Sri Lanka - Fifth Power Project : Credit 0372 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 372 CE Project Agreement (Fifth Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND CEYLON ELECTRICITY BOARD DATED APRIL 18, 1973 CONFORMED COPY CREDIT NUMBER 372 CE Project Agreement (Fifth Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND CEYLON ELECTRICITY BOARD DATED APRIL 18, 1973 PROJECT AGREEMENT AGREEMENT, dated April 18, 1973, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and CEYLON ELECTRICITY BOARD (hereinafter called the Board). WHEREAS by the Development Credit Agreement of even date herewith between the Republic of Sri Lanka (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to six million dollars ($6,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Board agree to undertake such obligations toward the Association as hereinafter set forth; and WHEREAS under the terms of Section 3.01(c) of the Development Credit Agreement, the proceeds of the credit provided for thereunder will be made available to the Board as therein mentioned; and WHEREAS the Board, 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 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. The Board shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and 4 in conformity with appropriate administrative, financial, engineering and public utility practices. Section 2.02. Except as the Association shall otherwise agree, the goods and services 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 April 1972 and revised in October 1972, and in accordance with, and subject to, the provisions set forth in Schedule I to this Agreement. Section 2.03. (a) The Board 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 Board to replace or repair such goods. (b) Except as the Association may otherwise agree, the Board 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 2.04. (a) The Board shall furnish to the Association promptly upon their preparation, the plans, specifications, reports, contract documents and 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 Board: (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, without limitation upon the provisions of Section 5.03 of this Agreement, enable the Association's representatives to examine 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 2.05. The Board shall duly observe and perform the provisions of Section 3.01(c) of the Development Credit Agreement and of Schedule 3 thereto. 5 Except as the Association shall otherwise agree, the Board shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving any of such provisions. ARTICLE III Management and Operations of the Board Section 3.01. The Board 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 proper practice. Section 3.02. (a) The Board shall at all times maintain its corporate existence and right to carry on its operations, and take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (b) The Board shall at all times manage its affairs, plan its future expansion and carry on its operations, all in accordance with sound business, financial and public utility practices, under the supervision of experienced and competent management, and with the assistance of adequate, qualified and experienced staff. (c) The Board shall at all time operate and maintain its plants, machinery, equipment and other property, and make all necessary repairs and renewals thereof, in accordance with sound engineering and public utility practices. (d) Except in the normal course of business, the Board shall not sell, lease, transfer or otherwise dispose of any of its property or assets which shall be required for the efficient operation of its business. ARTICLE IV Financial Covenants Section 4.01. The Board shall maintain records adequate to reflect in accordance with proper accounting practices, consistently maintained, its operations and financial condition. Section 4.02. The Board shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with proper auditing principles consistently 6 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 reports (including the report to the Chairman) 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 the accounts and financial statements of the Board and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. The Board shall not incur any debt unless its net revenues for the fiscal year immediately preceding such incurrence or for a later twelve-month period ended prior to such incurrence, whichever is the greater, shall be not less than 1.5 times the maximum debt service requirements for any succeeding fiscal year on all debt including the debt to be incurred, except as the Association shall otherwise agree. For the purposes of this Section: (a) The term "debt" means all debt of the Board, including debt for the service of which the Board is responsible, maturing by its terms more than one year after the date on which it is originally incurred. (b) Debt shall be deemed to be incurred on the date of execution and delivery of a contract, loan agreement or other instrument providing for such debt. (c) The term "net revenues" means gross revenues from all sources, adjusted to take account of the Board's tariffs in effect at the time of the incurrence of debt even though they were not in effect during the fiscal year or twelve-month period to which such revenues relate, less all expenses of operation and maintenance in connection with the generation, transmission and distribution of electricity, administration, and taxes, if any, but before deduction of provision for depreciation of assets, interest and other charges on debt. (d) The term "debt service requirements" means the aggregate amount of amortization (including sinking fund allocations, if any) of, and interest and other charges on, debt. (e) Whenever for the purposes of this Section, or of Section 4.04 hereof, 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, if such other currency is not so obtainable, at such rate of exchange as shall be reasonably 7 determined by the Association; such valuation shall include the cost of any Foreign Exchange Entitlement Certificates required to obtain such other currency, but shall exclude any amount to which the Borrower may be entitled or liable in accordance with Section 42(6) of the Ceylon Electricity Board Act. Section 4.04. (a) Except as the Association shall otherwise agree, the Board shall take all steps, including the establishment and maintenance of appropriate tariffs, which shall be necessary to provide sufficient revenue: (i) to cover in respect of the fiscal year of the Board ending December 31, 1973; (1) operating expenses including taxes, if any, but excluding provision for depreciation; (2) debt service requirements; (3) adequate working capital; and (4) not less than 30% of capital expenditures; and (ii) to produce, in respect of the fiscal year of the Board ending December 31, 1974 and of each subsequent fiscal year, an annual return on the current value of its net fixed assets in service of eight per cent (8%) or such higher return as may be agreed upon between the Borrower, the Association and the Board. (b) Prior to the payment to the Borrower, in respect of the fiscal year of the Board commencing January 1, 1973 and of each subsequent fiscal year, of any dividend on the share capital of the Board, including any dividend referred to in Section 39(b) of the Ceylon Electricity Board Act, or to the making of any other payment or distribution to the Borrower in respect of any such year, the Board, out of its net income, shall satisfy, or make due provision for the satisfaction of, not less than 30% of the capital expenditures incurred in respect of such year, after adding thereto or deducting therefrom the amount of any shortfall or excess in the amount so satisfied or provided for in respect of the immediately preceding fiscal year below or above 30% of the capital expenditures incurred in respect thereof. (c) For the purposes of this Section: 8 (i) The annual return shall be calculated in respect of the fiscal year ending December 31, 1974 and each subsequent fiscal year by relating net income before interest and other charges on debt for that year to the average of the current value of net fixed assets in service at the beginning and at the end of that year. (ii) The term "current value of net fixed assets" means the gross value of fixed assets as initially revalued in accordance with the valuation study provided for in Part V of Schedule 1 of the Loan Agreement between the Bank and the Board dated July 28, 1969 and thereafter as annually reviewed and revalued from time to time, on the basis of appropriate methods of valuation acceptable to the Association, less the amounts accumulated in respect of (1) depreciation of assets (as so revalued); and (2) consumers' contributions or other contributions to capital expenditures all in accordance with proper accounting principles consistently applied. (iii) The term "net income" means all revenues of the Board except income from investments not directly related to its operations, less all operating expenses. (iv) The term "operating expenses" means all expenses of operation and maintenance in connection with the generation, transmission and distribution of electricity, and of administration, including adequate provision for depreciation, and for taxes, if any, but excluding provision for interest and other charges on debt. (v) The term "the capital expenditures" shall mean all expenditures, including interest during construction but excluding operating expenses, incurred in connection with the generation, transmission and distribution of electricity either (i) by the Board; or (ii) by any Government Department or body for the purpose of each Joint Scheme entered into by such Department or body as referred to in Section 12(1) of the Ceylon Electricity Board Act. 9 (vi) The term "debt" and "debt service requirements" have the meanings respectively set forth in Section 4.03 of this Agreement. Section 4.05. The Board shall take all steps necessary to ensure that as at the last working day of each month the aggregate amount due to it in respect of electricity supplied by the Board for which meters shall have been read (other than amounts disputed under Section 55 of the Ceylon Electricity Board Act and any amounts duly written off in the books of the Board) shall not exceed the aggregate amount of billings issued by the Board in respect of the period of 3 months expiring on such day or, if earlier, on the latest date as at which such aggregate amount of billings is known to the Board. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association and the Board shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association and the Board 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 Agreement, the administration, operations and financial condition of the Board and other matters relating to the purpose of the Credit. Section 5.02. The Association and the Board shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, or the performance by either of them of its obligations under this Agreement. Section 5.03. The Board shall enable the Association's representatives to examine all plants, sites, works, properties and equipment of the Board and any relevant records and documents. ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. 10 Section 6.02. (a) This Agreement and all obligations of the Association and of the Board 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) a 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 the Board of this event. Section 6.03. All the provisions of this 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 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: INDEVAS Washington, D.C. 11 For the Board: Ceylon Electricity Board P. 0. Box 540 Colombo Sri Lanka Cable address: KILOWATTS Colombo Section 7.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of the Board may be taken or executed by the Chairman of the Board or such other person or persons as he shall designate in writing. Section 7.03. The Board 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 Board, take any action or execute any documents required or penmitted to be taken or executed by the Board pursuant to any of the provisions of this Agreement. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to 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 / I.P.M. Cargill Regional Vice President Asia CEYLON ELECTRICITY BOARD By /s/ Neville Kanakaratne Authorized Representative 12 SCHEDULE 1 Procurement 1. With respect to any contract for equipment and or materials estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, the Board 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 procedure 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. (b) After bids have been received and evaluated, the Board 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 reasons for the intended award. The Association shall, if it determines that the intended award would be inconsistent with the procedures set forth or referred to in Section 2.02 of this Agreement, promptly inform the Board and the Borrower, and state the reasons for such determination and advise the Board of any cancellation pursuant to the provisions of paragraph 3(c) of Schedule I to the Development Credit Agreement. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract. 2. With respect to any other contract for equipment and or materials the Board shall furnish to the Association, promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract is not consistent with the procedures 13 set forth or referred to in Section 2.02 of this Agreement, promptly inform the Board and the Borrower, and state the reasons for such determination and advise the Board of any cancellation pursuant to the provisions of paragraph 3(c) of Schedule I to the Development Credit Agreement.