Page 1 CONFORMED COPY LOAN NUMBER 3262 MOR (Second Rural Electrification Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and NATIONAL ELECTRICITY AUTHORITY Dated June 14, 1991 LOAN NUMBER 3262 MOR PROJECT AGREEMENT AGREEMENT, dated June 14, 1991, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and NATIONAL ELECTRICITY AUTHORITY (ONE). WHEREAS (A) by the Loan Agreement of even date herewith between Kingdom of Morocco (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred fourteen million dollars ($114,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that ONE agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary financing agreement to be entered into between the Borrower and ONE, part of the proceeds of the loan provided for under the Loan Agreement and amounting to a total equivalent to seventeen million five hundred thousand dollars ($17,500,000) will be made available to ONE on the terms and conditions set forth in said Subsidiary Financing Agreement; and Page 2 WHEREAS ONE, in consideration of the Bank's entering into the Loan 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 Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. ONE declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, electric power and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Bank 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 Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. ONE shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisi- tion, respectively) in respect of the Project Agreement. Section 2.04. ONE shall duly perform all its obligations under the Subsidiary Financing Agreement. Except as the Bank shall otherwise agree, ONE 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) ONE shall, at the request of the Bank, exchange views with the Bank with regard to progress 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 Loan. (b) ONE shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by ONE of its obligations under this Agreement and under the Subsidiary Financing Agreement. ARTICLE III Management and Operations of ONE Section 3.01. ONE shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, electric power and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. ONE 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, Page 3 electric power and public utility practices. Section 3.03. ONE shall: (a) carry out a study, under terms of reference satisfactory to the Bank, to identify, evaluate and recommend suitable measures to ensure that ONE is adequately insured against such risks and in such amounts as shall be consistent with appropriate practices; (b) complete said study and furnish to the Bank not later than June 30, 1992, a copy of said study; and (c) afford the Bank a reasonable opportunity to exchange views with ONE on said study, and thereafter, but in any event not later than December 31, 1992, implement such recommendations based on said study as shall be acceptable to the Bank. Section 3.04. ONE shall: (a) prepare and furnish to the Bank not later than October 31 in each of its fiscal years its proposed multi-year investment program together with a proposed plan for the financing of said investment program, as they shall have been approved by the Borrower; and (b) afford the Bank a reasonable opportunity to exchange views with ONE on said investment program and financial plan, and thereafter carry out said investment program, with due diligence and efficiency, taking into account the Bank's comments on said program and related financing plan. ARTICLE IV Financial Covenants Section 4.01. (a) ONE shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) ONE shall: (i) have its records, accounts and financial state- ments (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 Bank; (ii) furnish to the Bank as soon as available, but in any case not later than seven (7) 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 Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, ONE shall produce funds from internal sources related to electric power operations equivalent to not less than 25%, for its fiscal year 1990, and not less than 30%, for each of its fiscal years thereafter, of the annual average of ONE's capital expenditures related to electric power operations incurred, or expected to be incurred, for that year, the previous fiscal year and the next following fiscal year. (b) Before October 31 in each of its fiscal years, ONE shall, on the basis of forecasts prepared by ONE and satisfactory to Page 4 the Bank, review whether it would meet the requirements set forth in paragraph (a) of this Section in respect of such year and the next following fiscal year and shall furnish to the Bank a copy of such review upon its completion. (c) If any such review shows that ONE would not meet the requirements set forth in paragraph (a) of this Section for ONE's fiscal years covered by such review, ONE 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 operating revenues; and (B) the sum of all expenses related to opera- tions, including administration, adequate maintenance and taxes and payments in lieu of taxes (excluding provision for depreci- ation and other non-cash operating charg- es), debt service requirements, all cash dividends and other cash contributions of surplus, increase in working capital other than cash 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 "working capital other than cash" means the difference between current assets excluding cash and current liabilities at the end of each fiscal year. (iv) The term "current assets excluding cash" means all assets other than cash which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inventories and pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (v) The term "current liabilities" means all liabil- ities which will become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, customer advances, debt service re- quirements, taxes and payments in lieu of taxes, and dividends. (vi) The term "debt service requirements" means the aggregate amount of repayments (including sink- ing fund payments, if any) of, and interest and other charges on, debt. (vii) The term "capital expenditures" means all expen- Page 5 ditures incurred on account of fixed assets, including interest charged to construction, related to operations. (viii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in anoth- er 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 accept- able to the Bank. Section 4.03. (a) Except as the Bank shall otherwise agree, ONE shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ONE shows that the estimated net revenues of ONE for each fiscal year during the term of the debt to be incurred shall be at least 1.5 times the estimated debt service requirements of ONE in such year on all debt of ONE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ONE 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 and net non- operating income; and (B) the sum of all expenses related to opera- tions including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depre- ciation, 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; (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 of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) The term "reasonable forecast" means a forecast prepared by ONE not earlier than three months prior to the incurrence of the debt in question, which both the Bank and ONE accept as reasonable and as to which the Bank has notified ONE of its Page 6 acceptability, provided that no event has oc- curred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condi- tion or future operating results of ONE. (vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in anoth- er 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 accept- able to the Bank. Section 4.04. The provisions of Sections 4.02 and 4.04 of the ONE Project Agreement dated June 21, 1989 between the Bank and ONE for a Power Distribution Project (Loan No. 2910 MOR) are hereby amended to read as set forth in Sections 4.02 and 4.03 of this Agreement, respectively. Section 4.05. (a) ONE shall promptly bill the Borrower's public agencies so as to enable said agencies to fulfill the obligations set forth in Part B.1 (b) of Schedule 5 to the Loan Agreement in accordance with the provisions of said Part B. (b) For purposes of this Section, the term "public agencies" means the Borrower's ministries, departments and political or administrative subdivisions. Section 4.06. In accordance with its policy to recover the capital costs of the connection works for low-voltage consumers to be carried out under the Project from the consumers benefitting from said works, and taking into account the need to provide incentives to encourage the efficient use of electricity by said consumers and to relate the fees levied on such consumers to their ability to pay, ONE shall promptly upon the completion of the connection works for each village under Part A of the Project, and in order to recover said connection costs in full, impose and collect from the consumers benefitting from said works a monthly connection fee equal to at least 1.5% of the cost of said connection. 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 Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of ONE thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify ONE thereof. 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 Page 7 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 Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) For ONE: Office National de l'Electricite 65, rue Aspirant Lafuente Casablanca Kingdom of Morocco Cable address: Telex: OFELEC 22780 M 22603 M 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 ONE, or by ONE on behalf of the Borrower under the Loan Agreement, may be taken or executed by the Chief Executive Officer of ONE or such other person or persons as such Chief Executive Officer shall designate in writing, and ONE shall furnish to the Bank 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 the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Kemal Dervis Acting Regional Vice President Europe, Middle East and North Africa NATIONAL ELECTRICITY AUTHORITY By /s/ S.E. Mohammed Belkhayat Zougari Authorized Representative SCHEDULE 1 Page 8 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part C 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 1985 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in the Kingdom of Morocco may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures 1. Installation and erection works and consumer connection works estimated to cost the equivalent of $500,000 or less per contract, up to an aggregate amount not to exceed the equivalent of $20,000,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Bank. 2. Training materials may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers from at least three different countries eligible under the Guidelines, in accordance with procedures acceptable to the Bank. Part D: Review by the Bank 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 $500,000 or more, the procedures set forth in 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 Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank 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 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 together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 6 to the Loan Agreement. (c) The provisions of the preceding sub-paragraph (b) shall not apply to contracts on account of which the Bank has authorized withdrawals on the basis of statements of expenditures. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist ONE in (A) the preparation of engineering designs for Part A of the Project and (B) the carrying out of the programs referred to in Parts B (1) and B (2) of the Project, ONE Page 9 shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank 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.