Conformed Copy - L4098 - Electricity Market Development Project - Loan Agreement

Page 1 CONFORMED COPY LOAN NUMBER 4098-0 UA LOAN NUMBER 4098-1 UA Loan Agreement (Electricity Market Development Project) between UKRAINE and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated November 1, 1996 LOAN NUMBER 4098-0 UA LOAN NUMBER 4098-1 UA LOAN AGREEMENT AGREEMENT, dated November 1, 1996, between UKRAINE (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; (B) Parts A(1) and B(1) of the Project will be carried out by Donbassenergo (a joint stock company established and operating under the laws of the Borrower) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to Donbassenergo a portion of the proceeds of the Loan as provided in this Agreement; (C) Parts A(2) and B(2) of the Project will be carried out by Dniproenergo (a joint stock company established and operating under the laws of the Borrower) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to Dniproenergo a portion of the proceeds of the Loan as provided in this Agreement; (D) Parts A(3) and B(3) of the Project will be carried out by Zakhidenergo (a joint stock company established and operating under the laws of the Borrower) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to Zakhidenergo a portion of the proceeds of the Loan as provided in this Agreement; (E) Parts A(4) and B(4) of the Project will be carried out by Tsentrenergo (a joint stock company established and operating under the laws of the Borrower) with the Borrower's assistance and, as part Page 2 of such assistance, the Borrower will make available to Tsentrenergo a portion of the proceeds of the Loan as provided in this Agreement; (F) Parts C and D of the Project will be carried out by the National Dispatch Center (NDC) (a state-owned enterprise established and operating under the laws of the Borrower) with the Borrower's assistance and, as part of such assistance, the Borrower will make available to NDC a portion of the proceeds of the Loan as provided in this Agreement; (G) the Borrower intends to contract from the Government of the Netherlands (the Netherlands) a grant (the Dutch Grant) in an amount equivalent to $1,000,000 to assist in financing part of Part D of the Project on the terms and conditions set forth in an agreement (the Dutch Grant Agreement) to be entered into between the Borrower and the Netherlands; (H) the Borrower intends to contract from the Government of the United States of America (USA) a grant (the US Grant) in an amount equivalent to $2,250,000 to assist in financing part of Part D of the Project on the terms and conditions set forth in an agreement (the US Grant Agreement) to be entered into between the Borrower and the USA; (I) the Borrower intends to contract from the Government of the United Kingdom (UK) a grant (the UK Grant) in an amount equivalent to $1,750,000 to assist in financing part of Part D of the Project on the terms and conditions set forth in an agreement (the UK Grant Agreement) to be entered into between the Borrower and the UK; (J) the Borrower has contracted from European Bank for Reconstruction and Development (EBRD) a Loan (the EBRD Loan) in an amount equal to $61,900,000, which includes an amount equal to $500,000, designated for assistance in financing part of Part D of the Project on the terms and conditions set forth in the agreement (the EBRD Agreement) concluded between the Borrower and EBRD on December 13, 1995; (K) the Bank has received a Statement of Electricity Policy dated September 16, 1996 (SEP) from the Borrower describing a program of actions, objectives and policies in the electricity sector; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement, in the Donbassenergo Project Agreement, the Dniproenergo Project Agreement, the Zakhidenergo Project Agreement, the Tsentrenergo Project Agreement and the NDC Project Agreement (all as defined herein); NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements for Single Currency Loans" of the Bank, dated May 30, 1995, (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: (a) "Collection Agreement" means a collection agreement to be entered into between NDC (as hereinafter defined) and each Oblenergo (as hereinafter defined) referred to in Section 6.01(c) of this Agreement, collectively referred to as "Collection Agreements"; (b) "Dniproenergo" means the joint stock company established by Minenergo (as hereinafter defined) with its charter (the Dniproenergo Charter) registered with Zaporizhia registry office on June 14, 1995, Page 3 or any successor thereto; (c) "Dniproenergo Project Agreement" means the agreement between the Bank and Dniproenergo of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Dniproenergo Project Agreement; (d) "Dniproenergo Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower, represented by its Ministry of Finance, and Dniproenergo 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 Dniproenergo Subsidiary Loan Agreement; (e) "Donbassenergo" means the joint stock company established pursuant to Minenergo Resolution No. 26, with its charter (the Donbassenergo Charter) registered with the Donetsk registry office on February 21, 1996, or any successor thereto; (f) "Donbassenergo Project Agreement" means the agreement between the Bank and Donbassenergo of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Donbassenergo Project Agreement; (g) "Donbassenergo Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and Donbassenergo 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 Donbassenergo Subsidiary Loan Agreement; (h) "EMA" means the Energomarket Members Agreement concluded between NDC (as hereinafter defined) the Oblenergos (as hereinafter defined) and the Generation Companies (as hereinafter defined) on March 21, 1996, and approved by the NERC (as hereinafter defined), and referred to in paragraph 8 of Schedule 5 to this Agreement; (i) "Energomarket" means the wholesale electricity market established pursuant to the Resolution of the Cabinet of Ministers No. 207 "On Provisions for the Operation of the Electricity Wholesale Market of Ukraine," dated February 19, 1996 and operating in accor- dance with the terms and conditions set out in the EMA; (j) "Energomarket Rules" means the terms and conditions governing the operation of the Energomarket, set out in the EMA; (k) "Generation Company" means each of Donbassenergo, Dniproenergo, Zakhidenergo and Tsentrenergo, collectively referred to as "Generation Companies"; (l) "Installation and Maintenance Agreements" means the installa- tion and maintenance agreements to be entered into between NDC (as hereinafter defined) and (i) each Generation Company; (ii) NTC (as hereinafter defined); and (iii) the Oblenergos, referred to in paragraph 9 of Schedule 5 to this Agreement; (m) "Minenergo" means the Ministry of Power and Electrification of the Borrower or any successor thereto; (n) "NDC" means state-owned company operating national and regional electricity dispatch centers established by Minenergo, with its charter (the NDC Charter) registered with the Kiev registry office on August 30, 1993, under No. 0095-2331-P, or any successor thereto; (o) "NDC Project Agreement" means the agreement between the Bank and NDC of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the NDC Project Agreement; (p) "NDC Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower, represented by its Ministry of Finance, and NDC 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 NDC Subsidiary Loan Agreement; Page 4 (q) "NERC" means the National Electricity Regulatory Commission established by Decree of the President of Ukraine No. 738 on December 8, 1994; (r) "NTC" means the state-owned national transmission company operating the high voltage distribution network, established by Minenergo; (s) "Oblenergos" means the twenty seven low voltage distribution and supply companies operating in the 25 Oblasts and the cities of Kiev and Sevastopol; (t) "Operational Plan" means, for each Generation Company and NDC, its statement of operational policies and procedures agreed with the Bank; (u) "Portion A of the Loan" means the amount referred to in Section 2.01(a) of this Loan Agreement and "Portion B of the Loan" means the amount referred to in Section 2.01(b) of this Loan Agreement; (v) "PCU" means the Project Coordination Unit established within Minenergo pursuant to Minenergo Resolution No. 136, dated August 2, 1996, and referred to in Paragraph 1 of Schedule 5 to this Agreement; (w) "Project Agreement" means each of the Donbassenergo Project Agreement, the Dniproenergo Project Agreement, the Zakhidenergo Project Agreement, the Tsentrenergo Project Agreement and the NDC Project Agreement, collectively referred to as "Project Agreements"; (x) "Special Accounts" means any of the accounts referred to in Section 2.02 (b) of this Agreement; and "Portion A Special Accounts" means the Special Accounts to be maintained for Parts A and B of the Project and includes the Special Accounts referred to in sub-paragraph (i) through (iv) of Section 2.02 (b) of this Agreement, and "Portion B Special Account" means the Special Account to be maintained for Part C of the Project and referred to in sub-paragraph (v) of Section 2.02 (b) of this Agreement; (y) "Subsidiary Loan Agreement" means each of the Donbassenergo Subsidiary Loan Agreement, the Dniproenergo Subsidiary Loan Agreement, the Zakhidenergo Subsidiary Loan Agreement, the Tsentrenergo Subsidiary Loan Agreement and the NDC Subsidiary Loan Agreement, collectively referred to as "Subsidiary Loan Agreements"; (z) "Tsentrenergo" means the joint stock company established pursuant to Minenergo Resolution No. 174, dated August 31, 1995, with its charter (the Tsentrenergo Charter) registered with the Kiev registry office, or any successor thereto; (aa) "Tsentrenergo Project Agreement" means the agreement between the Bank and Tsentrenergo of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Tsentrenergo Project Agreement; (bb) "Tsentrenergo Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower represented by its Ministry of Finance and Tsentrenergo 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 Tsentrenergo Subsidiary Loan Agreement; (cc) "Zakhidenergo" means the joint stock company established pursuant to Minenergo Resolution No. 155 of August 16, 1995, with its charter (the Zakhidenergo Charter) registered with the Lviv registry office under No. 09809, on September 28, 1995, and any successor thereto; (dd) "Zakhidenergo Project Agreement" means the agreement between the Bank and Zakhidenergo of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Zakhidenergo Project Agreement; and Page 5 (ee) "Zakhidenergo Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower, represented by its Ministry of Finance and Zakhidenergo 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 Zakhidenergo Subsidiary Loan Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement: (a) an amount equal to two hundred and forty five million and four hundred thousand Dollars ($245,400,000) for Portion A of the Loan; and (b) an amount equal to seventy-one million and six hundred thousand Dollars ($71,600,000) for Portion B of the Loan. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement 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 amount of Portion B of the Loan specified in paragraph (c) of this Section. (b) The Borrower may open and maintain in Dollars five separate special deposit accounts, for the purposes of: (i) Parts A (1) and B (1) of the Project (the Donbassenergo Special Account); (ii) Parts A (2) and B (2) of Project (the Dniproenergo Special Account); (iii) Parts A (3) and B (3) of the Project (the Zakhidenergo Special Account); (iv) Parts A (4) and B (4) of the Project (the Tsentrenergo Special Account); and (v) Part C of the Project (the NDC Special Account), each in a commercial bank on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure and attach- ment. Deposits into, and payments out of, each Special Account shall be made in accordance with the provisions of Schedule 6 to this Agreement. (c) On each of the semiannual interest payment dates specified in Section 2.06 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount required to pay, on such date, interest charges on the amount of Portion B of the Loan allocated to Categories 3 and 4 of the table set forth in paragraph 1 of Schedule 1 to this Agreement accrued and payable on or before the date set forth, and up to the amount allocated, in Schedule 1 to this Agreement. Section 2.03. The Closing Date shall be December 31, 1999, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to LIBOR base Rate plus LIBOR Total Spread. (b) For the purposes of this Section: (i) "Interest Period" means the initial period from and including the date of this Agreement to, but excluding, the first Interest Payment Date occurring thereafter, and after the initial period, each period from and including an Interest Payment Date to, but excluding the next following Interest Payment Date. Page 6 (ii) "Interest Payment Date" means any date specified in Section 2.06 of this Agreement. (iii) "LIBOR Base Rate" means, for each Interest Period, the London interbank offered rate for six-month deposits in Dollars for value the first day of such Interest Period (or, in the case of the initial Interest Period, for value the Interest Payment Date occurring on or next preceding the first day of such Interest Period), as reasonably determined by the Bank and expressed as a percentage per annum. (iv) "LIBOR Total Spread" means, for each Interest Period: (A) one half of one percent (1/2 of 1%); (B) minus (or plus) the weighted average margin, for such Interest Period, below (or above) the London interbank offered rates, or other reference rates, for six-month deposits, in respect of the Bank's outstanding borrowings or portions thereof allocated by the Bank to fund single currency loans or portions thereof made by it that include the Loan; as reasonably determined by the Bank and expressed as a percentage per annum. (c) The Bank shall notify the Borrower of LIBOR Base Rate and LIBOR Total Spread for each Interest Period, promptly upon the deter- mination thereof. (d) Whenever, in light of changes in market practice affecting the determination of the interest rates referred to in this Section 2.05, the Bank determines that it is in the interest of its borrowers as a whole and of the Bank to apply a basis for determining the interest rates applicable to the Loan other than as provided in said Section, the Bank may modify the basis for determining the interest rates applicable to the Loan upon not less than six (6) months' notice to the Borrower of the new basis. The basis shall become effective on the expiry of the notice period unless the Borrower notifies the Bank during said period of its objection thereto, in which case said modification shall not apply to the Loan. Section 2.06. Interest and other charges shall be payable semi- annually on May 15 and November 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 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, shall cause the Generation Companies and NDC to perform in accordance with the provisions of their respective Project Agreements, all the obligations of the Generation Companies and NDC therein set forth, shall take or cause to be taken the actions provided for in the Implementation Program set forth in Schedule 5 to this Agreement, and all other action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the Generation Companies and NDC 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 a portion of the proceeds of the Loan to each of the Generation Companies and NDC under subsidiary loan agreements to be entered into between the Borrower and each of the Generation Companies and NDC, under terms and conditions which shall include those set forth in Schedule 7 to this Agreement. (c) The Borrower shall exercise its rights under the Subsidiary Page 7 Loan Agreements 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 Subsidiary Loan Agreements or any provision thereof. Section 3.02. Except as the Bank shall otherwise agree, procure- ment of the goods and consultants' 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 3.03. The Bank and the Borrower hereby agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 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: (a) Parts A(1) and (2) of the Project, shall be carried out by Donbassenergo pursuant to Section 2.03 of the Donbassenergo Project Agreement; (b) Parts A(2) and B(2) of the Project, shall be carried out by Dniproenergo pursuant to Section 2.03 of the Dniproenergo Project Agreement; (c) Parts A(3) and B(3) of the Project, shall be carried out by Zakhidenergo pursuant to Section 2.03 of the Zakhidenergo Project Agreement; (d) Parts A(4) and B(4) of the Project, shall be carried out by Tsentrenergo pursuant to Section 2.03 of the Tsentrenergo Project Agreement; and (e) Parts C and D of the Project, shall be carried out by NDC pursuant to Section 2.03 of the NDC Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained, in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; and (iii) enable the Bank's representatives to examine such records. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a)(i) of this Section and those for the Special Accounts for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six (6) months after the end of each such year, 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 said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (l) of the General Page 8 Conditions, the following additional events are specified: (a) A Generation Company or NDC shall have failed to perform any of its obligations under its respective Project Agreement. (b) 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 a Generation Company or NDC will be able to perform its obligations under its respective Project Agreement. (c) The Operational Plan for any Generation Company or NDC or any legislation applicable to the establishment or operations of any Generation Company or NDC shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of any Generation Company or NDC to perform any of its obligations under its respective Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of any Generation Company or NDC or for the suspension of its operations. (e) The Borrower shall have taken any action to prevent: (i) NDC, any Generation Company or any Oblenergo from complying with its obli- gations under the EMA; or (ii) any Oblenergo from complying with its obligations under a Collection Agreement. (f) The Borrower or any authority having jurisdiction shall have taken any action (i) for the dissolution of the Energomarket or (ii) that would affect materially and adversely the operation of the Energomarket. (g) The Dutch Grant Agreement, the US Grant Agreement, the UK Grant Agreement or the EBRD Loan Agreement shall have failed to become effective by January 1, 1997, or such later date as the Bank may agree; provided, however, that the provisions of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Bank that adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. (h) (i) Subject to subparagraph (ii) of this paragraph, the right of the Borrower to withdraw the proceeds of any grant or the EBRD Loan made to the Borrower for the financing of the Project shall have been suspended, cancelled or terminated in whole or in part, pursuant to the terms thereof, or the EBRD Loan shall have become due and payable prior to the agreed maturity thereof; (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Bank that: (A) such suspension, cancellation, termination or prematuring is not caused by the failure of the Borrower to perform any of its obligations under such agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (h) of the General Condi- tions, the following additional events are specified: (a) the event specified in paragraphs (a) or (e) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower; and (b) any event specified in paragraphs (c), (d), (f) (g) or (h) of Section 5.01 of this Agreement shall occur, subject to the proviso of paragraph (h)(ii) of that Section. ARTICLE VI Effective Date; Termination Section 6.01. 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: Page 9 (a) five Subsidiary Loan Agreements have been executed on behalf of the Borrower and each of Donbassenergo, Dniproenergo, Zakhidenergo, Tsentrenergo and NDC; (b) rescheduling agreements have been entered into between each Generation Company and its fuel suppliers rescheduling at least ninety percent (90%) of the Generation Company's payables to its fuel suppliers as of July 1, 1996, which are more than thirty (30) days overdue, on terms and conditions acceptable to the Bank; and (c) the Collection Agreement has been entered into by NDC and at least twenty three (23) Oblenergos. 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 respective Project Agreements have been duly authorized or ratified by each Generation Company and NDC, and are legally binding upon each Generation Company and NDC in accordance with their respective terms; and (b) that the respective Subsidiary Loan Agreements have been duly authorized or ratified by each Generation Company and NDC, and are legally binding upon each Generation Company and NDC in accordance with their respective terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance 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 pur- poses of Section 11.01 of the General Conditions: For the Borrower: Ministry of Finance 12/2 Hrushevsky Street Kiev Ukraine Telex: 131450 For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 248423 (MCI) Washington, D.C. 64145 (MCI) 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. Page 10 UKRAINE By /s/ Yuri Shcherbak Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Johannes Linn Regional Vice President Europe and Central Asia 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 Portion A Amount of Portion B % of of the Loan Allocated of the Loan Allocated Expenditures Category (Expressed in Dollars) (Expressed in Dollars) to be Financed (1) Fuel 100% of foreign expenditures, (a) Part A(1) 29,600,000 100% of local of the Project expenditures, (Donbassenergo) (ex-mine cost) (b) Part A(2) 34,800,000 of the Project (Dniproenergo) (c) Part A(3) 26,300,000 of the Project (Zakhidenergo) (d) Part A(4) 26,500,000 of the Project (Tsentrenergo) (2) Spare Parts 100% of foreign expenditures, (a) Part B(1) 38,000,000 100% of local of the Project expenditures (Donbassenergo) (ex-factory cost) and 80% of local (b) Part B(2) 26,300,000 expenditures for of the Project other items (Dniproenergo) procured locally (c) Part B(3) 21,000,000 of the Project (Zakhidenergo) (d) Part B(4) 25,900,000 of the Project (Tsentrenergo) (3) Equipment for 63,800,000 100% of foreign Part C of expenditures, the Project 100% of local expenditures Page 11 (ex-factory cost) and 80% of local expenditures for other items procured locally (4) Consultants' 2,000,000 100% services for Part D of the Project (5) Interest and 5,800,000 Amounts due other charges pursuant to on Categories Section 2.02(c) (3) and (4) of this accrued on Agreement or before Nov 15, 1999 (6) Unallocated 17,000,000 __________ ___________ TOTAL 245,400,000 71,600,000 =========== ========== 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. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for (a) goods under contracts costing less than $300,000 equivalent; (b) consultants' services under contracts costing less than (i) $100,000 equivalent for firms, and (ii) $50,000 equivalent for individuals, under such terms and conditions as the Bank shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The objectives of the Project are to increase the quality and reduce the costs of electricity supply by supporting the Borrower's (i) development of a competitive electricity market and (ii) estab- lishment of operating conditions for the electricity sector that would require electricity companies to seek full cost recovery in order to insure sustainability of their operations. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A Replenishment of fuel stocks at: (1) Zuyev, Starobeshevo, Lugansk, Slaviansk and Kurakhov thermal power plants; Page 12 (2) Pridneprovsk, Krivoy Rog and Zaporizhia thermal power plants; (3) Burshtynsk, Dobrotvorsk and Ladyzhinsk thermal power plants; and (4) Uglegorsk, Tripolie and Zmiev thermal power plants. Part B Provision of spare parts and equipment at: (1) Zuyev, Starobeshevo, Lugansk, Slaviansk and Kurakhov thermal power plants; (2) Pridneprovsk, Krivoy Rog and Zaporizhia thermal power plants; (3) Burshtynsk, Dobrotvorsk and Ladyzhinsk thermal power plants; and (4) Uglegorsk, Tripolie and Zmiev thermal power plants. Part C Installation of metering and communications equipment to improve recording and billing of electricity flows at (i) power plant sub- stations with a capacity of 20MW or higher; (ii) about 120 transmission network substations; and (iii) about 150 interconnections between the Oblenergos. Part D Provision of technical services and training for: (i) Project implementation, including assistance in fuel procurement, spare parts procurement and metering and communications implementation support; and (ii) institution building, including assistance in the operation of the electricity wholesale market and in the development of a privatization program for the Generation Companies and the Oblenergos. * * * The Project is expected to be completed by June 30, 1999 SCHEDULE 3 Amortization Schedule Payment of Principal for Payment of Principal for Portion A of the Loan Portion B of the Loan Date Payment Due (Expressed in Dollars)* (Expressed in Dollars)** May 15, 2002 10,225,000 2,985,000 November 15, 2002 10,225,000 2,985,000 May 15, 2003 10,225,000 2,985,000 November 15, 2003 10,225,000 2,985,000 May 15, 2004 10,225,000 2,985,000 November 15, 2004 10,225,000 2,985,000 May 15, 2005 10,225,000 2,985,000 November 15, 2005 10,225,000 2,985,000 May 15, 2006 10.225,000 2,985,000 November 15, 2006 10,225,000 2,985,000 May 15, 2007 10,225,000 2,985,000 November 15, 2007 10,225,000 2,985,000 May 15, 2008 10,225,000 2,985,000 November 15, 2008 10,225,000 2,985,000 May 15, 2009 10,225,000 2,985,000 November 15, 2009 10,225,000 2,985,000 May 15, 2010 10,225,000 2,985,000 November 15, 2010 10,225,000 2,985,000 May 15, 2011 10,225,000 2,985,000 November 15, 2011 10,225,000 2,985,000 May 15, 2012 10,225,000 2,985,000 Page 13 November 15, 2012 10,225,000 2,985,000 May 15, 2013 10,225,000 2,985,000 November 15, 2013 10,225,000 2,945,000 ____________________________ * The figures in this column represent the amount in Dollars to be repaid, except as provided in Section 4.04(d) of the General Conditions. ** The figures in this column represent the amount in Dollars to be repaid, except as provided in Section 4.04(d) of the General Conditions. SCHEDULE 4 Procurement and Consultants' Services Section I. Procurement of Goods Part A: General Goods shall be procured in accordance with the provisions of Section I of the "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January 1996 (the Guidelines) and the following provisions of this Section, as applicable. Part B: International Competitive Bidding 1. Except as otherwise provided in Part C of this Section, goods shall be procured under contracts awarded in accordance with the provisions of Section II of the Guidelines and paragraph 5 of Appendix 1 thereto. 2. The following provisions shall apply to goods to be procured under contracts awarded in accordance with the provisions of para- graph 1 of this Part B. (a) Grouping of contracts To the extent practicable, contracts for goods shall be grouped in bid packages estimated to cost $300,000 equivalent or more each. (b) Preference for domestically manufactured goods The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto shall apply to goods to be procured under Parts B and C of the Project manufactured in the territory of the Borrower. (c) Notification and Advertising The invitation to or bid for each contract estimated to cost $10,000,000 equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines. Part C: Other Procurement Procedures 1. International Shopping Goods estimated to cost less than $300,000 equivalent per contract, up to an aggregate amount not to exceed $6,000,000 equivalent, may be procured under contracts awarded on the basis of international shopping procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines. 2. Direct Contracting Goods which must be purchased from the original supplier to be compatible with existing equipment and costing $22,000,000 equivalent or less in the aggregate, may, with the Bank's prior agreement, be Page 14 procured in accordance with the provisions of paragraph 3.7 of the Guidelines. Part D: Review by the Bank of Procurement Decisions 1. Procurement Planning Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, the proposed procurement plan for the Project shall be furnished to the Bank for its review and approval, in accor- dance with the provisions of paragraph 1 of Appendix 1 to the Guide- lines. Procurement of all goods shall be undertaken in accordance with such procurement plan as shall have been approved by the Bank, and with the provisions of said paragraph 1. 2. Prior Review With respect to (i) each contract for goods estimated to cost the equivalent of $300,000 or more; and (ii) each contract for goods awarded in accordance with paragraph 2 of Part C of Section I of this Schedule, the procedures set forth in paragraphs 2 and 3 of Appendix 1 to the Guidelines shall apply. 3. Post Review With respect to each contract not governed by paragraph 2 of this Part, the procedures set forth in paragraph 4 of Appendix 1 to the Guidelines shall apply. Section II. Employment of Consultants 1. Consultants' services shall be procured under contracts awarded in accordance with the provisions of the "Guidelines for the Use of Consultants by World Bank Borrowers and by The World Bank as Executing Agency" published by the Bank in August 1981 (the Consultant Guide- lines). For complex, time-based assignments, such contracts shall be based on the standard form of contract for consultants' services issued by the Bank, with such modifications thereto as shall have been agreed by the Bank. Where no relevant standard contract documents have been issued by the Bank, other standard forms acceptable to the Bank shall be used. 2. Notwithstanding the provisions of paragraph 1 of this Section, the provisions of the Consultant Guidelines requiring prior Bank review or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, shall not apply to (a) contracts for the employment of consulting firms estimated to cost less than $100,000 equivalent each or (b) contracts for the employment of individual consultants estimated to cost less than $50,000 equivalent each. However, said exceptions to prior Bank review shall not apply to (a) the terms of reference for such contracts, (b) single- source selection of consulting firms, (c) assignments of a critical nature, as reasonably determined by the Bank, (d) amendments to contracts for the employment of consulting firms raising the contract value to $100,000 equivalent or above, or (e) amendments to contracts for the employment of individual consultants raising the contract value to $50,000 equivalent or above. SCHEDULE 5 Implementation Program 1. In order to ensure overall coordination of Project activities and the provision of policy guidance in respect thereof, the Borrower shall maintain, with staff, other resources and terms of reference satis- factory to the Bank, the Project Coordination Unit in the Borrower's Ministry of Power and Electrification, headed by a suitably qualified Project Coordinator. 2. The Borrower shall not take any action that would interfere with the exclusive jurisdiction of NERC to regulate wholesale and retail electricity tariffs, except as otherwise agreed with the Bank. Page 15 3. The Borrower shall cause NERC to regulate wholesale electricity tariffs in accordance with a methodology that will ensure that: (a) a cap placed on the bids of the Generation Companies, which bids form the basis for the calculation of the system marginal price, is set at not less than US$40 per MHW and eliminated entirely by not later than April 1, 1997; (b) by not later than April 1, 1997, the capacity availability payment is introduced during capacity shortage period in accordance with the Energomarket Rules; (c) by not later than May 31, 1997, the payments to be made by NDC to each Generation Company shall include supplementary payments, to be made over a period of 3 years, which shall: (i) reimburse Donbassenergo, Dniproenergo and Tsentrenergo for the net payables transferred to them at the time of their establishment in the amounts equivalent to $50.8 million, $48.0 million and $28.5 million, respectively; and (ii) losses imposed on each Generation Company from the time of its establishment, until April 1, 1997, due to the temporary limit on bids and the lack of capacity availability payment, in amounts that shall not exceed the difference between payables and receivables of each Generation Company as of April 1, 1997, and to be agreed between NDC and each Generation Company by April 30, 1997, and approved by the Bank; and (d) NDC shall be permitted to regulate its tariffs at such levels as to enable it to recover (i) all losses resulting from the failure of its customers to pay for electricity purchases and (ii) the cost of subsidies to privileged consumers, unless such costs are transferred to the Borrower's budget. 4. The Borrower shall cause NERC to: (a) regulate retail electricity tariffs in accordance with methodology set out in NERC Regulation No. 62, dated August 29, 1996, and, if needed, introduce amendments to the methodology set out in the said Regulation after obtaining the Bank's agreement thereto; (b) (i) issue licenses to non-tariff suppliers in accordance with procedures agreed with the Bank; and (ii) not revoke or alter the licenses issued except in accordance with procedures set out in each license; (c) adjust or regulate retail electricity prices for households so as to achieve (i) by December 31, 1996, an average residential electricity tariff which exceeds the average industrial electricity tariff by at least 10%; and (ii) by December 31, 1997, an average residential electricity tariff that exceeds the average industrial electricity tariff by at least 20%. 5. The Borrower shall take all necessary action to implement the activities set forth in the SEP. 6. The Borrower shall limit discounts applicable to residential consumers to consumption norm specified in the Cabinet of Ministers Resolution No. 879, dated August 1, 1996. 7. By not later than January 1, 1997, the Borrower shall eliminate the cascading effect currently applicable to the obligatory contribu- tions payable into the roads fund, innovation fund and labor protection fund by the participants of the Energomarket. 8. Without limitation upon the provisions of Section 3.01 (a) of this Agreement, the Borrower shall take all steps necessary or appropriate to: (i) enable the Generation Companies to comply with Section 4.04 of their respective Project Agreements; (ii) enable NDC and the Generation Companies to comply with Section 4.02(a) of their respective Project Agreements; (iii) enable NDC and the Oblenergos to comply with their respective obligations under the Collection Agreements and the EMA; and (iv) enable the operation of, and not interfere with, the price- setting mechanism set out in the EMA. Page 16 9. The Borrower shall ensure that, for the purposes of Part C of the Project, by April 1, 1997, NDC and (i) each Generation Company; (ii) each Oblenergo; and (iii) NTC, shall have entered into Installation and Maintenance Agreements satisfactory to the Bank. 10. With the assistance of the Generation Companies and NDC, the Borrower shall: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indi- cators satisfactory to the Bank, the carrying out of the Project and the achievement of the objectives thereof; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank, on or about December 31, 1997, a report integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of the Project during the period preced- ing the date of said report and setting out the measures recommended to ensure the efficient carrying out of the Project and the achieve- ment of the objectives thereof during the period following such date; and (c) review with the Bank, by March 15, 1998, or such later date as the Bank shall request, the report referred to in paragraph (b) of this Section, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report and the Bank's views on the matter. SCHEDULE 6 Special Accounts 1. For the purposes of this Schedule: (a) the term "eligible Categories" means the following Categories set forth in the table in paragraph 1 of Schedule 1 to this Agreement: for the Portion A Special Accounts, Categories (1) and (2); for the Portion B Special Account, Category (3). (b) the term "eligible expenditures" means expenditures in respect of the reasonable cost of goods required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $1,000,000 in respect of each Special Account to be withdrawn from the Loan Account and deposited into the Special Accounts pursuant to para- graph 3(a) of this Schedule, provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $300,000 until (i) in respect of the Donbassenergo Special Account the aggregate amount of withdrawals from the Loan Account allocated to Categories (1)(a) and (2)(a) plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions for Parts A(1) and B(1) of the Project shall be equal to or exceed the equivalent of $11,000,000; (ii) in respect of the Dniproenergo Special Account the aggregate amount of withdrawals from the Loan Account allocated to Categories (1)(b) and 2(b) plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions for Parts A(2) and B(2) of the Project shall be equal to or exceed the equivalent of $7,500,000; (iii) in respect of the Zakhidenergo Special Account the aggregate amount of withdrawals from the Loan Account allocated to Categories (1)(c) and (2)(c) plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions for Parts A(3) and B(3) of the Project shall be equal to or exceed the equivalent of $8,300,000; (iv) in respect of the Tsentenergo Special Account the aggregate amount of withdrawals from the Loan Account allocated to Categories (1)(d) and (2)(d) plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 Page 17 of the General Conditions for Parts A(4) and B(4) of the Project shall be equal to or exceed the equivalent of $11,400,000; and (v) in respect of the NDC Special Account the aggregate amount of withdrawals from the Loan Account allocated to Category 3 plus the total amount of all out- standing special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions for Part C of the Project shall be equal to or exceed the equivalent of $17,700,000. 2. Payments out of the respective Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the respective Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the respective Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the respective Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the respective Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the respective Special Account, the Borrower shall furnish to the Bank requests for deposits into the respective Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the respective Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the respective Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the respective Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into any Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Accounts; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or Page 18 (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories for the respective Special Account minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further with- drawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the respective Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of any Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the respective Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into any Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in any Special Account will not be required to cover further payments or eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Accounts. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions. SCHEDULE 7 Terms of Subsidiary Loan Agreements 1. The Borrower shall relend the proceeds of the Loan allocated from time to time to: (a) Categories 1(a) and 2(a) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to Donbassenergo under the Donbassenergo Subsidiary Loan Agreement (the Donbassenergo Subsidiary Loan); (b) Categories 1(b) and 2(b) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to Dniproenergo under the Dniproenergo Subsidiary Loan Agreement (the Dniproenergo Subsidiary Loan); (c) Categories 1(c) and 2(c) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to Zakhidenergo under the Zakhidenergo Subsidiary Loan Agreement (the Zakhidenergo Subsidiary Loan); (d) Categories 1(d) and 2(d) of the table set forth in paragraph 1 of Schedule 1 to this Agreement to Tsentrenergo under the Tsentrenergo Subsidiary Loan Agreement (the Tsentrenergo Subsidiary Loan) and (e) Categories 3 and 4 of the said table to NDC under the NDC Subsidiary Loan Agreement (the NDC Subsidiary Loan). Interest payments on the NDC Subsidiary Loan accrued on or before the date set forth in Category (5) of the said table shall be capitalized and paid out of the proceeds of the Loan, in accordance with guidelines satisfactory to the Bank. 2. The principal amount of each of the Donbassenergo Subsidiary Loan, the Dniproenergo Subsidiary Loan, the Zakhidenergo Subsidiary Loan and the Tsentrenergo Subsidiary Loan shall be: (a) denominated in Dollars; (b) repaid over a period of 10 years, inclusive of a grace period of three years; (c) charged, on the principal amount thereof not withdrawn from time to time, a commitment fee at a rate equal to the rate paid by the Borrower from time to time under the Loan pursuant to Section 2.04 of this Agreement; and (d) charged, on the principal amount thereof Page 19 withdrawn and outstanding from time to time, interest at a rate equal to the rate paid by the Borrower from time to time under the Loan pur- suant to Section 2.05 of this Agreement, plus a margin equal to 1.0%. 3. The principal amount of the NDC Subsidiary Loan shall be: (a) denominated in Dollars; (b) repaid over a period of 17 years, inclusive of a grace period of five years; (c) charged, on the principal amount thereof not withdrawn from time to time, a commitment fee at a rate equal to the rate paid by the Borrower from time to time under the Loan pursuant to Section 2.04 of this Agreement; and (d) charged, on the principal amount thereof withdrawn and outstanding from time to time, interest at a rate equal to the rate paid by the Borrower from time to time under the Loan pursuant to Section 2.05 of this Agreement, plus a margin equal to 1.0%. The amount of interest payment on the NDC Subsidiary Loan shall be capitalized as provided in paragraph 1 to this Schedule 7.