Page 1 CONFORMED COPY GEF TF GRANT NUMBER TF056781 Project Agreement (Large-Scale Renewable Energy Development Project) between COMISION FEDERAL DE ELECTRICIDAD and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT acting as an Implementing Agency of the Global Environment Facility Dated October 5, 2006 Page 2 GEF TF GRANT NUMBER TF056781 PROJECT AGREEMENT AGREEMENT (“Project Agreement”) dated October 5, 2006, entered into between: 1. COMISION FEDERAL DE ELECTRICIDAD (“Project Implementing Entity”); and 2. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (“World Bank”), acting as an implementing agency of the Global Environment Facility, established pursuant to Resolution No. 91-5 of March 14, 1991 and Resolution No. 94-2 of May 24, 1994 of the Executive Directors of the World Bank (“GEF”), for grant funds provided to the GEF Trust Fund by certain members of the World Bank as participants of the GEF, in connection with the Grant Agreement of the same date among NACIONAL FINANCIERA S.N.C (“NAFIN”), the UNITED MEXICAN STATES (“Recipient”) and the World Bank (“Grant Agreement”). The World Bank and the Project Implementing Entity hereby agree as follows: Article I Standard Conditions; Definitions 1.01. The Standard Conditions (as defined in the Appendix to the Grant Agreement) constitute an integral 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 Grant Agreement and this Agreement or the Standard Conditions and in the preamble and the Schedule to this Agreement. Article II The Project 2.01. The Project Implementing Entity declares its commitment to the objectives of the Project described in Schedule 1 to the Grant Agreement (“Project”). To this end, the Project Implementing Entity shall carry out its Respective Part of the Project under the coordination of SENER and with the assistance of all relevant federal agencies, all in accordance with the provisions of Article II of the Standard Conditions, and shall provide, promptly as needed, the funds, facilities, services and other resources required for its Respective Part of the Project. Page 3 - 2 - 2.02. Without limitation upon the provisions of Section 2.01 of this Agreement, and except as the World Bank and the Project Implementing Entity shall otherwise agree, the Project Implementing Entity shall carry out its Respective Part of the Project in accordance with the provisions of the Schedule to this Agreement. Article III Effective Date; Termination 3.01. This Agreement shall come into force and effect on the date upon which the Grant Agreement becomes effective. 3.02. For purposes of Section 6.01 of the Standard Conditions, the date on which the provisions of this Agreement shall terminate is June 30, 2014. Article IV Representatives; Addresses 4.01. The Project Implementing Entity’s Representative is Director de Proyectos de Inversión Financiada. 4.02. The World Bank’s Address is: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable Address: Telex: Facsimile: INTBAFRAD 248423 (MCI) or 1-202-477-6391 Washington, D.C. 64145 (MCI) 4.03. The Project Implementing Entity’s Address is: Comisión Federal de Electricidad Av. Paseo de la Reforma No. 164, piso 14 Col. Juárez México 06600 D.F. Mexico Facsimile: (52-55) 5705-4472 Page 4 - 3 - AGREED at Mexico City, Mexico, as of the day and year first above written. COMISION FEDERAL DE ELECTRICIDAD By /s/ Eugenio Laris Alanís Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT as an Implementing Agency of the Global Environment Facility By /s/ Isabel Guerrero Authorized Representative Page 5 - 4 - SCHEDULE Execution of the Project Implem enting Entity’s Respective Part of the Project Section I. Institutional and Other Arrangements 1. Operational Manual: The Project Implementing Entity shall carry out the Project in accordance with the Operational Manual. The Operational Manual may be amended by the Project Implementing Entity and the Recipient from time to time with the prior written approval of the World Bank. In case of any conflict between the provisions of this Agreement and the Operational Manual, the provisions of this Agreement shall prevail. In case of any conflict between: (i) the Environmental Safeguards Manual and the Social Safeguards Manual; and (ii) the provisions of the Operational Manual, the Environmental Safeguards Manual and the Social Safeguards Manual shall prevail. 2. Environmental and Social Compliance: The Project Implementing Entity shall: (a) carry out (and cause the Project Company to carry out) the Project in accordance with the Environmental Safeguards Manual and the Social Safeguards Manual; (b) prepare or cause the Project Company to prepare and comply with the terms of, as the case may be, an Environmental and Social Impact Assessment and an Environmental and Social Management Plan; (c) ensure that the following documentation is made available (as part of the Bidding Documents) to the prospective bidders of La Venta III: (i) the Environmental Safeguards Manual and Social Safeguards Manual; (ii) the Regional Environmental Assessment; (iii) the complete data and conclusions generated by all bird studies carried out by INECOL since May 15, 2004 for the area of La Venta; and, (iv) the Environmental and Social Impact Assessment and Environmental and Social Management Plan for the Optional Site; (d) ensure that the data and findings generated by the Project Company (or the Project Implementing Entity) as a result of bird and bat monitoring during turbine operation is made available to the public; and (e) ensure that one of the members of the committee evaluating the bids for La Venta III is a qualified environmental specialist with qualifications and experience acceptable to the World Bank. 3. Subsidiary Agreement: The Project Implementing Entity shall (i) duly perform all its obligations under the Subsidiary Agreement; and (ii) exercise its rights under the Subsidiary Agreement in such manner as to protect the interests of the Recipient and the World Bank and to accomplish the purposes Page 6 - 5 - of the Grant. Except as the World Bank shall otherwise agree, the Project Implementing Entity shall not assign, amend, abrogate or waive the Subsidiary Agreement or any of its provisions. 4. The Project Implementing Entity shall prepare, structure and execute the IPP international competitive solicitation for La Venta III by September 30, 2007 and evaluate the bid responses promptly thereafter. 5. Power Purchase Agreement: The Project Implementing Entity shall enter into a Power Purchase Agreement with the Project Company in form and substance satisfactory to the World Bank, such agreement to include: (i) incentive allocation provisions which shall be the basis for the disbursement of the incentive support; (ii) the relevant provisions to ensure that the Project Company designs, constructs, operates and maintains La Venta III in accordance with the Environmental Safeguards Manual and the Social Safeguards Manual; and (iii) the obligation by the Project Company to submit annual monitoring reports to the Project Implementing Entity and the World Bank to ensure compliance with the Environmental Safeguards Manual and the Social Safeguards Manual. 6. Expert Consultant approval : The Environmental and Social Impact Assessment and the Environmental and Social Management Plan shall be approved by expert consultants with qualifications and experience acceptable to the World Bank. Section II. Project Monitoring, Reporting, Evaluation A. Project Reports. 1. (a) The Project Implementing Entity shall monitor and evaluate the progress of its Respective Part of the Project and prepare Project Reports for its Respective Part of the Project in accordance with the provisions of Section 2.06 of the Standard Conditions and on the basis of the indicators agreed with the World Bank as set forth in Section II.A.(d) of Schedule 2 of the Grant Agreement. Each such Project Report shall cover the period of one calendar semester, and shall be furnished to the Recipient not later than two weeks after the end of the period covered by such report for incorporation and forwarding by the Recipient through SENER to NAFIN and for incorporation and forwarding by NAFIN (as financial agent) to the World Bank of the overall Project Report. (b) Each Project Report shall also include: (i) the financial reports referred to in Section II.B.2 below; (ii) a physical progress report, and (iii) procurement reports, all in accordance with the formats agreed with the World Bank. 2. The Project Implementing Entity shall provide to the Recipient not later than two weeks following the end of the reporting period, for incorporation in the reports referred to in Section II.A.1 of Schedule 2 to the Grant Agreement and Section 2.06 (d) of the Standard Conditions all such information as the Recipient, NAFIN or the World Bank shall reasonably request for the purposes of such Sections. Page 7 - 6 - B. Financial Management, Financial Reports and Audits. 1. The Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the World Bank, both in a manner adequate to reflect the operations and financial condition of the Project Implementing Entity, including the operations, resources and expenditures related to its Respective Part of the Project. 2. Without limitation on the provisions of Part A of this Section, the Project Implementing Entity shall prepare and furnish to the World Bank as part of the Project Report not later than one month after the end of each semester, interim un- audited financial reports for the Project covering the semester, in form and substance satisfactory to the World Bank. 3. The Project Implementing Entity shall have its Financial Statements referred to above audited by independent auditors acceptable to the World Bank, in accordance with consistently applied auditing standards acceptable to the World Bank. Each audit of these financial statements shall cover the period of one fiscal year of the Project Implementing Entity. The audited financial statements for each period shall be furnished to the World Bank not later than six months after the end of the period. Section III. Procurement All good s, works and services required for the Project Implementing Entity’s Respective Part of the Project and to be financed out of the proceeds of the Grant shall be procured in accordance with the provisions of Schedule 2 to the Grant Agreement. Section IV. Other Undertakings 1. The Project Implementing Entity shall promptly inform the World Bank of any condition which interferes or threatens to interfere with the progress of its Respective Part of the Project (including but not limited to, any non compliance by the Project Company or the Project Implementing Entity with the Environmental Safeguards Manual and the Social Safeguards Manual), the accomplishment of the purposes of the Grant, or the performance of its obligations under this Agreement and the Subsidiary Agreement. 2. The Project Implementing Entity shall carry out the obligations set forth in Sections 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, and 2.09 of the Standard Conditions (relating to insurance, land acquisition, use of goods and services, maintenance of facilities, documents and records, cooperation and consultation, and visits respectively) in respect of the Project Agreement and its Respective Part of the Project. 3. The Project Implementing Entity shall use Bidding Documents satisfactory to the World Bank. Page 8 - 7 -