Conformed Copy - L4350 - Hunan Power Development Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 4350 CHA Project Agreement (Hunan Power Development Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and HUNAN ELECTRIC POWER COMPANY Dated June 7, 1999 LOAN NUMBER 4350 CHA PROJECT AGREEMENT AGREEMENT, dated June 7, 1999, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and HUNAN ELECTRIC POWER COMPANY (HEPC). 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 equal to three hundred million Dollars, on the terms and conditions set forth in the Loan Agreement, but only on condition that HEPC agree to undertake such obligations toward the Bank as are set forth in this Agreement; and (B) by a subsidiary loan agreement to be entered into between the Borrower and HEPC the proceeds of the Loan provided for under the Loan Agreement will be made available to HEPC on terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS HEPC, 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 Page 2 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, wherever used herein. ARTICLE II Execution of the Project Section 2.01. (a) HEPC 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, environmental, technical and public 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 HEPC shall otherwise agree, HEPC shall carry out the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods 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) HEPC 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) in respect of the Project Agreement. (b) For the purposes of Section 9.08 of the General Conditions and without limitation thereto, HEPC 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 Bank and HEPC, a plan for the future operation of the Project; and (ii) afford the Bank a reasonable opportunity to exchange views with HEPC on said plan. Section 2.04. HEPC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, HEPC shall not take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) HEPC 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) HEPC 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 HEPC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of HEPC Section 3.01. HEPC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, technical and public utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Page 3 Section 3.02. HEPC 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, technical and public utility practices. Section 3.03. HEPC 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. ARTICLE IV Financial Covenants Section 4.01. (a) HEPC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition and to register separately the operations, resources and expenditures related to the Project. (b) HEPC shall: (i) have its records, accounts and 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; (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, (A) certified copies of the financial statements referred to above 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 such records, accounts and financial statements as well as the audit thereof, as the Bank may from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, HEPC shall earn: (i) for each of its fiscal years ending on December 31, 1999 and December 31, 2000, an annual return of not less than 8% of the average current value of HEPC's equity; (ii) for each of its fiscal years ending on December 31, 2001 and December 31, 2002, an annual return of not less than 10% of the average current value of HEPC