Conformed Copy - L3115 ME - Forestry Development Project - Project Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 3115 ME (Forestry Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE CREDITO RURAL Dated September 25, 1989 LOAN NUMBER 3115 ME BANRURAL PROJECT AGREEMENT AGREEMENT, dated September 25, 1989, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BANCO NACIONAL DE CREDITO RURAL (Banrural). WHEREAS (A) by the Loan Agreement of even date herewith between Nacional Financiera, S.N.C. (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount 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 Banrural agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a Guarantee Agreement to be entered into between the United Mexican States (the Guarantor) and the Bank, of even date herewith, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations as set forth in said Guarantee Agreement; and Page 2 WHEREAS Banrural, in consideration of the Bank's entering into the Loan 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 Loan 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) Banrural 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 Part B of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, industrial and forestry practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required by FICART for the said Part of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, Banrural shall enter into the contractual arrangements referred to in Section 2.02 (a)(iii) of the Guarantee Agreement. Except as the Bank shall otherwise agree, Banrural shall not change or fail to enforce any provision of such contractual arrangements. (c) Banrural shall carry out the lending operations under Part B.1 of the Project in accordance with sound operational policies and in conformity with the principles and procedures set forth in this Agreement, the Schedule to this Agreement and FICART Lending Policies and Operating Manual. Section 2.02. (a) Banrural shall cause, unless the Bank shall otherwise agree, all Sub-loans included in Part B.1 of the Project to be made on terms whereby the Participating Bank shall obtain, by written contract with the Beneficiary or by other appropriate legal means, rights adequate to protect the interests of Banrural and the Participating Bank and to accomplish the purposes of the Project, including the right of the Participating Bank to: (i) require the Beneficiary to carry out and operate the Sub- project with due diligence and efficiency and in accordance with sound technical, financial, industrial, forestry and managerial standards and to maintain adequate records; (ii) require that: (A) the procurement of the goods, works and services to be financed out of the proceeds of the Sub-loan shall be governed by the provisions of Part B (3) of Section I of Schedule 4 to the Loan Agreement, and (B) such goods, works and services shall be used exclusively in the carrying out of the Sub-project; (iii) inspect, by itself or jointly with representatives of the Bank and Banrural, if the Bank shall so request, such goods and the sites, works, plants and construction included in the Sub-project, the operation thereof, and any relevant records and documents; (iv) require that the Beneficiary shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with normal business practice; and that such insurance cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of Sub-loans to the place of use or installation, and that any indemnity thereunder be made payable in a currency freely usable by the Beneficiary to replace or repair such goods; (v) obtain all such information as Banrural or the Participating Bank shall reasonably request relating to the foregoing and to the administration, operation and financial condition of the Page 3 Beneficiary; and (vi) suspend or terminate the right of the Beneficiary to the use of the proceeds of the Sub-loan upon failure by such Beneficiary to perform any of its obligations under its contract with the Participating Bank. (b) Banrural shall cause each Participating Bank to exercise its rights in relation to each Sub-loan in such manner as to: (i) protect the interests of the Bank, Guarantor and Banrural; (ii) comply with its obligations in respect of the corresponding Sub-loan; and (iii) achieve the purposes of the Project. (c) Banrural shall suspend the eligibility of any Participating Bank to make Sub-loans whenever the arrears under loans made by any such Participating Bank and discounted by FICART exceed 15% of the aggregate outstanding amount of such loans. Section 2.03. No Sub-loan financed by Banrural under the Project in excess of the equivalent of eight hundred thousand dollars ($800,000), or such other amount as shall be agreed between the Bank and Banrural, shall be eligible for financing out of the proceeds of the Loan unless the Bank shall have approved the Sub-loan. When applying to the Bank for such approval, Banrural shall furnish to the Bank a description of the Sub- project and such technical, economic and financial data regarding such Sub-project as the Bank shall reasonably request. Section 2.04. Except as the Bank shall otherwise agree, pro- curement of the goods, works and consultants' services required for Part B of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 2.05.(a) Banrural shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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 this Project Agreement and Part B of the Project. (b) Without limitation or restriction upon the provisions of Section 9.07 of the General Conditions, Banrural shall provide to the Bank semiannual reports, beginning on December 30, 1989, and thereafter through completion of the Project, on the progress of implementing Part B of the Project, including analysis of Sub-loan disbursements and repayment of Sub-loans. Section 2.06. Banrural shall: (a) at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Loan; and (b) promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by Banrural of its obligations under this Agreement. ARTICLE III Management and Operations of FICART Section 3.01. Banrural shall carry on the operations and conduct the affairs of FICART in accordance with sound administra- tive, financial and forestry practices under the supervision of qualified and experienced management assisted by adequate staff. ARTICLE IV Financial Covenants Section 4.01. (a) Banrural shall maintain, or cause to be Page 4 maintained, separate records and accounts adequate to reflect, in accordance with sound accounting practices, the operations and expenditures of FICART in respect of Part B of the Project. (b) Banrural shall: (i) have such accounts, including the financial state- ments (balance sheets, statements of income and expenses and related statements) of FICART, for each fiscal year audited, in accordance with appropriate auditing principles 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 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals are requested from the Loan Account on the basis of statements of expenditures, Banrural 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 audits 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 Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of Banrural thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Banrural thereof. 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 Page 5 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 or 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 desig- nated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For Banrural: Banco Nacional de Credito Rural, S.N.C. Agrarismo 227- 7o Piso 18800 Mexico, D.F. Mexico Telex: BNCR 1772 666 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 Banrural may be taken or executed by its Director General or such other person or persons as Banrural shall designate in writing, and its Director General shall furnish to the Bank sufficient evidence of the authority and the authenti- cated 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 collec- tively 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ S. Shahid Husain Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE CREDITO RURAL Page 6 By /s/ Gustavo Petricioli Authorized Representative SCHEDULE Banrural Lending Policies and Procedures for Sub-loans I. Medium-and Long-term Sub-loans A. General 1. Banrural, acting as trustee for FICART, shall finance Sub- loans made by the Participating Banks. FICART's determination of eligibility for such financing shall be based primarily upon the appraisal as to technical feasibility and satisfactory return on investments. Each Sub-loan shall be appraised and approved by qualified technicians of, or acceptable to, FICART before such Sub-loan is made. In addition, appraisals of Sub-projects shall be reviewed from time to time by FICART, in order to determine that appraisals by such technicians show the technical, economic and financial viability of the Sub-projects and that the appraisals, approvals and supervision are in compliance with FICART's Lending Policies and Operating Manual. B. Lending Policies and Procedures 2. Banrural shall make available to the respective Participating Banks, promptly as needed, amounts sufficient to cover the balance remaining on each Sub-loan after the Participating Bank has made the required contribution in accordance with paragraph 3 below. The financing made available by Banrural to Participating Banks shall have the same payment terms regarding principal, interest and other charges as the Sub-loans financed, and shall be evidenced by negotiable instruments representing the Sub-loan to be financed, signed by the Beneficiaries. 3. In financing Sub-loans, the following rules shall apply: Minimum Minimum Beneficiary Participating contribution Bank contri- (percentage bution (per- Maximum of cost of centage of percentage Sub-project Sub-loan of Sub-loan financed) financed) financed by FICART 10% 10% up to 90% 4. No Sub-loan shall be made to an individual Beneficiary for investment if the amount of the proposed Sub-loan together with the aggregate principal amount outstanding of Sub-loans made for investment to such Beneficiary and financed by FICART exceeds the equivalent of $260,000, or such other amount as shall be agreed between the Bank and Banrural. In case the Beneficiary is composed of a group of persons, such amount shall be multiplied by the number of members of such group. 5. The lending terms and grace periods shall be as set forth in the technical and financial plans for each Sub-project. Repayments of principal of Sub-loans shall range from 2 to 15 years and shall include grace periods of 1 to 3 years; provided however, that any Sub-loans made for a Sub-project under PVP shall not have a grace period and in calculating the economic rate of return for such Sub-project, capitalized interest shall be included in investment cost. In exceptional cases only and with the prior agreement of the Bank, repayment of principal for Sub-loans may extend for up to 20 years and, if not made under PVP may include a grace period of up to five years. Page 7 6. Interest rates on Sub-loans shall be established and periodically readjusted in accordance with the provisions of the General Interest Rate Agreement. In financing Sub-loans made by Participating Banks, Banrural shall allow a margin to such Participating Banks of up to 10% of the Reference Rate (as that term is defined in the General Interest Rate Agreement, also known as "CPP") for the month preceding the making of the Sub-loan, or such other percentage of the Reference Rate or percentage point margin as shall be agreed between the Guarantor and the Bank, with respect to Sub-loans to Beneficiaries. II. Short-term Sub-loan Policies and Procedures A. General 1. The appraisal and approval of Sub-projects to be financed out of the proceeds of a Short-term Sub-loan and the supervision of the same shall be made in accordance with the FICART Lending Policies and Operating Manual. B. Lending Policies and Procedures 2. Banrural shall make available to the respective Participating Banks, promptly as needed, amounts sufficient to cover the balance remaining on each Sub-loan after the Participating Bank has made the required contribution in accordance with paragraph 3 below. The financing made available by Banrural to Participating Banks shall have the same payment terms regarding principal, interest and other charges as the Sub-loans financed, and shall be evidenced by negotiable instruments representing the Sub-loan to be financed, signed by the Beneficiaries. In financing Short-term Sub-loans, the interest rate to be charged to the Beneficiaries shall be as provided for in the General Interest Rate Agreement; repayment of principal shall not exceed two years. 3. In financing Short-term Sub-loans, the following rules shall apply: Minimum Minimum bene- Participating Maximum ficiary contri- Bank contri- percentage bution (percen- bution (per- of Sub-loan tage of cost of centage of Sub- financed Sub-project loan financed) by FICART financed) _______________ _______________ __________ 10% 10% up to 90% 4. Short-term Sub-loans to be financed out of the proceeds of the Loan shall be incremental to FICART's total short-term lending for the previous year. By November 30 of each year, starting on November 30, 1989, FICART will provide the Bank with an estimate of its incremental short-term lending for the subsequent year. Such amount shall be revised against FICART's actual incremental Short-term Sub-loans financed under the Project during each such year, as audited, and any difference resulting therefrom shall be added to or substracted from, the estimated amount to be financed out of the proceeds of the Loan as Short-term Sub-loans during the following year.