CONFORMED COPY

LOAN NUMBER 1191 UNI

Project Agreement(East-Central State Oil Palm Project)

BETWEEN

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

AND

EAST-CENTRAL STATE OF NIGERIA

DATED FEBRUARY 12, 1976

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CONFORMED COPY

LOAN NUMBER 1191 UNI

Project Agreement(East-Central State Oil Palm Project)

BETWEEN

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

AND

EAST-CENTRAL STATE OF NIGERIA

DATED FEBRUARY 12, 1976

PROJECT AGREEMENT

AGREEMENT, dated February 12, 1976, between INTERNATIONAL BANKFOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank)and EAST-CENTRAL STATE OF NIGERIA (hereinafter called the State).

WHEREAS by the Loan Agreement of even date herewith between theFederal Republic of Nigeria (hereinafter called the Borrower) and the Bank, theBank has agreed to make available to the Borrower an amount in various currenciesequivalent to nineteen million dollars ($19,000,000), on the terms and conditionsset forth in the Loan Agreement, but only on condition that the State agree toundertake such obligations toward the Bank as hereinafter set forth;

WHEREAS by a subsidiary loan agreement to be entered into between theBorrower and the State, the proceeds of the loan provided for under the LoanAgreement will be made available to the State on the terms and conditions thereinset forth;

WHEREAS by a loan agreement to be entered into between the State andthe Company, to be established, (hereinafter called the Company), part of theproceeds of the loan provided for under the Loan Agreement will be made availableby the State to the Company on the terms and conditions therein set forth; and

WHEREAS the State, in consideration of the Bank's entering into the LoanAgreement with the Borrower, has agreed to undertake the obligations hereinafterset forth;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless the context shallotherwise require, the several terms defined in the Loan Agreement and in theGeneral Conditions (!s so defined) have the respective meanings therein set forth.

ARTICLE H

Execution of the Project

Section 2.01. (a) The State shall carry out Parts C and D of the Projectthrough the Company, Parts A, B(ii), E and F of the Project through SMU, and

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Part B(i) of the Project through its Ministry of Works and Transport, with duediligence and efficiency and in conformity with appropriate administrative, financialand engineering practices and shall provide, or cause to be provided, promptlyas needed, the funds, facilities, services and other resources required for the purpose.

(b) Without any limitation or restriction upon any of its other obligationsunder the Project Agreement, the State shall relend an amount in various currenciesequivalent to three million two hundred thousand dollars ($3,200,000), or suchother amount as shall be allocated to Category III under Schedule 1 to the LoanAgreement, out of the proceeds of the Loan made available to it by the Borrowerunder Section 3.01(c) of the Loan Agreement, to the Company, under terms andconditions which shall have been approved by the Bank. The State Loan shallbe made at an interest rate not less than the rate payable by the Borrower pursuantto Section 2.06 of the Loan Agreement and with an amortization period of 20years with 9 years of grace.

(c) The State shall lend to the Company, under the State Loan Agreement,an additional amount equal to the amount relent by the State to the Companyunder Section 2.01(b) of this Agreement, under terms and conditions applicableto the State Loan.

Section 2.02. In order to assist SMU in establishing a system of mechanizedaccounts for credit and other operations in respect of smallholders, under theProject, the State shall employ consultants whose qualifications, experience andterms and conditions of employment shall be satisfactory to the Bank.

Section 2.03. Except as the Bank shall otherwise agree, contracts for thepurchase of goods or for the carrying out of works or services (other thanconsultants' services) for the Project to be financed out of the proceeds of theLoan shall be awarded in accordance with the provisions of Schedule 1 to thisAgreement.

Section 2.04. (a) The State undertakes to insure, or make adequate provisionfor the insurance of, the imported goods to be financed out of the proceeds ofthe Loan relent to it by the Borrower against hazards incident to the acquisition,transportation and delivery thereof to the place of use or installation, and forsuch insurance any indemnity shall be payable in a currency freely usable by theState to replace or repair such goods.

(b) Except as the Bank may otherwise agree, the State shall cause all goodsand services financed out of the proceeds of the Loan relent to it by the Borrowerto be used exclusively for the Project.

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Section 2.05. (a) The State shall furnish to the Bank, promptly upon their

preparation, the plans, specifications, reports, contract documents and construction

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 State: (i) shall maintain records adequate to record the progress

of the Project (including the cost thereof) and to identify the goods and services

financed out of the proceeds of the Loan relent to it by the Borrower, and to

disclose the use thereof in the Project; (ii) shall, without limitation upon the

provisions of paragraph (c) of this Section, enable the Bank's representatives to

visit the facilities and construction sites included in the Project and to examine

the goods financed out of such proceeds and any relevant records and documents;

and (iii) shall furnish to the Bank all such information as the Bank shall reasonably

request concerning the Project, the expenditure of the proceeds of the Loan so

relent to it and the goods and services financed out of such proceeds.

(c) The State shall enable the Bank's representatives to examine all plants,installations, sites, works, buildings, property, equipment records and documents

relevant to the Project.

Section 2.06. The State shall duly perform all its obligations under the

Subsidiary Loan Agreement and the State Loan Agreement and shall exercise its

rights thereunder in such manner as to protect the interests of the Bank and the

State and to accomplish the purposes of the Loan. Except as the Bank shall

otherwise agree, the State shall not take or concur in any action which would

have the effec, of amending, abrogating, assigning or waiving the Subsidiary Loan

Agreement and the State Loan Agreement or any provision thereof.

Section 2.07. (a) The State shall, at the request of the Bank:

(i) exchange views with the Bank with regard to the progress of

the Project, the performance of its obligations under this

Agreement, the Subsidiary Loan Agreement and the State Loan

Agreement and other matters relating to the purposes of the

Loan; and

(ii) furnish to the Bank all such information as the Bank shall

reasonably request in respect of the Project.

(b) The State shall promptly inform the Bank of any condition which

interferes or threatens to interfere with, the progress of the Project, the

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accomplishment of the purposes of the Loan, the performance by the State ofits obligations under this Agreement, the Subsidiary Loan Agreement and the StateLoan Agreement or the performance by the Company of its obligations under theState Loan Agreement.

Section 2.08. As and when the works specified in Part B of the Projectare completed, the State shall cause its Ministry of Works and Transport to maintainthe roads included in said Part in accordance with appropriate engineering practices,and shall provide, as needed, the funds, equipment, labor and other resources andfacilities required for this purpose.

Section 2.09. (a) The State shall promptly establish, and thereafter maintain,the Smallholder Management Unit to be responsible for the execution of PartsA, B(ii), E and F of the Project, in a form and with powers, responsibilities,organization, resources, financial structure and policies as shall be satisfactory tothe Bank and the State.

(b) The State shall cause SMU to be adequately staffed at all times, andshall appoint duly qualified and competent persons, acceptable to the Bank, tosenior management positions of SMU, upon terms and conditions satisfactory tothe Bank.

(c) The State shall, not later than ninety days from the Effective Dateor such other date as shall be agreed by the Bank, establish, and thereafter maintain,a committee with powers, functions and membership satisfactory to the Bank.

Section 2.10. (a) The State shall cause ADA to establish, and thereaftermaintain, a subsidiary in the form of a limited liability company to be responsiblefor the execution of Parts C and D of the Project, with powers, responsibilities,organization, resources, financial structure and policies (including a schedule forthe State's contribution in the form of equity to cover the Company's workingcapital requirements until the completion of the Project) as shall be satisfactoryto the Bank and the State.

(b) The State shall cause the Company to follow the policies andprocedures set forth in Schedules 1 and 2 to this Agreement in the carrying outof Parts C and D of the Project.

Section 2.11. Without restriction or limitation upon the provisions of Section2.01 of this Agreement, the State shall establish or cause to be established, andthereafter maintain with adequate funds, a bank account (hereinafter called SMUAccount) to be used exclusively to make payments for the costs of goods and

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services required on the part of SMU to carry out Parts A, B(ii), E and F ofthe Project. The State shall make arrangements, satisfactory to the Bank, withthe relevant bank, to enable SMU, whenever necessary, to make withdrawals fromSMU Account up to amounts the State shall allocate for the Project in its annualbudget prepared after taking into account SMU's budget and contribution of theState toward the cost of the Project estimated in the light of SMU's budget andworking capital requirements.

Section 2.12. The State shall cause SMU to prepare SMU's annual budgets,in form satisfactory to the State and the Bank, and its monthly cash flow statementsand shall authorize SMU to operate, unless otherwise instructed in writing by theChairman of the Steering Committee, on the basis of such statements.

Section 2.13. The State covenants that it will promptly reimburse theCompany for any loss suffered by it as a result of smallholders failing to delivertheir produce to the palm oil mills under the Project up to annual targets agreedbetween SMU and the Company.

Section 2.14. Except as the Borrower, the Bank and the State shall otherwise* agree, the operational policies and procedures for the carrying out of Parts A,

B, E and F of the Project shall be as set forth in Schedule 3 to this Agreement.

Section 2.15. The State shall, not later than January 1, 1980, or such otherdate as shall be agreed by the Bank, establish, and thereafter maintain, a Committee,comprising representatives of its ministries responsible for Finance and Agriculture,of the Company, SMU, East-Central State Marketing Board, Nigerian ProduceMarketing Company and smallholders, a senior representative of ADA and theRegistrar of Cooperative Societies, to establish, from time to time, a pricing formulato be used by the Company when purchasing smallholders' fresh fruit bunches,the said formula to be determined in accordance with principles acceptable to theBank.

ARTICLE III

Financial Covenants

Section 3.01. The State shall cause SMU to maintain records adequate toreflect in accordance with consistently maintained appropriate accounting practicesits operations and financial condition. The said records shall show, under a separatehead, all revolving funds comprising amounts disbursed to smallholders andoutstanding, amounts of sub-loans repaid and interest and other charges paid orpayable.

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Section 3.02. The State shall cause SMU to: (i) have its accounts and financialstatements (balance sheets, statements of income and expenses and relatedstatements) for each fiscal year audited, in accordance with appropriate auditingprinciples consistently applied, by independent auditors acceptable to the Bankand the State; (ii) furnish to the Borrower, the Bank and the State as soon asavailable, but in any case not later than four months after the end of each suchyear, (A) certified copies of its financial statements for such year as so auditedand (B) the report of such audit by said auditors, of such scope and in such detailas the Bank shall have reasonably requested; and (iii) furnish to the Borrower,the Bank and the State such other information concerning the accounts andfinancial statements of SMU and the audit thereof as the Bank shall from timeto time reasonably request.

ARTICLE IV

Effective Date; Termination;Cancellation and Suspension

Se,tion 4.01. This Agreement shall come into force and effect on the dateupon which the Loan Agreement becomes effective.

Section 4.02. (a) This Agreement and all obligations of the Bank and ofthe State thereunder shall terminate on the earlier of the following two dates:

(i) the date on which the Loan Agreement shall terminate inaccordance with its terms; or

(ii) a date 20 years after the date of this Agreement.

(b) If the Loan Agreement terminates in accordance with its terms beforethe date specified in paragraph (a)(ii) of this Section, the Bank shall promptlynotify the State of this event.

Section 4.03. All the provisions of this Agreement shall continue in full forceand effect notwithstanding any cancellation or suspension under the LoanAgreement.

ARTICLE V

Miscellaneous. Provisions

Section 5.01. Any notice or request required or permitted to be given ormade under this Agreement and any agreement between the parties contemplated

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by this Agreement shall be in writing. Such notice or request shall be deemedto have been duly given or made when it shall be delivered by hand or by mail,telegram, cable, telex or radiogram to the party to which it is required or permittedto be given or made at such party's address hereinafter specified or at such otheraddress as such party shall have designated by notice to the party giving suchnotice or making such request. The addresses so specified are:

For the Bank:

International Bank forReconstruction and Development

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

Cable address:

INTBAFRADWashington, D.C.

For the State:

Permanent SecretaryMinistry of FinanceP.M.B. 1027EnuguNigeria

Cable address:

PERMFINEnugu

Section 5.02. Any action required or permitted to be taken, and anydocuments required or permitted to be executed, under this Agreement on behalfof the State may be taken or executed by the Permanent Secretary, Ministry ofFinance or such other person or persons as the Administrator of the State shalldesignate in writing.

Section 5.03. The State shall furnish to the Bank sufficient evidence of theauthority and the authenticated specimen signature of the person or persons who

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will, on behalf of the State, take any action or execute any documents requiredor permitted to be taken or executed by the State pursuant to any of the provisionsof this Agreement.

Section 5.04. This Agreement may be executed in several counterparts, eachof which shall be an original, and all collectively but one instrument.

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

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By /s / Roger ChaufournierRegional Vice President

Western Africa

EAST-CENTRAL STATE OF NIGERIA

By /s / Esward Olusola SanuAuthorized Representative

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SCHEDULE 1

Procurement

A. General Procedures

1. Except as provided in Part A.3 hereof, contracts shall be let under proceduresconsistent with those set forth in the "Guidelines for Procurement under WorldBank Loans and IDA Credits" published by the Bank in April 1972, as revisedin October 1972 (hereinafter called the Guidelines), on the basis of internationalcompetitive bidding.

2. (i) Bidders for the works included in Part D of the Project shallbe prequalified as described in part 2.2 of the Guidelines.

(ii) The palm oil mills included in the Project shall be procured undersingle responsibility contract or contracts which will require thecontractor to: (a) supply the plant and equipment, install saidplant and equipment and construct the civil works relatedthereto, in accordance with the designs and specificationsprepared by consultants employed by the Company pursuantto Clause 10 of Schedule 2 to this Agreement; (b) operate themill or mills for a period of up to 12 months; and (c) trainthe local engineering staff in the operation and maintenance ofthe said mill or mills.

3. (i) International competition will not be required for civil worksincluded in Part B of the Project. Invitations to bid for bridgesand culverts included in civil works under Parts B(ii) of theProject, civil works included in Part C of the Project and foroffice equipment need not be advertised in publications outsideNigeria.

(ii) Contracts for goods specified in Part E hereof estimated to costless than $25,000 and contracts for office equipment shall notbe subject to international competition and shall be procuredafter inviting quotations from at least three suppliers.

4. Appropriate Procurement Agency

Wherever used in this Schedule "appropriate procurement agency" means,with respect to the procurement of goods and services for the following Parts ofthe Project: (i) Parts A, B(ii), E and F, the SMU; and (ii) Parts C and D, theCompany.

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B. Evaluation and Comparison of Bids for Goods; Preference for DomesticManufacturers

1. For the purpose of evaluation and comparison of bids for the supply ofgoods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry)price for imported goods, or the ex-factory price for domestically-manufacturedgoods; (ii) customs duties and other import taxes on imported goods, and salesand similar taxes on domestically-supplied goods, shall be excluded; and (iii) thecost to the appropriate procurement agency of inland freight and other expendituresincidental to the delivery of goods to the place of their use or installation shallbe included.

2. Goods manufactured in Nigeria may be granted a margin of preference inaccordance with, and subject to, the following provisions:

(a) All bidding documents for the procurement of goods shall clearlyindicate any preference which will be granted, the information required to establishthe eligibility of a bid for such preference and the following methods and stagesthat will be followed in the evaluation and comparison of bids.

(b) After evaluation, responsive bids will be classified in one of thefollowing three groups:

(1) Group A: bids offering goods manufactured in Nigeria if thebidder shall have established to the satisfaction of theappropriate procurement agency and the Bank that themanufacturing cost of such goods includes a value added inNigeria equal to at least 20% of the ex-factory bid price of suchgoods.

(2) Group B: all other bids offering goods manufactured in Nigeria.

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

(c) All evaluated bids in each group shall be first compared amongthemselves, excluding any customs duties and other import taxes on goods to beimported and any sales or similar taxes on goods to be supplied domestically, todetermine the lowest evaluated bid of each group. The lowest evaluated bid ofeach group shall then be compared with each other, and if, as a result of thiscomparison, a bid from group A or group B is the lowest, it shall be selectedfor the award.

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(d) If, as a result of the comparison under paragraph (c) above, the lowestbid is a bid from group C, all group C bids shall be further compared with thelowest evaluated bid from group A after adding to the c.i.f. bid price of theimported goods offered in each group C bid, for the purpose of this furthercomparison only, an amount equal to (i) the amount of customs duties and otherimport taxes which a non-exempt importer would have to pay for the importationof the goods offered in such group C bid, or (ii) 15% of the c.i.f. bid price ofsuch goods if said customs duties and taxes exceed 15% of such price. If the groupA bid in such further comparison is the lowest, it shall be selected for the award;if not, the lowest evaluated bid from group C shall be selected.

C. Evaluation and Comparison of Bids for Civil Works; Preferences for DomesticCon tractors

1. With respect to any contract for civil works included under Categories IIand III (excluding palm oil mills) of the table set forth in Schedule I to the LoanAgreement, the appropriate procurement agency may grant a margin of preferenceof 7-1/2% to domestic contractors, in accordance with, and subject to, the followingprovisions:

(a) Contractors shall be required to prequalify as provided in Part A ofthis Schedule and applicants for qualification applying also for such preferenceshall be asked to provide, as part of the information for qualification, suchinformation, including details of ownership, as shall be required to determinewhether, according to the classification established by the Borrower and acceptedby the Bank, a particular firm or group of firms qualifies for a domestic preference.The bidding documents shall clearly indicate the preference and the method thatwill be followed in the evaluation and comparison of bids to give effect to suchpreference.

(b) After bids have been received and reviewed by the appropriateprocurement agency, responsive bids will be classified into the following groups:

(i) bids offered by domestic contractors eligible for preference; and

(ii) bids offered by other contractors.

For the purpose of evaluation and comparison of bids an amount equal to 7-1/2%of the bid amount shall be added to bids received under group (ii) above.

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D. Procurement Without Contracting

Civil works included in Part B of the Project (excluding bridges and culverts)shall be carried out on force account.

E. Review of Procurement Decisions by Bank

1. Review of prequalification. The appropriate procurement a6.ncy shall, beforequalification is invited, inform the Bank in detail of the procedure to be followedand shall introduce such modifications in said procedure as the Bank shallreasonably request. The list of prequalified bidders, together with a statement oftheir qualifications and, where applicable, of their eligibility for domestic preferenceunder Part C. 1 above and of the reasons for the exclusion of any applicant forprequalification and for such eligibility shall be furnished by the appropriateprocurement agency to the Bank for its comments before the applicants are notified,and the appropriate procurement agency shall make such additions to, deletionsfrom, or modifications in, the said list as the Bank shall reasonably request.

2. Review of invitation to bid and of proposed awards and final contracts:

With respect to all contracts for vehicles, fertilizers, insecticides, polybags,tools, wire-netting and other agricultural inputs estimated to cost the equivalentof $25,000 or more and the single responsibility contract or contracts for thepalm oil mills in Category III of the table set forth in Schedule 1 to the LoanAgreement:

(a) Before bids are invited, the appropriate procurement agency shallfurnish to the Bank, for its comments, the text of the invitations to bid and thespecifications and other bidding documents, together with a description of theadvertising procedures to be followed for the bidding, and shall make suchmodifications in the said documents or procedures as the Bank shall reasonablyrequest. Any further modification to the bidding documents shall require the Bank'sconcurrence before it is issued to the prospective bidders.

(b) Promptly after the bids have been received, the appropriateprocurement agency shall inform the Bank of the names of the bidders and therespective amounts of the bids.

(c) After bids have been received and evaluated, the appropriateprocurement agency shall, before a final decision on the award is made, informthe Bank of the name of the bidder to which it intends to award the contractand the reasons for the intended award and shall furnish to the Bank, in sufficient

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time for its review, a detailed report on the evaluation and comparison of thebids received, together with the recommendation for award and such otherinformation as the Bank shall reasonably request. The Bank shall, if it determinesthat the intended award would be inconsistent with the Guidelines or this Schedule,promptly inform the appropriate procurement agency and/or the Borrower andstate the reasons for such determination.

(d) The terms and conditions of the contract shall not, without the Bank'sconcurrence, materially differ from those on which bids were asked orprequalification invited.

(e) Two conformed copies of the contract shall be furnished to the Bankpromptly after its execution and prior to the submission to the Bank of the firstapplication for withdrawal of funds from the Loan Account in respect of suchcontract.

3. With respect to each contract to be financed out of the proceeds of theLoan and not governed by the preceding paragraph, the appropriate procurementagency shall furnish to the Bank, promptly after its execution and prior to the

* submission to the Bank of the first application for withdrawal of funds from theLoan Account in respect of such contract, two conformed copies of such contract,together with the analysis of bids, recommendations for award and such otherinformation as the Bank shall reasonably request. The Bank shall, if it determinesthat the award of the contract was not consistent with the Guidelines or thisSchedule, promptly inform the appropriate procurement agency and/or theBorrower and state the reasons for such determination.

4. In the event the appropriate procurement agency shall intend to apply thepreference referred to in Part C of this Schedule, it shall follow the proceduresset forth in sub-paragraphs 2(a) through (e) of this Part with respect to all contractsfor civil works included in Categories II and III of the table set forth in Schedule1 to the Loan Agreement.

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SCHEDULE 2

Operational Policies for PartsC and D of the Project

Clause 1

The Company shall: (a) at all times manage its affairs, maintain its financial

position, plan its future expansion and carry on its operations, all in accordance

with appropriate business and financial practices and under the supervision of

experienced and competent management assisted by experienced and competent

staff in adequate number; and (b) take all steps necessary to acquire, maintain

and renew all rights, powers, privileges and franchises necessary in the conduct

of its business or the carrying out of Parts C and D of the Project.

Clause 2

The Company shall duly perform all its obligations under the State Loan

Agreement. Except as the Bank and the Borrower shall otherwise agree, the

Company shall not take or concur in any action which would have the effect

of amending, abrogating, assigning or waiving the State Loan Agreement or any

provision thereof.

Clause 3

The Company shall take out and maintain with responsible insurers, or make

other provisions satisfactory to the Bank, for insurance against such risks and in

such amounts as shall be consistent with appropriate practice.

Clause 4

The Company shall maintain records adequate to reflect in accordance with

consistently maintained appropriate accounting. practices its operations and financial

condition.

Clause 5

The Company shall: (a) have its accounts and financial statements (balance

sheets, statements of income and expenses and related statements) for each fiscal

year audited, in accordance with appropriate auditing principles consistently

applied, by independent auditors acceptable to the Borrower and the Bank: (b)furnish to the Borrower and the Bank as soon as available, but in any case not

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later than four months after the end of each such year, (i) certified copies ofits financial statements for such year as so audited and (ii) the report of suchaudit by said auditors, of such scope and in such detail as the Borrower or theBank shall have reasonably requested; and (c) furnish to the Borrower and theBank such other information concerning the accounts and financial statements ofthe Company and the audit thereof as the Bank or the Borrower shall from timeto time reasonably request.

Clause 6

The Company shall: (a) maintain records adequate to record the progressof Parts C and D of the Project (including the cost thereof) and to identify thegoods and services financed out of the proceeds of the State Loan, and to disclosethe use thereof in the Project; (b) without limitation upon the provisions of Clause9 hereof, enable the Bank's representatives to examine the goods finanoed outof such proceeds and any relevant records and documents; and (c) furnish to theBank and the Borrower all such information as the Bank shall reasonably requestconcerning Parts C and D of the Project, the expenditure of the proceeds of theState Loan and the goods and services financed out of such proceeds.

Clause 7

The Company shall insure, or make adequate provision for the insuranceof, the imported goods to be financed out of the proceeds of the State Loanagainst hazards incident to the acquisition, transportation and delivery thereof tothe place of use or installation, and for such insurance any indemnity shall bepayable in a currency freely usable by the Company to replace or repair suchgoods.

Clause 8

Except as the Bank may otherwise agree, the Company shall cause all goodsand services financed out of the proceeds of the State Loan to be used exclusivelyfor the Project.

Clause 9

The Company shall enable the Bank's accredited representatives to examineall properties, equipment and any records and documents relevant to the Project.

Clause 10

In order to assist the Company in preparing the designs and specificationsfor purposes of procurements of facilities included in Part D of the Project, the

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Company shall employ consultants whose qualifications, experience and terms andconditions of employment shall be satisfactory to the Bank and the State.

Clause 11

The Company shall cause the palm oil mills under Part D of the Projectto purchase fresh fruit bunches from smallholders participating in the Project atprices fixed from time to time by the Company on the basis of the pricing formuladetermined by the Price Policy Committee pursuant to Section 2.15 of thisAgreement.

Clause 12

The Company shall employ a General Manager, Oil Mill Engineers and aChief Accountant whose qualifications, experience and terms and conditions ofemployment shall be satisfactory to the Bank and the State.

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SCHEDULE 3

Operational Policies for PartsA, B, E and F of the Project

1. Each year applications for new planting and/or replanting shall be invitedthrough local newspapers, radio and other media for specific zones within theProject area. All applications for grants or loans shall be appraised by SMU. SMUshall check the creditworthiness of the smallholder with the cooperative society.Applications shall be submitted for approval to the Planting AuthorizationCommittee, to be constituted by SMU, comprising the Manager of SMU (asChairman), the Controller of Field Operations and the Controller of Finance anda representative of the relevant cooperative society.

2. All old oil palm trees will be felled before new planting and/or replanting,and at no time, will intercropping be allowed. Prior to approving an applicationthe smallholding will be inspected by SMU staff and if Eupatorium infestationis found over more than 30% of the area to which the application refers, all weedswill be cleared before the said application is approved.

@ 3. SMU staff shall provide technical supervision and advice to smallholders.

4. Grants or Sub-loans shall be made for the planting/replanting of oil palmto smallholders on between I ha. to 10 ha.

5. Grants or Sub-loans shall be made only to smallholders, who are engagedin farming and who are members of a cooperative society.

6. All Sub-loans shall be made pursuant to a sub-loan agreement or agreements,as appropriate, with terms and conditions satisfactory to the Bank, between thesmallholder, the relevant cooperative society and SMU.

7. Grants in kind shall be made in an amount equal to 4 170 per ha. andsub-loans, in cash, shall be made in an amount equal to N 100 per ha. Sub-loansshall bear interest at the rate of 9-1/2 per cent per annum and shall be repayablewithin 13 years including 7 years of grace during which interest shall be capitalized.Sub-loans shall be repaid in equal monthly installments. The aforesaid amountsof sub-loans and grants are based on prices prevailing at the time of this Agreementand shall be adjusted from time to time in a manner satisfactory to the Borrowerand the Bank. The smallholder's contribution shall be about N 60 per ha. andshall normally take the form of labor, tools and implements. Grants to smallholdersshall take the form of disbursements in kind by SMU to smallholders participating

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in the Project of seeds, planting materials, fertilizers, wire-netting and otheragricultural inputs recommended by SMU.

8. The Sub-loan Agreement shall, inter alia, (a) require the smallholder to sellhis produce from planting or replanting under the Project to the nearest palmoil mill under the Project; and

(b) provide that (i) the palm oil mills shall pay the proceeds of the saleof smallholder's produce to SMU; (ii) SMU shall deduct from such proceeds theamount of the sub-loan payable and any charges thereon and shall transfer thebalance to the relevant cooperative society; and (iii) the said cooperative societyshall deduct from amounts so received the service and other charges payable toit prior to making payment to the smallholder.