Page 1 CONFORMED COPY LOAN NUMBER 3235 YU Guarantee Agreement (Third Highway Sector Project) between SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated May 7, 1991 LOAN NUMBER 3235 YU GUARANTEE AGREEMENT AGREEMENT, dated 1991, between SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor, Social Fund for Arterial and Regional Roads of Vojvodina, Novi Sad (the Borrower) and Federal Association of Republican and Provincial Road Organizations of Yugoslavia, Belgrade (FARP), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; (B) by the Loan Agreement of even date herewith among the Bank, the Borrower and FARP, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to twenty-five million dollars ($25,000,000), 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 and to undertake such other obligations as provided in Page 2 this Agreement; 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 "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to, and Section 1.02 of, the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee Section 2.01.The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, without limitation or restriction upon any of its other obligations under the Guarantee Agreement, hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, all as set forth in the Loan Agreement. ARTICLE III Other Covenants Section 3.01. The Guarantor covenants that it will not take, or cause or permit to be taken, any action which would prevent or interfere with the performance by the Borrower or FARP of their obligations contained in the Loan Agreement and that, within the limits of its constitutional power, it will take or cause to be taken all reasonable action necessary or appropriate to enable the Borrower and FARP to perform such obligations. Section 3.02. (a) The Guarantor shall, through its appropriate departments and agencies, take all measures necessary to ensure that: (i) all revenue for roads from the road user charge on fuel continue to be derived from an ad valorem tax on the wholesale price of fuel in order to make available at least four hundred fifty million dollars ($450,000,000) equivalent to the road organizations in the republics and autonomous provinces on a timely basis each calendar year until Project completion to enable such road organizations to meet at a minimum their road maintenance, debt service and administrative costs included in their respective road expenditure programs for such calendar year, with any revenue remaining thereafter allocated to other roadworks; and (ii) by December 31, 1992, the sales tax on diesel fuel be increased to the same level as the sales tax on gasoline fuel. (b) For purposes of this Section: Page 3 (i) "road user charge on fuel" means the road user charge included in the retail price on gasoline and diesel fuel; and (ii) "road maintenance" means routine road maintenance, including pavement strengthening and excluding winter maintenance. Section 3.03. The Guarantor shall, through its appropriate departments and agencies: (a) by September 30, 1991, review with the Bank and the republics and autonomous provinces the conclusions and recommendations of the Bank's 1989-1990 study on deregulation and development of land transport markets in Yugoslavia; and (b) promptly thereafter, take all measures necessary to carry out or cause to be carried out the recommendations of such study in accordance with a timetable, all as shall be agreed with the Bank. Section 3.04. The Guarantor shall, through its appropriate departments and agencies: (a) by September 30, 1991, carry out, on the basis of objectives and terms of reference satisfactory to the Bank, a study to review the measures necessary to reduce noxious vehicle emissions; (b) by December 31, 1991, review with the Bank the conclusions and recommendations of such study; and (c) promptly thereafter, carry out or cause to be carried out there commendations of such study in accordance with a timetable, all as shall be agreed with the Bank. ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Federal Secretary of Finance 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: Savezni Sekretarijat Za Finansije Omladinskih Brigada 1 11070 Belgrade Yugoslavia Cable address: Telex: SAVEZNI SEKRETARIJAT 11062YUSIV ZA FINANSIJE Belgrade 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), Page 4 64145 (WUI) or 82987(FTCC) 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. SOCIALIST FEDERAL REPUBLIC OF YUGOSLAVIA By /s/ D. Mujizinovic Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ E. Lari Acting Regional Vice President Europe, Middle East and North Africa