Conformed Copy - L3288 - Shanghai Industrial Development Project - Project Agreement 1

Page 1 CONFORMED COPY LOAN NUMBER 3288-0 CHA 3288-1 3288-2 3288-3 3288-4 (Shanghai Industrial Development Project) among INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANK OF COMMUNICATIONS, SHANGHAI BRANCH CHINA INVESTMENT BANK INDUSTRIAL AND COMMERCIAL BANK OF CHINA PEOPLE'S CONSTRUCTION BANK OF CHINA and SHANGHAI INVESTMENT AND TRUST CORPORATION Dated March 15, 1991 LOAN NUMBER 3288-0 CHA 3288-1 3288-2 3288-3 3288-4 FINANCIAL INTERMEDIARIES PROJECT AGREEMENT AGREEMENT, dated March 15, 1991, among INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BANK OF COMMUNICATIONS, SHANGHAI BRANCH (BOCOM), CHINA INVESTMENT BANK (CIB), INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ICBC), PEOPLE'S CONSTRUCTION BANK OF CHINA (PCBC) AND SHANGHAI INVESTMENT AND TRUST CORPORATION (SITCO) (the Financial Intermediaries). Page 2 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 lend to the Borrower an amount in various currencies equivalent to one hundred fifty million dollars ($150,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Financial Intermediaries agree to undertake such obligations toward the Bank as are set forth in this Agreement and Shanghai Municipality agree to undertake such obligations toward the Bank as are set forth in the Shanghai Project Agreement; (B) by subsidiary loan agreements to be entered into between Shanghai Municipality and the Financial Intermediaries, the proceeds of the Loan provided for under the Loan Agreement, will be made available to the Financial Intermediaries on terms and conditions set forth in said Subsidiary Loan Agreements; and WHEREAS the Financial Intermediaries, in consideration of 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 Loan Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of the Financial Intermediaries Section 2.01. Each of the Financial Intermediaries 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 its respective portion of Parts A and B.1 of the Project, in the case of CIB, ICBC and PCBC, through its Shanghai branch, and conduct its operations and affairs, in accordance with sound financial standards and practices, under the supervision of qualified and experienced management assisted by competent staff in adequate numbers and in accordance with: (a) for BOCOM, the BOCOM Charter; (b) for CIB, the CIB Supplementary Regulations, CIB Statement of Policy, CIB Statement of Development Strategy and CIB Lending Procedures; (c) for ICBC, the State Council Decision; (d) for PCBC, the State Council Decision; and (e) for SITCO, the SITCO Articles of Association. Section 2.02. (a) Each of the Financial Intermediaries undertakes that, unless the Bank shall otherwise agree, Sub-loans will be made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 1 to this Agreement. (b) Each of the Financial Intermediaries shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and of such Financial Intermediary; (ii) comply with its obligations under this Agreement and its respective Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and services required for Parts A and B.1 of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 2 to this Agreement. Section 2.04. Each of the Financial Intermediaries 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 Page 3 Financial Intermediaries Project Agreement and its respective portion of Parts A and B.1 of the Project. Section 2.05. Each of the Financial Intermediaries shall duly perform all its obligations under its respective Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, no Financial Intermediary shall take or concur in any action which would have the effect of assigning, amending, abrogating or waiving such Subsidiary Loan Agreement to affect the provisions of Section 2.02 (a) of the Shanghai Project Agreement. Section 2.06. (a) Each of the Financial Intermediaries shall, at the request of the Bank, exchange views with the Bank with regard to the progress of its respective portion of Parts A and B.1 of the Project, the performance of its obligations under this Agreement and under its respective Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) Each of the Financial Intermediaries shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of its respective portion of Parts A and B.1 of the Project, the accomplishment of the purposes of the Loan, or the performance by such Financial Intermediary of its obligations under this Agreement and under its respective Subsidiary Loan Agreement. Section 2.07. If any Financial Intermediary establishes or acquires any Subsidiary, such Financial Intermediary shall cause such Subsidiary to observe and perform the obligations of such Financial Intermediary under this Agreement to the extent to which such obligations shall or may be made applicable thereto, as though such obligations were binding upon such Subsidiary. Article III Financial Covenants Section 3.01. (a) Each of the Financial Intermediaries shall maintain procedures and records adequate to monitor and record the progress of the Project and of each Investment Project (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of such Financial Intermediaries. (b) Each of the Financial Intermediaries shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year, beginning with 1989, audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than six months after the end of each such year : (A) certified copies of its financial statements for such year as so audited, and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request. (c) For CIB, ICBC and PCBC, paragraphs (a) and (b) of this Section shall apply with respect to the Shanghai branch only. Section 3.02. Each of the Financial Intermediaries shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Renminbi) used in its Page 4 operations . ARTICLE IV Effective Date; Termination Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and the Financial Intermediaries thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify each of the Financial Intermediaries thereof. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. 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 addresses 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 BOCOM: Bank of Communications Shanghai Branch 200 Jiangxi Zhong Lu Shanghai People's Republic of China Cable address: Telex: 3480 33438 BOCOM CN For CIB: China Investment Bank Shanghai Branch 80 Shanxi Bei Lu Shanghai Page 5 People's Republic of China Telex: 30270 CIBSB CN For ICBC: Industrial and Commercial Bank of China Shanghai Branch 74 Dian Chi Lu Shanghai People's Republic of China Cable address: Telex: ICBC SH 30176 ICBSF CN For PCBC: People's Construction Bank of China Shanghai Branch Room 516, No. 1456 Yanan Dong Lu Shanghai People's Republic of China Cable address: Telex: 44001 30150 CBCSB CN For SITCO: Shanghai Investment and Trust Corporation 3rd Floor, Union Building 100 Yanan Dong Lu Shanghai People's Republic of China Cable address: Telex: INVESTCO 33031 SITCO Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of any Financial Intermediary may be taken or executed by its President or, in the case of CIB, ICBC and PCBC, the President of its Shanghai Branch, or by such other person or persons as any such President shall designate in writing, and such Financial Intermediary shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. 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 By /s/ A. Karaosmanoglu Regional Vice President Asia Page 6 BANK OF COMMUNICATIONS, SHANGHAI BRANCH CHINA INVESTMENT BANK by its Shanghai branch INDUSTRIAL AND COMMERCIAL BANK OF CHINA by its Shanghai branch PEOPLE'S CONSTRUCTION BANK OF CHINA by its Shanghai branch SHANGHAI INVESTMENT AND TRUST CORPORATION By /s/ Zhao Xixin Authorized Representative SCHEDULE 1 Terms and Conditions of Sub-loans and Processing Procedures 1. Major Terms and Conditions of Sub-loans: (a) Sub-loans shall bear interest on the principal amount withdrawn and outstanding from time to time, at a rate not less than the variable rate payable under Section 2.05 of the Loan Agreement, plus a spread of one and one-quarter percent (1-1/4%). (b) Repayment periods for Sub-loans shall normally not extend beyond twelve years, including up to three years of grace. (c) Each of the Financial Intermediaries shall: (i) ensure that each Investment Enterprise bears the foreign exchange risk between the Renminbi and the Bank's currency pool on its Sub-loan; or (ii) make other arrangements satisfactory to the Bank for the sharing of such foreign exchange risk. (d) The aggregate amount of all Sub-loans for an Investment Project or Technical Assistance Project shall not exceed the equivalent of $20,000,000. (e) No Sub-loan shall be made to an Investment Enterprise unless: (i) the Investment Project or Technical Assistance Project is consistent with the Statement referred to in clause (B) of the Preamble to the Loan Agreement; and (ii) a charter for the Investment Enterprise has been issued in accordance with paragraph 3 (b) of the Schedule to the Shanghai Project Agreement. Training under Technical Assistance Projects shall be consistent with the annual programs referred to in paragraph 6 of the Schedule to the Shanghai Project Agreement. (f) Technical Assistance Projects and Investment Projects shall be in Project Sub-sectors and Investment Projects shall have a minimum financial rate of return of 12%, and where the proposed Sub-loan exceeds $3,000,000, shall have a minimum economic rate of return of 12%. (g) Investment Enterprises shall have a satisfactory projected financial position as determined by generally accepted financial standards. (h) Investment Projects and Technical Assistance Projects shall be consistent with environmental standards satisfactory to the Bank. No Sub-loan shall be made to an Investment Enterprise unless: (i) the existing operations of the relevant factory under the Investment Enterprise are in compliance with the environmental standards of Page 7 the Shanghai Environmental Protection Agency; and ( ii ) the Investment Project has been approved by such Agency. 2. No expenditures for goods or services required for an Investment Project or Technical Assistance Project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-loan shall be for a Technical Assistance Project which shall have been approved by the Bank; (b) the Sub-loan for an Investment Project shall have been approved by the Bank and such expenditures shall have been made not earlier than ninety (90) days prior to the date on which the Bank shall have received the application and information required under paragraph 3 (a) of this Schedule in respect of such Sub-loan; and (c) the Sub-loan for an Investment Project shall have been a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account and such expenditures shall have been made not earlier than ninety (90) days prior to the date on which the Bank shall have received the request and information required under paragraph 3 (b) of this Schedule in respect of such free-limit Sub-loan. (i) For the purposes of the Loan Agreement and this Agreement, a free-limit Sub-loan shall be a Sub-loan for an Investment Project in an amount to be financed out of the proceeds of the Loan which, when added to any other outstanding amounts financed or proposed to be financed out of Sub-loans, the proceeds of which have been or are being used for financing goods and services directly and materially related to such Investment Project, shall not exceed in the aggregate the equivalent of $3,000,000, the foregoing amount being subject to change from time to time as determined by the Bank. (ii) Notwithstanding the provision of sub-paragraph (i) above, the first two Investment Sub-loans proposed to be made by each of the Financial Intermediaries in an amount below $3,000,000 for each Sub-loan shall not be treated as free-limit Sub-loans. 3. (a) When presenting a Sub-loan (other than a free-limit Sub-loan) to the Bank for approval, each Financial Intermediary shall furnish to the Bank an application, in form satisfactory to the Bank, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project or description of the Technical Assistance Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan and a description of the procurement procedures; (ii) the proposed terms and conditions of the Sub-loan including the schedule of amortization of the Sub-loan; and (iii) such other information as the Bank shall reasonably request. (b) Each request by a Financial Intermediary for authorization to make withdrawals from the Loan Account in respect of a free-limit Sub-loan shall contain: (i) a summary description of the Investment Enterprise and the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan and a description of the procurement procedures; (ii) the terms and conditions of the Sub-loan, including the schedule of amortization of the Sub-loan; and (iii) such other information as the Bank shall reasonably request. (c) Applications and requests made pursuant to the provisions of sub-paragraphs (a) and (b) of this paragraph shall be presented to the Bank on or before December 31, 1993. 4. Sub-loans shall be made on terms whereby the Financial Intermediary shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank and the Financial Intermediary, including the right to: Page 8 (a) require the Investment Enterprise to carry out and operate the Investment Project or Technical Assistance Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that the goods and services to be financed out of the proceeds of the Sub-loan: (i) be procured in accordance with the provisions of Schedule 2 to this Agreement; and (ii) be used exclusively in the carrying out of the Investment Project or Technical Assistance Project; (c) inspect, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods, works, plants and construction included in the Investment Project or Technical Assistance Project, the operation thereof, and any relevant records and documents; (d) require that: (i) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (e) obtain all such information as the Bank or the Financial Intermediary shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise and to the benefits to be derived from the Investment Project or Technical Assistance Project; and (f) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Sub-loan upon failure by such Investment Enterprise to perform its obligations under its contract with the Financial Intermediary. SCHEDULE 2 Procurement and Consultants' Services Except as the Bank may otherwise agree, each Financial Intermediary shall cause Investment Enterprises to procure goods and services and employ consultants to be financed in whole or in part under Sub-loans in accordance with paragraphs 1, 2, 3, 4 and 5 below. 1. Goods and services estimated to cost the equivalent of $1,000,000 or more each shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines). In the procurement of goods in accordance with the procedures described in this paragraph, goods manufactured in China may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. 2. Goods and services estimated to cost less than the equivalent of $1,000,000 per contract may be procured under contracts awarded on the basis of evaluation and comparison of price quotations obtained from at least three qualified suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. 3. Proprietary items and spare parts requiring standarization may be procured through direct purchase from suppliers, in accordance with procedures acceptable to the Bank. 4. Review of procurement decisions by the Bank: (a) Review of invitations to bid and of proposed awards and final contracts: Page 9 (i) With respect to all contracts estimated to cost the equivalent of $1,000,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank prior to the making of the first payment out of the Special Account in respect of such contract. (ii) With respect to each contract not governed by the preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (iii) The provisions of the preceding sub-paragraphs (a) (i) and (ii) shall not apply to contracts on account of which the Bank has authorized withdrawals from the Loan Account on the basis of statements of expenditure. Such contracts shall be retained in accordance with Section 4.01 (a) (ii) of the Loan Agreement. (b) The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. 5. The qualifications, experience and terms and conditions of employment of consultants employed under Technical Assistance Projects shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank on the basis of 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.