Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

Public Disclosure Authorized CONFORMED COPY CREDIT NUMBER 806 IN Public Disclosure Authorized Project Agreement (Jammu-Kashmir Horticulture Project) Public Disclosure Authorized between INTERNATIONAL DEVELOPMENT ASSOCIATION and STATE OF JAMMU AND KASHMIR Public Disclosure Authorized Dated July 17, 1978

CREDIT NUMBER 806 IN PROJECT AGREEMENT AGREEMENT, dated July 17, 1978, between INTERNATIONAL DEVEL- OPMENT ASSOCIATION (hereinafter called the Association) and STATE OF JAMMU AND KASHMIR, acting by its Governor (hereinafter called Jammu and Kashmir). WHEREAS by the Development Credit Agreement of even date herewith between India, acting by its President (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to fourteen million dollars ($14,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that Jammu and Kashmir agree to undertake such obligations toward the Association as are hereinafter set forth; and WHEREAS Jammu and Kashmir, in consideration of the Association's entering into the Development Credit 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 Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. Jammu and Kashmir shall carry out or cause to be carried out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate agricultural, administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose.

-2- Section 2.02. In order to assist Jammu and Kashmir and JKHPMC in carrying out the Project, Jammu and Kashmir shall and shall cause JKHPMC to employ engineering, agricultural, marketing and management consultants, in accordance with a schedule to be agreed with the Association, whose qualifications, experience and terms and conditions of employment shall be mutually agreed between the Association, Jammu and Kashmir and JKHPMC. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit, shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. (a) Jammu and Kashmir undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit made available to it by the Borrower 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 Jammu and Kashmir to replace or repair such goods. (b) Except as the Association may otherwise agree, Jammu and Kashmir shall cause all goods and services financed out of the proceeds of the Credit made available to it by the Borrower to be used exclusively for the Project. Section 2.05. /a) Jammu and Kashmir shall furnish or cause to be furnished to the association, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) Jammu and Kashmir, (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost) and to evaluate its impact, to identify the goods and services financed out of the proceeds of the Credit made available to it by the Borrower, and to disclose their use in the Project; (ii) shall, without limitation upon the provisions of paragraph (c) of this Section, enable the Association's representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association at regular intsrvals all such information as the Association shall reasonably request concerning the

- 3 - Project, its cost and, where appropriate, its impact, the expenditures of the proceeds of the Credit so made available to it and the goods and services financed out of such proceeds. (c) Jammu and Kashmir shall enable the Association's representatives to examine all plants, installations, sites, works, buildings, property and equipment and any relevant records and documents. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Association and Jammu and Kashmir, Jammu and Kashmir shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived or to be derived from it, the performance by the Association and Jammu and Kashmir of their respective obligations under this Agreement and the accomplishment of the purposes of the Credit. Section 2.06. Jammu and Kashmir shall cause JKHPMC to appoint by March 31, 1979, or such later date as shall be agreed with the Association, suitably qualified persons to head its departments of marketing and administration. Section 2.07. (a) Jammu and Kashmir shall at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Credit. (b) Jammu and Kashmir shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by Jammu and Kashmir of its obligations under this Agreement. Section 2.08. Jammu and Kashmir shall cause its Department of Forestry to take all necessary action to enable JKHPMC to obtain sufficient timber for the operation of its sawmills constructed under Part A of the Project. Section 2.09. By June 30, 1979 or such later date as shall be agreed with the Association, Jammu and Kashmir shall cause

its Department of Agriculture to draw up a mushroom research program (including an implementation timetable) satisfactory to the Association. Section 2.10. In order to strengthen the Department of Agriculture, Jammu and Kashmir shall assign or cause to be assigned to such Department (a) one senior mushroom scientist and two junior scientists by December 31, 1978 or such later date as shall be agreed with the Association and (b) other qualified research staff in sufficient number by December 31, 1979 or such later date as shall be agreed with the Association. Section 2.11. In order to assist the Department of Horticulture to carry out Part F of the Project, Jammu and Kashmir shall assign to such Department (a) one refrigeration engineer, two cold store operators and one post harvest physiologist by December 31, 1978 or such later date as shall be agreed with the Association and (b) other qualified research staff in sufficient number by June 30, 1979 or such later date as shall be agreed with the Association. Section 2.12. Jammu and Kashmir shall participate, from time to time, on the basis of its respective proportion referred to in Section 3.02 (a) of the Development Credit Agreement, in such increases of JKHPMC's share capital as shall be required by JKH?MC to: (a) meet the requirements of Section 3.02 (b) of the Development Credit Agreement by June 30, 1979 or such later date as shall be agreed with the Association; and 2:1. (b) thereafter to maintain a debt/equity ratio not exceeding Section 2.13. Jammu and Kashmir shall: (a) by December 31, 1978 or such later date as shall be agreed with the Association make adequate arrangements for the carrying out of a study, under terms of reference agreed with the Association, to assess JKHPMC'S performance and the impact of the Project on fruit growers' incomes and the development of markets; and (b) furnish to the Association for review an inception report of such study by March 31, 1979 or such later date as shall be agreed with the Association. Section 2.14. Jammu and Kashmir shall cause JKHPMC to prepare quarterly reports and annual progress summaries of the Project in

-5- forms satisfactory to the Association. These reports and summaries shall be furnished to the Association within six weeks after the close of each calendar quarter and each year. Section 2.15. By December 31, 1978 or such later date as the Association shall otherwise agree, Jammu and Kashmir shall furnish to the Association for review its proposals for the overseas training program referred to in Part H.2 of the Project. Section 2.16. (a) Jammu and Kashmir shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project. (b) Without any restriction or limitation upon the provisions of the foregoing paragraph, adequate land needed for the construction and operation of three apple grading centers and three walnut hulling centers shall be acquired by September 30, 1978 or such later date as shall be agreed with the Association. Section 2.17. In order to ensure adequate coordination in the implementation of the Project, Jammu and Kashmir shall establish a Project Coordination Committee to be chaired by a suitably qualified officer to be nominated by Jammu and Kashmir. Section 2.18. Jammu and Kashmir shall cause JKHPMC to inform the Association prior to undertaking any activity not included in the Project until the end of 1983. ARTICLE III Management and Operations of JKHPMC Section 3.01. Jammu and Kashmir shall cause JKHPMC to: (a) at all times manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with sound business, agricultural and financial practices and under the supervision of experienced and competent management assisted by experienced and competent staff in adequate number; and (b) take all steps necessary to acquire, maintain, and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business or in the carrying out of the Project.

-6- Section 3.02. Jammu and Kashmir shall cause JKHPMC to (a) recruit its senior staff on a nationwide basis, and (b) offer to such staff adequate emoluments in order to recruit and retain suitably qualified personnel. Section 3.03. Jammu and Kashmir shall cause JKHPMC to take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. Jammu and Kashmir shall and shall cause JKHPMC to maintain separate records adequate to reflect in accordance with consistently maintained appropriate accounting practices their operations and financial condition. Section 4.02. Jammu and Kashmir shall: (i) establish and maintain separate accounts for Parts D, F, G and H of the Project and cause JKHPMC to establish and maintain separate accounts for its apple trading and processing activities and its walnut trading activities; (ii) have such accounts and JKHPMC's financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (iii) furnish to the Association 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 said accounts and of JKHPMC's 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 Association shall have reasonably requested; and (iv) furnish to the Association such other information concerning the said accounts and JKHPMC's financial statements and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective.

-7- Section 5.02. (a) This Agreement and all obligations of the Association and of Jammu and Kashmir thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date 20 years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify Jammu and Kashmir of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. Telex: 440098 (ITT) 248423 (RCA) or 64145 (WUI)

-8- For Jammu and Kashmir: Secretary to the Government of Jammu and Kashmir Agricultural Production Department Secretariat Srinagar/Jammu India Cable address: AGRI J AND K Srinagar/Jammu, India Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of Jammu and Kashmir may be taken or executed by a Secretary to the Government of Jammu and Kashmir or such other person or persons as Jammu and Kashmir shall designate in writing, and Jammu and Kashmir shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By Is/ W. David Hopper Regional Vice President South Asia STATE OF JAMMU AND KASHMIR By /s/ N.A. Palkhivala Authorized Representative

- 9 - SCHEDULE 1 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the purchase of goods shall be awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods to be procured on the be _s of international competitive bidding under the Project and in addition to the requirements of paragraph 1.2 of the Guidelines, Jammu and Kashmir shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods in question. Jammu and Kashmir shall provide the necessary information to update such notice annually so long as any goods remain to be procured on the basis of international competitive bidding. B. Other Procurement Procedures 1. Contracts for civil works covering the apple, walnut and research facilities may be let on the basis of competitive bidding advertised locally under procedures satisfactory to the Association, except that civil works not exceeding in the aggregate 25% of the cost of the civil works referred to in Category (1) (a) of Schedule 1 to the Development Credit Agreement may be carried out by force account. 2. Contracts for equipment and furniture estimated to cost $50,000 equivalent or less each and contracts for vehicles may be let on the basis of competitive bidding advertised locally under procedures satisfactory to the Association provided that the aggregate of all equipment, furniture and vehicles so procured does not exceed $2,300,000 equivalent.

- 10-3. Contracts for minor items of equipment estimated to cost $10,000 equivalent or less each and which must be purchased on an urgent basis may be procured by prudent shopping through normal commercial channels provided that the aggregate amount of all items so procured does not exceed $200,000 equivalent. 4. Contracts for vehicles may be let on the basis of competitive bidding advertised locally under procedures satisfactory to the Association. 5. Fertilizer, pesticides and other necessary inputs procured by ultimate borrowers under paragraph 3 of Part I of Schedule 3 to the Development Credit Agreement shall be in accordance with the ultimate borrowers' preference. C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with local procedures: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically supplied goods, shall be excluded; and (iii) the cost to the purchaser of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in India may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. in (b) After evaluation, responsive bids will be classified one of the following three groups: (1) Group A: bids offering goods manufactured in India if the bidder shall have established to the satisfaction of Jammu and Kashmir and the Association that the manufacturing cost of such goods

- 11 - includes a value added in India equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in India. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for civil works estimated to cost the equivalent of $200,000 or more and all contracts for equipment and materials estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, Jammu and Kashmir shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents,