LOAN NUMBER 9279-CR Loan Agreement (Second Fiscal and Decarbonization Management Development Policy Loan) between REPUBLIC OF COSTA RICA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN AGREEMENT AGREEMENT dated as of the Signature Date between REPUBLIC OF COSTA RICA ("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank") for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). Whereas (A) the Bank has decided to provide this financing on the basis, inter alia, of : (i) the actions which the Borrower has already taken or supported under the Program and which are described in Section IA of Schedule 1 to this Agreement; and (ii) the Borrower's maintenance of an adequate macroeconomic policy framework; and (B) the financing mentioned herein will be available to the Borrower in accordance with the terms of this Agreement to finance budgeted expenditures (other than Excluded Expenditures). The Borrower and the Bank therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. 1,02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II - LOAN 2.01. The Bank agrees to lend to the Borrower the amount of three hundred million Dollars, ($300,000,000), as such amount may be converted from time to time through a Currency Conversion ("Loan"). 2.02. The Front-end Fee is one quarter of one percent (0.25%) of the Loan amount. 2.03 The Commitment Charge is one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance. 2.04. The interest rate is the Reference Rate plus the Variable Spread or such rate as may apply following a Conversion; subject to Section 3.02(e) of the General Conditions. 2.05. The Payment Dates are February 15 and August 15 in each year. 2.06. The principal amount of the Loan shall be repaid in accordance with Schedule 2 to this Agreement. 2.07. Without limitation upon the provisions of Section 5.05 of the General Conditions, the Borrower shall promptly furnish to the Bank such information relating to the provisions of this Article II as the Bank may, from time to time, reasonably request. -1- ARTICLE III -PROGRAM 3.01. The Borrower declares its commitment to the Program and its implementation. To this end, and further to Section 5.05 of the General Conditions: (a) the Borrower and the Bank shall from time to time, at the request of either party, exchange views on the Borrower's macroeconomic policy framework and the progress achieved in carrying out the Program; (b) prior to each such exchange of views, the Borrower shall furnish to the Bank for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Bank shall reasonably request; and (c) without limitation upon paragraph (a) and (b) of this Section, the Borrower shall promptly inform the Bank of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program, including any action specified in Section I of Schedule I to this Agreement. ARTICLE IV - REMEDIES OF THE BANK 4.01. The Additional Event of Suspension consists of the following, namely that a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Condition of Effectiveness consists of the following, namely that the Bank is satisfied with the progress achieved by the Borrower in carrying out the Program and with the adequacy of the Borrower's macroeconomic policy framework. 5.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. ARTICLE VI - REPRESENTATIVE; ADDRESSES 6.01. The Borrower's Representative is its Minister of Finance. 6.02. For purposes of Section 10.01 of the General Conditions: (a) the Borrower's address is: Ministerio de Hacienda Calle 1 y 3, Avenida 2 Diagonal al Teatro Nacional San Jose, Republic of Costa Rica; and (b) the Borrower's Electronic Address is: E-mail: despachomhoa hacienda.go.cr -2- 6.03. For purposes of Section 10.01 of the General Conditions: (a) the Bank's address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America; and (b) the Bank's Electronic Address is: Telex: Facsimile: E-mail: 248423(MCI) or 1-202-477-6391 nkerf worldbank. ore 64145(MCI) AGREED as of the Signature Date. REPUBLIC OF COSTA RICA, By Authorized Representative Name: Title: on Drt Date: INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By hi&J 4 Authorized Representative Michel Kerif N amie: ______________ Title: country Director 26-Aug--2021 Date: ______________ -3- SCHEDULE 1 Program Actions; Availability of Loan Proceeds Section . Actions under the Program A. Actions Taken Under the Program. The actions taken by the Borrower under the Program include the following: 1. The Borrower has taken measures to reduce the fragmentation and improve the targeting of the main social programs by expanding the SINIRUBE's reach as the official coordination framework for information on beneficiaries of social programs managed by key government agencies and municipalities, as evidenced by: (a) the agreements between SINIRUBE and: (i) the Ministry of Culture and Youth (dated July 1, 2020); (ii) CNE (dated July 2, 2020); and (iii) 29 municipalities (dated June 2020-April 2021); and (b) amendments to the agreements between SINIRUBE and: (i) M.EP, dated June 18, 2020 and March 9, 2021; (ii) IMAS, dated September 15, 2020; and (iii) INA, dated July 24, 2020. 2. The Borrower and the Central Bank, as applicable, have taken measures to support economic recovery and job creation by: (a) launching a special and temporary facility to refinance and/or grant new loans to individuals and enterprises affected by COVID-19; and (b) enacting a law for modernizing the INA's institutional framework, including the update of INA's governance structure, hiring, procurement and outsourcing policies, and, inter alia, setting as one of INA's priorities to better serve the vulnerable population, as evidence, respectively by: (i) Article 5 of the Central Bank Board of Director's Minutes No. 5955-2020, dated September 2, 2020, published in the Official Gazette on September 9, 2020, and Article 9 of the Central Bank's Board of Director's Minutes No, 5979-2021 dated January 14, 2021, published in the Official Gazette on January 27, 2021; and (ii) Law No. 9931, published in the Official Gazette on January 29, 2021. 3. The Borrower has improved the business climate and built foundations for a post-COVID- 19 recovery by enacting a new Insolvency Law that includes: (a) new reorganization proceedings for viable firms; (b) safeguards preventing the continuation or initiation of executive actions against the debtor; and (c) rules so that debtors who need it can obtain new financing for their operations, as evidenced by LawNo. 9957, published in the Official Gazette on May 31, 2021. 4. The Borrower has introduced climate considerations to the public financial management system while also enhancing spending controls by: (a) updating the methodological guidelines for the preparation and appraisal of public investment projects to incorporate principles to handle exposure and resilience of public works to extreme weather events; and (b) imposing nominal spending ceilings, including for certain transfers and purchases of goods and services until 2025, as evidenced, respectively, by: (i) Guidelines for Risk Analysis with a Multi-risk Approach and Probabilistic Criteria in Public Investment Projects, dated May 2021 and published on MIDEPLAN's website; and (ii) Decree No 42798-H, dated January 8, 2021, published in the Official Gazette on January 12, 2021. 5. The Borrower has taken further measures to contain recurrent spending by: (a) submitting to the National Assembly a bill for eliminating vacancies in the public sector and freezing special pension regimes for institutions covered by the national budget; and (b) freezing -4- annual wage increases during 2020/2022, as evidenced, respectively by: (i) Draft Bill No. 22,368, published in the Official Gazette on February 5, 2021; and (ii) Law No. 9908, published in the Official Gazette on November 10, 2020. 6. The Borrower has adopted further measures to increase debt management transparency and efficiency by: (a) publishing a medium-term debt strategy (MTDS) with targeted cost and risk indicators and fiscal risk reports related to risks coming from SOEs and municipalities and incorporating them in the debt sustainability analysis; and (b) creating a Sovereign Assets and Liabilities Strategic Commission with the purpose of improving the coordination mechanism between the Borrower's National Treasury and the Public Credit Directorate, as evidenced, respectively, by: (i) Ministry of Finance Directive No. 0001- 2021 dated January 5, 2021, published in the Official Gazette on February 3, 2021 approving the MTDS published on the Ministry of Finance's website, and a risk report on SOEs and a risk report on Municipalities, both dated March 2021 and published on the Ministry of Finance's website; and (ii) Articles 1, 2(ii), 4, 6, 7 of Decree No. 42964-H dated April 16, 2021, published in the Official Gazette on May 4, 2020. 7. The Borrower has assigned responsibilities to MINAE's National Directorate of Climate Change to implement, coordinate and operate the SINAMECC in order to enable meeting more stringent reporting requirements of the Enhanced Transparency Framework under the Paris Agreement and to facilitate access to information to measure the progress in the Borrower's climate targets defined in the agreed commitments in the National Decarbonization Plan and revised Nationally Determined Contribution (NDC) to the UNFCCC (including the operationalization of the Borrower's carbon offsetting mechanism), as evidenced by Decree No. 42961-MINAE dated April 13, 2021 and published in the Official Gazette on May 14, 2021. 8. The Borower and ARESEP, as applicable, have put in place programs and pricing that accelerate the transition to low-carbon and environmentally-friendly technologies and practices in key emitting sectors, by: (a) assigning to MINAE's National Directorate of Climate Change the administration and oversight of the CNNP, updating the CNNP's standards and protocols for organizations and municipalities, and expanding the CNNP to include a 'products' category; and (b) setting a promotional electric tariff for the supply of electricity associated with charging centers for electric buses and incorporating it into the current tariff schedules of electricity distribution companies, as evidenced, respectively, by: (i) Decree No. 42884-MINAE, dated March 4, 2021 and published in the Official Gazette on May 13, 2021; (ii) Ministerial Agreements No. 005-2021-MINAE, No. 006- 2021-MINAE, and No. 007-2021-MINAE, all dated April 19, 2021, published in the Official Gazette on May 13, 2021 and CNNP category guidelines published on MINAE's National Directorate of Climate Change website; and (iii) Resolution No. RE-01 12-IE- 2020, dated November 5, 2020 and published in the Official Gazette on November 11, 2020. 9. ICE and ARESEP, as applicable, have taken measures to facilitate the strengthening of the power system's governance and transparency by defining the dispatch center's (CENCE) governance structure and operational relationship with other business units at ICE operating in the power system in distribution, transmission and/or generation, approving the procedures for CENCE to operate the power system and to transparently report the results of the system's operation, and determining a payment mechanism to CENCE for system operations services, separated from ICE's transmission operation costs, as -5- evidenced, by: (a) Regulation on the Operation of CENCE as the Operator of the National Electric System, dated May 18, 2021 and published on ICE's website on May 19, 2021; (b) Resolution No. RE-0143-JD-2021, dated May 11, 2021 and published in the Official Gazette on May 18, 2021; and (c) Resolution RE-0126-IE-2020, dated December 15,2020 and published in the Official Gazette on 16 December 2020. Section II. Availability of Loan Proceeds A. General. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of this Section and such additional instructions as the Bank may specify by notice to the Borrower. B. Allocation of Loan Amounts. The Loan is allocated in a Single Withdrawal Tranche, from which the Borrower may make withdrawals of the Loan proceeds. The allocation of the amounts of the Loan to this end is set out in the table below: Allocations Amount of the Loan Allocated (expressed in Dollars) (1) Single 300,000,000 Withdrawal Tranche TOTAL AMOUNT 300,000,000 C. Withdrawal Tranche Release Conditions. 1. No withdrawal shall be made of the Single Withdrawal Tranche unless the Bank is satisfied: (a) with the Program being carried out by the Borrower; and (b) with the adequacy of the Borrower's macroeconomic policy framework. D. Deposit of Loan Amounts. 1. The Borrower, within thirty (30) days after the withdrawal of the Loan from the Loan Account, shall report to the Bank: (a) the exact sum received into the account referred to in Section 2.03(a) of the General Conditions; (b) the details of the account to which the Dollars/ and or Costa Rican Colones equivalent of the Loan proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Borrower's budget management systems; and (d) the statement of receipts and disbursement of the account referred to in Section 2.03(a) of the General Conditions. E. Closing Date. The Closing Date is June 30, 2022. -6- SCHEDULE 2 Commitment-Linked Amortization Repayment Schedule The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date ("Installment Share"). Level Principal Repayments Principal Payment Date Installment Share On each February 15 and August 15 Beginning August 15, 2025 through August 15, 2040 3.13% On Februay 15, 2041 2.97 % -7- APPENDIX Section I. Definitions 1. "ARESEP" means Autoridad Reguladora de los Servicios Pziblicos, the Public Services Regulatory Authority. 2. "CENCE" means Centro Nacional de Control de Energia, the National Energy Control Center of Costa Rica. 3. "CNE" means Comisidn Nacional de Prevencion de Riesgos y A tencidn de Emergencias, the National Commission for Risks and Emergency Prevention. 4. "CNNP" means Programa Pais de Carbono Areutralidad, the Carbon Neutrality National Program. 5. "Costa Rican Colones" means the lawful currency of the Borrower. 6. "COVID-19" means the coronavirus disease causedby the 2019 novel coronavirus (SARS- CoV-2). 7. "Enhanced Transparency Framework" means a framework established by the Paris Agreement for reporting and review to ensure the transparency of mitigation and adaptation actions and the transparency of support. 8. "General Conditions" means the "International Bank for Reconstruction and Development General Conditions for IBRD Financing, Development Policy Financing", dated December 14, 2018 (revised on August 1, 2020, December 21, 2020, and April 1, 2021). 9. "ICE" means Instituto Costarricense de Electricidad, the Costa Rican Institute of Electricity. 10, "IMAS" means Instituto Mixto de Ayuda Social, the Joint Institute for Social Aid. 11. "INA" means Instituto Nacional de Aprendizaje, the National Institute of Learning. 12. "MEP" means Ministerio de Educacit5n Piblica, the Borrower's Ministry of Public Education, or any successor thereto. 13. "MIDEPLAN" means Ministerio de Planficacidn Nacional y Politica Economica, the Borrower's Ministry of National Planning and Economic Policy, or any successor thereto. 14. "MINAE" means Ministerio de Ambiente y Energia, the Borrower's Ministry of Environment and Energy, or any successor thereto. 15. "Ministry of Culture and Youth" means Ministerio de Cultura y Juventud, the Borrower's Ministry of Culture and Youth or any successor thereto. -8- 16. "Ministry of Finance" means Ministerio de Hacienda, the Borrower's Ministry of Finance or any successor thereto. 17. "MTDS" means medium-term debt strategy. 18. "MTSS" means Ministerio de Trabajo y Seguridad Social, the Borrower's Ministry of Labor and Social Security, or any successor thereto. 19. "National Determined Contribution" or "NDC" means a national climate plan that all signatories to the Paris Agreement prepare to communicate the actions they plan to implement to reduce green-house emissions and build resilience to adapt to the impacts of climate change. 20. "National Decarbonization Plan" means the Borrower's strategy document that sets out a roadmap with key actions to consolidate the process towards the decarbonization of the Borrower's economy, made official through Decree No. 41581-MINAE, published in the Official Gazette on July 11, 2019. 21. "National Directorate of Climate Change" means Direccidn de Cambio Clin6tico de Costa Rica, the directorate for climate change established within MINAE, or any successor thereto. 22. "OECD" means Organization for Economic Co-operation and Development. 23. "Official Gazette" means La Gaceta - Diario Oficial, the Borrower's official journal. 24. "Paris Agreement" means the agreement concerning greenhouse gas emissions mitigation, adaptation and finance, adopted on December 12, 2015, at the twenty-first session of the Conference of the Parties to the UNFCCC held in Paris from November 30, 2015 to December 13,2015, and ratified by the Borrower's Law No. 9405, published in the Official Gazette on October 6, 2016. 25. "Program" means: the program of objectives, policies, and actions set forth or referred to in the letter dated May 21, 2021 from the Borrower to the Bank declaring the Borrower's commitment to the execution of the Program, and requesting assistance from the Bank in support of the Program during its execution and comprising actions taken or supported by the Borrower, including those set forth in Section I of Schedule 1 to this Agreement, and actions to be taken consistent with the program's objectives. 26. "Signature Date" means the later of the two dates on which the Borrower and the Bank signed this Agreement and such definition applies to all references to "the date of the Loan Agreement" in the General Conditions. 27. "STNAMECC" means Sistema Nacional de Mitrica de Cambio Clintico, the Borrower's National Climate Change Metrics System for compiling, managing, disseminating, measuring, reporting and verifying national emissions by sources and removals by sinks, 28. "Single Withdrawal Tranche" means the amount of the Loan allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section II of Schedule 1 to this Agreement. -9- 29. "SINIRUBE" means Sistema Nacional de Informaci6n y Registro Unico de Beneficiarios del Estado, the Borrower's National Information System and Unique Registry of Beneficiaries. 30. "SOEs" means state-owned enterprises. 31. "UNFCCC" or "United Nations Framework Convention on Climate Change" means the international environmental treaty addressing climate change which entered into force on March 21, 1994 and was ratified by the Borrower's Law No. 7414, published in the Official Gazette on July 4, 1994, with the main objective of stabilizing greenhouse gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system, in a time frame which allows ecosystems to adapt naturally and enables sustainable development. 32. "VAT" means value added tax. -10-