OFFICIAL UMENTS LOAN NUMBER 2351 PAK DOCUMENTS Loan Agreement (Petroleum Exploration Project) between ISLAMIC REPUBLIC OF>'AKISTAN and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated 3O , 1983 LOAN NUMBER 2351 PAK LOAN AGREEMENT AGREEMENT, dated Jv4A, 30 , 1983, between ISLAMIC REPUBLIC OF PAKISTAN acting by its President (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Project will be carried out by the Oil and Gas Development Corporation (hereinafter called OGDC) with the Bor- rower's assistance and, as part of such assistance, the Borrower will make available to OGDC the proceeds of the Loan as herein- after provided; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank and OGDC; NOW THEREFORE the parties hereto hereby agree as follows: 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 Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the Gen- eral Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following addi- tional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and OGDC of even date herewith, as the same may be amended from time to time, and such term includes all schedules to the -2- Project Agreement and all agreements supplemental to the Project Agreement; and (b) "Ordinance" means the Oil and Gas Development Corpora- tion Ordinance, 1961 (Ordinance No. XXXVII of 1961 dated Septem- ber 20, 1961) as may be amended from time to time. 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 fifty-one million five hundred thousand dollars ($51,500,000). 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agcee, procurement of the goo, and works required for the Project and to be financed out of :- proceeds of the Loan shall be governed by the provisions of the Schedule to the Project Agreement. Section 2.04. The Closing Date shall be March 31, 1987 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 one hundred twenty-eight thousand four hundred twenty-nine dollars ($128,429). (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 per cent (3/4 of -3- 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. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.08 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost" of Qualified Borrowings means the cost, expressed as a percentage per annum, as reasonably determined by the Bank, provided that the amount of $8,520.5 million referred to in (iii) (B) hereunder shall be reckoned at a cost of 10.93% per annum. (iii) "Qualified Borrowings" means: (A) outstanding borrowings 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 the Bank between July 1, 1981 and June 30, 1982) less any part thereof repaid earlier than July 1, 1985. (iv) "Semester" means the first six months or the second six months of a calendar year. Section 2.08. Interest and other charges shall be payable semiannually on March 1 and September 1 in each year. Section 2.09. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.10. The Chairman of OGDC or his nominee is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of th- General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Bor- rower shall cause OGDC to perform in accordance with the pro- visions of the Project Agreement all the obligations of OGDC therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable OGDC to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower shall, for the purpose of carrying out the Project, make available to OGDC the proceeds of the Loan under terms and conditions satisfactory to the Bank. Section 3.02. The Borrower shall make available to OGDC, on a timely basis, a sum equivalent to $10,000,000 in suitable foreign currency for the purchase of tubular materials required for the Project. Section 3.03. The Borrower shall engage consultants to prepare by June 30, 1984, in accordance with terms of reference satisfactory to the Bank, and thereafter submit to the Bank, a feasibility study for the development of poor-quality gas fields. Section 3.04. The Borrower shall: (a) in consultation with the Bank, develop by July 31, 1984 a plan for a promotional campaign to increase private sector investment in the exploration of oil and gas; (b) thereafter implement or cause to be implemented said plan; and (c) if during the implementation of the Project, a private oil company is granted a license to carry out exploration within -5- any area selected for exploration under the Project, utilize the proceeds of the Loan allocated to carry out such exploration for a substitute exploration program satisfactory to the Borrower and the Bank. Section 3.05. The Borrower shall ensure that the oil prices for oil discovered as a result of the Project shall be equal to that of Saudi market crude less a domestic market discount to be determined at the time of commercial discovery. Such discount shall be no greater than that applied to private companies operating in the same geological zone or, in the absence of such cases, in an area nearest to the areas of such commercial dis- covery by OGDC. Section 3.06. The Borrower shall ensure that the gas prices for gas discovered as a result of the Project shall be estab- lished in accordance with a base price formula satisfactory to the Bank, such base price to be adjusted to reflect changes in world oil prices. Section 3.07. The Borrower shall not cause OGDC to transfer any of its earnings from operations to the Borrower unless OGDC has met its operating costs, debt service requirements and a rea- sonable portion of its development and exploration expenditures from internally generated funds. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit 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 cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be -6- made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property or as security for the payment of debt incurred for the purpose of financing the purchase of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the accoutnLt or benefit of, the Borrower or any such subdivision, including gold and foreign exchange assets held by the State Bank of Pakistan or any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. 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 specified pursuant to paragraph (k) thereof: (a) OGDC shall have failed to perform any of its obliga- tions under the Project Agreement. (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that OGDC will be able to perform its obligations under the Project Agreement. (c) The Ordinance shall have been -amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of OGDC to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of OGDC or for the suspension of its operations. -7- Section 5.02. For the purposes of Section 7.01 of the Gen- eral Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) the event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of 60 days after notice shall have been given by the Bank to the Bor- rower and OGDC; and (b) any event specified in paragraph (c) or (d) of Section i 01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: the Executive Committee of the National Economic Council shall have approved the PC-1 document with respect to the Project. Section 6.02. The following is specified as an additional matter, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that the Project Agreement has been duly authorized or ratified by OGDC, and is legally binding upon the Bank and OGDC in accordance with its terms. Section 6.03. The da%te 4 A 1 ' ? Iq &q, is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Secretary to the Government of Pakistan, Economic Affairs Division of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions. -8- For the Borrower: Secretary to the Governrnt of Pakistan Economic Affairs Dpiision Islamabad, Pakistan Cable address: Telex: ECONOMIC EC DIV-05-634 Islamabad For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Was'lngton, D.C. 248423 (RCA) or 64145 (WUI) -9- 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. ISLAMIC REPUBLIC OF PAKISTAN B y (5)6~ ~ Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /g/ A)~a t Regional Vice President South Asia - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Oil field services, 22,600,000 100% of foreign engineering and expenditures consultants (2) Equipment, 20,900,000 100% of foreign materials and expenditures and spare parts 100% of local expenditures (ex- factory cost) (3) Seismic data 2,900,000 100% of foreign processing system expenditures (4) Fee 128,429 Amount due under Section 2.05 of this Agreement (5) Unallocated 4,971,571 TOTAL 51,500,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; and - 11 - (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the 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 Loan shall not be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; on this basis, if the amount of any such taxes levied on or in respect of items in any Category decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the dis- bursement percentage then applicable to such Category as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no withdr-wals shall be made in respect of expenditures made prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if. the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insuf- ficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allo- cated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have be2n made. 6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditure for such item shall be financed out of the proceeds of the Loan, and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 12 - SCHEDULE 2 Description of the Project The Project consists of the following: Part A: Petroleum Exploration Drilling of six exploratory wells to test structures for hydrocarbon deposits. Part B: Basin and Seismic Studies 1. Basin studies to identify petroleum prospects. 2. Regional seismic studies to record about 3,000 km of seismic profiles to identify new exploration targets. Part C: Exploration Promotion Program Program to promote exploration by the international oil industry. The Project is expected to be completed by September 30, 1986. - 13 - SCHEDULE 3 Amortization Schedule Payment of Principal Date of Payment Due (Expressed in dollars)* On each March 1 and September 1 beginning March 1, 1989 through March 1, 2003 $1,715,000 On September 1, 2003 $1,765,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal; see General Conditions, Section 3.04. - 14 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The interest rate (ex- pressed as a percentage per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years 0.15 before maturity More than three years but 0.30 not more than six years before maturity More than six years but 0.55 not more than 11 years before maturity More than 11 years but not 0.80 more than 16 years before maturity More than 16 years but not 0.90 more than 18 years before maturity More than 18 years before 1.00 maturity 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 30 day of O (P198 I FOR SECRETARY