Conformed Copy - L2969 - Bacon-Manito Geothermal Power Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2969-0 PH (Bacon-Manito Geothermal Power Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and PNOC ENERGY DEVELOPMENT CORPORATION Dated September 1, 1988 PNOC-EDC PROJECT AGREEMENT AGREEMENT, dated September 1, 1988, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and PNOC ENERGY DEVELOPMENT CORPORATION (PNOC-EDC). WHEREAS (A) by the Loan Agreement of even date herewith between the Philippine National Oil Company (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to forty-one million dollars ($41,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that PNOC-EDC agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and PNOC-EDC, the proceeds of the loan provided for under the Loan Agreement will be made available to PNOC-EDC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS PNOC-EDC, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake Page 2 the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, 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 Part (A) of the Project Section 2.01. (a) PNOC-EDC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part (A) of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and geothermal industry practices, and shall provide, or cause to be provided, 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 Bank and PNOC-EDC shall other- wise agree, PNOC-EDC shall carry out Part (A) of the Project in accordance with: (i) the Implementation Program set forth in Schedule 2 to this Agreement; and (ii) sound environmental protection measures including those set forth in an action plan agreed with the Bank. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for Part (A) of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. PNOC-EDC shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the PNOC-EDC Project Agreement and Part (A) of the Project. Section 2.04. PNOC-EDC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, PNOC-EDC 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 2.05. (a) PNOC-EDC shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) PNOC-EDC shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of Loan, or the performance by PNOC-EDC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of PNOC-EDC Section 3.01. PNOC-EDC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and geothermal industry practices under Page 3 the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. PNOC-EDC shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and geothermal industry practices. Section 3.03. PNOC-EDC shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. (a) PNOC-EDC shall take all necessary measures to ensure that its operations (including those operations included under the Project) shall be carried out with due regard to safety, health, ecological and environmental factors. (b) In the event of any accident in the carrying out of its operations, PNOC-EDC shall promptly acquire all equipment and employ all services as shall be required to mitigate the consequences of such accident. Section 3.05. (a) PNOC-EDC shall at all times maintain its corporate existence and right to carry on its operations, and take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business and for the execution of the Project. (b) Except in the normal course of its business, PNOC-EDC shall not, without the prior approval of the Bank, sell, lease, transfer or otherwise dispose of any of its properties or assets which shall or may adversely affect, in a substantial manner, the efficient operation of its business and undertaking. ARTICLE IV Financial Covenants Section 4.01. (a) PNOC-EDC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition, including without limitation to the foregoing, separate accounts in respect of each area covered under Part (A) of the Project. (b) PNOC-EDC shall: (i) have said records, accounts and financial state- ments (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 con- cerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, PNOC-EDC shall maintain a ratio of current assets to current liabilities of not less than 1.0. Page 4 (b) Before November 15 in each of its fiscal years, PNOC-EDC shall, on the basis of forecasts prepared by PNOC-EDC and satisfactory to the Bank, review whether it 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 Bank the results of such review upon its completion. (c) If any such review shows that PNOC-EDC would not meet the requirements set forth in paragraph (a) for PNOC-EDC's fiscal years covered by such review, PNOC-EDC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements. (d) For the purposes of this Section: (i) The term "current assets" means cash, all assets which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inven- tories and pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (ii) 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, including accounts payable, customer advances, debt service require- ments, taxes and payments in lieu of taxes, and dividends. (iii) 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. (iv) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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 Bank. Section 4.03. (a) Except as the Bank shall otherwise agree, PNOC-EDC shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 70 to 30. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of PNOC-EDC maturing by its terms more than one year after the date on which it is originally incurred and inter company advances classified as debt. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment, on the date, and to the extent, the amount of such debt has become out- standing pursuant to such contract, agreement or instrument; and (B) 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. (iii) The term "equity" means the sum of the total un- impaired paid-up capital, retained earnings and reserves of PNOC-EDC not allocated to cover specific liabilities. Page 5 (iv) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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 Bank. Section 4.04. (a) Except as the Bank shall otherwise agree, PNOC-EDC shall not incur any debt unless a reasonable forecast of the revenues and expenditures of PNOC-EDC shows that the estimated net revenues of PNOC-EDC for each fiscal year during the term of the debt to be incurred shall be at least 1.2 times the estimated debt service requirements of PNOC-EDC in such year on all debt of PNOC-EDC including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of PNOC-EDC maturing by its terms more than one year after the date on which it is originally incurred excluding inter company advances classified as debt. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate main- tenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (iv) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of reve- nues in (A) above. (v) 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. (vi) The term "reasonable forecast" means a forecast prepared by PNOC-EDC not earlier than six months prior to the incurrence of the debt in question, which both the Bank and PNOC-EDC accept as reasonable and as to which the Bank has notified PNOC-EDC of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial Page 6 condition or future operating results of PNOC-EDC. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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 Bank. 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.O2. This Agreement and all obligations of the Bank and of PNOC-EDC thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify PNOC-EDC 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 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 Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For PNOC Energy Development Corporation: Merritt Road Fort Bonifacio Makati, Metro Manila Philippines Cable address: Telex: PNOC-EDC 22666 EDC PH Makati, Metro Manila Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Page 7 Agreement on behalf of PNOC-EDC, or by PNOC-EDC on behalf of the Borrower under the Loan Agreement, may be taken or executed by the President of PNOC-EDC or such other person or persons as the President of PNOC-EDC shall designate in writing, and PNOC-EDC 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 collectively but one instrument. 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 year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Karaosmanoglu Regional Vice President Asia PNOC ENERGY DEVELOPMENT CORPORATION By /s/ Emmanuel Pelaez Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part C hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in the Republic of Philippines may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures Packages for equipment, materials and services may be procured under contracts awarded on the basis of either (a) local competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank said contracts shall not exceed $200,000 per contract and up to an amount of $2,000,000 in the aggregate, or (b) through limited international bidding procedures on the basis of evaluation and comparison of bids invited from a list of at least three qualified suppliers eligible under the Guidelines and in accordance with procedures set forth in Sections I and II of the Guidelines (excluding paragraphs 2.8, Page 8 2.9, 2.55 and 2.56 thereof), said contracts shall not exceed $4,000,000 in the aggregate, or (c) on the basis of direct contracting for proprietary equipment not exceeding an amount of $1,000,000 in the aggregate. Part D: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for equipment, materials and civil works estimated to cost the equivalent of $1,000,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the pre- ceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (c) The provisions of the preceding subparagraphs (a) and (b) shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (a) (ii) of the Loan Agreement. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist PNOC-EDC in carrying out Part (A) of the Project, PNOC-EDC shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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. SCHEDULE 2 Implementation Program PNOC-EDC shall furnish annually to the Bank for its review and comments the exploration program for the coming year for areas covered under the Project.