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CONFORMED COPY
CREDIT NUMBER 2305-0 CHA
LOAN NUMBER 3412-0 CHA
(Daguangba Multipurpose Project)
among
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
and
HAINAN PROVINCIAL ELECTRIC POWER COMPANY
Dated November 22, 1991
CREDIT NUMBER 2305-0 CHA
LOAN NUMBER 3412-0 CHA
HEPCO PROJECT AGREEMENT
AGREEMENT, dated November 22, 1991, among INTERNATIONAL DEVELOPMENT ASSOCIATION 
(the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) 
and HAINAN PROVINCIAL ELECTRIC POWER COMPANY (HEPCO).
WHEREAS (A) by the Development Credit Agreement of even date herewith between 
the People's Republic of China (the Borrower) and the Association, the Association has 
agreed to lend to the Borrower an amount in various currencies equivalent to 
twenty-eight million one hundred thousand Special Drawing Rights (SDR 28,100,000), on 
the terms and conditions set forth in the Development Credit Agreement, but only on 
condition that HEPCO agree to undertake such obligations toward the Association as are 
set forth in this Agreement;
(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 thirty million dollars ($30,000,000), on the terms and 
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conditions set forth in the Loan Agreement, but only on condition that HEPCO agree to 
undertake such obligations toward the Bank as are set forth in this Agreement;
(C)
Part A of the Project will be carried out by HEPCO, with the Borrower's 
assistance, and as part of such assistance, the Borrower will make available to HEPCO, 
through Hainan, the proceeds of the Loan as provided in this Agreement and the 
proceeds of the Credit as provided in the Development Credit Agreement; and
WHEREAS HEPCO, 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, has 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 and in the General Conditions (as so defined) and 
in the Loan Agreement and the General Conditions (as so defined) have the respective 
meanings therein set forth.
ARTICLE II
Execution of the Project
Section 2.01. (a) HEPCO 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 Part A of the Project with with due diligence and efficiency and in 
conformity with appropriate administrative, financial, engineering and power utility 
practices, and shall provide, or cause to be provided, promptly as needed, the funds, 
facilities, services and other resources required for Part A of the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and except as the Association, the Bank and HEPCO shall otherwise agree, HEPCO shall 
carry out Part A of the Project in accordance with the Implementation Program set 
forth in the Schedule to this Agreement.
Section 2.02. Except as the Association and the Bank shall otherwise agree, 
procurement of the goods, works and consultants' services required for Part A of 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 3 to the Development Credit Agreement.
Section 2.03. HEPCO 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 HEPCO Project Agreement and Part A of the 
Project.
Section 2.04. HEPCO shall duly perform all its obligations under the Relending 
Agreement. Except as the Association and the Bank shall otherwise agree, HEPCO shall 
not take or concur in any action which would have the effect of amending, abrogating, 
assigning or waiving the Relending Agreement or any provision thereof.
Section 2.05. (a) HEPCO shall, at the request of the Association or the Bank, 
exchange views with the Association or 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 other matters relating to the purposes of the Credit 
and the Loan.
(b)
HEPCO shall promptly inform the Association and 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 Credit and the Loan, or the performance by 
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HEPCO of its obligations under this Agreement and under the Subsidiary Loan Agreement.
ARTICLE III
Management and Operations of HEPCO
Section 3.01. HEPCO shall carry on its operations and conduct its affairs in 
accordance with sound administrative, financial and port practices under the 
supervision of qualified and experienced management assisted by competent staff in 
adequate numbers.
Section 3.02. HEPCO 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 and port practices.
Section 3.03. HEPCO shall take out and maintain with responsible insurers, or 
make other provision satisfactory to the Association and the Bank for, insurance 
against such risks and in such amounts as shall be consistent with appropriate 
practice.
Section 3.04. Without limitation on the generality of the provisions of Section 
9.08 of the General Conditions, HEPCO shall: (a) with the assistance of independent 
engineering experts whose qualifications and experience shall be reviewed with the 
Association and the Bank, periodically inspect or cause to be inspected the dam, 
waterways, earthworks and reservoir banks and their appurtenant structures constructed 
under Part A of the Project after completion, under arrangements satisfactory to the 
Association and Bank and in accordance with appropriate engineering practices, in 
order to determine whether there are any deficiencies in the condition of such 
structures and earthworks, or in the quality and adequacy of earthworks which may 
endanger the safety of such structures and earthworks; (b) propose to the Association 
and the Bank the arrangements for inspection, not less than one year prior to expected 
completion; (c) furnish, or cause to be furnished to the Association and the Bank, 
promptly after each such inspection, the conclusions thereof including the conclusions 
of said engineering experts; (d) make, promptly after each such inspection, all 
necessary repairs of such structure and earthworks; and (e) make all necessary 
modifications in the quality and adequacy of maintenance or methods of operation of 
such structures and earthworks, all to be in accordance with appropriate engineering 
practices.
Section 3.05. Except as the Association and the Bank may otherwise agree, the 
term "HEPCO" shall include all enterprises and units which are under the control or 
ownership of HEPCO.
ARTICLE IV
Financial Covenants
Section 4.01. (a) HEPCO shall maintain, or cause to be maintained, records and 
accounts adequate to reflect in accordance with sound accounting practices: (i) its 
operations and financial condition; and (ii) the operations, resources and 
expenditures in respect of Part A of the Project.
(b)
HEPCO shall:
 
(i)
have said records, accounts and financial statements (balance 
sheets, statements of 
income and of sources and application of 
funds), 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 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 Association and the Bank 
shall have reasonably requested; and
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(iii)
furnish to the Association and the Bank such other information 
concerning said 
records, accounts and financial statements as 
well as the audit thereof and said 
records, as the 
Association and the Bank shall from time to time reasonably 
request.
Section 4.02. (a) Except as the Association and the Bank shall otherwise agree, 
HEPCO shall from time to time take, or cause to be taken, all such measures 
(including, without limitation, adjustments of the levels of its tariffs as determined 
by the Borrower) as shall be required to produce: (i) for each of its fiscal years 
from 1991 to 1993, total operating revenues equivalent to not less than the sum of (a) 
its total operating expenses; and (b) the amount by which its financial obligations 
exceed the provision for depreciation and any other non-cash operating expenses; and 
(ii) net operating income equivalent to not less than (a) 20% in 1993, (b) 25% in 1994 
and (c) 30% thereafter, of its average annual investment program.
(b)
For the purposes of this Section:
 
(i)
The term "total operating revenues" means the sum of revenues from 
all sources 
related to operations and net non-operating income.
 
(ii)
The term "total operating expenses" means the sum of all expenses 
related to 
operations, including maintenance, administration, 
and depreciation.
(iii)
The term "financial obligations" means interest and other charges 
on debt, 
repayment of loans (including sinking fund 
payments, if any), all taxes or payments 
in lieu of taxes, 
allocations to special funds and other cash distributions of 
surplus (including mandatory transfers to the Borrower), and any other cash 
outflows (other than capital expenditures) related to operations.
(iv)
The term "net operating income" means total operating revenues 
minus (a) total 
operating expenses, and (b) financial 
obligations.
(v)
The term "average annual investment program" means the average of: 
(A) the previous 
year's actual capital expenditures; (B) the current 
year's planned capital 
expenditure; and (C) the next 
year's projected capital expenditure.
Section 4.03. (a) Except as the Association and the Bank shall otherwise agree, 
HEPCO shall not incur any debt unless a reasonable forecast of the revenues and 
expenditures of HEPCO shows that the projected internal cash generation of HEPCO for 
each fiscal year during the term of the debt to be incurred shall be at least (i) 1.1 
times in each of the fiscal years in 1991 to 1993, (ii) 1.2 times in each of the 
fiscal year 1994 to 1996, and (iii) 1.3 times thereafter, of the estimated debt 
service requirements of HEPCO 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 of HEPCO 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 further 
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 "internal cash generation of HEPCO" means the difference 
between:
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(A)
the sum of revenues from all sources related to operations 
and net 
non-operating income, excluding receipts 
for consumer connection charges; 
and
 
(B)
the sum of all expenses related to operations, including 
administration, 
provision for maintenance special fund, 
and sales and income taxes and 
payments in lieu of such 
taxes, but excluding provision for depreciation, 
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 (A) above.
 
(v)
The term "debt service requirements" means the aggregate amount of 
repayments 
(including sinking fund payments, if any) of, and 
interest and other charges on, 
debt, excluding capitalized 
interest during construction.
(vi)
The term "reasonable forecast" means a forecast prepared by HEPCO 
not earlier than 
twelve months prior to the incurrence of the debt in 
question, which both the Bank 
and HEPCO accept as reasonable and as 
which the Bank has notified HEPCO of its 
acceptability, 
provided that no event has occurred since such notification which 
has, or may reasonably be expected in the future to have, a material adverse effect 
on the financial condition or future operating results of HEPCO.
(vii)
Whenever, for the purposes of this Section, it shall be necessary 
to value, in 
terms of currency of the Borrower, debt payable in 
another currency, such valuation 
shall be made on the basis of the 
prevailing lawful rate of exchange at which such 
other currency is, 
at the time of such valuation, obtainable for the purpose of 
servicing such debt, or, with absence of such rate, on the basis of a rate of 
exchange acceptable to the Bank. 
Section 4.04. (a) Except as the Association and the Bank shall otherwise agree, 
HEPCO shall not incur any debt, if after the incurrence of such debt the ratio of debt 
to equity shall be greater than (i) 85 to 15 in 1991; (ii) 80 to 20 in each year of 
1992 and 1993; (iii) 75 to 25 in each year of 1994 and 1995; and (iv) 70 to 30 
thereafter.
(b)
For purposes of this Section:
 
(i)
The term "debt" means any indebtedness of HEPCO 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 
payments 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)
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, and to the 
extent, the amount of such debt or for the 
modification of its 
terms of payment, on the date, and to the extent, the amount of 
such 
debt has become outstanding pursuant to such contract, agreement or 
instrument; and (B) under a guarantee agreement, on the date the 
agreement 
providing for such guarantee has been entered 
into but only to the extent that the 
guaranteed debt is outstanding.
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(iv)
The term "equity" means the sum of state allocated funds, 
enterprise retained 
funds, special funds and other funds of 
HEPCO not allocated to cover specific 
liabilities.
 
(v)
Whenever for the purposes of this Section it shall be necessary to 
value, in terms 
of the currency of the Borrower, debt payable in 
another currency, such valuation 
shall be made on the basis of the 
prevailing lawful rate of exchange at which such 
other currency is, 
at the time of such valuation, obtainable for the purposes of 
servicing such debt, or, in the absence of such rate, on the basis of a rate of 
exchange acceptable to the Association and the Bank.
Section 4.05. By May 31 of each year, commencing May 31, 1992, HEPCO shall 
prepare and furnish to the Association and the Bank for comments, a rolling long-term 
financial plan containing, inter alia, projected income statements, sources and uses 
of funds, and balance sheets for at least the next seven years. 
Section 4.06. HEPCO shall furnish to the Association and the Bank, for their 
review and comments, not later than June 30, 1992, an action plan for organizing and 
staffing its internal audit unit, and shall thereafter implement such plan taking into 
consideration the Association's and the Bank's comments.
ARTICLE V
Effective Date; Termination;
Cancellation and Suspension
Section 5.01. This Agreement shall come into force and effect on the date upon 
which both the Development Credit Agreement and the Loan Agreement become effective. 
Section 5.02. (a) This Agreement and all obligations of the Association, the 
Bank and HEPCO thereunder shall terminate on the earlier of the following dates:
(i)
the date on which both the Development Credit Agreement and the 
Loan Agreement 
shall have terminated; or
 
(ii)
the date twenty years after the date of this Agreement.
 
(b)
If the Development Credit Agreement or the Loan Agreement or both of said 
Agreements terminate in accordance with their respective terms before the date 
specified in paragraph (a) (ii) of this Section, the Association or the Bank or both, 
as the case may be, shall promptly notify HEPCO of this event.
Section 5.03. 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 VI
Miscellaneous Provisions
Section 6.01. 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
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Cable address:
Telex:
 
INDEVAS
248423 (RCA)
Washington, D.C.
197688 (TRT)
 64145 (WUI)
 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
248423 (RCA)
Washington, D.C.
1977688 (TRT)
 64145 (WUI)
 82987 (FTCC)
For HEPCO:
Hainan Provincial
Electric Power Company
34 Haifu Avenue
Haikou
Hainan Province 570003
People's Republic of China
Cable address:
Fax:
 
2456
43312-29
 
Section 6.02. Any action required or permitted to be taken, and any document 
required or permitted to be executed, under this Agreement on behalf of HEPCO, or by 
HEPCO on behalf of the Borrower under the Development Credit Agreement or the Loan 
Agreement, may be taken or executed by its Director or such other person or persons as 
its Director shall designate in writing, and HEPCO shall furnish to the Association 
and the Bank sufficient evidence of the authority and the authenticated specimen 
signature of each such person.
Section 6.03. As long as the Bank has not given notice to the contrary to HEPCO, 
and so long as the Development Credit Agreement shall not have terminated prior to the 
termination of the Loan Agreement:
(a)
the obligations of HEPCO 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 HEPCO shall be satisfied to the extent such obligations are fulfilled by the 
Association; and 
(c)
all actions taken (including the giving of approvals or the 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 6.04. 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 
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written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
INTERNATIONAL BANK FOR
 RECONSTRUCTION AND DEVELOPMENT
By /s/ Gautam S. Kaji
Acting Regional Vice President
Asia
HAINAN PROVINCIAL ELECTRIC POWER
 COMPANY
By /s/ Zhao Xixin
Authorized Representative
SCHEDULE
Implementation Program for Part A of the Project
1.
HEPCO shall complete the system planning and the tariff studies, under Part A.5 
of the Project, and shall review the findings of the study with the Association and 
the Bank not later than June 30, 1993.
2.
HEPCO shall carry out the training under Part A.5 of the Project, and its 
staffing, in accordance with a program and timing agreed with the Association and the 
Bank.