Malawi - Second Lilongwe Water Supply Project : Credit 1742 - Project Agreement - Conformed

CREDIT NUMBER 1742 MAI Project Agreement (Second Lilongwe Water Supply Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and LILONGWE WATER BOARD Dated /3, 1987 CREDIT NUMBER 1742 MAI PROJECT AGREEMENT AGREEMENT, dated l 6, 1987, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and LILONGWE WATER BOARD (LWB). WHEREAS: (A) by the Development Credit Agreement of even date herewith between the Republic of Malawi (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to sixteen million six hundred thousand Special Drawing Rights (SDR 16,600,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that LWB agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and LWB, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to LWB on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS LWB, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective mean- ings therein set forth. ARTICLE II Execution of the Project Section 2.01. LWB declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out Parts A through E of the Project with due diligence and efficiency and - 2 - in conformity with appropriate administrative, financial, engineering and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works, and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. LWB shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.0& of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and Parts A through E of the Project. Section 2.04. LWB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, LWB 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 2.05. Except as the Borrower and the Association shall otherwise agree, LWB shall take all measures necessary for the implementation of a scheme to increase, by no later than June 30, 1988, the daily production capacity of its treatment plant by 5,000 cubic meters per day to 35,000 cubic meters per day. Section 2.06. LWB shall take all reasonable measures to ensure that the execution and operation of the Project are carried out with due regard to ecological and environmental factors. Section 2.07. (a) LWB 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) LWB 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 LWB of its obligations under this Agreement and under the Subsidiary Loan Agreement. -3- (c) LWB shall submit quarterly reports to the Association in such form as the Association and LWB shall agree from time to time. ARTICLE III Management and Operations of LWB Section 3.01. LWB shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. To that end, LWB shall employ an Engineer/Manager and a Financial Controller whose qualifications, experience and terms and conditions of employment shall be acceptable to the Association. Section 3.02. LWB 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 public utility practices. Section 3.03. LWB shall take out and maintain with responsi- ble insurers, or make other provision satisfactory to the Asso- ciation for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) LWB shall maintain records and accounts adequate to reflect in accordance with sound accounting practices, its operations and financial condition. (b) LWB shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) and the LWB Special Account for each fiscal year audited, in accor- dance 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 itdkfinancial 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 said accounts and financial statements, as well as the audit thereof and said records, as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditures, LWB shall: (i) maintain, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made, 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 records and accounts are included in the annual audit referred to in paragraph (b) of this Section, and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their preparation, can be relied upon to support such withdrawals. Section 4.02. (a) Except as the Association shall otherwise agree, LWB shall take all necessary measures, including, inter alia, appropriate increases in water tariffs, to enable it to -5- earn an annual return on the average current net value of LWB's fixed assets in operation of not less than: (i) 2% for fiscal year 1988/89; (ii) 3% for fiscal year 1989/90; (iii) 5% for fiscal year 1990/91; (iv) 5% for fiscal year 1991/92; (v) 2% for fiscal year 1992/93; (vi) 3% for fiscal year 1993/94; (vii) 4% for fiscal year 1994/95; and (viii) 5% for fiscal year 1995/96. (b) For the purposes of this Section: (i) The annual return shall be calculated by dividing LWB's net operating income for the fiscal year in question by one-half of the sum of the current net value of LWB's fixed assets in operation at the beginning and at the end of that fiscal year. (ii) The term "net operating income" means total oper- ating revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including adminis- tration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 3% per annum of the average current gross value of LWB's fixed assets in operation, or other basis acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of LWB's fixed assets in operation shall be calculated as one- half of the sum of the gross value of LWB's fixed assets in operation at the beginning and at the end of the fiscal year, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Association. (vi) The term "current net value of LWB's fixed assets in operation" means the gross value of LWB's fixed assets in operation less the amount of accu- mulated depreciation, as valued from time to time in accordance with sound and consistently main- tained methods of valuation satisfactory to the Association. -6- Section 4.03. LWB shall, annually, revalue its fixed assets in accordance with sound and consistently applied methods of valuation acceptable to the Association. Section 4.04. (a) Except as the Association shall otherwise agree, LWB shall not incur any debt unless a reasonable forecast of the revenues and expenditures of LWB shows that the estimated net revenues of LWB for each fiscal year during the term of the debt to be incurred shall be at least 1.5 times the estimated debt service requirements of LWB in such year on all debt of LWB including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of LWB 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 revenues" means the difference between: (A) the sum of revenues from all sources related to operations adjusted to take account of LWB's rates in effect at the time of the incurrence of debt even though they were not in effect during the twelve-month period to which such revenues relate and net non-oper- ating income; and (B) the sum of all expenses related to operations including administration, adequate mainte- nance, taxes and payments in lieu of t'axes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (iv) The term "net non-operating income" means the difference between: -7- (A) revenues 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 revenues in (A) above. (v) The term "debt service requirements" means the aggregate of repayments (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 the cur- rency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servic- ing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. 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 LWB 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) the date 25 years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in para- graph (a) (ii) of this Section, the Association shall promptly notify LWB of this event. -8- Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE 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 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 Lilongwe Water Board: Lilongwe Water Board P. 0. Box 96 Lilongwe Malawi Telex: 4517 -9- Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of LWB may be taken or executed by the Engineer/Manager or such other person or persons as the Engineer/Manager shall designate in writing, and LWB shall fur- nish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all col- lectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 Regional Vice President Eastern and Southern Africa LILONGWE WATER BOARD By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. FOR SECRETARY