Conformed Copy - C2014 - Inner Mongolia Local Railway Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2014 CHA LOAN NUMBER 3060 CHA Project Agreement (Inner Mongolia Local Railway Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and INNER MONGOLIA LOCAL RAILWAY CORPORATION Dated September 14, 1989 CREDIT NUMBER 2014 CHA LOAN NUMBER 3060 CHA PROJECT AGREEMENT AGREEMENT, dated September 14, 1989, among INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and INNER MONGOLIA LOCAL RAILWAY CORPORATION (IMLRC). WHEREAS: (A) by the Development Credit Agreement of even date herewith between the People's Republic of China (the Borrower) and the Association, the Association has agreed to lend to the Borrower an amount in various currencies equivalent to fifty-eight million six hundred Special Drawing Rights (SDR 58,600,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that IMLRC 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 seventy million dollars ($70,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that IMLRC agree to undertake such obligations toward the Bank as are set forth in this Agreement; Page 2 (C) by subsidiary loan agreements to be entered into between the Borrower, Inner Mongolia and IMLRC, the proceeds of the Credit and the Loan provided for under the Development Credit Agreement and the Loan Agreement, respectively, will be made available to IMLRC on the terms and conditions set forth in said Subsidiary Loan Agreements; and WHEREAS IMLRC, 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, has 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 and in the General Conditions (as so defined) and in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. IMLRC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, IMLRC shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and railway practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Except as the Association and the Bank shall otherwise agree, procurement of the goods and services required for the Project and to be financed out of the proceeds of the Credit and of the Loan shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. IMLRC 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 the Project Agreement. Section 2.04. IMLRC shall duly perform all its obligations under its Subsidiary Loan Agreement. Except as the Association and the Bank shall otherwise agree, IMLRC 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) IMLRC shall, at the request of the Association or the Bank, exchange views with the Association or the Bank with regard to progress 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 Credit and the Loan. (b) IMLRC shall promptly inform the Association and the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit and the Loan, or the performance by IMLRC of its obligations under this Agreement and under its Subsidiary Loan Agreement. Section 2.06. IMLRC shall carry out the resettlement under the Project in accordance with the plan agreed with the Association and the Bank. Section 2.07. IMLRC shall carry out recruitment and training of its staff in Page 3 accordance with a plan agreed with the Association and the Bank. ARTICLE III Management and Operations of IMLRC Section 3.01. IMLRC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and engineering practices under the supervision of qualified and experienced management, assisted by competent staff in adequate numbers. Section 3.02. IMLRC shall at all times operate and maintain its machinery, equipment and other property, including the facilities constructed under the Project, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering and financial practices. Section 3.03. IMLRC shall take out and maintain with responsible insurers, or make other provision satisfactory to the Association and 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) IMLRC shall maintain, or cause to be maintained, records and accounts adequate to reflect in accordance with sound accounting practices: (i) its operations and financial condition; and (ii) the operations, resources and expenditures in respect of the Project. (b) IMLRC shall: (i) have said records, accounts and financial statements (balance sheets, statements of income and of sources and application of funds), 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, (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 Association and the Bank shall have reasonably requested; and (iii) furnish to the Association and the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof and said records, as the Association and the Bank shall from time to time reasonably request. Section 4.02. (a) IMLRC shall take all necessary measures including the increase of its tariffs to ensure that the estimated net revenues of IMLRC shall be at least 1.5 times the estimated debt service requirements of IMLRC on all debt of IMLRC based on a reasonable fores cast of the revenues and expenditures of IMLRC, in respect of each fiscal year within three years from the commencement of the operation of railway system constructed under the Project. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of IMLRC maturing by its terms more than one year after the date on which it is originally incurred. Page 4 (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 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 of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt. (vi) The term "reasonable forecast" means a forecast prepared by IMLRC not earlier than twelve months prior to the incurrence of the debt in question, which the Association, the Bank and IMLRC accept as reasonable and as to which the Association and the Bank have notified IMLRC of their 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 IMLRC. (vii) 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. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. 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 5.02. (a) This Agreement and all obligations of the Association, the Bank and IMLRC thereunder shall terminate on the earlier of the following dates: (i) the date on which both the Development Credit Agreement and the Loan Agreement shall have terminated; or Page 5 (ii) the date twenty years after the date of this Agreement. (b) If the Development Credit Agreement or the Loan Agreement or both of said Agreements terminate in accordance with their respective terms before the date specified in paragraph (a) (ii) of this Section, the Association or the Bank or both, as the case may be, shall promptly notify IMLRC of this event. 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 applicable to the Development Credit Agreement or the Loan Agreement. 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) 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) For IMLRC: Inner Mongolia Local Railway Corporation Dong Ku Street Xin Cheng District Hohhot Nei Mongol Autonomous Region People's Republic of China Telex: 85013 IMAR PCN Section 6.02. Any action required or permitted to be taken, and any document Page 6 required or permitted to be executed, under this Agreement on behalf of IMLRC, or by IMLRC on behalf of the Borrower under the Development Credit Agreement or the Loan Agreement, may be taken or executed by its Director or such other person or persons as its Director shall designate in writing, and IMLRC shall furnish to the Association and the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. As long as the Bank has not given notice to the contrary to IMLRC and so long as the Development Credit Agreement shall not have terminated prior to the termination of the Loan Agreement: (a) the obligations of IMLRC 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 IMLRC shall be satisfied to the extent such obligations are fulfilled by the Association; and (c) all actions taken (including the giving of approvals or the 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. Section 6.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Karaosmanoglu Regional Vice President Asia INNER MONGOLIA LOCAL RAILWAY CORPORATION By /s/ Zhao Xixin Authorized Representative