ILOAN NUMBER 2175 PO

Loan Agreement(Tras-Os-Nontes Rural Development Project)

between

REPUBLIC OF PORTUGAL

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPNENT

Dated \) , 1983

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LOAN NUMBER 2175 PO

LOAN AGREEMENT

AGREEMENT, dated 1 0 , 1983, between REPUBLICOF PORTUGAL (hereinafter called the Borrower) and INTERNATIONALBANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called theBank).

WHEREAS (A) the Borrower has requested the Bank to assist inthe financing of the Project described in Schedule 2 to this

Agreement by making the Loan as hereinafter provided;

(B) part B.1 of the Project will be carried out by Insti-tuto Finangeiro de Apoio ao Desenvolvimento da Agricultura ePescas (hereinafter called IFADAP) as agent of the Borrower, and

the Borrower will make available to IFADAP parts of the proceedsof the Loan as hereinafter provided; and

WHEREAS the Bank has agreed, on the basis inter alia of theforegoing, to make the Loan available to the Borrower upon theterms and conditions set forth hereinafter and in the Project

Agreement of even date herewith between the Bank and IFADAP;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTIGLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all theprovisions of the General Conditions Applicable to Loan and Gua-rantee Agreements of the Bank, dated October 27, 1980, with thesame force and effect as if they were fully set forth herein

(said General Conditions Applicable to Loan and Guarantee Agree-ments of the Bank being hereinafter called the General Condi-tions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in the

General Conditions and in the Preamble to this Agreement have therespective meanings therein set forth and the following addi-tional terms have the following meanings:

(a) "Project Agreement" means the agreement between theBank and IFADAP of even date herewith, as the same may be amended

from time to time, and such term includes all schedules to theProject agreement and all agreements supplemental to the ProjectAgreement;

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(b) "IFADAP Agency Agreement" means the agreement to beentered into between the Borrower and IFADAP pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the IFADAP AgencyAgreement;

(c) "PBI" means a banking institution established andoperating under the laws of the Borrower referred to in Section2.02 (a) and (b) of the Project Agreement;

(d) "PBI Loan Agreement" means an agreement to be enteredinto by IFADAP, acting as agent of the Borrower, and a PBI,pursuant to Section 2.02 (b) of the Project Agreement, as suchagreement may be amended from time to time with the approval ofthe Bank, for the purpose of relending to such PBI a portion ofthe Loan;

(e) "Sub-loan" means a loan made or proposed to be madeby IFADAP, acting as agent of the Borrower and on its ownbehalf, or by a PBI, to a Sub-borrower for an Investment Projectand, in case of loans made or proposed to be made by a PBI underPart B.1 of the Project, in which IFADAP, acting as agent of theBorrowe:, has agreed to participate by relending to such PBIproceeds of the Loan under a PBI Loan Agreement;

(f) "Sub-borrower" means the borrower under a Sub-loan;

(g) "Investment Project" means a specific investment projectto be carried out by a Sub-borrower, utilizing the proceeds of aSub-loan;

(h) "CCAM" means Caixa de Credito Agricola Mutuo, anagricultural credit cooperative established under the laws of theBorrower;

(i) "ICIM" means any financial institution providing creditto municipalities under Part B.2 of the Project;

(j) "Project Administration Unit" mf ns the unit to beestablished within CCRN pursuant to Se f inn 3.05 of thisAgreement;

(k) "Project Area" means the area comprising the followingconcelhos:

Chaves, Montalegre, Boticas, Valpagos, Vila Pouca de Aguiar,Braganca, Miranda do Douro, Vimioso, Vinhais, Alfandega da Fe,Carrazeda de Ansiges, Mirandela, Maqedo de Cavaleiros, VilaFlor, Vila Real, Alijo, Sabrosa, Aurga, Santa Marta de Penagui2o,Mes?o Frio, Peso da Regua, Lamego, Sgo Jo2o da Pesqueira,Tabuago, Moimenta da Beira, Resende, Cinf2es, Armamar, Tarouca,Penedono, Sernancelhe, Freixo de Espada a Cinta, Mogadouro,Torre de Moncorvo and Vila Nova de Foz Coa;

(1) "CCRN" means Comissao de Coordenacao da Regiao doNorte, established by Decree Law No. 494/79 of the Borrower, datedDecember 21, 1979;

(m) "DGHEA" means Direcyao Geral de Hidraulica e EngenhariaAgricola, established by Decree Law No. 211/79 of the Borrower,dated March 28, 1979;

(n) "DRTM" means Direcgao Regional de Tras-os-Montes,established by Decree Law No. 221/77 of the Borrower, datedMarch 28, 1977;

(o) "GAT" means Gabinete de Apoio Technico, established byDecree Law No. 58/79 of the Borrower, dated March 29, 1979;

(p) "FENACAM" means Federagao Nacional das Caixas deCredito Agricola Mutuo, established by Decree Law No. 69/81 of theBorrower, dated April 7, 1981;

(q) "Municipalities" means any of the concelhos specified inparagraph (k) of this Section, established and operating under thelaws of the Borrower; and

(r) "Escudo" or "Esc," means the currency of the Borrower.

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower,on the terms and conditions in the Loan Agreement set forthor referred to, an amount in various currencies equivalent tofifty-one million dollars ($51,000,000).

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Section 2.02. The amount of the Loan may be withdrawn

from the Loan Account in accordance with the provisions of Sched-

ule 1 to this Agreement, as such Schedule may be amended from time

to time by agreement between the Borrower and the Bank, 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,

procurement of the goods and civil works to be financed out of

the proceeds of the Loan shall be governed by the provisions of

Schedule 4 to this Agreement.

Section 2.04. The Closing Date shall be December 31, 1988

or such later date as the Bank shall establish. The Bank shall

promptly notify the Borrower of such later date.

Section 2.05. The Borrower shall pay to the Bank a commit-

ment charge at the rate of three-fourths of one per cent (3/4 of

1%) per annum on the principal amount of the Loan not withdrawn

from time to time.

Section 2.06. The Borrower shall pay interest at the rate

of eleven and three-fifths per cent (11-3/5%) per annum on the

principal amount of the Loan withdrawn and outstanding from time

to time.

Section 2.07. Interest and other charges shall be payable

semiannually on February 1 and August 1 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 3 to this Agreement.

Section 2.09. IFADAP is designated as representative of the

Borrower for the purposes of taking any action required or per-

mitted to be taken under the provisions of Section 2.02 of this

Agreement and Article V of the General Conditions in respect of

Part B.1 of the Project.

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out the Project

with due diligence and efficiency, and in accordance with appro-

priate administrative, financial and agricultural practices, and

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shall provide, promptly as needed, the funds, facilities, servicesand other resources required for that purpose.

(b) Without any limitation or restriction upon any of itsother obligations under the Loan Agreement, the Borrower shall:

(i) cause IFADAP to perform in accordance withthe provisions of the IFADAP Project Agreementall the obligations therein set forth, shall takeor cause to be taken all action, including theprovision of fund-, facilities, services and otherresources, necessary or appropriate to enableIFADAP to perform such obligations, and shall nottake or permit to be taken any action which wouldprevent or interfere with such performance; and

(ii) provide to PBIs incentives to participate in theProject, including adding amounts refinancedunder the Project to the credit ceiling of thePBI concerned.

(c) The Borrower shall make an amount equivalent to$32,800,000, out of the proceeds of the Loan, available to IFADAPunder an agency agreement to be entered into between the Borrowerand IFADAP, under terms and conditions which shall have beenagreed with the Bank, including inter alia, that IFADAP shallretain a commission of 3% of the principal amount of the loansmade to PBIs and Sub-loans made to Sub-borrowers out of theproceeds of the Loan.

(d) The Borrower shall exercise its rights under the IFADAPAgency Agreement in such manner as to protect the interests ofthe Borrower and the Bank and to accomplish the purposes of theLoan, and except as the Bank shall otherwise agree, the Borrowershall not assign, amend, abrogate or waive the IFADAP AgencyAgreement or any provision thereof.

Section 3.02. (a) The Borrower shall cause the ICIMs: (i) toprovide credit to Municipalities in the Project Area for thepurposes specified in Part B.2 of Schedule 2 to this Agreement inaccordance with the statement of operations and policies set forthin Schedule 5 to this Agreement; and (ii) to enable representa-tives of the Bank to review and discuss with officers of the ICIMsthe progress of Part B.2 of the Project, including the plans,-programs, reports, financing plans and designs to be furnished by

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the Municipalities to the ICIMs and the ICIMs' operations inconnection therewith.

(b) The Borrower shall ensure that the provision of creditto Municipalities by ICIMs under Part B.2 of the Project shallnot be affected by credit ceilings otherwise applicable to ICIMs.

Section 3.03. In order to assist the Borrower in carryingout the Project, the Borrower shall employ consultants whoseselection, qualifications, experience and terms and conditions ofemployment shall be satisfactory to the Bank in accordance withthe principles and procedures described in the "Guidelines forthe Use of Consultants by World Bank Borrowers and by the WorldBank as Executing Agency" published by the Bank in August 1981.

Section 3.04. The Borrower shall assign such duly qualifiedand experienced staff in the Project Area for its GATs and CCRN,as well as for its ministries responsible for agriculture andhealth, as required for carrying out or assisting in carrying outthe Project.

Section 3.05. The Borrower shall maintain, until completionof the Project, for the purpose of coordinating and expeditingthe carrying out of the Project, a Project Administration Unitwith duly qualified and experienced staff headed by the ProjectCoordinator, assisted by two Deputy Coordinators; this Unit shallbe responsible for overall project coordination, including staff-ing and training as well as monitoring and evaluation, ensuringtimely implementation of the non-agricultural as well as of theagricultical components of the Project, including studies.

Section 3.06. The Borrower shall: (a) cause to be estab-lished by June 30, 1983 and thereafter maintain until the comple-tion of the Project, a research planning and coordination teamunder the authority of the Project Coordinator, the Rector of theUniversity of Tras-os-Montes and Alto Douro and the Director ofDRTM, to prepare and furnish to the Bank by September 30, 1983 orsuch other date as may be agreed between the Borrower and theBank, for its comments a plan of applied research for the devel-opment of the Project Area, including recommendationb for theexecution of the Plan, and to review and supervise the carryingout of said plan; such team to consist of duly qualified andexperienced staff in sufficient numbers. For purposes of carryingout said Plan, the Borrower shall cause its CCRN to be provided

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with adequate financing to carry out such plan, and to employqualified and experienced experts therefor in accordance vithcontract procedures satisfactory to the Bank;

(b) cause to be strengthened and maintained until thecompletion of the Project, a project extension and an animalhealth service within its DRTM with duly qualified and experi-enced staff in sufficient numbers as agreed with the Bank, in-cluding one support unit to advise on and demonstrate farmmachinery and one such unit to investigate methods of soil con-servation and to demonstrate such methods to extensionists andfarmers;

(c) cause to be established not later than six monthsafter the date of this Agreement and thereafter maintained untilthe completion of the Project, a unit with duly qualified andexperienced staff in sufficient numbers assisted initially by aspecialist to monitor progress of all Parts of the Project, in-cluding collecting all relevant data;

(d) cause the Project Coordinator to organize an annualmeeting of all implementing agencies to discuss progress of theProject and budgets for the following year, summary reports ofsuch meetings to be furnished to the Bank not later than threemonths thereafter; and

(e) cause to be established not later than six monthsafter the date of this Agreement and thereafter maintained untilthe completion of the Project, an evaluation unit to design thebaseline survey, to carry out general socio-economic surveys andresearch studies on the rural economy in the Project Area and toprepare and furnish to the Bank, not later than three and fiveyears after the date of this Agreement, reports inter alia on theprogress of the Project, the cost and the benefits derived there-from and the performance of the implementing agencies.

Section 3.07. Not later than September 30, 1983, the Bor-rower shall prepare and furnish to the Bank for an exchange ofviews the terms of reference for the feasibility studies on theChaves Irrigation Scheme and for the olive development study in-cluded in Part D of the Project.

Section 3.08. The Borrower shall:

(a) through its ministry responsible for cooperatives,furnish to the Bank by June 30, 1983 a training program included

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in Part E of the Project for the staff of FENACAM and CCAMs, andinitiate the carrying out of a program satisfactory to the Bankby September 30, 1983; and

(b) carry out Part C.3 of the Project through its ministryresponsible for cooperatives.

Section 3.09. The Borrower shall cause its DRTM to prepareand carry out programs satisfactory to the Bank (a) to improveanimal health and disease control including training of villagersas veterinarians' assistants, such training expenses to be cov-ered by animal insurance cooperatives;

(b) to recover the cost, ez.cluding interest, of construct-ing, operating and maintaining the facilities included in PartC.2 of the Project over a period of 15 years through levies onusers of the facilities included in said Part of the Project; and

(c) to require the beneficiaries of the irrigatior. facili-ties provided under Part A of the Project to contribute not lessthan 20% of the cost of construction.

Section 3.10. Except as the Borrower and the Bank mayotherwise agree:

(a) The Borrower shall establish the interest rate appli-cable to loans for Investment Projects and maturing more than oneyear after the date on which they are originally incurred, at aconstant level of not less than 14.5%.

(b) The Borrower shall maintain the interest rates appli-cable to agricultural loans in the Project Area maturing one yearor less after the date on which they are originally incurred andprovided for in connection with investments referred to in para-graph (a) above, at a level of not less than the rate applicableto agricultural loans under paragraph (a) above.

Section 3.11. (a) The Borrower undertakes to insure, ormake adequate provision for the insurance of, the imported goodsto be financed out of the proceeds of the Loan against hazardsincident to the acquisition, transportation and delivery thereofto the place of use or installation.

(b) Except as the Bank shall otherwise agree, the Borrowershall cause all goods and services financed out of the proceeds

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of the Loan to be used exclusively for the purposes of theProject.

(c) The Borrower shall issue, as and when needed, allpermits, licenses and authorizations and take all other actionnecessary to ensure the entry into the Borrower's territory ofthe imported livestock required for the Project.

Section 3.12. (a) The Borrower shall furnish to the Bankthrough the Project Administration Uni, promptly upon theirpreparation, the plans, programs and reports for the Project andany material modifications thereof or additions thereto, in suchdetail as the Bank shall reasonably request.

(b) The Borrower: (i) shall maintain or cause to be main-tained records adequate to record the progress of the Project(including its cost and the benefits to be derived from it) and toidentify the goods and services financed out of the proceeds ofthe Loan, and to disclose the use thereof in the Project; (ii)shall enable the Bank's representatives to visit the facilitiesand construction sites included in the Project and to examine thegoods financed out of the proceeds of the Loan and any relevantrecords and documents; (iii) shall furnish to the Bank not laterthan three months after the end of each six months' period areport of such scope and in such detail as the Bank shall reason-ably request on the progress of the Project during such sixmonths' period; and (iv) shall furnish to the Bank all suchinformation as the Bank shall reasonably request concerning theProject, its cost and, where appropriate, the benefits to bederived from it, the expenditure of the proceeds of the Loan andthe goods and services financed out of such proceeds.

(c) Upon the award by the Borrower of any contract forgoods, works or services to be financed out of the proceeds of theLoan, the Bank may publish a description thereof, the name andnationality of the party to whom the contract was awarded and thecontract price.

(d) Promptly after completion of the Project, but in anyevent not later than seven months after the Closing Date or suchlater date as may be agreed for this purpose between the Borrowerand the Bank, the Borrower shall prepare and furnish to the Bank acompletion report, of such scope and in such detail as the Bankshall reasonably request, on the execution and initial operationof the Project, its cost and the benefits derived and to be

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derived from it, the performance by the Borrower, the Bank andIFADAP of their respective obligations under the Loan, Project andIFADAP Agency Agreements and the accomplishment of -e p- osesof the Loan.

ARTICLE IV

Other Covenants

Section 4.01. (a) It is the policy of the Bank, in makingloans to, or with the guarantee of, its members not to seek, innormal circumstances, special security from the member concernedbut to ensure that no other external debt shall have priority overits loans in the allocation, realization or distribution offoreign exchange held under.the control or for the benefit of suchmember. To that end, if any lien shall be created on any publicassets (as hereinafter defined), as security for any externaldebt, which will or might result in a priority for the benefit ofthe creditor of such external debt in the allocation, realizationor distribution of foreign exchange, such lien shall, unless theBank shall otherwise agree, ipso facto and at no cost to the Bank,equally and ratably secure the principal of, and interest andother charges on, the Loan, and the Borrower, in creating orpermitting the creation of such lien, shall make exp:ess provisionto that effect; provided, however, that, if for aiy constitutionalor other legal reason such provision cannot be made with respectto any lien created on assets of any of its political or adminis-trative subdivisions, the Borrower shall pro-ptly and at no costto the Bank secure the principal of, and interest and othercharges on, the Loan by an equivalent lien on other public assetssatisfactory 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 suchproperty; and (ii) any lien arising in the ordinary course ofbanking transactions and securing a debt maturing not more thanone year after its date.

(c) As used in this Section, the term "public assets"means assets of the Borrower, of any political or administrativesubdivision thereof and of any entity owned or controlled by, oroperating for the account or benefit of, the Borrower or any suchsubdivision, including assets held by any institution performing

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the functions of a central bank or exchange stabilization fund, orsimilar functions, for the Borrower.

Section 4.02. The Borrower shall maintain or cause to bemaintained records adequate to reflect in accordance with consis-tently maintained appropriate accounting practices the operations,resources and expenditures, in respect of the Project, of thedepartments or agencies of the Borrower responsible for carryingout the Project or any part thereof.

Section 4.03. Without limitation upon its obligations con-tained in Section 4.02 above, the Borrower shall:

(a) cause DRTM, CCRN, its ministry responsible for healthand its Municipalities to establish and maintain separate accountson their records to be used exclusively for those Parts of theProject for which they are responsible and to register in suchaccounts all receipts and payments for or in connection with suchParts of the Project, in accordance with appropriate accountingprinciples consistently applied; and

(b) cause DRTM, CCRN, its ministry responsible for healthand its Municipalities to: (i) have the accounts referred to in(a) hereof and related statements for each fiscal year audited, inaccordance with appropriate auditing principles consistentlyapplied, by independent auditors acceptable to the Bank; (ii)furnish to the Bank, as soon as available, but in any case notlater than six months after the end of the fiscal year, (A)certified copies of such related statements for such year as soaudited and (B) the report of such audit by said auditors, ofsuch scope and in such detail as the Bank shall have reasonablyrequested; and (iii) furnish to the Bank such other informationconcerning such accounts and related statements of such agency andthe audit thereof as the Bank shall from time to time reasonablyrequest.

ARTICLE V

Remedies of the Bank

Section 5.01. For the purposes of Section 6.02 of theGeneral Conditions, the following additional events are specifiedpursuant to paragraph (k) thereof:

(a) IFADAP shall have failed to perform any covenant,agre,-ment or obligation of IFADAP under the Project Agreement;

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(b) an extraordinary situation shall have arisen whichshall made it improbable that IFADAP will be able to perform itsobligations under the Project Agreements

(c) the Borrower or any other authority having jurisdictionshall have taken any action for the dissolution or disestablish-ment of IFADAP or for the suspension of its operations; and

(d) the Statutes of IFADAP shall have been amended, sus-pended, abrogated, repealed or waived in such a way as to ma-terially and adversely affect the ability of IFADAP to carry outthe covenants, agreements and obligations set forth in theProject Agreement.

Section 5.02. For the purposes of Section 7.01 of the GeneralConditions, the following additional events are specified pursuantto paragraph (h) thereof, namely, that the events specified inparagraphs (a), (c) and (d) of Section 5.01 of this AgreEmentshall occur and shall continue for a period of 30 days afternotice thereof shall have been given by the Bank to the Borrowerand IFADAP, respectively.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following events are specified as addi-tional conditions to the effectiveness of the Loan Agreementwithin the meaning of Section 12.01 (c) of the General Condi-tions:

(a) the IFADAP Agency Agreement has been executed on behalfof the Borrower and IFADAP;

(b) not less than two PBI Loan Agreements shall havebeen executed on behalf of IFADAP and PBIs, respectively, andshall have come into full force and effect; and

(c) the Borrower shall have established the interest ratepursuant to Section 3.10 (a) of this Agreement.

Section 6.02. The following are specified as additionalmatters, within the meaning of Section 12.02 (c) of the GeneralConditions, to be included in the opinion or opinions to befurnished to the Bank:

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(a) that the Project Agreement has been duly authorized orratified by IFADAP, and is legally binding upon IFADAP in accord-ance with its terms;

(b) that the IFADAP Agency Agreement has been duly author-ized or ratified by the Borrower and IFADAP and is legally bind-ing upon the Borrower and IFADAP in accordance with its terms;and

(c) that not less than two PBI Loan Agreements have beenduly authorized or ratified by IFADAP and the PBIs and arelegally binding upon IFADAP and the PBIs in accordance with theirterms.

Section 6.03. The date U I L , is herebyspecified for the purposes of Section 12.14 of the General Condi-tions.

ARTICLE VII

Representatives of the Borrower; Addresses

Section 7.01. The Minister of the Borrower at the timeresponsible for finance is designated as representative of theBorrower for the purposes of Section 11.03 of the General Condi-tions.

Section 7.02. The following addresses are specified for thepurposes of Section 11.01 of the General Conditions:

For the Borrower:

Ministerio das Financase do Plano

Avenida Infante D. Henrique1100 LisboaPortugal

Cable address: Telex:

Direccao-Geral 12764 TRESOR Pdo Tesouro

Lisboa

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

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Cable address: Telex:

INTBAFRAD 440098 (ITT)Washington, D.C. 248423 (RCA) or

64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentatives thereunto duly authorized, have caused thisAgreement to be signed in their respective names in Lisbon,Republic of Portugal, as of the day and year first above written.

REPUBLIC OF PORTUGAL

ByAuthorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

ByRegional Vice President

Europe, Middle East and North Africa

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SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to befinanced out of the proceeds of the Loan, the allocation of theamounts of the Loan to each Category and the percentage ofexpenditures for items so to be financed in each Category:

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Sub-loans underPart B.1 of theProject:

(a) made by IFADAP 12,000,000 90% of disburse-ments by IFADAPto Sub-borrowers

(b) made by PBIs 19,000,000 100% of IFADAP'sdisbursementsto PBIs

(2) (a) Construction 2,000,000 80%materials forPart A ofthe Project

(b) Equipment, 4,000,000 90%vehicles andmaterials forPart C.1 - 3of the Project

(3) Civil works under 3,200,000 70%Part C.1 -3 ofthe Project

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Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(4) Equipment, vehicles, 8,000,000 80%materials, Con-sultants' services,including researchcontracts, andfellowships underParts D and E ofthe Project

(5) Unallocated 2,800;000

TOTAL 51,000,000

2. The disbursement percentages have been calculated incompliance with the policy of the Bank that no proceeds of theLoan shall be disbursed on account of payments for taxes leviedby, or in the territory of, the Borrower on goods or services,or on the importation, manufacture, procurement or supplythereof; to that end, if the amount of any such taxes leviedon or in respect of any item to be financed out of the proceedsof the Loan decreases or increases, the Bank may, by notice tothe Borrower, increase or decrease the disbursement percentagethen applicable to such item as required to be consistent withthe aforementioned policy of the Bank.

3. Notwithstanding the provisions of paragraph I above, no

withdrawals shall be made in respect of payments made forexpenditures prior to the date of this Agreement.

4. Each request for withdrawal from the Loan Account in respectof payments for expenditures in respect of Category (1) shall beaccompanied by a certificate issued by IFADAP, by which IFADAPcertifies that the disbursement on account of which the withdrawalis requested has been made for the purpose for which it wasintended; the certificate shall be in such form as shall have beenagreed between the Bank and IFADAP.

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5. Notwithstanding the allocation of an amount of the Loan orthe disbursement percentages set forth in the table in paragraph1 above, if the Bank has reasonably estimated that the amount ofthe Loan then allocated to any Category will be insufficient tofinance the agreed percentage of all expenditures in thatCategory, the Bank may, by notice to the Borrower: (i) reallocateto such Category, to the extent required to meet the estimatedshortfall, proceeds of the Loan which are then allocated toanother Category and which in the opinion of the Bank are notneeded to meet other expenditures; and (ii) if such reallocationcannot fully meet the estimated shortfall, reduce the disbursementpercentage then applicable to such expenditures in order thatfurther withdrawals under such Category may continue until allexpenditures thereunder shall have been made.

6. If the Bank shall have reasonably determined that theprocurement of any item in any Category is inconsistent with theprocedures set forth or referred to in this Agreement, noexpenditures for such item shall be financed out of the proceedsof the Loan and the Bank may, without in any way restricting orlimiting any other right, power or remedy of the Bank under theLoan Agreement, by notice to the Borrower, cancel such amount ofthe Loan as, in the Bank's reasonable opinion, represents theamount of such expenditures which would otherwise have beeneligible for financing out of the proceeds of the Loan.

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SCHEDULE 2

Description of the Project

The objective of the Project is to establish a base fortechnological progress of agriculture in the Project area, improveagricultural services, raise incomes of farm families and stan-dards of living in the Project Area and strengthen regionalinstitutions involved in rural development.

The Project consists of the following Parts:

Part A: Irrigated Agricultural Development

Rehabilitation of about 150 irrigation systems in the moun-tain and high valley zones of the Project Area (including con-struction of weirs, canals, syphons and steel gates) to irrigatean area of about 7,500 ha.

Part B: Credit .

1. Provision of agricultural credit to finance:

(a) purchases of:

(i) livestock including Friesian heifers, ewelambs and beef heifers;

(ii) farm machinery including about 180 tractorswith implements as well as mowers, pickupbalers, and seed drills;

(iii) seeds, fertilizers, and other requisites forestablishing pastures with a total of about8,000 ha;

(b) construction of livestock shelters and other worksunder a program of intensive dairying on about2,700 farms in the mountain and high valleyzones, cattle and sheep production on about 1,000farms in the Planalto Mirandes zone and the TerraQuente zone;

(c) establishment of about 1,200 ha of new vineyardsand replanting of about 1,000 ha of existingvineyards in the Douro zone of the Project Area;and

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(d) construction of about 80 cooperative storagefacilities as well as provision of about 50trucks and 2 milk tankers.

2. Provision of credit to Municipalities to finance:

(a) construction of about 80 km of rural connectionroads, improvement of about 120 km of existingroads and paving of streets in about 60 villages;

(b) construction of about 60 municipal water supplysystems and improvements of about 160 village watersupply systems with standpipes, and construction ofabout 70 municipal sewage systems; and

(c) rehabilitation and construction, as the case maybe, of about 60 classrooms for primary multigradeschools primarily in small rural communities.

Part C: Agricultural and Agricultural Credit Services, andHealth Services

1. Construction of about 50 houses for extension staff andsmall laboratories and other facilities as well asprovision of vehicles and equipment for agriculturalresearch, extension, animal health and breeding andirrigation services and for the Project AdministrationUnit.

2. Construction and equipping of about 110 cooperativemilking parlors.

3. Provision of office equipment and materials for aFENACAM office to be established in the Project Area.

4. Construction and equipping of about 2 health centers andabout 12 health posts as well as other community devel-opment works.

Part D: Research, Studies and Pilot Projects

Carrying out ground water studies (including drilling ofexploratory wells), an olive development study, a feasibility

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study on the expansion of the Chaves Irrigation Scheme, andbaseline socio-economic surveys, special Project monitoringstudies, various other agricultural research and pilot projects,and studies to be agreed with the Bank.

Part E: Training

Carrying out training programs for staff located in theProject Area with respect to agricultural extension and veterinary

services, provision of about 270 months of fellowships for train-ing of agricultural credit staff ane FENACAM staff located in the

Project Area, management training for staff of concelhos andcooperatives and about 36 months of fellowships for Projectmonitoring and evaluation staff, including the provision ofequipment, vehicles and materials necessary therefor.

The Project is expected to be completed by June 30, 1988.

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SCHEDULE 3

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

On each February 1 and August 1

beginning February 1, 1986through August 1, 1997 2,125,000

* The figures in this column represent dollar equivalentsdetermined as of the respective dates of withdrawal; seeGeneral Conditions, Section 3.04.

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Premiums on Prepayment

The following percentages are specified as the premiumspayable on repayment in advance of maturity of any portion ofthe principal amount of the Loan pursuant to Section 3.04 (b)of the General Conditions:

Time of Prepayment Premium

Not more than three yearsbefore maturity 2.30%

More than three years but notmore than six years before

maturity 4.65%

More than six years but notmore than eleven yearsbefore maturity 8.50%

More than eleven years but notmore than thirteen yearsbefore maturity 10.05%

More than thirteen yearsbefore maturity 11.60%

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SCHEDULE 4

Procurement

A. International Competitive Bidding

1. Except as provided in Part C hereof, goods shall be procuredunder contracts awarded in accordance with procedures consistentwith those set forth in the current version of the "Guidelines forProcurement under World Bank Loans and IDA Credits" published bythe Bank in March 1977 (hereinafter called the Guidelines), on thebasis of international competitive bidding as described in Part Aof the Guidelines.

2. For goods to be procured on the basis of internationalcompetitive bidding, and in addition to the requirements ofparagraph 1.2 of the Guidelines, the Borrower shall prepare andforward to the Bank as soon as possible, and in any event notlater than 60 days prior to the date of availability to the publicof the first tender documents relating thereto, a general procure-ment notice, in such form and detail and containing such infor-mation as the Bank shall reasonably request; the Bank will arrangefor the publication of such notice in order to provide timelynotification to prospective bidders of the opportunity to bid forthe goods in question. The Borrower shall provide the necessaryinformation to update such notice annually so long as any goodsremain to be procured on the basis of international competitivebidding.

3. For the purpose of evaluation and comparison of bids forthe supply of goods to be procured on the basis of internationalcompetitive bidding: (i) bidders shall be required to statein their bid the c.i.f. (port of entry) price for imported goods,or the ex-factory price or off-the-shelf price of other goodsoffered in such bids; (ii) customs duties and other import taxeslevied in connection with the importation, or the sales andsimilar taxes levied in connection with the sale or delivery,pursuant to the bid, of the goods shall not be taken into accountin the evaluation of the bids; and (iii) the cost of inlandfreight and other expenditures incidental to the delivery of thegoods to the place of their use or installation shall be included.

B. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proceduresdescribed in Part A of this Schedule, goods manufactured in

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Portugal may be granted a margin of preference in accordance with,and subject to, the following provisions:

1. All bidding documents for the procurement of goodsshall clearly indicate any preference which will be granted,the information required to establish the eligibility of a bidfor such preference and the following methods and stages that willbe followed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classifiedin one of the following three groups:

(1) Group A: bids offering goods manufactured inPortugal if the bidder shall have established tothe satisfaction of the Borrower and the Bank thatthe manufacturing cost of such goods includes avalue added in Portugal equal to at least 20% ofthe ex-factory bid price of such goods.

(2) Group B: all other domestic bids.

(3) Group C: bids offering any other goods.

3. In order to determine the lowest evaluated bid ofeach group, all evaluated bids in each group shall first becompared among themselves, without taking into account customsduties and other import taxes levied in connection with theimportation, and sales and similar taxes levied in connectionwith the sale or delivery, pursuant to the bids, of the goods.Such lowest evaluated bids shall then be compared with each other,and if, as a result of this comparison, a bid from group A orgroup B is the lowest, it shall be selected for the award.

4. If, as a result of the comparison under paragraph3 above, the lowest bid is a bid from group C, all group C bidsshall be further compared with the lowest evaluated bid fromgroup A after adding to the evaluated bid price of the importedgoods offered in each group C bid, for the purpose of this furthercomparison only, an amount equal to: (i) the amount of customsduties and other import taxes which a non-exempt importer wouldhave to pay for the importation of the goods offered in suchgroup C bid; or (ii) 15% of the c.i.f. bid price of such goodsif said customs duties and taxes exceed 15% of such price. Ifthe group A bid in such further comparison is the lowest, itshall be selected for the award; if not, the bid from groupC which as a result of the comparison under paragraph 3 is thelowest evaluated bid shall be selected.

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C. Other Procurement Procedures

1. Friesian heifers may be procured through limited inter-

national tendering on the basis of quotations from not less than

four supplying countries provided, however, that contracts so

procured shall not exceed $6,000,000 equivalent in the aggregate.

2. Civil works, equipment and furniture for offices,laboratories, seed storage, and staff houses may be awarded

through local competitive bidding procedures acceptable to the

Bank.

3. Contracts for equipment, other than those referred to

under paragraph 4 hereof, estimated to cost $100,000 equivalent or

less may be procured through appropriate competitive bidding

procedures on the basis of not less than 3 quotations from sup-

pliers, provided, however, that contracts so procured shall not

exceed $1,000,000 equivalent in the aggregate.

4. Tractors, farm equipment and materials, as well as

small items estimated to cost $1,000 equivalent or less, may beprocured through normal commercial channels.

D. Review of Procurement Decisions by the Bank

1. Review of invitations to bid and of proposed awards and

final contracts with respect to Part A hereof:

(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, togetherwith a description of the advertising procedures to be followedfor 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) After bids have been received and evaluated, the Bor-

rower 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 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 recommendations for award

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and such other information as the Bank shall reasonably request.The Bank shall, if it determines that the intended award would beinconsistent with the Guidelines or this Schedule, promptly informthe Borrower and state the reasons for such determination.

(c) The terms and conditions of the contract shall not,without the Bank's concurrence, materially differ from thoseon which bids were asked or prequalification invited.

(d) Two conformed copies of the contract shall be furnishedto the Bank promptly after its execution and prior to the sub-mission to the Bank of the first application for withdrawal offunds from the Loan Account in respect of such contract.

2. With respect to each contract awarded under Part C.1-3

hereof, the Borrower shall furnish to the Bank, promptly after itsexecution and prior to the submission to the Bank of the firstapplication for withdrawal of funds from the Loan Account inrespect of such contract, two conformed copies of such contract,together with the analysis of the respective bids, recommendationsfor award and such other information as the Bank shall reasonablyrequest. The Bank shall, if it determines that the award of thecontract was not consistent with the Guidelines or this Schedule,promptly inform the Borrower and state the reasons for suchdetermination.

3. Before agreeing to any material modification or waiver

of the terms and conditions of a contract, or granting anextension of the stipulated time for performance of such contract,

or issuing any change order under such contract (except in casesof extreme urgency) which would increase the cost of the contractby more than 10% of the original price, t. Borrower shall informthe Bank of the proposed modification, waiver, extension orchange order and the reasons therefor. The Bank, if it determinesthat the proposal would be inconsistent with the provisions of

this Agreement, shall promptly inform the Borrower and statethe reasons for its determination.

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SCHEDULE 5

Statement of Operations andPolicies for ICIMs

Credit to Municipalities under Part B.2 of the Project shallbe provided under the following operational procedures andpolicies:

I. Appraisal and Approval of Credit Applications

(1) The Municipality applying for a credit shall haveprepared a credit application on the basis of thedetailed municipal investment program, including afinancing plan for its investments, operation, main-tenance and debt service as well as designs and anassessment of the investments' technical feasibility andfinancial viability. GATs in the Tras-os-Montes regionshall assist, as may be necessary, Municipalities inthe preparation of such municipal investment programand credit application.

(2) The ICIM shall appraise the credit application takinginto account:

(i) the creditwnrthiness of the Municipality;

(ii) the proposed designs, design criteria as agreedbetween the Borrower and the Bank, the tech-nical and financial viability of and the financingplan for the proposed investment; and

(iii) the assurances obtained from the Municipalityconcerned under paragraph (3) below.

No credit application shall be approved unless the ICIMis satisfied that the requirements of (i) or (iii) aboveare adequately fulfilled.

(3) The Municipality shall agree:

(i) to carry out the investment in accordance withthe Borrower's procedures unless otherwise statedherein and with due diligence and efficiency and

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in accordance with appropriate technical, admini-

strative and financial policies and practices;

(ii) to implement the municipal investment program;

(iii) to properly operate and maintain the facilities

and to provide the resources necessary for this

purpose;

(iv) to recover the operation and maintenance costs

of the water supply and sewage facilities through

charges on their users; and

(v) to establish and thereafter maintain separate

accounts for the expenditures related to the

investments under the Project.

II. Terms of Credit to Municipalities

(1) Contribution to Cost of Investments

The ICIM shall ensure that the Municipalities contribute

not less than 20% of the cost of their investments

(including their own labor and materials). The ICIM

shall contribute 65% of such cost as a credit and the

remainder shall be provided by the Borrower.

(2) Rate of Interest and Repayment

Unless otherwise agreed between the Borrower and the

Bank, the aplicable rate of interest and repayment terms

shall be specified in the protocol to be entered into

between the Borrower and the ICIM concerned.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

CERTIFICATE

I hereby certify that the foregoing is a true

copy of the original in the archives of the Interna-

tional Bank for Reconstruction and Develop-

ment.

In witness whereof I have signed this Certifi-

cate and affixed the Seal of the Bank thereunto

this // 4 day of 2iA, f 198 -g.

FOR SECRETARY