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CONFORMED COPY
CREDIT NUMBER 2201 CHA
LOAN NUMBER 3286 CHA
(Medium-sized Cities Development Project)
among
INTERNATIONAL DEVELOPMENT ASSOCIATION
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
and
CHANGZHOU MUNICIPALITY
LUOYANG MUNICIPALITY
and
SHASHI MUNICIPALITY
Dated January 30, 1991
CREDIT NUMBER 2201 CHA
LOAN NUMBER 3286 CHA
PROJECT AGREEMENT
AGREEMENT, dated January 30, 1991, among INTERNATIONAL DEVELOPMENT ASSOCIATION 
(the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank), 
and CHANGZHOU MUNICIPALITY, LUOYANG MUNICIPALITY and SHASHI MUNICIPALITY (the Project 
Cities).
WHEREAS: (A) 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 
sixty-two million two hundred thousand Special Drawing Rights (SDR 62,200,000), on the 
terms and conditions set forth in the Development Credit Agreement, but only on 
condition that the Project Cities agree to undertake such obligations toward the 
Association as are set forth in this Agreement;
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(B)
by the Loan Agreement of even date herewith between the Borrower and the 
Bank, the Bank has agreed to make available to the Borrower an amount in various 
currencies equivalent to seventy-nine million four hundred thousand dollars 
($79,400,000), on the terms and conditions set forth in the Loan Agreement, but only 
on condition that the Project Cities undertake such obligations toward the Bank as are 
set forth in this Agreement; and
WHEREAS the Project Cities, in consideration of the Association's entering into 
the Development Credit Agreement with the Borrower, and 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 Development Credit Agreement, the Loan Agreement and in the General Conditions 
(as so defined in the Development Credit Agreement and Loan Agreement, respectively) 
have the respective meanings therein set forth.
ARTICLE II
Execution of the Project
Section 2.01. (a) Each of the Project Cities 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 its respective portion of the Project with 
due diligence and efficiency and in conformity with appropriate administrative, 
financial, engineering and urban management practices, and shall provide, or cause to 
be provided, promptly as needed, the funds, facilities, services and other resources 
required for its respective portion of the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Association, the Bank and the Project Cities shall otherwise agree, 
each of the Project Cities shall carry out its respective portion of the Project in 
accordance with the Implementation Program set forth in Schedule 2 to this Agreement.
Section 2.02. (a) Each of the Project Cities undertakes that, unless the 
Association and the Bank shall otherwise agree, Sub-loans will be made in accordance 
with the procedures and on the terms and conditions set forth or referred to in 
paragraph D.6 of Schedule 2 to this Agreement.
(b)
Each of the Project Cities shall exercise its rights in relation to each 
Investment Project in such manner as to: (i) protect the interests of the Association, 
the Bank and such Project City; (ii) comply with its obligations under this Agreement; 
and (iii) achieve the purposes of the Project. 
Section 2.03. Except as the Association and the Bank 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 and of the Loan shall be governed by 
the provisions of Schedule 1 to this Agreement.
Section 2.04. Each of the Project Cities 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 
applicable to the Development Credit Agreement and in Sections 9.04. 9.05, 9.06, 9.07, 
9.08 and 9.09 of the General Conditions applicable to the Loan Agreement (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 its respective portion of the Project.
Section 2.05. (a) Each of the Project Cities shall, at the request of the 
Association or the Bank, exchange views with the Association and the Bank with regard 
to the progress of its respective portion of the Project, the performance of its 
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obligations under this Agreement and other matters relating to the purposes of the 
Credit and the Loan.
(b)
Each of the Project Cities shall promptly inform the Association and the 
Bank of any condition which interferes or threatens to interfere with the progress of 
its respective portion of the Project, the accomplishment of the purposes of the 
Credit and the Loan, or the performance by such Project City of its obligations under 
this Agreement.
ARTICLE III
Financial and Other Covenants
Section 3.01. (a) Each of the Project Cities shall maintain records and accounts 
adequate to reflect in accordance with sound accounting practices the operations, 
resources and expenditures in respect of its respective portion of the Project of its 
departments or agencies responsible for carrying out such portion of the Project.
(b)
Each of the Project Cities 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 and the 
Bank;
 
(ii)
furnish to the Association and the Bank 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 such detail as the 
Association and the Bank shall have reasonably requested; and
(iii)
furnish to the Association and the Bank such other information 
concerning said 
records, accounts and the audit thereof, as 
the Association and the Bank 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 and the Loan Agreement become effective. 
Section 4.02. (a) This Agreement and all obligations of the Association and the 
Bank and of the Project Cities thereunder shall terminate on the earlier of the 
following two dates:
(i)
the date on which the Development Credit Agreement and the Loan 
Agreement shall 
have terminated in accordance with its terms; 
or
(ii)
the date 20 years after the date of this Agreement.
 
(b)
If the Development Credit Agreement and the Loan Agreement terminate in 
accordance with their terms before the date specified in paragraph (a) (ii) of this 
Section, the Association and the Bank shall promptly notify the Project Cities 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 
applicable to the Development Credit Agreement or the Loan Agreement. 
ARTICLE V
Miscellaneous Provisions
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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:
 
INDEVAS
197688 (TRT)
Washington, D.C.
248423 (RCA)
 64145 (WUI) or
 82987 (FTCC)
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
197688 (TRT)
Washington, D.C.
248423 (RCA)
 64145 (WUI) or
 82987 (FTCC)
For Changzhou Municipality:
294 Ju Qian Street
Changzhou
Jiangsu Province
People's Republic of China
Telex:
361019 BOOTH CN
For Luoyang Municipality:
Kai Xuan Road
Luoyang
Henan Province
People's Republic of China
Telex:
47023 LCUSD CN
For Shashi Municipality:
77 Beijing Middle Road
Shashi
Hubei Province
People's Republic of China
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Telex:
40144 SSBOC 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 each of the 
Project Cities may be taken or executed by its Mayor or Vice Mayor or such other 
person or persons as the Mayor or Vice Mayor shall designate in writing, and such 
Project City shall furnish to the Association and the Bank sufficient evidence of the 
authority and the authenticated specimen signature of each such person.
Section 5.03. As long as the Bank has not given notice to the contrary to the 
Project Cities and so long as the Development Credit Agreement shall not have 
terminated prior to the termination of the Loan Agreement:
(a)
the obligations of each of the Project Cities to consult with, and to 
furnish information, documents, plans, reports, records and statements to, the Bank 
shall be satisfied to the extent performance in respect of such obligations is 
rendered to the Association;
(b)
the obligations of the Bank to consult with, and to furnish information 
to, each of the Project Cities shall be satisfied to the extent such obligations are 
fulfilled by the Association; and
(c)
all actions taken (including the giving of approvals or granting of 
waivers) by the Association pursuant to the Development Credit Agreement shall be 
deemed to be taken pursuant to both the Development Credit Agreement and the Loan 
Agreement, and in the name and on behalf of both the Association and the Bank.
Section 5.04. 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
INTERNATIONAL BANK FOR RECONSTRUCTION
  AND DEVELOPMENT
By /s/ Shinji Asanuma
Acting Regional Vice President
Asia
CHANGZHOU MUNICIPALITY
By /s/ Zhao Xixin
Authorized Representative
LUOYANG MUNICIPALITY
By /s/ Zhao Xixin
Authorized Representative
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SHASHI MUNICIPALITY
By /s/ Zhao Xixin
Authorized Representative
SCHEDULE 1
Procurement and Consultants' Services
Section I:
Procurement of Goods and Works
 
Part A:
International Competitive Bidding
 
Except as provided in Part C hereof, goods 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 1985 (the Guidelines).
Part B:
Preference for Domestic Manufacturers
 
In the procurement of goods in accordance with the procedures described in Part 
A 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.
Procurement for Parts A and B (except for Parts B.6 and B.7) of the Project 
shall be as follows: 
(a)
Items or groups of items estimated to cost less than the equivalent of 
$200,000 per contract and the equivalent of $50,000 or more per contract, up to an 
aggregate equivalent of $18,500,000, may be procured under contracts awarded on the 
basis of competitive bidding, advertised locally, in accordance with procedures 
satisfactory to the Association and the Bank.
(b)
Contracts for goods estimated to cost less than $50,000 per contract may 
be awarded on the basis of comparison of price quotations solicited from a list of at 
least three suppliers eligible under the Guidelines, in accordance with procedures 
acceptable to the Association and the Bank.
(c)
Civil works may be procured under contracts awarded on the basis of 
competitive bidding, advertised locally, in accordance with procedures satisfactory to 
the Association and the Bank, except that civil works estimated to cost less than the 
equivalent of $50,000 per contract, up to an aggregate equivalent of $2,900,000, may 
be procured through force account.
2.
Items or groups of items for Parts B.6 and B.7 of the Project estimated to cost 
less than the equivalent of $5,000,000 per contract may be procured under contracts 
awarded on the basis of comparison of price quotations solicited from a list of at 
least three suppliers eligible under the Guidelines, in accordance with procedures 
acceptable to the Association and the Bank.
Part D:
Review by the Association and the Bank of Procurement Decisions
 
1.
Review of invitations to bid and of proposed awards and final contracts:
 
(a)
The procedures set forth in paragraphs 2 and 4 of Appendix 1 to the 
Guidelines shall apply with respect to all contracts for goods under Parts B.6 and B.7 
of the Project estimated to cost the equivalent of $2,000,000 or more and all other 
contracts estimated to cost the equivalent of $500,000 or more. Where payments for 
such contract are to be made out of a Special Account, such procedures shall be 
modified to ensure that the two conformed copies of the contract required to be 
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furnished to the Association and the Bank pursuant to said paragraph 2 (d) shall be 
furnished to the Association and the Bank prior to the making of the first payment out 
of such 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. Where payments for such contract are to be made out of a 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 and 
the Bank pursuant to said paragraph 3 shall be furnished to the Association and the 
Bank 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 sub-paragraphs (a) and (b) shall not 
apply to contracts on account of which the Association and the Bank have authorized 
withdrawals from the Credit Account and Loan Account on the basis of statements of 
expenditure. Such contracts shall be retained in accordance with Section 4.01 (a) (ii) 
of the Development Credit Agreement.
2.
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 the Project Cities in carrying out the Project, the Project 
Cities shall employ consultants whose qualifications, experience and terms and 
conditions of employment shall be satisfactory to the Association and the Bank. Such 
consultants shall be selected in accordance with principles and procedures 
satisfactory to the Association and 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.
SCHEDULE 2
Implementation Program
A.
Reform Programs
 
1.
Each Project City shall carry out a reform program under Part A.1 of the 
Project, which shall have been agreed with the Association and the Bank.
B.
Project Implementation Arrangements
 
1.
Each of the Project Cities shall maintain its Leading Group to oversee Project 
implementation and to coordinate the work of its departments and agencies responsible 
for carrying out various Parts of the Project, with composition and responsibilities 
acceptable to the Association and the Bank.
2.
Each of the Project Cities shall maintain its project management office to 
assist in day-to-day coordination and administration of the Project, with competent 
staff in adequate numbers, and with functions and responsibilities acceptable to the 
Association and the Bank.
3.
Each of the Project Cities shall carry out the training under its respective 
portion of Parts B.1, B.2, B.3 and B.4 of the Project in accordance with a training 
program agreed with the Association and the Bank.
4.
Each of the Project Cities shall, by March 1 and September 1 in each year, 
prepare and furnish to the Association and the Bank a report monitoring the progress 
of its respective portion of the Project during the preceding six months, in 
accordance with monitoring indicators agreed with the Association and the Bank.
5.
Each of the Project Cities shall, by November 30 in each year, prepare and 
furnish to the Association and the Bank an action plan for the implementation of its 
respective portion of the Project during the next year.
C.
Parts B.3, B.4 and B.5 of the Project
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1.
In order to carry out Parts B.3 and B.4 of the Project, each of the Project 
Cities shall enter into contracts with its respective utility company or companies 
listed in sub-paragraph (a) below, on terms and conditions satisfactory to the 
Association and the Bank, including those set forth below.
(a)
The utility companies are: Changzhou Running Water Company (CRWC), 
Luoyang Running Water Company (LRWC), Shashi Running Water Company (SRWC) (the Water 
Companies) Luoyang Municipal Bus Company (LMBC) and Shashi Municipal Bus Company 
(SMBC) (the Bus Companies).
(b)
Each utility company shall carry out the respective portion of the 
Project. 
(c)
The proceeds of the Credit and the Loan for the respective portion of the 
Project shall be on-lent to the company in Renminbi for 15 years, including five years 
of grace with interest payable at a rate equal to the People's Construction Bank of 
China rate for similar fixed-asset loans.
(d)
The Water Companies shall achieve and thereafter maintain a level of 
income sufficient to cover: (i) all operating costs, depreciation, bonus and welfare 
funds, and taxes and charges on operations; and (ii) beginning January 1, 1995, debt 
servicing (interest payments).
(e)
The Bus Companies shall achieve and thereafter maintain a level of income 
sufficient to cover: (i) all current operating costs (excluding depreciation, bonus 
and welfare funds, and taxes); and (ii) beginning January 1, 1995, taxes and debt 
servicing (interest payments).
2.
Each of the Project Cities shall undertake a land use transportation study under 
Part B.3 of the Project in accordance with terms of reference and timing agreed with 
the Association and the Bank.
3.
Each of the Project Cities shall establish maintain its traffic planning and 
management unit, with competent staff in adequate numbers and with functions and 
responsibilities acceptable to the Association and the Bank.
4.
Each of the Project Cities shall carry out the resettlement and rehabilitation 
under Part B.3 of the Project in accordance with a plan acceptable to the Association 
and the Bank. 
5.
Each of the Project Cities shall ensure: (a) that the apartment units 
constructed under its respective portion of Part B.5 of the Project shall be sold to 
households at prices to cover full investment costs, including adequate profit margins 
for the housing developers and interest during construction; (b) that buyers of such 
units shall have the right to resell them and retain the resulting capital gains, 
subject only to applicable taxes: and (c) that mortgages will be provided to 
purchasing households on terms acceptable to the Association and the Bank. 
D.
Parts B.6 and B.7 of the Project
 
1.
(a)
In order to carry out Part B.6 of the Project, the Project Cities shall 
enter into an agreement with CIB, on terms and conditions satisfactory to the 
Association and the Bank, for the appraisal and supervision of Industrial Sub-loans. 
(b)
In order to carry out Part B.7 of the Project, Changzhou Municipality and 
Shashi Municipality shall each enter into an agreement with the People's Construction 
Bank of China, satisfactory to the Association and the Bank, for the appraisal and 
supervision of Pollution Control Sub-loans.
(c)
Each of the Project Cities shall ensure that Industrial Sub-loans and, 
for Changzhou Municipality and Shashi Municipality, Pollution Control Sub-loans are 
made on the following terms and conditions, and approved in accordance with the 
procedures set forth below.
2.
(a)
Sub-loans in foreign currency shall be made in dollars with interest 
payable at a rate equal to the rate under Section 2.05 of the Loan Agreement, plus a 
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spread of 2%.
(b)
Sub-loans shall be made for Renminbi funds with interest payable at a 
rate equal to the People's Construction Bank of China rate for similar fixed-assets 
loans and repayment over 15 years, including up to five years of grace.
(c)
Repayment periods for Industrial Sub-loans shall normally not exceed 
seven years and not exceed 12 years, including three years of grace. Pollution Control 
Sub-loans shall be made with maturities of five to ten years, including one to two 
years of grace.
3.
(a)
Investment Projects for Industrial Sub-loans shall meet minimum financial 
and economic rates of return of 12%, and all Investment Enterprises shall have a 
satisfactory projected financial position as determined by generally accepted 
financial standards.
(b)
The aggregate amount of all Sub-loans for an Investment Project shall not 
exceed the equivalent of $6,000,000. 
(c)
Investment Projects shall be consistent with environmental standards 
satisfactory to the Bank and, for Pollution Control Sub-loans, shall be in accord with 
the Project City's water pollution abatement strategy.
4.
No expenditures for goods or services required for an Investment Project shall 
be eligible for financing out of the proceeds of the Credit or the Loan unless:
(a)
the Sub-loan for such Investment Project shall have been approved by the 
Association or the Bank and such expenditures shall have been made not earlier than 
ninety days prior to the date on which the Association or the Bank shall have received 
the application and information required under paragraph D.5(a) of this Schedule in 
respect of such Sub-loan; or
(b)
the Sub-loan for such Investment Project shall have been a free-limit 
Sub-loan for which the Association or the Bank has authorized withdrawals from the 
Credit Account or the Loan Account and such expenditures shall have been made not 
earlier than ninety days prior to the date on which the Association or the Bank shall 
have received the request and information required under paragraph D.5(b) of this 
Schedule in respect of such free-limit Sub-loan. 
(i)
For the purposes of the Development Credit Agreement, the Loan 
Agreement and this 
Agreement, a free-limit Sub-loan shall be a 
Sub-loan for an Investment Project in 
an amount to be financed 
out of the proceeds of the Credit or the Loan which shall 
not exceed 
the sum of $1,000,000 equivalent for Industrial Sub-loans or $500,000 
equivalent for Pollution Control Sub-loans, when added to any other outstanding 
amounts financed or proposed to be financed out of the 
proceeds of the Credit or 
the Loan, the proceeds of which have 
been or are being used for financing goods and 
services directly 
and materially related to such Investment Project, the foregoing 
amounts being subject to change from time to time as determined by the Association 
and the Bank.
5.
(a)
When presenting a Sub-loan (other than a free-limit Sub-loan) to the 
Association or the Bank for approval, each of the Project Cities shall furnish to the 
Association and the Bank an application, in form satisfactory to the Association and 
the Bank, together with: (i) a description of the  Investment Enterprise and an 
appraisal of the Investment Project, including a description of the expenditures 
proposed to be financed out of the proceeds of the Credit or the Loan; (ii) the 
proposed terms and conditions of the Sub-loan, including the schedule of amortization 
of the Sub-loan; and (iii) such other information as the Association and the Bank 
shall reasonably request.
(b)
Each request by each of the Project Cities for authorization to  take 
withdrawals from the Credit Account or the Loan Account in respect of a free-limit 
Sub-loan shall contain: (i) a summary description of the Investment Enterprise and the 
Investment Project, including a description of the expenditures proposed to be 
financed out of the proceeds of the Credit or the Loan; and (ii) the terms and 
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conditions of the Sub-loan, including the schedule of amortization therefor.
6.
Sub-loans shall be made on terms whereby each of the Project Cities shall 
obtain, by written contract with the Investment Enterprise or by other appropriate 
legal means, rights adequate to protect the interests of the Association, the Bank and 
such Project City, including the right to:
(a)
require the Investment Enterprise to carry out and operate the Investment 
Project 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 and services to be financed out of the 
proceeds of the Credit or the Loan shall be procured in accordance with the provisions 
of Schedule 1 to this Agreement; and (ii) such goods and services shall be used 
exclusively in the carrying out of the Investment Project;
(c)
inspect, by itself or jointly with representatives of the Association or 
the Bank if the Association or the Bank shall so request, such goods, works, plants 
and construction included in the Investment Project, the operation thereof, and any 
relevant records and documents;
(d)
require that: (i) the Investment Enterprise 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 or the 
Loan to the place of use or installation, any indemnity thereunder to be made payable 
in a currency freely usable by the Investment Enterprise to replace or repair such 
goods;
(e)
obtain all such information as the Association, the Bank or such Project 
City shall reasonably request relating to the foregoing and to the administration, 
operations and financial condition of the Investment Enterprise and to the benefits to 
be derived from the Investment Project; and
(f)
suspend or terminate the right of the Investment Enterprise to the use of 
the proceeds of the Credit or the Loan upon failure by such Investment Enterprise to 
perform its obligations under its contract with such Project City. 
7.
Changzhou Municipality and Shashi Municipality shall each ensure that the 
respective Municipal Pollution Control Fund out of which Pollution Control Sub-loans 
shall be made shall be operated in accordance with principles and procedures 
satisfactory to the Association and the Bank.