Conformed Copy - C1966 - Agricultural Marketing and Estate Development Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1966 MAI (Agricultural Marketing and Estate Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and RESERVE BANK OF MALAWI Dated March 31, 1989 CREDIT NUMBER 1966 MAI PROJECT AGREEMENT AGREEMENT, dated March 31, 1989, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and RESERVE BANK OF MALAWI (RBM). WHEREAS: (A) by the Development Credit Agreement of even date herewith between Republic of Malawi (the Borrower) and the Asso- ciation, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to fourteen million two hundred thousand Special Drawing Rights (SDR 14,200,000), on the terms and conditions set forth in the Development Credit Agree- ment, but only on condition that RBM agrees to undertake such obligations toward the Association as are set forth in this Agreement; and (B) by the RBM Agreement to be entered into between the Borrower and RBM, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to RBM on terms and conditions set forth in said RBM Agreement; and Page 2 WHEREAS RBM, 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 and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of RBM Section 2.01. RBM 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 and cause Participating Banks and SEDOM to carry out Part A of the Project and conduct its operations and affairs, in accordance with sound financial standards and practices, with qualified and experienced management and in accordance with the RBM Act. Section 2.02. (a) RBM shall sign Participating Bank Agree- ments with each Participating Bank and the SEDOM Agreement with SEDOM, pursuant to Section 3.01 (c) of the Development Credit Agreement, to enable Participating Banks to make Sub-loans and SEDOM to make SEDOM credits to Investment Enterprises for Invest- ment Projects under Part A of the Project. The terms and condi- tions of Participating Bank Agreements and the SEDOM Agreement shall be approved by the Association, and shall conform to the terms and conditions stipulated in Schedule 2 to this Agreement. (b) No withdrawals shall be made by RBM from the Credit Account: (i) for a Participating Bank unless: (A) the appropriate Participating Bank Agreement has been duly executed on behalf of RBM and the Participating Bank; and (B) said Participating Bank Agreement has been approved by the Association; and (ii) for SEDOM unless the SEDOM Agreement has been duly executed on behalf of RBM and SEDOM, and has been approved by the Association. (c) RBM shall cause Participating Banks and SEDOM to submit to the Association, for its review and comments, a sample of appraisal reports prepared by each Participating Bank and by SEDOM. The number of such appraisal reports shall be determined by the Association. Section 2.03. (a) RBM undertakes that, unless the Association shall otherwise agree, Participating Banks and SEDOM shall make Sub-loans and SEDOM credits, respectively, in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 1 to this Agreement. (b) RBM shall cause each Participating Bank and SEDOM to exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association, RBM and the Participating Bank or SEDOM, as appropriate; Page 3 (ii) comply with its obligations under this Agreement, the RBM Agreement, the appropriate Participating Bank Agreement or the SEDOM Agreement; and (iii) achieve the purposes of the Project. Section 2.04. RBM shall: (a) cause Participating Banks to calculate financial rates of return of Investment Projects, for which Sub-loans are made or proposed to be made in amounts exceeding $100,000, and ensure that only those Investment Projects with a financial rate of return of not less than 12% are eligible for financing with Sub-loans; (b) ensure that the Participating Banks shall limit the aggregate amount of agricultural Sub-loans to any one small-scale estate Investment Enterprise to an amount not exceeding the equivalent of $150,000; (c) ensure that Participating Banks will not make Sub-loans in an amount exceeding the equivalent of $250,000 in respect of any one rainfed estate Investment Project or in an amount exceeding the equivalent of $500,000 in respect of any one estate Investment Project for irrigation; and (d) ensure that the aggregate amount of Sub-loans to estate Investment Enterprises, under Part A.1 (a) of the Project, with annual sales exceeding the equivalent of $200,000 each, shall not exceed the equivalent of $5,500,000. Section 2.05. RBM shall cause Participating Banks and SEDOM to 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) in respect of the Project Agreement and Part A of the Project. Section 2.06. RBM shall duly perform all its obligations under the RBM Agreement. Except as the Association shall otherwise agree, RBM shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the RBM Agreement or any provision thereof. Section 2.07. (a) RBM shall, at the request of the Associa- tion, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the RBM Agreement, and other matters relating to the purposes of the Credit. (b) RBM shall promptly inform the Association of any con- dition which interferes or threatens to interfere with the pro- gress of the Project, the accomplishment of the purposes of the Credit, or the performance by RBM of its obligations under this Agreement and under the RBM Agreement. Section 2.08. (a) RBM shall, in conformity with Section 3.04 of the Development Credit Agreement, cause Participating Banks and SEDOM to annually review and, if necessary, revise the rate of interest charged on Sub-loans and SEDOM credits, respectively; (b) RBM shall review the rate of interest charged by RBM to Participating Banks, under Participating Bank Agreements, and revise such rates to reflect any changes in interest rates that may be made on Sub-loans, pursuant to paragraph (a) of this Section. Section 2.09. In order to carry out Part A.2 of the Project, RBM shall ensure that SEDOM shall, no later than March 31, 1989, appoint a suitably qualified Project manager, satisfactory to the Association. Page 4 Section 2.10. (a) RBM shall cause: (i) Participating Banks to submit quarterly reports to the Association through the Estates and Agro- industries Committee, pursuant to paragraph 4 of Schedule 5 to the Development Credit Agreement; and (ii) SEDOM to submit quarterly reports to the Associa- tion, through the Marketing Committee, pursuant to paragraph 4 of Schedule 5 to the Development Credit Agreement. (b) The contents of the quarterly reports shall be satis- factory to the Association. Article III Financial Covenants Section 3.01. RBM shall maintain records and accounts ade- quate to reflect, in accordance with consistently maintained appropriate accounting practices, the operations of RBM in respect of Part A of the Project. Section 3.02. RBM shall cause Participating Banks and SEDOM to maintain procedures and records, adequate to monitor and record the progress of Part A of the Project and each Investment Project (including its cost and the benefits to be derived from it), and to reflect, in accordance with consistently maintained sound accounting practices the operations and financial condition of Participating Banks and SEDOM and shall enable the Association's representatives to examine such records. Section 3.03. RBM shall: (a) (i) have RBM's records and accounts, referred to in Section 3.01 of this Agreement, including Special Account A; and (ii) cause each Participating Bank and SEDOM to have their 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; (b) furnish, and cause SEDOM and each Participating Bank to furnish, to the Association, as soon as available but in any case not later than nine months after the end of each such year: (i) certified copies of its financial statements for such year as so audited; (ii) the report of such audit by said auditors, 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. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect Page 5 on the date on which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and RBM hereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate; or (ii) a date fifteen (15) years after the date of this Agreement. (b) If the Development Credit Agreement terminates before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify RBM of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. 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 whom it is required or permitted to be given or made at such party's address hereinafter specified or at such other addresses as such party shall have 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 RBM: Reserve Bank of Malawi Box 30063 Lilongwe 3 Malawi Cable address Telex: RESERVE 44788 Lilongwe, Malawi 44843 44222 Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of RBM or by RBM on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by its Governor, or by such other person or persons as RBM shall designate in writing, and RBM shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several Page 6 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 DEVELOPMENT ASSOCIATION By /s/ Edward V.K. Jaycox Regional Vice President Africa RESERVE BANK OF MALAWI By /s/ Robert B. Mbaya Authorized Representative SCHEDULE 1 A. Terms and Conditions of Sub-loans 1. The Sub-loans shall have maturities not exceeding twelve (12) years and bear interest at a rate which shall conform with the overall interest rate structure in the Borrower's territory. The interest rate shall be subject to the provision of Section 2.08 of this Agreement. 2. Notwithstanding the provisions of Section 1 of this Schedule, maturities of Sub-loans shall not exceed the useful life of the assets financed. 3. Sub-loans under Part A.1 (a) of the Project shall be made only to: (a) Investment Enterprises, with established rights to the land on which the Investment Project will be carried out, with competent management which can demonstrate that the proposed Investment Project is technically feasible and financially viable; and (b) to finance the establishment of new, or the expansion of existing, estate crops, land improvements, including irrigation and drainage, and the establishment of wood lots, improvement of infrastructure, purchase, rehabilitation and maintenance of farm equipment and machinery, and the purchase of livestock. 4. Sub-loans under Part A.1 (b) of the Project shall be made: (a) only to Investment Enterprises with appropriate valid licenses and permits, competent management, and for Investment Projects that are technically feasible and financially viable; and (b) to finance the development and improvement of processing equipment, including maize and rice mills, cotton gins, cassava processing plants, oil extraction facilities, and the acquisition of transport equipment and grading facilities. 5. Except as the Association shall otherwise agree, RBM shall cause Participating Banks to obtain, in respect of Sub-loans, Page 7 inter alia, the right to: (a) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods and services to be financed out of the proceeds of the Credit shall be purchased at a reasonable price, also taking into account other relevant factors such as time of delivery, effi- ciency and reliability of the goods, availability of maintenance facilities and spare parts therefor, and, in the case of services, their quality and the competence of the parties rendering them; and (ii) such goods and services shall be used exclusively in the carrying out of the Investment Project; (c) inspect, by itself or jointly with representatives of the Association, if the Association shall so request, such goods, sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation. Any indemnity thereunder shall be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Association or RBM shall reasonably request relating to the foregoing and the administration, operations and financial condition of the Invest- ment Enterprise, and the benefits to be derived from the Invest- ment Project; and (f) suspend or terminate the right of the Investment Enter- prise to the use of the proceeds of the Credit upon failure by such Investment Enterprise to perform its obligations under its contract with the Participating Bank. B. Terms and Conditions of SEDOM Credits 1. Short-term SEDOM credits, with maturities of not less than three (3) months and not more than twelve (12) months, shall be made to finance: (a) working capital for seasonal commodity trading; (b) working capital for rural multi-product trading, based on the purchase of commodities in the rural areas, and supply of consumer goods to the rural areas; and (c) working capital for the purchase of chemical fumigants, bags and other items required for storage. 2. Medium-term SEDOM credits, with maturities between three (3) to five (5) years, shall be made to finance: Page 8 (a) the purchase of small processing mills, drying, cleaning and grading equipment, weighing scales, moisture meters and related civil works; (b) the construction or rehabilitation of rural commodity storage facilities owned or rented to commodity traders; and (c) the purchase of trucks suitable for rural road conditions. SCHEDULE 2 A. Terms and Conditions of Participating Bank Agreements 1. Participating Banks shall repay to RBM the principal amount of withdrawals made under Participating Bank Agreements: (a) in accordance with schedules conforming with the amortization schedules of Sub-loans made by each Participating Bank to Investment Enterprises under Part A.1 (a) of the Project, with annual sales exceeding the equivalent of $200,000 and all Investment Enterprises under Part A.1 (b) of the Project; and (b) in five annual installments, on all other Sub-loans made to other Investment Enterprises. 2. Subject to any review that may be made by RBM pursuant to Section 2.08 (b) of this Agreement, Participating Banks shall pay interest at the rate of: (a) Nine percent (9%) per annum on amounts withdrawn from the Credit Account for Sub-loans to Investment Enterprises, under Part A.1 (a) of the Project, with annual sales of less than the equivalent of $200,000; and (b) 11% per annum for Sub-loans to all other Investment Enterprises. 3. When presenting a Sub-loan to RBM, the Participating Bank shall furnish to RBM an application, in a form satisfactory to RBM, together with: (a) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Sub-loan; (b) the proposed terms and conditions of the Sub-loan; (c) a calculation of the financial rates of return of the Investment Project in the case of a Sub-loan in amounts exceeding $100,000; (d) a copy of the appraisal report of the Investment Project; and (e) such other information as RBM shall reasonably request. 4. Except as RBM and the Participating Bank shall otherwise agree, applications and requests made pursuant to the provisions of paragraph 3 of this Schedule shall be presented to RBM on or before December 31, 1995. B. Terms and Conditions of SEDOM Agreement 1. SEDOM shall repay to RBM the principal amount of the SEDOM Agreement and interest thereon as follows: (a) all short-term credit, in full, on the thirteenth month; Page 9 and (b) all medium-term credit, in five annual installments of principal and interest. 2. SEDOM shall pay interest at the rate to be determined by RBM which shall be at least 3% per annum on amounts withdrawn from the Credit Account for all SEDOM Credits.