Conformed Copy - L3523 - Telephone System Expansion Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3523 PH (Telephone System Expansion Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY Dated April 23, 1993 LOAN NUMBER 3523 PH PROJECT AGREEMENT AGREEMENT, dated April 23, 1993, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the "Bank") and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY ("PLDT"). WHEREAS: (A) By the Loan Agreement of even date herewith between the Bank and Development Bank of the Philippines (the "Borrower"), the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred thirty- four million dollars ($134,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that PLDT agree to undertake such obligations toward the Bank as are set forth in this Agreement; WHEREAS: (B) By Financing Agreements, the proceeds of the Loan provided for under the Loan Agreement will be made available to PLDT on the terms and conditions set forth in the said Financing Agreements; and WHEREAS: (C) PLDT, in consideration of the Bank's entering into the Loan 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 Loan Agreement, the Guarantee Agreement and the General Conditions (as so defined therein) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) PLDT declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan 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, PLDT shall carry out the Project in accordance with sound environmental management practices satisfactory to the Bank, as shall be specified by the Environmental Management Bureau of the Department of Environment and Natural Resources, or any other concerned agency of the Guarantor. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods and services required for the Project, and to be financed out of the proceeds of the Loan, shall be governed by the provisions of the Schedule to this Agreement. Section 2.03. PLDT shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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. PLDT shall duly perform all its obligations under the Syndicate Loan Agreement. Except as the Bank shall otherwise agree, PLDT shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Syndicate Loan Agreement or any provision thereof. Section 2.05. (a) PLDT shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Syndicate Loan Agreement, and other matters relating to the purposes of the Loan. (b) PLDT shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by PLDT of its obligations under this Agreement and under the Syndicate Loan Agreement. ARTICLE III Management and Operations of PLDT Section 3.01. PLDT shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and telecommunications utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. PLDT shall at all times operate and maintain its Page 3 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 utility practices. Section 3.03. PLDT shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. (a) PLDT shall at all times maintain its corporate existence and right to carry on its operations, and take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business and for the execution of the Project. (b) Except in the normal course of its business, PLDT shall not, without the prior approval of the Bank, sell, lease, transfer or otherwise dispose of any of its properties or assets which shall or may adversely affect, in a substantial manner, the efficient operation of its business and undertaking. Section 3.05. By December 1, 1993, and each year thereafter, until the completion of the Project, PLDT shall: (a) carry out, in consultation with the Bank, a review of its investment program for the succeeding five (5) years, and its investments for the preceding two (2) years; and (b) adopt the recommendations arising from these reviews, taking into account the comments made by the Bank. Section 3.06. PLDT shall: (a) prepare annually a comparative analysis of its actual performance against its operational targets; (b) furnish said analysis to the Bank for review and comments; and (c) implement the mutually acceptable recommendations to remedy any shortfall in its performance. ARTICLE IV Financial Covenants Section 4.01. (a) PLDT shall maintain separate records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) PLDT 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 Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six (6) 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, PLDT shall: (i) maintain in accordance with sound accounting Page 4 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 Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made; and (iii) enable the Bank's representatives to examine such records. (b) PLDT shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six (6) 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 Bank shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of expenditure 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 (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. Section 4.03. (a) Except as the Bank shall otherwise agree, PLDT shall earn, for each of its fiscal years after its fiscal year ending on December 31, 1992, an annual return of not less than eight percent (8%) of the average current net value of PLDT's fixed assets in operation. (b) Before December 1 of each year beginning on December 1, 1992, PLDT shall, on the basis of forecasts prepared by PLDT and satisfactory to the Bank, 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 Bank the results of such review upon its completion. (c) If any such review shows that PLDT would not meet the requirements set forth in paragraph (a) for PLDT's fiscal years covered by such review, PLDT shall promptly take all necessary measures (including, without limitation, making proposals to the Guarantor for adjustments of the structure or levels of its tariff) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing PLDT's net operating income for the fiscal year in question by one half (1/2) of the sum of the current net value of PLDT'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 Page 5 revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, net taxes and payments in lieu of taxes, and provision for depreciation in a manner consistent with the generally accepted accounting principles in the Republic of the Philippines. (v) The average current gross value of PLDT's fixed assets in operation shall be calculated as one half (1/2) of the sum of the gross value of PLDT'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 Bank. (vi) The term "current net value of PLDT's fixed assets in operation" means the gross value of PLDT'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 Bank. Section 4.04. (a) Except as the Bank shall otherwise agree, for each of its fiscal years after its fiscal year ending on December 31, 1992, PLDT shall not incur any debt unless a reasonable forecast of PLDT's revenues and expenditures shows that PLDT's estimated net revenues for each fiscal year during the term of the debt to be incurred shall, be at least 1.1 times PLDT's estimated debt service requirements in such year on all debt of PLDT including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of PLDT 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 modification 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 "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate maintenance, net taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (iv) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to operations; and Page 6 (B) expenses, including net taxes and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (v) 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 net of foreign exchange losses recovered by PLDT in the normal course of business. (vi) The term "reasonable forecast" means a forecast prepared by PLDT not earlier than twelve (12) months prior to the incurrence of the debt in question, which both the Bank and PLDT accept as reasonable and as to which the Bank has notified PLDT of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of PLDT. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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 Bank. 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 Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of PLDT thereunder shall terminate on the date on which the Syndicate Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify PLDT thereof. 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 Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Page 7 Cable address: Telex: INTBAFRAD 197688 (TRT)' Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) For PLDT: Philippine Long Distance Telephone Company P.O. Box 952 Makati, Metro-Manila Philippines Attention: President Cable address: Telex: FONES 45169 Metro-Manila PLDTCO PM 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 PLDT, may be taken or executed by the President of PLDT or such other person or persons as the President of PLDT shall designate in writing, and PLDT shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Gautam S. Kaji Regional Vice President East Asia and Pacific PHILIPPINE LONG DISTANCE TELEPHONE COMPANY By /s/ Ricardo R. Zarate Authorized Representative SCHEDULE Procurement Section I. Procurement of Goods Part A: International Competitive Bidding 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"). 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 Republic of Page 8 the Philippines 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. Except as provided in paragraphs 2 and 3 hereof, items or groups of items of goods estimated to cost less than the equivalent of two hundred and fifty thousand dollars ($250,000) per contract, up to an aggregate amount not to exceed the equivalent of eight hundred thousand dollars ($800,000), may be procured under contracts awarded on the basis of comparison of price quotations solicited from a list of at least three (3) suppliers from at least three (3) different countries eligible under the Guidelines, in accordance with procedures acceptable to the Bank. 2. Except as provided in subparagraph 3 hereof, items or groups of items of goods estimated to cost less than the equivalent of fifty thousand dollars ($50,000) per contract, up to an aggregate amount not to exceed the equivalent of two hundred thousand dollars ($200,000), may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three (3) suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. 3. Contracts for equipment and spare parts of a proprietary nature, or which are required to ensure standardization and compatibility with existing equipment and facilities, may be procured by direct contracting with the suppliers thereof. Each contract for switching equipment would be awarded subject to confirmation by an independent inspection company, acceptable to the Bank, that the negotiated prices are comparable with international prices for similar equipment recently provided by the supplier. Such contracts shall require prior approval by the Bank. Part D: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods, with exception of contracts for proprietary items, estimated to cost the equivalent of one million dollars ($1,000,000) 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 (2) conformed copies of the contract required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank 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 (2) conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.02 (a) (ii) of this Agreement. 2. The figure of fifteen percent (15%) is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants Page 9 In order to assist PLDT in carrying out the Project, PLDT shall, by June 30, 1993, employ management consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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.