Conformed Copy - C1893 - Sugar Rehabilitation Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1893 UG (Sugar Rehabilitation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and KAKIRA SUGAR WORKS (1985) LTD. Dated May 11, 1988 PROJECT AGREEMENT AGREEMENT, dated May 11, 1988, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and KAKIRA SUGAR WORKS (1985) LTD. (KSW). WHEREAS: (A) by the Development Credit Agreement, of even date herewith, between The Republic of Uganda (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to eighteen million nine hundred thousand Special Drawing Rights (SDR 18,900,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that KSW agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and KSW, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to KSW on the terms and conditions set forth in said Subsidiary Loan Agreement; and Page 2 WHEREAS KSW, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) KSW declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out Parts A through D of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and agricultural practices, and shall provide, or cause to be provided, 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 and, except as the Association and KSW shall otherwise agree, KSW shall carry out Parts A through D of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. KSW shall open and maintain the Special Account, referred to in Section 2.02 (b) of the Development Credit Agreement, for the purposes of Parts B and D of the Project, on terms and conditions satisfactory to the Association. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Parts B and D of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. KSW shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and Parts A through D of the Project. Section 2.05. KSW shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, KSW shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.06. (a) KSW shall, at the request of the Association, exchange views with the Association with regard to the progress of Parts A through D of the Project, the performance of its obligations under this Agreement, under the Subsidiary Loan Agreement and other matters relating to the purposes of the Credit. (b) KSW shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Parts A through D of the Project, the accomplishment of the purposes of the Credit or the performance by KSW of its obligations under this Agreement and under the Subsidiary Loan Agreement. Page 3 Section 2.07. KSW shall prepare and submit to the Association, by not later than January 1 of each year, an annual work program for its ensuing fiscal year. The format and content of such work programs shall be satisfactory to the Association. Section 2.08. (a) Except as the Borrower and the Association shall otherwise agree, a review of progress achieved in the implementation of Parts A through D of the Project shall be carried out jointly by the Borrower, the Association and KSW, not later than December 31, 1990. (b) KSW shall prepare and submit to the Association, for its review, a comprehensive Project progress report, by not later than sixty (60) days prior to the date of the review to be held under paragraph (a) above. Section 2.09. Except as the Borrower and the Association shall otherwise agree, KSW shall periodically sell to FBL such quantities of sugar produced by KSW as shall be determined in agreements, satisfactory to the Association, to be entered into from time to time by KSW and FBL. These agreements shall take into account: (a) the level of KSW's sugar production; (b) the total quantity of sugar supplies available in the Borrower's territory; and (c) the progress achieved in the distribution of sugar without the intervention of FBL or any distribution agency of the Borrower. ARTICLE III Management and Operations of KSW Section 3.01. KSW shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and agricultural practices under the supervision of qualified and experienced management, assisted by competent staff in adequate numbers. Section 3.02. KSW shall: (a) at all times, operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and agricultural practices; and (b) ensure that the execution and operation of Parts A and B of the Project are carried out with due regard to environmental factors, including the maintenance of appropriate agricultural pest control, effluent disposal and water quality monitoring practices. Section 3.03. KSW shall take out and maintain with respon- sible insurers, or make other provisions satisfactory to the Association for insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) KSW shall maintain records and accounts, including procedures and records adequate to monitor the progress of Parts A through D of the Project, adequate to reflect, in accordance with sound accounting practices, its operations and financial condition. Page 4 (b) KSW shall: (i) have its records, accounts and financial statements, including Project accounts and the Special Account (balance sheets, statements of income and expenses, and related statements) for each fiscal year, audited in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than four months after the end of each such year: (A) certified copies of its 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 said records, accounts and financial statements, as well as the audit thereof, 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, KSW shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Association has received the audit for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) as evidence of such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section, and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. KSW shall make arrangements, satisfactory to the Association, to obtain a line of credit from a commercial banking institution or other source to cover deficits projected by KSW in its operations for the fiscal years 1987/88, 1988/89 and 1989/90. Section 4.03. (a) Except as the the Borrower and the Association shall otherwise agree, KSW shall not incur any debt, unless the net revenues of KSW, for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least one and a half times the estimated maximum debt service requirements of KSW for any succeeding fiscal year on all debt of KSW, including the debt to be incurred. Page 5 (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of KSW maturing by its terms more than one year after the date on which it is originally incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract, agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations adjusted to take account of KSW's prices in effect at the time of the incurrence of debt, even though they were not in effect during the twelve-month period to which such revenues relate, and net non- operating income; and (B) the sum of all expenses related to operations, including administration, adequate main- tenance, taxes and payments in lieu of taxes, but excluding provision of depreciation, other non-cash operating charges and interest and other charges on debt. (iv) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (v) The term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) Whenever for the purposes of this Section it shall be necessary to value, in terms of the Uganda shilling, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. Section 4.04. (a) Except as the Association shall otherwise agree and notwithstanding any provision of the JVA to the contrary, KSW shall not declare any dividend nor pay any dividend on its share capital nor make any other distribution with respect to its share capital until December 31, 1993, or the date on which the five-year grace period under the Subsidiary Loan Agreement, shall terminate, whichever is the later. (b) With respect to the period following the date referred to in paragraph (a) above, KSW shall adopt, at the mid-term review meeting to be held pursuant to Section 2.08 of this Agreement, a Page 6 policy on the declaration of dividends, the payment of dividends, the making of any other distribution on KSW's share capital or the redemption of any loan stocks on the basis of principles, satisfactory to the Association. Section 4.05. KSW shall, by not later than August 31, 1988: (a) take such measures as shall be necessary to revalue its fixed assets to reflect the current exchange rate of the Uganda shilling; (b) adjust its accounts and financial statements (balance sheets, statements of income and expenses, and related statements) to reflect the revaluation of its assets, as provided in paragraph (a) above, in the accounts for the fiscal year ending April 30, 1988; and (c) submit to the Association, for its review and comments: (i) certified copies of its accounts and financial statements for the fiscal year ending April 30, 1988, as audited by independent auditors, acceptable to the Association; (ii) the report of said auditors of such scope and in such detail as the Association shall have reasonably requested; and (iii) revised projected profit and loss accounts and balance sheets for the fiscal years 1988/89 through 1993/94. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and KSW thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) the date fifteen years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify KSW of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement, and any agreement between the parties contemplated by this Agreement, shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand, by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address, hereinafter specified, or at such other address as such party shall have Page 7 designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For KSW: The Secretary Kakira Sugar Works (1985) Ltd. P.O. Box 121 Jinja Uganda Cable address: Telex: MIWA 64223 Jinja Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of KSW, or by KSW on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by any one of its Joint Managing Directors or such other person or persons as KSW shall designate in writing, and KSW shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Edward V.K. Jaycox Regional Vice President Africa KAKIRA SUGAR WORKS (1985) LTD. By /s/ Mayur M. Mahdvani Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Page 8 Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part C hereof, goods and works 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). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in Uganda 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 Materials, spare parts, equipment, chemicals and sundry inputs for factory operations under Categories (1) and (3) of Schedule 1 to the Development Credit Agreement, estimated to cost less than the equivalent of $500,000 per contract up to an aggregate amount not to exceed the equivalent of $2,500,000, may be procured through direct contracting from manufacturers of installed equipment or under contracts awarded on the basis of comparison of price quotations from at least three suppliers eligible under 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 for goods and works, other than contracts for factory inputs, estimated to cost the equivalent of $500,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of each contract, required to be furnished to the Association pursuant to paragraph 2 (d) of Appendix 1 to the Guidelines, shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contracts. (b) With respect to each contract not governed by the preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of each such 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 3 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Association 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 Agreement. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist KSW in carrying out Parts B and D of the Page 9 Project, KSW shall employ consultants and experts, referred to in paragraphs 10 through 12 of Schedule 2 to this Agreement, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants and experts 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 Borrowers and by The World Bank as Executing Agency", published by the Bank in August 1981. SCHEDULE 2 Implementation Program Project Coordination and Implementation: 1. The Board of Directors of KSW, has, in accordance with KSW's Memorandum and Articles of Association, overall responsibility to determine KSW's basic policies and operational targets, to approve KSW's budget and annual work programs and to review KSW's performance. 2. The Joint Managing Directors of KSW, who shall be members of, and responsible to the Board of Directors, shall be KSW's chief executive officers responsible for operations and will be based at Kakira. 3. (a) The Joint Managing Directors shall be assisted by the Deputy to the Joint Managing Directors, a general manager, a financial controller and a project coordinator: (i) the Deputy to the Joint Managing Directors shall have such responsibilities as shall be assigned to him by the Joint Managing Directors, related to, inter alia, industrial relations management, staff employment and training, monitoring operational performance and liaison with the Borrower's agencies; (ii) the General Manager shall be responsible for overseeing and coordinating the operations of the Agricultural Division, the Sugar Factory Division, the Sweet Factory Division, the Personnel and Training Division, the Purchasing Division and the Sales Division; (iii) the Financial Controller shall head the Finance Division which shall be responsible for financial management and control; and (iv) the Project Coordinator shall be responsible for planning, coordinating and supervising the implementation of Parts A through D of the Project and shall head the Project Implementation Unit (PIU). (b) KSW shall appoint the General Manager and the Project Coordinator, by not later than ninety (90) days after the Effective Date of this Agreement. 4. (a) PIU's functions shall include: (i) planning, engineering and procurement administration; (ii) supervision of implementation of Parts A through D of the Project in accordance with a detailed implementation schedule and duly approved budget; (iii) preparation of annual work programs and the budget; and (iv) preparation of periodic progress reports and Page 10 coordination with representatives of the Association and other financiers of the Project. (b) PIU shall, by January 1 of each year, submit to the Association, for its review and comments, drafts of KSW's annual work program covering KSW's fiscal year commencing on April 1 of the following year. Annual work programs shall be satisfactory to the Association and shall include: (i) a detailed review of the Project's progress in the current year; (ii) a detailed description of Project activities in the year covered by the report, including objectives, production targets and deployment of equipment and staff; (iii) detailed requirements of equipment, supplies and manpower; (iv) review of the staff development and training program, and a detailed program for the year covered by the report; (v) a budget covering both Project and non-Project operations; (vi) a financing plan, including foreign and local currency requirements and sources of funds; and (vii) a marketing plan, including the agreement proposed to be signed with FBL for the sale of sugar. (c) Pursuant to Section 2.08 of this Agreement, a mid-term review of the progress achieved in the implementation of the Project shall be carried out by the Borrower, the Association, KSW and other financiers, not later than December 31, 1990, on the basis of a report to be prepared and submitted to the Association at least sixty (60) days prior to the date of the review meeting. KSW's report shall include: (i) progress made in achieving production targets; (ii) management and financial performance of KSW; (iii) adequacy of prevailing prices of sugar, including marketing arrangements and progress made in reducing the Borrower's intervention in the pricing and marketing of sugar; (iv) adequacy of manpower availability and training arrangements; (v) progress made in replacing expatriate staff with nationals of the Borrower; and (vi) plans for the utilization of molasses. Part A of the Project Outgrowers Development Scheme 5. In order to ensure the operation of its sugar factory at a capacity of 3,000 tons of cane per day, KSW shall make all arrangements necessary to set up an outgrowers' scheme with about 1,400 farmers in the immediate vicinity of Kakira to develop, by not later than December 31, 1994, about 4,100 hectares of land to produce and supply KSW about 244,000 tons of supplemental cane per year. 6. KSW shall enter into agreements, the form and content of which shall be satisfactory to the Association, with participating Page 11 farmers under which, inter alia: (a) KSW will provide participating farmers with land cultivation services, planting materials, agricultural inputs, including fertilizers and herbicides, and commit itself to buy all cane produced by each participating farmer; and (b) participating farmers will commit themselves to clear, cultivate and maintain a cane crop on a minimum of 1.2 hectares of land, to sell the cane so produced to KSW and to arrange for the transport of cane to KSW's factory. 7. Except as the Borrower shall otherwise determine in consultation with the Association, pursuant to Section 3.06 of the Development Credit Agreement, the price to be paid by KSW for cane supplied by farmers shall be thirty-five percent (35%) of the value of extracted sugar content of cane, based on a sugar recovery rate of nine percent (9%), or on the actual recovery rate of KSW's sugar factory, whichever is the greater. 8. KSW shall maintain rural roads in areas covering the outgrowers' scheme. 9. Harvesting Equipment Unless otherwise determined on the basis of a survey to be carried out by KSW, not later than October 31, 1988, and a recommendation of KSW, satisfactory to the Association, to be submitted to the Association, not later than December 31, 1988, confirming a shortage of labor supply for the manual harvesting of cane, KSW shall not acquire any additional cane harvesting equipment. Part B of the Project 10. KSW shall employ an engineering firm to provide KSW with procurement services, and supervision and installation works, including the quality control of all works to be carried out on-site. Part D of the Project 11. (a) In order to assist KSW in the carrying out of its obligations, KSW shall employ a consulting firm to provide KSW with a team of engineering and other experts in such numbers and for such periods as shall be acceptable to the Association. (b) KSW shall assign an adequate number of its factory, process, electrical and civil engineering staff to second the team of experts to be employed under paragraph (a) above. 12. KSW shall, by not later than: (a) September 30, 1988, prepare and submit to the Association, a comprehensive training program, satisfactory to the Association, for the training of KSW's staff and replacement of expatriate staff with nationals of the Borrower; and (b) June 30, 1988, employ a suitable consulting firm to assist KSW in the design and implementation of the program referred to in paragraph (a) above. SCHEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "Eligible Categories" means Categories (1), (3), (4), (5) and (6) set forth in the table in paragraph 1 of Schedule 1 to the Development Credit Agreement; Page 12 (b) the term "Eligible Expenditures" means expenditures in respect of the reasonable cost of goods and services required for Parts B and D of 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 the Development Credit Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to SDR 2,300,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, payments out of the Special Account shall be made exclusively for Eligible Expenditures in accordance with the provisions of this Schedule. 3. After the Association has received satisfactory evidence that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account may be made as follows: (a) On the basis of a request or requests by KSW, through the Borrower, for a deposit or deposits which add up to the aggregate amount of the Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount or amounts as KSW shall have requested. (b) KSW, through the Borrower, shall furnish to the Association requests for replenishment of the Special Account 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 such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for Eligible Expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective Eligible Categories, 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 KSW out of the Special Account for which KSW requests replenishment pursuant to paragraph 3 (b) of this Schedule, KSW 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 Expenditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account 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 by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allocated to the eligible Categories for Parts B and D of the Project, 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 Parts B and D of 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 Page 13 remaining unwithdrawn amount of the Credit allocated to the Eligible Categories for Parts B and D of the Project 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 Account as of the date of such notice 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 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 Association, deposit into the Special Account (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 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 Account will not be required to cover further payments for Eligible Expenditures, KSW, through the Borrower, shall, promptly upon notice from the Association, refund to the Association such outstanding amount for crediting to the Credit Account.