CONFORMED COPY LOAN NUMBER 1065 MAG Loan Agreement (Mangoro Forestry Project) BETWEEN MALAGASY REPUBLIC AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED DECEMBER 23, 1974 CONFORMED COPY LOAN NUMBER 1065 MAG Loan Agreement (Mangoro Forestry Project) BETWEEN MALAGASY REPUBLIC AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DA''ED DECEMBER 23, 1974 LOAN AGREEMENT AGREEMENT, dated December 23, 19 /4, between MALAGASY REPUBLIC (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) The Borrower has requested the Bank to assist in the financing of the Project described in Schedule 1 to this Agreement by making the Loan as hereinafter provided; (B) The Borrower has also requested the Association to provide additional financial assistance towards the financing of the Project and by an agreement of even date herewith between the Borrower and the Association (hereinafter called the Development Credit Agrtement) the Association is agreeing to provide such assistance in an aggregate principal amount equivalent to six million seven hundred and fifty thousand dollars ($6,750,600); (C) The Borrower and the Bank intend, to the extent practicable, that the proceeds of the credit provided for in the Development Credit Agreement be disbursed on account of expenditures on the Project before disbursements of the proceeds of the Loan provided for in this Agreement are made; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan to the Borrower upon the terms and conditions hereinafter set forth; 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 Loan and Guarantee Agreements of the Bank, dated March 15, 1974, 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 Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions): (a) Section 2.01(11) is deleted and the following is substituted therefor: 4 "11. The term 'Project' means the project or program for which the Loan is granted, as described in the Loan Agreement and as the description thereof may be amended from time to time by agreement between the Bank, the Association and the Borrower." (b) Section 6.02(c) is deleted and the following is substituted therefor: "(c) The Borrower shall have failed to perform any other obligation under the Loan Agreement or the Development Credit Agreement (as such term is defined in the Loan Agreement)." (c) Section 7.01(e) is amended to read as follows: "(e) A default shall occur in the performance of any other obligation on the part of the Borrower under the Loan Agreement or the Development Credit Agreement (as such term is defined in the Loan Agreement), and such default shall continue for a period of sixty days after notice thereof shall have been given by the Bank or the Association to the Borrower." 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) "Development Credit Agreement" means the agreement of even date herewith between the Borrower and the Association for the purpose of the Project, as such agreement may be armended from time to time; and such term includes the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, as made applicable to such agreement, all agreements supplemental to the Development Credit Agreement and all schedules to the Development Credit Agreement: (b) "Credit" means the credit provided for in the Development Credit Agreement; (c) "Credit Account" means the account established pursuant to Section 2.02 of the Development Credit Agreement; (d) "Project Area" means that area of Madagascar's Mangoro Valley which is described in the Borrower's Arrdte' No. 0701/MDR/FOR dated February 28, 1974 and in the map attached thereto- 5 (e) "FANALAMANGA" means the company entrusted with the implementation of the Project, a Socite d'Economie Mixte of the Borrower, to be established, as provided by Section 3.02 of this Agreement, pursuant to the Borrower's Law No. 67-007 of June 28, 1967 and includes any successor thereto: and (f) "Plant" means the wood pulpmill which the Borrower expects will be constructed and operated in the Mangoro Valley. ARTICLE fI The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to six million seven hundred and fifty thousand dollars ($6,750,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to the Development Credit Agreement, as such Schedule may be amended from time to time, for expenditures made (or, if the Bank shall so agree. to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of Qoods or for the carrying out of works or services (other than consultants' services) for the Project to be financed out of the proceeds of the Loan. shall be awarded in accordance with the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1980 or such other date as shall be agreed between the Borrower and the Bank. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of I I) per annum on the principal arnount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight per cent (8(') per annum on the principal amount of the Loan withdrawn and outstanding from tine to time. 6 Section 2.07. Interest and other charges shall be payable semi-annually on May 15 and November 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. ARTICLE HI Execution of the Project Section 3.01. (a) The Borrower shall carry out Parts A, B, C and E of the Project through FANALAMANGA, with the assistance of the Directorate of Forestry of its Ministry of Rural Development, and Parts D, F and G of the Project through the appropriate directorates of said Ministry, with due diligence and efficiency and in conformity with appropriate administrative, finarn,cial, engineering and silvicultural practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Borrower shall make available to FANALAMANGA as a contribution to its equity capital (i) the Borrower's participation in money and kind to the cost of the Parts A, B, C and E of the Project, (ii) the existing plantations, facilities and equipment pertaining to the Project, and (iii) an amount equivalent to such proceeds of the Loan as the Borrower shall withdraw from the Loan Account for the carrying out of Parts A, B, C and E of the Project. (c) Without any limitation or restriction upon the obligations of the Borrower under paragraphs (a) and (b) of this Section, the Borrower shall ensure that sufficient liquid funds to cover the budgeted expenditures estimated by FANALAMANGA to be required for its respective Parts of the Project during each year shall promptly be made available to FANALAMANGA in its bank or postal account or in its account at the Borrower's Trsor, all established for that purpose. Section 3.02. (a) The Borrower shall establish and thereafter maintain FANALAMANGA under its laws and regulations governing Societes c'Economie Mixte, for the purpose of carrying out Parts A, B, C and E of the Project. (b) The Borrower shall employ a Directeur Gdneral of FANALAMANGA, whose qualifications and experience shall be satisfactory to the Bank. (c) Except as the Borrower and the Bank shall otherwise agree, the Borrower shall not, during the execution of the Project, sell, transfer or otherwise 7 dispose of any shares in FANALAMANGA or of any interest therein from time to time held by it. Section 3.03. In order to assist the Borrower in the execution of Parts E and F of the Project, the Borrower shall employ or cause to be employed consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 3.04. In carrying out the construction of service roads and prefabricated houses included in Parts C and D of the Project, the Borrower shall employ or cause to be employed contractors acceptable to the Bank upon terms and conditions satisfactory to the Bank. Section 3.05. (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 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 the Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.06. (a) The Borrower shall furnish to the Bank, 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 Bank shall reasonably request. (b) The Borrower: (i) shall maintain and cause FANALAMANGA to set up and maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine th goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. Section 3.07. (a) The Borrower shall take all reasonable measures to ensure that the execution and operation of the Project are carried out with due regard 8 to ecological and environmental factors, and, in particular, the Borrower shall monitor water quality and flow of the Mangoro River in order to avoid any adverse ecological effects resulting from the construction of the Plant. (b) The Borrower shall inform the Bank on arrangements and decisions the Borrower intends to take regarding the financing and construction of t': Plant. Section 3.08. The Borrower undertakes that it will draw the final boundaries in the Project Area in agreement and under appropriate arrangements with the villagers now living in said area. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no ,ost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower 9 or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. (a) The Borrower shall maintain or cause to be maintained records 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 responsible for carrying out the Project or any part thereof. (b) The Borrower shall cause FANALAMANGA to maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations and financial condition of FANALAMANGA. (c) The Borrower shall cause FANALAMANGA to: (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 appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of said 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 FANALAMANGA and the audit thereof as the Bank shall from time to time reasonably requesI. Section 4.03. The Borrower shall cause FANALAMANGA to: (a) at all times conduct its operations under experienced and competent management, in accordance with sound financial, commercial and silvicultural practices and with the assistance of adequate, competent and experienued staff; (b) employ, not later than seven months after the date of this Agreement or within such other period as shall be agreed with the Bank, a plantation director., a financial director, a forestry expert, and a workshop engineer whose qualifications and experience shall be satisfactory to the Bank; (c) at all times operate, renew, repair and maintain its facilities, equipment and machinery necessary or useful for the carrying out of the part of the Project for which it is responsible, in accordance with appropriate management practices; 10 (d) at all times to take all such action as shall be necessary on its part to acquire, maintain and renew all rights, powers and privileges which are necessary or useful for the purpose of carrying out its obligations under the Project; and (e) take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practices. Section 4.04. The Borrower shall furnish to the Bank all documents and other information as the Bank shall reasonably request regarding the value of the assets appraised in accordance with the Borrowers regulations and transferred by the Borrower to FANALAMANGA. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) the legisla.ion or regulations of the Borrower relating to the establishment, powers, organization or responsibilities of FANALAMANGA shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of FANALAMANGA to carry out its part of the Project. (b) the Arrte No. 0701/MDR/FOR dated February 28, 1974 shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the carrying out of the Project. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified, namely, that any event specified in paragraphs (a) and (c) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01(c) of the General Conditions: 11 (a) all conditions precedent to the effectiveness of the Development Credit Agreement shall have been fulfilled subject only to the effectiveness of this Agreement; (b) FANALAMANGA shall have been established, as provided under Section 3.02(a) of this Agreement; and (c) the Directeur G6neral of FANALAMANGA shall have been appointed, as provided in Section 3.02(b) of this Agreement. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02(c) of the Gen ' Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that FANALAMANGA has been duly and validly established pursuant to the legislation and regulations of the Borrower. Section 6.03. The date March 24, 1975, is hereby specified for the purposes of Section 12.04 of the General Coinditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Ministry of Economy and 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 specifi,:d for the purposes of Section 11.01 of the General Conditions: For the Borrower: Minist re de l'Economie et des Finances Tananarive Malagasy Republic Cable address: MINECOFIN Tananarive 12 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. 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. MALAGASY REPUBLIC By /s/ Henri Raharijaona Authorized Representatie INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s / S. Shahid Husain Regional Vice President Eastern Africa 13 SCHEDULE 1 Description of the Project The Project is part of the Borrower's afforestation program in the Project Area for the establishment of about 100,000 ha of pine plantations. The Project consists of the following: A. Afforestation of 35,000 ha of pine plantations, icluding surveying of the area to be planted, land preparation, establishment of nurseries, fertilization, planting, weeding and disease control. B. Construction of firebreaks, institution of a comprehensive system of maintenance and of fire prevention and control for the plantations. C. Construction and maintenance of service and plantation roads. D. Construction of buildings for Proiect headquarters and three divisional headquarters. E. Research, training and preparation of a second-phase project. F. Prep-rtion of agricultural projects. G. Agro-pastural development in the Project Area. The Project is expected to be completed by June 30, 1980. 14 SCHEDULE 2 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* May 15, 1985 120,000 November 15, 1985 125,000 May 15, 1986 130,000 November 15, 1986 135,000 May 15, 1987 140,000 November 15, 1987 145,000 May 15, 1988 150,000 November 15, 1988 160,000 May 15, 1989 165,000 November 15, 1989 170,000 May 15, 1990 180,000 November 15, 1990 185,000 May 15, 1991 195,000 November 15, 1991 200,000 May 15, 1992 210,000 November 15, 1992 215,000 May 15, 1993 225,000 November 15, 1993 235,000 May 15, 1994 245,000 November 15, 1994 255,000 May 15, 1995 265,000 November 15, 1995 275,000 May 15, 1996 285,000 November 15, 1996 295,000 May 15, 1997 310,000 November 15, 1997 320,000 May 15, 1998 335,000 November 15, 1998 345,000 May 15, 1999 360,000 November 15, 1999 375,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 15 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05(b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 3/4% More than three years but not more than six years before maturity 2-1/4% More than six years but not more than eleven years before maturity 3% More than eleven years but not more than sixteen years before maturity 4-3/4% More than sixteen years but not more than twenty-one years before maturity 6-3/4% More than twenty-one years but not more than twenty-three years before maturity 7-1/2% More than twenty-three years before maturity 8% 16 SCHEDULE 3 Procurement A. General Procedures 1. Except as provided in Part A.3 hereof, contracts 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 for the works included in Parts C and D of the Project (service roads and prefabricated houses) shall be prequalified as described in part 2.2 of the Guidelines; (b) Similar contracts for equipment, vehicles and fertilizer shall be grouped to the: extent that said procedure does not adversely affect the implementation of the Project. 3. Contracts for civil works, equipment, vehicles and fertilizer estimated to cost less than $30,000 shall be let under the Borrower's regular 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 Madagascar 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. 17 (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Madagascar if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Madagascar equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Madagascar. (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. Evaluation and Comparison of Bids for Civil Works; Preferences for Domestic Con tractors 1. With respect to any contract for civil works included under Category (1) of the table set forth in Schedule 1 to the Development Credit Agreement, the Borrower may grant a margin of preference of 7-1/2% to domestic contractors, in accordance with, and subject to, the following provisions: (a) Contractors shall be required to prequalify as provided in Part A of this Schedule and applicants for qualification applying also for such preference 18 shall be asked to provide, as part of the information for qualification, such information, including details of ownership, as shall be required to determine whether, according to the classification established by the Borrower and accepted by the Bank, a particular firm or group of firms qualifies for a domestic preference. The bidding documents shall clearly indicate the preference and the method that will be followed in the evaluation and comparison of bids to give effect to such preference. (b) After bids have been received and reviewed by the Borrower, responsive bids will be classified into the following groups: (i) bids offered by domestic contractors eligible for preference; and (ii) bids offered by other contractors. For the purpose of evaluation and comparison of bids an amount equal to 7-1/2% of the bid amount shall be added to bids received under group (ii) above. D. Procurement Without Contracting The civil works for the infrastructure, other than construction of service roads and prefabricated houses, and the plantations shall be carried out tinder force account by the Directorate of Forestry. E. Review of Procurement Decisions by Bank I. Review of prequalification. The Borrower shall, before qualification is invited, inform the Bank in detail of the procedure to be followed and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and, where applicable, of their eligibility for domestic preference under Part C.1 above and of the reasons for the exclusion of any applicant foi prequalification and for such eligibility shall be furnished by the Borrower to the Bank for its comments before the applicants are notified, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 2. Review of invitation to bid and of proposed awards and final contracts: With respect to all contracts for civil works, equipment, vehicles and fertilizer estimated to cost the equivalent of $30,000 or more: 19 (a) Before bids are invited, the Borrower 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) Promptly after the bids have been received, the Borrower shall inform the Bank 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 Bank 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 Bank, 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 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 the Borrower and state the reasons for such determination. (d) 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. (e) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract.