Conformed Copy - C2033 - Urban Household Energy Project - Project Agreement 2

Page 1 CONFORMED COPY CREDIT NUMBER 2033 MOZ (Urban Household Energy Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and EMPRESA NACIONAL PETROLEOS DE MOZAMBIQUE E.E. Dated September 28, 1989 CREDIT NUMBER 2033 MOZ PROJECT AGREEMENT AGREEMENT, dated September 28, 1989 between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and EMPRESA NACIONAL PETROLEOS DE MOZAMBIQUE E.E. (PETROMOC). WHEREAS (A) by the Development Credit Agreement of even date herewith between People's Republic of Mozambique (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to one million five hundred and fifty thousand Special Drawing Rights (SDR 1,550,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that PETROMOC agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and PETROMOC, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to PETROMOC on the terms and conditions set forth in said Subsidiary Loan Agreement; and Page 2 WHEREAS PETROMOC, in consideration of the Association's entering into the Development Credit 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 Development Credit 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 Section 2.01. PETROMOC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement and, to this end, shall carry out Part B of the Project with due diligence and efficiency, and in conformity with appropriate administrative, financial, engineering and petroleum industry practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part B of the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Part B of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of the Schedule to this Agreement. Section 2.03. PETROMOC 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 B of the Project. Section 2.04. PETROMOC shall duly perform all its obligations under the PETROMOC Subsidiary Loan Agreement. Except as the Association shall otherwise agree, PETROMOC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the PETROMOC Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) PETROMOC shall, at the request of the Association, exchange views with the Association with regard to the progress of Part B of the Project, the performance of its obligations under this Agreement and under the PETROMOC Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) PETROMOC shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Part B of the Project, the accomplishment of the purposes of the Credit, or the performance by PETROMOC of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. PETROMOC shall, not later than September 30, 1991, conduct jointly with the Association, a review of PETROMOC's financial position and an assessment of its most immediate financial and technical needs to achieve financial viability. Section 2.07. In order to facilitate the carrying out of Part B of the Project PETROMOC shall assign qualified local counterpart staff to work closely with the consultants employed under the Project and to receive training from them. Page 3 Section 2.08. PETROMOC shall take all the necessary measures to maintain accurate and complete records related to the implementation of Part B of the Project. ARTICLE III Management and Operations of PETROMOC Section 3.01. PETROMOC shall carry out its operations and conduct its affairs in accordance with sound administrative, financial, and petroleum industry practices, under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. PETROMOC shall at all times operate and main- tain 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 petroleum industry practices. Section 3.03. PETROMOC shall take out and maintain with responsible insurers, or make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) PETROMOC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices, its operations and financial condition. (b) PETROMOC shall, starting in fiscal year 1990: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses, and related statements) and Special Account B 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, but in any case not later than nine months after the end of each such year: (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. Section 4.02. (a) Except as the Association shall otherwise agree, PETROMOC shall produce: (i) for its fiscal year 1989, funds from internal sources equivalent to not less than twenty percent (20%) of PETROMOC's capital expenditures incurred for that year; and (ii) for the fiscal years 1990 and thereafter, funds from internal sources equivalent to not less than thirty percent (30%) of the annual average of PETROMOC's capital expenditures incurred, or expected to be incurred, for that year and the next two following fiscal years. Page 4 (b) Before September 30, in each of its fiscal years, PETROMOC shall, on the basis of forecasts prepared by PETROMOC and satisfactory to the Association, 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 Association a copy of such review upon its completion. (c) If any such review shows that PETROMOC would not meet the requirements set forth in paragraph (a) for PETROMOC's fiscal years covered by such review, PETROMOC shall promptly take all necessary measures (including, but not limited to, 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 "funds from internal sources" means the difference between: (A) the sum of revenues from all sources related to operations, consumer deposits and consumer contributions in aid of construction, net non- operating income and any reduction in working capital other than cash; and (B) the sum of all expenses related to 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 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 operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues 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 pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (v) The term "current liabilities" means all liabilities 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 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. Page 5 (vii) The term "capital expenditures" means all expenditures incurred on account of fixed assets, including interest charged to construction, related to operations. (viii) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of the currency of the Borrower, 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 valua- tion, 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. Section 4.03. (a) Except as the Association shall otherwise agree, PETROMOC shall not incur any debt, unless the net revenues of PETROMOC for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.5 times the estimated maximum debt service requirements of PETROMOC for any succeeding fiscal year on all debt of PETROMOC, including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of PETROMOC maturing by its terms more than one year after the date on which it is originally incurred. (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 adjusted to take account of PETROMOC's prices in effect at the time of the incurrence of debt even though they were not in effect during the twelve-month period to which such revenues relate, 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 revenues 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. Page 6 (vi) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of the currency of the Borrower, 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 valua- tion, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of exchange acceptable to the Association. Section 4.04. PETROMOC shall take all necessary measures to implement the action plan for recovering its arrears of account receivable in accordance with the timetable agreed between the Borrower and the Association, the action plan to resolve its arrears of accounts receivable. 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 Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of PETROMOC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) the date ten (10) years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accor- dance with its terms before the date specified in para- graph (a) (ii) of this Section, the Association shall promptly notify PETROMOC of this event. 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) Page 7 For PETROMOC: Empresa Nacional Petr