(National Irrigation Program Northeast Irrigation Project) between FEDERATIVE REPUBLIC OF BRAZIL. and

Transcription

1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 3170 BR Public Disclosure Authorized (National Irrigation Program Northeast Irrigation Project) Public Disclosure Authorized between FEDERATIVE REPUBLIC OF BRAZIL and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized Dated April 19, 1991 LOAN AGREEMENT LOAN NUMBER 3170 BR AGREEMENT, dated April 19, 1991, between FEDERATIVE REPUBLIC OF BRAZIL (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; (B) the Project will be carried out by the Borrower, through SENIR and DNOCS (each as hereinafter defined) and with the participation of CODEVASF, and the Borrower will make available the proceeds of the Loan: (i) to CODEVASF pursuant to an agreement (the Subsidiary Agreement as hereinafter defined); and (ii) to SENIR and DNOCS under arrangements (the Financial Arrangements as hereinafter defined) as provided in this Agreement;

2 (C) by the agreement of even date herewith (the Project Agreement) between the Bank and CODEVASF, CODEVASF has agreed to undertake the obligations set forth in the Project Agreement; WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 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) "Account Bank" means the Bank referred to in paragraph (c) of Section 2.02 of this Agreement; (b) "Annual Operating Plan" means each annual operating plan provided to the Bank each year in respect of each of SENIR, DNOCS and CODEVASF (each as hereinafter defined) and which shall include an implementation schedule in respect of implementation of the Project, and "Consolidated Annual Operating Plan" means the consolidated annual operating plan prepared in each year by SENIR (as hereinafter defined) consolidating all such Annual Operating Plans in accordance with Section 3.07 of this Agreement; (c) "Central Bank" means the Central Bank of Brazil, Banco Central do Brasil, established by Lei No , dated December 31, 1964; (d) Agreement; "CESA" means the account referred to in Section 2.02 (b) of this (e) "CEPISA" means Centrais Eletricas do Piaui S.A., established by Lei Estadual No of December 1, 1959; (f) "CODEVASF" means Companhia de Desenvolvimento do Vale do Sao Francisco, established by the Borrower s Lei No of July 14, 1974; (g) "COELCE" means Companhia Energetica do Ceara, established by Lei Estadual No of July 5, 1971; (h) "COELBA" means Companhia de Eletricidade do Estado da Bahia, established by Lei Estadual No of October 16, 1959; (i) "Contractual Arrangement" means an arrangement entered into or to be entered into between an Electrical Entity (as hereinafter defined) and CODEVASF, or the Borrower, through DNOCS, for purposes of carrying out Part A of the Project, pursuant to Section 3.09 (a) of this Agreement and Section 2.06 of the Project Agreement (as hereinafter defined); and "Contractual Arrangements" means, collectively, all such Contractual Arrangements; (j) "Cruzeiro" means a unit of the currency of the Borrower; (k) "Decree No " means Decreto No of May 10, 1990 of the Borrower, as amended to the date of this Agreement, pursuant to which SENIR (as hereinafter defined) was empowered to coordinate and carry out the Borrower s irrigation programs; (l) "DNOCS" means Departamento Nacional de Obras Contra as Secas, an agency

3 (autarquia) of the Borrower established pursuant to Decree-Law No of December 28, 1945, as amended by Law No of June 1, 1963; (m) "Electrical Entities" means collectively, all of the entities defined in paragraphs (e), (g) and (h) of this Section, and such other electrical entities as shall be acceptable to the Borrower and the Bank for purposes of carrying out a portion of Part A of the Project; "Electrical Entity" means any one of such Electrical Entities; (n) Agreement; "FESA" means the account referred to in Section 2.02 (c) of this (o) "Financial Arrangement" means each of the arrangements to be made pursuant to Section 3.01 (c) of this Agreement between the Borrower and SENIR (as hereinafter defined) and the Borrower and DNOCS, to transfer proceeds of the Loan to SENIR (as hereinafter defined) and DNOCS, pursuant to this Agreement and in a manner satisfactory to the Borrower and the Bank; (p) "FSRMM" means AFRMM, the Borrower s Freight Surcharge for the Renewal of the Merchant Marine, Adicional ao Frete para Renovacao da Marinha Mercante, established by Decree-Law No of December 30, 1970 as amended to December 31, 1987, or any other tax, levy or charge that, in the reasonable opinion of the Bank, may substitute for it, in whole or in part, after January 1, 1988; (q) "Implementation Agreement" means the agreement to be entered into between MARA, SENIR (each as hereinafter defined), CODEVASF and DNOCS, pursuant to Section 3.01 (b) of this Agreement and Section 2.01 (c) of the Project Agreement setting out each parties responsibility for execution of the irrigation and drainage works, establishment of Irrigation Districts (as hereinafter defined), establishment of project management units in each of SENIR (as hereinafter defined), CODEVASF and DNOCS and management of the irrigation schemes for the purposes of carrying out the Project as the same may be amended from time to time, and such term includes all schedules thereto; (r) "Irrigation District" means each district organized by CODEVASF and the Borrower, through DNOCS, in accordance with the Project and each of which shall be a private association under Brazilian law and the members of which shall be Project Beneficiaries (as hereinafter defined); (s) "Management Committee" means the management committee which shall consist of the heads of SENIR (as hereinafter defined), CODEVASF and DNOCS, and which shall meet periodically to evaluate the execution of Part A of the Project and make decisions and recommendations on issues presented to such committee by the Project Coordinating Unit (as hereinafter defined); (t) "MARA" means Ministerio da Agricultura e Reforma Agraria, the Borrower s Ministry of Agriculture and Agrarian Reform; (u) "Monitoring System" means the information system set up by SENIR (as hereinafter defined) pursuant to Section 3.05 of this Agreement which shall have the following objectives: (i) to provide information on the physical, financial and organizational progress of the Project; (ii) to monitor the organization of water distribution and management, and operation and maintenance of the irrigation schemes under the Project; and (iii) to monitor and evaluate the effect of the Project on the farmers in terms of farmer services, availability of inputs, market situation, land use, crop intensity and production levels; (v) "Plano de Aplicacao" means the annual plan agreed to at the beginning of each fiscal year between MARA and the Ministerio da Economia, Fazenda e Planejamento of the Borrower, for release of funds for expenditures required to carry out the relevant Consolidated Annual Operating Plan to be financed by the Borrower either from the counterpart funds or from the proceeds of the Loan; (w) "Project Agreement" means the agreement between the Bank and CODEVASF of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to such Project Agreement;

4 (x) "Project Area" means irrigable land in approximately 4,875 hectares in the municipality of Bom Jesus da Lapa in Bahia, 8,725 hectares in the municipalities of Barreiras and Riachao das Neves in Bahia, 8,207 hectares in the municipalities of Acarau, Marco and Bela Cruz in Ceara, 10,500 hectares in the municipalities of Russas and Limoeiro do Norte in Ceara, 11,872 hectares in the municipality of Nova Guadalupe and 7,509 hectares in the municipalities of Parnaiba and Buriti dos Lopes in Piaui, and the land belonging to the PONTAL irrigation scheme in Pernambuco; (y) "Project Beneficiary" means a farmer, or group of farmers, or farming organization with juridical capacity to contract under the laws of the Borrower (including Small Farmers as hereinafter defined) selected to irrigate farm land in the Project Area; (z) "Project Coordinating Unit" means the project coordinating unit within SENIR (as hereinafter defined) for the purposes of inter alia: (a) assisting SENIR (as hereinafter defined), CODEVASF and DNOCS in multi-year and annual planning and ensure consistency with sector policies and guidelines; (b) providing technical implementation assistance to SENIR (as hereinafter defined), CODEVASF and DNOCS; (c) supervising implementation of the irrigation program; (d) organizing and managing a sector Monitoring System; and (e) assisting SENIR (as hereinafter defined) with regard to the policy and funding decisions of MARA; (aa) "Resettlement Plans" means the plans prepared by the Borrower, through SENIR (as hereinafter defined), DNOCS and CODEVASF previously agreed to by the Bank prior to the entering into of this Agreement for the reallocation of the rural families affected by the implementation of the Project; (bb) "Special Account" means either of the accounts to be opened pursuant to paragraphs (b) and (c), and maintained pursuant to paragraph (d) of, Section 2.02 of this Agreement; (cc) "Subsidiary Agreement" means the agreement to be entered into between the Borrower, through MARA, and CODEVASF, pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Agreement; (dd) "SUCAM" means Superintendencia de Campanhas de Saude Publica of the Borrower, established by Decreto No of May 22, 1970 of the Borrower; (ee) "SENIR" means Secretaria Nacional de Irrigacao, within MARA, established pursuant to Decree No ; (ff) "Small Farmer" means a Project Beneficiary who has been allocated from 2 to 8 hectares of irrigable land in the Project Area(s); and "Small Farmers" means any or all of such small farmers; (gg) "Technical Unit" means the technical unit established in SENIR and maintained in accordance with Section 3.04 of this Agreement; and (hh) "Treasury" means Departmento do Tesouro Nacional, of the Ministry of Economy, Finance and Planning, Miniserio da Economia, Fazenda e Planejamento, of the Borrower. ARTICLE II The Loan Section The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of two hundred and ten million dollars ($210,000,000) being the sum of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement

5 and to be financed out of the proceeds of the Loan. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars an account in its Central Bank on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, this account (hereinafter called the CESA) shall be made exclusively to meet expenditures in Cruzeiros incurred in respect of the reasonable cost of goods and services required to carry out the Project and to be financed by the Bank pursuant to paragraph (a) above. (c) The Borrower for the purposes of the Project, shall open and maintain thereafter in a bank, acceptable to the Bank, (the Account Bank) an account in dollars on terms and conditions satisfactory to the Bank. Disbursements out of this account (hereinafter called the FESA) shall be made exclusively to meet expenditures in currencies other than Cruzeiros incurred in respect of the reasonable cost of goods and services required to carry out the Project and to be financed by the Bank pursuant to paragraph (a) above. (d) Deposits into, and payments out of, the CESA and the FESA shall be made in accordance with the provisions of Schedule 4 to this Agreement. The Borrower, through the Central Bank and SENIR, shall furnish to the Bank each month certified statements of the CESA and the FESA, respectively. Section The Closing Date shall be June 30, 1995, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. 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 (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank s investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. (iii) a calendar year. "Semester" means the first six months or the second six months of (d) On such date as the Bank may specify by no less than six months notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each

6 Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) Quarter means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section Interest and other charges shall be payable semiannually on April 15 and October 15 in each year. Section The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section The Minister of Agriculture and Agrarian Reform and any person or persons duly authorized in writing by the Minister for such purpose are designated as representatives of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, agricultural, irrigation and environmental practices (i) shall carry out through: SENIR, Parts C (a) and C (b) of the Project; and DNOCS, that portion of Parts A, B and C (d) of the Project located in the states of Ceara and Piaui and Part C (c) of the Project; under the Financial Arrangements and the Implementation Agreement; (ii) shall cause CODEVASF to carry out a portion of Parts A, B and C (d) of the Project in the State of Bahia and Part C (e) of the Project in the State of Pernambuco in accordance with the provisions of the Project Agreement, the Subsidiary Agreement and the Implementation Agreement; (iii) shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the carrying out of the Project; and (iv) shall not take or permit to be taken any action which would prevent or interfere with the carrying out of the Project. (b) As part of the foregoing, the Borrower, through MARA, shall enter into the Implementation Agreement with SENIR, CODEVASF and DNOCS setting out each party s responsibilities for the purposes of carrying out the Project, in a manner satisfactory to the Bank. (c) The Borrower shall make part of the proceeds of the Loan available to CODEVASF under the Subsidiary Agreement to be entered into between the Borrower, through MARA, and CODEVASF under terms and conditions which shall have been agreed with the Bank, and part of the proceeds of the Loan available to SENIR and DNOCS under the Financial Arrangements. (d) In respect of the Subsidiary Agreement, the Financial Arrangements and the Implementation Agreement the Borrower shall exercise its rights under in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Agreement or the Financial Arrangements or the Implementation Agreement or any provision thereof. Section Except as the Bank shall otherwise agree, procurement of the goods, works and consultants services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 5 to this

7 Agreement. Section The Bank and the Borrower hereby agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by CODEVASF in respect of its portion of Parts A, B and C (d) of the Project, pursuant to Section 2.03 of the Project Agreement. Section The Borrower shall maintain within SENIR the Technical Unit with a structure, functions and staffing satisfactory to the Bank. The functions of the Technical Unit include: (a) updating of sectoral strategies, policies and programs and preparation of general studies related to irrigation development; (b) planning and monitoring of program implementation and performance studies, financial planning, and periodic performance review of relevant subsector institutions; and (c) the preparation of a technical manual and standards for guiding SENIR, CODEVASF and DNOCS and State irrigation organizations in the implementation of irrigation projects. Section The Borrower shall: (a) maintain within SENIR, throughout the period of Project implementation, the Project Coordination Unit, with functions and organization, including a Project manager and adequate number of staff, all acceptable to the Bank; (b) establish, through SENIR, the Monitoring System, in a manner satisfactory to the Bank; and (c) prepare through DNOCS, not later than June 30, 1991, staffing, training and development plans, satisfactory to the Bank, for the purposes of the institutional development of DNOCS under Part C (c) of the Project. Section Without limitation to Sections 9.01 and 9.07 of the General Conditions: (a) The Borrower shall, through SENIR, furnish, not later than three months after the end of each semester and each fiscal year respectively, semi-annual and annual progress reports concerning the implementation of the Project of such scope and detail as the Bank shall reasonably request. (b) The Borrower, through SENIR, shall, at the request of the Bank, exchange views with the Bank with regard to: (i) the progress of the Project; (ii) the performance of SENIR and DNOCS obligations in relation to the Project; (iii) the Implementation Agreement and the Contractual Arrangements; and (iv) other matters relating to the purposes of the Loan. (c) The Borrower, through SENIR, shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of Loan, or the performance by SENIR and DNOCS of their respective obligations in relation to the Project and under the Implementation Agreement and the Contractual Arrangements. Section Without limitation to or restriction upon its obligations under Section 3.01 of this Agreement, the Borrower shall: (a) through SENIR, in each year prepare or obtain in respect of the Project (as appropriate) a draft Annual Operating Plan for or from, each of SENIR, CODEVASF and DNOCS, consolidate such Annual Operating Plans, and, by June 30, furnish a draft Consolidated Annual Operating Plan to the Bank for its review and comment, and, further thereto, prepare a final Consolidated Annual Operating Plan taking into account such review and comment; (b) in each fiscal year, cause the Treasury to make available to SENIR, CODEVASF and DNOCS, through MARA, all funds for expenditures to be financed by the Borrower, either from the counterpart funds or from the proceeds of the Loan required to carry out the Project in accordance with, and within the time period set forth in, the relevant Plano de Aplicacao; and (c) finance the expenditures in respect of Recurrent Costs, which term for these purposes means any expenditures financed by the counterpart funds in respect of salaries and related costs of the personnel required for the planning, budgeting and coordination activities in the Irrigation Districts during a fiscal year.

8 Section The Borrower, through MARA, shall: (i) cause charges to Project Beneficiaries for water supplied under the Project to be set at levels sufficient to recover: (A) investment cost, plus a minimum rate of interest of 3% per annum, on the investment cost of off-farm irrigation works financed in whole or in part from the proceeds of the Loan; and (B) the operation and maintenance costs of such works; (ii) cause such charges to be made by each Irrigation District to each Project Beneficiary to be initially made on a progressively increasing basis for four years, beginning the first year of cultivation by each Project Beneficiary; and (iii) adjust such charges to achieve such cost recovery on at least an annual basis and in accordance with a methodology satisfactory to the Bank and ensure that the Bank has an opportunity to review any proposed water charges prior to making any adjustment thereto. Section The Borrower: (a) through SENIR and DNOCS, shall maintain the Contractual Arrangements entered into with the relevant Electrical Entities (DNOCS with COELCE and with CEPISA), upon the terms and conditions previously agreed with the Bank, for the provision of energy required by the irrigation schemes located in Ceara and Piaui under Part A of the Project; (b) through DNOCS, shall enter into an agreement with SUCAM, no later than December 31, 1992, under terms and conditions satisfactory to the Borrower and the Bank, for the carrying out of a campaign against water-borne diseases in the Project Area; (c) shall enter into an agreement, no later than May 30, 1991, in accordance with the proposal therefor provided to the Bank in accordance with Section 6.01 (c) (ii) of this Agreement, for the provision of technical assistance to DNOCS for the implementation by DNOCS of its part of the Project; and (d) except as the Bank shall otherwise agree, shall not take or concur, and shall ensure that SENIR and DNOCS do not take or concur, in any action which would have the effect of amending, abrogating, assigning, waiving or failing to enforce any of the arrangements and the agreements referred to in (a), (b) and (c) above. Section The Borrower, through DNOCS, shall implement the relevant Resettlement Plans, previously agreed with the Bank, in accordance with the terms therein contained, to ensure the settlement of Project Beneficiaries under the parts of the Project carried out by DNOCS. Section Except as otherwise agreed by the Bank, the Borrower, through DNOCS, shall, with respect to the Irrigation Schemes located at Ceara and Piaui under Part A of the Project: (a) conclude selection of Project Beneficiaries no later than December 31, 1992, or such later date as shall be agreed to by the Bank, and, on conclusion of such selection, organize in each irrigation scheme, an Irrigation District, and cause to be maintained all such Irrigation Districts with an organization, structure and functions, including a general manager and competent staff in adequate numbers, all acceptable to the Borrower and the Bank; (b) cause each Irrigation District referred to in (a) above to sub-contract, on terms and conditions satisfactory to the Borrower and the Bank, no later than three months after its establishment in accordance with (a) above, the provision of extension and marketing services to such Irrigation District, to an entity specialized in the provision of such services which has qualifications and experience satisfactory to the Borrower and the Bank; and (c) cause each Irrigation District referred to in (a) above to subcontract, on terms and conditions satisfactory to the Borrower and the Bank, no later than

9 three months after its establishment in accordance with (a) above, the operation and maintenance of irrigation works to an entity specialized in such operation and maintenance, which has qualifications and experience satisfactory to the Borrower and Bank. Section The Borrower, through MARA, shall: (a) cause each of SENIR and DNOCS to appoint, throughout the execution of the Project, a chief, for each of the SENIR and DNOCS project management units and cause each of SENIR and DNOCS to appoint heads of the field units for each relevant irrigation scheme established by DNOCS, with qualifications, experience and terms of reference, all acceptable to the Bank; and (b) (i) maintain the special group currently existing in DNOCS to oversee the management of agricultural development in irrigated areas until such time as the directorate of hydro-agricultural operations referred to in paragraph (ii) of this subparagraph is created; and (ii) no later than October 31, 1991, present for fiscal consideration to the appropriate branches of Government an official proposal for the creation in DNOCS of a directorate of hydro-agricultural operations to oversee the management of agricultural development in irrigated areas, with structure, functions and staffing, and thereafter to maintain the same. ARTICLE IV Financial Covenants Section (a) The Borrower shall maintain and cause each of SENIR and DNOCS to maintain, separate records and accounts adequate to reflect in accordance with sound accounting practices the resources and expenditures in respect of the Project. (b) The Borrower shall: (i) have such separate records and accounts, and, where appropriate, financial statements (balance sheets, statements of income and expenses and related statements) and the records and accounts for the CESA and the FESA for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of the aforesaid accounts and financial statements for such year so audited; and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) (a) of this expenditures; maintain or cause to be maintained, in accordance with paragraph Section, records and accounts reflecting such (ii) retain, or ensure the retention of, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made; (iii) enable the Bank s representatives to examine such records; (iv) ensure, or cause each of SENIR and DNOCS to ensure, that the records and accounts referred to in paragraph (c) (i) of this

10 Section and those for the CESA and the FESA for each fiscal year are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE V Remedies of the Bank Section Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified; provided, however, that, if any of the events specified in paragraphs (a), (b), (c) or (e) shall have occurred and be continuing, the suspension of the Borrower s right to make withdrawals from the Loan Account may be limited to withdrawals in respect of Project expenditures relating to any of SENIR, DNOCS or CODEVASF, as the same shall have been affected by such event: (a) CODEVASF shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that CODEVASF will be able to perform its obligations under the Project Agreement. (c) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment or abolition of any of SENIR, CODEVASF or DNOCS or for the suspension of any of SENIR, CODEVASF or DNOCS operations or part of its operations, and, by such time, the Borrower shall not have assumed, assigned or transferred the obligations of SENIR, CODEVASF or DNOCS which have been so affected, with the prior acceptance of, and in a manner satisfactory to, the Bank. (d) Decree No shall have been amended, suspended, abrogated, repealed or waived so as to affect the carrying out of the Project. (e) a change shall have been made in any of the Contractual Arrangements or there shall have been a failure to enforce any of the Contractual Arrangements, provided that in such event the Borrower, through SENIR, DNOCS or CODEVASF, has not made alternative arrangements satisfactory to the Bank for the transfer of any such Contractual Arrangement, or for the completion of the part or parts of the Project governed by such Contractual Arrangement. Section Pursuant to Section 7.01 (h) of the General Conditions, the following additional event is specified, namely, that any of the events specified in paragraph (a) or (c) or (d) or (e) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower. ARTICLE VI 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: (a) the Subsidiary Agreement has been executed on behalf of the Borrower and CODEVASF and the Financial Arrangements have been formalized between the Borrower and SENIR and DNOCS; (b) this Agreement has been duly registered by the Central Bank; (c) the Borrower has: (i) entered into, through SENIR, an agreement satisfactory to the Bank for the provision of technical assistance under the National Irrigation Program; and (ii) prepared, through DNOCS, a proposal satisfactory to the

11 Bank concerning the provision of technical assistance to DNOCS for the implementation by DNOCS of its part of the Project; (d) the Borrower, through SENIR and DNOCS, and CODEVASF have acquired all irrigable land in the Project Area for the purposes of implementation of Parts A, B and C (d) of the Project; (e) the Borrower has entered into the Implementation Agreement satisfactory to the Bank with SENIR, DNOCS and CODEVASF setting forth each parties respective responsibilities in respect of carrying out the Project; (f) the Borrower, through SENIR, has established the Monitoring System, satisfactory to the Bank, for monitoring project activities; (g) the Borrower has allocated adequate funds from its proposed fiscal year 1991 budget to be made available to SENIR, DNOCS and CODEVASF for implementation of the 1991 Consolidated Annual Operating Plan; and (h) that all necessary acts, consents and approvals to be performed or given by the Borrower, its political subdivisions or agencies, by any agency thereof, or otherwise to be performed or given in order to authorize the carrying out of the Project and to enable the Borrower to perform its obligations pursuant to this Agreement, together with all necessary powers and rights in connection therewith, have been performed or given. 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: (a) that the Project Agreement has been duly authorized or ratified by CODEVASF, and that such Project Agreement is legally binding upon CODEVASF in accordance with its terms; (b) that the Subsidiary Agreement has been duly authorized or ratified by the Borrower and CODEVASF, and is legally binding upon the Borrower and CODEVASF, in accordance with its terms and that the Financial Arrangements have been duly formalized, as appropriate, by each of the parties thereto; (c) that this Agreement has been duly registered by the Central Bank; (d) that each of the agreements entered into by the Borrower, pursuant to Section 6.01 (c) of this Agreement has been duly authorized or ratified by the parties thereto and that each such agreement is legally binding upon the respective parties thereto in accordance with its terms; and (e) that the Implementation Agreement entered into pursuant to Section 6.01 (e) of this Agreement has been duly authorized or ratified by each of the Borrower, SENIR, CODEVASF and DNOCS, and that such agreement is legally binding upon each of the Borrower, SENIR, CODEVASF and DNOCS, in accordance with its terms. Section The date July 17, 1991 is hereby specified for the purposes of Section of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section Except as provided in Section 2.08 of this Agreement, the Minister of Economy, Finance and Planning of the Borrower is designated as representative of the Borrower for the purposes of Section of the General Conditions. Section The following addresses are specified for the purposes of Section of the General Conditions: For the Borrower: Ministerio da Economia,

12 Fazenda e Planejamento Esplanada dos Ministerios, Bloco "P" Brasilia, D.F. Brasil Cable address: MEFP Brasilia, Brasil Telex: MFAZ BR With copies to: SENIR Ed. Sede da CODEVASF SGAN. Q.601 Conj. 01 4o. Andar Brasilia D.F. Brasil Telex: DEAIN Departamento de Assuntos Internacionais MEFP Esplanada dos Ministerios, Bloco "K" Brasilia, D.F. Brasil Telex: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C United States of America Cable address: INTBAFRAD Washington, D.C. Telex: (TRT), (RCA), 64l45 (WUI) or (FTCC) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Brasilia, Brazil, as of the day and year first above written. FEDERATIVE REPUBLIC OF BRAZIL By /s/ Helio Gil Gracindo Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

13 By /s/ George P. Papadoupoulos Authorized Representative HIS EXCELLENCY MR. FERNANDO COLLOR DE MELLO PRESIDENT OF THE FEDERATIVE REPUBLIC OF BRAZIL 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) Civil works 58,000, % of foreign expenditures and 25% of local expenditures (2) Goods and 115,000, % of foreign equipment expenditures and 40% of local expenditures (3) Consultants 22,000, % of foreign and other expenditures and services 30% of local expenditures (4) Unallocated 15,000,000 TOTAL 210,000, For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for: (a) expenditures prior to the date of this Agreement; and (b) expenditures for goods the importation of which has been prohibited by the Borrower. SCHEDULE 2 Description of the Project The objectives of the Project are:

14 (a) (b) Piaui; and to develop irrigation in the Project Area; to increase agricultural production in the States of Bahia, Ceara and (c) to facilitate the future expansion of the irrigation subsector by institutional development, including the creation and development of Irrigation Districts in each irrigation scheme under the Project. The Project is to be carried out in the Project Area and consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve the above-mentioned such objectives: Part A: Construction of Six new Irrigation Schemes 1. Carrying out of construction of the six new irrigation schemes in the Project Area listed in the Annex to this Schedule including off-farm irrigation infrastructure, diversion dams, pumping stations, pressured pipes, open canals, control equipment, and drainage collection systems. 2. Construction of on-farm sprinkler irrigation systems, and acquisition and installation of irrigation equipment, for about 28,000 hectares allocated to Small Farmers in the Project Area. 3. Installation and maintenance of power lines required for the operation of irrigation pumps. 4. Construction of about 1100 kilometers of service roads within the Project Area. 5. Construction of offices, garages and workshops required for the administration of the Irrigation Districts. Part B: Initial Operation of the Private Irrigation Districts 1. Initial staffing for planning, budgeting and coordination activities. 2. (a) Provision of agricultural training to Small Farmers. (b) Provision of agricultural extension services to Small Farmers including advice on irrigated agriculture and water management. (c) (d) Ad hoc technical advice to all Project Beneficiaries. Provision of marketing and export assistance to Project Beneficiaries. 3. Operation and maintenance of off-farm irrigation structures and equipment including delivering of water to, and measuring of water consumption by, Project Beneficiaries. 4. (a) Installation of piezometers and observation wells for monitoring the water table and water quality. (b) The provision of support to SUCAM for its campaigns against water-borne diseases in the Project Area. (c) The provision of equipment and materials for the carrying out of an environmental education program for Project Beneficiaries. Part C: Technical Assistance, Institutional Development, and Consultant Services (a) Technical assistance and strengthening of SENIR for its further development, including under the technical assistance program referred to in Section 6.01 (c) (ii) of this Agreement and staff training. (b) The development and implementation of the Monitoring System to monitor activities during the planning, construction and operating stages of the Project.

15 (c) Institutional development of DNOCS to strengthen its planning and staff training abilities and its capability to oversee the agricultural development phase of the irrigation schemes established in accordance with Part A of the Project. (d) Detailed engineering designs and supervision of construction and other works under the Project. (e) Detailed engineering services for the preparation of the PONTAL irrigation scheme in the State of Pernambuco. * * * The Project is expected to be completed by December 31, ANNEX TO SCHEDULE 2 Irrigation Schemes referred to in Schedule 2 Name of Irrigation Scheme, area, and Participating State where Irrigation Scheme will be located Agencies in charge of Irrigation Scheme 1. Formoso H (Bahia) CODEVASF 4,875 hectares 2. Barreiras (Bahia) CODEVASF 8,725 hectares 3. Acarau (Ceara) DNOCS 8,207 hectares 4. Tabuleiros de Russas (Ceara) DNOCS 10,500 hectares 5. Guadalupe (Piaui) DNOCS 11,872 hectares 6. Tabuleiros Litoraneos DNOCS (Piaui) 7,509 hectares SCHEDULE 3 Amortization Schedule Date Payment Due Payment of Principal (Expressed in dollars)* On each April 15 and October 15 beginning October 15, 1995 through April 15, ,500,000

16 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium Not more than three years 0.20 before maturity More than three years but 0.40 not more than six years before maturity More than six years but 0.73 not more than eleven years before maturity More than eleven years but not 0.87 more than thirteen years before maturity More than thirteen years before 1.00 maturity 1. For the purposes of this Schedule: The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment, multiplied by: SCHEDULE 4 Special Account: CESA and FESA (a) the term "Eligible Categories" means Categories (1) through (3) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "Eligible Expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the corresponding Eligible Categories in accordance with the provisions of Section 2.02 of, and of Schedule 1 to, this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $5,750,000

17 to be withdrawn from the Loan Account and deposited into the CESA and the FESA ($5,500,000 equivalent in the CESA and $250,000 equivalent in the FESA respectively) pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Bank shall otherwise agree, payments out of the CESA and FESA, as the case may be, shall be made exclusively for Eligible Expenditures in accordance with the provisions of Section 2.02 of this Agreement and of this Schedule. The Central Bank, or the Account Bank, as the case may be, shall authorize withdrawals from the CESA or the FESA, as the case may be, on the basis of evidence that the Bank shall have reasonably determined. For each such withdrawal so authorized, the Central Bank, or the Account Bank, as the case may be, shall debit or cause to be debited, the CESA or the FESA, as appropriate, with the dollar equivalent of the amount of the Eligible Expenditures in question in Cruzeiros, in the case of the CESA, or the actual dollar amount, or the dollar equivalent, of the Eligible Expenditures in currencies other than dollars or Cruzeiros, in the case of the FESA. 3. After the Bank has received evidence satisfactory to it that the CESA and the FESA have been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the CESA or the FESA shall be made as follows: (a) For withdrawals of the corresponding amount of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for a deposit or deposits which do not exceed the corresponding amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the CESA or FESA, as the case may be, such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the CESA or FESA, the Borrower shall furnish to the Bank requests for deposits into the CESA or FESA at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the CESA or FESA, as the case may be, such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been made out of the CESA or FESA, as the case may be, for Eligible Expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective Eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the CESA or the FESA, as the case may be, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for Eligible Expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into either the CESA or the FESA: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Loan allocated to the aggregate of the Eligible Categories, less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the corresponding Eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall

18 have been satisfied that all such amounts remaining on deposit in the CESA or the FESA, as the case may be, as of the date of such notice will be utilized in making payments for Eligible Expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of either the CESA or the FESA: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the CESA or the FESA, as the case may be, (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the CESA or the FESA, as the case may be, shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in either the CESA or the FESA will not be required to cover further payments for the corresponding Eligible Expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the CESA or the FESA. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. SCHEDULE 5 Procurement and Consultants Services Section I: Part A: Procurement of Goods and Works International Competitive Bidding 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 Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in Brazil may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto, provided, however, that: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which would 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. (b) After evaluation, responsive bids will be classified in one of the following two groups: (1) Group A: bids offering goods manufactured in Brazil if the bidder shall have established to the satisfaction of the Borrower and the Bank shall such goods contain components manufactured in Brazil equal to at least 50% of the value of the completed goods. (2) Group B: bids offering any other goods. (c) 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