CONFORMED COPY Public Disclosure Authorized

LOAN NUMBER 1343 BR

Public Disclosure Authorized SUBSIDIARY LOAN AGREEMENT

(ELETROSUL Transmission Project)

among

CENTRAIS ELETRICAS DO SUL DO BRASIL S.A. - ELETROSUL

and

CENTRAIS ELETRICAS BRAS ILEIRAS S .A. - ELETROBRAS Public Disclosure Authorized and

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized

Dated February 23, 1977 SUBSIDIARY LOAN AGREEMENT

AGREEMENT, dated February 23, 1977, between CENTRAIS ELETRICAS DO SUL DO BRASIL S.A. - ELETROSUL (hereinafter called ELETROSUL) and CENTRAIS ELETRICAS BRASILEIRAS S.A. - ELETROBRAS (hereinafter called ELETROBRAS) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank).

WHEREAS by a loan agreement of even date herewith (hereinafter called the Loan Agreement) between the Bank and ELETROSUL, the Bank has agreed to make to ELETROSUL a loan in various currencies equi- valent to eighty-two million dollars ($82,000,000) (hereinafter called the Loan) on the terms and conditions set forth therein;

WHEREAS under the terms of the Loan Agreement, ELETROSUL has agreed to relend to ELETROBRAS an amount equivalent to four mil- lion and three hundred thousand dollars ($4,300,000) of the pro- ceeds of the Loan under a subsidiary loan agreement satisfactory to the Bank; and

WHEREAS the parties hereto have agreed to enter into this Agreement, which is the Subsidiary Loan Agreement referred to in Section 3.01 (b) of the Loan Agreement;

NOW THEREFORE the parties hereto hereby agree as follows: -2- 0

ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement shall have the respective meanings therein set forth and the term "Subsidiary Loan" means the loan provided for under Section 2.01 of this Agreement. -3

ARTICLE II

The Subsidiary Loan

Section 2.01. ELETROSUL agrees, subject to the provisions of the Loan Agreement, to lend to ELETROBRAS an amount in various currencies out of the proceeds of the Loan as shall be withdrawn from the Loan Account, but not exceeding four million and three hundred thousand dollars ($4,300,000) equivalent, on account of expenditures for Part B of the Project, on such terms and condi- tions as are set forth or referred to in this Agreement.

Section 2.02. ELETROSUL shall open a subsidiary loan account (the Subsidiary Loan Account) on its books in the name of ELETROBRAS and shall credit to it the amount of the Subsidiary Loan. With- drawals of the Subsidiary Loan shall be deemed to be made by ELETROBRAS from the Subsidiary Loan Account on the date on which and in the amounts and currencies in which withdrawals for Part B of the Project are made from the Loan Account pursuant to Section 2.02 of the Loan Agreement.

Section 2.03. ELETROBRAS shall pay ELETROSUL a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Subsidiary Loan not withdrawn from time to time. Such commitment charge shall accrue from a date 60 days after the date of this Agreement to the respective dates on which amounts shall be withdrawn by ELETROBRAS from the Subsidiary Loan Account or shall be cancelled. -4-

Section 2.04. (a) ELETROBRAS shall pay interest at the rate of eight and seventy hundredths per cent (8.70%) per annum on the principal amount of the Subsidiary Loan withdrawn and outstanding from time to time.

(b) Interest shall accrue from the respective dates on which amounts shall have been withdrawn.

(c) Interest and other charges shall be payable semi-annually on June 1 and December 1 in each year, and such interest and other charges shall be computed on the basis of a 360-day year of twelve 30-day months.

Section 2.05. ELETROBRAS shall repay the principal of the Subsidiary Loan in accordance with the Amortization Schedule to this Agreement.

Section 2.06. The principal of, and interest and other charges on, the Subsidiary Loan shall be payable in cruzeiros, equivalent on the date of payment to the corresponding amounts of principal, interest and other charges due by ELETROSUL to the Bank under the Loan Agreement with respect to the portion of the Loan allocated to Part B of the Project. -5-

ARTICLE III

Execution of Part B of the Project

of the Project Section 3.01. ELETROBRAS shall carry out Part B due diligence described in Schedule 2 to the Loan Agreement with administrative, and efficiency and in conformity with appropriate financial and technical practices and policies.

for the Section 3.02. The Subsidiary Loan is made exclusively ELETROBRAS shall cause the financing of Part B of the Project and to financing the cost proceeds thereof to be applied exclusively B of the Project. of goods and services required to carry out Part

of the Project, Section 3.03. In order to carry out Part B the qualifications, ELETROBRAS may employ specialists, provided that of said special- experience and terms and conditions of employment ists shall be satisfactory to the Bank.

to the Bank, Section 3.04. (a) ELETROBRAS shall furnish and other documents promptly upon their preparation, plans, reports material modifica- with respect to Part B of the Project, and any detail as the Bank tions thereof or additions thereto, in such shall reasonably request.

to re- (b) ELETROBRAS: (i) shall maintain records adequate the cost cord the progress of Part B of the Project (including financed out of thereof) and to identify the goods and services it by ELETROSUL,, and the proceeds of the Subsidiary Loan relent to to disclose the use thereof in Part B of the Project; (ii) shall, without limitation upon the provisions of paragraph (c) of this Section, enable the Bank's representatives to visit the facilities included in Part B of the Project and to examine the goods and observe the services financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning Part B of the Project, the expenditure of the proceeds of the Subsidiary Loan so relent to it and the goods and services financed out of such proceeds.

Section 3.05. (a) ELETROBRIS shall, at the request of the Bank, exchange views with the Bank with regard to the progress of Part B of the Project, the performance of its obligations under this Agreement and other matters relating to the purposes of the Sub- sidiary Loan.

(b) ELETROBRAS shall promptly inform the Bank of any condi- tion which interferes or threatens to interfere with, the progress of Part B of the Project, the accomplishment of the purposes of the Subsidiary Loan, or the performance by ELETROBRAS of its obli- gations under this Agreement. -7-

ARTICLE IV

Other Covenants

Section 4.01. ELETROBRAS shall, not later than April 30, 1977 or such other later date as the Bank shall agree, complete a system for the classification and measurement of items constituting indirect costs in construction projects of ELETROBRAS' subsidiaries and affiliated companies.

Section 4.02. ELETROBRAS shall provide, or cause to be pro- vided, to ELETROSUL, promptly as needed the funds required for the financing of the 1976-1981 Investment Program.

Section 4.03. ELETROBRAS shall, during the execution of the 1976-1981 Investment Program, invest in equity of ELETROSUL an amount equivalent to the amount of dividends received from ELETRO- SUL during such period.

Section 4.04. ELETROBRAS shall convert suoh amounts of ELETROSUL's long-term debt to ELETROBRAS into an equity contribu- tion to ELETROSUL's capital as shall be required to enable ELETROSUL to maintain the ratio referred to in paragraph (b) (iii) of Sec- tion 5.07 of the Loan Agreement at a level of not less than 1.5 to 1 during the years 1977 through 1981. ARTICLE V

Remedies

Section 5.01. If (i) a default shall have occurred in the due and punctual payment of any amount payable by ELETROBRAS to ELETROSUL under this Agreement; or (ii) a default shall have oc- curred in the performance of any other obligation on the part of ELETROBRAS under this Agreement; or (iii) ELETROSUL's right under the Loan Agreement to make withdrawals from the Loan Account shall have been suspended or terminated with respect to any amount in the Loan Account, regardless of the reason therefor, then ELETRO- SUL may by notice to ELETROBRAS suspend in whole or in part the right of ELETROBRAS to withdraw from the Subsidiary Loan Account and such right shall continue to be suspended in whole or in part, as the case may be, until the event or events which gave rise to such suspension shall have ceased to exist or until ELETROSUL shall have notified ELETROBRAS that such right has been restored, which- ever is the earlier.

Section 5.02. If (i) the event described in Section 5.01 (i) of this Agreement shall have occurred and it shall continue for a period of thirty days after notice thereof shall have been given by ELETROSUL to ELETROBRAS; or (ii) the event described in Section 5.01 (ii) of this Agreement shall have occurred and it shall continue for a period of sixty days after notice thereof shall have been given by ELETROSUL or the Bank to ELETROBRAS; or (iii) the event described in Section 5.01 (iii) of this Agree- ment shall have occurred and be continuing, then ELETROSUL or the -9-

Bank may declare the principal amount of the Subsidiary Loan then outstanding to be due and payable immediately, and upon such dec- laration such principal amount together with interest and other charges thereon shall become due and payable immediately, anything in this Agreement to the contrary notwithstanding.

Section 5.03. Notwithstanding the foregoing provisions of this Agreement, the Bank, at its option, may by notice to ELETRO- BRAS declare the principal of the Subsidiary Loan then outstanding due and payable immediately together with the interest and other charges thereon, and upon any such declaration such principal to- gether with the interest and other charges thereon shall become due and payable immediately, if the Bank pursuant to Section 7.01 of the General Conditions shall declare the principal of the Loan then outstanding to be due and payable immediately because of the occurrence of any event specified in Section 6.02 of the Loan Agreement. - 10--

ARTICLE VI

Miscellaneous

Section 6.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective.

Section 6.02. The following addresses are specified for the purposes of this Agreement:

For ELETROSUL:

Centrais Eltricas do Sul do Brasil S.A. - ELETROSUL Rua Trajano 41 88000 Florian6polis, S.C. - Brazil

Cable address: Telex:

ELETROSUL 082-1264 Florian6polis

For ELETROBRAS:

Centrais El6tricas Brasileiras S.A. - ELETROBRAS Av. Presidente Vargas 642 Caixa Postal 1639-ZC-00 Rio de Janeiro, Brazil

Cable address: Telex:

ELETROBRAS 2122395 CELB or Rio de Janeiro 2122034 CELB * -11 -

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) -12-

IN WITNESS WHEREOF the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in the District of Columbia, United States of America, in their respective names as f the day and year first above written.

CENTRAIS ELETRICAS DO SUL DO BRASIL S.A. - ELETROSUL

By /s/ Fernando Marcondes de Mattos Authorized Representative

By /s/ Fernando Marcondes de Mattos Authorized Representative

CENTRAIS ELETRICAS BRASILEIRAS S.A. - ELETROBRAS

By /s/ Norberto Medeiros Authorized Representative

By /s/ Norberto Medeiros Authorized Representative

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean -13-

SCHEDULE

Amortization Schedule

Payment of Principal Date Payment Due (expressed in dollars)

On each June 1 and December 1

beginning December 1, 1980 through June 1, 1993 16o,ooo

On December 1, 1993 14o,0oo Premiums on Prepayment

The following percentages are specified as the premiums on repayment in advance of maturity of any portion of the principal amount of the Subsidiary Loan:

Time of Prepayment Premium

Not more than three years before maturity 1.55%

More than three years but not more than six years before maturity 3.05%

More than six years but not more than eleven years before maturity 5.65%

More than eleven years but not more than fifteen years before maturity 7.70%

More than fifteen years before maturity 8.70%