D R A F T 1 Project Number: 43406 Loan and/or Grant Number(s): {LXXXX; GXXXX; TAXXXX} May 2010 Proposed Guarantee Republic of Azerbaijan: Janub Gas Fired Power Plant Project Project Administration Manual NOTE: This document is subject to change as to the result of counter-guarantee negotiations with the Government of Azerbaijan and negotiations with lenders with regards to loan agreement and partial credit guarantee.
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D R A F T
1
Project Number: 43406 Loan and/or Grant Number(s): {LXXXX; GXXXX; TAXXXX} May 2010 Proposed Guarantee Republic of Azerbaijan: Janub Gas Fired Power Plant Project
Project Administration Manual
NOTE: This document is subject to change as to the result of counter-guarantee negotiations with the Government of Azerbaijan and negotiations with lenders with regards to loan agreement and partial credit guarantee.
D R A F T
Contents ABBREVIATIONS 4 I. PROJECT DESCRIPTION 1 II. IMPLEMENTATION PLANS 1
A. Project Readiness Activities 1 B. Overall Project Implementation Plan 2
III. PROJECT MANAGEMENT ARRANGEMENTS 1 A. Project Implementation Organizations – Roles and Responsibilities 1 B. Key Persons Involved in Implementation 1 C. Project Organization Structure 2
IV. COSTS AND FINANCING 3 A. Detailed Cost Estimates by Expenditure Category 3 B. Allocation and Withdrawal of Counter Guarantee Proceeds 6 C. Detailed Cost Estimates by Financier 8 D. Detailed Cost Estimates by Outputs/Components 10 E. Detailed Cost Estimates by Year 12 F. Contract and Disbursement S-curve 14 G. Fund Flow Diagram 14
V. FINANCIAL MANAGEMENT 1 A. Financial Management Assessment 1 B. Disbursement 7 C. Accounting 7 D. Auditing 7
VI. PROCUREMENT AND CONSULTING SERVICES 1 A. Advance Contracting and Retroactive Financing 1 B. Procurement of Goods, Works and Consulting Services 1 C. Procurement Plan 2 D. Consultant's Terms of Reference Error! Bookmark not defined.
VII. SAFEGUARDS 1 VIII. GENDER AND SOCIAL DIMENSIONS 1 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 1
A. Project Design and Monitoring Framework 1 B. Monitoring 3 C. Evaluation 3 D. Reporting 3 E. Stakeholder Communication Strategy 3
X. ANTICORRUPTION POLICY 1 XI. ACCOUNTABILITY MECHANISM 1 XII. RECORD OF PAM CHANGES 1
D R A F T
Project Administration Manual Purpose and Process
The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government of Azerbaijan (Government) and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM. Joint Stock Company Azerenerji (AzerEnergy) is wholly responsible for the implementation of ADB guaranteed project and will be the Borrower, in accordance with its policies and procedures. ADB staff is responsible to support implementation including compliance by AzerEnergy of their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures. At Counter-Guarantee and Indemnity Negotiations the Borrower, Government and ADB shall agree to the PAM and ensure consistency with the Counter-Guarantee and Indemnity Agreement, the ADB partial credit guarantee (PCG) and other relevant agreements. Such agreements shall be reflected in the minutes of the Counter Guarantee and Indemnity Negotiations. In the event of any discrepancy or contradiction between the PAM and the Counter Guarantee and Indemnity Agreement, the provisions of the Counter Guarantee and Indemnity Agreement shall prevail.
After ADB Board approval of the project's report and recommendations of the President (RRP) changes in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.
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Abbreviations
ADB = Asian Development Bank ADF = Asian Development Fund AFS = audited financial statements AZENCO = Azerbaijan Energy Construction Company CNEEC = China National Electric Equipment Corporation CQS = consultant qualification selection DMF = design and monitoring framework EARF = environmental assessment and review framework EIA = environmental impact assessment EMP = Environmental Management and Monitoring Plan EPC = engineering, procurement, and construction ESMS = environmental and social management system GACAP = governance and anticorruption action plan GDP = gross domestic product ICB = international competitive bidding IEE = initial environmental examination IFRS = International Financial Reporting Standards IPP = indigenous people plan IPPF = indigenous people planning framework IsDB = Islamic Development Bank JBIC = Japan Bank for International Cooperation KfW = Kreditanstalt für Wiederaufbau LAR = land acquisition and resettlement LIBOR = London interbank offered rate MLAs = Mandated Lead Arrangers MED = Ministry of Economic Development MENR = Ministry of Ecology and Natural Resources MOF = Ministry of Finance NARD = Nard International FZE NGOs = nongovernment organizations NLIB = Limited international bidding in accordance with national standards NSRD = Shenzhen Nanshan Power Gas Turbine Engineering Co. Ltd. PAI = project administration instructions PAM = project administration manual PCB = polychlorinated biphenyl PCG = partial credit guarantee PIU = project implementation unit QBS = quality based selection QCBS = quality- and cost based selection RRP = report and recommendation of the President to the Board SBD = standard bidding documents SGIA = second generation imprest accounts SOEn = state-owned enterprise SOEx = statement of expenditure SPS = Safeguard Policy Statement SPRSS = summary poverty reduction and social strategy TOR = terms of reference TPP = Thermal power plant
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I. PROJECT DESCRIPTION
The Janub Gas Fired Power Plant Project (Project), with an installed capacity of 780 MW and a total cost of €691 million, will replace Azerbaijan's second largest and now inefficient Shirvan Thermal Power Plant1 (Shirvan TPP) which started commercial operations in 1962, generating 22% of the country's electricity production in 2006-2007. It has outlived its economic life with operating efficiency at only 27% and available capacity at 57% of installed capacity of 1,050 MW - as compared to the Project with state-of-the-art technology, which will: (i) have an average efficiency of 52%;2 (ii) generate significant efficiency savings by reducing costs from 1.7 €-cents/kWh to 1.2 €-cents/kWh; (iii) increase exports if the saved gas is exported ($54.4 million per annum); and (iv) significantly reduce the emissions of greenhouse gas and other pollutants. Given these considerable benefits, the Government is committed to fast-track the completion of the Project. The partial credit guarantee (PCG) will cover 80% of a commercial bank loan of up to €220 million (Commercial Loan) provided to Azerbaijan's state-owned power utility, Joint Stock Company Azerenerji (AzerEnergy) which will finance maintenance workshops, heavy fuel tanks, treatment system and laboratory equipment needed to complete the Project and the decommissioning of the Shirvan TPP. It will also mark the return of AzerEnergy to the international commercial bank debt market. The Project will be located: (i) within the same site as the existing Shirvan TPP to take advantage of the existing infrastructure such as overhead lines, gas pipeline, access roads, railways, and stand-by fuel storage and handling facilities; (ii) 4.5 km north of what was previously called Ali-Bayramli city but has since been renamed Shirvan by a decision of the Parliament of Azerbaijan in April 2008.
1. Impact and Outcome
Impact - Azerbaijan power system provides electricity needed for sustained economic growth. Outcome – AzerEnergy's capacity to provide efficient and reliable power to customers is increased.
2. Output
Construction of 780MW combined cycle power plant and auxiliary services.
1 This plant used to be called Ali Bayramli Thermal Plant and has since been renamed. 2 The thermal efficiency of combined cycle plant has reached the record of just under 60% in Wales.
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II. IMPLEMENTATION PLANS
A. Project Readiness Activities Months
Indicative Activities
1 2 3 4 5 6 Who responsible
Advance contracting actions X AzerEnergy Retroactive financing actions NA
Establish project implementation arrangements X AzerEnergy
ADB Board approval X ADB
Counter Guarantee Signing
X Government, and ADB
PCG signing
X
Government, ADB and Lenders
Sovereign Guarantee signing
X Government, and Lenders
Commercial Loan Agreement signing X
AzerEnergy and Lenders
Government legal opinion provided
X
Government, and AzerEnergy
Government budget inclusion X Government,
PCG effectiveness
X
Government, ADB, AzerEnergy and Lenders
Commercial Loan Agreement effectiveness X
AzerEnergy and Lenders
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B. Overall Project Implementation Plan
Activities Yr 2009
(Mth/Qtr) Yr 2010
(Mth/Qtr) Yr 2011
(Mth/Qtr) Yr 2012
(Mth/Qtr) Yr 2013
(Mth/Qtr) Yr 2014
(Mth/Qtr) Yr 2015
(Mth/Qtr)
A. DMF Output - Construction of the Project
X
Activity 1.1 - Mandate awarded by AzerEnergy to lead banks to arrange and provide Commercial Loan
X
Activity 1.2 - PCG negotiated
X
Activity 1.3 - 3 Commercial Loan facility agreement negotiated, syndication completed by lead banks and funds available for disbursement
X
Activity 2.1 Establishment of Investment Department and Ecology Unit by AzerEnergy
X
Activity 2.2 -Preparation of International Financial Reporting Standards statements of Azerenerji without
X
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qualification Activity 3.1 - Remaining equipment and civil works contracts signed by AzerEnergy
X
Activity 3.2 - Construction and commission of project facilities completed by AzerEnergy
X
Activity 4 - Decommissioning by AzerEnergy of old facilities completed
X
B. Management
Activities
Procurement plan key activities to procure contract packages
Consultant selection procedures
Environment management plan key activities
Gender action plan key activities
Communication strategy key activities
Annual/Mid-term review
Project completion report
X
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Tasks
Establishment of Project Management Unit ◆Site demolition and involuntary resettlement
Engagement of Engineering Consultants
Engineering and Procurement
Preliminary Design
Procurement of Equipment
Detailed Engineering Design
EPC Contract Award
Civil Works
Site Preparation Turbine foundation and control building
Substation foundation
Transformers and Auxilary System Areas
Take Over by Azerenergy
◆
Q-1 Q-2 Q-3
Decommissioning of old plant and reclamation of the land
2007 2008 2009 2010 2011Q-1 Q-2 Q-4Q-4 Q-1 Q-2 Q-3 Q-4 Q-3
Installation of Substations, Transformers, Electrical, and Mechnical Systems
Installation and Commission of 1st Combined Cycle Unit
Installation and Commission of 2nd Combined Cycle Unit
Q-4 Q-1 Q-2 Q-3Q-4Q-3
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III. PROJECT MANAGEMENT ARRANGEMENTS
A. Project Implementation Organizations – Roles and Responsibilities
Project implementation
organizations Management Roles and Responsibilities
Executing agency AzerEnergy, which will also be the Borrower responsible for meeting all conditions precedents to withdrawals, and complying loan covenants, representations and warranties under the Commercial Loan provided by the Commercial Banks.
Commercial Banks Société Générale (SocGen), Citibank A.S, Citibank,
N.A (or any of its affiliates) (Citi) and others agreed to by the Borrower, MOF and ADB, who will
o provide the Commercial Loan (and hedging arrangements, if needed) directly to AzerEnergy;
o be responsible for monitoring conditions precedents to withdrawals and loan covenants; and
o have various obligations to ADB as guarantor, which will include the sharing of information and the enforcement of rights and obligations under the guaranteed loan;
The Coordinating & Documentation Agent and the Paying Agent is SocGen and the Facility Agent is Citi
B. Key Persons Involved in Implementation Executing Agency Agency Name Officer's Name: Rafael Abbasov
Position: Head of Investment Department Telephone: +99 412 598 08 73 or +99 450 255 97 94 Email address: [email protected]
Office Address: Pr. Abdulkarim Alizada str. 10 Baku, Azerbaijan, AZ 1005
ADB CWRD Mission Leader Staff Name: F.C. Kawawaki (Cleo)
Position: Principal Energy Specialist Telephone No: 632-632-5950 (direct) 632-632-6113 (AA Email address: [email protected]
Staff Name: Martin Endelman Position: Principal Financial Sector Specialist Telephone No: +63 2 632-6102 Email address: [email protected]
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Cofinancing Contact Staff Name: Roland Pladet Position: Senior Guarantees and Syndications Specialist Telephone No: +63 2 632-6178 Email address: [email protected]
Lenders Coordinating & Documentation Agent and the Paying Agent
[Société Générale]
Facility Agent [Citibank A.S, Citibank, N.A]
C. Project Organization Structure
AzerEnergy Corporate Organizational Chart
Head Office Azerenergy
Entities under direct financial
control
Decentralized profit tax
payers
Distribution EntitiesTransmission
Supporting Companies
Azerbaijan Thermal Plant
Generation and
transmission
Shirvani Thermal Plant
Shimal Thermal Plant
Sumgait Thermal Plant
Baku Heat Power Center
Baku Thermal Power Plant
Mingechaur Hydro PS
Shemkir Hydro PS
Baku Network
Absheron Network
Sumgait Network
Agstafa Network
Genje Network
Mingechaur Network
Ali-Bairamli Network
Imishli Network
Sheki Power Junction
Khachmaz Power Junction
Astara Power Junction
Genje Distribution
Mingechaur Distribution
Imishli Distribution
Shirvan Distribution
Kurdemir Distribution
Shemkir Distribution
Sheki Distribution
Lenkaran Distribution
Agsu Network
Research Centre
Security Service
Supply Department
Energy Service
Energy Research Institute
Generation
Energy Management
Network
NakhchivanAutonomy
Agency
AzerEnergy Management Structure
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IV. COSTS AND FINANCING
A. Detailed Cost Estimates by Expenditure Category
Total CBs AZE IsDB OFID ADB/ CBs AZE
A BASE COST1 Civil Works 143.96 122.00 0.00 0.00 21.96
a Preliminary works 20.30 20.30 b Main construction works 64.71 64.71c Erection and commissioning 37.00 37.00d VAT 21.96 21.96
2 Equipment 471.87 284.26 0.00 0 20.00 167.61 0.00a Main Equipment 279.84 218.47 0.00 0 0.00 61.37 0.001.1 Gas Turbine with generators (4 units) 95.72 95.72 0.00 1.2 Stream turbines (2 units) 61.81 61.81 1.3 GIS substation and transformers 60.94 60.94
GIS substation 36.17 36.17 Transformers 19.98 19.98 Transmission line cables 3.75 3.75 Cabling and switching items and equipment 1.05 1.05
1.4 61.37 0.00 0.00 61.37 0.00
Spare parts for gas turbines 15.00 15.00 additional order for gas turbines 0.14 0.14 Equipment and machinery 5.01 5.01 Equipment and machinery (additional contract) 9.27 9.27 Other Balance of Plants 31.95 31.95
b Auxiliary Systems 192.03 65.79 0.00 0.00 20.00 106.24 0.002.1 Maintenance workshops and tanks 75.95 75.95 2.2 Treatment system and lab equipment 30.29 30.292.3 Plant operation network 55.64 55.64 2.4 Safety, security and protection system 20.00 20.002.5 Compressors system 8.15 8.152.6 Water treatment system 2.00 2.00
3 Consultancy Services 9.50 0.00 9.35 0.15 0.00 0.00 0.003.1 Supervision consulting service 1.67 1.67 3.2 Detailed enginnering design 5.67 5.67 3.3 Project management support 2.00 2.00 3.4 Project Financing Audit 0.15 0.15
4 Resettlement 1.41 1.41Construction of new apartments for APs 1.40 1.40Transportations for relocation of APs 0.01 0.01
TOTAL BASE COST 626.74 284.26 10.76 122.15 20.00 167.61 21.96
5 Decommissioning of Shirvan 20.00 20.00Total Base Cost and Decommissioning 646.74 284.26 10.76 122.15 20.00 187.61 21.96
B. CONTINGENCIES 22.20 0.0 12.20 10.00 0.001 Price contingencies 14.20 0.0 12.20 2.00 2 Physical Contingencies 8.00 8.00 0.00
C. INTEREST DURING CONSTRUCTION 22.39 22.39
Total 691.33 284.26 10.76 134.35 20.00 220.00 21.96
Auxiliary equipment/emergency gas and steam turbine parts/ generator parts
Phasing IIPhase I
Note: This interest during construction is estimated to be €25 million AP = affected person, AZE= AzerEnergy and Government, CBs= commercial banks, IsDB= Islamic Development Bank, OFIC= OPEC Fund for International Development, VAT = value added tax. Source: AzerEnergy and ADB Estimates
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Auxiliary Systems Indicative Cost Estimated Date of Delivery
Status of Contract
Source of Financing
1 Maintenance Workshops and Tanks 75,949,936 ADB Workshops equipped with boring machines, advanced
technology machine, etc. for maintenance and service 26,700,136
November 2010 Awarded
Tanks with appropriate fittings, connections, pipes, and fill pumps
16,528,200 April 2010 Not Awarded
Special tools and devices 5,910,800 December 2010 Not Awarded Accessories for Power Plant
(handrails, trenches, stairs, supports, walking zone, elevated platforms, coatings, etc.)
11,300,500 August 2010 Not Awarded
All electric accessories for Indoor Power Plant area (Lightning, cable supports and cable hangers, electrical cubic for maintenance etc.)
6,240,300 August 2010 Not Awarded
Circulation cooling system with pipe line 8,320,000 April 2010 Not Awarded Wallboard and roof surface board 950,000 October 2010 Not Awarded 2 Treatment System and Laboratory Equipment 30,294,918 40.99 ADB
Treatment equipments for Autotransformers, Unit and Auxiliary transformers
1,255,300 October 2010 Not Awarded
Electrical laboratory with test equipments for inspection and test procedures
3,524,018 November 2010 Not Awarded
Chemical laboratory with test equipments for inspection and test procedures
2,407,160 November 2010 Not Awarded
Exhaust Gas Pollution Treatment Control Equipment 498,000 October 2010 Not Awarded Instrumentation Laboratory 5,210,040 November 2010 Not Awarded Domestic Sewage Treatment System 550,000 April 2010 Not Awarded BoP of valves, pumps, pipes, fitting and required
connections and elements with up to 1,600 mm diameter
16,850,400 May 2010 Not Awarded
Auxiliary Systems Indicative Estimated Date of Status of Source of
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Cost Delivery Contract Financing 3 Safety, Security, and Protection System 19,150,957 29.49 OPIC Protection Systems for Steam Generators 5,445,107 May 2010 Not Awarded Busducts for Steam Generators Excitation System 4,630,100 May 2010 Not Awarded Power Plant Outdoor security facilities including video
monitoring and alarm control system, outdoor lightning, pedestrian facilities, etc.
5,150,600 September 2010 Not Awarded
Fire Fighting System 3,925,150 Not Awarded 4 Other Balance of a Plant 31,953,850 Not Awarded ADB 0.4 kV equipment 8,265,000 May 2010 Not Awarded Spare heat exchangers for Closed Circulation System 1,540,200 December 2010 Not Awarded Spare condenser tubes of Steam Turbines 6,700,000 December 2010 Not Awarded Lubrication oil for 2 set steam generators and filling-up
reserve (ton) 690,000 November 2010 Not Awarded
Insulations for Heat Recovery Steam Generator, Steam Pipe Line, and related accessories
3,400,700 June 2010 Not Awarded
Lifting Cranes 9,847,350 April 2010 Not Awarded Voltage and Current transformers for Steam Generator
Protection System
Electrical Heaters for Impulse Lines for a whole Power Plant open area (transmitters)
1,510,600 July 2010 Not Awarded
TOTAL [ADB financing] 138,198,704 TOTAL 157,349,661
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B. Withdrawal and Repayment Guaranteed Loan During the 24 month availability period starting from financial close of the Commercial Loan Agreement, draw-downs (withdrawals) may be requested from time to time by the Borrower from the Lenders for a minimum of €10 million, and shall not exceed one drawing per month, to: (i) finance and/or refinance commercial contracts for the construction of maintenance
workshops, heavy fuel tanks, treatment system and laboratory equipment needed to complete to the new plant and the decommissioning of the Shirvan TPP, as well as other items as mutually agreed to for the sole benefit of the Janub Combined Cycle Gas Power Plant (also referred to as "Janub Plc", a 100% subsidiary of the Borrower) and to complete the Project; and
(ii) finance and/or refinance up to the end of the 24 month grace period, all front end fees, commitment fees, interest, ADB PCG fees, legal and other costs related to the Project.
The loan amount will be repaid by the Borrower to the Lenders semi-annually in 20 equal installments plus corresponding interest accrued on outstanding principal amounts, the first repayment to be made 42 months from financial close.
C. Guarantee Cover and Fees The PCG will provide comprehensive cover for 80% of principal (equaling up to €176 million) plus accrued regular interest, plus 80% of break costs (if any) related to interest rate and/or foreign currency hedging arrangements. Comprehensive cover refers to the risk of AzerEnergy being unable or unwilling to fulfill its debt service and repayment obligations on time because of commercial and/or political events. Hedging arrangements between AzerEnergy and the banks, if used, will be embedded in the Commercial Loan Agreement, must be approved of by ADB and Government, and have pricing and other terms that fairly reflect the benefit of the ADB PCG. ADB will charge Guarantee Fees and Commitment Fees based on ADB's loan equivalency pricing for sovereign lending. Currently, the Guarantee Fee is 0.20% per annum on the utilized and outstanding amount of the PCG and the Commitment Fee is 0.05% per annum on the unutilized amount of the PCG during the availability period and these fees will apply if the PCG is negotiated by 30 June 2010. If the PCG is negotiated between 1 July 2010 and 30 June 2011, the Guarantee Fee will increase to 0.30% per annum and the minimum Commitment Fee will increase to 0.075% per annum. A deposit mechanism (aiming at protecting the Lenders against any risk associated with the payment of the ADB Guarantee Fee) is to be agreed between the parties. The deposit amount is expected to be at least equal to the single highest of (i) the highest 6-month's worth in ADB Guarantee Fees, (ii) Minimum Fee and (iii) the percentage of the total Guarantee Fees not covered by the Guarantor If this Guarantee is terminated early the Borrower will pay a cancellation fee in an amount equal to the Minimum Fee minus the sum of all Guarantee Fees and Commitment Fees paid (to the extent such amount can be paid out of the Fees Deposit Amount or any amount otherwise
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received by the Facility Agent from the Borrower or the Sovereign Guarantor. The Minimum Fee should be at least equal to the first 3 years worth of Guarantee and Commitment Fees.
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D. Detailed Cost Estimates by Financier
(€ million)
ADB Guaranteed Commercial Loan
(Financing Phase 2)
Islamic Development Bank and OPEC
Fund for International Development
Commercial Loan (Financing Phase 1)
Amount
% of Cost
Category Amount
% of Cost
Category Amount % of Cost Category
Item
A. Investment Costs
1 Civil Works 0 0% 0 0% 0 0%
2 Mechanical and Equipment 0 0% 0 0% 0 0%
3 Environment and Social Mitigation 0 0% 0 0% 0 0%
4 Consultants 0 0% 0 0% 0 0%
a. Project Management 0 0% 0 0% 0 0%
Subtotal (A) 0 0% 0 0% 0 0%
B. Recurrent Costs
1 Salaries 0 0% 0 0% 0 0%
2 Accommodation 0 0% 0 0% 0 0%
3 Equipment Operation and Maintenance 0 0% 0 0% 0 0%
Subtotal (B) 0 0% 0 0% 0 0%
Total Base Cost 0 0% 0 0% 0 0%
C. Contingencies 0 0% 0 0% 0 0%
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D. Financing Charges During Implementation 0 0% 0 0% 0 0%
Total Project Cost (A+B+C+D) 213 31% 163 23% 284 41%
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E. Detailed Cost Estimates by Outputs/Components {The purpose of this table is to identify the types of expenditure included in the overall project cost. Investment costs should be broken down by primary expenditure category. This will be project specific. Recurrent costs may or may not be included in the overall project costs as this will also be project specific.} a
($ million) Output/Component
1 Output/Component
2 Output/Component
n
Item Total Cost Amount
% of Cost
Category Amount
% of Cost
Category Amount
% of Cost
CategoryA. Investment Costsb
1 Civil Works 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
2 Mechanical and Equipment 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
3 Environment and Social Mitigation 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
4 Consultants 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
a. Project Management 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
b. Capacity Development 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Subtotal (A) 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
B. Recurrent Costs
1 Salaries 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
2 Accommodation 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
3 Equipment Operation and Maintenance 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Subtotal (B) 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Total Base Cost 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
C. Contingencies 1 Physicalc 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
2 Priced 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Subtotal (C) 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
D. Financing Charges During Implementatione
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1 Interest During Implementation 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
2 Commitment Charges 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Subtotal (D) 0.00 0.00 0.0% 0.00 0.0% 0.00 0.0%
Total Project Cost (A+B+C+D) 0.00 0.00 0.0% 0.0% 0.00 0.0%{List alphabetically and define all abbreviations, if any, used in this table. Use Arial 9 pt. font.} a Preparation notes:
1 When ADB finances taxes and duties, the standard practice is to prepare the detailed cost estimate with the amounts for each expenditure item presented within the table inclusive of local taxes and duties (i.e. gross of tax basis). When ADB does not finance local taxes and duties, the local taxes and duties must be broken down further into the expenditure categories and subcategories in the detailed cost estimate or provided separately as a supplementary table.
2 In-kind contributions, if any, should be shown as a separate category or subcategory within the detailed cost estimate.
3 Environment and Social Mitigation includes all costs associated with implementing relevant safeguards, gender and
social dimension action plans. b In mid-200X prices.
c Computed at x% for civil works; and x% for field research and development, training, surveys and studies.
d Computed at x% of costs.
e Includes interest and commitment charges. Interest during construction has been computed at the five-year forward London interbank-offered rate plus a spread of X.X%.
Source{s}: **Please list table source/s here. Use Arial 9 pt. font.**
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F. Detailed Cost Estimates by Year
{The purpose of this table is to identify the types of expenditure included in the overall project cost by year to enable the disbursement S-curve to be plotted in IV.F. Investment costs should be broken down by primary expenditure category. This will be project specific. Recurrent costs may or may not be included in the overall project costs as this will also be project specific.} a
($ million)
Item Total Costb Year 1 Year 2 Year 3 Year 4 Year 5 Year n A. Investment Costs 1 Civil Works 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2 Mechanical and Equipment 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3 Environment and Social Mitigation 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4 Consultants 0.00 0.00 0.00 0.00 0.00 0.00 0.00
a. Project Management 0.00 0.00 0.00 0.00 0.00 0.00 0.00
b. Capacity Development 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Subtotal (A) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B. Recurrent Costs
1 Salaries 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2 Accommodation 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3 Equipment Operation and Maintenance 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Subtotal (B) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Base Cost 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C. Contingencies 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D. Financing Charges During Implementation 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Total Project Cost (A+B+C+D) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% Total Project Cost 100%
X% {i.e., Year 1’s share in project cost}
X% {i.e., Year 2’s share in project cost}
X% {i.e., Year 3’s share in project cost}
X% {i.e., Year 4’s share in project cost}
X% {i.e., Year 5’s share in project cost}
X% {i.e., Year n’s share in project cost}
a Preparation notes:
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1 When ADB finances taxes and duties, the standard practice is to prepare the detailed cost estimate with the amounts for each expenditure item presented within the table inclusive of local taxes and duties (i.e. gross of tax basis). When ADB does not finance local taxes and duties, the local taxes and duties must be broken down further into the expenditure categories and subcategories in the detailed cost estimate or provided separately as a supplementary table.
2 In-kind contributions, if any, should be shown as a separate category or subcategory within the detailed cost estimate.
3 Environment and Social Mitigation includes all costs associated with implementing relevant safeguards, gender and social
dimension action plans. b The total cost amount represented in this table is the sum of all ADB (or ADB administered co-financier) funds for
the project.
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G. Contract and Disbursement S-curve
{Graph(s) show contract awards and disbursement over the life of the project, and annually based on the contract awards and disbursement projections.}
H. Fund Flow Diagram
Azerenerji JSC
(Borrower)
Bank Syndicate
(Phase 2)
ADB(Guarantor)
Takes 80% of Borrower
risk
GoACounter-guarantee
Janub 780MW Power Plant Plus GoA funding of €33m = € 693m Total Cost
IsDBand other cofinanciers
€163m of long
term loans
Guarantee
Guarantees
Up to €220m 3 + 10 year loan
Bank Syndicate
(Phase 1)
€284m term loan
Plus GOA funding of €33m = €691 m Total Cost
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V. FINANCIAL MANAGEMENT
A. Financial Management Assessment
Existing Accounting Policies of AzerEnergy
Financial Statements-basis of preparation. The "Law on Accounting" stipulates that all significant entities, including AzerEnergy, are subject to International Financial Reporting Standards (IFRS) from January 01, 2008. The financial statements of the AzerEnergy have been prepared on a going concern basis in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) in force at 31 December 2008 as well as interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) in force at 31 December 2008. These financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments. The AzerEnergy maintains its accounting records in accordance with laws of the Republic of Azerbaijan. The AzerEnergy presents the income statement using the classification by function of expenses, known also as the “Cost of Sales” approach. AzerEnergy believes this method provides more useful information to the readers of the financial statements, as it better reflects the way operations are run from a business point of view. The balance sheet format is based on a current/non-current distinction. Segment reporting. A segment is a distinguishable component of the AzerEnergy that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), and which is subject to risks and rewards that are different from those of other segments. Segments with a majority of revenue earned from sales to external customers and whose revenue, result or assets are ten percent or more of all the segments are reported separately. Presentation currency and inflation. As the business activities are mainly conducted in the Republic of Azerbaijan, the functional currency of the AzerEnergy is the Azerbaijan Manat. The financial statements are presented in thousands of Azerbaijan Manats (“AZN”). The Azeri economy was deemed hyperinflationary until the end of 1996. IAS 29, “Financial Reporting in Hyperinflationary Economies”, requires that the financial statements of all enterprises that report in the currency of a hyperinflationary economy should be expressed in terms of the measuring unit current at the balance sheet date to reflect the loss in purchasing power of the entity resulting from the hyperinflationary conditions. When an economy ceases to be hyperinflationary, the amounts expressed in the measuring unit current at the end of the hyperinflationary period become the new historical basis for subsequent periods. No adjustments have been recorded in these financial statements to reflect the effects of inflation in Azeri economy in previous years except for the statutory revaluation of property, plant and equipment. However, the statutory indices used for such revaluation differ from the annual inflation rates experienced during the hyperinflationary years. Accordingly, the balances for property, plant and equipment as well as the stakeholder’s equity as reflected in these financial statements do not represent amounts which have been determined in accordance with IFRS. Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation, except for the items that were commissioned before 1997.
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Additions to property, plant and equipment are recorded at cost. Major renewals and improvements are capitalized. The assets replaced are retired. Costs of borrowing are not capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Minor renewals include all expenditures that do not result in a technical enhancement of the asset beyond its original capability. Gains and losses arising from the retirement or disposal of property, plant and equipment are included in the statement of operations as incurred. In 2001, the AzerEnergy changed the method of depreciation of property, plant and equipment from the straight-line basis to the diminishing balance basis. The application of the new basis was required by the Azerbaijan Republic Tax Code, for determination of tax-deductible depreciation expense for the years starting from 1 January 2001. The change in accounting policy was done in order to comply with this legislation. The effect of the change in accounting for property, plant and equipment was applied prospectively from 1 January 2001. Starting from 1 January 2003, the AzerEnergy further revised the depreciation rates applied to property, plant and equipment purely to comply with amendments introduced to the Tax Code. However, the change to the reducing balance method of depreciation does not reflect change in the expected pattern of economic benefits from the assets. As a result, the change in depreciation method does not satisfy the requirement of IAS 16 “Property, Plant and Equipment”. The declining balance depreciation rates are as follows:
Electricity and heat generation 3-9 % Electricity and heat transmission 7 % Other assets 3-9 %
Income taxes. Income taxes have been provided for in the financial statements in accordance with Azerbaijan legislation enacted or substantively enacted by the balance sheet date. The income tax charge comprises current tax and deferred tax and is recognized in the income statement unless it relates to transactions that are recognized, in the same or a different period, directly in equity. Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current and prior periods. Taxes, other than on income, are recorded within operating expenses. Deferred income tax is provided using the balance sheet liability method for tax loss carry forwards and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax balances are measured at tax rates enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary differences will reverse or the tax loss carry forwards will be utilized. Deferred tax assets for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilized. Inventories. Inventories are recorded at the lower of cost or net realizable value. Cost of inventory is determined on the weighted average basis. The cost of finished goods and work in progress comprises raw material, direct labor, other direct costs. Net realizable value is the estimated selling price in the ordinary course of business, net of the cost of completion and costs to sell.
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Trade and other receivables. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets that the AzerEnergy intends to sell immediately or in the near term cannot be classified in this category. Trade and other receivables are carried at amortized cost using the effective interest method. Impairment losses. The Company accounts for impairment losses of financial assets when there is objective evidence that a financial asset or group of financial assets is impaired. Impairment losses are measured as the difference between carrying amounts and the present value of expected future cash flows, including amounts recoverable from guarantees and collateral, discounted at the financial asset’s original effective interest rate, for financial assets which are carried at amortized cost. If in a subsequent period the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. For financial assets carried at cost, the impairment losses are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. The determination of impairment losses is based on an analysis of the risk assets and reflects the amount which, in the judgment of management, is adequate to provide for losses incurred. Provisions are made as a result of an individual appraisal of risk assets for all financial assets that are individually significant, and an individual or collective assessment for financial assets that are not individually significant. The change in impairment losses is charged to profit, and the total of impairment losses is deducted in arriving at assets as shown in the statement of financial position. Factors that the AzerEnergy considers in determining whether it has objective evidence that an impairment loss has been incurred include (i) information about the debtors’ or issuers’ liquidity, solvency and business and financial risk exposures; (ii) levels of and trends in delinquencies for similar financial assets; (iii) national and local economic trends and conditions, and (iv) the fair value of collateral and guarantees. These and other factors may, either individually or taken together, provide sufficient objective evidence that an impairment loss has been incurred in a financial asset or group of financial assets. The AzerEnergy accounts for impairment losses on financial assets at amortized cost using allowance account, for financial assets measured at cost through direct write off. It should be understood that estimates of losses involve an exercise of judgment. While it is possible that in particular periods the AzerEnergy may sustain losses that are substantial relative to the allowance for impairment losses, it is the judgment of management that the allowance for impairment losses is adequate to absorb losses incurred on the risk assets. Cash and cash equivalents. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of twelve months or less. Cash and cash equivalents are carried at amortized cost using the effective interest method. Restricted balances are excluded from cash and cash equivalents for the purposes of the cash flow statement. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the balance sheet date are included in other non-current assets.
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Discontinued operations. A discontinued operation is a component of the AzerEnergy that either has been disposed of, or that is classified as held for sale, and: (a) represents a separate major line of business or geographical area of operations; (b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or (c) is a subsidiary acquired exclusively with a view to resale. Earnings and cash flows of discontinued operations, if any, are disclosed separately from continuing operations with comparatives being re-presented. Value added tax. Value added tax ("VAT") is applied to sales and purchases at a rate of 18%. Output value added tax is payable to tax authorities on the earlier of (a) collection of the receivables from customers or (b) delivery of goods or services to customers. VAT applied to electricity sales becomes due for payment only upon receipt of payment for sales made. VAT may be recovered for purchases of goods and services when payment is made and is offset against the VAT obligation being shown net on the balance sheet. For sales and purchases where payment has not been received or made, the recoverable VAT is shown as a net balance in the balance sheet. Where allowance has been made for impairment of receivables, impairment loss is recorded for the gross amount of the debtor, including VAT. Borrowings. Borrowings are recognized initially at the fair value of the proceeds received (which is determined using the prevailing market rate of interest for a similar instrument, if significantly different from the transaction price), net of transaction costs incurred. In subsequent periods, borrowings are stated at amortized cost using the effective yield method; any difference between fair value of the proceeds (net of transaction costs) and the redemption amount is recognized as interest expense over the period of the borrowings. Trade and other payables. Trade and other payables are accrued when the counterparty performed its obligations under the contract and are carried at amortized cost using effective interest rate method. Provisions for liabilities and charges. Provisions for liabilities and charges are recognized when AzerEnergy has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Foreign currency translation. The functional currency of the AzerEnergy is the currency of the primary economic environment in which the entity operates. The AzerEnergy’s functional currency, and the AzerEnergy’s presentation currency, is the national currency of the Azerbaijan Republic, Azerbaijan Manat. Monetary assets and liabilities are translated into the AzerEnergy’s functional currency at the official exchange rate of the National Bank of the Azerbaijan Republic at the respective balance sheet dates. Foreign exchange gains and losses resulting from the settlement of the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange rates of the National Bank of the Azerbaijan Republic are recognized in profit or loss.
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Revenue recognition. Revenue from sales of electricity and heat is recognized on the basis of metered or estimated usage of power and heat energy by customers. Revenue is recognized on the accrual basis for supply of electricity and heat. Revenue figures are presented exclusive of value added taxes. Revenue is determined based on the application of authorized tariffs for electricity and heat supplied as approved by the Ministry of Economic development. Revenues from construction and repair services are recognized by reference to the stage of completion of the contract activity. Financial income and expenses. Financial income and expenses comprise interest expense on borrowings, interest income on funds invested. All interest and other costs incurred in connection with borrowings are expensed as incurred as part of financial expenses. Interest income is recognized as it accrues, taking into account the effective yield on the asset. Payroll expenses and related contributions. Wages, salaries, contributions to pension funds, paid annual leave and sick leave, bonuses, and other benefits are accrued in the period in which the associated services are rendered by the employees of the AzerEnergy. Pension payments. AzerEnergy does not incur any expenses in relation to provision of pensions or other post-employment benefits to its employees. In accordance with the legal requirements of the Republic of Azerbaijan, AzerEnergy withholds pension contributions from employee salaries and transfers them into state pension funds. Once the contributions have been paid, AzerEnergy has no further pension obligations. Upon retirement of employees, all pension payments are administered by the pension funds directly. Estimates and Assumptions. AzerEnergy makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments which have the most significant effect on the amounts recognized in the financial statements and estimates, and which can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year, include:
(i) Allowance for doubtful receivables. The determination of the recoverability of the amount due from customers involves the identification of whether there is any objective evidence of impairment. Bad debts are written off when identified. To the extent that it is feasible, impairment and collectability is determined individually for each item. In cases where that process is not feasible, a collective evaluation of impairment is performed. As a consequence, the way individual and collective evaluation is carried out and the timing relating to the identification of objective evidence of impairment require significant judgment and may materially affect the carrying amount of receivables at the balance sheet date.
(ii) Asset impairment tests. A financial asset or a group of financial assets are impaired
only when AzerEnergy ascertains that a “loss event” affecting the estimated future cash flows of the financial asset has occurred. It may not be possible to identify a single, discrete event that caused the impairment and moreover to determine when a loss event has occurred might involve the exercise of significant judgment.
(iii) Net realizable value of inventories. The determination of provisions for inventories
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involves an estimation process. The carrying cost of inventories is written down to their estimated realizable value when their cost may no longer be recoverable such as when inventories are damaged or become wholly or partly obsolete or their selling prices have declined. In any case the realizable value represents the best estimate of the recoverable amount and is based on the most reliable evidence available at the balance sheet date and inherently involves estimates regarding the future expected realizable value. The benchmarks for determining the amount of provision or write-down include ageing analysis, technical assessment and subsequent events. In general, such an evaluation process requires significant judgment and may materially affect the carrying amount of inventories at the balance sheet date.
Internal and External Audit Internal audit department of AzerEnergy was organized in March 2008. The financial statements of AzerEnergy have been audited in accordance with international auditing standards since 1998 because of lenders' requirements (EBRD, WB, Islamic Development Bank). The international audit of 2008 IFRS financial statements of AzerEnergy have been completed in June 2009. Information systems The Head Office of AzerEnergy and its subsidiaries, currently use the "1C” accounting software. To further improve reporting and automation of accounting, in close cooperation with major international accounting firms, the company intends to install a more sophisticated best practice management information system by the end of 2009. AzerEnergy currently uses from the following infrastructure:
(i) Local Area Network in Head Office; (ii) PCs in Head Office and its subsidiaries; and (iii) dial-up connection links to most accounting units;
Divergence from IFRS The independent audit report of the financial statements for the year 2008, in accordance with IFRS, revealed following non-compliance issues:
(i) "Property, plant and equipment have been re-valued twice, in 1993 and 1996, in order to take account of the effects of inflation during these years. The indices used were prescribed in the guidelines issued by the Cabinet of Ministers of the Republic of Azerbaijan. The indices used do not satisfy the requirements of IAS 29 “Financial Reporting in Hyperinflationary Economies” (Note 3 and 9 to the financial statements). As such, the balances of property, plant and equipment as well as the stakeholder’s equity as reflected in the accompanying financial statements do not represent amounts in accordance with IFRS.
(ii) A number of facts indicate that the recoverable amount of property, plant and
equipment might have declined below carrying value. However, no suitable cash flow forecasts have been prepared in order to consider the recoverable value of these assets as required by OAS 36 "Impairment of Asset". Accordingly, no adjustment has been made in the accompanying financial statements for any impairment that may have occurred.
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(iii) The company uses a diminishing balance depreciation method and depreciation rates
with respect to property, plant and equipment prescribed by the statutory tax regulations which do not reflect the expected pattern of economic consumption of economic benefits embodied in these assets and therefore in our opinion are not in compliance with IAS 16 "Property, plant and equipment". We were unable to estimate the impact of this departure from IFRES on the accompanying financial statements."
In response, to assist in transition to IFRS, on 30 April 2009, the company announced a tender for the revaluation of all fixed assets. This work is nearly complete and will be used in the preparation of 2009 IFRS financial statements of AzerEnergy due to be completed in June 2010.
B. Disbursement Proceeds from the ADB guaranteed Commercial Loan will be disbursed in accordance arrangements agreed upon between the Borrower and the Commercial Banks detailed in the Commercial Loan Agreement. Pursuant to ADB's Safeguard Policy Statement (2009) (SPS),3 ADB guaranteed funds may not be applied to the activities described on the ADB Prohibited Investment Activities List set forth at Appendix 5 of the SPS. Disbursement of the Phase 1 Financing provided by the commercial banks has been completed. Cofinancing from Islamic Development Bank, OPEC Fund for International Development and other possible cofinanciers will be provided directly to the Borrower.
C. Accounting AzerEnergy will maintain separate project accounts and records by funding source for all expenditures incurred on the Project. Project accounts will follow international accounting principles and practices or those prescribed by the Government's accounting laws and regulations.
D. Auditing AzerEnergy will cause the detailed consolidated project accounts to be audited in accordance with International Standards on Auditing and/or in accordance with the Government's audit regulations by an auditor acceptable to ADB. The audited accounts will be submitted in the English language to ADB within 6 months of the end of the fiscal year by the executing agency. The annual audit report will include a separate audit opinion on the use of the imprest accounts, SGIA, and the SOE procedures (as applicable). The Government and AzerEnergy have been made aware of ADB’s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the Project's financial accounts to confirm that the share of the financing guaranteed by ADB is used in accordance with ADB’s policies and procedures for guaranteed loans. For revenue generating projects only, ADB requires audited financial statements (AFS) for each executing and/or implementation agency associated with the project.
3 Available at: http://www.adb.org/Documents/Policies/Safeguards/Safeguard-Policy-Statement-June2009.pdf
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E. Information and Reporting by Lenders The Facility Agent shall provide to ADB as the Guarantor true and complete copies of the Commercial Loan Agreement, the Sovereign Guarantee and the other Financing Documents (together the "Transaction Documents") within [ten (10)] Business Days after the date of the Loan Agreement. The Sovereign Guarantee refers to the guarantee agreement dated [●] by the Republic of Azerbaijan in favor of the Guaranteed Lenders. The Transaction Documents must be either: (i) similar in all material respects to the draft copies provided to the Guarantor on or most recently prior to the Signing Date; or (ii) otherwise satisfactory in form and substance to the Guarantor acting reasonably. The Facility Agent shall provide to the Guarantor copies of each Guaranteed Commercial Agreement within ten (10) Business Days of receipt by the Facility Agent of such Guaranteed Commercial Agreement. During the Guarantee Term; any period after the Guarantee Term in which the Lenders have a Demand pending; and [one year] following the payment of any Demand, the Facility Agent shall:
(i) request under the Loan Agreement from the Borrower, within six (6) months after the close of each of its fiscal years, copies of its annual balance sheet and profit and loss statement and such other financial statements as may be required by the Guarantor, prepared (if available) in accordance with the International Accounting Standards and audited by an independent public accountant;
(ii) retain the documents referred to at the Facility Agent’s principal place of business or such other place agreed by the Guarantor;
(iii) deliver to the Guarantor a copy of each borrowing or utilisation notice delivered to the Guaranteed Lenders under the Loan Agreement and notify the Guarantor promptly after the date on which each disbursement is made under the Loan Agreement;
(iv) promptly furnish to the Guarantor such statements, data or other information as the Guarantor may reasonably request which relate to this Guarantee, the Sovereign Guarantee, the Loan or the Guaranteed Commercial Agreements;
(v) if this Guarantee is issued prior to the execution or applicable amendment of any Guaranteed Commercial Agreement, then promptly provide to the Guarantor a copy of such Guaranteed Commercial Agreement or any amendment to such Guaranteed Commercial Agreement;
(vi) promptly after the Facility Agent becoming aware thereof, notify the Guarantor in reasonable detail of:
(A) any event or circumstance that in its opinion is likely to cause a default (regardless of the cause) under this Guarantee or an event of default under the Loan Agreement and/or the Sovereign Guarantee;
(B) any notification received by it (by itself or from any of the Guaranteed Lenders) from the Government, the Sovereign Guarantor or the Borrower regarding any proposed or possible default under the Loan Agreement and/or the Sovereign Guarantee;
(C) any event of default under the Loan Agreement and/or the Sovereign Guarantee;
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(D) any prepayment of the Loan (or part thereof);
(E) the institution of any material court proceedings or arbitration against the Borrower (including insolvency or wind up proceedings); and
(F) any change in the name, corporate identity or legal nature of the Borrower or any of the Guaranteed Lenders.
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VI. PROCUREMENT AND CONSULTING SERVICES
A. Advance Contracting and Retroactive Financing
All advance contracting and retroactive financing will be undertaken in conformity with ADB’s Procurement Guidelines (February 2007, as amended from time to time) (ADB’s Procurement Guidelines)4 and ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time) (ADB’s Guidelines on the Use of Consultants) applicable to guaranteed loans.5 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The Borrower has been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project.
B. Procurement of Goods, Works and Consulting Services Procurement of goods and works will be undertaken in accordance with ADB’s Procurement Guidelines applicable to guaranteed loans. Civil works, in part financed by IsDB, are carried out under an engineering, procurement, and construction (EPC) contract awarded to Azerbaijan Energy Construction Company (AZENCO) in July 2007 through direct contracting, which was approved at the time by the State Procurement Agency. AZENCO is the largest civil/erection company in Azerbaijan and has successfully completed the construction of five power plants giving it the experience needed to undertake the EPC contract. The Project is a typical gas-fired plant similar to earlier projects completed by AZENCO, which has adequately experienced engineers, local manpower, and equipment, which will ensure the economy and efficiency of the civil works. Engagement of AZENCO also ensures compatibility of the Project with existing facilities in the power system. Main equipment and auxiliary systems were partly financed by a €285 million syndicated commercial bank loan under Financing Phase 1 and will for the remainder be financed by the OPEC Fund for International Development and other cofinanciers (possibly Abu Dhabi Fund for Development). The main combined cycle gas turbine equipment requires special technology and patents, which is currently only produced by a limited number of international suppliers. The auxiliary systems need to be compatible with the main equipment and have been ordered from specific suppliers. Therefore, limited international bidding (LIB) was applied to the procurement of main equipment. A number of qualified international suppliers including General Electric (GE), Areva, ABB, Alstom, and Monolit, were invited and participated in the bidding for procurement of main equipment, with the contract for gas turbines being awarded to GE. The majority of the auxiliary systems and spare parts were also awarded through LIB or direct contracting, in accordance with the specifications of the main equipment suppliers. Goods and works procured using LIB or direct contracting were acceptable to the participating financing institutions. ADB has conducted due diligence review to ascertain that the goods and works procured in relation to the main equipment and auxiliary systems are of satisfactory quality. AzerEnergy retained the services of Nard International FZE (NARD), United Arab Emirates to assist it with the procurement of auxiliary systems financed under the Financing Phase 1. AzerEnergy's rationale for outsourcing this procurement was its limited in-house capabilities and
4 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf 5 Available at: http://www.adb.org/Documents/Guidelines/Consulting/Guidelines-Consultants.pdf
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NARD's negotiating ability to obtain those goods at the desired quality against more advantageous pricing and other terms. The lead bank in the Financing Phase 1 loan has not encountered any problems with NARD's procurement role to date. As such, AzerEnergy wishes to continue using NARD for the procurement of goods to be financed by the Commercial Loan. AzerEnergy has been advised that its engagement of NARD will have to be contractually arranged so that the eligibility criteria for guarantee operations under ADB Procurement Guidelines (2007), including adherence to the principle of 'economy and efficiency' will be complied, and any fees paid to NARD are sourced from Azerenerji's own funds. Procurement for goods and works to be financed under the Commercial Loan (Financing Phase 2) will be carried out by Azerenergy following similar LIB, National Competitive Bidding, and any other procedure agreed with ADB. The goods and works to be procured include maintenance workshops, heavy fuel tanks, treatment system and laboratory equipment, and the decommissioning of the Shirvan TPP. The estimated value of each contract package is more than €30 million. Comparability, good interconnection, and ability to provide quality operation and maintenance are crucial to the performance of the plant, and these will be considered in the selection criteria and procurement method. The details of the procurement for goods and works under the Commercial Loan are in the Procurement Plan. All consulting services are financed from AzerEnergy's own resources. The contract for detailed engineering design was awarded to an engineering consultancy firm, China National Electric Equipment Corporation (CNEEC) through direct contracting. CNEEC does EPC contracting, electric and mechanical equipment supply, and engineering for thermal and hydropower plants, transmission and distribution, municipal and public utility projects. Previously, CNEEC was engaged by Azerenergy through international competitive bidding (ICB) procedure for a transmission line project financed by KfW and a rehabilitation of a thermal power plant financed by EBRD. The consultants have adequate professional qualifications and satisfactory performance in the assignment. The supervision consultancy service contract was awarded to engineering consulting firm, Shenzhen Nanshan Power Gas Turbine Engineering Co. Ltd. (NSRD), China, also through direct contracting. NSRD is responsible for reviewing the design and supervising the construction work including coordination of contractors and suppliers on site. NSDR was established in 1990 and has managed and operated 17 combined cycle power plants in China, of which 14 are based on the same type of GE gas turbines technology. Azerenergy sought interest from relevant international consulting firms working in the country on similar projects, and it was concluded that NSRD's price was the lowest among all available and qualified firms and competitive to other consulting firms engaged through ICB. As such, this single source selection approach is considered as appropriate and cost-effective. The consultant’s experience and competence have been assessed and found adequate to the proposed assignment.
C. Procurement Plan
PROCUREMENT PLAN
Project Name: Janub Gas Powered Combined Cycle Power Plant
Loan (grant) Number: to be determined (tbd)
Loan Amount: ADB Partial Credit Guarantee up to Euro 200 million
Executing Agency: Azerenergy Open Joint-Stock Company
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Date of first Procurement Plan November 2009
Date of this Procurement Plan: May 2010
Section 1: Process Thresholds, Review and 18 Month Procurement Plan
A. Project Procurement Thresholds
Except as ADB may otherwise agree, the following process thresholds shall apply to procurement of goods and works.
Procurement of Goods and Works Method Threshold Limited International Bidding (LIB) for Goods by Agent
At least $1,000,000
B. ADB Prior or Post Review
Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement methods used for the project. Procurement Method Prior or Post Comments LIB for Goods Post
C. Goods and Works Contracts Estimated to Cost More Than US$ 1 Million
The following table lists goods and works contracts for which procurement activities expected to commence within the next 18 months.
Funding Source
General Description
Contract Value
Procurement Method
Prequalification of Bidders (y/n)
Procurement Period
Comments
CB with ADB PCG
Maintenance workshops
€36 million
LIB No 3rd quarter 2010
CB with ADB PCG
Heavy fuel tanks €30 million
LIB No 3rd quarter 2010
CB with ADB PCG
Treatment system and lap equipment
€ 40.986 million
LIB No 1st quarter 2011
ADB = Asian Development Bank, CB = commercial banks. LIB = limited international bidding.
7 To be updated following Environmental and Social due diligence.
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VII. SAFEGUARDS
A. Project Safeguards
Construction. During construction of the Project there will be no major environmental impacts. Project implementation will require environmental monitoring and reporting during construction as detailed in the Environmental Management and Monitoring Plan (EMP) to avoid standard construction impacts. This will also ensure that mitigating procedures are implemented, such as run-off control via sedimentation ponds, bunding of fuel and oil storage areas, cleaning up construction sites, proper disposal of spoils, grading damaged land and replanting vegetation, and protecting the public from excessive noise and dust during construction. Special handling will be required with respect to toxic polychlorinated biphenyls (PCBs) in transformer cooling oil, if any. AzerEnergy has given assurance that the new transformers will be filled with non-toxic substitute for PCB. Since the Ecology Unit of AzerEnergi does not have sufficient skills to effectively implement an EMP, funding will be provided for an international specialist to provide training in environmental management Decommissioning and demolition. Environmental safeguards dealing with the decommissioning and demolition of the old Shirvan TPP will need to be clearly defined in the decommissioning and demolition contract. These safeguards will apply to the twelve old 5,000 m3 oil tanks and possibly also to the six newer 20,000 m3 oil tanks together with the loading and handling facilities. They will need to take into consideration relevant Azeri environmental laws and regulations and international standards. Operation. Monitoring and reporting during operation will follow provisions in the EMP prepared as an extra under the current contract for the Project. Resettlement and employment. There has been no personal loss of revenues caused by the move. The Project is classified as “C” and no formal resettlement plan was prepared. Resettlement Due Diligence Report is in Supplementary Appendix C. A total of 45 employees (pensioners and current) and 60 refugee families were living in the employee apartments in the location where the Project is being built. A new five story apartment block was built in the nearest town of Shirvan and the families have been resettled there with AzerEnergy's assistance. Survey conducted by ADB consultants in September 2009 indicate that: (i) relocation decisions were reached in concert with local authorities; (ii) most resettled households had persons who worked or attended school in Shirvan; (iii) some of the households had recreational garden plots on the site of the old plant that were not replicated in the new housing block; however, few complaints were lodged in this regard; and (iv) all were given the choice of relocating to the city or countryside, but very few chose the farming option. After notice and consultation, all transportation for the relocation was provided by AzerEnergy. Temporary housing allowance of AZN100 was provided for eight months. Indigenous Peoples. There are no indigenous people in the area of the old or new plant, the Project will not trigger the ADB's Policy on Indigenous Peoples, will be classified in this respect as “C”, and will not require the preparation of an Indigenous Peoples Development Plan. Employment. In 2007 when the Shirvan TPP was in full operation with six of the seven turbines running there were 1,012 employees. The number of needed employees decreased according to demand for power, as new more efficient plants come on line. In 2008 there were 964 staff and in late 2009 there were 381 staff. Since 2007, over 170 retired and 460 were re-employed
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with the assistance of AzerEnergy at various industrial and construction companies. In addition to receiving pension or severance payment, many of the former employees have small businesses and small plots of land for farming at Shirvan district. About 100 employees will be needed to operate the Project, of these 40 will be from the old Shirvan TPP. This will result in 341 additional redundancies, which will be assisted in re-employment, offered retirement, retrained for work inside AzerEnergy or given severance payment in accordance with Azerbaijani legislation.
B. Loan Safeguards Each Lender will severally represent and warrant to ADB in the PCG that in relation to the Commercial Loan, it is not nor any person or agent on behalf of it has been engaged in (i) Corrupt Practices, Fraudulent Practices, Collusive Practices or Coercive Practices in connection with its business and operations, (ii) Money Laundering or acted in breach of any applicable law relating to Money Laundering, or (iii) the Financing of Terrorism. Lenders will also severally represent and warrant to ADB that the Commercial Loan Agreement: (i) includes the ADB Required Provisions (modified only to the extent that the context requires and only in minor respects or with the written consent of the Guarantor); and (ii) requires the Project and the Borrower to comply in all material respects with the laws, regulations, orders and other requirements having the force of law of the Host Country. ADB Required Provisions in the Commercial Loan Agreement are: Part I Anticorruption Policy, Anti Money Laundering and the Prevention of Financing of Terrorism Anticorruption Policy 1. Definitions: Coercive Practice is impairing or harming, or threatening to impair or harm, directly or indirectly, any party or its property, to influence improperly the actions of a party. Collusive Practice is an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party. Corrupt Practice is the offering, giving, receiving, or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party. Financing of Terrorism means the act of providing or collecting funds with the intention that they be used, or in the knowledge that they are to be used, in order to carry out terrorist acts. Fraudulent Practice is an act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation. Money Laundering means: (a) the conversion or transfer of property, knowing it is derived from a criminal offence, for
the purpose of concealing or disguising its illegal origin or of assisting any person who is involved in the commission of the crime to evade the legal consequences of its actions;
(b) the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property knowing that it is derived from a criminal offence; or
(c) the acquisition, possession or use of property knowing at the time of its receipt that it is derived from a criminal offence.
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Obstructive Practice means (i) deliberately destroying, falsifying, altering or concealing evidence material to an investigation, or making false statements to investigators, in order to materially impede an investigation by [ADB] into allegations of a Coercive Practice, Collusive Practice, Corrupt Practice or Fraudulent Practice; and threatening, harassing or intimidating any party to prevent it from disclosing its knowledge of matters relevant to an investigation or from pursuing an investigation, or (ii) acts intended to materially impede the exercise of [ADB’s] contractual rights or access to information under [this Guarantee]. 2. Covenants: Money laundering; Anticorruption; Financing of Terrorism (a) The Borrower shall not (nor authorize any person acting on its behalf to) engage in:
(i) Corrupt Practices, Fraudulent Practices, Collusive Practices or Coercive
Practices in connection with [the Borrower’s business and operations, including the procurement or the execution of any contract for goods or works relating to the Borrower’s business]/[the Project, including the procurement or the execution of any contract for goods or works relating to the Project];
(ii) Obstructive Practices; (iii) Money Laundering, or act in breach of any Applicable Law relating to Money
Laundering; or (iv) the Financing of Terrorism,
and the Borrower shall institute, maintain and comply with internal procedures and controls following international standards for the purpose of preventing any action in breach of the provisions of this paragraph (a).
(b) The Borrower undertakes to inform ADB promptly if it should at any time obtain
information in relation to any violation or potential violation of the provisions of paragraph (a) above.
(c) If ADB notifies the Borrower of its reasonable concern that there has been a violation
of any of the provisions of paragraph (a) above, the Borrower will:
(i) cooperate in good faith with ADB and its representatives in determining whether such a violation has occurred;
(ii) respond promptly and in reasonable detail to any notice from ADB; and (iii) furnish documentary support for such response upon ADB’s request.
(d) Notwithstanding any other provision of this Agreement or any confidentiality
undertaking executed between the Borrower and ADB, the Borrower acknowledges that ADB may disclose to any competent national or international authority any information obtained by ADB in relation to any violation of any of the provisions of paragraph (a) above.
3. Event of Default The Borrower does not comply with any of the provisions of Clause 2 (Money laundering; Anticorruption; Financing of Terrorism).
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4. Representations and Warranties Neither the Borrower, nor any person on its behalf, has been engaged in (i) Corrupt Practices, Fraudulent Practices, Collusive Practices or Coercive Practices in connection with [the Borrower’s business and operations, including the procurement or the execution of any contract for goods or works relating to the Borrower’s business]/[the Project, including the procurement or the execution of any contract for goods or works relating to the Project], (ii) Money Laundering or acted in breach of any Applicable Law relating to Money Laundering; or (iii) the Financing of Terrorism. Part II Environmental and Social Requirements7 1. Definitions:
"Applicable Law" means the laws of the Republic of Azerbaijan. "Authorization" means [●]. "Corrective Action Plan" means a plan to correct all damage and adverse consequences caused by any failure by the Project, the Borrower or [_______] to comply with any Environmental and Social Requirement, which plan shall include: (i) a brief description of the non-compliance, including its extent, magnitude, impact and
cause; (ii) the proposed actions to correct the damage and adverse consequences caused by, the
non-compliance; (iii) the assignment of responsibility for implementing such proposed actions; (iv) a time schedule for implementing such proposed actions, including the start date, the end
date and key milestones; (v) the estimated cost of such proposed actions; and (vi) the proposed actions to prevent similar such non-compliance from occurring in the future. "Environmental and Social Compliance Report" means a report prepared by the Borrower, in form and substance satisfactory to the Guarantor and Guaranteed Lenders, as described in Clause [3] (Environmental and Social Information Covenants) to provide the information required to assess compliance with the environmental aspects of the Environmental and Social Provisions, including compliance with the environmental aspects of the Environmental and Social Requirements and the status of implementation and results of the environmental programs included in the Environmental Plans. "Environmental Consultant" means [___________________] or any other person from time to time appointed by the Guarantor to act as the environmental, health and safety advisor to ADB for purposes of this Agreement and the Environmental Monitoring Agreement. "Environmental Impact Assessment" means8 [name and date of Project EIA] and all supplements, modifications and amendments to it. "Environmental and Social Laws" means all Applicable Laws relating to the environment, human health or safety or laws relating to social issues, including minimum labour standards and laws prohibiting forced labour or harmful child labour. "Environmental and Social Management Plan" means either one plan covering both the Project construction and operation phases or two separate plans, one for each phase, describing the actions necessary to comply with all environmental issues included in the Environmental and Social Requirements, which plan shall in form and substance be satisfactory
8 To be discussed. Please clarify who would prepare such a document.
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to the Guarantor and the Guaranteed Lenders [and the providers of finance for the development of Phase 1 of the Janub Project] and shall include: (i) a detailed description of all necessary environmental mitigation measures and monitoring
activities, which are, at a minimum, those measures and monitoring activities defined in [the Environmental Impact Assessment] [the Environmental Plans and] each Authorization issued by any Authority, or otherwise, under any applicable Environmental Law;
(ii) a statement of the estimated cost, time schedule and assignment of responsibility for implementing each mitigation measure and monitoring activity;
(iii) a description of the specific Project supervision methods to be implemented to ensure that all measures and programs are completely and properly implemented by all responsible parties; and
(iv) a description of steps to be taken to ensure adequate information disclosure and consultation with the local population affected by the Project.
"Environmental Monitoring Agreement" means the agreement entered into, or to be entered into, between the Borrower, ADB and the Environmental Consultant, relating to the Environmental Consultant’s role under this Agreement. "Environmental Plans and Social Analysis" means: (i) the Environmental Management Plan; (ii) the Social Issues Management Plan; (iii) the Resettlement Plan; (iv) the Indigenous Peoples Plan; (v) the Health and Safety Plan; (vi) ADB’s Involuntary Resettlement Policy (1995); (vii) ADB’s Policy on Indigenous Peoples (1998); (viii) ADB’s Environmental Policy (2002); and (ix) each Corrective Action Plan, if any. "Environmental or Social Claim" means, with respect to the Borrower [and ___] any administrative, regulatory or judicial action or any written notice, claim, suit, Lien, judgment or demand by any other Person or any Authority, which alleges the Borrower’s [or ______’s] liability for costs of investigation, cleanup costs, consultants’ fees, governmental response costs, damage to natural resources (including wetlands, wildlife, aquatic and terrestrial species and vegetation) or other Property, including costs of land acquisition, income restoration and resettlement components for Persons affected by the Project, personal injuries, fines or penalties or any other damages in connection with: (i) the presence or release of any Hazardous Substance at any location, whether or not
owned by such Person; or (ii) circumstances forming the basis of any violation, or alleged violation, of any
Environmental and Social Law or any Authorization under any Environmental and Social Law.
"Environmental and Social Requirements" means all requirements of: (i) any Environmental or Social Law: (ii) any Authorization issued by any Authority or otherwise under any Environmental Law; (iii) any Environmental Plan and Social Analysis; and (iv) IFC Environmental and Social standards requirements. "Hazardous Substance" means any hazardous or toxic substances, materials or wastes defined, listed, classified or regulated as such in or under any applicable Environmental and Social Laws, including: (i) any petroleum or petroleum products (including gasoline or crude oil or any fraction of
them, but excluding small quantities of lubricating greases), flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and polychlorinated biphenyl;
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(ii) any chemicals, materials or substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants," "contaminants" or "pollutants", or words of similar import, under any applicable Environmental Law; and
(iii) any other chemical, material or substance, exposure to or release of which is prohibited, limited or regulated by any Authority.
2. Representation and Warranties The Borrower makes the following representations and warranties on the date of this Agreement:
(i) The Borrower:
(a) is not in violation of any of the Environmental and Social Requirements; and (b) has not received or is aware of any complaint, order, directive, claim, citation or
notice from any Authority with respect to any matter of compliance with Environmental and Social Laws.
(ii) There have been no investigations, studies, audits, reviews, reports, plans or other analyses which are in the possession of the Borrower with respect to any environmental or social matters that have not been delivered to the Guaranteed Lenders.
(iii) In relation to the Project or the Borrower, there are no past, pending or threatened Environmental or Social Claims or material complaints relating to environmental or social matters.
(iv) All information relating to the Project contained in any document submitted by the Borrower or any person on the Borrower’s behalf to any Authority in connection with any environmental or social matter was true, complete and accurate in all respects at the time of submission and no such document omitted any information the omission of which would have made such document misleading in any material respect.
(v) There are no facts, circumstances, conditions or occurrences regarding the Project that could reasonably be expected to: (a) form the basis of an Environmental Claim with respect to the development,
construction, ownership or operation of the Project, against the Project or the Borrower
(b) cause the Project to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law; or
(c) require any Authorization or disclosure of documents under any Environmental Law, except those Authorizations or disclosures which have already been obtained or made in compliance with such Environmental Law.
3. Covenants: 3.1 The Borrower shall: (i) design, construct, operate, maintain and monitor the Project and ensure that the Project
is designed, constructed, operated, maintained and monitored, in compliance with all Environmental and Social Requirements;
(ii) implement adequate on-going information disclosure and public consultation activities with the local population relating to environmental or social matters pertaining to the Project;
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(iii) cause any construction contractor and operator of the Project to implement and comply with the Environmental and Social Requirements;
3.2 The Borrower shall upon the reasonable request of the Facility Agent, permit ADB, or an independent consultant engaged by [the Guarantor], at the expense of the Borrower, to perform an independent audit with respect to environmental or social matters in relation to the Project and the Borrower to: (i) confirm compliance with the Environmental and Social Provisions and to identify any
adverse impacts, risks or liabilities with respect to environmental or social matters that have not been adequately mitigated or compensated; and
(ii) if necessary, prepare a Corrective Action Plan, in form and substance satisfactory to the Guaranteed Lenders and the Guarantor, to correct any identified non-compliance or deficiency, whereupon the Borrower shall implement such Corrective Action Plan.
3.3 The Borrower shall deliver to the Facility Agent, with a copy to the Environmental Consultant (in the case of the Environmental Compliance Report) and to the Social Consultant (in the case of the Social Issues Compliance Report), two copies of an Environmental Compliance Report and a Social Issues Compliance Report with a copy of each such report to the Guarantor: (i) for each whole or partial calendar year quarter prior to [Technical Completion Date], in
respect of that calendar quarter or part no later than fifteen (15) Business Days after the end of each such period;
(ii) [for each calendar year quarter during the one year period commencing on [the Technical Completion Date], in respect of that calendar quarter, no later than 45 days after the end of each such period; and
(iii) thereafter, for each calendar year in respect of that calendar year, no later than 60 days after the end of each such period.]
3.4 The Borrower shall notify the Facility Agent as soon as possible, but in any event within five (5) Business Days of its occurrence, of any fact, circumstance, condition or occurrence that has or could likely result in any of the following relating to the Project or the Borrower:
(i) any non-compliance with the Environmental and Social Requirements; (ii) any material adverse impact relating to any environmental or social matter, including any
deaths or significant injuries or accidents, release of Hazardous Substances, explosions or fires;
(iii) any material written communication with any Authority relating to any environmental or social matter;
(iv) any Environmental Claim; or (v) any material complaints relating to environmental or social matters, and such notice shall include a reasonable description of the event detailing the extent, magnitude, impact and cause of such event together with corrective or remedial actions taken or proposed to be taken with respect such ever, and as necessary, a Corrective Action Plan in form and substance satisfactory to the Guarantor and the Guaranteed Lenders.
3.5 Unless the Guaranteed Lenders otherwise agrees, the Borrower shall not directly or indirectly, take any action associated with the Project which may result, directly or indirectly, in the resettlement or related indemnification of any Person, unless the Borrower has submitted to
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the Facility Agent the Resettlement Plan, in form and substance satisfactory to the Guarantor and the Guaranteed Lenders, which fully complies with the ADB Policy on Involuntary Resettlement (dated [August 1995]) and the ADB Policy on Indigenous Peoples (dated [____]) each as amended and supplemented up to the date of this Agreement and all such actions and indemnification fully complies with such ADB Policy, all applicable Environmental and Social Laws and the Resettlement Plan; 3.6 Unless the Guarantor and the Guaranteed Lenders otherwise agree, the Borrower shall not directly or indirectly make any material change or modification to any Environmental Plan and Social Analysis. 4. Events of Default: 4.1 The Borrower does not comply with any of the provisions of Clause [3] (Covenants]. 4.2 The representations and warranties made by the Borrower in Clause [2] (Representations and Warranties) is or proves to have been incorrect or misleading in any material respect when made or deemed to be made. Part III Use of Proceeds 1. Use of Proceeds The Borrower shall apply the proceeds of the Loan only in reimbursement of, or payment for, expenditures incurred on the Project in territories of those countries, which are a member of ADB, for goods produced in or services supplied from such territories. 2. Conditions Precedent of All Disbursements (●) the proceeds of that Disbursement will be applied only in accordance with the provisions of the Clause [●] (Use of Proceeds);
3. Event of Default ADB reasonably determines that any of the proceeds of the Loans under this Agreement are applied in a manner not consistent with the Borrower's obligations under Clause [●] (Purpose) and [●] (Use of Proceeds).
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VIII. PCG AND COUNTER-GURANTEE
A. Demand under PCG Note; this text is an extract of a few relevant clauses from the PCG, and should there be a possible or actual Guaranteed Event the PCG should be referred to only. Guarantee. Subject to the provisions of the PCG, ADB as Guarantor guarantees and undertakes to the Guaranteed Lenders that, each time a Guaranteed Event occurs during the Guarantee Term, the Guarantor will pay to the Facility Agent for the benefit of the Guaranteed Lenders the relevant Guaranteed Amount(s). "Guaranteed Event" means the non-payment by the Borrower of any Principal (including for the avoidance of doubt all advances or loans under the Loan Agreement whether advanced to pay amounts due under the Guaranteed Commercial Agreements or other purpose) and Covered Interest. "Covered Interest" means interest on the Loan payable at the interest rate specified in the Loan Agreement, which shall include, for the avoidance of doubt, the ADB Guarantee Fee. "Guaranteed Amount" means the unpaid amount of any Principal or Covered Interest, whether it has fallen due as a result of a mandatory (but not voluntary) prepayment event multiplied by the Guaranteed Percentage. "Guaranteed Percentage" means 80%. The Guarantor is only liable under the PCG to pay any Guaranteed Amount (and only in accordance with the terms and subject to the conditions set out in this PCG) if and to the extent that the Facility Agent delivers to the Guarantor a Demand in respect of such Guaranteed Amount and such Demand substantially complies with the requirements of Clause Error! Reference source not found. (Demands and Payment) of the PCG. Maximum Aggregate Liability. Notwithstanding any other provision of the PCG, the aggregate liability of the Guarantor under the PCG (excluding interest payable under Clause Error! Reference source not found. (Interest) and [●])9 will never exceed the Maximum Aggregate Liability of [●]. Demand Period. The Facility Agent may make a Demand for payment of any Guaranteed Amount which is due in respect of a Guaranteed Event within the period beginning on the first day of the Facility Agent being aware of such Guaranteed Event and [ending on and including the date which is 60 Business Days after expiry of the 10 business day Waiting Period.] Right of Accelerated Payment. Subject to Clause Error! Reference source not found. (Maximum Aggregate Liability) and Clause Error! Reference source not found. (Transfers and Subrogation) of the PCG, the Guarantor may, at any time after a Guaranteed Event has occurred, prepay to the Facility Agent, for the benefit of the Guaranteed Lenders, the Guaranteed Percentage of all or any part of the aggregate Principal outstanding at such time; plus the accrued and unpaid Covered Interest under the Loan Agreement through to the date of such prepayment.
9 To be completed to deal with hedging liabilities and prior to finalization of the terms of this Guarantee to include any
other possible liabilities eg for breach of contract, gross-up etc, not being the Guaranteed Amount
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Transfer and assignment of non guaranteed amounts. In addition to the transfer and assignment pursuant to Clause Error! Reference source not found. of the PCG, the Guaranteed Lenders may, with the consent of the Guarantor, which consent may be granted or withheld by the Guarantor at its sole discretion, transfer and assign, free from any Security or other right (including any consent right) in favour of any of the Guaranteed Lenders or any other person, to the Guarantor any additional rights as specified in Clause Error! Reference source not found. related to the portion of the Loan that is not guaranteed by the Guarantor or otherwise. Following any such transfer and assignment having taken place, the Guarantor shall take such steps as it, in its sole discretion, considers appropriate or it has otherwise agreed with the Guaranteed Lenders to pursue potential recoveries from any Recovery Counterparty (the "Potential Recoveries") in respect of any of the additional rights assigned or transferred thereunder, and subject to Clause Error! Reference source not found. (Overriding Rights of the Guaranteed Lenders) and any agreement with the Guarantor to the contrary, the Guarantor shall have no liability to any of the Guaranteed Lenders in respect of the manner in which it pursues such Potential Recoveries. If the Guarantor receives any Recovered Amounts, the Guarantor shall pay to the Guaranteed Lenders such portion of those Recovered Amounts in accordance with Clause Error! Reference source not found.. Nothing in Clause 0 and 0 shall oblige the Guarantor to pay to the Guaranteed Lenders any amount in respect of any additional rights transferred and assigned to the Guarantor pursuant to Clause 0 if no recoveries are received by the Guarantor. General Exclusions and Reserved Rights. The Guarantor is not liable to pay any Guaranteed Amount in respect of any Guaranteed Event to the extent that the Guaranteed Event is directly caused by or arises from any event listed in Schedule F (General Exclusions) of the PCG. Each of the Guaranteed Lenders shall comply in all respects with Reserved Matters as set out in Schedule G of the PCG.
B. Demand under Counter-Guarantee and Indemnity Note; this text is an extract of a few relevant clauses from the Counter-Guarantee and Indemnity, and should there be a possible or actual demand, the Counter-Guarantee and Indemnity should be referred to only. In consideration of ADB entering into the ADB Guarantee Agreement, (PCG) under the Counter-Guarantee and Indemnity Azerbaijan unconditionally and irrevocably: (a) agrees to indemnify and keep ADB indemnified upon demand against all amounts paid by ADB pursuant to a Demand under the ADB Guarantee Agreement, together with interest at the ADB's prevailing lending rate for Euribor based loans on such amounts, from the date such amounts are paid by ADB until such amounts are reimbursed by Azerbaijan; and (b) agrees to indemnify and keep ADB indemnified upon demand from and against all actions, proceedings, liabilities, claims, losses, demands, damages, costs and expenses suffered, incurred or sustained by ADB directly or indirectly in relation to or arising out of PCG or the enforcement of the Counter-Guarantee and Indemnity Agreement. Effect of a Demand under the PCG. For the purposes of the Counter-Guarantee and Indemnity Agreement, the existence of any Demand is conclusive evidence that such Demand is properly made pursuant the PCG and that any payment by ADB pursuant to such Demand is properly due. Azerbaijan authorizes ADB to make all payments pursuant to any Demand served upon
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ADB pursuant to the PCG. Azerbaijan’s obligations are not contingent upon ADB providing notice of any Demand to Azerbaijan or upon ADB making any inquiry regarding the truthfulness of any statement made in any Demand. Immediate Recourse. ADB, shall not be obliged before taking steps to enforce any rights conferred on ADB by the Counter-Guarantee and Indemnity Agreement or exercising, or taking steps to exercise, any of the rights, powers and remedies conferred upon ADB by this Agreement, the PCG or any other related agreement or by law: (a) to take action or obtain judgment in any court or arbitral tribunal against any other person, including persons from whom ADB may seek reimbursement of or indemnification against amounts paid or liabilities incurred by ADB under the PCG; (b) to enforce or seek to enforce any other rights ADB may have against Azerbaijan; or (c) to proceed against or enforce any other rights or security or claim payment from any person. If ADB is subrogated to the rights of any of the ADB Guaranteed Lenders under the Loan Agreement by virtue of (i) ADB making any payment under the PCG (the "ADB Subrogated Rights"), or (ii) ADB buying out any of the ADB Guaranteed Lenders' rights under the Loan Agreement (the "ADB Acquired Rights") pursuant to the PCG, ADB shall be entitled (as between Azerbaijan and ADB) to all rights and privileges in respect of the ADB Subrogated Rights and/or the ADB Acquired Rights (as the case may be) as ADB has or would have had, (by reason of the ADB Charter or otherwise) in respect of the Loan Agreement and/or a similar loan facility made to a company incorporated in Azerbaijan. Azerbaijan shall not be subrogated to the ADB Subrogated Rights or the ADB Acquired Rights until: (i) ADB's liability under the PCG has been irrevocably and unconditionally discharged or released in full; (ii) all actual and contingent liabilities of Azerbaijan under this Agreement and all other documents entered into pursuant to Section 3.09 have been unconditionally and irrevocably discharged or released in full; and (iii) all such other documents entered into pursuant to Section 3.09 have irrevocably and unconditionally been terminated or expired. Governance. Pursuant to the Counter-Guarantee and Indemnity Agreement Azerbaijan shall ensure that the Borrower complies with ADB’s Anticorruption Policy (1998, as amended to date) for the purposes of the Project. Azerbaijan, consistent with its commitment to good governance, accountability and transparency, agrees (a) that ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project and (b) to cooperate fully with any such investigation and to extend all necessary assistance. Azerbaijan shall cause the Borrower to provide in all contracts financed under the Loan Agreement provisions specifying the right of ADB to audit and examine the records and accounts of the Borrower and all contractors, Change of Control. Azerbaijan shall ensure that ADB’s consent is obtained at least 6 months prior to the implementation of any of the following: (i) any change in ownership of any asset, facility or structure financed under the Project; (ii) any sale, transfer, or assignment of interest or control in any asset, facility or structure financed under the Project; or (iii) any restructuring, reorganization, lease or other contract or modification of the functions and authority of the Borrower over operation and maintenance of any such asset, facility or structure financed under the Project. Azerbaijan shall ensure that any such changes will be carried out in a legal and transparent manner. Policy Commitments. Azerbaijan shall ensure that (i) the State Program on the Development of the Fuel and Energy Sector in Azerbaijan (2005–2015) is implemented; (ii) its medium term
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tariff policy, which incorporates transition to full cost recovery for utility service providers by 2010, is implemented; (iii) the distribution companies are required to make timely payments for 100% of the power received from the Borrower; (iv) it allocated budgetary funds and provides annual financial support to the Borrower to enable it to fulfill its obligations under the Loan Agreement; and (v) the Borrower makes available all counterpart funding and facilities required for the Project.
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IX. GENDER AND SOCIAL DIMENSIONS
1. The project is not expected to have any adverse impact on women. However, it is expected to benefit women in various ways. Like any other project that increases the quality and availability of the power supply, it is expected to enhance their income-generating capacity, physical mobility, and ability to organize work based on convenience, knowledge on gender issues, and decision-making power The project has no land acquisition impacts—60 families and including 3 refugee families have been relocated from the employee apartments on the site to a new five-story apartment building in the nearest town. 2. The main beneficiaries of the project are the industrial and retail customers. The improvement in the quality and availability of the power supply are bound to enhance their production and employment-generating capacity. 4. Domestic users will also benefit from the improved quality and availability of the power supply by allowing home businesses to extend time for work and recreation and by enhancing social services, among others. 5. The improved quality and availability of electricity will increase women’s access to information and technology, and increase their income-generating capacity, physical mobility, and ability to organize work based on convenience, knowledge on gender issues, and decision-making power. 6. Indigenous peoples. No indigenous people live in the area of the old or new plant. The project will not trigger ADB's Policy on Indigenous Peoples (1998), will be classified in this respect as “C”, and will not require the preparation of an indigenous peoples development plan.10. Employment. In 2007, when the Shirvan TPP was in operation with six of the seven turbines running, it employed 1,012 people. The number of employees needed to run the plant decreased, as new and more efficient plants have come on line. The Shirvan TPP staff dropped from 964 in 2008 to 381 in late 2009. Since 2007, more than 170 have retired and 460 were reemployed with the assistance of AzerEnergy at various industrial and construction companies. In addition to receiving a pension or severance payment, many of the former employees have small businesses and small plots of land for farming in Shirvan district. About 100 employees will be needed to operate the project plant. Of these, 40 will come from the old Shirvan TPP. This will result in 341 additional redundancies, and they will be assisted in reemployment, offered retirement, retrained for work inside AzerEnergy, or given severance payment in accordance with national laws. 1. {With reference to the summary poverty reduction and social strategy (SPRSS) report11 (linked RRP document) describe how each action plan required under the project (gender,12 consultation and participation, labor, HIV/AIDs, and other social risks) will be implemented—i.e. (i) describe who is responsible to ensure the actions are implemented, (ii) what resources are required to implement the action plans, and, (iii) if there is not a consultation and participation
10 Summary Poverty Reduction and Social Strategy (Appendix 2). 11 ADB's Handbook on Social Analysis: A Working Document: http://www.adb.org/Documents/Handbooks/social-
analysis/default.asp. 12 Briefing Note: Project Gender Action Plans: http://www.adb.org/Documents/Brochures/Project-Gender-Action-
Plans/default.asp, and Updated Gender Mainstreaming Categories of ADB Projects: https://lpedgedmz.adb.org/lnadbg1/ocs0178p.nsf/0/37CC7D6E8E3CC57D482576E20083C156?OpenDocument
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plan, how various stakeholders will be engaged in implementing action plans.13 See Section IX.B to describe how the gender and social dimensions will be monitored.}
13 Staff Guide to Consultation and Participation: http://www.adb.org/participation/toolkit-staff-guide.asp and, CSO Sourcebook: A Staff Guide to Cooperation with Civil Society Organizations: http://www.adb.org/Documents/Books/CSO-Staff-Guide/default.asp.
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X. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION
A. Project Design and Monitoring Framework
Design Summary Performance Targets/Indicators
Data Sources/ Reporting
Mechanism
Assumptions and Risks
Impact Azerbaijan power system provides electricity needed for sustained economic growth.
The frequency and duration of forced outages will be reduced from 8-10 times per year in 2008 to 0.2 times by 2012. Annual net CO2 emission is reduced by 1.3 million ton by 2012.
Annual national statistics report Statistics regularly produced by AzerEnergy
Assumptions Macroeconomic growth remains stable. Government remains committed to power sector reforms and development. Power transmission and distribution bottlenecks are resolved.
Outcome AzerEnergy capacity to provide efficient and reliable power to customers is increased.
Reduce fuel use to generate 1kWh, from 386 grams of conventional fuels to 260 grams by 2012. Difference between installed and available capacity increased from 80% (2008) to 95% by 2012. AzerEnergy mobilizes up to Euro 220 million syndicated commercial debt financing, with a term of at least 13 years, by mid 2010,
Annual national statistics report Statistics regularly produced by AzerEnergy Signed Commercial Loan Agreement
Assumption Government and AzerEnergy's commitment to establishment and implementation of comprehensive power sector development roadmap. Risks Inadequate maintenance. Tariff inadequate to finance investment and maintenance. Sudden deterioration of international credit markets prevents ADB PCG from overcoming international loan market access barrier.
Output Construction of 780MW combined cycle power plant
Commissioning of plant and supply of power by 2012.
Project quarterly progress reports
Assumptions Timely provision of counterpart funds by the Government.
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and auxiliary services.
Timely provision of the funds from the Commercial Loan and other cofinanciers. Risks Cost overruns caused by unexpected and substantial material cost increases. Delay in procurement due to delay in Government approvals. Delay in construction due to relative inexperience of the EPC contractor. Delay in negotiations, approval and or execution of Government counter-guarantee and indemnity
Inputs Cofinancing: €658 million Item
Amount (€ million)
Commercial (second financing phase) ADB guarantee Commercial (first financing phase) IsDB OFID
Up to €220 million 80% of commercial loan (second financing phase) plus accrued interest and break costs €284 million €134 million €20 million
Activities with Milestones 1.1 Mandate awarded by AzerEnergy to lead banks to
arrange and provide Commercial Loan (Jan 2010). 1.2 PCG negotiated (June 2010). 1.3 Commercial Loan facility agreement negotiated,
syndication completed by lead banks and funds available for disbursement (Jul/Aug 2010).
2.1 Establishment of Investment Department and Ecology
Unit by AzerEnergy (Dec 2009) 2,2 Preparation of International Financial Reporting
Standards statements of Azerenerji without qualification (mid [2011])
3.1 Remaining equipment and civil works contracts signed
by AzerEnergy (May 2010). 3.2 Construction and commission of project facilities
completed by AzerEnergy (Dec 2011). 4. Decommissioning by AzerEnergy of old facilities
completed by Dec 2013.
Government: €33 million
D R A F T
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ADB = Asian Development Bank, ADFD= Abu Dhabi Fund for Development, AzerEnergy = Azerenerji Open-Joint Stock Company, CO2 = carbon dioxide, EPC = engineering, procurement, and construction, GWh = Gigawatt hour, MW = megawatt, OFID= OPEC Fund for International Development.
B. Monitoring
1. Project performance monitoring The lenders will provide ADB with quarterly reports including that for disbursement and compliance with ADB policies and guarantee and loan covenants.. Monthly update reports will be provided on the procurement, environmental and social policies compliance. 14 } 2. Compliance monitoring: Policy, legal, financial, economic, environmental, and others covenants will be monitored through quarterly reports and monthly updates as well as semi-annual review missions. 3. Safeguards monitoring Gender and social dimensions monitoring:: The Ecology Department will be responsible for monitoring and reporting on environment plans and any social impacts though inclusion in the monthly or quarterly reports. Any extraordinary events will be reported immediately to ADB.
C. Evaluation
Within 6 months of physical completion of the Project Azerenerji will submit a project completion report to ADB.16
D. Reporting
Azerenerji will provide ADB with (i) quarterly progress reports in a format consistent with ADB's project performance reporting system; (ii) consolidated annual reports including (a) progress achieved by output as measured through the indicator's performance targets, (b) key implementation issues and solutions; (c) updated procurement plan and (d) updated implementation plan for next 12 months; and (iii) a project completion report within 6 months of physical completion of the Project. To ensure projects continue to be both viable and sustainable, project accounts and the executing agency AFSs, together with the associated auditor's report, should be adequately reviewed.
E. Stakeholder Communication Strategy 4. AzerEnergy will follow the EMMP and inform stakeholders of adverse impacts immediately through press briefings and consultations during the course of construction.
14 ADB's project performance reporting system is available at:
http://www.adb.org/Documents/Slideshows/PPMS/default.asp?p=evaltool 16 Project completion report format is available at: http://www.adb.org/Consulting/consultants-toolkits/PCR-Public-
Sector-Landscape.rar
D R A F T
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XI. ANTICORRUPTION POLICY
ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Project.17 All contracts financed with ADB PCG support shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all Project contractors, suppliers, consultants and other service providers. Individuals/entities on ADB’s anticorruption debarment list are ineligible to participate in ADB-financed activity and may not be awarded any contracts under the Project.18 To support these efforts, relevant provisions are included in the Commercial Loan Agreement and the bidding documents for the Project.
17 Available at: http://www.adb.org/Documents/Policies/Anticorruption-Integrity/Policies-Strategies.pdf 18 ADB's Integrity Office web site is available at: http://www.adb.org/integrity/unit.asp
D R A F T
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XII. ACCOUNTABILITY MECHANISM
People who are, or may in the future be, adversely affected by the Project may address complaints to ADB, or request the review of ADB's compliance under the Accountability Mechanism.19
19 For further information see: http://compliance.adb.org/.
D R A F T
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XIII. RECORD OF PAM CHANGES
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