CONFORMED COPY LOAN NUMBER 1398 PAN LOAN AGREEMENT (Second Fisheries Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE PANAMA Dated April 28, 1977 LOAN AGREEMENT AGREEMENT, dated April 28, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DE PANAMA (hereinafter called the Borrower). - 2 - ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank 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 have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Unit" means the project unit referred to in Section 3.03 (a) of this Agreement; (b) "Project Account" means the project account referred to in Section 3.03 (c) of this Agreement; (c) "sub-loan" means a loan made by the Borrower to an eligible applicant in accordance with the lending policies and procedures set out in Schedule 5 to this Agreement; (d) "sub-borrower" means an eligible applicant to whom a sub-loan is made; -3- (e) "shrimp trawler" and "purse seiner" mean a shrimp trawler and purse seiner included in the Project described in Schedule 2 to this Agreement; and (f) "First Fisheries Project Loan Agreement" means the Loan Agreement (Fisheries Project) dated August 2, 1971 between the Bank and the Borrower. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or re- ferred to, an amount in various currencies equivalent to seven million five hundred thousand dollars ($7,500,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expendi- tures made (or, if the Bank 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 Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1981 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and one-half per cent (8.50%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on May 1 and November 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. - 6 - ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out Parts A, B and D of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Borrower shall cooperate with the Guarantor in the carrying out of Part C of the Project and shall make available to the Guarantor, the proceeds of the Loan withdrawn from time to time from the Loan Account for expenditures for Part C of the Project. (c) The Borrower shall make contractual arrangements with the Guarantor, satisfactory to the Bank, providing, inter alia, for the transfer to the Guarantor of the proceeds of the Loan for the purpose of carrying out Part C of the Project and for the repayment of such proceeds, and except as the Bank shall other- wise agree, the Borrower shall not amend, assign, abrogate or waive any provision of such arrangements. Section 3.02. (a) In order to assist the Borrower in carrying out the Project, the Borrower shall employ qualified and experi- enced consultants and experts (including those referred to in Part D of the Project) whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. (b) The Borrower shall employ the consultants and experts referred to in Part D of the Project no later than the respective dates specified in relation to them under this Section or within such other period as the Borrower and the Bank may determine, namely, (i) naval architect: by November 1, 1977; (ii) fresh water fish farming expert, oyster farming specialist and food processing engineer: by February 1, 1978; and (iii) fishing operations train- ing officer and quality control expert: by August 1, 1978. Section 3.03. For the purpose of carrying out Parts A, B and D of the Project, and unless the Bank shall otherwise agree, the Borrower shall: (a) continue to operate the Project Unit which it had set up under the First Fisheries Project Loan Agreement, as such Project Unit shall be strengthened and modified in accordance with Part II of Schedule 5 to this Agreement; (b) provide the Project Unit, promptly as needed, with such qualified and experienced supporting staff, facilities and other resources as shall be required for the efficient operation thereof; (c) set up and maintain, upon terms and conditions satisfactory to the Bank, a Project Account to be operated and managed by the Project Unit, to which all amounts as shall have been withdrawn from the Loan Account from time to time by the Borrower on account of expenditures for the Project, as well as other monies to be used for such expenditures, shall be credited; -8- (d) make sub-loans to sub-borrowers in accordance with Part I of Schedule 5 to this Agreement; (e) exercise its rights under the sub-loan agreements in such a manner as to protect its interests and those of the Bank, and except as the Bank shall otherwise agree, refrain from assigning, amending, abrogating or waiving any of the sub-loan agreements or any provision thereof; and (f) obtain and pay on behalf of the sub-borrowers all-risk marine insurance for each of the vessels included in the Project and to be financed by a sub-loan, such insurance to be payable to the Borrower as first beneficiary. Section 3.04. (a) The Borrower shall continue to employ a Project Director to be in charge of the Project Unit. The quali- fications and experience and terms and conditions of employment (including terms of reference) of the Project Director shall be satisfactory to the Bank. (b) The Project Director shall at all times be employed on a full-time basis and a provision to that effect shall be in- corporated in his terms and conditions of employment. Section 3.05. Without limitation or restriction upon any of its obligations under Section 3.01 (a) of this Agreement, the Borrower shall out of its own resources, provide the Project Ac- count from time to time with all the amounts required to make its own financing for Parts A, B and D of the Project equal in the aggregate to not less than two million seven hundred forty-three thousand dollars ($2,743,000). - 9 - Section 3.06. The Borrower shall continue to operate the Fisheries Project Committee established under the First Fisheries Project Loan Agreement. The members of the said Committee shall consist of representatives of (A) the Borrower, (B) the Guarantor's Directorate of Marine Resources, (C) the Fishermen's Association and (D) independent fishermen. The Committee, with the assistance of the naval architect referred to in Section 3.02 of this Agree- ment, shall be responsible for advising the Project Unit on matters relating to boat specifications and evaluation of bids for con- struction or rehabilitation of vessels under the Project. Section 3.07. (a) The Borrower shall no later than November 1, 1977 or within such other period as the Bank and the Borrower may determine, set up within the Project Unit a Project Evaluation and Monitoring Section. The said Section shall: (i) conduct a continuing study of project activities and evaluate project per- formance; (ii) monitor sub-loans made under the Project and eval- uate periodically the economic impact of the credit program under which the sub-loans are made; (iii) assess the training program for skippers; (iv) collect and study results and trends of each project component, fishing fleet capacity and resources and of the fisheries industries. (b) The Borrower shall, through the Project Unit, furnish the Bank, not later than two months after the end of each quarter, with reports showing progress and operating results of the Project. Section 3.08. The Borrower shall, through the Project Unit, enter into operational agreements satisfactory to the Bank with - 10 - (i) the Guarantor's Ministry of Agricultural Development with respect to the fresh water fish farming program included in the Project (ii) the Guarantor's Directorate of Marine Resources with respect to the development of oyster fishing under the Project and (iii) the Guarantor's Ministry of Health with respect to the quality control program included in the Project. Section 3.09. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to re- place or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.10. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or addi- tions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records adequate to reflect the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the pro- ceeds of the Loan, and to disclose the use thereof in the Project; - 11 - (ii) shall enable the Bank's accredited representatives to visit the facilities, construction sites and shipyards included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reason- ably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. (c) The Borrower shall enable the Bank's representatives to examine all plants, installations, sites, shipyards works, buildings, property and equipment of the Borrower and any relevant records and documents. - 12 - ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall at all times conduct its business and carry on its operations in respect of the Project in accordance with sound administrative, financial and engineering practices under competent management assisted by qualified and experienced staff. - 13 - ARTICLE V Financial Covenants Section 5.01. The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 5.02. The Borrower shall: (i) except as the Bank shall otherwise agree, 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 Bank; (ii) 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 state- ments 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 (iii) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section 5.03. Without limitation or restriction upon any of its obligations under Sections 5.01 and 5.02 of this Agreement, the Borrower shall: (i) establish and maintain detailed accounting procedures for the Project Account; (ii) have the Project Account audited annually in the manner provided in Section 5.02 of this Agreement; and (iii) furnish to the Bank such documentation and information with regard to the Project Account as is described in Section 5.02 of this Agreement. Section 5.04. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if the Borrower shall create any lien on any of its assets as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and,in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any lien shall be created on any assets of the Borrower, other than under (i) above, as security for any debt, the Borrower shall grant to the Bank, at no cost to the Bank, an equivalent lien satisfactory to the Bank; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the pur- chase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. - 15 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (k) thereof: Law No. 11 of February 7, 1956, Law No. 14 of March 20, 1975, Law No. 58 of November 23, 1976 or Decree No. 13 of March 1, 1977 of the Guarantor shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of the Borrower to carry out the covenants, agreements and obligations set forth in this Agreement. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that any event specified in Section 6.01 of this Agreement shall occur. - 16 - ARTICLE VII Effective Date; Termination Section 7.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) provision for the full-time employment of the Project Director as required under Section 3.04 of this Agreement; (b') the enactment of legislation satisfactory to the Bank to regulate the size of purse seiners and to limit the number of licences for operating purse seiners issued to any one licensee; and () the exemption of goods (including vessels) required for the Project from any and all regulations prohibiting their importation into Panama or restricting their period of operation in Panama. Section 7.02. The date July 29, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. - 17 - ARTICLE VIII Addresses Section 8.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 140098 (ITT) Washington, D.C. 248423 (RCA) or 6145 (wUI) For the Borrower: Banco Nacional de Panamfi Calle 33y Avenida Cuba Panama 5, Panama Cable address: Telex: BANCONAL 2136 BANCONAL Panama - 18 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE PANAMA By /s/ Ricardo de la Espriella Authorized Representative - 19 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of ex- penditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) (a) Sub-loans for 3,554,000 76% of amounts construction and disbursed rehabilitation of equipment for fishing vessels (b) Sub-loans for 1,626,000 relocation of processing plants (2) Fresh water fish 137,000 39% and oyster farming programs (3) Technical assis- 376,000 100% of foreign tance expenditures (4) Unallocated 1,807,000 TOTAL 7,500,000 - 20 - 2. For the purposes of this Schedule, the term "foreign expendi- tures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor. 3. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loen 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 Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. 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; or (b) in respect of expenditures under Category (1) (b) or (2) until the Project Unit has entered into the operational agreement referred to in Section 3.08 of this Agreement with respect to: (i) Category (1) (b) with the Guarantor's Ministry of Health and (ii) Category (2) with the Guarantor's Ministry of Agriculture and the Directorate of Marine Resources. - 21 - 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, 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 Loan which are then allocated to another Category and which in the opinion 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 appli- cable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- ditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or lim- iting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in 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 Loan. - 22 - SCHEDULE 2 Description of the Project The Project is designed to provide further assistance to the Guarantor's fisheries industry including support for small inde- pendent fishing boat operators and small rishing enterprises. The Project consists of the following: A. (1) Design and construction of five modern steel shrimp trawlers each powered by 220-hp diesel engines and having an overall length of about 50 feet. (2) Design and construction of ten new fish steel purse seiners, each equipped with a fish-hold capacity of 100 short tons and powered by 260-hp diesel engines. (3) Rehabilitation of ten obsolete wooden shrimp trawlers to improve their seaworthiness and operational efficiency. (4) Provision of loans to eligible applicants for purposes of (1) to (3) above. B. (1) Relocation of shrimp processing plants to the new fishing port at Punta Vacamonte, including construction of new plant facilities, installation of utilities and support equipment, purchase and installation of new re- placement equipment, and direct costs of moving existing equipment. - 23 - (2) Relief of Panama City from pollution problems caused by the operation of shrimp processing plants. (3) Provision of loans to eligible applicants for the relocation and construction of new plant facilities under (1) above. C. (1) Development of inland fisheries resources through a program requiring the participation of low income families in simple fish farming in natural or constructed pools or in small streams and in the development of mangrove oyster farming on a commercial basis in Bocas de Toro area of Panama. (2) Establishment of quality control standards for the seafood processing industry. D. Provision of administrative services for the Project and technical assistance consisting of the services of a naval architect, a fishing operations training officer, a fresh water fish farming expert, a food processing engineer, a quality control expert and an oyster farming expert. * * * The Project is expected to be completed by June 30, 1981. - 24 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each May 1 and November 1 beginning May 1, 1981 through November 1, 1991 325,000 On May 1, 1992 350,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of withdrawal. - 25 - Premiums on Prepayment The following percentages are specified as the premiums pay- able on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.70% More than three years but not more than six years before maturity 3.40% More than six years but not more than eleven years before maturity 6.25% More than eleven years but not more than thirteen years before maturity 7.35% More than thirteen years before maturity 8.50% - 26 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Contracts for the purchase of all new fishing vessels, contracts for equipment and materials required for the rehabili- tation of vessels estimated to cost the equivalent of $100,000 or more and contracts for new equipment for processing plants shall be let in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. (a) Bidders for vessels included in Parts A (1) and (2) of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. (b) Such prequalification shall include evaluation of the construction and technical capacity, managerial capability and financial position of the bidder. (c) Bidders shall be required to bid for a vessel together with main engine, equipment and fishing gear as one unit. Shrimp vessels shall be procured in a single lot and purse seiners in two lots of five each or, if necessary, in a single lot. - 27 - B. Other Procurement Procedures All contracts for equipment and materials required for the rehabilitation of vessels estimated to cost the equivalent of less than $100,000 and all contracts for equipment and materials for fresh water fish and oyster farming included in Part C of the Project and all civil works contracts included in the relocation of processing plants shall be let after competitive bidding based on local advertising in accordance with local procurement procedures acceptable to the Bank. C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with local procedures: (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 sim- ilar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expen- ditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Panama may be granted a margin of preference in accordance with, and subject to, the following provisions: - 28 - (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and stages that will be fol- lowed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Panama if the bidder shall have established to the satis- faction of the Borrower and the Bank that the manu- facturing cost of such goods includes a value added in Panama equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Panama. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be impo.-ted and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. - 29 - (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this fur- ther comparison only, an amount equal to (i) the amount of cus- toms duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. Review of Procurement Decisions by the Bank 1. Review of prequalification: the Borrower shall, before quali- fication is invited, inform the Bank in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bid- ders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification shall be furnished by the Borrower to the Bank for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. - 30 - 2, Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines 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, with- out the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. - 31 - (d) Two conformed copies of the contract shall be delivered to the Bank promptly after its execution and prior to the delivery to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract to be financed out of the pro- ceeds of the Loan and not governed by the preceding paragraph, the Borrower shall deliver to the Bank, promptly after its execu- tion and prior to the delivery to the Bank of the first applica- tion for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank shall reasonably re- quest. The Bank shall, if it determines 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 de- termination. - 32 - SCHEDULE 5 Operating Policies and Procedures I. Sub-loans A. Purpose The Borrower shall make sub-loans to eligible applicants for the exclusive purpose of assisting in financing the construction of steel shrimp trawlers, steel purse seiners, the rehabilitation of obsolete wooden shrimp trawlers and the relocation of shrimp processing plants. B. Eligibility (1) To qualify for a sub-loan an applicant must deliver to the Project Unit: (i) in the case of a sub-loan for new shrimp trawlers or for the rehabilitation of wooden shrimp trawlers, past financial and onerational data on his shrimp fishing activities; and (ii) in the case of a sub-loan for relocation of plants, a plan for the relocation of plants, a plan for the construction of detailed internal plant features, including cost estimates, equipment lists, costs of replacing equipment that cannot be moved, itemized cost estimates of installation of utilities and support equipment and estimates of direct moving costs of equipment. - 33 - (2) The criteria for the selection of sub-borrowers shall include: (a) New Shrimp Trawlers and Rehabilitation of Old Wooden Trawlers (i) proven competence and experience in shrimp fishing; (ii) possession of a valid fishing license; (iii) age and characteristics of vessels to be replaced or rehabilitated; (iv) reasonable assurance of lack of alternative sources of credit on reasonable terms; and (v) references of creditworthiness. (b) Purse Seiners (i) ownership structure of the business; (ii) possession of a valid fishing license; (iii) age and characteristics of vessels to be replaced; -34 - (iv) reasonable assurance of lack of alternative sources of credit on reasonable terms; (v) current financial position evaluated on the basis of the financial statements on previous three years of operation; (vi) in the case of a company or association, proof of formation of such company or association; and (vii) references of creditworthiness. (c) Plant Relocation (i) ownership structure of business; (ii) reasonable assurance of lack of alternative sources of credit on reasonable terms; (iii) current financial position evaluated on the basis of the financial statements on previous three years' operation; (iv) sub-borrower's capacity to repay and the soundness of his financial plans and projections; and (v) references of creditworthiness. - 35 - (3) In the case of shrimp trawlers priority shall be given in selecting sub-borrowers to applicants who are small independent boat operators. C. Terms and Conditions (a) The repayment period for: (i) new shrimp trawlers and purse seiners shall be 10 years including one year of grace; and (ii) rehabilitation of trawlers and for shrimp plant relocation shall be 8 years including one year of grace. (b) Each sub-borrower shall pay interest at the rate of eleven and one-half per cent (11-1/2%) per annum and a technical service fee of one half per cent (1/2%) on the principal amount of the sub-loan outstanding from time to time. (c) Each sub-loan for a fishing vessel shall be secured by a mortgage on the new or rehabilitated fishing vessel and gear and for shrimp plant relocation by adequate security. (d) Each sub-loan shall provide for the repayment by the sub-borrower to the Borrower of the cost of the respective all-risk insurance referred to in Section 3.03 (f) of this Agreement. - 36 - (e) Each sub-borrower shall be required to contribute not less than: (i) five per cent (5%) of the estimated cost of vessel construction or rehabili- tation in the case of shrimp trawlers; (ii) fifteen per cent (15%) of the estimated cost of purse seiners; and (iii) twenty per cent (20%) of the estimated cost of relocating the shrimp processing plants. D. Sundry (1) All sub-loan analyses shall be forwarded by the Borrower to the Bank for review, and any comments, objections or reservations arising from such review shall be taken into account before making any decisions. (2) The terms and conditions of all sub-loans shall be subject to the approval of the Bank. II. Project Unit (1) The Project Unit shall be located in the Borrower's Development Department under the authority of the Project Director referred to in Section 3.04 of this Agreement. The Project Director shall be responsible for programming and day to day activities of the Project Unit. He will co-ordinate vessel procurement, hiring of consultants and experts, participation of agencies of the Guarantor in the Project and supervision of all sub-lending operations. - 37 - (2) (a) The Project Unit shall have a technical department which shall be responsible for carrying out activi- ties relating to the maintenance and operation of trawlers included in the Project, operational and maintenance training of skippers of fishing vessels, credit analyses of sub-loans and collec- tion and dissemination of price and market infor- mation for Project related commodities. (b) Two qualified credit analysts shall be assigned to the department on a part-time basis to carry out technical and financial analyses of sub-loan applications and also the naval architect and training officer mentioned in Section 3.02 of this Agreement. (c) The naval architect shall assist the Project Unit in the formulation of safety and operational standards for fishing vessels, prequalification of shipyards, determination of detailed specifica- tions and vessel designs, preparation of tender documents for international competitive bidding, evaluation of bids and supervision of construction and rehabilitation of vessels under the Project. (d) The training officer shall assist in the training of all operating fishing vessel skippers in theore- tical and practical aspects of operating fishing vessels, safety measures, modern navigational equipment and vessel maintenance. - 38 - (3) The Project Unit shall also have an administrative department which shall be responsible for administrative matters and for the maintenance of accounts of indepen- dent boat owners under the Project. (4) The operational agreements referred to in Section 3.08 of this Agreement shall inter alia provide that: (a) the participating agencies shall furnish the Project Unit with their investment plans and work programs (including staffing arrangements) for their respective parts of the Project for the Project Unit's comment and review; (b) each participating agency shall designate a liaison officer for the purposes of the Project; (c) the participating agencies shall promptly provide the Project Unit with such information relating to the Project as the Project Unit shall reasonably request; and (d) the Project Unit shall satisfy itself that expenditures of a participating agency under the Loan conform to investment plans previously agreed with the Project Unit. (5) For the purposes of (4) above the term "participating agencies" shall mean the Guarantor's agencies specified in Section 3.08 of this Agreement. - 39 - III. Fresh Water Fish Farming and Oyster Programs (1) (a) The Direcci6n Nacional de Acuacultura of the Guarantor's Ministry of Agriculture shall have direct responsibility for the fresh water fish farming program included in the Project. (b) Six assistant biologists shall be employed to pro- vide support for the program. (c) The Project Unit shall employ a fresh water fish farming specialist for at least 18 months to work directly with Direcci6n Nacional de Acuacultura in the training of technical staff and to provide assistance on aspects of the fish farming program. (2) (a) The Directorate of Marine Resources shall be respon- sible for the oyster farming program included in the Project. The Directorate shall employ one biologist and one assistant biologist at the research center at Bocas de Toro for the said program. (b) The Project Unit shall employ an oyster farming specialist for a period of at least one year to assist the said Directorate on technical aspects relating to the development of commercial oyster farming. - 4o - IV. Relocation of Processing Plants (1) (a) The National Port Authority acting together with the shrimp processors shall determine space alloca- tion requirements and rental rate for each plant and shall co-ordinate the construction of the shell building to meet the requirements for each processor's plant plans. (b) Each processor shall develop detailed individual plant plans for the construction of interior plant features in the shell structure, the specifications for which should meet at least minimum standards to permit sound manufacturing practices for process- ing of shrimp products. The plants should make satisfactory provision for treatment of waste products in order to prevent pollution of the environment. (c) The Project Unit shall employ a food processing engineer for at least 18 months to work jointly with the National Port Authority in assisting processors in carrying out the details connected with the relocation of plants. The food processing engineer shall also assist the Project Unit in the preparation of tender documents and bid evaluation for new equipment. - 41 - V. Quality Standards The Project Unit shall employ a quality control expert to assist the Guarantor's Ministry of Health in the development of quality standards and improvement of manufacturing and handling practices and training of its personnel; the training of plant management personnel in developing techniques and interpreting all regulatory standards; and in the training of shrimp vessel skippers and crew in methods of good handling practices on vessels. The Ministry of Health shall employ two food inspectors to assist it in establishing quality control standards under the Project.