El Salvador - Ahuachapan Expansion Project : Loan 1288 - Guarantee Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1288 ES GUARANTEE AGREEMENT (Ahuachapatn Expansion Project) between REPUBLIC OF EL SALVADOR and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated July 28, 1976 GUARANTEE AGREEMENT AGREEMENT, dated July 28, 1976, between REPUBLIC OF EL SALVA- DOR (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank and Comisi6n Ejecutiva Hidroel4ctrica del Rfo Lenpa (here- inafter called the Borrower) the Bank has agreed to make to the Borrower a loan in various currencies equivalent to thirty million dollars ($30,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guar- antor agrees 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 guar- antee 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 Guar- antee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said Gen- eral Conditions Applicable to Loan and Guarantee Agreements, 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 Gen- eral 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 specif- ically undertakes to provide or to cause to be provided to the Borrower promptly as required such funds as shall be needed by the Borrower to meet Project expenditures which are not being financed from other sources, either: (i) by making contributions or loans to the Borrower; or (ii) by underwriting or guaranteeing bonds issued by the Borrower. -4- 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 other- wise 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 administrative subdivisions, the Guar- antor 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. (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; -5- and (ii) any lien arising in the ordinary course of banking trans- actions 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 subdi- vision thereof and of any entity owned or controlled by, or oper- ating 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. The Guarantor shall, promptly as required, take all steps necessary on its part to enable the Borrower to set and maintain its rates for the sale of electricity at the levels specified in Sections 5.05 and 5.06 of the Loan Agreement. Section 3.03. With regard to the tariff study forming Part D (ii) of the Project, the Guarantor shall: (a) cause the Borrower to include in such study the determination of the incremental cost of providing service to various customer classes and proposals for an alternative rate structure to reflect marginal costs in the event that such study determines that the present rate structure does not adequately reflect such marginal costs; and -6- (b) cause the Borrower to: (i) complete such study not later than December 31, 1977 or such other date as the Bank shall agree; (ii) promptly after such completion, review the conclusions of such study with the Guarantor's Ministerio de Economia and the Bank; and (iii) adjust the Borrower's rate structure on the basis of such study and within the context of the Guarantor's develop- ment strategy, so as to adequately reflect marginal costs. ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Ministro de Hacienda 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 Hacienda Ministerio de Hacienda San Salvador, El Salvador Centroamerica Cable address: MINHACIENDA San Salvador For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. -8- IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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 EL SALVADOR By /s/ Francisco Bertrand Galindo Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Enrique Lerdau Director Country Programs Department Latin America and the Caribbean Regional Office