Conformed Copy - L4045 - Chongqing Industrial Pollution Control and Reform Project - Project Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 4045 CHA chongqing Project Agreement (Chongqing Industrial Pollution Control and Reform Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and CHONGQING MUNICIPALITY Dated December 4, 1996 LOAN NUMBER 4045 CHA CHONGQING PROJECT AGREEMENT AGREEMENT, dated December 4, 1996 between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and CHONGQING MUNICIPALITY (Chongqing). WHEREAS 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 equal to one hundred seventy million dollars ($170,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Chongqing agree to undertake such obligations toward the Bank as are set forth in this Agreement; WHEREAS Chongqing, 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; 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 Page 2 Execution of the Project Section 2.01. (a) Chongqing declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end: (i) shall carry out Parts A and D (1) of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and industrial practices; (ii) shall (A) cause the Steel Companies to perform all their respective obligations set forth in the Steel Companies Project Agreement, (B) take or cause to be taken all action, necessary or appropriate to enable the Steel Companies to perform such obligations; and (C) not take or permit to be taken any action which would prevent or interfere with such performance; and (iii) 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 Chongqing shall otherwise agree, Chongqing shall carry out the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. (a) Chongqing shall relend the proceeds of the Loan allocated from time to time to Categories (1)(a) and (3) (a) to CSSC, and to Categories (1) (b) and (3) (b), to CISGC, under subsidiary loan agreements to be entered into between Chongqing and the Steel Companies, under terms and conditions which shall have been approved by the Bank and which shall include, without limitation, the following: (i) the principal amount of the Steel Company Subsidiary Loan made to each Steel Company shall be denominated and repayable in dollars and be equal to the sum of (A) the amount of the Loan withdrawn on account of the cost of goods and services for Part B (1) or B (2) of the Project, as the case may be, plus (B) the amount of interest and other charges on such Steel Company Subsidiary Loan which has been capitalized as provided in subparagraph (v) below; (ii) each Steel Company Subsidiary Loan shall be repaid to Chongqing over a period of twelve years, inclusive of a grace period of five years; (iii) each Steel Company Subsidiary Loan shall be charged, on the principal amount thereof withdrawn and outstanding from time to time, interest at a rate equal at least to (A) the rate of interest applicable from time to time to the Loan pursuant to Section 2.05 of the Loan Agreement plus (B) 1.2%; (iv) each Steel Company Subsidiary Loan shall be charged, on the principal thereof not withdrawn from time to time, a commitment charge at a rate equal to three-fourths of one percent (3/4 of 1%) per annum; and (v) interest and other charges on each Steel Company Subsidiary Loan that shall be accrued and payable during the execution of Part B (1) or B (2) of the Project, as the case may be, may be capitalized and paid out of the proceeds of such Steel Company Subsidiary Loan in accordance with the guidelines satisfactory to the Bank. (b) Chongqing shall relend the proceeds of the Loan allocated from time to time to Category (2) to the Financial Intermediaries under subsidiary loan agreements to be entered into between Chongqing and the Financial Intermediaries, under terms and conditions which shall have been approved by the Bank and which shall include, without limitation, the following: (i) the principal amount of the Financial Intermediary Subsidiary Loan made to each Financial Intermediary shall be denominated and repayable in dollars and be equal to the aggregate amount of the principal of all Sub-loans made by it; (ii) each Financial Intermediary Subsidiary Loan shall be repaid to Chongqing over a period of twenty years, inclusive of a grace Page 3 period of five years; (iii) each Financial Intermediary Subsidiary Loan shall be charged, on the principal amount thereof withdrawn and outstanding from time to time, interest at a rate equal to the rate of interest applicable from time to time to the Loan pursuant to Section 2.05 of the Loan Agreement; and (iv) each Financial Intermediary Subsidiary Loan shall be charged, on the principal thereof not withdrawn from time to time, a commitment charge at a rate equal to three-fourths of one percent (3/4 of 1%) per annum. (c) Chongqing shall exercise its rights under the Subsidiary Loan Agreements in such manner as to protect the interests of the Bank and Chongqing and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, Chongqing shall not assign, amend, abrogate or waive any of the Subsidiary Loan Agreements or any provision thereof. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and consultants' services required for Parts A and D (1) of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.04. Chongqing 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 Chongqing Project Agreement and its Respective Part of the Project. Section 2.05. (a) Chongqing 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 the Subsidiary Loan Agreements and other matters relating to the purposes of the Loan. (b) Chongqing 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 Chongqing of its obligations under this Agreement and under the Subsidiary Loan Agreements. ARTICLE III Financial Covenants Section 3.01. (a) Chongqing shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of its Respective Part of the Project of the departments or agencies of Chongqing responsible for carrying out such Part or any portion thereof. (b) Chongqing shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the 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, 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 and accounts and the audit thereof as the Bank shall from time to time reasonably request. Page 4 ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of Chongqing thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Chongqing 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 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 248423 (MCI), or Washington, D.C. 64145 (MCI) For Chongqing: Chongqing Municipal Management Office of World Bank