LOAN NUMBER 2127 PR Project Agreement (Textile Sector Restructuring Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and DEVELOPMENT BANK OF THE PHILIPPINES Dated , 1982 LOAN NUMBER 2127 PH PROJECT AGREEMENT AGREENY3NT, dated 3 1982, between INTERNATIONAL BANK FOR RECONTRUCTION AND DEVELOPMENT (herein- after ci.ed the Bank) and DEVELOPMENT BANK OF THE PHILIPPINES (hereinafter called DBP). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of the Philippines (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred fifty-seven million four hundred thousand dollars ($157,400,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that DBP agrees to undertake such obligations toward the Bank as are hereinafter set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and DBP, part of the proceeds of the loan provided for under the Loan Agreement will be made available to DBP on the terms and conditions therein set forth; and WHEREAS DBP, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations 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 Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Management and Operations of DBP Consultation, Information and Inspection Section 2.01. DBP shall carry out Part B of the Project, described in Schedule 2 to the Loan Agreement, and conduct its operations and affairs, with due diligence and efficiency and in conformity with appropriate administrative, financial, economic and investment standards and practices, with qualified and experienced management and in accordance with its Charter, Operating Policies and Procedures and Statement of Reserves Policy. Section 2.02. Except as the Bank shall otherwise agree, DBP shall ensure that the procurement of the goods required for the Textile Projects and to be financed out of the proceeds of the Subsidiary Loan shall be governed by the provisions of the Schedule to this Agreement. Section 2.03. DBP shall take all measures required on its part to maintain the Joint Evaluation Unit as provided in Section 3.03 of the Loan Agreement. Section 2.04. Except as the Borrower and the Bank may other- wise agree, DBP shall undertake the financing, either out of its own resources or out of funds made available to it from other sources, including the proceeds of the Subsidiary Loan or the Other Loans and Credits, of textile development projects to be carried out by enterprises operating within the Borrower's textile sector only after: (a) BOI shall have determined that the financing of each such project would be consistent with the Textile Restructuring Program; and (b) DBP shall have verified the financial and economic feasibility of such a project and the financial viability of the concerned enterprise. Section 2.05. (a) In accordance with and subject to the pro- visions of the Loan Agreement, DBP shall submit Textile Projects to the Bank for approval or for authorization for withdrawals to be made from the Loan Account. (b) (i) When submitting a Sub-loan (other than a free- limit Sub-loan) to the Bank for approval, DBP shqll furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Textile Enterprise Wid of the Textile Project to be financed thereunder (including a descrip- tion of the expenditures for such Textile Project proposed to be financed by DBP and an appraisal of the Textile Project) and the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan, and such other information as the Bank shall reasonably request; and (ii) such appraisal will include a calculation of the economic and finan- cial rates of return of the Textile Project and an evaluation of -3- the financial condition of the Textile Enterprise, all as shall be established in accordance with guidelines satisfactory to the Bank. (c) Each request by DBP for authorization to make with- drawals from the Loan Account in respect of a free-limit Sub-loan shall contain a summary description of the Textile Enterprise and the Textile Project (including a description of the expenditures proposed to be financed out of the proceeds of the Subsidiary Loan and an appraisal of the Textile Project whichshall include such calculation as referred to in paragraph (b) (ii) of this Section) and the terms and conditions of such free-limit Sub- loan, including the schedule of amortization therefor. Section 2.06. (a) DBP undertakes that, unless the Bank shall otherwise agree, any Sub-loan will be made on terms whereby DBP shall obtain, by written contract with the Textile Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and DBP, including the right of DBP to: (i) require the Textile Enterprise to .carry out and operate the Textile Project with due diligence and efficiency and in accord- ance with sound technical, financial and managerial standards and with due regard to appropriate ecological and environmental factors and occupational safety standards, in accordance with the guidelines instituted from time to time by the Borrower's con- cerned departments and agencies, including its Pollution Control Commission, and to maintain adequate records; (ii) require that: (1) the goods to be financed out of the proceeds of the Sub-loan shall be procured in accordance with the provisions of the Schedule to this Agreement, (2) the services of consultants shall be obtained in accordance with principles and procedures accept- able to the Bank, and (3) such goods and services shall be used exclusively in the carrying out of the Textile Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construction included in the Textile Project, the operation thereof, and any relevant records and documents; (iv) require that: (1) the Textile Enterprise shall take out and main- tain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, and (2) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, trans- portation and delivery of goods financed out of the proceeds of the Sub-loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the -4- Textile Enterprise to replace or repair such goods; (v) obtain all such information as the Bank or DBP shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Textile Enterprise and to the benefits to be derived from the Textile Project; and (vi) suspend or terminate the right of the Textile Enterprise to the use of the proceeds of the Sub-loan upon failure by such Textile Enter- prise to perform its obligations under its contract with DBP. (b) DBP shall exercise its rights in relation to each Textile Project in such manner as to: (i) protect the interests of the Bank and DBP; (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project. Section 2.07. (a) The Bank and DBP shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and DBP shall from time to time, at the request of either party, exchange views through their repre- sentatives with regard to the progress of Part B of the Project, the performance by DBP of its obligations under this Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of DBP and its subsidiaries and other matters relating to the purposes of the Loan. (b) DBP shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Subsidiary Loan, Part B of the Project, the Textile Enterprises, the Textile Projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing, and the administration, operations and financial condition of DBP and its subsidiaries. Section 2.08. DBP shall cooperate fully with the Borrower in the preparation by the Borrower of the report referred to in Section 3.05 (d) of the Loan Agreement and, to that end, shall prepare and furnish to the Borrower all such information as the Borrower may request on the execution and initial operations of the Textile Projects, their costs and the benefits derived and to be derived from them, the performance by the Bank and DBP of their respective obligations under this Agreement and the accom- plishment of the purposes of the Subsidiary Loan. Section 2.09. DBP shall: (a) duly perform all its obligations in agreements, including the Subsidiary Loan Agreement, under -5- which funds have been lent or otherwise put at the disposal of DBP by the Borrower or its agencies or others for relending, investment or management; (b) promptly inform the Bank of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provisions of, any such agree- ment; and (c) except as the Bank may otherwise agree, not take or concur in any action which would have the effect of assigning, or amending, abrogating or waiving any provision of, the Subsidiary Loan Agreement. Section 2.10. Except as the Bank and DBP may otherwise agree, DBP: (i) shall not sell, lease, transfer or otherwise dispose of any of its property or assets, except in the ordinary course of business; and (ii) shall take all action necessary to maintain its corporate existence and right to carry on operations and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.11. DBP shall cause -each of its Subsidiaries (if any) to observe and perform the obligations of DBP under this Agreement to the extent to which the same may be made applicable thereto as though such obligations were binding upon each of such Subsidiaries. Section 2.12. DBP shall not amend its Operating Policies and Procedures or Statement of Reserves Policy except in agreement with the Bank, and shall exchange views with the Bank on aty pro- posal to modify its Charter. ARTICLE III Financial Covenants Section 3.01. DBP shall maintain procedures and records ade- quate to monitor and record the progress of Part B of the Project and of each Textile Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consist- ently maintained sound accounting practices the operations and financial condition of DBP and shall enable the Bank's represent- atives to examine such records and any relevant documents. Section 3.02. DPB shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance -6- with sound 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 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of DBP and the audit thereof as the Bank shall from time to time reasonably request. Section 3.03. Except as the Bank shall otherwise. agree, DBP shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratio within the limit referred to in Section 3.04 of this Agree- ment; and (ii) if such ratio shall, for reasons beyond DBP's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit. Section 3.04. Except as the Bank shall otherwise agree, DBP shall not incur or permit any subsidiary to incur any debt if, after the incurring of such debt, the consolidated debt of DBP and all its subsidiaries then incurred and outstanding would be greater than ten times the consolidated capital and surplus of DBP and all its subsidiaries. For the purposes of this Section: (a) "debt" means any debt incurred by DBP or any subsidiary maturing more than one year after the date on which it is originally incurred, including debt assumed or guaranteed by DBP or by a subsidiary; (b) debt shall be deemed to be incurred: (i) under a loan contract or agreement on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreemeiLt; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding; (c) whenever in connection with this Section it shall be necessary to value in terms of pesos debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time -7- of such valuation, obtainable by DPB for the purposes of ser- vicing such debt; (d) "consolidated debt of DBP and all its subsidiaries" means the total amount of debt of DBP and its subsidiaries, excluding any debt owed by DBP to any subsidiary or by any subsidiary to DBP or to any other subsidiary; and (e) "consolidated capital and surplus of DBP and its subsi- diaries" means the aggregate of the unimpaired paid-up capital, surplus and free reserves of DBP and its subsidiaries after excluding therefrom such amounts as shall represent equity interests of DBP in any subsidiary or of any subsidiary in DBP or any other subsidiary. Section 3.05. Except as the Bank may otherwise agree, DBP shall not make any repayment in advance of maturity in respect of any outstanding debt of DBP which, in the judgment of the Bank, would materially affect DBP's ability to meet its financial obligations. Section 3.06. DBP shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including pesos) used in its lending and borrowing operations. ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effec- tive. Section 4.02. This Agreement and all obligations of the Bank and of DBP thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify DBP thereof. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. -8- 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 Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For DBP: Development Bank of the Philippines Makati, Metro Manila Republic of the Philippines Cable Address: Telex: PHILDEBANK RCA 7222197 DB PHIL Manila EASTERN 3771 DBP PN 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 DBP, or by DBP on behalf of the Borrower under Section 2.10 of the Loan Agreement, may be taken or exe- cuted by the Chairman of DBP or such other person or persons as -9- DBP shall designate in writing, and DBP shall furnish to the Bank sufficient evidence of the authority and the authenticated speci- men 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 collec- tively but one instrument. 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By By/4 Regional Vice President East Asia and Pacific DEVELOPMENT BANK OF THE PHILIPPINES By ' Authorized Representative - 10 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, goods shall be procured by the Textile Enterprises under contracts awarded in accordance with procedures consistent with those set forth in the current edition of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods to be procured on the basis of international com- petitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, DBP shall cause each Textile Enterprise to prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publication of such notice in order to provide timely notifi- cation to prospective bidders of the opportunity to bid for the goods in question. DBP shall obtain and provide the necessary information to update such notice annually so long as any goods remain to be procured on the basis of international competitive bidding. 3. To the extent practicable, contracts for goods shall be grouped by each Textile Enterprise in bid packages estimated to cost the equivalent of $1,500,000 or more each. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland - 11 - freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. B. Other Procurement Procedures Contracts for the procurement of goods which cannot be grouped pursuant to Part A.3 above and which are estimated to cost the equivalent of less than $1,500,000 each may be procured by the Textile Enterprise through limited international tendering after obtaining quotations from at least three suppliers from at least three different countries who are registered with BOI and are eligible to compete for the supply of such goods in accordance with the Guidelines. Limited international tendering shall be carried out in accordance with procedures consistent with those set forth in Part A of the Guidelines except that no notification or advertisement of the invitation to bid will be required. C. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods estimated to cost the equivalent of $1,500,000 or more: (a) Before bids are invited, DBP shall obtain and 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 cause all such modifications in the said documents or procedures to be made 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 pro- spective bidders. (b) After bids have been received and evaluated, DBP shall, before a final decision on the award is made by the Textile Enterprise, inform the Bank of the name of the bidder to which the Textile Enterprise intends to award the contract and shall obtain and 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 - 12 - intended award would be inconsistent with the Guidelines or this Schedule, promptly inform DBP and state the reasons for such determination. (c) The terms and conditions of the contract shall mn , without the Bank's concurrence, materially differ from those on which bids were asked or prequalification was invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract not governed by the preceding paragraph, DBP shall obtain and furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application 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 request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform DBP and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 10% of the original price, DBP shall inform the Bank,. on behalf of the Textile Enterprise, of the proposed modifica- tion, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsis- tent with the provisions of this Agreement, shall promptly inform DBP and state the reasons for its determination. 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 %3 0 D day of 198 .. FOR SECRETARY