Conformed Copy - C2104 - Financial Sector and Private Enterprise Development Project - Project Agreement

Page 1 CREDIT NUMBER 2104 MAG Project Agreement (Financial Sector and Private Enterprise Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BANQUE CENTRALE DE LA REPUBLIQUE DEMOCRATIQUE DE MADAGASCAR Dated April 4, 1990 CREDIT NUMBER 2104 MAG PROJECT AGREEMENT AGREEMENT, dated April 4, 1990 between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and BANQUE CENTRALE DE LA REPUBLIQUE DEMOCRATIQUE DE MADAGASCAR (BCRDM). WHEREAS (A) by the Development Credit Agreement of even date herewith between Democratic Republic of Madagascar (the Borrower) and the Association, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to thirty-six million four hundred thousand Special Drawing Rights (SDR 36,400,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that BCRDM agree to undertake such obligations toward the Association as are set forth in this Agreement; and (B) by a Subsidiary Loan Agreement to be entered into between the Borrower and BCRDM, part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to BCRDM on terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS BCRDM, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. Page 2 ARTICLE II Execution of the Project; Management and Operations of BCRDM Section 2.01. (a) BCRDM 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 carry out Parts A and B of the Project and conduct its operations and affairs, in accordance with sound financial standards and practices, with qualified and experienced management and in accordance with its Statutes. (b) For the purposes of paragraph (a) of this Section BCRDM shall establish and maintain a Project Management Unit whose terms of reference shall be acceptable to the Association and whose staffing shall include a senior level analyst as its chief reporting directly to the Director General, an accountant/ financial analyst, both duly qualified and experienced, and support staff in adequate numbers. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods and consultants' services required for Part B of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. For the purpose of carrying out Part A of the Project BCRDM shall: (a) carry out its obligations as specified in the Schedule to this Agreement; and (b) enter into Participation Agreements with Participating Financial Institutions, acceptable to the Association, and whose financial statements for the previous fiscal year were audited by independent auditors acceptable to the Association and certified with no qualification for the purpose of onlending the FMG equivalent of the proceeds of the Credit withdrawn under Category 1 of the table set forth in paragraph 1 of Schedule 1 to the Development Credit Agreement on terms and conditions, satisfactory to the Association, which shall include: (i) relending terms as specified in Section 3.03 (a) (v) of the Development Credit Agreement; (ii) the undertaking of the Participating Financial Institution to make Sub-loans on the terms and conditions set forth in Part B of the Schedule to this Agreement. Section 2.04. BCRDM shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association and of BCRDM; (ii) comply with its obligations under this Agreement, the Subsidiary Loan Agreement and the Participation Agreements; and (iii) achieve the purposes of the Project. Section 2.05. BCRDM shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of the Project Agreement and Parts A and B of the Project. Section 2.06. BCRDM shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, BCRDM shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.07. (a) BCRDM shall, at the request of the Association, exchange views with the Association with regard to the progress of Parts A and B of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. Page 3 (b) BCRDM shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Parts A and B of the Project, the accomplishment of the purposes of the Credit, or the performance by BCRDM of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.08. By October 15, 1990, BCRDM shall implement the new money market and rediscount mechanism, which shall include the introduction of the system of "Appel d'Offre", the use of the rate established by such public offerings as the general reference rate, the setting of an intervention band for the interbank rate, the reorganization of the rediscount facility to provide, inter alia, for the rediscount of treasury bills only, and the introduction of a lender of last resort facility, acceptable to the Association. ARTICLE III Financial Covenants Section 3.01. (a) BCRDM shall maintain procedures 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 its operations and financial condition in respect of Parts A and B of the Project. (b) BCRDM shall: (i) have its records referred to in paragraph (a) of this Section 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, the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish 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. 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 BCRDM thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate; or (ii) a date twenty (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 BCRDM 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 Page 4 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 BCRDM: Banque Centrale de la Republique Democratique de Madagascar B.P. 550 Antananarivo Madagascar Telex: 22-266 BCRM-MG 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 BCRDM may be taken or executed by its Governor, or by such other person or persons as the Governor shall designate in writing, and BCRDM shall furnish to the Association 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 collectively 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Paul Isenman Acting Regional Vice President Africa BANQUE CENTRALE DE LA REPUBLIQUE DEMOCRATIQUE DE MADAGASCAR By /s/ Blanchin Rajafinanjato Authorized Representative Page 5 SCHEDULE Procedures for, and Terms and Conditions of, Sub-loans Part A. Eligibility Criteria: 1. Sub-loans will be made to finance Investment Projects for productive activities (including industry, mining, agriculture) and service activities (including transport, trade, public works, and tourism) with the exception of the financing of land acquisition and real estate development. 2. Sub-loans will finance: (i) fixed assets and associated working capital for new operations, extensions and rehabilitations; and (ii) free- standing working capital for viable existing Investment Enterprises in the productive sector. BCRDM shall, through the Project Management Unit, ensure that the aggregate of Sub-loans made for free-standing working capital shall not exceed twenty-five percent (25%) of the aggregate total of Sub-loans made under the Credit. 3. Investment Enterprises will demonstrate that: (a) Sub-loans above the equivalent of $100,000 have an expected financial rate of return of at least twelve percent (12%) on total Investment Project cost; (b) Sub-loans for Investment Projects with a cost above the equivalent of $500,000 have an internal economic rate of return of at least twelve percent (12%) on total Investment Project cost; and (c) in each case, the projected debt servicing capacity shall be no less than 1.3 over the life of the Sub-loan and the debt to equity ratio shall be no more than 3:1 unless the Association approved otherwise; such ratio to be calculated on the basis of the Investment Enterprise's total debt inclusive all debt incurred in respect of the Investment Project. Part B. Terms and Conditions of Sub-loans: 1. Maturities: From two years up to twelve years including a grace period not exceeding three years, unless otherwise approved by the Association. Interest Rate: The on-lending rate as determined in accordance with Section 3.03 (a) (v) of the Development Credit Agreement plus a freely determined margin up to a maximum spread of seven percentage points; such maximum spread to be eliminated pursuant to the provisions of paragraph 6 of Schedule 6 to the Development Credit Agreement; Amount: Maximum amount $4,000,000 equivalent. Sub-loans could finance up to 80% of total cost of Investment Projects for extension/ modernization or up to 70% for new investments. Promoters of Investment Projects will contribute a minimum financing of 20% for extension/ modernization Investment Projects and 30% for new investments. 2. Sub-loans shall be made on terms whereby the respective PFI shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Association, BCRDM and the PFI 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 Credit shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and Page 6 efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them, provided, however, that contracts for goods estimated to cost the equivalent of $2,000,000 or more will be awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (International Competitive Bidding); 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 Association if the Association shall so request, such goods, 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 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 Enterprise to replace or repair such goods; (e) obtain all such information as the Association or BCRDM shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project; and (f) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Credit upon failure by such Investment Enterprise to perform its obligations under its contract with the respective PFI. Part C. Approval Procedure: 1. No Sub-loan granted by any PFI shall be eligible for refinancing by BCRDM out of the proceeds of the Credit without the prior verification of the Project Management Unit as to its eligibility and without the approval of the Association. When presenting a Sub-loan for approval BCRDM shall furnish to the Association application, in form satisfactory to the Association, 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 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. Once three Sub-loans above the equivalent of $100,000 each for any PFI shall have been so approved, however, the approval of the Association shall no longer be required for the subsequent Sub-loans granted by any such PFI. 2. When presenting a Sub-loan to the Association for authorization to make withdrawals from the Credit Account, BCRDM shall furnish to the Association an application, in form satisfactory to the Association, together with: (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 Sub- loan; (ii) the proposed terms and conditions of the Sub-loan including its schedule of amortization; and (iii) such other information as the Association shall reasonably request. 3. Request and applications made pursuant to paragraphs 1 and 2 of this Part C shall be presented to the Association on or before December 31, 1995.