Mexico - Sixth Agricultural Credit Project : Loan 1569 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1569 ME Project Agreement (Sixth Agricultural Credit Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO DE MEXICO, S.A. Dated September 27, 1978 LOAN NUMBER 1569 ME PROJECT AGREEMENT AGREEMENT, dated September 27, 1978, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO DE MEXICO, S.A. (hereinafter called Banxico). WHEREAS, by a trust agreement between the Guarantor and Banxico dated August 26, 1965, Banxico has been entrusted by the Guarantor with a special fund for the purpose of financing live- stock and agricultural development in Mexico; and WHEREAS the Guarantor, Banxico and the Borrower have requested the Bank to assist in financing such development; and WHEREAS the Bank has in the past made the prior loans for that purpose and is now willing to make to the Borrower a sixth loan in various currencies equivalent to two hundred million dollars ($200,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Banxico agree to undertake certain obligations to the Bank as hereinafter in this Project Agreement set forth; and WHEREAS Banxico, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Particular Covenants of Banxico Section 2.01. (a) Banxico shall carry out or cause Lhe Project to be carried out with due diligence and efficiency and in conformity with sound agricultural, industrial, administrative and - 2 - financial policies and practices under the management and supervi- sion of Fondo, and shall, at all times, make available promptly as needed, all sums and other resources which shall be required by Fondo to meet its operating expenses. (b) Banxico shall, for the purpose of carrying out the Project, make or cause to be made available, out of Fondo's resources or otherwise, credit on terms and conditions satis- factory to the Bank, as required in order to achieve fully and promptly the benefits of the Project. (c) Banxico shall exercise its rights in relation to each sub-loan in such manner as to protect the interest of the Bank, Banxico and Fondo. Section 2.02. (a) Banxico shall enter into contractual arrangements, satisfactory to the Bank, with the Borrower provid- ing, inter alia, (i) for the transfer from the Borrower to Banxico of the proceeds of the Loan for the purpose of carrying out the Project; (ii) for the payment by Banxico to the Borrower, from time to time, of the sums of money that the Borrower shall require to pay to the Bank on account of interest and other charges on the proceeds of the Loan allocated to carry out Part 1 of the Project; and (iii) for the utilization by Banxico, in Fondo's medium- and long-term program for agricultural development, of the proceeds of repayment of sub-loans under the Project, to the extent that Banxico shall not require such proceeds to make payments to the Borrower in accordance with sub-paragraph (ii) hereof. (b) Except as the Bank shall otherwise agree, Banxico shall not change or fail to enforce any provision of such arrangements. Section 2.03. (a) Banxico shall cause Fondo to carry out its operations in accordance with sound agricultural, industrial, administrative and financial policies and practices under the supervision of experienced and competent management. (b) The organization of Fondo and the operational policies of Banxico and Fondo in respect of the Project shall be satis- factory to the Bank and such policies shall include such organiza- tion, procurement and credit policies as are set forth in Schedule 2 to this Project Agreement, and such other policies as may be agreed to by the Bank and Banxico, and Banxico shall ensure that such organization, procurement and credit policies are, to the extent necessary, duly and promptly implemented and carried out to the satisfaction of the Bank. - 3 - Section 2.04. (a) Banxico shall cause the proceeds of the Loan to be applied in accordance with the provisions of this Agreement and the Loan Agreement to expenditures on the Project. (b) Except as the Bank shall otherwise agree, Banxico shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively in carrying out the Project. Section 2.05. Banxico shall make available to any public credit institution which has not participated in the prior projects the rediscount facilities under the Project only after the Bank shall determine that such institution is eligible to such facilities. Section 2.06. Banxico shall apply to the Bank for approval of any Sub-loan to be made under the Project in excess of the equiv- alent of eight hundred thousand dollars ($800,000). When applying to the Bank for such approval, Banxico shall furnish to the Bank a description of the project to be financed out of the proceeds of the proposed Sub-loan and such technical, economic and financial data regarding such project as the Bank shall reasonably request. Section 2.07. Banxico shall cause the Participating Banks to: (a) establish and maintain accounts to record their receipts and payments for or in connection with the Project, including: (i) amounts received from and payments made to Fondo, and (ii) amounts disbursed to and received from beneficiaries; and (b) enable the Bank's accredited representatives to examine such accounts. Section 2.08. (a) Banxico shall maintain or cause to be maintained records adequate to identify the goods and services financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of Fondo and, in respect of the Project, of Banxico; shall enable the Bank's representatives to inspect the sites, farms, ranches, agro-industries and other works and facili- ties included in the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents; and shall furnish or cause to be furnished to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, the goods and services financed out of the proceeds of the Loan, the admin- istration, operations and financial condition of Fondo and, in respect of the Project, the operations of Banxico. (b) Without prejudice to its obligations under paragraph (a) of this Section, Banxico shall: (i) keep or cause to be kept such detailed records on selected farms and agro-industries included in the Project as shall be necessary to enable Banxico to obtain accurate measurement of Project impact and results, and (ii) from time to time evaluate such impact and results. Section 2.09. (a) The Bank and Banxico shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and Banxico shall from time to time, at the request of either of them, exchange views through their represent- atives with regard to the performance by Banxico of its obliga- tions under this Agreement, the administration, operations and financial condition of Fondo, the operations of Banxico, in respect of the Project and other matters relating to the purposes of the Loan. (b) Banxico shall promptly inform the Bank of any condition which interferes with, or threatens to interfere with, the accom- plishment of the purposes of the Loan or the performance by Banxico of its obligations under this Agreement. Section 2.10. Banxico, in its capacity as Trustee of Fondo, shall: (i) have an annual audit satisfactory to the Bank made of the accounts and financial statements (balance sheets, statements of income and expenses and related statements) of Fondo for each calendar year, in accordance with sound auditing principles con- sistently applied, by independent and qualified auditors; (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 such financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of Fondo and the audit thereof as the Bank shall from time to time reasonably request. Section 2.11. Except as the Bank shall otherwise agree, Banxico shall cause Fondo and any other appropriate entities to provide the technical services included in Part 2 of the Project. - 5 - Section 2.12. Promptly after completion of the Project, but in any event not later than one year after the Closing Date or such later date as may be agreed for this purpose between Banxico and the Bank, Banxico shall prepare and furnish to the Bank a report on the execution and initial operation of the Project, its cost and benefits and on the accomplishment of the purposes of the Loan. ARTICLE III Effective Date; Termination Section 3.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 3.02. This Agreement and all obligations of the Bank and of Banxico hereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. ARTICLE IV Miscellaneous Provisions Section 4.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. -6- For Banxico: Banco de Mexico, S.A. 5 de Mayo No. 2 Mfxico 1, D.F., M6xico Cable address: Banxico Mexico D.F. Section 4.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of Banxico may be taken or executed by its Director General or such other person or persons as the Director General shall designate in writing, and Banxico shall furnish to the Bank sufficient evidence of the authority and the authenti- cated specimen signature of each such person. Section 4.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Nicolas Ardito-Barletta Regional Vice President Latin Amezica and the Caribbean BANCO DE MEXICO, S.A. By /s/ G. Romero Kolbeck Authorized Representative - 7 - SCHEDULE 1 Description of the Project The Project is the continuation of the livestock and agricul- ture development program financed under the prior loan agreements by means of a credit program, managed and supervised by Fondo within the framework of the Trust Agreement and the Special Trust Agreement, which will make use of the resources of the Special Trust Fund. The Project includes: Part 1: Making of sub-loans, and short-term loans for working capital, together with ancillary services and other related items for: (a) livestock development and annual and perennial crop development to (i) low-income beneficiaries; and (ii) other beneficiaries. (b) planning and establishment or expansion or improve- ment of primary processing or service type agro- industries to beneficiaries. Part 2: (a) (i) Training for purposes of the Project of technicians of Fondo and Participating Banks and beneficiaries. (ii) Establishment or expansion of demonstration centers, and acquisition and utilization of equipment and livestock for said centers. (b) Monitoring and evaluation of the impact of the Project. (c) Provision of technical services to low-income beneficiaries, and acquisition and utilization of vehicles and training aides therefor. - 8 - SCHEDULE 2 Organization, Credit and Procurement Policies A. General 1. Banxico will rediscount or otherwise finance sub-loans made by the Participating Banks. Fondo's determination of eligibility for such financing will be based primarily upon the appraisal as to technical feasibility and satisfactory return on investments and the approval of each sub-loan by qualified technicians of, or acceptable to, Fondo, such approval to be given before the respective sub-loan is made by the Participating Banks. Project appraisals will be reviewed from time to time by Fondo in order to determine their accuracy and the technical and financial viability of projects. At the time of the approval of each sub- loan, a plan for supervising the carrying out of the project will be prepared and a record of supervision activities will be kept for each sub-loan. Irrigation projects will be approved, in addition and where necessary, by a field representative of the Secretaria de Agricultura y Recursos Hidr&ulicos. Agro- industrial projects will be appraised, recommended and supervised by Fondo staff, or by consultants acceptable to Fondo under detailed terms of reference. Project evaluation will include the projection of costs and returns to the beneficiary for the esti- mated life of the project. Fondo will from time to time review the procedures for the processing of sub-loan applications with a view to simplifying such procedures. B. Organization 2. Organizational and staffing adjustments as set forth in Banxico's Memorandum dated April 23, 1971 will be maintained. C. Procurement Policies 3. The following measures will be taken: (a) Fondo will require beneficiaries to obtain price quota- tions for goods or works to be financed under a sub-loan from several local suppliers and contractors, whenever practicable; - 9 - (b) Fondo will require beneficiaries to obtain price quotations for imported breeding stock to be financed under a sub-loan from several sources of supply, whenever practi- cable; (c) Except as the Bank shall otherwise agree, any contract for equipment and associated services for agro-industries to be financed under a sub-loan and estimated to cost the equivalent of $250,000 or more shall be awarded only after the beneficiary shall have solicited price quotations from not less than three suppliers of such equipment. To this effect, processing equipment for each agro-industrial project will be grouped in accordance with appropriate technical and procurement practices; (d) Fondo will make available to beneficiaries of sub- loans for agro-industrial projects a list of suppliers of agro- industrial machinery from the Bank's member countries and Switzerland; and (e) Fondo will advertise once in at least one newspaper of general circulation in Mexico, and inform once local repre- sentatives of the Bank's member countries which manufacture agro-industrial equipment and Switzerland about the type of agro-industries to be financed under the Project. If any such country does not have local representation, such information will be sent to the government agency responsible for its foreign trade. D. Credit Policies 4. Participating Banks will be required to provide from their own resources not less than 10% of the total amount of sub-loans made. The balance will be rediscounted or otherwise financed by Banxico. For this purpose, Banxico will make available to the respective Participating Banks, promptly as needed, amounts sufficient to cover such balances. The financing granted by Banxico will have the same repayments of principal as the sub- loans financed, and if such financing is granted through rediscounting, such rediscounting will be evidenced by negotiable instruments representing the sub-loan to be rediscounted signed by the beneficiaries. 5. In rediscounting or otherwise financing sub-loans, the following rules will be applied: - 10 - Minimum Sub-borrover contribution Maximum Yearly (percentage Percentage Rediscount Minimum of cost of of Sub- Rates to Yearly Sub-loan Project loan re- Participat- Interest Sub-borrowers amount financed) discounted ing Banks Rates 1. Low-income sub-borrowers (a) on-farm invest- ment projects (i) low-income not more than 3 90 7.50 11.00 sub-bor- 3509000 rowers who pesos receive institu- tional credit for the first time (ii) other low- not more than 5 90 10.50 13.50 income sub- 1,000,000 borrowers pesos (b) agro- not more than 5 90 11.00 14.00 industrial 2,500,000 projects pesos 2. Other sub- (i) not more than 15 90 13.00 16.00 borrowers 2,500,000 on-farm pesos investment projects and agro- (ii) more than 15 80 13.25 16.00 industrial 2,500,000 projects pesos and not more than 5,000,000 pesos (iii) more than 15 70 14.50 17.00 5,000,000 pesos - 11 - The terms and conditions of a sub-loan for on-farm investment made to a sub-borrower which is a group of farmers shall be those which would correspond to the amount of such sub-loan divided by the number of members of such group. No sub-loan will be made to a sub-borrower for on-farm investment if the amount of the proposed sub-loan together with the aggregate principal amount outstanding of sub-loans made for on-farm investment to such sub-borrower under the Project or prior projects exceeds 5,000,000 pesos. In case the sub-borrower is a group of farmers, such amount will be multiplied by the number of members of such group. No sub-loans for purchase of breeding livestock will be made to sub-borrowers to finance the replacement of breeding livestock financed under the Project or prior projects. In the case of sub-loans for livestock development under Part 1 (a) (ii) of the Project, the amounts allocated for financing purchase of breeding livestock will not, in the aggregate, exceed 53% of the total investment cost of livestock development financed under the Project. Lending terms and grace periods will be as set forth in technical and financial plans. Repayments of principal of sub- loans will range from 3 to 15 years and will include grace periods of 1 to 3 years; provided that, in exceptional cases and with the prior agreement of the Bank, repayment of principal may extend for up to 20 years. Interest and rediscount rates charged under all other pro- grams managed by Fondo will be adjusted from time to time, as necessary, so that differences between applicable terms and conditions do not result in discouraging participation in Part C of the Project. In addition, the terms and conditions in this Schedule contained shall not be different from those that Banxico and the Bank shall agree from time to time for other agricultural programs in Mexico to benefit farmers with socio-economic condi- tions similar to those of the sub-borrowers, to be financed out of the proceeds of any other loan made by the Bank, and to be relent through Banxico.