Loan Agreement

CONFORMED COPY

LOAN NUMBER 1075 BR Public Disclosure Authorized

Loan Agreement

(Fifth Highway Project) Public Disclosure Authorized

BETWEEN

FEDERATIVE REPUBLIC OF BRAZIL

AND Public Disclosure Authorized

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

DATED JANUARY 17, 1975 Public Disclosure Authorized CONFORMED COPY

LOAN NUMBER 1075 BR

Loan Agreement

(Fifth Highway Project)

BETWEEN

FEDERATIVE REPUBLIC OF BRAZIL

AND

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

DATED JANUARY 17, 1975 LOAN AGREEMENT

AGREEMENT, dated January 17, 1975, between FEDERATIVE REPUBLIC OF BRAZIL (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank).

WHEREAS (A) The Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided;

(B) The Project will be carried out partly by the Borrower and partly, with the Borrower's assistance, by the States of Minas Gerais and Rio Grande do Sul, and, as part of such assistance, the Borrower will make available to such states certain portions of the proceeds of the Loan, all as hereinafter provided; and

(C) The Bank is willing to make the Loan available upon the terms and conditions set forth hereinafter and in two project agreements of even date herewith between the Bank and respectively the States of Minas Gerais and Rio Grande do Sul;

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 Guarantee Agreements of the Bank, dated March 15, 1974, with the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank being hereinafter called the General Conditions).

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

(a) "Project Agreement" means either of the two agreements between the Bank and, respectively, the States of Minas Gerais and Rio Grande do Sil, as the same may be amended from time to time; 4

(b) "Subsidiary Agreement" means either of the two agreements to be entered into pursuant to Section 3.01(c) of this Agreement between the Borrower and respectively each DER of the States of Minas Gerais and Rio Grande do Sul, acting on behalf of its respective State, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Agreement;

(d) "DNER" means Departamento Nacional de Estradas de Rodagem, an autarquia of the Borrower's Ministry of Transport designated by the Borrower to act on its behalf as the agency charged with the execution of the Project; and

(e) "DER" used with respect to either of the States, means the State Highway Department of such State.

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 referred to, an amount in various curren cies equivalent to one hundred and ten million dollars (SI 10,000,000).

Section 2.02. The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement, as such Schedule may be amended from time to time, for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan.

Section 2.03. Except as the Bank shall otherwise agree, contracts for the purchase of goods or for the carrying out of works or services (other than consultants' services) for the Project to be financed out of the proceeds of the Loan, shall be awarded in accordance with the provisions set forth or referred to in Schedule 4 to this Agreement.

Section 2.04. The Closing Date shall be December 31, 1979 or such other date as shall be agreed between the Borrower and the Bank.

Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths -f one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time.

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Section 2.06. The Borrower shall pay interest at the rate of eight per cent (8%) 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 March I and September 1 in each year.

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

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out Parts A, B and C of the Project with due diligence and efficiency and in conformity with sound engineering and financial practices, and shall provide, or cause to be provided, promptly as * needed, the funds, facilities, services and other resources required for the purpose.

(b) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause the States to perform in accordance with the provisions of their respective Project Agreement all the obligations therein set forth, shall take and cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable the States to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such perforance.

(c) The Borrower shall make available to each of the DERs such portion of the Loan as shall be disbursed by the Bank in respect of the Part of the Project to be carried out by such DER, acting on behalf of its respective State, pursuant to the provisions of this Agreement and of the respective Project Agreement, all under a Subsidiary Agreement to be entered into between the Borrower and such DER, under terms and conditions which shall have been approved by the Bank.

(d) The Borrower shall exercise its rights under each Subsidiary Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall neither amend nor abrogate or waive either Subsidiary Agreement or any provision thereof. 6

Section 3.02. (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 3.03. Except as the Bank shall otherwise agree, the general design standards for the highways included in the Project shall be the ones set forth in Schedule 5 to this Agreement.

Section 3.04. In. carrying out, or causing to be carried out, the Project, the Borrower shall employ, or cause to be employed, consultants acceptable to, and upon terms and conditions satisfactory to the Bank, in accordance with such provisions as are set forth in Schedule 6 to this Agreement or as shall be agreed between the Borrower and the Bank, or, where applicable, among the Borrower, the Bank and the States.

Section 3.05. (a) Without restriction or limitation upon the provisions of paragraphs (a) and (b) of Section 3.01 of this Agreement, the Borrower shall establish a Fund (hereinafter called the Project Revolving Fund) to be used exclusively to make payments for the cost of the goods and services required to carry out the Project. The Borrower shall deposit in the Project Revolving Fund all such amounts as shall be from time to time required to permit the payments heretofore specified to be made, promptly as needed, out of the Project Revolving Fund, and the Project Revolving Fund shall be maintained until all such payments shall have been made. The Borrower shall maintain or cause to be maintained records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of the Project Revolving Fund.

(b) Without restriction or limitation upon the provisions of paragraph (a) of this Section, the Borrower shall make an initial deposit in the Project Revolving Fund in the amount of twenty-two million Cruzeiros (Cr22,000,000), and thereafter shall make such deposits in the Project Revolving Fund as are required so that on the first day of each calendar month there shall be available in such Fund amounts sufficient to meet payments for total Project expenditures expected to be made during such month in accordance with the contractual work schedules 7

and the schedules for equipment purchases, as such schedules may be modified from time to time by agreement between the Borrower and the Bank, or, where applicable, among the Borrower, the Bank and the States.

Section 3.06. In carrying out, or causing to be carried out, the Project, the Borrower shall employ, or cause to be employed, contractors acceptable to the Bank upon terms and conditions satisfactory to the Bank.

Section 3.07. (a) The Borrower shall cause to be furnished to the Bank, promptly upon their preparation, the plans, specifications, contract documents and work schedules, for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request.

(b) The Borrower: (i) shall cause to be maintained 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) shall enable the Bank's representatives to inspect the Project, the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall cause to be furnished 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.

Section 3.08. The Borrower 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 not yet acquired by the Borrower as shall be required for carrying out the parts of the Project to be carried out by the Borrower and shall not award any construction, improvement or paving contract relating thereto before (i) such acquisition shall have been made, and (ii) evidence satisfactory to the Bank shall have been furnished to the Bank showing that all such land and rights in respect of land are available for purposes related to such parts of the Project.

Section 3.09. Unless otherwise agreed among the Borrower, the States and the Bank, the Borrower shall cause DNER to delegate maintenance of federal roads to the States of Minas Gerais and Rio Grande do Sul, in accordance with their respective plans set forth in the documents Estudo para Conservaabo da Rede Rodovidria Federal em Minas Gerais pelo DER/MG, dated February 1974, and Estudo para Conservagao da Rede Rodovidria Federal no Rio Grande do Sul pelo DAERIRS, dated March 1974, as such documents are amended with regard to their respective schedules for delegating responsbility to the States for the maintenance of federal roads. 8

Section 3.10. The Borrower shall cause DNER to reinforce the staff of its highway maintenance directorate by the employment of at least four qualified and experienced professionals, who shall work with the experts to be provided in Part C.1 of the Project, during the four years of service of such experts.

ARTICLE IV

Other Covenants

Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the princip4l of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date; and (iii) any lien on commercial goods to secure debt maturing not more than one year after the date on which it is originally incurred and to be paid out of the proceeds of sale of such commercial goods.

(c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. 9

Section 4.02. The Borrower shall maintain or cause to be maintained records adequate to reflect in accordance with consistently maintained sound accounting practices the operations, resources and expenditures, in respect of the Project, of the departments or agencies of the Borrower responsible for carrying out the Project or any part thereof.

Section 4.03. The Borrower shall continue to take appropriate measures to ensure that the provisions of the Borrower's Decreto-Lei No. 117 of January 3 1, 1967, regarding the limitation of the size and weight of vehicles using the Borrower's federal highway network are fully enforced.

Section 4.04. (a) The Borrower shall cause the highways included in its federal highway network to be adequately maintained and all necessary repairs thereof to be made promptly, all in accordance with sound engineering practice. The Borrower shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose.

(b) Without limiting the generality of the foregoing the Borrower shall * cause DNER (i) to continue to make available to the States of Minas Gerais and Rio Grande do Sul the funds required for maintaining the delegated federal highway network located in their respective territories, and (ii) to delegate the responsibility of maintaining the federal highway network located in its respective territory to any such additional State of the Borrower as is capable of assuming such responsibility, and to make available to such State the funds required for such purpose.

Section 4.05. The Borrower shall continue to maintain facilities to collect and record systematically such data as are required to assess the technical, economic and financial aspects of the highway system included in the Borrower's territories.

Section 4.06. The Borrower shall execute or cause to be executed, a study on road user charges, in accordance with terms of reference and a timetable satisfactory to the Bank.

Section 4.07. The Borrower shall take, or cause to be taken, all reasonable action required for the prompt issuance of such import and other permits and licenses as shall be necessary for the acquisition and importation of goods and services required for the carrying out of the Project. 10

ARTICLE V

Remedies of the Bank

Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified:

Either of the States or either of the States' DERs shall have failed to perform any covenant, agreement or obligation of such State or of such DER under its respective Project Agreement or under its respective Subsidiary Agreement.

Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional event is specified:

The event specified in Section 5.01 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 and the respective State or the respective DER.

ARTICLE VI

Effective Date; Termination

Section 6.01. 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) Arrangements, satisfactory to the Bank, have been made to create the Project Revolving Fund and the initial deposit specified in paragraph (b) of Section 3.05 of this Agreement has been made.

(b) The Loan Agreement has been duly registered by Banco Central do Brasil.

(c) Subject only to the occurrence of the events referred to in paragraph 4 of Schedule 1 to this Agreement, all necessary acts, consents and approvals to be performed or given by the Borrower, the States, its or their political subdivisions or agencies or by any agency of any political subdivision or otherwise to be performed or given in order to authorize the carrying out of the Project and to enable the Borrower to perform all of the covenants, agreements and obligations of the Borrower in this Agreement contained (including the obligations thereof relating to procurement of goods and services for the Project) together with all necessary powers and rights in connection therewith, shall have been performed or given. 11

Section 6.02. The following are 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:

(a) that the Loan Agreement has been duly registered by Banco Central do Brasil; and

(b) that all acts, consents and approvals referred to in paragraph (c) of Section 6.01 of this Agreement, together with all necessary powers and rights in connection therewith, have been duly and validly performed or given and that no other such acts, consents or approvals are required in order to authorize the carrying out of the Project and to enable the Borrower to .form all of the covenants, agreements and obligations of the Borrower in the Loan Agreement contained (including the obligations thereof relating to procurement of goods and services for the Project).

Section 6.03. The date April 17, 1975 is hereby specified for the purposes of Section 12.04 of the General Conditions.

ARTICLE VII

Representative of the Borrower; Addresses

Section 7.01. The Director General of DNER is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions.

Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions:

For the Borrower:

Departamento Nacional de Estradas de Rodagem Avenida Presidente Vargas 522 Rio de Janeiro, Brasil

Cable address:

DENERVIA Rio de Janeiro 12

For the Bank:

International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America

Cable address:

INTBAFRAD Washington, D.C.

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.

FEDERATIVE REPUBLIC OF BRAZIL

By /s / Mario Henrique Simonsen Authorized Representative

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

By /s / Gerald Alter Regional Vice President Latin America and the Caribbean 13

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 expenditures for items so to be financed in each Category:

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

(1) Construction and 50,500,000 40% upgrading of the highways included in Part A of the Project

(2) Consulting serv- 3,400,000 40% ices for super- vision of Part A of the Project

(3) Consulting serv- 5,400,000 40% ices for the studies in Part B of the Project

(4) Assistance to DNER in Part C of the Project

(a) Technical 300,000 40% Assistance and Training

(b) Weighing 2,400,000 40% Stations

(5) Highway Maintenance program in the State of Minas Gerais Part D.1. of the Project

(a) Civil Works 1,50&,b000 40% 14

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

(b) Machinery, 11,900,000 40% equipment, mobile weigh bridges and weighing stations

(6) Highway Maintenance program in the state of Rio Grande do Sul, Part D.2. of the Project

(a) Civil Works 600,000 40%

(b) Machinery, 3,600,000 40% equipment, mobile weigh bridges and weighing stations

(7) Unallocated 26,800,000

TOTAL 110,000,000

2. For the purposes of this Schedule the term "total expenditures" means the aggregate of the Borrower's expenditures for goods produced in, or services supplied from, the territories, and in the currency, of any country other than the Borrower, and expenditures in the currency of the Borrower, or for goods produced in, or services supplied from, the territories of the Borrower.

3. The disbursement percentages have been calculated in compliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account 15 of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if any such taxes shall be included in the cost of any item to be financed out of the proceeds of the Loan, the Bank may, by notice to the Borrower, correspondingly adjust the disbursement percentage then applicable to such item.

4. Notwithstanding the provisions of paragraph I above, no withdrawals under Part D of the Project shall be made in respect of:

(a) expenditures for the Project in either of the States until (i) the execution and delivery of the Project Agreement on behalf of such State have been duly authorized or ratified by all necessary action thereof; and (ii) the Borrower and the DER of such State have entered into the Subsidiary Agreement required under paragraph (c) of Section 3.01 of this Agreement and the execution and delivery of such Subsidiary Agreement on behalf of the Borrower and such DER shall have been duly authorized or ratified by all necessary action of the Borrower and such DER;

(b) expenditures for the Project in either of the States until such State and its consultants have duly executed and delivered a contract providing for consulting services as required by the provisions of Section 3.04 of this Agreement and Section 2.02 of the respective Project Agreement, and, to the extent that any such contract is executed with a non-Brazilian firm, until it has been duly registered by Banco Central do Brasil;

(c) expenditures for the Project in either of the States until the contracts between the Borrower and its consultants for Part C. I of the Project have been signed as required by the provisions of Section 3.04 of this Agreement; and, to the extent any such contract is executed with non-Brazilian persons or firm, until it has been duly registered by Banco Central do Brasil.

5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in paragraph I above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category to the extent required to meet the estimated shortfall proceeds of the Loan which are then allocated to another 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 applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 16

6. If the Bank shall have reasonably determined that the procurement of any item in any 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 limiting 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.

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SCHEDULE 2

Description of the Project

The Project consists of:

Part A: Highway Construction and Upgrading

1. Highway BR-496 (State of Minas Gerias). Construction of the 141.1 km section between Corinto and Pirapora, in accordance with Class 1 design standards.

2. Highway BR-277 (State of Parand). Construction and upgrading of the 22.4 km section between Curitiba and Campo Largo in accordance with Class 0 design standards (two separated carriageways).

3. Highway BR-101 (State of Bahia). Construction of the 130.9 km section between Feira de Santana and Esplanada in accordance with Class I design standards.

4. Highway BR-040 (States of Rio de Janeiro and Minas Gerais). Construction and upgrading of the 103.2 km section between Bingen (near Petr6polis) and Matias Barbosa (near Juiz de Fora) in accordance with Class 0 design standards (two separated carriageways), and construction of the 38 km Juiz de Fora bypass (between Matias Barbosa and Barreira do Triunfo) in accordance with Class I design standards.

5. HighwaY BR-364 (State of Goids). Construction of the 177.1 km section between Jataf and Canal do Sao Simao, in accordance with Class 1 design standards.

Such highway construction and upgrading shall be divided into lots as specified in the Annex to this Schedule.

Part B: Detailed Engineering Studies and Feasibility Studies

1. Detailed engineering studies for the construction of the following highways, totalling 832 km: 18

Road Length Road Section No. Km State

Porto Franco-Grajau BR-226 156 Maranhao Petrolandia-Ribeira do Pombal BR-1 10 224 Pernambuco/Bahfa Campo Largo-Ponta Grossa BR-277/316 102 Parand Toledo-Guafra BR-163/467 101 Parand Jandaia do Sul-Fenix BR-369 61 Parand Cel.Vivida-Jct. BR-282 BR-1 58 143 Parand/Sta. Catarina Encr.do Sul-Jct. BR-290 BR-471 45 Rio Grande do Sul

2. Detailed engineering studies for the rehabilitation of about 1,600 km of highways, selected on the basis of studies made by DNER so as to determine priorities.

3. Feasibility studies for about 1,200 km of highways as follows:

Road Length Road Section No. Km State

Santos-Guaruva BR-101 416 Sao Paulo/Parand Border Sao Paulo/Ponta Grossa-Campo Grande BR-262 352 Mato Grosso Goidnia/Cristalina-Patos BR-352/354 464 Goids/Minas Gerais de Minas

Part C: Improvement of DNER 's Services

Improvement of DNER's highway maintenance capability by:

1. Technical assistance by one maintenance expert and one cost accounting expert for at least four years each; and

2. Procurement and installation of 95 weigh bridges on federal highways (the locations of such weigh bridges to be satisfactory to the Bank).

Part D: State Highway Maintenance Improvement Programs

1. The carrying out, by the DER of the State of Minas Gerais, of a program designed to improve its highway maintenance capability, such program to include inter alia (a) the restructuring of the DER's maintenance division, (b) procurement of maintenance, workshop and office equipment, (c) procurement 19

of twenty-six weigh bridges, of which eleven will be installed as components of eleven permanent weighing stations, and (d) the carrying out of a training program for such DER's staff, all as set forth in "Estudo para ConservaVdo da Rede Rodoviaria Federal em Minas Gerais pelo DER/MG" dated February 1974, as amended with regard to its schedule for delegating responsibility to the State for the maintenance of federal roads, or as shall be agreed among the Borrower, the State of Minas Gerais and the Bank.

2. The carrying out, by the DER of the State of Rio Grande do Sul, of a program designed to improve its highway maintenance capability, such program to include inter alia (a) the restructuring of the DER's maintenance division, (b) procurement of maintenance, workshop and office equipment, (c) procurement of eleven weigh bridges, of which three will be installed as components of three permanent weighing stations, and (d) the carrying out of a training program for such DER's staff, all as set forth in "Estudo para ConservaCao da Rede Rodoviaria Federal no Rio Grande do Sul pelo DAERIRS" dated March 1974, as amended with regard to its schedule for delegating responsibility to the State for the maintenance of federal roads, or as shall be agreed among the Borrower, the State of Rio Grande do Sul and the Bank.

The Project is expected to be completed by June 30, 1979. 20

ANNEX TO SCHEDULE 2

Lot No. Section Length, km Type of Works

Highway BR-496, Corinto-Pirapora

01 Km 0-km 45,2 45.2 Highway construction 02 Km 45,2-km 92,9 47.7 t t 03 Km 92,9-km 141,1 48.2 t t 04 Km 0-km 65,0 ' 0.3 Bridge construction 05 Km 65,0-km 141,1 0.2 tt Highway BR-277, Curitiba-Campo Largo

250.1 Curitiba-Campo Largo 22.4 Highway construction 250.2 Curitiba-Campo Largo 0. i Bridge construction

Highway BR-101, Feira de Santana-Esplanada

302.1 Jct. BR-324-Inhambupe Cipo 68.7 Highway construction 302.2 Inhambupe Cipo-Esplanada 62.2 t 302.3 Jct. BR-324-Esplanada 0.8 Bridge construction

Highway BR-040, Bingen-Barreira do Triunfo

306.3 Bingen (km 41,6)-Bonsucesso (km 59,0) 17.4 Highway construction 306.4 Bonsucesso (km 59,0)-Areal (km 85,0) 26.0 306.5 t t Areal (km 85,0)-Moura Brasil (km 104,0) 19.0 306.6 t t Moura Brasil (km 104,0)-km 125,2 21.2 306.7 t Km 125,2-Matias Barbosa (km 144,8) 19.6 306.8 t t Matias Barbosa (km 144,8)-km 162,8 18.0 306.9 Km t t 162,8-B. do Triunfo (km 182,8) 20.0 t Highway BR-364, Jatai-CanalSao Sina

307.1 Jataf (km 0)-km 39,9 39.9 Highway construction 307.2 Km 39,9-Rio Doce (km 85,0) 45.1 307.3 t t Rio Doce-km 129,9 44.9 t 307.4 Km 129,9-km 177,1 t 47.2 t 21

SCHEDULE 3

Amortization Schedule

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

March 1, 1980 1,960,000 September 1, 1980 2,040,000 March 1, 1981 2,120,000 September 1, 1981 2,205,000 March 1, 1982 2,295,000 September 1, 1982 2,385,000 March 1, 1983 2,480,000 September 1, 1983 2,580,000 March 1, 1984 2,685,000 September 1, 1984 2,790,000 March 1, 1985 2,905,000 September 1, 1985 3,020,000 March 1, 1986 3,140,000 September 1, 1986 3,265,000 March 1, 1987 3,395,000 September 1, 1987 3,530,000 March 1, 1988 3,675,000 September 1, 1988 3,820,000 March 1, 1989 3,975,000 September 1, 1989 4,130,000 March 1, 1990 4,290,000 September 1, 1990 4,470,000 March 1, 1991 4,650,000 September 1, 1991 4,835,000 March 1, 1992 5,025,000 September 1, 1992 5,230,000 March 1, 1993 5,440,000 September 1, 1993 5,655,000 March 1, 1994 5,880,000 September 1, 1994 6,130,000

* 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 equivalents determined as for purposes of withdrawal.

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Premiums on Prepayment

The following percentages are specified as the premiums payable 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 1-1/4%

More than three years but not more than six years before maturity 2%

More than six years but not more than eleven years before maturity 3-3/4%

More than eleven years but not more than sixteen years before maturity 5-3/4%

More than sixteen years but not more than eighteen years before maturity 7%

More than eighteen years before maturity 8% 23

SCHEDULE 4

Procurement

A. General Procedures

1. Except as provided in paragraphs A.5 and A.6 hereof, contracts shall be let under procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in April 1972, as revised in October 1972 (hereinafter called the Guidelines), on the basis of international competitive bidding.

2. With respect to any contract for highway construction, improvement or paving:

(a) Bidders shall be prequalified as described in part 2.2 of the Guidelines, and a period of not less than 45 days shall be given to contractors for presentation of prequalification documents.

(b) For bidding purposes, each highway included in the Project shall be divided into lots as specified in the Annex to Schedule 2 to this Agreement, and qualified contractors shall be permitted to bid for one or more such lots. Contracts shall be awarded to the lowest evaluated bidder, such evaluation to take into account the capacity of such bidder as determined in the prequalification stage.

(c) Non-Brazilian contractors shall not be required to register in Brazil as a prerequisite for submitting bids. In the event that registration shall be necessary after a non-Brazilian contractor has been awarded a contract, the Borrower shall facilitate the registration.

(d) Prequalified contractors shall be given a period of not less than 45 days for submission of bids. Bids shall be accompanied by a bid bond or guarantee of not less than 2% of the bid amount or such other percentage as shall be agreed betwe;-.n the Borrower and the Bank.

(e) Contracts shall be on a unit price basis and shall include:

(i) A price escalation clause, including appropriate formulae for different work items with the provision that the corresponding indices will be published periodically by the Getulio Vargas Foundation. 24

(ii) An obligation to provide any one of the following guarantees: (A) a performance guarantee, a bank guarantee or a deposit in Brazilian Treasury bonds with monetary correction, any such guarantee to be for an amount equivalent to 10% of the contract value, or (B) a performance bond in the amount of 100% of the contract value. Any such guarantee instrument shall remain in effect at least until thirty days after the final reception of the works, which will take place one year after the provisional reception of the works.

(iii) A provision of retention money or an equivalent deposit in Brazilian Treasury bonds with monetary correction, in the amount of 5% of the contractor's monthly statements. After the provisional reception of the works covered by the contractor's contract, or of any portion thereof, such retention money or such deposit in Brazilian Treasury bonds shall be returned to the contractor.

(iv) A provision that non-Brazilian contractors will be entitled to convert into foreign exchange a reasonable portion of contract payments.

3. With respect to the purchase of maintenance and workshop equipment, and weigh bridges:

(a) For bidding purposes, the Borrower and the States shall prepare lists of equipment to be purchased under the Project for each year of the Project, separately by the Borrower and each of the two States, such lists to be agreed with the Bank prior to the first purchase.

(b) The bidding, except for items defined in paragraph 5 hereof, shall be advertised internationally, as described in paragraph 2.1 of the Guidelines, and the interval between invitation to bid and opening of bids shall not be less than 45 days. Bids shall be accompanied by a bid bond or guarantee of at least 2% of the bid amount, or such other percentage as shall be agreed among the Borrower, the States and the Bank.

(c) The bid documents shall include provisions requiring that the guarantee of performance of the contract will be either in the form of: (A) a performance guarantee, a bank guarantee or a deposit in Brazilian Treasury bonds with monetary correction, any such guarantee to be for an amount equivalent to 10% of the 25 contract value; or (B) a performance bond in the amount of 100% of the contract value. Any such guarantee shall be released after the satisfactory expiry of the period of guarantee specified in the contract.

4. The Borrower shall use its best efforts to cause any contract with non-Brazilian firms for civil works or for the supply of goods to be registered with Banco Central do Brasil no later than 60 days after execution of such contracts by the parties thereto.

5. Groups of the same or similar items of maintenance equipment the value of which is less than the equivalent of $50,000 may, at the Borrower's option, be procured in accordance with the Borrower's regular procurement procedures. All such purchases shall not exceed *n the aggregate the equivalent of $1,000,000.

6. Minor civil works under Parts C.2 and D of the Project, such as construction of buildings, weighing stations and their access roads, costing less than the equivalent of $100,000 each contract may, at the Borrower's option, be contracted in accordance with the Borrower's regular procurement procedures. All such contracts shall not exceed in the aggregate the equivalent of $2,000,000.

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

1. For the purpose of evaluation and comparison of bids for the supply of goods: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for -mporte6 goods, or the ex-factory price for domestically-manufactured goods; (ii) customs duties and other import taxes on imported goods (including merchant fleet renewal and port improvement taxes), and sales and similar taxes on domestically-supplied goods, shall be excluded; and (iii) the cost to the Borrower of inland freight and other expenditures incidental to the delivery of goods to the place of their use or installation shall be included.

2. Goods manufactured in Brazil may be granted a margin of preference in accordance with, and subject to, the following provisions:

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

(b) After evaluation, responsive bids will be classified in one of the following two groups: 26

(1) Group A: bids offering goods manufactured in Brazil if the bidder shall have established to the satisfaction of the Borrower and the Bank that such goods contain components manufactured in Brazil equal to at least 50% of the value of the complete goods.

(2) Group B: bids offering any other goods.

(c) All evaluated bids in each group shall be first compared among themselves, excluding any customs duties and other import taxes (including merchant fleet renewal and port improvement taxes) on goods to be imported and any sales or similar taxes on goods to be supplied domestically, to determine the lowest evaluated bid of each group. The lowest evaluated bids of each group shall then be compared with each other and if, as a result of this comparison, a bid from group A 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 3, all group B bids shall be further compared with the lowest evaluated bid from group A after adding (I) to the c.i.f. bid price of goods to be imported in each group B bid an amount equal to the smaller of (i) the amount of customs duties and other import taxes which a non-exempt importer would have to pay for the importation of goods offered in such group B bid, or (ii) 15% of the c.i.f. bid price of such goods, and (II) to the ex-factory bid price of goods supplied domestically offered in each group B bid an amount equal to the smaller of (i) the amount of customs duties and other import taxes which would be levied on the goods offered in such group B bid if they originated from the same foreign country as the bid included in group B which enjoys the lowest customs duties and other import taxes, or (ii) 15% of the ex-factory bid price of such goods. If, as a result of this comparison, the bid from group A is the lowest, it shall be selected for the award; if not, the lowest evaluated bid from group B, as determined under paragraph (c) above, shall be selected for the award.

C. Review of Procurement Decisions by the Bank

1. Review of prequalification for civil works. The Borrower shall, before qualification is invited, inform the Bank in detail of the procedure to be followed and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification shall be furnished by the Borrower to the Bank for its comments before the applicants are notified, and the Borrower shall make such additions to, deletions from, or modifications in, the said list as the Bank shall reasonably request. 27

2. Review of invitation to bid and of proposed awards and final contracts:

With respect to all contracts excepting those described in paragraphs A.5 and A.6 of this Schedule:

(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 documents 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) Promptly after the bids have been received, the Borrower shall inform the Bank of the names of the bidders and the respective amounts of the bids.

(c) After bids have been received and evaluated, the Borrower shall, before a final decision on the award is mde, inform the Bank of the name of the bidder to which it intends to award the contract and the reasons for the intende.9 ward and shall furnish to the Bank, in sufficient time for its review, a detailed ieport, by the consultants referred to in Schedule 6 to this Agreement, on the evaluation and comparison of the bids received, together with the recommendation for award of the said consultants 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.

(d) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited.

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

3. With respecL to each contract to be financed out of the proceeds of the Loan and not governed by the preceding paragraph, the Borrower shall furnish .o the Bank, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of bids, recommendations for award and such other information as the Bank shall 28 reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with this Schedule, promptly inform the Borrower and state the reasons for such determination. 29

SCHEDULE 5

Highway Design Standards

Class of Highway

0 I II III

Design Speed flat 120 100 80 60 km/h rolling 100 80 60. 40 mountainous 80 60 40 30

Minimum flat 570 380 230 130 Horizontal rolling 380 230 130 50 Radius, m mountainous 230 130 50 30 Maximum flat 3 3 3 4 Grade, % rolling 4 4.5 5 6 mountainous 5 6 7 8 Sight Distance flat 210 150 110 75 for Stopping, m rolling 150 110 75 50 mountainous 110 75 50 -

Sight Distance flat 730 650 500 350 for Passing, m rolling 650 500 350 175 mountainous 500 350 175 -

Pavement flat 7.50 7.20 7.00 7.00 Width, m rolling 7.50 7.20 to to mountainous 7.50 7.20 6.50 6.00

Shoulder flat 3.50 3.00 2.50 2.00 Width, m rolling 3.00 to to to mountainous 2.50 2.50 2.00 1.20 very mountainous 1.00 1.00 1.00 0.80

Right-of-way, m flat - 60 30 30 rolling - 70 40 40 mountainous - 80 50 50 30

SCHEDULE 6

Employment of Consultants

1. DNER shall employ consultants for the following:

(a) To sapervise the carrying out of Part A of the Project. Consultants responsible for the detailed engineering studies of the highways included in such Part of the Project are to be employed, except as the Bank shall otherwise agree, as supervisors of the construction of such highways. Such consultants shall be given the necessary authority for the performance of their functions as supervisors and for the acceptance of full responsibility by such consulting firms for the satisfactory execution of the Project or any Part thereof;

(b) For the time required to carry out Part A of the Project, a team of four engineers to assist DNER in controlling and coordinating the execution of Part A of the Project;

(d) For a period of four years each, a highway maintenance engineer and a cost accounting and budgeting expert to assist DNER in carrying out -irt C.l of the Project.

2. Each of the States shall employ consultants to assist it in carrying out its respective Part of the Project, such consultants to work in the premises of, and jointly with professional staff of the respective DER. For this purpose, DNER shall, in consultation with the DER of the respective State, select one consulting firm with recognized international experience in the highway maintenance field. Such consulting firm shall establish a joint venture in each State with a Brazilian consulting firm selected from a list of firms prequalified for this purpose by each State, such prequalification to be made in consultation with DNER and the Bank.

3. With respect to any consultant's contract:

(a) the invitation documents shall be submitted to the Bank for review;

(b) the selection of the consultants and the draft consultants' contract shall be submitted to the Bank for approval; (c) two conformed copies thereof shall be sent to the Bank promptly after its execution and prior to sending to the Bank the first application for withdrawal of funds from the Loan Account in respect of such contract; and 31

(d) to the extent any of the consultants referred to in this Schedule 6 are non-Brazilian firms or non-Brazilian natural persons, the Borrower shall use its best efforts to cause the contracts with such consultants to be registered by Banco Central do Brasil no later than 60 days after execution thereof.