OFFICIALDCMT SJ LOAN UMBER 2179 PE

Project Agreement(Sixth Power Project)

between

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

and

ENERGIA HIDROELECTRICA ANDINA (HIURANDINA) S.A.

Dated Xv2~L-Y/~, 1982

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

LOAN NUMBER 2179 PE

PROJECT AGREEMENT

AGREEMENT, dated god>- rit ('7 , 1982, betweenINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (herein-after called the Bank) and ENERGIA HIDROELECTRICA ANDINA(HIDRANDINA) S.A. (hereinafter called HIDRANDINA).

WHEREAS (A) by the Loan Agreement of even date herewithbetween ELECTROLIMA S.A. (hereinafter called the Borrower) andthe Bank, the Bank has agreed to make available to the Borroweran amount in various currencies equivalent to eighty-one milliontwo hundred thousand dollars ($81,200,000), on the terms andconditions set forth in the Loan Agreement, but only on conditionthat HIDRANDINA agree to undertake such obligations toward theBank as are hereinafter set forth;

(B) by a subsidiary loan contract to be entered intobetween the Borrower and HIDRANDINA, the proceeds of the loanprovided for under the Loan Agreement will be made available toHIDRANDINA on the terms and conditions therein set forth; and

WHEREAS HIDRANDINA, in consideration of the Bank's enteringinto the Loan Agreement with the Borrower, has agreed to under-take the obligations hereinafter set forth;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless thecontext shall otherwise require, the several terms defined in theLoan Agreement, the Preamble thereto, the Preamble to thisAgreement and the General Conditions (as so defined) have therespective meanings therein set forth.

ARTICLE II

Execution of Part C the Project

Section 2.01. (a) HIDRANDINA shall carry out Part C of theProject, described in Schedule 2 to the Loan Agreement and in theSchedule to this Agreement, with due diligence and efficiency and

S 2 -

in conformity with appropriate administrative, financial, engi-neering and public utility practices.

(b) For purposes of the carrying out of Part C of theProject, HIDRANDINA shall enter with the Borrower into theHIDRANDINA Subsidiary Loan Contract.

(c) HIDRANDINA shall exercise its rights under theHIDRANDINA Subsidiary Loan Contract in such manner as to protectits interest and those of the Guarantor, the Bank and theBorrower. Except as the Bank shall otherwise agree, HIDRANDINAshall not take or concur in any action which would have theeffect of assigning, amending, abrogating or waiving theHIDRANDINA Subsidiary Loan Contract or any provision thereof.

Section 2.02. (a) In order to assist HIDRANDINA in carryingout Part C of the Project, HIDRANDINA shall employ engineeringconsultants whose selection, qualifications, experience and termsand conditions of employment shall be satisfactory to the Bank inaccordance with the principles and procedures described in the"Guidelines for the Use of Consultants by World Bank Borrowersand by the World Bank as Executing Agency" published by the Bankin August 1981, and in Part E of Schedule 4 to the LoanAgreement.

(b) HIDRANDINA shall cooperate fully with such consultantsin the performance of their services for the Project and makeavailable to them all information relevant to the Project.

(c) HIDRANDINA shall cause the consultants employed by itfor purposes of the Project promptly to furnish to the Bankcopies of the documents prepared by them for the Project,including reports and drafts thereof, plans, designs,specifications, work schedules and estimates of costs, in suchnumber as the Bank shall reasonably request.

(d) With respect to the evaluation and putting into effectof the recommendations and other conclusions contained in alldocuments referred to in the preceding paragraph, HIDRANDINAshall, during the carrying out of Part C of the Project and uponits completion, exchange views with the Bank on saidrecommendations and conclusions.

Section 2.03. Except as the Bank may otherwise agree,HIDRANDINA shall cause all services financed out of the proceeds

-3-

of the Loan relent to it by the Borrower to be used exclusivelyfor the Project.

Section 2.04. (a) HIDRANDINA shall furnish to the Bank,promptly upon their preparation, the plans, specifications, re-

ports, contract documents and work and procurement schedules forPart C of the Project, and any material modifications thereof oradditions thereto, in such detail as the Bank shall reasonably

request.

(b) HIDRANDINA: (i) shall maintain records and proceduresincluding separate accounts for Part C of the Project, adequateto record and monitor the progress of such Part of the Project(including its cost and the benefits to be derived from* it), toidentify the services financed out of the proceeds of the Loanrelent to it by the Borrower, and to disclose their use in the

Project; (ii) shall enable the Bank's representatives to visitthe facilities and construction sites related to such Part of the

Project and any relevant records and documents; and (iii) shallfurnish to the Bank at regular intervals all such information asthe Bank shall reasonably request concerning Part C of the Proj-ect, its cost and, where appropriate, the benefits to be derivedfrom it, the expenditure of the proceeds of the Loan relent to itby the Borrower and the services financed out of such proceeds.

(c) Upon the award by HIDRANDINA of any contract for ser-vices to be financed out of the proceeds of the Loan relent to itby the Borrower, the Bank may publish a description thereof, thename and nationality of the party to whom the contract was

awarded and the contract price.

(d) Promptly after completion of Part C of the Project, butin any event not later than six months after the Closing Date orsuch later date as may be agreed for this purpose between HIDRAN-DINA and the Bank, HIDRANDINA shall prepare and furnish to theBank a report, of such scope and in such detail as the Bank shallreasonably request, on the execution of Part C of the Project,its cost and the benefits derived and to be derived from it, theperformance by HIDRANDINA and the Bank of their respective obli-gations under this Agreement and the accomplishment of the pur-

poses of the Loan.

I4-(e) HIDRANDINA shall enable the Bank's representatives to

examine all plants, installations, sites, works, buildings, pro-perty and equipment of HIDRANDINA and any relevant records anddocuments.

Section 2.05. (a) HIDRANDINA shall, at the request of theBank, exchange views with the Bank with regard to the progress ofPart C of the Project, the performance of its obligations underthis Agreement and under the HIDRANDINA Subsidiary Loan Contract.

(b) HIDRANDINA shall promptly inform the Bank of anycondition which interferes or threatens to interfere with theprogress of Part C of the Project, the accomplishment of thepurposes of the HIDRANDINA Subsidiary Loan, or the performance byHIDRANDINA of its obligations under this Agreement and under theHIDRANDINA Subsidiary Loan Contract.

Section 2.06. HIDRANDINA shall take all such steps as shallbe necessary on its part to ensure that the findings and recom-mendations of the studies to be carried out by HIDRANDINA underPart C of the Project are appropriately integrated with ELECTRO-PERO's studies for the Master Plan.

ARTICLE III

Management and Operations of HIDRANDINA

Section 3.01. HIDRANDINA shall at all times manage itsaffairs, maintain its financial position, plan its futureexpansion and carry on its operations in accordance with theHIDRANDINA Charter, and with appropriate administrative, finan-cial, engineering, and public utility practices, and under thesupervision of experienced and competent management assisted byexperienced and competent staff in adequate numbers.

Section 3.02. (a) HIDRANDINA shall at all times take allsteps necessary to maintain its legal existence and right tocarry on operations, including, without limitation, Part C of theProject and shall, except as the Guarantor and the Bank mayotherwise agree, take all steps necessary to acquire, maintainand renew such licenses, consents, franchises or other rights asmay be necessary or useful for its operations (including suchPart of the Project).

-5-

(b) HIDRANDINA shall take all such action, including theprovision of funds and resources, as shall be necessary to ensurethat its facilities, equipment and property, are adequatelyoperated, maintained, renewed and repaired.

(c) Except as the Guarantor and the Bank shall otherwiseagree, HIDRANDINA shall not sell, lease, transfer or otherwisedispose of any of its property or assets which shall be animportant requirement for the efficient operation of its businessand undertaking, including Part C of the Project.

Secton 3.03. HIDRANDINA shall take and cause to be taken allaction as shall be required to ensure that its operations,including Part C of the Project, are carried out in conformitywith appropriate pollution control and ecological standards.

Section 3.04. HIDRANDINA shall take out and maintain withresponsible insurers, or make other provisions satisfactory tothe Bank for, insurance against such risks and in such amounts asshall be consistent with appropriate practice.

ARTICLE IV

Financial Covenants

Section 4.01. HIDRANDINA shall maintain records adequate toreflect in accordance with consistently maintained appropriateaccounting practices its operations and financial conditions.

Section 4.02. HIDRANDINA shall: (i) have its accounts,including the accounts referred to in Section 2.04 (b) of thisAgreement, and financial statements (balance sheets, statementsof income and expenses and related statements) for each fiscalyear audited, in accordance with appropriate auditing principlesconsistently applied, by independent auditors acceptable to theBank; (ii) furnish to the Bank as soon as available, but in anycase not later than six months after the end of each such year,(A) certified copies of its financial statements and of theaccounts referred to in Section 2.04 (b) of this Agreement forsuch year as so audited and (B) the report of such audit by saidauditors, of such scope and in such detail as the Bank shall havereasonably requested; and (iii) furnish to the Bank such otherinformation concerning the accounts and financial statements ofHIDRANDINA and the audit thereof as the Bank shall from time totime reasonably request.

.r

-6-

Section 4.03. Except as the Bank and HIDRANDINA shallotherwise agree:

(a) HIDRANDINA shall take all necessary steps, includingfiling applications with the Guarantor for tariff adjustments, soas (i) to yield adequate rates of return for each calendar yearstarting in 1982, calculated in accordance with Part B of theSchedule to the Guarantee Agreement and (ii) to permit theGuarantor to comply with Section 3.05 of the Guarantee Agreement;

(b) HIDRANDINA shall, within the first two months of eachcalendar quarter, review the adequacy of its tariffs to producean adequate annual return for the year in question and shallfurnish to the Bank the results of such review; and

(c) if any such review shows that HIDRANDINA would not earnan annual return required for the year in question, HIDRANDINAshall apply for an adjustment of its tariffs accordingly.

Section 4.04. Except as the Bank shall otherwise agree,HIDRANDINA shall not incur:

(a) any long-term debt, unless its net revenues for thefiscal year next preceding such ircurrence or for a twelve-monthperiod ended prior to such incurren,ce, whichever amount is thegreater, shall be not less than 1.5 times the maximum long-termdebt service requirement for any succ..-ding fiscal year on alllong-term debt, including the long term debt to be incurred. Forthe purposes of this paragraph:

(i) the term "long-term debt" shall mean all debt ofHIDRANDINA maturing by its terms more than oneyear after the date on which it is incurred;

(ii) the term "net revenues" shall mean gross revenuesadjusted to take account of the rates applied byHIDRANDINA which are in effect at the time of theincurrence of long-term debt even though they werenot in effect during the fiscal year or twelve-month period to which such revenues relate, Iussoperating and administrative expenses, but beforeprovision covering depreciation of assets, andother non-cn,-s' expenses to the extent provision

-7-

therefor is required under the laws and regula-

tions of the Guarantor, interest and other charges

on long-term debt; and

(iii) the term "debt service requirement" shall mean the

aggregate amount of amortization (including sink-

ing fund payments, if any), interest and other

charges on long-term debt;

(b) any short term-debt, unless the aggregate of all

short-term debt incurred by HIDRANDINA, including the short-term

debt to be incurred but deducting, to the extent the Bank is

satisfied therewith, cash and the cash value of negotiable in-

struments held by HIDRANDINA, is equal to or less than one-sixth

(1/6) of the operating, maintenance and administrative expenses

(excluding depreciation and other non-cash provisions) of

HIDRANDINA for the twelve-month period preceding such incur-

rence. For the purposes of this paragraph the term "short-term

debt" means all debt of HIDRANDINA for money borrowed, including

bank overdrafts, maturing by its terms on demand or less than one

year after the date on which it was incurred.

For the purposes of this Section, debt shall be deemed to be

incurred on the date of execution and delivery of a contract,

loan agreement or other instrument providing for such debt;

provided, however, that in the case of guarantee of debt, debtshall be deemed to be incurred on the day the agreement guaran-

teeing such debt has been entered into but only to the extent

that the guaranteed debt is outstanding.

ARTICLE V

Effective Date; Termination;Cancellation and Suspension

Section 5.01. This Agreement shall come into force and

effect on the date upon which the Loan Agreement becomes

effective.

Section 5.02. This Agreement and all obligations of the Bank

and of HIDRANDINA thereunder shall terminate on the date on which

the Loan Agreement shall terminate in accordance with its terms,

and the Bank shall promptly notify HIDRANDINA thereof.

Section 5.03. All the provisions of this Agreement shall

continue in full force and effect notwithstanding any cancella-

tion or suspension under the General Conditions.

ARTI1CLE VI1

Miscellaneous Provisions

Section 6.01. Any notice or request required or permitted to

be given or made under this Agreement and any agreement between

the parties contemplated by this Agreement shall be in writing.

Such notice or request shall be deemed to have been duly given or

made when It shall be delivered by hand or by mail, telegram,

cable, telex or radiogram to the party to which it is required or

permitted to be given or made at such party's address hereinafter

specified or at such other address as such party shall have

designated by notice to the party giving such notice or making

such request. The addr as so specified are:

For the Bank:

International Bank forReconstruction 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) or64145 (WUI)

For HIDRANDINA:

Energla Hidroel6ctrica Andina

(Hidrandina) S.A.Avenida Central 717,80 Piso BLima 27Lima, Peru

-9-

Cable address: Telex:

HIDRANDINA 20458 PE ALPANDIN

Section 6.02. Any action required or permitted to be taken,and any document required or permitted to be executed, under thisAgreement on behalf of HIDRANDINA, or by HIDRANDINA on behalf ofthe Borrower under the Loan Agreement, may be taken or executedby the Gerente General or such other person or persons as theGerente General shall designate in writing, and HIDRANDINA shallfurnish to the Bank sufficient evidence of the authority and theauthenticated specimen signature of each such person.

Section 6.03. This Agreement may be executed in severalcounterparts, each of which shall be an original, and allcollectively but one instrument.

IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentatives thereunto duly authorized, have caused thisAgreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and yearfirst above written.

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

ByRegional Vice President

Latin America and the Caribbean

ENERGIA HIDROELECTRICA ANDINA (HIDRANDINA)S.A.

ByivAuthorized Representative

- 10 -

SCHEDULE

Description of Part C of the Project

Mayush Hydro Project

After completion of Part C.2 of the Prior Project, prepara-tion of final design and tender documents therefor.

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 L1 day of/ V , 198 .

FOR SECRETARY