Ecuador - Third Power Project : Credit 0286 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 286 EC Project Agreement (Third Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND EMPRESA ELECTRICA "QUITO" S.A. DATED FEBRUARY 15, 1972 CONFORMED COPY CREDIT NUMBER 286 EC Project Agreement (Third Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND EMPRESA ELECTRICA "QUITO" S.A. DATED FEBRUARY 15, 1972 PROJECT AGREEMENT AGREEMENT, dated February 15, 1972, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and EMPRESA ELECTRICA "QUITO" S.A. (hereinafter called the Company). WHEREAS by a development credit agreement of even date herewith between the Republic of Ecuador (hereinafter called the Borrower) and the Association (hereinafter referred to as the Development Credit Agreement), the Association has agreed to make available to the Borrower for relending to the Company an amount in various currencies equivalent to six million eight hundred thousand dollars ($6,800,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Company agree to undertake such obligations toward the Association as hereinafter set forth; and WHEREAS the Company, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Project Agreement, unless the context shall otherwise require, 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) The Company shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency, under competent management and in conformity with sound financial, engineering and public utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. 4 (b) Without limiting the generality of the foregoing, the Company shall obtain, from time to time whenever necessary, such other loans or other financial accommodations, on terms and conditions acceptable to the Association, to finance such expenditures to be incurred by the Company in the carrying out of the Project as shall not be financed out of the proceeds of the Credit. Section 2.02. (a) In order to assist the Company in the carrying out of the Project, the Company shall employ consultants in the fields of (i) engineering, (ii) electric power tariffs and (iii) public utilities management, all acceptable to the Association, to an extent and upon terms and conditions satisfactory to the Association. (b) Without any limitation upon the foregoing, the Company shall consult, from time to time, with the Association on the specific actions that the Company intends to take to implement the recommendations of the Company's consultants referred to in paragraph (a) (ii) and (iii) above, concerning the carrying out of Parts E.2 and E.3 of the Project. Section 2.03. In carrying out Parts A, B, C and D of the Project, the Company shall employ contractors acceptable to the Association to an extent and upon. terms and conditions satisfactory to the Association. Section 2.04. Except as the Association shall otherwise agree, the goods and services (other than services of consultants) required for the Project and to be financed out of the proceeds of the Credit, shall be procured on the basis of international competition under procedures consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in August 1969, as revised in May 1971, and in accordance with, and subject to, the provisions set forth in Schedule 1 to this Project Agreement. Section 2.05. (a) The Company undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to it by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Company to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Company shall cause all goods and services financed out of the proceeds of the Credit relent to it by the Borrower to be used exclusively for the Project. Section 2.06. (a) The Company shall furnish to the Association, promptly upon their preparation, the plans, reports, specifications, contract documents and 5 construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Company: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall enable the Association's representatives to inspect the Project, the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so relent to it and the goods and services financed out of such proceeds. Section 2.07. The Company shall: (i) enter into the Subsidiary Loan Agreement with the Borrower; (ii) apply the proceeds of the Credit relent to it by the Borrower under the Subsidiary Loan Agreement exclusively to financing the cost of goods and services required to carry out the Project; (iii) duly perform all its obligations under the Subsidiary Loan Agreement; and (iv) not take or concur in, except as the Association shall otherwise agree, any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.08. The Company shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 2.09. The Company shall carry out a study for determining and comparing the costs and the economic, social and other benefits of the Company's village electrification programs, under such terms of reference and in as many phases as shall be agreed between the Association and the Company not later than July 1, 1972. ARTICLE III Management and Operations of the Company Section 3.01. (a) The Company shall at all times maintain its existence and right to carry on operations and, except as the Association shall otherwise agree, 6 shall take all steps necessary to maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (b) The Company shall operate and maintain all its plants, equipment and property and from time to time make all necessary renewals and repairs thereof, and at all times manage its affairs, operate its plants and equipment and maintain its financial position, in accordance with sound business and public utility practices. (c) The Company shall at all times be managed by competent, qualified and experienced management and, without limiting the generality of the foregoing, it shall (i) appoint in consultation with the Association, not later than six months after the date of this Project Agreement, a qualified and experienced Financial Director; and (ii) consult with the Association on any appointment to the posts of General Manager, Technical Director and Financial Director of the Company to be made after the date of this Project Agreement. Section 3.02. The Company shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with sound practice. Section 3.03. The Company shall: (a) submit to its shareholders a proposal to (i) delte the Sixth Clause of the Escritura; and (ii) amend the Estatutos in accordance with the principles set forth in Schedule 2 to this Project Agreement; and thereafter (b) not take or concur in any action which would have the effect of abrogating, terminating, amending or waiving the Estatutos or any provision thereof, except as the Association shall otherwise agree. ARTICLE IV Financial Covenants Section 4.01. The Company shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition. Section 4.02. The Company shall: (a) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (b) furnish to the Association as soon as available, but in any case not later than four months after the end of each such year, (i) certified copies of its financial statements for such year as so audited and (ii) a signed copy of 7 the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (c) furnish to the Association such other information concerning the accounts and financial statements of the Company and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. (a) Except as the Association and the Company shall otherwise agree, the Company shall not incur any debt, other than debt required to finance the carrying out of the Project, unless the Company's net revenue from its operations for the fiscal year next preceding such incurrence or for a later twelve-month period ended prior to such incurrence, whichever revenue is the greater, shall be at least 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt.incurred by the Company, including the debt to be incurred. For the purposes of this Section: (i) "Debt" means any debt 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 on the date of execution and delivery of a contract, loan agreement or guarantee agreement providing for such debt. "Net revenue from its operations" means gross revenue of the Company from all sources, adjusted to take account of rates for the sale of electric power in effect at the time of incurrence of debt even though such rates were not in effect during the fiscal year or twelve months' period to which such income relates, less all operating and administrative expenses, including provision for taxes, if any, but before provision for depreciation and interest and other charges on debt. (iv) "Debt service requirement" means the aggregate amount of amortization (including sinking fund contributions, if any), interest and other charges on debt. (v) 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 by the Company for the purpose of servicing such debt. 8 (b) The provisions of this Section shall supersede all prior agreements between the Bank and the Company concerning the Company's debt. Section 4.04. (a) The Company shall create the Mortgage in favor of the Bank on so much of the property of the Company as shall be necessary to secure, on terms and conditions and to an extent satisfactory to the Bank, the principal of the loans and the bonds provided for under the Prior Loan Agreements outstanding as of the date of creation of such Mortgage, together with all interest and other charges thereon. (b) The Company shall file, register and record the Mortgage in all such jurisdictions and offices and do all such other things as may be required in order that the rights and remedies of the Bank and of the holders from time to time of the loans and the bonds provided under the Prior Loan Agreements secured by, or arising from, the Mortgage may be at all times established, maintained, renewed, confirmed and protected to the satisfaction of the Bank. (c) With the exception of: (i) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property, (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date, and (iii) the Mortgage, the Company shall not, without the prior approval of the Association, create, or permit to be created, any lien on any property or assets of the Company or of any subsidiary, as security for any debt. (d) For the purposes of this Section, the term "subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned, or which is effectively controlled, by the Company or by any one or more subsidiaries of the Company or by the Company and one or more of its subsidiaries. Section 4.05. (a) The Company shall take from time to time all such action as shall be necessary or advisable to cause its rates for the sale of electric power to be set and maintained at such levels as may be required to provide revenues from its operations at least sufficient to: (i) cover all operating and administrative expenses of the Company (including taxes, if any, and adequate provision for maintenance and depreciation); and (ii) produce a return of not less than 8% on the Company's average net fixed assets in operation, such assets to be reasonably valued in accordance with a consistently applied method or methods of valuation or revaluation acceptable to the Association. For the purposes of this Section, (a) "fixed assets" includes any fixed assets used by the Company in its operations, whether owned by the Company or operated 9 by the Company pursuant to any agreement concerning such fixed assets, between the Company and the Municipalidad de Quito; and (b) "average net fixed assets in operation" means: (i) the value of the Company's gross fixed assets in operation less accumulated depreciation at the beginning of the calendar year plus (ii) the value of the Company's gross fixed assets in operation less accumulated depreciation at the end of the year in question, divided by two; provided, however, that when a major asset shall be brought into operation during the year, the value of such asset shall be included in the foregoing computation in respect of that part of the year during which such asset has been in operation. (b) Without limiting the generality of the foregoing, and except as the Association shall otherwise agree, the Company shall not, before June 30, 1974, reduce such rates for the sale of electric power as were in effect on January 1, 1972. (c) The provisions of this Section shall supersede all prior agreements between the Bank and the Company concerning the Company's rates for the sale of electric power. Section 4.06. Except as the Borrower and the Association shall otherwise agree, the Company shall not: (i) sell, or otherwise dispose of, all or substantially all of its property or assets, unless the Company shall first redeem and pay or make adequate provision, satisfactory to the Association, for the redemption and payment of all of the Subsidiary Loan which shall be outstanding and unpaid; or (ii) sell, or otherwise dispose of, all or substantially all of the property included in the Project or any plant included therein unless the Company shall first redeem and pay or make adequate provision, satisfactory to the Association, for redemption and payment of a proportionate part of the Subsidiary Loan which shall then be outstanding and unpaid equal to the proportionate part of the Project so sold or disposed of. The Company may, however, without reference to the foregoing, sell or otherwise dispose of any property which shall have become old, worn-out, obsolete or unnecessary for use in its operations. Section 4.07. The Company shall, not later than December 31, 1973, revalue its assets to such extent as shall be necessary to adequately reflect the then current value thereof; such revaluation to be made in accordance with the provisions of Acuerdo No. 161 of the Ministerio de Finanzas of the Borrower, dated September 8, 1970, or in accordance with such other alternative procedures as shall be satisfactory to the Borrower, the Association and the Company. Section 4.08. (a) Except as the Association shall otherwise agree, the Company shall not, in respect of any fiscal year, declare or pay any dividend, 10 or make any distribution on any shares of its capital stock, other than a dividend payable solely in shares of its capital stock, nor shall the Company acquire any shares of its capital stock for price, in excess of 1% of the Company's net revenue during such fiscal year. For the purposes of this Section, "net revenue" means gross revenue from the Company's operations less all operating expenses, including provision for taxes, if any, and interest payments on the Company's debt but before provision for employees' bonus, legal reserves and dividends. (b) The provisions of this Section supersede all prior agreements between the Bank and the Company concerning the Company's dividends. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association and the Company shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association and the Company shall from time to time, at the request of either party, exchange views through their representatives with regard to the performance of their respective obligations under this Project Agreement, the performance by the Company of its obligations under the Subsidiary Loan Agreement, the administration, operations and financial condition of the Company and other matters relating to the purpose of the Credit. Section 5.02. The Association and the Company shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the performance by either of them of its obligations under this Project Agreement or the performance by the Borrower and the Company of their respective obligations under the Subsidiary Loan Agreement. Section 5.03. The Company shall enable the Association's representatives to inspect all plants, sites, works, properties and equipment of the Company and any relevant records and documents. ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Project Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. If, 11 pursuant to Section 10.04 of the General Conditions, the Development Credit Agreement shall terminate, the Association shall promptly notify the Company of this event and, upon the giving of such notice, this Project Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 6.02. (a) This Project Agreement and all obligations of the Association and of the Company 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 when the Subsidiary Loan, together with interest and all other charges thereon, shall have been paid. (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 the Company of this event and, upon the giving of such notice, this Project Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 6.03. All the provisions of this Project Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE VII Miscellaneous Provisions Section 7.01. Any notice or request required or permitted to be given or made under this Project Agreement and any agreement between the parties contemplated by this Project 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 12 Cable address: Indevas Washington, D.C. For the Company: Empresa El6ctrica "Quito" S.A. 10 de Agosto y Las Casas Apartado 473 Quito, Ecuador Cable address: El6ctrica Quito Quito, Ecuador Section 7.02. (a) Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Project Agreement on behalf of the Company, may be taken or executed by the Presidente and the Gerente General of the Company or such other person or persons as they shall designate in writing. (b) Any action required or permitted to be taken, and any documents required or permitted to be executed, under Section 2.09 of the Development Credit Agreement on behalf of the Borrower, may be taken or executed by the Gerente General of the Company or such other person or persons as he shall designate in writing. Section 7.03. The Company shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of the Company, take any action or execute any documents required or permitted to be taken or executed by the Company pursuant to any of the provisions of this Project Agreement. Section 7.04. This Project 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 representatives thereunto duly authorized, have caused this Project Agreement to 13 be signed in their respective names and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / M. Shoaib Vice President EMPRESA ELECTRICA "QUITO" S.A. By /s/ Duran Balldn Authorized Representative By /s/ Juan Sevilla Authorized Representative 14 SCHEDULE I Procurement 1. With respect to any contract for civil works, equipment or materials estimated to cost the equivalent of $50,000 or more: (a) If contractors or suppliers are required to prequalify, the Company shall, before prequalification is invited, inform the Association in detail of the procedure to be followed and shall introduce such modifications in said procedure as the Association shall reasonably request. The list of prequalified contractors or suppliers, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification, shall be furnished by the Company to the Association for its comments before the applicants are notified and the Company shall make such additions or deletions from the said list as the Association shall reasonably request. (b) Before bids are invited, the Company shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (c) After bids have been received and evaluated, the Company shall, before a final decision on the award is made, inform the Association of the name of the bidder to whom it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the recommendations for award, and the reasons for the intended award. Such reports, recommendations and reasons shall be accompanied, when so requested by the Association, with the opinion of the consultants referred to in Section 2.02 (a) (i) of this Project Agreement. The Association shall promptly inform the Company whether it has any objection to the intended award on the ground that it would be inconsistent with the Guidelines for Procurement under World Bank Loans and IDA Credits referred to in Section 2.04 of this Project Agreement or with the Development Credit Agreement, and shall state the reasons for any objections it may have. (d) If the contract shall be awarded over the Association's reasonable objection, or if its terms and conditions shall, without the Association's 15 concurrence, materially differ from those on which bids were asked, no expenditure thereunder shall be financed out of the proceeds of the Credit. (e) Two conformed copies of the contract and of any amendment thereto shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract or any such amendment. 2. For the purpose of evaluating bids for goods and associated services included in Category III of the table set out in paragraph 1 of Schedule 1 to the Development Credit Agreement, bid prices shall be determined and compared in accordance with the following rules: (a) The term "Local Bid" means a bid submitted by a manufacturer established in the territories of the Borrower for goods manufactured or processed to a substantial e/tent (as reasonably determined by the Association) in such territories; any other bid shall be deemed to be a "Foreign Bid". (b) The bid price inder a Local Bid shall be the ex-factory price of such goods. (c) For the purpose of comparing any Foreign Bid with any Local Bid, the bid price under a Foreign Bid shall be the sum of the following amounts: (i) the c. & f. (Port of entry in Ecuador) price of such goods; and (ii) the amount of any taxes on the importation of such goods into the territories of the Borrower which generally apply to non-exempt importers, or 15% of the amount specified in (i) above, whichever shall be the lower. 3. With respect to any other contract for civil works, equipment or materials, the Company shall furnish to the Association two conformed copies of such contract and of any amendment thereto, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract or any such amendment. The Association shall promptly inform the Company if it finds that the award of the contract is not consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits referred to in Section 2.04 of this Project Agreement or with the Development Credit Agreement and, in such event, no expenditure under such contract shall be financed out of the proceeds of the Credit. 16 SCHEDULE 2 Amendments to the Estatutos The amendment to the Estatutos shall include amendments to: (a) Articles 6, 19 and 35 to make them consistent with the provisions of Decreto Supremo No. 86 of the Borrower, dated January 20, 1971; and (b) Article 37 to make it consistent with the provisions of the Acuerdo No. 8712 of the Ministerio de Industrias y Comercio of the Borrower, dated May 5, 1970.