Project Agreement. Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 2224 BR. Public Disclosure Authorized. (Third Feeder Roads Project)

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1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 2224 BR Public Disclosure Authorized Project Agreement (Third Feeder Roads Project) Public Disclosure Authorized between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DE DESENVOLVIMENTO ECONOMICO E SOCIAL Public Disclosure Authorized Dated December 21, 1982

2 LOAN NUMBER 2224 BR PROJECT AGREEMENT AGREEMENT, dated December 21, 1982, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DE DESENVOLVIMENTO ECONOMICO E SOCIAL (hereinafter called BNDES). WHEREAS (A) by the Loan Agreement of even date herewith between Federative Republic of Brazil (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred fifty-four million dollars ($154,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that BNDES agree to undertake such obligations toward the Bank as are hereinafter set forth; (B) the Borrower has agreed to make available the proceeds of the loan to BNDES; and WHEREAS BNDES, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section BNDES shall: (a) carry out or cause to be carried out, the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices; (b) make available the equivalent of about $178,800,000 from its own resources for the purposes of the Project; and (c) supplement the amount referred to in subparagraph

3 -2- (b) above as needed to maintain BNDES' share of the cost of Subprojects in Groups A, B and C States as set forth in Schedule 4 to the Loan Agreement. Section (a) Except as the Bank shall otherwise agree, BNDES shall lend the proceeds of the Loan made available to it by the Borrower in accordance with the lending policies and procedures set forth in the Manual and Addendum to the Manual, and under Sub-loan Agreements whereby BNDES shall obtain from each of the Beneficiaries rights adequate to protect the interests of the Bank, the Borrower and BNDES, including, inter alia, the right of BNDES to: (i) require the Beneficiaries to carry out the corresponding Sub-projects with due diligence and efficiency and in accordance with appropriate technical, financial and engineering practices and to maintain adequate records; (ii) require that the Beneficiaries employ, as and when needed, qualified and experienced consultants to assist in the carrying out of the Sub-projects; (iii) require that (A) civil works contracts to be financed out of the proceeds of the Sub-loans be procured (I) under the Borrower's competitive bidding procedures satisfactory to the Bank; and (II) by force account for civil works estimated to cost not more than the equivalent of $250,000 for which competitive bidding has not been successful, the aggregate amount of said procurement by force account under each Sub-project not to exceed the equivalent of $1,000,000; and (B) the Beneficiaries maintain adequate files containing, inter alia, the analysis of bids, recommendations for award, copies of civil works contracts and the plans, specifications, reports, and work and procurement schedules for the Sub-projects, such files to be available at any time for review by BNDES and the Bank; (iv) require that the execution schedule for the Subprcjects be for a maximum period of three (3) years;

4 -3- (v) include in the amount of the Sub-loans a price contingency of not less than twenty per cent (20%); (vi) (vii) (viii) inspect, by itself or jointly with representatives of the Bank, if the Bank shall so request, the sites, works and construction included in the Sub-projects and any relevant records and documents; require that the Beneficiaries shall take or cause to be taken all such action as shall be necessary to acquire as and when needed all such land and rights in respect of land as shall be required for carrying out the Sub-projects; require that (A) in Sub-projects where the Beneficiaries are States, Federal Territories, the Federal District or State Highway Departments, such Beneficiaries maintain the roads included in the Sub-projects in accordance with appropriate engineering practices- (B) in Sub-projects where the Beneficiaries are municipal consortia, such Beneficiaries, not being able to maintain the roads included in the Sub-projects in accordance with appropriate engineering practices, enter into agreements with the corresponding States, whereby such States will undertake to maintain the roads included in the Sub-projects in accordance with appropriate engineering practices; (C) in Subprojects where the Beneficiaries are individual municipalities, such Beneficiaries, not being able to maintain the roads included in the Subprojects in accordance with appropriate engineering practices, enter into agreements with the corresponding States or Federal Territories, whereby such States or Federal Territories will undertake to maintain the roads included in the Sub-projects in accordance with appropriate engineering practices; and (D) in Sub-projects where Beneficiaries are not able to maintain the roads included in the Sub-projects in accordance with appropriate engineering practices, such Beneficiaries take the necessary measures to improve their maintenance capabilities, including, inter

5 -4- alia, the employment of qualified and experienced maintenance consultants; (ix) obtain all such information as the Bank or BNDES shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiaries; and (x) suspend or terminate the right of the Beneficiaries to the use of the proceeds of the Sub-loans, and to accelerate the maturity of the Sub-loans, upon failure by such Beneficiaries to perform any of their obligations under the Sub-loan Agreement. (b) BNDES shall exercise its rights under each Sub-loan Agreement in relation to the respective Sub-project in such manner as to: (i) protect the interests of the Bank, the Borrower and BNDES; (ii) comply with its obligations under this Agreement and under the Subsidiary Agreement; and (iii) achieve the purposes of the Project. (c) BNDES shall furnish to the Bank, promptly after its execution, a copy of each Sub-loan Agreement. Section (a) BNDES shall cause the Beneficiaries to prepare and execute Sub-projects and, except as the Bank shall otherwise agree, shall cause the beneficiaries under the Secondary and Feeder Roads Project, the Second Feeder Roads Project and the Northwest Region Development Program Highway Project to prepare and execute sub-projects under each such project in accordance with the guidelines set forth in the Manual and the Addendum to the Manual. (b) BNDES shall ensure that all Sub-projects include only feeder roads which meet the criteria set forth in the Manual and the Addendum to the Manual. (c) BNDES shall not make any substantial change in the Manual or to the Addendum to the Manual without the prior approval of the Bank and DNER. Section BNDES shall: (a) maintain its Feeder Roads Working Group, competently and adequately staffed, which together with the Feeder Roads

6 -5- Working Group of DNER, shall be responsible for: (i) the economic, financial and technical analysis of each Sub-loan application; (ii) the preparation of a report upon which the decision regarding the application shall be based; (iii) the provision of assistance to prospective Beneficiaries in the preparation of support studies; (iv) the provision of advice on the use of proper methodologies; and (v) the processing of the applications for assistance under the National Feeder Roads Program; and (b) maintain its participation in the Joint Steering Commitee. Section BNDES shall: (a) promptly furnish to the Bank for approval, all Sub-loan applications (together with the results of the appraisal of the proposed Sub-project) regarding (i) any Sub-project where the Beneficiary is a State, a Federal Territory, the Federal District, a State Highway Department or a municipal consortium and whose total cost would exceed the equivalent of 1,000,000 ORTNs, and (ii) any Sub-project where the Beneficiary is a municipality and whose total cost would exceed the equivalent of 150,000 ORTNs; and (b) with respect to any such Sub-project which is subject to prior approval by the Bank, exclude from the Project any Sub-project, or component thereof, which shall not have been approved by the Bank. Section Except as the Bank shall otherwise agree, BNDES shall: (a) not spend and cause not to be spent an amount above $50,000,000 equivalent of the funds made available for the Project in accordance with Schedule 4 to the Loan Agreement in any single State, except for the State of Sao Paulo, where the amount shall not exceed $40,000,000 equivalent; or (b) not delegate to any State or Regional Development Bank any of its activities concerning the carrying out of the Project. Section BNDES shall, by March 31, 1983, furnish to the Bank for review and comment a draft of the desig- of a management information system for the National Feeder Roaas Program, which system is to be established by June 30, 1983 and put into operation by September 30, 1983.

7 -6- Section BNDES shall: (a) by March 31, 1983, furnish to the Bank for review and consultation a revised draft of the Operational Manual; and (b) by June 30, 1983, furnish to the Bank the Operational Manual. Section BNDES shall: (a) together with DNER, monitor the progress of the Sub-projects; and (b) furnish to the Bank a quarterly report, in form and substance satisfactory to the Bank, on such progress, including a schedule of projected commitments and disbursements. Section (a) BNDES: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the works and services financed out of the proceeds of the Loan made available to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall, without limitation upon the provisions of paragraph (b) of this Section, enable the Bank's representatives to visit the facilities and construction sites included in the Project and to examine any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, any Sub-project, the expenditure of the proceeds of the Loan so made available to it and the works and services financed out of such proceeds. (b) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between BNDES and the Bank, BNDES shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by BNDES and the Bank of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Loan. (c) BNDES shall enable the Bank's representatives to examine any relevant records and documents of BNDES in respect of the Project. Section BNDES shall duly perform all its obligations under the Subsidiary Agreement. Except as the Bank shall otherwise agree, BNDES shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving such agreement or any provision thereof.

8 - 7 - Section (a) BNDES shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, of any Sub-project, the performance of its obligations under this Agreement and the Subsidiary Agreement and other matters relating to the purposes of the Loan. (b) BNDES shall promptly inform the Bank of any condition which interferes, or threatens to interfere, with the progress of the Project, of any Sub-project, the accomplishment of the purposes of the Loan, or the performance by BNDES of its obligations under this Agreement and the Subsidiary Agreement. Section BNDES shall retain or cause to be retained all certificates and relevant documents concerning the nature of the expenses for which it has applied for reimbursement for the Bank to review ex-post-facto a sample of bid documents, bid evaluations and contract awards, and records of expenditures for Subprojects for which reimbursements are claimed. Section BNDES shall: ARTICLE III Financial Covenants (a) maintain records adequate to reflect, in accordance with consistently maintained sound accounting practices, its operations, resources and expenditures in respect of the Project, including separate accounts reflecting all expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditures; and (b) retain or cause to be retained, until one year after the Closing Date, all records (orders, invoices, bills, receipts and other documents) evidencing the expenditures on account of which withdrawals are requested from the Loan Account on the basis of statements of expenditures and shall enable the Bank's accredited representatives to examine such records. Section BNDES shall: (a) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank;

9 - 8 - (b) furnish to the Bank, as soon as available, but in any case not later than six months after the end of each fiscal year (i) certified copies of its financial statements for such year as so audited, and (ii) the report of such audits by said auditors, of such scope and in such detail as the Bank shall have reasonably requested, including, without limitation to the foregoing, a separate opinion by said auditors in respect of the expenditures referred to in Section 3.01 (a) of this Agreement as to: (A) whether the proceeds of the Loan withdrawn from the Loan Account on the basis of statements of expenditures have been used to make payments for goods -received, or works or services performed; and (B) whether such goods, works and services were eligible for financing under the Loan Agreement and were used in the carrying out of the Project; and (c) furnish to the Bank such other information concerning the records referred to in Section 3.01 (a) of this Agreement and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section This Agreement shall come into force and effect c-. the date upon which the Loan Agreement becomes effective. Section This Agreement and all obligations of the Bank and of BNDES hereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. Section All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE V Miscellaneous Provisions Section 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

10 -9- 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 United States of America Cable address: INTBAFRAD Washington, D.C. Telex: (ITT) (RCA) or (WUI) For BNDES: Banco Nacional de Desenvolvimento Economico e Social Avenida Republica do Chile, No Rio de Janeiro, RJ Brazil Cable Address: Telex: BADEC Rio de Janeiro Section Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of BNDES may be taken or executed by the president or such other person or persons as the president shall designate in writing, and BNDES shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument.

11 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, Unites States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Is! Nicolas Ardito Barletta Regional Vice President Latin America and the Caribbean BANCO NACIONAL DE DESENVOLVIMENTO ECONOMICO E SOCIAL By /s/ Luis Antonio Sande de Oliveira Authorized Representative By Is/ Jose Carlos da Fonseca Authorized Representative

12 SCHEDULE Lending Policies and Procedures 1. Each Sub-loan will be repaid in not less than 8 and not more than 13 years, including a grace period of not less than I and not more than 4 years, such grace period to be determined by the construction period of the respective Sub-project. The last repayment date of any Sub-loan will be not later than the last principal payment date of the Loan. 2. The outstanding principal amount of each Sub-loan will be adjusted periodically to provide for full monetary correction of such outstanding principal amount. The portion of the outstanding principal amount of each Sub-loan financed with the proceeds of the Loan will be adjusted periodically on the basis of the rate of exchange between the dollar and the cruzeiro in effect at the time of each such adjustment. The portion of the outstanding principal amount of each Sub-loan financed with BNDES funds will be adjusted periodically on the basis of ORTN. 3. The outstanding principal amount of each Sub-loan will bear interest at the following annual rates: (a) the amount of the Sub-loan financed with th2 proceeds of the Loan will initially bear a rate of interest equivalent to the rate of interest on the Loan in effect at the time of execution of the Sub-loan Agreement, and the rate of interest on such amount of the Sub-loan will be adjusted from time to time in accordance with each adjustment made in the rate of interest on the Loan pursuant to the provisions of Section 2.07 of the Loan Agreement. (b) the amount of the Sub-loan financed with BNDES funds will bear the following rates of interest: 5 to 7% for the Group A States 6 to 8% for the Group B States *8 to 10% for the Group C State 4. The funds made available by BNDES, including the proceeds of the *Loan, the Borrower's grant, through MT, to the National Feeder Roads Program referred to in Section 3.02 (b) (i) (A) of

13 the Loan Agreement and BNDES' own resources will finance not more than: (a) 80% of the total cost of each Sub-project of any Beneficiary in the Group A States; (b) 70% of the total cost of each Sub-project of any Beneficiary in Group B States; and (c) 60% of the total cost of each Sub-project of the Beneficiary in the Group C State.