Conformed Copy - L3387 - Ertan Hydroelectric Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3387 CHA (Ertan Hydroelectric Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and ERTAN HYDROELECTRIC DEVELOPMENT CORPORATION Dated July 11, 1991 LOAN NUMBER 3387 CHA PROJECT AGREEMENT AGREEMENT, dated July 11, 1991, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and ERTAN HYDROELECTRIC DEVELOPMENT CORPORATION (EHDC). WHEREAS (A) by the Loan Agreement of even date herewith between People's Republic of China (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to three hundred eighty million dollars ($380,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that EHDC agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by subsidiary loan agreements to be entered into between the Borrower and Sichuan, and Sichuan and EHDC, the proceeds of the loan provided for under the Loan Agreement will be relent to EHDC on the terms and conditions set forth in said Subsidiary Loan Agreements; and WHEREAS EHDC, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; Page 2 NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) EHDC declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and power utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and EHDC shall otherwise agree, EHDC shall carry out the Project in accordance with the Implementation Program set forth in the Schedule to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 of the Loan Agreement. Section 2.03. EHDC shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement. Section 2.04. EHDC shall duly perform all its obligations under the Subsidiary Loan Agreements. Except as the Bank shall otherwise agree, EHDC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreements or any provision thereof. Section 2.05. (a) EHDC shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) EHDC shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by EHDC of its obligations under this Agreement and under the Subsidiary Loan Agreements. Section 2.06. EHDC shall, not later than June 30, 1996, enter into an agreement with SCEPA, satisfactory to the Bank, for the sale of the power to be generated under the Project, and shall thereafter implement such agreement. ARTICLE III Management and Operations of EHDC Section 3.01. EHDC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and power utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. EHDC shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all Page 3 necessary repairs and renewals thereof, all in accordance with sound engineering, financial and power utility practices. Section 3.03. EHDC shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. Without limitation to the provisions of Section 9.08 of the General Conditions, EHDC shall: (a) with the assistance of independent engineering experts whose qualifications and experience shall be reviewed with the Bank, periodicially inspect or cause to be inspected the dam, waterways, earthworks and reservoir banks and their appurtenant structures constructed under Part B of the Project after completion, under arrangements satisfactory to the Bank and in accordance with appropriate engineering practices, in order to determine whether there are any deficiencies in the condition of such structure and earthworks, or in the quality and adequacy of earthworks which may endanger the safety of such structures and earthworks; (b) propose to the Bank the arrangements for inspection, not less than one year prior to expected completion; (c) furnish, or cause to be furnished to the Bank, promptly after each such inspection, the conclusions thereof including the conclusions of said engineering experts; (d) make, promptly after each such inspection, all necessary repairs of such structure and earthworks; and (e) make all necessary modifications in the quality and adequacy of maintenance or methods of operation of such structures and earthworks, all to be in accordance with appropriate engineering practices. ARTICLE IV Financial Covenants Section 4.01. (a) EHDC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) EHDC shall: (i) have its records, accounts and financial statements (balance sheets, income statements and statements of sources and applications of funds) for each fiscal year audited, in accordance with appropriate auditing principles acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year: (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, EHDC shall from time to time take, or cause to be taken, all such measures (including, without limitation, adjustments of the levels of its tariffs) as shall be required to produce net operating income equivalent to not less than (a) 20% in 1999, (b) 25% in 2000, and (c) 35% thereafter, of its average annual investment program. (b) For the purposes of this Section: (i) The term "total operating revenue" means the sum of revenue from all sources related to operations and net non-operating income. (ii) The term "total operating expenses" means the sum of expenses related to operations, including maintenance and administration. (iii) The term "financial obligations" means interest and other charges on debt (excluding interest during construction), Page 4 repayment of loans (including sinking fund payments, if any), all taxes or payments in lieu of taxes, allocations to special funds and other cash distributions of surplus (including mandatory transfers to the Borrower), and any other cash outflows (other than capital expenditures) related to operations. (iv) The term "net operating income" means total operating revenues minus (a) total operating expenses, and (b) financial obligations. (v) The term "average annual investment program" means the average of: (A) the previous year's actual capital expenditures; (B) the current year's expenditures; and (C) the next year's projected capital expenditure. Section 4.03. (a) Except as the Bank shall otherwise agree, EHDC shall from time to time take, or cause to be taken, all such measures (including, without limitation, adjusting the level of its tariffs, refraining from incurring debt, or reducing debt) in order to ensure that the internal cash generation of EHDC for each fiscal year during the term of the debt to be incurred shall be at least (i) 1.3 times in 1999; and (ii) 1.5 times thereafter, of the estimated debt services requirements of EHDC in such year on all its debt including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of EHDC maturing by its terms more than one year 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 "internal cash generation of EHDC" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income, excluding receipts for consumer connection charges; and (B) the sum of all expenses related to operations, including administration, provisions for maintenance special fund, and sales and income taxes and payments in lieu of such taxes, but excluding provisions for depreciation, 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 (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) The term "reasonable forecast" means a forecast prepared by EHDC not earlier than twelve months prior to the incurrence of the debt in question, which both the Bank and EHDC accept as reasonable and as which the Bank has notified EHDC of its acceptability, provided that no event has occurred since such notification which Page 5 has, or may reasonably be expected to in the future to have, a material adverse effect on the financial condition or future operating results of EHDC. (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 Bank. Section 4.04. (a) Except as the Bank shall otherwise agree, EHDC shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than (i) 82 to 18 in each year from 1991 through 1997; (ii) 80 to 20 in each of 1998 and 1999; and (iii) 70 to 30 thereafter. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of EHDC maturing by its terms more than one year 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) 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, and to the extent, the amount of such debt has become outstanding pursuant to such contract, agreement or instrument; (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding. (iv) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of EHDC not allocated to cover specific liabilities. (v) 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 Bank. Section 4.05. By April 30 of each year, starting April 30, 1992, EHDC shall furnish to the Bank, for the Bank's review and comments, a rolling long-term financial plan, containing, inter alia, projected income statements, sources and applications of funds and balance sheets for the Project implementation period, and for at least five years thereafter. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of EHDC thereunder shall terminate on the date on which the Loan Agreement shall terminate in Page 6 accordance with its terms, and the Bank shall promptly notify EHDC thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 197688 (TRT), Washington, D.C. 248423 (RCA), 64145 (WUI) or 82987 (FTCC) For EHDC: New No. 20 Huapaifang Street Chengdu City Sichuan Province, China Cable address: Telex: 7194 Chengdu 600045 EHDCC CN Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of EHDC, or by EHDC on behalf of EHDC under the Loan Agreement, may be taken or executed by General Manager or such other person or persons as General Manager shall designate in writing, and EHDC shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Page 7 By /s/ Marianne Haug Acting Regional Vice President Asia ERTAN HYDROELECTRIC DEVELOPMENT CORPORATION By /s/ Zhu Qizhen Authorized Representative SCHEDULE Implementation Program 1. EHDC shall maintain the Project Management Unit with staffing and responsibilities satisfactory to the Bank. 2. EHDC shall carry out, not later than June 30, 1993, the studies under Part G (i) and (ii) of the Project in accordance with terms of reference and a schedule agreed with the Bank. 3. EHDC shall carry out the training under Part H of the Project in accordance with a program agreed with the Bank. 4. EHDC shall carry out an environmental management program agreed with the Bank.