Contract for Generation of Electrical Power

Approve in all and each of its parts the OPERATING CONTRACT FOR THE GENERATION OF POWER AND ELECTRICAL ENERGY, sent by the Executive Power through the State Department for Energy, Natural Resources, Environment and Mines, executed in the city of Tegucigalpa, municipality of the Central District, on the 16th day of the month of August of two thousand sixteen, between the Licenciado José Antonio Galdámez Fuentes, Secretary of State for Energy, Natural Resources, Environment and Mines; and Doctor José María Méndez Arguelles, General Manager of the Commercial Company RENEWABLE ENERGY OF OLANCHO, CORPORATION WITH VARIABLE CAPITAL (ERO, S.A. DE C.V.), for the installation of the "TOMHAWA HYDROELECTRIC" Project, located in the municipality of San Esteban, department of Olancho, which literally states: "STATE DEPARTMENT FOR ENERGY, NATURAL RESOURCES, ENVIRONMENT AND MINES OPERATING CONTRACT FOR THE GENERATION OF POWER AND ELECTRICAL ENERGY BETWEEN THE DEPARTMENT OF ENERGY, NATURAL RESOURCES, ENVIRONMENT AND MINES AND THE COMMERCIAL COMPANY "RENEWABLE ENERGY OF OLANCHO, CORPORATION WITH VARIABLE CAPITAL (ERO S.A. DE C.V.)". We, JOSE ANTONIO GALDAMES FUENTES, of legal age, married, Engineer, Honduran, with Identity Card No. 0101-1971-01238 and of this address, acting in the capacity of Secretary of State for Energy, Natural Resources, Environment and Mines, according to Appointment Agreement No. 025-2014 dated January 29, 2014 and hereinafter identified as "THE DEPARTMENT" and JOSE MARÍA MÉNDEZ ARGUELLES, of legal age, married, Honduran, Doctor of Chemistry and Pharmacy and of this address, who acts in his capacity as General Manager and also President of the Board of Directors of the commercial company RENEWABLE ENERGY OF OLANCHO CORPORATION WITH VARIABLE CAPITAL (ERO S.A. DE C.V.), registered under registration number 2527416 and registration 14827 in the Commercial Registry of Francisco Morazán, with date August 30, 2012, in which instrument the powers that he possesses to execute this type of acts are stated, hereinafter to be referred to as "THE GENERATING COMPANY", who in the following may be designated, jointly, as "Parties" or, individually, as "Party", have agreed to execute and hereby execute this Operating Contract, under the following terms and conditions: CLAUSE FIRST: BACKGROUND, DEFINITIONS, AUTHORIZATIONS AND CONDITIONS: Section 1.1 BACKGROUND. THE GENERATING COMPANY, It is the duty of the State of Honduras to regulate among others, the activity of generating electrical energy that takes place in national territory, establishing the indispensable conditions for the electrical demand in the country to be met at the lowest cost and that an electrical system operates in an economical, safe and reliable manner. That by virtue of the growing demand for electrical energy in the country and the necessity to ensure the coverage of power requirements in the coming years, the State of Honduras is in need of encouraging and involving the private sector, to expand the supply of electrical energy in the country and increase efficiency in the operation of electrical installations. Likewise it is the obligation of the State of Honduras to prevent unfair practices, regulate those activities whose nature prevents or restricts free competition and to ensure respect for and protection of property and public safety in the construction and operation of electrical generation systems. THE GENERATING COMPANY has conducted studies for the construction of a hydroelectric plant with exclusivity character at the site whose coordinates are described in Annex 1 which is an integral part of this contract and has the capacity to generate four megawatts (4 MW) of nominal power and an estimated average energy production of twenty-one point ninety-seven gigawatt hours (21.97) GWh per year, based on the current THE GENERATING COMPANY proposed to THE DEPARTMENT the present Operating Contract for which in application of the Framework Law of the Electrical Sub-Sector, an opinion was requested from the National Energy Commission which is the advisory technical body. The parties recognize that it will be necessary to operate the Run-of-River type Plant, named "TOMHAWA" Hydroelectric Project, located in the municipality of San Esteban, department of Olancho and whose facilities are described in Annex No.1, Project Facilities, subject to the provisions of the current legal and regulatory framework for the electrical subsector, as well as the conditions established in this Contract, with quality and in an economical, safe and reliable manner, in order to increase efficiency, utilize the potential of the resource and satisfy the growing demand for electrical energy through the production of energy from renewable sources.- Section 1.2 DEFINITIONS. For the purposes of this contract the following terms shall have the meaning defined below:

• 1)

  THE SYSTEM GENERATING COMPANY: The organism responsible for the operation of the national interconnected system. At the execution of this Contract, such organism is the Load Dispatch Center of the National Electrical Energy Company.

• 2)

  NATIONAL ENERGY COMMISSION (CNE): It is the regulatory entity, technical advisory organism for the application of the Framework Law of the Electrical Sub-sector.

• 3)

  NATIONAL ELECTRICAL ENERGY COMPANY (ENEE): It is the State company created by Decree No.48 of February 29, 1957.

• 4)

  SYSTEM EMERGENCY: Condition or situation that results or could result from a major interruption of electrical energy supply or could endanger persons, the facility or the National Interconnected System.

• 5)

  CONSTRUCTION START DATE: Date on which THE GENERATING COMPANY has obtained all permits and has complied with the requirements established in applicable legislation and has manifested in writing its intention to begin physical works for the project installations.

• 6)

  FORCE MAJEURE OR FORTUITOUS EVENT: Are unpredictable events or that although foreseen cannot be avoided and that make impossible the partial or total performance of the obligations derived from this contract. FORCE MAJEURE resulting from human action shall be considered and FORTUITOUS EVENT resulting from nature. The causes of FORCE MAJEURE shall include, in an enumerative form, but not limited to the following:

  • a)

    Chemical contamination or explosion that occurs naturally;

  • b)

    Air accidents;

  • c)

    Transportation delays;

  • d)

    Acts of war;

  • e)

    Change of laws;

  • f)

    Expropriations;

  • g)

    Transportation delays resulting from accidents, road takeovers, or closure of transportation routes;

  • h)

    strikes or other labor disputes;

  • i)

    sabotage. The causes of FORTUITOUS EVENT include in an enumerative manner, but not limited to, the following events:

    • a)

      Lightning, drought, fire, earthquake, volcanic eruption, landslide, hurricane, tropical storm, rain or exceptionally abundant storms, cyclone, typhoon, tornado or any other effect resulting from natural elements;

    • b)

      Epidemics, plagues, quarantine or famine.

• 7)

  GENERATION: The production of electricity through the utilization and transformation of energy sources and renewable resources.

• 8)

  INSTALLATIONS: The installations owned by THE GENERATING COMPANY that are used for the generation and transmission of electrical energy up to the point of delivery including goods, buildings and constructions, as well as generation equipment, voltage transformation and electricity transmission, other associated facilities and equipment, including protection, communication and data transmission and others, that, as a single integrated functional set, are necessary and convenient to allow THE GENERATING COMPANY to produce and deliver, in normal operation, power and electrical energy. The content described in Annex 1 is not limiting, being able to be increased, added, substituted, improved or modified, making it known to THE DEPARTMENT.

• 9)

  INTERCONNECTION INSTALLATIONS: The installations and equipment necessary to supply at the point of delivery all the energy produced or that could be produced by the company. Interconnection installations shall include, but shall not be limited to the transformer to convert the voltage generated to the voltage of the point of delivery, to the communication installations associated with their equipment and to the transmission line.

• 10)

  THE COMPANY: Refers to the Generating Company.

• 11)

  MAJOR CONSUMER: Major Consumer shall be understood as that whose maximum demand is at least 1,000 Kw. This maximum demand may be modified by mutual agreement of the parties after opinion of the CNE.

• 12)

  BUSINESS GROUP: Business Group shall be understood as the natural or legal persons that maintain between themselves ties of ownership or executive management with the Generating Company.

• 13)

  PARTIES: THE DEPARTMENT and THE GENERATING COMPANY.

• 14)

  ELECTRICAL DISTURBANCE: Any sudden, unexpected, changing or abnormal electrical condition that originates in the National Interconnected System (SIN) or in the installations of THE GENERATING COMPANY and that affects the operation of one or the other or both.

• 15)

  PLANT: The installations of the Generating Company.

• 16)

  POINT OF DELIVERY: The physical point or points of the installation where the electrical energy delivered by THE GENERATING COMPANY is received and where the measurement equipment is installed. This point defines the limit of responsibility that THE GENERATING COMPANY has for the construction, operation and maintenance of the installations.

• 17)

  NATIONAL INTERCONNECTED SYSTEM (SIN): It is composed of the generating plants, distribution systems and its subset of elements of the national transmission and sub-transmission system that unite them physically without interruption.

• 18)

  THE DEPARTMENT: It is the State Department for Energy, Natural Resources, Environment and Mines (SERNA).

• 19)

  CONTRACT VIOLATION: Means the non-compliance with this contract that gives right to one of the parties to choose some recourse. Section 1.3 AUTHORIZATION. Section 1.3.1. By means of this Operating Contract for Generation of Power and Electrical Energy, is granted in favor of THE GENERATING COMPANY the right to provide, at its own expense and risk, with the scope established in the Framework Law of the Electrical Sub-Sector, the activity of generation of power and electrical energy, through a Hydroelectric Generation Plant, in accordance with which is authorized to operate the installations of THE GENERATING COMPANY as defined in Annex 1 of this Contract. Section 1.3.2. The present authorization covers the eventual modification of the installed capacity of electrical generation, for which THE GENERATING COMPANY must comply with what is stipulated in Clause EIGHTH, Section 8.3 AMENDMENTS of this Contract. Section 1.3.3. The generation installations shall be used prioritarily to satisfy the needs of its Business Group and those of any Major Consumer with location within the Republic of Honduras. Surpluses shall be allocated to cover the rest of national needs. Once these are covered, THE GENERATING COMPANY may export its surpluses by adjusting to what is provided in Decree No.70-2007 published in the Official Newspaper "La Gaceta" on October 2, 2007 and other applicable laws.-Section 1.4: CONDITIONS. Section 1.4.1.GENERAL CONDITIONS. The operation authorization granted to THE GENERATING COMPANY through this contract shall continue to remain in force during the entire life of this Contract as long as THE GENERATING COMPANY is in compliance with the provisions of the current legal and regulatory framework for the electrical subsector and its future updates. Section 1.4.2. CONDITIONS APPLICABLE TO THE INSTALLATIONS: THE GENERATING COMPANY is obligated to construct and place in service its installations within a period not exceeding thirty-six (36) months counted from the CONSTRUCTION START DATE. The installations of THE GENERATING COMPANY must satisfy the applicable standards relating to the specifications of the equipment in order not to disturb the proper operation of the National Interconnected System. Section 1.4.3 OPERATING CONDITIONS: Section 1.4.3.1 THE GENERATING COMPANY shall have the right to investigate, study, develop, construct, own, operate and maintain the INSTALLATIONS described in Annex 1 and its future expansions for generation of power and electrical energy; conduct environmental impact studies, field studies and sampling; have temporary or permanent licenses and/or permits for electrical power and energy generation projects; generate, sell and transmit the generated energy, have temporary or permanent licenses and/or permits for access and use of national areas, take samples, open quarries and extract and/or deposit rock, earth, sand and construction materials, use groundwater and surface water, utilization of environmental air, emission of gases to the environment; request from the competent authority the imposition of easements; construct transmission and communication lines; construct temporary or permanently roads, rights of way, improve roads, construct temporary and/or permanent bridges as necessary for the transportation of machinery, equipment and heavy vehicles, other activities related to the investigation, study, development, construction, ownership, operation, administration, monitoring and maintenance of the PLANT; transmit energy to the POINT OF DELIVERY, export energy through the SIN by paying tolls, charge tolls for the use made by others of its transmission facilities, pay tolls for the use of transmission of third parties, contract agents, companies, workers or equipment of both national and foreign origin. In order for THE GENERATING COMPANY to operate the PLANT in a sustainable, efficient and correct manner, the State of Honduras considers the PLANT and its works as part of the management plan of such areas, for which it will protect the necessary areas for such purpose, including core zones, buffer zones, watersheds and micro-watersheds, forests, protected areas, as well as the area of influence of the PLANT, reducing and controlling current practices of the inhabitants of the zones relating to tree felling and burning; limiting according to feasibility studies and environmental impact, the installation and operation of companies with mining, agricultural, industrial, construction, irrigation, deforestation, livestock activities, electricity generation and all those that affect, prevent or diminish the capacity of THE GENERATING COMPANY in the execution of the project or its operation or its expansion. Therefore and considering that MIAMBIENTE through this contract grants THE GENERATING COMPANY the concession of the area where the renewable natural resource is located and the development of the project according to the coordinates detailed in ANNEX 1, those future concessions requested by third parties to any agency or State Department that are located in the vicinity of the zones of influence and the area of development of the project of THE GENERATING COMPANY, must concert and/or harmonize with THE GENERATING COMPANY their exploitation works of the resources to be conceded guaranteeing always to THE GENERATING COMPANY the free and safe use of the area and of the renewable resources destined for the generation of electrical energy and additionally such future concessionaire must demonstrate the feasibility of conducting its operations in a harmonized manner without interference to the project. Additionally, the State may execute watershed management programs to prevent erosion, conserve groundwater, improve climate, rehabilitate the area and purify the atmosphere. THE GENERATING COMPANY may sign agreements for the protection of the watershed and the development of neighboring communities with the State or the Municipality. The State may assist THE GENERATING COMPANY, its agents and Contractors in obtaining the necessary governmental and local authorizations for the operation of the INSTALLATIONS. All of the foregoing without prejudice to the legal provisions that regulate any of the activities mentioned.- Section 1.4.3.2 THE GENERATING COMPANY may contract the services of natural and legal persons national and international for the correct operation, administration, maintenance and monitoring of the PLANT and its area of influence. Section 1.4.3.3 THE GENERATING COMPANY shall be the sole responsible for damages or losses that occur or may occur due to or as a consequence of the rights established in this clause.- Section 1.4.3.4 THE GENERATING COMPANY may develop the activity of generation of power and electrical energy putting all available capacity not committed for self-consumption and in private physical contracts permitted by law, at the orders of the System Operator in a reliable and efficient manner, administering, operating, monitoring and correctly maintaining the installations and assets affected to such activity, observing for such purpose, "Good Operating Practices", understanding by this: methods, standards, equipment, specifications and safety and performance practices commonly used at national and international level. Section 1.4.3.5. THE GENERATING COMPANY may perform all necessary and convenient activities to ensure that the provision of the electrical generation activity is in accordance with the provisions contained in the Framework Law of the Electrical Sub-Sector, the General Environmental Law and other concordant standards. Section 1.4.3.6. Comply with the provisions emanating from THE DEPARTMENT, by virtue of its legal attributes and comply with all laws and regulations that in any respect are applicable to it. Section 1.4.3.7. Take appropriate measures to not cause damages and losses to persons, property and real estate in the area of influence of the installations. Section 1.4.3.8 THE GENERATING COMPANY shall be obligated to participate in the tasks of frequency regulation, supply or absorption of reactive power, operation in emergency situations and restoration of generating activity, if applicable by complying with the instructions that for such purposes the System Operator issues to it. Any capacity and energy that THE GENERATING COMPANY wishes to allocate to export must first propose it to the System Operator, who shall have the right of first refusal to purchase at a price at least equal to that offered by the foreign buyer to THE GENERATING COMPANY.- Section 1.4.3.9 Inform THE DEPARTMENT of the date of commencement of commercial operation of the plant with at least fifteen (15) days in advance.- Section 1.4.4 CONDITIONS RELATING TO SUPERVISION. Section 1.4.4.1 Collaborate with THE DEPARTMENT in conducting inspections that are carried out during business hours and with a notice of seventy-two (72) hours, to verify compliance with the obligations contained in this Contract. Section 1.4.4.2 THE DEPARTMENT shall define the management indices that allow it to evaluate quarterly the performance of THE GENERATING COMPANY, through operation reports submitted by it, covering that period. For this purpose THE DEPARTMENT shall timely provide the forms that, for technical and statistical information, shall be completed by THE GENERATING COMPANY in accordance with the activities derived from the provision of electrical energy generation activity. Section 1.4.4.3 THE GENERATING COMPANY shall provide any other technical information that THE DEPARTMENT deems reasonably convenient.- CLAUSE SECOND: VALIDITY, DURATION AND RENEWAL: This Contract shall enter into force once approved by the National Congress and from its publication in the Official Newspaper "La Gaceta", and shall terminate fifty years (50) thereafter, counted from the date of said publication, unless it is renewed or terminated according to the terms of this Contract. This Operating Contract shall be renewed before its expiration if THE GENERATING COMPANY so requests, and THE DEPARTMENT, or competent authority responsible at that time, may include the operational changes in the Electrical Sub-Sector in force at the time of renewal. Renewals shall be approved by THE DEPARTMENT, or competent authority responsible at that time, at least one hundred eighty (180) days before the expiration of the contract.- CLAUSE THIRD: CAUSES FOR STATE INTERVENTION. In case THE GENERATING COMPANY is unable to operate in compliance with the conditions established in this Contract, THE DEPARTMENT, prior to the opinion of the CNE, shall notify THE GENERATING COMPANY of the nature of the non-compliance, who must remedy the non-compliance within a maximum period of six (6) months. If during this period of time the non-compliances are not remedied due to causes attributable to THE GENERATING COMPANY, THE STATE may intervene and operate its installations temporarily in accordance with the provisions of the current legal framework of the electrical subsector. If within six (6) months counted from the date of said intervention THE GENERATING COMPANY is unable to resume operation by its own means, the early termination of this Contract shall proceed and the intervention shall cease.- This, without prejudice to the rights that correspond to THE GENERATING COMPANY to pursue the administrative and judicial claims of the case. CLAUSE FOURTH: EARLY TERMINATION: THE DEPARTMENT shall have the right to unilaterally cancel this Operating Contract, after the proven occurrence of any of the following conditions: Section 4.1 When due to an event of FORCE MAJEURE or FORTUITOUS EVENT as detailed in CLAUSE EIGHTH Section 8.1.1 of this contract, an interruption in the operation of the plant has occurred and THE GENERATING COMPANY is unable to resume the provision of the generation activity within the period established by THE DEPARTMENT, this being a reasonable period with the notification that it makes to THE GENERATING COMPANY as detailed in CLAUSE EIGHTH Section 8.1.2.- Section 4.2 When after there being a state intervention, duly communicated to THE GENERATING COMPANY as a temporary measure preceding decision made by THE DEPARTMENT following all the procedures indicated by applicable laws, THE GENERATING COMPANY refuses or is unable to resume the generation activity within the period established in CLAUSE THIRD.- Section 4.3 The definitive or temporary suspension of operation for more than thirty (30) consecutive calendar days without justified cause according to the generation program that THE GENERATING COMPANY shall prepare periodically or abandonment of the INSTALLATIONS without prior written consent of the State of Honduras. For the purposes of this Contract, abandonment of the INSTALLATIONS shall mean absence at the PLANT of employees of THE GENERATING COMPANY, construction, operation and maintenance workers, contractors, subcontractors, affiliates, subsidiaries or representatives for a continuous period of at least thirty (30) calendar days. Section 4.4 Prior to a judicial resolution of a competent court THE GENERATING COMPANY declares its insolvency and is unable to pay its obligations upon maturity or the voluntary commencement of bankruptcy proceedings by THE GENERATING COMPANY or an involuntary bankruptcy proceeding against THE GENERATING COMPANY that is not dismissed within a maximum period of one hundred eighty (180) business days counted from the date of its commencement and consequently is unable to comply with the provisions of this Contract.- Section 4.5 The mutual agreement of the Parties.- Section 4.6 The other causes established in Article 72 of the Framework Law of the Electrical Sub-Sector. For all the cases mentioned above in this clause, it is established that the administrative act that declares the rescission of the contract or the early unilateral termination must be based on an opinion prepared by the CNE notifying personally the Legal Representative of THE GENERATING COMPANY. Against the act the remedies provided in the Administrative Procedure Law shall apply. CLAUSE FIFTH: OBLIGATIONS OF THE PARTIES IN CASE OF CONTRACT TERMINATION: If at the termination of the Operating Contract, THE GENERATING COMPANY decides not to renew it in accordance with Article 71 of the Framework Law of the Electrical Sub-Sector or in case of early termination of the Operating Contract for any cause of non-compliance duly justified and significant, established in this Operating Contract or in Article 72 of the Framework Law of the Electrical Sub-Sector and it is also considered in the judgment of the State that the installation is necessary for the operation of the National Interconnected System, the State in mutual agreement with THE GENERATING COMPANY, may acquire the assets indicated in the Operating Contract through the corresponding Institution and through the recognition and payment to THE GENERATING COMPANY of the market value of the installations and equipment. The market value shall be determined by mutual agreement and in case of failure to reach this agreement within three (3) months following the termination of the Operating Contract, the parties shall submit to the Arbitration procedure as established in the Conciliation and Arbitration Law, contained in Decree No.161-2000 dated October 17, 2000 and published in the Official Newspaper "La Gaceta" on February 14, 2001.- CLAUSE SIXTH: RESERVE FUND. Section 6.1 AMOUNT: The amount of the reserve fund that the company must establish or the insurance policies that it must contract in order to comply with what is established in Article 44 of the Framework Law of the Electrical Sub-Sector shall be TEN THOUSAND THIRTY-NINE AND FIFTY CENTS OF AMERICAN DOLLAR (U.S$. 10,039.50) per year. In case of capacity expansions, the amount of the reserve fund shall be increased with respect to the indicated value, proportionally to the increase in average annual energy production- Section 6.2 VERIFICATION: Fifteen (15) days before the start of commercial operation and at any time thereafter that THE DEPARTMENT requests, THE GENERATING COMPANY must demonstrate that it has the Reserve Fund constituted or the insurance policies contracted for the indicated amount. The lack thereof shall be considered as a violation of this Contract.- Section 6.3 MODALITIES: The Reserve Fund may take the form of an insurance policy, bank guarantee, a line of credit, a bond or a deposit in a bank account intended solely for the direct or indirect payment of the indemnifications referred to in Article 44 of the Framework Law of the Electrical Sub-Sector. CLAUSE SEVENTH. SANCTIONS FOR NON-COMPLIANCE. In case THE GENERATING COMPANY fails to comply with its obligations established in this Operating Contract, it shall be subject to the imposition of sanctions by THE DEPARTMENT, in accordance with the Framework Law of the Electrical Sub-Sector and the General Environmental Law, regulations and related provisions of said applicable laws, without prejudice to other measures that by reason of this Operating Contract THE DEPARTMENT deems necessary to adopt. CLAUSE EIGHTH: MISCELLANEOUS PROVISIONS: Section 8.1 FORCE MAJEURE AND FORTUITOUS EVENT. Section 8.1.1. THE GENERATING COMPANY shall not be liable for the total or partial performance of the obligations stipulated in this Operating Contract to the extent that such non-performance is a consequence of an event of FORCE MAJEURE or FORTUITOUS EVENT. However, THE GENERATING COMPANY shall make all reasonable efforts to mitigate the effects of an event of FORCE MAJEURE OR FORTUITOUS EVENT.- Section 8.1.2 THE GENERATING COMPANY shall notify THE DEPARTMENT of the FORCE MAJEURE or FORTUITOUS EVENT event within seventy-two (72) hours following notification of the incident. A second notification shall be sent to THE DEPARTMENT within the following ten (10) days of the initial notification, in which THE GENERATING COMPANY shall describe the event with all evidence and shall provide an estimate of the time to overcome the incident. A third notification shall be sent to THE DEPARTMENT informing of the end of the FORCE MAJEURE or FORTUITOUS EVENT event within seven (7) days of the end thereof.- Section 8.2 EMERGENCIES AND SAFETY: THE GENERATING COMPANY must comply with the orders and instructions of a temporary nature, for the time strictly necessary, that for reasons of general interest, national emergency, emergency of the national interconnected system or for the safety of persons the DEPARTMENT and/or the Load Dispatch Center of ENEE issues. As soon as such circumstances disappear, the relationship must again be governed by the contractual clauses described in this Operating Contract. If during the temporary period an economic loss has been caused to THE GENERATING COMPANY, the State must compensate it. In case of discrepancy as to the calculation of compensation, the opinion of the National Energy Commission must be requested and if no agreement is reached even with this opinion, the affected PARTY may resort to arbitration within ninety (90) days from when the temporary condition ceases to exist submitting to the procedure defined in the Conciliation and Arbitration Law contained in Decree No. 161-2000 dated October 17, 2000 and published in the Official Newspaper "La Gaceta" on February 14, 2001. Section 8.3 AMENDMENTS: This Operating Contract for generation of Power and Electrical Energy may be expanded, amended or modified by the agreement of the wills of the parties and in accordance with applicable legislation. For the specific case of modifications in installed capacity, it must have the favorable opinion of THE DEPARTMENT. Section 8.4 LOAD DISPATCH CENTER: It is understood that the Load Dispatch Center (CDC) shall have the following obligations:

  • a)

    Coordinate, supervise, control and analyze the operation of the SIN, including international interconnections;

  • b)

    Coordinate the scheduling of preventive maintenance of SIN installations;

  • c)

    Obtain and process the information necessary to comply with its functions, as well as to produce monthly reports to be submitted to the companies of the sector and the CNE, regarding the operation had and projected of the SIN; and, d) Maintain the operation of the SIN within the operational limits of prudent Engineering practices. THE GENERATING COMPANY when affected by the decisions of the Load Dispatch Center, may challenge them before the authorities of the LOAD DISPATCH CENTER who shall hear the opinion of the CNE. The resolution of the CDC authorities may be subject to the legal remedies as well as the procedures agreed between the parties. THE GENERATING COMPANY must timely supply all technical information requested by the CDC for the proper operation of the SIN. Section 8.5 RISK OF LOSS OF THE GENERATING COMPANY. THE GENERATING COMPANY, shall be responsible and shall bear the risk of any loss or damage to the Plant, to the Interconnection installations of the owner of the PLANT if it is not the same, or any other property located on the side of THE GENERATING COMPANY as viewed from the point of delivery (Including the transformer and measurement equipment).- Section 8.6 ASSIGNMENT OR ENCUMBRANCE. THE GENERATING COMPANY may assign, with prior authorization of THE DEPARTMENT, in whole or in part the rights and obligations stipulated in this contract to any commercial company with technical and financial capacity, excepting foreign Governments or official Corporations, which must meet all the requirements of THE GENERATING COMPANY ceding party and which shall be subrogated in all the rights and obligations that correspond to the ceding party. THE GENERATING COMPANY has the right to assign, without prior consent of THE DEPARTMENT, the benefits and rights granted by THE DEPARTMENT and that were established in this Contract to any lender or lenders that are not a public entity, as collateral for any loan or loans that THE GENERATING COMPANY wishes to obtain.- Section 8.7 BENEFITS. To this contract may be incorporated the benefits that are granted in accordance with new laws, interpretations or reforms and future contracts, with the simple request of THE GENERATING COMPANY to THE DEPARTMENT who shall issue its respective opinion.- Section 8.8 ANNEX. Annex 1: Project Installations, is declared an integral part of this Contract. Section 8.9 APPLICABLE LAW. The rights and obligations of the parties under or in accordance with this Operating Contract shall be governed by the Laws of Honduras and the parties are obligated to comply with, comply and submit to said laws, especially but not limited to, the legal order in administrative, electrical and environmental matters. None of the Clauses of the Operating Contract shall be interpreted in a way that contradicts the principles and specific stipulations contained in the standards that regulate the Electrical Sub-Sector and the General Environmental Law and its Regulations, which shall prevail in case of ambiguity or obscurity of any clause of the Operating Contract and shall apply to regulate all situations not foreseen therein.- CLAUSE NINTH: NOTIFICATIONS. All notifications issued from this Operating Contract must be in writing and directed to the attention of the person indicated below and be delivered directly or sent by certified mail, properly signed and sealed electronic mail, scanned and sent in PDF format or by fax. Notifications sent by fax require written confirmation and delivered as indicated at the beginning; to THE DEPARTMENT: State Department for Energy, Natural Resources, Environment and Mines 100 meters south of the National Stadium, in front of the Birichiche field, Tegucigalpa, M.D.C. Attention State Department, telephones (504) 2232-1386, Fax: (504) 2232-6250 e-mail: sdespacho@serna.gob.hn and THE GENERATING COMPANY: José María Méndez Arguelles, Renewable Energy of Olancho, S.A. de C.V. (ERO, S.A. DE C.V.), telephone: 9450-1224, e-mail: jose.mendez@yahoo.com. The persons and addresses must be notified in a similar manner.- In witness thereof the parties sign this Contract in triplicate in the city of Tegucigalpa, municipality of the Central District, Republic of Honduras, on the 16th day of the month of August of Two Thousand Sixteen. (f.s.) JOSÉ ANTONIO GALDAMES FUENTES, SECRETARY OF STATE FOR ENERGY, NATURAL RESOURCES, ENVIRONMENT AND MINES. (f.s.) JOSÉ MARÍA MÉNDEZ ARGUELLES, GENERAL MANAGER COMPANY RENEWABLE ENERGY OF OLANCHO, S.A. DE C.V. (ERO, S.A. DE C.V.)". "ANNEX No. 1 PROJECT INSTALLATIONS TOMHAWA HYDROELECTRIC PROJECT LOCATION Department: Olancho Municipality: San Esteban River / Watershed: Río Grande / Sico-Paulaya Coordinates of Dam site: 1688535 N / 628945 E Coordinates of Power House: 1688678 N / 629755 E Coordinates of area of influence: NOMINAL DATA Watershed catchment area (Km2): 2,224.326 Design flow (m3/s): 23.0 Gross Head (m): 22.0 Net Head (m): 20.0 CIVIL WORKS Dam Type: concrete dam Dam height (m): 20.0 Dam width (m): 10.0 Dam length (m): 130.0 Spillway Type (Profile): free with creager crest Intake Type: Lateral Intake elevation (masl): 417.0 Pressure Pipeline Type: FORCED PIPE STEEL SHEET Length (m): 985.0 Diameter (m): 1.8 EQUIPMENT FOR ENERGY GENERATION Turbines Type: Horizontal Francis Number of Units: 2 Rotation Speed: RPM: 720 Power of Each Turbine (kW): 2,0000 Generators Type: SYNCHRONOUS Nominal Capacity: 2,150 KVA Power Factor: (cosf=): 0.9 Nominal Voltage: kV: 13.8"

This Decree shall enter into force from the day of its publication in the Official Newspaper "La Gaceta". Given in the city of Choluteca, department of Choluteca in the Convention Center, Hotel Jicaral, on the twenty-seventh day of the month of September of two thousand seventeen. ANTONIO CÉSAR RIVERA CALLEJAS PRESIDENT MARIO ALONSO PÉREZ LÓPEZ SECRETARY JOSÉ TOMÁS ZAMBRANO MOLINA SECRETARY To the Executive Power. Therefore: Be it executed. Tegucigalpa, M.D.C., October 9, 2017 JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE FOR ENERGY, NATURAL RESOURCES, ENVIRONMENT AND MINES JOSÉ ANTONIO GALDAMEZ Legislative Power DECREE No. 77-2017 THE NATIONAL CONGRESS, CONSIDERING: That it constitutes an urgent necessity for the country to develop energy projects taking advantage of the natural resources existing in the country, which in addition to constituting a saving of foreign currency will allow offering energy at lower prices to the Honduran people. CONSIDERING: That the Commercial Company called RENEWABLE ENERGY OF OLANCHO, S.A. DE C.V. (ERO, S.A. DE C.V.) through the President of the Board of Directors, Mr. José María Méndez Arguelles Valle and the Under-Secretary of State for Natural Resources and Energy; executed CONTRACT FOR THE UTILIZATION OF NATIONAL WATERS FOR THE DEVELOPMENT OF THE "TOMHAWA HYDROELECTRIC" PROJECT, on September 10, 2013. CONSIDERING: That the aforementioned Contract is regulated within the constitutional and legal framework of the country and does not contradict provisions relating to the environment. CONSIDERING: That in accordance with Article 205 Attribution 19) of the Constitution of the Republic, it is the prerogative of the National Congress, to approve or disapprove contracts that involve exemptions, incentives and concessions, or any other contract that shall produce or extend its effects to the following government period of the Republic. THEREFORE, IT DECREES:

Approve in all and each of its parts the CONTRACT FOR THE UTILIZATION OF NATIONAL WATERS FOR THE DEVELOPMENT OF THE TOMHAWA HYDROELECTRIC PROJECT, located in the municipality

This Decree shall enter into force as of the day of its publication in the Official Journal "La Gaceta". Given in the city of Choluteca, department of Choluteca, at the Convention Center of the Jicaral Hotel, on the twenty-seventh day of the month of September of two thousand seventeen. ANTONIO CÉSAR RIVERA CALLEJAS PRESIDENT

MARIO ALONSO PÉREZ LÓPEZ SECRETARY JOSÉ TOMÁS ZAMBRANO MOLINA SECRETARY To the Executive Power For Such Purpose: Let it be Executed. Tegucigalpa, M.D.C., October 10, 2017 JUAN ORLANDO HERNÁNDEZ ALVARADO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICES OF ENERGY, NATURAL RESOURCES, ENVIRONMENT AND MINES. JOSÉ ANTONIO GALDAMEZ Presidency of the Republic EXECUTIVE AGREEMENT NUMBER 005-2018 THE PRESIDENT OF THE REPUBLIC, CONSIDERING: That it is incumbent upon the President of the Republic, among other powers, to direct the general policy of the State, represent it, manage public finances, and enact extraordinary measures in economic and financial matters when the national interest so requires. CONSIDERING: That the President of the Republic has under his charge the supreme direction and coordination of the Centralized and Decentralized Public Administration, the General Administration of the State, being able to act by himself or in Council of Ministers. CONSIDERING: That Articles 235 and 236 of the Constitution of the Republic establish that: The President exercises the holding of Executive Power in representation and for the benefit of the people, and, in his absence, those Designated to the Presidency of the Republic. CONSIDERING: That Articles 4 and 5, respectively, of the Administrative Procedure Law, expressly establish that the superior body may delegate the exercise of its functions in a determined matter to the immediately lower body and that the superior may delegate the exercise of its functions for specific matters, provided that the competence is attributed generically to the Department