Conformed Copy - L4045 - Chongqing Industrial Pollution Control and Reform Project - Project Agreement 3

Page 1 CONFORMED COPY LOAN NUMBER 4045 CHA Financial Intermediaries Project Agreement (Chongqing Industrial Pollution Control and Reform Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and AGRICULTURAL BANK OF CHINA and CHINA MERCHANTS BANK and EVERBRIGHT BANK OF CHINA Dated December 4, 1996 LOAN NUMBER 4045 CHA FINANCIAL INTERMEDIARIES PROJECT AGREEMENT AGREEMENT, dated December 4, 1996, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and AGRICULTURAL BANK OF CHINA, CHINA MERCHANTS BANK and EVERBRIGHT BANK OF CHINA (the Financial Intermediaries). 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 equal to one hundred seventy million dollars ($170,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Financial Intermediaries agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by subsidiary loan agreements to be entered into between Chongqing and the Financial Intermediaries (Financial Intermediary Subsidiary Loan Agreements), a portion of the proceeds of the Loan provided for under the Loan Agreement will be relent to the Financial Intermediaries on the terms and conditions set forth in the Financial Intermediary Subsidiary Loan Agreements; and Page 2 WHEREAS the Financial Intermediaries, in consideration of the Bank's entering into the Loan Agreement with the Borrower, have agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project; Management and Operations of the Financial Intermediaries Section 2.01. Each Financial Intermediary 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 its Respective Parts of the Project and conduct its operations and affairs in accordance with sound financial standards and practices, with qualified management and personnel, and in accordance with: (i) for ABC, the ABC Charter; (ii) for CMB, the CMB Charter; and (iii) for EBBC, the EBBC Charter. Section 2.02. Each Financial Intermediary shall: (a) undertakes that, unless the Bank shall otherwise agree, Sub-loans shall be made in accordance with the procedures and on the terms and conditions set forth or referred to in Schedule 1 to this Agreement; (b) exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and of such Financial Intermediary; (ii) comply with its obligations under this Agreement and its respective Subsidiary Loan Agreement; and (iii) achieve the purposes of the Project; and (c) appraise Investment Projects and supervise, monitor and report on the carrying out by Investment Enterprises of Investment Projects, in accordance with procedures acceptable to the Bank. Section 2.03. Each Financial Intermediary 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 Financial Intermediaries Project Agreement and its Respective Parts of the Project. Section 2.04. Each Financial Intermediary shall duly perform all its obligations under its respective Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, no Financial Intermediary shall take or concur in any action which would have the effect of amending, abrogating, assigning or waiving such Subsidiary Loan Agreement or any provision thereof. Section 2.05. Each Financial Intermediary shall: (a) at the request of the Bank, exchange views with the Bank with regard to the progress of its Respective Part of the Project, the performance of its obligations under this Agreement and under its respective Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan; and (b) promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of its Respective Part of the Project, the Page 3 accomplishment of the purposes of the Loan, or the performance by such Financial Intermediary of its obligations under this Agreement and under its respective Subsidiary Loan Agreement. Section 2.06. If any Financial Intermediary has, establishes or acquires any Subsidiary, such Financial Intermediary shall cause any such Subsidiary to which the obligations of such Financial Intermediary under this Agreement relate to observe and perform such obligations as though such obligations were binding upon such Subsidiary. Section 2.07. Each Financial Intermediary shall:(a) not later than December 31, 1996, furnish to the Bank a time-bound training program acceptable to the Bank for the carrying out of Part D.2 of the Project by said Financial Intermediary; and (b) thereafter implement such training program in accordance with its terms. ARTICLE III Financial Covenants Section 3.01. Each Financial Intermediary shall: (a) maintain procedures and records adequate to monitor and record the progress of its Respective Parts of the Project and of each Investment Project for which it has made a Sub-loan (including its cost and the benefits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of such Financial Intermediary. (b) (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 3.02. Each Financial Intermediary shall take such steps satisfactory to the Bank as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Renminbi) used in its operations. 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 Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of the Financial Intermediaries thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify each Financial Intermediary thereof. 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. Page 4 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 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 (MCI); or Washington, D.C. 64145 (MCI) For ABC: Agricultural Bank of China Chongqing Branch 103 Xing Hua Road Chongqing People's Republic of China 630011 Telex: 62286 ABCQ CN For CMB: China Merchants Bank 5/F, Shenfang Bld. No. 3, Huaqiang Beilu Shenzhen People's Republic of China Telex: 420034 CMBHO CN; or 420035 CMBHO CN For EBBC: Everbright Bank of China Chongqing Branch No. 2 Linjiang Road, Yuzhong District Chongqing People's Republic of China 630010 Telex: 62423 EBCQ 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 a Financial Intermediary may be taken or executed by: for ABC and EBBC, their respective President; and for CMB, its General Manager; or such other person or persons as such Page 5 President or General Manager shall designate in writing, and each Financial Intermediary shall furnish to the Bank 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Marianne Haug Acting Regional Vice President East Asia and Pacific AGRICULTURAL BANK OF CHINA CHINA MERCHANTS BANK EVERBRIGHT BANK OF CHINA By /s/ Li Daoyu Authorized Representative SCHEDULE 1 Procedures for and Terms and Conditions of Sub-loans A. Principal Terms and Conditions of Sub-loans: 1. (a) Sub-loans shall be made to Investment Enterprises for Investment Projects concerning the restructuring of productive facilities and the cleaning up of pollution. The proceeds of the Sub-loans shall be used to procure goods and services required for the carrying out of the Investment Projects. (b) The principal amount of each Sub-loan financed: (i) shall be denominated and repaid in dollars, and be equal to the amount of the Loan withdrawn on account of the cost of goods and services required for the Subproject for which said Sub-loan has been made and to be financed out of the proceeds of the Loan; and (ii) shall be repaid over a period not exceeding twelve (12) years, inclusive of a grace period not exceeding five (5) years. (c) Each Sub-loan shall be charged interest on the principal amount thereof withdrawn and outstanding from time to time at a rate at least equal to the sum of: (i) the rate of interest applicable from time to time to the Loan pursuant to Section 2.05 of the Loan Agreement plus; (ii) 2%. Page 6 (d) Each Sub-loan shall be charged on the principal amount thereof not withdrawn from time to time a commitment charge at a rate equal to three-fourths of one percent (3/4 of 1%) per annum. 2. Each Sub-loan for an Investment Project shall be made only to an Investment Enterprise which shall have established to the satisfaction of the Financial Intermediary making said Sub-loan, on the basis of an appraisal carried out in accordance with guidelines satisfactory to the Bank, that: (a) the Investment Enterprise has been established as a limited liability company or a limited liability shareholding company under the Company Law of the Borrower, or has been otherwise established as a legal entity in a manner satisfactory to the Bank; (b) the Investment Enterprise has adopted accounting standards acceptable to the Bank and has had its financial statements of its fiscal year preceding the fiscal year in which it applied for a Sub-loan audited by independent auditors; (c) the Investment Enterprise is creditworthy and has a sound financial position and prospects and will be in a position to service its debt under the Sub-loan; (d) an environmental assessment of the Investment Project has been carried out by Chongqing