Conformed Copy - C2040 - Rural Finance Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2040 GH (Rural Finance Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BANK OF GHANA Dated July 28, 1989 CREDIT NUMBER 2040 GH PROJECT AGREEMENT AGREEMENT, dated July 28, 1989, between the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and BANK OF GHANA (BOG). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Republic of Ghana (the Borrower) and the Association, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to fifteen million two hundred thousand Special Drawing Rights (SDR 15,200,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that BOG agrees to undertake such obligations toward the Association as are set forth in this Agreement; and (B) by a subsidiary administration agreement to be entered into between the Borrower and BOG (the Subsidiary Administration Agreement), part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to BOG on terms and conditions set forth in the Subsidiary Administration Agreement; and Page 2 WHEREAS BOG, 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, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Section 2.01. BOG declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement and, to this end, shall, through the Rural Finance Department, carry out or cause to be carried out Parts A through F of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, technical, management and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Parts A through F of the Project. Section 2.02. For the purpose of carrying out Part A of the Project, BOG shall provide to PFIs the equivalent of the Credit allocated to Part A of the Project under participation agreements (the Participation Agreements) to be entered into between BOG and each PFI, under terms and conditions which shall have been approved by the Association and which shall include those set forth in Schedules 1 and 2 to this Agreement. Section 2.03. (a) BOG undertakes that Sub-loans will be made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedules 1 and 2 of this Agreement. (b) BOG shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association and of BOG; (ii) comply with its obligations under this Agreement and the Subsidiary Administration Agreement; and (iii) achieve the purposes of the Project. Section 2.04. Except as the Association shall otherwise agree, procurement of the goods and consultants' services required for Parts B through F of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section 2.05. BOG shall carry out the obligations set forth in Sections 9.03 through 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of the Project Agreement. Section 2.06. BOG shall duly perform all its obligations under the Subsidiary Administration Agreement. Except as the Association shall otherwise agree, BOG shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the Subsidiary Administration Agreement or any provision thereof. Section 2.07. (a) BOG shall, together with the Borrower, review with the Association, at least once every year, progress in carrying out the Project, with a view to determining and effecting such changes as may be required to ensure the successful implemen- tation of the Project, including any adjustment required in the Page 3 onlending terms and conditions. To that end, BOG shall furnish to the Borrower and the Association a report on the progress achieved in carrying out the Project, in such detail and at such times as the Borrower or the Association shall reasonably request. (b) BOG and the Association shall, not later than December 31, 1990, carry out a mid-term review on the progress achieved in implementing the Project. For this purpose, BOG shall furnish to the Association a report in such detail as the Association shall reasonably request. (c) BOG shall promptly inform the Borrower and the Association of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by BOG of its obligations under this Agreement and under the Subsidiary Administration Agreement. Section 2.08. BOG shall, not later than September 30, 1989: (a) abolish the ceilings of Cedis 25,000 and Cedis 125,000 on shareholdings in rural banks by individuals and companies, respectively; and (b) limit the shareholdings in a particular rural bank by individuals and companies to not more than 5% and 10%, respectively, of the share capital. Section 2.09. BOG shall: (a) ensure that, upon commencement of the restructuring, the affected rural banks assign their non- performing loans to special collection accounts and make appropriate provisions for bad and doubtful loans; and (b) not later than September 30, 1989: (i) abolish the sectoral quotas imposed on rural banks' lending operations, except that rural banks shall be required to lend at least 20% of their funds, available for lending, for primary agricultural production; and (ii) exclude from credit ceilings all lending under this Project. Section 2.10. In order to assist BOG in carrying out the diagnostic studies of rural banks in 1990 and 1991, BOG shall award the contracts for the consulting firms to be employed pur- suant to the provisions of Section II of Schedule 3 to this Agree- ment not later than September 30 in the preceding year. Section 2.11. BOG shall prepare and furnish to the Association, not later than September 30, 1989, a shortlist of consulting firms which shall assist BOG in providing loan appraisal services to rural banks. Section 2.12. BOG shall carry out a Bank Examination of each rural bank at least once a year. Section 2.13. BOG shall nominate, not later than December 31, 1989, its representatives on the boards of rural banks in which BOG is so far not represented. Section 2.14. BOG, through RFD, shall: (a) prepare, not later than December 31, 1989, a monitoring system of the rural finance operations of all banks, including operations under this Project; (b) sign, not later than June 30, 1990, a contract for twin- ning arrangements with an external agency to provide start up support for policy research and to strengthen mechanisms for program monitoring; and (c) complete, not later than December 31, 1989, a staff development program for RFD. Page 4 Section 2.15. BOG shall employ, not later than September 30, 1989, a rural banks inspection adviser in accordance with the provisions set forth in Section II of Schedule 3 to this Agreement. Article III Financial Covenants Section 3.01. (a) BOG shall ensure that RFD maintains pro- cedures and records adequate to monitor and record the progress of the Project and of each Investment Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the opera- tions and financial condition of RFD. (b) BOG shall ensure that RFD: (i) has its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) relating to the Project for each fiscal year audited, in accordance with appro- priate auditing principles consistently applied by independent auditors acceptable to the Association; (ii) furnishes to the Association, as soon as available but in any case not later than six months after the end of each such year: (A) certified copies re- lating to the Project of its financial statements for such year as so audited; and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reason- ably requested; and (iii) furnishes to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, BOG shall ensure that RFD: (i) maintains or causes to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensures that all records (contracts, orders, in- voices, bills, receipts and other documents) evi- dencing such expenditures are retained until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made; and (iii) enables the Association's representatives to examine such records. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of BOG thereunder shall terminate on the earlier of the following two dates: Page 5 (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 BOG of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. 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 BOG: Bank of Ghana P.O. Box 2674 Accra Ghana Cable address Telex: GHANA BANK 2541 GHANABANK GH Accra 2052 Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of BOG or by BOG on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the Governor of BOG or by such other person or persons as BOG shall designate in writing, and BOG shall furnish to the Associa- tion sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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. Page 6 INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Edward V. K. Jaycox Regional Vice President Africa BANK OF GHANA By /s/ Eric Otoo Authorized Representative SCHEDULE 1 Principal Terms and Conditions of Sub-loans and Participation Agreements Except as the Association shall otherwise agree, the prin- cipal terms and conditions set forth in this Schedule shall apply for the purposes of Section 2.02 of this Agreement with respect to Participation Agreements. A. Terms 1. Currency All Sub-loans shall be denominated in Cedis. The aggregate amount (the PFI Subsidiary Loan) to be made available by BOG to a PFI under its respective Participation Agreement shall be the equivalent in Cedis (determined as of the respective date or dates of withdrawal from the Credit Account using the market determined rate of the most recent foreign exchange auction or any other lawful rates acceptable to the Association) of the value of the currency or currencies so withdrawn or paid out on account of the cost of the goods and services required for the carrying out of an Investment Project. 2. Interest Rates (a) Interest on a PFI Subsidiary Loan shall be charged on the principal amount thereof outstanding from time to time at a reference interest rate which shall be based on the average cost of 180-day deposits mobilized by PFIs (the Reference Interest Rate). (b) Interest on Sub-loans to Investment Enterprises shall be determined by PFIs and shall be variable and be adjusted by PFIs in accordance with changes in the Reference Interest Rate; pro- vided, however, that the maximum annual increase in interest rates shall be limited to 5%. 3. Maturities Sub-loans shall have maturities and grace periods in accordance with the standard practice of the PFI concerned. 4. Pre-payment (a) If a Sub-loan or any part of any such Sub-loan shall be repaid to a PFI in advance of maturity or if a Sub-loan or any part of any such Sub-loan shall be sold, transferred, assigned or otherwise disposed of for value by a PFI, the PFI shall promptly notify BOG and shall repay to BOG on the next following interest payment date, the amount withdrawn in respect of any such Sub-loan or part thereof. Page 7 (b) Any amount so repaid by the PFI shall be applied by BOG to the maturity or maturities of the PFI Subsidiary Loan in amounts corresponding to the outstanding amounts of the maturity or maturities of the Sub-loan so repaid or disposed of. B. Conditions 1. Each Participation Agreement shall contain provisions pur- suant to which each PFI shall continue to: (a) be duly established and operating under the laws of the Borrower; (b) maintain a sound financial structure, a healthy port- folio, and the organization, management, staff and other resources required for the efficient carrying out of its activities; (c) conduct its operations and affairs including interest rate policies in accordance with sound financial principles and practices; (d) maintain a lending and investment policy acceptable to the Association and BOG and suitable procedures and an adequate number of suitably qualified staff to enable it effectively to: (i) appraise the financial, technical, environmental and economic feasibility of Investment Projects and make Sub-loans to Investment Enterprises in accordance with said lending and investment policy and on the basis of the criteria, procedures and principal terms and conditions set forth in Schedule 2 to this Agreement; and (ii) supervise, monitor and report on the carrying out by Investment Enterprises of Investment Projects, including the procurement of goods and services, costs and benefits therefor. 2. Each Participation Agreement shall also contain provisions requiring each PFI to: (a) exercise its rights in respect of Sub-loans in such a manner as to protect the interests of the Borrower, the Association and BOG and to comply with its obligations under its Participation Agreement in order to achieve the purposes of Part A of the Project; (b) undertake not to assign, amend, abrogate or waive any of its agreements providing for Sub-loans or any provision thereof without the approval of BOG; (c) (i) maintain records and accounts adequate to monitor and record the operations, resources, expenditures and progress of each Investment Project and with- drawals from the Sub-accounts and to reflect, in accordance with consistently maintained sound accounting practices, its operations and financial conditions relating thereto; (ii) have its records, accounts and financial state- ments (balance sheets, statements of income and expenses and related statements) including Sub- accounts for each fiscal year audited, in accor- dance with appropriate auditing principles con- sistently applied by independent auditors acceptable to the Association; (iii) furnish to BOG as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of its statutory financial statements and accounts for Page 8 such year as so audited; and (B) with respect to the Project, supplementary audited statements by said auditors of such scope and in such detail, including the status of Sub-accounts and com- pliance by PFIs with eligibility criteria of Investment Projects, as BOG or the Association shall have reasonably requested; (iv) within six weeks of the end of the first and the second six months of the calendar year, furnish to BOG Semi-Annual Progress Reports; and (v) furnish to BOG periodic reports on the operation of the Sub-accounts. C. Eligibility Criteria for Investment Enterprises and Investment Projects 1. All individuals and legal entities engaged in productive activities in the rural sector, with the exception of industry, real estate and speculative trading, are eligible to receive Sub- loans from PFIs to carry out Investment Projects. 2. BOG shall ensure that PFIs adopt the following procedures when processing Investment Projects: (a) Investment Enterprises shall contribute at least 10% of the Investment Project's cost in equity or from internally- generated resources. (b) PFIs shall carry out the appraisal of Investment Projects in accordance with procedures acceptable to the Association, which shall include a review of the financial viability of the Investment Project, the financing plan and an assessment of the management capacity of the Investment Enterprise. (c) The maximum size of a Sub-loan shall be $200,000 equivalent. SCHEDULE 2 Terms and Conditions of Sub-loans 1. No expenditures for goods or services required for an Invest- ment Project shall be eligible for financing out of the proceeds of the Credit unless: (a) the Sub-loan for such Investment Project shall have been approved by the Association and such expenditures shall have been made not earlier than ninety days prior to the date on which the Association shall have received the application and information required under paragraph 2 (a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Investment Project shall have been a free-limit Sub-loan for which the Association has authorized withdrawals from the Credit Account and such expenditures shall have been made not earlier than ninety days prior to the date on which the Association shall have received the request and information required under paragraph 2 (b) of this Schedule in respect of such free-limit Sub-loan or Investment. For the purposes of the Development Credit Agreement and this Agreement, a free-limit Sub-loan shall be a Sub-loan other than the first five Sub-loans above $100,000 equivalent. 2. (a) When presenting a Sub-loan (other than a free-limit Sub- loan) to the Association for approval, BOG shall furnish to the Association an application, in a form satisfactory to the Association, together with: (i) a description of the Investment Enterprises and an appraisal of the Investment Project, including Page 9 procurement procedures and a description of the expenditures pro- posed to be financed out of the proceeds of the Credit; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Association shall reasonably request. (b) Each request by BOG for authorization to make with- drawals from the Credit Account in respect of a free-limit Sub- loan shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including procurement procedures and a description of the expenditures proposed to be financed out of the proceeds of the Credit; and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan. (c) Applications and requests made pursuant to the provi- sions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Association on or before March 31, 1992. 3. Sub-loans shall be made on terms whereby BOG shall cause each PFI to obtain by written contract with the Investment Enterprises or by other appropriate legal means, rights adequate to protect the interests of the Borrower, the Association and BOG, including the right to: (a) require the Investment Enterprises to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial, environmental and managerial standards and to maintain adequate records and accounts; (b) require that: (i) the goods and services to be financed out of the proceeds of the Credit shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency, reliability of the goods, and avail- ability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them; (ii) the goods estimated to cost more than the equivalent of $75,000 per contract: (A) may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three qualified suppliers from at least two countries eligible under the Guidelines, in accordance with procedures acceptable to the Association; and (B) all contracts for such goods shall be reviewed by the PFIs prior to award; and (iii) such goods and services shall be used exclusively in the carrying out of the Investment Project; (c) inspect, by itself or jointly, with representatives of the Association if the Association shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprises shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practices; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprises to replace or repair such goods; Page 10 (e) obtain all such information as the Association or BOG shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprises and to the benefits to be derived from the Investment Projects; and (f) suspend or terminate the right of the Investment Enterprises to the use of the proceeds of the Credit upon failure by such Investment Enterprises to perform its obligations under its contract with the PFIs. SCHEDULE 3 Procurement and Consultants' Services under Parts B through F of the Project Section I: Procurement of Goods Part A: Procedures Goods may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with pro- cedures satisfactory to the Association. Part B: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of $50,000 or more, the procedures set forth in para- graphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract, together with the other information re- quired to be furnished to the Association pursuant to said para- graph 3, shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Development Credit Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Associa- tion has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be re- tained in accordance with Section 4.01 (c) (ii) of the Development Credit Agreement. 2. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist BOG in carrying out Parts B through F of the Project, BOG shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satis- factory to the Association. Such consultants shall 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. Page 11