Conformed Copy - C2239 - Urban Water Supply and Sanitation Rehabilitation Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2239 NEP (Urban Water Supply and Sanitation Rehabilitation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NEPAL WATER SUPPLY CORPORATION Dated October 10, 1991 CREDIT NUMBER 2239 NEP PROJECT AGREEMENT AGREEMENT, dated October 10, 1991, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NEPAL WATER SUPPLY CORPORATION (NWSC). WHEREAS: (A) by the Development Credit Agreement of even date herewith between the Kingdom of Nepal (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to forty-five million five hundred thousand Special Drawing Rights (SDR 45,500,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NWSC 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 NWSC, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to NWSC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS NWSC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the Page 2 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 and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) NWSC 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 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 limitation upon the provisions of paragraph (a) of this Section and except as the Association and NWSC shall otherwise agree, NWSC shall carry out the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement and with an Operational Action Plan satisfactory to the Association. To that end, NWSC shall: (i) prepare and furnish to the Association annual updates of said Plan; (ii) carry out the programs under said Plan with such changes thereof as the Association and NWSC shall have agreed upon; and (iii) keep the Association informed of the progress of the implementation of said Plan. 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. NWSC 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. Section 2.04. NWSC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NWSC 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) NWSC 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) NWSC 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 NWSC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of NWSC Section 3.01. NWSC shall carry on 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. Page 3 Section 3.02. NWSC 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. Section 3.03. NWSC 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) NWSC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NWSC 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 twelve 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; (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, including, without limitation of the foregoing, unaudited Project accounts and financial statements for each fiscal year, as soon as available, but not later than six months after the end of such year; and (iv) 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. Except as the Association shall otherwise agree, NWSC shall, from time to time, take all such measures including, without limitation, adjustments of the structure or levels of its tariffs, as shall be required to produce sufficient revenues to cover (i) working capital requirements and total operating expenses excluding depreciation, commencing with FY 1992, (ii) working capital requirements and total operating expenses including depreciation, commencing with FY 1994, and (iii) working capital requirements, total operating expenses and the greater of debt service or depreciation, commencing with FY 1996. (a) In calculating its revenues for FY92, NWSC shall include therein the NRs 22,000,000 subsidy provided for in Section 4.02 of the Development Credit Agreement. (b) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance and taxes and payments in lieu of taxes, and provision for depreciation but excluding interest and other charges on debt. (c) The term "working capital" means the difference between current assets and current liabilities at the end of each fiscal year. (d) The term "debt" means any indebtedness of NWSC maturing by its terms more Page 4 than one year after the date on which it is originally incurred. (e) 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. (f) The term "current assets" means cash and all assets other than cash which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inventories and pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (g) The term "current liabilities" means all liabilities which could become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. Section 4.03. NWSC shall open an interest bearing account with a commercial bank of the Borrower, satisfactory to the Association, for purposes of depositing excess working capital therein, which capital shall be used to meet future debt service obligations. Section 4.04. NWSC shall not declare or pay any dividends, whether in cash or in kind, until completion of the Project. 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 NWSC 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 paragraph (a) (ii) of this Section, the Association shall promptly notify NWSC 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 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 Page 5 Cable address: Telex: INDEVAS 197688 (TRT) Washington, D.C. 248423 (RCA) 64145 (WUI) or 82987 (FTCC) For NWSC: Nepal Water Supply Corporation P.O. Box 5349, Kathmandu, Nepal Cable address: Telex: NWSC 2549 NWSC NP Kathmandu, Nepal 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 NWSC may be taken or executed by the Chairman or such other person or persons as the Chairman shall designate in writing, and NWSC 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/ Daniel Ritchie Acting Regional Vice President Asia NEPAL WATER SUPPLY CORPORATION By /s/ Narayan D. Shrestha Authorized Representative SCHEDULE 1 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 Page 6 In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in the Kingdom of Nepal 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, NWSC may grant a margin of preference to domestic contractors 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. Items or groups of items for civil works estimated to cost the equivalent of up to $1,000,000 per contract may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Items or groups of items for materials and electrical, mechanical and pumping and ancillary equipment estimated to cost between the equivalent of $50,000 and $200,000 per contract, up to an aggregate amount equivalent to $2,500,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 3. Items for materials and equipment estimated to cost the equivalent of up to $50,000 per contract, up to an aggregate amount equivalent to $500,000, may be procured on the basis of prudent shopping. Part E: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to civil works contracts, in packages estimated to cost the equivalent of $200,000 or more, and contracts for materials and equipment, in packages estimated to cost $50,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of each contract required to be furnished to the Association pursuant to said para- graph 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. (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 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 Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 3 to the Development Credit 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 NWSC in carrying out the Project, NWSC 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. SCHEDULE 2 Page 7 Implementation Program NWSC shall: (a) introduce by December 31, 1991, and thereafter implement, a water and sewer connection policy satisfactory to the Association; and (b) not later than December 31, 1991, appoint and maintain, until completion of the Project, a committee with competent staff in adequate numbers, headed by the Senior Manager, Operation and Maintenance Wing in NWSC, satisfactory to the Association. The said committee shall have the responsibility for reviewing, among other things, engineering designs and specifications.