Nepal - Industrial Development Project : Credit 1535 - Project Agreement - Conformed

CREDIT NUMBER 1535 NEP OFFICIAL DOC U PM Project Agreement (Industrial Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NEPAL INDUSTRIAL DEVELOPMENT CORPORATION Dated 1 , 1985 CREDIT NUMBER 1535 NEP PROJECT AGREEMENT AGREEMENT, dated , 1985, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and NEPAL INDUSTRIAL DEVELOPMENT CORPORATION (hereinafter called NIDC). WHEREAS by the Development Credit Agreement of even date herewith between the Kingdom of Nepal (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to seven million five hundred thousand Special Drawing Rights (SDR 7,500,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NIDC agree to undertake such obligations toward the Association as are hereinafter set forth; WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and NIDC, part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to NIDC on the terms and conditions therein set forth; and WHEREAS NIDC, 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 Parts A and C of the Project Management and Operations of NIDC Section 2.01. NIDC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development -2- Credit Agreement, and, to this end, shall: (a) carry out Parts A and C of the Project described in said Schedule with due dili- gence and efficiency, and in conformity with appropriate tech- nical, administrative, financial, economic, accounting and investment standards and practices; and (b) conduct its opera- tions and affairs in accordance with sound financial standards and practices, with qualified and experienced management and personnel, and pursuant to the Nepal Industrial Development Corporation Act, 2016 (1959), as amended to the date of this Agreement, to the NIDC's Statement of Policy, and to the NIDC's Strategy Statement. Section 2.02. (a) In accordance with, and subject to, the provisions of the Development Credit Agreement and the Project Agreement, NIDC shall submit Sub-loans to the Association for approval or for authorization to make withdrawals from the Credit Account. (b) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Association for approval, NIDC shall furnish to the Association an application, in form and substance satisfac- tory to the Association, together with (i) a description of the Beneficiary and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit relent to NIDC under the Subsidiary Loan Agreement; (ii) the proposed terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Association shall reason- ably request. (c) Each request by NIDC for authorization to make with- drawals from the Credit Account in respect of a free-limit Sub- loan shall contain: (i) a summary description of the Beneficiary and the Investment Project, including a description of the expen- ditures proposed to be financed out of the proceeds of the Credit relent to NIDC under the Subsidiary Loan Agreement; and (ii) the terms and conditions of such free-limit Sub-loan, including the schedule of amortization therefor. (d) The principal amount of each Sub-loan shall be the equivalent in the currency of the Borrower (determined as of the date or respective dates of withdrawal from the Credit Account) of the value of the currency or currencies so withdrawn or paid out on account of the cost of goods and services for the Invest- ment Project to be financed out of the proceeds of the Credit -3- allocated pursuant to the provisions of Section 2.02 (b) of the Development Credit Agreement; provided, however, that the prin- cipal amount of the Sub-loan or Sub-loans made to any one Bene- ficiary or for any one Investment Project shall not exceed the equivalent of $1,500,000. (e) Sub-loans for fixed investments shall each: (i) have a maturity of not more than fifteen years including a grace period of up to three years; (ii) be charged, on the principal amount of the Sub-loan withdrawn and outstanding from time to time, inter- est at the rate of at least 12% per annum, and a commitment charge at the rate of at least one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Sub-loan not with- drawn from time to time. (f) Sub-loans for permanent working capital shall only be made in conjunction with a Sub-loan for fixed investments, and each shall: (i) have a maturity of not more than seven years including a grace period of up to three years; (ii) be charged, on the principal amount of the Sub-loan withdrawn and outstanding from time to time, interest at the rate of at least 15% per annum, and a commitment charge at the rate of at least one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Sub-loan not withdrawn from time to time. (g) For purposes of this Section: (i) the term "fixed in- vestments" means machinery and equipment, civil works and related services required for an Investment Project, and the term "perma- nent working capital" means the initial materials inputs required for an Investment Project. (h) NIDC shall inform the Association, for its prior approval, of any substantial change proposed to be made by NIDC in respect of the repayment provisions of any Sub-loan. (i) Except as the Association and NIDC shall otherwise agree, applications and requests permitted pursuant to the provisions of paragraphs (b) and (c) of this Section shall be presented to the Association on or before March 31, 1989. Section 2.03. NIDC shall promptly inform the Association of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, or the performance by the NIDC of its obligations under this Agreement or the Subsidiary Loan Agreement. Section 2.04. (a) NIDC undertakes that, unless the Associa- tion shall otherwise agree, any Sub-loan shall be made on terms whereby NIDC shall obtain, by written contract with the Benefi- ciary or by other appropriate legal means, rights adequate to protect the interests of the Association and NIDC, including: (i) that the Beneficiary shall carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to main- tain adequate records and accounts; (ii) that: (A) the goods and services to be financed out of the proceeds of the Credit shall be purchased at a reasonable price, account being taken also of other relevant factors, such as time of delivery and effi- ciency and reliability of the goods and availability of main- tenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them; and (B) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) that: (A) the Beneficiary shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business prac- tice; and (B) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary to replace or repair such goods; (iv) the right to inspect, by itself or jointly with representatives of the Asso- ciation, if the Association shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (v) the right to obtain all such information as the Association or NIDC shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiary and to the benefits to be derived from the Investment Project, including, audited financial state- ments (balance sheets, statements of income and expenses and related statements) for each fiscal year, in accordance with appropriate auditing principles consistently applied by indepen- dent auditors acceptable to the Association and NIDC; and (vi) the right to suspend or terminate disbursements under the Sub- loan upon failure by such Beneficiary to perform its obligations under its contract with NIDC. (b) NIDC shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the -5- interests of the Association and NIDC; (ii) comply with its obligations under this Agreement and the Subsidiary Loan Agree- ment; and (iii) achieve the purposes of Part A of the Project. Section 2.05. In addition to the provisions of Section 2.02 of this Agreement, Sub-loans made or to be made to the Bansbari Leather and Shoe Factory Ltd. and to the Raw Hide Collection and Development Corporation Ltd. shall exclusively be made for the expansion and modernization of their leather production activities, and only after NIDC shall have obtained from the Borrower, a repayment guarantee satisfactory to the Association. Section 2.06. In order to assist NIDC in carrying out Part C of the Project, NIDC shall employ consultants whose qualifica- tions, experience and terms and conditions of employment shall be satisfactory to the Association, such consultants to be selected in accordance with principles and procedures satisfactory to the Association on the basis of the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. Section 2.07. NIDC shall duly perform all its obligations under the Subsidiary Loan Agreement and other agreements under which funds have been lent or otherwise put at the disposal of NIDC by the Borrower or its agencies or third parties for relend- ing, investing or management purposes. NIDC shall promptly inform the Association of any action which would have the effect of assigning, amending, abrogating, suspending or waiving the Sub- sidiary Loan Agreement or any provision thereof, or any material provision of such other agreements. Section 2.08. (a) NIDC shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning the expenditure of the proceeds of the Credit in respect of Parts A and C of the Project, the carry- ing out of Parts A and C of the Project, the Beneficiaries, the Investment Projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing. (b) Not later than six months after the Closing Date or such later date as the Borrower and the Association may so agree, NIDC 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 Parts A and C of the Project, their costs and the benefits derived and to be derived from them, the performance by NIDC and the Association of their respective obligations under this Agreement, the perfor- mance of the Borrower and NIDC of their respective obligations under the Subsidiary Loan Agreement, and the accomplishment of the purposes of the Credit. Section 2.09. NIDC shall cause each of the Subsidiaries to observe and perform the obligations of NIDC under this Agreement to the extent to which the same may be applicable thereto as though such obligations were binding upon each of such Subsid- iaries. Section 2.10. Except as the Association and NIDC shall otherwise agree, NIDC shall: (a) not sell, lease, transfer or otherwise dispose of any of its property or assets, except in the ordinary course of business; and (b) take all such action as shall be necessary to maintain its corporate existence and right to carry on its operations, and to acquire, maintain and renew all rights, powers, privileges and franchises necessary or u6eful in the conduct of its business. Section 2.11. Except as the Association and NIDC shall otherwise mutually agree, NIDC shall, in connection with its appraisal of Investment Projects and prior to approving any Sub- loan for any such Investment Project, calculate the internal financial rates of return for all such Investment Projects estimated to cost the equivalent of 2,000,000 Nepalese Rupees or more, and calculate the internal financial and economic rates of return for all such Investment Projects estimated to cost the equivalent of 5,000,000 Nepalese Rupees or more. Section 2.12. NIDC shall use in its lending operations a standard form of loan agreement in form and substance satisfac- tory to the Association. Section 2.13. NIDC shall at all times adequately supervise its loan and investment portfolio in accordance with standards for supervision satisfactory to the Association. ARTICLE III Financial Covenants Section 3.01. NIDC shall maintain procedures and records adequate to monitor and record the progress of Parts A and C of -7- the Project and of each Investment Project (including its costs and the benefits to be derived from it), and to reflect in accordance with consistently maintained appropriate accounting practices the operations and financial condition of NIDC. Section 3.02. NIDC shall: (i) have its accounts and finan- cial 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) furnisa to the Association such other information concerning the accounts and financial state- ments of NIDC and the audit thereof as the Association shall from time to time reasonably request. Section 3.03. Except as the Association shall otherwise agree, NIDC shall: (i) conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratio within the limit referred to in Section 3.07 of this Agreement; and (ii) if such ratio shall, for reasons beyond NIDC's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit. Section 3.04. NIDC shall not make any repayment in advance of maturity in respect of any outstanding debt of NIDC which, in the judgement of the Association, would adversely affect NIDC's ability to meet its financial obligations. Section 3.05. NIDC shall: (a) 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 (b) carry on its operations and conduct its affairs in accordance with sound administrative, financial, technical, economic and investment standards and practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. - 8 - Section 3.06. Except as the Association may otherwise agree, NIDC shall: (a) on the date on which it shall receive the first payment or other charges on, or repayment of principal under, the Sub- loans, open and, thereafter, maintain a separate account on its books in accordance with its normal financial procedures, and on terms and conditions satisfactory to the Association; (b) upon receipt of each such payment or repayment under the Sub-loans, credit the same to the said separate account. All amounts so credited to the said separate account shall be util- ized by NIDC, to the extent they are not yet required to meet NIDC's repayment obligations to the Borrower under the Subsidiary Loan Agreement, to finance Sub-loans pursuant to the provisions of this Agreement, with preference for export-oriented Investment Projects; and (c) prepare and furnish to the Association at regular intervals all such information, in form and substance satisfac- tory to the Association, as the Association shall reasonably request on the status of said separate account and on the utili- zation of the amounts credited thereto pursuant to paragraph (b) of this Section. Section 3.07. Except as the Association shall otherwise agree, NIDC shall not incur or permit any Subsidiary to incur any debt if, after the incurring of such debt, the consolidated debt of NIDC and all the Subsidiaries then incurred and outstanding would be greater than 5 times the consolidated capital and sur- plus of NIDC and all the Subsidiaries. For the purposes of this Section: (a) "debt" means any debt incurred by NIDC or any Subsid- iary maturing more 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 (including the Subsidiary Loan Agreement) on the date and to the extent the amount of the loan 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 guaranteed debt is outstanding; -9 (c) whenever in connection with this Section it shall be necessary to value in terms of Nepalese Rupees debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by NIDC for the purposes of servicing such debt; (d) "consolidated debt of NIDC and all the Subsidiaries" means the total amount of debt of NIDC and the Subsidiaries, excluding any debt owed by NIDC to any Subsidiary or by any Subsidiary to NIDC or to any other Subsidiary; and (e) "consolidated capital and surplus of NIDC and the Sub- sidiaries" means the aggregate of the unimpaired paid-up capital, surplus and free reserves of NIDC and the Subsidiaries after excluding therefrom such amounts as shall represent equity interests of NIDC in any Subsidiary or of any Subsidiary in NIDC or any other Subsidiary. Section 3.08. Except as the Association shall otherwise agree, NIDC shall maintain, in each of its fiscal years after its fiscal year ending on July 15, 1984, a ratio of not less than 1.1 to 1 of the sum of its cash generated from operation and cash repayments of its debtors for loan principal, to the sum of all debt service requirements of its debts then incurred and out- standing, calculated on the basis of the actual figures for the preceeding twelve months. For the purpose of this Section: (a) the term "cash generated from operations" means the aggregate amount of: (i) net profit after taxes but before provision of depreciation; (ii) other non-cash expenses less interest and other charges on loans not collected; and (iii) interest and other charges on loans actually collected; (b) the term "debt service requirements" means the aggregate amount of: (i) principal amortization, including sinking fund contributions, if any; and (ii) interest and other charges on NIDC's debts then incurred and outstanding, and which are due and payable during the fiscal year in question; (c) debt shall be deemed to be incurred: (i) under a loan or credit contract or agreement (including the Subsidiary Loan Agreement) on the date and to the extent the amount of the loan or credit is drawn down and outstanding pursuant to such loan or credit contract or agreement; and (ii) under a guarantee - 10 - agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guarantee debt is outstanding; and (d) whenever in connection with this Section it shall be necessary to value in terms of Nepalese Rupees debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by NIDC for the purpose of servicing such debt. Section 3.09. NIDC shall take such steps satisfactory to the Association as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Nepalese Rupees) used in its lending and borrowing operations. Section 3.10. The Association and NIDC shall from time to time, at the request of either party, exchange views through their representatives with regard to the administration, opera- tions and financial condition of NIDC and the Subsidiaries, and NIDC shall: (a) furnish to the Association all such information as the Association shall reasonably request concerning the administration, operations and financial condition of NIDC and the Subsidiaries and other matters relating to the purpose of the Credit; and (b) enable the Association's representatives to examine any relevant records and documents thereto. Section 3.11. NIDC shall adopt and, thereafter, maintain and apply, in form and substance satisfactory to the Association, NIDC's Statement of Policy and NIDC's Strategy Statement, and, thereafter, shall not amend in a substantive and material manner, the NIDC's Statement of Policy or the NIDC's Strategy Statement without the Association's prior agreement. Section 3.12. NIDC shall take all such action as shall be necessary to expedite prompt payment from its debtors, including payments on overdue accounts, so that the aggregate amount of arrears of principal and interest of its debtors shall not exceed NIDC's unimpaired capital and surplus. Section 3.13. In the event that NIDC shall fail to comply with the provisions of Section 3.08 of this Agreement, and such failure to comply shall continue for a period of sixty days after notice thereof shall have been given by the Association to NIDC, - 11 - then without in any way limiting, restricting or impairing any right, power or remedy of the Association under the Development Credit Agreement and this Agreement, the Association may with- hold further approval and authorization of Sub-loans, including authorizations for withdrawal applications from the Credit Account in respect of free-limit Sub-loans approved by NIDC after the date the Association dispatches notice to that effect to the Borrower and to NIDC. Section 3.14. The provisions of Sections 2.02 (h), 3.01, 3.02, 3.04, 3.07 and 3.11 of this Agreement supersede the provisions of Sections 2.02 (e), 3.01, 3.02, 3.04, 3.05 and 2.08 of the Prior Credit Agreement, respectively. ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of NIDC 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 20 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 NIDC of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between - 12 - 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 hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: 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 NIDC: Nepal Industrial Development Corporation NIDC Building Durbar Marga Kathmandu, Nepal Cable address: Telex: 2369 NP NIDC Kathmandu Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of NIDC may be taken or executed by its General Manager or such other person or persons as NIDC shall designate in writing, and NIDC shall furnish to the Association sufficient evidence of the authority and the authenticated speci- men signature of each such person. Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. - 13 - 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 0- a~~1CO V,e Regional Vice President South Asia NEPAL INDUSTRIAL DEVELOPMENT CORPORATION By Autho8e RerL Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Development Association. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Association thereunto the day of \ 'R "C 198 FOR SECRETARY