Mexico - Rural Development Project-Papaloapan Basin : Loan 1053 - Guarantee Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1053 ME Guarantee Agreement (Integrated Rural Development Project - Papaloapan Basin) BETWEEN UNITED MEXICAN STATES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED NOVEMBER 15, 1974 CONFORMED COPY LOAN NUMBER 1053 ME Guarantee Agreement (Integrated Rural Development Project - Papaloapan Basin) BETWEEN UNITED MEXICAN STATES AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED NOVEMBER 15, 1974 GUARANTEE AGREEMENT AGREEMENT, dated November 15, 1974, between UNITED MEXICAN STATES (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank and Nacional Financiera, S.A. (hereinafter called the Borrower) the Bank has agreed to make to the Borrower a loan in various currencies equivalent to fifty million dollars ($50,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor undertake the obligations set forth in this Guarantee Agreement; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to enter into this Guarantee Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee Section 2.01. Without limitation or restriction upon any of its other obligations under this Guarantee Agreement, the Guarantor hereby unconditionally 4 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, all as set forth in the Loan Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Guarantor shall carry out the Project described in Schedule 1 to this Guarantee Agreement through Comisi6n with the assistance, if necessary, of other appropriate agencies of the Guarantor, with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and agricultural practices. (b) The Guarantor shall start construction work under any of Parts LA, 1.B or 1.C of the Project after the Guarantor and the Bank shall have agreed on the corresponding plans and budgets for the works for each such part of the Project. Section 3.02. The Guarantor recognizes that in order to be able to make full productive use of their land and the Project facilities, farmers in the Project area must have access to short-, medium- and long-term agricultural credit, fertilizer and improved seeds, on reasonable terms. To this end, the Guarantor shall take all measures necessary to ensure that such credit, fertilizer and improved seeds will be made available in the Project area in the quantities and at the time required to fully utilize the other resources available. Section 3.03. The Guarantor shall maintain in the Comisi6n the position of Project Director, and shall assign a qualified and experienced person to serve in it and be responsible for managing the operations of the Project under the general direction of the Vocal Ejecutivo, to whom lie shall report directly. Section 3.04. The Guarantor shall, through Comisi6n, employ staff for the purpose of carrying out Part 2 of the Project, in accordance with the plan of action set forth in Schedule 3 hereto. Section 3.05. Except as the Guarantor and Bank shall otherwise agree, the construction of feeder roads under Part 4 of the Project shall be subject to the following: (i) in the Upper Basin, up to a maximum of $23,000 equivalent; and (ii) in the Lower Basin, up to a maximum of $86,000 equivalent, may be expended for each block of 100 ha. of agricultural land developed under rainfed agriculture, 5 for Class "D" or Class "E" roads (as defined from time to time by the Guarantor for classifying roads in its road system), provided that the construction of the road is necessary for said development. Section 3.06. (a) The Guarantor shall: (i) not later than December 31, 1979, or such other date as shall be agreed by the Guarantor and the Bank, carry out a socio-economic study in each of the areas to be irrigated under the Project to determine, inter alia, the ability of water users to pay for the cost of irrigation; and (ii) periodically review such study with a view to revising such charges, if appropriate. (b) The Guarantor shall collect such water charges, on the basis of the ability of water users to pay and the need to maintain an incentive for them to make best use of the land and water available to them, as shall be necessary to recover all the operation and maintenance costs of the irrigation facilities included in Part I of the Project and as much as practicable of their investment cost. (c) The Guarantor shall, promptly as each of the studies referred to in paragraph (a) hereof is completed, give the Bank a reasonable opportunity to comment on their conclusions and recommendations. Section 3.07. The Guarantor shall give priority, in the carrying out of Parts 6, 7, 8, 9 and 10 of the Project. to those areas in which directly productive components of the Project are being carried out. Section 3.08. (a) Water supply systems using public hydrants shall be constructed and included in Part 6 of the Project provided that (i) the beneficiaries in each village where such facilities will be located show satisfactory evidence of their decision to establish and maintain an adequate organization to operate and maintain the systems and to collect revenues from water charges sufficient to cover all operation and maintenance costs therefor; and (ii) except as the Bank shall otherwise agree, such beneficiaries contribute, promptly, at least 20% of the corresponding investment cost and the investment cost per capita for each such system does not exceed $40.00 equivalent. (b) Water supply distribution systems or sewerage systems, or both, with individual household connections shall be constructed and included in Part 6 of the Project provided that tne beneficiaries show satisfactory evidence of their decision to establish and maintain an organization to operate and maintain the systems and to collect revenues from water charges sufficient to cover all operation and maintenance costs therefor and to recover, over not more than 25 years, the cost of such investment. 6 (c) The Guarantor shall provide the services referred to in paragraph (b) hereof and those under Part 7 of the Project provided that the beneficiaries thereof pay for all connection costs. (d) Community centers shall be constructed and included in Part 10 of the Project provided that (i) each village where they will be located show satisfactory evidence of their decision to establish and maintain an organization to maintain such centers and to collect revenues, within the community, sufficient to maintain them; and (ii) except as the Bank shall otherwise agree, such villages contribute, promptly, at least 20% of the corresponding investment cost and the investment cost per capita for each such center does not exceed $20.00 equivalent. (e) The Guarantor shall take or cause to be taken all steps necessary to cause the contributions referred to in the preceding paragraphs of this Section to be made. (f) The Guarantor shall provide or cause to be provided, through Conisidn or otherwise, technical and organizational assistance to the beneficiaries referred to in paragraphs (a), (b) and (c) above and the villages referred to in paragraph (d) above, for operating and maintaining their respective facilities. (g) Except as the Bank shall otherwise agree, the investment costs per capita for works in Part 7 of the Project, including transmission from the main power grid to any village and distribution within the villages to the consumers, shall not exceed $75.00 equivalent. (h) The Guarantor shall cause the rates for the sale of electricity distributed in the Project area to be charged and collected according to the tariffs for the sale of electricity applied generally in Mexico. (i) The Guarantor shall cause the marketing facilities included in Part 5 of the Project to be operated in accordance with sound financial standards. Section 3.09. The facilities included in Parts 8 and 9 of the Project shall only be constructed in the villages and towns where there are reasonable grounds to expect that promptly after the completion of such facilities there will be available sufficient qualified personnel to operate them. Section 3.10. Except as the Bank shall otherwise agree, the goods, works and services for the Project to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 2 to this Agreement. 7 Section 3.11. (a) The Guarantor undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Guarantor to replace or repair such goods. (b) Except as the Bank may otherwise agree, the Guarantor shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. (c) The Guarantor shall cause all works, facilities and equipment included in the Project to be adeqLately maintained, repaired and renewed in accordance with sound engineering and agricultural practices and standards. Section 3.12. (a) The Guarantor shall furnish or cause to be furnished to the Bank, promptly upon their preparation, the plans, specifications, contract documents and work schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Guarantor: (i) shall maintain or cause to be maintained records adequate to record the progress and cost of the Project, to show the sources and amount of all funds used in the Project, to identify the goods and services financed out of the proceeds of the Loan and out of such other funds, to disclose the use thereof in the Project, to show the results achieved by the Project, and to show the extent to which the investment, operation and maintenance costs of the services provided under the Project have been recovered pursuant to the provisions of this Agreement; (ii) shall enable the Bank's representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish or cause to be furnished to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. Section 3.13. The Guarantor shall: (i) maintain, through Comision, separate accounts to reflect in accordance with consistently maintained sound accounting practices the financial situation of the Project; (ii) cause such accounts to be audited annually, in accordance with sound auditing principles consistently applied, by independent auditors designated in conformity with the laws of the Guarantor; (iii) make available to the Bank, not later than six months after the closing of the financial year, certified copies of such financial statements, as so audited, and 8 a copy of the report of such audit; and (iv) furnish to the Bank such other pertinent information concerning such accounts as the Bank shall reasonably request from time to time. Section 3.14. Except as the Bank shall otherwise agree, the Guarantor shall cause Comision to keep, until five years after the Closing Date, such detailed records on selected farms and villages included in the Project as shall be necessary to enable the Guarantor to monitor accurately the effects of the Project. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any governmental assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Guarantor, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Guarantor shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other governmental assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "governmental assets" means assets of the Guarantor, of any of its political subdivisions, or of any agency; and the term "agency" means any agency or instrumentality of the Guarantor or of any political subdivision of the Guarantor and shall include any institution or 9 organization which is owned or controlled directly or indirectly by the Guarantor or by any political subdivision of the Guarantor or the operations of which are conducted primarily in the interest of or for account of the Guarantor or any political subdivision of the Guarantor. ARTICLE V Representative of the Guarantor; Addresses Section 5.01. Nacional Financiera, S.A. 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: United Mexican States c/o Nacional Financiera, S.A. Isabel la Cat6lica 5 1 Mdxico 1, D.F., M6xico Cable address: NAFIN 383-1772538 Mexico City For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. 10 IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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: NACIONAL FINANCIERA, S.A. By /s / Leandro Rovirosa Wade Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Gerald Alter Regional Vice President Latin America and the Caribbean 11 SCHEDULE 1 Description of the Project The Project is part of a program of the Guarantor to develop the Papaloapan Basin by expanding food production, providing credit and technical services, and improving social services. The Project consists of: 1. Irrigation and on-farm works A. Esperanza and Palmar de Bravo Valleys Engineering, design, supervision of construction and construction of about 40 deep tube wells equipped with pump and motor, and their complementary lined canals, each serving about 60 ha.; and of on-farm works, including land leveling, in the area to be irrigated by such system. B. Southern part of the Rio Salado Irrigation District Engineering, design, supervision of construction and construction of concrete lining for all the main canals and laterals of the 3,600 ha. irrigation system in the upper part of the gorge, south of the Tehuacan Valley. Engineering, desi8n, supervision of construction and construction of a system to irrigate an area of about 2,500 ha. farther down the river, including 3 diversion dams, 3 direct intakes on Rfo Salado, about 90 kms of concrete-lined main canals, about 160 kms of branch and minor canals; installation of operational gates and measuring devices; construction of about 70 km of operational service roads and a drainage system; and carrying out of on-farm works in the areas to be irrigated by such systems. C. Rio Blanco Irrigation District Engineering, design, supervision of construction and construction of the canals, laterals and distribution systems required to irrigate about 16,000 ha. every year, including rehabilitation of existing structures, concrete-lining of the canals, additional roads for irrigation operations and maintenance, and installation of operational gates and measuring devices; provision of operation and maintenance equipment; and carrying out of on-farm works, including clearing and leveling. 12 2. Technical assistance (See Plan of Action set forth in Schedule 3) (a) To farmers in irrigated areas: Provision of intensive technical services to farimers in the irrigated areas under Part 1 of the Project, including training in matters related to water use, land preparation, technical inputs, and proper timing of all agricultural operations. This part of the Project forms part of the Guarantor's Plan de Mejoramiento Parcelario. (b) To farmers in rainfed areas: Provision of intensive technical services and agricultural credit to farmers engaged in rainfed agriculture on about 100,000 ha. (c) To beneficiaries under Parts 5, 6, 7 and 10 of the Project: Provision of technical assistance to the inhabitants of the villages and towns where such works under the Project may be carried out to establish organizations to operate and maintain the facilities to be provided and to collect the charges necessary to finance them. 3. Experimental farms Estab'shment and operation of two experimental farms in the Upper Basin and one in the Lower Basin, to carry out research, mainly on rainfed agriculture. 4. Feeder roads Engineering, design, supervision of construction and construction of feeder roads, as required to serve the main agricultural producing areas. 5. Marketing facilities Construction and operation of storage facilities for marketing agricultural inputs and production. 6. Water supply and sewerage Engineering, design, supervision of construction and construction of water supply systems in villages and towns of between 500 and 5,000 inhabitants, 13 consisting of public hydrants or distribution systems with individual household connections; all systems to be provided with minimum treatment facilities satisfying public health requirements. Engineering, design, supervision of construction and construction of sewerage and sewage treatment systems, which may include septic tanks serving groups of households, in towns of between 1,000 and 5,000 inhabitants. 7. Electricity supply Engineering, design, supervision of construction and construction of electric power distribution systems for villages and towns in the Papaloapan Basin of between 500 and 5,000 inhabitants which presently lack such service. 8. Medical facilities Engineering, design, supervision of construction, construction and equipment of health centers in towns o' between 1,000 and 5,000 inhabitants. 9. Educational facilities Engineering, design, supervision of construction, construction, furnishing and equipment of about 1,200 workshops or prefabricated classrooms for primary education, in villages and towns of between 500 and 5,000 inhabitants. 10. Comnunity centers Engineering, design, supervision of construction and construction of about 140 community centers in villages and tow.ns of between 500 and 1,000 inhabitants where potable water is supplied by means of water hydrants. 11. Project monitoring Review of the effects the preceding parts of the Project have on the Project area. Parts I and 3 to 10, inclusive, of the Project are expected to be completed by December 31, 1979. 14 SCHEDULE 2 Procurement A. General Procedures 1. All contracts, other than those for consultants, estimated to cost the equivalent of $80,000 or more shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. For purposes of bidding and procurement, works and items to be procured shall, to the extent possible. be grouped together in groups having a minimum value of $80,000 equivalent. 3. All contracts, other than those for consultants, estimated to cost less than the equivalent of $80,000 shall be awarded either under the procedures referred to in paragraph I hereof, or under the Guarantor's ordinary procedures, in which latter case the Guarantor, through Comisi6n, may award the c'ntract to the contractor it shall deem to be the best qualified to carry out the works, at unit prices approved by its Secretaria de Recursos Hidrdulicos; provided that the amount of all contracts awarded at unit prices under this paragraph, added to the amount of all procurement carried out under the procedure referred to in paragraph B, shall not exceed thirty per cent (30%) of the total cost of the goods and services to be financed out of the proceeds of the Loan. The cost of engineering, design and supervision of construction, and the salaries of staff employed to carry out Parts 2, 3 and 11 of the Project shall not be included in computing the contracts awarded at unit prices under this paragraph. B. Procurement without Contracting The Guarantor may carry out civil works by force account, provided that the total cost of such works shall not exceed ten per cent (10%) of the total amount of the cost of all the goods and services to be financed out of the proceeds of the Loan. For these purposes, the cost of engineering, design and supervision of construction shall not be included in computing the cost of the civil works under this paragraph carried out by force account. C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) 15 price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Guarantor of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Mexico may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (I) Group A: bids offering goods manufactured in Mexico if the bidder shall have established to the satisfaction of the Guarantor and the Bank that the manufacturing cost of such goods includes a value added in Mexico equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Mexico. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. The lowest evaluated bids of each group shall then be compared with each other, and if, as a result of this comparison, a bid fron group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid, or (ii) I 5% of the c.i.f. bid price of 16 such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the lowest evaluated bid from group C shall be selected. D. Review of-,Procurement Decisions by Bank 1. Review of prequalification. (a) If bidders for civil works contracts are required to prequalify, notice of such requirement will be given to the representatives in Mexico of the member countries of the Bank and Switzerland, and such notice will be published in at least one newspaper of general circulation in Mexico City. A period of not less than 45 days shall be allowed for the submission of requests for prequalification. The list of prequalified bidders, together with a statement of their qualifications, shall be furnished to the Bank, and the Bank shall be given a reasonable opportunity to comment thereon. (b) A prequalified foreign firm shall not be required to register in Mexico prior to its being notified of the intention to award it a contract. Upon such notification, its registration will be facilitated. Importation of necessary equipment and machinery by foreign firms awarded contracts for civil works shall be permitted under temporary admission regime in compliance with the legislation and administrative procedures of the Guarantor. 2. Review of invitation to bid. Before bids are invited, the Guarantor shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedure as the Bank shall reasonably request in consultation with the Guarantor. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. Invitations to bid will provide for a period of at least 30 days for the submission of bids, except that in case firms not established in Mexico manifest their interest to bid, and have prequalified if prequalification has taken place, such period will be at least 45 days. 3. The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. 17 E. Evidence to be furnished to the Bank Promptly after the execution of any of the contracts referred to in the preceding paragraphs or of any other contract for civil works or for equipment, and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of any such contract, the Guarantor shall furnish to the Bank two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract is not consistent with the procedures set forth or referred to in this Schedule, promptly inform the Guarantor and state the reasons for such determination. 18 SCHEDULE 3 Technical Assistance Plan of Action 1. Irrigated Areas Farmers in irrigated areas in the Papaloapan Basin covering approximately 24,500 ha will be provided with intensive technical services, including training in methods leading to increased water use efficiency and proper timing of agricultural operations, as furnished under the existing Plan de Mejoramiento Parcelario (PLAMEPA) of the Guarantor. At least two teams will serve Parts 1.A and LB, and at least two teams Part L.C of the Project during the first five years of execution. Each team will be composed of such staff as shall be required to accomplish its purposes and it is expected that it will normally consist of two agronomists, one topographer, two draftsmen, one secretary, ten laborers and four sub-professional agriculturists. 2. Rainfed Areas Improved technical services will be provided to small farmers in the approximately 100,000 ha. of rainfed agriculture under the Plan Papaloapan (PLANPA) of the Guarantor involving coordination and intensification of research and extension, coupled with agricultural credit services. To this end the Guarantor, through the Comisi6n, will provide staff in sufficient numbers to at least satisfy the following schedule, showing numbers of Technical Assistance (T.A.) and Investigation (Inv.) teams: Project Years 2 3 4 5 Upper Basin T.A. Teams 4 5 6 6 6 Inv. Teams 2 2 2 2 2 Lower Basin T.A. Teams 6 10 16 21 21 Inv. Teams 3 3 3 3 3 19 Each PLANPA Technical Assistance team will be composed of such staff as shall be required to accomplish its purposes and it is expected that it will normally consist of an agronomist, a technical assistant to the agronomist, four to six sub-professional agriculturists, and a secretary. Each PLANPA Investigation team will be composed of such staff as shall be required to accomplish its purposes and it is expected that it will normally consist of an agronomist, a technical assistant, an economist, about four laborers, and a secretary.