Zambia - Petroleum Sector Rehabilitation Project : Credit 2621 - Credit Agreement - Conformed

CREDIT NUMBER 2621 ZA Development Credit Agreement (Petroleum Sector Rehabilitation Project) between REPUBLIC OF ZAMBIA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated 9ea3d 23, 1994 CREDIT NUMBER 2621 ZA DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated d4a--AA 6t 23 , 1994, between the REPUBLIC OF ZAMBIA (the Borrower) and the INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Association has received from the Borrower a letter dated May 5, 1.994 describing a series of actions designed to achieve certain policy objectives in the Borrower's petroleum sector (the Program) and declaring the Borrower's commitment to the execution of the Program; (C) the Borrower intends to contract from European Investment Bank (EIB) a loan (the EIB Loan) in an amount equivalent to approximately $15,000,000 to assist in financing the Project on the terms and conditions set forth in an agreement (the EIB Loan Agreement) to be entered into between the Borrower and EIB; and (D) Parts B and C of the Project will be carried out by Tazama Pipelines Limited (Tazama) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to Tazama part of the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Association and Tazama; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. -2- 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) "MEWD" means the Borrower's Ministry of Energy and Water Development; (b) "Tazama" means Tazama Pipelines Limited, a company incorporated under the Borrower's Companies Act, as such Act may be amended from time to time; (c) "Convention" means the Convention between the United Republic of Tanzania and the Borrower dated January 18, 1967 which provides for the establishment of Tazama and the construction and operation of a pipeline from the City of Dar-es-Salaam in the territory of the United Republic of Tanzania to the City of Ndola in the territory of the Borrower; (d) "ZIMCO" means Zambia Industrial and Mining Corporation Limited, a holding company established and operating under the laws of the Borrower; (e) "ZIMOIL" means the division of ZIMCO responsible for oil procurement, storage and export and for arranging transport and refining petroleum products; (f) "ZOC" means Zambia Oil Company, a company established and operating under the laws of the Borrower; (g) "OMCs" means the following oil marketing companies: BP Zambia Limited, AGIP Zambia Limited, Caltex Zambia Limited, Mobil Zambia Limited, Total Zambia Limited, and any new oil marketing company, all established or to be established and operating under the laws of the Borrower; (h) "0MCC" means Consortium of Oil Marketing Companies, a company to be established under the laws of the Borrower by the OMCs to take over the ownership of oil feed stock and refined products in Zambia; (i) "Indeni" means the Indeni Petroleum Refinery Company Limited, a company owned jointly by the Borrower and AGIP and operating pursuant to the laws of the Borrower; -3- (j) "Tazama Project Agreement" means the agreement between the Association and Tazama Pipelines Limited (Tazama), of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Tazama Project Agreement; (k) "Tazama Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and Tazama pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes any schedules to the Tazama Subsidiary Loan Agreement; (1) "ZOC Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and ZOC pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes any schedules to the ZOC Subsidiary Loan Agreement; (M) "Subsidiary Loan Agreements" means collectively the Tazama Subsidiary Loan Agreement and the ZOC Subsidiary Loan Agreement; and (n) "Special Account" means each of the accounts referred to in Section 2.02 (b) of this Agreement. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to twenty-one million six hundred thousand Special Drawing Rights (SDR 21,600,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall open and maintain in dollars three special deposit accounts, a MEWD Special Account for Part A of the Project, a Tazama Special Account for Parts B and C of the Project and a ZOC Special Account for Part D of the Project, each in a commercial bank acceptable to the Association on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be June 30, 2000 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (112 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this AgTaement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a oervice charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on May 1 and November 1 in each year. - 5 - Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each May 1 and November 1 commencing November 1, 2004 and ending May 1, 2034. Each installment to and including the installment payable on May 1, 2014 shall be one percent (1%) of such principal amount, and each installment thereafter shall be two percent (2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years, and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. Tazama is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions in respect of Parts B and C of the Project. -6- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement and, to this end, without any limitation or restriction upon any of its other obligations under this Agreement, shall: (i) carry out Parts A and D of the Project through MEWD with due diligence and efficiency and in conformity with appropriate practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for Parts A and D of the Project; and (ii) cause Tazama to carry out Parts B and C of the Project, with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, oil transportation and environmental practices and to perform in accordance with the provisions of the Tazama Project Agreement all the obligations of Tazama therein set forth; shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable Tazama to perform such obligations; and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall relend the equivalent of SDR 18,000,000 out of the proceeds of the Credit to Tazama and the equivalent of SDR 1,600,000 out of the proceeds of the Credit to ZOC under two subsidiary loan agreements (the Tazama Subsidiary Loan Agreement and the ZOC Subsidiary Loan Agreement) to be entered into between the Borrower and Tazama and ZOC, respectively, both of which shall have been approved by the Association and shall include the following terms and conditions: (i) that the interest rate to be charged to Tazama and ZOC shall be 8% per annum, the principal amount of the Credit onlent to Tazama and ZOC being repaid to the Borrower in equal annual installments beginning five (5) years after the -7- date of the respective Subsidiary Agreement and ending twenty (20) years after the date of such Agreement; (ii) that the foreign exchange risk shall be borne by Tazama and ZOC; and (iii) environmental safeguards and measures acceptable to the Association. (c) The Borrower shall exercise its rights under the Subsidiary Loan Agreements in such manner as to protect the interests of the Borrower and the Association and to accomplish the purposes of the Credit and, except as the Association shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsidiary Loan Agreements or any provision thereof. Section 3.02. Except as the Association 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 Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 3.03. The Borrower and the Association hereby agree that 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 Parts B and C of the Project shall be carried out by Tazama pursuant to Section 2.03 of the Tazama Project Agreement. Section 3.04. The Borrower shall, not later than December 31, 1994: (a) take all measures necessary for the establishment and incorporation of OMCC; and (b) take all measures necessary for the establishment and incorporation of ZOC. Section 3.05. The Borrower shall, not later than March 31, 1995, take all measures necessary to ensure that OMCC has made arrangements, acceptable to the Association, for the financing of oil feedstock and refined products for the purposes of acquiring ownership of such products from the Borrower. - 8 - Section 3.06. The Borrower shall, not later than March 31, 1995 cause OMCC to: (a) enter into a feedstock processing contract with Indeni which shall: (i) have progressively tighter performance standards on operating efficiency and physical losses; and (ii) make allowances for exchange rate adjustments in the tariff structure; and (b) take all the necessary actions, in addition to the actions referred to in Section 6.01 (c) of this Agreement, in order to transfer from ZOC to OMCC ownership of oil feedstock and refined products. Section 3.07. (a) The Borrower shall carry out, with the participation of Tazama and ZOC, not later than June 30, 1996, a midterm institutional reform review under terms of reference satisfactory to the Association. (b) Based on such review, the Borrower shall prepare, and shall cause Tazama and ZOC to prepare, an action plan, acceptable to the Association, for further institutional reform and shall thereafter implement, and cause Tazama and ZOC to implement, such action plan in a manner satisfactory to the Association. Section 3.08. The Borrower shall, not later than December 31, 1999 complete a petroleum export marketing study under terms of reference acceptable to the Association. The findings of the study shall be furnished to the Association soon thereafter. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Accounts, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; -9- (ii) furnish to the Association, 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and the audit thereof 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, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made; and (iii) enable the Association's representatives to examine such records. (d) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Special Accounts 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 six months after the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably - 10 - requested, including 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; and (iii) furnish to the Association such other information concerning said records and accounts and the audit thereof as the Association shall from time to time reasonably request. Section 4.02. (a) The Borrower and the Association shall, from time to time, at the request of either party, exchange views with regard to the Borrower's petroleum product pricing policies and its plans in respect of the overall development of the petroleum industry. (b) The Borrower shall, as long as it exercises control over the setting of prices of petroleum, review or cause the appropriate agency to review petroleum product prices at least once in each month and establish, or cause to be established, prices which would: (i) reflect all foreign and local currency costs, including the effects of any devaluations of the Kwacha; and (ii) permit ZOC under conditions of efficient operation at reasonable levels of capacity utilization, to recover, by December 31, 1994, the losses incurred by ZIMOIL prior to June 1, 1993 due to the Borrower's past pricing policies. Section 4.03. The Borrower shall, by December 31, 1996 remove all retail price controls on petroleum products. Section 4.04. The Borrower shall, until completion of the Project, consult with the Association prior to undertaking any new public capital investment in its petroleum sector in excess of $5,000,000 not included in the Project. - 11 - ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) 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. (b) Tazama shall have failed to perform any of its obligations under the Project Agreement. (c) ZOC shall have failed to perform any of its obligations under the ZOC Subsidiary Loan Agreement. (d) As a result of events which have occurred after the date of this Agreement, an extraordinary situation shall have arisen which shall make it improbable that Tazama or ZOC will be able to perform their obligations under the Project Agreement or the ZOC Subsidiary Loan Agreement, respectively. (e) The Convention shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of Tazama to perform any of its obligations under the Project Agreement. (f) The Memorandum or Articles of Association of Tazama or of ZOC shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of Tazama or ZOC to perform any of their obligations under the Project Agreement or the ZOC Subsidiary Loan Agreement, respectively. (g) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of any loan or grant made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms thereof, or - 12 - (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Association 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 agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. (h) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of Tazama or ZOC or for the suspension of their operations. (i) The ZOC Subsidiary Loan Agreement shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of ZOC to perform any of its obligations under the ZOC Subsidiary Loan Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional events are specified: (a) the event specified in paragraph (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower; (b) any event specified in paragraphs (d), (e) or (f) of Section 5.01 of this Agreement shall occur; and (c) the event specified in paragraph (g) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the proviso in paragraph (g) (ii). - 13 - ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of this Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and Tazama; (b) the EIB Loan Agreement has been duly executed and all conditions precedent to the effectiveness of the EIB Loan Agreement have been fulfilled, other than those related to the effectiveness of this Agreement; (c) the Borrower has implemented preliminary measures acceptable to the Association to reform its mechanisms for setting and revising petroleum product prices; (d) Tazama has hired engineering consultants to assist it and the Borrower in the preparation of Parts B, C and D of the Project and has appointed a Project Manager having qualifications and terms and conditions of employment and terms of reference acceptable to the Association; and (e) the Borrower has entered into a contract acceptable to the Association with OMCC providing for OMCC to manage the refined product terminal at Ndola. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association: (a) that the Project Agreement has been duly authorized or ratified by Tazama and is legally binding upon Tazama in accordance with its terms; and (b) that the Tazama Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and Tazama and is legally binding upon the Borrower and Tazama, in accordance with its terms. - 14 - Section 6.03. 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. Section 6.04. The obligations of the Borrower under Sections 4.02 and 4.04 of this Agreement shall cease and determine on the date on which this Agreement shall terminate or on the date 20 years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. Except as provided in Section 2.09 of this Agreement, the Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance P.O. Box 50062 Lusaka, Zambia Cable address: Telex: MINFIN 42221 Lusaka Telefax: 222440 - 15 - 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) 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. REPUBLIC OF ZAMBIA By /41 fi.1W4l)Lkt#wo Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION Regional ce resident Africa - 16 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Equipment and 100% of foreign Materials: expenditures and 90% of local expenditures (a) under Parts B 8,130,000 and C of the Project (b) under Part D of 870,000 the Project (2) Civil works: 100% of foreign expenditures and (a) under Part B 3,460,000 90% of local of the Project expenditures (b) under Part D 360,000 of the Project (3) Engineering and 430,000 100% of foreign Project management expenditures - 17 - Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (4) Consultants' services 100% and training: (a) under Part A 1,660,000 of the Project including training (b) under Part C 2,020,000 of the Project (5) Unallocated 4,670,000 TOTAL 21,600,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) payments made for expenditures prior to the date of this Agreement; and (b) payments made for expenditures under Categories (1) (b) and (2) (b) until: (i) Zambia Railways Limited has confirmed to the Borrower through a letter, satisfactory to the Association, that Zambia Railways will, inter alia, undertake to supply tank wagons as - 18 - requested by 0MC and to transport petroleum products efficiently by reducing idle time of railway tank wagons and ensuring, whenever practicable, to move tank wagons in block trains. Zambia Railways will also agree to observe strict performance standards and to undertake to safeguard petroleum products against theft, pilferage and other unlawful acts and to accept responsibility for losses in excess of levels accepted internationally for oil transport by rail; (ii) the Borrower has established and incorporated ZOC with functions, management and staffing satis- factory to the Association; (iii) the Borrower and ZOC have entered into the ZOC Subsidiary Loan Agreement referred to in Section 3.01 (b) of this Agreement; and (iv) the Borrower has submitted to the Association an opinion satisfactory to the Association of counsel, acceptable to the Association, that the ZOC Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and ZOC and is legally binding upon the Borrower and ZOC, in accordance with its terms. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures under contracts for goods and works not exceeding $150,000 equivalent, under such terms and conditions as the Association shall specify by notice to the Borrower. - 19 - SCHEDULE 2 Description of the Project The objectives of the Project are to: (a) rehabilitate the pipeline system owned and operated by Tazama in order to make it a least cost and reliable means of transporting oil into the territory of the Borrower and to strengthen Tazama's institutional setup in order to ensure, through adequate maintenance of the pipeline, that it remains in satisfactory operational condition; (b) strengthen the technical and financial management of Tazama; (c) improve infra- structure facilities in order to reduce the cost of petroleum produzt distribution within the territory of the Borrower; and (d) strengthen MEWD. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Capacity Strengthening of MEWD Strengthening the petroleum policy formulation and monitoring capacity of MEWD. Part B: Rehabilitation of Tazama Pipeline 1. Pipeline: Carrying out of sleeve repairs and pipe replacement and strengthening of pipeline support at river crossings. 2. Corrosion Protection: Construction of six AC and ten solar cathodic protection stations to protect the pipeline from external corrosion. 3. Mechanical: Overhaul of fourteen pumps and engines at pump stations. 4. Electrical and Instrumentation: Replacement of nine station generators and provision of instrumentation for pumping units. 5. Telecommunications: Acquisition of eight high frequency radio units to include telemetry, high frequency and very high frequency support and patching up of telephone system. - 20 - 6. Tank Farm: Rehabilitation of Tazama's storage facilities in the City of Dar-es-Salaam in the territory of the United Republic of Tanzania including replacement of bottom plates for, and repairs to the roofs of, existing tanks, and construction of one new tank in Ndola. 7. Vehicles, Spare Parts and Project Equipment: Acquisition of a motorboat and of the vehicle equipment including tractors, cranes, excavators and bulldozers; spare parts; and office equipment including computer hardware and software required for the implementation of the Project. 8. Environmental: Introduction of new operating practices including new methods of waste disposal to minimize environmental damage. Part C: Institutional Strengthening of Tazama Strengthening Tazama's capacity to operate ar.I maintain its pipeline and to manage it finances, including traininE, of staff of Tazama. Part D: Improving Efficiency of Product Distribution Expansion of the rail loading terminal in Ndola depot to enable unit train loading, and supply of equipment and measuring instruments. The Project is expected to be completed by December 31, 1999. - 21 - SCHEDULE 3 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 1992 (the Guidelines). (a) For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. (b) In the procurement of goods and works in accordance with this Part A, the Borrower shall use the relevant standard bidding documents issued by the Association, with such modifications thereto as the Association shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Association, the Borrower shall use bidding documents based on other international recognized standard forms agreed with the Association. 2. To the extent practicable, contracts shall be grouped into bid packages estimated to cost the equivalent of $250,000 or more. 3. For the purposes of the pre-shipment inspection of goods imported under the Project, no price verification shall be conducted in respect of those goods to which Part A of this Section applies. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 hereof, goods manufactured in Zambia may be granted a margin of preference in accordance with, and subject to, - 22 - 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 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 estimated to cost the equivalent of $100,000 or less per contract, in respect of Part B of the Project and estimated to cost the equivalent of $50,000 or less per contract, in respect of Part D of the Project, up to an aggregate amount equivalent to $1,000,000 may be procured: (i) under contracts awarded on the basis of comparison of price quotations from at least three suppliers from at least three different countries, eligible under the Guidelines, in accordance with procedures acceptable to the Association; or (ii) from the Inter-Agency Procurement Services Office of the United Nations Development Programme in accordance with procedures acceptable to the Association. 2. Proprietary spare parts and other components for existing equipment and machines, up to an aggregate amount equivalent to $1,000,000, may be procured directly from the manufacturers of such parts and components. 3. Specialized equipment, up to an aggregate amount equivalent to $1,000,000, may be procured under contracts awarded through limited international bidding procedures on the basis of evaluation and comparison of bids invited from at least three qualified suppliers under the Guidelines and in accordance with 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 invitations to bid and of proposed awards and final contracts: (a) With respect to each contract estimated to cost the equivalent of $150,000 or more, the procedures set forth in - 23 - 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 I 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 this Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II. Employment of Consultants 1. In order to assist the Borrower and Tazama in carrying out their respective parts of the Project, the Borrower and Tazama 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. For complex, time-based assignments, the Borrower shall employ such consultants under contracts using the standard form of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Association. Where no relevant standard contract documents have been issued by the Bank, the Borrower shall use other standard forms agreed with the Association. - 24 - 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Association review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to: (a) contracts for the employment of consulting firms, estimated to cost less than $75,000 equivalent each; or (b) contracts for the employment of individuals estimated to cost less than $50,000 equivalent each. However, this exception to prior Association review shall not apply to: (a) the terms of reference for such contracts; (b) single source selection of firms; (c) assignments of a critical nature as reasonably determined by the Association; (d) amendments of contracts for the employment of consulting firms raising the contract value to $75,000 equivalent or above; or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. - 25 - SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means: (i) Category (4) (a) set forth in the table in paragraph 1 of Schedule 1 to this Agreement in respect of the MEWD Special Account; (ii) Categories (1) (a), (2) (a), (3) and (4) (b) set forth in the table in paragraph 1 of Schedule I to this Agreement in respect of the Tazama Special Account; and (iii) Categories (1) (b) and (2) (b) set forth in the table in paragraph 1 of Schedule 1 to this Agreement in respect of the ZOC Special Account; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $150,000 for the MEWD Special Account, an amount equivalent to $1,500,000 for the Tazama Special Account and an amount equivalent to $100,000 for the ZOC Special Account to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for - 26 - a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account in accordance with the provisions of Arti- cle V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or - 27 - (b) once the total unwithdrawn amount of the Credit allocated to the eligible Categories for Parts A and B of the Project, less the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to Parts A and B of the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible Categories for Parts A and B of the Project shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. - 28 - (d) Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. FORS CAETARY