TLOAN NUMBER 1976 KE Loan Agreement (Railway Project) between REPUBLIC OF KENYA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated / , 1981 ÿþLOAN NUMBER 1976 KE LOAN AGREEMENT AGREEMENT, dated , 1981, between REPUBLIC OF KENYA (hereinafter called the Borrower) and INTER- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Project will be carried out by Kenya Railways Corporation (hereinafter called KRC) with the Borrower's assis- tance and, as part of such assistance, the Borrower will make available to KRC the proceeds of the Loan as hereinafter provided; (C) the Borrower has contracted from the African Deve- lopment Bank (hereinafter called AfDB) a loan (hereinafter called the AfDB Loan) in an aggregate amount equivalent to thir- teen million dollars ($13,000,000), to be made available to KRC and of which an amount equivalent to about seven million five hundred thousand dollars ($7,500,000) shall be provided to assist in financing Parts D and E of the Project, on the terms and conditions set forth in an agreement (hereinafter called the AfDB Loan Agreement) entered into between the Borrower and AfDB; (D) the Borrower has contracted from Kreditanstalt für Wiederaufbau (hereinafter called KfW) loans (hereinafter called the KfW Loans) in an aggregate amount equivalent to sixteen million seven hundred thousand dollars ($16,700,000) to assist in financing Parts C, D and E of the Project on the terms and conditions set forth respectively In the agreements (hereinafter called the KfW Loan Agreements), entered into between the Borrower and KfW; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in a project agreement of even date herewith between the Bank and KRC; NOW THEREFORE the parties hereto hereby agree as follows: - 2 - ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated October 27, 1980 with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agree- ments of the Bank being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "EARC" means the East African Railways Corporation, a corporation established under the East African Railways Corporation Act, 1967 (an act of the East African Community); (d) "KRC" means the Kenya Railways Corporation, a corpora- tion established and existing pursuant to the Kenya Railways Corporation Act, 1978 (No. 1 of 1978), of the Borrower (herein- after called the KRC Act); (c) "Project Agreement" means the agreement between the Bank and KRC of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Project Agreement and all agreements supplemental to the Project Agreement; (d) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and KRC 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 Subsidiary Loan Agreement; (e) "Ksh" means Kenya Shillings, the currency of the Borrower; and (f) "Fiscal Year" and "FY" mean KRC's fiscal year, which begins January 1 and ends December 31 in each year. - 3 - ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to fifty-eight million dollars ($58,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expendi- tures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and technical assistance services required for the Project and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Loan, shall be governed by the provisions of the Schedule 1 to the Project Agreement. Section 2.04. The Closing Date shall be December 31, 1985, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Bank a commit- ment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of nine and three-fifths per cent (9-3/5%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semiannually on March 1 and September 1 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.09. The Managing Director of KRC is designated as representative of the Borrower for the purposes of taking any 4- action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause KRC to perform in accordance with the provisions of the Project Agreement all the obligations therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, land and all rights in respect of land, services and other resources, necessary or appropriate to enable KRC 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 proceeds of the Loan to KRC under a subsidiary loan agreement to be entered into between the Borrower and KRC, under terms and conditions which shall have been approved by the Bank and which shall provide for, inter alia, repayment over 20 years including 5 years' grace, interest at the rate of not less than ten per cent (10%) per annum and assumption of the foreign exchange risk by KRC. (c) The Borrower shall exercise its rights under the Sub- sidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, nor amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. (d) Without limitation or restriction upon the generality of the provisions of Section 3.01 (a) of this Agreement, the Borrower shall take all such measures required on its part to enable KRC to carry out its obligations pursuant to Sections 4.07 and 4.09 of the Project Agreement. Section 3.02. (a) For the purposes of achieving optimal distribution of traffic between road and rail, and not later than January 1, 1982, the Borrower shall implement or cause to be implemented all such measures as shall have been agreed upon -5- between the Borrower and the Bank on the basis of the recommenda- tions of the Study of Road User Charges carried out pursuant to Part E of Schedule 2 to the Loan Agreement dated April 30, 1979, between the Borrower and the Bank under Loan 1684 KE. (b) For the purposes of enabling KRC to efficiently carry out Parts I (5), I (6) and I (7) of the Project and fulfill its obligations pursuant to Section 2.01 (b) of the Project Agreement, the Borrower shall forward to KRC, promptly upon its receipt thereof, copies of all recommendations and reports (including consultants' recommendations and reports), records and any other data relevant to the railway sector which shall have been prepared or obtained under the Study of Road User Charges referred to in Section 3.02 (a) of this Agreement. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distri- bution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such -6- property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. Except as the Borrower and the Bank may other- wise agree and without limitation or restriction upon any other provision set forth in this Agreement or in the Project Agreement, the Borrower shall: (a) periodically review and discuss with the Bank any future investments affecting the railway sector which it proposes to undertake; and (b) before undertaking or approving any capital investments not included in the Investment Plan set forth in Schedule 3 to the Project Agreement, furnish to the Bank for its review and comment, detailed information on the financial, technical and economic justification of the investment the Borrower proposes to make or approve and afford the Bank a reasonable opportunity to exchange views with the Borrower on the justification of such capital investment. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof, namely that: (a) the KRC Act shall have been suspended, abrogated, repealed or amended in a manner which would, in the Bank's reason- able opinion, materially and adversely affect the operations of KRC; (b) the Borrower shall have taken any action in connection with the assets or liabilities of EARC pursuant to the KRC Act, or -7- any other action which, in the reasonable opinion of the Bank, is inconsistent with the Letter Agreement dated January 25, 1978, among the Borrower, the United Republic of Tanzania, the Republic of Uganda and the Bank; (c) KRC shall have failed to perform any covenant, agree- ment or obligation of KRC under the Project Agreement; (d) an extraordinary situation shall have arisen which shall make it improbable that KRC will be able to perform its obligations under the Project Agreement; (e) he Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of KRC or for the suspension of its operations; (f) (i) Subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower to withdraw the proceeds of the AfDB Loan or any of the KfW Loans made to the Borrower for the financing of the Project shall have been suspended, can- celled or terminated, in whole or in part, pursuant to the terms of the AfDB Loan Agree- ment and the KfW Loan Agreements, respec- tively; or (B) the AfDB Loan or any of the KfW Loans shall have become "ue and payable prior to their respective agreed maturity; (ii) Subparagraph (i) of this paragraph shall not apply if: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under the AfDB Loan Agreement or any of the KfW Loan Agreements; 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 and of KRC under the Project Agreement; (g) subject to subparagraph (ii) (B) of Section 5.01 (f) of this Agreement, the conditions precedent to initial disbursement of the proceeds of the AfDB Loan shall not have been fulfilled by - 8 - September 1, 1981, or such other date as the Borrower and the Bank may otherwise agree; and (h) subject to subparagraph (ii) (B) of Section 5.01 (f) of this Agreement, the respective conditions precedent to the initial disbursements of the proceeds of each of the KfW Loans, shall not have been fulfilled by September 1, 1981, or such other date as the Borrower and the Bank may otherwise agree. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof, namely that: (a) any event specified in paragraphs (a), (b), (c), (g) or (h) 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 Bank to the Borrower and KRC; and (b) any event specified in paragraphs (e) or (f) (i) (B) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an addi- tional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely that the Subsidiary Loan Agreement has been duly executed and delivered on behalf of the Borrower and of KRC, respectively, and duly authorized or ratified by all necessary governmental or corporate action. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of the Borrower and KRC, respectively, and is legally binding and enforceable upon the Borrower and KRC in accordance with its terms. Section 6.03. The date &- A ) , is hereby speci- fied for the purposes of SectiA 12.04 of the General Conditions. - 9 - ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Minister of the Borrower for the time being responsible for finance 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: The Treasury P.O. Box 30007 Nairobi, Kenya Cable address: Telex: FINANCE 22003 Nairobi For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the - 10 - District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF KENYA By 4 V Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By (9 Regional Vice President Eastern Africa - 11 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Track rehabilitation, 100% of for- and construction mate- eign expendi- rials, spare parts and tures and 100% equipment: of local expenditures (ex-factory) (a) under Parts A 45,000,000 through D of the Project (exclud- ing Parts A.1 (ii), and C of the Project) (b) under Part A.1 1,100,000 (ii) of the Project (c) under Part G 900,000 or the Project (2) Training, Studies and 3,400,000 100% of for- Technical Assistance eign expendi- under Parts H and I tures and 80% of the Project of local ex- penditures (3) Unallocated 7t600,000 TOTAL 58,000,000 - 12 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than 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. The disbursement percentages have been calculated in com- pliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. 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, except that withdrawals, in an aggregate amount not exceeding the equivalent of $200,000 may be made in respect of Category (2) on account of payments for such expenditures under Part I (7) of the Project made before that date but after September 1, 1980; and (b) expenditures for goods under Part A (1) (ii) of the Project, unless KRC has established to the satisfaction of the Bank the economic justification for rehabilitating the Kitale- Eldoret branch line pursuant to Section 2.01 (b) of the Project Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: - 13 - (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 14 - SCHEDULE 2 - Description of the Project The Project is designed to assist KRC in carrying out part of its investment plan for FY1979-1983. The Project consists of the following Parts: Part A: Track Rehabilitation (1) Relaying and provision of track to replace: (i) about 150 km of main and branch line track; and (ii) about 25 km of branch line track between Kitale and Eldoret; (2) ballasting and improvements to yards and crossings; and (3) provision of miscellaneous equipment, including maintenance vehicles, machinery and spare parts. Part B: Civil Works Construction and provision of equipment for: (1) a concrete sleeper plant at Nairobi; (2) a station and offices at Mombasa; and (3) a transshipment terminal at Malaba. Part C: Telecommunications Provision of equipment and construction works for the renewal and expansion of the telecommunications network between Mombasa and Nairobi. Part D: Rolling Stock and Spare Parts (1) Provision of about 30 hopper wagons for the trans- portation of soda ash; - 15 - (2) provision of cranes, including 2 emergency break- down cranes and of forklifts for cargo handling; (3) provision of roller bearings for about 150 wagons; and (4) provision of spare parts and materials for the rehabilitation and maintenance of locomotives and wagons. Part E: Workshops and Related Equipment (1) Conversion of the locomotive workshop, located in Nairobi, from steam to diesel traction; (2) provision of specialized machines for the repair of locomotive components; (3) provision of testing equipment for diesel loco- motives and of miscellaneous machinery; (4) construction of, and provision of equipment for, a foundry for melting scrap and manufacturing spare parts; (5) construction of, and provision of equipment for, fueling stations at Voi, Sagana, Kajiado and Kisumu; (6) extension of the diesel depot at Changamwe; and (7) reconstruction of, and provision of equipment for, the carriage and wagon depot at Eldoret. Part F: Water Transport (1) Construction of, and provision of facilities and equipment for, a terminal at Homa Bay; (2) rehabilitation of docks and piers between Homa Bay and Kisumu; and (3) rehabilitation of, and provision of machinery for, the marine workshops at Kisumu. - 16 - Part G: Staff Quarters Construction and provision of facilities for about 295 new apartments at Changamwe and renovation of existing living quarters for KRC staff. Part H: Training (1) The expansion of the railway training school located in Nairobi; and (2) a management training program, in Kenya and abroad, for KRC management personnel. Part I: Studies and Technical Assistance Carrying out studies and implementation of appropriate measures with respect to: (1) the organizational structure of KRC's headquarters and methods to decentralize and improve the effi- ciency and coordination of KRC's operations and commercial services; (2) the area planning of the physical facilities of the workshop located in Nairobi and of its future expansion; (3) the training requirements of KRC staff; (4) the area planning of the physical facilities of the railway training school located in Nairobi; (5) the economic evaluation of alternative modes of transportation of agricultural products between Kisumu and Homa Bay; (6) the transportation of various commodities by road and rail to identify problems in the distribution system and formulate measures for improvement; (7) the present tariff structure and the development of a traffic costing system; and - 17 - (8) a program of technical assistance to strengthen KRC's commercial services and maintenance capabi- lities with respect to locomotives and rolling stock. The Project is expected to be completed by June 30, 1985. - 18 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each March 1 and September 1 beginning September 1, 1986 through September 1, 2000 1,935,000 On March 1, 2001 1,885,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.04), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 19 - Premiums on Prepayment on a 20-Year Loan* The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.45% More than three years but not more than six years before maturity 2.90% More than six years-but not more than eleven years before maturity 5.30% More than eleven years but not more than sixteen years before maturity 7.70% More than sixteen years but not more than eighteen years before maturity 8.65% More than eighteen years before maturity 9.60% * The life of the Loan is calculated from the date of signing of the Loan Agreement until the date of the last maturity rounded to the nearest year. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of Lhe Bank thereunto this -day ofi , 198 L... FOR SECRETARY