Zambia - Fertilizer Industry Restructuring Project : Credit 1662 - Project Agreement - Conformed

CREDIT NUMBER 1662 ZA Project Agreement (Fertilizer Industry Restructuring Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NITROGEN CHEMICALS OF ZAMBIA LIMITED Dated 19f , 1986 CREDIT NUMBER 1662 ZA PROJECT AGREEMENT AGREEMENT, dated , 1986, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NITROGEN CHEMICALS OF ZAMBIA LIMITED (NCZ). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Republic of Zambia (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to nine million seven hundred thousand Special Drawing Rights (SDR 9,700,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NCZ agrees to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and NCZ, the proceeds of the credit provided for under the Development Credit Agreement will be made available to NCZ on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS NCZ, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, have agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Preamble to this 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. NCZ declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with -2- appropriate administrative, financial, engineering, safety and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services 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 2.03. NCZ shall carry out the obligations set forth in Sections 9.03 through 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement. Section 2.04. NCZ shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NCZ 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 2.05. (a) NCZ shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) NCZ 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 NCZ of its obligations under this Agreement. ARTICLE III Management and Operations of NCZ Section 3.01. (a) NCZ shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering, safety and environmental standards acceptable to the Association under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. -3- (b) Without limitation to the generality of paragraph (a) of this Section, NCZ shall not change the composition or the number of staff at managerial level or alter its organizational structure without prior consultation with the Association. Section 3.02. NCZ 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 rnewals thereof, all in accordance with sound engineering, financial, safety and environmental standards acceptable to the Association. Section 3.03. NCZ shall take out and maintain with respon- sible insurers, or make other provision satisfactory to the Asso- ciation for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTLCLE IV Financial Covenants Section 4.01. (a) NCZ shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NCZ shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) and the Special Account for each fiscal year audited, in accordance with appropriate auditirg principles consistently 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 report 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 said accounts and financial statements 4- as well as the audit thereof and said records, as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals are requested from the Credit Account on the basis of statements of expenditure, NCZ shall: (i) maintain, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by the said auditors as to whether the proceeds of the Credit withdrawn in respect of such expenditures have been used for the purpose for which they were provided. Section 4.02. (a) Except as the Association shall otherwise agree, NCZ shall maintain a ratio of current assets to current liabilities of not less than 1.1 for fiscal years 1985/1986, 1986/1987 and 1.4 for the fiscal years thereafter. (b) Before April 1, in each of its fiscal years, NCZ shall, on the basis of forecasts prepared by NCZ and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next following fiscal year and shall furnish to the Association the results of such review upon its completion. (c) If any such review shows that NCZ would not meet the requirements set forth in paragraph (a) for NCZ's fiscal years covered by such review, NCZ shall promptly take all necessary measures including, without limitation, adjustments of the - 5 - structure or levels of its prices in order to meet such require- ments. (d) For the purposes of this Section: (i) The term "current assets" means cash, all assets which could in the ordinary course of business be converted into cash within twelve months, includ- ing accounts receivable, marketable securities, inventories and pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (ii) The term "current liabilities" means all liabili- ties which become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and divi- dends. (iii) The term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (iv) 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 timc of such valuation, obtainable for the purposes of servicing such debt or, in the absence Gf such rate, on the basis of rate of exchange acceptable to the Association. Section 4.03. (a) Except as the Association shall otherwise agree, NCZ shall not, beginning in fiscal year 1988/1989, incur any debt, unless the net revenues of NCZ for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.3 times the estimated maximum debt service requirements of NCZ for any - 6 - succeeding fiscal year on all debt of NCZ, including the debt to be incurred. (b) For the purposes of this Section: (i) The term "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations adjusted to take account of the NCZ's prices in effect at the time of the incurrence of debt even though they were not in effect during the twelve-month period to which such revenues relate and net non- operating income; and (B) the sum of all expenses related to operations including administration, adequate main- tenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (ii) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (iii) The term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. Section 4.04. (a) Except as the Association shall otherwise agree, NCZ shall not, beginning in fiscal year 1985/1986, incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 60 to 40. (b) For purposes of this Section, the term "equity" means the sum of the total unimpaired paid-up capital, retained - 7 - earnings and reserves of NCZ not allocated to cover specific liabilities. Section 4.05. For the purpose of Sections 4.03 and 4.04 of this Agreement: (i) The term "debt" means any indebtedness of NCZ. (ii) Debt shall be deemed to be incurred: (A) 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 of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) Whenever 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, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. Section 4.06. NCZ shall, until completion of the Project, consult with the Association prior to making any capital investment not included in the Eroject, involving in any fiscal year an aggregate amount in excess of the equivalent of two million dollars. Section 4.07. Except as the Association shall otherwise agree, NCZ shall not declare or pay or set apart any funds, properties or assets for the payment of any dividends on, or make any other distribution by reduction of capital or otherwise, in respect of any shares of NCZ until the completion of the Project. Section 4.08. NCZ shall, within 60 days after the end of each quarter, submit to the Association for review and comments (a) a Project Progress Report, (b) a procurement status report, and (c) any other report on the Project as the Association may request. - 8 - ARTICLE V Other Covenants Section 5.01. NCZ shall: (a) not later than June 30, 1986 prepare and submit to the Association for review and comments a comprehensive training program for its staff, and (b) implement such program taking into account the Association's views. Section 5.02. NCZ shall: (a) not later than September 30, 1986, prepare and submit to the Association for review and com- ments (i) Environmental, (ii) Energy Audit, and (iii) Safety Studies to be carried out under terms of reference satisfactory to the Association; and (b) implement the recommendations of the studies taking into account the Association's views. Section 5.03. NCZ shall, not later than April 30, 1986: (a) prepare and submit to the Association for review and comments an Organizational Restructuring Study to be carried out under terms of reference satisfactory to the Association; and (b) implement the recommendations of the study taking into account the Asso- ciation's views. Section 5.04. NCZ shall: (a) by December 31 of each year submit to the Association for review and comments an Annual Plan of Action for reducing its fixed and operational costs; and (b) implement the Plan taking into account the Association's views. Section 5.05. NCZ shall, not later than April 1, 1986, take all necessary measures to set the ex-factory prices of fertili- zers at levels equivalent to CIF landed cost of imported fertili- zers. Section 5.06. NCZ shall, not later -nan December 31, 1987, complete the installation in NCZ Plant I of a nitrogen oxide abatement uait whose specifications shall be acceptable to the Association. 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 Association and of NCZ thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) the date 20 years after the date of this Agree- ment. (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 NCZ of this event. Section 6.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE 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: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 10 - For NCZ: Managing Director NCZ P.O. Box 226 Kafue Zambia Cable address: Telex: NITROCHEM ZA 70030 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 NCZ may be taken or executed by the Managing Director of NCZ or such other person or persons as the Managing Director of NCZ shall designate in writing, and NCZ shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 7.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one inktrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 {/ ~ j J \KA' Regional Vice President Eastern and Southern Africa NITROGEN CHEMICALS OF ZAMBIA LIMITED Authorized Representative - 11 - SCHEDULE I Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A. International Competitive Bidding Except as provided in Part B hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in August 1984 (the Guidelines). Part B. Other Procurement Procedures 1. Items or groups of items estimated to cost less than the equivalent of US$100,000 per contract, up to an aggregate amount not to exceed the equivalent of US$300,000 may be procured under contracts awarded on the basis of evaluation and comparison of bids invited from a list of at least three suppliers from three different countries eligible under the Guidelines, in accordance with procedures acceptable to the Association. 2. Proprietary items estimated to cost up to an aggregate amount of US$600,000 equivalent may be purchased directly under negotiated contracts. Part C. Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for equipment and mate- rial, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the con- tract required to be furnished to the Association pursuant to said paragraph 2 (d) shall be furnished to the Association prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 - 12 - of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 3 (the Special Account Schedule) to the Development Credit Agree- ment. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Associa- tion has authorized withdrawals from the Credit Account on the basis of statements of expenditure. Such contracts shall be re- tained in accordance with Section 4.01 (c) (ii) of this Agree- ment. 3. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants In order to assist NCZ in implementing the Project, NCZ shall employ an Operations Management Firm of consultants and other consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Associa- tion. Such consultants shall 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. 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 198 4. FOR SECRETARY