Sri Lanka - Dairy Development Project : Credit 0504 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 504 CE Development Credit Agreement (Dairy Development Project) BETWEEN SRI LANKA AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED AUGUST 9, 1974 CONFORMED COPY CREDIT NUMBER 504 CE Development Credit Agreement (Dairy Development Project) BETWEEN SRI LANKA AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED AUGUST 9, 1974 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated August 9, 1974, between SRI LANKA (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, 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) "Central Bank" means the Central Bank established under the Monetary Law Act No. 58 of 1949, as amended, of the Borrower; (b) "BC" means the Bank of Ceylon established under the Bank of Ceylon's Ordinance No. 53 of 1938 of the Borrower; (c) "PB" means the People's Bank established under the People's Bank Act No. 29 of 1961 of the Borrower; (d) "NMB" means the National Milk Board established under the Milk Board Act No. 12 of 1954 of the Borrower as amended by the Milk Board (Amendment) Acts No. 28 of 1955, No. 9 of 1957 and No. 18 of 1964; (e) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower, BC and PB pursuant to Section 3 J(a)(ii) of this Agreement, as the same may be amended from time to time, and such term includes all schedules thereto; (f) "Project Area" means the area comprising the Coconut Triangle and Mid Country. 4 (g) "PTU" means the project technical unit referred to in Section 3.06 of this Agreement; (h) "Project Account" means the account to be established by the Borrower in the Central Bank pursuant to Section 3.02(a)(i) of this Agreement; (i) "Sub-loar" means a loan made or proposed to be made by BC or PB in accordance with this Agreement; (j) "CRB's" means the Cooperative Rural Banks established under the Cooperative Societies Law No. 5 of 1.972 of the Borrower; (k) "MPCS" means the Multipurpose Cooperative Societies established under the Cooperative Societies Law No. 5 of 1972 of the Borrower; and (1) "DCS" means the Dairy Cooperative Societies established under the Cooperative Societies Law No. 5 of 1972 of the Borrower. ARTILLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equivalent to nine million dollars ($9,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time, 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. Section 2.03. Except as the Association shall otherwise agree, contracts for the purchase of goods, the carrying out of works or services (other than consultants' services) for the Project and to be financed out of the proceeds of the Credit, shall be awarded in accordance with the provisions of Schedule 3 to this Agreement. Imb 5 Section 2.04. The Closing Date shall be December 31, 1980 or such other date as shall be agreed between the Borrower and the Association. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semi-annually on June 1 and December I in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each June I and December 1 commencing December 1, 1984, and ending June 1, 2024, each installment to and including the installment payable on June 1, 1994 to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2,08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out and shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, economic, engineering and agricultural practices, and shall provide promptly as needed, the funds, facilities and other resources required for the purpose. Section 3.02. (a) The Borrower shall: (i) (A) establish and maintain in the Central Bank a special project account to be used exclusively for the Project; (B) credit to said ,,ccount: (1) the proceeds of the Credit; (2) any other payments made by the Borrower pursuant to Section 3.01 of this Agreement; and (3) any payments received from BC or PB under the Subsidiary Loan Agreement provided for herein below; and (C) debit said account for any payments made to BC and PB under said Subsidiary Loan Agreement and any expenditures under Parts C and D of the Project. 6 (ii) enter into a subsidiary loan agreement with BC and PB, on terms and conditions which shall have been agreed with the Association, including, inter alia, the principal terms and conditions set forth in Schedule 4 to this Agreement, whereby the Borrower shall undertake to refinance through the Central Bank: (A) 90% of Sub-loans under Part A of the Project made by BC to farmers and by PB to CRB's to refinance Sub-loans made by them to farmers under the Project; (B) credits under Part B(1) of the Project made by BC to NMB; and (C) 90% of Sub-loans under Part B(2) of the Project made by PB to MPCS and DCS. (b) The Borrower shall exercise its rights under the Subsidiary Loan Agreement, in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree the Borrower shall not assign nor amend, suspend, terminate, abrogate or waive the Subsidiary Loan Agreement or any provisions thereof. Section 3.03. The Borrower shall cause all lending under Parts A and B of the Project to be made in accordance with the lending policies and procedures set forth in Schedule 4 to this Agreement. Section 3.04. (a) The Borrower shall cause NMB to carry out a study, tinder terms of reference which shall have been agreed with the Association, of milk collection and transport in the Project Area and shall furnish to the Association, as soon as they become available, the findings of said study. (b) The Borrower shall cause NMB to employ, in consultation with the Association and not later than sixty days after the Effective Date, or such other date as shall be agreed with the Association, qualified milk collection and transport consultants in order to assist NMB in the carrying out of the study referred to in Sub-section (a) above. (c) The Borrower shall cause NMB to prepare, on the basis of the study referred to in Sub-section (a) above, and furnish to the Association for its approval, the specifications for the milk storage and transport facilities provided under Part B of the Project and a list of the sites proposed for the installation of said storage facilities. Section 3.05. For the purposes of overall coordination and supervision in the carrying out of the Project, the Borrower shall establish, within its Ministry 7 of Planning and Economic Affairs, a project committee, under terms of reference which shall have been prepared in consultation with the Association, which shall include representatives of the Central Bank and of the Borrower's Ministry of Agriculture and Ministry of Finance and representatives of the Commissioner of Cooperatives, of BC, of PB and of NMB. Section 3.06. (a) For the purposes of the execution of the on-farm development under Part A of the Project and the procurement of livestock thereunder, and of the carrying out of Part D of the Project, the Borrower shall establish, within the Animal Production and Health Division of its Ministry of Agriculture and under terms of reference which shall have been prepared in consultation with the Association, a project technical unit. (b) The Borrower shall cause PTU to be at all times headed by a competent project director. The project director shall have such qualifications and experience as shall be satisfactory to the Borrower and the Association and shall be made directly responsible to the Deputy Director of Agriculture in charge of the Animal Production and Health Division. (c) The Borrower shall appoint to the staff of PTU, upon terms and conditions satisfactory to the Association, a technical director, acceptable to the Association, who shall be experienced in dairy development and management of pastures under tropical conditions. (d) The Borrower shall not later than six months after the date of this Agreement, appoint to the staff of PTU, upon terms and conditions satisfactory to the Association: (i) a livestock specialist acceptable to the Association; and (ii) a tropical crops and pasture specialist acceptable to the Association. Section 3.07. (a) The Borrower shall cause BC, PB and NMB to insure, or make adequate provision for the insurance of, the imported goods, including livestock, to be financed out of the proceeds of the Credit against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by BC, PB and NMB, respectively, to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section 3.08. (a) The Borrower shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications 8 thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain, or cause to be maintained, records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish, or cause to be furnished, to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall, or shall cause NMB to, keep milk procurement prices continually under review and adjust said prices when necessary in light of said review to ensure that production incentives for dairy farmers shall be maintained. The Borrower shall consult with the Association semi-annually on the suitability of production incentives for dairy farmers. (b) The Borrower shall take all measures necessary to ensure the financial viability of NMB and to enable NMB to realize, by the end of its fiscal year 1977, or such other date as shall be agreed by the Borrower and the Association, and maintain a rate of return of 8%, or such other rate as shall be agreed by the Borrower and the Association, on NMB's total capital employed. For the purpose of this Section: (i) The rate of return shall be calculated on the basis of a ratio the numerator of which is NMB's operating income for the respective fiscal year and the denominator of which is NMB's total capital employed during the same period. (ii) The term "total capital employed" shall mean the sum of the following: (A) Fixed Assets (less depreciation) as valued from time to time in accordance with methods acceptable to the I 9 Borrower and the Association, to reflect material changes in price levels, currency valuation and similar factors; and (B) Net Working Capital, as determined from time to time in accordance with methods acceptable to the Borrower and the Association, up to, but not exceeding in total, one sixth, or such other proportion to be agreed to by the Association and the Borrower, of the total amount of operating cost (excluding depreciation, duties and taxes), incurred during the preceding twelve months; (iii) The term "operating income" shall mean the value of sales less operating costs (including depreciation and taxes but excluding interest on long-term debt) as recorded from time to time in the audited accounts of NMB. Section 4.02. (a) The Borrower shall maintain or cause to be maintained records adequate to reflect in accordance with consistently maintained sound accounting practices the operations, resources and expenditures, in respect of Parts C and D of the Project, of the departments or agencies of the Borrower responsible for carrying out Parts C and D of the Project or any part thereof. (b) The Borrower shall cause BC, PB, NMB, MPCS and DCS, respectively, to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of BC, PB, NMB, MPCS and DCS, respectively. Section 4.03. (a) The Borrower shall, or shall cause the Central Bank to, establish and maintain within the Project Account separate accounts for each of Parts A, B, C and D of the Project, respectively. (b) The Borrower shall, or shall cause the Central Bank to: (i) prepare and furnish to the Association quarterly reports in respect of the separate accounts referred to in sub-section (a) hereof within thirty days after the end of each quarter; (ii) have the Project Account for each fiscal year audited, in accordance with sound auditing principles consistently applied by independent auditors acceptable to the Association; (iii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of the Project Account 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 (iv) furnish to the Association such other information concerning the Project Account and the audit thereof as the Association shall from time to time reasonably request. 10 (c) The Borrower shall cause NMB to: (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 sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of its 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 NMB and the audit thereof as the Association shall from time to time reasonably request. Section 4.04. The Borrower shall cause BC and PB to: (i) maintain separate accounts of their respective lending operations under the Project; (ii) have said accounts and related financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound auditing principles consistently applied by independent auditors acceptable to the Association; (iii) furnish to the Association as soon as available, but in any case not later than six months after the end of such year: (A) certified copies of their 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 (iv) furnish to the Association such other information concerning said accounts and financial statements and the audit thereof as the Association shall from time to time request. Section 4.05. The Borrower shall cause BC, PB, NMB, MPCS and DCS to take out and maintain with responsible insurers, or to make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 4.06. The Borrower shall cause to be established in the Project Area, not later than December 31, 1974, or such other date as shall be agreed with the Association, about ninety branches of BC and about one hundred CRB's and shall thereafter take all necessary measures to ensure that additional CRB's and branches of BC shall be established in the Project Area by MPCS and BC, respectively, promptly as needed for the carrying out of Part A of the Project. Section 4.07. The Borrower shall cause NMB to appoint to its staff a competent finance manager who shall have such qualifications and experience as shall be satisfactory to the Borrower and the Association. IN 11 ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) BC or PB shall have failed to perform any covenant, agreement or obligation of BC or PB respectively under the Subsidiary Loan Agreement; (b) the People's Bank Act, the Bank of Ceylon Act and the Milk Board Act of the Borrower referred to in Section 1.02 of this Agreement shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of PB, BC, or NMB, respectively, to carry out the Project; and (c) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of BC, PB or NMB, respectively, or for the suspension of their respective operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (a) or (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 Association to the Borrower; and (b) any event specified in paragraph (c) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01(b) of the General Conditions: (a) the execution and delivery of the Subsidiary Loan Agreement on behalf of the Borrower, BC and PB, respectively, have been duly authorized or ratified by all necessary corporate and governmental action; 12 (b) the Borrower shall have furnished to the Association acceptable forms of the proposed lending agreements between: (i) BC and farmers; (ii) PB and CRB's; (iii) CRB's and farmers; (iv) PB and MPCS; (v) PB and DCS; and (vi) BC and NMB; (c) the project committee referred to in Section 3.05 of this Agreement has been established pursuant to the provisions thereof; (d) the PTU referred to in Section 3.06(a) of this Agreement has been established pursuant to the provisions thereof, and the project director referred to in Section 3.06(b) of this Agreement has been appointed pursuant to the provisions thereof; (e) the technical director referred to in Section 3.06(c) of this Agreement has been appointed pursuant to the provisions thereof; and (f) the finance manager referred to in Section 4.07 of this Agreement has been appointed pursuant to the provisions thereof. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02(b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower, BC and PB, respectively, and is legally binding upon the Borrower, BC and PB in accordance with its terms. Section 6.03. The date December 10, 1974 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.04. The obligations of the Borrower under Sections 3.08(b), 4.01, 4.02, 4.03(b) and (c), 4.05 and 4.07 of this Agreement and the provisions of paragraph (c) of Section 5.01 of this Agreement and those of paragraph (b) of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date fifteen years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Secretary of the Ministry of Planning and Economic Affairs of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. 13 Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: The Secretary Ministry of Planning and Economic Affairs Colombo Sri Lanka Cable address: SECMINPLAN Colombo For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. 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. SRI LANKA By /s/ N.T.D. Kanakaratne Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / William Diamond Director, South Asia Country Programs Department 14 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 Dollar Equivalent) to be Financed 1. Imported live- 1,430,000 100% of foreign stock under expenditures Part A of the Project II. Milk storage 550,000 100% of foreign and an expenditures equipment and mobile testing units under Part B(1) of the Project III. Sub-loans under 3,875,000 90% of amounts Part A of the disbursed under Project other Sub-loans than for imported livestock IV. Sub-loans under 100,000 90% of amounts Part B(2) of the disbursed under Project Sub-loans V. Management, technical services and pilot units (1) Pilot unit opera- 1,160,000 100% of foreign tions, special- expenditures and ists' services 80o of local ex- and PTU admini- penditures stration costs under Parts C and D of the Project (2) Vehicles for 125,000 100% of foreign PTU under expenditures Part C of the Project Vt. Unallocated 1,760,000 TOTAL 9,000,000 Sbw 90% ofamount 15 2. For the purposes of this Schedule the term "foreign expenditures" means expenditures for goods or services supplied from, the territory, and in the currency, of any country other than the Borrower. 3. The disbursement percentages have been calculated in compliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if any event occurs which shall affect the amount of any such taxes included in the cost of any item to be financed out of the proceeds of the Credit, the Association may, by notice to the Borrower, correspondingly adjust the disbursement percentage then applicable to such item. 4. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of expenditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph I above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category to the extent required to meet the estimated shortfall proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. 16 SCHEDULE 2 Description of the Project The Project consists of the following Parts: Part A The provisions of sub-loans to farmers for the purchase of livestock and for on-farm development of: (i) about 800 farms of approximately 5 to 10 acres each and about 400 farms of approximately 40 to 50 acres each in the Coconut Triangle; (ii) about 1,000 farms of approximately 5 to 10 acres each and about 200 farms of approximately 40 to 50 acres in the Mid Country; and (iii) such other numbers of farms in such other areas as may be agreed upon between the Borrower and the Association from time to time. Part B 1. The provision of credit to NMB for the purchase and installation of equipment for the expansion and improvement of milk collection and transport services of NMB. 2. The provision of sub-loans to MPCS and DCS for the construction or improvement of facilities to house milk collection equipment. Part C The provision of specialists' services and the establishment of a technical unit within the Ministry of Agriculture of the Borrower to execute Parts A and D hereof. Part D 1. The establishment of a pilot calf-rearing unit near Peradeniya with a capacity of 500 heifer calves per year. 2. The establishment of a pilot unit to develop pasture management systems for dairy production in the Dry Zone. The Project is expected to be completed by December 1979. 17 SCHEDULE 3 Procurement A. General Procedures 1. Contracts for milk storage and transport equipment and mobile testing units shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Contracts for the purchase of imported dairy heifers under Category I of paragraph 1 of Schedule I to this Agreement shall be let by inviting quotations from at least three countries free from foot-and-mouth disease, to be selected in agreement with the Association. All purchases under said Category I shall be subject to the approval of the Association as regards age, price, quality, source and suitability. 3. Procurement of heifers locally under Category III of paragraph I of Schedule I to this Agreement and contracts for goods other than those mentioned or referred to in Parts A.1, A.2 and A.4 hereof shall be in accordance with the Borrower's procurement procedures. 4. Contracts for vehicles under Category V(2) of paragraph I of Schedule 1 to this Agreement shall be let on the following basis: (i) bids shall be obtained from local suppliers; and (ii) the contract shall be let to the bidder whose bid is the lowest evaluated bid. 5. Civil works under Part B(2) of the Project shall be ca-ried out by MPCS and DCS by force account or under contracts to be negotiated with domestic contractors. B. Review of Procurement Decisions by the Association Review of invitation to bid and of proposed awards and final contracts with respect to the equipment referred to in Part A.1 of this Schedule: 18 1. With respect to all contracts for such equipment estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and the reasons for the intended award and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Credit and not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. IO 19 SCHEDULE 4 Lending Policies and Procedures I. Investments to be Financed 1. Sub-loans under Part A of the Project shall be granted to finance the acquisition of dairy cattle, land clearing, pasture establishment, construction of buildings to raise cattle and store animal feed, erection of fences, procurement and installation of small dairy equipment, and construction of water supply facilities. 2. Under Part B(l) of the Project credit shall be provided to NMB for the purchase of storage tanks and chilling units for about 70 new milk collection centers, two mobile testing units and about 15 bulk milk tank trucks. 3. Under Part B(2) of the Project Sub-loans shall be provided to MPCS and DCS for the construction or improvement of about fifty facilities to house the milk collection equipment to be provided under Part B(1) of the Project. 11. Lending Terms A. Except as the Borrower and the Association shall otherwise agree, the following lending terms and conditions shall be used in implementing the Project: (1) Lending Terms - the Borrower to BC and PB (a) Term: 12 years including a three-year grace period (b) Interest: 6% per annum on outstanding balance (c) Repayments to be in installments set to coincide with scheduled collections of sub-loans made by BC and PB (2) Lending Terms - BC or CRB's to Farmers (a) Term: 12 years including a three-year grace period (b) Int-rest: 10% per annum on outstanding balance (c) Sub-loans shall be made to finance not more than 90% of the total cost of the proposed investment exclusive of pasture development subsidies. The balance of the cost shall be provided in cash or in kind by the borrowing farmer. 20 (3) Lending Ten-ns - BC to NMB (a) Term: 10 years including a three-year grace period (b) Interest: 8% per annum on outstanding balance (4) Lending Terms - PB to CRB's (a) Term: 12 years including a three-year grace period (b) Interest: 7-1/2% per annum on outstanding balance (c) Repayments to be in installments set to coincide with scheduled collection of sub-loans made by CRB's to farmers. (5) Lending Terms - PB to MPCS and DCS (a) Term: 12 years including a three-year grace period (b) Interest: 8% per annum on outstanding balance B. The interest rates specified under paragraph A above may be increased by agreement between the Borrower and the Association to reflect future increases in the interest rates charged by banking institutions in Sri Lanka on loans for agricultural purposes. 11I. Procedures for Processing Sub-loans to Farmers 1. PTU staff shall assist farmers in preparing farm plans and budget, appraise proposed investments, provide supervision during the carrying out thereof, and shall regularly, thereafter, provide consultation to farmers until sub-loans shall have been fully repaid. 2. All sub-loans to farmers shall be appraised in terms of incremental returns, and particular consideration shall be given to repayment capacity of the borrower. 3. Sub-loans shall be made only to such farmers who: (a) are in areas where satisfactory milk collection, storage and transport facilities shall exist; (b) are eligible for payment by the Borrower of the appropriate pasture development subsidy; and I 21 (c) have farm development plans approved by the PTU Technical Director (or his designated representative). 4. BC and CRB's shall accept PTU's approval as satisfactory evidence of the technical adequacy of farm development plans submitted to them for sub-loans, and shall base their approval of applications only upon applicants' creditworthiness.