Conformed Copy - L4304 - Energy Conservation Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 4304 CHA Project Agreement (Energy Conservation Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting on its own behalf and as Implementing Agency of the Global Environment Facility and BEIJING YUANSHEN ENERGY SAVING TECHNOLOGY COMPANY, LTD. LIAONING PROVINCE ENERGY CONSERVATION TECHNOLOGY DEVELOPMENT COMPANY, LTD. and SHANDONG ENERGY CONSERVATION ENGINEERING COMPANY, LTD. Dated June 26, 1998 LOAN NUMBER 4304 CHA PROJECT AGREEMENT AGREEMENT, dated June 26, 1998, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) acting on its own behalf and as implementing agency of the Global Environment Fund (GEF) and BEIJING YUANSHEN ENERGY SAVING TECHNOLOGY COMPANY, LTD. (Beijing EMC), LIAONING PROVINCE ENERGY CONSERVATION TECHNOLOGY DEVELOPMENT COMPANY, LTD. (Liaoning EMC) and SHANDONG ENERGY CONSERVATION ENGINEERING COMPANY, LTD. (Shandong EMC). WHEREAS (A) by the Loan Agreement of even date herewith between the People's Republic of China (the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount equal to sixty three million Dollars, on the terms and conditions set forth in the Loan Agreement, but only on condition that Beijing EMC, Liaoning EMC and Shandong EMC (collectively, the Energy Management Companies) 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 the Borrower and Beijing Municipality, Liaoning Province and Shandong Province and between Beijing Municipality, Liaoning Province and Shandong Province and each of the Energy Management Companies, respectively, a portion of the proceeds of the Loan provided for under the Loan Agreement will be made available to the Energy Management Companies on terms and conditions set forth in said Subsidiary Loan Agreements; (C) by the GEF Grant Agreement of even date herewith between the Borrower and the Bank, acting as an implementing agency of the GEF Trust Fund, GEF has agreed to provide a grant to the Borrower in an aggregate principal amount equivalent to sixteen Page 2 million three hundred thousand Special Drawing Rights (SDR 16,300,000) (the GEF Grant); (D) by subsidiary grant agreements to be entered into between the Borrower and each of the Energy Management Companies, a portion of the proceeds of the Grant provided for under the GEF Grant Agreement will be made available to the Energy Management Companies on terms and conditions set forth in said Subsidiary Grant Agreements; and WHEREAS the Energy Management Companies in consideration of the Bank's entering into the Loan Agreement and the GEF Grant 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 in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) Each of the Energy Management Companies 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 Part A of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering, environmental, and technical practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and the Energy Management Companies shall otherwise agree, the Energy Management Companies shall carry out Part A of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of the goods required for Part A of the Project and to be financed out of the proceeds of the Loan or the Grant shall be governed by the provisions of Schedule 1 to this Agreement. Section 2.03. (a) The Energy Management Companies 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) in respect of the Project Agreement and Part A of the Project. (b) For the purposes of Section 9.08 of the General Conditions and without limitation thereto, the Energy Management Companies shall: (i) prepare, on the basis of guidelines acceptable to the Bank, and furnish to the Bank not later than six (6) months after the Closing Date or such later date as may be agreed for this purpose between the Bank and the Energy Management Companies, a plan for the future operation of Part A of the Project; and (ii) afford the Bank a reasonable opportunity to exchange views with the Energy Management Companies on said plan. Section 2.04. Each of the Energy Management Companies shall duly perform all its obligations under the Subsidiary Loan Agreement and the Subsidiary Grant Agreement to which it is a party. Except as the Bank shall otherwise agree, no Energy Management Company shall take or concur in any action which would have the effect of assigning, amending, abrogating or waiving the Subsidiary Loan Agreement or the Subsidiary Grant Agreement to which it is a party, or any provision thereof. Page 3 Section 2.05. (a) Each of the Energy Management Companies shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement and Subsidiary Grant Agreement to which it is a party, and other matters relating to the purposes of the Loan and the GEF Grant. (b) Each Energy Management Company shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Loan and the GEF Grant, or the performance by it of its obligations under this Agreement and under the Subsidiary Loan Agreement or Subsidiary Grant Agreement to which it is a party. ARTICLE III Management and Operations of the Energy Management Companies Section 3.01. Each Energy Management Company shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering, environmental and technical practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. Each Energy Management Company shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial, environmental and technical practices. Section 3.03. Each Energy Management Company 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. Except as the Bank shall otherwise agree, none of the Energy Management Companies shall, except in the ordinary course of its business, sell, lease, transfer, assign or otherwise dispose of any of its property or assets if, in the opinion of the Bank, such sale, lease, transfer, assignment or other disposition would materially and adversely affect (a) the ability of such Energy Management Company to perform any of its obligations arising under this Agreement or to achieve the objectives of the Project, or (b) the financial condition or operation of such Energy Management Company. Section 3.05. Each Energy Management Company shall: (a) maintain its existence and right to carry on its operations and shall promptly take all measures necessary to acquire, maintain, renew or otherwise exercise any and all rights (including, without limitation, land rights), powers, privileges and franchises required for the proper conduct of its operations and the prompt carrying out of its obligations under this Project Agreement and the Subsidiary Loan Agreement and Subsidiary Grant Agreement to which it is a party; and (b) not amend, suspend or repeal any provision of its respective Charter or make any change in its structure, organization, powers or responsibilities which may materially and adversely affect its ability to perform any of its obligations under this Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) Each Energy Management Company shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition and to register separately the operations, resources and expenditures related to the Project. (b) Each Energy Management Company 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 Page 4 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 (6) months after the end of each such year, (A) certified copies of said financial statements, reflecting the records and accounts referred to in paragraph (a) above, 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, none of the Energy Management Companies shall incur any debt unless a reasonable forecast of its revenues and expenditures shows that the estimated net revenues of such Energy Management Company, for each fiscal year during the term of the debt to be incurred, shall be at least 1.6 times its estimated debt service requirements in such year on all its debt including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness 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 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