Conformed Copy - C2347 - Power Sector Efficiency Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2347 NEP (Power Sector Efficiency Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NEPAL ELECTRICITY AUTHORITY Dated July 15, 1992 CREDIT NUMBER 3247 NEP PROJECT AGREEMENT AGREEMENT, dated July 15, 1992, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NEPAL ELECTRICITY AUTHORITY (NEA). WHEREAS (A) by the Development Credit Agreement of even date herewith between Kingdom of Nepal (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount equivalent to forty eight million one hundred thousand Special Drawing Rights (SDR 48,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NEA 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 NEA, part of the proceeds of the credit provided for under the Development Credit Agreement will be relent to NEA on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS NEA, in consideration of the Association's entering Page 2 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 and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) NEA 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 Parts A, B, C, E (iv), F and G of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Parts A, B, C, E (iv), F and G of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and NEA shall otherwise agree, NEA shall carry out Parts A, B, C, E (iv), F and G of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Parts A, B.1, B.2, B.3, B.4, C (i), F.1 and G of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. NEA 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 Parts A, B.1, B.2, B.3, B.4, C (i), F.1 and G of the Project. Section 2.04. NEA shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NEA 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) NEA shall, at the request of the Association, exchange views with the Association with regard to the progress of Parts A, B, C, E (iv), F and G 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 Credit. (b) NEA shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Parts A, B, C, E (iv), F and G of the Project, the accomplishment of the purposes of the Credit, or the performance by NEA of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of NEA Section 3.01. NEA shall carry on its operations and conduct Page 3 its affairs in accordance with sound administrative, financial and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. NEA 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 public utility practices. Section 3.03. NEA shall take out and maintain with responsible insurers, or make other provisions 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) NEA shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) NEA 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 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, including, without limitation of the foregoing, unaudited Project accounts and financial statements for each fiscal year as soon as available, but not later than six months after the end of such year. Section 4.02. NEA shall, at the end of each fiscal year and until completion of the Project, assess and revise the value of its fixed assets in operation in accordance with methods acceptable to the Association. Section 4.03. NEA shall take out and maintain with a reputable insurer, or make such other provision as shall be satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Without limitation to the provisions of this Sub-Section, NEA shall prepare and furnish to the Association for its review and comments, not later than August 31, 1992, a proposal for an insurance program consistent with sound public utility practice to be undertaken by NEA. Section 4.04. Throughout the life of the Investment Program, NEA shall not undertake any new investment outside the purview of the said Program when the cost thereof exceeds five million dollars ($5,000,000) unless it has first received the consent of the Association to do so, and shall submit to the Association, not later Page 4 than May 31 of each fiscal year (i) such details of its proposed investments for the following three years as shall be satisfactory to the Association; (ii) projected financial statements for each such year; and (iii) such proposals for measures aimed at increasing NEA's revenues, including adjustment of NEA's tariffs, as shall be required to comply with the provisions of Section 4.07 of this Agreement. Section 4.05. NEA shall, from time to time, make such adjustments to its tariffs, as shall be satisfactory to the Association, to reflect the increase in the cost of fuel to NEA, if any. Section 4.06. (a) Except as the Association shall otherwise agree, NEA shall not incur any debt unless the net revenues of NEA for the fiscal year immediately preceding the date of such incurrence or for any later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.3 times the estimated maximum debt service requirements of NEA for any succeeding fiscal year on all debt of NEA including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of NEA 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 NEA's tariffs 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 opera- tions including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depre- ciation, 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. Interest charges which are incurred in financing capital expenditures during construction should be excluded, if such charges are capitalized. Page 5 (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 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. Section 4.07. (a) Except as the Association shall otherwise agree, NEA shall produce, for each of its fiscal years after its fiscal year ending on July 15, 1991, funds from internal sources equivalent to such amount as shall be required to finance not less than 45% of the local costs of NEA's investment program (including interest during construction) in FY92, 50% in FY93, 55% in FY94, 60% in FY95, 65% in FY96, 70% in FY97 and 75% thereafter. (b) Before May 15 in each of its fiscal years, NEA shall, on the basis of forecasts prepared by NEA 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 NEA would not meet the requirements set forth in paragraph (a) for NEA's fiscal years covered by such review, NEA shall promptly take all necessary measures (including, without limitation, adjusting the structure or the level of its 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 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 distribution of surplus, increase in working capital other than cash and other cash outflows other than capital expenditure. (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 Page 6 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. (vii) The term "capital expenditures" means all expenditures incurred on account of fixed assets, including interest during construction, related to operations. Section 4.08. (a) Except as the Association shall otherwise agree, NEA shall earn, for each of its fiscal years after its fiscal year ending on July 15, 1995, an annual return of not less than 5% of the average current net value of NEA's fixed assets in operation in FY96 and 6% thereafter. (b) Before May 15 in each of its fiscal years, NEA shall, on the basis of forecasts prepared by NEA 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 the results of such review upon its completion. (c) If any such review shows that NEA would not meet the requirements set forth in paragraph (a) for NEA's fiscal years covered by such review, NEA shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its tariffs) in order to meet such requirements. (d) For the purposes of this Section: (i) The annual return shall be calculated by dividing NEA's net operating income for the fiscal year in question by one half of the sum of the current net value of NEA's fixed assets in operation at the beginning and at the end of that fiscal year. (ii) The term "net operating income" means total operating revenues less total operating expenses. (iii) The term "total operating revenues" means revenues from all sources related to operations. (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 3% per annum of the average current gross value of NEA's fixed assets in operation, or other basis acceptable to the Association, but excluding interest and other charges on debt. (v) The average current gross value of the NEA's fixed assets in operation shall be calculated as one half of the sum of the gross value of the NEA's fixed assets in operation at the beginning Page 7 and at the end of the fiscal year, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Association. (vi) The term "current net value of the NEA's fixed assets in operation" means the gross value of NEA's fixed assets in operation less the amount of accumulated depreciation, as valued from time to time in accordance with sound and con- sistently maintained methods of valuation satisfactory to the Association. 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 NEA 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 twenty five years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify NEA 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For NEA: Page 8 Nepal Electricity Authority Durbar Marg Kathmandu, Nepal Cable address: Telex: VIDYUT 2633 NEAHO NP Kathmandu Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of NEA may be taken or executed by its managing director or such other person or persons as NEA shall designate in writing, and NEA shall furnish to the Association 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 DEVELOPMENT ASSOCIATION By /s/ D. Joseph Wood Regional Vice President South Asia NEPAL ELECTRICITY AUTHORITY By /s/ Yog Prasad Upadhyay Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D 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). 2. Bidders for Part A (i) of the Project shall be prequalified as provided in paragraph 2.10 of the Guidelines. Part B Preference for Domestic Manufacturers In the procurement of goods in accordance with the pro- cedures described in Part A.1 hereof, goods manufactured in the Kingdom of Nepal 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: Preference for Domestic Contractors In the procurement of works in accordance with the procedures Page 9 described in Part A.1 hereof, the Borrower may grant a margin of preference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Items or groups of items for civil works, construction materials and transport materials estimated to cost the equivalent of up to $2,500,000 in total may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Proprietary items of materials, equipment, tools and spare parts (which can only be manufactured by the suppliers or their licensees) may be procured through direct contracting with the suppliers or manufacturers thereof under procedures acceptable to the Association, up to an aggregate amount not to exceed the equivalent of $5,000,000. 3. Items or groups of items of materials, equipment, tools and spare parts estimated to cost the equivalent of up to $75,000 or less per contract up to an aggregate of $600,000 may be procured under contracts awarded through limited international bidding procedures on the basis of evaluation and comparison of bids invited from a list of three qualified suppliers eligible under the Guidelines and in accordance with the procedures set forth in Sections I and II of the Guidelines (excluding paragraphs 2.8, 2.9, 2.55 and 2.56 thereof). Part E: Review by the Association of Procurement Decisions 1. Review of prequalification: With respect to the prequalification of bidders as provided in Part A.2 hereof, the procedures set forth in paragraph 1 of Appendix 1 to the Guidelines shall apply. 2. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for (i) civil works estimated to cost the equivalent of $200,000 or more; and (ii) materials and equipment estimated to cost the equivalent of $75,000 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 Association pursuant to said paragraph 2 (d) shall be furnished to the Association 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, 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 Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Development Credit Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which the Association has authorized withdrawals on the basis of statements of expenditure. 3. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants Page 10 In order to assist NEA in carrying out Parts A, B.1, B.2, B.3, B.4, F.1 and G of the Project, NEA shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association 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 NEA shall: (a) not later than August 31, 1992, carry out an action program the terms of which shall be satisfactory to the Association, which shall include, among other things, provisions for the establishment, within NEA, of a human resources department, with responsibilities for training programs and manpower planning and development, and for the employment of a director for the said department whose qualifications shall be satisfactory to the Association; (b) not later than August 31, 1992, initiate and thereafter carry out a program, the terms of which shall be satisfactory to the Association, which shall, among other things, ensure that, by July 16, 1993, arrears from parastatals and non-governmental subscribers for electricity services provided by NEA are reduced to, and thereafter maintained at, three months from billing date; and (c) not later than January 15, 1993, establish, within NEA, a directorate for the management of its rural electrification program, with responsibilities and staffing acceptable to the Association, and shall, starting July 16, 1993, maintain, in a manner satisfactory to the Association, such separate accounts as shall be necessary to accurately reflect the financial position of the said directorate.