Paraguay - Second Rural Development Project : Loan 1418 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1418 PA Project Agreement (Second Rural Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE FOMENTO Dated May 18, 1977 PROJECT AGREEMENT AGREEMENT, dated May 18, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DE FOMENTO (hereinafter called BNF). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of Paraguay (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-two million dol- lars ($22,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that BNF agree to undertake such obligations toward the Bank as hereinafter set forth; (B) part of the proceeds of the Loan provided for under the Loan Agreement will be made available to BNF on the terms and conditions therein set forth; and WHEREAS BNF, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of Part V of the Project Section 2.01. BNF shall carry out Part V of the Project described in Schedule 2 to the Loan Agreement with due diligence and efficiency and in conformity with appropriate administrative and financial policies and practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. - 2 - Section 2.02. BNF shall relend the funds lent to it by the Borrower under the Subsidiary Loan Agreement to Beneficiaries under Sub-loans on terms and conditions satisfactory to the Bank, including those set forth in Schedule 1 to this Agreement. Section 2.03. (a) BNF shall make Sub-loans on terms whereby BNF shall obtain, by written contract with the Beneficiary or by other appropriate legal means, rights adequate to protect the interests of the Bank, the Borrower and BNF, including in the case of any such Sub-loan, the right of BNF to: (i) require the Beneficiary to carry out and operate the Farm Development Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards, and to maintain adequate records; (ii) require that (1) the goods and services to be financed out of the Subsidiary Loan shall be purchased through regular commercial channels, 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 therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (2) such goods and services shall be used exclusively in the carrying out of the Farm Development Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construction included in the Farm Development Project, the operation thereof, and any relevant records and documents; (iv) obtain all such information as the Bank, the Borrower, or BNF shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiary; and (v) suspend or terminate the right of the Beneficiary to the use of the proceeds of the Sub-loan upon failure of such Beneficiary to perform its obLigations under its contract with BNF; (b) BNF shall exercise its rights in relation to each Sub-loan in such manner as to: (i) protect the interests of the Bank, the Borrower and BNF; and (ii) achieve the purposes of the Project. Section 2.04. BNF shall assign an adequate number of its loan officers to the Project Area, initially not less than 2 to Sub- project Area A and not less than 6 to Sub-project Area B; all such loan officers to reside in the Project Area; and the number thereof to be increased as and when needed for the efficient carrying out of Part V of the Project; it being estimated that at -3- the final stage of execution of the Project, 14 loan officers will be required for Sub-Project Area B. Section 2.05. BNF shall: (a) not later than August 31, 1977, establish an office in the area of Capitgn Meza; (b) establish such other offices in the Project Area as shall be required to carry out Part V of the Project; and (c) provide such offices with adequate staff and facilities. Section 2.06. BNF: (i) shall maintain records adequate to record the progress of Part V of the Project (including the cost thereof) and to identify the goods and services financed out of the funds relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall, enable the Bank's represen,tatives to examine the goods financed out of such funds and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning Part V of the Project, the expenditure of the funds so relent to it and the goods and services financed out of such proceeds. Section 2.07. In order to assist BNF in carrying out Part V of the Project, BNF shall utilize, as and when needed for purposes of such part of the Project, the services of the farm management expert referred to in Section 3.02 (b) of the Loan Agreement. Section 2.08. BNF shall ensure that Farm Development Projects are carried out with due regard to ecological and environmental factors. Section 2.09. BNF shall make Sub-loans to Beneficiaries who have received the certificates referred to in Section 3.10 (b) of the Loan Agreement, provided that any such Beneficiary undertakes to mortgage his land to BNF to secure the Sub-loan, at the time he receives the corresponding title to his land. Section 2.10. BNF shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, BNF shall not change or fail to enforce any provision of the Subsidiary Loan Agreement. Section 2.11. (a) BNF shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part V -4- of the Project, the performance of its obligations uader this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) BNF shall promptly inform the Bank of any condition which interferes or threatens to interfere with, the progress of Part V of the Project, the accomplishment of the purposes of the Loan, or the performance by BNF of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of BNF Section 3.01. BNF shall conduct its business and operations in accordance with appropriate financial and administrative practices and under the supervision of competent and experienced management. Section 3.02. BNF shall, not later than December 31, 1977, or such later date as the Bank shall agree, establish and thereafter maintain a financial management, programming and budgeting unit. Section 3.03. BNF shall carry out the Debt Recovery Plan. Section 3.04. BNF shall take such action as shall be required to reduce its operating costs so as to obtain that said costs during 1978 and each year thereafter will not exceed 5.4% of the average of its outstanding loans during the corresponding year, or such other ratio as the Bank and BNF may agree in the light of the recommendations of the studies included in the Technical Assistance Program and its conclusions. For purposes of this Section, Technical Assistance Program has the meaning defined in Section 1.02 (j) of the Loan Agreement (Industrial Credit Project between the Borrower and the Bank, dated May 18, 1977). ARTICLE IV Financial Covenants; Amendment of First Project Agreement Section 4.01. BNF shall maintain records adequate to record the progress of Part V of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting practices, operations and financial condition. Section 4.02. BNF shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its 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 accounts and financial statements of BNF and the audit thereof as the Bank shall from time to time reasonably request. Section 4.03. Except as the Bank shall otherwise agree, BNF shall maintain a liquidity ratio of not less than 1.1:1. As used in this Section "liquidity ratio" means the ratio of assets recoverable within twelve months to liabilities to be met within such twelve months but excluding short term financing from Banco Central. Section 4.04. BNF shall take all action required on its part to increase its authorized capital for purposes of Section 3.09 of the Loan Agreement. Section 4.05. Starting on September 1, 1977, BNF shall charge such rates of interest and other financial charges on its loans made through its Development and Agriculture and Livestock Departments as shall be required to obtain an average yield of not less than 13% per annum on the principal amount of such loans outstanding from time to time. Section 4.06. The Project Agreement (Small Farmers' Credit and Rural Development Project) dated September 6, 1974, between the Association and BNF (hereinafter called the First Project Agreement) is hereby amended by the deletion of Sections 3.03 and 4.05 and the replacement thereof by Sections 3.03, 4.03, 4.07 and 4.08 of this Agreement. Section 4.07. Except as the Bank shall otherwise agree, BNF shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain at all times its debt/equity ratio within the limits referred to in Section 4.08 of this Agreement; and (ii) if the applicable limits shall, for reasons beyond BNF's control, be exceeded, promptly take all such reasonable action as - 6 - shall be necessary or advisable to bring such ratio within such limit. Section 4.08. Except as shall be otherwise agreed between the Bank and BNF, BNF shall not incur any debt if, after the incurring of such debt, the debt of BNF then incurred and outstanding would be greater than eight times the unimpaired paid-up capital, surplus and free reserves of BNF. For the purposes of this Section: (a) "debt" means any debt incurred by BNF; (b) debt shall be deemed to be incurred: (i) under a loan contract or agreement (including the Subsidiary Loan Agreement) on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement, and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding; (c) whenever in connection with this Section it shall be necessary to value in terms of Guaranies debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by BNF for the purposes of servicing such debt; and (d) "unimpaired paid-up capital, surplus and free reserves" means the aggregate of the total unimpaired paid-up capital, plus the unallocated surplus plus free reservas of BNF less such amounts as shall represent provisions for probable losses on the outstanding amount of all loans made or guarantees given by BNF, as shall have been determined by BNF to be adequate to cover such losses in accordance with sound business and financial practices, less an amount equal to the amount registered in the account maintained by BNF pursuant to article 12 of Decree-Law No. 281/61 of the Borrower. ARTICLE V Effective Date; Termination Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. - 7 - Section 5.02. This Agreement and all obligations of the Bank and of BNF thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For BNF: Banco Nacional de Fomento Independencia Nacional y Cerro Cord Asunci6n, Paraguay Cable address: Telex: PYTYBO 138 PY BANFO Asunci6n - 8 - Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of BNF may be taken or executed by the President or such other person or persons as the President shall designate in writing. Section 6.03. BNF shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of BNF, take any action or execute any documents required or permitted to be taken or executed by BNF pursuant to any provision of this Agreement. Section 6.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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, and the Association, acting through its duly authorized representative, has evidenced its agreement to the amendments of the First Project Agreement as provided in Section 4.06 of this Agreement. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Krieger Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE FOMENTO By /s/ Alberto Llanes Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ A. Krieger Regional Vice President Latin America and the Caribbean -9- SCHEDULE 1 Lending and Operating Policies and Procedures 1. Sub-loan Approval All Sub-loans shall be made with the approval of the Project Coordinator. 2. Farm Development Projects Any Sub-loan shall be made on the basis of a Farm Development Project. 3. Agricultural machinery: Tractors Any Sub-loan to finance a tractor shall be made only to a farmer capable of operating it and who will commit himself to use it to cultivate at least 40 hectares per year over a period of not less than 5 years. 4. Contribution of Beneficiaries Each Beneficiary shall contribute at least 10% (in cash or kind) to the total cost of a Farm Development Project. 5. Terms and Conditions of Sub-loans (a) The amount of a Sub-loan shall not exceed $50,000 equivalent, and the aggregate amount of Sub-loans made to any one Beneficiary shall not exceed $50,000 equivalent. (b) Interest and other charges on Sub-loans shall be such as to obtain a yield of at least thirteen per cent (13%) per annum on the outstanding principal. (c) Sub-loans shall be denominated and shall be repayable in Guaranies. (d) The repayment terms shall be within the limits set forth below: - lo - Maximum Maximum Term Type of Sub-loan Grace Period including grace period (years) (years) (1) on-farm 3 10 investment (ii) working 1 capital