Conformed Copy - C1787 - Energy Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1787 MAG Project Agreement (Energy Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and JIRO SY RANO MALAGASY (JIRAMA) Dated August 20, 1987 CREDIT NUMBER 1787 MAG PROJECT AGREEMENT AGREEMENT, dated August 20, 1987, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and JIRO SY RANO MALAGASY (JIRAMA). WHEREAS (A) by the Development Credit Agreement of even date herewith between Democratic Republic of Madagascar (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to nineteen million eight hundred thousand Special Drawing Rights (SDR 19,800,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that JIRAMA 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 JIRAMA, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to JIRAMA on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS JIRAMA, 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; 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 and the Page 2 following term has the following meaning: "FY" means the fiscal year of JIRAMA starting on January 1 of each year and ending on December 31 of each year. ARTICLE II Execution of the Project Section 2.01. (a) JIRAMA 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 Part I of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) For the purpose of carrying into effect Part III of the Project, JIRAMA shall enter into agreements with the beneficiaries referred to in Part III of Schedule 2 to the Development Credit Agreement; such agreements to specify the respective obligations of JIRAMA and the beneficiaries in a manner acceptable to the Association. 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 3 to the Development Credit Agreement. Section 2.03. JIRAMA shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 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 and Part I of the Project. Section 2.04. JIRAMA shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, JIRAMA 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) JIRAMA 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) JIRAMA 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 JIRAMA of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. (a) By September 30, 1988, JIRAMA shall complete and furnish for review and comment to the Borrower and the Association the results of the tariff study to be carried out under Part I.F of the Project. (b) By January 1, 1989, JIRAMA, shall commence the implementation of the reform of the tariff structure, as judged satisfactory by the Borrower and the Association. ARTICLE III Management and operations of JIRAMA Section 3.01. JIRAMA shall carry out its operations and conduct its affairs in accordance with sound administrative, financial, and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. JIRAMA 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 public utility practices. Page 3 Section 3.03. JIRAMA shall take out and maintain with responsible insurers or make other provision satisfactory to the Association for insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) JIRAMA shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) JIRAMA shall: (i) have its records, 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 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, JIRAMA shall not incur any debt unless a reasonable forecast of the revenues and expenditures of JIRAMA shows that the projected internal cash generation of JIRAMA, for each FY during the term of the debt to be incurred shall be at least 1.4 times the projected debt service requirement of JIRAMA during such FY on all debt of JIRAMA including the debt to be incurred. (b) Except as the Association shall otherwise agree, JIRAMA shall take, from time to time, or cause to be taken, all such measures (including but not limited to adjustments of its tariffs for the sale of electricity) as shall be required to achieve during FY 1988 and 1989 an internal cash generation of not less than 1.2 times the projected debt service requirement of JIRAMA for any such FY; such ratio to be 1.4 for the years 1990 and thereafter. (c) Before September 30 in each of its FYs, JIRAMA shall, on the basis of forecasts prepared by JIRAMA and satisfactory to the Association, review the adequacy of its tariffs to meet the requirement set forth in the preceding paragraph (b) in respect of any such FY and the next following FY, and shall furnish to the Association a copy of such review upon its completion. (d) For the purposes of this Section: (i) The term "debt" means any indebtedness of JIRAMA maturing by its terms more than one year after the date on which it is originally incurred. (ii) Debt shall be deemed to be incurred: (i) under a loan contract or agreement or other instrument providing for such debt or further 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 shall be outstanding. Page 4 (iii) The term "internal cash generation of JIRAMA" means gross revenues of JIRAMA from all sources, less all operating expenses of JIRAMA, including expenses accountable to administration, maintenance and taxes (or payments in lieu of taxes), but before provision for depreciation of assets and interest and other charges on debt. (iv) The term "debt service requirement" means the aggregate amount of amortization (including sinking fund payments, if any) of, and interest and other charges on, debt. (v) The term "reasonable forecast" means a forecast prepared by JIRAMA in the FY in which the debt in question is to be incurred, which both the Association and JIRAMA accept as reasonable and as to which the Association has notified JIRAMA 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 JIRAMA. (vi) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of 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, with absence of such rates, on the basis of a rate of exchange acceptable to the Association. Section 4.03. (a) Except as the Association shall otherwise agree, JIRAMA shall take all necessary steps within its power (including but not limited to adjustments to its tariffs for the sale of electricity) as shall be required to provide JIRAMA with net operating income sufficient to: (i) yield a rate of return on the value of its net fixed assets of not less than eight percent (8%) during FY 1990 and each following FY; and (ii) generate funds adequate to cover thirty percent (30%) of the average of the investment program for the current and next following FY during FY 1990 and thereafter. (b) For the purposes of this Section: (i) the annual rate of return shall be calculated by relating the net operating income of JIRAMA for the FY in question to the average of the values of the net fixed assets of JIRAMA at the beginning and at the end of that year; (ii) the term "value of the net fixed assets" shall mean the gross book value of fixed assets used for electricity supply operations, including any buildings primarily used as offices for such operations, excluding work in progress, less the amount of accumulated depreciation, to be revalued annually in accordance with methods of revaluation acceptable to the Association; (iii) the term "net operating income" shall mean the difference between: (A) gross revenue from electricity operations, including rents from meters, and excluding interest on investments and other income applicable to operations or activities which are not electricity supply related; and (B) the expenses related to electricity operations, including: (1) operation, maintenance and administration expenses; (2) the costs of experimental and general research work for the electricity industry and of preliminary surveys, plans and investigations of electricity utility projects which do not prove to be feasible and are abandoned; Page 5 (3) taxes, including income taxes related to net operating income; and (4) the allowance for depreciation, applied to the gross book value of fixed assets as revalued pursuant to subparagraph (b) (ii) of this Section. (iv) Interest and other charges on debt are not to be deducted as expenses under subparagraph (b) (iii) (B) of this Section, but the amount of such charges related to electricity supply operations shall be taken into account in calculating the amount of "income taxes related to net operating income" under such subparagraph. Section 4.04. By June 30, 1989, JIRAMA shall complete and furnish to the Association a complete revaluation of JIRAMA's asset base. Section 4.05. (a) Without the prior approval of the Association, JIRAMA shall not change its investment program, as agreed upon with the Association, and/or make any additional investment not contained in such investment plan, if any such new investment would be in excess of: (i) the value of one percent (I%) of JIRAMA's net fixed assets as defined in Section 4.03 (b) (ii) of this Agreement; or (ii) the equivalent of $2 million; whichever is the smaller. (b) By September 30 of each year of execution of the Project, JIRAMA shall revise its investment program, as such revisions have been approved by the Association. Section 4.06. JIRAMA shall take all measures necessary to ensure that: (i) its accounts receivable shall be collected within 90 days from the billing date; and (ii) its accounts payable for non-payroll cash operating expenditures shall be payed within 90 days from the incurrence of any such expenditure. 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. (a) This Agreement and all obligations of the Association and of JIRAMA 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 accordance with its terms before the date specified in subparagraph (a) (ii) of this Section, the Association shall promptly notify JIRAMA 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 designated by notice to Page 6 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 JIRAMA: Boite Postale 200 Antananarivo Madagascar Cable address: Telex: JIRAMA 22235 Antananarivo 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 JIRAMA may be taken or executed by the Director General or such other person or persons as the Director General shall designate in writing, and JIRAMA shall furnish to the Association sufficient evidence of the authority and the authenticated 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 collectively 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, 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 JIRO SY RANO MALAGASY By /s/ Leon Rajaobelina Authorized Representative