Page 1 CONFORMED COPY LOAN NUMBER 3907 IN Loan Agreement (Second Madras Water Supply Project) between INDIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated November 20, 1995 LOAN NUMBER 3907 IN LOAN AGREEMENT AGREEMENT, dated November 20, 1995, between INDIA, Acting by its President (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Borrower, having satisfied itself as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; (B) the Project will be carried out in the State of Tamil Nadu with the Borrower's assistance and, as part of such assistance, the Borrower will make available to the State of Tamil Nadu the proceeds of the Loan as provided in this Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement, in the Tamil Nadu Agreement of even date herewith between the Bank and the State of Tamil Nadu, and the Project Agreement of even date herewith among the Bank, the Madras Metropolitan Water Supply and Sewerage Board (Metro Water), and the Tamil Nadu Water Supply and Drainage Board (TWAD); NOW THEREFORE the parties hereto hereby agree as follows: Page 2 ARTICLE 1 General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the modifications thereto set forth below (the General Conditions) constitute an integral part of this Agreement: (a) The last sentence of Section 3.02 is deleted. (b) The second sentence of Section 5.01 is modified to read: "Except as the Bank and the Borrower shall otherwise agree, no withdrawals shall be made: (a) on account of expenditures in the territories of any country which is not a member of the Bank or for goods produced in, or services supplied from, such territories; or (b) for the purpose of any payment to persons or entities, or for any import of goods, if such payment or import, to the knowledge of the Bank, is prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations." (c) In Section 6.02, subparagraph (k) is relettered as subparagraph (l) and a new subparagraph (k) is added to read: "(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be inconsistent with the provisions of Article III, Section 3 of the Bank's Articles of Agreement." Section 1.02. 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: (a) "Tamil Nadu" means the State of Tamil Nadu, a State of India, and any successor thereto; (b) "Tamil Nadu Agreement" means the agreement between the Bank and Tamil Nadu of even date herewith, as the same may be amended from time to time, and such term includes all agreements supplemental to the Tamil Nadu Agreement; and (c) "Metro Water" means the Madras Metropolitan Water Supply and Sewerage Board of Tamil Nadu; (d) "TWAD" means the Tamil Nadu Water Supply and Drainage Board; (e) "Project Agreement" means the agreement among the Bank, Metro Water and TWAD of even date herewith, as the same may be amended from time to time, and such term includes all schedules and agreements supplemental to the Project Agreement; (f) "Subsidiary Loan Agreement" means the agreement to be entered into between Tamil Nadu and Metro Water pursuant to Section 2.02 of the Tamil Nadu Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (g) "Rehabilitation Action Plan" means the resettlement and rehabilitation plan dated April 1995 approved by the Bank for the resettlement and rehabilitation of people affected by the Project; and (h) "Special Account" means the account referred to in Section Page 3 2.02 (b) of this Agreement. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in the Loan Agreement, various currencies that shall have an aggregate value equivalent to the amount of two hundred seventy-five million eight hundred thousand dollars ($275,800,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement 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 described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan. (b) The Borrower may, for the purposes of the Project, open and maintain in dollars a special deposit account in the Reserve Bank of India on terms and conditions satisfactory to the Bank. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. Section 2.03. The Closing Date shall be June 30, 2002 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. 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 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during 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 determined in respect of such Semester. (c) For the purposes of this Section: (i) "Interest Period" means a six-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest Period in which this Agreement is signed. (ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after July 1, 1989 bearing interest rates determined otherwise than as provided in paragraph (a) of this Section. Page 4 (iii) "Semester" means the first six months or the second six months of a calendar year. (d) On such date as the Bank may specify by no less than six months' notice to the Borrower, paragraphs (a), (b) and (c) (iii) of this Section shall be amended to read as follows: "(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period." "(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower of the Cost of Qualified Borrowings determined in respect of such Quarter." "(c) (iii) `Quarter' means a three-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year." Section 2.06. Interest and other charges shall be payable semiannually on February 15 and August 15 in each year. Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, without any limitation or restriction upon any of its other obligations under the Loan Agreement, shall cause Tamil Nadu, and Metro Water and TWAD, to perform in accordance with the respective provisions of the Tamil Nadu and Project Agreements all the obligations of Tamil Nadu, and Metro Water and TWAD, 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 Tamil Nadu, and Metro Water and TWAD, 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 make the proceeds of the Loan available to Tamil Nadu in accordance with the Borroweržs standard arrangements for developmental assistance to the States of India. Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Bank and the Borrower hereby agree that the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) shall be carried out by Tamil Nadu, and Metro Water and TWAD, as the case may be, pursuant to the respective Section 2.03 of the Tamil Nadu and Project Agreements. Page 5 ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made; and (iii) enable the Bank's representatives to examine such records. (b) The Borrower shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Special Account 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 nine months after the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (l) of the General Conditions, the following additional events are specified; (a) Tamil Nadu shall have failed to perform any of its obligations under the Tamil Nadu Agreement. (b) Metro Water and TWAD shall have failed to perform any of their respective obligations under the Project Agreement; (c) 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 Tamil Nadu or Metro Water and TWAD will be able to perform their respective obligations under the Tamil Nadu and Project Agreements; and (d) Tamil Nadu or any other authority having jurisdiction Page 6 shall have taken any action for the dissolution or disestablishment of Metro Water or TWAD or for the suspension of their operations. Section 5.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified: (a) The event specified in paragraphs (a) or (b) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower; and (b) The event specified in paragraph (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of Tamil Nadu and Metro Water; and (b) TWAD has furnished to the Bank final designs and tender documents satisfactory to the Bank for the transmission main, pumping stations and treatment plant to be constructed under the project, which shall include, inter alia, the recommendations of an independent engineering review. Section 6.02. The following are specified as additional matters, 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: (a) that the Tamil Nadu Agreement has been duly authorized or ratified by Tamil Nadu, and is legally binding upon Tamil Nadu in accordance with its terms; (b) that the Project Agreement has been duly authorized or ratified by Metro Water and TWAD, and is legally binding upon Metro Water and TWAD in accordance with its terms; and (c) that the Subsidiary Loan Agreement has been duly authorized or ratified by Tamil Nadu and Metro Water and is legally binding upon Tamil Nadu and Metro Water in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. Any Secretary, Additional Secretary, Joint Secretary, Director, Deputy Secretary or Under Secretary of the Department of Economic Affairs in the Ministry of Finance 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: For the Borrower: Page 7 Secretary to the Government of India Department of Economic Affairs Ministry of Finance New Delhi, India Cable address: Telex: ECOFAIRS 953-31-66175 FINE IN New Delhi 953-31-61430 FINE IN 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 197688 (TRT), Washington, D.C. 248423 (RCA), 64l45 (WUI) or 82987 (FTCC) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, 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. INDIA By /s/ N. Valluri Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Heinz Vergin Acting Regional Vice President South Asia 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) Civil works 245,300,000 64% (2) Equipment and 18,200,000 100% of foreign materials expenditures, 100% of local expenditures (ex-factory cost) and 80% of local Page 8 expenditures for other items pro- cured locally (3) Consultants' 12,300,000 100% services ___________ TOTAL 275,800,000 =========== 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 (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; and 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals, in an aggregate amount not exceeding the equivalent of $8,600,000, may be made on account of payments made for expenditures before that date but after November 1, 1994. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures under contracts not exceeding the equivalent of $500,000 for works, $200,000 for goods, $100,000 for employment of consulting firms and $50,000 for employment of individual consultants, all under such terms and conditions as the Bank shall specify by notice to the Borrower. SCHEDULE 2 Description of the Project The objectives of the Project are to provide urgently needed water to the city of Madras and introduction of improvements to the distribution and conservation of water in the area. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: Part A: Veeranam Tank Carrying out of works to raise the Veeranam embankment by about 0.60 m through excavation of silt from the tank floor; construction of new embankments and improvements of existing embankments; carrying out of works for prevention of wave erosion; restoration of existing embankment; construction of a foreshore embankment and modifications to weirs and spill-way; lining improvements to Vadavar Channel; minor irrigation works. Part B: Transmission, Treatment and Resettlement (i) The construction of a raw water intake and pumping station; rehabilitation of existing underground storage and construction of additional storage; laying of transmission main from the tank to the treatment plant at Vadakkuthu; renovation of old treatment plant with installation of new mechanical and electrical equipment; laying of transmission main to Porur including associated facilities; Page 9 carrying out of small water supply schemes for rural communities near the pipeline. (ii) The resettlement and rehabilitation of persons displaced by the Project so as to ensure the restoration or enhancement of their standard of living up to or above levels enjoyed by them prior to the commencement of the implementation of the Project. (iii) Provision of technical assistance for preparation work, supervision of construction for transmission mains and related facilities, studies for the relocation and rehabilitation of displaced persons. Part C: Distribution and Conservation (i) The construction of a terminal reservoir and pumping station at Porur, and improvements to the city distribution system. (ii) Carrying out of a program of rehabilitation of distribution zones. (iii) Carrying out of a program of conservation, including public awareness, leak detection and repairs, replacements, strengthening, bulk metering and introduction of domestic metering. (iv) Carrying out of studies relating to the distribution and conservation of water, and environmental sanitation, including the preparation of a future project. * * * The Project is expected to be completed by December 31, 2001. SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (Expressed in dollars)* February 15, 2001 5,305,000 August 15, 2001 5,490,000 February 15, 2002 5,685,000 August 15, 2002 5,885,000 February 15, 2003 6,095,000 August 15, 2003 6,310,000 February 15, 2004 6,535,000 August 15, 2004 6,770,000 February 15, 2005 7,010,000 August 15, 2005 7,255,000 February 15, 2006 7,515,000 August 15, 2006 7,780,000 February 15, 2007 8,055,000 August 15, 2007 8,340,000 February 15, 2008 8,635,000 August 15, 2008 8,945,000 February 15, 2009 9,260,000 August 15, 2009 9,590,000 February 15, 2010 9,930,000 August 15, 2010 10,280,000 February 15, 2011 10,645,000 August 15, 2011 11,020,000 February 15, 2012 11,410,000 August 15, 2012 11,815,000 February 15, 2013 12,235,000 Page 10 August 15, 2013 12,670,000 February 15, 2014 13,120,000 August 15, 2014 13,585,000 February 15, 2015 14,065,000 August 15, 2015 14,565,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal. See General Conditions, Sections 3.04 and 4.03. Premiums on Prepayment Pursuant to Section 3.04 (b) of the General Conditions, the premium payable on the principal amount of any maturity of the Loan to be prepaid shall be the percentage specified for the applicable time of prepayment below: Time of Prepayment Premium The interest rate (expressed as a percentage per annum) applicable to 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 SCHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term "eligible Categories" means Categories (1), (2), and (3) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term "eligible expenditures" means expenditures 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 allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term "Authorized Allocation" means an amount equivalent to $12,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule, provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $6,000,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered Page 11 into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $56,000,000. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account Page 12 pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions with respect to the Project, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures. 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.