India - Rural Electrification Project : Credit 0572 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 572 IN Project Agreement (Rural Electrification Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND RURAL ELECTRIFICATION CORPORATION LIMITED DATED JULY 23, 1975 PROJECT AGREEMENT AGREEMENT, dated July 23, 1975, between INDIA, acting by its President (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) by the Development Credit Agreement of even date herewith between INDIA, acting by its President (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to fifty-seven million dollars ($57,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that REC agree to undertake such obligations toward the Association as hereinafter set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and REC, funds equivalent to the proceeds of the credit provided for under the Development Credit Agreement will be made available to REC on terms and conditions therein set forth; and (C) REC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. REC shall cause the Project described in Schedule 2 to the Development Credit Agreement to be carried out with due diligence and efficiency and in conformity with sound engineering, administrative and financial practices. 4 Section 2.02. Except as the Association shall otherwise agree, the goods, works and services (other than consultants' services) for the Project to be financed out of the proceeds of the Credit, shall be procured in accordance with the provisions of Schedule I to this Agreement. Section 2.03. REC shall cause the Boards to insure, or to make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit made available to them by REC against hazards incident to the acquisition, transportation and delivery tereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by such Boards to replace or repair such goods. Section 2.04. (a) REC shall make Sub-loans only (i) to those Boards, as determined by the Association, whose State Governments shall have agreed to provide them with an annual subsidy to the extent required, if any, to enable them to meet their respective obligations set forth in the undertakings furnished by the Boards to the Borrower pursuant to Section 7.03 of the Loan Agreement (Power Transmission Project) dated June 1, 1965, between the Borrower and the Bank, as amended, provided that such subsidy shall in no case exceed the amount which any Board would be otherwise entitled to receive under the provisions of sub-paragraph (ii) of this Section, or (ii) to such other Boards whose State Governments have agreed, or shall have agreed, to the satisfaction of the Association, to provide them with an annual subsidy equivalent to the amount by which each Board's operating expenses (including loan interest) in respect of rural electrification operations exceed its revenues from such operations. (b) The Association shall, from time to time, inform REC of the names of the Boards which shall have fulfilled the eligibility requirements under paragraph (a) above. Section 2.05. Except as the Association may otherwise agree, REC shall not finance any RE-Scheme under the Project which is not estimated to meet the viability criteria set forth in Schedule 2 to this Agreement. Section 2.06. REC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, REC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.07. REC: (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 Credit made available to it by the Borrower; 5 and (ii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so made available to it and the goods and services financed out of such proceeds. Section 2.08. (a) REC shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Credit. (b) REC shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by REC of its obligations under this Agreement. ARTICLE HI Management and Operations of REC Section 3.0 1. (a) REC undertakes that. unless the Association shall otherwise agree, any Sub-loan will be made on terms whereby REC shall obtain, by written contract with the Board or by other appropriate legal means, rights adequate to protect the interests of the Association and REC. including the right of REC to: (i) require the Board to carry out its part of the Project With due diligence and efficiency and in accordance with sound engineering, financial and public utility practices: (ii) require the Board to maintain records adequate to identify the goods and services acquired out of the proceeds of the Credit, to disclose the use thereof in the Project, to record the progress of its part of the Project (including the cost thereof): (iii) require the Board to use goods and services to be financed out of the proceeds of the Credit exclusively in the carrying out of' the Project: (iv) inspect, by itself or jointly with representatives of the Association if the Association shall so request, such goods and the sites. works, and construction included in the Project, the operation thereof, and any relevant records and documents: (v) require that the Board shall take out and maintain with responsible insurers such insurance, against such risks and in such amoun ts, as shall be consistent with sound business and public utility practices, or to make other adequate arrangements to cover promptly any damage or losses resulting from such risks: (vi) obtain all such information as the Association or REC shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Board; and (vii) suspend or terminate the rights of the Board to the use of the proceeds of the Sub-loan upon failure by such Board to perform its obligations under its contract with REC. 6 (b) REC shall exercise its rights in relation to each Sub-loan in such manner as to: (i) protect the interests of the Association and REC, (ii) comply with its obligations under this Agreement, and (iii) achieve the purposes of the Project. Section 3.02. REC shall duly perform all its obligations under agreements under which funds have been lent or otherwise put at the disposal of REC by the Borrower or its agencies or others for relending, investment or management. REC shall promptly inform the Association of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provision of, any such agreement. Section 3.03. Except as the Association may otherwise agree, REC shall not finance an RE Scheme unless adequate provision is made by REC to cover price escalation during the construction period of such RE Scheme. ARTICLE IV Financial Covenants Section 4.01. REC shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. REC shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of its financial statements 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of REC and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. Except as the Association shall otherwise agree, REC shall ensure that, (i) REC's internally generated funds in any financial year shall not be less than 1.2 times its debt service requirements during that financial year, and (b) REC's administrative expenses and interest payments in any financial year shall not exceed 90% of the aggregate interest charges received by REC from all sources during that financial year. 7 For the purpose of this Section: (i) "internally generated funds" means the aggregate revenues from all sources, and the principal repayments on loans made by REC, less administrative expenses, dividends, taxes, surcharges and other levies, if any, but before provision for depreciation and interest and other charges on debt; and (ii) "debt service requirements" means the aggregate amount of amortization, interest and other charges in respect of debt. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of REC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date thirty years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a)(ii) of this Section, the Association shall promptly notify REC of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated 8 by this Agreement shall be in writing. Such notice or request shall be deemed to 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 permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. For REC: Rural Electrification Corporation Limited D-5, N.D.S.E. Part 11 Ring Road New Delhi, India Cable address: RECTRIC New Delhi Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of REC may be taken or executed by the Managing Director of REC or such other person or persons as REC shall designate in writing. Section 6.03. REC shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of REC, take any action or execute any documents required or permitted to be taken or executed by REC pursuant to any of the provisions of this Agreement. 9 Section 6.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. 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. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / Mervyn L. Weiner Regional Vice President South Asia RURAL ELECTRIFICATION CORPORATION By /s / T. N. Kaul Authorized Representative 10 SCHEDULE 1 Procurement A. General Procedures 1. Except as stated in part A2 hereof, contracts shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Contracts for poles shall be awarded on the basis of local competitive bidding in accordance with the procedures applicable to the Boards for such contracts. 3. For the purpose of invitation to bid, REC shall cause each Board to group conductors, transformers, circuit breakers, capacitors, insulators and meters in packages expected to cost the equivalent of $1,000,000 or more, provided, however, that in the event that the total requirements of any Board for such items in any year is expected to cost less than the said amount, REC shall cause such Board to group such items in one package including all such Board's requirements for such items for the said year. B. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (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-manufactured goods: (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Board of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in India may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 11 (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in India if the bidder shall have established to the satisfaction of the Borrower and the Association that the manufacturing cost of such goods includes a value added in India equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in India. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. The lowest evaluated bid of each group shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid, or (ii) 15Q of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15"' of such price. If the group A 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. Review of Procurement Decisions by the Association 1. With respect to all contracts for goods (except poles): (a) Before bids are invited by any Board, REC shall obtain from such Board and furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall cause such Board to make such modifications in the said documents or procedures 12 as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) REC shall cause each Board to notify REC promptly after the bids have been received and shall inform the Association of the names of the bidders and the respective amounts of the bids. (c) After bids have been received and evaluated by a Board, REC shall, before a final decision on the award is made, inform the Association of the name of the bidder to which the said Board intends to award the contract and the reasons for the intended award and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the recommendation for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform REC and state the reasons for such determination. (d) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (e) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract for poles, REC shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with this Schedule, promptly inform REC and state the reasons for such determination. 13 SCHEDULE 2 Viability Criteria for the Selection of Rural Electrification Schemes Minimum Category & Period Terms of Return*** Area/Type Code of Loan Interest Rate* Repayment** for Project not less than Ordinary- OA 20 years 1st 5 years 7-1/4 5 years grace, Break-even Advanced 6-10 years 7-3/4 then repayment in 7th year 11-15 years 8 over 15 years 3-1/2% in 16-20 years 9 15th year or 11-15 years 7-3/4 if repayment in 15 years Ordinary- OB 25 years 1st 5 years 6-1/2 5 years grace, Break-even Backward 6-10 years 7 then repayment in 10th year 11-15 years 7-1/2 over 20 years 3-1/2% in 16-20 years 8 20th year 21-25 years 9 or 16-20 years 7-1/2 if repayment in 20 years Specially SU 30 years 1st 5 years 5-3/4 5 years grace, Break-even under 6-10 years 6 then repayment in 15th year developed 11-15 years 6-1/4 over 25 years 3-1/2% in hill, 16-20 years 7 25th year desert, 21-25 years 8 tribal 26-30 years 9 areas, etc. or 21-25 years 7 if repayment in 25 years Minimum MNP 30 years lst 10 years 5-3/4 5 years grace, Break-even Needs 11-20 years 6-1/4 then repayment in 15th year Program 21-30 years 7 over 25 years 3-1/2% in 25th year System SS 8 years 1st 4 years 7-1/2 1 year grace, 3-1/2% in Improve- 5-8 years 8 then repayment 7th year ment over 7 yearg MiniFarms MF 10 years 1-10 years 7-3/4 2 years grace, then repayment over 8 years * The interest rates shown are net of the rebate of 1/4% allowed for prompt payment. ** Repayment of both principal and interest, based on equated annual installments. In view of the complicated calculations involved, repayment is now by equal installments of principal. In all cases the State Governments are required to furnish full and unconditional guarantees in respect of the payment of interest and repayment of principal by the State Electricity Board/Cooperatives. * Minimum return means the ratio which operating revenues, after providing for operating expenses (including depreciation) and interest, bear to the total investment. Figures between brackets indicate negative returns. ** MF schemes are expected to have a minimum gross return (gross revenues as proportion of total investment) of 10% in the year.