Malawi - Power Project : Credit 0178 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 178 MAI Project Agreement (Malawi Power Project) BETWEEN * INTERNATIONAL DEVELOPMENT ASSOCIATION AND ELECTRICITY SUPPLY COMMISSION OF MALAWI DATED FEBRUARY 11, 1970 CONFORMED COPY CREDIT NUMBER 178 MAI Project Agreement (Malawi Power Project) BETWEEN * INTERNATIONAL DEVELOPMENT ASSOCIATION AND ELECTRICITY SUPPLY COMMISSION OF MALAWI DATED FEBRUARY 11, 1970 AGREEMENT, dated February 11, 1970, between the INTERNATIONAL DEVELOPMENT AssOcIATIoN (hereinafter called the Association) and the ELECTRICITY SUPPLY COM- MISSION OF MALAwI (hereinafter called ESCOM). WHEREAS on the basis of the considerations described in the recitals to the agreement of even date herewith (herein- after called the Development Credit Agreement) between the Republic of Malawi (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower a development credit in various currencies equivalent to five million two hundred and fifty thousand dollars ($5,250,000) on the terms and conditions set forth therein, but only on condition that ESCOM agree to undertake certain obligations to the Association as here- inafter in this Project Agreement set forth; and WHEREAS ESCOM, in consideration of the foregoing has agreed to undertake the obligations hereinafter set forth; Now THEREFORE the parties hereto hereby agree as f ollows: ARTICLE I SECTION 1.01. Wherever used in this Project Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) shall have the respec- tive meanings therein set forth, and the term "Subsidiary Loan" shall mean the proceeds of the Credit relent by the Borrower in accordance with the terms of Section 4.03 of the Development Credit Agreement and pursuant to the Subsidiary Loan Agreement. 4 ARTICLE II Particular Covenants SECTION 2.01. (a) ESCOM shall carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial, engineering, management and public utility standards and practices, under the super- vision of experienced and competent management. (b) In carrying out the Project, ESCOM shall employ engineering consultants and contractors acceptable to, and to the extent and upon terms and conditions satisfactory to, ESCOM and the Association. (c) ESCOM shall furnish to the Association, promptly upon their preparation, the plans, specifications and work for the Project and any modifications subsequently made therein, in such detail as the Association shall reasonably request. SECTION 2.02. (a) Except as the Association shall other- wise agree, (i) the goods and services to be financed out of the proceeds of the Subsidiary Loan shall be procured on the basis of international competitive bidding in accord- ance with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in August 1969, and in accordance with such other procedures supplementary thereto as are set forth in Schedule 3 to the Development Credit Agreement and as shall be agreed between the Association and the Borrower, and (ii) con- tracts for the procurement of such goods and services shall be subject to the prior approval of the Association. (b) Except as the Association shall otherwise agree, ESCOM shall cause all goods and services financed out of the proceeds of the Subsidiary Loan to be used exclusively in carrying out Part A of the Project in accordance with the provisions of the Development Credit Agreement and of this Agreement. 5 SECTION 2.03. ESCOM shall maintain records adequate to identify the goods and services financed out of the pro- ceeds of the Subsidiary Loan, to disclose the use thereof in the Project, to record the progress of the Project (in- cluding the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices, the operations and financial conditions of ESCOM; shall enable the Association's representatives to inspect the Project, the goods financed out of the proceeds of the Subsidiary Loan, all other plants, sites, works, property and equipment of ESCOM and any records and documents relevant thereto; and shall furnish to the Association all such information as the Association shall reasonably request concerning the expenditure of the proceeds of the Subsidiary Loan, the Project, the said goods and services, and the operations, administration and financial condition of ESCOM. SECTION 2.04. ESCOM shall have its accounts audited annually by an independent auditor or accounting firm ac- ceptable to the Association and shall promptly after audited financial statements (balance sheet and related statement of earnings and expenses) are available, and, except as the Association shall otherwise agree, not later than four months after the close of the financial year to which they apply, transmit to the Association certified copies of such statements and a signed copy of the auditor's or accounting firm's report relating to each such statement. SECTION 2.05. (a) ESCOM and the Association shall co- operate fully with each other to assure that the purposes of the Subsidiary Loan will be accomplished. To that end, each of them shall from time to time exchange views through their representatives with regard to matters relat- ing to: (i) the general status of the Subsidiary Loan; (ii) the performance by ESCOM of its obligations under the Project Agreement and the administration, operations and financial condition of ESCOM; and (iii) other matters relating to the purposes of the Credit. 6 (b) ESCOM shall promptly inform the Association and the Borrower of any condition which interferes with, or threatens to interfere with, the accomplishment of the pur- poses of the Credit or the performance by ESCOM of its obligations under this Agreement or the Subsidiary Loan Agreement. SECTION 2.06. ESCOM shall not effect any change in the positions of the General Manager, Chief Engineer and Secretary of ESCOM or make any change which would materially alter the responsibilities and functions hereto- fore performed by said officers except after consultation with the Association. SECTION 2.07. Except as the Association shall otherwise agree ESCOM shall: (A) levy a development surcharge equivalent to 3c of its basic tariff level, not later than February 1, 1970, on consumers in ESCOM's existing inter-connected system excluding high density tariff areas. (B) make no reductions in the level of: (i) basic tariffs including surcharge levied in ac- cordance with paragraph (A), and (ii) basic tariffs and surcharges in respect of any other operating region of ESCOM prior to January 1, 1974; and (C) after January 1, 1974, take from time to time all steps necessary or desirable to obtain such adjustments in its tariffs as will provide revenues sufficient to yield an operating income of at least 97 on ESCOM's average net fixed assets in operation in order to (i) meet ESCOM's operating expenses, including provisions for maintenance, depreciation and interest; (ii) meet repayments of indebted- ness to the extent that such repayments exceed provision 7 for depreciation; and (iii) finance a reasonable portion of ESCOM's capital expansion. For the purposes of this Section: 1. the term "operating income" shall mean the difference between operating revenue and operating expenses in- cluding adequate maintenance and provision for de- preciation on a straight-line basis and taxes, if any, but excluding interest and other charges on debt; and 2. the term "value of the average net fixed assets in operation" shall mean for each financial year the aver- age of the gross fixed assets in operation less accumu- lated depreciation at the beginning and at the end of the financial year, and as this value of the gross assets may be redetermined if : (i) there shall have occurred any material change in the factors affecting the valua- tion of such fixed assets of ESCOM, and (ii) the Asso- ciation shall in consequence of such change have re- quested revaluation of such fixed assets, in accordance with methods acceptable to the Borrower, Association and ESCOM. SECTION 2.08. (a) ESCOM shall at all times take all requisite steps for the acquisition and retention by it of all such lands, interests in land and properties and all rights, powers, privileges and franchises as may be neces- sary or proper for the construction and operation of the Project and the carrying on of its business. (b) ESCOM shall not commit any act or omission which would prejudice its corporate existence and right to carry on the operations and business. (c) ESCOM shall at all times carry on its operations, manage its affairs, maintain its financial position, and plan the future expansion of its electric power system, all in accordance with sound business, financial and public utility 8 principles and practices and under the supervision of expe- rienced and competent management. SECTION 2.09. (a) ESCOM shall take out and maintain with responsible insurers, or make other provision satis- factory to the Association for, insurance against such risks and in such amount as shall be consistent with sound practice. (b) Without limiting the generality of the foregoing, ESCOM undertakes that the imported goods financed out of the proceeds of the Subsidiary Loan shall be insured against marine, transit and other hazards incident to acqui- sition, transportation and delivery thereof to the place of use or installation and incident to construction and installa- tion thereof and for such insurance any indemnity shall be payable in a currency freely usable by ESCOM to replace or repair such goods. SECTION 2.10. Except as the Association shall otherwise agree, ESCOM shall not incur any debt unless ESCOM's net revenue for the financial year next 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 not less than 1.5 times the maximum debt service requirements on all ESCOM's debt (including the debt to be incurred) in any succeeding financial year (in- cluding the financial year in which such debt is to be in- curred). For the purposes of this Section: (a) The term "debt" shall mean all debt, including debt assumed or guaranteed by ESCOM and maturing by its terms more than one year after the date on which it is originally incurred. (b) Debt shall be deemed to be incurred (i) under a con- tract or loan agreement on the date such contract or loan agreement providing for such debt is entered into; and 9 (ii) under a guarantee agreement, on the date the agreement providing for such guarantee is entered into but shall be only counted to the extent that the underlying debt is out- standing. (c) The term "net revenue" shall mean gross revenues from all sources, adjusted to take account of ESCOM's rates in effect at the time of the incurrence of debt even though they were not in effect during all or part of the financial year or twelve-month period to which such rev- enues relate, less all operating and administrative expenses and provision for taxes, if any, but before provision cover- ing depreciation and interest and other charges on the debt. (d) The term "debt service requirements" shall mean the aggregate amount of amortization (including sinking fund payments, if any) interest and other charges on debt. (e) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Bor- rower, 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 by ESCOM for the purposes of servicing such debt or, if such other currency is not so obtainable, at the rate of exchange that will be reasonably determined by the Association. SECTION 2.11. ESCOM shall prepare in consultation with the Borrower and the Association a program of managerial, administrative, professional and technical training for its staff and furnish to the Borrower and the Association copies of this program not later than June 30, 1970. ARTICLE III Effective Date; Termination SECTION 3.01. This Agreement shall come into force and effect on the Effective Date. 10 SECTION 3.02. This Project Agreement and all of the obligations of the parties hereunder shall terminate on a date twenty-five (25) years from the date of this Agreement or upon termination of the Development Credit Agreement, whichever is earlier. ARTICLE IV Miscellaneous Provisions SECTION 4.01. Any notice or request required or per- mitted to be given or made under this Project Agreement and any agreement between the parties contemplated by this Project 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: Indevas Washington, D.C. For ESCOM: Electricity Supply Commission of Malawi P.O. Box 186 Blantyre, Malawi 11 Cable address: Electric Blantyre SECTION 4.02. No delay in. 6xercising, or omission to exercise, any right, power or remedy accruing to either party under this Project Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence in such default; nor shall the action of such party in respect of any default, or any acquiescence in any default, affect or impair any right, power or remedy of such party in respect of any other or subsequent default. SECTION 4.03. ESCOM shall furnish to the Association sufficient evidence of the authority of the person or persons who will, on behalf of ESCOM, take any action or execute any documents required or permitted to be taken or exe- cuted by ESCOM pursuant to any of the provisions of this Project Agreement and the authenticated specimen signa- tur2 of each such person. SECTION 4.04. Any action required or permitted to be taken, and any documents required or permitted to be exe- cuted, under this Project Agreement on behalf of ESCOM may be taken or executed by the General Manager of ESCOM or such other person or persons as ESCOM shall designate in writing. SECTION 4.05. The Project 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 representatives thereunto duly authorized, have caused this Project Agreement to be signed in their respee- 12 tive names and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT AssOcIATION By /s/ J. BURKE KNAPP Vice President ELECTRICITY SUPPLY COMMISSION OF MALAWI By /s/ NYEmBA WAes MmKmNa Authorized Representative