Conformed Copy - L2910 - Power Distribution Project - Project Agreement 1

Page 1 CONFORMED COPY LOAN NUMBER 2910 MOR (Power Distribution Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NATIONAL ELECTRICITY AUTHORITY Dated June 21, 1989 LOAN NUMBER 2910 MOR ONE PROJECT AGREEMENT AGREEMENT, dated June 21, 1989, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NATIONAL ELECTRICITY AUTHORITY (ONE). WHEREAS (A) by the Loan Agreement of even date herewith between Kingdom of Morocco (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to ninety million dollars ($90,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that ONE agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and ONE, part of the proceeds of the loan provided for under the Loan Agreement will be made available to ONE on the terms and conditions set forth in said Subsidiary Loan Agreement; and Page 2 WHEREAS ONE, 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 and the General Conditions (as so defined) have the respective meanings therein set forth and the following additional terms have the following meanings: (a) the term "ONE Action Plan" means ONE's 1988-1994 plan of actions for the development and improvement of its electric power activities set forth or referred to in the Schedule to this Agreement, as the same may be amended from time to time by agreement between the Bank and ONE; and (b) the term "Corporate Development Plan" means ONE's medium-term corporate development plan referred to in Part B of the Schedule to this Agreement, as the same shall be updated from time to time in accordance with the provisions of said Part B. ARTICLE II Execution of the Project Section 2.01. ONE declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part A of the Project: (a) with due diligence and efficiency, (b) in accordance with the ONE Action Plan, and (c) in conformity with appropriate administra- tive, financial, engineering, electric power 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 purpose. Section 2.02. Except as the Bank shall otherwise agree, pro- curement of the goods, works and consultants' services required for Part A of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 2.03. ONE shall carry 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 ONE Project Agreement and Part A of the Project. Section 2.04. ONE shall duly perform all its obligations under its Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, ONE shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving its Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) ONE shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under its Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) ONE shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A the Project, the accomplishment of the purposes of Loan, or the performance by ONE of its obligations under this Agreement and under its Subsidiary Loan Agreement. Page 3 ARTICLE III Management and Operations of ONE Section 3.01. ONE shall carry on its operations and conduct its affairs in accordance with the ONE Action Plan and with sound administrative, financial, engineering and electric power practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. ONE 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 electric power practices. Section 3.03. ONE shall take out and maintain with respon- sible 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. ARTICLE IV Financial Covenants Section 4.01. (a) ONE shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) ONE 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 seven 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 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) Except as the Bank shall otherwise agree, ONE shall produce funds from internal sources related to electric power operations equivalent to not less than 25%, for each of its fiscal years 1988, 1989 and 1990, and 30%, for each of its fiscal years thereafter, of the annual average of ONE's capital expendi- tures related to electric power operations incurred, or expected to be incurred, for that year, the previous fiscal year and the next following fiscal year. (b) Before October 31 in each of its fiscal years, ONE shall, on the basis of forecasts prepared by ONE and satisfactory to the Bank, 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 Bank a copy of such review upon its completion. (c) If any such review shows that ONE would not meet the requirements set forth in paragraph (a) for ONE's fiscal years covered by such review, ONE shall promptly take all necessary measures (including, without limitation, adjustments of the struc- ture or levels of its rates) in order to meet such requirements. Page 4 (d) For the purposes of this Section: (i) The term "funds from internal sources" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income but excluding non-cash operating revenues; and (B) the sum of all expenses related to operations, including administration, adequate maintenance and taxes and payments in lieu of taxes (excluding provision for depreciation and other non-cash operating charges), debt service requirements, all cash dividends and other cash distributions of surplus and other cash outflows other than capital expenditures. (ii) 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 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. (iv) The term "capital expenditures" means all expendi- tures incurred on account of fixed assets, including interest charged to construction, related to operations, but excluding consumer contributions in aid of construction (other than overhead surcharges levied on consummers) and government contributions for the Borrower's national rural electrification program and fund for least developed regions. (v) 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 Bank. Section 4.03. (a) Without limitation upon the provisions of Section 4.02 of this Agreement, ONE shall take all measures neces- sary to ensure that its electricity tariffs shall be increased not later than May 1, 1988, to levels such that the estimated average price of electricity at the increased tariff levels equals at least 105% of the actual average price of electricity at the prior electricity tariff levels. (b) For purposes of this Section: (i) the term "electricity tariffs" means the prices charged by ONE to distributers and final users of electricity for electricity provided by ONE; (ii) the term "estimated average price of electricity" means (A) the revenues (excluding taxes) which ONE would have received by selling the reference quantity of electricity at the increased tariff Page 5 levels, divided by (B) the reference quantity of electricity; all as calculated in accordance with guidelines satisfactory to the Bank; (iii) the term "actual average price of electricity means (A) the revenues (excluding taxes) received by ONE from the sale of the reference quantity of electri- city at the prior electricity tariff levels, divided by (B) the reference quantity of electri- city; all as calculated in accordance with guide- lines satisfactory to the Bank; (iv) the term "reference quantity of electricity" means the total amount of electricity, expressed in kilowatt/hours, sold by ONE during the period from the date from which the prior electricity tariff levels became effective to April 1, 1988; (v) the term "increased electricity tariff levels" means the levels of electricity tariffs established in accordance with the provisions of paragraph (a) of this Section; and (vi) the term "prior electricity tariff levels" means the levels of electricity tariffs established upon the last increase of electricity tariff levels prior to the increase referred to in paragraph (a) of this Section. Section 4.04. (a) Except as the Bank shall otherwise agree, ONE shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ONE shows that the estimated net revenues of ONE 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 ONE in such year on all debt of ONE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ONE 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: (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, but excluding non-cash operating revenues; 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. (iv) 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 Page 6 of taxes, incurred in the generation of revenues in (A) above. (v) The term "debt service requirements" means the aggregate 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 ONE not earlier than three months prior to the incurrence of the debt in question, which both the Bank and ONE accept as reasonable and as to which the Bank has notified ONE of its accept- ability, 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 ONE. (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 Bank. Section 4.05. (a) ONE shall take all measures necessary to pay each of its fuel bills within thirty (30) days after the due date of such bill. (b) For purposes of this Section, the term "fuel bills" means the amounts periodically billed to ONE for the supply of fuel and related services to ONE. Section 4.06. ONE shall promptly bill the Local Utilities so as to enable the Local Utilities to fulfill the obligations set forth in Section 4.04 of the Local Utilities Project Agreement in accordance with the provisions of said Section. Section 4.07. The provisions of Sections 4.03 and 4.04 of the Project Agreement dated July 2, 1976 between the Bank and ONE for a Sidi Cheho-Al Massira Project (Loan No. 1299 MOR) and of Section 4.03 of the Project Agreement dated May 22, 1979 between the Bank and ONE for a Village Electrification Project (Loan No. 1695 MOR) are hereby amended to read as set forth in Sections 4.02 and 4.05 of this Agreement, respectively. 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.O2. This Agreement and all obligations of the Bank and of ONE thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify ONE 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 Page 7 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 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 ONE: Office National de l'Electricite 65, rue Aspirant Lafuente Casablanca Morocco Cable address: Telex: OFELEC 22780 M 22603 M 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 ONE, may be taken or executed by its chief executive officer or such other person or persons as such chief executive officer shall designate in writing, and ONE 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 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, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ W. Thalwitz Regional Vice President Europe, Middle East and North Africa NATIONAL ELECTRICITY AUTHORITY Page 8 By /s/ A. Benjelloun Authorized Representative SCHEDULE ONE Action Plan In order to ensure the proper development of its electric power activities, ONE shall, inter alia, carry out the following measures. A. Part A of the Project ONE shall: 1. carry out the analyses, referred to in Part A (7) of the Project, in accordance with terms of reference satisfactory to the Bank; 2. complete said analyses and furnish to the Bank the results and conclusions thereof, together with the recommendations based thereon, not later than December 31, 1989; 3. afford the Bank a reasonable opportunity to exchange views with ONE on said results, conclusions and recommendations; and 4. thereafter take all measures necessary to ensure the prompt implementation, not later than January 1, 1992, of such recommen- dations, based on said studies, as shall have been agreed between the Bank and ONE. B. Management and Operations of ONE 1. ONE shall: (a) prepare and furnish to the Bank not later than October 31, 1988, for the Bank's review and comments, a medium- term corporate development plan setting forth: (i) ONE's organi- zational, managerial, operational and financial policies and objectives, including operational and financial targets for the next following three years; (ii) a program of actions designed to implement such policies and achieve such objectives and targets, including (A) an investment program for said period and the next two years thereafter, and (B) measures, to be implemented commencing in fiscal year 1989 and at all times thereafter, designed to protect ONE from fluctuations in the amounts paid by ONE for fuel utilized in the generation of electric power, attributable to fluctuations in the hydrological condition of the Borrower's territory; and (iii) the resources to enable ONE to carry out said actions; (b) afford the Borrower and the Bank a reasonable opportu- nity to exchange views with ONE on the Corporate Development Plan; (c) thereafter, on the basis of said exchange of views, con- clude arrangements, not later than November 30, 1988, with the Borrower designed to ensure the proper implementation of the Corporate Development Plan; and (d) carry out the Corporate Development Plan with due dili- gence and efficiency and in conformity with sound administrative, financial, economic, engineering, electric power and public utility practices. 2. Further to the foregoing, ONE shall: (a) maintain operational procedures designed to enable it to monitor and evaluate, in accordance with guidelines satisfactory to the Bank, the carrying out of the Corporate Development Plan; (b) prepare and furnish to the Bank not later than October 31 of each year a report, in form and substance satisfac- Page 9 tory to the Bank, on the conclusions and recommendations indicated by the monitoring and evaluation activities performed pursuant to sub-paragraph (a) of this Part, including any proposed revisions and additions to be introduced into the Corporate Development Plan for the next following three years, including proposed revisions and additions to be introduced into the investment program for said period and the next two years thereafter; and (c) thereafter promptly introduce such revisions and additions into the Corporate Development Plan as shall have been agreed between the Bank and ONE. 3. In order to enhance ONE's management capabilities, ONE shall: (a) develop, in accordance with terms of reference satisfac- tory to the Bank, and furnish to the Bank, not later than June 30, 1990, for the Bank's review and comments, a management information system for ONE; (b) afford the Bank a reasonable opportunity to exchange views with ONE on such management information system; and (c) thereafter, promptly introduce and apply such management information system on the basis of said exchange of views. 4. ONE shall take all measures required on its part to imple- ment, not later than December 31, 1990, those recommendations referred to in Part B.1 of Schedule 7 to the Loan Agreement, designed to strengthen its capabilities in demand forecasting and investment planning activities and to facilitate the proper coordination of said activities with those of the other Project Enterprises and Other Utilities.