OFFICIAL LOAN NUMER 2179 EDD"UMENTS

Project Agreement(Sixth Power Project)

between

INTERNATIONAL BAB= FOR RECONSIUTCTIONAND DVELOPMKEJ

and

EMPRESA ELECTRICIDAD DE7 PERU S.A.

Dated , 1982

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LOAN NUMBER 2179 PE

PROJECT AGREEMENT

AGREEMENT, dated A 7 , 1982, betweenINTERNATIONAL BANK FOR REtONSTRUCTION AND DEVELOPMENT (herein-after called the Bank) and EMPRESA ELECTRICIDAD DEL PERU S.A.(hereinafter called ELECTROPERU).

WHEREAS (A) by the Loan Agreement of even date herewithbetween ELECTROLIMA S.A. (hereinafter called the Borrower) andthe Bank, the Bank has agreed to make available to the Borroweran amount in various currencies equivalent to eighty-one milliontwo hundred thousand dollars ($81,200,000), on the terms andconditions set forth in the Loan Agreement, but only on conditionthat ELECTROPERU agree to undertake such obligations toward theBank as are hereinafter set forth;

(B) by a subsidiary loan contract to be entered intobetween the Borrower and ELECTROPERU, a portion of the proceedsof the loan provided for under the Loan Agreement will be madeavailable to ELECTROPERU on the terms and conditicns therein setforth; and

WHEREAS ELECTROPERU, in consideration of the Bank's enteringinto the Loan Agreement with the Borrower, has agreed to under-take the obligations hereinafter set forth;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless thecontext shall otherwise require, the several terms defined in theLoan Agreement, the Preamble thereto, the Preamble to this Agree-ment and the General Conditions (as so defined) have the res-pective meanings therein set forth.

ARTICLE II

Execution of Part Bof the Project

Section 2.01. (a) ELECTROPERU shall carry out Part B of theProject described in Schedule 2 to the Loan Agreement and in

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Schedule 1 to this Agreement, with due diligence and efficiency

and in conformity with appropriate administrative, financial,

engineering and public utility practices.

(b) For purposes of the carrying out of Part B of the Pro-

ject, ELECTROPERU shall enter with the Borrower into the ELECTRO-

PERU Subsidiary Loan Contract.

(c) ELECTROPERU shall exercise its rights under the ELEC-

TROPERU Subsidiary Loan Contract in such manner as to protect its

interest and those of the Guarantor, the Bank and the Borrower.

Except as the Bank shall otherwise agree, ELECTROPERU shall not

take or concur in any action which would have the ef fect of

assigning, amending, abrogating or waiving the ELECTROPERU Sub-

sidiary Loan Contract or any provision thereof.

Section 2.02. (a) In order to assist ELECTROPERU in the

carrying out of Part B of the Project, ELECTROPERU shall employ

engineering consultants whose selection, qualifications, expe-

rience and terms and conditions of employment shall be in accor-

dance with the principles and procedures described in the "Guide-

lines for the Use of Consultants by World Bank Borrowers and by

the World Bank as Executing Agency" published by the Bank in

August 1981, and in Part E of Schedule 4 to the Loan Agreement.

(b) ELECTROPERU shall cooperate fully with such consultants

in the performance of their services for the Project and make

available to them all information relevant to the Project.

(c) ELECTROPERU shall cause the consultants employed by it

for purposes of the Project promptly to furnish to the Bank

copies of the documents prepared by them for the Project, includ-

ing reports and drafts thereof, plans, designs, specifications,

work schedules and estimates of costs, in such number as the Bank

shall reasonably request.

(d) With respect to the evaluation and putting into effect

of the recommendations and other conclusions contained in all

documents referred to in the preceding paragraph, ELECTROPERU

shall, during the carrying out of Part B (1) of the Project and

upon its completion, exchange views with the Bank on said recom-

mendations and conclusions.

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Section 2.03. Except as the Bank shall otherwise agree, pro-curement of the goods required for Part B of the Project and tobe financed out of the proceeds of the Loan relent to ELECTROPERUby the Borrower shall be governed by the provisions of Schedule 2to this Agreement.

Section 2.04. (a) ELECTROPERU undertakes to insure, or makeadequate provision for the insurance of, the imported goods to befinanced out of the proceeds of the Loan relent to it by the Bor-rower against hazards incident to the acquisition, transportationand delivery thereof to the place of use or installation, and forsuch insurance any indemnIty ahall be payable in a currencyfreely usable by ELECTROPERU to replace or repair such goods.

(b) ELECTROPERU shall cause all goods and services financedout of the proceeds of the Loan relent to it by the Borrower tobe used exclusively for the purposes of the Project.

Section 2.05. (a) ELECTROPERU shall furnish to the Bank,promptly upon their preparation, the plans, specifications,reports, contract documents and work and procurement schedulesfor Part B of the Project, and any material modifications thereofor additions thereto, in such detail as the Bank shall reasonablyrequest.

(b) ELECTROPERU: (i) shall maintain records and procedures,including separate accounts for Part B of the Project, adequateto record and monitor the progress of such Part of the Project(including its cost and the benefits to be derived from it), toidentify the goods and services financed out of the proceeds ofthe Loan relent to it by the Borrower, and to disclose their usein such Part of the Project; (ii) shall enable the Bank's repre-sentatives to visit the facilities and construction sites relatedto such Part of the Project and to examine the goods financed outof the proceeds of the Loan relent to it by the Borrower and anyrelevant records and documents; and (iii) shall furnish to theBank at regular intervals all such information as the Bank shallreasonably request concerning Part B of the Project, its costand, where appropriate, the benefits to be derived from it, theexpenditure of the proceeds of the Loan relent to it by theBorrower and the goods and services financed out of such pro-ceeds.

(c) Upon the award by ELECTROPERU of any contract forgoods, works or services to be financed out of the proceeds of

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the Loan relent to it by the Borrower, the Bank may publish adescription thereof, the name and nationality of the party towhom the contract was awarded and the contract price.

(d) Promptly after completion of Part B of the Project, asthe case may be, but in any event not later than six months afterthe Closing Date or such later date as may be agreed for thispurpose between ELECTROPERU and the Bank, ELECTROPERU shall pre-pare and furnish to the Bank a report, of such scope and in suchdetail as the Bank shall reasonably request, on the execution ofPart B of the Project, its cost and the benefits derived and tobe derived from it, the performance by ELECTROPERU and the Bankof their respective obligations under this Agreement, the per-formance by ELECTROPERU and the Borrower of their respectiveobligations under the ELECTROPERU Subsidiary Loan Contract andthe accomplishment of the purposes of the Loan.

(e) ELECTROPERU shall enable the Bank's representatives toexamine all plants, installations, sites, works, buildings, pro-perty and equipment of ELECTROPERU and any relevant records anddocuments.

Section 2.06. (a) ELECTROPERU shall, at the request of theBank, exchange views with the Bank with regard to the progress ofPart B of the Project, the performance of its obligations underthis Agreement and under the ELECTROPERU Subsidiary Loan Con-tract.

(b) ELECTROPERU shall promptly inform the Bank of any con-dition which interferes or threatens to interfere with the pro-gress of Part B of the Project, the accomplishment of the pur-poses of the ELECTROPERU Subsidiary Loan, or the performance byELECTROPERU of its obligations under this Agreement and under theELECTROPERU Subsidiary Loan Contract.

ARTICLE III

Management and Operationsof ELECTROERFU

Section 3.01. ELECTROPERU shall at all times manage itsaffairs, maintain its financial position, plan its future expan-sion and carry on its operations in accordance with the ELECTRO-PERU Charter and the Estatutos with appropriate administrative,business, financial, engineering, and public utility practices,

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and under the supervision of experienced and competent managementassisted by experienced and competent staff in adequate numbers.

Section 3.02. (a) ELECTROPERU shall at all times take allsteps necessary to maintain its legal existence and right tocarry on operations, including, without limitation, Part B of theProject and shall, except as the Guarantor and the Bank mayotherwise agree, take all steps necessary to acquire, maintainand renew such licenses, consents, franchises or other rights asmay be necessary or useful for its operations (including suchPart of the Project).

(b) ELECTROPERU shall take all such action, including theprovision of funds and resources, as shall be necessary to ensurethat its facilities, equipment and property, are adequatelyoperated, maintained, renewed and repaired.

(c) Except as the Guarantor and the Bank shall otherwiseagree, ELECTROPERU shall not sell, lease, transfer or otherwisedispose of any of its property or assets which shall be an impor-tant requirement for the efficient operation of its business andundertaking, including Part B of the Project.

Section 3.03. ELECTROPERU shall take and cause to be takenall action as shall be required to ensure that its operations,including Part B of the Project, are carried out in conformitywith appropriate pollution control and ecological standards.

Section 3.04. ELECTROPERU shall take out and maintain withresponsible insurers, or make other provisions satisfactory tothe Bank for, insurance against such risks and in such amounts as

shall be consistent with appropriate practice.

Section 3.05. ELECTROPERU shall, by December 31, 1985, reor-ganize its accounting and internal auditing methods in form andsubstance satisfactory to the Bank; such reorganization willinclude, without limitation: (i) definition of the responsibili-ties of ELECTROPERU's financial and accounting units; (ii) devel-opment of standard accounting procedures and handbooks; and (iii)preparation of specifications for data processing equipment suit-able to meet ELECTROPERU's needs.

Section 3.06. Notwithstanding the obligations of ELECTROPERUin respect of the carrying out of Part B (1) of the Project in

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this Agreement contained, ELECTROPERU acknowledges that the legalrelationships between ELECTROPERU, Servicio de Agua Potable yAlcantarillado de Lima - SEDAPAL and the Borrower in respectthereof are governed by the Association Contract. Consequently,ELECTROPERU shall exchange views with the Borrower and SEDAPALduring the execution of the study included in such Part of theProject, shall make available to the Borrower and SEDAPAL allreports and draft reports, and all documentation in supportthereof, originated in such study and shall reflect the cost ofcarrying out such study in its books as part of ELECTROPERU'scontribution to the Mantaro Project pursuant to the AssociationContract.

Section 3.07. ELECTROPERU shall take all such steps as shallbe necessary on its part to ensure that the findings and recom-mendations of the studies to be carried out by the Borrower underPart A (3) and Part A (4) of the Project, and by HIDRANDINA underPart C of the Project are appropriately integrated with theconclusions of ELECTROPERU's studies for the Master Plan.

ARTICLE IV

Financial Covenants

Section 4.01. ELECTROPERU shall maintain records adequate toreflect in accordance with consistently maintained appropriateaccounting practices its operations and financial conditions.

Section 4.02. ELECTROPERU shall: (i) have its accounts,including the accounts referred to in Section 2.05 (b) (i) ofthis Agreement, and financial statements (balance sheets, state-ments of income and expenses and related statements) for eachfiscal year audited, in accordance with appropriate auditingprinciples consistently applied, by independent auditors accept-able to the Bank; (ii) furnish to the Bank as soon as available,but in any case not later than six months after the end of eachsuch year, (A) certified copies of its financial statements andof the accounts referred to in Section 2.05 (b) (i) of thisAgreement, for such year as so audited and (B) the report of suchaudit by said auditors, of such scope and in such detail as theBank shall have reasonably requested; and (iii) furnish to theBank such other information concerning the accounts and financialstatements of ELECTROPERU and the audit thereof as the Bank shallfrom time to time reasonably request.

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Section 4.03. Except as the Bank and ELECTROPERU shall

otherwise agree:

(a) ELECTROPERU shall take all necessary steps, includingfiling applications with the Guarantor for tariff adjustments, so

as (i) to yield adequate rates of return for each calendar year

starting in 1982, calculated in accordance with Part B of theSchedule to the Guarantee Agreement, and (ii) to permit theGuarantor to comply with Section 3.05 of the Guarantee Agreement;

(b) ELECTROPERU shall, within the first two months of each

calendar quarter, review the adequacy of its tariffs to produce

an adequate annual return required for the year in question andshall furnish to the Bank the results of such review; and

(c) if any such review shows that ELECTROPERU would not

earn the annual return required for the year in question ELECTRO-

PERU shall apply for an adjustment of its tariffs accordingly.

Section 4.04. (a) ELECTROPERU shall not incur any long-term

debt during the years 1982 and 1983 which shall increase the

long-term debt shown in ELECTROPERU's books as of December 31,1981 beyond the limits agreed between the Guarantor, the Bank and

ELECTROPERU.

(b) Starting in the year 1984, and except as the Bank shall

otherwise agree, ELECTROPERU shall not incur any long-term debt

unless:

(i) the incurrence of such long-term debt has been

agreed between the Guarantor, the Bank and ELEC-TROPERU as a result of the review referred to inSection 4.05 (c) of this Agreement; or

(ii) the net revenues for the fiscal year next prece-

ding such incurrence or for a later twelve-monthperiod ended prior to such incurrence, whichever

amount is the greater, shall be not less than 1.5times the maximum long-term debt service require-ment for any succeeding fiscal year on all long-term debt, including the long-term debt to be

incurred.

(c) For purposes of the preceding paragraph:

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(i) the term "long-term debt" shall mean all debt ofELECTROPERU maturing by its terms more than oneyear after the date on which it is incurred;

(ii) the term "net revenues " shall mean gross revenuesadjusted to take account of the rates applied byELECTROPERU which are in effect at the time of theincurrence of long-term debt even though they werenot in effect during the fiscal year or twelve-month period to which such revenues relate, lessoperating and administrative expenses, but beforeprovision covering depreciation of assets, andother non-cash expenses to the extent provisiontherefor is required under the laws and regula-tions of the Guarantor, interest and other chargeson long-term debt; and

(iii) the term "debt service requirement" shall mean theaggregate amount of amortization (including sink-ing fund payments, if any), interest and othercharges on long-term debt regardless of whetherthe incurrence of such debt has been agreed uponas a result of the review referred to in Section4.05 of this Agreement.

(d) Except as the Bank shall otherwise agree, ELECTROPERUshall not incur any short-term debt after January 1, 1984, unlessthe aggregate of all short-term debt incurred by ELECTROPERU,including the short-term debt to be incurred but deducting, tothe extent the Bank is satisfied therewith, cash and the cashvalue of negotiable instruments held by ELECTROPERU is equal toor less than one-sixth (1/6) of the operating, maintenance andadministrative expenses (excluding depreciation and othernon-cash provisions) of ELECTROPERU ror the twelve-month periodpreceding such incurrence. For the purposes of this paragraph theterm "short-term debt" means all debt of ELECTROPERU for moneyborrowed, including bank overdrafts, maturing by its terms ondemand or less than onL year after the date on which it wasincurred.

(e) For the purposes of this Section, debt shall be deemedto be incurred on the date of execution and delivery of a con-tract, loan agreement or other instrument providing for suchdebt; provided, however, that in the case of guarantee of debt,debt shall be deemed to be incurred on the day the agreement

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guaranteeing such debt has been entered into but only to theextent that the guaranteed debt is outstanding.

Section 4.05. (a) ELECTROPERU shall take all such steps asshall be necessary to prepare a program of capital expendituresto be incurred by it or its Subsidiaries (including the financingplan therefor) during the period 1984 to, and inclusive, 1987,outside the Guarantor's central-north interconnected electricpower system, including rural electrification works and smallhydroelectric plants, to obtain the approval of the Guarantor tosuch program and to furnish it to the Bank, not later thanDecember 31, 1983 in a timely fashion so as to afford the Bank areasonable opportunity to comment on such program before it isput into effect.

(b) The provisions of Section 4.05 of the Prior Loan Agree-ment shall apply, under this Agreement, with the same force andeffect as if they were fully set forth herein.

(c) ELECTROPERU shall, not later than November 30, 1983 andeach anniversary thereafter, review jointly with the Guarantorand the Bank a detailed program of its expenditures and itsfinancing plan for the calendar year next following the review inquestion.

ARTICLE V

Effective Date; Termination;Cancellation and Suspension

Section 5.01. This Agreement shall come into force andeffect on the date upon which the Loan Agreement becomeseffective.

Section 5.02. This Agreement and all obligations of the Bankand ELECTROPERU thereunder shall terminate on the date on whichthe Loan Agreement shall terminate in accordance with its terms,and the Bank shall promptly notify ELECTROPERU thereof.

Section 5.03. All the provisions of this Agreement shallcontinue in full force and effect notwithstanding any cancella-tion or suspension under the General Conditions.

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ARTICLE VI

Miscellaneous Provisions

Section 6.01. Any notice or request required or permitted to

be given or made under this Agreement and any agreement between

the parties contemplated by this Agreement shall be in writing.

Such notice or request shall be deemed to have been duly given or

made when it shall be delivered by hand or by mail, telegram,

cable, telex or radiogram to the party to which it is required or

permitted to be given or made at such party's address hereinafter

specified or at such other address as such party shall have

designated by notice to the party giving such notice or making

such request. The addresses so specified are:

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 440098 (ITT)

Washington, D.C. 248423 (RCA) or

64145 (WUI)

For ELECTROPERU:

Empresa Electricidad del Peru', S.A.

Paseo de la Republica 144

Lima, Peru

Cable address: Telex:

ELECTROPERU 25680 PE

Lima, Peru

Section 6.02. Any action required or permitted to be taken,

and any document required or permitted to be executed, under this

Agreement on behalf of ELECTROPERU, or by ELECTROPERU on behalf

of the Borrower under the Loan Agreement, may be taken or exe-

cuted by the Gerente General or such other person or persons as

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the Gerente General shall designate in writing, and ELECTROPERUshall furnish to the Bank sufficient evidence of the authorityand the authenticated specimen signature of each such person.

IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentatives thereunto duly authorized, have caused thisAgreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and yearfirst above written.

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

ByRegional Vice President

Latin America and the Caribbean

EMPRESA ELECTRICIDAD DEL PERU

ByAuthorized Representative

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SCHEDULE 1

Description of Part B of the Project

(1) Mantaro Transfer Scheme

Studying and preparation of the final design, preparation of

tender documents and the remainder of the preparatory studies and

activities required for the carrying out of the Mantaro TransferScheme, other than those referred to in Part A (5) of the Pro-ject.

(2) Training

(a) Execution of a training program for instructors whowill train ELECTROPERU's staff in fields such as plantoperation and maintenance, distribution network main-

tenance and testing of measurement equipment.

(b) Strengthening of ELECTROPERU's training center, andacquisition and utilization of equipment therefor.

(c) A program of fellowships for ELECTROPERU's staff.

(3) Technical Assistance

A program of technical assistance for ELECTROPERU to streng-

then its financial planning capability.

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SCHEDULE 2

Procurement

Contracts for goods for Part B (2) of the Project shallbe awarded following evaluation and comparison of proposalsrequested from at least three qualified suppliers from not lessthan three countries and territories eligible under the currentedition of the "Guidelines for Procurement under World Bank Loansand IDA Credits". The evaluation and comparison of such proposalsshall be made in accordance with criteria and procedures setforth in Part A of such Guidelines.

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 Interna-

tional Bank for Reconstruction and Develop-

ment.

In witness whereof I have signed this Certifi-

cate and affixed the Seal of the Bank thereunto

this L/ I day of , 1982.

FOR SECRETARY