Confidential Draft

Subject to Change Draft Date: 21/03/12

(Operation Number 41175)

LOAN AGREEMENT

between

S.C. COMPANIA AQUASERV S.A.

and

EUROPEAN BANK

FOR RECONSTRUCTION AND DEVELOPMENT

Dated ______2012

TABLE OF CONTENTS

ARTICLE I – DEFINITIONS 21

Section 1.01. Definitions 21

Section 1.02. Interpretation 216

Section 1.03. Non-English Terms 217

ARTICLE II - REPRESENTATIONS AND WARRANTIES 217

Section 2.01. Representations Regarding the Project 217

Section 2.02. Representations Regarding the Borrower 219

Section 2.03. Representations Regarding the Agreements 222

Section 2.04. Acknowledgement and Repetition 224

ARTICLE III - LOAN 224

Section 3.01. Amount and Currency 224

Section 3.02. Disbursements 225

Section 3.03. Suspension and Cancellation 225

Section 3.04. Charges, Commissions and Fees 226

Section 3.05. Interest 227

Section 3.06. Default Interest 228

Section 3.07. Market Disruption 229

Section 3.08. Repayment 230

Section 3.09. Prepayment 230

Section 3.10. Payments 231

Section 3.11. Insufficient Payments 232

Section 3.12. Taxes 232

Section 3.13. Unwinding Costs 232

Section 3.14. Increased Costs 234

Section 3.15. Illegality 235

Section 3.16. Mitigation 235

Section 3.17. Loan Account 236

Section 3.18 Refinancing of MELF Loan 236

Section 3.19. Termination of the Guarantee and Project Support Agreement 236

Section 3.20 MRD Account 237

ARTICLE IV - CONDITIONS PRECEDENT 237

Section 4.01. First Disbursement 237

Section 4.02. All Disbursements 240

Section 4.03. First Disbursement under Tranche One 241

Section 4.04. All Disbursements under Tranche One 241

ARTICLE V - AFFIRMATIVE COVENANTS 242

Section 5.01. Project Implementation 242

Section 5.03. Environmental and Social Compliance 243

Section 5.04. Insurance 243

Section 5.05. Accounting 244

Section 5.06. Continuing Governmental and Other Authorisations 244

Section 5.07. Debt Service Reserve Account 244

Section 5.08. Compliance with Other Obligations 244

Section 5.09. Taxes 244

Section 5.10. Project Agreements 245

Section 5.11. Financial Ratios 245

Section 5.12. Tariff Adjustments 246

Section 5.14. Costs and Expenses 247

Section 5.15. Furnishing of Information 248

Section 5.16. Procurement 252

Section 5.17 Benchmarking 252

ARTICLE VI - NEGATIVE COVENANTS 252

Section 6.01. Dividends 252

Section 6.02. Capital Expenditures 253

Section 6.03. Leases 253

Section 6.04. Financial Debt 253

Section 6.05. Liens 253

Section 6.06. Derivative Transactions 254

Section 6.07. Arm's Length Transactions 254

Section 6.08. Profit-sharing and Management Arrangements 254

Section 6.09. Investments 255

Section 6.10. Project Agreements 255

Section 6.11. Changes in Business, Capital and Charter 255

Section 6.12. Prepayment of Long-term Debt 255

Section 6.13. Sale of Assets; Merger 256

Section 6.14. Fraud and Corruption 256

Section 6.15. Contract Value Limitation 256

Section 6.16. Ineligibility 256

ARTICLE VII - EVENTS OF DEFAULT 256

Section 7.01. Events of Default 256

Section 7.02. Consequences of Default 259

ARTICLE VIII - MISCELLANEOUS 260

Section 8.01. Term of Agreement 260

Section 8.02. Entire Agreement; Amendment and Waiver 260

Section 8.03. Notices 260

Section 8.04. English Language 261

Section 8.05. Financial Calculations 261

Section 8.06. Rights, Remedies and Waivers 261

Section 8.07. Indemnification 262

Section 8.08. Governing Law 263

Section 8.09. Arbitration and Jurisdiction 263

Section 8.10. Privileges and Immunities of EBRD 264

Section 8.11. Waiver of Sovereign Immunity 264

Section 8.12. Successors and Assigns; Third Party Rights 265

Section 8.13. Disclosure 265

Section 8.14. Severability 265

Section 8.15. Counterparts 265

Section 8.16. Governing Language 266

PROCUREMENT PLAN 21

EXHIBITS

Exhibit A - Form of Disbursement Application A-2

Exhibit B - Form of Certificate of Incumbency and Authority B-2

Exhibit C - Form of Letter to Auditors C-2

iii

LOAN AGREEMENT

LOAN AGREEMENT (this "Agreement") dated ______2012 between COMPANIA AQUASERV S.A., a joint stock company (in Romanian societate pe actiuni) organised and existing under the laws of Romania with its registered address at 1 Kos Karoly street, 540297, Targu Mures, Mures County, Romania, registered with the Mures Commercial Registry under number J26/464/1998, having the sole registration code (C.U.I.) RO 10755074 (the "Borrower") and the EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT, an international organisation formed by treaty ("EBRD").

ARTICLE I – DEFINITIONS

Section 1.01. Definitions

Wherever used in this Agreement (including the Exhibits and the Schedules), unless the context otherwise requires, the following terms have the following meanings:

"Affiliate" means, with respect to any person, any other person, directly or indirectly, controlling, controlled by, or under common control with, such person.

"ANRSC" means the Romanian Regulatory Body of Local Public Services (in Romanian, Autoritatea Nationala de Reglementare pentru Servicii Comunitare de Utilitati Publice).

"ARA" means the Romanian Water Association (in Romanian, Asociatia Romana a Apei).

"Audited Financial

Statements" means the Borrower’s Financial Statements prepared in accordance with the IFRS for a given Financial Year, together with:

(a)  a report of the Auditors thereon; and

(b) a letter from the Auditors to the Shareholders of the Borrower commenting on, among other matters, the adequacy of the Borrower's financial control procedures, accounting systems, and other systems;

all in a form satisfactory to EBRD.

"Auditors" means such firm of independent accountants as the Borrower may from time to time appoint as its auditors in accordance with Section 5.05.

"Authorisation" means any consent, registration, filing, agreement, notarisation, certificate, license, approval, permit, authority or exemption from, by or with any Governmental Authority, whether given or withheld by express action or deemed given or withheld by failure to act within any specified time period and all corporate, creditors' and shareholders' approvals or consents.

"Business Day" means a day on which commercial banks are open for the transaction of general business (including dealings in foreign exchange and foreign currency deposits) in London, England, and which is a TARGET Day.

"City" means the City of Targu Mures.

"Charter" means, in respect of any company, corporation, partnership, enterprise or other entity, its charter, founding act, articles of incorporation and bylaws, memorandum and articles of association, statutes or similar instrument.

"Coercive Practice" means the impairing or harming, or threatening to impair or harm, directly or indirectly, any party or the property of the party to influence improperly the actions of a party, as this term is interpreted in accordance with the EBRD Anti-Corruption Guidelines.

"Cohesion Funds

Agreement" means the financing agreement No. 121172 of 8 April 2011 entered into between the Borrower and the Romanian Ministry of Environment and Forests regarding the non-refundable financing for the implementation of the project “Extension and rehabilitation of water and wastewater infrastructure in Mures County”.

"Collusive Practice" means an arrangement between two or more parties designed to achieve an improper purpose, including influencing improperly the actions of another party, as this term is interpreted in accordance with the EBRD Anti-Corruption Guidelines.

"Commitment Period" means:

(a)  with respect to Tranche One: the period commencing on the date of this Agreement and terminating on the fourth anniversary of the date of this Agreement; and

(b)  with respect to Tranche Two: the period commencing on the date of this Agreement and terminating on 21 February 2013.

"Corrupt Practice" means the offering, giving, receiving or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party, as this term is interpreted in accordance with the EBRD Anti-Corruption Guidelines.

"Country of Operation" means Romania.

"County" means the County of Mures.

"Debt" means, with respect to any person, all obligations of such person, whether incurred as principal or surety and whether present, future, actual or contingent, for the payment or repayment of money, including:

(a)  any amounts payable by such person under leases or similar arrangements over their respective periods;

(b)  any credit to such person from a supplier of goods or under any instalment purchase or other similar arrangement; and

(c)  any liabilities and obligations of third parties to the extent that they are guaranteed by such person or such person has otherwise assumed or become liable for the payment of such liabilities or obligations or to the extent that they are secured by any Lien upon property owned by such person whether or not such person has assumed or become liable for the payment of such liabilities or obligations.

"Debt Service Coverage

Ratio" means the ratio provided under Section 5.11 (a) of this Agreement.

"Debt Service Reserve

Account" means the bank account denominated in EUR contemplated by the Debt Service Reserve Account Agreement wherein the Borrower, on the first Disbursement date and at all times thereafter, shall maintain an amount equal to six months debt service (including repayment of principal amounts and interest) payable in the period of next six months under this Agreement.

"Debt Service Reserve

Account Agreement" means the debt service reserve account agreement to be entered into among, inter alios, the Borrower, EBRD and the Project Bank regulating the funding, management and control of the Debt Service Reserve Account, as such agreement may be amended from time to time in accordance with the provisions thereof in order to cover the debt service obligations of the Borrower hereunder, which agreement shall be in form and substance satisfactory to EBRD.

"Default" means any Event of Default or any event which, with the giving of notice, the passage of time or the making of any determination, or any combination thereof, would become an Event of Default.

"Default Interest

Determination Date" means the date two Business Days prior to the first day of the relevant Default Interest Period (or, at EBRD’s option, the first day of such Default Interest Period).

"Default Interest Period" means, with respect to any amount overdue under this Agreement, a period commencing on the day on which such payment becomes due or, as the case may be, on the last day of the previous Default Interest Period with respect to such overdue amount, and ending on a Business Day selected by EBRD.

"Delegation

Contract" means the water supply and sewerage services management delegation agreement No. 202662 dated 5 March 2010, as amended by the Addendum No. 1 of 8 December 2010 and Addendum No. 2 of 12 May 2011 and further amended through the addendums No. 3/19.01.2011, No. 4/11.02.2011, No. 5/03.05.2011, No. 6/04.05.2011, No. 7/06.06.2011, No. 8/10.06.2011, No. 9/15.09.2011, No. 10/28.09.2011, No. 11/18.10.2011, No. 12/08.11.2011 and No.13/12.12.2011, between 51 territorial-administrative units, including, among others, the City and the County, acting through IDA, as awarding authority, and the Borrower, as regional operator.

"Designated Performance

Requirements" means Performance Requirements 1 through 8 and 10 (or, as the context may require, any one of such Performance Requirements) of the Performance Requirements dated May 2008 and related to EBRD’s Environmental and Social Policy dated May 2008.

"Disbursement" means the disbursement of any portion of the Loan from time to time pursuant to Section 3.02 or, as the context may require, the principal amount thereof from time to time outstanding.

"EBRD Anti-Corruption

Guidelines" means EBRD’s Definitions and Guidelines for Private Sector Operations (Fraud and Corruption) attached hereto as Schedule 1.

"EBRD Project" means any activity or project which EBRD has financed or committed to finance.

"Environmental and

Social Action Plan" means the plan of environmental and social mitigation and improvement measures, a copy of which is attached hereto as Schedule 2 of this Agreement.

"Environmental and

Social Law" means any applicable law or regulation which relates to:

(a)  pollution or protection of the environment, including related laws or regulations relating to public access to information and participation in decision-making;

(b)  labour and employment conditions;

(c)  occupational health and safety;

(d)  public health, safety and security;

(e)  indigenous peoples;

(f)  cultural heritage; or

(g)  resettlement or economic displacement of persons.

"Environmental and

Social Matter" means any matter that is the subject of any Environmental and Social Law, any Designated Performance Requirement or the Environmental and Social Action Plan.

"Euro" or "EUR" means the lawful currency of the member states of the European Union that adopt the single currency in accordance with the Treaty Establishing the European Community, as amended by the Treaty on European Union and the Treaty of Amsterdam.

"Event of Default" means any one of the events or occurrences specified in Section 7.01.

"Existing Security" means:

(a)  the security over the Borrower’s present and future movable assets and/or receivables resulted from (i) the agreements entered into by the Borrower with its internal or external partners; (ii) all the commercial requests, invoices and any other similar documents; and (iii) any other act from which any receivable can result and the Borrower’s bank accounts, created pursuant to the movable mortgage agreement No. 09031/G1 dated 20 February 2009 between the Borrower and ING, as amended by the amendment agreement No. 1 of 17 November 2010 and as further restated by the amendment agreement No. 2 of 15 November 2011,

(b)  the security over the Borrower’s bank accounts opened with ING identified with the following IBAN codes: RO41INGB0011000029150711, RO92INGB0011000029158911, RO16INGB0011000029158921, RO37INGB0011000029158931, created pursuant to the movable mortgage agreement No. 09031/G2 dated 20 February 2009 between the Borrower and ING, as amended by the amendment agreement No. 1 of 17 November 2010 and as further restated by the amendment agreement No. 2 of 15 November 2011;

(c)  the first ranking mortgage over certain immovable assets of the Borrower created under the immovable mortgage agreement dated 27 February 2009 authenticated under No. 419 of 27 February 2009 between the Borrower and ING;

(d)  the second ranking mortgage over certain immovable assets of the Borrower created under the immovable mortgage agreement dated 18 November 2010 authenticated under No. 2082 of 18 November 2010 between the Borrower and ING; and

(e)  assignment in favour ING of the Borrower’s receivables under the insurance policies concluded and which shall be concluded by the Borrower in connection with the assets which are subject to the security described in paragraphs (c) and (d) above;

such security interests being created for the purpose of securing the Borrower’s obligations under the ING Loan Agreement.

"Financial Debt" means, with respect to any person, any Debt of such person for or in respect of:

(a)  moneys borrowed;

(b)  any amount raised by acceptance under any acceptance credit facility;

(c)  any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;