CONFORMED COPY Public Disclosure Authorized

LOAN NUMBER 1360 YU Public Disclosure Authorized LOAN AGREEMENT

(U9tohija I Multipurpose Project)

between

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

and

SOCIALIST AUTONOMOUS PROVINCE Public Disclosure Authorized and

VODOPRIVREDNA ORGANIZACIJA "METOAIJA" (Water Management Organization "Metohija" from ) Public Disclosure Authorized

Dated February 3, 1977 LOAN AGREEMENT

AGREEMENT, dated February 3, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) such party of the first part, SOCIALIST AUTONOMOUS PROVINCE KOSOVO (hereinafter called Kosovo) such party of the second part, and VODOPRIVREDNA ORGANIZACIJA "METOHIJA" (Water Management Organ- ization "Metohija" from Prizren) such party of the third part, acting in its own name and in the name of, and on behalf of, its constituent Basic Organizations (as this term is hereinafter defined), all of which are hereinafter called the Borrower.

WHEREAS (A) The Borrower is an Organization of Associated Labor for water management, established and operating under the laws of the Socialist Federal Republic of ;

(B) Kosovo requested the Bank to assist the Borrower in the financing of the Project described in Schedule 2 to this Agree- ment by making the Loan as hereinafter provided;

(C) Kosovo, pursuant to decisions of the Executive Council of its Provincial Assembly, has decided and intends to allocate funds for the purpose of assisting in the financing of the Project, to be made available to Kosovska Banka Prigtina (hereinafter called Kosovska Banka) for said Durpose;

(D) The Borrower and Kosovska Banka will enter into an agreement (hereinafter called the Kosovska Banka Loan Agreement) -2- which will provide inter alia for Kosovska Banka: (i) to assist the Borrower in financing the Project by making to the Borrower a loan in an amount of Dinars 1,300,000,000 equivalent to about seventy-two million two hundred thousand U.S. Dollars (U.S.$72.200,000) (here- inafter called the First Kosovska Banka Loan), carrying interest at two per cent per annim and repayable over twenty-five years commencing on January 1, 1982; (ii) to provide medium- and long-term credit facilities for the purchase of portable sprinkler irrigation equipment to private sector and social sector farmers in the Project Area (as hereinafter defined), on terms similar to those applicable to other farmers; and (iii) to assist the Borrower in financing debt service on the Loan and the First Kosovska Banka Loan by making to the Borrower a second loan, in an approximate amount of Dinars 1,063,000,000 (hereinafter called the Second Kosovska Banka Loan), in accordance with the provisions of para- graph A of Schedule 5 to this Agreement, carrying interest at two per cent per annum, and repayable over twenty-five years commencing on January 1, 1993;

(E) By an agreement of even date herewith between the Social- ist Federal Republic of Yugoslavia (hereinafter called the Guaran- tor) and the Bank, which agreement is hereinafter called the Guarantee Agreement, the Guarantor has agreed to guarantee the* obligations of the Borrower in respect of such Loan; -3-

WHEREAS the Bank, on the basis inter alia of the foregoing, has agreed to make a Loan to the Borrower upon the terms and con- ditions hereinafter set forth;

NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the following modification thereof (said General Condi- tions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions): paragraph 6 of Section 2.01 of the General Conditions is deleted and the following is substituted therefor:

"6. The ter- "Borrower" means Vodoprivredna Organizacija "Metnhija" with all of its constituent Basic Organizations, as the latter term is defined in the Loan Agreement, acting jointly and severally as parties to the Loan Agreement and, whenever the context so requires, includes any of the foregoing entities."

Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings:

(a) "Self-Management Agreement of Vodoprivredna Organizacija "Metohija"" means the Self-Management Agreement of the Composite Organization of Associated Labor for Water Management "Kosovo" from Pristina, dated October 12, 1973, as amended from time to time; -5-

means (b) "Statutes of Vodoprivredna Organizacija "Metohija"" the statutes of Vodorrivredna OrganizaCija "Metohija", dated November 24, 1973, as amended from time to time;

(c) "Basic Organizations" means any basic organization of associated labor, established or to be established as a constituent part of Vodoprivredna Organizacija "Metohija";

(d) "Hydro System Radenic" means a constituent Basic Organization of Associated Labor within Vodoprivredna Organizacija "Metohija", to be established under arrangements satisfactory to Kosovo, the Bank and Vodoprivredna Organizacija "Metohija" prior to December 31, 1978, for the operation and maintenance of the facilities provided under the Project, under the overall respon- sibility of the Borrower;

(e) "Social Accounting Service" means Sluzba Drustvenog Knjigovodstva referred to in Article 77 and in paragraph (5) of Article 281 of the Guarantor's Constitution;

(f) "Project Area" means the area located in the Metohija Valley of Kosovo, extending along the Beli Drim River and includ- ing part of Djakovica, Orahovac and Prizren Communes; and

(g) "Dinar" means the currency of the Guarantor. -6-

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or re- ferred to, an amount in various currencies equivalent to fifty- four million dollars ($54,000,000).

Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expen- ditures made (or, if the Bank shall so agree, to be made) in res- pect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan and in respect of interest and other charges on the Loan.

(b) On or before each of the semi-annual interest payment dates specified in Section 2.07 of this Agreement, the Bank shall, on behalf of the Borrower, withdraw from the T:oan Account and pay to itself the amounts required to pay, on such date, interest and other charges on the loan accrued and payable 1p to the date set forth, P.nd up to the amounts allocated, in Schedule 1 to this Agreement, as such Schedule may be amended from time to time.

Section 2.03. Except as the Bank shall otherwise agree, con- tracts for the purchase of goods or for civil works required for the Project, shall be procured in accordance with the provisions of Schedule 4 to this Agreement. -7-

Section 2.04. The Closing Date shall be December 31, 1982 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date.

Section 2.05. The Borrower shall pay to the Bank 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 Loan not withdrawn from time to time.

Section 2.06. The Borrower shall pay interest at the rate of eight and seventy hundredths per cent (8.70%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time.

Section 2.07. Interest and other charges shall be payable semi-annually on January 1 and July 1 in each year.

Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement.

Section 2.09. The obligations of Vodoprivredna Organizacija "Metohija" and the Basic Organizations to pay interest and other charges on the Loan, or to repay the principal of the Loan, in accordance with the provisions of the Loan Agreement, shall be joint and several and shall not be subject to any prior notice to, or demand upon, or action against, any of them. -8-

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out the Project with due diligence and efficiency and in conformity with appropriate ad- ministrative, financial, engineering, public utility and agricul- tural practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other re- sources required for the purpose.

(b) The Borrower shall employ inter alios: (i) at all times, a General Director experienced in the operation and maintenance of irrigation systems and water supply networks; (ii) after con- sultation with the Bank, a qualified and experienced Financial Director to be appointed as provided in Section 8.01 (b) of this Agreement; (iii) at all times, qualified agricultural staff in adequate number as needed for the carrying out of the Project; and (iv) additional qualified and experienced staff for financial operations and controls.

(c) The Borrower shall cause Hydro System Radenic" to employ, at all times, a qualified and experienced engineer to act as its Director and a qualified financial expert to act as his Deputy.

Section 3.02. In order to assist the Borrower in the prep- aration of final design and bidding documents for the facilities included in the Project and in the training of local engineers - 9 - in the preparation of design and bidding documents therefor, the Borrover shall employ or continue to employ consultants whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Bank.

Section 3.03. (a) The Borrower undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by the Borrower to replace or repair such goods.

(b) Except as the Bank shall otherwise agree, the Borrower shall cause all goods and services financed out of the proceeds of the Loan to be used exclusively for the Project.

Section 3.04. (a) The Borrower shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or addi- tions thereto, in such detail as the Bank shall reasonably request.

(b) The Borrower shall: (i) maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Loan, and to disclose the use thereof in the Project; (ii) enable the Bank's accredited representatives to visit the - 10 - facilities and construction sites included in the Project and to examine the goods financed. out of the proceeds of the Loan and any relevant records and documents; and (iii) furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds.

(c) The Borrower shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property and equipment of the Borrower and any relevant records and documents, as the Bank shall reasonably request.

Section 3.05. (a) The Borrower shall take 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 the construc- tion and operation of the facilities included in the Project and shall furnish to the Bank, promptly after such acquisition, evi- dence satisfactory to the Bank that such land and rights in res- pect of land are available for purposes related to the Project.

(b) The Borrower shall make appropriate arrangements to relocate in a timely manner residents displaced from the land referred to in the foregoing paragraph (a). - 11 -

ARTICLE IV

Management and Operations of the Borrower

Section 4.01. The Borrower shall take all steps necessary: (i) at all times, to maintain its existence and right to carry on its operations and to acquire, maintain and review all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business; (ii) to operate and to maintain all its buildings, equipment, facilities and property and from time to time to make all necessary renewals and repairs thereof, all in accordance with appropriate engineering and public utility practices; (iii) to manage its affairs, to maintain its financial position, to plan its future expansion and to carry on its opera- tions, all in accordance with appropriate business, financial and administrative practices and under the supervision of experienced and competent management assisted by adequate experienced and competent staff; and (iv) except as the Bank and the Borrower shall otherwise agree, to ensure that Hydro System Radenic shall be respon- sible for the operation and maintenance of the facilities included in the Project on terms and conditions which will enable the Bor- rower to fulfill its obligations under this Agreement.

Section 4.02. Except in the normal course of its operations, the Borrower shall not, without the prior approval of the Bank, sell, lease, transfer, assign or otherwise dispose of any of its rights, property or assets. - 12 -

Section 4.03. After the completion of the construction of the dan and appurtenant structures included in the Project (herein- after called the structures) and at intervals of not more than five years thereafter, the Borrower shall cause such structures to be inspected in order to determine whether there are any deficiencies or potential deficiencies in (i) the conditions of, (ii) the quality and adequacy of maintenance of, or (iii) the methods of operation of, such structures, which may endanger safety. Following the results of said inspection, the Borrower shall promptly take any remedial action necessary.

Section 4.04. The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice.

Section 4.05. For the optimum utilization of the irrigation and drainlage facilities included in Part B and Part D of the Proj- ect, the Borrower shall carry out a program of adjustment of farm boundaries as shall be required to permit regular irrigation layout, in accordance with the provisions of the Law of Land Distribution, Consolidation and Boundary Adjustment dated July 22, 1976. - 13 -

ARTICLE V

Financial Covenants

Section 5.01. (a) The Borrower shall maintain, or cause to be maintained, separate records adequate to reflect in accordance with consistently maintained appropriate accounting practices the operations and financial condition of the Borrower and of Hydro System Radenic.

(b) Without limitation upon the foregoing and with respect to the records referred to in paragraph (a) above, the Borrower shall ensure that Hydro System Radenic maintain records which will provide a reasonable analysis of the financial results between its irrigation and water supply activities.

Section 5.02. The Borrower shall, and shall cause Hydro Sys- tem Radenic to: (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 appropriate auditing principles consistently applied, by the Social Accounting Service; (ii) furnish to the Bank as soon as avsilable, 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 audits 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 the Borrower and Hydro System Radenic and the audits thereof as the Bank shall from time to time reasonably request. Section 5.03. Not later than six months after the appointment of the Financial Director referred to in Section 3.01(b) (ii) of this Agreement, or such other date as the Bank and the Borrower may agree, the Borrower shall establish and put into effect appro- priate accounting and financial procedures relating to all the Borrower's activities and required under Section 5.01 and Section 5.02 of this Agreement.

Section 5.04. (a) The Borrower represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing.

(b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if any lien shall be created on any assets of the Borrower as security for any debt, such lien will ipso facto equally and ratably secure the payment of the principal of, and interest and other charges on, the Loan, and in the creation of any such lien express provision will be made to that effect, at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower shall grant, at no cost to the Bank, an equivalent lien satisfactory to the Bank to secure the payment of the prin- cipal of, and interest and other charges on, the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the pur- chase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. - 15 -

Section 5.05. (a) Except as the Bank shall otherwise agree, if the Borrower shall prepay part, or all, of the principal amount outstanding of any debt of the Borrower, the Borrower shall prepay a proportionate part, or all, as the case may be, of the Loan.

(b) All provisions of the General Conditions relating to re- payment as redemption in advance of maturity shall be applicable to any prepayment by the Borrower of the Loan under this Section.

Section 5.06. Except as the Bank shall othervise agree, the Borrower shall take all necessary steps as shall be required to ensure that its gross operating revenues will be sufficient to cover, in any given fiscal year, all operating, maintenance and administrative expenses (excluding depreciation), all taxes, if any, or payments in lieu of taxes, increases in working capital other than cash, and the amount of interest and other charges on, and repayment of, loans not covered by funds to be provided by Kosovo and Kosovska Banka pursuant to Recital (D) of the Preamble and Section 6.02 of this Agreement.

Section 5.07. In order to generate the gross operating revenues referred to in Section 5.06 of this Agreement, the Borrower shall inter alia:

(a) establish, in agreement with the Bank, separate tariffs for the services of irrigation and the supply of potable water so as to be sufficient to cover (i) commencing with 1981, in any given fiscal year, the operating, maintenance and administrative expenses for such fiscal year in connection with the Borrower's irrigation and water supply activities and (ii) capital costs of the Project; and - 16 -

(b) shall thereafter review said tariffs, from time to time, in consultation with the Bank.

Section 5.08. Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless its net revenues for the fiscal year next preceding such incurrence, shall be not less than the maximum debt service requirements in any succeeding fiscal year on all debt including the debt to be incurred.

For the purpose of this Section and of Section 6.02 (b) of this Agreement:

(a) the term "debt" means all debt, including debt incurred by others but for the service of which the Borrower is responsible, and guaranteed debt, maturing by its terms more than one year after the date on which it is originally incurred;

(b) debt shall be deemed to be incurred on the date such debt becomes outstanding and repayable in accordance with the agreement providing for the incurrence of such debt or modifying its terms of payment; provided, however, that in the case of guaranteed debt, debt .shall be deemed to be incurred on the date the agreement guaran- teeing such debt has been entered into but only to the extent that the guaranteed debt is outstanding;

(c) the term "net revenues" shall mean gross operating revenues from all sources, adjusted to take account of the Borrower's tariff rates in effect at the time of the incurrence of debt even though said rates might not be in effect during all or part of the fiscal year or twelve-month period to which such revenues relate, less - 1T -

and provisions all operating, maintenance and administrative expenses before provision for taxes, if any, or payments in lieu of taxes, but covering depreciation, interest and other charges on debt;

aggre- (a) the term "debt service requirements" shall mean the payments, if any), gate amount of amortization (including sinking fund funds to be provided interest and other charges on debt not covered by of the Preamble by Kosovo and Kosovska Banka pursuant to Recital (D) and Section 6.02 of this Agreement; and

Section (e) whenever for the purposes of this Section and of value in the 6.02 (b) of this Agreement, it shall be necessary to such currency of the Guarantor debt payable in another currency, at which valuation shall be made on the prevailing rate of exchange made, lawfully such other currency is, at the time such valuation is such debt obtainable by the Borrower for the purposes of servicing the rate of or, if such other currency is not so obtainable, at exchange that will be reasonably determined by the Bank. - 18 -

ARTICLE VI

Covenants of Kosovo

Section 6.01. Kosovo agrees with all obligations entered into by the Borrower in this Agreement, and to be entered into by the Borrower in the Kosovska Banka Loan Agreement, and, within the limits of its constitutional powers, shall take all action required on its part to enable and cause the Borrower punctually to perform all of its obligations under this Agreement and under the Kosovska Banka Loan Agreement.

Section 6.02. Kosovo specifically undertakes:

(a) to provide to the Borrower promptly as needed by way of grant: (i) the amount of all maturities of the Loan due for repay- ment before December .1, 1981 (approximately Dinars 121,000,000 equivalent); and (ii) such portions of the interest and other charges payable by the Borrower on the Loan and the First Kosovska Banka Loan in the years 1982 to 1989, inclusive, as are set out in paragraph B of Schedule 5 to this Agreement (approximately Dinars 295,000,000 equivalent); and

(b) whenever, during any fiscal year, there is reasonable cause to believe, on the basis of the latest audited financial statements, that the sum of the Borrower's gross operating revenues for any calendar half-year, grants to be provided as set forth in paragraph (a) of this Section and proceeds of the Second Kosovska Banka Loan, shall be inadequate to meet the Borrower's expenses and debt service requirements, for the next following calendar - 19 - half-year, to provide promptly to the Borrower, upon terms and conditions satisfactory to the Bank, such funds as are needed to cover the difference between said revenues and said expenses and debt service requirements.

For the purpose of paragraph (b) of this Section, the term "expenses" shall mean all the Borrower's operating and maintenance expenses, including adequate maintenance and taxes, if any, or payment in lieu of taxes, but before provision for depreciation, interest and other charges on debt.

Section 6.03. Not later than January 1, 1983 or such other date as Kosovo and the Bank may agree, Kosovo shall ensure that the necessary processing and marketing facilities in the Project Area such as vegetable collecting and processing centers, packing plants, cooling stations and transport facilities, be provided a.nd operated appropriately. - 20 -

ARTICLE VII

Remedies of the Bank

Section 7.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof:

(a) a default materially and adversely affecting the carry- ing out of the Project or the operation of the facilities included in the Project shall occur in the performance by any party of any obligation, covenant, agreement, decision or other assurances under the Kosovska Banka Loan Agreement or under the decisions referred to in Recital (C) in the Preamble to this Agreement;

(b) Kosovo shall have failed: (i) to provide the Borrower with the funds referred to in Recital (C) in the Preamble to this Agreement; (ii) to make available to the Borrower, as and when needed, the funds referred to in paragraph (a) or paragraph (b) of Section 6.02 of this Agreement; or (iii) to perform any of its undertakings referred to in Section 6.01 of this Agreement;

(c) any provisions of the Kosovska Banka Loan Agreement, Vodoprivredna Organizacija "Metohija"'s Self-Management Agree- ment, Vodoprivredna Organizacija "Metohija"'s Statutes, so as to affect materially and adversely the Borrower's ability to carry out the Project or the Borrower's existence as an independent enterprise, shall have been amended, abrogated or terminated without the prior approval of the Bank; and - 21 -

(d) any loan or credit to the Borrower shall have become due and payable prior to its agreed maturity pursuant to the terms thereof.

Section 7.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof:

(a) any event specified in paragraphs (b) and (c) of Section 7.01 of this Agreement shall occur and shall continue for a period of 60 days after notice thereof shall have been given by the Bank to the Borrower;

(b) any event specified in paragraphs (a) and (d) of Section 7.01 of this Agreement shall occur. - 22 -

ARTICLE VIII

E fective Date; Termination

Section 8.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions:

(a) The Kosovska Banka Loan Agreement in form and substance satisfactory to the Bank shall have been duly executed and author- ized or ratified by all necessary governmental and corporate ac- tion and shall be in full force and effect; and

(b) The Borrower's Financial Director referred to in Section 3.01 (b) (ii) shall have been appointed.

Section 8.02. The following Lre specified as additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank, namely, that the Kosovska Banka Loan Agree- ment in form and substance satisfactory to the Bank: (i) has been duly .executed and authorized or ratified by all necessary govern- mental and corporate action; (ii) constitutes valid and binding obligations of the parties thereto in accordance with their terms; and (iii) is in full force and effect.

Section 8.03. The date May 31, 1977, is hereby specified for the purposes of Section 12.04 of the General Conditions. - 23 -

ARTICLE IX

Addresses

Section 9.01. The following addresses are specified for the purposes of Section 11.01 of the General Conditions:

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 Kosovo:

Socijalisticka Autonomna Pokrajina Kosovo Izvrsno Vece Skupstine SAP Kosovo 38000 Pristina Yugoslavia

Cable address: Telex:

Izvrsno Vece Skupstine Yu 18185 SAP Kosovo Pristina Yugoslavia

For the Borrower:

Vodoprivredna Organizacija "Metohija" Ulica Zef Mark Ljusi Br. 53 38400 Prizren Yugoslavia

Cable address:

Metohija Prizren Yugoslavia - 24

Section 9.02. (a) Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of Kosovo may be taken or executed by the Provincial Secretary for Agriculture, Forestry and Water Resources of Kosovo or such other person or persons as Kosovo shall designate in writing.

(b) Kosovo 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 Kosovo, take any action or execute any documents required or permitted to be taken or executed by Kosovo pursuant to any of the provisions of this Agreement.

Section 9.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively but one instrument. - 25 -

IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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/ Maurice P. Bart Acting Regional Vice President , Middle East and North Africa

SOCIALIST AUTONOMOUS PROVINCE KOSOVO

By /s! Radivoje Petkovic Authorized Representative

VODOPRIVREDNA ORGANIZACIJA "METOHIJA"

acting in its own name and in the name and on behalf of its constituent Basic Organizations

By /s/ Naum Ackovski Authorized Representative - 26 -

SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of ex- penditures for items so to be financed in each Category:

Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed

(1) Civil works

(a) Parts A, B, C and D of the Project 21,000,000 40%

(b) Parts E and F of the Project 700,000 20%

(2) Equipment 16,000,000 100% of foreign expenditures and 100% of local expenditures ex-factory

(3) Consultants' ser- 300,000 100% of foreign vices expenditures

(4) Interest and other 11,000,000 Amounts due charges on the Loan withdrawn accrued on or before Decem- ber 31, 1981

(5) Unallocated 5,000,000

TOTAL 54,000,000 - 27 -

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures in the currency of any country other than the Guarantor and for goods or services supplied from the territory of any country other than the Guarantor; and

(b) the term "local expenditures" means expenditures in the currency of the Guarantor and for goods or services supplied from the territory of the Guarantor.

3. The disbursement percentages have been calculated in compli- ance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Guarantor on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank.

4. Notwithstanding the provisions of paragraph 1 above, no with- drawals shall be made in respect of payments made for expenditures prior to the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of $100,000 may be made in respect of Category (3) on account of payments made for such expenditures before that date but after June 30, 1976. - 28 -

5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category or sub-Category will be insufficient to finance the agreed percentage of all expenditures in that Category or sub-Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category or sub-Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category or sub-Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then appli- cable to such expenditures in order that further withdrawals under such Category or sub-Category may continue until all expenditures thereunder shall have been made.

6. If the Bank shall have reasonably determined that the pro- curement of any item in any Category or sub-Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or - iting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 29 -

SCHEDULE 2

Description of the Project

The Project is the first phase of development of the Hydro System Radenic in the Metohija Valley of Kosovo, for the purpose of improving: (a) crop production through irrigation of about 10,250 ha of land; and (b) domestic and industrial water supply to the towns of Djakovica, Orahovac and Zrze and to twelve villages.

The Project consists of the following Parts:

Part A: Weir, Dam and Reservoir

Construction of:

(a) a diversion weir about 45 m wide and 2.5 m high on the Decanska Bistrica River with headvorks and a supply canal about 7.5 km long;

(b) a rockfill dam about 57 m high and 550,000 cubic meters volume on the Prue River at the Radenic site, including the creation of an off-channel reservoir (Radenic Reservoir) with a capacity of about 113 million cubic meters and multiple intake structure;

(c) an access road and a diversion tunnel, and grouting for the rockfill dam. - 30 -

Part B: Irrigation Distribution System

Construction of an irrigation distribution system serving an area of about 10,250 ha of farmland, including:

(a) about 6 km of main canal;

(b) about 21 km of gravity irrigation canals, and about 245 km of underground primary and secondary distribution pipelines with automatic flow re- gulation and surge control equipment;

(c) about 950 km of underground tertiary pipelines;

(d) an electric pumping station consisting of nine units with a capacity of about 1,700 kw; and power supply to such pumping station and the dam included in Part A (b) of the Project;

(e) about 185 km of farm roads;

(f) portable sprinkler irrigation equipment;

(g) vehicles and other equipment for operation and maintenance. - 31 -

Part C: Potable Water Supply

The provision of domestic and industrial water supply to the towns of Djakovica, Orahovac and Zrze and to twelve villages including:

(a) construction and equipment of a water treatment plant adjacent to the dam included in Part A (b) of the Project, with an initial capacity of about 400 liters per second;

(b) about 40 km of trunk pipeline for bulk supply to Djakovica, Orahovac and Zrze and about 28 km of minor distribution pipelines connected to the trunk pipeline for supply to twelve villages;

(c) storage facilities with a total capacity of about 10,000 cubic meters at Djakovica, Orahovac and Zrze;

(d) pumping stations to (i) boost supply to Orahovac and nearby villages and (ii) supply water to the water treatment plant included in Part C (a) of the Project, during periods of low water levels in the Radenic Reservoir.

Part D: Drainage, Erosion Control and Soil Improvement Works

(a) construction of about 80 km of open drains and underground drains covering an area of about 380 ha and 3,500 ha respectively; - 32 -

(b) erosion control works (reforestation, gulley control and terracing) covering an area of about 2,600 ha;

(c) soil improvement through lime applications, subsoiling and phosphate treatment, covering an area of about 3,000 ha, 4,000 ha and 6,000 ha respectively.

Part E: Demonstration Areas

Development of:

(a) a demonstration area of about 40 ha with boundary adjustment and portable sprinkler equipment;

(b) an experimental farm for vegetable production and mechanization covering an area of about 20 ha;

(c) a trial irrigated vineyard area of about 4.5 ha.

Part F: Project Buildings

Construction and equipment of buildings for the expan- sion of the Borrower's headquarters in Prizren, the establishment of field headquarters at Zrze, four sec- tion field offices at Djakovica, Rogovo, Ratkovac and Vilika Krusa and six units for extension staff. - 33 -

Part G: Consultants ' Services

About 60 man-months' services for the preparation of final design and bidding documents of Project works and the training of local engineers.

* * *

The Project is expected to be completed by December 31, 1981.

__ - 314-

SCHEDULE 3

Amortization Schedule

Payment of Principal Date Payment Due (expressed in dollars)*

On each July 1 and January 1

beginning July 1, 1980 through January 1, 1992 2,250,000

* To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equiva- lents determined as for purposes of ,ithdrawal. - 35 -

Premiums on Prepayment

The following percentages are specified as the premiums pay- able on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions:

Time of Prepayment Premium

Not more than three years before maturity 1.75%

More than three years but not more than six years before maturity 3.50%

More than six years but not more than eleven years before maturity 6.40%

More than eleven years but not more than thirteen years before maturity 7.55%

More than thirteen years before maturity 8.70% - 36 -

SCHEDULE 4

Procurement

A. International Competitive Bidding

1. Except as provided in Part B and Part D hereof, contracts for the purchase of goods or for civil works shall be procured in accordance with procedures consistent with those set forth in Part A of the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in August 1975 (hereinafter called the Guidelines), on the basis of international competitive bidding.

2. (a) Contracts for civil works and equipment shall be grouped to the maximum extent practicable, as follows:

Contract No. 1: Civil works of diversion weir, supply canal and rockfill dam;

Contract No. 2: Civil works of water treatment plant;

Contract No. 3: Supply of equipment for water treatment plant;

Contract No. 4: Construction of trunk pipeline and storage facilities and civil works of pumping stations for water supply;

Contract No. 5: Construction of gravity irrigation canals, and primary and secondary networks to be tendered in two stages; - 37 -

Contract No. 6: Supply of equipment for pumping stations for water supply and irrigation;

Contract No. 7: Supply of portable sprinkleT irrigation equip- ment;

Contract No. 8: Supply of hydraulic equipment for autoaatic flow regulation and surge control;

Contract No. 9: Supply of vehicles and other equipment for operation and maintenance;

Contract No. 10: Supply of equipment and materials for the construction of irrigation tertiary network and farm roads and for soil improvement.

(b) Foreign contractors and suppliers shall not be required to register in Yugoslavia as a prerequisite for submitting bids. In the event that registration shall be necessary after a foreign contractor or supplier has been notified that he will be awarded a contract, the Borrower shall facilitate the registration.

(c) Contracts for civil works shall include a provision al- lowing non-Yugoslav contractors and suppliers to convert into foreign exchange and to repatriate a reasonable portion of contract payments, and to import equipment and specialized manpower as re- quired to carry out their services. - 38 -

B. Other Procurement Procedures

Contracts listed hereunder shall be procured on the basis of competitive bidding advertised locally and in accordance with the local procedures of the Guarantor:

1. contracts for individual items of equipment estimated to cost not more than $40,000 equivalent, provided that the total cost of such goods so procured shall not exceed the equivalent of $300,000; and

2. except as provided in Part D hereof, contracts for civil works included in Parts A (c), B (a), B (d), C (b), D, E and F of the Project for access road, diversion tunnel, grouting, main canal, power lines, irrigation pumping station and sub-stations, minor distribution pipelines, drainage, erosion control, demonstration areas and Project buildings, provided that the total cost of such civil works so procured shall not exceed the equivalent of $15,200,000.

C. Evaluation and Comparison of Bids for Goods; Preference for Domestic Manufacturers

1. For the purpose of evaluation and comparison of bids for the supply of goods except those to be procured in accordance with local procedures: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for imported goods, or the ex-factory price for domestically manufactured goods; (ii) customs duties and other import taxes on imported goods, and sales and sim- ilar taxes on domestically supplied goods, shall be excluded; and - 39 -

(iii) the cost to the Borrower of inland freight and other expen- ditures incidental to the delivery of goods to the place of their use or installation shall be included.

2. Goods manufactured in Yugoslavia may be granted a margin of preference in accordance with, and subject to, the following pro- visions:

(a) All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the infor- mation required to establish the eligibility of a bid for such preference and the following methods and stages that will be fol- lowed in the evaluation and comparison of bids.

(b) After evaluation, responsive bids will be classified in one of the following three groups:

(1) Group A: bids offering goods manufactured in Yugo- slavia if the bidder shall have established to the satisfaction of the Borrower and the Bank that the manufacturing cost of such goods includes a value added in Yugoslavia equal to at least 20% of the ex- factory bid price of such goods.

(2) Group B: all other bids offering goods manufactured in Yugoslavia.

(3) Group C: bids offering any other goods. - 4o -

(c) All evaluated bids in each group shall be first compared among themselves,.excluding any customs duties and other import taxes on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evalu- ated bid of each group. Such lowest evaluated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award.

(d) If, as a result of the comparison under paragraph (c) above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the c.i.f. bid price of the imported goods offered in each group C bid, for the purpose of this fur- ther comparison only, an amount equal to (i) the amount of cus- toms duties and other import taxes which a non-exempt importer would have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the-comparison under paragraph (c) is the lowest evaluated bid shall be selected.

D. Procurement Without Contracting

The construction of tertiary pipelines and farm roads and soil improvement included in Parts B (c), B (e) and D (c) of the Project shall be carried out by the Borrower under force account. - 41 -

E. Review of Procurement Decisions by the Bank

1. Review of invitations to bid and of proposed awards and final contracts:

With respect to all contracts for civil works and equipment specified in paragraph 2(a) of Part A hereof:

(a) Before bids are invited, the Borrower shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the bidding, and shall make such modifications in the said docu- ments or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders.

(b) After bids have been received and evaluated, the Bor- rower shall, before a final decision on the award is made, inform the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, together with the recommendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such determination. (c) The terms and conditions of the contract shall not, with- out the Bank's ccncurrence, materially differ from those on which bids were asked or -recualification invited.

(d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract.

2. With respect to each contract to be financed out of the pro- ceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish to the Bank, promptly after its execu- tion and prior to the submission to the Bank of the first applica- tion for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations for award and such other information as the Bank shall reasonably re- quest. The Pank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform the Borrower and state the reasons for such de- termination. - 43 -

SCHEDULE 5

A. Withdrawals of the Proceeds of the Second Kosovska Banka Loan

The table below sets forth the withdrawal of the proceeds of the Second Kosovska Banka Loan and the calendar years in which these withdrawals are to be made by the Borrower:

Amount of Installments Expressed in Thousand of Dinars Equivalent Year (Approximately)

1982 141,000 1983 136,000 1984 130,000 1985 121,000 1986 110,000 1987 98,000 1988 98,000 1989 96,000 1990 78,000 1991 55,000

TOTAL 1,063,000

B. Kosovo Grants

The table below sets forth the approximate amount of the grants to be provided to the Borrower by Kosovo under Section 6.02 (a) (ii) of this Agreement as a portion of the interest and other charges payable on the Loan and the First Kosovska Banka Loan in the calendar years shown: - 44-

Amount of Grants Expressed in Thousand of Dinars Equivalent Portion of Interest Year (Approximately) and Other Charges

1982 81,ooo 80 per cent 1983 65,000 70 per cent 1984 51,000 60 per cent 1985 39,000 50 per cent 1986 27,000 40 per cent 1987 18,000 30 per cent 1988 10,000 20 per cent 1989 4,ooo 10 per cent

TOTAL 295,000