China - Shanghai Sewerage Project : Credit 1779 - Project Agreement - Conformed

CREDIT NUMBER 1779 CHA LOAN NUMBER 2794 CHA Project Agreement (Shanghai Sewerage Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and MUNICIPALITY OF SHANGHAI Dated , 1987 CREDIT NUMBER 1779 CHA LOAN NUMBER 2794 CHA PROJECT AGREEMENT AGREEMENT, dated , 1987, among INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and MUNICIPALITY OF SHANGHAI (Shanghai). WHEREAS (A) by the Development Credit Agreement of even date herewith between People's Republic of China (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to seventy-eight million nine hundred thousand Special Drawing Rights (SDR 78,900,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that Shanghai agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by the Loan Agreement of even date herewith between the Borrower and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to forty- five million dollars ($45,000,000), on the terms and conditions set forth in the Loan Agreement, but only on conditions that Shanghai agrees to undertake such obligations toward the Bank as are set forth in this Agreement; and WHEREAS Shanghai, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, and the Bank's entering into the Loan Agreement with the Bor- rower, 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 Development Credit Agreement, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth and the term "Bank's General Conditions" means the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated January 1, 1985. -2- ARTICLE II Execution of the Project Section 2.01. Shanghai declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 2.02. Shanghai shall maintain the SSPCC, established for the purposes of carrying out the Project, with staff, func- tions and responsibilities acceptable to the Association and the Bank. Section 2.03. Except as the Association and 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 Credit and the Loan shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.04. Shanghai shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 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. Section 2.05. Shanghai shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the Bank's General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, main- tenance and land acquisition, respectively) in respect of the Project Agreement. Section 2.06. (a) Shanghai shall, at the request of the Association or the Bank, exchange views with the Association and the Bank with regard to the progress of the Project, the per- formance of its obligations under this Agreement and other matters relating to the purposes of the Credit and the Loan. -3- (b) Shanghai shall promptly inform the Association and the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit and the Loan, or the performance by Shanghai of its obligations under this Agreement. Section 2.07. Shanghai shall carry out the training under Part 0 of the Project in accordance with a program acceptable to the Association and the Bank, and shall complete such training not later than December 31, 1990. Section 2.08. Shanghai shall carry out a resettlement program, for persons affected by the Project, acceptable to the Association and the Bank. Section 2.09. For the purposes of operating and maintaining the works and facilities completed under the Project, Shanghai shall, not later than December 31, 1991, enter into a Transfer and Operations Agreement, satisfactory to the Association and the Bank, with the Company. A draft of such Agreement, including the terms, conditions and financial arrangements, shall be submitted to the Association and the Bank, not later than December 31, 1990 for the Association's and the Bank's review and comments. Section 2.10. Shanghai shall: (i) under terms of reference satisfactory to the Association and the Bank, carry out, not later than December 31, 1988, the study on the management and organization of the Company under Part B.1 of the Project; (ii) review the findings of this study with the Association and the Bank; and (iii) thereafter implement the findings of the study. Section 2.11. (a) Shanghai shall: (i) under terms of reference satisfactory to the Association and the Bank, carry out, not later than December 31, 1988, the sewer tariff study under Part B.2 of the Project; (ii) review the findings of this study with the Association and the Bank not later than June 30, 1989; and (iii) thereafter implement the findings of the study. (b) Notwithstanding the provisions of sub-paragraph (a) above, the sewerage charges agreed with the Association and the Bank, for commercial and industrial consumers, shall continue to be implemented. Section 2.12. Shanghai shall, under terms of reference satisfactory to the Association and the Bank, carry out, not -4- later than December 31, 1988, the river basin management study under Part B.3 of the Project, and shall review the findings of the Study with the Association and the Bank. Section 2.13. Shanghai shall, under terms of reference satisfactory to the Association and the Bank, carry out, not later than December 31, 1989, the study on the economic ways of rehabilitating the existing sewer pipe system under Part B.4 of the Project, and shall review the findings of the study with the Association and the Bank. Section 2.14. Shanghai shall enact, not later than Decem- ber 31, 1988, Pollution Control Regulations and Sewer Regula- tions. ARTICLE III Financial Covenants Section 3.01. (a) Shanghai shall: (i) maintain or cause to be maintained records and accounts adequate to reflect in accor- dance with sound accounting practices its operations and finan- cial condition in respect of the activities related to the ProjecL; and (ii) cause the Company to maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial conditions. (b) Shanghai shall: (i) have the accounts refer,ed to in paragraph (a) above, including the Special Account, for each fiscal year audited, in accordance with appro- priate auditing principles consistently applied, by independent auditors acceptable to the Asso- ciation and the Bank; (ii) furnish to the Association and 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, including the Company's financial statements, in such scope and in such detail as the Association and the Bank shall have reasonably requested; and ~ 5 (iii) furnish to the Association and the Bank such other information concerning said accounts and financial statements as well as the audit thereof and said records, as the Association and the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account or the Loan Account were made on the basis of statements of expendituve, Shanghai shall: (i) maintain, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Associa- tion has received the audit report for the fiscal year in which the last withdrawal from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association's and the Bank's repre- sentatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the pro- ceeds of the Credit withdrawn in respect of such expenditures were used for the purposes for which they were provided. Section 3.02. Shanghai shall cause the Company, not later than December 31, 1988, to complete and incorporate in its records an inventory and valuation of its fixed assets. Section 3.03. (a) Except as the Association and the Bank shall otherwise agree, Shanghai shall cause the Company to produce for each of its fiscal years after its fiscal year ending on 1992, total revenues equivalent to not less than the sum of its (i) total operating expenses; and (ii) the amount by which debt service requirements exceed the provision for depreciation. -6- (b) Before September 30 in each of its fiscal years, Shanghai shall cause the Company, on the basis of forecasts prepared by the Company and satisfactory to the Association and the Bank: (i) to review whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next following fiscal year; and (ii) to furnish to the Association and the Bank the results of such review upon Its completion. (C) If any such review shows that the Company would not meet the requirements set forth in paragraph (a) for the Company's fiscal years covered by such review, Shanghai shall cause the Company to promptly take all necessary measures (including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements. (d) For purposes of this Section: (i) The term "total revenues" means the sum of total operating revenues and net non-operating income. (ii) The term "total operating revenues" means revenues from all :,ources related to operations. (iii) 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. (iv) The term "total operating expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation on a straight-line basis at a rate of not less than 2.5% per annum of the average current gross value of the Company's fixed assets in operation, or other basis acceptable to the Association and the Bank, but excluding interest and other charges on debt. -7- (v) The average current gross value of the Company's fixed assets in operation shall be calculated as one half of the sum of the gross value of the Company's fixed assets in operation at the begin- ning and at the end of the fiscal year, as valued from time to time in accordance with sound and consistently maintained methods of valuation satisfactory to the Association and the Bank. (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) Whenever for the purposes of this Section 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 Association and the Bank. Section 3.04. (a) Except as the Association and the Bank shall otherwise agree, Shanghai shall cause the Company not to incur any debt, unless the net revenues of the Company for the fiscal year immediately preceding the date Pof.such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.3 times the estimated maximum debt service requirements of Che Company for any succeeding fiscal year on all debt of the Company, including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of the Company maturing by its terms more than one year after the date on which it is originally incurred. (ii) 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 -8- 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. (iii) The term "net revenues" means the differenc. between: (A) the sum of revenues from all sources related to operations adjusted to take account of the Company's sewerage rates in effect at the time of the incurrence of debt even though they were not in effect during the twelve- month period to which such revenues relate, and net non-operating income; and (B) the sum of all expenses related to operations including administration, adequate mainte- nance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt. (iv) 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. (v) 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. (vi) Whenever for the purposes of this Section 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, - 9 - 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 Association and the Bank. 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 Development Credit Agreement and the Loan Agreement become effective. Section 4.02. (a) This Agreement and all obligations of the Association, the Bank and Shanghai thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) the date twenty years after the date of this Agreement. (b) If the Development Credit Agreement, or the Loan Agreement or both of said Agreements terminate in accordance with their terms before the date specified in paragraph (a) (ii) of this Section, the Association, or the Bank, or both, as the case ..may be, shall promptly notify Shanghai dhr this event. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancella- tion or suspension under the Development Credit Agreement or the Loan Agreement. 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, - 10 - 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) 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 *1. 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For Shanghai: Shanghai Municipal Finance Bureau 60 Jiu Jiang Road Shanghai, China Telex: 33062 BOCSH - 11 - 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, may be taken or executed by the Deputy Mayor in charge of urban construction or such other person or persons as such Deputy Mayor shall designate in writing, and such Deputy Mayor shall furnish to the Association and 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 DEVELOPMENT ASSOCIATION and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President Asia MUNICIPALITY OF SHANGHAI By Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Bank for Reconstruction and Development and the International Development Association. FOR SECRETARY