Conformed Copy - L3515 - Second Shuikou Hydroelectric Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3515-CHA (Second Shuikou Hydroelectric Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and FUJIAN PROVINCIAL ELECTRIC POWER BUREAU Dated October 20, 1992 LOAN NUMBER 3515-CHA PROJECT AGREEMENT AGREEMENT, dated October 20, 1992, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and FUJIAN PROVINCIAL ELECTRIC POWER BUREAU (FPEPB). 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 million dollars ($100,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that FPEPB 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 FPEPB, the proceeds of the loan provided for under the Loan Agreement will be relent to FPEPB on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS FPEPB, 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: Page 2 ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Preamble to this Agreement, the Loan 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) FPEPB 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, 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. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and FPEPB shall otherwise agree, FPEPB 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, 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. FPEPB 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 and the Project. Section 2.04. FPEPB shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, FPEPB 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) FPEPB 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) FPEPB 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 FPEPB of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of FPEPB Section 3.01. FPEPB shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. FPEPB 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 adminitrative, financial, and engineering practices. Section 3.03. FPEPB 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) FPEPB shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) FPEPB 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. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditures, FPEPB shall: (i) maintain, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. Section 4.02. (a) Except as the Bank shall otherwise agree, FPEPB shall not incur any debt unless a reasonable forecast of the revenues and expenditures of FPEPB shows that the projected internal cash generation of FPEPB for each fiscal year during the term of the debt to be incurred shall be at least 1.3 times, before December 31, 1995 and 1.5 times thereafter, the estimated debt service requirements of FPEPB 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 FPEPB 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 its terms of payment on the date of such Page 4 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 FPEPB" 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 of 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 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, excluding capitalized interest during construction. (vi) The term "reasonable forecast" means a forecast prepared by FPEPB not earlier than twelve months prior to the incurrence of the debt in question, which both the Bank and FPEPB accept as reasonable and as to which the Bank has notified FPEPB 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 FPEPB. (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 Bank. Section 4.03. (a) Except as the Bank shall otherwise agree, FPEPB shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 75 to 25 for the years 1992 through December 31, 1996, and 70 to 30 thereafter. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of FPEPB 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 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 "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of FPEPB not allocated Page 5 to cover specific liabilities. (iv) 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 Bank. Section 4.04. (a) Except as the Bank shall otherwise agree, FPEPB 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, 1992, net cash surplus equivalent to not less than (i) 22 percent of its average annual investment program for the years 1992-93, (ii) 25 percent for the years 1994 and 1995, and (iii) 30 percent thereafter. (b) For the purposes of this Section: (i) The term "net cash surplus" means total operating income minus the sum of: (A) cash operating expenses; and (B) financial obligations; (ii) The term "total operating income" means the sum of revenues from all sources related to operations and net non-operating income; (iii) The term "cash operating expenses" means the sum of expenses related to operations, including maintenance and administration but excluding depreciation; and (iv) The term "financial obligations" means interest and other charges on debt (excluding interest during construction), repayment of loans (including sinking fund payments, if any), all taxes or payments in lieu of taxes; allocations to special funds and other cash distributions of surplus funds (including mandatory transfers to the Borrower), and any other cash outflows (other than capital expenditures) related to operations. Section 4.05. FPEPB shall continue to prepare and furnish to the Bank for its review, by April 30 of each year, a rolling long-term financial plan containing, inter alia, projected income statements, sources and uses of funds, and balance sheets for each of the next eight years. ARTICLE V 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 5.02. This Agreement and all obligations of the Bank and of FPEPB thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify FPEPB 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 Page 6 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 FPEPB: Fujian Provincial Electric Power Bureau 49 Wusi Road Fuzhou 350003 Fujian Province People's Republic of China Cable address: Telex: 8196 92172 BEPFP CN 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 FPEPB, or by FPEPB on behalf of the Borrower under the Loan Agreement, may be taken or executed by Director of FPEPB or such other person or persons as Director of FPEPB shall designate in writing, and FPEPB 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 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 Regional Vice President East Asia and Pacific FUJIAN PROVINCE ELECTRIC POWER BUREAU By /s/ Zhao Xixin Authorized Representative Page 7 SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding Except as provided in Part C hereof, goods and works shall be procured under contracts awarded in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1992 (the Guidelines). Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A hereof, goods manufactured in China may be granted a margin of preference in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraphs 1 through 4 of Appendix 2 thereto. Part C: Other Procurement Procedures Items or groups of items for goods, estimated to cost the equivalent of less than $200,000 per contract, up to an aggregate amount equivalent to $2,000,000, may be procured under contracts awarded on the basis of comparison of price quotations obtained from at least three suppliers eligible under the Guidelines, in accordance with procedures acceptable to the Bank. Part D: Review by the Bank of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods and works estimated to cost the equivalent of $200,000 or more, the procedures set forth in paragraphs 2 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract required to be furnished to the Bank pursuant to said paragraph 2 (d) shall be furnished to the Bank prior to the making of the first payment out of the Special Account in respect of such contract. (b) With respect to each contract not governed by the preceding paragraph, the procedures set forth in paragraphs 3 and 4 of Appendix 1 to the Guidelines shall apply. Where payments for such contract are to be made out of the Special Account, such procedures shall be modified to ensure that the two conformed copies of the contract together with the other information required to be furnished to the Bank pursuant to said paragraph 3 shall be furnished to the Bank as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 4 to the Loan Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Loan Account are to be made on the basis of statements of expenditure. 2. The figure of 15% is hereby specified for purposes of paragraph 4 of Appendix 1 to the Guidelines. Section II: Employment of Consultants In order to assist FPEPB in carrying out the Project, FPEPB shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Bank on the basis 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. SCHEDULE 2 Page 8 Implementation Program 1. FPEPB shall: (a) propose to the Bank arrangements for inspection of the dam, waterways, earthworks and reservoir banks and their appurtenant structures (all collectively referred to herein as Structures and Earthworks) being constructed under the Project, by December 31, 1992, (b) with the assistance of independent engineering experts whose qualifications and experience shall be reviewed with the Bank, periodically inspect or cause to be inspected the Structures and Earthworks after completion of the Project, under arrangements satisfactory to the Bank and in accordance with appropriate engineering practices, in order to determine whether there are any deficiencies in the condition of the Structures and Earthworks, or in the quality and adequacy of earthworks which may endanger the safety of the Structures and Earthworks, (c) furnish, or cause to be furnished to the Bank, promptly after each such inspection, the conclusions thereof including the conclusions of said engineering experts, (d) make, promptly after each such inspection, all necessary repairs of the Structures and Earthworks, and (e) make all necessary modifications in the quality and adequacy of maintenance or methods of operation of the Structures and Earthworks, all to be in accordance with appropriate engineering practices. 2. FPEPB shall implement a plan for power tariff structure improvements acceptable to the Bank, in a manner satisfactory to the Bank, including the completion of the first phase by December 31, 1993. 3. FPEPB shall carry out a transmission expansion program which includes integration of facilities under Part A of the Project and the Fujian Province Grid in accordance with a schedule satisfactory to the Bank. 4. FPEPB shall carry out hydro-inventory reevaluation with timing, specialist assistance and terms of reference satisfactory to the Bank. 5. FPEPB shall in collaboration with the Borrower (a) continue to carry out or cause to be carried out the resettlement program, provided for in Section 3.05 of the Prior Loan Agreement, in a manner satisfactory to the Bank, and (b)(i) undertake an independent evaluation of resettlement (IER), (ii) monitor the IER reports, (iii) take action to accelerate the reestablishment of income and welfare of Affected Persons in problem areas identified in the said reports, and (iv) make funds available to sustain incomes of Affected Persons at adequate levels, acceptable to the Bank, until the said incomes are fully restored. 6. FPEPB shall, in collaboration with the Borrower, undertake an environmental action plan, acceptable to the Bank, in a manner satisfactory to the Bank.