India - Karnataka Irrigation Project : Credit 0788 - Development Credit Agreement - Conformed

 CONFORMED COPY CREDIT NUMBER 788 IN Development Credit Agreement (Karnataka Irrigation Project) between INDIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated May 12, 1978  CREDIT NUMBER 788 IN DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 12, 1978, betwecen INDIA, acting by its President (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association.) WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) by an agreement of even date herewith between the Association and the State of Karnataka, the State of Karnataka has agreed to undertake certain obligations in respect of the carrying out of the Project; (C) by an agreement of even date herewith between the Association and the Agricultural Refinance and Development Corporation, the Agricultural Refinance and Development Corpora- tion has agreed to undertake certain obligations in respect of the carrying out of the Project; and WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth and in the Agreements of even date herewith referred to in Recitals (B) and (C) above; 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 Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth 'herein (said General Conditions Applicable to Development Credit Agree- ments of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings:  - 2 - (a) "Karnataka" means the State of Karnataka, a State of India, or any successor thereof; (b) "Project Agreement" means the agreement between the Association and the State of Karnataka of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supple- mental to the Project Agreement; (c) "ARDC" means the Agricultural Refinance and Development Corporation, a statutory corporation established and organized under the laws of the Borrower; (d) "ARDC Agreement" means the agreement between the Association and ARDC of even date herewith, as the same may be amended from time to time and such term includes all agreements supplemental to the ARDC Agreement; (e) "Lending Banks" means Karnataka State Cooperative Land Development Bank and Commercial Banks in Karnataka partici- pating in lending to farmers under the Project; and (f) "Upper Krishna Scheme" means an area of approximately 425,000 hectares situated between the Krishna and Bhima rivers in Karnataka and to be irrigated from the Almatti and Narayanpur reservoirs. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equiva- lent to one hundred twenty-six million dollars ($126,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit.  - 3 - Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the procepds of tho Credit, shall be governed by the provisions of the Schedule to the Project Agreement. Section 2.04. The Closing Date shall be March 31, 1984 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semiannually on March 1 and September 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each March 1 and September 1 commencing September 1, 1988, and ending March 1, 2028, each installment to and including the installment payable on March 1, 1998, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United Kingdom of Great Britain and Northern Ireland is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01.(a) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall enable Karnataka and ARDC to perform in accordance with the provisions of the Project Agreement and the ARDC Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable Karnataka and ARDC to perform such obliga- tions, and shall not take or permit to be taken any action which would prevent or interfere with such performance.  (b) The Borrower shall make available out of the proceeds of the Credit funds equivalent to $119,000,000 to Karnataka in accordance with the Borrower's standard arrangements for develop- mental assistance to the States of India. (c) The Borrower shall relend funds equivalent to $7,000,000 out of the proceeds of the Credit to ARDC under financial arrange- ments to be entered into between the Borrower and ARDC under terms and conditions which shall include inter alia those set forth in Schedule 3 to this Agreement. ARTICLE IV Remedies of the Association Section 4.01. For the purposes of Section 6.02 of the General Conditions the following additional events are specified pursuant to paragraph (h) thereof: (a) Karnataka shall have failed to perform any of its obligations under the Project Agreement; (b) ARDC shall have failed to perform any of its obligations under the ARDC Agreement; (c) ARDC shall have become unable to pay any of its debts as they mature or any action or proceeding shall have been taken by ARDC or by others whereby any of the property of ARDC shall or may be distributed among its creditors; (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of ARDC or for the suspension of its operations; and (e) An extraordinary situation shall have arisen which shall make it improbable that (i) Karnataka will be able to perform its obligations under the Project Agreement, or (ii) ARDC will be able to perform its obligations under the ARDC Agreement. Section 4.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any events specified in paragraphs a) or (b) of Section 4.01 of this Agreement shall occur and shall continue for a  -5- period of 60 days after notice thereof shall have been given by the Association to the Borrower and Karnataka or ARDC, as the case may be; and (b) any events specified in paragraphs (c) or (d) of Section 4.01 of this Agreement shall occur. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the execution of the Project Agreement on behalf of Karnataka has been duly authorized or ratified by all necessary governmental action; and (b) the execution of the ARDC Agreement on behalf of ARDC, has been duly authorized or ratified by all necessary corporate and governmental action. Section 5.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by Karnataka, and is legally binding upon Karnataka in accordance with its terms; and (b) that the ARDC Agreement has been duly authorized or ratified by ARDC and, is legally binding upon ARDC in accordance with its terms. Section 5.03. The date August 14, 1978 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 5.04. The provisions of paragraph (b) of Section 4.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier.  - 6 - ARTICLE VI Representative of the Borrower; Addresses Section 6.01. Any Secretary, Additional Secretary, Joint Secretary, Director or Deputy Secretary of the Department of Economic Affairs in the Ministry of Finance of the Borrower is designated as representatives of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purpose of Section 11.01 of the General Conditions: For the Borrower: The Secretary to the Government of India Ministry of Finance Department of Economic Affairs New Delhi, India Cable address: ECOFAIRS New Delhi For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. IN WITNESS WHEREOF, the parLies6 heLeto, 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. INDIA By /s/ N.A. Palkhivala Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ W. David Hopper Regional Vice President South Asia  - 7 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Equipment and 5,100,000 vehicles (a) directly 100% of foreign imported expenditures (b) locally manu- 100% of local factured expenditures (ex-factory) (c) imported but 70% procured locally (2) Civil works (a) on-farm 7,000,000 55% of ARDC's works refinance (b) Others 108,000,000 70% (3) Unallocated 5,900,000 TOTAL 126,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and  -8- (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association 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 Association. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for: (a) expenditures prior to the date of this Agreement; and (b) expenditures under Category (2) (a) of the table set forth in paragraph 1 above until (i) evidence satisfactory to the Association has been furnished to the Association that the finan- cial arrangements referred to in Section 3.01 (c) have been made, (ii) the Association has received a detailed training program for the land development staff to be trained at the Land Development Training Center to be established under Part A (vii) of the Project; and (iii) the Association has received a satisfactory banking plan for the purpose of improving the availability of short and long term institutional credit in the Upper Krishna command area. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allo- cated to another Category and which in the opinion of the Associa- tion are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in  -9- order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expendi- tures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Association's reason- able opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit.  - 10 - SCHEDULE 2 Description of the Project The Project is a part (extending over a five year period from April 1978 through March 1983) of Karnataka's long term plan for construction of dams, canals and irrigation distribution systems and consists of the following: Part A: Within Upper Krishna Scheme (i) The completion of Almatti and Narayanpur dams. (ii) The completion of Narayanpur left bank canal from approximately km 36 to 78, including the Rajankollur tunnel (3 km) and the Gundalgeri tunnel (1 km); and the construction of Shahapur branch canal (76 km). (iii) The construction of lined/stabilized irrigation distribution and drainage systems to serve an area of about 105,000 hectares. (iv) The construction of lined/stabilized field irriga- tion channels to individual farms serving an area of about 80,000 hectares. (v) The rehabilitation and upgrading of about 70 km of existing village and link roads and the con- struction of about 530 km of new village and link roads. (vi) The construction of field drainage channels and on-farm works, including land shaping, farm irri- gation and farm drainage ditches for about 25,000 hectares. (vii) The establishment of a Land Development Training Center to train staff on the design, execution, and operation and management of land development works. (viii) Implementation of a program of monitoring the water use efficiencies and economic and social impact of the Project.  - 11 - (ix) Resettlement of families displaced due to construc- tion of dams under the Project. (x) Establishment of an agricultural development center, agricultural research stations and other facilities. Part B: Within Malaprabha Scheme Construction of lined/stabilized field irrigation channels, field drainage channels, and on-farm works including land shaping, farm irrigation and farm drain- age ditches, for about 26,000 hectares. Part C: Within Ghataprabha Scheme Construction of lined/stabilized field irrigation channels, field drainage channels, and on-farm works including land shaping, farm irrigation and farm drain- age ditches, for about 5,000 hectares. The Project is expected to be completed by March 31, 1983.  - 12 - SCHEDULE 3 Principal Lending Terms and Conditions I. Regular Land Development Loans 1. Borrower to ARDC (a) For ARDC refinancing up to 9 years: (i) annual interest rate of not less than 6.75%, less 0.25% for prompt payment; and (ii) repayment at the end of 9 years. (b) For ARDC refinancing for more than 9 and up to 15 years: (i) annual interest rate of not less than 7.25%, less 0.25% for prompt payment; and (ii) repayment at the end of 15 years. (c) Borrower to carry exchange risk. 2. ARDC 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 purchase of debentures or by loans not exceeding 90% of individual loans. 3. Lending Banks to Ultimate Borrowers (a) Annual Interest rate of 10.5% minimum. (b) A once and for all evaluation fee of 0.5% of the cost of project investments may be charged.  - 13 - (c) Repayment periods to be based on the ultimate borrower's repayment capacity, but not to exceed 15 years. (d) Grace periods not exceeding 2 years from the date of disbursement of the loans, may be granted at the discretion of ARDC provided that the repay- ment period of such loans is not exceeded. II. Special Loans Terms and interest rates for lendings by the Borrower, Karnataka and ARDC to the Special Loans Account (SLA); for lending from the SLA through the Lending Banks to the Command Area Devel- opment Authority (CADA); and for recovering by the CADA from farmers who have benefited from on-farm development, shall be in accordance with the Guidelines for the Special Loans to Finance On-Farm Development Works in the Command Area Projects issued by ARDC on October 29, 1976. Except as the Association shall other- wise agree, these Guidelines shall not be amended for this Proj- ect. III. General (a) Security would be as determined by the Lending Banks and ARDC. (b) Technical standards acceptable to ARDC would be observed. (c) Where the land development works are executed by centralized agencies and no cash is paid to the individual farmer to carry out the work, no cash contribution by the beneficiary will be necessary. In any other cases the contribution described in the respective loan agreement with ARDC will apply. (d) In respect of lendings by the Karnataka State Cooperative Land Development Bank, the borrower will have to purchase at least one share to become a member.