Zambia - Fourth Railway Project : Credit 1575 - Project Agreement - Conformed

OFFICIAL CREDIT NUMBER 1575 ZA DOCUMENTS Joint Project Agreement (Fourth Railway Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION and ZAMBIA INDUSTRIAL AND MINING CORPORATION LIMITED and ZAMBIA RAILWAYS LIMITED Dated , 1985 CREDIT NUMBER 1575 ZA JOINT PROJECT AGREEMENT AGREEMENT, dated 1 ru , 1985, among INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association), ZAMBIA INDUSTRIAL and MINING CORPORATION LIMITED (hereinafter called ZIMCO) and ZAMBIA RAILWAYS LIMITED (herein- after called ZR). WHEREAS by a Development Credit Agreement of even date here- with between the Republic of Zambia (hereinafter called the Bor- rower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equiva- lent to twenty million five hundred thousand Special Drawing Rights (SDR 20,500,000) on terms and conditions set forth in the Development Credit Agreement but only on condition that ZIMCO and ZR agree to undertake such obligations toward the Association as are hereinafter set forth; WHEREAS the Borrower also intends to contract from other sources loans, credits and grants to assist in financing the Project; WHEREAS by a Subsidiary Loan Agreement to be entered into between the Borrower and ZR, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to ZR on the terms and conditions therein set forth; and WHEREAS ZIMCO and ZR, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, have 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 have the respective meanings therein set forth. -2- ARTICLE II Execution of the Project Section 2.01. ZIMCO and ZR declare their commitment to the objectives of the Project as set forth in Schedule 2 to the Deve- lopment Credit Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and railway management practices. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit relent to ZR shall be governed by the provision of Schedule 1 to this Agreement. Section 2.03. (a) ZR undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to ZR by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by ZR to replace or repair such goods. (b) ZR shall cause all goods and services financed out of the proceeds of the Credit relent to ZR by the Borrower to be used exclusively for the purposes of the Project. Section 2.04. In order to assist ZR in the project implemen- tation, and in the organization, management and planning of all training activities, ZR shall employ consultants whose qualifi- cations, experience and terms and conditions of employment shall be satisfactory to the Association, such consultants to be selected in accordance with principles and procedures satisfac- tory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency published by the Bank in August 1981." Section 2.05. (a) ZR shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or addi- tions thereto, in such detail as the Association shall reasonably request. -3- (b) ZR shall: (i) maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) enable the Association's representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditures of such proceeds and the goods and services financed out of such proceeds; and (iv) submit to the Association Quarterly Progress Reports, covering, inter alia, the following aspects: (A) progress of the Project with cost data; (B) progress on training and technical assistance; (C) ZRIs financial performance; and (D) ZR's performance in meeting operational targets shown in Sched- ule 2 of this Agreement. (c) Upon the award by ZR of any contract for goods, works or services to be financed out of the proceeds of the Credit, the Association may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between ZR and the Association, ZR shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by ZR, ZIMCO and the Association of their respective obligations under the Joint Project Agreement, and the accomplishment of the purposes of the Credit. (e) ZR shall enable the Association's representatives to examine all plants, installations, sites, works, buildings, pro- perty and equipment of ZR and any relevant records and documents. Section 2.06. ZR shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association -4- shall otherwise agree, ZR 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. (a) ZR shall, at the request of the Associa- tion, exchange views with the Association with regard to the pro- gress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) ZR shall promptly inform the Association of any condi- tion which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by ZR of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of ZR Section 3.01. ZR shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and railway management practices under the supervi- sion of qualified and experienced management assisted by compe- tent staff in adequate numbers. Section 3.02. ZR shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and railway management practices. Section 3.03. ZR shall take out and maintain with responsi- ble insurers insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. Except as the Association shall otherwise agree, ZR shall take all action necessary to achieve the opera- tional targets set forth in Schedule 2 to this Agreement. ARTICLE IV Financial Covenants Section 4.01. ZR shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. -5- Section 4.02. (a) ZR 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 appropriate 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; (iii) furnish to the Association such other information concerning said accounts, financial statements, records and expenditures, as well as the audit thereof, as the Association shall from time to time reasonably request. (b) For all expenditures with respect to which withdrawals are requested from the Credit Account on the basis of statements of expenditure, ZR shall: (i) maintain, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (a) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by the said auditors as to whether the proceeds of the Credit withdrawn in respect of such expenditures have been used for the purpose for which they were provided. Section 4.03. From the date hereof until the completion of the Project, ZR shall not undertake any investment beyond those included in the Project estimated to cost in the aggregate in any given year more than the equivalent of two million dollars ($2,000,000), without the prior approval of the Association. Section 4.04. (a) Except as the Association shall agree, ZR shall not incur any debt unless the net revenue of ZR for the fiscal year, or for the twelve consecutive months immediately preceding the date of such incurrence, whichever is the greater, shall be at least 1.5 times the maximum debt service requirement for each succeeding fiscal year on all debt of ZR, including the debt to be incurred. (b) For the purpose of this Section: (i) The term "Debt" means any indebtedness of ZR maturing by its terms more than one year after the date on which it is originally incurred; (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement on the date the agreement providing for such guarantee has been entered into; (iii) The term "net revenue" means the difference be- tween: (A) the sum of revenue from all sources related to operations, adjusted to take account of ZR's tariffs in effect at the time of the incur- rence of debt even though they were not in effect during the twelve-month period to which such revenue relates, and net non-operating income; and (B) the sum of all expenses related to opera- tions, including administration, adequate main- tenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non- cash operating charges and interest and other charges on debt. -7- (iv) The term "net non-operating income" means the dif- ference between: (A) revenue from all sources other than those related to operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenue in (A) above. (v) The term "debt service requirement" means the aggregate amount of payments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of Kwacha, debt payable in another currency, such valuation shall be made on the basis of the prevailing law- ful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. ARTICLE V Obligations of ZI1CO Section 5.01. In fulfillment of its obligations under this Agreement ZIMCO: (i) agrees with a'.l the obligations of ZR set forth in this Agreement; (ii) shall cause ZR to perform such obligations in accordance with the provisions of this Agreement; (iii) shall take, or cause to be taken, all actions necessary or appropriate to enable ZR to perform such obligations; and (iv) shall provide or arrange the necessary finance as and when required by ZR to maintain the operations of ZR at least at the level of the previous year. Section 5.02. (a) ZIMCO shall take, or cause to be taken, from time to time, all measures required on its part in order to enable ZR to adjust freight and other tariffs and to enable ZR to carry out its obligations under the Joint Project Agreement. (b) ZIMCO shall, not later than June 30, 1985, approve a capital increase for ZR by Kwacha 138 million, or such other amount as the Association may approve. -8- Section 5.03. (a) ZIMCO shall take all measures necessary to enable ZR at all times to earn and maintain revenue levels suffi- cient to cover all working expenses (before depreciation), taxes, debt service charges of principal and interest, and 20% of ZR's total investment program; and (b) to this end, ZIMCO shall make an annual review of ZR's operational results and shall approve adequate tariff increases and/or other measures necessary to achieve the required cash flow. ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 6.02. (a) This Agreement and all obligations of the Association, ZIMCO and ZR 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 five 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 ZIMCO and ZR of this event. Section 6.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE VII Miscellaneous Provisions Section 7.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated 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: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For ZIMCO: Director General Zambia Industrial and Mining Corporation Limited P.O. Box 30090 Lusaka Zambia Cable address: Telex: ZIMCO ZA 40790 Lusaka For ZR: Managing Director Zambia Railways Limited P.O. Box 80935 Kabwe Zambia Cable address: Telex: ZAMRAIL 43110 Kabwe - 10 - Section 7.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of ZIMCO and ZR may be taken or executed by the Director General of ZIMCO or the Managing Director of ZR, respectively, or such other person or persons as the Director General of ZIMCO or Managing Director of ZR shall designate in writing, and ZIMCO and ZR shall furnish to the Association suffi- cient evidence of the authority and the authenticated specimen signature of each such person. Section 7.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively 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/' ' a V, <' Regional VicPr ident Eastern and Southern Africa ZAMBIA INDUSTRIAL AND MINING CORPORATION LIMITED B y .CI Authorized Representative ZAMBIA RAILWAYS LIMITED Byuthore R Authorized Representative - 11 - SCHEDULE 1 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1984 (the Guidelines). B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in Zambia may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereof. C. Other Procurement Procedures 1. Direct contracting procurement procedures as described in paragraph 3.5 of Part III of the Guidelines may be adopted in those cases in which the Borrower can show to the satisfaction of the Association that the goods to be procured are clearly established manufacturer's parts. 2. Goods estimated to cost the equivalent of $100,000 or less, up to a maximur, of $1,000,000 equivalent in total, may ba procured on the basis of limited international bidding procedures as described in paragraph 3.2 of Part III of the Guidelines. Such procedures will involve obtaining at least three price quota- tions. D. Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for the procurement of equipment, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. - 12 - (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. 2. The figure of 15% is hereby specified for the purposes of paragraph 4 of Appendix 1 to the Guidelines. - 13 - SCHEDULE 2 Operational Targets Objectives FY 1987 FY 1988 1. Average diesel locomotive avail- ability (%) 75 75 2. Productivity per available loco- motive per year (locomotive-km '000) 95 105 3. Average wagon availability (%) 85 90 4. Average turn-around for wagons (days): (a) General freight domestic 10 9 (b) Minerals domestic 7 6 (c) Transit traffic border-to-border 4 4 (d) Export/Import in Zambia 10 9 5. Average wagon load (tonnes): (a) General freight 25 25 (b) Minerals 40 40 6. Productivity per available freight wagon per year (tonne-km '000) 260 300 7. Staff productivity ('000 traffic units* per employee) 230 260 * Tonne-km plus passenger-km. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of 198 FOR SECRETARY