Madagascar - Industrial Assistance Project : Credit 1541 - Credit Agreement - Conformed

OFFICIAL CREDIT NUMBER 1541 MAG DOCUMENTS Development Credit Agreement (Industrial Assistance Project) between DEMOCRATIC REPUBLIC OF MADAGASCAR and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated , 1985 CREDIT NUMBER 1541 MAG DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated h9- *-'- "- , 1985, between Democratic Republic of Madagascar (hereinafter called the Bor- rower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Association has received a letter dated November 30, 1984, from the Borrower describing a program of actions, objectives and policies designed to improve the efficiency of the industrial sector of Madagascar and declaring the Borrowers commitment to the execution of that program; (B) certain activities included in the Project described in Schedule 2 to this Agreement will be carried out by BANKIN'NY INDOSTRIA (hereinafter called BNI) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to BNI part of the proceeds of the Credit as hereinafter provided; and (C) the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth and in the Project Agreement of even date herewith between the Association and BNI; 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, subject, however, to the following modifications thereof (said General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions): (a) Section 2.01, paragraph 9, shall be modified to read: "The term 'Project' means the Investment Projects or other activities that may be financed out of the proceeds of --2- the Credit pursuant to the provisions of Schedule 1 to the Development Credit Agreement." (b) The following subparagraph is added to Section 2.01: "14. The term 'Project Agreement' has the meaning set forth in paragraph (a) of Section 1.02 of the Development Credit Agreement." (c) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Association. If (a) the right of the Borrower to make withdrawals from the Credit Account shall have been suspended with respect to any amount of the Credit for a continuous period of thirty days or (b) (i) as regards the proceeds of the Credit allocated to Category (2) of the table set out in paragraph 1 of Sche- dule 1 to the Development Credit Agreement, by the date specified in Section 2,02 (f) of the Project Agreement no applications for approval or requests for authorization to withdraw from the Credit Account in respect of any portion of the Credit shall have been received by the Association, or having been so received, shall have been denied or (ii) as regards the proceeds of the Credit allocated to the other Categories of such table, the Association determines, at any time and after consultation with the Borrower, that the whole amount of such proceeds, or any portion thereof, will not be required to finance the Project's costs, or (c) after the Closing Date an amount of the Credit shall remain un- withdrawn from the Credit Account, the Association may, by notice to the Borrower, terminate the right to request such approvals and authorizations or to make withdrawals from the Credit Account, as the case may be, with respect to such amount or portion of the Credit. Upon the giving of such notice such amount or portion of the Credit shall be can- celled." (d) The words "and the Project Agreement" are added after the words "the Development Credit Agreement" in Section 6.06. (e) The words "or the Project Agreement" are added after the words "the Development Credit Agreement" in Section 10.02. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the -3- General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following addi- tional terms have the following meanings: (a' "Project Agreement" means the agreement between the Ass3ciation and BNI of even date herewith, 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. (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and BNI pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement. (c) "Project Preparation Advance" means the project prepa- ration advance granted by the Association to the Borrower pur- suant to an exchange of letters dated January 11, 1984 and February 15, 1984 between the Borrower and the Association. (d) "Special Account" means the Special Account to be main- tained pursuant to Section 2.02 (f) of this Agreement. (e) "MIEM" means the Borrower's Ministry of Industry, Energy and Mining. (f) "Eligible Enterprise" means any enterprise selected in compliance with the provisions of Section 3.01 (b) (ii) of this Agreement. (g) "BTM" means the Bankin'ny Tantsaha Mpamokatra. (h) "BFV" means Banky Fampandrosoana ny Varotra. (i) "Intermediaries" means, collectively, BN1, BTM and BFV. (j) "Sub-loan" means a loan or credit made or proposed to be made by BNI to an Investment Enterprise for an Investment Pro- ject out of the part of the proceeds of the Credit relent to BNI under the Subsidiary Loan Agreement, and "free-limit Sub-loan" means a Sub-loan which qualifies as a free-limit Sub-loan pur- suant to the provisions of Section 2.02 (c) of this Agreement. (k) "Investment Enterprise" means an enterprise to which BNI proposes to make or has made a Sub-loan. -4- (1) "Investment Project" means a specific development pro- ject to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan. (m) "FMG" means the currency of the Borrower. (n) "foreign currency" means any currency other than the currency of the Borrower. (o) "BNI Statuts" means the statuts of BNI approved by Decree No. 76-441 of the Borrower dated December 27, 1976, as amended from time to time. (p) "Rules of Operation" means the rules of operation of BNI as adopted and approved by its Board of Directors on Decem- ber 14, 1979, as amended from time to time. (q) "Subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by BNI or by any one or more sub- sidiaries of BNI or by BNI and one or more of its subsidiaries. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to forty million two hundred thousand Special Drawing Rights (SDR 40,200,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Asso- ciation, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for Parts A and C of the Project and to be financed out of the proceeds of the Credit allocated to Cate- gories (1), (3) and (4) of the table set out in paragraph 1 of Schedule I hereto. (b) Subject to the provisions of paragraphs (c), (d) and (e) of this Section, BNI, on behalf of the Borrower pursuant to -5- Section 2.10 of this Agreement, may withdraw from the Credit Account the equivalent of amounts paid (or, if the Association shall so agree, amounts to be paid) by BNI on account of with- drawals made by an Investment Enterprise under a Sub-Loan to meet the reasonable cost of goods required for the Investment Project concerned. Provided, however, that no amount shall be withdrawn from the Credit Account in respect of an Investment Project unless (A) the Sub-loan for such Investment Project shall have been approved by the Association or (B) the Sub-loan shall be a free-limit Sub-loan for which the Association shall have authorized withdrawals from the Credit Account. (c) A free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed under the Develop- ment Credit Agreement which, together with any other amount or amounts previously financed for the same Investment Project under the Development Credit Agreement and not repaid, shall not exceed in the aggregate the equivalent of $200,000 and which, when added to all other free-limit Sub-loans financed under the Development Credit Agreement, shall not exceed in the aggregate the equiva- lent of $2,000,000, the foregoing amounts being subject to change from time to time as determined by the Association. (d) Except as the Association shall otherwise agree, with- drawals from the Credit Account may be made on account of expen- ditures in the currency of the Borrower only for: (i) goods pre- viously imported into its territory through normal tradE channels and from countries which are members of the Bank (or from Swit- zerland or Taiwan); (ii) goods produced in the territory of the Borrower to a substantial extent from components or raw materials so imported, and purchased by Investment Enterprises to carry out Investment Projects; and (iii) construction works included in such Investment Projects and carried out by local contractors. (e) Except as the Association shall otherwise agree, no withdrawals shall be made on account of: (i) expenditures made by an Investment Enterprise prior to the date of this Agreement, or (ii) expenditures made in respect of a Sub-loan subject to the Association's approval, more than ninety days prior to the date on which the Association shall have received the application and information required under Section 2.02 (b) of the Project Agree- ment, or (iii) expenditures made in respect of a free-limit Sub- loan more than ninety days prior to the date on which the Asso- ciation shall have received the request and information required by Section 2.02 (c) of the Project Agreement. -6- (f) The Borrower shall, for the purposes of Part A of the Project, maintain in the currency of the United States of America a special account in its Central Bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the pro- visions of Schedule 3 to this Agreement. Section 2.03. Except as the Association shall otherwise agree, contracts for goods costing more than $1,000,000 equiva- lent to be financed out of the proceeds of the Credit allocated to Categories (1), (3) and (4) of the table set out in paragraph 1 of Schedule 1 hereto shall be procured on the basis of proce- dures that include broad international tendering amongst sup- pliers from the Association's member countries and Switzerland and from Taiwan and contract award to the lowest evaluated res- ponsive bidder. Before requesting a withdrawal of proceeds of the Credit on account of any such contract, the Borrower shall cause the Association to be furnished with a brief report, in form and substance satisfactory to the Association, on the procedures fol- lowed in procuring such contract. If the Association shall have reasonably determined that the procedures followed in procuring such contract are inconsistent with the procedures set forth or referred to in this Section, no expenditures under such contract shall be financed out of the proceeds of the Credit. The Associa- tion shall promptly inform the Borrower of, and state the reasons for, any such determination. Section 2.04. The Closing Date shall be September 30, 1987 or such later date as the Association shall establish. The Asso- ciation 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 the Development Credit Agree- ment to the respective 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 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to -7- time be designated or selected pursuant to the provisions of that Section. 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. Section 2.07. Commitment charges and service charges shall be payable semiannually on February 1 and August 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each February 1 and August 1 commencing February 1, 1995, and ending August 1, 2034, each installment to and including the installment payable on August 1, 2004, 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. BNI is designated as representative of the Borrower for the purposes of taking any action required or per- mitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions, as regards the proceeds of the Credit allocated to Category (2) of the table set out in paragraph 1 of Schedule 1 hereto. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restric- tion upon any of its other obligations under the Development Cre- dit Agreement: (i) shall carry out Parts A and C of the Project with due diligence and efficiency and in conformity with appro- priate administrative and financial practices; (ii) shall cause the Intermediaries to perform their respective obligations under the agreements referred to in paragraph (b)(iii) of this Section; (iii) shall cause BNI to perform in accordance with the provi- sions of the Project Agreement all the obligations therein set -8- forth; (iv) shall take and cause to be taken all action, includ- ing the provision of funds, facilities, services and other re- sources, necessary or appropriate to enable BNI to perform such obligations; and (v) shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) Without any limitation or restriction upon any of its obligations under this Agreement, the Borrower shall: (1) make available to the Eligible Enterprises as a whole an adequate amount of foreign exchange from sources other than this Credit during each semes- ter of any given year during the execution of the Project. (ii) select enterprises for the purposes of carrying out Part A of the Project by applying criteria which are acceptable to the Association. (iii) enter into agreements with the Intermediaries for the carrying out of Part A of the Project on terms and conditions acceptable to the Association, including a commission of 0.5% to be retained by the Intermediaries for all proceeds of the Credit passed on by the Intermediaries to Eligible Enter- prises, and the obligation of the Intermediaries to ensure that the goods to be financed out of the proceeds of the Credit under Part A of the Project shall be procured in accordance with prudent com- mercial practices and that the imported goods to be financed out of the proceeds of the Credit shall be insured against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation. (c) The Borrower shall relend the equivalent of SDR 5,020,000 out of the proceeds of the Credit to BNI under a subsidiary loan agreement (the Subsidiary Loan Agreement) to be entered into between the Borrower and BNI under terms and condi- tions which shall have been approved by the Association includ- ing: (i) a maximum term of 15 years (which shall include an appropriate grace period); (ii) interest payable semi-annually, at the rate of 9.29% and (iii) the foreign exchange risk to be carried by the Investment Enterprises except for Investment En- terprises whose assets do not exceed $250,000 equivalent at the -9- time of approval or authorization of a Sub-loan for any such Investment Enterprise for which the Borrower shall carry the foreign exchange risk for a commission of 1% per annum on the outstanding balances of Sub-loans. (d) The Borrower shall exercise its rights under the Sub- sidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the pur- poses of the Credit, and except as the Association shall other- wise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. In order to assist the Borrower in carrying out Parts C.1 and C.2 of the Project, the Borrower shall employ consultants whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Association, such consultants to be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981; it being specified that, as regards Part C.1 of the Project, the employment of consultants shall be made as and when needed. Section 3.03. The Borrower shall cause all goods and ser- vices financed out of the proceeds of the Credit to be used exclusively for the purposes of the Project. Section 3.04. (a) The Borrower shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, contract documents and procurement schedules for Parts A and C of the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably re- quest. (b) The Borrower shall: (i) maintain records and procedures adequate to record and monitor the progress of Parts A and C of the Project (including their cost and the benefits to be derived from them), to identify the goods financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) enable the Association's representatives to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) furnish to the Association at regular inter- vals all such information as the Association shall reasonably - 10 - request concerning Parts A and C of the Project, their cost and, where appropriate, the benefits to be derived from them, the expenditure of the proceeds of the Credit and the goods financed out of such proceeds. (c) Upon the award by the Borrower of any contract for goods to be financed out of the proceeds of the Credit, the Asso- ciation may publish a description thereof, the name and nation- ality of the party to whom the contract was awarded and the con- tract price. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of Parts A and C of the Project, their costs and the benefits derived and to be derived from them, the per- formance by the Borrowar and the Association of their respective obligations under the Development Credit Agreement and the accom- plishment of the purposes of the Credit. Section 3.05. (a) The Borrower and the Association shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the program of actions referred to in the Preamble to this Agreement and the measures specified in Schedule 4 to this Agreement. (b) Prior to each such exchange of views but not more often than once every six months, the Borrower shall furnish to the Association for its review and comment a report on the progress achieved in carrying out said program, in such detail as the Association shall reasonably request. Section 3.06. The Borrower shall commence to operate the Zeren Project and the Mamisoa Project, except for a pilot operation in the case of the Zeren Project, only after studies, satisfactory to the Association, have established the economic justification of the operation of these ventures. Section 3.07. During execution of the Project the Borrower shall not undertake any major investment project in the indus- trial sector without prior consultation with the Association. - 11 - ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained separate records (including accounts) adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures, in respect of the Project. (b) Without limitation to the foregoing, the Borrower shall: (i) maintain or cause to be maintained separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure; (ii) retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure; and (iii) enable the Association's representatives to examine such records. (c) The Borrower shall: (i) have the accounts referred to in paragraphs (a) and (b) of this Section and the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available, but in any case not later than four months after the end of each such year, a certified copy of the report of such audit by such auditors, of such scope and in such detail as the Association shall have reasonably requested, including without limitation to the foregoing, a separate opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Credit withdrawn from the Credit Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (iii) furnish to the Association such other information concerning said accounts, records and expenditures and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: - 12 - (a) Any event shall have occurred which shall make it improbable that the measures included in the Memorandum of Under- standing, or a significant part thereof, will be carried out. (b) A default shall occur in the performance of any obliga- tion of BNI under the Project Agreement or under any other pro- ject agreement between the Association and BNI. (c) The BNI Statuts shall have been amended so as to affect materially and adversely the operations or financial condition of BNI. (d) BNI shall be unable to pay its debts as they mature or any action or proceeding shall have been undertaken whereby any of the property of BNI shall or may be distributed among its cre- ditors. (e) Any part of the principal amount of any loan to BNI having an original maturity of one year or more shall, in accor- dance with its terms, have become due and payable in advance of maturity, as provided in the relative contractual instruments, or any security for any such loan shall have become enforceable. (f) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of BNI or for the suspension of its operations. Section 5.02. 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 specified in paragraph (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower and BNI. (b) Any event specified in paragraphs (c), (d), (e) or (f) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit - 13 - Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) The agreements referred to in Section 3.01 (b) (iii) of this Agreement have been executed on behalf of the Borrower and each of the Intermediaries and the Subsidiary Loan Agreement has been executed on behalf of the Borrower and BNI. (b) The Borrower has employed consultants to assist in the preparation of the Borrower's export promotion action program and the review of the Borrower's import system included in Part C.2 of the Project, as provided in Section 3.02 of this Agreement. (c) The Borrower has submitted to the Association a public investment program for industry for the year 1985, which shall be mutually acceptable to the Borrower and the Association. (d) The Borrower has decreased the number of goods subject to import prohibitions as of November 15, 1984 by five percent (5%) and has taken measures satisfactory to the Association to provide import licenses and the foreign exchange required for the importation of goods which were freed from import restrictions. (e) The Borrower has eliminated export taxes for all manu- factured goods and has exonerated exporters of such goods from all indirect taxes on raw materials and spare parts used as inputs for export production. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be fur- nished to the Association, namely, that the Project Agreement has been duly authorized or ratified by BNI, and is legally binding upon BNI in accordance with its terms. Section 6.03. The date ak k, l9q is hereby specified for the purposes of Section 12.04 of the General Condi- tions. Section 6.04. The provisions of Section 5.02 of this Agree- ment shall cease and determine on the date on which the Develop- ment Credit Agreement shall terminate or on a date 16 years after the date of this Agreement, whichever shall be the earlier. - 14 - ARTICLE VII Representative of the Borrower; Addresses Section 7.01. Except as provided in Section 2.10 hereof, the Ministre aupres de la Presidence charg6 des Finances et de 1'Economie of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purpose of Section 11.01 of the General Conditions: For the Borrower: Ministere aupres de la Pr6sidence de la Republique chargg des Finances et de 1'Economie Antananarivo 101 Madagascar Cable address: Telex: MINFIN Antananarivo 22339 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) - 15 - 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. DEMOCRATIC REPUBLIC OF MADAGASCAR By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President Eastern and Southern Africa - 16 - 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) Imports for 29,610,000 100% of foreign Eligible Enter- expenditures prises under Part A of the Project (2) Investment Projects 5,020,000 under Part B of the Project: (a) Goods 100% of foreign expenditures, and 70% of local expenditures of locally manu- factured items (ex-factory cost) and 85% of local expenditures of previously im- ported goods (b) Works 55% (3) Works under 250,000 55% Part C.3 of the- Project (4) Consultants 750,000 100% 17 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (5) Initial deposit 4,070,000 Amount due under in Special paragraph 1 (c) Account to of Schedule 3 prefinance items under Category (1) above (6) Refunding of 500,000 Amount due under Project Prepa- Section 2.02 (b) ration Advance of this Agreement TOTAL 40,200,000 2. For the purposes of this Schedule the term "local expendi- tures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in compli- ance 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 ser- vices, 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 applicable to such Category as required to be consistent with the aforementioned policy of the Association. 4. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of payments made for: (i) expenditures prior to the date of this Agreement, (ii) expen- ditures under Category (1), after the aggregate of the proceeds of the Credit withdrawn from such Category shall have reached an amount of SDR 17,200,000 equivalent, unless the Association shall - 18 - then have been provided with evidence satisfactory to the Asso- ciation in compliance with Section 3.05 of this Agreement that the Borrower has achieved progress satisfactory to the Associa- tion in the carrying out of the program of action referred to in the preamble and the provisions of Schedule 4 of this Agreement; and (iii) expenditures under Category (2) unless the Subsidiary Loan Agreement between the Borrower and BNI shall have been entered into to the Association's satisfaction and the Associa- tion shall have been provided with a legal opinion satisfactory to the Association showing that such Agreement is binding upon the Borrower and BNI in accordance with its terms. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 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 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 ex- penditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. 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 expen- diture 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 Bor- rower, cancel such amount of the Credit as, in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. - 19 - SCHEDULE 2 Description of the Project The objectives of the Project are to support important policy reforms designed to increase the efficiency, productivity and export orientation of the industrial sector and to increase the capacity utilization of selected efficient industrial enter- prises. The Project consists of the following Parts: Part A: A program for the provision of the requisite foreign ex- change for the importation of intermediate goods, spare parts and materials for Eligible Enterprises to be channeled to Eligible Enterprises through BNI, BTM and BFV. Part B: Financing by BNI of Investment Projects through Sub-loans to Investment Enterprises in accordance with the Rules of Operation of BNI. Part C: 1. Reinforcing of MIEM's capacity in data collection and ana- lysis and evaluation of Investment Projects through provision of technical assistance. 2. Preparation of action programs for export-promotion and a study of the import system of the Borrower. 3. Rehabilitation and upgrading of a building to serve as head- quarters of MIEM. The Project is expected to be completed by March 31, 1987. - 20 - SCHEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "Category" means a category of items to be financed out of the proceeds of the Credit as set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit allocated from time to time to Category (1) in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount in the currency of the United States of America equivalent to the amount allocated to Category (5) and to be withdrawn from the Credit Account and deposited in the Special Account pursuant to the first sentence of paragraph 3 to this Schedule. 2. Payments out of the Special Account shall be made exclu- sively for eligible expenditures in accordance with the provi- sions of this Schedule. 3. (a) For purposes of withdrawal of the Authorized Alloca- tion, the Association shall, on the basis of a request or re- quests by the Borrower and evidence satisfactory to the Associa- tion that the Special Account has been duly opened, withdraw on behalf of the Borrower from the Credit Account and deposit in the Special Account such amount or amounts of the Authorized Alloca- tion as the Borrower shall have requested, up to the total of the Authorized Allocation. (b) For purposes of withdrawal of proceeds of the Credit to replenish the Special Account, the Association shall, on the basis of requests by the Borrower furnished to the Association at such intervals as the Association shall specify, withdraw from the Credit Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible expenditures. Except as the Associa- tion may otherwise agree, each such deposit shall be withdrawn by the Association from the Credit Account under Category (1), and - 21 - in the respective equivalent amounts, as shall have been justi- fied by the evidence supporting the request for such deposit fur- nished pursuant to paragraph 4 of this Schedule. 4. Prior to or at the time of each request by the Borrower for a deposit by the Association into the Special Account pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association in respect of each payment made by the Borrower out of the Special Account such documents and other evidence as the Association shall reasonably request, showing that such pay- ment was made for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Sched- ule, no further deposit into the Special Account shall be made by the Association (a) when the Association shall have determined at any time that all further withdrawals can be made directly by the Borrower from the Credit Account in accordance with the provi- sions of paragraph (a) of Section 2.02 of this Agreement, or (b) unless otherwise agreed by the Association when the total unwith- drawn amount of the Credit allocated to Category (1), minus the amount of any qualified agreement to reimburse made by the Asso- ciation and of any special commitment entered into by the Asso- ciation pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation, whichever shall be soon- er. Withdrawal from the Credit Account of the remaining unwith- drawn amount of the Credit allocated to Category (1) shall follow such procedures as the Association shall specify by notice to the Borrower and shall, except as the Association shall otherwise agree, be made only after and to the extent the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice have been or will be utilized in making payments for eligible expenditures. 6. If the Association shall have determined at any time that: (a) any payment out of the Special Account (i) was made for any expenditure or in any amount not eligible pursuant to para- graph 2 of this Schedule, or (ii) was not justified by the evi- dence furnished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Association and, unless otherwise agreed by the Association, prior to any further deposit into the Special Account by the Association, deposit into the Special Account or, if the Association shall so request, refund to the Association, an amount equal to the amount of such payment or the portion thereof not so eligible or justified; or - 22 - (b) any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from tle Association, and unless otherwise agreed by the Association, refund to the Association such outstanding amount. - 23 - SCREDUILE 4 Tranche Release The measures to be specifically. included in the review pro- vided for in paragraph 4 of Schedule 1 to this Agreement are as follows: The Borrower shall have: (a) freed ex-factory prices for all goods manufactured in Madagascar, with the exception of prices of 31 goods which accounted for 30% of the value added in the industrial sector in 1982; (b) prepared a public investment program for industry for the year 1986 and such program shall be mutually acceptable to the Borrower and the Association; (c) adopted a program of actions, satisfactory to the Asso- ciation, to promote exports; (d) decreased by an additional fifteen percent (15%) the number of goods subject to import prohibitions as of November 15, 1984 and shall have taken measures satisfactory to the Association to provide import licenses and the foreign exchange required for the importation of goods which were freed from import restrictions; (e) after consultation with the Association, prepared a final draft for a new investment code and shall have initiated the legislative procedure therefor; and (f) after consultations with the Association, taken all appropriate action to implement its exports-retention scheme (compte EPI) by extending it to all manu- facturers who export their manufactures. 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 198_ FOR SECRETARY