Mauritania - Industrial And Artisan Development Project : Credit 1572 - Project Agreement - Conformed

[ OFFICIAL OCUM S CREDIT NUMBER 1572 MAU DOCUMEINTS Project Agreement (Industrial and Artisan Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BANQUE MAURITANIENNE POUR LE DEVELOPPEMENT ET LE COMMERCE Dated CL9/ , 1985 CREDIT NUMBER 1572 MAU PROJECT AGREEMENT AGREEMENT, dated , 1985, between the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and the BANQUE MAURITANIENNE POUR LE DEVELOPPEMENT ET LE COMMERCE (BMDC). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Islamic Republic of Mauritania (the Bor- rower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equiva- lent to five million four hundred thousand Special Drawing Rights (SDR 5,400,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that BMDC agrees to undertake such obligations toward the Association as are hereinafter set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and BMDC, the proceeds of the Credit allo- cated to Categories (1) and (4) (a) (i) in Schedule 1 to the Development Credit Agreement will be made available to BMDC on the terms and conditions set forth in the Subsidiary Loan Agree- ment; and (C) the proceeds of the Credit allocated to Categories (2) (a) and (4) (a) (ii) in said Schedule will also be made available by the Borrower to BMDC as a grant for purposes of Part B of the Project; and WHEREAS BMDC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective mean- ings therein set forth. -2- ARTICLE II Execution of the Project; Management and Operations of BMDC Section 2.01. (a) BMDC declares its commitment to the objec- tives of the Project as set forth in Schedule 2 to the Develop- ment Credit Agreement and, to this end, shall carry out Parts A and B of the Project described in said Schedule and conduct its operations and affairs with due diligence and efficiency and in conformity with appropriate economic, financial and investment standards and practices, with qualified and experienced manage- ment and in accordance with its Statutes and Statement of Policy and the Schedule to this Agreement. (b) Without limitation upon the provisions of paragraph (a) of this Section, BMDC shall carry out Parts A and B of the Pro- ject in accordance with the Implementation Program set forth in the Schedule to this Agreement, as such Schedule may be amended from time to time by agreement between the Association and BMDC. (c) Except as the Association shall otherwise agree, pro- curement of the goods and works required for Parts A and B of the Project and to be financed out of the proceeds of the Credit, and the employment of consultants to assist BMDC in carrying out the said Parts of the Project shall be governed by the provisions of Schedule 4 to the Development Credit Agreement. Section 2.02. (a) In accordance with and subject to the pro- visions of the Development Credit Agreement, BMDC shall submit Investment Projects to the Association for approval or for autho- rization for withdrawals to be made from the Credit Account. (b) (i) When submitting a Sub-loan (other than a free- limit Sub-loan) to the Association for approval, BN1DC shall fur- nish to the Association an application, in form satisfactory to the Association, together with a description of the Investment Enterprise and of the Investment Project to be financed there- under (including a description of the expenditures for such Investment Project proposed to be financed by BMDC and an apprai- sal of the Investment Project) and the proposed terms and condi- tions of the Sub-loan, including the schedule of amortization of the Sub-loan, and such other information as the Association shaLl -3- reasonably request; and (ii) such appraisals will include a cal- culation of the internal financial rate of return and the econo- mic rate of return, established in accordance with guidelines satisfactory to the Association. (c) Each request by BDC for authorization to make with- drawals from the Credit Account in respect of a free-limit Sub- loan shall contain a summary description of the Investment Enter- prise and the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Credit and a statement of the economic justification for the Investment Project) and the terms and conditions of such free- limit Sub-loan, including the schedule of amortization therefor. (d) The amortization schedule applicable to each Investment Project shall provide for an appropriate period of grace and, unless the Association and the Borrower shall otherwise agree: (i) shall not extend beyond 12 years including a grace period of up to 3 years from the date of the first disbursement under the Sub-loan in respect of the Investment Project; and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semi-annual, or more frequent, payments of principal. (e) Except as the Association and BMDC shall otherwise agree, BMDC shall submit applications for approval of Investment Projects pursuant to the provisions of paragraph (b) of this Sec- tion and requests for authorizations to withdraw from the Credit Account pursuant to the provisions of paragraph (c) of this Sec- tion on or before December 31, 1990. Section 2.03. (a) BMDC undertakes that, unless the Associa- tion shall otherwise agree, any Sub-loan will be made on terms whereby BMDC shall obtain, by written agreement or other appro- priate legal means, rights adequate to protect the interests of the Association and of BMDC, including, in the case of any such Sub-loan: (i) the right to require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (ii) the right to require the Investment Enterprise (A) to purchase all imported machinery and equipment after the solicitation of at least three quotations from suppliers, (B) to procure all off- the-shelf items through prudent local shopping, and (C) to carry out civil works under reasonably priced contracts; (iii) the -4- right to require that the goods and services to be financed out of the proceeds of the Sub-loan be used exclusively in the carry- tag out of the Investment Project; (iv) the right of the Associa- tion and of BMDC to inspect such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (v) the right to require that the Investment Enterprise take out and maintain such insurance, against such risks and in such amounts, as shall be consistent with sound business practice and that, without any limitation upon the foregoing, such insurance cover hazards incident to the acquisition, transportation and delivery of the goods financed out of the proceeds of the Sub-loan to the place of use or installation, and that any indemnity thereunder be payable in a currency freely usuable by the Investment Enter- prise to replace or repair such goods; (vi) the right to obtain all such information as the Association or BMDC shall reasonably request relating to the foregoing, to the administration, opera- tions and financial condition of the Investment Enterprise and the benefits to be derived from the Investment Project; and (vii) the right of BMDC to suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Sub-loan upon failure by such Investment Enterprise to perform its obliga- tions under its agreement with BMDC. (b) Except as the Association shall otherwise agree, BMDC undertakes to make every Sub-loan on terms and conditions which: (i) shall include interest to be paid by the Investment Enter- prise to be at least eleven per cent (11%) per annum on the balances of the Sub-loan outstanding from time to time or such other rate of interest as shall be agreed by the Association and B4DC to ensure for BMDC an adequate spread taking into account, among other things, capital market conditions and the rate of inflation in Mauritania; and (ii) shall require its industrial borrowers to pay a special charge of one per cent (1%) per annum through BMDC to the Borrower on the outstanding amount of any Sub-loan in consideration of the assumption by the Borrower of the risk of loss resulting from changes in the rates of exchange between the various currencies (including Ouguiya) used by BMDC in its borrowing and lending operations. (c) BMDC shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association and of BMDC; (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agree- ment; and (iii) achieve the purposes of the Project. - 5 - Section 2.04. BMDC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, BMDC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provi- sion thereof. Section 2.05. Except as the Association shall otherwise agree, BMDC: (i) shall not sel.l, lease, transfer or otherwise dispose of any of its property or assets, except in the ordinary course of business; and (ii) shall take all action necessary to maintain its corporate existence and right to carry on its oper- ations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.06. If BMDC establishes or acquires any Sub- sidiary, BMDC shall cause such Subsidiary to observe and perform the obligations of BMDC under this Agreement to the extent to which such obligations shall or may be made applicable thereto as though such obligations were binding upon such Subsidiary. Section 2.07. BMDC shall not amend its Statement of Policy except in agreement with the Association, and shall exchange views with the Association on any proposal to modify its Sta- tutes. Section 2.08. BMDC shall carry out the obligations of the Borrower under Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of Part B of the Proj ect. Section 2.09. (a) BNDC shall, at the request oE the Associa- tion, exchange views with the Association with regard to the pro- gress of Parts A and B of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) BMDC shall promptly inform the Association of any con- dition which interferes or threatens to interfere with the pro- gress of Parts A and 8 of the Project, the accomplishment of the purposes of the Credit, or the perEocmance by BMDC of its obliga- tions under this Agreement and under the Subsidiary Loan Agree- ment. Article III Financial Covenants Section 3.01. BMDC: (i) shall maintain records and accounts adequate (A) to reflect in accordance with sound accounting prac- tices its operations and financial condition, (B) to record and monitor the progress of Parts A and B of the Project and of each Investment Project (including its cost and the benefits to be derived trom it), and (C) to reflect in accordance with consis- tently maintained appropriate accounting practices the operations and financial condition of BMDC; and (ii) shall enable the Asso- ciation's representatives to examine such records. Section 3.02. (a) BMDC shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscai year audited, in accordance with appropriate auditing principles consistentiy applied, by independent auditors acceptable to the Association; (ii) turnish to the Association as soon as available, but in any case not iater than nine months after the end of each such year, (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors (which shall include a detailed analysis of arrears), of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other infor- mation concerning said accounts and financial statements as well as the audit thereof and said records, as the Association shall from time to time reasonably request. (b) For all expenditures under Parts A and B of the Project with respect to which withdrawals are requested from the Credit Account on the basis of statements of expenditure, BMDC shall: (i) maintain, in accordance with Section 3.01 of this Agreement, separate records and accounts reflect- ing such expenditures; (ii) retain, until one year aftE.r the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; - 7 - (iii) enable the Association's representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (a) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the pro- ceeds of the Credit withdrawn in respect of such expenditures have been used for the purpose for which they were provided. Section 3.03. Except as the Association shall otherwise agree, BMDC shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratios within the limits referred to in Section 3.04 of this Agreement; and (ii) if such ratios shall, for reasons beyond BMDC's control, be exceeded, promptly take all such rea- soneble action as shall be necessary or advisable to bring such ratios within such limits. Section 3.04. Except as the Association and BMDC shall otherwise agree, BMDC shall not incur or permit any Subsidiary to incur any debt if, after the incurring of such debt, the consoli- dated debt of BMDC and all its Subsidiaries then incurred and outstanding would: (i) in the case of a term debt exceed four times the consolidated capital and surplus of BMDC and all its Subsidiaries; and (ii) in the case of total debt exceed twelve times the consolidated capital and surplus of BMDC and all its Subsidiaries. For the purpose of this Section: (a) The term "debt" means any debt incurred by BMDC or any Subsidiary, including debt assumed or guaranteed by BMDC or by a Subsidiary; provided that (i) the term "term debt" shall mean debt incurred by BMDC or any Subsidiary maturing more than one year after the date on which it is originally incurred, and (ii) the term "total debt" shall mean all debt incurred by BMDC or any Subsidiary, including term debt. (b) Wherever reference is made in this Section to the incurring of debt, such reference shall include any modification of the terms of payment of such debt. Debt shall be deemed to be incurred: (i) under a loan contract or agreement, on the date and to the extent the loan is drawn down pursuant to such loan con- tract or agreement; and (ii) under a guarantee agreement, on the - 8 - date the agreement provi4ing for such guarantee has been entered into but only to the extent the guaranteed debt is outstanding. (c) Whenever in connection with this Section it shall be necessary to value in terms of Ouguiya debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable in Ouguiya for the purposes of servicing such debt. (d) The term "consolidated debt of BMDC and all its Sub- sidiaries" means the total amount of debt of BMDC and all its Subsidiaries excluding debt owed by BMDC to any Subsidiary or by any Subsidiary to BMDC or to any other Subsidiary. (e) The term "consolidated capital and surplus of BMDC and all its Subsidiaries" means the aggregate of the total unimpaired paid-in-capital, surplus and free reserves of BMDC and of all its Subsidiaries after excluding therefrom such amounts as shall represent equity interests of BMDC in any Subsidiary, or of any such Subsidiary in BMDC or in any other Subsidiary. Section 3.05. Except as the Association and BMDC shall otherwise agree, BMDC shall not make any repayment in advance of maturity in respect of any of its borrowings (other than depo- sits) having an original term exceeding one year. Section 3.06. BMDC shall take such steps satisfactory to the Association as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Ouguiya) used in its borrowing and lending operations. ARTICLE IV Consultation, Information and Inspection Section 4.01. (a) The Association and BMDC shall cooperate fully to assure that the purposes of the Credit will be accom- plished. To that end, the Association and BMDC shall from time to time, at the request of either party, exchange views through their representatives with regard to the progress of Parts A and B of the Project, the performance by BMDC of its obligations under this Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of BMDC and other matters relating to the purpose of the Credit. - 9 - (b) BMDC shall furnish to the Association at regular inter- vals all such information as the Association shall reasonably request concerning the expenditures of the proceeds of the Cre- dit, Parts A and B of the Project, the Investment Enterprises, the Investment Projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing. (c) Within six months following the last withdrawal from the Credit Account, BMDC shall prepare and furnish to the Asso- ciation a report, of such scope and in such detail as the Asso- ciation shall reasonably request, on the execution of Parts A and B of the Project and the initial operation of the Investment Projects, their costs and the benefits derived and to be derived from them, the performance by BMDC and the Association of their respective obligations under this Agreement and the accomplish- ment of the purposes of the Credit. ARTICLE V Effective Date; Termination Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of BMDC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate; or (ii) a date 20 years after the date of this Agreement. (b) If the Development Credit Agreement terminates before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify BMDC of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. - 10 - ARTICLE VI Miscellaneous Provisions Section 6.01. 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 permitted to be given or made at such party's address hereinafter specified or at such other addresses as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For BMDC: Banque Mauritanienne pour le De'veloppement et le Commerce B. P. 219 Nouakchott Islamic Republic of Mauritania Cable address Telex: BADEC 564 BADEC MTN or Nouakchott 512 BADEC MTN Section 6.02. Any action required or permitted to be taken, and any documents required or permitted .o be executed, under this Agreement or under Section 2.09 of the Development Credit Agreement on behalf of or by BMDC may be taken or executed by its - 11 - Director General, or by such other person or persons as BMDC shall designate in writing, and BMDC shall furnish to the Asso- ciation sufficient evidence of the authority and the authenti- cated specimen signature of each such person. Section 6.03. This Agreement may ber executed in several counterparts, each of which shall be an original, and all col- lectively but one instrument. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION '/ By I646IL7J/c&r6 Regional Vice President Western Africa BANQUE MAURITANIENNE POUR LE DEVELOPPEMENT ET LE COMMERCE By Auoz RepresenatieA Authorized Representative - 12 - SCHEDULE Implementation Program With a view to strengthening the financial position and operational capability of BMDC, BNDC undertakes to take the actions set out below during the period 1985-1989: I. Financial Strengthening (A) Capital Structure (a) Before June 30, 1985 (i) Incorporate in its 1984 balance sheet a pro- vision for bad debt of UM 49 million. (ii) Incorporate in its 1985 balance sheet as part of its share capital the UM 50 million cash contribution which BCM has to make to BMDC's share capital inacrease pursuant to Section 6.01 (c) of the Development Credit Agreement. (b) During period ending June 30, 1986 (i) Incorporate in its 1985 balance sheet as part of its share capital the amount representing the unconverted balance of the line of credit established by the Borrower in favor of BMDC under the Prior Credit which the Borrower has agreed to convert into an equity contribution to BMDC's share capital. (ii) Incorporate in its 1985 balance sheet a sup- plemental provision for bad debt in an amount equal to the difference between the amount recommended by the auditors in respect of the 1984 accounts as a provision for bad debt and the amount of UM 49 million incorporated for that purpose in the 1984 balance sheet pur- suant to paragraph (a) (i) above. (B) Arrears Reduction (a) BMDC undertakes to complete by June 30, 1985 a comprehensive review of all of its long- and medium- term loans in arrears and about 630 of its short-term - 13 - loans and overdrafts in arrears, and to classify the loans and overdrafts into the following categories: (i) category A- loans to be collected; (ii) category B- loans to be rescheduled; and (iii) category C- loans to be written off. (b) BMDC shall update this portfolio review at least once a year. (C) Guidelines for financial and portfolio management (i) In conducting its financial affairs and managing its portfolio BMDC undertakes, except as the Asso- ciation shall otherwise agree: (a) to maintain a ratio of current assets to current liabilities of not less than 0.75:1.00; (b) reduce its ratio of administrative costs to average of total assets to 3.0% by 1988; and (c) reduce its ratio of arrears as a percentage of the outstanding portfolio to 25% by December 31, 1985, 20% by December 31, 1986 and 15% by December 31, 1987. (ii) For the purposes of maintaining the ratio of cur- rent assets to current liabilities under paragraph (i) (a) above, BMDC shall: (a) before September 30 in each of its fiscal years, on the basis of forecasts prepared by BMDC and satisfactory to the Association, review whether it would meet the requirements set forth in said paragraph (i) (a) in res- pect of such year and the next following fis- cal year and furnish to the Association the results of such review upon its completion; and (b) if any such review shows that BMDC would not meet the requirements set forth in said para- graph (i) (a) for BMDC's fiscal years covered - 14 - by such review, promptly take all necessary measures in order to meet such requirements. (iii) For the purposes of paragraph (i) (a) above, (1) the term "current assets" means cash, all assets which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securi- ties, inventories and prepaid expenses properly chargeable to operating ex- penses within the next fiscal year; (2) the term "current liabilities" means all liabilities which will become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, debt service requirements and dividends; (3) the term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt; and (4) whenever it shall be necessary to value, in terms of the currency of the Bor- rower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. II. Strengthening of Operational Capability (A) Management Information System (MIS) BMDC undertakes to review its requirements of management information and data, and establish an - 15 - effective management information system designed to strengthen BMDC's internal control and coordination by December 31, 1985. (B) Review and Codification of Procedures BMDC undertakes by April 30, 1986: (i) to review and, as necessary, revise the pro- cedures of BMDC already codified so as to make them more effective and adaptable to BMDC's evolving activities; (ii) to formulate written procedures for its financial, credit, international banking operations, loan collection, personnel and administrative management and legal depart- ments; and (iii) to organize and staff by December 31, 1985 the internal auditing unit (staffed to the extent possible by existing BMDC personnel). (C) Staff Training BMDC undertakes: (i) to start implementing no later than December 31, 1985 the detailed three-year staff training program already furnished to the Association, and (ii) to establish by December 31, 1985 a unit (staffed to the extent possible by existing BMDC per- sonnel) responsible, inter alia, for supervising the execution of the training program. 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 , 198F C FOR SECRETARY