CONFORMED COPY
CREDIT NUMBER 3771 TA
Project Agreement
(Dar es Salaam Water Supply and Sanitation Project)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
DAR ES SALAAM WATER AND SEWERAGE AUTHORITY
Dated June 23, 2003
- - 1 -
CREDIT NUMBER 3771 TA
PROJECT AGREEMENT
AGREEMENT, dated June 23, 2003, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and DAR ES SALAAM WATER AND SEWERAGE AUTHORITY (DAWASA).
WHEREAS (A)by the Development Credit Agreement of even date herewith between United Republic of Tanzania (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to ______forty-five million Special Drawing Rights (SDR 45,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that DAWASA agree to undertake such obligations toward the Association as are set forth in this Agreement;
(B)by a Subsidiary Agreement to be entered into between the Borrower and DAWASA, part of proceeds of the Credit provided for under the Development Credit Agreement will be on-lent to DAWASA and part of the proceeds provided on a grant and equity basis, on the terms and conditions set forth in the said Subsidiary Agreement; and
WHEREAS DAWASA, 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. (a) DAWASA 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:
(i)carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, environmental, water, sewerage and resettlement practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project;
(ii)duly and punctually perform in accordance with the provisions of the Development Contract, Lease Contract and the DAWASA Subloan Agreement all its obligations therein set forth and shall exercise its rights thereunder in such manner as to protect the interests of the Borrower and the Association and accomplish the purposes of the Credit; and
(iii)cause the Operator to carry out its obligations under the Project, Lease Contract and DAWASA Subloan Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, environmental, water, sewerage and resettlement practices.
(b)Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and DAWASA shall otherwise agree, DAWASA shall carry out 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 the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 1 to this Agreement.
Section 2.03. (a) DAWASA shall carry out or cause to be carried 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 this Agreement.
(b)For the purposes of Section 9.06 of the General Conditions and without limitation thereto, DAWASA shall, in conjunction with the Borrower:
(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 among the Association, the Borrower and DAWASA, a plan for the future operation of the Project designed to ensure its sustainability; and
(ii)afford the Association a reasonable opportunity to exchange views with DAWASA and the Borrower on the said plan.
Section 2.04.Without limitation to its obligations under Section 2.01 of this Agreement, DAWASA shall, for the purposes of making available the counterpart contribution to the financing of the Project:
(a) replenish the Project Account up to the initial amount of seven hundred fifty million Tanzanian Shillings (Tshs 750,000,000) at the end of each Project Quarter until the completion of the Project, or whenever its balance shall be less than two hundred fifty million Tanzanian Shillings (Tshs 250,000,000); and
(b)ensure that amounts deposited into the Project Account shall be used exclusively to make payments to meet expenditures made or to be made in respect of the reasonable cost of goods, works and services for the Project in addition to those financed from the proceeds of the Credit.
Section 2.05. DAWASA shall: (a) duly perform all its obligations under the Subsidiary Agreement and except as the Association shall otherwise agree, DAWASA shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Agreement or any provision thereof; and
(b) enter into the DAWASA Subloan Agreement with the Operator, for purposes of Part D.1 of the Project, under terms and conditions which shall have been approved by the Association which shall include the following:
(i)the principal amount of the subloan shall be the equivalent in Tanzanian Shillings of five million five hundred thousand United States Dollars (US$5,500,000) and shall be repaid by the Operator to DAWASA over a period of ten (10) years, including a grace period of five (5) years with the interest capitalized and repaid under the same terms and conditions as the principal amount; and
(ii)interest shall be charged on the outstanding balance of the subloan at a rate of eleven and one-half per cent (11½%) per annum.
Section 2.06. (a) DAWASA shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Agreement, and other matters relating to the purposes of the Credit.
(b) DAWASA shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by DAWASA of its obligations under this Agreement and under the Subsidiary Agreement.
ARTICLE III
Management and Operations of DAWASA
Section 3.01. DAWASA shall or shall cause the Operator to carry on its operations and conduct its affairs in accordance with sound administrative, engineering, financial and environmental practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers.
Section 3.02. DAWASA shall or shall cause the Operator to 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. DAWASA shall or shall cause the Operator to 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) DAWASA 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 the Project and DAWASA’s general operations.
(b)DAWASA 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 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.
Section 4.02. (a) Without limitation upon DAWASA’s reporting obligations set out in paragraphs 5 and 6 of Schedule 2 to this Agreement, DAWASA shall prepare and furnish to the Association a Financial Monitoring Report, in form and substance satisfactory to the Association, which:
(i)sets forth sources and uses of funds for the Project, both cumulatively and for the period covered by said report, showing separately funds provided under the Credit, 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 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 calendar quarter 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 calendar quarter; thereafter, each FMR shall be furnished to the Association not later than 45 days after each subsequent calendar quarter, and shall cover such calendar quarter.
Section 4.03.Internal Funds Generation: (a) Except as the Association shall otherwise agree, DAWASA shall produce, for each of its Fiscal Years from its Fiscal Year ending on June 30, 2006, an annual average of the funds from internal sources produced for that year and the two previous fiscal years equivalent to not less than 10% of the annual average of the DAWASA's capital expenditures incurred for that year and the two previous Fiscal Years.
(b)Before January 1 in each of its Fiscal Years, DAWASA shall, on the basis of forecasts prepared by DAWASA 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 DAWASA would not meet the requirements set forth in paragraph (a) for DAWASA's Fiscal Years covered by such review, DAWASA 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 related to operations, consumer deposits 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, maintenance and taxes and payments in lieu of taxes (excluding provision for depreciation and other noncash 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 nonoperating 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.
Section 4.04. Leverage: (a) Except as the Association shall otherwise agree, DAWASA shall not incur any debt, if after the incurrence of such debt the ratio of debt to total capitalization shall be greater than 1 to 3.33.
(b)For purposes of this Section:
(i)The term "debt" means any indebtedness of DAWASA 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 "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of DAWASA not allocated to cover specific liabilities.
(iv)The term “total capitalization” means the sum of equity, net amount of deferred grants received from the Borrower, cumulative retained earnings and any revaluation reserves.
(v)Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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.
Section 4.05. Debt Service Coverage: (a) Except as the Association shall otherwise agree, DAWASA shall produce for the Fiscal Year ending June 30, 2008, and each Fiscal Year thereafter, a net revenue equal to at least 1.2 times the estimated debt service requirements of DAWASA in the following Fiscal Year.
(b)Before January 1 in each Fiscal Year, DAWASA shall, on the basis of forecasts prepared by DAWASA and satisfactory to the Association, review whether it would meet the requirements set forth in paragraph (a) of this section in respect of each such Fiscal 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 DAWASA would not meet the requirements set forth in paragraph (a) of this section for DAWASA’s Fiscal Years covered by such review, DAWASA 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 "debt" means any indebtedness of the DAWASA 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, net nonoperating income and the total increase in the annual additional rental fee between that Fiscal Year and the next Fiscal Year, and for purposes of this provision, the term “additional rental fee” means the monthly payment made to DAWASA by the Operator as further defined in Appendix K of the Lease Contract; and
(B)the sum of all expenses related to operations including administration, maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, 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 sinking fund payments, if any) of, and interest and other charges on, debt.
(vi)Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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.
ARTICLE V
Effective Date; Termination;