Malawi - Second Power Project : Credit 0426 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 426 MAI Project Agreement (Second Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND ELECTRICITY SUPPLY COMMISSION OF MALAWI DATED SEPTEMBER 7, 1973 CONFORMED COPY CREDIT NUMBER 426 MAI Project Agreement (Second Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND ELECTRICITY SUPPLY COMMISSION OF MALAWI DATED SEPTEMBER 7, 1973 PROJECT AGREEMENT AGREEMENT, dated September 7, 1973, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and ELECTRICITY SUPPLY COMMISSION OF MALAWI (hereinafter called ESCOM). WHEREAS by the Development Credit Agreement of even date herewith between the Republic of Malawi (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to seven million five hundred thousand dollars ($7,500,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that ESCOM agree to undertake such obligations toward the Association as hereinafter set forth; WHEREAS by a subsidiary loan agreement between the Borrower and ESCOM, the proceeds of the credit provided for under the Development Credit Agreement will be made available to ESCOM on the terms and conditions therein set forth; WHEREAS by a loan agreement between COMMONWEALTH DEVELOPMENT CORPORATION (hereinafter called CDC) and ESCOM, the proceeds of the loan provided for in said agreement will be made available to ESCOM on the terms and conditions therein set forth; and WHEREAS ESCOM, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth and the term "First Project Agreement" means the Project Agreement (Malawi Power Project) Credit No. 178 MAI of February 11, 1970 between ESCOM and the Association. 4 ARTICLE II Execution of the Project Section 2.01. ESCOM shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, commercial, economic, engineering, financial and public utility practices. Section 2.02. (a) In order to assist ESCOM in the preparation of plans, specifications and bidding documents for the Project and in the supervision of the construction of the Project, ESCOM shall employ engineering consultants acceptable to the Association upon terms and conditions satisfactory to the Association. (b) In order to carry out the study referred to in Part D of the Project, ESCOM shall, within six months of the date of this Agreement, or such other date as may be agreed between ESCOM and the Association, employ consultants acceptable to the Association upon terms and conditions satisfactory to the Association and upon completion thereof, ESCOM shall consult with the Association and the Borrower on the conclusions and the recommendations of the consultants contained in the final report of such study and implement those recommendations which are considered appropriate as a result of said consultations. Section 2.03. In carrying out the civil works included in Parts A and B of the Project, ESCOM shall employ contractors acceptable to the Association upon terms and conditions satisfactory to the Association. Section 2.04. Except as the Association shall otherwise agree, the goods and services (other than services of consultants) required for the Project and to be financed out of the proceeds of the Credit, shall be procured on the basis of international competition under procedures consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in April 1972, as revised in October 1972, and in accordance with, and subject to, the provisions set forth in Schedule 1 to this Agreement. Section 2.05. (a) ESCOM undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to it by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by ESCOM to replace or repair such goods. 5 (b) Except as the Association may otherwise agree, ESCOM shall cause all goods and services financed out of the proceeds of the Credit relent to it by the Borrower to be used exclusively for the Project. Section 2.06. (a) ESCOM shall furnish to the Association promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) ESCOM: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall, without limitation upon the provisions of Section 5,03 of this Agreement, enable the Association's representatives to examine the Project, the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so ielent to it and the goods and services financed out of such proceeds. Section 2.07. ESCOM shall duly perform all its obligations under the Subsidiary Loan Agreement and the CDC Loan Agreement. Except as the Association shall otherwise agree, ESCOM shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or the CDC Loan Agreement or any provision thereof. Section 2.08. (a) Within six months of the date of this Agreement, or such other date as may be agreed between ESCOM and the Association, ESCOM shall carry out a study on terms of reference satisfactory to the Association to (i) examine the possible ecological effects of the Project and (ii) recommend any action which may be necessary to avoid or mitigate undesirable ecological effects. (b) After the final report of the study referred to in paragraph (a) of this Section is prepared, ESCOM shall promptly review the conclusions and recommendations thereof with the Borrower and the Association. ARTICLE III Management and Operations of ESCOM Section 3.01. (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 6 and all rights, powers, privileges and franchises as may be necessary 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 its right to carry on its 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 appropriate business, financial and public utility principles and practices and under the supervision of experienced and competent management. Section 3.02. ESCOM shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.03. ESCOM shall ensure that the positions of General Manager, Chief Engineer, Secretary and Chief Accountant, respectively, shall at all times be filled by qualified and experienced persons and, before an appointment is made to any of the above positions, ESCOM shall inform the Association of the name, qualifications and experience of the person considered for appointment thereto and afford the Association a reasonable opportunity to exchange views with ESCOM on the qualifications and experience of such person. ARTICLE IV Financial Covenants Section 4.01. ESCOM shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. ESCOM shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses, source and application of funds statements and related statements) for each fiscal year audited, in accordance with sound 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 four 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 the accounts and financial statements of ESCOM and the audit thereof as the Association shall from time to time reasonably request. 7 Section 4.03. Except as ESCOM and the Association shall otherwise agree: (a) ESCOM shall from time to time take all necessary action, including but not limited to adjusting its tariff structure for the sale of electricity, to ensure that its revenues are sufficient to provide a rate of return on the average value of its total net fixed assets in operation of at least 10%. (b) For the purposes of this Section: (i) the rate of return in respect of any fiscal year shall be calculated by relating ESCOM's net income from operations for that fiscal year to the average value of its total net fixed assets in operation during that fiscal year; (ii) the term "net income from operations" means gross operating revenues from electric power, less all operating, administrative and overhead expenses including adequate straight-line depreciation, taxes and levies, if any, or any payments in lieu thereof, but without deduction of interest or other charges on debt; (iii) the term "total net fixed assets in operation" means the gross value of such assets, determined in accordance with methods of valuation acceptable to the Association, less accumulated depreciation; and (iv) the "average value" of its total net fixed assets in operation shall be determined by adding the value of its total net fixed assets in operation at the end of a fiscal year to the value of its total net fixed assets in operation at the beginning of that fiscal year and dividing the total by two. Section 4.04. (a) Except as the Association shall otherwise agree, ESCOM shall not incur any debt unless ESCOM's net revenues for the fiscal year next preceding the date of such incurrence or for any later twelve-month period ending prior to the date of such incurrence, whichever net revenues are the greater, shall be at least 1.5 times the maximum debt service requirements for any succeeding fiscal year on all of ESCOM's debt, including the debt to be incurred. (b) For the purposes of this Section: (i) the term "debt" means all debt, including debt assumed or guaranteed by ESCOM, except debt incurred in the ordinary 8 course of business and maturing by its terms on demand or less than one year after its incurrence; (ii) the term "incur" with reference to any debt includes any modification of the terms of payment of such debt. Debt shall be deemed to be incurred (1) under a contract or loan agreement, on the date such contract or loan agreement providing for such debt is entered into and (2) 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 outstanding; (iii) the term "net revenues" means gross revenues from all sources, adjusted to take account of ESCOM's tariffs in effect at the time of the incurrence of debt even though they were not in effect during the entire fiscal year or twelve-month period to which such revenues relate, less all operating and other expenses, including adequate maintenance, taxes, if any, and administrative expenses, but before provision for depreciation, interest and other charges on debt; (iv) the term "debt service requirements" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (v) whenever it shall be necessary to value in the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the rate of exchange at which such other currency is obtainable by ESCOM, at the time such valuation is made, 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 4.05. Except as the Association shall otherwise agree, until the completion of the Project, ESCOM shall not make any capital expenditures (other than capital expenditures for the Project) for its development program exceeding in the aggregate the equivalent of $3,000,000. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association and ESCOM shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association 9 and ESCOM shall from time to time, at the request of either party, exchange views through their representatives with regard to the performance of their respective obligations under this Agreement, the administration, operations and financial condition of ESCOM and other matters relating to the purpose of the Credit. Section 5.02. The Association and ESCOM shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the performance by either of them of its obligations under this Agreement, the performance by the Borrower and ESCOM of their respective obligai:ions under the Subsidiary Loan Agreement or the performance by ESCOM of its obligations under the CDC Loan Agreement. Section 5.03. ESCOM shall enable the Association's representatives to examine all plants, sites, works, properties and equipment of ESCOM and any relevant records and documents. ARTICLE VI Amendment of First Project Agreement Section 6.01. Sections 2.06, 2.07 and 2.10 of the First Project Agreement are hereby amended by deleting said Sections and substituting therefor Sections 3.03, 4.03 and 4.04 of this Agreement, respectively. ARTICLE VII Effective Date; Termination; Cancellation and Suspension Section 7.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 7.02. (a) This Agreement and all obligations of the Association and of ESCOM 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) a date 25 years after the date of this Agreement. 10 (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 ESCOM of this event. Section 7.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE VIII Miscellaneous Provisions Section 8.01. 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 dddress 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 30224 Chichiri Blantyre 3, Malawi Cable address: ELECTRIC Blantyre 11 Section 8.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this 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 8.03. ESCOM shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature 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 executed by ESCOM pursuant to any of the provisions of this Agreement. Section 8.04,. 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 representatives thereunto duly authorized, have caused this Agreement to be signed in their respective 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/ Bernard R. Bell Regional Vice President Eastern Africa ELECTRICITY SUPPLY COMMISSION OF MALAWI By /s / R. B. Mbaya Authorized Representative 12I SCHEDULE 1 Procurement 1. With respect to any contract for civil works estimated to cost the equivalent of $100,000 or more and with respect to any contract for equipment estimated to cost the equivalent of $50,000 or more: (a) If bidders are required to prequalify, ESCOM shall, before qualification is invited, inform the Association in detail of the procedure to be followed and shall introduce such modifications in said procedure as the Association shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification, shall be furnished by ESCOM to the Association for its comments before the applicants are notified and FSCOM shall make such additions to or deletions from the said list as the Association shall reasonably request. (b) Before bids are invited, ESCOM shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedure as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (c) After bids have been received and evaluated, ESCOM shall, before a final decision on the award is made, inform the Association of the name of the bidder to whom it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, by the consultants referred to in Section 2.02(a) of this Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of the said consultants, and the reasons for the intended award. The Association shall, if it determines that the intended award would be inconsistent with the procedures set forth or referred to in Section 2.04 of this Agreement, promptly inform ESCOM and the Borrower, state the reasons for such determination and advise ESCOM of any cancellation pursuant to the provisions of paragraph 3(c) of Schedule I to the Development Credit Agreement. (d) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (e) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the delivery to the Association 13 of the first application for withdrawal of funds from the Credit Account in respect of any such contract. 2. With respect to any other contract for civil works or equipment, ESCOM shall furnish to the Association, promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract is not consistent with the procedures set forth or referred to in Section 2.04 of this Agreement, promptly inform ESCOM and the Borrower, state the reasons for such determination and advise ESCOM of any cancellation pursuant to the provisions of paragraph 3(c) of Schedule 1 to the Development Credit Agreement.