Conformed Copy - L3462 - Zouxian Thermal Power Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3462 CHA (Zouxian Thermal Power Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and SHANDONG PROVINCIAL ELECTRIC POWER BUREAU Dated July 22, 1992 LOAN NUMBER 3462 CHA PROJECT AGREEMENT AGREEMENT, dated July 22, 1992, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and SHANDONG PROVINCIAL ELECTRIC POWER BUREAU (SPEPB). WHEREAS: (A) by the Loan Agreement of even date herewith between 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 three hundred ten million dollars ($310,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that SPEPB agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by subsidiary loan agreements to be entered into between the Borrower and Shandong Province, and Shandong Province and SPEPB, the proceeds of the loan provided for under the Loan Agreement will be made available to SPEPB on the terms and conditions set forth in said Subsidiary Loan Agreements; and WHEREAS SPEPB, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; Page 2 NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the 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. (a) SPEPB declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Parts A, B and C of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and power utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, and except as the Bank shall otherwise agree, SPEPB shall carry out Parts A, B and C of the Project in accordance with the Implementation Program set forth in the Schedule to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods and consultants' services 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 2.03. SPEPB 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 Parts A, B and C of the Project and the Project Agreement. Section 2.04. SPEPB shall duly perform all its obligations under its Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, SPEPB shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving its Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) SPEPB shall, at the request of the Bank, exchange views with the Bank with regard to progress of Parts A, B and C of the Project, the performance of its obligations under this Agreement and under its Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) SPEPB shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Parts A, B and C of the Project, the accomplishment of the purposes of the Loan, or the performance by SPEPB of its obligations under this Agreement and under its Subsidiary Loan Agreement. ARTICLE III Management and Operations of SPEPB Section 3.01. SPEPB shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and power utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. SPEPB shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and power utility practices. Page 3 Section 3.03. SPEPB 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. ARTICLE IV Financial Covenants Section 4.01. (a) SPEPB shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) SPEPB shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) 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, SPEPB shall from time to time take, or cause to be taken, all such measures (including, without limitation, adjustments of the levels and structure of its electricity tariffs as determined by the Borrower) as shall be required to produce, for each of its fiscal years after its fiscal year ending on December 31, 1992 net cash surplus equivalent to not less than (i) 25 percent of its average annual investment program for the years 1993 and 1994, and (ii) 30 percent thereafter. (b) Except as the Bank and SPEPB shall otherwise agree, SPEPB shall not incur any debt unless a reasonable forecast of the revenues and expenditures of SPEPB shows that the projected internal cash generation of SPEPB for each fiscal year during the term of the debt to be incurred shall be at least 1.4 times the estimated debt service requirements of SPEPB in such year on all its debt including the debt to be incurred. (c) Except as the Bank shall otherwise agree, SPEPB 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, for the years 1992 through December 31, 1996, and 70 to 30 thereafter. (d) For the purposes of this Section: (i) The term "total operating income" means the sum of revenues from all sources related to operations and net non-operating income; (ii) The term "cash operating expenses" means the sum of expenses related to operations, including maintenance and administration but excluding depreciation; (iii) The term "financial obligations" means interest and other charges on debt (excluding interest during construction), repayment of loans (including sinking fund payments, if any), all taxes or payments in lieu of taxes; allocations to special funds and other cash distributions of surplus funds (including mandatory transfers to the Borrower), and any other cash outflows (other than capital expenditures) related to operations; (iv) The term "net cash surplus" means total operating revenues minus the sum of: (A) cash operating expenses; and (B) financial obligations; Page 4 (v) The term "average annual investment program" means the average of: (A) the previous year's actual capital expenditure; (B) the current year's planned capital expenditure; and (C) the next year's projected capital expenditure; (vi) The term "debt" means any indebtedness of SPEPB maturing by its terms more than one year after the date on which it is originally incurred; (vii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or further 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; (viii) The term "internal cash generation of SPEPB" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income, excluding receipts for consumer connection charges; and (B) the sum of all expenses related to operations, including administration, provision for maintenance special fund, and sales and income taxes and payments in lieu of such taxes, but excluding provision for depreciation, and interest and other charges on debt; (ix) 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 (A) above; (x) 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 excluding capitalized interest during construction; (xi) The term "reasonable forecast" means a forecast prepared by SPEPB not earlier than twelve months prior to the incurrence of the debt in question, which both the Bank and SPEPB accept as reasonable and as to which the Bank has notified SPEPB of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of SPEPB; (xii) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of SPEPB not allocated to cover specific liabilities; and (xiii) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of 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, with absence of such rate, on the basis of a rate of exchange acceptable to the Bank. Section 4.03. By April 30 of each year, commencing April 30, 1993, SPEPB shall prepare and furnish to the Bank for its review and comment, a rolling, long-term financial plan containing, inter alia, projected income statements, sources and applications of funds, and balance sheets for each of the next eight fiscal years. Page 5 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 SPEPB thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify SPEPB 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 197688 (TRT) Washington, D.C. 248423 (RCA) 64145 (WUI) or 82987 (FTCC) For SPEPB: Shandong Provincial Electric Power Bureau 14, Jing San Road Jinan Shandong Province People's Republic of China Cable address: Telex: 7193 JINAN 391110 SEP JN CN 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 SPEPB, or by SPEPB on behalf of the Borrower under the Loan Agreement, may be taken or executed by SPEPB's Director or such other person or persons as SPEPB's Director shall designate in writing, and SPEPB 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. Page 6 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/ Gautam S. Kaji Regional Vice President East Asia and Pacific SHANDONG PROVINCIAL ELECTRIC POWER BUREAU By /s/ Zhu Qizhen Authorized Representative SCHEDULE Implementation Program 1. SPEPB shall: (a) carry out the tariff study under Part C (3) of the Project in accordance with terms of reference and timing acceptable to the Bank; (b) based on the results of such study, prepare and furnish to the Bank by June 30, 1993, an action plan for tariff structure improvements; and (c) implement the action plan as agreed with the Bank. 2. SPEPB shall carry out the training under Part C (2) of the Project in accordance with a program agreed with the Bank. 3. SPEPB shall carry out resettlement of persons affected by the Project in accordance with a plan acceptable to the Bank. 4. SPEPB shall, in carrying out Parts A and B of the Project, take all steps necessary to follow the mitigating measures recommended in the Environmental Impact Statement. 5. SPEPB shall carry out environmental monitoring under Part C (4) of the Project in accordance with a program based on the Environmental Impact Statement and agreed to by the Bank.