KREDITANSTALT FUR WIEDERAUFBAU

Dear Sirs,

The Loan Agreement entered into between the Republic of the Philippines
(“Borrower”) and Kreditanstalt fur Wiederaufbau (“Kreditanstalt”) on 12
MAY 1982 provides that the following be determined by separate
agreement:

Pursuant to Article 1.2
the details of the Project as well as the
goods and services to be financed from the
Loan;

pursuant to Article- 3 .1
the disbursement procedure, in particular the
evidence to be furnished by the Borrower for the
disbursement of the Loan proving the use of the
loan amounts for the purpose stipulated in the
above Loan Agreement;

pursuant, to Article 8.2
the details pertaining to Article 8.1
(Execution of the Project).

Therefore, we propose that the following be agreed upon:

I. Details of the Project as well as Determination of the Goods and
Services

(1) According to the documentation available to
Kreditanstalt and the negotiations held by it with the Borrower, the
Project comprises the following measures at the estimated costs so far
used as basis:

Should there be any indication of major changes in the
measures stated in the above list of project measures or in the cost
estimates, Kreditanstalt shall be informed without delay. Execution of
such measures shall commence only on the basis of revised planning and
after Kreditanstalt has given its consent.

(2) The list of goods and services to be financed from the Loan shall be
prepared on the basis of the contracts concluded for such goods and
services. Accordingly, Kreditanstalt shall be furnished with a copy of
each contract.

As far as any measures of the Project shall be executed under the
Borrower’s own management and no contracts for goods and services have
been concluded, Kreditanstalt shall receive instead of the contracts a
schedule of the measures planned, broken down by main cost categories
(schedule of measures). Any costs incurred for general administration in
connection with such works shall not be included in the schedule of
measures.

Having checked the contracts/schedule of measures, Kreditanstalt shall
transmit to the Borrower numbered letters (Encl. 1) stating the amounts
which have been reserved for the financing from the Loan and send him
the

“List of Goods and Services”

as supplemented from case to case.

(3) When concluding contracts for goods and services to be financed from
the Loan, the following principles shall be adhered to by the Borrower:

(a) The payment conditions of the contracts shall be in line
with commercial practice.

(b) To safeguard the advance payments and the due implementation of the
contracts, the contracts shall provide for appropriate advance payment
and performance guarantees to be given by banks or insurance companies.

(c) As according to Article 1.3 of the Loan Agreement no import duties
shall be financed from the Loan, such import duties, if part of the
contract value, shall be stated separately in the contracts to be
concluded for the goods and services and in the invoices.

(d) It shall be ensured that the goods to be financed from the Loan are
insured adequately and to the customary extent against transport risks
so that their replacement or repair is possible. Such insurance shall be
taken out in a freely convertible currency as far as foreign exchange
costs accruing to the Borrower shall be financed.

(e) It shall be ensured that all contracts for goods and services, if
payable from the Loan, contain a provision to the effect that any
reimbursements, insurance, guarantee or similar claimable payments shall
be made for the account of the Borrower to Kreditanstalt into its
account No. 504 091 00 with Deutsche Bundesbank, Frankfurt am Main, with
Kreditanstalt crediting him with the amounts. If such payments are made
in local currency they shall be transferred to a special account of the
Borrower in the Philippines; such account may be operated only with the
consent of Kreditanstalt. Such funds may be re-utilized in accord with
Kreditanstalt for the execution of the Project.

II. Disbursement Procedure

The disbursement procedure is governed by the “Guidelines for the
Disbursement of Funds of German Financial Co-operation with Developing
Countries by Kreditanstalt fur Wiederaufbau”, which constitute an
integral part of this Agreement.

III. Execution of the Project

(1) Among other responsible executing agencies the Ministry
of Agrarian Reform (MAR) is responsible for the execution of the
Project. The time-table and the cost and financing schedule required for
the proper technical and financial execution of the Project shall be
prepared as soon as possible by the MAR in co-operation with the
consulting engineers and shall be submitted to Kreditanstalt. Such
schedule shall show the presumable timing and co-ordination of the
individual project measures and the resulting financial requirements, by
dates and amounts. If any deviation from such schedule becomes
necessary in the course of the execution of the Project Kreditanstalt
shall be furnished with the revised schedule.

(2) The duties of the consulting engineers shall comprise the planning
of the Project, the preparation of the tender documents advisory
services to the MAR in connection with the award of contracts for goods
and services (evaluation of bids, proposals as to the award of contract,
drafting of contracts), supervision of implementation and certificates
of acceptance. The consulting engineers shall have the form of an
association composed of a foreign and a Philippine consultant firm.
Overall responsibility at all time shall rest with the foreign
consultant firm. The three experts of the consultant team shall have the
following functions: A foreign senior agriculturist shall assist the
local settlement administration of the MAR in planning and
implementation of the agricultural rehabilitation and land development
measures and coordinate the work of the agricultural extension officers.
A Philippine agricultural credit advisor shall be in-charged with the
coordination between the local settlement administration and the branch
of the bank responsible for the implementation of the credit component
in order to ensure the adequate and timely availability of the required
credit amounts. A second Philippine expert (civil engineer) shall assist
the MAR in the planning and execution of the construction works.

(3) An international public competition having been carried through, the
contract for the Project shall be awarded to independent qualified
consulting engineers. For this purpose , the MAR shall publish a
corresponding notice at least in the “Nachrichten fur Aussenhandel”
(NfA) of the

Bundesstelle fur Aussenhandelsinformation
Blaubach 13
D – 5000 K o 1 n
Federal Republic of Germany

under the heading “Finanzielle und Techniche Zusammen-arbeit der
Bundesrepublik Deutschland” (Financial and Technical Cooperation of the
Federal Republic of Germany) and in the “Development Forum”, UN, Geneva,
Switzerland. Publication in the NfA is free of charge. The costs for
publication in the “Development Forum” shall be borne by Kreditanstalt.
From among the applications of the consulting engineers interested
(long-list), the MAR shall preselect the consulting engineers
particularly qualified for executing the Project (short-list), with the
preselection requiring the approval of Kreditanstalt. Accordingly, the
MAR shall furnish Kreditanstalt with an evaluation report on the
preselection together with all other relevant documents as requested by
Kreditanstalt. Sufficient time allowed, the consulting engineers
selected shall be invited to submit their tenders of services and price
quotations separately.

The final selection shall depend on the quality of the tenders of
services; only if the tenders are of equal quality shall the price
quotations be decisive. Kreditanstalt reserves the right to approve the
proposal to award the contracts. Accordingly, it shall be furnished with
an evaluation report on the final selection together with any documents
as requested by it. Furthermore, the engagement of the consulting
engineers selected shall require the prior approval of Kreditanstalt.
Accordingly, it shall be furnished in due course with the draft of the
consulting contract.

(4) The contracts for civil works, vehicles and minor tools shall be
awarded in co-operation with the consulting engineers by way of public
competitive bidding or solicitation of offers in the Philippines.
Contracts for fertilizers and chemicals shall be awarded in co-operation
with the consulting engineers by way of international solicitation we
offers.

The documents for tendering or solicitation of offers shall be submitted
to Kreditanstalt for comment in due course prior to the publication of
the invitation to tender or to the solicitation of offers. The
invitation to tender shall be published at least simultaneously with the
other publications in the “Nachrichten fur Aussenhandel” (NfA) referred
to in Article III (3) under the heading “Deutsche Entwicklungshilfe”
(German development assistance). The Bundesstelle fur
Aussenhandelsinformation shall be furnished with a copy of the tender
documents through the Philippine embassy, free of charge, prior to
publication of the invitation to tender. Publication in the NfA is free
of charge. The bidding period shall be fixed in such a way as to give
the bidders sufficient time to prepare their bids.

(5) The bids shall be evaluated by way of comparison by the consulting
engineers or by the MAR in co-operation with the consulting engineers.
The evaluation of bids and the substantiated proposal for awarding the
contract, which shall bear the certification by the consulting engineers
or be accompanied by their separate comments, shall be submitted to
Kreditanstalt early enough for it to make its comments before any
contracts are awarded.

Kreditanstalt reserves the right to demand new competitive bidding if it
is obvious that the lowest bid considerably exceeds reasonable cost
estimates and if such new competitive bidding can be expected to result
in much cheaper bids.

Prior to the conclusion of a contract for goods and services,
Kreditanstalt shall be furnished for comment with the draft contract as
agreed upon, duly provided with the visa of the consulting engineers.
The same shall apply to subsequent modifying or amending agreements, if
any.

(6) For the efficient implementation of the Project agreement shall be
reached on following items:

The Borrower shall establish for the MAR and the Development
Bank of the Philippines (DBP) responsible for the handling of the
credits separate accounts from which the MAR and the DBP may draw to
meet expenditures in respect to the Project implementation.

The MAR will keep separate accounts for the Project identifying
disbursements by Project components and granting insight into all
transactions in connection with the Project implementation; in addition,
the accounts of the Project shall be audited annually by the Commission
of Audit.

At the central level MAR shall establish for the Project an
“Inter-Agency Project Coordinating Committee”; its composition and
functions shall be agreed upon with Kreditanstalt and shall be laid down
in a “Memorandum of Agreement”. At the regional level an
interministerial “Regional Advisory Committee” shall be established with
functions laid down in Encl. 2.

To secure a speedy and efficient execution of the Project within MAR a
“Central Project Management” shall be established with members of all
departments functionally in charge (Encl.3). The position of a “Project
Director” shall be assumed by a MAR official of a rank not lower than
that of an Assistant Minister. In addition a “Local Project Management”
shall be established with an adequate organisation (Encl. 4). In order
to speed up the implementation the division of functions between the
central and the local level of the Project Sponsor shall be
decentralised to a greater extent. The “Local Project Management” shall
carry out the day-to-day affairs under its own responsibility. Within
the MAR an adequate number of staff shall be charged exclusively with
the handling of the Project.

With respect to the various phases of granting land titles to the
settlers, the MAR shall prepare an implementation plan and inform us
half-yearly on the state of implementation.

In view of the great significance of the accompanying evaluation of the
Project an annual review shall be drawn up during the first nine years
of the project implementation and shall be submitted to KfW; such
reports shall in particular examine the extent to which the
socio-economic objectives of the Project have been reached. The reports
shall be prepared by a Senior Evaluation Officer and the required number
of auxiliary staff.

(7) The MAR shall until further notice report to Kreditanstalt
half-yearly on the progress of the Project. Such reports shall cover the
points stated in the list attached hereto (Encl. 5). The first report
on the state of affairs shall be submitted as of December 31, 1982. The
reports shall be duly countersigned by the consulting engineers.

After completion of the Project, the Project Sponsor shall report on its
further development, Kreditanstalt shall in due course inform the
Project Sponsor about the details, in particular the period to be
reported on.

(8) Please send all documents we need for preparing the comments and
approvals agreed upon above so early as to give us sufficient time for
their examination.

IV. The above stipulations may at any time be amended or modified by
mutual consent if this should appear useful for the execution of the
Project or the implementation of the Loan Agreement. In addition, the
provisions of Article 7.3 and 9 of the Loan Agreement shall apply to
this agreement accordingly.

Please confirm your approval of the above agreement by signing in a
legally binding form and returning the enclosed copies in German and in
English.

We enclose herewith copies of the present letter in German and English
asking you to be so kind as to forward them to the Ministry of Agrarian
Reform and in due course to the consulting engineers.

Encls.

(1) Standard form of the letter
of reservation of partial loan
amounts by addition to the
“List of Goods and Services”

(2) Composition and functions of
the Regional Advisory Committee

(3) Composition and functions of
the Central Project Management

(4) Composition and functions of
the Local Project Management

(5) Memo for Progress Reports

READ AND AGREED:

REPUBLIC OF THE PHILIPPINES