Tanzania - Morogoro Textile Project : Loan 1607 - Project Agreement - 2 - Conformed

CONFORMED COPY LOAN NUMBER 1607 TA CREDIT NUMBER 833 TA Project Agreement (Morogoro Textile Project) among INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and INTERNATIONAL DEVELOPMENT ASSOCIATION and MOROGORO POLYESTER TEXTILES LIMITED and NATIONAL TEXTILE CORPORATION Dated July 28, 1978 LOAN NUMBER 1607 TA CREDIT NUMBER 833 TA PROJECT AGREEMENT AGREEMENT, dated July 28, 1978, among INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank), INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association), and MOROGORO POLYESTER TEXTILES LIMITED (hereinafter called the Company) and NATIONAL TEXTILE CORPORATION (hereinafter called TEXCO). WHEREAS by a Loan Agreement of even date herewith between the United Republic of Tanzania (hereinafter called the Borrower) and the Bank, and by the Development Credit Agreement of even date herewith between the Borrower and the Association, the Bank and the Association have agreed to make available to the Borrower an amount in variou. currencies equivalent to twenty-five million dollars ($25,000,000), and twenty million dollars ($20,000,000), respectively, on the terms and conditions set fcrth in the Loan Agreement and the Development Credit Agreement, respectively, but only on condition that the Company and TEXCO agree to undertake such obligations toward the Bank and the Association as are hereinafter set forth; WHEREAS the Borrower has requested other sources to assist in financing the Project; WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and the Company, the proceeds of the loan and part of the proceeds of the credit provided for under the Loan Agreement and the Development Credit Agreement, respectively, will be made available to the Company on the terms and conditions therein set forth; and WHEREAS the Company and TEXCO, in consideration of the Bank's and the Association's entering into the Loan Agreement and the Development Credit Agreement with the Borrower, have agreed to undertake the obligations hereinafter set forth; NO'w THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definicfins Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement and the Development Credit Agreement and in the -2- General Conditions (as defined in each such Agreement) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. The Company and TEXCO shall carry out the Project described in Schedule 2 to the Development Credit Agree- ment with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices. Section 2.02. (a) Except as the Bank, the Association, the Company and TEXCO shall otherwise agree, the Company or TEXCO, as the case may be, shall, employ and retain, or cause to be employed and retained, qualified and experienced consultants on terms and conditions of employment satisfactory to the Bank and the Association as follows: (i) a project advisory firm to be responsible for supervising the Project; and (ii) a project engineering firm to assist in project design, engineering, construction and installa- tion, training, start-up and commissioning. (b) The Company and TEXCO will not, without the prior consent of the Bank and the Association, assign, amend, abrogate or waive in whole or in part the contracts entered into by the Company or TEXCO pursuant to subparagraphs (a) (i) and (ii) of this Section. Section 2.03. (a) Except as the Bank, the Association, and TEXCO shall otherwise agree, TEXCO shall employ and retain, or cause to be employed and retained, a qualified and experienced technical management firm on terms and conditions satisfactory to the Bank and the Association to assist TEXCO in carrying out a study by December 31, 1978 that will recommend measures to improve the capacity utilization and productivity of the operating textile mills within TEXCO's group of companies. (b) TEXCO shall not, without the prior consent of the Bank and the Association, assign, amend, abrogate or waive in whole or in part the contract entered into pursuant to subparagraph (a) of this Section. - 3 - (c) Upon completion of the aforesaid study, TEXCO in con- sultation with the Bank and the Association will review the conclusions of the study and TEXCO shall thereafter take such measures as shall be necessary to improve the capacity utiliza- tion and productivity of the operating textile mills in TEXCO's group of companies, including the employment of qualified and experienced technical personnel. If the costs of such personnel are financed out of the proceeds of the Loan or Credit, the terms and conditions of employment shall be satisfactory to the Bank and Association. Section 2.04. Except as the Bank and the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Loan and the Credit, shall be governed by the provisions of the Schedule to this Agreement. Section 2.05. The Company shall ensure that all necessary anti-pollution steps are taken so that the Project is carried out and the facilities included therein are operated in accordance with sound ecological and environmental practices. Section 2.06. Except as the Bank, the Association and the Company shall otherwise agree, the Company, not later than six months before the mechanical completion of the Project: (a) shall appoint a qualified and experienced management agency firm on terms and conditions satisfactory to the Bank and the Association to operate the facilities included in Part A of the Project for a period of three years after completion of that Part of the Project; and (b) shall not assign, amend, abrogate or waive in whole or in part the contract entered into under sub- paragraph (a) above. Section 2.07. The Company and TEXCO shall, by December 31, 1978, have submitted to the Bank and the Association for review and comment a recruitment and training plan for the Company's staff, and shall, thereafter, implement such a recruitment and training program for the Company's staff acceptable to the Bank and the Association, including the timely appointment of qualified key management personnel to be trained by the management agency firm referred to in Section 2.06 of this Agreement to assume responsibility for operation of the facilities included under Part A of the Project on termination of the agreement with such firm. 4 Section 2.08. (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 Loan and the Credit 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 Bank and the Association may otherwise agree, the Company and TEXCO shall cause all goods and services financed out of the proceeds of the Loan and the Credit to be used exclusively for the Project. Section 2.09. (a) The Company shall furnish to the Bank and the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modi- fications thereof or additions thereto, in such detail as the Bank and the Association shall reasonably request. (b) The Company: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan and the Credit relent to it by the Borrower, and to disclose their use in the Project; (ii) shall enable the Bank's and the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and the Credit and any relevant records and documents; and (iii) shall furnish to the Bank and the Association within 45 days after each calendar quarter all such information as the Bank and the Associa- tion shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditures of such proceeds and the goods and services financed out of such proceeds, and quarterly financial statements. (c) Promptly after completion of Part A of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Bank, the Association, and the Company, the Company shall prepare and furnish to the Bank and the Association a report, of such scope and in such detail as the Bank and the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from - 5 - it, the performance by the Bank, the Association and the Company of their respective obligations under the Loan Agreement and the Credit Agreement and the accomplishment of the purposes of the Loan and the Credit. Section 2.10. The Company shall duly perform all its obliga- tions under the Subsidiary Loan Agreement. Except as the Bank and the Association shall otherwise agree, the Company 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 2.11. (a) The Company shall at the request of the Bank and the Association, exchange views with the Bank and the Association with regard to the progress of the Project, the performance of its obligations under the Loan Agreement, the Development Credit Agreement and under the Subsidiary Loan Agree- ment, and other matters relating to the purposes of the Loan and the Credit. (b) The Bank, the Association and the Company shall promptly inform one another of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan and the Credit, or the performance by the Company of its obligations under the Loan Agreement, the Development Credit Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of the Company Section 3.01. The Company shall at all times operate and maintain its textile manufacturing facilities, its machinery, equipment and other property, and from time to time promptly make all repairs and renewals thereof, in accordance with appropriate administrative, commercial, financial and technical practices under the supervision of qualified and experienced management aisisted by competent staff in adequate numbers, including without limitation the employment and training of accounting personnel. Section 3.02. The Company shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Bank and the Association for, insurance against such risks aid in such amounts as shall be consistent with appropriate practice. - 6 - ARTICLE IV Financial Covenants Section 4.01. The Company shall maintain records adequate to reflect in accordance with consistently maintained appropriate 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 appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank and the Association and shall give prompt attention to audit recommenda- tions of such auditors; (b) furnish to the Bank and the Asso- ciation 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) the report of such audit by said auditors, of such scope and in such detail as the Bank and the Association shall have reason- ably requested; and (c) furnish to the Bank and the Association such other information concerning the accounts and financial statements of the Company and the audit thereof as the Bank and the Association shall from time to time reasonably request. Section 4.03. (a) Except as the Company, the Bank and the Association shall otherwise agree, the Company shall maintain a debt-equity ratio not exceeding 60:40. (b) For the purposes of this Section: (i) the term "debt" means all debt of the Company, including debt for the service of which the Company is responsible, 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, and to the extent it is drawn down in accor- dance with, the agreement providing for such debt; (iii) the term "equity" means the total capital and surplus of the Company, determined in accor- dance with sound accounting practices; -7- (iv) the term "incur" with reference to any debt includes the assumption and guarantee of any debt and any renewal, extension or modification of the terms of the debt or of the assumption or guarantee thereof; and (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 purposes of servicing such debt, or, if no such rate is avail- able, at a rate of exchange acceptable to the Bank and the Association. Section 4.04. (a) Except as the Company and the Bank and the Association shall otherwise agree, the Company shall main- tain a ratio of current assets to current liabilities of not less than 1.5 to 1. (b) For the purposes of this Section: (i) the term "current assets" means cash, securities readily convertible into cash, accounts receivable and realizable within one year and inventories; and (ii) the term "current liabilities" includes accounts payable within twelve months, customer advances, income taxes, bonuses and all other liabilities (including debt) which will be due and payable, or could be called for payment, within twelve months. Section 4.05. (a) Except as the Company, the Bank and the Association shall otherwise agree, the Company shall only declare or pay any dividend on its equity capital or make any other distribution with respect to its equity capital if after such declaration, payment or distribution the Company's projected debt service coverage ratio for the fiscal year in which such declaration, payment or distribution is made is at least 1.5. -8- (b) For the purposes of this Section: (i) "debt service coverage ratio" means the ratio between the reasonably estimated net revenues for any fiscal year and the aggregate amount of amorti- zation (including sinking fund payments, if any) of, and interest and other charges on, debt payable in the same fiscal year; and (ii) "net revenues" means gross revenues from all sources less all operating and administrative expenses, and amounts paid or to be paid within the year on account of taxes; provided that the operat- ing and administrative expenses shall not include interest and other charges on debt, and provision for depreciation of assets. Section 4.06. For the initial three years after completion of Part A of the Project, the Company will exchange views with the Bank and the Association on any investments by the Company, other than for purposes of the Project, whose aggregate costs would exceed $5,000,000 equivalent in any single fiscal year. ARTICLE V TEXCO's Undertaking Section 5.01. As shareholder of the Company, TEXCO (i) agrees with all the obligations of the Company in this Agreement set forth, (ii) shall cause the Company to perform such obligations in accordance with the provisions of this Agreement, and (iii) shall take or cause to be taken all actions necessary or appropriate to enable the Company to perform such obligations. Section 5.02. As the Bank and the Association may reasonably request, TEXCO will provide information on major developments in the Borrower's textile sector. 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. - 9 - Section 6.02. (a) This Agreement and all obligations of the Bank, the Association, the Company and TEXCO thereunder shall terminate on the earlier of the following two dates: (i) the date on which both the Loan Agreement and the Development Credit Agreement shall terminate in accordance with their terms; or (ii) a date 20 years after the date of this Agreement. (b) If the Loan Agreement or the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Bank or the Association shall promptly notify the Company of this event. Section 6.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the Loan Agreement or 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 des- ignated 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 - 10 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) 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 the Company: Morogoro Polyester Textiles Limited P.O. Box 9531 Dar es Salaam Tanzania Cable adress: Telex: TEXCO 41247 Dar es Salaam TEXCO Dar es Salaam For TEXCO: National Textile Corporation P.O. Box 9531 Dar es Salaam Tanzania Cable address: Telex: TEXCO 41247 Dar es Salaan TEXCO Dar es Salaam - 11 - Section 7.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of each of the Company and TEXCO may be taken or executed by the General Manager and a member of the Board of Directors of the Company or the Managing Director and a member of the Board of Directors of TEXCO, respectively, or such other person or persons as by the General Manager and a member of the Board of Directors of the Company or the Managing Director and a member of the Board of Directors of TEXCO, respectively, shall designate in writing, and the Company and TEXCO shall each furnish to the Bank and the Association sufficient evidence of the authority and the authenticated specimen signature of such persons. Section 7.03. This Agreement may be executed in several coun- terparts, 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 Agree- ment 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/ Hans A. Adler Acting Regional Vice President Eastern Africa INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Hans A. Adler Acting Regional Vice President Eastern Agrica - 12 - MOROGORO POLYESTER TEXTILES LIMITED By /s/ Paul Bomani Authorized Representative NATIONAL TEXTILE CORPORATION By /s/ Paul Bomani Authorized Representative - 13 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part D hereof, goods and civil works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods and works to be procured on the basis of inter- national competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, TEXCO shall prepare and forward to the Bank and the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalificati k documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank and the Association shall reasonably request; the Bank and the Association will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. TEXCO shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the bas4s of international competitive bidding. 3. Bidders for the works included in Part A of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding, (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxet- on domestically supplied goods, shall be excluded; and (iii) the cost to the Company of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. - 14 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in Tanzania may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Tanzania if the bidder shall have established to the satisfaction of the Bank, the Association and the Borrower that the manufacturing cost of such goods includes a value added in Tanzania equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Tanzania. (3) Group C: bids offering any other goods. 3. All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluaLed bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would - 15 - have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Preference for Domestic Contractors With respect to the evaluation of bids for any contract for civil works included under Cate3ory (2) of the table set forth in Schedule 1 to the Development "cedit Agreement and to be procured in accordance with the procd.ures described in Part A of this Schedule, TEXCO may grant a margin of preference of 7-1/2% to domestic contractors, in accordance with, and subject to, the following provisions: 1. Contractors shall be required to prequalify as provided in Part A of this Schedule and applicants for qualification applying for such preference shall be asked to provide, as part of the data for qualification, such information, including details of ownership, as shall be required to determine whether, according to the classification established by the Borrower and accepted by the Bank and the Association, a particular firm or group of firms qualifies for a domestic preference. The bidding documents shall clearly indicate the preference and the method that will be followed in the evaluation and comparison of bids to give effect to such preference. 2. After bids have been received and reviewed by TEXCO, responsive bids will be classified into the following groups: (i) bids offered by domestic contractors eligible for preference; and (ii) bids offered by other contractors. For the purpose of evaluationi and comparison of bids an amount equal to 7-1/2% of the bid amount shall be added to bids received under group (ii) above. D. Other Procurement Procedures 1. Contracts for ordirs for the purchase of goods which cannot be bulked in packages of $100,000 equivalent or more shall be - 16 - procured pursuant to the Borrower's applicable procedures after solicitation of bids from potential suppliers from at least three member countries of the Bank (which for this purpose shall include Switzerland); provided that the aggregate value of contracts awarded pursuant to this paragraph shall not exceed $2,000,000 equivalent. 2. Contracts for goods of a proprietary nature and items in limited supply which are critical to timely implementation of the Project up to an aggregate of $1,000,000 equivalent may be awarded pursuant to competitive bidding among qualified suppliers acceptable to the Bank and the Association. E. Review of Procurement Decisions by the Bank and the Association 1. Review of prequalification. TEXCO shall, before qualification is invited, inform the Bank and the Association in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank and the Association shall reasonably request. The list of prequalified bidders, together with a state- ment of their qualifications and, where applicable, of their eligibility for domestic preference under Parts B and C above and of the reasons for the exclusion of any applicant for prequalifi- cation and for such eligibility shall be furnished by TEXCO to the Bank and the Association for their comments before the applicants are notified of TEXCO's decision, and TEXCO shall make such additions to, deletions from, or modifications in, the said list as the Bank and the Association shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equiva- lent of $100,000 or more: (a) Before bids are invited, TEXCO shall furnish to the Bank and the Association, for its comments, the text of the invita- tions 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 Bank and the Association shall reasonably request. Any further modification to the bidding documents shall require the Bank's and the Association's con- currence before it is issued to the prospective bidders. - 17 - (b) After bids have been received and evaluated, TEXCO shall, before a final decision on the award is made, inform the Bank and the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Bank and the Association, in sufficient time for its review, a detailed report, by the consultants referred to in Section 2.02 of this Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of the said consultants and such other information as the Bank and the Association shall reasonably request. The Bank and the Association shall, if they determine that the intended award would be incon- sistent with the Guidelines or this Schedule, promptly inform TEXCO and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's and the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Bank and the Association promptly after its execution and prior to the submission to the Association of the first applica- tion for withdrawal of funds from the Loan Account or the Credit Account in respect of such contract. 3. With respect to each contract not governed by the preceding paragraph, TEXCO shall furnish to the Bank and the Association, promptly after its execution and prior to the submission to the Bank and the Association of the first application for withdrawal of funds from the Loan Account or the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank and the Association shall reasonably request. The Bank or the Association shall, if it determines that the award of the contract was not consistent * with the Guidelines or this Schedule, promptly inform TEXCO and state the reasons for such determination. 4. Before agreeing to any material modification or waiver of the terms and conditions of a contract financed from the proceeds of the Credit or the Loan, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 5% of the original price, TEXCO shall inform the Bank and the Association - 18 - of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank or the Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform TEXCO and state the reasons for its determination.