Public Service Management Delegation Agreement

Below are specific instances demonstrating that ASADAs are indeed Public

Item SECOND, h clearly states that “…registering the allocation of the necessary flows and sources of supply to the community, through the AyA, so that they are kept reserved for PUBLIC purpose …”
Item THIRD, k. “… said property is perpetually assigned to the PUBLIC domain …”
Item EIGHTH, b. “Establish the guidelines and opinions required for the proper management of the PUBLIC service.”
Item TWELFTH: “Associations must complete the procedures to qualify for the declaration of PUBLIC utility granted by the Ministry of Justice, as provided for in Association Law No. 218 and its Regulations”.
Item THIRTEENTH: “… the purpose of having the latter provide the PUBLIC drinking water and sewage services delegated to it by this document to the Association Managing the Water Supply and Sewerage System of Lomas del Mar de Sardinal de Carrillo, Guanacaste”
FOURTEENTH: “… AyA may also order the merger with other larger integrated water supply companies, as it always retains ownership of the service.”

Agreement for the delegation and administration of the aqueduct and sanitary sewer system of Lomas del Mar de Sardinal de Carrillo, Guanacaste

Between us, JAVIER ALEXIS VARGAS TENCIO, adult, married once, holder of the identity card number one-five three five-six zero zero, in my capacity as General Manager, with the powers of General Attorney without limitation of sum of the AyA, with legal person identification number four-zero-zero-zero forty-two thousand thirty-eight-zero, with offices in San Jose. Pavas Headquarters, legal entity registered in the Persons Section of the Public Registry, in volume 2011, entry nine one zero nine, consecutive one, sequence one, duly authorized for this act by the agreement of the Board of Directors number two thousand eleven-0 eighty-three, taken in the ordinary session number two thousand eleven-0 sixteen of March 22, 2011. FEDERICO ANTONIO MARIN SCHUMACHER, bearer of the identity card number one-four hundred and twenty-eight-one hundred and twenty-eight, in his capacity as President, with sufficient powers for this act, representing the association that manages the aqueduct and sanitary sewerage of LOMAS OF THE SARDINAL AQUEDUCT OF CARRILLO OF GUANACASTE, hereinafter “The Association”, with legal entity identification number three-zero zero two-five one five zero eight six and whose legal status is recorded in the National Registry, volume number five hundred seventy-one, address number fifty-seven thousand one hundred twenty-seven. TO ENTER INTO THE FOLLOWING AGREEMENT FOR THE DELEGATION OF THE MANAGEMENT OF THE WATER SUPPLY AND SANITARY SEWERAGE SYSTEMS OF LOMAS DEL MAR DE SARDINAL DE CARRILLO DE GUANACASE, which will be governed by the respective laws and regulations and by the clauses that will be stated, in accordance with the following background:

A. As the governing body, AyA is responsible for intervening in all matters related to the administration, conservation, and rational use of water resources needed by the population; controlling pollution or alterations; and defining the measures and actions necessary for the protection of watersheds and ecological stability. It is also responsible for ensuring that all public and private systems and their water supply and sewerage facilities comply with the basic principles of public service, both in terms of quality and quantity. The costs involved must be borne by the entities that administer the system.

B. In accordance with the powers conferred by articles 2.g and 18 of the Constitution Act of AyA, it is agreed to delegate the administration of the aforementioned system to the one duly constituted under Law 218 of 8-8-39, amended by laws 4583 (3-5-70), 5116 (20-11-72) and 6020 (3-1-77) and its respective Regulation Decree 32529-MINAE published in the Gazette No. 1550 of August 5, 2005, for which it is agreed to delegate the administration, operation, maintenance and development of the Aqueduct. That the Association assumes the administration of the systems in accordance with the following stipulations:

FIRST: The Association expressly accepts AyA as rector in matters of aqueduct and sewer systems, being mandatory to comply and apply the legal and regulatory regulations issued by AyA in matters of systems administered by communal bodies.

SECOND: They constitute the duties and obligations of the Association, as provided for in article 21 of the Regulations of the Administrative Associations of the Aqueduct and Community Health Sewerage Systems, the following:

a. To inform AyA of the statutes of the Association, prior to submission to the Register of Associations for registration.

b. To sign with AyA, the Public Service Management Delegation Agreement

c. To actively monitor and participate with the community in the construction, administration, operation, maintenance and development of systems, as well as in the preservation and conservation of water resources

d. To analyse new services, connections and connections to exist in aqueducts, sanitary sewerage with technical capacity, otherwise it must comply with the specifications set out in Article 18 of the Regulations of the Administrative Associations of Aqueduct and Community Health Sewer Systems

e. Acquire the necessary goods, materials and equipment for the administration, operation, maintenance and development of the systems, ensuring compliance with the principles of equality, free competition and the Administrative Contracting Act

f. To administer, operate, repair, guard, defend and protect according to the principles of sound administration, all property intended for the provision of the services of the systems they administer

g. Establish the necessary internal control measures to ensure the proper performance of the activities carried out by the Association, General Internal Control Act No. 8292,

h. Comply with the procedures for registering the allocation of the necessary flows and sources of supply to the community, through the AyA, so that they are kept reserved for public purpose, as well as maintaining a program and permanent registration of capacity for sources, which will be sent to the AyA Environmental Management Directorate

i. … requested by the Customer Service Provision Regulations, maintaining the equitable and mandatory participation of the community at the time of the construction of the aqueduct and sewer system

j. They may not dispose of the movable and immovable property of the Association without express authorization from the AyA Board of Directors, except in the case of sale of movable property, which may be authorized by the respective Regional Directorate

k. To convene the associates to assembly to address matters related to the aqueduct and sewage system, which require communal action

l. Regularly report to the community on what has been done regarding the operation, maintenance and development of the systems

m. Once the AyA Board of Directors orders the termination of the Agreement of Delegation of the management of the service when, by agreement of the ASADA to deliver the aqueduct, after a report from the Regional Directorate of AyA, the ASADA must deliver the aqueduct and/or sewerage, as well as the movable and immovable property available to the Association, stating this delivery in a notarial record. Request from AyA the technical, legal, financial, organizational and any other advice necessary for the proper management of the systems, as well as require the expropriation of the necessary land and easements. For the performance of all these tasks, AyA may charge the costs it incurs.

n. To have prior authorization from AyA in the case of improvements, modernization of systems, for which the institute through the respective Regional Directorate, will ensure the correct application of the established rules and policies

o. Participate in the trainings and calls required by the Institution

p. To carry out the monitoring and control of water quality, for which the National Program for the Improvement of Water Quality must be carried out, such as the Quality Seal, Blue Flag and any other that the AyA recommends.

q. To carry out the monitoring and control of activities that may generate negative effects in the area of immediate influence of the intake and recharge area.

r. Grant, the water availability seal, which will be valid for 6 months for single-family homes and one year for other developments, which require drinking water service – sanitary sewerage, which can be extended. This seal should be smelled provided that there is technical viability, does not undermine the quality of the service provided and infrastructure exists

s. Keep updated the plans of the systems and a string of users

t. Any other assigned by AyA

THIRD: In order to carry out the administrative, financial and commercial management of the drinking water and sanitary sewer system, ASADA, in accordance with article 22 of the Regulations of the Administrative Associations of the Communal Water and Sanitary Sewer Systems, must comply with the following guidelines:

a. Hire accounting services and have trained personnel in the area of administration

b. Designate the collection location for the collection of fees for the provision of these services. The ASADA Board of Directors must ensure that the collected fees are deposited in the name of the Administrative Association in any bank of the National Public Banking System

c. Submit a periodic accounting report to the Communal Systems Directorate on a monthly basis (when the system is under construction) and to the corresponding Regional Directorate (once the work has been completed and delivered). This report must be signed by the certified accountant, the treasurer, and the president of ASADA.

d. In the case of defaulters, apply the relevant legal actions, in accordance with the provisions of the Regulations for the Suspension of Services, Administrative Collection and Judicial Collection in force.

e. Apply the rates approved by ARESEP for communal systems or, failing that, prepare and submit to AyA the tariff schedules for their services, as well as the phases, connection and reconnection fees, who will make the modifications it deems appropriate and submit them for approval to ARESEP. To make modifications to the rates for communal water supply and/or sewage systems, AyA's technical opinion on the matter must be obtained, prior to sending them to ARESEP for the respective process.

f. Establish the financial control and collection systems recommended by AyA and maintain funds in accounts, securities, and other assets, the latter two when cash availability permits, in the banks of the National Public Banking System. For such purposes, their assets must be depreciated and revalued in ASADA's accounting records, in compliance with International Accounting Standards (IAS).

g. Prepare its annual budget for the administration, operation, maintenance and development of the systems and send a copy to the Regional Directorate, no later than October 31 of each year, who may rule on them, with any recommendations or modifications made in accordance with article 2, paragraph d) of the Constitutive Law of AyA being binding.

h. …indebtedness or guarantee of loans necessary for the system, provided that the Operator's assets are committed to such management

i. Send to the Regional Directorate every six months a detail of the system users in the following manner: Number of subscribers - Quantity of services (fixed and measured), consumption, production and applied rate, among others

j. Make use of the resources, assets and money collected from the payment of water and sewage services, allocating them to the administration, operation, maintenance and development of these services

k. Inventory, register, and record in its name all movable and immovable property, which for financial, tariff, and liability purposes will be considered under the administration of the respective ASADA. The registration will expressly indicate that said property is perpetually assigned to the public domain and to the service of the water and sewage system of the respective community. Likewise, upon the dissolution of ASADA for any reason or the termination of its administration of the system, AyA assumes and retains ownership of said property to allocate it to that public service purpose.

l. If approved in the tariff structure, or if there is budget availability, the Administrative Associations must have insurance for: a) Damage to third parties; b) For critical components of the system; and c) For protection zones.

FOURTH: The Chorotega Region will be responsible for the execution of this agreement.

FIFTH: According to its laws and regulations, AyA will initiate the appraisal proceedings for expropriation requested by the Association, and the latter must deposit with AyA the amounts owed for compensation.

SIXTH: The Association must be duly accredited by AyA. For such purposes, it must submit to AyA: a current certification containing the positions, names, and qualifications of the persons elected to its Board of Directors, as well as that of the Supervisor, stating who holds the legal status. Once accredited, they will be issued their respective membership cards. The membership cards must be returned upon completion of the duties for which they were elected, and the new Board of Directors is obligated to retrieve and destroy them. Any misuse of these cards is under its responsibility.

SEVENTH: The Managing Association's sole and specific purpose must be the administration, operation, maintenance, and development of the water and sewerage systems.

EIGHTH: AyA has the right and obligation, as provided in Article 36 of the Regulations for Administrative Associations, to:

a. Sign and terminate Delegation Agreements for the management of water and sewer systems with Administrative Associations when it so recommends ineffectiveness in the provision of public services. Likewise, the jurisdiction of the operating entity will be determined by the technical capacity of the system, with this technical criterion prevailing in all cases. Should any conflict arise regarding this matter, AyA will make a final decision based on a feasibility study.

b. Establish the guidelines and opinions required for the proper management of the public service.

c. Review and modify the tariff schedules of the systems managed by the Associations (ASADAS) to ensure compliance with existing regulations and submit them to the respective process before the Public Services Regulatory Authority.

d. Provide binding advice on all areas necessary for the control, organization, administration, operation, maintenance, and development of the systems delegated to the Associations for the proper management of these systems.

e. Conduct audits, controls, and evaluations of the management of the ASADAS.

f. Authorize the addition of paid duties or hire relatives of Board members or auditors for administrative duties in qualified situations.

g. Train Association members and users in all aspects necessary for the management of public services.

h. AyA may sell advisory, consulting, training, or any other activity related to its responsibilities to the ASADAS, all in accordance with Article 71 of the Law of the Public Services Regulatory Authority.

i. Authorize, when deemed appropriate, borrowing requests submitted by the ASADAS.

j. Carry out the process of registering the flows used by the ASADAS with the Water Department of the Ministry of Energy and Mines (MINAE).

k. AyA may convene a general meeting of members to discuss matters of removal and replacement of the members of the Board of Directors and the Audit Committee, after complying with due process, demonstrating that the guidelines and technical regulations issued by this governing body are not being implemented, without excluding the application of Article 4 of the Regulations of the Associations that Manage the Communal Water and Sewer Systems.

l. To ensure the optimization of public services provision, in terms of quality, quantity, coverage, continuity, and rationalization of expenses, in the public interest, AyA may order the physical and/or administrative integration of the surrounding water and sewer systems that may correspond into a single one. In the event that there is no communal agreement, the process will be initiated to rescind the delegation of discussions of a political, religious, or any other nature that are unrelated to the interests and purposes of the operating entity.

TENTH: Duly accredited members of the Board of Directors and AyA officials may participate in the Assemblies of the Association of Water and Sewage Systems Administrators, with the right to speak but not to vote, in order to report to AyA on compliance with the applicable regulations, or to advise the association on matters relating to the organization, administration, operation, maintenance, and development of the aforementioned systems.

ELEVENTH: The members of the Association must work in peace and harmony according to the principles of efficient and continuous public service.

TWELFTH: Associations must complete the procedures to qualify for the declaration of public utility granted by the Ministry of Justice, as provided for in Association Law No. 218 and its Regulations.

THIRTEENTH: The Association is prohibited from contracting the services of other companies for the purpose of having the latter provide the public drinking water and sewage services delegated to it by this document to the Association Managing the Water Supply and Sewerage System of Lomas del Mar de Sardinal de Carrillo, Guanacaste

FOURTEENTH: AyA may unilaterally terminate or resolve this agreement, after complying with due process, in the event of noncompliance with the clauses established herein, or with applicable laws and regulations, for convenience, opportunity, or public interest, as established in Article 4 of the Regulations of the Associations Managing the Communal Water Supply and Sewerage Systems. This agreement is of an indefinite nature and duration and of inestimable value. AyA may also order the merger with other larger integrated water supply companies, as it always retains ownership of the service.

FIFTEENTH: This contract shall become effective upon institutional endorsement in accordance with Article 3, paragraph l, i of Resolution R-CO-33 of the Office of the Comptroller General of the Republic. Likewise, this Agreement was approved by the AyA Board of Directors in the Ordinary Session No. 2009-012 held on February 24, 2009, in which agreement No. 2009-106 was approved and published in La Gaceta No. 58 of March 24, 2009. As a sign of compliance, we signed in the City of San José, on November 7, 2011.

ENDORSEMENT

The undersigned, Mr. Rodolfo Lizano Rojas, Legal Director of AyA, hereby certify that this delegation agreement for the administration, operation, maintenance, and development of the Lomas del Mar de Sardinal de Carrillo Sanitary Aqueduct and Sewer System, Guanacaste, has been executed in accordance with our legal system. San José, November 7, 2011