Nicaragua - Urban Reconstruction Project : Credit 0965 - Project Agreement - Conformed

CREDIT NUMBER 965 NI Project Agreement (Urban Reconstruction Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BANCO NACIONAL DE DESARROLLO Dated , 1980 CREDIT NUMBER 965 NI PROJECT AGREEMENT AGREEMENT, dated , 1980, between INTERNATIONAL DEVELOPMENT (SSOCIATION hereinafter called the Association) and BANCO NACIONAL DE DESARROLLO (hereinafter called BND). WHEREAS by the Development Credit Agreement of even date herewith between Republic of Nicaragua (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equiva- lent to twenty-two million dollars ($22,000,000), on the terms and conditions set forth in the Development Credit Agreement; WHEREAS pursuant to contractual arrangements to be entered into between the Borrower and Fondo Especial de Desarrollo (here- inafter called Fondo), three million two hundred thousand dollars ($3,200,000) of the proceeds of the Credit provided for the purpose of carrying out Part B of the Project under the Develop- ment Credit Agreement will be made available to Fondo on the terms and conditions therein set forth; and WHEREAS in consideration of the Association's entering into the Development Credit Agreement with the Borrower, BND has agreed for Fondo to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: 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 Credit Program for Rehabilitation of Small Enterprises (Part B of the Project) Section 2.01. (a) Fondo shall carry out Part B of the Project described in Schedule 2 to the Development Credit Agreement with -2- due diligence and efficiency and in conformity with appropriate administrative and financial practices. (b) In the carrying out of Part B of the Project, Fondo shall at all times follow the lending and operating policies and procedures set forth in the Schedule to this Agreement, as such Schedule may be amended from time to time by agreement between the Association and Borrower. (c) Except as the Association shall otherwise agree, Fondo shall: (i) make application to the Association on or before September 30, 1981 for withdrawal from the Credit Account for expenditures under Part B of the Project; (ii) until the Closing Date, utilize all funds repaid by Beneficiaries of Sub-loans under Part B of the Project to make further Sub-loans under the Project; and (iii) thereafter, utilize the funds referred to in (ii) hereof and all subsequent repayments made by any Beneficiaries of Sub-loans under this paragraph (c) for further relending purposes consistent with those of the Project, such relending to be made in accordance with the lending and operating policies and procedures set forth in the Schedule to this Agreement, as such Schedule may be amended from time to time by agreement between the Association and the Borrower, and provided further that not later than December 31, 1981, the Association and the Borrower shall review the terms of such relend- ing and agree on changes as necessary. Section 2.02. Fondo shall enter into Subsidiary Loan Agree- ments, satisfactory to the Association, with the Participating Banks to: (i) define in detail the responsibilities, functions and administrative procedures in respect of the carrying out of Part B of the Project; and (ii) lend to the Participating Banks such portions of the proceeds of the Credit as shall be necessary to enable them to make Sub-loans in respect of Part B of the Project. Section 2.03. Fondo shall exercise its rights under each of the Subsidiary Loan Agreements in such manner as to protect the interests of the Borrower, the Association, and Fondo and to accomplish the purposes of the Credit, and except as the Associa- tion shall otherwise agree, Fondo shall not assign, nor amend, abrogate or waive such Agreements or any provision thereof. Section 2.04. Except as the Bank shall otherwise agree, contracts for the procurement of goods and civil works to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of paragraph C.1 of Schedule 3 to the Development Credit Agreement. Section 2.05. Fondo shall not disburse any funds from Special Account B referred to in Section 2.02 of the Development Credit Agreement for Sub-loans to Micro-Enterprises of any Municipality until the Association has received evidence satisfactory to the Association of the appointment of a qualified Program Adminis- trator and the local technical committee for such Municipality referred to in Part I.A (3) of the Schedule to this Agreement. Section 2.06. Fondo undertakes that, except as the Associ- ation shall otherwise agree, all funds repaid to Fondo by each Participating Bank under a Subsidiary Loan Agreement (on or before the maturities agreed thereunder) which are not required for the repayment of principal of, or any other charges on, the Credit shall be used for additional lending under Part B of the Project in accordance with paragraph (c) of Section 2.01 of this Agreement. ARTICLE III Management and Operations of Fondo Section 3.01. Fondo shall conduct its business and operations in accordance with appropriate business, financial and adminis- trative practices and under the supervision of experienced and competent management assisted by adequate, experienced and competent staff. Section 3.02. Fondo shall maintain an organization for the execution of Part B of the Project satisfactory to the Asso- ciation. -4- Section 3.03. Fondo shall promptly inform the Association of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the maintenance of the service thereof or the performance by Fondo of its obligations under this Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) Fondo shall establish and maintain separate accounts on its records to be used exclusively for Part B of the Project and shall register in such accounts all receipts and payments for or in connection with Part B of the Project, in accordance with appropriate accounting principles and procedures consistently applied which are satisfactory to the Association. (b) Fondo shall: (i) have its accounts referred to in paragraph (a) hereof and related statements for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Borrower and the Association as soon as available, but in any case not later than four months after the end of Fondo's fiscal year, (A) certified copies of such accounts and related statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and related statements of Fondo and the audit thereof as the Association shall from time to time reason- ably request. Section 4.02. Fondo shall include in the Subsidiary Loan Agreements to be entered into pursuant to Section 2.02 of this Agreement such provisions as shall be necessary to ensure that each Participating Bank shall: (a) establish and maintain separate accounts on its records to be used exclusively for Part B of the Project and to register in such accounts all its receipts and payments for or in connec- tion with Part B of the Project, in accordance with appropriate accounting principles and procedures consistently applied which are satisfactory to the Association; and (b) (i) have the accounts referred to in paragraph (a) above and related statements for each fiscal year audited, in -5- accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Borrower and the Association, as soon as available, but in any case not later than four months after the end of such Bank's fiscal year, (A) certified copies of such accounts and related statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and related statements of such Bank and the audit thereof as the Association shall from time to time reasonably request. 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 BND, for Fondo, 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 20 years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify BND of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. 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 -6- 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 herein- after specified or at such other address as such party shall have designated 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: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For Banco Nacional de Desarrollo: Fondo Especial de Desarrollo Edificio Banco Nacional de Desarrollo Apartado Postal No. 328 Managua, Nicaragua Cable address: Telex: BANADES BNDCM-1035 Managua Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of BND may be taken or executed by the Director of Fondo or such other person or persons as BND shall designate in writing, and BND shall furnish to the Association sufficient evidence of the authority and the authenticated speci- men signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. -7- IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names, and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE DESARROLLO By Authorized Representative -8- SCHEDULE Lending and Operating Policies and Procedures I. Sub-loans A. Eligibility and Procedures (1) Approval of Sub-loans will be made on the basis of an application showing, inter alia, that the proposed Sub-project is technically feasible and financially viable, that the capability of current management is adequate and that the prospects for marketing the products and services of the proposed Beneficiary are favorable. (2) Sub-loans to Small Enterprises and Production Associa- tions will be made by Participating Banks in accordance with their normal administrative procedures. (3) Sub-loans to Micro-Enterprises will be made on the basis of: (i) preliminary approval by a local technical committee comprised of the Program Administrator, a representative of the Municipal Board and a local representative of MIC; and (ii) final approval by the respective Participating Bank. (4) A Small Enterprise which is engaged in a production or service activity and which has not more than $60,000 equivalent in fixed assets, as defined by Fondo, will be eligible for a Sub-loan in an amount not to exceed in the aggregate $40,000 equivalent. (5) A Small Enterprise which is engaged in a commercial activity and which has not more than $60,000 equivalent in total assets, as defined by Fondo, will be eligible for a Sub-loan in an amount not to exceed in the aggre- gate $15,000 equivalent. (6) A Production Association which has not more than $60,000 equivalent in fixed assets, as defined by Fondo, will be eligible for a Sub-loan in an amount not to exceed in the aggregate $40,000 equivalent. (7) A Micro-Enterprise which meets the criteria established by Fondo in agreement with the Association will be eligible for a Sub-loan in an amount not to exceed in the aggregate $2,000 equivalent. B. Terms and Conditions Sub-loan Contracts will include, inter alia, the following terms and conditions: (1) Sub-loans will be made and will be repayable in c6rdobas; (2) repayment terms will reflect the capacity of the Benefi- ciary to repay, the nature of the activity of the enterprise and the expected life of the structures and equipment being financed, and such terms will normally not exceed 4 years for working capital and 10 years for fixed investments, except that such repayment terms for Sub-loans to Micro-Enterprises will normally not exceed 3 years for working capital and 5 years for fixed investments; (3) grace periods will be not more than 6 months, 1 year or 3 years for Sub-loans which have a term of 3 or 4, 5 and 10 years, respectively; (4) interest on the outstanding principal of each Sub-loan to a Beneficiary will be payable at the rate of not less than 12% per annum; (5) arrangements, acceptable to the Association, to secure the repayment of the Sub-loan; (6) the goods and services to be financed out of the pro- ceeds of the Sub-loan will be used exclusively for the purposes approved by Fondo; (7) the right of the Association and Fondo to inspect the sites, the improvement of which is financed by the Sub-loan, any equipment, materials or inputs financed by the Sub-loan, the business of the Beneficiary, the operation thereof, and any relevant records and docu- ments; - 10 - (8) the right to obtain all such information as the Associa- tion and Fondo will reasonably request relating to the foregoing and to the operations and financial condition of the Beneficiary; (9) the right to require the Beneficiary to carry on his business, with due diligence and efficiency and in accordance with appropriate technical, commercial and financial practices and standards, and to maintain adequate records; (10) the right to require the Beneficiary to insure, or make adequate provision for the insurance of, to the extent that Fondo determines it be necessary, any goods to be financed out of the proceeds of such Sub-loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation and against hazards incident to their use in the enterprise; (11) the right to suspend or terminate access by the Benefi- ciary to the use of the proceeds of the Sub-loan upon failure by him to perform his obligations under the Sub-loan Contract and, in appropriate cases, to pre- mature the Sub-loan; and (12) all such other provisions as necessary to enable the Borrower to fulfill its obligations under the Devel- opment Credit Agreement and to enable Fondo and the Participating Bank to fulfill their obligations under the Subsidiary Loan Agreement, and to protect their interests and those of the Association. II. Subsidiary Loans A. Eligibility Fondo shall select financial institutions and associations to participate in the carrying out of the Project on the basis of their: (i) past experience and performance in lending to small enterprises; (ii) suitable financial condition; (iii) managerial capabilities; and (iv) adequacy of the number and qualifications of the technical staff. B. Terms and Conditions Subsidiary Loan Agreements will include, inter alia, the following terms and conditions: - 11 - (1) Subsidiary Loans will be made and will be repayable in c6rdobas; (2) Subsidiary Loans will finance not more than 80% of the amount of Sub-loans; (3) interest on the outstanding principal of each Subsidiary Loan will be payable at the rate of not less than 6% per annum nor more than 8% per annum, wt.ich rate may be amended from time to time by the Borrower after consultation with the Association; (4) the Participating Bank will repay the principal of and pay the interest on Subsidiary Loans not later than 15 calendar days after the dates that repay- ments of principal and payments of interest on the Sub-loans by which such Subsidiary Loans are financed fall due; (5) the Participating Bank will assume the risk of non-payment for Sub-loans made by it; (6) the right to suspend or terminate access by the Participating Bank to the use of the proceeds of the Subsidiary Loan upon failure by it to perform its obligations under the Subsidiary Loan Agreement and, in appropriate cases, to premature the Subsi- diary Loan; and (7) the Subsidiary Loan Agreement will contain all other provisions necessary to ensure that the Participating Bank includes in the corresponding Sub-loan Contract the terms and conditions referred to in Part I of this Schedule. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the -L day of FOR SECRETARY