CONFORMED COPY CREDIT NUMBER 670 YAR PROJECT AGREEMENT (Sana'a Second Water Supply and Sewerage Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and NATIONAL WATER AND SEWERAGE AUTHORITY Dated January 14, 1977 8 PROJECT AGREEMENT AGREEMENT, dated January 14, 1977, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and the National Water and Sewerage Authority (hereinafter called the Authority). WHEREAS by the Development Credit Agreement of even date herewith between Yemen Arab Republic (hereinafter called the Bor- rower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to ten million dollars ($10,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condi- tion that the Authority agree to undertake such obligations toward the Association as hereinafter set forth; WHEREAS by a subsidiary financing agreement to be entered into between the Borrower and the Authority, part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to the Authority on the terms and conditions therein set forth; and WHEREAS the Authority, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. -3- ARTICLE II Execution of the Project Section 2.01. The Authority shall carry out Parts A, B and C of the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices. Section 2.02. In order to assist the Authority: (a) in the preparation of plans and specifications for, and in the supervision of construction of, Part A of the Project, the Authority shall employ qualified engineering consultants; and (b) in the super- vision of the construction of Part B of the Project and in the preparation of the feasibility studies referred to in Part C (2) of the Project, the Authority shall enploy engineering consul- tants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Borrower and the Asso- ciation. Section 2.03. The Authority shall, not later than December 31, 1977, or such other date as shall be agreed between the Association and the Authority, submit to the Association for its review and comments a study on public conveniences and other sanitation meas- ures required for the population of Sana'a which is not served with sewers under the Project. Section 2.04. The Authority shall: (a) i) monitor continuously the progress of Parts A, B and C of the Project and the attainment of the objectives there- under on the basis of a list of technical, financial, administra- tive and training criteria satisfactory to the Association, and (ii) based on the above, prepare and submit to the Association for its comments progress reports, adequate in scope and form: (A) on a quarterly basis during Project implementation, and (B) on an annual basis thereafter for a period of five years; and (b) promptly implement all such remedial measures considered necessary or useful for ensuring the attainment of the objectives of Parts A, B and C of the Project as the Association shall rea- sonably request on the basis of the aforementioned criteria. S Section 2.05. Except as the Association shall otherwise agree, contracts for the purchase of goods or for civil works to be fi- nanced out of the proceeds of the Credit, shall be procured in accordance with the provisions of the Schedule to this Agreement. Section 2.06. (a) The Authority undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit made available to it by the Borrower against hazards incident to the acquisition, trans- portation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Authority to replace or repair such goods. S S -5- (b) ExceDt as the Association may otherwise agree, the Autho- rity shall cause all goods and services financed out of the pro- ceeds of the Credit made available to it by the Borrower to be used exclusively for the Project. Section 2.07. (a) The Authority shall furnish to the Associa- tion, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement sched- ules for Parts A, B and C of the Project, and any material modifi- cations thereof or additions thereto, in such detail as the Asso- ciation shall reasonably request. (b) The Authority: (i) shall maintain records adequate to record the progress of Parts A, B and C of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit made available to it by the Bor- rower, and to disclose the use thereof in Part B (1), (3) and (4) and C of the Project; (ii) shall, without limitation upon the pro- visions of paragraph (c) of this Section, enable the Association's representatives to visit the facilities and construction sites in- cluded in Parts A, B and C of the Project and to examine the goods financed out of such proceeds and any relevant records and docu- ments; and (iii) shall furnish to the Association all such infor- mation as the Association shall reasonably request concerning Part A, B or C of the Project, the expenditure of the proceeds of the Credit so made available to it and the goods and services financed out of such proceeds. -6- (c) The Authority shall enable the Association's representa- tives to examine all plants, installations, sites, works, buildings, property and equipment of the Authority and any relevant records and documents. Section 2.08. The Authority shall duly perform all its obliga- tions under the Subsidiary Financing Agreement. Except as the Asso- ciation shall otherwise agree, the Authority 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 2.09. (a) The Authority shall, at the request of the Association, exchange views with the Association with regard to the progress of Parts A, B and 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 Credit. (b) The Authority shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of Part A, B or C of the Project, the accomplishment of the purposes of the Credit, or the performance by the Authority of its obligations under this Agreement and under the Subsidiary Financing Agreement. Section 2.10. The Authority shall take all such actions as shall be necessary to acquire, as and when needed, all such land and rights in respect of land as shall be required for carrying out Parts A and B of the Project and shall furnish to the Associ- ation, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to Part A or B of the Project. Section 2.11. The Authority shall provide its low-income cus- tomers whose dwellings are connected to the water supply system with adequate credit facilities to enable them to meet the cost of connecting their dwellings to the fronting sewers. 8 -8- ARTICLE III Management and Operations of the Authority Section 3.01. The Authority shall at all times manage its affairs, maintain its financial position, plan its future expansion and carry out its operations, all in accordance with appropriate administrative, financial and public utility practices and to that end shall employ at all times and in adequate numbers qualified and experienced management and staff. Section 3.02. In order to assist the Authority in implementing appropriate accounting and budgeting procedures and in training its accounting staff, the Authority shall, not later than March 31, 1977, or such other date as may be agreed between the Association and the Authority, employ two financial advisors, whose qualifica- tions, experience and terms and conditions of employment shall be satisfactory to the Association, for a period of not less than three years each, to be assigned, respectively, to the head office and the branch offices of the Authority. Section 3.03. In order to assist the Authority in developing and implementing an appropriate training program for its managerial, technical and clerical staff, the Authority shall, not later than July 1, 1977, or such other date as may be agreed between the As- sociation and the Authority, employ a training expert, whose quali- fications, experience and terms and conditions of employment shall be satisfactory to the Association, for a period of not less than two years. S Section 3.04. The Authority shall, prior to taking over or assuming responsibility for any water supply or sewerage facility, submit to the Association for its review and comments a detailed program in respect of such facility covering, inter alia, descrip- tion of the program of work to be carried out, if any, valuation of the existing assets of the facility, staffing needs and avail- ability of staff, working capital requirements and schedule of estimated capital expenditures together with an identification of the sources therefor and the terms and conditions thereof. Section 3.05. The Authority shall at all times operate, main- tain, renew and repair its facilities, plants, equipment and machinery in accordance with appropriate engineering, public utility and management practices. Section 3.06. The Authority shall at all times take all such action as shall be necessary on its part to acquire, maintain and renew all such rights, powers and privileges as shall be necessary or useful for its operations. Section 3.07. The Authority shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. S - 10 - ARTICLE IV Financial Covenants Section 4.01. The Authority shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. The Authority shall: (i) have its accounts and financial statements (balance sheets, statements of income and ex- penses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently ap- plied, 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 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 Association shall have reasonably requested; and (iii) furnish to the Association such other infor- mation concerning the accounts and financial statements of the Authority and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. (a) Except as the Association may otherwise agree, the Authority shall not incur any debt, other than for money borrowed for financing the Project, unless its net revenues for the fiscal year next preceding such incurrence or for a later - 11 - period of twelve consecutive months ending prior to such incurrence, whichever amount is the greater, shall be not less than 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt, including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" shall mean all debt of the Authority 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 on the date of execution and delivery of a contract, loan agree- ment or other instrument providing for such debt. (iii) The term "net revenues" shall mean the gross reve- nues from water supply and sewerage operations, adjusted to take account of the Authority's rates in effect at the time of the incurrence of debt even though they were not in effect during the fis- cal year or twelve-month period to which such re- venues relate, less all operating and administrative expenses and provision for taxes, if any, but before provision covering depreciation, interest and other charges on debt. (iv) The term "debt service requirement" shall mean the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt. S - 12- (v) Whenever for the purposes of this Section it shall be necessary to value, in terms of Yemeni Rials, debt payable in another currency, such valuation shall be made on the basis of the prevailing rate of exchange as determined by the Central Bank of the Borrower. Section 4.04. (a) The Authority shall take all measures re- quired (including but not limited to the introduction, maintenance and periodic adjustment of tariffs in respect of its water supply and sewerage operations) to realize a positive rate of return in its fiscal year 1978, gradually increasing during its fiscal years 1978 through 1983 so as to reach an annual return of not less than 5% in its fiscal year 1984, and not less than 7-1/2% in its fiscal year 1987 and thereafter on the average net value of the Authority's fixed assets in operation. (b) For the purposes of this Section: (i) The required annual return shall be calculated by using as the denominator in respect of each fiscal year one-half of the sum of the net value of the Authority's fixed assets in service, at the begin- ning and at the end of each such year and as the numerator the Authority's operating income from water supply and sewerage operations for that same year. (ii) The term "net value of the Authority's fixed assets in operation" shall mean the gross value of such S - 13 - assets less accumulated depreciation, all determined in accordance with appropriate methods of valuation, revaluation and depreciation acceptable to the As- sociation. (iii) The term "operating income" shall mean the difference between: (A) gross revenues from water supply and sewerage operations plus other recurring fees and charges associated with water supply and sewerage op- erations; and (B) operating and administrative expenses, includ- ing adequate provision for maintenance, repairs, depreciation of all fixed assets in service and taxes, if any, but before interest and other charges on debt. Section 4.05. The Authority shall, until the completion of the Project: (a) submit each year to the Association, for its review and comments, the Authority's proposed investment program for the next fullowing year well in advance of its adoption; and (b) based on the above, make such modifications in said pro- gran as the Association shall reasonably request. - 1~4- 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 Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of the Authority thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date twenty-two years after the date of this Agreement. (b) If the Development Credit Agreement terminates in ac- cordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify the Authority of this event. Section 5.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. S -15- 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 des- ignated 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: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (wUI) For the Authority: National Water and Sewerage Authority Sana'a Yemen Arab Republic Cable address: Telex: NWSA 208 ASHGAL Sana'a SANA'A - 16 - Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of the Authority may be taken or executed by the Director General of the Authority or such other person or persons as the Director General shall designate in writing. Section 6.03. The Authority shall flurnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of the Authority, take any action or execute any documents required or permitted to be taken or executed by the Authority pursuant to any of the provisions of this Agreement. Section 6.04. This Agreement may be executed in several coun- terparts, each of which shall be an original, and all collectively but one instrument. -17 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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 DEVELOPMENT ASSOCIATION By /s/ Martijn J.W.M. Paijmans Acting Regional Vice President Europe, Middle East and North Africa NATIONAL WATER AND SEWERAGE AUTHORITY By Is! Yahya M. Al-Mutawakel Authorized Representative - 18 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part A.2 hereof, contracts for the pur- chase of goods or for civil works shall be procured in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Notwithstanding the provisions set forth in Part A.1 above, contracts for the purchase of goods and for civil works estimated to cost the equivalent of t50,000 or less each and with an aggre- gate estimated value not exceeding the equivalent of $300,000 may be awarded, following domestic advertising, in accordance with the Borrower's and the Authority's bidding procedures which are acceptable to the Association. B. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs S - 19 - duties and other import taxes on imported goods, and sales and sim- ilar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Authority of inland freight and other expen- ditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Yemen Arab Republic may be granted a margin of preference in accordance with, and subject to, the fol- lowing provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and stages that will be fol- lowed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Yemen Arab Republic if the bidder shall have established to the satisfaction of the Association and the Authority that the manufacturing cost of such goods includes a value added in Yemen Arab ReDublic equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Yemen Arab Republic. - 20 - (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this fur- ther comparison only, an amount equal to (i) the amount of cus- toms duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. - 21 - C. Evaluation and Comparison of Bids for Civil Works; Preference for Domestic Contractors 1. With respect to any contract for civil works included under Category (2) of the table set forth in Schedule 1 to the Credit Agreement and to be procured in accordance with the procedures de- scribed in Part A.1 of this Schedule: (a) Contractors shall be required to provide, as part of the data to be included in their bid, such information, including inter alia details of their experience and past performance on similar contracts, their capabilities with respect to personnel, equipment and plant, and their financial position, as shall be required to determine whether, according to the criteria estab- lished by the Borrower and the Authority and accepted by the Asso- ciation, a particular contractor or group of contractors is capa- ble of carrying out the works under the proposed contract. (b) the Authority may grant a margin of preference of 7-1/2% to domestic contractors provided that contractors applying for such preference shall be asked to provide, as part of the data to be included in their bid, such information, including inter alia details of ownership, as shall be required to determine whether, according to the classification established by the Borrower and the Authority and accepted by the Association, a particular con- tractor or group of contractors qualifies for a domestic preference. The bidding documents shall clearly indicate the preference and the method that will be followed in the evaluation and comparison of bids to give effect to such preference. - 22 - (c) After bids have been received and reviewed by the Authority, responsive bids will be classified into the following groups: (i) bids offered by domestic contractors eligible for preference; and (ii) bids offered by other contractors. For the purpose of evaluation and comparison of bids an amount equal to 7-1/2% of the bid amount shall be added to bids received under group (ii) above. D. Review of Procurement Decisions by the Association With respect to all contracts for the supply of goods and all contracts for civil works to be awarded in accordance with Part A.1 above: (a) Before bids are invited, the Authority shall furnish to the Association, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. S - 23 - (b) After bids have been received and evaluated, the Authority shall, before a final decision on the award is made, inform the Association of the name of the bidder to which it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, on the evaluation and com- parison of the bids received, and such other information as the Association shall reasonably request. The Association shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Authority and state the reasons for such determination. (c) The terms and conditions of the contract shall not, with- out the Association's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract shall be furnished to the Association promptly after its execution and prior to the submission to the Association of the first application for with- drawal of funds from the Credit Account in respect of such contract. 3. With respect to each contract to be financed out of the pro- ceeds of the Credit and not governed by the preceding paragraph, the Authority shall furnish to the Association, promptly after its execution and prior to the submission to the Association of the first application for withdrawal of funds from the Credit Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, and such other S -24- information as the Association shall reasonably request. The Asso- ciation shall, if it determines that the award of the contract was not consistent with this Schedule, promptly inform the Authority and state the reasons for such determination. S