Mexico - Integrated Rural Development Project - Pider II : Loan 1462 - Guarantee Agreement - 1 - Conformed

LOAN NUMBER 1462 ME Guarantee Agreement (Integrated Rural Development Project - PIDER II) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated , 1977 GUARANTEE AGREEMENT AGREEMENT, dated LA & 5 , 1977, 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 one hundred twenty million dollars ($120,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan as hereinafter provided and that Banco de Mexico, S.A. (hereinafter called Banxico) undertake certain obligations to the Bank as in the Project Agreement set forth; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: -2- 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, subject, however, to the modifications thereof set forth in Schedule 3 to the Loan Agreement (said General Conditions Applicable to Loan and Guarantee Agreements, as so modified, 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. -3- ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, all as set forth in the Loan Agreement. Section 2.02. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor shall cause Banxico to perform in accordance with the provisions of the Project Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable Banxico to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. -4- ARTICLE III Execution of Certain Parts of the Project Section 3.01. (a) The Guarantor shall carry out the Project described in Schedule 1 to this Agreement, except Parts D and E which will be carried out by Banxico, with due diligence and efficiency and in conformity with sound administrative, financial, engineering and agricultural policies and practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Project shall be carried out in such regions as the Guarantor and the Bank shall agree. Section 3.02. The Guarantor-shall enter into the contractual arrangements referred to in Section 3.01 (b) of the Loan Agreement with the Borrower. Except as the Bank shall otherwise agree, the Guarantor shall not change or fail to enforce any provision of such arrangements. Section 3.03. The Guarantor shall carry out all Parts of the Project, except Parts D and E, in accordance with such investment plans for each region as the Guarantor and the Bank shall agree; provided, however, that: (i) not less than 70% of the total cost of each such investment plan shall be for investments in Parts A to N of the Project; and (ii) the estimated return thereon shall not be less than 10%. -5- Section 3.04. The Guarantor shall maintain such organiza- tional arrangements at the State level as shall be required for purposes of coordinating the carrying out of the Project. Section 3.05. (a) The Guarantor shall include in Part A of the Project only such facilities as shall be justified in the light of technical and socio-economic feasibility studies carried out in accordance with the guidelines of SARH for irrigation projects in effect on the date of this Agreement, and which, in addition, meet the following criteria: (i) the total cost of an irrigation project of 25 hectares or less shall not exceed: $2,500 equiva- lent per hectare, $5,000 equivalent per family of farmers and, in the aggregate, $32,000 equivalent; (ii) the total cost of an irrigation project of more than 25 hectares shall not exceed $2,500 equivalent per hectare; and (iii) the net agricultural annual income of families of farmers benefiting from any irrigation project included in the Project shall not exceed $2,500 equivalent per family before such project is carried out. (b) The Guarantor shall collect such water charges in respect of the water supplied through the irrigation facilities -6- included in Part A of the Project as shall be necessary to recover: (i) all operation and maintenance costs of such facilities; and (ii) about 10% of their investment cost, including contributions in cash or kind made by the beneficiaries of such facilities to pay for such cost. (c) The Guarantor shall make its best efforts to recover, in addition to the amount referred to in paragraph (b) (ii) above, as much of the investment cost of such facilities as it shall be rea- sonable taking into account the ability of said beneficiaries to pay. Section 3.06. The Guarantor shall, before carrying out Parts C and H of the Project, except forestry, obtain by written agreement with the beneficiaries of such Parts the right to require such beneficiaries to: (a) operate and maintain adequately the facili- ties to be constructed; and (b) repay as much of.the investment cost of such facilities through repayment of credit, cash or kind as shall be reasonable taking into account the ability of such bene- ficiaries to pay. Section 3.07. The Guarantor shall carry out the soil and water conservation works included in Part B of the Project in accordance with a technical and economic conservation plan. Section 3.08. The Guarantor shall take such measures as shall be necessary or advisable to: -7- (a) enable Banxico to apply and cause to be applied the credit policies provided in the Project Agreement in respect of Part D and Part E sub- loans; and (b) ensure that farmers in the Project Area will be provided with such short-, medium- and long-term credit, fertilizer and improved seeds, as and when shall be required to utilize adequately the agricultural resources of the Project Area. Section 3.09. In carrying out Part F of the Project, the Guarantor shall, not later than June 30, 1978, (a) prepare and furnish to the Bank a plan for the development of small scale industries in the Project Area, and (b) give the Bank a reasonable opportunity to comment thereon. Section 3.10. In carrying out Part I of the Project, the Guarantor shall ensure that contracts for feasibility studies costing $15,000 equivalent or less will be approved by the repre- sentative of its Secretaria de Programaci6n y Presupuesto in the State concerned, and that contracts for feasibility studies costing more than $15,000 equivalent will be approved by the Direcci6n de Promoci6n y Operaci6n Regional of said Secretarfa. -8- Section 3.11. The Guarantor shall schedule the construction of the feeder roads included in the Project in such manner as to minimize conflict with agricultural tasks. Section 3.12. The Guarantor shall use, or cause to be used, where technically and economically appropriate, labor intensive methods in the construction of the works included in the Project. Section 3.13. In carrying out Part K of the Project, the Guarantor shall, not later than December 31, 1980, extend its Programa Nacional de Desarrollo Agricola en Areas de Temporal (PRONDAAT) to the entire Project Area. Section 3.14. Except as the Bank shall otherwise agree: (a) the investment cost per capita of the facilities included in Part M of the Project shall not exceed the equivalent of $150, including transmission from the main power grid to any village and distribution to households; and (b) the Guarantor shall cause the installation charges and rates for the sale of electricity in the Project Area to be charged and collected according to those applied generally in Mexico for said purposes. Section 3.15. Except as the'Bank shall otherwise agree: (a) the contribution of the Guarantor to the investment cost of the facilities included in Part P of the Project shall not exceed the equivalent of $100 per capita; -9- (b) beneficiaries of Part P of the Project shall pay, in cash or kind, 15% of such cost out of their own resources during the period of construction and installation of such facilities; and (c) the Guarantor shall charge and collect such water charges in respect of water supplied through such facilities as shall be necessary to cover all operation and maintenance costs of such facilities. Section 3.16. In carrying out Part Q of the Project, the Guarantor shall ensure that: (a) villages without electricity and water supply will benefit from Part Q of the Project; and (b) not more than $40 equivalent of materials and equipment will be provided for each individual. Section 3.17. The Guarantor shall cause: (a) the facilities included in the Project to be operated, ) maintained and repaired in accordance with sound engineering, public utility, financial and administrative practices; and (b) in addition, the educational facilities included in the Project to be, at all times, adequately staffed. Section 3.18. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 2 to this Agreement. - 10 - Section 3.19. (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 transferred to the Guarantor by the Borrower against hazards incident to the acqui- sition, 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 shall otherwise agree, the Guarantor shall cause all goods and services financed out of such proceeds to be used exclusively for the Parts of the Project to be carried out by the Guarantor. Section 3.20. (a) The Guarantor shall, at the Bank's request, furnish to the Bank, the plans, specifications, contract documents and work schedules for the Parts of the Project to be carried out by the Guarantor, 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 main- tained, records adequate to record'the progress of all Parts of the Project to be carried out by the Guarantor (including the cost thereof), the results achieved by such Parts of the Project, and the extent to which the investment, operation and maintenance - 11 - costs of the facilities provided under the Project have been recovered as required by the provisions of this Agreement, and to identify the goods and services financed out of the proceeds of the Loan transferred to the Guarantor by the Borrower, to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan transferred to the Guarantor by the Borrower 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 such Parts of the Project, the expenditure of such proceeds and the goods and services financed out of such proceeds. Section 3.21. The Guara-tor shall: (a) maintain, or cause to be maintained, separate accounts to reflect in accordance with consistently maintained sound accounting practices the financial situation of the Parts of the Project to be carried out by the Guarantor; (b) cause such accounts to be audited annually, applying sound auditing principles; (c) promptly make available to the Bank copies of such accounts, as so audited; and (d) furnish to the Bank such other pertinent information concerning such accounts as the Bank shall reasonably request from time to time. - 12 - Section 3.22. In carrying out Part R of the Project, the Guarantor shall: (a) obtain such information on each of the regions included in the Project Area as shall be required to evaluate the effects of the Project on the development of such regions, and (b) evaluate such effects, including changes in crop yields and incomes of beneficiaries resulting from directly productive investments, on the basis of such information. - 13 - 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, specific security from the member con- cerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distri- bution 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, iho 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 Guar- antor, 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. a14 - (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 trans- actions 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 subdivi- sions, 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 organization which is owned or controlled directly or indirectly by the Guar- antor 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. Section 4.02. The Guarantor covenants that it will not take, or cause or permit any of its political subdivisions or any of its agencies or any agency of any such political subdivisions to take, any action which would prevent or idterfere with the performance by Banxico of its obligations contained in the Project Agreement and will take or cause to be taken all reasonable action necessary or appropriate to enable Banxico to perform such obligations. - 15 - ARTICLE V Representative of the Guarantor 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 Guarantor agrees that all notices and requests given or made to the Borrower shall be deemed to have been given or made also to the Guarantor. -16 - 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 / Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By/5/uki Director aDe,artm,.ent Country ogram bbEan L a t n m e i c a t O i - i c R,egional - 17 - SCHEDULE 1 Description of the Project The purpose of the Project is to raise the standard of living of low-income persons living in the Project Area by increasing their incomes, by providing basic infrastructure facilities and services, and by utilizing effectively technical assistance and credit resources. The Project consists of the following works and services in the Project Area: Part A: Irrigation Construction or rehabilitation of small-scale irrigation facilities, including small dams, tubewells, pumping plants, concrete lining of earth canals, and ancillary distribution facilities, to irrigate about 34,000 hectares of farm land. Part B: Soil and Water Conservation Construction of soil and water conservation works in partly 0A and non-eroded slopes, including inter alia land levelling and subsoiling, to improve or prevent the deterioration of about 80,000 hectares of farm land. Part C: Infrastructure for Livestock*Development Land clearing, pasture establishment, fencing, and construc- tion of watering and handling facilities for the development of beef, dairy, sheep, pig, poultry, rabbit and goat produc- tion, and construction of beekeeping facilities. - 18 - Part D: Agricultural Credit Making of medium- and long-term sub-loans to finance on-farm investments for crop or livestock production and short-term sub-loans to finance seasonal production. Part E: Rural Industrial Credit Making of medium- and long-term sub-loans to finance rural industrial projects consisting of planning and establishment of primary processing or service-type rural industries, and short-term loans to finance working capital therefor. Part F: A pilot program to finance village industrial projects costing less than $35,000 equivalent and consisting of the establishment of small-scale enterprises for manufacturing, inter alia, ceramics, construction materials, furniture and garments, and for processing agricultural products, and working capital therefor. Part G: Technical Assistance 1. Provision of technical assistance to rural and village industries. 2. Training in preparation and evaluation of rural and village industrial projects. - 19 - Part H: Fruit Production, Forestry and Fishery Development Development of orchard infrastructure and planting of fruit trees on about 7,500 hectares; aforestation and reforestation; and construction of cold storage facilities for fish. Part I: Feasibility Studies Feasibility studies for soil and water conservation, irriga- tion works and development of fruit production, livestock, fisheries and forestry. Part J: Feeder Roads Construction of about 2,000 kilometers of feeder roads. Part K: Extension Services Provision of agricultural, livestock and fishery extension services, including field testing and demonstration. Part L: Farmers' Organization and Land Titling Program A program of assistance to improve the social and economic organization of farmers and to issue land titles to farmers in the Project Area. Part M: Rural Electrification Installation of facilities required to supply electricity to about 25,000 rural households. , Part N: Rural Marketing and Nutrition Provision of mobile shops and construction of small shops and warehouses. - 20 - Part 0: Educational Facilities Construction or renovation and furnishing of about 1,150 primary level classrooms. Part P: Rural Water Supply Construction and installation of the facilities required to supply water to rural households. Part Q: Self-Help Programs Provision of materials for self-help activities such as housing and sanitation improvements, and construction of community centers and village workshops. Part R: Evaluation Evaluation of the effects of the above Parts of the Project in the development of the Project Area. The Project is expected to be completed by January 31, 1981. - 21 - SCHEDULE 2 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines) including the pertinent provisions of the General Introduction thereto, on the basis of international competitive bidding. 2. Whenever practicable, contracts for the purchase of goods or civil works shall be grouped to form economic bid packages. B. Other Procurement Procedures Contracts for the purchase of goods or civil works costing less than $250,000 equivalent may be procured on the basis of the Guarantor's ordinary procurement procedures. 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 except those to be procured in accordance with local procedures: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, - 22 - 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: (1) 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. -23- (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. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from 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) 15% of the c.i.f. bid price of 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 bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. - 24 - D. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equivalent of $250,000 or more: (a) 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 procedures 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. (b) 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. 2. With respect to each contract to be financed out of the proceeds of the Loan, the Guarantor shall promptly after the execution of each contract and prior'to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect thereof, furnish to the Bank two conformed copies of such contract, together with the analysis of bids, - 25 - 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 was not consistent with the Guidelines or this Schedule, promptly inform the Guarantor and state the reasons for such determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 6 day of 4 , 197.2. FOR SECRETARY