Conformed Copy - L3084 - Manila Power Distribution Project - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3084 PH (Manila Power Distribution Project) between DEVELOPMENT BANK OF THE PHILIPPINES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated August 2, 1989 LOAN NUMBER 3084 PH LOAN AGREEMENT AGREEMENT, dated August 2, 1989, between DEVELOPMENT BANK OF THE PHILIPPINES (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) The Republic of the Philippines (the Guarantor) and the Borrower, having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, have requested the Bank to assist in the financing of the Project; (B) by an agreement (the Guarantee Agreement) of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations as set forth in the Guarantee Agreement; (C) the Project will be carried out by Manila Electric Company (MERALCO), with the Borrower's assistance and, as part of Page 2 such assistance, the Borrower will make available to MERALCO the proceeds of the Loan as provided in this Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Bank and MERALCO; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.O2. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and MERALCO of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and MERALCO pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (c) "Charter" means the charter of the Borrower dated December 3, 1986, as amended to the date of this Agreement; (d) "Statement of Policy" means the policy statement specifying the Borrower's objectives, general operational principles, investment policies, financial prudence limits, financial policy and capital structure, and the statement of lending and investment policy approved by the Directors of the Borrower and the Guarantor; (e) "The Action Plan" means the series of operational actions set forth in the Plan dated April 14, 1989; and (f) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. ARTICLE II The Loan Section 2.O1. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of sixty five million five hundred thousand dollars ($65,500,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. Page 3 (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special account in a bank on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1995 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one-half of one percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.06 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost of the outstanding borrowings of the Bank drawn down after June 30, 1982, expressed as a percentage per annum, as reasonably determined by the Bank. (iii) "Semester" means the first six months or the second six months of a calendar year. Section 2.06. Interest and other charges shall be payable semiannually on February 1 and August 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restriction upon any of its other obligations under the Loan Agreement, shall cause MERALCO to perform in accordance with the provisions of the Project Agreement all the obligations of MERALCO therein set forth, shall take or cause to be taken all action, including the provision of funds and other resources, necessary or appropriate to enable MERALCO to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Loan available to MERALCO under a subsidiary loan agreement to be entered into between the Borrower and MERALCO, under terms and conditions which shall have been approved by the Bank which shall include: (i) a term of 20 years (with a grace period of five years on repayment of principal); (ii) an interest rate with fixed spread not exceeding 3.65% over Bank's rate; and (iii) the assumption of the foreign exchange risk by MERALCO. Page 4 (c) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods and works 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 the Project Agreement. Section 3.03. The Bank and the Borrower hereby agree that 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) shall be carried out by MERALCO pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) The Borrower 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 Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of the 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concern- ing 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) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made; and (iii) enable the Bank's representatives to examine such records. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Page 5 Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified: (a) MERALCO shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that MERALCO will be able to perform its obligations under the Project Agreement. (c) A Governing Regulation or any provisions thereof shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of MERALCO to perform any of its obligations under the Project Agreement. (d) The Guarantor, the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of MERALCO or for the suspension of its operations. (e) MERALCO shall have been unable to pay its debts as they mature or any action or proceeding shall have been taken whereby any of its properties shall or may be distributed among its creditors. (f) The Charter or the Statement of Policy shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or the financial condition of the Borrower or to perform any of its obligations under this Agreement. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower; and (b) the events specified in paragraphs (c), (d) and (f) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Page 6 Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and MERALCO; and (b) the Policy Statement of the Borrower has been issued. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly authorized or ratified by MERALCO, and is legally binding upon MERALCO in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and MERALCO and is legally binding upon the Borrower and MERALCO in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Chairman of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Development Bank of the Philippines Makati, Metro Manila Philippines Cable address: Telex: PHILDEBANK 22197 Manila 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 64l45 (WUI) 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. Page 7 DEVELOPMENT BANK OF THE PHILIPPINES By /s/ Emmanuel Pelaez Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Amnon Golan Acting Regional Vice President Asia SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Goods 59,000,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local ex- penditures for other items pro- cured locally (2) Works 6,500,000 65% __________ TOTAL 65,500,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Guarantor or for goods or services supplied from the territory of any country other than that of the Guarantor; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor or for goods or services supplied from the territory of the Guarantor. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $1,000,000, may be made on account of payments made for expenditures before that date but after March 1, 1989. SCHEDULE 2 Description of the Project The objectives of the Project are to improve the technical Page 8 and commercial operations of MERALCO. The Project consists of the following parts, subject to such modifications thereof as the Borrower, MERALCO, and the Bank may agree upon from time to time to achieve such objectives: Part A: Construction and upgrading of subtransmission lines, and additional substation capacity. Part B: Construction and upgrading of distribution systems. Part C: Improvement and expansion of the radio-multiplex facilities for system monitoring and control. Part D: Improve the capacity of MERALCO to carry out its construction and maintenance activities. * * * The Project is expected to be completed by December 31, 1994. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (Expressed in dollars)* February 1, 1995 1,200,000 August 1, 1995 1,250,000 February 1, 1996 1,295,000 August 1, 1996 1,345,000 February 1, 1997 1,395,000 August 1, 1997 1,450,000 February 1, 1998 1,505,000 August 1, 1998 1,565,000 February 1, 1999 1,625,000 August 1, 1999 1,685,000 February 1, 2000 1,750,000 August 1, 2000 1,815,000 February 1, 2001 1,885,000 August 1, 2001 1,960,000 February 1, 2002 2,035,000 August 1, 2002 2,110,000 February 1, 2003 2,190,000 August 1, 2003 2,275,000 February 1, 2004 2,365,000 August 1, 2004 2,455,000 February 1, 2005 2,545,000 August 1, 2005 2,645,000 February 1, 2006 2,745,000 August 1, 2006 2,850,000 February 1, 2007 2,960,000 August 1, 2007 3,075,000 February 1, 2008 3,190,000 August 1, 2008 3,315,000 February 1, 2009 3,440,000 August 1, 2009 3,580,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Page 9 Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means the Categories set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $4,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or Page 10 requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to para- graph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been made out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Loan allocated to the eligible Categories less the amount of any outstanding special commitment entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. Page 11 (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.