Conformed Copy - L3218 - Structural Adjustment Loan - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3218 PNG (Structural Adjustment Loan) between THE INDEPENDENT STATE OF PAPUA NEW GUINEA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated August 24, 1990 LOAN NUMBER 3218 PNG LOAN AGREEMENT AGREEMENT, dated August 24, 1990, between THE INDEPENDENT STATE OF PAPUA NEW GUINEA (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated April 27, 1990, from the Borrower describing a program of actions, objectives and policies designed to achieve structural adjustment of the Borrower's economy (hereinafter called the Program), declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in the financing of urgently needed imports required during such execution; (B) the Borrower intends to request additional financing from other donors in support of the Program; and (C) on the basis, inter alia, of the foregoing, the Bank has decided in support of the Program to provide such assistance to the Borrower by making the Loan in two tranches as hereinafter provided; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Page 2 General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications thereof set forth below (the General Conditions) constitute an integral part of this Agreement: (a) Section 2.01, paragraph 11, shall be modified to read: "'Project' means the imports and other activities that may be financed out of the proceeds of the Loan pursuant to the provisions of Schedule 1 to the Loan Agreement."; (b) Section 9.07 (c) shall be modified to read: "(c) Not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution of the program referred to in the Preamble to the Loan Agreement, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan."; and (c) The last sentence of Section 3.02 is deleted. 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) "Kina" and "K" mean the currency of the Borrower; and (b) "SITC" means the Standard International Trade Classification, Revision 3 (SITC, Rev. 3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev. 3 (1986). ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, various currencies that shall have an aggregate value equivalent to the amount of fifty million dollars ($50,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1992, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate Page 3 applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. (iii) "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months' notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) `Quarter' means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section 2.06. Interest and other charges shall be payable semi-annually on March 1 and September 1 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. ARTICLE III Particular Covenants Section 3.01. (a) The Borrower and the Bank shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program and the actions specified in Schedule 4 to this Agreement. (b) Prior to each such exchange of views, the Borrower shall furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Bank shall reasonably request. Section 3.02. Except as the Bank shall otherwise agree, Page 4 procurement of the goods to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices the expenditures financed out of the proceeds of the Loan. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section 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 copy of 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 and accounts and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan 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 Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audits 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 procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Additional Events of Suspension Section 4.01. Pursuant to Section 6.02 (k) of the General Conditions, the following additional events are specified: (a) a situation has arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out; and (b) (i) subject to sub-paragraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the Page 5 proceeds of any grant or loan made to the Borrower for the financing of the Program shall have been suspended, cancelled or terminated, in whole or in part, pursuant to the terms of the agreements providing therefor; or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Sub-paragraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Bank 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 agreements; and (B) adequate funds required during the execution of the Program are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 4.02. Pursuant to Section 7.01 (h) of the General Conditions the following additional event is specified, namely, that the event specified in paragraph (b) (i) (B) of Section 4.01 of this Agreement shall occur, subject to the proviso of paragraph (b) (ii) of that Section. ARTICLE V Effective Date; Termination Section 5.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the Borrower has submitted to Parliament draft legislation, acceptable to the Bank, designed to improve procurement procedures so as to expedite the award of contracts; (b) the Borrower has submitted to Parliament draft legislation, acceptable to the Bank, designed to expedite the approval process of the Borrower relating to agreements between the Borrower and external donors; (c) the Borrower has made progress, satisfactory to the Bank, on the establishment of the new project cycle for public investments as set out in the Borrower's Project Cycle Procedural Guidelines, dated April 1989; and (d) the Borrower has established an Interdepartmental Working Group on Structural Adjustment Implementation, responsible to the Borrower's Resource Management Committee, acceptable to the Bank, to monitor the implementation of the Program. Section 5.02. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VI Representative of the Borrower; Addresses Section 6.01. The Minister for Finance and Planning of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: Page 6 For the Borrower: Ministry for Finance and Planning Department of Finance and Planning Post Office Wards Strip Waigani, N.C.D. Papua New Guinea Cable address: Telex: TREASURER NE 23331 Boroko 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. THE INDEPENDENT STATE OF PAPUA NEW GUINEA By /s/ Margaret M. Taylor Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Karaosmanoglu Regional Vice President Asia SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. Subject to the provisions set forth or referred to in this Schedule, the proceeds of the Loan may be withdrawn from the Loan Account for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods required during the execution of the Program and to be financed out of such proceeds. 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) expenditures for goods included in the following SITC groups or sub-groups, or any successor groups or sub-groups under future revisions to the SITC, as designated by the Bank by notice to the Borrower: Page 7 Group Sub-group Description of Items 112 -- Alcoholic beverages 121 -- Tobacco, unmanufactured, tobacco refuse 122 -- Tobacco, manufactured (whether or not containing tobacco substitutes) 525 -- Radioactive and associated materials 667 -- Pearls, precious and semi-precious stones, unworked or worked 718 718.1 Nuclear reactors, and parts thereof, fuel elements (cartridges), non-irradiated for nuclear reactors Group Sub-group Description of Items 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 -- Gold, non-monetary (excluding gold ores and concentrates) (b) expenditures in the currency of the Borrower or for goods supplied from the territory of the Borrower; (c) payments made for expenditures prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of $10,000,000 may be made on account of payments made for such expenditures before that date but after March 1, 1990; (d) expenditures for goods procured under contracts costing less than $20,000 equivalent; (e) expenditures for goods supplied under a contract which any national or international financing institution or agency other than the Bank shall have financed or agreed to finance; and (f) expenditures for goods intended for a military or paramilitary purpose or for luxury consumption. 3. Withdrawals for expenditures under contracts for the procurement of goods estimated to cost less than $200,000 may be permitted by the Bank upon the basis of statements of expenditure under such terms and conditions as the Bank shall specify. 4. No withdrawal shall be made and no commitment shall be entered into to pay amounts to or on the order of the Borrower in respect of expenditures to be financed out of the proceeds of the Loan after the aggregate of the proceeds of the Loan withdrawn from the Loan Account and the total amount of such commitments shall have reached the equivalent of $25,000,000, unless the Bank shall be satisfied, after an exchange of views as described in Section 3.01 of this Agreement based on evidence satisfactory to the Bank: (a) with the progress achieved by the Borrower in the carrying out of the Program, and (b) that the actions described in Schedule 4 to this Agreement have been taken. 5. If, after the exchange of views described in paragraph 4 Page 8 above, the Bank shall have given notice to the Borrower that the progress achieved and actions taken are not satisfactory and, within 90 days after such notice, the Borrower shall not have achieved progress and taken actions satisfactory to the Bank, then the Bank may, by notice to the Borrower, cancel the unwithdrawn amount of the Loan or any part thereof. SCHEDULE 2 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each March 1 and September 1 beginning March 1, 1996 through March 1, 2010 1,665,000 On September 1, 2010 1,715,000 ____________________________ * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity SCHEDULE 3 Procurement 1. Except as provided in paragraph 2 of this Schedule, contracts for the procurement of goods estimated to cost the equivalent of $2,000,000 or more each shall be awarded through international Page 9 competitive bidding 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), subject to the following modifications: (a) Paragraph 2.8 of the Guidelines is deleted and the following is substituted therefor: "2.8 Notification and Advertising The international community should be notified in a timely manner of the opportunity to bid. This will be done by advertising invitations to apply for inclusion in a bidder's invitation list, to apply for prequalification, or to bid; such advertisements should be placed in at least one newspaper of general circulation in the Borrower's country and, in addition, in at least one of the following forms: (i) a notice in the United Nations publication, Development Forum, Business Edition; or (ii) an advertisement in a newspaper, periodical or technical journal of wide international circulation; or (iii) a notice to local representatives of countries and territories referred to in the Guidelines, that are potential suppliers of the goods required." (b) The following is added at the end of paragraph 2.21 of the Guidelines: "As a further alternative, bidding documents may require the bidder to state the bid price in a single currency widely used in international trade and specified in the bidding documents." (c) Paragraphs 2.55 and 2.56 of the Guidelines are deleted. 2. Subject to the prior approval of the Bank, commonly traded commodities may be procured through organized international commodity markets or other channels of competitive procurement acceptable to the Bank, in accordance with procedures acceptable to the Bank. 3. Contracts for the procurement of goods estimated to cost the equivalent of less than $2,000,000 shall be awarded: (a) by purchasers required to follow the Borrower's public procurement procedures for the importation of goods, on the basis of such procedures, provided that such procedures shall have been found acceptable by the Bank; (b) by other purchasers, in accordance with established commercial practice, provided that such contracts shall be awarded on the basis of evaluation comparison of quotations obtained from suppliers from at least two countries, except that direct contracting procedures acceptable to the Bank may be used where considered appropriate under paragraph 3.5 of the Guidelines; and (c) by any purchasers, for the supply of commodities, on the basis of evaluation and comparison of quotations obtained from more than one supplier. 4. With respect to each contract referred to in paragraph 1 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids and recommendations for award, a description of the advertising and tendering procedures followed and such other information as the Bank shall reasonably request. Page 10 5. With respect to each contract referred to in paragraphs 2 and 3 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect thereof, such documentation and information as the Bank may reasonably request to support withdrawal applications in respect of such contract. 6. The provisions of the preceding paragraph 5 of this Schedule 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. SCHEDULE 4 Actions Referred to in Paragraph 4 (b) of Schedule 1 to this Agreement 1. The Borrower has adopted a budget for its fiscal year 1991 which proposes to maintain an overall balanced budgetary position in accordance with the format agreed with the Bank. 2. The Borrower has agreed to extend its policy of refraining from external commercial borrowings for budgetary financing through December 31, 1991. 3. The Borrower has agreed to limit guaranteed and non-guaranteed new external commercial borrowings by public commercial enterprises, except for the Mineral Resources Development Corporation, to a maximum of $25,000,000 equivalent during 1991. 4. The Borrower has furnished to the Bank proposals for the restructuring of its tax system, acceptable to the Bank. 5. The Borrower has implemented tax measures that are consistent with (i) the target of maintaining an overall balanced budgetary position in 1991, and (ii) the proposals referred to in para- graph 4 of this Schedule. 6. The Borrower has initiated, in a manner acceptable to the Bank, the implementation of a medium-term public service restructuring program, acceptable to the Bank, including retrenchment of staff, revised staffing levels and revised departmental structures. 7. The Borrower has adopted a recurrent budget for 1991 of a size and composition acceptable to the Bank, including: (i) a limit on wages, salaries and other employee payments of its national and provincial departments equal to K335,000,000; and (ii) an allocation for maintenance works of at least K50,000,000. 8. The Borrower has set out in its 1991 budget a Public Investment Program of a composition acceptable to the Bank and has increased such Program by about 7% in real terms over the Public Investment Program set out in its revised 1990 budget. 9. The Borrower has completed, in a manner acceptable to the Bank, the establishment of the new project cycle for public investments, referred to in Section 5.01 (c) of this Agreement. 10. The Borrower has taken all measures necessary to ensure satisfactory implementation of the legislation referred to in Section 5.01 (a) and (b) of this Agreement. 11. The Borrower is implementing an exchange rate policy acceptable to the Bank. 12. The Borrower has (i) implemented, in a manner acceptable to the Bank, its wage policy for 1990 agreed with the Bank, and (ii) agreed to continue such a wage policy for 1991. 13. The Borrower is implementing, in a manner acceptable to the Bank, measures for the reform of the institutional and regulatory Page 11 framework governing foreign investments. 14. The Borrower is implementing, in a manner acceptable to the Bank, a program, acceptable to the Bank, for the privatization or liquidation of identified public investments and the commercialization or privatization of identified public services.