Public Disclosure Authorized "OCUMNT CREDIT NUMBER 1115 SOL Public Disclosure Authorized Development Credit Agreement (Development Bank of Solomon Islands Project) Public Disclosure Authorized between SOLOMON ISLANDS and INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized Dated 1981
CREDIT NUMBER 1115 SOL DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated, 1981, between SOLOMON ISLANDS ( reinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) the Borrower has requested the Association to assist in financing a portion of the Project described in Section 3.01 of this Agreement by extending the Credit as hereinafter provided; (B) the Borrower has applied to the Asian Development Bank (hereinafter called the ADB) for a loan (hereinafter called the ADB Loan) from the ADB's Special Funds resources in an amount equivalent to two million dollars ($2,000,000) to assist in financing a portion of the Project on the terms and conditions set forth in an agreement (hereinafter called the ADB Loan Agreement) entered into between the Borrower and the ADB; (C) the Project will be carried out by the Development Bank of Solomon Islands with the Borrower's assistance, and as part of such assistance, the Borrower will make available to the Development Bank of Solomon Islands the proceeds of the Credit as hereinafter provided; (D) the Borrower, ADB, and the Association intend to enter into an agreement (hereinafter called the Administration Letter) making arrangements for the ADB to process applications for withdrawal of the proceeds of the financing to be provided severally by ADB and the Association and regulating certain other matters of common interest in connection with such financing; and (E) the Association is willing to make the Credit available upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Association and the Development Bank of Solomon Islands; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development
- 2 - Credit Agreements of the Association, dated June 30, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the following modifications thereof (said General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions):.(a) The following subparagraph is added to Section 2.01: "14. The term 'Project Agreement' has the meaning set forth in paragraph (b) of Section 1.02 of the Development Credit Agreement." (b) The words "Investment Projects" are substituted for the words "the Project" at the end of Section 5.03. (c) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Association. If (a) the right of the Borrower to make withdrawals from the Credit Account shall have been suspended with respect to any amount of the Credit for a continuous period of thirty days or (b) by the date specified in Section 2.02 (e) of the Project Agreement no applications for approval or requests for authorization to withdraw from the Credit Account in respect of any portion of the Credit shall have been received by the Association, or having been so received, shall have been denied or (c) after the Closing Date an amount of the Credit shall remain unwithdrawn from the Credit Account, the Association may, by notice to the Borrower, terminate the right to request such approvals and authorizations or to make withdrawals from the Credit Account, as the case may be, with respect to such amount or portion of the Credit. Upon the giving of such notice such amount or portion of the Credit shall be cancelled." (d) The words "and the Project Agreement" are added after the words "the Development Credit Agreement" in Section 6.06; and (e) The words "or the Project Agreement" are added after the words "the Development Credit Agreement" in Section 10.02. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the
-3- General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Act" means the Development Bank of Solomon Islands Act 1977 (No. 19 of 1977) of the Borrower, as amended from time to time; (b) "DBSI" means the Development Bank of Solomon Islands, a body corporate, established pursuant to the Act; (c) "foreign currency" means any currency other than the currency of the Borrower; (d) "Free-limit Sub-loan" means a Sub-loan which qualifies as a free-limit Sub-loan pursuant to the provisions of Section 2.02 (b) of this Agreement; (e) "Investment" means an investment other than a Sub-loan, made or proposed to be made by DBSI in an Investment Enterprise for an Investment Project out of the equivalent of the proceeds of the Credit relent to DBSI under the Subsidiary Loan Agreement; (f) "Investment Enterprise" means an enterprise to which DBSI proposes to make or has made a Sub-loan or in which it proposes to make or has made an Investment: (g) "Investment Project" means a specific development project to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan or Investment. (h) "Policy Statement" means the Statement of General Business Policies adopted by the Board of Directors of DBSI in January 1978, as amended from time to time; (i) "Project Agreement" means the agreement of even date herewith between the Association and DBSI, as such agreement may be amended from time to time; (j) "SI$" means tht currency of the Borrower; (k) "Sub-loan" means a loan or credit made or proposed to be made by DBSI to an Investment Enterprise for an Investment Project out of the equivalent of the proceeds of the Credit relent to DBSI under the Subsidiary Loan Agreement;
-4- (1) "Subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by DBSI or by any one or more subsidiaries of DBSI or by DBSI and one or more of its subsidiaries; and (m) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and DBSI pursuant to Section 3.01 (b) of this agreement. ARTICLE II The Credit Section 2.01. 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 one million three hundred thousand Special Drawing Rights (SDR 1,300,000) for use by DBSI. Section 2.02. (a) Subject to the provisions of paragraphs (b), (c) and (d) of this Section, DBSI, on behalf of the Borrower pursuant to Section 2.03 of this Agreement, may withdraw from the Credit Account the equivalent of amounts paid (or, if the Association shall so agree, amounts to be paid) by DBSI on account of withdrawals made by an Investment Enterprise under a Sub-Loan or Investment to meet: (i) the reasonable foreign-currency cost of imported goods (except goods described in paragraph (c) of this Section) and services required for the Investment Project in respect of which the withdrawal is requested; (ii) seventy-five per cent (75%) of the invoiced price paid for goods purchased as set forth in paragraph (c) (i) of this Section; (iii) seventy-five per cent (75%) of the invoiced price paid for goods purchased as set forth in paragraph (c) (ii) of this Section; and (iv) sixty per cent (60%) of the costs of construction works included in such Investment Projects and carried out by contractors who are citizens of the Borrower;
-5- provided, however, that no amount shall be withdrawn from the Credit Account in respect of an Investment Project unless (A) the Sub-loan or Investment for such Investment Project shall have been approved by the Association or (B) the Sub-loan shall be a free-limit Sub-loan for which the Association shall have authorized withdrawals from the Credit Account. (b) A free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed under the Development Credit Agreement which, together with any other amount or amounts previously financed for the same Investment Project under the Development Credit Agreement or under the ADB Loan Agreement, and not repaid, shall not exceed in the aggregate the equivalent of $30,000. (c) Except as the Association shall otherwise agree, withdrawals from the Credit Account may be made on account of expenditures in the currency of the Borrower only for: (i) goods previously imported into its territory through normal trade channels and from countries which are members of the Bank (or from Switzerland); (ii) goods produced in the territory of the Borrower to a substantial extent from components or raw materials so imported, and purchased by Investment Enterprises to carry out Investment Projects; and (iii) construction works as described in subparagraph (iv) of paragraph (a) of this Section. (d) Except as the Association shall otherwise agree, no withdrawals shall be made on account of (i) expenditures made by an Investment Enterprise prior to the date of this Agreement or (ii) expenditures made in respect of a Sub-loan subject to the Association's approval, or of an Investment, more than one hundred twenty days prior to the date on which the Association shall have received the application and information required under Section 2.02 (b) of the Project Agreement, or (iii) expenditures made in respect of a free-limit Sub-loan more than one hundred twenty days prior to the date on which the Association shall have received the request and information required by Section 2.02 (c) of the Project Agreement. Section 2.03. DBSI is designated as representative 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.
-6- Section 2.04. The Closing Date shall be June 30, 1985, or such later date as the Association shall determine. The Association shall promptly notify the Borrower and DBSI of such later date. Section 2.05. 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. Section 2.06. Service charges shall be payable semi-annually on April 15 and October 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 15 and October 15 commencing April 15, 1991, and ending October 15, 2030, each installment to and including the installment payable on October 15, 2000, 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 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Description of the Project; Use of Proceeds of the Credit; Execution of the Project Section 3.01. (a) The Project for which the Credit is granted is the financing by DBSI of economic development in the territory of the Borrower through loans for productive purposes to enterprises in such territory, and through other productive investments in such enterprises, all for specific development projects and in accordance with the Project Agreement, the Act and the Policy Statement. (b) The Borrower shall relend the proceeds of the Credit or the equivalent thereof to DBSI under a Subsidiary Loan Agreement to be entered into between the Borrower and DBSI containing terms and conditions satisfactory to the Association.
-7- (c) 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, nor amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. (a) Except as the Association may otherwise agree, the proceeds of the Credit shall be used only for making a Sub-loan to an Investment Enterprise in respect of which such part of the Credit was withdrawn from the Credit Account and shall be applied exclusively to the foreign currency cost of goods and services required to carry out the Investment Project in respect of which such part of the Credit was withdrawn. (b) Except as the Association may otherwise agree, all goods and services to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 1 to this Agreement. Section 3.03. (a) The Borrower shall cause DBSI to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial and business practices. (b) In the carrying out of the Project, the Borrower shall perform all the obligations set forth in Schedule 2 to this Agreement. Section 3.04. The Borrower shall furnish or cause to be furnished to the Association all such reports and information as the Association shall reasonably request concerning: (i) the Credit, and the expenditures of the proceeds and maintenance of the services thereof; (ii) the Project; (iii) the Investment Enterprises, the Investment Projects and the Sub-loan; (iv) the administration, operations and financial condition of DBSI; (v) financial and economic conditions in the territory of the Borrower and the international balance of payments position of the Borrower; and (vi) any other matters relating to the purposes of the Credit. Section 3.05. The Borrower shall enable the Association's representatives to inspect any Investment Enterprise, any Investment Project, the goods financed out of the proceeds of the
-8- Credit, and any relevant records and documents maintained by DBSI. Section 3.06. The Borrower shall promptly take all action, including the provision of funds, facilities, services and other resources, which shall be necessary on its part to enable DBSI to perform its obligations under the Project Agreement, and shall not take or permit any action to be taken which would interfere with the performance of such obligations. Section 3.07. The Association may, by notice to the Borrower, delegate to the ADB under an Administration Letter, for the duration of such period as may be set forth in the Administration Letter, any or all of its functions and responsibilities under Section 2.02, Article III and Article IV of this Agreement and the Borrower shall comply with the provisions of the said Section and Articles as if the ADB is substituted for the Association therein. The obligation of the Borrower to comply with Section 2.02 and Articles III and IV shall continue in force and effect notwithstanding any termination or suspension of such delegated functions and responsibilities to the ADB under the Administration Letter. ARTICLE IV Remedies of the Association Section 4.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the Borrower or DBSI shall have failed to perform any of its obligations under the Subsidiary Loan Agreement; (b) any part of the principal amount of any loan made to DBSI and having an original maturity of one year or more shall, in accordance with the terms thereof, have become due and payable prior to the agreed maturity thereof by reason of any default specified in the agreement providing for such loan or in any security representing such loan; (c) the Act or any provision thereof shall have been repealed, suspended or amended in any manner which in the reasonable opinion of the Association will or may adversely affect the carrying out of the Project or the ability of DBSI to perform any of its obligations under the Project Agreement;
- 9 - (d) subject to paragraph (e) below: (i) the right of the Borrower to withdraw the proceeds of the ADB Loan or any part thereof shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the ADB Loan; or (ii) the ADB Loan shall have become due and payable prior to the agreed maturity thereof; and (e) paragraph (d) of this Section shall not apply if: (i) 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 (ii) 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 4.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof any event specified in paragraphs (a), (b), (c) or (d) (ii) of Section 4.01 of this Agreement shall occur* ARTICLE V Effective Date; Termination Section 5.01. The following ev,-nt is specified as an additional condition to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions, namely, that the ADB Loan shall have been declared effective. Section 5.02. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely that the Project Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, DBSI, and constitutes a valid and binding obligation of DBSI in accordance with its terms. Section 5.03. The date July 30, 1981 is hereby specified for the purposes of Section 12.04 of the General Conditions.
- 10 - Section 5.04. The provisions of paragraphs (a) through (e) of Section 4.01 of this Agreement and those of Section 4.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date 15 years after the date of this Agreement, whichever shall be the earlier. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. Subject to the provisions of Section 2.03 of this Agreement, the Permanent Secretary, Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Permanent Secretary Ministry of Finance Honiara Solomon Islands Cable address: Telex: FINANCE HO 66337 Honiara For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI)
- 11 - 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 State of Hawaii, United States of America, as of the day and year first above written. SOLOMON ISLANDS By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Acting Regional Vice President East Asia and Pacific
- 12 - SCHEDULE 1 Procurement 1. Except as the Borrower and the Association shall otherwise agree, the procedures set forth in the following paragraphs of this Schedule shall apply in the procurement of goods and services to be financed by Sub-loans or Investments. The term "services" in this Schedule does not include consultant services. 2. DBSI shall require Investment Enterprises to demonstrate that the procurement procedures adopted by them are appropriate in the circumstances. DBSI shall also ensure that the goods and services shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery, efficiency and reliability of goods, their suitability for the Investment Project and the availability of maintenance facilities and spare parts, and, in the case of services, of their quality and the competence of the parties rendering then.
- 13 - Subsidiary Loan Agreement SCHEDULE 2 Execution of the Project; Financial and Other Matters 1. Except as the Association shall otherwise agree, the Borrower shall relend the proceeds of the Credit to DBSI on, inter alia, the following terms and conditions: (a) interest at the rate of five per cent (5%) per annum; (b) equal semi-annual repayments of principal over a period of fifteen (15) years, including a grace period of six (6) years; and (c) assumption by the Borrower of the foreign exchange risk with respect to the repayment of the Credit. Policy Statement 2. The Borrower shall not permit any substantial amendment to be made to the Policy Statement without prior agreement between the Borrower and the Association. Management 3. The Borrower shall, prior to making any appointment to the position of General Manager of DBSI, consult the Association regarding the qualifications, experience and tenure of office of the person proposed for appointment. 4. (a) In furtherance of its localization policy, the Borrower has appointed a new General Manager of DBSI to succeed the present Ceneral Manager and in order to facilitate the assumption of office by the new General Manager, the Borrower shall ensure that: (i) the new General Manager shall take over as full-time General Manager of DBSI prior to the effective date of this Agreement; (ii) the present General Manager shall move into an advisory role until the expiry of his present term in June 1981 or the expiry of his proposed extended term in November 1981. (b) The Borrower undertakes that if the present General Manager relinquishes his appointment as adviser before November
- 14-1981, the Borrower shall appoint a new qualified and experienced development bank specialist, satisfactory to the Association, in place of the previous adviser. Professional Staff 5. The Borrower shall take all necessary measures to ensure that DBSI continues to be staffed by suitably qualified professionals with adequate experience and technical expertise. Where suitably qualified nationals are not available for any position, the Borrower shall cause DBSI to employ suitably qualified expatriate staff. The Borrower shall also ensure that DBSI's salary scales and benefits are maintained at competitive and attractive levels. Capital Increase 6. The Borrower shall make a contribution of Solomon Islands dollars 0.5 million to the equity of DBSI before the end of 1981 and every year until 1984. Thereafter, the Borrower shall continue to make reasonable annual contributions to maintain a steady increase in DBSI's paid-in capital. Operational Deficits 7. The Borrower shall promptly take all appropriate measures to assist the DBSI in the event that DBSI experiences any large and continuing operational deficits. 8. The Borrower shall consult the Association in the event that it proposes to take any further action towards the establishment of a second development financing institution in the Solomon Islands.
INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. In witness whereof I have signed this Certificate and affixed the Seal of the Association thereunto the < day of, 198.. FOR SECRETARY