Yugoslavia - Kosovo Regional Development Project : Loan 2306 - Loan Agreement - Conformed

OFFICIAL DOCUMENTS LOAN NUMBER 2306 YU Loan Agreement (Kosovo Regional Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and UDRUZENA KOSOVSKA BANKA PRISTINA Dated , 1983 LOAN NUMBER 2306 YU LOAN AGREEMENT AGREEMENT, dated _-2 <4 , 1983, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (herein- after called the Bank) and UDRUZENA KOSOVSKA BANKA PRISTINA (hereinafter called the Borrower), acting pursuant to its self- management agreement and statutes 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 Schedule 2 to this Agreement by making the 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 Federation (as this term is hereinafter defined) will assist the Borrower in carrying out Parts A, B, C and D (1) of the Project, and will carry out Part D (2) of the Project for which the Borrower will make available to the Federation a portion of the proceeds of the Loan as hereinafter provided: (D) the Socialist Autonomous Province of Kosovo (herein- after called Kosovo) has entered into an Agreement on Obligations of the Socialist Autonomous Province of Kosovo In Connection with the Kosovo Regional Development Project (hereinafter called Kosovo Agreement) with the Bank, of even date herewith, and has agreed to undertake the obligations in respect of the Project as set forth therein; (E) the Borrower, the Federation, Kosovo, the Project Communes, the Social Sector Sub-borrowers, the Faculty of Agriculture, IED, COAL Hydro-Economy, Kosovo-Pristina (as these latter five terms are hereinafter defined), and all other organizations involved in carrying out the Project will enter into a self-management agreement known as the Self-Management Agreement on Mutual Rights, Obligations and Responsibilities for the Implementation of the Kosovo Regional Development Project, for the purpose of defining their 2esponsibilities and relation- ships under the Project; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to make the Loan available to the Borrower upon -2- the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank and the Federation; NOW THEREFORE the parties hereto hereby agree as follows: 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 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 following modificLtion thereof (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions), namely, that the following sub-paragraph (d) is added to Section 3.04 of the General Conditions: "(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." Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Self-Management Agreement of the Borrower" means the Self-Management Agreement of the Borrower dated January 31, 1978, as may be amended from time to time. (b) "Statutes of the Borrower" means the statutes of the Borrower dated May 28, 1973, as may be amended from time to time. (c) "Sub-loan" means a loan made or proposed to be made by the Borrower out of its own funds (including resources provided by the Federal Fund for accelerating the development of the less developed Republics and regions) and out of the proceeds of the Loan in accordance with Section 3.03 (a) of this Agreement. -3- (d) "Sub-borrower" means a beneficiary of a Sub-loan who may be either: (i) an Individual Sub-borrower who is an individ- ual farmer borrowing funds from his own Organization of Agricul- turalists which it has borrowed from the Borrower; or (ii) one of the Social Sector Sub-borrowers. (e) "Federation" means Zadruzni Savez Kosova (the Federa- tion of Cooperatives of Kosovo), established and operating pur- suant to a Self-Management Agreement on Association in the Federation, dated January 13, 1977, as may be amended from time to time (hereinafter called the Self-Management Agreement of the Federation), and Statutes, dated December 23, 1980, as may be amended from time to time (hereinafter called the Statutes of the Federation). (f) "Organization of Agriculturalists" means an association of individual farmers, namely, an agricultural cooperative, basic cooperative organization, or basic organization of cooperants, which has associated in the Federation under Article 75 of Kosovo's Law Gi Association of Agriculturalists of July 15, 1980, published in Kosovo's Official Gazette No. 28 of July 18, 1980; and, except for the purposes of Part C of the Project, means only those Organizations of Agriculturalists located in the Project Communes. (g) "Social Sector Sub-borrowers" means the beneficiaries of the Sub-loans provided for in Parts A (1) and (2), and B of the Project, namely, the Bistrica Basic Organization of Asso- ciated Labor, PIRO Agro-Morava, Working Organization "Veteri- nakos"-Pristina (Veterinakos), RTV Pri'tina and the Regional radio stations, the Kosovo Bureau for Geodetic and Photogram- metric Work, the Organizations of Agriculturalists, and the designated Project Commune organizations. (h) "Project Communes" means the Communes of Decani, Dragas, Glogovac, Isotok, Klina, Liplian, Orahovac, Podujevo, Srbica, Suva Reka, Vitina and Vuitrn in Kosovo, collectively, and "Project Commune" means any of the Project Communes. (i) "Investment Project" means a specific investment pro- ject to be carried out by a Sub-borrower utilizing the proceeds of a Sub-loan. (j) "Faculty of Agriculture" means the Faculty of Agricul- ture at the University of Kosovo-Pri tina. (k) "IED" means the Institute of Economic Development, established as a working organization of the Composite Organiza- tion of Associated Labor Agro-Industrial Kombinat Agrokosova by its Assembly in 1976. (1) "COAL Hydro-Economy, Kosovo-Pristina" means the Composite Organization of Xssociated Labor Hydro-Economy, Kosovo- Pristina. (m) "Statement of Operations and Policies" means the state- ment of lending and investment operations and policies for the Project set forth in Schedule 5 to this Agreement, as such state- ment may be amended from time to time with the prior approval of the Bank. (n) "Dinars" and the letters "Din" mean the currency of the Guarantor. (o) "Social Accounting Service" means the Sluzba Drustvenog Knjigovodstva referred to in paragraph (5) of Article 281 of the Guarantor's Constitution. (p) "Basic Bank" means any bank which is, or shall become, a party to the Self-Management Agreement of the Borrower, pur- suant to the pertinent provisions thereof. (q) "Project Agreement"' means the agreement between the Bank and the Federation of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreement, supplemental to the Project Agreement. (r) "Special Account" means the account to be opened and thereafter maintained pursuant to Section 2.02 (c) of this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Loan Agreement, an amount in various currencies equivalent to seventy-nine million dollars ($79,000,000). -5- Section 2.02. (a) The amount of the Loaa 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: (i) for amounts disbursed (or, if the Bank shall so agree, for disbursements required to be made) by the Borrower under Sub-loans in respect of the reasonable cost of goods and services required for Parts A, B, C and D (2) of the Project and to be financed under the Loan Agreement pursuant to the provisions of Schedule 5 to this Agreement, and in re;spect of interest and other charges on the Loan; and (ii) for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for Part D (1) of the Project and to be financed out of the proceeds of the Loan. (b) On each of the semiannual interest payment dates specified in Section 2.08 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay, on such date, interest and other charges on the Loan accrued and payable on the date set forth, and up to the amount allocated, in Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank. (c) The Borrower shall, for purposes of the Project, open and thereafter maintain a special account on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. (d) Except as the Bank and the Borrower shall otherwise agree, and subject to the provisions of paragraph I.A.3 of Schedule 5 to this Agreement, no Sub-loan under Parts A (1) and (2) and B and no Sub-loan under Part A (3) of the Project shall be approved after June 30, 1986 and December 31, 1987, respectively. Section 2.03. Except as the Bank shall otherwise agree, pro- curement of the goods and civil works required for the Project - 6 - and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be March 31, 1989 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 five hundred eighty-eight thousand eighty-nie dollars ($588,089). (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 principal 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) Notwithstanding paragraph (a) of this Section, the interest rate for any Interest Period commencing in 1982 shall be 11.43% per annum. (d) 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, including the Interest Period in which this Agreement is signed. -7- (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" means (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, 1.985. (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 semiannually on May 1 and November 1 in each year. Section 2.09. (a) The Borrower shall repay the principal amount of the Loan withdrawn pursuant to Sections 2.02 (a) (i) and 2.05 hereof in accordance with the amortization schedule set forth in Column 1 of Schedule 3 to this Agreement as such Schedule 3 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 Agreement; 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 hereunder shall not authorize repayments of the principal amount of the Loan beyond the latest repayment date set forth in Column 1 of such Schedule 3. Repayments due hereunder shall be made on May 1 and November 1 in each year. Such amendments of Column 1 of said Schedule 3 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 and, unless the Bank and the Borrower shall otherwise agree: (i) shall not extend beyond fifteen years from the date hereof; and (ii) shall provide for approximately equal semiannual, or more frequent, aggregate -8- 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 Borrower in 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 3 to this Agreement. Section 2.10. Unless the Bank and the Borrower shall other- wise agree: (a) If a Sub-loan e,r any part thereof shall be repaid to the Borrower in advance of maturity or if a Sub-loan or any part thereof shall be -old, transferred, assigned or otherwise disposed of for value by the Borrower, the Borrower shall promptly notify the Bank and shall repay to the Bank on the next following interest payment date, together with the premiums specified in Schedule 3 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 thereof and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank 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, ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out Parts A, B, C and D (1) of the Project with the assistance of the Federation, and shall assist the Federation in carrying out Part D (2) of the Project with due ciligence and efficiency and in conformity with appropriate agricultural, technical, administrative and financial policies and practices, and in accordance with the Statement of -9- Operations and Policies, and shall provide or cause to be provided, r -mptly as needed, the funds, facilities, services and other resoL --es required for the purpose. Section 3.02. In order to assist the Borrower in carryingout Part D (1) of the Project, the Borrower shall employ an agricultural credit and a development banking consultant whose qualifications, experience and terms and condition. of employment shall be satisfactory to the Bank, such consultants to be selected in accordance with principles and procedures satis- factory to the Bank on the basis of the "Guidelines 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 3.03. (a) The Borrower undertakes that, unless the Bank shall otherwise agree, any Sub-loan by the Borrower will be made on financial terms and conditions consistent with the State- ment of Operations and Policies whereby the Borrower shall obtain, by written contract with the Sub-borrower or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Borrower, including, in the case of any Sub-loan under Part A or B of the Project, the right of the Borrower to: (i) require the Sub-borrower to carry out its Investment Project and to operate the facilities constructed thereunder with due diligence and efficiency and in accordance with appropriate agricultural, technical, administrative and financial policies and practices and to maintain adequate records; (ii) require that (A) the works and goods to be financed out of the proceeds of the Loan shall be procured in accordance with Schedule 4 to this Agreement; and (B) such works and goods shall be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, buildings, property, equipment and construction included in the Invcstment Project, the operation thereof, and any relevant records and documents; - 10 - (iv) require that: (A) the Sub-borrower shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with appropriate business practice; (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 currency freely usable by the Sub-borrower 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 Sub-borrower; (vi) suspend or terminate the right of the Sub-borrower to -the use of the proceeds of the Loan upon failure by such Sub-borrower to perform its obligations under its contract with the Borrower and, in appropriate cases, to premature the Sub- loan; and (vii) require any of the Social Sector Sub-borrowers: (A) to have its' accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with appropriate accounting principles consistently applied by the Social Accounting Service or another competent and experienced independent accounting organization; (B) to furnish to the Borrower as soon as avail- able, but in any case not later than six months after the end of each such year, certified copies of its financial statements for each such year as so audited and the report of such audit; and (C) to furnish to the Borrower such other information concerning the accounts and financial statements of the Sub-borrower as the Borrower shall from time to time reasonably request. (b) The Borrower shall exercise its rights, in relation to each Investment Project, in such manner as to: (i) protect the - 11 - interests of the Bank and the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. Section 3.04. The Borrower shall: (a) maintain records and procedures adequate to record and monitor the progress of the Project and each Investment Project (including the cost thereof, the amount and sources of financing provided by the Borrower, disbursements, repayments, interest and other charges on such financing, including the Sub-loan therefor); and (b) furnish to the Bank semi-annual reports on the implementation of all aspects of the Project, in such detail as the Bank shall reasonably request and within 45 days of tie close of the six-month period concerned. Section 3,.05. (a) The Borrower shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, its procedures, operations and records, the Investment Projects and the Sub-loans. (b) In order to monitor the progress of the Project, the Borrower shall establish and maintain a monitoring system acceptable to the Bank. (c) Upon approval of the award of any contract for goods, works or services to be financed out of the proceeds of the Loan, the Bank may publish a description thereof, the name and nation- ality of the party to whom the contract was awaided and the con- tract price. Section 3.06. By April 30, 1985 or such other date as may be agreed between the Borrower and the Bank, the Borrower shall undertake a review of, and exchange views with the Bank concern- ing, progress under the Project, including, inter alia, a current analysis of the projected cost thereof. Section 3.07. By November 30 of each year, commencing Novem- ber 30, 1983, the Borrower shall furnish to the Bank a financing plan for the Investment Projects to be financed in the subsequent year. Section 3.08. (a) The Borrower shall not make any Sub-loan for a Project Commune under Part B (4) of the Project until said Project Commune shall have entered into an agreement with the - 12 - Borrower whereby said Project Commune shall: (i) designate a duly empowered organization to be the Sub-borrower for a Sub-loan under Part B.4 (a) of the Project; (ii) designate a duly em- powered organization to be the Sub-borrower for a Sub-loan under Part B.4 (b) of the Project and to be fully responsible for rural road maintenance in the Project Commune area; (iii) establish and maintain a Commune Road Fund, with separate accounts for road construction and road maintenance; and (iv) provide evidence of adequate sources of funds for road maintenance requirements. (b) The Borrower shall provide a copy of the first such agreement entered into with a Project Commune to the Bank for its comments and approval, prior to making a Sub-loan for said Project Commune. ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall carry on its operations and conduct its affairs in accordance with sound administrative and financial policies and practices under the supervision of qualified and experienced management assisted by competent staff In adequate numbers, and in accordance with its Self-Management Agreement and Statutes. ARTICLE V Financial Covenants Section 5.01. The Borrower unconditionally undertakes, whenever there is reasonable cause to believe that the funds available to any of the Sub-borrowers will be inadequate to meet the estimated expenditures required for the carrying out of any of the Investment Projects, to make arrangements satisfactory to the Bank, promptly to provide, or cause to be provided, any such Sub-borrower with such funds in foreign or local currencies as needed to meet such expenditures. Section 5.02. (a) The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Loan Account on the basis of - 13 - statements of expenditure and separate accounts for the Project, to record all amounts disbursed or received for or in connection with the Project. (b) The Borrower shall retain, until one yerr after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditure, and shall enable the Bank's representatives to examine such records. Section 5.03. 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 appropriate auditing principles consistently applied, by the Social Account- ing 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; (ii) the report of such audit by said auditors (including an analysis of the quality of the Borrower's portfolio), of such scope and in such detail as the Bank shall have reasonably requested, inacluding, without limitation to the foregoing, separate opinions by said auditors in respect of the expenditures and records referred to in Section 5.02 (b) of this Agreement, as to whether the proceeds of the Loan withdrawn from the Loan Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (c) furnish to the Bank such other information concerning said accounts, financial statements, records and expenditures, as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 5.04. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets 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 as security for any debt, such lien will ipso - 14 - facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provisions 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 as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the prin- cipal 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 as security for the payment of debt incurred for the purpose of financing the purchase 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 5.05. The Borrower shall take steps satisfactory to the Bank to protect itself against the risk of losses resulting from changes in -the rates of exchange between the currencies (including Dinars) used in its lending and borrowing operations. ARTICLE VI Remedies of the Bank Section 6.01. (a) For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (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. (b) A change shall have been made in the Self-Management Agreements or Statutes of the Borrower which would materially and adversely affect the financial condition or operations of the Borrower or the carrying out of the Project. (c) The Self-Management Agreement referred to in Recital (E) of the Preamble to this Agreement shall have been amended, - 15 - repealed, waived or suspended in a such way as to affect materially and adversely the carrying out of the Project. (d) A change shall have been made in the Federation's Self-Management Agreement or Statutes which would materially and adversely affect its carrying out of its obligations under the Project Agreement. (e) The Federation shall have failed to perform any of its obligations under the Project Agreement. (f) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that the Federation will be able to perform its obligations under the Project Agreement. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) any event specified in paragraph (e) of Section 6.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and the Guarantor; and (b) any of the events specified in paragraph (a), (b), (c) or (d) of Section 6.01 of this Agreement shall occur. ARTICLE VII Effective Date; Termination Section 7.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions: (a) the Self-Management Agreement referred to in Recital (E) of the Preamble to this Agreement has been entered into by all parties concerned, is in form and substance satisfactory to the Bank and is in effect; (b) the Borrower has appointed the development banking advisor referred to in paragraph C.3 (a) of the Annex to Schedule 2 to this Agreement; and - 16 - (c) the Borrower shall have opened the Special Account in accordance with the provisions of Section 2.02 (c) of this Agreement. Section 7.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) the Project Agreement has been duly authorized or ratified by the Federation, and is legally binding upon the Federation in accordance with its terms; and (b) the Kosovo Agreement has been duly authorized or ratified by Kosovo, and is legally binding upon Kosovo in accordance with its terms. Section 7.03. The date LA fQ J,' f , is hereby specified for the purpose of Section 12.04 of the General Conditions. ARTICLE VIII Ad4resses Section 8.01. 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) - 17 - For the Borrower: Udruzena Kosovska Banka Pristina Mar'ala Tita 4 38000 PriAtina Yugoslavia Cable address: Telex: BANKKOS 18149 YU BANKKOS Pris t:ina Yugoslavia 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 By eReglonal Vice President Europe, ddle East and North Africa V UDRUZENA KOSOVSKA BANKA PRISTINA By Authorized Representative - 18 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Sub-loans for: (a) Parts A (1) 30,700,000 100% of amounts and (2) and disbursed by the B of the Borrower on Project. account of for- eign expenditures and 48% on account of local expendi- tures (b) Part A (3) 23,100,000 " of the Project (c) Part D (2) 1,000,000 " of the Project (2) Sub-loans re- 6,600,000 90% of amounts financed under disbursed by Part C of the the Borrower Project (3) Consultants' ser- 300,000 100% vices, vehicles and equipment for Part D (1) of the Project - 19 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent to be Financed (4) Interest and 9,400,000 Amounts due other charges on the Loan accured on or before April 30, 1988 (5) Fee 588,089 Amount due (6) Initial deposit 2,500,000 Amount due under in Special Section 2.02 (c) Account of this Agree- ment (7) Unallocated 4,811,911 TOTAL 79,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor. 3. The disbursement percentages have been calculated in com- pliance 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 Guarantor 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 - 20 - 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 withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $6,000,000, may be made on account of payments made for such expenditures for Part B (1) and -(4) of the Project before that date but after July 1, 1982. 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 the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunider shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under 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. - 21 - SCHEDULE 2 Description of the Project The Project is designed to generate economic activity and promote individual agricultural sector development in Kosovo, especially in the area of the Project Communes, through increas- ing agricultural production, rural ant individual farm sector incomes and employment opportunities; increasing capacity utili- zation of existing agro-processing facilities; and contributing to the institutional development of the Borrower and the Federa- tion. The Project consists of the following Parts: Part A: Primary Production Investments This Part consists of a program of Sub-loans to finance the following primary production investments: (1) A Sub-loan to Bistrica Basic Organization of Associated Labor at Decani for: (a) reconstruction and expansion of an existing irrigation scheme on about 4,000 ha, including construction of a diversion weir on the Decani-Bistrica river and the laying of primary, secondary and tertiary conduits for sprinkler irriga- tion; (b) constructing drainage works on about 600 ha; (c) carrying out soil improvement on about 1,000 ha; and (d) construction of necessary service roads to support future agricultural development; (2) A Sub-loan to PIRO Agro-Morava for the construction of drainage works on about 1,140 ha and related watershed flood control and anti-erosion works in the Commune of Vitina, including secondary canals underground drain- age, watershed erosion control and land consolidation; (3) Sub-loans to: (a) about 1,200 Individual Sub-borrowers in the area served by the investments in Part A (1) of the Project for the purchase of mobile sprinklers and other irrigation equipment; (b) about 5000 Individual Sub-borrowers for on-farm development, including the purchase of improved - 22 - livestock, animal housing and related equipment, and agricultural machinery, the establishment of orchards and vineyards, and the improvement of pasture and meadows; (c) about 700 Individual Sub-borrowers for the purchase of tractors and related equipment; and (d) about 400 Individual Sub-borrowers for the construction of wells or pumping platforms with water access, and for the. installation of diesel-powered pumps, delivery pipes and sprinklers. Part B: Farm Service and Marketing Improvement This Part consists of a program of Sub-loans to finance the following farm service and marketing improvements: (1) Sub-loans to the Organizations of Agriculturalists for the construction and rehabilitation of about 36 agri-service centers and about 60 agri-service depots, including about 30 milk collection centers, all at locations approved by the Federation. (2) A Sub-loan to Veterinakos for the construction of about 5 new veterinary stations and about 20 shelters for artificial insemidation, rehabilitation of about 20 existing veterinary stations and 10 existing depots, and purchase of vehicles and veterinary equipment. (3) A Sub-loan to RTV PriXtina for the carrying out of an attitude survey of farmers on agricultural radio programs, with the assistance of an agricultural communications consultant, and for the purchase of equipment and vehicles for RTV Pristina and the 6 Regional radio stations. (4) Sub-loans to designated organizations in the Project Communes for: (a) the improvement of inter-village roads through the rehabilitation and upgrading of existing roads and tracks; and (b) the acquisition of maintenance equipment. (5) (a) Sub-loans to duly empowered organizations in the Communes of Vucitrn and Glogovac for the survey, - 23 - clearing and road construction involved in the land consolidation of about 11,400 ha; and (b) a Sub-loan to the Kosovo Bureau for Geodetic and Photogrammetric Work for the purchase of cadastral survey equipment. Part C: Fertilizer Credit Re-financing of Sub-loans made by the Borrower to Organiza- tions of Agriculturalists to finance annual incremental purchases of fertilizer for sale to farmers. Part D: Institutional Development (1) Strengthening the Borrower's capacity for appraisal and supervision of investments in the agricultural sector, by taking the actions set forth in the Annex to this Schedule, including the provision of consultants' services, vehicles and equipment. (2) Strengthening the organizational, staffing and manage- rial capability of the Federation to promote and coord- inate agricultural development in the individual sec- tor, through: (a) improving the provision of agricultural extension services including the reorganization and training of Federation staff; and (b) improving the facilities available for the carry- ing out of the Federation's activities, including construction of a building for its offices, and provision of vehicles, furniture and equipment for the Federation and IED. The Project is expected to be completed by June 30, 1988. - 24 - ANNEX TO SCHEDULE 2 Except as the Borrower and the Bank may otherwise agree, the Borrower shall undertake the following actions to strengthen its capacity for the processing, appraisal and supervision of invest- ments in the agricultural sector: A. Improving the Individual Sector Processing System 1. By October 31, 1983, prepare an analysis of the exist- ing procedures for the processing of loans in the individual sector, and a proposal of specific steps to be taken to simplify and shorten the appraisal process for these loans. 2. After reaching agreement with the Bank on the specific steps and timing proposed, implement the recommendations as agreed. 3. By September 1, 1983, establish a system of Agricul- tural Credit Officers (ACOs), with an initial 12 ACOs employed by the Basic Banks, one for each Project Commune, and provided with necessary equipment and vehicles. Each ACO would be responsible for individual farm sector loan applications, field appraisal, and supervision. 4. By October 1, 1983, employ an agricultural credit con- sultant for a period of at least three months to prepare a three-month training program for ACOs in various disciplines related to agricultural credit, and implement the training pro- gram with the assistance of the consultant. 5. By October 31, 1983, review, in conjunction with the Federation, existing constraints on provision of agricultural credit, in the individual sector, and implement specific steps to increase the;number of potential applicants, including, inter alia, development of a package development credit program; and, at the level of Organization of Agriculturalists, reducing the number of applications grouped; and changing the commodity requirements so that to obtain a loan a farmer would be required to agree to sell to the Organization of Agriculturalists either the commodity for which the credit was granted or an amount of related commodities sufficient to cover debt service on the loan. B. Improving Loan Administration 1. Prepare, and furnish to the Bank for comment by August 31, 1983, a new program to provide for regular supervision - 25 - of projects financed by the Borrower in the individual sector and the social sector. 2. After reaching agreement with the Bank on the supervi- sion program and its timing, implement the program as agreed. 3. Review with the Basic Banks the process of disbursement of funds by the Basic Banks, the Borrower and the Bank for expen- ditures financed out of the proceeds of the Loan, and recommend and by September 30, 1983, implement adequate measures to reduce disbursement delays at all three stages. C. Improving Staff Expertise 1. 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. 2. Furnish this initial training program to the Bank for comment by December 31, 1983, and, after reaching agreement with the Bank on the program, implement the program as agreed. 3. Employ: (a) a development banking advisor acceptable to the Bank to advise, from time to time, on strengthening of management, improving loan application, processing, and disburse- ment procedures, and increasing the Borrower's development orientation; and (b) a full-time, qualified and experienced development banking officer to act as principal counterpart to the development banking advisor in carrying out in the -,esponsi- bilities in (a) above. - 26 - SCHEDULE 3 Amortization Schedule Column Column Payment of Principal Date Payment Due 1* 2 (expressed in dollars)** November 1, 1986 330,000 12,500 342,500 May 1, 1987 330,000 12,500 342,500 November 1, 1987 992,000 12,500 1,004,500 May 1, 1988 992,000 12,500 1,004,500 November 1, 1988 1,984,000 12,500 1,996,500 May 1, 1989 1,984,000 12,500 1,996,500 November 1, 1989 2,645,000 12,500 2,657,500 May 1, 1990 2,645,000 12,500 2,657,500 November 1, 1990 4,193,000 12,500 4,205,500 May 1, 1991 4,193,000 12,500 4,205,500 November 1, 1991 4,193,000 12,500 4,205,500 May 1, 1992 4,193,000 12,500 4,205,500 November 1, 1992. 4,193,000 12,500 4,205,500 May 1, 1993 4,193,000 12,500 4,205,500 November 1, 1993 4,193,000 12,500 4,205,500 May 1, 1994 4,193,000 12,500 4,205,500 November 1, 1994 4,193,000 12,500 4,205,500 May 1, 1995 4,193,000 12,500 4,205,500 November 1, 1995 4,193,000 12,500 4,205,500 May 1, 1996 4,193,000 12,500 4,205,500 November 1, 1996 4,193,000 12,500 4,205,500 May 1, 1997 4,193,000 12,500 4,205,500 November 1, 1997 4,193,000 12,500 4,205,500 May 1, 1998 3,903,000 12,500 3,915,500 * This part of the Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.09 (a) of this Agreement. ** The figures in this column represent dollar equivalents determined as of the respective dates of withdrawals; see General Conditions, Section 3.04. - 27 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on- the day of prepayment multiplied by: Not more than three years 0.20 before maturity More than three years but 0.40 not more than six years before maturity More than six years but 0.73 not more than eleven years before maturity More than eleven years but 0.87 not more than thirteen years before maturity More than thirteen years 1.00 before maturity - 28 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Irrigation, cadastral survey and road maintenance equipment to be financed through Sub-loans under Parts A (1) and B (4) (b) and (5) (b) of the Project shall be procured under contracts awarded in accordance with procedures 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. 2. For goods to be procured on the basis of international competitive bidding, and in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publica- tion of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international competitive bidding. 3. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international com- petitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (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 levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or 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 place of their use or installation shall be included. - 29 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in Yugoslavia may be granted a margi- of preference in accordance with, and subject to, the following provisions: 1. 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. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Yugoslavia if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Yugoslavia equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, 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 is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 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: (i) the amount of customs 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 - 30 - (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 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Radio station equipment financed by Sub-loans under Part B (3) of the Project shall. be procured in accordance with limited international tendering procedures, under contracts awarded after evaluation and comparison of quotations solicited from at least three qualified suppliers eligible under the Guidelines. 2. Goods and works to be financed by Sub-loans under Parts A (3) and (C) of the Project shall be procured in accord- ance with local procurement procedures. 3. All other goods and works to be financed out of the proceeds of the Loan and not referred to in paragraphs A.1, C.1 or C.2 of this Schedule shall be procured on the basis of competitive bidding advertised locally and in accordance with procedures acceptable to the Bank. 4. In the event that registration in Yugoslavia shall be necessary after a foreign contractor or supplier has been notified that he will be awarded a contract, the Borrower shall facilitate the registration. 5. Contracts for civil works and goods shall include a provision allowing non-Yugoslav contractors and suppliers to convert into foreign exchange and to repatriate a reasonable portion of contract payments, and to import equipment and specialized manpower as required to carry out their services. 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 to be awarded on the basis of international competitive bidding: - 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 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 is intended to award the contract and shall furnish to the Bank, in suffi- cient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification was invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract 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. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or - 32 - issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 20% of the original price, the Borrower shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination. - 33 - SCHEDULE 5 Statement of Operations and Policies for the Project I. Sub-loans under Parts A and B of the Project A. Sub-loan Processing 1. Registration Each Investent Project shall be registered with the Borrower upon receipt of the application therefor made by a Sub-borrower to the Borrower. 2. Appraisal and Eligibility (a) Sub-loans to Social Sector Sub-borrowers The Borrower shall prepare an appraisal report for each Investment Project, taking into account, unless the Bank shall otherwise agree, the follow- ing: (i) the technical feasibility, financial viabi- lity, economic justification and, where applicable, commercial soundness and avail- ability of markets; (ii) the generation of sufficient cash flow to cover debt service, legal claims, legally required allocations to the enterprise's depreciation, reserve and reinvestment needs, and the need to achieve financial and econo- mic rates of return of at least 12%; if the financial or the economic rate of return is calculated to be less than 12%, additional justification acceptable to the Bank will be required; (iii) the creditworthiness of the Sub-borrower; (iv) appropriate consideration given to the choice of technology, with preference accorded to more labor-intensive methods as opposed to - 34 - capital-intensive and automated technology and to the consequences of such a choice on the investment cost of Investment Projects; (v) for the Sub-loans under Part A (1) and (2) of the Project: (A) an analysis of cost recovery, including the level of user charges necessary to cover operation and maintenance costs and a .reasonable proportion of debt service; and (B) whether the proposed measures for use of irrigated and drained land, including provision of technical services and market outlets, would maximize produc- tion and user benefits. (b) Sub-loans to Individual Sub-borrowers The Borrower shall prepare a brief appraisal report for each Investment Project, taking into account the following: (i) technical' feasibility, financial viability, commercial soundness, economic justification and availability of adequate and continuing technical assistance and of suitable market outlets at fair and reasonable prices; (ii) the generation of sufficient cash flow co cover debt service, legal claims and reinvestment needs, and the need to achieve financial and economic rates of return of at least 12%; if the financial or economic rate of return is calculated to be less than 12%, additional justification will be required; (iii) the creditworthiness of the Sub-borrower; and (iv) adequacy of the mutual agreements between individual farmers and their own cooperatives or social sector organizations. - 35 - 3. Review of Investment Projects and Approval of Sub-loans On the basis of the appraisal referred to above in paragraph 2 (a) and (b), Investment Projects shall be reviewed and the proposed Sub-loans therefor shall be approved as follows: (a) with respect to the Investment Projects included in Part A (1) and (2) of the Project and any other Investment Project estimated to cost more than the equivalent of $1,000,000, the Borrower shall not approve a Sub-loan before the Bank has reviewed the Investment Project and the appraisal report pertaining thereto and has given its approval to it; (b) with respect to other Investment Projects, the Borrower shall review each Investment Project submitted to it and shall have the right to give or withhold its approval for a Sub-loan to be made; and (c) as part of the review of an Investment Project and prior to approving any Sub-loan, the Borrower shall ensure that: (i) contributions to Sub-loans are available as set forth in paragraph B.1 hereunder as and when required to enable the Sub-borrower to carry out its Investment Project in a timely manner; (ii) seasonal credits are made available to Sub- borrowers in amounts sufficient to enable them to realize the potential of the invest- ments included in their Investment Projects; (iii) the requirements (as and when applicable) set out in Section 3.03 (a) (i), (ii), (iv) and (vii) of the Loan Agreement are fulfilled; (iv) in the case of the Sub-loan under Part A (1) of the Project, the Sub-borrower (A) shall have provided to the Borrower final - 36 - engineering designs and cost estimates and (B) shall have agreed to cause its Basic Organization of Associated Labor-Hydroeconomy to employ suitable staff in adequate numbers for operation and maintenance of the Investment Project; and (v) in the case of any Sub-loan under Part B (4) (a) of the Project, the Sub-borrower shall have provided to the Borrower detailed engineering -designs for all roads to be included in the Investment Project. 4. Notification (a) With respect to any Sub-loan included in the above sub-paragraph 3 (b), the Borrower shall promptly inform the Bank of its approval thereof and shall, only upon request, furnish to the Bank the appraisal report of the Investment Project to be prepared according to a format acceptable to the Bank. (b) With respect to any Sub-loan, the Borrower shall, upon approval of such Sub-loan, promptly inform the Bank of the number assigned to such Sub-loan for the purpose of registration under paragraph A.1 above. B. Terms of Sub-loans 1. Contribution to Cost of Investment Projects Unless the Borrower shall otherwise determine on the basis of the financial situation of the Sub-borrowers, Sub-borrowers shall be required to contribute not less than 20% of the cost of each Investment Project (in- cluding, in the case of Individual Sub-borrowers, their own labor or building materials). The Borrower shall be required to contribute, or shall cause to be contri- buted, the remainder of such cost. 2. Rate of Interest Unless otherwise agreed by the Bank, the portions of the Sub-loans financed out of the proceeds of the Loan shall - 37 - carry interest on the principal amount outstanding from time to time, as follows: (a) to Social Sector Sub-borrowers, interest at a variable rate equal to that payable under Section 2.07 of this Agreement plus a spread of at least 1.25%; and (b) to Individual Sub-borrowers, at an annual rate of not less than 18%. 3. Repayment For the purpose of Section 2.09 (b) of the Loan Agree- ment, the grace and amortization periods for the repayment of principal of the portion of Sub-loans financed out of the proceeds of the Loan shall be determined from the projected cash flow of the Investment Project financed. Unless other- wise agreed with the Bank, such grace and amortization periods shall not exceed the following: Maximum Maximum Amortization Grace Period Period (including the Type of Sub-loan in Years grace period) in Years (a) Sub-loans to 4 15 Social Sector Sub-borrowers (b) Sub-loans to 6 15 Individual Sub-borrowers C. Supervision The Borrower shall supervise the application of its Sub-loans in accordance with appropriate banking, financial, technical and agricultural practices. Such supervision shall include inter alia periodic visits (at least at six-month intervals) to the Investment Projects to ensure that the proceeds of the Sub-loans are properly used and that satis- factory progress is made in the carrying out of the Invest- ment Projects. After each visit the Borrower shall prepare and make available to the Bank, if requested by the Bank, a - 38- supervision report in a format acceptable to the Bank for each Investment Project. II. Re-financing of Sub-loans under Part C of the Project A. Eligibility A Sub-loan for annual incremental purchases of fertilizer in any particular year made by the Borrower to any Organization of Agriculturalists in Kosovo shall be eligible for re-financing under Part C of the Project, - 1. provided that: (a) the Sub-loan was made by the Borrower for a term of one year at an annual interest rate of not less than 18%; and (b) the Organization of Agriculturalists has provided the Borrower and the Federation with documentation of its total actual fertilizer purchases in that year and in the preceding year; and 2. only to the extent that it was used to finance ferti- lizer purchases in the amount by which the total actual fertilizer purchases by the Organization of Agricul- turalists in that 'year exceeded its total actual fertilizer purchases in the preceding year. Re-financing 1. After the end of each of the calendar years 1983, 1984, 1985, 1986 and 1987, the Borrower shall consolidate the total amount of Sub-loans made in that year and eligible for re-financing, into one consolidated withdrawal request for that year under Section 2.02 (a) (i) of this Agreement. The consolidated withdrawal request for each year shall be pro- vided to the Bank by March 31 of the following year. 2. With each consolidated withdrawal request, the Borrower shall provide to the Bank a consolidated statement verifying the total actual purchases and cost per unit of each type of fertilizer purchased in that year and in the preceding year by all Organizations of Agriculturalists for whose Sub-loans re-financing is requested under that consolidated, withdrawal request. - 39 - 3. The Borrower shall retain, in accordance with Section 5.02 (a) of this Agreement, the documentation referred to in paragraph A.1 (b) above. III. Part D(2) of the Project A. In order to assist the Federation in carrying out Part D(2) of the Project, the Borrower shall make a Sub-loan to the Federation: 1. in an amount corresponding to the proceeds of the Loan allocated to Category 1(c) of the table in paragraph I of Schedule 1 to this Agreement; 2. which shall bear interest on the principal amount withdrawn and outstanding from time to time at an annual rate of not less than 18%; and 3. which shall be repayable within 15 years, inclusive of 3 years' grace, in equal or approximately equal, semiannual or more frequent, installments. - 40 - SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term "Category" means a category of items to be financed out of the proceeds of the Loan as set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and siTvices required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to Categories 1, 2 and 3 in accor- dance with the provisions of Schedule I to this Agreement; and (c) the term "initial deposit" means the amount allocated to Category 6 and to be withdrawn from the Loan Account and deposited in the Special Account pursuant to the first sentence of paragraph 3 to this Schedule. 2. Payments out of the Special Account shall be made exclu- sively for eligible expenditures in accordance with the provi- sions of this Schedule. 3. The Bank shall, at the request of the Borrower, withdraw on behalf of the Borrower from the Loan Account and deposit into the Special Account the initial deposit. Thereafter and on the basis of requests by the Borrower furnished to the Bank at such inter- vals as the Bank shall specify, the Bank shall further so with- draw from the Loan Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts equal to payments made out of the Special Account for eligible expenditures, but only to the extent that the amount of any such deposit, together with any amount remain- ing on deposit in the Special Account as of the date of such request, shall not exceed in the aggregate the equivalent of the inf,tial deposit. Except as the Bank may otherwise agree, each such deposit after the initial deposit shall be withdrawn by the Bank from the Loan Account under the respective Categories 1, 2 and 3, and in the respective amounts, as shall have been justified by the evidence supporting the request for such deposit and furnished pursuant to paragraph 4 of this Schedule. - 41 - 4. Prior to or at the time of each request by the Borrower for a deposit by the Bank into the Special Account after the initial deposit, the Borrower shall furnish to the Bank in respect of each payment made by the Borrower out of the Special Account such documents and other evidence as the Bank shall reasonably request, showing that such payment was made for iligible expenditures. 5. Notwithstanding the provision of paragraph 3 of this Sche- dule, no further deposit into the Special Account shall be made by the Bank (a) when the Bank shall have determined at any time that all further withdrawals can be made directly by the Borrower from the Loan Account in accordance with the provisions of para- graph (a) of Section 2.02 of this Agreement, or (b) when the total unwithdrawn amount of the Loan allocated to Categories 1, 2 and 3 for the Project, plus the amount of any qualified agreement to reimburse made by the Bank and of any special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions witn respect to the Project, shall be not more than the equivalent of twice the amount of the initial deposit, whichever shall be sooner. Withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to Cate- gories 1, 2 and 3 for the Project shall follow such procedures as the Bank shall specify in writing to the Borrower and shall, except as the Bank shall otherwise agree, be made only after and to the extent the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notification have been utilized in making payments for eligible expenditures. 6. If the Bank shall have determined at any time that: (a) any payment out of the Special Account (i) was made for any expenditure or in any amount not eligible pursuant to paragraph 2 of this Schedule, or (ii) was not justified by the evidence furnished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Bank and, unless otherwise agreed by the Bank, prior to any further deposit into the Special Account by the Bank, deposit into the Special Account or, if the Bank shall so request, refund to the Bank an amount equal to the amount of such payment or the portion thereof not so eligible or justified; or (b) any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, - 42 - the Borrower shall, promptly upon notice from the Bank, and unless otherwise agreed by the Bank, refund to the Bank such amount then outstanding in the Special Account. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this A-day of_____ 1983-. FOR SECRETARY