OFFICIALIOAN NUMBER 2317 HU

Loan Agreement

(Industrial Energy Diversification andConservation Project)

between

HUNGARIAN PEOPLE' S REPUBLIC

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND nEVELOPHENT

Dated Q , 1983

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LOAN NUMBER 2317 HU

LOAN AGREEMENT

AGREEMENT, dated j ,, ( 1983, between HUNGARIAN PEOPLE'SREPUBLIC (hereinafter called the Borrower) and INTERNATIONAL BANKFOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank).

WHEREAS (A) the Borrower has requested the Bank to assist inthe financing of the Project described in Schedule 2 to thisAgreement by making the Loan as hereinafter provided;

(B) by a project agreement of even date herewith betweenthe Bank and the National Bank of Hungary (hereinafter calledNBH), NBH has agreed to undertake certain obligations in respectof carrying out Part A of the Project;

(C) by a project agreement of even date herewith among theBank, Nograd Coal Mining Company, Tatabanya Coal Mining Company,Oroszlany Coal Mining Company and Mecsek Coal Mining Company(hereinafter called the Companies), the Companies have agreed toundertake certain obligations in respect of carrying out Part Bof the Project;

(D) by a project agreement of even date herewith betweenthe Bank and the Hungarian Aluminum Corporation (hereinaftercalled MAT), MAT has agreed to undertake certain obligations inrespect of carrying out Part C of the Project;

(E) by a project agreement of even date herewith betweenthe Bank and the National Oil and Gas Trust (hereinafter calledOKGT), OKGT has agreed to undertake certain obligations inrespect of carrying out Parts D (i) through (iv) and E of theProject;

(F) by a project agreement of even date herewith betweenthe Bank and the State Development Bank (hereinafter called SDB),SDB has agreed to undertake certain obligations in respect of ' ecarrying out of Part D (v) of the Project; and

WHEREAS the Bank has agreed, on the basis inter alia of theforegoing, to make the Loan available to the Borrower upon theterms and conditions set forth hereinafter and in the ProjectAgreements of even date herewith referred to in Recitals (B),(C), (D), (E) and (F) above;

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all the

provisions of the General Conditions Applicable to Loan and Guar-

antee Agreements of the Bank, dated October 27, 1980, with the

same force and effect as if they were fully set forth herein

(said General Conditions Applicable to Loan and Guarantee Agree-

ments of the Bank being hereinafter called the General Condi-

tions).

Section 1.02. Wherever used in this Agreement, unless the

context otherwise reqc'res, the several terms defined in the

General Conditions have the respective meanings therein set forth

and the following additional terms have the following meanings:

(a) "NBH" means the National Bank of Hungary established by

Act No. V of 1924, and operating v- r Law Decree No. 36 EX 1967

of the Presidential Council of t. Borrower, published in the

Official Gazette on December 17, 1967, and the Statutes published

in said Gazette on March 17, 1968;

(b) "OKGT" means the National Oil and Gas Trust, a state

enterprise established by Resolution No. 1521/1956, dated Janu-

ary 26, 1957, of the Borrower's Minister of Heavy Industry;

(c) "MAT" means the Hungarian Aluminum Corporation, a state

enterprise established by Resolution No. 373/1963, dated May 31,

1963, of the Borrower's Minister of Heavy Industry;

(d) "SDB" means the State Development Bank established and

operating under Resolution No. 1020/1971 of the Revolutionary

Workers' and Peasants' Government, dated June 8, 1971, and Order

No. 94/1971, dated December 31, 1971, of the Borrower's Minister

of Finance;

(e) "NCMC" means the Nograd Coal Mining Company, a state

enterprise established by Resolution of the Borrower's National

Economic Council No. 285/14/1951, dated August 9, 1951;

(f) "TCMC" means :he Tatabanya Coal Mining Company, a state

enterprise established by Resolution of the Borrower's National

Economic Council No. 285/14/1951, dated August 9, 1951;

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(g) "OCMC" means the Oroszlany Coal Mining Company, a stateenterprise established by Resolution No. 1440/1956, dated Decem-ber 27, 1956, of the Borrower's Minister of Mining and Power;

(h) "MCMC" means the Mecsek Coal Mining Company, a stateenterprise established by Resolution No. 71.975/1954, datedJune 29, 1954, of the Borrower's Minister of Heavy Industry;

(i) "Companies" means NCMC, TCMC, OCMC and MCMC;

(j) "MVMT" means the Hungarian Electric Power Trust estab-lished by Resolution No. 667/1963, dated August 28, 1963, of theBorrower's Minister of Heavy Industry;

(k) "NBH Project Agreement" means the agreement between theBank and NBH of even date herewith, as the same may be amendedfrom time to time, and such term includes all schedules to theNBH Project Agreement and all agreements supplemental to the NBHProject Agreement;

(1) "Companies Project Agreement" means the agreementbetween the Bank and the Companies of even date herewith, as thesame may be amended from time to time, and such term includes allagreements supplemental to the Companies Project Agreement;

(m) "MAT Project Agreement" means the agreement between theBank and MAT of even date herewith, as the same may be amendedfrom time to time, and such term includes all agreements supple-mental to the MAT Project Agreement;

(n) "OKGT Project Agreement" means the agreement betweenthe Bank and OKGT of even date herewith, as the same may beamended from time to time, and such term includes all agreementssupplemental to the OKGT Project Agreement;

(o) "SDB Project Agreement" means the agreement between theBank and SDB of even date herewith, as the same may be amendedfrom time to time, and such term includes all schedules to theSDB Project Agreement and all agreements supplemental to the SDBProject Agreement;

(p) "Project Agreements" means the agreements referred toin paragraphs (k) through (o) of this Section;

(q) "NBH Subsidiary Loan Agreement" means the agreementto be entered into between the Borrower and NBH pursuant to

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Section 3.01 (c) of this Agreement, as the same may be amendedfrom time to time, and such term includes all schedules to theNBH Subsidiary Loan Agreement, and the term "NBH Subsidiary Loan"means the loan provided under the NBH Subsidiary Loan Agreement;

(r) "NCMC Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and NCMC pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the NCMC Sub-sidiary Loan Agreement, and the term "NCMC Subsidiary Loan" meansthe loan provided under the NCMC Subsidiary Loan Agreement;

(s) "TCMC Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and TCMC pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the TCMC Sub-sidiary Loan Agreement, and the term "TCMC Subsidiary Loan" meansthe loan provided under the TCMC Subsidiary Loan Agreement;

(t) "OCMC Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and OCMC pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the OCMC Sub-sidiary Loan Agreement, and the term "OCMC Subsidiary Loan" meansthe loan provided under the OCMC Subsidiary Loan Agreement;

(u) "MCMC Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and MCMC pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the MCMC Sub-sidiary Loan Agreement, and the term "MCMC Subsidiary Loan" meansthe loan provided under the MCMC Subsidiary Loan Agreement;

(v) "MAT Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and MAT pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the MAT Sub-sidiary Loan Agreement, and the term "MAT Subsidiary Loan" meansthe loan provided under the MAT Subsidiary Loan Agreement;

(w) "OKGT Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and OKGT pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the OKGT Sub-sidiary Loan Agreement, and the term "OKGT Subsidiary Loan" meansthe loan provided under the OKGT Subsidiary Loan Agreement;

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(x) "SDB Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and SDB pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the SDB Sub-sidiary Loan Agreement, and the term "SDB Subsidiary Loan" meansthe loan provided under the SDB Subsidiary Loan Agreement;

(y) "MVMT Subsidiary Loan Agreement" means the agreement tobe entered into between the Borrower and MVMT pursuant to Section3.01 (c) of this Agreement, as the same may be amended from timeto time, and such term includes all schedules to the MVMT Sub-sidiary Loan Agreement, and the term "MVMT Subsidiary Loan" means.he loan provided under the MVMT Subsidiary Loan Agreement;

(z) "Subsidiary Loan Agreements" means the agreementsreferred to _.n paragraphs (q) through (y) of this Section; and"Subsidiary Loans" means the loans provided under the SubsidiaryLoan Agreements;

(aa) "AEEF" means the Energy Supervision Institute estab-lished by Resolution of the Borrower's Council of Ministers No.540.420/1954, dated April 20, 1954;

(bb) "EGI" 'means the Energy Economy Institute established byResolution of the Borrower's National Economic Council No.40/4/1951, dated February 15, 1951;

(cc) "EEA" means the Energy Economy Authority established byResolution No. 2.101/1958 of the Revolutionary Workers' andPeasants' Government, dated December 29, 1958, and operatingunder the supervision of the Borrower's Ministry of Industry;

(dd) "KBFI" means the Central Institute of Mining Develop-ment established by Resolution No. 12/7/1977 of the Borrower'sMinister of Heavy Industry, dated July 3, 1978;

(ee) "Project Enterprises" means NBH, SDB, OKGT, MAT and theCompanies;

(ff) "Energy Rationalization Facility" means the EnergyRationalization Facility established within NBR under the CreditPolicy Guidelines of the Borrower's Council of Ministers No.26.,8/1980, dated December 27, 1980., as amended to date; and

(gg) "Forints" means the currency of the Borrower.

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ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower, on

the terms and conditions in the Loan Agreement set forth or

referred to, an amount in various currencies equivalent to one

hundred nine million dollars ($109,000,000).

Section 2.02. The amount of the Loan may be withdrawn from

the Loan Account in accordance with the provisions of Schedule 1

to this Agreement, as such Schedule may be amended from time to

time by agreement between the Borrower and the Bank, for expen-

ditures made (or, if the Bank shall so agree, to be made) in

respect of the reasonable cost of goods and services required for

the Project and to be financed out of the proCceds of the Loan.

Section 2.03. Except as the Bank shall otherwise agree,

procurement of the goods required for the Project and to be

financed out of the proceeds of the Loan shall be governed by the

provisions of Schedule 4 to this Agreement.

Section 2.04. The Closing Date shall be June 30, 1988, or

such later date as the Bank shall establish. The Bank shall

promptly notify the Borrower of such later date.

Section 2.05. (a) The Borrower shall pay to the Bank a fee

equivalent to two hundred seventy-one thousand eight hundred

twenty dollars ($271,820).

(b) On or promptly after the Effective Date, the Bank

shall, on behalf of the Borrower, withdraw from the Loan Account

and pay to itself the amount of the said fee in such currency or

currencies as the Bank shall determine.

Section 2.06. The Borrower shall pay to the Bank a commit-

ment charge at the rate of three-fourths of one percent (3/4 of

1%) per annum on the principal amount of the Loan not withdrawn

from time to time.

Section 2.07. (a) The Borrower shall pay interest on the

principal amount of the Loan withdrawn and outstanding from time

to time at a rate per annum for each Interest Period equal to

one-half percent per annum above the Cost of Qualified Borrowings

for the last Semester ending prior to the commencement of such

Interest Period.

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(b) As soon as practicable after the end of each Semester,the Bank shall notify the Borrower of the Cost of Qualified Bor-rowings for such Semester.

(c) For purposes of this Section:

(i) "Interest Period" means the six-monAh period com-mencing on each date specified in Section 2.08 ofthis Agreement, including the Interest Period inwhich this Agreement is signed.

(ii) "Cost" of Qualified Borrowings means the cost, ex-pressed as a percentage per annum, as reasonablydetermined by the Bank, provided that the amountof $8,520.5 million referred to in (iii) (B) here-under shall be reckoned at a cost of 10.93% perannum.

(iii) "Qualified Borrowings" means (A) outstanding bor-rowings of the Bank drawn down after June 30,1982, and (B) until July 1, 1985, the amount of$8,520.5 million (representing borrowings of theBank between July 1, 1981 and June 30, 1982) lessany part thereof repaid earlier than July 1, 1985.

(iv) "Semester" means the first six months or thesecond six months of a calendar year.

Section 2.08. Interest and other charges shall be payablesemiannually on March 1 and September 1 in each year.

Section 2.09. The Borrower shall repay the principal amountof the Loan in accordance with the amortization schedule setforth in Schedule 3 to this Agreement.

Section 2.10. The President of NBH is designated as repre-sentative of the Borrower for the purposes of taking any actionrequired or permitted to be taken under the provisions of Section2.02 of this Agreement and Article V of the General Conditions.

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out Part F (i) ofthe Project through EEA, Part G (ii) thereof through EEA and

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MVMT, Part F (ii) and (iii) thereof through AEEF, Part G (i)thereof through EGI and Part G (iii) thereof through KBFI, withdue diligence and efficiency and in conformity with appropriateadministrative, financial and engineering practices, and with dueregard to appropriate safety, ecological and environmental stan-dards, and shall provide, promptly as needed, the funds, facili-ties, services and other resources required for the purpose.

(b) Without any limitation or restriction upon any of itsother obligations under the Loan Agreement, the Borrower shallcause the Project Enterprises to perform in accordance with theprovisions of the Project Agreements all their obligations there-in set forth, shall take or cause to be taken all action, includ-ing the provision of funds, facilities, services and otherresources, necessary or appropriate to enable the Project Enter-prises to perform such obligations, and shall not take or permitto be taken any action which would prevent or interfere with suchperformance.

(c) The Borrower shall relend the proceeds of the Loan(other than those allocated under Category (6) (a), (c) and (d),and Category (7) of the table set forth in paragraph 1 of Sched-ule 1 to this Agreement) to the Project Enterprises and MVMTunder subsidiary loan agreements to be entered into between theBorrower and the Project Enterprises and MVMT, under terms andconditions which shall have been approved by the Bank and inaccordance with the provisions of Schedule 5 to this Agreement.

(d) The Borrower shall exercise its rights under the Sub-sidiary Loan Agreements in such manner as to protect the inter-ests of the Borrower and the Bank and to accomplish the purposesof the Loan, and, except as the Bank shall otherwise agree, theBorrower shall not assign, amend, abrogate or waive the Subsid-iary Loan Agreements or any provision thereof.

Section 3.02. For the purpose of promoting and coordinatingindustrial energy conservation and diversification programs andmeasures, the Borrower shall establish not later than March 31,1985, and thereafter maintain within AEEF, an energy conservationcenter with such organization, responsibilities and staff asshall be agreed between the Borrower and the Bank.

Section 3.03. In order to assist the Borrower in carryingout Part F of the Project, the Borrower shall employ, or cause to

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be employed, energy conservation consultants whose qualifica-tions, experience and terms and conditions of employment shall besatisfactory to the Bank, such consultants to be selected inaccordance with principles and procedures satisfactory to theBank on the basis of the "Guidelines for the Use of Consultantsby World Bank Borrowers and by the World Bank as Executing Agen-cy" published by the Bank in August 1981.

Section 3.04. (a) For the purpose of carrying out Part F (i)of the Project, the Borrower shall designate qualified staff toinitiate, coordinate and supervise the studies included there-under and to serve as counterparts to the consultants to beemployed pursuant to Section 3.03 of this Agreement.

(b) The Borrower shall: (i) carry out the energy diversifi-cation and conservation studies of the petroleum refining andiron and steel subsectors included in Part F (i) of the Projectunder terms of reference which shall have been approved by thqBank; and (ii) cause all the studies included under said Part F-(i) of the Project to be completed by November 30, 1984, and fur-nish to the Bank thereafter, the findings and recommendationsthereof together with the proposed detailed components of theBorrower's long-term program for industrial energy diversifica-tion and conservation.

Section 3.05. (a) The Borrower undertakes to insure, or makeadequate provision for the insurance of, the imported goodsrequired for Parts F and G of the Project and to be financed outof the proceeds of the Loan against hazards incident to theacquisition, transportation and delivery thereof to the place ofuse or installation, and for such insurance any indemnity shallbe payable in a currency freely usable by the Borrower to replaceor repair such goods.

(b) The Borrower shall cause all goods and servicesrequired for Parts F and G of the Project and financed out of theproceeds of the Loan to be used exclusively for the purposes ofthe Project.

(c) The Borrower shall: (i) furnish, or cause to be fur-nished, to the Bank the results of the processing test referredto under Part G (iii) of the Project together with the findingsand recommendations Wfs the study to be carried out thereunder;and (ii) prior to the carrying out of any modification of t e-semi-industrial scale rotary kiln at Tatabanya, obtain the Bank'sapproval of the proposed modifications.

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Section 3.06. (a) The Borrower shall maintain the project

coordination office established under the supervision of its

Ministry of Industry for the purpose of overall coordination and

supervision in the carrying out of the Project and for evaluating

the benefits derived and to be derived therefrom.

(b) The Borrower shall designate appro riate engineering

agencies to assist the industrial enterprises referred to underPart A of the Project, the Companies, MAT, OKGT, and the indus-trial enterprises referred to under Part D (v) of the Project in

the procurement of goods and services required for the carryingout of Parts A through E of the Project.

Section 3.07. (a) The Borrower shall furnish to the Bank,promptly upon their preparation, the plans, specifications,reports, contract documents and work and procurement schedules

for Parts F and G of the Project, and any material modifications

thereof or additions thereto, in such detail as the Bank shallreasonably request.

(b) The Borrower: (i) shall maintain records and procedures

adequate to record and monitor the progress of Parts F and G of

the Project (including their cost and the benefits to be derived

from them), to identify the goods and services financed out of

the proceeds of the Loan, and to disclose their use in said Parts

of the Project; (ii) shall enable the Bank's representatives to

visit the facilities and construction sites included in the Proj-

ect and to examine the goods financed out of the proceeds of the

Loan and any relevant records and documents; and (iii) shall fur-

nish to the Bank at regular intervals all such information as the

Bank shall reasonably request concerning the Project, its costand, where appropriate, the benefits to be derived from it, the

expenditure of the proceeds of the Loan and the goods and ser-vices financed out of such proceeds.

(c) Upon the award by the Borrower of any contract for

goods or services to be financed out of the proceeds of the Loan,the Bank may publish a description thrreof, the name and nation-

ality of the party to whom the contract was awarded and the

contract price.

(d) Promptly after completion of the Project, but in any

event not later than four months after the Closing Date or suchlater date as may be agreed for this purpose between the borrower

and the Bank, the Borrower shall prepare through the project

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coordination office referred to in Section 3.06 (a) of thisAgreement, with the assistance of NBH, SDB, MAT, OKGT and theCompanies, and furnish to the Bank a report, of such scope and insuch detail as the Bank shall reasonably request, on the execu-tion and initial operation of the Project, its cost and the bene-fits derived and to be derived from it, the performance by theBorrower and the Bank of their respective obligations under theLoan Agreement and the accomplishment of the purposes of theLoan.

ARTICLE IV

Other Covenants

Section 4.01. (a) It is the policy of the Bank, in makingloans to, or with the guarantee of, its members not to seek, innormal circumstances, special security from the member concernedbut to ensure that no other external debt shall have priorityover its loans in the allocation, realization or distribution offoreign exchange held under the control or for the benefit ofsuch member. To that end, if any lien shall be created on anypublic assets (as hereinafter defined), as security for anyexternal debt, which will or might result in a priority for thebenefit of the creditor of such external debt in the allocation,realization or distribution of foreign exchange, such lien shall,unless the Bank shall otherwise agree, ipso facto and at no costto the Bank, equally and ratably secure the principal of, andinterest and other charges on, the Loan, and the Borrower, increating or permitting the creation of such lien, shall makeexpress provision to that effect; provided, however, that, if forany constitutional or other legal reason such provision cannot bemade with respect to any lien created on assets of any of itspolitical or administrative subdivisions, the Borrower shallpromptly and at no cost to the Bank secure the principal of, andinterest and other charges on, the Loan by an equivalent lien onother public assets satisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) anylien created on property, at the time of purchase thereof, solelyas security for payment of the purchase price of such property oras security for the payment of debt incurred for the purpose offinancing the purchase of such property; and (ii) any lien aris-ing in the ordinary course of banking transactions and securing adebt maturing not more than one year after its date.

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(c) As used in this Section, the term "public assets" meansassets of the Borrower, of any political or administrative sub-division thereof and of any entity owned or controlled by, oroperating for the account or benefit of, the Borrower or any suchsubdivision, including gold and foreign exchange assets held byNBH or any institution performing the functions of a central bankor exchange stabilization fund, or similar functions, for theBorrower.

Section 4.02. (a) The Borrower shall: (i) inform the Bank,not later than September 1 of the years 1983 and 1984, of themeasures to be taken in order to enable TCMC to comply with itsobligations under Section 4.04 (b) (1) of the Companies ProjectAgreement during the fiscal years 1984 and 1985, respectively;(ii) not later than December 31, 1984, prepare and furnish to theBank, for its comments, a plan comprising the measures to betaken in order to enable TCMC to comply with its obligationsunder Section 4.04 (b) (2) of the Companies Project Agreement;and (iii) cause such plan to be carried out not later thanDecember 31, 1985.

(b) The Borrower shall: (i) inform the Bank, not later thanSeptember I of the years 1983, 1984 and 1985, of the measures tobe taken in order to enable MAT to comply with its obligationsunder Section 4.04 (i) of the MAT Project Agreement during thefiscal years 1984, 1985 and 1986, respectively; (ii) not laterthan December 31, 1985, prepare and furnish to the Bank, for itscomments, a plan comprising the measures to be taken in order toenable MAT to comply with its obligations under Section 4.04 (ii)of the MAT Project Agreement; and (iii) cause such plan to becarried out not later than December 31, 1986.

Section 4.03. (a) The Borrower shall maintain or cause to bemaintained records and separate accounts adequate to reflect inaccordance with consistently maintained sound accounting prac-tices the operations, resources and expenditures, in respect ofParts F and G of the Project, of the departments or agencies ofthe Borrower responsible for carrying out Parts F and G of theProject or any component thereof.

(b) The Borrower shall: (i) have the accounts referred toin paragraph (a) of this Section for each fiscal year audited, inaccordance with appropriate auditing principles consistentlyapplied, by independent auditors acceptable to the Bank; (ii)furnish to the Bank as soon as available, but in any case not

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later than four months after the end of each such year, a certi-fied copy of the report of such audit by said auditors, of suchscope and in such detail as the Bank shall have reasonablyrequested; and (iii) furnish to the Bank such other informationconcerning said separate accounts, records and expenditires andthe audit thereof as the Bank shall from time to time reasonablyrequest.

Section 4.04. The Borrower shall: (i) review, and cause NBHto review, annually, the adequacy of the interest rates applica-ble to loans made by NBH for the purpose of financing energydiversification and conservation investments; and (ii) on thebasis of such review, adjust such rates, in respect of loans tobe made thereafter, in order to maintain a positive spread overthe rate of inflation.

ARTICLE V

Remedies of the Bank

Section 5.01. For the purposes of Section 6.02 of the Gen-eral Conditions, the following additional events are specifiedpursuant to paragraph (k) thereof:

(a) Any of the Project Enterprises shall have failed toperform any of its obligations under its respective ProjectAgreement or Subsidiary Loan Agreement.

(b) As a result of events which have occurred after thedate of the Loan Agreement, an extraordinary situation shall havearisen which shall make it improbable that one or more of theProject Enterprises will be able to perform its obligations underits respective Project Agreement or Subsidiary Loan Agreement orthat MVMT will be able to perform its obligations under the MVMTSubsidiary Loan Agreement.

(c) Any law, decree or resolution pertaining to the estab-lishment or operations of any of the Project Enterprises shallhave been amended, suspended, abrogated, repealed or waived so asto affect materially and adversely the ability of any such Proj-ect Enterprise to perform any of its respective obligations underits respective Project Agreement or Subsidiary Loan Agreement.

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(d) The Borrower or any other authority having jurisdictionshall have taken any action for the dissolution or disestablish-ment of any of the Project Enterprises or of MVMT or for thesuspension of its operations.

Section 5.02. For the purposes of Section 7.01 of the Gen-eral Conditions, the following additional events are specifiedpursuant to paragraph (h) thereof:

(a) The event specified in paragraph (a) of Section 5.01 ofthis Agreement shall occur and shall continue for a period ofsixty days after notice thereof shall have been given by the Bankto the Borrower and NBH, SDB, OKGT, MAT, NCMC, TCMC, OCMC orMCMC, as the case may be.

(b) Any event specified in paragraphs (c) and (d) of Sec-tion 5.01 of this Agreement shall occur.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following event is specified. as an addi-tional condition to the effectiveness of the Loan Agreement with-in the meaning of Section 12.01 (c) of the General Conditions,namely, that the Subsidiary Loan Agreements (except the MAT Sub-sidiary Loan Agreement) have been executed on behalf of theparties thereto.

Section 6.02. The following are specified as additionalmatters, within the meaning of Section 12.02 (c) of the GeneralConditions, to be included in the opinion or opinions to be fur-nished to the Bank:

(a) that each of the Project Agreements has been dulyauthorized or ratified by the Project Enterprise party thereto,and is legally binding upon each such Project Enterprise inaccordance with its terms; and

(b) that the Subsidiary Loan Agreements (except the MATSubsidiary Loan Agreement) have been duly authorized or ratifiedby the parties thereto and are legally binding upon such partiesin accordance with their terms.

Section 6.03. The date OCdof l q3 , is hereby spec-ified for the purposes of Section 12.04 of the General Condi-tions.

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ARTICLE VII

Representatives of the Borrower; Addresses

Section 7.01. Except as provided in Section 2.10 of this

Agreement, the Deputy Chairman of the Borrower's National Plan-ning Office, the Deputy Minister for Foreign Trade of the

Borrower's Ministry of Foreign Trade or the Managing Director ofthe International Monetary Department of NBH is designated asrepresentative of the Borrower for the purposes of Section 11.03

of the General Conditions.

For the Borrower:

National Bank of HungaryInternational Monetary DepartmentH-1850 BudapestSzabadsag ter 8-9Hungarian People's Republic

Cable address: Telex:

BANKO 227267 SMAFU H

Budapest 225755 BANKO H

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INTBAFRAD 440098 (ITT),Washington, D.C. 248423 (RCA) or

64145 (WUI)

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IN WITNESS WHEREOF, the parties hereto, acting through their

representatives thereunto duly authorized, 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.

HUNGARIAN PEOPLE'S REPUBLIC

By /l -77h0-, ,5Authorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By Regional Vice President

Europe, Middle East and North Africa

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SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to befinanced out of the proceeds of the Loan, the allocation of theamounts of the Loan to each Cat.gory and the percentage of expen-ditures for items so to be financed in each Category:

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Part A of the 26,100,000 100% of foreignProject: Equip- expendituresment (includinglicenses there-for), materialsand spare parts

(2) Part B of theProject: Equip-ment (includinglicenses there-for), materialsand spare parts

(a) for Part B (i) 720,000 )

(b) for Part B (ii) 1,350,000 )) 100% of foreign

(c) for Part B (iii) 2,160,000 ) expenditures

(d) for Part B (iv) 8,910,000 )and (v) )

(3) Part C of the 15,480,000 100% of foreignProject: Equip- expenditures andment (including 100% of locallicenses there- expendituresfor), materials (ex-factory)and spare parts

- 18 -

Amount of theLoan Allocated % of

(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(4) Part D of the

Project:

(a) Linear poly- 8,370,000 100% of foreignethylene expenditures

granulesunder PartD (i) through(iv)

(b) Steel pipes, 2,610,000 100% of foreign

letdown expenditures and

stations, 100% of local

instrumenta- expenditures

tion and (ex-factory)valves underPart D (i)through (iv)

(c) Linear poly- 5,130,000 100% of foreignethylene gran- expenditures

ules underPart D (v)

(d) Gas burners and 1,260,000 100% of foreiin

instrumentation expenditures and

under Part D (v) 100% of localexpenditures(ex-f ac t ory)

(5) Part E of the

Project:

(a) Equipment (in- 16,980,000 )cluding licenses )therefor), mate- )rials and spare )parts ) expenditures

(b) Consultants' 2,100,000 )servicesx i

- 19 -

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(6) Parts F and Gof the Project:

(a) Equipment 810,000 )(including )licenses )therefor), )materials )and spare )parts under )Parts F and )G (iii) )

(b) Equipment 4,050,000 )(including )licenses ) 100% of foreigntherefor), ) expendituresmaterials )and spare )parts under )Part G (ii) )

(c) Testing fees 900,000 )and associated )coal transpor- )tation costs )

(d) Consultants' 900,000 )services and )training )

(7) Fee 271,820 Amount due underSection 2.05 ofthis Agreement

(8) Unallocated 10,898,180

TOTAL 109,000,000

- 20 -

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures inthe currency of any country other than that of the Borrower forgoods or services supplied from the territory of any countryother than that of the Borrower; and

(b) the term "local expenditures" means expenditures in thecurrency of the Borrower or for goods or services supplied fromthe territory of the Borrower.

3. The disbursement percentages have been calculated in com-pliance with the policy of the Bank that the proceeds of the Loanshall not be disbursed on account of payments for taxes leviedby, or in the territory of, the Borrower on goods or services, oron the importation, manufacture, procurement or supply thereof;on this basis, if the amount of any such taxes levied on or inrespect of items in any Category decreases or increases, the Bankmay, by notice to the Borrower, increase or decrease the dis-bursement percentage then applicable to such Category as requiredto be consistent with the aforementioned policy of the Bank.

4. Notwithstanding the provisions of paragraph 1 above, nowithdrawals shall be made in respect of:

(a) expenditures made prior to the date of this Agreement,except that withdrawals, in an aggregate amount not exceeding theequivalent of $2,900,000, may be made in respect of Category (4)(a) and (c), and in an aggregate amount -iot exceeding the equiva-lent of $200,000, may be made in respe, t of Category (6) (c) onaccount of expenditures made before tLat date but after Decem-ber 1, 1982;

(b) expenditures under Category (3) for Part C of the Proj-ect until evidence satisfactory to the Bank shall have beenfurnished to the Bank that the MAT Subsidiary Loan Agreement hasbeen duly executed and ratified by the Borrower and MAT and islegally binding upon the Borrower and MAT in accordance with itsterms;

(c) expenditures made under Category (1) for Part A of theProject by an Industrial Enterprise (as such term is defined inSection 1.01 (b) of the NBH Project Agreement) until an agreementbetween NBH and such Industrial Enterprise has been concluded inaccordance with paragraph (2) of the Schedule to the NBH ProjectAgreement, and a copy thereof has been furnished to the Bank; and

- 21 -

(d) expenditures made under Category (4) (c) and (d) forPart D (v) of the Project by a Gas Consumer (as such terms isdefined in Section 1.01 (a) of the SDB Project Agreement) untilan agreement between SDB and such Gas Consumer has been concludedin accordance with the provisions of paragraph (1) of the Sched-ule to the SDB Project Agreement, and a copy thereof has beenfurnished to the Bank.

5. Notwithstanding the allocation of an amount of the Loan orthe disbursement percentages set forth in the table in para-graph 1 above, if the Bank has reasonably estimated that theamount of the Loan then allocated to any Category will be insuf-ficient to finance the agreed percentage of all expenditures inthat Category, the Bank may, by notice to the Borrower: (i)reallocate to such Category, to the extent required to meet theestimated shortfall, proceeds of the Loan which are then allo-cated to another Category and which in the opinion of the Bankare not needed to meet other expenditures; and (ii) if suchreallocation cannot fully meet the estimated shortfall, reducethe disbursement percentage then applicable to such expendituresin order that further withdrawals under such Category may con-tinue until all expenditures thereunder shall have been made.

6. If the Bank shall have reasonably determined that the pro-curement of any item in any Category is inconsistent with theprocedures set forth or referred to in this Agreement, no expen-diture for such item shall be financed out of the proceeds of theLoan, and the Bank may, without in any way restricting or lim-iting any other right, power or remedy of the Bank under the LoanAgreement, by notice to the Borrower, cancel such amount of theLoan as, in the Bank's reasonable opinion, represents the amountof such expenditures which would otherwise have been eligible forfinancing out of the proceeds of the Loan.

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SCHEDULE 2

Description of the Project

The main objectives of the Projsct are to improve the effi-ciency and competitiveness of the Borrower's major domesticenergy-consuming industries, to contain energy import costs bothby reducing industrial energy consumption and by a greater use ofdomestic energy resources, and to promote development of appro-priate policies, technologies and institutional arrangements inorder to strengthen the Borrower's energy rationalization pro-gram.

The Project consists of the following parts:

Part A: Energy Rationalization Facility

Provision of credit through NBH's Energy RationalizationFacility to industrial enterprises to assist in the financing ofabout sixty-two (62) energy-saving projects.

Part B: Substitution of Indigenous Coal forHeating Oil and Imported Coking Coal

(i) Construction and equipping of a new coarse coal washingplant in Nagybatony for NCMC;

(ii) construction and installation of a new coal fines wash-ing plant, to be added to the existing coarse coalwashing plant of TCMC;

(iii) provision and installation of an air separation unit tobe added to the existing handpicking and dry-screeningfacilities of OCMC;

(iv) replacement of equipment and expansion of the Nagy-manyok briquetting plant of MCMC; and

(v) provision and installation of coking coal fines flota-tion equipment and improvement of equipment at theexisting washing plant of MCMC.

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Part C: Substitution of Coal for Oil in the Alumina Industry

Provision and installation of a coal-fired boiler and aturbogenerator of 17 MW capacity at the Almasfuzito aluminaplant.

Part D: Substitution of Natural Gas for Oil and Other Fuels

(i) Connection of ten (10) towns and sixteen (16) indus-trial enterprises to main natural gas supply lines;

(ii) laying of natural gas distribution systems within thetowns referred to in paragraph (i) hereof to connect116 small enterprises;

(iii) connection to main gas supply lines and laying distri-bution systems required to bring about 72 million m3 ofgas to consumers to be determined by agreement betweenthe Bank and the Borrower;

(iv) connection of the town of Sopron to a main natural gassupply line for the purpose of converting its gassystem from the reforming of naphta and liquid petro-leum gas to the reforming of natural gas, and laying ofnatural gas distribution systems to connect 20 indus-trial enterprises; and

(v) conversion to natural gas of the burning systems of the16 industrial enterprises, the 116 enterprises and the20 industrial enterprises referred to in paragraphs(i), (ii) and (iv) hereof, respectively.

Part E: Energy Diversification and Conservationin the Petroleum Refining Industry

(i) Supply and installation at the Danube Refinery of avisbreaker unit to convert about 700,000 tpy of vacuumresidue into about 685,000 tpy of usable heavy fueloil; and

(ii) carrying out of energy conservation measures at theDanube refinery including modernization of tube fur-naces, process modification, provision of heat exchang-ers and insulation, improvements of steam heatingsystems and a control system for electric power con-sumption.

- 24 -

Part F: Institution Building

(i) Carrying out energy diversification and conservationstudies in the various subsectors of the industrialsector including, inter alia, the petroleum refiningand iron and steel subsectors, and formulating on thebasis thereof detailed components of the Borrower'slong-term program for industrial energy diversificationand conservation;

(ii) establishment within AEEF of an energy conservationcenter, and the provision of experts' services and lab-oratory equipment for monitoring energy use; and

(iii) carrying out training programs in Hungary and abroadfor the staff of EEA, AEEF and other institutes andenterprises.

Part G: Technology Development

(i) Carrying out of a coal combustion test for aluminaplant steam raising equipment in order to select theappropriate technology for the coal-fired boilerincluded under Part C hereof;

(ii) provision and installation of a pilot fluidized bedboiler plant at Gyor; and

(iii) carrying out of a processing test for the production ofbrown coal coke in rotary kilns and a techno-economicstudy of that process on the basis of such test, and ifwarranted on the basis of said study, modification of asemi-industrial scale rotary kiln at Tatabanya.

The Project is expected to be completed by December, 1987.

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SCHEDULE 3

Amortization Schedule

Payment of PrincipalDate of Payment Due (Expressed in dollars)*

On each March 1 and September 1

beginning March 1, 1987through March 1, 1998 4,540,000

On September 1, 1998 4,580,000

* The figures in this column represent dollar equivalentsdetermined as of the respective dates of withdrawals; seeGeneral Conditions, Section 3.0'.0

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Premiuas on Prepayment

The following percentages are specified as the premiumspayable on repayment in advance of maturity of any portion of theprincipal amount of the Loan pursuant to Section 3.04 (b) of theGeneral Conditions:

Time of Prepayment Premium

The interest rate (ex-pressed as a percentageper annum) applicable tothe balance outstandingon the Loan on the day

of prepayment multipliedby:

Not more than three years 0.20

before maturity

More than three years but 0.40not more than six yearsbefore maturity

More than six years but 0.73not more than elevenyears before maturity

More than eleven years but 0.87not more than thirteenyears before maturity

More than thirteen years 1.00before maturity

- 27 -

SCHEDULE 4

Procurement

A. International Competitive Bidding

1. Except as provided in Part C hereof, goods shall be procuredunder contracts awarded in accordance with procedures consistentwith those set forth in the current edition of the "Guidelinesfor Procurement under World Bank Loans and IDA Credits" publishedby the Bank in March 1977 (hereinafter called the Guidelines), onthe basis of international competitive bidding as described inPart A of the Guidelines.

2. For goods and works to be procured on the basis of inter-national competitive bidding, in addition to the requirements ofparagraph 1.2 of the Guidelines, the Borrower shall prepare andforward to the Bank as soon as possible, .and in any event notlater than 60 days prior to the date of availability to thepublic of the first tender or prequalification documents relatingthereto, as the case may be, a general procurement notice, insuch form and detail and containing such information as the Bankshall reasonably request; the Bank will arrange for the publica-tion of such notice in order to provide timely notification toprospective bidders of the opportunity to bid for the goods andworks in question. The Borrower shall provide the necessaryinformation to update such notice annually so long as any goodsor works remain to be procured on the basis of internationalcompetitive bidding.

3. For the purpose of evaluation and comparison of bids for thesupply of goods to be procured on the basis of international com-petitive bidding: (i) bidders shall be required to state in theirbid the c.i.f. (delivery at frontier) price for the importedgoods, or the ex-factory price or off-the-shelf price of othergoods, offered in such bid; (ii) customs duties and other importtaxes levied in connection with the importation, or the sales andsimilar taxes levied in connection with the sale or delivery,pursuant to the bid, of the goods shall not be taken into accountin the evaluation of the bids; and (iii) the cost of inlandfreight and other expenditures incidental to the delivery ofgoods to the place of their use or installation shall be includ-ed.

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B. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proce-dures described in Part A of this Schedule, goods manufactured inHungary may be granted a margin of preference in accordance with,and subject to, the following provisions:

1. All bidding documents for the procurement of goods shallclearly indicate any preference which would be granted, theinformation required to establish the eligibility of a bid for

such preference and the following methods and stages that will befollowed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classified in oneof the following three groups:

(1) Group A: bids offering goods manufactured in Hungary ifthe bidder shall have established to the satisfactionof the Borrower and the Bank that the manufacturingcost of such goods includes a value added in Hungaryequal to at least 20% of the ex-factory bid price ofsuch goods.

(2) Group B: all other domestic bids.

(3) Group C: bids offering any other goods.

3. In order to determine the lowest evaluated bid of eachgroup, all evaluated bids in each group shall first be comparedamong themselves, without taking into account customs duties andother import taxes levied in connection with the importation, andsales and similar taxes levied in connection with the sale or

delivery, pursuant to the bids, of the goods. Such lowest eval-uated bids shall then be compared with each other, and if, as aresult of this comparison, a bid from group A or group B is thelowest, it shall be selected for the award.

4. If, as a result of the comparison under paragraph 3 above,the lowest bid is a bid from group C, all group C bids shall befurther compared with the lowest evaluated bid from group A afteradding to the evaluated bid price of the imported goods offeredin each group C bid, for the purpose of this further comparisononly, an amount equal to: (i) the amount of customs duties andother import taxes which a non-exempt importer would have to payfor the importation of the goods offered in such group C bid; or

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(ii) 15% of the c.i.f. bid price of such goods if said customsduties and taxes exceed 15% of such price. If the group A bid insuch further comparison is the lowest, it shall be selected forthe award; if not, the bid from group C which as a result of thecomparison under paragraph 3 is the lowest evaluated bid shall beselected.

C. Other Procurement Procedures

Contracts for goods estimated to cost the equivalent of$100,000 or less each and, with the Bank's prior approval, con-tracts for proprietary or critical items, may be awarded on thebasis of limited international bidding procedures satisfactory tothe Bank on the basis of evaluation and comparison of bids from alist of at least three qualified suppliers from three sourceseligible under the Guidelines in accordance with the proceduresset forth in Part A of the Guidelines (excluding paragraphs 1.2and 3.9 thereof) and paragraph A.3 of this Schedule, providedthat the cost of all such contracts shall not exceed in theaggregate the equivalent of $11,000,000.

D. Review of Procurement Decisions by the Bank

1. Review of invitations to bid and of proposed awards andfinal contracts:

With respect to all contracts for equipment and materialsestimated to cost the equivalent of $200,000 or more each:

(a) Before bids are invited, the Borrower shall furnish orcause to be furnished, to the Bank, for its comments, the text ofthe invitations to bid and the specifications and other biddingdocuments, together with a description of the advertising proce-dures to be followed for the bidding, and shall make such modifi-cations in the said documents or procedures as the Bank shallreasonably request. Any further modification to the bidding docu-ments shall require the Bank's concurrence before it is issued tothe prospective bidders.

(b) After bids have been received and evaluated, the Bor-rower shall, before a final decision on the award is made, informthe Bank of the name of the bidder to which it intends to awardthe contract and shall furnish to the Bank, in sufficient timefor its review, a detailed report, by the concerned engineeringagency designated pursuant to Section 3.06 (b) of this Agreement,

- 30 -

on the evaluation and comparison of the bids received, togetherwith the recommendations for award of the said engineering agencyand such other information as the Bank shall reasonably request.The evaluation and comparison of bids for the boiler providedunder Part C of the Project shall include a technical and eco-nomic evaluation of the alternative technologies offered in suchbids. The Bank shall, if it determines that the intended awardwould be inconsistent with the Guidelines or this Schedule,promptly inform the Borrower and state the reasons for suchdetermination.

(c) The terms and conditions of the contract shall not,without the Bank's concurrence, materially differ from those onwhich bids were asked or prequalification was invited.

(d) Two conformed copies of the contract shall be furnishedto the Bank promptly after its execution and prior to the submis-sion to the Bank of the first application for withdrawal of fundsfrom the Loan Account in respect of such contract.

2. With respect to each contract not governed by the precedingparagraph, the Borrower shall furnish to the Bank, promptlyafter its execution and prior to the submission to the Bank ofthe first application for withdrawal of funds from the LoanAccount in respect of such contract, two conformed copis of suchcontract, together with the analysis of the respective bids,recommendations for award and such other information as the Bankshall reasonably request. The Bank shall, if it determines thatthe award of the contract was not consistent with the Guidelinesor this Schedule, promptly inform the Borrower and state the rea-sons for such determination.

3. Before agreeing to any material modification or waiver ofthe terms and conditions of a contract, or granting an extensionof the stipulated time for performance of such contract, or issu-ing any change order under such contract (except in cases ofextreme urgency) which would increase the cost of the contract bymore than 15% of the original price, the Borrower shall informthe Bank of the proposed modification, waiver, extension orchange order and the reasons therefor. The Bank, if it determinesthat the proposal would be inconsistent with the provisions ofthis Agreement, shall promptly inform the Borrower and state thereasons for its determination.

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SCHEDULE 5

Principal Terms of theSubsidiary Loan Agreements

The following sets forth the principal terms and conditionsunder which the proceeds of the Loan allocated for Parts Athrough E and Part G (ii) of the Project shall be relent by theBorrower to NBH, NCMC, TCMC, OCMC, MCMC, MAT, OKGT, SDB and MVMTin accordance with the provisions of Section 3.01 (c) of thisAgreement.

Part I. Particular Terms and Conditions

(1) Part A of the Project

(a) For the purpose of carrying out Part A of theProject, the Borrower shall relend to NBH out of the pro-ceeds of the Loan the amounts allocated from time to time toCategory (1) of the table set forth in paragraph 1 of Sched-ule 1 to this Agreement under a subsidiary loan agreement tobe entered into between the Borrower and NBH under terms andconditions satisfactory to the Bank including, inter alia,the terms and conditions specified under Part II of thisSchedule.

(b) NBH shall relend the proceeds of the Loan sorelent to it by the Borrower to industrial enterprises toassist in the financing of energy-saving projects in accor-dance with the provisions of the Schedule to the NBH ProjectAgreement.

(2) Part B of the Project

(a) For the purpose of carrying out Part B (i) of theProject, the Borrower shall relend to NCMC out of the pro-ceeds of the Loan the amounts allocated from time to time toCategory (2) (a) of the table set forth in paragraph 1 ofSchedule 1 to this Agreement under a subsidiary loan agree-ment to be entered into between the Borrower and NCMC underterms and conditions satisfactory to the Bank including,inter alia, the terms and conditions specified under Part IIof this Schedule.

- 32 -

(b) For the purpose of carrying out Part B (ii) of the

Project, the Borrower shall relend to TCMC out of the pro-

ceeds of the Loan the amounts allocated from time to time to

Category (2) (b) of the table set forth in paragraph 1 of

Schedule 1 to this Agreement under a subsidiary loan agree-ment to be entered into between the Borrower and TCMC under

terms and conditions satisfactory to the Bank including,inter alia, the terms and conditions specified under Part II

of this Schedule.

(c) For the purpose of carrying out Part B (iii) ofthe Project, the Borrower shall relend to OCMC out of the

proceeds of the Loan the amounts allocated from time to time

to Category (2) (c) of the table set forth in paragraph 1 of

Schedule 1 to this Agreement under a subsidiary loan agree-

ment to be entered into between the Borrower and OCMC under

terms and conditions satisfactory to the Bank including,

inter alia, the terms and conditions specified under Part II

of this Schedule.

(d) For the purpose of carrying out Part B (iv) and(v) of the Project, the Borrower shall relend to MCMC out of

the proceeds of the Loan the amounts allocated from time to

time to Category (2) (d) of the table set forth in para-

graph 1 of Schedule 1 to this Agreement under a subsidiary

loan agreement to be entered into between the Borrower and

MCMC under terms and conditions satisfactory to the Bank

including, inter alia, the terms and conditions specified

under Part II of this Schedule.

(3) Part C of the Project

For the purpose of carrying out Part C of the Project,

the Borrower shall relend to MAT out of the proceeds of the

Loan the amounts allocated from time to time to Category

(3) of the table set forth in paragraph 1 of Schedule 1 to

this Agreement under a subsidiary loan agreement to be

entered into between the Borrower and MAT under terms and

conditions satisfactory to the Bank including, inter alia,

the terms and conditions specified under Part II of this

Schedule.

(4) Parts D and E of the Project

(a) For the purpose of carrying out Parts D (i)

through (iv) and E of the Project, the Borrower shall relend

- 33 -

to OKGT out of the proceeds of the Loan the amounts allo-cated from time to time to Category (4) (a) and (b) andCategory (5) of the table set forth in paragraph 1 of Sched-ule 1 to this Agreement under a subsidiary loan agreement tobe entered into between the Borrower and OKGT under termsand conditions satisfactory to the Bank including, interalia, the terms and conditions specified under Part II ofthis Schedule.

(b) For the purpose of carrying out Part D (v) of theProject, the Borrower shall relend to SDB out of the pro-ceeds of the Loan the amounts allocated from time to time toCategory (4) (c) and (d) of the table set forth in para-graph 1 of Schedule 1 to this Agreement under a subsidiaryloan agreement to be entered into between the Borrower andSDB under terms and conditions satisfactory to the Bankincluding, inter alia, the terms and conditions specifiedunder Part II of this Schedule.

(c) SDB shall relend the proceeds of the Loan sorelent to it by the Borrower to the industrial enterprisesreferred to under Part D (v) of the Project to finance theconversion of the burning systems of said enterprises tonatural gas in accordance with the provisions of the Sched-ule to the SDB Project Agreement.

(5) Part G (ii) of the Project

For the purpose of carrying out Part G (ii) of theProject, the Borrower shall relend to MVMT out of the pro-ceeds of the Loan the amounts allocated from time to time toCategory 6 (b) of the table set forth in paragraph 1 ofSchedule 1 to this Agreement under a subsidiary loan agree-ment to be entered into between the Borrower and MVMT underterms and conditions satisfactory to the Bank including,inter alia, the terms and conditions specified under Part IIof this Schedule. The MVMT Subsidiary Loan Agreement shallprovide that the Borrower, represented by EEA, shall havethe overall responsibility over the installation and theoperation of the pilot fluidized bed boiler provided underPart G (ii) of the Project and MVMT shall carry out the coaltesting program in said boiler as such program shall havebeen determined by EEA.

- 34 -

Part II. General Terms and Conditions of theSubsidiary Loan Agreements

(a) The principal amounts of the Subsidiary Loansshall be repaid to the Borrower over a period of fifteenyears from the date of this Agreement, including a graceperiod of three years.

(b) (i) NBH and SDB shall pay interest at the rateapplicable to the Loan from time to time pursuant to Section2.07 of this Agreement; and (ii) MAT, OKGT, the Companiesand MVMT shall pay interest at a rate of not less than 14%per annum on the principal amount of their respective Sub-sidiary Loans withdrawn and outstanding.

(c) The principal amount of each of the SubsidiaryLoans shall be the equivalent in terms of Forints (deter-mined as of the respective dates of withdrawal) of the cur-rency or currencies withdrawn from the Loan Account onaccount of each such Subsidiary Loan.

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 day of TA , 198 3.

FOR SECRETARY