LOAN NUMBER 9049-MX Loan Agreement (Water Security and Resilience for the Valley of Mexico Project - PROSEGHIR) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LOAN AGREEMENT AGREEMENT dated as of the Signature Date between UNITED MEXICAN STATES duly represented by its Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico) ("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank"). WHEREAS, the Borrower has informed the Bank that the proceeds of the Loan (as set forth in the table in Section III.A.2 of Schedule 2 to this Agreement and for purposes of supporting the project described in Schedule 1 to this Agreement ("Project"), shall be used in conformity with the requirements of the Borrower's income, budgetary and public debt laws and the terms of this Agreement. NOW THEREFORE, the Borrower and the Bank 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. Noting that the Borrower has informed the Bank that the proceeds of the Loan shall be used in conformity with the requirements of the Borrower's income, budgetary and public debt laws and the terms of this Agreement, but without limitation to the provisions of Section 8.01 of the General Conditions, the Bank agrees to lend to the Borrower the amount of one hundred twenty million Dollars ($120,000,000), as such amount may be converted from time to time through a Currency Conversion ("Loan"), to assist the Borrower in financing the Project. 2.02. The Borrower may withdraw the proceeds of the Loan in accordance with Section III of Schedule 2 to this Agreement. Unless the Borrower's Representative designated in Section 6.01 of this Agreement otherwise informs the Bank, the Borrower's Representative for purposes of taking any action required or permitted to be taken pursuant to this Section is the Deputy Director of International Financing of BIENESTAR or any person or persons whom such representative shall designate in writing. 2.03. The Front-end Fee payable by the Borrower shall be equal to one quarter of one percent (0.25%) of the Loan amount. 2.04. The Commitment Charge payable by the Borrower shall be equal to one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance. 2.05. 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. 2.06. The Payment Dates are March 15 and September 15 in each year. 2.07. The principal amount of the Loan shall be repaid in accordance with Schedule 3 to this Agreement. ARTICLE III P ROJECT 3.01. The Borrower declares its commitment to the objectives of the Project. To this end, the Borrower shall cause the Project to be carried out by CONAGUA in accordance with the provisions of Article V of the General Conditions, Schedule 2 to this Agreement and the Contrato de Mandato. ARTICLE IV - REMEDIES OF THE BANK 4.01. The Additional Event of Suspension consists of the following: namely, that any of the parties to the Contrato de Mandato shall have failed to perform any of their obligations under the Contrato de Mandato. 4.02. The Additional Event of Acceleration consists of the following, namely that the event specified in Section 4.01 of this Agreement occurs and is continuing for a period of sixty (60) days after notice of the event has been given by the Bank to the Borrower. ARTICLE V-EFFECTIVENESS; TERMINATION 5.01. The Additional Conditions of Effectiveness consist of the following: namely, that the Contrato de Mandato shall have been duly executed by the parties thereto and is in full force and effect. 5.02. For the purpose of confirming that the conditions specified in Section 5.01 above have been met, there shall be furnished to the Bank the following opinions: (a) the Borrower, through SHCP, shall issue a legal opinion satisfactory to the Bank, by counsel acceptable to the Bank, indicating that the Contrato de Mandato has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower, and is legally binding upon the Borrower in accordance with the Contrato de Mandato's terms; (b) CONAGUA shall issue a legal opinion satisfactory to the Bank, by counsel acceptable to the Bank, indicating that the Contrato de Mandato has been duly authorized or ratified by, and executed and delivered on behalf of, CONAGUA, and is legally binding upon CONAGUA in accordance with the Contrato de Mandato's terms; and (c) BIENESTAR shall issue a legal opinion satisfactory to the Bank, by BIENESTAR's counsel satisfactory to. the Bank, indicating that the Contrato de 2 Mandato has been duly authorized or ratified by, and executed and delivered on behalf of, BIENESTAR, and is legally binding upon BIENESTAR in accordance with the Contrato de Mandato' s terms. 5.03. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. ARTICLE VI REPRESENTATIVE; ADDRESSES 6.01. Except as provided in Section 2.02 of this Agreement, the Borrower's Representative is the Titular de la Unidad de Credito Public0 of SHCP. The authorized representative to make requests for Conversions or for an IBRD Hedge (as defined in the Hedging Guidelines) on behalf of the Borrower shall be the Titular de la Unidad de Credito Pblico of SHCP or any person or persons whom he or she shall designate in writing for this particular purpose. 6.02. For purposes of Section 10.01 of the General Conditions, as applicable: the Borrower's address is: Secretaria de Hacienda y Credito Publico Unidad de Credito Publico Insurgentes Sur 1971, torre III, piso 7 Colonia Guadalupe Inn 01020 Mexico City Mexico the Borrower's Electronic Address is: E-mail: uaih_shcp@hacienda.gob.mx 6.03. For purposes of Section 10.01 of the General Conditions, as applicable: 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 the Bank's Electronic Address is: Telex: Facsimile: E-mail: 248423(MCI) or 1-202-477-6391 mthomas l@worldbank.org 3 AGREED as of the Signature Date. UNITED MEXICAN STATES By . 52Pp {red Representative - oil ls±4 sos (Jina l (au, rose kLl, k LI (&lo. l Date: 8 , pelesc , QA ? INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Name: -----'- _ --'-----' __ ~~~- __,___,_ or so> Tile: o "a Das«of 4 SCHEDULE 1 Project Description The objectives of the Project are to improve the reliability of the Cutzamala System and strengthen the management of groundwater resources in the Valley of Mexico. The Project consists of the following parts: Part 1. Improving Energy Efficiency and Resilience of the Cutzamala System 1.1 Designing, modernizing and implementing infrastructure information systems for resilience of the Cutzamala system through, inter alia: (a) the improvement of the data collection network to feed a decision support system for the management of water resources in the Cutzamala System basins, including: (i) the rehabilitation of the existing network; (ii) the acquisition and installation of a hydrometeorological and climate network, a water quality monitoring network, a groundwater monitoring network, a network to monitor reservoir and canal levels to measure water distribution and use; and (iii) the acquisition and installation of monitoring equipment for the Cutzamala System Dams; (b) the revision and updating of the existing SCADA of the Cutzamala System; and (c) the design and implementation of a decision support system to carry out water balances, water allocation, and support the operation of the Cutzamala System. 1.2 Improving energy efficiency, and reliability of the Cutzamala System infrastructure through, inter alia: (a) the carrying out of an engineering analysis and design for: (i) approximately 26 km reversible pressurized transmission line to convey water to the Villa Victoria reservoir; (ii) the rehabilitation works of the Cutzamala System Dams; and (iii) the energy efficiency activities; (b) the development of operation and maintenance plans, and emergency preparedness plans for the Cutzamala System Dams; (c) the carrying out of civil works and the acquisition and installation of electrical and mechanical equipment for the rehabilitation of the Cutzamala System Dams; (d) the implementation of energy efficiency activities; and (e) the supervision of: (i) all civil works, and (ii) installation of electrical and mechanical equipment mentioned herein. Part 2. Groundwater Management and Recharge Pilot Infrastructure in the Valley of Mexico 2.1 Designing and implementing an aquifer observatory for the Valley of Mexico, including, inter alia: (a) the collection of baseline data and the carrying out of a diagnostic on water quality and quantity of aquifers, including pumping tests; (b) the preparation of an inventory of wells within the Valley of Mexico, including water user data; (c) the expansion and automation of the piezometric network of the Valley of Mexico; and (d) the improvement of the existing aquifer modeling tool to produce water balances and the dissemination of information. 2.2 Carrying out infrastructure works for managed aquifer recharge initiatives in the Valley of Mexico, through, inter alia: (a) the formulation and preparation of engineering analysis and designs; (b) the carrying out of civil works and the acquisition and installation of 5 electrical and mechanical equipment for the upgrading of existing WWTPs; (c) the construction of aquifer recharge wells; and (d) the construction of conveyance infrastructure from the WWTPs to the recharge wells. Part 3. Institutional Strengthening and Project Management Strengthening the institutional capacity of CONAGUA and provision of Project management support all through, inter alia: the carrying out of capacity building activities to strengthen water infrastructure operation, groundwater management, citizen engagement mechanisms including outreach and dissemination activities, and leadership, technical and gender awareness for CONAGUA's female staff. 6 SCHEDULE2 Project Execution Section I. Implementation Arrangements A. Institutional Arrangements. 1. To facilitate the implementation of the Project, the Borrower shall cause CONAGUA to operate and maintain a Project Implementation Unit (PIU) with staffing and functions all acceptable to the Bank as set forth in the Operational Manual. 2. To facilitate the implementation of Part 2 of the Project, the Borrower shall cause CONAGUA to maintain at all times during Project implementation a Groundwater Advisory Group with composition and functions acceptable to the Bank as set forth in the Operational Manual B. Contrato de Mandato 1. The Borrower, through SHCP, CONAGUA and BIENESTAR shall enter into a contract ( Contrato de Mandato), satisfactory to the Bank, whereby: (a) BIENESTAR agrees to: (i) act as financial agent of the Borrower with respect to the Loan, meaning that, inter alia, BIENESTAR agrees to represent the Borrower vis-d-vis the Bank for purposes of submitting Loan withdrawal applications to the Bank in form and substance sufficient to justify disbursement by the Bank to the Borrower of Loan proceeds and agrees, if required by the Borrower (through SHCP), to maintain and operate the Designated Account (referred to in the Disbursement and Financial Information Letter and the additional instructions cited in Section 2.01(b) of the General Conditions), all of this in compliance with the provisions of this Agreement; and: (ii) abide by the Anti-Corruption Guidelines; (b) CONAGUA, agrees to carry out the Project in accordance with the provisions of this Agreement, including the ESMF, the IPPF, the RPF the Anti-Corruption Guidelines, and the Operational Manual; (c) the Borrower, through SHCP, shall have the right to, in case of fraud or corruption (as defined in the Anti-Corruption Guidelines) provide for the early termination of the Contrato de Mandato, or temporarily suspend its effects, or, if applicable, require the Restitution of an amount equivalent to the funds transferred to BIENESTAR under said Contrato de Mandato; and (d) CONAGUA agrees to cooperate fully with BIENESTAR to ensure that BIENESTAR and CONAGUA are able to comply with all their obligations referred to in this Agreement. 7 2. The Borrower shall exercise its rights and carry out its obligations under the Contrato de Mandato in such a manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank may otherwise agree, the Borrower, through SHCP shall not amend, terminate, waive or fail to enforce any provision of the Contrato de Mandato. In case of any conflict between the terms of the Contrato de Mandato and those of this Agreement, the terms of this Agreement shall prevail. C. Operational Manual 1. The Borrower shall cause CONAGUA to carry the Project in accordance with the provisions of a manual (the Operational Manual) satisfactory to the Bank, containing, inter alia: (i) specific provisions on detailed arrangements for the carrying out of the Project; (ii) the composition and responsibilities of the PIU; (iii) the procurement, financial management and disbursement requirements thereof; (iv) the performance indicators; (v) the ESMF, RPF and IPPF; and (vi) the Anti-Corruption Guidelines. 2 The Borrower shall cause CONAGUA not to amend or waive or fail to enforce any provision of the Operational Manual without the Bank's prior written approval. In case of any conflict between the terms of the Operational Manual and those of this Agreement, the terms of this Agreement shall prevail. D. Safeguards 1. The Borrower, shall cause CONAGUA to carry out the Project in accordance with the ESMF, the RPF and the IPPF. 2. The Borrower shall cause CONAGUA to ensure that the terms of reference of any Project consultancy shall be satisfactory to the Bank following its review thereof and, to that end, such terms of reference shall duly incorporate the requirements of the Bank's Safeguard Policies then in force, as applied to the advice conveyed through such technical assistance. 3. Prior to carrying out any rehabilitation works or any Project activities that rely on a Cutzamala System Dam, but no later than twelve (12) months after the Effective Date, the Borrower shall cause CONAGUA to appoint a panel of independent experts (the Panel of Experts) with terms of reference and composition acceptable to the Bank, including, inter alia, the following responsibilities: (i) reviewing the risk-based dam safety assessments, the safety inspection reports, the operations and maintenance plans and the emergency preparedness plans, all for the Cutzamala System- Dams; and (ii) advising on the design and implementation of rehabilitation works required for the Cutzamala System Dams; and (iii) reviewing the investigation, design and implementation of high-hazard cases involving significant and complex remedial works. 4. Prior to carrying out any rehabilitation works· or any Project activities that rely on a Cutzamala System Dam, the Borrower shall cause CONAGUA to: (i) undertake a risk- based dam safety assessment of said Cutzamala System Dam under terms of reference acceptable to the Bank; and (ii) submit to the Panel of Experts and to the Bank the results of said risk-dam safety assessment with contents acceptable to the Panel of Experts and to the Bank. 8 5. No later than six (6) months after the submission of a risk-based dam safety assessment for any of the Cutzamala System Dams, the Borrower shall cause CONAGUA to furnish to the Bank: (i) an operation and maintenance plan; (ii) an emergency preparedness plan, all for said Cutzamala System Dam and with contents acceptable to the Bank; and (iii) therefore carry out said plans in accordance with their terms and in a manner acceptable to the Bank. Section II. Project_Monitoring Reporting and _Eyaluation The Borrower shall cause CONAGUA to furnish to the Bank each Project Report not later than forty-five (45) days after the end of each calendar semester, covering the calendar semester. Section III. Withdrawal of Loan Proceeds A. General. 1. Without limitation upon the provisions of Article II of the General Conditions and in accordance with the Disbursement and Financial Information Letter, the Borrower may withdraw the proceeds of the Loan to: (a) finance Eligible Expenditures; and (b) pay: (i) the Front-end Fee; and (ii) each Interest Rate Cap or Interest Rate Collar premium; in the amount allocated and, if applicable, up to the percentage set forth against each Category of the table set forth below. 2. Without limitations to paragraph 1 above, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account on or after the Effective Date and pay to itself the Front- end Fee payable pursuant to Section 3.01 of the General Conditions. The remaining proceeds of the Loan shall be disbursed in Dollars unless otherwise agreed between the Borrower and the Bank and so reflected in the Disbursement and Financial Information Letter. Consistent with Section 2.05 of the General Conditions, the Borrower may use an amount equivalent to the amount in Dollars provided under this Agreement to finance Eligible Expenditures. Category Amount of the Loan Percentage of Expenditures Allocated to be financed (expressed in USD) (inclusive of Taxes) (1) Goods, works, non- 119,700,000 100% consulting services, consulting services, Capacity Building and Project Incremental Costs for the Project (2) Front-end Fee 300,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section2.07 (b) ofthe General Conditions 9 (3) Interest Rate Cap or 0 Amount due pursuant to Interest Rate Collar premium Section4.05 (c) of the General Conditions TOTAL AMOUNT 120,000,000 B. Withdrawal Conditions; Withdrawal Period. 1. Notwithstanding the provisions of Part A above, no withdrawal shall be made for payments made prior to the Signature Date, except that withdrawals up to an aggregate amount not to exceed $24,000,000 may be made for payments made prior to this date but on or after the date falling twelve months prior to the Signature Date. 2. The Closing Date is December 31, 2025. 10 SCHEDULE3 Disbursement-Linked Amortization Repayment Schedule - Level Repayment 1. Subject to the provisions of Section 3.03 of the General Conditions, the Borrower shall repay each Disbursed Amount in semi-annual installments payable on each March 15 and September 15, the first installment to be payable on the seventh (7th) Payment Date following the Maturity Fixing Date for the Disbursed Amount and the last installment to be payable on the sixteenth - (16th) Payment Date following the Maturity Fixing Date for the Disbursed Amount. Each installment except for the last one shall be equal to one-tenth (1/10) of the Disbursed Amount. The last installment shall be equal to the ·remaining outstanding amount of the Disbursed Amount. 2. If any one or more installments of principal of the Disbursed Amount would, pursuant to the provisions of paragraph 1 of this Schedule, be payable after September 15, 2033, the Borrower shall also pay on such date the aggregate amount of all such installments. 3. The Bank shall notify the Loan Parties of the amortization schedule for each Disbursed Amount promptly after the Maturity Fixing Date for the Disbursed Amount. 11 APPENDIX Definitions 1. "Anti-Corruption Guidelines" means, for purposes of paragraph 5 of the Appendix to the General Conditions, the "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 and revised in January 2011 and as of July 1, 2016. 2. "Bank's Safeguard Policies" means the Bank's operational safeguard policies and procedures, set forth in the Bank's Operational Manual under OP/BPs 4.01, 4.04, 4.09, 4.10, 4.11, 4.12, 4.36, 4.37 or such policies and procedures then in force. 3. "BIENESTAR" means Banco de! Bienestar, Sociedad Nacional de Credito, Institucion de Banca de Desarrollo, established pursuant to the Borrower's law duly published in the Borrower's Official Gazette, dated June 19, 2019, that reforms the organic Law of Banco de! Ahorro Nacional y Servicios Financieros, Sociedad Nacional de Credito, Institucion de Banca de Desarrollo dated June 1, 2001. 4. "Capacity Building" means the reasonable expenditures (other than consulting services) incurred by CONAGUA in connection with the carrying out of capacity building activities (including workshops, conferences and seminars) under the Project. 5. "Category" means a category set forth in the table in Section III.A of Schedule 2 to this Agreement. 6."CONAGUA" means Comision Nacional de! Agua, the Borrower's National Water Commission established as a legal entity pursuant to the Borrower's Law on National Waters published in the Official Gazette on December 1, 1999. 7. "Contrato de Mandato" means the agreement between the Borrower (through SHCP), CONAGUA and BIENESTAR referred to in Section I.B.1 of Schedule 2 to this Agreement. 8. "Cutzamala System" means the hydraulic infrastructure under the administration of CONAGUA, through OCAVM, for the delivery of bulk water to the Valley of Mexico and Toluca Metropolitan Areas. 9. "Cutzamala System Dams" means the following large dams: Villa Victoria, Valle de Bravo, Tuxpan, Chilesdo, Colorines, El Bosque, Ixtapan del Oro and Tilostoc. 10. "ESMF" means Environmental and Social Management Framework, the framework prepared by CONAGUA, acceptable to the Bank, published on CONAGUA's and on the Bank's external website on January 15, 2018, updated and redisclosed on December 1 7 and 18, 2019, respectively, setting forth the principles, guidelines, rules and procedures to assess the potential environmental, social, health and safety impacts of Project activities, and mitigation, monitoring and institutional measures to be taken to offset or eliminate any such negative impacts, or reduce them to acceptable levels, including, inter alia: (a) measures for chance findings of physical cultural property; (b) guidelines for the 12 identification of existing environmental conditions and potential direct and indirect environmental impacts resulting from the carrying out of the Project activities (including a list of type of investments not eligible for financing under the Project); (c) guidelines for the carrying out of environmental assessments and the preparation and implementation of environmental management plans, when applicable; and (d) measures for enhancing each identified positive impact; as said framework may be amended from time to time with the Bank's prior written approval. 11. "General Conditions" means the "International Bank for Reconstruction and Development General Conditions for IBRD Financing, Investment Project Financing", dated December 14, 2018, and revised on August 1, 2020, December 21, 2020, April 1, 2021, and January 1, 2022. 12. "Groundwater Advisory Group" means the committee set forth in Section I.A.2 of Schedule 2 to this Agreement, established pursuant to the official minutes No. 001/COTEMA/201 7 dated October 31, 201 7. 13. "IPPF" means Indigenous People Planning Framework, the framework prepared by CONAGUA, acceptable to the Bank, and published on CONAGUA's website and Bank's external website on January 15, 2018, updated and redisclosed on December 17 and 18, 2019, respectively, detailing measures to mitigate any adverse impact on indigenous peoples as a result of any activity carried out under the Project and to ensure that they benefit from said Parts of the Project, including procedures for the preparation and implementation of the pertinent indigenous peoples development plan(s), as said framework may be amended from time to time with the agreement of the Bank. 14."OCAVM" means Organismo de Cuenca Aguas del Valle de Mexico, the Borrower's Basin Agency for the Valley of Mexico within CONAGUA. 15. "Official Gazette" means the Borrower's Diario Ofcial de la Federacion. 16. "Operational Manual" means the Borrower's manual dated January 22, 2020 for the Project referred to in Section I.C.1 of Schedule 2 to this Agreement, as said manual may be amended from time to time with the prior written agreement of the Bank. 17. "Panel of Experts" means the panel of independent experts referred to in Section I.D.3 of Schedule 2 to this Agreement. 18. ·PIU" means the Project Implementing Unit within CONAGUA referred to in Section I.A 1. of Schedule 2 to this Agreement. 19. "Procurement Regulations" means, for purposes of paragraph 85 of the Appendix to the General Conditions, the "World Bank Procurement Regulations for IPF Borrowers", dated July 2016, revised November 2017 and August 2018. 20. "Project Incremental Costs" means the reasonable incremental operating expenditures, based on an annual allocation previously approved by the Bank and the Borrower, required 13 for an efficient Project implementation, administration, supervision, monitoring and evaluation. 21. "RAP" means Resettlement Action Plan, a site-specific resettlement action plan, acceptable to the Bank, prepared under the Project in accordance with the "RPF" describing a program of actions, measures and policies for resettlement compensation, including compensation arrangements, budget and cost estimates, and sources of funding, together with adequate institutional, monitoring and reporting arrangements capable of ensuring proper implementation of, and regular feedback on compliance with its terms for each site. 22. "Restitution" means the refund to the Borrower of the portion of the equivalent amount of the Loan with respect to which fraud and corruption has occurred, as set forth in the Anti- Corruption Guidelines. 23. "RPF" means CONAGUA's Resettlement Policy Framework, acceptable to the Bank, and published on CONAGUA's website and Bank's external website on January 15, 2018, updated and redisclosed on December 17 and 18, 2019, respectively, which contains, inter alia, procedures and guidelines for the preparation, adoption, implementation and monitoring of Resettlement Action Plans, as said framework may be amended from time to time with the prior agreement of the Bank. 24. "SCADA" means the supervisory control and data acquisition system. 25. "SHCP means Secretaria de Hacienda y Credito P blico, the Borrower's Ministry of Finance and Public Credit or any successor thereto. 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. "Toluca Metropolitan Area" means the area comprised by the following Borrower's municipalities: Tolica, Metepec, Zinacantepec, Almoloya de Juarez, Lerma Otzolotepec, San Mateo Atenco, Ocoyoacac, Calimaya, Xonacatlan, San Antonio la isla, Rayon, Mexicaltzingo and Chapultepec. 28. "Valley of Mexico" means a highlands plateau in central Mexico with similar borders as Mexico City and the eastern half of the Borrower's State of Mexico. 29. "WWTP" means wastewater treatment plant. 14