CONFORMED COPY CREDIT NUMBER 433 BO Project Agreement (Third ENDE Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND EMPRESA NACIONAL DE ELECTRICIDAD S.A. DATED OCTOBER 17, 1973 CONFORMED COPY CREDIT NUMBER 433 BO Project Agreement (Third ENDE Power Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND EMPRESA NACIONAL DE ELECTRICIDAD S.A. DATED OCTOBER 17, 1973 PROJECT AGREEMENT AGREEMENT, dated October 17, 1973, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and EMPRESA NACIONAL DE ELECTRICIDAD S.A. (hereinafter called ENDE). WHEREAS by the Development Credit Agreement of even date herewith between Republic of Bolivia (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to six million dollars ($6,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that ENDE agree to undertake such obligations toward the Association as hereinafter set forth; and WHEREAS ENDE, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth, and the term "subsidiary" means any corporation of which at least a majority of the outstanding voting stock shall be owned, or which shall be effectively controlled, by ENDE or one or more subsidiaries of ENDE or by ENDE and one or more of its subsidiaries. ARTICLE II Execution of the Project Section 2.01. ENDE shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices. 4 Section 2.02. ENDE shall employ consultants acceptable to the Association and ENDE upon terms and conditions satisfactory to the Association and ENDE as follows: (a) engineering consultants to assist ENDE in carrying out Parts A, B and D of the Project; and (b) management consultants to assist ENDE in carrying out Part E of the Project. Section 2.03. In carrying out Parts A, B and C of the Project, ENDE shall employ contractors acceptable to the Association and ENDE upon terms and conditions satisfactory to the Association and ENDE. Section 2.04. Except as the Association shall otherwise agree, the goods and services (other than services of consultants) required for the Project and to be financed out of the proceeds of the Credit, shall be procured on the basis of international competition under procedures consistent with the Guidelines for Procurement under World Bank Loans and IDA Credits, published by the Bank in April 1972, as revised in October 1972, and in accordance with, and subject to, the provisions set forth in Schedule 1 to this Agreement. Section 2.05. (a) ENDE undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to it by the Borrower 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 ENDE to replace or repair such goods. (b) Except as the Association may otherwise agree, ENDE shall cause all goods and services financed out of the proceeds of the Credit relent to it by the Borrower to be used exclusively for the Project. Section 2.06. (a) ENDE shall furnish to the Association promptly upon their preparation, the plans, specifications, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) ENDE: (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 Credit relent to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall, without limitation upon the 5 provisions of Section 5.03 of this Agreement, enable the Association's representatives to examine the Project, the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so relent to it and the goods and services financed out of such proceeds. Section 2.07. ENDE shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ENDE shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.08. ENDE 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 Association, promptly after such acquisition, evidence satisfactory to the Association that such land and rights in respect of land are available for purposes related to the Project. ARTICLE III Management and Operations of ENDE Section 3.01. ENDE shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.02. ENDE shall (i) at all times maintain its existence and right to carry on operations and shall, except as the Association shall otherwise agree, take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business; (ii) operate and maintain all its plants, equipment and property and from time to time make all necessary renewals and repairs thereof, all in accordance with appropriate engineering, public utility, administrative and financial practices; and (iii) at all times manage its affairs, plan its future expansion and maintain its financial position in accordance with appropriate engineering, public utility, administrative and financial practices. Section 3.03. Except as the Association shall otherwise agree, ENDE shall not sell, lease, transfer or assign any of its property or assets, except in the normal course of its business, and shall not engage in any activity other than power generation, transmission and distribution. 6 Section 3.04. Any change of the Gerente General of ENDE shall be made only after prior consultation with the Association. ARTICLE IV Financial Covenants Section 4.01. ENDE shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 4.02. ENDE 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 sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than five months after the end of each such year, (A) certified copies 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 Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of ENDE and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. (a) Except as the Association shall otherwise agree, ENDE shall take all steps necessary or desirable to obtain and maintain electric tariffs designed to produce revenues sufficient to provide it with a rate of return of nine per cent (9%) in accordance with the provisions of the Electricity Code. (b) If, in the opinion of the Association and DINE, the gross book value of ENDE's fixed assets and the amount of accumulated depreciation thereon becomes unrealistic as a result of currency devaluations, changes in prices or other factors, ENDE will adjust such values adequately to reflect such changes in accordance with methods satisfactory to the Associaton and DINE. Section 4.04. (a) Except as the Association shall otherwise agree, ENDE shall not incur any indebtedness unless the net consolidated revenues of ENDE and its subsidiaries (if any) in the twelve consecutive months immediately preceding such incurrence shall be at least 1.5 times the estimated maximum debt service requirements for any succeeding twelve-month period following such incurrence on all indebtedness of ENDE and its subsidiaries (if any), including the indebtedness proposed to be incurred. 7 (b) For the purposes of this Section: (i) the term "indebtedness" shall include the assumption and guarantee of indebtedness and shall mean all indebtedness of ENDE and its subsidiaries (if any) maturing by its terms more than one year after the the date of its incurrence, but excluding any indebtedness between ENDE and its subsidiaries (if any) or between such subsidiaries; (ii) indebtedness shall be deemed to be incurred on the date of execution and delivery of the contract or loan agreement providing for such indebtedness; (iii) the term "net consolidated revenues" shall mean gross revenues from all sources, excluding any revenues arising from the transactions between ENDE and its subsidiaries (if any) or between such subsidiaries, adjusted to take account of electric tariffs in effect at the time of incurrence of indebtedness even though they were not in effect during the twelve consecutive months to which such revenues related, less operating and administrative expenses including provision for taxes, if any, but before provision for depreciation and interest and other charges on debt; (iv) the term "debt service requirements" shall mean the aggregate amount of amortization (including sinking fund contributions), interest and other charges on debt; and (v) whenever for the purposes of this paragraph it shall be necessary to value, in terms of the currency of the Borrower, indebtedness payable in another currency, such valuation shall be made on the basis of the prevailing rate of exchange at which such other currency is, at the time of such valuation, lawfully obtainable for the purposes of servicing such indebtedness. Section 4.05. The obligations to be assumed by ENDE pursuant to the provisions of Section 4.04 of this Agreement shall be applicable to any subsidiary of ENDE as though such obligations were binding on any such subsidiary, and ENDE shall cause any such subsidiary to carry out such obligations. 8 Section 4.06. Except as the Association shall otherwise agree, and until the completion of Part I of the Project, ENDE shall retain all internally generated funds for reinvestment and shall not distribute any cash dividends. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association and ENDE shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association and ENDE shall from time to time, at the request of either party, exchange views through their representatives with regard to the performance of their respective obligations under this Agreement, the administration, operations and financial condition of ENDE and other matters relating to the purpose of the Credit. Section 5.02. The Association and ENDE shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, the performance by either of them of its obligations under this Agreement or the performance by the Borrower and ENDE of their respective obligations under the Subsidiary Loan Agreement. Section 5.03. ENDE shall enable the Association's representatives to examine all plants, sites, works, properties and equipment of ENDE and any relevant records and documents. ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 6.02. (a) This Agreement and all obligations of the Association and of ENDE thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date 20 years after the date of this Agreement. 9 (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a)(ii) of this Section, the Association shall promptly notify ENDE of this event. Section 6.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. ARTICLE VII Miscellaneous Provisions Section 7.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's addess hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. For ENDE: Empresa Nacional de Electricidad S.A. Casilla 565 Cochabamba, Bolivia Cable address: ENELECTRIC Cochabamba 10 Section 7.02. ENDE shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of ENDE, take any action or execute any documents required or permitted to be taken or executed by ENDE pursuant to any of the provisions of this Agreement. Section 7.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s/ Gerald Alter Regional Vice President Latin America and the Caribbean EMPRESA NACIONAL DE ELECTRICIDAD S.A. By /s/ Edmundo Valencia Ibafiez By /s / Juan Josd Loria Authorized Representatives 11 SCHEDULE 1 Procurement A. Contracts Governed by Guidelines 1. With respect to any contract for equipment, material and installation estimated to cost the equivalent of $50,000 or more: (a) Before bids are invited, ENDE shall furnish to the Association, 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 procedure as the Association shall reasonably request. Any further modification to the bidding documents shall require the Association's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, ENDE shall, before a final decision on the award is made, inform the Association of the name of the bidder to whom it intends to award the contract and shall furnish to the Association, in sufficient time for its review, a detailed report, by the consultants referred to in Section 2.02(a) of this Agreement, on the evaluation and comparison of the bids received, together with the recommendations for award of the said consultants, and the reasons for the intended award. The Association shall, if it determines that the intended award would be inconsistent with the procedures set forth or referred to in Section 2.04 of this Agreement, promptly inform ENDE and the Borrower, state the reasons for such determination and advise ENDE of any cancellation pursuant to the provisions of paragraph 4(c) of Schedule 1 to the Development Credit Agreement. (c) The terms and conditions of the contract shall not, without the Association's concurrence, materially differ from those on which bids were asked. (d) Two conformed copies of the contract and any amendments thereof shall be furnished to the Association promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract. 2. With respect to any other contract for equipment, material and installation, ENDE shall furnish to the Association, promptly after its execution and prior to the delivery to the Association of the first application for withdrawal of funds from the Credit Account in respect of any such contract, two conformed copies 13 the lowest evaluated bid of each group. The lowest evaluated bids of each group 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 purposes of award. (c) If, as a result of the comparison under paragraph (b) above, the lowest bid is a bid from Group C, all Group C bids shall be further compared with the lowest bid from Group A, as determined under paragraph (b) above, after adding to the c.i.f. bid price of goods to be imported offered in each Group C bid, for the purpose of this further comparison only, an amount equal to the smaller of (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of goods offered in such Group C bid, or (ii) 15% of the c.i.f. bid price of such goods. If the Group A bid in such further comparison is the lowest, it shall be selected for purposes of award; if not, the lowest bid from Group C, as determined under paragraph (b) above, shall be selected for purposes of award. 3. The bidding documents shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the methods and stages that will be followed in the evaluation and comparison of bids to give effect to such preference.