OFFICIAL00CUJMENTS

LOAN NUMBER 8468-PE

Loan Agreement(Additional Financing for the Optimization of Lima Water and Sewerage Systems

Project - Optimizacidn de Sistemas de Agua Potable y Alcantarillado, Sectorizaci6n,

Rehabilitacidn de Redes y Actualizacidn de Catastro - Area de Influencia Planta

Huachipa - Area de Drenaje Oquendo, Sinchi Roca, Puente Piedra y Sectores 84, 83,85 y 212 - Lima)

between

REPUBLIC OF PERU

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

Dated joy Z) } v 4s ,2016

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LOAN AGREEMENT

Agreement dated -14thG 35, 2015, between the REPUBLIC OF PERU("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION ANDDEVELOPMENT ("Bank"). The Borrower and the Bank hereby agree as follows:

ARTICLE I - GENERAL CONDITIONS; DEFINITIONS

1.01. The General Conditions (as defined in the Appendix to this Agreement)constitute an integral part of this Agreement.

1.02. Unless the context requires otherwise, the capitalized terms used in thisAgreement have the meanings ascribed to them in the General Conditions or inthe Appendix to this Agreement.

ARTICLE II - LOAN

2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth orreferred to in this Agreement, the amount of fifty-five million United StatesDollars (US$55,000,000), as such amount may be converted from time to timethrough a Currency Conversion in accordance with the provisions of Section 2.07of this Agreement ("Loan"), to assist in financing the project described inSchedule 1 to this Agreement ("Project").

2.02. The Borrower may withdraw the proceeds of the Loan in accordance withSection IV of Schedule 2 to this Agreement. The Borrower's Representative forpurposes of taking any action required or permitted to be taken pursuant to thisSection is the Minister of Economy and Finance or the Borrower's Director ofIndebtedness and Public Treasury or any person whom any of them shalldesignate in writing.

2.03. The Front-end Fee payable by the Borrower shall be equal to one quarter of onepercent (0.25%) of the Loan amount. The Borrower shall pay the Front-end Feenot later than 60 days after the Effective Date.

2.04. The Commitment Charge payable by the Borrower shall be equal to one quarterof one percent (0.25%) per annum on the Unwithdrawn Loan Balance.

2.05. The interest payable by the Borrower for each Interest Period shall be at a rateequal to the Reference Rate for the Loan Currency plus the Fixed Spreadprovided, that upon a Conversion of all or any portion of the principal amount ofthe Loan, the interest payable by the Borrower during the Conversion Period onsuch amount shall be determined in accordance with the relevant provisions ofArticle IV of the General Conditions. Notwithstanding the foregoing, if anyamount of the Withdrawn Loan Balance remains unpaid when due and such non-

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payment continues for a period of thirty days, then the interest payable by theBorrower shall instead be calculated as provided in Section 3.02 (e) of theGeneral Conditions.

2.06. The Payment Dates are April 15 and October 15 in each year.

2.07. The principal amount of the Loan shall be repaid in accordance with theamortization schedule set forth in Schedule 3 to this Agreement.

2.08. (a) The Borrower may at any time request any of the following Conversionsof the terms of the Loan in order to facilitate prudent debt management:(i) a change of the Loan Currency of all or any portion of the principalamount of the Loan, withdrawn or unwithdrawn, to an ApprovedCurrency; (ii) a change of the interest rate basis applicable to: (A) all orany portion of the principal amount of the Loan withdrawn andoutstanding from a Variable Rate to a Fixed Rate, or vice versa; or (B)all or any portion of the principal amount of the Loan withdrawn andoutstanding from a Variable Rate based on a Reference Rate and theVariable Spread to a Variable Rate based on a Fixed Reference Rate andthe Variable Spread, or vice versa; or (C) all of the principal amount ofthe Loan withdrawn and outstanding from a Variable Rate based on aVariable Spread to a Variable Rate based on a Fixed Spread; and (iii) thesetting of limits on the Variable Rate or the Reference Rate applicable toall or any portion of the principal amount of the Loan withdrawn andoutstanding by the establishment of an Interest Rate Cap or Interest RateCollar on the Variable Rate or the Reference Rate.

(b) Any conversion requested pursuant to paragraph (a) of this Section thatis accepted by the Bank shall be considered a "Conversion", as definedin the General Conditions, and shall be effected in accordance with theprovisions of Article IV of the General Conditions and of the ConversionGuidelines.

ARTICLE III - PROJECT

3.01. The Borrower declares its commitment to the objective of the Project. To thisend, the Borrower shall cause the Project to be carried out by the ProjectImplementing Entity in accordance with the provisions of Article V of theGeneral Conditions and the Project Agreement.

3.02. Without limitation upon the provisions of Section 3.01 of this Agreement, andexcept as the Borrower and the Bank shall otherwise agree, the Borrower,through the Project Implementing Entity, shall ensure that the Project is carriedout in accordance with the provisions of Schedule 2 to this Agreement.

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ARTICLE IV - REMEDIES OF THE BANK

4.01. The Additional Event of Suspension consists of the following, namely, that theProject Implementing Entity's Legislation has been amended, suspended,

abrogated, repealed or waived so as to affect materially and adversely, in the

opinion of the Bank, the ability of the Project Implementing Entity to perform

any of its obligations under the Project Agreement.

4.02. The Additional Event of Acceleration consists of the following, namely, that the

event specified in Section 4.01 of this Agreement occurs.

ARTICLE V - EFFECTIVENESS; TERMINATION

5.01. The Additional Conditions of Effectiveness consist of the following:

(a) The Subsidiary Agreement has been executed on behalf of the Borrowerand the Project Implementing Entity.

(b) The updated Operational Manual has been adopted by the ProjectImplementing Entity.

5.02. The Additional Legal Matter consists of the following, namely, that the

Subsidiary Agreement has been duly authorized or ratified by the Borrower and

the Project Implementing Entity and is legally binding upon the Borrower and the

Project Implementing Entity in accordance with its terms.

5.03. Without prejudice to the provisions of the General Conditions, the Effectiveness

Deadline is the date ninety (90) days after the date of this Agreement, but in no

case later than the eighteen (18) months after the Bank's approval of the Loan

which expire on July 15, 2016.

ARTICLE VI - REPRESENTATIVE; ADDRESSES

6.01. Except as provided in Section 2.02 of this Agreement, the Borrower's

Representative is its Ministei of Economy and Finance, provided that the

Borrower's Director of Indebtedness and Public Treasury may, by him or herself,

represent the Borrower to sign amendments and/or notices to this Agreement

which are considered of an administrative and non-financial nature. The signing

by such Director of an amendment and/or notice shall constitute a representation

by the Borrower that any such amendment and/or notice is considered to be

administrative and non-financial in nature.

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6.02. The Borrower's Address is:

Ministry of Economy and FinanceJr. Junin 319Lima 1, Peri

Facsimile:(511) 626-9921

6.03. The Bank's Address is:

International Bank for Reconstruction and Development1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex: Facsimile:

INTBAFRAD 248423(MCI) or 1-202-477-6391Washington, D.C. 64145(MCI)

AGREED at Lq" - P6A0 ,as of the dayand year first above written.

REPUBLIC OF P U

By

Authriz presentative

Name 14LON&~O SeCbu9A q&&(

Title qNusT5A af Fcojoy 4 FN C

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By _ _ _ _ _ _ _ _

Authorized Representati4eI

Name ALi-V-Q ~ 1 ~*'Z2

Title WC "TZA -) t6 n?- &

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SCHEDULE 1

Project Description

The objective of the Project is to improve the efficiency, continuity andreliability of water supply and sanitation services in the Northern Service Area of Lima.

The Project consists of the following parts:

Part 1. Rehabilitation of Water and Sewerage Networks in the Northern ServiceArea of Lima

A. Rehabilitation of water and sewerage networks in the Second Northern ServiceArea of Lima.

B. Improvement of the management of the rehabilitated networks referred to inparagraph A above and reduction of water losses through: (i) the rehabilitation ofwater reservoirs (concrete storage tanks) to increase storage capacity andpressure stabilization; (ii) the replacement of house connections and installationof domestic water meters; and (iii) the installation of bulk water meters andvalves to allow sectorization.

C. Carrying out of social interventions complementing the physical investmentsreferred to in paragraph A above, to facilitate the transition to a full pressure,continuous and metered service, including, inter alia, the provision of guidanceto manage consumption, in particular through the use of in-house water savingequipment.

Part 2. Improvement of SEDAPAL's Efficiency

Carrying out of studies and consultancies to provide decision-making tools toSEDAPAL's management to improve the company's efficiency, all focusing on thefollowing areas:

A. Provision of support for the implementation of the GIS, including: (i) supportingan evaluation of the cadaster to determine priority zones for cadastre updatingand the identification of a process for regular cadastre updating; and (ii)supporting the training and institutional arrangements needed within SEDAPALto maximize the potential of the GIS.

B. Provision of support for the consolidation of SEDAPAL's supervisory controland data acquisition information technology strategy, including supportingSEDAPAL in the preparation of a supervisory control and data acquisitionmaster investment plan to ensure the compatibility of current and futurestrategies.

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C. Provision of support for the development of a new organizational model for

SEDAPAL, including the preparation of a strategic vision for SEDAPAL over

the medium and long-term, incorporating new management technologies,

aligning human resources management with modem practices, exploring options

for sustainable financing of capital investments and rearranging institutional

structure along functional lines.

D. Preparation of a strategy to efficiently meet user demand for water and sanitation

services, including: (i) an evaluation of the exogenous and endogenous factors

that affect demand for water supply and sanitation services; (ii) an estimation of

future demand trends backed by adequate sensitivity analysis; and (iii)

identification of priority actions to meet such demand as efficiently as possible.

Part 3. Project Management

Provision of support to SEDAPAL for Project management, including, inter alia:

A. Provision of financing for the additional staff required for Project management to

establish a monitoring and evaluation system and to undertake financial, physical

and procurement audits and/or reviews.

B. Provision of individual consultancies to strengthen the Project team on

procurement, financial management and communication.

C. Provision of training for strategic planning and selection of technical options to

allow full compliance with SEDAPAL's investment plans.

D. Provision of support to document the Project's processes and results and to

mainstream the lessons learned and the good practices.

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SCHEDULE 2

Project Execution

Section I. Implementation Arrangements

A. Subsidiary Agreement

I. To facilitate the carrying out of the Project, the Borrower shall make the proceedsof the Loan available to the Project Implementing Entity under a subsidiaryagreement between the Borrower and the Project Implementing Entity("Subsidiary Agreement"), which shall include, inter alia, the obligation of theProject Implementing Entity to carry out the Project in accordance with the termsof this Agreement and the Project Agreement.

2. Except as the Bank shall otherwise agree, the Borrower shall not assign,terminate, amend, abrogate, waive or fail to enforce the Subsidiary Agreement orany of its provisions, if, in the opinion of both the Borrower and the Bank, anysuch assignment, termination, amendment, abrogation, waiver or failure toenforce may materially and adversely affect the implementation of the Project.

B. Anti-Corruption

The Borrower through Project Implementing Entity shall ensure that the Projectis carried out in accordance with the provisions of the Anti-CorruptionGuidelines.

C. Safeguards

The Borrower shall take any actions necessary to assist, within the competenciesof each relevant entity, the Project Implementing Entity in complying with itsobligations under Section I.C. of the Schedule to the Project Agreement.

Section II. Financial Management, Financial Reports and Audits

A. The Borrower, through the Project Implementing Entity, shall maintain afinancial management system in accordance with the provisions of Section 5.09of the General Conditions.

B. The Borrower, through the Project Implementing Entity shall prepare and furnishto the Bank, as part of the Project Report, not later than forty-five (45) days afterthe end of each calendar semester, interim unaudited financial reports for theProject covering the semester, in form and substance satisfactory to the Bank.

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C. The Borrower, through the Project Implementing Entity shall have its Financial

Statements audited in accordance with the provisions of Section 5.09 (b) of the

General Conditions. Each audit of the Financial Statements shall cover the

period of one fiscal year of the Project Implementing Entity. The audited

Financial Statements for each such period shall be furnished to the Bank not later

than six (6) months after the end of such period.

Section III. Procurement

A. General

1 . Goods, Works and Non-Consultant Services. All goods, works and Non-

Consultant Services required for the Project and to be financed out of the

proceeds of the Loan shall be procured in accordance with the requirements set

forth or referred to in Section I of the Procurement Guidelines, and with the

provisions of this Section.

2. Consultants' Services. All consultants' services required for the Project and to

be financed out of the proceeds of the Loan shall be procured in accordance with

the requirements set forth or referred to in Sections I and IV of the Consultant

Guidelines and with the provisions of this Section.

3. Definitions. The capitalized terms used below in this Section to describe

particular procurement methods or methods of review by the Bank of particular

contracts refer to the corresponding method described in the Procurement

Guidelines, or Consultant Guidelines, as the case may be.

4. Special Provisions.

(a) In addition and without limitation or restriction to any other provision set

forth in this Section or the Procurement Guidelines, the following

provisions shall govern all procurement of goods, works and Non-

Consultant Services with National Competitive Bidding procedures

under Section III. B.2 (a) of this Schedule:

(i) Foreign bidders shall not be required to be locally registered as a

condition of participation in the selection process.

(ii) No reference value shall be required for publication in the

bidding documents or used for the purpose of evaluation.

(iii) Award of contracts shall be based exclusively on price and,whenever appropriate, shall take into account factors that can be

quantified objectively, and the procedure for such quantificationshall be disclosed in the invitation to bid.

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(iv) Foreign bidders shall be allowed to participate in NationalCompetitive Bidding without restriction and shall not be subjectto any unjustified requirement which will affect their ability tobid such as, but not limited to, the requirement to authenticatetheir bidding documents or any documentation related to suchbidding documents with either Peruvian Consulates, the Ministryof Foreign Affairs, or any Peruvian authorities as a prerequisiteof bidding.

(v) The Borrower shall cause the Project Implementing Entity toutilize standard bidding documents satisfactory to the Bank.

(b) In addition and without limitation or restriction to any provision set forthin this Section or the Consultant Guidelines, the following provisionsshall govern all employment of consultants referred to in Section III.C ofthis Schedule:

(i) Foreign consultants shall not be required to be locally registeredas a condition of participation in the selection process.

(ii) Foreign consultants shall not be required to authenticate anydocumentation related to their participation in the selectionprocess with Peruvian Consulates, the Ministry of ForeignAffairs, or any Peruvian authorities as a condition ofparticipation in said selection process.

(iii) The Borrower shall cause the Project Implementing Entity to usestandard requests for proposals and standard evaluation formats,all satisfactory to the Bank.

(iv) Foreign consultants, either individuals or firms, shall not be

required to pay fees to the Peruvian Consultants' Associationthat are different from those required for Peruvian consultants.

(v) No consultant, hired for the Project, at the time he or she is

carrying out his or her contractual obligations as a consultant,may hold civil service office or any other position in any agencyof the Borrower (including the Project Implementing Entity), norshall such consultant have any right to re-entry into any suchoffice or position upon the conclusion of his or her consultingservices.

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B. Particular Methods of Procurement of Goods, Works and Non-ConsultantServices

1. International Competitive Bidding. Except as otherwise provided in paragraph2 below, goods, works, and Non-Consultant Services shall be procured undercontracts awarded on the basis of International Competitive Bidding.

2. Other Methods of Procurement of Goods, Works and Non-ConsultantServices. The following table specifies the methods of procurement, other thanInternational Competitive Bidding, which may be used for goods, works andNon-Consultant Services. The Procurement Plan shall specify the circumstancesunder which such methods may be used.

Procurement Method

(a) National Competitive Bidding

(b) Shopping

(c) Direct Contracting

C. Particular Methods of Procurement of Consultants' Services

1 . Quality- and Cost-based Selection. Except as otherwise provided in paragraph2 below, consultants' services shall be procured under contracts awarded on thebasis of Quality and Cost-based Selection.

2. Other Methods of Procurement of Consultants' Services. The following tablespecifies the methods of procurement, other than Quality and Cost-basedSelection, which may be used for consultants' services. The Procurement Planshall specify the circumstances under which such methods may be used.

Procurement Method

(a) Quality-based Selection

(b) Selection under a Fixed Budget

(c) Least Cost Selection

(d) Selection based on Consultants' Qualifications

(e) Single-source Selection

(f) Procedures set forth in paragraphs 5.2 and 5.3 of the Consultant Guidelinesfor the Selection of Individual Consultants

(g) Sole Source Procedures for the Selection of Individual Consultants

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D. Review by the Bank of Procurement Decisions

The Procurement Plan shall set forth those contracts which shall be subject to theBank's Prior Review. All other contracts shall be subject to Post Review by theBank.

Section IV. Withdrawal of Loan Proceeds

A. General

1. The Borrower, through the Project Implementing Entity, may withdraw theproceeds of the Loan in accordance with the provisions of Article II of theGeneral Conditions, this Section, and such additional instructions as the Bankshall specify by notice to the Borrower (including the "World BankDisbursement Guidelines for Projects" dated May 2006, as revised from time totime by the Bank and as made applicable to this Agreement pursuant to suchinstructions), to finance Eligible Expenditures as set forth in the table inparagraph 2 below.

2. The following table specifies the categories of Eligible Expenditures that may befinanced out of the proceeds of the Loan ("Category"), the allocation of theamounts of the Loan to each Category, and the percentage of expenditures to befinanced for Eligible Expenditures in each Category.

Amount of the Loan Percentage of ExpendituresAllocated to be financed

Category (expressed in USD) (exclusive of Taxes)

(1) Goods, works,consultants' services,Non-Consultant Services 54,000,000 100%and Training for Part I ofthe Project

(2) Goods, consultants'services, Non-ConsultantServices and Training for 0 0Part 2 of the Project

(3) Goods, consultants'services, Non-ConsultantServices and Training for 1,000,000 100%Part 3 of the Project

TOTAL AMOUNT 55,000,000

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B. Withdrawal Conditions; Withdrawal Period

1. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be

made:

(a) from the Loan Account until the Bank has received payment in full of the

Front-end Fee; or

(b) for payments made prior to the date of this Agreement, except that

withdrawals up to an aggregate amount not to exceed $11,000,000

equivalent may be made for payments made prior to this date but on or

after October 27, 2014 (but in no case more than one year prior to the

date of this Agreement), for Eligible Expenditures.

2. The Closing Date is December 31, 2019.

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SCHEDULE 3

Amortization Schedule

The following table sets forth the Principal Payment Dates of the Loan and the

percentage of the total principal amount of the Loan payable on each Principal

Payment Date ("Installment Share"). If the proceeds of the Loan have been fully

withdrawn as of the first Principal Payment Date, the principal amount of the

Loan repayable by the Borrower on each Principal Payment Date shall be

determined by the Bank by multiplying: (a) Withdrawn Loan Balance as of the

first Principal Payment Date; by (b) the Installment Share for each Principal

Payment Date, such repayable amount to be adjusted, as necessary, to deduct any

amounts referred to in paragraph 4 of this Schedule, to which a Currency

Conversion applies.

Principal Payment Date Installment Share(Expressed as a Percentage)

On each April 15 and October 15,beginning April 15, 2020 through April 2.63%

15, 2038On October 15, 2038 2.69%

2. If the proceeds of the Loan have not been fully withdrawn as of the first Principal

Payment Date, the principal amount of the Loan repayable by the Borrower on

each Principal Payment Date shall be determined as follows:

(a) To the extent that any proceeds of the Loan have been withdrawn as of

the first Principal Payment Date, the Borrower shall repay the

Withdrawn Loan Balance as of such date in accordance with paragraph Iof this Schedule.

(b) Any amount withdrawn after the first Principal Payment Date shall be

repaid on each Principal Payment Date falling after the date of such

withdrawal in amounts determined by the Bank by multiplying the

amount of each such withdrawal by a fraction, the numerator of which is

the original Installment Sharp specified in the table in paragraph 1 of this

Schedule for said Principal Payment Date ("Original Installment Share")

and the denominator of which is the sum of all remaining Original

Installment Shares for Principal Payment Dates falling on or after such

date, such amounts repayable to be adjusted, as necessary, to deduct any

amounts referred to in paragraph 4 of this Schedule, to which a Currency

Conversion applies.

3. (a) Amounts of the Loan withdrawn within two (2) calendar months prior to

any Principal Payment Date shall, for the purposes solely of calculating

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the principal amounts payable on any Principal Payment Date, be treatedas withdrawn and outstanding on the second Principal Payment Datefollowing the date of withdrawal and shall be repayable on eachPrincipal Payment Date commencing with the second Principal PaymentDate following the date of withdrawal.

(b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, ifat any time the Bank adopts a due date billing system under whichinvoices are issued on or after the respective Principal Payment Date, theprovisions of such sub-paragraph shall no longer apply to anywithdrawals made after the adoption of such billing system.

4. Notwithstanding the provisions of paragraphs I and 2 of this Schedule, upon aCurrency Conversion of all or any portion of the Withdrawn Loan Balance to anApproved Currency, the amount so converted in the Approved Currency that isrepayable on any Principal Payment Date occurring during the ConversionPeriod, shall be determined by the Bank by multiplying such amount in itscurrency of denomination immediately prior to the Conversion by either: (i) theexchange rate that reflects the amounts of principal in the Approved Currencypayable by the Bank under the Currency Hedge Transaction relating to theConversion; or (ii) if the Bank so determines in accordance with the ConversionGuidelines, the exchange rate component of the Screen Rate.

5. If the Withdrawn Loan Balance is denominated in more than one Loan Currency,the provisions of this Schedule shall apply separately to the amount denominatedin each Loan Currency, so as to produce a separate amortization schedule foreach such amount.

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APPENDIX

Section . Definitions

I. "Anti-Corruption Guidelines" means the "Guidelines on Preventing and

Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA

Credits and Grants", dated October 15, 2006 and revised in January 2011.

2. "Category" means a category set forth in the table in Section IV of Schedule 2 to

this Agreement.

3. "Consultant Guidelines" means the "Guidelines: Selection and Employment of

Consultants under IBRD Loans and IDA Credits and Grants by World Bank

Borrowers" dated January 2011 (revised July 2014).

4. "EMP" or "Environmental Management Plan" means the Project Implementing

Entity's environmental management plan for the Original Project, updated to

include new geographical scope and published in the Bank's InfoShop on

October 27, 2014 and in the Project Implementing Entity's website on October

21, 2014 (http//www.sedapal.com.pe/estudio-impacto-ambiental), as such plan

may be amended from time to time with the prior approval of the Bank, which

includes, inter alia: (a) specific activities, budget and responsibilities to ensure

the implementation of measures to avoid, minimize and/or mitigate potential

direct and indirect environmental impacts associated with the Project; and (b)

procedures for screening any physical cultural resources in the Project area and

incorporating "chance find" procedures in the event that culturally significant

resources are discovered during Project implementation.

5. "Equipo de Proyectos Especiales" (formerly PROMESAL) means the unit

reporting to SEDAPAL's general manager and referred to in Section I.A. I of the

Project Agreement.

6. "GDI" means Gerencia de Desarrollo e Investigaci6n, the research and

development unit of the Project Implementing Entity, or any successor thereto

acceptable to the Bank.

7. "General Conditions" means the "International Bank for Reconstruction and

Development General Conditions for Loans", dated March 12, 2012, with the

modifications set forth in Section II of this Appendix.

8. "GIS" means the Project Implementing Entity's geographical information

system.

9. "Involuntary Resettlement Framework" means the Project Implementing Entity's

involuntary resettlement framework for the Original Project and published in the

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Bank's InfoShop and in the Project Implementing Entity's website on February16, 2011, as such framework may be amended from time to time with the priorapproval of the Bank, which includes, inter alia, specific guidelines andprocedures to be followed in the event that Resettlement is caused during Projectimplementation.

10. "Non-Consultant Services" means services which are bid and contracted on thebasis of performance of a measurable physical output, such as drilling, mappingand similar operations.

11. "Northern Service Area of Lima" means the following districts of the Borrower'snorthern area of Lima: Anc6n, Bellavista, Callao, Carabayllo, Carmen de laLegua, Comas, Independencia, La Perla, La Punta, Los Olivos, Puente Piedra,Rimac, San Martin de Porres, Santa Rosa and Ventanilla.

12. "Operational Manual" means the manual, satisfactory to the Bank adopted by theProject Implementing Entity pursuant to section 5.01 (b) of this Agreement forthe Original Project, and updated on November 12, 2014. Said manual shallcontain norms and procedures for Project implementation and supervision,including: (a) the procedures and criteria to select the specific investments underthe Project, including the methodology to be followed to determine the exactproportion of replacement and renovation of water and sewerage networks underthe Project; (b) the financial management, disbursement and procurementprocedures to be followed by the Project Implementing Entity during Projectimplementation, including standard disbursement forms, standard biddingdocuments and the Procurement Plan; (c) the terms of reference, functions andresponsibilities of the staff of the Project Implementing Entity in charge ofProject coordination, management and monitoring; (d) norms and proceduresrelated to engineering, communication, reporting and administrative matters; (e)Project monitoring and results indicators; (f) the Environmental ManagementPlan; and (g) the Involuntary Resettlement Framework.

13. "Original Loan Agreement" means the loan agreement in support of theOptimization of Lima Water and Sewerage Systems Project between theBorrower and the Bank, dated July 22, 2011 (Loan 8025-PE), as amended.

14. "Original Project" means the Project described in Schedule 1 to the OriginalLoan Agreement, as amended pursuant to this Agreement.

15. "Procurement Guidelines" means the "Guidelines: Procurement of Goods, Worksand Non-consulting Services under IBRD Loans and IDA Credits and Grants byWorld Bank Borrowers" dated January 2011 (revised July 2014).

16. "Procurement Plan" means the Borrower's procurement plan for the Project,dated October 17, 2014 and referred to in paragraph 1.16 of the Procurement

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Guidelines and paragraph 1.24 of the Consultant Guidelines, as the same shall be

updated from time to time in accordance with the provisions of said paragraphs.

17. "Project Implementing Entity" or "SEDAPAL" means Servicio de Agua Potable

y Alcantarillado de Lima, a State-owned private enterprise, established as a

Sociedad An6nima, for the purposes of providing water and sanitation services in

the areas of Lima, Callao and ascribed jurisdictions, pursuant to, and governed

by, the Project Implementing Entity's Legislation.

18. "Project Implementing Entity's Legislation" means the following: (a) the

Borrower's Legislative Decree No. 150 dated June 12, 1981 published in the

Borrower's official gazette (El Peruano) on June 15, 1981, which establishes

SEDAPAL; (b) the bylaws of SEDAPAL approved by the Borrower's Supreme

Decree (Decreto Supremo) No. 048-81-VI dated December 15, 1981 and

published in the Borrower's official gazette (El Peruano) on December 20, 1981;

together with SEDAPAL's Board of Directors resolutions No. 018-005-98 of

March 20, 1998 and the general shareholders meeting dated July 3, 1998; (c)

Corporations General Law No. 26887 of November 19, 1997 and published in

the Borrower's official gazette (El Peruano) on December 9, 1997; (d) the

Borrower's Sanitation Services Law (Ley General de Servicios de Saneamiento),

No. 26338, dated July 15, 1994 and published in the Borrower's official gazette

(El Peruano) on July 24, 1994, as amended by: (i) Law No. 28696, dated March

21, 2006 and published in the Borrower's official gazette (El Peruano) on March

22, 2006; and (ii) Law No. 28870, dated July 19, 2006 and published in the

Borrower's Official Gazette on August 12, 2006; (e) the sole text from the

Regulations to the Borrower's Sanitation Services Law, dated November 29,

2005 approved by the Borrower's Supreme Decree (Decreto Supremo) No. 023-

2005-VIVIENDA, published in the Borrower's official gazette (El Peruano) on

December 1, 2005; and (f) all legal instruments applicable to state corporations

and water and sanitation entities in the Borrower's territory.

19. "Resettlement" means the impact of an involuntary taking of land under the

Project, which taking causes affected persons to have their: (i) standard of living

adversely affected; or (ii) right, title or interest in any house, land (including

premises, agricultural and grazing land) or any other fixed or movable asset

acquired or possessed, temporarily or permanently; or (iii) access to productive

assets adversely affected, temporarily or permanently; or (iv) business,

occupation, work or place of residence or habitat adversely affected, temporarily

or permanently.

20. "Second Northern Service Area of Lima" means the following districts of the

Borrower's northern area of Lima: Comas, Carabayllo, Ventanilla, Puente

Piedra, Callao, San Martin de Porres and Los Olivos.

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21. "Subsidiary Agreement" means Convenio de Traspaso de Recursos, theagreement referred to in Section I.A of Schedule 2 to this Agreement pursuant towhich the Borrower shall make the proceeds of the Loan available to the ProjectImplementing Entity.

22. "Training" means the reasonable costs of: (i) training materials and rental oftraining facilities and equipment; (ii) tuition fees, travel and per-diem of trainersand trainees; and (iii) any other expenses related to training (including studytours and workshops) to be carried out under the Project.

Section II. Modifications to the General Conditions

The General Conditions are hereby modified as follows:

1 . In the Table of Contents, the references to Sections, Section names and Sectionnumbers are modified to reflect the modifications set forth in the paragraphsbelow.

2. Section 3.01. (Front-end Fee) is modified to read as follows:

"Section 3.01. Front-end Fee; Commitment Charge

(a) The Borrower shall pay the Bank a front-end fee on the Loan amount atthe rate specified in the Loan Agreement (the "Front-end Fee").

(b) The Borrower shall pay the Bank a commitment charge on theUnwithdrawn Loan Balance at the rate specified in the Loan Agreement (the"Commitment Charge"). The Commitment Charge shall accrue from a date sixtydays after the date of the Loan Agreement to the respective dates on whichamounts are withdrawn by the Borrower from the Loan Account or cancelled.The Commitment Charge shall be payable semi-annually in arrears on eachPayment Date."

3. In the Appendix, Definitions, all relevant references to Section numbers andparagraphs are modified, as necessary, to reflect the modification set forth inparagraph 2 above.

4. The Appendix is modified by inserting a new paragraph 19 with the followingdefinition of "Commitment Charge", and renumbering the subsequent paragraphsaccordingly:

"19. "Commitment Charge" means the commitment charge specified in theLoan Agreement for the purpose of Section 3.01(b)."

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5. In the renumbered paragraph 49 (originally paragraph 48) of the Appendix, the

definition of "Front-end Fee" is modified by replacing the reference to Section

3.01 with Section 3.01 (a).

6. In the renumbered paragraph 68 (originally paragraph 67) of the Appendix, the

definition of the term "Loan Payment" is modified to read as follows:

"68. "Loan Payment" means any amount payable by the Loan Parties to the

Bank pursuant to the Legal Agreements or these General Conditions, including

(but not limited to) any amount of the Withdrawn Loan Balance, interest, the

Front-end Fee, the Commitment Charge, interest at the Default Interest Rate (if

any), any prepayment premium, any transaction fee for a Conversion or early

termination of a Conversion, the Variable Spread Fixing Charge (if any), any

premium payable upon the establishment of an Interest Rate Cap or Interest Rate

Collar, and any Unwinding Amount payable by the Borrower."

7. In the renumbered paragraph 73 (originally paragraph 72) of the Appendix, the

definition of "Payment Date" is modified by deleting the word "is" and inserting

the words "and Commitment Charge are" after the word "interest".