Conformed Copy - L3507 - Municipal Sector Investment Project - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3507 TUN (Municipal Sector Investment Project) between REPUBLIC OF TUNISIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated October 7, 1992 LOAN NUMBER 3507 TUN LOAN AGREEMENT AGREEMENT, dated October 7, 1992, between REPUBLIC OF TUNISIA (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; (B) Parts B and C of the Project will be carried out by the Municipal Development Agency (MDA) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to MDA a portion of the proceeds of the Loan as provided in this Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Bank and MDA; NOW THEREFORE the parties hereto hereby agree as follows: Page 2 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 below (the General Conditions) constitute an integral part of this Agreement: (a) The last sentence of Section 3.02 is deleted. (b) In Section 6.02, sub-paragraph (k) is re-lettered as sub-paragraph (l) and a new sub-paragraph (k) is added to read: "(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be incon- sistent with the provisions of Article III, Section 3 of the Bank's Articles of Agreement." Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and MDA of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (b) "Subsidiary Loan Agreement" means the subsidiary loan agreement to be entered into between the Borrower and MDA pursuant to paragraph 4 of Schedule 5 to this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; and "Subsidiary Loan" means the loan made to MDA pursuant to the Subsidiary Loan Agreement; (c) "Subsidiary Grant Agreement" means the subsidiary grant agreement to be entered into between the Borrower and MDA pursuant to paragraph 4 of Schedule 5 to this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Grant Agreement; (d) "Subsidiary Financing Agreements" means, collectively, the Subsidiary Loan Agreement and the Subsidiary Grant Agreement; (e) "Sub-loan" means a loan made or proposed to be made by MDA to a Beneficiary for a Development Project under Part C of the Project, out of the proceeds of the Loan made available to MDA under the Subsidiary Loan Agreement; (f) "Grant" means a grant made or proposed to be made by MDA to a Beneficiary for a Development Project under Part C (1)(a) of the Project, out of the proceeds of the Loan made available to MDA under the Subsidiary Loan Agreement; (g) "Development Project" means a specific development project referred to in Part C of the Project to be carried out by a Beneficiary utilizing the proceeds of a Sub-loan or a Grant; (h) "Beneficiary" means a municipal or regional administra- tion of the Borrower or other entity owned or controlled by, or operating for the account or benefit of, such administration, to which MDA proposes to make or has made a Sub-loan or a Grant; (i) "Charter" means the Borrower's Law No. 75-37 dated May 14, 1975 and Decree No. 92-688 dated April 16, 1992, pursuant to which MDA was established and is operating; (j) "Operational Guidelines" means MDA's statement of lending policies and procedures referred to in Section 2.02 (b) of the Project Agreement; Page 3 (k) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (l) "Central Bank" means the central bank of the Borrower (Banque Centrale de Tunisie), established and operating pursuant to the Borrower's Law No. 58-90, dated September 19, 1958; (m) "Municipal Finance Development Program" means the program to improve the efficient and effective financing of the operations of the Borrower's municipal and regional administrations, agreed between the Borrower and the Bank, as the same may be revised from time to time in accordance with the provisions of Section 3.02 of this Agreement; (n) "Dinar" means the currency of the Borrower; and (o) "Category" means a category of items to be financed out of the proceeds of the Loan, as set forth in the table in para- graph 1 of Schedule 1 to this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of seventy-five million dollars ($75,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in the Central Bank on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1999 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period Page 4 ending on the date immediately preceding each date specified in Section 2.06 of this Agree- ment, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and ex- pressed as a percentage per annum, of the out- standing borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. (iii) "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months' notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) `Quarter' means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section 2.06. Interest and other charges shall be payable semiannually on May 1 and November 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Other Covenants Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end shall carry out or cause to be carried out the Project with due diligence and efficiency and in conformity with appropriate administrative and financial practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without limitation upon the provisions of paragraph (a) of this Section, and except as the Borrower and the Bank shall otherwise agree, the Borrower shall carry out or cause to be carried out the Project in accordance with the Implementation Program set forth in Schedule 5 to this Agreement. Section 3.02. Without limitation upon the provisions of Section 3.01, the Borrower shall: (a) implement the Municipal Finance Development Program with Page 5 due diligence and efficiency and at all times take all necessary action to achieve the objectives thereof; (b) prepare and furnish to the Bank not later than Decem- ber 31, in each of its fiscal years, a report in form and substance satisfactory to the Bank, on the progress achieved in the carrying out of the Municipal Finance Development Program and the measures recommended to further such progress; and (c) thereafter, update the Municipal Finance Development Program and implement the measures required to ensure the achieve- ment of the objectives thereof, taking into consideration the recommendations of the report referred to in paragraph (b) of this Section and the Bank's comments thereon. Section 3.03. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (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, 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 records and accounts and the audit thereof 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 Borrower shall: (i) maintain or cause to be maintained, in accor- dance with paragraph (a) of this Section, re- cords and accounts reflecting such expenditures; (ii) retain, 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 or payment out of the Special Account was made, all records (contracts, orders, in- voices, 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 in- cluded in the annual audit referred to in para- graph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expen- diture submitted during such fiscal year, to- gether with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Page 6 Remedies of the Bank Section 4.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional events are specified: (a) MDA shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that MDA will be able to perform its obligations under the Project Agreement. (c) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of MDA or for the suspension of its operations. (d) The Charter or the Operational Guidelines shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or the financial condition of MDA or the ability of MDA to perform any of its obligations under the Project Agreement. Section 4.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) The event specified in paragraph (a) of Section 4.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and MDA. (b) Any event specified in paragraph (c) or (d) of Section 4.01 of this Agreement shall occur. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the Subsidiary Financing Agreements have been executed on behalf of the Borrower and MDA; (b) the training directorate referred to in paragraph 1 (c) of Schedule 5 to this Agreement has been established and the Director and other staff of said Directorate have been appointed, all in accordance with the provisions of said paragraph; (c) the Operational Guidelines have been adopted by MDA; and (d) the management team referred to in Section 2.02 (b) of the Project Agreement has been appointed to MDA in accordance with the provisions of said Section. Section 5.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly authorized or ratified by MDA, and is legally binding upon MDA in accordance with its terms; and (b) that the Subsidiary Financing Agreements have been duly authorized or ratified by, and are legally binding upon, the Borrower and MDA in accordance with their respective terms. Section 5.03. The date one hundred twenty (120) days after the date of this Agreement is hereby specified for the purposes of Page 7 Section 12.04 of the General Conditions. ARTICLE VI Representatives of the Borrower; Addresses Section 6.01. The Minister of Planning and Regional Develop- ment of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Planning and Regional Development Place Ali Zouaoui Tunis Republic of Tunisia Cable address: Telex: MIPLAN 15117 Tunis 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 248423 (RCA), Washington, D.C. 82987 (FTCC), 64145 (WUI) or 197688 (TRT) 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. REPUBLIC OF TUNISIA By /s/ Ismail Khelil Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Caio K. Koch-Weser Regional Vice President Middle East and North Africa Region SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the Page 8 amounts of the Loan to each Category and the percentage of expendi- tures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Goods: (a) for Part A 800,000) of the ) 100% of foreign Project ) expenditures and ) 80% of local (b) for Part B 200,000) expenditures of the ) Project ) (2) Consultants' ser- vices, fellowships and training: (a) for Part A 1,600,000) of the ) Project ) ) 100% (b) for Part B 400,000) of the ) Project ) Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (3) Works, goods and services (a) for Part C (1) 12,000,000 45% (a) of the Project (b) for Part C (1) 44,000,000 45% (b) of the Project (c) for Part C (2) 12,000,000 60% of the Project (4) Unallocated 4,000,000 TOTAL 75,000,000 ========== 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) a Sub-loan or a Grant unless the Sub-loan or Grant, as the case may be, has been made in accordance with the procedures and on the terms and conditions set forth or referred to in the Schedule Page 9 to the Project Agreement; and (b) payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed $7,500,000, may be made on account of payments made for expenditures before that date but after November 7, 1991. SCHEDULE 2 Description of the Project The objectives of the Project are to assist in (1) improving the efficiency of the Borrower's municipal and regional administra- tions, and (2) furthering the development of infrastructure and provision of services in the Borrower's municipalities. The Project consists of the following Parts, subject to such modifications thereof as the Bank and the Borrower may agree upon from time to time to achieve such objectives: Part A: Carrying out of a program to strengthen the management and operations of the Borrower's Ministries of Interior and of Finance, and of the Borrower's regional and municipal administrations, including (1) the carrying out of studies to develop efficient and effective systems for the mobilization and allocation of budgetary resources for said administrations and for the recovery of the investment costs incurred by said administrations, (2) the carrying out of studies to develop suitable systems and procedures for said Ministries and administrations in respect of investment planning and management, and (3) the development and implementation of a training program to strengthen the professional capabilities of the staff of said Ministries and administrations, including the establishment of a training directorate within said Ministry of Interior; and provision of equipment and vehicles required for said program. Part B: Carrying out of a program to strengthen the organization, management and operations of MDA in respect of the evaluation, financing and supervision of municipal development projects, including, inter alia, the introduction of a suitable accounting system, the implementation of a training program for the staff of MDA and the provision of equipment and vehicles required therefor. Part C: Financing, through MDA, of specific development projects to: (1) construct, upgrade, rehabilitate and maintain the infrastruc- ture, including streets, parks, drainage systems, street lighting, water supply and sewerage systems and solid waste collection, disposal and treatment systems, in existing (a) low-income neighbor- hoods and (b) other neighborhoods; and (2) construct market and other municipal facilities. * * * The Project is expected to be completed by June 30, 1999. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each May 1 and November 1 beginning November 1, 1997 through May 1, 2009 3,125,000 Page 10 _____________________________ * The figure in this column represents the dollar equivalent determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.18 before maturity More than three years but 0.35 not more than six years before maturity More than six years but 0.65 not more than 11 years before maturity More than 11 years but not 0.88 more than 15 years before maturity More than 15 years before 1.00 maturity SCHEDULE 4 Procurement and Consultants' Services 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 the Borrower's territory 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 Local Competitive Bidding Procedures 1. Civil works estimated to cost the equivalent of $3,000,000 or less per contract, and goods estimated to cost the equivalent of $1,000,000 or less per contract, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank. Page 11 Local Shopping 2. Works and goods estimated to cost the equivalent of $100,000 or less per contract may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. Direct Contracting 3. Works estimated to cost the equivalent of $50,000 or less per contract, up to an aggregate amount not to exceed the equivalent of $3,000,000, may be procured through direct negotiations with the suppliers thereof, in accordance with procedures satisfactory to the Bank. Part D: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to (i) the first two contracts for works procured in accordance with the provisions of paragraph 1 of Part C of this Section, and thereafter, each contract for works estimated to cost the equivalent of $1,000,000 or more, and (ii) each contract procured in accordance with the provisions of Part A of this Section, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank prior to the making of the first payment out of the Special Account in respect of such contract. (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 contract are to be made out of the Special Account, said procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 6 to this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Loan Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants Consultants' services shall be procured under contracts awarded to consultants: (A) whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank; and (B) who shall be selected in accordance with principles and procedures satisfactory to the Bank 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 5 Implementation Program The provisions of this Schedule shall apply for the purposes of Section 3.01 (b) of this Agreement. General Page 12 1. (a) The Borrower shall maintain at all times throughout the period of Project implementation, an inter-ministerial consultative committee, whose terms of reference and membership shall be satisfactory to the Bank. Said committee shall be responsible for the oversight of the Project and shall meet at least once every calendar year. (b) The Borrower shall maintain at all times throughout the period of Project implementation a Project coordinator, with terms of reference and qualifications and experience satisfactory to the Bank, who shall report to the Borrower's Minister of Interior and be responsible for the day-to-day coordination of Project imple- mentation, and in particular, for the coordination of the carrying out of the studies included in Part A of the Project. (c) The Borrower shall establish and thereafter maintain at all times throughout the period of Project implementation and under terms of reference satisfactory to the Bank, a training directorate, within the General Directorate for Municipalities of the Borrower's Ministry of Interior. Said directorate shall be responsible for coordinating the carrying out of the training program included in Part A of the Project and shall be headed by a Director who shall be assisted by two staff-persons, all with qualifications and experi- ence satisfactory to the Bank. 2. Procurement of the goods and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. 3. The Borrower shall: (a) prepare and furnish to the Bank, not later than December 31 of each calendar year, for its review and comments, the proposed program of training and of studies to be carried out under Part A of the Project during the next following calendar year, including proposed terms of reference for said studies; and (b) thereafter carry out such program of training and of studies as shall have been agreed with the Bank. Parts B and C of the Project 4. The Borrower shall (a) relend to MDA the proceeds of the Loan allocated from time to time to Category (3) to MDA under a subsid- iary loan agreement to be entered into between the Borrower and MDA, and (b) make available to MDA the proceeds of the Loan allocated from time to time to Categories (1) (b) and (2) (b) on a grant basis, under a subsidiary grant agreement to be entered into between the Borrower and MDA, in both cases, under terms and conditions which shall have been approved by the Bank and which, in the case of the Subsidiary Loan Agreement, shall include those set forth in the Annex to this Schedule. 5. The Borrower shall: (a) cause MDA to perform in accordance with the provisions of the Project Agreement all the obligations of MDA therein set forth, take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable MDA to perform such obligations, and not take or permit to be taken any action which would prevent or interfere with such performance; and (b) exercise its rights under the Subsidiary Financing Agreements in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, not assign, amend, abrogate or waive the Subsidiary Financing Agreements or any provision thereof. 6. Without limitation upon the provisions of paragraph 5 of this Schedule, the Borrower shall, so long as it exercises control over the setting of interest rates charged by MDA, establish a structure and levels of such interest rates which would enable MDA to comply with its obligations under Sections 3.04, 3.05 and 3.07 of the Project Agreement. 7. The Bank and the Borrower hereby agree that the obligations set Page 13 forth in Sections 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 and maintenance, respectively) in respect of Parts B and C of the Project shall be carried out by MDA pursuant to paragraph 2 of the Schedule to the Project Agreement. ANNEX TO SCHEDULE 5 Terms and Conditions of the Subsidiary Loan Agreement The provisions of this Annex shall apply for the purposes of paragraph 4 of Schedule 5 to this Agreement. 1. The principal amount of the Subsidiary Loan shall be the equivalent of the aggregate amount of the principal of all Sub-loans and all Grants made to Beneficiaries. 2. The Subsidiary Loan shall be charged, on the principal amount thereof withdrawn and outstanding from time to time, interest, at the rate applicable to the Loan, as provided in Section 2.05 of this Agreement, on the date on which the Subsidiary Loan Agreement is signed. 3. The Subsidiary Loan shall be repaid to the Borrower over a period of seventeen (17) years, inclusive of a grace period of five (5) years. SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2), and (3); and (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for Investment Projects and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement, provided, however, that notwithstanding the provisions of paragraph 2 (b) of Schedule 1 to this Agreement, payments for expenditures to be financed out of the proceeds of Sub-loans and Grants made pursuant to Part B.3 (c) of the Annex to the Schedule to the Project Agreement, may be made out of the Special Account before the Bank shall have authorized withdrawals from the Loan Account in respect thereof. Such expenditures, however, shall qualify as eligible expenditures only if the Bank shall subsequently authorize such withdrawals; and (c) the term "Authorized Allocation" means an amount equivalent to $3,000,000 to be withdrawn from the Loan Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Page 14 Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such inter- vals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank 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 Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any Page 15 amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.