Mexico - Fifth Agricultural And Livestock Credit Project : Loan 1217 - Project Agreement - Conformed

CONFORMED COPY LOAN NMBER 1217 ME PROJECT AGREEMENT (Fifth Agricultural and Livestock Credit Project) between INTERNATIONAL ANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO DE MEXICO, S.A. Dated March 11, 1976 PROJECT AGREEMENT AGREEMENT, dated March 11, 1976, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPIENT (hereinafter called the Be,k) and BANCO DE MEXICO, S.A. (hereinafter called Banxico). WHEREAS, by a trust agreement between the Guarantor and Banxico dated August 26, 1965, Banxico has been entrusted by the Guarantor with a special fund for the purpose of financing livestock and agri- cultural development in Mexico; and WHEREAS the Guarantor, Banxico and the Borrower have requested the Bank to assist in financing such development; and WHEREAS the Bank has in the past made the prior loans for that purpose and is now willing to make to the Borrower a fifth loan in various currencies equivalent to one hundred and twenty-five mil- lion dollars ($125,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Banxico agree to undertake certain obligations to the Bank as hereinafter in this Project Agreement set forth; and WHEREAS, Banxico in consideration of the Bank's entering into the Loan Agreement with the Borrower has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the con- text shall otherwise require, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the re- spective meanings therein set forth. T -3- ARTICLE II Particular Covenants of Banxico Section 2.01. (a) Banxico shall carry out or cause the Project to be carried out with due diligence and efficiency and in confor- mity with sound agricultural, industrial, administrative and fi- nancial policies and practices under the managerent and supervision of Fondo, and shall, at all times, make available promptly as needed, all suns and other resources which shall be required by Fondo to meet its operating expenses. (b) Banxico shall, for the purpose of carrying out the Proj- ect, make or cause to be made available, out of Fondo's resources or otherwise, credit on terms and conditions satisfactory to the Bank, as required in order to achieve fully and promptly the ben- efits of the Project. (c) Banxico shall exercise its rights in relation to each credit operation financed in whole or in part with the proceeds of the Loan in such manner as to protect the interests of the Bank, Banxico and Fondo. Section 2.02. (a) Banxico shall enter into contractual ar- rangements, satisfactory to the Bank, with the Borrower providing, inter alia, (i) for the transfer from the Borrower to Banxico of the proceeds of the Loan for the purpose of carrying out the Proj- ect; (ii) for the payment by Banxico to the Borrower, from time to time, of the sums of money that the Borrower shall require to -4- pay to the Bank on account of interest and other charges on the proceeds of the Loan allocated to carry out Part 1 of the Project; and (iii) for the utilization by Banxico, in Fondo's medium- and long-term program for agricultural development, of the proceeds of repayment of sub-loans under the Project, to the extent that Banxico shall not require such proceeds to make payments to the Borrower in accordance with sub-paragraph (ii) hereof. (b) Except as the Bank shall otherwise agree, Banxico shall not change or fail to enforce any provision of such arrangements. Section 2.03. (a) Banxico shall cause Fondo to carry out its operations in accordance with sound agricultural, industrial, ad- ministrative and financial policies and practices under the super- vision of exDerienced and competent management. (b) The organization of Fondo and the operational policies of Banxico and Fondo in respect of the Project shall be satisfac- tory to the Bank and such policies shall include such organization, procurement and credit policies as are set forth in Schedule 2 to this Project Agreement, and such other policies as may be agreed to by the Bank and Banxico, and Banxico shall ensure that such or- ganization, procurement and credit policies are, to the extent nec- essary, duly and promptly implemented and carried out to the satis- faction of the Bank. Section 2.04. (a) Banxico shall cause the proceeds of the Loan to be applied in accordance with the provisions of this Agreement and the Loan Agreement to expenditures on the Project. -5- (b) Except as the Bank shall otherwise agree, Danxico shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively in carrying out the Project. Section 2.05. Banxico shall make available to BNCR, to any bank of BNCR's system, or to any other public credit institution which has not participated in the prior projects the rediscount facilities under the Project only after the Bank shall determine that BNCR, any sach bank of BNCR's system or such institution is eligible to such facilities. Section 2.06. Banxico shall apply to the Bank for approval of any Sub-loan to be made under the Project in excess of the equiv- alent of eight hundred thousand dollars ($800,000). When applying to the Bank for such approval, Banxico shall furnish to the Bank a description of the project to be financed out of the proceeds of the proposed Sub-loan and such technical, economic and financial data regarding such project as the Bank shall reasonably request. Section 2.07. Banxico shall cause the public Participating Banks to: (a) establish and maintain separate accounts to record their receipts and payments for or in connection with the Project, in- cluding: (i) amounts received from and payments made to Fondo, and (ii) amounts disbursed to and received from beneficiaries; and (b) enable the Bank's accredited representatives to examine such accounts. -6- Section 2.08. (a) Banxico shall maintain or cause to be main- tained records adequate to identify the goods and services financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of Fondo and, in respect of the Project, of Banxico; shall enable the Bank's representatives to inspect the sites, farms, ranches, agro-industries and other works and facilities included in the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents; and shall furnish or cause to be furnished to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceods of the Loan, the Project, the goods and services financed out of the proceeds of the Loan, the administration, operations and financial condition of Fondo and, in respect of the Project, the operations of Banxico. (b) Without prejudice to its obligations under paragraph (a) of this Section, Banxico shall: (i) keep or cause to be kept such detailed records on selected farms and agro-industries included in the Project as shall be necessary to enable Banxico to obtain accu- rate measurement of Project impact and results, and (ii) from time to time evaluate such impact and results. Section 2.09. (a) The Bank and Banxico shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and Banxico shall from time to time, at the -7- request of either of them, exchange views through their represent- atives with regard to the performance by Banxico of its obligations under this Agreement, the administration, operations and financial condition of Fondo, the operations of Banxico, in respect of the Project and other matters relating to the purposes of the Loan. (b) Banxico shall promptly inform the Bank of any condition which interferes with, or threatens to interfere with, the accom- plishment of the purposes of the Loan or the performance by Banxico of its obligations under this Agreement. Section 2.10. Banxico, in its capacity as Trustee of Fondo, shall: (i) have an annual audit satisfactory to the Bank Tade of the accounts and financial statements (balance sheets, statements of income and expenses and related statements) of Fondo for each calendar year, in accordance with sound auditing principles con- sistently applied, by independent and qualified auditors; (ii) fur- nish to the Bank as soon as available, but in any case not later than three months after the end of each such year, (A) certified copies of such financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of Fondo and the audit thereof as the Bank shall from time to time reasonably request. Section 2.11. Except as the Bank shall otherwise agree, Banxico shall cause appoopriate entities other than Fondo to provide the technical services included in Part 2(a) of the Project. -8- ARTICLE III Effective Date; Termination Cancellation and Suspension Section 3.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 3.02. This Agreement and all obligations of the Bank and of Banxico hereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. -9- ARTICLE VI Miscellaneous Provisions Section 4.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or per- mitted to be given or -lde at such party's address hereinafter spe- cified 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 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. For Banxico: Banco de Mexico, S.A. 5 de Mayo No. 2 Mexico 1, D.F., Mexico Cable address: Banxico Mexico D.F. - 10 - Section 4.02. Any action required or permitted to be taken, and any documents required or permitted to be executed under this Agreement on behalf of Banxico may be taken or executed by the Di- rector General of Banxico or such other person or persons as the Director General shall designate in writing. Section 4.03. This Agreement may be executed in several coun- terparts, each of which shall be an original and all collectively but one instrument. - 11 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ G. K. Wiese Acting Regional Vice President Latin America and the Caribbean BANCO DE MEXICO, S.A. By /s/ Horacio Garcia Aguilar Authorized Representative - 12- SCHEDULE 1 Description of the Project The Project is the continuation of the livestock and agricul- ture development program financed under the prior loan agreements by means of a credit program, managed and supervised by Fondo within the framework of the Trust Agreement and the Special Trust Agree- ment, which will make use of the resources of the Special Trust Fund. The Project includes: Part 1: Making of sub-loans, and short-term loans for working capital, together with ancillary services and other related items for: (a) livestock development and annual and perennial crop development to (i) low-income beneficiaries, and (ii) medium-income beneficiaries; and (b) planning and establishment of primary processing or service type agro-industries to beneficiaries. Part 2: (a) Provision of technical services (including produc- tion-oriented studies, farm demonstrations and - 13 - farm training) to beneficiaries. Specialized training, organization of services and foreign travel of technicians for purposes of the Project. (b) Monitoring and evaluation of the impact of the Project. (c) Pilot projects in selected areas of Mexico to test, inter alia, different types of low cost management arrangements ensuring sound management of projects carried out by low-income beneficiaries which consist of groups of farmers. -14- SCHEDULE 2 Organization, Credit and Procurement Policies A. General 1. Banxico will rediscount or otherwise finance sub-loans made by the Participating Banks. Fondo's determination of eligibility for such financing will be based primarily upon the appraisal as to technical feasibility and satisfactory return on investments and the approval of each sub-loan by qualified technicians of, or acceptable to, Fondo, such approval to be given before the respec- tive sub-loan is made by the Participating Banks. Project apprais- als will be reviewed from time to time by Fondo in order to deter- mine their accuracy and the technical and financial viability of projects. At the time of the approval of each sub-loan, a plan for supervising the carrying out of the project will be prepared and a record of supervision activities w'll be kept for each sub-loan. Irrigation projects will be approv ., in addition and where nec- essary, by a field representative of the Secretaria de Recursos Hidraulicos. Agro-industrial projects will be appraised, recom- mended and supervised by Fondo staff, or by consultants acceptable to Fondo under detailed terms of reference. Project evaluation will include the projection of costs and returns to tthe beneficiary for the estimated life of the project. Fondo will from time to time review the procedures for the processing of sub-loan applications with a view to simplifying such procedures. - 15 - B. Organization 2. Organizational and staffing adjustments as set forth in Ban- xico's Memorandum dated April 23, 1971 will be maintained. C. Procurement Policies 3. The following measures will be taken: (a) Fondo will require beneficiaries to obtain price quota- tions for goods or works to be financed under a sub-loan from sev- eral local suppliers and contractors, whenever practicable; (b) Fondo will require beneficiaries to obtain price quota- tions for imported breeding stock to be financed under a sub-loan from several sources of supply, whenever practicable; (c) Except as the Bank shall otherwise agree, any contract for equipment and associated services for agro-industries to be financed under a sub-loan and estimated to cost the equivalent of $150,000 or more shall be awarded only after the beneficiary shall have obtained price quotations from not less than three suppliers of such equipment. To this effect, processing equipment for each agro-industrial project will be grouped in accordance with appro- priate technical and procurement practices; (d) Fondo will make available to beneficiaries of sub-loans for agro-industrial projects a list of suppliers of agro-industrial machinery from the Bank's member countries and Switzerland; and - 16 - (e) Fondo will adver,.ise once in at least one newspaper of general circulation in Mexico, and inform once local representatives of the Bank's member countries which manufacture agro-industrial equipment and Switzerland about the type of agro-industries to be financed under the Project. If any such country does not have local representation, such information will be sent to the government agency responsible for its foreign trade. D. Credit Policies 4. Participating Banks will be required to provide from their own resources not less than 10% of the total amount of sub-loans made. The balance will be rediscounted or otherwise financed by Banxico. For this purpose, Banxico will make available to the respective Participating Banks, promptly as needed, amounts sufficient to cover such balances. The financing granted by Banxico will have the same repayments of principal as the sub-loans financed, and if such fi- nancing is granted through rediscounting, such rediscounting will be evidenced by negotiable instruments representing the sub-loan to be rediscounted signed by the beneficiaries. 5. In rediscounting or otherwise financing sub-loans, the fol- lowing rules will be applied: (a) Subject to the provisions of paragraph (b) below, redis- count rates to Participating Banks and interest rates to benefi- ciaries will be as follows: - 17 - Size of Sub-loans to (i) Medium-income Beneficiares for on- farm investment proj- Yearly ects, and (ii) Bene- Percentage Rediscount Rates Yearly Interest ficiaries for agro- of Sub-loan to Participating Rates to industrial projects Rediscounted Banks Beneficiaries Up to 150,000 pesos No more than 8.75% 11.50% 90 More than 150,000 No more than 9.75% 12.25% and up to 85 250,000 pesos More than 250,000 No more than 10.50% 13.00% and up to 80 500,000 pesos More than 500,000 No more than 11.00% 13.50% and to to 70 1,000,000 pesos More than 1,000,000 No more than 11.50% 13.50% and up to 5,000,000 70 pesos More than 5,000,000 No more than 12.25% 14.00% and up to 10,000,000 70 pesos More than 10,000,000 No more than 12.75% 14.50% and up to 15,000,000 70 pesos More than 15,000,000 No more than Not less than Not less than pesos 70 12.75% 14.50% No sub-loan will be made to a medium-incom- beneficiary for on-farm investment if the amount of the proposed sub-loan together with the aggregate principal amount outstanding of sub-loans made for that -18 9 purpose to such medium-income beneficiary under the Project or prior projects exceeds 2,500,000 pesos. In case the medium-income beneficiary is a group of farmers such amount will be multiplied by the number of members of such group. In case a project is appraised by Fondo and the amount of the sub-loan for such project exceeds 500,000 pesos, the discount rate in respect of such sub-loan will be increased by one fourth of one percentage point. In case the beneficiary of a sub-loan for an agro-industrial project is a group of low-income producers, such sub-loan will bear interest at the rate which would correspond to an amount equal to the amount of such sub-loan divided by the number of members of such group. In case the beneficiary of a sub-loan for an agro-industrial project is a group of medium-income producers and low-income pro- ducers, the amount of such sub-loan will be divided into tranches, the amount of each to be proportionate to the number of members of such group belonging to each one of such income categories. The tranche which corresponds to the medium-income producers will bear interest as specified in the above table. The tranche which cor- responds to the low-income producers will bear interest as spec- ified in the preceding paragraph. -19 - Sub-loans to Low- Yearly income Beneficiaries Percentage Rediscount Rates Yearly Interest for on-farm invest- of Sub-loan to Participating Rates to mentprojects Rediscounted Banks Beneficiaries Private Public (i) Sub-loans to No more than 4.60% 5.60% 7.60% low-income 90 beneficiaries who receive institutional credit for the first time and whose net annual family income does not exceed 250 times the daily minimum rural wage for the region where they are located (ii) sub-loans to 90 6.00% 7.00% 9.00% other low-income beneficiaries (b) interest and rediscount rates charged under all other programs managed by londo will be adjusted from time to time, as necessary, so that differences between interest rates do not result in discouraging participation in the Project; and (c) lending terms and grace periods will be in accordance with technical and financial plans. Repayments of principal of sub-loans will range from 3 to 15 years and will include grace periods of 1 to 3 years; provided that in exceptional cases and with the prior agreement of the Bank, repayment of principal may extend for up to 20 years. - 20 - 6. (a) Each medium-income beneficiary will contribute: (i) at least 15% of the total cost of each on-farm. investment project out of his own resources, provided, that the aggregate of such con- tributions will be for each calendar year at least 20% of the ag- gregate total cost of the projects financed under Part (a)(ii) of the Project during the year concerned. (b) (i) Each low-income beneficiary included in paragraph 5 (a)(i) above will contribute at least 3% of the total cost of each on-farm investment project in cash, labour or materials; and (ii) Each low-income beneficiary included in paragraph 5 (a)(ii) above will contribute at least 5% of the total cost of each on-farm investment project in cash, labour or materials. (c) Each beneficiary will contribute at least 20% of the total cost of each agro-industrial project out of his own resources.