Page 1 CONFORMED COPY LOAN NUMBER 3551 SEY PROJECT AGREEMENT (Environment and Transport Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and PUBLIC UTILITIES CORPORATION Dated January 15, 1993 LOAN NUMBER 3551 SEY PROJECT AGREEMENT AGREEMENT, dated January 15, 1993, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and PUBLIC UTILITIES CORPORATION (PUC). WHEREAS: (A) by the Loan Agreement of even date herewith between the Republic of Seychelles (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to four million five hundred thousand dollars ($4,500,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that PUC agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and PUC, a portion of the proceeds of the loan provided for under the Loan Agreement will be relent to PUC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS PUC, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the Page 2 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. PUC 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 Part A.1 of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and technical practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part A.1 of the Project. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for Part A.1 of 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. PUC shall carry out the obligations set forth in Sections 9.04 through 9.09 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 A.1 of the Project. Section 2.04. PUC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, PUC 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 2.05. (a) PUC shall participate fully in the mid-term review referred to in Schedule 5 of the Loan Agreement and, to this end, shall: (i) furnish to the Borrower and the Bank such reports as may be required for that purpose, and in such detail as the Borrower or the Bank shall reasonably request, on the progress and status of the Project; and (ii) following each such review, act promptly and diligently, in order to take, or assist the Borrower in taking, any corrective action deemed necessary to remedy any shortcoming noted in the implementation of the Project, or to implement, or assist the Borrower in implementing, such other measures as may have been agreed upon between the parties in furtherance of the objectives of the Project. (b) Without prejudice to the generality of the foregoing, PUC shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A.1 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 Loan. (c) PUC shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A.1 of the Project, the accomplishment of the purposes of the Loan, or the performance by PUC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of PUC Page 3 Section 3.01. PUC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and technical practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. PUC 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 technical practices. Section 3.03. PUC shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) PUC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) PUC 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 Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six 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) PUC shall take necessary steps to ensure, in respect of its water supply works and installations in Praslin, that: (i) its outstanding receivables, in respect of sales of water to domestic and commercial consumers, and to the Borrower, shall not, with effect from the end of 1993, exceed 60 days; (ii) its percentage of unaccounted-for water is reduced to not more than 18%, with effect from the end of 1993, and maintained thereafter at that level or below; (iii) except as the Borrower and the Bank may otherwise agree, PUC shall reduce its ratio of total operating expenses to total operating revenue to not more than 0.85, in 1994, and not more than 0.70, in 1995; (iv) except as the Bank shall otherwise agree, PUC shall earn, for each of its fiscal years after its fiscal year ending on March 31, 1994, an Page 4 annual return of not less than 2% of the average current net value of PUC's fixed assets in operation. (b) Before June 30 in each of its fiscal years, PUC shall, on the basis of forecasts prepared by PUC and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) (iv) above in respect of such year and the next following fiscal year and shall furnish to the Bank the results of such review upon its completion. (c) If any such review shows that PUC would not meet the requirements set forth in paragraph (a) (iv) above for PUC's fiscal years covered by such review, PUC shall promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its tariffs) in order to meet such requirements. (d) For purposes of paragraph (a) (iii) of this Section: (i) the term "total operating expenses" means the sum of all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding interest and other charges on debt, depreciation and other non-cash items; and (ii) the term "total operating revenue" means the revenue from all sources related to operations. (e) For purposes of paragraph (a) (iv) of this Section: (i) the annual return shall be calculated by dividing PUC's net operating income for the fiscal year in question by one half of the sum of the current net value of PUC's fixed assets in operation at the beginning and at the end of that fiscal year; (ii) the term "net operating income" means total operating revenues less total operating expenses; (iii) the term "total operating revenues" means revenues from all sources related to operations; (iv) the term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 2.5% per annum of the average current gross value of PUC's fixed assets in operation, or other basis acceptable to the Bank, but excluding interest and other charges on debt; (v) the average current gross value of PUC's fixed assets in operation shall be calculated as one half of the sum of the gross value of PUC's fixed assets in operation at the beginning and at the end of the fiscal year, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Bank; and (vi) the term "current net value of PUC's fixed assets in operation" means the gross value of PUC's fixed assets in operation less the amount of accumulated depreciation, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Bank. ARTICLE V Page 5 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 PUC thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify PUC 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 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 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For PUC: Public Utilities Corporation P.O. Box 34 Unity House Victoria Republic of Seychelles Telefax: Telex: 248 25255 997 2350 UTLITY SZ 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 PUC, or by PUC on behalf of the Borrower under the Loan Agreement, may be taken or executed by the Executive Chairman of PUC or such other person or persons as the Executive Chairman of PUC shall designate in writing, and PUC 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 Page 6 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/ Francisco Aquirre-Sacasa Regional Vice President Africa PUBLIC UTILITIES CORPORATION By /s/ Marc Marengo Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding 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 1992 (the Guidelines). Part B: Other Procurement Procedures 1. Contracts for the purchase of pumps, up to an aggregate amount equivalent to $50,000, may be awarded after direct negotiations with suppliers, in accordance with procedures acceptable to the Bank. 2. Civil works under Part A.1 of the Project, up to an aggregate amount equivalent to $150,000, may be carried out by force account. Part C: 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 for civil works estimated to cost the equivalent of $100,000 or more, and goods estimated to cost the equivalent of $50,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contracts 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 contracts. (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 contracts are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contracts 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 5 to the Loan Agreement. Page 7 (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Loan Account are to be made on the basis of statements of expenditure. 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 PUC in carrying out Part A.1 of the Project, PUC 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.