Conformed Copy - L2827 - Karnataka Power Project - Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2827 IN (Karnataka Power Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and STATE OF KARNATAKA Dated December 21, 1987 KARNATAKA AGREEMENT AGREEMENT, dated December 21, 1987, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and STATE OF KARNATAKA, acting by its Governor (Karnataka). WHEREAS (A) by the Loan Agreement of even date herewith between India, acting by its President (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to three hundred thirty million dollars ($330,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Karnataka agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) Parts A and B of the Project will be carried out by the Karnataka Power Corporation Limited (the Corporation) and the Karnataka Electricity Board (the Board), respectively, with the Borrower's assistance and, as part of such assistance, part of the proceeds of the Loan provided for under the Loan Agreement will be made available to Karnataka by the Borrower for relending to the Corporation and the Board; and WHEREAS Karnataka, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake Page 2 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 Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) Karnataka declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall cause the Board to carry out Part B of the Project with due diligence and efficiency and 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. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and Karnataka shall other- wise agree, Karnataka shall cause Part B of the Project to be carried out in accordance with the Implementation Procedures set forth in Schedule 2 to this Agreement. (c) Without any limitation or restriction upon any of its other obligations under this Agreement, Karnataka shall cause the Corporation to perform in accordance with the provisions of the Project Agreement all the obligations of the Corporation therein set forth, shall take or cause to be taken all actions, including the provision of funds, facilities, services, and other resources, necessary or appropriate to enable the Corporation to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. Section 2.02. (a) Karnataka shall relend an amount equivalent to $197,000,000 to the Corporation out of the proceeds of the Loan made available by the Borrower to Karnataka, under a subsidiary loan agreement to be entered into between Karnataka and the Corpo- ration under terms and conditions which shall have been approved by the Bank which shall, except as the Bank may otherwise agree, include interest at a rate of not less than 10.75% per annum on the principal amount so relent and withdrawn by the Corporation and outstanding from time to time, and repayment over a period of twenty years, including therein a period of grace of five years. (b) Karnataka shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of Karnataka and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, Karnataka shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. (c) Karnataka shall relend an amount equivalent to $132,000,000 to the Board out of the proceeds of the Loan made available by the Borrower to Karnataka under terms and conditions which shall have been approved by the Bank, which shall, except as the Bank may otherwise agree, include interest at a rate of not less than 10.75% per annum on the principal amount so relent and withdrawn by the Board and outstanding from time to time, and repayment over a period of twenty years, including therein a period of grace of five years. Section 2.03. Except as the Bank shall otherwise agree, pro- curement of the goods, works and consultants' services required Page 3 for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. Karnataka shall carry out or caused to be carried out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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 Karnataka Agreement and Part B of the Project. Section 2.05. Karnataka shall duly perform all its obliga- tions under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, Karnataka 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 provi- sion thereof. Section 2.06. (a) Karnataka shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement, and other matters relating to the purposes of the Loan. (b) Karnataka shall promptly inform the Bank of any condi- tion which interferes or threatens to interfere with the progress of Part B of the Project, the accomplishment of the purposes of Loan, or the performance by Karnataka of its obligations under this Agreement. Section 2.07. Karnataka shall implement or cause to be imple- mented the Rehabilitation and Resettlement Plan in accordance with the principles and objectives and institutional arrangements agreed with the Bank. ARTICLE III Management and Operations of the Board Section 3.01. Karnataka shall cause the Board to: (i) carry on its operations and conduct its affairs in accordance with sound administrative, financial engineering and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers; (ii) 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; and (iii) take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appro- priate practice. ARTICLE IV Financial Covenants Section 4.01. Karnataka shall cause the Board to: (a) maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition; (b) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each financial year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (c) commencing financial year 1987/88, furnish to the Bank as soon as available, but in any case not later than nine months after the end of each such year, (i) certified copies of its Page 4 financial statements for such year as so audited and (ii) the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (d) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. Notwithstanding the foregoing provisions of Section 4.01 of this Agreement, Karnataka shall cause the Board to furnish the audited accounts, together with the auditor's report, to the Bank, in respect of the Board's accounts for financial years 1985/86 and 1986/87, by December 31, 1987. Section 4.03. (a) Karnataka shall cause the Board to take from time to time all such measures as may be necessary including, if necessary, adjustment of tariffs of the Board to ensure that the total revenues in any financial year shall, after meeting: (i) all expenses properly chargeable to revenues, including operating maintenance and management expenses; (ii) taxes on income and profits; (iii) depreciation; and (iv) interest payable on all debentures, bonds and loans; produce such surplus as is not less than 3% of the net fixed assets of the Board in service at the beginning of such year. (b) For the purposes of this Section: (i) "total revenues" means revenues of the Board from the sale of electricity and other services, miscel- laneous income, rural electrification subsidies received from Karnataka, state electricity duties received, and such other subventions as shall be made in respect of extraordinary costs which are borne by the Board and which should not reasonably be borne by customers of the Board; (ii) "expenses" means the cost of power purchased, fuel, operating, maintenance, management and administra- tive expenses, and all taxes and duties accruing during the financial year, other than taxes on income and profits of the Board; (iii) "taxes on income and profits" consists of income taxes and other levies accrued by the Board accord- ing to the provisions of any legislation or regula- tion applicable in this respect; (iv) "depreciation" means a provision derived in accord- ance with the straight-line method based on the useful life of assets as stipulated in the Bor- rower's notification G.S.R. 244(E)-F No. 25(9)82- D(SEB) dated March 31, 1985, issued under the pro- visions of Section 68 of the Electricity (Supply) Act 1948, of the Borrower, based on the gross value of the Board's fixed assets in service at the begin- ning of each year; (v) "interest payable on all debentures, bonds and loans" means all interest, excluding interest during construction, accrued by the Board during the financial year and all other charges on debt; and (vi) "net fixed assets of the Board in service" means: (A) the original cost of such fixed assets, as reduced by the aggregate of the cumulative depreciation in respect of such assets, less, and (B) consumers' contribution for service lines, also reduced by the aggregate of the cumulative depreciation in respect of such portion of the service lines as has been financed by consumer Page 5 contributions. 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 Loan Agreement becomes effective. Section 5.O2. This Agreement and all obligations of the Bank and of Karnataka thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Karnataka thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation 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 Bank: International Bank for Reconstruction and Development 1818 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) For Karnataka: Secretary to the Government of Karnataka Department of Power Bangalore Karnataka, India Cable address: Telex: POWER 953-845239 Bangalore 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 Karnataka may be taken or executed by a Secretary to the Government of Karnataka or such other person or persons as Karnataka shall designate in writing, and Karnataka shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Page 6 Section 6.03. 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 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ B. Alisbah Acting Regional Vice President Asia STATE OF KARNATAKA By /s/ N. Misra Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part D 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 IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in India 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 thereto. Part C: Preference for Domestic Contractors In the procurement of works in accordance with the procedures described in Part A hereof, a margin of preference to domestic contractors may be granted in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and para- graph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. All contracts for civil works and equipment for resettlement and afforestation, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank. 2. All contracts for survey and computing facilities estimated to cost less than the equivalent of $750,000 in the aggregate may be procured under contracts awarded on the basis of comparison of Page 7 price quotations solicited from a list of at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. Part E: Procurement without Contracting Works for land clearance, land development, soil conservation and afforestation may procured through force account. Part F: 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 civil works and equip- ment estimated to cost the equivalent of $5,000,000 and $1,000,000 or more, respectively, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank prior to the making of the first payment out of the Special Account in respect of such contract. (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. Where payments for such contract are to be made out of the Special Account, said procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to this Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.02 (a) (ii) of the Loan Agreement. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist the Corporation, the Board and the Authority in carrying out the Project, consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank shall be employed. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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. SCHEDULE 2 Implementation Procedures 1. Karnataka undertakes that all loans made or to be made to the Corporation and the Board after April 1, 1987 shall include repay- ment terms of 20 years, including therein a grace period of 5 years. 2. Karnataka shall cause the Board to: (a) clear the Board's arrears due to the Corporation as of March 31, 1987 in accordance with an action program paralleling Page 8 the reduction in the Board's accounts receivable; (b) open a revolving letter of credit beginning October 1, 1987 in favor of the Corporation for an amount equivalent to one month's estimated purchases by the Board from the Corporation; and (c) clear any sums owed by the Board to the Corporation for sales after April 1, 1987 and not covered by the letter of credit referred to in (b) above, within 30 days of the date of the invoice. 3. Karnataka shall cause the Board to furnish to the Bank by December 31 each year a report of the Board's forecast of opera- tional and financial performance for the ensuing financial year specifying the actions that will be taken to ensure fulfillment of the requirements of Section 4.03 of this Agreement. 4. Karnataka shall cause the Board to: (a) clear its accounts receivable as of March 31, 1987, from its principal debtors by April 1, 1990 in accordance with a monitorable action program satisfactory to the Bank; and (b) maintain its accounts receivable with respect to sales after March 31, 1987, at no more than the equivalent of the preceding two months' sales. 5. Karnataka shall cause the Board, by March 31, 1989 to: (i) provide meters for all connections (except for agricultural consumers with irrigation pumps of 10 H.P. or less); and (ii) reduce and maintain thereafter, the number of faulty meters to 1 1/2% of the total number of metered connections, in accordance with a monitorable action program satisfactory to the Bank. 6. Karnataka shall cause the Board to: (a) write off the book value of the Hirebhaskar Dam and the outstanding amounts in the Stock Incidental Account in its accounts for 1985/86; and (b) by March 31, 1988, clear, by properly capitalizing or expensing, the outstanding amounts in its Inter-Unit Account.