Agreement between the Republic of Latvia and Nordic Environment Finance Corporation (NEFCO) on the Legal Status of NEFCO in Latvia

Dated August 19, 1998

The Republic of Latvia and the Nordic Environment Finance Corporation (hereinafter called "NEFCO")(the "Parties"),

Considering that NEFCO is a multilateral financial institution established through a treaty between the Kingdom of Denmark, the Republic of Finland, the Republic of Iceland, the Kingdom of Norway and the Kingdom of Sweden, with activities substantially identical to those of similar multilateral organizations;

Desiring to create favorable conditions for NEFCO's activities in the territory of the Republic of Latvia;

Recognizing the need to protect NEFCO's investments in the territory of the Republic Latvia;

Referring to the principles laid out in the NEFCO declaration of 29 October, 1990, and;

Taking Note that the Republic of Latvia on August 9, 1994 has entered into an agreement with Nordic Investment Bank (a multilateral financial institution owned by the same group of states as NEFCO) regarding the basis for long term cooperation and the legal status of Nordic Investment Bank in Latvia; and

Taking Note of NEFCO's activities being directed towards improving the state of the environment;

have entered into the following agreement (the "Agreement"):

Article 1

Definitions

1.01. For the purpose of this Agreement the following terms shall have the following meanings:

(a) the term "Parties" shall mean the Republic of Latvia and NEFCO;

(b) the term "Activities" shall mean financing made available by NEFCO in accordance with its Statutes, and under the terms and conditions as separately specified in written contracts between NEFCO and the respective beneficiaries, and which include:

(c) the term "Investments" shall mean all kinds of assets related to the Activities, and which in particular, though not exclusively, include:

Any alteration of the form of invested assets are invested shall have no effect on the nature of the Investment.

(d) the term "Multilateral Financial Institution" shall mean the Nordic Investment Bank (NIB), the International Bank for Reconstruction and Development (IBRD, "the World Bank"), the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) and the European Investment Bank (EIB);

(e) the term "Proceeds" shall mean the amounts yielded by an Investment and which in particular, though not exclusively, include interest, capital gains, fees, dividends, profit or royalties;

(f) the term "Taxes" shall mean taxes, stamp duties, customs duties or other public charges of any nature, including but not limited to, income tax, social security tax, value-added tax and excise taxes, whether in effect at the date of the signing of the Agreement or imposed thereafter.

Article 2

NEFCO's Status in Latvia

2.01. NEFCO's is acknowledged as a legal entity in Latvia. It shall enjoy such legal status as may be necessary to carry out its Activities, and in particular the right, in accordance with the laws of Latvia, (a) to conclude contracts; (b) to receive and disburse funds; (c) to acquire and dispose of real and movable property and any other property rights including, but not limited to mortgages, liens and other collateral; and (d) to initiate legal proceedings.

Article 3

Tax Treatment

3.01. NEFCO and its Activities, Investments and the Proceeds from its Investments shall not be subject to income tax or tax on capital gains.

3.02. Any goods or services financed through grants by NEFCO in Latvia shall be exempt from any customs duties, import taxes, export taxes, value added taxes and other taxes or similar charges in the Republic of Latvia.

3.03. Notwithstanding what is said above, NEFCO's loans for the public sector and grants may not be used in payment of value-added tax, custom duties or similar charges on goods and services.

Article 4

Transfer of Investments and Proceeds

4.01 The Government of Latvia generally undertakes to accord to transfers specified here below a treatment no less favorable than accorded to transfers originating from Investments made by Multilateral Financial Institutions, an particularly shall allow without delay the purchase and transfer of any freely convertible currency to the extent of:

(a) funds received in payment of obligations under any agreements related of NEFCO's Activities in Latvia;

(b) the capital of, and Proceeds from, NEFCO's Investments in Latvia;

(c) the proceeds from the total or partial liquidation or sale of the Investments;

(d) the earnings of persons employed by NEFCO in connection with NEFCO's Activities in Latvia.

4.02. The Government of Latvia shall also grant the right to free transfer from its Territory of movable property constituting part of NEFCO's Investments.

Article 5

Expropriation

5.01. The Government of Latvia shall not take any measures of expropriation or nationalization or any other measures having effect equivalent to nationalization or expropriation against NEFCO's Investments except under the following conditions:

(a) the measures are taken in the public interest and under due process of law;

(b) the measures are not discriminatory;

(c) the measures are accompanied by provisions for the payment of adequate and effective compensation. Such compensation shall be made without delay and amount to the market value of the Investments affected. The compensation shall be freely transferable in convertible currencies. The transfer shall be effected without delay.

Article 6

Other Provisions

6.01. In the respects no specifically regulated in this Agreement, NEFCO shall, as regards matters related to its Activities and Investments in connection therewith, be subject to treatment no less favorable than that accorded to similar activities by, and investments of, Latvian companies, or companies of any third state, whichever is more favorable.

6.02. Without limiting the general provisions stipulated elsewhere in this Agreement, the Government of Latvia shall secure for Latvian entities, which have received financing from NEFCO, free access to purchase of any applicable currency for the payment of the obligations under the agreements between NEFCO and such entities.

6.03. To the extent not covered by this Agreement, common practice for cooperation with Multilateral Financial Institutions shall apply.

Article 7

Dispute Resolution

7.01. Any dispute between the parties to this Agreement concerning the interpretation or application of this Agreement or any supplementary arrangement, which is not settled by negotiation, shall be referred for final decision to a tribunal of three arbitrators: one to be appointed by NEFCO, one to be appointed by the Government of the Republic of Latvia, and the third, who shall be the chairman of the tribunal, to be appointed by the first two arbitrators. If, within a period of sixty (60) days from the receipt by either party of the request for arbitration, the necessary appointments have not been made, either party may, in the absence of any other agreement, invite the President of the International Court of Justice to make the necessary appointments.

7.02. The venue for arbitration proceedings shall be Paris, unless the parties shall agree otherwise.

7.03. The arbitration tribunal shall reach its decisions by a majority vote. Such decision shall be binding on both parties In its jurisdiction the tribunal shall apply and observe the Rules of Procedure for Arbitration Proceedings of the International Center of the Settlement of Investment Disputes, established by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Rules").

8.01. The Agreement shall enter into force on the day on which the Government of the Republic of Latvia shall have notified NEFCO in writing about the fulfillment of the national provision necessary for the Agreement to enter into force.

8.02. The provisions of this Agreement shall have effect from the date of entry into force of the Agreement.

8.03. This Agreement may be amended or revised by written consent of the Parties.

8.04. This Agreement is concluded for an indefinite time period and shall remain in force for twelve (12) months after the receipt by either party of a written notification by the other party of its decision to terminate this Agreement. With respect to Activities entered into prior to the date of termination of this Agreement, the provisions of all the other Articles of this Agreement shall continue to be effective until all amounts payable to NEFCO under the contracts signed in connection with such Activities shall have been paid and transferred in full and otherwise until NEFCO has had a reasonable time for settlement of its affairs and disposal of its assets in the Republic of Latvia.

8.05. In witness whereof, the undersigned, duly authorized thereto, have signed this Agreement.

Done in <place> this <day> of <month> 1998, in four originals two in English and two in Latvian. Both parties keep one of each. In case of discrepancy, the English language shall prevail.

For the Republic of Latvia

For Nordic Environment FinanceCorporation