Conformed Copy - C2364 - Fifth Telecommunications Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2364 NEP (Fifth Telecommunications Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NEPAL TELECOMMUNICATIONS CORPORATION Dated July 15, 1992 CREDIT NUMBER 2364 NEP PROJECT AGREEMENT AGREEMENT, dated July 15, 1992, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NEPAL TELECOMMUNICATIONS CORPORATION (NTC). WHEREAS (A) by the Development Credit Agreement of even date herewith between 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 million one hundred thousand Special Drawing Rights (SDR 40,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NTC agrees 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 NTC, the proceeds of the credit provided for under the Development Credit Agreement will be relent to NTC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS NTC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; Page 2 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 and the following additional term has the following meaning, namely "IDP" means the Borrower's Institutional Development Program. ARTICLE II Execution of the Project Section 2.01. (a) NTC declares its commitment to the objec- tives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out the Project (except Part E) with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and telecommunications 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 NTC shall otherwise agree, NTC shall carry out the Project (except Part E) in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods and works 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. NTC 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. NTC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NTC 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) NTC 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) NTC 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 NTC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of NTC Section 3.01. NTC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and telecommunications practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Page 3 Section 3.02. NTC 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 telecommunications practices. Section 3.03. NTC 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) NTC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NTC 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 nine months after the end of such year. Section 4.02. (a) Except as the Association shall otherwise agree, NTC shall earn, for each of its fiscal years after FY92, an annual return of not less than 12% of the average current net value of NTC's fixed assets in operation. (b) Before September 30 in each of its fiscal years, NTC shall, on the basis of forecasts prepared by NTC and satisfactory to the Association, 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 Association a copy of such review upon its completion. (c) If any such review shows that NTC would not meet the requirements set forth in paragraph (a) for NTC's fiscal years covered by such review, NTC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its tariffs) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing NTC's net operating income for the fiscal year in question by one half of the sum of the current Page 4 net value of NTC's fixed assets in operation at the beginning and at the end of that fiscal year. (ii) the term "net operating income" means total operating revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 8% per annum of the average current gross value of NTC's fixed assets in operation, or other basis acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of the NTC's fixed assets in operation shall be calculated as one half of the sum of the gross value of the NTC's fixed assets in operation at the beginning and at the end of the fiscal year, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Association. (vi) The term "current net value of the NTC's fixed assets in operation" means the gross value of NTC's fixed assets in operation less the amount of accumulated depreciation, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Association. 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 NTC 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 fifteen 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 NTC 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 Page 5 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 Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For NTC: Nepal Telecommunications Corporation Singha Durbar Kathmandu, Nepal Cable address: Telex: TELECOM 2201 NEP Kathmandu 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 NTC, or by NTC on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by its General Manager or such other person or persons as the General Manager shall designate in writing, and NTC 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/ D. Joseph Wood Regional Vice President South Asia NEPAL TELECOMMUNICATIONS CORPORATION By /s/ Yog Prasad Upadhyay Authorized Representative SCHEDULE 1 Page 6 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in 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, NTC may grant a margin of preference to domestic contractors in accordance with, and subject to, the pro- visions of paragraphs 2.55 and 2.56 of the Guidelines and para- graph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Items or groups of items of training and office equipment estimated to cost the equivalent of up to $900,000 in total may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers from at least two different countries eligible under the Guidelines, in accordance with procedures acceptable to the Association. 2. Items or groups of items of transmission and switching equipment estimated to cost the equivalent of up to $5,500,000 in total may be procured under contracts awarded after direct negotiations with suppliers, in accordance with procedures acceptable to the Association. 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 each contract estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Association pursuant to said paragraph 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 4 to the Development Credit Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Page 7 Credit Account are to be made on the basis of statements of expenditure. 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 NTC in carrying out Part D of the Project, NTC 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 Implementation Program NTC shall: (a) not later than June 30, 1993, employ consultants whose qualifications and terms and conditions of employment shall be acceptable to the Association to initiate, and thereafter carry out, a management development program; (b) not later than December 15, 1992, implement a modifi- cation to its organizational structure which shall have been agreed upon with the Association; (c) not later than December 31, 1992 (i) carry out a review of the structure of its personnel department, taking into account the Association's comments, if any; and (ii) take such measures as shall be necessary to decentralize the personnel function within NTC; and (d) review, on an annual basis and in consultation with the Association, progress under the IDP on the basis of such opera- tional performance targets as shall have been agreed with the Association, and, thereafter, taking into account the Association's comments, if any, take such measures as shall be necessary to update the IDP and/or improve NTC's operational performance, as the case may be.