Afghanistan - Fruit And Vegetable Export Project : Credit 0779 - Project Agreement - 2 - Conformed

CONFORMED COPY CREDIT NUMBER 779 AF Second Project Agreement (Fruit and Vegetable Export Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and AGRICULTURAL DEVELOPMENT BANK OF AFGHANISTAN Dated September 27, 1978 CREDIT NUMBER 779 AF PROJECT AGREEMENT AGREEMENT, dated September 27, 1978, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and AGRICULTURAL DEVELOPMENT BANK OF AFGHANISTAN (hereinafter called AGBANK). WHEREAS by the Development Credit Agreement of even date herewith between the Democratic Republic of Afghanistan (herein- after called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to eighteen million dollars ($18,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that AGBANK agrees to undertake such obligations toward the Association as hereinafter set forth; WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and AGBANK (the Second Subsidiary Loan Agreement), part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to AGBANK on the terms and conditions therein set forth; and WHEREAS AGBANK, in consideration of the Association's enter- ing 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 and the term "subsidiary" means any company or entity of which a majority of the outstanding voting stock or other proprietary interest is owned, or which is controlled, by AGBANK or by any one or more subsidiaries of AGBANK or by AGBANK and one or more of its subsidiaries. ARTICLE II Execution of Part F of the Project Section 2.01. (a) AGBANK shall carry out Part F of the Project described in Schedule 2 to the Development Credit Agree- ment with due diligence and efficiency and in conformity with -2- appropriate administrative, agricultural and financial practices and shall provide, as and when needed, all funds, facilities, services and other resources necessary or appropriate for the purposes. (b) Without limitation or restriction on the generality of the provisions of paragraph (a) of this Section, AGBANK shall provide out of its own resources an amount of not less than Af57,681,000 for the carrying out of Part F of the Project. Section 2.02. (a) AGBANK undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to it by the Borrower against hazards incident to the acquisition, trans- portation and delivery thereof to the place of use or installa- tion, and for such insurance any indemnity shall be payable in a currency freely usable by AGBANK to replace or repair such goods. (b) Except as the Association may otherwise agree, AGBANK shall cause all goods and services financed out of the proceeds of the Credit relent to it by the Borrower to be used exclusively for the Project. Section 2.03. (a) AGBANK shall, through EPU, furnish to the Association, promptly upon their preparation, the plans, specifi- cations, reports, contract documents and work and procurement schedules for the facilities to be financed by AGBANK under Part F of the Project, and any material modifications thereof or addi- tions thereto, in such detail as the Association shall reasonably request. (b) AGBANK shall: (i) maintain records and procedures adequate to record and monitor the progress of Part F of the Project (including the cost and the benefits to be derived there- from), to identify the goods and services financed out of the proceeds of the Credit relent to it by the Borrower, and to disclose their use in the Project; (ii) without limitation upon the provisions of paragraph (c) of this Section, enable the Association's accredited representatives to visit the facilities and construction sites included in Part F of the Project and to examine the goods financed out of the aforesaid proceeds of the Credit and any relevant records and documents; and (iii) furnish to EPU at regular intervals all such information as EPU or the Association shall reasonably request concerning Part F of the Project, the costs and, where appropriate, the benefits to be -3- derived therefrom, the expenditure of the proceeds of the Credit so relent to it and the goods and services financed out of such proceeds. (c) AGBANK shall enable the Association's accredited repre- sentatives to examine all installations, sites, works, buildings, property and equipment of AGBANK and any relevant records and documents. Section 2.04. AGBANK shall duly perform all its obligations under the Second Subsidiary Loan Agreement. Except as the Borrower and the Association shall otherwise agree, AGBANK shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Second Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) AGBANK shall, at the request of the Asso- ciation, exchange views with the Association with regard to the progress of Part F of the Project, the performance of its obliga- tions under this Agreement and under the Second Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) AGBANK shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of Part F of the Project, the accomplishment of the purposes of the Credit, or the performance by AGBANK of its obligations under this Agreement and under the Second Subsidiary Loan Agreement. Section 2.06. By December 31, 1978 or such other date as may be agreeable to the Association, AGBANK shall submit to the Association, for its approval, a program, prepared by AGBANK with the cooperation of AVEC under Section 5.10 of the First Project Agreement: (i) to restrict seasonal credit AGBANK sub-loans exclusively to those farmers producing vegetables under contract with AVEC under Part F (b) of the Project; and (ii) to channel payments pursuant to such contracts through AGBANK. Section 2.07. AGBANK undertakes: (a) to procure, in accor- dance with procedures acceptable to the Association, and to distribute, in cooperation with ARI, the necessary tools and materials (including, inter alia, pruning shears, crop dusters and trellising poles and wires) for investments in trellising and raisin production; and (b) to cooperate with ARI in the distribution of drying mats to raisin producers. Section 2.08. (a) By December 31, 1978 or such other date as may be acceptable to the Association, AGBANK shall, on terms and conditions acceptable to the Association, develop a training program in connection with its viticulture training fellowships and submit such program to the Association for its approval. (b) AGBANK shall select its trainees and arrange for the training of such trainees in accordance with the program as approved by the Association pursuant to paragraph (a) of this Section. ARTICLE III Management and Operations of AGBANK Section 3.01. AGBANK shall at all times manage its affairs and conduct its business in an efficient manner under capable management and with competent staff and in accordance with appro- priate administrative, financial and agricultural credit prac- tices. Section 3.02. The operating policies of AGBANK in respect of Part F of the Project shall be as set forth in Schedule 1 to this Agreement, as the same may be amended from time to time by agreement between the Borrower, the Association and AGBANK, and, AGBANK's appraisal procedures for sub-loans included in Part F shall be satisfactory to the Borrower and the Association. Section 3.03. AGBANK shall take out and maintain with respon- sible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. (a) AGBANK shall not establish, acquire or take over any subsidiary except on terms and conditions satisfactory to the Borrower and the Association. (b) AGBANK shall cause each of its subsidiaries, if any, and each of the subsidiaries established, acquired or taken over, after the date of this Agreement, if any, to observe and perform, as appropriate, the obligations of AGBANK under this Agreement to the extent to which such obligations shall be applicable to such subsidiary, as though such obligations were binding upon each of such subsidiaries. Section 3.05. (a) AGBANK shall at all times operate and maintain its equipment and property and promptly make all neces- sary repairs and renewals thereof, in accordance with appropriate engineering and agricultural practices. (b) Except in the normal course of its business, AGBANK shall not, without the agreement of the Borrower and the Associa- tion, sell, lease, transfer or otherwise dispose of any of its property or assets which shall be required for the efficient operation of its business and undertaking. ARTICLE IV Financial Covenants Section 4.01. AGBANK shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. AGBANK shall: (i) have its accounts and finan- cial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accor- dance with appropriate 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) two certified copies of its financial statements for such year as so audited and (B) two copies of 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 AGBANK and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. AGBANK shall not make any repayment in advance of maturity in respect of any outstanding debt of AGBANK which, in the judgment of the Association, would materially affect AGBANK's ability to meet its financial obligations. Section 4.04. AGBANK shall take such steps satisfactory to the Association as shall be necessary to protect itself against -6- risk of loss resulting from changes in the rates of exchange between the currencies (including Afghanis) used in its opera- tions. Section 4.05. The Association and AGBANK shall from time to time, at the request of either party, exchange views through their representatives with regard to the administration, opera- tions and financial condition of AGBANK and its subsidiaries, and AGBANK shall furnish to the Association all such information as the Association shall reasonably request concerning the adminis- tration, operations and financial condition of AGBANK and its subsidiaries. Section 4.06. AGBANK shall at all times charge interest on all of its loans at rates sufficient to enable it: (a) to cover all operating expenditures and charges including taxes (if any) and interest payments on borrowings; (b) to maintain adequate provisions for bad and doubtful debts; and (c) to maintain ade- quate general reserves. 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 AGBANK 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 20 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 AGBANK 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 General Conditions. -7- 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 desig- nated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For AGBANK: Agricultural Development Bank of Afghanistan P.O. Box 414 Kabul, Afghanistan Cable address: AGBANK Kabul, Afghanistan Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of AGBANK may be taken or executed by the President or Vice President of AGBANK or such other person or persons as the President or Vice President shall designate in writing. -8- Section 6.03. AGBANK shall furnish to the Association sufficient evidence of the authority and the authenticated speci- men signature of the person or persons who will, on behalf of AGBANK, take any action or execute any documents required or permitted to be taken or executed by AGBANK 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 collec- tively but one instrument. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Munir P. Benjank Regional Vice President Europe, Middle East and North Africa AGRICULTURAL DEVELOPMENT BANK OF AFGHANISTAN By /s/ Abdul Wahab Assefi Authorized Representative -9- SCHEDULE 1 Operating Policies of AGBANK under Part F of the Project 1. General: AGBANK sub-loans under Part F of the Project shall be made in accordance with the Charter and its Policy Statement and Loan Regulations dated October 18, 1970, as the same may be amended from time to time with the prior agreement of the Association. 2. Security Requirements: (a) AGBANK will continue to take security for its sub-loans under Part F of the Project in accordance with the said Policy Statement and Loan Regulations. (b) AGBANK will employ its best efforts to modify, in con- sultation with the Association, its security requirements in order to expand its lending operations to farmers with small holdings. 3. Conditions Precedent to Making Sub-Loans: AGBANK will prepare and adopt lending terms (including security arrangements) satisfactory to the Borrower and the Association relating to Part F of the Project, including short term (12 months) sub-loans, prior to making any sub-loan there- under. 4. Appraisal: Before granting a medium- or long-term sub-loan, AGBANK shall evaluate the subborrower's credit worthiness for such sub-loan, its ability to execute the project to be financed out of the proceeds of such sub-loan and its ability to meet the repayment of such sub-loan in accordance with its amortization schedule. Seasonal credit sub-loans shall be restricted to farmers who produce vegetables under contract with AVEC. 5. Terms and Conditions of Sub-loans: (a) The minimum annual interest rate and contribution of farmers and the maximum permissible grace period and the period of repayment for AGBANK sub-loans are set forth below: - 10 - Minimum Interest Sub-borrowers' Maximum Maximum Rate Contribution Repayment Grace Category of (Percen- (% of Invest- Period Period Sub-loan tage) ment Cost) (Years) (Years) (A) Investment in new 8 20 12 5 and replacement trellising vine- yards (B) Investment in 8 20 6 2 trellising of existing vine- yards (C) Vegetable 10 (not applic- 1 0 production able) (b) It is understood that AGBANK may allow rebates to cooperatives not exceeding one percentage point of the applicable interest rates. (c) AGBANK sub-loans under Categories (A) and (B) above shall not, on an average, exceed 80% of the estimated cost of each investment plan and, under Category (C) above, shall not exceed 100% of the estimated cash operating costs. (d) Sub-loans for seasonal credit for vegetable production shall be repayable to AGBANK upon payment to the sub-borrower for contracted production. 6. Loan Recovery: AGBANK shall take all such measures as shall be necessary on its part to minimize losses in its lending operations. To this end, AGBANK shall, in collaboration with appropriate authorities of the Borrower, strengthen its loan recovery procedures. 7. AGBANK shall take appropriate steps to supervise adequately the execution of the sub-projects financed out of the proceeds of sub-loans.