CONFORMED COPY LOAN NUMBER 1081 HO Guarantee Agreement (Sixth Power Project) BETWEEN REPUBLIC OF HONDURAS AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JANUARY 27, 1975 CONFORMED COPY LOAN NUMBER 1081 HO Guarantee Agreement (Sixth Power Project) BETWEEN REPUBLIC OF HONDURAS AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JANUARY 27, 1975 GUARANTEE AGREEMENT AGREEMENT, dated January 27, 1975, between REPUBLIC OF HONDURAS (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank and EMPRESA NACIONAL DE ENERGIA ELECTRICA (hereinafter called the Bor;ower) the Bank has agreed to make to the Borrower a loan in various currencies equivalent to thirty-five million dollars ($35,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the. Borrower in respect of such loan as hereinafter provided; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual 4 payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan and the punctual performance of all the other obligations of the Borrower, all as set forth in the Loan Agreement. Section 2.02. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes, whenever there is reasonable cause to believe that the funds available to the Borrower will be inadequate to meet the estimated expenditures required for the carrying out of the Project, to make arrangements, satisfactory to the Bank, promptly to provide the Borrower or cause the Borrower to be provided with such funds as are needed to meet such expenditures. ARTICLE III Other Covenants Section 3.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Guarantor, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Guarantor shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing. undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Guarantor, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Guarantor 5 or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Guarantor. Section 3.02. The Guarantor shall from time to time take all action necessary to enable the Borrower to set and maintain such rates for the sale of electricity as shall be required to permit the Borrower to comply with its obligations under Section 5.04 of the Loan Agreement. Section 3.03. In order to avoid sediment accumulations in the reservoirs and canals included in the Project, the Guarantor shall take all steps necessary under existing legiK'ation to enforce soil conservation measures and control logging operations in the area of such reservoirs and canals. Section 3.04. Except as the Bank and the Guarantor shall otherwise agree, the Guarantor shall pay or cause Servicio Aut6nomo Nacional de Acueductos y Alcantarillados to pay (i) all such Servicio s debts to the Borrower for services rendered during 1974, not later than December 31, 1975, and (ii) all such Servicio's future debts to the Borrower for services rendered or to be rendered, within two months after the date of billing. ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Ministro de Hacienda y Credito Ptiblico of the Guarantor is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: Ministerio de Hacienda y Cr6dito P6blico Tegucigalpa, D.C. Honduras Cable address: HACIENDA Tegucigalpa, D.C. 6 For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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. REPUBLIC OF HONDURAS By /s / Roberto Lazarus Bernhard Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Gerald Alter Regional Vice President Latin America and the Caribbean