Conformed Copy - L3727 - Xiaolangdi Multipurpose Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3727-0 CHA Project Agreement (Xiaolangdi Multipurpose Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and YELLOW RIVER WATER AND HYDROPOWER DEVELOPMENT CORPORATION Dated June 2, 1994 LOAN NUMBER 3727-0 CHA PROJECT AGREEMENT AGREEMENT, dated June 2, 1994, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and YELLOW RIVER WATER AND HYDROPOWER DEVELOPMENT CORPORATION (sometimes also called "Yellow River Water and Hydroelectric Power Development Corporation") (YRWHDC). 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 Four Hundred and Sixty million dollars ($460,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that YRWHDC 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 YRWHDC, a portion of the proceeds of the loan provided for under the Loan Agreement will be relent to YRWHDC on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS YRWHDC, 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 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. (a) YRWHDC declares its commitment to the objectives of the Project as set forth in Schedule 1 to the Loan Agreement, and, to this end, shall carry out Parts A,B,C and D.1 of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and public utility and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Parts A,B,C and D.1 of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and YRWHDC shall otherwise agree, YRWHDC shall carry out Parts A,B,C and D.1 of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement and so as to facilitate implementation of the provisions of Sections 3.04, 3.05 and 3.06 of the Loan Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for Parts A,B,C and D.1 of 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. YRWHDC 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 Parts A, B, C and D.1 of the Project. Section 2.04. YRWHDC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, YRWHDC 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) YRWHDC shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Parts A, B, C and D.1 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) YRWHDC shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Parts A, B, C and D.1 of the Project, the accomplishment of the purposes of the Loan, or the performance by YRWHDC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of YRWHDC Section 3.01. YRWHDC shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering, public utility and environmental practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. YRWHDC shall: (a) 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, public utility and environmental practices; (b) not dispose of any of its assets necessary for the Page 3 implementation of the Project and operation of the Xiaolangdi Dam; and (c) take all steps within its authority to assist the Borrower in the performance of its obligations under Sections 3.04, 3.05 and 3.06 of the Loan Agreement. Section 3.03. YRWHDC 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. Section 3.04. (a) YRWHDC shall enter into a power sales agreement, acceptable to the Bank, before April 30, 1998 with the relevant electric power companies in each of the Project Provinces, which shall make provision for: (i) the procedure for initially setting, and for periodically adjusting the average tariff needed to ensure that YRWHDC achieves a real financial internal rate of return of not less than 10 percent (which shall be computed in a manner acceptable to the Bank) over the projected life of the Project relating to the generation of power; (ii) the principles for determining tariff structures; and (iii) the relative responsibilities of YRWHDC and such electric power companies in operating the power plant and the reservoir, and in dispatching the electricity produced, to maximize the benefits generated by the Project. (b) For the purposes of this Section, "internal rate of return" means the discount rate that would equate (i) the present value of the sum of YRWHDC's expected revenues from all sources related to operations and expected net non-operating income related to the generation of power to (ii) the sum of YRWHDC's expected cash expenses related to operations related to the generation of power (including administration, provision of maintenance special fund, and sales and income taxes and payments in lieu of taxes, but excluding provision for depreciation and interest and other charges on debt). ARTICLE IV Financial Covenants Section 4.01. (a) YRWHDC shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) YRWHDC 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, YRWHDC shall ensure that net revenues of YRWHDC attributable to the generation and sale of power for each fiscal year after that ending in 1999 shall be at least, for its fiscal year ending in Page 4 2000, 1.2 times, and for each fiscal year thereafter, 1.6 times the estimated maximum debt service requirements of YRWHDC for any succeeding fiscal year on all debt of YRWHDC attributable to the generation and sale of power in a manner satisfactory to the Bank. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of YRWHDC 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 "net revenues" means the difference between: (A) the sum of revenues from all sources related to operations adjusted to take account of YRWHDC's tariffs 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 maintenance, 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, 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) YRWHDC shall open and maintain a deposit account with a bank and on terms and conditions acceptable to the Bank (including appropriate protection against set off, seizure and attachment) and shall therein deposit out of its net cash earnings from operations such amounts as will enable it to establish and maintain a balance in the account at any time of at least 15% of its Annual Cash Requirements at that time. (b) Except as the Bank shall otherwise agree, YRWHDC shall not: (i) make any new non-Project investments or; (ii) incur any non-Project debt or Page 5 (iii) make any distribution of its earnings, capital, surplus or capital reserve to the Borrower or YRCC or any of its other investors, unless immediately before the investment is made or the debt is incurred, or immediately after such distribution, the amount in the deposit account is established under Section 4.03(a) as at least 15% of its Annual Cash Requirements at that time. (c) The term "Annual Cash Requirements" means at any time, and for any period, YRWHDC's forecast annual cash requirements for operations and debt service at that time for that period. Section 4.04. (a) YRWHDC shall charge water rates for the supply of water for irrigation and municipal and industrial purposes from the Project at a level which shall ensure that it recovers, for each of its fiscal years immediately following commissioning of the dam constructed under the Project, no less than the full operating and maintenance costs for each such fiscal year attributable to the supply of water in a manner acceptable to the Bank, and that it recovers, by no later than the end of its twelfth fiscal year after commissioning of the dam, the full costs (including depreciation) attributable to the establishment and operation of the dam for the supply of water in a manner acceptable to the Bank. (b) YRWHDC shall take all necessary measures to ensure that the collection of such water charges shall be at least at the rate of 85% of full collection by the end of such twelfth fiscal year. 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 YRWHDC thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify YRWHDC 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 248423 (RCA) Page 6 Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) For YRWHDC: Yellow River Water and Hydropower Development Corporation 11 Jinshui Road 45003 Zhengzhou Henan, People's Republic of China Telex: 460127 YRWHDC 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 YRWHDC may be taken or executed by the General Manager or such other person or persons as the General Manager shall designate in writing, and YRWHDC 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 YELLOW RIVER WATER AND HYDROPOWER DEVELOPMENT COMPANY 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 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" Page 7 published by the Bank in May 1992 (the Guidelines). (a) 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 will be increased for each week of delay by two predisclosed correction factors acceptable to the Bank, 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. (b) In the procurement of goods and works in accordance with this Part A, YRWHDC shall use the relevant standard bidding documents issued by the Bank, with such modifications thereto as the Bank shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Bank, YRWHDC shall use bidding documents based on other internationally recognized standard forms agreed with the Bank. 2. Bidders for works shall be prequalified as provided in paragraph 2.10 of the Guidelines. 3. To the extent practicable, contracts for goods shall be grouped into bid packages estimated to cost the equivalent of $1,000,000 or more. 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: Other Procurement Procedures 1. Items or groups of items for goods estimated to cost the equivalent of $200,000 or less per contract, up to an aggregate amount equivalent to $3,000,000, 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. 2. Contracts for goods estimated to cost the equivalent of $1,200,000 may be awarded after direct negotiations with suppliers in accordance with procedures acceptable to the Bank where the required goods are proprietary and obtainable only from one source. 3. Site preparation works may be procured under contracts awarded on the basis of competitive bidding, advertised locally, in accordance with procedures acceptable to the Bank. Part D: Review by the Bank of Procurement Decisions 1. Review of prequalification: With respect to the prequalification of bidders as provided in Part A.2 hereof, the procedures set forth in paragraph 1 of Appendix 1 to the Guidelines shall apply. 2. Review of invitations to bid and of proposed awards and final contracts: (a) With respect to each contract for goods estimated to cost the equivalent of $1,000,000 or more and for works estimated to cost the equivalent of $5,000,000 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 Page 8 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 5 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. 3. 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 YRWHDC in carrying out Parts A,B,C, F.1 and G.1 of the Project, YRWHDC 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. For complex, time-based assignments, YRWHDC shall employ such consultants under contracts using the standard form of contract for consultants' services issued by the Bank, with such modifications as shall have been agreed by the Bank. Where no relevant standard contract documents have been issued by the Bank, YRWHDC shall use other standard forms agreed with the Bank. SCHEDULE 2 Implementation Program 1. YRWHDC shall cooperate with and assist YRCC and the Project Provinces in relation to the timely implementation of the Resettlement Plan and the Environmental Management Plan, and shall cooperate with and assist the independent experts and members of the panel appointed under Section 3.04 of the Resettlement Project Development Credit Agreement to carry out their responsibilities for review and monitoring. 2. YRWHDC shall ensure that all training and technical assistance under Part D.1 of the Project, including local and overseas study tours and consultancy services, shall be carried out in accordance with a training and technical assistance program satisfactory to the Bank. 3. YRWHDC shall maintain its project management office with competent staff in adequate numbers with responsibilities and functions satisfactory to the Bank. 4. YRWHDC shall, by December 15 in each year, prepare and furnish to the Bank for review, the proposed financing plan and implementation program for Project activities in the next calendar year, as approved by the Borrower. 5. YRWHDC shall: (a) employ an international panel of independent experts, with composition and functions acceptable to the Bank, to conduct periodic reviews of the dam and its related structures no less frequently than the Bank requires during final engineering and construction, to examine whether any new grounds for making changes in the design of the dam or technical specifications have become apparent; and (b) promptly report the findings of each such panel review to the Borrower and the Bank. 6. YRWHDC shall: (a) employ an international panel of independent experts with composition and functions acceptable to the Bank to review and make recommendations in respect of the Environmental Management Plan, the detailed action plans to be developed under it, and Page 9 their implementation; (b) maintain its environmental management office with competent staff in adequate numbers and with responsibilities and functions acceptable to the Bank to manage, coordinate and monitor the implementation of the Environmental Management Plan; (c) ensure: (i) that all activities under the Project comply with environmental standards and guidelines satisfactory to the Bank, including in relation to dam safety, the preservation of archaeological relics and public health and disease control; (ii) that all necessary measures are taken to minimize and to mitigate any adverse environmental impacts caused by the construction and other activities under the Project, in a manner satisfactory to the Bank; (iii) that all detailed action plans to be developed under the Environmental Management Plan are furnished to the environmental panel and to the Bank for review at least three months before being implemented; and (iv) that the Environmental Management Plan is implemented in a timely manner. 7. YRWHDC shall participate in the midterm review of the progress of and prospects for Project implementation, carried out with Borrower and the Bank in accordance with paragraph 4 of Schedule 5 to the Loan Agreement.