Conformed Copy - L3664 - Fifth Water Supply Project - Kingdom - Project Agreement 4

Page 1 CONFORMED COPY LOAN NUMBER 3664 MOR Project Agreement (Fifth Water Supply Project - Kingdom) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and THE WATER AND ELECTRICITY DISTRIBUTION AUTHORITY OF MEKNES Dated December 3, 1993 LOAN NUMBER 3664 MOR PROJECT AGREEMENT AGREEMENT, dated December 3, 1993, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and THE WATER AND ELECTRICITY DISTRIBUTION AUTHORITY OF MEKNES (RADEEM), (hereinafter referred to as the Participating Utility). WHEREAS (A) by the Loan Agreement of even date herewith between Kingdom of Morocco (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred twenty-three million dollars ($123,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Participating Utility agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and the Participating Utility, a portion of the proceeds of the loan provided for under the Loan Agreement will be relent to the Participating Utility on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS the Participating Utility, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; Page 2 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 the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) The Participating Utility 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 its Part of the Project (Parts B.1 (d) and B.2 (d)) 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 its Part of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and the Participating Utility shall otherwise agree, the Participating Utility shall carry out its Part of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. The Participating Utility shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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 its obligations under the Project Agreement and its Part of the Project. Section 2.04. The Participating Utility shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, the Participating Utility shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving said Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) The Participating Utility shall, at the request of the Bank, exchange views with the Bank with regard to the progress of its Part 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 Loan. (b) The Participating Utility shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of its Part of the Project, the accomplishment of the purposes of the Loan, or the performance by the Participating Utility of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of the Participating Utility Section 3.01. The Participating Utility shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and public utility practices under the Page 3 supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. The Participating Utility 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. The Participating Utility shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) The Participating Utility shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) The Participating Utility shall: (i) have its records, accounts (including those for the Special Account) 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 six 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 4.02. (a) Except as the Bank shall otherwise agree, the Participating Utility shall produce on its water activities, for each Fiscal Year, funds from internal sources equivalent to not less than 25% of the annual average of the Participating Utility's capital expenditures incurred, or expected to be incurred, for that year, the previous Fiscal Year and the next following Fiscal Year. (b) Before September 30 in each Fiscal Year, the Participating Utility shall, on the basis of forecasts prepared by it and satisfactory to the Bank, 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 Bank a copy of such review upon its completion. (c) If any such review shows that the Participating Utility would not meet the requirements set forth in paragraph (a) for the Fiscal Year covered by such review, the Participating Utility shall promptly take all necessary measures (including, without limitation, recommendation for 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 Page 4 related to operations 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 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 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, taxes and payments in lieu of taxes, and dividends. (vi) The term "capital expenditures" means all expenditures on account of fixed assets, including interest charged to construction, related to operations. (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 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 Bank. Section 4.03. (a) Except as the Bank shall otherwise agree, the Participating Utility shall reach on its water activities a ratio of total working expenses to total operating revenues not higher than 60% for Fiscal Year 1996; and 52% for Fiscal Year 1998. (b) Before September 30 in each Fiscal Year, the Participating Utility shall, on the basis of forecasts prepared by it and satisfactory to the Bank, review whether it would meet the Page 5 requirements set forth in paragraph (a) of this Section in respect of such year and the next following Fiscal Year, and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that the Participating Utility would not meet the requirements set forth in paragraph (a) of this Section for the Fiscal Years covered by such review, the Participating Utility shall promptly take all necessary measures (including, without limitation, recommendation for adjustments of the structure or levels of its rates) in order to meet such requirements. (d) For the purposes of this Section: (i) The terms "total working expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding depreciation, interest and other charges on debt. (ii) The term "total operating revenues" means revenues from all sources related to operations.