Uganda - Small Towns Water And Sanitation Project : Credit 2583 - Project Agreement - Conformed

f7'; ~.C?AL CREDIT NUMBER 2583 UG Project Agreement (Small Towns Water and Sanitation Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NATIONAL WATER AND SEWERAGE CORPORATION Dated //I, 1994 CREDIT NUMBER 2583 UG PROJECT AGREEMENT AGREEMENT, dated /1CO ay , 1994, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NATIONAL WATER AND SEWERAGE CORPORATION (NWSC). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Republic of Uganda (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirty million four hundred thousand Special Drawing Rights (SDR 30,400,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that NWSC 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 NWSC, a portion of the proceeds of the credit provided for under the Development Credit Agreement will be relent to NWSC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS NWSC, 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. NWSC 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 Part B of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and sanitary practices, and - 2 - shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part B of the Project. Section 2.02. NWSC shall, for the purposes of Part B of the Project, open and maintain in dollars a special deposit account (Special Account B) in a commercial bank, 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 B shall be made in accordance with the provisions of Schedule 5 to the Development Credit Agreement. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods, works and services required for Part B 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 2.04. NWSC 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 Part B of the Project. Section 2.05. NWSC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, NWSC 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 2.06. (a) NWSC shall, at the request of the Association, exchange views with the Association with regard to the progress of Part B 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) NWSC shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Part B of the Project, the accomplishment of the purposes of the Credit, or the performance by NWSC of its obligations under this Agreement and under the Subsidiary Loan Agreement. -3- ARTICLE III Management and Operations of NWSC Section 3.01. NWSC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and sanitary practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. NWSC 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 sanitary practices. Section 3.03. NWSC shall take out and maintain with responsible 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. NWSC shall, during the execution of Part B of the Project, establish and maintain adequate staffing for Project implementation, with functions, responsibilities, experience, and terms of reference satisfactory to the Association. The senior staff shall include, inter alia, a Project Manager, an engineer, a socio- economist, an accountant and a technical advisor for a minimum of two years from the Effective Date. Section 3.05. NWSC shall: (i) improve its billing and collection efficiency to at least the following percentages by the end of each of its fiscal years: 66% in FY 1995, 77% in FY 1997 and 82% in the subsequent years; (ii) maintain efficient billing operations so that arrears on total billing are no more than three months: and (iii) reduce arrears by consumers by continuing to promptly disconnect the supply of water to delinquent consumers. Section 3.06. NWSC shall complete: (a) not later than September 30, 1995, a water demand study in Jinja and Njeru; and (b) not later than September 30, 1996, a limnological study in Jinja, Njeru, Kampala and Entebbe. Section 3.07. NWSC shall prepare and implement a resettlement program, satisfactory to the Association and duly approved by the appropriate agencies of the Borrower, for the relocation, including -4- compensation, of all families living on sites required for the carrying out of Part B of the Project. Section 3.08. NWSC shall be fully responsible for the operation, maintenance and replacement (OMR) functions for water supply and sewerage through revenue collected from tariffs. Section 3.09. NWSC shall carry out upgrading or construction of pit latrines, septic tanks and public latrines and hygiene education, in collaboration with MOH and MOLG and under the overall responsibility of (i) Jinja Municipal Council, for activities in Jinja, and (ii) Njeru Town Council in collaboration with DWD, for activities in Njeru. ARTICLE IV Financial Covenants Section 4.01. (a) NWSC shall maintain records and accounts adequate to reflect, in accordance with sound accounting practices, its operations and financial condition. (b) NWSC 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 - 5 - thereof, as the Association shall from time to time reasonably request. Section 4.02. Except as the Association shall otherwise agree, NWSC shall undertake a valuation of the fixed assets of the water supply and sewerage facilities in Jinja and Njeru by June 30, 1997 in accordance with sound methods of valuation, acceptable to the Association. Section 4.03. (a) NWSC shall take all necessary actions to adjust, as and when necessary, the level or structure of its tariffs, to ensure that funds will be generated from internal sources equivalent to at least 20% of its capital expenditures. (b) Except as the Association shall otherwise agree, NWSC shall, for each of its fiscal years after its fiscal year ending on June 30, 1994, produce funds from internal sources equivalent to not less than 20% of NWSC's capital expenditures for the relevant fiscal year. (c) Before July 31 in each of its fiscal years, starting July 31, 1994, NWSC shall, on the basis of forecasts prepared by NWSC 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. (d) If any of such review shows that NWSC would not meet the requirements set forth in paragraph (a) for NWSC' s fiscal years covered by such review, NWSC shall promptly take all necessary measures (including, without limitation, adjustments, on a quarterly or more frequent basis, if required, of the structure or levels of its rates) in order to meet such requirements. (e) For the purpose 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 contributions in aid of construction, net non-operating income; and -6- (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, 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 "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (iv) The term "capital expenditures" means all expenditures incurred on account of fixed assets, including interest charged to construction, related to operations. (v) 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. -7- 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 Associatior, and of NWSC 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 15 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 NWSC 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 NWSC: National Water and Sewerage Corporation P.O. Box 7053 Kampala, Uganda Cable address: Telex: WATERS 61265 NATURAL Kampala 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 NWSC, or by NWSC on behalf of the Borrower under the Development Credit Agreement, may be taken or executed by the Managing Director or such other person or persons as the Managing Director shall designate in writing, and NWSC 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. -9- 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 IS c',a'nz C'Y S: X Y-O Regional Vice President Africa NATIONAL WATER AND SEWERAGE CORPORATION By Auhorz' e Reprseat 7 Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Bank for Reconstruction and Development and the International Development Association. FOR SECRETARY