Zambia - Industrial Forestry Project : Credit 1437 - Project Agreement - Conformed

OFFICIAL OFFICIALN CREDIT NUMBER 1437 ZA DOCL-#UM1AElNiTS Project Agreement (Industrial Forestry Project - Phase III) among INTERNATIONAL DEVELOPMENT ASSOCIATION and ZAMBIA FORESTRY AND FOREST INDUSTRIES CORPORATION LIMITED and ZAMBIA INDUSTRIAL AND MINING CORPORATION LIMITED Dated ,1984 CREDIT NUMBER 1437 ZA PROJECT AGREEMENT AGREEMENT, dated "' , 1984, among the INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association), ZAMBIA FORESTRY AND FOREST INDUSTRIAL CORPORATION LIMITED (hereinafter called the Corporation) and ZAMBIA INDUS- TRIAL AND MINING CORPORATION LIMITED. WHEREAS (A) by the Development Credit Agreement of even date herewith between the Republic of Zambia (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equiva- lent to twenty-on million five hundred thousand Special Drawing Rights (SDR 21,500,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Corporation and its parent company, Zambia Industrial and Mining Corporation Limited (hereinafter sometimes referred to as ZIMCO), agree to undertake such obligations toward the Association as are hereinafter set forth; (B) WHEREAS by a subsidiary financing agreement to be entered into between the Borrower and the Corporation, the pro- ceeds of the Credit provided for under the Development Credit Agreement will be made available to the Corporation on the terms and conditions therein set forth; and WHEREAS the Corporation and ZIMCO, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, have agreed to undertake the obligations herein- after 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, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. - 2 - ARTICLE II Execution of the Project Section 2.01. The Corporation shall carry out the Project, described in Schedule 2 to the Development Credit Agreement, with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and forestry practices. Section 2.02. In order to assist the Corporation in its management and operation during the carrying out of the Project, in the training program included in the Project and in preparing engineering designs and tender documents for the handling and processing facilities included in the Projectl the Corporation shall employ management and industrial forestry consultants and experts as set forth in Schedule 2 to this Agreement, with qualifications and experience, and under terms and conditions of employment satisfactory to the Association, such consultants and experts to be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Section. 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. (a) The Corporation undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit made available to it by the Borrower against hazards incident to the acquisi- tion, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be pay- able in a currency freely usable by the Corporation to replace or repair such goods. (b) The Corporation shall cause all goods and services financed out of the proceeds of the Credit made available to it by the Borrower to be used exclusively for the purposes of the Project. -3- Section 2.05. (a) The Corporation shall furnish to the Asso- ciation, promptly upon their preparation, the plans, specifica- tions, reports, contract documents and work 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 Corporation: (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 Credit, and to disclose their use in the Project; (ii) shall enable the Association's representatives to visit the facilities, work and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such informa- tion as the Association shall reasonably request concerning the Project, its cost ard, where appropriate, the benefits to be derived from it, tLa expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. (c) Upon the award by the Corporation of any contract for goods, works or services to be financed out of the proceeds of the Credit, the Association may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion 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 Corporation and the Association, the Corporation shall prepare and furnish to the Association a report, of such scope and in such detail as 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 it, the performance by the Corporation and the Association of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Credit. (e) The Corporation shall enable the Association's representatives to examine all plants, installations, sites, works, buildings, property and equipment of the Corporation and any relevant records and documents. -4- Section 2.06. The Corporation shall duly perform all its obligations under the Subsidiary Financing Agreement. Except as the Association shall otherwise agree, the Corporation shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Financing Agreement or any provision thereof. Section 2.07. (a) The Corporation shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, th- performance of its obligations under this Agreement and under the Subsidiary Financing Agreement, and other matters relating to the purposes of the Credit. (b) The Corporation shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by the Corporation of its obligations under this Agreement and under the Subsidiary Financing Agreement. Section 2.08. In order to determine the needs of infra- structure in the plantations benefitting from the Project, the Corporation shall prepare by December 31, 1984 a five-year plan, including proposed budgets, for cutting, logging and transport. Section 2.09. The Corporation shall ensure that all equip- ment, machinery, vehicles and tools procured under the Project meet the specifications therefor determined by the detailed engineering carried out in preparation for the Project. Section 2.10. Zambia Industrial and Mining Corporation Limited shall take such steps as shall be necessary on its part to enable the Borrower to carry out the objectives of Section 3.01 (b) (i) of the Development Credit Agreement. Section 2.11. The Corporation shall require all candidates for training under Part E of the Project to bind themselves legally to remain in the service of the Corporation for a period of time following the completion of their training at least equal to the period of such training. ARTICLE III Management and Operations of the Corporation Section 3.01. (a) The Corporation shall carry on its operations and conduct its affairs in accordance with sound -5- administrative, financial, technical and forestry practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. (b) Pursuant to paragraph (a) above, the Corporation shall ensure the employment of qualified and experienced deputies to each of the positions listed in Part A of Schedule 2 to this Agreement. Section 3.02. The Corporation shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and forestry practices. Section 3.03. The Corporation shall take out and maintain with responsible insurers insurance against such risks and in such amounts as shall be consistent with aperopriate practice. Section 3.04. The Corporation shall put into effect by October 1, 1984, a marketing strategy designed (a) to displace imported wood products in the mining and construction industries, (b) to increase its sales of roundwood to other wood-base industries, and (c) to introduce a program of action based on wholesale ex-factory sales to be distributed by the existing network of timber merchants. Section 3.05. The Zambia Industrial and Mining Corporation Limited shall furnish to the Association by December 31, 1985, an assessment of the feasibility of basing a part of the sawmilling operations of Mining Timbers Ltd. on the plantations of the Corporation. Section 3.06. The Corporation shall phase out its thinning regimes in its eucalyptus plantations and adopt a three coppicing system in new plantations and replantings. Section 3.07. The Corporation shall obtain, maintain and renew as and when necessary all site licenses, leases and titles to or rights in property necessary or useful in its operations and for the carrying out of the Project or the achievement of its purposes. Section 3.08. The Corporation shall, by September 30, 1984, design and put into operation an efficient fire control and protection system. - 6 - ARTICLE IV Financial Covenants Section 4.01. (a) The Corporation shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure. (b) The Corporation shall retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Credit Account on the basis of statements of expenditure, and shall enable the Association's representatives to examine such records. Section 4.02. The Corporation 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 consisteotly applied, by independent auditors acceptable to the Association; (b) furnish to the Association as soon as available, but in any case not later than six 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 Association shall have reasonably requested, including, without limitation to the foregoing, separate opinions by said auditors in respect of the expenditures and records referred to in Section 4.01 (b) of this Agreement, as to whether the proceeds of the Credit made available to it and withdrawn from the Association Account on the basis of statements of expenditure have been used for the purpose for which they were provided; and (c) furnish to the Association such other information concerning said accounts, financial statements, records and expenditures, as well as the audit thereof, as the Association shall from time to time reasonably request. - 7 - Section 4.03. The Corporation shall continue to base its pricing policy on replacement-cost conventions but shall modify such policy to take into account where appropriate: (i) replacement costs which, after taking into account resource waste in pine plantations, would be reasonably related to production costs under conditions of efficient operation at capacity utilization of not less than 85%; (ii) the levels of import parity prices for imported products which compete with its products in the domestic market; and (iii) a reasonable contribution (in the form of equity contributions and retained earnings) to future investments for expansion of capacity; and the Association and the Corporation shall exchange views annually on the application of such pricing policy. Section 4.04. The Corporation shall not declare any dividend if such declaration would result in noncompliance with Section 4.05 of this Agreement. Section 4.05. The Corporation and Zambia Industrial and Mining Corporation Limited shall ensure, by appropriate capital increases and by limiting the incurring of debt by the Corpora- tion that, prior to completion of the Project, the debt of the Corporation not exceed one quarter cf its equity. For the pur- poses of this Section: (a) "Debt" means any debt incurred by the Corporation maturing more than one year after the date on which it is ori- ginally incurred. (b) Debt shall be deemed to be incurred: (i) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date, and to the extent the amount of such debt has become outstanding pursuant to such contract, agreement or instrument; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into, but only to the extent that the guaranteed debt is outstanding. -8- (c) "Equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of the Corporation not allocated to cover specific liabilities. 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 Development Credit Agreement becomes effective. Section 5.02. This Agreement and all obligations of the parties thereunder shall terminate on the date on which the Development Credit Agreement shall terminate in accordance with its terms, and the Association shall promptly notify the Corporation and Zambia Industrial and Mining Corporation Limited thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion 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 hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such reque.. The addresses so specified are: For.the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America -9- Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) 64145 (WUI) 89650 (wUT) or 197688 (TRT) For the Corporation: Zambia Foresty and Forest Industries Corporation Limited P.O. Box 71566 Ndola, Zambia Cable Address: Telex: ZA 30000 Ndola For ZIMCO: Zambia Industrial and Mining Corporation Limited P.O. Box 30090 Lusaka, Zambia Cable Address: Telex: ZIMCO ZA 40790 Lusaka 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 the Corporation or of the Zambia Indus- trial and Mining Corporation Limited, or by the Corporation on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the Managing Director of the Corpora- tion or the Director General of ZIMCO, as the case may be, or such other person or persons as they shall designate in writing, and the Corporation and ZIMCO shall furnish to the Association sufficient evidence of the authority and the authenticated speci- men signature of each such person. - 10 - 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 DEVELOPMENT ASSOCIATION By Reg onal Vice President Eastern Africa ZAMBIA FORESTRY AND FOREST INDUSTRIES CORPORATION LIMITED By IqPTLU" " _; k aq' Authorized Representative ZAMBIA INDUSTRIAL AND MINING CORPORATION LIMITED ByAuhoie yen t Authorized Representative - 11 - SCHEDULE 1 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the current edition of 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 to be procured on the basis of international competitive bidding, in addition to the requirements of para- graph 1.2 of the Guidelines, the Corporation shall prepare and forward to 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 prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Asso- ciation shall reasonably request; 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 in question. The Corporation shall provide the neces- sary information to update such notice annually so long as any goods or works remain to be procured on the basis of interna- tional competitive bidding. 3. For the purpose of inviting bids for vehicles, tractors, trailors, machinery, equipment, tools and spare parts, such items shall be grouped as far as practicable into economical bidding packages. 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 the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland - 12 - freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 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 Zambia 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 would 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 Zambia if the bidder shall have established to the satisfaction of the Corporation and the Association that the manu- facturing cost of such goods includes a value added in Zambia 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. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. 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 - 13 - 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 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 1. Goods described in Part A, paragraph 3 of this Schedule which cannot be grouped in packages of a value of at least $100,000 equivalent may be procured on the basis of locally applicable competitive bidding procedures; such goods of a value of less than $30,000 equivalent may be purchased on the basis of the lowest of at least three competing quotations. The aggregate value of goods procured under this paragraph shall not, without the prior approval of the Association, exceed the equivalent of $500,000. 2. Civil works will be carried out by the Corporation or under negotiated contracts. D. Review of Procurement Decisions by the Association Review of invitations to bid and of proposed awards and final contracts: 1. With respect to all contracts for goods estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Corporation 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 reason- ably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. - 14 - (b) After bids have been received and evaluated, the Cor- poration shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Associa- tion, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Corporation and state the reasons for such determina- tion. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification was invited. (d) Two conformed copies of the contract 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 such contract. 2. With respect to each contract not governed by the preceding paragraph 1, the Corporation shall furnish 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 such contract, two con- formed copies of such contract, together with the analysis of the respective 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 was not consistent with the Guidelines or this Schedule, pr3mptly inform the Corporation and state the reasons for such determination. 3. 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 issu- ing 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, the Corporation shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Corporation and state the reasons for its determination. - 15 - SCHEDULE 2 Consultants and Experts Part A: Personnel to be furnished to the Corporation by a single firm under a contract between the Corporation and such firm (see Part II of the Guidelines referred to in Section 2.02 of this Agreement): 1. Logging and Processing 1 Manager, Logging and Processing 1 Assistant Manager, Sawmilling and Processing 1 Assistant Manager, Logging and Transportation 1 Senior Sawdoctor 2. Marketing 1 Marketing Manager 3. Engineering and Construction 1 Manager, Engineering and Construction 1 Central Workshop Superintendent Part B: Personnel to be recruited individually by the Corporation by the dates indicated (see Part V of such Guidelines): Position Date 1. Finance and Audit 1 Finance Manager June 30, 1984 1 Management Auditor June 30, 1984 2. Corporate Planning 1 Corporate Planning Manager March 31, 1984 1 Systems Analyst June 30, 1984 3. Training 1 Training Officer June 30, 1984 INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of il ( 1984. FOR SECRETARY