con- tracts for drainage pipe or tile and contracts for minor items of technical or office equipment which cannot be grouped in lots of at least $50,000 equivalent may be procured on the basis of compet- itive bidding advertised locally. C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex- factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and sim- ilar taxes on domestically-supplied goods, shall be excluded; and -29- (iii) the cost to the Borrower of inland freight and other expen- ditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Peru may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and stages that will be fol- lowed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Peru if the bidder shall have established to the satis- faction of the Borrower and the Bank that the manu- facturing cost of such goods includes a value added in Peru equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Peru. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import 30 - taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this fur- ther comparison only, an amount equal to (i) the amount of cus- toms duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. 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 for goods estimated to cost the equivalent of $50,000 or more and civil works estimated to cost the equivalent of $100,000 or more: -31 (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 docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's conc-urrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated,the Borrower 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, with- out the Bank's concurrence, materially differ from those on which bids were asked. (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. - 32 - 2. With respect to each contract to be financed out of the pro- ceeds 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. 331 - SCHEDULE 5 Operating Policies and Procedures 1. Sub-loan Processing (a) The Direcci'n General de Aguas of the Ministry of Agri- culture of the Borrower will assist the sub-borrowers in preparing their farm development plans. (b) BAP will make a sub-loan for a farm development plan only after said Direcci6n General de Aguas has approved such plan. 2. Terms and Conditions of sub-loans (a) The outstanding principal amount of each sub-loan will bear interest at the rate of not less than 10% per annum. (b) The repayment terms will reflect the payment ability of the sub-borrower and will not exceed 20 years including a maximum grace period of 5 years. (c) Sub-loans will be denominated and repayable in Soles. For purposes of this paragraph "Soles" means the cur- rency unit of the Borrower.