CONFORMED COPY LOAN NUMBER 1396 HO Loan Agreement (Third Port Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and EMPRESA NACIONAL PORTUARIA Dated April 22, 1977 LOAN AGREEMENT AGREEMENT, dated April 22, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and EMPRESA NACIONAL PORTUARIA (hereinafter called the Borrower). WHEREAS (A) by the Development Credit Agreement of even date herewith between Republic of Honduras and the International Development Association (hereinafter called the Development Credit Agreement), the Association has agreed to lend to the Republic of Honduras a credit (hereinafter called the Credit) in an amount in various currencies equivalent to five million dollars ($5,000,000) on the terms and conditions set forth in the Development Credit Agreement, to assist in the financing of the Project described in Schedule 2 to this Agreement (hereinafter called the Project); (B) by the Loan Agreement of even date herewith between Republic of Honduras and the Bank (hereinafter called the Intermediate Term Loan Agreement), the Bank has agreed to lend to the Republic of Honduras a loan (hereinafter called the Intermediate Term Loan) in an amount in various currencies equivalent to five million dollars ($5,000,000) on the terms and conditions set forth in the Intermediate Term Loan Agreement, to assist in the financing of the Project; -2- (C) the Republic of Honduras will make available the proceeds of such credit and loan to the Borrower, for purposes of carrying out the Project described in Schedule 2 to this Agreement; (D) the Borrower has requested the Bank to assist in the financing of the foreign exchange cost of the Project by making the Loan as hereinafter provided; (E) the Bank and the Borrower intend that the proceeds of the credit be disbursed on account of expenditures on the Project before disbursements of the proceeds of the Loan provided for in this Agreement are made; and (F) the Bank and the Borrower intend that the proceeds of this Loan and of the Intermediate Term Loan be disbursed pro rata on the basis of 7:5 ratio; NOW THEREFORE the parties hereto hereby agree as follows: -3- ARTICLE I Guneral Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the following modification thereof (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions): Section 2.01. (11) is deleted and the following is substituted therefor: "11. The term "Project" means the project or projects or program or programs for which the Loan is granted, as described in the Loan Agreement and as the description thereof shall be amended from time to time by agreement between the Guarantor, the Bank, the Association, and the Borrower." Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings: -4- (a) "bonds" means any certificates or other evidences of debt issued by the Borrower for the purpose of assieting in the financing of the Borrower 's investments; (b) "Banco Central" means Banco Central de La Repdblica de Honduras; (c) "fiscal year" means the Borrower's fiscal year, which begins on January 1 and ends on December 31; and (d) "Subsidiary Loan Agreement" means the agreement or agreements to be entered into between the Borrower and the Guarantor pursuant to Section 3.01 (b) of the Intermediate Term Loan Agreement and Section 3.02 of the Development Credit Agreement. -5- 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 seven million dollars ($7,000,000). 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 Guarantor, the Bank and the Borrower, for expenditures 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 proceeds of the Loan. Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for civil works to be financed out of the proceeds of the Loan, shall be procured in accordance with the provisions of Schedule 4 to this Agreement. Section 2.04. The Closing Date shall be December 31, 1980 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. - 6 - Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and one half per cent (8.50%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on June 15 and December 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. -7- ARTICLE III Execution of the Project Section 3.01. (a) The Borrower shall carry out the Project substantially in accordance with a timetable satisfactory to the Bank, with due diligence and efficiency, and in conformity with appropriate engineering, financial and port practices. Section 3.02. In order to assist the Borrower in the detailed engineering and supervision of construction under Parts A and B of the Project, and in the carrying out of Part C of the Project, the Borrower shall employ engineering and port consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank. Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods. (b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project. -8- Section 3.04. Except as the Bank shall otherwise agree, the Borrower shall not enter into a contract for the civil works under Part B of the Project until it has entered into an agreement, satisfactory to the Bank, with the sugar companies which will utilize the San Lorenzo port facilities, regarding a minimum tonnage of exports of sugar and molasses. Section 3.05. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and construction and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) The Borrower: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. - 9 - (c) The Borrower shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property and equipment of the Borrower and any relevant records and documents. Section 3.06. The Borrower shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, the Borrower shall not take or concur ii any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 3.07. The Borrower shall take all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for the construction and operation of the facilities included in the Project and shall furnish to the Bank, promptly after such acquisition, evidence satisfactory to the Bank that such land and rights in respect of land are available for purposes related to the Project. - 10 - ARTICLE IV Management and Operations of the Borrower Section 4.01. The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 4.02. The Borrower shall at all times conduct its business under competent and experienced management and carry on its operations in accordance with appropriate financial, engineering and port practices and with the assistance of adequate, competent and experienced staff. Section 4.03. The Borrower shall operate and maintain its installations, equipment and other property, and from time to time make all necessary renewals thereof and repairs thereto, in accordance with appropriate engineering and port practices. Section 4.04. The Borrower shall not, without the prior consent of the Bank, sell or otherwise dispose of any of its assets, except in the ordinary course of its business. - 11 - ARTICLE V Financial Covenants Section 5.01. (a) The Borrower shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. (b) Without limitation or restriction upon the provisions of the preceding paragraph (a) hereof, the Borrower shall (i) keep separate accounts in respect of each of its ports and in respect of each of its major port development projects; and (ii) segregate within such accounts port expenses and investments from non-port expenses and investments. Section 5.02. The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified cGpies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably - 12 - requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section 5.03. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt, except as otherwise disclosed in writing to the Bank. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if the Borrower shall create any lien on any of its assets as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the principal of, and interest and other charges on, the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the - 13 - ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 5.04. The Borrower shall, no later than October 1, 1977, and at least once every three years thereafter, revalue its assets (including land) in a manner satisfactory to the Bank. Section 5.05. The Borrower shall, no later than October 1, 1977, put into operation a cost accounting system satisfactory to the Bank. Section 5.06. (a) Except as the Bank shall otherwise agree, the Borrower shall establish and maintain, or take all necessary steps to establish and maintain, such charges for the provision of its port services and port facilities as shall be necessary to provide the Borrower with revenue sufficient to cover all operating and administrative expenses and charges related to port operations, including taxes and levies, if any, adequate maintenance and depreciation, and yield a rate of return on the average value of its total net fixed port assets in operation of not less than eight per cent (8%) per annum. (b) Except as the Bank shall otherwise agree, the Borrower shall retain, solely for the purpose of investment in port services and port facilities, such portion of its net operating income for each fiscal year as shall represent at least eight per cent (8%) of the average of the value of net fixed port assets in operation at the beginning and at the end of that year. - 14 - (c) For the purposes of this Section: (i) the annual rate of return shall be calculated for each fiscal year by relating net operating income for that year to the average of the value of net fixed port assets in operation at the beginning and at the end of that year; (ii) the term "net operating income" means the gross operating revenues from the provision of port services and port facilities, less all operating, administrative and overhead expenses and charges related to port operations, including adequate maintenance, depreciation and taxes (if any), but before deduction of interest and other charges on debt; (iii) the term "value of net fixed port assets in operation" means the value of gross fixed port assets in operation as revalued from time to time based on appropriate valuation methods approved by the Bank, less accumulated depreciation; and (iv) for the purposes of this Article, the terms "port services", "port facilities", "port operations", and "port assets" mean all services, facilities, operations and assets of the Borrower that are related to shipping and the transfer of cargo between ship and shore. - 15 - Section 5.07. The Borrower shall use its best efforts to ensure that the Borrower's operations which are unrelated to the furnishing of port services shall be conducted in such a manner that the gross revenues from such operations shall be sufficient to pay for all expenses of such operations, including: (a) operating, administrative and overhead expenses and charges, including adequate maintenance, depreciation and taxes (if any); and (b) interest and other charges on debt. Section 5.08. Except as the Bank shall otherwise agree, the Borrower shall, until completion of the Project, limit its capital expenditures, other than those included in the Project or in other projects financed by the Bank, to a maximum in the aggregate of the equivalent of five hundred thousand dollars ($500,000) during each fiscal year. Section 5.09. The Borrower shall: (a) no later than July 1, 1978, put into effect, and continue to employ thereafter, a tariff structure which shall be reasonably related to the Borrower's costs of providing services and facilities related to port operations; and (b) advise the Bank prior to putting into effect any change in the levels of rates charged for the provision of port services and port facilities. - 16 - Section 5.10. (a) Except as the Bank shall otherwise agree. the Borrower shall not incur any debt unless its net cash generation from operations for the fiscal year immediately preceding such incurrence or for a later twelve-month period ended prior to such incurrence, whichever is the greater, shall be not less than 1.75 times the maximum debt service requirements for any succeeding fiscal year on all debt including the debt to be incurred. (b) For the purposes of this Section: (i) the term "debt" means all debt of the Borrower, including debt for the service of which the Borrower is responsible, maturing by its terms more than one year after the date on which it is originally incurred; (ii) 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 or, in the case of a guarantee of debt, on the date of execution and delivery of the contract providing for such guarantee; (iii) the term "net cash generation from operations" means gross revenues from all sources, adjusted to take account of the level of charges of the - 17 - Borrower in effect at the time of the incurrence of debt even though they were not in effect during the fiscal year or twelve-month period to which such revenues relate, less all operating, administrative and overhead expenses including adequate maintenance and taxes (if any), but before deduction of depreciation and debt service requirements; (iv) the term "debt service requirements" means the aggregate amount of amortization of, and interest and other charges on debt; and (v) whenever it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt or, if such other currency is not so obtainable, at the rate of exchange that will be reasonably determined by the Bank. Section 5.11. (a) The terms and conditions of any bonds issued by the Borrower for the purposes of assisting in financing the Borrower's investments, including the Project, shall be - 18 - established by prior agreement between the Bank and the Borrower, and shall be subject to the approval of Banco Central in accordance with the laws of the Guarantor. (b) In the event that the Borrower shall issue bonds in accordance with paragraph (a) hereof, the Borrower shall, during each fiscal year following the year in which such bonds are first issued, set aside from its annual cash surplus an amount sufficient to accumulate a fund for the repayment of any such bonds upon maturity. (c) For purposes of this Section "annual cash surplus" means annual net operating income, as that term is defined in Section 5.06 (b) (ii) of this Agreement, less annual debt service requirements, as that term is defined in Section 5.10 (b) (iv) of this Agreement. - 19 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) Decree No. 40 of the Guarantor, published on December 1, 1965, establishing the Borrower, shall have been amended, suspended or abrogated so as to affect materially and adversely the carrying out or operation of the Project or the financial position of the Borrower; and (b) The Borrower shall have failed to make any payments due and payable to holders of bonds in violation of the terms thereof. Section 6.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified pursuant to paragraph (h) thereof, namely, that any event specified in paragraph (a) or (b) of Section 6.01 of this Agreement shall occur. - 20 - ARTICLE VII Effective Date; Termination Section 7.01. 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, namely, that all conditions precedent to the effectiveness of the Development Credit Agreement and of the Intermediate Term Loan Agreement have been fulfilled, subject only to the effectiveness of this Agreement. Section 7.02. The Borrower undertakes towards the International Development Association, and the Bank hereby accepts for the Association, mutatis mutandis, the obligations it is hereunder undertaking towards the Bank pursuant to Articles III, IV and V of this Agreement, and agree that such obligations towards the Association, notwithstanding the earlier termination of this Agreement, shall 'only terminate on a date 20 years after the date of this Agreement or on the date the Development Credit Agreement shall terminate, whichever shall be the earlier. Section 7.03. The date July 21, 1977, is hereby specified for the purpose of Section 12.04 of the General Conditions. - 21 - ARTICLE VIII Addresses Section 8.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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) Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Borrower: Empresa Nacional Portuaria Apartado Postal 18 Puerto Cortes Honduras Cable address: Telex: EMPORTUARIA ENAPORTO HT5402 Puerto Cortes - 22 - 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. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ E. Lerdau Acting Regional Vice President Latin America and the Caribbean EMPRESA NACIONAL PORTUARIA By Is! Roberto Lazarus Authorized Representative - 23 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan and of the Intermediate Term Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan and of the Intermediate Term Loan, the allocation of amounts of such proceeds to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan and of the Intermediate Term Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Civil works 5,890,000 49% (2) Equipment 2,750,000 100% of foreign expenditures, or 80% of the ex-factory price of locally manufactured equipment (3) Consulting 500,000 60% services and technical assistance (4) Unallocated 2,860,000 TOTAL 12,000,000 The proceeds of this Loan and of the Intermediate Term Loan shall be disbursed pro rata on the basis of a 7:5 ratio. - 24 - 2. For the purposes of this Schedule the term "foreign expenditures" means expenditures in the currency of any co untry other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower. 3. The disbursement percentages have been calculated in compliance with the policy of the Bank that no proceeds of the Loan or the Interest Subsidy Fund Loan shall be disbursed on account of paymentq for taxes levied by, or in the territory of, the Guarantor on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of such Loans decreases or increases, the Bank may, by notice to the Guarantor and the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, except as the Borrower, the Association, the Bank, and ENP shall otherwise agree, and until all amounts of the Credit shall have been withdrawn or committed, no withdrawals shall be made from the loan accounts for the Loan or the Intermediate Term Loan except under commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions referred to in Section 1.01 of this - 25 - Loan Agreement and Section 1.01 of the Intermediate Term Loan Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the Intermediate Term Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the said Loans then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Guarantor and the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Credit and of the Loan which are then allocated to another Category and which in the opinion of the Association and 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 been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement or in the Intermediate Term Loan Agreement, no expenditures for such item shall be financed out of the proceeds of the said Loans and the - 26 - Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement and the Intermediate Term Loan Agreement, by notice to the Guarantor and the Borrower, cancel such amount of the said Loans 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 said Loans. - 27 - Schedule 2 Description of the Project The Project consists of: Part A: Puerto Castilla (1) Construction of: (a) a wharf about 450 meters long with alongside depth of 10.5 meters below mean low water springs; (b) one transit shed with an area of about 3,000 square meters; (c) one warehouse with an area of about 3,000 square meters; (d) two open-sided lumber sheds with an area of about 6,000 square meters; (e) an office building with an area of about 800 square meters; (f) a maintenance building with an area of about 560 square meters; (g) one palm oil storage tank with a 2,500-ton capacity; (h) one petroleum storage tank with a 2,000-ton capacity; and (i) miscellaneous structures such as guard houses, shelters, pumphouses, gates and fences. (2) Site development, including grading, drai4nage, roadway and utility services. (3) Acquisition and utilization of (a) about 14 forklifts and about 500 wooden pallets for handling 'general cargo; (b) 4 forklifts, 3 tractors and 6 - 28 - flatbed trailers for handling lumber; (c) 3 front-end loaders, 5 dump trucks and one portable loader with a 250 ton-per-hour capacity for handling woodchips; and (d) one used 1200 HP tugboat for berthing operations and one launch for general harbor duties. Part B: San Lorenzo (1) Extension of the pier to provide an additional berth about 145 meters long including necessary dredging alongside the berth, construction of one sugar storage shed (about 76 meters x 31 meters) and 2 molasses tanks with a 3,800 ton capacity each. (2) Acquisition and utilization of (a) one 15-ton mobile crane, five 5-ton forklifts, 4 tractors, 10 flatbed trailers and about 500 pallets, for handling lumber and general cargo; (b) two 15- ton mobile cranes, two 2.5 cubic meters front end loaders, 2 tractors, 5 flatbed trailers and 20 steel buckets, for handling sugar; (c) pumping equipment with a 150-ton-per-hour capacity, for handling molasses; and (d) 6 light buoys for aiding navigation. - 29 - Part C. Technical Assistance (1) A study to determine the optimal depth of the access channel for San Lorenzo. (2) Preparation of a manual detailing the procedures and documentation for container operations. (3) Training of the Borrower's staff in the management and operation of the container berth and consolidation depot at Puerto Cortes. The Project is expected to be completed by September 30, 1979. - 30 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each June 15 and December 15 beginning June 15, 1982 through December 15, 1996 225,000 On June 15, 1997 250,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 31 - 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 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.25% More than three years but not more than six years before maturity 2.55% More than six years but not more than eleven years before maturity 4.65% More than eleven years but not more than sixteen years before maturity 6.80% More than sixteen years but not more than eighteen years before maturity 7.65% More than eighteen years before maturity 8.50% - 32 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided in Part B hereof, contracts for the purchase of goods or for civil works shall be procured in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding. 2. Bidders for the civil works included in Part A of the Project shall be prequalified as described in paragraph 1.3 of Part A of the Guidelines. 3. The Borrower shall not invite bids for the civil works under Part A of the Project until responsive bids have been received by the Guarantor for the construction of the roads between San Esteban, Corocito and Puerto Castilla. B. Other Procurement Procedures 1. The civil works included in Part B of the Project may be carried out, under a contract satisfactory to the Bank, by the contractor who is carrying out the works at San Lorenzo financed under the Loan Agreement (Second Port Project) dated - 33 - June 25, 1971, between the Bank and the Borrower. In the event that the Borrower is unable to enter into a satisfactory contract with such contractor, the civil works included in Part B of the Project shall be awarded in accordance with the provisions of paragraph A (1) of this Schedule. 2. The tugboat included in Part A (3) (d) of the Project may be procured through negotiations with suppliers. C. Evaluation and Comparison of Bids for Goods 1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods; (ii) customs duties and other import taxes on imported goods shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included. 2. Goods manufactured in Honduras may be granted a margin of preference in accordance with, and subject to, the following provisions: (a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. - 34 - (b) After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in Honduras if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Honduras equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other bids offering goods manufactured in Honduras. (3) Group C: bids offering any other goods. (c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. - 35 - (d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph (c) is the lowest evaluated bid shall be selected. D. Review of Procurement Decisions by the Bank 1. Review of prequalification. The Borrower shall, before qualification is invited, inform the Bank in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification shall be furnished by the Borrower to the Bank for its comments before the applicants are notified of - 36 - the Borrower's decision, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for civil works estimated to cost the equivalent of $250,000 or more, and for equipment estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines - 37 - that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination.