China - Loess Plateau Watershed Rehabilitaton Project : Credit 2616 - Credit Agreement - Conformed

CREDIT NUMBER 2616 CHA Development Credit Agreement (Loess Plateau Watershed Rehabilieation Project) between PEOPLE'S REPUBLIC OF CHINA and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated AL 1994 CREDIT NUMBER 2616 CHA DEVELOPMENT CREDIT AGREEMEIT AGREEMENT, dated #ZZ& VA- , 1994, between PEOPLE'S REPUBLIC OF CHINA (the Borrower) and INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association). WHEREAS: (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested'the Association to assist in the financing of the Project; (B) Parts A and B(1) of the Project will be carried out by Gansu Province (Gansu), Shaanxi Province (Shaanxi), Shanxi Province (Shanxi) and Nei Mongol Autonomous Region (Nei Mongol) (each a "Project Province" and collectively the "Project Provinces") with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the Project Provinces a portion of the proceeds of the Credit as provided in this Agreement; and WHEREAS the Association has agreed, on the basis, inter alia, of the foregoing, to extend the Credit to the Borrower upon the terms and conditions set forth in this Agreement and in the Project Agreement of even date herewith between the Association and the Project Provinces; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Development Credit Agreements" of the Association, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "MWR" means the Borrower's Ministry of Water Resources and any successor thereto. "J -2- (b) "YRCC" means Yellow River Conservancy Commission, a commission established within MWR to manage water resources and flood control along the Yellow River and any successor thereto. (c) "UMRB" means the Upper and Middle Reach Bureau of YRCC and any successor thereto. (d) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement. (e) "Project Agreement" means the agreement between the Association and the Project Provinces of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement. (f) "Environmental Monitoring and Management Plan" means the environmental monitoring and management plan for the Project, included in the Environmental Impact Assessment for the Project dated August 11, 1993, as amended and supplemerted with the concurrence of the Association from time to time. (g) "PMOs" means the project management offices maintained by the Project Provinces pursuant to paragraph D-l (b) of Schedule 2 to the Project Agreement. (h) "CPMO" means the central project mal-agement office referred to in Section 3.03 of this Agreement. (i) "its respective Part of the Project" means, in respect of each Project Province, the activities under Parts A and B(1) of the Project to be carried out in said Project Province. (j) "its respective Institutional Development Component" means, in respect of each Project Province, the activities under Part E() of the Project to be carried out in said Project Province. ARTICLE II The Credit Section 2.01. The Association agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Development Credit Agreement, an amount in various currencies equivalent to one hundred six million three hundred thousand Special Drawing Rights (SDR 106,300,000). -3- Section 2.02. (a) The amount of the Credit may be withdrawn from the Credit Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Association shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit. (b) The Borrower shall; for the purposes of the Project, open and maintain in Dollars a special deposit account in a bank acceptable to the Association and on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 3 to this Agreement. Section 2.03. The Closing Date shall be December 31, 2002 or such later date as the Association shall establish. The Association shall promptly notify the Borrower of such later date. Section 2.04. (a) The Borrower shall pay to the Association a commitment charge on the principal amount of the Credit not withdravn from time to time at a rate to be set by the Association as of June 30 of each year, but not to exceed the rate of one-half of one percent (1/2 of 1%) per annum. (b) The commitment charge shall accrue: (i) from the date sixty days after the date of this Agreement (the accrual date) to the respective dates on which amounts shall be withdrawn by the Borrower from the Credit Account or cancelled; and (ii) at the rate set as of the June 30 immediately preceding the accrual date or at such other rates as may be set from time to time thereafter pursuant to paragraph (a) above. The rate set as of June 30 in each year shall be applied from the next payment date in that year specified in Section 2.06 of this Agreement. (c) The commitment charge shall be paid: (i) at such places as the Association shall reasonably request; (ii) without restrictions of any kind imposed by, or in the territory of, the Borrower; and (iii) in the currency specified in this Agreement for the purposes of Section 4.02 of the General Conditions or in such other eligible currency or currencies as may from time to time be designated or selected pursuant to the provisions of that Section. Section 2.05. The Borrower shall pay to the Association a service charge at the rate of three-fourths of one percent (3/4 of -4- 1%) per annum on the principal amount of the Credit withdrawn and outstanding from time to time. Section 2.06. Commitment charges and service charges shall be payable semiannually on May 1 and November 1 in each year. Section 2.07. (a) Subject to paragraphs (b) and (c) below, the Borrower shall repay the principal amount of the Credit in semi- annual installments payable on each May 1 and November 1 commencing November 1, 2004 and ending May 1, 2029. Each installment to and including the installment payable on May 1, 2014 shall be one and one-fourth percent (1-1/4%) of such principal amount, and each installment thereafter shall be two and one-half percent (2-1/2%) of such principal amount. (b) Whenever: (i) the Borrower's gross national product per capita, as determined by the Association, shall have exceeded $790 in constant 1985 dollars for five consecutive years; and (ii) the Bank shall consider the Borrower creditworthy for Bank lending, the Association may, subsequent to the review and approval thereof by the Executive Directors of the Association and after due consideration by them of the development of the Borrower's economy, modify the terms of repayment of installments under paragraph (a) above by requiring the Borrower to repay twice the amount of each such installment not yet due until the principal amount of the Credit shall have been repaid If so requested by the Borrower, the Association may revise such modification to include, in lieu of some or all of the increase in the amounts of such installments, the payment of interest at an annual rate agreed with the Association on the principal amount of the Credit withdrawn and outstanding from time to time, provided that, in the judgment of the Association, such revision shall not change the grant element obtained under the above-mentioned repayment modification. (c) If, at any time after a modification of terms pursuant to paragraph (b) above, the Association determines that the Borrower's economic condition has deteriorated significantly, the Association may, if so requested by the Borrower, further modify the terms of repayment to conform to the schedule of installments as provided in paragraph (a) above. Section 2.08. The currency of the United States of America is hereby specified for the purposes of Section 4.02 of the General Conditions. -5- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end: (i) shall carry out Part B(2) of the Project with due diligence and efficiency and in conformity with appropriate :administrative, agricultural, engineering, environmental and financial practices and shall provide, promptly as needed, the funds, facilities, services and other resources required for said Part of the Project; and (ii) without limitation or restriction upon any of its other obligations under the Development Credit Agreement, shall cause the Project Provinces to perform all their respective obligations set forth in the Project Agreement, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Project Provinces to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall make available, out of the proceeds of the Credit to the Project Provinces, amounts corresponding to the amounts withdrawn from the Credit Account on account of expenditures for their respective parts of the Project on the following terms and conditions: (i) repayment within 20 years, including eight years of grace; (ii) interest to be paid at a rate of three percent (3%) per annum; and (iii) the foreign exchange risk to be borne by the respective Project Province. -6- Section 3.02. The Borrower and the Association hereby agree that 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 Parts A and BW() of the Project shall be carried out by the Project Provinces pursuant to Section 2.03 of the Project Agreement. Section 3.03. The Borrower shall maintain: (a) a central project management office in UMRB, with functions and responsibi- 'lities acceptable to the Association, staffed by competent staff in adequate numbers, to provide technical oversight of the implementation of the Project, and to coordinate Project activities among the Project Provinces, including procurement and training activities; and (b) a technical panel, with membership, functions and responsibilities acceptable to the Association, to manage and coordinate the overall implementation of Part B of the Project. Section 3.04. The Borrower shall: (a) prepare through CPMO, and furnish to the Association by November 30 of each year for the Association's review, a work plan and budget, based in part on the work plans and budgets furnished by the Project Provinces pursuant to Part D.3(a) of Schedule 2 to the Project Agreement, for implementation, during the following calendar year, of Part A of the Project, together with copies of said plans and budgets furnished by the Project Provinces; (b) prepare through CPMO, with the assistance of the technical panel referred to in Section 3.03 (b) of this Agreement, and furnish to the Association by November 30 of each year for the Association' s review, proposed programs, based in part on the programs furnished by the Project Provinces pursuant to Part D.2 of Schedule 2 to the Project Agreement, for the carrying out, during the following calendar year, of Part B of the. Project, together with copies of said programs furnished by the Project Provinces; and (c) thereafter ensure the carrying out, during the following calendar year, of such work plans and programs as shall have been approved by the Association. Section 3.05. In order to assist the Borrower in carrying out Part B(2) of the Project, the Borrower shall employ consultants with qualifications, experience and terms of reference satisfactory to the Association. -7- Section 3.06. Without limitation to Section 9.01 of the General Conditions, the Borrower shall, not later than September 30, 1997, carry out a mid-term review with the Association and the Project Provinces of the progress of, and prospects for, Project implementation. ARTICLE IV Financial and Other Covenants Section 4.01. (a) The Borrower shall maintain or cause to be maintained records 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 the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Account- 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, a certified copy of the report of such audit by said auditors, of such scope and in sucl detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other inforhation concerning said records, accounts ad the audit thereof as the Association shall flr$p time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Credit Account were made on the basis of stateme nts of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; -8- (ii) retain, until at least one year after the Association has received the audit report for the fiscal year in which the last withdrawal from the Credit Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Association'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. Without limiting the generality of Section 3.01 of this Agreement, the Borrower shall, under arrangements satisfactory to the Association, cause all dams (a) which will either exceed 10 meters in height or create a reservoir with a gross storage volume of more than 2,500,000 cubic meters or (b) which present unusual design features, involve difficult geological conditions, or are situated so as to be significantly destructive in the event of failure, and their related structures constructed under the Project, to be periodically inspected in accordance with sound engineering practice in order to determine whether there are any deficiencies in the condition of such structures, or in the quality and adequacy of maintenance or methods of operation of the same, which may endanger their safety. To this end, the Borrower shall propose to the Association appropriate arrangements for the Association's review no later than one year before the completion of the first of such dams and related structures constructed under the Project. Section 4.03. The Borrower shall cause all dams and related structures referred to in Section 4.02 of this Agreement to be designed and constructed in accordance with procedures and standards acceptable to the Association and shall cause an independent institution acceptable to the Association to review the concept of all such dams and their related structures and the adequacy of their -9- design and technical specifick>tions, and shall cause such independent institution to conduct periodic reviews no less frequently than the Association requires during final engineering and construction of each such dam and related structures to examine whether any new grounds for making changes in the design of the dam or technical specifications have become apparent. ARTICLE V Remedies of the Association Section 5.01. Pursuant to Section 6.02 (h) of the General Conditions, the followingadditional events are specified: (a) Any Project Pro ince shall have failed to perform any of its respective obligations under the Project Agreement. (b) As a result of events which have occurred after the date of the Development Credit Agreement, an extraordinary situation shall have arisen which shall make it improbable that any of the Project Provinces will be able to perform any of its respective obligations under the Project Agreement. Section 5.02. Pursuant to Section 7.01 (d) of the General Conditions, the following additional event is specified, namely, any event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Association to the Borrower. ARTICLE VI Effective Date; Termirnation Section 6.01. The following event is specified as an additional condition to the effectiveness of the Development Credit Agreement within the meaning of Section 12.01 (b) of the General Conditions, namely, that the Borrower's State Council shall have approved the Development Credit Agreement. Section 6.02. The following are specified as additional matters, within the meaning of Section 12.02 (b) of the General Conditions, to be included in the opinion or opinions to be furnished to the Association, namely, that the Project Agreement has been duly authorized or ratified by the Project Provinces, and is - 10 - legally binding upon the Project Provinces in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance Sanlihe Beijing 100820 People's Republic of China Cable address: Telex: FINANMIN 22486 MFPRC CN Beijing For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 248423 (RCA), Washington, D.C. 82987 (FTCC), 64145 (WUI) or 197688 (TRT) - 11 - 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. PEOPLES REPUBLIC OF CHINA By 1 Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By L C , Regional Vice President East Asia and Pacific - 12 - SCHEDULE 1 Withdrawal of the Proceeds of the Credit 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Credit, the allocation of the amounts of the Credit to each Category and the percentage of expenditures for iteds so to be financed in each Category: Amount of the Credit Allocated % of (Expressed in Expenditures Category SDR Equivalent) to be Financed (1) Works: (a) land development 87,300,000) and earthworks ) 65% (b) buildings and 2,300,000) other structures ) (2) Goods 13,300,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other items procured locally (3) Training, consultants' 3,400,000 100% coservices and research TOTAL 106,300,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for - 13 - goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not to exceed SDR 7,000,000 may be made on account of payments made for expenditures before that date but after November 15, 1993. 4. The Association may require withdrawals from the Credit Account to be made on the basis of statements of expenditure for expenditures under contracts for goods or works not exceeding $250,000 equivalent, and for works carried out by force account, training and study tours, under such terms and conditions as the Association shall specify by notice to the Borrower. - 14 - SCHEDULE 2 Description of the Project The objective of the Project is to assist the Borrower in alleviating poverty in the Loess Plateau by increasing agricultural production and farmers' incomes in about 15,600 square kilometers of land in nine tributary watersheds of the Yellow River through: (a) creating sustainable crop production on high-yielding level farm land to replace areas devoted to crop- on erodible slope lands; (b) planting the slope lands with trees, shrubs and grasses to produce fuel, timber and fodder; and (c) reducing sediment runoff from slope lands and gullies. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Association may agree upon from time to time to achieve such objectives: Part A: Land Development (1) Development by households holding long-term leases of about 15,600 square kilometers of land in the Loess Plateau in nine tributary watersheds of the Yellow River in the Project Provinces through terracing (about 83,200 hectares) of slope lands, affores- tation (about 270,000 hectares) with trees and shrubs, planting of orchards (about 27,000 hectares), establishment of grasslands (about 155,000 hectares), and increasing production and utilization of livestock forages. (2) Construction and equipping'of about 236 key dams, about 2,208 warping dams and numerous check dams to retain sediment, assist flood control and make provision for water storage, and to enable the creation of about 5,500 hectares of additional irrigated farm land. Part B: Institutional Development (1) Carrying out of a program to strengthen the institutional capabilities of the Project Provinces in respect of soil and water conservation, consisting of: (a) construction and/or equipping of training centers at the provincial, prefectural and county levels, and of facilities for technical extension, including seedling nurseries, laboratories and demonstration farms; - 15 - (b) development and introduction of geographic information, computer-aided design and project information systems, and provision of computers therefor; (c) development and carrying out of training programs for managerial and technical staff in watershed planning and management, and training programs for farmer technicians and farmers in soil and water conservation and management, including the provision of study tours; (d) development and carrying out of research programs, including exchange programs, in watershed development and management; and (e) provision of vehicles required for Project implemen- tation. (2) Carrying out of a program to strengthen the institutional capabilities of UMRB, consisting of: (a) construction and equipping of a training center; (b) development and introduction of management information systems, including geographic information, computer-aided design and project information systems, and provision of computers therefor; and (c) provision of technical assistance, vehicles and equipment to enable the CPMO properly to oversee the carrying out of Parts A and B(1) of the Project. * *P* * * The Project is expected to be completed by December 31, 2001. - 16 - SCBEDULE 3 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2) and (3) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Credit allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $10,000,000 to be withdrawn from the Credit Account and deposited in the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Association has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Association a request or requests for a deposit or deposits which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit in the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For repleiishment of the Special Account, the Borrower shall furnish to the Association requests for deposits into the Special Account at such intervals as the Association shall specify. - 17 - (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Association the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Association shall, on behalf of the Borrower, withdraw from the Credit Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the . Special Account for eligible expenditures. All such deposits shall be withdrawn by the Association from the Credit Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Association shall reasonably request, furnish to the Association such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Association shall not be required to make further deposits into the Special Account: (a) if, at any time, the.Association shall have determined that all further withdrawals should be made by the Borrower directly from the Credit Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; or (b) once the total unwithdrawn amount of the Credit allocated to the eligible Categories, less the amount of any outstanding special commitment entered into by the Association pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Credit Account of the remaining unwithdrawn amount of the Credit allocated to the eligible - 18 - Categories shall follow such procedures as the Association shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Association shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Association shall have determined at any time that any payment out of the Special Account (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule or (ii) was not justified by the evidence furnished to the Association, the Borrower shall, promptly upon notice from the Association: (A) provide such additional evidence as the Association may request; or (B) deposit into the Special Account (or, if the Association shall so request, refund to the Association) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Association shall otherwise agree, no further deposit by the Association into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Association shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Association, refund to the Association such outstanding amount. (c) The Borrower may, upon notice to the Association, refund to the Association all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Association made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Credit Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. 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