Conformed Copy - L4484 - Water Sector Reform Project - Loan Agreement

CONFORMED COPY LOAN NUMBER 4484-AR Loan Agreement (Water Sector Reform Project) between ARGENTINE REPUBLIC and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated July 7, 2000 LOAN NUMBER 4484-AR LOAN AGREEMENT AGREEMENT, dated July 7, 2000, between ARGENTINE REPUBLIC (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received from the Borrower letters dated November 16, 1998 and April 21, 1999, which letters describe the Borrower's program for reforming the water supply sector in Argentina (the Program); (B) the Borrower has requested that the Bank support the Program; (C) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, which Project forms part of the first phase of the Program, has requested the Bank to assist in the financing of the Project; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower, in support of the first phase of the Program, upon the terms and conditions set forth in this Agreement; 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 for Single Currency Loans" of the Bank, dated May 30, 1995, as amended through December 2, 1997, with the modifications set forth below (the General Conditions), constitute an integral part of this Agreement: Paragraph (c) of Section 9.07 of the General Conditions is modified to read as follows: "(c) Not later than six months before 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 and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.". 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) "Cooperative" means a water supply and sanitation sector utility organized as a sociedad cooperativa (cooperative association) under the Borrower's Ley de Sociedad Cooperativa (Cooperative Association Law; Law No. 20,337 of May 2, 1973), which utility satisfies the criteria set forth in Part A.1 (a) through (g) of Schedule 6 to this Agreement; (b) "ENOHSA" means Ente Nacional de Obras Hidricas de Saneamiento, the Borrower's agency responsible for assisting in the financing of water and sanitation projects in both urban and rural communities, established by Law No. 24,583 published in the Borrower's Boletin Oficial on November 27, 1995 and possessing its own legal personality; (c) "Implementation Letter" means the letter, of even date herewith, entered into between the Borrower and the Bank and setting forth the monitoring indicators for the Project; (d) "Operational Manual" means the manual referred to in Section 3.03 of this Agreement; (e) "PMU" means the unit referred to in Section 3.04 of this Agreement; (f) "SRNDS" means the Borrower's Secretaria de Recursos Naturales y Desarrollo Sustentable (Secretariat of Natural Resources and Sustainable Development); (g) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement; (h) "Subborrower" means a Type A Subborrower (as hereinafter defined), a Type B Subborrower (as hereinafter defined) or a Cooperative; (i) "Subloan" means a loan made by ENOHSA to a Subborrower to provide part of the financing required to carry out a Subproject; (j) "Subproject" means a set of investment activities carried out by a Subborrower or other water and sanitation sector utility under Part A of the Project; (k) "Type A Subborrower" means a water supply and sanitation sector utility (other than a Cooperative) which satisfies the criteria set forth in Part A.1 (a) through (h) of Schedule 6 to this Agreement and receives a Subloan; and (1) "Type B Subborrower" means a water supply and sanitation sector utility (other than a Cooperative) which satisfies the criteria set forth in Part A.1 (a) through (g) of Schedule 6 to this Agreement and Part A.1 (i) of Schedule 6 to this Agreement and receives a Subloan. Section 1.03. Each reference in the General Conditions to the Project implementation entity shall be deemed as a reference to ENOHSA. 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, an amount equal to thirty million Dollars ($30,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods, works and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan, as well as in respect of the fee referred to in Section 2.04 of this Agreement. (b) The Borrower may, for the purposes of the Project, open and maintain in Dollars a special deposit account in Banco de la Naci6n Argentina on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement. Section 2.03. The Closing Date shall be July 31, 2002 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 fee in an amount equal to one percent (1.0%) of the amount of the Loan. On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of said fee. Section 2.05. 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 2.06. (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 Interest Period equal to LIBOR Base Rate plus LIBOR Total Spread. (b) For the purposes of this Section: (i) "Interest Period" means the initial period from and including the date of this Agreement to, but excluding, the first Interest Payment Date occurring thereafter, and after the initial period, each period from and including an Interest Payment Date to, but excluding the next following Interest Payment Date. (ii) "Interest Payment Date" means any date specified in Section 2.07 of this Agreement. (iii) "LIBOR Base Rate" means, for each Interest Period, the London interbank offered rate for six-month deposits in Dollars for value the first day of such Interest Period (or, in the case of the initial Interest Period, for value the Interest Payment Date occurring on or next preceding the first day of such Interest Period), as reasonably determined by the Bank and expressed as a percentage per annum. (iv) "LIBOR Total Spread" means, for each Interest Period: (A) three-fourths of one percent (3/4 of 1%); (B) minus (or plus) the weighted average margin, for such Interest Period, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrowings or portions thereof allocated by the Bank to fund single currency loans or portions thereof made by it that include the Loan; as reasonably determined by the Bank and expressed as a percentage per annum. (c) The Bank shall notify the Borrower of LIBOR Base Rate and LIBOR Total Spread for each Interest Period, promptly upon the determination thereof. (d) Whenever, in light of changes in market practice affecting the determination of the interest rates referred to in this Section 2.06, the Bank determines that it is in the interest of its borrowers as a whole and of the Bank to apply a basis for determining the interest rates applicable to the Loan other than as provided in said Section, the Bank may modify the basis for determining the interest rates applicable to the Loan upon not less than six (6) months' notice to the Borrower of the new basis. The basis shall become effective on the expiry of the notice period unless the Borrower notifies the Bank during said period of its objection thereto, in which case said modification shall not apply to the Loan. Section 2.07. Interest and other charges shall be payable January 15 and July 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 Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall cause ENOHSA to carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, technical, social and environmental practices. (b) The Borrower shall provide or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods, works and services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 3.03. The Borrower shall cause ENOHSA to issue a manual, amendable from time to time and in any case satisfactory to the Bank, which sets forth the rules and procedures for carrying out the Project. Said manual shall contain, inter alia, model bidding documents for selecting concessionaires eligible to be Type A Subborrowers, guidelines for the preparation of concession contracts to be entered into with concessionaires eligible to be Type A Subborrowers and guidelines for the establishment of: (a) water and sanitation sector regulatory frameworks and environmental standards; and (b) model water and sanitation sector tariff regimes and service quality standards. In case of any conflict between the terms of said manual and those of this Agreement, the terms of this Agreement shall prevail. Section 3.04. Throughout the course of Project implementation, the Borrower shall cause a Project management unit to be maintained within ENOHSA. Such unit shall coordinate and monitor project implementation and shall consist of a coordinator and seven other professionals hired as consultants and organized as members of three functional teams: a privatization and sector regulation team, a Project administration team and a poverty team, all working as part of said unit on a full-time basis and assisted as necessary by other consultants employed on a short-term or part-time basis. Section 3.05. Throughout the course of Project implementation, the Borrower shall cause ENOHSA to: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the monitoring indicators set forth in the Implementation Letter, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about each April 30 and October 31 falling after six months have passed from the Effective Date, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section (and also integrating the information received pursuant to application of the terms of paragraph 6 (b) of Schedule 6 to this Agreement), on the progress achieved in the carrying out of the Project during the six months preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achievement of the objectives thereof during the period following such date; and (c) review with the Bank and the Borrower, within a month after each report referred to in paragraph (b) of this Section is furnished to the Bank, or at such later time as the Bank shall request, the report so furnished, and, thereafter, take all measures required to ensure the efficient carrying out of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of said report and the Bank's views on the matter. Section 3.06. (a) Upon receipt by the Borrower of an amount of Loan proceeds disbursed by the Bank (other than into the Special Account) for eligible expenditures under the Project, or upon gathering by ENOHSA of evidence of eligible expenditures under the Project sufficient to permit Borrower disbursement of an amount of Loan proceeds from the Special Account, the Borrower shall: (i) transfer such amount of Loan proceeds to ENOHSA on a grant basis in Dollars; and (ii) with respect to amounts so transferred in connection with Part A of the Project, cause ENOHSA promptly to disburse such transferred amount in Dollars as part of Subloans to those Subborrowers which incurred said eligible expenditures. (b) (i) A private sector water and sanitation utility concessionaire serving the Borrower's province of Misiones may, if it meets the eligibility criteria set forth in Part A.1 of Schedule 6 to this Agreement (other than the criteria specified in Part A.1 (f) through (g) of said Schedule), receive Loan proceeds as partial reimbursement for carrying out under Part A.2 of the Project a Subproject consisting of the expansion of the sewerage network in said province's city of Posadas according to the terms of said utility's concession agreement with the province of Misiones. (ii) Paragraph (a) of this Section notwithstanding, upon receipt by the Borrower of an amount of Loan proceeds disbursed by the Bank (other than into the Special Account) for eligible expenditures under the Project with regard to said Posadas sewer expansion, or upon gathering by ENOHSA of evidence of eligible expenditures under the Project, for said sewerage expansion, sufficient to permit Borrower disbursement of an amount of Loan proceeds from the Special Account, the Borrower shall: (A) transfer such amount of Loan proceeds to the province of Misiones on a grant basis in Dollars; and (B) cause the province of Misiones promptly to disburse such transferred amount in Dollars on a grant basis to said utility. (iii) The Borrower shall ensure that, with respect to said Posadas sewerage expansion carried out under the Project: (A) no resettlement of people or relocation of businesses shall be required; (B) there is compliance at all times with the applicable environmental standards referred to in Part A.1 (a) of Schedule 6 to this Agreement (as well as any environmental standards applicable to the project financed in part by Bank Loans 2854-AR and 3520-AR); and (C) if the use of water of rivers or of other bodies of water (or their tributaries) which flow through or are bordered by countries other than Argentina is involved, neither the installation nor subsequent operation of the expanded sewers shall in any way adversely change the quality or quantity of water flowing to or bordering said countries. Section 3.07. The Borrower shall cause ENOHSA to: (a) make Subloans solely according to the terms and conditions set forth in Schedule 6 to this Agreement; and (b) exercise its rights in relation to each Subproject in such manner as to protect the interests of the Bank, ENOHSA and the Borrower, ensure compliance with the terms of this Agreement and achieve the purposes of the Project. Section 3.08. (a) With respect to Part A.3 of the Project, an urban area shall be considered poor if at least 30% of the population therein qualifies as poor according to the Necesidades BAsicas Insatisfechas (Unsatisfied Basic Needs) index calculated by the Borrower's Instituto Nacional de Estadistica y Censo (National Statistics and Census Institute) or other criteria satisfactory to the Bank. (b) The Borrower shall cause ENOHSA to contract the technical assistance and training and purchase the goods required for Parts B and C of the Project, and to make such technical assistance, training and goods available on a grant basis to the PMU and ENOHSA and on a cost-recovery basis by contract with Subborrowers, regulatory agencies, SRNDS and provincial or municipal governments as necessary to carry out said Parts of the Project. (c) With respect to Part C.2 of the Project, no emergency actions specified therein may be carried out except as set forth under environmental guidelines and procedures determined, prior to the commencement of such actions, to be satisfactory to the Bank. Section 3.09. For the purposes of Section 9.08 of the General Conditions and without limitation thereto, the Borrower shall: (a) prepare or cause to be prepared, on the basis of guidelines acceptable to the Bank, and furnish or cause to be furnished to the Bank not later than six months prior to the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, a plan for the future operation of the Project; and (b) afford the Bank, or cause the Bank to be afforded, a reasonable opportunity to exchange views with the Borrower and ENOHSA on said plan. ARTICLE IV Financial Covenants Section 4.01. (a) The Borrower shall establish and maintain, or cause to be established and maintained, a financial management system, including records and separate accounts, adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of the Project of the Subborrowers and the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) of this Section, including those for the Special Account, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish or cause to be furnished to the Bank as soon as available, but in any case not later than six months after the end of each such year, 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 or cause to be furnished 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 or cause to be retained, 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 or payment out of the Special 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 (iv) ensure that such records and accounts are included in the annual audit 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 V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (p) of the General Conditions, the following additional events are specified: (a) ENOHSA shall have failed to exercise its right, referred to in Part B, paragraph 5 (f) of Schedule 6 to this Agreement, to suspend or terminate the right of a Subborrower to the use of the proceeds of a Subloan when such exercise is allowed under the circumstances referred to in said paragraph. (b) A province or municipality of the Borrower shall have taken any action, or omitted to take any action, thereby affecting materially and adversely, in the opinion of the Bank, the carrying out of a Subproject falling within such province's or municipality's jurisdiction. Section 5.02. Pursuant to Section 7.01 (k) of the General Conditions, the following additional event is specified, namely, that any event specified in paragraphs (a) or (b) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) that the Operational Manual has been issued by ENOHSA and is in effect; (b) that the PMU shall have been established and is operational with: (i) the coordinator referred to in Section 3.04 of this Agreement; and (ii) at least one professional, referred to in Section 3.04 of this Agreement, for each of the three functional teams referred to in said Section; (c) that there be in place, for at least four of the Borrower's provinces, the provincial regulatory and environmental framework and operating regulatory or other agency referred to in Part A.1 (a) of Schedule 6 to this Agreement (for purposes of this condition, a municipal regulatory and environmental framework and operating regulatory or other agency in place, referred to in Part A.1 (a) of Schedule 6 to this Agreement, shall count as one of the four required if the province within which the municipality in question is located lacks such framework or agency); and (d) that there are water supply and sanitation sector utilities (other than Cooperatives), in at least two of the provinces or municipalities used to comply with the condition set forth in paragraph (c) of this Section, which utilities meet the criteria referred to in either: (i) Part A.1 (a) through (h) of Schedule 6 to this Agreement; or (ii) Part A.1 (a) through (g) of Schedule 6 to this Agreement and Part A.1 (i) of Schedule 6 to this Agreement. Section 6.02. The date October 9, 2000 is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Economy and Public Works and Services of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Ministerio de Economia y Obras y Servicios Publicos Hip6lito Yrigoyen 250 1086 Buenos Aires Argentina Cable address: Telex: MINISTERIO ECONOMIA 121942-AR Baires 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: Washington, D.C. 248423 (MCI), 64145 (MCI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Buenos Aires, Argentina as of the day and year first above written. ARGENTINE REPUBLIC By /s/ Jose Luis Machinea Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Myrna L. Alexander Authorized Representative 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 Dollars) to be Financed (1) Goods under Part 7,200,000 60% A.1 of the Project (2) Goods under Parts 2,200,000 52% A.2 and A.3 of the Project (3) Goods under Part 200,000 100% of foreign C.2 of the Project expenditures and 82% of local expenditures (4) Works under Part 10,800,000 60% A.1 of the Project (5) Works under Parts A.2 3,300,000 52% and A.3 of the Project (6) Consultants' services 5,200,000 100% under Part B of the Project (7) Consultants' services 800,000 100% under Part C of the Project (8) Fee 300,000 amount due under Section 2.04 of this Agreement TOTAL 30,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding $3,000,000 may be made on account of payments made for expenditures incurred within the twelve months prior to the date of this Agreement but after June 30, 1998. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure, under such terms and conditions as the Bank shall specify by notice to the Borrower, for expenditures under those contracts not covered by Section I, Part D.2 (a) and Section II, Part D.2 (a) and (b) of Schedule 4 to this Agreement. SCHEDULE 2 Description of the Project The objectives of the Project are to support the reform of the water and sanitation sector in Argentina through increased private sector participation in the operation and financing of water utilities, to support the establishment of sound regulatory frameworks for said sector and to address universal service and environmental issues pertaining to said sector. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Subprojects 1. Improvement by Type A Subborrowers of their existing water supply and sanitation infrastructure in Argentine medium size cities of between approximately 50,000 and 500,000 inhabitants through the rehabilitation and replacement of pipes; rehabilitation of water treatment plants and intake facilities; upgrading of substandard water connections; installation of water meters; repair and replacement of pumping control equipment; supply of emergency and maintenance equipment; and carrying out of other activities which improve existing water supply and sanitation sector physical assets or involve the installation or creation of new physical assets for said sector (all except as covered by Part A.3 of the Project). 2. Improvement by Type B Subborrowers, Cooperatives or other water supply and sanitation sector utilities of their existing water supply and sanitation infrastructure in Argentine medium size cities of between approximately 50,000 and 500,000 inhabitants through the rehabilitation and replacement of pipes; rehabilitation of water treatment plants and intake facilities; upgrading of substandard water connections; installation of water meters; repair and replacement of pumping control equipment; supply of emergency and maintenance equipment; and carrying out of other activities which improve existing water supply and sanitation sector physical assets or involve the installation or creation of new physical assets for said sector (all except as covered by Part A.3 of the Project). 3. Improvement by Subborrowers of their existing water supply and sanitation infrastructure serving poor urban areas in Argentina through the rehabilitation and replacement of pipes; rehabilitation of water treatment plants and intake facilities; upgrading of substandard water connections; installation of water meters; repair and replacement of pumping control equipment; supply of emergency and maintenance equipment; and carrying out of other activities which improve existing water supply and sanitation sector physical assets serving such poor urban areas or involve the installation or creation of new water supply and sanitation sector physical assets serving said areas. Part B: Institutional Strengthening 1. Provision of technical assistance in support of the operation of the PMU. 2. Provision of training to: (a) Subborrower staff to improve their professional skills and allow certification of their ability to carry out key operational functions; and (b) provincial and municipal water and sanitation sector regulatory agency personnel to improve their regulatory capacity. 3. Provision of technical assistance to: (a) provincial and municipal governments to prepare and execute privatizations and regulatory reforms in the water and sanitation sector; (b) Subborrowers to support the carrying out of Subprojects under Part A.3 of the Project; and (c) SRNDS and ENOHSA to provide federal backstop and crisis assistance to Subborrowers and provincial and municipal governments in the transition from public to private management of water and sanitation sector utilities. 4. Provision of technical assistance to ENOHSA to develop and update the information systems (known as SPIDES) for the water and sanitation sector and the utilities operating therein. Part C: Environmental Actions 1. Provision of technical assistance to SRNDS to update environmental standards (such as for sewage and sludge disposal), prepare guidelines for the preparation of environmental impact assessments in the water and sanitation sector, perform environmental audits of selected investment projects in said sector and prepare a water quality management diagnosis for the Salidulce river basin. 2. Carrying out of emergency actions (such as environmental clean-ups and removal of hazardous wastes) and provision of goods to mitigate negative environmental impacts that may arise in relation to water and sanitation sector infrastructure. * * * The Project is expected to be completed by January 31, 2002. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in Dollars)* On each January 15 and July 15 beginning January 15, 2005 through July 15, 2014 1,500,000 * The figures in this column represent the amount in Dollars to be repaid, except as provided in Section 4.04 (d) of the General Conditions. SCHEDULE 4 Procurement and Consultants' Services Section I. Procurement of Goods and Works Part A: General Goods and works shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods and works shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provisions shall apply to goods and works to be procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part B: (a) Notification and advertising The invitation to prequalify or bid for each contract estimated to cost $10,000,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. (b) Grouping of contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost more than $350,000 equivalent each and contracts for works shall be grouped in bid packages estimated to cost more than $5,000,000 each. (c) Preference for domestically manufactured goods The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods manufactured in the territory of the Borrower. Part C: Other Procurement Procedures 1. National Competitive Bidding (a) Goods estimated to cost $350,000 equivalent or less per contract or per bid package, up to an aggregate amount not to exceed $800,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. In the procurement of goods in accordance with this Part C.1 (a), standard bidding documents acceptable to the Bank shall be used. (b) Works estimated to cost $5,000,000 equivalent or less per contract or per bid package, up to an aggregate amount not to exceed $3,900,000 equivalent, may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. In the procurement of works in accordance with this Part C.1 (b), standard bidding documents acceptable to the Bank shall be used. 2. National Shopping Goods estimated to cost less than $100,000 equivalent per contract or per bid package, up to an aggregate amount not to exceed $200,000 equivalent, may be procured under contracts awarded on the basis of national shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 3. Procurement of Small Works Works estimated to cost less than $300,000 equivalent per contract or per bid package, up to an amount not to exceed $300,000 equivalent, may be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from at least three qualified domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Bank, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. 4. Procurement by Type A Subborrowers Notwithstanding any provision of this Section, Type A Subborrowers may procure goods and works from eligible sources (required to carry out Subprojects under Part A.1 of the Project), using their own procedures pursuant to paragraph 3.13 (a) of the Guidelines. Part D: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review (a) The procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply with respect to: (a) each contract procured under Part B of this Section; (b) the first two contracts or bid packages for works procured under Part C.1 (b) of this Section; and (c) the first two contracts or bid packages for goods procured under Part C.1 (a) of this Section. (b) Part C.4 of this Section shall not apply unless the Bank shall have reviewed the concession contract awarded to the potential Type A Subborrower in question and determined that such award was made according to procurement procedures acceptable to the Bank as set forth in paragraph 3.13 (a) of the Guidelines. 3. Post Review With respect to each contract not governed by paragraph 2 (a) of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II. Employment of Consultants Part A: General Consultants' services shall be procured in accordance with the provisions of the Introduction and Section IV of the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" published by the Bank in January 1997 and revised in September 1997 and January 1999 (the Consultant Guidelines) and the following provisions of Section II of this Schedule. Part B: Quality- and Cost-based Selection Except as otherwise provided in Part C of this Section, consultants' services shall be procured under contracts awarded in accordance with the provisions of Section II of the Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the provisions of paragraphs 3.13 through 3.18 thereof applicable to quality- and cost-based selection of consultants. Part C: Other Procedures for the Selection of Consultants 1. Selection Based on Consultants' Qualifications Consultants' services estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant Guidelines. 2. Individual Consultants Consultants' services for tasks that meet the requirements set forth in paragraph 5.1 of the Consultant Guidelines shall be procured under contracts awarded to individual consultants in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines. Part D: Review by the Bank of the Selection of Consultants 1. Selection Planning Prior to the issuance to consultants of any requests for proposals, the proposed plan for the selection of consultants under the Project shall be furnished to the Bank for its review and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Consultant Guidelines. Selection of all consultants' services shall be undertaken in accordance with such selection plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review (a) With respect to each contract for the employment of consulting firms awarded pursuant to Part B of this Section, the procedures set forth in paragraphs 1, 2 (other than the third subparagraph of paragraph 2 (a)) and 5 of Appendix 1 to the Consultant Guidelines shall apply. (b) With respect to each contract for the employment of individual consultants estimated to cost the equivalent of $50,000 or more, the qualifications, experience, terms of reference and terms of employment of the consultants shall be furnished to the Bank for its prior review and approval. The contract shall be awarded only after the said approval shall have been given. (c) To award contracts not covered by paragraphs 2 (a) or (b) of this Part, prior review and approval by the Bank of short lists (where pertinent) and terms of reference shall be required. 3. Post Review With respect to each contract not governed by paragraphs 2 (a) and (b) of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall apply. SCHEDULE 5 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1) through (7) set forth in the table in paragraph 1 of Schedulel to this Agreement; (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods, works and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount of $3,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Accounts; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. SCHEDULE 6 Eligibility Criteria for Subborrowers; Terms and Conditions of Subloans Part A: Eligibility Criteria for Subborrowers 1. To receive a Subloan, a water supply and sanitation sector utility must satisfy the following criteria and any other pertinent criteria set forth in the Operational Manual: (a) it must operate subject to service quality standards and a two-part (one part fixed, the other variable) tariff regime, as well as environmental standards and a legislatively approved provincial and/or municipal regulatory framework, all of which (i) are deemed by the Bank to be consistent with the models and guidelines set forth in the Operational Manual and referred to in Section 3.03 of this Agreement and (ii) are overseen by an operating regulatory or other agency; (b) it must propose to carry out a Subproject or Subprojects, approved by ENOHSA, with a financial rate of return of at least 12%, that form part of an at least five-year water and sanitation investment plan of the Subborrower; (c) it must use meters to gauge water consumption and have a record of collecting more than 35% of the charges it has billed customers over the six-month period immediately preceding its award of a Subloan; (d) it must have a staff consisting of less than six employees per one thousand water connections and maintain a level of less than 50% unaccounted water; (e) it must have prepared financial projections for its operations, which projections demonstrate the feasibility of complying with the conditions set forth in Part B.6 (e) of this Schedule; (f) it must enter into a written contract with ENOHSA, containing the Subloan terms and conditions set forth in Part B of this Schedule; (g) (i) the province within which the Subproject will be implemented must have entered into a legally binding agreement with the Borrower, which agreement allows the Borrower to, on behalf of ENOHSA, use the province's federal co-participation funds (provided pursuant to the Borrower's law no. 23,548 or such other new law or rule as may be applicable in the future) as security for overdue utility Subloan interest, principal or other payments; or (ii) there must be in existence other legally binding arrangements in favor of the Borrower or ENOHSA (approved by the Borrower's Secretaria de Programaci6n Econ6mica y Regional or its successor and the Borrower's Secretaria de Hacienda or its successor), which arrangements guarantee payment of the Subloan interest, principal and other charges either by the Subborrower (through, for example, direct application of Subborrower accounts receivable) or by the relevant province or municipality; (h) in addition to the criteria set forth in paragraphs 1 (a) through (g) of this Part A, it must to qualify as a Type A Subborrower: (i) not be a Cooperative; (ii) have formerly been operated by one of the Borrower's provinces or municipalities; (iii) have been privatized by means of a concession agreement which is deemed by the Bank to be consistent with the model set forth in the Operational Manual and referred to in Section 3.03 of this Agreement and has been awarded according to procurement procedures acceptable to the Bank as set forth in paragraph 3.13 (a) of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (as evidenced by the use of bidding documents deemed by the Bank to be consistent with the model set forth in the Operational Manual and referred to in Section 3.03 of this Agreement); and (iv) is complying with the terms of said concession agreement; and (i) in addition to the criteria set forth in paragraphs 1 (a) through (g) of this Part A, it must to qualify as a Type B Subborrower: (i) not be a Cooperative; (ii) have formerly been operated by one of the Borrower's provinces or municipalities; and (iii) be operated by the private sector pursuant to contractual arrangements, such as other concession, management or lease agreements, which do not satisfy the criteria set forth in paragraph (h) (iii) of this Part A. Part B: Terms and Conditions of Subloans 2. ENOHSA shall have obtained the Bank's written prior no-objection for each Subloan. 3. Each Subloan shall: (a) be denominated in Dollars; (b) bear the same interest rate as that of the Loan, plus a maximum of two additional percentage points; (c) be subject to the same commitment charges as those applicable to the Loan; and (d) have an amortization and grace period equal to the amortization and grace period (if any) remaining for the Loan at the time the Subloan is agreed to. 4. Each Subloan shall be in an amount not to exceed 60% (in the case of a Type A Subborrower) or 52% (in the case of a Type B Subborrower or a Cooperative) of the estimated cost of carrying out the Subproject or Subprojects in question during the first five years of the Subborrower's water and sanitation investment plan. 5. Each Subloan shall be made on terms whereby ENOHSA shall obtain, by written contract with the Subborrower, rights adequate to protect the interests of the Bank and ENOHSA, including the right to: (a) require the Subborrower to carry out and operate the Subproject with due diligence and efficiency and in accordance with sound administrative, financial, technical, social and environmental standards and practices, and to maintain adequate records; (b) require that: (i) the goods, works and consultants' services to be financed out of the proceeds of the Subloan shall be procured in accordance with the provisions of Schedule 4 to this Agreement; and (ii) such goods and services shall be used exclusively in the carrying out of the Subproject; (c) inspect, by itself or jointly with representatives of the Bank if the Bank or ENOHSA shall so request, such goods and the sites, works, plants and construction included in the Subproject, the operation thereof, and any relevant records and documents; (d) require that: (i) the Subborrower shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and (ii) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Subloan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Subborrower to replace or repair such goods; (e) obtain all such information as the Bank, ENOHSA or the Borrower shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Subborrower and to the benefits to be derived from the Subproject; and (f) suspend or terminate the right of the Subborrower to the use of the proceeds of the Subloan, or require accelerated repayment of the Subloan's outstanding principal, if such Subborrower: (i) fails to perform any of its obligations under its contract with ENOHSA; or (ii) no longer meets all the eligibility criteria (set forth in Part A of this Schedule) pertaining to such Subborrower. 6. Each Subloan contract shall also contain provisions whereby: (a) the Subborrower agrees to provide the necessary funds to cover the costs of the Subproject or Subprojects not covered by the Subloan; (b) without limitation to the terms of paragraph 5 (e) of this Part, the Subborrower agrees to provide ENOHSA, each March and September during Subproject implementation, a summary progress report on the Subborrower's operational and financial performance, as well as on the implementation of the Subproject or Subprojects financed by the Subloan, all according to formats and reporting guidelines specified in the Operational Manual; (c) the Subborrower agrees to maintain records and separate accounts with respect to its Subprojects, carry out annual audits of said records and accounts and provide ENOHSA with the reports of said audits, all in such manner as to permit compliance with the terms of Section 4.01 of this Agreement; (d) the Subborrower agrees to public disclosure, promptly as periodically compiled (but in no case less than annually), of the results of its operational and financial performance; (e) the Subborrower agrees to, throughout the term of the Subloan: (i) maintain a current ratio greater than 1.0, increase its debt service coverage ratio to at least 1.2 by the fifth year of the Subloan's term or sooner and reduce its debt to equity ratio to at most 1.7 by the fifth year of the Subloan's term or sooner and at most 1.2 by the tenth year of the Subloan's term or sooner, all calculated in the manner set forth in the Operational Manual or otherwise satisfactory to the Bank; and (ii) maintain or improve its collection, unaccounted water and staffing levels referred to in Part A.1 (c) and (d) of this Schedule; (f) the Subborrower agrees to ensure that no resettlement of people or relocation of businesses shall be required as a result of the carrying out of the Subproject in question, and agrees to comply at all times with the applicable environmental standards referred to in Part A.1 (a) of this Schedule; (g) in the case of a Subproject which involves the use of water of rivers or of other bodies of water (or their tributaries) which flow through or are bordered by countries other than Argentina, the Subborrower agrees to ensure that neither the implementation nor subsequent operation of the Subproject shall in any way adversely change the quality or quantity of water flowing to or bordering said countries; and (h) in the case of a Subproject under Part A.3 of the Project, the Subborrower agrees to: (i) charge poor families within poor urban areas no more than $50 equivalent for a new water connection, no more than $50 equivalent for a new sewer connection, no more than three percent of the family's monthly income for water service per month and no more than five percent of the family's monthly income for combined water and sewer service per month; and (ii) allow poor families within such areas to borrow from the Subborrower the amount of said water and sewer new connection charges on a one-year term, interest-free basis.