Loan 2762-BR (Northeast Rural Development Project - Ceara) the Loan and Project Agreements

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized June 18, 1993 Ilmo. Senhor Dr. Fernando Henrique Cardoso Ministro da Fazenda Esplanada de Ministdeios - Bloco, "P" , Brasilia, DF Brazil Ilmo. Senhor Dr. Elmano Ferrer de Almeida Secretaio do Planejamento do Estado do Piaui Avenida Miguel Rosa, 3190-Sul Teresina, Piaui Brazil Dear Sirs: Amendment to Re: Loan 2762-BR (Northeast Rural Development Project - Ceara) the Loan and Project Agreements Please refer to the Loan Agreement dated July 20, 1987, for the above-referenced Project (the Loan Agreement) between the Federative Republic of Brazil (the Borrower) and International Bank for Reconstruction and Development (the Bank), to the Project Agreement (the Project Agreement) of even dated therewith, between the State of Ceara (the State) and the Bank, both as amended, and to the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated January 1, We are pleased to inform you that, pursuant to your request and our recent discussions on-the subject, the Bank agrees to amend the Loan and Project Agreements as follows: 1. Amendments to the Loan Agreement Bank"; (a) Paragraph (c) of Section 1.02 is amended by substituting the words "after consultation with SUDENE", in line 4, by the words "to the (b) Paragraph (d) of Section 1.02 is amended by substituting the words "the Interior, the coordinator of the Northeast Rural Development Program", in lines 2 and 3, by the words "Regional Integration"; (c) Paragraph (k) of Section 1.02 is amended by substituting the word "cruzado", in line 1, by the word "cruzeiro"; Public Disclosure Authorized (d) financed by Community "(w) an Eligible municipality located in new paragraphs (u), (v), (w) and (x) are added to Section 1.02 to read as follows: "(u) "Eligible Community" means a community where the activities a grant under Part F (ii) of the Project are carried out;"; "(v) "Approved Grant" means a grant to be provided to an Eligible under Part F (ii) of the Project, through TU;"; "Approved Municipal Grant" means a grant to be provided to Community, under Part F (ii) of the Project, through a the Project Area; and"; "(x) "Operational Manual" means "Diretrizes e Criterios Basicos para a Implementacao do Programa Reformulado de Apoio ao Pequeno Produtor Rural (PAPP)", the manual for the implementation of Part F (ii) of the Project, referred to in Section 2.06 of the Project Agreement, approved by Portaria No. --, of the Secretary of Planning of the State, dated,containing the terms

2 and conditions for the provision of Approved Grants and Approved Municipal Grants, including the procedures for the procurement of goods and services under such Grants and for the selection of municipalities where Approved Municipal Grants are to be carried out, as such Manual may be amended from time to time by agreement between the Bank and the State."; (e) Section 2.08 is amended by substituting the words "Central Bank", in line 1, by the words "the Secretary of the Treasury of the Borrower s Ministry of Finance"; (f) Paragraph (d) of Section 3.01 is amended by deleting the words "cause the Central Bank", in line 7, and the words "pursuant to the terms of the agreement between the Borrower and the Central Bank, dated April 5, 1984, providing therefor", in lines 10, 11 and 12, and the words " or waive such agreement or any provision thereof or", in line 13, and by substituting the word "cruzado", in line 8, by the word "cruzeiro"; (g) follows: Section 3.02 is deleted and -a new Section 3.02 is inserted, to read as "Section (a) The Borrower shall take all measures necessary to include in its annual budget the amounts required to carry out the Project, and to be financed under the Loan, during the respective succeeding year, and shall take all action necessary to release, promptly as needed, all the amounts required by the State for the timely execution of the Project, in accordance with the arrangements referred to in Section 3.01 (e) of this Agreement. proposed the Project, by not August 30, 1993"; (b) For such purpose, the Borrower shall furnish to the Bank its budget allocations for the financing of the activities under later than August 30 of each year, starting on (h) a new paragraph (f) is added to Section 5.01 to read as follows: "(f) the Operational Manual shall have been amended, suspended, abrogated, repealed or waived by the State or the State shall have failed to apply the provisions thereof in such a way as to materially and adversely affect the efficient execution of Part F (ii) of the Project."; (i) the address for the Borrower in Section 7.02 is amended to read as follows: "For the Borrower: Procuradoria Geral da Fazenda Nacional Ministerio da Fazenda Esplanada dos Ministdeios - Bloco "P" - 8o andar Brasilia, D.F. BRAZIL Cable address: MEFP Brasilia, Brazil Telex: MFAZ BR With copies to: andar (i) Secretaria do Tesouro Nacional Ministerio da Fazenda Esplanada dos Ministerios - Bloco "P" - Anexo Brasilia, D.F. BRAZIL Telex:

3 (ii) Secretaria de Assuntos Internacionais da Secretaria de Planejamento, Orcamento e Coordenacao da Presidencia da Republica Esplanada dos Ministdeios - Bloco "K" - 5o andar Brasilia, D.F. BRAZIL Telex: (j) follows: the table set forth in paragraph I of Schedule I is amended to read as Loan Allocated % of (Expressed in Expenditures "Category Dollar Equivalent) to be Financed (1) Goods, works, consultants services and salaries: (a) for Part A. 1 (a) of the 12,388, ) Project ) ) (b) for Part A. 1 (b) and (c) 1,330, ) 100% of foreign of the Project ) expenditures for ) services of ) consultants ) domiciled outside ) the territory of ) the Borrower and ) 70% of other ) expenditures ) (c) for Part A.2 of the 474, ) Project ) 70% ) (d) for Part A. 3 of the 643, ) Project (2) Goods, works, consultants 498, % services, salaries, and operating costs for Part B of the Project (3) Goods, works and salaries for 4,863, % Part C of the Project (4) Sub-loans for Part b of the 466, % of the amount of the Project loan (5) Goods, works and services 772, % under Part E of the Project (6) Grants under Part F of the Project: (a) Grants and other 13,300, % expenditures under Part F (i) and (iii) of the Project (b) Approved Grants under 26,400, % of the amounts disbur- Part F (ii) of the Project sed by the State under any Approved Grant

4 (c) Approved Municipal 2,000, % of the amounts disbur- Grants under Part F (ii) sed by the State under any of the Project Approved Municipal Grant (7) (a) Goods, services and 3,300, % operating costs for Part G. I of the Project (b) Training under Part G.2 760, % of the Project (c) Training, technical 1,200, % assistance and studies under Part G.3 of the Project (8) Unallocated 6,601, TOTAL 78,000,000.00;" (k) in paragraph 2 (a) of Schedule 1, the following words are inserted after the date "December 1, 1985", in line 8: "and that withdrawals, in an aggregate amount not exceeding the equivalent of $500, 000, may be made on account of payments made for expenditures under Categories 6(b) and 6(c) of the table in paragraph 1 hereof, before June 18, 1993, but after March 15, 1993"; (l) new paragraphs (d), (e) and (f) are inserted in paragraph 2 of Schedule 1, to read as follows: "(d) in respect of payments made for Approved Grants unless the State, through TU, shall have entered into contractual. arrangements with the beneficiary of any such Grant, defining the responsibilities of any such beneficiary in the carrying out of the activities financed by the respective Approved Grant, in accordance with a model of contract satisfactory to the Bank;"; "(e) in respect of payments made for Approved Municipal Grants, unless the State, through TU, shall have entered into contractual arrangements with the municipality where any such Grant is to be carried out, defining the responsibilities of any such municipality in the approval and administration of such Grants, and unless the municipality shall have entered into contractual arrangements with the beneficiary of any Approved Municipal Grants, defining the responsibilities of any such beneficiary in the carrying out of the activities financed by the respective Approved Municipal Grant, all in accordance with the Operational Manual and of model of contracts satisfactory to the Bank; and"; and "(f) in respect of payments under Categories (1), (2), (3), (4) and (5), for expenditures incurred on or after May 1, 1993."; (m) paragraph 3 of Schedule I is amended by deleting the words "and for Sub-categories (7) (a) and (7) (b)", in line 4, the words ",$2,300,000 under Sub-category (7) (a) and $550,000 under Sub-category (7) (b)", in lines 8 and 9, and the words ", $3,400,000 under Sub-category (7) (a) and $700,000 under Sub-category (7) (b)", in lines 12 and 13; and (n) Parts A through G of Schedule 2 are amended to read as follows: "Part A: Wa Resource Development 1. Irrigation and Itaueira seven small (a) construction of two public irrigation schemes in the Piracuruca valleys, including the Piracuruca dam, and consolidation of contiguous irrigation schemes in the Parnaiba valley,

5 providing irrigation to an area of about 998 hectares; areas of the State the State s Ceara). (b) (c) carrying out of feasibility studies on the irrigation potential of covering about 2,935 hectares; and strengthening of the technical skills of the irrigation division Secretariat of Planning and of the water resource unit of development company (Companhia & Desenvolvimento do 2. Water Supply with less than 500 Construction of about 426 simple water supply systems and rehabilitation of about 105 of such systems in communi ies inhabitants. 3. Fisheries Part B: (a) (b) production of about 5,000,000 fingerlings; and carrying out of fisheries applied research and extension. Agricultural Research and Basic Seed Production A program to redirect research efforts within the State toward improved adaptation of low-cost technologies for small farmers, such program to include, inter alia: (i) four agroecological and natural resource studies to assist in future research planning; (ii) about 111 short- and medium-term applied research trials to improve crop production technology; (iii) establishment of about 188 farm-level observation units to test and adapt integrated farm production systems; (iv) production of seeds on about 75 hectares per annum, including, inter alia, maize, castor beans, cotton, sorghum and rice; (v) production and distribution of about 294 improved breeding goats; (vi) training of technical assistance agents in new or improved agricultural technologies; and (vii) acquisition and utilization of vehicles and equipment related to the carrying out of the research activities included in Part B of the Project. Part C: Rural Extension Services A technical assistance program, to reach about 20,000 Project Beneficiaries, to increase farm productivity and resistance to drought conditions, including, inter alia: (i) (ii) establishment, construction and equipping of about 35 local offices; establishment of about 540 demonstration plots; (iii) recruitment of about 370 agricultural and social extension agents, about 50 specialists, and about 110 administrative staff; (iv) acquisition and utilization of vehicles and equipment related to the expanded extension system under Part C of the Project. Part D: Agricultural Cred A program of medium and long-term Subloans for about 810 Beneficiaries to

6 finance onfarm investments, excluding investments in sugarcane plantations, automobiles and irrigation schemes larger than four hectares per individual farm. Part E: Marketing Services A program to improve farmers knowledge of marketing and prices, improve the provision of agricultural inputs, and improve the marketing services in rural areas, including, inter alia: (i) (ii) expansion of the existing marketing information services provided by the State s Secretariat of Agriculture; marketing of improved seeds; and (iii) establishment of a food wholesale service for private retailers, and expansion of two rural service marketing centers and acquisition of the vehicles, equipment and the initial stock therefor. Part F: Support to Small Rural Communities A program to promote beneficiary participation in the carrying out of the Project, through: (i) the provision of grants to support community investments approved by the Bank on or before March 15, 1993; (ii) the provision of Approved Grants and Approved Municipal Grants for beneficiaries in the Project Area, in accordance with the objectives, terms and conditions contained in the Operational Manual; and (iii) the appointment, by hiring or transfer from government agencies of about 23 full-time community development agents and acquisition and utilization of vehicles and equipment required by such agents. Part G: Project Management and Institutional Strengthening 1. Establishment and operation of the TU. 2. Carrying out of a training program for the staff of the Executing Entities, including, inter alia, induction, management and technical training, and training of trainers for Executing Entities staff, training of farmers in the activities included in the Project and short-term specialized training as the Borrower and the Bank may agree. 3. Provision of training and technical assistance to the persons and entities involved in the implementation of Part F (i) and (H) of the Project, and the carrying out of studies relevant to the implementation of such Part of the Project." (o) Schedule 5 is amended by adding to it the following new municipalities: "1. Bom Principio 2. Bonfim 3. Brasileira 4. Cabeceiras do Ceara 5. Canavieira 6. Coivaras 7. Colonia do Gurgueia 8. Colonia do Ceara 9. Coronel Jose Dias 10. Jacobina do Ceara 11. Jardim do Mulato 12. Lagoa Alegre 13. Lagoa do Barro do Ceara 14. Marcolandia 15. Passagem Franca do Ceara 16. Patos do Ceara 17. Queimada Nova 18. Santa Rosa do Ceara

7 19. Sao Jose do Divino 20. Sao Lourenco do Ceara 21. Sigefredo Pacheco 22. Varzea Branca 23. Alagoinha 24. Bocaina 25. Dirceu Arcoverde 26. Fronteiras 27. Ipiranga 28. Inhuma 29. Padre Marcos 30. Paulistana 31. Rio Grande do Ceara 32. Simoes 33. Urucui 34. Valenca 35. Beneditinos 36. Alto Longa 37. Castelo do Ceara 38. Sao Miguel do Tapuio 39. Sao Juliao 40. Francisco Santos 41. Dom Inocencio 42. Sao Joao da Serra 43. Prata do Ceara". II. Amendments to the Project Agreement: (a) a new WHEREAS clause is inserted in page 1, as its third paragraph, to read as follows: "WHEREAS the State will seek the support of the municipalities located in the Project Area for the efficient carrying out of Approved Municipal Grants under Part F (ii) of the Project;"; (b) paragraph (a) of Section 2.01 is amended by inserting the words "and of the municipalities and communities (with respect to Part F (ii) of the Project),", after the words "Federal Executing Entities", in line 3; (c) paragraph (b) of Section 2.01 is amended by substituting the words "between the State, SUDENE and the Bank-, in line 5. by the words "between the State and the Bank"; (d) paragraph (f) of Section 2.01 is amended to read as follows: "(f) the State shall, through the TU, furnish to the Borrower and the Bank, by not later than May 31, of each year, starting on May 31, 1993, the information necessary for the Borrower to comply with its obligation under Section 3.02 of the Loan Agreement, in a timely manner. (e) such Part Manual."; new Sections 2.06, 2.07 and 2.08 are added, to read as follows: "Section The State shall carry out Part F of the Project, or cause of the Project to be carried out, in accordance with the Operational "Section The State shall: (i) furnish to the Bank, by not later than October 15 of each year, for comments, the proposed annual plan of operation and budget for the carrying out of the activities under the State Sub-project for the following fiscal year; and (ii) taking into account such comments by the Bank, furnish to the Bank, by not later than December 31, of each year, or any later date as the Bank may otherwise agree, the final version of any such annual plan of operation and budget, such plan to be amended from time to time by agreement between the Bank and the State."; "Section The State shall:

8 (a) by not later than June 30, 1993, prepare and furnish to the Bank, for review and comments, the strategy related to a public information campaign for the carrying out of Part F (ii) of the Project, including a description of the methodologies, the costs and a timetable and terms of reference for the carrying out of such campaign; (b) by not later than August 15, 1993, prepare and furnish to the Bank, for review and comments, the prototype materials for the carrying out of such campaign; and (c) carry out such campaign, in accordance with a timetable satisfactory to the Bank."; (f) paragraphs (a) and (b) of Section 3.01 are amended by inserting the words "and the municipalities with respect to Part F (ii) of the Project", after the words "Executing Entities", in line 2 and line 1, respectively; (g) subparagraphs (i) and (ii) of paragraph (5) of Schedule I are amended to read as follows: "(i) with respect to Part F of the Project, the State shall cause the TU: (i) to establish and thereafter maintain a community development fund on terms and conditions satisfactory to the Bank; payments out of this fund shall be made exclusively to meet expenditures incurred in the execution of community development projects which have been approved by the TU following the recommendation of a municipal council therefore, in accordance with guidelines and criteria for selection of such projects satisfactory to the Bank; (ii) to authorize payments out of the funds in respect of an approved community development project only after the TU has entered into an agreement with the municipality, entity or group sponsoring said project, defining said municipality s, entity s or group s responsibilities in the carrying out of said project and in its later maintenance and operation; (iii) to coordinate with other organizations, as necessary, the organization of Project beneficiaries; (iv) not later than March 31, 1988 review with the Bank whether the funds to be provided thereafter for investments under Part F (i) of the Project could be repaid by the Project Beneficiaries; and (y) carry out Part F (ii) of the Project in accordance with performance indicators satisfactory to the Bank; and (ii) with respect to Part F (ii) of the Project, the State shall cause the TU to carry out such Part of the Project in accordance with the Operational Manual". Please be informed that the supervision of the redesigned Project and our joint annual review of project performance will be done in accordance with the performance indicators set forth in the attachment to this letter, as referred to in paragraph (g) above. Such amendments shall become effective as of the date above written, once the Bank receives: (a) a copy of the document duly amending the arrangements referred to in Section 3.01 (e) (i) of the Loan Agreement, satisfactory to the Bank, making such arrangements consistent with the amendments herein above described; and (b) one copy of this letter duly countersigned by the Minister of Finance of the Federative Republic of Brazil, on behalf of the Borrower, and by the Secretary of Planning of the State, on behalf of the State. If these amendments shall not have come into full force and effect by a date ninety (90) days after the date of this letter, such amendments and all obligations of the parties hereunder shall terminate, unless the Bank establishes a later date for the purpose of this paragraph. If these amendments shall terminate under the provisions of this paragraph, the Loan and Project Agreements shall continue in full force and effect, as if these amendments had not been executed. Very truly yours,

9 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Rainer B. Steckhan Director Country Department I Latin America and the Caribbean Region CONFIRMED: THE FEDERATIVE REPUBLIC OF BRAZIL By /s/ Edgard Lincoln de Proenca Rose Date: August 10, 1993 STATE OF CEARA By /s/ Authorized Representative Date: