China - Enterprise Housing And Social Security Reform Project : Loan 3773 - Project Agreement - Conformed

CREDIT NUMBER 2642 CHA LOAN NUMBER 3773 CHA Project Agreement (Enterprise Housing and Social Security Reform Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BEIJING MUNICIPALITY CHENGDU MUNICIPALITY NINGBO MUNICIPALITY and YANTAI MUNICIPALITY Dated , 1994 CREDIT NUMBER 2642 CHA LOAN NUMBER 3773 CHA PROJECT AGREEMENT AGREEMENT, dated Se4 kQApk % , 1994, among INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BEIJING MUNICIPALITY (Beijing), CHENGDU MUNICIPALITY (Chengdu), NINGBO MUNICIPALITY (Ningbo) and YANTAI MUNICIPALITY (Yantai) (Beijing, Chengdu, Ningbo and Yantai hereinafter referred to collectively as the Participating Municipalities, and individually as a Participating Municipality). WHEREAS (A) by the Development Credit Agreement of even date herewith between People's Republic of China (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to fifty-three million one hundred thousand Special Drawing Rights (SDR 53,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Participating Municipalities agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by the Loan Agreement of even date herewith between the Borrower and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to two hundred seventy-five million dollars ($275,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Participating Municipalities agree to undertake such obligations toward the Bank as are set forth in this Agreement; and WHEREAS the Participating Municipalities, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, and the Bank's entering into the Loan Agreement with the Borrower, have agreed to undertake the obligations set forth in this Agreement; 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 Development Credit Agreement, the Loan Agreement and in the General Conditions (as so defined in the Development Credit Agreement and the Loan Agreement, respectively) have the respective meanings therein set forth. -2- ARTICLE II Execution of the Project Section 2.01. (a) Each Participating Municipality declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out its respective Part of the Project, or cause its respective Part of the Project to be carried out, with due diligence and efficiency and in conformity with appropriate administrative, economic, financial, engineering, urban planning and housing practices and health, safety and environmental standards acceptable to the Bank, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association, the Bank and the Participating Municipality concerned shall otherwise agree, each Participating Municipality shall carry out its respective Part of the Project, or cause its respective Part of the Project to be carried out, in accordance with the Implementation Program set forth in Schedule 1 to this Agreement. Section 2.02. Except as the Association and the Bank shall otherwise agree, procurement of (a) the goods, works and consultants' services required for the Project (other than the Housing Loan Programs) and to be financed out of the proceeds of the Credit and the proceeds of the Loan and (b) all of the goods, works and consultants' services required for the Housing Loan Programs, regardless of their sources of financing, shall be governed by the provisions of Schedule 4 to the Development Credit Agreement. Section 2.03. Each Participating Municipality shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions applicable to the Development Credit Agreement and in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions applicable to the Loan Agreement (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of its respective Part of the Project. Section 2.04. (a) Each Participating Municipality shall, at the request of the Association and the Bank, exchange views with the Association and the Bank with regard to the progress of its -3- respective Part of the Project, the performance of its respective obligations under this Agreement, and other matters relating to the purposes of the Credit and the Loan. (b) Each Participating Municipality shall proimnptly inform the Association and the Bank of any condition which interferes or threatens to interfere with the progress of its respective Part of the Project, the accomplishment of the purposes of the Credit and the Loan, or the performance by it of its respective obligations under this Agreement. ARTICLE III Financial Covenants Section 3.01. (a) Each Participating Municipality shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of its respective Part of the Project of the departments or agencies of said Participating Municipality responsible for carrying out said Part of the Project. (b) Each Participating Municipality shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each Fiscal Year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association and the Bank; (ii) furnish to the Association and the Bank as soon as available, but in any case not later than six months after the end of each such year, the report of such audit by said auditors, of such scope and in such detail as the Association and the Bank shall have reasonably requested; and (iii) furnish to the Association and the Bank such other information concerning said records and accounts and the audit thereof as the Association and the Bank shall from time to time reasonably request. -4- ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which both the Development Credit Agreement and the Loan Agreement become effective. Section 4.02. (a) This Agreement and all obligations of the Association and the Bank and each Participating Municipality thereunder shall terminate on the earlier of the following two dates: (i) the date on which both the Development Credit Agreement and the Loan Agreement shall terminate in accordance with their terms; or (ii) the date twenty (20) years after the date of this Agreement. (b) If the Development Credit Agreement or the Loan Agreement or both of said Agreements terminate(s) in accordance with its (their) terms before the date specified in paragraph (a) (ii) of this Section, the Association and the Bank shall promptly notify each Participating Municipality of this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspensiof under the General Conditions applicable to the Development Credit Agreement or the Loan Agreement. ARTICLE V Miscellaneous Provisions Section 5.01. 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 - 5 - to the party giving such notice or making such request. The addresses so specified are: 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) 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 248423 (RCA), Washington, D.C. 82987 (FTCC), 64145 (WUI) or 197688 (TRT) For Beijing: Finance Bureau Beijing Municipal Government No. 6, Chengongzhuang Street Beijing 100044 People's Republic of China Telex: 22486 MFPRC CN 6- For Chengdu: Chengdu Housing Systems Reform Office No. 18 Of Dong-Lang of Chengdu Sichuan Chengdu 610015 People's Republic of China Telex: 22486 MFPRC CN For Ningbo: Ningbo Municipal Government No. 76, Jiefang South Road Ningbo 315000 People's Republic of China Telex: 22486 MFPRC CN For Yantai: Yantai Housing Reform Office 109 Baishi Road Yantai 264000 People's Republic of China Telex: 22486 MFPRC CN Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of a Participating Municipality may be taken or executed by the Mayor of such Participating Municipality or such other person or persons as said Mayor shall designate in writing, and such Participating Municipality shall furnish to the Association and the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. -7- Section 5.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. Section 5.04. As long as the Bank has not given notice to the contrary to a Participating Municipality and so long as the Development Credit Agreement shall not have terminated prior to the termination of the Loan Agreement: (a) the obligations of said Participating Municipality to consult with, and to furnish information, documents, plans, reports, records and statements to, the Bank shall be satisfied to the extent performance in respect of such obligations is rendered to the Association; (b) the obligations of the Bank to consult with, and to furnish information to, said Participating Municipality shall be satisfied to the extent such obligations are fulfilled by the Association; and (c) all actions taken (including the giving of approvals or granting of waivers) by the Association pursuant to the Development Credit Agreement shall be deemed to be taken pursuant to both the Development Credit Agreement and the Loan Agreement, and in the name and on behalf of both the Association and the Bank. -8- 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 DEVELOPMENT ASSOCIATION INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By 6c kn~ Regional Vice President East Asia and Pacific BEIJING MUNICIPALITY CHENGDU MUNICIPALITY NINGBO MUNICIPALITY YANTAI MUNICIPALITY By Authorized Representative 9- SCHEDULE 1 Implementation Program The provisions of this Schedule shall apply for the purposes of Section 2.01 (b) of this Agreement. A. Project Management 1. In order to ensure the proper carrying out of its respective Part of the Project, each Participating Municipality shall continue to maintain: (a) a lead group, chaired by a Vice Mayor, and with other membership, terms of reference and resources satisfactory to the Association and the Bank, to be responsible for the overall coordination and supervision of said Participating Municipality's respective Housing System Reform Program and Social Security System Reform Program; and (b) a project management unit, with terms of reference, staffing and other resources satisfactory to the Association and the Bank, to be responsible for assistance to the lead group referred to in paragraph (a) hereof in the coordination and supervision of said Participating Municipality's respective Housing System Reform Program and Social Security System Reform Program and for the coordination and supervision of the other parts of said Participating Municipality's respective Part of the Project, including procurement of goods and services under said Part of the Project, monitoring and evaluation of the progress of said Part of the Project and liaison between said Participating Municipality and the Association and the Bank. B. Housing and Social Security System Reform Programs; Project Monitoring 1. Each Participating Municipality shall: (a) carry out its respective Housing System Reform Program and Social Security System Reform Program in accordance with a time- bound action plan acceptable to the Association and the Bank; (b) maintain operational procedures adequate to enable it to monitor and evaluate, in accordance with indicators acceptable to the Association and the Bank, progress in the carrying out of its - 10 - respective Part of the Project, including the programs referred to in paragraph (a) hereof; (c) prepare and furnish to the Borrower, not later than February 1 and July 1 in each Fiscal Year, for forwarding to the Association and the Bank pursuant to Section 3(a) of Schedule 5 to the Development Credit Agreement, a report, of such scope and in such detail as the Borrower, the Association and the Bank shall reasonably request, on (i) the monitoring and evaluation activities carried out pursuant to paragraph (b) hereof in respect of, respectively, (A) the last six months of the preceding Fiscal Year and (B) the twelve months of the preceding Fiscal Year and the first six months of the then current Fiscal Year, (ii) any proposed measures, indicated by said monitoring and evaluation activities, to further the objectives of its respective Housing System Reform Program and Social Security System Program, and (iii) any proposed revisions, indicated by said monitoring and evaluation activities, to the action plans for the carrying out of said programs; and (d) promptly take all such measures and introduce such revisions, referred to in paragraph (c) hereof, as shall have been agreed between Association, the Bank, and said Participating Municipality. C. Resettlement Each Participating Municipality hereby undertakes that if any Housing Development Project to be carried out in said Participating Municipality involves the involuntary resettlement of households, it shall: 1. (a) ensure that all said households shall be resettled in accordance with a resettlement plan which shall have been (1) designed, on the basis of policies, planning principles, institutional arrangements and design criteria acceptable to the Association and the Bank, so as to improve the living standards of said households and (2) approved by said Participating Municipality; and (b) to that end, (i) furnish each resettlement plan referred to in paragraph (a) hereof involving the resettlement of 200 individuals or more, promptly upon its preparation, to the Association and the Bank for approval and ensure that all said households shall be resettled in accordance with such resettlement plan as shall have been approved by the Association and the Bank; - 11 - and (ii) make available to the Association and the Bank, for their review, any other resettlement plan referred to in paragraph (a) hereof as may be requested by the Association and/or the Bank; 2. (a) maintain operational procedures adequate to enable it to monitor and evaluate, in accordance with indicators acceptable to the Association and the Bank, the carrying out of each resettlement plan referred to in Section 1(a) of this Part; (b) prepare and furnish to the Association and the Bank, not later than February 15 in each Fiscal Year, a report, of such scope and in such detail as the Association and the Bank shall reasonably request, on (i) the monitoring and evaluation activities carried out pursuant to paragraph (a) hereof in respect of the preceding Fiscal Year and (ii) any proposed revisions, indicated by said monitoring and evaluation activities, to the resettlement plan referred to in Section 1(a) of this Part; and (c) promptly introduce such revisions, referred to in paragraph (b) hereof, as shall have been agreed between the Association, the Bank and said Participating Municipality. D. On-lending of Credit and Loan Proceeds to PFIs 1. For the purpose of carrying out the Housing Loan Programs, each Participating Municipality shall make available to PFIs the amounts of the Credit and/or the Loan referred to in Schedule 2 to this Agreement under subsidiary loan agreements to be entered into between said Participating Municipality and said PFIs under terms and conditions which shall have been approved by the Bank and which shall include, without limitation, those set forth in said Schedule 2. 2. Each Participating Municipality shall: (a) exercise its rights under the Subsidiary Loan Agreements to which it is a party in such manner as to protect its interests and those of the Borrower, the Association and the Bank and to accomplish the purposes of the Credit and the Loan; and (b) not assign, amend, abrogate or waive any of the Subsidiary Loan Agreements to which it is a party or any provision thereof. - 12 - SCHEDULE 2. Principal Terms and Conditions of the Subsidiary Loan Agreements The principal terms and conditions set forth or referred to in this Schedule shall apply for the purposes of Part D.1 of Schedule 1 to this Agreement. A. Terms 1. The principal amount of a Subsidiary Loan to be made available by a Participating Municipality to a PFI under its respective Subsidiary Loan Agreement shall be denominated either in dollars or in the currency of the Borrower, at the option of the PFI. 2. The principal amount of each Subsidiary Loan shall be the sum of: (a) the equivalent in the currency of denomination (determined as of the date or respective dates of withdrawal from the Credit Account or the Loan Account or payment out of the respective Special Account) of the value of the currency or currencies so withdrawn or paid out on account of the cost of housing, goods and services required for the Housing Development Projects in respect of which the PFI receiving said Subsidiary Loan has made Housing Sub-loans and to be financed out of the proceeds of the Credit and/or of the Loan; and (b) the equivalent in the currency of denomination (determined as of the date or respective dates of withdrawal from the Credit Account or the Loan Account or payment out of the respective Special Account) of the value of the currency or currencies so withdrawn or paid out on account of the cost of goods and services required for the Institutional Development Project to be carried out by said PFI under the Subsidiary Loan Agreement to which said PFI is a party and to be financed out of the proceeds of the Credit and/or of the Loan. 3. Each Subsidiary Loan: (a) denominated in dollars shall be charged interest, on the principal amount thereof withdrawn and outstanding from time to time, at a rate equal to or greater than the sum of (i) the rate applicable from time to time to the portion of the Credit and/or the - 13 - Loan allocated to the Participating Municipality making the Subsidiary Loan, pursuant to Section 3.01(b) (iii) of the Development Credit Agreement plus (ii) 0.5%; and (b) denominated in the currency of the Borrower shall be charged, on the principal amount thereof withdrawn and outstanding from time to time, interest at a rate for each Fiscal Year, equal to or greater than the sum of (i) the two-year fixed-term deposit rate established by the Borrower's Central Bank and in effect as at December 31 of the preceding Fiscal Year plus (ii) 1%, as said minimum rate may be adjusted from time to time on the basis of guidelines acceptable to the Bank. 4. Each Subsidiary Loan shall be made for a period not exceeding 20 years, inclusive of a grace period not exceeding 5 years. 5. The right of each PFI to the use of its respective Subsidiary Loan shall be: (a) suspended upon failure by said PFI to perform any of its obligations under its respective Subsidiary Loan Agreement; and (b) terminated if such right shall have been suspended pursuant to sub-paragraph (a) hereof for a continuous period of sixty (60) days. B. Conditions 1. A Subsidiary Loan Agreement may be entered into between a Participating Municipality and a banking institution, duly established and operating under the laws of the Borrower, which said Participating Municipality shall have determined and the Association and the Bank shall have agreed: (a) has adopted and is operating pursuant to acceptable financial and operating policies and procedures; (b) has a sound financial structure and satisfactory financial performance, and the organization, management, staff and other resources required for the efficient carrying out of its operations, including the financing of Housing Development Projects and the carrying out of the Institutional Development Project referred to in sub-paragraph (c) hereof; and (c) has developed an acceptable (i) Institutional Development Project and (ii) time-bound action plan for the implementation thereof. - 14 - 2. Each Subsidiary Loan Agreement between a Participating Municipality and a PFI shall contain provisions pursuant to which said PFI shall undertake to: (a) (i) carry out its activities, including its respective Institutional Development Project and its financing of Housing Development Projects, and conduct its affairs with due diligence and efficiency and in accordance with sound financial standards and practices and appropriate health, safety and environmental standards acceptable to the Association and the Bank, with qualified management and staff in adequate numbers, and in conformity with the financial and operating policies and procedures referred to in Section 1(a) of this Part, and provide, promptly, as needed, the funds, facilities, services and other resources required for the purpose; and (ii) without limitation upon the foregoing, carry out said Institutional Development Project in accordance with the action plan referred to in Section 1(c) of this Part; (b) (i) make Housing Sub-loans to Beneficiaries on the terms and conditions set forth or referred to in Schedule 3 to this Agreement; (ii) exercise its rights in relation to each Housing Sub- loan in such manner as to protect its interests and the interests of the Association, the Bank and said Participating Municipality, comply with its obligations under said Subsidiary Loan Agreement and achieve the purposes of said Participating Municipality's respective Part of the Project; (iii) not assign, amend, abrogate or waive any of its agreements providing for Housing Sub-loans, or any provision thereof without the prior approval of the Association, the Bank and said Participating Municipality; (iv) appraise Housing Development Projects and supervise, monitor, and report on the carrying out by Beneficiaries of their respective Housing Development Projects, in accordance with procedures satisfactory to the Association, the Bank and said Participating Municipality; and (v) maintain operational procedures satisfactory to the Association and the Bank designed to ensure that the aggregate amount of all Housing Sub-loans made by it for any one Housing Development Project shall not exceed the lowest of (A) the equivalent of $20,000,000, (B) the equivalent of 1.5 times of the total amount of construction costs thereof incurred after April 1, 1993, and (C) the equivalent of (1) 70% of the purchase price of the housing, in the case of a Housing Sub-loan to a household for such housing, (2) 90% of the total estimated cost of said Housing Development Project (including the cost of land), in the case of a Housing Sub-loan to an HMC which has been incorporated less than 1 year prior to the date on which the Housing Sub-loan is - 15 - made; or (3) 80% of the total estimated cost of said Housing Development Project (including the cost of land) in all other cases; (c) (i) exchange views with, and furnish all information to, the Association, the Bank and said Participating Municipality, as may be reasonably requested by the Association, the Bank, and/or said Participating Municipality, with regard to the progress of its Institutional Development Project and its financing of Housing Sub- loans, the performance of its obligations under said Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit and the Loan; and (ii) promptly inform the Association, the Bank and said Participating Municipality, of any condition which interferes or threatens to interfere with the progress of its Institutional Development Project or its financing of Housing Sub-loans; and (d) (i) maintain procedures, records and accounts adequate to monitor and record the progress of its Institutional Development Project and of each Housing Development Project (including its costs and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices, its operations and financial condition; (ii) have its 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 Association and the Bank; (iii) furnish to the Association, the Bank and said Participating Municipality, as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of said financial statements and accounts 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 Association, the Bank and/or said Participating Municipality, shall have reasonably requested; and (iv) prepare and furnish to the Association, the Bank and said Participating Municipality, all such other information concerning said records, accounts and financial statements, as well as the audit thereof, as the Association, the Bank and/or said Participating Municipality shall from time to time reasonably request. - 16 - SCHEDULE 3 Principal Terms and Conditions of the Housing Sub-loans The principal terms and conditions set forth or referred to in this Schedule shall apply for the purposes of Part B.2(b) (i) of Schedule 2 to this Agreement. A. Terms Each Housing Sub-loan shall be made by a PFI on terms, including those relating to maturities, interest and other charges, which are in accordance with said PFI's financial and operating policies and procedures referred to in Part B.1(a) of Schedule 2 to this Agreement. B. Conditions 1. Each Housing Sub-loan shall be made by a PFI only: (a) (i) to an HMC, duly established and operating as a joint stock company under the laws of the Borrower, which shall have established, to the satisfaction of said PFI on the basis on said PFI's financial and operating policies.and procedures referred to in Part B.1(a) of Schedule 2 to this Agreement and further guidelines acceptable to the Association and the Bank, that it: (A) has an acceptable corporate structure; (B) is creditworthy and it has a sound financial structure and the organization, management, staff and other resources required for the efficient carrying out of its operations, including the Housing Development Project; (C) has achieved and is in a position to continue to maintain the debt-service coverage ratio referred to in Section 4(a)(viii) of this Part; (D) has acquired all rights, in respect of the property which it proposes to offer as security to said PFI for said Housing Sub-loan, necessary to enable said HMC to mortgage such land for the benefit of said PFI, including, without limitation, that it has entered into a land-use grant contract with the Borrower's Bureau responsible for administration of said land; (E) has adopted and is operating in accordance with acceptable housing rental policies and - 17 - procedures; and (F) has developed an acceptable plan for the rental of the housing to be developed or purchased under the Housing Development Project; or (ii) to a household which shall have established to the satisfaction of said PFI on the basis of said PFI's financial and operating policies and procedures referred to in Part B.1(a) of Schedule 2 to this Agreement, that it is creditworthy; and (b) for a Housing Development Project: (i) which is determined to be technically feasible and fi.nancially and commercially viable; (ii) which has been designed in accordance with appropriate health, safety and environmental standards, and, without limitation upon the foregoing, if said Housing Development Project would involve the involuntary resettlement of households, includes a resettlement plan for said households which has been developed and approved in accordance with the provisions of Part C of Schedule 1 to this Agreement; (iii) in the case of a Housing Development Project for the purchase of a residential facility, for the purchase of a residential facility which shall never have been occupied; and (iv) in respect of which all required approvals of the governmental authorities concerned, have been secured; all as shall be determined by said PFI on the basis of an appraisal (including an environmental impact assessment approved by the bureau responsible for environmental protection in the Participating Municipality in which said Housing Development Project is to be carried out), carried out in accordance with guidelines acceptable to the Association and the Bank. 2. No expenditures for housing, goods or services required for a Housing Development Project shall be eligible for financing out of the proceeds of the Credit or of the Loan unless: (a) the Housing Sub-loan for such Housing Development Project shall have been approved by the Association and the Bank and such expenditures shall have been made not earlier than 90 days prior to the date on which the Association and the Bank shall have received the application and information required under Section 3(a) of this Part in respect of such Housing Sub-loan; or (b) the Housing Sub-Loan for such Housing Development Project shall have been a free-limit Sub-loan for which the Association or the Bank have authorized withdrawals from the Credit Account or the Loan Account and such expenditures shall have been made not earlier - 18 - than 90 days prior to the date on which the Association or the Bank shall have received the request and information required under Section 3(b) of this Part in respect of such free-limit Sub-loan. For the purposes of this Agreement, a free-limit Sub-loan shall be a Housing Sub-loan for a Housing Development Project (other than the first two Housing Sub-loans made by each PFI), in an amount which shall not exceed $7,500,000 equivalent, the foregoing amount being subject to change from time to time as determined by the Association and the Bank. 3. (a) Each application for approval by the Association and the Bank of a Housing Sub-loan (other than a free-limit Sub-loan) shall be in form satisfactory to the Association and the Bank, and shall include (i) a description of the Beneficiary and an appraisal of the Housing Development Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit and/or of the Loan; (ii) the proposed terms and conditions of the Housing Sub-loan, including the schedule of amortization thereof; and (iii) such other information as the Association and the Bank shall reasonably request. (b) Each request for authorization to make withdrawals from the Credit Account and/or the Loan Account in respect of a free- limit Sub-loan shall contain (i) a summary description of the Beneficiary and the Housing Development Project, including a description of the expenditures proposed to be financed out of the proceeds of the Credit and/or of the Loan, and (ii) the terms and conditions of the Housing Sub-loan, including the schedule of amortization thereof. 4. Each Housing Sub-loan for a Housing Development Project shall be made on further conditions whereby the PFI making the Housing Sub-loan shall obtain, by written contract with the Beneficiary, or by other appropriate legal means, rights adequate to protect the interests of the Association, the Bank and said PFI, including: (a) that each Beneficiary which is an HMC shall undertake: (i) (A) to carry out and operate said Housing Development Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and practices and appropriate safety, health and environmental standards satisfactory to the Bank, and provide, promptly as needed, the funds, facilities and other resources required for the purpose; - 19 - and (B) without limitation upon the foregoing, if said Housing Development Project involves the involuntary resettlement of households, to take all action required on its part to ensure that said households are resettled in accordance with the resettlement plan for said households referred to in Section 1(b) (ii) of this Part; (ii) to: (A) procure the goods, works and services required for said Housing Development Project in accordance with the provisions of Schedule 4 to the Development Credit Agreement and utilize such goods and services exclusively in the carrying out of said Housing Development Project; (B) purchase the housing structures required for said Housing Development Project at a reasonable price after obtaining price quotations for several buildings in the respective Participating Municipality suitable for said HMC's target market and cothparing such quotations with the projected income from the rnital of such buildings, account being taken also of othes, relevant factors such as the technical soundness o the structures and time of availability for occupancy; and. (C) utilize all residential structures constructed, rehailitated or purchased under said Housing DevelopmenItProject exclusively for rental purposes in accordanch with the rental policies and procedures referred to ini.Section 1 (a) (i) (E) of this Part and the rental plan\ referred to in Section 1(a) (i) (F) of this Part; (iii) to enable the Association, the Bankand said PFI to inspect such goods and the sites, struc'ares and works included in said Housing Development . pject, the operation thereof, and any relevant rec&ds and documents; (iv) to take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, including, without limitation, such insurance to cover hazards incident to the acquisition, transportation and delivery of goods required for the Housing Development Project to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary to replace or repair such goods; - 20 - (v) to maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition; (vi) to: (A) 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 Association, the Bank and the PFI; (B) furnish to the Association, the Bank and said PFI, as soon as available, but in any case not later than six months after the end of each such year, (1) certified copies of its financial statements for such year as so audited and (2) the report of such audit by said auditors, of such scope and in such detail as the Association, the Bank and/or said PFI shall have reasonably requested; and (C) furnish to the Association, the Bank and/or said PFI such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Association, the Bank and/or said PFI shall from time to time reasonably request; (vii) to prepare, in accordance with guidelines satisfactory to the Association, the Bank and said PFI, and furnish to the Association, the Bank and said PFI, not later than October 31 in each Fiscal Year, its financial projections for the next three following Fiscal Years; and (viii) not to incur any debt, unless its net revenues 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 1.5 times its estimated maximum debt service requirements for any succeeding Fiscal Year on all of its debt, including the debt to be incurred; (b) that each Beneficiary which is a household shall undertake to: (i) utilize the housing to be acquired under the Housing Development Project as its principal residence; - 21 - (ii) enable the Association, the Bank and said PFI to inspect the sites and facilities included in said Housing Development Project, the operation thereof, and any relevant records and documents; (iii) take out and maintain with responsible insurers such insurance in respect of said Housing Development Project, against such risks and in such amounts, as shall be consistent with sound business practice; and (iv) provide to said PFI, for forwarding to the Association and the Bank, as may be requested by the Association and the Bank, all such information as the Association, the Bank and/or said PFI shall reasonably request relating to the foregoing; and (c) provisions to ensure the right of said PFI to suspend or terminate the right of the Beneficiary to the use of the proceeds of the Credit and the Loan upon failure by such Beneficiary to perform its obligations under its contract providing for said Housing Sub- loan. 5. For the purposes of Section 4(a)(viii) of this Part: (i) The term "debt" means any indebtedness of the Beneficiary maturing by its terms more than three (3) months 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 Beneficiary'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 - 22 - 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) 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 Association and the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the international Bank for Reconstruction and Development and the International Development Association. FOR SECRETARY