Colombia - Second Cali Water Supply And Sewerage : Loan 1523 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUNBER 1523 CO Loan Agreement (Second Call Water Supply and Sewerage Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and MRIPRSAS MUNICIPALES DE CALI Dated June 20, 1978 LOAN NUMBER 1523 CO LOAN AGREEMENT AGREEMENT, dated June 20, 1978, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and EMPRESAS MUNICIPALES DE CALI (hereinafter called the Borrower). ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the following modification thereof (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions): Section 11.03 is amended to read as follows: "Section 11.03, Action on behalf of the Borrower or Guarantor. Any action required or permitted to be taken, and any documents required or permitted to be executed, pursuant to the Loan Agreement or the Guarantee Agreement, on behalf of the Borrower or the Guarantor, may be taken or executed by the representative of the Borrower or the Guarantor designated in the Loan Agreement or the Guarantee Agreement for the purposes of this Section or any person thereunto authorized in writing by him. Any modification or amplification of the provisions of the Loan Agreement or the Guarantee Agreement may be agreed to on behalf of the Borrower or the Guarantor by written instrument executed on behalf of the Borrower or the Guarantor by the representative so designated or any person thereunto authorized in writing by him; provided that such modification or amplification is reasonable in the circumstances and will not substantially increase the obligations of the Borrower under the Loan Agreement or of the Guarantor under the Guarantee Agreement." Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Estatutos" means the estatutos set forth in Acuerdo N050 of 1961, as amended as of the date of this Agreement, of the Concejo Municipal de Cali, as further amended from time to time, under which the Borrower was established and operates; (b) "Water Supply and Sewerage Department" means the water supply and sewerage department: of the Borrower; (c) "Water Supply Assets" 'means all water treatment plants and witer distribution network, and related facilities and assets assigned to the Water Supply and Sewerage Department; (d) "Sewerage Assets" means all the sewage and stormwater drainage installations, and related facilities and assets assigned to the Water Supply and Sewerage Department; (e) "Power Department" means the energy department of the Borrower; (f) "Power Assets" means all electric power generating plants, substations, transmission lines and related facilities and assets assigned to the Power Department; (g) "Telephone Department" means the telephone department of the Borrower; (h) "Telephone Assets" means all telephone transmission lines and installations and related facilities and assets assigned to the Telephone Department; (i) "Department" means any of the departments of the Bor- rower referred to in paragraphs (b), (e) and (g) hereof; (j) "First Loan Agreement" means the loan agreement for Loan No. 682-CO (Cali Water Supply and Sewerage Project) of June 4, 1970 between the Bank and the Borrower, and "First Guaran- tee Agreement" means the guarantee agreement for Loan No. 682-CO of even date between the Guarantor and the Bank; (k) "Additional Financing" means the funds made or to be made available to the Borrower pursuant to Section 3.01 (b) of the Loan Agreement and Section 2.02 of the Guarantee Agreement; (1) "Valorizaci6n" means any taxes, levies or contribu- tions imposed on beneficiaries of public works for the recovery -3- from such beneficiaries of all or part of the investment costs of such works; and (a) "pesos" and "Col.$" mean pesos in currency of the Guarantor. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to thirteen mil- lion eight hundred thousand dollarp ($13,800,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expen- ditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan and in respect of interest and other charges on the Loan. (b) On each of the semiannual interest payment dates speci- fied in Section 2.07 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay, on such date, interest and other charges on the Loan accrued and payable on or before the date set forth, and up to the amount allocated, in Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Loan, shall be governed by the provisions of Schedule 4 to this Agreement. Section 2.04, The Closing Date shall be June 30, 1982 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. 4- Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per apnum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of seven and forty-five hundredths per cent (7.45X) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semiannually on May 15 and November 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Executit, of the Project Section 3.01. (a) The Borrower shall carry out the Project, substantially in accordance with an implementation schedule agreed between the Borrower and the Bank, with due diligence and effi- ciency and in conformity with appropriate engineering, financial and public utility practices, and shall provide, promptly as needed, the funds, factlities, services and other resources required for the purpose. (b) Without limitation or restriction upon the provisions of paragraph (a) above, the Borrower shall obtain a loan in the amount of three hundred million pesos (Col $300,000,000) on the terms and conditions, including a schedule of disbursements, agreed with the Bank, to be financed out of the proceeds of Fondo Financiero de Desarrollo Urbano of Banco Central Hipotecario. Section 3.02. The Borrower shall, to the extent that it shall be required in the opinion of the Bank, employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank to assist the Borrower in: (i) the preparation of the detailed design of Parts A and B of the Project and in the supervision of the carrying out of said Parts A and B of the Project; (ii) the carrying out of the studies referred to in Part C (1) of the Project; and (iii) the carrying out of the program referred to in Part C (2) of the Project. -5- Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.04. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement sched- ules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably reqvest. (b) The Borrower: (i) shall maintain records and proce- dures adequate to record and monitor the progress of the Project (including its cost and, where appropriate, the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan, and to disclose their use in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. (c) The Borrower shall: (i) prepare quarterly progress reports on the carrying out of the Project; and (ii) furnish to the Bank such reports promptly after their completion. (d) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Bank and the Borrower, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from -6- it, the performance by the Bank and the Borrower of their respec- tive obligations under the Loan Agreement and the accomplishment of the purposes of the Loan. Section 3.05. The Borrower shall take all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project and the operation of the facilities included in it. ARTICLE IV Management and Operations of the Borrover Section 4.01. (a) The Borrower shall at all times manag. its affairs, maintain its financial position, plan its future expan- sion and carry on its operations in accordance with appropriate business, financial and public utility practices and under the supervision of experienced and competent management assisted by adequate, experienced and competent staff. (b) The Borrower shall afford the Bank a reasonable oppor- tunity to comment on any proposed reorganization of the Borrower which may affect adversely the operations or financial condition of the Borrower or the carrying out of the Project. Section 4.02. (a) The Borrower shall take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary in the conduct of its business. (b) The Borrower shall take all action, including the provision of funds and resources, to ensure that its facilities, equipment and property are adequately operated, maintained, renewed and repaired. (c) Except as the Bank shall otherwise agree, the Borrower shall not sell, lease, transfer or otherwise dispose of any of its property or assets if by such sale, lease, transfer or disposi- tion, the efficient operation of its business and undertaking, including the Project, might be adversely affected in the opinion of the Bank, unless the Borrower shall first pay, or make adequate provision satisfactory to the Bank for repayment of, all of the Loan which shall then be outstanding and unpaid. Section 4.03. The Borrower shall take out and maintain with responsible insuirers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE V Financial Covenants Section 5.OL. The Borrower shall operate each of its Depart- ments separately and shall for the assets, revenues and expen- ditures of each of its Departments maintain separate records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of each such Department. Section 5.02. The Borrower shall: (i) have the accounts and financial statements (balance sheets, statements of income and expenses and related statements, including cash flow statements) of each of its Departments for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of such financial statements lor such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section 5.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if the Borrower shall create any lien on any of its assets as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien -8- satisfactory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; provided, how- ever, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of pur- chase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 5.04. (a) Except as the Guarantor, the Bank and the Borrower shall otherwise agree, the Borrower shall, through December 31, 1981, increase the tariffs for its water supply and sewerage services as provided in Resoluci6n No. 056 dated June 17, 1975, of the Junta Nacional de Tarifas de Servicios Pfiblicos del Departamento Nacional de Planeaci6n of the Guar- antor, and in Resoluci6n No. 3434, dated June 30, 1975 of -he Borrower. (b) Without limitation or restriction upon the provisions of paragraph (a) above, the Borrower shall, by June 30, 1979, finalize the implementation of its program for collecting tariffs for its water supply and sewerage services on the basis of the most recent assessment of property values in the Municipality of Cali in order to enable the Borrower to generate, by December 31, 1981, such additional revenues from its water supply and sewerage services as agreed with the Bank. Section 5.05. Except as the Guarantor, the Bank and the Borrower shall otherwise agree: (a) Notwithstanding the provisions in Section 5.04 of this Agreement, the Borrower shall establish and maintain as from January 1, 1978: (i) tariffs for the services provided by its Water Supply and Sewerage Department which will generate an annpual return at a rate of at least three per cent (3%) in each of the years 1978 through 1981, four per cent (4%) in the year 1982, four and one-half per cent (4.5%) in the year 1983 and five per cent (5%) in the year 1984 and thereafter, of the average net current value of its fixed Water Supply Assets and Sewerage Assets (excluding storm water drainage installations) in operation; -9- (ii) tariffs for the services provided by its Power Department which will generate an annual return at a rate of at least eight per cent (8%) of the average net current value of its fixed Power Assets in operation; the required adjustment in tariffs to continue to be made periodically by the Borrower; and (iii) tariffs for the services provided by its Telephone Department which will generate an annual return at a rate of at least five and one-half per cent (5.5%) in the year 1978, increasing to a rate of at least eight per cent (8%) in the year 1979 and thereafter, of the average net current value of its fixed Telephone Assets in operation. Such rates of return shall be calculated in accordance with the method outlined in Schedule 5 to this Agreement. (b) The Borrower shall, in each calendar semester, review the adequacy of its tariffs to produce the annual returns required under paragraph (a) above and shall furnish to the Bank the results of such review. (c) If any such review shall show that the Borrower will not earn any of the annual returns required under paragraph (a) above in the course of the calendar year in which such review is made, the Borrower shall adjust its tariffs accordingly, and the adjusted tariffs shall be brought into effect not later than on the first month of the semester following the semester in which such review is made. Section 5.06. Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless the net revenues earned on the assets of the Department benefitting from such debt for the fiscal year next preceding such incurrence or for a later twelve- month period ended prior to such incurrence, whichever amount is the greater, shall be not less than 1.3 times the maximum debt service requirement for any succeeding fiscal year on all debt, including the debt proposed to be incurred, in the benefit of such Department. For the purposes of this Section: (i) The term "debt" shall mean all debt of the Bor- rower including debt for the service of which the - 10 - Borrower is responsible, 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: (i) under a contract, loan 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 the loan is drawn down and outstand- ing pursuant to such contract, agreement or instru- ment; and (ii) 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. (iii) The term "net revenues" shall mean gross revenues from all sources (excluding revenues generated by Valorizaci6n), adjusted to take account of the Borrower's tariffs in effect at the time of the incurrence of debt even though they were not in effect during the fiscal year or twelve-month period to which such revenues relate, less all operating and administrative expenses and provision for taxes, if any, but before provision covering depreciation, interest and other charges on debt. (iv) The term "debt service requirement" shall mean the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt. (v) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, 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 valua- tion, obtainable for the purposes of servicing such debt. Section 5.07. (a) Until the Project shall have been com- pleted, the Borrower shall: (i) inform the Bank on any proposal of the Borrower to make any capital expenditure through any of its Departments if the aggregate of such proposed capital expenditure and all such other capital expenditures made or to be made in any - 11 - one fiscal year through such Department exceed or will exceed the equivalent of one million dollars ($1,000,000); and (ii) agree with the Bank on any such capital expenditure before committing itself to it; provided, however, that the preceding provisions shall not apply to the capital expenditures agreed upon with the Bank as of the date of this Agreement. (b) Notwithstanding the provisions in paragraph (a) above, the Borrower shall not incur in any expenditure under Part A (4) and (5) of the Project until it has entered into an agreement, satisfactory to the Bank, with the Municipality of Yumbo for defining the procedures under which such network will be operated and maintained, including provisions requiring the connection to it of all new industrial consumers under the jurisdiction of the Municipality of Yumbo. Section 5.08. The Borrower shall allocate all funds generated by any of its Departments exclusively to such Department and shall not transfer such funds, or any portion thereof, to any of its other Departments unless the funds proposed to be transferred are in excess of those required for the operations, debt service and investments of the Department originating the funds; provided, however, that any such transfer made or to be made after June 30, 1977 shall be treated as a loan from one Department to the other, on commercial terms and conditions. Section 5.09. The Borrower shall charge and collect, during the period January 1, 1978 through December 31, 1984, Valorizaci6n from beneficiaries of works included in Part B of the Project in an amount of not less than the proportion of the cost thereof agreed with the Bank. ARTICLE VI Amendment of the First Loan Agreement Section 6.01. The First Loan Agreement is hereby amended by: (a) the deletion of the text of paragraph (c) of Section 5.02 and the substitution therefor of the text of Sections 5.01 and 5.02 of this Agreement; - 12 - (b) the deletion of the text of Section 5.08 and the sub- stitution therefor of the text of Section 5.06 of this Agreement; and (c) the deletion of the text of Section 5.12 and the sub- stitution therefor of the text of Sections 5.04 and 5.05 of this Agreement. ARTICLE VII Remedies of the Bank Section 7.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (k) thereof, namely, that the Estatutos or any provision thereof shall have been amended, suspended or abrogated so as to affect adversely the operations or financial condition of the Borrower or the performance by the Borrower of its obligations under the Loan Agreement. Section 7.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, the event specified in Section 7.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to -he 'Forrower. ARTICLE VIII Effective Date; Termination Section 8.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) Arrangements, satisfactory to the Bank, have been made to provide the Borrower with the Additional Financing; and (b) All steps have been taken, including the approval of the appropriate Resoluciones by the Borrower's Board of Directors and - 13 - by the Junta Nacional de Tarifas del Departamento de Planeaci6n of the Guarantor, to enable the Borrower to increase its tariffs for telephone services during the year 1978 so as to obtain the annual rate of return for the year 1978 provided for in Section 5.05 (a) (iii) of this Agreement. Section 8.02. The date September 20, 1978, is hereby spec- ified for the purpose of Section 12.04 of the General Conditions. ARTICLE IX Addresses Section 9.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Borrower: Empresas Municipales de Cali Centro Administrativo Municipal Apartado NO 18 Cali Colombia Cable address: Telex: EMCALI 055606 EMDC-CO Cali - 14 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Enrique Lerdau Acting Regional Vice President Latin America and the Caribbean EMPRESAS MUNICIPALES DE CALI By /s/ Jaime Arizabaleta Authorized Representative - 15 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Materials and 5,500,000 equipment (a, imported 100% of foreign expenditures (b) locally 25% of the ex- manufactured factory costs (2) Civil works 2,200,000 25% (3) Consultants' 900,000 100% of foreign services expenditures or 40% (4) Interest and other 2,400,000 Amounts due charges on the Loan accrued on or before November 14, 1981 (5) Unallocated 2,800,000 TOTAL 13,800,000 2. For the purposes of this Schedule, the term "foreign expendi- tures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor. - 16 - 3. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Guarantor on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for (i) expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $200,000 may be made in respect of Category (3) on account of payments made for expenditures for consultants' services before that date but after June 30, 1977; and (ii) expenditures for any works included in the Project in respect of which Valorizaci6n must be collected in accordance with Section 5.09 of this Agree- ment, until there has been furnished to the Bank evidence, satisfactory to the Bank, that all legal and administrative authorizations and approvals required by the Borrower to charge and collect Valorizaci6n in respect of such works have been obtained by the Borrower. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insuffi- cient to finance the agreed percentage of all expenditures in that Category, the Bank may: (i) at the request of the Borrower, reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures, and (ii) if such realloca- tion cannot fully meet the estimated shortfall, by notice to the Borrower, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the - 17 - procedures set forth or referred to in this Agreement, no expendi- tures for such item shall be financed out of the procecIs of the Loan and the Bank may, without in any way restricting or elimiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 18 - SCHEDULE 2 Description of the Project The Project consists of the following Parts: Part A: Water Supply 1. Construction of a water storage tank of about 7,500 cubic meters in the zone of Ciudad Jardin in the city of Cali; 2. Construction of a pumping station in the zone of La Normal in the city of Cali to convey treated water from the low level distribution network to the high level distribution network; 3. Installation of water distribution networks and about 20,000 house connections including the purchase of materials and water meters therefor, in the low income neighborhoods of the city of Cali; 4. Construction of about 12 kilometers of water transmis- sion pipeline to transport water from the city of Cali to the village of Yumbo, including its interconnection with the existing water distribution network of the Municipality of Yumbo; and construction of additional service pipes to connect industrial consumers along the route; 5. In the village of Yumbo, carrying out of a program for the rehabilitation and reinforcement of the existing water distribution system, detection of leaks and making of repairs, pitotmetric investigations and installation of house water meters; and 6. Acquisition and utilization of equipment for the main- tenance of the Water Supply Assets. Part B: Sewerage 1. Construction and installation of about 3.0 kilometers of sewage collector for receiving sewage from the zone of Ciudad Jardin in the city of Cali; - 19 - 2. Construction and installation of about 2.0 kilometers of sewage collector for receiving sewage from the zone of Ciudad Universitaria in the city of Cali; 3* Construction and installation of about 5.5 kilometers of main sewage interceptor for receiving sewage from the collectors referred to in paragraphs 1 and 2 above, as well as from adjacent zones in the southern and eastern parts of the city of Cali, and convey it by gravity into a sewage pumping station; 4. Construction of pumping facilities with an initial capacity of about 2.7 cubic meters per second, and construc- tion and installation of about 2 kilometers of pressure pipeline to convey sewage from the pumping station to a point about 300 meters downstream from two existing water treatment plants; 5. Construction and installation of about 1.2 kilometers of secondary sewage collector; 6. Rehabilitation of two regulatory stormwater drainage lagoons; 7. Rehabilitation of old sewers; 8. Construction of sewerage laterals and trunk lines in various low income neighborhoods in the city of Cali; 9. Rehabilitation of about 8.0 kilometers of the Canal Sur stormwater drainage canal; rehabilitation and reinforcement of the confluence of the Ferrocarril, San Fernando and Canal Sur storm drainage canals; and separation of stormwater drainage between gravity discharge and pumping discharge; 10. Construction of about 22 kilometers of stormwater drainage network in various low income neighborhoods in the city of Cali; 11. Excavation and construction of 2.5 kilometers of con- crete-lined extension to the existing Nipoles Canal, and construction of confluences to feeder lines; and 12. Acquisition and utilization of equipment for the main- tenance of the Sewerage Assets. - 20 - Part C: Studies 1. Carrying out of sewage and treatment studies to estab- lish the degree and type of treatment required to reduce the contamination of the Cauca River to an acceptable level, and preparation of preliminary designs for sewage treatment facilities; and 2. Preparation by June 30, 1978 and carrying out promptly thereafter of a program to: (a) improve the Borrower's man- agement information and budgeting and internal auditing procedures; and (b) strengthen the coordination of the administration and operation of the Borrower's Departments. Part D: Reforestation Purchase and planting of about one million trees in the Cali, Caflaveralejo, Melfndez and Pance River basins. The Project is expected to be completed by December 31, 1981. - 21 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each May 15 and November 15 beginning May 15, 1982 through May 15, 1994 530,000 On November 15, 1994 550,000 To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of withdrawal. - 22 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.30% More than three years but not more than six years before maturity 2.65% More than six years but not more than eleven years before maturity 4.80% More than eleven years but not more than fifteen years before maturity 6.55% More than fifteen years before maturity 7.45% - 23 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured in accor- dance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Cred- its" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods and works to be procured in accordance with the provisions of paragraph 1 above, the Borrower shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the proposed date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for Lhe publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured in accordance with the provisions of paragraph I above. 3. With respect to any contract for civil works to be procured in accordance with the provisions of paragraph 1 above, bidders shall be required to prequalify. 4. For bidding purposes, goods and civil works to be procured in accordance with the provisions of paragraph 1 above, shall be grouped into lots to be tendered under separate bids, in such a manner as shall be agreed between the Bank and the Borrower, prior to issuing the invitation to bid. B. Other Procurement Procedures Contracts for civil works estimated to cost the equivalent of less than $300,000 may be procured in accordance with the Guar- antor's competitive bidding procedures, provided the aggregate cost of such contracts shall not exceed the equivalent of $2,000,000. - 24 - C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with Part B hereof: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Colombia may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and Ptages that will be followed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Colombia if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Colombia equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Colombia. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest eval- uated bid of each group. Such lowest evaluated bids shall then - 25 - be compared with each other, and if, as a result of this compari- son, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for! the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. Review of Procurement Decisions by the Bank 1. Review of prequalification. The Borrower shall, befor,e qualification is invited, inform the Bank in detail of the pro- cedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any appli- cant for prequalification shall be furnished by the Borrower to the Bank for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such addi- tions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts referred to in Part A of this Schedule estimated to cost the equivalent of $100,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. - 26 - Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to-the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the delivery to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract referred to in Part A of this Schedule to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execution and prior to the delivery to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guide- lines or this Schedule, promptly inform the Borrower and state the reasons for such determination. - 27 - SCHEDULE 5 Method for Calculating Rates of Return 1. The annual returns specified in Section 5.05 of this Loan Agreement will be calculated, for each of the water supply and sewerage, the power and the telephone services, in each calendar semester in respect of the calendar year in which such review is made and the preceding calendar year, by using as the denominator the average between the net current values of the respective fixed assets in service at the beginning and at the end of each such calendar year and as numerator the operating income generated by the respective service over the same year. The assets used as denominator shall not include: (i) assets transferred to the Borrower by customers other than the Municipality of Cali; and (ii) other assets but only to the extent that the construction or installation costs thereof have been recovered through the collec- tion of Valorizaci6n. In the calculation of the annual return for the water supply and sewerage services, the water treatment plant at Puerto Mallarino shall be taken into account only in the proportion that its installed capacity was actually used in the pertinent calendar year. 2. Any shortfall in the required annual returns for the calendar year preceding the calendar year in which the calculations are to be made shall be carried forward and subtracted from the numerator used for the last mentioned calendar year. 3. "Operating income" shall be the difference between all revenues generated by the service in question (which does not include Valorizaci6n), and all administrative and operating costs relating thereto, including maintenance, adequate provision for straight-line depreciation on the average gross value of fixed assets in service, all contributions to the Municipality of Cali and the cost of the services provided to said Municipality free of charge, but excluding interest and other charges on debt. 4* The net current value of fixed assets in service shall at any given date be their gross value less accumulated depreciation to such date, as revalued and depreciated in accordance with para- graphs 5 and 6 below. - 28 - 5. Until another method, satisfactory to the Bank, for the maintenance of value of assets of public utilities shall have been made applicable to the Borrower, the gross value of the Borrower's fixed assets in service shall be revalued annually in accordance with the corresponding variations in the Indice nacional de precios al consumidor - Obreros - published by the Departamento Administrativo Nacional de Estadistica of the Guarantor, or a similar index approved by the Bank, to the last month preceding the semester in which the calculation is to be made. 6. Depreciation shall be charged on a straight-line basis over the estimated useful life of the Borrower's fixed assets.