Nicaragua - Ninth Power Project : Loan 1402 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1402 NI LOAN AGREEMENT (Ninth Power Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and EMPRESA NACIONAL DE LUZ Y FUERZA Dated April 22, 1977 LOAN AGREEMENT AGREEMENT, dated April 22, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and EMPRESA NACIONAL DE LUZ Y FUERZA (hereinafter called the Borrower). -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 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 have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Ley Constitutiva" means the Ley Constitutiva de la Empresa Nacional de Luz y Fuerza of the Guarantor, dated Octo- ber 14, 1954, as amended up to the date of this Agreement; (b) "ICE" means Instituto Costarricense de Electricidad, an instrumentality of the Republic of Costa Rica engaged in the elec- tricity business; (c) "Instituto" means the Instituto Nacional de Energ!a Elfctrica, an agency of the Guarantor established by the Ley Creadora del Instituto, of June 20, 1969; -3- (d) "Interconnection Contract" means an agreement to be concluded between ICE and the Borrower, setting forth the rights and obligations of each party to establish and maintain an elec- trical interconnection of their systems, as such agreement may be amended from time t( time, and such term includes all annexes, schedules and agreements supplemental to the Interconnection Contract; (e) "Interconnection rates" means the rates for electricity paid by the Borrower under the Interconnection Contract or under a similar contract concluded between the Borrower and Empresa Nacional de Energfa Elctrica, an instrumentality of the Republic of Honduras; (f) "General Coordinator" means the Coordinador General of the Borrower, whose terms esf reference are contained in a resolution of the Borrover's Consejo Directivo dated December 1, 1976; (g) "Executive President" means the Presidente Ejecutivo of the Borrower, as that position is defined in the Ley Constitutiva; (h) "DPN" means Direcci6n de Planificaci6n Nacional, the executing agency of the Consejo de Planificaci6n Nacional, an instrumentality of the Republic of Nicaragua; and (i) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and DPN pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement. 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 re- ferred to, an amount in various currencies equivalent to twenty- two million dollars ($22,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expen- ditures made (or, if the Bank shall so agree, to be made) in re- spect 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 and in respect of inter- est and other charges on the Loan. (b) On each of the semi-annual interest payment dates spec- ified in Section 2.07 of this Agreement, the Bank shall, on be- half of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay, on such date, interest and other charges on the Loan accrued and payable on or before the date set forth, and up to the amount allocated, in Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank. -5- Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be fi- nanced out of the proceeds of the Loan, shall be procured in ac- cordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be March 31, 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 to 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 eight and one-half per cent (8-1/2%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on February 1 and August 1 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. -6- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out Parts A, B, C, D and E of the Project, and shall take whatever steps are necessary to enable DPN to carry out Part F of the Project, with due diligence and efficiency and in conformity with appropriate engineering, financial and public utility practices. (b) The Borrower shall relend to DPN that portion of the proceeds of the Loan that is specified in Category (7) (c) of Schedule 1 of the Loan Agreement, under a subsidiary loan agreement to be entered into between the Borrower and DPN, under terms and conditions which shall have been approved by the Bank, including, inter alia, the following requirements: (i) that DPN shall carry out Part F of the Project in accordance with the practices set forth in paragraph (a) of this Section; (ii) that the qualifica- tions, experience, terms of reference, and terms and conditions of employment of the consultants to be employed by DPN shall be satisfactory to the Bank; and (iii) that the timetable for carry- ing out P%rt F of the Project shall be approved by the Bank. (c) The Borrower shall perform all of its obligations and shall enforce all of its rights under the Subsidiary Loan Agree- ment and under the Interconnection Contract in such manner as to protect the interests of the Borrower and the Bank and to accom- plish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, nor amend, abro- gate or waive the Subsidiary Loan Agreement or the Interconnection ContreLt or any provision thereof. Section 3.02. In order to assist the Borrover in supervising the construction and the installation of equipment for the Proj- ect, and in carrying out Part E of the Project, the Borrower shall employ engineering, financial, management, and other public util- ity consultants whose qualifications, experience, terms of refe- rence, and terms and conditions of employment shall be satisfac- tory to the Bank. 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. Section 3.04. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, re- ports, contract documents and construction and procurement sched- ules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. --8- (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 Proj- ect; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Proj- ect and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and k ii) shall fur- nish to the Bank all such information as the Bank shall reason- ably request concerning the Project, the expenditure of the pro- ceeds 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. (d) During the carrying out of Part C (2) of the Project, the Borrower shall consult periodically with the Bank concerning the appropriate measures to be taken for improving, if necessary, the rate of new service connections of low-income consumers in accordance with performance indicators to be agreed between the Bank and the Borrower. Section 3.05. The Borrower shall take or cause to be taken 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 the construction and operation of the facilities included in the Project and shall furnish to the Bank, promptly after such acquisition, evidence satisfactory to the Bank that such land and rights in respect of land are available for pur- poses related to the Project. Section 3.06. The Borrower shall take all reasonable meas- ures to ensure that the execution and operation of the Project are carried out with due regard to ecological and environmental factors. Sectibn 3.07. The Borrower shall: (a) carry out and complete the rate study under Part E (3) of the Project in accordance with a timetable acceptable to the Bank, and shall, within 6 months of the completion of such study, review with the Bank and with the Instituto the results of such study; and (b) in the event that the Borrower and the Instituto shall agree to introduce a new rate structure of the Borrower based on the results of such study, the Borrower shall review with the Bank a timetable for putting such new rate structure into effect. Section 3.08. The Borrower shall take all necessary action to reduce the cost of shipping goods financed by the Loan, including, inter alia, seeking waivers from appropriate agencies of the Guar- antor of any provisions of the shipping laws of the Guarantor which would lead to unnecessary delay in the transportation and delivery of goods financed by the Loan, or which would lead to freight charges for such goods that are higher than those regularly charged by shipping lines or maritime conferences. - 10 - ARTICLE IV Management and Operations of the Borrower Section 4.01. (a) The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks, including the risk of earthquake, and in such amounts as shall be consistent with appropriate practice. (b) Without limiting the obligations set forth in paragraph (a) of this Section, the Borrower shall, not later than 10 days after the Effective Date, furnish to the Bank the report of a competent insurance expert evaluating the adequacy of the Bor- rover's insurance coverage. After reviewing such report with the Bank, the Borrower shall take all necessary action to provide adequate insurance coverage in conformity with such report and with the recommendations of the Bank. Section 4.02. The Borrower shall at all times maintain its existence and right to carry on its operations and shall, except as the Bank shall otherwise agree, take all necessary steps that are required to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. Section 4.03. The Borrower shall at all times operate and maintain its plants, equipment and property, and from time to time make all necessary repairs or renewals thereof, in accor- dance with sound engineering and public utility practices. - 11 - Section 4.04. The Borrower shall at all times manage its af- fairs, carry on its operations and maintain its financial position in accordance with sound business and public utility practices. Section 4.05. (a) Except as the Bank shall otherwise agree, the Borrower shall employ a General Coordinator, under terms of reference satisfactory to the Bank, to assist the Executive Presi- dent in the management of the Borrower's technical and financial affairs. (b) Before appointing any person to the position of General Coordinator, the Borrower shall inform the Bank concerning such person's qualifications and experience, and shall allow the Bank a reasonable time to comment before making such appointment. Section 4.06. (a) The Borrower shall furnish to the Bank, not later than June 30, 1977, or such other date as shall be ac- ceptable to the Bank, a detailed plan, acceptable to the Bank, for establishing the personnel training program under Part E (5) of the Project. (b) As part of the personnel training program described in paragraph (a) hereof, the Borrower shall establish, not later than December 31, 1977, or such other date as shall be acceptable to the Bank, and shall maintain thereafter, a Training Unit for management, supervisory, and technical personnel. The Training Unit shall be under the direction of a full-time director, whose qualifications, experience, and terms of reference shall be satis- factory to the Bank. - 12 - 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 ap- plied, by independent auditors acceptable to the Bank; (ii) fur- nish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such 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 reasonably 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, except as disclosed in writing to the Bank. - 13 - (b) The Borrmver 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 satisfac- tory 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 there- of, 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 more than one year after the date on which it is originally incurred. Section 5.04. (a) Except as the Bank shall otherwise agree, the Borrower shall not, until the Project is completed, undertake, or permit to be undertaken on its behalf, any major expansion project unless it shall have first furnished to the Bank evidence satisfactory to the Bank that (i) such expansion project is eco- nomically justified; and (ii) the Borrower will have adequate financial resources for the carrying out of such expansion proj- ect. (b) For the purposes of this Section, a "major expansion project" shall be deemed to be a project or acquisition of new as- sets the aggregate cost of which shall be in excess of the equiva- lent of one per cent (1%) of gross fixed assets in operation. Section 5.05. The Borrower shall not, without the prior con- sent of the Bank, sell, lease, transfer or otherwise dispose of its major assets required for the efficient carrying out of its operations, including the carrying out of the Project. Section 5.06. (a) Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless the Borrower's net revenue for the fiscal year or for a later twelve consecutive months' period immediately preceding the date of such incurrence, whichever is the greater, shall be not less than 1.5 times the maximum debt service requirement for any succeeding fiscal year on all the Borrower's debt, including the debt to be incurred. (b) For purposes of this Section: (i) the term "debt" means all debt except debt in- curred in the ordinary course of business and maturing by its terms less than one year after its incurrence; (ii) debt shall be deemed to be incurred on the date of execution and delivery of a loan contract or agreement providing for such debt or, in the case of a guarantee of debt, on the date of ex- ecution and delivery of the contract providing for such guarantee; - 15 - (iii) the term "net revenue" means gross operating revenue, adjusted to take account of rates 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 revenue relates, less all operating and administrative expenses, including adequate maintenance, taxes, or any payments in lieu thereof, but before provision for depreciation and interest and other charges on debt; (iv) the term "debt service requirement" means the aggregate amount of amortization (including sinking fund payments, if any), interest and other charges on debt; and (v) whenever it shall be necessary to value in the currency of the Guarantor debt payable in an- other currency, such valuation shall be made on the basis of the rate of exchange at which such other currency is obtainable by the Borrower, at the time such valuation is made, for the pur- pose 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. (c) The following Sections of the following specified prior agreements between the Bank and the Borrower are hereby amended to read the same as this Section: - 16 - (i) Section 5.04 of the Loan Agreement (Rio Tuma Hydroelectric Project) dated June 22, 1960; (ii) Section 5.08 of the Loan Agreement (Sixth Power Project) dated October 5, 1966; (iii) SecticA 5.08 of the Loan Agreement (Seventh Power Project) dated June 21, 1968; and (iv) Section 3.04 of the Loan Agreement (Eighth Power Project) dated June 28, 1972. Section 5.07. The Borrower shall, from time to time, take all necessary action to maintain the total amount of its accounts receivable in arrears below 110% of the total average monthly bill- ing corresponding to the 90 days immediately preceding the date of such calculation, such calculation to be made at least once a month. For purposes of this Section, "total amounts of accounts receivable in arrears" means the total amount of accounts receivable on account of billings for electrical service, less the total amount of such billings for the previous thirty days but including any outstanding promissory notes received on account of unpaid billings and before deducting any reserve for bad debts. Section 5.08. Except as the Bank shall otherwise agree, the Borrower shall take or cause to be taken, from time to time, all such steps as shall be required to make such adjustments in the Borrower's rates for the sale of electricity as shall be necessary to provide the Borrower with revenue sufficient to cover all operating and administrative expenses, including taxes and levies, - 17 - if any, adequate maintenance and depreciation, and yield a rate of return on the average value of its total net fixed assets in operation of at least eight and one-half per cent (8-1/2%) per annum. For the purposes of this Section: (i) the rate of return in respect of any fiscal year will be calculated by relating the Borrower's net income from operations for that year to the average value of the total net fixed assets in operation during that fiscal year; (ii) the term "net income from operations" means gross operating revenue, less all operating and admin- istrative expenses including adequate maintenance, straight-line depreciation, taxes and levies, if any, or any payments in lieu thereof, but without deduction of interest or other charges on debt; 111i the term "total net fixed assets in operation" means the gross value of such assets, as revalued at least once every calendar year in accordance with methods of revaluation acceptable to the Bank, less accumulated depreciation; and (iv) the "average value" of the total net fixed assets in operation will be determined by adding the value of the total net fixed assets in operation - 18 - at the end of a fiscal year to the value of the total net fixed assets in operation at the begin- ning of that year and dividing the total by two. Section 5.09. The Borrower shall take all such action as shall be necessary or advisable to cause its rates for the sale of elec- tricity to be adjusted automatically to cover additional operating expenses resulting from: (i) variations in the price paid by it for fuel (other than diesel fuel oil) for its steam-electric plants; and (ii) variations in interconnection rates. Section 5.10. The following Sections of the following specified prior agreements between the Bank and the Borrower are hereby amended to read the same as Sections 5.08 and 5.09 of this Agreement: (i) Section 5.10 of the Loan Agreement (Rio Tuma Hydroelectric Project) dated June 22, 1960; (ii) Section 5.10 of the Loan Agreement (Sixth Power Project) dated October 5, 1966; (iii) Section 5.10 of the Loan Agreement (Seventh Power Project) dated June 21, 1968; and (iv) Section 3.06 of the Loan Agreement (Eighth Power Project) dated June 28, 1972. - 19 - Section 5.11. The Borrower shall revalue its fixed assets at least once every calendar year in accordance with methods of revaluation acceptable to the Bank. Section 5.12. Except as the Bank shall otherwise agree, the Borrower undertakes to retain all of its earnings for reinvestment in its facilities until the Project is completed. - 20 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (k) thereof, namely, that the Le Constitutiva shall have been changed in such a way as to impair the ability of the Borrower to carry out the Project or to perform its other obliga- tions under the Loan Agreement. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that the event specified in Section 6.01 of this Agreement shall occur. -21- ARTICLE VII Effective Date; Termination Section 7.01. 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) the Borrower has retained experts and consultants for procurement and training whose qualifications, experience and terms of reference are satisfactory to the Bank; and (b) the Borrower has established terms of reference, accept- able to the Bank, for experts and consultants in areas which have been identified by the General Coordinator as needing improvement. Unless the Bank shall otherwise agree, such areas shall include cost estimating, construction management, financial control, and budgeting. Section 7.02. The date July 26, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. - 22 - 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: INTBAFRAD Washington, D.C. For the Borrower: Empresa Nacional de Luz y Fuerza Managua, D.N. Nicaragua, C.A. Cable address: ENALUF Managua, Nicaragua - 23 - 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ A. Krieger Regional Vice President Latin America and the Caribbean EMPRESA NACIONAL DE LUZ Y FUERZA By /s/ Luis Manuel Debayle Authorized Representative - 2~4 - 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 ex- penditures 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) Equipment and mate- ) rials: (a) For Part A of 4,4oo,ooo ) the Project ) (b) For Part B of 4500,000 ) 100% of foreign the Project ) expenditures or 92% of ex-factory (c) For Part C (1) 8oo,ooo ) price of locally of the Project ) manufactured ) goods (d) For Part C (2) 1,500,000 ) of the Project ) (e) For Part D of 2,800,000 ) the Project ) (2) Equipment, materials 200,000 75% of local and associated ser- expenditures vices for Part C (representing (2) of the Project the estimated foreign expen- diture component) for locally pro- cured goods - 25 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (3) Consultants' ser- vices: (a) For Parts A, B, 3,100,000 100% C, D, and Parts E (1) to E (4) of the Project (b) For Part E (5) 250,000 100% of foreign of the Project expenditures (c) For Part F of 150,000 100% the Project (4) Interest and other 1,800,000 Amounts due charges on the Loan accrued on or before June 30, 1979 (5) Unallocated 2,500,000 TOTAL 22,000,000 - 26 - 2. For the purposes of this Schedule: (a) the term "foreign expenditures" 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; and (b) the term "local expenditures" means expenditures in the currency of the Guarantor and for goods or services supplied from the territory of 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 Borrower 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 1 above, no with- drawals 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 $800,000, may be made in respect of Category (3) on account of payments made for such expenditures before that date but after July 1, 1976; - 27 - (b) except as the Bank shall otherwise agree, in respect of payments for Part A of the Project until: (i) evidence satisfactory to the Bank shall have been furnished to the Bank that (A) the Republic of Costa Rica and the Republic of Nicaragua have made legal arrangements, on terms and conditions satisfactory to the Bank, for the purpose of establishing the basis of intergovernmental cooperation on which the interconnection of the electrical systems of the Borrower and ICE shall be established and maintained, and (B) an Interconnection Contract on terms and conditions satisfac- tory to the Bank has been duly executed and delivered and authorized or ratified by all necessary corporate and governmental action, and has become effective; (ii) there shall have been furnished to the Bank an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank showing that the Interconnection Contract has been duly authorized or ratified by, and executed and delivered on behalf of the parties thereto, that it constitutes a valid and binding obligation of the parties thereto in accordance with its terms, and that it has become effective; and (iii) the Bank, after receiving the results of a study being conducted by the Borrower, and after receiving assurances regarding the availa- bility of funds for the Costa Rican portion of the interconnection, has notified the Borrower that the Bank agrees that Part A of the Project is technically and economically acceptable and that suffi- cient funds on reasonable terms shall be available for the Costa Rican portion of the interconnection; (c) in respect of payments for Part C (2) of the Project, until the Bank, after receiving the results of a study being con- ducted by the Borrower, has notified the Borrower that the Bank agrees that Part C (2) of the Project is technically and economi- cally acceptable; and - 28 - (d) in respect of payments for Part D of the Project, until the Bank, after receiving the results of a study being conducted by the Borrower, has notified the Borrower that the Bank agrees that Part D of the Project is technically and economically accept- able. 5. Notithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient 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 reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then appli- cable 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 pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expen- ditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or lim- iting 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 been eligible for financing out of the proceeds of the Loan. - 29 - SCHEDULE 2 Description of the Project The Project consists of the following: Part A: Interconnection Construction of about 145 km of 230 kV single circuit trans- mission line on steel towers for interconnection with Costa Rica. Part B: Transmission 1. Construction of about 9 km of double circuit and about 8 km of single circuit transmission line of 138 kV to complete the Managua ring, and construction of about 5 km of single circuit transmission line of 138 kV to the Matagalpa substation. 2. Construction, addition, and/or conversion of about seven substations of 138/13.8 kV or 138/25 kV5 by adding about 122 MVA transformer capacity. 3. Relocation of about 75 MVA transformer capacity of 69/13.8 kV to six existing substations. 4. Installation of about eight 69 kV circuit breakers and of protective relaying and metering equipment. - 30 - Part C: Distribution 1. Installation of about sixty-five NWAR switched and un- switched capacitors to supply reactive power. 2. Installation of distribution lines, transformers, and connections in low income areas. Part D: Load dispatch center Construction of a national load dispatch center, and instal- lation of equipment to operate the Honduras-Nicaragua-Costa Rica interconnections. Part E: Preparation of Plans and Studies; Organization and Management 1. The preparation of a master plan for power sytem ex- pansion. 2. The preparation of a study of alternatives and specifica- tions for the national load dispatch center. 3. The preparation of a study, based on marginal cost pric- ing, of rate structures for the public supply of elec- tricity in the territory of the Guarantor. - 31 - 4. The preparation and carrying out of a program to im- prove the Borrower's management and administration, including, financial control, construction management, budgeting, and personnel management. 5. The preparation and carrying out of a personnel train- ing program. Part F: Sector organization study Preparation of a sector organization study by consultants under the direction of DPN. * * P e The Project is expected to be completed by September 30, 1980. - 32 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each February 1 and August 1 beginning February 1, 1981 through August 1, 1993 815,000 On February 1, 1994 810,000 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. - 33 - Premiums on Prepayment The following percentages are specified as the premiums pay- able 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 Nut more than three years before maturity 1.50% More than three years but not more than six years before maturity 3.00% More than six years but not more than eleven years before maturity 5.50% More than eleven years but not more than fifteen years before maturity 7.50% More than fifteen years before maturity 8.50% -34- 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 accordance with procedures consistent with those set forth in Part A of the "Guide- lines for Procurement under World Bank Loans and IDA Credits" pub- lished by the Bank in August 1975 (hereinafter called the Guide- lines), on the basis of international competitive bidding. 2. The Borrower shall not proceed with the preparation of bid documents for Parts A, C (2) and D of the Project until the Bank, after receiving the results of studies to be conducted by the Borrower, has notified the Borrower that the Bank agrees that such Parts of the Project are technically and economically acceptable. B. Other Procurement Procedures Contracts for the following equipment may be placed through negotiations with suppliers: 1. Imported special and standardized protective relaying and metering equipment, at an estimated cost of about $350,000, to be installed in substations. - 35 - 2. Other items of imported equipment, totalling in the aggregate about $200,000 equivalent, which will be required in small quan- tities. C. Evaluation and Comparison of Bids for Goods; Preference for Central American Ccmon Market Manufacturers For the purpose of evaluating bids for goods and associated services, bid prices shall be determined and compared in accordance with the following rules: 1. The term "Central American Bid" means a bid submitted by a manufacturer established in the territories of the member countries 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 shall be deemed to be a "Non-Central American Bid". 2. The bid price under a Central American Bid shall be the sum of the following amounts: (a) the ex-factory price of such goods; and (b) freight, insurance and other costs of delivery of such goods to the place of their use or installation. 3. For the purpose of comparing any Non-Central American Bid with any Central American Bid, the bid price under a Non-Central American Bid shall be the sum of the following amounts: - 36 - (a) the c.i.f. (port of entry) price of such goods; (b) half the amount of any taxes on the importation of such goods into the territories of the Guarantor which generally apply to non-exempt importers, or 15% of the amount specified in (a) above, whichever shall be the lower; and (c) freight, insurance and other costs of delivery of such goods from their port of entry to the place of their use or instal- lation. D. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods and for civil works estimated to cost the equivalent of $50,000 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 docu- ments 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- rover shall, before a final decision on the award is made, inform - 37 - 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 on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the in- tended 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, with- out the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to furnishing to the Bank the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract to be financed out of the pro- ceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execu- tion and prior to furnishing to the Bank 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.