Zambia - Agricultural Marketing And Processing Infrastructure Project : Credit 2422 - Credit Agreement - Conformed

CREDIT NUMBER 2422 ZA Development Credit Agreement (Agricultural Marketing and Processing Infrastructure Project) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated f2fe-,pt42 , 1992 CREDIT NUMBE 2422 ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated fCir/w,A6/Oe A8 , 1992, between REPUBLIC OF ZAMBIA (the Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) and Schedules 1 through 5 constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Preparation Advance" means the project preparation advance granted by the Association to the Borrower pursuant to an exchange of letters dated March 2, 1987 and March 19, 1987 between the Borrower and the Association; (b) "Special Account" means the account referred to in Section 2.02 (b) and Schedule 5 of this Agreement; (c) "Revolving Fund Account" means Accounts to be opened for each one of the PCBs with the Bank of Zambia to finance sub-projects according to Part A of Schedule 2 to this Agreement; -2- (d) "Bank of Zambia" means the Central Bank of Zambia established pursuant to the Bank of Zambia Act of the laws of the Borrower; (e) "MLIC" means the Marketing and Logistics Information Center; (f) "Participating Commercial Bank" (PCB) means a commercial bank registered under the laws of the Borrower, which will borrow part of the proceeds of the Credit from the Borrower and relend such proceeds to sub-borrowers according to Part A of Schedule 2 to this Agreement; (g) "RRU" means the Rural Roads Unit; (h) "RDEP" means the Roads Department of the Borrower; (i) "Subsidiary Loan Agreement" means the loan agreement to be entered into pursuant to Section 3.02 of this Agreement between the Bank of Zambia and a PCB regulating the use of part of the proceeds of the Credit to be on-lent through sub-loans; (j) "Sub-loan" means a loan made, or proposed to be made, by a PCB to a sub-borrower for a sub-project which will be partly funded out of the proceeds of the Credit relent to the PCB under the respective Subsidiary Loan Agreement; (k) "Sub-Project" means activity of a sub-borrower qualifying under Part A of Schedule 2 to this Agreement; (1) "Sub-borrower" means any private enterprise or independent cooperative engaged in the business of distribution of agricultural inputs and crops, the final beneficiary under Part A of Schedule 2 to this Agreement; and (M) "ZABS" means the Zambia Bureau of Standards. ARTICLE II The Credit Secti7,n 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Development Credit Agreement, an amount in various currencies -3- equivalent to twenty four million one hundred thousand Special Drawing Rights (SDR 24,100,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in a commercial bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be June 30, 1999, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or caacelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year -4- shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on April 1 and October 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each April 1 and October 1 commencing October 1, 2002, and ending April 1, 2032.-at including the installment payable on April 1, 2012, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower credit-worthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due con- sideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. -5- (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of Imerica is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project 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 Parts B, C and D of the Project with due diligence and efficiency and in conformity with appropriate agricultural, marketing and infrastructure practices, and shall provide, promptly as needed, the funds, facilities, _____ -ser-vices-and- ether -resources-required- for- the -roject. -- ---------'---- (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out Parts B, C and D of the Project in accordance with the Implementation Program set forth in Schedule 4 to this Agreement. (c) Without limitation upon the provisions of paragraph (a) of this Section, the Borrower shall cause PCBs to carry out Part A of the Project in accordance with Schedule 4 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association. Section 3.02. (a) The Borrower shall relend the amount allocated to and withdrawn under Category (2) of Schedule 1 of this Agreement to PCBs for carrying out Part A of the Project, under Subsidiary Loan Agreements to be entered into between the Bank of Zambia on behalf of the Borrower and each PCB under terms and conditions which shall have been approved by the Association and which shall include: (i) the provisions of Part A, Schedule 4 to this Agreement; -6- (ii) repayment over five years after a ten year grace period at an interest rate equal to the Bank of Zambia discount rate prevailing at the time of payment or the rate being paid to the general public by PCBs on three month deposits, whichever is higher. The Borrower shall assume the foreign exchange risk; (iii) obligation of the PCB to use the principal of repaid Sub-Loans under the same conditions as governing the. first disbursements; and (iv) obligation of the PCB to actively solicit and evaluate sub-loan applications and to re-lend such repaid principal amounts; missing funds due to defaults to be substituted by the PCB out of their own funds. (b) The Bank of Zambia shall, on behalf of the Borrower, exercise its rights under the Subsidiary Loan Agreements in such a manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Project, as set forth in Schedule 2 to this Agreement, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreements or any provision thereof. Section 3.03. The Borrower shall take all appropriate measures to ensure that: (a) the PCBs make Sub-loans directly to Sub-borrowers for a Sub-Project under a Sub-Loan Agreement to be entered into between a PCB and a Sub-borrower under terms and conditions which shall have been approved by the Association and which shall be consistent with the provisions of Schedule 4 to this Agreement. (b) Sub-borrowers utilize the proceeds of the Credit for the purposes specified under Part A of the Project. Section 3.04. The Borrower shall relend the amount allocated to and withdrawn under Category (3) (a) of Schedule 1 of this Agreement to Market Associations, cooperatives or Maize Mills for carrying out Part D of the Project, under Technical Assistance Agreements to be entered into between the Borrower and each Marketing Association, Cooperative or Mill under terms and -7- conditions which shall have been approved by the Association and which shall include the provisions of Schedule 4 to this Agreement. Section 3.05. 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 this Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.06. In carrying out Parts B and C of the Project, the Borrower shall: (a) open and maintain one Project Account for each Part of the Project with the Bank of Zambia/a commercial bank; and (b) each quarter deposit into each account the funds allocated in the Budget of the Borrower and required for Project implementa- tion for the following quarter. Section 3.07. The Borrower shall: (a) not later than January 31, 1993, employ short-term consultants throughout Project implementation period to assist the Borrower in implementing the Monitoring and Evaluation Plan referred to above. (b) (i) not later than March 31, 1993, submit to the Association for its approval a Monitoring and Evaluation Plan for the Project, and (ii) thereafter implement said Monitoring and Evaluation Plan in accordance with the provisions of Schedule 4 to this Agreement. Section 3.08. The Borrower shall: (a) not later than June 30, 1994, submit to the Association for review and comments the results of the maize export study; and (b) thereafter implement the recom- mendations of said study taking into account the Association's views. Section 3.09. The Borrower shall, with effect from the 1993/94 marketing season until completion of the Project implement necessary measures to liberalize export marketing of maize under terms and conditions satisfactory to the Association. Section 3.10. The Borrower shall, not later than January 31, 1993, take all necessary measures to ensure that INDECO Group Mills are allowed to independently set prices for maize meal in relation to cost and prevailing market conditions. -8- Section 3.11. The Borrower shall, not later than October 31, 1992, take all measures to remove price controls on domestically produced white maize at all levels of the maize marketing system. Section 3.12. The Borrower shall, not later than June 30, 1995, carry out jointly with the Association a mid-term review of the progress of the Project and soon thereafter shall implement the recommendations of such review. The review shall: (a) highlight progress made in achieving key performance indicators described in Schedule 4 to this Agreement; and (b) develop guidelines for the preparation of a follow-up project. ARTICLE IV Financial Covenants Section 4.01. (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 Association; (ii) furnish to the Association, as soon as available, but in any case not later than nine months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said, records, accounts and the audit thereof as the Association shall from time to time reasonably request. -9- (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. The Borrower shall cause the PCBs to maintain separate accounts for expenditures under the Project and to: (i) have these accounts and financial statements for each financial 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 nine months after the end of each such year, (A) certified copies of 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of the PCB and the audit thereof as the Association shall from time to time reasonably request. - 10 - Section 4.03. Except as the Association may otherwise agree, the Borrower shall: (a) with effect from the third quarter of 1992 until completion of the Project carry out a quarterly review of domestic interest rates; (b) promptly thereafter submit to the Association for comments the results of said quarterly review; and (c) promptly implement the recommendations of said review taking into account the comments of the Association, provided however that the Borrower shall ensure that lending rates for sub-loans under the Project are positive in real terms at all times. For the purposes of this Section, the term "positive in real terms" means positive after adjusting for the domestic rate of inflation projected or actually experienced during a specified period. Section 4.04. Notwithstanding the provisions of Section 4.03 of this Agreement the Borrower shall, not later than December 31, 1993, take all measures necessary to decontrol interest rates at all levels. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions; namely, that the Borrower has submitted to the Association evidence satisfactory to the Association that progress satisfactory to the Association has been made in completing the outstanding audits for the following agricultural Projects: (i) Second Forestry Project (Credit 1437-ZA); (ii) Fisheries Project (credit 1529-ZA); and (iii) Agricultural Research and Extension Project (Credit 1746-ZA). Section 5.02. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representatives of the Borrower; Addresses Section 6.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. - 11 - Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance P.O. Box 50062 Lusaka, Zambia Cable address: Telex: MINFIN 42221 Lusaka 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) - 12 - 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 ZAMBIA By /4/ p4'.ow&iAl1K / ~ i Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By ~ A ~ o a V c Regional Vice President Africa - 13 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Civil Works for: 65% (a) Emergency 2,190,000 Road Repairs (b) Others 2,810,000 (2) Sub-loans for: 80% of Sub-loans (a) Vehicles, 3,000,000 Trailers and Equipment (b) Maize 3,650,000 (c) Fertilizers 2,780,000 (d) Equipment 150,000 for Farm Rehabilitation (3) Consultants' 100% Services for: (a) Maize 3,285,000 Marketing (b) Others 3,650,000 - 14 - Amount of the Credit Allocated % of (Expressed in Expenditures Cateciory SDR Equivalent) to be Financed (4) Training 1,015,000 100% (5) Refunding of 50,000 Amounts due pur- Project Prepara- suant to Section tion Advance 2.02 (c) of this Agreement (6) Unallocated 1,520,000 TOTAL 24,100,000 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement; (b) payments made for expenditures under Category 1 unless the Borrower has (i) established RRU and appointed an engineer in each PRE Office for the purpose of carrying Part B of the Project, (ii) opened Project Accounts referred to in Section 3.06 of this Agreement and has submitted to the Association evidence, satis- factory to the Association that the initial quarterly deposit has been made into each such account, (iii) submitted to the Association a rural roads policy statement satisfactory to the Association for the roads rehabilitation and maintenance program, and (iv) submitted to the Association a detailed program budget for the first year of Project implementation; (c) payments made for expenditures under Category 2 for any PCB unless the Borrower has submitted to the Association (i) a signed Subsidiary Loan Agreement acceptable to the Association entered into between the Bank of Zambia on behalf of the Borrower and the respective PCB, and (ii) evidence that the particular PCB has met the qualifications referred to in Schedule 4 to this Agreement; and - 15 - (d) payments made for expenditures under Category 3 for any Marketing Association, Cooperative or Mill unless the Borrower has submitted to the Association (i) a signed Technical Assistance Agreement, acceptable to the Association entered into between the Borrower and the respective Marketing Association, Cooperative or Mill, (ii) evidence that amendments satisfactory to the Association to the Agricultural Marketing Act 1989 have been enacted, and (iii) evidence satisfactory to the Association that cooperatives will be allowed to operate without government interference. - 16 - SCHEDULE 2 Description of the Project The objectives of the Project are to: (a) support the Borrower in implementing economic reforms in the agricultural sector by improving the infrastructure for agricultural marketing and processing; (b) stimulate the development of the private sector in marketing, rural transportation and agroprocessing; (c) increase rural employment and income opportunities for the rural poor; and (d) improve access to credit by smallholder farmers, including women and private enterprises in the rural areas. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Credit for the Private Sector 1. Provision of agricultural credit to the private sector for investment and working capital through the PCB's for the: (a) purchase of maize from the producers and fertilizer and other agricultural inputs from suppliers; (b) acquisition of capital goods (vehicles, tractors, trailers, weighing scales, hammer mills and road construction equipment) used in maize marketing, fertilizer distribution and rural road rehabilitation; and (c) rehabilitation on a pilot basis, of about 20,000 hectares of underutilized or abandoned commercial farms. Part B: Rural Roads 1. Rehabilitation of rural roads in Central, Lusaka and Southern Provinces. 2. Strengthening the capacity of the Department of Roads (RDEP) in rural road maintenance through the provision of equipment, a materials and technical assistance and the establishment of a Rural Roads Unit in each of the three aforementioned provinces, attached to the Provincial Roads Engineer. - 17 - Part C: Market Development and Monitoring 1. Strengthening the capacity of the Marketing and Logistics Information Center in collection and dissemination of information on crop marketing to the private sector through staff training and provision of vehicles and computers. 2. Improving the capacity of ZABS in establishing quality standards, and grading for agricultural products, certifying agricultural products for marketing and monitoring compliance with these standards through the provision of laboratory equipment, vehicles and staff training in sampling techniques and analysis. Part D: Managerial Assistance to the Private Sector 1. Strengthening the capacity of the agricultural private enterprises and independent cooperatives in management, finance, agriculture marketing and in the preparation and implementation of business plans. The Project is expected to be completed by December 31, 1998. - 18 - SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part B hereof, goods 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: Other Procurement Procedures 1. Civil works for the rehabilitation and maintenance of rural roads, up to an aggregate amount equivalent to $8,000,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Contracts for goods for Part A of the Project may be procured on the basis of the normal procurement procedures of the purchasers of such goods, taking into account the provisions of paragraph 5 of Schedule 4 to this Agreement. Part C: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed, awards and final contracts: (a) With respect to each contract for civil works estimated to cost the equivalent of $100,000 or more, 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 confozmed copies of the contract required to be furnish, d to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association 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 - 19 - 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 together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 5 to this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit 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 In order to assist the Borrower in carrying out the Project, the Borrower shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association 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. - 20 - SCHEDULE 4 Implementation Program A. Part A of the Project In carrying out Part A of the Project: 1. PCBs shall advance (a) working capital sub-loans to enter- prises for the purchase of maize from farmers, fertilizers and other agricultural inputs from importers, and/or wholesale dealerships, (b) investment capital sub-loans to enterprises for the purchase of capital items required for maize marketing, fertilizer or other agricultural inputs distribution, rural road maintenance and for rehabilitation of commercial farms. 2. PCBs shall enter into Sub-Loan Agreements with Sub-borrowers. Such Agreements shall include the following terms and conditions: (a) Interest rates on sub-loans shall be set at a rate that would allow the PCB to earn a spread of at least 4% above the Bank of Zambia discount rate, or the three month savings deposit rate paid to the public by PCB, whichever is higher. (b) The sub-loan period shall not exceed one year for working capital and three years for investment capital. (c) PCBs shall apply their normal evaluation procedures in making such sub-loans. (d) The sub-loan shall cover not more than 80% of the Sub- Project cost. (e) Sub-loans made out of the proceeds of the Credit shall be incremental to the PCB's normal lending in agriculture. 3. (a) The Bank of Zambia shall open and maintain a Revolving Fund Account for each PCB in which approved Subsidiary Loan amounts will be deposited, and out of which approved Sub-loans will be financed. The initial deposits into the Revolving Fund Accounts for working capital Sub-loans shall be based on projections prepared by each PCB of expected disbursements for the first three months of Project implementation. After that, replenishment will be made quarterly based on actual disbursements made by a PCB in the preceding quarters. - 21 - (b) Repayments of Sub-loans shall be deposited into the Revolving Fund Account and may be drawn again by the PCB. 4. Any commercial bank may qualify as PCBs if it meets the following criteria: (a) in the opinion of the Association, such bank is financially sound and well-managed; (b) the bank haa up-to-date audit reports satisfactory to the Association; (c) the bank has well established commercial lending practices and operating policies; (d) the bank must be currently involved and has experience in lending to agriculture or agribusiness sectors. The bank should have at least 15% of its lending portfolio in the agriculture or agribusiness sectors; and (e) the bank has a branch network within and outside the Project area that would allow it to target beneficiaries. 5. Goods to be financed out of the proceeds of Sub-loans shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts thereof. B. Part B of the Project 6. In carrying out Part B of the Project the Borrower shall establish direct-labor maintenance training unit comprising of two industrial tractors, two towed graders, two tipping trailers, ancillary compaction equipment and hand tools. C. Part D of the Project 7. (a) In carrying out Part D of the Project the Borrower shall provide technical assistance packages to commercially viable private enterprises, independent cooperatives and mills involved in the marketing of maize, fertilizer or other agricultural inputs. The technical assistance team shall consist of (i) a general manager, (ii) a financial manager, and (iii) a marketing manager or any one of them. - 22 - (b) In order to qualify for the technical assistance package, the enterprise or cooperative shall meet the following criteria (i) must not be a multinational or a subsidiary of a multinational company, (ii) must be viable or potentially viable, and (iii) must be financially solvent. (C) The technical assistance team shall work with the management team of each enterprise to develop a comprehensive commercial business plan. 8. The Borrower shall enter into a Technical Assistance Agreement with each Marketing Association or cooperative or maize mill for financing technical assistance under terms and conditions which shall have been approved by the Association, including repayment over five years with two years grace period and no interest. Monitoring and Evaluation 9. In order to assist the Borrower to carry out the obligations under Section 3.07 of this Agreement, the Borrower shall establish a Project Implementation Unit (PIU) whose membership and terms of reference shall be satisfactory to the Association. The PIU shall monitor and evaluate the physical and financial progress of the Project. Monitoring and Evaluation shall be done as follows: (a) For Part A of the Project: The Monitoring and Evaluation system will: (i) evaluate the impact of Sub-loans on private sector participation in marketing and rural transportation; (ii) assess recovery rates achieved by PCBs; (iii) identify constraints faced by PCBs in sub-loan delivery and recovery and suggest remedial measures; (iv) identify constraints faced by potential beneficiaries in gaining access to sub-loans from PCBs; and - 23 - (v) assess the extent to which PCBs are recycling the Credit proceeds within the agricultural sector. (b) Each PCB shall submit semi-annual reports to the PIU which will include: (i) the number, type, and account of sub-loans granted; (ii) the number and amount of sub-loans disbursements made; (iii) sub-loan repayments from sub-borrowers; and (iv) the amounts of overdue sub-loans and their aging. (c) For Part B of the Project: The Monitoring and Evaluation System will focus on: (i) the criteria adopted for selecting roads for rehabilitation; (ii) the number of contractors selected annually for implementing civil works under the Project; (iii) funds allocated by the Borrower for road rehabilitation; (iv) length of roads rehabilitated annually under the emergency road repairs and labor-based rehabi- litation program; (v) number of labor-based contractors trained each year; and (vi) output of type of road (gravel/earth) performed by each contractor each year. Mid-Term Review 10. The review referred to in Section 3.12 of this Agreement shall inter alia, cover the following: - 24 - (a) For Part A of the Project: Performance of PCBs: (i) reasonably fast application procedures; (ii) satisfactory sub-loan policing; (iii) acceptable repayment results; (iv) acceptable direct-risk participation of PCB; and (v) satisfactory roll-over of funds in the Revolving Fund Account. Sub-Proiects (i) satisfactory spread of information concerning availability of sub-loans; (ii) size of sub-loans adequate to sustain economically viable sub-projects; (iii) identification of bottlenecks remaining in the transportation of agricultural inputs and crops with reasons and proposals on how they can be overcome; (iv) procurement procedures; and (v) women's access to sub-loans. (b) For Part B of the Project: (i) specific bottlenecks abolished; (ii) lessons to be learned from this pilot rehabilitation project for the country-wide rural roads rehabilitation component under the proposed Roads Engineering Credit (REC) of the Association; (iii) interface of Part B of the Project with the above-mentioned REC clarified; - 25 - (iv) labor-intensive road maintenance and rehabilitation teams installed; (v) existing local contractors trained to guarantee consistency of maintenance; (vi) adequate technical assistance dispensed to target groups to assure survival of private contractor's business; (vii) Rural Road Unit established and working; and (viii) improvement in the Department of Roads' (RDEP) capacity to assure road maintenance. (c) Part C of the Project: (i) improvement of MLIC's administration and its own logistics; - satisfactory staff working capacity; - sufficient equipment; - adequate data-collection logistics; and - adequate data-dissemination systems and procedures; (ii) satisfactory arrangements for leasing public storage facilities; (iii) recer.ion of MLIC's information in target groups; (iv) improvement of ZABS's working environment: - satisfactory staff working capacity; - well maintained laboratory equipment in sufficient quality and quantity; and - satisfactory sampling techniques and logistics; - 26 - (v) usefulness of standards established; (vi) development of quality standards according to an established procedure under way; (vii) monitoring of compliance with established standards; (d) For Part D of the Proiect: (i) technical assistance procedures set up satis- factorily; (ii) target group effectively reached; and (iii) quality improvement in target group ascertain- able. - 27 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of The proceeds of this Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $500,000 to be withdrawn from the Credit Account and deposited into 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 Association 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 Association 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 Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into 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 Association requests for deposits into the Special Account at such intervals as the Association shall specify. - 28 - (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association 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 Association shall, on behalf of the Borrower, withdraw from the Credit 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 Association from the Credit 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 Association shall reasonably request, furnish to the Association 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 Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit 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 Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association 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 Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall - 29 - specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association 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 Association 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 Association, the Borrower shall, promptly upon notice from the Association (A) provide such additional evidence as the Association may request, or (B) deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association 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 Association shall have determined at any time that any 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 Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraph 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. FOR SECRETARY