CONFORMED COPY
GEF TRUST FUND GRANT NUMBER TF056781
Global Environment Facility
Grant Agreement
(Large-Scale Renewable Energy Development Project)
among
NACIONAL FINANCIERA S.N.C.
and
UNITED MEXICAN STATES
and
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
acting as an Implementing Agency of the Global Environment Facility
Dated October 5, 2006
- 1 -
GEF TRUST FUND GRANT NUMBER TF056781
GLOBAL ENVIRONMENT FACILITYGRANT AGREEMENT
AGREEMENT (“Grant Agreement”) dated October 5, 2006, entered into among:
1.NACIONAL FINANCIERA, S.N.C. (“NAFIN”);
2.UNITED MEXICAN STATES (the “Recipient”) acting through its signatories on page 6; and
3.INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (“World Bank”), acting as an implementing agency of the Global Environment Facility, established pursuant to Resolution No. 915 of March 14, 1991 and Resolution No. 942 of May 24, 1994 of the Executive Directors of the World Bank (“GEF”), for grant funds provided to the GEF Trust Fund by certain members of the World Bank as participants of the GEF. The Recipient, NAFIN and the World Bank hereby agree as follows:
Article I
Standard Conditions; Definitions
1.01.The Standard Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement.
1.02.Unless the context requires otherwise, the capitalized terms used in the Grant Agreement have the meanings ascribed to them in the Standard Conditions and in the preamble and the Appendix to this Agreement.
Article II
The Project
2.01.The Recipientand NAFINdeclare their commitment to the objectives of the project described in Schedule 1 to this Agreement (“Project”). To this end:
(i) the Recipientthrough SENER shall coordinate the execution of the Project as a whole and carry out its Respective Part of the Project in accordance with the provisions of the Subsidiary Agreement; and
(ii) the Recipient (through NAFIN) shall cause the Project Implementing Entity to carry out its Respective Part of the Project in accordance with the provisions of the Project Agreement and the Subsidiary Agreement and shall not take or permit to be taken any action which would prevent or interfere with such performance;
all with the assistance of all relevant federal agencies and in accordance with the provisions of Article II of the Standard Conditionsand with due regard to the mandates of UNFCCC and the Kyoto Protocol and the relevant decisions adopted by UNFCCC.
2.02.Without limitation upon the provisions of Section 2.01 of this Agreement, and except as the Recipient, NAFIN and the World Bank shall otherwise agree, the Recipient and NAFIN shall ensure that the Project is carried out in accordance with the provisions of Schedule 2 to this Agreement.
Article III
The Grant
3.01.The World Bank agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a grant in an amount equal to twenty five million Dollars (USD 25,000,000) (“Grant”) to assist in financing the Project.
3.02.The Recipient (through NAFIN) may withdraw the proceeds of the Grant in accordance with Section IV of Schedule 2 to this Agreement.
Article IV
Remedies of the World Bank
4.01.The Additional Events of Suspension consist of the following:
(a)The Recipient has taken or permitted to be taken any action which would prevent or interfere with the performance by the Project Implementing Entity of its obligations under the Project Agreement.
(b)The Project Implementing Entity has failed to perform any obligation under the Project Agreement or the Subsidiary Agreement.
(c)NAFIN has failed to perform any obligation under the Subsidiary Agreement.
(d)IBRD or IDA has declared the Project Implementing Entity ineligible tobe awarded a contract financed by IBRD or IDA.
(e)As a result of events which have occurred after the date of the Grant Agreement an extraordinary situation has arisen which makes it improbable that the Project Implementing Entity will be able to perform its obligations under the Project Agreement or Subsidiary Agreement.
(f)A representation made by the Project Implementing Entity in or pursuant to the Project Agreement, or any representation or statement furnished by the Project Implementing Entity and intended to be relied upon by the World Bank in making the Grant, was incorrect in any material respect.
(g)The Project Implementing Entity’s Legislation has been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of the Project Implementing Entity to perform any of its obligations under the Project Agreement.
(h)The World Bank has determined after the Effective Date that prior to such date but after the date of the Grant Agreement, an event has occurred which would have entitled the World Bank to suspend the Recipient’s right to make withdrawals from the Grant Account if the Grant Agreement had been effective on the date such event occurred.
(i)The Project Company has failed to design, construct, operate and maintain La Venta III in accordance with the Environmental and Social Impact Assessment and the Environmental and Social Management Plan or SEMARNAT has suspended or revoked any environmental permits granted by SEMARNAT for the La Venta III Project.
Article V
Effectiveness; Termination
5.01.The Grant Agreement shall not become effective until evidence satisfactory to the World Bank has been furnished to the World Bank that the conditions specified below have been satisfied.
(a)The execution and delivery of:(i) the Grant Agreement on behalf of the Recipient and NAFIN;and(ii) the Project Agreement on behalf of the Project Implementing Entity have all been duly authorized or ratified by all necessary governmental and corporate action.
(b)If the World Bank so requests, the condition of NAFINand the Project Implementing Entity, as represented or warranted to the World Bank at the date of the Grant Agreement and the Project Agreement, has undergone no material adverse change after such date.
(c)Each other condition specified below has occurred:
(i)the Subsidiary Agreement has been executed on behalf of the Recipient (through SENER), NAFIN and the Project Implementing Entity;
(ii)the Operational Manual has been issued and put into effect;and
(iii)the Environmental Safeguards Manual and the Social Safeguards Manual has been issued and put into effect.
5.02.As part of the evidence to be furnished pursuant to Section 5.01 (a) and (c) (i) above, there shall be furnishedto the World Bank an opinion or opinions satisfactory to the World Bank of counsel acceptable to the World Bank or, if the World Bank so requests, a certificate satisfactory to the World Bank of a competent official of the Recipient, showing the following matters:
(a)on behalf of the Recipient and NAFIN, that the Grant Agreement has been duly authorized or ratified by, and executed and delivered on its behalf and is legally binding upon it in accordance with its terms;
(b)on behalf of the Project Implementing Entity, that the Project Agreement has been duly authorized or ratified by, and executed and delivered on its behalf andis legally binding upon it in accordance with its terms; and
(c)the Subsidiary Agreement has been duly authorized or ratified by the Recipient (through SENER), NAFIN and the Project Implementing Entity and is legally binding upon the Recipient (through SENER), NAFIN and the Project Implementing Entity in accordance with its terms.
5.03.Except as the Recipient and the World Bank shall otherwise agree, the Grant Agreement shall enter into effect on the date upon which the World Bank dispatches to the Recipient notice of its acceptance of the evidence required pursuant to Section 5.01 (“Effective Date”). If, before the Effective Date, any event has occurred which would have entitled the World Bank to suspend the right of the Recipient to make withdrawals from the Grant Account if the Grant Agreement had been effective, the World Bank may postpone the dispatch of the notice referred to in this subparagraph until such event (or events) has (or have) ceased to exist.
5.04.The Grant Agreement and all obligations of the parties under it shall terminate if it has not entered into effect by the date 90 days after the date of this Agreement, unless the World Bank, after consideration of the reasons for the delay, establishes a later date for the purpose of this Section which later date typically may not extend more than eighteen (18) months after June 29, 2006 in which the World Bank approved the Grant. The World Bank shall promptly notify the Recipient of such later date.
Article VI
Representatives; Addresses
6.01.NAFIN’s Representative is its Director Internacional.
6.02.NAFIN’s Address is:
Nacional Financiera, S.N.C.
Dirección Internacional
Torre IV, piso 11
Insurgentes Sur 1971
01020 México, D.F.
Facsimile: 011-52-555325-6677 (Ext. 6929)
6.03.The Recipient’s Representativesare its Secretaría de Hacienda y Crédito Público and its Secretaría de Energía.
6.04.The Recipient’s Addressesare:
Unidad de Crédito Público
Palacio Nacional
Patio Central, Tercer Piso, Oficina 3010
Colonia Centro
O6000 México, D.F.
Facsimile: 011-52-559158-1156
Secretaría de Energía
Secretario de Estado
Oficinas del C. Secretario
Insurgentes Sur # 890, Piso 17
Del Valle
03100 Benito Juarez
Facsimile: 011- 52-5000-6222/6054
6.05.The World Bank’s Address is:
International Bank for Reconstruction and Development
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable Address:Telex:Facsimile:
INTBAFRAD248423 (MCI) or1-202-477-6391
Washington, D.C.64145 (MCI)
AGREED at Mexico City, Mexico, as of the day and year first above written.
UNITED MEXICAN STATES
By /s/ Gerardo Rodríguez Regordosa
Authorized Representative
Secretaria de Hacienda y Crédito Público
By /s/ Fernando Canales Clariond
Authorized Representative
Secretaría de Energía
NACIONAL FINANCIERA, S.N.C.
By /s/ Timoteo Harris Howard
Authorized Representative
INTERNATIONAL BANK FOR
RECONSTRUCTION AND DEVELOPMENT
as an Implementing Agency of the
Global Environment Facility
By /s/ Isabel Guerrero
Authorized Representative
SCHEDULE 1
Project Description
The objectives of the Project are toreduce greenhouse gas emissions and remove barriers to the development of renewable energy technologies and markets in Mexico by: (i) developing initial experiences in commercially-based-grid-connected renewable energy applications as a result of supporting the construction of a wind farm; and (ii) building the institutional capacity to value, acquire, and manage such resources on a replicable basis.
The Project consists of the following parts:
Part 1: Financial Mechanism: Creating a mechanism for the provision of a GEF subsidy in the form of tariff price supportto be paid to the successful bidder (the “Project Company”)of the international competitiveIPP solicitationcarried out by the Project Implementing Entity for the La Venta III Project, which mechanism shall have the following characteristics:
(a)The financial mechanism will be managed by the Project Implementing Entityand all Grant subsidy disbursements will be deposited in the Designated Account managed by NAFIN. The tariff price support payment will be made by NAFIN directly to the Project Companypursuant to a Power Purchase Agreement and upon receiving adequate instructions from the Project Implementing Entity andsatisfactory evidence verifying that the Project Company has delivered wind energy to the grid, all as further detailed in the Subsidiary Agreement.
(b)The tariff price support will be applied as an additional fixed amount subsidy payment towards the purchase by the Project Implementing Entityfrom the Project Companyof output power of the La Venta III wind farm for a period of five consecutive years from the actual commercial operation start up date. The tariff price support shall be determined as a fixed amount not to exceed 1.1 United States cents equivalent per KWhregardless of the contract price resulting from the international competitive bidding carried out by the Project Implementing Entity.
The design and guidelines for the operation of the financial mechanism are incorporated in the Operational Manual.
Part 2:Technical Assistance
(a)Supporting system-based least cost determination by:
(i)Developing operational guidelines which shall incorporate methodologies to interpret the Recipient’s least cost power acquisition constitutional mandate and carrying out a study to assess the value of energy diversification;
(ii)developing operational guidelines which shall incorporate methodologies for the valuation of local and regional environmental and other externalities in power system resource valuation, planning and dispatch;
(iii)carrying out workshops and study tours to facilitate the exchange of experiences between the Project Implementing Entity and international electric utilities and research institutions on models and tools to analyze the value and emissions impact of intermittent renewable energy sources; and
(iv)providing technical assistance to analyze the impacts on system expansion of renewable sources and regular estimation of system marginal costs in order to develop reference prices for acquisition of renewable energy.
(b)Integrating renewable energyin the Project Implementing Entity’ssystem operations by:
(i)acquiring and installing software capabilities within CENACE (and providing the associated training) to support CENACE’s decision-making process to dispatch intermittent facilities independently or in combination with non-intermittent resources;
(ii)acquiring and installing day-ahead wind forecast models(and providing the associatedtraining) to optimize dispatch; and
(iii)Carrying out studies on load flow analysis and system stability.
(c)Supporting project and business development by:
(i)developing standardized protocols and contract forms to be used by the Project Implementing Entity for the purchase of renewably generated power; and
(ii)strengthening SENER-UPI’s capacity to serve as the one-stop shop for business development servicesfor renewable energy project developers by: (A) training SENER-UPI’s staff in marketing, technical aspects, regulatory framework, permitting, environmental and social impacts; and (B) increasing information, outreach and transaction support capacity by developing a website and other appropriate databases, as well as marketing documents for the development of renewable energy projects in Mexico.
(d)Supporting tradable permit systems for green power and renewable energy by: carrying out studies to investigate the feasibility of cross-border trade of tradable renewable energy credits and developing a framework for trading activities that could be implemented in the future.
(e)Providing technical assistance to assess the wind potential in Mexico by:
(i)Developing a national wind map based on available measurements and remote sensing data; and
(ii)Installing anemometers and measurement systems in areas of good wind potential throughout Mexico.
(f)Developing a regional long-term wind development plan for the areas of high wind potential in the south of the Isthmus of Tehuantepec, State of Oaxaca,which shall incorporate the findings of the strategic environmental assessment defined in paragraph (g) below. The plan shall identifysocial impacts, existing land use regulations, transmission constraints and industrial development.
(g)Preparing the strategic environmental assessment for the areas of high wind potential in the south of the Isthmus of Tehuantepec, State of Oaxaca identifying the appropriate level of wind energy development which an area is able to support without producing significant environmental damage, as well as those areas which are unsuitable and should be considered ineligible for wind development.
Part 3: Project Management
(a)Strengthening SENER’s management capacities by hiring a project manager, procurement assistant and as required, a renewable energy expert.
(b)Strengthening SENER’s capacity by hiring specialized consultants to conduct social, environmental and monitoring and evaluation assessments.
SCHEDULE 2
Project Execution
Section I.Institutional and Other Arrangements
A.SubsidiaryAgreement.
1.To facilitate the carrying out of each of SENER’s and the Project Implementing Entity’s Respective Part of theProject, NAFIN in the name and on behalf of the Recipient, shall make part of the proceeds of the Grant available to SENER and the Project Implementing Entity under an agreement (Contrato de apoyo financiero no reembolsable; “Subsidiary Agreement”)among NAFIN, SENER and the Project Implementing Entity, under terms and conditions approved by the World Bank and substantially similar to those contained in the model form contained in the Operational Manual, which shall include the following:
(a)NAFIN’s agreement, acting as financial agent of the Recipient with regard to the Grant as designated in the Recipient’s Oficio No 305-094/2006 datedMay 15, 2006, inter alia:
(i)To represent the Recipient vis-à-vis the World Bank for the purposes of submitting Grant withdrawal applications to the World Bank, in form and substance satisfactory to the World Bank to justify disbursement by the World Bank to the Recipient of Grant proceeds; and
(ii)to cooperate fully with the Project Implementing Entity and SENER by transferring the proceeds of the Grant to ensure that each, the Project Implementing Entity and SENER, is able to carry out its Respective Part of the Project and to comply in a timely manner with all of its obligations under this Agreement and the Project Agreement (as the case may be);
(b)The obligation by SENER to assume overall Project implementation responsibility and to coordinate the role and work of the Project Implementing Entity and any other institutions involved in the Project;
(c)the obligation of the parties to carry out their Respective Part of the Project in accordance with the Operational Manual, the Environmental Safeguards Manual and the Social Safeguards Manual; and
(d)The agreement on appropriate coordination mechanisms and procedures among the parties to ensure efficient and timely project implementation and reporting and adequate financial management.
2.The Recipient (through SENER)and NAFIN shall exercise their respective rights under the SubsidiaryAgreement in such manner as to protect the interests of the Recipient and the World Bank and to accomplish the purposes of the Grant. Except as the World Bank shall otherwise agree, neither NAFINnor the Recipient shall assign, amend, abrogateor waive the SubsidiaryAgreement or any of its provisions.
B.Other.
1.The Recipient (through SENER) and NAFIN shall carry out the Project in accordance with an operational manual satisfactory to the World Bank (the Operational Manual), such manual to include, inter alia:
(a)The procedures for the carrying out, monitoring and evaluation of the Project (including the procurement requirements thereof);
(b)A detailed description of all aspects of Project financial management;
(c)The rules and procedures for the operation of the financial mechanism referred to in Part 1 of the Project;