Conformed Copy - L3778 - Rainfed Areas Development Project - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3778 ME Guarantee Agreement (Rainfed Areas Development Project) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated July 19, 1994 LOAN NUMBER 3778 ME GUARANTEE AGREEMENT AGREEMENT, dated July 19, 1994, between UNITED MEXICAN STATES (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and Nacional Financiera, S.N.C. (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; and (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to eighty-five million dollars ($85,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan and to undertake such other obligations as provided in this Agreement; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such Page 2 obligations of the Borrower and to undertake such other obligations as 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 Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth in Section 1.01 of the Loan Agreement (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 and Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower and FIRCO, all as set forth in the Loan Agreement and in this Agreement. Section 2.02. The Guarantor shall enter into the contractual arrangements referred to in Section 3.01 (a) of the Loan Agreement and, except as the Bank may otherwise agree, shall not amend or fail to enforce any provisions of such contractual arrangements. The Guarantor shall exercise its rights under such contractual arrangements in such manner as to protect the interests of the Guarantor and the Bank and to accomplish the purposes of the Loan. Section 2.03. The Guarantor shall provide, in a timely manner as needed, the funds, facilities, services and other resources required for the Project. ARTICLE III Execution of the Project Section 3.01. The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement and, to this end, without any limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor shall carry out the Project through FIRCO with due diligence and efficiency and in conformity with appropriate financial, administrative, agricultural and environmental standards and practices. Section 3.02. Except as the Bank 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 Loan shall be governed by the provisions of the Schedule to this Agreement. Section 3.03. The Guarantor shall carry out, or cause to be carried out, the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) with regard to the Project. Section 3.04. The Guarantor shall, in a manner acceptable to the Bank, maintain within FIRCO a project unit with appropriate functions and with qualified staff in adequate numbers and maintain within FIRCO an appropriate organizational structure for the execution, coordination and supervision of the Project. The Guarantor shall, through the Borrower, inform the Bank of any proposed change in the Project Unit or in the organizational structure or functions of FIRCO if such change may adversely affect the implementation of the Project, prior to making any such change. Page 3 Section 3.05. The Guarantor shall cause FIRCO to carry out Parts A and B of the Project in accordance with the Operating Rules and shall cause FIRCO not to change or waive any provision of the Operating Rules if such change or waiver may adversely affect the implementation of said Parts of the Project. Section 3.06. For the purpose of the execution of Part A of the Project, the Guarantor shall, through FIRCO: (a) ensure that all proposed investments are subjected to environmental screening procedures agreed with the Bank and that those procedures are implemented in a manner satisfactory to the Guarantor and the Bank; (b) demonstrate that all proposed investments are economically profitable and shall, to that end: (i) carry out an economic analysis of each proposed investment in a format agreed with the Bank; (ii) apply the net present value of the net economic benefits of the proposed investment at international input and output prices as the economic return criterion; (iii) use a 12 percent real discount rate to estimate net present value; and (iv) accept only proposed investments with a positive net present value; (c) impose a minimum 15 percent cost sharing on producers of the initial cost of the investment in accordance with a calculation of the economic value of producers' contributions agreed with the Bank; (d) ensure that no minimum farm size limits are imposed on producers receiving financing from FIRCO under Part A of the Project and that such producers: (i) do not own farms larger than 20 hectares for producers engaged in crop activities; (ii) obtain agricultural technical transfer services acceptable to FIRCO; and (iii) are organized into groups for operating and managing the investments; (e) ensure that the Project States sign annual agreements with FIRCO in a format agreed with the Bank for co-financing and implementation of the activities under Part A of the Project and that each of the Project States' share in the financing of the activities under Part A of the Project for such Project State shall not be less on average than 20 percent of the total cost of the activities under Part A of the Project in such Project State for such year; (f) submit to the Bank for its prior review and approval the feasibility studies for the first two investments to be financed under Part A of the Project in each of the Project States; and (g) submit to the Bank for its prior review and approval all feasibility studies for irrigated crop activities involving producers who own more than 10 hectares in accordance with a procedure agreed with the Bank. Section 3.07. For the purpose of the execution of Part B of the Project, the Guarantor, through FIRCO, shall: (a) ensure that producers receiving financing from FIRCO under Part A of the Project sign agreements with FIRCO under which such producers agree to obtain for agricultural extension services through participation in producers' groups organized for that purpose and that these agreements clearly inform producers of their right to choose freely the extension agents or organizations of their choice; (b) engage the services of an agricultural extension specialist, with qualifications and experience and on terms and conditions agreed with the Bank, to review the first 50 extension contracts under Parts B.1 and B.2 of the Project and make such modifications in the procedures for employment of, or contract terms and conditions of, such agricultural extension agents or organizations as may be warranted on the basis of the report of such specialist; (c) ensure that Part B.1 (b) of the Project shall be carried out on the basis of a program (including an implementation plan) of trials of innovative activities for each Project State, said programs to be prepared in cooperation with CODEITT by April 15, 1995 and to be satisfactory to FIRCO and the Bank; Page 4 (d) ensure that in carrying out Part B.3 of the Project, FIRCO, in addition to its regular supervision activities, shall also focus on: (i) additional training needs for private extension agents; (ii) the evolution, where necessary, from extension emphasis on maximizing yields to a whole- farm approach that emphasizes cost efficiency and finding the right production activity for particular groups of farmers, drawing in part on farmers' own initiatives and ideas; and (iii) targeting extension advice to the new macro-economic conditions of prices and production activities with a focus on minimizing production costs; (e) ensure that standards and procedures for the utilization of pesticides are applied that are acceptable to the Guarantor and the Bank; (f) ensure that the employment of all agricultural extension agents or organizations under Part B of the Project shall be based on standard terms of reference agreed with the Bank; (g) ensure that no minimum farm size limits are imposed on producers receiving financing from FIRCO under Part B of the Project; and (h) ensure that the Project States sign annual agreements with FIRCO in a format agreed with the Bank for co-financing and implementation of the activities under Part B of the Project. Section 3.08. Without limitation upon the provisions of Section 9.01 of the General Conditions, the Guarantor, through FIRCO, shall: (a) present to the Bank a draft budget and a proposed annual work plan for the Project not later than October 31 of each year, said proposed annual work plan to be in a format and of such scope and detail as agreed with the Bank, and provide not later than April 30 of each year evidence satisfactory to the Bank of the approved budget for FIRCO; (b) furnish to the Bank bi-annual reports covering all activities under the Project for the previous six months not later than April 30 and October 31 of each year, said reports to be in a format and of such scope and detail as agreed between the Guarantor and the Bank; (c) hold an annual review of the Project with the Bank not later than October 31 of each year to assess Project implementation, based upon the Implementation Indicators, and to review and revise, if necessary, to the satisfaction of the Bank, the proposed annual work plan for the following year; (d) carry out a midterm review with the Bank not later than October 31, 1996 on the basis of terms of reference for such review agreed upon with the Bank, which terms of reference shall include: (i) an assessment of the suitability and quality of the screening procedures referred to in Section 3.06 (a) of this Agreement; and (ii) an assessment of Project implementation and impact on the basis of the Implementation Indicators and on the basis of a study on the socioeconomic and environmental impact of the Project, including an ex-post analysis of return on physical investments and extension activities; and (e) promptly take all such action, satisfactory to the Bank, as shall be necessary for the efficient execution of the Project or the achievement of its objective if, as a result of any bi-annual report or annual review, or as a result of the midterm review, progress in the execution of the Project or in the achievement of the objectives of the Project is not satisfactory to the Bank. ARTICLE IV Financial Covenants Section 4.01. (a) The Guarantor shall maintain through FIRCO records and separate accounts adequate to reflect, in accordance with sound accounting practices, the resources and expenditures in connection with the execution of the Project. (b) The Guarantor shall: (i) have such records and separate accounts referred to in Page 5 paragraph (a) of this Section for each fiscal year audited, in accordance with generally accepted auditing standards and procedures consistently applied, by independent and qualified auditors; (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 copy of the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records and accounts as well as the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditures, the Guarantor shall:  (i) maintain, in accordance with paragraph (a) of this Section, records and separate accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and separate 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 of 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. (d) For all expenditures with respect to which withdrawals were made from the Special Account, the Guarantor shall provide to the Borrower any information that may be required by the Borrower to comply with the Borrower's obligations under Section 4.01 (b) of the Loan Agreement. ARTICLE V Representatives of the Guarantor; Addresses Section 5.01. The Director General de Credito Publico of the Guarantor's Ministry of Finance and Public Credit is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 5.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: Secretaria de Hacienda y Credito Publico Direccion General de Credito Publico Palacio Nacional, Patio Central Oficina 4025 06066 Mexico, D.F., Mexico Telex: 1777313-SHOCME For the Bank: Page 6 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. UNITED MEXICAN STATES  By /s/ Jorge Montano Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Shahid Javed Burki Regional Vice President Latin America and the Caribbean SCHEDULE 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 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 1992 (the Guidelines). (a) For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by a predisclosed correction factor acceptable to the Bank. Such an increase shall not be taken into account in the bid evaluation. (b) In the procurement of goods in accordance with this Part A, the relevant standard bidding documents issued by the Bank as modified by agreement between the Guarantor and the Bank dated December 8, 1993 shall be used, with such modifications thereto as the Bank shall have agreed to be necessary for the purposes of the Project; provided, however, that for any procurement of goods for which the invitation to bid ("convocatoria") is dated prior to March 1, 1994 standard bidding documents based on the so- called "Cuernavaca Documents" with such changes as may be agreed by the Bank and the Guarantor for each contract shall be used. 2. To the extent practicable, contracts for goods shall be grouped in bid Page 7 packages estimated to cost the equivalent of $350,000 or more. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Mexico may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures 1. Works estimated to cost the equivalent of less than $10,000,000 per contract but more than $350,000 may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank. Such procurement shall take place using standard bidding documents satisfactory to the Bank. 2. Works estimated to cost the equivalent of $350,000 or less per contract, up to an aggregate amount of $77,600,000 equivalent, and goods estimated to cost $150,000 equivalent or less, up to an aggregate amount of $23,100,000 equivalent, may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. Part D: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to: (i) each contract for works estimated to cost more than the equivalent of $350,000; (ii) the first three contracts for works estimated to cost the equivalent of $350,000 or less; and (iii) each contract for goods procured in accordance with the procedures set forth in Part A of this Schedule, 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 Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank 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 preceding 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 Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Loan Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. In order to assist the Guarantor in carrying out the Project, the Guarantor through FIRCO shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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 (the Consultant Guidelines). For complex, time-based assignments, the Guarantor, through FIRCO, shall employ such consultants under contracts using the standard form of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Bank. Where no relevant standard contract documents have been issued by the Bank, the Guarantor shall use other standard forms agreed with the Bank. Page 8 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Bank review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, shall not apply to: (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each; or (b) contracts for the employment of individuals estimated to cost less than $50,000 equivalent each, up to an aggregate amount for contracts with firms and individuals of $48,600,000 equivalent. However, said exceptions to prior Bank review shall not apply to: (a) the terms of reference for such contracts; (b) single-source selection of consulting firms; (c) assignments of a critical nature, as reasonably determined by the Bank; (d) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above; or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above.