CONFORNED COPY CREDIT NUMBER 726 ES Development Credit Agreement (Second Urban Development Project) between REPUBLIC OF EL SALVADOR and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated July 28, 1977 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated July 28, 1977, between REPUBLIC OF EL SALVADOR (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by making available the Credit as hereinafter provided; (B) the Borrower has also requested the International Bank for Reconstruction and Development (hereinafter called the Bank) to provide additional assistance toward the financing of the Project and by an agreement of even date herewith between the Borrower and the Bank (hereinafter called the Loan Agreement) the Bank is agreeing to provide such assistance in an amount equiva- lent to six million seven hundred thousand dollars ($6,700,000) (hereinafter called the Loan); (C) the Project will partly be carried out by (i) Fundaci6n Salvadoreffa de Desarrollo y Vivienda Minima (hereinafter called FSDVM), a private foundation established and operating under the laws of the Borrower; (ii) Instituto de Vivienda Urbana (hereinafter called IVU), an agency of the Borrower; and (iii) Federaci6n de Cajas de Cr6dito (hereinafter called FEDEC- CREDITO), a cooperative established and operating under the laws of the Borrower; (D) the Borrower will render its assistance to the entities mentioned in (C) above and, as part of such assistance, the Borrower will make available to each of such entities part of the proceeds of the Credit as hereinafter provided; (E) the Borrower and the Association intend that, to the extent practicable, the proceeds of the Credit be disbursed before disbursements of the proceeds of the Loan be commenced; (F) by an agreement of even date herewith between the Association and the Bank and FSDVM (hereinafter called the Project Agreement), FSDVM has undertaken certain obligations regarding its participation in the carrying out of the Project; and -2- WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to make available the Credit to the Bor- rower upon the terms and conditions hereinafter set forth; 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 March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions, in the Loan Agreement and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "FSDVM Subsidiary Lending Agreement", "IVU Subsidiary Lending Agreement" and "FEDECCREDITO Subsidiary Lending Agreement" mean the agreements to be entered into between the Borrower and FSDVM, IVU and FEDECCREDITO, respectively, pursuant to Section 3.02 (a) of this Agreement, as such agreements may be amended from time to time; (b) "First Credit Agreement" means the Development Credit Agreement (Sites and Services Project) between the Borrower and the Association, dated November 4, 1974, as amended; "First Loan Agreement" means the Loan Agreement (Sites and Services Project) between the Borrower and the Bank, dated November 4, 1974, as amended; and "First Project Agreement" means the Project Agreement (Sites and Services Project) between the Bank and the Association and FSDVM, dated November 4, 1974, as amended; (c) "ANDA" means Administraci6n Nacional de Acueductos y Alcantarillados, an agency of the Borrower; (d) "FNV" means Financiera Nacional de la Vivienda, an agency of the Borrower; -3- (e) "Project Coordinating Committee" means the Committee referred to in Section 3.03 hereof; (f) "Special Fund" means the fund referred to in Section 3.05 hereof; (g) "Colones" and the symbol ""' mean colones in the currency of the Borrower; (h) "Community Association" means the association of household members of the "22 de Abril" settlement; and (i) "Revolving Fund Account" mearis the account to be established pursuant to Section 3.04 of this Agreement. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in this Development Credit Agreement set forth or referred to, an amount in various currencies equiva- lent to six million dollars ($6,000,000). Section 2.02. The amount of the Credit may be withdrawn f-:m the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Sc'.edule may be amended from time to time by agreement between the Borrower and the Association and the Bank, 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 the Project and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, contracts for the purchaoe of goods or for civil works to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 4 hereto. Section 2.04. The Closing Date shall be August 31, 1981 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. -4- Section 2.05. 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 2.06. Service charges shall be payable semi-annually on May 1 and November 1 in each year, Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each May 1 and November 1 commencing May 1, 1987, and ending November 1, 2026, each installment to and including the installmnt payable on November 1, 1996, 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. Seccion 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. FSDVM, IVU and FEDECCREDITO are designated as representatives of the Borrower for the purposes of signing withdrawal applications in respect of expenditures for Parts A, D.1 and D.2; Part B; and Parts C and D.3 of the Project, respec- tively, and in respect of expenditures for advisory services rendered to FSDVM, IVU and FEDECCREDITO, respectively, under Part D.4 of the Project. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out Parts A.5 and A.6 of the Project and shall cause the Project to be carried out (shall cause FSDVM, IVU, and FEDECCREDITO to participate in the carrying out of Parts A, D.1 and D.2; Part B; and Parts C and D.3 of the Project, respectively) with due diligence and effi- ciency and in conformity with sound administrative, financial, engineering and architectural practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Part D.2 (a) of the Project shall be carried out only if the Borrower, the Bank and FSDVM shall agree on the desirability of undertaking such evaluation. -5- Section 3.02. (a) The Borrower shall relend part of the proceeds of the Credit and of the Loan to FSDVM, IVU and FEDECCREDITO, for purposes of the carrying out of Parts A and D.2; Part B; and Parts C and D.3 of the Project, as specified in Schedule 3 to this Agreement, under subsidiary lending agreements to be entered into between the Borrower and each of such entities, on terms and conditions satisfactory to the Association. (b) The Borrower shall cause FSDVM, IVU and FEDECCREDITO punctually to perform their respective obligations under said agreements, and shall cause FSDVM punctually to perform its obligations under the Project Agreement, and shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable each of them to perform such obligations, and shall. not take or permit to be taken any action which would prevent or interfere with such performance. (c) The Borrower shall exercise its rights under each Subsidiary Lending Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not amend, assign, waive, fail to enforce or abrogate any provision thereof. (d) Without limitation or restriction upon the provisions of Section 3.01 hereof or the preceding paragraphs of this Section, the Borrower shall, in addition to the aforementioned amounts, transfer: (i) to FSDVM, such amounts (currently estimated at the equivalent in Colones of $685,000) as there shall be withdrawn from the Credit Account and the Loan Account for purposes of constructing the trunk infrastructure required for Part A of the Project; and the equivalent in Colones of $15,000 for purposes of Part D.4 of the Project; (ii) to IVU, the equivalent in Colones of about $2,840,000 for purposes of financing the acquisition of land for Part A of the Project; and the equivalent in Colones of $5,000 for purposes of Part D.4 of the Project; and (iii) to FEDECCREDITO, the equivalent in Colones of $75,000 for purposes of Parts D.3 and D.4 of the Project and the equivalent in Colones of $1,600,000 for purposes of Part C.1 of the Project. Section 3.03. The Borrower shall: (a) maintain, until the completion of the Project, the Project Coordinating Committee established pursuant to Section 3.02 of the First Credit Agreement; -6- (b) expand, not later than September 30, 1977, such Commit- tee's composition to include one representative each of IVU and FEDECCREDITO; and cause it to be chaired by a high ranking official of the Borrower's Ministry of Planning and Coordination of Economic and Social Development; (c) expand such Committee's function to coordinate the carrying out of the Project by the agencies of the Borrower and other entities represented in such Committee, vesting it with adequate powers to take such action as shall be required to ensure the timely execution of the Project; and (d) cause such Committee to prepare quarterly reports on the progress of the Project, and to furnish them to the Associa- tion promptly after the end of each quarter. Section 3.04. The Borrower shall establish and maintain, under arrangem\nts satisfactory to the Association, a special account (hereinafter called the Revolving Fund Account) into which there shall be made the deposits referred to in paragraph 4 (b) of Schedule 1 hereto, and from which the Borrower, through FSDVM, shall make withdrawals for expenditures for civil works included in Part A of the Project eligible to be financed out of the proceeds of the Credit. Section 3.05. The Borrower shall: (a) maintain and cause FNV to continue to operate the Special Fund. established pursuant to Section 3.03 of the First Credit Agreement; (b) cause such Special Fund to be credited with such amounts as the Borrower shall receive from FSDVM, IVU and FEDECCREDITO pursuant to their respective Subsidiary Lending Agreements and which are not required by the Borrower to service its financial obligations under this Agreement or under the Loan Agreement; and (c) cause FNV to use the amounts so credited to the Special Fund exclusively for the purpose of financing sites and services projects for low income families similar to those included in the Project, provided that all amounts repaid by FSDVM on account of sale of lots included in Part A of the Project before the date on which such repayments are due pursuant to the original amortiza- tion schedule included in the FSDVM Subsidiary Lending Agreement, -7- shall be available for such purpose only to FSDVM or any other such institution as the Borrower and the Association shall agree. Section 3.06. The Borrower shall: (a) cause FSDVM to acquire, or, if necessary, cause IVU to acquire, as and when needed for the timely carrying out of the Project, all the land and rights in respect thereof needed for the purpose, and furnish to the Association, if the Association shall so require, evidence satisfactory to the Association regarding such acquisition; (b) cause IVU timely to transfer to FSDVM, for purposes of carrying out Part A of the Project, all the land acquired or to be acquired by IVU for such purposes, if any, and to charge FSDVM a price not exceeding the acquisition cost plus interest on the unpaid part of the price; and (c) without limitation or restriction upon the preceding provisions, acquire on or before December 31, 1977 not less than 57 hectares of land in the San Salvador metropolitan area for purposes of Part A of the Project. Section 3.07. Part A of the Project shall be carried out in locations agreed upon by the Borrower, FSDVM and the Associa- tion. Section 3.08. The Borrower shall: (a) cause ANDA to give preference in its supply of water to all the sites included either in the Project or in the project described in Schedule 2 to the First Credit Agreement; and the Borrower shall, by September 30, 1977, make arrangements with ANDA providing for such preference for such s,tpply of water; (b) report to the Bank, every three months, on the progress made regarding compliance with the preceding provision, in such detail as the Association shall resonably request; and (c) if, on or before December 31, 1977, progress on the works to supply water to such sites (out of the water obtained from Stage I of ANDA's Zona Norte Phase I Program or any other suitable source, in the case of sites in San Salvador) is, in the opinion of the Association, after consultation with the Borrower, inadequate to assure timely water supply to such sites, cause -8- FSDVM to carry out a program of well drilling to supply water to such sites until completion of such works, and cause ANDA to maintain and operate such wells. Section 3.09. The Borrower shall cause IVU: (a) to establish and maintain a special unit exclusively responsible for the detailed design and carrying out of Part B of the Project; (b) apply, and collect, such charges to the beneficiaries of the program included in Part B of the Project, as shall be re- quired to recover the cost of such program within 20 years, with- out a grace period, including interest at the annual rate of 6.4% on such cost; provided, however, that if IVU or any other lender for housing increases its rates of interest for loans for similar purposes to boLrowers of similar income levels, such charges shall be readjusted to take account of such higher levels; and (c) except as the Borrower and the Association shall otherwise agree, to carry out Part B of the Project in accordance with the Policies set orth in Schedule 5 to this Agreement. Section 3.10. Except as the Association may otherwise agree, the Borrower shall cause FEDECCREDITO: (a) to establish and maintain an Urban Credit Department and vest in it the responsibility for carrying out Part C.1 of the Project; (b) to appoint, by September 30, 1977, the Director and key staff of such Department; (c) to select the beneficiaries of the credit program included in Part C.1 of the Project on the basis of viability of the proposed use of the Credit and of need; (d) to apply the following terms to the credit program included in Part C.1 of the Project: (i) loans for working capital: repayment within 1 to 2 years with not more than 6 months of grace; amount: up to 06,000; (ii) loan for purchase of tools or equipment: repayment within 1 to 5 years with not more than 1 year of grace; amount: up to 06,000; (iii) loans for workshop construction or improvement: repayment within 2 to 12 years, with not more than 1 year of grace; amount: up to 06,000, -9- or in the case of a cooperative, firm or grupo solidario (coopera- tives under organization) up to 012,000; and (iv) rates of interest for all the preceding: 1.5% per annum on outstanding amounts; (e) to pay interest, at a rate of not less than the rate paid by commercial banks on savings deposits, on the savings deposits maintained by FEDECCREDITO's beneficiaries under the urban credit program included in Part C.1 of the Project; and (f) to furnish to the Bank, by such date as the Association and FEDECCREDITO shall agree, a detailed report on the programs included in Part C of the Project. Section 3.11. The Borrower shall, and shall cause FEDECCREDITO to, exchange views with the Association on the cost of and other matters relating to the credit program included in Part C.1 of the Project, and make such adjustments thereto, by July 31, 1978 or such later date as the Association shall agree, as the Association shall reasonably request to ensure the financial viability of the program and its efficient carrying out. Section 3.12. The Borrower shall, by September 30, 1977, adequately staff FEDECCREDITO's Training and Supervision Section with competent personnel, as required to carry out Part C.2 of the Project. Section 3.13. The Borrower shall, not later than April 30, 1978 or such other date as the Association shall agree, take all action necessary to establish the Community Association as a legal entity, and to enable such Community Association to function pursuant to its purposes. Section 3.14. (a) The Borrower shall furnish or cause to be furnished to the Association, promptly upon their preparation, the plans, specifications, budgets, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower shall: (i) maintain or cause to be main- tained records adequate to reflect the progress and cost of the Project and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof in the - 10 Project; (ii) enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.15. Except as the Association shall otherwise agree, the Borrower shall: (a) not later than September 30, 1977, furnish to the Association, for its comment, the prototype designs for the schools included in the Project; (b) notify the Association, not later than September 30, 1977, of the responsible officer of the Borrower's Ministry of Education who will be responsible for the overall supervision and coordination of the construction of such schools; and (c) as and when needed for purposes of the Project, furnish or cause to be furnished to the Association, for comments, information regarding the specific location, designs and number of student places proposed for each of such schools. ARTICLE IV Other Covenants Section 4.01. The Borrower shall maintain or cause to be maintained records adequate to reflect in accordance with consis- tently maintained sound accounting practices the operations, resources and expenditures, in respect of the Project, of the departments and agencies of the Borrower responsible for carrying out any part of the Project. Section 4.02. The Borrower shall maintain, operate and staff, or cause to be maintained, operated and staffed, the community facilities included in the Project in conformity with sound administrative, public health, educational or other relevant practices, as the case may be, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. - 11 - Section 4.03. The Borrower shall: (i) cause the educational facilities included in the Project to be available for purposes of adult training when not in use by the regular school program; (ii) cause the teachers for grades one through six assigned to the educational institutions included in the Project to attend the in-service training courses included in Part B.3 of the project described in Schedule 2 to the Loan Agreement between the Borrower and the Bank, dated June 14, 1973; and (iii) employ, or cause to be employed, at all times, qualified administrators and teachers in adequate numbers to staff the educational institutions included in the Project. Section 4.04 The Borrower shall cause all access roads and primary infrastructure (including water supply) included in the Project to be maintained in conformity with sound engineering and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources as required for the purpose. Section 4.05. The Borrower shall cause FEDECCREDITO, and IVU (except for (iii) below), (i) to maintain separate accounts for their operations, resources and expenditures in respect of the Project; (ii) to have their respective accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by indepen- dent auditors acceptable to the Bank; (iii) to furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iv) to furnish to the Bank such other information concerning their respective accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request. - 12 - 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: (a) FSDVM shall have failed to perform any covenant, agreement or obligation under the Project Agreement, or the FSDVM Subsidiary Lending Agreement; (b) IVU or FEDECCREDITO shall have failed to perform any of its obligations under its respective Subsidiary Lending Agreement; (c) an extraordinary situation shall have occurred which shall make it improbable that either FSDVM, IVU or FEDECCREDITO will be able to participate in the carrying out of the Project as provided herein; and (d) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of either FSDVM, IVU or FEDECCREDITO. 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 paragraphs (a), (b) or (c) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; (b) any event specified in paragraph (d) of Section 5.01 of this Agreement shall occur; and (c) a default shall occur in the performance of any obliga- tion (other than an obligation to pay monies) on the part of the Borrower under the Loan Agreement, and such default shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower. - 13 - ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) that the conditions precedent to the effectiveness of the Loan Agreement have been fulfilled; (b) that the execution and delivery of the Project Agreement on behalf of FSDVM have been duly authorized or ratified by all necessary corporate and governmental action; and (c) that the execution and delivery of the FSDVM Subsidiary Lending Agreement on behalf of the Borrower and FSDVM, respec- tively, have been duly authorized or ratified by all necessary corporate and governmental action. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by FSDVM, and is legally binding upon FSDVM in accordance with its terms; and (b) that the FSDVM Subsidiary Lending Agreement has been duly authorized or ratified by the Borrower and FSDVM and is legally binding upon the Borrower and FSDVM in accordance with its terms. Section 6.03. The date of November 1, 1977 is hereby speci- fied for the purposes of Section 12.04 of the General Conditions. Section 6.04. The obligations of the Borrower under Articles IV and V of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date 30 years after the date of this Agreement, whichever shall be the earlier. -14- ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance 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 purposes of Section 11.01 of the General Conditions: For the Borrower: Ministerio de Hacienda 3a Avenida Norte y 13a Calle Poniente San Salvador El Salvador Cable address: MINISTRO DE HACIENDA San Salvador For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (RCA) Washington, D.C. 248423 (ITT) or 64145 (WUI) 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 - 15 - District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF EL SALVADOR By Is/ Francisco Bertrand Galindo Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Is! Enrique Lerdau Acting Regional Vice President Latin America and the Caribbean - 16 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit and of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit and of the Loan, the allocation of amounts of such proceeds to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit and of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Part A of the Project (a) civil works 8,460,000 100% (b) administration 860,000 41% (c) credit program 440,000 41% of loans disbursed (2) Civil Works for 120,000 70% Part B of the Project (3) Credit Program 70,000 70% of loans for Part B.2 of disbursed the Project (4) Part C.1 of the 1,400,000 47% of loans Project disbursed (5) Training and Tech- nical Assistance for: (i) Part D.2 of the Project 50,000 50% - 17 - Amount of the Credit and of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (ii) Part D.3 of the Project 70,000 100% (iii) Part D.4 of the Prte-t 30,000 100% (6) Unallocated 1,200,000 TOTAL 12,700,000 2. The disbursement percentages have been calculated in compli- ance with the policy of the Association and the Bank that no proceeds of the Credit and of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit and of the Loan decreases or increases, the Association or the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consis- tent with the aforementioned policy of the Association and the Bank. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals in an aggre- gate amount not exceeding the equivalent of $300,000 may be made on account of expenditures for the design, administration and execution of minor civil works before that date but after Janu- ary 1, 1977; or - 18 - (b) on account of expenditures under Categories (2) and (3) unless the Association and the Bank shall have received evidence satisfactory to the Association and the Bank that: (i) the execution and delivery of the IVU Subsidiary Lending Agreement on behalf of the Borrower and IVU have been duly authorized or ratified by all necessary and corporate action; and a certificate satisfactory to the Association and the Bank of a competent official of the Borrower, showing (A) on behalf of the Borrower, that the IVU Subsidiary Lending Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and is legally binding upon the Borrower in accordance with its terms, and (B) on behalf of IVU, that the said Agreement has been duly authorized or ratified by and executed and delivered on behalf of, IVU and is legally binding upon IVU in accordance with their terms; (ii) the unit referred to in Section 3.09 has been established; and (iii) the Director and key staff for the said unit have been appointed; or (c) on account of expenditures under Category (4), unless the Association and the Bank shall have received evidence satis- factory to the Association and the Bank that: (i) the execution and delivery of the FEDECCREDITO Subsidiary Lending Agreement on behalf of the Borrower and FEDECCREDITO has been duly authorized or ratified by all necessary and corporate action; and a certificate satisfactory to the Association and the Bank of a competent official of the Borrower, showing (A) on behalf of the Borrower that the FEDECCREDITO Subsidiary Lending Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and is legally binding upon the Borrower in accor-lance with its terms, and (B) on behalf of FEDECCREDITO, that the said Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, FEDECCREDITO, and is - 19 - legally binding upon FEDECCREDITO in accordance with its terms; and (ii) FEDECCREDITO shall have established the Urban Credit Department and appointed a Director and key staff thereof pursuant to Section 3.10 hereof; or (d) on account of expenditures for Part C.1 of the Project, after July 31, 1978 or such other date as the Association and the Bank shall agree, unless FEDECCREDITO shall have made the adjustments provided for in Section 3.11 hereof if such adjust- ments are required by the Association pursuant to such provision; or (e) for consultants retained under Part D.4 of the Project, unless their qualifications, experience, and terms and conditions of employment shall be satisfactory to the Association. 4. (a) The Association and the Bank shall pay into the Re- volving Fund Account all amounts withdrawn under Category (1) (a). (b) At the request of the Borrower from time to time, the Association or the Bank, or both, as the case may be, shall withdraw on behalf of the Borrower from the Credit Account or the Loan Account or both and pay into the Revolving Fund Account an amount in Colones not exceeding in the aggregate the equivalent of $300,000 for expenditures for civil works to be made for Part A of the Project and to be financed out of the proceeds of the Credit or the Loan; provided, however, that no withdrawal shall be made from the Loan Account under Category (1) (a) if such with- drawal would cause the aggregate of the amounts withdrawn there- under to reach the equivalent of the amount at the time allocated to said Category (1) (a) minus $300,000 equivalent, until the Bank shall have been satisfied that all the amounts theretofore with- drawn under said Category correspond to the portion to be financed under this Agreement and the Loan Agreement, of payments made out of the Revolving Fund Account for expenditures eligible to be financed out of the proceeds of the Credit and the Loan. 5. Except as the Borrower, the Association and the Bank shall otherwise agree, and until all amounts of the Credit shall have been withdrawn or committed, no withdrawals shall be made from the Loan Account. - 20 - 6. Notwithstanding the allocation of an amount of the Credit and of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Association and the Bank have, or after full withdrawal of the entire amount of the Credit the Bank has, reasonably estimated that the amount of the Credit and of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association and the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit and of the Loan which are then allocated to another Category and which in the opinion of the Association and of the Bank 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 expenditures in order that further with- drawals under such Category may continue until all expeneitures thereunder shall have been made. 7. If the Association and the Bank 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 expenditures for such item shall be financed out of the proceeds of the Credit and of the Loan and the Associ- ation and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Association and of the Bank under the Development Credit Agreement and the Loan Agree- ment, by notice to the Borrower, cancel such amount of the Credit and of the Loan as, in the Association's and the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit and of the Loan. -21- SCHEDULE 2 Description of the Project The Project consists of the following Parts: Part A: Serviced sites;, 1. Development of about 8,000 urban lots in the sites listed in Exhibit A to this Schedule (the Sites) offering four service levels, substantially as specified in Exhibit B to this Schedule, including development, in the Sites, of about 400 lots for small industrial or commercial use, or both. 2. Construction of streets and footpaths in the Sites. 3. Construction of water and sewerage trunk infrastructure and public lights for the,Sites, and provision of water supply and sewerage connections for each lot. 4. Provision of power infrastructure for the Sites. 5. Construction of access roads, storm drains, health clinics, sports fields, markets, and multipurpose community centers in the Sites. 6. Construction, equipping and furnishing of about 12 basic schools with about 4,800 student places, to serve about 9,600 students on a double shift basis. 7. A credit program to assist assignees of the lots refer- red to in 1 above (i) in acquiring the lots; and (ii) to construct or complete or expand their dwelling where the assignees have opted for service levels A or B. Part B: Pilot upgrading program for the "22 de Abril" settlement in San Salvador: 1. Provision of infrastructure and community facilities, such as: improvement of water supply facilities and washing areas; improvement of drainage facilities; pavement of major access roads and improvement of footpaths and steps, and stabilization of steep gradi- ents; and construction and equipping of a community/day care center. - 22 - 2. A credit program to provide secure tenure, through acquisition or otherwise, over the lots, and to finance home improvements. Part C: Small business extension scheme: 1. A credit program to assist small enterprises in workshop construction or improvement, purchase of tools and equipment, and increasing their working capital. Eli- gible borrowers will be individuals, firms, cooperatives and grupos solidarios (cooperatives under organization) located in the sites included in Parts A and B hereof, and individuals, firms, cooperatives and grupos solidarios located elsewhere with assets below 45,000 in the case of individuals, and 10,000 in the case of firms, cooperatives and grupos solidarios. 2. A training and technical assistance program for indi- viduals, firms, cooperatives and grupos solidarios, either residents in the Sites or, if -not, with assets below 45,000 in the case of individuals, and 10,000 in the case of firms, cooperatives and arupos solidarios. Part D: Training and technical assistance: 1. A study of designs and technologies applicable to shelter. 2. (a) A socio-economic evaluation of Part A of the Project, and (b) a market study to determine the effective demand for the various levels of service. 3. A review of the small business scheme included in Part C of the Project. 4. Provision of advisory services to FSDVM, IVU, and FEDECCREDITO, to assist them in investigating and solving specific problems encountered during the carrying out of the Project. The Project is expected to be completed by December 31, 1980. - 23 - EXHIBIT A TO SCHEDULE 2 Approximate Location Number of Lots San Salvador 5,700 Santa Ana 1,000 San Miguel 500 Sonsonate 300 Other 500 - 24 - EXHIBIT B TO SCHEDULE 2 Approximate* current Approximate estimated development cost Percentage Type of Level (in Colones) of Units A 2,000 15 B 3,100 60 C 4,100 21 D 7,000 4 * Variations exceeding 10% will require the prior concurrence of the Association. - 25 - SCHEDULE 3 Subsidiary Lending 1. Amounts: the equivalent in Colones of: to FSDVM: $10,300,000 to IVU: $ 190,000 to FEDECCREDITO! $ 1,400,000 2. Repayment: (a) FSDVM: 30 years (Credit proceeds) and 20 years (Loan proceeds), both including 6 years of grace. (b) IVU and FEDECCREDITO: 20 years, including 5 years of grace. 3. Rate of Interest: (a) Credit proceeds: 2% per annum on outstanding amounts. (b) Loan proceeds: 8.20% per annum on outstanding amounts. 4. Exchange Risk to Borrowers: none; lending and repayment of principal to be the same amount of Colones. 5. Disbursement: pari passu with withdrawals from the Credit Account and the Loan Account in respect of the expenditures to be financed. - 26 - SCHEDULE 4 Procurement A. International Competitive Bidding Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured in accor- dance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Cred- its" published by the Bank in August 1975 (hereinafter called the Guidelines) including the pertinent provisions of the General Introduction thereto, on the basis of international competitive bidding. B. Other Procurement Procedures Materials, equipment and civil works e7timated to cost less than the equivalent of $120,000 shall be procured under procedures satisfactory to the Association; provided that the aggregate cost of such items do not exceed the equivalent of $6,900,000. C. Evaluation and Comparison of Bids for Goods; Preference for Certain Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with paragraph B above: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the methods, as per sub-paragraph (c) below, that will be followed in the evaluation and comparison of bids. (b) For purposes of this Part C the term "Central American Bid" means a bid submitted by a manufacturer established in the territories of any member country of the Central American - 27 - Common Market for goods manufactured or processed to a substantial extent (as reasonably determined by the Bank) in such territories; any other bid shall be deemed to be a "Non-Central American Bid". (c) The price under a Central American Bid shall be the sum of: (i) the ex-factory price of such goods; and (ii) freight, insurance and other costs of delivery of such goods to the place of their distribution, use or installation. (d) For the purpose of comparing any Non-Central American Bid with any Central American Bid, the price under a Non-Central American Bid shall be the sum of: (i) the c.i.f. (port of entry) price of such goods; (ii) half the amount of any taxes on the importation of such goods into the territories of the Borrower which generally apply to non-exempt importers, or 15% of the amount specified in (i) above, whichever shall be the lower; and (iii) freight, insurance and other costs of delivery of such goods from their port of entry to the place of their use or installation. E. Review of Procurement Decisions by the Association and the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods or civil works estimated to cost the equivalent of $120,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association and the Bank, for comments, the text of the invitations to bid and the specifications and other bidding docu- ments, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank and the Associa- tion shall reasonably request. Any further modification to the - 28 bidding documents shall require the concurrence of the Association and the Bank before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Association and the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Association and the Bank, in sufficient time for review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Association and the Bank shall reasonably request. The Association and the Bank shall, if they determine that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the concurrence of the Association and the Bank, materially differ from those on which bids were asked or prequali- fication invited. (d) Two conformed copies of the contract shall be furnished to the Association or to the Bank promptly after its execution and prior to delivery to the Association or to the Bank, as the case may be, of the first application for withdrawal of funds from, respectively, the Credit Account or the Loan Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Credit or of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Association or to the Bank, promptly after its execution and prior to delivery to the Association or to the Bank, as the case may be, the first application for withdrawal of funds from, respectively, the Credit Account or the Loan Account in respect of such contract, two con- formed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other informa- tion as the Association or the Bank shall reasonably request. The Association and the Bank shall, if they determine that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. - 29 - SCHEDULE 5 Part B.of the Project: Policies Servicing standards will be based on phased improvement of present services or introduction of basic--generally shared-- facilities; Detailed design standards will be determined in consultation with the affected population, reflecting community priorities and capacity to pay; and will be submitted to the Association for its approval; Residents will be offered secure tenure over the lots they reside on; There will be minimal resettlement, and families displaced by installation of essential services will be relocated wherever feasible in areas adjacent to the community; and Full cost of upgrading including land, infrastructure, washing areas, construction loans, administration and interim interest will be recovered from residents. Costs of work under- taken will be affordable to about 85% of the community. A risk reserve will be established in an amount sufficient to cover anticipated defaults.