Tanzania - Flue-Cured Tobacco Project : Credit 0217 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 217 TA Project Agreement (Flue-Cured Tobacco Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND NATIONAL DEVELOPMENT CREDIT AGENCY AND TANGANYIKA TOBACCO BOARD AND TANZANIA TOBACCO PROCESSING COMPANY LIMITED DATED OCTOBER 9, 1970 CONFORMED COPY CREDIT NUMBER 217 TA Project Agreement (Flue-Cured Tobacco Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND NATIONAL DEVELOPMENT CREDIT AGENCY AND TANGANYIKA TOBACCO BOARD AND TANZANIA TOBACCO PROCESSING COMPANY LIMITED DATED OCTOBER 9, 1970 PROJECT AGREEMENT AGREEMENT, dated October 9, 1970, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and NATIONAL DEVELOPMENT CREDIT AGENCY (hereinafter called NDCA) and TANGANYIKA TOBACCO BOARD (hereinafter called TTB) and TANZANIA TOBACCO PROCESSING COMPANY LIMITED (hereinafter called TTPC). WHEREAS by a Development Credit Agreement of even date herewith between the United Republic of Tanzania (hereinafter called the Borrower) and the Association, which agreement, the schedules therein referred to and the General Conditions Applicable to Development Credit Agreements of the Association made applicable thereto are hereinafter called the Development Credit Agreement, the Association has agreed to assist in the financing of a flue-cured tobacco project of the Borrower by making available to the Borrower an amount in various currencies equivalent to nine million dollars ($9,000,000) on the terms and conditions set forth in the Development Credit Agreement, but only on condition inter alia that NDCA, TTB and TTPC agree to undertake certain obligations to the Association as hereinafter in this Project Agreement set forth; and WHEREAS NDCA, TTB and TTPC in consideration of the Association's entering into the Development Credit Agreement with the Borrower, have agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Project Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement shall have the respective meanings therein set forth. ARTICLE II Particular Covenants of NDCA Section 2.01. NDCA shall carry out Part C of the Project with due diligence and efficiency and shall at all times conduct its operations and affairs in accordance 4 with sound administrative, financial, agricultural and economic practices and under the supervision of experienced and competent management. Section 2.02. NDCA shall employ a Financial Analyst and a Chief Accountant whose experience and qualifications respectively for such positions and terms of reference shall be satisfactory to the Borrower, the Association and NDCA. Section 2.03. (a) Except as the Borrower and the Association shall otherwise agree, NDCA shall make the following loans according to the operating policies and procedures of NDCA set forth in Schedule 1 to this Agreement: (i) it shall make available the funds, required for financing seasonal on-farm inputs needed for carrying out, and continuing the planting program established under, Part A (5) of the Project, to cooperative societies for on-lending to Village farmers as seasonal loans; (ii) it shall make available the funds, required for carrying out Part A (4), and for financing the equipment needed for carrying out Part A (5), of the Project, to cooperative societies for on-lending to Village farmers as medium-term loans; and (iii) it shall make available the funds required for carrying out Parts B (1) and B (2) of the Project to TTB or TTPC, as appropriate, as long-term loans. (b) NDCA shall establish a Revolving Fund to be used exclusively to make the seasonal loans referred to in paragraph (a) (i) above. Except as the Association shall otherwise agree, NDCA shall deposit in such Revolving Fund the amounts received from the cooperative societies as repayment of principal on such seasonal loans. (c) In granting the loans specified in paragraph (a) of this Section, NDCA shall obtain rights adequate to protect its interests and the interests of the Borrower and the Association. Section 2.04. NDCA shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Borrower and the Association shall otherwise agree, NDCA shall not take any action or concur in any action which would have the effect of amending, abrogating, assigning or waiving any provision of that Agreement. 5 Section 2.05. NDCA shall exercise its rights under the respective agreements providing for the loans specified in Section 2.03 of this Agreement in such manner as to protect the interests of NDCA, the Borrower and the Association, and, except as the Borrower and the Association shall otherwise agree, NDCA shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving any provision of said agreements. ARTICLE III Particular Covenants of TTB and TTPC Section 3.01. TTB and TTPC shall carry out Part B of the Project with due diligence and efficiency and shall at all times conduct their operations and affairs in accordance with sound administrative, financial, agricultural, engineering and economic practices and under the supervision of experienced and competent management. Section 3.02. TTB shall employ (i) a Chief Marketing Officer whose experience and qualifications for such position shall be satisfactory to the Borrower, the Association and TTB; and (ii) a Chief Executive Officer and a Chief Accountant after consulting with the Association sufficiently in advance of their appointment for the Association to have adequate opportunity to comment on their suitability for such positions. Section 3.03. Except as the Association shall otherwise agree, TTB shall: (a) continue its present tobacco marketing arrangements until agreement shall have been reached on the implementation of the findings and recommendations of the Marketing and Processing Study in accordance with the provisions of Section 4.07 (b) of the Development Credit Agreement; (b) continue after introduction of any auction arrangements to purchase flue-cured tobacco leaf for sale on its own account over the auction floor from all cooperative societies which shall not yet be capable of selling their crops on their own account, as determined by the Borrower; and (c) make arrangements satisfactory to the Association and the Borrower: (i) to manage the auction floor to be established under Part B of the Project; and 6 (ii) to grade flue-cured tobacco leaf at the Cooperative Societies' level for presentation on such auction floor, and to train such staff of the Borrower's Ministry of Agriculture, Food and Cooperatives. TTB or the Cooperative Societies, as may be required for taking over these functions. Section 3.04. (a) TTPC shall employ at all times (i) a Factory Manager whose experience and qualifications for such position shall be satisfactory to the Borrower, the Association and TTPC; and (ii) a Managing Director after consulting with the Association sufficiently in advance of his appointment for the Association to have adequate opportunity to comment on his suitability for such position. (b) Except as the Borrower and the Association shall otherwise agree, TTPC shall employ visiting agents acceptable to the Borrower, the Association and TTPC upon terms and conditions acceptable to the Borrower, the Association and TTPC. Section 3.05. TTB and TTPC shall duly perform all their obligations under their respective agreements with NDCA providing for the loans referred to in Section 2.03 (a) (iii) of this Agreement. Except as the Borrower, the Association and NDCA shall otherwise agree, TTB and TTPC shall not take any action or concur in any action which would have the effect of amending, abrogating, assigning or waiving any provision of said agreements. ARTICLE IV Particular Covenants of NDCA, TTB and TTPC Section 4.01. (a) NDCA, TTB and TTPC shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively in the territories of the Borrower in carrying out the Project. (b) The goods and services to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Section 3.02 of the Development Credit Agreement and any agreements supplemental thereto. Section 4.02. Except as the Association shall otherwise agree, NDCA, TTB and TTPC shall each insure or cause to be insured the imported goods to be financed out of the proceeds of the Subsidiary Loan against marine, transit and other hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, any indemnity under such insurance to be payable in a currency freely usable to replace or repair such goods. 7 Section 4.03. NDCA, TTB and TTPC shall: (i) maintain records adequate to identify the goods and services financed out of the proceeds of the Subsidiary Loan, to disclose the use thereof in the Project, to record the progress of the Project and to reflect in accordance with consistently maintained sound accounting practices all financial transactions between any of the Borrower, NDCA, TTB and TTPC in respect of the Project and the operations and financial conditions of NDCA, TTB and TTPC; and (ii) enable accredited representatives of the Association to inspect the goods financed out of the proceeds of the Subsidiary Loan and any relevant records and documents. Section 4.04. NDCA, TTB and TTPC shall: (a) have their accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited by independent auditors acceptable to the Association, in accordance with sound auditing principles consistently applied- (b) furnish to the Association, as soon as available but, in any case, not later than six months in the case of NDCA, and four months in the case of TTB and TTPC, after the close of each fiscal year of NDCA, TTB, or TTPC, respectively, certified copies of their audited financial statements for such year and an audit report by the said auditors of such scope and in such detail as the Association shall have reasonably requested: and (c) furnish to the Association such other infonrmation concerning the accounts and financial statements of NDCA, TTB and TTPC and the audit thereof as the Association shall from time to time reasonably request. Section 4.05. NDCA, TTB, TTPC and the Association shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, each of them shall furnish to the other parties all such information as such other parties shall reasonably request. Section 4.06. NDCA, TTB, TTPC and the Association shall from time to time exchange views through their representatives with regard to matters relating to the purposes of the Credit. NDCA, TTB and TTPC shall promptly inform the Association of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, or the performance by NDCA, TTB and TTPC of their respective obligations under this Project Agreement, or, where appropriate, the carrying out of the provisions of the Development Credit Agreement. ARTICLE V Effective Date; Termination Section 5.01. This Project Agreement shall enter into force and effect on the Effective Date. If the Development Credit Agreement shall terminate pursuant 8 to Section 10.04 of the General Conditions, the Association shall promptly notify NDCA, TTB and TTPC of this event and, upon the giving of such notice, this Project Agreement and all obligations of the parties hereunder shall forthwith terminate. Section 5.02. The Project Agreement and all obligations of the Association and of NDCA, TTB and TTPC thereunder shall terminate on the earlier of the following two dates: (a) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (b) the later of (i) the date on which the entire principal amount of the portion of the proceeds of the Subsidiary Loan, which shall have been made available to NDCA according to sub-paragraphs (ii) and (iii) of Section 4.05 (a) of the Development Credit Agreement, shall have been repaid by NDCA to the Borrower in accordance with the Subsidiary Loan Agreement and (ii) a date twenty years after the date of the Project Agreement. ARTICLE VI Miscellaneous Provisions Section 6.01. No delay in exercising, or omission to exercise, any right, power or remedy accruing to any party under this Project Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence in such default; nor shall the action of such party in respect of any default or any acquiescence in any default, affect or impair any right, power or remedy of such party in respect of any other or subsequent default. Section 6.02. Any notice or request required or permitted to be given or made under this Project Agreement and any agreement between the parties contemplated by this Project 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 or cablegram to the party to which it is required or permitted to be given or made at its address hereinafter specified, or at such other address 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America 9 Alternative address for cables: Indevas Washington, D.C. For NDCA: National Development Credit Agency Post Office Box 268 Dar es Salaam United Republic of Tanzania Alternative address for cables: Agcredit Dar es Salaam For TTB: Tanganyika Tobacco Board Post Office Box 832 Dar es Salaam United Republic of Tanzania Alternative address for cables: Tobacco Dar es Salaam For TTPC: Tanzania Tobacco Processing Company Limited Post Office Box 227 Morogoro United Republic of Tanzania Alternative address for cables: Tumbako Morogoro Section 6.03. NDCA, TTB and TTPC shall furnish to the Association sufficient evidence of the authority of the persons who will, on behalf of NDCA, TTB and TTPC respectively, take any action or execute any documents required or permitted to be taken or executed by NDCA, TTB and TTPC pursuant to any 10 of the provisions of this Project Agreement and the authenticated specimen signature of each such person. Section 6.04. This Project Agreement may be executed in several counterparts, each of which shall be an original and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Project Agreement to be signed in their respective names and to be delivered in the District of Columbia, United Stat-s of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ J. Burke Knapp Vice President NATIONAL DEVELOPMENT CREDIT AGENCY By /s/ G. M. Rutabanzibwa Authorized Representative TANGANYIKA TOBACCO BOARD By /s/ G. M. Rutabanzibwa Authorized Representative TANZANIA TOBACCO PROCESSING COMPANY LIMITED By /s / G. M. Rutabanzibwa Authorized Representative 0 11 SCHEDULE I Operating Policies and Procedures of NDCA In making the loans referred to in Section 2.03 (a) of this Agreement, NDCA shall follow the policies and procedures outlined below, as such policies and procedures shall be amended from time to time by NDCA with the approval of the Borrower and the Association. Eligibility 1. All Cooperative Societies, and such other cooperative societies as may have been joined by any farmers in any of the Villages with the agreement of the Association in accordance with Section 4.03 (d) of the Development Credit Agreement, shall be eligible for seasonal and medium-term NDCA loans. TTB and TTPC shall be eligible for long-term NDCA loans. NDCA Loans 2. NDCA shall make seasonal loans to each eligible cooperative society of up to 450 Tanzania Shillings for each acre of flue-cured tobacco expected to be planted in any of the Villages by farmer members of such cooperative society in any year, to cover the costs of seasonal on-farm inputs, including replacements for barn flue pipes and fertilizer for maize production. 3. NDCA shall make medium-term loans to each eligible cooperative society of up to 1,300 Tanzania Shillings for each farmer member settled under the Project, to cover the costs of constructing three curing barns and one grading shed and of purchasing equipment, such as a watering can, a soil injector gun and a barn thermometer, needed for the efficient cultivation and curing of flue-cured tobacco. 4. NDCA shall make long-term loans to TTB or TTPC, as appropriate, to finance the Marketing and Processing Study and the construction or extension of auction floor, storage and processing facilities included in the Project. Term of NDCA Loans 5. Seasonal loans fall due-not later than September 30 in the year in which the crop for which these loans shall have been made shall be harvested. 6. Medium-term loans shall be repayable in four annual installments to fall due not later than September 30 in the year in which the first crop, after disbursement 12 of these loans shall have begun, shall be harvested, and thereafter not later than September 30 in each of the three subsequent years. 7. Long-term loans shall have a term not exceeding twelve years, with a grace period not exceeding two years. Interest 8. The loans shall bear interest at a rate of 8-1/2% per annum on the outstanding balance, or such other rate as the Borrower, NDCA and the Association shall have otherwise agreed. Disbursement 9. NDCA shall generally disburse its loans to cooperative societies, TTB and TTPC in kind, including goods and services financed by direct payments by NDCA to contractors under contracts entered into by cooperative societies, TTB or TTPC, respectively. Whenever it shall be necessary for NDCA to disburse a portion of any of its loans to any cooperative society in cash, NDCA shall ensure that this cash is exclusively used by that cooperative society for the procurement of goods or services for farmer members, particularly that that cooperative society does not use it for making cash loans to farmer members. On-Lending by Cooperative Societies 10. NDCA shall ensure, by provisions in its loan agreements with the cooperative societies or otherwise, that the cooperative societies on-lend the proceeds of the seasonal and medium-term loans to farmer members on terms and conditions and following procedures acceptable to NDCA. Other Terms and Conditions of NDCA Loans to Cooperative Societies 11. Each loan agreement shall include provisions for the following: (a) that the cooperative society shall allow representatives of the Borrower, NDCA, TTB and the Association to visit the cooperative society, including all land cultivated by its members; (b) that the cooperative society shall maintain separate and identifiable accounts pertaining to the Project and will furnish the NDCA and the Association such information regarding those accounts and the overall accounts of the cooperative society as either NDCA or the Association shall reasonably request; 13 (c) that the cooperative society shall not make loans to any farmer member to enable him to grow more than two acres of flue-cured tobacco in any year unless that farmer is permitted to grow such larger acreage in accordance with the provisions of Section 4.03 (a) of the Development Credit Agreement; (d) that the cooperative society shall deduct the debt service obligations of any of its members before it makes any cash payments to such members; (e) that the cooperative society shall not purchase any tractor or other vehicles or any baling sheds, except as provided for in Section 4.04 (b) of the Development Credit Agreement; (f) that the cooperative society shall accept the assistance of the Cooperative Inspector referred to in Section 4.02 (c) (ii) of the Development Credit Agreement, in managing its affairs for a period of not less than five years after its establishment; and (g) that the cooperative society shall accept such other terms and conditions which NDCA considers reasonable, including conditions resulting from recommendations in the reports referred to in paragraphs 14 (c) and 14 (d) below. Supervision 12. NDCA shall ensure that amounts drawn on loans are applied exclusively to the purposes for which they were lent and its staff shall regularly visit cooperative societies, TTB and TTPC facilities to ensure that the cooperative societies, TTB and TTPC are complying with the terms of their respective loan agreements. Loan Recoveries from Cooperative Societies and Farmers 13. NDCA shall make arrangements with TTB for deducting debt service obligations of the cooperative societies from the proceeds of their sales of flue-cured tobacco to TTB, or directly across any auction floor. Such deductions shall amount to 75% of the value of any payments that would otherwise have been made to any of these cooperative societies until its debt service obligations have been fully met for that season. Appraisal of Loan Applications by NDCA 14. In appraising a loan application from any eligible cooperative society, NDCA shall ensure inter alia that: 14 (a) a suitable Maximum of Liability Certificate shall have been issued by the Registrar of Cooperatives; (b) a general meeting of the cooperative society shall have approved the loan application; (c) a confidential report on the loan application shall have been received from the Tobacco Project Officer; and (d) the accounts and financial operations of the cooperative society shall have been examined by the Financial Analyst of NDCA and a report shall have been made thereon. 15. In appraising a loan application from TTB or TTPC, NDCA shall ensure inter alia that: (a) the Board of TTB or TTPC shall have approved the loan application; and (b) in all cases, the loan application shall be accompanied by cost estimates based on detailed designs.