Developnent Credit. eement S-.~-'.~-,~ Public Disclosure Authorized CONFORMED COPY CREDIT NUMBER 914 KE. Public Disclosure Authorized

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1 Public Disclosure Authorized CONFORMED COPY Public Disclosure Authorized Developnent Credit CREDIT NUMBER 914 KE eement Public Disclosure Authorized (Smallholder Coffee Improvement Project) between REPUBLIC OF KENYA and INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized Dated June 11, 1979 S-.~-'.~-,~

2 CREDIT NUMBER 914 KE DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated June 11, 1979, between REPUBLIC OF KENYA (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) the Borrower intends to contract from the Commonwealth Development Corporation a loan (hereinafter called the CDC Loan) in an amount of about 7,500,000 (equivalent to about fifteen miilion dollars ($15,000,000)) to assist in the financing of Part A of the Project on the terms and conditions set forth in an agreement (hereinafter called the CDC Loan Agreement) to be entered into between the Borrower and the Commonwealth Development Corporation; (C) it is proposed that proceeds of the Credit and of the CDC Loan, together with the funds to be provided by the Borrower, should be made available by the Borrower in accordance with the Financing Plan hereinafter aefined; and WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties 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 Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions). Section Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the

3 -2 - General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "CBK" means the Co-operative Bank of Kenya Limited, a body corporate established under the Co-operative Societies Act (Cap. 490, Laws of Kenya). (b) "CRF" means the Coffee Research Foundation, a body corporate registered as a Company Limited by Guarantee under the Companies Act (Cap. 486, Laws of Kenya). (c) "CBOK" means the Coffee Board of Kenya, a board established under the Coffee Act (Cap. 333, Laws of Kenya). (d) "Co-operative, Society" means 'a society established as a body corporate under the said Co-operative Societies Act being a primary society as therein defined, membership of which is restricted to individual persons. (e) "Co-operative Union" means a district co-operative union established as a body corporate under the sdid Co-operative Societies Act, being a co-operative union as therein defined of which the membership is restricted to primary societies. (f) "Financing Plan" means the financing plan set forth in Schedule 7 hereto, as the same may be amended from time to time by the parties hereto. (g) "IADP Agreement" means the Development Credit Agreement (Integrated Agricultural Development Project) dated July 9, 1976, between the Borrower and the Association. (h) "IADP Unit" means the Unit described in Section 3.02 of the IADP Agreement. (i) "MOA" means the Borrower's Ministry of Agriculture. (j) "MOCD" means the Borrower's Ministry of Co-operative Development. (k) "Project" and references to "Parts" thereof mean the Project and Parts thereof described in Schedule 2 to this Agreement.

4 -3- (1) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and CBK puisuint to Section 3.01 (d) of this Agreement, as the same may be amended from time to time, ahd such term includes all schedules to the Subsidiary Loan Agreement. (m) "Subsidiary Loan" means the Subsidiary Loan As defined in the Subsidiary Loan Agreement. (n) "Work Plan" means a plan for carrying out a portion of the Project which shall be or has been submitted by the Borrower to the Association pursuant to Section 3.01 (b) of this Agreement. ARTICLE II The Credit Section The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equivalent to twenty-seven million dollars ($27,000,000). Section The amount of the Credit may be withdrawn from the Credit Account, in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. Section Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to this Agreement. Section The Closing Date shall be March 31, 1984, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time.

5 71 4- Section Service charges shall be payable semiannually on May 15 and November 15 in each year. Section The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each May 15 and November 15 commencing November 15, 1989, and ending May 15, 2029, each installment to and including the installment payable on May 15, 1999, to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section The currency of the United Sta. 's of America is hereby specified for the purposes of Section 4.U2 of the General Conditions. ARTICLE III Execution of the Project Section (a) The Borrower shall carry out the Project and cause it to be carried out with due diligence and efficiency and in conformity with the provisions of Schedule 2 to this Agreement and the Subsidiary Loan Agreement and appropriate agricultural, engineering and financial practices, and shall provide, promptly as needed, the funds referred to in the Financing Plan, together with such other funds, facilities, services and other resources required for the purpose. (b) (i) Not later than March 15, 1980, and thereafter not later than March 15 in each succeeding year, the Borrower shall submit to the Association for its review and comments a Work Plan covering the period of 12 months commencing on the following July 1. (ii) (iii) Each Work Plan shall set out the detailed proposals of the Borrower for the carrying out of the Project in the period to which it relates. For such purpose, and except as the Association may otherwise agree, such Work Plan shall satisfy the requirements described in Part A of Sch.dule 4 to this Agreement, and contain the information described in Part B thereof. Upon the review and comments of the Association on each Work Plan, the Borrower shall make such

6 -5- revisions thereto as may be appropriate, having due regard to such review and comments, and, except as the Association may otherwise agree, shall carry out the Project in the year in question on the basis of such Work Plan, as so revised. (c) Without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, the Borrower shall cause CBK to perform in accordance with the provisions of the Subsidiary Loan Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable CBK to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (d) The Borrower shall relend the proceeds of the Credit withdrawn under Categories (1) and (2) of paragraph 1 of Schedule 1 to this Agreement and the proceeds of the CDC Loan to CBK under a Subsidiary Loan Agreement to be entered into between the Borrower and CBK under terms and conditions which shall have been approved by the Association. (e) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. (f) The Borrower shall make the proceeds of the Credit withdrawn: (i) for procurement of vehicles included in Part B (2) of the Project available to CBK; and (ii) for Part C of the Project to CRF, in each case on such terms as the Borrower may determine. Section (a) Each loan made by CBK pursuant to Part A of the Project shall be made on the basis of the appraisal report relating thereto referred to in Part A.1 (8) of Schedule 4 hereto, which shall be submitted by the applicant to CBK and shall establish the justification of the proposed loan. (b) The agreements under which funds are lent by CBK to Co-operative Societies (both directly and through Co-operative Unions) for construction and rehabilitation of factories under Part A of the Project shall, except as the Association may otherwise agree, be on the following terms:

7 I II -6- (i) Disbursement period: up to 18 months; (ii) (iii) Repayment period: up to ten years (including grace period); Grace period: up to 18 months; and (iv) Interest rate to the Co-operative Society: not less than 10% per annum; and shall otherwise be on terms and conditions satisfactory to the Association. Section (a) Each loan made by CBK pursuant to Part B of the Project shall include a provision whereby the sub-loans to be made by the Co-operative Society to coffee farmers shall each be made on the basis of an evaluation to be carried out by MOA establishing the justification of the proposed sub-loan, copies of which evaluation shall, upon its request, be made available to the Association. (b) The agreements under which funds are lent by CBK to Co-operative Societies (both directly and through Co-operative Unions) and by Co-operative Societies to coffee farmers for rehabilitation of coffee farms under Part B of the Project shall, except as the Association may otherwise agree, be on the following terms: (i) Disbursement period: up to four years; (ii) (iii) Repayment period: up to seven years (including grace period); Grace period: up to four years; and (iv) Interest rate to the coffee farmer: not less than 10% per annum; and shall otherwise be on terms and conditions satisfactory to the Association. Section (a) The Borrower shall appoint the staff indicated in Schedule 5 to this Agreement under terms of reference which, to the extent indicated therein, shall be satisfactory to the Association. Except as the Association may otherwise agree, such staff shall devote substantially full time to Project activities.

8 -7- (b) The Borrower shall ensure at all times that there are appointed to the positions of Project Manager within the IADP Unit and the Project Coordinator within the MOCD, persons with appropriate qualifications and experience. (c) The IADP Unit shall coordinate the planning, implementation, and evaluation of the Project, including preparation of proposed Work Plans, procurement and distribution of farm inputs, purchase of equipment, construction of buildings, Project staffing, credit facilities, marketing of Project farmers' output, and accounting for Project expenditures; and monitor closely the implementation of the Project. (d) The Interministerial Coordinating Committee described in Section 3.03 of the IADP Agreement shall be responsible for the approval of proposed and final Work Plans and quarterly reports on the Project, review of Project progress and resolution of differences among agencies Darticipating in the Project in accordance with the provisions of such Agreement. For purposes of this Project, the chief executives of CBOK, of the Kenya Planters Co-operative Union and of CRF shall be appointed to the Interministerial Coordinating Committee. In the event that any agency of the Borrower involved in the Project fails substantially to comply with the Work Plan at the time in forcc, the IADP Unit shall advise such agency accordingly and consult with the agency involved. If this fails to resolve the problem, the IADP Unit shall bring the matter to the attention of the chairman of such Committee who shall promptly refer the matter to the Committee for final decision. Section The Borrower shall take the actions described in Schedule 6 to this Agreement by July 1, 1979, or such later date(s) as the Association may agree, to improve the monitoring and evaluation section of the IADP Unit. Section (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods.

9 -8- (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section (a) The Borrower shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. (c) 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 between the Borrower and the Association, the Borrower shall prepare and furnish to the Association a report, of such scope and in such detail as the Association 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 and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit. Section The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Association, if the Association shall so request, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project.

10 -VP ARTICLE IV Other Covenants Section The Borrower shall maintain or cause to be maintained separate records adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations, resources and expenditures, in respect of the Project, of: (a) the IADP Unit, for the entire Project; (b) MOCD's Department of Co-operative Development for Parts A (4), E (1) and E (2) of the Project; (c) CRF for Parts A (4), C (1) and C (2) of the Project; (d)/ CBK for Parts A (1), A (2), A (3), B. (1) and B (2) of the Project; (e) MOA for Part D (1) of the Project; and (f) Each Co-operative Union and Society participating in the Project for their respective activities in connection therewith. Section (a) The Borrower shall cause each of the institutions referred to in Section 4.01 of this Agreement to maintain records adequate to reflect, in accordance with consistently maintained appropriate accounting practices, its operations and financial condition. (b) The Borrower shall: (i) cause each such institution to have the separate accounts respectively referred to in sub-section (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any caser not later than six months after the end of each such year, (A certified copies of the accounts referred to in Section 4.01 (a) 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning such accounts and the audit thereof as the Association shall from time to time reasonably request.

11 - IIMJ!J1 0 I I Section (a) The Borrower shall cause CBK to maintain separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account on the basis of certificates of expenditure. (b) The Borrower shall cause CBK to retain, until five years after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of whgich withdrawals are requested from the Credit Account on the basis of certificates of expenditure and shall enable the Association's accredited representatives to examine such records. (c) The Borrower shall cause CBK to: (i) have the separate accounts referred to in paragraph (ca) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association, as soon as available, but in any case not later than six months after the end of each such year,,,crtified copy of the report of such audit by such auditors, of such scope and in such detail as the Association shall have reasonably requested, including, without limitation to the foregoing, a separate opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Credit withdrawn from the Credit -Account on the basis of certificates of expenditure have been used for the purpose for which they were provided; and (iii) furnish to the Association such other information concerning said separate accounts, records and expenditures and the audit thereof as the Association shall from time to time reasonably request. Section The Borrower shall: (i) cause the factories, buildings, vehicles, equipment and other goods included in the Project to be operated and maintained in accordance with sound agricultural and engineering practices; (ii) cause all necessary renewals and repairs thereof to be made; and (iii) take appropriate administrative and financial measures for the purpose of such operation and maintenance. ARTICLE V Remedies of the Association Section For the purposes of Section 6.02 of the General Conditions the following additional events are specified pursuant to paragraph (h) thereof:

12 (a) the Borrower or CBK shall have failed to perform any of its respective obligations under the Subsidiary Loan Agreement in a manner materially and adversely affecting the carrying out of the Project or the interests of the Association; (b) the organization, powers or responsibilities of CBK shall have been terminated or altered so as to affect materially and adversely the carrying out by CBK of any of its respective obligations under the Subsidiary Loan Agreement; and (c) (i) subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the proceeds of the CDC Loan or the right of CBK to withdraw the proceeds of the Subsidiary Loan shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the CDC Loan Agreement or the Subsidiary Loan Agreement, respectively, or (B) the CDC Loan or the Subsidiary Loan shall have become due and payable prior to the agreed m_,lurity thereof; (ii) subparagraph (i) of this paragraph shall not apply if, in relation to the CDC Loan: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section For the purposes of Section 7.01 of the General Conditions, The following additional events are specified pursuant to paragrap. (d) thereof: (a) any event specified in paragraph (a) of Section 5.01 of.this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Borrower to CBK; and

13 -12- (b) any event specified in paragraphs (b) and (c) (i) (B) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section (b) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and CBK; and (b) all conditions precedent to the effectiveness of the CDC Loan Agreement have been fulfilled save only the effectiveness of this Agreement. Section The following is specified as an additional matter, within the meaning of Section (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and CBK and is legally binding upon the Borrower and CBK in accordance with its terms. Section The date October 11, 1979, is hereby specified for the purposes of Section of the General Conditions. Section The obligations of the Borrower under Sections 4.01, 4.02 and 4.03 and the provisions of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date 20 years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section The Minister of the Borrower for the time being responsible for finance is designated as representative of the Borrower for the purposes of Section of the General Conditions.

14 -13- Section The following addresses are specified for the purposes of Section of the General Conditions: For the Borrower: The Treasury P.O. Box Nairobi, Kenya Cable address: Telex: FINANCE Nairobi For the Association: International Development Association 1818 H Street, N.W. Washington, D.C United States of America Cable address: INDEVAS Washington, D.C. Telex: (ITT) (RCA) or (WUI) 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. REPUBLIC OF KENYA By /s/ John P. Mbogua Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ W. A. Wapenhans Regional Vice President Eastern Africa

15 SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Amounts disbursed by 6,500,000 32% CBK for factory construction and rehabilitation loans (2) Amounts disbursed by 12,600,000 95% CBK for farm input loans, including labor (3) Construction of 300,000 40% buildings under Part C of the Project (4) Vehicles and equip- 700,000 70% ment (other than factory equipment) (5) Training under Parts 900,000 70% A (4), C (2), D and E (1) of the Project (6) Unallocated 6,000,000 TOTAL 27,000, The disbursement percentages have been calculated in compliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied

16 -15- by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Credit decreases or increases, the Association 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 Association. 3. 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 $450,000 may be made in respect of Categories (1), (3), (4) and (5) on account of payments made for such expenditures before that date but after September 1, Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph 1 above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association 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. 5. If the Association 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 Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit.

17 SCHEDULE 2 The Project The Project consists of the following Parts which shall be carried out in accordance with the provisions of this Schedule, Article III of this Agreement and Work Plans: Part A: Coffee Factory Construction, Rehabilitation and Management (MOA and CBK) (1) Provision of credit by CBK to Co-operative Societies, directly and through Co-operative Unions, for, and construction of, about 14 new 3-disc factories each having the capacity to process not less than 120 tons of coffee cherry per week at peak coffee production. (2) (a) Provision of credit by CBK as aforesaid for, and rehabilitation of, about 400 existing factories, including resiting and rebuilding about 50 of these. (b) Provision of credit by CBK as aforesaid for, and construction of, about 50 mechanical drying units located within factories referred to in Part A (1) or (2) (a) hereof. (3) The provision of credit under Part A (1) and (2) hereof shall include the financing of water treatment and recirculation equipment and civil works sufficient to enable the factories to comply with the Borrower's Water Act (Cap. 372, Laws of Kenya). (4) Training by CRF and MOCD of about 1,180 factory managers, 560 factory clerks and produce recorders and 26 factory technicians. Part B: Credit for Rehabilitation of Coffee Farms (MOA, CBK, CBOK) (1) Provision of credit by CBK to Co-operative Societies, directly and through Co-operative Unions, for onlending to coffee farmers to rehabilitate their coffee holdings.

18 (2) Strengthening and expanding CBK's credit services through appointment of additional staff and provision of vehicles. Part C: Coffee Research Foundation (CRF) (1) Provision of additional research facilities (including la 3ratories, staff housing, vehicles, equipment and staff) to CRF and improvement of the training facilities at CRF's Jacaranda Farm. (2) Developing and initial operation of training programs for coffee extension officers and for the factory managers referred to in Part A (4) to quickly transmit research findings to farmers and factory managers. Part D: Extension Services and Training (MOA) Strengthening coffee extension services of MOA through provision of training, office equipment, vehicles and staff; and training coffee farmers through field courses and demonstrations. Part E: Department of Co-operative Development (MOCD) (1) Strengthening the Department of Co-operative Development within the MOCD so as to increase the Department's capacity to assist Co-operative Unions and Societies participating in the Project through provision of staff, office equipment and vehicles. (2) Training of the factory clerks and produce recorders referred to in Part A (4) and of Co-operative Society managers and committee members. The Project is expected to be completed by June 30, <I1T

19 -18- SCHEDULE 3 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, goods and civil 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, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Association 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 documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association 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 question. 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. 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 imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use shall be included. B. Other Procurement Procedures 1. Inputs and tools for use by coffee farmers financed out of credit made available out of the proceeds of the credit may be procured through normal trade channels or in accordance with procedures applicable to agencies of the Borrower.

20 Civil works costing not more than $10,000 equivalent may be carried out by force account. 3. Miscellaneous equipment and supplies costing not more than $10,000 equivaleat may be procured through normal trade channels or in accordance with procedures applicable to agencies of the Borrower. 4. Vehicles which cannot be procured through bulk contracts for 10 or more vehicles and other goods and civil works not referred to in paragraphs 1, 2 or 3 hereof shall be procured in accordance with local competitive bidding procedures applicable to agencies of the Borrower. C. Preference for Domestic Manufacturers In the procurement of vehicles in accordance with the procedures described in Part A of this Schedule, vehicles manufactured in Kenya, if any, may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of vehicles 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 vehicles manufactured in Kenya if the bidder shall have established to the satisfaction of the Borrower and the Association that the manufacturing cost of such vehicles includes a value added in Kenya equal to at least 20% of the ex-factory bid price of such vehicles. (2) Group B: all other bids offering vehicles manufactured in Kenya. (3) Group C: bids offering any other vehicles. 3. All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import

21 -20- taxes on vehicles to be imported and any sales or similar taxes on vehicles to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. 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 vehicles 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 vehicles offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such vehicles 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. D. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association, or 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 Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation

22 and comparison of the bids received, and such other information as the Association shall reasonably request. The Association 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 Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit 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 Association shall reasonably request. The Association 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 Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, 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.

23 SCHEDULE 4 Work Plans (Section 3.01 (b)) Part A: Work Plan Requirements I. Contents (1) Project budget for the period covered including: (a) in respect of each agency involved in the Project: (i) proposed capital expenditures (e.g. on vehicles, equipment, and civil works); and (ii) all proposed recurrent expenditures on salaries, fuel, repairs and maintenance directly attributable to Project activities; (b) proposed provincial administrative budgets and district administrative budgets for the Project, each detailing at the provincial and district levels respectively the items specified in (a) (i) and (ii); and (c) estimated credit to be supplied by CBK for Parts A (1), (2) and (3) and Part B (1) of the Project, indicating for each Co-operative Society the amount, allocated to Part A or B, interest rate and repayment dates of each proposed loan to each Cooperative Society. (2) Work, procurement, staffing and training plans, including programs for each district involved. (3) Proposed table covering the categories of items listed in paragraph 1 of Schedule 1 to this Agreement and indicating, in respect of each such item, the amount of the Credit proposed to be allocated thereto to cover the percentage of expenditures to be financed out of the Credit for the fiscal year to which such Work Plan relates. (4) Any proposed variation from the procurement procedures described in Schedule 3 to this Agreement.

24 - 23- (5) The amounts to be lent to CBK pursuant to the Subsidiary Loan Agreement. (6) The Work Plan shall include confirmation that each of the Co-operative Societies included in the Work Plan is capable of carrying out the project assigned to it thereby in accordance with adequate financial and administrative practices. Such confirmation shall be given for each Society by MOCD, CBK, MOA and the Cooperative Union of which such Society is a member. (7) The Work Plan shall include provision for the ordering of farm inputs by not later than six months before anticipated date of use. (8) Each loan included in the Work Plan to be made by CBK pursuant to Part A (1), (2) or (3) of the Project to a Co-operative Society (either directly or through a Co-operative Union) shall be made on the basis of an appraisal report establishing the justification of the proposed loan, to be prepared by MOCD on behalf of such Co-operative Society and submitted to, and approved by, the Committee referred to in Part A4II (2) hereof. II. Procedures (1) Appointment of Coordinators. Provincial and District Project Coordinators shall be appointed not later than June 1 preceding the participation of the district in the subsequent crop season. (2) District Work Plans shall be submitted to the IADP Unit through the Provincial Coordinating Committee, referred to in the IADP Agreement, by the District Agricultural Officer (DAO) who shall, by signing the District Work Plan, certify that it has been considered in full committee and approved by a District IADP Coordinating Committee, as so referred to, consisting of the DAO, as chairman, District Co-operative Officer, District IADP Coordinator, as secretary, Co-operative Union Manager, District Development Officer and District Coffee Officers. (3) The proposed Work Plan signed by the head of the IADP Unit shall be submitted to the Association by the IADP

25 -24- Unit, and shall also be signed by the chairman of the interministerial coordinating committee, for IADP who shall in this capacity, act as a representative of the Borrower for purposes of Section of' the General Conditions, and who shall by so signing, certify that the proposed Work Plan has been considered in full committee and approved by such committee. (4) By signing the Work Plan as aforesaid, the head of the IADP Unit shall be deemed to have certified that the confirmation referred to in Section I (6) hereof have been duly given. Part B: Supporting Information to be Furnished to the Association (1) In respect of each disttict proposed to be assisted in the period to which the proposed Work Plan relates, the following: (a) Name of district. (b) Number of participating farmers and the basis of their selection. (c) Soil and water conservation measures proposed for the location. physical devel- (d) Description of annual increase in opment (number of hectares). (e) Description of exact input package recommended for district. (f) Quantities of farm inputs required. (g) Names, locations, financial status, management, supervision, and auditing arrangements for Cooperative Society (or Societies) and Union(s) which will supply farm inputs and marketing services in each participating district. (h) Location of each relevant input distribution and marketing center, and maximum distances from participating farmers.

26 (i) Numbers of extension staff and ratio to participating farmers. (j) Training program for farmers in current and subsequent years, and names of Farmer Training Centers responsible for such training. (k) Amounts of credit subdivided as to purposes, e.g.: (i) fertilizers; (ii) (iii) (iv) planting material; insecticides and disease control inputs; labor; (v) tools; and (vi) other. (1) Adequacy of processing facilities and names and capacities of participating coffee factories. (m) Plans for construction and rehabilitation of coffee factories in district involved. (n) On request of the Association, a copy of the Appraisal Reports referred to in Part A.1 (8) of this Schedule. (2) The following information aggregated from the foregoing: (a) Number of districts. (b) Number of farmers. (c) Anticipated physical development. (d) Inputs required, analyzed as to fertilizers, planting material, insecticides, disease control inputs, labor, tools and others.

27 (e) Credit amounts by source. (f) Staff changes and appointments proposed. (g) Aggregate processing capacity of factories involved. (3) All Project quarterly reports not previously furnished the Association to and including the last quarter ending prior to the submission of the proposed Work Plan. I J

28 SCHEDULE 5 Project Staffing (Section 3.04) Agency/Post MOA Level I' Level 1/ 1 - Project Manager 2/ [L] 17 - Factory 2 - Provincial Coffee Technicians / [J] Officers / [K] 1 - Accountant [J] 9 - District Coffee 3 - Accounts Officers./Z 3/ [J] Assistants [G] 4 - Provincial Factory Engineers Z/$ 3/ [L] CRF 4 - Research Officers 3 - Advisory Officers 2 - Field Officers 2 - Technicians 1 - Training Officer 6 - Field Assistants 2 - Laboratory Assistants CBK 3 - Field Loan Supervisors 2/ MOCD 1 - Assistant 10 - Assistant Commissioner Co-operative (Project Coordi- Officers 2/ nator). 2* [L] 20 - Co-operative [G] 1 - Senior Co-operative Assistants -V [F] Officer* [K] 7 - Coffee Audit 1 - Accountant [J] Officers 2/ [K] 1 - (Transport) Pl nning Officer 27 3* [K] 1/ Standard Kenya Civil Service Job Grades. 2/ Terms of reference to be satisfactory to the Association. 3/ These officers shall be appointed prior to the Project startup activities in their respective Provinces and Districts. * These personnel shall be appointed by July 1, qi

29 SCHEDULE 6 Monitoring and Evaluation Section of the IADP Unit The Borrower shall take the following actions to improve the monitoring and evaluation performance of the IADP Unit: A. Revising and Implementing of the Proforma Survey (Agency Questionnaire) 1. Revise forms to conform with basic information requirements and recommend new timetables for submission (taking into account the minimum requirements and minimum work loads on the agencies). 2. Present the revised forms to the Interministerial Committee for approval. 3. Discuss the revised forms with and train agencies' staff responsible for the periodic completion of survey. 4. Receive first agency reports and follow-up on delinquencies. 5. Analyze and prepare aggregated report. 6. Circulate the report or the proforma analysis to all management heads and Interministerial Coordinating Committee. 7. Subsequently consolidate reports with farm survey and prepare semiannual analysis. B. Improving and Finalizing the Farm Survey System 1. Determine software and hardware needs for processing the survey data. 2. Obtain necessary personnel (hiring consultants - use of central computer system or adapt to the Hewlett-Packard system and test run first analysis). 3. Prepare narrative analysis of processed data from survey to attach to tabular materials. 4. Circulate the report on the Farm Survey to all management heads and to the Interministerial Coordinating Committee.

30 C. Other Improvements 1. Employ under Part D of the Project a senior evaluator/analyst to develop inter-active programs to compare proforma data with farm survey data. 2. Develop a capability for ad hoc field studies to react to special problems. 3. Consult key officials for their information needs, in participating agencies and respond to their information requirements. 4. Communicate -ertically with officials at the provincial and district level both within MOA and CBK. 4

31 Jx SCHEDULE 7 Financing Plan (expressed in millions of US$ equivalent) Kenya (including Co- Category perative Societies) IDA CDC Total A. Factory construction and rehabilitation loans B. Farm input loans C. Construction of building under Part C of the Project D. Vehicles and equipment (other than factory equipment) E. Recurrent costs (MOA, MOCD, CBK, CRF) F. Training G. Unallocated