Conformed Copy - L4345 - Urban Infrastructure Services Development Project - Supplemental Letter

Page 1 July 31, 1998 Financiera de Desarrollo Territorial S.A. (FINDETER) Calle 103 No. 21-20, Piso 6 Santa Fe de Bogotá Colombia Re: Colombia: Loan 4345-CO (Urban Infrastructure Services Development Project) - Section 3.01 (b) of the Loan Agreement Dear Sirs: This letter is in connection with the Loan Agreement of even date herewith (the Loan Agreement) between the International Bank for Reconstruction and Development (the Bank) and Financiera de Desarrollo Territorial S.A. for the above Project and, more specifically, with the provisions of paragraph (b) of Section 3.01 of the Loan Agreement and the monitoring and evaluation indicators referred to in subparagraph (i) of said paragraph. The terms defined in the Loan Agreement will have identical meaning in this letter. A. As stipulated in said subparagraph, the indicators will be used for monitoring and evaluating, on an on-going basis, the Borrower’s performance in the carrying out of the Project and in achieving the objectives thereof. The information obtained will integrate reports referred to in subparagraph (ii) of said paragraph (b) and said reports will be used in each of the reviews to take place annually as stipulated in subparagraph (iii) of said paragraph (b). The monitoring indicators are as follows: 1. The Borrower’s loan portfolio for urban services should increase by not less than 10% per year in real terms. 2. By December 31, 1999, the number of investment proposals which have been approved by the Borrower in each calendar year, including those to be financed with Loan proceeds, in respect of which the required instruments, such as loan agreements or promissory notes, have not yet been executed and delivered by the Financial Intermediaries, should be lower than 10% of the overall number of investments proposals approved in such year. \0c 3. Reasonable progress should be attained towards the goal of ensuring financial sustainability by at least 50% of projects financed by the Borrower, including Approved Subprojects, by the Closing Date; said progress to be measured against targets in management plans referred to in (a) 5 below. 4. (i) Reasonable progress should be attained towards the goal of ensuring that at least 75% of IFIs loans rediscounted by the Borrower (IFI loans), including Subloans, have repayment terms of at least eight years, after two years of date of Loan Agreement; and (ii) maintaining the said percentage thereafter. 5. Ascertaining that, by a date two years from the date of Loan Agreement, copies of management plans for urban service improvement from 90% of Borrower’s clients, including Eligible Project Entities, in water and sanitation and other sectors comprised by Law No. 142 are being received regularly by the Borrower. 6. Reasonable progress should be attained towards the goal of reaching at least 70% of Borrower’s estimated loan disbursements, including Participation Loans, for each operation, by a date two years from the date of Loan Agreement, and said percentage to be maintained or improved thereafter. 7. Reasonable progress should be attained towards the goal of ensuring that the share of IFI loans to service companies has increased to at least 15% of new IFI loans, including Subloans, by a date two years from the date of the Loan Agreement Page 2 and to at least 25% by the Closing Date. 8. Client IFIs and Project Entities should be instructed in the use of the Borrower’s manuals (for credit and for project preparation, including Project Operational Manual), by June 30, 1999, and instruction to be continued thereafter with emphasis on new clients. B. The determination to be made on the occasion of each of the joint reviews provided for in subparagraph (iv) of paragraph (b) of Section 3.01 of the Loan Agreement, shall be based on the indicators listed below. Said determination shall be made in light of the information provided by the reports and results of each annual review of reports, both provided for in subparagraph (iii) of paragraph (b) of such Section, which reports and results were, in turn, based on the indicators listed in paragraph (a) of this letter. The Borrower shall have: 1. committed financing in an aggregate amount of not less than the equivalent of $37,500,000 for purposes of the Project by a date two years from the date of the Loan Agreement, and disbursements under said operations shall have taken place normally thereafter; 2. entered into firm commitments for the financing of loans with repayment terms of eight years or more, made or to be made for projects (including Approved Subprojects) for, at least, 75% of the Borrower’s portfolio balance, as calculated in a manner mutually agreeable to the Bank and the Borrower; and 3. been in compliance with the provisions of the Project Operational Manual on the basis of an ex-post assessment of a sample, chosen at random, of not less 10% of projects financed by the Borrower and subject to the rules and procedures provided for in said Manual and to the provisions of the Loan Agreement, including a proportion of Approved Subprojects of about half of said sample. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Regional Vice President Latin America and the Caribbean AGREED: FINANCIERA DE DESARROLLO TERRITORIAL S.A. (FINDETER) By /s/ Authorized Representative Date: ______________________