Conformed Copy - C2475 - Zhejiang Multicities Development Project - Project Agreement

Page 1 CONFORMED COPY CREDIT NUMBER 2475 CHA (Zhejiang Multicities Development Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and ZHEJIANG PROVINCE Dated May 18, 1993 CREDIT NUMBER 2475 CHA PROJECT AGREEMENT AGREEMENT, dated May 18, 1993, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and ZHEJIANG PROVINCE (Zhejiang). WHEREAS 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-nine million three hundred thousand Special Drawing Rights (SDR 79,300,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that Zhejiang agree to undertake such obligations toward the Association as are set forth in this Agreement; and WHEREAS Zhejiang, in consideration of the Association's entering into the Development Credit 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 Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) Zhejiang 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, engineering 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 Association and Zhejiang shall otherwise agree: (i) Zhejiang shall carry out the Parts A, B, C, D, E and F of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement; and (ii) Zhejiang shall carry out Part G of the Project in accordance with Schedule 3 to this Agreement. (c) Zhejiang shall relend the respective portions of the proceeds of the Credit to the Project Cities on the following principal terms and conditions: (i) repayment over a period not exceeding fifteen years, including five years of grace; (ii) interest to be paid by the Project Cities at the rate of 5.1% per annum; (iii) the Project Cities shall bear all foreign exchange risk; (iv) commitment charges shall be paid by the Project Cities at a fixed rate of one-half of one percent per annum. Section 2.02. Except as the Association 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 shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. Zhejiang 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 respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of the Project Agreement. Section 2.04. (a) Zhejiang shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Credit. (b) Zhejiang shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by Zhejiang and the Project Cities of their respective obligations under this Agreement. ARTICLE III Financial Covenants Section 3.01. (a) Zhejiang shall maintain, or cause to be maintained, records Page 3 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 Zhejiang and the Project Cities responsible for carrying out the Project or any part thereof. (b) Zhejiang shall: (i) have the 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 Association. (ii) furnish to the Association 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records and accounts and the audit thereof as the Association 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 Development Credit Agreement becomes effective. Section 4.02. (a) This Agreement and all obligations of the Association and of Zhejiang thereunder shall terminate on: (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 terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify Zhejiang of this event. 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Page 4 INDEVAS 248423 (RCA), Washington, D.C. 82987 (FTCC), 64145 (WUI) or 197688 (TRT) For Zhejiang: Zhejiang Provincial People's Government No. 1 Sheng Fu Road Hangzhou, Zhejiang Province 310025 People's Republic of China Telex: 350241 FBZPE 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 Zhejiang may be taken or executed by Vice Governor or such other person or persons as Vice Governor shall designate in writing, and Zhejiang shall furnish to the Association 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 By /s/ Shahid J. Burki Acting Regional Vice President East Asia and Pacific ZHEJIANG PROVINCE By /s/ Li Daoyu Authorized Representative SCHEDULE 1 Procurement and Consultants' Services Section I: Procurement of Goods and Works Part A: International Competitive Bidding 1. Except as provided in Part D 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). For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price Page 5 will be increased for each week of delay by two predisclosed correction factors acceptable to the Association, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. 2. Bidders for works estimated to cost the equivalent of $5,000,000 or more shall be prequalified as described in paragraph 2.10 of the Guidelines. 3. To the extent practicable, contracts shall be grouped into bid packages estimated to cost the equivalent of $4,000,000 in the case of civil works, and $200,000 in the case of goods. Part B: Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A.1 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: Preference for Domestic Contractors In the procurement of works in accordance with the procedures described in Part A.1 hereof, China may grant a margin of preference to domestic contractors in accordance with, and subject to, the provisions of paragraphs 2.55 and 2.56 of the Guidelines and paragraph 5 of Appendix 2 thereto. Part D: Other Procurement Procedures 1. Civil works estimated to cost the equivalent of $4,000,000 or less per contract, up to an aggregate amount equivalent to $45,000,000, and goods estimated to cost the equivalent of $200,000 or less per contract, up to an aggregate amount equivalent to $2,000,000, may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures satisfactory to the Association. 2. Goods estimated to cost the equivalent of $50,000 or less per contract, up to an aggregate amount equivalent to $1,000,000, 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 Association. Part E: Review by the Association of Procurement Decisions 1. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for civil works estimated to cost the equivalent of $2,000,000 or more and each contract for goods 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. When 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 Association pursuant to said paragraph 2 (d) shall be furnished to the Association 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. When 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 Association pursuant to said paragraph 3 shall be furnished to the Association as part of the evidence to be furnished pursuant to paragraph 4 of Schedule 3 to the Development Credit Agreement. (c) The provisions of the preceding subparagraph (b) shall not apply to contracts on account of which withdrawals from the Credit Account are to be made on Page 6 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 1. In order to assist Zhejiang and the Project Cities in carrying out the Project, Zhejiang and the Project Cities shall employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association. Such consultants shall be selected in accordance with principles and procedures satisfactory to the Association 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 (the Consultant Guidelines). 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Association review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts shall not apply to contracts estimated to cost less than $100,000 equivalent each. However, this exception to prior Association review shall not apply to the terms of reference for such contracts nor to the employment of individuals, to single source selection of firms, to assignments of a critical nature as reasonably determined by the Association and to amendments of contracts raising the contract value to $100,000 equivalent or above. SCHEDULE 2 Implementation Program Part A: Project Management 1. Zhejiang shall maintain the Zhejiang Urban Development Project Office, and shall cause each Project City to establish and maintain a Project Management Office, through completion of the Project in order to direct and supervise the implementation of the Project, all with management personnel, functions and responsibilities acceptable to the Association, staffed by competent staff in adequate numbers. 2. Zhejiang shall cause each Project City and ZEF: (a) to implement the Project in accordance with annual operation action plans, satisfactory to the Association; and (b) to provide to the Association by November 1 of each year through completion of the Project, the next years' operation action plan for review and comment by the Association. 3. Zhejiang shall ensure that all training under Parts C.2 and D.2 of the Project shall be carried out in accordance with a program acceptable to the Association. 4. Zhejiang shall, and shall cause the Project Cities to: (a) carry out the resettlement of people under each of their respective portions of the Project in a manner and according to a schedule satisfactory to the Association; and (b) report on the progress of carrying out the resettlement plan using monitoring indicators acceptable to the Association. Part B: Water Supply and Land Development 1. Zhejiang shall cause each of the Project Cities of Hangzhou, Ningbo and Wenzhou to enter into a subsidiary loan agreement with its respective Water Company, and shall cause Shaoxing to enter into subsidiary loan agreements with each of its Land Development Companies on terms and conditions satisfactory to the Association, which shall include: (a) each of the Water Companies shall carry out its respective portions of Part A of the Project, and the Land Companies carry out Part B of the Project, all with due diligence and efficiency, and in conformity with appropriate industrial and environmental practices; Page 7 (b) the proceeds of the Credit allocated to the respective portion of the Project shall be relent to each Company on the following principal terms and conditions: (i) repayment over a period not exceeding fifteen years, including five years of grace; (ii) interest to be paid by the Company at the variable rate charged by the International Bank for Reconstruction and Development for multi-currency loans; (iii) the Company to bear all foreign exchange risk; and (iv) commitment charges to be paid by the Company at the fixed rate of one-half of one percent per annum; (c) the financial covenants set forth in paragraph 2 below; and (d) each Company shall; (i) maintain records and accounts adequate to reflect in accordance with sound accounting practices, its operations and financial condition. (ii) (A) 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 Association; (B) furnish to the Association as soon as available, but in any case not later than six months after the end of each such year: (1) certified copies of its financial statements for such year as so audited, and (2) the report of such audit by said auditors of such scope and in such detail as the Association shall have reasonably requested; and (C) furnish to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. 2. (a) Except as the Association shall otherwise agree, each Water Company shall from time to time take, or cause to be taken, all such measures (including, without limitation, adjustments of the levels of its tariffs as determined by the respective Project City) as shall be required to produce total operating revenues equivalent to not less than the sum of: (i) its total operating expenses; and (ii) increases in working capital, debt service and at least 33% of such Water Company's three-year average annual investment plan. (b) For the purposes of this paragraph 2: (i) the term "total operating revenues" means the sum of revenues from all sources related to operations and net non-operating income; (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 "debt service" means interest and other charges on debt; repayment of loans (including sinking fund payments, if any); all taxes Page 8 or payments in lieu of taxes; allocations to special funds and other cash distributions of surplus funds (including mandatory transfers to the Project City); and any other cash outflows (other than capital expenditures) related to operations; (iv) the term "total operating expenses" means the sum of expenses related to operations, including maintenance and administration but excluding depreciation; (v) the term "debt" means any indebtedness of a Water Company maturing by its terms more than one year after the date on which it is originally incurred; (vi) 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; (vii) the term "three-year average annual investment plan" means the average of: (A) the previous year's actual capital expenditures; (B) the current year's planned capital expenditure; and (C) the next year's projected capital expenditure; (viii) the term "working capital" means the difference between current assets and current liabilities at the end of the year; (ix) the term "current assets" means all assets which could in the ordinary course of business be converted into cash within twelve months, including accounts receivable, marketable securities, inventories, pre-paid expenses properly chargeable to operating expenses within the next fiscal year; (x) the term "current liabilities" means all liabilities which would become due and payable or could under circumstances then existing be called for payment within twelve months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes; and (xi) whenever for the purposes of this paragraph it shall be necessary to value, in terms of Renminbi, 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. 3. Zhejiang shall cause Shaoxing Municipality to ensure that its Land Development Companies: (a) carry out acquisition of land required to carry out Part B of the Project in a manner and in accordance with a time schedule satisfactory to the Association; (b) set prices to use the land developed under the Project, in accordance with a methodology and criteria acceptable to the Association, and which shall be set taking into consideration, market conditions and the costs of acquiring land, resettlement costs, infrastructure investments made, management and marketing costs, operating expenses and debt service; and (c) make the use of land and improvements developed under the Project available to both domestic and foreign companies and individuals. Part C: Urban Environmental Management and Protection 1. Zhejiang shall cause Ningbo Municipality to strengthen its Conservation Department, including providing sufficient resources to improve its data base on Page 9 cultural assets and to permit such Department to participate in the implementation of civil works to preserve cultural assets. 2. Zhejiang shall: (a) carry out the study under Part C.1 of the Project with the assistance of consultants and under terms of reference acceptable to the Association by December 31, 1994; (b) ensure that each Project City shall carry out the studies under Part C.2 of the Project with the assistance of consultants under terms of reference acceptable to the Association by December 31, 1995; and (c) provide the results of each study referred to in subparagraphs (a) and (b) above to the Association for its review and comment within six months of the completion of each such study. 3. Zhejiang shall cause the management and operations of ZEPB to be strengthened by, among other things, developing an environmental information center within ZEPB, with the assistance of consultants and under terms of reference acceptable to the Association. SCHEDULE 3 Procedures and Terms and Conditions for ZEF Subloans Part A: Terms and conditions of ZEF Subloans 1. Zhejiang shall: (a) make a portion of the proceeds available to ZEF, under terms and conditions acceptable to the Association, for purposes of carrying out Part G of the Project and which shall include terms equivalent to those set forth in paragraph 2.01(c) of this Agreement; and (b) ensure that ZEF extend ZEF Subloans to enterprises through PCBC as the financial agent of ZEF on the following principal terms and conditions: (i) ZEF Subloans shall bear interest on the principal amount withdrawn and outstanding from time to time, at a rate not less than the variable rate payable paid by borrowers of multi-currency loans from the International Bank for Reconstruction and Development plus a spread of one and one-half percent (1.5%); (ii) the repayment periods for ZEF Subloans shall not exceed five years, including two years of grace; (iii) commitment charges shall be paid on the undisbursed balance of ZEF Subloans at the rate of one-half of one percent per annum; (iv) each Subborrower shall bear the foreign exchange risk associated with its ZEF Subloan; (v) criteria for economic appraisal of proposed ZEF Subprojects shall include, inter alia, determination that the proposed ZEF Subproject is the least-cost method of mitigating an identified environmental pollution control problem; (vi) criteria for financial appraisal shall include a determination that the Subborrower is financially viable and shall remain financially viable after the ZEF Subproject is completed and has reached full production capacity. (vii) criteria for technical appraisal shall include an assessment of the impact of the proposed ZEF Subproject on pollution prevention Page 10 and reduction and compliance with national and local environmental regulations; (viii) PCBC shall not disburse funds on any ZEF Subloan unless: (1) the Subborrower has completed an environmental impact assessment report for the ZEF Subproject which has been approved by the municipal environmental protection bureau; (2) and the municipal environmental protection agency and planning commission have approved the ZEF Subproject. 2. Eligibility Criteria: (a) Eligible Subprojects shall be for activities which shall have been approved by the Association to mitigate environmental pollution control problems. (b) The maximum amount of ZEF Subproject shall be $1,500,000 equivalent and the maximum amount of a ZEF Subloan shall be 80% of total ZEF Subproject costs. Part B: Implementation Arrangements Zhejiang shall cause ZEF to enter into a financial agency agreement with PCBC, acting through its Zhejiang Provincial Branch, on terms and conditions satisfactory to the Association, under which: (a) PCBC shall act as financial agent for ZEF in carrying out Part G of the Project and shall be responsible for appraisal of ZEF Subprojects and disbursement and collection of repayments under ZEF Subloans; and (b) as part of its responsibility for appraisal of ZEF Subprojects, PCBC shall enter into a technical appraisal agreement with agencies or institutes, acceptable to the Association, under terms and conditions satisfactory to the Association, and shall obtain the approval of the Association prior to making any additional arrangements for assistance in technical appraisal. Part C: Procedures for Processing Subloans 1. Zhejiang shall ensure that the following procedures for processing ZEF Subloans are followed by ZEF and PCBC: (a) Prior to detailed appraisal of proposed ZEF Subprojects, the environmental protection bureau of the relevant Project City shall furnish to the Association for its approval a statement of the eligibility of the ZEF Subproject, including a quantification of the environmental impact and a description of priority under the municipal environmental strategy and action plan. (b) After detailed appraisal of proposed ZEF Subprojects, ZEF shall furnish to the Association for its approval a full appraisal report. After reviewing at least seven ZEF Subprojects, the Association may notify Zhejiang and the Borrower, in writing, of an amount of total ZEF Subproject costs below which ZEF Subprojects no longer require prior approval of the Association in accordance with this paragraph. ZEF Subprojects below such amount shall be reviewed by the Association in accordance with subparagraph (c) below. (c) For any other ZEF Subproject, ZEF shall furnish to the Association a request for authorization to make withdrawals from the Credit Account, along with a summary of the ZEF Subproject and the ZEF Subloan. (d) For all ZEF Subprojects, ZEF shall furnish to the Association all such information as it shall reasonably request concerning ZEF Subprojects, Subborrowers and ZEF Subloans. (e) No expenditures for goods or services required for a ZEF Subproject shall be eligible for financing out of the proceeds of the Credit unless the Association shall have given its approval or authorization as required under paragraphs (b) and Page 11 (c) above and such expenditures shall have been made not earlier than ninety days prior to the date on which the Association received the appraisal report or ZEF Subproject summary under said paragraphs (b) and (c). 2. ZEF Subloans shall be made on terms whereby ZEF shall obtain, by written contract with the Subborrower or by other appropriate legal means, rights adequate to protect the interests of the Association and PCBC, including the right to: (a) require the Subborrower to carry out and operate the ZEF Subproject with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) require that: (i) the goods, works and services to be financed out of the proceeds of the Credit shall be procured in accordance with the provisions of Schedule 1 to this Agreement and (ii) such goods, works and services shall be used exclusively in the carrying out of the ZEF Subproject; (c) inspect, by itself or jointly with representatives of the Association if the Association shall so request, such goods and the sites, works, plants and construction included in the ZEF Subproject, the operation thereof, and any relevant records and documents; (d) require that: (i) the Subborrower shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Credit to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Subborrower to replace or repair such goods; (e) obtain all such information as the Association or ZEF shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Subborrower and to the benefits to be derived from the ZEF Subproject; and (f) suspend or terminate the right of the Subborrower to the use of the proceeds of the Credit upon failure by such Subborrower to perform its obligations under its contract with ZEF.