Conformed Copy - C2267 - Railways Restructuring Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2267 TA (Railways Restructuring Project) between UNITED REPUBLIC OF TANZANIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated September 3, 1991 CREDIT NUMBER 2267 TA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated September 3, 1991, between UNITED REPUBLIC OF TANZANIA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower intends to contract from the African Development Fund (AfDF) a loan (the AfDF Loan) in an amount equivalent to $31,200,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the AfDF Loan Agreement) to be entered into between the Borrower and AfDF; (C) the Borrower intends to obtain from the Canadian International Development Agency (CIDA), a grant (the CIDA Grant) in an amount equivalent to $10,300,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the CIDA Grant Agreement) to be entered into between the Borrower and CIDA; Page 2 (D) the Borrower and the Overseas Development Administration (ODA) of the United Kingdom of Great Britain and Northern Ireland intend to enter into a memorandum of understanding (the ODA Memorandum of Understanding) for the purpose of making available goods and services to the Borrower with a value of about $8,500,000 (the ODA Grant) to assist in financing the Project on the terms and conditions set forth in the ODA Memorandum of Understanding); (E) the Borrower intends to obtain from the European Community (EC), a grant (the EC Grant) in an amount equivalent to $18,000,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the EC Grant Agreement) to be entered into between the Borrower and EC; (F) the Borrower has requested from the Federal Republic of Germany (FRG) a grant (the FRG Grant) in an amount equivalent to $18,300,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the FRG Grant Agreement) to be entered into between the Borrower and FRG; (G) the Project will be carried out by Tanzania Railways Corporation (TRC) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to TRC the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Association and TRC; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. 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 Preparation Advance" means the project preparation advance granted by the Association to the Borrower pursuant to an exchange of letters dated February 23, 1989, and April 14, 1989, and September 7, 1990, and October 10, 1990, between the Borrower and the Association; (b) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (c) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and TRC pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes any schedules to the Subsidiary Loan Agreement; (d) "TRC" means Tanzania Railways Corporation, established pursuant to the Tanzania Railways Corporation Act (TRC Act), No. 11 of 1977; (e) "Project Agreement" means the agreement between the Association and TRC, 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; (f) "MCT" means the Borrower's Ministry of Communications Page 3 and Transport; (g) "Ministerial Directive" means the Ministerial Directive No. 1 dated May 23, 1991, made pursuant to the TRC Act; (h) "MOU" means the Memorandum of Understanding between the Borrower and TRC dated May 24, 1991, establishing the operating and financial framework for TRC pursuant to the Ministerial Directive; (i) "Fiscal Year" means TRC's fiscal year which begins on January 1 each year and ends on December 31 of the same year; and (j) "Investment Plan" means TRC's Capital Budget and Development Program for the fiscal year 1991 and subsequent years. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to fifty-six million one hundred thousand Special Drawing Rights (SDR 56,100,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in its Central Bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 3 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be December 31, 1999, or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for Page 4 the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on April 15, and October 15, in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each April 15, and October 15, commencing October 15, 2001, and ending April 15, 2031. Each installment to and including the installment payable on April 15, 2011, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due con- sideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United Kingdom of Great Britain and North Ireland is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. TRC is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. 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 this Agreement, shall cause TRC to perform in accordance with the provisions of the Project Agreement all the obligations of TRC therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable TRC 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 relend the proceeds of the Credit to Page 5 TRC under a subsidiary loan agreement to be entered into between the Borrower and TRC, under terms and conditions which shall have been approved by the Association which shall include, inter alia, interest of at least 11% per annum, with the principal to be repaid in twenty years including five years of grace and with TRC bearing the cost of fluctuations in the currencies relent to it. (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 Association and to accomplish the purposes of the Credit, and except as the Association 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 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 the Project Agreement. Section 3.03. The Borrower and the Association hereby agree that the obligations set forth in Sections 9.03, through 9.08 of the General Conditions (relating to insurance, use of goods and ser- vices, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by TRC pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditures, 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 Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made; and (iii) enable the Association'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 Special Account 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 the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of ex- penditure 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 Page 6 (iii) furnish to the Association such other information concerning said records and accounts and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) TRC 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 this Agreement, an extraordinary situation shall have arisen which shall make it improbable that TRC will be able to perform its obligations under the Project Agreement. (c) The TRC Act shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of TRC to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of TRC or for the suspension of its operations. (e) The Ministerial Directive or MOU shall have been amended, suspended, abrogated or waived so as to affect materially and adversely the operations or the financial condition of TRC or its ability to carry out the Project or to perform any of its obligations under the Project Agreement; (f) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower or TRC to withdraw the proceeds of AfDF loan or any grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms thereof, or (B) the AfDF loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional events are specified: (a) any 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 Association to the Borrower; and (b) any of the events specified in paragraphs (c), (d), (e) and (f)(i)(B), (subject to the proviso of paragraph (f) (ii)) of Section 5.01 of this Agreement shall occur. ARTICLE VI Page 7 Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and TRC; (b) TRC has prepared and is making satisfactory progress in the implementation of action plans to improve maintenance and train operations practices in its railway system; (c) TRC's tariff has been cumulatively adjusted by 80% in accordance with the relevant provisions of the MOU; (d) the Borrower has appointed a new Board of Directors for TRC; and (e) TRC has signed contracts satisfactory to the Association, for the leasing of TRC's road and hotel services assets and for the franchising of TRC's catering services. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by TRC, and is legally binding upon TRC in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and TRC and is legally binding upon the Borrower and TRC in accordance with its terms. Section 6.03. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Agreement, the Minister at the time responsible for Finance 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: Ministry of Finance P.O. Box 9111 Dar es Salaam Tanzania Cable address: TREASURY Dar es Salaam For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Page 8 Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. UNITED REPUBLIC OF TANZANIA By /s/ Charles Nyirabu Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Stephen Denning Acting Regional Vice President Africa SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Civil works 2,200,000 55% (2) Goods and 32,700,000 100% of foreign equipment expenditures and 90% of local expenditures (3) Consultants' 13,000,000 90% services and training (4) Refunding of 1,100,000 Amounts due Project pursuant to Preparation Section 2.02 (c) Advance of this Agreement (5) Unallocated 7,100,000 TOTAL 56,100,000 ========== 2. For the purposes of this Schedule: Page 9 (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 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. SCHEDULE 2 Description of the Project The objectives of the Project are to: (i) strengthen the organization of TRC, eliminate regulatory bottlenecks to its effective operations and make it a commercially viable entity; and (ii) provide for the rehabilitation of TRC's infrastructure assets, replacement of obsolete and uneconomic operational assets and limited new investments consistent with the prospects for growth in domestic traffic. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Physical Investments 1. Relaying of about 200 Km of rail and reballasting of about 800 Km of track. 2. Opening of a stone quarry for ballast. 3. Rehabilitation of about 22 bridges on the TRC central line. 4. Construction and equipping of a central plant maintenance and permanent way workshop and acquisition of track maintenance machines and tools. 5. Acquisition of accident relief equipment including hydraulic jacks, lighting sets, communication sets, equipment and spare parts for maintenance of cranes. 6. Acquisition of about 40 light motor, flying gang, inspection trolleys and service vehicles. 7. Renewal of the Tanga and Link Line overhead communications wires and acquisition of equipment and spare parts for the TRC telecommunications system. 8. Rehabilitation of about 1,750 wagons. 9. Rehabilitation of about 31 locomotives. 10. Acquisition of equipment for track maintenance and for upgrading the mechanical engineering workshops. 11. Rehabilitation of about 100 passenger coaches and acquisition of about 27 passenger coaches. Part B: Organizational Development and Operational Support 1. Improvement of TRC's operations through the adoption and implementation of efficient methods of planning and control of functional activities in the railways, including the carrying out a management development program as well as development of TRC's in-house training capacity for appren- ticeship programs and skills upgrading provision of on-the-job training to TRC management. Page 10 2. Implementation of the assets (wagon, track and locomotive) rehabilitation components of the Project. 3. Improvement of TRC's financial management and accounting practices. 4. Improvement of TRC's Management and operations information systems through, inter alia, the provision of training and the acquisition of computers, software and other office equipment. 5. Improvement of working conditions for TRC's employees, including establishment of a revised salary and wages structure, a productivity-based incentive scheme and the rehabiliation of operational facilities including stations and offices. * * * The Project is expected to be completed by June 30, 1999. SCHEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) through (4) 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 Credit 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 $4,500,000 to be withdrawn from the Credit 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 Association 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 Association 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 requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into 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 Association requests for deposits into the Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower Page 11 shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit 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 Association shall reasonably request, furnish to the Association 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 Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit 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 Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association 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 Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association 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 Association 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 Association, the Borrower shall, promptly upon notice from the Association (A) provide such additional evidence as the Association may request, or (B) deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association 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. (b) If the Association 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 Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraph 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. Page 12