Morocco - Second Water Supply Project : Loan 1724 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1724 MOR Project Agreement (Second Water Supply Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and OFFICE NATIONAL DE L'EAU POTABLE Dated July 2, 1979 LOAN NUMBER 1724 MOR PROJECT AGREEMENT AGREEMENT, dated July 2, 1979, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and OFFICE NATIONAL DE L'EAU POTABLE (hereinafter called ONEP). WHEREAS (A) by the Loan Agreement of even date herewith between Kingdom of Morocco (hereinafter called the Borrower or Morocco) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to forty- nine million dollars ($49,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that ONEP agree to undertake such obligations toward the Bank as are herein- after set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and ONEP, a portion of the proceeds of the loan provided for under the Loan Agreement will be made available to ONEP on the terms and conditions therein set forth; and WHEREAS ONEP, in consideration of the Bank's entering into the Loan 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 Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the ONEP-Project Section 2.01. ONEP shall carry out the ONEP-Project with due diligence and efficiency, according to a timeable for the execution of the several Parts and sub-Parts of the Project mutually agreed between ONEP and the Bank, and in conformity with -2- appropriate administrative, financial, engineering and public utility practices and, as appropriate, with the assistance of the Borrower, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 2.02. (a) In order to assist ONEP in the supervision of the construction of the Bank-ONEP-Project, ONEP shall, as and when required during the execution of the Bank-ONEP-Project, employ engineering consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. (b) In order to assist ONEP in the treatment of water drawn from the Bou Regreg reservoir, ONEP shall, on or before January 1, 1980 (or such other date as the Bank may agree), employ an expert specialized in water treatment whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. (c) ONEP shall, on or before June 30, 1980 (or such other date as the Bank may agree), take all appropriate measures to take an inventory of all its assets as of such date and shall, promptly thereafter, take all action necessary to establish legal title to said assets. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and works required for the Bank-ONEP- Project and to be financed out of the proceeds of the Loan, shall hp governed by the provisions of the Schedule to this Agreement. Section 2.04. (a) ONEP undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan 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 ONEP to replace or repair such goods. (b) Except as the Bank may otherwise agree, ONEP shall cause all goods and services financed out of the proceeds of the Loan relent to it by the Borrower to be used exclusively for the Bank-ONEP-Project. Section 2.05. (a) ONEP shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, -3- contract documents and construction and procurement schedules for the ONEP-Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request; it being understood that, with respect to sub-Part A (5) of the Project, ONEP shall furnish to the Bank only the timetable for the execution of such sub-Part of the Project. (b) ONEP: (i) shall maintain records and procedures adequate to record and monitor, on a quarterly basis and using indicators satisfactory to ONEP and the Bank, the progress of the Bank-ONEP- 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 to disclose their use in the ONEP- Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the ONEP-Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank, on a quarterly basis, all such infor- mation as the Bank shall reasonably request concerning the ONEP- Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds and shall promptly take any remedial action proposed by the Bank on the basis of the information furnished to the Bank. (c) Promptly after completion of the ONEP-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 ONEP and the Bank, ONEP shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the ONEP-Project, its cost and the benefits derived and to be derived from it, the perfor- mance by ONEP and the Bank of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Loan. (d) ONEP shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property and equipment of ONEP and any relevant records and documents. Section 2.06. ONEP 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 carrying out the ONEP-Project and shall furnish to the Bank, promptly after such acquisition, evidence satisfactory to the Bank -4- that such land and rights in respect of land are available for purposes related to the ONEP-Project. Section 2.07. ONEP shall duly perform all its obligations under the ONEP Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, ONEP shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the ONEP Subsidiary Loan Agreement or any provision thereof. Section 2.08. (a) ONEP shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the ONEP-Project, the performance of its obligations under this Agreement and under the ONEP Subsidiary Loan Agreement and other matters relating to the purposes of the Loan. (b) ONEP shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the ONEP-Project, the accomplishment of the purposes of the Loan, or the performance by ONEP of its obligations under this Agreement and under the ONEP Subsidiary Loan Agreement. ARTICLE III Management and Operations of ONEP Section 3.01. ONEP shall at all times manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with appropriate business, financial, engineering and public utility practices and under the supervision of competent and experienced management. Section 3.02. ONEP shall take out and maintain with respon- sible 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. Section 3.03. (a) ONEP shall ensure that the organization study and its implementation, which are currently under way, be promptly completed with the assistance of consultants already employed to that effect. (b) ONEP shall take all appropriate steps to ensure that the new accounting system (including relevant procedures) become fully operational not later than December 31, 1979 (or such other date as the Bank and ONEP may agree). -5- (c) Without any limitation upon the generality of the provisions of paragraph (a) above, ONEP (i) shall, for the pur- pose of improving its operational procedures (in particular with respect to its rural centers), initiate a study, not later than January 1, 1980 (or such other date as the Bank may agree), under terms and conditions satisfactory to the Borrower, ONEP and the Bank, (ii) shall complete such study within nine months after the beginning of such study, (iii) shall, promptly upon the completion of such study, make it available to the Borrower and the Bank for their comments, and (iv) shall, on or before January 1, 1981 (or such other date as the Bank may agree), take all appropriate steps to implement such recommendations, taking into account the Bank's and the Borrower's comments. Section 3.04. ONEP shall at all times take all steps which are necessary to maintain its existence and its right to carry on operations and to acquire and retain ownership of all lands and to maintain and renew all interests in land and other properties and all rights, powers, privileges and franchises which are necessary or useful in the carrying out of the ONEP-Project or in the conduct of its business. Section 3.05. (a) ONEP shall, at all times, maintain its plants, machinery, equipment and other property, and promptly make all necessary repairs and renewals thereof, in accordance with appropriate engineering and public utility practices. (b) ONEP 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 and undertaking. ARTICLE IV Financial Covenants Section 4.01. ONEP shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. (a) ONEP 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 appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) henceforth furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, -6- (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 the accounts and financial statements of ONEP and the audit thereof as the Bank shall from time to time reasonably request. (b) The foregoing provisions supersede any other prior agreement between ONEP and the Bank on the same subject. Section 4.03. (a) Except as the Bank and ONEP shall otherwise agree, ONEP shall take all necessary measures, including but not limited to adjustments in its tariffs for all water services provided by ONEP, as shall be required to enable it to earn an annual rate of return of not less than 2% for the period ending 1980, 5% for the period ending 1981 and 7% for the period ending 1982 and for each succeeding year thereafter. \) For the purposes of the foregoing paragraph: (i) the annual rate of return shall be calculated in respect of each fiscal year by relating net operat- ing income for that year to the average of the value of net fixed assets in operation at the beginning and end of that year; (ii) the term "net operating income" shall mean the difference between (A) the total of all revenues from ONEP's water activities increased by those parts of the Borrower's contribution which are fully committed towards ONEP's investments for the year under consideration, and which offset ONEP's losses in operating ONEP's small centers, and until December 31, 1981, the annual grant paid to ONEP by the Borrower pursuant to Section 4.02 of the Loan Agreement; and (B) all operating expenses including direct costs of operation, administra- tion, overhead, adequate maintenance expenses, straight-line depreciation, based on the useful life of assets, so that total depreciation in any year is not less than two and one-half per cent, but not more than three per cent of total fixed asset values at the beginning of the year before deducting accumulated depreciation and taxes (if any), but excluding interest and other charges on debt; -7- (iii) the term "value of net fixed assets in operation" shall mean the gross value of fixed assets in operation for ONEP's water activities less the accumulated depreciation, both as valued or reval- ued from time to time in accordance with appro- priate and consistently maintained methods of val- uation or revaluation acceptable to the Bank; and (iv) "fixed assets in operation" includes the works known as the Bou Regreg dam and its appurtenances and any subsequent addition thereto and such works and additions shall be included for calculation of depreciation and annual return. (c) The foregoing provisions supersede any prior other agreement between ONEP and the Bank on the same subject. (d) Without limiting the generality of the foregoing, ONEP shall, except as the Bank shall otherwise agree, take all steps necessary to ensure that the existing bulk water tariffs shall not be reduced until the completion of the ONEP-Project. In addition ONEP shall, by the end of October of each year, prepare a forecast of all its revenues and operating expenses for the coming year in order to enable the Borrower to review the adequacy of such tariffs in relation to the foregoing obligations of ONEP and then furnish to the Bank a copy of such forecast promptly upon its preparation. Section 4.04. (a) Except as the Bank and ONEP shall otherwise agree, ONEP shall not, henceforth, incur any debt (other than for financing the ONEP-Project), unless its net revenues for the fiscal year next preceding such incurrence or for a later twelve months period ended prior to such incurrence, whichever is the greater, shall be not less than 1-1/2 times the maximum debt service requirement for any succeeding fiscal year on all ONEP's debt, including the debt to be incurred. (b) For the purposes of this Section: (i) the term "debt" shall mean all debt or other liability of ONEP including debt for the service of which ONEP is responsible, except debt incurred in the ordinary course of business and maturing by its terms on demand or less than one year after its incurrence; -8- (ii) the term "incur" with reference to any debt in- cludes any modification of the terms of payment of such debt; (iii) debt shall be deemed to be incurred on the date of execution and delivery of a contract or loan agreement providing for such debt or, in the case of a guarantee of debt, on the date of execution and delivery of the contract providing for such guarantee; (iv) the term "net revenue" means gross operating revenue, adjusted to take account of rates in effect at the time of incurrence of debt even though such rates were not in effect during the fiscal year or twelve-mon-Lh period to which such revenue relates, less all operating expenses, including adequate maintenance, taxes, if any, and administrative expenses, but before provision for depreciation and interest and other charges on debt; (v) the term "debt service requirement" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (vi) whenever it shall be necessary to value in the currency of the Borrower debt payable in another currency, such valuation shall be made on the basis of the rate of exchange at which such other cur- rency is obtainable by ONEP, at the time such valuation is made, for the purpose of servic- ing such debt or, if such other currency is not so obtainable, at the rate of exchange that will be reasonably determined by the 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. -9- Section 5.02. This Agreement and all obligations of the Bank and of ONEP thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly so notify ONEP 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 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 herein- after 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 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For ONEP: Office National de l'Eau Potable 6 bis Rue Patrice Lumumba Rabat, Morocco Cable address: ONEP RABAT-CHELLAH Rabat, Morocco - 10 - 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 ONEP, or by ONEP on behalf of the Borrower under Section 2.09 of the Loan Agreement, may be taken or executed by its President du Conseil d'Administration or such other person or persons as ONEP shall designate in writing, and ONEP shall furnish to the Bank sufficient evidence of the author- ity and the authenticated spezimen 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 collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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/ Munir P. Benjenk Regional Vice President Europe, Middle East and North Africa OFFICE NATIONAL DE L'EAU POTABLE By /s/ Ali Benjelloun Authorized Representative - 11 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods and 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, and in addition to the requirements of paragraph 1.2 of the Guidelines, ONEP shall prepare and for- ward to the Bank 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 prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reason- ably request; the Bank 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. ONEP shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international competitive bidding. 3. Bidders for the works included in the Bank-ONEP-Project (except for those referred to in Part C hereof) shall be prequali- fied 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 competiti-e 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 taxes on domestically supplied goods, shall be excluded; and (iii) the cost to ONEP of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. - 12 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in Morocco 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 Morocco if the bidder shall have established to the satisfaction of ONEP and the Bank that the manufac- turing cost of such goods includes a value added in Morocco equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (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 evaluated 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 evaluated bid from group A after adding to the evaluated 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 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 - 13 - 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. Other Procurement Procedures (a) Works and goods to be procured by ONEP may be procured under local procurement procedures acceptable to the Bank pro- vided, however, that the total amount of goods and works so procured by the Borrower shall not exceed $4,000,000 equivalent (including taxes) and the cost of each individual contract for works and for goods shall not exceed, respectively, $450,000 and $100,000 equivalent (including taxes). (b) ONEP shall make appropriate arrangements with Office National de l'Electricite for the construction, for the account of ONEP, of power transmission lines to the Ahmar Boudhar well field and to the Sidi Bou Shab treatment plant, such construction to be carried out according to the national procurement rules for public contracts. D. Review of Procurement Decisions by the Bank 1. Review of prequalification. ONEP shall, before qualification is invited, inform the Bank in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalifi- cation shall be furnished by ONEP to the Bank for its comments before the applicants are notified of ONEP's decision, and ONEP shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for materials and equipment and for works estimated to cost the equivalent of $100,000 and $450,000 or more, respectively: - 14 - (a) Before bids are invited, ONEP shall furnish to the Bank, 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 docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, ONEP shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report, by the consultants referred to in Section 2.02 (a) of this Agreement, on the evaluation and comparison of the bids received, together with the recommenda- tions for award of the said consultants and such other informa- tion as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform ONEP and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank'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 promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract not governed by the preceding paragraph, ONEP shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such con- tract, together with the analysis of the respective bids, recom- mendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform ONEP and state the reasons for such determination. - 15 - 4. Before agreeing to any material modification or waiver of thE terms and conditions of a contract, 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 15% of the original price, ONEP shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform ONEP and state the reasons for its determination.