Honduras - Water Supply And Drainage Project : Loan 2421 - Loan Agreement - Conformed

C W' C L A T LOAN NUMBER 2421 O C"UMENTS Loan Agreement (Water Supply and Drainage Project) between REPUBLIC OF HONDURAS and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated % ,1984 LOAN NUMBER 2421 10 LOAN AGREEMENT AGREEMENT, dated CC 4 , 1984, between REPUBLIC OF HONDURAS (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 Parts A, C, D, E, F, G and H (1), (2) and (3) of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Borrower intends to borrow from the Commonwealth Development Corporation (hereinafter called CDC), an amount of eleven million dollars ($11,000,000) equivalent (hereinafter called the CDC Loan) to finance Part B of the Project on the terms and conditions set forth in an agreement between the Bor- rower and CDC; (C) the Borrower also intends to receive from the Republic of France through its Direction des Relations Economiques Exterieures du Ministere des Finances (hereinafter referred to as the Ministry) a grant in an amount of three million eight hundred thousand French Fr;ncs (FF 3,800,000) to assist in the financing of Parts H (4), (5) and (6) of the Project, on the terms and conditions set forth in an agreement between the Borrower and the Ministry. (D) Parts A through G of the Project and Part H of the Project will be carried out by the Municipalidad de San Pedro Sula (hereinafter called the Municipality) and the Servicio Auto'nomo Nacional de Acueductos y Alcantarillados (hereinafter called SANAA), respectively, with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the Municipality and SANAA the proceeds of the Loan as herein- after provided; and WHEREAS the Bank has agreed on the basis, inter alia, of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank and the Munici- pality and in the Project Agreement of even date herewith between the Bank and SANAA; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I General Coaditions; Definitions Section 1.01. The parties to this Agrc. ment accept all the provisions of the General Conditions Appli, able to Loan and Guarantee Agreements of the Bank, dated Octobur 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 respective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Municipality Project Agreement" means the agreement between the Bank and the Municipality of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the Municipality Project Agreement and all agreements supplemental to the Municipality Project Agreement. (b) "SANAA Project Agreement" means the agreement between the Bank and SANAA of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the SANAA Project Agreement and all agreements supplemental to the SANAA Project Agreement. (c) "Project Agreements" means the Municipality Project Agreement and the SANAA Project Agreement. (d) "Municipality Subsidiary Loan Agreement" means the agreeme-t to be entered into between the Borrower and the Municipality pursuant to Section 3.01 (b) of this Agreement, as the same may be amended from time to ti;ae, and such term includes all schedules to the Municipality Subsidiary Loan Agreement. (e) "SANAA Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and SANAA pursuant to Section 3.01 (d) of this Agreem-nt, as the same may be amended from time to time, and such term includes all schedules to the SANAA Subsidiary Loan Agreement. (f) "Municipality Subsidiary Loan" means the loan provided for under the Municipality Subsidiary Loan Agreement, and "SANAA -3- Subsidiary Loan" means the loan provided for under the SANAA Subsidiary Loan Agreement. (g) "Subsidiary Loan Agreements" means the Municipality Subsidiary Loan Agreement and the SANAA Subsidiary Loan Agreement. (h) "San Pedro Sula Urban Area" means the geographical area which includes the city of San Pedro Sula. (i) "DIMA" means Division Municipal de Aguas of the Munici- pality, as it has been organized by the Acuerdo Municipal. (j) "Lempiras" means the currency of the Borrower. (k) "SANAA Statutes" means Ley Constitutiva del Servicio Autonomo Nacional de Acueductos y Alcantarillados, as approved by the Borrower's Decreto No. 91, dated April 26, 1961, published in La Gaceta No. 17382, dated May 23, 1961. (1) "Acuerdo Municipal" means Acuerdo Municipal para la Administracion de la Divisi6n Municipal de Aguas (DIMA), as approved by the Consejo Departamental de Municipalidades de Cortes, dated April 10, 1984, published in La Gaceta No. 24302, dated April 30, 1984, as corrected in La Gaceta No. 24468, dated November 14, 1984. (m) "Steering Committee" means the committee referred to in Section 2.08 of the SANAA Project Agreement. (n) "DIMA's Sub-project" means Parts A through G of the Project to be carried out by the Municipality. (o) "Municipality Public Services Decree" means the Borrower's Decree No. 202-83, dated November 17, 1983, published in La Gaceta No. 24191, dated December 17, 1983, as amended by the Borrower's Decree No. 15-84, dated February 16, 1984, published in La Gaceta No. 24280, dated March 30, 1984. (p) "Low-Income Neighborhood" means any neighborhood in the San Pedro Sula Urban Area in which at least 50 percent of DIMA's customers qualify for category C of DIMA tariff structure in effect as of the date of this Agreement. (q) "DIMA's Debt" means all debt incurred by Municipality for DIMA's water supply, sewerage and drainage services which the Municipality intends to repay or will have repaid out of revenues earned by DIMA, and which is maturing by its terms more than one year after the date of its incurrence. 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 nineteen million six hundred thousand dollars ($19,600,000). 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 expenditures 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 and in respect of interest and other charges on the Loan. (b) On each of the semiannual interest payment dates speci- fied in Section 2.08 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amounts required to pay, on such dat, 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. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and civil works required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of the Schedule to the Municipality Project Agreement. Section 2.04. The Closing Date shall be June 30, 1991 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. (a) The Borrower shall pay to the Bank a fee equivalent to forty-eight thousand eight hundred seventy-eight dollars ($48,878). (b) On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of said fee in such currency or currencies as the Bank shall determine. - 5- 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 prit.zipal 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 percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For 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 Agreemei. is signed. (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. Section 2.08. Interest and other charges shall be payable semiannually on April 1 and October 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. - 6 - Section 2.10. The following are designated as representa- tives of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions: (a) the Municipality with respect to Categories (1), (2) and (3) of the table set forth in paragraph 1 of Schedule 1 to this Agreement; and (b) SANAA with respect to Category (4) of the table set forth in paragraph 1 of Schedule 1 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end without any limitation or restriction upon any of its other obligations under the Loan Agreement, th' Borrower shall cause the Municipality and SANAA to perform in accordance with the provisions of the Project Agreements all the respective obligations of the Municipality and SANAA therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Municipality and SANAA to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall relend the proceeds of the Loan from time to time allocated to Categories (1), (2) and (3) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to the Municipality under a subsidiary loan agreement to be entered into between the Borrower and the Municipality, under terms and conditions which shall have been approved by the Bank, providing, inter alia, that: (i) the principal amount of the Municipality Subsidiary Loan shall be repaid by the Municipality over a period of 20 years, including therein a grace period of 5 years, in line with the Amortization Schedule set forth in Schedule 3 to this Agreement; (ii) the principal amount of the Municipality Subsidiary Loan shall be denominated in dollars and repayable in Lempiras; (iii) any foreign exchange risk on the Municipality Subsidiary Loan shall be borne by the Municipality; (iv) the interest rate on the outstanding balance of the Municipality - 7 - Subsidiary Loan shall be payable at a rate per annum equivalent to the rate payable by the Borrower under Section 2.07 of this Agreement, together with the corresponding fee and commitment charge payable under Sections 2.05 and 2.06 of this Agreement, respectively; and (v) the proceeds of the Municipality Subsidiary Loan shall be used by the Municipality exclusively in carrying out DIMA's Sub-project. (c) The Borrower shall exercise its rights under the Muni- cipality Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Municipality Subsidiary Loan Agreement or any provision thereof. (d) The Borrower shall relend the proceeds of the Loan from time to time allocated to Category (4) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to SANAA under a subsidiary loan agreement to be entered into between the Borrower and SANAA, under terms and conditions which shall have been approved by the Bank, providing, inter alia, that: (i) the principal amount of the SANAA Subsidiary Loan shall be repaid by SANAA over a period of 20 years, including therein a grace period of 5 years, in line with the Amortization Schedule set forth in Schedule 3 to this Agreement; (ii) the principal amount of the SANAA Subsidiary Loan shall be denominated in dollars and repayable in Lempiras; (iii) any foreign exchange risk on the SANAA Subsidiary Loan shall be borne by SANAA; (iv) the interest rate on the outstanding balance of the SANAA Subsidiary Loan shall be payable at a rate per annum equivalent to the rate payable by the Borrower under Section 2.07 of this Agreement, together with the corresponding fee and commitment charge payable under Sections 2.05 and 2.06 of this Agreement, respectively; and (v) the proceeds of the SANAA Subsidiary Loan shall be used by SANAA exclusively in the carrying out of Part H (1), (2) and (3) of the Project. (e) The Borrower shall exercise its rights under the SANAA Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the pur- poses of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the SANAA Subsidiary Loan Agreement or any provision thereof. -8- Section 3.02. The Borrower shall, promptly as required, take all action necessary on its part to enable the Municipality to: (a) set and maintain a tariff structure and rate levels as required to enable DIMA to fulfill its obligations under Section 4.03 of the Project Agreement; (b) put into effect, not later than December 31, 1985, the recommendations of the study referred to in Section 2.16 (a) of the Project Agreement; and (c) set and maintain the Municipality's taxes and fees at levels sufficient at all times to fulfill the Municipality's obligations under Section 4.04 of the Municipality Project Agreement. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over Its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any -,t its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) iny lien created on property, at the time of purchase thereof, solely as security for 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; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. - 9 - (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the Gen- eral Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) the Municipality shall have failed to perform any of its obligations under the Municipality Project Agreement; (b) SANAA shall have failed to perform any of its obligations under the SANAA Project Agreement; (c) as a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that the Municipality will be able to perform its obligations under the Municipality Project Agreement; (d) as a result of events which have occured after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that SANAA will be able to perform its obligations under the SANAA Project Agreement; (e) a change shall have been made in SANAA Statutes which would materially and adversely affect the organization, the operation or the financial condition of SANAA; (f) a change shall have been made in the Acuerdo Municipal which would materially and adversely affect the organization, the operation or the financial condition of DIMA; (g) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of the Municipality or for the suspension of its operations; - 10 - (h) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of SANAA or for the suspension of its operations; (i) the Municipality Public Services Decree shall have been amended, suspended, abrogated or waived in such a way as to, in the Bank's opinion, materially and adversely affect the ability of the Municipality to carry out the Project as set forth in the Municipality Project Agreement; and (j) (i) subject to subparagraph (ii) of this paragraph: (A) the right of the Borrower or the Municipality or SANAA to withdraw the proceeds of any loan, grant or credit made to the Borrower or the Municipality or SANAA 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 providing therefor; or (B) any such loan or credit 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 satisfaction of the Bank that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower or the Municipality or SANAA to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower or the Municipality or SANAA from other sources on terms and conditions consistent with the obligations of the Borrower or the Municipality or SANAA under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the event specified in paragraphs (a) and (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower, the Municipality and SANAA; - 11 - (b) any event specified in paragraphs (d) or (e) or (f) or (g) or (h) or (i) of Section 5.01 of this Agreement shall occur; and (c) the event specified in paragraph (j) (i) (B) of Section 5.01 of this Agreement shall occur, subject to the proviso of subparagraph (ii) of that paragraph. ARTICLE VI Effective Date; Termination Section 6.01. 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) the execution and delivery of the Municipality Project Agreement on behalf of the Municipality has been duly authorized or ratified by all necessary corporate and governmental action; (b) the execution and delivery of the SANAA Project Agree- ment on behalf of SANAA has been duly authorized or ratified by all necessary corporate and governmental action; (c)- the Subsidiary Loan Agreements have been executed on behalf of the Borrower and the Municipality and SANAA, respec- tively; (d) the Bank has been notified by CDC that all conditions precedent to the first disbursement of the CDC Loan, except for the effectiveness of this Agreement, have been fulfilled; (e) the Bank has been notified by the Ministry that all conditions precedent to the first disbursement of the grant to the Borrower except for the effectiveness of this Agreement, have been fulfilled; and (f) the Municipality has, for the purposes of Section 4.04 of the Municipality Project Agreement, submitted to the Bank a financial plan satisfactory to the Bank. Section 6.02. The following are specified as additional matters, within the 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 Municipality Project Agreement has been duly authorized or ratified by the Municipality, and is legally binding upon the Municipality in accordance with its terms; - 12 - (b) that the SANAA Project Agreement has been duly author- ized or ratified by SANAA and is legally oinding upon SANAA in accordance with its terms; (c) that the Municipality Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and the Municipality and is legally binding upon the Borrower and the Municipality in accordance with its terms; and (d) that the SANAA Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and SANAA and is legally binding upon the Borrower and SANAA in accordance with its terms. Section 6.03. The date J6t9A, -7 ( 1 q9 is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretario de Estado en el Despacho de Hacienda y Cr_dito Publico of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions. For the Borrower: Secretaria de Estado en el Despacho de Hacienda y Credito Piblico Tegucigalpa, D.C. Honduras Cable address: Telex: HACIENDA 1308-HACIENDA HO Tegucigalpa, Honduras For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America - 13 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF HONDURAS By Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Regional Vice President Latin America and the Caribbean - 14 - SCREDULE 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, 2,852,000 100% of foreign spare parts, expenditures and materials and 90% of local vehicles under expenditures Parts A, C, D, E and F of the Project (2) Civil works under 2,507,000 100% of foreign Parts A, C and expenditures and D of the Project 25% of local expenditures (3) Consultants' 4,242,000 100% of foreign services under expenditures and the Project 70% of local except Part H of expenditures the Project (4) Consultants' 404,000 100% of foreign services under expenditures and Part H (1), (2) 70% of local and (3) of the expenditures Project (5) Interest and 6,110,000 Amount due under other charges Section 2.02 (b) on the Loan of this Agreement accrued on or before September 30, 1990 - 15 - Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (6) Fee 48,878 Amount due under Section 2.05 of this Agreement (7) Unallocated 3,436,122 TOTAL 19,600,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower. 3. The disbursement percentages have been calculated in com- pliance with the policy of the Bank that the proceeds of the Loan shall not 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; on this basis, if the amount of any such taxes levied on or in respect of items in any Category decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the dis- bursement percentage then applicable to such Category 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 in respect of expenditures made prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of four hundred thousand dollars ($400,000), may be made in respect of Categories (1), (2) and (3) on account of expenditures made before that date but after May 31, 1983. - 16 - 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 expen- diture for such item shall be financed out of the proceeds of the Loan, and the Bank may, without in any way restricting or limit- ing 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. - 17 - SCHEDULE 2 Description of the Project The objectives of the Project are to: (a) improve the San Pedro Sula Urban Area water supply, sewerage and drainage systems by: (i) eliminating water shortages; (ii) expanding water supply and distribution systems; and (iii) reducing flooding; (b) strengthen the institutional and operational capability of DIMA; and (c) strengthen the institutional and operational capability of SANAA. The Project consists of the following Parts: Part A: Water Supply Improvements (1) Construction of about 18 wells and about 3 chlorination stations and rehabilitation of about 7 wells. (2) Provision of technical assistance to evaluate aquifer capacity and to design deep wells. Part B: Water Transmission, Distribution and Storage Improve- ments (1) Rehabilitation of 2 water intakes and respective water transmission mains. (2) Construction of about 46 kilometers of primary water distribution mains and 2 booster-pump stations. (3) Construction of 2 distribution storage reservoirs with a combined capacity of about 30,000 cubic meters. Part C: Secondary Water and Sewerage Networks and Service Connections (1) Construction of about 15 kilometers of secondary water distribution mains and about 10 kilometers of secondary sewerage collectors in the Low-Income Neighborhoods of the San Pedro Sula Urban Area. (2) Repair or replacement of defective secondary water distribution mains. (3) Installation of about 25 standpipes, about 5,000 water service connections and about 4,000 sewerage service - 18 - connections in the Low-Income Neighborhoods of the San Pedro Sula Urban Area. (4) Installation of about 24,000 water meters and about 6 water master meters. Part D: Stormwater Drainage Improvements Construction of about 3 kilometers of a stormwater drainage interceptor. Part E: Leak Detection and Mapping of Water Distribution System (1) Acquisition and utilization of equipment for leak detection. (2) Provision of technical assistance to prepare water dis- tribution system maps, to set up a leak detection program and to train DIMA staff in leak detection. Part F: Institutional and Operational Improvement of DIMA (1) Institutional improvement of DIMA through the provision of technical assistance thereto. (2) Acquisition and utilization by DIMA of operation and maintenance equipment for water supply, sewerage and drainage, including spare parts, materials, vehicles and a micro-computer. Part G: Sugarcane Irrigation Study Preparation of a study on health hazards associated with the continued use of Rio Sauce polluted waters for sugarcane irriga- tion and of a plan of action to alleviate such health hazards through the provision of technical assistance thereto. Part H: Strengthening of SANAA (1) Strengthening of SANAA by developing a plan of action to improve its management, operating, accounting and commercial procedures through the provision of technical assistance thereto. (2) Formulation by SANAA of financial policies for the national water supply and sewerage sector through provision of technical assistance thereto. (3) Assessment by SANAA of the national water supply and sewerage sector investment needs and priorities through the provision of technical assistance thereto. (4) Evaluation and implementation of SANAA's training program through the provision of technical assistance thereto. (5) Preparation and implementation of a program to reduce water losses in Tegucigalpa, Distrito Central through the provision of technical assistance thereto. (6) Preparation of a specific investment project designed to address the needs and priorities identified in the assessment included under Part H (3) of the Project. The Projdct is expected to be completed by December 31, 1990. - 20 - SCHEDULE 3 Amortization Schedule Payment of Principal Date of Payment Due (Expressed in dollars) On each April 1 and October 1 beginning October 1, 1989 through October 1, 2003 655,000 On April 1, 2004 605,000 - 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 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity 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 day of A c6198y. FOR SECRETARY