CONFORMED COPY CREDIT NUMBER 550 MAI Development Credit Agreement (Phase III Lilongwe Agricultural Development Project) BETWEEN REPUBLIC OF MALAWI AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED MAY 27, 1975 CONFORMED COPY CREDIT NUMBER 550 MAI Development Credit Agreement (Phase III Lilongwe Agricultural Development Project) BETWEEN REPUBLIC OF MALAWI AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED MAY 27, 1975 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 27, 1975, between REPUBLIC OF MALAWI (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) The Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) The Borrower has requested the United Nations Capital Development Fund (hereinafter called UNCDF) to assist in financing the health facilities referred to in Part F of the Project and the Lilongwe Land Development Program Credit Fund which is included in Part D(2) of the Project; (C) The UNCDF, by an agreement (hereinafter called UNCDF Agreement) between the UNCDF and the Borrower of even date herewith, has agreed to provide a grant in the amount of $1,600,000 for such purpose; and (D) The Association is willing to make the Credit available upon the terms and conditions set forth hereinafter; NOW THEREFORE the parties hereto 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 Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "First Project Agreement" means the Development Credit Agreement (Lilongwe Agricultural Development Project), Credit No. 113 MAI, dated February 5, 1968, between the Borrower and the Association; 4 (b) "Second Project Agreement" means the Development Credit Agreement (Phase II Lilongwe Agricultural Development Project), Credit No. 244 MAI, dated May 13, 1971, between the Borrower and the Association; (c) "Program Area" means the area defined in the Borrower's Government Notice No. 108 dated April 15, 1971; (d) "LLDP" means the Lilongwe Land Development Program of the Borrower, which is referred to in Schedule 2 to this Agreement; (e) "ADMARC" means the Agricultural Development and Marketing Corporation of the Borrower, established under the Agricultural Development Marketing Corporation Act, Cap. 67:03, as amended from time to time, and any successor or successors thereto; (f) "MANR" means the Borrower's Ministry of Agriculture and Natural Resources, and any successor or successors thereto; (g) "NRDP" means the Borrower's National Rural Development Program; (h) "NRDP Preparation" means the preparation activities required to be carried out by the Borrower before the establishment of NRDP; (i) "Area Unit Center" means an administrative center serving an area of about 20,000 acres surrounding said center consisting inter alia of LLDP staff housing and offices, roads, an input store and a borehole; (j) "Program Manager" means the person employed by the Borrower to manage LLDP; (k) "LLDP Credit Fund" means the revolving fund administered by the Program Manager and established under the First Project Agreement to make seasonal, short-term and medium-term loans to farmers; and (1) "ADS" means the Agricultural Development Services Unit established by the Bank, the headquarters of which are located in Nairobi, Kenya. 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 5 amount in various currencies equivalent to eight million five hundred thousand dollars ($8,500,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, the goods, works and services (other than consultants services) for the Project to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1979 or such later date as the Association shall establish. The Association shall promptly inform the Borrower 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 January 15 and July 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each January 15 and July 15 commencing July 15, 1985, and ending January 15, 2025, each installment to and including the installment payable on January 15, 1995 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 Kingdom of Great Britain and Northern Ireland is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project, or cause the Project to be carried out, with due diligence and efficiency and in conformity with 6 appropriate administrative, agricultural, engineering, financial and public health practices, and shall 'rovide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. Except as the Borrower and the Association shall otherwise agree: (i) the Borrower shall maintain the LLDP Credit Fund at a level sufficient to make available to the Program Manager the funds required for carrying out Parts D(2), E(2), E(3) and E(4) of the Project; and (ii) the Borrower shall authorize the Program Manager to use the proceeds of repayments it shall receive under Parts D(2), E(2), E(3) and E(4) of the Project for purposes of making new seasonal, short-term or medium-term loans to farmers. Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section 3.04. (a) The Borrower shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain and cause ADMARC, MANR and the Ministry of Health to maintain records adequate to record the progress of their respective parts of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish or cause to be furnished 7 to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.05. The Borrower shall ensure that the positions of Program Manager, Financial Controller and Principal Agricultural Officer are at all times filled by qualified and experienced persons and that before any appointment is made to any such position, the Borrower shall consult with the Association on the qualifications and experience of the persons being considered for appointment thereto. Section 3.06. The Borrower shall maintain the project liaison committee which was established under Section 3.04 of the Second Project Agreement as well as its composition and responsibilities as specified in said Section 3.04. Section 3.07. By September 1, 1976, or such other date as shall be agreed between the Borrower and the Association, the Borrower shall prepare and submit to the Association a detailed proposal satisfactory to the Association for the administration, financing and management of LLDP assets and services, which proposal the Borrower shall implement or cause to be implemented promptly after completion of the Project. Section 3.08. (a) Within six months of the date of this Agreement, or such other date as shall be agreed between the Borrower and the Association, in order to assist in carrying out Part F of the Project, the Borrower shall employ a person with suitable experience in the field of public health to fill the position of Senior Medical Officer. (b) The Borrower shall ensure that each of the health sub-centers and health posts included in Part F of the Project are staffed by an appropriate number of qualified and experienced persons. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records, including separate accounts, adequate to reflect in accordance with consistently maintained sound accounting practices the operations, resources and expenditures, in respect of the Project, of the departments or agencies of the Borrower, including MANR and the Ministry of Health, responsible for carrying out the Project or any part thereof. 8 (b) The Borrower shall: (i) have its accounts in respect of the Project for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) cause MANR and the Ministry of Health to have their accounts in respect of the Project for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (iii) cause ADMARC to 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 Association; (iv) furnish 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 its accounts and the accounts of MANR, the Ministry of Health and ADMARC for such year as so audited and (B) the report of such audits by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (v) furnish to the Association such other information concerning said accounts and the audits thereof as the Association shall from time to time request. Section 4.02. The Borrower shall from time to time, at the request of either party, review with the Association: (a) the rates and fees (including interest rates on loans from the LLDP Credit Fund, LLDP maize shelling fees and ADMARC charges for fertilizers and other agricultural inputs) to be paid in respect of the Project by farmers in the Program Area; and (b) the prices paid to farmers in the Program Area for their produce. Section 4.03. After completion of the Project, the Borrower shall, as soon as practicable, complete or cause to be completed the land registration referred to in Part B(2) of the Project. Section 4.04. Except as the Association shall otherwise agree, the Borrower shall collect or cause to be collected, at ADMARC markets in the Program Area, repayments of loans made from the LLDP Credit Fund to farmers. Section 4.05. Except as the Association shall otherwise agree, notwithstanding the provisions of Part C(3) of the Project, the Borrower shall cause ADMARC to provide adequate storage facilities for the crops produced in the Program Area. 9 ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) a default shall occur in the performance of any covenant or agreement on the part of the Borrower under the First Project Agreement or the Second Project Agreement; (b) the organization, powers or responsibilities of ADMARC shall have been altered in such a way as to affect materially and adversely the execution of the Project or the efficient operation of ADMARC; and (c) the right of the Borrower to withdraw the proceeds of the UNCDF Agreement shall have been suspended in whole or in part. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: (a) the events specified in Sections 5.0 1(a) and (c) of this Agreement shall occur 'and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; and (b) the event specified in Section 5.01(b) of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The date August 29, 1975 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.02. The obligations of the Borrower tinder Section 3.07, Article IV and Sections 5.01 and 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. 10 ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: The Secretary to the Treasury Ministry of Finance P.O. Box 30049 Capital City Lilongwe 3, Malawi Cable address: FINANCE Lilongwe 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. 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 Aefru as of the day and year first above written. REPUBLIC OF MALAWI By /s/ R. Mbale Authorkoed Reprentathr INTERNATIONAL DEVELOPMENT ASSOCIATI0N By /s/ S. Shahid fiusai Rfivonal Vit Pr ottke 12 SCHEDULE 1 Withdrawal of the Proceeds of the Credit L The table below sets forth the Categories of items to be financed out of the proeeds of the Credit, the allocation of the amounts of the Credit to each Categoty and the percentage of expenditures for items so to be financed in each Vategory: Amount of the Credit Allocated % Of (Expressed in Expenditures atgory Dollar Equivalent) to be Financed 0 civil works 1,200,000 85% (Other than for markets, housing and input stores to be t:fontucted by ADMARC4 health t Ata4 and NRP Prparation) f hae equp 1,000,000 100% of foreign menta fludiner expenditures or and lwmi,k 83% of local x- t her han r penditures MtDP Preparatio ndLLOP Qedit fidl Petnld t16000 10000 of roreign expenditures or 851/1 of local ex- Andit0res IOVI of foreign ~ ~Kf Pexpenditures or 85 4 of local ex- I hlv ipqnditires 1ON; of foreign xpenditures or 85q of local ex- penditures 101 ofre00f Iexeni.re o 13 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures for goods or services supplied from, the territory, and in the currency, of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower, and for goods or services supplied from, the territory of the Borrower. 3. The disbursement percentages have been calculated in compliance with the policy of the Association that no proceeds of the Credit shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if any event occurs which shall affect the amount of any such taxes included in the cost of any item to be financed out of the proceeds of the Credit, the Association may, by notice to the Borrower, correspondingly adjust the disbursement percentage then applicable to such item. 4. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of expenditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph I above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category to the extent required to meet the estimated shortfall proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit is in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. 14 SCHEDULE 2 Description of the Project The Project is the three-year final phase of the Lilongwe Land Development Program, a long-term program for the development of infrastructure and the improvement of smallholder agricultural production in the Program Area. The Project consists of the following Parts: Part A: Land Development (1) The construction of about 265 miles of earth roads. (2) The drilling and equipping of about 145 boreholes. (3) The construction of about 1,000 miles of drainage ditches, about 160 miles of waterways and demonstration ridges. Part B: Land Reorganization and Registration (1) The survey and demarcation of land holdings on about 200,000 acres. (2) The registration of land holdings on about 270,000 acres. Part C. Unit Centers, Marketing and Storage Facilities (1) The construction by LLDP and the Geological Survey Department of MANR of about 15 Area Unit Centers, each consisting of offices, staff housing, roads, conservation works and a borehole. (2) The construction by ADMARC of an agricultural input store with a 380 ton fertilizer storage capacity for each of the Area Unit Centers referred to in paragraph (1) of this Part. (3) The construction by ADMARC of permanent produce markets, each consisting of facilities for weighing, grading and bulking produce, storage facilities, offices and staff housing for about seven of the Area Unit Centers referred to in paragraph (1) of this Part. Part D: Extension, Training and Credit Services (1) The provision of intensive agricultural extension services and training services for LLDP staff at the LLDP training school in Lilongwe and 15 for farmers and their families at Nsaru and at the Area Unit Centers referred to in Part C(1) of this Schedule. (2) The provision of seasonal, short-term and medium-term credit to farmers. Part E: Livestock Development, Dairy Development and Poultry and Egg Production (1) The continued development of the Dzalanyama Ranch to provide farmers in the Program Area with upgraded feeder stock for stall feeding and breeding heifers for dairy development. (2) The expansion of a stall feeder program, including the provision of credit, extension services and artificial insemination services, to provide farmers in the Program Area with about 4,000 cattle. (3) The establishment of a dairy development program, including the provision of credit and extension services, which would include about 60 farmers. (4) The establishment of a poultry and egg production program, including the provision of credit and extension services, which would include about 120 farmers. Part F: Health Facilities (1) The construction and equipping of about five health sub-centers and about 20 health posts. (2) The improvement of about two primary health centers, one health sub-center and about five health posts. Part G: Project Evaluation and Future Project Preparation (1) The carrying out by the Program Evaluation Unit of field surveys and the processing and analysis of data obtained therefrom. (2) The carrying out by MANR of such activities as agro-economic surveys, land resource surveys and crop trials to assist the Borrower in preparing the NRDP. 16 Part H. Administrative Services and Support (1) The provision of administrative services by LLDP. (2) The purchase, utilization and operation by LLDP staff of vehicles, machinery and equipment. 17 SCHEDULE 3 Procurement A. General Procedures 1. Except as provided in Parts A(3) and C hereof, contracts for vehicles, equipment and machinery estimated to cost more than the equivalent of $30,000 shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. (a) Bidders shall not be prequalified. (b) Contracts for vehicles, equipment and machinery shall be grouped so as to encourage international competition. 3. The civil works included in Part F of the Project shall be procured on the basis of competitive bidding advertised locally and pursuant to the Borrower's usual procurement procedures. B. 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: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Malawi 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. (b) After evaluation, responsive bids will be classified in one of the following three groups: 18 (1) Group A: bids offering goods manufactured in Malawi if the bidder shall have established to the satisfaction of the Borrower and the Association that the manufacturing cost of such goods includes a value added in Malawi equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Malawi. (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. The lowest evaluated bid of each group 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 lowest evaluated bid from group C shall be selected. C. Procurement Without Contracting (a) The boreholes referred to in Parts A(2) and C(1) of the Project shall be drilled and equipped by the Geological Survey Department of MANR under force account. (b) The markets and input stores referred to in Parts C(2) and (3) of the Project shall be constructed by ADMARC. (c) Staff housing, offices, roads, bridges, drainage works and marker ridging may be constructed by LLDP under force account, provided that the Diampwe Bridge may be procured pursuant to the procedures referred to in Part A(3) of this Schedule. 19 D. Review of Procurement Decisions by Association 1. Review of invitation to bid and of proposed awards and final contracts: With respect to all contracts for vehicles, equipment and machinery estimated to cost the equivalent of $30,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Association, 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 Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) Promptly after the bids have been received, the Borrower shall inform the Association of the names of the bidders and the respective amounts of the bids. - (c) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and the reasons for the intended award and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the recommendation for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (d) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (e) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Credit and not governed by the preceding paragraph, the Borrower shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, 20 together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination.