Conformed Copy - L3067 - Second Small and Medium Scale Industry Project - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3067 TU (Second Small and Medium Scale Industry Project) between REPUBLIC OF TURKEY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 28, 1989 LOAN NUMBER 3067 TU LOAN AGREEMENT AGREEMENT, dated June 28, 1989, between REPUBLIC OF TURKEY (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 1 to this Agreement, has requested the Bank to assist in the financing of the Project; and (B) Part A of the Project will be carried out by SINAI YATIRIM VE KREDI BANKASI (SYKB), TURKIYE HALK BANKASI (THB), TURKIYE VAKIFLAR BANKASI (TVB) and TURKIYE EMLAK BANKASI (EB) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to SYKB, THB, TVB and EB a portion of the proceeds of the Loan as provided in this Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agree- Page 2 ment of even date herewith between the Bank, on the one hand, and SYKB, THB, TVB and EB, on the other hand; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications set forth in Schedule 3 to this Agreement (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth, and the following additional terms have the following meanings: (a) "PCIs" mean collectively the Participating Credit Institutions, being SYKB, THB, TVB and EB, which shall have satisfied the conditions of eligibility for participating in the Project set forth in Schedule 4 to this Agreement; and "PCI" means each or any of the Participating Credit Institutions; (b) "Project Agreement" means the agreement among the Bank and PCIs of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (c) "Subsidiary Loan Agreements" mean collectively the agreements to be entered into between the Borrower and PCIs pur- suant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreements; and "Subsidiary Loan Agreement" means each or any of the Subsidiary Loan Agreements; (d) "Sub-loan" means a loan made or proposed to be made by a PCI out of the proceeds of the Loan to an Investment Enterprise for an Investment Project; (e) "free-limit Sub-loan" means a Sub-loan, as so defined, which qualifies as a free-limit Sub-loan pursuant to the provi- sions of paragraph 5 (b) of Schedule 5 to this Agreement; (f) "Investment Enterprise" means an enterprise to which a PCI proposes to make or has made a Sub-loan; (g) "Investment Project" means a specific development project to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan; (h) "Charter" means: (i) with respect to SYKB, the Articles of Association dated March 16, 1963, as amended to the date of this Agreement; (ii) with respect to THB, the Articles of Association dated October 28, 1984, as amended to the date of this Agreement; (iii) with respect to TVB, the Articles of Association dated April 13, 1954, as amended to the date of this Agreement; and (iv) with respect to EB, the Articles of Association dated January 8, 1988, as amended to the date of this Agreement; (i) "Statements of Policy and Corporate Strategy" mean Page 3 collectively, with respect to each PCI, the statement of lending and investment policy and the statement of business plans as approved by its Board of Directors and amended from time to time; (j) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (k) "SSI" means a small-scale industry, being an Investment Enterprise whose fixed assets (excluding land and buildings), before completion of the Investment Project, have an estimated value, in constant 1988 prices, of $800,000 equivalent or less, or which employs, before completion of the Investment Project, 50 workers or less; (l) "MSI" means a medium-scale industry, being an Investment Enterprise whose fixed assets (excluding land and buildings), before completion of the Investment Project, have an estimated value, in constant 1988 prices, exceeding $800,000 equivalent but not exceeding $4,000,000 equivalent, or which employs, before completion of the Investment Project, more than 50 workers but not more than 100 workers; (m) "SMI" means small- and medium-scale industry; (n) "FERIS" means the Foreign Exchange Risk Insurance Scheme, operated pursuant to Decree No. 31 of the Borrower, dated March 27, 1985, as amended to the date of effectiveness of this Agreement; (o) "TURK EXIMBANK" means the Export Credit Bank of Turkey; (p) "IGEME" means the Export Promotion Center, operating under the Borrower's Undersecretariat of the Treasury and Foreign Trade; (q) "ETC" means an Export Trading Company; (r) "SIDO" means the Small Industry Development Organization within the Borrower's Ministry of Industry and Trade; (s) "TSE" means the Turkish Standards Institute; (t) "SIS" means the Borrower's State Institute of Statistics; (u) "Subsidiary" means any company of which the majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by a PCI or by one or more subsidiaries of a PCI or by a PCI and one or more of its subsidiaries; (v) "TL" or "Turkish Lira" means the currency of the Borrower; and (w) "FY" or "fiscal year" means a PCI's fiscal year, covering the period January 1 through December 31. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agree- ment, an amount in various currencies equivalent to two hundred four million five hundred thousand dollars ($204,500,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account up to the equivalent of $200,000,000 under Part A of the Project for amounts paid (or, if the Bank shall so agree, to be paid) by a PCI on account of withdrawals made by an Investment Enterprise under a Sub-loan to meet 100% of foreign expenditures, 50% of local expenditures (ex-factory cost) and 70% Page 4 of local expenditures for other items procured locally for equipment and materials, and to meet 30% of expenditures for civil works (in the case of a Sub-loan for an Investment Project in the tourism sector only) required for the Investment Project in respect of which the withdrawal from the Loan Account is requested; provided, however, that no withdrawal shall be made: (i) in respect of a Sub-loan not made in accordance with the provisions of Schedule 5 to this Agreement; and (ii) in respect of payments made for expenditures prior to the date of this Agreement. (b) The amount of the Loan may be withdrawn from the Loan Account up to the equivalent of $4,500,000 under Part B of the Project for amounts paid (or, if the Bank shall so agree, to be paid) on account of withdrawals made to meet 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 70% of local expenditures for other items procured locally for equipment, vehicles and materials and to meet 100% of expenditures for consultants' services and foreign training; provided, however, that no withdrawal shall be made in respect of payments made for expenditures prior to the date of this Agreement. (c) For the purpose of paragraphs (a) and (b) of this Section: (i) the term "foreign expenditures" means expenditures in any currency other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (ii) the term "local expenditures" means expendi- tures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. (d) The Borrower shall, for the purposes of Part A of the Project, open and maintain in dollars a special account in the Central Bank of the Borrower on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 7 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1995 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one- half of one percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.06 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost of the outstanding borrowings of the Bank drawn down after June 30, 1982, expressed as a percentage per annum, as reasonably determined by the Bank. (iii) "Semester" means the first six months or the second six months of a calendar year. Page 5 Section 2.06. Interest and other charges shall be payable semi-annually on April 15 and October 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. Section 2.08. The Chief Executive Officers of PCIs, or their nominees, are designated as representatives of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 (a) of this Agreement and Article V of the General Conditions in respect of the Sub- loans for which they are respectively responsible under Part A of the Project. 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 1 to this Agreement, and, to this end: (i) without any limitation or restriction upon any of its other obligations under the Loan Agreement, shall cause PCIs to perform in accordance with the provisions of the Project Agreement all the obligations of PCIs therein set forth, shall take and cause to be taken all action necessary or appropriate to enable PCIs to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance; and (ii) shall carry out, or cause to be carried out, Part B of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and management practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for Part B of the Project. (b) The Borrower shall relend a portion of the proceeds of the Loan to PCIs under subsidiary loan agreements to be entered into between the Borrower and PCIs, under terms and conditions which shall have been considered satisfactory by the Bank and which shall include the terms and conditions set forth in Schedule 4 to this Agreement. (c) The Borrower shall exercise its rights under the Subsi- diary Loan Agreements in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreements or any provision thereof. Section 3.02. The Borrower undertakes that, unless the Bank shall otherwise agree, PCIs will make Sub-loans in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 5 to this Agreement. Section 3.03. Except as the Bank shall otherwise agree, pro- curement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 6 to this Agreement. ARTICLE IV Financial and Other Covenants Section 4.01. The Borrower shall maintain, or shall cause to Page 6 be maintained, procedures and records adequate to monitor and record the progress of the Project and to reflect in accordance with consistently maintained sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. Section 4.02. (a) The Borrower shall: (i) have the records and accounts referred to in Section 4.01 of this Agreement and those for the Special Account for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available, but in any case not later than six months after the end of each such year, the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. (b) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain, in accordance with Section 4.01 of this Agreement, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (a) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their pre- paration, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional event is specified: (a) Any PCI shall have failed to perform any of its obligations under the Project Agreement and/or the Subsidiary Loan Agreement to which it is a party. (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that any PCI will be able to perform its obligations under the Project Agreement. (c) The Charter or Statutes or the Statements of Policy and Page 7 Corporate Strategy of any PCI shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or the financial condition of the PCI or its ability to carry out Part A of the Project or to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of any PCI or for the suspension of its operations. (e) A subsidiary or any other entity shall have been created or acquired or taken over by any PCI, if such creation, acquisition or taking over would adversely affect the conduct of the PCI's business, its financial situation, the efficiency of its management and personnel or the carrying out of Part A of the Project. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) any event specified in paragraph (a) or (e) 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 Bank to the Borrower; and (b) any event specified in paragraph (c) or (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the Subsidiary Loan Agreements have been entered into between the Borrower and at least two PCIs; and (b) the Statements of Policy and Corporate Strategy of the two PCIs referred to in paragraph (a) above have been approved by their respective Boards of Directors. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly authorized or ratified by PCIs, and is legally binding upon PCIs in accordance with its terms; and (b) that the Subsidiary Loan Agreements referred to in Section 6.01 (a) of this Agreement have been duly authorized or ratified by, and are legally binding upon, the Borrower and the concerned PCIs in accordance with their terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Undersecretary of the Treasury and Foreign Trade of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Condi- tions. Section 7.02. The following addresses are specified for the Page 8 purposes of Section 11.01 of the General Conditions: For the Borrower: Basbakanlik Hazine Ve Dis Ticaret Mustesarligi Bakanliklar - Ankara Cable address: Telex: MALIYE HAZINE 821-42285 (MLYE-TR) or 821-42689 (ANK-TR) For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) 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. REPUBLIC OF TURKEY By /s/ N. K. Kilic Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ W. Thalwitz Regional Vice President Europe, Middle East and North Africa SCHEDULE 1 Description of the Project The objectives of the Project are: (a) to further assist in the expansion and diversification of small- and medium-scale industries (SMIs), and, to this end; (b) to improve SMIs' access to credit to finance their investment needs by involving an increasing number of financial intermediaries in providing such credit; (c) to provide technical and marketing services to SMIs to assist them in improving their product quality and in competing in local and export markets; and (d) to improve understanding of SMIs' problems and prospects through the availability of more reliable statistics for better policy and project formulation. The Project consists of the following Parts, subject to such modifications thereof as the Borrower and the Bank may agree upon Page 9 from time to time to achieve such objectives: Part A: Investment Projects Financing of specific development projects through loans to private enterprises in the SMI sector. Part B: Technical Assistance and Training 1. Provision of technical advisory services, training and equipment to assist PCIs in improving their project appraisal and supervision capabilities and their information systems and operating procedures relative to SMI financing operations. 2. Provision of technical advisory services, training and equipment, through TURK EXIMBANK acting in conjunction with IGEME, to assist ETCs and their supplier firms in expanding SMI exports and to promote their familiarity and cooperation with other institutions involved in the SMI export sector. 3. Provision of technical advisory services, training, equipment and vehicles through TSE acting in conjunction with SIDO, to assist in the promotion of higher quality standards amongst enterprises in the SMI sector, in the achieving of such standards by such enterprises, and in the identification and certification of such enterprises which have achieved such standards. 4. Provision of technical advisory services, training, equipment and vehicles to SIS to assist in establishing an effective system for collecting, processing and analyzing statistics on the SMI sector. * * * The Project is expected to be completed by December 31, 1994. SCHEDULE 2 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each April 15 and October 15 beginning October 15, 1994 through October 15, 2005 8,520,000 On April 15, 2006 8,540,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Premiums on Prepayment The following premiums are specified for the purposes of Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years 0.18 before maturity Page 10 More than three years but 0.35 not more than six years before maturity More than six years but 0.65 not more than eleven years before maturity More than eleven years but not 0.88 more than fifteen years before maturity More than fifteen years before 1.00 maturity SCHEDULE 3 Modifications of the General Conditions For the purposes of this Agreement, the provisions of the General Conditions are modified as follows: (1) The last sentence of Section 3.02 is deleted. (2) The words "the Bank may, by notice to the Borrower and the Guarantor, terminate the right of the Borrower to make with- drawals with respect to such amount. Upon the giving of such notice, such amount of the Loan shall be cancelled" set forth at the end of Section 6.03 are deleted and the following is substi- tuted therefor: "or (f) by the date specified in sub-para- graph 6 (d) of Schedule 5 to the Loan Agreement, the Bank shall, in respect of any portion of the Loan; (i) have received no applications or requests under sub- paragraphs (a) or (b) of said paragraph; or (ii) have denied any such applications or requests. The Bank may, by notice to the Borrower and the Guarantor, terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice, such amount or portion of the Loan shall be cancelled." SCHEDULE 4 Terms and Conditions for Relending of Loan Proceeds to PCIs 1. Except as the Borrower and the Bank shall otherwise agree, a PCI shall not be eligible for participating in the Project and shall not have access to the proceeds of the Loan unless: (a) the PCI shall have issued its Statements of Policy and Corporate Strategy to the satisfaction of the Bank; (b) the PCI shall have entered into a Subsidiary Loan Agree- ment with the Borrower to the satisfaction of the Bank; and (c) the PCI shall have carried out a satisfactory audit of its asset portfolio and shall have made adequate provisions for non-performing loans, all as prescribed pursuant to the Borrower's Banking Law. 2. Except as the Borrower and the Bank shall otherwise agree: (a) Initially, each PCI shall have access to an amount up to the equivalent of $50,000,000 out of the proceeds of the Loan (the initial allocation). (b) If twelve (12) months after the date of this Agreement, Page 11 a PCI has not fulfilled the conditions of eligibility set forth in paragraph 1 of this Schedule, such PCI shall cease to be a candidate for participation in the Project and the Bank shall, in consultation with the Borrower, transfer such PCI's initial allocation to one or more of the other PCIs. (c) If a PCI has not fully committed its initial allocation within twenty-one (21) months of the date of this Agreement, the Bank shall, in consultation with the Borrower, transfer a part or the whole of such PCI's remaining initial allocation to one or more of the other PCIs. 3. Except as the Borrower and the Bank shall otherwise agree, each PCI shall utilize at least 30% of the proceeds of the Loan relent to it for making Sub-loans to SSIs. 4. (a) Except as the Borrower and the Bank shall otherwise agree, and subject to the provisions of Sub-paragraph (b) below, the proceeds of the Loan relent to PCIs shall be subject to: (i) payment by PCIs of a commitment fee on the unwithdrawn amount of the Loan at the rate specified in Section 2.04 of this Agreement; (ii) payment by PCIs of interest on the amount of the Loan withdrawn and outstanding at the rate per annum determined in accordance with the rules and procedures prescribed under FERIS at the time the amount is withdrawn, less an intermediation charge of 3% per annum; and (iii) repayment by PCIs (aa) of the principal amount of the Loan which shall be the aggregate equivalent of the amounts withdrawn from the Loan Account expressed in Turkish Lira determined as of the respective dates of withdrawal, and (bb) over a period determined in accordance with an amortiza- tion schedule which shall conform in relevant part substantially to the aggregate of the amortization schedules applicable to the Sub-loans made by the PCIs. SCHEDULE 5 Terms and Conditions of and Procedures for Sub-loans A. Terms and Conditions 1. (a) Except as the Bank shall otherwise agree, a Sub-loan shall only be made to an eligible Investment Enterprise for an eligible Investment Project. (b) For the purposes of this paragraph: (i) The term "eligible Investment Enterprise" means an enterprise which qualifies as a SSI or a MSI, is privately-owned, is engaged or is intending to engage in manufacturing, repair, processing, industrial service, mining or tourism, and in which, after completion of the Investment Project, the owners/stockholders thereof, shall have an equity investment of at least 40% in terms of capital, subordinated loans and/or retained earnings. (ii) The term "eligible Investment Project" means a project which involves the establishment, expansion and/or balancing, modernization or replacement of plant or equipment, and to which, after its completion, the owners/stockholders of the Investment Enterprise sponsoring the project shall Page 12 have made an equity contribution of not less than 50% of the total cost thereof. 2. Except as the Bank shall otherwise agree, no Sub-loan shall be made: (a) other than to finance the fixed investment or permanent working capital requirements of an Investment Project; or (b) to an Investment Enterprise, if, after such Sub-loan has been made, the aggregate amount of all Sub-loans to such Investment Enterprise shall exceed the equivalent of $3,000,000. 3. Except as the Bank shall otherwise agree, each application for a Sub-loan shall be subject to payment of an appraisal fee in an amount equivalent to 0.1% of the Sub-loan amount but not exceeding TL 10,000,000. 4. Except as the Bank shall otherwise agree, each Sub-loan shall be subject to: (a) payment of a commitment fee on the unwithdrawn amount of the Sub-loan at the rate specified in Section 2.04 of this Agreement; (b) payment of: (i) interest on the amount of the Sub-loan withdrawn and outstanding at a rate per annum, to be determined in accordance with the rules and procedures prescribed under FERIS; and (ii) a commission fee on the amount of the Sub-loan withdrawn and outstanding at the rate of 2% per annum; and (c) repayment over a period of eight years, including a grace period not exceeding three years to be determined by reference to the medium- or long-term use of the Sub-loan and in accordance with the rules and procedures prescribed under FERIS. B. Procedures 5. No expenditures for goods or services required for an Investment Project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan for such Investment Project shall have been approved by the Bank and such expenditures shall have been made not earlier than one hundred eighty days prior to the date on which the Bank shall have received the application and information required under paragraph 6 (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 Bank has authorized with- drawals from the Loan Account and such expenditures shall have been made not earlier than one hundred eighty days prior to the date on which the Bank shall have received the request and information required under paragraph 6 (b) of this Schedule in respect of such free-limit Sub-loan. For the purposes of this Agreement, a free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed out of the proceeds of the Loan which shall not exceed (i) a sum to be determined by the Bank for each PCI not later than 60 days after the Effective Date, in each case when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan or of any other loan, provided for in any outstanding loan agreement between the Bank and the Borrower or any PCI entered into before the date of this Agreement, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Investment Project, or (ii) the sum of $150,000,000 equivalent, when added to all other free-limit Sub-loans financed or proposed to be financed out of the proceeds of the Loan, the foregoing amounts being subject to change from time to time as determined by the Bank. Page 13 6. (a) When presenting a Sub-loan (other than a free-limit Sub- loan) to the Bank for approval, a PCI shall furnish to the Bank an application, in form satisfactory to the Bank, together with (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; (iii) wherever relevant, a statement as to the environmental impact of the Investment Project and, where necessary, the remedial action proposed to be taken in connection therewith; and (iv) such other information as the Bank shall reasonably request. (b) Each request by a PCI for authorization to make with- drawals from the Loan Account in respect of a free-limit Sub-loan shall contain (i) 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 Loan; (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor; and (iii) wherever relevant, a statement as to the environmental impact of the Investment Project and, where necessary, the remedial action proposed to be taken in connection therewith. (c) Notwithstanding anything to the contrary contained in sub-paragraphs (a) and (b) of this paragraph, in respect of at least 10% of the free-limit Sub-loans made by it, a PCI shall furnish to the Bank the documents referred to in sub-paragraphs (a)(i) through (iv) of this paragraph for ex post facto review. (d) Applications and requests made pursuant to the provi- sions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before June 30, 1994. 7. Sub-loans shall be made on terms whereby each PCI shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and the PCI, including the right to: (a) 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; (b) require that: (i) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 6 to this Agreement and (ii) 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 Bank if the Bank 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 Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the fore- going, such insurance shall cover hazards incident to the acquisi- tion, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Bank or the PCI shall reasonably request relating to the foregoing and to the admini- stration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project; and Page 14 (f) suspend or terminate the right of the Investment Enter- prise to the use of the proceeds of the Loan upon failure by such Investment Enterprise (i) to utilize such proceeds, at least partially, within six months of the approval of the Sub-loan by the Bank, or (ii) to perform its obligations under its contract with the PCI. SCHEDULE 6 Procurement and Consultants' Services Section I. Procurement of Goods and Works 1. Items of goods and services procured outside the Borrower's territory and estimated to cost the equivalent of $100,000 or more each or groups of such items estimated to cost the equivalent of $500,000 or more per contract shall be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three suppliers eligible under the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines), in accordance with procedures acceptable to the Bank. 2. Items of goods and services procured locally and items of goods and services procured outside the Borrower's territory and estimated to cost the equivalent of less than $100,000 each or groups of such items estimated to cost the equivalent of less than $500,000 per contract may be procured under contracts awarded in accordance with the standard procedures of PCIs satisfactory to the Bank. In such cases, PCIs shall certify that the items were purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor. 3. Civil works for Investment Projects in the tourism sector may be procured under contracts awarded on the basis of local competitive bidding in accordance with procedures satisfactory to the Bank. 4. Records shall be maintained by PCIs in a form satisfactory to the Bank showing the methods of procurement approved, the summaries of quotations received and awards made under each Sub- loan. Section II. Employment of Consultants In order to assist PCIs, TURK EXIMBANK, TSE and SIS in carrying out Part B of the Project, PCIs, TURK EXIMBANK, TSE and SIS shall employ financial, export marketing, technical and economic consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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. SCHEDULE 7 Special Account 1. For the purposes of this Schedule: (a) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for Investment Projects under Part A of the Project and to be financed out of the proceeds of the Loan in accordance with the provisions of Section 2.02 (a) of this Agreement , provided, however, that notwithstanding the provisions of paragraph 4 (b) of Schedule 5 to this Agreement, payments for expenditures to be financed out ofthe proceeds of Page 15 free-limit Sub-loans may be made out of the Special Account before the Bank shall have authorized withdrawals from the Loan Account in respect thereof. Such expenditures, however, shall qualify as eligible expenditures only if the Bank shall subsequently authorize such withdrawals; and (b) the term "Authorized Allocation" means an amount equiva- lent to $12,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such inter- vals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to para- graph 4 of this Schedule for the payment or pay- ments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been made out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account in the equivalent amounts as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall rea- sonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Loan less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to Part A of the Project, shall equal the equivalent of $24,000,000 being twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining Page 16 unwithdrawn amount of the Loan shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expendi- ture or in an amount not eligible pursuant to paragraph 2 of this Schedule; (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that 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 the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.