Nepal - Second Telecommunications Project : Credit 0397 - Credit Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 397 NEP Development Credit Agreement (Second Telecommunications Project) BETWEEN THE KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JUNE 20, 1973 CONFORMED COPY CREDIT NUMBER 397 NEP Development Credit Agreement (Second Telecommunications Project) BETWEEN THE KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JUNE 20, 1973 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated June 20, 1973, between THE KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated January 31, 1969, with the same force and effect as if they were fully set forth herein, subject, however, to the deletion of Sections 5.01 and 6.02(h) thereof and to the renumbering of Section 6.02(i) into 6.02(h) thereof (said General Conditions Applicable to Development Credit Agreements of the Association, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "NTB" means the Nepal Telecommunications Board, established on October 17, 1969 by Order under the Development Board Act, 1956, to succeed to the assets, facilities and operations of the Nepal Department of Telecommunications of the Ministry of Works, Transport and Communications of the Borrower, and shall include the Corporation, if established, or any other successor or successors thereto; (b) "Corporation" means the proposed telecommunications corporation referred to in Section 4.04(b) and (c) of this Agreement, and any successor or successors thereto; (c) "Prior Credit Agreement" means the Development Credit Agreement (Telecommunications Project) No. 166 NEP between the Borrower and the Association dated November 10, 1969; and (d) "Communications Act" means the Communications Corporation Act, 1972, of the Borrower, as amended as of December 31, 1972. I 4 ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equivalent to five million five hundred thousand dollars ($5,500,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule shall be amended from time to time, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed under the Development Credit Agreement; provided, however, that, except as the Association shall otherwise agree, no withdrawal shall be made on account of expenditures in the territories of any country which is not a member of the Bank (other than Switzerland) or for goods produced in, or services supplied from, such territories. Section 2.03. 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 boy the Bank in April 1972, as revised in October 1972, and in accordance wi , and subject to, the provisions set forth in Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1980 or such other date as shall be agrced between the Borrower and the Association. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semi-annually on March 15 and September 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each March 15 and September 15 commencing September 15, 1983, and ending March 15, 2023, each installment 5 to and including the installment payable on March 15, 1993 to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. NTB is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out, or cause to be carried out, the Project with due diligence and efficiency and Ai conformity with appropriate administrative, financial, engineering and public utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. Within six months of the date of this Agreement, or such other date as may be agreed between the Borrower and the Association, the Borrower shall lend to NTB the proceeds of the Credit under a subsidiary loan agreement satisfactory to the Association. Except as the Association shall otherwise agree, such agreement shall provide, inter alia, that NTB shall pay periodically to the Borrower amounts representing (i) interest on the loan at the rate of seven and one-quarter per cent (7-1/4%) per annum and (ii) amortization of the principal amount of the loan over a term of twenty years, including a grace period of five years, from the date of this Agreement. Section 3.03. (a) The Borrower undertakes to insure, cause to be insured, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit 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 the Borrower to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. 6 Section 3.04. (a) The Borrower shall furnish or cause to be furnished to the Association, promptly upon their preparation, the plans, specifications, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain or cause to be maintained 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, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to examine the Project, the goods financed out of the proceeds of the Credit, NTB's properties and equipment and any relevant records and documents; and (iii) shall furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.05. The Borrower 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 carrying out 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. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall cause NTB to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of NTB. (b) The Borrower shall cause NTB to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses 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 five 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 NTB and the audit thereof as the Association shall from time to time reasonably request. 7 Section 4.02. The Borrower shall cause NTB: (a) to operate NTB's business and conduct its affairs in accordance with sound business, public utility and financial practices under the supervision of qualified and experienced management and to operate, maintain, renew and repair its plants, equipment and property in accordance with sound engineering and public utility practices; (b) to take all action reasonably required to maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of NTB's business; (c) to take out and maintain with responsible insurers, or to make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice; and (d) not to sell, lease, transfer, or otherwise dispose of any of its properties or assets which shall be required for the efficient carrying on of its business, without the consent of the Association. Section 4.03. Except as the Association shall otherwise agree, the Borrower shall not make, or permit to be made, prior to the completion of the Project, capital expenditures (other than capital expenditures for the Project) for the expansion of NTB's telecommunications facilities exceeding in the aggregate the equivalent of $1,000,000. Section 4.04. Except as the Association shall otherwise agree, (a) the Borrower shall: (i) make available, or cause to be made available, to the Association for comment any rules proposed to be issued by NTB; (ii) amend, suspend, or terminate the Order establishing NTB, or any provision thereof, only with the prior approval of the Association; provided that the prior approval of the Association shall not be required for any amendment of the Order which does not interfere with the efficient operation of NTB and does not materially and adversely affect the carrying out of the Project; and (iii) until the completion of the Project, transfer, or cause to be transferred, funds from NTB to the Borrower only after the prior submission of a financing plan which is acceptable to the Association. 8 (b) in the event that the Borrower proposes to terminate the Order establishing NTB, the Borrower shall: (i) simultaneously establish a telecommunications Corporation under an Order mutually acceptable to the Borrower and the Association pursuant to the Communications Act or such other legislation which gives such Corporation, inter alia, such powers, management, staff, resources, capital structure and financial policies as are satisfactory to the Association and necessary to carry out its responsibilities with due diligence and efficiency and in conformity with sound administrative, engineering, public utility and financial practices; and (ii) transfer, or cause to be transferred, to such Corporation the properties and facilities of NTB, together with all assets and liabilities relating thereto, including all existing rights, privileges and obligations of NTB. (c) if the Corporation is established, the Borrower shall: (i) make available, or cause to be made available, to the Association for comment any rules specifically applicable to such Corporation proposed to be issued by the Borrower and any articles proposed to be adopted by such Corporation, pursuant to the legislation establishing such Corporation; and (ii) until the completion of the Project, cause the Corporation to declare or pay dividends only with the approval of the Association. Section 4.05. The Borrower shall cause NTB to take such action as may be necessary to continue to improve the performance and productivity of NTB's employees. Section 4.06, (a) Except as the Association shall otherwise agree, the Borrower shall: (i) by July 16, 1973, adjust tariffs for telecommunications services so as to increase NTB's gross operating revenues by at least 15%, and thereafter ensure that tariffs for telecommunications services are not reduced until the completion of the Project; and 9 take, or cause to be taken from time to time, such action as may be necessary (including, but without limitation to, adjusting and maintaining tariffs for telecommunications services) to provide revenues sufficient to produce an annual rate of return on the average value of NTB's net fixed assets in operation of at least 5% in fiscal years 1975-1979, and thereafter of at least 10% or such other annual rate of return as may be agreed upon from time to time between the Borrower and the Association. (b) For the purposes of paragraph (a)(ii) of this Section: (i) The annual rate of return shall be calculated by relating the net operating income of NTB for the fiscal year in question to the average of the net depreciated value of NTB's fixed assets in operation at the beginning and at the end of the year in question; (ii) "Net operating income" shall mean the difference between (A) gross operating revenues accruing from NTB's telecommunications services; and (B) all operating costs of NTB's telecommunications services, including administrative expenses, adequate maintenance and provision for depreciation on all depreciable assets in operation, computed in accordance with the straight-line method at an average rate of not less than 5% -,er annum of the gross value of such depreciable assets; and (iii) "Net depreciated value of NTB's fixed assets in operation" shall mean the gross value of such assets less accumulated depreciation, adjusted in accordance with methods agreed between the Borrower and the Association to reflect changes in current prices of such assets. Section 4.07. (a) Except as the Association shall otherwise agree, the Borrower shall not incur, or permit to be incurred, any debt for the benefit of NTB unless NTB'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 debt incurred for the benefit of NTB, including the debt to be incurred. 10 (b) For the purposes of this Section: (i) the term "debt" means all debt incurred by or on behalf of NTB, including debt assumed or guaranteed by the Borrower, except debt incurred in the ordinary 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 total revenues from all sources, adjusted to take account of NTB's tariffs in effect at the time of the incurrence of debt even though they were not in effeCL 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 and debt service requirements; (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 the Borrower, 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. ARTICLE V Consultation, Information and Inspection Section 5.01. The Borrower and the Association shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the 11 Borrower and the Association shall from time to time, at the request of either party: (a) exchange views through their representatives with regard to the performance of their respective obligations under the Development Credit Agreement, of the administration, operations and financial condition of NTB and, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out any part of the Project, and other matters relating to the purposes of the Credit; and (b) furnish to the other all such information as it shall reasonably request with regard to the general status of the Credit. On the part of the Borrower, such information shall include information with respect to financial and economic conditions in the territories of the Borrower, including its balance of payments, and the external debt of the Borrower, of any of its administrative subdivisions and of any agency of the Borrower or of any such administrative subdivision. Section 5.02. (a) The Borrower shall furnish or cause to be furnished to the Association all such information as the Association shall reasonably request concerning the administration, operations and financial condition of NTB and, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out any part of the Project. (b) The Borrower and the Association 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 maintenance of the service thereof or the performance by either of them of its obligations under the Development Credit Agreement. Section 5.03. The Borrower shall afford all reasonable opportunity for accredited representatives of the Association to visit any part of the territories of the Borrower for purposes related to the Credit. ARTICLE VI Taxes and Restrictions Section 6.01. The principal of, and service charges on, the Credit shall be paid without deduction for, and free from, any taxes imposed under the laws of the Borrower or laws in effect in its territories. Section 6.02. The Development Credit Agreement shall be free from any taxes on or in connection with the execution, delivery or registration thereof, imposed under the laws of the Borrower or laws in effect in its territories. 12 Section 6.03. The payment of the principal of, and service charges on, the Credit shall be free from all restrictions, regulations, controls and moratoria of any nature imposed under the laws of the Borrower or laws in effect in its territories. ARTICLE VII Remedies of the Association Section 7.01. If any event specified in Section 7.01 of the General Conditions shall occur and shall continue for the period, if any, therein set forth, then at any subsequent time during the continuance thereof, the Association, at its option, may by notice to the Borrower declare the principal of the Credit then outstanding to be due and payable immediately together with the service charges thereon, and upon any such declaration such principal and service charges shall become due and payable immediately, anything to the contrary in the Development Credit Agreement notwithstanding. Section 7.02. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified, namely that the Communications Act shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the carrying out of the Project or the efficient operation of the Corporation. Section 7.03. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified, namely that the event specified in Section 7.02 of this Agreement shall occur. ARTICLE VIII Amendment of Prior Credit Agreement Section 8.01. Sections 4.06(b), 4.09, 4.12(a)(iii) and (b) and 4.13 of the Prior Credit Agreement are hereby amended by deleting said Sections and substituting therefor Sections 4.01(b), 4.03, 4.06(a)(ii) and (b) and 4.07(a) of this Agreement respectively. ARTICLE IX Effective Date; Termination Section 9.01. The date September 21, 1973 is hereby specified for the purposes of Section 10.04 of the General Conditions. 13 Section 9.02. The obligations of the Borrower under Sections 4.01, 4.02 and 4.04 through 4.07 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE X Representative of the Borrower; Addresses Section 10.01. The Secretary to the Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 9.03 of the General Conditions. Section 10.02. The following addresses are specified for the purposes of Section 9.01 of the General Conditions: For the Borrower: Secretary to the Ministry of Finance Singha Durbar Kathmandu Nepal Cable address: ARTHA Kathmandu 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. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed 14 in their respective names and to be delivered in the city of Kathmandu, the Kingdom of Nepal, as of the day and year first above written. KINGDOM OF NEPAL By /s/ Yadu Nath Khanal Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ I.P.M. Cargill Regional Vice President, Asia 15 SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of amounts of the Credit to each Category and the percentage of eligible expenditures so to be financed in each Category: Amount of the Credit Allocated %Of (Expressed in Expenditures Category Dollar Equivalent) to be Financed I. (a) Local telephone 1,320,000 100% of foreign exchange switch- expenditures ing equipment (b) Distribution net- 1,520,0 100% of foreign works (including expenditures cables, wires and related accesso- ries) and sub- scribers' apparatus 11. (a) Long distance sys- 1,520,000 100% of foreign tems (including expenditures microwave and multi- plex systems, UHF/ VHF and HF radio, and line circuits) (b) Long diSLance 100,000 100% of foreign switching expenditures equipment 1s. Telex, telegraph and 19000 100% of foreign data equipment expenditures IV. Vehicles, tools, test- 150,000 100% of foreign ing, training and expenditures consultants V. Unallocated 700,000 TOTAL 5,500,000 16 2. For the purposes of this Schedule the term "foreign expenditures" means expenditures for goods produced in, or services supplied from, the territories, and in the currency, of any country other than the Borrower. 3. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of: (a) expenditures prior to the date of this Agreement; and (b) payments for taxes imposed directly under the laws of the Borrower or laws in effect in its territories on goods or services, or on the importation, manufacture, procurement or supply thereof. To the extent that the amount represented by the percentage set forth in the third column of the table in paragraph I above in respect of any Category would exceed the amount payable net of all such taxes, such percentage shall be reduced to ensure that no proceeds of the Credit will be withdrawn on account of payments for such taxes. 4. Notwithstanding the allocation of an amount of the Credit set forth in the second column of the table in paragraph I above: (a) if the estimate of the expenditures under any Category shall decrease, the amount of the Credit then allocated to such Category and no longer required therefor will be reallocated by the Association by increasing correspondingly the unallocated amount of the Credit; (b) if the estimate of the expenditures under any Category shall increase, the percentage set forth in the third column of the table in paragraph I above in respect of such expenditures shall be applied to the amount of such increase, and a correspondii.g amount will be allocated by the Association, at the request of the Borrower, to such Category from the unallocated amount of the Credit, subject, however, to the requirements for contingencies, as determined by the Association, in respect of any other expenditures; and (c) if the Association shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in Section 2.03 of this Agreement, no expenditures for such item shall be financed out of the proceeds of the Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. 17 SCHEDULE 2 Description of the Project The Project is the second phase (July 1974-July 1979) of a program to modernize and expand NTB's telecommunications facilities. The Project consists of: Part A: provision and installation of: (i) telephone exchange equipment and cable networks for about 9,900 automatic and about 700 manual subscriber connections; and (ii) subscribers' apparatus, including PBXs. Part B: provision and installation of: () one international and four domestic HF radio station terminals; (ii) microwave systems to link Kathmandu to Bhairawa and Nepalganj; (iii) additional standby equipment for the microwave systems linking Kathmandu to Birganj and Biratnagar; (iv) four UHF or VHF spur systems and six overhead line circuits; (v) additional multiplex equipment; and (vi) trunk switching equipment. Part C: provision and installation of: (i) telex equipment for about 80 subscriber connections; (ii) about 90 teleprinters for telex subscribers or public offices; and (iii) about 24 telegraph circuits. 18 Part D: Construction of a new headquarters building for NTB in Kathmandu and the provision of vehicles, tools, testing and training equipment, and consultant services. The Project is expected to be completed by July 16, 1979. ( 19 SCHEDULE 3 Procurement 1. With respect to any contract for equipment or vehicles under paragraph 1 of Schedule 1 to this Agreement estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, the Borrower 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. (b) After bids have been received and evaluated, the Borrower 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 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 2.03 of this Agreement, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished 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. 2. With respect to any other contract for equipment or vehicles under paragraph I of Schedule I to this Agreement estimated to cost the equivalent of less than $50,000, the Borrower 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 20 Association shall, if it determines that the award of the contract is not 'onsistent with the procedures set forth or referred to in Section 2.03 of this Agreement, promptly inform the Borrower and state the reasons for such determination. 3. Notwithstanding the provisions of paragraphs I and 2 of this Schedule, the Borrower may: (a) for the purpose of standardization, procure extensions to existing telecommunications facilities up to the equivalent of $500,000 by negotiation with the original suppliers of such facilities, provided that the terms and conditions of the contracts for the supply of such facilities so negotiated shall be satisfactory to the Association; and (b) use its usual procurement procedures for the purchase of items of equipment or spare parts costing less than the equivalent of $10,000 each, provided that the total cost of such items included in this sub-paragraph does not exceed a maximum amount of the equivalent of $50,000.