Conformed Copy - C1818 - Power Sector Rehabilitation Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1818 BO (Power Sector Rehabilitation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and EMPRESA NACIONAL DE ELECTRICIDAD, S.A. Dated July 31, 1987 CREDIT NUMBER 1818 BO PROJECT AGREEMENT AGREEMENT, dated July 31, 1987 between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and EMPRESA NACIONAL DE ELECTRICIDAD, S.A. (ENDE). WHEREAS (A) by the Development Credit Agreement of even date herewith between REPUBLIC OF BOLIVIA (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to five million three hundred thousand Special Drawing Rights (SDR 5,300,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that ENDE agrees 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 ENDE, the proceeds of the credit provided for under the Development Credit Agreement will be made available to ENDE on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS ENDE, 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: Page 2 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 meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) ENDE 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 the Project with due diligence, efficiency and in conformity with appropriate administrative, financial, engineering and power 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 Association and ENDE shall otherwise agree, ENDE shall carry out the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. 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 1 to this Agreement. Section 2.03. ENDE shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of the Project Agreement. Section 2.04. ENDE shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ENDE shall not change or fail to enforce any provision of the Subsidiary Loan Agreement. Section 2.05. Without limitation upon the provisions of Section 9.06 of the General Conditions, ENDE shall: (a) 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, under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit; and (b) 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 ENDE of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. ENDE shall: (a) by no later than October 31, 1987, furnish to the Association a proposed program, acceptable to the Association, for the transfer of its generation facilities with a capacity under five megawatts to the Distribution Companies; and (b) carry out such transfer program by March 31, 1988. Section 2.07. ENDE shall: (a) under terms of reference satisfactory to the Association, commence by not later than October 31, 1987, an asset revaluation study; (b) promptly upon completion of the study, furnish to the Association and DINE for its review and comment, the results of such study and propose a preliminary methodology for asset revaluation; (c) taking into consideration the results of the study and the comments of the Association and DINE propose, by not later than June 30, 1988, a final methodology for asset revaluation acceptable to the Association; and (d) promptly thereafter adopt the methodology acceptable to the Association and begin revaluation of assets for purposes of its annual financial statements utilizing such methodology. Section 2.08. ENDE shall: (a) by May 31, 1988 prepare and submit to the Association and the Borrower for their review and comment, a preliminary Power Expansion Master Plan, under terms of reference satisfactory to the Association and taking into account the results of the Energy Assessment, to define least-cost investments to expand the power sector through the year 2010; (b) by September 30, 1988 and taking into account the comments of the Borrower and the Association, prepare Page 3 a final Power Expansion Master Plan, acceptable to the Association, and the Borrower; and (c) unless otherwise agreed by the Association, ensure that all investments in the power sector made or supervised by ENDE, shall be made in accordance with the final Power Expansion Master Plan as the same may be revised from time to time in a manner acceptable to the Association. Section 2.09. ENDE shall: (a) under terms of reference satisfactory to the Association, commence by not later than October 31, 1987 a study to develop an Integrated Management Information System; (b) by not later than June 30, 1988, prepare and submit to the Association for its review and comment, a proposal for an Integrated Management Information System; (c) by not later than October 31, 1988, taking into account the comments of the Association, prepare a final Integrated Management Information System, acceptable to the Association; and (d) implement such System beginning in fiscal year 1989. Section 2.10. ENDE: (a) shall establish and maintain, through completion of the Project, a Project Unit with a membership composition acceptable to the Association, headed by a Project Manager, acceptable to the Association, for purposes of coordinating, monitoring and evaluating the implementation of the Project; and (b) except as the Association shall otherwise agree, shall not make changes affecting the Project Unit or the Project Manager. Section 2.11. ENDE shall pass, and promptly thereafter implement, a resolution of its Board of Directors which shall establish ENDE's responsibility to: (i) construct generation plants, approved by DINE, with a capacity of over one megawatt but less than five megawatts; (ii) construct and operate all generation plants with a capacity of over five megawatts; and (iii) construct and operate the national transmission system and the energy dispatch center; and except as the Association shall otherwise agree, ENDE shall not change or fail to enforce to provisions of such resolution. ARTICLE III Management and Operations of ENDE Section 3.01. ENDE shall carry on its operations and conduct its affairs in accordance with sound public utility, administrative, financial, and management practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. ENDE 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 power utility practices. Section 3.03. ENDE shall take out and maintain with responsible insurers, or make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. Without limitation to the provisions of Section 3.02 of this Agreement, ENDE shall, under arrangements satisfactory to the Association, cause the dams and related structures it owns, to be periodically inspected in accordance with sound engineering practices, in order to determine whether there are any deficiencies in the condition of such structures, or in the quality and adequacy of maintenance of the same, which may endanger their safety. To this end, ENDE shall propose to the Association arrangements, acceptable to the Association, for periodic review and maintenance of its dams and related structures. ARTICLE IV Financial Covenants Section 4.01. (a) ENDE shall maintain records and accounts adequate to reflect, in accordance with sound accounting practices, its operations and financial condition, including separate records and accounts adequate to reflect all resources and expenditures in respect of the Project. (b) ENDE shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate Page 4 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 four 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 said records, accounts and financial statements as well as the audit thereof, 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 expenditure, ENDE shall: (i) maintain, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until one year after the Association has received the audit report for the fiscal year in which the last disbursement 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 proceeds of the Loan withdrawn in respect of such expenditures, including the statements of expenditure submitted during such fiscal year, were used for the purposes for which they were provided, as well as whether the procedures and internal controls involved in their preparation can be relied upon to support the related withdrawals. Section 4.02. (a) Except as the Association shall otherwise agree, ENDE shall earn: (i) for the fiscal year ending in 1988, an annual rate of return of not less than 2% of the average current net value of ENDE's rate base; (ii) for the fiscal year ending in 1989, an annual rate of return of not less than 4% of the average current net value of ENDE's rate base; (iii) for the fiscal year ending in 1990, an annual return of not less than 7% of the average current net value of ENDE's rate base; and (iv) for each of its fiscal years after its fiscal year ending in 1990, the annual rate of return established in Article 122 of the Electricity Code. (b) Before September 1 in each of its fiscal years, ENDE shall, on the basis of forecasts prepared by ENDE and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next five fiscal years and shall furnish to the Association the results of such review upon its completion. (c) If any such review shows that ENDE would not meet the requirements set forth in paragraph (a) for ENDE's fiscal years covered by such review, ENDE shall promptly take all necessary measures (including, without limitation, requesting authorization from DINE to adjust its tariff and rates) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual rate of return shall be calculated by dividing ENDE's net operating income for the fiscal year in question by one-half of the sum of current net value of ENDE's rate base at the beginning and at the end of that fiscal year. (ii) The term "net operating income" means total operating revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all Page 5 sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes (excluding income tax) and payments in lieu of taxes, and provision for depreciation and amortization on a basis acceptable to the Association, but excluding interest and other charges on debt. (v) The term "current net value of ENDE's rate base" means the gross value of ENDE's rate base as determined by Article 119 of the Electricity Code (which includes, inter alia, ENDE's fixed assets in operation and working capital) less the amount of accumulated depreciation of fixed assets in operation, as revalued from time to time in accordance with sound and consistently maintained methods of revaluation, including those established as a result of the Asset Revaluation Study, satisfactory to the Association. Section 4.03. (a) Except as the Association shall otherwise agree, ENDE shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ENDE shows that the estimated net revenues of ENDE 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 ENDE in such year on all debt of ENDE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ENDE maturing by its terms more than one year after the date on which its 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 and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, 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: (A) revenues from all sources other than those related to operations; and (B) expenses, including taxes (excluding income tax) and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (v) The term "debt service requirements" means the Aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) The term "reasonable forecast" means a forecast prepared by ENDE not earlier than three months prior to the incurrence of the debt in question, which both the Association and ENDE accept as reasonable and as to which the Association has notified ENDE of its acceptability, provided that no event has occurred since such notification which has, or may reasonable be expected in the future to have, a material adverse effect on the financial condition or future operating results of ENDE. (vii) Whenever for the purposes of this Section it shall be necessary to Page 6 value, in terms of the currency 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 servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. Section 4.04. Unless otherwise agreed by the Association, ENDE shall: (i) refrain from declaring or paying any cash dividend on account of any of its shares, or repurchasing any of its shares, or making other payments or advances to government or government-owned shareholders; and (ii) refrain from making loans to Distribution Companies. 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 ENDE 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 twenty 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 ENDE 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 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 Empresa Nacional de Electricidad, S.A.: Empresa Nacional de Electricidad, S.A. Casilla 565 Cochabamba, Bolivia Cable address: Telex: ENELECTRIC 6251 Page 7 Cochabamba 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 ENDE, or by ENDE on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the General Manager of ENDE or such other person or persons as the General Manager of ENDE shall designate in writing, and ENDE shall furnish 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 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 DEVELOPMENT ASSOCIATION By /s/ S. Shahid Husain Regional Vice President Latin America and the Caribbean EMPRESA NACIONAL DE ELECTRICIDAD, S.A. By /s/ Fernando Illanes 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 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 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 Bolivia 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: Other Procurement Procedures Contracts for spare parts for which there is a sole source of supply, and for proprietary goods, may be purchased by direct contracting with the supplier or manufacturer, in accordance with procedures satisfactory to the Association. Part D: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods or works estimated to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. When 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 required to be furnished to the Association Page 8 pursuant to said paragraph 2 (d) shall be furnished to the Association 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 preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. When 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 Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 3 to the Development Credit Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Association has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (c) (ii) of this Agreement. 3. 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 ENDE in the carrying out of the Project, ENDE shall employ engineering, financial and management consultants whose qualifications, experience and terms of reference and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory 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. SCHEDULE 2 Implementation Program Unless otherwise agreed by the Association, the following program shall be followed during implementation of the Project: Issue of Bidding Award Implementation Activity Documents Contracts Start Finish 1. Spare Parts May 1987 Sept. 1987 Oct. 1987 June 1994 2. Substation Nov. 1987 June 1988 July 1988 Sept. 1990 Equipment and Materials 3. Transmission March 1988 Sept. 1988 Oct. 1988 Sept. 1990 Line, Equip- ment and Materials 4. Construction July 1988 March 1989 June 1989 June 1994 Works 5. Engineering Aug. 1987 Oct. 1987 Nov. 1987 June 1994 Consultants 6. Financial Aug. 1987 Oct. 1987 Nov. 1987 June 1992 Consultants 7. Managerial Aug. 1987 Oct. 1987 Nov. 1987 June 1992 Consultants