Somalia - Semi-Mechanized Rainfed Agriculture Pilot Project : Credit 1774 - Credit Agreement - Conformed

OFF ICI AL DOCUMENTS CREDIT NUMBER 1774 SO Development Credit Agreement (Semi-Mechanized Rainfed Agriculture Pilot Project) between SOMALI DEMOCRATIC REPUBLIC and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated Qp rLL 13 , 1987 CREDIT NUMBER 1774 SO DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated 4 rc /3 , 1987, between SOMALI DEMOCRATIC REPUBLIC (the Borrower) and the INTERNATIONAL DEVELOPKENT ASSOCIATION (the Association). WHEREAS 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; and WHEREAS the Association has agreed, on the basis, inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions 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. 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) "Project Preparation Advance" means the project prepa- ration advance granted by the Association to the Borrower pursuant to an exchange of letters dated June 5, 1986, and August 4, 1986, between the Borrower and the Association; (c) "AFMET" means the Agricultural Farm Management Extension and Training Agency, established pursuant to Presidential Decree No. 8; (d) "CARS" means the Central Agricultural Research Station; - 2 - (e) "MOA" means the Borrower's Ministry of Agriculture; (f) "SDA" means the Settlement Development Agency established under Decree Number 14 of 1976; (g) "Fiscal Year" means the period from January 1 to December 31; (h) "Project Area" means the area in the lower Shebelli Region between Kurtun Waarey and Sablaale; and (i) "PIU" means the Project Implementation Unit co be established within SDA pursuant to Section 3.03 of this Agreement. 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 this Agreement, an amount in various currencies equivalent to ten million six hundred thousand Special Drawing Rights (SDR 10,600,000). Section 2.C . (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of this Section and of Schedule 1 to this Agreement 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 the Project, open and maintain in dollars a special account in its central 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 5 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and -3- outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be December 31, 1995, or such later date as the Association shall establish. The Association 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 this Agreement 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 request; (ii) without restrictions 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. 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 15 and November 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each May 15 and November 15 commencing May 15, 1997, and ending November 15, 2036. Each installment to and including the installment payable on November 15, 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 Ptoject 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 Parts A, B, C, E, H, I and J of the Project through SDA; Part D of the Project through MOA; Part F of the Project through CARS; and Part G of the Project through AFMET with due diligence and efficiency and in conformity with appropriate administrative and agricultural practices, and shall provide, or cause the provision of, 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 and except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Sched- ule 4 to this Agreement. Section 3.02. 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 3.03. The Borrower shall maintain, until the com- pletion of the Project, PIU established within SDA with the following functions: (i) preparing reports on the Project; (ii) organizing the Project budget; (iii) carrying out Project procurement and hiring; (iv) acquiring land required for the Project; (v) selecting settlers and supervising settlement in Farm Management Units; (vi) making arrangements for land clearing; (vii) coordinating other agencies of the Borrower responsible for implementing the various parts of the Project; and (viii) providing mechanization and other services to settler farmers. Section 3.04. The Borrower shall cause PIU to take all appropriate measures to operate on the basis of cost recovery of its operations as provided in Schedule 4 to this Agreement. -5- Section 3.05. In order to assist SDA in carrying out Part E of the Project, the Borrower shall make available to SDA a grant out of the proceeds of the Credit in an amount not exceeding the equivalent of $200,000. Section 3.06. In order to assist CARS in carrying out Part F of the Project, the Borrower shall make available to CARS a grant out of the proceeds of the Credit in an amount not exceeding $2,100,000. Section 3.07. In order to assist AFMET in carrying out Part G of the Project the Borrower shall make available to AFMET a grant out of the proceeds of the Credit in an amount not exceeding $200,000. Section 3.08. (a) The Borrower shall, not later than January 1, 1988, take appropriate measures to allocate land, for farmer settlement purposes, to SDA on a fifty-year renewable lease basis; and (b) the Borrower shall cause SDA to sublease the land so acquired to the farmers under terms and conditions acceptable to the Association and in accordance with Schedule 4 to this Agreement. Section 3.09. (a) The Borrower shall cause PIU to prepare and submit to the Association: (i) not later than November 1 of each year, an Annual Work Program for each following Fiscal Year; and (ii) quarterly progress reports in a format acceptable to the Association. (b) The Annual Work Program referred to in paragraph (a) of this Section shall include the necessary details to enable SDA and MOA to monitor the progress of the Project, scrutinize future programs and provide the necessary budgetary and other support for the Project. Section 3.10. The Borrower shall, not later than December 31, 1991, or such other date as may be agreed by the Association, carry out a mid-term review of the progress of the Project in accordance with Schedule 4 to this Agreement. Section 3.11. Without limitation upon its obligations under Section 3.01 of this Agreement, the Borrower shall: (a) establish and maintain in the Central Bank of Somalia under arrangements satisfactory to the Association, a Project Advance Account to be -6- used for the purpose of meeting recurrent expenditures associated with the Project; and (b) deposit in the said Project Advance Account, at the beginning of each quarter, the funds required to meet recurrent expenditures for such quarter. Section 3.12. In order to assist CARS in carrying out Part F of the Project, the Borrower shall take all the necessary mea- sures to ensure that the Research Coordinator and the Senior Agronomist have been appointed by not later than January 1, 1988. Section 3.13. The Borrower shall: (a) not later than December 31, 1990, submit to the Association for comments the recommendations of the study on the impact of the Project on the environment; and (b) soon thereafter implement such recommenda- tions taking into account the Association's comments. 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 records and accounts referred to in paragraph (a) of this Section including those for the Special Account 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 nine months for fiscal years 1987 and 1988 and six months after the end of each year thereafter, 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 -7- (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof 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, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the completion 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 records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements ok expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. The Borrower shall cause AFMET, CARS and SDA to maintain separate accounts for expenditures under the Project and to: (i) have these accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each financial 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 nine months after the end of each such year for fiscal years 1987 and 1988 and not later than nine months after the end of each such year thereafter: (A) certified copies of financial statements for such -8 - year as so audited; and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of AFMET, CARS and SDA and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Other Covenants Section 5.01. The Borrower shall cause AFMET, CARS and SDA: (a) to take out and maintain with responsible insurers, or t make other provision satisfactory to the Association for insurance against such risks and in such amounts as shall be consistent with appropriate practice; (b) to carry on their operations and conduct their affairs in accordance with sound administrative, financial, and agricul- tural practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers; and (c) at all times to operate and maintain their plants, machinery, equipment and other property, and from time to time, promptly as needed, to make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and agricultural practices. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower shall have opened a Project Advance Account in the manner specified in Section 3.11 of this Agreement and has deposited therein a sum of Somali Shillings five million; and -9- (b) the Borrower shall have submitted documentary evidence satisfactory to the Association showing that suitable land has been identified and designated for the Project. Section 6.02. The date ninety (90) 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 minister 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 Mogadishu Somalia Cable address: MINFIN 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) - 10 - 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 Dis'-rict of Columbia, United States of America, as of the day and year first above written. SOMALI DEMOCRATIC REPUBLIC By/S q 0&X 4d ) Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By / 4W kJ y4') 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) Civil works 1,110,000 100% of foreign expenditures and 90% of local ex- penditures (2) Vehicles, 1,110,000 100% of foreign machinery expenditures and and equip- 90% of local ment expenditures (3) Assistance 160,000 100% to farmers under Part E of the Project (4) Training 790,000 100% and studies (5) Consultants' 1,980,000 100% services (6) Operating costs: (a) Vehicles, machinery, 1,980,000 100% of foreign equipment, expenditures and farm inputs 90% of local and supplies expenditures (b) Salaries 1,190,000 90% - 12 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (7) Goods and 240,000 100% Services under Part J of the Project (8) Refunding of 1,040,000 Amount due pur- Project Prep- suant to Section aration 2.02 (c) of this Advance Agreement (9) Unallocated 1,000,000 TOTAL 10,600,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for: (a) expenditures prior to the date of this Agreement; and (b) expenditures under Category (7) unless the Association has approved mitigatory measures for environmental problems. - 13 - SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower in: (i) further developing the appropriate technology in semi- mechanized farming through on-site adaptive research and trials; (ii) devising a permanent institution to manage these activities; (iii) transferring farm management skills to Somali nationals; and (iv) increasing the production of crops and smallholder farmers' incomes through the expansion of semi-mechanized rainfed farming activites. 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: Central Services Maintenance and operation of a Project Implementation Unit to coordinate implementation of the Project through the provision of houses, stores, offices, water supply facilities, vehicles and equipment, staff and operating costs and technical assistance. Part B: Farm Development 1. Development of farms through the provision of land clearing equipment and inputs for reforestation. 2. Construction of flood protection bunds, roads for internal accessibility and establishment of nurseries for bush strips. 3. Provision of houses, machinery components, stores, offices, workshops and fuel tanks. 4. Provision of staff and other operating costs. Part C: Farm Management Units Establishment of about four new Farm Management Units of 1,200 hectares each with each Farm Management Unit consisting of about 100 farm families and strengthening of two existing Farm Management Units through the provision of: (i) farm machinery, - 14 - other agricultural equipment, vehicles, and other farm-inputs; and (ii) staff, equipment, and other miscellaneous operating costs to be incurred by Farm Management Units. Part D: Monitoring and Evaluation Carrying out a coordinated and systematic monitoring and evaluation of the agricultural sector through the provision of: (i) accommodation for enumerators; (ii) vehicles, equipment, staff and operating costs to the Planning and Statistics Depart- ment of MOA; and (iii) technical assistance. Part E: Assistance to Farmers Provision of food or its cash equivalent to the newly- established farmers as an incentive to farmers to establish bush strips. Part F: Adaptive Research Carrying out adaptive research in semi-mechanized rainfed farming through the provision of laboratory offices, houses, seed and chemical stores, water supply facilities, vehicles, machinery, equipment, staff and other operating costs, and technical assistance. Part G: Extension Carrying out agricultural extension services to farmers through the provision of: (i) houses for extension staff, low cost, local design settlement meeting centers, and the rehabili- tation of classrooms at Kurtun Waarey and Sablaale; (ii) vehicles and equipment; and (iii) staff and other operating costs. Part H: Training Provision of local and overseas training for farm managers and other local staff in farm management, workshop management, land clearing and dryland farming research, farm economics, extension, monitoring and evaluation systems. Part I: Studies (a) Carrying out studies on: (i) soils; (ii) livestock development; and (iii) the impact of the Project on the environment. - 15 - (b) Carrying out aerial photography in areas adjacent to the Project Area. (c) Carrying out studies on project preparation for additional projects. Part J: The Environment The implementation of mitigatory measures for environmental problems through the provision of goods, services and training. The Project is expected to be completed by June 30, 1995. - 16 - SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part C hereof, goods and works shall be procured under contracts awarded 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 (the Guidelines). 2. Bidders for works and goods shall be prequalified as described in paragraph 2.10 of the Guidelines. 3. To the extent practicable, contracts for civil works shall be grouped in bid packages estimated to cost the equivalent of $100,000 or more each. Part B: Preference for Domestic Contractors In the procurement of works in accordance with the proce- dures described in Part A.1 hereof, the Borrower may grant a margin of preference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part C: Other Procurement Procedures 1. Contracts for the rehabilitation of classrooms, construction of settlement meeting centers and water supply facilities estimated to cost the equivalent of $300,000 may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Contracts for the supply of fuel, lubricants and farm inputs not exceeding in the aggregate the equivalent of $2.0 million may be procured under contracts awarded through limited international bidding procedures on the basis of evaluation and comparison of bids invited from a list of at least three qualified suppliers eligible under the Guidelines and in accordance with the proce- dures set forth in Sections I and II of the Guidelines (excluding paragraphs 2.8, 2.9, 2.55 and 2.56 thereof). - 17 - 3. Goods estimated to cost less than the equivalent of $20,000 per contract up to an aggregate amount not to exceed the equi- valent of $200,000 may be procured under contracts awarded on the basis of price quotations solicited from a list of at least three suppliers eligible under the Guidelines, in accordance with pro- cedures acceptable to the Association. 4. Spare parts not exceeding in the aggregate the equivalent of $1.1 million may be procured on the basis of quotations from manufacturers or dealers as appropriate. 5. Civil works for land clearing and road construction may be carried out by building staff of SDA as appropriate. Part D: Review by the Association of Procurement Decisions 1. Review of prequalification: With respect to the prequalification of bidders as provided in Part A.2 hereof, the procedures set forth in paragraph 1 of Appendix 1 to the Guidelines shall apply. 2. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods and works estimated to cost the equivalent of $250,000 or more, 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 Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to Section (d) of said paragraph 2 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 contract are to be made out of the Special Account, such procedures 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 5 to this Agreement. - 18 - (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. 3. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants In order to assist the Borrower in carrying out the Project. the Borrower shall employ or cause the employment of agricul- tural, financial and management consultants whose qualifications, experience and terms and conditions of employment shall be satis- factory 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 Con- sultants by World Bank Borrowers and by the World Bank as Execut- ing Agency" published by the Bank in August 1981. - 19 - SCHEDULE 4 Implementation Program A. In carrying out the Project, the Borrower shall: (1) take appropriate measures to organize farmers in Farm Management Units (FMU) as follows: (a) each FMU will have about 1,200 hectares of land and 100 settlers; (b) each settler will be allocated about 7 hectares of arable land and 5 hectares of bush strips; and (c) each FMU will also be provided with experienced staff to run the agricultural machinery and to provide social and commercial services; (2) adopt the following criteria in choosing sites for FMUs: (a) easy access for settlers; (b) availability of water; (c) avoiding excessively clayey soils which provide poor foundation for local buildings; and (d) using only land with non-saline soils for rainfed farming; (3) establish a: (a) Settler Selection Committee in PIU whose members shall be the General Manager of SDA as Chairman, the Project Director of PIU, and one representa- tive each from SDA, MOA, the District Commis- sioners' Offices and the Mayors' Offices of Kurtun Waaray and Sablaale; (b) Research and Extension Committee with terms of reference acceptable to the Association, the -20 - function of which shall be to formulate a long- term research program and to submit such Program to the Association not later than July 1, 1988; and (c) Future Organization Structure Committee whose functions and terms of reference shall be accept- able to the Association; The Committee shall submit its report to MOA in time for the mid-term review to be carried out pursuant to Section 3.10 of this Agreement; (4) adopt the following criteria in selecting settlers: (a) Somali citizenship; and (b) the prospective settler should (i) be capable of working the land, (ii) not be a landholder occupying the Project land, and (iii) have no other permanent paid employment; (5) take appropriate measures to ensure that the following conditions of the sub-lease between the SDA and the settlers are observed: Obligations of Sublessor (a) The sublessor (SDA) shall provide timely machinery and other services to the lessee to a standard as determined by PIU management and Settlers' Committees. (b) Provided the sublessee is not in default of the lease agreement the sublessor shall allow the sub- lessee to manage his farm in accordance with the rules determined by PIU's management and Settlers' Committees. Obligations of Sublessee (c) The sublessee (settler) shall manage his farm in accordance with rules determined by PIU's manage- ment and Settlers' Committees. - 21 - (d) The sublessee will pay to PIU the charges for direct production costs and such other charges as may be decided by the PIU management. (e) The sublessee shall not erect any physical barriers or cause any obstruction to the orderly performance of the mechanized services on the farm. (f) The sublessee shall not interfere with his designated fallow land except utilizing it for purposes as directed by the rules of the PIU management. (g) If it is judged by the PIU management and Settlers' Committees that a sublessee is in default of any of the sublease's provisio-s, then the sublessee's land will be forfeited without compensation. B. In carrying out Section 3.04 of this Agreement, the Borrower shall or shall cause PIU to implement cost recovery measures as follows: (1) For the two existing FMUs, cost recovery measures shall be implemented as follows: (a) full operating costs shall be recovered beginning calendar year 1988; and (b) capital costs shall be recovered annually over ten years, beginning calendar year 1988 with two years of grace, at interest rates not less than fifteen percent (15%) per annum. (2) For the four newly established FMUs, as yields and production improve, and with consequent increase in farmers' incomes, the amount of cost to be recovered would correspondingly increase so that by the end of the first year of harvests cost recovery would begin covering operating and annual capital costs for each of the newly established FMUs. (3) Farmers in the four newly established FMUs shall repay annually the capital costs over ten years, including two years of grace, at interest rates not less than fifteen percent (15%) per annum. - 22 - (4) Notwithstanding the provision of sub-paragraph (3) above, cost recovery from the new FMUs shall achieve the follow- ing targets: 25% of operating and annual capital cost by end of the first year of harvest, 50% of operating and annual capital cost by end of the second year of harvest, 75% of operating and annual capital cost by end of the third year of harvest, and 100% of operating and annual capital cost by end of the fourth year of harvest and thereafter; (5) for the purpose of sub-paragraphs (1) (2) and (3) above: (a) the term "operating costs" means all costs related to operations, including administration, adequate maintenance, taxes or payments in lieu of taxes, but excluding interest and other charges on debt. (b) the term "capital costs" means all costs incurred on account of fixed assets, including interest. C. In carrying out Section 3.09 of this Agreement the Borrower shall cause PIU to prepare Annual Work Programs for all Project components. The Annual Work Programs shall include the following information: (1) the effectiveness of the design and layout of exist- ing farms and the farming system used; (2) a detailed description of the work to be performed; (3) a budget for the period covered; (4) a financing plan and detailed quarterly cash flow projections, including the Borrower's contribution to the Project Advance Account; (5) a detailed assessment of the previous year's perfor- mance; - 23 - (6) a detailed staffing analysis, including proposals for filling vacant posts; (7) the proposed training program for PIU staff and farmers; and (8) the Borrower's budgetary allocations for the Project. D. In carrying out Section 3.10 of this Agreement the Borrower shall include the following items in its mid-term review: (1) progress of the Project; (2) evaluation of Project results and viability; (3) future direction of the Project; (4) the mertis or otherwise of a follow-on project and the finalization of terms of reference of such a Project; (5) the future organization structure of Project management including whether or not such proposals should be introduced under this Project or deferred to the follow-on project, if any; (6) the implementation of mitigatory measures for environ- mental problems; and (7) the implementation of cost recovery measures. E. In carrying out Parts F and G of the Project the Borrower shall take appropriate measures to ensure that: (1) PIU shall excercise line management control over research and extension activities; (2) CARS shall be responsible for the technical direction of the adaptive research component; (3) AFMET shall be responsible for the technical direction of extension activities; and (4) the Ministry of Education of the Borrower shall make- available to MOA classroom facilities at Kurtun Waarey and Sablaale for extension training activities. - 24 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories 1 to 7 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 $400,000 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 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 - 25 - amount of payments made out of the Special Account for eligible 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 by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and 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 equiva'ent 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 will be utilized in making payments for eligible expenditures. - 26 - 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 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 International Development Association. FOR SECRETARY