Conformed Copy - L3115 - Forestry Development Project - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3115 ME (Forestry Development Project) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated September 25, 1989 LOAN NUMBER 3115 ME GUARANTEE AGREEMENT AGREEMENT, dated September 25, 1989, between UNITED MEXICAN STATES (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and Nacional Financiera, S.N.C. (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agree- ment, have requested the Bank to assist in the financing of the Project; (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to forty-five million and five hundred thousand dollars ($45,500,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan and to undertake such other obligations as provided in this Agreement; Page 2 (C) by the Banxico Project Agreement of even date herewith, between the Bank and Banco de Mexico (Banxico), the latter has agreed to undertake the obligations set forth in the Banxico Project Agreement; (D) by the Banrural Project Agreement of even date herewith, between the Bank and Banco Nacional de Credito Rural (Banrural), the latter has agreed to undertake the obligations set forth in the Banrural Project Agreement; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth in Section 1.01 of the Loan Agreement (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, in the Preamble to this Agreement and in the Preamble to and Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not merely as surety, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower, Banxico and Banrural, as set forth in the Loan Agreement, the Banxico Project Agreement and the Banrural Project Agreement. Section 2.02. (a) The Guarantor shall: (i) enter into the contractual arrangements with the Borrower referred to in Section 3.01 (a) of the Loan Agreement; (ii) enter into contractual arrangements with Banxico, under terms and conditions satisfactory to the Bank, which shall provide, inter alia, for the transfer to FIRA of such portion of the proceeds of the Loan as shall be required by FIRA for the purpose of carrying out Part A of the Project; and (iii) enter into contractual arrangements with Banrural, under terms and conditions satisfactory to the Bank, which shall provide, inter alia, for the transfer to FICART of such portion of the proceeds of the Loan as shall be required by FICART for the purpose of carrying out Part B of the Project. (b) Except as the Bank shall otherwise agree, the Guarantor shall not change or fail to enforce any provision of the contractual arrangements referred to in paragraph (a) of this Section. (c) Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically under- takes, whenever there is reasonable cause to believe that the funds available to Banxico, Banrural, or both, will be inadequate to meet the estimated expenditures required for the carrying out of the Project, to make arrangements, satisfactory to the Bank, promptly to provide or cause to be provided to Banxico, Banrural, or both, with such funds as are needed to meet such expenditures. Section 2.03. Without limitation to the provisions of Section Page 3 2.02 (c) of this Agreement, the Guarantor shall, unless the Bank shall otherwise agree, take all necessary action to prevent any material capital erosion, in real terms, which FIRA or FICART may incur on account of all their lending operations. For the purpose of this Section the term "capital" means the sum of the total paid-in capital, retained earnings, and reserves of FIRA or FICART not specifically allocated to cover other liabilities. ARTICLE III Execution of the Project Section 3.01. The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and to this end shall carry out, or cause to be carried out, Parts C, D and E of the Project through SARH, Part F of the Project through SEDUE, and Part G of the Project through INI, all with due diligence, efficiency and in conformity with appropriate administrative, financial and forestry practices, and shall provide, or cause to be provided, promptly as needed, all funds, facilities, services and other resources required for such Parts of the Project. Section 3.02. The Bank and the Guarantor agree that the obli- gations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of Parts C, D, E, F and G of the Project shall be carried out by the Guarantor. Section 3.03. Except as the Bank shall otherwise agree, pro- curement of goods, works and consultants' services required for Parts C, D, E, F and G of the Project and to be financed from the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 3.04. The Guarantor shall, through SARH: (a) maintain until Project completion the Project Coordination Unit with organization, structure and functions, and staffed with qualified personnel as shall be adequate for the purpose of coordinating the Project; (b) coordinate the monitoring of the Project through the Project Coordination Unit in accordance with the Monitoring Program; (c) prepare semiannual Project monitoring reports providing details of the progress and expenses of carrying out Parts C, D, E, F and G of the Project and, no later than June 30 and December 31 of each year, beginning on December 3l, 1989, submit such reports to the Bank for its review; (d) coordinate Project evaluation with the assistance of agencies independent of the Project Coordination Unit; and (e) submit annual Project evaluation reports to the Bank no later than June 30 of each year for the preceeding calendar year. Section 3.05. The Guarantor shall: (i) no later than October 31 of each year until Project completion, beginning on October 3l, 1989, cause each of SARH, SCT, SEDUE and INI to furnish to the Bank, through the Project Coordination Unit, a Plan of Work, satisfactory to the Bank, specifying in reasonable detail the Project activities to be carried out by SARH, SCT, SEDUE and INI, respectively, during the following calendar year; and (ii) provide to the Bank no later than December 31 of each year until Project completion, beginning on December 3l, l989, satisfactory evidence that adequate funds have been allocated by the Guarantor for carrying out the activities of the Project. Page 4 Section 3.06. Without limitation or restriction upon the provisions of Section 2.02 (c), Section 3.01 and Section 3.05 of this Agreement, the Guarantor shall take or cause to be taken all actions and measures to make available adequate funds for the timely execution of the Project. Section 3.07. The Guarantor shall, through SARH: (a) carry out the studies included in Part E of the Project under terms of reference satisfactory to the Bank; (b) by January 31, 1990, submit to the Bank for its review the final completed study referred to in Part E.3 of the Project; (c) by January 31, 1991, submit to the Bank for its review the final completed study referred to in Part E.4 of the Project; (d) by June 30, 1991, submit to the Bank for its review the final completed study referred to in Part E.1 of the Project; (e) by June 30, 1992, submit to the Bank for its review the final completed study referred to in Part E.2 of the Project; (f) by December 31, 1992, submit to the Bank for its review the final completed study referred to in Part E.5 of the Project; and (g) promptly after submitting to the Bank the studies referred to in paragraphs (b) through (f) of this Section exchange views with the Bank on the conclusions and recommendations of such studies. Section 3.08. The Guarantor shall, acting through SARH, enter into Fee Convenios with road users for the roads to be rehabilitated under Part C.1 of the Project at the time that the design and bidding process for such roads are initiated and, unless otherwise agreed by the Bank, shall not change or fail to enforce any provision of such Convenios. Section 3.09. The Guarantor shall cause each of the parties to the SEDUE Carta de Compromiso, the INI Carta de Compromiso, the SCT Convenio and the Fee Convenios to perform their respective obligations thereunder, and shall not: (i) take, or permit to be taken, any action which would prevent or interfere with the performance of such obligations; and (ii) permit any of the parties thereto to amend, suspend, abrogate, modify or waive any of the provisions thereof. Section 3.10. In addition to its other obligations under this Agreement, the Guarantor shall take, or cause to be taken, all reasonable measures to ensure that the execution and operation of the Project are carried out with due regard to ecological and environmental factors, and in particular that all forest management, harvesting, manufacture and road rehabilitation activities will prevent the negative environmental impacts of traditional forestry and forest industry practices. ARTICLE IV Financial Covenants Section 4.01. (a) The Guarantor shall maintain, or cause to be maintained, separate records and accounts adequate to reflect, in accordance with sound accounting practices, the operations, resources and expenditures in respect of Parts C, D, E, F and G of the Project of the departments or agencies of the Guarantor responsible for carrying out such Parts of the Project or any part thereof. (b) The Guarantor shall: (i) have the accounts referred to in paragraph (a) of Page 5 this Section for each fiscal year audited, in accordance with generally accepted auditing standards and procedures consistently applied, by independent and qualified auditors; (ii) furnish to the Bank 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said accounts and the audit thereof and said records as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Guarantor 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, or cause to be retained, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank'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 on to support the related withdrawals. ARTICLE V Other Covenants Section 5.01. Without any limitation or restriction upon any of its obligations under this Agreement, the Guarantor shall not take, or permit to be taken, any action which would prevent or interfere with the performance by Banxico of its obligations under the Banxico Project Agreement, or with the performance by Banrural of its obligations under the Banrural Project Agreement. Section 5.02. For purposes of Sections 6.02 (c) and (d) and 7.01 (e) of the General Conditions, the obligations of the United Mexican States under the General Interest Rate Agreement are hereby incorporated as obligations of the Guarantor as if they were fully set forth herein. ARTICLE VI Representative of the Guarantor; Addresses Section 6.01. The Director General de Captacion de Credito Externo of the Secretaria de Hacienda y Credito Publico of the Guarantor is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the Page 6 purposes of Section 11.01 of the General Conditions: For the Guarantor: Direccion General de Captacion de Credito Externo Secretaria de Hacienda y Credito Publico Palacio Nacional Primer Patio Mariano, 4