Page 1 The World Bank 1818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD I NTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS CONFORMED COPY FOR PUBLIC DISCLOSURE July 9, 2010 Mr. José Patriota Secretary State Secretariat for Development and Regional Articulation Rua Gervásio Pires, 399 3o. andar, Boa Vista Recife, PE CEP 50.050-070 Brazil Re: BRAZIL - SFLAC Grant No.TF096046 Supporting Inclusive Business Alliances for Smallholder Agricultural Producers in Pernambuco State Project Dear Sir: In response to the request for financial assistance made on behalf of the State Secretariat for Development and Regional Articulation (hereinafter defined) (“Recipient”), I am pleased to inform you that the International Bank for Reconstruction and Development (“World Bank”), acting as administrator of grant funds provided by the Government of Spain under the Spanish Fund for Latin America and the Caribbean (SFLAC), proposes to extend to the Recipient for the benefit of the Federative Republic of Brazil (“Member Country”), a grant in an amount not to exceed two hundred fifty thousand United States Dollars (US$250,000) (“Grant”) on the terms and conditions set forth or referred to in this letter agreement (“Agreement”), which includes the attached Annex, to assist in the financing of the project described in the Annex (“Project”). This Grant is funded out of the abovementioned trust fund for which the World Bank receives periodic contributions. In accordance with Section 3.02 of the Standard Conditions (as defined in the Annex to this Agreement), the Recipient may withdraw the Grant proceeds subject to the availability of such funds. The Recipient represents, by confirming its agreement below, that it is authorized to enter into this Agreement and to carry out the Project in accordance with the terms and conditions set forth or referred to in this Agreement. Please confirm the Recipient’s agreement to the foregoing by having an authorized official of the Recipient sign and date the enclosed copy of this Agreement, and returning it to the World Bank. Upon receipt by the World Bank of this countersigned copy, this Agreement shall become effective as of the date of the countersignature; provided, however, that the offer of this Agreement shall be deemed withdrawn if the World Bank has not received the countersigned copy of this Agreement within 90 days after the date of signature of this Agreement by the World Bank, unless the World Bank shall have established a later date for such purpose. Page 2 2 Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Garo J. Batmanian Acting Country Director Brazil Country Management Unit Latin America and the Caribbean Region AGREED : STATE SECRETARIAT FOR DEVELOPMENT AND REGIONAL ARTICULATION By: /s/ José Coimbra Patriota Filho Authorized Representative Name: /s/ José Coimbra Patriota Filho Title: /s/ Secretário de Desenvolvimento e Articulação Regional Date: July 14, 2010 Enclosures: (1) Standard Conditions for Grants Made by the World Bank Out of Various Funds, dated July 1, 2008. (2) Disbursement Letter dated July 9, 2010, together with World Bank Disbursement Guidelines for Projects, dated May 1, 2006. Page 3 3 SFLAC Grant No. TF096046 ANNEX Article I Standard Conditions; Definitions 1.01. Standard Conditions. The Standard Conditions for Grants Made by the World Bank out of Various Funds dated July 1, 2008 ( “Standard Conditions”), with the modifications set forth in Section I of the Appendix to this Agreement, constitute an integral part of this Agreement. 1.02. Definitions. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Standard Conditions or in this Agreement. Article II Project Execution 2.01. Project Objectives and Description. The objective of the Project is to contribute to the preparation of the proposed Pernambuco Rural Sustainable Development and Access to Markets Project (the “Associated Project”) by: (i) assessing the effectiveness of existing State- and Federal-level policies designed to promote the competitiveness of smallholder agricultural producers in the State of Pernambuco; (ii) analyzing competitiveness constraints across both State-level administrative regions and agro-ecological zones confronting these smallholders and propose options that promote inclusive business; (iii) identifying and documenting best-practice examples of the potential for inclusive business models in these regions and zones; and (iv) designing and developing intervention strategies to promote inclusive business among smallholders in the State of Pernambuco, with wider applicability to other states in the Northeast region of Brazil. Part A: Competitiveness Policy and Smallholder Agriculture Diagnostics Carrying out of research to identify and analyze federal and state level policies designed to support the competitiveness of smallholder agriculture especially in the State of Pernambuco. Part B: Building Inclusive Business Alliances for Smallholder Agriculture Carrying out of studies to identify and systematize producer and production data across agro-ecological zones in the State of Pernambuco, as a precursor for defining viable options to address climate change and sustainable production systems. Part C: Inclusive Business Design and Development Carrying out of preparatory studies to: (i) roll-out an inclusive business model for smallholder agriculture in the State of Pernambuco (with wider applicability to rural areas of the northeastern region of Brazil); and (ii) develop operational procedures for the Project such as results framework, environmental and social assessments, indigenous peoples framework, project Page 4 4 operational manual, procurement plan, communication and outreach strategy, monitoring and evaluation package. Part D: Grant Implementation, Monitoring and Audit Provision of technical assistance to support the Grant implementation for the administration, monitoring and supervision of the Activities, and preparation of the Grant financing audit. 2.02. Project Execution Generally. The Recipient declares its commitment to the objectives of the Project. To this end, the Recipient shall carry the Project through its State Secretariat for Regional Articulation technical unit (UNITEC) (“Project Implementing Entity”) in accordance with the provisions of: (a) Article II of the Standard Conditions; (b) the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 (“Anti-Corruption Guidelines”) with the modifications set forth in Section II of the Appendix to this Agreement; and (c) this Article II. 2.03. Donor Visibility . (a) The Recipient shall take or cause to be taken all such measures as the World Bank may reasonably request to identify publicly the Government of Spain support for the Project. (b) For the purposes of Section 2.09 of the Standard Conditions, the Recipient shall, upon the World Bank’s request, take all measures required on its part to enable the representatives of the Government of Spain to visit any part of the Recipient’s territory for purposes related to the Project. 2.04. Project Monitoring, Reporting and Evaluation. (a) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of the indicators set forth below in paragraph (b) of this Section. Each Project Report shall cover the period of one calendar semester, and shall be furnished to the World Bank not later than one month after the end of the period covered by such report. (b) The performance indicators referred to above in paragraph (a) consist of the following: (i) by November 30, 2010 have completed the analysis of the public policies (federal, state) in support of smallholder competitiveness (challenges and options); (ii) by November 30, 2010 have identified the financing options for smallholder competitiveness in the State of Pernambuco; (iii) by November 30, 2010 have completed the analysis of the market options for smallholder producers at domestic and export levels; Page 5 5 (iv) by November 30, 2010 have completed the analysis of the Local Productive Arrangements (APLs) in 12 administrative regions of the State of Pernambuco; (v) By January 31, 2011 have carried out workshop/business roundtable with buyers and producers in the State of Pernambuco; and (vi) by February 15, 2011 have prepared the Project operational manual. (c) The Recipient, through UNITEC, shall prepare the Completion Report in accordance with the provisions of Section 2.06 of the Standard Conditions. The Completion Report shall be furnished to the World Bank not later than six months after the Closing Date. In order to assist the Recipient in preparing the Completion Report, the Recipient shall employ consultants in accordance with the provisions of Section 2.06 of this Agreement. 2.05. Financial Management. (a) The Recipient, through UNITEC, shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (b) The Recipient, through UNITEC, shall ensure that interim unaudited financial reports for the Project are prepared and furnished to the World Bank as part of the Project Report not later than one month after the end of each calendar quarter, covering the quarter, in form and substance satisfactory to the World Bank. (c) The Recipient, through UNITEC, shall have its Financial Statements audited in accordance with the provisions of Section 2.07 (b) of the Standard Conditions. Each audit of the Financial Statements shall cover the period of one fiscal year of the Recipient. The audited Financial Statements for each such period shall be furnished to the World Bank not later than six months after the end of such period. 2.06. Procurement. (a) General . All goods and services required for the Project and to be financed out of the proceeds of the Grant shall be procured in accordance with the requirements set forth or referred to in: (i) Section I (excluding paragraph 1.16) of the “Guidelines: Procurement under IBRD Loans and IDA Credits” published by the World Bank in May 2004 and revised in October 2006 and May 2010 (“Procurement Guidelines”), in the case of goods; and (ii) Sections I (excluding paragraph 1.24) and IV of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” published by the World Bank in May 2004 and revised in October 2006 and May 2010 (“Consultant Guidelines”) in the case of consultants’ services; and Page 6 6 (iii) the provisions of this Section, as the same shall be elaborated in the procurement plan prepared and updated from time to time by the Recipient for the Project in accordance with paragraph 1.16 of the Procurement Guidelines and paragraph 1.24 of the Consultant Guidelines (“Procurement Plan”). (b) Definitions . The capitalized terms used in the following paragraphs of this Section to describe particular procurement methods or methods of review by the World Bank of particular contracts, refer to the corresponding method described in the Procurement Guidelines, or the Consultant Guidelines, as the case may be. (c) Particular Methods of Procurement of Goods Goods shall be procured under contracts awarded on the basis of Shopping. (d) Particular Methods of Procurement of Consultants’ Services (i) Except as otherwise provided in item (ii) below, consultants’ services shall be procured under contracts awarded on the basis of Quality- and Cost-based Selection. (ii) The following methods may be used for the procurement of consultants’ services for those assignments which are specified in the Procurement Plan: (A) Quality-based Selection; (B) Selection under a Fixed Budget; (C) Least Cost Selection; (D) Selection based on Consultants’ Qualifications; (E) Single-source Selection; (F) Established Private or Commercial Practices which have been found acceptable to the World Bank; (G) Selection of Service Delivery Contractors which have been found acceptable to the World Bank; (H) Selection of Individual Consultants; and (I) Sole Source Procedures for the Selection of Individual Consultants. (e) Review by the World Bank of Procurement Decisions . The Procurement Plan shall set forth those contracts which shall be subject to the World Bank’s Prior Review. All other contracts shall be subject to Post Review by the World Bank. Article III Withdrawal of Grant Proceeds 3.01. Eligible Expenditures. The Recipient may withdraw the proceeds of the Grant in accordance with the provisions of: (a) the Standard Conditions; (b) this Section; and (c) such additional instructions as the World Bank may specify by notice to the Recipient (including the “World Bank Disbursement Guidelines for Projects” dated May 2006, as revised from time to time by the World Bank and as made applicable to this Agreement pursuant to such instructions), to finance Eligible Expenditures as set forth in the following table. The table specifies the categories of Eligible Expenditures that may be financed out of the proceeds of the Grant (“Category”), the allocations of the amounts of the Grant to each Category, and the percentage of expenditures to be financed for Eligible Expenditures in each Category: Page 7 7 For the purposes of this Section the terms: (a) “Operating costs” means reasonable operating costs required for the Project including consumable materials and supplies, travel, lodging and per diem , communication, mass media and printing services, charges for opening and operation of Bank accounts required for the Project, logistics for workshops and events directly related to the Project implementation. (b) “Training” means reasonable costs incurred by the Recipient in connection with the provision of training conducted under the Project in the territory of the Member Country, including purchase and publication of materials, rental of facilities, course fees, travel and subsistence of trainees. 3.02. Withdrawal Conditions. Notwithstanding the provisions of Section 3.01 of this Agreement, no withdrawal shall be made for payments made prior to the date of countersignature of this Agreement by the Recipient except that withdrawals up to an aggregate amount not to exceed $20,000 equivalent may be made for payments made prior to this date but on or after April 15, 2010 for Eligible Expenditures. 3.03. Withdrawal Period. The Closing Date referred to in Section 3.06 (c) of the Standard Conditions is April 28, 2011 after the date of countersignature of this Agreement by the Recipient. Article IV Termination 4.01. Termination for Lack of Implementation or Disbursement . This Agreement and all obligations of the parties under it shall terminate if: (i) the Grant has not been countersigned before July 31, 2010; (ii) it has not been implemented or has not disbursed any funds after 6 months of its countersignature; (iii) the Associated Project is approved by the World Bank’s Board; and/or (iv) the SFLAC Secretariat has determined that there is lack of progress in the implementation of this Project, unless the World Bank, after consideration of the reasons for the Category Amount of the Grant Allocated (expressed in US Dollars) Percentage of Expenditures to be Financed (inclusive of Taxes) (1) Consultants’ services 181,345 100% (2) Operating costs 24,330 100% (3) Training 44,325 100% TOTAL AMOUNT 250,000 Page 8 8 delay, establishes a later date for the purpose of this Section. The World Bank shall promptly notify the Recipient of such later date. Article V Recipient’s Representative; Addresses 5.01. Recipient’s Representative . The Recipient’s Representative referred to in Section 7.02 of the Standard Conditions is its State Secretary for Development and Regional Articulation. 5.02. Recipient’s Address . The Recipient’s Address referred to in Section 7.01 of the Standard Conditions is: State Secretariat for Development and Regional Articulation Rua Gervásio Pires, 399 3o. andar, Boa Vista Recife, PE CEP 50.050-070 With a copy to: SEAIN – Secretaria de Assuntos Internacionais do Ministério do Planejamento, Orçamento e Gestão Esplanada dos Ministérios – Bloco K – 5o. andar 70040-906 Brasília, DF BRASIL 5.03. World Bank’s Address . The World Bank’s Address referred to in Section 7.01 of the Standard Conditions is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable: Telex: Facsimile: INTBAFRAD 248423 (MCI) or 1-202-477-6391 Washington, D.C. 64145 (MCI) Page 9 9 APPENDIX Modifications to the Standard Conditions and the Anti-Corruption Guidelines Section I. The Standard Conditions are modified as follows: 1. The provisions of Section 4.02 (j) of the Standard Conditions are modified to read as follows: ... (j) Ineligibility . IBRD or IDA has declared the Recipient (other than the Member Country) ineligible to receive proceeds of any financing made by IBRD or IDA or otherwise to participate in the preparation or implementation of any project financed in whole or in part by IBRD or IDA, as a result of: (i) a determination by IBRD or IDA that the Recipient has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of any financing made by IBRD or IDA; and/or (ii) a declaration by another financier that the Recipient is ineligible to receive proceeds of financings made by such financier or otherwise to participate in the preparation or implementation of any project financed in whole or in part by such financier as a result of a determination by such financier that the Recipient has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of a financing made by such financier. ” Section II. The modifications to the Anti-Corruption Guidelines are as follows: 1. Section 5 is re-numbered as Section 5(a) and a new Section 5(b) is added to read as follows: “…(b) These Guidelines also provide for the sanctions and related actions to be imposed by the Bank on Borrowers (other than the Member Country) and all other individuals or entities who are recipients of Loan proceeds, in the event that the Borrower or the individual or entity has been debarred by another financier as a result of a determination by such financier that the Borrower or the individual or entity has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of a financing made by such financier.” 2. Section 11(a) is modified to read as follows: “… (a) sanction in accordance with prevailing Bank’s sanctions policies and procedures (fn13) a Borrower (other than a Member Country) ( fn 14) or an individual or entity, including (but not limited to) declaring such Borrower, individual or entity ineligible publicly, either indefinitely or for a stated period of time: (i) to be awarded a Bank- financed contract; (ii) to benefit from a Bank-financed contract, financially or otherwise, for example as a sub-contractor; and (iii) to otherwise participate in the preparation or implementation of the project or any other project financed, in whole or in part, by the Bank, if at any time the Bank determines (fn 15) that such Borrower, individual or entity has engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in connection with the use of loan proceeds, or if another financier with which the Bank has entered into an agreement for the mutual enforcement of debarment decisions has Page 10 10 declared such person or entity ineligible to receive proceeds of financings made by such financier or otherwise to participate in the preparation or implementation of any project financed in whole or in part by such financier as a result of a determination by such financier that the Borrower or the individual or entity has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of a financing made by such financier. ” Footnotes: “13. An individual or entity may be declared ineligible to be awarded a Bank financed contract upon completion of sanctions proceedings pursuant to the Bank’s sanctions policies and procedures, or under the procedures of temporary suspension or early temporary suspension in connection with an ongoing sanctions proceeding, or following a sanction by another financier with whom the Bank has entered into a cross debarment agreement, as a result of a determination by such financier that the firm or individual has engaged in fraudulent, corrupt, coercive or collusive practices in connection with the use of the proceeds of a financing made by such financier.” “14. Member Country includes officials and employees of the national government or of any of its political or administrative subdivisions, and government owned enterprises and agencies that are not eligible to bid under paragraph 1.8(b) of the Procurement Guidelines or participate under paragraph 1.11(c) of the Consultant Guidelines.” “15. The Bank has established a Sanctions Board, and related procedures, for the purpose of making such determinations. The procedures of the Sanctions Board sets forth the full set of sanctions available to the Bank. In addition, the Bank has adopted an internal protocol outlining the process to be followed in implementing debarments by other financiers, and explaining how cross-debarments will be posted on the Bank’s website and otherwise be made known to staff and other stakeholders.”