Loan Agreement. Public Disclosure Authorized LOAN NUMBER 1951 YU [DOCUMENTJ. Public Disclosure Authorized. Project) (Morava Regional Development II

Transcription

1 Public Disclosure Authorized [DOCUMENTJ LOAN NUMBER 1951 YU Public Disclosure Authorized Loan Agreement Public Disclosure Authorized (Morava Regional Development II between Project) INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and Public Disclosure Authorized OSNOVNA PRIVREDNO - INVESTICIONA BANKA U BEOGRADU - INVESTBANKA Dated, 1981

2 LOAN NUMBER 1951 YU LOAN AGREEMENT AGREEMENT, dated Ac, 1981, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and OSNOVNA PRIVREDNO - INVESTICIONA BANKA U BEOGRADU - INVESTBANKA (hereinafter called the Borrower). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the foreign exchange cost of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) by an agreement, known as the "Self-Management Agreement on Mutual Rights, Obligations and Responsibilities for the Realization of the Morava Regional Development II Project" (hereinafter called the Project SMA) and to be entered into inter alia by the Borrower, the Republifki Fond za Podsticaj Br9eg Razvoja Privredno Nedovoljno Razvijenih Podru6ja - SR Srbije (hereinafter called SFUR), local banks (in addition to the Borrower) operating in the Project Area (as hereinafter defined) and organizations of associated labor concerned with the Project, such entities will undertake certain obligations with respect to the carrying out of the Project; (C) by an agreement, known as the "Agreement on Conducting Business and Providing Funds for the Realization of the Morava Regional Development II Project" (hereinafter called the Project Consortium Agreement) and to be entered into, pursuant to the Project SMA, among the Borrower, SFUR and local banks (in addition to the Borrower) operating in the Project Area, such entities will undertake certain obligations with respect to the financing of the Project; (D) by an agreement, known as the "Project Subsidiary Agreement" and to be entered into between the Borrower and SFUR, the Borrower and SFUR will define their respective responsibilities with respect to the carrying out of the Project; (E) the Borrower has undertaken to use its best endeavors to secure all foreign exchange resources (in addition to the Loan) which may, from time to time, be required for the Project; and (F) the Socialist Federal Republic of Yugoslavia (hereinafter called the Guarantor), in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to guarantee the Loan upon the terms and conditions set forth in a guarantee agreement of even date herewith between the Guarantor and the Bank.

3 -2- WHEREAS, the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in a project agreement of even date herewith between the Bank and SFUR; NOW THEREFORE the parti.!s hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated October 27, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the following modification thereof (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions), namely, that the following subparagraph (d) is added to Section 3.04 of the General Conditions: "(d) The Bank and the Borrower may from time to time agree upon arrangements for prepayment of the Loan and the application of such prepayment in addition to, or in substitution for, those set forth in paragraph (b) of Section 3.04." Section Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and SFUR of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supplemental to the Project Agreement. (b) "Self-Management Agreement of the Borrower" means the Self-Management Agreement of the Borrower dated December 26, 1977, as may be amended from time to time. (c) "Statute of the Borrower" means the sta.ute of the Borrower, dated December 26, 1977, as may be amended from time to time.

4 (d) "SFUR Legislation" means collectively the laws and decrees of the Socialist Republic of Serbia dated March 31, 1977 governing the activities of SFUR, as may be amended from time to time. (e) "Sub-loan" means a loan made or proposed to be made by the Borrower (for its own account and/or for the account of any party to the Project Consortium Agreement and/or the Project Subsidiary Agreement) (1) out of its own funds and/or out of the funds to be provided under the Project Consortium Agreement and/or the Project Subsidiary Agreement and (2) out of the proceeds of the Loan in accordance with Section 3.02 (a) of this Agreement. (f) "Sub-borrower" means an eligible investor benefitting from a Sub-loan who may be either: (i) an Individual Sub-borrower who is an individual farmer sub-borrowing through a social sector organizalion or an individual farmer directly sub-borrowing; or (ii) a Social Sector Sub-borrower which may be any form of social sector organization. (g) "Investment Project" means a specific investment project to be carried out by a Sub-borrower utilizing the proceeds of a Sub-loan. (h) "Statement of Operations and Policies for the Project" means the statement of lending and investment operations and policies for the Project set forth in Schedule 5 to this Agreement, as such statement may be amended from time to time with the prior approval of the Bank. (i) "Project Operations Division" means the Project operations division established by the Borrower, as provided in Section 3.01 hereof. (j) "Dinar" means the currency of the Guarantor. (k) "Social Accounting Service" means the Slufba Dru9tvenog Knjigovodstva referred to in paragraph (5) of Article 281 of the Guarantor's Constitution. (1) "Project area" means the area described in the preamble to Schedule 2 hereto.

5 -4- ARTICLE II The Loan Section The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to eightyseven million dollars ($87,000,000). Section 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, for amounts disbursed (or, if the Bank shall so agree, for disbursements required to be made) by the Borrower under Sub-loans in respect of the reasonable cost of goods and services required for the Project and to be financed under the Loan Agreement pursuant to the provisions of Schedule 5 hereto. Section The Closing Date shall be December 31, 1986 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section Except as the Bank shall otherwise agree, procurement of the goods and works to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 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 The Borrower shall pay interest at the rate of nine and three-fifths per cent (9-3/5%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section Interest and other charges shall be payable semiannually on March 1 and September 1 in each year. Section (a) The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement as such Schedule shall be amended from time to time by the Bank to the extent

6 -5- required to: (i) conform in relevant part substantially to the aggregate of the respective amortization schedules applicable to the Sub-loans which have been approved or authorized for withdrawals from the Loan Account under Section 2.02 of this Agreement; and (ii) take into account any cancellation pursuant to Article VI of the General Conditions and any repayments made by the Borrower under Section 2.09 of this Agreement; provided that repayments due hereunder shall be made on March 1 and September 1 in each year. Such amendments of said Schedule 3 shall include amendments to the table of premiums on prepayment, if necessary. (b) The amortization schedule applicable to each Sub-loan shall provide for an appropriate period of grace, and, unless the T)ank and the Borrower shall otherwise agree (i) shall not extend beyond fifteen years from the date hereof, and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semiannual, or more frequent, payments of principal. (c) The Borrower shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by the Borrower in respect of the repayment provisions of any Sub-loan. Unless the Bank and the Borrower shall other- Section wise agree: (a) If a Sub-loan or any part thereof shall be repaid to the Borrower in advance of maturity or if a Sub-loan or any part thereof shall be sold, transferred, assigned or otherwise disposed of for value by the Borrower, the Borrower shall promptly notify the Bank and shall repay to the Bank on the next following interest payment date, together with the premiums specified in Schedule 3 to this Agreement or in any amendment thereof under Section 2.08 (a) of this Agreement, the amount withdrawn from the Loan Account in respect of such Sub-loan or part thereof and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank, to the maturity or maturities of the Loan in amounts corresponding to the outstanding amounts of the maturity or maturities of the Sub-loan so repaid or disposed of. (c) Paragraph (b) of Section 3.04 of the General Conditions shall not apply to any repayment made under paragraph (a) of this Section.

7 -6- ARTICLE III Execution of the Project Section (a) The Borrower shall, in conjunction with SFUR, carry out the Project with due diligence and efficiency, in conformity with appropriate agricultural, technical, administrative and financial policies and practices and in accordance with the Statement of Operations and Policies for the Project. To that end, the Borrower shall maintain under arrangements satisfactory to the Bank, a Project Operations Division staffed in a way appropriate to enable the Borrower to fulfill its obligations set out in Schedule 5 hereto, such Division to be headed by an experienced and duly qualified director and to comprise inter alia experienced and duly qualified agronomists, livestock specialists, economists, procurement specialists, marketing specialists and financial analysts. (b) The Borrower shall enter into the Project SMA, the Project Consortium Agreement and the Project Subsidiary Agreement, all on terms and conditions satisfactory to the Bank. Section (a) The Borrower undertakes that, unless the Bank shall otherwise agree, any Sub-loan by the Borrower will be made on financial terms and conditions consistent with the Statement of Operations and Policies for the Project and on the following terms and conditions, which are in addition to those referred to above, whereby the Borrower shall obtain, by written contract with the Sub-borrower or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Borrower, including, in the case of any such Sub-loan, the right of the Borrower to: (i) require the Sub-borrower to carry out its Investment Project with due diligence and efficiency and in accordance with appropriate agricultural, technical, administrative and financial policies and practices and to maintain adequate records; (ii) require that: (1) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with Schedule 4 to this Agreement; (2) the proceeds of any Sub-loan financed out of the Loan shall not be expended for goods produced in, or services supplied from, any country which is not a member of the Bank (other than Switzerland); and (3) such goods and services shall be used exclusively in the carrying out of an I.nvestment Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, buildings, property,

8 -7- equipment and construction included in any Investment Project, the operation thereof, and any relevant records and documents; (iv) require that: (1) the Sub-borrower shall take out and maintain with responsible insurers such insuraince, against such risks and in such amounts, as shall be consistent with appropriate business practice; and (2) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Sub-borrower to replace or repair such goods; (v) obtain all such information as the Bank or the Borrower shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Sub-borrower; (vi) suspend or terminate the right of the Sub-borrower to the use of the proceeds of the Loan upon failure by such Sub-borrower to perform its obligations under its contract with the Borrower and, in appropriate cases, to premature the Sub-loan; and (vii) require (A) any of the Social Sector Sub-borrowers: (1) to have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year prepared in accordance with the appropriate accounting principles which are consistently applied by the Social Accounting Service or another competent and experienced independent accounting organization; (2) to furnish to the Borrower as soon as available but in any case not lrter than six months after the end of each such year, certified copies of its financial statements for each such year as so audiced; and (3) to furnish to the Borrower such other information concerning the accounts and financial statements of the Social Sector Sub-borrower as the Borrower shall from time to time reasonably request and (B) any Social Sector Sub-borrower designated from time to time by the Bank to employ qualified and experienced consultants for purposes agreed with the Bank and on terms and conditions acceptable to the Bank. (b) The Borrower shall exercise its rights, in relation to each Investment Project, in such manner as to: (i) protect the interests of the Bank and the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. Section (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause SFUR to perform in accordance with the provisions of the Project Agreement all the obligations therein

9 -8- set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable SFUR to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall exercise its rights under the Project SMA, the Project Consortium Agreement and the Project Subsidiary Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and the Borrower shall not assign, nor amend, abrogate or waive any such agreement or any provision thereof in such a way as to materially and adversely affect the carrying out of the Project. Section The Borrower shall arrange for the Project Operations Division: (i) to maintain records adequate to record the progress of each Investment Project (including the cost thereof, the amount of financing provided by the Borrower, disbursements, repayments, interest and other charges on such financing, including the Sub-loan therefor); (ii) to furnish to the Bank, in cooperation with SFUR, quarterly reports on the implementation of all aspects of the Project (including any pertinent general information on agriculture and economic policy measures affecting the implementation of the Project, the issues arising from such policy measures and the possible remedial actions required therefor), in such detail as the Bank shall reasonably request and within 45 days of the close of the quarter concerned; and (iii) to ensure adequate technical and financial supervision of each Investment Project during and after its completion in accordance with the provisions of Schedule 5 hereto. Section (a) The Borrower shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, and its procedures, operations and records, the Investment Projects, the Project Operations Division and the Sub-loans. (b) The Borrower shall evaluate yearly, until the completion of the Project and in accordance with procedures acceptable to the Bank, the benefits derived from the Investment Projects; in order to assist the Borrower in discharging said obligations, the Borrower shall: (i) by September 1, 1981 (or such other date as the Bank may agree), employ consultants whose

10 -9- qualifications, experience, and terms and conditions of employment shall be satisfactory to the Bank; and (ii) submit to the Bank by April 30 of each year an evaluation report of such benefits, such reports to be prepared according to a format acceptable to the Bank and the first of such reports to be submitted to the Bank by April 30, 1982 (or such later date as the Bank may agree). (c) Upon approval of the award by the Borrower of any contract for goods or services to be financed out of the proceeds of the Loan, the Bank may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose among the Borrower, the Bank and SFUR, the Borrower shall, in cooperation with SFUR, prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower, the Bank and SFUR, of their respective obligations under the Loan and Project Agreements and the accomplishment of the purposes of the Loan. ARTICLE IV Management and Operations of the Borrower Section The Borrower shall at all times conduct its business and operations in accordance with appropriate administrative and financial policies and practices, under the supervision of qualified and experienced management and staff, and in accordance with its Self-Management Agreement and its Statute. ARTICLE V Financial Covenants Section The Borrower, in conjunction with SFUR, unconditionally undertakes, whenever there is reasonable cause to

11 believe that the funds available to any of the Sub-borrowers will be inadequate to meet the estimated expenditures required for the carrying out of any of the Investment Projects, to make arrangements satisfactory to the Bank, promptly to provide, or cause to be provided, any such Sub-borrower with such funds in foreign or local currencies as needed to meet such expenditures. Section The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices the progress of all Parts of the Project and its operations and financial condition. Section (a) The Borrower undertakes to establish and maintain separate accounts for the Project and shall record in such accounts all amounts disbursed or received for or in connection with the Project. (b) The Borrower shall retain, until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrowals are requested from the Loan Account with respect to Categories (1) and (3) of the table set out in paragraph 1 of Schedule I hereto on the basis of certificates of expenditures, and shall enable the Bank's accredited representatives to examine such records. Section The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) and its records supporting certificates of expenditures referred to in Section 5.03 (b) hereof for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by the Social Accounting Service or another competent and experienced independent auditing organization 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 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 (including an analysis of the quality of the Borrower's portfolio), of such scope and in such detail as the Bank shall have reasonably requested, including a separate opinion by said auditors in respect of such certificates of expenditures showing whether the proceeds of the Loan withdrawn from the Loan Account with respect to Categories (1) and (3) of the table set out in paragraph 1 of Schedule 1 hereto, on the basis of such certificates, have been used for the purpose for

12 which they were provided; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of the BoLrower and the audit thereof, as the Bank shall from time to time reasonably request. Section (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 any lien shall be created on any assets of the Borrower, 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 that 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 statutory lien shall be created on any assets of the Borrower, as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; 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 purchase 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. Section The Borrower shall maintain arrangements satisfactory to the Bank to protect itself against the risk of losses resulting from changes in the rates of exchange between the currencies (including Dinars) used in its lending and borrowing operations for the purpose of carrying out the Project and servicing the Loan, such arrangements to provide, in particular, adequate protection for the Borrower against the foreign exchange risks on Sub-loan repayments accruing earlier than the amortization payments of the Loan. ARTICLE VI Remedies of the Bank Section For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof:

13 (a) Any part of the principal amount of any loan to the Borrower having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance of maturity as provided in the relative contractual instruments, or any security for any such loan shall have become enforceable. (b) A change shall have been made in the Self-Management Agreement or Statute of the Borrower, or in the SFUR Legislation, which would materially and adversely affect the financial condition or operations of the Borrower or SFUR or the carrying out of the Project. (c) SFUR shall have become unable to pay its debts as they mature or any action or proceeding shall have been taken by SFUR or by others whereby any of the property of SFUR shall or may be distributed among its creditors. (d) The Guarantor or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of SFUR or for the suspension of its operations. (e) An extraordinary situation shall have arisen which shall make it improbable that SFUR will be able to perform its obligations under the Project Agreement. agree- (f) SFUR shall have failed to perform any covenant, ment or obligation of SFUR under the Project Agreement. (g) The Project SMA or the Project Consortium Agreement or the Project Subsidiary Agreement shall have been amended, repealed, waived, abrogated, or suspended in such a way as to materially and adversely affect the carrying out of the Project. Section For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) Any event specified in paragraph (f) of Section 6.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower and the Guarantor. (b) Any event specified in paragraphs (a), (b), (c), (d) or (g) of Section 6.01 of this Agreement shall occur.

14 ARTICLE VII Effective Date; Termination Section The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section (c) of the General Conditions, namely, that the Project SMA, the Project Consortium Agreement and the Project Subsidiary Agreement have all been authorized or ratified by, and executed and delivered on behalf of, all parties concerned, as provided in Section 3.01 (b) hereof. Section The following are specified as additional matters, within the meaning of Section (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that (i) the Project Agreement has been duly authorized or ratified by, and executed and delivered on behalf of SFUR and is legally binding upon SFUR in accordance with its terms and (ii) the Project SMA, the Project Consortium Agreement and the Project Subsidiary Agreement have all been duly authorized or ratified by, and executed and delivered on behalf of, all parties concerned (as provided in Section 3.01 (b) hereof) and are legally binding upon such parties in accordance with their respective terms. Section The datea 2 14, lcl9:, is hereby specified for the purpose of Section of the General Conditions. ARTICLE VIII Addresses Section The following addresses are specified for the purposes of Section of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C United States of America

15 Cable address: INTBAFRAD Washington, D.C. Telex: (ITT) (RCA) or (WUI) For the Borrower: OSNOVNA PRIVREDNO - INVESTICIONA BANKA U BECGRADU - INVESTBANKA Terazije Beograd Yugoslavia Cable address: INVESTBANKA Beograd Telex: YU INVESB or YU INVESB 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 5 Regional Vice President Europe, Middle East and North Africa OSNOVNA PRIVREDNO - INVESTICIONA BANKA U BEOGRADU - INVESTBANKA Authorized Representative

16 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 expenditures 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) Sub-loans made by 34,520,000 ( 100% of forthe Borrower for ( eign expendi- Parts A (a) and B (a) ( tures and 50% of the Project ( of the amounts ( disbursed by (2) Sub-loans made by 4,150,000 ( the Borrower on the Borrower for ( account of Parts A (b) and B (b) ( local expendiof the Project ( tures, in both ( instances sub- (3) Sub-loans made by 4,670,000 ( ject to a maxthe Borrower for ( imum of 36% of Part C of the ( the total es- Project ( timated cost ( of the Invest- (4) Sub-loans made by 41,770,000 ( ment Project the Borrower for ( concerned Part D of the ( Project ( (5) Sub-loans made by 1,890,000 ( the Borrower for ( Part E of the ( Project ( TOTAL 87,000,000

17 For the purposes of this Schedule: (a) the term "foreign expenditures" 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; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor. 3. The disbursement percentages have been calculated in compliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Guarantor on goods and 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 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 $1,000,000, may be made in respect of all Categories on account of payments made for such expenditures before that date but after July 1, 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 applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made.

18 If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, b: -otice 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. 7. Withdrawals for expenditures under Categories (1) and (3) of the table set out in paragraph 1 of this Schedule shall be made on the basis of certificates of expenditures.

19 SCHEDULE 2 Description of the Project The main objectives of the Project are to: (i) assist in the development of an area covering about 8,730 km 2 and comprising 13 communes in the southern part of the Morava region and 5 communes in the Toplica part of the same region (the "Project Area"); (ii) increase the production of meat, milk, fruits and processed food products in the Project Area as well as the exports of said processed food products; (iii) contribute to institution building in the Project Area by strengthening the organizational and project preparation capacities of the regional development institutions in such area; and (iv) strengthen the appraisal and supervision capacity of the Borrower. The Project consists of the following Parts: Part A: Livestock Production This Part consists of a program of Sub-loans to be made by the Borrower to Sub-borrowers to finance investments as follows: (a) Individual Sub-borrowers Sub-loans to Individual Sub-borrowers to finance the construction of farm buildings and the purchase of machinery, equipment and initial livestock requirements for about 2,400 individual farms and about 150 honey production units in the Project Area. (b) Social Sector Sub-borrower Sub-loan to the Social Sector Sub-borrower known as AIK Laskovac to fiaance a piglet breeding unit with about 1,650 sows in the Project Area. Part B: Horticulture Production This Part consists of a program of Sub-loans to be made by the Borrower to Sub-borrowers to finance investments as follows: (a) Individual Sub-borrowers Sub-loans to Individual Sub-borrowers to finance the establishment of about 3,650 ha of new rainfed fruit

20 plantations and about 1,100 ha of rainfed vineyards for about 6,470 individual farms in the Project Area. (b) Social Sector Sub-borrowers Sub-loans to Social Sector Sub-borrowers to finance about 220 ha of orchards and about 200 ha of vineyards in the Project Area. Part C: Irrigation This Part consists of a program of Sub-loans to be made by the Borrower to Social Sector Sub-borrowers to finance irrigation and drainage systems, for about 930 ha, as well as access roads and the improvement of stream channels in three portions of the Project Area and, subsequently, the establishment of about 480 ha of high density fruit tree plantings and about 240 ha of vegetable production and about 210 ha of crop production in the irrigated portions of the Project Area for about 2,130 individual farms. Part D: Agroindustries This Part consists of a program of Sub-loans to be made by the Borrower to Social Sector Sub-borrowers to finance technical assistance, purchase of raw materials, collection and transport facilities and food processing equipment, construction and reconstruction of buildings and permanent working capital requirements for about 14 plants, wineries, cold stores, mills and/or facilities acceptable to the Bank, to be constructed or reconstructed in the Project Area for processing milk, meat, fruit and vegetables or for making livestock feed and carpets, as the case may be. Part E: Support Services This Part aims at strengthening the existing basic agricultural services and agricultural and veterinary stations in the Project Area, through inter alia: (1) the provision of additional experienced and qualified staff in sufficient numbers, and (2) a program of Sub-loans to be made by the Borrower to Social Sector Sub-borrowers to finance the training and housing facilities for the staff of such stations, the purchase of laboratory and office equipment, farm machinery, genetic stock and vehicles and study

21 Yugoslavia and abroad for the key per- tours and fellowships in sonnel of such stations. The Project is expected to be completed by June 30, 1986.

22 SCHEDULE 3 Amortization Schedule* Date Payment Due Payment of Principal (expressed in dollars)** September 1, ,870 March 1, ,750 September 1, ,223,430 March 1, ,903,120 September 1, ,582,810 March 1, ,298,260 September 1, ,751,380 March 1, ,231,150 September 1, ,401,170 March 1, ,582,320 September 1, ,582,320 March 1, ,582,320 September 1, ,582,320 March 1, ,582,320 September 1, ,582,320 March 1, ,582,320 September 1, ,582,320 March 1, ,582,320 September 1, ,320 March 1, ,582,320 September 1, ,310,440 March 1, ,038,570 September 1, ,358,880 March 1, ,679,650 * The Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.08 of the Loan Agreement. ** To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.04), the figures in this column represent dollar equivalents determined as for purposes of withdrawal.

23 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions or to Section 2.09 (a) of the Loan Agreement: Time of Prepayment Premium Not more than three years 1.90% bef ore maturity More than three years but not 3.85% more than six years before maturity More than six years but not 7.05% more than eleven years before maturity More than eleven years but not 8*30% more than thirteen years before maturity More than thirteen years 9.60% before maturity

24 SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in 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 and works to be procured on the basis of international competitive bidding, and in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall 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 notification to prospective bidders of the opportunity to bid for the goods and works in questi-n. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international competitive bidding. 3. (a) Contracts for the procurement of equipment included in Part D of the Project will include provisions to the effect that the suppliers of equipment will (i) furnish erection supervisors, (ii) provide warranties as co the performance of such equipment, and (iii) train local personnel in the operation and maintenance thereof. (b) The processing plants included in Part D of the Project shall be procured on a "turnkey contract" basis or according to other procedures acceptable to the Bank. 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

25 goods, offered in such bid; and (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. B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in Yugoslavia may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Yugoslavia if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Yugoslavia equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. 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 lowest, it shall be selected for the award. the

26 If, as a result of the comparison under paragraph 3 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 evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs 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 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Contracts for goods and works included in Parts A, B, C and E of the Project may be awarded according to local procedures acceptable to the Bank. 2. All works included in Part D of the Project, to the extent that they are not covered by a turnkey contract referred to in Part A.3 (b) above, may be procured on the basis of local procedures acceptable to the Bank. D. 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 referred to in Part A.3 (b) above and to all contracts for goods included in Part D of the Project and not covered by the foregoing contracts: (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 documents 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.

27 (b) After bids have been received and evaluated, the Borrower 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, without the Bank's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished 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. 2. With respect to each contract not governed by the preceding paragraph, the Borrower shall, if specifically requested by the Bank, 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 the Borrower 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 20% of the original price, the Borrower shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination.

28 SCHEDULE 5 Statement of Operations and Policies for the Project 1. Project Operations Division Responsibility The Project Operations Division shall, in accordance with the policies and procedures outlined in this Schedule, continue to review proposed Investment Projects and Sub-loans and make appropriate recommeudations thereon to the Borrower prior to the approval by the Borrower of any application or request to the Bank for approval or withdrawal in respect of such Sub-loans. 2. Sub-loan Processing (A) Registration Each Investment Project shall be registered with the Borrower upon receipt of the application therefor made by a Sub-borrower to the Borrower. (B) Appraisal and Eligibility (i) Sub-loans to Social Sector Sub-borrowers The Borrower shall prepare an appraisal report for each Investment Project, taking into account, unless the Bank shall otherwise agree, the following: (a) the technical feasibility, financial viability, commercial soundness, economic justification and availability of markets; (b) at least 50% of processing capacities to be available for the individual sector production; (c) the generation of sufficient cash flow to cover debt service, legal claims, legally required allocations to the enterprise's depreciation, reserve, and reinvestment needs and to achieve financial and economic rates of return of at least 12%; if the financial or the economic rate of return is calculated to

29 be less than 12%, additional justification will be required; (d) the creditworthiness of the Sub-borrower; and (e) appropriate consideration given to the choice of technology, with preference accorded to more labor-intensive methods as opposed to capital-intensive and automated technology and to the consequences of such a choice on the investment cost of Investment Projects. (ii) Sub-loans to Individual Sub-borrowers The Borrower shall prepare a brief appraisal for each Investment Project, taking into account the following: (a) technical feasibility, financial viability, commercial soundness, economic justification and availability of market outlets; (b) the creditworthiness of the Sub-borrower; (c) adequacy of the mutual agreements between individual farmers and their own cooperatives or social sector organizations; and (d) adequacy of the arrangements for the provision of extension services to individual farmers and the recovery of service charges. (C) Review of Investment Projects and Approvals of Sub-loans On the basis of the appraisal referred to above in paragraphs B (i) and (ii), Investment Projects shall be reviewed and the proposed Sub-loans therefor shall be approved as follows: (i) with respect to certain Investment Projects designated from time to time by the Bank and included in Part D of the Project, the Borrower

30 shall not approve a Sub-loan before the Bank has reviewed the Investment Project and the appraisal report pertaining thereto and has given its approval to it; (ii) (iii) with respect to other investments under the Project, the Borrower shall review each Investment Project submitted to it and shall have the right to give or withhold its approval for a Sub-loan to be made, provided that the Borrower shall: (1) in the case of Investment Projects under Part D of the Project, obtain the prior approval of the Bank before approving the Sub-loan in case where (AA) the updated investment costs, as updated at the time of such Sub-loan final review by the Borrower, shall exceed by more than 20% the investment costs (including price and physical contingencies) estimated during appraisal of the Investment Project, or (BB) a major change in the design of the Investment Project shall occur and (2) not approve a Sub-loan, in the case of Investment Projects under Part E of the Project, until the obligations of SFUR under Section 2.04 (b) of the Project Agreement have been fulfilled; and as part of the review of an Investment Project and prior to approving any Sub-loan, the Borrower shall ensure that: - V (a) contributions to Sub-loans are available as set forth in paragraph 3 (A) hereunaer as and when required to enable the Sub-borrower to carry out its Investment Project in a timely manner; (b) adequate arrangements are made to make available to Sub-borrowers seasonal credits in amounts sufficient to enable the Sub-borrowers to realize the potential of the investments included in their Investment Projects; (c) the amount of the proceeds of the Loan used for a given Investment Project shall not exceed 36% of the estimated costs thereof; and