Conformed Copy - C2854 - Coal Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2854 MOG Project Agreement (Coal Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and BAGANUUR JOINT STOCK COMPANY Dated May 24, 1996 CREDIT NUMBER 2854 MOG PROJECT AGREEMENT AGREEMENT, dated May 24 1996, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and BAGANUUR JOINT STOCK COMPANY (BJSC). WHEREAS: (A) by the Development Credit Agreement of even date herewith between Mongolia (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to twenty three million eight hundred thousand Special Drawing Rights (SDR 23,800,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that BJSC 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 BJSC, part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to BJSC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS: BJSC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to under- take 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, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. Page 2 ARTICLE II Execution of the Project Section 2.01. (a) BJSC 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 BJSC Parts of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, mining and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the BJSC Parts of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and BJSC shall otherwise agree, BJSC shall carry out the BJSC Parts 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 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. (a) BJSC 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 BJSC Parts of the Project. (b) For the purposes of Section 9.07 of the General Conditions, and without limitation thereto, BJSC shall: (i) prepare, on the basis of guidelines acceptable to the Association, and furnish to the Association not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between BJSC and the Association, a plan for the future operation of the BJSC Parts of the Project; and (ii) afford the Association a reasonable opportunity to exchange views with BJSC on said plan. Section 2.04. BJSC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, BJSC 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) BJSC shall, at the request of the Association, exchange views with the Association with regard to the progress of the BJSC Parts 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) BJSC shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the BJSC Parts of the Project, the accomplishment of the purposes of the Credit, or the performance by BJSC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of BJSC Section 3.01. (a) BJSC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering, mining and environmental practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. (b) To that end, BJSC shall ensure that any program of reduction in the numbers of such staff shall be implemented according to principles satisfactory to the Association. Page 3 Section 3.02. BJSC 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, mining and environmental practices. Section 3.03. BJSC 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. Section 3.04. BJSC shall: (a) not later than April 30 of each year, beginning 1997, prepare and furnish to the Association for comment an updated rolling five year business plan, which plan shall include BJSC's investment program, production plan and projected financial statements for the period, reflecting BJSC's progress in carrying out its business plan during the preceding calendar year; and (b) thereafter, implement said business plan as revised to take account of the Association's comments thereon. ARTICLE IV Financial Covenants Section 4.01. (a) BJSC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) BJSC 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. (c) BJSC shall revalue its assets regularly in accordance with international accounting standards and in compliance with the Depreciation Legislation. Section 4.02. BJSC shall take all measures within its power to ensure that the average collection period for payments for coal delivered shall be progressively reduced from its current level of 200 days to 30 days in accordance with a plan and timetable acceptable to the Association. Section 4.03. (a) Except as the Association shall otherwise agree, BJSC shall produce for each of its fiscal years after its fiscal year ending on December 31, 2000, total revenues equivalent to not less than the sum of its: (i) total operating expenses; and Page 4 (ii) interest and other charges on debt. (b) Before April 30 in each of its fiscal years, BJSC shall, on the basis of forecasts prepared by BJSC 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 BJSC would not meet the require- ments set forth in paragraph (a) for BJSC's fiscal years covered by such review, BJSC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its prices) in order to meet such requirements. (d) Except as the Association shall otherwise agree, BJSC shall not incur any debt, unless the net revenues of BJSC for the fiscal year immediately preceding the date of such incurrence or for a later twelve- month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.6 times the estimated maximum debt service requirements of BJSC for any succeeding fiscal year on all debt of BJSC, including the debt to be incurred. (e) Except as the Association shall otherwise agree, BJSC shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 70 to 30. (f) For purposes of this Section 4.03: (i) The term "total revenues" means the sum of total operating revenues and net non-operating income. (ii) The term "total operating revenues" means revenues from all sources related to operations. (iii) 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 (i) above. (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 acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of BJSC's fixed assets in operation shall be calculated as one half of the sum of the gross value of BJSC'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 "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 "debt" means any indebtedness of BJSC maturing by its terms more than one year after the date on which it is originally incurred. (viii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument Page 5 providing for such debt or for the modification of its terms of payment on the date of such contract, agree- ment or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (ix) The term "net revenues" means the difference between: (A) the sum of revenues for all sources related to operations adjusted to take account of BJSC's prices in effect at the time of the incurrence of debt even though they were not in effect during the twelve- month period to which such revenues relate and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (x) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of BJSC not allocated to cover specific liabilities. (xi) 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. 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 BJSC 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 25 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 BJSC 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 Page 6 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 (MCI), or Washington, D.C. 64145 (MCI) For BJSC: Baganuur District, Ulaanbaatar Mongolia 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 BJSC may be taken or executed by the General Director of BJSC or such other person or persons as said General Director may designate in writing, and BJSC 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/ Nicholas C. Hope Acting Regional Vice President East Asia and Pacific BAGANUUR JOINT STOCK COMPANY By /s/ J. Choinkhor Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I. Procurement of Goods Part A: General Goods shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 as revised in January 1996 (the Guidelines) and the following provisions of this Section, as applicable. Page 7 Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provision shall apply to goods to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B: (a) Grouping of contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost $1,000,000 equivalent or more each. (b) Preference for domestically manufactured goods The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower. (c) Notification and Advertising The invitation to prequalify or bid for each contract estimated to cost $10,000,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. Part C: Other Procurement Procedures 1. International Shopping Goods estimated to cost less than $250,000 equivalent per contract, up to an aggregate amount not to exceed $2,200,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 2. Direct Contracting Goods which must be purchased from the original supplier to be compatible with existing equipment or are of a proprietary nature and costing $7,600,000 equivalent or less in the aggregate, may, with the Association's prior agreement, be procured in accordance with the provisions of paragraph 3.7 of the Guidelines. Part D: Review by the Association of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Association for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods shall be undertaken in accordance with such procurement plan as shall have been approved by the Association, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract to be procured on the basis of International Shopping in accordance with Part C.1 of this schedule costing more than $150,000 and each contract to be procured on the basis of International Competitive Bidding or Direct Contracting in accordance with Parts B and C.2 of this Schedule, respectively, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Page 8 Guidelines shall apply. Section II. Employment of Consultants 1. Consultants' services shall be procured under contracts awarded in accordance with the provisions 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 (the Consultant Guidelines). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications thereto as shall have been agreed by the Association. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Association shall be used. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant 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: (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each; or (b) contracts for the employment of individual consultants estimated to cost less than $50,000 equivalent each. However, said exceptions to prior Association review shall not apply to: (i) the terms of reference for such contracts; (ii) single-source selection of consulting firms; (iii) assignments of a critical nature, as reasonably determined by the Association; (iv) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above; or (v) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 2 Implementation Program A. Monitoring 1. BJSC shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators satisfactory to the Association, the carrying out of the BJSC Parts of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Association, and furnish to the Association, within one month following June 30 and December 31 of each calendar year, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the BJSC Parts of the Project during the preceding six months and setting out the measures recommended to ensure the efficient carrying out of the BJSC Parts of the Project and the achievement of the objectives thereof during the six months following such date; (c) review with the Association, within two weeks following the submission of the report referred to in paragraph (b) of this Section, or at such later date as the Association shall request, said report, and, thereafter, take all measures required to ensure the efficient completion of the BJSC Parts of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report Page 9 and the Association views on the matter; and (d) prepare, under terms of reference satisfactory to the Association, and furnish to the Borrower, a mid-term report, not later than April 1, 1998, for consolidation in the report to be furnished to the Association pursuant to the provisions of Section 3.04 of the Development Credit Agreement, integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the BJSC Parts of the Project from the inception of the Project, and setting out the measures recommended to ensure the efficient carrying out of the BJSC Parts of the Project and the achievement of the objectives thereof. B. Implementation of the BJSC Parts of the Project 1. BJSC shall carry out the BJSC Parts of the Project in accordance with an action plan and timetable acceptable to the Association. 2. BJSC shall carry out the Environmental Management Program in a manner satisfactory to the Association and shall furnish any revision of said Program to the Association for prior approval.