Conformed Copy - L2928 - Industrial Finance and Technical Assistance Project - Project Agreement 1

Page 1 CONFORMED COPY LOAN NUMBER 2928 IN (Industrial Finance and Technical Assistance Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and INDUSTRIAL DEVELOPMENT BANK OF INDIA Dated May 12, 1988 IDBI PROJECT AGREEMENT AGREEMENT, dated May 12, 1988 between the INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI). WHEREAS: (A) by the Loan Agreement of even date herewith between INDIA, acting by its President (the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to three hundred ten million dollars ($310,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that IDBI agree to undertake such obligations toward the Bank as are set forth in this Agreement; and (B) by the IDBI Subsidiary Loan Agreement to be entered into between the Borrower and IDBI pursuant to the provisions of Section 3.02 (a) and (c) of the Loan Agreement, part of the proceeds of the loan provided for under the Loan Agreement will be made available to IDBI on terms and conditions set forth in said IDBI Subsidiary Loan Agreement; and WHEREAS IDBI, in consideration of the Bank's entering into Page 2 the Loan Agreement with the Borrower, has agreed to undertake 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 in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of IDBI Section 2.01. IDBI 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 and conduct its operations and affairs in accordance with sound administrative, industrial and financial standards and practices, under the supervision of qualified and experienced management assisted by competent staff in adequate numbers and in accordance with the IDBI Act and the IDBI Policy, Strategy and Collection Strategy Statements. Section 2.02. (a) IDBI undertakes that, unless the Bank shall otherwise agree, Sub-loans will be made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 1 to this Agreement. (b) IDBI shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and of IDBI; (ii) comply with its obligations under this Agreement and the IDBI Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and 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 2 to this Agreement. Section 2.04. IDBI shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 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) in respect of the Project Agreement and Part A of the Project. Section 2.05. IDBI shall duly perform all its obligations under the IDBI Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, IDBI shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the IDBI Subsidiary Loan Agreement or any provision thereof. Section 2.06. (a) IDBI shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the IDBI Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) IDBI shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Loan, or the performance by IDBI of its obligations under this Agreement and under the IDBI Subsidiary Loan Agreement. Section 2.07. Without limitation to the provisions of Section Page 3 9.07 (a) (iii) of the General Conditions, IDBI shall furnish to the Bank quarterly and semi-annual reports, of such scope and in such detail as the Bank shall reasonably request on the progress of Part A of the Project, such reports to be furnished within three months after the end of each reporting period. Article III Financial Covenants Section 3.01. (a) IDBI shall maintain procedures and records adequate to monitor and record the progress of Part A of the Project and of each Investment Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of IDBI. (b) IDBI shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request. Section 3.02. Except as the Bank shall otherwise agree, IDBI shall: (a) 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 3.03 of this Agree- ment; and (b) if such ratio shall, for reasons beyond IDBI's control, be exceeded, promptly take all such reasonable action as shall be necessary or advisable to bring such ratio within such limit. Section 3.03. (a) Except as the Bank shall otherwise agree, IDBI shall: (i) not incur or permit any subsidiary to incur any debt if, after the incurring of such debt, the consolidated debt of IDBI and all its subsidiaries then incurred and outstanding would be greater than twelve times the consolidated capital and surplus of IDBI and all its subsidiaries; and (ii) ensure that at all times its consolidated internal cash generation for each year shall be at least 1.2:1 times the consolidated debt service require- ments of its consolidated debt for that year. (b) For the purposes of this Section: (i) The term "debt" means any debt incurred by IDBI or any subsidiary maturing more than one year after the date on which it is originally incurred; provided, however, that current repayments of such debt due and payable within one year shall be excluded therefrom. Page 4 (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 loan 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 unimpaired paid-up capital, retained earnings and reserves of IDBI not allocated to cover specific liabilities. (iv) Whenever for the purposes of this Section it shall be necessary to value in terms of Rupees, 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 by IDBI 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. (v) The term "consolidated debt of IDBI and all its subsidiaries" means the total amount of debt of IDBI and all its subsidiaries, excluding any debt owed by IDBI to any subsidiary or by any subsidiary to IDBI or to any other subsidiary. (vi) The term "consolidated capital and surplus of IDBI and its subsidiaries" means the aggregate of the total unimpaired paid-up capital, surplus and free reserves of IDBI and of all its subsidiaries after excluding therefrom such amounts as shall represent equity interests of IDBI in any subsidiary or of any such subsidiary in IDBI or in any other subsidiary. Section 3.04. IDBI shall not make any repayment in advance of maturity in respect of any outstanding debt of IDBI which would materially affect IDBI's ability to meet its financial obliga- tions. Section 3.05. IDBI shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the currencies (including Rupees) used in its operations. Section 3.06. The Bank and IDBI shall from time to time, at the request of either party, exchange views through their repre- sentatives with regard to the administration, operations and financial condition of IDBI, and IDBI shall furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of IDBI. 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 Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of IDBI thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms and the Bank shall promptly notify IDBI of this event. Page 5 Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions applicable to the Loan Agreement. 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 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 addresses 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 IDBI: Industrial Development Bank of India Nariman Bhavan 227 Vinay K. Shah Marg P.O. Box 10020, Bombay 400 021 India Cable address Telex: INDBANKIND 011-2193 or Bombay 011-4812 Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of IDBI, may be taken or executed by its Chairman and Managing Director, or by such other person or persons as IDBI shall designate in writing, and IDBI shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen 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. 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 Page 6 By /s/ A. Karaosmanoglu Regional Vice President Asia INDUSTRIAL DEVELOPMENT BANK OF INDIA By /s/ N. Misra Authorized Representative SCHEDULE 1 Terms and Conditions of Sub-loans and Processing Procedures 1. Principal terms and conditions of IDBI Sub-loans shall provide, inter alia, that: (a) Sub-loans shall bear interest at a rate of 14% per annum on the principal amount withdrawn and outstanding from time to time or such other rate as made applicable after regular interest rate reviews. (b) All Sub-loans shall be denominated in Rupees. (c) The aggregate amount of all Sub-loans made by IDBI to a single Investment Enterprise shall not exceed $20 million equivalent either singly or in consortium with ICICI. (d) Repayment periods for Sub-loans shall be at least three years but shall not exceed fifteen years including therein a grace period of not exceeding 3 years. (e) Investment Projects shall be connected with the establishment, expansion and/or balancing, modernization and replacement proposal of an Investment Enterprise. 2. No expenditures for goods or services required for an Investment Project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan for such Investment Project shall have been approved by the Bank and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the application and information required under paragraph 3 (a) of this Schedule in respect of such Sub-loan; or (b) the Sub-loan for such Investment Project shall have been a free-limit Sub-loan for which the Bank has authorized with- drawals from the Loan Account and such expenditures shall have been made not earlier than ninety days prior to the date on which the Bank shall have received the request and information required under paragraph 3 (b) of this Schedule in respect of such free- limit Sub-loan. For the purposes of the Loan Agreement and this Agreement, a free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed out of the proceeds of the Loan which shall not exceed the sum of $6,000,000 equivalent, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan or of any Prior Loan, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Investment Project. (c) Notwithstanding sub-paragraph (b) above, until IDBI has made a total of ten Sub-loans, no Sub-loan made or proposed to be made by IDBI shall be deemed to be a free-limit Sub-loan, irrespective of the amount of such Sub-loan. Page 7 3. (a) When presenting a Sub-loan (other than a free-limit Sub- loan) or an Investment to the Bank for approval, IDBI shall furnish to the Bank an application, in form satisfactory to the Bank, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan or Investment, including the schedule of amortization of the Sub-loan or of repayment of the amount of the Loan to be used for the Investment; and (iii) such other information as the Bank shall reasonably request. (b) Each request by IDBI for authorization to make with- drawals from the Loan Account in respect of a free-limit Sub-loan shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; and (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor. (c) Applications and requests made pursuant to the provi- sions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before December 31, 1991. 4. Sub-loans shall be made on terms whereby IDBI shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and IDBI, including, in the case of any Sub-loan, the right to: (a) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) without limitation to the generality of the provisions of the preceding paragraph (a), require the Investment Enterprise to carry out and operate the Investment Project with due regard to applicable ecological, environmental and pollution control standards; (c) require that: (i) the goods and services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 2 to this Agreement; and (ii) such goods and services shall be used exclusively in the carrying out of the Investment Project; (d) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (e) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) 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 Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (f) obtain all such information as the Bank or IDBI shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Invest- ment Enterprise and to the benefits to be derived from the Investment Project; and (g) suspend or terminate the right of the Investment Enter- prise to the use of the proceeds of the Loan upon failure by such Page 8 Investment Enterprise to perform its obligations under its contract with IDBI. SCHEDULE 2 Procurement and Consultants' Services Section I. Procurement Part A: International Competitive Bidding Except as provided in Part C hereof, goods 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 India 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 Contracts estimated to cost the equivalent of $8,000,000 and $500,000 each, or less, in respect of Investment Projects under Part A (i) and equipment under Part A (ii) of the Project, respec- tively, may be procured in accordance with the standard procedures of IDBI for such procurement. 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 estimated to cost the equivalent of $8,000,000 and $500,000 or more in respect of Investment Projects under Part A (i) and equipment under Part A (ii) of the Project, respectively, 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 preceding 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, said 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 sub-paragraphs (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 Page 9 In order to assist IDBI in the implementation of Part A (ii) of the Project, IDBI shall employ consultants whose qualifica- tions, 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.