Conformed Copy - C2386 - Fifth Power Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2386 MAI (Fifth Power Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and ELECTRICITY SUPPLY COMMISSION OF MALAWI Dated July 2, 1992 CREDIT NUMBER 2386 MAI PROJECT AGREEMENT AGREEMENT, dated July 2, 1992, between INTERNATIONAL DEVELOP- MENT ASSOCIATION (the Association) and ELECTRICITY SUPPLY COMMISSION OF MALAWI (ESCOM). WHEREAS (A) by the Development Credit Agreement of even date herewith between Republic of Malawi (the Borrower) and the Associa- tion, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirty-nine million two hundred thousand Special Drawing Rights (SDR 39,200,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that ESCOM 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 ESCOM, part of the proceeds of the credit provided for under the Development Credit Agreement will be relent to ESCOM on the terms and conditions set forth in the Subsidiary Loan Agreement; and Page 2 WHEREAS ESCOM, 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. ESCOM 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 through E of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Parts A through E of the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Parts A through E of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. ESCOM 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 acquisi- tion, respectively) in respect of the Project Agreement and Parts A through E of the Project. Section 2.04. ESCOM shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ESCOM 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) ESCOM shall, at the request of the Associa- tion, exchange views with the Association with regard to the progress of Parts A through E 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) ESCOM shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Parts A through E of the Project, the accomplishment of the purposes of the Credit, or the performance by ESCOM of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. ESCOM shall implement the recommendations on electricity tariffs, which shall have been reviewed by and found satisfactory to the Association, over a period not exceeding three years commencing April 1, 1993. ARTICLE III Management and Operations of ESCOM Section 3.01. ESCOM shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and engineering practices under the supervision of qualified and Page 3 experienced management assisted by competent staff in adequate numbers. To this end ESCOM shall afford the Association an oppor- tunity to review the experience and qualifications of appointments to senior management positions in ESCOM and to take due account of the Association's views. Section 3.02. ESCOM 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 electricity generating, transmission and distribution practices. Section 3.03. ESCOM shall take out and maintain with respon- sible 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. Section 3.04. (a) ESCOM shall take such measures as shall be necessary to resettle, in accordance with a plan satisfactory to the Association, all persons to be displaced as a result of the transmission line construction to be carried out under Part A.5 of the Project. (b) ESCOM shall take all measures necessary to establish an adequately staffed environmental affairs unit, with terms of reference satisfactory to the Association, to, inter alia, carry out environmental mitigating measures associated with the carrying out of Parts A.1, A.2 and A.5 of the Project. (c) ESCOM shall appoint, and thereafter maintain, a manager, with qualifications satisfactory to the Association, to supervise the implementation of Part A of the Project. ARTICLE IV Financial Covenants Section 4.01. (a) ESCOM shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) ESCOM shall: (i) have its records, accounts and financial state- ments (balance sheets, statements of income and expenses and related statements) for each fiscal year including those for Special Account A, 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 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 Association shall have reasonably re- quested; and (iii) furnish to the Association such other informa- tion concerning said records, accounts and financial statements as well as the audit there- of, as the Association shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditure, ESCOM shall: (i) maintain or cause to be maintained, in accor- dance with paragraph (a) of this Section, re- Page 4 cords and accounts reflecting such expenditures; (ii) retain, until at least one year after the Asso- ciation has received the audit report for the fiscal year in which the last withdrawal from the Credit Account or payment out of the Special Account was made, all records (contracts, or- ders, invoices, bills, receipts and other docu- ments) evidencing such expenditures; (iii) enable the Association's representatives to examine such records; and (iv) ensure that such records and accounts are in- cluded in the annual audit referred to in para- graph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expen- diture submitted during such fiscal year, to- gether with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. ESCOM shall revalue its assets annually on the basis of the asset revaluation study dated June 1991 and furnish the Association with duly audited supplementary financial statements, together with the audited accounts referred to in Section 4.01 (b) (ii) above, not later than four months after the end of ESCOM's fiscal year. Section 4.03. ESCOM shall: (a) annually review the IPPS and make appropriate revisions in consultation with the Borrower and the Association; and (b) not undertake any capital investment in excess of five million dollars ($5,000,000) equivalent for any one project not included in the IPPS unless the technical and economic justification of such project is satisfactory to the Association. Section 4.04. (a) Except as the Association shall otherwise agree, ESCOM shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ESCOM shows that the estimated net revenues of ESCOM for each fiscal year during the term of the debt to be incurred shall be at least 1.5 times the estimated debt service requirements of ESCOM in such year on all debt of ESCOM including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ESCOM 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 and net non-operat- ing income; and (B) the sum of all expenses related to opera- tions including administration, adequate Page 5 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 sink- ing fund payments, if any) of, and interest and other charges on, debt. (vi) The term "reasonable forecast" means a forecast prepared by ESCOM not earlier than twelve months prior to the incurrence of the debt in question, which both the Association and ESCOM accept as reasonable and as to which the Association has notified ESCOM of its acceptability, provided that no event has occurred since such notifica- tion which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of ESCOM. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in anoth- er 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 accept- able to the Association. Section 4.05. (a) Except as the Association shall otherwise agree, ESCOM shall produce, for each of its fiscal years after its fiscal year ending on March 31, 1991, funds from internal sources equivalent to not less than 30% of the annual average of its capital expenditures incurred, or expected to be incurred, for that year, the previous fiscal year and the next following fiscal year. (b) Not later than ninety (90) days prior to the end of each of its fiscal years, ESCOM shall, on the basis of forecasts prepared by ESCOM 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 ESCOM would not meet the requirements set forth in paragraph (a) for its fiscal years covered by such review, ESCOM 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 "funds from internal sources" means the difference between: (A) the sum of revenues from all sources relat- ed to operations, consumer deposits and consumer contributions in aid of construc- tion, net non-operating income and any Page 6 reduction in working capital other than cash; and (B) the sum of all expenses related to opera- tions, including administration, adequate maintenance and taxes and payments in lieu of taxes (excluding provision for deprecia- tion and other non-cash operating charges), debt service requirements all cash divi- dends and other cash distributions of surplus, increase in working capital other than cash and other 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 prepaid expenses properly chargeable to operating expenses within the next fiscal year. (v) 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. (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 expen- ditures 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 valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange accept- able to the Association. Section 4.06. ESCOM shall continue to take all measures necessary to ensure that the level of ESCOM's accounts receivable from subscribers shall not exceed the equivalent of sixty days of ESCOM's sales revenue in the preceding twelve months. Section 4.07. ESCOM shall take all measures necessary (a) to Page 7 conclude by not later than June 30, 1993 agreements, satisfactory to the Association, for the financing of Parts C and D of the Project; and (b) to assist the Borrower to conclude, by not later than February 28, 1993, the AfDB Loan Agreement for financing the turbines and generators under Part A.3 of the Project. 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 ESCOM 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 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 ESCOM 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 ESCOM: Electricity Supply Commission of Malawi P.O. Box 2047 Blantyre Malawi Telex: 44246 Page 8 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 ESCOM may be taken or executed by the General Manager or such other person or persons as the General Manager shall designate in writing, and ESCOM 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 collec- tively 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/ F. J. Aguirre-Sacasa Acting Regional Vice President Africa ELECTRICITY SUPPLY COMMISSION OF MALAWI By /s/ Robert B. Mbaya Authorized Representative