Yugoslavia - Agricultural And Industries Project, Macedonia : Loan 1371 - Loan Agreement - Conformed

77-GO CONFORMED COPY LOAN NUMBER 1371 YU LOAN AGREEMENT (Agriculture and Second Agricultural Industries Project in Macedonia) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and STOPANSKA BANKA SKOPJE Dated March 10, 1977 LOAN AGREEMENT AGREEMENT, dated March 10, 1977, between INTERNATIONAL BANK FR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and STOPANSKA BANKA SKOPJE (hereinafter called the Borrower),, a bank established and operating under the laws of the Socialist Federal Republic of Yugoslavia (hereinafter called the Guarantor). -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 General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Macedonia" means the Socialist Republic of Macedonia; (b) "Coordination Unit" means the unit to be established and maintained by the Borrower in accordance with Section 3.02 (a) of this Agreement; (c) "Self-Management Agreement of the Borrower" means the self-management agreement of the Borrower dated December 14, 1973, as amended from time to time; (d) "Borrower's Statutes" means the statutes of the Borrower dated December 14, 1973, as amended from time to time; -3- (e) "Sub-loan" means a loan made or proposed to be made by the Borrower out of the proceeds of the Loan and out of the Borrover's own contribution in accordance with Section 3.o (a) of this Agreement to a Sub-borrower for an Investment Project; (f) "Sub-borrower" means an eligible beneficiary of a Sub- loan who may be either: (i) a Social Sector Sub-borrower; or (ii) a Private Sub-borrower; (g) "Social Sector Sub-borrover" means a Sub-borrower which is a beneficiary of a Sub-loan included in Part A of the Project described in Schedule 2 to this Agreement; (h) "Private Sub-borrower" means a Sub-borrower who is a private farmer who proposes to enter or enters into au agreement with the Borrower under Part B of the Project, directly, or indi- rectly through his farmers' cooperative or a social sector organ- ization; (i) "Investment Project" means a specific project for any of the investments included in the Project, to be carried out by a Sub-borrower utilizing the proceeds of a Sub-loan; (j) "Statement of Operations and Policies for the Project" means the statement of lending and investment operations and policies for the Project set forth in Schedule 5 to this Agreement, as such statement may be amended from time to time with the agree- ment of the Bank; (k) "Dinars" and the letters "Din" mean the currency of the Guarantor; and (1) "Social Accounting Service" means the Sluzba Drustvenog Knjigovodstva referred to in Article 77 and in paragraph (5) of Article 281 of the Guarantor's Constitution. -5- 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 twenty- four million dollars ($24,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Bank and the Borrower, for expenditures made (or, if the Bank shall so agree, to be made) by the Sub-borrowers under Sub-loans in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan and in respect of interest and other charges on the Loan, provided, however, that no withdrawal shall be made in respect of a Sub-loan unless: (i) the Sub-loan shall have been approved by the Bank; or (ii) the Sub-loan shall be a free-limit Sub-loan for which the Bank shall have authorized withdrawals from the Loan Account. (b) Subject to the provisions of paragraph 2 (C) of Schedule 5 to this Agreement, a free-limit Sub-loan shall be a sub-loan for an Investment Project or group of Investment Projects whose estimated aggregate cost is less than the equivalent of $1,500,000, the foregoing amount being subject to change from time to time as determined by the Bank. -6- (c) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, the Borrower shall furnish to the Bank an application in form and substance satisfactory to the Bank together with the detailed appraisal of the Investment Proj- ect specified in Schedule 5 to this Agreement. (d) On or before each of the semi-annual interest payment dates specified in Section 2.07 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay, on such date, interest and other charges on the Loan accrued and payable on or before the date set forth, and up to the anount allocated, in Schedule 1 to this Agreement, as such Schedule may be amended from time to time. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works required for the Project shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1982 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.05. The Borrower shall pay to the Bank a cor-aitment 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. -7- Section 2.06. The Borrower shall pay interest at the rate of eight and one-half per cent (8-1/2%) 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 January 1 and July 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. -8- ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appro- priate agricultural, engineering, administrative and financial policies and practices and in accordance with the Statement of Operations and Policies for the Project, and shall provide, promptly as needed, the funds, facilities, servic*s and other resources required for the purpose. Section 3.02. In carrying out the Project, and except as the Bank and the Borrower shall otherwise agree, the Borrower shall, not later than September 1, 1977: (a) establish and maintain, u)nder arrangements satisfactory to the Bank, a Coordination Unit, appropriately staffed in accor- dance with the provisions of paragraph 1 of Schedule 5 to this Agreement; (b) appoint and assign to its Agricultural and Forestry Loans Department a qualified and experienced .specialist in agricultural industries and a qualified and experienced specialist in marketing of agricultural products; and (c) employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank, in order to assist the Borrower in international procurement procedures. Section 3.03. In order to assist the Borrower in carrying out the study included in Part C of the Project, the Borrower shall employ, not later than May 15, 1977, or such other date as the Bank and the Borrower may agree, consultants whose qualifications, ex- perience and terms and conditions of employment shall be satisfac- tory to the Bank. Section 3.04. (a) The Borrower undertakes that, unless the Bank shall otherwise agree, each Sub-loan will be made on financial terms and conditions consistent with the Statement of Operations and Policies for the Project and on additional terms and conditions whereby the Borrower shall obtain, by written contract with the Sub-borrower (which party shall, for the purposes of this Section, also include, but without limitation, a farmers' cooperative or a social sector organization through which Sub-loans may be made to Private Sub-borrowers) or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Borrower, including the right of the Borrower to: (i) require the Sub-borrower to carry out its Investment Project with due diligence and efficiency and in accordance with appropriate agri- cultural, engineering, technical, administrative and financial policies and practices and to maintain adequate records; (ii) require that (1) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with Schedule 4 to this Agreement, and (2) such goods and services shall be used exclusively in the carrying out of an Investment Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, buildings, property, equipment and construction included in an Investment Project, the operation thereof, and any relevant - 10 - records and documents; (iv) require that: (1) the Sub-borrower shall take out and maintain with responsible insurers such insur- ance, against such risks and in such amounts, as shall be consistent with appropriate business practice, and (2) without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Sub-borrower to replace or repair such goods; (v) obtain all s-ch information as the Bank or the Borrower shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Sub-borrower; (vi) suspend or terminate the right of the Sub- borrower to the use of the proceeds of the Loan upon failure by such Sub-borrower to perform its obligations under its contract with the Borrower and, in appropriate cases, to premature the Sub-loan; and (vii) require any of the Social Sector Fub-borrovers or any of the farmers' cooperatives or social L ,tor organizations through which Sub-loans may be made to private farmers: (1) to have its accounts and financial statements (balance sheets, state- ments of income and expenses and related statements) for each fiscal year prepared in accordance with appropriate accounting principles consistently applied by the Social Accounting Service or another competent and experienced independent accounting organ- ization; (2) to furnish to the Borrower as soon as available but in any case not later than six months after the end of each such year, certified copies of its certified financial statements for each such year as so prepared; and (3) to furnish to the Borrower such other information concerning the accounts and financial state- ments of the Social Sector Sub-borrower and farmers' cooperative - 11 - or social sector organization as the Borrower shall from time to time reasonably request. (b) The Borrower shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and of the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. Section 3.05. The Borrower shall: (i) maintain records ade- quate to record the progress of the Project and of each Inirestment Project (including the cost thereof, the amount of financing pro- vided by the Borrower, disbursements, repayments, interest and other charges on such financing, including the Sub-loan therefor, general information on agriculture and economic policy affecting the imple- mentation of the Project); (ii) furnish to the Bank quarterly and annual reports thereon within three months after the end of each quarter and each calendar year, respectively, or such other date as the Bank and the Borrower may agree, in such detail as the Bank shall reasonably request; and (iii) put into effect by March 1, 1978, or such other date as the Bank and the Borrower may agree (1) a supervision system acceptable to the Bank for the purposes of ensuring adequate technical and financial supervision of each Investment Project during and after its construction, and (2) a monitoring system acceptable to the Bank for the purposes of evaluating the benefits of, and assessing the economic impact of, each Investment Project, upon its completion. - 12 - Section 3.06. The Borrower shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, the Coordina- tion Unit and its procedures, operations and records, the Invest- ment Projects, and the Sub-loans. Section 3.07. Not later than March 1, 1978, or such other date as the Bank and the Borrower may agree, the Borrower shall organize and hold, according to a program satisfactory to the Bank, a course for staff of the Borrower and Investiciona Banka Titograd, as well as of other Yugoslav banks, in procurement matters and in appraisal criteria and techniques applicable to agricultural industries and agricultural credit projects. - 13 - ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall at all times continue to conduct its operations and affairs, including the Project, in accordance with appropriate financial and investment standards and practices, with qualified and experienced management and staff, and in accordance with its Self-Management Agreement and its Statutes. - 14 - ARTICLE V Financial Covenants Section 5.01. The Borrower unconditionally undertakes, when- ever there is reasonable cause to believe that the funds available to any of the Sub-borrowers will be inadequate to meet the estimated expenditures required for the carrying out of any of the Investment Projects, to make arrangements satisfactory to the Bank, promptly to provide any such Sub-borrower with such funds in foreign or local currencies as needed to meet such expenditures. Section 5.02. The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices the progress of the Project and its opera- tions and financial condition. Section 5.03. The Borrower shall establish and maintain sep- arate accounts for the Project and shall record in such accounts all amounts disbursed or received for or in connection with the Project. Section 5.04. The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements and the certificates of expenditures specified in paragraph D.3 of Schedule 4 to this Agreement) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by the Social Accounting Service or another competent and experienced independent auditing organi- zation acceptable to the Bank; (ii) furnish to the Bank as soon - 15 - as available, but in any case not later than six 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, as the Bank shall from time to time reasonably request, such other information concerning the accounts and financial statements of the Borrower and the audit thereof as well as appropriate informa- tion concerning the structure of the Borrower's loan portfolio and arrears together with reschedulings. Section 5.05. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if the Borrower shall create any lien on any of its assets as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any statutory lien shall be created cn any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; provided, however, that the fore- going provisions of this paragraph shall not apply to: (A) any - 16 - lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 5.06. The Borrower shall not make any repayment in advance of maturity in respect of any of its outstanding debt which, in the judgment of the Bank, would materially and adversely affect the ability of the Borrower to meet its financial obligations. Section 5.07. The Borrower shall establish and maintain arrange- ments satisfactory to the Bank to protect itself against the risk of losses resulting from changes in the rates of exchange between the currencies (including Dinars) used in its lending and borrowing operations for the purpose of carrying out the Project and servicing the Loan. - 17 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) any part of the principal amount of any loan to the Borrower having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance of maturity as provided in the relevant contractual instruments, or any security for any such loan shall have become enforceable; and (b) a change shall have been made in the Self-Management Agreement or in the Statutes of the Borrower which would materially and adversely affect the financial condition or operations of the Borrower or the carrying out of the Project. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof, namely, that: (a) the events specified in paragraph (b) of Section 6.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Guarantor and the Borrower; and (b) any event specified in paragraph (a) of Section 6.01 of this Agreement shall occur. - 18 - ARTICLE VII Termination Section 7.01. The date June 30, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. - 19 - ARTICLE VIII Addresses Section 8.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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) For the Borrower: Stopanska Banka Skopje Ul. 11 Oktombri Br. 7 91000 Skopje Yugoslavia Cable address: Telex: Stopanska Banka Skopje 51140 Skopje Yusbank Yugoslavia - 20- 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Munir P. Benjenk Regional Vice President Europe, Middle East and North Africa STOPANSKA BANKA SKOPJE By Is! Aleksandar Misev Authorized Representative - 21 - 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 16,600,000 100% of foreign Investment Proj- expenditures and ects included in 47% of local Part A of the expenditures Project up to a maximum of 47% of each Sub-loan (2) Disbursements 3,200,000 100% of foreign actually made expenditures and by the Borrower 47% of local on account of expenditures Sub-loans for up to a maximum Part B of the of 47% of each Project Sub-loan (3) Consultants' 100,000 100% of foreign services for expenditures Part C of the Project - 22 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to lie F'inianced (4) Interest and 3,000,000 Amounts due other charges on the Loan accrued on or before December 31, 1980 (5) Unallocated 1,100,000 TOTAL 24,000,000 - 23 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor and for goods or services supplied from the territory of the Guarantor. 3. 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 Guarantor 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. 4. 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. 5. 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 Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, 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 percentage then appli- cable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. - 25 - SCHEDULE 2 Description of the Project The Project, part of Macedonia's Agricultural Development Program for the years 1976-1980, consists of the following: Part A: Sub-loans to Social Sector Sub-borrowers The provision of Sub-loans to be made by the Borrower to fi- nance investments for the following processing facilities: (1) Dairy Plant The construction and equipping of a milk processing plant in the town of Prilep with a capacity of about 40,000 liters per day for dairy products, including the construction and putting into operation of milk collec- tion stations and the provision of chilling centers and insulated tanker-trucks. (2) Meat Processing Plant The construction and equipping of slaughtering and meat processing facilities in the town of Gostivar, de- signed to process annually about 12,000 cattle and about 300,000 lambs and sheep. - 26- (3) Potato Cold Storage Facilities The construction and equipping of potato cold storage facilities in the town of Delcevo with a total capacity of about 5,000 tons, including facilities for washing, grading, sizing and bagging potatoes, and the provision of trucks and pilers. (4) Fruit and Vegetable Processing Plant The improvement and expansion of the existing fruit and vegetable processing plant in the town of Gevgelija to increase its capacity to process annually about 20,000 tons of fresh produce, including the construction and equipment of new facilities for processing tomatoes and the expansion of existing facilities for processing fruits, all equipment being constructed or upgraded to meet international sanitary standards. (5) Dehydrated Vegetable Plant The construction and equipping of a plant in the town of Ovee Polje for the production of tomato paste and the dehydration of vegetables such as onions, peppers, carrots, leeks and parsley, with an annual capacity of about 30,000 tons of fresh tomatoes and about 20,000 tons of other fresh vegetables. -27- (6) Apple Processing Plant The construction and equipping of an apple process- ing plant near the town of Resen, designed to process annually about 10,000 tons, including facilities to pro- cess reject apples for the production inter alia of con- centrated apple juice and aroma, pure nectar and dis- tilled alcohol. (7) Tobacco Drying Facilities The construction and equipping of about four tobacco drying sheds having an annual drying capacity of about 200 tons each. Part B: Sub-loans to Private Sub-borrowers The provision of Sub-loans to be made by the Borrower to fi- nance investments in the following fields: (1) Fruit Production On-farm development of about 1 ha each of orchards and vineyards, including investments for land prepara- tion, planting materials, fertilizers and labor. - 28 - (2) Vegetable Production The construction and equipping of plastic green- houses for early vegetable production, including the purchase of tubing, plastic for covering and other items for such construction. (3) On-farm Mechanization The purchase of tractors and implements such as trailers, ploughs, tillers, rollers and harrows. (4) Livestock Production The purchase of about 300 in-calf heifers and dairy cows and about 20,000 ewes, and the construction of winter housing and feeding facilities, and pasture improvement. Part C: Market Center Feasibility Study Feasibility study for the construction and operation of a wholesale market center for agricultural products expected to be located in the Skopje area. The Project is expected to be completed by December 31, 1981. - 29 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each January 1 and July 1 beginning July 1, 1980 through January 1, 1992 1,000,000 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. - 30 - 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 1.70% More than three years but not more than six years before maturity 3.40% More than six years but not more than eleven years before maturity 6.25% More than eleven years but not more than thirteen years before maturity 7.35% More than thirteen years before maturity 8.50% - 31 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the pur- chase of goods or for civil works shall be procured by the Sub- borrowers under the supervision of the Borrower in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Contracts for the processing facilities included in Part A (1) through A (6) of the Project shall be awarded under turnkey contracts. 3. Foreign contractors and suppliers shall not be required to register in Yugoslavia as a prerequisite for submitting bids. In the event that registration shall be necessary after a foreign contractor or supplier has been notified that he will be awarded a contract, the Borrower shall facilitate the registration. 4. Contracts for civil works shall include a provision allow- ing non-Yugoslav contractors and suppliers to convert into foreign exchange and to repatriate a reasonable portion of contract payments, and to import equipment and specialized manpower as required to carry out their services. - 32 - B. Other Procurement Procedures 1. Contracts for goods and works included in Part B of the Proj- ect shall be procured by the Sub-borrowers under the supervision of the Borrower (a) on the basis of advertising in accordance with local competitive bidding procedures, if a contract is estimated to cost the equivalent of $50,000 or more, and (b) through nego- tiated purchases in accordance with local procurement procedures, if a contract is estimated to cost less than the equivalent of $50,000. C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with local procedures: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex- factory price for domestically-manufactured goods; (ii) customs duties and other import tax:s on imported goods, and sales and sim- ilar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expen- ditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Yugoslavia may be granted a margin of preference in accordance with, and subject to, the following pro- visions: - 33 - (a) All bidding document,3 for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and stages that will be fol- lowed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Yugo- slavia if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Yugoslavia equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Yugoslavia. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. -34~ - (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this fur- ther comparison only, an amount equal to (i) the amount of cus- toms duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods and works included in Part A of the Project: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. - 35 - (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report, by the consultants referred to in Section 3.02 (c) of this Agreement, on the evaluation and com- parison of the bids received, together with the recommendations for award of the said consultants and such other information as the Bank shall reasonably reque3t. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the rea- sons for such determination. (c) The terms and conditions of the contract shall not, with- out the Bank's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract in English shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract for goods or works included in Part B of the Project, estimated to cost the equivalent of $50,000 or more, the Borrower shall, before bids are invited, furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, and shall make such modifications in the said documents as the Bank - 36 - 1-25-77 shall reasonably request. The bid evaluation report, as well as two conformed copies of the contract, both in English, shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to contracts to be financed out of the pro- ceeds of the Loan and not governed by the preceding paragraphs, the Borrower shall furnish to the Bank, a certificate of expen- ditures relating to such contracts along with applications for withdrawals. - 37 - SCHEDULE 5 Statement of Operations and Policies for the Project 1. The Coordination Unit The Coordination Unit shall provide adequate coordination be- tween the various departments of the Borrower involved in the carry- ing out of the Project. The Coordination Unit shall be headed by an Assistant General Manager of the Borrower and its staff shall include the Director and the Assistant Director of the Borrower's Agricultural and Forestry Loans Department, a representa- tive of the Borrower's Disbursement and Collection Department and a representative of the Borrower's Foreign Exchange Department. 2. Sub-loan Processing (A) Registration Each Investment Project shall be registered with the Borrower upon receipt of application therefore made by a Sub- borrower to the Borrower. (B) Appraisal (i) Sub-loans to Social Sector Sub-borrowers The Borrower shall prepare a detailed appraisal for each Investment Project, including: - 38 - (a) creditworthiness and managerial compe- tence of the Sub-borrower; (b) technical feasibility, financial viability, commercial soundness, economic justification and availability of markets, raw materials and other facilities necessary for the incremental production of the Investment Project; (c) generation of sufficient cash flow to creer debt service, legal claims, legally-required allocations to the enterprise's depreciation, reserve, joint reserve and business funds, reinvestment needs, and the need to achieve adequate financial rates of return; if the financial rate of return is calculated to be less than 12%, a particular justification will be required; (d) financial structure of the Sub-borrower, expected to result from a financing plan presented at the time of the approval of the Sub-loan, in which its business funds and reserve funds (equity) would not be less than 25% of its total capitalization (equity plus long-term debt). Exceptions may be allowed (based on the financial and economic merit of each Investment Project) provided that the Sub-borrower enters into an agreement with the - 39 - Borrower or another Yugoslav bank, to increase its equity over a suitable period of time, determined in the course of appraisal, to not less than 25% of its total capitalization; (e) study of the need for the introduction of capital-intensive and automated technology as opposed to more labor-intensive methods and of the consequences of such a choice on the investment and operating costs of the proposed Investment Project; and (f) adequate allowance for physical and prior contingencies of the Investment Project. (ii) Sub-loans to Private Sub-borrowers The Borrower shall prepare a detailed appraisal for each Investment Project, including: (a) technical feasibility, financial viability, commercial soundness, economic justification and availability of markets and processing facilities for the incremental production of the Investment Project; (b) generation of sufficient cash flow to cover debt service, legal claims and needs for reinvestment; - 40 - (c) availability of adequate and continuing tech- nical assistance, and suitable market outlets at fair and reasonable prices; and (d) in the case of lending to private farmers through their own cooperatives or through social sector organizations, adequacy of cooperation agree- ments. (C) Review of Investment Projects and Aporovals of Sub-loans On the basis of the detailed appraisal referred to above in paragraphs B(i) and (ii), Investment Projects shall be reviewed and proposed Sub-loans therefor shall be approved as follows: (i) the Borrower shall review each Investment Project or group of Investment Projects submitted to it and shall give its approval for a Sub-loan to be made, if the Investment Project or group of Investment Projects to be financed in part out of the proceeds of said Sub-loan is estimated to cost less than the equivalent of $1,500,000; (ii) the Borrower shall not approve a Sub-loan for an Invest- ment Project or group of Investment Projects submitted to it before the Bank has reviewed the Investment Project or group of Investment Projects to be financed in part out of the proceeds of said Sub-loan and has given its apnroval pursuant to Section 2.02 (c) of - 41- this Agreement, if said Investment Project or group of Investment Projects is estimated to cost the equiva- lent of $1,500,000 or more; (iii) notwithstanding the provisions of above sub-paragraphs (i) and (ii), the first Investment Project recommended for approval for a Sub-loan for a tobacco drying shed under Part A(7) of the Project shall be submitted by the Borrower to the Bank for its review and approval and the Borrower shall not approve said Sub-loan before the Bank has given its approval; (iv) as part of the review of an Investment Project and prior to approving any free-limit Sub-loan or seeking the Bank's approval for a Sub-loan, the Borrower shall ensure that: (a) contributions to Sub-loans are available as set forth in paragraph 3(A) hereunder as and when required to enable the Sub-borrower to carry out its Invest- ment Project in a timely manner; and (b) adequate arrangements are made to make available to Sub-borrowers yearly seasonal credits in amounts sufficient to enable the Sub-borrowers to realize the potential of the investments included in the Project. - 42 - 3. Terms of Sub-loans (A) Contribution to Cost of Investment Project Sub-borrowers shall be required to contribute not less than 20% of the estimated cost of each Investment Project. The Borrower shall be required to contribute not less than 43% of such estimated cost. The remainder of such estimated cost, i.e., up to 37%, shall be financed out of the proceeds of the Loan. (B) Rate of Interest Unless otherwise agreed by the Bank, Sub-loans shall carry interest on the principal amount outstanding from time to time: (i) on the portion of a Sub-loan not financed out of the proceeds of the Loan, at an annual rate of not less than the rate of interest prevailing in Macedonia at the time a Sub-loan is approved, for the type of Investment Project to be financed out of the Sub-loan; (ii) on the portion of a Sub-loan financed out of the proceeds of the Loan, at an annual rate of not less than: (a) 11% in the case of Sub-loans to Private Sub-borrowers who are private farmers sub- borrowing through their own cooperatives or -43 - through social sector organizations or directly sub-borrowing; and (b) 11% in the case of Sub-loans to Social Sector Sub-borrowers. (C) Repayment Unless otherwise satisfactory to the Bank, grace and amortization periods for the repayment of principal of Sub-loans shall not exceed the following: Grace Amortization Period Period Total Investment Project (years) (years) (years) (a) Sub-loans to Social Sector Sub-borrowers 3 11 14 (b) Sub-loans to Private Sub-borrowers 5 5 10 4. Supervision The Borrower shall supervise the application of the Sub-loans in accordance with sound banking, financial, technical and agricul- tural practices. Such supervision shall include, inter alia, periodic visits to the Investment Projects to ensure that the proceeds to the Sub-loans are properly used and that satisfactory progress is made in the carrying out of the Investment Projects, as well as written reports on the field visits.