Madagascar - Second Railway Project : Credit 0903 - Project Agreement - Conformed

i CONFORMED COPY CREDIT NUMBER 903 MAG Project Agreement (Second Railway Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and RESEAU NATIONAL DES CHEMINS DE FER MALAGASY Dated June 25, 1979 - i CREDIT NUMBER 903 MAG PROJECT AGREEMENT AGREEMENT, dated June 25, 1979, between the INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and the RESEAU NATIONAL DES CHEMINS DE FER MALAGASY (hereinafter called the Railways). WHEREAS by the Development Credit Agreement of even date herewith between the Democratic Republic of Madagascar (here- inafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirteen million dollars ($13,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Railways agree to undertake such obligations toward the Association as are here- inafter set forth; WHEREAS by a Subsidiary Loan Agreement to be entered into between the Borrower and the Railways, the proceeds of the Credit provided for under the Development Credit Agreement will be made available to the Railways on the terms and conditions therein set forth; and WHEREAS the Railways, 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. ARTICLE II Execution of the Project Section 2.01. The Railways shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appro- priate administrative, financial, engineering and public utility -2- practices pursuant to the Schedule of Implementation shown in Schedule 2 to this Agreement and so as to achieve the operational objectives set forth in Schedule 3 to this Agreement. Section 2.02. In order to assist the Railways in implementing its Transport Plan and in carrying out Parts F and G of the Project, the Railways shall employ such consultants and other experts whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association, as shall be agreed with the Association. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Credit, shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. (a) The Railways 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, trans- portation and delivery thereof to the place of use or installa- tion, and for such insurance any indemnity shall be payable in a currency freely usable by the Railways to replace or repair such goods. (b) Except as the Association may otherwise agree, the Railways 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 2.05. (a) The Railways shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, 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 Railways: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and, where appropriate, the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Credit, and to disclose their use in the Project; (ii) shall enable the Association's accredited represent- atives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds -3- of the Credit and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reosonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditures of such proceeds and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Railways and the Association, the Railways shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Railways and the Association of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Credit. (d) The Railways shall enable the Association's representa- tives to examine the plants, installations, sites, works, buildings, property and equipment of the Railways related to the Project and any relevant records and documents. Section 2.06. The Railways shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, the Railways shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.07. (a) The Railways shall at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement and other matters relating to the purposes of the Credit. (b) The Railways shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the Project,, the accomplishment of the purposes of the Credit, or the performance by the Railways of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of the Railways Section 3.01. The Railways shall at all times manage its affairs, maintain its financial position, plan its future -4- expansion and carry on its operations, all in accordance with appropriate administrative, financial, economic, engineering and railway practices and under the supervision of experienced and competent management assisted by qualified and competent staff. Section 3.:. The Railways 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. In order to ensure efficient implementation of the financial and accounting reforms comprising Part F of the Project, the Railways shall employ a financial manager whose qualifications and experience shall be acceptable to the Associa- tion. ARTICLE IV Financial Covenants Section 4.01. The Railways shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. The Railways shall: (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 appropriate 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 Associ- ation such other information concerning the accounts and financial statements of the Railways and the audit thereof as the Associ- ation shall from time to time reasonably request. Section 4.03. The Railways shall revalue its fixed assets annually beginning in respect of the year 1980 on the basis of replacement costs and shall adjust depreciation on such assets accordingly. Section 4.04. The Railways shall take such steps as shall be necessary to ensure the collection from all agencies of the -5- Borrower of accounts receivable from such agencies within ninety days from the date of billing. Section 4.05. In the light of the objective of maintaining a tariff structure and fixing tariff levels in accordance with appropriate economic and commercial principles for railways operations, the Railways shall take all steps, including periodic adjustments in tariffs, necessary to (i) cover the full costs of services; (ii) generate internally such funds as shall be necessary to meet debt-service requirements, to maintain adequate working capital and to make a reasonable contribution toward investment needs, including replacements. Section 4.06. Until the Project shall have been completed, (a) the Railways shall not, without a prior exchange of views with the Association, commit itself to any capital expenditures not required under the 1979-83 Investment Plan exceeding in the aggregate for any fiscal year an amount of two hundred million Malagasy Francs (FMG200,000,000) or relating to any individual capital item estimated to cost fifty million Malagasy Francs (FMG50,000,000) or more; and (b) the Railways shall keep the Association promptly informed of all investments made in the railway sector, whether public or private. Section 4.07. (a) Except as the Association shall otherwise agree, the Railways shall from time to time take all such measures (including but not limited to adjustments of its tariffs and tariff structure) as shall be required to obtain rates of return of not less than 1.3% in 1979, 2.5% in 1.980, 1981 and 1982, and 3.0% thereafter. (b) For the purposes 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 values of net fixed assets in operation at the beginning and at the end of each 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, both as valued from time to time in accordance with -6- sound and consistently maintained methods of valuation acceptable to the Association. (iii) The term "operating income" shall mean the differ- ence between: (A) gross operating revenue accruing from services; and (B) the operating and administration expenses, taxes (if any) and adequate maintenance and depreciation, but excluding interest and other charges on debt. (c) Promptly following the revaluation of assets required under Section 4.03 of this Agreement, the Borrower, the Associ- ation and the Railways shall agree on revised rates of return for the purposes of paragraph (a) of this Section in the light of such revaluation. Section 4.08. Except as the Association shall otherwise agree, the Railways shall not incur any debt unless the amount of its net cash revenue for its fiscal year next preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever amount is the greater, shall be not less than one and one-half times the maximum debt service requirements for any succeeding fiscal year on all its debt including the debt to be incurred. For the purposes of this Section: (a) "debt" means all debt, except debt incurred in the ordinary course of business and maturing by its terms less than one year after the date on which it is originally incurred; (b) debt shall be deemed to be incurred (i) under a loan contract or agreement, on the date and to the extent it is drawn down and outstanding pursuant to such loan contract or agreement; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the underlying debt is outstanding; (c) the term "net cash revenue" means gross operating revenue from all sources, adjusted to take account of 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 expenses, including adequate maintenance, taxes, if any, and administrative expenses, but before provision for depreciation and debt service requirements; (d) the term "debt service requirements" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (e) whenever in connection with this Section 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, 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 Associ- ation. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of the Railways 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 21 years after the date of this 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 the Railways of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. -8- ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to ahe 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 address herein- after 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: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Railways: Reseau National des Chemins de Fer Malagasy B.P. 259 Antananarivo, Madagascar Cable address: Telex: CHEMINFER 22233 Antananarivo CHEMINFER Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of the Railways or under the Development Credit Agreement by the Railways on behalf of the Borrower may be taken or executed by the Directeur General of the Railways or I71 such other person or persons as the Railways shall designate in writing, and the Railways shall furnish to the Association suffi- cient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively 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 in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By Is/ Willi A. Waphenhans Regional Vice President Eastern Africa RESEAU NATIONAL DES CHEMINS DE FER MALAGASY By /s/ Norbert Rakotomalala Authorized Representative - 10 - SCHEDULE 1 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, goods shall be procured under contracts 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 March 1977 (hereinafter called the Guidelines), on the basis of interna- tional competitive bidding as described in Part A of the Guide- lines. 2. For goods to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Railways shall prepare and forward to the Association as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Association shall reasonably request; the Association will arrange for the publi- cation of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods in question. The Railways shall provide the necessary information to update such notice annually so long as any goods remain to be procured on the basis of international competitive bidding. 3. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding, (i) 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 domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically supplied goods, shall be excluded; and (iii) the cost to the Railways of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. B. Other Procurement Procedures Subject to the provisions of part C.1 of this Schedule, purchases of equipment and materials estimated to cost less than the equivalent of $25,000 which cannot be grouped for - 11 - procurement under Part A above may be made following the appli- cable procedures of the Railways. C. Review of Procurement Decisions by the Association 1. Review of invitations to bid and of proposed awards and final contracts: With respect to (i) all contracts for equipment or materials estimated to cost the equivalent of $25,000 or more and (ii) all contracts of any value proposed to be procured under Part B of this Schedule the estimated cost of which, when added to all other contracts so procured, is expected to exceed $250,000 equivalent: (a) Before bids are invited, the Railways 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. (b) After bids have been received and evaluated, the Rail- ways 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 shall furnish to the Association, in sufficient time for its review, a detailed report on the evalua- tion and comparison of the bids received, and such other informa- tion as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsis- tent with the Guidelines or this Schedule, promptly inform the Railways 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. - 12 - 2. With respect to each contract not governed by the preceding paragraph, the Railways shall furnish 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, two conformed copies of such contract, together with the analysis of the respective 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 was not consistent with the Guidelines or this Schedule, promptly inform the Railways and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an exten- sion of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 10% of the original price, the Railways shall inform the Association of the proposed modification, waiver, extension or change order and the reasons therefor. The Association, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Railways and state the reasons for its determination. _____________________________________________________ V_ - 13 - SCHEDULE 2 Implementation Schedule 1978 1979 1980 1981 1982 1983 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 A. TRACK 1. Prepare specifications and tender docu- ments for a) rail, sleepers, fastenings, joints and crossings b) ballast wagons and track maintenanct equipment 2. Advertise, receive tenders, evaluate, award for a) rail, sleepers, fastenings, joints and crossings b) Ballast wagons and track maintenance equipment 3. Delivery of material and equipment a) rail, sleepers, fastenings, joints and crossings b) ballast wagons and track maintenance equipment 4. Relaying of 100 km of track and improvement of another 80 km mu m a g g m m ma B. MOTIVE POWER AND ROLLING STOCK 1. Prepare specifications and tender documents 2. Advertise, receive tenders, evaluate, award 3. Delivery of a) locomotives b) wagons -M9 1- c) railcars and coaches C. INFRASTRUCTURE 1. Prepare specifications and tender docu- ments for a) realignement of Ambila-Brickaville b) Improvements of yards and crossings c) workshops equipment 2. Advertise, receive tenders. evaluate, award for a) realignement of Ambila-Brickaville b) improvements of yards and crossings c) workshops equipment 3. Delivery of material and equipment a) realignement of Ambila-Brickaville b) improvements of yards and crossings c) workshops equipment - - - 4. Realignement, installations, improvements ao realignement of Ambila-Brickaville b) improvements of yards aned crossings c) workshops equipment D. TECHNICAL ASSISTANCE 1. Appointment of Finance Manager 2. Appointment of Consultants 3. Implementation of Unified Accounting System and Training Source: Bank Staff January 1979 World Bank -18945 '771 Vf - 14 - SCHEDULE 3 Operational Objectives Actual Objectives 1977 1982 1. Average Motive Power Availability (%) (a) Main line loco- 86.9 85-90 motives (b) Shunting loco- 94.9 90-95 motives (c) Motor coaches 95.5 90-95 2. Productivity per available motive power unit ('000) km (a) Main line loco- 94.6 100 motives (b) Shunting loco- 18.8 25 motives (c) Motor coaches 99.1 100 3. Average availability of freight wagons (%) (a) Ore wagons 92.0 90-95 (b) Tank wagons 97.0 95-98 (c) General cargo 96,0 95-98 4.. Average turnaround time (days) (a) Ore wagons 6.9 3.5 (b) Tank wagons 5.5 5.0 (c) Covered wagons 9.1 7.5 (d) Flat wagons 15.0 11.0 5. Average wagon load (%) (a) Ore wagons 100.0 100.0 (b) Tank wagons 91.0 91.0 (c) Covered wagons 53.0 55.0 (d) Flat wagons 42.0 45.0