CONFORMED COPY CREDIT NUMBER 551 BA Development Credit Agreement (Telecominunications Project) BETWEEN SOCIALIST REPUBLIC OF THE UNION OF BURMA AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED MAY 30, 1975 CONFORMED COPY CREDIT NUMBER 551 BA Development Credit Agreement (Telecommunications Project) BETWEEN SOCIALIST REPUBLIC OF THE UNION OF BURMA AND INTERNATIONAL DEVELOPMENT ASSOCIATION DATED MAY 30, 1975 DEVELOPMENT CREDIT AGREEMENT AGREEMENT, dated May 30, 1975, between SOCIALIST REPUBLIC OF THE UNION OF BURMA (hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association). WHEREAS (A) The Borrower has requested the Association to assist in the financing of the Project described in Schedule 2 to this Agreement by extending the Credit as hereinafter provided; (B) The Project will be carried out by the Posts and Telecommunications Corporation with the Borrower's assistance and as part of such assistance, the Borrower will make available to the Posts and Telecommunications Corporation the proceeds of the Credit as hereinafter provided; WHEREAS the Association has agreed, on the basis, inter alia of the foregoing, to extend the Credit to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORL the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Development Credit Agreements of the Association, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Development Credit Agreements of the Association 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) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and the Posts and Telecommunications Corporation pursuant to Section 3.01(b) of this Agreement, as such agreement may be amended from time to time, and such terms include all schedules to such agreement; and 4 (b) "P&T" means the Posts and Telecommunications Corporation, established and operating under the laws of the Socialist Republic of the Union of Burma and shall include any successor or successors thereto. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions in the Development Credit Agreement set forth or referred to, an amount in various currencies equivalent to twenty-one million dollars ($21,000,000). Section 2.02. The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule I to this Agreement, as such Schedule may be amended from time to time, for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. Section 2.03. Except as the Association shall otherwise agree, the goods, works and services (other than services of consultants) for the Project to be financed out of the proceeds of the Credit, shall be procured in accordance with the provisions of Schedule 3 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1,980 or such later date as shall be agreed between the Borrower and the Association. Section 2.05. The Borrower shall l1ay to the Association a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Service charges shall be payable semi-annually on January 1 5 and July 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Credit in semi-annual installments payable on each January 15 and July 15 commencing July 15, 1985, and ending January 15, 2025, each installment to and including the installment payable on January 15, 1995 to be one-half of one per cent (1/2 of 1%) of such principal amount, and each installment thereafter to be one and one-half per cent (1-1/2%) of such principal amount. 5 Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. Section 2.09. The Managing Director of P&T or any other person duly authorized in writing by him is designated as representative of the Borrower for the purpose of taking any 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) The Borrower shall cause the Project to be carried out by P&T with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and public utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) The Borrower shall relend to P&T the proceeds of the Credit under a subsidiary loan agreement satisfactory to the Association. Except as the Association shall otherwise agree, such agreement shall provide, inter alia, that P&T shall pay periodically to the Borrower amounts representing (i) interest on the amount relent at an annual rate of eight and one-half per cent (8-1/2%) on the principal amount withdrawn and outstanding from time to time and (ii) amortization of the principal amount relent over a term of twenty-four years including four years of grace, from the date of the Subsidiary Loan Agreement. Section 3.02. (a) The Borrower undertakes to insure, or cause to be insured, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit against hazards incident to the acquisition, transportation 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 Borrower to replace or repair such goods. (b) Except as the Association shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Credit to be used exclusively for the Project. Section 3.03. (a) The Borrower shall furnish, or cause to be furnished, to the Association, promptly upon their preparation, the plans, specifications, reports, 6 contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) The Borrower: (i) shall maintain, or cause to be maintained, records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit, and to disclose the use thereof in the Project; (ii) shall enable the Association's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Credit, P&T's properties and equipment and any relevant records and documents, except such as may appropriately be excluded by the Borrower for reasons of national security; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit and the goods and services financed out of such proceeds. Section 3.04. The Borrower shall take or cause to be taken all such action 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 the Project and shall furnish to the Association, as and when required by the Association, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. ARTICLE IV Other Covenants Section 4.01. (a) The Borrower shall cause P&T, not later than the beginning of P&T's fiscal year 1976/77, to improve its accounting system by revising its accounting procedures to make them more appropriate with an accrual system and to meet current data requirements and thereafter to maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of P&T. (b) The Borrower shall cause P&T to: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by the Director General, Central Audit and Inspection Office, acting on behalf of the Council of Pyithu's Inspectors of the Borrower; (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 7 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 the accounts and financial statements of P&T and the audit thereof as the Association shall from time to time reasonably request. Section 4.02. The Borrower shall cause P&T: (a) to manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with sound administrative, financial, engineering and public utility practices and under the supervision of experienced and competent management assisted by qualified and competent staff; and (b) to take all action reasonably required to maintain and renew all rights, powers, privileges and franchises necessary or useful in the conduct of P&T's business. Section 4.03. The Borrower shall settle, in accordance with an arrangement to be reached with P&T outstanding accounts of the Borrower for telecommunications services owed to P&T and ensure that charges for future services provided to the Borrower shall be promptly paid upon billing by P&T. Section 4.04. The Borrower shall ensure that P&T charges rates for its services in accordance with commercial principles. Section 4.05. (a) Except as the Association shall otherwise agree, the Borrower shall cause P&T to take from time to time all necessary steps as shall be required to provide and maintain revenues from its telecommunications operations sufficient to produce an annual rate of return of 10%. (b) For the purpose of this Section: (i) The annual rate of return shall be calculated by dividing the net operating income of P&T from its telecommunications operations for the fiscal year in question by the average of the value of the net telecommunications fixed assets of P&T in operation at the beginning and at the end of the year in question. (ii) The term "value of the net telecommunication fixed assets in operation" shall mean the gross value of such assets, less the amount of acc,imulated depreciation, as valued from time to 8 time in accordance with sound and consistently maintained methods of valuation, acceptable to both the Borrower and the Association. (iii) The term "net operating income" shall mean the difference between: (A) gross operating revenue accruing from telecommunications operations; and (B) the operating and administration expenses of telecommunications operations, including taxes (if any) or any payment in lieu of taxes (if any), adequate maintenance and straight-line depreciation but excluding interest and other charges on debt. Section 4.06. (a) Except as the Association shall otherwise agree, the Borrower shall ensure that no debt will be incurred by or for the benefit of P&T, unless P&T's net revenues for the fiscal year next preceding the date of such incurrence or for any later twelve-month period ended prior to the date of such incurrence, whichever net revenues are the greater, shall be at least 1.5 times the maximum debt service requirements for any succeeding fiscal year on all debt incurred by or for the benefit of P&T and not cancelled, including the debt to be incurred. (b) For the purposes of this Section: (i) the term "debt" means all debt incurred by or on behalf of P&T, including debt assumed or guaranteed by the Borrower for P&T, except debt incurred in the ordinary course of business and maturing by its terms on demand or less than one year after its incurrence; (ii) the term "incur" with reference to any debt includes any modification of the terms of payment of such debt. Debt shall be deemed to be incurred (A) under a contract or loan agreement, on the date on which the contract or loan agreement providing for such debt is entered into and (B) under a guarantee agreement, on the date the agreement providing for such guarantee shall have been entered into; (iii) the term "net revenues" means total revenues from all sources, adjusted to take account of P&T's tariffs in effect at the time 9 of the incurrence of debt even though they were not in effect during the entire fiscal year or twelve-month period to which such revenues relate, less all operating and other expenses, including adequate maintenance, taxes, if any, other than income taxes, and administrative expenses, but before provision for depreciation and debt service requirements; (iv) the term "debt service requirements" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (v) whenever it shall be necessary to value in the currency of the Borrower debt payable in another currency, such valuation shall be made on the basis of the rate of exchange at which such other currency is obtainable by P&T, at the time such valuation is made, for the purposes of servicing such debt, or, if such other currency is not so obtainable, at the rate of exchange that will be reasonably determined by the Association. Section 4.07. Except as the Association shall otherwise agree, the Borrower shall cause P&T not to apply funds arising out of or obtained in connection with its telecommunications operations for purposes other than its telecommunications operations unless such funds are in excess of its reasonable operational, debt service and investment requirements, including the maintenance of adequate reserves in respect of its telecommunications operations. ARTICLE V Remedies of the Association Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of P&T or for the suspension of its operations, without previous agreement between the Borrower and the Association. (b) The Subsidiary Loan Agreement shall have been amended or abrogated without the previous mutual agreement between the Borrower and the Association. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (d) thereof: 10 any events specified in paragraph (a) or (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 additional condition to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01(b) of the General Conditions, namely, that the execution and delivery of the Subsidiary Loan Agreement on behalf of the Borrower and P&T, respectively, have been duly authorized or ratified by all necessary corporate and governmental action. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02(b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Subsidiary Loan Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and P&T, respectively, and constitutes a valid and binding obligation of the Borrower and P&T in accordance with its terms. Section 6.03. The date August 28, 1975 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.04. The obligations of the Borrower under Sections 4.01 through 4.07 of this Agreement shall cease and determine on the date on which the Development Credit Agreement shall terminate or on a date twenty years after the date of this Agreement, whichever shall be the earlier. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister for Planning and Finance or the Deputy Minister for Planning and Finance of the Borrower 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: Ministry for Planning and Finance Minister's Office Post Office Rangoon Bunna 11 Cable address: FINANCE Rangoon For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. 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 District of Columbia, United States of America, as of the day and year first above written. SOCIALIST REPUBLIC OF THE UNION OF BURMA By /s/ U. Lwin Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ S. M. L. van der Meer Acting Regional Vice President South Asia 12 SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of imported items to be financed out of the proceeds of the Credit and the allocation of amounts of the Credit to each Category: Amount of the Credit Allocated (Expressed in Category Dollar Equivalent) (1) Local and trunk exchange 6,200,000 equipment and subscriber apparatus (2) Local and junction cables 2,400,000 and line plant (3) Microwave and VHF/UHF 7,400,000 systems and multipleK ing equipment (4) Telex and gentex switching 500,000 equipment and teleprinters (5) Vehicles, construction ma- 260,000 chines and other miscel- laneous equipment (6) Unallocated 4,240,000 TOTAL 21,000,000 2. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made in respect of: (a) expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; (b) expenditures prior to the date of this Agreement; and 13 (c) 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. 3. Notwithstanding the allocation of an amount of the Credit set forth in the second column of the table in paragraph I above, if the Association has reasonably estimated that the amount of the Credit then allocated to any Category will be insufficient to finance all expenditures in that Category, the Association may, by notice to the Borrower, reallocate to such Category, to the extent required to meet such estimated shortfall, proceeds of the Credit which are then allocated to another Category and which in the opinion of the Association are not needed to meet other expenditures. 4. If the Association 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 Credit and the Association may, without in any way restricting or limiting any other right, power or remedy of the Association under the Development Credit Agreement, by notice to the Borrower, cancel such amount of the Credit as, in the Association's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Credit. 14 SCHEDULE 2 Description of the Project The Project is P&T's development program for its fiscal years 1976-1979 and consists of: A. Installation of about 17,000 line units of local automatic exchange equipment, including replacement of about 4,300 line units now in existing manual exchanges in twelve cities, thus providing for an additional capacity of about 12,700 line units; B. Installation of cable and associated distribution network equipment to enable connection of about 12,000 new direct exchange lines and for upgrading of the lines of the 3,400 existing subscribers connected to manual exchanges which are being converted to automatic working; C. Purciase and use of subscriber apparatus including about 22,750 automatic telephone instruments; D. Installation of trunk transmission facilities, including microwave radio systems and associated multiplex equipment interconnecting the major centers of Rangoon, Moulmein, Mandalay, Bassein and other important centers along the Irrawaddy River, low capacity radio systems for spur routes for the provincial centers of Akyab and Tavoy, and open wire carrier systems for existing pole routes; E. Installation of automatic trunk switching centers for Rangoon and Mandalay which will provide subscriber trunk dialing to all centers on the microwave route having automatic service and addition of about thirteen manual trunk exchanges at key centers in the network to give improved manual services from and to other communities; F. Installation of about 120 telex and gentex exchange lines and about 80 telex and gentex subscriber units; and G. Purchase of construction vehicles and assorted machines for use in local distribution networks and miscellaneous equipment ancillaries to improve productivity in operation of telephone and telegraph services. The Project is expected to be completed by June 30, 1979. 15 SCHEDULE 3 Procurement A. General Procedures 1. Except as provided in Part A.2 hereof, contracts shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. The following equipment may be procured by negotiation with the original suppliers of the relevant existing telecommunications facilities, provided that the terms and conditions of the contracts so negotiated for such equipment shall be acceptable to the Association: (a) 1,000 lines of switching equipment and associated subscriber apparatus to complete the 10,000 line unit serving the center of Rangoon; (b) equipment required to enable the existing automatic equipment in Rangoon to interwork with new equipment to be procured under paragraph I of this Section; and (c) cable network accessories not exceeding the equivalent of $100,000 which have proved themselves in very wet and humid conditions and are of the type with which the staff of P&T is familiar. B. Review of Procurement Decisions by Association 1. Review of invitation to bid and of proposed awards and final contracts. With respect to all contracts estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower 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. 16 (b) After bids have been received and evaluated, the Borrower 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 the reasons for the intended award and shall furnish to the Association, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the recommendation for award 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 Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked or prequalification invited. (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 withdrawal of funds from the Credit Account in respect of such contract. 2. With respect to each contract to be financed out of the proceeds of the Credit and not governed by the preceding paragraph, the Borrower 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 bids, recommendations for award and such other information as the Association shall reasonably request. The Association shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination.