Loan Agreement Public Disclosure Authorized (Bahia Rural Development Project)

Home , Boa Vista do Tupim, Boninal, Ibicoara, Ichu, Planaltino, Tanquinho

CONFORMED COPY Public Disclosure Authorized

LOAN NUMBER 1589 BR

between

FEDERATIVE REPUBLIC OF BRAZIL

and Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Dated July 19, 1978 Public Disclosure Authorized LOAN NUMBER 1589 BR

LOAN AGREEMENT

AGREEMENT, dated July 19, 1978, between FEDERATIVE REPUBLIC OF BRAZIL (hereinafter called the Borrower) and INTERrATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter callel the Bank).

ARTICLE 1

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all The provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions).

Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings:

(a) "State" means the State of Bahia of the Borrower.

(b) "Project Agreement" means the agreement between the State and the Bank of even date herewith, as the same may be amended from time to time.

(c) "Project Area" means an area of about 61,000 square kilometers located in the basin of the Paraguagu River in the central part of the State and comprising the municipalities listed in Schedule 4 to this Agreement.

(d) "Technical Unit" means the unit established for purposes of the Project by the State under Decree No. 25.136, dated February 20, 1976, and with the functions set forth in the Regulamento approved by Resolution No. 01/76 of June 4, 1976 of the POLONORDESTE Management Council of the State.

(e) "POLONORDESTE" means the special development program for the Northeast of Brazil established pursuant to Decreto No. 74794, dated October 30, 1974, of the Borrower. - 2 -

(f) "Participating Banks" means the banks referred to in Section 3.03 (b) of this Agreement.

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 forth or referred to, an amount in various currencies equivalent to thirty-seven million dollars ($37,000,000).

Section 2 02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan.

Section 2.03. (a) 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 procured in accordance with local procurement procedures satisfactory to the Bank, including pre- qualification of bidders for civil works related to feeder roads, dams, storage units, extension facilities and rural primary schools.

(b) Bidding and contract documents for the feeder roads included in Part C of the Project shall be satisfactory to the Bank.

Section 2.04. The Closing Date shall be December 31, 1983 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 commitment 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 seven and one-half per cent (7.50%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. - 3 -

Section 2.07. Interest and other charges shall be payable semi-annually on March 1 and September 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. Banco Central do Brasil is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions.

ARTICLE III

Execution of the Project

Section 3.01. The Borrower shall carry out the Project or cause the Project to be carried out with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and agricultural practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose.

Section 3.02. In order to assist the Borrower in the engineering design of the feeder roads included in the Project and preparation of specifications and bidding documents therefor, in the preparation of a health management information system and in the administration, monitoring and evaluation of the Project, the Borrower shall employ consultants whose qualifica- tions, experience and terms and conditions of employment shall be satisfactory to the Bank.

Section 3.03. The Borrower shall:

(a) cause the credit program included in Part B of the Project (the rural credit program) to be carried out in accordance with the Lending Policies and Procedures set forth in Schedule 5 hereto. The Borrower shall promptly inform the Bank of any modifi- cation in the interest rates charged under the rural credit program;

(b) cause Banco Central do Brasil, as the Borrower's financial agent, to maintain the existing contractual arrangements with Banco do Brasil, S.A. and Banco do Nordeste do Brasil, S.A. providing for their participation in the carrying out of the rural credit program, and to enter into and maintain contractual arrangements satisfactory to the Bank .with such other banks as the Borrower and the Bank shall agree for purposes of their participation in the rural credit program.

(c) cause Banco do Brasil, S.A. and Banco do Nordeste do Brasil, S.A. to participate in the carrying out of the rural credit program.

(d) ensure that, for a period of not less than five years after the date of this Agreement, the amounts of seasonal credit repaid by farmers each year and previously financed out of the proceeds of the Loan be used for similar purposes in the Project Area and the amount of seasonal credit made available to farmers each POLONORDESTE fiscal year is at least equal to the amount made available for similar purposes during the immediately preceding POLONORDESTE fiscal year.

Section 3.04. The Borrower shall cause to be furnished to the Bank, for approval, any proposed irrigation scheme to be financed under Part B.1 of the Project and the estimated cost of which exceeds $250,000 equivalent.

Section 3.05. The Borrower shall:

(a) not later than December 31, 1978, and for purposes of carrying out Part B.2 of the Project, prepare and furnish to the Bank:

(i) guidelines permitting financing under Part B.2 of the Project of plots of land which by themselves or together with any land owned by the farmer concerned are estimated to yield for each adult family labor unit to be absorbed in the new farm no less than the minimum regional annual wage, provided that in determining the sizes of plots of land eligible for such financing account be taken of the managerial and financial capacity of the farmers concerned and the socio-economic situation in the area where such plots are located; and

(ii) an administrative plan, including the definition of the respective responsibilities of the agencies participating in the carrying out of Part B.2 of the Project, for expediting land purchases by small -5-

farmers in the Project Area and the processing of applications for loans under Part B.2 of the Project;

(b) afford the Bank a reasonable opportunity to comment on such guidelines and plan; and

Section 3.06. The Borrower shall:

(a) not later than December 31, 1978, furnish to the Bank feasibility studies and plans, satisfactory to the Bank, for the dams include, in Part A.7 of the Project; and

(b) carry out Part A.7 of the Project in accordance with such plans.

Section 3.07. The Borrower shall:

(a) not later than December 31, 1978, furnish to the Bank:

(i) the detailed plans for the program included in Part D.2 of the Project and for the rural health atten- dant training program included in Part D.3 of the Project, and

(ii) pre-investment, maintenance and organization studies in respect of Part D.6 of the Project; and

(b) afford the Bank a reasonable opportunity to comment on such programs and the recommendations made in such studies.

Section 3.08. In carrying out Part D.6 of the Project, the Borrower shall cause to be installed water supply systems only in villages where water user associations or health societies have been established and have made a commitment to contribute labor, materials, or both, to the construction of such water supply systems, and to collect charges from their users to cover their operations and maintenance costs, except that in the case of villages of less than 500 inhabitants users may be required to pay charges covering initially not less than 50% and gradually increasing to 100% of such costs during a period of not more than 5 years if the municipalities concerned have agreed to pay for the remainder of such costs. - 6 -

Section 3.09. In carrying out Part E of the Project, the Borrower shall:

(a) by December 31, 1978, develop a rural primary school curriculum for grades 1-4, satisfactory to the Bank, and introduce such curriculum in the rural primary schools in the Project Area by the beginning of the 1980 school year;

(b) not later than June 30, 1979, furnish to the Bank the studies included in Part E.4 of the Project; afford the Bank a reasonable opportunity to comment on their recommendations; and prepare the subsequent annual training and other education programs on the basis of such recommendations and comments; and

(c) by November 30 in each year, furnish to the Bank a detailed site plan, satisfactory to the Bank, for the rural primary schools included in Part E.1 of the Project and to be constructed in the immediately following year.

Section 3.10. The Borrower shall, for purposes of carrying out Part F of the Project, and not later than December 31, 1978, furnish to the Bank a detailed evaluation work program and monitoring and farm survey procedures, and afford the Bank a reasonable opportunity to comment thereon.

Section 3.11. (a) The Borrowo. undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods.

(b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project.

Section 3.12. The Borrower shall: (a) cause to be prepared and furnished to the Bank, upon its preparation but in any event not later than four months prior to the beginning of each POLONOR- DESTE fiscal year, a detailed plan for the carrying out of the Project during that year; (b) ensure that the Bank is given a reasonable opportunity to comment thereon, and that such plan is approved by the Borrower two months prior the POLONORDESTE fiscal year; and (c) furnish to the Bank such plan as approved. - 7 -

Section 3.13. The Borrower shall cause to be furnished to the Bank, promptly upon their preparation, but in any event not later than three months after the end of each quarter, quarterly reports on the progress made in the carrying out of the Project.

Section 3.14. (a) The Borrower shall furnish, or cause to be furnished, to the Bank, promptly upon their preparation, the plans, specifications, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request.

(b) The Borrower: (i) shall cause to be maintained records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan, and to disclose their use in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall cause to be furnished to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds.

(c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall cause to be prepared and furnished to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.

ARTICLE IV

Other Covenants

Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned -8- but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date.

(c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. The Borrower shall: (a) cause the Technical Unit and the executing agencies participating in the Project, including the Participating Banks, to maintain separate accounts to reflect in accordance with consistently maintained appropriate accounting practices the financial situation of the Project;

(b) cause such accounts to be audited annually, in accordance with appropriate auditing principles consistently applied, - 9 - by Inspetoria Geral de Finangas of the Ministry of Finance of the Borrower;

(c) furnish to the Bank as soon as available, but in any case not later than six months after the end of each POLONORDESTE fiscal year, (A) certified copies of such accounts for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and

(d) furnish to the Bank such other information concerning such accounts and the audit thereof as the Bank shall from time to time reasonably request.

Section 4.03. The Borrower shall: (a) cause to be operated and maintained the facilities and services included in the Project in conformity with appropriate practices and staff such facilities with adequate personnel; and (b) provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for those purposes.

ARTICLE V

Remedies of the Bank

Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (k) thereof, namely, that the State shall have failed to perform any covenant, agreement or ligation of the State under the Project Agreement.

Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that the event specified in Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower and the State.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely, that the Loan Agreement has been duly registered by Banco Central do Brasil. - 10 -

Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank:

(a) that the Project Agreement has been duly authorized or ratified by the State, and is legally binding upon the State in accordance with its terms;

(b) that the Loan Agreement has been duly registered by Banco Central do Brasil; and

(c) that all necessary acts, consents and approvals to be performed or given by the Borrower, the State, their political subdivisions or agencies, by any agency thereof, or otherwise to be performed or given in order to authorize the carrying out of the Project and to enable the Borrower and the State to perform all of their respective obligations pursuant to this Agreement and the Project Agreement, together with all necessary powers and rights in connection therewith, have been performed or given.

Section 6.03. The date October 17, 1978, is hereby specified for the purposes of Section 12.04 of the General Conditions.

ARTICLE VII

Representative of the Borrower; Addresses

Section 7.01. The Ministro da Fazenda of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions.

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

For the Borrower:

Ministerio da Fazenda Esplanada dos Ministerios - Bloco 5 50 Andar 70000 Brasilia, D.F. Brazil

Cable address: Telex:

MINIFAZ 611142 M FAZ BR Brasilia, Brazil 611506 PG F N BR - 11 -

With copies to:

Banco Central do Brasil Diretoria de Credito Rural Edificio Banco do Brasil S.A., 60 Andar Setor Bancario Sul 70000 Brasilia, D.F. Brazil

Cable address: Telex: BANCENTRAL 41344 Brasilia, Brazil

For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written.

FEDERATIVE REPUBLIC OF BRAZIL

By Is/ Joao Baptista Pinheiro Authorized Representative

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

By /s/ Enrique Lerdau Acting Regional Vice President Latin America and the Caribbean - 12 -

SCHEDULE 1

Withdrawal of the Proceeds of the Loan

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

Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed

(1) Goods and ser- 4,150,000 36% vices for Part A.1 of the Project

(2) Goods and services 1,000,000 36% for Part A.2 of the Project

(3) Goods and services 2,100,000 36% for Part A.3 of the Project

(4) Goods and services 250,000 36% for Part A.4 of the Project

(5) Goods and services 250,000 36% for Part A.5 of the Project

(6) Goods and services 50,000 36% for Part A.6 of the Project

(7) Goods and services 600,000 36% for Part A.7 of the Project

(8) Goods and services 150,000 36% for Part A.8 of the Project - 13 -

Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed

(9) Credit Program (Part B.1 of the Project)

(a) crop-related 5,000,000 36% investment

(b) livestock 1,200,000 36% investments

(c) seasonal 3,250,000 36% of amounts credit expended during POLONOR- DESTE fiscal year 1978 over and above amounts expended during POLONORDESTE fiscal year 1977, and 36% of amounts expended in any subsequent POLONORDESTE fiscal year over and above amounts expended during the immediately preceding POLONORDESTE fiscal year

(10) Goods and ser- 6,750,000 36% vices for Part C of the Project

(11) Goods and ser- 1,600,000 36% vices for Part D of the Project (except Part D.2) - 14 -

Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed

(12) Goods and ser- 2,200,000 36% vices for Part E of the Project

(13) Goods and ser- 250,000 36% vices for Part F of the P-oject

(14) Proiect Adminis- 1,200,000 36% tration and monitoring

(15) Unallocated 7,000,000

TOTAL 37,000,000

2. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank.

3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for:

(a) expenditures prior to the date of this Agreement except that withdrawals in an aggregate amount not exceeding the equivalent of $1,000,000 may be made on account of payments made for such expenditures before that date but after March 31, 1978;

(b) expenditures for Part A.3 of the Project unless the Instituto de Terras da Bahia of the State has established two new cadastral review units in Seabra and Maracas; - 15 -

(c) expenditures for Part A.6 and Part A.8 unless the contractual arrangements referred to in Section 9 of the Project Agreement in respect of such Parts have been signed;

(d) expenditures for Part A.5 of the Project unless the Bank has been furnished with a manual, satisfactory to the Bank, for the selection, preparation and evaluation of irrigation works;

(e) expenditures for Part D of the Project unless the regional offices in the Project Area of the health agencies of the State have been adequately staffed and the contractual arrangements referred to in Section 9 of the Project Agreement in respect of such Part have been signed; and

(f) expenditures for Part E of the Project unless the contractual arrangements referred to in Section 9 of the Project Agreement in respect of Part E of the Project have been signed, and expenditures for any rural primary school unless the Bank has been furnished with evidence satisfactory to the Bank showing that the site for such school has been acquired.

4. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures, provided, however, that the amount allocated to Category (9) (b) shall not exceed 15% of the proceeds of the Loan allocated to Category (9), and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made.

5. If the Bank shall have reasonably determined, after consul- tation with the Borrower, that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power cr remedy of the Bank under the Loan Agreement, by notice to the - 16 -

Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan.

6. If the Bank shall have not received the guidelines and administrative plan referred to in Section 3.05 of this Agreement by the date specified therein, an amount of the Loan equivalent to $800,000 shall be cancelled and the percentage of expenditures to be financed set forth in the table in paragraph 1 above shall be reduced to 35%. - 17 -

SCHEDULE 2

Description of the Project

The purpose of the Project is to raise the standard of living of the population of the Project Area by increasing incomes and basic food supplies, improving health conditions and education standards, and effective utilization of technical assistance and credit resources.

The Project consists of:

Part A: Farm Production Services

1. Strengthening and expansion of extension services to small farmers, training of extension workers and development of demonstration plots.

2. Development of a program of applied crop and livestock research at four research stations and on experimental fields, and expansion of the seed production capacity of the State.

3. Strengthening and expansion of the land surveying and titling services of the State in the Project Area.

4. A program of assistance to improve the social and economic organization of small-scale farmers in the Project Area.

5. (a) Strengthening and expansion of technical assistance and training services of the State to farmers carrying out small-scale irrigation schemes.

(b) Engineering and feasibility studies for the construction or rehabilitation of small-scale irrigation schemes.

6. Provision of mechanized services for land clearing, land levelling, drainage works, and construction of watering points for livestock.

7. Construction of twelve multi-purpose dams. - 18 -

8. Construction and equipping of six produce storage units with a capacity of about 700 tons each.

Part B: Credit

1. A program of credit to small-scale farmers (including sharecroppers and tenants) to finance:

(a) crop related investments, including land clearing, on-farm storage facilities, equipment and tools, establishment of permanent crops, and on-farm and off-farm irrigation works, in the Project Area;

(b) livestock investment, including improvement of stock and pastures, fencing and watering points, in the municipalities included in Group II in Schedule 4 to this Agreement; and

2. A program of credit to farmers who do not own land or i-vn small plots of land to acquire land.

Part C: Feeder Roads

Construction or rehabilitation of about 1,140 kilometers of feeder roads in accordance with the design standards specified in the Annex to this Schedule.

Part D: Health and Sanitation Services

1. Construction or rehabilitation and equipping of about 50 village health posts and 27 health centers.

2. A program to control endemic diseases in the Project Area.

3. A program to train health workers.

4. Strengthening of the project execution and super- vision capacity of the State's health agencies.

5. Development of a system to provide adequate maintenance of buildings and equipment related to health - 19 -

services, including provision of spare parts for such equipment.

6. Installation of water supply systems in about 70 villages and provision of maintenance equipment and an initial stock of spare parts for such systems.

Part E: Education

1. Construction, furnishing and equipping of about 100 rural primary schools.

2. Development of a new curriculum and introduction of new teaching materials for grades 1-4 in rural primary schools in the Project Area.

3. Training or upgrading of about 1,200 rural primary school teachers and about 260 education and training supervisors.

4. Studies on training needs and employment projec- tions in the Project Area.

5. Teaching of vocational courses.

6. Strengthening of the State's coordinating unit for educational activities in the Project Area.

Part F: Evaluation

A program to evaluate the progress of the preceding parts of the Project and the economic, social and educational benefits derived from it.

The Project is expected to be completed by March 31, 1983. - 20 -

ANNEX TO SCHEDULE 2

Design Standards for Feeder Roads included in Part C of the Project

Class A B C (about (about (about 218 km) 517 km) 404 km)

Approximate traffic Over 40 20-40 Up to 20 levels vehicles vehicles vehicles per day per day per day

Formation width* 6.00m 4.50m** 4.50m**

Maximum gradient*** 12% (14%) 12% (14%) 12% (14%)

Desirable maximum gradient length 300m 300m 300m

Cross-slope and maximum super-elevation 5% 5% 5%

Gravel thickness 0.15m 0.10m None

Minimum curve radius 50m (30m) 30m (25m) None

Minimum site stopping distance 70m (50m) 40m 40m

Minimum culvert diameter 0.80m 0.80s 0.80m

Bridge characteristics Double Single Single lane lane lane

Bridge design loading Class 36 Class 36 Class 36

* Net of widening in curves and gutters.

** Passing bays are to be provided where needed.

*** Figures in brackets indicate absolute limits which may be used in exceptional cases. Special attention shall be given to drainage and surfacing for grades steeper than 8%. - 21 -

SCHEDULE 3

Amortization Schedule

Payment of Principal Date Payment Due (expressed in dollars)*

On each March 1 and September 1

beginning March 1, 1982 through March 1, 1993 1,540,000

On September 1, 1993 1,580,000

* To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 22 -

Premiums on Prepayment

The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions:

Time of Prepayment Premium

Not more than three years before maturity 1.50%

More than three years but not more than six years before maturity 3.00%

More than six years but not more than eleven years before maturity 5.50%

More than eleven years but not more than thirteen years before maturity 6.50%

More than thirteen years before maturity 7.50% - 23 -

SCHEDULE 4

Municipalities included in the Project Area

Group T Group II

Antonio Cardoso lacu Castro Alves Iramaia Santo Estevac Itaete Ipecaeta Maracas Abaira Marcionilio Souza Andarai Milagres Barra da Estiva Planaltino Boninal Santa Terezinha Cafarnaum Baixa Grande Ibicoara Boa Vista do Tupim Iraquara Ibiquera Lencois Ipira Mucuge Itaberaba Palmeiras Lagedinho Piata Macajuba Seabra Mairi Souto Soares Mundo Novo Utinga Piritiba Wagner Riachao do Jacuipe Anguera Rui Barbosa Candeal Tapiramuta Feira de Santana Ichu Lamar'o Santa Barbara Serra Preta Serrinha Tanquinho - 24 -

SCHEDULE 5

Lending Policies and Procedures

1. Credit shall be provided exclusively to small-scale farmers (including sharecroppers and tenants) in the Project Area.

2. Each loan under Part B.1 of the Project shall be repaid over (a) not more than 8 years, including a grace period of not more than 4 years, in case such loan will finance semi-fixed investments; or (b) not more than 12 years, including a grace period of not more than 6 years, in case such loan will finance fixed investments.

3. Each loan under Part B.2 of the Project to purchase land shall be repaid over not more than 20 years, including a grace period of not more than 6 years.

4. The principal amount outstanding of each loan shall bear interest at the rate applicable to POLONORDESTE loans for similar purposes.

5. The aggregate principal amount outstanding of loans for working capital and agricultural and livestock investment to any individual farmer shall not exceed the equivalent of 100 times the highest valor de referencia in Brazil. No real security will be required for loans under 50 times the highest valor de referencia.

6. Participating banks shall be required to make their best efforts to channel credit through agricultural cooperatives operating in the Project Area.

For purposes of this Schedule, "valor de referencia" means the monetary correction factor periodically established by the Borrower pursuant to its Law No. 6205, dated April 29, 1975, and Decree No. 75704, dated May 8, 1975.