Conformed Copy - L3271 - Water Supply and Sanitation Sector Project - Amendment

Page 1 November 29, 1995 Mr. Martin Werner Director General de Credito Publico Secretaria de Hacienda y Credito Publico Insurgentes Sur 826, piso 9 Colonia del Valle 03100 Mexico, D.F. Mexico Mr. Jesus Reyes Heroles Director General Banco Nacional de Obras y Servicios Publicos, S.N.C. Tecoyotitla 100 Colonia Florida 01030 Mexico, D.F. Mexico Re: Loan No. 3271-ME (Water Supply and Sanitation Sector Project) Amendment to the Loan Agreement Dear Sirs: Please refer to the Loan Agreement between International Bank for Reconstruction and Development (the Bank) and Banco Nacional de Obras y Servicios Publicos, S.N.C. (the Borrower) dated January 18, 1991 (the Loan Agreement), as amended, entered into with respect to the above-captioned Project. We are pleased to inform you that, pursuant to your request and our recent discussions on the subject, the Bank agrees to amend said Loan Agreement as follows so as to permit application of the Unidad de Inversion (UDI) mechanism to contractual arrangements and Subloans entered into pursuant to said Project: LOAN AGREEMENT 1. Section 3.01 of the Loan Agreement is hereby amended by inserting a new paragraph (c) immediately after paragraph (b) thereof so as to read as follows in its entirety: "Notwithstanding any provision to the contrary in this Agreement or in the Guarantee Agreement, the Borrower shall cause the contractual arrangements referred to in this Section to be irrevocably amended so as to require all of the following (but solely with respect to such Loan proceeds (hereinafter Affected Proceeds as more specifically labeled below) which have been or may be onlent by the Guarantor to the Borrower pursuant to said contractual arrangements to cover amounts disbursed by the Borrower to Operating Agencies under: (I) non-Unidad de Inversion (Investment Unit; hereinafter UDI)-denominated Sub-loans, but are due to be repaid to the Guarantor after said Sub-loans become UDI- denominated Sub-loans (hereinafter UDI-repayable Affected Proceeds); or (II) UDI-denominated Sub-loans (hereinafter UDI-disbursable Affected Proceeds)): (i) that such amendment shall have one or more effective dates, that of such dates one shall be applicable to the Affected Proceeds of each UDI-denominated Sub-loan and that for each UDI-denominated Sub-loan such date shall be the amendment date referred to in paragraph 9 (a) (i) of Schedule 5 to this Agreement (hereinafter the Benchmark Date); (ii) that all Affected Proceeds be redenominated from pesos to UDIs as of the Benchmark Date for said Affected Proceeds according to the peso/UDI conversion rate applicable to that date as published in the Guarantor's Page 2 Diario Oficial (Official Gazette); (iii) that the UDI-disbursable Affected Proceeds redenominated pursuant to paragraph (c) (ii) of this Section be disbursed by the Guarantor to the Borrower in pesos according to the peso/UDI conversion rate applicable to the date of disbursement as published in the Guarantor's Diario Oficial, be repaid and have interest charged thereon according to the terms of paragraphs (c) (v) and (c) (vi) of this Section but in all other respects be governed by the terms of the contractual arrangements as they read prior to their amendment allowed pursuant to this paragraph (c); (iv) that the UDI-repayable Affected Proceeds redenominated pursuant to paragraph (c) (ii) of this Section be repaid and have interest charged thereon according to the terms of paragraphs (c) (v) and (c) (vi) of this Section but in all other respects be governed by the terms of the contractual arrangements as they read prior to their amendment allowed pursuant to this paragraph (c); (v) that all the Borrower's principal repayments to the Guarantor with respect to an UDI-denominated Sub-loan's Affected Proceeds be made in pesos, the amount of which shall be determined by adjusting for the difference in the value of the UDI between the Benchmark Date for such Affected Proceeds and the date of repayment by the Borrower, all as set forth in the Decreto por el que se establecen las obligaciones que podran denominarse en Unidades de Inversion (Decree establishing obligations that may be denominated in Investment Units) published in the Guarantor's Diario Oficial on April 1, 1995 (for purposes of the adjustment referred to herein, a repaid amount shall be applied to cancel the earliest outstanding disbursed amount); and (vi) that all the Borrower's interest payments to the Guarantor on outstanding disbursed Affected Proceeds be made in pesos at a variable rate equal at the time of the interest payment to a publicly-quoted market- determined interest rate, satisfactory to the Bank and to be specified in the contractual arrangements, on UDI- denominated government bonds, except that, until a market to determine such rates is established, the applicable variable rate shall be equal at the time of the interest payment to the tasa real (real rate) calculated according to the formula set forth in the November 1, 1995 Oficio 305.-269/95 from the Guarantor's Director General de Credito Publico of the Secretaria de Hacienda y Credito Publico to the Borrower's Director General.". 2. Schedule 5 to the Loan Agreement is hereby amended by inserting a new paragraph 9 immediately after the end of paragraph 8 thereof so as to read as follows in its entirety: "(a) Notwithstanding any provision to the contrary in this Agreement or in the Guarantee Agreement, the Borrower may, with the agreement of the Operating Agency and of all other parties, if any, to a Sub-loan Agreement, amend such Sub-loan Agreement (in no case prior to April 4, 1995) so as to require all of the following: (i) that all Sub-loan amounts covered by said Sub-loan Agreement, which remain undisbursed from the Borrower to the Operating Agency or have been disbursed but not repaid, be redenominated from pesos to Unidades de Inversion (Investment Units; hereinafter UDIs) as of the date of such amendment according to the peso/UDI conversion rate applicable to that date as published in the Guarantor's Diario Oficial (Official Gazette); Page 3 (ii) that the undisbursed Sub-loan amounts redenominated pursuant to subparagraph (a) (i) of this paragraph be disbursed in pesos according to the peso/UDI conversion rate applicable to the date of disbursement as published in the Guarantor's Diario Oficial, be repaid and have interest charged thereon according to the terms of subparagraphs (a) (iv) and (a) (v) of this paragraph but in all other respects be governed by the terms of the original Sub-loan Agreement as it read prior to its amendment allowed pursuant to this paragraph (a); (iii) that the disbursed but not repaid Sub-loan amounts redenominated pursuant to subparagraph (a) (i) of this paragraph be repaid and have interest charged thereon according to the terms of subparagraphs (a) (iv) and (a) (v) of this paragraph but in all other respects be governed by the terms of the original Sub-loan Agreement as it read prior to its amendment allowed pursuant to this paragraph (a); (iv) that all the Operating Agency's principal repayments to the Borrower with respect to the UDI-denominated Sub- loan be made in pesos, the amount of which shall be determined by adjusting for the difference in the value of the UDI between the date of the amendment referred to in subparagraph (a) (i) of this paragraph and the date of repayment by the Operating Agency, all as set forth in the Decreto por el que se establecen las obligaciones que podran denominarse en Unidades de Inversion (Decree establishing obligations that may be denominated in Investment Units) published in the Guarantor's Diario Oficial on April 1, 1995; and (v) that all the Operating Agency's interest payments to the Borrower on outstanding disbursed UDI-denominated Sub-loan proceeds be made in pesos at a variable rate equal at the time of the interest payment to a publicly- quoted market-determined interest rate, satisfactory to the Bank and to be specified in the Sub-loan Agreement, on UDI-denominated government bonds (plus a percentage point spread equal to no less than 2.5 percentage points), except that, until a market to determine such rates is established, the applicable variable rate shall be equal at the time of the interest payment to the tasa real (real rate) calculated according to the formula set forth in the November 1, 1995 Oficio 305.-269/95 from the Guarantor