Turkey - Petroleum Exploration Project : Loan 1916 - Project Agreement - Conformed

LFFICIAL LOAN NUMBER 1916 TU Project Agreement (Petroleum Exploration Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and TURKIYE PETROLLERI ANONIM ORTAKLIGI Dated , 1980 LOAN NUMBER 1916 TU PROJECT AGREEMENT AGREEMENT, dated 40otw > , 1980, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and TUrkiye Petrolleri Anonim Ortakligi (here- inafter called TPAO). WHEREAS (A) by the Loan Agreement of even date herewith between Republic of Turkey (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-five million dollars ($25,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that TPAO agree to undertake such obligations toward the Bank as are hereinafter set forth; (B) by a subsidiary loan agreement to be entered into between the Borrower and TPAO, part of the proceeds of the loan provided for under the Loan Agreement will be made available to TPAO on the terms and conditions therein set forth; and WHEREAS TPAO, in consideration of the Bank's entering into the Loan 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 Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. TPAO shall carry out Parts A.1, 2 and 3, B and C of the Project described in Schedule 2 to the Loan Agreement -2- with due diligence and efficiency and in conformity with appro- priate administrative, financial, engineering and industrial practices. Section 2.02> In order to assist TPAO in carrying out the Project, TPAO shall employ engineering, geological, geophysical and geochemical consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods, works and services to be financed out of the proceeds of the Loan, shall be governed by the provisions of the Schedule to this Agreement. Section 2.04. (a) TPAO undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan relent to it by the Borrower against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by TPAO to replace or repair such goods; and (b) Except as the Bank may otherwise agree, TPAO shall cause all goods, works and services financed out of the proceeds of the Loan relent to it by the Borrower to be used exclusively for the Project until its completion. Section 2.05. (a) TPAO shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for Parts A.1, 2 and 3, B and C of the Project, and any material modifica- tions thereof or additions thereto, in such detail as the Bank shall reasonably request; (b) TPAO: (i) shall maintain records and procedures adequate to record and monitor the progress of Parts A.1, 2 and 3, B and C of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan, and to disclose their use in Parts A.1, 2 and 3, B and C of the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construc- tion sites included in Parts A.1, 2 and 3, B and C of the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank at regular intervals all such information as the Bank -3- shall reasonably request concerning Parts A.1, 2 and 3, B and C of the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods, works 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 TPAO and the Bank, TPAO shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of Parts A.1, 2 and 3, B and C of the Project, its cost and the benefits derived and to be derived from it, the performance by TPAO and the Bank of their respective obligations under the Project Agreement and the accom- plishment of the purposes of the Loan; and (d) TPAO shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property, equipment, records and documents of TPAO relevant to the perfor- mance of TPAO under this Agreement. Section 2.06. TPAO shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, TPAO 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) TPAO shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Parts A.1, 2 and 3, B and C 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 Loan; and (b) TPAO shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Parts A.l, 2 and 3, B and C of the Project, the accomplishment of the purposes of the Loan, or the performance by TPAO of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of TPAO Section 3.01. TPAO shall: (a) at all times conduct its operations and maintain its financial position in accordance with -4- sound financial and industrial standards and practices, with qualified management and assisted by qualified and competent staff in adequate numbers; (b) take out and maintain with responsible insurers, or make other provisions satisfactory to the Bank, for insurance against such risks and in such amounts as shall be consistent with appropriate practices; (c) operate and maintain all facilities, equipment and properties included in the Project and from time to time make all necessary renewal and replacements thereof in accordance with sound industrial and financial practices; and (d) operate and maintain the facilities included in the Project in accordance with occupational health, environmental and ecological standards acceptable to the Bank. Section 3.02. TPAO shall establish and maintain until com- pletion of the Project a project implementation unit for each part of the Project with qualified and experienced staff in sufficient numbers whose terms and conditions of employment shall be satis- factory to the Bank. Section 3.03. Except as the Bank shall otherwise agree, TPAO shall: (i) by January 1, 1981, transfer all responsibility with respect to importing and marketing imported petroleum and imported petroleum products; (ii) by July 1, 1981, transfer all of its facilities for refining imported oil (including those relating to the Mid-Anatolian Refinery) and related properties to IPRAS; and (iii) by December 31, 1981, make all other necessary arrangements to completely separate its activities with respect to exploring, producing, refining and distributing of domestic oil and products derived therefrom from those with respect to the importing of foreign petroleum a7i petroleum products, and refining and distri- buting such petroleum and petroleum products, all in accordance with a timetable acceptable to the Bank. Section 3.04. TPAO shall, with the assistance of consultants, as necessary, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank, prepare and furnish to the Bank by December 31, 1981 recommenda- tions designed to enable TPAO to attract and retain qualified technical personnel and to improve the operational efficiency of its staff, exchange views on such recommendations with the Bank, -5- and thereafter take appropriate steps within its power, to imple- ment such recommendations. Section 3.05. (a) Not later than April 30, 1981, TPAO shall establish a committee of exploration experts including two independent experts acceptable to the Bank, under terms and conditions of employment satisfactory to the Bank, inter alia to evaluate the exploratory drilling program under Part C of the Project and to make recommendations therefor; and (b) at least one month before moving a drilling rig to an anticipated drilling location under Part C of the Project, the committee referred in paragraph (a) hereof shall furnish to the Bank for its approval of such individual well location its assess- ment of such location based upon geological data and the drilling program for such location. Section 3.06. TPAO shall make arrangements satisfactory to the Bank for obtaining helicopter services as and when needed for carrying out Part B of the Project. Section 3.07. TPAO shall furnish to the Bank for an exchange of views a program for training of its staff under Part A.3 of the Project, such program to be implemented after such exchange of views taking into consideration the Bank's comments. ARTICLE IV Financial Covenants Section 4.01. TPAO shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. With a view to achieving the purposes set forth in Section 3.03 of this Agreement, TPAO shall, by April 1, 1981, establish as of January 1, 1981, and thereafter maintain separate accounts and financial statements (balance sheets, statements of income and expenses and related statements) with respect to the importing of foreign oil petroleum and petroleum products and activities for refining and distributing imported oil on the one hand, and exploring, producing refining and dis- tributing of domestic oil on the other hand. -6- Section 4.03. TPAO 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 Bank; (ii) furnish to the Bank 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of TPAO and the audit thereof as the Bank shall from time to time reasonably request. Section 4.04. As used in this Agreement with respect to the financial obligations of TPAO: (a) "Current assets" means the sum of unrestricted cash available for use in current operations, marketable securities (excluding securities, whether marketable or not, acquired for purposes of control, affiliation, or other continuing business advantage), receivables collectible in the normal course of business within one year, and inventories valued at the lower of cost or market; (b) "Current liabilities" means all obligations due on demand or within one year or whose liquidation is reasonably expected to require the uae of existing resources classified as current assets. Obligations shall include but not be limited to customers' advances, accrued taxes on, or measured by income, other accrued taxes and current maturities of long-term debt; (c) "Net revenues" means gross revenues from all sources less operating and administrative expenses, including taxes, surcharges and other levies, if any, but before provision for depreciation and interest and other charges on debt; (d) "Debt service requirements" means the aggregate amount of amortization (principal payments and any mandatory sinking fund payments) on long-term debt, interest and other charges on other debt payable during the period concerned; (e) "Long-term debt" means any debt maturing more than one year after the date on which it is originally incurred; and -7- (i) debt shall be deemed to be incurred: (A) under a loan contract or agreement (including the Loan Agreement) on the date of such loan contract or agreement; (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only, except in the case of a guarantee of debt of a subsidiary, to the extent that the guaranteed debt is outstanding; and (ii) whenever in connection with this Article it shall be necessary to value in terms of the currency of the Borrower debt payable in any other currency, such valuation shall be made at the prevailing lawful rate of exchange at suich such other cur- rency is, at the time of such valuation, obtainable by TPAO for the purposes of servicing such debt or in the absence of such rate of exchange, another rate acceptable to the Bank; and (f) "Equity" means the aggregate of the unimpaired paid-up capital, surplus if it is represented by a positive number and free reserves of TPAO. Section 4.05. TPAO represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing. Section 4.06. TPAO shall conduct its operations and affairs in such manner as shall be necessary to: (a) by July 1, 1981, attain a ratio of its long-term debt to its equity not greater than 1.0; (b) by July 1, 1981, attain and thereafter maintain, at all times, a ratio of its aggregate current assets to its aggregate current liabilities of not less than 1.0; and (c) On the first day of each month after July 1, 1981, have available for use in current operations, cash, marketable securities (excluding securities, whether marketable or not, acquired for purposes of control, affiliation, or other continuing business advantage) and net lines of credit from commercial banks (guaranteed for at least one month) equal in the aggregate to not -8- less than the estimated operating expenses for the following two months. For purposes of this paragraph" operating expenses" means all operating and administrative expenses, including provision for taxes, if any, but before provisions for depreciation and interest and other charges on debt. Section 4.07. TPAO shall not incur any long-term debt in any year unless a reasonable forecast of its revenues and expendi- tures shows that its aggregate projected net revenues for each full fiscal year during the term of the long-term debt to be incurred or for the following ten years whichever is shorter shall be at least 2 times the aggregate projected debt service require- ments in such year on all long-term debt of TPAO. For purposes of this paragraph, "a reasonable forecast" means a forecast prepared by TPAO in the fiscal year in which the debt in question is proposed to be incurred and reviewed by the Bank which both TPAO and the Bank accept as reaonable and as to which the Bank has notified TPAO of its acceptability, provided no event has occured since the Bank's acceptance of such forecast which would have a material adverse effect on the financial condition or future operating results of TPAO. Section 4.08. TPAO shall not make any repayment in advance of maturity in respect of any of its outstanding debt which would materially and adversely affect its ability to meet its financial obligations. Section 4.09. Beginning January 1, 1981, TPAO shall not use its internally generated funds for its subsidiaries and other com- panies in which it has an interest unless its own requirements have been met. Section 4.10. Until completion of the Project, TPAO shall furnish annually by October 31 of each year for review by the Bank its proposed investment program and its financing arrange- ments for its following fiscal year. Section 4.11. Beginning with its fiscal year 1981 TPAO shall annually revalue its assets for a memorandum account in accordance with principles satisfactory to the Bank and prepare and furnish to the Bank pro forma accounts and financial statements for each fiscal year on such basis. -9- Section 4.12. All depreciable assets shall be fully depreci- ated in conformity with appropriate accounting practices applied on a consistent basis. 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 Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of TPAO thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly so notify TPAO thereof. 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. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's 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 Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America - 10 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For TPAO: TUrkiye Petrolleri Anonim Ortakligi MUdafaa CAD. No. 22 Ankara, Turkey Cable address: Telex: PETROL 42397-TPAO-TR Ankara 42426-TPAO-TR 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 TPAO, may be taken or executed by the General Manager of TPAO or such other person or persons as the General Manager of TPAO shall designate in writing, and TPAO shall furnish to the Bank sufficient 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 col- lectively 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT ByIC r C XV. Regional Vice President Europe, Middle East and North Africa TURKIYE PETROLLERI ANONIM ORTAKLIGI Authorized Representative - 11 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods, works and ser- vices 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 international competitive bidding as described in Part A of the Guidelines. 2. For goods, works and services to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, TPAO shall prepare and forward to the Bank 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 Bank shall reason- ably request; the Bank will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods, works and ser- vices in question. TPAO shall provide the necessary information to update such notice annually so long as any goods, works or ser- vices remain to be procured on the basis of international competi- tive bidding. 3. (i) To the extent possible, contracts shall be grouped into single bids of not less than $100,000 equivalent; and (ii) Bidders for goods and services included in Part B of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. 4. 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 the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; and (ii) customs duties and other import taxes levied in connection with the importation, or the - 12 - sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids. B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in Republic of Turkey may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Republic of Turkey if the bidder shall have established to the satisfaction of TPAO and the Bank that the manufacturing cost of such goods includes a value added in Republic of Turkey equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest eva- luated bids 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 the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from - 13 - group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures The following may be procured through limited interna- tional tendering: 1. Contracts for goods, works and services estimated to cost less than $100,000 equivalent, provided, however, that contracts so procured shall not in the aggregate exceed $1,000,000; and 2. Contracts for specialized services such as seismic data processing and reprocessing, geochemistry surveying and well logging available only from a limited number of sources. D. Review of Procurement Decisions by the Bank 1. Review of prequalification. TPAO shall, before qualification is invited, inform the Bank-in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank 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 prequali- fication shall be furnished by TPAO to the Bank for its comments before the applicants are notified of TPAO's decision, and TPAO shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods and services esti- mated to cost the equivalent of $100,000 or more: - 14 - (a) Before bids are invited, TPAO shall furnish to the Bank, 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 Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, TPAO shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform TPAO and state the reasons for such determination. (c) The terms and conditions of the contract qhall not, without the Bank'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 Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract not governed by the preceding paragraph, TPAO shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan 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 Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform TPAO and state the reasons for such determination. 4. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension 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 - 15 - more than 10% of the original price, TPAO shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agree- ment, shall promptly inform TPAO and state the reasons for its determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 4 .k day of JA d4 , 198 . FOR SECRETARY