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									LOAN NUMBER 2271-TAJ(SF)                              GRANT NUMBER 0061-TAJ(SF)




                            FINANCING AGREEMENT
                               (Special Operations)

                     (Sustainable Cotton Subsector Project)




                                   between




                           REPUBLIC OF TAJIKISTAN




                                      and




                           ASIAN DEVELOPMENT BANK




                             DATED 10 January 2007




                                                                   FAS:TAJ 38603
                                    FINANCING AGREEMENT
                                       (Special Operations)




FINANCING AGREEMENT dated 10 January 2007 between REPUBLIC OF TAJIKISTAN (the
“Beneficiary”) and ASIAN DEVELOPMENT BANK (“ADB”).


               WHEREAS


               (A)     the Beneficiary has applied to ADB for a loan and a grant for the
purposes of the Project described in Schedule 1 to this Financing Agreement; and


               (B)     ADB has agreed to provide financing by making a loan and a grant to the
Beneficiary from ADB's Special Funds resources upon the terms and conditions hereinafter set
forth;


               NOW THEREFORE the parties agree as follows:




                                             ARTICLE I


                     Loan Regulations and Grant Regulations; Definitions


               Section 1.01.           All provisions of the Special Operations Loan Regulations
of ADB, dated 1 January 2006 (the “Loan Regulations”), are hereby made applicable to the
Loan made pursuant to this Financing Agreement with the same force and effect as if they were
fully set forth herein, subject, however, to the following modifications:


               (a)     the term “Loan Agreement”, wherever it appears in the Loan Regulations,
shall be substituted by the term “Financing Agreement”; and


               (b)     the term “Borrower”, wherever it appears in the Loan Regulations, shall
be substituted by the term “Beneficiary” as defined in the opening paragraph of this Financing
Agreement.
                                                  2


                Section 1.02.          All provisions of the Special Operations Grant Regulations
of ADB, dated 7 February 2005 (the “Grant Regulations”), are hereby made applicable to the
Grant made pursuant to this Financing Agreement with the same force and effect as if they were
fully set forth herein subject, however, to the following modifications:


                (a)    the term “Grant Agreement”, wherever it appears in the Grant
Regulations, shall be substituted by the term “Financing Agreement”; and


                (b)    the term “Recipient”, wherever it appears in the Grant Regulations, shall
be substituted by the term “Beneficiary” as defined in the opening paragraph of this Financing
Agreement.


                Section 1.03.          The definitions set forth in the Loan Regulations and Grant
Regulations are applicable to this Financing Agreement, in each case unless the context
requires otherwise. In addition, the following terms have the following meanings:


                (a)    “Component” means any component of the Project as more fully
described in Schedule 1 hereof;


                (b)    “Consulting Guidelines” means ADB’s Guidelines on the Use of
Consultants by Asian Development Bank and Its Borrowers dated April 2006, as amended from
time to time;


                (c)    “Common Center” means the Common Center for Project Management to
be established by the Beneficiary as agreed with ADB to function as the Project Implementing
Agency for Components 1 and 2 of the Project, or any successor thereto;


                (d)    “GAP” means the Gender Action Plan to be agreed between the
Beneficiary and ADB, and as further described in paragraph 18 of Schedule 5 to this Financing
Agreement;


                (e)    “Goods” means equipment and materials to be financed out of the
proceeds of the Loan and Grant, and including related services such as transportation,
                                                3


insurance, installation, commissioning, training, and initial maintenance, but excluding
consulting services;


               (f)     “Independent Commission” or “IC” means the Independent Commission
established pursuant to the Beneficiary’s Presidential Decree of 17 May 2005, or any successor
thereto;


               (g)     “JV” means the joint venture company for grading of seed cotton and fiber
cotton to be established under the Project and as further described in paragraph 2 of Schedule
1 to this Financing Agreement;


               (h)     “KreditInvest”   means   closed-stock   company   non-banking   financial
organization “KreditInvest” located at Sherozi Street, 21, Dushanbe 734018, Tajikistan, or any
successor thereto;


               (i)     “MOA” means the Ministry of Agriculture of the Beneficiary, or any
successor thereto;


               (j)     “MOF” means the Ministry of Finance of the Beneficiary, or any successor
thereto;


               (k)     “NBT” means the National Bank of Tajikistan, or any successor thereto;


               (l)     “PCBs” means the participating commercial banks selected in connection
with Component 2 of the Project and satisfying the criteria agreed between the Beneficiary and
ADB pursuant to paragraph 13 of Schedule 5 of this Financing Agreement;


               (m)     “PPMS” means the project performance management system agreed by
the Beneficiary and ADB;


               (n)     “Procurement Guidelines” means ADB’s Procurement Guidelines dated
April 2006, as amended from time to time;
                                                 4


               (o)     “Procurement Plan” means the procurement plan for the Project dated 29
September 2006 and agreed between the Beneficiary and ADB, as updated from time to time in
accordance with the Procurement Guidelines, Consulting Guidelines, and other arrangements
agreed with ADB;


               (p)     “Project area” means the geographic area encompassing Zafarabad and
Mastchoh districts of Sughd region and Yovon and Vose districts of Khatlon region and any
other additional districts in Sughd and/or Khatlon regions that may be designated by IC with
ADB consent;


               (q)     “Project Executing Agency” for the purposes of, and within the meaning
of, the Loan Regulations and the Grant Regulations means the Executive Office of the President
of the Beneficiary, or any successor thereto;


               (r)     “Project facilities” means the Goods and Works, and any facilities to be
rehabilitated and restored under the Project;


               (s)     “Project Implementing Agency” means the Common Center and MOA,
each within its respective functions and responsibilities with regard to the Project;


               (t)     “Somoni” means the lawful currency of Tajikistan;


               (u)     “Subsidiary Loan Agreement” means an agreement between the
Beneficiary and a PCB, as more fully described in Section 3.01(b) hereof;


               (v)     “Tajikstandard” means the agency of the Ministry of Economy and Trade
of the Beneficiary overseeing national standards and metrology, or any successor thereto;


               (w)     “TUGE” means the Tajikistan Universal Goods Exchange, or any
successor thereto;


               (x)     “UCGS” means the universal cotton grading standard governed by the
Universal Cotton Standards Agreement; and
                                                 5


               (y)     “Works” means construction, rehabilitation or civil works to be financed
out of the proceeds of the Loan, and including related services that are provided as part of a
single responsibility or turnkey contract, but excluding consulting services.




                                            ARTICLE II
                                    The Loan and the Grant


               Section 2.01.          ADB agrees to provide to the Beneficiary from ADB's
Special Funds resources, on terms and conditions set forth in this Financing Agreement:


               (a)     a loan in the amount in various currencies equivalent to three million
seven hundred twelve Special Drawing Rights (SDR 3,712,000) (the “Loan”); and


               (b)     a grant in the amount of six million five hundred thousand dollars
($6,500,000) (the “Grant”).


               Section 2.02.          (a)     The Loan proceeds shall be withdrawn from the
Loan Account in accordance with the provisions of Schedule 3A to this Financing Agreement for
purposes of financing the Project expenditures under Components 2 and 3 of the Project; and


               (b)     The Grant proceeds shall be withdrawn from the Grant Account in
accordance with the provisions of Schedule 3B to this Financing Agreement for purposes of
financing the Project expenditures under any of the Components of the Project.


               Section 2.03.          (a)     The Beneficiary shall pay to ADB an interest charge
at the rate of one percent (1%) per annum during the grace period, and one and one-half
percent (1.5%) per annum thereafter, on the amount of the Loan withdrawn from the Loan
Account and outstanding from time to time; and


               (b)     The term "grace period" as used in paragraph (a) of this Section means
the period prior to payment of the first principal amount of the Loan on the payment date in
accordance with the amortization schedule set forth in Schedule 2 to this Financing Agreement.
                                                 6


               Section 2.04.          The interest charge and any other charge on the Loan
shall be payable semiannually on 15 April and 15 October in each year.


               Section 2.05.          The Beneficiary shall repay the principal amount of the
Loan withdrawn from the Loan Account in accordance with the amortization schedule set forth in
Schedule 2 to this Financing Agreement.


               Section 2.06.          The currency of repayment of the principal amount of the
Loan and the currency of payment of the interest charge for the purposes of Section 4.03(a) and
4.04 of the Loan Regulations shall be Dollar.




                                            ARTICLE III
                          Use of Proceeds of the Loan and the Grant


               Section 3.01.          (a)     The Beneficiary shall cause the proceeds of the
Loan and the Grant to be applied to the financing of expenditures on the Project in accordance
with the provisions of this Financing Agreement;


               (b)     The Beneficiary shall relend a portion of the proceeds of the Loan in the
total amount of up to three million dollars ($3,000,000) to PCBs under Subsidiary Loan
Agreements upon terms and conditions satisfactory to ADB. Except as ADB may otherwise
agree, the terms for relending to PCBs the proceeds of the Loan shall include (i) an interest
charge at the rate of four percent (4%) per annum; (ii) a term of seven (7) years including a
grace period of two (2) years; and (iii) each PCB bearing the foreign exchange and interest
variation risks of such proceeds of the Loan relent to it; and


               (c)     The Beneficiary shall cause the PCBs to apply the proceeds of the Loan
to the financing of expenditures on the Project in accordance with the provisions of this
Financing Agreement.


               Section 3.02.          The Goods, Works and consulting services and other items
of expenditure to be financed out of the proceeds of the Loan and the Grant, and the respective
allocation of amounts of the Loan and the Grant among different categories of such Goods,
                                                  7


Works and consulting services and other items of expenditure, shall be in accordance with the
provisions of Schedule 3A and Schedule 3B, respectively, to this Financing Agreement, as such
Schedule 3A and Schedule 3B may be amended from time to time by agreement between the
Beneficiary and ADB.


               Section 3.03.           Except as ADB may otherwise agree, all Goods, Works
and consulting services to be financed out of the proceeds of the Loan and the Grant shall be
procured in accordance with the provisions of Schedule 4 to this Financing Agreement.


               Section 3.04.           Withdrawals from the Loan Account and the Grant Account
in respect of goods and services shall be made only on account of expenditures relating to:


               (a)     Goods and Works which are produced in and supplied from, and
                       consulting services which are supplied from, such member countries of
                       ADB as shall have been specified by ADB from time to time as eligible
                       sources for procurement, and
               (b)     Goods, Works and consulting services which meet such other eligibility
                       requirements as shall have been specified by ADB from time to time.


              Section 3.05.            The Loan Closing Date for the purposes of Section 8.02 of
the Loan Regulations and the Grant Closing Date for the purposes of Section 8.02 of the Grant
Regulations shall be 30 September 2010 or, in each case, such other date as may from time to
time be agreed between the Beneficiary and ADB.




                                             ARTICLE IV
                                       Particular Covenants


               Section 4.01.           In the carrying out of the Project and operation of the
Project facilities, the Beneficiary shall perform, or cause to be performed, all obligations set forth
in Schedule 5 to this Financing Agreement.


               Section 4.02.           (a)     The Beneficiary shall (i) maintain, or cause to be
maintained, separate accounts for the Project, including separate accounts for the Loan and the
                                                8


Grant; (ii) have such accounts and related financial statements audited annually, in accordance
with appropriate auditing standards consistently applied, by independent auditors whose
qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as
soon as available but in any event not later than six (6) months after the end of each related
fiscal year, certified copies of such audited accounts and financial statements and the report of
the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and
the Grant proceeds and compliance with the financial covenants of this Financing Agreement as
well as on the use of the procedures for imprest account and statement of expenditures), all in
the English language; and (iv) furnish to ADB such other information concerning such accounts
and financial statements and the audit thereof as ADB shall from time to time reasonably
request; and


               (b)       The Beneficiary shall enable ADB, upon ADB's request, to discuss the
Beneficiary's financial statements for the Project and its financial affairs related to the Project
from time to time with the auditors appointed by the Beneficiary pursuant to Section 4.02(a)
hereinabove, and shall authorize and require any representative of such auditors to participate
in any such discussions requested by ADB, provided that any such discussion shall be
conducted only in the presence of an authorized officer of the Beneficiary unless the Beneficiary
shall otherwise agree.


               Section 4.03.          The Beneficiary shall enable ADB's representatives to
inspect the Project, the Project facilities, and the Goods, Works and consulting services
financed out of the proceeds of the Loan and the Grant, and any relevant records and
documents.




                                           ARTICLE V
                                          Effectiveness


               Section 5.01.          A date ninety (90) days after the date of this Financing
Agreement is specified for the effectiveness of the Financing Agreement for the purposes of
Section 9.04 of the Loan Regulations and Section 9.04 of the Grant Regulations.
                                                9


                                           ARTICLE VI
                                          Miscellaneous


              Section 6.01.         The Minister of Finance of the Beneficiary is designated as
representative of the Beneficiary for the purposes of Section 11.02 of the Loan Regulations and
Section 11.02 of the Grant Regulations.


              Section 6.02.         The following addresses are specified for the purposes of
Section 11.01 of the Loan Regulations and Section 11.01 of the Grant Regulations:


              For the Beneficiary


                     Ministry of Finance of the Republic of Tajikistan
                     3 Akademikov Rajabovikh Avenue
                     734025, Dushanbe, Tajikistan


                     Facsimile Numbers:
                              +992 372 213764
                              +992 372 214205
                              +992 372 216796


              For ADB


                     Asian Development Bank
                     P.O. Box 789
                     0980 Manila, Philippines


                     Facsimile Numbers:


                              (632) 636-2444
                              (632) 636-2301
                                                  11


                                            SCHEDULE 1


                                    Description of the Project


Objectives


1.     The Project’s overall objective is to develop an economically sustainable cotton
subsector in the Beneficiary’s major cotton-producing regions of Khatlon and Sughd. The
Project’s specific objective is to improve, in a sustainable manner and based on market
principles, the financial viability of the debt-restructured cotton farms in the Project area.




Scope of the Project


2.     The Loan consists of the following four (4) components:


       Component 1: Farm Debt Resolution


       (a)     Farm-by-farm analysis, including:


               (i)     Delivery of an awareness program for all stakeholders, including
                       managers,      farmers/shareholders,      workers,     creditors   and       local
                       government officials, on the analysis and resolution process and their
                       rights and responsibilities;


               (ii)    for participating farms, determination of debt levels with investors and
                       farmers, and assessments of business records, production/operational
                       circumstances, and ownership and social issues, including poverty,
                       gender and child labor issues; and


               (iii)   preparation of business plans that include consideration of farm
                       operations     and    management,       marketing     plans,   and        financial
                       arrangements that take into account capacity to repay; for debt-
                                        12
                                                                                 Schedule 1


              restructured farms, development of mitigation measures to avert adverse
              implications on vulnerable groups.


(b)   Debt resolution:    For participating farms, (i) mutually agreed, legally binding
      restructuring and settlement of the farm debt; or (ii) third party arbitration, judicial
      proceedings, or voluntary filing for insolvency;


(c)   Development and implementation of policy measures for debt resolution,
      including, but not limited to:


      (i)     measures for farmers, investors and gin owners to become more
              competitive;


      (ii)    alternative revenue measures that decrease the need to set cotton
              production quotas and encourage hukumats (district governments), to
              enable farmers to decide their production options;


      (iii)   mechanisms for carrying out farm bankruptcy; and


      (iv)    protocols and procedures, for consideration by the Independent
              Commission, for application sector-wide; and


(d)   Support for (i) disseminating information to the public regarding farm debt
      workouts and resolution and protocols, procedures and policy reforms; (ii)
      applying communication techniques for advocacy; and (iii) building technical
      capacity.


Component 2: Agriculture Financing Innovation


(a)   Developing innovative financing modalities suitable for sustainable agriculture
      production in the Project area;
                                         13
                                                                                 Schedule 1


(b)    Selecting as PCBs commercial banks that have proposed the most competitive
       financial products for sub-lending to debt resolved/restructured cotton farms in
       the Project area;


(c)    Relending a portion of the Loan in the total amount of up to three million dollars
       to the PCBs on the condition that such PCBs will provide subloans to debt
       resolved/restructured cotton farms; and


(d)    Assisting selected farms in developing business plans for sustainable agriculture
       production.


Component 3: Market Development


Development of policy measures for grading and marketing regulations and support for
bonded warehousing and for the JV, all in accordance with international standards
through:


(a)    Enabling an internationally accredited organization to grade and classify all seed
       cotton and cotton fiber produced in the country, by:


       (i)     establishing the JV to, inter alia, undertake independent classification of
               all fiber cotton, apply the UCGS, and carry out grading of seed cotton;


       (ii)    upgrading facilities and purchasing equipment to create three high-
               volume instrumentation (HVI)-equipped laboratories for operational and/or
               financial leasing to the JV;


       (iii)   providing financing for the Government’s equity capital contribution to the
               JV, renovation of facilities, and acquisition of HVI equipment;


       (iv)    providing legal and business management specialist assistance to
               develop the business prospectus with the JV’s private sector partner and
               determine JV shareholder and management arrangements; and
                                            14
                                                                                     Schedule 1


            (v)    support to streamline the roles and functions of Tajikstandard.


     (b)    Recognition of the new certification reports of the accredited independent
            inspection company by state authorities such as the Customs Department of the
            Ministry of State Revenues and Duties and TUGE;


     (c)    Reforms in the cotton export pricing formula set by TUGE that reduce the non-
            market based discounts imputed in the formula and ensure appropriate pricing
            based on the quality of the baled cotton; and


     (d)    Establishment/upgrading    of   bonded   warehouses     that   meet   international
            standards, and assistance in financing and structural arrangements, legal review
            of the regulatory environment, and proposal of necessary changes to encourage
            the development of bonded warehouses.


     Component 4: Project Management Support


     Support to the Project implementation, including (i) development and implementation of
     a Project performance management system and GAP, and (ii) financing of a portion of
     the Common Center staff and operations and maintenance costs.


3.   The Project is expected to be completed by 31 March 2010.
                              15


                          SCHEDULE 2

                  Amortization Schedule
          (Sustainable Cotton Subsector Project)

                                  Payment of Principal
No. Date Payment Due
                          (expressed in Special Drawing Rights)*
1.        15 April 2015                 77,333.00
2.     15 October 2015                  77,333.00
3.        15 April 2016                 77,333.00
4.     15 October 2016                  77,333.00
5.        15 April 2017                 77,333.00
6.     15 October 2017                  77,333.00
7.        15 April 2018                 77,333.00
8.     15 October 2018                  77,333.00
9.        15 April 2019                 77,333.00
10.    15 October 2019                  77,333.00
11.       15 April 2020                 77,333.00
12.    15 October 2020                  77,333.00
13.       15 April 2021                 77,333.00
14.    15 October 2021                  77,333.00
15.       15 April 2022                 77,333.00
16.    15 October 2022                  77,333.00
17.       15 April 2023                 77,333.00
18.    15 October 2023                  77,333.00
19.       15 April 2024                 77,333.00
20.    15 October 2024                  77,333.00
21.       15 April 2025                 77,333.00
22.    15 October 2025                  77,333.00
23.       15 April 2026                 77,333.00
24.    15 October 2026                  77,333.00
25.       15 April 2027                 77,333.00
26.    15 October 2027                  77,333.00
27.       15 April 2028                 77,333.00
28.    15 October 2028                  77,333.00
29.       15 April 2029                 77,333.00
30.    15 October 2029                  77,333.00
31.       15 April 2030                 77,333.00
                                              16
                                                                                   Schedule 2



                                  Amortization Schedule
                           (Sustainable Cotton Subsector Project)

                                                  Payment of Principal
              No. Date Payment Due
                                          (expressed in Special Drawing Rights)*
              32.      15 October 2030                  77,333.00
              33.         15 April 2031                 77,333.00
              34.      15 October 2031                  77,333.00
              35.         15 April 2032                 77,333.00
              36.      15 October 2032                  77,333.00
              37.         15 April 2033                 77,333.00
              38.      15 October 2033                  77,333.00
              39.         15 April 2034                 77,333.00
              40.      15 October 2034                  77,333.00
              41.         15 April 2035                 77,333.00
              42.      15 October 2035                  77,333.00
              43.         15 April 2036                 77,333.00
              44.      15 October 2036                  77,333.00
              45.         15 April 2037                 77,333.00
              46.      15 October 2037                  77,333.00
              47.         15 April 2038                 77,333.00
              48.      15 October 2038                  77,349.00


                               TOTAL                    3,712,000




* The figures in this column represent SDR equivalents determined as of the respective dates
  of withdrawal. The arrangements for payment of each maturity are subject to the provisions
  of Sections 3.04 and 4.03 of the Loan Regulations.
                                               17


                                         SCHEDULE 3A


                           Allocation and Withdrawal of Loan Proceeds


General


1.               The table attached to this Schedule sets forth the Categories of Goods, Works
and consulting services and other items of expenditure to be financed out of the proceeds of the
Loan and the allocation of amounts of the Loan to each such Category (hereinafter called the
Table). (Reference to "Category" or "Categories" in this Schedule is to a Category or Categories
of the Table.)


Percentages of ADB Financing


2.               Except as ADB may otherwise agree, the items of the Categories listed in the
Table shall be financed out of the proceeds of the Loan on the basis of the percentages set forth
in the Table.


Interest Charge


3.               The amount allocated to Category 5 is for financing the interest charge on the
Loan during the implementation period of the Project.


Reallocation


4.               Notwithstanding the allocation of Loan proceeds and the withdrawal percentages
set forth in the Table,
                 (a)      if the amount of the Loan allocated to any Category appears to be
insufficient to finance all agreed expenditures in that Category, ADB may, by notice to the
Beneficiary, (i) reallocate to such Category, to the extent required to meet the estimated
shortfall, amounts of the Loan which have been allocated to another Category but, in the opinion
of ADB, are not needed to meet other expenditures, and (ii) if such reallocation cannot fully
meet the estimated shortfall, reduce the withdrawal percentage applicable to such expenditures
                                             18
                                                                                 Schedule 3A


in order that further withdrawals under such Category may continue until all expenditures
thereunder shall have been made; and


              (b)    if the amount of the Loan then allocated to any Category appears to
exceed all agreed expenditures in that Category, ADB may, by notice to the Beneficiary,
reallocate such excess amount to any other Category.


Disbursement Procedures


5.            Except as ADB may otherwise agree, all Goods, Works and consulting services
to be financed out of the Loan proceeds shall be disbursed in accordance with ADB’s “Loan
Disbursement Handbook” dated January 2001 (ADB’s Loan Disbursement Handbook), as
amended from time to time.


Imprest Account; Statement of Expenditures


6.            (a)    Except as ADB may otherwise agree, the Beneficiary shall establish
immediately after the Effective Date, an imprest account at a domestic bank acceptable to ADB.
The imprest account shall be established, managed, replenished and liquidated in accordance
with ADB's Loan Disbursement Handbook and detailed arrangements agreed upon between the
Beneficiary and ADB. The currency of the imprest account shall be Dollars. The initial amount
to be deposited into the imprest account shall not exceed the lower of (i) the estimated
expenditure for the first six (6) months of Project implementation, or (ii) the equivalent of
$250,000.


              (b)    The statement of expenditures (SOE) procedure may be used for
reimbursement of eligible expenditures for Goods, Works and consulting services and to
liquidate advances provided into the imprest account, in accordance with ADB's Loan
Disbursement Handbook and detailed arrangements agreed upon between the Beneficiary and
ADB. Any individual payment to be reimbursed or liquidated under the SOE procedure shall not
exceed the equivalent of $50,000.
                                               19
                                                                                    Schedule 3A


Conditions of Withdrawals from Loan Account


7.             Notwithstanding any other provision of this Financing Agreement, no withdrawal
shall be made from the Loan Account until the Common Center, as the Project Implementing
Agency for Components 1 and 2, has been established pursuant to a Government resolution, in
form and substance satisfactory to ADB, have been adequately staffed as agreed with ADB,
and have become fully operational.


8.             Notwithstanding any other provision of this Financing Agreement, no withdrawal
shall be made from the Loan Account to any PCB under Component 2 of the Project until ADB
has received the Beneficiary’s certification, in form and substance satisfactory to ADB, that the
Subsidiary Loan Agreement with such PCB includes the terms and conditions set forth in
Section 3.01(b) to this Financing Agreement, has been duly executed by and delivered on
behalf of the parties thereto, and has become fully effective and binding upon such parties in
accordance with its terms.


9.             Notwithstanding any other provision of this Financing Agreement, no withdrawal
shall be made from the Loan Account for procurement of Works on the rehabilitation of
warehouses and laboratories, for procurement of Goods including the HVI equipment and/or for
financing the Beneficiary’s equity contribution to the JV under Component 3 of the Project until
ADB has received the Beneficiary’s certification, in form and substance satisfactory to ADB, that
the JV has been duly established and is fully authorized, registered and licensed to conduct
independent cotton grading pursuant to UCGS, and that the JV partner has fully capitalized its
equity contribution to the JV.
                                          20


                                                            Attachment to Schedule 3A




                                         TABLE




                    ALLOCATION AND WITHDRAWAL OF LOAN PROCEEDS
                          (Sustainable Cotton Subsector Project)

                              CATEGORY                           ADB FINANCING
                                         Amount Allocated         Percentage and
                                             SDR                Basis for Withdrawal
                                                              from the Loan Account
№                      Item                 Category
 1   Civil Works                               304,000      74 percent of total expenditure

 2   Equipment and Materials                1,026,000       62 percent of total expenditure
                                                            100 percent of total
 3   Credit Line                            2,025,000
                                                            expenditure*
 4   Joint Venture Equity                      216,000      32 percent of total expenditure

 5   Interest Charge                           82,000       100 percent of amount due*

 6   Unallocated                               59,000

     TOTAL                                  3,712,000

* Exclusive of local taxes
                                               21


                                         SCHEDULE 3B


                        Allocation and Withdrawal of Grant Proceeds


General


1.             The table attached to this Schedule sets forth the Categories of Goods, Works
and consulting services and other items of expenditure to be financed out of the proceeds of the
Grant and the allocation of amounts of the Grant to each such Category (hereinafter called the
Table). (Reference to "Category" or "Categories" in this Schedule is to a Category or Categories
of the Table and reference to "Subcategory" or "Subcategories" in this Schedule is to a
Subcategory or Subcategories of a Category.)


Percentages of ADB Financing


2.             Except as ADB may otherwise agree, the items of the Categories and
Subcategories listed in the Table shall be financed out of the proceeds of the Grant on the basis
of the percentages set forth in the Table.


Reallocation


3.             Notwithstanding the allocation of Grant proceeds set forth in the Table,


               (a)    if the amount of the Grant allocated to any Category appears to be
insufficient to finance all agreed expenditures in that Category, ADB may, by notice to the
Beneficiary, (i) reallocate to such Category, to the extent required to meet the estimated
shortfall, amounts of the Grant which have been allocated to another Category but, in the
opinion of ADB, are not needed to meet other expenditures; and (ii) if such reallocation cannot
fully meet the estimated shortfall, reduce the withdrawal percentage applicable to such
expenditures in order that further withdrawals under such Category may continue until all
expenditures thereunder shall have been made; and
                                             22
                                                                                 Schedule 3B


               (b)     if the amount of the Grant then allocated to any Category appears to
exceed all agreed expenditures in that Category, ADB may, by notice to the Beneficiary,
reallocate such excess amount to any other Category.


Disbursement Procedures


4.             Except as ADB may otherwise agree, all Goods, Works and consulting services
to be financed out of the Grant proceeds shall be disbursed in accordance with ADB’s “Loan
Disbursement Handbook” dated January 2001 (ADB’s Loan Disbursement Handbook), as
amended from time to time.


Imprest Account; Statement of Expenditures


5.             (a)     Except as ADB may otherwise agree, the Beneficiary shall establish
immediately after the Effective Date, an imprest account at a domestic bank acceptable to ADB.
The imprest account shall be established, managed, replenished and liquidated in accordance
with ADB's Loan Disbursement Handbook and detailed arrangements agreed upon between the
Beneficiary and ADB. The currency of the imprest account shall be Dollars. The initial amount
to be deposited into the imprest account shall not exceed the lower of (i) the estimated
expenditures from the Grant account for the first six (6) months of Project implementation, or
(ii) the equivalent of $300,000.


               (b)     The statement of expenditures (SOE) procedure may be used for
reimbursement of eligible expenditures on the Goods for equipping the Common Center and for
consulting services with respect to development of PPMS, and to liquidate advances provided
into the imprest account, in accordance with ADB's Loan Disbursement Handbook and detailed
arrangements agreed upon between the Beneficiary and ADB. Any individual payment to be
reimbursed or liquidated under the SOE procedure shall not exceed the equivalent of $50,000.


Condition of Withdrawal from Grant Account


6.             No withdrawal shall be made from the Grant Account until the conditions under
paragraph 9 of Schedule 3A to this Financing Agreement have been satisfied.
                                              23


                                                                    Attachment to Schedule 3B


                                            TABLE



                     ALLOCATION AND WITHDRAWAL OF GRANT PROCEEDS
                            (Sustainable Cotton Subsector Project)

                              CATEGORY                                   ADB FINANCING
                                            Amount Allocated              Percentage and
                                                   $                    Basis for Withdrawal
                                                                      from the Grant Account
№                      Item              Category     Subcategory
 1   Vehicles, Equipment and Materials    675,000

1A        Vehicles                                       95,000     89 percent of total expenditure

1B        Equipment and Materials                       580,000     23 percent of total expenditure

 2   Consultants                         3,285,000
                                                                    100 percent of total
2A        International Consultants                     1,885,000
                                                                    expenditure*
                                                                    86 percent of total
2B        National Consultants                          1,400,000
                                                                    expenditure*
 3   Training and Study Tours             880,000
                                                                    100 percent of total
3A        International Training                        105,000
                                                                    expenditure*
                                                                    100 percent of total
3B        National Training                             775,000
                                                                    expenditure*
 4   Operational Costs                   1,380,000

4A        Salaries                                      880,000     39 percent of total expenditure

4B        Operation and Maintenance                     500,000     55 percent of total expenditure
 5   Unallocated                          280,000
     TOTAL                                6,500,000

*Exclusive of local taxes
                                              24


                                         SCHEDULE 4


               Procurement of Goods and Works, and Consulting Services


A.            General


1.            All Goods and Works, and consulting services, to be financed out of the
proceeds of the Loan and Grant shall be subject to and governed by the Procurement
Guidelines, and the Consulting Guidelines, respectively.


2.            All terms used and not otherwise defined in this Financing Agreement have the
meanings provided in the Procurement Guidelines and/or the Consulting Guidelines, as
applicable.


B.            Procurement for Goods and Works


3.            (a)     Except as ADB may otherwise agree, Goods and Works shall only be
procured on the basis of the methods of procurement set forth below:


              Shopping

              Limited International Bidding


              (b)     The methods of procurement are subject to, among other things, the
detailed arrangements and threshold values set forth in the Procurement Plan. The Beneficiary
may only modify the methods of procurement or threshold values with the prior agreement of
ADB, and modifications must be set out in updates to the Procurement Plan.


C.            Conditions for Award of Contract


4.            The Beneficiary shall not award any Works contract financed under the Loan
until:
              (a)     Common Center has been established and made fully operational;
                                                  25
                                                                                      Schedule 4


                (b)     Beneficiary has certified to ADB in writing that the warehouses and
                laboratories selected to be rehabilitated and used under the Project are free and
                clear of any encumbrances, including any legal rights of tenants or informal
                occupants; and
                (c)     ADB has approved the awarding of such contract.


D.              Selection of Consulting Services


5.              Quality-Based Selection.        Except as ADB may otherwise agree, and except
as set forth in the paragraph below, the Beneficiary shall apply quality-based selection for
selecting and engaging consulting services.


6.              The Beneficiary shall apply the following methods for selecting and engaging the
specified consulting services, in accordance with, among other things, the procedures set forth
in the Procurement Plan:


                Quality- and Cost-Based Selection for Component 3
                Modified (simplified) Quality- and Cost-Based Selection (per para. 2.38
                of the Consulting Guidelines) for development of the Project
                performance management system under Component 4
                Individual Selection for recruitment of one director of the Common
                Center
                Least-Cost Selection for external auditing services


E.              Industrial or Intellectual Property Rights


7.              (a)     The Beneficiary shall ensure that all Goods and Works procured
(including without limitation all computer hardware, software and systems, whether separately
procured or incorporated within other goods and services procured) do not violate or infringe
any industrial property or intellectual property right or claim of any third party.


                (b)     The Beneficiary shall ensure that all contracts for the procurement of
Goods and Works contain appropriate representations, warranties and, if appropriate,
                                                   26
                                                                                      Schedule 4


indemnities from the contractor or supplier with respect to the matters referred to in
subparagraph (a) of this paragraph.


8.              The Beneficiary shall ensure that all ADB-financed contracts with consultants
contain appropriate representations, warranties and, if appropriate, indemnities from the
consultants to ensure that the consulting services provided do not violate or infringe any
industrial property or intellectual property right or claim of any third party.


F.              ADB’s Review of Procurement Decisions


9.              All contracts procured under international competitive bidding procedures (if any)
and contracts for consulting services shall be subject to prior review by ADB, unless otherwise
agreed between the Beneficiary and ADB and set forth in the Procurement Plan.
                                               27


                                         SCHEDULE 5


      Implementation Arrangements, Policy Reforms, and Other Project Assurances


I.     IMPLEMENTATION ARRANGEMENTS


Project Executing Agency and Steering Committee


1.             (a)    The Executive Office of the President (EOP), as the Project Executing
Agency, shall be responsible for overall execution and coordination of the Project. The
Beneficiary shall ensure that a high-ranking officer of EOP acceptable to ADB, shall be
responsible for overall Project management and supervision; and


               (b)    the Independent Commission, as the Project Steering Committee, shall
supervise and guide the implementation of the Project activities.


Project Implementation


2.             (a)    The Common Center shall be the Project Implementing Agency with
respect to implementation of Components 1 and 2, and facilitate the policy and reform agenda
under Component 3 of the Project. The Common Center shall have two wings: (i) the policy and
monitoring group to oversee the policy, monitoring, and issues relating to cotton farm debt
resolution; and (ii) the project implementation unit. The Beneficiary shall establish the Common
Center before 31 December 2006. The Common Center shall serve as the communication link
regarding the Project to the IC on policy matters, farm debt resolution and marketing issues, and
other institutional concerns. The Common Center shall be the responsibility of the EOP, and
shall be functionally accountable to the IC and its Chairman. The Director of the Common
Center shall be appointed by the Beneficiary, and endorsed by ADB;


               (b)    MOA shall implement Component 3 of the Project; and


               (c)    the Common Center shall be responsible for management and
implementation of the Project.      This will include: (i) monitoring the progress of Project
implementation, including policy and monitoring activities; (ii) preparing Loan and Grant
                                                 28
                                                                                          Schedule 5


withdrawal applications and Project progress reports to the IC and ADB; (iii) maintaining Project
accounts and completing Loan financing records for auditing the Project; (iv) arranging
consultancy services, training, and equipment for the Project; (v) developing the PPMS and
GAP; and (vi) carrying out the due diligence, selection, and tender process for PCBs.


3.             (a)     The Beneficiary shall ensure that at all times throughout Project
implementation the Common Center is adequately staffed with professional and clerical
personnel with the necessary experience and expertise in financial accounting, road
engineering, construction supervision, and contract administration.


II.    POLICY REFORMS


Cotton Farm Debt Resolution Strategy and Road Map


4.             Throughout Project implementation, the Beneficiary shall undertake all necessary
measures to ensure that the Cotton Farm Debt Resolution Strategy in the Republic of Tajikistan,
approved on 4 March 2005, and the Action Plan of the Independent Commission, approved on
12 September 2005, are fully implemented and strictly complied with by all relevant republican
and local authorities, and that all relevant republican and local authorities provide full support to,
and facilitate in, the implementation of the Project, including issuing, if necessary, relevant acts
and resolutions of the Government.


Freedom to Farm


5.             Within one (1) year of the Effective Date, the Beneficiary shall have undertaken
necessary measures satisfactory to ADB to ensure successful cotton farm debt resolution in the
designated districts, including adoption of adequate and effective implementing legislation.
These measures shall include: (a) measures preventing selected farms from splitting in the
designated districts while the debt resolution process is ongoing; (b) in selected farms,
discouraging farmers who are participating in the Project’s cotton farm debt analysis from
moving from one farm to another while the debt resolution process is ongoing; (c) instructions to
the chairs of the local governments in the four designated districts to abstain from interfering
with farmers’ freedom to choose what to produce, where and when to sell their produce, where
                                                 29
                                                                                    Schedule 5


to process their seed cotton, and how to finance their crop production; and (d) the absence of
any instructions as to cotton production in the Project area.


Secure and Alienable Land Use Rights


6.             Within nine (9) months of the Effective Date, the Beneficiary shall have
undertaken all necessary measures, including adoption and/or amendment of legislation, to
ensure that farmers’ land use rights in the designated districts are freely transferable,
inheritable, able to be used as collateral in commerce, and secure from outright revocation,
cancellation or surrender without advance notice and recourse to legal and transparent process,
and that insolvency or bankruptcy procedures will not be a sole ground for revocation,
cancellation or surrender of such land use rights.


Universal Cotton Grading Standard


7.             By September 2007, the Beneficiary shall have undertaken all necessary
measures to ensure nationwide application of UCGS.


Transparency of Judicial Process


8.             The Beneficiary shall ensure that judicial proceedings related to the cotton farm
debt resolution are carried out promptly and in a lawful and transparent manner, with the
process being open to the public and media and relevant court decisions being promptly
publicized in the Tajik and Russian languages.


III.   OTHER PROJECT ASSURANCES


Warehouses and Laboratories


9.             The Beneficiary shall ensure that warehouses and laboratories to be rehabilitated
under the Project are free and clear of any encumbrances, including any legal rights of tenants
or informal occupants, have unrestricted access to the railway, and are otherwise acceptable to
ADB.
                                                30
                                                                                       Schedule 5


Special Customs Regime of Bonded Warehouses


10.            The Beneficiary shall ensure that within eighteen (18) months of the Effective
Date, the warehouses selected for rehabilitation under the Project have fully obtained the status
of “customs warehouses” (including satisfaction of all necessary registration, authorization, and
licensing requirements) under Chapter 25 of the Customs Code of the Republic of Tajikistan, or
a similar customs regime acceptable to ADB.


Operation and Maintenance of Bonded Warehouses


11.            The Beneficiary shall ensure that within two (2) years of the Effective Date, the
operation and maintenance of the customs warehouses rehabilitated under the Project shall
have been transferred to an internationally recognized warehouse-operator company. Such
company shall have been selected pursuant to lawful, competitive and transparent tender
procedures, and shall otherwise be acceptable to ADB.


Cotton Grading Joint Venture


12.            Within eight (8) months of the Effective Date, the Beneficiary, in partnership with
an internationally-accepted independent cotton controller, shall have established the JV, which
will be fully authorized, registered and licensed to conduct independent cotton grading pursuant
to UCGS and without undue interference from any Government agency or authority. The cotton
controller shall have been selected under lawful, competitive and transparent tender procedures
and otherwise be acceptable to ADB.


Selection of PCBs


13.            The Beneficiary shall ensure that each PCB has been selected in a transparent
and competitive manner satisfying the criteria agreed with ADB and is in continuing compliance
with such criteria so long as it participates in the Project. The Beneficiary shall ensure that the
farms selected for financing under the Agriculture Financing Innovation Component as
described in Schedule 1 hereof, abstain from child labor.        The PCBs shall be continually
                                                 31
                                                                                         Schedule 5


monitored by the Common Center during Project implementation for their compliance with such
criteria.


Project Financing


14.            In the event of any shortfall or disruption in the financing of the Project due to,
inter alia, the lack, delay or inadequacy for funding of the Project or the JV, including due to any
Project cost overruns, the Beneficiary shall assume the deficiency and promptly provide
adequate funds to ensure successful implementation of the Project.


Change of Ownership or Operation


15.            In the event that (i) any change in ownership of any of the Project facilities, the
JV or the customs warehouses, (ii) any sale, transfer, or assignment of interest or control of any
of the Project facilities, the JV or the customs warehouses, or (iii) any lease or other
modification of the Beneficiary’s functions and authority over operation and maintenance of the
Project facilities is anticipated, the Beneficiary shall consult with, and obtain the consent of, ADB
at least six (6) months prior to the implementation of such plan. The Beneficiary shall ensure
that such change is carried out in a lawful and transparent manner.


Continuity of Independent Commission


16.            The Beneficiary shall ensure that the Independent Commission continues to
implement the Cotton Farm Debt Resolution Strategy in the Republic of Tajikistan, approved on
4 March 2005, and that its functions and authorities are not repealed, suspended or cancelled
until completion of the Project.


Access and Provision of Data


17.            The Beneficiary shall cause NBT, MOA, KreditInvest, and TUGE to provide ADB
staff and consultants unrestricted, within working regime, access to the databases and
supporting documentation relating to the Project, on a confidential and ongoing basis, as part of
the cotton farm debt resolution, and to facilitate establishment and operation of a unified
                                                 32
                                                                                         Schedule 5


database for monitoring and accurately reflecting the debt circumstances of cotton farms in the
country.


Gender and Development


18.              The Beneficiary shall ensure that the GAP is developed within six (6) months of
the Effective Date, and is fully implemented in a timely manner, and that adequate resources
are allocated for this purpose. The GAP shall: (a) establish quotas for women's representation
in the decision-making processes in the selected farms; (b) integrate women's needs in the
design and operation of Project outputs; (c) establish targets for women farmers' participation in
training; and (d) ensure women's effective involvement in the monitoring and evaluation of the
Project. The Beneficiary through the Common Center shall closely monitor implementation of
the GAP, and report the progress to ADB semiannually.


Anticorruption


19.              The Beneficiary shall (i) undertake necessary measures to create and sustain a
corruption-free environment, (ii) ensure that its anticorruption laws and regulations and ADB’s
Anticorruption Policy (1998, as amended to date), are strictly enforced and are being complied
with during Project implementation, and that relevant provisions of ADB’s Anticorruption Policy
are included in all bidding documents for the Project, (iii) facilitate in ADB’s exercise of its right
to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or
coercive practices relating to the Project, (iv) ensure that the Project Executing Agency
conducts periodic inspections on the contractors’ activities related to fund withdrawals and
settlements, and (v) ensure that all contracts financed by ADB in connection with the Project
include provisions specifying the right of ADB to audit and examine the records and accounts of
the Project Executing Agency and all contractors, suppliers, consultants and other service
providers as they relate to the Project.


20.              In relation to the Project, the Beneficiary shall ensure disclosure of Project
related procurement actions in local newspapers and on Internet. Such disclosed information
will include, among other matters, the list of participating bidders, the winning bidder, reference
to the tender procedures adopted, amount of the contract awarded, and general terms and
                                                33
                                                                                       Schedule 5


specifications of goods, works and services procured. In addition, the Independent Commission
and the Common Center will hold regular briefings with the Prosecutor’s Office to share
information on any corrupt practices detected in connection with Project activities.


Project Performance Management System


21.               The Beneficiary through the Common Center shall establish within three (3)
months of the Effective Date a PPMS acceptable to ADB to monitor the progress of the Project
in achieving its outcome and outputs.      A matrix of sub-indicators shall be developed in a
participatory manner to substantiate the performance indicators agreed with ADB. Baseline
data shall be gathered for the indicators, and shall be updated on a semi-annual basis during
Project implementation; such data shall be reported to other donors, interested stakeholders
and the public.


Midterm Review


22.               A midterm review of all aspects of the Project shall be carried out by the
Beneficiary and ADB eighteen (18) months after the Effective Date, or at any other time as may
be agreed upon by the parties. The results of the midterm review, including an evaluation of the
progress made in relation to the targets set, shall be discussed by the relevant parties and if
required, appropriate corrective measures shall be formulated to ensure successful Project
implementation and achievement of the Project outputs.

								
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