Conformed Copy - C2012 - Export Corridors Project - Project Agreement 1

Page 1 CONFORMED COPY CREDIT NUMBER 2012 BO (Export Corridors Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and EMPRESA NACIONAL DE FERROCARRILES DEL ESTADO Dated August 4, 1989 CREDIT NUMBER 2012 BO PROJECT AGREEMENT AGREEMENT, dated August 4, 1989, between INTERNATIONAL DEVELOPMENT ASSOCIATION (the Association) and EMPRESA NACIONAL DE FERROCARRILES DEL ESTADO (ENFE). WHEREAS (A) by the Development Credit Agreement of even date herewith between the Republic of Bolivia (the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-eight million three hundred thousand Special Drawing Rights (SDR 28,300,000), on the terms and conditions set forth in said Development Credit Agreement, but only on condition that ENFE agree to undertake such obligations toward the Association as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and ENFE, part of the proceeds of the Credit provided for under the Development Credit Agreement will be made available to ENFE on the terms and conditions set forth in said Subsidiary Loan Agreement; and WHEREAS ENFE, in consideration of the Association's entering into the Page 2 Development Credit Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Development Credit Agreement, the Preamble to this Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth, and the term "Fiscal Year" means the twelve-month period corresponding to any of ENFE's fiscal year, which period coincides with the calendar year. ARTICLE II Execution of the Project Section 2.01. (a) ENFE declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, shall carry out Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and environmental practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the carrying out of said parts of the Project. Section 2.02. Except as the Association shall otherwise agree, procurement of the goods, works and consultants' services required for Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project and to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.03. ENFE shall carry out the obligations set forth in Sections 9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of this Agreement and Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project. Section 2.04. ENFE shall enter into the Subsidiary Loan Agreement and the Performance Agreement with the Borrower, in accordance with the provisions of Sections 3.02 (b) and 3.04 of the Development Credit Agreement, respectively, and shall duly perform all its obligations under the Subsidiary Loan Agreement and the Performance Agreement. Except as the Association shall otherwise agree, ENFE shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving either the Subsidiary Loan Agreement or the Performance Agreement, or any provision thereof. Section 2.05. (a) ENFE shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project in general, and of Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project in particular, the performance of its obligations under this Agreement, the Subsidiary Loan Agreement and the Performance Agreement, and other matters relating to the purposes of the Credit. (b) ENFE shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project, the accomplishment of the purposes of the Credit, or the performance by ENFE of its obligations under this Agreement, the Subsidiary Loan Agreement and the Performance Agreement. Section 2.06. ENFE hereby undertakes to take all action as shall be required to ensure that at all times, for the duration of the Project, the number of empty railway freight cars awaiting traction in each of Arica (Chile) and Charana (Bolivia) shall not exceed one hundred (100). ARTICLE III Management and Operations of ENFE Section 3.01. ENFE shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, managerial, engineering and environmental practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Page 3 Section 3.02. ENFE shall at all times operate and maintain its plants, machinery, equipment, vehicles and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, and environmental practices. Section 3.03. ENFE shall take out and maintain with responsible insurers, or make other provision satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. ARTICLE IV Financial Covenants Section 4.01. (a) ENFE shall maintain records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition, including separate records and accounts adequate to reflect all resources and expenditures in respect of Parts A.2, B.1, B.2, B.3, C.2 and D.3 of the Project. (b) ENFE shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each Fiscal Year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than four (4) 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning said records, accounts and financial statements as well as the audit thereof, as the Association shall from time to time reasonably request. Section 4.02. (a) Except as the Association shall otherwise agree, ENFE shall maintain for its operations a ratio of total working expenses to total operating revenues not higher than: (i) eighty-seven percent (87%) for its Fiscal Year 1989; ii) eighty-seven percent (87%) for its Fiscal Year 1990; and (iii) eight-three percent (83%) for its Fiscal Year 1991 and each Fiscal Year thereafter. (b) Before November 15 in each of its Fiscal Years, ENFE shall, on the basis of forecasts prepared by ENFE and satisfactory to the Association, ascertain whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next following Fiscal Year, and shall furnish to the Association the results of such review upon its completion. (c) If any review shows that ENFE would not meet the requirements set forth in paragraph (a) for ENFE's Fiscal Years covered by such review, ENFE shall promptly take all necessary measures (including, without limitation, reduction of costs and adjustments of the structure or levels of its tariffs) in order to meet such requirements. (d) For the purposes of this Section: (i) The term "total working expenses" means all expenses related to operations, including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding depreciation on fixed assets; and (ii) The term "total operating revenues" means revenues from all sources related to operations. Section 4.03. (a) Except as the Association shall otherwise agree, ENFE shall not incur during the implementation of the Project any debt, in addition to any part of the proceeds of the Credit to be made available to ENFE under the Subsidiary Loan Agreement, unless a reasonable forecast of the revenues and expenditures of ENFE shows that the estimated net operating revenues of ENFE for each Fiscal Year during the term Page 4 of the debt to be incurred shall be at least 1.7 times the estimated debt service requirements of ENFE in such year on all debt of ENFE including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of ENFE maturing by its terms more than one (1) year after the date on which it is originally incurred; (ii) Debt shall be deemed to be incurred: (A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into; (iii) The term "net operating revenues" means the difference between: (A) the sum of revenues from all sources related to operations; and (B) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, and provision for depreciation; (iv) The term "debt service requirements" means the aggregate of repayments (including sinking fund payments, if any) of, and interest and other charges on, debt; (v) The term "reasonable forecast" means a forecast prepared by ENFE not earlier than twelve (12) months prior to the incurrence of the debt in question, which both the Association and ENFE accept as reasonable and as to which the Association has notified ENFE of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of ENFE; and (vi) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Association. Section 4.04. ENFE hereby undertakes to restructure its tariffs, based upon a new traffic costing system and pricing policy satisfactory to the Association, so as to ensure that said tariffs shall equal at least the long-term variable cost of ENFE's operations on each freight commodity and passenger train service. For the purposes of this Section, the term "long-term variable cost of ENFE's operations" shall be determined in accordance with a methodology and procedures satisfactory to the Association. Section 4.05. ENFE hereby undertakes to revalue, based on current market value for the corresponding Fiscal Year, all of its fixed assets in operation no later than December 31, 1990, for its Fiscal Year 1990, and no later than every fifth Fiscal Year thereafter, and to revalue annually for each of its Fiscal Year in between all its fixed assets in operations, based on the whole sale price index ("Indice General de Precios") for the corresponding Fiscal Year as published by the Instituto Nacional de Estadisticas, all in accordance with a methodology and procedures satisfactory to the Association. Section 4.06. ENFE hereby agrees, prior to entering into any commitment in connection with any such investment, to demonstrate to the satisfaction of the Association that all major railway investments in the Borrower's export corridors which ENFE proposes to undertake during the implementation of the Project shall yield an economic rate of return of twelve percent (12%) or more, and a financial internal rate of return of ten percent (10%) or more. ARTICLE V Page 5 Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of ENFE thereunder shall terminate on the date on which the Development Credit Agreement shall terminate in accordance with its terms, and the Association shall promptly notify ENFE of this event. Section 5.03. All the provisions of this Agreement, as the same may be amended from time to time, shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For ENFE: Empresa Nacional de Ferrocarriles del Estado Estacion Central Casilla No. 428 La Paz, Bolivia Telex: 2405 (ENFE BV) Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of ENFE may be taken or executed by the General Manager of ENFE or such other person or persons as the General Manager of ENFE shall designate in writing, and the General Manager of ENFE shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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. EMPRESA NACIONAL DE FERROCARRILES DEL ESTADO Page 6 By /s/ Carlos Delius Authorized Representative INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ S. Shahid Husain Regional Vice President Latin America and the Caribbean