Conformed Copy - C1949 - Urban Rehabilitation Project - Development Credit Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 1949 MOZ (Urban Rehabilitation Project) between PEOPLE'S REPUBLIC OF MOZAMBIQUE and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated October 19, 1988 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated October 19, 1988, between PEOPLE'S REPUBLIC OF MOZAMBIQUE (the Borrower) and INTERNATIONAL DEVELOPMENT 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 Government of Finland Development Agency (FINNIDA) a grant (the FINNIDA Grant) in an amount of Fmk 28,800,000 to assist in financing Parts A (b) (iv) and B (d) and (e) of the Project on the terms and conditions set forth in an agreement (the FINNIDA Grant Agreement) to be entered into between the Borrower and FINNIDA; and (C) the Borrower intends to contract from the Government of Spain a grant (the Spanish Grant) in an amount of Ptas 478,500,000 to assist in financing Parts C (a) (i), (b) and (c) of the Project on the terms and conditions set forth in an agreement (the Spanish Grant Agreement) to be entered into by the Borrower and the Page 2 Ministry of Foreign Affairs of Spain; 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; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.O1. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Condi- tions), constitute an integral part of this Agreement. Section 1.O2. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Pre- amble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "MCA" means Ministerio da Construcao e Aguas, the Ministry of Construction and Water of the Borrower; (b) "DEC" means Direccao de Economia e de Construcao, the Economy and Construction Directorate of MCA; (c) "DNEP" means Direccao Nacional de Estradas e Pontes, the National Roads and Bridges Directorate of MCA; (d) "DNA" means Direccao Nacional de Aguas, the National Water Directorate of MCA; (e) "MT" means Ministerio do Trabalho, the Ministry of Labor of the Borrower; (f) "GPE" means Gabinete de Promocao de Emprego, the Employ- ment Generation Cabinet, an agency established within MT by Decree of the Council of Ministers of the Borrower No. 23/87, dated October 30, 1987, and operating pursuant to statutes approved by Ministerial Order of the Borrower No. 6/88, dated January 13, 1988; (g) "MAE" means Ministerio da Administracao Estatal, the State Administration Ministry of the Borrower, established pur- suant to Presidential Decree of the Borrower No. 66/86, dated October 11, 1986; (h) "BPD" means Banco Popular de Desenvolvimento, the Peo- ple's Development Bank of the Borrower established pursuant to Law No. 6/77 of the Borrower, dated December 31, 1977; (i) "CECM" means Conselho Executivo de Cidade de Maputo, the Executive Council of the City of Maputo; (j) "CECB" means Conselho Executivo da Cidade da Beira, the Executive Council of the City of Beira; (k) "DCU" means Direccao de Construcao e Urbanizacao, any of the Directorates of Construction and Urbanization within CECM and CECB; (l) "DSU" means Direccao de Servicos Urbanos, any of the Directorates of Urban Services within CECM or CECB; (m) "APIE" means Administracao do Parque Immobiliario do Estado, the State Housing Agency of the Borrower; (n) "PROHABITA" means Gabinete de Programas de Habitacao, the Housing Planning Department of DEC; Page 3 (o) "PIU" means the Project Implementation Unit created within MCA by Ministerial Order, dated June 20, 1988, and referred to in Schedule 5 to this Agreement; (p) "HABITAR" means the Housing Management and Supervision Unit established within PROHABITA pursuant to Ministerial Order dated June 21, 1988, and referred to in Schedule 5 to this Agreement; (q) "SME" means: (i) any of the small enterprises operating in the territory of the Borrower, employing about fifty or less employees and restricted to the building materials industry; or (ii) any of the micro-enterprises operating in the territory of the Borrower, in any economic sector other than agriculture, and employing about ten or less employees, through labor-intensive methods; (r) "A de M" means Agua de Maputo, a public enterprise of the Borrower established and operating in Maputo pursuant to Ministerial Order of the Borrower No. 32/82, dated June 23, 1982; (s) "A da B" means Companhia das Aguas da Beira, an enterprise of the Borrower established and operating in Beira pursuant to its statutes, dated October 15, 1949; (t) "Financing Agreements" means the agreements to be entered into by: (i) MCA and BPD; and (ii) MT (GPE) and BPD pur- suant to Section 3.01 (c) of this Agreement for Part D of the Project; (u) "Maputo Implementation Agreement" means the agreement, dated June 13, 1988, entered into between MCA and CECM pursuant to Section 3.01 (b) (i) of this Agreement; (v) "Beira Implementation Agreement" means the agreement, dated June 13, 1988, entered into between MCA and CECB pursuant to Section 3.01 (b) (ii) of this Agreement; (w) "Maputo Water Agreement" means the agreement, dated June 15, 1988, entered into between DNA and A de M pursuant to Section 3.01 (b) (iii) of this Agreement; (x) "Beira Water Agreement" means the agreement, dated June 15, 1988, entered into between DNA and A da B pursuant to Section 3.01 (b) (iv) of this Agreement; (y) "Loan Agreement" means the agreement to be entered into by BPD and a Beneficiary (as hereinafter defined) under which BPD agrees to provide financial assistance, pursuant to Section 3.01 (c) of this Agreement: (i) to SMEs, through GPE; and (ii) for building materials loans, through DCU; (z) "Beneficiary" means: (i) any SME; or (ii) individuals or groups of families entering into a Loan Agreement with BPD; (aa) "Special Account" means the special account referred to in Section 2.02 (b) of this Agreement; (bb) "Project Preparation Advance" means the project prepara- tion advances granted by the Association to the Borrower pursuant to an exchange of letters, dated November 21, 1987, and December 4, 1987; and June 6, 1988 and June 13, 1988, between the Borrower and the Association; (cc) "fiscal Year" or "FY" means the Borrower's fiscal year which runs from January 1 to December 31; and (dd) "Metical" and the plural "Meticais" mean the currency of the Borrower. ARTICLE II Page 4 The Credit Section 2.O1. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount in various currencies equivalent to forty- four million Special Drawing Rights (SDR 44,000,000). Section 2.O2. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reason- able cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of all Parts of the Project, open and maintain in dollars one special account (the Special Account) in a 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 pro- visions of Schedule 4 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 outstand- ing as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Prepa- ration Advance shall thereupon be cancelled. Section 2.O3. The Closing Date shall be December 31, 1995, or such later date as the Association shall establish. The Asso- ciation shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from a date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pur- suant to paragraph (a) above. The rate set as of June 30 in each year shall be applied as of the next payment date in that year specified in Section 2.06 of this Agreement, except that the rate set as of June 30, 1988, shall be applied as of July 1, 1988. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restric- tions of any kind imposed by, or in the territory of, the Bor- rower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.O5. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on May 1 and November 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semiannual installments payable on each May 1 and November 1 commencing November 1, 1998, and ending May 1, 2028. Each install- Page 5 ment to and including the installment payable on May 1, 2008, shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985-dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consi- deration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such install- ments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.O8. The currency of the United States of America is hereby specified for the purposes of Section 4.O2 of the General Conditions. ARTICLE III Execution of the Project Section 3.O1. (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, shall carry out the Project with due diligence and efficiency, and in conformity with appropriate urban rehabilitational, organizational, managerial, architectural, engineering and environmental practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and, except as the Borrower and the Association shall otherwise agree, the Borrower shall carry out the Project in accordance with the Implementation Program set forth in Sche- dule 5 to this Agreement and, to that effect, shall take all necessary measures to enforce: (i) the Maputo Implementation Agreement, for the purposes of carrying out Parts B (a), (b), (c), (f) (i), (f) (ii) and (f) (iii); C (a) (i), (b) and (c); and F (a) (ii) of the Project; (ii) the Beira Implementation Agreement, for the purposes of carrying out Parts B (a), (b), (c), (d), (e), (f) (ii) and (v); C (a) (ii) and (b) of the Project; (iii) the Maputo Water Agreement, for the purposes of carrying out Parts A (b) (i) and (b) (ii) of the Project; and (iv) the Beira Water Agreement, for the purposes of carrying out Parts A (b) (iv) and (b) (v) of the Project. (c) The Borrower shall extend financial assistance to Beneficiaries on loan terms, conditions and eligibility criteria set forth in the Financing Agreements to be entered into between: (i) MT (GPE) and BPD, for the purposes of Part D (a) of the Project; and (ii) MCA and BPD, for the purposes of Part D (b) of the Project. The Financing Agreements shall include, inter alia, the following provisions: Page 6 (i) Currency All loans made under Part D of the Project shall be denominated in Meticais. The aggregate amount to be made available by BPD to a Beneficiary shall be the equivalent of: (a) the Meticais countervalue of imported goods purchased through GPE's foreign currency account with Banco de Mocambique; and (b) a Meticais loan for the purpose of domestically available resources. (ii) Interest Rates Interest on Loans to: (a) Beneficiaries under Part D (a) of the Project shall be charged on the principal amount thereof outstanding from time to time at the existing interest rate of 18% to 24% per annum; and (b) Beneficiaries under Part D (b) of the Project shall be charged on the principal amount thereof outstand- ing from time to time at a minimum interest rate of 9% per annum. (iii) Maturities (a) Loans under Part D (a) of the Project shall have maturi- ties of up to five years, including grace periods of up to one year. (b) Loans under Part D (b) of the Project shall have maturi- ties of up to twenty-five years. (d) The Borrower shall exercise its rights under the Financ- ing Agreements; the Maputo Implementation Agreement; the Beira Implementation Agreement; the Maputo Water Agreement; and the Beira Water Agreement 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 said Agreements or any provisions thereof. Section 3.O2. 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 3 to this Agreement. Section 3.03. The Borrower shall: (a) not later than March 31, 1989, prepare and furnish to the Association: (i) the results of the surveys referred to in Part G (b) of the Project; and (ii) the action plan based on the recommendations of the study to strengthen local government institutions and finances carried out by the Borrower and referred to in Part E (e) of the Project; (b) not later than June 30, 1989, exchange views with the Association on the recommendations based on the results of said surveys and action plan; and (c) implement such recommendations, jointly agreed with the Association, including cost-recovery mechanisms, within a timetable agreed with the Association. Section 3.04. The Borrower shall, not later than June 30, 1989, and, not later than June 30 of each year thereafter, review jointly with the Association, the progress achieved in: (a) designing and adopting a National Housing Strategy, including policies for rehabilitation and maintenance of the existing public sector housing stock and the achievement of full cost recovery; and (b) implementing an action plan to strengthen local government agencies agreed with the Association. Section 3.05. The Borrower shall: Page 7 (a) not later than December 31, 1989, carry out and com- plete, under terms of reference satisfactory to the Association, the water and sanitation tariffs' study referred to in Part G (a)(i) of the Project; (b) not later than June 30, 1990: (i) review with the Asso- ciation the recommendations of said study; and (ii) agree with the Association on an action plan to implement said recommendations, including targets for the water and sanitation agencies in Maputo and Beira, to achieve their financial viability by FY 1993; and (c) promptly thereafter, carry out said action plan accord- ing to a timetable agreed with the Association. Section 3.06. The Borrower shall, not later than June 30 of each year, conduct with the Association annual Project implementa- tion reviews to: (a) discuss annual Project evaluations carried out by PIU; (b) monitor progress made in achieving Project objectives; and (c) exchange information among staff responsible for Project implementation and propose solutions to any current problems. Section 3.07. The Borrower shall, for the purposes of Part B (f) of the Project, take all necessary measures to imple- ment the resettlement plan for persons to be relocated under the Project on the terms and conditions agreed with the Association. Section 3.08. The Borrower shall maintain PIU and HABITAR during the execution of the Project with such responsibilities, powers, services, facilities and staff, whose experience and qualifications are satisfactory to the Association, as are speci- fied in Schedule 5 to this Agreement. Section 3.09. In order to facilitate the carrying out of the Project, the Borrower shall assign qualified staff to work closely with the consultants, to be employed under Section II of Schedule 3 to this Agreement, and to receive training from said consultants. Section 3.10. The Borrower shall, for the purposes of Part F (c) of the Project, take all necessary measures to provide, during the execution of the Project, housing to lodge the consul- tants to be employed under the Project. ARTICLE IV Financial Covenants Section 4.O1. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect, in accordance with sound accounting practices, the operations, resources and expenditures, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof, including those related to all operations carried out by A de M and A da B in the water and sanitation sector. (b) The Borrower shall: (i) have the records and accounts referred to in para- graph (a) of this Section, including those for the Special Account 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, Page 8 but in any case not later than six months after the end of each such year, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the proce- dures and internal controls involved in their pre- paration, can be relied upon to support the related withdrawals. Section 4.02. (a) Subject to the provisions of Section 3.05 of this Agreement, the Borrower shall take all necessary measures to cause A de M and A da B to produce, for each of its fiscal years after its fiscal year ending on December 31, 1992, funds from internal sources equivalent to not less than 25% of the annual average of capital expenditures incurred or expected to be incurred by A de M and A da B, respectively, in the water and sanitation sector for that year, the previous fiscal year and the three next following fiscal years. (b) Before September 30, in each of its fiscal years, the Borrower shall, on the basis of forecasts prepared by A de M and A da B and satisfactory to the Association, review whether they would meet the requirements set forth in paragraph (a) in respect of such year and the next following fiscal year and shall furnish to the Association a copy of such review upon its completion. (c) If any such review shows that A de M and A da B would not meet the requirements set forth in paragraph (a) for the Borrower's fiscal years covered by such review, the Borrower shall promptly take all necessary measures (including, without limita- tion, adjustments of the structure or levels of its water and sanitation tariffs) in order to meet such requirements. (d) For the purposes of this Section: (i) The term "funds from internal sources" means the difference between: (A) the sum of revenues from all sources related to A de M and A da B operations, consumer deposits and consumer contributions in aid of construction, net non-operating income and any Page 9 reduction in working capital other than cash; and (B) the sum of all expenses related to A de M and A da B operations, including administration, adequate maintenance and taxes, and payments in lieu of taxes (excluding provision for depreciation and other non-cash operating charges), debt service requirements, all cash dividends and other cash distributions of surplus, increase in working capital other than cash and other cash outflows other than capital expenditures. (ii) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to A de M and A da B operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of reve- nues in (A) above. (iii) The term "working capital other than cash" means the difference between current assets excluding cash and current liabilities at the end of each fiscal year. (iv) The term "current assets excluding cash" means all assets other than cash which could, in the ordinary course of business, be converted into cash within twelve months, including accounts receivable, marketable securities, inventories and prepaid expenses properly chargeable to operating expenses within the next fiscal year. (v) The term "current liabilities" means all liabili- ties which will become due and payable or could, under circumstances then existing, be called for payment within twelve months by A de M and A da B including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. (vi) The term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vii) The term "capital expenditures" means all expendi- tures incurred on account of fixed assets, includ- ing interest charged to construction related to A de M and A da B operations. (viii) Whenever, for the purposes of this Section, it shall be necessary to value debt, payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.O2 (h) of the General Conditions, the following additional events are specified: Page 10 (a) MCA, CECM or CECB shall have failed to perform any of their respective obligations under the Maputo Implementation Agreement or the Beira Implementation Agreement; (b) DNA, A de M or A da B shall have failed to perform any of their respective obligations under the Maputo Water Agreement or the Beira Water Agreement; (c) BPD, MCA or MT (GPE) shall have failed to perform any of their respective obligations under the Financing Agreements; (d) 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 CECM, CECB, A de M or A da B, as the case may be, will be able to perform their respective obligations under the Maputo Implementation Agreement, the Beira Implementation Agreement, the Maputo Water Agreement or the Beira Water Agreement; (e) Decree of the Council of Ministers No. 23/87, dated October 30, 1987; Presidential Decree No. 66/86, dated October 11, 1986; Law No. 6/77 of December 31, 1977; and Ministerial Order No. 32/82, dated June 23, 1982, of the Borrower shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Borrower, A de M and A da B to perform any of their respective obligations under this Agreement; and (f) The Borrower or any other authority having jurisdiction shall have taken any action concerning the Borrower's housing policies; water and sanitation tariffs; local government's organization and financial autonomy that would materially and adversely affect the objectives of the Project. Section 5.O2. Pursuant to Section 7.O1 (d) of the General Conditions, the following additional events are specified: (a) any of the events specified in paragraphs (a), (b) or (c) of Section 5.O1 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; and (b) any of the events specified in paragraphs (d), (e) or (f) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.O1. 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 Financing Agreements have been executed on behalf of BPD and MCA; and BPD and MT (GPE); and (b) the following key staff for PIU have been employed: (i) Director; (ii) Project Coordinator; (iii) Financial Controller; and (iv) Procurement Advisor. Section 6.O2. The following are specified as additional matters, within the meaning of Section 12.O2 (b) of the General Conditions, to be included in the opinion to be furnished to the Association: Page 11 (a) that the Maputo Implementation Agreement and the Beira Implementation Agreement have been duly authorized by and are legally binding upon MCA and CECM; and MCA and CECB, respectively; (b) that the Maputo Water Agreement and the Beira Water Agreement have been duly authorized by and are legally binding upon DNA and A de M; and DNA and A da B, respectively; (c) that the Financing Agreements have been duly authorized or ratified by and are legally binding upon MCA, MT (GPE) and BPD; and (d) that this Agreement has been duly ratified by the Borrower's Council of Ministers and is legally binding upon the Borrower in accordance with its terms. Section 6.O3. The date one hundred and twenty (120) days after the date of this Agreement is hereby specified for the pur- poses of Section 12.O4 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Governor of Banco de Mocambique is desig- nated as representative of the Borrower for the purposes of Section 11.O3 of the General Conditions. Section 7.O2. The following addresses are specified for the purposes of Section 11.O1 of the General Conditions: For the Borrower: Banco de Mocambique Departamento de Relac