OFFICA LOCUI L LOAN NUMBER 2305 PAK DOCUMENTs REDIT NUMBER 1380 PAK Project Agreement (Fifth Agricultural Development Bank Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN Dated 3o ,1983 LOAN NUMBER 2305 PAK CREDIT NUMBER 1380 PAK PROJECT AGREEMENT AGREEMENT, dated 3, 1983, between INTERNATIONAL DEVELOPMENT AS OCIATION (hereinafter called the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP- MENT (hereinafter called the Bank) and AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN (hereinafter called ADBP). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Islamic Republic of Pakistan (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to forty-four million three hundred thou- sand Special Drawing Rights SDR 44,300,000, on the terms and con- ditions set forth in the Development Credit Agreement, but only on condition that ADBP agree to undertake such obligations toward the Association as are hereinafter set forth; (B) the Borrower has requested the Bank to provide addi- tional 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 aggregate principal amount equiva- lent to ten million dollars ($10,000,000); (C) the Borrower has applied to the International Fund for Agricultural Development (hereinafter called the Fund) for a loan (hereinafter called the Fund Loan) in an amount equivalent to twenty-three million two hundred thousand Special Drawing Rights (SDR 23,200,000) to assist in financing the Project on terms and conditions set forth in an agreement (hereinafter called the Fund Loan Agreement) between the Borrower and the Fund; (D) the Fund intends to appoint the Association as Coopera- ting Institution to administer the Fund Loan, and the Association is prepared to accept such appointment; (E) by a subsidiary loan agreement to be entered into between the Borrower and ADBP, the proceeds of the credit pro- vided for under the Development Credit Agreement, the proceeds of the loan provided for in the Loan Agreement and the proceeds of the Fund Loan provided for under the Fund Loan Agreement will be made available to ADBP on the terms and conditions therein set forth; and - 2 - WHEREAS ADBP, in consideration of the Association's entering into the Development Credit Agreement the Bank's entering into the Loan Agreement and the Fund's entering into the Fund Loan Agreement with the Borrower, has agreed to undertake the obliga- tions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions applicable thereto and in the Loan Agreement and in the General Conditions applicable thereto (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) ADBP shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due dili- gence and efficiency and in conformity with appropriate agricul- tural, administrative, financing and engineering practices. (b) ADBP shall lend funds, including such amount of the proceeds of the Credit, the Bank Loan and the Fund Loan as the Borrower shall make available to it, or the equivalent thereof, as loans or portions of loans to farmers and farmers' groups, in accordance with the criteria set out in the Schedule to this Agreement. (c) ADBP shall at all times charge interest rate on all its loans to enable it: (i) to cover all its operating expenaitures and charges, including taxes, if any, and interest payments on borrowing; (ii) to make provision for bad debts and maintain such provisions at a ratio to total overdues satisfac- tory to the Association; - 3 - (iii) to accumulate an adequate general reserve. (d) Except as the Association and the Bank may otherwise agree, interest rates on outstanding balances on all loans shall be ilot less than eleven per cent (11%) per annum. (e) ADBP shall (i) undertake a write-off exercise satisfac- tory to the Association by September 30, 1983; (ii) establish by December 31, 1983, in accordance with sound banking principles a permanent write-off policy acceptable to the Association; and apply such policy at the end of each financial year; and (iii) by May 31, 1984, submit to the Association a report on the impact of such measures on actual overdues for FY83 and projected overdues for FY 84 and FY85. Section 2.02. In order to assist in carrying out the Pro- ject, ADBP shall employ consultants whose qualifications, expe- rience and terms and conditions of employment shall be satis- factory to the Association and the Bank, such consultants to be selected in accordance with principles and procedures satisfac- tory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Section 2.03. (a) ADBP shall take out and maintain with res- pensible insurers, or make other provisions satisfactory to the Association and the Bank or, insurance against such risks and in such amounts as shall be consistent with appropriate practices. (b) Without limiting the generality of the foregoing, ADBP undertakes to insure, or make adequate provision for the in- surance of, the imported goods to be financed out of the proceeds of the Credit, the Bank Loan or the Fund Loan relent to it by the Borrower against hazards incident to the aquisition, transporta- tion and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a cur- rency freely usable by ADBP or its borrowers, as the case may be, to replace or repair such goods. (c) Except as the Association and the Bank may otherwise agree, ADBP shall cause all goods and services financed out of the proceeds of the Credit, the Bank Loan or the Fund Loan relent to it by the Borrower to be used exclusively for the Project. Section 2.04. (a) ADBP shall furnish to the Association, the Bank and the Fund, promptly upon their preparation, the plans, -4- specifications, reports, contract documents and construction and procurement schedules, and training programs for the Project, and any material modifications thereof or additions thereto, in such detail as the Association and the Bank shall reasonably request. (b) ADBP shall: (i) maintain records and procedures ade- quate to record and monitor the progress of the Project (includ- ing its cost and, where appropriate, the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, the Bank Loan and the Fund Loan, and to disclose their use in the Project; (ii) enable the Association's, the Bank's and the Fund's 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, the Bank Loan or Fund Loan and any relevant records and documents; and (iii) furnish to the Association, the Bank and the Fund at regular intervals all such information as the Association, the Bank and the Fund shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditures of such proceeds of the Credit, the Bank Loan or the Fund Loan and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between ADBP and the Association and the Bank, ADBP shall prepare and furnish to the Association, the Bank and the Fund a report, of such scope and in such detail as the Association and the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by ADBP, the Association and the Bank of their res- pective obligations under the Project Agreement and the accom- plishment of the purposes of the Credit, the Bank Loan and the Fund Loan. (d) ADBP shall enable the Association's, the Bank's and the Fund's accredited representatives to examine all plants, instal- lations, sites, works, buildings, property and equipment of ADBP and any records and documents relevant to the Project. Section 2.05. ADBP shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association and the Bank shall otherwise agree, ADBP shall not take or concur - 5 - in any action which would have the effect of amending, abroga- ting, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.06. (a) ADBP shall at the request of the Associa- tion and the Bank, exchange views with the Association, the Bank and the Fund with regard to the progress of the Project, the per- formance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the pur- poses of the Credit, the Bank Loan and the Fund Loan. (b) ADBP shall promptly inform the Association, the Bank and the Fund of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, the Bank Loan or the Fund Loan or the performance by ADBP of its obligations under this Agreement and under the Subsidiary Loan Agreement, and shall send quarterly and annual progess reports to the Association, the Bank and the Fund. Section 2.07. ADBP shall extend (a) during its fiscal year ending Ju-e 30, 1984 at least 70% of the amount of its medium- and long-t,rm farmers loans to farmers owning 25 acres or less and during its fiscal year ending June 30, 1985 at least 75% of such loans to such farmers; (b) at least one-third of the amount of loans referred to in sub-Section (a) above to farmers owning less than 12.5 acres of land; and (c) ADBP shall not extend more than 20% of its total lending for short term purposes. ,ction 2.OF *PP shall take all necessary measures to reach minimum loan recovery rates of at least 70% by June 30, 1984 and 75% by June 30, 1985. Section 2.09. ADBP shall promote the use of four wheel trac- tors below 30 hp and other appropriate farm machinery for small- holders and shall promote the sale and use of primary tillage implements and ballast devices with tractors. Section 2.10. ADBP shall establish an Appraisal Unit by September 30, 1983 and employ one agricultural economist and one agricultural credit specialist for this unit by December 31, 1983 in accordance with provisions of Section 2.02 of this Agreement. Section 2.11. ADBP shall establish a Minor Irrigation Unit by September 30, 1983 and employ a groundwater specialist by December 31, 1983 for this Unit, in accordance with provisions of Section 2.02 of this Agreement. - 6 - Section 2.12. ADBP shall designate one experienced resched- uling officer for each region by December 31, 1983. Section 2.13. ADBP shall enter into a contract with one of the research institutes or universities within the Borrower's territories, with terms of reference satisfactory to the Associa- tion, the Bank and the Fund, to monitor on a continuous basis the impact of tractorization on farm employment, shall supervise the execution of this contract, and shall report periodically to the Association, the Bank and the Fund on the results of such moni- toring. Section 2.14. ADBP shall by October 31, 1983, take necessary steps to initiate modifications satisfactory to the Association, the Bank and the Fund to the collateral requirements to enable assets created out of loans to be taken as full collateral with- out the existing land mortage requirement of pre-existing assets. ARTICLE III Financial Covenants Section 3.01. (a) ADBP shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account, the Loan Account and the Fund Loan Account on the basis of statements of expenditure. (b) ADBP shall retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account, the Loan Account the Fund Loan Account on the basis of statements of ex- penditure, and shall enable the Association's, the Bank's and the Fund's accredited representatives to examine such records. Section 3.02. ADBP shall: (i) establish separate accounts for the purposes of the Project; (ii) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association and the Bank and the Fund; (iii) furnish to the Association, the -7- Bank and the Fund 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 Association, the Bank and the Fund shall have reasonably requested, including, without limitation to the foregoing, separate opinions by said auditors in respect of the expenditures and records referred to in Section 3.01 (b) of this Agreement, as to whether the proceeds of the Credit, the Bank Loan and the Fund Loan made available to it and withdrawn from the Credit Account, the Loan Account and the Fund Loan Account, respectively, on the basis of statements of expenditure have been used for the purpose for which they were provided; and (iv) furnish to the Association, the Bank and the Fund such other information concerning said accounts, financial statements, records and expenditures, as well as the audit thereof, as the Association, the Bank and the Fund shall from time to time rea- sonably 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, the Loan Agreement or the Fund Loan Agreement becomes effective, whichever shall be the earliest. Section 4.02. (a) This Agreement and all obligations of the Association, the Bank and ADBP hereunder shall terminate on the earlier of the following two dates: (i) the earliest date on which both the Development Credit Agreement and the Fund Loan Agreement shall have terminated in accordance with their respec- tive terms; or (ii) a date 20 years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify ADBP of this event. - 8 - (c) If the Development Credit Agreement, the Loan Agreement or the Fund Loan Agreement, terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section and another Agreement remains in force, all oDligations under this Project Agreement of ADBP and of the lender under such other Agreement shall remain in force. (d) If the Association shall notify ADBP that its appoint- ment as Cooperating Institution under the Fund Loan Agreement has terminated, all references in this Agreement to the Fund, to the Fund Loan and the Fund Loan Agreement shall be deemed to be deleted. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address 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 and the Bank: 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) -9- For ADBP: Agricultural Development Bank of Pakistan Post Box No. 1400 Islamabad Pakistan Cable address: Telex: AGRIFIN 5618 ADBP PK Islamabad Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of ADBP may be taken or executed by its Chairman or such other person or persons as ADBP shall designate in writing, and ADEP shall furnish to the Association and the Bank 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. - 10 - 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 District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By/ Regional Vice President South Asia INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President South Asia AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN By 5 Authorized Representative - 11 - SCHEDULE A. General Lending Terms and Conditions 1. To ADBP (a) on all funds, interest rate of 4% per annum; (b) repayment of the Association, Bank, Fund contributions over a period of 20 years, including a five-year grace period; (c) on other funds, repayment period in accordance with repayment terms of loans to ultimate borrowers; and (d) on the Association, the Bank and Fund contributions, the Borrower to bear the foreign exchange risk. 2. ADBP to farmers and farmers' groups (a) interest rate of not less than 11% per annum, with an additional 3% penal interest in case of default; (b) a once and for all evaluation fee up to 0.5% of the amount of the loan may be charged; (c) Farmers' contributions: (i) by farmers, owning 25 acres or less, minimum of 5% of cost of investment; and (ii) farmers owning more than 25 acres, minimum of 10% of cost of investment. 3. General (a) Each branch shall maintain separate books for lending to farmers owning 25 acres or less, for farmers owning 12.5 acres or less and the landless; (b) Loans up to the maximum amount set by the Borrower for surety loans would be secured by personal surety or any other form of security acceptable to ADBP. - 12 - (c) Loans exceeding the maximum amount set by the Borrower for surety loans would be secured by land mortgage or lien on the capital items financed or any other colla- teral acceptable to ADBP. (d) ADBP shall require each applicant: (i) to settle or reschedule overdue institutional debts; (ii) to produce a farm plan: (A) detailing the use of the items to be fi- nanced; and (B) to undertake to hire out excess tractor or tubewell capacity or, as appropriate, sell water to neighbors, in the event of the area to be cultivated being smaller than the opti- mum area serviceable by the proposed invest- ment. The above lending terms and conditions are subject to modifica- tions by agreement between the Borrower, Association, Bank, Fund and ADBP. B. Loan Appraisal Procedures 1. Loan supervisors will contact individually all farmers interested in obtaining loans at their farms and would carry out the following steps: (a) Assist the farmers to complete a proforma containing details on land holdings (owned and operated, leased, sharecropped, etc.); crops grown; seeds, fertilizer and pesticides used; yields obtained; water availability and sources; livestock; work animals; tractors; tube- wells; implements and other farm equipment; outstanding loans; cash available; and any other special features; (b) Once the proforma is completed, together with the farmers: (i) assess and determine constraints for future development; and (ii) prepare and assess an appropriate agricultural plan, which for all tractor loans should include information regarding possible displacement of tenants and labor; - 13 - (c) Formulate an investment program; (d) Formulate a cash flow and determine farmers loan re- quirements (seasonal and/or development loan) and repayment based on the above projection; (e) In the event of the area to be cultivated being smaller than the optimum area serviceable by the proposed investment, verify whether sufficient custom work is available; and (f) Identify proposed loan security. 2. In preparing proforma farm budgets and investment programs specified above, loan suervisors/MCOs would use regional data prepared and updated by the Appraisal Unit in ADBP's Credit Divi- sion. 3. Farm equipment likely to have excessive labor-displacing characteristics such as combine harvesters, and equipment not tested and found suitable under Pakistan conditions would not be eligible for funding by the Association, the Bank and the Fund. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of 198 3-. FOR SECRETARY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 3O~ day of 1983 FOR SECRETARY