Conformed Copy - L2961 - Water Supply and Sewerage Sector Project - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2961 CO (Water Supply and Sewerage Sector Project) between REPUBLIC OF COLOMBIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated February 8, 1989 LOAN NUMBER 2961 CO GUARANTEE AGREEMENT AGREEMENT, dated February 8, 1989, between REPUBLIC OF COLOMBIA (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and Banco Central Hipotecario (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; and (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to one hundred fifty million dollars ($150,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan and to undertake such other obligations as provided in this Agreement; and Page 2 WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement and in the Preamble to and Section 1.02 of the Loan Agreement have the respective meanings therein set forth and the term "Sector Investment Program and Financing Plan" means the Guarantor's investment and financing plan for the Water Supply and Sewerage Sector for years 1988 through 1992, set forth in the letter of the Guarantor to the Bank dated May 5, 1988. ARTICLE II Guarantee; Provision of Funds Section 2.01. The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower, all as set forth in the Loan Agreement. Section 2.02. (a) Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes, whenever there is reasonable cause to believe that the funds available to the Borrower will be inadequate to meet the estimated expenditures required for the carrying out of the Project, to make arrangements, satisfactory to the Bank, promptly to provide the Borrower or cause the Borrower to be provided with such funds as are needed to meet such expenditures. (b) As part of, and without limitation to the foregoing, the Guarantor shall: allocate each year in its budget the amounts required by the Borrower, DWSS and CENAGUAS for the timely execution of the Project in such year, on the basis of Project implementation forecasts satisfactory to the Bank. Section 2.03. (a) The Guarantor shall, through its Monetary Board, maintain at all times the interest rates applicable to Sub-loans and Participating Loans as set forth in Resolution No. 53, and shall continuously review and, whenever necessary, revise such interest rates so as to keep them positive in real terms and at levels sufficient to cover as a minimum the cost of domestic and external resources of the Borrower and Financial Intermediaries applied to the execution of the Project and the Borrower's and Financial Intermediaries' administrative costs associated with their participation in the Project. (b) For the purposes of this Section, "positive in real terms" means interest rates equal to or higher than the annual rate of inflation prevailing on the preceding six months, as measured by the Consumer Price Index (Indice de Precios al Consumidor) published by Departamento Administrativo Nacional de Estadisticas. Section 2.04. The Guarantor, through DNP, shall: (a) not later than August 31 each year, furnish to the Bank for comments a report, of such scope and detail as the Bank shall reasonably request on the status of Page 3 execution of the Sector Investment Program and Financing Plan and on any proposed revisions thereto; and (b) not later than September 30 each year, revise such program and plan in a manner satisfactory to the Bank. Section 2.05. The Guarantor undertakes: (a) that all future investments in Colombia's water supply and sewerage sector to be approved or financed in all or in part by the Guarantor or any of its agencies shall be selected and financed in accordance with the criteria, policies and terms and conditions set forth in the SRP; and (b) to exchange views with the Bank, through DNP, on any proposed amendments to the SRP or any part thereof. Section 2.06. (a) The Guarantor shall, through DNP, prepare and put into effect a monitoring system, satisfactory to the Bank, for the financial, operational and administrative performance of all entities providing water supply or sewerage services in Colombia. (b) Starting not later than December 31, 1989, the Guarantor, through DNP, shall publish an annual report on the performance of the water supply and sewerage sector utilities, based on the monitoring system referred to in paragraph (a) of this Section. The Guarantor shall, not later than March 31, 1989, furnish to the Bank a form of the annual report showing the format of the report and the monitoring indicators to be employed as well as the methodology to be followed in collecting the data required for the preparation of the report. Section 2.07. (a) Not later than November 15 each year, the Guarantor, through DNP, acting in conjunction with MOPT and JNT, shall exchange views with the Bank, jointly with the Borrower, CENAGUAS and any Eligible Project Entities selected by the Borrower and the Bank, on the progress made in achieving the SRP objectives and the execution of the Project, the water supply and sewerage sector investment programming and financing, institutional reform, tariff policy and performance of the obligations set forth or referred to in the Loan and Guarantee Agreements, such exchange of views to be based on the reports furnished by the Guarantor and the Borrower pursuant to the provisions of the Guarantee and Loan Agreements. (b) If, as a result of such exchange of views, some problems have been identified in respect of which remedial action is required, the Guarantor shall prepare or cause to be prepared plans of action satisfactory to the Bank to resolve such problems. (c) The Guarantor shall carry out, and cause to be carried out, such plans of action in a manner satisfactory to the Bank. Section 2.08. The Guarantor shall, through JNT: (a) (i) not later than July 1, 1989, carry out a study by consultants acceptable to the Bank and under terms of reference acceptable to the Bank, to determine a monthly consumption limit per household connection for the first category of the tariff structures (Consumo B