Conformed Copy - L3987 - Second Shanghai Sewerage Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3987 CHA Project Agreement (Second Shanghai Sewerage Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and MUNICIPALITY OF SHANGHAI Dated May 9, 1996 LOAN NUMBER 3987 CHA PROJECT AGREEMENT AGREEMENT, dated May 9, 1996, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and MUNICIPALITY OF SHANGHAI (Shanghai). WHEREAS by the Loan Agreement of even date herewith between the People's Republic of China (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount equal to two hundred fifty million dollars ($250,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Municipality of Shanghai (Shanghai) agree to undertake such obligations toward the Bank as are set forth in this Agreement; WHEREAS Shanghai, 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 Page 2 in the Loan Agreement, the Preamble to this 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) Shanghai declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall cause the Sewerage Company to carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, urban infrastructure and environmental 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 Shanghai shall otherwise agree, Shanghai shall: (i) ensure that the Project shall be carried out in accordance with the Implementation Program set forth in Schedule 2 to this Agreement; and (ii) take or cause to be taken such other actions as are set forth in said Schedule. 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 1 to this Agreement. Section 2.03. (a) Shanghai shall cause the Sewerage Company to 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. (b) For the purposes of Section 9.08 of the General Conditions, and without limitation thereto, Shanghai shall cause the Sewerage Company to: (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 for the future operation of the Project; and (ii) afford the Bank a reasonable opportunity to exchange views with Shanghai on said plan. Section 2.04. (a) Shanghai shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Loan. (b) Shanghai 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 Loan, or the performance by Shanghai of its obligations under this Agreement. ARTICLE III Financial and Other Covenants Section 3.01. (a) Shanghai 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 the Project of the departments or agencies of Shanghai responsible for carrying out the Project or any part thereof. Page 3 (b) Shanghai shall: (i) have its 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, 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 Shanghai thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify Shanghai 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 Shanghai: Shanghai Municipal Finance Bureau 60 Jiu Jiang Road Shanghai People's Republic of China Telex: Page 4 33715 SMFB CN 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 Shanghai, or by Shanghai on behalf of the Borrower under the Loan Agreement, may be taken or executed by the Vice Mayor responsible for urban construction or such other person or persons as said Vice Mayor shall designate in writing, and Shanghai 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/ Nicholas C. Hope Acting Regional Vice President East Asia and Pacific MUNICIPALITY OF SHANGHAI By /s/ Li Daoyu Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: General Goods and works shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods and works shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provisions shall apply to goods and works to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B. (a) Prequalification Page 5 Bidders for works contracts for pump stations and the Bailonggang wastewater treatment plant estimated to cost more than $12,000,000 equivalent, and for goods contracts for the supply and installation of pumping plant and system telemetry equipment estimated to cost more than $4,000,000 equivalent, shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines. (b) Grouping of contracts To the extent practicable, contracts for works shall be grouped in bid packages estimated to cost $10,000,000 equivalent or more each, and contracts for goods shall be grouped into bid packages estimated to cost $250,000 equivalent or more each. (c) Preference for domestically manufactured goods and domestic contractors The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower and works to be carried out by domestic contractors. Part C: Other Procurement Procedures 1. National Competitive Bidding Works estimated to cost less than $10,000,000 equivalent per contract, up to an aggregate amount not to exceed $91,000,000 equivalent, and goods estimated to cost less than $250,000 equivalent per contract, up to an aggregate amount not to exceed $7,800,000 equivalent may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. 2. National Shopping Goods estimated to cost less than $50,000 equivalent per contract, up to an aggregate amount not to exceed $800,000 equivalent, may be procured under contracts awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. Part D: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review With respect to each contract for works estimated to cost the equivalent of $6,000,000 or more, and each contract for goods estimated to cost the equivalent of $500,000 or more, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II. Employment of Consultants 1. Consultants' services shall be procured under contracts awarded in accordance with the provisions 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 (the Consultant Guidelines). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications thereto as shall Page 6 have been agreed by the Bank. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Bank shall be used. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Bank review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, shall not apply to: (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each; or (b) contracts for the employment of individual consultants estimated to cost less than $50,000 equivalent each. However, said exceptions to prior Bank review shall not apply to: (i) the terms of reference for such contracts; (ii) single-source selection of consulting firms; (iii) assignments of a critical nature, as reasonably determined by the Bank; (iv) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above; or (v) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 2 Implementation Program A. Land Acquisition, Resettlement and Environmental Assessment Shanghai shall take all measures necessary to ensure that the Project shall be carried out in accordance with the Resettlement Action Plan and the Environmental Assessment. B. Onlending to the Sewerage Company 1. For the purpose of carrying out the Project, Shanghai shall relend the proceeds of the Loan to the Sewerage Company under a subsidiary loan agreement to be entered into between Shanghai and the Sewerage Company, under terms and conditions which shall have been approved by the Bank, and which shall include, without limitation, those set forth in Schedule 3 to this Agreement. 2. Shanghai shall: (a) (i) cause the Sewerage Company to perform, in accordance with the provisions of the Subsidiary Loan Agreement, all of the obligations of the Sewerage Company therein set forth; (ii) take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Sewerage Company to perform such obligations; and (iii) not take or permit to be taken any action which would prevent or interfere with such performance; and (b) exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower, the Bank and Shanghai and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, not assign, amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. C. Wastewater Connection Action Plan Page 7 In order to improve the collection of wastewater flows in Shanghai and of their connection to Shanghai's wastewater system, as extended under this Project, Shanghai shall take all measures necessary to ensure that the Wastewater Connection Action Plan is implemented with due diligence and efficiency. SCHEDULE 3 Principal Terms and Conditions of the Subsidiary Loan Agreement The principal terms and conditions set forth or referred to in this Schedule shall apply for the purposes of Part B.1 of Schedule 2 to this Agreement. A. Terms 1. The principal amount of the Subsidiary Loan shall be denominated and repayable in dollars. 2. The Sewerage Company shall repay the principal amount of the Subsidiary Loan to Shanghai over a period of fifteen (15) years, inclusive of a grace period of five (5) years. 3. Shanghai shall charge interest on the principal amount of the Subsidiary Loan, withdrawn and outstanding from time to time 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. 4. Shanghai shall charge a commitment charge on the principal amount of the Subsidiary Loan, not withdrawn from time to time at a rate equal to three-fourths of one percent (3/4 of 1%) per annum. B. Conditions 1. Project Implementation (a) The Sewerage Company shall undertake to carry out the Project with due diligence and efficiency, under the supervision of qualified and experienced management assisted by competent staff in adequate numbers, and in accordance with appropriate technical, financial, engineering and public utility practices, and appropriate health, safety and environmental standards acceptable to the Bank, and provide, promptly as needed, the funds, facilities and other resources required for the purpose. Without limitation on the foregoing, the Sewerage Company shall: (i) take all measures necessary to ensure that Part A of the Project shall be implemented in accordance with the Resettlement Action Plan and the Environmental Assessment; and (ii) implement Part B of the Project in accordance with the Institutional Development and Training Action Plan. (b) The Sewerage Company shall undertake to: (i) procure the goods and services to be financed out of the proceeds of the Loan in accordance with the provisions of Schedule 1 to this Agreement, and (ii) utilize such goods and services exclusively in the carrying out of the Project. The Sewerage Company shall employ consultants in accordance with the provisions of said Schedule 1 in order to assist it in: (A) carrying out engineering design review, pilot testing and construction management and works supervision under Part A of the Project; and Page 8 (B) carrying out Part B of the Project. (c) The Sewerage Company shall undertake to enable the Bank and Shanghai to inspect the goods financed out of the proceeds of the Loan and the sites and works included in the Project, the operation thereof, and any relevant records and documents. 2. Insurance The Sewerage Company shall undertake to take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, including, without limitation, such insurance to 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 Sewerage Company to replace or repair such goods. 3. Operation and Maintenance The Sewerage Company shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and public utility practices. 4. Wastewater Connection and Treatment (a) The Sewerage Company shall undertake to: (i) provide wastewater treatment facilities for the wastewater flowing through Shanghai's system to the Bailonggang outfall, adequate to limit the average annual phosphorus load discharged from Shanghai into any receiving waters to 18 tons per day or less; and (ii) without limitation to the foregoing, design, on the basis of the experience with the pilot scale plant constructed under Part A(2)(a) of the Project and in accordance with terms of reference acceptable to the Bank, and construct a treatment plant at Bailonggang, providing for removal of phosphorous, and ensure that said plant shall be fully operational not later than January 1, 2005 or such other date as the Bank and the Sewerage Company may agree. (b) In order to improve the collection of wastewater flows in Shanghai and of their connection to Shanghai's wastewater system, as extended under this Project, the Sewerage Company shall take all action on its part to ensure that the Wastewater Connection Action Plan is implemented with due diligence and efficiency. 5. Monitoring and Reporting (a) The Sewerage Company shall maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators acceptable to the Bank: (i) the carrying out of the Project, including the Resettlement Action Plan, the Environmental Assessment and the Institutional Development and Training Action Plan; (ii) the implementation of the Wastewater Connection Action Plan; and (iii) the achievement of the objectives thereof. (b) The Sewerage Company shall, prepare, under terms of reference acceptable to the Bank, and furnish to the Bank and Shanghai, the following reports: (i) quarterly reports on or about April 30, July 31, October 31 and Page 9 January 31, in each year, integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section 5, on the progress achieved in the carrying out of the Project during the preceding calendar quarter and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the then current calendar quarter; and (ii) annual reports on or about January 31 in each year, integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section 5, on the progress achieved in the carrying out of the Project (including the Resettlement Action Plan, the Environmental Assessment and the Institutional Development and Training Action Plan), and of the Waste-water Connection Action Plan, during the preceding calendar year and setting out the measures recommended to ensure the efficient carrying out of the Project and the Wastewater Connection Action Plan, and the achievement of the objectives thereof during the next twelve months, including any revisions proposed to be introduced into said plans. (c) After furnishing each report referred to in paragraph (b) of this Section 5, the Sewerage Company shall review said report with the Bank and Shanghai, and promptly: (i) take all measures required to ensure the efficient completion of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of said report and the Bank's views on the matter; and (ii) introduce such revisions to the plans referred to in said paragraph (b) as shall have been agreed among the Bank, Shanghai and the Sewerage Company. 6. Financial Covenants (a) The Sewerage Company shall undertake to: (i) maintain records and accounts adequate to reflect in accordance with consistently maintained sound accounting practices its operations and financial condition; (ii) have its financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank and Shanghai; (iii) furnish to the Bank and Shanghai as soon as available, but in any case not later than six (6) months after the end of each such year: (A) certified copies of said financial statements and accounts for such year as so audited; and (B) the report of such audit by said auditors in such scope and detail as the Bank and Shanghai shall have reasonably requested; and (iv) prepare and furnish to the Bank and Shanghai all such other information concerning said records, accounts and financial statements, as well as the audit thereof, as the Bank or Shanghai shall reasonably request. (b) The Sewerage Company shall undertake to: (i) produce, for each of its fiscal years, commencing in fiscal year 1997, funds from internal sources equivalent to not less than Page 10 the following percentage of the annual average of its capital expenditures incurred, or expected to be incurred for such year, the preceding fiscal year and the next following fiscal year: 5% for each of fiscal years 1997, 1998, 1999 and 2000, and 10% for each fiscal year thereafter; (ii) review, before September 30 in each fiscal year, and on the basis of forecasts prepared by it and satisfactory to the Bank, whether it would meet the requirements set forth in subparagraph (i) of this paragraph (b) in respect of such year and the next following fiscal year and furnish to the Bank the results of such review upon its completion; and (iii) if any such review shows that it would not meet the requirements set forth in subparagraph (i) of this paragraph (b) for the fiscal years covered by such review, promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its tariffs) in order to meet such requirements. (c) The Sewerage Company shall undertake not to incur any debt unless a reasonable forecast of its revenues and expenditures shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be at least 1.3 times its estimated debt service requirements in such year on all of its debt including the debt to be incurred. (d) For purposes of this Section 6: (i) The term "funds from internal sources" means the difference between: (A) the sum of revenues from all sources related to operations, consumer deposits and consumer contributions in aid of construction, net non-operating income and any reduction in working capital other than cash; and (B) the sum of all expenses related to operations, including administration, adequate maintenance and taxes and payments in lieu of taxes (excluding provision for depreciation and other non-cash operating charges), debt service requirements, all cash dividends and other cash distributions of surplus, increase in working capital other than cash and other cash outflows other than capital expenditures. (ii) 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. (iii) The term "working capital other than cash" means the difference between current assets excluding cash and current liabilities at the end of each fiscal year. (iv) The term "current assets excluding cash" means all assets other than cash which could in the ordinary course of business be converted into cash within twelve (12) months, including accounts receivable, marketable securities, inventories and pre-paid expenses properly chargeable to operating expenses within the next fiscal year. (v) The term "current liabilities" means all liabilities which will become due and payable or could under circumstances then existing be called for payment within twelve (12) months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. Page 11 (vi) 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. (vii) The term "capital expenditures" means all expenditures incurred on account of fixed assets, including interest charged to construction, related to operations. (viii) The term "debt" means any indebtedness of the Sewerage Company maturing by its terms more than one (1) year after the date on which it is originally incurred. (ix) 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. (x) 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. (xi) 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. (xii) The term "reasonable forecast" means a forecast prepared by the Sewerage Company not earlier than twelve (12) months prior to the incurrence of the debt in question, which both the Bank and the Sewerage Company accept as reasonable and as to which the Bank has notified the Sewerage Company of its 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 the Sewerage Company. (xiii) Whenever 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. 7. Shanghai shall have the right to suspend or terminate the right of the Sewerage Company to the use of the proceeds of the Loan upon failure by the Sewerage Company to perform its obligations under the Subsidiary Loan Agreement. Page 12