Conformed Copy - C2267 - Railways Restructuring Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2267 TA (Railways Restructuring Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and TANZANIA RAILWAYS CORPORATION Dated September 3, 1991 CREDIT NUMBER 2267 TA PROJECT AGREEMENT AGREEMENT, dated September 3, 1991, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and TANZANIA RAILWAYS CORPORATION (TRC). WHEREAS (A) by the Development Credit Agreement of even date herewith between United Republic of Tanzania (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to fifty-six million one hundred thousand Special Drawing Rights (SDR 56,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that TRC 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 TRC, the proceeds of the credit provided for under the Development Credit Agreement will be relent to TRC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS TRC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed Page 2 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 meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) TRC 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 appropriate administrative, financial, engineering and railway practices, and the provisions of the Ministerial Directive and MOU 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 TRC shall other- wise agree, TRC 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. TRC shall carry out the obligations set forth in Sections 9.03 through 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisi- tion, respectively) in respect of the Project Agreement. Section 2.04. TRC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, TRC 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) TRC shall, 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 and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) TRC shall 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 TRC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of TRC Section 3.01. TRC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and railway practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. TRC 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 Page 3 thereof, all in accordance with sound engineering, financial and railway practices. Section 3.03. TRC 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. ARTICLE IV Financial Covenants Section 4.01. (a) TRC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) TRC 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 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. Section 4.02. (a) Except as the Association shall otherwise agree, TRC shall earn a return of not less than 15% on its total capital employed in the previous Fiscal Year for its Fiscal Years 1992, 1993 and 1994. For each Fiscal Year thereafter, TRC shall earn a return of not less than 20% on its total capital employed in the previous fiscal year. (b) Before March 31 in each of its Fiscal Years, TRC shall, on the basis of forecasts prepared by TRC and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) in respect of such Fiscal 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 TRC would not meet the requirements set forth in paragraph (a) for TRC's Fiscal Year covered by such review, TRC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing TRC's net operating income for the Fiscal Year in question by the amount of TRC's total capital employed at the end of the previous 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 sources related to operations. Page 4 (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, other than taxes on income, and provision for depreciation consistent with TRC's current accounting policies, but excluding interest and other charges on debt and amortization of foreign exchanges losses. (v) The term "total capital employed" means the sum of the value of all outstanding TRC's loans, bank overdrafts and the value of TRC's capital account at the end of the Fiscal Year prior to the fiscal year in question. (vi) The term "capital account" means the sum of loan principal capitalized, interest on capital outlay, excess of loan and sinking fund repayments over depreciation, losses or profits arising from disposal of assets, deficits charged against capital, currency losses charged to capital in accordance with TRC's accounting policy, and any other financing contribution to TRC by the Borrower other than in the form of debt. Section 4.03. TRC shall, until completion of the Project, not undertake any investments beyond those included in its Investment Plan estimated to cost in the aggregate in any given fiscal year, more than the equivalent of two million dollars ($2,000,000), without the prior consultation with 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 TRC 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 20 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 TRC 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 Page 5 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For TRC: Tanzania Railways Corporation P.O. Box 468 Dar es Salaam Tanzania Cable address: Telex: RAILWAYS 41308 Dar es Salaam 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 TRC, or by TRC on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by Director General or such other person or persons as Director General shall designate in writing, and TRC 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/ Stephen Denning Acting Regional Vice President Africa TANZANIA RAILWAYS CORPORATION By /s/ Charles Nyirabu Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Page 6 Section I: Procurement of Goods and Works Part A: International Competitive Bidding 1. 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 sleepers and fasteners shall be grouped into bid packages. 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 Tanzania 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, TRC may grant a margin of preference 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: 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 estimated to cost the equivalent of $400,000 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 required to be furnished to the Association 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. 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 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 4 to the Development Credit Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which the Association has authorized withdrawals on the basis of statements of expenditure. 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 TRC in carrying out the Project, TRC shall employ 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. Page 7 SCHEDULE 2 Implementation Program 1. TRC shall establish a special office to plan, coordinate and monitor rehabilitation and other physical investment tasks under the Project, and which shall assist TRC to establish scheduling and monitoring systems, procedures for selecting contractors and provide on the job training to selected TRC staff. 2. TRC shall implement its Operations Improvement Plan, in a manner satisfactory to the Association, in three phases as follows: (a) Phase 1 shall include elimination of congestion in yards, improvement of wagon availability and improvement in utilization of operating assets. (b) Phase 2 shall comprise actions to consolidate gains in Phase 1, including studies to review maintenance and train operation practices and recommendations on specific changes and improvements to such operations. (c) Phase 3 shall focus on improvements in the planning and control of maintenance activities. 3. TRC shall, by December 31, 1992, have: (a) leased out its hotels and franchised the catering services on its trains; and (b) completed the transfer of operational, managerial and financial responsibility for its roads services to an independent operator. 4. TRC shall annually review with the Association: (i) the rehabilitation program for locomotives to ensure that it conforms to traffic prospects; (ii) the management development program and implement changes resulting from such review; and (iii) the program for supervisory level staff development and support and implement changes resulting from such review. 5. TRC shall: (a) review annually by October 31 with the Association, the adequacy of the amounts allocated in its Investment Plan for the Fiscal Years included in such Plan, ensuring that all items included in such plan are subject to a prior economic and financial evaluation; and (b) make revisions in the amounts allocated in such Plan for any fiscal year and for subsequent years, if necessary, having due regard to revisions agreed during the review referred to in paragraph (a) of this Section. 6. TRC shall: (a) annually by not later than November 30, furnish to the Association for its review and comments, a plan for scrapping of wagons for the following Fiscal Year; and (b) implement such plan during the following Fiscal Year, taking into account the Association's comments. 7. TRC shall contract out the operation and management of the quarry to be established under Part A.2 of the Project. 8. TRC shall: (a) maintain its accounts receivable at a level no greater than 45 days of annual revenues until completion of the Project; and (b) semi-annually furnish to the Association an aged- analysis of its accounts receivable. 9. TRC shall, by January 31, 1992, prepare a plan of action satisfactory to the Association for the commercial use of its land. 10. TRC shall, by January 31, 1992, introduce its new corporation- wide incentives scheme and salary structure. 11. TRC shall, by December 31, 1993, carry out with the Borrower and the Association a mid-term review of Project implementation. Prior to such review TRC shall prepare a report highlighting, inter Page 8 alia, compliance with operating performance targets, financial targets, implementation of the provisions of the MOU, physical Project implementation and institutional development. Promptly thereafter TRC shall implement the recommendations of the review. 12. TRC shall by January 31, 1992, prepare and commence implementation of a staff reduction plan satisfactory to the Association. 13. TRC shall by January 31, 1992, prepare and furnish to the Association for its review its training plan and strategy.c