Turkey - Erdemir Stage II Steel Project : Loan 1606 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1606 TU Loan Agreement (Erdemir Stage II Steel Project) between REPUBLIC OF TURKEY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 30, 1978 LOAN NUMBER 1606 TU LOAN AGREEMENT AGREEMENT, dated June 30, 1978, between REPUBLIC OF TURKEY (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the foreign exchange cost of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Project will be carried out by Eregli Demir Ve Celik Fabrikalari Turk Lnonim Sirketi (hereinafter called the Company) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the Company the proceeds of the Loan as hereinafter provided; (C) the Company has been established as a Joint Stock Company (i) pursuant to the Borrower's Law No. 7462, as amended, (ii) pursuant to the Articles of Association, dated April 14, 1960, as amended, and (iii) pursuant to the Founders' Agreement, as hereinafter defined; (D) the Company has represented to the Bank that it intends to contract suppliers credits in an aggregate principal amount currently estimated to be equivalent to about $28,000,000 to assist in the financing of the Project (hereinafter called the Suppliers Credits); (E) the Borrower or the Company intends, as the case may be, to obtain loans (hereinafter called the Other Loans) in an aggregate amount equivalent to about $22,000,000 to assist in the financing of the Project; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in a project agreement of even date herewith between the Bank and the Company; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I 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 and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and the Company of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all supplements thereto; (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and the Company pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (c) "Prior Loan Agreement" means the Loan Agreement dated April 28, 1972, between the Borrower and the Bank as such agree- ment may be amended from time to time; such term includes the General Conditions Applicable to Loan and Guarantee Agreements of the Bank dated January 31, 1969, as made applicable to such agreement, all agreements supplemental to the Prior Loan Agreement and all schedules to the Prior Loan Agreement; (d) "Completion Date" means the date on which over a selected period of ninety consecutive days (i) the total plant production facilities of the Company as modified by the Project have been able to produce a total of at least 450,000 metric tons of raw steel, 22,000 metric tons of tin plate, 139,000 metric tons of cold rolled products, 136,000 metric tons of hot rolled products (including skelp but excluding plate) and 48,000 tons of - 3 - plate, and (ii) the Company has maintained the ratio specified in Section 4.07 of the Project Agreement, all as certified by the Company's engineering consultants and auditors employed pursuant to Sections 2.02 and 4.02, respectively of the Project Agreement; (e) "Founders" means any of the parties to the Founders Agreement, as ratified by Decree No. 4/12975 of the Borrower, dated April 21, 1960, except Koppers Associates, S.A., a cor- poration organized under the laws of Venezuela; (f) "Prior Project Agreement" means the Project Agreement dated April 28, 1972, between the Company and the Bank as such agreement may be amended from time to time; such term includes all agreements supplemental to the Prior Project Agreement and all schedules to the Prior Project Agreement; and (g) "tpy" means metric tons per year. 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 ninety-five million dollars ($95,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 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 and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Loan, shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 2.04. The Closing Date shall be June 30, 1983 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Company of such later date. -4- Section 2.05. The Borrower shall pay to the Bank a commit- ment 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. Section 2.07. Interest and other charges shall be payable semiannually on May 15 and November 15 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. The President of the Company and such other person or persons as he shall designate in writing are 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. (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause the Company to perform in accordance with the provisions of the Project Agreement all the obligations therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Company to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall relend the proceeds of the Loan to the Company under a subsidiary loan agreement to be entered into between the Borrower and the Company, in form and substance satisfactory to the Bank. (c) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the - 5 - interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. (a) Without limitation or restriction to the generality of the provisions of Section 3.01 of this Agreement, the Borrower undertakes that it shall provide or cause to be provided to the Company such additional funds as are needed to meet the capital cost of carrying out the Project, interest during construction for the Project, or the working capital requirements of the Company over and above the funds to be pro- vided under the agreements referred to in Recitals (D) and (E) of the Preamble to this Agreement or by the Company itself if it has funds in excess of those required to meet the current ratio specified in Section 4.06 of the Project Agreement. For the purpose of, and without limitation to, the foregoing the Borrower undertakes, whenever following payments to be made pursuant to this Section the Company's debt-equity ratio (as defined in Section 4t03 of the Project Agreement) would exceed 60:40, to take all such action as may be required or as may be appropriate to provide such additional funds in the form of paid up equity, or in the form of interest free subordinated debt maturing at least 20 years after its incurrence. (b) For the purposes of this Section, the term "working capital requirements of the Company" shall mean such requirements of the Company as are needed to maintain the ratio set forth in Section 4.06 of the Project Agreement, for purposes of determining the Completion Date. 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 con- cerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distri- bution 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 4ny entity owned or controlled by, or operating for the ac,ount or benefit of, the Borrower or any such subdivision, including assets held by T.C. Merkez Bankasi or any other institution performing the functions of a central bank or exchange stabilization fund, or similar func- tions, for the Borrower. Section 4.02. The Borrower shall cause the Company to perform its obligations under the AID Reorganization Agreement, the GOT Reorganization Agreement, the EXIM Loan and the AID Loan, (all such terms having the meaning set forth in the Prior Loan Agreement), and exercise its rights thereunder and ensure that the Company shall not, without the prior consent of the Bank, take or concur in any action which would materially or adversely affect the interest of the Bank or the Project or which would have the effect of assigning, revoking, suspending or abrogating any one of such agreements, or amend or waive, in whole or in part, any provision of any one of such agreements, if the effect of such amendment or waiver would, in the opinion of the Bank, affect the financial condition, business, operations or the capacity of the Borrower or the Company to perform their respec- tive obligations thereunder or under this Agreement or the Project Agreement. - 7 - Section 4.03. The Borrower shall not (i) initiate amend- ments to Law No. 7462 or agree to the amendment of the Company's Articles of Association or (ii) permit the Company to sell, transfer, mortgage, pledge or otherwise dispose of any of its assets or create or acquire any Subsidiary. Section 4.04. The Borrower shall permit the Company to enter into contracts for the importation from overseas suppliers of such quantities of iron ore and of coal as may be required to fully utilize the Company's installed capacity so long as this is: (i) the most economic method of supplying such require- ments; and (ii) required to meet market demand for the Company's products. Section 4.05. The Borrower shall notify the Bank prior to permitting the Company to make any repayment in advance of maturity of the loans referred to in Recitals (C), (D) and (E) of the Prior Loan Agreement, the Subsidiary Loan Agreement or of the loans referred to in Recitals (D) and (E) of this Agreement or from any other source and shall not permit any such repayment to be made which in the opinion of the Bank is substantial without (i) the consent of the Bank and (ii) making a proportionate prepayment of the Loan. Section 4.06. The Borrower shall take or cause to be taken, all such reasonable action for coordinating the investments for the expansion of the flat steel production capacity of steel companies in its territory as required by its market conditions prevailing in its territory. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) a default shall have occurred in the performance of any obligation on the part of the Company, under the Project Agree- ment, or the Borrower or the Company shall not have exercised their rights under the AID Reorganization Agreement, the GOT Reorganization Agreement, the EXIM Loan or the AID Loan (all such terms having the same meaning as in the Prior Loan Agreement) or -8- any of these agreements shall have been assigned, amended, sus- pended, waived, abrogated or terminated in whole or in part without the prior consent of the Bank; (b) the Company shall have become unable to pay its debts as they mature or any action or proceeding shall have been taken by the Company or by others whereby any of its property or assets shall or may be distributed among, or administered for the benefit of, its creditors; (c) any creditor of the Company shall have demanded payment of monies provided to the Company under a loan having an original maturity of one year or longer, prior to the agreed maturity of such loan and in accordance with the terms of such loan; (d) a change in the Company's Articles of Association shall have been made without the prior consent of the Bank; (e) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of the Company or for the suspension of its operations; (f) an extraordinary situation shall have arisen which shall make it improbable that the Company will be able to perform its obligations under the Project Agreement; (g) any action has been taken resulting directly or indi- rectly in a modification of the private status of the Company as described in paragraph (c) of Section 6.02 of this Agreement; (h) a default shall occur under the Prior Loan Agreement other than in respect of the payment of principal, interest or other charges or any other payment required thereunder; or (i) (A) Subject to subpaiagraph (B) of this paragraph: (I) The right of the Borrower or of the Company, as the case may be, to withdraw the proceeds of any grant or loan made to the Borrower or to the Company, as the case may be, for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor, or -9- (II) any such loan shall have become due and payable prior to the agreed maturity therefor. (B) Subparagraph (A) of this paragraph shall not apply if: (I) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower or of the Company, as the case may be, to perform any of its obligations under such agree- ment; and (II) adequate funds for the Project are available to the Borrower or to the Company, as the case may be, from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement and of the Company under the Project Agreement; and (j) The Borrower or the Company has failed to obtain the Other Loans by December 31, 1979 and other arrangements satisfac- tory to the Bank have not been made for the same purpose. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following events are snecified pursuant to para- graph (h) thereof: (a) any event specified in paragraphs (a) and (h) of 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 Company; and (b) any event specified in paragraphs (i) (A) (II) of, and paragraphs (b), (c), (d), (e) and (g) of, Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the execution and delivery of the Project Agreement on behalf of the Company have been duly authorized or ratified by all necessary corporate action; (b) the execution and delivery of the Subsidiary Loan Agreement on behalf of the Borrower and the Company, respectively, - 10 - have been duly authorized or ratified by all necessary corporate and governmental action; and (c) all the Agreements relating to the Suppliers Credits have been concluded on reasonable terms and shall be in full force and effect. 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 Company, and is legally binding upon the Company in accordance with its terms; (b) that the Subsidiary Loan Agreement has been duly autho- rized or ratified by the Borrower and the Company and is legally binding upon the Borrower and the Company in accordance with its terms; and (c) that the Company is a joint stock company duly estab- lished under the laws of the Borrower as a private company exempted from Laws 440 and 468, and any other law or regulation directly or indirectly applicable to the Borrower's state economic enterprises, irrespective of whether the Borrower owns or controls directly or indirectly 50% or more of the share capital of the Company, and the Company has full power and authority to carry out the construction and installation of the facilities included in the Project and to operate them upon their completion, and has all necessary rights and powers in connection therewith. Section 6.03. The date October 30, 1978, is hereby speci- fied for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance 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 ,-he General Conditions: - 11 -. For the Borrower: Maliye Bakanligi Hazine Genel Mudurlugu ve Milletlerarasi Iktisadi Isbirligi Teskilati Genel Sekreterligi Ankara, Turkey Cable address: MALIYE HAZINE Ankara For the Bank: International Bank for Reconstruction and Development 18.18 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. REPUBLIC OF TURKEY By /s/ Asaf GUven Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEMILOPMENT By /s/ Munir P. Benjenk Regional Vice President Europe, Middle East and North Africa - 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) Materials, equip- 74,000,000 100% of foreign ment, spare parts, expenditures freight, insurance and 100% of and services related local expendi- to the Project tures (exclud- ing inland freight) (2) Consulting and 1,000,000 100% of foreign technical services expenditures including those for the feasibility study under Part I of the Project (3) Unallocated 20,000,000 TOTAL 95,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. - 13 - 3. 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. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expen- ditures prior to the date of this Agreement, except that with- drawals in an aggregate amount not exceeding the equivalent of $500,000 may be made in respect of Category 2 on account of payments made for such expenditures before that date but after March 1, 1978. 5. 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, 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. 6. If the Bank shall have reasonably determined 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 or remedy of the Bank under the Loan Agreement, by notice to the 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. - 14 - SCHEDULE 2 Description of the Project The Project consists of the second phase of the Company's long term expansion program and consists of the construction and installation of facilities needed to fully utilize the inherent iron and steel-making and hot rolling capacity installed near the town of Eregli under the project financed out of the proceeds of the Prior Loan, and of the construction of additional facilities designed for ecology protection and for reduction of energy consumption and operating costs. The facilities to be constructed under the Project are expected to increase the Company's annual production capacity from the present 1,100,000 tpy (in place or under construction) to about 1,500,000 tpy of finished products, corresponding to a steel-making capacity of about 2,000,000 tpy. The increased capacity shall be achieved through: Part A: Purchase and installation of additions to raw material handling systems to increase overall handling capacity, and improve quality control and operating flexibility in blending, crushing, screening of iron ore, coal and limestone; including conveyors, bins, crushers, stackers, and reclaimers as required to support iron production of 1.8 million tpy. Part B: Purchase and installation of a new turbo blower. Part C: Construction and installation of facilities to increase steelmaking capacity to a level of about 2.0 million tpy, including new scrap preparation facilities, cranes, automatic scrap baler and shear, manual burning beds. Part D: Construction and installation of one new continuous slab caster unit with a capacity of about 0.6 million tpy. Part E: Improvements in the slab yard and hot strip mill to achieve capacity of about 1.7 million tpy, including purchase and installation of cranes, computer controls, a strip cooling system third coiler and slab yard extension. - 15 - Part F: Improvements in hot and cold rolled finishing facili- ties, including purchase and installation of a new shear line, annealing furnaces, cranes and second stand on temper mill to achieve a capacity of about 1.5 million tpy of finished products. Part G: Construction and installation of additional facilities to improve quality, reduce costs, and conserve energy, including a fourth BF hot stove, and a new bag house filter system for collection of sinter plant dust. Part H: Construction and installation of expanded utilities, services, and effluent treatment and pollution monitor- ing facilities (including a new biological treatment plant for coke plant effluents), to support the levels of operations shown above. Part I: A feasibility study for the evaluation and initial preparation of phases III and IV of the Company's steel production expansion program, including analysis of alternative methods of treatment for sewage from the plant and the town of Eregli. The Project is expected to be physically completed by Decem- ber 31, 1981. - 16 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each May 15 and November 15 beginning November 15, 1982 through November 15, 1994 3,655,000 On May 15, 1995 3,625,000 * 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 equiva- lents determined as for purposes of withdrawal. - 17 - 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 1.30% More than three years but not more than six years before maturity 2.65% More than six years but not more than eleven years before maturity 4.85% More than eleven years but not more than fifteen years before maturity 6.60% More than fifteen years before maturity 7.50%