Turkey - Karakaya Hydropower Project : Loan 1844 - Loan Agreement - Conformed

OAN NUMBER TU 4 U Loan Agreement (Karakaya Hydropower Project) between REPUBLIC OF TURKEY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated t 1 z , 1980 LOAN AGREEMENT AGREEMEF., dated Yq I , 1980, between REPUBLIC OF TURKEY (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) The Borrower has requested the Bank to assist in the financing of a portion of the foreign exchange cost of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) In order to safeguard adequately the interests of the lower riparian states the Borrower will implement certain measures with respect to the construction, filling and operation of the dam included in the Project as set forth in the letters dated March 7, 1979 and February 22, 1980 addressed to the Bank by the Borrower's Ministry of Finance; (C) The Project will be carried out by Devlet Su Isleri (State Hydraulic Works), an agency within the Borrower's Ministry pf Energy and Natural Resources established and operating pursuant to the Borrower's law No. 6200 dated December 25,1953 (hereinafter called DSI) and, as part of such assistance, the Borrower will make available to DSI the proceeds of the Loan as hereinafter provided; (D) As and when the facilities to be constructed under the Project are brought into commercial operation, the Borrower intends to transfer the said facilities as an equity contribution pursuant to the provisions of the Turkish Electricity Authority's Law, dated July 15, 1970, to Turkiye Elektrik Kurumu, a state economic enterprise established and operating under the said law (hereinafter called TEK). (E) By agreements dated October 31, 1977 and May 18, 1978 (hereinafter called the Bilateral Credit Agreement) the Credit Suisse at Zurich and Swiss Banks led by the Union Bank of Switzer- land at Zurich have agreed to make a loan (hereinafter called the Bilateral Credits) to the Borrower in an aggregate principal amount equivalent to about $305,000,000 to assist in financing the Project on the terms and conditions therein set forth. (F) The Borrower intends to obtain additional financing from the European Investment Bank in an amount of $110,000,000 - 2 - (hereinafter called the EIB Loan) and from other lenders outside Turkey in an amount of not less than $46,000,000 equivalent (hereinafter called the Other Credit) to assist in financing the civil works for the Project; WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE 1 General Conditio,is; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions). 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) the term "TKI" means Turkiye Komur Isletmeleri Kurumu, a state economic enterprise established and operating under the laws of the Borrower; (b) the term "Central Project Coordinating Committee" means the committee established pursuant to the Borrower's Decree No. 7/8753 dated July 7, 1974; and (c) "TL" and "Lira" mean the currency of the Borrower. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth -3- or referred to, an amount in various currencies equivalent to one hundred twenty million dollars ($120,000,000). 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 Borrower and the Bank, for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project, and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1988 or such later date as the Bank shall otherwise establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower 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. Section 2.06. The Borrower shall pay interest at the rate of eight and twenty-five hundredths per cent (8.25%) 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 March 15 and September 15 in each year. Section 2.08. 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 shall carry out the Project through DSI with due diligence and efficiency and in conformity with appropriate administrative, financial and public utility practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. -4- (b) Without restriction or limitation upon the provisions of paragraph (a) of Section 3.01 of this Agreement, the Borrower shall establish, or cause to be.established, a special revolving fund in accordance with arrangements satisfactory to the Borrower and the Bank to be used exclusively to make payments for the goods and services required on the part of DSI to carry out the Project. The Borrower shall deposit or cause to be deposited in said revolving fund amounts as shall be from time to time required on the part of DSI to make the payments necessary for carrying out the Project, promptly as needed. The Borrower shall maintain or cause to be maintained records adequate to reflect, in accordance with consistently maintained appropriate accounting practices, the operations and financial condition of said revolving fund. (c) Without restriction or limitation upon the provisions of paragraph (b) of this Section, the Borrower shall make or cause to be made an initial deposit in the revolving fund of TL 500,000,000 and thereafter shall on a monthly basis make or cause to be made such deposits in the revolving fund as are required so that on the first day of each month the-re shall be available in the fund amounts sufficient to meet payments for the cost of the Project required on the part of DSI to cover the forthcoming three months of such costs as reasonably estimated by the consultants referred to in paragraph (a) of Section 3.03 of this Agreement on the basis of the work schedules relating thereto. Section 3.02. Without limitation or restriction to the provisions of paragraph (a) of Section 3.01. of this Agreement, the Borrower undertakes to take all such steps as may be required during the execution of the Project to meet reasonable environmen- tal protection standards. Section 3.03. (a) In order to assist DSI in the preparation of plans and specifications for, in the preparation of bidding documents for, in the supervision of the construction of, and in the initial operation of the facilities constructed under the Project, the Borrower shall employ engineering consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. (b) The Borrower shall appoint a board of independent experts, whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank, such terms and conditions to provide inter alia for advice to DSI by said experts -5- in the event of any unforeseen problems arising during construc- tion of the facilities provided under the Project. Section 3.04. (a) The Borrower undertakes to insure, or make adequate 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 the . Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. (c) The Borrower shall issue, promptly, as and when needed, any import and other licences including any foreign exchange authorizations required for the importation of goods, or the supply of services, for the Project, or for the replacement or repair of such goods. Section 3.05. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain or cause DSI to main- tain records adequate (A) to reflect in accordance with consis- tently maintained appropriate accounting practices the operations, resources and expenditures, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof, and (B) to record the progress of the Project (including the cost thereof) 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 accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; (iii) shall furnish to the Bank within thirty calendar days after each calendar quarter a report, of such scope and in such detail as the Bank shall reasonably request on the progress of the Project, during such quarter; and (iv) shall furnish to the Bank all such information as the -6- Bank shall reasonably request concerning the Project, the expendi- ture of the proceeds of the Loan and the goods Lnd services financed out of such proceeds. Section 3.06. (a) The Borrower shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction (and operation) of the facilities included in the Project and shall furnish to the Bank, promptly after such acquisition, evidence satisfactory to the Bank that such land and rights in respect of land are available for purposes related to the Project. (b) Without limitation or restriction to the provisions of paragraph (a) of Section 3.05, the Borrower shall make appropriate arrangements to relocate any residents on land required for the construction and operation of the facilities included in the Project (including without limitation the land to be inundated by the maximum level of the Karakaya reservoir), all to be in accordance with a timetable and a plan of action satis- factory to the Bank, which shall be furnished to the Bank by February 28, 1981 or such other date as the Bank may agree. Section 3.07. (a) The Borrower shall, by October 31, 1980, or such other date as the Bank may agree, employ until the Project has been completed, a full-time project site manager with such functions, responsibilities and authorities for the resolution of site problems, qualifications and experience as shall be satis- factory to the Bank. (b) The Borrower shall inform the Bank of the qualifica- tions and experience of any person considered for any new appointment to the position of project site manager. Section 3.08. Until the Project has been completed, the Borrower shall maintain in existence in its Ministry of Energy and Natural Resources, its Central Project Coordinating Committee with such powers, functions, responsibilities, composition, and terms of reference satisfactory to the Bank. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in -7- normal circumstances, special security from the member concerned but to ensur that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this SecLion, the term "public assets" means assets of the Borrower, of any political or administrative subdivisior thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including assets held by the T. C. Merkez Bankasi or any other institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. The Borrower shall cause DSI and TEK to take out and maintain with responsible insurers, or to make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate public utility practice. Section 4.03. The Borrower shall cause DSI and TEK to take all such action as may be required on their part to ensure that -8- the undertakings set forth in the letters of the Borrower referred to in paragraph (B) of the Preamble to this Agreement are ful- filled. Section 4.04. (a) The Borrower shall prepare and submit to the Bank by March 31, 1981 or such other date as the Bank may agree, a reporting system satisfactory to the Bank and adequate to provide recorded river flows, including without limitation measurement criteria and methods of measurement to be used to determine periodic mean river flows at the measuring station operating on the Euphrates River near the city of Birecik within the Borrower's territory and shall thereafter monitor at all times the Euphrates river flows at such measuring station at Birecik in accordance with such system. (b) For purposes of the foregoing and as part of such information as may be requested under subparagraph (ii) of paragraph (a) of Section 9.01 of the General Conditions, the Borrower shall furnish to the Bank within thirty calendar days after the end of each calendar quarter a report of such scope and in such detail as the Bank shall reasonably request, containing the Euphrates river flows data as measured at the Birecik station as provided in this Section, and all such additional information related thereto, as the Bank may reasonably request. Section 4.05. (a) Except as the Bank may otherwise agree, the Borrower shall, by June 30, 1980, establish and thereafter maintain in existence until December 31, 1983, a committee of experts whose qualifications and experience with respect to the pricing of electricity and financing of the electric power sub-sector shall be satisfactory to the Bank. (b) The Borrower shall cause the committee established pursuant to paragraph (a) hereof to complete, by June 30, 1981, or such other date as the Borrower and the Bank may agree, a comprehensive review of the financial aspects related to the electric power sub-sector development in Turkey on a viable basis under terms of reference satisfactory to the Bank. (c) On the basis of the review undertaken pursuant to the provisions of paragraph (b) of this Section, the Borrower shall by December 31, 1981 or such other date as the Bank may agree, furnish recommendations to the Bank and thereafter afford the Bank a reasonable opportunity to comment on such recommendations and on the measures for their implementation, and after considering the - 9 - Bank's comments thereon, but in any event no later than Decem- ber 31, 1983 or such other date as the Bank may agree, adopt all such measures as may be required to implement such recommenda- tions, all in accordance with a timetable acceptable to the Bank to be furnished to the Bank by December 31, 1982 or such other date as the Bank may agree. Section 4.06. (a) The Borrower shall complete by December 31, 1981, or such other date as the Bank may agree, a review of existing arrangements for the coordination of the development and investment plans of TEK and DSI with respect to hydro-electric planning and those of TEK and TKI with respect to thermal power and related mining development, all with a view to formulating proposals designed to improve coordination of such plans consis- tent with national and annual plans. (b) On the basis of the review referred to in paragraph (a) of this Section, the Borrower shall by December 30, 1981 or such other date as the Bank may agree, make and furnish to the Bank, recommendations on strengthening integrated investment planning and coordinating procedures to be used for its electric power sub-sector development and on measures to be taken to insure the timely execution of related investment plans, and the Borrowe. shall, after having afforded the Bank a reasonable opportunity to comment thereon, promptly implement such recommendations and measures. Section 4.07. (a) The Borrower shall cause DSI and TEK to operate, maintain, renew and repair, at all times the facilities constructed under the Project including but without limitation, the dam and reservoir to be constructed under the Project, and promptly make all necessary repairs and renewals thereof, in accordance with appropriate engineering and public utility practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. (b) Without limiting the generality of the provisions of the preceding paragraph (a) of this Section, the Borrower shall: (i) furnish, or cause to be furnished to the Bank, by December 31, 1980 or such other date as the Borrower and the Bank may agree a description of the nature of, the frequency of, and of the monitoring procedures to be used for, the inspection of its hydroworks and dams in its territory; (ii) with the assistance, if need be, of engineering consultants whose qualificatiotns, - 10 - experience and terms of employment shall be satisfactory to the Bank, inspect or cause the dam, waterways, etrthworks and reservoir banks and their appurtenant structures constructed under the Project to be periodically inspected, at intervals of not less than one year and in accordance with appropriate engineering practices, in order to determine whether there are any deficien- cies in the condition of such structures and earthworks, or in the quality and adequacy of earthworks which may endanger the safety of such structures and earthworks, the first of such inspections, to start not later than December 31, 1986, or such other date as the Bank may agree; (iii) furnish, or cause to be furnished to the Bank, promptly after each such inspection, the conclusions thereof including if need be the conclusions of said engineering con- sultants; (iv) make, promptly after each such inspection, all necessary repairs of such structure and earthworks; and (v) make all necessary modifications in the quality and adequacy of maintenance cr methods of operation of such structures and earthworks, all to be in accordance with appropriate engineering practices. Section 4.08. Except as the Borrrower and the Bank shall otherwise agree, and subject to the provisions of Section 4.05 of this Agreement: (a) commencing with TEK's Fiscal Year 1981, the Borrower shall take or cause to be taket, from time to time, all such steps (including, but without limitation, adjustments of its structure or overall level of TEK's electricity rates) as shall be required to provide TEK with funds from internal sources equivalent to not less than 20% in Fiscal Year 1981 and gradually increasing to 35% in Fiscal Year 1986 and thereafter, of the annual capital expenditures of TEK and DSI for power projects during the Fiscal Year concerned. For purposes of this paragraph: (i) the term "funds from internal sources" shall be calculated as the difference between: (A) the sum of gross revenues from all sources, cash consumer contributions in aid of con- struction, net non-operating income, and any reduction in net working capital other than cash; and (B) the sum of all expenses of operations, main- tenance and administration (excluding depre- ciation, income tax and any charges, provided - 11 - for in the Borrower's laws), repayment of loans (including sinking fund payments, if any) and interest and other charges on debt of TEK and DSI with respect to power projects, all cash dividends and other cash distribu- tions of income and/or surplus, increase in net working capital other than cash, and any other cash outflows other than capital invest- ments related to electricity operations. (ii) the term "capital expenditures" includes interest during construction; and (iii) the term "net working capital other than cash" shall mean the sum of accounts receivable from customers and materials and supplies less accounts payable. (b) The Borrower shall furnish or cause to be furnished to the Bank not later than December 31 in each year: (i) a funds flow analysis for the previous Fiscal Year showing, inter alia, the results of applying the test defined in paragraph (a) hereof (the test) to such Fiscal Year; (ii) a funds flow forecast for the next Fiscal Year showing, inter alia, the projected results of applying the test to such Fiscal Year; (iii) the Borrower's total power sector investment plan for TEK and DSI including interest charged during construction for the next year; and (iv) a proposed action plan to achieve the requirements of paragraph (a) above on the basis of the funds flow forecast and the investment plan referred to in paragraphs (b) (ii) and (iii), respectively, and promptly but in any event not later than May 31 of each year implement agreed measures. Section 4.09. (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall take, or cause TEK to take, all action as may be required to (A) furnish to the Bank by June 30, 1981 a financing - 12 - plan satisfactory to the Bank with respect to the construction of the 380 kV power transmission lines needed for tIe Project and thereafter conclude corresponding financing arrangements for the construction of said transmission lines, (B) complete, not later than October 31, 1984 or such other date as the Borrower and the Bank may agree, in accordance with a construction schedule accept- able to the Bank and to be furnished to the Bank by June 30, 1981, or such other date as the Borrowef and the Bank may agree, the construction of said 380 kV power transmission lines, including without limitation, the construction and installation of the related ancillary facilities for connecting the Project facilities with TEK's inter-connected power transmission system, and (C) to maintain such transmission lines in accordance with appropriate technical, engineering and public utility practices; the Borrower shall provide the funds, facilities, services and other resources, necessary or appropriate for the purpose so as to enable TEK to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) Without limitation or restriction on its other obliga- tions under the Loan Agreement the Borrower undertakes to take all such steps as may be required (i) to transfer to TEK in each year, in the form of equity, one sixth of the total cost of the assets constructed under the Project, for each 1,200 million kilowatt hours generated through the facilities constructed or installed under the Project in said year, such transfer of assets to include appropriate allowance for interest during construction, provided, however, that the total cost of the said assets shall be trans- ferred not later than the year in which the Project facilities generate 7,200 million kilowatt hours, and (ii) to cause TEK to assume all rights of uiwnership and exclusive control of such assets, all under terms and conditions satisfactory to the Bank. ARTICLE V Remedies of the Bank Section 5.01. For the nurposes of Section 6.02 of the General Conditions, the following aaditional events are specified pursuant to paragraph (k) thereof: (a) A default shall occur under any loan agreement between the Bank and TEK or on the part of the Borrower under any guaran- tee agreement related to any such loan agreement. - 13 - (b) (i) Subject to subparagraph (ii) of this paragraph: (A) The right of the Borrower to withdraw the proceeds of the EIB Loan, the Other Credit, or of any of the Bilateral Credits 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 of the agreements providing there- for, or (B) The EIB Loan, the Other Credit, or any of the Bilateral Credits 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 con- sistent with the obligations of the Borrower under this Agreement. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) any event specified in paragraph (a) 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 Boirower; and (b) the event specified in paragraph (b) (i) (B) of Section 5.01 of this Agreement shall occur. 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: - 14 - (a) The Borrower has made arrangements satisfactory to the Bank under which the proceeds of the Other Credit are to be made available to the Borrower as and when required to meet expendi- tures required to complete the Project in a timely manner; and (b) The Borrower has appointed the members of the board referred to in Section 3.03 (b) of this Agreement. (c) The Borrower has established the special revolving fund referred to in Section 3.03 of this Agreement, and made or caused to made the initial deposit specified in paragraph (b) of said Section. Section 6.02. The date AUJUt ' 1 , 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 purposes of Section 11.01 of the General Conditions: For the Borrower: Maliye Bakanligi Hazine Genel Mudurlugu ve Milletlerarasi Iktisadi Isbirligi Teskilati Genel Sekreterligi Ankara, Turkey Cable address: Telex: MALIYE 42285 MLYE TR HAZINE 42689 ANK TR Ankara - 15 - 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 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF TURKEY By Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By 9 Atn e- Regional Vice President Europe, Middle East and North Africa - 16 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Category of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to such Category and the percentage of expenditures for items so to be financed in such Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil and hydraulic 112,500,000 45% of foreign works including expenditures materials and equip- ment related thereto (2) Materials and equip- 5,000,000 100% of foreign ment related to the expenditures relocation of rail- ways, roads and bridges (3) Unallocated 2,500,000 TOTAL 120,000,000 2. For the purposes of this Schedule, the term "foreign expendi- tures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower. 3. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan de- creases or increases, the Bank may, by notice to the Borrower, - 17 - increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. 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, except that withdrawals, in an aggregate amount not exceeding the equivalent of $10,000,000 may be made in respect of Category 1 on account of payments made for such expenditures before that date but after February 1, 1980. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if the Bar! 'as reasonably estimated that the amount of the Loan then allocated to any Category will be insuffi- cient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallo- cation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 18 - SCHEDULE 2 Description of the Project The Project is part of the Turkish power system development plans and constitutes the second step in the long range develop- ment of the Euphrates River power resources in Turkey. The Project consists of the construction of the Karakaya hydropower plant with a reservoir of 5.6 km3 of useful storage on the Euphrates River, located about 160 km downstream of the Keban hydropower plant, comprising a concrete arch-gravity dam 173 m high with an overflow spillway, intakes, penstocks, a power house at the toe of the dam containing six 300-MW turbo-generator units, appropriate accessory equipment and a switchyard located 2.5 km from the dam, relocation of about 33 kilometers of railway line, construction of about 35 kilometers of new roads, and of two bridges, replacing existing roads and bridges, respectively, and resettlement of population, estimated at about 17,000 living in 34 villages. The Project is expected to be completed by December 31, 1987. - 19 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each March 15 and September 15 beginning September 15, 1984 through September 15, 1996 4,615,000 On March 15, 1997 4,625,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of withdrawal. - 20 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.45% More than three years but not more than six years before maturity 2.90% More than six years but not more than eleven years before maturity 5.35% More than eleven years but not more than fifteen years before maturity 7.30% More than fifteen years before maturity 8.25% - 21 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Goods and civil works shall be procured under contracts awarded in accordanue with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of international competitive bidding as described in Part A of the Guidelines. 2. For goods and works to be procured on the basis of inter- national competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, the Borrower shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. The Borrower shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international competitive bidding. B. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers 1. 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.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Turkey may be granted a margin of preference in accordance with, and subject to, the following provisions: - 22 - (a) 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 following methods and stages that dill be followed in the evaluation and comparison of bids. (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Turkey if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Turkey equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Turkey. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, 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 o each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and >ther import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price 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 C which as a result of the comparison under paragraph (c) is ,the lowest evaluated bid shall be selected. - 23 - C. Review of Procurement Decisions by the Bank 1. Review of prequalification. The Borrower shall, before qualifiation is invited, inform the Bank in detail of the proce- dure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifi- cations and, where applicable, of their eligibility for domestic preference under Part 3.2 above and of the reasons for the exclusion of any applicant for prequalification and for such eligibility shall be furnished by the Borrower to the Bank for its comments before the applicants are notified of the Borrower's decision, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reason- ably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for equipment and material estimated to cost the equivalent of $200,000 or more: (a) Before bids are invited, the Borrower 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 description 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. (b) After bids have been received and evaluated, the Bor- rower 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 compar- ison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. - 24 - (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish 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, two conformed copies of such contract, together with the analysis of the respective 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, proLptly inform the Borrower and state the reasons for such determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this /A day of 6M_, 198'& FOR SECRETARY