CREDIT NUMBER 2696 MAI Project Agreement (Railways Restructuring Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and MALAWI RAILWAYS (1994) LIMITED Dated /f9 1995 CREDIT NUMBER 2696 MAI PROJECT AGREEMENT AGREEMENT, dated I, 1995, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and MALAWI RAILWAYS (1994) LIMITED (MR(M)). WHEREAS (A) by the Development Credit Agreement of even date herewith between Republic of Malawi (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to eleven million two hundred thousand Special Drawing Rights (SDR 11,200,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that MR(M) 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 MR(M), a portion of the proceeds of the credit provided for under the Development Credit Agreement will be madeF available to MR(M) on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS MR(M), 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 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 H Execution of the Project Section 2.01. MR(M) 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 Part B of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and railway management practices, and -2- shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part B of the Project. 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. MR(M) 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 this Agreement and Part B of the Project. Section 2.04. MR(M) shall duly perform all its obligations under the MR(M) Subsidiary Loan Agreement. Except as the Association shall otherwise agree, MR(M) shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the MR(M) Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) MR(M) shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the MR(M) Subsidiary Loan Agreement and other matters relating to the purposes of the Credit. (b) MR(M) 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 MR(M) of its obligations under this Agreement and under the MR(M) Subsidiary Loan Agreement. (c) MR(M) shall: (i) prepare and furnish to the Association quarterly and annual Project progress reports, (ii) on February 1 of each year of Project implementation conduct an annual review to assess, with the Borrower and the Association, progress achieved in Project implementation, and (iii) not later than February 28, 1996 conduct jointly with the Borrower, the Association, MR and MLS a comprehensive review of the Project pursuant to Section 3.06 of the Development Credit Agreement. Section 2.06. MR(M) shall take all measures necessary to strengthen its supplies department in order to ensure the carrying out of procurement in accordance with the procedures specified in Schedule 3 to the Development Credit Agreement, including the use of standard bidding documents for all items to be procured under international -3- competitive bidding procedures and consultants' standard forms of contract for complex consultant assignments. ARTICLE III Management and Operations of MR(M) Section 3.01. MR(M) shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and railway management practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. MR(M) 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 railway management practices. Section 3.03. MR(M) 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. Section 3.04. MR(M) shall: (a) duly perform all its obligations under the Nacala Route Operations Agreement and the Performance Agreement; and (b) carry out Part B of the Project in a manner consistent with the Implementation Plan referred to in Paragraph I of Schedule 4 to the Development Credit Agreement. Section 3.05. MR(M) shall not undertake any investments estimated to cost more than the equivalent of $200,000, without prior consultation with, and the concurrence of the Association. ARTICLE IV Financial Covenants Section 4.01. (a) MR(M) shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) MR(M) shall: -4- (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) and Special Account "A" for each fiscal year audited, in accordance with appropriate auditing principles 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 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 information concerning said records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. 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 MR(M) 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 thirteen (13) 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 MR(M) 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. -5- 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: INDEVAS 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) For MR(M): Malawi Railways (1994) Limited P.O. Box 5144 Limbe Malawi Telex: 44810 MI 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 MR(M) may be taken or executed by the General Manager or such other person or persons as the General -6- Manager shall designate in writing, and MR(M) 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 the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By ' 4Regional Vice President Africa MALAWI RAILWAYS (1994) LIMITED By Rdebai Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International - Development Association. FOR SECRETARY