Ecuador - Milagro Irrigation Project : Credit 0425 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 425 EC Project Agreement (Milagro Irrigation Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND INSTITUTO ECUATORIANO DE RECURSOS HIDRAULICOS DATED AUGUST 17, 1973 CONFORMED COPY CREDIT NUMBER 425 EC Project Agreement (Milagro Irrigation Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND INSTITUTO ECUATORIANO DE RECURSOS HIDRAULICOS DATED AUGUST 17, 1973 PROJECT AGREEMENT AGREEMENT, dated August 17, 1973, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and INSTITUTO ECUATORIANO DE RECURSOS HIDRAULICOS (hereinafter called INERHI). WHEREAS by a development credit agreement of even date herewith between the Republic of Ecuador (hereinafter called the Borrower) and the Association (hereinafter referred to as the Development Credit Agreement), the Association has agreed to make available to INERHI, through the Borrower, an amount in various currencies equivalent to five million five hundred thousand dollars ($5,500,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that INERHI agree to undertake such obligations toward the Association as hereinafter set forth; and WHEREAS INERHI, 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 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) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) INERHI shall carry out Parts A and B of the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency, under competent management and in conformity with sound administrative, financial and technical practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. 4w (b) Without limiting the generality of the foregoing, INERHI shall (i) establish and maintain, until Parts A and B of the Project are completed, a separate account for the purpose of recording all amounts credited to and disbursed for the carrying out of such Parts of the Project, including such sub-accounts as shall be agreed from time to time between the Association and INERHI (hereinafter called the Project Account); and (ii) deposit in the Project Account, on or before March I in each year, until such Parts of the Project are completed, such amounts as INERHI shall have determined, in consultation with the Association, that shall be necessary during such year for the carrying out of such Parts of the Project in accordance with the preceding paragraph (a) of this Section; provided, however, that the initial deposit in the Project Accoint may be made on any other date, for purposes of Section 8.01(d) of the Development Credit Agreement. Section 2.02 In order to assist INERHI in the carrying out of Part A.8 of the Project, INERHI shall (a) employ agricultural and engineering consultants, all acceptable to the Association, to an extent and upon terms and conditions satisfactory to the Association, selected in accordance with the Guidelines for the Use of Consultants by the World Bank and its Borrowers, and (b) submit to the Association, not later than June 30, 1975, the proposed terms of reference for such consultants. Section 2.03. INERHI shall: (a) establish, not later than January 1, 1975, and maintain until Parts A and B of the Project are completed, an internal unit to (i) procure, organize and furnish to farmers participating in the Project selected agricultural supplies and materials, drying, storage and transport facilities, agricultural machinery services and marketing assistance and (ii) to be responsible for the carrying out of Part B.1 of the Project (hereinafter called the Agricultural Production Unit); (b) create the position of Project Director, such Project Director to have overall responsibility for the carrying out of Parts A and B of the Project, to report directly to the Director Ejecutivo of INERHI and to be appointed by INERHI in consultation with the Association; (c) employ three agricultural and engineering consultants, acceptable to the Association, to an extent and upon terms and conditions satisfactory to the Association, to act as advisers to the Project Director respectively on (i) execution of farm irrigation works, (ii) management of the Agricultural Production Unit and (iii) supervision of construction for Parts A. I through A.5 inclusive of the Pro'ect; such consultants to be employed not later than March 1, 1974 for purpos s of sub-paragraph (iii) and not later than March 1, 1975 for purposes of sub-paragrphs (i) and (ii); and 5 (d) replace such consultants with INERHI's own personnel after the Association and INERHI shall have agreed that such personnel have acquired the experience required for the purpose. Section 2.04. In carrying out Parts A.1 through A.5 inclusive of the Project, INERHI shall employ contractors acceptable to the Association to an extent and upon terms and conditions satisfactory to the Association. Section 2.05. Except as the Association shall otherwise agree, the goods and services (other than services of experts and 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 I to this Project Agreement. Section 2.06. (a) INERHI undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit made available 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 INERHI to replace or repair such goods. (b) Except as the Association shall otherwise agree, INERHI shall cause all goods and services financed out of the proceeds of the Credit made available to it by the Borrower to be used exclusively for the Project. Section 2.07. (a) INERHI shall furnish to the Association, promptly upon their preparation, the plans, reports, specifications, 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) INERHI shall: (i) maintain records adequate to record the progress of the Project (including the cost thereof), to identify the goods and services financed out of the proceeds of the Credit made available to it by the Borrower and to disclose the use thereof in the Project; (ii) enable the Association's representatives to inspect the Project, the goods financed out of such proceeds and any relevant records and documents; and (iii) 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 made available to it and the goods and services financed out of such proceeds. 6 Section 2.08. INERHI shall: (i) enter into the Transfer Agreement with the Borrower; (ii) apply the proceeds of the Credit made available to it by the Borrower under the Transfer Agreement exclusively to financing the cost of goods and services required to carry out the Project; (iii) duly perform all its obligations under the Project Implementation Agreements and the Transfer Agreement; and (iv) not take or concur in, except as the Association shall otherwise agree, any action which would have the effect of amending, abrogating, assigning or waiving the Project Implementation Agreements or the Transfer Agreement or any provision thereof. Section 2.09. INERHI shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. Section 2.10. INERHI shall: (i) take all such timely action as shall be required to enable the Borrower to perform its obligations pursuant to Section 3.02 of the Development Credit Agreement; (ii) establish the basic irrigation entitlement for each farm within the Project Area, before each such farm is ready to start receiving irrigation; (iii) record and register the water allocation for the Project Area and such farms' basic irrigation entitlements and take all such other measures required under Decreto Supreno No. 369 and Decreto Supremo No. 40 or any other legislation of the Borrower as may be then applicable and, thereafter from time to time, to maintain and renew such rights; and (iv) create one or more Directorios de Aguas as may be necessary for the purpose, pursuant to such legislation. ARTICLE III Management and Operations of INERHI Section 3.01. INERHI shall operate and maintain all its equipment and property and from time to time make all necessary renewals and repairs thereof, and at all times manage its affairs and operate its property and equipment in accordance with sound administrative and technical practices. Section 3.02. INERHI shall: (a) take all feasible measures to ensure that the execution and operation of the Project are carried out with due regard to ecological and environmental factors; and (b) not permit that (i) the water flow of the Rib Chimbo or of other rivers supplying water to the Project Area be depleted, unless 7 the Association shall otherwise agree, below the minimum water requirements of thu Project Area, or (ii) the waters of such rivers be polluted in any way which might have an adverse effect on the agricultural development of the Project Area. ARTICLE IV Financial Covenants Section 4.01. INERHI shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition. Section 4.02. INERHI shall: (a) have the records referred to in Section 2.07(b)(i) of this Project Agreement for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (b) furnish to the Association as sooni as available, but in any case not later than four months after the end of each such year, (i) certified copies of its records for such year as so audited, and (ii) a signed copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (c) furnish to the Association such other information concerning such records and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. INERHI shall: (i) establish and operate the Crop Compensation Fund in accordance with the provisions of Section 3.05 of the Development Credit Agreement; (ii) establish, in consultation with the Association, the amount of compensation payable to each farmer eligible therefor on the basis of the value of the crop being compensated, as such value shall have been established by a committee composed of the general manager of the Agricultural Production Unit, the chief of the extension services to be provided under Part A.7 of the Project and a third member elected by the farmers participating in the Project; and (iii) pay such compensation as shall have been established in accordance with paragraph (ii) of this Section to such farmers as are eligible therefor, prior to the commencement upon such farmers' land of the works described in Part A.3 of the Project. Section 4.04. (a) INERHI shall, from time to time, take all such action as shall be necessary or advisable to cause its charges for irrigation services and betterment levies imposed within the Project Area to be set and maintained at such levels as shall provide INERHI with such revenues as shall be sufficient to (i) cover the operatio- , administrative and maintenance expenditures of INERHI in, or for the benefit of, the Project Area and (ii) recover, within not more than 8 forty years, such substantial proportion of the amounts spent by INERHI in the carrying out of Parts A. 1 through A.6 inclusive of the Project, as shall be satisfactory to the Association and INERHI. (b) Without limiting the generality of the foregoing, INERHI further undertakes that, unless the Association shall otherwise agree: (i) such charges and levies shall, initially, be set at the following minimum levels: (1) in the case of charges for irrigation services, (A) 500 Sucres per each irrigated hectare, during the first calendar year after such hectare starts receiving irrigation; (B) 750 Sucres per each irrigated hectare during the second year; (C) 1,000 Sucres per each irrigated hectare during the third year; (D) 1,250 Sucres per each irrigated hectare during the fourth year; and (E) 1,500 Sucres per each irrigated hectare during the fifth year and during each calendar year thereafter until the fortieth such year inclusive; and (2) in the case of betterment levies, during the first calendar year after each hectare starts receiving irrigation and during each calendar year thereafter until the fortieth such year inclusive, (A) no levy in farms of up to 10 hectares; (B) 100 Sucres yearly per each hectare in farms of more than 10 and up to 20 hectares; (C) 200 Sucres yearly per each hectare in farms of more than 20 and up to 50 hectares; and (D) 400 Sucres yearly per each hectare in farms of more than 50 hectares; and (ii) INERHI shall, in consultation with the Association: (1) review, on or before December 31, 1978, and at regular intervals thereafter, the then current level of charges for irrigation services and betterment levies taking into account such factors as farm size, income received and taxes paid by the farmers participating in the Project, and the need to maintain economic incentives for such farmers; and (2) make, promptly after each such review, such adjustments in such charges and levies as shall be necessary to comply with the provisions of paragraph (a) of this Section. 9 (c) For the purpose of setting or adjusting the charges and levies provided for in this Section, INERHI shall: (i) adjust, not later than December 31, 1975, and annually thereafter, the charges and levies referred to in paragraph (b)(i) of this Section, or those prevailing at the time of such adjustment, to such extent as shall be necessary to maintain, in terms of Sucres of December 3 1, 1972, an amount equivalent to the amounts referred to in sub-paragraph (b)(i) of this Section, such equivalent to be determined in accordance with such indexing procedure as shall be agreed between the Association and INERHI not later than December 31, 1975; and (ii) determine the amounts actually spent and to be recovered in accordance with paragraph (a) of this Section, such amounts to be calculated in accordance with such revaluation procedures as shall be agreed between the Association and INERHI not later than December 31, 1978, on the basis of constant prices as of the date when the expenditures were actually incurred. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association and INERHI shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association and INERHI 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 Project Agreement, the performance by INERHI of its obligations under the Project Implementation Agreements and the Transfer Agreement, the administration, operations and financial condition of INERHI and other matters relating to the purposes of the Credit. Section 5.02. The Association and INERHI 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 Project Agreement or the performance by the Borrower and INERHI of their respective obligations under the Project Implementation Agreements and the Transfer Agreement. Section 5.03. INERHI shall enable the Association's representatives to inspect all sites, works, properties and equipment of INERHI and any relevant records and documents. 10 ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Project Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. If, pursuant to Section 10.04 of the General Conditions, the Development Credit Agreement shall terminate, the Association shall promptly notify INERHI of this event and, upon the giving of such notice, this Project Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 6.02. (a) This Project Agreement and all obligations of the Association and of INERHI 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 twenty five years after the date of this Project 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 INERHI of this event and, upon the giving of such notice, this Project Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 6.03. All the provisions of this Project Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE VII Miscellaneous Provisions Section 7.01. Any notice or request required or permitted 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: 11 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 INERHI Instituto Ecuatoriano de Recursos HidrAulicos Riofrfo 314 Quito, Ecuador Cable address: INERHI Riofrfo 314 Quito, Ecuador Section 7.02. (a) Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Project Agreement on behalf of INERHI, may be taken or executed by the Director Ejecutivo of INERHI or such other person or persons as he shall designate in writing. (b) Any action required or permitted to be taken, and any documents required or permitted to be executed, on behalf of the Borrower, pursuant to Section 2.09 of the Development Credit Agreement may be taken or executed by the Director Ejecutivo of INERHI or such other person or persons as he shall designate in writing. Section 7.03. INERHI 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 INERHI, take any action or execute any documents required or permitted to be taken or executed by INERHI pursuant to any of the provisions of this Project Agreement. Section 7.04. This Project Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. 12 IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Project 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/ Gerald Alter Regional Vice President Latin America and the Caribbean INSTITUTO ECUATORIANO DE RECURSOS HIDRAULICOS By /s/ Arturo Lecaro Authorized Representative 13 SCHEDULE I Procurement A. General Rules 1. With respect to any contract for equipment, vehicles, materials and supplies estimated to cost the equivalent of $40,000 or more: (a) Before inviting bids, INERHI shall send to the Association for its approval, (1) the lists of equipment, vehicles, materials and supplies, showing the specifications and the estimated unit and total price, grouped in lots to permit such bulk procurement as shall be consistent with sound technical and procurement practices and (2) in respect of equipment for the Agricultural Production Unit, a detailed proposal describing the requirements for farm machinery services, rates for machinery rental to farmers, maintenance facilities to be set up, schedules for machinery use and organizational procedures to be followed. Amendments to such lists and proposal, which may be made from time to time, shall also be submitted to the Association for approval. (b) Before bids are invited, INERHI shall furnish to the Association, for its approval, 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 procedures 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, INERHI 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 on the evaluation and comparison of the bids received, together with the recommendations for award 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 2.05 of this Project Agreement, promptly inform INERHI and state the reasons for such determination. (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 14 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 equipment, vehicles, materials and supplies, procurement shall be through normal commercial channels on the basis of at least three bids. INERHI shall furnish to the Association, promptly after its exccution 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 2.05 of this Project Agreement, promptly inform INERHI and state the reasons for such determination. B. Supplemental Rules on Bid Evaluation and Comparison 1. For the purpose of evaluation and comparison of bids, customs duties and other import taxes on imported goods, and sales and similar taxes on locally supplied goods, shall be excluded, except to the extent hereinafter provided. Bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for locally manufactured goods. The cost to INERHI of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be taken into account in the evaluation of bids in accordance with paragraphs 4.7 of the Guidelines for Procurement. 2. For goods included in Category I of the table set forth in paragraph I of Schedule 1 to the Development Credit Agreement, INERHI may grant a margin of preference to goods manufactured in Ecuador and to goods manufactured in countries which are a party to the Latin American Free Trade Association or to the Andean Group in accordance with, and subject to, the following provisions: (a) After evaluation, responsive bids will be classified in one of the following groups: (1) Group A: bids offering goods manufactured in Ecuador, if the bidder shall have established to the satisfaction of INERHI and the Association that the manufacturing cost of such goods includes a value added in Ecuador equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: bids offering goods manufactured in Ecuador, other than bids classified in Group A. 15 (3) Group C: bids offering goods manufactured in a country (other than Ecuador) which is a party to the Latin American Free Trade Association or to the Andean Group and entitled to preferential tariffs thereunder. (4) Group D: bids offering any other goods. (b) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied locally, to determine the lowest evaluated bid of each group. The lowest evaluated bids of each group shall then be compared with each other and if, as a result of this comparison, a bid from Group A or Group B is the lowest, it shall be selected for purposes of award. (c) If, as a result of the first comparison under paragraph (b) above, the lowest bid is a bid from Group C or Group D, all Group C and Group D bids shall be further compared with the lowest bid from Group A, as determined under paragraph (b) above, after adding to the c.i.f. bid price of goods to be imported offered in each Group C and Group D bid, for the purpose of this further comparison only, an amount equal to the smaller of (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of goods offered in such Group C or Group D bid, or (ii) 15% of the c.i.f. bid price of such goods. If the Group A bid or a Group C bid is the lowest in such further comparison, it shall be selected for purposes of award. (d) If, as a result of the further comparison under paragraph (c) above, a bid from Group D is the lowest, all Group D bids shall be finally compared with the lowest bid from Group C, as determined under paragraph (b) above, after adding to the c.i.f. bid price of goods to be imported offered in each Group D bid, for the purpose of this final comparison only, an amount equal to the smaller of (i) the difference between the amount of customs duties and other import taxes which would actually be payable for the importation of goods offered in such Group D bid and for the importation of goods offered in the Group C bid, or (ii) 15% of the c.i.f. bid price of goods to be imported offered in such Group D bid. If the lowest bid in such comparison is the Group C bid, it shall be selected for purposes of award; if not, the lowest bid from Group D, as determined under paragraph (b) above, shall be selected for purposes of award. 3. The bidding documents shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the methods and stages that will be followed in the evaluation and comparison of bids to give effect to such preference.