Guatemala - Aguacapa Power Project : Loan 1426 - Guarantee Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1426 GU Guarantee Agreement (Aguacapa Power Project) between REPUBLIC OF GUATEMALA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 10, 1977 GUARANTEE AGREEMENT AGREEMENT, dated June 10, 1977, between REPUBLIC OF GUATEMALA (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS the Guarantor intends to reorganize the Power Sector for the purpose of developing an improved institutional structure covering generation, transmission and distribution functions that will adequately meet sector requirements and more efficiently promote the socio-economic development of the country; WHEREAS by the Loan Agreement of even date herewith between the Bank and Instituto Nacional de Electrificaci6n (hereinafter called the Borrower) the Bank has agreed to make to the Borrower a loan in various currencies equivalent to fifty-five million dollars ($55,000,000), 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 as hereinafter provided; and 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: -2- 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 (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in Section 1.02 of the Loan Agreement have the respective meanings therein set forth. -3- ARTICLE II Guarantee; Provision of Funds Section 2.01. 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. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes: (a) except as the Bank shall otherwise agree and for the purpose of assisting the Borrower in financing the cost of the Project, to make loans or cause loans to be made to the Borrower in amounts equivalent to not less than $17,000,000, $13,000,000 and $5,000,000 during the Fiscal Years 1977, 1978 and 1979, respectively, on terms and conditions satisfactory to the Bank; and -4- (b) whenever there is reasonable cause to believe that the funds available to the Borrower, including those referred to in paragraph (a) of this Section, 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 other funds as are needed to meet such expenditures. -5- ARTICLE III Other Covenants Section 3.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, specific security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Guarantor, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or adminis- trative subdivisions, the Guarantor shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. -6- (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Guarantor, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Guarantor or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Guarantor. Section 3.02. (a) Except as the Bank shall otherwise agree, commencing with Fiscal Year 1977 and every Fiscal Year thereafter until the Fiscal Year in which the Project shall have been completed, the Guarantor shall take or cause the Power Sector to take, from time to time, all such measures (including, but not limited to, adjustments in the rates for the sale of electricity by the Power Sector) as shall be required to cause the Power Sector to provide, in every Fiscal Year until the Project shall have been completed, consolidated funds from internal sources -7- equivalent to not less than 16% in Fiscal Year 1977, 13% in Fiscal Year 1978, 16% in Fiscal Year 1979 and 18% in every Fiscal Year thereafter until the Project shall have been completed, of the corresponding aggregate capital expenditures. (b) For the purposes of this Section: (i) the funds from internal sources of each Power Sector Entity shall be calculated as the difference between: (A) the sum, for the Fiscal Year in question, of its gross revenues related to electricity operations, consumer deposits and cash contributions in aid of construction, and net non-operating income; and (B) the sum, for the Fiscal Year in question, of its operating, maintenance and administration expenses (excluding depreciation and any other non-cash charges), interest and other charges on its debt (excluding interest and other charges accrued during the Fiscal Year in question and which have been charged to construction works, when such construction works are being financed under a loan), -8- repayment of its debt (including sinking fund payments, if any), all taxes imposed on it, all its payments resulting from cash dividends and other cash distributions of income and surplus or both (excluding dividends paid, or cash distributions of income or surplus or both made to the Guarantor, if any, and reinvested by the Guarantor in the Borrower's equity capital) any increase (or decrease) in its net working capital other than cash, and any other of its cash outflows other than its capital expenditures; (ii) the term "consolidated funds from internal sources" means the aggregate of funds from internal sources (calculated as set forth in (i) above) of all Power Sector Entities after excluding therefrom such amounts as shall represent sales of electricity between Power Sector Entities; (iii) the increase (or decrease) in net working capital other than cash shall be calculated as the difference between: - 9 - (A) the value at the beginning of the Fiscal Year in question; and (B) the value at the end of the Fiscal Year in question of current assets (excluding cash or the equivalent thereof) minus current liabilities (excluding any principal installment payable within one year of any debt maturing by its terms not less than one year after the date on which such debt was originally incurred); (iv) the term "capital expenditures" means capital expenditures related to electricity operations of each Power Sector Entity and includes, without any limitation: (A) interest and other charges accrued during the Fiscal Year in question and which have been charged to construction works, when such construction works are being financed under a loan; and (B) administrative overhead expenses reasonably attributable to such capital expenditures; - 10 - (v) the term "aggregate capital expenditures" means the sum of capital expenditures, as defined in (iv) above, of every Power Sector Entity; and (vi) the term "corresponding aggregate capital expenditures" means: (A) for Fiscal Year 1977: the aggregate capital expenditures during such Fiscal Year; and (B) for Fiscal year 1978 and every Fiscal Year thereafter: the average of the aggregate capital expenditures during the Fiscal Year in question and the aggregate capital expenditures during the Fiscal Year preceding the Fiscal Year in question. (c) For the purposes of the foregoing, the Guarantor shall enable, or shall cause every Power Sector Entity other than the Borrower to enable, the Borrower to comply with the Borrower's obligations under paragraphs (a) and (c) of Section 5.04 of the Loan Agreement. - 11 - Section 3.03. (a) Except as the Bank shall otherwise agree, commencing with the Fiscal Year following that Fiscal Year in which the Project shall have been completed and every Fiscal Year thereafter, the Guarantor shall take or cause the Power Sector to take, from time to time, all such measures (including, but not limited to, adjustments in the rates for the sales of electricity by the Power Sector) as shall be required to provide the Power Sector with revenues sufficient to yield an annual rate of return of not less than 9% of the aggregate average value of net fixed assets in operation. (b) For the purposes of this Section: (i) the annual rate of return shall be calculated by dividing the consolidated net operating income of the Power Sector for the Fiscal Year in question by the aggregate average value of net fixed assets in operation, and by multiplying by 100 the quotient so obtained; (ii) the term "net operating income" means, for each Power Sector Entity, its gross revenues obtained from all sources related to electricity operations, less all its operating, administration and maintenance expenses, straight-line depreciation - 12 - at an annual rate of not less than 3% of its assets valued as set forth in (iv) below, and taxes or any payments in lieu thereof, but without deduction of interest or other charges on its debt; (iii) the phrase "consolidated net operating income of the Power Sector" means the aggregate net operating income (calculated as set forth in (ii) above) of all Power Sector Entities after excluding therefrom such amounts as shall represent transactions of any kind between Power Sector Entities; (iv) the phrase "value of net fixed assets in operation" means, for each Power Sector Entity, the gross value of its net fixed assets in operation during the Fiscal Year in question valued from time to time in accordance with sound methods of valuation or revaluation satisfactory to the Bank and consistently applied, less accumulated depreciation; - 13 - (v) the average value of net fixed assets in operation during the Fiscal Year in question will be determined by adding the value of net fixed assets in operation at the end of the Fiscal Year in question to the value of the net fixed assets in operation at the beginning of such Fiscal Year and dividing the total by two; and (vi) the phrase "aggregate average value of net fixed assets in operation" means the sum of the average value of net fixed assets in operation of every Power Sector Entity. Section 3.04. The provisions of Sections 3.02 and 3.03 of this Agreement replace the provisions of Section 3.05 of the Guacalate Guarantee Agreement and of Section 3.05 of the First Power Guarantee Agreement. Section 3.05. Except as the Bank shall otherwise agree, the Guarantor shall cause the Borrower and EEG to take, in Fiscal Year 1977 and every Fiscal Year thereafter, all such measures as shall be necessary or advisable to cause the rates for the sale of electricity from the Borrower to EEG to be set at such level as shall be required to transfer to the Borrower all funds available to EEG in excess of EEG's requirements for operations, repayment of debt, net working capital and capital expenditures. - 14 - For purposes of this Section, the definitions and reporting requirements contained in Schedule 2 to this Agreement shall apply. Section 3.06. The Guarantor shall take not later than thirty days from the Effective Date, or on such other date as the Guarantor and the Bank shall agree, all such action as shall be necessary or advisable to cause the rates for the sale of electricity by the Power Sector to be adjusted automatically to cover additional operating expenses resulting from variations in the prices paid for fuel by the Power Sector in order to transfer the cost of such additional operating expenses to the customers of the Power Sector. Section 3.07. The Guarantor shall carry out, or cause the Borrower to carry out, by January 30, 1978 or such other date agreed by the Bank, a study under terms of reference satisfactory to the Bank on the levels and structures of the rates for the sale of electricity, and shall afford the Bank a reasonable opportunity to comment on the recommendations of such study before the implementation thereof. Section 3.08. (a) The Guarantor shall take and cause the Power Sector to take all action necessary: (i) to coordinate the expansion and operation of generating, transmission and distribution facilities of all electric utility entities operating - 15 - within the Interconnected System in order to prevent waste of energy, duplication of facilities and unnecessary investment; and (ii) to ensure that the expansion of such facilities will be based on economically justifiable programs. (b) The Guarantor further covenants that until completion of the Project and except as the Guarantor and the Bank shall otherwise agree, it shall cause EEG not to undertake, or permit to be undertaken on behalf of EEG, any capital expenditures in excess of the amounts specified in paragraph 1 (e) of Schedule 1 to this Agreement. (c) Except as the Bank shall otherwise agree, the Guarantor shall, for purposes of the carrying out of the Program, make contributions to the Borrower's equity of not less than $7,000,000, $11,000,000 and $8,000,000 during, respectively, Fiscal Year 1977, 1978 and 1979. Section 3.09. (a) Except as the Bank shall otherwise agree, the Guarantor shall take, and cause all public agencies to take, all such action as shall be necessary to ensure that, by December 31, 1977 and at all times thereafter, the amount of the Power Sector's accounts receivable from public agencies shall not exceed the sum of amounts billed by the Power Sector to such public agencies during the two months immediately preceding the date on which such calculation is made, such calculation to be made at least quarterly. - 16 - (b) For purposes of this Section, the term "public agencies" means any agency or instrumentality of the Guarantor, any political or administrative subdivision thereof and any entity (other than the Borrower or EEG) owned or controlled by, or operating for the account or benefit of, the Guarantor or any such agency, instrumentality or subdivision. Section 3.10. The Guarantor shall enter with the Borrower and EEG into the Subsidiary Contract, which shall provide, on terms and conditions satisfactory to the Bank, for the matters listed in Schedule 1 to this Agreement, and, except as the Bank shall otherwise agree, the Guarantor shall not change or fail to enforce such Subsidiary Contract or any provision thereof. Section 3.11. The Guarantor covenants that, from the Effective Date until the date on which the Project shall have been completed, any reduction in the rates for the sale of electricity by the Power Sector shall be made only with the agreement of the Bank. - 17 - ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Ministro de Finanzas of the Guarantor is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: Ministro de Finanzas Palacio Nacional Guatemala, Guatemala Cable address: MINIFINANZAS Guatemala 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) - 18 - 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. REPUBLIC OF GUATEMALA By /s/ Abundio Maldonado Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Krieger Regional Vice President Latin America and the Caribbean - 19 - SCHEDULE 1 Matters to be provided for in the Subsidiary Contract 1. Concerning the Guarantor: (a) to reinvest in equity capital of the Borrower all its cash dividend2 from EEG; (b) to cause EEG to take all such measures as required for purposes of Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.08, 3.09 and 3.11 of this Agreement; (c) to cause EEG to furnish the Borrower with all such data and information as required for purposes of the Project, the study referred to in Section 3.07 of this Agreement and the funds flow analysis referred to in Section 5.04 (c) and in Schedule 2 to this Agreement; (d) to cause the Borrower and EEG to comply with Section 3.10 of this Agreement;and (e) until completion of the Project and except as the Guarantor and the Bank shall otherwise agree, to cause EEG not to undertake, or permit to be undertaken on behalf of EEG, any capital expenditures in excess of the equivalent of $4,000,000, $4,500,000, and $5,750,000 in, respectively, Fiscal Years 1977, 1978 and every Fiscal Year thereafter. - 20 - 2. Concerning the Borrower: (a) to take any action required on its part to receive the equity capital contributions referred to in 1 (a) above; (b) to make satisfactory arrangements to enable the Guarantor to comply with Section 3.07 of this Agreement; and (c) to pay to EEG, promptly when due, all bills for the sale of electricity by EEG to the Borrower. 3. Concerning EEG: (a) to comply with Section 3.08 (b) of this Agreement and with paragraph 1 (e) above; (b) to take all action required on its part for purposes of Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10 and 3.11 of this Agreement; (c) to furnish to the Guarantor and the Borrower all the data and information required for purposes of Part C (a) of the Project, for the funds flow analysis referred to in Section 5.04 of the Loan Agreement and in Schedule 2 to this Agreement, and for the study referred to in Section 3.07 of this Agreement; and (d) to pay to the Borrower, promptly when due, all bills for the sale of electricity by the Borrower to EEG. - 21 - SCHEDULE 2 For the purposes of Section 3.05 of this Agreement: (a) the funds available to EEG in excess of EEG's requirements for operations, repayment of debt, net working capital and capital expenditures shall be calculated for each Fiscal Year as the difference between: (i) the sum, for each such Fiscal Year, of EEG's borrowings and gross revenues resulting from all sources related to electricity operations, consumer deposits, cash contributions in aid of construction and net non-operating income; and (ii) the sum, for each such Fiscal Year, of all expenses of EEC for operation, maintenance and administration (excluding depreciation and any other non-cash charges), interest and other charges on EEG's debt, repayment of such debt (including sinking fund payments, if any), all payments made by EEG resulting from cash dividends and other cash distribution of income or of surplus or both, all taxes imposed on EEG, increase (or decrease) in EEG's net working capital other than cash and capital expenditures of EEG; - 22 - (b) the increase (or decrease) in net working capital shall be calculated as indicated in paragraph (b) (iii) of Section 3.02 of this Agreement; and (c) the Guarantor shall furnish, or shall cause the Borrower to furnish, to the Bank: (i) as soon as available but not later than four months after the end of each Fiscal Year, a funds flow analysis of EEG for the preceding year showing, inter alia, the results of applying the test defined in paragraph (a) of this Schedule (hereinafter, for purposes of this Schedule, called "the test"), to such Fiscal Year; (ii) semi-annually, as soon as available but not later than February 28 and August 31 on each Fiscal Year, a funds flow analysis of EEG for the then current Fiscal Year, satisfactory to the Bank, including an updating of EEG's capital expenditures and showing, inter alia, the results of applying the test to such Fiscal Year; and - 23 - (iii) as soon as available but not later than one month after requested by the Bank, all other relevant information concerning the measures taken by the Guarantor, the Borrower or EEG for the compliance with the obligations of the Borrower under this Schedule.