Conformed Copy - L3865 - Hydropower Rehabilitation and System Control Project - Project Agreement 1

Page 1 CONFORMED COPY LOAN NUMBER 3865 UA DHE Project Agreement (Hydropower Rehabilitation and System Control Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and OJSC DNIPROHYDROENERGO Dated September 28, 1995 LOAN NUMBER 3865 UA DHE PROJECT AGREEMENT AGREEMENT, dated September 28, 1995, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and OJSC DNIPROHYDROENERGO (DHE). WHEREAS (A) by the Loan Agreement of even date herewith between Ukraine (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred fourteen million dollars ($114,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that DHE agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and DHE, a portion of the proceeds of the loan provided for under the Loan Agreement will be relent to DHE on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS DHE, in consideration of the Bank's entering into the Loan 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 Page 2 Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of Part A of the Project Section 2.01. (a) DHE declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part A of the Project with due diligence and efficiency and in accordance with environmental standards acceptable to the Bank and in conformity with appropriate administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part A of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and DHE shall otherwise agree, DHE shall carry out Part A of the Project in accordance with the Implementation Program set forth in the Schedule to this Agreement. Section 2.02. (a) Except as the Bank shall otherwise agree, procurement of the goods and services required for Part A of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. (b) In order to facilitate the efficient carrying out of the Project, including the timely procurement of the goods to be financed out of the proceeds of the Loan, DHE shall, by November 30, 1995 complete all contracting arrangements, satisfactory to the Bank, for the rehabilitation of turbines and generators under Part A (1) of the Project. Section 2.03. (a) DHE shall carry 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 DHE Project Agreement and Part A of the Project. (b) DHE shall: (i) prepare and furnish to the Bank not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between DHE and the Bank, a plan, prepared on the basis satisfactory to the Bank, for the future operation of Part A of the Project; (ii) afford the Bank a reasonable opportunity to exchange views with DHE on said plan; and (iii) thereafter, carry out said plan with due diligence and efficiency and in accordance with appropriate practices, taking into account the Bank's comments thereon. Section 2.04. DHE shall duly perform all its obligations under the DHE Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, DHE shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the DHE Subsidiary Loan Agreement or any provision thereof. Page 3 Section 2.05. (a) DHE shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the DHE Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) DHE shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Loan, or the performance by DHE of its obligations under this Agreement and under the DHE Subsidiary Loan Agreement. ARTICLE III Management and Operations of DHE Section 3.01. DHE shall carry on its operations and conduct its affairs in accordance with the DHE Operational Plan and with sound administrative, financial and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. DHE 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 administrative, financial and engineering practices. Section 3.03. DHE shall 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 appropriate practice. ARTICLE IV Financial and Other Covenants Section 4.01. (a) DHE shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) DHE 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 Bank; (ii) furnish to the Bank 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 Bank shall have reasonably requested; and (iii) 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. (a) Except as the Bank shall otherwise agree, DHE shall not incur any debt unless a reasonable forecast of the revenues and expenditures of DHE shows that the estimated net revenues of DHE 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 DHE in such year on all Page 4 debt of DHE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of DHE 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 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 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) The term "reasonable forecast" means a forecast prepared by DHE not earlier than twelve months prior to the incurrence of the debt in question, which both the Bank and DHE accept as reasonable and as to which the Bank has notified DHE of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of DHE. (vii) Whenever for the purposes of this Section it shall be necessary to 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 Bank. Section 4.03. (a) Except as the Bank shall otherwise agree, DHE shall produce, for each of its fiscal years after Page 5 its fiscal year ending on December 31, 1995, funds from internal sources equivalent to not less than 40% of the annual average of DHE's capital expenditures incurred, or expected to be incurred, for that year, the previous fiscal year and the next following fiscal year. (b) Before October 31 in each of its fiscal years, DHE shall, on the basis of forecasts prepared by DHE and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next following fiscal year and shall furnish to the Bank a copy of such review upon its completion. (c) If any such review shows that DHE would not meet the requirements set forth in paragraph (a) for DHE's fiscal years covered by such review, DHE shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its prices) in order to meet such requirements. (d) For the purposes of this Section: (i) The term "funds from internal sources" means the difference between: (A) the sum of revenues from all sources related to operations, consumer deposits and consumer contributions in aid of construction, net non-operating income and any reduction in working capital other than cash; and (B) the sum of all expenses related to operations, including administration, adequate maintenance and taxes and payments in lieu of taxes (excluding provision for depreciation and other non- cash operating charges), debt service requirements all cash dividends and other cash distributions of surplus, increase in working capital other than cash and other cash outflows other than capital expenditures. (ii) 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 and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (iii) The term "working capital other than cash" means the difference between current assets excluding cash and current liabilities at the end of each fiscal year. (iv) The term "current assets excluding cash" means all assets other than cash which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inventories and prepaid expenses properly chargeable to operating expenses within the next fiscal year. (v) The term "current liabilities" means all liabilities which will become due and payable or could under circumstances then existing be Page 6 called for payment within twelve months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. (vi) 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. (vii) The term "capital expenditures" means all expenditures incurred on account of fixed assets, including interest charged to construction, related to operations. (viii) Whenever for the purposes of this Section it shall be necessary to 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 Bank. Section 4.04. DHE shall maintain with NDC, in accordance with NDC's undertaking pursuant to Section 4.04 of the NDC Project Agreement, a contract, satisfactory to the Bank, for the long term sale of electricity by DHE to NDC, providing, inter alia, for: (a) the establishment by DHE of the price of electricity sold to NDC in accordance with a suitable tariff formula which would allow DHE (i) under conditions of efficient operation, based on agreed upon performance-based indicators, to cover its operating costs, meet its financial obligations for current, and make a reasonable contribution to future, investments for expansion of capacity, and (ii) to introduce regular adjustments of such price to reflect changes in the rate of inflation in the Borrower's territory as measured with reference to an agreed upon index; and (b) the undertaking by NDC to pay all amounts outstanding to DHE within 20 days of billing by DHE, and, in respect of any amount not so paid, to pay interest on such amount, as long as such amount remains outstanding beyond the said 20 days period, at rate equal to the refinancing rate charged from time to time by the Borrower's Central Bank. 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 5.02. This Agreement and all obligations of the Bank and of DHE thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify DHE 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 Page 7 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For DHE: 255240 Vyshgorod Kiev region Telefax: (044) 4314190 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 DHE may be taken or executed by its General Manager or such other person or persons as said General Manager shall designate in writing, and DHE shall furnish to the Bank 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Basil G. Kavalsky Acting Regional Vice President Europe and Central Asia OJSC DNIPROHYDROENERGO Page 8 By /s/ Yuriy Shcherbak Authorized Representative SCHEDULE Implementation Program 1. In order to facilitate the efficient carrying out of Part A of the Project, DHE shall maintain, with staff and other resources and terms of reference satisfactory to the Bank, a Project Implementation Unit to be responsible for the design and supervision of execution of Part A of the Project. The said Unit shall be headed by a suitably qualified staff member of DHE who will function as the Project Manager for Part A of the Project and will serve as a Deputy Project Coordinator of the Borrower's Project Coordination Unit referred to in paragraph 1 of Schedule 5 to the Loan Agreement. 2. DHE shall employ consultants, with qualifications and terms of reference satisfactory to the Bank, to assist DHE in the carrying out of Part A of the Project and the Borrower's Project Coordination Unit, referred to in paragraph 1 hereof, in the carrying out of its assigned tasks. 3. DHE shall provide the Borrower with all information required on its part, including all information relating to the carrying out of Part A of the Project and the achievement of the objectives thereof, to enable the Borrower to carry out its obligations pursuant to paragraph 3 of Schedule 5 to the Loan Agreement.