Zambia - Second Coffee Project : Credit 1743 - Credit Agreement - Conformed

OFF\CIAL DOCUMENTS CREDIT NUMBER 1743-ZA Development Credit Agreement (Second Coffee Project) between THE REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated , 1987 CREDIT NUMBER 1743-ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated vAAA 9 , 1987, between THE REPUBLIC OF ZAMBIA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (th Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) part of the Project will be carried out by the Zambia Coffee Company Limited, a corporation registered under the laws of the Borrower; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions), constitute an integral part of this Agreement. Section 1.02. 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 additional terms have the following meanings: (a) "Special Accounts" means the accounts referred to in Section 2.02 (b) of this Agreement; (b) "LINTCO" means the Lint Company of Zambia, a corpora- tion registered under the laws of the Republic of Zambia; (c) "MAWD" means the Borrower's Ministry of Agriculture and Water Development; -2- (d) "PMCC" means the Project Management and Coordination Committee; (e) "ZCCL" means the Zambia Coffee Company Limited, a cor- poration registered under the laws of the Republic of Zambia; (f) "Participating Bank" or "Participating Banks" means any bank registered under the laws of the Borrower, which will borrow part of the proceeds of the Credit from the Borrower and relend such proceeds to the Sub-borrowers and which are acceptable to the Association; (g) "Subsidiary Loan Agreements" means the individual agreement to be entered into between the Borrower and each Participating Bank and between the Borrower and ZCCL pursuant to Section 3.04 of this Agreement; (h) "Project Agreement" means the Agreement between the Association and ZCCL of even date herewith, as the same may be amended from time to time, and such term includes all Schedules and Agreements supplemental to the Project Agreement; (i) "Financing Agreement" means the Agreement to be entered into between the Borrower and LINTCO pursuant to Section 3.05 of this Agreement. (j) "Sub-Loans" means a loan made or proposed to be made by the Participating Banks to a Sub-borrower for a Sub-project which will be partly funded out of the proceeds of the Credit relent to the Participating Bank under the respective Subsidiary Loan Agreement; (k) "Sub-Project" means a specific project for the produc- tion, processing or marketing of coffee to be carried out by a sub-borrower utilizing the proceeds of a Sub-Loan; (1) "Sub-borrower" means a smallholder, emergent or com- mercial farmer engaged in the business of producing, processing or marketing coffee who shall receive a Sub-Loan; (m) "Sub-Loan Agreements" means an agreement to be entered into between a Participating Bank and a Sub-borrower under which the Sub-borrower shall obtain a Sub-loan to carry out a sub- project; -3- (n) "Project Preparation Advance" means the project preparation advance (PPF Number P-364-ZA) granted by the Associa- tion to the Borrower pursuant to an exchange of letters dated March 21, 1986, and April 25, 1986, between the Borrower and the Association; and (o) "Kwacha" means the local currency of the Borrower. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower. on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to sixteen million nine hundred thousand Special Draw- ing Rights (SDR 16,900,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit 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 Asso- ciation, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars the following special accounts on terms and conditions satisfactory to the Association. The first account to be in the name of Coffee II Project and for purposes of Part A of the Project (the Credit Component Special Account) shall be opened in the Bank of Zambia; the second to be in the name of LINTCO and for purposes of Parts B and C of the Project (the LINTCO Special Account) shall be opened in the Zambia National Commercial Bank; and the third account to be in the name of ZCCL and for purposes of Parts D and E of the Project (the ZCCL Special Account) shall be opened in the Zambia National Commercial Bank. Deposits into, and payments out of, the Special Accounts shall be made in accordance with the provisions of Schedule 5 to this Agreement. (c) Promptly after the Effective Date the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and -4- outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be June 30, 1995, or such later date as the Association shall establish. The Associa- tion shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge at the rate of one-half of one percent (1/2 of 1%) per annum on the principal amount of the Credit not with- drawn from time to time. The commitment charge shall accrue from a date sixty days after the date of this Agreement to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on March 15 and September 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each March 15 and September 15 commencing March 15, 1997, and ending September 15, 2036. Each installment to and including the installment payable on September 15, 2006, shall be one-half of one percent (1/2 of 1%) of such principal amount, and each installment thereafter shall be one and one-half percent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions, -5- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall carry out Part C of the Project with due diligence and efficiency and in conformity with appropriate agricultural, administrative and environmental practices, and the Borrower shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, the Borrower shall: (i) cause the Participating Banks to carry out Part A of the Project in accordance with Schedule 4 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association; (ii) cause LINTCO to carry out Part B of the Project; (iii) cause ZCCL to perform, in accordance with the provisions of the Project Agreement, all the obligations of ZCCL therein set forth; and (iv) shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Participating Banks, LINTCO and ZCCL to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. (a) The Borrower shall establish and there- after maintain a Project Management Coordinating Committee (PMCC) whose chairman shall be the Permanent Secretary of MAWD or his designate and whose Secretary shall be the head of LINTCO's Coffee Development Division. Other members of PMCC shall include representatives from the Ministry of Finance, LINTCO, ZCCL, the Coffee Research Unit of MAWD, Participating Banks and the Zambia Coffee Growers' Association. (b) PMCC shall be responsible, inter alia, for: (i) coor- dinating the activities of the institutions involved in carrying -6- out the Project; (ii) approving annual coffee development plans prepared by LINTCO; (iii) approving annual project lending programs prepared by Participating Banks; (iv) approving coffee research programs; and (v) monitoring implementation of the Project and ensuring timely availability of in-puts and supplies to farmers. Section 3.04. (a) The Borrower shall: (i) relend the amount allocated to and withdrawn under Category (1) of Schedule 1 to Participating Banks for carrying out Part A of the Project, under Subsidiary Loan Agreements to be entered into between the Bor- rower and each Participating Bank under terms and conditions which shall have been approved by the Association and which shall include the provisions of Schedule 4 to this Agreement; and (ii) relend, in foreign currency, the amount allocated to and withdrawn under Categories (4) and (5) to ZCCL for carrying out Parts D and E of the Project under a Subsidiary Loan Agreement to be entered into between the Borrower and ZCCL under terms and conditions which shall have be2n approved by the Association and which shall include, inter alia: (A) repayment of principal in 15 years including five years of grace; (B) interest rate of not less than 8.23 percent (8,.23%) per annum plus a spread not exceeding 4.5 percent; and (C) ZCCL to bear the foreign exchange risk. (b) The Borrower shall exercise its rights under the Sub- sidiary Loan Agreements in such manner as to protect the inter- ests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreements or any provision thereof. Section 3.05. In order to assist LINTCO to carry out Part B of the Project, the Borrower shall make available to LINTCO a grant, in an amount not exceeding the equivalent of two million dollars ($2,000,000), or such other amount as the Association may agree, out of the proceeds of the Credit under a Financing Agreement to be entered into between the Borrower and LINTCO, under terms and conditions which shall have been agreed with the Association. Section 3.06. The Borrower shall take all appropriate mea- sures to ensure that the Participating Banks make Sub-loans directly to Sub-borrowers for a Sub-Project under a Sub-Loan agreement to be entered into between a Participating Bank and a -7- Sub-borrower under terms and conditions which shall have been approved by the Association and which shall be consistent with Schedule 4 to this Agreement. Section 3.07. The Borrower shall take all appropriate mea- sures to ensure that Sub-borrowers utilize the proceeds of the Credit for purposes of coffee production, processing and market- ing. Section 3.08. The Borrower shall: (a) take the necessary measures to enact the Coffee Act not later than June 30, 1987, taking into account the Association's views; and (b) not later than December 31, 1987, establish the Coffee Board pursuant to the provisions of the Coffee Act. Section 3.09. The Borrower shall cause LINTCO to charge an appropriate price for coffee input supply services and for coffee marketing services so as to recover the full cost incurred in offering such services. Section 3.10. The Borrower shall, for the purposes of Parts B and C of the Project, open and thereafter maintain in the Bank of Zambia two Project Advance Accounts, deposit in each account an initial amount of Kwacha 500,000 and replenish each account at least quarterly thereafter so as to maintain it at that level or such other level as the Association may request until completion of the Project. Section 3.11. The Borrower shall implement appropriate mea- sures to enable Sub-borrowers to retain part of their foreign exchange earnings on coffee exports for the purposes of servicing their foreign exchange Sub-loans. Section 3.12. The Borrower and the Association shall, from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Project. To that end, the Borrower shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Project, in such detail and at such times as the Association shall reasonably request. Section 3.13. The Borrower shall: (a) submit to the Association for approval a list of pesticides and herbicides to be used by ZCCL and Sub-borrowers; and (b) take appropriate measures to ensure that ZCCL and Sub-borrowers do not use pesticides and herbicides which have not been approved by the Association. -8- ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect, in accord- ance with sound accounting practices, the operations, resources and expenditures in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall or shall cause LINTCO to: (i) have the accounts referred to in paragraph (a) of this Section, including the Special Accounts and the Project Advance Accounts for each financial year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Associa- tion; (ii) furnish to the Association, as soon as available, but in any case not later than six months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the said accounts and the audit thereof and said records as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one year after the comple- tion of the audit for the financial year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, -9- bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to exam- ine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the proceeds of the Credit withdrawn in respect of such expenditures were used for the purposes for which they were provided. Section 4.02. The Borrower shall cause the Participating Banks to maintain separate accounts for expenditures under the Project and to: (i) have these accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each financial year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of the Participating Banks and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution of ZCCL or of any Participating Bank or for the suspension of their operations. (b) ZCCL or any Participating Bank shall have failed to perform any of the obligations under the respective Subsidiary Loan Agreement. - 10 - (c) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of any loan made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor, or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, can- cellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, that the event specified in paragraph (c) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the proviso of paragraph (c) (ii) of that Section. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) Subsidiary Loan Agreements between the Borrower and at least two Participating Banks have been executed; and (b) the Borrower has opened and deposited the required amounts of money into the Project Advance Accounts pursuant to Section 3.10 of this Agreement. - 11 - Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, that the Project Agreement has been duly authorized or ratified by ZCCL and is legally binding upon ZCCL in accordance with its terms. Section 6.03. The date sixty (60) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions, ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The minister of the Borrower at the time responsible for finance is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance P.O. Box 50062 Lusaka Zambia Cable address: Telex: MINFIN 42221 Lusaka For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 12 - IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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. THE REPUBLIC OF ZAMBIA By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By (1 Regional Vice President Eastern and Southern Africa - 13 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Credit under Part A 9,590,000 100% of sub-loans of the Project extended in foreign currency and 75% of sub- loans extended in local currency (2) For Part B of the Project: (a) Consultants' 1,400,000 100% services and training (b) Equipment, 170,000 100% of foreign vehicles and expenditures and materials 60% of local expenditures (3) For Part C of the Project: (a) Consultants' 170,000 100% services and training (b) Civil works, 170,000 100% of foreign vehicles and expenditures and materials 60% of local expenditures - 14 - Amount of the Credit Allocated % of (Expressed in Expenditures Categor SDR Equivalent) to be Financed (4) Consultants' services 330,000 100% and training under Part D of the Project (5) For Part E of the Project: (a) Consultants' ser- 740,000 100% vices and train- ing (b) Equipment, vehi- 330,000 100% of foreign cles and civil expenditures and works 60% of local expenditures (6) Refunding of Project 580,000 Amount due pur- Preparation Advance suant to Section 2.02 (c) of this Agreement (7) Unallocated 3,420,000 TOTAL 16,900,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. - 15 - 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of SDR 100,000 may be made on account of payments for expendi- tures under Category 5(b) before that date but after November 1, 1986; (b) expenditures under Category (4) unless the Borrower has submitted to the Association a signed Subsidiary Loan Agreement, acceptable to the Association, entered into between the Borrower and ZCCL; and (c) expenditures under Category 5 unless the Bor- rower has submitted to the Association: (i) an irrigation plan of the ZCCL plantation acceptable to the Association; (ii) an elec- trification plan of the ZCCL coffee factory acceptable to the Association; (iii) a corporate plan for ZCCL acceptable to the Association and evidence satisfactory to the Association that such plan has been adopted by ZCCL; (iv) a signed Subsidiary Loan Agreement, acceptable to the Association, entered into between the Borrower and ZCCL; and (v) evidence satisfactory to the Association showing that equity financing agreements for ZCCL satisfactory to the Association have been executed. - 16 - SC,HEDULE 2 Description of the Project The objectives of the Project are to: (i) provide credit facilities to smallholders, emergent and commercial farmers for the establishment and expansion of coffee farms; (ii) establish an efficient coffee industry in the Republic of Zambia; and (iii) build up national expertise in management, production and marketing of coffee. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Credit Provision of agricultural credit through the Participating Banks to smallholders, emergent and commercial farmers for: (a) the establishment and expansion of coffee plantings; (b) irrigation facilities; (c) farm implements and vehicles; (d) coffee processing facilities and stores; and (e) other facilities and infrastructure necessary for coffee production and marketing. Part B: Coffee Extension Services Expansion and improvement of extension services provided by LINTCO to farmers through the strengthening of LINTCO's workforce, the provision of technical assistance for coffee extension support, vehicles, extension materials, equipment and training of LINTCO staff and farmers. Part C: Coffee Research Improving MAWD's coffee research activities through: - 17 - (a) rehabilitation of trial sites and processing facilities at Misamfu and Lucheche and the renovation of houses at Lucheche; (b) provision of laboratory and scientific equipment; (c) provision of farm implements and other equipment, books, other publications and vehicles; (d) provision of technical assistance to assist in carrying out coffee research activities, and training for MAWD's research staff; (e) provision of equipment and materials for carrying out soil and leaf analysis; (f) establishment of collaborative coffee research arrange- ments with neighboring countries; and (g) environmental control analysis. Part D: Coffee Marketing Developing institutional capability and capacity for coffee marketing and improving ZCCL's coffee marketing division through the provision of technical assistance and training in all aspects of coffee marketing for ZCCL employees and for employees of other marketing institutions. Part E: Assistance to ZCCL Improving ZCCL's capability to produce and process coffee through: (a) provision of management and technical assistance to improve agricultural practices and the operation of ZCCL's coffee factory; (b) provision of technical assistance to help ZCCL upgrade irrigation and furrow-distribution systems; (c) rehabiliation of the present irrigation equipment and the installation of new irrigation equipment; - 18 - (d) provision of study tours, on-the-job and overseas training for ZCCL staff in coffee production, processing, engineering and general management; (e) electrification of ZCCL's coffee factory; (f) provision of vehicles, agricultural and workshop machinery and equipment, office equipment and facilities; (g) construction of housing units for ZCCL labor and management staff; (h) construction of a dispensary for ZCCL; and (i) improvment of existing coffee plantings and expansion of the coffee area to at least 450 hectares. The Project is expected to be completed by June 30, 1994. - 19 - SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A. International Competitive Bidding 1. Except as provided in Part C hereof, goods and wGrks shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). 2. To the extent practicable, contracts for vehicles, equip- ment, supplies and materials shall be grouped in bid packages estimated to cost the equivalent of $100,000 or more each. Part B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A.1 hereof, goods manufactured in the Republic of Zambia may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C. Other Procurement Procedures For Part A of the Project 1. Contracts for goods and civil works may be procured on the basis of the normal procurement procedures of the purchaser of such goods or civil works. For Parts B, C, D and E of the Project 2. Contracts for goods estimated to cost less than the equivalent of $100,000 may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 3. Contracts for goods estimated to cost less than the equivalent of $25,000 each up to an aggregate amount not to exceed the equivalent of $300,000 may be procured under contracts - 20 - awarded on the basis of price quotations solicited from a list of at least three suppliers eligible under the Guidelines. 4. Contracts for the construction of civil works shall be awarded in accordance with local competitive bidding procedures satisfactory to the Association. 5. Contracts for the electrification of the ZCCL factory under Part E of the Project shall be procured by direct contracting procedures described in paragraph 3.5 of the Guidelines. Part D. Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix I to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to paragraph 2 of Appendix 1 to the Guidelines shall be furnished to the Association prior to the making of the first payment out of the Special Accounts in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Accounts, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to paragraph 3 of Appendix 1 to the Guidelines shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 5 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Associa- tion has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agree- ment. - 21 - 2. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants In order to assist: (i) the Borrower in carrying out Tart C of the Project; (ii) LINTCO in carrying out Part B of the Project; and (iii) ZCCL in carrying out Parts D and E of the Project, the Borrower shall or shall cause the employment of consultants whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Bor- rowers and by The World Bank as Executing Agency" published by the Bank in August 1981. - 22 - SCHEDULE 4 Implementation of Part A of the Project The relevant terms and conditions herein shall be suitably incorporated in the Subsidiary Loan Agreements between the Bor- rower and the Participating Banks and Sub-Loan Agreements between the Participating Banks and Sub-borrowers: 1. Appraisal and Eligibility The Participating Banks shall appraise each Sub-Project in accordance with the Sub-Project appraisal criteria agreed upon with the Association and including the following: (a) creditworthiness of the Sub-borrower; (b) management and expertise of the Sub-borrower; (c) technical and financial viability of the Sub-Project; (d) supply and marketing plans of the Sub-borrower; (e) technical feasibility; and (f) plans for at least 10 ha of irrigated coffee. In the case of small scale farmers or groups thereof, exceptions from these appraisal criteria may be made as appropriate in the circumstances. 2. The Borrower shall obtain prior approval from the Associa- tion in respect of: (a) the first three Sub-Loan applications from each Participating Bank; and (b) a Sub-Loan for a Sub-Project which cost is estimated to be the equivalent of $500,000 or more. 3. Sub-Loan Agreements A. The Participating Bank shall make Sub-Loans on terms whereby it shall obtain, by contract with the Sub-borrower or other legal means, rights adequate to protect the interests of the Borrower, the Association and the Participating Bank includ- ing, for each Sub-Loan, the right to: - 23 - (i) require the Sub-borrower to carry out the Sub-Project with due diligence and efficiency and in accordance with sound agricultural, financial and management standards, and to maintain adequate records; (ii) inspect, by itself or jointly with representatives of the Borrower or of the Association if the Association shall so request, such goods, works, sites and planta- tions included in the Sub-Project, the operation thereof and any relevant records and documents; (iii) obtain such information as the Borrower, the Associa- tion or the Participating Banks shall reasonably request relating to the management, operations and financial condition of the Sub-borrower; and (iv) suspend or terminate the right of the Sub-borrower to the use of the proceeds of the Credit upon failure by such Sub-borrower to perform its obligtions under the Sub-Loan agreement with the Participating Bank. B. The Borrower shall make sure that the Sub-Loan Agree- ments to be entered into between the Participating Bank and the Sub-borrower shall contain, inter alia, the following: (i) Purpose of Sub-Loans Sub-Loans shall be extended for the establishment of coffee plantations, installation of irrigation facilities, purchase of required machinery and tools, and the establishment of coffee processing facilities. (ii) Sub-Loan Amount Each Participating Bank shall ensure that each Sub-borrower contributes not less than 25% of the total investment cost of the Sub-Project (including labor at the going wage rate, overhead as well as operating expenses). (iii) Currency Denomination of the Sub-Loans Depending on the preference of the Sub-borrower, part of the Sub-Loan to be extended by the Participating Banks may be in foreign currency provided, however, that such part should not exceed the foreign cost component of the Sub-Project. - 24 - (iv) Repayment Repayment of principal and interest of the Sub-Loan shall be over a period of 12 years, in semiannual installments which may increase gradually in line with the estimated growth of coffee production. The Sub-Loans shall have a grace period of up to 5 years for the repayment of principal, and of up to 4 years on interest repayments from the date of withdrawal, during which period interest may be capitalized if cash flow projections require. (v) Interest Rate Interest rates for foreign currency denominated Sub-Loans and Kwacha denominated Sub-Loans shall be determined separately. The interest rates shall be in line with national policy on agricultural lending and acceptable to the Association as follows: (a) the rate of interest payable by the Particpating Bank to the Borrower on each portion of the amount withdrawn for the Kwacha part of a Sub-Loan shall be equal to the interest rate charged by the Participating Bank to the Sub-borrower for such portion of the Sub-Loan less a rate not exceeding 4.5%; and (b) the rate of interest payable by the Particpating Bank to the Borrower on each portion of the amount withdrawn for the foreign currency part of the Sub-Loan shall be 8.23% per annum, and the Participating Bank shall charge a rate of 8.23% plus a spread not exceeding 4.5%. (vi) Collateral Sub-borrowers shall give as collateral mortgages on real estate whenever possible, liens on machinery and on coffee crops. Members of the smallholder groups shall be liable jointly and severally. (vii) Procurement (a) Sub-borrowers shall: (A) purchase goods and services to be financed out of the proceeds of the Sub-Loan at reasonable prices on the basis of their normal procurement procedures taking into account other relevant factors such as time of delivery, efficiency and quality; and (B) use such goods and services exclusively in the carrying out of the Sub-Project. - 25 - (b) Sub-borrowers shall ensure that pesticides and herbi- cides to be financed out of the proceeds of the Sub-Loans shall conform to the list of pesticides and herbicides approved by the Borrower and the Association pursuant to Section 3.13 of this Agreement. (viii) Withdrawal of Funds Withdrawal of funds shall be in accordance with Sub-Project investment schedule in the feasibility study and progress of works. (ix) Insurance Sub-borrowers shall obtain adequate fire and other appro- priate insurance for buildings, machinery and coffee crops. (x) Supervision Supervision of the Sub-Projects shall be done by specialist staff at the Participating Banks with assistance from LINTCO and, ca a sample basis, by the Association during supervision missions. (xi) Consultation At the request of the Borrower and the Association, a Parti- cipating Bank shall exchange views with the Borrower and the Association in regard to the progress of the Sub-Projects, the performance of its obligations under the Subsidiary Loan Agree- ment and other matters relating to the purposes of this Project. - 26 - SCHEDULE 5 Special Accounts 1. For the purposes of this Schedule: (a) the term "eligible Categories" means: (i) in respect of the Credit Component Special Account, Category (1) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (ii) in respect of the LINTCO Special Account, Categories (2) and (3) set forth in the said table; and (iii) in respect of the ZCCL Special Account, Categories (4) and (5) set forth in the said table. (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount of $1,000,000 in respect of the Credit Component Special Account; an amount of $300,000 in respect of the LINTCO Special Account and an amount of $300,000 in respect of the ZCCL Special Account to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, payments out of the Special Accounts shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Accounts have been duly opened, withdrawals of the Authorized Allocations and subsequent withdrawals to replenish the respective Special Accounts may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of the respective Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account concerned such amount or amounts as the Borrower shall have requested. - 27 - (b) The Borrower shall furnish to the Association requests for replenishment of the Special Accounts at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and deposit into the Special Account concerned such amounts as shall be required to replenish that Special Account with amounts not exceeding the amount of payments made out of that Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Category, and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Accounts for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expen- ditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Accounts shall be made by the Association when either of the following situations first arises: (i) the Association shall have determined that all further withdrawals should be made directly by the Borrower from the Credit Account in accordance with the provisions of paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allo- cated to the eligible Categories, minus the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the - 28 - eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Accounts as of the date of such notice have been or will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of any 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 Association deposit into the Special Account concerned (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Association into the Special Account concerned shall be made until the Borrower has made such deposit or refund. (b) If the Association shall have determined at any time that any amount outstanding in the Special Accounts will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount for crediting to the Credit 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 International Bank for Reconstruction and Development. FOR SECRETARY