Nepal - Kulekhani Hydroelectric Project : Credit 0600 - Credit Agreement - 1 - Conformed

CONFORMED COPY CREDIT NUMBER 600 NEP Development Credit Agreement (Kulekhani Hydroelectric Project) BETWEEN KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JANUARY 9, 1976 CONFORMED COPY CREDIT NUMBER 600 NEP Development Credit Agreement (Kulekhani Hydroelectric Project) BETWEEN KINGDOM OF NEPAL AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED JANUARY 9, 1976 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated January 9, 1976, between KINGDOM OF NEPAL (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) The Borrower has requested the Association to assist in the financing of the foreign exchange cost of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; and (B) The Borrower intends to contract from the Kuwait Fund for Arab Economic Development (hereinafter called the Kuwait Fund) a loan (hereinafter called the Kuwait Fund Loan) in an amount of KD5,000,000 to assist in financing the foreign exchange cost of the civil works included in the Project on the terms and conditions set forth in an agreement (hereinafter called the Kuwait Fund Loan Agreement) to be entered into between the Borrower and the Kuwait Fund; (C) The Borrower intends to contract from the Overseas Economic Cooperation Fund (hereinafter called OECF) an agency of the Government of Japan a loan (hereinafter called the OECF Loan) in an amount of three billion Yen to assist in financing the foreign exchange cost of the equipment required for the Project on the terms and conditions set forth in an agreement (hereinafter called the OECF Loan Agreement) to be entered into between the Borrower and OECF; and (D) The Borrower, the Bank and the United Nations Development Programme (hereinafter called UNDP) have entered into an agreement (hereinafter dalled the UNDP Project Document) whereby UNDP will provide technical assistance to the Borrower to assist the Borrower in the field investigation, and in the preparation of detailed designs, specifications and tender documents, procurement and supervision of construction, and the Bank will act as executing agency for the purpose. WHEREAS the Association has agreed, on the basis inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: 4 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 March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association 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 and in the Preamble to this Agreement have the respective meanings therein set forth and the term "NEC" means Nepal Electricity Corporation, a corporation established and operating under the laws of the Borrower. 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 twenty-six million dollars ($26,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule I to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Association, 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 and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, the goods, works and services (other than consultants' services) for the Project to be financed out of the proceeds of the Credit, shall be procured in accordance with the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be December 3 1, 1981 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay .:o the Association a service charge at the rate of three-fourths of one per cent (3,4 of Wr) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. 5 Section 2.06. Service charges shall be payable semi-annually on April I and October 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each April 1 and October 1 commencing April 1, 1986, and ending October 1, 2025, each installment to and including the installment payable on October 1, 1995 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. ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appropriate 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. (a) The Borrower undertakes to insure, 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. Section 3.03. The Borrower shall furnish to the Association, not later than March 31, 1977, or such other date as the Association shall agree, a detailed plan for the resettlement of the people living on the reservoir area and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.04. (a) The Borrower shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and 6 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) The Borrower: (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, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit 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 and the goods and services financed out of such proceeds. ARTICLE IV Management and Operations of NEC Section 4.01. (a) The Borrower shall cause NEC at all times to carry on its operations, manage its affairs, plan the future development of its power system and maintain its financial position in accordance with sound engineering, financial, administrative and public utility practices, and under the supervision of experienced and competent management. (b) The Borrower shall cause NEC to operate and maintain its plant, equipment, properties and facilities and from time to time make all necessary renewals and repairs thereof in accordance with sound engineering and public utility practices. Section 4.02. The Borrower shall cause NEC to take out and maintain with responsible insurers, or make other provision satisfactory to the Association for, insurance against such risks and ir such amounts as shall be consistent with appropriate practice. Section 4.03. The Borrower shall ensure that NEC does not, without the consent of the Association, sell, lease, transfer, or otherwise dispose of any of its properties or assets which shall be required for the efficient carrying out of its business. Section 4.04. The Borrower shall cause NEC to take, at all times, all steps necessary on its part to maintain its right to carry on its operations and except as the Association shall otherwise agree, to take all steps necessary to acquire and 7 to retain such land, interests in land and properties, and to acquire, maintain and renew such licenses, consents, franchises or other rights, as may be necessary or useful for the operation of the Project and the conduct of its business. ARTICLE V Financial and Other Covenants Section 5.01. (a) The Borrower shall cause NEC to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of NEC. (b) The Borrower shall cause NEC 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 six months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of NEC and the audit thereof as the Association shall from time to time reasonably request. (c) The Borrower shall cause NEC to employ and maintain on its staff a qualified and experienced internal auditor. Section 5.02. (a) Except as the Association shall otherwise agree the Borrower shall cause NEC to take all steps necessary to set and maintain its tariffs at such a level as may be necessary to provide NEC with revenue sufficient to produce an annual rate of return on the value of the NEC's average net fixed assets in operation of not less than the percentage shown against NEC's fiscal year below: (i) 1975-76: 2.5% (ii) 1977-78: 4.0% (iii) 1980-8 1 and thereafter: 6.0% (b) For the purpose of this Section: (i) The annual rate of return shall be calculated by relating the operating income for the year in question to the average of the 8 value of the net fixed assets of NEC in operation at the beginning and at the end of such year. (ii) The term "value of net fixed assets in operation" shall mean the gross book value of such assets, less the amount of accumulated depreciation. (iii) The term "operating income" shall mean the difference between: (A) gross operating revenue accruing from NEC's services; and (B) the operating and administration expenses (including taxes, if any), adequate maintenance and depreciation but excluding interest and other charges on debt. (iv) For the purpose of calculating the rate of return fcr fiscal year 1975-76 in the event that a tariff increase is made during such fiscal year, the term "gross operating revenue accruing from NEC's services" include the revenue which would have accrued to NEC if such tariff increase had been made at the beginning of such fiscal year. (c) The Borrower shall review the said tariffs and consult with the Association not later than July 15, 1981, or such other date as the Association shall agree, with a view to achieving a rate of return of 8% as defined in this section as early thereafter as possible. Section 5.03. The Borrower shall transfer to NEC the Sunkosi hydroelectric plant not later than July 15, 1977 or such other date as shall be agreed between the Borrower and the Association and the hydroelectric plants of Trisuli (2nd stage) and Gandak promptly upon the transfer thereof to the Borrower. Section 5.04. (a) Promptly upon the commissioning of the first turbo-generating unit included in Part F of the Project, the Borrower shall transfer to NEC the said turbo-generating unit and all such other parts of the Project as shall have been completed and commissioned by the date of commissioning such turbo-generating unit. (b) Promptly upon the commissioning of the second turbo-generating unit included in Part F of the Project, the Borrower shall transfer to NEC the said turbo-generating unit and such other parts of the Project as shall not have been transferred pursuant to paragraph (a) of this Section. 9 (c) The said assets shall be valued for purposes of such transfer at their cost. (d) On each of the said transfers, the Rupee equivalent of the part of the proceeds of the Credit used for the financing of the assets so transferred shall be deemed to have been lent by the Borrower to NEC and shall be repaid to the Borrower in fifty equal semi-annual installments of principal and interest at the rate of 8-1/2% per annum starting from the year of each such transfer. Section 5.05. The Borrower shall inform the Association of the terms and conditions of the transfer of the assets referred to in Section 5.03 and 5.04 of this Agreement and the Gandak-Hetauda power transmission facilities promptly after any such transfer shall have been made. Such information shall include inter alia the date of such transfer, whether such assets are transferred as equity or debt and in the latter case, the terms and conditions of such debt. Section 5.06. (a) With regard to any assets transferred to NEC as debt, such debt shall equal the cost of such assets less any amount which NEC shall have contributed toward their cost. (b) The Borrower shall cause NEC to increase its authorized share capital as and when needed to issue shares for assets transferred as equity. Section 5.07. The Borrower shall continue to provide to NEC the electricity generated by the Sunkosi hydroelectric plant until the said plant is transferred to NEC. Section 5.08. The Borrower shall settle all outstanding bills owed by it to NEC not later than July 15, 1976 or such other date as the Association shall agree, and shall thereafter pay its current bills to NEC promptly after the receipt thereof by the Borrower. Section 5.09. The Borrower shall ensure that NEC does not declare any dividend until the assets forming the Project shall have been transferred to NEC pursuant to Section 5.04 of this Agreement. Section 5.10. The Borrower shall consult with the Association on any proposed institutional changes in the power sector which may affect the Central Nepal Power System. 10 ARTICLE VI Remedies of the Association Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the Borrower shall have taken any action for the dissolution or disestablishment of NEC or for the suspension of its operations; (b) the Borrower shall have suspended, terminated, repealed or substantially amended the Nepal Electricity Corporation Act, 2019 (1962) or any other legal provision governing the organization or operations of NEC in such manner as would materially and adversely affect the efficient carrying out of the Project, or the operation of the Project; and (c) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of the OECF Loan or of the Kuwait Fund Loan shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the OECF Loan Agreement and the Kuwait Fund Loan Agreement, respectively, or (B) the OECF Loan or the Kuwait Fund Loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement, and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 6.02. Fu the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof, namely, that any event specified in paragraphs (a), (b) or (c)(i)(B) of Section 6.01 of this Agreement shall occur. 11 ARTICLE VII Effective Date; Termination Section 7.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01(b) of the General Conditions: (a) the Kuwait Fund Loan Agreement and the OECF Loan Agreement have, or will concurrently with this Agreement, become fully effective; and (b) the Borrower has implemented tariffs at levels such that the rate of return for fiscal year 1975-76 set forth in Section 5.02 of this Agreement will, in the opinion of the Association, be achieved. Section 7.02. The date May 10, 1976, is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 7.03. The obligations of the Borrower under Sections 5.01, 5.02 and 5.10 of this Agreement and the provisions of Section 6.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date thirty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VIII Representative of the Borrower; Addresses Section 8.01. The Secretary of the Ministry of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 8.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance His Majesty's Government of Nepal Kathmandu Nepal 12 Cable address: ARTHA Kathmandu Nepal 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 in their respective names in the District of Columbia, United States of America, as of the day and year first above written. KINGDOM OF NEPAL By /s / D. R. Panday Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ S.M.L. van der Meer Acting Regional Vice President South Asia 13 SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Category of items to be financed out of the proceeds c' the Credit, the allocation of the amount of the Credit to such Category and the percentage of expenditures for items so to be financed in such Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil works for 15,700,000 100% of foreign Part A of the expenditures Project (2) Civil works 2,100,000 100% of foreign for Part B of expenditures the Project (3) Unallocated 8,200,000 TOTAL 26,000,000 2. For Lhe purposes of this Schedule, the term "foreign expenditures" means expenditures in the currency of a country other than the Borrower and for goods and services supplied from the territory 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. (b) payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof. 14 4. Notwithstanding the allocation of an amount of the Credit or the disbursement percentages set forth in the table in paragraph I above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Association may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures, and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 5. If the Assoc*.tion shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in 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. 15 SCHEDULE 2 Description of the Project The Project which is located about 30 km south-west of Kathmandu consists of the construction and equipping of a hydroelectric power station and consists of the following parts: Part A: a 107 m high rockfill dam on the Kulekhani River with a total embankment volume of about 3.5 million m3; Part B: an open channel spillway controlled by two radial gates; Part C: an intake structure connected to a headrace tunnel of about 2.5 m in diameter and 5.8 km long; Part D: a surge tank; Part E: a penstock of about 1.6 m in average diameter and about 1,340 m long; Part F: an underground power house equipped with two 30 MW turbo-generating units; Part G: a tailrace tunnel of about I km in length; Part H: a switchyard equipped with two step-up 35 MVA power transformers and associated switching and protection equipment; Part I: a 66 kV about 200 m long double circuit transmission line to connect the power station with the existing line between Kathmandu and Birganj; and Part J: extension of the existing substation in Kathmandu to accommodate two 35 MVA step-down transformers with switching and protection equipment. The Project is expected to be completed by December 1982. 16 SCHEDULE 3 Procurement A. General Procedures 1. Civil works under Parts (A) and (B) of the Project shall be procured under one contract to be awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Bidders for the works included in Parts (A) and (B) of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. 3. In the event that all of the bidders prequalified under paragraph 2 above are also prequalified for other civil works under the Project, then the Borrower shall invite bids from all such prequalified bidders for the civil works under Parts (A) and (B) of the Project together with the other civil works under the Project for which such bidders have been prequalified. B. Review of Procurement Decisions by the Association 1. Review of prequalification. The Borrower 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 the Borrower to the Association for its comments before the applicants are notified, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Association shall reasonably request. 2. Review of invitation to bid and of proposed award and final contract. (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 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. 17 (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 which it intends to award the contract and the reasons for the intended award and shall furnish to the Association, in sufficient time for its review, a detailed report, by the consultants referred to in the Preamble to the Development Credit Agreement, on the evaluation and comparison of the bids received, together with the recommendation for award of the said consultants and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, 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 or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for withdrawal Of funds from the Credit Account in respect of such contract.