Papua - Popondetta Palm Oil Development Project : Loan 1333 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1333 PNG LOAN AGREEMENT (Popondetta Smallholder Oil Palm Development Project) between THE INDEPENDENT STATE OF PAPUA NEW GUINEA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated November 19, 1976 LOAN AGREEMENT AGREEMENT, dated November 19, 1976, between THE INDEPENDENT STATE OF PAPUA NEW GUINEA (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 Part A of the Project described in Schedule 2 to this Agreement by extending the Loan as hereinafter provided; and (B) The Borrower intends to contract from the Commonwealth Development Corporation (hereinafter called CDC) an equity partic- ipation in and loans (hereinafter called the CDC Loans) to the Estate Company and Factory Company, as hereinafter defined, in an aggregate amount equivalent to approximately $13,800,000 to assist in financing Part B of the Project on the terms and conditions set forth in an agreement (hereinafter called the CDC Agreement); and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to extend the Loan to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- 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 Guar- antee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank 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 Gen- eral Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Area" means the area in the vicinity of Popon- detta in which the oil palm nucleus estate, oil palm factory and smallholder settlements specified in Schedule 2 to this Agreement are to be located; (b) "PNGDB" means the Papua New Guinea Development Bank established under the Development Bank Act 1965 (No. 2 of 1966), as amended; (c) "DPI" means the Borrower's Department of Primary Industry; -3- (d) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and PNGDB pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (e) "PMC" means the Borrower's Project Management Committee for Part A of the Project; (f) "OPC" means the Borrower's Office of Project Coordination; (g) "FFB" means fresh fruit bunches produced by the oil palm; (h) "Estate Company" means the limited liability company called Higaturu Oil Palms Pty Limited, established by the Borrower to develop and operate the oil palm nucleus estate specified in Part B of the Project; (i) "Factory Company" means the limited liability company called Higaturu Processing Pty Limited, established by the Borrower to construct and operate the palm oil factory specified in Part B of the Project; (j) "Transport Company" means the limited liability company to be established by the Borrower pursuant to Section 3.04 of this Agreement; and (k) "Lending Policy Statement" means the Lending Policy Statement adopted by the Board of PNGDB on November 18, 1971, as amended to the date of this Agreement. -4- 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 re- ferred to, an amount in various currencies equivalent to twelve million dollars ($12,000,000). 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 may be amended from time to time by agreement between the Borrower and the Bank, for expendi- tures made (or, if the Bank shall so agree, to be made) in re- spect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan. Section 2.03. The goods and works for the Project to be fi- nanced out of the proceeds of the Loan shall be procured on the basis of competitive bidding advertised locally, in accordance with procedures acceptable to the Bank, except that road upgrad- ing works may be carried out by force account. Section 2.04. The Closing Date shall be December 31, 1984, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. -5- 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 eight and seventy-hundredths per cent (8.70%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on August 1 and February 1 in each year. Section 2.08. Subject to Section 6.05 of the General Condi- tions, the Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Sched- ule 3 to this Agreement. -6- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out the Project, or cause the Project to be carried out, with due diligence and efficiency and in conformity with apprnpriate administrative, agricultural and financial practices. (b) The Borrower shall provide, or cause to be provided, to PNGDB and DPI, promptly as needed, the funds, facilities, services and other resources needed by them for the purpose of assisting the Borrower to carry out Part A of the Project. (c) Without limiting the generality of its obligations un- der sub-paragraph (b) above, the Borrower shall: (i) make avail- able to PNGDB to assist it in carrying out Part A (ii) of the Proj- ect an amount not exceeding the equivalent of four million and twenty thousand dollars ($4,020,000) from the proceeds of the Loan, under a subsidiary loan agreement to be entered into between the Borrower and PNGDB, the terms and conditions of which shall have been approved by the Bank; and (ii) cause PNGDB to introduce by March 31, 1977, or such other date as may be agreed by the Bank, and thereafter maintain the operating policies and procedures set forth in Schedule 4 to this Agreement for the purpose of carrying out Part A (ii) of the Project, which said operating policies and procedures shall not be modified without prior consultation with the Bank. -7- (d) The Borrower shall exercise its rights under the Subsid- iary 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 may otherwise agree, the Borrower shall not assign, amend, abrogate or waive its rights under the Subsidiary Loan Agreement or any portion thereof. Section 3.02. For the purpose of carrying out Part A of the Project, the Borrower shall (i) maintain in existence until the completion of Part A of the Project the PMC and OPC, whose organization, membership, procedures, powers and respon- sibilities shall continue to be acceptable to the Bank; (ii) consult the Bank regarding the qualifications and experience of any proposed successor to either the present Project Coordinator of the OPC or Technical Director in the DPI, prior to his appoint- ment as such; and (iii) appoint by March 31, 1977 and June 30, 1977, respectively, or such other date or dates as the Bank may agree, (A) a Project Manager (Field) in the DPI who will be responsible for carrying out Part A of the Project at field level and (B) a Project Accountant for the OPC, the qualifications and experience of both to be satisfactory to the Bank. Section 3.03. The Borrower shall: (a) review by June 30 in each year, the extension and visiting inspection services provided to smallholders in the Project Area by DPI and cause DPI to appoint additional exten- sion staff whenever this is found to be necessary; -8- (b) cause the Estate Company to make suitable oil palm seedlings available to smallholders in the Project Area; and (c) ensure that the Estate Company carries out the oil palm research work specified in sub-clause 6.03 (1) of the CDC Agree- ment, the results of such research work to be made easily avail- able to smallholders in the Project Area. Section 3.04. The Borrower shall: (a) prior to the first production of FFB by smallholders in the Project Area, establish and thereafter maintain in existence the Transport Company, whose memorandum and articles of association, membership, capital structure and basis for determining FFB trans- port charges shall be acceptable to the Bank; and (b) provide, promptly as needed, the funds and other re- sources needed by the Transport Company for the purpose of carry- ing out Part A (v) of the Project and ensure that the Transport Company is properly managed and operated. Section 3.05. The Borrower shall cause the Factory Company to purchase all good quality FFB delivered to it by the Transport Company from-the smallholder plantings referred to in Part A (i) of the Project, at a purchase price to be determined from time to time on the basis of a formula to be agreed by the Borrower and the Factory Company, in consultation with the Bank. -9- Section 3.06. The Borrower undertakes: (a) that prior to making any appointment after the date of this Agreement to the office of either Managing Director or Deputy Managing Director of PNGDB, it will consult the Bank regarding his qualifications, experience and tenure of office; and (b) that, by June 30, 1977, or such other date as may be agreed with the Bank, it will cause the Lending Policy Statement of PNGDB to be amended to reflect, in a manner satisfactory to the Bank, PNGDB's policy in respect of (i) hire purchase and equipment loans and (ii) its establishment and management of subsidiary companies; and that, thereafter, it will not permit major arndments to be made to the Lending Policy Statement without prior consulta- tion between the Borrower and the Bank. Section 3.07. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan 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 the Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used primarily for the Project, but such goods and services may be used for other purposes provided that such use is not to the detriment of the Project. - 10 - Section 3.08. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, con- tract documents and construction and procurement schedules for Part A of the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records adequate to record the progress of Part A of the Project (including the cost thereof) and to identify the goods, works and services financed out of the proceeds of the Loan, and to disclose the use thereof in Part A of the Project; (ii) shall enable the Bank's accredited representatives to visit the Project Area and examine the goods financed out of the proceeds of the Loan and any relev7.nt records and documents; and (iii) shall furnish to the Bank all such infor- mation as the ..k shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods, works and services financed out of such proceeds. - 11 - ARTICLL IV Other Covenants Section 4.01. (a) The Borrower shall maintain, or cause to be maintained, records adequate to reflect in accordance with con- sistently maintained appropriate accounting practices the opera- tions, resources and expenditures, in respect of Part A of the Project, of the departments or agencies of the Borrower responsible for carrying out Part A of the Project or any part thereof. (b) The Borrower shall cause PNGDB and the Transport Com- pany to: (i) have their accounts and financial statements (bal- ance sheets, statements of income and expenses and related state- ments) for each fiscal year audited, in accordance with sound auditing principles (and in the case of PNGDB in accordance with the Bank's guidelines on the audit of development finance com- panies accounts) consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as avail- able, but in any case not later than four months after the end of each such year, (A) certified copies of its financial state- ments 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 PNGDB and the Transport Company and the audit there- of as the Bank shall from time to time reasonably request. - 12 - Section 4.02. The Borrower shall cause PNGDB to introduce by June 30, 1977, or such other date as may be agreed with the Bank, budget control, management reporting and long-term planning systems satisfactory to the Bank. Section 4.03. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless th,-e Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make ex- press provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. -13 - (b) The foregoing 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 trans- actions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the Gen- eral Conditions, the following additional event is specified pursuant. to paragraph (k) thereof: (i) Subject to paragraph (ii) below: (A) The right of the Estate Company or Factory Company to withdraw the proceeds of the CDC Loans shall have been suspended, cancelled or terminated in whole or in part, or (B) The CDC Loans shall have become due and pay- able prior to the agreed maturity thereof. (ii) Paragraph (i) above shall not apply if the Borrower establishes to the satisfaction of the Bank that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under the CDC Agreement, and (B) adequate funds for the Project are available to the Estate Company or Fac- tory Company from other sources on satisfactory terms and conditions. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant -15 - to paragraph (h) thereof, unless paragraph (i) of Section 5.01 of this Agreement shall not apply by virtue of paragraph (ii) of that Section: (a) the event specified in paragraph (i) (A) of Section 5.01 of this Agreement shall occur and shall continue for a period of 90 days after notice thereof shall have been given by the Bank to the Borrower; and (b) the event specified in paragraph (i) (B) of Section 5.01 of this Agreement shall occur. -16- ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the execution and delirery of the CDC Agreement on be- half of the Borrower and CDC have been duly authorized or ratified by all necessary governmental or corporate action; and (b) the execution and delivery of the Subsidiary Loan Agree- ment on behalf of the Borrower and PNGDB have been duly authorized or ratified by all necessary governmental or corporate action. Section 6.02. The following are specified as additional mat- ters, within the meaning of Section 12.02 (c) of the General Con- ditions, to be included in the opinion or opinions to be furnished to the Bank. (a) that the CDC Agreement has been duly authorized or rati- fied by, and executed and delivered on behalf of, the Borrower and CDC and is legally binding on the Borrower and CDC in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Bor- rower and PNGDB and is legally binding on the Borrower and PNGDB in accordance with its terms. - 17 - Section 6.03. The date February 17, 1977 is hereby specified for the purposes of Section 12.04 of the General Conditions. - 1L8 - ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Secretary for 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 for Finance Department of Finance Post Office Ward's Strin Papua New Guinea Cable address: Telex: TREASURER SENTROF Boroko NE22144 Papua New Guinea 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) - 19 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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. THE INDEPENDENT STATE OF PAPUA NEW GUINEA By /s/ Paulius Matane Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Bernard R. Bell Regional Vice President East Asia and Pacific - 20 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of ex- penditures for items so to be financed in each Category: Amount of the Loan Allocated % Of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Sub-loans for small- 2,604,000 70% holders under Part A (ii) of the Proj- ect (2) Extension services under Part A (iii) of the Project and social services un- der Part A (iv) of the Project: (a) Houses and 684,000 75% Buildings (b) Vehicle, Equip- 983,000 75% ment and Ma- chinery hire or purchase (c) Staff Salaries 496,000 50% (3) Road construction 1,560,000 70% and upgrading under Part A (iv) of the Project (121 - 21. - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (4) Buildings, vehicles, equipment and salar- ies under Part A (v) of the Project: (a) Houses and 166,000 75% Buildings (b) Trucks and 381,000 100% Equipment (c) Staff Salaries 269,000 60% (5) Technical assistance 686,000 90% under Part A (vi) of the Project (6) Unallocated 4,171,000 TOTAL 12,000,000 - 22 - 2. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan 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 the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 3. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Cate- gory, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated short- fall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement per- centage then applicable to such expenditures in order that fur- ther withdrawals under such Category may continue until all expenditures thereunder shall have been made. - 23 - 5. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- ditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or lim- iting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 24 - SCHEDULE 2 Description of the Project The Project consists of: Part A: (i) The establishment by the Borrower of about 1,400 smallholders planting about 5,600 hectares of oil palm in the vicinity *- Popondetta, i.e. the clear- ing and plwnting with oil palm of about 4 hectares on each smallholder plot. (ii) The provision by PNGDB of long-term loans to such smallholders. (iii) The provision by the Borrower of the buildings, vehicles and additional extension staff that are required to enable the DPI to carry out agricultural extension and visiting inspection services for such smallholder-. (iv) The provision by the Borrower of adequate health, education and welfare services to such smallholders including the buildings an. vehicles required for this purpose and the construction or upgrading by the Borrower of access roads in the Project Area. (v) The establishment by the Borrower of an autonomous company to provide smallholders in the Project Area with transportation of FFB and related services; and - 25 - (vi) Technical assistance to PNGDB, DPI and the OPC for in-service training programs. Part B: The establishment by the Estate Company and Factory Com- pany in the Project Area of an oil palm nucleus estate of about 4,000 hectares and the construction and operation of a palm oil factory to process FFB supplied by the aforesaid nucleus estate and by the smallholders specified in Part A hereof. * * * P The Project is expected to be completed by December 31, 1984. - 26 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollarsi* On each August 1 and February 1 beginning August 1, 1981 through February 1, 1996 385,000 On August 1, 1996 450,000 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 equiva- lents determined as for purposes of withdrawal. -27 - Premiums on Prepayment The following percentages are specified as the premiums pay- able 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 1.30% More than three years but not more than six years before maturity 2.60% More than six years but not more than eleven years before maturity 4.80% More than eleven years but not more than sixteen years before maturity 6.95% More than sixteen years but not more than eighteen years before maturity 7.85% More than eighteen years before maturity 8.70% - 28 - SCHEDULE 4 PNGDB Operating Policies and Procedures PNGDB shall ensure that: (a) All sub-loans shall be appraised in terms of incremental returns and particular attention given to the repayment capacity of the sub-borrower. (b) All sub-loans shall attract interest at the rate of 11% per annum and be subject to the following budgeted grace and amortization periods: Grace Amortization Period Period (Years) (Years) (i) Existing settlers 4 9 and villagers in the Project Area (ii) New settlers 4 13 (c) PNGDB's powers, rights and remedies under its sub-loan agreements shall be promptly exercised.