OFFICIAL DOCUMENTS LOAN NUMBER 8837-CN Project Agreement (Liaoning Safe and Sustainable Urban Water Supply Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and LIAONING PROVINCE LOAN NUMBER 8837-CN PROJECT AGREEMENT AGREEMENT between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank") and LIAONING PROVINCE ("Project Implementing Entity") ("Project Agreement") in connection with the Loan Agreement ("Loan Agreement") of the Signature Date between PEOPLE'S REPUBLIC OF CHINA ("Borrower") and the Bank. The Bank and the Project Implementing Entity hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to the Loan Agreement) apply to and form part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Loan Agreement or the General Conditions. ARTICLE II - PROJECT 2.01. The Project Implementing Entity declares its commitment to the objectives of the Project. To this end, the Project Implementing Entity shall: (a) carry out, and cause the Project Cities and Project Companies to carry out, the Project in accordance with the provisions of Article V of the General Conditions and the Schedule to this Agreement; and (b) provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. ARTICLE III - REPRESENTATIVE; ADDRESSES 3.01. The Project Implementing Entity's Representative is its Governor or Vice Governor, or such other person or persons as said Governor shall designate in writing. 3.02. For purposes of Section 10.01 of the General Conditions: (a) the Bank's address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America; and -2- (b) the Bank's Electronic Address is: Telex: Facsimile: 248423(MCI) or 1-202-477-6391 64145(MCI) 3.03. For purposes of Section 10.01 of the General Conditions: (a) the Project Implementing Entity's address is: Liaoning Provincial Department of Finance 103 North Nanjing Street Heping District, Shenyang Liaoning Province People's Republic of China 110002; and (b) the Project Implementing Entity's Electronic Address is: Telex: Facsimile: +86-24 22702780 +86-24 22834167 -3- AGREED, as of the latest of the two dates written below. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Authorized Representative Name: 1e /4 Title: Date: LIAONING PROVINCE By Autorized Representative Name: Title: L.4 Date: !4nf'r.'0'4 -4- SCHEDULE Execution of the Project Section I. Implementation Arrangements A. Institutional Arrangements 1. In order to ensure the proper carrying out of the Project, the Project Implementing Entity shall maintain, and cause to be maintained, throughout the implementation of the Project, the following entities with composition, powers, functions, terms of reference, staffing, facilities and other resources acceptable to the Bank: (a) a Provincial Project Steering Committee established at the provincial level responsible for, inter alia, overall leadership, direction and strategic guidance of the Project; (b) the Liaoning Urban Rural Construction and Renewal Project Management Company which has been designated as the Provincial Project Management Office (PPMO) responsible for, inter alia, overall coordination, management and monitoring of the Project, inter-agency coordination, policy liaison with the Bank, management and supervision of the Project including management and implementation of social and environmental safeguards measures, preparation of the Project annual budget, preparation and consolidation of all Project Reports, implementation of cross-city activities including training and capacity building of Project Companies staff and procurement and financial management under the Project; and (c) a Project Implementation Unit for each Project Company, comprising officials and technical staff from all relevant company departments, and responsible for, inter alia, managing day-to-day Project implementation in the respective Project Company. 2. Throughout the implementation of the Project, the Project Implementing Entity shall carry out the Project, and shall cause each Project City to carry out the Project, in accordance with the Project Implementation Plan in a manner that is acceptable to the Bank. The Project Implementing Entity shall not amend, suspend, or waive said Project Implementation Plan or any provision or schedule thereof, without the prior written agreement of the Bank. In the event of any inconsistency between the provisions of the Project Implementation Plan and those of this Agreement or the Loan Agreement, the provisions of this Agreement and the Loan Agreement shall prevail. -5- 3. The Project Implementing Entity shall: (a) cause each Project Company to prepare a draft annual work plan and budget summarizing the Project activities proposed to be undertaken in the following calendar year and the related proposed budget, including the amount of counterpart funds to be made available for such purposes; (b) consolidate all the draft plans so prepared and furnish to the Bank, for its review and comments, the consolidated project annual plan by September 30 in each year, beginning in calendar year 2018; (c) taking into account the Bank's comments, finalize and approve the annual plan acceptable to the Bank (Annual Plan); and (d) thereafter ensure the implementation of the Project during the following calendar year in accordance with the Annual Plan agreed with the Bank and in a manner acceptable to the Bank. The Project Implementing Entity shall not, and shall cause each Project Company not to, amend, suspend, abrogate, or waive said Annual Plans or any provision thereof without the prior written agreement of the Bank. B. Safeguards 1 . In carrying out the Project, the Project Implementing Entity shall, and shall cause each Project City and each Project Company to: (a) take all necessary actions to minimize to the extent possible any involuntary loss by persons of shelter, productive assets or access to productive assets or income or means of livelihood, temporarily or permanently, and the displacement of said people in the carrying out of the Project or any part thereof, and (b) where the acquisition of land or assets or the displacement of people is unavoidable, before initiating the implementation of any works which would result in such acquisition or displacement, make available to such people compensation and, as applicable, relocate and rehabilitate the Affected Persons in accordance with the Resettlement Action Plan(s) and in a manner acceptable to the Bank. 2. The Project Implementing Entity shall implement, and shall cause each Project City and each Project Company to implement, the Safeguards Instruments in a manner and substance acceptable to the Bank. Without limitation on the foregoing, the Project Implementing Entity shall ensure, and shall cause each Project City and each Project Company to ensure, that each contract for works under the Project includes the obligations of the work contractors and any sub-contractor to comply with the relevant provisions of the EMPs, as the case may be. 3. The Project Implementing Entity shall ensure, and cause each Project City and each Project Company to ensure, that all studies and technical assistance to be supported under the Project are carried out under terms of reference acceptable to the Bank, and that such terms of reference are consistent with, and pay due attention to, the Bank's Safeguards Policies. -6- 4. The Project Implementing Entity shall not, and shall cause each Project City and each Project Company not to, amend, suspend, or waive the Safeguards Instruments, or any provision thereof, without the prior written concurrence of the Bank. 5. The Project Implementing Entity shall maintain, and shall cause each Project City and each Project Company to maintain, policies and procedures adequate to enable them to monitor and evaluate the implementation of the Safeguards Instruments and achievement of these instruments and, to this end, engage experienced and qualified independent monitoring consultants acceptable to the Bank. 6. Without limitation to the provisions of paragraphs 1 through 5 of this Section I.B, or the provisions of Section II.A below, the Project Implementing Entity shall take, and shall cause each Project City and each Project Company to take, all measures necessary on their part to regularly collect, compile and submit to the Bank, as part of the Project Reports, information on the status of compliance with the Safeguards Instruments, giving details of: (a) measures taken in furtherance thereof; (b) conditions, if any, which interfere or threaten to interfere with the smooth implementation thereof; and (c) remedial measures taken or required to be taken to address such conditions. 7. In the event of any inconsistency between the provisions of the Safeguards Instruments and the provisions of this Agreement or the Loan Agreement, the provisions of this Agreement and the Loan Agreement shall prevail. 8. For purposes of overseeing the implementation of dam safety measures of Project Dams, the Project Implementing Entity shall: (a) no later than six (6) months after Effective Date, recruit and retain an Independent Expert with qualifications, and under the terms of reference, acceptable to the Bank; (b) cause the Independent Expert to perform periodic dam safety inspections of the Project Dams pursuant to the terms of reference, and in a manner, acceptable to the Bank; (c) inform the Bank of the dates of the field visits of the Independent Expert to enable the Bank to send an observer to such Independent Expert's de- briefings; -7- (d) promptly provide to the Bank a copy of each report prepared by the Independent Expert; and (e) unless otherwise agreed by the Bank, promptly and diligently implement dam safety measures recommended by the Independent Expert. 9. The Project Implementing Entity shall assign staff and provide information and other assistance to enable the Independent Expert to discharge the assigned task in accordance with the terms of reference acceptable to the Bank. 10. The Project Implementing Entity shall ensure that an operation and maintenance plan and an emergency preparedness plan for each Project Dam are prepared and updated from time to time, as further detailed in the Project Implementation Plan. 11. The Project Implementing Entity shall: (a) prepare a draft annual dam safety action plan pertaining to Project Dams; (b) furnish to the Bank, for its review and comments, the draft dam safety action plan so prepared by September 30 in each year, beginning in calendar year 2018; (c) taking into account the Bank's comments, finalize and approve the annual dam safety action plan acceptable to the Bank (Annual Dam Safety Action Plan); and (d) thereafter ensure the implementation of the Annual Dam Safety Action Plan during the following calendar year in a manner acceptable to the Bank. C. Financing Arrangements 1 . The Project Implementing Entity shall allocate to each Project City a portion of the Loan under arrangements acceptable to the Bank, which shall include, without limitation, the following principal terms: (a) The Project Implementing Entity shall make available the principal amount, which has been allocated to each Project City, in Dollars (on the date, or respective dates, of withdrawal from the Loan Account) of the value of the currency or currencies so withdrawn on account of the Project (in whole or part) to be implemented within the jurisdiction of the Project City. (b) The Project Implementing Entity shall recover such principal amount so made available (including the fee and charge paid pursuant to Sections 2.03 and 2.04 of the Loan Agreement) over a period of twenty six (26) years, inclusive of a grace period of six (6) years. (c) The Project Implementing Entity shall charge interest on such principal amount, withdrawn and outstanding from time to time at a rate equal to the rate of interest applicable from time to time to the Loan pursuant to Section 2.05 of the Loan Agreement. -8- 2. Without limitation to the provisions of paragraph 1 of this Section I.C, the Project Implementing Entity shall allocate to Gaizhou City a portion of the Loan through the Yingkou Municipality under arrangements acceptable to the Bank. D. Subsidiary Loan Agreements 1 . The Project Implementing Entity shall cause each Project City to relend a portion of the proceeds of the Loan, which was allocated to it pursuant to Section I.C. 1 of this Schedule, to its Respective Project Company for purposes of carrying out said Project Company's Respective Part of the Project, under a subsidiary loan agreement ("Subsidiary Loan Agreement") to be entered into between the Project City and its Respective Project Company: (a) on the principal terms set forth in paragraphs 1 through 3 of Annex A to this Schedule; and (b) under conditions which shall have been approved by the Bank, and which shall include, without limitation, those set forth in paragraphs 4 through 9 of Annex A to this Schedule. 2. The Project Implementing Entity shall ensure that each Project City: (a) Causes each of its Respective Project Company to: (i) perform, in accordance with the provisions of the Subsidiary Loan Agreement to which said Project Company is a party, all of the obligations of said Project Company therein set forth; (ii) take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable said Project Company to perform such obligations; and (iii) not take or permit to be taken any action which would prevent or interfere with such performance. (b) Exercises its rights under each Subsidiary Loan Agreement to which said Project City is a party in such manner as to protect the interests of the Borrower, the Bank, the Liaoning Province and said Project City, and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, not assign, amend, abrogate or waive any Subsidiary Loan Agreement to which said Project City is a party or any provision thereof. Section H. Project Monitoring, Reporting and Evaluation A. The Project Implementing Entity shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 5.08 (b) of the General Conditions and on the basis of indicators acceptable to the Bank. Each such Project Report shall cover the period of one calendar semester, and shall be furnished to the Borrower not later than sixty (60) days after the end of the period covered by such report. -9- B. Without limitation to the provisions of paragraph II.A above, the Project Implementing Entity shall: (a) prepare, under terms of reference acceptable to the Bank, and furnish to the Bank no later than May 31, 2020, a consolidated mid-term review report for the Project, summarizing the results of the monitoring and evaluation activities carried out from the inception of the Project, and setting out the measures recommended to ensure the efficient completion of the Project and to further the objectives thereof, and (b) review with the Bank the mid-term report, on or about the date one month after its submission, and thereafter take all measures required to ensure the continued efficient implementation of the Project and the achievement of its objectives, based on the conclusions and recommendations of the said report and the Bank's views on the matter. C. The Project Implementing Entity shall, no later than three months after the Closing Date, provide to the Borrower, for incorporation in the report referred to in Section 5.08 (c) of the General Conditions all such information as the Borrower or the Bank shall reasonably request for the purposes of that Section. Section III. Procurement All goods, works and services required for the Project and to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Section III of Schedule 2 to the Loan Agreement. Section IV. Other Undertakin2s A. Utility Performance Reports The Project Implementing Entity shall, through its Provincial Construction Department: (a) beginning December 31, 2018, and thereafter by December 31 of each year, prepare and make public through the internet or in another manner acceptable to the Bank, an annual performance report of its water supply utility companies, including operational and financial performance data for all the Project Companies; (b) by December 31, 2019, expand such report to include at least fifty percent (50%) of the cities in Liaoning Province; and (c) by December 31, 2020, expand such report to include at least ninety percent (90%) of the cities in Liaoning Province. B. Financial Improvement Plans The Project Implementing Entity shall cause each Project City to: (a) prepare by December 31, 2018 a rolling five (5) year financial improvement plan, in accordance with the terms of reference acceptable to the Bank, outlining how its Project Company will improve its financial status (through a combination of measures aimed at improving user charge collection efficiency, reducing operating costs, and adjusting tariffs) and setting forth targets to these ends ("Financial - 10 - Improvement Plan") and thereafter take, or cause to be taken, all necessary measures to meet the requirements set forth in its Financial Improvement Plan, in a manner acceptable to the Bank; (b) by December 31 of each year commencing on December 31, 2019, update in accordance with the terms of reference acceptable to the Bank and furnish to the Bank for review and comments, its draft updated financial improvement plan; and (c) take, or cause to be taken, all necessary actions to carry out its Financial Improvement Plan as prepared or updated pursuant to the sub-paragraphs (a) and (b) of this paragraph taking into account the Bank's comments thereon. C. NRW Reduction Plan 1. No later than June 30, 2019, the Project Implementing Entity shall: (a) prepare and furnish to the Bank a comprehensive plan designed to reduce Non-Revenue Water in Project Cities; (b) exchange views with Bank on the plan; and (c) adopt the plan as shall have been approved by the Bank ("NRW Reduction Plan"). 2. Following its approval, the Project Implementing Entity shall promptly implement the NRW Reduction Plan in a manner acceptable to the Bank. 3. Without limitation to paragraph 2 of this Section IV.C, the Project Implementing Entity shall, no later than June 30, 2022, complete the implementation of the NRW Reduction Plan in the Project Cities in a manner acceptable to the Bank. D. Energy Management Plan 1. No later than June 30, 2019, the Project Implementing Entity shall: (a) prepare and furnish to the Bank a comprehensive plan designed to reduce energy utilization by Project Companies; (b) exchange views with Bank on the plan; and (c) thereafter adopt the plan as shall have been approved by the Bank ("Energy Management Plan"). 2. Following its approval, the Project Implementing Entity shall promptly implement the Energy Management Plan in a manner acceptable to the Bank. 3. Without limitation to paragraph 2 of this Section IV.D, the Project Implementing Entity shall, no later than June 30, 2022, complete the implementation of the Energy Management Plan in Project Cities in a manner acceptable to the Bank. E. Peer Learning The Project Implementing Entity shall organize, or cause to be organized, in each year of Project implementation, commencing in the calendar year 2019, an annual workshop designed to provide a platform for Project Companies, and its other water utilities, to share their experience on water utility operational performance. -11- ANNEX A to SCHEDULE Principal Terms and Conditions of the Subsidiary Loan Agreements For the purposes of Section I.D. 1 of the Schedule to this Agreement: (a) the terms of availability of the Loan proceeds shall be those set forth in paragraphs 1 through 3 of this Annex; and (b) the Subsidiary Loan Agreements shall be entered into on conditions set forth in paragraphs 4 through 9 of this Annex. Terms of Availability 1. The principal amount of each subsidiary loan made by a Project City to its Respective Project Company, shall be the amount equivalent in Dollars (on the respective dates of withdrawal from the Loan Account) of the value of the currency or currencies so withdrawn on account of its Respective Project Company's Respective Parts of the Project. 2. Each Respective Project Company shall repay such principal amount (including the fee and charges paid pursuant to Sections 2.03 and 2.04 of the Loan Agreement) over a period of not more than twenty-six (26) years, inclusive of a grace period of six (6) years. 3. Each Respective Project Company shall pay interest on the principal amount thereof withdrawn and outstanding from time to time at a rate equal to the rate of interest applicable from time to time to the Loan pursuant to Section 2.05 of the Loan Agreement. Conditions The Subsidiary Loan Agreements shall include the following principal conditions: 4. Each Project Company shall undertake to: (a) carry out its Respective Parts of the Project with due diligence and efficiency and in accordance with appropriate management, financial, engineering and public utility practices and social and environmental standards acceptable to the Bank (including in accordance with the provisions of the Anti-Corruption Guidelines applicable to recipients of loan proceeds other than the Borrower) and provide, promptly as needed, the funds, facilities and other resources required for the purpose; and (b) without limitation on the foregoing, take all measures necessary to ensure that its Respective Parts of the Project shall be implemented in accordance with the Safeguards Instruments. 5. Each Project Company shall undertake to procure the goods, works and consultants' services to be financed out of the proceeds of the Loan in accordance with the provisions of Section III of Schedule 2 to the Loan Agreement, and utilize - 12 - such goods, works and consultants' services exclusively in the carrying out of its Respective Parts of the Project. 6. Each Project Company shall undertake to enable the Bank, the Borrower, Liaoning and the Project City concerned to inspect such goods and the sites and works included in the Respective Parts of the Project, the operation thereof, and any relevant records and documents. 7. Each Project Company shall undertake: (a) to take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, including, without limitation, such insurance to cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable to replace or repair such goods; and (b) to properly operate and maintain all facilities relevant to its Respective Parts of the Project and, when needed, promptly make repairs and renewals of such facilities. 8. Each Project Company shall undertake: (a) To maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition. (b) To have its 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. (c) To furnish to the Bank as soon as available but in any case not later than six (6) months after the end of each Fiscal Year: (i) certified copies of said financial statements or records, as the case may be, for such year as so audited pursuant to sub-paragraph (b) of this paragraph; and (ii) an opinion on such statements by said auditors in such scope and detail as the Bank shall have reasonably requested. (d) To prepare and furnish to the Bank, Liaoning, and the Project City concerned all such other information concerning said records and financial statements, as well as the audit thereof, as the Bank, Liaoning, and the Project City concerned shall reasonably request. (e) (i) To maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators set forth in the Project Implementation Plan, the carrying out of its Respective Parts of the Project and the achievement of the objectives thereof; and - 13 - (ii) to prepare, under terms of reference acceptable to the Bank, and furnish to Liaoning for its review, consolidation in the Project Reports and submission to the Bank, semi-annual reports integrating the results of the monitoring and evaluation activities performed pursuant to clause (i) of this sub-paragraph (e) on the progress achieved in the carrying out of its Respective Parts of the Project during the period preceding the date of each such report. 9. Each Project City shall have the right to suspend or terminate the right of its Project Company to the use of the proceeds of the loan made available under the Subsidiary Loan Agreement with said Project Company upon failure by such Project Company to perform any of its obligations under said agreement.