Mexico - Second Steel Project : Loan 1308 - Loan Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1308 ME LOAN AGREEMENT (Second Steel Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and SIDERURGICA LAZARO CARDENAS-LAS TRUCHAS, S.A. and NACIONAL FINANCIERA, S.A. Dated July 14, 1976 LOAN AGREEMENT AGREEMENT, dated July 14, 1976, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, party of the first part, (here- inafter called the Bank) and SIDERURGICA LAZARO CARDENAS-LAS TRUCHAS, S.A. and NACIONAL FINANCIERA, S.A., parties of the second part, (hereinafter called the Borrowers). WHEREAS (A) Sideru"rgica Lizaro Cirdenas-Las Truchas, S.A. (hereinafter called SICARTSA) and Nacional Financiera, S.A. (here- inafter called NAFIN) have requested the Bank to assist in the fi- nancing of Phase A of the project described in Schedule 2 to this Agreement, to be carried out by SICARTSA; (B) NAFIN has requested the Inter-American Development Bank to assist in the financing of such phase of the Project by making to NAFIN a loan for the equivalent of $95,000,000 (hereinafter called the IDB Loan); (C) The Borrowers have requested other lenders outside Mexico to assist in the financing of such phase of the Project through the provision of credits, of which the equivalent of about $1,200,000,000 will be utilized for the purpose (hereinafter called the Bilateral Credits); (D) SICARTSA will request additional loans from other lenders in such aggregate amount as it shall require for the efficient execution of Phase A of the Project (currently estimated to be equivalent to $410,000,000) on terms and conditions that will enable SICARTSA to carry out the Project and its operations in -2- accordance with sound financial practices, and NAFIN will assist SICARTSA to obtain such loans; and (E) The Bank is willing to make the Loan jointly to SICARTSA and NAFIN upon the terms and conditions set forth hereinafter and in the Guarantee Agreement of even date herewith between United Mexican States and the Bank; NOW THEREFORE the parties hereto hereby agree as follows: -3- ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- ant-ee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the following modifications thereof (said General Con- ditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions): (a) Paragraph 6 of Section 2.01 is amended to read as fol- lows: "6. The term 'Borrower' means the Borrowers, except that as used in paragraphs (a), (c), (d), (e), (g), (h), and (i) of Section 6.02; in paragraphs (c), (e), (f), and (g) of Section 7.01; and in Sections 10.01 and 10.02, such term means both Borrowers or either of them."; and (b) Paragraph (i) of Section 9.01 is amended to read as follows: "(i) exchange views through their representatives with regard to the progress of the Project, the benefits derived therefrom and the performance of their respective obligations under the Loan Agreement and the Guarantee Agreement, and other matters relating to the purposes of the Loan and the development of the steel industry in Mexico;". -4- 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 additional terms have the following meanings: (a) "Estatutos" means the provisions incorporating SICARTSA set forth in the escritura 16,324 executed before Notary Manuel Borja Covarrubias on June 25, 1969, as amended to the date of this Agreement. (b) "Subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by SICARTSA or by one or more subsidiaries of SICARTSA or by SICARTSA in one or more of its subsidiaries. (c) "peso" means the currency unit of the Guarantor. (d) "Project Completion Date" means the date on which the facilities included in the Project shall have produced not less than 750,000 metric tons of finished flat steel products out of steel produced by SICARTSA during a period of six continuous months. -5- ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrowers, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to ninety five mil- lion dollars ($95,000,000). Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Bank and the Borrowers, for expendi- tures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Proj- ect and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, the goods (and civil works, if any) to be financed out of the proceeds of the Loan, shall be purchased and contracted for, respectively, in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be June 30, 1981, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrowers and the Guarantor of such later date. Section 2.05. The Borrowers shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. -6- Section 2.06. The Borrowers shall pay interest at the rate of eight and eighty-five hundredths per cent (8.85%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on February 15 and August 15 in each year. Section 2.08. The Borrowers shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.09. All obligations of the Borrowers under this Loan Agreement, unless expressly undertaken only by one of the Borrowers, shall be joint and several. The obligations of either of the Borrowers to comply with any of its obligations under the Loan Agreement is not subject to any prior notice to, demand upon, or action against, the other. No extension of time or forbearance given to either of the Borrowers in respect of the performance of any of its obligations under the Loan Agreement, and no failure of the Bank to give any notice or to make any demand or protest what- soever to either of the Borrowers, or strictly to assert any right or pursue any remedy against either of them in respect of the Loan Agreement, and no failure by either of the Borrowers to comply with any requirement of any law, regulation or order, shall in any way affect or impair any obligation of either of the Borrowers under the Loan Agreement. ARTICLE III Execution of the Project Section 3.01. SICARTSA shall carry out the Project with due diligence and efficiency and in conformity with sound engineering, financial and administrative practices, and the Borrowers shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required. for the purpose. Section 3.02. SICARTSA shall carry out and furnish to the Bank by December 31, 1978, or such later date as the Bank shall agree, a study to estimate future demand for port services at the city of Lizaro Cfirdenas, including the facilities required to pro- vide such services. Section 3.03. Except as the Bank shall otherwise agree, SICARTSA shall obtain title to all goods financed in whole or in part with the proceeds of the Loan, free and clear of all liens. Section 3.04. In carrying out the civil engineering, building and erection work reqaired for the Project, SICARTSA shall employ qualified and experienced contractors upon satisfactory terms and conditions. Section 3.05. SICARTSA covenants: (i) that all the goods used in carrying out the Project will be consistent with design criteria and other technical specifications that are appropriate for that purpose; and (ii) unless otherwise agreed with the Bank, goods -8- estimated. to cost the equivalent of $500,000 or more and to be fi- nanced out of the proceeds of the Bilateral Credits will be pro- cured on the basis of international competition amongst qualified suppliers in the countries which have made such Bilateral Credits available to SICARTSA. Section 3.06. (a) SICARTSA undertakes to insure, or make ade- quate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by SICARTSA to re- place or repair such goods. (b) Except as the Bank shall otherwise agree, SICARTSA shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. Section 3.07. (a) SICARTSA shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, con- tract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions there- to, in such detail as the Bank shall reasonably request. (b) SICARTSA: (i) shall maintain records adequate to reflect the progress and cost of the Project and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accred ited representatives to visit the facilities and construction sites included in the Project and to examine all plants, installations, 9 sites, works, buildings, property and equipment of SICARTSA, in- cluding the goods financed out of the proceeds of the Loan, and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reas5onably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. - 10 - ARTICLE IV Management and Operations of SICARTSA Section 4.01. SICARTSA shall continue at all times to manage its affairs, carry on its operations, plan the development of its business and undertaking, and maintain its financial position, in accordance with sound engineering, financial and management prac- tices, and under the supervision of experienced and competent management. Section 4.02. SICARTSA shall at all times take all steps necessary to: (i) maintain its corporate existence and right to carry on its operations, including the Project; and (ii) except as the Bank shall otherwise agree, to acquire and to retain such land, properties, including mining properties, and interests thereon, and to acquire, maintain and renew such licenses, consents, fran- chises or other rights, as may be necessary or useful for the con- struction and operation of the Project and the conduct of its busi- ness and undertaking. Section 4.03. SICARTSA shall, to the extent necessary, con- tinue to employ consultants with qualifications, experience, and on terms and conditions satisfactory to the Bank and 3ICARTSA, to assist SICARTSA in carrying out the Project and its operations. Section 4.04. SICARTSA shall operate and maintain its plant, equipment, properties and facilities and make all necessary renew- als and repairs thereof, all in accordance with sound engineering practices. -11 - Section 4.05. Except as the Bank shall otherwise agree, SICARTSA shall not sell, lease, transfer or otherwise dispose of any of its properties or assets required for the efficient carrying out of its business and undertaking, including the carrying out of the Project. Section 4.06. SICARTSA shall take out and maintain with res- ponsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with sound practice. Section 4.07. SICARTSA shall take all reasonable measures to ensure that the Project is carried out and operated with due re- gard to ecological and environmental factors. Section 4.08. Except as the Bank shall otherwise agree, SICARTSA shall cause its Subsidiaries to observe and perform the obligations of the Borrower hereunder to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon such Subsidiaries. - 12 - ARTICLE V Financial Covenants Section 5.01. (a) SICARTSA covenants that it will take all measures necessary to increase its paid-in share capital as speci- fied in Schedule 5 to this Agreement, as such Schedule may be amended from time to time by agreement between the Bank and SICARTSA, so as to maintain, at all times, a debt/equity ratio, as defined in Section 5.03 of this Agreement, not greater than 60:4o. (b) If, and to the extent that, the funds to be provided to SICARTSA by the Guarantor pursuant to Section 2.03 of the Guarantee Agreement are to be provided as equity capital, SICARTSA shall take any measures necessary to increase further its share capital and call the payments required to obtain such funds. Section 5.02. (a) SICARTSA may make expenditures or commit- ments for expenditures: (i) for fixed assets; and (ii) for invest- ments in or loans to, or to guarantee any obligation of, other business entities, including any Subsidiary, only if such expendi- tures or commitments for expenditures shall not impair the ability of SICARTSA to meet its obligations under the Loan Agreement; pro- vided, however, that to the extent that such expenditures or commitments in any fiscal year until the Project Completion Date exceed the equivalent of $25,000,000, they will be made only if the Bank and SICARTSA agree that they will not cause such impair- ment. The foregoing provision shall not apply to expenditures and commitments for expenditures to carry out the Project and for - 13 - capitalized expenditures for repairs, modifications, renewals and replacements of equipment and other assets of SICARTSA. (b) Except as the Bank shall otherwise agree, before the Project Completion Date SICARTSA may only establish or acquire Subsidiaries each with an authorized capital not exceeding the equivalent of $10,000,000. Section 5.03. Except as the Bank shall otherwise agree, SICARTSA shall not: (a) purchase, redeem or otherwise acquire for value any shares in SICARTSA; or (b) declare any dividend (other than a dividend payable in shares of SICARTSA) or make any other distribution with respect to its share capital, unless: (i) SICARTSA's equity at the end of the fiscal year to which such dividend or other distribution re- lates is equal to or exceeds SICARTSA's debt at such time; (ii) the current assets of SICARTSA, after such dividend is paid or such other distribution is made, would be at least equal to or exceed one and one-half times the current liabilities of SICARTSA at the end of the fiscal year to which such dividend or other distribution relates; and (iii) the total amount of all cash dividends declared, plus the value of all other-distributions made by SICARTSA at any time, including the proposed cash dividend or other distribution will not exceed half the amount of the cumulative net income, less losses, earned by SICARTSA from the fiscal year in which commer- cial operations commenced until the end of the fiscal year to which such dividend or other distribution relates. This provision will be reviewed by the Bank and SICARTSA if present accounting principles and practices are changed so as to materially affect the computation of net income; or (c) incur any debt if: (i) the result thereof would raise the debt/equity ratio of SICARTSA above 60:40 at the end of the fiscal year of SICARTSA in which such debt is incurred; or (ii) the debt service coverage ratio of SICARTSA for any fiscal year after the Project Completion Date would be less than 1.5. For the purposes of this Section: (i) "Debt" means any debt incurred by SICARTSA maturing more than one 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 on the date and to the extent it is drawn down pursuant to such loan or agreement; and (B) under a guarantee agreement on the date the agreement providing for such guarantee has been entered into but only to the extent that the guaranteed debt is outstanding. (iii) "Debt service coverage ratio" means the ratio be- tween the reasonably estimated net revenues for any fiscal year and the aggregate amount of amorti- zation (including sinking fund payments, if any) of, and interest and other charges on, debt payable in the same fiscal year. - 15 - (iv) "Net revenues" means gross revenue from all sources less all operating and administrative expenses, and amounts paid or to be paid within the year on account of taxes; provided that the operating and administrative expenses shall not include interest and other charges on debt, and provisions for de- preciation of assets. (v) "Equity" means the sum of the t 4al unimpaired paid- in share capital, surplus and free reserves of SICARTSA not allocated to cover specific liabili- ties. (vi) "Current assets" includes cash, accounts receivable due within twelve months less the reserve for bad debts, inventories, pre-paid expenses, and all other assets which could, in the ordinary course of business, be converted within twelve months into cash. (vii) "Current liabilities" includes accounts payable within twelve months, customer advances, income taxes, dividends, bonuses and all other liabilities (including that part of the debt as defined in sub- paragraph (i) hereof) which would be due and payable or could be called for payment, within twelve months. (viii) Whenever in connection with this Section it shall be necessary to value in terms of pesos debt pay- ment in another currency, such valuation shall be - 16 - made on the basis of the prevailing rate of exchange as determined by the Banco de M6xico, S.A. Section 5.04. Except as the Bank shall otherwise agree, SICARTSA shall not directly or indirectly pay or otherwise settle for a consideration, prior to maturity, any of its outstanding debt maturing by its terms more than one year after the date of its original incurrence; provided that the preceding shall not apply to any loan prepayment which is part of the refinancing of such loan by another loan on terms and conditions more favorable to SICARTSA than those of the loan to be repaid, and the new loan is to be withdrawn substantially at the same time said prepayment is made. Section 5.05. The Borrowers undertake to use their best efforts to obtain (i) the IDB Loan, before the Effective Date, and (ii) the Bilateral Credits on terms and conditions satisfactory to the Guarantor, the Bank and the Borrowers, for use in financing the cost of goods and services required for the Project and not financed out of SICARTSA's own resources or out of the proceeds of the Loan. Section 5.06. (a) NAFIN shall charge SICARTSA and collect from it, and SICARTSA shall pay to NAFIN, a fee of one and fifteen hundredths per cent (1.15%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. (b) NAFIN and SICARTSA hereby undertake to make contractual arrangements for the purpose of charging and paying, respectively, the fee referred to in paragraph (a) hereof. - 17 - Section 5.07. SICARTSA shall maintain records adequate to reflect in accordance with consistently maintained sound account- ing practices its operations and financial condition. Section 5.08. SICARTSA shall: (i) have an annual audit satis- factory to the Bank made of its accounts and financial statements (balance sheets, statements of income and expenses, statements on sources and application of funds, and related statements) for each fiscal year, in accordance with sound auditing principles consistently applied, by independent and qualified auditors; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, (A) certi- fied copies of its financial statements for such year as so au- dited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably re- quested; (iii) furnish to the Bank such other information concern- ing the accounts and financial statements of SICARTSA and the audit thereof as the Bank shall from time to time reasonably request; and (iv) furnish to the Bank, as soon as possible but not later than 45 days after the end of each quarter, financial reports for such quarter. Section 5.09. (a) The Borrowers represent that at the date of this Agreement no lien exists on any of their assets as secur- ity for any external debt of NAFIN or as security for any debt of SICARTSA. (b) Each of the Borrowers undertakes that, except as the Bank shall otherwise agree, if any lien shall be created on any of its assets as security as to NAFIN for any external debt and - 18 - as to SICA3RTSA for any debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. - 19 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) the Guarantor or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of SICARTSA or for the suspension of its operations; (b) a change shall have been made in SICARTSA's Estatutos which will materially and adversely affect SICARTSA's operations or financial condition; and (c) the right of the Borrowers to utilize the IDB Loan or any of the Bilateral Credits shall have been suspended or cancelled in whole or in part so as to materially and adversely affect the ability of SICARTSA to carry out the Project. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) any event specified in Section 6.01 of this Agreement shall occur; and (b) any debt with an original maturity of one year or more incurred by SICARTSA in financing the Project shall have become - 20 - due and payable before its agreed maturity so as to materially and adversely affect the ability of SICARTSA to carry out the Project. - 21 - ARTICLE VII Effective Date; Termination; Amendment of Prior Loan Agreement Section 7.01. The date October 15, 1976 is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 7.02. The loan agreement (Las Truchas Steel Project) dated September 12, 1973, between the same parties to this Agree- ment, is amended so that Section 5.08 thereof shall read as Sec- tion 5.08 of this Agreement. - 22 - ARTICLE VIII Addresses Section 8.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. For the Borrowers: SICARTSA: Siderrrgica Lzaro Cgrdenas - Las Truchas, S.A. Yucatfn 15 Mixico 7, D.F. Telex address: 73147 SICATME Mexico City NAFIN: Nacional Financiera, S.A. Isabel la Cat6lica 51 Mgxico 1, D.F. Telex address: NAFIN 383-1772538 MAxico City - 23 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean SIDERURGICA LAZARO CARDENAS - LAS TRUCHAS, S.A. By /s/ Adolfo Orive Alba Authorized Representative NACIONAL FINANCIERA, S.A. By /s/ Gustavo Romero Kolbeck Authorized Representative - 24- 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 expen- ditures 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) Phase A of the 90,000,000 100% of foreign Project expenditures or 100% of the ex- factory cost of goods manufac- tured in Mexico (a) Equipment and spare parts for blast furnace (b) Equipment and spare parts, and building structures for cold rolling mill (2) Unallocated 5,000,000 TOTAL 95,000,000 - 25 - 2. For the purposes of this Schedule the term "foreign expendi- tures" means expenditures in any currency other than pesos and for goods or services supplied from the territory of any country other than the Guarantor. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expendi- tures prior to the date of this Agreement. 4. 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 reasoiably estimated that the amount of the Loan then allocated to Category (1) will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrowers reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to Category (2) and which in the opinion of the Bank are not needed to meet other expenditures. 5. If the Bank, after consultation with the Borrowers, shall have reasonably determined that the procurement of any item in Category (1) is inconsistent with the procedures set forth or re- ferred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, with- out in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Bor- rowers, cancel such amount of the Loan as, in the Bank's reason- able opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the pro-- ceeds of the Loan. - 26 -I SCHEDULE 2 Description of the Project 1. The Project consists of the expansion and construction of additional facilities in iron ore mines and integrated iron and steel works so as to achieve minimum annual production capacity of about 2.1 million metric tons of raw steel to produce about 1.7 million metric tons per year of flat finished steel products. 2. The major components of the Project are the following: Phase A (a) Additional fixed and mobile equipment to mine iron ore and limestone. (b) An extension of the existing concentration plant to benefit the run-of-mine ore. (c) A coal unloading system of about 1,000 ton/hour nominal capacity. (d) A sinter plant to produce about 1.5 million tons per year of screened sinter. (e) A lime burning plant to produce about 140,000 tons per year. - 27 - (f) A battery of about 70 ovens to produce approximately 680,000 tons of run-of-oven coke per year. (g) A blast furnace with an average daily rated capacity of about 3,300 tons of pig iron. (h) A basic oxygen steelmaking plant to produce a minimum of 2.1 million tons of liquid steel per year. (i) A continuous casting plant to produce not less than 2 million tons of steel slabs per year. (j) A semi-continuous hot strip mill capable of processing about 2 million tons of slab per year and the corresponding finishing facilities such as a hot skin pass, two shearing lines and a slitting line. (k) A pickling line to produce about 1 million tons of hot rolled pickled coils per year. (1) A cold tandem mill to produce about 1.1 million tons of cold rolled coils per year and the corresponding finishing facil- ities such as a temper mill, two shearing lines and a slitting line. (m) A power plant comprising one blast furnace turbo blower, two high-pressure steam generators and one 10.5 MW turbo alternator. (n) An oxygen plant with a capacity of about 900 tons per day. - 28 - Phase B (a) A coal unloading system of about 1,000 tons/hour nominal capacity. (b) A pelletizing plant to produce about 1.8 million tons of screened, fluxed iron ore pellets per year. (c) An extension of the lime burning plant to increase pro- duction capacity by 60,000 tons per year. (d) A battery of about 60 ovens to produce approximately 580,000 tons of run-of-oven coke per year. (e) A blast furnace with average daily rated capacity of about 3,300 tons of pig iron. (f) A pickling line to produce about 1 million tons of hot rolled pickled coils per year. (g) A fifth stand added to the cold tandem mill of Phase A. (h) A temper mill. (i) An extension of the power plant comprising one blast furnace turbo blower, two high pressure steam generators, one 10 MW turbo alternator. - 29 - 3. The Project also includes all ancillary production and ser- vice facilities needed to support the above facilities. * * * The Project will be carried out in two phases; Phase A is expected to be completed by,January 31, 1980, and Phase B is expected to be completed by mid-1983. - 30 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* August 15, 1981 3,050,000 February 15, 1982 3,185,000 August 15, 1982 3,330,000 February 15, 1983 3,475,000 August 15, 1983 3,630,000 February 15, 1984 3,790,000 August 15, 1984 3,955,000 February 15, 1985 4,135,000 August 15, 1985 4,315,000 February 15, 1986 4,505,000 August 15, 1986 4,705,000 February 15, 1987 4,915,000 August 15, 1987 5,130,000 February 15, 1988 5,360,000 August 15, 1988 5,595,000 February 15, 1989 5,845,000 August 15, 1989 6,100,000 February 15, 1990 6,370,000 August 15, 1990 6,655,000 February 15, 1991 6,955,000 * To the extent that any portion of the Loan is repayable in a irrency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purToses of withdrawal. - 31 - Premiums on Prepayment The following percentages are specified as the premiums pay- able on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years 1.75% before maturity More than three years but 3.55% not more than six years before maturity More than six years but not 6.50% more than eleven yeais before maturity More than eleven years but 7.65% not more than thirteen years before maturity More than thirteen years 8.85% before maturity - 32 - SCHEDULE 4 Procurement of Goods and Services to be Financed out of the Proceeds of the Loan 1. The goods (and civil works, if any) to be financed out of the proceeds of the Loan shall be procured under contracts to be awarded in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. The following procedure shall apply to the procurement of the larger, technically complex facilities to be financed out of the proceeds of the Loan: (a) A detailed invitation to bid will be sent to all pre- qualified suppliers. After affording all the recipients of such document a reasonable time to acquaint themselves with the technical and commercial aspects of the tender, SICARTSA will hold a meet- ing to which all of them will be invited, in order to discuss simultaneously with them any matter pertaining to such tender. If necessary, promptly after such meeting, the bidding documents will be revised, and a copy thereof will be given to all the suppliers who were invited to bid. (b) The suppliers will be afforded a reasonable time after such meeting, or after the dispatch of the revised bidding docu- ment, if any, to submit their bids. -33 - (c) For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c. and f. landed price at Puerto Lfzaro C9rdenas for imported goods, or the ex-factory f.o.b. price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically sup- plied goods, shall be excluded; and (iii) the cost to SICARTSA of insurance, inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation, and the cost of erection and associated works, shall be taken into account in accordance with paragraph 3.7 of the Guidelines. (d) Goods manufactured in Mexico may be granted a margin of preference in accordance with, and subject to, the following pro- visions: (i) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the methods and stages that will be followed in the evaluation and comparison of bids. (ii) After evaluation, responsive bids will be classi- fied in one of the following two groups: (1) Group A: bids presented by Mexican bidders in- corporated in Mexico, and offering goods manu- factured in Mexico if the bidder shall have established to the satisfaction of SICARTSA and the Bank that the materials, labor and services of Mexican origin contained in such goods comprise at least 50% of their ex-factory bid price; and (2) Group B: bids offering any other goods; provided, however, that if any group B bid offers goods containing clearly identifiable Mexican com- ponents, the value of such Mexican components in the total bid price will be treated as a group A bid. For these purposes, the term "Mexican compo- nent" means any part or component manufactured in Mexico if the cost of the materials, labor and ser- vices of Mexican origin used in its manufacture comprise at least 50% of its ex-factory cost. (iii) All evaluated bids in each group shall be first compared among themselves, on the basis of their c. and f. or ex-factory cost to SICARTSA, as the case may be, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this com- parison, a bid from group A is the lowest, it shall be selected for the award. -35- (iv) If, as a result of the comparison under paragraph (iii) above, the lowest bid is a bid from group B, all group B bids shall be further compared with the lowest evaluated bid from group A after adding to the c. and f. bid cost of the imported goods of- fered in each group B bid, for the purpose of this further comparison only, an amount equal to (A) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group B bid, or (B) 15% of the c. and f. bid cost to SICARTSA of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group B which as a result of the comparison under paragraph (iii) is the lowest evaluated bid shall be selected. 3. With respect to the goods and services estimated to cost the equivalent of $500,000 or more, and to be financed out of the pro- ceeds of the Loan: (a) SICARTSA shall, before qualification is invited for purposes of tendering large, technically complex equipment, inform the Bank in detail of the procedure it intends to follow and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, toa.-Ther with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification shall be furnished - 36- by SICARTSA to the Bank for its comments before the applicants are notified, and SICARTSA shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reason- ably request, according to the qualification procedures agreed with the Bank. (b) Before bids are invited, SICARTSA shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a des- cription of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (c) After bids have been received and evaluated, SICARTSA shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall rea- sonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform SICARTSA and state the reasons for such determina- tion. (d) The terms and conditions of the contract shall not, with- out the Bank's concurrence, materially differ from those on which bids were asked. -37 - (e) Two conformed copies of the contract shall be furnished to 'The Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 4. With respect to each contract to be financed out of the pro- ceeds of the Loan and not governed by paragraph 3 hereof, SICARTSA shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for with- drawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform SICARTSA and state the reasons for such determination. - 38 - SCHEDULE 5 Cumulative Paid-In Date Share Capital of SICARTSA December 31, 1977 9,200 million pesos December 31, 1978 14,100 million pesos December 31, 1979 17,700 million pesos December 31, 1980 20,000 million pesos