F1o F LOAN NUMBER 1761 AR Amending Agreement to Loan and Project Agreements (Yacyreta Hydroelectric Project) between THE iRGENTINE REPUBLIC and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and ENTIDAD BINACIONAL YACYRETA Dated / , 1986 LOAN NUMBER 1761 AR AMENDING AGEEMENT TO LOAN AND PROJECT AGREEMENTS AGREEMENT, dated , 1986, between the Argentine Republic (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and ENTIDAD BINACIONAL YACYRETA (hereinafter called Yacyreta). WHEREAS (A) by the Loan Agreement dated November 6, 1979, between the Bank and the Borrower, as amended, (hereinafter called the Loan Agreement), the Bank has made a loan (hereinafter called the Loan) to the Borrower, in an amount in various cur- rencies equivalent to two hundred ten million United States dollars ($210,000,000) on the terms and conditions set forth in the Loan Agreement, for the purposes of assisting in the financing of the project described in Section 4.01 to the Loan Agreement and Schedule 1 to the Project Agreement of even date between the Bank and Yacyreta (hereinafter called the Project Agreement); (B) the Borrower and Yacyreta have requested the Bank to agree to certain amendments to the Loan and Project Agreements to reflect the current financial situation of the Borrower's Electric Power Sector as well as the Borrower's undertaking to improve such financial situation and, in that sense, the Borrower has represented to the Bank that it shall carry out a medium term program aimed at restoring the Electric Power Sector's finances through a balanced financing plan including increases in rates, improvement of efficiency and reduction of losses and equity contributions to the utilities in the Sector; NOW THEREFORE, based, inter alia, on the foregoing, the parties hereto hereby agree as follows: A. Definitions: WHEREVER used in this Agreement, unless the context other- wise requires, the several terms defined in the Preamble to this Agreement aftd in the Loan and Project Agreements have the respec- tive meanings therein set forth. -2- B. Amendments to the Loan Agreement: 1. Section 1.02 is amended by adding the following new para- graphs (k), (1), (m), (n), (o), (p), (q), (r) and (s). (k) "DEBA" means Direccion de Ene Electrica de la Provincia de Buenos Aires; (1) "EPEC" means Empresa Provincial de Energ(a de Cordoba; (m) "EMSE" means Energfa Mendoza Sociedad del Estado; (n) "DPESF" means Direccion Provincial de la Enera_ a de Santa Fe; (o) "ELECTRICAL FUNDS" means the proceeds of the surcharge on energy rates and prices which are chanelled to the Borrower's Fondo Chocdn-Cerros Colorados (FCCC), Fondo Nacional de Grandes Obras Elictricas (FNGOE), Fondo Nacional de la Energia El6ctrica (FNEE), and Fondo Especia'. para el Desarrollo Elictrico del Interior (FEDEI) estab- lished under Law No. 17,574, dated December 21, 1967, and Law No. 19,287, dated October 5, 1971, and by Law No. 15,336, dated September 15, 1960, and Law No. 22,938, dated October 6, 1983, respectively, as amended to the date of this Agreement; (p) "National Utilities" means SEGBA, A y EE, HIDRONOR, YACYRETA, CNEA and CTMSG referred to collectively, and "National Utility" means any one of them; (q) "SE" means the Borrower's Secretarfa de Estado de Energfa; (r) "Provincial Utilities" means DEBA, EPEC, EMSE and DPESF referred to collectively, and "Provincial Utility" means anyone of them; and s) "short-term debt" means any overdraft or debt incurred by a National Utility or a Provincial Utility and maturing by its terms one year or less than one year after the date on which it is originally incurred, and "long-term debt" means any debt incurred by a National Utility or a Provincial Utility maturing by its terms more than one year -3- after the date on which it was originally incurred; debt shall be deemed to be incurred: (1) under a loan agreement, on the date it is drawn down but only to the extent that it is outstanding, and (2) under a guarantee agreement, on the date such agreement is entered into. 2. Section 3.01 (c) (i) of the Loan Agreement is amended to read as follows: (i) "at least two billion seven hundred sixty- five million dollars during the period 1986 - 1994 ($2,765,000,000) equivalent out of the proceeds of the Electrical Funds for purposes of assisting Yacyreta in carrying out Parts A, B, and C of the Project, such amounts being, at June 1985 prices, equivalent to two billion one hundred forty-two million dollars ($2,142,000,000); and". 3. Section 3.01 (c) of the Loan Agreement is amended by delet- ing the definition of "Electrical Funds" therein. 4. Section 4.05 is amended by: (i) designating its current wording as paragraph (a); and (ii) adding the following new paragraphs: "(b) not later than July 15 each year, the Borrower shall, through SE, furnish to the Bank consolidated economic and financial projections for the National Utilities, of such scope and detail as the Bank shall reasonably request. Such projections to be based on investment, financing and tariff plans approved by the Borrower's Ministerio de Economfa; (c) based on the projections referred to in paragraph (b) of this Section, the Borrower shall, not later than October 15, 1986 and August 15 of each year thereafter, prepare, and exchange views with the Bank on, a set of financial targets for each of the National Utilities for the following year; and (d) not later than June 15 and December 15 of each year, the Borrower shall furnish to the Bank a summary financial and economic report, of such scope and detail as the Bank shall reasonably -4- request, covering the following matters for each of the National Utilities, during the preceding 12 month period ending on March 31 and September 30, respectively: (i) status of account receivables segregated to show debt of private and public consumers; (ii) status of compliance with the maintenance of tariff levels (according to the composite index defined in Section 5.06 of this Agreement), with the rate of return and revalua- tion of assets obligations set forth or referred to in this Loan Agreement, including, if needed, a detailed explanation of the causes of any failure to comply with such obligations and the type and timing of the remedial action to be taken by the Borrower and each of the Utilities to achieve full compliance with such obligations; and (iii) status of collection of the proceeds of the Electrical Funds;" 5. The following new Section 4.06 is added to the Loan Agree- ment: "Section 4.06. The Borrower shall: (a) not later than October 31, 1986, prepare and furnish to the Bank an action program, satisfactory to the Bank, aimed at: (i) reducing the National Utilities' energy losses to adequate levels and improving collection of their receivables, and (ii) improving collection of the Electric Funds surcharges. (b) Carry out, and cause such Utilities to carry out, such action programs in a manner and according to a time- table satisfactory to the Bank." 6. The following new Section 4.07 is added to the Loan Agree- ment: "Section 4.07. (a) Not later than March 31, 1987 the Borrower shall, through SE, assisted by consultants satis- factory to the Bank, carry out a study on the long run marginal cost of electric services in Argentina, such study to be carried out under a methodology and assumptions satis- factory to the Bank; (b) promptly upon its completion, the Borrower shall furnish to the Bank the results of such study for comments; and (c) taking into account the Bank's com- ments thereon, the Borrower shall include the results of such study in the financial information and projections to be furnished to the Bank in 1988 pursuant to the provisions -5- of paragraphs (b), (c) and (d) of Section 4.05 of this Loan Agreement." 7. The following new Section 4.08 is added to the Loan Agree- ment: "Section 4.08. Not later than October 31, 1986, the Borrower shall, through SE, appoint, and provide with appropriate office facilities and support, a full time professional to be responsible for: (i) coordination and follow up on the preparation of consolidated financial projections and financial progress reports of the National Utilities; (ii) preparation of individual and consolidated summary periodic reports to SE (with specific recommenda- tions to address identified problems) of the financial progress reports received from the individual National Utilities; (iii) the timely delivery of covenanted financial reports to the Bank; (iv) preparing summary monitoring reports with comments and recommendations in the areas of adequacy of tariffs and sector operational and financial performance; and (v) gathering data and preparing reports on the opera- tional and financial performance of the Provincial Utilities, of such scope and detail as the Bank shall reasonably request, such reports to be included in the reports referred to in Section 4.05 (d) of this Agreement." 8. The following new Section 4.09 is added to the Loan Agree- ment: "Section 4.09. The Borrower shall, through SE: (a) Not later than March 31, 1987, assisted by consultants satisfac- tory to the Bank, carry out, under terms of reference satisfactory to the Bank, a diagnostic study of the organi- zation and operational efficiency of the Electric Power Sector and the National Utilities; and (b) promptly after its completion furnish to the Bank a copy of such study for comment." - 6 - 9. Section 5.04 of the Loan Agreement is deleted and substitu- ted by the following: "Section 5.04. The Borrower shall take all administra- tive and other action required on its part to cause and enable the National Utilities: (a) to revalue their fixed assets in service at the end of each year in accordance with sound economic and financial principles, taking into account both local and international inflation; and (b) to carry out the first such revaluation, after exchanging views with the Bank, not later than June 30, 1987." 10. Section 5.05 of the Loan Agreement is deleted and substitu- ted by the following: "Section 5.05. The Borrower shall take all admini- strative and other action required on its part to enable HIDRONOR, SEGBA, A y EE, and CNEA to take from time to time all such measures (including adjustments in the structure or levels of their electricity rates) as shall be required to provide, unless the Bank shall otherwise agree: (a) in the case of HIDRONOR, revenues to produce an annual rate of return on its fixed assets, revalued pursuant to Section 5.04 of this Agreement, of not less than 3% in fiscal year 1986, 4% in fiscal year 1987, 4% in fiscal year 1988, 5% in fiscal year 1989, 6% in fiscal year 1990, 7% in fiscal year 1991 and 8% in fiscal year 1992 and thereafter, such rates of return to be calculated for 1986 in accor- dance with the provisions of the Contrato Concesion, dated November 28, 1968, between the Borrower and HIDRONOR and for 1987 and thereafter in accordance with the methodology described in Section 5.05 (d) of this Agreement; (b) in the case of SEGBA, A y EE, and CNEA, revenues to produce at least the fillowing annual rate of return on the fixed assets of each of them: (i) A y EE: 1% in fiscal year 1991, 2% in fiscal year 1992, 3% in fiscal year 1993, and 4% in fiscal year 1994 and thereafter; (ii) CNEA 3% in fiscal year 1986 and 8% in fiscal year 1987 and thereafter; and (iii) SEGBA 0.5% in fiscal year 1986, 2.5% in fiscal 1987, 3.5% in fiscal year 1988, 5% in fiscal year 1989, 6% in fiscal year 1990, 7% in fiscal year 1991 and 8% in fiscal year 1992 and thereafter; - 7 - (c) A y EE, for each fiscal year from 1986 to 1990, sufficient funds to cover its operating expenses (as such term is defined below), provided, however, that such term shall, for purposes of this paragraph, include only 30% of the applicable depreciation in 1987, 50% in 1988, 75% in 1989 and 100% in 1990; and (d) for purposes of paragraph (b) of this Section: (i) the annual rate of return shall be calculated in respect of each fiscal year by relating net operating income for that year to the average of the net value of fixed assets in operation at the beginning and end of that year increased by 5% (representing an allowance for working capital); (ii) the term "net operating income" means all operating income less all operating expenses; (iii) the term "operating income" means total revenues from all sources related to operations; (iv) the term "operating expenses" includes: direct costs of operation, administration, overhead and adequate maintenance expenses; straight-line depreciation based on the useful life of assets; taxes (if applicable to expenses); but does not include interest and other charges on debt; provided, however, that taxes not applicable to expenses will be compensated financially by the Borrower so as not to affect adversely the financing of the investment program of the respective utilities or of the sector as a whole; and (v) the term "net value of fixed assets in operation" means the gross value of fixed assets in operation less the accumula- ted depreciation, all as revalued in accordance with Section 5.04 of this Agreement." 11. Section 5.06 of the Loan Agreement is deleted and substitu- ted by the following: "Section 5.06. The Borrower represents that it is the Borrower's policy that the level of the electricity rates reflect the average long-term marginal cost of supplying electricity services and to that effect undertakes to take, inter alia, all administrative and other action required on its part: (a) to enable SEGBA, A y EE and HIDRONOR to increase their electricity rates in real terms: (i) no later than April 1, 1.987, by at least the following percentages when compared with the rates in effect on January 1, 1986, SEGBA 12%, A y EE 30%, and HIDRONOR 15%; (ii) to reflect any changes in the composite cost index between June 1, 1985 and January 1, 1986; and (iii) to reflect any further - 8 - changes in the respective composite cost index of each such National Utility; (b) to cover, as a minimum, CTMSG's opera- tional expenses (as such term is defined in Section 5.05 (d) (iv) of this Agreement) and pay all its debt on a timely basis; and (c) for purposes of this Section: (i) "composite cost index" means SEGBA's or HIDRONOR's or A y EE's composite cost index resulting from: (A) the following components adjusted monthly: (1) authorized salaries; (2) the unit price of fuel and power purchased by each of them; (3) the selling rate of dollars in terms of the currency of the Borrower; (4) "fndice de precios al por mayor (no-agro- pecuario nacional)" of the Borrower; and (5) construction cost index of the Borrower; and (B) giving such components the weights of 22%, 32%, 26%, 12% and 8% repectively, or such other weights as the Borrower and the Bank may otherwise agree. (ii) "increase in real terms" means adjust- ments to the electricity rates over and above any adjustment required to cover any increases in the respective Utility's composite cost index; (iii) the electricity rates increases referred to in paragraph (a) (i) of this Section will consist of 4 approximately equal increases effective not later than June 1 and October 1, 1986 and January 1 and April 1, 1987, respectively, and - 9 - (iv) the increases referred to in para- graph (a) (ii) of this Section shall consist of two approximately equal increases effective not later than March 30 and June 30, 1987, 'respec- tively." 12. Section 5.07 of the Loan Agreement is amended to read as follows: "Section 5.07. The Borrower shall, by May 31, 1987, take all administrative and other action required on its part to enable SEGBA, HIDRONOR and A y EE to charge con- sumers as a surcharge on the monthly electricity bill, such amounts as shall be equivalent to those previously collected by SEGBA, HIDRONOR and A y EE on account of provincial taxes". 13. Section 5.08 of the Loan Agreement is deleted and substitu- ted by the following: "Section 5.08. The Borrower shall take all administra- tive and other action required on its part: (a) to enatl-e SEGBA, A y EE, HIDRONOR, CNEA, and CTMSG to convert their short-term debt into long-term debt so that the aggregate amount of their short-term debt does not exceed, unless the Bank shall otherwise agree, 20% of the aggregate amount of their debt by December 31, 1986; and (b) to cause SEGBA, A y EE, HIDRONOR, CNEA and CTMSG to prepare and furnish to the Bank not later than October 31, 1986, individual reports and action plans, approved by the Borrower's Ministerio de Economia, to achieve the short-term debt limit provided in paragraph (a) of this Section, Such reports to be of such scope and detail as the Bank shall resonably request and to include, inter alia, a list of each active loan with details of their terms (lender amount, domestic loans, Paris Club, commercial banks, and other lenders), and debt service pro- jection of each loan until 1995 divided in interest and other charges and principal payments." 14. Section 5.09 of the Loan Agreement is amended by: "(i) redesignating its current wording as para- graph (a); and - 10 - (ii) adding the following new paragraphs (b) and (c): "(b) as part of the foregoing, and consider- ing that the policy objectives of the Borrower are to attain a balanced economic and financial operation of the National Utilities, the Borrower undertakes to include in its budget for each fiscal year, contributions to SEGBA and A y EE sufficient to attain such objectives, in amounts consistent with the outcome of the financial review referred to in Section 4.05 of this Agreement. (c) the Borrower undertakes to allocate funds from the Electrical Funds to finance any current or capital expenditures of CNEA, only after all current and capital expenditures of all other National Utilities have been fully covered." 15. Section 5.10 of the Loan Agreement is amended by: (i) redesignating its current wording as paragraph (a); and (ii) adding the following new paragraph (b): "(b) Not later than October 31, 1986, the Borrower shall furnish to the Bank a report, of such scope and detail as the Bank shall reasonably request, on the legal and procedural details of the transfer of A y EE's assets to the Provinces, particularly those relating to personnel trans- fers, valuation of transferred assets, reassign- ment of liabilities linked both to the assets and to transferred workers' social and retirement benefits, and to the legal status of the newly created Provincial entities pertaining to regula- tion and control of their operations." 16. Section 6.01 of the Loan Agreement is amended by adding the following new paragraph (h): "(h) by October 31 of any year, the Borrower shall have failed: (i) to exchange views as provided in Sec- tion 4.05 (c) of this Agreement; or (ii) agree on the - 11 - financial targets for each of the National Utilities for the following calendar year. 17. Section 6.02 (b) of the Loan Agreement is amended by substituting the words "in paragraphs (a), (d), (f) or (g)" by "in paragraphs (a), (d), (f), (g) or (h)". 18. Schedule 2 to the Loan Agreement is amended to read as set forth in the Annex to this Agreement. C. Amendments to the Project Agreement 1. Section 4.02 of the Project Agreement is amended by adding the following new paragraph (d): "(d) not later than October 31 each year, furnish to the Bank evidence, satisfactory to the Bank, that it has employed the auditors referred to in paragraph (a) of this Section." 2. Section 4.03 (b) of the Project Agreement is amended by substituting the sentence "not later than one year after the date of this Agreement" by "not later than December 31, 1986." 3. Section 4.04 of the Project Agreement is amended by adding the following new paragraphs (c) and (d): "(c) not later than October 31, 1986, YACYRETA shall present to the Bank, a report, of such scope and detail as the Bank shall reasonably request, on its short-term debt situation including, inter alia: (i) a list of each active loan with details of their terms (lender amount, currency, date of agreement, purpose, interest, commissions and out- standing balance as of December 31, 1985) grouped under domestic loans, Paris Club, foreign commercial banks, and other lenders; and (ii) debt service projection of each loan until 1995 divided in interest and other charges and princi- pal payments; and (d) not later than June 1 each year, Yacyreta shall furnish to the Bank a report of such scope and detail as the Bank shall reasonably request on its debt situation as a consequence of the Borrower's external debt renegotiations." - 12 - D. Effectiveness of this Agreement 1. This Agreement shall not become effective until the Bank shall have been furnished legal opinions, satisfactory to the Bank, on behalf of the Borrower and Yacyreta, of counsel accept- able to the Bank, showing that the foregoing amendments to the Loan and Project Agreements have been duly authorized by the Borrower and Yacyreta and that such amendments are legally bind- ing upon the Borrower and Yacyreta in accordance with their terms. 2. This Agreement and the amendments contained herein shall come into force and effect on the date upon which the Bank dispatches notices to the Borrower and Yacyreta of its acceptance of the legal opinions referred to in paragraph I above. 3. If this Agreement shall not have come into force and effect by December 1, 1986, this Agreement and all obligations of the parties hereunder shall terminate, unless the Bank establishes a later date for purposes of this paragraph. If this Agreement shall terminate under the provisions of this paragraph, the Loan Agreement and the Project Agreement shall continue in full force and effect, as if this Agreement had not been executed. - 13 - IN WITNESS WHEREOF, the parties hereto acting through their duly authorized representatives, have caused this Amending 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. THE ARGENTINE REPUBLIC Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By/s4A Regional Vice President Latin America and the Caribbean ENTIDAD BINACIONAL YACYRETA By Authorized Representative - 14 - ANNE SCHEDULE 2 Amortization Schedule DATE PAYMENT DUE REPAYMENT OF PRINCIPAL (expressed in dollars)* On June 1, 1986 11,665,000 On December 1, 1986 100,000 On June 1, 1987 100,000 On December 1, 1987 100,000 On June 1, 1988 4,735,000 On December 1, 1988 5,700,000 On June 1, 1989 6,800,000 On December 1, 1989 8,500,000 On June 1, 1990 9,600,000 On December 1, 1990 10,700,000 and On each June 1 and December 1 beginning June 1, 1991 through December 1, 1994 19,000,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Sec- tion 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the International Bank for Reconstruction and Development. FOR SECRETARY