Conformed Copy - L2875 - Highway Maintenance Project - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2875 ME (Highway Maintenance Project) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated November 4, 1987 LOAN NUMBER 2875 ME GUARANTEE AGREEMENT AGREEMENT, dated November 4, 1987, between UNITED MEXICAN STATES (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S.N.C. (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; and (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to one hundred thirty five million dollars ($135,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such Loan as provided in this Agreement; and Page 2 WHEREAS the Guarantor, in consideration of the Bank's enter- ing into the Loan Agreement with the Borrower, has agreed to guarantee the obligations of the Borrower; 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" of the Bank, dated January 1, 1985 (the General Conditions), with the modifications set forth in Section 1.01 of the Loan Agreement, 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, and Section 1.02 of, the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Transfer of Loan Proceeds Section 2.01. Without limitation to or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not merely as surety, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the obligations of the Borrower as set forth in the Loan Agreement. Section 2.02. The Guarantor shall enter into the contractual arrangements with the Borrower referred to in Section 3.01 of the Loan Agreement and, unless the Bank shall otherwise agree, shall not change or fail to enforce any provision of such contractual arrangements. ARTICLE III Execution of the Project Section 3.01. The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement and to this end, shall carry out the Project through SCT, all with due diligence, efficiency and in conformity with appropriate administrative, financial and engineering practices, and shall provide, in a timely manner as needed, the funds, facilities, services and other resources required for the Project. Section 3.02. The Bank and the Guarantor agree that the obli- gations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) in respect of the Project shall be carried out by the Guarantor. Section 3.03. Except as the Bank shall otherwise agree, pro- curement of goods, works and consultants' services required for the Project and to be financed from the proceeds of the Loan, shall be governed by the provisions of the Schedule to this Agreement. Section 3.04. Without limitation to or restriction upon the provisions of Section 3.01 of this Agreement, the Guarantor specifically undertakes that: (a) it shall review with the Bank, by November 30 of each year during implementation of the Project, the proposed budgetary Page 3 allocations for the next following Annual Maintenance Improvement Plan, including the proposed expenditure schedule, and the proposed levels of investment for the Federal Road Maintenance Improvement Program; and (b) it shall provide sufficient resources to carry out each Annual Maintenance Improvement Plan. Section 3.05. The Guarantor shall: (a) prepare and furnish to the Bank for its review and comment, by November 30 of each year during implementation of the Project, an Annual Highway Sector Expenditure Plan and an Annual Maintenance Improvement Plan acceptable to the Bank, both of which shall utilize methodologies and technical and economic criteria acceptable to the Bank, and shall include, inter alia, the objective of achieving an appropriate balance between new construction and maintenance; (b) carry out each Annual Federal Road Investment Plan and Annual Maintenance Improvement Plan in accordance with their respective terms; (c) monitor the Annual Maintenance Improvement Plan using the performance indicators agreed to by the Guarantor and the Bank; and (d) by April 30 of each year during implementation of the Project, review with the Bank, the progress of carrying out the Federal Road Investment Program, the Federal Road Maintenance Improvement Program, the relevant Annual Highway Sector Expenditure Plan and Annual Federal Road Investment Plan. Section 3.06. Without limitation to or restriction upon the provisions of Sections 3.01 of this Agreement, the Guarantor shall: (a) carry out the 1987-88 Annual Project Implementation Schedule agreed to by the Guarantor and the Bank; (b) by April 30 of each year during implementation of the Project, and at such other times as the Bank shall reasonably request, review the progress of carrying out the Project and the relevant Annual Project Implementation Schedule with the Bank; (c) prepare and furnish to the Bank, by November 30 of each year, during implementation of the Project, an updated Annual Project Implementation Schedule, acceptable to the Bank, utilizing methodologies, and technical and economic criteria acceptable to the Bank; and (d) carry out each Annual Project Implementation Schedule in accordance with its terms. Section 3.07. Without limitation to its other reporting obligations under the General Conditions and this Agreement, the Guarantor shall furnish to the Bank, in a timely manner, quarterly reports acceptable to the Bank, of the progress of implementing the Project, as well as such other data as the Bank shall reasonably request regarding such implementation. Section 3.08. The Guarantor shall carry out the Road User Cost Recovery Scheme and shall review with the Bank, at such times as either the Guarantor or the Bank may request, the progress made toward executing such scheme. ARTICLE IV Financial Covenants Section 4.01. (a) The Guarantor shall maintain, or cause to be maintained, separate records and accounts adequate to reflect, Page 4 in accordance with sound accounting practices, the operations, resources and expenditures in respect of the Project of the departments or agencies of the Guarantor responsible for carrying out the Project or any part thereof. (b) The Guarantor shall: (i) have the accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with generally accepted auditing standards and procedures, 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 certified copy of 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 concern- ing said accounts and the audit thereof and said records as the Bank shall from time to time reasonably request. (c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Guarantor shall: (i) maintain, or cause to be maintained, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, or cause to be retained, 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; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such separate accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the proceeds of the Loan withdrawn in respect of such expenditures were used for the purposes for which they were provided. ARTICLE V Representative of the Guarantor; Addresses Section 5.01. The Director General de Cr