Nicaragua - Third Managua Water Supply Project : Loan 1496 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1496 NI Loan Agreement (Third Managua Water Supply Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and EMPRESA AGUADORA DE MANAGUA Dated January 30, 1978 LOAN NUMBER 1496 NI LOAN AGREEMENT AGREEMENT, dated January 30, 1978, between EMPRESA AGUADORA DE MANAGUA (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the foreign exchange cost of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; and (B) the Borrower intends to contract a loan from one or more private- commercial banks (hereinafter called the Private Loan) in an amount equivalent to not less than one million nine hundred thousand dollars ($1,900,000) to assist in financing part of the Project on the terms and conditions set forth in a contract (hereinafter called the Private Loan Contract) to be entered into between the Borrower and said bank or banks; WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan to the Borrower upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: 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 Agree- ments of the Bank being hereinafter called the General Condi- tions). Section 1.02. Wherever used in this Agreement, 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: -2- (a) "Subsidiary Loan Agreement" means any of the following agreements between the Guarantor and the Borrower: (i) the Subsid- iary Loan Agreement for purposes of the First Managua Water Supply Project, dated October 2, 1962; and (ii) the Subsidiary Loan Agreement for purposes of the Earthquake Reconstruction Project, dated July 24, 1973; (b) "Mgd" means millions of gallons of water per day; (c) "Reglamento" means the regulations governing the organi- zation and operations of the Borrower, contained in Reglamento No. 3-B issued by the Minister of Public Works of the Borrower pursu- ant to the Borrower's Decree Law No. 292 dated February 16, 1972, as such Reglamento was published in the Gaceta Oficial of March 13, 1972, and as it may be amended from time to time; (d) "Prior Loan Agreement" means the loan agreement (Second Managua Water Supply Project) dated March 17, 1972, between the Bank and the Borr ver, as amended, and the term includes further amendments ther 'if; (e) "Project Agreement" means the Part B Project Agreement (Earthquake Reconstruction Project), dated June 6, 1973, between the International Development Association and the Borrower, as amended from time to time; (f) "DENACAL" means the Guarantor's Departamento Nacional de,Acueducto y Alcantarillado, and any successor thereto; (g) "C6rdoba" means C6rdoba in currency of the Guaran- tor; (h) "Street" means any of the following streets in downtown Managua: Momotombo, Bolivar, 5ta Avenida Este and Col6n; (i) "Indebtedness" means an amount of approximately C6rdobas 6,500,000 that, as of August 31, 1977, the Guarantor owes to the Borrower in respect of water supply charges; and (j) "Prior Guarantee Agreement" means the Guarantee Agree- ment, dated June 6, 1973, between the Guarantor and the Bank, as amended from time to time. -3- ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to ten million one hundred thousand dollars ($10,100,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accorAauce with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expendi- tures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works required for the Project shall be procured in accordance with the provi- sions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1981 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.05. The Borrower shall pay ti the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of seven and nine-tenths per cent (7.9%) per annum on the princi- pal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semiannually on February 15 and August 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the aiortization schedule set forth in Schedule 3 to this Agreement. -4- ARTICLE III Execution of the Project Section 3.01. The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appropriate engineering, financial, administrative and public utilities practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. (a) In order to assist the Borrower in the carrying out of: (i) works (including procurement therefor and final designs and supervision thereof) under Parts A through G of the Project; and (ii) Part I of the Project, the Borrower shall employ engineering or management consultants, as the case may be, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. (b) The Borrower shall employ the consultants required for the carrying out of Part I of the Project not later than June 30, 1978. (c) The Borrower shall (i) coordinate, in a manner satis- factory to the Bank, the carrying out of the study included in Part I (iii) of the Project with DENACAL and any other agencies or departments of the Guarantor that the Guarantor may indicate to the Borrower for the purpose; (ii) complete such study by June 30, 1979; (iii) upon completion of such study, furnish the Bank, DENACAL and each such other agency of the Guarantor with the findings and recommendations of such study; and (iv) afford the Bank, DENACAL and each such other agency of the Guarantor a reasonable opportunity to comment on such findings and recommenda- tions before such recommendations are implemented. Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. -5- Section 3.04. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the pro- ceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities end construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. (c) The Borrower shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property and equipment of the Borrower and any relevant records and documents. Section 3.05. The Borrower shall take all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Project. Section 3.06. The Borrower shall establish, not later than March 31, 1978, a system, satisfactory to the Bank and the Bor- rower, for the purpose of monitoring the carrying out of the Project, and shall furnish the Bank, quarterly until the comple- tion of tLe Project, with reports containing such data and indica- tors as shall have been included in such system and such other data and indicators as the Bank shall, from time to time, reason- ably request. Section 3.07. (a) The Borrower covenants not to change the Borrower's tariff structure that has been consulted with the Bank and put into effect as of November 1, 1977 unless the Bank and the Borrower shall have agreed on further changes to such tariff structure. (b) Notwithstanding the provisions of paragraph (a) herein, the Borrower shall: (i) carry out, not later than February 28, -6- 1978, a study, under terms of reference satisfactory to the Bank, on, inter alia, the tariff structure to be used and the rates to be charged by the Borrower for its water supply services; (ii) furnish the Bank, promptly after the completion of such study, with the findings and recommendations thereof; and (iii) afford the Bank a reasonable opportunity to comment thereon. ARTICLE IV Management and Operations of the Borrower Section 4.01. (a) The Borrower shall at all times maintain its existence and right to carry on operations and, except as the Bank shall otherwise agree, shall take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (b) The Borrower shall operate and maintain all its plants, equipment and property and from time to time make all necessary renewals and repairs thereof in accordance with sound engineering standards, and at all times manage its affairs, operate its plants and equipment and maintain its financial position, in accordance with sound business and public utility practices, under the supervision of experienced and competent management. (c) Without in any way limiting the generality of paragraph (b) herein, the Borrower undertakes to maintain its (i) operating, maintenance and administrative expenses, (ii) employee/connections ratio, and (iii) spare parts inventory, within limits to be agreed from time to time between the Bank and the Borrower. (d) For purposes of paragraph (c) of this Section: (i) the employee/connections ratio shall be calculated as follows: (A) dividing the number of employees by the number of connections, and (B) multiplying by 1,000 the quotient so obtained; for purposes of such calculation, the definitions of sub-paragraphs (ii) and (iii) below shall apply; (ii) "number of employees" means the number of employees of the Borrower that, at the time the calculation referred to in sub-paragraph (i) above is made for purposes of paragraph (c) of this Section, have !been in the Borrower's payroll for more than two months; and -7- (iii) "number of connections" means the number of the Borrower's domiciliary water connections being served at the time referred to in sub-paragraph (il) of this paragraph (d). Section 4.02. The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 4.03. (a) The Borrower shall: (i) maintain and operate at all times a revolving fund on terms and conditions satisfactory to the Bank; (ii) credit such fund with an amount of not less than $1,000,000 equivalent; (iii) in addition to (ii) above, cause such fund to be creditid with each payment of principal of, and interest and other charges on, long-term loans referred to in (iv) below; and (iv) take all such action as shall be necessary to ensure that the monies credited to such fund shall only be used for providing long-term loans to assist low income households aiming at being provided with water supply. (b) For purposes of this Section, the following definitions shall apply: (i) "low income households" means households having an aggregate monthly income which shall not exceed 800 C6rdobas (purchasing power as of December 31, 1977) or such other amount as the Bank may determine from time to time; and (ii) "long-term loans" means loans having a final maturity of not less than two years, to be used for financing water house connections and basic indoor piping. Section 4.04. The Borrower shall take all such action as shall be necessary on its part for purposes of Section 3.04 of the Guarantee Agreement. -8- ARTICLE V Financial Covenants Section 5.01. The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 5.02. The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year 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 April 30 of the year following each such fiscal year, (A) certified copies of its financial statements for sich year as so audited and (B) 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 the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reason- ably request. Section 5.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt. (b) The Borrower undertakes that, except as the Bank shall otherwise agree, (i) if the Borrower shall create any lien on any of its assets as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satis- factory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not mote than one year after the date on which it is originally incurred. -9- Section 5.04. Except as the Bank and the Borrower shall otherwise agree, the Borrower shall not incur any debt, other than debt required to finance the carrying out of the Project, unless the Borrower's net revenues for any twelve consecutive months within the fifteen months next preceding such incurrence, shall be at least 1.5 times the maximum debt service requirement for any succeeding fiscal year on all debt, including -the debt t6 be incurred. For the purposes of this Section: (i) "Debt" means any debt maturing by its terms more than one year after the date on whichI ft is originally incurred. (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement (including the Loan Agreement and any Prior Loan Agreement) on the date and to the extent the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement, and (B) under a guaran- tee agreement, on the date the agreement providing for such guarantee has been entered into but only.. to the extent that the guaranteed debt is outstand- ing. (iii) "Net revenues" means gross revenues from all sources, which do not include dep6sitos and any investment contribution paid or turned over to the Borrower, adjusted to take account of rates for the Borrower's water supply services in effect at the time of incurrence of debt even though such rates were not in effect during the fiscal year or twelve-month period to which such revenues relate; less all operating, maintenance and administrative expenses, including provision for taxes, if any, but excluding provision for depreciation, and interest and other charges on debt. (iv) "Debt service requirement" means the aggregate amount of amortization (including sinking fund contributions, if any), interest and other charges on debt. (v) Whenever it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made - 10 - on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable by the Borrower for the purpose of servicing such debt, or if such other currency is not so obtainable, at the rate of exchange that will be reasonably determined by the Bank. Section 5.05. (a) Except as the Bank shall otherwise agree, the Borrower shall take all such action as shall be necessary to set and maintain rates for its water supply services as shall be required to produce an annual rate of return of not less than 6% on the average value of the Borrower's net fixed assets in opera- tion, calculated in accordance with the provisions of Schedule 5 to this Loan Agreement; provided, however, that such annual rate of return may be less than 6% but not less than 4% during the Borrower's fiscal years of 1978, 1979 and 1980. (b) The Borrower shall, not later than July 1, 1978, adjust the rates referred to in paragraph (a) herein in a manner satis- factory to the Bank. Section 5.06. The Prior Loan Agreement is hereby amended by the deletion of paragraphs (ii) and (iii) of Section 5.04, and Section 5.05, and the replacement thereof by, respectively, paragraphs (a) (ii) and (iii) of Section 5.04, and Section 5.05, both of this Agreement. Section 5.07. Except as the Bank shall otherwise agree, the Borrower shall not: (i) sell or otherwise dispose of all or substantially all of its property or assets, unless the Borrower shall first redeem and pay or make adequate provision, satisfac- tory to the Bank, for the redemption and payment of all of the Loan which shall be outstanding and unpaid; or (ii) sell or otherwise dispose of all or substantially all of the property included in the Project or any plant included therein unless the Borrower shall first redeem and pay or make adequate provision, satisfactory to the Bank, for redemption and payment of a propor- tionate part of the Loan which shall then be outstanding and unpaid equal to the proportionate part of the Project so sold or disposed of. The Borrower may, however, without reference to the foregoing, sell or otherwise dispose of any property which shall have become old, worn-out, obsolete or unnecessary for use in its operations. - 11 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) a default shall have occurred in the payment of prin- cipal or interest or any other payment required under any Subsidi- ary Loan Agreement; (b) the Reglamento shall have been amended, suspended, abrogated, repealed or waived, so as to materially and adversely affect the conduct of the Borrower's operations, financial con- dition or the performance of its obligations under this Loan Agreement; and (c) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of any loan (including the Private Loan) made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms of the agreement pro- viding therefor (including the Private Loan Contract), or (B) any such loan shall have become due and payable prior to the agreed maturity thereof. (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfac- tion of the Bank that: (A) such suspension, cancel- lation, termination or prematuring is not caused by the failure of the Borrower to perform any of its - 12 - obligations under such agreement, and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consis- tent with the obligations of tb Borrower under this Agreetint. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following events are specified pursuant to para- graph (h) thereof: (a) the event specified in paragraph (a) of Section 6.01 of this Agreement shall occur and shall continue for a period of thirty days after notice thereof shall have been given by the Bank to the Borrower and the Guarantor; and (b) any event specified in paragraph (b) or in paragraph (c) (i) B of Section 6.01 of this Agreement shall occur. ARTICLE VII Effective Date; Termination Section 7.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions: (a) that the Borrower shall have executed and delivered the Private Loan Contract under terms and conditions satisfactory to the Bank; (b) that the consultants referred to in paragraph (a) (i) of Section 3.02 of this Agreement shall have been employed by the Borrower; and (c) that the Guarantor and the Borrower shall have taken all such action as shall be satisfactory to the Bank for purposes of the payment or setting off of the Indebtedness. Section 7.02. The date May 3, 1978, is hereby specified for the purpose of Section 12.04 of the General Conditions. - 13 - ARTICLE VIII Addresses Section 8.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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) For the Borrower: Empresa Aguadora de Managua Apartado Postal 3599 Managua, D.N. Nicaragua, C.A. Cable address: AGUADORA Managua, Nicaragua 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, and the International Development Association, acting through its. duly authorized representative, - 14 - has evidenced, for purposes of Section 4.03 of the Project Agreement, its agreement to the amendment of the Prior Loan Agreement as provided in Section 5.06 of this Agreement. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean EMPRESA AGUADORA DE MANAGUA By /s/ Evenor Masis A. Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean - 15 - 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 Dollar Equivalent) to be Financed (1) Civil works for 550,000 62% (repre- Parts A and B senting the of the Project estimated foreign expen- diture com- ponent) (2) Equipment for 750,000 100% of foreign Parts A and B expenditures of the Project (3) Civil works for 1,000,000 43% (represent- Parts C, D, E and ing the esti- F of the Project mated foreign expenditure com- ponent) (4) Equipment and 4,200,000 100% of foreign materials for expenditures Parts C, D, E and F of the Project (5) Equipment for 1,300,000 100% of foreign Part G of the expenditures Project (6) Equipment for 400,000 100% of foreign Part H of the expenditures Project Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (7) Consultants' ser- 600,000 100% of foreign vices expenditures (8) Unallocated 1,300,000 TOTAL 10,100,000 2. For the purposes of this Schedule, the term "foreign expendi- tures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor. 3. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Guarantor on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph I above, no withdrawals shall be made: (a) in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggre- gate amount not exceeding the equivalent of $50,000, may be made in respect of preparation of final designs under Category (7) on account of payments made for such expenditures before that date but after August 31, 1977; or (b) on account of expenditures for any neighborhood under Part F of the Project until the Bank has been furnished by the Borrower with a sewage disposal program for such neighborhood - 17 - satisfactory to the Bank. For purposes of this paragraph, "neigh- borhood" means any of the following neighborhoods of Managua: Bolonia 2, Santa Emilia, SatSlite Asososca, La Gruta, OPEN 3, Bella Cruz, Reparto Ulsa, El Mirador, El Recreo and El Pilar; or (c) on account of expenditures under Part D of the Project, in respect of each Street, unless the Bank has been furnished with evidence satisfactory to the Bank that the Guarantor has under- taken the expansion and improvement of such Street. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set fort1 in the table in para- graph 1 above, if the Bank has reasonably-estimated that the amount of the Loan then allocated to any Category will be insuffi- cient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower:--(i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures, and (ii) if such realloca- tion cannot fully meet the estimated shortfall, reduce the dis- bursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have besen eligible for financing out of the proceeds of the Loan. - 18 - SCHEDULE 2 Description of the Project The Project consists of the Borrower's program for expanding the Borrower's water supply system, to be carried out during the 1978-1980 period, and includes the following Parts: A. Construction of, and equipment for, six water wells, each of about 150 meters depth, in the vicinity of Josf M. Moncada, with an aggregate yield averaging 6 Mgd. B. (i) Expansion of the existing booster-pumping stations located in Rafaela Herrera and Altamira by providing additional pumping equipment therefor, to increase its aggregate capacity in about 3,000 gallons per minute and 2,800 gallons per minute, respectively. (ii) Construction of, and equipment for, three new minor pumping stations which will operate in connection with the water tanks included in Part C of the Project. C. Construction of three water tanks on the Managua-Le6n Highway, south of Villa Fontana, with a capacity of 0.5 million gallons each and a fourth water tank in the vicinity of Villa Fontana, with a capacity of 0.126 million gallons. D. Installation in the Streets of about 14 km of 6 to 16 inches distribution mains (including the necessary valves therefor) to replace existing damaged pipes and valves. E. Improvements in the water supply networks in different neighborhoods of Managua by replacing about 200 malfunc- tioning valves and about 70 malfunctioning hydrants, and eliminating about 10,000 abandoned house connections in a manner satisfactory to the Bank. F. Construction of about 86 km of 4 to 24 inches distribution mains in different neighborhoods of Managua other than those included in Part D above. G. Installation of about 20,000 domiciliary service connections. H. Acquisition and use of a new computer to be substituted for the one presently used by the Borrower. - 19 - I. (i) Preparation of a study for the next expansion stage of the Borrower, which will include the selection of the least costly alternative among several possible water sources and the preliminary design for such alternative, and the requirements for said expansion up to the year 2000. (ii) Review and improvement (including training of the Borrower's personnel) of the Borrower's operation in the fields of, inter alia, preventive maintenance, pumping optimization, billing and inventory control, and long-term planning and management of the Borrower's commercial department. (iii) Preparation of a study on the organizational arrange- ments to be made, in respect of the provision of water and sewerage services in Managua, in order to optimize the coordination of the different agencies of the Guarantor involved in such provision of services. The Project is expected to be completed by December 31, 1980. - 20 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each February 15 and August 15 beginning August 15, 1982 through August 15, 1994 390,000 On February 15, 1995 350,000 To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of withdrawal. - 21 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.40% More than three years but not more than six years before maturity 2.80% More than six years but not more than eleven years before maturity 5.10% More than eleven years but not more than fifteen years before maturity 6.95% More than fifteen years before maturity 7.90% - 22 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured in accor- dance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Cred- its" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. Bidders for the works included in Part F of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. B. Other Procurement Procedures Civil works contracts (excluaing contracts for civil works under Part A of the Project) estimated to cost less than the equivalent of $200,000 and contracts for the purchase of goods estimated to cost less than the equivalent of $25,000, may be awarded on the basis of bidding procedures locally advertised provided: (i) said procedures are satisfactory to the Bank; and (ii) the aggregate cost of said contracts shall not exceed the equivalent of $1,000,000. C. Evaluation and Comparison of Bids for Goods; Preference for Manufacturers Established in the Territories of the Central American Common Market 1. For the purpose of evaluation and comparison of bids for the supply of goods: (a) bidders shall be required to state in their bid the c. and f. (port of entry) price for imported goods, or the ex- factory price for domestically-manufactured goods; (b) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (c) the cost to the Borrower of inland freight, insurance and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. - 23 - 2. Bids shall be compared in accordance with the following rules: (a) the term "Central American Bid" means a bid submitted by a manufacturer established in the territories of the Central American Common Market for goods manufactured or processed to a substantial extent (as reasonably determined by the Bank) in such territories; any other bid will be deemed to be a "Non- Central American Bid"; (b) the bid price under a Central American Bid will be the sum of the following amounts: (i) the ex-factory price of such goods; and (ii) freight, insurance and other costs of delivery of such goods to the site designated in the specifications; and (c) for the purpose of comparing any Non-Central American Bid with any Ceatral American Bid, the price under a Non-Central American Bid will be the sum of the following amounts: (i) the c. and f. (port of entry) price of such goods; (ii) insurance costs to the port of entry; (iii) half the amount of any taxes on the importation of such goods into the territories of the Guar- autor which generally apply to non-exempt impor- ters, or 15% of the amounts specified in (i) and (ii) above, whichever shall be the lower; and (iv) freight insurance and other costs of delivery of such goods from the port of entry to the site designated in the specifications. 3. The bidding documents shall clearly indicate the margin of preference to be granted. D* Review of Procurement Decisions by the Bank 1. Review of prequalification. The Borrower shall, before qualification is invited, inf.orm the Bank in detail of the -24 - procedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any appli- cant for prequalification shall be furnished by the Borrower to the Bank for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such addi- tions to, deletions frsm, or modifications in, the said list as the Bank shall reasornably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for civil works estimated to cost the equivalent of $200,000 or more and to all contracts for equipment or materials, or both, estimated to cost the equivalent of $25,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report, by the consultants referred to in Section 3.02 of this Agreement, on the evaluation and compar- ison of the bids received, together with the recommendations for award of the said consultants and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. - 25 - (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. - 26 - SCHEDULE 5 Method of Calculating Rates of Return For the purposes of Section 5.05 of this Loan Agreement: 1. The annual rate of return shall be calculated by relating the Borrower's net operating income for the fiscal year in ques- tion to the average value of the Borrower's net fixed assets in operation. 2. The term "value of the Borrower's net fixed assets" shall mean the gross value of such assets used for the Borrower's water supply services, as revalued at least annually in accordance with the variations of the consumers price index published by the Guarantor's Central Bank (or with such other methods of revaluation as the Bank and the Borrower shall determine from time to time), less the amount of accumulated straight-line deprecia- tion, as set forth in paragraph 4 (b) below, and less any instal- lation or construction cost of the Borrower's assets, if any such cost has been recovered by the Borrower through the collection of derechos de servicios or other contributions to investment. 3. The term "average value of the Borrower's net fixed assets" shall mean one-half of the sum of (i) the value of the Borrower's net fixed assets at the beginning of the fiscal year in question, and (ii) the value of the Borrower's net fixed assets at the end of the same fiscal year. 4. The term "net operating income" shall mean the difference between: (a) gross operating revenues accruing from the Borrower's water supply services (which do not include derechos de servicios, dep6sitos and any investment contribution paid or turned over to the Borrower); and (b) the sum of operating, maintenance and administration expenses (but excluding interest and other charges on debt), adequate provision for bad debts, indirect cost of connections and reconnections, taxes (if any) and adequate provision for straight-line depreciation on all depreciable assets in operation at an average rate of not less than 3% per annum (or such other rate as the Bank and the Borrower may from time to time agree) of the gross value of such assets, as shown in the balance sheets of the Borrower and revalued as set forth in paragraph 2 above, all related to the Borrower's water supply services.