Conformed Copy - L2911 - Second Small and Medium Scale Industry Development Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2911 TUN (Second Small and Medium Scale Industry Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE and BANQUE DU SUD and BANQUE DE TUNISIE and BANQUE DE TUNISIE ET DES EMIRATS D'INVESTISSEMENT and SOCIETE TUNISIENNE DE BANQUE Dated April 13, 1988 LOAN NUMBER 2911 TUN PROJECT AGREEMENT AGREEMENT, dated April 13, 1988 between the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISE (BDET) and BANQUE DU SUD (BS) and BANQUE DE TUNISIE (BT) and BANQUE DE TUNISIE ET DES EMIRATS D'INVESTISSEMENT (BTEI) and SOCIETE TUNISIENNE DE BANQUE (STB) (hereinafter sometimes collectively called the Participating Banks). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of Tunisia (the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to twenty-eight million dollars ($28,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Participating Banks agree to undertake such obligations toward the Bank as are set forth in this Agreement; and (B) by Subsidiary Loan Agreements to be entered into between Page 2 the Borrower and each Participating Bank, part of the proceeds of the loan provided for under the Loan Agreement will be made available to the Participating Banks on terms and conditions set forth in said Subsidiary Loan Agreements; and WHEREAS the Participating Banks, in consideration of the Bank's entering into the Loan Agreement with the Borrower, have agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of Part A of the Project; Management and Operations of the Participating Banks Section 2.01. Each Participating Bank declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out its respective activities under Part A of the Project and conduct its operations and affairs, in accordance with sound financial standards and practices, with qualified and experienced management and in accordance with its Statutes and, with regard to BDET and BTEI, in accordance with the Statement of Policy of BDET and the Statement of Policy of BTEI, respectively. Section 2.02. (a) Each Participating Bank undertakes that, unless the Bank shall otherwise agree, Sub-loans and Investments will be made: (i) for Investment Projects satisfying the eligibility criteria enumerated in Schedule 1 to this Agreement; and (ii) in accordance with the procedures, and on the terms and conditions set forth or referred to in Schedule 2 to this Agreement. (b) Each Participating Bank shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Borrower, the Bank and of itself; (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement it is a party to; and (iii) achieve the purposes of the Project. Section 2.03. Each Participating Bank shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports and maintenance) in respect of each Participating Bank's undertakings under this Agreement and of its respective activities under Part A of the Project. Section 2.04. Each Participating Bank shall duly perform all its obligations under the Subsidiary Loan Agreement between the Borrower and that Participating Bank. Except as the Bank shall otherwise agree, a Participating Bank shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the Subsidiary Loan Agreement between the Borrower and that Participating Bank or any provision thereof. Section 2.05. Each Participating Bank shall: (a) at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the Page 3 Subsidiary Loan Agreement it is a party to, and other matters relating to the purposes of the Loan; (b) promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Loan, or the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement between the Borrower and that Particpating Bank; (c) at least once a year, prepare and furnish to the Bank for review progress reports on Investment Projects during the implementation and first three years of operation of each Investment Project, in a format agreed upon between the Bank and each Participating Bank; and (d) each year, prepare and furnish to the Bank for review its annual reports together with such information as the Bank may reasonably request on, inter alia, its portfolio of commitments and forecasts of its activities. Article III Financial Covenants Section 3.01. (a) Each Participating Bank shall maintain procedures and records: (i) of each of its Investment Project (including its cost and the benefits to be derived from it) adequate to monitor and record the progress of Part A of the Project; and (ii) to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition. (b) Each Participating Bank shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than six months after the end of each such year, (A) certified copies of its 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 concern- ing said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of the Participating Banks thereunder shall terminate on the date on which the Loan Agreement shall terminate. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Page 4 Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other addresses as such party shall have 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 BDET: 68 Avenue Habib Bourguiba Tunis 1000 Republique Tunisienne Cable address Telex: BDETUN 14382 For BS: 95 Avenue de la Liberte Telex: Tunis 1002 Republique Tunisienne 14351 13855 13856 15197 For BT: 3 Avenue de France Tunis 1000 Republique Tunisienne Cable address Telex: Banque - TUNIS 15486 15387 14070-14170- 14171 For BTEI: 5 bis Boulevard Thomas Telex: Tunis Republique Tunisienne 13186 For STB: Rue de la Monnaie Tunis Republique Tunisienne Cable address Telex: Page 5 SOTUBANK 377 TUNIS Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of a Participating Bank, may be taken or executed by its President Director General, or by such other person or persons as its President Director General shall designate in writing, and each Participating Bank shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Kemal Dervis Acting Regional Vice President Europe, Middle East and North Africa BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE By /s/ Habib Ben Yahia Authorize Representative BANQUE DU SUD By /s/ Habib Ben Yahia Authorized Representative BANQUE DE TUNISIE By /s/ Habib Ben Yahia Authorized Representative BANQUE DE TUNISIE ET DES EMIRATS D'INVESTISSEMENT By /s/ Habib Ben Yahia Authorized Representative SOCIETE TUNISIENNE DE BANQUE Page 6 By /s/ Habib Ben Yahia Authorized Representative SCHEDULE 1 Eligibility Criteria for Investment Projects Investment Projects shall satisfy the following criteria, on the basis of a methodology acceptable to the Bank: (a) Sub-loans or Investments shall be made for: (i) the establishment of new Investment Enterprises whose total invest- ments do not exceed one and a half million Dinars at constant December 1987 value, including working capital funds; or (ii) the expansion, modernization, diversification, rehabilitation and restructuring of existing Investment Enterprises whose total investments do not exceed two and a half million Dinars at constant December 1987 value, including supplementary working capital funds and net fixed assets; (b) the Investment Enterprise shall be financially sound and shall be expected to be profitable and to be able to repay the proposed Sub-loan including interest thereon, or the amount used for the Investment; (c) the Investment Project shall have an economic rate of return of at least 10% per annum, during the life of the Sub-loan or Investment; (d) except as provided in paragraph (e) below, the Invest- ment Project shall be expected to result in the creation or main- tenance of employment with an average investment cost per job created or maintained not exceeding 30,000 Dinars at constant December 1987 value. The cost per job shall be calculated as follows: (i) in the case of the creation of an enterprise, by dividing the estimated cost of the Investment Project, such cost to be determined as the value of fixed assets, including buildings and of relating initial permanent working capital requirements, but excluding land to be acquired, by the total number of employees for whom jobs are expected to be created; and (ii) in the case of the expansion, modernization, diversification, rehabilitation and restructuring of existing Investment Enterprises, by dividing the cost of the Investment Project, by the number of employees for whom jobs would be created or maintained; (e) in case an Investment Project is expected to result in the creation or maintenance of employment with an average invest- ment cost per job created or maintained exceeding 30,000 Dinars as calculated in accordance with paragraph (d) above, at least one of the following conditions has to be satisfied before an investment proposal may qualify as an Investment Project: (i) the Investment Enterprise will export at least 25% of its output after completion of the Investment Project; (ii) the total average net cost, such cost to be determined as the aggregate of the estimated value of net fixed assets and of the new assets to be acquired under the Investment Project and of the additional permanent working capital requirements, divided by the number of employees for whom jobs Page 7 would be created or maintained does not exceed 30,000 Dinars as calculated in accordance with paragraph (d) above; and (iii) the Investment Project fulfills the priority criteria of the Borrower with regard to decentralization, industrial linkages and transfer of technology. SCHEDULE 2 Procedures for Appraisal and Approval, and Terms and Conditions of Sub-loans and Investments I. Procedures for Appraisal of Sub-loans and Investments 1. Identification and appraisal of Investment Projects shall be the responsibility of the Participating Banks. 2. Each appraisal of an Investment Project shall consist of a financial, an economic, a technical and a market analysis of the Investment Enterprise and the Sub-loan or Investment covering, inter alia: (a) the production process, equipment and technology selected, production level and output and the description of goods to be produced; (b) the ownership structure of the Investment Enterprises involved and a commentary on why the Participating Bank, in case it participates in the share capital, has decided to take an equity share; (c) the investment costs (total and foreign exchange) and its cost components, details on working capital needs as well as the Investment Project's financing plan; (d) a detailed market analysis (local demand, domestic production and imports, export potential), and mar- keting arrangements; (e) a description of the protection on the goods to be manufactured (in terms of duties and taxes) as well as quantitative restrictions and import licensing when applicable; (f) an estimate of the number of jobs created, and their average cost; (g) an analysis of the future financial position, pro- fitability and cash generation of the Investment Enterprise to assure its debt service as well as a demonstration of the financial and economic viability of the Investment Project, including the computation of the economic rate of return thereof; and (h) an analysis of the management of the Investment Enterprise, its administration, its development potential and its partners. II. Approval of Sub-loans and Investments 1. Sub-loan and Investment applications shall be prepared by Participating Banks in the case of Investment Projects which Participating Banks intend to finance. 2. No expenditures for goods or works required for an Investment Project shall be eligible for financing out of the proceeds of the Loan unless: Page 8 (a) the Sub-loan or Investment for such Investment Project shall have been approved by the Bank and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the application and information required under paragraph II.3 (a) of this Schedule in respect of such Sub-loan or Investment; or (b) the Sub-loan or Investment for such Investment Project shall have been a free-limit Sub-loan or Investment for which the Bank has authorized withdrawals from the Loan Account and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the request and information required under paragraph II.3 (b) of this Schedule in respect of such free-limit Sub-loan or Investment. 3. (a) When presenting a Sub-loan or an Investment (other than a free-limit Sub-loan or Investment) to the Bank for approval, the Participating Banks shall furnish to the Bank an application, in a form satisfactory to the Bank, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan or Investment, including the schedule of amortization of the Sub-loan or of repayment of the amount of the Loan to be used for the Investment; and (iii) such other information as the Bank shall reasonably request. (b) Each free-limit Sub-loan or Investment is recorded upon request which is made to the Bank and which shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. 4. Applications and requests made pursuant to the provisions of paragraphs II.3 (a) and (b) of this Schedule shall be presented to the Bank on or before December 31, 1991. III. Terms and Conditions of Sub-loans and Investments 1. Sub-loans shall carry an effective cost to the Investment Enterprise not exceeding the aggregate of: (a) the commitment charge and the interest rate payable by the Participating Banks to the Borrower under the Subsidiary Loan Agreements pursuant to Schedule 7, paragraphs 5 and 7 of the Loan Agreement; (b) an intermediation margin of 4% maximum per annum; and (c) the foreign exchange risk fee payable by the Participat- ing Banks to the Borrower under the Subsidiary Loan Agreements pursuant to Schedule 7, paragraph 6 of the Loan Agreement. 2. Unless the Bank and the Borrower shall otherwise agree, Sub-loans for or Investments in an Investment Project shall not in the aggregate exceed 800,000 dollars equivalent for the same Investment Project. Amounts committed by a Participating Bank for all its Investments shall not in the aggregate exceed 600,000 dollars equivalent. 3. The amortization schedule applicable to each Sub-loan shall provide for an appropriate period of grace of not more than 3 years, and unless the Bank and a Participating Bank shall otherwise agree: (i) shall not extend beyond 11 years from the date of signature of the contract for such Sub-loan; and (ii) shall provide for semi-annual or more frequent payments. 4. Each Participating Bank shall transmit to the Bank, for its prior approval any substantial changes proposed to be made by that Page 9 Participating Bank in respect of the repayment provisions of any Sub-loan. 5. If a Sub-loan or any part thereof shall be repaid to a Participating Bank in advance of maturity or if a Sub-loan or any part thereof shall be sold, transferred, assigned or otherwise disposed of for value, that Participating Bank shall promptly notify the Borrower and the Bank and shall repay to the Borrower on the next following payment date, the amount withdrawn from the Loan Account in respect of such Sub-loan or part thereof and not theretofore repaid to the Bank. 6. Sub-loans and Investments shall be made on terms whereby the Participating Banks shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Participating Banks, including, in the case of any Sub-loan and, to the extent that it shall be appropriate, in the case of any Investment, the right to: (a) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods and services to be financed out of the proceeds of the Sub-loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them; and (ii) such goods and services shall be used exclusively in the carrying out of the Investment Project; (c) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the fore- going, such insurance shall cover hazards incident to the acquisi- tion, transportation and delivery of goods financed out of the proceeds of the Sub-loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Bank or the Participating Banks shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project; and (f) suspend or terminate the right of the Investment Enter- prise to the use of the proceeds of the Sub-loan upon failure by such Investment Enterprise to perform its obligations under its contract with the Participating Bank.