Conformed Copy - C2315 - Enterprise Development Project - Project Agreement 1

Page 1 CONFORMED COPY CREDIT NUMBER 2315 UG (Enterprise Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and UGANDA DEVELOPMENT BANK Dated January 9, 1992 CREDIT NUMBER 2315 UG PROJECT AGREEMENT AGREEMENT, dated January 9, 1992 between the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and UGANDA DEVELOPMENT BANK (UDB). WHEREAS by the Development Credit Agreement of even date herewith between the Republic of Uganda (the Borrower) and the Association, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to forty-nine million three hundred thousand Special Drawing Rights (SDR 49,300,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that UDB agree to undertake such obligations toward the Association as are set forth in this Agreement; and WHEREAS UDB, 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; NOW THEREFORE the parties hereto hereby agree as follows: Page 2 ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Preamble to this 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) UDB 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 or cause to be carried out Part C of the Project with due diligence and efficiency and in conformity with appropriate, administrative, financial, technical management and environmental practices and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project and conduct its operations and affairs, in accordance with sound financial standards and practices, with qualified and experienced management and in accordance with the UDB Decree. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and UDB shall otherwise agree, UDB shall carry out Part C of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. UDB undertakes that, unless the Association shall otherwise agree, Sub-loans and Investments made under Part C of the Project will be made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 1 to this Agreement. (b) UDB shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Association and of the Borrower; (ii) comply with its obligations under this Agreement and the UDB Agreement; and (iii) achieve the purposes of the Project. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods 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 3 to the Development Credit Agreement. Section 2.04. UDB 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 acquisi- tion) in respect of the Project Agreement and Part C of the Project. Section 2.05. UDB shall duly perform all its obligations under the UDB Agreement. Except as the Association shall otherwise agree, UDB shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the UDB Agreement or any provision thereof. Section 2.06. (a) UDB shall, at the request of the Associa- tion, exchange views with the Association with regard to the progress of Part C of the Project, the performance of its obliga- tions under this Agreement and under the UDB Agreement, and other matters relating to the purposes of the Credit. (b) UDB 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 UDB of its obligations under this Agreement and under the UDB Agreement. Page 3 Article III Financial Covenants Section 3.01. (a) UDB shall maintain procedures and records adequate to monitor and record the progress of Part C of the Project and of each Investment Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of UDB. (b) UDB shall: (i) have its records, accounts and financial state- ments (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 Associa- tion; (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: (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; and (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. ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of UDB thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agree- ment shall terminate; or (ii) a date twenty years after the date of this Agree- ment. (b) If the Development Credit Agreement terminates before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify UDB of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. 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, Page 4 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 addresses 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 197688 (TRT) Washington, D.C. 248423 (RCA) 64145 (WUI) or 82987 (FTCC) For UDB: Uganda Development Bank P.O. Box 7210 Kampala Uganda Cable address Telex: DEVBANK 61143 Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of UDB or by UDB on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by its Managing Director, or by such other person or persons as UDB shall designate in writing, and UDB shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. 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 DEVELOPMENT ASSOCIATION By /s/ Francis X. Colaco Acting Regional Vice President Africa UGANDA DEVELOPMENT BANK By /s/ Stephen K. Katenta-Apuli Authorized Representative SCHEDULE 1 Terms and Conditions of Sub-loans and Investments Page 5 1. (a) Lending criteria. Strict criteria, will govern the use of these funds: (a) for rehabilitation and financial restructuring of public enterprises; and (b) for appraisal and approval. Appraisal and approval of PE proposals shall be the responsibility of UDB. Each borrowing PE will submit a comprehensive multi-year corporate restructuring plan, and in the context of the plan, a project proposal that sets out the purposes of the proposed plan, a calculation of its economic and financial feasibility, and a capital and management structure. Criteria for enterprise eligibility shall include: a maintaining a minimum debt-equity ratio of 3:1 during the period of the loan; a generating a sufficient net surplus to provide for a minimum debt service cover of 1.5 times; a maintaining a minimum current ratio in excess of 1.00; a making adequate arrangements for management, including maintenance of accounts and other records, and for training and technology acquisition whenever required; and a maintaining for all rehabilitation projects a financial rate of return that exceeds the real interest rate on loans. (b) Eligible purposes. Restructuring funds may be used by eligible Public Enterprises for: (a) rehabilitation requirements of selected Public Enterprises based on documented rehabilitation plans that are part of an approved corporate restructuring plan; and (b) enhancement of the equity contribution of the Borrower in specific enterprises, based on an integrated program in the corporate restructuring plan that examines all avenues including asset revaluation, debt settlements and write-offs, and debt relief. Rehabilitation must be for one or more of the following reasons: ato remove bottlenecks that prevent the enterprise from increasing its output for greater use of its installed capacity, and/or improving the quality of services; a to replace or overhaul equipment on the verge of breakdown and that, if not replaced or overhauled, would lead to a decline in existing output and service levels; a to increase productivity and alter the structure of costs (including upgrading of technology in line with changing price structures) to make the enterprise competitive at border prices, or provide services at least-cost, as appropriate, depending on the nature of the activity; a to re-establish adequate inventories of raw materials, spare parts, and other critical inputs; a to change the product mix to meet specific market needs or to increase profitability, or both; and a to increase permanent working capital. Once the eligibility requirements of PE rehabilitation projects have been met, UDB will asses and select successful applications on the basis of priority. The principal priority elements shall include: (i) actual or potential contribution to export; (ii) contribution to nontraditional exports; (iii) actual or potential contribution to import substitution in a non-distortive trade or tariff protection regime; (iv) extent and quality of potential supply response, especially in respect to production of essential products; and (v) extent of revenue-generation response. Page 6 (c) Lending and maturity. The on-lending rates for sub-loans approved by UDB will not exceed the lending rate for development finance prescribed by BOU from time to time. UDB will charge a management fee of two percent per annum of the amount provided and outstanding to PE's from the Restructuring Fund, thus allowing UDB to cover sufficiently its administrative and supervision costs, overhead and margin. Repayment periods should not normally exceed seven years, including a grace period of two years for repayment of principal. (d) Limitation. For any PE proposals, UDB's board will have the authority to approve up to US$500,000 equivalent. For proposals beyond that amount, approval by the Secretary to the Treasury (ST) will also be required. In addition, proposal beyond US$1 million equivalent will require the Association's approval, and the Association will have the right to perform, with UDB, a joint appraisal of the proposed Investment Project. The normal upper limit per proposal will be US$1.5 million; anything above this limit requires early (i.e. before preparation of loan application) consultation with the ST, UDB and the Association. The amount of the Sub-loan may cover 100 percent of the rehabilitation project cost. It will not exceed 100 percent of the foreign exchange needs. 2. No expenditures for goods or services required for an Investment Project shall be eligible for financing out of the proceeds of the Credit unless: (a) the Sub-loan or Investment for such Investment Project shall have been approved by the Association and such expenditures shall have been made not earlier than ninety days prior to the date on which the Association shall have received the application and information required under paragraph 3 (a) of this Schedule in respect of such Sub-loan or Investment; or (b) the Sub-loan for such Investment Project shall have been a free-limit Sub-loan for which the Association has authorized withdrawals from the Credit Account and such expenditures shall have been made not earlier than ninety days prior to the date on which the Association shall have received the request and information required under paragraph 3 (b) of this Schedule in respect of such free-limit Sub-loan. For the purposes of the Development Credit Agreement and this Agreement, a free-limit Sub-loan shall be a Sub- loan for an Investment Project in an amount to be financed out of the proceeds of the Credit which shall not exceed the sum of: (i) $1,000,000 equivalent, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Credit or of any other credit, provided for in any outstanding development credit agreement between the Borrower and the Associa- tion entered into before the date of this Agreement, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Investment Project; or (ii) $1,000,000 equivalent, when added to all other free-limit Sub-loans financed or proposed to be financed out of the proceeds of the Credit, the foregoing amounts being subject to change from time to time as determined by the Association. 3. (a) When presenting a Sub-loan (other than a free-limit Sub- loan) or an Investment to the Association for approval, UDB shall furnish to the Association an application, in form satisfactory to the Association, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit; (ii) the proposed terms and conditions of the Sub-loan or Investment, including the schedule of amortization of the Sub-loan or of repayment of the amount of the Credit to be used for the Investment; and (iii) such other information as the Association shall reasonably request. (b) Each request by UDB for authorization to make with- drawals from the Credit Account in respect of a free-limit Sub-loan shall contain: (i) a summary description of the Investment Enter- prise and the Investment Project, including a description of the Page 7 expenditures proposed to be financed out of the proceeds of the Credit; and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provi- sions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Association on or before December 31, 1998. 4. Sub-loans and Investments shall be made on terms whereby UDB shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Association and UDB, including, in the case of any Sub-loan and, to the extent that it shall be appropriate, in the case of any Investment, the right to: (a) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods and services to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 3 to the Development Credit Agreement; and (ii) such goods and services shall be used exclusively in the carrying out of the Investment Project; (c) inspect, by itself or jointly with representatives of the Association if the Association shall so request, such goods, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Association or UDB shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project; and (f) suspend or terminate the right of the Investment Enter- prise to the use of the proceeds of the Credit upon failure by such Investment Enterprise to perform its obligations under its contract with UDB. SCHEDULE 2 Implementation Program Fund operations. In accordance with the terms of the UDB Agreement to be executed by the Borrower and UDB, UDB will be responsible to manage the RF and the Borrower's existing PE Portfolio. UDB's responsibility shall include carrying out appraisal of loan applications, supervision and portfolio management activities, including disbursement, ensuring timely repayment of loans, servicing and other follow-up activities. UDB will administer the restructuring fund account operations separately from its other operations and will account for them separately to the Borrower's Secretary to the Treasury. The Secretary to the Treasury (ST) will place funds with UDB in Uganda Shillings. The ST will channel funds from the proceeds of the Credit to UDB in Uganda shillings. Beneficiaries of the loans will buy foreign currencies for their importation of capital equipment and for other purposes under project implementation from foreign exchange bureaus PB's or other financial institutions authorized by BOU to deal in foreign exchange Page 8 and satisfactory to the Association. They will repay the loans to UDB in Uganda Shillings at the interest rate prescribed by BOU. The exchange risk associated with the Sub-loans shall be borne by the Borrower. Separate accounts for the operation of the fund will be maintained by UDB and rendered to ST. The specialized division set up in UDB shall implement UDB's responsibilities under the UDB Agreement.