LOAN NUMBER 2839 PAK Loan Agreement (Third Salt Industries Project) between ISLAMIC REPUBLIC OF PAKISTAN ana INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated :5ef ^ei1N^ I0 , 1987 LOAN NUMBER 2839 PA LOAN AGREEMENT AGREEMENT, dated clep Pew zeA.S 10 , 1987, between ISLAMIC REPUBLIC OF PAKISTAN acting by its President (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). 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 Bank to assist in the financing of the Project; (B) the Participating Credit Institutions (defined in Section 1.02 hereunder) have agreed to carry out the respective parts of the Project; (C) the Borrower intends to contract from the Netherlands a grant (the Dutch Grant) in an amount equivalent to twenty-five million Dutch Guilders (Dfls 25,000,000) to assist in the financing of the Project on the terms and conditions set forth in an agreement (the Dutch Grant Agreement) to be entered into between the Borrower and the Netherlands; WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Condi- tions) 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 Pre- amble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "PBC" means the Pakistan Banking Council established under the Banks (Nationalization) Act of 1974; -2- (b) "NDFC" means the National Development Finance Corpora- tion, established and existing under the National Development Finance Corporation Act No. XIII of 1973 of the Borrower, as amended; (c) "PICIC" means the Pakistan Industrial Credit and Investment Corporation Limited, established and existing under the Pakistan Companies Act, 1913, as amended; (d) "Participating Credit Institution" means any of the following banks established and operating under the laws of the Borrower as shall meet the conditions for the purpose of Section 3.01 (b) (i) hereof: National Bank of Pakistan, Habib Bank Limited, United Bank Limited, Muslim Commercial Bank Limited, Allied Bank of Pakistan Limited, and the Industrial Development Bank of Pakistan; (e) "Sub-loan" means a loan made or proposed to be made by a Participating Credit Institution in accordance with the pro- visions of this Agreement and which is or proposed to be partly financed by the proceeds of the Loan; (f) "Sub-project" means a sub-project for which a Parti- cipating Credit Institution proposes to make or has made a sub- loan; and (g) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and each of the Participating Credit Institutions pursuant to Section 3.01 (b) (1) of this Agreement; (h) "Administrative Agreement" means the agreement to be entered into between the Borrower and PBC pursuant to Sec- tion 3.01 (b) (ii) of this Agreement; (i) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; and (j) "Rupees" and "Rs" mean the currency of the Borrower. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on he terms and conditions set forth ur referred to in the Loan -3- Agreement, an amount in various currencies equivalent to fifty- four million dollars ($54,000,000). 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 for expenditures 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower shall, for the purposes of Part A of the Project, open and maintain in U.S. dollars a special account in the Habib Bank Limited on terms and conditions satisfactory to the Bank. Deposits into, and payme.ts out of, the Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. (c) Each request by the Borrower to make withdrawals from the Loan Account in respect of a Sub-loan shall contain: (i) a description and an appraisal of the Sub-project, including the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the terms and conditions of the Sub-loan, including amortization schedule thereof; and (iii) such other information as the Bank may reasonably request. (d) Except as the Bank shall othewise agree, no withdrawals shall be made on account of expenditures made in respect of Sub- loans more than one hundred eighty days (180) prior to the date on which the Bank shall have received the requests made pursuant to the provisions of paragraph (c) of this Section. (e) Except as the Bank and the Borrower shall otherwise agree, requests made pursuant to the provisions of paragraph (c) of this Section shall be presented to the Bank on or before June 30, 1995. Section 2.03. With respect to Parts A and B.1 of the Project, the Chairman of PBC 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. Section 2.04. Except as the Bank may otherwise agree, pro- cureuient of the goods shall be as follows; -4- (a) for the purposes of Part A of the Project, the Borrower shall cause to be established procedures to ensure that: (1) the goods procured locally, or goods procured outside the Borrower's territory other than those specified in subsection (ii) hereof, are purchased at reasonable and competitive prices, due account being taken also of other relevant factors, such as time of delivery, quality and reliability of the goods and availability of maintenance facili- ties and spare parts therefor; and (ii) goods procured outside the Borrower's territory and estimated to cost US$50,000 or more per item or US$100,000 or more per contract, shall be pro- cured through international shopping on the basis of at least three competitive price quotations; and (b) equipment and materials to be provided under Part B of the Project: (i) shall be procured through international shopping on the basis of at least three competitive price quotations if procured outside the Borrower's territory; and (ii) shall be procured in accordance with the procure- anent procedures of the Borrower acceptable to the Bank if procured locally. Section 2.05. The Closing Date shall be December 31, 1995 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.06. The Borrower shall pay to the Bank a commit- ment charge at the rate of one-half oc one per cent (1/2 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.07. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate per annum for each Interest Period equal to one-half of one percent per .nnum above the Cost of Qualified Borrowings for the last Semester, ending prior to the commence- ment of such Interest Period. - 5 - (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.06 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost of the outstanding borrowings of the Bank drawn down after June 30, 1982, expressed as a percentage per annum, as reasonably determined by the Bank. (iii) "Semester" means the first six months or the second six months of a calendar year. Section ".08. Interest and other charges shall be payable semiannually on February 15 and August 15 in each year. Section 2.09. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. 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, shall carry out the Project or cause the Project to be carried out with due diligence and efficiency and in conformity with appropriate administrative, financial and industrial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) (i) The Borrower shall relend the proceeds of the Loan as shall be disbursed by the Bank for Part A of the Project under subsidiary loan agreements to be entered into between the Borrower and such participating credit institutions as shall meet -6- the conditions set forth in Schedule 4 hereto, under terms and conditions which shall have been approved by the Bank, including those set out in said Schedule 4. (ii) The Borrower shall enter into an Administrative Agreement with PBC on terms and conditions satisfactory to the Bank. (c) Without limitation upon the provisions of paragraph (a) of this Section and except as the Borrower and the Bank shall otherwise agree, the Borrower shall carry out the Project, or cause the Project to be carried out, in accordance with the Implementation Program set forth in Schedule S to this Agreement. Section 3.02. In order to assist the Borrower and PBC in carrying out the Project, the Borrower shall employ or cause to be employed consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with prin- ciples and procedures satisfactory to the Bank on the basis of the "Guid' ines for the Use of Consultants by World Bank Bor- rowers and by the World Bank as Executing Agency" published by the Bank in August 1981. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower sha'.". -inaintain or cause to be maintained records and accounts, adequate to reflect in accordance with sound accounting practices, the operations, resources and expenditures regarding the Project, in respect of its agencies and the Participating Credit Institutions, as well as NDFC and PICIC. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section including those for the Special Account 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 six months after the end -7- of each such year, a certified copy of 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, in respect of the Project, concerning said records, accounts and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the comple- tion of the audit for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. The Borrower shall review, in conjunction with the review undertaken under the Second Industrial Investment Credit Project (Loan 2648 PAK/Credit 1646 PAK) and thereafter annually, the adequacy of the level of lending rates for small industries, and, if it is determined that such rates are not con- sistent with the prevailing rates applicable to loans for fixed industrial investments, inc'.uding those under said Second Indus- trial Investment Credit Pro=ect, take necessary steps to achieve levels satisfactory to the Bank and the Borrower. -8- ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified: (a) an extraordinary situation shall have arisen which shall make it improbable that PBC or the Participating Credit Institutions be able to perform their respective obligations under the Project; and (b) PBC or the Participating Credit Institutions shall have failed to perform their respective obligations tinder the Project; (c) (i) Subject to subparagraph (ii) of this paragraph: the right of the Borrower to withdraw the proceeds of the Dutch Grant shall have been suspended, can- celled or terminated in whole or in part, pursuant to the terms of the Dutch Grant Agreement; (ii) Subparagraph (t) of this paragraph shall not apply if the Borrower -stablishes to the satisfaction of the Bank that: 'A) such suspension, cancella- tion or terminati:)n is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources .-n terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (n) of the General Conditions, the following iditional event is specified, namely, that the event specified in paragraph (b) of Section 6.01 of this Ag. < sent shall occur and shall continue for a period of 60 days - after notice thereof shall have been given by the Bank to the Borrower, PBC or the relevant Participating Credit Institution. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditons to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (b) of the General Conditions: -9- (a) the Borrower shall have entered into Subsi6.iary Loan Agreements with at least two Participating Credit Institutions in acco_ dance with the provisions of Section 3.01 (b) (i) of this - Agreement; (b) the Boards of Directors of the Participating Credit Institutions specified in paragraph (a) above shall have approved and issued a statement of operating policies and procedures acceptable to the Bank; and (c) the Administrative Agreement shall have been entered into in accordance with the provisions of Section 3.01 (b) (ice) of this Agreement. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that each of the Subsidiary Loan Agreements has been duly authorized or ratified by, and executed and delivered on behalf of the Borrower and the Participating Credit Institution, and is legally binding upon the Borrower and the Participating Credit Institution in accordance with its terms; and (b) that the Administrative Agreement has been duly autho- rized or ratified by, and executed and delivered on behalf of the Borrower and PBC, and is legally binding upon the Borrower and PBC 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. The Secretary of the Goverment of Pakistan, Economic Affairs Divisions, or any AdditLional Secretary, Joint Secretary, Deputy Secretary or Section O:ficer in the Division, of the Borrower is designated as represertative of the Borrower for the purposes of Section 11.03 of the General Conditions. - 10 - Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: The Secretary to the Government of Pakistan Economic Affairs Division Islamabad Pakistan Cable address: Telex: ECONOMIC Islamabad ECDIV-05-634 For the Bank: [nternational Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INVEDAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 11 - IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their resp -active names in the District of Columbia, , United States of America, as of the day and year first above written. ISLAMIC REPUBLIC OF PAKISTAN By q / G , 1`^ - P4^4 f Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By p , v`OVC tN1 Regional Vice President Europe, Middle East and North Africa - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Category of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to such Category and the percentage of expenditures for items so to be financed in such Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Sub-loans: 60% of the amounts disbursed by the (a) Small Scale 50,000,000 Participating Industries Credit Institutions (b) Export Houses 4,000,000 TOTAL 54,000,000 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $5,000,000, may be made on account of payments made for expen- ditures before that date but after July 1, 1986; and (b) in res- pect of expenditures to be financed out of the proceeds of the Loan allocated to Category (1)(b), unless and until such part of the Dutch Grant as shall finance Part B.2 of the Project is eli- gible for disbursement pursuant to paragraph 2 (a) of Schedule 5 to this Agreement. - 13 - SCHEDULE 2 Description of the Project The objectives of the Project are to increase the contribu- tion of small-scale industries to industrial employment, exports and output by providing expanded financial, technical and market- ing services. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Sub-loans Provision of term loans to small scale industries and export houses for fixed investment and permanent working capital through the Participating Credit Institutions with assistance by the Borrower and PBC. Part B : Technical Assistance 1. Assistance to improve the capability of the Participating Credit Institutions in small scale industry financing. 2. Technical assistance to develop export houses. 3. Implementation of technology and productivity program to promote productivity of industrial enterprises. 4. Improvement of statistical data of the small scale indust- ries sector. The Project is expected to be completed by June 30, 1995. Payment of D- incipal Date Payment Due (Expressed in dollars) i On each February 15 and August 15 beginning February 15, 1993 through August 15, 2007 1,800,000 - 15 - Premiums on Prepayment The following premiums are specified for the purposes of Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but not 0.55 more than eleven years before maturity More than eleven years but not 0.80 more than sixteen years before maturity More than sixteen years but not 0.90 more than eighteen years before maturity More than eighteen years before 1.00 maturity - 16 - SCHEDULE 4 Subsidiary Loan Agreement A. Participating Conditions In order to participate in the Project, the Participating Credit Institutions shall meet the following conditions: (a) maintenance of adequate staffing levels with officers qualified to handle term financing at headquarters and selected regional offices; (b) adoption and issue of a circular satisfactory to the Bank, setting forth policies, procedures and strategy for the implementation of the Project; and (c) maintenance of collection and portfolio infection levels acceptable to the Bank. R. Terms for Subsidiary Loan Agreement (on-lending by Borrower to Participa`ing Credit Institutions) 11 Interest rates: - a rate which will provide the Participating Credit Institutions a spread of no less than 4.75% based on the rates applicable to the Sub-loans. 2. Amortization period: - 12 years inclusive of 5 years of grace - fixed repayment schedule 3. Currency: - Rupees C. Terms for Sub-loans: 1. Interest rates: - 14% per annum or as agreed between the Borrower and the Bank from time to time 2. Amortization period: - minimum 3 years to maximum 10 years, inclusive of a maximum of 2 years of grace - 18 - SCHEDULE 5 Implementation Program 1. Sub-loans (1) The Borrower shall cause PBC to apply procedures and cri- teria satisfactory to the Bank in PBC's review of a Sub-project financed by a Participating Credit Institution under the Project. (2) The Participating Credit Institutions shall request re- financing against sub-loan disbursements from the Bank periodic- ally by furnishing to PBC a certification that disbursements have been duly made and required procurement procedures have been followed. Such requests shall be consolidated by PBC thereafter and furnished to the Bank for its reimbursement. 2. Technical Assistance The Dutch Grant shall be eligible for financing the follow- ing components of technical assistance: (a) promotion of export houses, subject to: (i) the approval and issue by the Export Promotion Bureau of a statement of policy and strategy, acceptable to the Bank; and (ii) the issue by the Borrower of a circular allowing suppliers to the selected export houses to benefit from export incentives cur- rently available to direct exporters; (b) technology and productivity fund, subject to the approval and issuance of statements of policy and strategy by the Industrial Development Bank of Pakistan, PICIC and the NDFC, all accept to t)ae Bank; (c) improvement of SSI statistics; and (d) consultancy services for training the staff of the Participating Credit institutions and for sub-sector and impact studies. - 19 - SCHEDULE 6 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1)(a) and (b) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of financing required for Part A of the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equi- valent to $5,000,000 to be withdrawn from the Loan Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Bank shall otherwise agree, payments out of the Special Account shall be made exclusively for eligible expen- ditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of the Authorized Allocation, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) The Borrower shall furnish to the Bank requests for replenishment of the Special Account at such intervals as the Bank shall specify. On the basis of such requests, the Bank shall withdraw from the Loan Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible expenditures. All - 20 - such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Bank, prior to or at the time of such request, such documents and other evidence as the Bank shall reasonably request, showing that such payment was made for eligible expenditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Bank when either of the following situations first arises: (i) the Bark shall have determined that all further withdrawals should be made by the Borrower direct- ly prom the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agree- ment; or (ii) the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of th' Loan allocated to the eligi- ble Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for any expendi- ture or in any amount not eligible pursuant to paragraph 2 of - 21 - this Schedule; or (ii) was not justified by the evidence fur- nished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Bank deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Bank into the Special Account shall be made until the Borrower has made such deposit or refund. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount for crediting to the Loan Account. "The original is a PDF file with no Text. We were not able to OCR and extract the Text. Error:PDF01"