CONFORMED COPY

LOAN NUMBER 1262 YU

LOAN AGREEMENT

(Morava Region Development Project:Water Supply, Severage and Water Resources)

between

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

and

REPUBLICKI FOND VODA(Republic Water Fund)

Dated June 14, 1976

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LOAN AGREEMENT

AGREEMENT, dated June 14, 1976, between INTERNATIONAL BANK

FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank)

and REPUBLICKI FOND VODA (Republic Water Fund) (hereinafter called

the Borrower).

WHEREAS (A) The Borrower is an organization established by

the Socialist Republic of Serbia (hereinafter called the Republic)

pursuant to the Law of the Republic promulgated by Decree dated

December 24,'1965, published in the Official Gazette (Sluzbeni

Glasnik SRS) of the Republic, No. 53-65, dated December 25, 1965.

(B) The Borrower has requested the Bank to assist in the

financing of the foreign exchange cost of the Project described

in Schedule 2 to this Agreement by making the Loan as hereinafter

provided;

(C) Part E of the Project will be carried out by KomunalnoPreduzece "Bioktos" - Titovo Uzice (Communal Enterprise "Bioktos"-

Titovo Uzice) (hereinafter called Bioktos), an Organization of

Associated Labor established and operating under the Laws of the

Socialist Federal Republic of Yugoslavia, with the Borrower's as-

sistance and, as part of such assistance, the Borrower will make

available to Bioktos a portion of the proceeds of the Loan as

hereinafter provided;

(D) Part F of the Project will be carried out by Komunalna

Organizacija Udruienog Rada za Vodovod i Kanalizaciju "Vodovod"

Cacak (Communal Organization of Associated Labor for Water Supply

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and Sewerage Systems "Vodovod"-Cacak) (hereinafter called Vodovod),

an Organization of Associated Labor established and operating under

the Laws of the Socialist Federal Republic of Yugoslavia, with the

Borrower's assistance and, as part of such assistance, the Borrower

will make available to Vodovod portions of the proceeds of the Loan

as hereinafter provided;

(E) Part D of the Project will be carried out by Republicki

Fond za Potsticanje Razvoja Nedovoljno Razvijenih Podrucja (Repub-

lic Fund for the promtion of Development of Underdeveloped Regions)

(hereinafter called RFPRNRP) an organization established and op-

erating pursuant to the Republic's Laws, published in the Official

Gazette (Sluzbeni Glasnik SRS) of the Republic, No. 51-71, 15-78,

12-73, 18-74, 41-74, with the Borrower's assistance and, as part

of such assistance, the Borrower will make available to RFPRNRP

a portion of the proceeds of the Loan as hereinafter provided;

(F) Parts B and C of the Project will be carried out, respec-

tively, by (i) Zemljoradnicka Zadruga "Milosevac"-Milosevac (Milo-

sevac Farmers' Cooperative) (hereinafter called Milosevac) an Or-

ganization of Associated Labor established and operating under

the Laws of the Socialist Federal Republic of Yugoslavia and (ii)

Poljoprivredno-Industrijski Kombinet Aleksinac (Agro-industrial

Kombinat Aleksinac) (hereinafter called Aleksinac), an Organiza-

tion of Associated Labor established and operating under the Laws

of the Socialist Federal Republic of Yugoslavia with the Borrower's

assistance and, as part of such assistance, the Borrower will make

available to Milosevac and Aleksinac a portion of the proceeds of

the Loan as hereinafter provided;

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(G) Bioktos has represented to the Bank that it proposes to

make arrangements to receive financing during the construction

period of Part E of the Project in addition to internal cash gen-

eration and the proceeds of the Loan on-lent to Bioktos, as here-

inafter provided, as follows: (i) a loan from Beogradska Banka,

Belgrade in an amount of 8,000,000 Dinars (about $444,444 equiv-

alent at current exchange rates); (ii) a loan or loans from other

sources in an aggregate amount of not less than 18,000,000 Dinars

(about $1,000,000 equivalent at current exchange rates); and (iii)

an agreement with Beogradska Banka, Beograd providing for Beogradska

Banka, Beograd whenever there is reasonable cause to believe that

the funds available to Bioktos will be inadequate to meet the ex-

penditures required to carry out Part E of the Project, to provide

or cause Bioktos to be provided, with such funds as are required

to meet such expenditures, all on terms and conditions satisfactory

to the Bank.

(H) Skupstina Opstine Titovo Uzice (The City Assembly of

Titovo Uzice) (hereinafter called Titovo Uzice) has represented

to the Bank (i) that it has passed a resolution on October 17,

1975 whereunder Bioktos will be provided during the construction

period of Part E of the Project, in addition to the sources of

financing referred to in Recital (G) hereof, with funds in an

aggregate amount of not less than 198,600,000 Dinars (about

$11,033,333 equivalent at current exchange rates), and (ii) that

it will make arrangements with the Borrower to provide the Borrower

with not less than 51,500,000 Dinars (about $2,861,111 equivalent

at cur.rent exchange rates) as a contribution for the construction

of the facilities under Part A (2) of the Project;

(I) Vodovod has represented to the Bank that it proposes to

enter into an agreement with Beogradska Banka, Beograd to obtain

financing during the construction period of the Project, in addi-

tion to internal cash generation and the proceeds of the Loan on-

lent to Vodovod, whereby Beogradska Banka, Beograd will provide

or cause Vodovod to be provided, with such funds as are required

to meet expenditures required to carry out Part F of the Project,all on terms and conditions satisfactory to the Bank whenever

there is reasonable cause to believe that the funds available to

Vodovod will be inadequate to meet such expenditures.

(J) Skupstina Opitine Cacak (The City Assembly of Cacak)

(hereinafter called Cacak) has represented to the Bank that it

proposes to pass a resolution whereunder Vodovod will be provided

during the construction period of Part F of the Project, in addi-

tion to the funds referred to in Recital (I) hereof, with funds

in an aggregate amount of not less than 137,800,000 Dinars (about

$7,655,556 equivalent at current exchange rates).

(K) The Republic proposes to undertake an obligation to pro-

vide to the Borrower, or cause the Borrower to be provided with

such funds as are required to meet the expenditures required to

carry out Parts A and D of the Project, on terms and conditions

satisfactory to the Bank, whenever there is reasonable cause to

believe that the funds available to the Borrower will be inade-

quage to meet such expenditures;

(L) The Republic proposes to undertake an obligation to

provide Milosevac and Aleksinac, respectively, or cause Milo,.evac

and Aleksinac, respectively, to be provided with funds to assist

in the carrying out of Parts B and C of the Project, respectively,

as follows: (i) all funds, in addition to the proceeds of the Loan

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allocated for the carrying out of Parts B and C of the Project,

required for the carrying out of Parts B and C of the Project;

(ii) working capital to cover operation and maintenance pending

receipt of crop sales revenues; and (iii) agricultural credit suf-

ficient to cover the capital outlay of farmers to convert to other

crops;

(M) The Republic proposes to make appropriate arrangements

to monitor, analyze and evaluate the results of Parts B and C of

the Project during a period of five years starting on January 1,

1977, and to distribute the information therefrom to appropriate

agricultural interests in the Republic, in accordance with guide-

lines acceptable to the Bank;

(N) The Bank is willing to make the Loan available upon the

terms and conditions set forth hereinafter and in the project

agreements of even date herewith between (i) the Bank on the one

hand and Titovo Uzice and Bioktos on the other hand, (ii) between

the Bank on the one hand and Cacak and Vodovod on the other hand,

(iii) between the Bank on the one hand and Milosevac on the other

hand, and (iv) between the Bank on the one hand and Aleksinac on

the other hand; and

(0) By an agreement of even date herewith between the Social-

ist Federal Republic of Yugoslavia (hereinafter called the Guar-

antor) and the Bank (hereinafter called the Guarantee Agreement),

the Guarantor has agreed to guarantee the Loan as to payment of

principal, interest and other charges.

NOW THEREFORE the parties hereto hereby agree as follows:

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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 (said Gen-

eral 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 con-

text otherwise requires, the several terms defined in the General

Conditions and in the Preamble to this Agreement have the respec-

tive meanings therein set forth and the following additional terms

have the following meanings:

(a) "Titovo Uzice" means Skupstina Opstine Titovo Uzice (the

City Assembly of Titovo Uzice) within the Republic governed by a

statute adopted by the City Assembly of Titovo Uzice on March 4,

1974;

(b) "Cacak" means Skupstina Opstine eacak (the City Assembly

of Cacak) within the Republic governed by a statute adopted by the

City Assembly of Cacak on March 4, 1974;

(c) "Bioktos Project Agreement" means the agreement between

the Bank on the one hand and Titovo Uzice and Bioktos on the other

hand of even date herewith, as the same may be amended from time

to time, and such term includes all schedules to the Bioktos

Project Agreement and all agreements supplemental to the Bioktos

Project Agreement;

(d) "Bioktos Subsidiary Loan Agreement" means the agreement

to be entered into between the Borrower on the one hand and Bioktos

on the other hand pursuant to Section 3.02 of this Agreement, as

the same may be amended from time to time, and such term includes

all schedules to the Bioktos Subsidiary Loan Agreement;

(e) "Vodovod Project Agreement" means the agreement to be

entered into between the Bank on the one hand and Cacak and Vodovod

on the other hand of even date herewith, as the same may be

amended from time to time, and such term includes all schedules

to the Vodovod Project Agreement and all agreements supplemental

to the Project Agreement;

(f) "Vodovod Subsidiary Loan Agreement" means the agreement

to be entered into between the Borrower on the one hand and Vodo-

vod on the other hand pursuant to Section 3.02 of this Agreement,

as the same may be amended from time to time, and such term in-

cludes all schedules to the Vodovod Subsidiary Loan Agreement;

(g) "Milosevac Project Agreement" means the agreement between

the Bank on the one hand and Milosevac on the other hand of even

date herewith, as the same may be amended from time to time, and

such term includes all schedules to the Milosevac Project Agree-

ment and all agreements supplemental to the Milosevac Project

Agreement;

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(h) "Aleksinac Project Agreement" means the agreement to be

entered into between the Bank on the one hand and and Aleksinac

on the other hand of even date herewith, as the same may be amended

from time to time, and such term includes all schedules to the

Aleksinac Project Agreement and all agreements supplemental to the

Aleksinac Project Agreement;

(i) "Social Accounting Service" means Sluzba Drustvenol

Knjigovodstva referred to in Article 77 and in paragraph (5) of

Article 281 of the Guarantor's Constitution;

(j) "Dinar" means the currency of the Guarantor;

(k) "The Borrower's Statutes" means the statutes of the Bor-

rower as adopted by the Administrative Committee of the Borrower

on March 21, 1966 and approved by the National Assembly of the

Socialist Republic of Serbia.

(1) "The Vodovod Statutes" means the statutes of Vodovod as

approved by its Workers' Council on May 28, 1973;

(m) "The Bioktos Statutes" means the statutes of Bioktos,

dated June 20, 1973, as approved by its Workers' Council on June 20,

1973;

(n) "The Milosevac Statutes" means the statutes of Milosevac

as approved by its Assembly on April 12, 1975;

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(o) "The Aleksinac Articles of Association" means the articles

of association of Aleksinac adopted by its Workers' Council on

May 8, 1973;

(p) "The Aleksinac Statutes" means the statutes of Aleksinac

as approved by its Workers' Council on December 28, 1973; and

(q) "Morava" means the Morava Region Water Community of

Interest to be established pursuant to the provisions of the

Republic's Law on Water Management which has been promulgated by

Decree dated July 21, 1975 and published in the Official Gazette

(Sluzbeni List) of the Republic on July 28, 1975.

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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 currencies equivalent to twenty million

dollars ($20,000,000).

Section 2.02. (a) 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 by agreement between the Bank and the Borrower, for expcndi-

tures made (or, if the Bank shall so agree, to be made) in respect

of the reasonable cost of goods and services required for the Proj-

ect and to be financed out of the proceeds of the Loan and in re-

spect 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 Loan Account and pay

to itself the amounts required to pay, on such date, interest and

other charges on the Loan accrued and payable on or before the date

set forth, and 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, the

goods, works and services for the Project shall be procured in ac-

cordance with the provisions of Schedule 4 to this Agreement.

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Section 2.04. The Closing Date shall be December 31, 1980 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 one-half per cent (8-1/2%) per amum on the principal

anyaunt of the Loan withdrawn and outstanding from time to time.

Section 2.07. Interest and other charges shall be payable semi-

annually on My 1 and November 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 Direktor of the Borrower, or such other

person as he may designate in writing, is designated as represen-

tative of the Borrower for the purpose of taking any action required

or permitted to be taken under the provisions of Section 2.02 of

this Agreement and Article V of the General Conditions.

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ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall carry out Parts A (1)

(i), A (1) (ii) and A (2) of the Project and shall carry out

or cause RFPRNRP and Morava, respectively, to carry out, under

arrangements acceptable to the Bank, Parts D and A (1) (iii),

respectively, of the Project, all with due diligence and efficiency

and in conformity with appropriate engineering, financial and

administrative practices, and shall provide, or cause to be pro-

vided, 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 Bioktos, Vodovod, Milosevac and Aleksinac to perform in ac-

cordance with the provisions of the Bioktos Project Agreement,

the Vodovod Project Agreement, the Milosevac Project Agreement and

the Aleksinac Project Agreement, respectively, and shall cause

Bioktos and Vodovod to perform, in accordance with the Bioktos Sub-

sidiary Loan Agreement and the Vodovod Subsidiary Loan Agreement,

respectively, all the obligations therein set forth and, shall

take or cause to be taken all action including the provision of

funds, facilities, services and other resources, necessary or

appropriate to enable Bioktos, Vodovod, Milosevac and Aleksinac,

respectively, to perform such obligations, and shall not take or

permit to be taken any acti which would prevent or interfere

with such performance.

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Section 3.02. (a) The Borrower shall relend under subsidiary

loan agreements to be entered into between the Borrower and Bioktos

and Vodovod, respectively, under terms and conditions which shall

have been approved by the Bank:

(i) to Bioktos, that portion of the proceeds of the

Loan required for the carrying out of Part E of

the Project and provided for under Category (1),

of the Allocation of the Proceeds of the Loan set

forth in paragraph 1 of Schedule 1 to the Loan

Agreement, as such Schedule may be modified from

time to time by agreement between the Bank and the

Borrower;

(ii) to Vodovod, that portion of the proceeds of the

Loan required for the carrying out of Part F of

the Project and provided for under Category (2)

of the Allocation of the Proceeds of the Loan set

forth in paragraph 1 of Schedule 1 to the Loan

Agreement, as such Schedule may be modified from

time to time by agreement between the Bank and the

Borrower.

(b) The Bioktos Subsidiary Loan Agreement and the Vodovod

Subsidiary Loan Agreement shall provide, inter alia, for relending

of the proceeds of the Loan as provided in paragraph (a) of this

Section 3.02 of this Agreement for a term of twenty years including

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four and one half years of grace, at an annual rate of interest

of eight and one-half per cent on the principal amount withdran

and outstanding from time to time.

(c) The Borrower shall exercise its rights under the Bioktos

Subsidiary Loan Agreement and under the Vodovod Subsidiary Loan

Agreement, respectively, 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 not assiga, nor amend, abrogate or waive the Bioktos Subsid-

iary Loan Agreement and the Vodovod Subsidiary Loan Agreement,

respectively, or any provision thereof.

Section 3.03. The Borrower shall, under arrangements in form

and substance satisfactory to the Bank, make available to:

(a) RFPRNRP, that portion of the proceeds of the Loan re-

quired for the carrying out of Part D of the Project and provided

for under Sub-category (g) of Category (3) of the Allocation of

the Proceeds of the Loan set forth in paragraph 1 of Schedule 1

to the Loan Agreement, as such Schedule may be modified from time

to time by Agreement between the Bank and the Borrower.

(b) Milosevac and Aleksinac, respectively, that portion of

the proceeds of the Loan required to carry out Parts B and C of

the Project, respectively, and provided for under Sub-categories

(b) and (c) of Category (3) and Sub-categories (e) and (f) of

Category (3), respectively, of the Allocation of the Proceeds

of the Loan set forth in paragraph 1 of Schedule 1 to the Loan

Agreement, as such Schedule may be modified from time to time

by agreement between the Bank and the Borrower.

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(c) Morava, that portion of the procee ds of the Loan required

to carry out Part A (1) (iii) of the Project and provided for under

Sub-category (h) of Category (3) of the Allocation of the Proceeds

of the Loan set forth in paragraph 1 of Schedule 1 to the Loan

Agreement, as such schedule may be modified from time to time by

agreement between the Bank and the Borrower.

Section 3.04. The Borrower shall, or shall make appropriate

arrangements with Morava whereunder Morava shall undertake to, com-

plete a program for the training of the staff of Morava and submit

such program to the Bank for its review, no later than June 1, 1977,

or such other date as the Bank may agree; thereafter the Borrower

shall, or shall make appropriate arrangements with Morava where-

under Morava shall undertake to, implement such program for the

training of Morava, including such changes as the Bank shall rea-

sonably request.

Section 3.05. (a) In order to assist the Borrower in the car-

rying out of Parts A (1) (i) and A (1) (ii) of the Project, the

Borrower shall employ no later than June 30, 1976, or such other

date as the Bank may agree, consultants whose qualifications, ex-

perience and terms and conditions of employment shall be satisfac-

tory to the Bank.

(b) In order to assist the Borrower in the carrying out of

Part A (2) of the Project, the Borrower shall employ no later

than June 30, 1976, or such other date as the Bank may agree,

consultants for procurement and construction supervision whose

qualifications, experience and terms and conditions of employment

shall be satisfactory to the Bank.

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(c) In order to assist the Borrower in resolving technical

questions arising during the construction and initial operation

of the facilities to be constructed under Part A (2) of the Project,

the Borrower shall employ no later than June 30, 1976, or such

other date as the Bank may agree, a board of engineering consultants

whose qualifications, experience and terms of employment shall be

satisfactory to the Bank.

(d) In order to assist RFPRNRP in carrying out Part D of the

Project, the Borrower shall cause RFPRNRP, to employ no later than

September 1, 1976, or such other date as the Bank may agree, con-

sultants whose qualifications, experience and terms and conditions

of employment shall be satisfactory to the Bank.

Section 3.06. (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 3.07. (a) The Borrower shall furnish to the Bank,

promptly upon their preparation, the plans, specifications, reports,

contract documents and work and procurement schedules for Part A

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of the Project, and any material modifications thereof or additions

thereto, in such detail as the Bank shall reasonably request.

(b) The Borrower shall, and shall make appropriate arrange-

ments to cause RFPRNRP to: (i) maintain records adequate to record

the progress of Parts A and D of the Project, respectively, (in-

cluding the cost thereof) and to identify the goods, works and

services financed out of the proceeds of the Loan, and to disclose

the use thereof in Parts A and D, respectively, of the Project;

(ii) shall, without limitation upon the provisions of paragraph

(c) of this Section, enable the Bank's representatives to visit

the facilities and construction sites included in Parts A and D,

respectively, of the Project and to examine the goods financed

out of the proceeds of the Loan and any relevant records and docu-

ments; (iii) shall furnish to the Bank within forty-five calendar

days after each calendar quarter a report, of such scope and in

such detail as the Bank shall reasonably request on the progress

of Parts A and D, respectively, of the Project, during such quar-

ter; and (iv) shall furnish to the Bank all such information as

the Bank shall reasonably request concerning Parts A and D, re-

spectively, of the Project, the expenditure of the proceeds of

the Loan and the goods, works 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 docu-

ments, as the Bank shall reasonably request.

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Section 3.08. (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 Part A (2) of

the Project and shall furnish to the Bank, promptly after such ac-

quisition, evidence satisfactory to the Bank that such land and

rights in respect of land are available for purposes related to

Part A (2) of the Project.

(b) Without limitation or restriction to the provisions of

paragraph (a) of Section 3.08 of this Agreement the Borrower shall

make appropriate arrangements to relocate in a timely manner resi-

dents located on the land referred to in the said paragraph (a)

of this Section 3.08.

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ARTICLE IV

Management and Operations of the Borrower

Section 4.01. (a) The Borrower shall at all times manage its

affairs, maintain its financial position, plan its future expansion

and carry on its operations, all in accordance with sound business,

financial and administrative practices and under the supervision

of experienced and competent management assisted by adequate, ex-

perienced and competent staff.

(b) The Borrower shall at all times operate, maintain, renew

and repair its facilities, including but without limitation the

Vrutci dam and reservoir to be constructed under Part A (2) of the

Project, plants, equipment, machinery and property, and promptly

make all necessary repairs and renewals thereof, in accordance with

sound engineering and public utility practices.

(c) The Borrower shall take all action within its power to

maintain its existence and right to carry on its operations and

shall take all steps necessary to acquire, maintain and renew all

rights, privileges and franchises which are necessary or useful

in the conduct of its business.

(d) Except as the Bank shall otherwise agree, the Borrower

shall obtain title to all goods financed out of the proceeds of

the Loan free and clear of all encumbrances.

(e) The Borrower shall not, without the prior approval of the

Bank, sell, lease, transfer or otherwise dispose of any of its

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property or assets which shall be required for the efficient oper-

ation of its business and undertaking.

(f) Withuit limiting the generality of the provisions of the

preceding paragraph (b) of this Section, and of Section 4.04 of

this Agreement, the Borrower shall under arrangements satisfactory

to the Bank cause the dams, waterways, earthworks and reservoir

banks constructed under Part A (2) of the Project to be periodically

inspected, at intervals of not less than three years and in accord-

ance with appropriate engineering practice, in order to determine

whether there are any deficiencies in the condition of such struc-

tures and earthworks, or in the quality and adequacy of maintenance

or methods of operation of such structures and earthworks which

may endanger the safety of such structures and earthworks, the

first of such inspections to start no later than December 31, 1979,

or such other date as the Bank may agree.

Section 4.02. 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 4.03. On or before December 31, 1978, or such other

date as the Bank may agree, the Borrower shall establish appropri-

ate operating rules for the Vrutci reservoir to be constructed

under Part A (2) of the Project, on terms and conditions acceptable

to the Bank and Bioktos; such operating rules shall provide, inter

alia, for optimal filling and operating procedures of such reser-

voir, for releasing adequate supplies of water for treatment and

distribution in Titovo Uzice, for releasing adequate supplies of

-21-

water downstream of such reservoir into the Djetinja River for

downstream abstractions by industries, for storing of flood flows

and for increase of low flows for enhancement of the Djetinja

River water quality.

Section 4.o. (a) In order to assist the Bcrrower in preparing

an action program for monitoring possible causes of flooding of

the area downstream of the Vrutci reservoir to be constructed under

Part A (2) of the Project and for putting into effect an appro-

priate warning system in the event of such potential flooding,

the Borrower shall employ no later than January 1, 1977, or such

other date as the Bank may agree, engineering consultants whose

qualifications, experience and terms of employment shall be satis-

factory to the Bank.

(b) On the basis of the recommendations of the consultants

referred to in paragraph (a) of Section 4.04 of this Agreement

the Borrower shall complete no later than December 31, 1977, or

such other date as the Bank may agree, an action program acceptable

to the Bank, as described in said paragraph (a) above.

Section 4.05. After the study to be undertaken under Part

F (4) of the Project has been completed, and before undertaking

or executing any major project or development intended to supply

water to Cacak other than Part F (1) of the Project, the Borrower

shall afford the Bank a reasonable opportunity to exchange views

with the Borrower on the recommendations of said study.

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ARTICLE V

Financial Covenants

Section 5.01. (a) The Borrower shall maintain records adequate

to reflect in accordance with consistently maintained appropriate

accounting practices its operations and financial condition; such

records shall include, inter alia, senarate accounts adequate to

identify separately the flow of the proceeds of the Loan and each

of the components of the Project to be carried out by the Borrower,

including but not limited to Part A (2) of the Project.

(b) The Borrower shall make anpropriate arrangements to

cause RFPRNRP to maintain separate records adequate to reflect

in accordance with consistently maintained accounting practices,

its operations and financial condition in respect of the carrying

out of Part D of the Project.

Section 5.02. The Borrower shall, and shall make appropriate

arrangements to cause RFPRNRP to: (i) have their accounts and

financial statements (balance sheets, statements of income and

expenses and relate(Z statements), including but without limita-

tion the accounts referred to in Section 5.01 of this Agreement

for each fiscal year audited, in accordance with sound auditing

principles consistently anplied, by the Social Accounting Service

or another competent and experienced independent auditing organi-

zation acceptable to the Bank; (ii) furnish to the Bank as soon

as available, but in any case not later than four months after

the end of each such year, (A) certified copies of their finan-

cial statements for such year as so audited and (B) the report

-23 -

of such audit by said auditors, of such scone 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 of RFPRNRP and the audit

thereof as the Bank shall from time to time reasonably request.

Section 5.03. The Borrower shall no later than December 31,

1978 or such other date as the Bank may agree, enter into arrange-

ments in form and substance satisfactory to the Bank, with Bioktos,

providing for annual payment to the Borrower by Bioktos of an

appropriate share of the cost of the operation and maintenance

of, and of an appropriate share of the amortization of the capi-

tal cost of, the dam and the reservoir to be constructed under

Part A (2) of the Project and shall thereafter take all such ac-

tion as may be required to collect as and when due, from Bioktos,

any amounts to be paid by Bioktos, pursuant to such arrangements.

Section 5.04. (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

repayment as redemption in advance of maturity shall be anplicable

to any prepayment by the Borrower of the Loan under this Section.

Section 5.05. If the completion of Parts A and D of the

Project is hindered or delayed, or is threatened with hindrance

or delay, because the funds available to the Borrower are inade-

quate to insure its completion, the Borrower shall promptly

-24-

demand that the Republic provide the Borrower, or cause the Bor-

rover to be provided, with the necessary funds on terms and con-

ditions satisfactory to the Bank as and when required.

Section 5.06. (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 the Borrower shall create any lien on any

of its assets as security for any debt, such lien will 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 principal of, and interest

and other charges on, th Loan; provided, however, that the fore-

going provisions of this paragrarh shall not apply to: (A) any

lien created on property, at the time of purchase thereof, solely

as security for the payment of the purchase price of such property;

or (B) any lien arising in the ordinary course of banking trans-

actions and securing a debt maturing not more than one year after

the date on which it is originally incurred.

-25-

ARTICLE VI

Remedies of the Bank

Section 6.01. For the purposes of Section 6.02 of the General

Conditions, the following additional events are specified pursuant

to paragraph (k) thereof:

(a) Bioktos or Titovo Uzice shall have failed to perform any

of their respective covenants, agreements or obligations of Bioktos

or Titovo Uzice, respectively, under the Bioktos Project Agreement,

or under the Bioktos Subsidiary Loan Agreement.

(b) Vodovod or Cacak shall have failed to perform any of

their respective covenants, agreements or obligations of Vodovod

or of Cacak, respectively under the Vodovod Project Agreement or

under the Vodovod Subsidiary Loan Agreement.

(c) Milosevac, or Aleksinac shall have failed to perform

any of their respective covenants, agreements or obligations of

Milosevac, or of Aleksinac, respectively, under the Milosevac

Project Agreement and under the Aleksinac Project Agreement, re-

spectively.

(d) an extraordinary situation shall have arisen which shall

make it improbable that Bioktos or Titovo Uzice will be able to

perform any of their respective obligations under the Bioktos Proj-

ect Agreement or under the Bioktos Subsidiary Loan Agreement.

-26-

(e) an extraordinary situation shall have arisen which shall

make it improbable that Vodovod or Cacak will be able to perform

any of their respective obligations under the Vodovod Project Agree-

ment or under the Vodovod Subsidiary Loan Agreement.

(f) an extraordinary situation shall have arisen which shall

make it improbable that Milosevac, or Aleksinac will be able to

perform any of their respective obligations under the Milosevac

Project Agreement and the Aleksinac Project Agreement, respectively.

(g) a default materially and adversely affecting the carry-

ing out of the Project shall occur in the performance of any party

of any obligation, covenant, agreement, resolution, decisions or

other assurances under any of the obligations, covenants, agree-

ments, resolutions, decisions or other assurances referred to in

Recitals (G), (H), (I), (J), (K), (L) and (M) to this Agreement

and referred to in paragraphs (g) and (h) of Section 7.01 of this

Agreement or under the Aleksinac Articles of Association.

(h) (A) any provisions of any of the obligations, covenants,

agreements, resolutions, decisions or other assurances referred

to in Recitals (G), (H), (I), (J), (K), (L), end (M) to this Agree-

ment and in paragraphs (g) and (h) of Section 7.01 of this Agree-

meat or (B) any provisions of the Borrower's Statutes, or of the

Bioktos Statutes, or of the Vodovod Statutes, or of the Milosevac

Statutes, or of the Aleksinac Articles of Association, or of the

Aleksinac Statutes, as may in any way affect (i) Bioktos', Vodovod's,

-27-

Milosevac's or Aleksinac's ability to carry out any of their re-

spective obligations under this Agreement, under the Bioktos Proj-

ect Agreement, under the Vodovod Project Agreement, under the Milo-

sevac Project Agreement, or under the Aleksinac Project Agreement,

respectively, or (ii) the Borrower's, Bioktos', Milosevac's, or

Aleksinac's existence as an independent enterprise, shall have been

amended, abrogated or terminated without the prior approval of

the Bank.

(i) any other loan or credit to Bioktos, Vodovod, Milosevac

or Aleksinac including any of the loans referred to in Recitals

(G), (H), (I) and (J) of the Preamble to this Agreement, shall have

become due and payable prior to its agreed maturity pursuant to

the terms thereof.

(j) RFPRNRP has failed to perform any of its undertakings

under the arrangements referred to in paragraph (b) of Section

5.01 and in Section 5.02 of this Loan Agreement.

(k) Bioktos or Vodovod have been unable to withdraw any

amount of the loans or of the amounts provided under the agree-

ments referred to in Recitals (G) and (I), respectively, as and

when such amounts are due in accordance with the provisions of

such loans and agreements.

(1) Titovo Uzice has failed to make available, as and when

needed, to Bioktos the funds it has resolved to make available to

Bioktos, pursuant to the resolution referred to in paragraph (i)

of Recital (H) to this Agreement, and other arrangements satis-

factory to the Bank to provide such funds have not been made.

-28-

(m) The Republic has failed to provide the Borrower with the

funds required for the completion of Parts A and D of the Project

as and when such funds have been demanded by the Borrower pursuant

to Section 5.05 of the Loan Agreement, and other arrangements

satisfactory to the Bank to provide such funds have not been made.

(n) The Republic has failed to provide Milosevac or Alek-

sinac with the funds referred to in Recital (L) to this Agreement

as and when such funds have been demanded by Milosevac and Alek-

sinac, respectively, pursuant to Sections 4.03 of the Milosevac

Project Agreement and the Aleksinac Project Agreement, and other

arrangements satisfactory to the Bank to provide such funds have

not been made.

(o) Any action resulting, directly or indirectly, in the

dissolution of, or in the disestablishment of, or in the suspen-

sion of the operations of, or in a modification of the functions,

powers and responsibilities of, the Borrower, has been taken, or

any action resulting, directly or indirectly, in a modification of

the right of the Borrower to carry on its operations or to con-

trol its assets has been taken, unless the Bank has been satis-

fied: (i) that the rights and obligations of the Borrower under

the Loan Agreement have been transferred or are to be transferred

to an entity which has been duly established and registered under

the laws of the Guarantor and of the Republic with full authority,

powers and responsibility to assume the obligations of the Bor-

rower under the provisions of the Loan Agreement; (ii) that such

entity has assumed the obligations of the Borrower under the

provisions of the Loan Agreement; (iii) that such entity will be

able to fulfill its obligations under the Loan Agreement; (iv)

) -29 -

that such entity has access to adequate financial resources to

meet the obligations of the Borrower under the provisions of the

Loan Agreement; and (v) that a manager and staff, all with the

necessary qualifications and experience, have been appointed.

Section 6.02. 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 (a), (b), (c), (h),

(j), (k), (1), (m) and (n) of Section 6.01 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

(b) any events specified in paragraphs (g), (i) and (o)

of Section 6.01 of this Agreement shall occur.

Section 6.03. The Borrower: (i) represents that all obliga-

tions of the Borrower under the Loan Agreement and under the Bioktos

Subsidiary Loan Agreement and the Vodovod Subsidiary Loan Agreement,

respectively, which shall or may require for its performance the

approval, cooperation or financial assistance of any governmental

authorities having jurisdiction, are undertaken with the consent

and full support of such authorities; and (ii) agrees that no

action or failure to act by such authorities shall excuse the

performance of such obligation by the Borrower or limit the rem-

edies of the Bank under this Article in respect of any default

in the performance of such obligations.

01

- 30 -

ARTICLE VII

Effective Date; Termination

Section 7.01. 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 execution and delivery of the Bioktos Project Agree-

ment on behalf of Bioktos and Titovo Uzice, respectively, have

been duly authorized or ratified by all necessary corporate and

governmental action;

(b) The execution and delivery of the Vodovod Project Agree-

ment on behalf of Vodovod and Cacak, respectively, have been duly

authorized or ratified by all necessary cornorate and governmental

action;

(c) The execution and delivery of the Milosevac Project

Agreement on behalf of Milosevac have been duly authorized or ra-

tified by all necessary corporate and governmental action;

(d) The execution and delivery of the Aleksinac Project

Agreement on behalf of Aleksinac have been duly authorized or

ratified by all necessary corporate and governmental action;

(e) The execution and delivery of the Bioktos Subsidiary

Loan Agreement on behalf of the Borrower and Bioktos, respectively,

have been duly authorized or ratified by all necessary corporate

and governmental action;

- 31 -

(f) The execution and delivery of the Vodovod Subsidiary

Loan Agreement on behalf of the Borrower and Vodovod, respectively,

have been duly authorized or ratified by all necessary corporate

and governmental action;

(g) The Republic has adopted decisions, or given other appro-

priate assurances in form and substance satisfactory to the Bank,

by which the Republic shall undertake the obligations referred to

in Recitals (K), (L) and (M) of this Agreement.

(h) All agreements, arrangements, resolutions, obligations,

or other assurances referred to in Recitals (G), (H), (I) and

(J) all in form and substance satisfactory to the Bank, shall have

been duly executed and authorized or ratified by all necessary

governmental or corporate action.

Section 7.02. The following are specified as additional mat-

ters, within the meaning of Section 12.02(c) of the General Condi-

tions, to be included in the opinion or opinions to be furnished

to the Bank:

(a) That the Bioktos Project Agreement has been duly author-

ized or ratified by, and executed and delivered on behalf of Bioktos

and Titovo Uzice, respectively, and is legally binding upon Bioktos

and Titovo Uzice, respectively, in accordance with its terms;

(b) That the Vodovod Project Agreement has been duly author-

ized or ratified by, and executed and delivered on behalf of,

Vodovod and Cacak, respectively, and is legally binding upon Vodovod

and Cacak, respectively, in accordance with its terms;

- 32 -

(c) That the Milosevac Project Agreement has been duly au-

thorized or ratified by, and executed and delivered on behalf of

Milosevac, and is legally binding upon Milosevac in accordance

with its terms;

(d) That the Aleksinac Project Agreement has been duly au-

thorized or ratified by, and executed and delivered on behalf of

Aleksinac and is legally binding upon Aleksinac in accordance

with its terms;

(e) That the Bioktos Subsidiary Loan Agreement has been duly

authorized or ratified by, and executed and delivered on behalf

of, the Borrower and Bioktos, respectively, and is legally binding

upon the Borrower and Bioktos, respectively, in accordance with its

terms;

(f) That the Vodovod Subsidiary Loan Agreement has been duly

authorized or ratified by, and executed and delivered on behalf

of, the Borrower and Vodovod, respectively, and is legally binding

upon the Borrower and Vodovod, respectively, in accordance with

its terms;

(g) That the decisions or other assurances referred to in

paragraph (g) of Section 7.01 of this Loan Agreement have been

duly taken or given by the Republic and are in full force and

effect;

(h) That all agreements, arrangements, obligations, resolu-

tions or other assurances referred to in Section 7.01 (h) of this

* -33.-

Agreement: (i) have been duly taken and executed and authorized

or ratified by all necessary governmental and/or corporate action;

(ii) constitute valid and binding obligations of the parties

thereto in accordance with their terms, and (iii) are in full

force and effect; and

(i) That the Borrower is fully entitled to own the properties

and to operate the business which it proposes to own and operate

for the purposes of the Project; that all acts, licenses, consents

or other rights or privileges necessary therefor have been duly

and validly performed or given; and that all the land, leases or

rights-of-way necessary therefor have been duly and validly ob-

tained.

Section 7.03. The date October 29, 1976 is hereby specified

for the purposes of Section 12.04 of the General Conditions.

-34-

ARTICLE VIII

Addresses

Section 8.01. The following addresses are specified for the

purposes of Section 11.01 of the General CoAditions:

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address:

INTBAFRADWashington, D.C.

For the Borrower:

1/Republicki Fond VodaNemanjina 22-26Belgrade, Yugoslavia

Cable address:

Republicki Fond VodaNemanjina 22-26Belgrade

-35 -

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 FORRECONSTRUCTION AND DEVELOPMENT

By /s/ Willi A. WapenhansRegional Vice President

Europe, Middle East and North Africa

REPUBLICKI FOND VODA

By /s/ Naum AckovskiAuthorized Representative

-36-

SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to be fi-

nanced out of the proceeds of the Loan, the allocation of the

amounts of the Loan to each Category and the percentage of expend-

itures for items so to be financed in each Category:

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Ecuivalent) to be Financed

(1) Bioktos Expenditures

(a) Civil works and 4,700,000 100% of foreignEquipment for expenditures orPart E of the 35%Project

(b) Consulting ser- 150,000 100% of foreignvices for Part E expenditures orof the Project 35%

(c) Interest and 1,013,000 Amounts dueother chargeson the Loanwithdrawn underCategory (1),accrued on orbefore October 31,1979

(d) Unallocated 1,400,000

SUBTOTAL 7,263,000

* -37-

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(2) Vodovod Expenditures

(a) Civil works and 3,600,000 100% of foreignEquipment for expenditures orPart F of the 35%Project

(b) Consulting ser- 100,000 100% of foreignvices for Part F expenditures orof the Project 35%

(c) Interest and 851,000 Amounts dueother chargeson the Loanwithdrawn underCategory (2),accrued on orbefore October 31,1979

(d) Unallocated 1,000,000

SUBTOTAL 5,551,000

(3) Borrower Expenditures

(a) Civil works and 3,900,000 100% of foreignEquipment for expenditures orPart A(2) of 35%the Project

(b) Equipment and 249,000 100% of foreignCivil Works for expenditures orPart B of the 35%Project

- 38 -

Amount of theLoan Allocated % of

(Expressed in ExpendituresCategory Dollar Equivalent) to be Financed

(c) Equipment and 169,000 100% of foreign

Civil Works for expenditures or

Part C of the 35%

Project

(d) Consulting ser- 300,000 100% of foreign

vices for Part A expenditures or

of the Project 35%

(e) Consulti ng ser- 11,000 100% of foreign

vices for Part expenditures or

B of the Project 35%

(f) Consulting ser- 7,000 100% of foreign

vices for Part C expenditures or

of the Project 35%

(g) Consulting ser- 162,000 100% of foreign

vices for Part D expenditures or

of the Project 35%

(h) Training for 30,000 100% of foreign

Part A(l)(iii) expendituresof the Project

(i) Interest and 958,000 Amounts due

other chargeson the Loanwithdrawn under

Category (3),accrued on orbefore October 31,1979

(j) Unallocated 1,400,000

SU1TOTAL 7,186,000

TOTAL 20.,000,000

* -39-

2. For the purposes of this Schedule the term "foreign expendi-

tures" means expenditures in the currency of a country other than

the Guarantor and for goods or services supplied from the territory

of any country other than 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 import-

ation, 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 in-

creases, the Bank may, by notice to the Borrower, increase or de-

crease the disbursement percentage then applicable to such item

as required to be consistent with the aforementioned policy of the

3F 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 $1,000,000,

may be made in respect of Sub-categories (a) and (b) within Cate-

gories (1) and (2) and Sub-category (d) within Category (3) on

account of payments made for such expenditures before that date

but after January 1, 1976.

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

-40-

Loan then allocated to any Sub-category within either Category (1),

Category (2) or Category (3) will be insufficient to finance the

agreed percentage of all expenditures in that Sub-category, the

Bank may, by notice to the Borrower: (i) reallocate to such Sub-

category, to the extent required to meet the estimated shortfall,

proceeds of the Loan which are then allocated to another Sub-category

within such 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 Sub-category may continue until all

expenditures thereunder shall have been made.

6. If the Bank shall have reasonably determined that the procure-

ment of any item in any Category is inconsistent with the proce-

dures 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 rest-icting 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 ex-

penditures which would otherwise have been eligible for financing

out of the proceeds of the Loan.

* -4'-

SCHEDULE 2

Description of the Project

The Project is part of the Republic's Program to:

(a) improve the planning and management of water resources

within the Morava region within the Republic, in order

to assist the authorities of the Republic to accelerate

economic development, particularly in the least developed

areas in the region;

(b) demonstrate the feasibility of low cost irrigation systems;

(c) provide safe and reliable water supplies to meet the

realistic demands of some 90% of the population in the

towns of Titovo Uzice and Cacak by 1980, and also pro-

vide adequate supplies of treated and untreated water

for industries and other commercial enterprises in each

town; and

(d) extend the sever networks in the two towns where nec-

essary to remove waste water, and also make plans for

its subsequent treatment.

The Project consists of the following Parts to be carried out

by the Borrower and the entities as set forth hereunder:

-42-

Part A - Borrower:

1. Research Activities

(i) study of measures to adjust to the flood hazards

throughout the Morava River basin;

(ii) study to develop an action program to improve water

quality in part of the Zapadna Morava watershed, as

a pilot project for the entire Morava River basin;

and

(iii) staff training for Morava.

2. Vrutci Dam and Reservoir

Construction and putting into operation of a concrete

arch dam of about 70 m high on the Djetinja River at the

Vrutci site 12 km upstream of the town of Titovo Uzice,

including the creation of a reservoir, covering about

235 ha of land.

Part B - Milosevac

Construction and putting into operation of two pilot

irrigation schemes covering about 400 ha in the Commune

of Milosevac.

* -43-

Part C - Aleksinac

Construction and putting into operation of a pilot irri-

gation scheme covering about 200 ha in the Commune

of Aleksinac.

Part D - RFPRNRP

Study of ways to accelerate economic development in three

of the least developed regions in the Morava River basin:

Prokupulje, Leskovac and Vranje.

Part E - Bioktos

In order to improve the water supply and wastewater dis-

posal systems for the town of Titovo Uzice:

1. Construction and putting into operation of a raw

water pipeline and water treatment plant; of trans-

mission and distribution pipelines within town; and

of pumping stations and reservoirs;

2. Construction and putting into operation of a com-

prehensive network of separate sanitary severs in-

cluding a collector sewer leading to the Djetinja

River;

3. Design of wastewater treatment facilities; and

4. Construction of offices and workshops.

Part F - Vodovod

In order to improve the water supply and wastewater dis-

posal systems for the town of Cacak:

1. Construction and putting into operation of a well-

field development 2 km upstream of the town; of a

collector pipeline and balancing reservoir; of a

pumping station; of transmission and distribution

pipelines within town; and of distribution reser-

voirs;

2. Construction and putting into operation of sanitary

severs including an interceptor sewer and of pump-

ing stations leading to the Zapadna Morava river;

3. Construction and putting into operation of storm

drains to alleviate local flooding;

4. A water supply system development study; and

5. Design of wastewater treatment facilities.

The Project is expected to be completed by December 31, 1979.

* -45 -

SCHEDULE 3

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

May 1, 1981 325,000November 1, 1981 335,000May 1, 1982 350,000November 1, 1982 365,000May 1, 1983 380,000November 1, 1983 395,000May 1, 1984 415,000November 1, 1984 430,000May 1, 1985 450,000November 1, 1985 470,000May 1, 1986 490,000November 1, 1986 510,000May 1, 1987 530,000November 1, 1987 555,000May 1, 1988 580,000November 1, 1988 605,000May 1, 1989 630,000November 1,. 1989 655,000May 1, 1990 685,000November 1, 1990 710,000May 1, 1991 740,000November 1, 1991 775,000May 1, 1992 805,000November 1, 1992 8140,000May 1, 1993 875,000November 1, 1993 915,000May 1, 1994 950,000November 1, 1994 995,000May 1, 1995 1,035,000November 1, 1995 1,080,000May 1, 1996 1,125,000

* To the extent that any portion of the Loan is repayable in acurrency other than dollars (see General Conditions, Section4.02), the figures in this column represent dollar equivalentsdetermined as for purposes of withdrawal.

-46-

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 1-1/4%before maturity

More than three years but 2-1/2%not more than six yearsbefore maturity

More than six years but not 4-1/2%more than eleven yearsbefore maturity

More than eleven years but 6-3/4%not more than sixteen yearsbefore maturity

More than sixteen years but T-1/2%not more than eighteen yearsbefore maturity

More than eighteen years 8-1/2%before maturity

SCHEDULE 4

Procurement

A. International Competitive Bidding

1. Except as provided in Part B and D hereof, the goods and works

shall be procured under contracts to be awarded in accordance with

procedures consistent with those set forth in Part A of the "Guide-

lines for Procurement under World Bank Loans and IDA Credits"

published by the Bank in August 1975 (hereinafter called the Guide-

lines), on the basis of international competitive bidding.

2. (a) Foreign contractors 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

has been notified that he will be awarded a contract, the Borrower

shall facilitate the registration.

(b) Contracts for civil works shall include a provision al-

lowing non-Yugoslav contractors to convert into foreign exchange

and to repatriate a reasonable portion of contract payments, and

to import specialized manpower and equipment as required to carry

out their services.

B. Other Procurement Procedures

Notwithstanding the provisions of paragraph A.1 above, civil

works contracts estimated to cost less than the equivalent of

$500,000 and contracts for equipment and materials estimated to

- 48 -

cost less than the equivalent of $100,000 may be awarded on the

basis of local advertising only and in accordance with the usual

local competitive bidding procedures of the Guarantor; foreign

firms will be entitled to submit bids.

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

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 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) Grop A: bids offering goods manufactured in

Yugoslavia 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 manufac-

tured in Yugoslavia.

(3) Group C: 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 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 further comparison

only, an amount equal to (i) the amount of customs 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%

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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 fur-

ther 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 shalli, be selected.

D. Procurement Without Contracting

Minor works for Parts E and F of the Project, such as renova-

tions and modifications to existing facilities or installing new

water and sever pipes, may be carried out by force account, under

arrangements acceptable to the Bank, provided, however, that the

cost of works under Parts E and F of the Project to be so carried

out shall not exceed in the aggregate the equivalent of $1,000,000

and $3,000,000, respectively.

E. Review of Procurement Decisions by Bank

1. Review of prequalification. The Borrower shall, before qual-

ification 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 pre-

qualified bidders, together with a statement of their qualifica-

tions 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 Bor-

rower shall make such additions to, deletions from, or modifica-

tions in, the said list as the Bank shall reasonably request.

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

contracts:

With respect to all contracts for civil works and equipment

estimated to cost the equivalent of $500,000 and $100,000, respec-

tively or more:

(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) After bids have been received and evaluated, the Borrower

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, by the consultants referred to in para-

graph (b) of Section 3.05 of this Agreement, and in Section 2.02

of the Bioktos Project Agreement and of t Vodovod Project Agree-

ment on the evaluation and comparison c ;he bids received, together

with the recommendations 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 inconsis-

tent with the Guidelines or this Schedule, promptly inform the

Borrower and state the reasons for such determination.

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(c) The terms and conditions of the contract shall not, with-

out the Bank's concurrence, materially differ from those on which

bids were asked or prequalification 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.

3. 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 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 reasonably request. The Bank 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 determination.