Somalia - Agricultural Sector Adjustment Program : Credit 1711 - Credit Agreement - 1 - Conformed

CREDIT NUMBER 1711-SO Development Credit Agreement (Agricultural Sector Adjustment Program) between SOMALI DEMOCRATIC REPUBLIC and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated v' cs-r& , 1986 CREDIT NUMBER 1711-SO DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated / &Z( / 1986, between SOMALI DEMOCRATIC REPUBLIC (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower has also requested the Association as Administrator of the Special Facility for Sub-Saharan Africa (the African Facility) established by their Resolution No. IDA-85-1 of May 21, 1985, of the Executive Directors of the Assoc' ition to provide additional assistance towards the financing of the Program, and by an agreement of even date herewith between the Borrower and the Association, as Administrator of the Special Facility for Sub-Saharan Africa (Special Facility Credit Agree- ment), the Association is agreeing to provide such assistance in an aggregate principal amount of SDR 28,700,000 (the Special Facility Credit); (C) the Borrower intends to obtain from the United Kingdom a grant in the amount of pounds sterling five million (F5,000,000) equivalent out of the Special Joint Financing provided under paragraph 9 of the Resolution to assist in financing the same Project; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower in support of the Program upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions), constitute an integral part of this Agreement: -2- Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (b) "ADC" means the Agricultural Development Corporation established pursuant to Law Number 60 of September 8, 1970; (c) "ENC" means the Ente Nazionale Commercio established pursuant to Law Number 33 of July 7, 1970; (d) "MLFR" means the Ministry of Livestock, Forestry and Range; (e) "MNP" means the Ministry of National Planning; (f) "ONAT" means the Organizzazione Nazionale Agricultura Trattore (a tractor hire agency) established pursuant to Law Number 10 of October 1, 1963 as amended by Law Number 23 of November 18, 1963; (g) "CSBS" means the Commercial and Savings Bank of Somalia established pursuant to Law Number 1 of December 11, 1970; (h) "SITC" means the United Nations Standard International Trade Classification, 1974 Revision (SITC Rev. 2) published in Commodity Indexes for the Standard International Trade Classi- fication, Revised Statistical Papers, Series M, No. 38/Rev. 2 (1981); and (i) "SOMPET" means the Somali Petroleum Agency, established pursuant to Law No. 29 of March 10, 1973. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to twenty six million four hundred thousand Special Drawing Rights (SDR 26,400,000). -3- Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule I 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of Parts A and B of the Project, open and maintain in dollars a special account (the Import Special Account A) in a commercial bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall 'e made in accordance with the provisions of Schedule 6 to this Agreement. (c) The Borrower shall, for the purposes of Part C of the Project, open and maintain in dollars a special account (the Technical Assistance Special Account) in a commercial bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 7 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1988 or such later date as the Association shall establish. The Asso- ciation shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge at the rate of one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Credit not with- drawn from time to time. The commitment charge shall accrue from a date sixty days after the date of the Development Credit Agree- ment to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably re test; (ii) without re- strictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. -4- 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. Commitment charges and service charges shall be payable semiannually on May 1 and November 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each May 1 and November 1 commencing November 1, 1996, and ending May 1, 2036. Each installment to and including the installment payable on May 1, 2006, shall be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter shall be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative and financial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Sched- ule 5 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Associa- tion. Section 3.02. Without any limitation or restriction upon any of its obligations under Section 3.01 of this Agreement, the Borrower shall cause the relevant government ministries and agencies referred to in Schedule 2 to this Agreement to provide to the consultants to be employed under the Project the necessary facilities and assistance to enable such consultants to carry out their duties. -5- Section 3.03. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.04. The Borrower shall establish and maintain in the CSBS, under arrangements satisfactory to the Association, a Project Account in which shall be deposited the local currency proceeds generated from the sale of the proceeds of the Credit. Section 3.05. The Borrower shall cause: (a) ONAT to gradually set rental rates of all machinery and equipment at such a level so as to ensure full cost recovery, including coverage of costs for operation and appropriate maintenance, of depreciation, charges and repayment of debt as far as such repayment exceeds depreciation; and (b) ONAT to adjust such rates periodically to reflect actual costs. Section 3.06. The Borrower shall: (a) not later than Septem- ber 30, 1987 submit to the Association for comments and review operational guidelines for improving the efficiency and effec- tiveness of ADC and ENC; and (b) cause ADC and ENC to implement the guidelines taking into account the Association's comments thereon. Section 3.07. The Borrower shall take all necessary measures to set the domestic price of diesel fuel at levels equivalent to at least the c.i.f. price based on a formula acceptable to the Association. Section 3.08. The Borrower shall submit to the Association for review and approval and promptly thereafter implement or cause the implementation of operating principles on: (a) a minimum buying price by ADC for maize and sorghum which shall be based on the long-term trend in export prices at the prevailing market exchange rate and announced not later than April 30 each year; (b) the use by ADC and ENC of predetermined floor prices at auctions based on the cost of commercial imports of all food grains and flour imports; and (c) a price for concessional grain and flour imports to be sold to institutions and agencies of the Borrower at no less than the prices determined at the most recent food aid auctions. -6- Section 3.09. The Borrower shall take all appropriate measures, to ensure that qualified private importers and other individuals are allowed to import and to trade in topical anti- biotics (non-injectible) and other approved veterinary drugs for livestock. Section 3.10. The Borrower shall: (a) carry out a study of the hides and skins, leather and leather products industry which shall, inter alia, examine (i) the efficiency of the hides and skins, leather and leather products industry, and (ii) the impact of the greater participation of private individuals and companies in the domestic and export trade of such products; and (b) not later than December 31, 1986, furnish to the Association for review and comments a report and recommendations of the study. Section 3.11. The Borrower and the Association shall, from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Project. To that end, the Borrower shall furnish to the Association for its review and comments a report on the progress achieved in carrying out the Project, in such detail and at such times as the Association shall reasonably request. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the accounts referred to in paragraph (a) of this Section, including the Special Accounts, for each fiscal year audited, in accordance 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 six months after -7- the end of each such year, a certified copy 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 said accounts and the audit thereof and said records as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one year after the comple- tion of the audit for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the pro- ceeds of the Credit withdrawn in respect of such expenditures were used for the purposes for which they were provided. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: -8- (a) an event has occurred which shall make it improbable that the Project, or a significant part thereof, will be carried out; and (b) (i) Subject to subparagraph (ii) of this Section: (A) The right of the Borrower to withdraw the proceeds of the African Facility Credit or any grant or loan made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor, or (B) any such loan shall have become due and pay- able prior to the agreed maturity thereof. (ii) Subparagraph (i) of this Section shall not apply if the Borrower establishes to the satisfaction of the Association that: (a) such suspension, cancel- lation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (b) adequate funds for the Project are available to the Borrower from other sources on terms and con- ditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely that the event specified in paragraph (b) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the provl.so of para- graph (b) (ii) of that Section. ARTICLE VI Effective Date; Termination Section 6.01. 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 Borrower has established administrative arrange- ments for the operation of the foreign exchange auction system acceptable to the Association; -9- (b) the Borrower has opened the Project Account pursuant to Section 3.04 of this Agreement; (c) the Borrower has set the domestic price of diesel fuel at levels equivalent to c.i.f. prices pursuant to Section 3.07 of this Agreement; (d) the Borrower has submitted to the Association operating principles pursuant to Section 3.08 -f this Agreement; (e) the Borrower has taken all appropriate measures to de- regulate trade in veterinary drugs pursuant to Section 3.09 of this Agreement; (f) the Borrower has taken or has caused appropriate policy measures to be taken so as to achieve positive interest rates for agricultural credit; and (g) all conditions precedent to the effectiveness of the African Facility Credit (other than the effectiveness of this Agreement) have been fulfilled. Section 6.02. The date sixty (60) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Ministry of the Borrower at the time responsible for finance is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Government of the Somali Democratic Republic Mogadishu, Somalia - 10 - Cable address: Telex: MINFIN 612 MINFIN Mogadishu Mogadishu 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) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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. SOMALI DEMOCRATIC REPUBLIC By / Ptk/ &-~~u Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION Byj 4151At 1fUd0d Regional Vice President Eastern and Southern Africa - 11 - 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 SDR Equivalent) to be Financed (1) Importation of Goods and Materials by Public & Private Sector Enterprises under Part A of the Project: (a) goods and 17,600,000 100% of foreign materials expenditures (b) Diesel fuel and 5,900,000 100% of foreign lubricants to expenditures be imported by SOMPET (2) Importation of Inputs 1,500,000 100% of foreign by the Borrower under expenditures Part B of the Project (3) Consultants' Services 1,400,000 100% of foreign under Part C of the expenditures Project TOTAL 26,400,000 2. For the purposes of this Schedule the term "foreign expendi- tures" means expenditures in a currency other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower. - 12 - 3. Notwithstanding the provisions of paragraph 1 above and except to the extent as the Association shall otherwise agree, no withdrawals shall be made from Category (1) in respect of: (a) expenditures for goods included in the following SITC groups or subgroups: Group Sub-group Description of Items 112 - Alcoholic beverages 121 - Tobacco, unmanufactured tobacco refuse 122 - Tobacco, manufactured 667 - Pearls, precious and semi- precious stones, unworked or worked 688 - Uranium depleted in U235 and thorium, and their alloys, unwrought or wrought, and articles therefor, n.e.s.; waste and scrap of uranium depleted in U235 and of thorium 718 718.7 Nuclear reactors, and parts thereof, n.e.s. 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) - 971.0 Gold, non-monetary (excluding gold ores and concentrates) (b) expenditures for building construction materials for urban housing; (c) expenditures for goods intended for a military or para-military purpose or for private or public luxury consump- tion; - 13 - (d) payments made for expenditures prior to the date of the Credit Agreement; and (e) payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manu- facture, procurement or supply thereof. 4. No withdrawal shall be made and no special commitment shall be entered into to pay amounts to the Borrower or others after the aggregate of the proceeds under Categories (1) and (2) of the Credit withdrawn from the Credit Account and the total amount of such commitments under the same Categories shall have reached the equivalent of SDR 12,500,000 unless the Association shall be satisfied, after an exchange of views as described in Section 3.11 of the Credit Agreement with the progress achieved by the Borrower in the carrying out of the Project, and in particular the actions described in Schedule 4 to this Agreement. - 14 - SCHEDULE 2 Description of the Project The objectives of the Project are to: (i) support the macro- economic reforms currently being undertaken by the Borrower; (ii) assist the Borrower to develop and enlarge the participation of the private sector in the economy including an improved supply and distribution of agricultural inputs; and (iii) strengthen institutions responsible for carrying out the economic and policy reforms in the agricultural sector. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Imports for the Private and Public Sector Enterprises Provision of foreign exchange for the: (i) importation of goods and materials; and (ii) importation of diesel fuel and lubricants by SOMPET. Part B: Imports for the Borrower Provision of foreign exchange for: 1. the following imports for the Ministry of Agriculture: (i) machinery and equipment, and (ii) plant protection supplies and equipment; 2. the following imports for the Ministry of Livestock, Forestry and Range (i) machinery and equipment for ruminant research studies at Afgoy and Balad, (ii) equipment for poultry production, (iii) milling equip- ment and spare parts, (iv) office equipment and supplies for the Serum Institute, (v) transportation equipment, and (vi) teaching equipment and textbooks for the School of Animal Science; and 3. importation for the Ministry of Fisheries, of the fol- lowing items: (i) fishing gear, (ii) cold storage units, (iii) mobile ice-making machines, (iv) refrigeration containers, (v) trailers, and (vi) trucks for fish col- lection and distribution. - 15 - Part C: Technical Assistance Provision of technical assistance: 1. for the rehabilitation of agricultural equipment and machinery at Kurtun Warrey, Sablalle, Shalambod and Geenale; 2. to ONAT (i) to assess rental charges of tractors and other equipment for full cost recovery, and (ii) for the rehabilitation of equipment and the improvement of efficiency of ONAT; 3. to the Ministry of National Planning to assist in carrying out household budget surveys, preparation and analysis of trade data and national accounts, conduct- ing in-service training, design of an agricultural/ livestock census and provision of overseas training for staff of the Ministry; 4. to the Ministry of Finance for (i) maintaining the pro- curement unit, (ii) conducting in-service training for staff of the Ministry, and (iii) assisting the Ministry with its operations; and 5. for assisting in the preparation of operational guide- lines for improving the efficiency and effectiveness of ADC and ENC. The Project is expected to be completed by June 30, 1988. - 16 - SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods Part A: Modified International Competitive Bidding 1. Except as provided in Part B hereof, goods shall be procured under contracts awarded through international competitive bidding in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits", published by the Bank in May 1985 (here- inafter called the Guidelines), subject to the following modifi- cations: (a) Paragraph 2.8 of the Guidelines is deleted and the fol- lowing is substituted therefor: "2.8 Notification and Advertising The international community should be notified in a timely manner of the opportunity to bid. This will be done by advertising invitations to apply for inclusion in a bidder's invitation list, to apply for prequalification, or to bid; such advertisements should be placed in at least one newspaper of general circulation in the Borrower's country and, in addition, in at least one of the following forms: (i) a notice in the United Nations publication, Development Forum Business Edition; or (ii) an advertisement in a newspaper, periodical or technical journal of wide international circula- tion; or (iii) a notice to local representatives of countries and territories referred to in the Guidelines that are potential suppliers of the gcods required." (b) The following is added at the end of paragraph 2.21 of the Guidelines: "As a further alternative, bidding documents may require the bidder to state the bid price in a single - 17 - currency widely used in international trade and specified in the bidding documents." (c) Paragraphs 2.55 and 2.56 of the Guidelines are deleted. Part B Other Procurement Procedures 1. Items to be procured by the Private Sector and Public Sector Enterprises under Part A of the Project estimated to cost the equivalent of $200,000 or more, may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three suppliers eligible under the Guidelines. 2. Items to be procured by the Ministries under Part B of the Project estimated to cost not more than the equivalent of $200,000, may be procured under contracts awarded through limited international bidding procedures on the basis of comparison of price quotations solicited from a list of at least three sup- pliers eligible under the Guidelines and in accordance with pro- cedures set forth in Sections I and II of the Guidelines (exclud- ing paragraphs 2.8, 2.9, 2.55 and 2.56 thereof). 3. Contracts for goods to be procured by the Private Sector and Public Sector Enterprises under Part A of the Project estimated to cost the equivalent of less than $200,000 each, shall be awar- ded on the basis of normal procurement procedures for the pur- chase of such goods. 4. Notwithstanding the provisions of Parts B.1 and B.2 above, items under Part A of the Project may be procured under direct contracting methods in accordance with Paragraph 3.5 of the Guidelines in the following circumstances: (i) if the importer is the supplier's authorized distributor or dealer; or (ii) if the importer is precluded from buying from another supplier; or (iii) if the importer is purchasing a brand name commodity from a supplier who is the exclusive distributor of that commodity. - 18 - Part C: Review by the Association of Procurement Decisions Review of invitations to bid and of proposed awards and final contracts: (a) With respect to contracts for the importation of diesel fuel and lubricants under Part A (ii) and for contracts under Part B of the Project, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Accounts, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to paragraph 2 (d) of said Appendix shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such cort;ract are to be made out of the Special Account, such procedim.es shall be modified to ensure that the two conformed copies of the contract, together with the other information required to be furnished to the Association pursuant to said paragraph 3, shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 6 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Associa- tion has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agree- ment. Section II. Employment of Consultants In order to assist the Borrower in carrying out the Project, the Borrower shall employ consultants whose qualifications, experience, and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by The World Bank as Executing Agency", published by the Bank in August 1981. - 19 - SCHEDULE 4 Conditions of Second Tranche Release List of actions to be taken by the Borrower pursuant to paragraph 4 of Schedule 1 to this Agreement: The Borrower shall have: 1. furnished to the Association a plan of action, acceptable to the Association, for the implementation of the recommendations of the study carried out pursuant to Section 3.10 of this Agreement; 2. submitted to the Association a Letter of Intent, acceptable to the Association, on agricultural policy and investment; 3. submitted to the Association a Public Investment Program acceptable to the Association; 4. taken all appropriate measures necessary to adjust the interest rate for agricultural credit to levels such that they achieve real positive interest rates in the longer run; and 5. implemented Section 3.05 (a) of this Agreement. - 20 - SCHEDULE 5 Implementation Program Implementation of the Project components will be carried out as follows: A. Part A of the Project Except as the Association shall otherwise agree, the Bor- rower shall, in carrying out Part A of the Project, adopt the following procedures: 1. Foreign Exchange Auction System Public and private sector importers (except SOMPET) shall obtain foreign currencies through the foreign exchange auction system which shall operate as follows: (i) a Foreign Exchange Auction Committee (FEAC), acceptable to the Association, shall be estab- lished within the Central Bank of Somalia to administer the auction system; (ii) requests for foreign exchange shall be made to FEAC; (iii) the Central Bank of Somalia shall hold at least a monthly auction of foreign exchange; (iv) the exchange rate at each auction shall be deter- mined by the marginal bid which exhausts the foreign exchange available in that particular auc- tion; (v) importers shall be required to open Letters of Credit within 45 days after the auction date; and (vi) the Borrower shall take appropriate measures to ensure that the proceeds of the Credit shall be allocated only for the importation of goods and materials under Part A of the Project. 2. Importation of diesel fuel and lubricants by SOMPET under Part A (ii) of the Project shall be based on the exchange rate determined at the most recent foreign exchange auction. - 21 - B. Part B of the Project - Imports by the Borrower All imports by the Ministries of the Borrower under Part B of the Project shall be processed at the official exchange rate prevailing at the time of opening the Letter of Credit. C. Functions of the Procurement Unit (PU) Notwithstanding the above, all imports under the Project shall be reviewed with the assistance of the Procurement Unit in accordance with guidelines acceptable to the Association. - 22 - SCHEDULE 6 The Import Special Account A 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) (a) and (2) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to the eligible Categories in accor- dance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $7,000,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, payments out ol the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of the Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) The Borrower shall furnish to the Association requests for replenishment of the Special Account at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the - 23 - Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expen- ditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Association when either of the following situations first arises: (i) the Association shall have determined that all further withdrawals should be made directly by the Borrower from the Credit Account in accordance with the provisions of paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allo- cated to the eligible Categories, minus the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice have been or will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account (i) was made for any expenditure or in any amount not eligible pursuant to paragraph 2 - 24 - of this Schedule, or (ii) was not justified by the evidence furnished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Association, deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Association into the Special Account shall be made until the Borrower has made such deposit or refund. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount for crediting to the Credit Account. - 25 - SCHEDULE 7 The Technical Assistance Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Category (3) set forth in the table in paragraph 1 of Schedule 1 to this Agree- ment; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to the eligible Categories in accor- dance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $700,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Association shall otherwise agree, payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or dep-sits which add up to the aggregate amount of the Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount or amounts as the Borrower 'hall have requested. (b) The Borrower shall furnish to the Association requests for replenishment of the Special Account at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible - 26 - expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expen- ditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Association when either of the following situations first arises: (i) the Association shall have determined that all further withdrawals should be made directly by the Borrower from the Credit Account in accordance with the provisions of paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allo- cated to the eligible Categories, minus the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice have been or will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account: (i) was made for any - 27 - expenditure or in any amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Association, deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Association into the Special Account shall be made until the Borrower has made such deposit or refund. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount for crediting to the Credit Account. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the Ii8 day of 198 O. FOR SECRETARY