Peru - Electricity Privatization Adjustment Loan : Loan 3810 - Loan Agreement - Conformed

LOAN NUMBER\a?/O PE Loan Agreement (Electricity Privatization Adjustment Loan) between REPUBLIC OF PERU and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated 1994 LOAN NUMBER 3/O PE LOAN AGREEMENT AGREEMENT, dated CiZC2--- , 1994, between REPUBLIC OF PERU (the orrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated August 19, 1994, from the Borrower (hereinafter called the Letter of Development Policy) describing a program of actions, objectives and policies designed to achieve further adjustment of the Borrower's economy through privatization of State-owned enterprises in the electricity sector (hereinafter called the Program) declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in the financing of urgently needed imports required during such execution; and (B) on the basis, inter alia, of the foregoing, the Bank has decided in support of the Program to provide such assistance to the Borrower by making the Loan in three tranches as hereinafter provided; 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 modifications thereof set forth below (the General Conditions) constitute an integral part of this Agreement: (a) Section 2.01, paragraph 11, shall be modified to read: "'Project' means the imports and other activities that may be financed out of the proceeds of the Loan pursuant to the provisions of Schedule 1 to the Loan Agreement."; (b) Section 9.07 (c) shall be modified to read: "(c) Not later than six months after the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, 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 of the program referred to in the Preamble to the Loan Agreement, the -2- performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan."; and (c) The last sentence of Section 3.02 is deleted. (d) In Section 6.02, subparagraph (k) is relettered as subparagraph (1) and a new subparagraph (k) is added to read: "(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be inconsistent with the provisions of Article III, Section 3 of the Bank's Articles of Agreement." Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Electricity Tariff Commission" means the Commission established pursuant to Decree-Law No. 25844 of the Borrower dated November 6, 1992 and published in El Peruano of November 19, 1992; (b) "Electrolima" means the Borrower's Empresa Electricidad de Lima, S.A.; (c) "Electroperu" means the Borrower's Electricidad del Peri, S.A.; (d) "First Tranche" means the portion of the Loan not exceeding the equivalent of $50,000,000 to be released by the Bank on or after the Effective Date; (e) "kWh" means kilowatt-hours. (f) "Privatization Assets" means the generation and distribution assets of Electrolima and Electroperu as set forth in the Annex to the letter of even date herewith from the Borrower to the Bank; (g) "Second Tranche" means the portion of the Loan not exceeding the equivalent of $50,000,000 to be released by the Bank upon compliance by the Borrower with the requirements set forth or referred to in paragraph 4(a) of Schedule 1 to this Agreement; -3- (h) "SITC" means the Standard International Trade Classification, Revision 3 (SITC, Rev. 3), published by the United Nations in Statistical Papers, Series M, No. 343 (1986); (i) "Structural Reform Program" means the programs of adjustment of the Borrower's economy referred to in, and supported by, the loan agreements between the Borrower and the Bank for the following loans: (i) Loan No. 3437 PE (Trade Policy Reform Loan) dated December 22, 1992; (ii) Loan No. 3452 PE (Structural Adjustment Loan) dated December 22, 1992; (iii) Loan No. 3489 PE (Financial Sector Adjustment Loan) dated December 22, 1992; and (iv) Loan No. 3595 PE (Privatization Adjustment Loan) dated April 21, 1993; anl (j) "Third Tranche" means the portion of the Loan not exceeding the equivalent of $50,000,000 to be released by the Bank upon compliance by the Borrower with the requirements set forth or referred to in paragraph 4(b) of Schzdule 1 to this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of one hundred fifty million dollars ($150,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1996 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. - Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to -4- time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the prLceding Interest Period, calculated at the rate applicable during such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in re,pect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. (iii) "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months' notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: " (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest -5 - accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) 'Quarter' means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section 2.06. Interest and other charges shall be payable semiannually on May 15 and November 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 2 to this Agreement. ARTICLE III Particular Covenants Section 3.01. (a) The Borrower and the Bank shall from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program and the actions specified in Schedule 4 to this Agreement. (b) Prior to each such exchange of views, the Borrower shall furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Program in such detail as the Bank shall reasonably request. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 3 to this Agreement. Section 3.03. (a) The Borrower shall maintain or cause to be maintained records and separate accounts adequate to reflect in accordance with consistently maintained sound accounting practices the expenditures financed out of the proceeds of the Loan. - 6- (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each fiscal year and for the expenditures under each of the First Tranche, Second Tranche and Third Tranche audited, in accordance with appropriate 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 six months after the end of each such year or not later than six months after the last withdrawal from the Loan Account has been made under each of the First Tranche, Second Tranche and Third Tranche, whichever comes first, a certified copy of 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 said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and - 7 - (iv) ensure that such records and accounts are included in the audits referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. ARTICLE IV Additional Event of Suspension Section 4.01. Pursuant to Section 6.02 (1) of the General Conditions, the following additional event is specified, namely, that a situation has arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out. ARTICLE V Effective Date; Termination Section 5.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions, namely that the Bank shall be satisfied that the macroeconomic policy framework of the Borrower and its financing plan therefor are consistent with the objectives of the Structural Reform Program. Section 5.02. The dateAcZ'$ / bis hereby specified for the purposes of Section 2.04 of the General Conditions. ARTICLE VI Representatives of the Borrower; Addresses Section 6.01. The Minister of Economy and Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. -8- Section 6.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Minister of Economy and Finance Ministry of Economy and Finance Jir6n Junin 319 Lima 1 Peru 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 (FCA) Washington, D.C. 82987 (FTCC) 64145 (WUI) or 197688 (TRT) -9- 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. REPUBLIC OF PERU By Au rized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President Latin America and the Caribbean - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. Subject to the provisions set forth or referred to in this Schedule, the proceeds of the Loan may be withdrawn from the Loan Account for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods required during the execution of the Program and to be financed out of such proceeds. 2. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of: (a) expenditures for goods included in the following SITC groups or subgroups, or any successor groups or subgroups under future revisions to the SITC, as designated by the Bank by notice to the Borrower: Group Subgroup Description of Items 112 -- Alcoholic beverages 121 -- Tobacco, unmanufactured, tobacco refuse 122 -- Tobacco, manufactured (whether or not containing tobacco substitutes) 525 -- Radioactive and associated materials 667 -- Pearls, precious and semiprecious stones, unworked or worked 718 718.1 Nuclear reactors, and parts thereof, fuel elements (cartridges), nonirradiated for nuclear reactors 728 - 728.43 Tobacco processing machinery - 11 - Group Subgroup Description of Items 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 -- Gold, nonmonetary (excluding gold ores and concentrates) (b) expenditures in the currency of the Borrower or for goods supplied from the territory of the Borrower; (c) payments made for expenditures in respect of goods imported prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of $30,000,000 may be made on account of payments made for such expenditures in respect of goods imported before that date but after August 1, 1994; (d) expenditures for goods procured under contracts costing less than $5,000 equivalent; (e) expenditures for goods supplied under a contract which any national or international financing institution or agency other than the Bank shall have financed or agreed to finance; and (f) expenditures for goods intended for a military or paramilitary purpose or for luxury consumption. 3. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures under contracts for goods not exceeding $5,000,000 equivalent, under such terms and conditions as the Bank shall specify by notice to the Borrower. 4. No withdrawal shall be made and no commitment shall be entered into to pay amounts to or on the order of the Borrower in respect of expenditures to be financed out of the proceeds of the Loan after: (a) the aggregate of the proceeds of the Loan withdrawn from the Loan Account and the total amount of such commitments shall have reached the equivalent of $50,000,000, unless the Bank shall be satisfied, after an exchange of views as described in Section 3.01 - 12 - of this Agreement based on evidence satisfactory to the Bank: (i) with the progress achieved by the Borrower in the carrying out of the Program; (ii) with the maintenance of a macroeconomic policy framework and the financing plan therefor that are consistent with the objectives of the Structural Reform Program; and (iii) that the actions described in Part A of Schedule 4 to this Agreement have been taken in form and substance satisfactory to the Bank; and (b) the aggregate of the proceeds of the Loan withdrawn from the Loan Account and the total amount of such commitments shall have reached the equivalent of $100,000,000, unless the Bank shall be satisfied, after an exchange of views as described in Section 3.01 of this Agreement based on evidence satisfactory to the Bank: (i) with the progress achieved by the Borrower in the carrying out of the Program; (ii) with the maintenance of a macroeconomic policy framework and the financing plan therefor that are consistent with the objectives of the Structural Reform Program; and (iii) that the actions described in Part B of Schedule 4 to this Agreement have been taken in form and substance satisfactory to the Bank. 5. If, after either of the exchanges of views described in paragraph 4 above, the Bank shall have given notice to the Borrower that the progress achieved in carrying out the Program, or that the macroeconomic policy framework and the financing plan therefor are not consistent with the Structural Reform Program, or that the actions taken pursuant to Schedule 4 to this Agreement are not satisfactory and, within 90 days after such notice, the Borrower shall not have remedied such matter or matters in a manner satisfactory to the Bank, then the Bank may, by notice to the Borrower, cancel the unwithdrawn amount of the Loan or any part thereof. - 13 - SCHEDULE 2 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* May 15, 2000 2,880,000 November 15, 2000 2,985,000 May 15, 2001 3,090,000 November 15, 2001 3,200,000 May 15, 2002 3,315,000 November 15, 2002 3,430,000 May 15, 2003 3,555,000 November 15, 2003 3,680,000 May 15, 2004 3,810,000 November 15, 2004 3,945,000 May 15, 2005 4,085,000 November 15, 2005 4,230,000 May 15, 2006 4,380,000 November 15, 2006 4,535,000 May 15, 2007 4,695,000 November 15, 2007 4,865,000 May 15, 2008 5,035,000 November 15, 2008 5,215,000 May 15, 2009 5,400,000 November 15, 2009 5,590,000 May 15, 2010 5,790,000 November 15, 2010 5,995,000 May 15, 2011 6,210,000 November 15, 2011 6,430,000 May 15, 2012 6,655,000 November 15, 2012 6,895,000 May 15, 2013 7,140,000 November 15, 2013 7,390,000 May 15, 2014 7,655,000 November 15, 2014 7,920,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. - 14 - Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (expressed as a percentage per annum) applicable to the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity - 15 - SCHEDULE 3 Procurement 1. Contracts for the procurement of goods estimated to cost the equivalent of $5,000,000 or more each shall be awarded through international competitive bidding in accordance with procedures consistent with those set forth in Sections I and II of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in May 1985 (the Guidelines), subject to the following modifications: (a) Paragraph 2.8 of the Guidelines is deleted and the following is substituted therefor: "2.8 Notification and Advertising The international community should be notified in a timely manner of the opportunity to bid. This will be done by advertising invitations to apply for inclusion in a bidder's invitation list, to apply for prequalification, or to bid; such advertisements should be placed in at least one newspaper of general circulation in the Borrower's country and, in addition, in at least one of the following forms: (i) a notice in the United Nations publication, Development Forum, Business Edition; or (ii) an advertisement in a newspaper, periodical or technical journal of wide -international circulation; or (iii) a notice to local representatives of countries and territories referred to in the Guidelines, that are potential suppliers of the goods required." (b) The following is added at the end of paragraph 2.21 of the Guidelines: "As a further alternative, bidding documents may require the bidder to state the bid price in a single currency widely used in international trade and specified in the bidding documents." - 16 - (c) Paragraphs 2.55 and 2.56 of the Guidelines are deleted. (d) The foregoing notwithstanding, and subject to the agreement of the Bank, direct contracting may be used when considered appropriate under paragraph 3.5 of the Guidelines regardless of the amount of the transaction. (e) For fixed-price contracts, the invitation to bid referred to in paragraph 2.13 of the Guidelines shall provide that, when contract award is delayed beyond the original bid validity period, the successful bidder's bid price will be increased for each week of delay by two predisclosed correction factors acceptable to the Bank, one to be applied to all foreign currency components and the other to the local currency component of the bid price. Such an increase shall not be taken into account in the bid evaluation. (f) In the procurement of goods in accordance with this paragraph 1, the Borrower shall use the relevant standard bidding documents issued by the Bank, with such modifications thereto as the Bank shall have agreed to be necessary for the purposes of the Project. Where no relevant standard bidding documents have been issued by the Bank, the Borrower shall use bidding documents based on other internationally recognized standard forms agreed with the Bank. 2. Contracts for the procurement of goods estimated to cost the equivalent of less than $5,000,000 shall be awarded: (a) by purchasers required to follow the Borrower's public procurement procedures for the importation of goods, oh the basis of such procedures, provided that such procedures shall have been found acceptable by the Bank; and (b) by other purchasers, in accordance with established commercial practice. 3. Subject to the prior approval of the Bank, commonly traded commodities may be procured through organized international commodity markets or other channels of competitive procurement acceptable to the Bank, in accordance with procedures acceptable to the Bank. 4. With respect to each contract referred to in paragraph 1 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of - 17 - funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids and recommendations for award, a description of the advertising and tendering procedures followed and such other information as the Bank shall reasonably request. 5. With respect to each contract referred to in paragraphs 2 and 3 of this Schedule, the Borrower shall furnish to the Bank, prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect thereof, such documentation and information as the Bank may reasonably request to support withdrawal applications in respect of such contract. 6. The provisions of the preceding paragraph 5 of this Schedule shall not apply to contracts on account of which withdrawals from the Loan Account are to be made on the basis of statements of expenditure. - 18 - SCHEDULE 4 Actions Referred to in Paragraph 4 of Schedule 1 to this Agreement Part A: Conditions referred to in Paragraph 4 (a) of Schedule 1 1. Maintenance of full autonomy of the Electricity Tariff Commission. 2. Provision to the Bank of final model concession contracts for electricity transmission and distribution, assuring third-party access and use of, respectively, the transmission and distribution systems, and official publication of antitrust rules for electricity sector enterprises. 3. Setting of all electricity tariffs at 100 percent of economic cost. 4. Offering for sale of a majority interest in: (a) each of the two distribution utilities for metropolitan Lima; and (b) the generating utilities whose combined assets represent not less than 12 percent of the total Privatization Assets in terms of the shares set forth in the Annex to the letter of even date herewith from the Borrower to the Bank. Part B: Conditions referred to in paragraph 4(b) of Schedule 1 1. Maintenance of full autonomy of the Electricity Tariff Commission. 2. Maintenance of all electricity tariffs at 100 percent of economic cost. 3. Offering for sale of a majority interest in the generating utilities whose assets represent at least 52 percent of the total Privatization Assets in terms of the shares set forth in the Annex to the letter of even date herewith from the Borrower to the Bank. 4. Actual sale to the private sector of a majority interest in the utilities whose combined assets represent at least 25 percent of the total Privatization Assets in terms of the shares set forth in the Annex to the letter of even date herewith from the Borrower to the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Bank for Reconstruction and Development. FOR SECRETARY