China - Karamay Petroleum Project : Loan 2426 - Loan Agreement - Conformed

LOAN NIMBER 2426 CHA Loan Agreement (Karamay Petroleum Project) between PEOPLE'S REPUBLIC OF CHINA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated , 1984 LOAN NUMBER 2426 CHA LOAN AGREEMENT AGREEME1T, dated , 1984, between PEOPLE'S REPUBLIC OF CHINA ( reinafter called the Borrower) and INTERNATIONAL BANK FOR REC STRUCTION AND DEVELOPMENT (herein- after called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) Parts A through D of the Project will be carried out by Karamay Oil-Gas Exploration and Development Corporation (herein-- after called KOC) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to KOC part of the proceeds of the Loan as hereinafter provided; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank and KOC; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated October 27, 1980, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agree- ments of the Bank being hereinafter called the General Condi- tions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and KOC of even date herewith, as the same may be amended from time to time, and such term includes all agreements supple- mental to the Project Agreement; - 2 - (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and KOC pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time; (c) "MOPI" means the Borrower's Ministry of Petroleum Industry, or any successor thereto; (d) "KOC" means Karamay Oil-Gas Exploration and Develop- ment Corporation, a state-owned enterpr4se of the Borrower estab- lished in 1983, and operating pursuant to its Charter; and (e) "Charter" means KOC's charter dated April 17, 1984. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to one hundred million three hundred thousand dollars ($100,300,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to tir hy agreement between the Borrower and the Bank, for expen- ditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bans. shall otherwise agree, procurement of the goods and 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 this Agreement. Section 2.04. The Closing Date shall be March 31, 1989 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. (a) The Borrower shall pay to the Bank a fee equivalent to two hundred fifty thousand one hundred twenty-five dollars ($250,125). - 3 - (b) On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of the said fee in such currency or currencies as the Bank shall determine. Section 2.06. The Borrower shall pay to the Bank a commit- ment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.07. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one half percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.08 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost" of Qualified Borrowings means the cost, expressed as a percentage per annum, as reasonably determined by the Bank, provided that the amount of $8,520.5 million referred to in (iii) (B) hereunder shall be reckoned at a cost of 10.93% per annum. (iii) "Qualified Borrowings" means (A) outstanding borrowings of the Bank drawn down after June 30, 1982; and (B) until July 1, 1985, the amount of $8,520.5 million (representing borrowings of the Bank between July 1, 1981 and June 30, 1982) less any part thereof repaid earlier than July 1, 1985. (iv) "Semester" means the first six months or the second six months of a calendar year. -4- Section 2.08. Interest and other charges shall be payable semiannually on April 1 and October 1 in each year. Section 2.09. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.10. KOC is designated as representative of the Borrower for Parts A through D of the Project for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Secti-on 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, shall carry out Part E of the Project through MOPI with due diligence and efficiency and in conformity with appropriate administrative, financial, engineer- ing and petroleum industry practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause KOC to perform in accordance with the provisions of the Project Agreement all the obligations of KOC therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable KOC to perform such obliga- tions, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (c) The Borrower shall relend the equivalent of $96,200,000 out of the proceeds of the Loan to KOC under a subsidiary loan agreement to be entered into between the Borrower and KOC, under terms and conditions which shall have been approved by the Bank, which shall include, inter alia, same interest rate as specified in Section 2.07 of this Agreement, and a repayment period not exceeding 20 years including a grace period not exceeding five years. The Borrower shall bear the foreign exchange risk. -5- (d) The Borrower shall exercise its rights under the Subsi- diary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Subsi- diary Loan Agreement or any provision thereof. Section 3.02. (a) In order to assist the Borrower in carry- ing out the studies under Part E of the Project, the Borrower shall employ consultants and experts as necessary whose selec- tion, qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank, in accordance with principles and procedures described in the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981. (b) The Borrower shall complete the studies and review the findings with the Bank: (i) by December 31, 1985 with respect to the gas uti- lization study under Part E (i) of the Project; (ii) by March 31, 1985 with respect to the study on the design of the pilot projects for heavy oil recov- ery under Part E(ii) of the Project; and (iii) by December 31, 1986 with respect to the techno-economic study under Part E (iii) of the Project. (c) Thereafter, the Borrower shall agree with the Bank on the consequent action plan based on the studies referred to in (b) above. Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indem- nity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) The Borrower shall cause all goods and services fi- nanced out of the proceeds of the Loan to be used exclusively for the purposes of the Project. -6- Section 3.04. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for Part E of the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower shall: (i) maintain records and procedures adequate to record and monitor the progress for Part E of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan related thereto, and to disclose their use in such Part of the Project; (ii) enable the Bank's representa- tives to visit the facilities and works sites included in Part E of the Project and to examine the goods financed out of the proceeds of the Loan related thereto and any relevant records and documents; and (iii) furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning Part E of the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan related thereto and the goods and services financed out of such proceeds. (c) Upon the award by the Borrower of any contract for goods, works or services to be financed out of the proceeds of the Loan, the Bank may publish a description thereof, the name and nationality of the party to whom the contract was awarded and the contract price. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower, with the assistance of KOC, shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execu- tion and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in - 7 - normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property or as security for the payment of debt incurred for the purpose of financing the purchase of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. (a) The Borrower shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices the operations, resources and expenditures, in respect of Part E of the Project. (b) Without limitation on the foregoing, the Borrower shall: (i) maintain or cause to be maintained separate accounts -8- reflecting all expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditures; (ii) retain, until one year after the Closing Date, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditures; and (iii) enable the Bank's repre- sentatives to examine such records. (c) The Borrower shall: (i) have the 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 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 certi- fied copy of the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably re- quested, including, without limitation to the foregoing, a separato opinion by said auditors in respect of the expenditures and records referred to in paragraph (b) of this Section as to whether the proceeds of the Loan withdrawn from the Loan Account on the basis of statements of expenditures have been used for the purpose for which they were provided; and. (iii) furnish to the Bank such other information concerning said separate accounts, records and expenditures and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) KOC 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 Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that KOC will be able to perform its obligations under the Project Agreement. (c) The Charter shall have been amended, suspended, abro- gated, repealed or waived so as to affect materially and ad- - 9 - versely the ability of KOC to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of KOC or for the suspension of its operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and KOC; and (b) any event specified in paragraphs (c) and (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions: (a) the Borrower's State Council has approved the Loan Agreement and the Project Agreement; and (b) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and KOC. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly authorized or ratified by, executed and delivered on behalf of KOC, and is legally binding upon KOC in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and KOC and is legally binding upon the Borrower and KOC in accordance with its terms. - 10 - Section 6.03. The date e OU A/ CQr18qg1 , is hereby specified for the purposes of Section 12.64 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. Except as provided in Section 2.10 of this Agreement, 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 People's Republic of China Cable address: Telex: FINANMIN 22486 MFPRC CN Beijing 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) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 11 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By { ;/ q.9 aP l" VC a 5t- Regional Vice President East Asia and Pacific - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed Parts A through D of the Project (1) Seismic surveys 18,400,000 100% of foreign and interpreta- expenditures tion (2) Seismic data 7,700,000 100% of foreign processing expenditures (3) Heavy oil studies/ 6,000,000 100% of foreign pilots expenditures (4) Equipment for 38,500,000 100% of foreign exploration and expenditures and support facilities 100% of local expenditures (ex- factory) (5) Computer Center 5,000,000 100% of foreign expenditures (6) Laboratories 1,100,000 100% of foreign expenditures and 100% of local expenditures (ex-factory) - 13 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (7) Training center 1,650,000 100% of foreign expenditures and 100% of local expenditures (ex-factory) (8) Overseas training 500,000 100% (9) Consultants' 3,300,000 100% of foreign services expenditures Part E of the Project (10) Heavy oil study/ 3,300,000 100% of foreign pilots expenditures (11) Consultants' 800,000 100% of foreign services expenditures Other (12) Fee 250,125 Amount due under Section 2.05 (a) of this Agreement (13) Unallocated 13,799,875 TOTAL 100,300,000 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. - 14 - 3. The disbursement percentages have been calculated in com- pliance with the policy of the Bank that the proceeds of the Loan shall not be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; on this basis, if the amount of any such taxes levied on or in respect of items in any Category decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the dis- bursement percentage then applicable to such Category as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expen- ditures prior to the date of this Agreement, except that with- drawals, in an aggregate enount not exceeding the equivalent of $3,000,000, may be made in respect of Category 1 on account of payments made for expenditures before that date but after October 1, 1983. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Cate- gory, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disburse- ment percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- diture for such item shall be financed out of the proceeds of the Loan, and the Bank may, without in any way restricting or limit- ing any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 15 - SCE[EDULE 2 Description of the Project The objectives of the Project are to support an exploration program in the Karamay oil belt and Hongshanzui-Chepaizi area, evaluate the potential of heavy oil in the Karamay and Liaohe oilfields, evolve the optimum method of thermal recovery, and provide critically needed technical inputs for KOC's overall exploration and development program. The Project consists of the following Parts: Part A: Explora-ion and Appraisal Program (i) Conducting conventional, high resolution and three dimensional seismic surveys with three local and three foreign crews for a period of about two years; (ii) drilling about 100 exploration/appraisal wells in the Wuerhe-Hungchiba area, about 10 exploration wells in the Hongshanzui-Chepaizi area and about 260 appraisal/ development wells in the rest of Karamay area to establish light oil potential; (iii) improving oil field logistics by providing transport and oilfield equipment (cementing, fracturing, work- over, coring, testing, laboratory, formation and pro- duction logging) necessary to support the exploration and delineation program; (iv) improving KOC's processing capability by upgrading Urumqi seismic processing computer center to accom- modate future load of high resolution and three- dimensional seismic surveys; and (v) establishing a computer center at Karamay for storing and processing of oilfield technical, administrative and financial data. Part B: Heavy Oil Recovery (i) Undertaking a study on the design of pilot projects for thermal recovery of heavy oil in Karamay; (ii) undertaking a techno-economic study to evaluate the refining methods of heavy oil, the value of fractions - 16 - it would yield and the means of transporting it out of Karamay; (iii) drilling and completion of the necessary injection- cum-production and observation wells, installation of surface/subsurface facilities including steam genera- tors, air compressors and instrumentation and provision of equipment and material for heavy oil laboratory; (iv) drilling about 160 wells in the Karamay heavy oil depo- sits to firm-up the extent and characteristics of the various reservoirs; and (v) monito-ing the performance of the pilot projects and designing optimum processes for field-wide application. Part C: Training (i) Establishing a training center for skilled workers and equipping it with necessary audio-visual materials, training equipment and library; and (ii) training professionals through short local courses or deputation abroad to appropriate institutions. Part D: Studies Provision of experts and services to perform studies in the following fields of activities: (i) stratigraphic and structural studies in Karamay with the purpose of outlining the most prospective areas; (ii) reservoir engineering study for tight conglomerate reservoir (Wuerhe); (iii) devising training curricula and train- ing methods for skilled workers and professionals; and (iv) a study on KOC's costing. Part E: Other Studies and Pilot Projects (i) Undertaking a study for utilization of gas from South China Sea in areas to be agreed upon between the Bor- rower and the Bank; (ii) undertaking a study on the design of pilot projects for thermal recovery of heavy oil in Liaohe oilfield in districts to be agreed upon between the Borrower and the Bank; - 17 - (iii) undertaking a techno-economic study to evaluate the various options for processing heavy oil, the value of fractions it would yield and the means of disposing of oil and/or products out of Liaohe; (iv) drilling and completion of the necessary injection- cum-production and observation wells, installation of surface/subsurface facilities including steam genera- tors, air compressors and instrumentation, and provi- sion of equipment and material for heavy oil labora- tory; (v) drilling ol exploratory/appraisal wells in the Liaohe heavy oil deposits to firm up the extent and charac- teristics of the various reservoirs; and (vi) monitoring the performance of the pilot projects and designing optimum processes for field-wide application. The Project is expected to be completed by June 30, 1989. - 18 - SCHEDULE 3 Amortization Schedule Payment of Principal Date of Payment Due (Expressed in dollars)* On each April 1 and October 1 beginning October 1, 1989 through October 1, 2003 3,345,000 On April 1, 2004 3,295,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal; see General Conditions, Section 3.04. - 19 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years bef ore maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity - 20 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereof, goods and services shall be procured under contracts awarded in accordance with pro- cedures consistent with those set forth in the current edition of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bid- ding as described in Part A of the Guidelines. 2. For goods and services to be procured on the basis of inter- national competitive bidding, in addition to the requirements of paragraphs 1.2 of the Guidelines, the Borrower shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publica- tion of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and services in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods and services remain to be procured on the basis of international competitive bidding. 3. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international com- petitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland freight and other expenditures incidental to the delivery of the goods to the place of their use or installation shall be included. - 21 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in China may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in China if the bidder shall have established to the satis- faction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in China equal to at least 20% of the ex- factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in - 22 - such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from Group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Contracts for: (i) seismic survey services and equipment; and (ii) seismic data processing may be awarded through limited international bidding procedures on the basis of evaluations and comparison of bids invited from a list of at least three qualified suppliers eligible under the Guidelines and in accordance with procedures set forth in paragraph A.3 of this Schedule and in Part A of the Guidelines (excluding paragraphs 1.2 and 3.9 thereof). 2. Equipment, spare parts and instrumentation estimated to cost the equivalent of less than $150,000 each and aggregating not more than the equivalent of $3,500,000, may be purchased directly under a negotiated contract from the manufacturer. D. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost the equivalent of $500,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedure-i to be followed for the bidding, and shall make such modifications in the said docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time - 23 - f or its review, a detailed report on the evaluation and compari- son of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification was invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loar, Account in respect of such contract, two conformed copies of such con- tract, together with the analysis of the respective bido, recom- mendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 15% of the original price, the Borrower shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform the Borrower and state the reasons for its determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 6 day of f(A/5, 198$. FOR SECRETARY