Page 1 CONFORMED COPY LOAN NUMBER 3065 IN CREDIT NUMBER 2022 IN (National Sericulture Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and STATE OF ANDHRA PRADESH and STATE OF JAMMU AND KASHMIR and STATE OF KARNATAKA and STATE OF TAMIL NADU and STATE OF WEST BENGAL and CENTRAL SILK BOARD Dated June 16, 1989 LOAN NUMBER 3065 IN CREDIT NUMBER 2022 IN PROJECT AGREEMENT AGREEMENT, dated June 16, 1989 among INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank), the States of ANDHRA PRADESH, JAMMU AND KASHMIR, KARNATAKA, TAMIL NADU, and WEST BENGAL (hereinafter collectively referred to as "the States" and severally in each case as "the State") and the CENTRAL SILK BOARD (CSB). WHEREAS (A) by the Development Credit Agreement of even date herewith between India, acting by its President (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred thirteen million eight hundred thousand Special Drawing Rights (SDR $113,800,000) on the terms and conditions set forth in the Development Credit Agreement, provided that each State and CSB agrees to undertake such obligations toward the Association as are Page 2 set forth in this Agreement; (B) by the Loan Agreement of even date herewith between the Borrower and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to thirty million dollars ($30,000,000) on the terms and conditions set forth in the Loan Agreement, provided that each State and CSB agree to undertake such obligations toward the Bank as are set forth in this Agreement; (C) the Borrower intends to receive from the Government of the Swiss Confederation (Switzerland) a non-reimbursable contribu- tion in an amount equivalent to forty million Swiss Francs (SF 40,000,000) (Swiss Contribution) to assist in financing the Project on terms and conditions set forth in an agreement (the Swiss Contribution Agreement) to be entered into between the Borrower and Switzerland; (D) Switzerland intends to appoint the Association to administer the Swiss Contribution in accordance with the provisions of the Procedural Arrangements dated April 9, 1987 between Switzerland and the Association; and (E) The Borrower has received from the Government of Japan a grant (the Japanese Grant) in an amount of forty million Japanese Yen (Y 40,000,000) to assist in the financing of the Project on the terms and conditions set forth in an agreement (the Japanese Grant Agreement) dated September 20, 1988 between the Borrower and the Bank acting as administrator of the Japanese Grant; and WHEREAS each State and CSB, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, and the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Loan Agreement, the Preamble to this Agreement and in the General Conditions (as so defined in the Development Credit Agreement and the Loan Agreement, respectively) have the respective meanings therein set forth, and, wherever used in this Agreement (except in Section 6.04 hereof), reference to the Association, the Credit or the Credit Account shall also be deemed to be a reference to the Bank, the Loan or the Loan Account, respectively. ARTICLE II Execution of the Project Section 2.01. (a) Each State and CSB declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and agri- cultural practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Each State and CSB shall take all such steps as shall be necessary to assist the Borrower in carrying out the Borrower's obligations under the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of Page 3 the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. The States and CSB shall carry out the obliga- tions set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions applicable to the Development Credit Agreement and in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions Applicable to the Loan Agreement (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and the Project. Section 2.04. (a) Each State and CSB 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) Each State and CSB 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 such State or CSB of its obligations under this Agreement. Section 2.05. Without limitation upon the provisions of Section 2.01(a), CSB and the States shall carry out the provisions set out in the Implementation Program set out in the Schedule to this Agreement. ARTICLE III Management and Operations of CSB Section 3.01. CSB shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, agricultural and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. CSB shall at all times operate and maintain its plant, machinery, equipment and other property and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound financial, engineering and agricultural practices. Section 3.03. CSB shall take out and maintain with respon- sible insurers, or make other provision satisfactory to the Asso- ciation for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) Each State and CSB shall maintain records and accounts adequate to monitor and record the progress of the Project and reflect in accordance with sound accounting practices its operations and financial condition in respect of the Project. (b) Each State shall: (i) have its records and accounts referred to in para- graph (a) of this Section, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than nine months after the end of each such year a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall Page 4 have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. (c) CSB shall: (i) have its records and accounts and financial state- ments (balance sheets, statements of income and expenses and related statements) (including the records and accounts referred to in paragraph (a) of this Section) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than nine months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements as well as 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 and the Loan Agreement become effective. Section 5.02. (a) This Agreement and all obligations of the Association and of the States and CSB thereunder shall terminate on the earlier of the following two dates: (i) the date on which both the Development Credit Agreement and Loan Agreement shall terminate in accordance with its terms; or (ii) the date 20 years after the date of this Agreement. (b) If the Development Credit Agreement or Loan Agreement or both of said Agreements terminate in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify each State 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 General Conditions applicable to the Development Credit Agreement or the Loan 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 Page 5 permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have desig- nated 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: Telex: INDEVAS/INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For Andhra Pradesh: Chief Secretary to the Government of Andhra Pradesh Hyderabad, Andhra Pradesh, India Telex: 0425-6325 APCS IN For Jammu and Kashmir: Chief Secretary to the Government of Jammu and Kashmir Srinagar, Jammu and Kashmir, India Telex: 8375-9 For Karnataka: Chief Secretary to the Government of Karnataka Bangalore, India Telex: 0845-2239 GOK IN For Tamil Nadu: Chief Secretary to the Government of Tamil Nadu Madras, India Telex: 41 8238 SCRT IN For West Bengal: Chief Secretary, Government of West Bengal Calcutta, West Bengal, India Telex: 021 3191 WBGT IN For CSB: Central Silk Board Page 6 United Mansions 39 Mahatma Gandhi Road Bangalore - 560 001 Telex: 953 8452798 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 any State, may be taken or executed by its Chief Secretary or such other person or persons as the concerned State shall designate in writing, and the concerned State shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of CSB may be taken or executed by its Member-Secretary or such other person or persons as CSB shall designate in writing, and CSB shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.04. As long as the Bank has not given notice to the contrary to the States and CSB and so long as the Development Credit Agreement shall not have terminated prior to the termination of the Loan Agreement: (a) the obligations of the States and CSB to consult with, and to furnish information, documents, plans, reports, records and statements to, the Bank shall be satisfied to the extent performance in respect of such obligations is rendered to the Association; (b) the obligations of the Bank to consult with, and furnish information to, the States and CSB shall be satisfied to the extent such obligations are fulfilled by the Association; and (c) all actions taken (including the giving of approvals or granting of waivers) by the Association pursuant to the Development Credit Agreement shall be deemed to be taken pursuant to both the Development Credit Agreement and the Loan Agreement, and in the name and on behalf of both the Association and the Bank. Section 6.05. 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 duly authorized representatives, 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 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Bilsel Alisbah Acting Regional Vice President Asia STATE Of ANDHRA PRADESH STATE OF JAMMU AND KASHMIR Page 7 STATE OF KARNATAKA STATE OF TAMIL NADU STATE OF WEST BENGAL By /s/ Anil Kumar Authorized Representative CENTRAL SILK BOARD By /s/ Anil Kumar Authorized Representative SCHEDULE Implementation Program Part I. States/CSB Sericulture Research and Development 1. (a) The States and CSB shall, by December 31, 1989, take necessary steps to identify, and subsequently designate as such, all staff positions in State departments of sericulture and CSB respectively which are responsible for carrying out sericulture research (including research on breeding) (hereinafter referred to as "research positions"). (b) The States and CSB shall seek to ensure that all State department of sericulture and CSB staff appointed to research positions shall, other than in limited exceptions on personnel or performance grounds, ordinarily have a minimum tenure of three years in such positions except for staff appointed to positions in breeding research who shall have a minimum tenure of five years. 2. (a) The States and CSB shall ensure that each university or research institute (including research institutes of the depart- ment of sericulture) receiving funding under this Project shall prepare annually a two-part report summarizing the main research work undertaken during the past year as well as setting out the objectives and budget programs planned for the ensuing three years. (b) CSB shall cause AISRCC to review and make recommenda- tions on the reports referred to in paragraph 2(a) above and shall furnish to the Association a copy of the comments and recommenda- tions of AISRCC. Bivoltine Production 3. The States (except Jammu and Kashmir) and CSB shall, in consultation with CSB, submit to the Association by December 31, 1989, a detailed action plan for bivoltine production indicating inter alia yearly targets, areas to be selected for bivoltine promotion and actions to strengthen extension service for bivoltine. Commercial Seed (F1) Grainages 4. The States and CSB shall ensure that funds provided under the Project to grainages for permanent working capital shall be retained by such grainages and replenished from sales revenues. 5. The States and CSB shall ensure that public sector grainages set seed prices so as to recover, in accordance with timing agreed with the Association, the full cost of production including Page 8 operating costs, depreciation of plant, equipment and other infrastructure and for CSB, its headquarters administrative costs attributable to its commercial seed (F1) production operations. 6. Without limitation to any provision of this Agreement or the Development Credit Agreement, the States and CSB shall maintain, or cause to be maintained income and expenditure statements showing total costs and revenues of their grainage operations, have such statements audited by independent auditors acceptable to the Association and submit such audited accounts to the Association within nine months after the end of each fiscal year. 7. The States (except Jammu and Kashmir) and CSB shall by December 31, 1989 submit to the Association an action plan acceptable to the Association for the promotion of private sector grainages and take necessary steps to carry out such an action plan on a timely basis. Mulberry Nurseries 8. (a) States (except Jammu and Kashmir) implementing Part D of the Project and CSB shall collect a sale price for saplings which shall initially be adequate to cover at least 50% of the operating costs of the concerned DOS or CSB for the production of such saplings and which shall be increased so as to recover full cost of production (whether for direct production or through contract growing) by April 30, 1994. (b) Jammu and Kashmir shall collect a sale price for saplings which shall be adequate to recover at least 50% of the full cost of production by the end of the fifth year of Project implementation (fiscal year 1994-1995). (c) The States and CSB shall submit to the Association a plan, acceptable to the Association, for sapling production and distribution (including the collection of sale price pursuant to Sub-paragraphs 8(a) and (b) above of this Schedule). Private Sector CRCs 9. (a) Karnataka shall, by December 31, 1991, and Andhra Pradesh, Tamil Nadu, West Bengal and CSB shall, by December 31, 1989, transfer all existing state owned CRCs (excluding CRCs for seed production) to private farmers or groups of private farmers. (b) The States and CSB shall ensure that private farmers to whom CRCs are transferred or who are assisted in establishing new CRCs shall satisfy the following criteria: (i) the farmer shall be the owner of a productive mulberry garden; (ii) the farmer should already have, or agree to have, an appropriate chawki rearing house; and (iii) the farmer should have adequate experience in the sericulture industry. (c) The States and CSB shall furnish to the Association by December 31, 1989 financial and organizational models and proposed schemes of assistance on the basis of which assistance will be provided to CRCs under the Project. (d) The States and CSB shall (i) take necessary steps to ensure that CRCs assisted under the Project shall be capable of being financially viable at least by the fifth year of its opera- tion; and (ii) enter into an agreement with each private farmer receiving assistance for establishing or operating CRCs under the Project setting out the terms and conditions governing the provi- sion of such assistance and the operation of the CRC. (e) The States and CSB shall not restrict the selling price that CRCs may charge for sale of chawkis. Cocoon Markets, Cocoon Drying and Testing 10. The States and CSB shall ensure that all new cocoon markets Page 9 except seed cocoon markets shall levy a fee which shall, not later than in the fourth year of operation of such market, amount to at least 1% of the total transaction value of cocoons marketed. 11. The States (except Jammu and Kashmir) and CSB shall ensure that the charges for using drying chambers set up under the Project would initially cover 50% and by the fourth year of operation of such drying chambers, 100% of their operating costs. Reelers 12. The States and CSB shall ensure that labor necessary for stove (chula) conversion is provided by the beneficiaries. Extension Services 13. The States and CSB shall make reasonable efforts to ensure (i) coordination amongst and close links between general agricultural extension staff and extension staff of departments of sericulture at the field level; and (ii) involvement of the general extension service in mulberry extension. 14. The States and CSB shall ensure that mopeds provided under Part I of the Project shall be issued exclusively to extension field staff and that the purchase of such mopeds by staff is financed through loans provided by the States or CSB as the case may be. Credit 15. The States and CSB shall take necessary steps in consultation with credit institutions to facilitate the flow of credit to eligible borrowers under the Project. Support to Women and Non-Governmental Organizations (NGOs) 16. The States and CSB shall take necessary steps to enhance the role of women in sericulture institutions including increased participation in the production and marketing of silk. 17. (a) Each State and CSB shall, by a date agreed with the Bank, appoint one senior officer (who shall, for States, be a woman and shall report directly to the director of the concerned DOS) as coordinator of assistance to women and NGOs under the Project. (b) Each State shall appoint a state-level committee, with the coordinator referred to in sub-paragraph (a) above of this paragraph as convenor, with terms of reference and membership agreed with the Association, to coordinate the assistance provided to women and NGOs under the Project. (c) CSB shall appoint a committee, with terms of reference and membership agreed with the Association and chaired by CSB, and with the coordinators referred to in sub-paragraph (a) above of this paragraph as members, to coordinate the provision of assistance to women and NGOs under the Project. (d) The state level committee referred to in subparagraph (b) above of this paragraph shall, with the concurrence of CSB, select NGOs receiving assistance under the Project in accordance with appropriate criteria agreed with the Association. Reports and Review 18. The States and CSB shall submit to the Association every six months a consolidated report on the progress of Project implementation. 19. The States and CSB shall periodically, as requested by the Association, review with the Association and revise as agreed with the Association in the light of such review: Page 10 (a) the action plan referred to in paragraph 3 of this Schedule; (b) the action plan referred to in paragraph 7 of this Schedule; (c) the plan referred to in paragraph 8(c) of this Schedule; (d) the models and schemes referred to in paragraph 9(c) of this Schedule; (e) steps taken to implement paragraph 15 of this Schedule; and (f) the plan of operation referred to in paragraph 29 (a) of this Schedule. Part II. States Sericulture Research and Development 20. Karnataka shall take necessary steps to ensure that students from outside Karnataka shall have the same access to sericulture teaching programs of the Shri Krishna Rajendra Silver Jubilee Technology Institute as students from Karnataka. Silk Exchanges and Silk Testing Houses 21. The States shall ensure that, once silk testing houses have been established and have become operational, all yarn to be sold in the silk exchanges within each State are first tested and classified in silk testing houses prior to such sale. 22. Andhra Pradesh, West Bengal and Jammu and Kashmir shall introduce a fee on the value of silk yarn sold in silk exchanges and progressively increase the fee to reach at least one-half per cent of such value by the fourth year of operation of such exchanges. Reelers 23. Each State implementing Part H(2) of the Project shall take necessary steps to ensure that its equity participation in the share capital of joint venture reeling and twisting enterprises supported under the Project does not exceed 25% of such equity share capital. 24. Prior to the investment of equity in any joint venture reeling and twisting enterprise, such State shall ensure that such enterprise (including the concerned investment proposal) is appraised in accordance with such procedures and meets such criteria as are agreed with the Association. General 25. Jammu and Kashmir shall, by March 31, 1990: (a) take steps to operationalize three self-regulated auction markets for the sale of cocoons in which buyers from outside the state are fully eligible to participate on the same terms as those from within the state; (b) take necessary steps to remove all regulatory restric- tions (except licensing conditions) on the establishment of reeling enterprises in the state; and (c) take steps to operationalize a silk exchange for the sale of silk yarn produced in the state through a self-regulated, auction market in which buyers from outside the state are eligible to participate on the same terms as those from within the state. Page 11 Part III. CSB Sericulture Research and Development 26. CSB shall ensure that all proposals for provision of assistance under the Project for universities or technical insti- tutes shall first be examined and approved by a sub-committee of AISRCC headed by its Chairman and including representatives of CSB, participating states and other senior qualified experts familiar with research needs of sericulture. Basic Seed Production 27. CSB shall carry out a review of selection criteria used in basic seed multiplication and furnish to the Bank by December 31, 1989 the results of such review including appropriate recommenda- tions. Commercial Seed (F1) Grainages 28. CSB shall take steps to ensure that at least 3 seed grainages to be established or strengthened in Karnataka under the Project shall be established by, or transferred to, the private sector or shall be undertaken as a joint venture between CSB or Karnataka, or both of the one part and the private sector of the other, in which total public sector equity participation shall be in the minority. Reelers 29. (a) CSB shall submit to the Association and thereafter carry out a plan of operation satisfactory to the Association, specifying procedures, criteria, interest rates and repayment terms applicable to sub-loans to reelers under Part H(1) of the Project. (b) Interest rates for loans to reelers under Part H(1) of the Project shall be at least 10% per annum. Overseas Training and Technical Assistance 30. CSB shall (a) establish a committee of directors of sericul- ture of the States and the Member-Secretary of CSB to select candidates for overseas training; (b) obtain the concurrence of the States prior to any modification of the agreed state-wise allocation of funds for such training; and (c) obtain prior concurrence of IDA before awarding any contract for technical assistance or overseas training with a value above $200,000 and financed out of the proceeds of the Credit. Monitoring and Evaluation 31. (a) Institutions selected for carrying out beneficiary assessment and socio-economic surveys under Part L of the Project shall have qualifications, experience and terms of reference agreed with the Association. (b) Prior to the commencement of beneficiary assessment and socio-economic surveys under Part L of the Project, CSB shall submit to the Association for its concurrence: (i) terms of reference and a copy of the proposed draft contract for the engagement of the institution that will carry out the assessment; and (ii) an overall program for beneficiary assessment indicating the main elements for carrying out the assessment. Pilot Program 32. (a) CSB shall establish pilot programs in the Pilot States exclusively for the production of bivoltine silk. (b) Prior to the implementation of Part N of the Project, CSB shall enter into an agreement with the concerned Pilot State Page 12 for the temporary secondment to CSB during the Project period of adequate numbers of staff of that Pilot State as may be necessary for carrying out the CSB programs in that state with such staff being returned to the service of such state at the end of such temporary secondment. (c) CSB shall, by a date agreed with the Association, agree with each Pilot State on a time bound action plan for establishing appropriate facilities and procedures necessary for operationalizing a free market in cocoons and silk yarn in such state, encouraging the development of new investments in reeling, grainages and chawki rearing in the private sector. (d) CSB shall prepare and implement a time bound plan, agreed with each Pilot State, for handing over to Pilot States seconded staff and facilities operating in that State. General 33. CSB shall take necessary steps to adopt systems for maintaining accounts and preparing annual financial statements in accordance with generally accepted accounting practices applied to companies (with due regard to the legal status of CSB as a statutory body).