Conformed Copy - L2938 IN- Second Karnataka Power Project - Project Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 2938 IN Karnataka Agreement (Second Karnataka Power Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and STATE OF KARNATAKA Dated July 27, 1988 LOAN NUMBER 2938 IN KARNATAKA AGREEMENT AGREEMENT, dated July 27, 1988, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and STATE OF KARNATAKA, acting by its Governor (Karnataka). WHEREAS (A) by the Loan Agreement of even date herewith between India, acting by its President (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to two hundred sixty million dollars ($260,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Karnataka agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) the Project will be carried out by the Karnataka Power Corporation Limited (the Corporation) and the Karnataka Electricity Board (the Board) with the Borrower's assistance and, as part of such assistance, the proceeds of the Loan provided for under the Loan Agreement will be made available to Karnataka by the Borrower for relending to the Corporation and the Board; and Page 2 WHEREAS Karnataka, in consideration of the Bank's entering into the Loan 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 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 Project Section 2.01. (a) Karnataka declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall cause the Board to carry out Part B 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) Without any limitation or restriction upon any of its other obligations under this Agreement, Karnataka shall cause the Corporation to perform in accordance with the provisions of the Project Agreement all the obligations of the Corporation therein set forth, shall take or cause to be taken all actions, including the provision of funds, facilities, services, and other resources, necessary or appropriate to enable the Corporation to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. Section 2.02. (a) Karnataka shall relend the proceeds of the Loan made available by the Borrower to Karnataka as follows: (i) an amount equivalent to $130,000,000 to the Corporation under a subsidiary loan agreement to be entered into between Karnataka and the Corporation under terms and conditions which shall have been approved by the Bank which shall, except as the Bank may otherwise agree, include interest at a rate of not less than 11.50% per annum on the principal amount so relent and withdrawn by the Corporation and outstanding from time to time, and repayment over a period of twenty years, including therein a period of grace of five years; and (ii) an amount equivalent to $130,000,000 to the Board under terms and conditions satisfactory to the Bank, which shall, except as the Bank may otherwise agree, include interest at a rate of not less than 11.50% per annum on the principal amount so relent and withdrawn by the Board and outstanding from time to time, Page 3 and repayment over a period of twenty years, including therein a period of grace of five years. (b) Karnataka shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of Karnataka and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, Karnataka shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 2.03. Except as the Bank 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 Loan shall be governed by the provisions of the Schedule to this Agreement. Section 2.04. Karnataka shall carry out or cause to be carried out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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 Karnataka Agreement and Part B of the Project. Section 2.05. (a) Karnataka shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement, and other matters relating to the purposes of the Loan. (b) Karnataka shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part B of the Project, the accomplishment of the purposes of Loan, or the performance by Karnataka of its obligations under this Agreement. Section 2.06. Karnataka shall cause the Board to complete the detailed route survey for the 220 kV Gersoppa-Talaguppa transmission line and, not later than December 31, 1988, make an application to the Borrower's appropriate authorities for clearance under the Forest (Conservation) Act, 1980 of the Borrower. ARTICLE III Management and Operations of the Board Section 3.01. Karnataka shall cause the Board to: (i) 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; (ii) 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; and (iii) take out and maintain with responsible 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 3.02. Karnataka shall cause the Board: (i) by April 1, 1990 to collect its accounts receivable from its principal debtors as of March 31, 1987, in accordance with a monitorable action program satisfactory to the Bank; and (ii) to maintain its accounts receivable with respect to the sales at no more than the equivalent of Page 4 the preceding two month's sales. Section 3.03. Karnataka shall cause the Board to retain by December 31, 1988, the services of a qualified firm under terms and reference satisfactory to the Bank, to review the Board's work planning procedures, introduce new tools and equipment, and train the Board's staff in their use. Section 3.04. Karnataka shall cause the Board to ensure that all sums owed by the Board to the Corporation in respect of sales of electricity and not covered by a letter of credit, are cleared within 30 days of billing. ARTICLE IV Financial Covenants Section 4.01. Karnataka shall cause the Board to: (a) maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition; (b) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each financial year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (c) furnish to the Bank as soon as available, but in any case not later than nine months after the end of each such year, commencing financial year 1986/87, (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 Bank shall have reasonably requested; and (d) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Karnataka shall cause the Board to take from time to time all such measures as may be necessary including, if necessary, adjustment of tariffs of the Board to ensure that the total revenues in any financial year shall, after meeting: (i) all expenses properly chargeable to revenues, including operating maintenance and management expenses; (ii) taxes on income and profits; (iii) depreciation; and (iv) interest payable on all debentures, bonds and loans; produce such surplus as is not less than 3% of the net fixed assets of the Board in service at the beginning of such year. (b) For the purposes of this Section: (i) "total revenues" means revenues of the Board from the sale of electricity and other services, miscellaneous income, rural electrification subsidies received from Karnataka, state electricity duties received, and such other subventions as shall be made in respect of extraordinary costs which are borne by the Board and which should not reasonably be borne by customers of the Board; (ii) "expenses" means the cost of power purchased, fuel, operating, maintenance, management and administrative expenses, Page 5 and all taxes and duties accruing during the financial year, other than taxes on income and profits of the Board; (iii) "taxes on income and profits" consists of income taxes and other levies accrued by the Board according to the provisions of any legislation or regulation applicable in this respect; (iv) "depreciation" means a provision derived in accordance with the straight-line method based on the useful life of assets as stipulated in the Borrower's notification G.S.R. 244(E)-F No. 25(9)82- D(SEB) dated March 31, 1985, issued under the provisions of Section 68 of the Electricity (Supply) Act 1948, of the Borrower, based on the gross value of the Board's fixed assets in service at the beginning of each year; (v) "interest payable on all debentures, bonds and loans" means all interest, excluding interest during construction, accrued by the Board during the financial year and all other charges on debt; and (vi) "net fixed assets of the Board in service" means the original cost of such fixed assets, as reduced by the aggregate of the cumulative depreciation in respect of such assets, less consumers' contribution for service lines, also reduced by the aggregate of the cumulative depreciation in respect of such portion of the service lines as has been financed by consumer contributions. 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. Section 5.02. This Agreement and all obligations of the Bank and of Karnataka thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Karnataka 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 Page 6 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 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 Karnataka: Secretary to the Government of Karnataka Department of Power Bangalore Karnataka, India Cable address: Telex: POWER 953-845239 Bangalore 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 Karnataka may be taken or executed by a Secretary to the Government of Karnataka or such other person or persons as Karnataka shall designate in writing, and Karnataka shall furnish to the Bank 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Bilsel Alisbah Acting Regional Vice President Asia STATE OF KARNATAKA By /s/ N. Misra Authorized Representative Page 7 SCHEDULE Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part D 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 May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in India 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: Preference for Domestic Contractors In the procurement of works in accordance with the procedures described in Part A hereof, a margin of preference to domestic contractors may be granted in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Contracts for civil works and equipment estimated to cost the equivalent of $5,000,000 and $200,000 each or less, respectively, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank. 2. Equipment required for limiting fault current at existing 11 kV substations may be procured from the known suppliers through negotiated contracts. 3. Works for compensatory afforestation may be carried out by force account. Part E: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for civil works and equipment estimated to cost the equivalent of $5,000,000 and $1,000,000 each or more, respectively, 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 contract together with the other information required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank 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 preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made Page 8 out of the Special Account, said 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 Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (a) (ii) of the Loan Agreement. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist the Corporation and the Board in carrying out the Project, consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank shall be employed. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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.