Conformed Copy - C2221 - Financial Sector and Enterprise Development Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2221 MAI (Financial Sector and Enterprise Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and RESERVE BANK OF MALAWI Dated June 24, 1991 CREDIT NUMBER 2221 MAI PROJECT AGREEMENT AGREEMENT, dated June 24, 1991, 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 Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-two million three hundred thousand Special Drawing Rights (SDR 22,300,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that RBM agree to undertake such obligations toward the Association as are set forth in this Agreement; Page 2 (B) by a subsidiary agreement (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 the terms and conditions set forth in said RBM Agreement; and 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. (a) 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 PFI's to carry out Parts A, B and C.1 through C.3 of the Project as described in said Schedule and in accordance with Schedules 1 and 2 to this Agreement, and conduct its operations and affairs in accordance with sound financial standards and practices, with qualified management and personnel, and in accordance with the RBM Act. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and RBM shall otherwise agree, RBM shall carry out Parts A, B and C.1 through C.3 of the Project in accordance with the Implementation Program set forth in Schedule 3 to this Agreement. Section 2.02. (a) RBM shall enter into PFI Agreements with each PFI, pursuant to Section 3.01 (c) of the Development Credit Agreement, to enable PFI's to make Sub-loans, Investments and provide Lease Financing to Investment Enterprises for Investment Projects including industrial sites as provided in Parts A and B of the Project described in Schedule 2 to the Development Credit Agreement. The terms and conditions of the PFI Agreements 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 a PFI from the Credit Account unless: (i) the appropriate PFI Agreement has been duly executed on behalf of RBM and the PFI; and (ii) said PFI Agreement has been approved by the Association. (c) Without prejudice to the provisions of paragraph (a) of Section 2.05 of this Agreement, no withdrawals shall be made by a PFI from the Credit Account pursuant to paragraph 3 (b) (ii) of Schedule 1 to the Development Credit Agreement, unless such PFI shall have submitted to, and obtained the approved of, the Association of at least one appraisal report prepared by said PFI for Investment Projects. Section 2.03. (a) RBM undertakes that, unless the Association shall otherwise agree, Sub-loans, Investments and Lease Financing shall be made 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 exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests Page 3 of the Association and of RBM; (ii) comply with its obligations under this Agreement and the RBM Agreement; and (iii) achieve the purposes of the Project. Section 2.04. RBM shall: (i) cause PFI's to calculate (A) financial rates of return of Investment Projects for which Sub-loans are made or proposed to be made in amounts exceeding $100,000; and (B) economic rates of return of Investment Projects for which Sub-loans are made or proposed to be made in amounts exceeding $500,000; and (ii) unless otherwise agreed by the Association, ensure that PFI's will not make Sub-loans in an amount exceeding the equivalent of $2,000,000 in respect of any one Investment Project or to any single Investment Enterprise. Section 2.05. (a) RBM shall promptly transfer to the Borrower all payments received from PFI's under PFI Agreements. (b) Notwithstanding the provisions of paragraph (a) of this Section, RBM may after retaining the service charge referred to in Section 3.01 (c) (iii) of the Development Credit Agreement, utilize part of any amounts received from a PFI under a PFI Agreement for loans to be made to PFI's for Sub-loans, Investment, or Lease Financing, as appropriate, provided that such amounts are not immediately required by the Borrower to fulfill its obligations specified, inter alia, in Sections 2.05, 2.06 and 2.07 of the Development Credit Agreement Section 2.06. 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 the Development Credit Agreement. Section 2.07. RBM shall (a) cause PFI's 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, respectively) in respect of the Project Agreement and Parts A and B of the Project; and (b) carry out the obligations referred to in (a) above, in respect of the Project Agreement and Parts C.1 through C.3 of the Project. Section 2.08. 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 amending, abrogating, assigning or waiving the RBM Agreement or any provision thereof. Section 2.09. (a) RBM shall, at the request of the Association, exchange views with the Association with regard to the progress of Parts A, B and C.1 through C.3 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 condition which interferes or threatens to interfere with the progress of Parts A, B and C.1 through C.3 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 2.10. RBM shall cause PFIs to submit to the Association, from time to time at the Association's request, appraisal reports prepared by the PFI for Investment Projects. (b) RBM shall cause PFIs to make improvements or adjustments Page 4 in their appraisal methodology and practices as may be reasonably recommended by the Association. ARTICLE III Financial Covenants Section 3.01. (a) RBM shall maintain procedures and records adequate to monitor and record the progress of Parts A, B and C.1 through C.3 of the Project and of 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 RBM. (b) RBM shall: (i) have the records and accounts referred to in Section 3.01(a) 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 six months after the end of each such year: (A) certified copies of its records and accounts 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 and accounts 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 on the date upon which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of RBM 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 25 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 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 Page 5 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 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For RBM: Reserve Bank of Malawi Box 30063 Lilongwe 3 Malawi Cable address: Telex: RESERVE 44788 Lilongwe 44843 Malawi 44222 Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of RBM may be taken or executed by the Governor or such other person or persons as the Governor 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 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 RESERVE BANK OF MALAWI By /s/ Robert B. Mbaya Authorized Representative SCHEDULE 1 Page 6 Procedures for and Terms and Conditions of Sub-loans, Investments and Lease Financing 1. Sub-loans shall: (a) have maturities (i) not exceeding twelve years including grace periods of up to three years under Part A of the Project and (ii) 20 years, including a grace period of up to five years under Part B of the Project; and (b) be at the market rate of interest. 2. Existing Investment Enterprises shall contribute a minimum of 10% of Investment Project costs and new Investment Enterprises shall contribute at least 20% of such costs. 3. Existing Investment Enterprises shall have a debt service ratio of not less than 1.3:1, and a debt/equity ratio not exceeding 4:1. 4. Investment Enterprises shall carry out initial preparation of Investment Projects. Each PFI shall review the Investment Project in accordance with its own analysis procedures which shall continue to be satisfactory to the Association. The appraisal evaluation shall cover relevant information about the Investment Enterprise and the Investment Project, including inter alia, its technical soundness, financial viability, economic efficiency and managerial capacity as well as loan security requirements. 5. Except as the Association shall otherwise agree, Investment Projects shall meet the following criteria: (a) not exceed: (i) $2,000,000 equivalent under Part A of the Project and (ii) $2,800,000 equivalent under Part B of the Project; (b) be supported by an appraisal of the Investment Project's technical viability, and market analysis, and the Investment Enterprise's managerial capacity; (c) present a summary cash flow analysis to indicate the Investment Enterprise's viability and ability to service the debt; and (d) for Sub-loans of more than $100,000 equivalent, a financial rate of return of at least 12% on total Investment Project costs. 6. No expenditures for goods or services required for an Investment Project shall be eligible for financing out of the proceeds of the Credit unless the Sub-loan, Investment or Lease Financing for such Investment Project shall have been approved by RBM and such expenditures shall have been made not earlier than ninety days prior to the date on which RBM shall have received the application and information required under paragraph 7 (a) of this Schedule in respect of such Sub-loan, Investment or Lease Agreement. 7. (a) When presenting a Sub-loan, Investment or Lease Agreement to RBM for approval, PFIs shall furnish to RBM an application, in form satisfactory to RBM and the Association, together with: (i) 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 Credit; (ii) the proposed terms and conditions of the Investment, Sub-loan or Lease Agreement, including the appropriate schedule of amortization of the Sub-loan or term of the Lease Agreement; and (iii) such other information as RBM shall reasonably request. (b) Applications and requests made pursuant to the provisions of sub-paragraph (a) of this paragraph shall be presented to RBM on or before December 31, 1995. 8. Sub-loans and Investments shall be made on terms whereby PFIs shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the Page 7 interests of the PFI, RBM and the Association and, including, in the case of any Sub-loan or Lease Agreement and, to the extent that it shall be appropriate, in the case of any Investment, 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 procured in accordance with the provisions of Schedule 3 to the Development Credit Agreement 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 RBM and the Association, if the Association shall so request, such goods and the 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 to 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 to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project; and (f) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Credit upon failure by such Investment Enterprise to perform its obligations under its contract with the PFI. SCHEDULE 2 Terms and Conditions of PFI Agreements 1. PFIs shall: (a) with respect to Part A of the Project, repay RBM the principal amount of loans made under PFI Agreements in accordance with schedules conforming with the amortization schedules of Sub-loans made by each PFI or twelve years whichever is the shorter; and (b) with respect to Part B of the Project, repay RBM the principal amount of loans made under PFI Agreements in accordance with schedules conforming with the amortization schedules of Sub- loans made by each PFI or twenty years, whichever is the shorter. 2. Subject to any review that may be made from time to time by RBM, each PFI shall pay interest to RBM at the Reference Rate. 3. PFI Agreements shall specify that PFIs: (a) perform satisfactory appraisals of Investment Projects; (b) supervise Investment Projects financed under the Credit to ensure that resources are used for the intended purposes and repaid; (c) make periodic reports to the Apex Unit within RBM; (d) comply with the Borrower's rules and regulations on environmental aspects of Investment Projects; Page 8 (e) assist small- and medium-scale enterprises to identify technical assistance needs wherever necessary; (f) provide the Apex Unit within RBM and the Association with such information as they may reasonably request; and (g) designate qualified staff to manage the Investment Projects financed under the Credit. 4. The first sub-project from each PFI shall be submitted to the Association for prior review and approval. Thereafter the Association shall review a sample of sub-projects on an ex-post basis. SCHEDULE 3 Implementation Program Project Coordination 1. Under the overall supervision of the Secretary to the Treasury, Ministry of Finance, RBM shall be responsible for the implementation of Parts A, B and C.1 through C.3 of the Project. Parts A and B of the Project 2. The Apex Unit within RBM, headed by the Director of Research and Statistics, and including an Assistant Director, and four core staff, shall be responsible for the implementation of Parts A and B of the Project. 3. RBM shall promptly notify the Association of any changes in the Reference Rate, including a review of the causes for such changes. 4. RBM shall ensure that with respect to Part B of the Project PFIs shall: (a) sub-let industrial land, allocated by the Borrower's Department of Lands and Valuations, to investors to develop industrial sites, including factory shells or (b) finance the development of such land and sub-let the fully developed industrial sites to investors. Part C of the Project 5. Notwithstanding the provisions of paragraphs 3 through 5 of Schedule 4 to the Development Credit Agreement the Apex Unit shall be responsible for disbursements and the maintenance of accounts in respect of Part C of the Project. 6. RBM shall employ consultants to assist RBM to: (a) develop an economic model for forecasting credit and monetary developments; (b) reorganize and strengthen the existing statistical data base; (c) train RBM staff in econometric methods; and (d) assist in establishing money market operations and training for staff. 7. RBM shall ensure that, with the assistance of consultants, the Post Office Savings Bank's restructuring and strategic plan is completed by not later than September 30, 1991. 8. In order to establish the Export Credit Guarantee Facility, RBM shall employ consultants to: (a) formulate operating policies and procedures; (b) design the management system; and (c) train staff.