Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 1419 PA Public Disclosure Authorized Project Agreement (Industrial Credit Project) Public Disclosure Authorized between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE FOMENTO Public Disclosure Authorized Dated May 18, 1977
PROJECT AGREEMENT AGREEMENT, dated May 18, 1977, between INTERNATIONAL BANK FOR REC(NSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DE FOMENTO (hereinafter called BNF). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of Paraguay (hereinafter called the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to ten million dollars ($10,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that BNF agree to undertake such obligations toward the Bank as hereinafter set forth; (B) by a subsidiary loan agreement between the Borrower and BNF, the proceeds of the loan provided for under the Loan Agreement will be relent to BNF on the terms and conditions therein set forth; and (C) BNF, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II The Project; Management and Operations of the Borrower Section 2.01. (a) BNF shall carry out the Project described in Section 3.01 of the Loan Agreement and conduct its operations with due diligence and efficiency and in conformity with
-2- appropriate administrative, financial and engineering practices, with qualified and experienced management and personnel, and in accordance with the Organic Law and Statement of Policy. (b) Except as the Bank shall otherwise agree, all the proceeds of the Loan relent to BNF under the Subsidiary Loan Agreement for use under Sub-loans shall be administered by its Development Department. Section 2.02. BNF shall enter into the Subsidiary Loan Agreement with the Borrower. Except as the Bank shall otherwise agree, BNF shall not change or fail to enforce any provision of the Subsidiary Loan Agreement. Section 2.03. In accordance with and subject to the provisions of the Loan Agreement and paragraph (f) below, BNF shall present Investment Projects to the Bank for approval or for authorization for withdrawals to be made from the Loan Account. (a) When presenting a sub-loan (other than a free-limit sub-loan) to the Bank for approval, BNF shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Investment Enterprise and of the Investment Project to be financed thereunder (including a description of the expenditures for such Investment Project proposed to be financed by BNF and an appraisal of the Investment Project and its internal economic rate of return) and the proposed terms and conditions of the sub-loan, including the schedule of amortization of the sub-loan and such other information as the Bank shall reasonably request. (b) Each request by BNF for authorization to make withdrawals from the Loan Account in respect of a free-limit sub-loan shall contain a summary description of the Investment Enterprise and the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and the terms and conditions of such free-limit sub-loan, including the schedule of amortization therefor. (c) The amortization schedule applicable to each Investment Project shall provide for an appropriate period of grace and, unless the Bank and the Borrower shall otherwise agree, (i) shall not extend to less than four years and not beyond twelve years from the date of approval by the Bank of such Investment Project or of authorization by the Bank to make withdrawals from the Loan
- 3 - Account in respect of such Investment Project, and (ii) shall provide for approximately equal, or gradually increasing, semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal, or gradually increasing, semi-annual, or more frequent, payments of principal. (d) BNF shall charge Investment Enterprises such rates of interest and other financial charges on sub-loans as shall be required by BNF to obtain a yield of not less than 13% per annum on the principal thereof outstanding from time to time. (e) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (a) and (b) of this Section shall be presented to the Bank on or before September 30, 1980. (f) BNF shall not present to the Bank requests to approve or authorize withdrawals from the Loan Account for any sub-loan which when added to all other amounts withdrawn or to be withdrawn from the Loan Account in respect of sub-loans approved or authorized by the Bank exceeds the $4,000,000 equivalent unless all the action specified in Section 2.03 of the Loan Agreement has been carried out to the satisfaction of the Bank. Section 2.04. BNF shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the sub-loans, the Project, the Investment Enterprises, the Investment Projects and the sub-loans. Section 2.05. (a) BNF undertakes that, unless the Bank shall otherwise agree, any sub-loan will be made on terms whereby BNF shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Borrower, the Bank and BNF, including, in the case of any sub-loan the right of BNF to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (ii) require that: (1) the goods and services to be financed out of the proceeds of the Loan, other than those referred to in Section 2.10 of the Loan Agreement, be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services,
-4- of their quality and the competence of the parties rendering them, and (2) such goods and services be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) require th t: (1) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (2) without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (v) obtain all such information as the Bank or BNF shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise; and (vi) suspend or terminate the right of the Investment Enterprise to the -use of the proceeds of the Loan upon failure by such Investment Enterprise to perform its obligations under its contract with BNF. (b) BNF shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Borrower, the Bank and BNF, (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agreement, and (iii) achieve the purposes of the Project. Section 2.06. Except as the Bank shall otherwise agree, contracts for the purchase of goods required for the part of the Project described in Section 3.01 (a) (ii) of the Loan Agreement to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 1 to this Agreement. Section 2.07. (a) BNF undertakes to insure, or make adeqiate provision for the insurance of, the imported goods referred to in Section 2.06 of this Agreement to be financed out of the proceeds of the Loan 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 BNF to replace or repair such goods.
-5- (b) Except as the Bank may otherwise agree, BNF shall cause the goods referred to in paragraph (a) above to be used exclusively for the Project. Section 2.08. (a) BNF shall prepare and carry out a Technical Assistance Program, satisfactory to the Bank, to improve, inter alia, BNF's (i) financial resources management and programming, and its budgeting and resources allocation; (ii) general data collection and accounting procedures with a view to provide BNF's management with adequate operational, financial and cost information; (iii) agricultural credit planning, and analysis and development of annual and multiannual financial and operational programs; and (iv) capability to deal with manpower planning and to carry out training and upgrading programs for its personnel. (b) In order to assist BNF in carrying out the Technical Assistance Program, BNF shall employ or cause to be employed consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 2.09. BNF shall take such action as shall be appropriate on its part to enable the Investment Enterprises to obtain the fiscal incentives referred to in Section 3.05 of the Loan Agreement. Section 2.10. BNF shall, not later than December 31, 1977, or such later date as the Bank shall agree, establish and thereafter maintain a financial management, programming and budgeting unit. Section 2.11. BNF shall duly perform all its obligations under agreements under which funds have been lent or otherwise put at the disposal of BNF by the Borrower or its agencies or others for relending, investment or management, including the contract between the Borrower, the Borrower's Central Bank and BNF dated July 1, 1976. BNF shall promptly inform the Bank of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provisinn of, any such agreement. Section 2.12. Except as the Bank shall otherwise agree, BNF: (i) shall not sell, lease, transfer, encumber or otherwise dispose of any of its property or assets except in the ordinary course of business; and (ii) shall take all action necessary to maintain its corporate existence and right to carry on operations
- 6 - and to acquire and mai tain all rights, powers, privileges and franchises necessary or useful in the conduct of its business. Section 2.13. BNF shall take such action as shall be required to reduce its operating costs so as to obtain that said costs during 1978 and each year thereafter will not exceed 5.4% of the average of its outstanding loans during the corresponding year, or such other ratio as the Bank and BNF may agree in the light of the recommendations of the studies included in the Technical Assistance Program and its conclusions. Section 2.14. BNF shall carry out the Debt Recovery Plan. ARTICLE III Financial Covenants Section 3.01. BNF shall maintain records adequate to record the progress of the Project and of each Investment Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition. Section 3.02. BNF shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of BNF and the audit thereof as the Bank shall from time to time reasonably request. Section 3.03. Except as the Bank shall otherwise agree, BNF shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain at all times its debt/equity ratio within the limits referred to in Section 3.05 of this Agreement; and (ii) if the applicable limits shall, for reasons beyond BNF's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit.
-7- Section 3.04. BNF shall not make any repayment in advance of maturity in respect of any outstanding debt of BNF which, in the judgment of the Bank, would materially affect BNF's ability to meet its financial obligations. Section 3.05. Except as shall be otherwise agreed between the Bank and BNF, BNF shall not incur any debt if, after the incurring of such debt, the debt of BNF then incurred and outstanding would be greater than eight times the unimpaired paid-up capital, surplus and free reserves of BNF. For the purposes of this Section: (a) "debt" means any debt incurred by ENF; (b) debt shall be deemed to be incurred: (i) under a loan contract or agreement (including the Subsidiary Loan Agreement) on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement, and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding; and (c) whenever in connection with this Section it shall be necessary to value in terms of Guaranies debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by BNF for the purposes of servicing such debt. Section 3.06. Except as the Bank shall otherwise agree, BNF shall maintain a liquidity ratio -,f not less than 1.1:1. As used in this Section "liquidity ratio" means the ratio of assets recoverable within twelve months to liabilities to be met within such twelve months but excluding short term financing from the Borrower's Central Bank. Section 3.07. BNF shall take all action required on its part to increase its authorized capital for purposes of Section 3.03 of the Loan Agreement. Section 3.08. Starting on September 1, 1977, BNF shall charge such rates of interest and other financial charges on its loans made through its Development and Agriculture and Livestock Departments as shall be required to obtain an average yield of not less than 13% per annum on the principal amount of such loans outstanding from time to time.
-8- Section 3.09. BNF shall not make or guarantee any loan if the principal of such loan or guaranteed amount plus any other loans to the same borrower or for the same project made or guaranteed by BNF shall exceed the amount specified in Section 3.04 of the Loan Agreement, unless the Borrower shall undertake to pay to BNF, if the event specified in such Section shall occur and shall continue for the period therein set forth, the amounts specified in such Section. Section 3.10. BNF shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the Guarani and any foreign currency, or between any two foreign currencies, used in its operations. Section 3.11. The Bank and BNF shall, from time to time, at the request of either party, exchange views through their representatives with regard to the administration, operations and financial condition of BNF, and BNF shall furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of BNF. Section 3.12. The Borrower shall enable the Bank's representatives to inspect the records referred to in Section 3.01 of this Agreement and any relevant documents. ARTICLE IV Amendment of Project Agreement (Credit No. 509-PA) Section 4.01. The Project Agreement (Small Farmers' Credit and Rural Development Project), dated September 6, 1974, between the Association and BNF (hereinafter called the First Project Agreement) is hereby amended by the deletion of Sections 3.03 and 4.05 and the replacement thereof by Sections 2.14, 3.03, 3.05 and 3.06 of this Agreement. ARTICLE V Effective Date; Termination Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective.
- 9 - Section 5.02. This Agreement and all obligations of the Bank and of BNF thereunder snall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. Telex: 440098 (ITT) 248423 (RCA) or 64145 (WUI) For BNF: Banco Nacional de Fomento Independencia Nacional y Cerro Cor& Asunci6n Paraguay Cable address: PYTYBO Asunci6n Telex: 138 PY BANFO
- 10 - Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of BNF may be taken or executed by its President or such other person or persons as the President shall designate in writing. Section 6.03. BNF shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of BNF, take any action or execute any documents required or permitted to be taken or executed by BNF pursuant to any provision of this Agreement. Section 6.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written, and the Association, acting through its duly authorized representative, has evidenced its agreement to the amendments of the First Project Agreement as provided in Section 4.01 of this Agreement. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Krieger Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE FOMENTO By /s/ Alberto Llanes Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ A. Krieger Regional Vice President Latin America and the Caribbean
- 11 - SCHEDULE 1 P:ocurement A. International Competitive Bidding Contracts for the purchase of goods for the purposes of the part of the Project described in Section 3.01 (a) (ii) of the Loan Agreement shall be procured in accordance with procedures consistent with those set forth in the General Introduction and in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. B. Review of Procurement Decisions by the Bank Review of invitations to bid and of proposed awards and final contracts: (a) Before bids are invited, BNF shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, BNF shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform BNF and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited.
- 12 - (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submisssion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract.