Zambia - Industrial Forestry Project : Credit 1437 - Credit Agreement - Conformed

CREDIT NWJMBER 1437 ZA OFFICIAL DOCUMENTS Development Credit Agreement (Industrial Yorestry Project - Phase III) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated ,1984 CREDIT NUMBER 1437 ZA DEVELOPHENT CREDIT AGREEMENt AGREEMENT, dated 1)t00. /e; , 1984, between the REPUBLIC OF ZAMBIA (hereinafter called the Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project, described in Schedule 2 to this Agreement, by extending the Credit as hereinafter provided; (B) the Borrower intends to receive from the Government of Finland a grant (hereinafter called the Finland Grant) in an amount of 57,000,000 Finnmarks to assist in financing part of the Project on the terms and conditions set forth in an agreement (hereinafter called the Finland Grant Agreement) between the Borrower and the Government of Finland; (C) the Project will be carried out by the Zambia Forestry and Forest Industries Corporation Limited with the Borrower's assistance and, as part of such assistance, the Borrower will make available to such Corporation the proceeds of the Credit as hereinafter provided; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to make the Credit available to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith among the Associa- tion, such Corporation and, as the sole shareholder of the Corporation, the Zambia Industrial and Mining Corporation Limited; 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 Development Credit Agreements of the Association, dated June 30, 1980, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agree- ments of the Association being hereinafter called the General Conditions). -2- Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Corporation" means the Zambia Forestry and Forest Industries Corporation Limited, a Private Company established and operating under the Companies Act of the Borrower and pursuant to its Memorandum and Articles of Association dated September 24, 1982. (b) "Project Agreement" means the agreement of even date herewith among the Association, the Corporation and the Zambia Industrial and Mining Corporation Limited as sole shareholder of the Corporation, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supplemental to the Project Agreement; (c) "Subsidiary Financing Agreement" means the agreement to be entered into between the Borrower and the Corporation pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Financing Agreement; and (d) "Project Preparation Advance" means the project prepa- ration advance granted by the Association to the Borrower pursuant to an exchange of letters dated January 12, 1983, and September 21, 1983 between the Borrower, the Bank and the Association. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various curren- cies equivalent to twenty-one million five hundred thousand Special Drawing Rights (SDR 21,500,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of this Section and of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association, for expenditures made (or, if the Associa- tion shall so agree, to be made) in respect of the reasonable -3- cost of goods and services required for the Project, described in Schedule 2 to this Agreement, and to be financed out of the pro- ceeds of the Credit. (b) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount require d to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges there- on. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 2.04. The Closing Date shall be September 30, 1991 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.05. (a) The Borrower shall pay to the Association a commitment charge at the rate of one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Credit not with- drawn from time to time. The commitment charge shall accrue from a date sixty days after the date of this Agreement to the respec- tive dates on which amounts shall be withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without re- strictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.0 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Sectiona Section 2.06, The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. -4- Section 2.07. Commitment charges and service charges shall be payable semiannually on February 15 and August 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each Febru- ary 15 and August 15 commencing February 15, 1994, and ending August 15, 2033, each installment to and including the install- ment payable on August 15, 2003, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.09. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.10. The Corporation is designated as representa- tive of the Borrower for the purposes of taking any action re- quired or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause the Corporation and the Zambia Industrial and Mining Corporation Limited to perform in accordance with the provisions of the Project Agreement all the obligations of such parties therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable them to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Credit available to the Corporation under a subsidiary financing agreement to be entered into between the Borrower and the Corporation, under terms and conditions which shall have been approved by the Association, which shall include provisions for: (i) the passing on to the Corporation as a contribu- tion to its capital of an amount equivalent to the k - first SDR 9.6 million withdrawn from the Credit Account; (ii) the relending to the Corporation of the equivalent of all other proceeds of the Credit withdrawn from the Credit Account for a term of fifteen years including three years of grace and at a rate of interest on the outstanding balance of 11.08% per annum; and (iii) such other matters as shall be satisfactory to the Association, including the assumption by the Corporation of the exchange risk on the amount so relent. (c) The Borrower shall exercise its rights under the Sub- sidiary Financing Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and, except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Financing Agreement or any provision thereof. Section 3.02. The Borrower shall ensure that there be made available to the Corporation during the carrying out of the Project such funds as shall be required by the Corporation adequately to maintain and operate its ongoing program of investment and development. ARTICLE IV Remedies of the Association Section 4.01. For the purposes of Section 6.02 of the Gen- eral Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the Corporation or the Zambia Industrial and Mining Corporation Limited shall have failed to perform any of their respective obligations under the Project Agreement; (b) as a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situa- tion shall have arisen which shall make it improbable that the Corporation will be able to perform its obligations under the Project Agreement; (c) the Memorandum or Articles of Association of the Corporation shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Corporation to perform any of its obligations under the Project Agreement; (d) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of the Corporation or for the suspension of its operations; and (e) (i) subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower or the Corporation to withdraw the proceeds of any grant or loan made to the Borrower or the Corporation for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor; or (B) any such loan shall have become due and payable prior to the agreed maturity thereof; (ii) subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower or the Corporation to perform any of their respective obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower or the Corporation from other sources on terms and conditions consistent with the respective obligations of the Borrower and the Corporation under this Agreement and the Project Agreement. Section 4.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: (a) any event described in paragraph (a) of Section 4.01 shall occur and shall continue for a period of sixty days after -7- notice thereof shall have been given to the Borrower by the Association; (b) any event described in paragraphs (c) or (d) of Section 4.01 shall occur; and (c) the event described in paragraph (e) (i) (B) of Section 4.01 shall occur, subject to the proviso of paragraph (e) (ii) of such Section. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Financing Agreement has been executed on behalf of the Borrower and the Corporation; and (b) all conditions precedent to the first disbursement of funds under the Finland Grant Agreement, other than the effec- tiveness of this Agreement, have been fulfilled. Section 5.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by the Corporation and Zambia Industrial and Mining Corporation Limited and is legally binding upon them in accordance with its terms; and (b) that the Subsidiary Financing Agreement has been duly authorized or ratified by the Borrower and the Corporation and is legally binding upon the Borrower and the Corporation in accor- dance with its terms. Section 5.03. The date e /4/ , is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representatives of the Borrower; Addresses Section 6.01. Except as provided in Section 2.10 of this Agreement, the Minister of the Borrower responsible for finance is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions. For the Borrower: Ministry of Finance P.O. Box 50062 Lusaka, Zambia Cable address: Telex: MINFIN ZA 42221 Lusaka For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) 64145 (WUI) 89650 (WUT) or 197688 (TRT) -9- 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. REPUBLIC OF ZAMBIA By 'I Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President AL ' Eastern Africa - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Civil works under 1,440,000 45% of local contracts or on expenditures force account (2) Vehicles, equip- 12,440,000 100% of foreign ment, spare parts, expenditures, materials 100% of local expenditures for ex-factory price and 75% of local expen- ditures for other items pur- chased locally (3) Consultants' and 3,080,000 90% expertso services (4) Employee train- 1,240,000 100% ing outside of Zambia (5) Refunding of 430,000 Amount due under Project Prepara- Section 2.02 (b) tion Advance of this Agreement (6) Unallocated 2,870,000 TOTAL 21,500,000 - 11 - 2. If the amount allocated to Category (5) above is in excess of the amount required, the balance will be reallocated to Category (6). 3. For the purposes of this Schedule: (a) the term "foreign expendittres" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 4. The disbursement percentages have been calculated in com- pliance with the policy of the Association that the proceeds of the Credit shall not be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or *on the importation, manufacture, procurement or supply thereof; on this basis, if the amount of any such taxes levied on or in respect of items in any Category decreases or increases, the Association may, by notice to the Borrower, increase or decrease the disbursement percentage then appl-.able to such Category as required to be consistent with the aforementioned policy of the Association. 5. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) expenditures made prior to the date of this Agreement; or (b) training under Category (4) above until the Association shall have been satisfied with the Corporation's training program. 6. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in para- graph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then - 12 - allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 7. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditure for such item shall be financed out of the proceeds of the Credit, and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Asso- ciation's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financ- ing out of the proceeds of the Credit. - 13 - SCHEDULE 2 Description of the Project The Project is a six-year third phase of the Borrower's program for the industrial development of its forestry sector and includes further development of forest plantations established under previous phases, for establishment of a few new plantations and replantings, for the improvement and maintenance of infrastructure and forest services within the Project area, as well as for improvements and expansions in existing wood handling and processing facilities to increase wood production and to improve product quality and product mix. The Project consists of the following: Part A: An Afforestation Program consisting in silvicultural manage- ment of about 43,500 hectares of existing plantations, establish- ment of about 1,500 hectares of new pine plantations, replanting of about 1,700 hectares of pine and about 2,100 hectares of eucalyptus, improvement of fire protection practices, construc- tion of new accesv roads and compartment roads and maintenance of existing plantation roadG, all around Ndola and Kitwe, near the border with Zaire. Part B: Improvement of Log Transport and Handling Facilities through the procurement and use of power saws and skidding equip- ment and machinery, log transport equipment, and new log handling equipment at the KITE and Kalibu sawmills, and the improvement of logging roads. Part C: A Sawmilling Program, including the procurement and use of new equipment and spare parts to rehabilitate, improve or replace existing obsolete and inefficient production lines at the KITE complex and Dola Hill sawmill, and additional equipment for the Kalibu sawmill. Part D: Workshop Improvements at the facilities at the KITE complex and the establishment of a new central workshop at Kalibu for - 14 - major repair work and of a mobile workshop unit for servicing equipment at the site of operations. Part E: A Training Program consisting in in-service long-term and external training of employees of the Corporation in engineering, wood technology, accountancy and management, and on-the-job training of all semi-skilled and skilled personnel. Part F: Administrative Support, including strengthening of the Corporation's operational capabilities through the procurement of six passenger cars for replacement of existing vehicles used for administrative purpose by senior staff, four four-wheel drive vehicles for replacement, a micro-computer for improved accoun- tancy and management information systems, and office furniture. The Project is expected to be completed by September 30, 1990. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of Ln,; 1984. FOR SECRETARY