Conformed Copy - L2955 - Beilungang Thermal Power Extension Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2955 CHA (Beilungang Thermal Power Extension Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU Dated October 20, 1988 LOAN NUMBER 2955 CHA PROJECT AGREEMENT AGREEMENT, dated October 20, 1988, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU (ZPEPB). 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 make available to the Borrower an amount in various currencies equivalent to one hundred sixty-five million dollars ($165,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that ZPEPB 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 ZPEPB, the proceeds of the loan provided for under the Loan Agreement will be made available to ZPEPB on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS ZPEPB, 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, 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. ZPEPB 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 and power utility 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. 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 4 to the Loan Agreement. Section 2.03. ZPEPB 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 Project Agreement. Section 2.04. ZPEPB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, ZPEPB shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.05. (a) ZPEPB 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) ZPEPB 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 ZPEPB of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.06. ZPEPB shall carry out the study under Part D of the Project in accordance with terms of reference and timing agreed with the Bank, and shall exchange views with the Bank on the progress and the findings of the study. Section 2.07. ZPEPB shall carry out an environmental monitoring program agreed with the Bank. Section 2.08. ZPEPB shall carry out the resettlement under the Project in accordance with the plan agreed with the Bank. ARTICLE III Management and Operations of ZPEPB Section 3.01. ZPEPB shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering and power utility practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. ZPEPB 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 power utility practices. Section 3.03. ZPEPB shall take out and maintain with responsible insurers, or Page 3 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) ZPEPB shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) ZPEPB 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 months after the end of each such year, (A) certified copies of its financial statements 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 said records, accounts and financial statements as well as the audit thereof, as the Bank shall from time to time reasonably request. Section 4.02. (a) Except as the Bank shall otherwise agree, ZPEPB shall from time to time take, or cause to be taken, all such measures (including, without limitation, adjustments of the levels and structure of its electricity tariffs as determined by the Borrower) as shall be required to produce, for each of its fiscal years after its fiscal year ending on December 31, 1987 net operating income equivalent to not less than (i) 12.5 percent of its average annual investment program for the period 1988-1990, (ii) 20 percent for the period 1990-1993, and (iii) 25 percent thereafter. (b) For the purposes of this Section: (i) The term "operating income" means the sum of revenues from all sources related to electricity operations, including receipts for consumer connection charges. (ii) The term "net operating income" means operating income less the sum of: (A) cash operating expenses; and (B) financial obligations to be met from operating income. (iii) The term "cash operating expenses" means the sum of all expenses related to electricity operations which are payable in cash, including administration, and sales tax chargeable as operating expense, but not including provision for maintenance special fund and for depreciation. (iv) The term "financial obligations to be met from operating income" means (A) interest and other charges on debt, excluding capitalized interest during construction; (B) repayment of loans (including sinking fund payments, if any); (C) income taxes; (D) net increases in assets which have been financed from the special funds; (E) expenditures from the special funds; and (F) any increase in working capital. (v) The term "average annual investment program" means the average of: (A) the previous year's actual capital expenditure; (B) the current year's planned capital expenditure; and (C) the next year's projected capital expenditure. Section 4.03. (a) Except as the Bank and ZPEPB shall otherwise agree, ZPEPB Page 4 shall not incur any debt unless a reasonable forecast of the revenues and expenditures of ZPEPB shows that the projected internal cash generation of ZPEPB for each fiscal year during the term of the debt to be incurred shall be at least 1.3 times the estimated debt service requirements of ZPEPB in such year on all its debt including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ZPEPB 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 further 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. (iii) The term "internal cash generation of ZPEPB" means the difference between: (A) the sum of revenues from all sources related to operations and net non-operating income, excluding receipts for consumer connection charges; and (B) the sum of all expenses related to operations, including administration, provision for maintenance special fund, and sales and income taxes and payments in lieu of such taxes, but excluding provision for depreciation, 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 (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 excluding capitalized interest during construction. (vi) The term "reasonable forecast" means a forecast prepared by ZPEPB not earlier than twelve months prior to the incurrence of the debt in question, which both the Bank and ZPEPB accept as reasonable and as to which the Bank has notified ZPEPB 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 ZPEPB. (vii) Whenever, for the purposes of this Section, it shall be necessary to value, in terms of 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, with absence of such rate, on the basis of a rate of exchange acceptable to the Bank. Section 4.04. By December 31 of each year, commencing December 31, 1988, ZPEPB shall prepare and furnish to the Bank, for the Bank's review and comments, a rolling financial plan containing, inter alia, projected income statements, sources and application of funds, and balance sheets for each of the next eight fiscal years. ARTICLE V Page 5 Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.O2. This Agreement and all obligations of the Bank and of ZPEPB thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify ZPEPB thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. 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 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For ZPEPB: Zhejiang Provincial Electric Power Bureau 2 Jinzhu Road Hangzhou, Zhejiang Province People's Republic of China Cable address: Telex: 0100 35053 ZPEPB CH Hangzhou Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of ZPEPB, or by ZPEPB on behalf of the Borrower under the Loan Agreement, may be taken or executed by ZPEPB's Director or such other person or persons as ZPEPB's Director shall designate in writing, and ZPEPB shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. 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 Page 6 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/ Gautam S. Kaji Acting Regional Vice President Asia ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU By /s/ Han Xu Authorized Representative