Conformed Copy - L4016 - Coal Pilot Project - Project Agreement 2

Page 1 CONFORMED COPY LOAN NUMBER 4016 UA Donetsk Oblast Project Agreement (Coal Pilot Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and DONETSK OBLAST Dated July 11, 1996 LOAN NUMBER 4016 UA PROJECT AGREEMENT AGREEMENT, dated July 11, 1996, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and DONETSK OBLAST (Donetsk Oblast). WHEREAS (A) by the Loan Agreement of even date herewith between UKRAINE (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to fifteen million eight hundred ten thousand Dollars ($15,810,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Donetsk Oblast agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and Donetsk Oblast, a portion of the proceeds of the loan provided for under the Loan Agreement will be made available to Donetsk Oblast on the terms and conditions set forth in said Donetsk Oblast Subsidiary Agreement; and WHEREAS Donetsk Oblast, 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 Page 2 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 and the following additional term has the following meaning: "Participating City Agreement" means the agreement referred to in Section 2.01 (b) (ii) of this Agreement. ARTICLE II Execution of the Project Section 2.01. (a) Donetsk Oblast declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and to this end, shall, jointly with UDKR and the relevant agencies of the Borrower, carry out Parts B and C of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, labor, social, and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the activities required to be carried out by Donetsk Oblast under such Parts of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and Donetsk Oblast shall otherwise agree, Donetsk Oblast shall: (i) carry out its activities under Parts B and C of the Project in accordance with the Implementation Program set forth in Schedule 5 to the Loan Agreement; (ii) implement Parts B.3 and C of the Project through the Participating Cities pursuant to an agreement (Participating City Agreement), to be entered into by Donetsk Oblast and each of the Participating Cities, under terms and conditions acceptable to the Bank, which shall include, without limitation: (A) terms and conditions whereby the Participating Cities shall assume ownership and operational responsibility for selected social assets required to be divested from Mining Associations in respect of Project Mines under Part C of the Project; (B) requirements ensuring the contribution by such Participating Cities of the funds, facilities, services and other resources necessary for the maintenance and delivery of the social services and benefits being provided through such social assets; and (C) accounting, auditing and record keeping requirements; and (iii) exercise its rights under the Participating City Agreements in such manner as to protect the interests of the Borrower, Donetsk Oblast and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, Donetsk Oblast shall not assign, amend, abrogate or waive the Participating City Agreements or any provision thereof. Section 2.02. (a) Donetsk Oblast 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 Donetsk Oblast Project Agreement and Part C of the Project. (b) For the purposes of Section 9.07 of the General Conditions and without limitation thereto, Donetsk Oblast shall: (i) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, a plan, with respect to any facilities financed under Part C of the Project which are to remain under the ownership or control of Donetsk Oblast, for the future maintenance and operation of such facilities; and (ii) afford the Bank a reasonable opportunity to exchange views with the Borrower on said plan. Page 3 Section 2.03. Donetsk Oblast shall duly perform all its obligations under the Donetsk Oblast Subsidiary Agreement. Except as the Bank shall otherwise agree, Donetsk Oblast shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Donetsk Oblast Subsidiary Agreement or any provision thereof. Section 2.04. (a) Donetsk Oblast shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Parts B and C of the Project, the performance of its obligations under this Agreement and under the Donetsk Oblast Subsidiary Agreement, and other matters relating to the purposes of the Loan. (b) Donetsk Oblast shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Parts B and C of the Project, the accomplishment of the purposes of the Loan, or the performance by Donetsk Oblast of its obligations under this Agreement and under the Donetsk Oblast Subsidiary Agreement. ARTICLE III Financial Covenants Section 3.01. (a) Donetsk Oblast shall maintain or cause to be maintained records and accounts, and the records and accounts for Special Account B, adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of Parts B.3 and C of the Project of the departments or agencies of Donetsk Oblast, including those of the Participating Cities, responsible for carrying out any activities under such Parts of the Project. (b) Donetsk Oblast 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 (6) 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. 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 Donetsk Oblast thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Donetsk Oblast 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 Page 4 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 (RCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For Donetsk Oblast: 34 Pushkin Boulevard Donetsk 340105 Ukraine Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of Donetsk Oblast may be taken or executed by the Governor of Donetsk Oblast or such other person or persons as the Governor of Donetsk Oblast shall designate in writing, and Donetsk Oblast 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/ Basil Kavalsky Acting Regional Vice President Europe and Central Asia DONETSK OBLAST By /s/ Valeri Kuchinsky Authorized Representative Page 5