Conformed Copy - C1850 - Power Rehabilitation and Energy Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1850 SO (Power Rehabilitation and Energy Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and ENTE-NAZIONALE ENERGIA ELETTRICA (ENEE) Dated December 17, 1987 PROJECT AGREEMENT AGREEMENT, dated December 17, 1987, btween INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and ENTE-NAZIONALE ENERGIA ELETTRICA (ENEE). WHEREAS (A) by the Development Credit Agreement of even date herewith between Somali Democratic Republic (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 ENEE agree 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 ENEE, the proceeds of the credit provided for under the Development Credit Agreement will be made available to ENEE on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS ENEE, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; Page 2 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. ENEE 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 appro- priate administrative, financial, engineering 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. ENEE 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. ENEE shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ENEE 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) ENEE shall, at the request of the Associa- tion, exchange views with the Association with regard to the pro- gress 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) ENEE shall promptly inform the Association of any condi- tion which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by ENEE of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of ENEE Section 3.01. ENEE shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. ENEE 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 and financial practices. Section 3.03. ENEE shall take out and maintain with respon- Page 3 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. ARTICLE IV Financial Covenants Section 4.01. (a) ENEE shall maintain records and accounts adequate to reflect in accordance with sound accounting practices, its operations and financial condition. (b) ENEE shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) including the Special Account for each fiscal year audited, in accordance with appropriate auditing 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 records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. Section 4.02. (a) Except as the Association shall otherwise agree, ENEE shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ENEE shows that the estimated net revenues of ENEE for each fiscal year during the term of the debt to be incurred shall be at least 1.5 times the estimated debt service requirements of ENEE in such year on all debt of ENEE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ENEE maturing by its term more than one year after the date on which it is originally incurred. (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) the term "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate mainte- nance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. Page 4 (iv) The term "net non-operating income" means the dif- ference 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 reve- nues in (A) above. (v) 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. (vi) The term "reasonable forecast" means a forecast prepared by ENEE not earlier than twelve months prior to the incurrence of the debt in question, which both the Association and ENEE accept as rea- sonable and as to which the Association has noti- fied ENEE of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of ENEE. (vii) 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 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 4.03. (a) Except as the Association shall otherwise agree, ENEE shall produce, for each of its fiscal years after its fiscal year ending on December 31, 1987, funds from internal sources equivalent to not less than (i) 1% of the annual investment program for fiscal year 1988; (ii) 10% of the annual investment program for fiscal year 1989; (iii) 15% of the annual investment program for fiscal year 1990; (iv) 20% of the annual investment program for fiscal year 1991; and (v) 30% of the annual investment program for fiscal year 1992 and thereafter. (b) For the purposes of this Section, the term "annual investment program" means the annual tranche of the RIP as modified from time to time. Section 4.04. (a) Except as the Association shall otherwise agree, ENEE shall earn, for each of its fiscal years after its fiscal year ending on December 31, 1989, an annual return of not less than 8% of the average current net value of ENEE's fixed revalued assets in operation. (b) Before September 30 in each of its fiscal years, ENEE shall, on the basis of forecasts prepared by ENEE 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 ENEE would not meet the requirements set forth in paragraph (a) for ENEE's fiscal years covered by such review, ENEE shall promptly take all necessary measures (including, without limitation, adjustments of the struc- ture or levels of its tariffs) in order to meet such requirements. (d) For the purposes of this Section: Page 5 (i) The annual return shall be calculated by dividing ENEE's net operating income for the fiscal year in question by one half of the sum of the current net value of ENEE's fixed revalued assets in operation at the beginning and at the end of that fiscal year. (ii) The term "net operating income" means total operat- ing revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including admini- stration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation of the average current gross value of ENEE's fixed revalued assets in operation, or other basis acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of ENEE's fixed revalued assets in operation shall be calculated as one half of the sum of the gross value of ENEE's fixed revalued assets in operation at the beginning and at the end of the fiscal year, as valued from time to time in accordance with sound and consis- tently maintained methods of valuation satisfactory to the Association. (vi) The term "current net value of ENEE's fixed reva- lued assets in operation" means the gross value of ENEE's fixed revalued assets in operation less the amount of accumulated depreciation, as valued from time to time in accordance with sound and con- sistently maintained methods of valuation satis- factory to the Association. Section 4.05. ENEE shall take all measures necessary to ensure that its accounts receivable on electricity sales and accounts payable on non-payroll cash operating expenditures are reduced to 120 days by December 31, 1988, and to 90 days for fiscal year 1989 and thereafter. Section 4.06. (a) ENEE shall, at the end of every Fiscal Year, review the RIP in consultation with the Association and revise it as necessary after obtaining the approval of the Association. (b) Until the completion of the Project, ENEE shall obtain the approval of the Association prior to making any changes and/or making additional investment not contained in the RIP as agreed with the Association, if any, such new investment would be in excess of: (i) the value of one percent (1%) of ENEE's gross fixed revalued assets as defined in Section 4.04 of this Agreement; or (ii) the equivalent of $1 million, whichever is the smaller. Section 4.07. ENEE shall: (a) not later than December 31, 1988, submit to the Association for review its asset registry and asset revaluation manual; and (b) promptly thereafter carry out asset revaluation taking into account the Association's views. 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. Page 6 Section 5.02. (a) This Agreement and all obligations of the Association and of ENEE 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 Agreement. (b) If the Development Credit Agreement terminates in accor- dance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify ENEE of this event. 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 hereinafter specified or at such other address as such party shall have desig- nated 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) For ENEE: P.O. Box 1 Mogadishu, Somalia Telex: 630 ENEE-MOG 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 ENEE, or by ENEE on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the General Manager of ENEE or such other person or persons as ENEE shall designate in writing, and ENEE shall furnish to the Association sufficient evidence of the authority and the authenti- cated specimen 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 duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, Page 7 United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Edward V.K. Jaycox Regional Vice President Africa ENTE-NAZIONALE ENERGIA ELETTRICA By /s/ A. A. Addou Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods Part A: International Competitive Bidding Except as provided in Part C hereof, power station units, auxiliary plant replacement parts and non-proprietory spare parts shall be procured under contracts awarded in accordance with pro- cedures 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 May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Somalia may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures Contracts for spare parts for proprietary generation and transmission equipment may, with the prior approval of the Asso- ciation, be procured under contracts negotiated with the res- pective equipment manufacturers. Part D: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: The procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply to all contracts for procurement. 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 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. 2. The figure of 15% is hereby specified for purposes of para- graph 4 of Appendix 1 to the Guidelines. Page 8 Section II: Employment of Consultants In order to assist ENEE in carrying out the Project, ENEE shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. 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.