Yugoslavia - Seventh Industrial Credit Project : Loan 2339 - Loan Agreement - 1 - Conformed

Z339-Yo) OFFICIAL LOAN NUMBER n DOCU ENTS Loan Agreement (Seventh Industrial Credit Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT UDRUZENA KOSOVSKA BANKA PRISTINA Dated ( g 1983 LOAX NUMBER 4A0B0M LOAN AGREEMENT AGREFMENT, dated OL}pf4.A1 Sr, 1983, between INTERNATIONAL BANK FOR RECONSRUCTION AND DEVELOPMENT (hereinafter called the Bank) and UDRUZENA KOSOVSKA BANKA PRI9TINA (hereinafter called the Borrower), both on its own behalf and on behalf of its Basic Banks (as this term is hereinafter defined). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Section 3.01 (a) of this Agreement by making a loan as hereinafter provided; (B) the Socialist Federal Republic of Yugoslavia (herein- after called the Guarantor), in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to guarantee the Loan as to payment of principal, interest and other charges; (C) the Bank has entered into an agreement of even date herewith with Investiciona Banka Titograd-'Udrullena Banka (herein- after called IBT) %hereunder the Bank has agreed to make a loan to IBT in an amount equivalent to twenty-five millton dollars ($25,000,000) in order to assist IBT in the financing of a similar type of Project consisting of various investment projects (as defined in said agreement) in the Socialist Republic of Montenegro; and WHEREAS the Bank has agreed on the basis, inter alia, of the foregoing, to make the Loan to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitfons 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 October 27, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 2 to this Agreement (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions). -2- Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and the P.eamble to this Agreement have the respective meanings therein set F rth, and the following addi- tional terms have the following anings: (a) "Sub-loan" means a loan made or proposed to be made by the Borrower out of the proceeds of the Loan to an Investment Enterprise for an Investment Project and "free-limit Sub-loan" means a Sub-loan, -z so defined, which qualifies as a free-limit Sub-loan pursiant to the provisions of Section 2.02 (b) of this Agreement. (b) "Investment Enterprise" means an industrial enterprice to which the Borrower proposes to make or has made a Sub-loan. (c) "Export-oriented Investment Project" or "Labor- Intensive Investment Project" means a specific development pro- ject, carried out by an Investment Enterprise utilizing the pro- ceeds of a Sub-loan, and meeting the eligibility criteria set forth in Parts A.1 or A.2, respectively, of Schedule 3 to this Agreement. (d) "Investment Project" means an Export-oriented Invest- ment Project or a Labor-intensive Investment Project; and "J >t Venture Investment Project" means an Investment Project met- .g the criteria set forth in *Part A.3 of Schedule 3 to this Agreement. (e) "Self-Management Agreement of the DBorrower" means the Self-Management Agreement of the Borrower dated January 31, 1978, as amended to tie date of this Agreement. (f) "Statutes" means the Statutes of the Borrower dated July 7, 1978, as amended to the date of this Agreement. (g) "Basic Bank" means any bank which is, or shall become, a party to the Self-Management A&reement of the Borrower, pur- suant.to the pertinent provisions thereof. (h) "Statement of Operations and Policies for the Project" means the Statement of Operations and Policies for the Project set forth in Schedule 3 to this Agreement as such Schedule may be amended from time to time by agreement between the Bank and the Borrower. -3 (i) "Social Accounting Service" means the Sluzba Drustvenog Knjigovodstva referred to in Article 77 and in paragraph (5) of Article 281 of the Constitution of the Guarantor. (j) "D1nars" and "Din" means Dinars in the currency of the Guarantor. (k) "foreign currency" means any currency other than the currency of the Guarantor. (1) "Unit" means the Sub-Unit established by the Borrower pursuant to Section 6.01 of the loan agreement dated June 14,. 1976 (Loan No., 1277-YU) between the Bank on the one hand, and IBT, Privredna Banka Sarajevo-UdruXena Banka, Stopanska Banka Zdrutena Banka-Skopje and the Borrower on the other hand, and to be maintained in accordance with Section 3.01 (b) of this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Areement set forth or referred to, an amount in various currencies equivalent to forty- five million dollars ($45,000,090). Section 2.02 (a) The Borrower may withdraw from the Loan Account: (1) up to an aggregate equivalent of forty-four million four hundred eighty-seven thousand seven hurdred eighty-one dollars ($44,487,781) or such other amount as the Bank and the Borrower shall otherwise agree, for amounts paid (or, if the Bank shall so agree, for amounts to be paid) by the Borrower on account of withdrawals made by an Investment Enterprise under a Sub-loan: (A) to meet the reasonable foreign currency cost of goods and services required for the Investment Project in respect of which the withdrawal from the Loan Account is requested; or (B) to meet the ex- factory cost of items manufactured in Yugoslavia which shall have been procured in accordance with the procedures set forth in Part C.1 of Schedule 3 to this Agreement; provided, however, that no withdrawal shall be made in respect of a Sub-loan unless (1) the Sub-loan has been approved by the Bank, or (2) the Sub-loan is a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account; and (ii) up to an aggregate equivalent of four hundred thousand dollars ($400,000) or such other amount as the Bank and the Borrower shall otherwise agree, for expenditures made (or if the Bank shall so agree, to be made) in respect of the reasonable cost of the consultants' services, overseas staff training, and office equipment, referred to in Section 3.01 (a) (ii) of this Agreement. (b) A free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed out of the pro- ceeds of the Loan which, together with any other amount or amounts financed or proposed to be financed for the same Invest- ment Project under Sub-loans financed from the proceeds of the Loan, and not repaid, shall not exceed in the aggregate the equivalent of $1,500,000, and which, when added to all other free-limit Sub-loans financed or proposed to be financed out of the proceeds of the Loan, shall not exceed in the aggregate the equivalent of $27,000,000, the foregoing amounts being subject to change from time to time as. determined by the Bank; provided, however, that Sub-loans made for the first five Export-oriented Investment Projects shall not be deemed free-limit Sub-loans, irrespective of the amount of any such Sub-loan. (c) Except as the Bank and the Borrower shall otherwise agree, no withdrawals shall be made on account of (i) expendi- tures before the date of this Agreement or (ii) expenditures by an Investment Enterprise in respect of a Sub-loan subject.to the Bank's approval if such expenditures shall have been made more than ninety days prior to the date on which the Bank shall have received in respect of such Sub-loan the application and informa- tion required by Section 2.03 (a) of this Agreement or, in respect of a free-limit Sub-loan, more than ninety days prior to the date on which the Bank shall have received in respect of such free-limit Sub-loan the request and information required by Section 2.03 (b) of this Agreement. (d) Except as the Bank and the Borrower shall otherwise agree, at least fifteen million dollars (q15.000,000) out of the -5- proceeds of the Loan shall be allocated for the financing of Joint Venture Investment Projects, in accordance with the. provisions of this Agreement and Schedule 3 hereto. Section 2.03. (a) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, the Borrower shall furnish to the Bank an application, in form satisfactory to the Bank, together with (i) a description of the Investment Enter- prise and an appraisal of the Investment Project, including the financing plan for the Investment Project, the justification thereof in terms of the provisions of Part A-5 of Schedule 3 to this Agreement and a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) a description of the procurement procedures followed or to be followed by the Investment Enterprise in carrying out the Investment Project; (iii) the recommendations of the Unit; (iv) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (v) such other information as the Bank shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Loan Account in respect of a free-limit Sub- ioan shall contain (i) a summary description of the Investment Enterprise and the Investment Project, including the financing plan for the Investment Project, the justification thereof in terms of the provisions of Part A.5 of Schedule 3 o this Agreement and a description of the expenditures proposed to be financed out of the proceeds of the Loan; and (ii) a description of the procurement procedures followed or to be followed by the Investment Enterprise in carrying out the Investment Project; (iii) the recommendations of t%e Unit; and (iv) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (a) and (b) of this Section shall be presented to the Bank on or before December 31, 1985. - Section 2.04. The Closing Date shall be December 31, 1988 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.05. (a) The Borrower shall pay to the Bank a fee equivalent to one hundred twelve thousand two hundred nineteen dollars ($112,219). (b) On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of the said fee in such currency or currencies as the Bank shall determine. Section 2.06. The Borrower shall pay to the Bank a commit- ment 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 2.07. (a) The Borrower shall pay interest on the nrincipal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one half percent per annum above the Cost of .Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.08 of this Agreement, incluaino the Interest Period in which this Agreement is signed. (ii) "Cost" of Qualified Borrowings means the cost, expressed as a percentage per annum, as reasonably determined by the Bank, provided that the amount of $8,520.5 million referred to in (iii) (B) hereunder shall be reckoned at a cost of 10.93% per annum. (iii) "Qualified Borrowings" iaeans: (A) outstanding borrowings of the Bank drawn down after June 30, 1982; and (B) until July 1, 1985, the amount of $8,520.5 million (representing borrowings of the Bank between July 1, 1981 and June 30, 1982) less any part thereof repaid earlier than July 1, 1985. (iv) "Semester" means the first six months or the second six months of a calendar year. Section 2.08. Interest and other charges shall be payable semi-annually on March 1 and September 1 in each year. Section 2.0S. (a) The Borrower shall repay the principal amount of Lhe Loaa withdrwh pursuant to Sections 2.02 (a) (i) and 2.05 hereof in accordance with the amortization schedule set forth in Column 1 of Schedule 1 to this Agreement as such Schedule shall be amended from time to time by the Bank to the extent required to: (i) conform in relevant part substantially to the aggregate of the amortization schedules applicable to Sub- loans, which have been approved or authorized for withdrawals from the Loan Account under Section 2.02 (a) (i) of this Agree- ment and (ii) take into account any cancellation pursuant to Article VI of the General Conditions and any repayments made by the Borrower under Section 2.10 of this Agreement; provided that any such amendments to the amortization schedule permitted here- under shall not authorize repayments of the principal amount of the Loan beyond the latest repayment date set forth in Column 1 of such Schedule 1. Repayments due hereunder shall be made on March I and September 1 in each year. Such amendments of Column 1 of said Schedule 1 shall include amendments to the table of premiums on prepayments, if necessary. (b) The amortization schedule applicable to each Sub-loan shall provide for an appropriate period of grace, subject to, the provisions of Part B.2 of Schedule 3. to this Agreement, and, unless the Bank and the Borrower chall otherwise agree: .(i) shall not extend beyond 18 years from the date of this Agreement; and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semi-annual, or more frequent, payments of principal. (c) The Borrower shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by the Bor- rower tin respect of the repayment provisions of any Sub-loan. (d) The Borrower shall repay the principal amount of the Loan withdrawn pursuant to Section 2.02 (a) (ii) hereof in'accor- dance with the amortization schedule set forth in Column 2 of Schedule I to this Agreement. Section 2.10. Unless the Bank and the Borrower shall other- wise agree: (a) If a Sub-loan or any part thereof shall be repaid to the Borrower in advance of maturity or if a Sub-loan or any part thereof shall be sold, transferred, assigned or otherwise dis- posed of for value by the Borrower, the Borrower shall promptly notify the Bank and shall repay to the Bank on the next following interest paymnt date, together wlth the premiums specified in Schedule 1 to this Agreement or in any amendment thereof under Section 2.09 (a) of this Agreement, the amount withdrawn from the Loan Account in respect of such Sub-loan or part thereq. and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank as follows, to the maturity or maturities of the Loan in amounts corresponding to the outstanding amounts of the maturity or maturities of the Sub-loan so repaid or disposed of. (c) Paragraph (b) of Section 3.04 of the General Conditions shall not apply to any repayment made under paragraph (a) of this Section. Section 2.11. The Borrower shall procure the goods and services required for the carrying out of Section 3.01 (a) (ii) of this Agreement and to be financed out of the prcceeds of the Loan in accordance with Part C.2 of Schedule 3 to this AgZeement. ARTICLE III Description of the Project; Management and Operations of the Borrover Section 3.01. (a) The purposeti of the Project are: (i) to assist the Borrower in financing such productive facilities and resources in the Socialist Autonomous Province of Kosovo as will contribute to the economic and social development of the country, by financing of Labor-intensive and Export-oriented Investment Projects through loans to industrial enterprises as specified in the Statement of Operations and Policies for the Project; and (ii) to a'ssist the Borrower in identifying such Investment Projects and strengthening its institutional capabilities, through the provision of consultants' services, overseas staff training and office equipment. C-9- (b) The Borrower shall carry out the Project and conduct its operations and affairs in accordance with sound financial standards and practices, with qualified management and competent staff in adequate numbers, and in accordance with the Self- Management Agreement and Statutes of the Borrower and Statement of Operations and Policies for the Project. (c) The Borrower shall maintain the Unit, under arrange- ments satisfactory to the Bank, with such compositlion and functions as are set forth in Part D of Schedule 3 to thial Agree- Section 3.02 (a) The Borrower undertakes that, unless the Bank shall otherwise agree, any Sub-loan will be made in accordance with the provisions ofcthe Statement of Operations and Policies for the Project and on terms whetaby the Borrower shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Borrower, including, the right of' the Borrower to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound tech- nical, financial and managerial standards and to maintain adequate records; (ii) require that: (A) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Part C of Schedule 3 to this Agreement; and (B) such goods and services shall be used exclusively in the carrying out of the Investment Project; 41) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construc- tion included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) require that: (A) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such -10- amounts, as shall be consistent with sound busi- ness practice; and (B) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the,proceeds of the Loan to the place of use or Installation, any indemnity thereunder to be made payable in a cur- rency freely usable by the Investment Enterprise to replace or repair" such goods; (v) obtain all such information as the Bank or the Borrower shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enter- prise and to the benefits to be derived from the Investment Project; (vi) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Loan upon failure by such Investment Enterprise to per- form its obligations under its contract with the Borrower; and (vii) in the case of a Sub-loan for an Export-oriented Investment Project, to take, as appropriate, any or all of the-following actions when the Invest- ment Enterprise fails to meet the export targets agreed between the Investment Enterprise and the Borrower for any given year and, in the Borrower's judgment after rev,.ewing the situation, the export shortfall can reas ably be attributed to negli- gence or lack of efforts on the part of the Investment Enterprise: (A) impose an interest penalty of up to four per cent (4%) per annum on the amount of said Sub-loan then outstanding; (B) impose restrictions on future lending requested from the Borrower by the Investment Enterprise; and (C) declare the entire amount of the Sub- loan due and payable or accelerate the maturity thereof. (b) The Iorrower shall exercise its. rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and the Borrower, (ii) comply with its - 11 - obligations under this Agreement, and (iii) achieve the purposes of the Project. Sectinn 3.03. The Borrower shall maintain records adequate to record the progress of the Project and of each Investment Project (including the cost thereof, the amount of financing provided by the Borrower, disbursements, repayments, interest and other charges on such financing, including the Sub-loan therefor) and, within 45 days of the close of each quarter of a year, furnish to the Bank reports thereon in such detail as the Bank shall reasonably request. Section 3.04. (a) The Borr)wer shall furnish to the Bank at regular intervals all such information as the Bank shall reason- ably request concerning the expenditure of the proceeds of the Loan, the Project, the Investment Enterprises, the Investment Projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing. (b) Within six months following the last withdrawal from the Loan Account, the Borrower shLlall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Investment Projects, their costs and the benefits derived and to be derived from them, the performance by the Borrower and the Bank of their respective obligations under this Agreement and the accomplishment of the purposes of the Loan. Section 3.05. Unless the Bank shall otherwise agree, the Borrower shall charge an annual rate of interest of at least eighteen per cent (18%) per annum on its domestic resources made available to Investment Enterprises for Investment Projects (other than those resources made available by the Federal Fund for Accelerating the Development of the Less Developed Regions). Section 3.06. (a) The Borrower shall: (i) carry out, in accordance with terms of reference agreed with the Bank, studies to identify and develop Labor-intensive and Export-oriented. Investment Projects, to be completed by March 31, 1984 and June 30,, 1984, respectively, or such later dates as the Bank may agree; (ii) provide, promptly as needed, the funds, facilities, services and other resources required therefor; and (iii) furnish to the Bank, promptly upon completion, draft and final reports prepared thereunder. - 12 - (b) In order to assist in carrying out the studies referred to under paragraph (a) of this Section, the Borrower shall employ consultants whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Bank, such consultants to be selected in accordance with principles and procedures satisfactory to the Bank on the basis of the "Guide- lines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Section 3.07. The Borrower shall: (a) (i) supervise and monitor the actual export performance of Export-oriented Investment Projects; and (ii) furnish to the Bank every six months, until the accumulated net foreign exchange earnings of the Investment Project have reached the level required under Part A.1 of Schedule 3 to this Agreement, and annually thereafter, a report on said export performance, includ- ing (A) information on production and exports, and (B) a state- ment of the reasons for shortfalls, if any, in meeting export targets agreed between the Borrower and the Investment Enterprise and any actions taken or proposed to be taken by the Borrower or the Investment Enterprise to improve export performance where such a shortfall exists; and (b) furnish to the Bank annually after each Labor-intensive Investment Project has begun pperations, a supervision report on the operation of such Investment Project, including an assessment of the actual employment situation thereunder. Section 3.08. The Borrower shall take or cause to be taken all necessary measures to ensure that all complementary financing shall be available to any Investment Enterprise as and when required to enable the Investment Enterprise to carry out its Investment Project in a timely manner. Section 3.09. In order to strengthen its institutional capability, the Borrower shall carry out the program set forth in Schedule 4 to this Agreement. ARTICLE IV Financial Covenants Section 4.01. The Borrower shall maintain procedures and records adequate to monitor and record the progress of the Project and of each Investment Project (including its cost and - 13 - the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of the Borrower. Section 4.02. The Borrower shall: (a) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound auditing principles consistently applied, b'y the Social Accounting Service or another competent and experienced independent auditing organization acceptable to the Bank; (b) furnish to the Bank, as soon as available but in any case not later than six months after the end of each such year, (i) certified copies of its financial statements for such year as so audited and (ii) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (c) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reason- ably request. Section 4.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets or on any assets of the Basic Banks as security for any debt. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if any lien shall be created on any assets of the Borrower or of any of its Basic Banks as security for any debt, such lien will equally And ratably secure the payment of the. principal of, and interest and other charges on the Loan and that in the creation of any such lien express provision will be made to that effect at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower or of any of its Basic Banks as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satis- factory to the Bank to secure the payment of the principal of, and interest and other charges on the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 4.04. The Borrower shall not make any repayment in advance of maturity in respect of any outstanding debt of the - 14 - Borrower which, in the judgment of the Bank, would materially affect the Borrower's ability to meet its financial obligations. Section 4.05. The Borrower shall take such steps satis- factory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including Dinars) used in its lending and borrowing operations. Section 4.06. The Bank and the Borrower shall from time to time, at the request of either party, exchange views through their representatives with regard to the administration, opera-. tions and financial condition of the Borrower and its Basic Banks and the Borrower shall furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of the Bor- rower and its Basic Banks. Section 4.07. The Borrower shall enable the Bank's repre- sentatives to inspect the records referred to in Sections 3.03 and 4.01 of this Agreement and any relevant documents. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the Ger- eral Conditions the following additional events are specified: (a) any part of the principal amount of any loan to the Borrower having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance of maturity as provided in the relative contractual instruments, or any security for any such loan shall have become enforceable; and (b) a change shall have been made in the Self-Management Agreement or Statutes of the Borrower which would materially and adversely affect the operations or the financial condition of the Borrower or the carrying out of the Project, Section 5.02. For the purposes of Section 7.01 of the Gen- eral Conditions the following additional event is specified, pur- suant tc paragraph (h) thereof, namely, that any of the events specified in paragraph (a) of (b) of Section 5.01 shall occur. - 15 - ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely, that the Borrower has appointed the development banking advisor referred to in Part A.1 (a) of Schedule 4 to this Agreement. Section 6.02. The date of /i2 d cff(is hereby specified for the purposes of Section 1 04 of the General Conditions. ARTICLE VII iscellaneous Section 7.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Borrower: Udruzena Kosovska Banka Pristina Marsala Tita 4 38000 Pristina Yugoslavia Cable address: Telex: BANKKOS 18149 YU BANKOS Pristina Yugoslavia - 16 - 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT I By Regional Vice President Europe, Middle East and North Africa UDRUZENA KOSOVSKA BANKA PRISTINA By Authorized Representative - 17 - SCHEDULE 1 Amortization Schedule Column Column Payment of Principal Date Payment Due 1* 2 (expressed in dollars)** March 1, 1987 720000 14,000 86,000 September 1, 1987 292,000 14,000 306,000 March 1, 1988 530,000 14,000 544,000 September 1, 1988 734,000 14,000 748,000 March 1, 1989. 846,000 14,000. 860,000 September 1, 1989 996,000 14,000 1,010,000 March 1, 1990 1,060,000 14,000 1,074,000 September 1, 1990 1,140,000 14,000 . 1,154,000 March 1, 1991 1,207,000 14,000 1,221,000 September 1, 1991 1,291,000 14,000 1,305,000 March 1, 1992 . 1,370,000 14,000 1,384,000 September 1, 1992 1,459,000 14,000 1,473,000 March 1, 1993 1,543,000 14,000 1,557,000 Septemer 1, 1993 1,633,000 14,000 1,647,000 March 1, 1994 1,736,000 14,000 1,750,000 September 1, 1994 1,846,000 14,000 1,860,000 March 1, 1995 1,961,000 14,000 1,975,000 September 1, 1995 2,062,000 14,000 2,076,000 March 1, 1996 2,172,000 14,000 2,186,000 September 1, 1996 2,295,000 14,000 2,309,000 March 1, 1997 2,444,000 14,000 2,458,000 September 1, 1997 2,631,000 14,000 2,645,000 March 1, 1998 2,842,000 14,000 2,856,000 September 1, 1998 3,087,000 14,000 3,101,000 March 1, 1999 2,983,000 14,000 2,997,000 September 1, 1999 2;174,000 14,000 2,188,000 March 1, 2000 1,287,000 14,000 1,301,000 September 1, 2000 512,000 14,000 526,000 March 1, 2001 250,000 8,000 258,000 September 1, 2001 145,000 - 145,000 44,600,000 400,000 45,000,000 * This part of the Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.09 (a) of the Loan Agreement. ** The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal; see General Conditions, Section 3.04. - 18 - Premius 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 3.04 (b) of the General Conditions or to Section 2.10 (a) of this Agreement: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outotandin, on the Loan on the da. of prepayment multiplied byt Not more than three years 0.17 before maturity More than three years but 0.33 not more than six years before maturity More than six years but 0.61 not more than eleven years before maturity More than eleven years but 0.78 not more than fourteen years before maturity More than fourteen years but 0.89 not more than sixteen years before maturity More than sixteen years 1.00 before maturity - 19 - SCHEDULE 2 Modifications of the General Conditions For the purposes of the Loan Agreement, the provisions of the General Conditions are modified as follows: (1) The following subparagraph (d) is added to Section 3.04: "(d) The Bank and the Borrower may from time to time agree upon arrangements for prepayment of the Loan and the application of such prepayment in addition to, or in substitution for, those set forth in paragraph (b) of Section 3.04." (2) The words "or for Investment Projects" are added after the words "the Project" at the end of Section 5.03. (3) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) by the date speci- fied in paragraph (c) of Section 2.03 of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank in respect of any portion of the Loan, or having been so received, shall have been denied, or (c) after the Closing Dati an amount of the Loan shall remain unwithdrawn from the Loan Account, or (d) the Bank shall have received notice from the Guarantor pursuant to Section 6.07 with respect to an amount of the Loan, the Bank may by notice to the Borrower terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice such amount or portion of the Loan shall be cancelled." - 20 - SCHEDULE 3 Statement of Operations and Policies for the Project A. Eligibility Criteria for Investment Projectc Only Investment Projects which meet the following criteria for Export-oriented Investment Projects or Labor-intensive Investment Projects shall be eligible for financing out of the proceeds of the Loan. 1. (a) Export-oriented Investment Projects shall be either: (i) for the construction of new facilities, from which at least thirty per cent (30%) of pro- duction is projected to be exported; or (ii) for the balancing, modernization and/or expansion of existing facilities, from which at least forty per cent (40%) of the addi- tional production is projected to be ex- ported; provided, however, that the total net foreign exchange earnings of the Investment Project, as hereinafter defined, are projec' I to equal the foreign capital cost of the Investment Project within six and one-half (6-1/2) years after the completion of the Investment Project. (b) Export-oriented Investment Projects shall include those which otherwise meet the requirements of (a) and produce products which are further processed or assembled for export through not more than one industrial facility other that the Investment Project, provikJ that such products are a clearly identifiable compcnent of the finally-exported products. (c) For the purposes of the foregoing, "net foreign exchanFe earnings" means export earnings, minus the cost of imported inputs and interest payments on foreign currency loans. -21- 2. Labor-intensive Investment Projects are those for which the value of fixed assets (including permanent working capital) shall, when divided by the number of jobs to be created or to be maintained as a result of the Investment Project, not exceed the equivalent of $25,000 in 1982 prices. 3. Joint Venture Investment Projects mean Export-oriented Investment Projects or Labor-intensive Investment Projects which: (a) qualify as joint venture development projects under the Guar- antor's laws and regulations; (b) in which a Yugoslavia enter- prise or enterprises located outside Kosovo has invested at least twenty per cent (20%) of the total cost of the Investment Project; and (c) for which the investing enterprise(s) and the Investment Enterprise have entered into a technical and manage- ment assistance agreement. 4. Both Export-oriented Investment Projects and Labor- intensive Investment Projects shall meet the following economic and financial requirements: (a) Investmert Projects shall meet adequate criteria of technical, marketing, economic and financial feasi- bility and creditworthiness and managerial competence of the Investment Enterprises; (b) Investment Projects shall: (i) provide satisfac- tory financial and economic rates of return in all instances, on the basis of detailed and realistic esti- mates of costs and benefits; (ii) have an internal financial rate of return of not less than the interest rate charged by the Borrower, at the time it approves any such Investment Project, on the domestic resources referred to .in Section 3.05 of this Agreement; and (iii) have, in addition, an economic rate of return of not less than 12%; and (c) the Investment Enterprise shall have a satisfac- tory financial structure. Normally, its long-term debt- -to-equity ratio shall not exceed three to one unless, if higher, the appraisal of the Investment Project indicates that such ratio shall be reduced below the above limit within a reasonable period of time. 5. Applications and requests made pursuant to the provi- sions of paragraphs (a) and (b) of Section 2.03 of this Agreement shall, inter alia, provide: - 22 - (a) for all Export-orien-ed Investment Projects, justifica- tion for the foreign exchange earning capability and export market viability of the proposed Investment Project, including, at a minimum:. (M) detailed calculations of annual net foreign exchange earnings for a six-year period, with income and costs shown in foreign currency and Dinars; (ii) for balancing, modernization and/or expansion of existing facilities, past export performance; (iii) marketing channels abroad and, if any, purchase orders received or contracts made on a long-term basis; (iv) steps taken by the Investment Enterprise to secure an export market; (v) detailed market analysis, inclLding statistics on demand, supply and imports in target markets; (vi) justification of price and quality competitiveness of proposed products; and (vii) details 'on eligibility for the Guarantor's export incentives; and (b) for all Labor-intensive Investment Projects, evidence of labor-intensity, including a breakdown of the estimated total cost of the Investment Project, and a detailed break- down by category of the new or additional labor to be employed. B. Terms and Conditions of Sub-loans 1. The amount of a Sub-loan for any Labor-intensive Investment Project shall not exceed $4,000,000 equivalent,and the estimated cost of any such Investment Project shall not exceed $20,000,000 equivalent. The amount of a Sub-loan for an Export-oriented Investment Project shall not exceed $5,000,000 equivalent. -23- 2. For the purpose of Section 2.09 (b) of this Agreement, periods of grace for Sub-loans shall be: (a) for Joint Venture Investment Projects, and for other --nvestment Projects which receive other foreign currency financing in addition to the Sub-loan, up to a maximum of five (5) years; and (b) for all other Investment Projects, up to a maximum of three (3) years. 3. Sub-lo Ans shall be made for a maximum term of fifteen (15) years, consistent with the requirements of Section 2.09 (b) this Agreement and related to the useful life of the assets financed under the Sub-loan, or for a shorter term if consistent with the debt servicing capacity of the Investment Enterprise. 4. Sub-loans shall be repayable in the same currencies used for the purpose of repaying to the Bank the corresponding principal amount of the Loan. The risk of loss from changes in exchange rates on currencies borrowed and repaid under the Sub- loan shall be borne by the Investment Enterprise. 5. Sub-loans shall carry interest at a variable rate equal to the rate provided in Section 2.07 of this Agreement, plus one and one-quarter per cent (1-1/4%). 6. The fee to be paid by the Borrower under Section 2.05 of this Agreement shall be charged to the Investment Enterprises. C. Procurement of Goods and Services 1. Except as the Bank may otherwise agree, contracts for goods and services to be financed in whole or in part out of the proceeds of the Loan, estimated to cost the equivalent of $2,000,000 or more each, shall be awarded in accordance with pro- cedures consistent with those set forth in the current edition of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. (a) For the purpose of evaluation and comparison of bids for the supply of goods to be procured or. the basis of international competitive bidding: (i) bidders shall be required to state in their bid the c.i.f. -24- (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods offered in such bid; (ii) customs duties and other import taxes levicd in connection with the importation, or the sales and similar taxes levied in connection with the sale o delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland freight and other expenditures incidental to the delivery of the goods to the p.'ace of their use or installation shall -be included. (b) In the procuremen% of goods on the basis of inter- national competitive bidding as described in paragraph 1 hereof, goods manufactured in Yugoslavia may be granted a margin of preference in accordance with,. and subject to, the following provisions: (i) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages. that will be followed in the evaluation and comparison of bids. (ii) After evaluation, responsive bids will be classified In one of the following three groups: (A) Group A: bids offering goods manufac- tured in Yugoslavia if the bidder shall have established to the satisfaction of the Borrower and the Bank that. rhe manu- facturing cost of such goods includes a value added in Yugoslavia equal to at least 20% of the ex-factory bid price of such goods. (B) GrouB: all other domestic bids. (C) Group C: bids offering any other goods. (iii) In order to determine the lowest evaluated bid of each group, all 'evaluated bids in each -25 - group shall first be compared among them- selves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. 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 9s the lowest, it shall be selected for the award. (iv) If, as a result of the comparison under sub- paragraph (iii) 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 evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (A) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importa- tion of the goods offered in such group C bid; or (B) 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 sub-paragraph (iii) is the lowest evaluated bid shall be selected. 2. Contracts for goods and services to be financed in whole or in part out of the proceeds of the Loan, estima!:ed to cost less than the equivalent of $2,000,000 each, shall be procured through appro:.riate commercial channels, at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliabilit, of the goods, and avail- ability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them, due consideration being given to the desirability to apply international competitive bidding proce- dures. -26- 3. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to: (i) all contracts for goods and services to be financed in whole or in part out of the proceeds of the Loan, estimated to cost the equivalent of $5,000,000 or more each; and (ii) whenever the Bank shall reasonably so request, such other contracts also to be procured on the basis of international competitive bidding as described in paragraph 1 hereof: (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 descrip- tion 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. (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 evaluat- ion 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 determi- nation. (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 was invited. (D) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the -27- first application for withdrawal of funds from the Loan Account in respect of such contract. (b) With respect to all contracts for goods and services to be financed in whole or in part out of the proceeds of the Loan estimated to cost the equivalent of $2,000,000 or more but less than $5,000,000 each, and which are to be procured on the basis of international competitive bidding as described in paragraph 1 hereof: (i) 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 lank shall reason- ably request. The Bank shall, if it deter- mines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (ii) 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 was invited. (iii) Two conformed copies of the contract shall be furnished 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. D. The Unit 1. Composition The Unit shall consist of at least three' members appointed by the Borrower within its staff and acceptable to the Bank, one of these members being designated by the Borrower as head of the Unit. The Borrower shall also provide appropriate supporting staff in adequate numbers for the Unit. -.28- 2. Functions The Unit shall: (a) coordinate the preparation of appropriate reports concerning the information referred to in Sections 3.04 and 4.06 of this Agreement and forwar. to the Bank such reports, in such detail as the Bank shall request, and all such other information . as the Bank shall from time to time reasonably request; (b) in consultation with the Bank, propose to the Borrower appropriate time schedules and procedures for supervision and evaluation of Investment Projects and shall assist the Borrower in carrying out such supervision and evaluation; (c) maintain on behalf of the Borrower close relations with the Bank and assist the Bank's representatives in any inspection of Investment Projects financed out of the proceeds of the Loan and in exchange of views with the Borrower on matters relating to the Loan and the Project; (d) review each proposed Investment Project and related application or request for authorization -o withdraw for a Sub- loan on the basis of a detailed appraisal of the Investment Project prepared by the Borrower, in accordance with the State- ment of Operations and Policies for the Project; (e) after its revinw, make recommendations to the Borrower on each Investment Project and related Sub-loan as to its con- formity to rhe Statement of Operations and Policies for the Project and .uggest any modifications required to achieve such conformity; (f) assist the Borrower in establishing and maintaining appropriate records as provided for in Section 3.03 of this Agreement, in such detail as the Bank shall request; and (g) prepare the reports referred to in Sections 3.03 and 3.04 (b) of this Agreement. -29- SC2EDULE 4 Institutional Development 'rogram Except as the Borrower and the Bank may otherwise agree, the Borrower shall undertake the following actions in order to strengthen its institutional capabilities, in accordance with timing acceptable to the Bank: A. Staff Development and Training 1. Employ: (a) a development banking advisor with qualifications, experience and terms of reference acceptable to the Bank to advise on strengthening of management, improvement of loan application, processing, and disbursement procedures, and increasing the Borrower's development orientation; and (b) a full-time, qualified and experienced development banking officer to act as counterpart to the development banking advisor in carrying out the responsibilities in (a) above. 2. Cont.nue to employ a Senior Advisor on World Bank matters to coordinate the Borrower's relations with the Bank and operations under the Loan and other loans made by the Bank, including coordination of the Unit's work. 3. Employ a full-time qualified and experienced training officer acceptable to the Bank, by October 31, 1983 to prepare a comprehensive training program for staff of the Borrower and the Basic Banks, and revise the program as necessary. 4. Furn.sh this initial training program to the Bank for comment by December 31, 1983, and, after reaching agreement with the Bank on said program, implement the program as agreed. 5. Provide overseas training for two staff members involved in work on industrial projects in project promotion, appraisal and supervision, all as agreed ith the Fank. B. Development of Operational Capability 1. Implement a program, as agreed with the Bank, for the impr.vement -f the efficiency of the Borrower's middle-level management, thrcugh such measures as tLhe introduction of a management information system and work. incentives, the increased - 30 - delegation of authority, the appointment of deputies for key managers, and the employment of additional support staff. 2. Employ two internal auditors, with tasks and duties defined by the Social Accounting Service and acceptable to the a Bank. 3. Prepare and furnish to the Bank an analysis of existing procedures for project processing, loan approval, and disburse- ments, and recommendations of specific stips to be taken to simplify and standardize those procedures. After reaching agree-. ment with the Bank on the specific steps and Liming proposed, implement the recoomendations as agreed. 4. Implement a program, as agreed with the Bank, for the improvement of the efficiency of project supervision, including periodic reporting by Investment Enterprises, planned visits by the Borrower's staff to project sites, and use of standard reporting formats. To this end, establish and maintain a supcr- vision department, with competent staff in adequate numbers. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVF1OPMENT CERTIFICATE I hereby certily that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstructioa and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this day of 0 98 . FOR SECRETARY