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CONFORMED COPY
CREDIT NUMBER 3545-UG
Project Agreement
(Fourth Power Project)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
UGANDA ELECTRICITY GENERATION COMPANY LIMITED
Dated August 29, 2001
CREDIT NUMBER 3545-UG
PROJECT AGREEMENT
AGREEMENT, dated August 29, 2001, between INTERNATIONAL DEVELOPMENT ASSOCIATION 
(the Association) and UGANDA ELECTRICITY GENERATION COMPANY LIMITED (the Generation 
Company)
WHEREAS (A) by the Development Credit Agreement of even date herewith between 
The Republic of Uganda (the Borrower) and the Association, the Association has agreed 
to make available to the Borrower an amount in various currencies equivalent to forty 
eight million Special Drawing Rights (SDR 48,000,000), on the terms and conditions set 
forth in the Development Credit Agreement, but only on conditions that the Generation 
Company agree to undertake such obligations toward the Association as are set forth in 
this Agreement;
(B)
by a subsidiary loan agreement to be entered into between the Borrower 
and the Generation Company, part of the proceeds of the credit provided for under the 
Development Credit Agreement will be made available to the Generation Company on the 
terms and conditions set forth in said Subsidiary Loan Agreement; and
WHEREAS the Generation Company, 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
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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) The Generation Company 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 carry out Parts A.1, A.3 (a), A.4, A.5, and Part B 
of the Project with due diligence and efficiency and in conformity with appropriate 
administrative, financial and engineering practices, and shall provide, or cause to be 
provided, promptly as needed, the funds, facilities, services and other resources 
required for Parts A.1, A.3 (a), A.4, A.5, and Part B of the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Association and the Generation Company shall otherwise agree, the 
Generation Company shall carry out Parts A.1, A.3 (a), A.4, A.5, and Part B of 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 3 to 
the Development Credit Agreement.
Section 2.03. (a) The Generation Company shall carry 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 the Project 
Agreement and Parts A.1, A.3 (a), A.4, A.5, and Part B of the Project
(b)
For the purposes of Section 9.06 of the General Conditions and without 
limitation thereto, the Generation Company shall with respect to Parts A.1, A.3 (a), 
A.4, A.5, and Part B of the Project:
(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 between the Association and the Generation Company, a plan 
for the future operation of Parts A.1, A.3 (a), A.4, A.5, and B of 
the Project; and
(ii)
afford the Association a reasonable opportunity to exchange views 
with the Generation Company on said plan.
Section 2.04. The Generation Company shall duly perform all its obligations 
under the Subsidiary Loan Agreement.  Except as the Association shall otherwise agree, 
the Generation Company 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) The Generation Company shall, at the request of the 
Association, exchange views with the Association with regard to the progress of Parts 
A.1, A.3 (a), A.4, A.5, and B 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 Credit.
(b)
The Generation Company 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 the Generation 
Company of its obligations under this Agreement and under the Subsidiary Loan 
Agreement.
ARTICLE III
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Management and Operations of The Generation Company
Section 3.01. The Generation Company shall carry on its operations and conduct 
its affairs in accordance with sound administrative, financial and engineering 
practices under the supervision of qualified and experienced management assisted by 
competent staff in adequate numbers.
Section 3.02. The Generation Company 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 electric utility practices.
Section 3.03. The Generation Company shall 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) The Generation Company shall maintain, or cause to be 
maintained,  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 Parts A.1, A.3 (a), A.4, A.5, and B of the Project.
(b)
The Generation Company 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 the provisions of Section 4.01 of this 
Agreement, the Generation Company shall carry out a time-bound action plan acceptable 
to the Association for the strengthening of the financial management system referred 
to in paragraph (a) of said Section 4.01 in order to enable the Generation Company, 
not later than September 30, 2001, or such later date as the Association shall agree, 
to prepare quarterly Project management reports, acceptable to the Association, each 
of which:
(i)
(A) sets forth actual sources and applications of funds for Parts  
A.1, A.3 (a), A.4, A.5, and B of the Project, both cumulatively 
and for the period covered by said report, and projected sources 
and applications of funds for Parts A.1, A.3 (a), A.4, A.5, and B 
of the Project for the six-month period following the period 
covered by said report, and (B) shows separately expenditures 
financed out of the proceeds of the Credit during the period 
covered by said report and expenditures proposed to be financed 
out of the proceeds of the Credit during the six-month period 
following the period covered by said report;
(ii)
(A) describes physical progress in the implementation of the 
Project the, both cumulatively and for the period covered by said 
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report, and (B) explains variances between the actual and 
previously forecast implementation targets; and
(iii)
sets forth the status of procurement under Parts A.1, A.3 (a), 
A.4, A.5, and B of the Project and expenditures under contracts 
financed out of the proceeds of the Credit, as at the end of the 
period covered by said report.
(b)
Upon the completion of the action plan referred to in paragraph (a) of 
this Section, the Generation Company shall prepare, in accordance with guidelines 
acceptable to the Association and furnish to the Association not later than 45 days 
after the end of each calendar quarter a Project Management Report for such period.
Section 4.03. (a) Except as the Association shall otherwise agree, of the 
Generation Company shall not incur any debt, unless the net revenues of the Generation 
Company for the fiscal year immediately preceding the date of such incurrence or a 
later twelve-month period ended prior to the date of such incurrence, which ever is 
the greater, shall be at least 1.5 times the estimated maximum debt service 
requirements of the Generation Company for any succeeding fiscal year on all debt of 
the Generation Company, including the debt to be incurred.
(b)
For the purposes of this Section:
(i)
The term "debt" means any indebtedness of the Generation Company 
maturing by its terms more than one year after the date on which 
is it 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 
adjusted to take account of the Generation Company’s rates 
in effect at the time of the incurrence of debt even though 
they were not in effect during the twelve month period to 
which such revenues related and net non-operating income; 
and
(B)
the sum of all expenses related to operations including 
administration, adequate 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 
repayment (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 Borrower, 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
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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 Generation Company 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)
the date 15 years after the date of this Agreement.
(b)
If the Development Credit Agreement terminates in accordance with its 
terms before the date specified in paragraph (a) (ii) of this Section, the Association 
shall promptly notify the Generation Company of this event.
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 Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address: 
Telex:
Facsimile:
    INDEVAS
248423 (MCI) or
(202) 477-6391
    Washington, D.C.
 64145 (MCI)
For Uganda Electricity Generation Company Limited
P.O. Box 1101
Jinja, Uganda
Cable address:
Facsimile
    AMBER HOUSE
256 41 130154
    Kampala Road
    Kampala
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 the Generation 
Company may be taken or executed by the Managing Director or such other person or 
persons as the Managing Director shall designate in writing, and the Generation 
Company shall furnish to the Association 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 
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the District of Columbia, United States of America, as of the day and year first above 
written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Oey Astra Meesook
Acting Regional Vice President
Africa
UGANDA ELECTRICITY GENERATION COMPANY
   LIMITED
By /s/ Edith Ssempala
Authorized Representative
SCHEDULE 1
Implementation Program
1.
Project Implementation Manual
(a)
The Generation Company shall prepare and furnish to the Association a 
Project Implementation Manual in form and substance satisfactory to the Association 
setting out details of all procedures, guidelines, processes, timetables and criteria 
for carrying out Parts A.1, A.3 (a), A.4, A.5, and B of the Project.
(b)
Except as the Association shall otherwise agree, the Generation Company 
shall not amend or waive any provision of the Project Implementation Manual if, in the 
opinion of the Association, such amendment or waiver may materially and adversely 
affect the carrying out of Parts A.1, A.3 (a), A.4, A.5, and B of the Project or the 
achievement of the objectives thereof.  
2.
The Generation Company shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
evaluate on an ongoing basis, in accordance with the indicators set forth in Schedule 
2 to this Agreement the carrying out of Parts A.1, A.3 (a), A.4, A.5, and B of the 
Project and the achievement of the objectives thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and 
furnish to the Association, on or about April 30, 2002, a report integrating the 
results of the monitoring and evaluation activities performed pursuant to paragraph 
(a) of this Section, on the progress achieved in the carrying out Parts A.1, A.3 (a), 
A.4, A.5, and B of the Project during the period preceding the date of said report and 
setting out the measures recommended to ensure the efficient carrying out of Parts 
A.1, A.3 (a), A.4, A.5, and B of the Project and the achievement of the objectives 
thereof during the period following such date; and
(c)
review with the Association, by June 30, 2002, or such later date as the 
Association shall request, the report referred to in paragraph (b) of this Section, 
and, thereafter, take all measures required to ensure the efficient completion of 
Parts A.1, A.3(a), A.4, A.5, and B of the Project and the achievement of the 
objectives thereof, based on the conclusions and recommendations of the said report 
and the Association’s views on the matter.
3.
During the implementation of Parts A.1, A.3 (a), A.4, and A.5 of the Project, 
the Generation Company shall continue to retain the services of duly qualified 
experts, with qualifications and terms of reference satisfactory to the Association, 
to monitor the soundness of the Nalubaale and Kiira Dams at least on an annual basis.
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4.
Throughout the implementation of Parts A.1, A.3 (a), A.4, and A.5 of the 
Project, the Generation Company shall take all measures necessary to ensure that: (i) 
a health clinic will be operational; and (ii) information on HIV/AIDS is made 
available to construction workers.
5.
In carrying out Part B of the Project, the Generation Company shall take all 
measures necessary to comply with the provisions of the EIA.
6.
The Generation Company shall take all measures necessary to enter into the 
Management Services Agreement with UEB.
SCHEDULE 2
PERFORMANCE INDICATORS
Parts A.1, A.3 (a), A.4, and A.5 of the Project
Output indicators:
1.
Contract for Units 14 and/or Unit 15 signed within 2 months after the Effective 
Date.
2.
1 or 2, 40MW units commissioned by early-2004.
3.
Consultant to assist UEB with the implementation of Part A of the Project hired 
within 2 months of the Effective Date.
4.
Study on Unit 15 viability completed by end-2001.
Outcome Indicators:
1.
Load shedding reduced by early 2004.
2.
Annual generation output increased by 50GWh for unit 14 and 45GWh for unit 15 by 
early 2004.
Part B of the Project
Output indicators:
1.
Environment officer hired by mid-2001.
2.
Environmental monitoring equipment procured by mid-2002.
Outcome indicators:
1.
Project site restored and construction infrastructure decommissioned by 
end-2004, including removal of temporary sewage lines, electricity lines, buildings, 
construction materials, used oils, etc.
2.
Health clinic operational throughout implementation period.
3.
HIV/AIDS information provided to construction workers by end-2002.
4.
Environmental issues arising from monitoring activities, if any, (water quantity 
and quality, the biology and ecology of fish populations, siltation, and shoreline 
stability) addressed in a timely manner.
Financial Performance:
1.
Data on financial performance prepared on annual basis.
2.
Data on contributions from internally generated revenue on capital expenditures 
prepared on annual basis.
3.
Data on the annual rate of return on the current net revalued fixed assets in 
operation prepared on annual basis.
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