China - Irrigated Agriculture Intensification Project : Credit 2256 - Credit Agreement - Conformed

CREDIT NUMBER 2256 CHA -A/ 333-7 -6&iI Development Credit Agreement (Irrigated Agriculture Intensification Project) between PEOPLE'S REPUBLIC OF CHINA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated ) m. , 1991 CREDIT NUMBER 2256 CHA DEVELOPMENT CREDIT AGREEMENT AGLEEMENT, dated JA1^A_ 2- , 1991, between PEOPLE'S REPIBLIC OF CHINA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Association to assist in the financing of the Project; (B) the Borrower has also requested the International Bank for Reconstruction and Development (the Bank) to provide additional assistance towards the financing of the Project and by an agreement of even date herewith between the Borrower and the Bank (the Loan Agreement), the Bank is agreeing to provide such assistance in an aggregate principal amount equivalent to one hundred forty-seven million one hundred thousand dollars ($147,100,000) (the Loan); (C) the Borrower and the Association intend, to the extent practicable, that the proceeds of the Credit provided for in this Agreement (the Credit) be disbursed on account of expenditures in respect of the Project before disbursements of the proceeds of the Loan provided for in the Loan Agreement are made; and (D) the Project will be carried out by Anhui Province, Jiangsu Province and Shandong Province (the Project Provinces) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the Project Provinces the proceeds of the Credit as provided in this Agreement and the proceeds of the Loan as provided in the Loan Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith among the Association, the Bank and the Project Provinces; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Develop- ment Credit Agreements" of the Association, dated January 1, 1985, -2- with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditionv and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Anhui Special Account," "Jiangsu Special Account," and "Shandong Special Account" mean the accounts referred to in Section 2.02 (b) of this Agreement. (b) "CATEC" means a County Agrotechnical Extension Center, established under a county agricultural department in the Project Areas. (c) "Loan Agreement" means the agreement of even date herewith between the Borrower and the Bank for the Project, as such agreement may be amended from time to time; and such term includes the "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, as applied to such agreement, and all schedules and agreements supplemental to the Loan Agreement. (d) "Project Agreement" means the agreement among the Association, the Bank and Anhui Province, Jiangsu Province and Shandong Province of even date herewith, as the same may be amended from time to time, and such term includes all I'ladules and agreements supplemental to the Project Agreement. (e) "Project Areas" means 21 counties in northern and northwestern Anhui, 24 counties in northern Jiangsu and 28 counties in south and southwestern Shandong, as agreed among the Borrower, the Association and the Bank, and "Project Area" means, for each Project Province, such of its counties as are included in the Project Areas. (f) "PMO" means a project management office at the p,ovin- cial, prefectural or county level, established and maintained pursuant to paragraph D.l(b) of Schedule 2 to the Project Agreement. (g) "Project Provinces" means Anhui Province, Jiangsu Province and Shandong Province, collectively, and "Project Province" means any of the Project Provinces. -3- (h) "Special Accounts" means the Anhui Special Account, the Jikc,gsu Special Account and the Shandong Special Account, collec- tively, and "Special Account" means any of the Special Accounts. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to one hundred thirty-nine million Special Drawing Rights (SDR 139,000,000). Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall, for the purposes of the Project, open and maintain in dollars three separate special deposit accounts in a bank and on terms and conditions satisfactory to the Associa- tion, including appropriate protection against set-off, seizure or attachment, to be known as the Anhui Special Account, the Jiangsu Special Account and the Shandong Special Account, respectively. Deposits into, and payments out of, the Special Accounts shall be made in accordance with the provisions of Schedule 3 to this Agreement. Section 2.03. The Closing Date shall be June 30, 1997 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdrawn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate -4- set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restric- tions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on February 15 and August 15 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each February 15 and August 15 commencing August 15, 2001 and ending February 15, 2026. Each installment to and including the installment payable on February 15, 2011 shall be one and one-fourth percent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due considera- tion by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid. If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association -5- on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without limitation or restriction upon any of its other obligations under the Development Credit Agreement, shall cause the Project Provinces to perform in accordance with the provisions of the Project Agreement all the obligations therein set forth, shall take or cause to t- taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Project Provinces to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make the proceeds of the Credit and of the Loan available to the Project Provinces on terms and conditions satisfactory to the Association and the Bank. (c) The Borrower shall maintain a Central Project Steering Group under its Ministry of Water Resources, to coordinate Project implementation, with composition and responsibilities acceptable to the Association. Section 3.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Credit -6- shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Borrower and the Association hereby agree that the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by the Project Provinces pursuant to Section 2.03 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of statements of expenditures, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made; and (iii) enable the Association's representatives to examine such records. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Special Accounts for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after -7- the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; and (iii) furnish to the Association such other information concerning said records and accounts and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the following additional events are specified: (a) Any of the Project Provinces shall have failed to perform any of its obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that any of the Project Provinces will be able to perform its obligations under the Project Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, that any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower. -8- ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions: (a) the Borrower's State Council has approved the Develop- ment Credit Agreement; and (b) all conditions precedent to the effectiveness of the Loan Agreement shall have been fulfilled, other than those related to the effectiveness of this Agreement. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Project Agreement has been duly authorized or ratified by the Project Provinces, and is legally binding upon the Project Provinces in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Sanlihe Beijing 100820 People's Republic of China -9- Cable address: Telex: FINANMIN 22486 MFPRC CN Beijing For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) 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. PEOPLE'S REPUBLIC OF CHINA By Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By Regional Vice President Asia - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit and of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit and of the Loan, the allocation of the amounts of the Credit and of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount Amount of the of the Credit Loan % of Allocated Allocated Expendi- (Expressed (Expressed tures in SDR in Dollar to be Category Equivalent) Equivalent) Financed Anhui (1) Goods 25,250,000 30,270,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other items pro- cured locally L - 11 - Amount Amount of the of the Credit Loan % of Allocated Allocated Expendi- (Expressed (Expressed _,ures cn SDR in Dollar to be Category Equivalent) Equivalent) Financed (2) Works (a) for 2,130,000 1,920,000 20% on- farm works, rural roads, affores- tation and land improve - ment (b) for 20,350,000 18,340,000 40!6 other works (3) Consultants' 890,000 800,000 100% services, staff training and study tours - 12 - Amount Amount of the of the Credit Loan % of Allocated Allocated Expendi- (Expressed (Expressed tures in SDR in Dollar to be Category Equivalent) Equivalent) Financed Jiangsu (4) Goods 29,060,000 33,010,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other items pro- cured locally (5) Works (a) for 1,700,000 1,530,000 20% on-farm works, rural roads, affores- tation and land improve- ment (b) for 11,880,000 10,710,000 40% other works - 13 - Amount Amount of the of the Credit Loan % of Allocated Allocated Expendi- (Expressed (Expressed tures in SDR in Dollar to be Category Equivalent) Equivalent) Financed (6) Consultants' 710,000 640,000 100% services, staff train- ing and study tours Shandong (7) Goods 24,520,000 29,600,000 100% of foreign expenditures. 100% of local expenditures (ex-ftctory cost) and 75% oi' local expend Ltures for otaer items pro- cured ltcally -14- Amount Amount of the of the Credit Loan % of Allocated Allocated Expendi- (Expressed (Expressed tures in SDR in Dollar to be Category Equivalent) Equivalent) Financed (8) Works (a) for 3,110,000 2,800,000 20% on-farm works, rural roads, affores- tation and land improve- ment (b) for 17,890,000 16,120,000 40% other works (9) Consultants' 1,510,000 1,360,000 100% services, staff train- ing and study tours TOTAL 139,000,000 147,100,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. - 15 - 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expendi- tures prior to the date of this Agreement, except that withdrawals may be made on account of payments made for expenditures before that date but after November 1, 1990: (a) in respect of Categories (1), (2) and (3), in an aggregate amount not to exceed SDR 3,400,000; (b) in respect of Categories (4), (5) and (6), in an aggregate amount not to exceed SDR 2,200,000; and (c) in respect of Categories (7), (8) and (9), in an aggregate amount not to exceed SDR 5,500,000. - 16 - SCHEDULE 2 Description of the Project The objective of the Project is to assist the Borrower in increasing agricultural production and consequently increasing farm incomes in the Project Provinces by reducing the effects of drought, waterlogging, soil salinity and surface flooding. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Irrigation and Drainage (1) Improving and expanding surface irrigation and drainage schemes in the Project Areas, through construction and rehabilita- tion of canals and drains; construction, modernization and expansion of pumping stations; construction of tubewells, control structures, culverts, bridges, access roads and on-farm works, covering about 226,000 hectares in Anhui, about 390,000 hectares in Jiangsu and about 265,300 hectares in Shandong. (2) Improving and expanding groundwater irrigation, througs rehabilitation of about 10,000 existing tubewells and construction of about 5,000 new tubewells and related pipe systems, covering about 94,000- hectares in Anhui and about 167,000 hectares in Shandong. (3) Improving irrigation system operation, maintenance and management, through provision of equipment and machinery and construction of buildings in the Project Areas. Part B: Agricultural Intensification Improving agricultural inputs and support services available to farmers in the Project Areas of the Project Provinces, through: (1) provision of fertilizers, pesticides and other inputs and equipment for soil improvement; (2) provision of equipment and construction of storage, office, laboratory and other facilities for upgrading of seed breeding, production and marketing; - 17 - (3) construction, rehabilitation and equipping of the CATECs for upgrading of agricultural extension services; (4) construction, rehabilitation and equipping of farm machinery stations to facilitate farm mechanization; and (5) establishment of windbreaks, shelter belts and border rows and provision of related inputs, construction of rural roads and upgrading and construction of bridges and culverts. Part C: Institutional Development Strengthening staff capabilities in agricultural extension, irrigation operation and management and project management, through provision of training and study, tours and consultants' services. The Project is expected to be completed by June 30, 1996. - 18 - SCHEDULE 3 Special Accounts 1. For the purposes of this Schedule: (a) the term "eligible Categories" means: (i) for the Anhui Special Account, Categories (1), (2) and (3); (ii) for the Jiangsu Special Account, Categories (4), (5) and (6); and (iii) for the Shandong Special Account, Categories (7), (8) and (9), all as set forth in the table in paragraph 1 of Schedule 1 to the Development Credit Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit or the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to the Development Credit Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to: (i) for the Anhui Special Account, $7,100,000; (ii) for the Jiangsu Special Account, $6,500,000; and (iii) for the Shandong Special Account, $6,900,000, all to be withdrawn from the Credit Account or the Loan Account and deposited into the respective Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Accounts shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that a Special Account has been duly opened, withdrawals of the Authorized Allocaion and subsequent withdrawals to replenish said Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account or the Loan Account and deposit into said Special Account such amount or amounts as the Borrower shall have requested. - 19 - (b) (i) For replenishment of said Special Account, the Borrower shall furnish to the Association requests for deposits into said Special Account at such intervals as the Association shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which reple- nishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account or the Loan Account and deposit into said Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of said Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account or the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of a Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into a Special Account: (a) if, at any time, the Association shall have determined that all further withdrawals in respect of the respective Parts of the Project should be made by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of the Development Credit Agreement or from the Loan Account in accordance with the provisions of Section 2.02 of the Loan Agreement and Article V of the General Conditions applicable thereto; or - 20 - (b) once the total unwithdrawn amount of the Credit and the Loan allocated to the eligible Categories for said Special Account, less the amount of any outstanding special commitment entered into by the Association or the Bank pursuant to Section 5.02 of the respective General Conditions with respect to the respective Parts of the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account and the Loan Account of the remaining unwithdrawn amount of the Credit and the Loan allocated to the eligible Categories for said Special Account shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in said Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of a Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) deposit into said Special Account (or, if the Association shall so request, refund to the Association or the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association into said Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association shall have determined at any time that any amount outstanding in a Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association or the Bank such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association or the Bank all or any portion of the funds on deposit in a Special Account. (d) Refunds to the Association or the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account or the Loan Account, as the case may be, for - 21 - subsequent withdrawal or for cancellation in accordance with the relevant provisions of the Development Credit Agreement or the Loan Agreement, including the General Conditions applicable thereto. INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Development Association. FO SECRETARY