Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 1206-BR. Public Disclosure Authorized PROJECT AGREEMENT. (Development Banking Project) between

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1 Public Disclosure Authorized CONFORMED COPY LOAN NUMBER 1206-BR Public Disclosure Authorized PROJECT AGREEMENT (Development Banking Project) between Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO NACIONAL DO DESENVOLVIMENTO ECONOMICO Public Disclosure Authorized Dated March 1, 1976

2 PROJECT AGREEMENT AGREEMENT, dated March 1, 1976, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO NACIONAL DO DESENVOLVIMENTO ECONOMICO (hereinafter called BNDE). WHEREAS 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 eighty-five million dollars ($85,000,000), (hereinafter called the Loan), on the terms and conditions set forth in the Loan Agreement; WHEREAS the Borrower has agreed to make available to BNDE the proceeds of the Loan; and WHEREAS BNDE, 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:

3 -2- ARTICLE I Definitions Section Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth.

4 -3- ARTICLE II Execution of the Proj ect Section BNDE shall carry out the Project described in Section 3.01 of the Loan Agreement, and conduct its operations and affairs, in accordance with sound financial and investment standards and practices, with qualified and experienced management and in accordance with BNDE Regulations and the Lending Policies. Section (a) In accordance with and subject to the provisions of the Loan Agreement, BNDE shall apply to the Bank for approval of BNDE loans (other than BNDE free-limit loans). (b) When applying to the Bank for approval of a BNDE loan (other than a BNDE free-limit loan), BNDE shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Enterprise to which the sub-loan is going to be made, an appraisal of the Investment Project prepared by the Financial Intermediary in question, in a manner satisfactory to the Bank (including a description of the expenditures proposed to be financed out of the proceeds of the Loan), the proposed terms and conditions of the sub-loan, a statement by BNDE saying that such Enterprise meets the conditions set forth in paragraph 1(a) of the Schedule to this Agreement, and such other information as the Bank shall reasonably request. (c) Each request by BNDE to make withdrawals from the Loan Account in respect of a BNDE free-limit loan shall contain a summary description of the Enterprise to which the sub-loan is going

5 to be made and of the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan), the proposed terms and conditions of the sub-loan, a statement by BNDE saying that such Enterprise meets the conditions set forth in paragraph 1(a) of the Schedule to this Agreement, and such other information as the Bank shall reasonably request. (d) Except as the Bank and BNDE shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (b) and (c) of this Section shall be furnished to the Bank by BNDE before two years after the date of this Agreement. Section The agreements providing for BNDE loans shall provide that if a sub-loan or any part thereof shall be repaid to a Financial Intermediary in advance of maturity, or if it shall be sold, transferred, assigned or otherwise disposed of for value by the Financial Intermediary, the Financial Intermediary shall repay to BNDE the amount of the BNDE loan corresponding to such sub-loan or part thereof repaid in advance or disposed of for value. Section The BNDE loans and sub-loans shall be denominated and shall be repayable in cruzeiros. Section BNDE shall make adequate provision satisfactory to the Bank for the re-utilization, in the lending program included in the Project, of the proceeds of repayment of the principal of, and of payment of interest on, BNDE loans, to the extent that such proceeds are not required for purposes of servicing the Loan.

6 -5- Section (a) BNDE undertakes that, unless the Bank shall otherwise agree, all sub-loans will be made on terms whereby the Financial Intermediaries shall obtain, by written contract with the Enterprise or by other appropriate legals means, rights adequate to protect the interests of the Borrower, the Bank, BNDE, and the Financial Intermediary in question including the right of such Financial Intermediary to: (i) require the Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (ii) reouire that (1) the goods and services to be financed out of the proceeds of the sub-loan shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (2) such goods and services shall be used exclusively in the carrying out of the Investment Project;

7 -6- (iii) inspect, by itself or jointly with representatives of BNDE and the Bank if BNDE and the Bank shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) require that the Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice; and that such insurance cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, and that any indemnity thereunder be made payable in a currency freely usable by the Enterprise to replace or repair such goods; (v) obtain all such information as the Bank or BNDE or the Financial Intermediary shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Enterprise; and

8 0 - (vi) suspend or terminate the right of the Enterprise to the use of the proceeds of the sub-loan upon failure by such Enterprise to perform any of its obligations under its contract with the Financial Intermediary. (b) BNDE shall cause the Financial Intermediaries to exercise their rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Borrower, the Bank, BNDE and the Financial Intermediaries, (ii) comply with their obligations under BNDE loans, and (iii) achieve the purposes of the Project. Section BNDE shall furnish, or cause to be furnished to the Bank, all such information as the Bank shall reasonably request concerning the Project, the BNDE loans, the sub-loans, the Enterprises, and the Investment Projects. Section BNDE shall: (a) take such steps as shall be appropriate to assist the Financial Intermediaries to upgrade their project appraisal and follow-up procedures, planning and budgeting, internal and external auditing procedures, arrears control, and reporting to BNDE; and (b) employ experts in development banking to assist BNDE in carrying out the action specified in (a) above. The qualifica-

9 - 8 - tions, experience and terms and conditions of employment of such experts shall be satisfactory to BNDE and the Bank. Section (a) BNDE shall, at the request of the Bank, exchange views with the Bank wit?. regard to the progress 'f the Project, the performance of its obligations under this Agreement, and other matters relating to the purposes of the Loan. (b) BNDE shall promptly inform the Bank of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by BNDE of its obligations under this Agreement.

10 0 9- ARTICLE III Financial Covenants Section BNDE shall maintain records adequate to record the progress of the Project and of ea-i, 3,NDE Loan and to reflect in accordance with consistentlr maintained sound accounting practices the operations and financial condition of BNDE. Section BNDE shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank, as soon as available but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of BNDE and the audit thereof as the Bank shall from time to time reasonably request. Section BNDE shall: (a) starting fiscal year 1977, annually prepare three-year operational and financial forecasts covering at least the operations of the Area de Operagbes com Agentes of BNDE, and (b) furnish to the Bank such forecasts.

11 - 10- Section The Bank and BNDE shall from time to time, at the request of either party, exchange views through their repre. sentatives with regard to the administration, operations and financial condition of BNDE and its subsidiaries, and of the Financial Intermediaries, and BNDE shall furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of BNTDE and its subsidiaries, and of the Financial Intermediaries. Section BNDE shall enable the Bank's representatives to inspect the records referred to in Section 3.01 of this Agreement and any relevant documents.

12 ARTICLE IV Effective Date; Termination; Cancellation and Suspension Section This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section This Agreement and all obligations of the Bank and of BNDE 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 Loan Agreement.

13 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 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 re quest. The addresses so specified are: For the Bank: For BNDE: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C United States of America Cable address: INTBAFRAD Washington, D.C. Banco National do Desenvolvimento EconNoico Av Rio Branco, 53 Rio de Janeiro, RJ Brazil

14 Cable address: Telex: BADEC Rio de Janeiro, Brazil Section Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of BNDE may be taken or executed by the President or such other person or persons as the President shall desig. nate in writing. Section BNDE shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of BNDE, take any action or execute any documents required or permitted to be taken or executed by BNDE pursuant to any of the provisions of this Agreement. Section This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument.

15 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, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Is/ Adalbert Krieger Regional Vice President Latin America and the Caribbean BANCO NACIONAL DO DESENVOLVIMENTO ECONOMICO By /s/ Marcos Pereira Vianna Authorized Representative By /s/ Sergio Barcala Baptista Authorized Representative

16 SCHEDULE Lending Policies 1. Sub-loan terms and conditions (a) An Enterprise shall: (i) have fixed assets amounting to not more than the equivalent of 500,000 National Treasury Bonds (ORTNs) after carrying out the Investment Project; provided, however, that such Enterprise does not belong to an industrial group with consolidated equity amounting to more than 1,000,000 ORTNs equivalent; (ii) be owned directly or indirectly by individuals resident and domiciled in Brazil; and (iii) be engaged in an industrial activity which in the judgment of BNDE is of interest to the economic development of Brazil. (b) An Investment Project shall consist of the establishment, expanding, modernization and/or relocation of an Enterprise. (c) Sub-loans shall: (i) be made for a term of not more than 10 years and not less than 5 years, including a period of grace of not more than 3 years and not less than 1 year; and (ii) carry an interest rate of 3% per annum

17 in Region I,* 5% per annum in Region II* and 6% per annum in Region III,* plus adjustment based on the ORTN price as calculated in accordance with the regulations in force on the date of this Agreement. 2. BNDE loan terms and conditions (a) Financial Intermediaries shall meet the eligibility criteria set forth in the PACOTE Regulations. (b) Amortization schedules of BNDE loans shall conform to the amortization schedules of the respective sub-loans. (c) BNDE loans shall carry an interest rate of 0.5% per annum in Region I,* 3% per annum in Region II* and 4% per annum in Region III,* plus adjustment based on the ORTN price, as calculated in accordance with the regulations in force on the date of this Agreement. A commitment charge of 0.1% per month shall be paid on the undisbursed portion of approved loans. For the purposes of this Schedule, the States of the Borrower are grouped in three categories as follows: Region I includes the North and Northeastern States, Espirito Santo, Mato Grosso, Goias and the drought area in Minas Gerais; Region II includes the States of Rio Grande do Sul, Santa Catarina, Parana, Minas Gerais (except for the drought area), and Rio de Janeiro; and Region III includes the State of S9o Paulo.

18 (d) The participation of BNDE in the financing of an Investment Project through a Financial Intermediary shall not exceed 80% in Region I, 70% in Region II, and 60% in Region III, of the total cost of such Investment Project.