Conformed Copy - C1991 - Second Telecommunications Rehabilitation Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1991 UG (Second Telecommunications Rehabilitation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and UGANDA POSTS AND TELECOMMUNICATIONS CORPORATION Dated December 20, 1989 CREDIT NUMBER 1991 UG PROJECT AGREEMENT AGREEMENT, dated December 20, 1989, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and UGANDA POSTS AND TELECOMMUNICATIONS CORPORATION (UPTC). WHEREAS: (A) by the Development Credit Agreement of even date herewith between The Republic of Uganda (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirty- eight million three hundred thousand Special Drawing Rights (SDR 38,300,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that UPTC 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 UPTC, the proceeds of the Credit provided for under the Development Credit Agreement will be made available to UPTC on the terms and conditions set forth in the Subsidiary Page 2 Loan Agreement; and WHEREAS UPTC, 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, the Preamble to this 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) UPTC declares its commitment to the objec- tives 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 and efficiency, and in conformity with appro- priate administrative, financial, engineering, and telecommunica- tions 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 UPTC shall otherwise agree, UPTC 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. UPTC 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 to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement. Section 2.04. UPTC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, UPTC 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. (a) UPTC 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) UPTC 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 UPTC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of UPTC Section 3.01. UPTC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, Page 3 engineering and telecommunications practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. UPTC shall conduct a review of its organiza- tional structure and develop proposals aimed at reducing the workload of the Managing Director. Such proposals shall be reviewed with the Association and implemented by December 31, 1990. Section 3.03. UPTC 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 telecommunications practices. Section 3.04. UPTC shall take out and maintain with respon- sible 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. Section 3.05. UPTC shall continue to abide by its Policy Statement, as may be amended from time to time, after consultation with the Association. Section 3.06. UPTC shall: (a) on an annual basis, review and make appropriate adjustments to its staff remuneration policy to ensure that UPTC's package of staff compensation is maintained at a level which shall be competitive with that of the private sector and the public enterprises sector in Uganda; and (b) by June 30, 1990, design and implement a suitable staff incentive program. Section 3.07. UPTC shall take the necessary measures to ensure that, by June 30, 1990, monthly bills for telephone and telex services are issued to subscribers no later than fifteen (15) days after the end of the month in which services were rendered. ARTICLE IV Financial Covenants Section 4.01. (a) UPTC shall maintain records and accounts adequate to reflect, in accordance with sound accounting practices, its operations and financial condition. (b) UPTC 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 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 (6) 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 Page 4 (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. Section 4.02. UPTC shall ensure that: (a) investments to be made in each year of Project implemen- tation are consistent with, and within the limits of expenditures established in, the Investment Program; and (b) it consults with the Association on any proposals for investments estimated to cost more than ten percent (10%) of the amount established in the Investment Program for any one year. Section 4.03. (a) Except as the Borrower and the Association shall otherwise agree, UPTC shall earn, for each of its fiscal years after its fiscal year ending on June 30, 1990, an annual return of not less than twelve percent (12%) of the average current net value of UPTC's fixed assets in operation. (b) Before January 1, in each of its fiscal years, UPTC shall, on the basis of forecasts prepared by UPTC and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) of this Section, in respect of such year and the next following fiscal year, and shall furnish to the Association the results of such review upon its completion. (c) If any such review shows that UPTC would not meet the requirements set forth in paragraph (a) above for UPTC's fiscal years covered by such review, UPTC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its tariffs) in order to meet such requirements. (d) For purposes of this Section: (i) The annual return shall be calculated by dividing UPTC's net telecommunications operating income for the fiscal year in question by one-half of the sum of the current net value of UPTC's telecommunica- tions fixed assets in operation at the beginning and the end of that fiscal year. (ii) The term "net operating income" means total operating revenues accruing from UPTC's telecommu- nications services, less total operating expenses related to UPTC's telecommunications services. (iii) The term "total operating revenues" means revenues from all sources related to telecommunications operations. (iv) The term "total operating expenses" means all expenses related to telecommunications operations, including administration, 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 four percent (4%) per annum of the average current gross value of UPTC's fixed assets used for telecommunications services in operation, or other basis, acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of UPTC's telecom- munications fixed assets in operation shall be calculated as one-half of the sum of the gross value of UPTC's fixed assets in operation at the beginning and the end of the fiscal year, as valued from time to time, in accordance with sound and consistently maintained methods of valuation, Page 5 satisfactory to the Association. (vi) The term "current net value of UPTC's fixed assets in operation" means the gross value of UPTC's fixed assets in operation used by UPTC for telecommunica- tions services, less the amount of accumulated depreciation, as valued from time to time in accor- dance with sound and consistently maintained methods of valuation, satisfactory to the Associa- tion. Section 4.04. UPTC shall, from time to time take, or cause to be taken, all such measures (including without limitation, adjust- ments of the structure or levels of its tariffs charged for its services) as shall be required to produce funds from internal sources adequate to cover UPTC's estimated local currency require- ments for the implementation of its Investment Program. Section 4.05. (a) UPTC shall, semiannually, beginning January 1, 1990, and thereafter on July 1 and January 1 of each year of Project implementation, review the adequacy of UPTC's tariff levels, to meet the requirements set forth in Sec- tions 4.03 (a) and 4.04 of this Agreement, on the basis of financial forecasts prepared by UPTC, satisfactory to the Association. UPTC shall furnish copies of such reviews to the Borrower and the Association. (b) UPTC shall take all the necessary steps to ensure that, within three months of the review date, such adjustments in tariff levels shall be made as required, based on the findings of the review. (c) UPTC shall adopt a formula, satisfactory to the Associa- tion, to enable UPTC to make automatic interim adjustments to its tariff levels, to promptly cover sudden increases in its operating costs. Section 4.06. UPTC shall, by December 31, 1990, undertake a study, with terms of reference satisfactory to the Association, to evaluate the adequacy of UPTC's current tariff levels and struc- ture, and recommend any appropriate changes. 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 UPTC hereunder, 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 fifteen (15) years after the date of this Agreement. (b) If the Development Credit Agreement terminates, in accordance with its terms, before the date specified in subpara- graph (a) (ii) of this Section, the Association shall promptly notify UPTC 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 Page 6 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, 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 desig- nated 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 UPTC: Uganda Posts and Telecommunications Corporation P.O. Box 7171 Kampala Uganda Cable address: Telex: POSTEL 61027 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 UPTC or by UPTC on behalf of the Borrower, under the Development Credit Agreement, may be taken or executed by its Managing Director or such other person or persons as UPTC shall designate in writing. UPTC 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, collec- tively, 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/ Callisto E. Madavo Acting Regional Vice President Africa UGANDA POSTS AND TELECOMMUNICATIONS CORPORATION Page 7 By /s/ Pascal Mukasa Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding: 1. 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). 2. To the extent practicable, contracts for the procurement of tools, minicomputers and miscellaneous materials shall be grouped in bid packages estimated to cost the equivalent of $100,000 or more each. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Uganda 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.1 hereof, UPTC may grant a margin of pre- ference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures: 1. Tools, minicomputers and miscellaneous materials, which cannot be grouped in bid packages, may be procured under contracts awarded through limited international bidding procedures on the basis of evaluation and comparison of bids invited from a list of at least three qualified suppliers eligible under the Guidelines and in accordance with the procedures set forth in Sections I and II of the Guidelines (excluding paragraphs 2.8, 2.9, 2.55 and 2.56 thereof). 2. Spare parts for switching and transmission, which are proprietary in character and obtainable only from specified manu- facturers, may be procured through negotiated contracts. Part E: Review by the Association of Procurement Decisions: 1. Review of invitations to bid, proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of $100,000 or more, the procedures set forth in para- graphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of each such contract, required to be furnished to the Association pursuant to paragraph 2 (d) of Appendix 1 to the Guidelines, shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of each such contract. (b) With respect to each contract not governed by the Page 8 preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of each such contract, together with the other information required to be furnished to the Association pursuant to para- graph 3 of Appendix 1 to the Guidelines 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 Associa- tion 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 (a) (ii) of the Develop- ment Credit Agreement. 2. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist UPTC in carrying out Part A and Part B of the Project, UPTC shall employ experts and consultants whose qualifications, experience, and terms 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 Project Implementation: 1. The implementation of the Project shall be carried out by the management of UPTC, with the assistance of consultants and contractors. Responsibility for day-to-day follow-up of Project preparation and implementation, as well as liaison with consul- tants and contractors involved in Project implementation, shall be vested in a Project Coordinator selected from among the senior staff of UPTC. 2. UPTC shall adhere to the performance indicators set forth in the annex to this Schedule for each year of Project implementa- tion. Upon the completion of each year, UPTC shall furnish to the Association a report comparing the actual performance with projec- tions in the agreed indicators and thereafter shall adopt such targets, monitoring and other corrective actions for the subsequent years as may be necessary to ensure timely and satisfactory implementation of the Project. Part A of the Project Engineering Consultants appointed by UPTC to prepare design and bidding documents for the local network rehabilitation shall continue to assist UPTC in bid evaluation, and the subsequent supervision and commissioning. Part B of the Project: 1. With the assistance of consultants, UPTC shall, by December 31, 1990, carry out an assessment of its staffing needs, including a determination of staffing gaps and redundancies. UPTC shall, with the exception of some critical vacant positions, refrain from hiring staff to fill middle- and low-level vacancies until the results of such assessment are evaluated and adopted. 2. UPTC shall promptly prepare and furnish to the Association an Page 9 institutional development program, including an action plan for its implementation, which shall be consistent with the UPTC Act and the Policy Statement, satisfactory to the Association. 3. UPTC shall prepare a detailed training program, satisfactory to the Association, to be completed by December 31, 1990. 4. UPTC shall take all necessary steps to complete, by September 30, 1990, a twinning arrangement including provision of technical assistance, with a suitable telecommunications agency, satisfactory to the Association, for in-service training and exchange of professional knowledge and experience. 5. UPTC shall ensure that the positions of Finance Director, Chief Accountant, Financial Accountant, Management Accountant, and Systems and Procedure/Data Processing Manager shall be filled by June 30, 1990, and thereafter remain filled throughout the implementation of the Project with suitably qualified and experienced staff. 6. UPTC shall: (a) engage a reputable international accounting firm to: (i) review existing financial, accounting, plan- ning and control procedures, and management information systems; (ii) recommend modifications based on UPTC's existing and future needs; and (iii) provide assistance in the implementation of recommended changes; and (b) recruit a financial and Expenditure Accountant and a Management Accountant for its Finance and Accounting Department. 7. UPTC shall take appropriate measures to ensure that, by June 30, 1990, the level of UPTC's accounts receivable, from all subscribers, including the Borrower's ministries, public enter- prises and private subscribers for telecommunications services rendered by UPTC, is reduced to no more than the equivalent of ninety (90) days of UPTC's sale revenues, in accordance with an action plan, satisfactory to the Association. ANNEX Performance Indicators A set of indicators which would assist in the monitoring of UPTC's performance during the Project period has been established. UPTC will be asked to report on the actual as well as on the projected achievement related to the performance indicators. 1989 1990 1991 1992 1993 Telephone lines 1,800 2,900 4,400 4,600 5,000 connected Telex lines 60 60 480 240 50 connected Telecommunications 58 56 53 50 48 staff per 1,000 DELs Maintenance targets (speed of fault- clearance) Page 10 % of faults cleared n.a. 20 25 50 60 within 24 hours % of faults cleared n.a. 20 20 30 25 within 24 to 72 hours % of faults cleared n.a. 60 55 20 15 after 72 hours Average call com- 30 40 50 55 60 pletion rates Local calls % 1989 1990 1991 1992 1993 Weeks of billing delay at year end: Telephone 6 4 2 2 2 Telex 6 4 2 2 2 Rate of return on 12.8% 14.1% 12.2% 12.1% 12.9% net revalued assets Receivables out- 114% 106% 76% 50% 28% standing as % of annual revenues Annual Investment 11.2 23.1 22.0 21.7 25.0 ($ million)