Page 1 CONFORMED COPY CREDIT NUMBER 2584 PAK Development Credit Agreement (Balochistan Natural Resource Management Project) between ISLAMIC REPUBLIC OF PAKISTAN and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated April 4, 1994 CREDIT NUMBER 2584 PAK DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated April 4, 1994, between ISLAMIC REPUBLIC OF PAKISTAN acting by its President (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Project will be carried out by the Province of Balochistan (the Province) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the Province the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Association and the Province; NOW THEREFORE the parties hereto hereby agree as follows: Page 2 ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "the Province" means the Province of Balochistan, a political subdivision of the Borrower, or any successor thereto; (b) "Project Agreement" means the agreement between the Association and Province, of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (c) "P&D" means the Planning and Development Department of the Province; (d) "ES" means the Environmental Section to be established in P&D under Part A.1 (a) of the Project; (e) "BEPA" means the Environmental Protection Agency of the Province; (f) "BFD" means the Forest Department of the Province; (g) "ECNEC" means the Executive Committee of the Borrower's National Economic Council; (h) "PFI" means the Pakistan Forest Institute; (i) "AZRI" means the Arid Zone Research Institute of the Pakistan Agricultural Research Council; (j) "UOK" means the University of Karachi; (k) "WWF" means the World Wide Fund for Nature, an international non-governmental organization; (l) "PSC" means the Project Steering Committee referred to in paragraph 1 (b) of Schedule 2 to the Project Agreement; (m) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement and in Section 2.01 (c) of the Project Agreement; (n) "Rs" and "rupees" mean the currency of the Borrower; and (o) "FY" and "fiscal year" mean the fiscal year of the Borrower or the Province, as the case may be, covering the period July 1 through June 30. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to ten million seven hundred thousand Special Drawing Rights (SDR 10,700,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable Page 3 cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, cause the Province to open and maintain in dollars a special deposit account in the National Bank of Pakistan on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 3 to the Project Agreement. Section 2.03. The Closing Date shall be June 30, 2000 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on February 1 and August 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each February 1 and August 1 commencing August 1, 2004 and ending February 1, 2029. Each installment to and including the installment payable on February 1, 2014 shall be one and one-fourth per cent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. (b) Whenever (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years, and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. Page 4 (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 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. The Additional Chief Secretary, P&D of the Province is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, shall cause the Province to perform in accordance with the provisions of the Project Agreement all the obligations of the Province therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Province to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Credit available to the Province. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Borrower and the Association hereby agree that 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, respectively) shall be carried out by the Province pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made; and (iii) enable the Association's representatives to examine such records. (b) The Borrower shall: Page 5 (i) have the records and accounts referred to in paragraph (a) (i) 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 nine (9) 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, including a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; and (iii) furnish to the Association such other information concerning said records and accounts and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) the Province shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that the Province will be able to perform its obligations under the Project Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, that any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty (60) days after notice thereof shall have been given by the Association to the Borrower. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions, namely, that ECNEC has approved the Planning Commission (PC)-1 document with respect to the Project. Section 6.02. The following is specified as an additional matter, 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 namely, that the Project Agreement has been duly authorized or ratified by the Province, and is legally binding upon the Province in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Page 6 Agreement, the Secretary to the Government of Pakistan, Economic Affairs Division, or any Additional Secretary, Joint Secretary, Deputy Secretary, or Section Officer in that Division 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: Economic Affairs Division Islamabad Pakistan Cable address: Telex: ECONOMIC ECDIV-05-634 Islamabad For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. ISLAMIC REPUBLIC OF PAKISTAN By /s/ Agha Ghazanfar Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ D. Joseph Wood Regional Vice President South Asia SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Page 7 Category SDR Equivalent) to be Financed (1) Civil, forest and 5,940,000 90% field works (2) Equipment, vehicles 440,000 100% of foreign and materials expenditures, 100% of local expenditures (ex- factory cost) and 70% of local expenditures for other items procured locally (3) Consultants' 1,890,000 100% services and foreign training (4) Mass awareness 290,000 100% program and local training Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (5) Incremental staff 580,000 80% until an and operating costs amount equivalent to SDR 231,700 has been disbursed from this Cate- gory; 70% there- after until an amount equivalent to SDR 435,000 has been disbursed from this Cate- gory; and 50% thereafter (6) Unallocated 1,560,000 __________ TOTAL 10,700,000 ========== 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term "incremental staff and operating costs" means the salaries and allowances of staff appointed by the Province to posts created after September 30, 1993 for purposes of implementing the Project, and the operating and maintenance expenditures for vehicles and civil works procured under the Project. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for: (a) expenditures under contracts for works which cost less than the equivalent of $125,000 each; (b) expenditures under contracts for Page 8 goods and mass awareness services which cost less than the equivalent of $50,000 each; and (c) expenditures for forest and field works, training and incremental staff and operating costs, all under such terms and conditions as the Association shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Province in improving the protection of its environment and the management of its natural resources and, to that end, to: (a) strengthen institutions; (b) develop policies; (c) generate mass awareness; (d) address immediate high priority problems; and (e) prepare future programs. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Institutional Strengthening 1. Strengthening of: (a) P&D, through the establishment therein of an Environmental Section (ES), which would be responsible, in accordance with terms of reference satisfactory to the Association, for the coordination of all environmental matters, the formulation of environmental policy, legislation and regulations, ensuring the reflection of environmental considerations in development planning and investments and the initiation of policy/market improvements to secure the sustainable use of natural resources; (b) BEPA, so as to enable it to implement and enforce national and provincial environmental protection legislation, particularly with regard to industrial, urban and agricultural discharges into the air, water and soil, and to create official and public awareness of environmental problems; and (c) BFD, so as to enable it to improve its capabilities in the areas of community extension, project planning and implementation, and national park management. 2. Carrying out of mass awareness programs, so as to educate decision-makers and the public in environmental issues and to generate public support for, and participation in, measures to protect the environment. 3. Carrying out of studies for: (a) improvement of environmental pollution and natural resource management policies; and (b) preparation of future natural resource management projects. Part B: Natural Resource Rehabilitation Carrying out of: (1) operations to rehabilitate and develop damaged natural resources, including: (a) sand dune stabilization on the Mekran coast at Pasni, Gwadar and Pishukan; and (b) Hazarganji-Chiltan National Park development; and (2) pilot programs to develop site-specific methods of rehabilitating and developing damaged natural resources, including: (a) rangeland and watershed rehabilitation and development in northern Balochistan; and (b) Ziarat juniper forest conservation. Part C: Training Provision of short-term foreign and local, and limited long- term foreign, training in environmental protection and natural resource management. Page 9 * * * The Project is expected to be completed by June 30, 1999.