Conformed Copy - L3616 - First Municipal Finance Project - Kingdom - Loan Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 3617 MOR Loan Agreement (First Municipal Finance Project - Communal Infrastructure Fund) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and COMMUNAL INFRASTRUCTURE FUND Dated June 14, 1993 LOAN NUMBER 3617 MOR LOAN AGREEMENT AGREEMENT, dated June 14, 1993, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and COMMUNAL INFRA- STRUCTURE FUND (the Borrower). WHEREAS (A) Kingdom of Morocco (the Guarantor) and the Borrower, having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, have requested the Bank to assist in the financing of the Project; (B) by an agreement (the Guarantee Agreement) of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations, as set forth in the Guarantee Agreement; and (C) the Bank has agreed to make a loan to the Guarantor to assist in the financing of activities related to the Project, upon the terms and conditions set forth in a loan agreement of even date herewith between the Guarantor and the Bank (the Kingdom Loan 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 Page 2 conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth in Schedule 7 to this Agreement (the General Conditions) 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) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (b) "Sub-loan" means a loan made or proposed to be made by the Borrower to a Beneficiary in part out of the proceeds of the Loan for a Development Project; (c) "Beneficiary" means (i) a provincial, prefectural or municipal administration of the Guarantor, (ii) a legally constituted association of such administrations or (iii) an entity owned or controlled by, or operating for the account or benefit of, any such administration, to which the Borrower proposes to make or has made a Sub-loan; (d) "Development Project" means a specific development project referred to in Part A of the Project to be carried out by a Beneficiary utilizing the proceeds of a Sub-loan; (e) "Statement of Policy" means the statement of lending and financial policies approved by the Directors of the Borrower on May 7, 1993, as the same may be amended from time to time; (f) "Charter" means the Guarantor's Law No. 31-90 promulgated by Dahir No. 1-92-5 dated August 5, 1992, and the Guarantor's Decree No. 2-90-351 dated December 14, 1992, pursuant to which the Borrower was reorganized and is operating, as the same may be amended from time to time; (g) "Fiscal Year" means the calendar year, commencing on January 1 and ending on December 31; (h) "Category" means a category of items to be financed out of the proceeds of the Loan, as set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (i) "Kingdom Loan Agreement" means the loan agreement of even date herewith between the Guarantor and the Bank for a First Municipal Finance Project (Loan No. MOR); (j) "Foreign Exchange Risk Coverage Scheme" means the scheme established pursuant to the Letter dated May 10, 1993 from the Guarantor's Ministry of Finance to the Borrower, for the protection of the Borrower against the risk of foreign exchange losses in respect of the Loan; and (k) "Regie Loans in Arrears" means all loans made by the Borrower to public utilities and other autonomous entities established by the Guarantor's municipal administrations pursuant to the Guarantor's Law No. 1-76-583 dated September 30, 1976 (as the same may be amended from time to time), in respect of which any payment of principal or interest shall not have been paid when due and shall, as at June 1, 1993, have remained unpaid for one year or more. Page 3 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 one hundred million dollars ($100,000,000), 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: (i) amounts paid (or, if the Bank shall so agree, to be paid) by the Borrower on account of withdrawals made by a Beneficiary under a Sub-loan to meet the reasonable cost of goods and services required for the Development Project under Part A of the Project in respect of which the withdrawal from the Loan Account is requested; and (ii) 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 Part B of 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 a special deposit account in a currency and in a financial institution, both acceptable to the Bank, on terms and conditions satisfactory to the Bank, 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 6 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1999 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor 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 and the Guarantor 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 ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, 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 expressed as a percentage per annum, of the outstanding 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. Page 4 (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 and the Guarantor 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 semi-annually on March 1 and September 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 Execution of the Project; Management and Operations of the Borrower 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 the Project and conduct its operations and affairs in accordance with sound financial standards and practices, with qualified management and personnel, and in accordance with the Charter and the Statement of Policy, and shall provide, promptly as needed, the funds, facilities, services, staff and other resources required for the purpose. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and the Borrower shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Schedule 5 to this Agreement. ARTICLE IV Financial Covenants Section 4.01. The Borrower shall maintain procedures and records adequate to monitor and record the progress of the Project and of each Development Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consis- tently maintained sound accounting practices the operations and financial condition of the Borrower. Section 4.02. (a) The Borrower shall: (i) have the records referred to in Section 4.01 of this Agreement, its accounts and financial statements (balance sheets, statements of income and expenses and related statements) and records Page 5 and accounts for the Special Account for each Fiscal Year audited in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case, in respect of the financial statements for Fiscal Year 1992, not later than September 30, 1993, and in respect of the financial statements for each Fiscal Year thereafter, not later than six months after the end of such year, (A) certified copies of said financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the said records, accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request. (b) 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, in accordance with Section 4.01 of this Agreement, records 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 was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (a) 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 4.03. The Borrower shall take such steps, satisfactory to the Bank, as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including the currency of the Guarantor) used in its operations. Section 4.04. The Borrower shall at all times apply policies and procedures, satisfactory to the Bank, for the allocation of adequate amounts to provisions for losses on loans made by the Borrower in accordance with sound accounting and financial practices. Section 4.05. (a) Except as the Bank shall otherwise agree, the Borrower shall earn, for each of the following Fiscal Years, the following annual return, represented as a percentage of the average current net value of the Borrower's total assets: 1994: 0.5% 1995: 0.8% 1996: 1.0% 1997 and each Fiscal Year thereafter: 1.2%. Page 6 (b) Before June 30 in each Fiscal Year, the Borrower shall, on the basis of forecasts prepared by the Borrower and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) of this Section in respect of such year and the next following Fiscal Year and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that the Borrower would not meet the requirements set forth in paragraph (a) of this Section for the Fiscal Years covered by such review, the Borrower shall promptly take all necessary measures (including, without limitation, adjust- ments of the structure or levels of its interest rates and other financial charges) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing the Borrower's income for the Fiscal Year in question by one half of the sum of the current net value of the Borrower's total assets at the beginning and at the end of that Fiscal Year. (ii) The term "income" means total operating revenues less operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations, including interest revenues and revenues from other financial charges. (iv) The term "operating expenses" means all expenses related to operations, including interest and other charges on debt, administration, adequate maintenance, taxes and payments in lieu of taxes (other than income taxes), and provisions for depreciation, amortization and loan losses, each on a basis acceptable to the Bank. (v) The term "current net value of the Borrower's total assets" means the gross value of the Borrower's total assets, including cash, securities, outstanding loan balances, fixed assets and intangible assets, less the amount of accumulated depreciation, the amount of accumu- lated amortization and the amount allocated to provide for loan losses, all as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Bank. Section 4.06. (a) Except as the Bank shall otherwise agree, the Borrower shall maintain, for each Fiscal Year after Fiscal Year 1994, a ratio of total administrative expenses to average net value of total assets not higher than 0.75%. (b) Before June 30 in each Fiscal Year, the Borrower shall, on the basis of forecasts prepared by the Borrower and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) of this Section in respect of such year and the next following Fiscal Year, and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that the Borrower would not meet the requirements set forth in paragraph (a) of this Section for the Fiscal Years covered by such review, the Borrower shall promptly take all necessary measures in order to meet such requirements. (d) For the purposes of this Section; (i) The ratio of total administrative expenses to average net value of total assets shall be calculated by dividing the Borrower's total Page 7 administrative expenses for the Fiscal Year in question by one half of the sum of the current net value of the Borrower's total assets at the beginning and at the end of that Fiscal Year. (ii) The term "total administrative expenses" means all expenses related to administration. (iii) The term "current net value of the Borrower's total assets" means the gross value of the Borrower's total assets, including cash, securities, outstanding loan balances, fixed assets and intangible assets, less the amount of accumulated depreciation, the amount of accumu- lated amortization and the amount allocated to provide for loan losses, all as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Bank. Section 4.07. (a) Except as the Bank shall otherwise agree, the Borrower shall maintain a ratio of debt to equity not higher than 15 to 1 during each of Fiscal Year 1993, Fiscal Year 1994, Fiscal Year 1995 and Fiscal Year 1996, and not higher than 12 to 1 during Fiscal Year 1997 and each Fiscal Year thereafter. (b) Before June 30 in each Fiscal Year, the Borrower shall, on the basis of forecasts prepared by the Borrower and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) of this Section in respect of such year and the next following Fiscal Year, and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that the Borrower would not meet the requirements set forth in paragraph (a) of this Section for the Fiscal Years covered by such review, the Borrower shall promptly take all necessary measures in order to meet such requirements. (d) For purposes of this Section: (i) The term "debt" means any indebtedness of the Borrower maturing by its terms more than one year after the date on which it is originally incurred. (ii) The term "equity" means the sum of the total unimpaired paid-in capital, retained earnings and reserves of the Borrower not allocated to cover liabilities. (iii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional events are specified: (a) The Charter or the Statement of Policy shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or the financial condition of the Borrower or its ability to perform any of its obligations Page 8 under this Agreement. (b) The Guarantor shall have failed to perform any of its obligations under the Kingdom Loan Agreement. (c) The Borrower shall have failed to maintain its participation in the Foreign Exchange Risk Coverage Scheme in accordance with the requirements thereof or the Guarantor shall have failed to maintain the Foreign Exchange Risk Coverage Scheme. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) Any event specified in paragraph (a) or paragraph (c) of Section 5.01 of this Agreement shall occur. (b) The event specified in paragraph (b) of Section 5.01 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. ARTICLE VI Effective Date; Termination Section 6.01. 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 Borrower has appointed the four divisional managers and the two environmental specialists referred to in sub-paragraphs 2 (a) (i) and 2 (b), respectively, of Part B of Schedule 5 to this Agreement, in accordance with the provisions of paragraph 1 of said Part B; (b) the municipal administrations of the Guarantor shall have assumed or guaranteed the Regie Loans in Arrears in their entirety, on terms and conditions satisfactory to the Bank; and (c) all conditions precedent to the effectiveness of the Kingdom Loan Agreement have been fulfilled. Section 6.02. 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 VII Representative of the Borrower; Addresses Section 7.01. The Chief Executive Officer of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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) Page 9 For the Borrower: Fonds d'Equipement Communal 1 rue Oued Beht Angle avenue Omar Ibn Al Khattab Agdal Rabat, Morocco Cable address:Telex: 36581 - FEC IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Rabat, Kingdom of Morocco, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Harinder Kohli Acting Regional Vice President Middle East and North Africa COMMUNAL INFRASTRUCTURE FUND By /s/ Driss Basri Authorized Representative 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 amounts of the Loan to each Category and the percentage of expenditures 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) Sub-loans 98,200,000 70% of amounts paid by the Borrower to a Beneficiary (2) Goods for 400,000 100% of foreign Part B of the expenditures, Project 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured locally (3) Consultants' 400,000 100% services and training for Part B of the Project Page 10 (4) Unallocated 1,000,000 ___________ TOTAL 100,000,000 =========== 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 Guarantor for goods or services supplied from the territory of any country other than that of the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) a Sub-loan unless the Sub-loan has been made in accordance with the procedures and on the terms and conditions set forth or referred to in the Annex to Schedule 5 to this Agreement; (b) payments made for expenditures prior to the date of this Agreement. SCHEDULE 2 Description of the Project The objectives of the Project are to assist in (1) improving the financial and operational efficiency of the Guarantor's provincial and municipal administrations and (2) furthering the development of infrastructure and provision of services in the Guarantor'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: Financing of specific development projects to construct, upgrade, rehabilitate, maintain and/or provide (1) water supply systems, (2) electrical power networks, (3) sewerage and wastewater disposal systems, (4) solid waste collection and disposal systems, (5) urban transport vehicles and facilities, (6) markets, slaughterhouses and recreational facilities and equipment, (7) street lighting systems, and (8) roads, bridges, drainage systems and related infrastructure, of Beneficiaries. Part B: Carrying out of a program to strengthen the organization, management and operations of the Borrower, including the carrying out of a training program for staff of the Borrower and the provision of equipment and vehicles required therefor. * * * The Project is expected to be completed by December 31, 1998. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* March 1, 1999 1,870,000 Page 11 September 1, 1999 1,940,000 March 1, 2000 2,010,000 September 1, 2000 2,085,000 March 1, 2001 2,165,000 September 1, 2001 2,245,000 March 1, 2002 2,325,000 September 1, 2002 2,415,000 March 1, 2003 2,505,000 September 1, 2003 2,595,000 March 1, 2004 2,695,000 September 1, 2004 2,795,000 March 1, 2005 2,895,000 September 1, 2005 3,005,000 March 1, 2006 3,115,000 September 1, 2006 3,230,000 March 1, 2007 3,350,000 September 1, 2007 3,475,000 March 1, 2008 3,605,000 September 1, 2008 3,740,000 March 1, 2009 3,880,000 September 1, 2009 4,020,000 March 1, 2010 4,170,000 September 1, 2010 4,325,000 March 1, 2011 4,485,000 September 1, 2011 4,655,000 March 1, 2012 4,825,000 September 1, 2012 5,005,000 March 1, 2013 5,190,000 September 1, 2013 5,385,000 _____________________________ * The figures in this column represent dollar equivalents 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 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity Page 12 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 1992 (the Guidelines). For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Bank, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. 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 Kingdom of Morocco 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 1. Goods estimated to cost the equivalent of $500,000 or less per contract, and works estimated to cost the equivalent of $2,000,000 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. Local Shopping 2. Goods and works estimated to cost the equivalent of $150,000 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. 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 each contract for goods estimated to cost the equivalent of $250,000 or more, and with respect to each contract for works estimated to cost the equivalent of $1,000,000 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 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 Page 13 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 are to be made on the basis of statements of expenditure. 3. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. 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 (the Consultant Guidelines). 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Bank review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to contracts estimated to cost less than $100,000 equivalent each. However, this exception to prior Bank review shall not apply to the terms of reference for such contracts or to the employment of individuals, single source selection of firms, assignments of a critical nature as reasonably determined by the Bank or amendments of contracts raising the contract value to $100,000 equivalent or above. SCHEDULE 5 Implementation Program For purposes of Section 3.01 (b) of this Agreement the Implementation Program shall consist of the following. A. Part A of the Project 1. The Borrower shall: (a) make Sub-loans to Beneficiaries for Development Projects on the basis of the terms and conditions set forth or referred to in the Annex to this Schedule; (b) exercise its rights in relation to each Development Project in such manner as to: (i) protect the interests of the Bank and the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project; and (c) coordinate and monitor the overall execution of Part A of the Project, appraise Development Projects and supervise the carrying out by the Beneficiaries of their respective Development Projects in accordance with policies and procedures satisfactory to the Bank. 2. The Borrower shall ensure that, except as the Bank and the Borrower shall otherwise agree, the aggregate amount of all Sub- loans made by the Borrower for any one Development Project shall not exceed the lesser of (a) the equivalent of $10,000,000 and (b) the total estimated cost (excluding the cost of land) of such Development Project, as such estimated cost shall be calculated in accordance with guidelines satisfactory to the Bank. B. Part B of the Project 1. Under Part B of the Project, the Borrower shall introduce a new organizational structure comprising, inter alia, five divisions, each with terms of reference, qualified and experienced staff and other resources satisfactory to the Bank and with responsibility, respectively, for: (a) appraisal of projects financed by the Borrower; (b) oversight of the execution of such projects; (c) financial management of the Borrower; (d) research; and (e) administration. Page 14 2. In order to ensure the proper functioning of the organi- zational structure referred to in paragraph 1 of Part B of this Schedule, the Borrower shall: (a) (i) initially appoint a manager to head each of the divisions with responsibilities referred to in sub-paragraphs 1 (a), (b), (c) and (e) of Part B of this Schedule and (ii) thereafter appoint the remaining managerial staff not later than September 30, 1993; and (b) implement an action plan acceptable to the Bank, for the recruitment and appointment of at least two qualified and experienced environmental specialists and an adequate number of qualified and experienced engineers and financial analysts. 3. Under Part B of the Project, the Borrower shall: (a) develop and introduce, not later than April 1, 1994, management information systems satisfactory to the Bank; and (b) prepare and furnish to the Bank, not later than April 1, 1994, for the Bank's review a proposed training program for its staff, and thereafter, promptly carry out such training program as shall have been agreed between the Bank and the Borrower. 4. Procurement of the goods and consultants' services required for Part B of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. ANNEX TO SCHEDULE 5 Terms and Conditions of Sub-loans Subject to the provisions of paragraph 2 of Part A of Schedule 5 to this Agreement, the principal terms and conditions set forth or referred to in this Schedule shall apply for the purposes of sub- paragraph 1 (a) of Part A of said Schedule 5. A. Terms. 1. Each Sub-loan shall: (a) have a maturity of not more than fifteen (15) years, including a grace period of not more than two (2) years; and (b) be made on other terms, including those relating to interest and other charges, which are in accordance with the Borrower's applicable policies and procedures pursuant to the Statement of Policy. 2. Each Sub-loan shall be made on further terms whereby the Borrower shall obtain, by written contract with the Beneficiary or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Borrower, including: (a) that each Beneficiary shall undertake to: (i) carry out and operate the Development Project with due diligence and effi- ciency and in accordance with (A) sound technical, financial and managerial standards and (B) appropriate safety, health and environ- mental standards satisfactory to the Bank, maintain adequate records, and provide, promptly as needed, the funds, facilities and other resources required for the purpose; (ii) procure the goods and services required for the Development Project in accordance with the provisions of Schedule 4 to this Agreement, and utilize such goods and services exclusively in the carrying out of the Development Project; (iii) enable the Bank and the Borrower to inspect such goods and the sites, works, plants and construction included in the Development Project, the operation thereof, and any relevant records and documents; (iv) take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, including, without limitation, such insurance to cover hazards incident to theacquisition, transportation and delivery of goods required for the Page 15 Development Project to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary to replace or repair such goods; and (v) prepare and furnish to the Borrower, for forwarding to the Bank, if so requested by the Bank, all such information as the Bank or the Borrower shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiary and to the benefits to be derived from the Development Project; and (b) provisions to ensure the right of the Borrower to suspend or terminate the right of the Beneficiary to the use of the proceeds of the Loan upon failure by such Beneficiary to perform its obligations under its contract with the Borrower providing for the Sub-loan. B. Conditions 1. Each Sub-loan shall be made only to a Beneficiary which shall have established to the satisfaction of the Borrower in accordance with the Statement of Policy and additional guidelines satisfactory to the Bank, that it: (A) is creditworthy and has a sound financial structure and (B) has the management, staff and other resources required for the efficient carrying out of the Development Project. 2. Each Sub-loan shall be made only for a Development Project which: (a) is determined to be technically feasible, financially viable and economically justified and involves no involuntary resettlement of individuals; and (b) is designed in accordance with appropriate safety, health and environmental standards satisfactory to the Bank; all as shall have been determined and calculated to the satisfaction of the Borrower on the basis of an appraisal, including an environmental impact assessment, carried out in accordance with the Statement of Policy and further guidelines satisfactory to the Bank. 3. No expenditures for goods or services required for a Development Project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan for such Development Project shall have been approved by the Bank and such expenditures shall have been made not earlier than one hundred-eighty days prior to the date on which the Bank shall have received the application and information required under sub-paragraph 4 (a) of Part B of this Annex in respect of such Sub-loan; or (b) the Sub-loan for such Development Project shall have been a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account and such expenditures shall have been made not earlier than one hundred-eighty days prior to the date on which the Bank shall have received the request and information required under sub-paragraph 4 (b) of Part B of this Annex in respect of such free-limit Sub-loan. For the purposes of this Agreement, a free-limit Sub-loan shall be a Sub-loan (other than the first two Sub-loans to be made under each of Parts A (1), A (2), A (3), A (4), A (5), A (6), A (7) and A (8) of the Project) for a Development Project in an amount which shall not exceed the sum of $1,000,000 equivalent, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan or of any other loan, provided for in any outstanding loan agreement between the Bank and the Borrower or the Guarantor entered into before the date of this Agreement, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Development Project. 4. (a) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, the Borrower shall furnish to the Bank an application, in form satisfactory to the Bank, together with (i) a description of the Beneficiary and an appraisal of the Development Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the Page 16 proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Bank shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Loan Account in respect of a free-limit Sub-loan shall contain: (i) a summary description of the Beneficiary and the Development Project, including a description of the expen- ditures proposed to be financed out of the proceeds of the Loan, and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before December 31, 1996. SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2) and (3); (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 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 sub-paragraph 3 (b) of Part B of the Annex to Schedule 5 to this Agreement, payments for expenditures to be financed out of the proceeds of free limit Sub- loans 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 $6,000,000 to be withdrawn from the Loan Account and deposited in the Special Account pursuant to sub-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 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 intervals 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, Page 17 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 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. Page 18 SCHEDULE 7 Modifications of the General Conditions For purposes of this Agreement, the provisions of the General Conditions are modified as follows: (1) The last sentence of Section 3.02 is deleted. (2) 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." (3) The words "the Bank may, by notice to the Borrower and the Guarantor, terminate the right of the Borrower to make withdrawals with respect to such amount. Upon the giving of such notice, such amount of the Loan shall be cancelled" set forth at the end of Section 6.03 are deleted and the following is substituted therefor: "or (e) by the date specified in sub-paragraph 4 (c) of Part B of the Annex to Schedule 5 to the Loan Agreement, the Bank shall, in respect of any portion of the Loan: (i) have received no applications or requests permitted under sub- paragraphs (a) or (b) of said paragraph; or (ii) have denied any such applications or requests, the Bank may, by notice to the Borrower and the Guarantor, terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice, such amount or portion of the Loan shall be cancelled."