Zambia - Agricultural Sector Investment Program : Credit 2698 - Credit Agreement - Conformed

CREDIT NUMBER 2698 ZA Development Credit Agreement (Agricultural Sector Investment Program) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated 7 , 1995 CREDIT NUMBER 2698 ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated 7 , 1995, between the REPUBLIC OF ZAMBIA (the Borrower) and INTEATIONAL 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 Association has received from the Borrower a letter dated March 16, 1995 describing a set of actions, objectives and policies designed to implement the Borrower's rolling four-year agricultural sector investment program (hereinafter referred to as "the Program") and declaring the Borrower's commitment to the execution of the Program; (C) the Borrower intends to contract from various other donors (hereinafter referred to as the Cofinanciers) loans and grants in an aggregate amount equivalent to $130,000,000 (hereinafter referred to as the Cofinancing) to assist in financing the Program on the terms and conditions set forth in agreements (hereinafter referred to as the Cofinancing Agreements) to be entered into between the Borrower and the Cofinanciers; 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 Development Credit Agreements" of the Association, dated Janti-ry 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: -2- (a) "MAFF" means the Borrower's Ministry of Agriculture, Food and Fisheries; (b) "ASSC" means Agricultural Sector Steering Committee, an interministerial committee established under the Chairmanship of the Borrower's Minister of Agriculture, Food and Fisheries to coordinate the implementation of the Program; (c) "FMU" means Financial Management Unit, a unit established within MAFF to manage the financial aspects of the Program; (d) "PPD" means Policy and Planning Division, the department within MAFF in charge, inter alia, of the implementation of Part D. 1 of the Project; (e) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (f) "Project Account" means the account referred to in Section 3.04 (a) of this Agreement; (g) "Implementation Manual" means the manual adopted by the Borrower on which sets out procedures for the implementation of the Program; (h) "Sub-projects" means the agricultural sub-projects to be financed in part out of the proceeds of the Credit under Part D.1 of the Project; (i) "LIMA Bank Ltd." means the financial institution established by the Borrower pursuant to Chapter 686 of the Laws of Zambia; and (j) "Selected Training Institutions" meanstheNatural Resources Development College, the Zambia College of Agriculture at Monze, the Zambia College of Agriculture at Mpika, and the Zambia Institute of Animal Health. ARTICLE 11 The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to forty-one million two hundred thousand Special Drawing Rights (SDR 41,200,000). -3- Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 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 may, for the purposes of the Project, open and maintain in dollars a special deposit account in a commercial bank acceptable to the Association, on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1999 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 on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date and at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next date in that year specified in Section 2.06 of this Agreement. (c) 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 percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. -4- Section 2.06. Commitment charges and service charges shall be payable semiannually on April 15 and October 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 15 and October 15 commencing April 15, 2005, and ending October 15, 2034. Each installment to and including the installment payable on October 15, 2014 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. 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 of the Program and, to this end, shall carry out the Project and the Program through MAFF with due diligence and -5- efficiency and in conformity with appropriate administrative, agricultural and environmental 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 and except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out the Project and the Program in accordance with the Implementation Manual and with the Implementation Program set forth in Schedule 4 to this Agreement. Section 3.02. Except as the Association shall otherwise agree and except as provided in paragraph 5 of Part B of Schedule 4 to this Agreement, 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. Without limitation upon the provisions of Article IX of the General Conditions, the Borrower shall: (a) prepare, on the basis of guidelines acceptable to the Association, and furnish to the Association not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, a plan designed to ensure the continued achievement of the objectives of the Project and the Program; (b) afford the Association a reasonable opportunity to exchange views with the Borrower on said plan; and (c) thereafter, carry out said plan with due diligence and efficiency and in accordance with appropriate practices, taking into acc6unt the Association's comments thereon. Section 3.04. Without limitation to its obligations under Section 3.01 of this Agreement, the Borrower shall: (a) open and maintain an account (the Project Account) in Kwacha in a commercial bank on terms and conditions satisfactory to the Association; (b) promptly thereafter, make an initial deposit into such account, in an amount equivalent to five billion Kwacha, to finance the Borrower's contribution to the Program; -6- (c) deposit into the Project Account by January 15, April 15, July 15 and October 15 in each year during Program Implementation, such amounts as shall be required to timely replenish the Project Account back to the amount of the initial deposit referred to in paragraph (b) above; and (d) use the Project Account funds exclusively to finance expenditures under the Program. Section 3.05. The Borrower shall: (a) not later than September 1 in each year, submit to the Association for its review and comments, a draft annual work program and supporting budget for its agricultural sector for the succeeding calendar year; (b) not later than November 1 in each year: (i) review with the Association the documents referred to in the preceding paragraph; (ii) identify implementation issues and propose appropriate solutions; and (iii) update Project timetables and performance indicators; (c) not later than December 31 in each year, furnish to the Association the work program and budget referred to in paragraph (a) hereof, as such program and budget shall have been revised to the satisfaction of the Association in the course of the review referred to in paragraph (b) hereof and, except as the Association shall otherwise agree, carry out the Project in the year in question on the basis of the said work program and budget, as so revised; and (d) not undertake any new investments in its agricultural sector not specified in the Program without prior consultation with the Association. Section 3.06. The Borrower shall, not later than June 30 in each year commencing 1996, furnish to the Association, for its review and comments, a report by independent consultants acceptable to the Association in such detail as the Association shall reasonably request including: (a) an evaluation of the impact of the Project and the Program; (b) the outcome of beneficiary consultations and other external reviews of the previous year's progress and the actions proposed and taken to correct any problems identified; (c) an analysis of the performance of the agricultural sector; and (d) draft audit reports for the institutions that have received support under the Project in the preceding year. The Borrower shall incorporate the findings of such report into the progress reports to be furnished to the Association pursuant to Section 9.06 (a) of the General Conditions. -7- Section 3.07. (a) The Borrower shall carry out, jointly with the Association, not earlier than 30 months and not later than 36 months after the Effective Date, a mid-term review of the progress made in carrying out the Project. This review shall cover, among other things: (i) a review of the effectiveness of the implementation arrangements; (ii) results in the field; and (iii) progress made having regard to the performance indicators agreed upon between the Borrower and the Association. (b) The Borrower shall, at least four weeks prior to the mid-term review described in paragraph (a) above, provide to the Association a report describing the status of the items listed in such paragraph and of Program implementation generally. (c) Based on such review, the Borrower shall promptly prepare an action plan, acceptable to the Association, for the further implementation of the Program and shall implement such action plan. 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 and the Program of the departments or agencies of the Borrower responsible for carrying out the Project and the Program 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 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 Association shall have reasonably requested; and -8- (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 staterments 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 Association has received 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 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. 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: (a) as a result of events which have occurred after the date of this Agreement, an extraordinary situation shall have arisen which shall make it improbable that the Program or a significant part thereof will be carried out; -.9- (b) (i) Subject to paragraph (ii) of this Section: (A) The right of the Borrower to withdraw the proceeds of any loan or grant made to the Borrower for the financing of the Program 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 payable prior to the agreed maturity thereof; and (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, 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 Program are available to the Borrower from other sources on terms and conditions 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 Section 5.01 (b) (i) (B) of this Agreement shall occur, subject to the proviso of Section 5.01 (b) (ii) of this Agreement. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions, namely, that the Borrower has established the Project Account and deposited therein the initial deposit referred to in Section 3.04 (b) of this Agreement. Section 6.02. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. - 10 - ARTICLE VII Representatives of the Borrower; Addresses Section 7.01, The Minister of Finance of the Borrower 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 P.O. Box 50062 Lusaka, Zambia Cable address: Telex: MINFIN 42221 Lusaka Telefax: 253494 For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) - 11 - 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. REPUBLIC OF ZAMBIA By 4/ W koa#m c Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By e~e, ional Vice President Africa - 12 - 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: 100% of foreign expenditures and (a) under Part D.2 350,000 90% of local of the Project expenditures (b) under Parts A 4,300,000 and B of the Project (2) Goods and 100% of foreign agricultural expenditures and inputs: 90% of local expenditures (a) under 1,400,000 Part D.2 of the Project (b) under 12,000,000 Parts A, B and C of the Project - 13 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalentl to be Financed (3) Grants for 6,200,000 100% Sub-projects and consultants' services under Part D.1 of the Project (4) Consultants' 100% services and training: (a) under 1,000,000 Part D.2 of the Project (b) under 9,600,000 Parts A, B and C of the Project (5) Operating costs: 90% until the date 2 years after the Effective Date, thereafter 75% (a) under 350,000 Part D.2 of the Project (b) under 2,300,000 Parts A, B and C of the Project - 14 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (6) Unallocated 3,700,000 TOTAL 41,200,000 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; (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; and (c) the term "operating costs" means the costs related to Project implementation of MAFF for staff travel, including subsistence, for the operation and maintenance of office, training, laboratory equipment and vehicles, and acquisition of office supplies. 3. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of payments: (a) made for expenditures prior to the date of this Agreement; (b) in respect of a grant for a Sub-project, unless the grant has been made in accordance with the procedures and on the terms and conditions set out in Part B of Schedule 4 to this Agreement; and (c) made for expenditures under Categories (1)(a), (4)(a) and (5)(a) unless the Borrower has enacted amendments to its land tenure laws satisfactory to the Association to facilitate the sub-division of land and has implemented policy measures satisfactory to the Association to provide for the sub-division and sale of state farm lands. - 15 - 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures under contracts not exceeding $100,000 equivalent for goods and services and $150,000 equivalent for works, under such terms and conditions as the Association shall specify by notice to the Borrower. - 16 - SCHEDULE 2 Description of the Project The objectives of the Project are to improve food security, promote agricultural growth, generate income and employment and increase export earnings through the implementation of the Program. 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: Policy and Institutional Improvements 1. Carrying out an assessment of MAFF's working procedures and proposing and implementing reforms in order to strengthen MAFF's capacity to carry out policy reform, to provide services to the agricultural sector, and to adopt sound accounting procedures and financial controls. 2. Monitoring and evaluation of agricultural sector activities, including sector studies, sector performance analyses and beneficiary assessments, and addressing identified issues. 3. Development and implementation of a program of restructuring or privatization of agricultural services and parastatals. 4. Carrying out a review of legislation affecting the agricultural sector, recommending appropriate changes to support the Program and implementing such recommendations. 5. Provision of staff training and acquisition of office equipment and vehicles. Part B: Investments 1. Research (a) Carrying out of adaptive research on food crops and on traditional and non-traditional export crops. (b) Rehabilitation or construction of agricultural research stations. - 17 - (c) Acquisition and maintenance of office equipment and vehicles. (d) Provision of training to agricultural research staff. 2. Agricultural Extension and Information Strengthening of the Borrower's agricultural extension and information system in order to improve the quality of extension services and to expand coverage nationwide, including: (a) provision of staff training and technical assistance; (b) acquisition and maintenance of equipment and vehicles; and (c) rehabilitation of field staff housing and information centers. 3. Animal Production and Health (a) Establishment of an inter-disciplinary committee comprised of experts drawn from the public and private sectors to coordinate emergency disease control. (b) Provision of staff training to improve field services and disease control. (c) Acquisition and maintenance of staff vehicles and equipment. (d) Construction and rehabilitation of staff houses and office buildings. 4. Fisheries Development (a) Establishment of fish ponds for resource-poor households and stocking of small water bodies with fingerlings. (b) Provision of staff training. (c) Construction and rehabilitation of staff and office buildings. (d) Acquisition and maintenance of office equipment and vehicles. - 18 - 5. Farm Power and Mechanization (a) Strengthening the capacity of the National Mechanization Center to develop new appropriate technology related to, and test the appropriateness of, newly manufactured or imported farm equipment. (b) Provision of staff training on animal draft power. (c) Acquisition and maintenance of office equipment and vehicles. 6. Irrigation (a) Reorganization of the Irrigation Engineering section of MAFF. (b) Provision of staff training. (c) Rehabilitation and construction of office and irrigation facilities. (d) Acquisition and maintenance of office equipment and vehicles. 7. Agricultural Training (a) Strengthening the capacity of Selected Training Institutions to provide agricultural training through: (i) provision of staff training; (ii) development of teaching resources and review of the curriculum to make it more relevant; (iii) rehabilitation of office buildings and staff houses; and (iv) acquisition and maintenance of field and laboratory equipment and of office vehicles. (b) Carrying out a program for the privatization of the Popota Tobacco College, the Kalulushi Farm College and the Cooperative College. - 19 - Part C: Private Sector Development: Rural Finance Provision of technical assistance and training to smallholder farmers and rural entrepreneurs in order to increase their ability to access formal financial services for agricultural inputs and to lower transaction costs of lenders. Part D: Pilot Investment Activities 1. Rural Investment Fund (a) Financing of specific small-scale agricultural sub-projects through grants to farmers' groups and associations; and (b) provision of training and technical assistance to smallholder farmers and rural entrepreneurs to enable them to apply for grants and to carry out the Sub-projects. 2. Sub-division and Privatization of State Farms Strengthening the capacity of the Borrower's Ministry of Lands to undertake surveys, subdivision, allocation, and distribution of state and parastatal farms through: (a) carrying out an assessment of procedures and staffing and implementing appropriate reforms; (b) provision of staff training; (c) acquisition and maintenance of office equipment and vehicles; and (d) rehabilitation of office buildings. The Project is expected to be completed by June 30, 1999. - 20 - SCHEDULE 3 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D 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 1992 (the Guidelines), and in accordance with the following additional procedures: (a) When contract award is delayed beyond the original bid validity period, such period may be extended once, subject to and in accordance with the provisions of paragraph 2.59 of the Guidelines, by the minimum amount of time required to complete the evaluation, obtain necessary approvals and clearances and award the contract. The bid validity period may be extended a second time only if the bidding documents or the request for extension shall provide for appropriate adjustment of the bid price to reflect changes in the cost of inputs for the contract over the period of extension. Such an increase in the bid price shall not be taken into account in the bid evaluation. With respect to each contract made subject to the Association's prior review in accordance with the provisions of Part E. 1 (a) of this Section, the Association's prior approval will be required for: (i) a first extension of the bid validity period if the period of extension exceeds sixty (60) days; and (ii) any subsequent extension of the bid validity period. (b) In the procurement of goods in accordance with this Part A, the Borrower shall use the relevant standard bidding documents issued by the Bank, with such modifications thereto as the Association shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Bank, the Borrower shall use bidding documents based on other internationally recognized standard forms agreed with the Association. 2. To the extent practicable, contracts for goods shall be grouped into bid packages estimated to cost the equivalent of $100,000 or more. - 21 - 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 Zambia 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: Preference for Domestic Contractors In the procurement of works in accordance with the procedures 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 D: Other Procurement Procedures 1. Subject to paragraphs 2, 3 and 4 below, civil works estimated to cost the equivalent of $500,000 or less per contract, up to an aggregate amount equivalent to $7,000,000, and goods estimated to cost the equivalent of $100,000 or less per contract, up to an aggregate amount equivalent to $1,000,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Civil works estimated to cost the equivalent of $10,000 or less per contract up to an aggregate amount equivalent to $800,000 may be carried out by force account. 3. Goods estimated to cost the equivalent of $30,000 or less per contract, up to an aggregate amount equivalent to $700,000, may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers from at least two different countries eligible under the Guidelines, in accordance with procedures acceptable to the Association. 4. Contracts for proprietary spares and equipment up to an aggregate amount equivalent to $500,000 may be awarded after direct negotiations with suppliers, in accordance with procedures acceptable to the Association. - 22 - Part E: Review by the Association of Procurement Decisions 1. 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 $100,000 and $150,000, respectively, 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 said paragraph 2 (d) 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 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 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. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit 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 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 (the Consultant Guidelines). For complex, time-based assignments, the Borrower 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 Association. Where no relevant standard contract documents have been issued by the Bank, the Borrower shall use other standard forms agreed with the Association. - 23 - 2. Notwithstanding the provisions of paragraph I of this Section, the provisions of the Consultant Guidelines requiring prior Association 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. However, this exception to prior Association 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 Association; (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. - 24 - SCHEDULE 4 Implementation Program Part A: General Provisions 1. In carrying out the Project and the Program, the Borrower shall maintain implementation arrangements satisfactory to the Association, including, but not limited to, the following: (a) the Borrower shall maintain in a form and with functions satisfactory to the Association, the ASSC and the Financial Management Unit; and (b) the Borrower shall establish an inter-disciplinary committee comprised of experts drawn from the public and private sectors to coordinate emergency disease control measures by September 30, 1995. 2. The Borrower shall cease budgetary releases for agricultural credit by September 30, 1995 provided that releases not exceeding an aggregate amount of 24 billion Kwacha may be made to fund the Marketing Revolving Fund until June 30, 1996 or such later date as the Borrower and the Association may agree upon. 3. The Borrower shall, by September 30, 1995, take measures satisfactory to the Association to liquidate or restructure LIMA Bank Ltd. 4. The Borrower shall, by September 30, 1995, furnish to the Association an action plan satisfactory to the Association showing the scope of, and the timetable for, its state farm privatization scheme. Part B: Rural Investment Fund Except as the Association shall otherwise agree, in carrying out Part D.1 of the Project, the Borrower shall adopt the following guidelines: Eligibility of Sub-projects 1. The Borrower shall, by September 30, 1995, adopt selection criteria satisfactory to the Association for investments under Part D.1 of the Project. - 25 - 2. Sub-projects related to crop and animal production in the following areas will be eligible for financing under the Credit: (a) acquisition, maintenance and rehabilitation of equipment for land preparation; (b) control of crop and livestock diseases; (c) pest management; (d) soil fertility improvement and soil conservation; (e) harvesting and post harvest handling of crops; (f) storage, transport and marketing of crops; and (g) other activities as may be agreed upon between the Borrower and the Association. Sub-project Cycle 3. The Borrower shall adopt the following procedures in processing sub-projects: (a) Each beneficiary community will consist of a Farmers' Group or Association (FG) which will be responsible for Sub-project implementation. The FG will prepare proposals for Sub-projects. The proposal will include information on the beneficiaries and a description of the Sub-project with cost. (b) The Sub-project proposal will be submitted to PPD for: (i) appraisal, evaluation, review and approval; and (ii) all Sub-projects with a total cost equivalent to $50,000 or more and all Sub-projects to be implemented within the first six months of Project implementation will be submitted to the Association for approval prior to the signing of the respective Sub-project Agreement. Sub-Project Agreements 4. After approval of the proposal by the PPD, the Borrower shall enter into a Sub- project Agreement with the FG. The terms of the Sub-project Agreement shall be satisfactory to the Association and shall include, inter alia, the Borrower obtaining rights adequate to protect the interests of the Borrower and the Association, including: - 26 - (a) the Borrower's right to require the FG to carry out the Sub-project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) the Borrower's right to inspect, by itself or jointly with the Association, such goods and the sites, works, plants and construction included in the Sub-project, the operation thereof and any relevant records and documents; (c) the Borrower's right to obtain all such information as the Borrower or the Association shall reasonably request regarding the foregoing, including the administration, operations and financial condition of the Sub-project and the benefits to be derived from the Sub-project; (d) the Borrower's right to suspend or terminate the right of the FG to use the proceeds of the Credit for the Sub-project upon failure by any such FG to perform any of its respective obligations under the Sub-project Agreement; and (e) the obligation of the FG to report on the progress of implementing the Sub-project. 5. The Sub-project Agreements shall stipulate that: (i) the goods, civil works and services to be financed out of the proceeds of the Credit 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 Sub-project. Terms and Conditions of Sub-projects 6. Sub-projects shall be financed on the following terms and conditions. (a) Financing shall be provided on a grant basis. (b) Unless otherwise agreed upon between the Borrower and the Association, disbursements of the proceeds of grants for Sub-projects shall be made as follows: (i) a mobilization advance of 30% of the estimated value of the Sub-project shall be disbursed upon signing of the Sub-project Agreement; (ii) upon completion or implementation of 50% of the activities under the Sub-project, a further 30% of the estimated value of the - 27 - Sub-project shall be disbursed; (iii) upon completion or implementation of 75% of the activities under the Sub-project, a further 30% of the estimated value of the Sub-project shall be disbursed; and (iv) the balance of 10% of the estimated value of the Sub-project shall be paid upon completion of the Sub-project. (c) The Borrower shall obtain prior approval of the Association before signing a Sub-project Agreement for any Sub-project whose cost is expected to exceed the equivalent of $50,000. General 7. The Borrower shall: (a) prepare and, not later than June 30 in each year, submit to the Association for review and comments a report showing: (i) the geographical and sectoral distribution of Sub-projects, (ii) procurement performance, (iii) results of monitoring activities including beneficiary assessments; and (iv) a work program (including audits and monitoring) for the following year; and (b) put into effect the corrective actions thereof, in a manner satisfactory to the Association, to improve targeting of resources, or the procurement performance. - 28 - SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) to (5) 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 accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $5,000,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Association shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $2,000,000 until the aggregate amount of withdrawals from the Credit Account plus the total amount of all outstanding special commitments entered into by the Association pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $20,000,000. 2. 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 shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, 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) (i) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. - 29 - (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid 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 said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (a) if, at any time, 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; (b) if the Borrower shall have failed to furnish to the Association, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Association pursuant to said Section in respect of the audit of the records and accounts for the Special Account; - 30 - (c) if, at any time, the Association shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Credit Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Credit allocated to the eligible Categories, less 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 equal the equivalent of twice the amount of the Authorized Allocation. 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. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) 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. Unless the Association shall otherwise agree, no further deposit by the Association into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (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. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. 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