India - West Bengal Agricultural Development Project : Credit 0541 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 541 IN Project Agreement (West Bengal Agricultural Development Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION DATED APRIL 28, 1975 PROJECT AGREEMENT AGREEMENT, dated April 28, 1975, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and AGRICULTURAL REFINANCE CORPORATION (hereinafter called ARC). WHEREAS (A) by the Development Credit Agreement of even date herewith between India, acting by its President (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirty-four million dollars ($34,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition inter alia that ARC agrees to undertake such obligations toward the Association as hereinafter set forth; (B) by an agreement of even date herewith between the State of West Bengal, acting by its Governor (hereinafter called West Bengal) and the Association, West Bengal has agreed to undertake certain obligations in respect of the carrying out of the Project; (C) by a subsidiary loan agreement to be entered into between the Borrower and ARC, funds equivalent to part of the proceeds of the credit provided for under the Development Credit Agreement will be relent to ARC on the terms and conditions therein set forth; and (D) ARC in consideration of the Association's entering into the Development Credit 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 Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. 4 ARTICLE II Execution of the Project Section 2.01. ARC shall carry out Part A of the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial, agricultural and engineering practices. Section 2.02. Except as the Association shall otherwise agree, the goods, works and services (other than consultants' services) for the Project to be financed out of the proceeds of the Credit, shall be procured in accordance with the provisions set forth or referred to in Schedule 1 to the West Bengal Agreement. Section 2.03. (a) ARC shall promptly invite to participate in the Project LDB and the banks holding shares in ARC, on terms and conditions (including inter alia those set forth in Schedule I to this Agreement) satisfactory to the Association. (b) ARC shall enter into agreements with LDB and each bank responding to ARC's invitation on terms and conditions (including inter alia those set forth in Schedule 1 to this Agreement) satisfactory to the Association. (c) ARC shall: (i) require Participating Banks to implement such part of the Banking Plan as relates to the said banks; (ii) require Participating Banks to maintain separate accounts for Project lending; and (iii) ensure that the annual audited accounts of such banks are submitted to the Association within four months of the end of their fiscal year together with a statement of Project lending for such banks, certified by ARC. Section 2.04. (a) The lending terms and conditions for carrying out Part A of the Project shall be as set forth in Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower, ARC and the Association. (b) ARC shall not lend to any commercial bank under the Project unless such bank undertakes to: (i) offer short-term loans for current production inputs to farmers in the area served by deep-tubewells financed out of the proceeds of the Credit; and (ii) include the cost of water charges in such short-term loans to such farmers. (c) ARC shall not lend to any Participating Bank under the Project unless such Participating Bank undertakes to ensure that sub-loans for minor irrigation 5 shall be made only for investments meeting the technical criteria, satisfactory to ARC, to be established by the Water Board and, in addition, in respect of deep tubewells, shall meet the site selection criteria set forth in Schedule 2 to this Agreement. Section 2.05. (a) ARC shall ensure that all refinancing made available in any liscal year to LDB for lending through a branch of LDB or to a Primary Bank, as the case may be, be proportionate to the percentage of recovery of principal and interest on loans fallen due at the end of the preceding fiscal year of such branch of LDB or Primary Bank. The amount of refinancing so to be made available to LDB for lending through a branch of LDB or to a Priinmry Bank, shall be determined by applying to the aggregate of all debentures issued in the previouk 'iscal year of LDB for refinancing lending made through such branch, or issued by such Primary Bank, as the case may be, the percentage set forth in column (2) of the table below corresponding to the percentage of overdues of principal and interest on loans fallen due at the end of such fiscal year for such branch or Primary Bank set forth in column (1) below: ( 1) (2) Aaximnn dehentures Ovcrdlies to be issiued Of demand) of previous vear issui I 0 - 25 unrestricted 20 - 35 80 36 - 45 70 46 - 55 60 56 - 60 50 61 - 100 NIL In calculating the overducs for the purpose of this Section, ARC may take into account, until June 30, 1977 or such other date as the Association shall auree. :Jen cbh: eqIity paid in by West Bengal to reduce such overdues. provided that 7e ()Int ol such equity shall not exceed 10; of demand; t ARC shall withhold any further financing of LDB for lending through a bianch at Ll)B or to a Primary Bank, if, two years (or such other time as the ,\,so. i,iton may agree) after ARC has sanctioned the first Scheme to be financed under the Project through such branch or Primary Bank, LDB fails to recover 65'.: oI demand on loans made through such branch, or such Primary Bank fails to recover 6Y of demand, as the case may be, and, in the event that LDB, through -.il b)ranch, or such Primary Bank, has achieved a recovery rate of 65'. or more if demand. but less than 75%, West Bengal fails to pay in equity of LDB or Primary 6 Bank in an amount such that the recovery rate is brought to 75% of demand or more, provided, however that the amount of such paid-in equity shall not exceed 10% of demand; and (c) for the purpose of this Section, the term demand shall mean the aggregate of principal and interest on loans fallen due. Section 2.06. ARC shall monitor and evaluate on a continuing basis the financial and economic benefits resulting from Part A of the Project. Section 2.07. ARC shall promptly finalise the Banking Plan in consultation with West Bengal and the Association, and shall take all steps necessary on its part to implement it. Section 2.08. ARC: (i) shall maintain 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 relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall enable the Association's representatives to examine any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning Part A of the Project, the expenditure of the proceeds of the Credit so relent to it and the goods and services financed out of such proceeds. Section 2.09. ARC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ARC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.10. ARC and the Association shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, ARC and the Association shall from time to time, at the request of either party, exchange views through their representatives with regard to the performance of their respective obligations under this Agreement, Part A of the Project, and other matters relating to the purpose of the Credit. Section 2.11. ARC and the Association shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the progress of Part A of the Project, the accomplishment of the purposes of the Credit, or the performance by either of them of their respective obligations under this Agreement. 7 ARTICLE III Management and Operations of ARC Section 3.01. ARC shall: (a) at all times manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with sound business and financial practices and under the supervision of experienced and competent management assisted by experienced and competent staff in adequate number; and (b) take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business or in the carrying out of Part A of the Project. Section 3.02. ARC shall charge, and shall ensure that the Participating Banks charge, at all times interest rates on all of the loans at rates sufficient to enable ARC and the Participating Banks respectively to: (a) cover all operating expenditures and charges including taxes (if any) and interest payments on borrowings; and (b) maintain adequate provisions for bad debts and maintain adequate general reserves in accordance with sound commercial practice. ARTICLE IV Financial Covenants Section 4.01. ARC shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. ARC 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 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 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of ARC and the audit thereof as the Association shall from time to time reasonably request. 8 ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of ARC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date twenty years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a)(ii) of this Section, the Association shall promptly notify ARC of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. 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: 0 9 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. For ARC: Managing Director Agricultural Refinance Corporation Shri Niketan F Block Shiv Sagar Estate Dr. Annie Besant Road Worli, Bombay, 18 W.B. India Cable address: AGROFINANCE Bombay 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 ARC may be taken or executed by its Managing Director or such other person or persons as ARC shall designate in writing. Section 6.03. ARC shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of ARC, take any action or execute any documents required or permitted to be taken or executed by ARC pursuant to any of the provisions 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. 10 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 yeai first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ M. L. Weiner Regional Vice President South Asia AGRICULTURAL REFINANCE CORPORATION By /s/ T. N. Kaul Authorized Representative S 11 SCHEDULE 1 Principal Terms and Conditions of Relending 1. ARC to Lending Banks (a) Annual interest rate of 7.5% minimum. (b) Installment repayments to coincide approximately with collections from ultimate borrowers. (c) Refinancing by way of loans or purchase of debentures up to 90% of individual loans. 2. Lending Banks to Ultimate Borrowers (i) Minor Irrigation (a) Annual interest rate to be 10.5% minimum. (b) A once and for all evaluation fee of 0.5% of cost of project investments may be charged. (c) MIC's contribution, in the form of equity capital, not to be less than 10% of investment costs financed under the project. (d) Farmers' contribution (including obligatory purchase of LDB shares, own labor and other contributions in cash or kind) for investments in shallow tubewells and pumpsets: (A) for lending to Small Farmers, a minimum 5% of investment cost of pumpsets and tubewells; (B) for farmers cultivating land providing a pre-development net return to family resources to such farmer and his family ranging from Rs2,001 to Rs3,500 based on 1972 prices, a minimum of 10% of the investment cost of pumpsets and tubewells. For the purposes of determining said net returns, the criteria set forth in Schedule 3 to this Agreement shall apply; and 12 (C) for other farmers, a minimum of 10% of the investment cost of pumpsets and 15% for tubewells. (e) Repayment periods to be based on ultimate borrower's repayment capacity, but not to exceed: (A) for the shallow tubewell program: (1) for normal lending, 7 years on loans for pumpsets whether financed as separate loans or included in tubewell loans; and 9 years for loans for tubewells; and (2) for lending to Small Farmers, 7 years on loans for pumpsets, whether financed as separate loans or included in tubewell loans and 15 years for tubewells; and (B) for the deep tubewell program: (1) 10 years for loans for MIC; and (2) 15 years for loans to Irrigation Groups. (C) Grace periods not exceeding 23 months from the date of the first installment of the loans, taking into account a full kharif and rabi crop, may be granted at the discretion of ARC, provided, that the repayment period of such loans is not exceeded. (f) Technical standards, in particular spacing criteria, as laid down by the Water Board to be observed. Ig) if his own cultivated area is significantly smaller than that which c:m be adequately irrigated by the shallow tubeweil concerned. the borrower would undertake to sell water surplus to his needs or to hire out his pumpset, or to participate with other farmers in the joint investment and operation of the shallow tubewell. (ii) Other Lending (a) Annual interest rate of 11 V minimum. 13 (b) A once and for all evaluation fee of 0.5% of the cost of investment may be charged. (c) Market Committee's contribution to investment for market development, not to be less than 5% of investment cost. (d) Borrower's contribution for equipment for agro-service centers not to be less than 5% of the cost. (e) Repayment periods to be based on ultimate borrower's repayment capacity, but not to exceed: (A) 7 years for loans to agro-service centers; and (B) 14 years for loans to the Market Committees with a grace period of 2 years. (iii) General (a) Lending banks shall maintain separate accounts for Small Farmers. (b) Security to be in accordance with arrangements to be agreed between ARC and the Participating Banks. 14 SCHEDULE 2 Deep Tubewell (DTW) Site Selection Criteria 1. DTWs shall not be located in areas which, according to the technical criteria laid down by the Water Board, are more suitable for the shallow tubewells. 2. Most DTWs shall be located in areas of clay or clay loam soils; in no case shall they be located in areas where soils are so sandy that the water cannot be efficiently distributed throughout the command area. 3. Farmers within the proposed command area shall be organized into a group; at least seventy per cent (70%) of such farmers shall qualify as Small Farmers. 4. The command area, for a 200 m3/hour capacity pump, shall include a minimum of 35 ha with final area depending upon soils and cropping pattern. 5. Topography of the command area shall be suitable for a distribution system to deliver water efficiently to all landowners; the command area shall not be subject to prolonged seasonal flooding. 6. At least seventy per cent (70%) of the command area shall be cultivated by farmers participating in a group and participation of at least eighty per cent (80%) of potential users shall be assured before the well is sited. 7. The well site shall have adequate year-round access for operation and maintenance and it shall be located centrally within the command area to facilitate water distribution. 8. Electricity shall be available to power the pump. 15 SCHEDULE 3 Definition of Small Farmer 1. "Small Farmer" shall mean any farmer cultivating land providing a pre-development net return to family resources to such farmer and his family not exceeding Rs2,000 based on 1972 prices. 2. For the purpose of determining said net return, the following criteria shall apply: (a) "land" shall include all land actually cultivated by the farmer, notwithstanding the fact that ownership of such land may vest in one or more persons; (b) "net return to family resources" shall mean gross family income from the land, less costs actually incurred (including cash value of the farmer's own input, including seed, fertilizer, hired human labor, hired bullock labor, feed consumed by family bullocks, irrigation charges, land revenue, interest on crop loan, and rent on leased land); and (c) the amounts for the current year shall be arrived at by applying the current price index of the All India Agricultural Laborers Index for West Bengal to the amount set forth in paragraph I above.