Conformed Copy - C2486 - Third Telecommunications Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2486 TA Project Agreement (Third Telecommunications Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION Dated July 26, 1993 CREDIT NUMBER 2486 TA PROJECT AGREEMENT AGREEMENT, dated July 26, 1993, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION (TPTC). WHEREAS: (A) by the Development Credit Agreement of even date herewith between United Republic of Tanzania (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent fifty three million six hundred thousand to Special Drawing Rights (SDR 53,600,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that TPTC 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 TPTC, a portion of the proceeds of the credit provided for under the Development Credit Agreement will be relent to TPTC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS TPTC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed Page 2 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 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) TPTC 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 Program and Parts B and C of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and telecommunications practices, and the provisions of the Ministerial Directive and MOU 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 TPTC shall otherwise agree, TPTC shall carry out Parts B and C of the Project 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 consultants' services required for Parts B and C of 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. TPTC shall carry out the obligations set forth in Sections 9.03 through 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. TPTC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, TPTC 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) TPTC 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) TPTC 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 TPTC of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. TPTC shall take all necessary action to divest: (a) by December 31, 1993, its motor vehicle repair, printing and building construction works; and (b) by December 31, 1994, its customer premise installations, and sale of customer terminal equipment and equipment repair activities. Section 2.07. TPTC shall by December 31, 1994, create profit and cost centers for its network installations, bill collections and staff college. Page 3 Section 2.08. TPTC shall, but not later than March 31, 1995, complete installation of a comprehensive billing system for telecommunications services satisfactory to the Association. Section 2.09. TPTC shall by the date of the mid-term review furnish to the Association its time bound action plan satisfactory to the Association to implement the recommendations of the Borrower referred to in Section 3.07 (b) of the Development Credit Agreement for the involvement of the private sector in the telecommunications sector. ARTICLE III Management and Operations of TPTC Section 3.01 (a) TPTC 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. (b) TPTC shall continue to maintain a competitive salary structure designed to attract and to retain its staff. Section 3.02. TPTC 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. TPTC 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) TPTC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) TPTC 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 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. Section 4.02. (a) Except as the Association shall otherwise agree, TPTC shall earn, for each of its fiscal years after its fiscal year ending on December 31, 1994, an annual return of not Page 4 less than 15% of the average current net value of TPTC's fixed assets in operation. (b) Before April in each of its fiscal years, TPTC shall, on the basis of forecasts prepared by TPTC 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 the results of such review upon its completion. (c) If any such review shows that TPTC would not meet the requirements set forth in paragraph (a) for TPTC's fiscal years covered by such review, TPTC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing TPTC's net operating income for the fiscal year in question by one half of the sum of the current net value of TPTC'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 10% per annum of the average current gross value of TPTC'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 TPTC's fixed assets in operation shall be calculated as one half of the sum of the gross value of TPTC'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 TPTC's fixed assets in operation" means the gross value of TPTC'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. Section 4.03. (a) Except as the Association shall otherwise agree, TPTC shall produce, for each of its fiscal years after its fiscal year ending on December 31, 1994, funds from internal sources equivalent to not less than 100% of the local costs of the annual average of TPTC's capital expenditures incurred, or expected to be incurred, for that year. (b) Before April in each of its fiscal years, TPTC shall, on the basis of forecasts prepared by TPTC and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) in respect of such year and shall furnish to the Page 5 Association a copy of such review upon its completion. (c) If any such review shows that TPTC would not meet the requirements set forth in paragraph (a) for TPTC's fiscal year covered by such review, TPTC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements. (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, consumer deposits and consumer contributions in aid of construction, net non-operating income and any reduction in working capital other than cash; 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, increase in working capital other than cash and other cash outflows other than capital expenditures. (ii) 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 of taxes, incurred in the generation of revenues in (A) above. (iii) The term "working capital other than cash" means the difference between current assets excluding cash and current liabilities at the end of each fiscal year. (iv) The term "current assets excluding cash" means 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. (v) The term "current liabilities" means all liabilities which will 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. (vi) 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. (vii) The term "capital expenditures" means all expenditures on account of fixed assets, including interest charged to construction, Page 6 related to operations. (viii) 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 Association. Section 4.04. (a) Except as the Association shall otherwise agree, TPTC shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 60 to 40. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of TPTC 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 modifications 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 "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of TPTC not allocated to cover specific liabilities. (iv) 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 Association. Section 4.05. TPTC shall not undertake any investment estimated to cost in excess of the equivalent of $2,000,000 without the prior approval of the Association. Section 4.06. TPTC shall adjust tariffs semi-annually by March and September in each year to cover inflation and devaluation, in accordance with the formula in the Ministerial Directive and Memorandum of Understanding. 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 TPTC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Page 7 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 TPTC 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 Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For TPTC: Tanzania Posts and Telecommunications Corporation P.O. Box 9070 Dar es Salaam TANZANIA Cable address: Telex: TANPOSTEL 41054 Dar es Salaam 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 TPTC, or by TPTC on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the Director General or such other person or persons as the Director General shall designate in writing, and TPTC 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 Page 8 States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Edward V. K. Jaycox Regional Vice President Africa TANZANIA POSTS AND TELECOMMUNICATIONS CORPORATION By /s/ Charles Nyirabu Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods Part A: International Competitive Bidding 1. Except as provided in Part C hereof, goods 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 1992 (the Guidelines). For fixed price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. 2. To the extent practicable, contracts for goods shall be grouped into bid packages. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Tanzania 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: Other Procurement Procedures 1. Contracts for proprietary items up to an aggregate amount equivalent to $6,000,000 may be awarded after direct negotiations with suppliers, in accordance with procedures acceptable to the Association. Part D: 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 $250,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Page 9 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 pre- ceding 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. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the 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. Part E: Pre-shipment Inspection For the purposes of the pre-shipment inspection of goods imported under the Project, no price verification shall be conducted in respect of those goods to which Part A of this Section applies. Section II: Employment of Consultants 1. In order to assist TPTC in carrying out the Project, TPTC 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. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provision of the Consultants Guidelines requiring prior Association review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to contracts estimated to cost less than $100,000 equivalent each. However, this exception to prior Association review shall not apply to the terms of reference for such contracts nor to the employment of individuals, to single- source hiring of firms, to assignments of a critical nature as reasonably determined by the Association and to amendments of contracts raising the contract value to $100,000 equivalent or above. SCHEDULE 2 Implementation Program 1. TPTC shall maintain a Project Management Unit which shall be responsible for the coordination, the technical assistance and donor reporting of the Project. The responsibilities of this unit shall be to: (a) consolidate reports from the Deputy Director General, Telecommunications and Department Directors on the progress of the Project; (b) coordinate technical assistance across functional areas; (c) oversee and participate in contract administration; (d) maintain accounts for the Project; and (e) monitor transfer of know- how in the technical assistance. 2. TPTC shall employ and continue to employ until completion of the Project, a firm with qualifications and experience satisfactory Page 10 to the Association, to be responsible for the supervision of the procurement and implementation of capital construction activities under the Project. 3. The physical and institutional components of the Project shall be managed by the Deputy Director General, Telecommunications. 4. TPTC shall by April 15 annually, prepare for the Association's review a comparative analysis of its actual performance against the performance indicators in the MOU and as indicated in the Annex to this Schedule. 5. TPTC shall, by June 30, 1994, develop a manpower development plan, with career planning and performance based compensation. 6. TPTC shall participate in the mid-term review referred to in Section 3.09 of the Development Credit Agreement and shall take all necessary actions required thereafter for the implementation of the recommendations emanating from the review. ANNEX Performance Indicators TPTC shall: (a) maintain a liquidity ratio of not less than one; (b) maintain an annual international inpayment/outpayment ratio of not less than one; (c) make dividend payment of 25% of profit after tax. Such payment is subject to maintaining its financial viability to meet its current financial obligations; (d) meet all its financial obligations including servicing its debts; (e) achieve a collection rate of at least 75% by December 31, 1993, 80% by December 31, 1994, 90% by September 30, 1995, and maintain the rate at that level thereafter; (f) reduce accounts receivable in accordance with the following timetable: December 31 1993 1994 1995 1996 Accounts Receivable (Days in Billing) 120 90 60 45 December 31 1993 1994 1995 1996 (g) achieve the following: (i) Exchange 110,000 126,000 147,000 170,000 capacity (ii) Connected 86,000 95,000 107,000 123,000 DELs (iii) Working 71,000 81,000 93,000 111,000 DELs December 31 1993 1994 1995 1996 (iv) Faults 65% 70% 75% 75% cleared within 24 hours (v) Call 30% 35% 40% 40% Page 11 completion rate (vi) Staff per 60 50 45 40 100 connected DEL (h) produce and send to the Association on a quarterly basis an 80/20 analysis of revenues and receivables; and (i) send to the Association by April 15 of each year, a copy of the Efficiency Audit referred to in Section 13 of the MOU.