Page 1 CONFORMED COPY LOAN NUMBER 3274-CHA CREDIT NUMBER 2186-CHA PROVINCIAL PROJECT AGREEMENT (Rural Industrial Technology (Spark) Project) among INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and JIANGSU PROVINCE JILIN PROVINCE and SHANGHAI MUNICIPALITY Dated January 17, 1991 LOAN NUMBER 3274-CHA CREDIT NUMBER 2186-CHA PROVINCIAL PROJECT AGREEMENT AGREEMENT, dated January 17, 1991, among INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association), INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and JIANGSU PROVINCE, JILIN PROVINCE and SHANGHAI MUNICIPALITY (the Project Provinces). WHEREAS: (A) by the Development Credit Agreement of even date herewith between the Borrower and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to forty-five million one hundred thousand Special Drawing Rights (SDR 45,100,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that the Project Provinces agree to undertake such obligations toward the Association and the Bank as are set forth in this Agreement and that the Financial Intermediaries agree to undertake such obligations toward the Association and the Bank as are set forth in the Financial Intermediaries Project Agreement; Page 2 (B) 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 in various currencies equivalent to fifty million dollars ($ 50,000,000) on the terms and conditions set forth in the Loan Agreement, but only on condition that the Project Provinces agree to undertake such obligations toward the Association and the Bank as are set forth in this Agreement and that the Financial Intermediaries agree to undertake such obligations toward the Association and the Bank as are set forth in the Financial Intermediaries Project Agreement; and WHEREAS the Project Provinces, 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 the Loan Agreement, respectively) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) Each of the Project Provinces 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 parts of Parts B, C and D.1 of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and economic practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for its respective parts of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Association and the Bank and the Project Provinces shall otherwise agree, each of the Project Provinces shall carry out its respective parts of the Project in accordance with the Implementation Program set forth in the Schedule to this Agreement. Section 2.02. (a) The Project Provinces shall relend the proceeds of the Credit and the Loan allocated to Part A.1 of the Project to the Financial Intermediaries under Subsidiary Loan Agreements whose terms and conditions shall have been approved by the Association and the Bank, which shall include: (i) agreements to be entered into: (A) between Jiangsu Province and ABC; (B) between Jiangsu Province and CIB; (C) between Jilin Province and JEDIC; and (D) between Shanghai Municipality and ABC; (ii) interest at a rate to provide a minimum spread of 2% in relation to the rates payable by Investment Enterprises on Sub-loans; (iii) repayment by the Financial Intermediary within fifteen years, including a period of five years of grace; (iv) commitment charges at the rate of 0.75% per annum on the undisbursed balance; (v) the Financial Intermediary shall utilize the Sub-loan repayments prior to Subsidiary Loan maturities to finance additional projects of enterprises similar to those financed under the Page 3 Project; (vi) for Renminbi Sub-loans, the Financial Intermediary shall repay the Renminbi equivalent at the date of the respective withdrawal from the Credit and the Loan Account; (vii) for foreign currency Sub-loans in Jilin and Shanghai, the Financial Intermediary shall: (A) repay the dollar equivalent at the date of respective withdrawal from the Credit and the Loan Account; and (B) pay an annual exchange risk fee set by the Project Province, of at least 0.5% per annum, not to exceed 2% per annum; and (viii) for foreign currency Sub-loans in Jiangsu, the Financial Intermediary shall bear the foreign exchange risk between the dollar and the Bank's currency pool on amounts withdrawn from the Loan Account and between the dollar and the SDR on amounts withdrawn from the Credit Account. (b) Each of the Project Provinces shall exercise its rights under any Subsidiary Loan Agreement in such manner as to protect the interests of the Association and the Bank and such Project Province and to accomplish the purposes of the Credit and the Loan, and except as the Association and the Bank shall otherwise agree, no Project Province shall assign, amend, abrogate or waive any Subsidiary Loan Agreement to affect the provisions of paragraph (a) above. (c) Jiangsu Province shall make a total of approximately SDR2,500,000 out of the proceeds of the Credit and the Loan for Part A.2 of the Project available to ABC and CIB as managing agencies, on terms and conditions approved by the Association and the Bank, including those set out in paragraph 2 of the Schedule to this Agreement. (d) From time to time, at the request of the Association, the Bank or any Project Province or Financial Intermediary: (i) the Association, the Bank and the Project Provinces shall review the adequacy of the spreads referred to in paragraph (a) (ii) above to cover administrative expenses, provision for credit risk and a reasonable profit margin for any of the Financial Intermediaries; and (ii) the Association, the Bank and the Project Provinces shall exchange views on the adequacy of the exchange risk fee to be charged pursuant to paragraph (a) (vii) (B) of this Section. Section 2.03. Except as the Association and the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for Parts B, C and D.1 of the Project and to be financed out of the proceeds of the Credit and the Loan shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.04. Each of the Project Provinces 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 Provincial Project Agreement and its respective parts of Parts B, C and D.1 of the Project. Section 2.05. (a) Each of the Project Provinces shall, at the request of the Association and the Bank, exchange views with the Association and the Bank with regard to the progress of its respective parts 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 Credit and the Loan. (b) Each of the Project Provinces shall promptly inform the Association and the Bank of any condition which interferes or threatens to interfere with the progress of its respective parts of the Project, the accomplishment of the purposes of the Credit and the Loan, or the performance by such Project Province of its obligations Page 4 under this Agreement and under its respective Subsidiary Loan Agreement. ARTICLE III Financial Covenants Section 3.01. (a) Each of the Project Provinces shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of Parts B, C and D.1 of the Project of its departments or agencies responsible for carrying out Parts B, C and D.1 of the Project. (b) Each of the Project Provinces 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 both 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 Provinces thereunder shall terminate on the earlier of the following two dates: (i) the date on which both the Development Credit Agreement and the Loan Agreement shall terminate; or (ii) a date twenty years after the date of this Agreement. (b) If the Development Credit Agreement terminates before the date specified in paragraph (a) (ii) of this Section, the Association and the Bank shall promptly notify the Project Provinces 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 applicable to the Development Credit Agreement or the Loan Agreement. 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 Page 5 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 92987 (FTCC) For Jiangsu Province: Jiangsu Provincial Finance Bureau No. 68, West Beijing Road Nanjing 210024 Jiangsu People's Republic of China Telex: 342250 FBOJP CN For Jilin Province: Jilin Provincial Finance Bureau No. 60, Stalin Street Changchun, Jilin People's Republic of China For Shanghai Municipality: Shanghai Municipal Finance Bureau No. 60, Jiujiang Road Shanghai 200002 People's Republic of China Telex: 33062 BOCSH 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 any of the Project Provinces may be taken or executed by the Governor or Vice Governor, or in the case of Shanghai, the Mayor or Vice Mayor or such other person or persons as such officials shall designate in writing, and each of the Project Provinces shall furnish to the Association and the Page 6 Bank sufficient evidence of the authority and the authenticated specimen signature of each such person for such Project Province. Section 5.03. As long as the Bank has not given notice to the contrary to the Project Provinces and so long as the Development Credit Agreement shall not have terminated prior to the termination of the Loan Agreement: (a) the obligations of the Project Provinces 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, the Project Provinces 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 Deve-lopment 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/ Shahid Javed Burki Regional Vice President Asia JIANGSU PROVINCE JILIN PROVINCE SHANGHAI MUNICIPALITY By /s/ Zhu Qizhen Authorized Representative SCHEDULE Implementation Program 1. In order to assist the Financial Intermediaries in carrying out Part A.1 of the Project, each of the Project Provinces shall: (a) cause each proposed Investment Project to be reviewed by the Provincial Science and Technology Commission which shall determine whether or not it meets the eligibility criteria set out in paragraph 3 below; (b) ensure that, out of the total amount of Sub-loans in each Project Page 7 Province, Sub-loans to township and village level enterprises shall represent at least 75%, in the case of Jiangsu Province and Shanghai Municipality, or 65%, in the case of Jilin Province; (c) ensure that Provincial Spark Program Fund resources shall not be used to subsidize the interest rate on Sub-loans; and (d) ensure that a representative of its environmental protection bureau is included in the Provincial Spark Program leading group, and Shanghai Municipality shall ensure that such a representative is included in the Chongming County Spark Program leading group. 2. In order to assist in carrying out Part A.2 of the Project, Jiangsu Province shall ensure that precommercial Sub-loans are made by ABC and CIB as agents of the Provincial Government, in accordance with risk-sharing arrangements agreed with the Association and the Bank, which shall include: (a) the Investment Enterprise shall pay to the Financial Intermediary: (i) a service charge of 0.75% per annum and a management fee of 1% per annum, both on outstanding principal; and (ii) a one-time fee of 3% of total principal, payable when the Investment Project is followed by successful commercialization; (b) the Investment Enterprise shall repay the Sub-loan, and shall pay interest after successful commercialization at a rate exceeding commercial rates, as agreed at the time of Sub-loan approval by the Financial Intermediary; (c) Jiangsu Province shall bear the credit risk on all such Sub-loans and shall establish a revolving fund to recycle Sub-loan interest and principal to similar investment projects; (d) costs for each Investment Project shall not exceed $400,000; and (e) an Investment Enterprise shall be eligible to receive only one Sub-loan under Part A.2 of the Project at any time and shall not have received a loan on commercial terms from any source for the same product or process. 3. Eligibility criteria for Investment Projects shall be as follows: (a) Investment Enterprises shall be: (i) township and village level enterprises; (ii) county collective enterprises; or (iii) cooperative arrangements between township and village level enterprises and other entities (in which such enterprises hold a controlling interest). (b) Existing enterprises shall be well managed and operating efficiently. New enterprises shall be likely to be considered creditworthy by a Financial Intermediary. (c) Enterprises shall have their own technological capacity (in particular, technological manpower) or maintain an ongoing formal working relationship with an institution (such as an advanced urban enterprise, a research institute or a university) which has the requisite and relevant technical capability. (d) Investment Projects shall be: (i) in industrial sectors which aim at producing marketable products, including those involving the processing of agricultural and animal products; (ii) of size and scope which are within the managerial and financial capacity of the enterprise; and (iii) those with a technology content beyond the standard investment, expansion or modernization project. Each Investment Project shall involve the application of an appropriate technology not Page 8 commonly used in the Project Province (or, in the case of Shanghai Municipality, in Chongming County). The technology content shall involve substantial technology upgrading, adaptation or development. The technology may be based on developments within or outside the enterprise (e.g., in a research institute or university) or may involve the adaptation or improvement of imported or domestic technology. (e) Investment Projects shall meet all applicable environmental, occupational safety, health and hygiene laws and standards in China, and be consistent with such standards satisfactory to the Association and the Bank. (f) For Part A.2 of the Project, Investment Projects shall undertake activities preceding full-scale commercialization of a product or process, including the development of new technology. The basic technology or research work may be imported or originate in a research institution or the Investment Enterprise itself, but the remaining precommercial development shall principally be carried out at the Investment Enterprise. 4. Each of the Project Provinces shall carry out the training under Parts B, C and D.1 of the Project in accordance with training programs agreed with the Association and the Bank.