OFVIC IA CREDIT NUMBER 1082-INDOCUMIENTS

Project Agreement(Second Madras Urban Development Project)

between

INTERNATIONAL DEVELOPMENT ASSOCIATION

and

STATE OF TAMIL NADU

Dated I 198l

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CREDIT NUMBER 1082-IN

PROJECT AGREEMENT

AGREEMENT, dated * ) , 1981, betweenINTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called theAssociation) and the STATE OF TAMIL NADU, acting by its Governor(hereinafter called Tamil Nadu).

WHEREAS by the Development Credit Agreement of even dateherewith between India, acting by its President (hereinaftercalled the Borrower) and the Association, the Association hasagreed to make available to the Borrower an amount in variouscurrencies equivalent to thirty-two million six hundred thousandSpecial Drawing Rights (SDR 32,600,000), on the terms and condi-tions set forth in the Development Credit Agreement, but only oncondition that Tamil Nadu agrees to undertake such obligationstoward the Association as are hereinafter set forth; and

WHEREAS Tamil Nadu, in consideration of the Association'sentering 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:

ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless thecontext shall otherwise require, the several terms defined inthe Development Credit Agreement and in the General Conditions(as so defined) have the respective meanings therein set forthand the following additional terms have the following meanings:

(a) "TNHB" means the Tamil Nadu Housing Board;

(b) "TNSCB" means the Tamil Nadu Slum Clearance Board;

(c) "MMA" means the Madras Metropolitan Area as notifiedunder the Tamil Nadu Town and Country Planning Act, 1971;

(d) "Rs" means rupees in the currency of the Borrower;

(e) "Executing Agencies" means PTC, the Corporation, TNHB,TNSCB, SIDCO, MMDA and the Departments of Public Works, Health,Education, Social Welfare, and Highways and Rural Works of Tamil

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Nadu and shall include such other Agencies and Departments ofTamil Nadu as may be agreed upon between the Association and TamilNadu;

(f) "Sites and Services Revolving Fund" means the Fundestablished pursuant to Section 2.07 (iii) of the First ProjectAgreement and to be maintained for the purposes of this Agreement;and

(g) "Slum Improvement Revolving Fund" means the Fundestablished pursuant to Section 2.08 (iii) of the First ProjectAgreement and to be maintained for the purposes of this Agreement.

ARTICLE II

Execution of the Project

Section 2.01. (a) Tamil Nadu shall carry out, or cause tobe carried out, the Project described in Schedule 2 to theDevelopment Credit Agreement with due diligence and efficiencyand in conformity with appropriate administrative, financial andengineering practices, and shall provide, or cause to be provided,promptly as needed, the funds, facilities, services and otherresources required for the purpose.

(b) Tamil Nadu shall make available to the ExecutingAgencies funds equivalent to the proceeds of the Credit madeavailable by the Borrower to Tamil Nadu on terms and conditionssatisfactory to the Association.

Section 2.02. In order to assist Tamil Nadu in carryingout Part E of the Project, Tamil Nadu shall employ, or cause tobe employed, consultants whose qualifications, experience andterms and conditions of employment shall be satisfactory to theAssociation.

Section 2.03. Except as the Association shall otherwiseagree, procurement of the goods and civil works to be financed outof the proceeds of the Credit shall be governed by the provisionsof the Schedule to this Agreement.

Section 2.04. (a) Tamil Nadu shall cause the ExecutingAgencies to insure, or make adequate provision for the insuranceof, the imported goods to be financed out of the proceeds of theCredit made available to them by Tamil Nadu against hazards

incident to the acquisition, transportation and delivery thereofto the place of use or installation, and for such insurance anyindemnity shall be payable in a currency freely usable to replaceor repair such goods.

(b) Except as the Association may otherwise agree, TamilNadu shall cause all goods and services financed out of theproceeds of the Credit made available to it by the Borrower tobe used exclusively for the Project.

Section 2.05. (a) Tamil Nadu shall furnish, or cause to befurnished, to the Association, promptly upon their preparation,the plans, specifications, reports, contract documents and con-struction and procurement schedules for the Project, and anymaterial modifications thereof or additions thereto, in suchdetail as the Association shall reasonably request.

(b) Tamil Nadu: (i) shall maintain, or cause to bemaintained, records and procedures adequate to record and monitorthe progress of the Project (including its cost and the benefitsto be derived from it), to identify the goods and servicesfinanced out of the proceeds of the Credit, and to disclose theiruse in the Project; (ii) shall enable the Association's accreditedrepresentatives to visit the facilities and construction sitesincluded in the Project and to examine the goods financed out ofthe proceeds of the Credit and any relevant records and documents;and (iii) shall furnish to the Association at regular intervalsall such information as the Association shall reasonably requestconcerning the Project, its cost and, where appropriate, thebenefits to be derived from it, the expenditures of such proceedsand the goods and services financed out of such proceeds.

(c) Promptly after completion of the Project, but in anyevent not later than six months after the Closing Date or suchlater date as may be agreed for this purpose between Tamil Naduand the Association, Tamil Nadu shall prepare and furnish tothe Association a report, of such scope and in such detail asthe Association shall reasonably request, on the execution andinitial operation of the Project, its cost and the benefitsderived and to be derived from it, the performance by Tamil Naduand the Association of their respective obligations under theProject Agreement and the accomplishment of the purposes of theCredit.

(d) Tamil Nadu shall enable the Association'srepresentatives to examine all plants, installations, sites,

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works, buildings, property and equipment related to the Projectand any relevant records and documents.

Section 2.06. (a) Tamil Nadu shall, at the request of theAssociation, exchange views with the Association with regard tothe progress of the Project, the performance of its obligationsunder this Agreement and other matters relating to the purposesof the Credit.

(b) Tamil Nadu shall promptly inform the Association of anycondition which interferes or threatens to interfere with theprogress of the Project, the accomplishment of the purposes ofthe Credit, or the performance by Tamil Nadu of its obligationsunder this Agreement.

Section 2.07. Tamil Nadu undertakes that the investmentsunder Part D (ii) of the Project shall be undertaken only afterthe Association and Tamil Nadu have agreed on the actions to betaken and equipment to be procured.

ARTICLE III

Other Covenants

Section 3.01. Tamil Nadu shall cause TNHB, TNSCB, PTC, SIDCOand the Corporation to take out and maintain with responsibleinsurers, or make other provisions satisfactory to the Associationfor, insurance against such risks and in such amounts as shall beconsistent with appropriate practice.

Section 3.02. Tamil Nadu shall, commencing April 1, 1982,cause TNHB to: (i) limit its annual investment in housing otherthan for the economically weaker sections, to not more than 55% ofits total investment in housing and plot development in MMA; and(ii) construct housing for the economically weaker sections underits MMA program in accordance with physical standards mutuallyacceptable to the Association and Tamil Nadu.

Section 3.03. Tamil Nadu shall cause TNSCB to limit itsannual expenditure on its slum clearance-cum-tenement programduring the period April 1, 1981 to March 31, 1986 to not more thanRs 37,500,000. Such expenditure shall be limited to units requiredfor households in areas which cannot be improved in situ, suchas the right-of-way of the essential transport cor,idors, alongthe water courses regularly subjected to flooding, and in otherareas mutually agreed between the Association and Tamil Nadu.

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Section 3.04. Tamil Nadu shall ensure that in respect of thesites and services to be developed under Part A of the Project,(i) the settler selection criteria, including income levels,(ii) the terms and conditions of sale for plots and housing sites,(iii) the terms and conditions of sale for small industry sitesand sheds, and (iv) the terms and conditions of loans extended bySIDCO for small industry sites, sheds and machinery, shall allbe satisfactory to the Association.

Section 3.05. Tamil Nadu undertakes, in respect of Part B ofthe Project, (i) to recover the costs of land, infrastructure, andservices in improved slums under lease-cum-sale agreements whichallow for the passage of freehold title to residents promptlyafter the payment by such residents of the full amount due forthe plots purchased by them, and (ii) that the charges to slumhouseholds for land and improvement and the terms and conditionsof lease-cum-sale agreements with households in slums improvedunder the Project shall be satisfactory to the Association.

Section 3.06. Tamil Nadu undertakes (i) to cause the revenuesreceived from beneficiaries under lease-cum-sale agreementsentered into pursuant to Part A of the Project to be depositedin the Sites and Services Revolving Fund, and (ii) to causethe revenues received from beneficiaries under lease-cum-saleagreements entered into pursuant to Part B of the Project to bedeposited in the Slum Improvement Revolving Fund.

Section 3.07. Tamil Nadu shall cause: (i) PTC and theCorporation to maintain records adequate to reflect in accordancewith consistently maintained appropriate accounting practicestheir operations and financial condition; (ii) the other ExecutingAgencies to maintain records adequate to reflect in accordancewith consistently maintained appropriate accounting practicestheir operations and financial condition related to the Projector any part thereof; and (iii) MMDA to maintain an overall Projectaccount adequate to reflect the operations of all ExecutingAgencies in respect of the Project.

Section 3.08. Tamil Nadu shall cause: (i) PTC and theCorporation to have their accounts and financial statements(balance sheets, statements of income and expenses and relatedstatements) for each fiscal year audited, in accordance withappropriate auditing principles consistently applied, byindependent auditors icceptable to the Association; (ii) TNHB,TNSCB and SIDCO to have their accounts and financial statements

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(balance sheets, statements of income and expenses and relatedstatements) in respect of the Project for each fiscal yearaudited, in accordance with appropriate auditing principlesconsistently applied, by independent auditors, acceptable to theAssociation; (iii) to be furnished to the Association as soon asavailable, but in any case not later than ten months after theend of each such year, (A) certified copies of the financialstatements for such year as so audited and (B) the report of suchaudit by said auditors, of such scope and in such detail as theAssociation shall have reasonably requested; and (iv) to befurnished to the Association such other information concerning theaccounts and financial statements and the audit thereof as theAssociation shall from time to time reasonably request.

Section 3.09. (a) Except as the Association may otherwiseagree, Tamil Nadu shall cause PTC to take all such action as isnecessary to: (i) maintain a ratio of current assets to currentliabilities (hereinafter referred to as the current ratio) of atleast 1.5:1; (ii) ensure that PTC's operating costs (which shallinclude depreciation but exclude interest and other charges ondebt, corporate taxes and subvention) do not exceed 95% of itsoperating revenues; and (iii) ensure that PTC does not incur anylong-term debt unless the net revenue of PTC for the fiscal yearpreceding the date of such incurrence or for a later twelve-monthperiod ended prior to the date of such incurrence, whichever netrevenue is the greater, shall be not less than 1.5 times themaximum debt service requirements for any succeeding fiscal yearon all long-term debt of PTC including the proposed long-termdebt.

(b) For the purposes of this Section:

(i) the term "long term debt" means all debt incurred,including debt assumed or guaranteed by PTC, exceptdebt incurred in the ordinary course of businessand maturing by its terms on demand or less thanone year after its incurrence;

(ii) the term "incur" with reference to any debtincludes any modification of the terms of paymentof such debt. Debt shall be deemed to be incurred(a) under a contract or loan agreement, on thedate the contract or loan agreement providing forsuch debt is entered and (b) under a guaranteeagreement, on the date the agreement providing forsuch guarantee shall have been entered into;

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(iii) the term "net revenue" means gross revenue fromtransport operations, less all operating expenses,including adequate maintenance, taxes other thancorporate taxes or payments in lieu of taxes, ifany, and administrative expenses, but beforeprovision for depreciation and interest and othercharges on debt; and

(iv) the term "debt service requirements" means theaggregate amount of principal repayments (includingsinking funds payments, if any), interest and otherciflarges on long-term debt.

Section 3.10. Tamil Nadu shall cause the Corporation to:

(1) increase its revenues (excluding revenues fromsurcharge on sales tax and grants from the Borrowerand Tamil Nadu) by at least 8% annually;

(ii) ensure that, until March 31, 1986, its debtservice payments in any fiscal year shall notexceed 20% of its revenues; and

(iii) furnish, by December 31, 1981, for review by theAssociation, the Corporation's proposals forachieving improvements in the collection ofproperty taxes within its jurisdiction.

ARTICLE IV

Effective Date; Termination;Cancellation and Suspension

Section 4.01. This Agreement shall come into force andeffect on the date upon which the Development Credit Agreementbecomes effective.

Section 4.02. (a) This Agreement and all obligations ofthe Association and of Tamil Nadu thereunder shall terminateon the earlier of the following two dates:

(i) the date on which the Development Credit Agreementshall terminate in accordance with its terms;or

(ii) a date 20 years after the date of this Agreement.

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(b) If the Development Credit Agreement terminates inaccordance with its terms before the date specified in paragraph(a) (ii) of this Section, the Association shall promptly notifyTamil Nadu of this event.

Section 4.03. All the provisions of this Agreement shallcontinue in full force and effect notwithstanding any cancellationor suspension under the General Conditions.

ARTICLE V

Miscellaneous Provisions

Section 5.01. Any notice or request required or permitted tobe given or made under this Agreement and any agreement betweenthe parties contemplated by this Agreement shall be in writing.Such notice or request shall be deemed to have been duly givenor made when it shall be delivered by hand or by mail, telegram,cable, telex or radiogram to the party to which it is requiredor permitted to be given or made at such party's addresshereinafter specified or at such other address as such party shallhave designated by notice to the party giving such notice ormaking such request. The addresses so specified are:

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address:

INDEVASWashington, D.C.

For Tamil Nadu:

Chief Secretary to the Governmentof Tamil Nadu

Fort St. GeorgeMadras 600009India

Cable address:

CHIEFSECFort St. GeorgeMadras

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Section 5.02. Any action required or permitted to be taken,and any document required or permitted to be executed, under thisAgreement on behalf of Tamil Nadu may be taken or executed by aSecretary to the Government of Tamil Nadu or such other person orpersons as Tamil Nadu shall designate in writing, and Tamil Nadushall furnish to the Association sufficient evidence of theauthority and the authenticated specimen signature of each suchperson.

Section 5.03. This Agreement may be executed in severalcounterparts, each of which shall be an original, and allcollectively but one instrument.

IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentat!'ves thereunto duly authorized, have caused thisAgreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and yearfirst above written.

INTERNATIONAL DEVELOPMENT ASSOCIATION

ByRegional Vice President

South Asia

STATE OF TAMIL NADU

ByAuthorized Representative

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SCHEDULE

Procurement

A. International Competitive Bidding

1. Except as provided in Parts C and E hereof, goods and civilworks shall be procured under contracts awarded in accordancewith procedures consistent with those set forth in the "Guidelinesfor Procurement under World Bank Loans and IDA Credits" publishedby the Bank in March 1977 (hereinafter called the Guidelines), onthe basis of international competitive bidding as described inPart A of the Guidelines.

2. For goods and works to be procured on the basis ofinternational competitive bidding, in addition to the requirementsof paragraph 1.2 of the Guidelines, Tamil Nadu shall prepare andforward to the Association as soon as possible, and in any eventnot later than 60 days prior to the date of availability to thepublic of the first tender or prequalification documents relatingthereto, as the case may be, a general procurement notice, in suchform and detail and containing such information as the Associationshall reasonably request; the Association will arrange for thepublication of such notice in order to provide timely notificationto prospective bidders of the opportunity to bid for the goodsand works in question. Tamil Nadu shall provide the necessaryinformation to update such notice annually so long as any goodsor works remain to be procured on the basis of internationalcompetitive bidding.

3. For the purpose of evaluation and comparison of bids forthe supply of goods to be procured on the basis of internationalcompetitive bidding: (i) bidders shall be required to state intheir bid the c.i.f. (port of entry) price for the importedgoods, or the ex-factory price or off-the-shelf price of othergoods, offered in such bid; and (ii) customs duties and otherimport taxes levied in connection with the importation, or thesales and similar taxes levied in connection with the sale ordelivery, pursuant to the bid, of the goods shall not be takeninto account in the evaluation of the bids.

B. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proceduresdescribed in Part A of this Schedule, goods manufactured in India

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may be granted a margin of preference in accordance with, andsubject to, the following provisions:

1. All bidding documents for the procurement of goodsshall clearly indicate any preference which will be granted,the information required to establish the eligibility of a bidfor such preference and the following methods and stages thatwill be followed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classifiedin one of the following three groups:

(1) Group A: bids offering goods manufactured in Indiaif the bidder shall have established to thesatisfaction of India and the Association that themanufacturing cost of such goods includes a valueadded in India equal to at least 20% of theex-factory bid price of such goods.

(2) Group B: all other domestic bids.

(3) Group C: bids offering any other goods.

3. In order to determine the lowest evaluated bid of eachgroup, all evaluated bids in each group shall first be comparedamong themselves, without taking into account customs duties andother import taxes levied in connection with the importation,and sales and similar taxes levied in connection with the saleor delivery, pursuant to the bids, of the goods. Such lowestevaluated bids shall then be compared with each other, and if, asa result of this comparison, a bid from group A or group B is thelowest, it shall be selected for the award.

4. If, as a result of the comparison under paragraph 3above, the lowest bid is a bid from group C, all group C bidsshall be further compared with the lowest evaluated bid fromgroup A after adding to the evaluated bid price of the importedgoods offered in each group C bid, for the purpose of this furthercomparison only, an amount equal to: (i) the amount of customsduties and other import taxes which a non-exempt importer wouldhave to pay for the importation of the goods offered in suchgroup C bid; or (ii) 15% of the c.i.f. bid price of such goodsif said customs duties and taxes exceed 15% of such price. Ifthe group A bid in such further comparison is the lowest, itshall be selected for the award; if not, the bid from group Cwhich as a result of the comparison under paragraph 3 is thelowest evaluated bid shall be selected.

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C. Other Procurement Procedures

1. Contracts for small items estimated to cost the equivalentof $50,000 or less may be awarded after obtaining price quotationsfrom at least three suppliers.

2. Contracts for civil works, materials for bus bodies,maintenance equipment procured under Part D (ii) of the Project,and hand carts and refuse bins for solid waste may be awarded onthe basis of competitive bidding advertised locally in accordancewith procedures satisfactory to the Association.

D. Review of Procurement Decisions by the Association

1. Review of invitations to bid and of proposed awards andfinal contracts:

With respect to all contracts for (i) civil works estimatedto cost the equivalent of $500,000 or more; and (ii) equipment andmaterials estimated to cost the equivalent of $200,000 or more:

(a) Before bids are invited, Tamil Nadu shall furnish tothe Association, for its comments, the text of the invitations tobid and the specifications and other bidding documents, togetherwith a description of the advertising procedures to be followedfor the bidding, and shall make such modifications in the saiddocuments or procedures as the Association shall reasonablyrequest. Any further modification to the bidding documents shallrequire the Association's concurrence before it is issued to theprospective bidders.

(b) After bids have been received and evaluated, TamilNadu shall, before a final decision on the award is made, informthe Association of the name of the bidder to which it intends toaward the contract and shall furnish to the Association, insufficient time for its review, a detailed report on theevaluation and comparison of the bids received, and such otherinformation as the Association shall reasonably request. TheAssociation shall, if it determines that the intended award wouldbe inconsistent with the Guidelines or this Schedule, promptlyinform Tamil Nadu and state the reasons for such determination.

(c) The terms and conditions of the contract shall not,without the Association's concurrence, materially differ fromthose on which bids were asked or prequalification invited.

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(d) Two conformed copies of the contract shall be furnishedto the Association promptly after its execution and prior tothe submission to the Association of the first application forwithdrawal of funds from the Credit Account in respect of suchcontract.

2. With respect to each contract not governed by the precedingparagraph, Tamil Nadu shall furnish to the Association, promptlyafter its execution and prior to the submission to the Associationof the first application for withdrawal of funds from the CreditAccount in respect of such contract, two conformed copies ofsuch contract, together with the analysis of the respective bids,recommendations for award and such other information as theAssociation shall reasonably request. The Association shall, ifit determines that the award of the contract was not consistentwith the Guidelines or this Schedule, promptly inform Tamil Naduand state the reasons for such determination.

3. Before agreeing to any material modification or waiver of theterms and conditions of a contract, or granting an extension ofthe stipulated time for performance of such contract, or issuingany change order under such contract (except in cases of extremeurgency) which would increase the cost of the contract by morethan 15% of the original price, Tamil Nadu shall inform theAssociation of the proposed modification, waiver, extension orchange order and the reasons therefor. The Association, if itdetermines that the proposal would be inconsistent with theprovisions of this Agreement, shall promptly inform Tamil Naduand state the reasons for its determination.

E. Procurement Without Contracting

Bus bodies may be built by PTC in its own workshops throughforce account.

INTERNATIONAL DEVELOPMENT ASSOCIATION

CERTIFICATE

I hereby certify that the foregoing is a true

copy of the original in the archives of the Interna-

tional Development Association.

In witness whereof I have signed this Certifi-

cate and affixed the Seal of the Association

thereunto the day of * ,

1981.

FOR SECRETARY