Mexico - Rainfed Agricultural Development Project : Loan 1945 - Project Agreement - 2 - Conformed

OFFICIIL LOAN NUMBER 1945 ME DOCUMENTS Second Project Agreement (Rainfed Agricultural Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE CREDITO RURAL, S.A. Dated , 1981 LOAN NUMBER 1945 ME SECOND PROJECT AGREEMENT AGREEMENT, dated /, 1981, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DE CREDITO RURAL, S.A. (hereinafter called Banrural). WHEREAS, by the Ficar Trust Agreement, Banrural has been entrusted by the Guarantor with the Fideicomiso para cr&dito en areas de riego for the purpose, inter alia, of financing agricultural and livestock development in Mexico; WHEREAS the Guarantor, Banrural and the Borrower have requested the Bank to assist in financing such development; WHEREAS by the Loan Agreement of even date herewith between the Borrower and the Bank, the B.nk has agreed to lend to the Borrower an amount in various currencies equivalent to two hundred eighty million dollars ($280,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Banrural agree to undertake certain obligations toward the Bank as are hereinafter set forth; and WHEREAS Banrural, 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 and the following additional terms have the following meanings: (a) "beneficiary" means a person or a group of persons, or an entity having juridical capacity under the laws of the Guarantor to enter into contractual arrangements and to which a Banrural Bank proposes to make or has made a sub-loan; the term "beneficiary" includes the following Categories: - 2 - (i) Category 1 beneficiary - means an individual beneficiary whose main source of income is derived from farming, whose farm is located in the Project Area, and whose annual net family income does not exceed 1,000 times the daily minimum rural wage for the region where he is located, or a group of such beneficiaries; (ii) Category 2 beneficiary - means an individual beneficiary whose main source of income is derived from farming, whose farm is located in the Project Area and whose annual net family income exceeds 1,000 times, but it is less than 1,500 times, the daily minimum rural wage for the region where he is located, or a group of such beneficiaries; (iii) Category 3 beneficiary - means an individual beneficiary resident in the Project Area and not included in Categories 1 and 2 above, whose annual net family income does not exceed 2,000 times the daily minimum rural wage for the region where he is located, or a group of such beneficiaries; and (iv) Category 4 beneficiary - means all other beneficiaries resident in the Project Area; and (b) "net family income" means the net income of the family of an individual beneficiary calculated in accordance with Schedule 2 to this Agreement. ARTICLE II Particular Covenants of Banrural Section 2.01. (a) Banrural shall carry out Part C (2) of the Project described in Schedule 1 to the Guarantee Agreement with due diligence and efficiency and in conformity with sound agricultural, administrative and financial policies and practices under the management and supervision of FICAR, and shall provide, or cause to be provided, promptly as needed, all funds and other resources which shall be required by FICAR to meet its operating expenses. (b) Banrural shall, for the purpose of carrying out Part C (2) of the Project, make or cause to be made available, out of -3- FICAR's resources or otherwise, credit on terms and conditions satisfactory to the Bank, as required in order to achieve fully and promptly the benefits of Part C (2) of the Project. (c) Banrural shall exercise its rights in relation to each sub-loan in such manner as to protect the interests of the Bank, Banrural and FICAR. Section 2.02. (a) Banrural shall enter into contractual arrangements with the Borrower, satisfactory to the Bank, pro- viding, inter alia: (i) for' the transfer from the Borrower to Banrural of the portion of the proceeds of the Loan required by it for the purpose of carrying out Part C (2) of the Project; and (ii) for the utilization by Banrural, in FICAR's program for agricultural development, of the proceeds of repayment of short- term and medium-term sub-loans under Part C (2) of the Project. (b) Except as the Bank may otherwise agree, Banrural shall not change or fail to enforce any provision of such arrangements. Section 2.03. (a) Banrural shall cause FICAR to carry out its operations in accordance with sound agricultural, administrative and financial policies and practices under the supervision of experienced and competent management. (b) The organization of FICAR and the operational policies of Banrural and FICAR in respect of Part C (2) of the Project shall be satisfactory to the Bank and such policies shall include such organization, procurement and credit policies as are set forth in Schedule 1 to this Agreement, and such other policies as may be agreed to by the Bank and Banrural, and Banrural 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. Section 2.04. (a) Banrural shall cause the proceeds of the Loan to be applied in accordance with the provisions of this Agreement and the Loan Agreement to expenditures for Part C (2) of the Project. (b) Except as the Bank may otherwise agree, Banrural shall cause all goods and services financed out of the proceeds of the Loan for Part C (2) of the Project to be used exclusively in carrying out such Part. Section 2.05. Banrural shall apply to the Bank for approval of any medium-term sub-loan to be made under Part C (2) of the Project in excess of the equivalent of eight hundred thousand dollars ($800,000) and of any short-term sub-loan to be made under such Part of the Project in excess of the equivalent of four hundred thousand dollars ($400,000) or such other amount or amounts as shall be agreed between the Bank and the Borrower. When applying to the Bank for such approval, Banrural shall furnish to the Bank a description of the Sub-project to be financed out of the proceeds of the proposed sub-loan and such technical, economic and financial data regarding such Sub-project as the Bank shall reasonably request. Section 2.06. Banrural shall cause the Banrural Banks: (a) to establish and maintain accounts to record its receipts and payments for or in connection with Part C (2) of the Project, including: (i) amounts received from and payments made to FICAR; and (ii) amounts disbursed to and received from beneficiaries; and (b) to enable the Bank's accradited representatives to examine such accounts. Section 2.07. (a) Banrural shall: (i) 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, to record the progress of Part C (2) of the Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of FICAR and, in respect of Part C (2) of the Project, of Banrural; (ii) enable the Bank's representatives to inspect the sites, farms, ranches, and other works and facilities financed out of credit made available under Part C (2) of the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents; and (iii) 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, Part C (2) of the Project, the goods and services financed out of the proceeds of the Loan made available to Banrural, the administration, operations and financial condi- tion of FICAR and, in respect of Part C (2) of the Project, the operations of Banrural. (b) Without prejudice to its obligations under paragraph (a) of this Section, Banrural shall measure and evaluate the - 5 - impact and results of Part C (2) of the project on the basis of the records it shall keep or cause to be kept for the purpose for selected subprojects included in the Project. Section 2.08. (a) The Bank and Banrural shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and Banrural shall from time to time, at the request of either of them, exchange views through their representatives with regard to the performance by Banrural of its obligations under this Agreement, the administration, operations and financial condition of FICAR, the operations of Banrural in respect of Part C (2) of the Project, and other matters relating to the purposes of the Loan. (b) Banrural shall promptly inform the Bank of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan or the performance by Banrural of its obligations under this Agreement. Section 2.09. Banrural, in its capacity as Trustee of FICAR, 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 FICAR, for each calendar year, in accordance with sound auditing principles consistently applied, by independent and qualified auditors; (ii) furnish to the Bank as soon as available, but in any case not later than four 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 FICAR and the audit thereof as the Bank shall from time to time reasonably request. 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 Banrural hereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. -6- 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 herein- after specified or at such other address as such party shall h4ve 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: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For Banrural: Banco Nacional de Credito Rural, S.A. Baja California 261 Mexico 11, D. M6xico Cable address: Telex: Banrural 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 Banrural may be taken or executed by its Director General or such other person or persons as the Director General shall designate in writing, and Banrural shall -7- furnish to the Bank sufficient evidence of the authority and the authenticated 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 collectively 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 Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE CREDITO RURAL By Authorized Representative -8- SCHEDULE 1 Organization, Credit and Procurement Policies I. Medium-term sub-loans A. General 1. FICAR will rediscount or otherwise finance medium-term sub-loans made by the Banrural Banks. FICAR's determination of eligibility for such financing will be based primarily upon the appraisal as to technical feasibility and satisfactory return on investments. Each medium-term sub-loan will be appraised and approved by qualified technicians, of or acceptable to FICAR, before such medium-term sub-loan is made. Appraisals of Sub- projects will be reviewed from time to time by FICAR in order to determine that such appraisals show the technical, economic and financial viability of the Sub-projects and that the appraisals are in compliance with FICAR's operating procedures and standards. The Banrural Banks will prepare, at the time of the approval of each medium-term sub-loan, a plan for supervising the carrying out of the Sub-project and will keep a record of supervision activities for each Sub-project. B. Procurement Policies 2. FICAR will require beneficiaries to obtain price quotations for goods or works to be financed under a medium-term sub-loan from several local suppliers and contractors, whenever practicable. C. Credit Policies 3. Each Banrural Bank will be required to provide from its own resources not less than 10% of the total amount of medium-term sub-loans it makes. The balance will be rediscounted or otherwise financed by FICAR. For this purpose, FICAR will make available to each Banrural Bank, promptly as needed, amounts sufficient to cover such balances. The financing granted by FICAR will have the same repayments of principal as the medium-term sub-loans financed, and if such financing is granted through rediscounting, such rediscounting will be evidenced by negotiable instruments representing the medium-term sub-loan to be rediscounted signed by the beneficiaries. -9- 4. In rediscounting or otherwise financing medium-term sub- loans, the following rules will be applied: Minimum beneficiary Minimum contribution Maximum yearly (percentage percentage interest of cost of of sub- Yearly rates Beneficiary project loan re- rediscount to benefi- category financed) discounted rates* ciaries (i) Category 1 (a) those 5% 90% 10.5% 14.0% who receive insti- tutional credit for the first time. (b) others 5% 90% 11.75% 15.5% (2) Category 2 10% 80% 13.5% 17.0% (3) Category 3 20% 70% 14.25% 18.0% (4) Category 4 20% 70% 19.0% 21.0% 5. The terms and conditions contained in this Schedule shall not be different from those that the Guarantor and the Bank shall agree from time to time for other agricultural programs in Mexico to benefit farmers with socio-ecoaomic conditions similar to those of the beneficiaries under the Project and to be financed out of the proceeds of any other loan made by the Bank. 6. No medium-term sub-loan will be made to an individual beneficiary for on-farm investment if the amount of the proposed medium-term sub-loan together with the aggregate principal amount outstanding of sub-loans made for on-farm investment to such beneficiary and financed by FICAR exceeds 5,000,000 pesos or such other amount as may be agreed between the Bank and Banrural. In case the beneficiary is a group of farmers, such amount will be multiplied by the number of members of such group. * Provided, however, that FICAR may lower the yearly rediscount rates shown in the table whenever FICAR rediscounts less than the maximum percentage of a medium-term sub-loan. - 10 - 7. Lending terms and grace periods will be as set forth in technical and financial plans. Repayments of principal of medium- term sub-loans will range from 2 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 to 20 years and the grace period may extend to 5 years. 8. Except as the Bank may otherwise agree, Banrural shall, once a year, adjust the rates of interest payable on medium-term sub-loans made after the date of adjustment to reflect the change in the average of the prevailing interest zates in effect during the preceding 12-month period compared to the average of the prevailing interest rates for the 12 months preceding the previous adjustment. For the purpose of this paragraph "prevailing interest rate" means an annual rate cf interest which reflects the average costs of borrowed funds to financial departments of multipurpose banks operating in Mexico as calculated monthly by Banxico. II. Short-term sub-loans A. General 9. FICAR will rediscount or otherwise finance short-term sub- loans made by the Banrural Banks. The appraisals and approvals of Sub-projects and their supervision will be made in accordance with the operating procedures and standards applied by FICAR, the Banrural Banks and SARH for such type of financing in the Project Area. B. Credit Policies 10. In rediscounting or otherwise financing short-term sub-loans, the annual interest rate charged to each beneficiary shall not be less than fifteen and one-half (15-1/2%) percent for a sub-loan made to a group of farmers, and shall not be less than nineteen (19%) percent for a sub-loan made to an individual farmer. 11. Not less than once every twelve months, Banrural and the Bank shall review the annual rates of interest to be payable on short-term sub-loans for the ensuing twelve month period with a view to arriving at a mutually acceptable annual rate. - 11 - SCHEDULE 2 Calculation of Net Family Income The net family income will be calculated by adding the total income of all members of a family from their farm, or their share in the income of a farm cultivated collectively, and any other income from any outside source, whenever information about such income can be obtained. In this respect, income from farming will be calculated as follows: the amount of sales of produce, adjusted for the value of changes in the stock of unsold produce, less costs of all inputs (seeds, fertilizers, insecticides, fuel, water, etc.), hired labour, hired machinery, crop insurance, interest on short- and long-term loans, administration and depreciation. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 1-_dayof X AA., 198 1. FOR SECRETARY