Philippines - Industrial Investment And Smallholder Tree-Farmers Project : Loan 0998 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 998 PH Loan Agreement (Industrial Investment and Smallholder Tree-Farmers Project) BETWEEN REPUBLIC OF THE PHILIPPINES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JUNE 12, 1974 CONFORMED COPY LOAN NUMBER 998 PH Loan Agreement (Industrial Investment and Smallholder Tree-Farmers Project) BETWEEN REPUBLIC OF THE PHILIPPINES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JUNE 12, 1974 LOAN AGREEMENT AGREEMENT, dated June 12, 1974, between REPUBLIC OF THE PHILIPPINES (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) The Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) In carrying out the Project, the Borrower will relend the proceeds of the Loan to the Development Bank of the Philippines (hereinafter called DBP) under a Subsidiary Loan Agreement to be entered into between the Borrower and DBP; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the following modification thereof (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions): Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) by the date specified in paragraph (c) of Section 2.03 of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank 4 in respect of any portion of the Loan, or having been so received, shall have been denied, or (c) after the Closing Date an amount of the Loan shall remain unwithdrawn from the Loan Account, the Bank may by notice to the Borrower 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." 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) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and DBP pursuant to Section 3.02(a) of this Agreement; (b) "peso" means the currency unit of the Borrower and "foreign currency" means any currency other than the currency of the Borrower; (c) "Charter" means the Charter of DBP as provided in RA 2081, dated June 14, 1958, as amended to the date of this Agreement; (d) "Statement of Operating Policies and Procedures for Medium- and Large-Scale Industrial Financing" means the statement of financing policy for projects in the industrial sector approved by the Board of Governors of DBP on May 29, 1974; (e) "Part A Beneficiary" means an individual, partnership, cooperative, association or private corporation to which DBP proposes to make or has made a Part A Sub-loan; (f) "Part A Sub-loan" means a loaa under Part A of the Project, made or proposed to be made by DBP exclusively out of the proceeds of the Loan to a Part A Beneficiary to finance expenditures for imported goods and services for a Part A Investment Project; (g) "Free-limit Part A Sub-loan" means a Part A Sub-loan in an amount not exceeding the equivalent of $1,000,000, even when added to the outstanding amount of any other Part A Sub-loan made for the same Part A Investment Project; provided that any Part A Sub-loan which when added to all other Free-limit Part A Sub-loans financed or proposed to e financed out of the proceeds of the Loan 5 would exceed the equivalent of $20,000,000, shall not be a Free-limit Part A Sub-loan; and provided further that the foregoing amounts may be changed from time to time by agreement between the Borrower and the Bank; (h) "Part A Investment Project" means a specific investment project to be carried out by a Part A Beneficiary utilizing the proceeds of a Part A Sub-loan; (i) "Part B Beneficiary" means an individual, partnership, cooperative or association to which DBP proposes to rake or has made a Part B Sub-loan; (j) "Part B Sub-loan" means a loan in pesos under Part B of the Project, made or proposed to be made by DBP out of the proceeds of the Loan to a Part B Beneficiary to finance a Part B Investment Project; (k) "Part B Investment Project" means a specific tree-farming development project to be carried out by a Part B Beneficiary utilizing the proceeds of a Part B Sub-loan; and (1) "PICOP" means the Paper Industries Corporation of the Philippines, a corporation organized, established and operating under the laws of the Borrower, and such term includes any subsidiary thereof and any successor thereto. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to fifty million dollars ($50,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule shall be amended from time to time, for amounts disbursed (or, if the Bank shall so agree, amounts requested to be disbursed) under Part A or Part B Sub-loans, to finance the reasonable cost of goods and services required for Part A or Part B Investment Projects, respectively, and to be financed under the Loan Agreement; provided, however, that, except as the Bank shall otherwise agree, no withdrawal shall be made on account of the following: (a) expenditures in pesos or for goods or services supplied from the Philippines, in the case of a Part A Sub-loan; 6 (b) disbursements made under a Sub-loan prior to the date of this Agreement; (c) a Part A Sub-loan unless (i) the Part A Sub-loan shall have been approved by the Bank, or (ii) the Part A Sub-loan shall be a Free-limit Part A Sub-loan for which the Bank shall have authorized withdrawals from the Loan Account; and (d) expenditutes made by a Part A Beneficiary more than ninety days prior to the date on which the Bank shall have received (i) the request and information required by Section 2.03(b) hereof, in the case of a Free-limit Part A Sub-loan, or (ii) the application and information required by Section 2.03(a) hereof, in the case of any other Part A Sub-loan. Section 2.03. (a) When submitting a Part A Sub-loan (other than a Free-limit Part A Sub-loan) to the Bank for approval, the Borrower shall furnish or shall cause to be furnished to the Bank an application, in form satisfactory to the Bank, together with a description of the Part A Beneficiary and an appraisal of the Part A Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and the proposed terms and conditions of the Part A Sub-loan including the schedule of its amortization and 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 Part A Sub-loan shall contain a summary description of the Part A Beneficiary and the Part A Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and the terms and conditions of such Free-limit Part A Sub-loan, including the schedule of its amortization. (c) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (a) and (b) of this Section shall be submitted to the Bank on or before September 30, 1976. Section 2.04. The Closing Date shall be December 31, 1981 or such other date as shall be agreed between the Borrower and the Bank. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of seven and one-quarter per cent (7-1/4%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. * 7 Section 2.07. Interest and other charges shall be payable semi-annually on March I and September 1 in each year. Section 2.08. The Borrower shall repay the principal of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.09. The Secretary of Finance of the Borrower and such other person or persons as he shall appoint in writing are designated as authorized representatives of the Borrower for the purposes of Section 8.10 of the General Conditions. Section 2.10. DBP is designated as representative of the Borrower for the purpose of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE HI Execution of the Project Section 3.01. The Borrower shall cause the Project to be carried out by DBP in accordance with its Charter and with due diligence and efficiency, in conformity with sound administrative and financial practices, and with qualified management and personnel, and shall provide DBP, or cause DBP to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. (a) The Borrower shall relend to DBP the proceeds of the Loan under a Subsidiary Loan Agreement to be entered into between the Borrower and DBP, under terms and conditions acceptable to the Bank, including those set forth in paragraph 1 of Schedule 4 to this Agreement. (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 Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. (c) The Borrower shall take and shall cause all its agencies to take all action which shall be necessary on their part to enable DBP to perform all of its obligations under the Subsidiary Loan Agreement and shall not take or permit to be taken any action which might interfere with such performance. Section 3.03. Except as the Bank shall otherwise agree, the Borrower shall cause DBP: 8 (a) to on-lend the funds relent to it under the Subsidiary Loan Agrcement, for purposes of carrying out the Project, in accordance with the Lending Guidelines set forth in Schedule 4 to this Agreement, as such Schedule may be amended from time to time, and, with respect to Part A of the Project, in accordance also with DBP's Statement of Operating Policies and Procedures for Medium- and Large-Scale Industrial Financing; and (b) to exercise its rights under the agreements providing for Part A or Part B Sub-loans in such manner as: (i) to comply with the Borrower's obligation under this Agreement; and (ii) to achieve the purposes of the Project. Section 3.04. Except as the Bank shall otherwise agree, the Borrower shall cause DBP not to make any Part A Sub-loan in an amount exceeding the equivalent of $5,000,000 or in an amount which would exceed such limit when added to the outstanding principal amount of all other Part A Sub-loans made for the same Part A Investment Project. -Section 3.05. Except as the Bank shall otherwise agree, the Borrower shall cause DBP: (a) to use its best efforts to enter into a contract with PICOP for purposes of the carrying out of Part B of the Project, on terms and conditions which shall include those set forth in paragraph 4 of Schedule 4 to this Agreement; provided, however, that no Part B Sub-loan shall be made until DBP shall have entered into such contract with PICOP on terms and conditions satisfactory to the Bank; and (b) to exercise its rights under such contract in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and not to assign, amend, abrogate or waive any provision thereof. Section 3.06. The Borrower shall provide or shall cause DBP to provide to Part B Beneficiaries such technical assistance as shall be required to enable them to make adequate use of the proceeds of Part B Sub-loans. Section 3.07. The Borrower shall cause DBP to establish and maintain two separate accounts to record all and solely DBP's receipts and payments for or in connection with Part A and Part B of the Project, respectively, including: (i) amounts received from and payments made to the Borrower under the Subsidiary Loan Agreement; and (ii) amounts disbursed and received under Part A and Part B Sub-loans. Section 3.08. The Borrower shall cause DBP to furnish to the Bank all information the. Bank shall reasonably request concerning the administration, * 9 operations, resources and expenditures of DBP, including its lending activities in the industrial sector. ARTICLE IV Other Covenants Section 4.01. (a) It is the mutual intention of the Borrower and the Bank that no other external debt shall enjoy any priority over the Loan by way of a lien on governmental assets. (b) To that end the Borrower (i) represents that at the date of this Agreement no lien exists on any governmental assets as security for any external debt except as otherwise disclosed in writing by the Borrower to the Bank, and (ii) undertakes that, except as the Bank shall otherwise agree, if any such lien shall be created, it will ipso facto equally and ratably, and at no cost to the Bank, secure the payment of the principal of, and interest and other charges on, the Loan and in the creation of any such lien express provision will be made to that effect. The Borrower shall promptly inform the Bank of the creation of any such lien. (c) The foregoing representation and undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. As used in this Section, the term "governmental assets" means assets of the Borrower or of any agency of the Borrower including the Central Bank of the Philippines or any institution performing the functions of a central bank for the Borrower. (d) The Borrower further undertakes that, within the limits of the laws in force in its territories, it will make the foregoing undertaking effective with respect to liens on the assets of its political subdivisions and their agencies, and to the extent that the Borrower is unable within the limits of the laws in force in its territories to make this undertaking effective, the Borrower will give to the Bank an equivalent lien satisfactory to the Bank. Section 4.02. (a) The Borrower shall cause DBP to maintain records adequate (i) to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of DBP in respect of the Project, and (ii) 10 to reflect the progress and cost of the Project, including the progress and cost of each Part A Investment Project. (b) The Borrower shall cause DBP to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) including the accounts referred to in Section 3.07 hereof, for each fiscal year audited in accordance with sound auditing principles consistently applied, by the Commission on Audit of the Borrower; (ii) furnish to the Bank as soon as available, but in any case not later than three months after the end of each such year, (A) certified copies of DBP's financial statements for such year as so audited and (B) the report of such audit by said Commission on Audit, 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 DBP and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. The Bank may, upon the occurrence of any of the events specified in Section 6.02 or 7.01 of the General Conditions or in Section 5.02 or 5.03 of this Agreement and the continuance thereof for the period, if any, specified for the purpose: (i) suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account; or (ii) declare the principal of the Loan then outstanding to be due and payable immediately together with the interest and other charges thereon. Section 5.02. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) a default shall have occurred in the performance of any obligation on the part of the Borrower or of DBP under the Subsidiary Loan Agreement; (b) a change shall have been made in the Charter which will materially and adversely affect the carrying out of the Project; and (c) a change shall have been made in the Statement of Operating Policies and Procedures for Medium- and Large-Scale Industrial Financing without the Bank's concurrence. Section 5.03. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: 11 (a) any of the events specified, in paragraph (a) or (c) of Section 5.02 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower; (b) the event specified in paragraph (b) of Section 5.02 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Sectior :.0 1(c) of the General Conditions, namely, that the execution and delivery of the Sabsidiary Loan Agreement on behalf of the Borrower and DBP, respectively, have been duly authorized or ratified by all necessary corporate and governmental action. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02(c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and DBP, respectively, and constitutes a valid and binding obligation of the Borrower and DBP in accordance with its terms. Section 6.03. The date September 16, 1974, 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 Secretary of Finance 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 Borrower: Secretary of Finance Department of Finance Manila, Philippines 12 Cable address: SECFINANCE Manila For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. IN WITNESS WHEREOF, the farties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names and to be delivered in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF THE I"ILIPPINES By /s/ CesarVirata Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s / Raymond J. Goodman Acting Regional Vice President Asia 13 SCHEDULE I Allocation of the Proceeds of the Loan The table below sets forth the Categories of items to be financed out of the proceeds of the Loan and the allocation of the amounts of the Loan to each Category: Amount of the Loan Allocated (Expressed in Category Dollar Equivalent) I. Part A Sub- 48,000,000 loans II. Part B Sub- 2,000,000 loans TOTAL 50,000,000 14 SCHEDULE 2 Description of the Project The purpose of the Project is to assist the Borrower in financing, through DBP, specific development projects in the Philippines to contribute to the economic and social development of the country. Part A: Provision of credit to finance specific industrial development projects in the manufacturing, public utilities, mining and tourism sectors. Part B: Provision of credit to smallholders in the Bislig Bay area of Mindanao to assist them in developing their holdings for Albizia falcata tree crops. 15 SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* March 1, 1979 1,120,000 September 1, 1979 1,165,000 March 1, 1980 1,205,000 September 1, 1980 1,250,000 March 1, 1981 1,295,000 September 1, 1981 1,340,000 March 1, 1982 1,390,000 September 1, 1982 1,440,000 March 1, 1983 1,490,000 September 1, 1983 1,545,000 March 1, 1984 1,600,000 September 1, 1984 1,660,000 March 1, 1985 1,720,000 September 1, 1985 1 ,780,000 March 1, 1986 1,845,000 September 1, 1986 1,915,000 March 1, 1987 1,985,000 September 1, 1987 2,055,000 March 1, 1988 2,130,000 September 1, 1988 2,205,000 March 1, 1989 2,285,000 September 1, 1989 2,370,000 March 1, 1990 2,455,000 September 1, 1990 2,545,000 March 1, 1991 2,635,000 September 1, 1991 2,735,000 March 1, 1992 2,840,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 16 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05(b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1-1/4% More than three years but not more than six years before maturity 2% More than six years but not more than eleven years before maturity 3-1/2% More than eleven years but not more than fourteen years before maturity 5-1/4% More than fourteen years but not more than sixteen years before maturity 6-1/4% More than sixteen years before maturity 7-1/4% 17 SCHEDULE 4 Lending Guidelines 1. Subsidiary Loan (a) Exchange risk. The proceeds of the Loan allocated to finance Part A of the Project shall be on-lent by the Borrower to DBP in the currency or currencies in which withdrawals from the Loan Account shall be made in accordance with Section 4.01 of the General Conditions; i.e., the respective currencies in which the expenditures to be financed out of the proceeds of the Loan have been paid or are payable. DBP shall repay the principal so on-lent to it in the same currency or currencies in which such withdrawals were made, and the amount repayable in each currency shall be the amount withdrawn in that currency. The proceeds of the Loan allocated to finance Part B of the Project shall be on-lent by the Borrower to DBP in pesos, in an amount equivalent on the date of withdrawal to the amount withdrawn from the Loan Account for that purpose, and DBP shall repay as principal the same amount of pesos so on-lent to it. (b) Rate of interest. 7-1/4% per year on outstanding amounts, payable in the same currency as the corresponding portion of the principal. 2. Part A Sub-loans (a) Exchange risk. Part A Sub-loans shall be made in the foreign currency or currencies in which the expenditures to be financed have been paid or are payable, and the principal of such Sub-loans shall be repaid in the same currency or currencies in which they were made, and the amount repayable in each currency shall be the amount withdrawn in that currency. (b) Rate of interest. Part A Sub-loans shall carry interest at the current rate charged by DBP from time to time for other loans in the same sector under similar conditions, and shall be payable in the same currency of the corresponding portion of the principal. (c) Repayment terms. -Part A Sub-loans shall be repaid in not more than 16 years, including the grace period. (d) Other terms. Any Part A Sub-loan shall be made on terms whereby DBP shall obtain, by written contract with the Part A Beneficiary, or by other 18 appropriate legal means, rights adequate to protect the interests of the Bank, the Borrower and DBP, including the right of DBP to: (i) require the Part A Beneficiary to carry out and operate the Part A Investment 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 proceeds of the Loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts 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 Part A Investment 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 Part A Investment Project, the operation thereof, and any relevant records and documents; (iv) require: (1) the Part A Beneficiary to take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (2) that, without any limitation upon the foregoing, such insurance cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, and that any indemnity thereunder be payable in a currency freely usable by the Part A Beneficiary to replace or repair such goods; (v) obtain all such information as the Bank or DBP shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Part A Beneficiary; and (vi) suspend or terminate the right of the Part A Beneficiary to the use of the proceeds of the Loan upon its failure to perform any of its obligations under its contract with DBP. 3. Part B Sub-loans (a) Currency. Part B Sub-loans shall be made in pesos. (b) Rate of interest. Part B Sub-loans shall carry interest at the rate of 12% per year on outstanding amounts. (c) Term. Repayment in 15 years, including 8 years of grace. (d) Eligibility. Smallholders who: (i) have occupied at least 5 hectares of alienable and disposable land for at least 5 years, even if they do not have legal title to the land; (ii) have a signed marketing contract with PICOP; and (iii) would develop holdings within 100 km. of PICOP's mill at Bislig in eastern Mindanao. 19 (e) Beneficiary 's contribution. Part B Beneficiaries shall be required to contribute from their own resources (including their own labor) not less than 25% of the cost of each Part B Investment Project. 4. Contract between DBP and PICOP The terms and conditions of such contract shall include the following undertakings by PICOP: (a) to purchase all the wood production of Part B Sub-loan Beneficiaries; (b) to pay the prevailing market price, and in any case a minimum stumpage price of 15 pesos per cubic meter, for tree-farm pulpwood; (c) to review annually such minimum price, starting in the last quarter of 1975; and to revise it, if necessary, to ensure that the producers can obtain a reasonable return on their investment; (d) to provide tree seedlings to Part B Sub-loan Beneficiaries, as required by them to carry out their Part B Investment Project; (e) to provide Part B Sub-loan Beneficiaries with adequate technical assistance; and (f) to continue its program of insect prevention and control in the area where Part B of the Project will be carried out.