Zambia - Fertilizer Industry Restructuring Project : Credit 1662 - Credit Agreement - Conformed

r_ CREDIT NUMBER 1662 ZA Development Credit Agreement (Fertilizer Industry Restructuring Project) between THE REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated 9 , 1986 CREDIT UMBER 1662 ZA DEVELOPMENT CREDIT AGREEENT AGREEMENT, dated 91 1986, between THE REPUBLIC OF ZAMBIA (the Borrower) and INTERNATIONAL DEVELOP- MENT ASSOCIATION (the Association). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower intends to contract from the Federal Republic of Germany (hereinafter called FRG) a loan (hereinafter called the FRG Loan) in an amount of sixty eight million Deutsche Marks (DM 68,000,000) to assist in financing the Project; (C) the Borrower and Overseas Economic Cooperation Fund of Japan (hereinafter called OECF) have entered into an agreement whereby OECF has agreed to make a loan co the Borrower (herein- after called the OECF Loan) in an amount of six billion three hundred forty three million Japanese Yen (Y 6,317,000,000) to assist in financing the Project; (D) the Project will be carried out by Nitrogen Chemicals of Zambia Limited (NCZ), a company incorporated under the Bor- rower's Companies Act on September 21, 1967 with the Borrower's assistance and, as part of such assistance, the Borrower will make available to NCZ the proceeds of the Credit as provided in this Agreement; and 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 set forth in this Agreement and in the Project Agreement of even date herewith between the Association and NCZ; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The General Conditions Applicable to Develop- ment Credit Agreements of the Association, dated January 1, 1985, -2- (the General Conditions) constitute an integral part of this Agreement. Section 1.02. 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 following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Association and NCZ of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and NCZ pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time; (c) "Project Preparation Advance" means the project prep- aration advance granted by the Association to the Borrower pur- suant to an exchange of letters dated March 12, 1985 and March 29, 1985 between the Borrower and the Association; (d) "NCZ I Plant" refers to the fertilizer plant at Kafue built by contractors from Japan and commissioned in 1970; (e) "NCZ II Plant" refers to the fertilizer plant at Kafue built by a contractor from the Federal Republic of Germany and commissioned in 1982; (f) "Special Account" means the account to be opened and thereafter maintained pursuant to Section 2.02 (b) of this Agreement; (g) "Fiscal Year" means the period from April 1 to March 31; and (h) "ZIMCO" means the Zambia Industrial and Mining Corporation, Limited. -3- ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Bor- rower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to nine million seven hundred thousand Special Drawing Rights (SDR 9,700,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule 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. (b) The Borrower shall, for the purposes of the Project, open and maintain in United States Dollars a special account in the Zambia National Commercial Bank on terms and conditions satisfactory to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 3 to this Agreement. (c) Promptly after the Effective Date, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall thereupon be cancelled. Section 2.03. The Closing Date shall be December 31, 1990 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association commitment charge at the rate of one-half of one per cent (1/2 of 1%) per annum on the principal amount of the Credit not withdrawn from time to time. The commitment charge shall accrue from a date sixty days after the date of the Development Credit Agreement to the respective dates on which amounts shall be -4- withdrawn by the Borrower from the Credit Account or shall be cancelled. (b) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other ellgible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the priiicipal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on February 1 and August 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semiannual installments payable on each February 1 and August 1 commencing August 1, 1996, and ending February 1, 2036. Each installment to and including the installment payable on February 1, 2006 shall be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter shall be one and one-half per cent (1-1/2%) of such principal amount. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. The Managing Director of NCZ is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. - 5 - ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement and, to this end, without any limitation or restriction upon any of its other obligations under the Development Credit Agreement, shall cause NCZ to perform in accordance with the provisions of the Project Agreement all the obligations cf NCZ therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable NCZ to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall relend the proceeds of the Credit to NCZ under a subsidiary loan agreement to be entered into between the Borrower and NCZ, under terms and conditions which shall have been approved by the Association which shall include the following: (i) repayment of principal in 15-years, including 5 years of grace; (ii) interest at a rate not less than 9.7% per annum; and (iii) NCZ to bear the foreign exchange risk. (c) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit, and except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to the Project Agreement. - 6 - Section 3.03. The Borrower and the Association hereby agree that the obligations set forth in Sections 9.03 through 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by NCZ pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Other Covenants Section 4.01. The Borrower shall appoint or cause to appoint and retain to the position of Chairman and members of the Board of Directors of NCZ, Managing Director of NCZ, General Manager of NCZ, Finance Manager of NCZ and Internal Auditor of NCZ, only persons with experience and qualifications satisfactory to the Association. Section 4.02. (a) The Borrower shall maintain: (i) the Inter-Agency Fertilizer Coordination Committee established in 1984 to ensure full operational coordination among NCZ, Maamba Collieries, Zambia Railways, Tazara Railways and the National Agricultural Marketing Board; and (ii) the Project Steering Committee established in 1984 consisting of the Chairman of NCZ Board of Directors, Managing Director of NCZ, Financial Director of ZIMCO and the Permanent Secretary of the Ministry of Finance, to oversee the implementation of the Project. (b) The Borrower shall not alter the composition or func- tions of either the Inter-Agency Fertilizer Coordination Commit- tee or the Project Steering Committee without prior consultation with the Association. Section 4.03. The Borrower shall at all times provide, or cause to be provided to NCZ supplies of coal, pyrites and electricity and other inputs adequate to enable NCZ to operate its facilities at full capacity. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: -7- (a) NCZ shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that NCZ will be able to perform its obligations under the Project Agreement. (c) Memorandum and Articles of Association of NCZ shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of NCZ to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of NCZ, for the suspension of its operations or, except as the Association may otherwise agree, for changing the corporate relationship between NCZ and ZIMCO. Section 5.02. Pursuant to Section 7,01 (d) of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Association to the Borrower; and (b) any of the events specified in paragraphs (c) and (d) of Section 5.01 of this Agreement shall occur; and (c) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of the FRG Loan or the OECF Loan made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement providing therefor, or (B) the FRG Loan or the OECF Loan shall have become due and payable prior to the agreed maturity thereof. - 8 - (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. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and NCZ; (b) the engineering contract for the rehabilitation of NCZ II Plant between NCZ and a reputable engineering firm has been signed, executed and delivered on behalf of both parties thereto under terms and conditions satisfactory to the Association; and (c) the Association shall have received appropriate notifi- cation showing that all conditions precedent (if any) to the first disbursement of the FRG Loan have been fulfilled, save for the effectiveness hereof. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by NCZ and is legally binding upon NCZ in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and NCZ and is legally binding upon the Borrower and NCZ in accordance with its terms. -9- Section 6.03. The date 90 days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.04. The obligations of the Borrower under Sections 4.01 through 4.04 of this Agreement and the provisions of Section 5.02 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on the date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Agreement, the Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance P.O. Box 50062 Lusaka Cable address: Telex: MINFIN 42221 ZA MINFIN Lusaka For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable aLuress: Telex: A-J EVAS 440098 (ITT) WaiLgton±, D.C. 248423 (RCA) or 64145 (WUI) - 10 - IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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 yeaw. first above written. THE REPUBLIC OF ZAMBIA By /S/ 1' WV1 aua- Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /6/ ,'tjdj3LL U Regional Vice President Eastern and Southern Africa - 11 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Imported equip- 3,330,000 100% of foreign ment and mate- expenditure and rials under 80% of local Part A.2 of expenditure the Project (2) Consultants' 4,630,000 100% Services under Part B of the Project (3) Overseas Travel 490,000 100% and Training under Part C of the Project (4) Refunding 250,000 Amount due pur- Project suant to Section Preparation 2.02 (c) of this Advance Agreement (5) Unallocated 1,000,000 TOTAL 9,700,000 2. For the purpose of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for - 12 - goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. - 13 - SCHEDULE 2 Description of the Project The objectives of the Project are to assist the Borrower in (i) carrying out the physical rehabilitation of the plants and facilities of NCZ in order to increase the production of ferti- lizer; (ii) restructuring NCZ's management and organization; (iii) restructuring NCZ's finances; (iv) developing modern management techniques for plant operation; (v) training of NCZ staff; and (vi) improving the product logistics system. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Rehabilitation of NCZ Plants 1. Carrying out rehabilitation of NCZ I Plant and NCZ II Plant involving the overhaul and replacement of all obsolete equipment and materials, carrying out repairs and improvements to the operating systems of the Plants, provision of technical assistance and training. 2. Provision of materials and equipment for plant improve- ments including offsites, utilities, infrastructure and environmental system of NCZ. Part B: Technical Assistance 1. Provision of consultants' services to NCZ to carry out: (a) the operation and management of NCZ; (b) technical coordination of the rehabilitation work of NCZ Plants; (c) an Organizational Restructuring Study of NCZ; (d) an environmental study of NCZ, including a review of the waste and liquid effluent disposal system; (e) a safety study of NCZ operations; (f) an energy audit study; - 14- (g) an organizational restructuring of NCZ; (h) a cost reduction program; and (i) a training program for NCZ staff. Part C: Training Provision of local and overseas training to NCZ staff in technical, managerial and financial fields. The Project is expected to be completed by June 30, 1990. - 15 - SCHEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "Category" means a category of items to be financed out of the proceeds of the Credit as set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to Categories (1) and (3) in accord- ance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to SDR 150,000 which is to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Except as the Borrower and the Association shall otherwise agree, payments out of the Special Account shall be made exclu- sively for eligible expenditures in accordance with the provi- sions of this Schedule. 3. After the Association has received evidence satisfactory to the Association that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent with- drawals to replenish the Special Account may be made as follows: (a) On the basis of a request or requests by the Borrower for a deposit or deposits which add up to the aggregate amount of the Authorized Allocation, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) The Borrower shall furnish to the Association requests for replenishment of the Special Account at such intervals as the Association shall specify. On the basis of such requests, the Association shall withdraw from the Credit Account and deposit into the Special Account such amounts as shall be required to replenish the Special Account with amounts not exceeding the amount of payments made out of the Special Account for eligible - 16 - expenditures. Each such deposit shall be withdrawn by the Asso- ciation from the Credit Account under the respective Categories (1) and (3), and in the respective equivalent amounts, as shall have been justified by the evidence supporting the request for such deposit furnished pursuant to paragraph 4 of this Schedule. 4. For each payment made by the Borrower out of the Special Account for which the Borrower requests replenishment pursuant to paragraph 3 (b) of this Schedule, the Borrower shall furnish to the Association, prior to or at the time of such request, such documents and other evidence as the Association shall reasonably request, showing that such payment was made for eligible expenditures. 5. (a) Notwithstanding the provisions of paragraph 3 of this Schedule, no further deposit into the Special Account shall be made by the Association when either of the following situations first arises: (i) the Association shall have determined that all further withdrawals should be made directly by the Borrower from the Credit Account in accordance with the provisions of paragraph (a) of Section 2.02 of this Agreement; or (ii) the total unwithdrawn amount of the Credit allo- cated to Categories (1) and (3) for the Project, minus the amount of any outstanding qualified agreement to reimburse made by the Association and of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall be equal to the equivalent of twice the amount of the Authorized Allocation. (b) Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to Cate- gories (1) and (3) for the Project shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice have been or will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account (i) was made for any - 17 - expenditure or in any amount not eligible pursuant to paragraph 2 of this Schedule, or (ii) was not justified by the evidence furn- ished pursuant to paragraph 4 of this Schedule, the Borrower shall, promptly upon notice from the Association, deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. No further deposit by the Association into the Special Account shall be made until the Borrower has made such deposit or refund. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Associzition such outstanding amount for crediting to the Credit Account. 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 UL day of 198 . FOR SECRETARY