Conformed Copy - L3086 - Public Enterprises Reform Project - Guarantee Agreement

Page 1 CONFORMED COPY LOAN NUMBER 3086 ME (Public Enterprises Reform Project) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated June 16, 1989 LOAN NUMBER 3086 ME GUARANTEE AGREEMENT AGREEMENT, dated June 16, 1989, between UNITED MEXICAN STATES (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received two letters both dated May 12, 1989 from the Guarantor, such letters together describing a program of actions, objectives and policies designed to achieve restructuring of the Guarantor's public enterprises (hereinafter called the "Program"), declaring the Guarantor's commitment to the execution of the Program, and requesting assistance from the Bank in the financing of imports and services required during such execution; (B) it is contemplated that the Guarantor may require assistance from the Bank in the implementation of a Debt Reduction Plan; Page 2 (C) by an agreement of even date herewith (the Loan Agree- ment) between the Bank and Nacional Financiera, S.N.C. (the Borrower), the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to five hundred million dollars ($500,000,000), 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 to undertake the obligations set forth in this Agreement; (D) the Guarantor and 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; (E) on the basis, inter alia, of the foregoing, the Bank has decided in support of the Program, to provide such assistance to the Guarantor by making the Loan in two tranches to the Borrower on the terms and conditions set forth in the Loan Agreement; and WHEREAS the Guarantor, in consideration of the Bank's enter- ing into the Loan Agreement with the Borrower, has agreed so to guarantee such 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; Provision and Transfer of Funds Section 2.01. (a) The Guarantor declares its commitment to the objectives and the carrying out of the Project set forth in Schedule 2 to the Loan Agreement, and to this end, without limitation or restriction upon any of its other obligations under the Guarantee Agreement, 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 other obligations of the Borrower, all as set forth in the Loan Agreement. (b) The Guarantor shall enter into the contractual arrange- ments referred to in Section 3.01 of the Loan Agreement and, except as the Bank may otherwise agree, shall not change or fail to enforce any provision of such contractual arrangements. ARTICLE III Execution of the Project Section 3.01. (a) The Guarantor shall carry out Part B and, if so determined under Section 3.05 of the Loan Agreement, Part C of the Project with due diligence and efficiency and in conformity with appropriate commercial, administrative and financial practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the Page 3 Project. (b) Without limitation upon the provisions of paragraph (a) of this Section, the Guarantor shall carry out Part B of the Project in accordance with the Implementation Program set forth in Schedule 2 to this Agreement. Section 3.02. (a) The Guarantor and the Bank, and the Bor- rower pursuant to the provisions of Section 3.02 (a) of the Loan Agreement, shall, on a quarterly basis and at the request of any party, exchange views on the progress of carrying out the Program and the actions specified in the Schedules to this Agreement. (b) At least ten days prior to each such exchange of views, the Guarantor, and the Borrower pursuant to the provisions of Section 3.02 (b) of the Loan Agreement, shall furnish to the Bank, for its review and comment, a report in such detail as the Bank shall reasonably request, on the matters specified in paragraph (a) of this Section. Section 3.03. The Bank and the Guarantor agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating respectively to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition) shall be carried out by the Guarantor in respect of Part B of the Project. Section 3.04. Except as the Bank may otherwise agree, procurement of goods, and services required for the Project and to be financed from the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 3.05. The Guarantor shall provide, or cause to be provided to the Borrower, all documents and records in respect of the expenditures financed out of the proceeds of the Loan required to enable the Borrower to comply with the provisions of Section 4.01 of the Loan Agreement. Section 3.06. Without limitation or restriction upon the provisions of Section 2.01 (a) of this Agreement, the Guarantor shall take all actions as shall be required for implementing the provisions under Section 3.05 of the Loan Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) The Guarantor shall maintain, or cause to be maintained, separate records and accounts adequate to reflect, in accordance with consistently maintained, sound accounting practices, the resources and expenditures in respect of Parts B and C of the Project. (b) The Guarantor shall: (i) have the records and accounts referred to in paragraph (a) of this Section for each fiscal year audited, in accordance with appropriate 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 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 records and accounts and the audit thereof as the Bank shall from time to time reasonably request. Page 4 ARTICLE V Representative of the Guarantor; Addresses Section 4.01. The Director General de Captacion de Credito Externo of Secretaria de Hacienda y Credito Publico of the Guarantor is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: Direccion General de Captacion de Credito Externo Secretaria de Hacienda y Credito Publico Palacio Nacional, Primer Patio, Mariano, 4o. Piso 06066 Mexico, D.F. Mexico Telex: 1777313 - SHDCME Mexico Telefax (905) 5 42 45 81 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 duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. UNITED MEXICAN STATES By /s/ Lic. Gustavo Petricioli Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ S. Shahid Husain Regional Vice President Latin America and The Caribbean SCHEDULE 1 Page 5 Actions Referred to in Paragraph 4(d) of Schedule 1 to the Loan Agreement 1. That the Guarantor has made progress, satisfactory to the Bank, in the implementation of the PE Divestment Program. 2. That the Guarantor has empowered CGF to make recommendations for the approval or rejection, on a case by case basis, of the creation of PEs and PE Subsidiaries. 3. That the Guarantor has issued revised regulations to its Public Procurement Law, providing procedures, satisfactory to the Bank, for the provision of services by local and foreign suppliers and contractors. 4. That the Guarantor has issued the PE Regulations sub- stantially in the form of the draft submitted pursuant to the provisions of Section 6.01 (b) of the Loan Agreement. 5. That the Guarantor shall have signed Performance Agreements with PEs acceptable to the Bank, and that such PEs are operating under the Performance Agreement Plan. 6. (a) That UCD is fully operating in accordance with the UCD Mandate; and (b) that progress satisfactory to the Bank, has been made in the implementation of the UCD Action Plan. 7. That the Guarantor has furnished evidence to the Bank that the National Development Plan of the Guarantor contains guidelines for the elaboration of sector programs and that such sector programs contain guidelines for PE corporate programs. 8. That the Guarantor has made progress, satisfactory to the Bank in restricting PE Transfers during Fiscal Year 1989 to levels consistent with the total aggregate PE Transfers contained in the Guarantor's Budget for Fiscal Year 1989. 9. That the Guarantor has made progress, satisfactory to the Bank, in carrying out the Implementation Program set forth in Schedule 2 to this Agreement. SCHEDULE 2 Implementation Program Action By I. Competitive Environment 1. Commence study, under terms of reference acceptable to the Bank: (i) on the economic price July 31, 1989 of railway transportation in Mexico; and (ii) on methods to contract, on a July 31, 1989 competitive basis, with pri- vate sector companies, services and activities which are currently being undertaken by selected PEs (iii) to reassess the role of October 31, 1989 governmental mining agencies in light of the reduced participation Page 6 of PEs in the mining sector. II. PE Managerial and Financial Autonomy and Accountability 1. Provide to the Bank, terms July 31, 1989 of reference, satisfactory to the Bank, to assess and improve, the financial management of selected PEs, and propose remedial action, as needed. 2. Furnish to the Bank evidence August 31, 1989 that a program, satisfactory to the Bank, for the use by the PEs of the accounting and auditing rules included in the CFISP. 3. Revision by CGF of the September 30, 1989 integrated information system to be followed by the PEs in the provision of information for evaluation and planning by the Guarantor. 4. (a) Furnish to the Bank, terms of September 1, 1989 reference, satisfactory to the Bank, for a study on public investments evaluation and multi-year investment programming procedures by, or on behalf of, the Guarantor, including development of manuals, setting economic, financial and technical criteria for sector specific investments evaluation and establishing a centralized unit for monitoring such investments; (b) Commence the carrying out October 15, 1989 of such study pursuant to such terms of reference; (c) Complete such study pursuant March 15, 1990 to such terms of reference; and (d) Provide to, and discuss April 15, 1990 with, the Bank, a plan or plans of action, acceptable to the Bank, to adopt measures to improve public investment evaluation and programming procedures. (e) (i) monitor the August 31, 1989 implementation of its budgeting and payment procedures for externally funded public investment projects; and (ii) exchange views with the Bank on the implementation of such procedures and on the measures to improve such procedures. 5. Furnish to the Bank, September 30, a plan of action, 1989 Page 7 acceptable to the Bank, to deregulate, simplify and expedite the budgeting proced- dures and practices applicable to PEs under the Per- formance Agreement Plan.