LOAN NUMBER 316 ME Loan Agreement (Power Program-1962) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND COMISION FEDERAL DE ELECTRICIDAD AND NACIONAL FINANCIERA, S.A. DATED JUNE 20, 1962 LOAN NUMBER 316 ME Loan Agreement (Power Program-1962) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND COMISION FEDERAL DE ELECTRICIDAD AND NACIONAL FINANCIERA, S.A. DATED JUNE 20, 1962 AGREEMENT, dated June 20, 1962, between INTERNA- TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, party of the first part (hereinafter called the Bank), and COMIsION FEDERAL DE ELECTRICIDAD and NACIONAL FINAN- CIERA, S.A., parties of the second part (hereinafter called the Borrowers). ARTICLE I Loan Regulations; Special Definitions SECTION 1.01. The parties to this Loan Agreement ac- cept all the provisions of Loan Regulations No. 4 of the Bank dated February 15, 1961, with the same force and effect as if they were fully set forth herein, subject, how- ever, to the following modifications thereof (said Loan Regulaions No. 4 as so modified being hereinafter called the Loan Regulations): (a) The second sentence of Section 3.02 of the Loan Regulations sha4 1'pply only to withdrawals pursuant to subsection (a) of Section 2.03 of the Loan Agreement. (b) Section 4.01 of the Loan Regulations is deleted. (c) Subparagraph (c) of Section 5.02 of the Loan Regu- lations is amended to read as follows: " (c) A default shall have occurred in the perform- ance of any other covenant or agreement on the part of the Borrowers or either of them or the Guarantor under the Loan Agreement, the Guarantee Agreement, or the Bonds, or under the Loan Agree- ments between the Bank and the Borrowers dated January 6, 1949, January 11, 1952, and May 5, 1958, or under any bonds issued thereunder, or under the Guarantee Agreements between the Guarantor and 4 the Bank dated January 6, 1949, January 11, 1952, and May 5, 1958." (d) Paragraph 6 of Section 10.01 of the Loan Regula- tions is amended to read as follows: "6. The term 'Borrower' means the Borrowers, ex- cept that as used in Sections 5.02 (b), 5.02 (d), 5.02 (e), 5.02 (f), 7.01 and 7.02 such term means the Borrowers or either of them. The term 'Guar- antor' means United Mexican States." (e) Paragraph 11 of Section 10.01 of the Loan Regula- tions is amended to read as follows: "11. The term 'Project' means the Expansion Pro- gram of Comisi6n or the projects included therein (or any of them, or such groupings of them as the context may require) for which the Loan is granted, as described in the Loan Agreement and as the de- scription thereof shall be amended from time to time by agreement between the Bank and the Borrowers."I SECTION 1.02. Unless the context otherwise requires, the following terms wherever used in this Agreement or in the Loan Regulations shall have the following meanings: (a) The term "Comisi6n" means Comisi6n Federal de Electricidad. (b) The term "Financiera" means Nacional Financiera, S.A. (c) The term "Mexlight" means Compaiiia Mexicana de Luz y Fuerza, S.A., and its Subsidiaries. (d) The term "Power Consumption Tax" means the tax established by law of December 31, 1938, of the Guarantor and payable by consumers of electricity on the amounts of their billings, and the proceeds of which are paid over to Comisi6n for the purposes of Article 5 thereof. 5 ARTICLE II The Loan SECTION 2.01. The Bank agrees to lend to the Borrow- ers, on the terms and conditions in this Loan Agreement set forth or referred to, an amount in various cur- rencies equivalent to one hundred thirty million dollars ($130,000,000). SECTION 2.02. The Bank shall open a Loan Account on its books in the name of the Borrowers and shall credit to such Account the amount of the Loan. The amouit of the Loan may be withdrawn from the Loan Account as provided in, and subject to the rights of cancellation and suspension set forth in, this Agreement and the Loan Regulations. SECTION 2.03. Except as the Bank shall otherwise agree, the Borrowers shall be entitled, subject to the provisions of this Agreement and the Loan Regulations, to withdraw from the Loan Account: (a) such amounts as shall have been expended for the reasonable cost of goods to be financed under this Agree- ment and, if the Bank shall so agree, such amounts as shall be required by the Borrowers to meet payments for such goods; and (b) the equivalent of a percentage or percentages to be established from time to time by agreement between the Bank and the Borrowers of such amounts as shall have been expended for the reasonable cost of civil works required for carrying out the Project described in Schedule 2 to this Agreement and not included in (a) above, such per- centage to represent the foreign exchange component of such cost; provided, however, that no withdrawals shall be made on account of : (i) expenditures prior to January 1, 1962; or (ii) expenditures made in the territories of any country (except Switzerland) which is not a member of the Bank 6 or for goods produced in (including services supplied from) such territories. SECTION 2.04. Withdrawals from the Loan Account pur- suant to subsection (b) of Section 2.03 of this Agreement shall be in dollars or such other currency or currencies as the Bank shall from time to time reasonably select. SECTION 2.05. The Borrowers shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/ of 1%) per annum on the principal amount of the Loan not so withdrawn from time to time. SECTION 2.06. The Borrowers shall pay interest at the rate of five and three-fourths per cent (53/4%) per annum on the principal amount of the Loan so withdrawn and outstanding from time to time. SECTION 2.07. Except as the Bank and the Borrowers shall otherwise agree, the charge payable for special com- mitments entered into by the Bank at the request of the Borrowers pursuant to Section 4.02 of the Loan Regulations shall be at the rate of one-half of one per cent ('/2 of 1%) per annum on the principal amount of any such special commitments outstanding from time to time. SECTION 2.08. Interest and other charges shall be pay- able semi-annually on May 1 and November 1 in each year. SECTION 2.09. The Borrowers shall repay the principal of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement. SECTION 2.10. All obligations of the Borrowers under the Loan Agreement and the Bonds, unless such obligations shall have been expressly undertaken by one of the Bor- rowers, shall be joint and several and the obligation of either of them to comply with any provision of the Loan Agreement is not subject to any prior notice to, demand 7 upon or action against the other. No extension of time or forbearance given to either of the Borrowers in respect of the performance of any of its obligations under the Loan Agreement or the Bonds, and no failure of the Bank or of any holder of the Bonds to give any notice or to make any demand or protest whatsoever to either of the Borrowers, or strictly to assert any right or pursue any remedy against either of them in respect of the Loan Agreement or the Bonds, and no failure by either of the Borrowers to comply with any requirement of any law, regulation or order, shall in any way affect or impair any obligation of the other Borrower under the Loan Agreement or the Bonds. ARTICLE III Use of Proceeds of the Loan SECTION 3.01. The Borrowers shall apply the proceeds of the Loan exclusively to financing the cost of goods re- quired to carry out the Project described in Schedule 2 to this Agreement. The specific goods to be financed out of the proceeds of the Loan and the methods and procedures for procurement of such goods shall be determined by agreement between the Bank and the Borrowers, subject to modification by further agreement between them. SECTION 3.02. Except as the Bank and the Borrowers shall otherwise agree, the Borrowers shall cause all goods financed out of the proceeds of the Loan to be used in the territories of the Guarantor exclusively in the carrying out of the Project. ARTICLE IV Bonds SECTION 4.01. The Borrowers shall execute and deliver Bonds representing the principal amount of the Loan as provided in the Loan Regulations. The forms of Bonds referred to in Article VI of the Loan Regulations shall be 8 appropriately modified so as to provide that the obligations on the part of the Borrowers under the Bonds shall 'be joint and several. SECTION 4.02. (a) The Director General of Comisi6n and such person or persons as he shall appoint in writing are designated as authorized representatives of Comisi6n for the purposes of Section 6.12 (a) of the Loan Regulations. (b) The Director General of Financiera and such person or persons as he shall appoint in writing are designated as authorized representatives of Financiera for the purposes of Section 6.12 (a) of the Loan Regulations. ARTICLE V Particular Covenants SECTION 5.01. (a) The Borrowers shall carry out the Project with due diligence and efficiency and in conformity with sound engineering, financial and public utility practices. (b) The Borrowers covenant that, to assist them in the carrying out of such parts of the Project as shall be agreed upon between the Bank and the Borrowers, the Borrowers will, except as the Bank shall otherwise agree, at all times employ competent and experienced consultants acceptable to, and upon terms and conditions satisfactory to, the Bank. SECTION 5.02. (a) The Borrowers shall at all times main- tain their corporate existence and right to carry on their operations and Comisi6n shall, except as the Bank shall otherwise agree, take all steps necessary to acquire, main- tain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (b) Comisi6n shall operate and maintain its plants, equipment and property, and from time to time make all necessary renewals and repairs thereof, all in accordance with sound engineering and public utility practices. 9 (c) Comisi6n shall at all times carry on its planning and operations, conduct its affairs and maintain its financial position all in accordance with sound management, busi- ness, financial and public utility principles and practices. SECTION 5.03. (a) Upon request from time to time by the Bank, the Borrowers shall promptly furnish or cause to be furnished to the Bank the plans, specifications and work schedules for the Project and any material modifica- tions subsequently made therein, in such detail as the Bank shall reasonably request. (b) The Borrowers shall maintain records adequate to identify the goods financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of the Borrowers. (c) The Borrowers shall enable the Bank's representa- tives to inspect the Project, the goods and any relevant records and documents, and all other plants, sites, works, properties and equipment of Comisi6n. (d) The Borrowers shall furnish to the Bank all such information as the Bank shall reasonably request concern- ing the expenditure of the proceeds of the Loan, the Project, the goods, and the operations and financial condition of the Borrowers. SECTION 5.04. Each of the Borrowers undertakes that, except as the Bank shall otherwise agree, if any lien shall be created on any of its assets as security, as to Financiera for any external debt and as to Comisi6n for any debt, such lien shall ipso facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan and the Bonds, and in the creation of any such lien express provision shall be made to that effect; pro- vided, however, that the foregoing provisions of this Sec- tion shall not apply to: (i) any lien created on property, 10 at the time of purchase thereof, solely as security for the payment of the purchase price of such property or (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. SECTION 5.05. Comisi6n shall have its financial state- ments (balance sheet and related statement of earnings and expenses) certified annually by an independent accountant or accounting firm acceptable to the Bank and shall promptly after their preparation and not later than four months after the close of Comisi6n's fiscal year transmit to the Bank certified copies of such statements and a signed copy of the accountant's or accounting firm's report. SECTION 5.06. (a) The Bank and the Borrowers shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, each of them shall furnish to any other of them all such information as it shall reasonably request with regard to the general status of the Loan. (b) The Bank and the Borrowers shall from time to time exchange views through their representatives with regard to matters relating to the purposes of the Loan and the maintenance of the service thereof. The Borrowers shall promptly inform the Bank of any condition which interferes with, or threatens to interfere with, the accom- plishment of the purposes of the Loan or the maintenance of the service thereof or the adjustment, when necessary, of Comisi6n's rates for the sale of electricity as required by Section 5.13 of this Agreement and Section 3.07 of the Guarantee Agreement. SECTION 5.07. The Borrowers shall pay or cause to be paid all taxes, if any, imposed under the laws of the Guar- antor or laws in effect in the territories of the Guarantor on or in connection with the execution, issue, delivery or registration of the Loan Agreement, the Guarantee Agree- 11 ment, the Bonds or the payment of principal, interest or other charges thereunder; provided, however, that the provisions of this Section shall not apply to taxation of payments under any Bond to a holder thereof other than the Bank when such Bond is beneficially owned by an individual or corporate resident of the Guarantor. SECTION 5.08. The Borrowers shall pay or cause to be paid all taxes, if any, imposed under the laws of the coun- try or countries in whose currency the Loan and the Bonds are payable or laws in effect in the territories of such country or countries on or in connection with the execution, issue, delivery or registration of the Loan Agreement, the Guarantee Agreement or the Bonds. SECTION 5.09. (a) The Borrowers shall insure or cause to be insured with responsible insurers all goods financed out of the proceeds of the Loan. Such insurance shall cover such marine, transit and other hazards incident to purchase and importation of the goods into the territories of the Guarantor and delivery thereof to the sites of the Project, and shall be for such amounts, as shall be con- sistent with sound commercial practices. Such insurance shall be payable in dollars or in the currency in which the cost of the goods insured thereunder shall be payable. (b) In addition, Comisi6n shall, except as the Bank shall otherwise agree, take out and maintain, with good and reputable insurance companies, insurance against such risks and in such amounts as shall be consistent with sound public utility and business practices. SECTION 5.10. Except as the Bank shall otherwise agree, Comisi6n shall not, during the period of construction of the Project, directly or indirectly undertake, or permit to be undertaken on its behalf, any major addition (other than the Project) to its plants and other property. For the purposes of this Section the term "major addi- tion" includes, but without limitation, any generating unit 12 of 5,000 kw or larger, any substation of 10,000 kva or larger and any transmission line of a voltage of 69 kv or higher. SECTION 5.11. Except as the Bank shall otherwise agree: (a) Comisi6n shall obtain title to all goods financed out of the proceeds of the Loan free and clear of all encumbrances; and (b) Comisi6n shall not, without the consent of the Bank, sell or otherwise dispose of any of its property or assets which shall be required for the efficient carry- ing on of its business and undertaking, including the Project, unless the Borrowers shall first pay or redeem, or make adequate provision satisfactory to the Bank for payment or redemption of, all of the Loan and the Bonds which shall then be out- standing and unpaid. SECTION 5.12. (a) Except as the Bank shall otherwise agree, Comisi6n shall not: (i) during the years 1962 and 1963 incur any debt and (ii) thereafter incur any debt if funds required for servicing the outstanding debt of Comisi6n (including the debt proposed to be incurred) shall, in any fiscal year of Comisi6n (including the fiscal year in which such debt would be incurred), exceed 66-2/37 of the net revenues of Comisi6n during the fiscal year next preceding such incurrence or during any later consecutive twelve-month period preceding such incurrence, whichever is the greater. (b) Except as the Bank shall otherwise agree: (i) Financiera shall not incur debt or permit any other entity to incur debt on Financiera's behalf the purposes of which would be directly or indirectly to finance any power gen- erating, transmission or distribution facilities of Comisi6n and which would not, if Comisi6n were directly legally and financially incurring such debt, meet the requirements of subsection (a) of this Section; and (ii) the Borrowers shall promptly make arrangements satisfactory to the Bank whereby Comisi6n shall become, as between Comisi6n and 13 Financiera, obligated to and shall service, out of its operat- ing revenues, all such debt heretofore incurred by Financiera. For the purposes of this Section: 1. The term "debt" shall not include debt of Comisi6n incurred in the ordinary course of its business and maturing by its terms less than one year after the date of its in- currence but shall include all debt heretofore or hereafter incurred by Financiera or by any other agency of the Guarantor for the purposes of financing directly or in- directly any power generating, transmission or distribu- tion facilities of Comisi6n. 2. The term "net revenues" means the sum of all gross operating revenues of Comisi6n plus the proceeds of the Power Consumption Tax (but excluding public appropria- tions, contributions, grants and proceeds of taxes and levies other than the proceeds of the Power Consumption Tax) less the sum of all operating, administrative and overhead expenses of Comisi6n (but without deduction of any amounts for service payments on debt or for depreciation, replacement, retirement, or obsolescence of the assets of Comisi6n), such net revenues to be adjusted to take account of any increases in Comisi6n's rates for the sale of elec- tricity or in the Power Consumption Tax in effect at the time of the incurrence of debt as if such increases had been in effect during the entire fiscal year or twelve-month period to which such revenues relate. 3. Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guar- antor, 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. SECTION 5.13. Comisi6n shall from time to time take all necessary or desirable steps to cause such adjustments in 14 Comisi6n's rates for the sale of electricity to be made as shall be required to provide Comisi6n with funds (includ- ing the proceeds of the Power Consumption Tax) sufficient to: (a) cover all cash operating expenses of Comisi6n, in- cluding adequate maintenance and taxes, if any, and service payments on debt; and (b) create a surplus adequate to meet a reasonable portion of the cost of expansion of Comisi6n's generating, transmission and distribution facilities. For the purposes of this Section the term "debt" shall have the same meaning as in Section 5.12 set forth. SECTION 5.14. (a) Except as the Bank shall otherwise agree, Comisi6n shall, during the years 1962, 1963, 1964 and 1965, take all such action as may be required on its part to conclude, not later than December 1 in each such year, agreements with Mexlight and Industrial Elctrica Mexicana, S.A. de C.V., with a view to achieving coordi- nation in respect of: (i) the operation of such power gen- erating, transmission and distribution facilities owned or controlled by each of them as are interconnected with each other and (ii) the planning of their investment pro- grams in such facilities for the five years immediately following each such agreement. (b) Financiera shall, by reason of its present control over Industrial Elctrica Mexicana, S.A. de C.V., take all such action as may be necessary or desirable to cause Industrial Elctrica Mexicana, S.A. de C.V., on its part to conclude with Comisi6n and Mexlight the agreements required by subsection (a) of this Section, and, if Finan- ciera shall transfer such control to any entity other than Comisi6n, Financiera shall make arrangements with such entity whereby compliance with the provisions of this Section shall be ensured. SECTION 5.15. Except as the Bank shall otherwise agree, Comisi6n shall not, during the years 1962, 1963 and 1964, invest in, or lend or otherwise make available to, its 15 affiliated companies, during any such year, funds of the Comisi6n in excess of the aggregate principal amount of twenty-five million pesos in currency of the Guarantor. For the purposes of this Section the term "affiliated companies " means the companies now or hereafter directly or indirectly under the control of Comisi6n, whether through power to direct their management and policies, ownership of their voting stock or assets, contract or otherwise. ARTICLE VI Remedies of the Bank SECTION 6.01. (i) If any event specified in paragraph (a), paragraph (b), paragraph (e) or paragraph (f) of Section 5.02 of the Loan Regulations shall occur and shall continue for a period of thirty days, or (ii) if any event specified in paragraph (c) of Section 5.02 of the Loan Regulations shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrowers or to either of them, then at any subsequent time during the continuance thereof, the Bank, at its option, may declare the principal of the Loan and of all the Bonds then outstanding to be due and payable im- mediately, and upon any such declaration such principal shall become due and payable immediately, anything in the Loan Agreement or in the Bonds to the contrary notwithstanding. ARTICLE VII Miscellaneous SECTION 7.01. The Closing Date shall be October 1, 1.964, or such other date as shall be agreed by the Bank and the Borrowers as the Closing Date. SECTION 7.02. The following addresses are specified for th uruoses of Section 8.01 of the Loan Rezulations: 16 (a) For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington 25, D.C. United States of America Alternative address for cablegrams and radiograms: Intbafrad Washington, D.C. (b) For the Borrowers: Comisi6n Federal de Electricidad Calle de R6dano 14 Mexico 5, D.F., Mexico Alternative address for cablegrams and. radiograms: Cefelec Mexico and Nacional Financiera, S.A. Avenida Venustiano Carranza 25 Mexico, D.F., Mexico Alternative address for cablegrams and radiograms: Nafin Mexico SECTION 7.03. A date 60 days after the date of this Agreement is hereby specified for the purposes of Section 9.04 of the Loan Regulations. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have 17 caused this Loan 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 BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ W. A. B. ILIFF Vice President ComisioN FEDERAL DE ELECTRICIDAD By /s/ MANUEL MORENO TORRES Authorized Representative NACIONAL FINANCIERA, S.A. By /s/ RAUL MARTINEZ OsTos Authorized Representative 18 SOEDULE 1 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* Nov. 1, 1964 $1,635,000 May 1, 1965 1,680,000 Nov. 1, 1965 1,730,000 May 1, 1966 1,780,000 Nov. 1, 1966 1,830,000 May 1, 1967 1,880,000 Nov. 1, 1967 1,935,000 May 1, 1968 1,990,000 Nov. 1, 1968 2,050,000 May 1, 1969 2,110,000 Nov. 1, 1969 2,170,000 May 1, 1970 2,230,000 Nov. 1, 1970 2,295,000 May 1, 1971 2,360,000 Nov. 1, 1971 2,430,000 May 1, 1972 2,500,000 Nov. 1, 1972 2,570,000 May 1, 1973 2,645,000 Nov. 1, 1973 2,720,000 May 1, 1974 2,800,000 Nov. 1, 1974 2,880,000 May 1, 1975 2,960,000 Nov. 1, 1975 3,045,000 May 1, 1976 3,135,000 Nov. 1, 1976 3,225,000 May 1, 1977 3,315,000 Nov. 1, 1977 3,410,000 May 1, 1978 3,510,000 Nov. 1, 1978 3,610,000 May 1, 1979 3,715,000 Nov. 1, 1979 3,820,000 May 1, 1980 3,930,000 Nov. 1, 1980 4,045,000 May 1, 1981 4,160,000 Nov. 1, 1981 4,280,000 May 1, 1982 4,405,000 Nov. 1, 1982 4,530,000 May 1, 1983 4,660,000 Nov. 1, 1983 4,795,000 May 1, 1984 4,935,000 Nov. 1, 1984 5,075,000 May 1, 1985 5,220,000 * To the extent that any part of the Loan is repayable in a currency other than dollars (see Loan Regulations, Section 3.03), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 19 Premiums on Prepayment and Redemption The following percentages are specified as the premiums payable on repayment in advance of maturity of any part of the principal amount of the Loan pursuant to Section 2.05 (b) of the Loan Regulations or on the redemption of any Bond prior to its maturity pursuant to Section 6.16 of the Loan Regulations: Time of Prepayment or Redemption Premium Not more than three years before m aturity ..........................'/2 of 1% More than three years but not more than six years before maturity........... .. 1% More than six years but not more than eleven years before maturity ........ ..13/4 % More than eleven years but not more than sixteen years before maturity... 2'/2 % More than sixteen years but not more than nineteen years before maturity 31/2% More than nineteen years but not more than twenty-one years before maturity 43/4% More than twenty-one years before maturity ......................... 53% 20 SCHEDULE 2 Description of the Project I. The Project is the Expansion Program, extending from January 1962 to January 1966, of Comisi6n's power gen- erating, transmission and distribution facilities and is de- signed to increase the installed capacity of Comisi6n's eleven major systems by about 2390 Megawatts, and of its miscellaneous small systems by about 160 Megawatts. The Project also includes a continuation of Comisi6n's rural electrification program, the addition of some capital im- provements to its existing facilities, and a training program designed to increase the number of staff available for operating the new plants. Transmission lines of voltage and length adequate to serve the new generating units will be constructed, together with the required substations and ancillary equipment. Distribution networks of capacity ade- quate to serve the forecasted load growth will be provided. II. Details of the generating, transmission and distribu- tion facilities included in the Project, such as their type, location, capacity and scheduled completion dates will be determined from time to time by agreement between the Bank and the Borrowers, subject to modification by fur- ther agreement between them.