Conformed Copy - L2958 CN - Phosphate Development Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2958 CHA (Phosphate Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and GUIZHOU PHOSPHATE COMPANY Dated January 31, 1989 LOAN NUMBER 2958 CHA PROJECT AGREEMENT AGREEMENT, dated January 31, 1989, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and GUIZHOU PHOSPHATE COMPANY (the Company). WHEREAS: (A) by the Loan Agreement of even date herewith between the People's Republic of China (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to sixty-two million seven hundred thousand dollars ($62,700,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Company agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and the Company, the proceeds of the loan provided for under the Loan Agreement will be made available to the Company on the terms and conditions therein set forth; and WHEREAS the Company, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Page 2 Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. The Company declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, the Company shall carry out Part A of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and with environmental standards satisfactory to the Bank, and the Company shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for its Part of the Project. Section 2.02. The Company shall maintain the Project management team established for the purposes of carrying out Part A of the Project. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and employment of engineering firms and consultants required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 2.04. The Company shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and Part A of the Project. Section 2.05. The Company shall duly perform all its obligations under its respective Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, the Company shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement to affect the provisions of paragraph (a) of Section 3.02 of the Loan Agreement. Section 2.06. (a) The Company shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) The Company shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Loan, or the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.07. The Company shall: (a) prepare and furnish to the Bank for comment, by June 30, 1989, a comprehensive program to strengthen management and recruit and train staff; and (b) carry out such a program as agreed with the Bank, including the training under Part A.2 of the Project. Section 2.08. The Company shall ensure that the triple superphosphate plant at Wengfu shall be constructed and ready for operations, in accordance with terms of reference and timing agreed between the Bank and the Company. ARTICLE III Page 3 Management and Operations of the Company Section 3.01. The Company shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. The Company shall at all times operate and maintain its plants, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and administrative practices. Section 3.03. The Company shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. The Company shall construct and operate the facilities under Part A of the Project with due regard to safety, ecological and environmental factors and in accordance with environmental standards satisfactory to the Bank. ARTICLE IV Financial Covenants Section 4.01. (a) The Company shall maintain records and accounts adequate to reflect, in accordance with sound accounting practices, its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures for Part A of the Project. (b) The Company shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) and the Special Account for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of its financial statements for such year as so audited; and (B) the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree: (i) the Company shall not incur any debt, unless the net revenues of the Company for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.2 times the estimated maximum debt service requirements of the Company for any succeeding fiscal year on all debt of the Company, including the debt to be incurred; (ii) the Company shall not incur any debt, unless a reasonable forecast of the revenues and expenditures of the Company shows that the estimated net revenues of the Company for each fiscal year during the term of the debt to be incurred shall be at least 1.2 times the estimated debt service requirements of the Company in such year on all debt of the Company including the debt to be incurred; Page 4 (iii) the Company shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 75 to 25; (iv) the Company shall maintain a ratio of current assets to current liabilities of not less than 1.2; (v) before October 31 in each of its fiscal years, the Company shall, on the basis of forecasts satisfactory to the Bank, review whether it would meet the requirements set forth in sub-paragraph (iv) in respect of such year and the next following fiscal year and shall furnish to the Bank the results of such review upon its completion; and (vi) if any such review shows that the Company would not meet the requirements set forth in sub-paragraph (iv) for the fiscal years covered by such review, the Company shall promptly take all necessary measures in order to meet such requirements. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of the Company maturing by its terms more than one year after the date on which it is originally incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations adjusted to take account of the Company's prices in effect at the time of the incurrence of debt even though they were not in effect during the twelve-month period to which such revenues relate and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (iv) The term "net non-operating income" means the difference between: (A) revenues from all sources other than those related to operations; and (B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (A) above. (v) The term "debt service requirements" means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of the Company not allocated to cover specific liabilities. (vii) The term "current assets" means cash, all assets which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inventories and pre-paid expenses properly Page 5 chargeable to operating expenses within the next fiscal year. (viii) The term "current liabilities" means all liabilities which will become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. (ix) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. (c) Except as the Bank shall otherwise agree, the obligations of the Company set forth in paragraph (a) of this Section shall not apply until the end of the following fiscal years: (i) for sub-paragraph (a) (i), 1995; (ii) for sub-paragraph (a) (iii), 1997; and (iii) for sub-paragraph (a) (iv), 1996. Section 4.03. The Company shall prepare and review with the Bank, by October 31 of each year, starting October 31, 1989 and ending October 31, 1997, its five-year rolling financial plans, including production, marketing and investment plans, in the form of projected financial statements. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of the Companies thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify each of the Companies thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Page 6 Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Company: Guizhou Phosphate Company No. 170, Henan Town Guiyang People's Republic of China Cable address: 4099 Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of any of the Company may be taken or executed by the General Manager of the Company or such other person or persons as such General Manager shall designate in writing, and such General Manager shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ S. Javed Burki Acting Regional Vice President Asia GUIZHOU PHOSPHATE COMPANY By /s/ Han Xu Authorized Representative