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CONFORMED COPY
CREDIT NUMBER 3766 - NEP
GRANT NUMBER H039 - NEP
Project Agreement
(Power Development Project)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
NEPAL ELECTRICITY AUTHORITY
Dated July 9, 2003
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CREDIT NUMBER 3766 - NEP
GRANT NUMBER H039 - NEP
PROJECT AGREEMENT
AGREEMENT, dated July 9, 2003, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and NEPAL ELECTRICITY AUTHORITY (NEA).
WHEREAS (A)by the Development Financing 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 in various currencies equivalent to fifty five million two hundred thousand Special Drawing Rights (SDR 55,200,000), on the terms and conditions set forth in the Development Financing Agreement, but only on condition that NEA agrees to undertake such obligations toward the Association as are set forth in this Agreement;
(B)by a subsidiary financing agreement to be entered into between the Borrower and NEA, part of the proceeds of the Financing provided for under the Development Financing Agreement will be made available to NEA on the terms and conditions set forth in the Subsidiary Financing Agreement; and
WHEREAS NEA, in consideration of the Association’s entering into the Development Financing 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 Financing Agreement and in the General Conditions (as so defined in the Development Financing Agreement) have the respective meanings therein set forth.
ARTICLE II
Execution of Part C 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 Financing Agreement, and, to this end, shall carry out Part C of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, social and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part C 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 PartC 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 Part C of the Project and to be financed out of the proceeds of the Financing shall be governed by the provisions of Schedule 1 to this Agreement.
Section 2.03. (a) 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 Part C of the Project.
(b)For the purposes of Section 9.07 of the General Conditions and without limitation thereto, NEA shall:
(i)prepare, on the basis of guidelines acceptable to the Association and furnish to the Association not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Association and NEA, a plan designed to ensure the continued achievement of the objectives of Part C of the Project; and
(ii)afford the Association a reasonable opportunity to exchange views with NEA on said plan.
Section 2.04. NEA shall duly perform all its obligations under the Subsidiary Financing 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 Financing 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 Part C of the Project, the performance of its obligations under this Agreement and under the Subsidiary Financing Agreement, and other matters relating to the purposes of the Financing.
(b)NEA shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Part C of the Project, the accomplishment of the purposes of the Financing, or the performance by NEA of its obligations under this Agreement and under the Subsidiary Financing Agreement.
ARTICLE III
Management and Operations of NEA
Section 3.01. NEA shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and environmental 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 environmental practices.
Section 3.03. NEA 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.
ARTICLE IV
Financial Covenants
Section 4.01. (a) NEA shall maintain a financial management system, including records and accounts, and prepare financial statements, all in accordance with accounting standards acceptable to the Association, consistently applied, adequate to reflect its operations and financial condition and to register separately the operations, resources and expenditures related to Part C of the Project.
(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 auditing standards acceptable to the Association, 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 (6) months after the end of each such year, (A)certified copies of the financial statements referred to in paragraph (a) of this Section, for such year as so audited, and (B) an opinion on such statements and 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 such records, accounts and financial statements, and the audit thereof, and concerning said auditors, as the Association may from time to time reasonably request, including, without limitation of the foregoing, audited Project accounts and financial statements for each fiscal year as soon as available, but not later than six (6) months after the end of such year.
Section 4.02. (a) Without limitation upon NEA’s reporting obligations set out in paragraph 3 of Schedule 2 to this Agreement, NEA shall prepare and furnish to the Association a Financial Monitoring Report (FMR), in form and substance satisfactory to the Association, which:
(i)sets forth sources and uses of funds for Part C of the Project, both cumulatively and for the period covered by said report, showing separately funds provided under the Financing, and explains variances between the actual and planned uses of such funds;
(ii)describes physical progress in Project implementation, both cumulatively and for the period covered by said report, and explains variances between the actualand planned Project implementation; and
(iii)sets forth the status of procurement under Part C of the Project, as at the end of the period covered by said report.
(b)The first FMR shall be furnished to the Association not later than 45 days after the end of the first Fiscal Year trimester after the Effective Date, and shall cover the period from the incurrence of the first expenditure under the Project through the end of such first Fiscal Year trimester; thereafter, each FMR shall be furnished to the Association not later than forty five (45) days after each subsequent Fiscal Year trimester, and shall cover such Fiscal Year trimester.
Section 4.03. (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, shall be at least 1.2 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 all debt incurred by NEA, except debt incurred in the ordinary course of business and maturing by its terms on demand or less than one (1) year after its incurrence;
(ii)the term “incur” with reference to any debt includes any modification of the terms of payment of such debt; debt shall be deemed to be incurred (A) under a contract or loan agreement, on the date such contract or loan agreement providing for such debt is entered into, and (B) under a guarantee agreement, on the date the agreement providing for such guarantee is entered into but shall be only counted to the extent that the underlying debt is outstanding;
(iii)the term “net revenues” means gross revenues from operations and net non-operating income less all operating and other expenses, including adequate maintenance and administrative expenses (including taxes, if any), but before provision for depreciation and debt-service requirements; and
(iv)the term “debt-service requirements” means the aggregate amount of principal amortized (including sinking-fund payments, if any), interest and other charges on debt.
Section 4.04. (a) Except as the Association may otherwise agree, NEA shall take all actions as shall be necessary, including tariff adjustments, to achieve an annual rate of return on the average of the historical net fixed assets of NEA in operation of not less than six percent (6%).
(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 the above paragraph (a) of this Section 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 the above paragraph (a) of this Section for NEA’s Fiscal Years covered by such review, NEA shall promptly take all necessary measures in order to meet such requirements.
(d)For the purpose of this Section:
(i)the annual rate of return shall be calculated by relating the operating income for the Fiscal Year in question to the average of the historical net fixed assets of NEA in operation at the beginning and at the end of such Fiscal Year;
(ii)the term “historical net fixed assets of NEA in operation” shall mean the gross book value of such assets (including capitalized interest during construction), less the amount of accumulated depreciation based on historic cost asset values; and
(iii)the term “operating income” shall mean the difference between: (i) gross revenues related to NEA’s services; and (ii) the operating and administration expenses (including taxes, if any), adequate maintenance and depreciation but excluding interest and other charges on debt.
Section 4.05. NEA shall take appropriate measures to maintain its net accounts receivable at no more than three (3) months of sales equivalent, and accounts payable at no more than three (3) months of cost of sales equivalent.
Section 4.06. NEA shall commission and complete an independent appraisal of its assets by December 31, 2004.
Section 4.07. NEA shall submit to the Association not less than three (3) months prior to the commencement of each Fiscal Year financial projections for the next seven(7) years, including an analysis of the manner in which the covenants contained in Sections 4.04 and 4.05 of this Agreement shall be satisfied.
Section 4.08. Except as the Association shall otherwise agree, NEA shall not declare any dividend nor pay any dividend on its share capital nor make any other distribution with respect to its share capital unless it has satisfactorily complied with the covenants contained in Sections 4.03 through 4.07 of this Article for the preceding two (2) fiscal years from the date of such payment or distribution.
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 Financing 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 Financing Agreement shall terminate in accordance with its terms; or
(ii)the date twenty (20) years after the date of this Agreement.
(b)If the Development Financing 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:Facsimile:
INDEVAS248423 (MCI) or(1-202) 477-6391
Washington, D.C. 64145 (MCI)
For NEA:
Nepal Electricity Authority
Durbar Marg
Kathmandu, Nepal
Cable address:Facsimile:
VIDYUT977-1-4266673
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 Kathmandu, Nepal, as of the day and year first above written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Kenichi Ohashi
Country Director
NEPAL ELECTRICITY AUTHORITY
By /s/ Janak Lal Karmacharya
Authorized Representative
SCHEDULE 1
Procurement and Consultants’ Services under Part C of the Project
Section I.Procurement of Goods and Works
Part A:General
Goods and works shall be procured in accordance with the provisions of Section I of the “Guidelines for Procurement under IBRD Loans and IDA Credits” published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines) and the following provisions of the following provisions of this Section I.
Part B:International Competitive Bidding
1.Except as otherwise provided in Part C of this Section, goods and works shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto.
2.The following provisions shall apply to goods and works to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B:
(a)Preference for domestically manufactured goods and domestic contractors
The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower and works to be carried out by domestic contractors.
(b)Notification and Advertising
The invitation to bid for each contract estimated to cost $200,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines.
Part C:Other Procurement Procedures
1.National Competitive Bidding
(a)Works estimated to cost less than $500,000 equivalent per contract, up to an aggregate amount not to exceed $1,500,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines.
(b)For the purpose of the procurement referred to in (a) above, the following shall be observed:
(i)only the model bidding documents for NCB agreed with the Bank (as amended from time to time) shall be used;
(ii)invitations to bid shall be advertised in at least one national newspaper with a wide circulation, at least 30 days prior to the deadline for submission of bids;
(iii)bid documents shall be made available, by mail or in person, to all who pay the required fee;
(iv)foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to any bidders in the bidding process when competing with the foreign bidders, state owned enterprises, or small scale enterprises;
(v)qualification criteria shall be stated in bidding documents, and, if registration process is required, a foreign bidder declared as the lowest evaluated responsive bidder shall be given a reasonable opportunity of registering, without let or hindrance;
(vi)bid shall be opened in public in one location, immediately after the deadline of the submission of bids;
(vii)bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association;