Philippines - Geothermal Exploration Project : Loan 2203 - Loan Agreement - Conformed

OFRCAL LOAN NUMBER 2203 PH D3CUMENTS Loan Agreement (Geothermal Exploration Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and PHILIPPINE NATIONAL OIL COMPANY Dated 0 , 1982 LOAN NUMBER 2203 PR LOAN AGREEMENT AGREEMENT, dated 0 , 1982, between TNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (herein- after called the Bank) and the PHILIPPINE NATIONAL OIL COMPANY (hereinafter called the Borrower) a state-owned company duly established and operating under the laws of the Republic of the Philippines (hereinafter called the Guarantor or the Philippines). WHEREAS (A) the Guarantor and the Borrower have requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Project will be carried out by PNOC Energy Develop- ment Corporation (hereinafter called PNOC-EDC), a subsidiary of the Borrower, with the assistance of the Borrower and, as part of such assistance, the Borrower shall make available to PNOC-EDC the proceeds of the Loan and such other funds as shall be required for the Project as hereinafter provided; (C) by an agreement (hereinafter called the Guarantee Agreement) of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan as therein set forth; and (D) the Guarantor has entered into agreements with external official bilateral sources for grants to the Guarantor of which an amount equivalent to approximately one million dollars ($1,000,000) will, inter alia, contribute towards Part B of the Project; and WHEREAS the Bank is willing, on the basis, inter alia, of the foregoing, to make a Loan to the Borrower on the terms and conditions set forth herein and in the Project Agreement of even date herewith between the Bank and PNOC-EDC; 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 -2- Guarantee Agreements of the Bank, dated October 27, 1980, 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 res-ective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and PNOC-EDC of even date herewith, as the same may be amended from time to time, and such term includes all schedules and supplemental agreements made or to be made with respect to the Project Agreement. (b) "Subsidiary Loan Agreement" means the agreement entered into between the Borrower and PNOC-EDC 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. (c) "PNOC Charter" means the Charter of PNOC as set forth in Presidential Decree No. 334 of November 9, 1973, as amended to the date of this Agreement. (d) "PNOC-EDC Articles of Incorporation" means the articles of incorporation of PNOC-EDC dated March 5, 1976, and "PNOC-EDC By-Laws" means the By-Laws of PNOC-EDC dated April 5, 1976. (e) "PNOC-EDI Articles of Incorporation" means the articles of incorporation of PNOC Energy Drilling Inc., a subsidiary of the Borrower, dated July 31, 1980 and "PNOC-EDI By-Laws" means the By-Laws of PNOC-EDI dated September 5, 1980. (f) "PNOC-GTC Articles of Incorporation" means the articles of incorporation, as amended, of PNOC-Geothermal Technology Corporation, a subsidiary of the Borrower, dated December 12, 1980, and "PNOC-GTC By-Laws" means the By-Laws, as amended, of PNOC-GTC dated December 12, 1980. (g) "Act" means the Geothermal Exploration and Development Act of the Guarantor, as set forth in Presidential Decree No. - 3 - 1442 promulgated June 11, 1978, as amended to the date of this Agreement. (h) "BED" means the Bureau of Energy Development of the Guarantor established within its Ministry of Energy pursuant to Presidential Decree No. 1206 of October 6, 1977, as amended to the date of this Agreement. (i) "Governing Regulation" means any of the Charter, Decrees, Articles of Incorporation, By-Laws or Act referred to in Sections 1.02 (c), 1.02 (d), 1.02 (e), 1.02 (f), 1.02 (g) and 1.02 (h) of this Agreement. (j) "Exploration Agreements" ;means the agreements (including Geophysical Permits, Geophysical Contracts and Service Contracts) entered into or to be entered into between BED and PNOC-EDC pursuant to Section 3.02 (a) of the Guarantee Agreement, and such term shall include any schedule to such agreements. (k) "Consultants' Services" means the services to be provided by consultants and experts to: (i) PNOC pursuant to Section 3.04 of the Loan Agreement; and (ii) PNOC-EDC pursuant to Section 2.02 of the Project Agreement. (1) "Specialized Services" means the drilling and related services required to carry out the exploration activities under Part A of the Project. (m) "local currency" means the currency of the Guarantor. 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 thirty-six million dollars ($36,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance 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 expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods, Specialized Services and - 4- Consultants' 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, pro- curement of the goods and Specialized Services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1986 or such later date a- the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.05. Not later than the Effective Date, the Borrower shall pay to the Bank a fee equivalent to five hundred thirty-two thousand and twenty dollars ($532,020). The fee shall be payable in such currency or currencies as the Bank shall specify. In the event that the Bank shall not have received full payment of the fee by the Effective Date, the Bank shall, on behalf of the Borrower, withdraw the amount allocated to Category (5) of the table set forth in paragraph 1 of Schedule 1 to this Agreement and pay to itself the amount required for the full payment of the fee in the currency or currencies specified for the purpose. Section 2.06. The Borrower shall pay to the Bank a commit- ment 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 2.07. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one half per cent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) For the purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.08 of this Agreement, including the Interest Period in which this Agreement is signed. -5- (ii) "Cost" of Qualified Borrowings means the cost, expressed as a percentage per annum, as reasonably determined by the Bank, provided that the amount of $8,520.5 million referred to in (iii) (B) hereunder shall be reckoned at a cost of 10.93% per annum. (iii) "Qualified Borrowings" means (A) outstanding borrowings of the Bank drawn down after June 30, 1982; and (B) until July 1, 1985, the amount of $8,520.5 million (representing borrowings of the Bank between July 1, 1981 and June 30, 1982) less any part thereof repaid earlier than July 1, 1985. (iv) "Semester" means the first six months or the second six months of a calendar year. (c) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings for such Semester. (d) Notwithstanding paragraph (a) of this Section, the interest rate for all Interest Periods commencing in 1982 shall be 11.43% per annum. Section 2.08. Interest and other charges shall be payable semiannually on June 1 and December 1 in each year. Section 2.09. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.10. PNOC-EDC is designated as the representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 hereof and Article V of the General Conditions with respect to Parts A and B of the Project. ARTICLE III Execution of the Project Section 3.01. (a) Without limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall: (i) carry out Part C of the Project and cause PNOC-EDC to -6- carry out Parts A and B of the Project described in Schedule 2 to this Agreement in accordance with the provisions set forth therein and shall cause PNOC-EDC to perform in accordance with the provisions of the Project Agreement all the obligations of PNOC-EDC therein set forth; and (ii) shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable PNOC-EDC to perform such obligations, and shall not take any action which would prevent or interfere with such performance. (b) For the purposes of the Project and without limitation or restriction upon the generality of Section 3.01 (a) of this Agreement, the Borrower shall (i) relend the proceeds of the Loan, excluding that relating to Part C of the Project, to PNOC-EDC under a subsidiary loan agreement to be entered into between the Borrower and PNOC-EDC under terms and conditions which shall have been approved by the Bank, and (ii) make avail- able to PNOC-EDC as equity contributions, as and when required, (A) funds, estimated to amount to the equivalent of $34,500,000, required for local currency expenditures under the Project, and (B) any other funds which may be required for the timely comple- tion of the Project. (c) The Borrower shall take all action which may be required on its part and within its powers to request, in a timely fashion, such funds as the Guarantor has undertaken to provide or cause to be provided pursuant to Section 2.02 of the Guarantee Agreement. Section 3.02. (a) Except as the Bank may otherwise agree, the Borrower shall cause all goods, Specialized Services and Consultants' Services financed out of the proceeds of the Loan to be used exclusively for the purposes of the Project until the completion thereof. (b) 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. Section 3.03. The Borrower shall: (i) take all such action which may be required on its part to enable PNOC-EDC to acquire -7- and renew as and when needed all such land and rights in respect of land, pernits and licenses (including those granted under Exploration Agreements) as shall be required for PNOC-EDC to carry out Parts A and B of the Project; (ii) cause PNOC-EDC to perform in accordance with the provisions of the Exploration Agreements all the obligations of PNOC-EDC therein set forth, and take or cause to be taken all action necessary or appropriate to enable PNOC-EDC to perform such obligations; and (iii) shall not take any action which would prevent or interfere with such performance. Section 3.04. For the purpose of carrying out Part C of the Project, the Borrower shall employ geothermal industry and economic consultants whose selection, qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank in accordance with the principles and procedures described in the Consultants' Guidelines. Section 3.05. As agreed between the Borrower and the Bank, the Borrower shall: (a) cause the studies undertaken under Part C of the Project to be completed by Decembe- 31, 1983, or such other date as may be agreed upon between the Borrower and the Bank; and (b) submit to the Guarantor for its consideration such reports promptly after completion thereof. ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall, and shall cause its subsidiaries involved in the execution of this Project to, carry on its operations and conduct its affairs in accordance with sound administrative, financial, engineering, petroleum and geothermal industry practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 4.02. The Borrower shall at all times operate and maintain, and cause its subsidiaries involved in the execution of the Project to operate and maintain, its plants, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in -8- accordance with sound engineering, financial and geothermal industry practices. Section 4.03. The Borrower shall take out and maintain with responsible insurers, or make other provision for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 4c04. The Borrower shall at all times maintain its corporate existence and right to carry on operations and shall, except as the Bank shall otherwise agree, acquire, maintain and renew all rights, powers, privileges, licenses and franchises owned or held by it and necessary or useful in the conduct of its business. Section 4.05. Except in the normal course of its business, the Borrower shall not, and shall ensure that its subsidiaries involved in the execution of the Project shall not, without the prior approval of the Bank, sell, lease, transfer, or otherwise dispose of any of their properties or assets which shall or may adversely affect, in a substantial manner, the efficient carrying out of their business. 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 corporate and consolidated 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 accept- able to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four morths 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. -9- Section 5.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assrts as security for any debt except as otherwise currently repoi.ed to the Bank or stated in writing. (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 as security for the payment of debt incurred for the purpose of financing the purchase of such property; or (B) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 5.04. The Borrower shall furnish to the Bank all such financial reports, including projected financial statements and other information as the Bank shall reasonably request, concerning the corporate and consolidated administration, operations and financial condition of the Borrower. Section 5.05. The Borrower shall take all measures required on its part to increase PNOC-EDC's share capital to enable PNOC-EDC to carry out its obligations pursuant to Sections 4.03 and 4.04 of the Project Agreement. Section 5.06. The Borrower shall, or shall cause PNOC-EDC to, take all reasonable action which may be required on its part and within its powers to ensure the timely conclusion of a soundly based agreement between itself and the National Power Corporation, a state-owned company duly established and operating under the laws of the Guarantor, for the supply of steam from those parts of the Palinpinon and Tongonan geothermal fields currently under development. - 10 - 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) the Guarantor or the Borrower or any other authority having jurisdiction shall have taken any action for the dissolu- tion or disestablishment of PNOC-EDC, or for the suspension of all or a material part of the operations of PNOC-EDC; (b) PNOC-EDC shall have been unable to pay its debts as they mature or any action or proceeding shall have been taken whereby any of its properties shall or may be distributed among its creditors; (c) PNOC-EDC shall have failed to perform any of its obligations under the Project Agreement which would or may materially affect the carrying out of the Project or the purposes of the Loan; (d) a Governing Regulation or any provision thereof shall have been repealed, amended, suspended or waived, so as to affect adversely: (i) the carrying out of the Project; (ii) the perfor- mance by the Borrower of any other of its obligations under this Agreement; (iii) the performance by PNOC-EDC of its obligations under the Project Agreement; or (iv) the performance by BED or PNOC-EDC of any of their respective obligations under the Exploration Agreements; and (e) the Exploration Agreements shall have been terminated or abrogated, or any party to any of such agreements shall have failed to perform any of its obligations thereunder. Section 6.02. For the purposes of Section 7.01 of the Gen- eral Conditions, the following events are specified pursuant to paragraph (h) thereof: (a) any of the events specified in paragraphs (c), (d) and (e) of Section 6.01 of this Agreement shall occur and shall continue for a period of 60 days after not ffce thereof shall have been given by the Bank to the Borrower; -Lid - 11 - (b) any of the events specified in paragraphs (a) and (b) of Section 6.01 of this Agreement shall occur. ARTICLE VII Effective Date; Termination Section 7.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions, namely, that the Subsidiary Loan Agreement has been executed on behalf of the Borrower and PNOC-EDC on terms and conditions satisfactory to the Bank. Section 7.02. The following are specified as additional rnatters, within t,e meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly executed, authorized or ratified by PNOC-EDC, and is legally binding and enforceable upon PNOC-EDC in accordance with its terms; and (b) the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and PNOC-EDC and is legally binding upon the Borrower and PNOC-EDC in accordance with its terms. Section 7.03. The dateio A, J9 , is hereby specified for the purpose of Section 12.04 ofthz General Conditions. 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 - 12 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Borrower: Philippine National Oil Company 7901 Makati Avenue Makati, Metro Manila Philippines Cable address: Telex: PNOC 22259 PNO-PH (RCA) Makati 63667 PNOC-PN (Eastern) Manila, Philippines 45270 PNOC-PM (ITT) 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By ( I~kV &~~~i A 2 Regional Vice President East Asia and Pacific PHILIPPINE NATIONAL OIL COMPANY By Authorized Representative - 13 - 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) Equipment, 21,000,000 100% of foreign materials and expenditures; consumables 100% of local (other than expenditures fuel) (ex-factory); and 80% of local expenditures for imported items locally pro- cured (2) Fuel 1,300,000 50% (3) (a) Consultants' 1,500,000 100% Services for Part B of the Project (b) Consultants' 700,000 100% Services for Part C of the Project (4) (a) Specialized 4,100,000 ) Services for ) Part A.2 of ) the Project ) 100% of foreign ) expenditures (b) Specialized 1,400,000 ) Services for ) Part A.3 of ) the Project ) - 14 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (5) Fee 532,020 Amount due (6) Unallocated 5,467,980 TOTAL 36,000,000 2. For the purposes of this Schedult: (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 or for goods or services supplied from the territory of the Guarantor. 3. The disbursement percentages have been calculated in com- pliance 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 afGrementioned policy of the Bank. 4. (a) Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expen- ditures prior to the date of this Agreement, except that with- drawals, in an aggregate amount not exceeding the equivalent of $3,000,000, may be made in respect of Categories (1) and (4) (a) on account of payments made for such expenditures before that date but after January 1, 1982. - 15 - (b) Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expen- ditures for services described in (i) Category (4) (a) until the Bank has notified PNOC-EDC that such services are eligible for financing out of the proceeds of the Loan on the basis of the Bank's review and approval of the relevant annual drilling program in respect of Part A.2 of the Project, and (ii) in Category (4) (b) until the Bank has notified PNOC-EDC that such services are eligible for financing out of the proceeds of the Loan on the basis of the Bank's review and approval of the approximate location and the objectives of each well in respect of Part A.3 of the Project. 5. Notwithstanding 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 Cate- gory, 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 disburse- ment 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 pro- curement 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 been elig- ible for financing out of the proceeds of the Loan. - 16 - SCHEDULE 2 Description of the Project The purpose of the Project is to promote geothermal exploration in the territory of the Philippines through: (A) the conducting of a geothermal exploration program (Part A of the Project); and (B) the provision of technical assistance (Part B of the Project). In addition, the Project will assist in the development of the geothermal policy of the Guarantor through the undertaking of two policy studies (Part C of the Project). Part A: Expansion of Geothermal Exploration Program to be carried out by PNOC-EDC 1. Geoscientific studies including, inter alia, geologi- cal, geophysical and geochemical studies to identify appropriate locations and targets for drilling operations. 2. Drilling of exploration wells, on the basis of the results of the geoscientific studies carried out under Part A.1. of the Project and other relevant data, to bring two prospective areas to the stage where firm development decisions can be taken. It is estimated that: (a) approximately 4 wells will be drilled to an average depth of about 12,000 feet in Southern Negros to support a second 110 MWe of power generating capacity in the area; and (b) approximately 11 wells will be drilled to an average depth of about 9,000 feet in Bacon-Manito to support a minimum of 110 MWe of power genera- ting capacity. 3. Drilling of exploration wells, on the basis of the results of the geoscientific studies carried out under Part A.1. of the Project and other relevant data, to identify prospective areas close to potential markets. It is estimated that: (a) approximately 8 wells will be drilled to an average depth of about 9,000 feet in one or more of the following areas: Balungo, Del Gallego, Irosin, Mabini, Montelago and Mt. Pinatubo on Luzon; and - 17 - (b) two shallow exploration wells will be drilled in Bacon-Manito to establish the availability of low-enthalpy steam. Selection of the area/areas in which wells will be drilled under subparagraphs (a) and (b) above shall be carried out in agreement with the Bank. 4. Studies to establish the extent of producible reserves on the basis of the additional drilling to be undertaken under (i) Part A.2 (a) and (ii) Part A.2 (b) above. 5. In the event that new information (including informa- tion of a geological, geophysical, geochemical, topographical or economic nature) is acquired which makes it desirable to adjust the number of exploration wells and/or change the areas in which the exploration is to be undertaken as described in Parts A.2 and 3 above, the program as described may be adjusted with the approval of the Bank and PNOC. Part B: Technical Assistance Technical assistance to support PNOC-EDC in geoscientific and reservoir studies and drilling operations as necessary for carrying out Part A of the Project. Part C: Policy Studies 1. A study of (a) the approach to determining priorities among the various geothermal locations in the Philippines and (b) the appropriate bases for contracting steam supplies in the Philippines. 2. An evaluation of the economics of non-power uses of steam and the appropriate extent of geothermal drilling required for such purposes. The Project is expected to be completed by June 30, 1986. - 18 - SCHEDULE 3 Amortization Schedule. Payment of Principal Date Payment Due (expressed in dollars)* On each June 1 and December 1 beginning June 1, 1988 through December 1, 2002 1,200,000 * The figures in this column represent dollar equivalents determined as of the iespective dates of withdrawal; see General Conditions, Section 3.04. - 19 - 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 3.04 (b) of the General Conditions: Time of Prepayment Premium The Interest rate (expressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multi- plied by: Not more than three years 0.15 before mat rity More than three years but not 0.30 more than six years before maturity More than six years but not 0.55 more than eleven years before maturity More than eleven years but not 0.80 more than sixteen years before maturity More than sixteen years but not 0.90 more than eighteen years before maturity More than 18 years before 1.00 maturity - 20 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part C hereunder, goods and Specia- lized Services shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the current edition of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of inter- national competitive bidding as described in Part A of the Guidelines. 2. For goods and Specialized Services to be procured on the basis of international competitive bidding, and in addition to the requirements of paragraph 1.2 of the Guidelines, PNOC-EDC shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of avail- ability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and Specialized Services in question. PNOC-EDC shall provide the necessary information to update such notice annually so long as any goods or Specialized Services remain to be procured on the basis of international competitive bidding. 3. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international com- petitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods offered in such bid; (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids; and (iii) the cost of inland freight and other expenditures incidental to the delivery of the goods to the place of their use or installation shall be included. - 21 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the proce- dures described in Part A of this Schedule, goods manufactured in the Republic of the Philippines may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in the Republic of the Philippines if the bidder shall have established to the satisfaction of PNOC-EDC and the Bank that the manufacturing cost of such goods includes a value added in the Republic of the Philippines equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of - 22 - customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Contracts for Specialized Services (for mud logging and electric logging, cementing and testing, geochemical analyses and other highly specialized activities available only from a limited number of suppliers), which do not exceed the equivalent of $1,000,000 each, and which do not exceed in the aggregate the equivalent of $6,000,000, may be awarded in accordance with limited international tendering procedures acceptable to the Bank; such tendering procedures shall include, in each case, a solicication of bids from a list of suppliers provided that prior approval of the Bank is obtained ior such list. Limited inter- national tendering shall be carried out in accordance with proce- dures consistent with those set forth in Part A of the Guidelines except that no notification or advertisement of the invitation to bid will be required and no margin of domestic or regional pre- ference for manufacturers or contractors will be applicable. In the event that less than 3 suppliers are prepared to bid, such Specialized Services shall be procured on the basis of negotiated contracts under terms and conditions acceptable to the Bank. 2. Contracts for equipment, materials and services procured for trial purposes which do not exceed the equivalent of $200,000 each and which do not exceed, in the aggregate, the equivalent of $1,000,000, may be procured on the basis of negotiated contracts under terms and conditions acceptable to the Bank. 3. Contracts for equipment, materials and consumables, other than equipment and materials procured pursuant to the terms of paragraph 2 above, which do not exceed the equivalent of $200,000 each and which do not exceed, in the aggregate, the equivalent of $3,000,000 may be awarded (i) in accordance with local competi- tive bidding procedures acceptable to the Bank or (ii) on the basis of negotiated contracts on terms and conditions acceptable to the Bank, in cases where (A) less than 3 suppliers are - 23 - prepared to bid or (B) in respect of fuel, where prices are regulated by the Guarantor on an industry-wide basis. 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 estimated to cost the equivalent of $200,000 or more: (a) Before bids are invited, PNOC-EDC 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, PNOC-EDC 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 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 intended award would be inconsistent with the Guidelines or this Schedule, promptly inform PNOC-EDC 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 was invited. (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. 2. With respect to each contract not governed by the preceding paragraph, PNOC-EDC shall furnish to the Bank, pr3mptly 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, - 24 - together with the analysis of the respective bids, recom- mendations 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 PNOC-EDC and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 20% of the original price, PNOC-EDC shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform PNOC-EDC and state the reasons for its determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this 2 IL dayof t, of198 . FOR SECRETARY