Nicaragua - Earthquake Reconstruction Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 134a-N1 APPRAISAL OF EARTHQUAKE RECONSTRUCTION PROJECT NICARAGUA April 20, 1973 Urban Projects Department This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENTS Currency Unit: Cordobas (c$ or C$l = US$0,l428 US$1 = C$7 UNITS 1 inch = 2.54 centimeters 1 meter = 3.28 feet 1 kilometer = 0.62 miles 1 square vara = 0.69 square meters = 7.42 square feet 1 manzana = 10,000 square varas = 0.69 hectare = 1.705 acres 1 hectare = 1.45 manzanas = 2.47 acres ABBREVIATIONS BVN Banco de la Vivienda de Nicaragua CACE Caja Central de Ahorro y Prestamo FHA Fomento de Hipotecas Aseguradas INVI Instituto Nicaraguense de la Vivienda INFONAC Instituto de Fomento Nacional ENALUF Empresa Nacional de Luz y Fuerza DENACAL Departamento Nacional de Acueductos y Alcantarilladas AGUADORA Empresa Aguadora de Managua FISCAL YEAR January 1 - December 31 NICARAGUA APPRAISA* OF AN EARTHQUAKE RECONSTRUCTION PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .................... i - vii I. INTRODUCTION ................................... 1 II. BACKGROUND AND THE PROJECT ....................... 3 A. Regional and Urban Growth Patterns .......... 3 B. Urban Employment, Income Distribution and Housing .............................. 4 C. Earthquake Damage, Reconstruction Planning and International Advisory Panel Recommendations .......................... 5 III. SITES AND SERVICES COMPONENT .................... 13 A. Description of Project and Objectives ...... 13 B. Planning Criteria and Design Standards ...... 14 C. Cost Estimates and Financial Arrangements 16 D. Executing Agency - Banco de la Vivienda (INVI Department) ........................ 20 E. Socio-Economic Benefits ..................... 22 IV. INDUSTRY FINANCING COMPONENT ..................... 24 A. Description of Project and Relocation Objectives .................. 24 (i) Industrial Sites and Services .......... 24 (ii) Financing for Sub-Projects ............. 25 B. Executing Agency - INFONAC .................. 26 V. EDUCATION COMPONENT ................. 29 A. Earthquake Damage ......................... 29 B. The Project ........**.....................*.** 30 (i) Temporary Secondary Schools ............ 31 (ii) Permanent Secondary Schools and Technical Institute ..........***** 31 C. Executing Agency - Ministry of Education .... 33 TABLE OF CNTENTS (Cont'd) Page No. VI. WATER SUPPLY COMPONENT ...... 34 A. Earthquake Damage ..............*...* 34 B. The Project ......................... 34 C. Executing Agency - AGUADORA ..............35 VII. POWER CDMPONENT .... ....................... 38 A. Earthquake Damage ... ....... 38 B. The Project ............................. 38 C. Executing Agency - ENALUF ............... 40 VIII. RECOMMENDATIONS .............................. 41 This report is based on the findings of an appraisal mission composed of Messrs. W. McCulloch (Chief of Mission), J. Balkind, D. Cook (consultant), A. Harth-Deneke (Consultant), J. Delaplaine (Consultant), D. Koulourianos, A. Stam, L. Liberman and D. Diaz (Secretary). The mission appraised the education, sites and services, and industrial financing components in Nicaragua irom February 6-23. The power and water supply components were appraised by Messrs. Cavallotti (power), H. Shipman and A. Bruestle (water) in January and February 1973. Messrs. H. Meier (Division Chief, Programs 1B, Latin America & Caribbean Region) and D. Strombom (Chief, Division I, Urban Projects Depart- ment) reviewed the appraisal mission's findings in Managua from February 20-23, 1973. LIST OF ANNEXES ANNEX BACKGROUND AND THE PROJECT 1 Urban Employment SITES AND SERVICES COMPONENT 2 Design Standards, Cost Estimates and Unit Costs Attributable to Households 3 Executing Agency - Banco de la Vivienda de Nicaragua (BVN) - Organization, Operations and Financial Situation 4 Economic Evaluation 5 Implementation and Disbursement Schedules 6 Designs for Leon, Granada, Masaya and Jinotepe INDUSTRY FINANCING COMPONENT 7 List of Proposed Investments (by City) 8 Decentralization Incentives Under Consideration 9 INFONAC - Organization, Appraisal Procedures and Financial Situation EDUCATION COMPONENT 10 Project Costs 11 Implementation Schedule WATER SUPPLY COMPONENT 12 Equipment and Materials for Rehabilitation 13 Water Supply Component 14 Allocation of Credit 15 AGUADORA Cash Flow POWER COMPONENT 16 Project Description 17 Project Costs 18 Schedule of Disbursements 19 Sources and Applications of Funds 1973-1974 MAPS 1 Reconstruction Project - Managua Earthquake Destruction and Sites and Services Project Location 2 Nicaragua  NICARAGUA APPRAISAL OF AN EARTHQUAKE RECONSTRUCTION PROJECT SUMMARY AND CONCLUSIONS i. The earthquake in Managua on December 23, 1972, damaged some 27 Im 2 of the capital city's total area of 33 km2 (Map 1). Approximately 14 km2 of the central city were totally destroyed. An estimated 6,000 to 8,000 persons lost their lives and about 20,000 received substantial injuries. The most extensive physical losses were in housing where about 45% of the total housing units were destroyed, in government offices, in community services, partic- ularly education and hospitals, and in the financial, commercial and small industry sectors. By contrast, larger scale industry and infrastructure outside the central district suffered little damage. ii. Of Managua's pre-earthquake population of approximately 430,000, more than 200,000 people fled because of fear, loss of dwellings, and a Gov- ernment edict to evacuate a large part of the city in order to facilitate demolition and clearing of the most severely damaged areas. The refugees spread throughout the country, especially to the secondary cities of Masaya, Granada, Leon, and Jinotepe-Diriamba, all within 30 to 90 kilometers of Managua (Map 2). By mid-February, a substantial reflow of refugees, prim- arily seeking employment, put Managua's daytime population at 300,000 to 325,000. Approximately 75,000 refugees remain in the cities noted above. Unemployment, already high before the earthquake, has been further increased by the disaster. However, the impact of the earthquake upon levels of out- put and employment is, fortunately, less than might have been expected, given the general magnitude of the destruction, due to the fact that large scale manufacturing activities were located almost entirely on .the edge of the city and thus were outside the zone of greatest destruction. iii. The Bank economic mission evaluated the damage to physical assets at roughly US$300 million, of which about US$100 million represents equipment, furnishings and inventories while the other US$200 million represents construc- tion. Given the magnitude of the damage relative to the size of the Nicaragua economy, the task of reconstruction is likely to take a minimum of five years, and even this would require more than doubling the 1971 levels of construc- tion activity in Managua. Estimates of the earthquake's impact on the fiscal portion and balance of payments, indicate a manageable situation with the help of surtaxes and prospective foreign aid. iv. A strategy for reconstruction and development following the earth- quake has not yet been firmly established, let alone detailed plans for im- plementation. Nevertheless, certain basic considerations appear to be gen- erally recognized. These are: - Although the site of Managua is highly prone to continuing earthquake risk, no alternative site combining substantially less risk with reasonably advantageous location has been identified; - ii - - The relatively undamaged industry and infrastructure of Managua represent too much of Nicaragua's productive capacity to be jettisoned; - The small size of the secondary cities -- Leon, the largest after Managua had less than 60,000 population before the earthquake -- precludes quick establishment of an alternative city for Managua; - Returning refugees are already starting to rebuild Managua. It is obvious that the myriad, ad hoc, decisions by those directly affected by the earthquake cannot be controlled in detail and comprehensively by the authorities. v. In these circumstances, the framework for reconstruction and development to which the Association's project is related, comprises: - restoring remaining productive capacity in Managua to full operation as quickly as possible; - providing adequate and safe housing, particularly for returning workers required for the above; - reducing the risk of similar extensive earthquake damage in the future by: - deconcentrating Managua's central district over a wider area in the vicinity without, at this stage, foreclosing or prejudging long-range development options; - improving building standards; - supporting decentralization from Managua by locating housing and industries in the secondary cities; - economizing on resources by making the greatest use of still existing infrastructure, deferring high-cost structures and major new transport infrastructure until more is known, and closely relating location of housing and employment. This framework conforms with the recommendations of the International Advisory Panel on Reconstruction and Redevelopment of the Managua Region which was jointly sponsored by the IDB, OAS, and IBRD at the request of the Nicaraguan Government and whose recommendations are summarized in Part II of the Report. vi. Now that relief efforts are phasing out, various lending agencies, including the Association, are supporting immediate rehabilitation efforts and expect to make additional reconstruction loans to support longer term programs once a development plan has been formulated. AID has made a US$3.0 million - iii - grant for temporary housing and a US$15 million loan for budget support to the Government, the proceeds of which will be applied mainly in the primary school and medical facilities sectors, and to clearing the central zone and restoring its drainage infrastructure. IDB is processing two loans, one of $4.2 million for agro-industries and a second emergency loan of US$16 million for sub-projects in university facilities, telecommunications, small enter- prise and medium industry, and the construction and building industry sectors. An existing IDB water and sewerage supply loan has been modified to take into account immediate reconstruction and redevelopment needs, particularly distri- bution networks. vii. Taking into consideration the programs of other agencies, and exist- ing links with various agencies in Nicaragua, the Association's project com- prises components in five fields, complementary to the activities of other agencies -- low-income sites and services, medium industry, secondary educa- tion, water supply and power. viii. The economic condition of middle and lower income groups was par- ticularly affected by the extensive destruction to housing and displacement of cottage industries and tertiary services. With approximately 32,000 houses completely destroyed, representing 45% of housing stock in the Managua area and occupied by almost 200,000 people, the need for shelter for low-income households is clearly of the highest priority. ix. The loss of fixed assets and inventory incurred by industry has been estimated at between US$20 and US$30 million, not including accounts receiv- able; small and very small establishments composed the major part of the 810 industries and shops which were destroyed. The US$4 million component for industry of the IDB loan, which will be handled by the Banco Nacional, will address needs in the small and medium scale industry including working capi- tal. There is, however, need for establishing new industrial sites in loca- tions which accord with the deconcentration policy and are related to the new housing both in Managua and even more in the secondary cities. There is also need for support for relocation and expansion of industries in the secondary cities. x. Most of Managua's schools were located in the central city; about 70% of primary and 85% of secondary school capacity was destroyed. The school buildings that survived are located mainly in the suburbs and need extensive repairs. At the secondary level about the only public shools still standing are the two Bank-financed general secondary schools and the teacher- training college (Escuela Normal), which were recently completed under the first Bank education project (Loan 532-NI). All three institutions suffered minor, repairable damage. Private schools, accounting in 1972 for some 40% of secondary enrollment, were also hard hit and only a few schools in the outlying areas can be used after extensive repairs. xi. Although the earthquake did not extensively affect Managua's pro- ductive and distributive capacity in power and water, certain facilities were damaged and required immediate repair; the main effects were substantial short-term cash flow deficits for the two operating agencies. The power - iv - authority (ENALUF) lost about 38,000 subscribers (almost 70% of the total) and the water authority (AGUADORA) lost almost 50% of its consumers. Both authorities lost at least one month's billings and collections will be af- fected for some time because the incomes of many subscribers were interrupted. ENALUF's 1973 cash flow deficit is estimated conservatively at approximately US$5 million and a further deficit is expected for 1974. The total cash flow deficit of AGUADORA is estimated at US$3.7 million. Reconstruction Project xii. The project comprises five components designed to meet urgent needs not covered by other lending agency programs. It is also consistent with the general recommendations of the International Advisory Panel. xiii. The sites and services component of the reconstruction project consists of 6,400 lots comprised of the following items: (a) 5,900 serviced residential lots complete with sanitary and shelter core units, located at Managua (2,250), Masaya (850), Granada (870), Leon (830), Jinotepe (700), and (400) unallo- cated; (b) a pilot program of 500 serviced residential lots in Managua with sanitary units and a materials fund for self-help housing but without the shelter core; (c) community facilites (primary schools, health centers, community centers, recreational space, markets) for all project locations; and (d) technical assistance, engineering design, and construc- tion supervision. The executing agency for this component of the project would be the national housing bank, Banco de la Vivienda (BVN). xiv. The industries component applies to the secondary cities and con- sists of the following items: (a) industrial sites and services; and (b) plant, equipment and buildings for an estimated 30 to 50 medium sized industries. The executing agency for this component of the project would be the National Development Bank, Instituto de Fomento Nacional (INFONAC). xv. The education component of the reconstruction project consists of the following items: - v - (a) four temporary, general secondary schools (prefabricated and expected to be in operation by June 1973); (b) two permanent, multilateral secondary schools; and (c) one permanent technical institute. xvi. The water supply component consists of the following items: (a) emergency repair and rehabilitation of existing instal- lations; (b) equipment and materials for rehabilitation work; and (c) some local cost financing of civil works under the previous Loan 808-NI. xvii. The power component consists of the following items: (a) emergency repair and rehabilitation of existing instal- lations; (b) extension of existing distribution network to provisional housing and expansion of substations; and (c) primary and secondary distribution facilities, transmission systems and substations, office buildings, warehouses, work- shops, vehicles and equipment in ENALUP's 1973-74 work program throughout the country. xviii. The quick implementation components of the project will help meet priority needs and lend support to a long term strategy of deconcentration of greater Managua and decentralization among the secondary cities. While the Managua sites and services are related to the remaining industry and the substantial reflow of refugees, about half of this project component and all of the industrial financing are aimed at supporting refugees remaining in the secondary cities and accelerating the growth rates of these cities. The larger portion of the power component will apply to parts of the country other than Managua and by supporting ongoing programs in these areas should help reduce pressure on the capital city. Both the power and water components will restore the effectiveness of the autonomous agencies which previous Bank lending had developed. The education component of necessity applies to Managua where the secondary capacity was more than 75% destroyed. It is an innovative project that addresses immediate needs in secondary education by providing temporary facilities which are movable and can be relocated even- tually as country schools; the technical institute has frequently been recom- mended by previous missions and now will help develop the skills necessary for long-term reconstruction. - vi - xix. The proposed components constitute a balanced and high priority re- construction effort suitable for an IDA credit of US$20.0 million equivalent, including $1.5 million of local costs for civil works under the previous water supply loan (808-NI): Component Total IDA Credit Sites and Services 13.0 8.0 Industrial Financing 5.0 2.5 Education 2.9 2.0 Water Supply 2.7 2.5 Power 6.7 5.0 TOTAL US$30.3 million US$20.0 million xx. The total costs of the reconstruction project components are esti- mated at $30.3 million, of which $16.6 million is the estimated foreign ex- change component. The counterpart contribution of $10.3 million to the $20.0 million IDA Credit would primarily be financed by the Central Government, in- cluding the provision of all land; approximately $2 million of the counterpart for industrial financing would come from INFONAC, and about 81.5 million coun- terpart would come from the power (ENALUF) and water supply (AGUADORA) entities. xxi. Although it is not feasible to calculate the economic rate of return for the proposed reconstruction project, experience gained in other countries indicates that the types of works included in the project yield high economic returns. Because reconstruction experience does not include sites and services, however, a separate economic justification for this com- ponent is given. Likely rental values for housing generated by the project would give a rate of return of 13.1% on a total investment of $13.6 million including land costs and self-help labor, and 14.8% excluding land costs. Besides providing housing for 6,400 families, the sites and services project will have an important effect on employment and the integrated nature of the project will provide a better physical and social environment. xxil. The proposed credit would be made to the Government of Nicaragua which would make available the proceeds to the respective executing agencies under separate sub-agreements acceptable to the Association. Government will pass the $8.0 million for sites and services on to BVN on a grant basis. In addition, the repayments of principal and interest from ENALUF, AGUADORA and ENFONAC, together with all mortgage repayments from sites and services bene- ficiaries, would be channelled into a special fund at BVN for a continuing low-income sites and services/housing program. Government will repay the IDA Credit from general revenues. In this respect the proposed reconstruc- tion credit has a significant income redistribution effect (para 3.24). xxiii. All goods and services financed by the Association would be subject to international competitive bidding except an estimated $1.7 million, due to the emergency nature of the repairs, rehabilitation and replacement, and the $2.5 million of industrial financing as is normally the case with DFC-type - vii - operations. An estimated $1.85 million is proposed for retroactive financing in order to expedite reconstruction. xxiv. With agreement reached during negotiations on the conditions sum- marized for all project components in Section VIII, the project is suitable for an IDA Credit of US$20.0 million equivalent.  NICARAGUA APPRAISAL OF AN EARTHQUAKE RECONSTRUCTION PROJECT I. INTRODUCTION 1.01 The Government of Nicaragua has requested Bank Group assistance in financing a reconstruction project because of the severe earthquake of December 23, 1972 which leveled the central part of the capital city, Managua. 1.02 Immediate priorities after the earthquake were the emergency relief measures to house, clothe and feed the refugees. While relief efforts were in progress, Bank missions visited Managua in January 1973 to assess the earthquake's effects on ongoing projects in the water, power and education sectors and to determine how best to assist in the reconstruction effort. 1/ In view of the complicated technical, economic and political questions of how to rebuild, relocate or decentralize Managua, the Bank Group also respond- ed to General Somoza's request and collaborated with the Inter-American Devel- opment Bank and the Organization of American States in sending a panel of in- ternational experts to advise on this matter. 2/ 1.03 The Panel's report was submitted to the Nicaraguan Government on March 22, 1973. Its findings and recommendations are built around a basic proposition: since much of the country's productive capacity remains essen- tially intact around the destroyed core of Managua and evidence is lacking that risks of future earthquake damage would be materially reduced by moving to another location, Managua will probably be reconstructed - albeit on a quite different pattern. Specifically the Panel recommends a deconcentration or "thinning out" of the especially risk-prone central city area, and a risk spreading strategy of decentralization of activities and population to sec- ondary cities. Discussions of the Panel's report, Government's future plan- ning efforts and necessary technical and economic analyses are scheduled to be held in Managua on April 27-28 among Government, OAS, IDB, IBRD and the Mexican consultants. 1.04 The proposed multisectoral reconstruction project consists of high priority items that will help: (a) alleviate unemployment and low-cost 1/ Missions dated January 4-5, 1973 - Mr. E. Gutierrez; January 10-12, 1973 - Mr. J. Cavallotti; January 15-19, 1973 - Messrs. A. Bruestle/ H. Shipman; January 15-20, 1973 - Messrs. D. Strombom/W. McCulloch. 2/ Panel Members were: J. Dyckman (Chief of party), Prof. of Urban and Regional Planning, Berkeley; N. Ambraseys, Prof. of Earthquake Engineer- ing, London; R. da Costa, President, National Housing Bank, Brazil; A. Harrison, Head of Transport Division, Department of Environment, UK; C. Mendoza, President Foundation of Development, Venezuela; L. Rodriguez, Urban Planning Consultant, Colombia; P. St. Amand, Seismic Expert, US Naval Ordnance. -2- housing needs; (b) meet the reconstruction requirements in sectors of previous Bank assistance, i.e. water, power and secondary education; and (c) promote the recommended deconcentration and decentralization strategies for redevel- opment. 1.05 This report is based on information supplied by the Government and the findings of an appraisal mission composed of Messrs. W. McCulloch (Chief of Mission), J. Balkind, D. Cook (consultant), A. Harth-Deneke (consultant), J. Delaplaine (consultant), D. Koulourianos, A. Stam, L. Liberman and D. Diaz (secretary). The mission appraised the education, sites and services, and industrial financing components in Nicaragua from February 6-23. The power and water supply components were appraised by Messrs. Cavalloti (power), H. Shipman and A. Bruestle (water) in January and February 1973. Messrs. H. Meier (Division Chief, Programs 1B, Latin America & Caribbean Region) and D. Strombom (Chief, Division I, Urban Projects Department) reviewed the appraisal mission's findings in Managua from February 20-23, 1973. - 3 - II. BACKGROUND AND THE PROJECT A. Regional and Urban Growth Patterns 2.01 Nicaragua, like most developing countries, has experienced rapid urbanization and its concomitant problems. According to the 1971 census, 48% of the total population of 1.9 million is urban; one-fifth of the popu- lation and nearly half the urban population lived in Managua which, at the time of the earthquake had a population of approximately 430,000. Other im- portant urban centers are Leon, Granada, Masaya, Jinotepe-Diriamba--the refugee cities, which received the bulk of the refugees who fled from Managua after the earthquake--Matagalpa and Chinandega. All of these cities are located in the western region of the country, leaving the Atlantic and central re- gions with only small settlements and a very sparse population. Nicaragua's population grew at 2.78% per annum between the census years of 1963 and 1971. 2.02 Population growth in all urban areas outside Managua had not been particularly dynamic prior to the earthquake and was roughly equal to the country's net population.growth of about 2.8% per annum between the census years of 1963 and 1971. Rural population growth had declined to about 1% annually. In contrast, Managua has been growing at 7% annually, as shown below: Population Growth in Rural and Urban Areas 1971 % Annual Growth Population 50-63 63-71 (000) Nicaragua 1,911 3.0 2.7% Rural 995 2.2 1.2 Urban 916 4.2 4.7 Managua 405 6.0 7.0 Granada, Masaya, Leon & Carazo Depts. 233 /1 2.6 3.0 All Other Urban Areas 278 3.5 3.5- /1 Population of the urban areas of the 5 major municipalities in the refugee departments was 146,000. Source: Population Census (1963 and 1971). 2.03 Between 1963 and 1971, Managua grew by 170,000 inhabitants, an average of 20,000 per year with about 45% of this growth attributable to migration, mostly from rural areas. Migration was due largely to the heavy concentration of economic activity and most of the public sector institutions in and around Managua. 2.04 The two largest refugee cities, Leon and Granada, were growing prior to the earthquake at a rate slower than the national rate, indicating a net out-migration to Managua. They were serving mainly as "holding sta- tions" for migrants. Population growth in Masaya was somewhat higher be- cause of the large proportion of commuters who worked in Managua. This was also true but to a lesser degree for Jinotepe-Diriamba. Urbanization is even less advanced in the Departments of Chinandega, Rivas or Matagalpa. B. Urban Employment, Income Distribution and Housing 2.05 Growth of the urban labor force in Managua and the other cities paralleled developments in their overall population, with three-fourths of the increase in total urban labor force between 1963 and 1971 occufring in Managua. Annex 1 provides details. Total manufacturing employment growth has slowed down considerably from about 3% annual rate between 1950 and 1963 to 1% between 1963 and 1971 reflecting productivity gains as organized indus- try has replaced artisan labor. In Managua, the percentage of the total labor force in manufacturing (20%) is relatively low despite the concentration of manufacturing in this city, because of the great concentration of central government employment, financial and trade services and such activities as construction. 2.06 In 1971, ILO found that urban workers earn on the average 50% more than rural workers in Nicaragua. Urban employment in the poorer sectors of Managua, however, was substantial, with about a third of those seeking employ- ment unable to find jobs; half had been unemployed for more than 12 weeks. The resulting income distribution is quite skewed. In 1972 the Central Bank completed a family budget study for Managua showing that two-fifths of the families had monthly incomes of no more than 1,000 cordobas ($142.8). The following indicates income distribution in Managua before the earthquake: Income Distribution in Managua Cordobas US$ % % Per 1Onth per month Families Cumulative Up to 500 Up to 71.4 14.7 14.7 501 -1 - 1,000 71.6 - 142.8 26.5 41.2 1,001 - 1,500 143.0 - 214.3 16.9 58.1 1,501 - 2,000 214.4 - 285.7 16.7 74.8 001 - 2,500 285.8 - 357.1 6.7 81.5 0, 3,000 357.1 - 428.6 4.8 86.3 3DO01 and more 428.7 and more 13.7 100.0 Source: Central Bank, Household Survey, 1972. 2.07 About 80% of the refugee families had monthly incomes below 01,100 (US$157). Because of the destruction of much of their economic base, e.g. cottage industry, shops and restaurants, it is likely that the skewness of the income distribution will be more extreme. Households earning between - 5 - 0300 and 0500 per month, with an average of 0423, spend 23.7% of their income, i.e. 4100, on housing. Those earning between 0501 and 01,000 per month, with an average of 0736, spend on the average 4145 on housing, or 19.7% of their incomes. 2.08 The rapid urbanization of Managua resulted in a proliferation of substandard housing. According to the 1971 census over a quarter of the housing units in the city were makeshift houses or rooms in cuarterias. The latter are old houses containing many rooms, each of which are rented as housing units but sharing toilets and wash basins. Such rooms average about 20 sq meters and monthly rent before the earthquake ranged from 050 to 0150 depending, to a large extent, on the distance from the downtown area. As a result of the lack of adequate housing, most of the new migrants either doubled up with relative or friends in the cuarterias or moved into make- shift and very crowded houses---4.8 people per room--in the southeastern and western fringes of the city. Over half of the houses in these neigh- borhoods have dirt floors and two-thirds have only one bedroom. Streets are generally unpaved; there are no sidewalks and, in some areas, water is sold only by the barrel. Land rental values in these marginal neighborhoods vary from 040 (US$5.7) per month with no running water, sewerage or power to about e100 (US$14.3) for the standard 210 sq meter lot. Distance from downtown varies between 3 and 7 kms; there is bus service to most of these areas charging 5.7 US cents per trip. C. Earthquake Damage, Reconstruction Planning and International Advisory Panel Recommendations 2.09 A memorandum entitled "The Effects of the December 23, 1972 Earth- quake Upon the Economic Position and Prospects of Nicaragua" is being sub- mitted separately to the Excecutive Directors. The conclusions of that Report, based on the findings of an economic mission to Managua in February, are summarized below. 2.10 The earthquake destroyed or rendered unusable practically all of the central zone of the city including most government offices, the important financial and commercial sections and perhaps 2,500 shops engaged in small- scale manufacturing. About 32,000 housing units, i.e. about 45% of the hous- ing in the Managua area, were destroyed. The value of the physical assets destroyed by the earthquake is estimated at $300 million, (assumes that the capital's remaining infrastructure will not have to be replaced due to re- location). This is equivalent to about one-third of 1972 GNP and about 10% of the nation's capital stock. Costs of replacing the damage are likely to be higher than the value of physical assets destroyed since quite apart from any price increases, new structures must often be of higher quality than the partly wornout structures they replace. 2.11 Given the magnitude of the damages relative to the size of the Nicaraguan economy, the task of reconstruction is likely to be spread over many years. Factors affecting the pace of reconstruction will be the extent to which the capacity of the construction industry can be expanded and the extent to which activities elsewhere in the country are postponed in favor - 6 - of rebuilding the capital city. Of the $300 million of damage to physical assets about $100 million represent replacement of equipment, furnishings and inventories while the other $200 million represent construction costs. The latter figure compares with estimates of $20 million for the gross value of annual construction activity in Managua, including equipment costs. Thus a five-year rebuilding program equivalent to the value of the construction damage requires doubling the 1971 level of construction activity in Managua, which would be a realistic target since the construction industry was operat- ing at less than 50% capacity prior to the earthquake. 2.12 The impact of the earthquake upon levels of output and employment is, fortunately, less than might have been expected given tile magnitude of the destruction of capital assets. Large scale manufacturing activities were located almost entirely on the edges of the city and thus were outside the zone of greatest destruction. In terms of employment and output, the major impact was on the large stores and the small shops which had been lo- cated in the central zone. Reconstruction activities will partially offset the loss in employment in these areas. Government offices and financial ac- tivities continue in temporary quarters outside the seriously damaged area and in some cases in surrounding towns. Thus levels of production that sank drastically immediately after the earthquake are recovering rapidly even though the task of replacing lost physical assets will spread over several years. For the 12-month period of 1973, it is expected that output in Managua, including reconstruction activities, will be no more than 15% below the 1972 level and in 1974 is expected to regain the pre-earthquake level. For the country as a whole, output in 1973 may be about 9% below 1972, which would be approximately 15% below the 1973 level it would have reached without the earthquake. 2.13 Public sector finances have been seriously affected by the earth- quake. For 1973 and 1974 together, the loss in receipts is estimated at 561 million, i.e. about 18% below what otherwise might have been expected. Addi- tional expenditures in the two-year period are estimated at $29 million, rais- ing the net budgetary impact to about $90 million. However, emergency tax measures introduced by the Government (taxes on traditional exports and on civil servant salaries) will provide about $46 million and disbursements of earthquake reconstruction loans should provide another $24 million. It should be possible to finance the remaining $20 million from domestic sources without 'ear of creating balance of payments problems due to the "spill over" from oomestic to import demand, which the country can afford as consequence of a number of favorable factors -- international reserves are high, the prices of traditional exports are favorable and substantial amounts of reconstruc- tion assistance are being mobilized. Emergency import requirements -- food- stuffs, medicines, tents -- have been met by grant assistance. Export earn- ings will hardly be affected by the earthquake. In the 1973-74 period .icaragua's normal capital account receipts will be supplemented by about $75 million in insurance payments and disbursements from reconstruction loans. This should be sufficient to finance the current account deficit even if import needs should turn out to be higher than now estimated. -7- Reconstruction Planning 2.14 In elaborating a detailed development plan, many uncertainties and conflicting considerations come into play and these require considerably more time and study to resolve. Meanwhile, Managua is in fact being rebuilt on the basis of myriad, ad hoc decisions by those directly affected by the earth- quake. As of now no alternative site for the capital city has been identified. The substantial remaining infrastructure and larger industries, most of which were unaffected by the earthquake, cannot be jetisoned. Therefore, the issue becomes one of Managua's size and economic concentration relative to other cities. Though no comprehensive plan has been formulated a general strategy is firming up based on: retaining Managua as the capital but deconcentrating the population and industrial activities, thereby spreading the risks; promot- ing a faster growth rate in secondary cities; and improving construction standards and the quality of building materials. 2.15 Prior to the earthquake an urban planning study for the Government was being done by the Deplan firm of Mexico and the Nicaraguan firm of Osorio and Teran. The purpose of this work was the elaboration of a master plan, or Plan Regulador, for the City of Managua. The first phase of this study, one of basic data gathering, was begun in November 1972 and interrupted by the earthquake of last December. After the earthquake the M4exican Government volunteered to provide the services of prominent professionals, officials and staff of the Deplan firm to propose solutions for the reconstruction of Managua. 2.16 In its present form, the "plan" does not spell out costs, staging, procedures or serious alternatives. Rather it is a "concept plan", expres- sing some desired outcomes in physical form. For example, the plan proposes to limit the population of Managua to a range of 250,000 to 300,000 inhabitants but does not indicate the measures to be taken to achieve this objective. It accepts the decision to rebuild the city in its present site. It proposes a system of diagonal roadways following fault lines and implies the revision of the majority of existing street lines. The sketch plan calls for pedes- trian walkways along a North/South alignment connecting the lake with the Tiscapa Lagoon. This "gran paseo" is lined by high buildings with commercial use of the street levels. The proposal calls for a reduction of built-up areas and concentration of population in widely-spaced highrise buildings. International Advisory Panel 2.17 The International Advisory Panel (paras. 1.02 - 1.03) funded jointly by the OAS, IDB, and IBRD found that "the available plan, in the form in which it now exists in Managua, does not constitute an adequate guide for proceeding with the reconstruction of the city." The Panel's main conclusions are sum- marized below. They appear to have received a general measure of agreement. - The site of Managua presents probably the worst earthquake- risk of any major city in the Americas. An earthquake of the intensity of that of December is to be expected about every thirty years. - 8 - - The surrounding region, however, does not have any obvious site which presents significantly less risk than Managua. This does not exclude that a better site may be determined after further study. - Some of the secondary towns appear to have substantially less risk of the frequent earthquakes of Managua but are generally exposed, due to their location on basic fault lines, to much more severe earthquakes at 100-500 year intervals. - In these conditions, three main conclusions follow: - There should be greater dispersal both within the Managua region and between Managua and other towns to reduce the danger of a large part of the country's economic and administrative structure being severely damaged by a single earthquake event -- even tiough this will increase the risk of some part of this structure being damaged more frequently. In brief, "don't put all of your eggs in one basket;" - As much use as possible should be made of the buildings, industry and infrastructure remaining in the Managua region while promoting dispersal to other towns of new buildings, industry and activities which can be relocated without high economic cost; - Studies should continue urgently on locating better sites since reconstruction will continue over several years and location emphasis can be changed at a later date. - So far as Managua is concerned, the extent of the damage was less the result of the absence of an earthquake code for building design than due to poor construction materials, supervision of construction and details of design. - For important public buildings, dangerous industrial and utility construction, etc. strict earthquake resistance codes should be enforced. This will probably require design and construction help from outside the country. - For housing, such codes would be both impractical and too expensive. For such construction, the emphasis should be on promotion of better materials and design short of full earthquake resistance. High-rise construction appears in- appropriate from both construction and sociological aspects. 9 - For commercial and office buildings, an in-between position should be adopted with strong emphasis on materials and supervision. Local architect/engineering capabilities are generally adequate if fully utilized. - Spatial planning of Managua should concentrate on: - much lower densities in the central area with no high buildings apart from important public buildings, etc. at least until more analysis is available on sub-soil conditions and risks of alternative building methods in this context; - a series of nuclei in the periphery districts; - housing, services and industry related to reduce transport needs; - a sewerage system and treatment plant to stop the pollution of Lake Managua; - relocating the main market outside the central area; - restraining private vehicles in the central area. - Much greater emphasis is required on housing for low-income groups (which suffered particularly in the destruction). Timber construction affords considerable possibilities if systems of cross-bracing and masonry at lower levels are introduced to reduce termite damage. Community services and transport need to be planned as an integral part of housing development areas. - New roadways should not be built until the maximum is extracted from the present road system with minor modi- fications and improvements. This will allow for better consideration of the new spatial urban pattern to be adopted. - With regard to decentralization from Managua to other towns: - the opportunity should be taken to relocate certain government services in other towns; - new industries should be located elsewhere so far as this does not entail heavy economic costs; - great care should be taken in relocating small businesses which profit from external economies of scale and business service economies in a major agglomeration. - 10 - - No absolute restrictions on the size of "anagua should be attempted. The goal should be to reduce the rate of Managua's growth as compared with other towns. 2.13 The Panel also made recommendations on the staging of planning, organizational framework, land values, collection of savings, training of construction workers, taxation of vacant land, and building codes. 2.19 The recommendations of the Panel imply a severe criticism of parts of the Mexican proposals even though these were only available in general form unsubstantiated by details of any analysis or costing that my have been undertaken. In particular, the Mexican proposals included: - setting a limit of 250,000 - 300,000 on the population of Managua; - priority to redevelopment of the Central Area as a cen- tral commercial and civic center (including university) with high-rise buildings; - utilization of fault lines in the December earthquake for high speed roads and gardens (the Panel believes the faults may move elsewhere next time and the pattern of roads proposed would not accord with circulation needs). 2.20 The report of the International Advisory Panel and that of the Mexican team are currently being actively considered by the Nicaraguan author- ities. Clearance of the devastated area will not be completed until the end of 1973 and by that time the Nicaraguan Government will prepare a more compre- hensive basic plan for the reconstruction and redevelopment of the Managua Region and its relation to fostering growth in other urban centers. An interim report as well as the final plan will be submitted for review by an international advisory panel. Subsoil testing in the Managua area will be instituted to pro- vide a basis for design standards in the Managua area, particularly the central area; and proposals for building codes and their implementation will be com- pleted before June 30, 1973. The Goverrment will consult with the Association on the results of all these studies. Further,no new permanent structures of a nature that would foreclose the options to which the plan will be addressed will be licensed in the central area before the basic plan for redevelopment has been completed. Such structures include administrative buildings, markets and commercial centers and high-rise or high-density developments. This timetable for the planning effort thus appears realistic both in terms of constraints and opportunities. The Project 2.21 In these circumstances, the framework for reconstruction and redevelopment to which the Association's project is related comprises: - restoring remaining productive capacity in Managua to full operation as quickly as possible; - 11 - - providing adequate and safe housing, particularly for returning workers required for the above; - reducing the risk of similar extensive earthquake damage in the future by: - deconcentrating Managua, particularly the central district, over a wider area in the vicinity without, at this stage, foreclosing or prejudging long-range development options; - improving building standards; - supporting decentralization from Managua by locating housing and industries in the secondary cities; - economizing on resource use by, at this stage, making the greatest use of still existing infrastructure, deferring high cost structures and major new transport infrastructure until more is known, and closely relating location of hous- ing and employment. 2.22 Several lending agencies are supporting the reconstruction and re- development effort at this stage when speed of execution, general consistency with probable longer term plans yet to be worked out and attention to the most urgent immediate needs are of primary importance. While preparing individual programs, close contact has been maintained to ensure that the total effort represents a mutually reinforcing package of projects and technical assistance. AID has made a US$3.0 million grant for temporary housing and a US$15 million loan for budget support to the Government, the proceeds of which will be ap- plied primarily in the primary school and medical facilities sectors. IDB is processing two loans, one of US$4.2 million for agro-industries and a second emergency loan of US$16 million for sub-projects in the university facilities, telecommunications, small enterprise and medium industry, and the construction and building industry sectors. An existing water and sewer- age supply loan has been modified to take into account immediate reconstruction and redevelopment needs, particularly with regard to distribution networks. 2.23 The Association's project has been developed taking the programs of other agencies fully into account. It comprises the following elements (including US$1.5 million of local costs for civil works under the previous water supply loan (808-NI)): Project Total IDA Credit (US$ millions) Sites and Services 8.0 Industrial Financing 2.5 Education 2.0 Water Supply 2.5 Power 5.0 Total 20.0 - 12 - 2.24 The site and services and industrial components are closely related both in terms of location, employment and conformity with the twin objectives of utilizing the remaining infrastructure and industrial capacity in Managua while promoting decentralization from Managua to the refugee cities. Thus the site and services component covers housing, primary schools and community services in the four refugee cities as well as Managua while the emphasis of the industrial sites and services component is on the refugee cities to consolidate the movement of population that has taken place. The industrial financing serves to ensure that infrastructure for industry and the establish- ment of manufacturing plant in these cities develop in parallel. 2.25 The education component takes into consideration the programs of AID for primary schools outside the new site and services areas and that of the IDB for temporary installations for the university level. It accor- dingly concentrates on secondary schools together with a technical institute. 2.26 The water supply component similarly takes into account the IDB program in this field which will provide the necessary water and sewerage infrastructure to the boundaries of the site and services schemes. It accordingly concentrates on the repair and rehabilitation of damaged instal- lations not covered in the IDB project. A further element of US$1.5 million is included to cover part of the local costs for civil works under the prev- ious water supply loan (808-NI) in accordance with the changed circumstances resulting from the earthquake. 2.27 One part of the power component is concerned with the repair and rehabilitation of existing installations in districts where reconstruction is proceeding, and another with the extension of the existing distribution network to provisional housing and related expansion of sub-statiors. A third element provides help to continue the work program of E:ALPLF in other parts of the country. This work program had been conceived, inter a in terms of reducing the drift to the capital city. In current circumsancs, this consideration has added force. 2.28 In the time available, it has not been possible to carry out as detailed an inalysis of the project components as is customary. However, as the following sections on the individual components demonstrate, sufficient information has been obtained to enable an appraisal to be made in sufficient depth to provide an adequate evaluation while leaving some of the details to be determined in the course of project execution. - 13 - III. SITES AND SERVICES COMPONENT A. Description of Project and Objectives 3.01 The sites and services component of the project consists of 6,400 lots comprised of the following items: (a) 5,900 serviced residential lots complete with sanitary and shelter core units, located in Managua (2,250), Masaya (850), Granada (870), Leon (830) and Jinotepe (700), and (400) to be allocated after a further review of the refugee population is made and detailed engineering is completed; (b) 500 serviced residential lots without shelter core units but including sanitary core and building materials fund, in Managua; (c) Community facilities (primary schools, health centers, com- munity centers, recreational space, markets) for all project locations; and (d) Technical assistance, engineering design and construction supervision. 3.02 The objectives are to provide: (a) safe accommodation and services at the earliest date possi- ble for dislocated families, with special emphasis on assist- ing those who want to take up permanent residence in the secondary cities or who are returning to jobs in surviving industries in Managua; and (b) guidance on improved techniques for self-help construction, through a pilot program for 500 serviced lots, which would have an impact beyond the immediate number of sites pro- vided. 3.03 The four locations outside Managua are the secondary cities (see Map 2) which received the bulk of the refugees and in which some 75,000 refugees still remain. They are also the cities on which the industrial financing component (para. 4.07) will focus, thereby providing employment opportunities for those who wish to take up permanent residence. The actual number of lots to be provided in each of these cities is based on.a conserva- tive proportion of refugee families who have indicated their intention to stay (see below) and by the specific layout plan for each site. Because of the fluid refugee situation, site plans were prepared so that develop- ment could be staged in units of 250 lots. - 14 - REFUGEES IN FEBRUARY 1973 (figures rounded) Leon Granada Masaya Jinotepe-Diriamba Number of Refugees 30,600 21,500 14,100 10,800 Number of Refugee Families 5,000 3,200 2,800 2,000 Number of Families Planning to Stay 1,600 1,300 1,700 900 Number of Families Undecided to Stay 100 - 100 300 Source: Surveys by Emergency Committee and Municipalities. 3.04 Approximately 100,000 refugees had returned to the Managua area by mid-February. The 2,750 serviced lots to be provided in Managua will accommodate about 15% of these, and the bulk of the remainder are being given provisional shelter, e.g. the US$3.0 million USAID grant comprising 11,000 temporary wooden shelters. The special fund for a continuing low- income sites and services/housing program (para 3.23) will provide suffi- cient lots over the next 10-25 years to help meet present and future demand arising from continued urban growth. B. Planning Criteria and Design Standards 3.05 In three weeks of intensive project preparation and appraisal in February, the Mission helped to reorganize five Nicaraguan project prepara- tion teams, identified preferred locations in the secondary cities and Managua, and prepared the lavouts, preliminary designs and cost estimates for the sites and services component, including related infrastructure and community facil- ities. The teams examined alternative lot sizes and layout designs before selecting the preferred solution consisting of 110 m2 (7.5 x 14.6 m) lots clustered into 14 units around a small open space (cluster size of 45m x 40m). The preferred design for lot layout results in an allocation of 55% of site area to lots, 20% to circulation (roads, footpaths, etc.) and 25% to community facilities (schools, clinics, markets). The net density is 35 lots per manzana (20.5 per acre) and with the average family size of six persons, this yields an overall net density of 123 persons per acre, or 304 persons per ha. This arrangement is economical, results in efficient and physically attractive land forms and offers good extension possibilities for self- help housing. - 15 - 3.06 In designing the layouts, each team examined land uses abutting the site, locations of bus routes and existing social and commercial facil- ities, topography and surface water runoff. A fundamental principle adopted was the need to integrate the sites selected into the existing urban areas particularly in relation to employment opportunities. Schematic site plans indicating transportation lines, cluster arrangements and community facili- ties were worked up and sketch designs of infrastructure were drafted and reviewed with representatives of the Banco de la Vivienda, DENACAL and ENALUF. Annex 6, Figs. 1-4 show these designs for Leon, Granada, Masaya and Jinotepe. 3.07 Careful analysis of the special circumstances in Nicaragua indicated a need to modify the usual sites and services approach. Minimum shelter and services must be provided for dislocated families as soon as possible. While there has been considerable building done in the past by self-help methods, particular techniques and building materials employed were responsible for much of the extensive damage to housing in the earthquake, as were the con- struction techniques and poor quality materials used by the regular construc- tion industry. In view of these factors and the risks of future quakes throughout the region, the basic sites and services approach was expanded to include a 20 sq m earthquake resistant shelter and sanitary core unit on 5,900 lots. Initial construction of the core unit by contract will permit early occupancy in a safe shelter (some 2,000 similar units in Managua sur- vived the quake virtually unscathed) which can later be expanded by carefully guided and inspected self-help methods. 3.08 The basic sites and services approach, omitting the 20 sq m shelter, will be retained for a 500-lot development area as a pilot project to develop and foster improved self-help construction techniques. Intensive technical assistance and guidance will be provided in the project to assure that struc- tural designs and building techniques would have widespread application for self-help construction in Nicaragua. 3.09 All lots will be serviced by individual electricity and water con- nections and sanitary sewers. The sanitary core units will have a w.c., shower and washing unit (pilar). Overall storm water drainage is provided. Collector roads which will carry bus traffic will have a seven-meter roadway with a double bituminous surface treatment, minor roads will have a five-meter road- way and single-surface treatment. Street lighting and footpaths will be pro- vided. Annex 2 contains details about preliminary designs, layouts and cost estimates. 3.10 Community facilities for approximately each 500 families will include: (a) a six-classroom primary school; (b) a health clinic; (c) a community center with meeting rooms, sanitary facilities and administrative space; and - 16 - (d) a market area with surfacing, washing facilities and drainage. Layouts also include space for recreation and for future small industry (4 ha per 1,000 households) and commercial development (1 shop per 25 households). (See Annex 2 for details). 3.11 Care has been taken to assure that all trunk infrastructure and services needed to link the project locations with existing city systems are either already available or are being installed as part of the reconstruction projects being assisted by the IDB (for the secondary cities) or by IDA (for AGUADORA and ENALUF in Managua). 3.12 The preliminary design utilizes concrete blocks, reinforced concrete beams and columns, zinc sheet roofing on timber purlins, wood louvres, concrete floor and plywood doors. However, four building materials options have been recommended by a specialist in earthquake design (Prof. N. Ambraseys, London; a member of the International Advisory Panel) as being suitable for the core units and subsequent self-help extensions to these units: (a) timber framed with diagonal bracing; (b) pre-cast concrete; (c) in-situ concrete; and (d) brick or concrete block set in an in-situ reinforced concrete frame. Tenders for construction of the core units will call for alternative proposals for these options, unless further analysis during the period of detailed en- gineering shows an alternative to be unsuitable. At this stage BVN has ob- jected to timber because of fire hazard and eventual termite infestation. This alternative will be reexamined. C. Cost Estimates and Financial Arrangements 3.13 The cost estimates are based on preliminary design and engineering completed by the mission working closely with five Nicaraguan project prep- aration teams 1/ -- one for Managua and one for each of the secondary cities in which the sites and services projects are located, Leon, Granada, Masaya, and Jinotepe/Diriamba. Discussions were also held with a wide range of Nicaraguan architects and engineers. 1/ Each team consisted of four persons - an engineer, architect, economist and sociologist. The personnel were drawn from the Ministry of Public Works (cadastral office), Banco de la Vivienda and local universities. - 17 - 3.14 The project components and cost estimates are presented below. Total project costs are shown as well as unit costs attributable to and re- payable by households. The mission concluded that these cost estimates pro- vide a sound basis for Association financing even though detailed engineering will take two to three more months to complete. (See Annex 2 for more de- tailed breakdown and basis for calculations). The principle used in arriving at the unit costs attributable to households is that families should bear land costs of the lots, infrastructure works directly attributable to the lots, lot development costs (sanitary unit and minimum shelter) and 1/2 of circulation (roads, footpaths) costs with the other half attributable to community facilities. As should normally be the case in providing schools and health facilities, the land and infrastructure costs of community fa- cilities are not costed to the lot recipients. These costs represent part of Government's contribution to the project. - 18 - Summary of Project Cost Estimates Unit Costs % of Sub- Attributable to and (thousands of US$) TotalCosts Payable by Households 1. Lanid (US Dollars) a. Managua - 2,750 lots 903 200 b. Secondary cities - 3,250 lots 399 75 1,302 12.2 2. Site Preparation a. Topographical and Survey works 103 18 b. Earthworks 404 41 507 4.7 3. Infrastructure a. Urbanization Works 1 Streets and footways 649 (108) 4 Water distribution systems 281 7 Sanitary facilities 344 57 Drainage 184 31 Electricity/street lighting 171 28 1,62-9- 15.2 217 b. Clustering Water, sewers, streets external to lots, open space planting 693 6.5 116 4. Lot Development a. Sanitary Core Unit 1,398 b. Minimum Shelter Unit 3,317 836 c. Materials Fund 180 5. Community Facilities a. 12 Schools 348 b. 12 Health Clinics 186 c. 12 Meeting Houses/Day Care Centers 173 c. 12 Markets/Commercial Shops 50 757 7.1 6, Detailed Engineering and Construction Sunervision 763 7.1 110 7 echnical Assistance 160 1.5 Sub.-total 10,706 100.0 1,538 8, Contingencies Physical - 15% of items 2-5 1,266 184 Price Escalation - 10% of items 2-5 848 123 12, a. Managua - 17175 Pro,ision for additional 400 lots 800/3 b. Secondary Cities - 1,720 TOTAL 13,620 j 2nly 50% of road works should be attributable to and paid for by households. The other half whose costs are attributable to the community facilities represent part of Sovernment's contribution to the project. /, Urbanization costs attributable to cluster design. 3 je tot-,al costs for 6,000 lots are $12.8 million. Therefore, 400 lots would cost about an additional $800,000. - 19 - 3.15 As shown above the unit costs attributable to and repayable by households are estimated at $1,845 for a serviced lot with sanitary/shelter core unit in Managua and $1,720 for the same lot in the secondary cities, the difference due to land prices. These costs include a share of engineer- ing and construction supervision fees, technical assistance and 25% contin- gencies, but do not include a project administration fee. The executing agency BVN (Banco de la Vivienda de Nicaragua) has not in the past levied families with such fees and it is not proposed that they do so for the sites and services project since the entity is in a sound financial position and can absorb comfortably the administrative costs of screening applicants and collecting monthly payments. Mortgages with 22-year terms and 5% interest rate will be offered to the families who would have to pay a downpayment of 5% of the sales price based on actual construction costs and an estimated monthly payment of 076.72 (US$10.96) for a Managua lot and 071.54 (US$10.22) for a serviced lot in the secondary cities. (See Annex 2, Table 3 for these calculations.) Household insurance covering theft, fire and earthquake damage will be provided by BVN for an additional 03 per month. Assuming that they spend 20% 1/ of their incomes on housing payments, a family would have to earn 370-395 per month to service the 074-79 monthly payments. Therefore the sites and services project can be afforded by the target population group of 4400- 1,100 per month. The project beneficiaries thereby fall within the bottom 15-45 percentiles of the income distribution curve according to the income data avail- able prior to the earthquake. The mortgage interest rate of 5% represents a subsidized rate on the part of BVN since mortgage rates in Nicaragua vary be- tween 6% for other BVN low-cost housing to 14% for privately financed housing. It had been BVN's policy in the past to subsidize the low-income projects to this extent and the Association recommends that BVN continue to do so for the sites and services reconstruction project. Amount of IDA Sub-Credit 3.16 The proposed IDA sites and services sub-Credit of 88.0 million would cover 59% of the total costs of the project, estimated as above at US$13.6 million. The Association would disburse an agreed percentage against certificates of completion of construction, including civil works. Construc- tion contracts for all or parts of civil works and the core units will be invited under the Bank's procedures for international competitive bidding. This should be of sufficient size to attract international competition. For engineering consulting and technical assistance costs disbursement would be made against 100% of foreign exchange expenditures. It is rec- ommended that this portion of the credit be passed on by Government to the executing agency, Banco de la Vivienda, on a grant basis. Any amount re- maining undisbursed upon completion of this part of the project would be cancelled, unless its disbursement on other parts of the project covered by the credit is considered appropriate. 1/ This percentage conforms to rough data from the Central Bank's sample survey of 400 households. - 20 - Government Participation 3.17 Government's contribution of $5.6 million equivalent will primarily be in the form of land and community facilities, and some infrastructure. Land for all five sites amounting to 170 to 185 manzanas should soon be ac- quired and this will constitute nearly one-quarter of the Government's con- tribution to the project, the rest coming in the form of construction of schools, clinics and markets. Assurances that this Government contribution will be forthcoming were obtained during negotiations. Besides the contribu- tion, Government will also adequately staff the schools and clinics. Implementation 3.18 The implementation schedule is shown in Annex 5, Figure 1. Detailed engineering will commence in May and should be completed within 2-3 months. Three months are allowed for solicitation of bids and awarding of the con- struction contract. Site preparation will take about 6 months to complete and infrastructure servicing, which will begin 3 months later will be com- pleted within 12 months. Core unit construction can begin four months after commencement of infrastructure servicing. By mid-1975, the project should be fully executed and disbursements completed shortly thereafter. Annex 5, Table 1 shows the estimated disbursement schedule. Discussions are in pro- gress with Banco de la Vivienda on ways to speed up implementation, e.g. shortening the tender period and moving core unit construction ahead. D. Executing Agency - Banco de la Vivienda (INVI Department) 3.19 The implementing agency for the sites and services project will be tne National Housing Bank, BVN (Banco de la Vivienda de Nicaragua), an auton- omous agency established by Government to construct and finance housing units in both the public and private sectors. Annex 3 describes the organization, operations and financial situation of BVN. It is basically a well managed, financially sound organization. Since 1969 the INVI Department of the Housing Bank has executed through subcontractors two low-cost housing projects in Managua of 1,000 units each (Primero de Mayo, Unidad de Proposito) that provided a family with a 126 sq meter serviced lot, individual sanitary units and a 25 sq meter room constructed with concrete floors and walls and asbestos roofs, costing 10,500 cordobas (US$1,500) per unit. Both housing complexes were unscathed by the earthquake, although nearby houses were se verely damaged. This appears to have been attributable to better con- scruction materials and techniques. 2.20 Annex 3, Figure I, depicts the organization of BVN which has not changed significantly since the basic reorganization in June 1966. BVN em- ploys about 80 persons, of which 38 are professionals allocated to three departments. INVI has five engineers, one architect and two sociologists. The staff has been kept small because of sub-contracts with consulting en- gineering firms and an agreement with the National University, whereby sociology graduate students work with the BVN's communities. - 21 - 3.21 It is recommended that INVI staff be supplemented by three experts financed under the Credit for varying periods of time totalling 40 man months. The group should consist of: (a) a structural engineer familiar with housing and small building construction in an earthquake zone; (b) an architect or municipal engineer familiar with building materials; and (c) a sociologist (or other suitable specialization) to improve INVI's social inputs and to help supervise an increased staff of social workers on site. The persons should be selected individually by BVN and approved by the Association. Assurances to this effect were obtained during negotiations. 3.22 INVI's permanent staff should also be expanded by adding a resident engineer, three technical assistance foremen, two inspectors and two social workers per thousand serviced lots. These persons should reside on the various sites for at least two years commencing with the beginning of construction of the core units. INVI should also add to their permanent staff a senior archi- tect, engineer and sociologist responsible exclusively for implementation of the sites and services project. Assurances to this effect were obtained during negotiations. INVI will be responsible for detailed design, engineer- ing and execution of the project. It intends to sub-contract the detailed design and engineering to two firms. BVN is giving special attention to the procedure for the collection of monthly mortgage payments and will shortly be instituting a new debt collection system on lines formulated in an exten- sive study completed in September 1972 by its external auditors, Peat Marwick, Mitchell & Co. To date they have not had a problem with payment arrears. 3.23 BVN's financial position is very sound. Annex 3, Tables 2 and 3, show BVN's Consolidated Balance Sheets and Income Statements for 1970-72. Separate accounts are kept by BVN for each Department. Separate accounts will be maintained for the sites and services project within INVI's accounts. Sites and Services/Housing Fund 3.24 Repayments from sites and services beneficiaries, as well as the repayments from ENALUF, AGUADORA and INFONAC sub-loans would be channelled into a special fund at BVN for a continuing low-income sites and services/ housing program. This would enable BVN to apply $1.5 to $2.0 million an- nually to such a continuing program. (See Annex 3, Table 4.) In this respect the proposed reconstruction credit has a significant income redis- tribution effect, namely funds will be transferred from Government to BVN, specifically for low-income housing needs, a sector to which Government has not given sufficient priority in the past. 3.25 The system for screening applicants is currently being formulated by INVI. The demand for the serviced lots is likely to be three-four times the 6,000-unit supply. Prior to the earthquake INVI had 8,000 applicants on file for low-cost housing. Applicants will be allotted serviced lots chronologically after satisfying two criteria: (a) that they were displaced by the earthquake, and (b) that they have household income between 400 and 01,100 per month. About 30% of the lots will be reserved for families with household income of less than 0500 per month. A downpayment will not be re- quired from these families. Families with monthly incomes below 0400 will be able to obtain lots if BVN is satisfied that they can service the monthly -22- payments. Assurances to this effect were obtained during negotiations. 3.26 BVN has previously concluded "tenant-purchase" contracts with families whereby they acquire ownership only after 22 years when they have fully paid their monthly payments. (See details in Annex 3, para 4). The Bank mission discussed a change in BVN policy in this regard. According to the proposed project agreement, families would be offered mortgages at 22- year terms carrying a 5% rate of interest. Ownership will be transferred after consolidation takes place to the extent of the first self-help room being built, inspected and approved by the INVI Department of BVN. Assur- ances to this effect were obtained during negotiations. E. Socio-Economic Benefits 3.27 Estimates for comparable types of housing were made in the field and are presented in Annex 4, Table 2. The core unit in the sites and serv- ices project was compared to a room in a cuarteria and to ingle-room dwell- ings with an average of 20 to 25 sq meters with surfaced floors and running water. Room rents varied between 0100 (US$14.3) and 0150 (US$21.4) monthly. 1/ The first stage of consolidation, the addition of one room, was compared to the rental value of dwellings in Managua with one bedroom and an all-purpose room (i.e. dining room-kitchen-living room) whose rents vary from 125 (US$17.8) to 0175 (US525) per month. Most of these housing units have running water and are connected to the city's sewerage system. 2/ Rental values for the con- solidated house (three rooms, plus a dining room-kitchen) are in the sae range as those in some of the past projects of Banco de la Vivienda, which vary between 0175 (US$25) in the housing project La Salvadorita and e255 (US$36.4) in the housing project Luis Somoza. Rental values for these types of housing in the other cities were found to be on the average about 15% below those of Managua. 3.28 Costs included in the rate of return calculations are the costs of site preparation, infrastructure, core unit, engineering, technical assist- ance and contingencies, net of taxes and finance charges. Land costs were excluded for purposes of sensitivity analysis. (Annex 4, Table 1). 3.29 Several benefit streams were calculated based on the capitalized rental values, assuming different consolidation patterns for rhe lots and a 30-year life for the structures. First, if no consolidation takes place, the rate of return is 12.4%, or 14.2% if land costs are not included. Second, it was assumed that ;ne room at an average cost of US$285 would be added to all basic units in the Zirst five years of occupancy. This yields a rate of return oT 12.7%, including the cost of the land and 14.4% without. Third, it a further assumed that the consolidation would be completed in at least half 1/ Neighborhoods include in the survey were the cuarteries around downtown (those not destroyed by the earthquake): Acahualinca, Fray Bartolome de las Casas, La Reinada, Mercado Oriental. 2/ Neighborhoods included in the survey were: Las Brisas, Linda Vista, La Reinada, La Tenderi. - 23 - of the houses at cost of US$538 each between years 6 and 16 of occupancy. This yields rates of return of 13.1% and 14.8% when land costs are included or excluded respectively. For sensitivity analysis the minimum rental values included in Annex 4, Table 2 were used yielding returns of 7.5%, 8.3%, 8.7% when land costs are included for the three benefit streams calculated, and 8.9%, 9.6% and 9.9% when land costs are excluded (See Annex 4 Table 3). 3.30 Besides providing housing for 6,000 families, the sites and serv- ices project will have an important effect on employment and the quality of life. The employment creation effect will be substantial since labor costs represent about 40% of construction costs. The employment effect, moreover, will continue beyond the completion of the project as consolidation of the dwellings proceeds in some cases through self-help, in others by hiring local workers to do part of the construction. Water and sewerage connections to all the sites and neighborhood health clinics should contribute to better health in the community. The integrated nature of the project, which includes schools, clinics, markets, paved roads and footpaths and green areas, will provide a better physical and social environment. - 24 - IV. INDUSTRIAL FINANCING COMPONENT A. Description of Project and Relocation Objectives 4.01 The industrial financing component of the project consists of the following items: (a) Financing for industrial sites and services in the secondary cities; and (b) Financing of sub-loans for plant, equipment and buildings for an estimated 30 or more medium-sized industries, which are expected to locate in the secondary cities and thus provide the major employment linkage to the sites and services for low-income households (Chapter III). (i) Industrial Sites and Services 4.02 If a significant number of medium-sized industries are to relocate in Nicaragua's secondary cities as part of a deconcentration and gradual de- centralization process, prepared industrial land is needed at realistic prices. Several city councils, e.g. Jinotepe, Masaya and Granada, as well as private groups, are preparing specific proposals for incremental develop- ment of industrial zones. Prospective sub-borrowers will be identified more specifically at the completion of detailed engineering -,or household sites and services, and the invitation for bids for the latter will include the industrial site preparation. The proposed industrial component of the re- construction project includes US$300,000 earmarked for the preparation of industrial sites in the secondary cities. This would help launch a com- templated 014.0 million (US$2.0 million) program for the preparation of industrial zones extending over a five-eight year period. 4.03 The maximum amount of industrial land needed for the medium term in each of the four refugee areas (Leon, Granada, Masaya and Jinotepe- Diriamba) is calculated to be 14 hectares (20 manzanas). Efforts are underway to establish zones of 7 to 14 ha, of land for industry in each of the four areas, adjacent to or within walking distance of the sites and services for low-income households. Existing and planned off-site infrastructure is suitable for these locations. Land costs are estimated at 42 per square vara ($20,000 per manzana, i.e. US$4,142 per ha or US$.41/square meter) in 'intotepe and Granada, and up to 05/square vara in Masaya and Leon, as compared with C1O for industrial land on the outskirts of Managua. In all of the secondary cities, several alternative sites would be suitable and within walking distance for employees because of the small size and compactness of the cities. 4.04 The projects would not start with the full 20 manzanas, but rather 5 Manzanas in each of the secondary cities to be expanded incrementally as additional investments firm up. Land purchases should contain options for - 25 - suitable adjacent land. In the case of Granada and Leon, cotton would continue to be grown on the land in the industrial zone until it is displaced by in- dustrial users. 4.05 Land acquisition costs constitute part of the local counterpart and would not be financed by the Association. Cost estimates include the pro- vision of industrial and potable water, sewerage, roads, fences, electricity, telephone lines, etc. Estimates are that infrastructure could be provided for t10.7 per square vara of total land, or (13.4 per square vara of usable land. The average medium-sized firm would require one-third of a manzana (.56 acres) and the costs estimated per firm for Granada and Jinotepe were 06,250 for land and 039,500 for infrastructure; for Leon and Masaya, 016,000 and 049,000 respectively. 4.06 The Association would finance 50% of the urbanization costs to initiate a program of incremental development of industrial sites and services in support of Government's intention over the longer term to en- courage the gradual decentralization of industry in Nicaragua. (ii) Financing for Sub-Projects 4.07 A list of more than 50 prospective industrial projects has been identified by the executing agency, Instituto de Fomento Nacional (INFONAC) working with private investors and local mayors or governing councils. The prospective projects, along with the size of investment and estimated employ- ment effects, are summarized below and details are given in Annex 7. It is expected that the Association would finance more than 30 of these sub-projects, with an average size loan from the Association's funds of 0550,000 (US$78,000). Not more than 50% of each sub-loan would be financed by the Association. INFONAC will normally require a 60:40 debt equity ratio but would lower the equity requirement to 10% for sub-borrowers severely damaged by the earth- quake but who are otherwise good credit risks. It is estimated that the foreign exchange component of the aggregate sub-projects would exceed 50% of total costs, not including working capital. In the case of buildings, the indirect import component is estimated at 25-30%. The Association's financing would effectively be 100% of foreign exchange financing, direct and indirect. The sub-projects include 22 earthquake-damaged plants expecting to relocate outside Managua. 4.08 The sites and services for low-income households and industry components of the reconstruction project were designed to reinforce each other. The absence of permanent manufacturing employment precluded locating a larger percentage of serviced lots with core units in the secondary cities. The 3,250 serviced lots in these cities would accommodate a permanent popula- tion increase of 18,000 to 21,000. The small industries loan through INFONAC is estimated to provide more than 1,200 permanent new manufacturing jobs in the refugee cities based on the list of specific project applications. Taking - 26 - the national manufacturing labor force/population ratio of 13:1, 1,200 new jobs would provide the main support for the increased permanent population. 4.09 A continuing problem will be the training of refugees for the new plants installed in the refugee cities. Government, with assistance from ILO, is presently formulating a program for training of refugees. The training could be carried out by local institutions such as Instituto Technologico Vocacional (ITV), Instituto Nacional de Apprendizaje, Christian Brothers and others. B. Executing Agency - INFONAC (Instituto de Fomento Nacional) 4.10 Financing for the small and medium scale industries will be channel- led through the national development bank, INFONAC, an autonomous govern- ment agency created by Decree No. 54 of November 19, 1952. INFONAC's broad organic law permits it to operate as a development bank, finance company, development institute, research organization and promoter of a wide variety of production activities. IBRD made two small loans totalling US$2 million to INFONAC in 1955 to assist projects in the agricultural and power sectors. During the mid-50's and early 60's INFONAC remained in a fairly sound finan- cial position but moved steadily into financial difficulties by the mid-1960's primarily because of heavy losses in a few large projects such as bananas, tobacco, and textiles. INFONAC's development activities have frequently led to substantial economic benefits for Nicaragua while causing substantial financial problems for INFONAC itself. INFONAC's orgarization, appraisal procedures, and financial situation are described in Arnnc 9. 4.11 INFONAC has the staff capabilities needed to make P technical and economic evaluation of each proposed sub-project and to administer this com- ponent of the Credit. INFONAC's appraisal and approval/rejection of the sub- projects will be reviewed by the Association's representative expected to be stationed in Managua for approximately one year beginning in June 1973 and frequent supervision missions will be conducted by the Industrial Projects Department. Separate accounts will be maintained bv INFONAC for sub-projects invoiving proceeds of the Credit and will be audited by a firm acceptable to the Association. Assurances to this effect were obtained during negotiations. 4.12 INFONAC has undertaken to formulate, or engage consultants to formu- late, a program for improving its internal organization, operating procedures ans accountine system particularly to separate the accounting of its indus- trial and agricultural portfolios, and its research and development program. It is currently exploring the possibilities of obtaining from Kredit-Arstalt (Germany) an extension of its technical assistance and also assistance from other sources such as UNDP and UNIDO. Disbursements 4.13 The first industrial sub-project disbursements would begin in July/August. It is expected that this conponent of the Credit would be fully committed within six to nine months and disbursed within eighteen months, SUTMARY OF PROJECT LOAN APPLICATIONS /1 (Thousands of Cordobas) Elsewhere Additional Matagalpa, Unidenti- Jinotepe Chinandega, fied Summary Granada Masaya Leon Diriamba etc. Sub total Locations Total 1. Earthquake -damaged plants to be built outside Managua 2,130(3) 2,897(9) 300(1) 2,127(5) - 7,454(18) 2. Expansion of existing facilities 2,200(3) - 160(2) 2,586(4) - 4,946(9) 3. Decentralization of industrial activities 946(2) 1,910(3) 2,200(2) 1,247(3) 6,830(13) 13,133(23) Sub-total 5,276 4,807 2,660 5,960 6,830 25,533(50) 258(2) 25,792(52) a 4. Earthquake-damaged firms but no formal INFONAC application 800(3) 800(3) 800(3) TOTAL 5,276 4,807 2,660 6,761 6,829 26,333 (53) 258(2) 26,591(55) Number of Projects 8 12 5 15 13 53 2 55 Number of Employees 311 446 302 600 174 1,833 Financing Cost, (000) Cordobas 5,276 4,807 2,660 6,760 6,830 26,333 258 26,591 Ratios: Avg. Loan/Project, (000) Cordobas 659 400 532 451 525 497 129 484 1 Does not include industrial sites and services. ( ) Indicates number of projects. April 12, 1973 - 28 - i.e. 07.5 million (US$1.07 million) in 1973 and 410 million (US$1.42 million) in 1974. Any amount remaining undisbursed upon completion of this part of the project would be cancelled, unless its disbursement on other parts of the project covered by the credit is considered appropriate. Disbursements by the Association would be for 50% of amounts disbursed by INFONAC under the sub-loans. Documentation would be retained by the borrower and reviewed by the Association during the course of project supervision missions. Terms and Conditions 4.14 It is recommended that this portion of the Credit be relent to INFONAC at 6.75% so that INFONAC can maintain its current lending rate of 8.75% and effectively promote the recommended decentralization process. This rate is comparable to the 9% and 8% on-lending rates for medium and small industries, respectively, applied by the Banco Nacional to its IDB loan. INFONAC sub-loans would be for fixed assets for periods of up to ten years, including up to three years of grace. Repayments by INFONAC would be scheduled on the basis of sub-loan repayments and would be made directly into the housing fund (para. 3.24). -_29 - V. EDUCATION COMPONENT 5.01 The education component of the reconstruction project consists of the following items: (a) Four temporary general secondary schools (prefabricated and expected to be in operation by June 1973); (b) Two permanent multilateral secondary schools; and (c) One permenent technical institute. A. Earthquake Damage 5.02 Most educational facilities in Managua were located in the center of the city, where the earthquake damage was heaviest. An estimated 70% of primary and 35% of secondary school capacity was destroyed. Those schools that did survive are located mainly in the suburbs and need extensive repairs before they can be put into use. Some school furniture was salvaged. Damages at the Managua campus of the National University can be repaired, but most of the buildings of the private University of Central America were destroyed. The Association's reconstruction efforts concentrate on secondary education, since primary and university education will be assisted by the USAID and IDB respectively. However, a dozen primary schools have been included as an in- tegral part of the sites and services project (Chapter III). 5.03 At the secondary level, practically the only public schools still standing are the two Bank-financed general secondary schools and a teacher- training college, which were recently completed with financial assistance from the Bank under Loan No. 532-NI. The teacher-training college is currently housing the Ministry of Education, while the two secondary schools served as headquarters for the Red Cross and a relief distribution center. All three institutions suffered reparable damages which are being costed; funds for the needed repairs are available under Loan No. 532-NI. Private schools, ac- counting in 1972 for some 40% of secondary enrollment, were also severely hit; only a few of them can be repaired and put into use once again. 5.04 The vacation period in Nicaragua was from mid-December to mid-Febru- ary. The Ministry of Education has postponed the opening of schools in Managua until May/June 1973. If this timetable is met, it will result in a loss of only about 12 weeks out of the regular 1973 academic year. 5.05 In 1972 some 24,000 students were enrolled in secondary schools in Managua, including 14,000 in public and 10,000 in private schools. It is estimated that when instruction commences again in May/June 1973 approximately 18,000 secondary students will enroll in Managua and the rest in the provinces. - 30 - It is expected that the shortage of private school facilities and reduced family incomes will cause many students to transfer to public schools, result- ing in about 14,000 enrollments in public schools and only 4,000 in private schools. Secondary school students who remain in the provinces will enroll in institutions which the Government intends to operate on a double-shift basis where necessary. B. The Project 5.06 The proposed reconstruction project for education consists of two parts: Part I would provide for immediate secondary education needs and could be implemented by June 1973; Part II would assist in meeting the more long-run educational needs of Managua and could be implemented within two years. The total project cost is estimated at US$3.0 million, and the pro- posed Credit would cover US$2.0 million or 66% of the total, as follows: Type and Number Type of Student Enrollment Total Cost Credit Financing of Institutions Facilities Places Capacity ($ m) ($ m) Part I: - Four General Secondary Schools (Grades 7- 11) Prefabricat- /1 ed 4,000 8,000/- 0.48 0.43 Part II: - Two Multi- lateral Secondary Schools (Grades 7- /1 11) Permanent 2,900 5,800- 1.74 1.09 - One Tech- nical Insti- tute (Grades 12-13) Permanent 500 500 0.80 - 0.48 7,400 14,300 2.94 2.00 /1 In two shifts. /2 Civil works and furniture only. - 31 - (i) Temporary Secondary Schools 5.07 Of the 14,000 secondary students expected to enroll in public schools in Managua this year, some 6,000 could be accommodated in the two schools fi- nanced under Loan No. 532-NI if they operate double shifts. The proposed Credit would help to finance temporary accommodations for the remaining 8,000 students in four prefabricated classroom clusters to be erected by June 1973. A total of 100 classrooms with a capacity of 4,000 places could accommodate 8,000 students in two shifts. The project would also include site development and sanitary facilities and administration space. The Ministry of Education has salvaged adequate furniture for the new schools; additional furniture will be procured for the two existing schools financed under Loan No. 532-NI. 5.08 The prefabricated buildings would be of a type that are easily disassembled. The Government intends to relocate them as primary schools in rural areas when permanent secondary facilities are available in Managua. With assistance from CONESCAL (the UNESCO regional school building center in Mexico), the Government prepared specifications for these facilities. These were reviewed and approved by the Association, tendered successfully and a bid award has been made after approval by the Association. To expedite project implementation, while ensuring competitive prices, bidding procedures were simplified. The Government advertised the procurement and installation of the temporary facilities through press announcements and notices to foreign embassies; bidding and contract documents were reviewed by the Association; and suitable sites have been selected and surveyed. The sites are outside the center of the city and utilities are easily available. 5.09 The total cost of Part I of the project is estimated at US$0.48 mil- lion, of which about 90% would be financed under the proposed Credit. This relatively high percentage is justified on the basis of large foreign exchange component and the lack of counterpart funds readily available. Retroactive financing of up to US$150,000 is proposed to cover expenditures incurred between March 1, 1973 and credit signing. The facilities are expected to be in operation by June 1973. 5.10 The Project Unit which is implementing the first Bank education Project would be responsible for implementation of Part I of the Reconstruc- tion Project. Since the Government's technical services are overburdened with the reconstruction needs, arrangements have been made for an architect from CONESCAL to be seconded to the Ministry of Education to assist in project implementation. (ii) Permanent Secondary Schools and Technical Institute 5.11 To restore most of the public secondary school capacity destroyed by the earthquake, the project provides for the construction, furnishing and equipment of two multilateral secondary schools (Grades 7 - 11) with 1,450 student places each. Together with the three secondary schools (two com- pleted, one contracted for construction) of the first Bank project, these permanent facilities would provide Managua with 7,250 student places and an enrollment capacity of 14,500 in two shifts. - 32 - 5.12 The two new schools will offer a diversified curriculum, including practical subjects such as woodwork, industrial arts and home economics for students in all grades and prevocational streams in electricity, mechanics and business education for students in the upper cycle (Grades 10 -11). In addition to meeting urgent school space needs, these schools will introduce the new diversified curriculum developed under the first project into all of Managua's public secondary schools. Draft curricula, schedules of accommoda- tion and furniture and equipment cost estimates based on the experience of the first Project were reviewed by the appraisal mission and were found rea- sonable; detailed data will be sent to the Association for comments in due course. 5.13 The need for practice-oriented technical programs at the post- secondary level has been emphasized by missions that have reviewed the Nicaraguan education system. Therefore, the project provides for construction and furnishing of a technical institute, which would offer two-year programs (Grades 12 - 13) in; (a) civil engineering, water development and irrigation; building construction; electrical power generation, distribution and install- ation; mechnical engineering maintenance, agricultural engineering; food technology; and (b) accountancy, data processing and office organization; banking, insurance, management and marketing. The institute will have a capacity of approximately 500 student places, including about 400 in the technical fields and 100 in business education, and is expected to graduate some 250 technicians annually. 5.14 The Government is negotiating with the U.K. Overseas Development Agency (ODA) the provision of equipment and technical assistance to help plan and establish the institute. The institute would be similar to the one operating in El Salvador with ODA assistance. Preliminary schedules of ac- commodation were discussed with an ODA mission in Nicaragua and the Ministry of Education; they will be further elaborated by ODA and will be sent to the Association for comments. Teachers for the institute will be trained by ODA in the El Salvadorean institute and overseas. ODA's contribution is expected to be in the order of US$0.9 million, divided equally between equipment and technical assistance. Final agreement between the Governments of Nicaragua and Great Britain should be reached in late 1973, and it is proposed that disbursement of Association funds for this project item be conditional upon the signing of such an agreement satisfactory to the Association. Cost Estimates 5.15 Estimates of the construction cost for Part II of the education project were based on recent tenders for the first education project, i.e. US$67 per m2. To this unit cost 20% was added to take into account the specifications required for design with increased earthquake resistance and the recent price increases in the construction industry. Consequently, US$80 per m2 was used as the basic unit cost. Contingencies have been added to this equal to 22%, i.e. 10% for unforseen factors and 12% for expected price increases. - 33 - 5.16 Suitable sites for the two secondary schools and the technical institute will be selected in consultation with the Association. The build- ings would be designed by consultant architects and contracts for civil works, furniture and equipment financed by the Association will be awarded according to the Guidelines for international competitive bidding. Land would be part of Government's contribution. The total cost of Part II of the education component of the reconstruction project is estimated at US$2.5 million in- cluding contingencies, of which US$1.57 million (62%) would be financed under the proposed Credit, including foreign exchange costs of about US$1.41 mil- lion and US$0.16 million of local currency costs (Annex 10). Any amount remaining undisbursed upon completion of this part of the project would be cancelled, unless its disbursement on other parts of the project covered by the credit is considered appropriate. C. Executing Agency - Ministry of Education 5.17 The three institutions would be completed in about two years and the Project Unit implementing the first education project will also be respon- sible for the implementation of this project. The US$1.57 million will be disbursed under normal procedures followed in the ongoing first education project to meet: 100% of the c.i.f. or ex-factory cost of furniture and equip- ment and 57% of the cost of civil works and professional fees. The proposed credit of US$2.0 million for both Parts I and II of the reconstruction educa- tion project will finance 67% of the total project cost and will meet the foreign exchange component estimated at US$1.75 million and approximately 20% of-the estimated local currency expenditures. 5.18 Since all schools of the proposed project will be public institutions where only nominal fees are charged, the benefits from the favorable terms of the proposed IDA Credit would accrue directly to a great number of people and particularly to low-income groups that are the main users of public education services. Considering the needs of public education in Nicaragua, these bene- fits should remain within the public education sector of the country. No separate project agreement is required for this component of the Credit since the executing agency is a government ministry. The legal provisions specifical- ly relevant to this component are contained in Sections 4.01 through 4.07 of the draft Credit Agreement. - 34 - VI. WATER SUPPLY 00MPONENT 6.01 The water supply component of the reconstruction project consists of the following items: (a) emergency repair and rehabilitation of existing install- ations; (b) equipment and materials for rehabilitation and mainte- nance work; and (c) some local cost financing of civil works under previous Loan 808-NI. A. Earthquake Damage 6.02 The December earthquake severely damaged pipelines, service con- nections, four concrete reservoirs and two pumping stations. It destroyed the administration building, the warehouse and three steel reserviors. It is estimated that about 50% of AGUADORA's former subscribers are no longer registered consumers. The water authority also lost at least one month's billings; collections are now less efficient (and will continue so in the near future) because the incomes of many subscribers were interrupted. The total cash flow deficit estimated by the January 1973 public utilities ap- praisal mission and confirmed by their review in March is US$3.7 million. This is primarily because of reduced household consumers whose incomes have been interrupted. AGUADORA should return to its previous level of sales by late 1974. B. The Project 6.03 To help alleviate the financial burden on AGUADORA resulting from the drop in revenues and the extraordinary expenditures for repair and re- habilitation work, it is recommended that US$1.0 million of the proposed Credit be allocated to cover local and foreign costs of specific repair and rehabilitation works (items (a) through (e) below), and the foreign exchange expenditure for equipment and supplies for repair, rehabilitation and main- tenance work. It is also recommended that US$1.5 million of the proposed Credit be allocated to cover most of the local costs of civil works under Loan 803-NI. The cost estimate is as follows: - 35 - SUMMARY OF PROJECT COST ESTIMATES Cost of Project Proposed L.C. F.C. Total Credit Total ----------US $ thousands ------- (a) Construct three steel reservoirs 17 40 55 55 (b) Repair four concrete reservoirs 70 30 100 100 (c) Correct unstable embankment 220 90 310 310 (d) Secure Lake Asososca power line 10 - 10 10 (e) Construct maintenance building and Chlorination Station 100 50 150 150 (f) Leakage Survey - 50 50 50 (g) Equipment and supplies - 200 200 200 (h) Local costs of civil works performed under Loan 808-NI 1,660 - 1,660 1,260 Sub-Total 2,075 460 2,535 2,135 Contingencies: Physical 242 70 312 246 Price 125 28 153 119 Total 2,442 558 3,000 2,500 Note: Engineering services related to design and construction are being financed with funds from Project 808-NI and are not included above. Items (a) through (g) represent about 80% of the total cost of rehabilitation, estimated to be US$1.2 million. The proposed project was prepared and appraised in the field in January/ February 1973 and was reviewed by the Public Utilities Division in March 1973. 6.04 Procurement of the repair and rehabilitation work (items (a) through (f) would not be by international competitive bidding since the work is not of sufficient value to attract foreign competition and is of an emergency nature. Disbursement would be against 100% of the cost of repair and rehabil- itation work and equipment (items (a) through (g)), and 55% of the cost of civil works executed under Loan 808-NI. Contracts for items (a), (b), (c) and (d), and selected parts of item (g) (for details see Annex 12), have been negotiated because of their emergency nature. These would be reviewed by Bank staff and, if found satisfactory, would be financed retroactively up to a limit of US$800,000. Any amount remaining undisbursed upon completion of this part of the project would be cancelled, unless its disbursement on other parts of the project covered by the credit is considered appropriate. This part of the credit would be disbursed against 100% of total expenditures for items (a) - (f). Disbursements for civil works would be 55% of total expen- ditures. C. Executing Agency - ACUADORA 6.05 Public water supply for Managua has expanded considerably during the last twenty years. The proportion of the population with easy access - 36 - to piped water rose from 59% in 1956 to 77% in 1970, in the increase in the city's population from 155,500 to 377,360 over the same period. COVERAGE OF WATER SUPPLY SYSTEM IN MANAGUA 1956 1960 1963 1966 1970 Distribution network, kms 104 141 168 365 516 Number of connections '000 11 13 15 21 31 Percent metered 44 67 84 100 100 Number of consumers: '000 /a 92 112 130 179 252 Percent of city's population 59 57 55 62 69 /a Includes consumers who purchase water from standpipes controlled by concessionaires. Source: Central Bank and IBRD 6.06 Prior to the earthquake, the distribution network covered practically all built-up areas of the city compared to about 40% in the early 1960's. Large industrial users of water in Managua still maintain private water systems based on the pumping of groundwater. This practice developed in the past be- cause many industrial plants were located outside of the ACUADOPA's service area and because of frequent interruption of service during hours of peak demand resulting from insufficient capacity. A project financed under IDA Credit 26-NI and which was successfully implemented in the period 1963-66, improved the reliability of the service considerably. 6.07 At the end of 1972, about 95% of the AGUADORA's water came from Lake Asososca, a volcanic crater at the western edge of Managua, and the re- maining 5% from three wells at Altamira on the Masaya Highway just south of the city. Lake Asososca is fed mainly by underground water and has an esti- mated long-term dependable yield of 20 Mgd. Both the Lake Asososca and Altamira well waters are chemically and bacteriologically excellent, and chlori- nation is the only treatment needed and provided. Water is drawn from Lake Asososca by a pumping station in the crater, which supplies the low-service zone and two high-service pumping stations on the crater's rim. The extent of the service zones is established by topography. The low-service zone serves the downtown and industrial areas of Managua, while the other zones supply pri- marily residential areas. The total storage capacity of the distribution system is 11 million gallons; peak demand is met by this storage and by pumping from Lake Asososca. There are eight booster pumping stations at various points in the system to serve outlying and high areas. 6.08 In early 1972, the AGUADORA embarked on a three-year, US$10 million program to develop and expand water sources, extend transmission and distri- bution facilities, construct a new administration building and provide manage- ment consulting services. On March 7, 1972, a Bank Loan (Loan No. 808-NI) of US$6.9 million was approved to cover the foreign exchange costs of this - 37 - project. AUGADORA was in the early stages of this project when the earth- quake hit. Its technical, financial and managerial performance had been ex- emplary and all indicators pointed to a successful project. Engineering de- signs were nearing completion and major civil works and supply contracts were to have been bid in the second quarter of 1973. As a result of the financial aid provided under the proposed IDA Credit, AGUADORA is expected to be returned to its previously sound financial position by 1977. 6.09 Although Managua's overall water supply system is good, some slum areas were not receiving potable water. Other areas, inhabited by about 2% of the city's population, were served by community standpipes operated by private individuals who purchased water from the AGUADORA at 02 per 1,000 gallons and resold at 05 per 1,000 gallons. AGUADORA has formulated a pro- gram of water supply for these low-income areas and the Association has ac- cepted it, subject to some technical revisions. 6.10 The US$2.5 million would be lent to the Government of Nicaragua, which would onlend the funds to AGUADORA at a term of 20 years, including six years of grace, interest free, during which time the AGUADORA is expected to recover to its formerly healthy financial position and at an interest rate of 7-1/4% from the seventh year forward. Repayments by AGUADORA would be made directly into the low-income sites and services/housing fund (para 3.24), as is also the case for the power and industry components of the project. Government will repay the IDA Credit from general revenues. - 38 - VII. POWER 00MPONENET 7.01 The power component of the reconstruction project consists of the following items: a) emergency repair and rehabilitation of existing installations; b) extension of existing distribution network; and c) primary and secondary distribution facilities, transmission systems and substations, office buildings, warehouses, workshops, vehicles and equipment in ENALUF's 1973-74 work program. A. Earthquake Damage 7.02 The December earthquake caused some damage to the thermal plant on the south shore of Lake Managua, the substations adjoining the thermal plant and Managua's distribution network. The transmission system remained intact. The cost of repairing the damage to these installations is estimated at US$1.7 million. In addition because of the fact that a large part of the population and some small industry and commercial enterprises have moved to areas surrounding Managua, ENALUF will have to extend its distribution net- work and expand some of the substations at an estimated cost of US$1.4 million. 7.03 In 1972 maximum demand (124 MW) and energy generated (630 GWh) exceeded ENALUF's projections by 7.8% and 0.8%, respectively. However it is estimated that in 1973 consumption of electricity will not exceed 480 GWh, because of the loss of more than 30,000 customers following the earthquake. This situation will adversely affect ENALUF's financial position in 1973 and probably in 1974, due to the increase in operating costs attributed to higher fuel consumption and the reduction in sales. As a consequence, ENALUF's cash flow deficit is estimated at approximately US$5.3 million in 1973 and US$2.7 million in 1974 (Annex19). The Bank Group will review ENALUF's finan- cial situation quarterly until the power authority returns to its previous sound financial position. B. The Project 7.04 To help alleviate the financial burden on ENALUF resulting from the drop in revenues, from increased operating costs and from the extraordinary expenditures required for repair work, it is recommended that US$5.0 million of the proposed Credit be provided, as follows: - 39 - Cost of Project Proposed Credit L.C. F.C. Total Total ------------- (US$ million)---------- a) Repairs of existing installations 0.4 1.3 1.7 1.7 b) Extension of distri- bution network 0.4 1.0 1.4 1.0 c) Other construction 1.0 1.9 2.9 1.9 d) Contingencies 0.2 0.5 0.7 0.4 Total 2.0 4.7 6.7 5.0 7.05 Repairs of the existing distribution network are being carried out outside the central zone of Managua, with the exception of some repairs on primary distribution feeders which cross sections of the city most devastated by the earthquake and which supply some public buildings still operating in that zone. 7.06 The proposed financing would cover 76% of the total cost of works related to the earthquake (i.e. repairs and extensions) and of ENALUF's annual 1973/74 construction program, which was appraised in 1972 for loan 840-NI and which was reviewed by the Public Utilities Division of LAC in March 1973. Details of the Project and the cost estimates are given in Annexes 13 through 15. The proposed Credit would cover 100% of the foreign cost and 20% of the local currency cost of the Project. 7.07 The US$5 million would be lent to the Government of Nicaragua, which would relend the funds to ENALUF for a term of 20 years, including five years of grace, interest free, during which time ENALUF is expected to recover to its formerly healthy financial position and at an interest rate of 7 1/4% from the sixth year forward. 7.08 Certain existing contracts have been extended to include emergency repairs to the thermal plant and substations. These contracts and the extent of repairs have been reviewed by the Association and would be financed retroactively up to a limit of USS600,000. All new contracts for equipment approved after loan signing would be awarded on the basis of international competitive bidding, and contracting of consultants' services would follow normal Bank procedures. In light of the Central American Agreement on Fiscal Incentives to Industrial Development (1969), equipment manufacturers from the Central American Common Market would be allowed a preference of either 15% of the c.i.f. price or 50% of the applicable import duty, whichever is the lower. - 40 - C. Executing Agency - ENALUF 7.09 Practically all public electric service in Nicaragua is provided by the Empresa Nacional de Luz y Fuerza (ENALUF), an autonomous public corporation established in 1954. There are still some 30 small private companies and municipal entities, but in the next few years most of these are expected to be absorbed by ENALUF or merged into distribution cooperatives. The Bank has made eight loans to ENALUF since 1953, aggregating US$66.3 million, which have assisted in financing practically all of ENALUF's expansion in generation and transmission facilities. 7.10 In 1972 ENALUF's installed generating capacity totalled 213 MW including: Hydro 100Mi Thermal 75MW Diesel 24MW Gas 14MW TOTAL 213MW ENALUF's transmission system consists of 463 kms of 138 K lines and 326 kms of 69 KV lines, connecting the various electric plants with the main consumer centers. During 1972 approximately 62% of ENALUF's total sales went to Managua, of which about 44% was accounted for by industrial consumption, 27% by domestic consumption and 15% by commercial consumption. 7.11 Prior to the earthquake, ENALTUF was in a sound financial position and its overall performance was satisfactory. However, some problems have been developing with respect to organization. In particular, there is a lack of efficient coordination between its technical and financial departments. To improve the organization, ENALUF has agreed to select management consultants by June 30, 1973, with Terms of Reference and selection of consultants acceptable to the Association. Project execution, as well as the other com- ponents of the Reconstruction Project, will be expedited by stationing an Association representative in the field for approximately one year. Disbursements 7.12 IDA would make quarterly disbursements against the percentage of work completed under the categories described above. Estimated disburse- ments are shown in Annex18. The Public Utilities Division of LAC will supervise execution of the project more intensively than the usual level of supervision. Any amount remaining undisbursed upon completion of this part of the project would be cancelled, unless its disbursement on other parts of the project covered by the credit is considered appropriate. Disbursements for the civil works contract(s) would be made against 75% of the contractor's periodic statements of works performed substantiated by invoices and certification by engineer. Disbursements for equipment and materials would be for 100% of CIF costs (if imported) or 90% of local *enenditures. - 41 - VIII. REGOMIENDATIONS 8.01 During negotiations, agreement was reached on the following issues with respect to the sites and services component of the project: (a) the portion of the Credit for sites and services, US$8.0 million equivalent, shall be provided by Govern- ment to Banco de la Vivienda on a grant basis (para. 3.16); (b) Government will supply the land for all components of the reconstruction project, whose location and price are acceptable to the Association, and all remaining inputs other than those financed by the Association, necessary to the project including staff for the community facilities (para. 3.17); (c) Banco de la Vivienda shall: (i) provide sites and services to recipients on the basis of 22 year lending at 5% interest per annum (para. 3.15); (ii) convey a mortgaged title to recipients as soon as the first additional room is built, and in- spected and approved by the INVI Department (para. 3.26); (iii) make its INVI Department responsible for executing this project component and expand the latter's staff by adding a resident engineer, three technical assistance foremen, two inspectors and two social workers per 750 to 1,000 serviced lots; these persons should reside on location for at least two years commencing with the beginning of construction of the core units (para. 3.22); (iv) hire for the INVI staff a senior architect, engineer and sociologist responsible exclusively for the sites and services project and hire three advisors, acceptable to the Association, and on terms and conditions acceptable to the Association (paras. 3.21 and 3.22); (v) maintain separate accounts for the project in a form acceptable to the Association (para. 3.23); - 42 - (vi) establish a low-cost sites and services/housing fund consisting of all sites and services repayments and the repayments from AGUADORAI ENALUF and INFONAC for the water supply, power and industrial components (para. 3.24); (vii) select site and services beneficiaries according to the following criteria: (a) they were displaced by the earthquake, and (b) have household income of less than 41,100 per month (para. 3.25); (viii) reserve at least 30% of the serviced sites for families with household income of less than 4500 per month (para. 3.25). 8.02 During negotiations, agreement was reached on the following issues with respect to the industties component of the project: (a) Government shall relend to INFONAC the industrial financing portion of the Credit, US$2.5 million equivalent, for up to 12 years at 6.75% interest per annum with a three-year interest free grace period (para 4.14); (1) INFONAC shall: (i) relend for plant, equipment or buildings for small to medium scale industries to be established in Nicaragua's secondary cities (para. 4.14); (ii) relend at not less than 8.75% interest per annum for not more than 10 years including a three year grace period (para. 4.14); (c) INFONAC shall also: (i) maintain separate accounts for the Credit (para. 4.11); (ii) cause $300,000 of the Credit to be reserved for sub- projects for the preparation of industrial sites and services in the secondary cities; (iii) formulate, or engage consultants to formulate, a program for improving INFONAC's internal organiza- tion, operating procedure and accounting system, in particular to separate its industrial and agricultural portfolios, and its research and development programs (para. 4.12). - 43 - 8.03 During negotiations, agreement on the following issues was reached with respect to the water and power components of the project: (a) the portion of the Credit for water supply, US$2.5 million equivalent shall be relent by the Government to AGUADORA for a term of 20 years, including six years of grace interest free and an interest rate of 7 1/4% from the seventh year forward (para 6.10); (b) the portion of the Credit for power, US$5.0 million equivalent, shall be relent by the Government to ENALUF for a term of 20 years including five years of grace, interest free during the first five years and an interest rate of 7 1/4% from the sixth year forward (para 7.07). 8.04 The proposed emergency reconstruction project components, which are part of a larger reconstruction program and planning effort still being formulated, constitute a suitable basis for an IDA Credit of US$20.0 million equivalent to the Government of Nicaragua.  BACKGROUND ANNEX 1 Page 1 URBAN EMPLOYMENT The economically active urban populations in 1963 and 1971 are shown below: Table 1: Economically Active Urban Populations (000) Manufacturing Total 1963 1971 1963 1971 Nicaragua 45.7 48.1 189.4 241.0 Managua 20.7 22.5 76.6 114.3 Refugee Depts. 12.7 12.4 47.6 55.5 Leon 4.63 3.69 19.42 21.06 Masaya 3.60 3.93 11.94 14.00 Granada 3.21 3.58 10.74 12.19 Carazo 1.26 1.21 5.48 8.27 Source: Population Census (10% sample) 1971. There was virtually no growth reported in the manufacturing labor force of the refugee cities between 1963 to 1971, while manufacturing employ- ment increased by almost 2,000 in Managua. Similarly, while the total urban labor force grew by only about 2,000 in each refugee city in the same period, it increased by 38,000 in Managua. Thus, three-fourths of the increase in the total urban labor force occurred in Managua between 1963 to 1971. Total manufacturing employment growth has slowed down significantly from the 3% annual rate between 1950 and 1963. It grew from 1963 to 1971 at only about 1% annually. Thus, employment growth was low because productivity gains accounted for most of the output growth, as organized industry replaced artisan industry. The ratios of the manufacturing labor force to the total urban labor force and to the total urban population for each Department are shown in Table 2 below. As a basic framework for considering employment linkages to the proposed sites and services, the historical ratio of 75 manufacturing jobs providing the support base per 1,000 population (13:1) has been used. BACKGROUND ANNEX 1 Page 2 Table 2: Ratios of Manufacturing Labor Force Manufacturing Labor Force Total Urban Total Urban Labor Force Population Nicaragua Managua .197 .057 Refugee Depts. Leon .175 .046 Masaya .281 .074 Granada .293 .077 Carazo .139 .037 Other Major Depts. Chinandega .089 Rivas .163 .038 Matagalpa Source: Population Census, 1971. The percentage of the total labor force in manufacturing in Managua (20%) is lower than that in the two small industrial cities of Masaya and Granada for two reasons: (i) Central Government employment is concentrated almost exclusively in Managua; and ii) Managua provides many services, such as financial services, construction and trade to most of Nicaragua, rather than only to the local population. The percentage of the labor force in manufacturing is low in Leon, Carazo, Rivas, etc. because these are largely agricultural trade centers that are still under-industrialized relative to their urban populations, i.e. not even relatively self-sufficient in terms of self-production or simple consumer goods nor export-oriented to the rest of the country. The concentration of manufacturing in Managua was predominant even in 1964 as shown in Table 3 below. BACKGROUND ANNEX 1 Page 3 Table 3: Geographical Distribution of Manufacturing Industry (5 or more workers) % of No. of % of Value Production Total Workers Total (Millions of Cordobas) Nicaragua 899.7 100 24,241 100 Managua 515.7 57 10,659 44 Refugee Depts. Leon 44.5 5 1,783 7 Granada 31.1 3 1,062 4 Masaya 14.5 2 800 3 Carazo 30.9 3 882 4 Others Chinandega 171.6 19 5,515 22 Rivas 5.8 1 270 3 Matagalpa 42.6 5 263 1 Source: Central Bank Census of Industries (1964).  SITES AND SERVICES ANNEX 2 Page 1 Design Standards, Cost Estimates and Unit Costs Attributable to Households A. The basis for arriving at the cost estimates shown in para. 3.14, Table I, is as follows: 1. Land: The land values for the proposed sites are about 02-3 per square vara (US$0.43-0.63 per sq. meter) in the secondary cities (see Table I below). The book figures in Cadastral office showed the particular sites in Leon, Granada, and Masaya at one-sixth to one-tenth of the 03/sq vara that the mission estimated; the latter figure is the estimated real market value and has been used for costing purposes. A figure of 08/sq vara has been used for the Managua site. Negotiations for the purchase of all five sites are underway and are expected to be completed shortly. 1/ In Table 1 a unit land cost attributable and repayable by households of US$200 for Managua and an average of US$75 for the secondary cities is shown. It has been derived from the calculations shown in columns (8) and (9) of Table 1 below. The total land cost of US$903,000 shown in para. 3.14 for the Managua site of 2,750 lots and corresponding land for circulation and community facilities was obtained as followst Managua Land Requirements - No. of lots . 2,750 net density 35 lots/manzana - 79 manzanas x 08/sq vara or 080,000/manzana = 06.32 million = US$903,000 A similar calculation was made to obtain the US$399,000 land costs shown in phra. 3.14, Table t for the 3,250 lots in the secondary cities using an average land price of 03 per square vara. Total land requirements for the sites in the secondary cities are 93 manzanas. 1/ The ultimate prices should be somewhat less than the mission's deliberately conservative estimates, according to latest information from Nicaraguan officials.  EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA SITES & SERVICES PROJECT Land Costs of Proposed Sites Ai In Cordobas US$ Per US$ Cordobas Cordobas US$ Unit Land Square Per Manzana Per Ha. Per Acre Per Acre Per Sq Meter Per Lot Per Lot Costs Attributable Vara (2) = (3) = (4) = (5) = (6) = (7) = /2(8) = to Households L3 (1) (I)x 10,000 (2)xl.45 (3) -i 2.47 (4)-. 7 (1) x 1.45 (6) x 11L (7) . 7 (9) = (8) x 1.1 Leon (a) 3.0 30,000 43,500 17,611 2,516 4.35 478.5 68.4 75.3 (b) 0.78 7,840 11,368 4,602 Granada (a) 2.0 20,000 29,000 11,741 1,677 2.9 319 45.6 50.2 (b) 0.3066 3,066 4,446 1,780 Masaya (a) 2.5 25,000 36,250 14,676 2,097 3.63 399 56.9 62.6 (b) 0.5011 5,011 7,266 2,942 Jinotepe(a) 3.0 30,000 43,500 17,611 2,516 4.35 478.5 68.4 75.3 Managua (a) 8.0 80,000 116,000 46,964 6,709 11.60 1,276 182.3 200.5 (a) = Mission estimates after discussions on market values. (b) = Cadastral values. l Cadastral values for Leon, Granada, Masaya are one-sixth to one-tenth the mission estimates. /2 Lot size is 110 m2 /3 Land costs attributable to households are lots (110 m2) plus 1/2 of the circulation area (roads, footpaths). Lots represent 55% of total site area and circulation 20%. Consequently, Column (8) has been increased by P H 10% (1/2 circulation) to obtain Column (9). w April 12, 1973  SITES AND SERVICES ANNEX 2 Page 3 2. Site Preparation: (a) Topographical costs represent only 1% of total project costs because of the extensive topographical maps in various scales already available for each of the five sites. A detailed topographical survey, however, will be required with contour maps of 1:50. (b) Earthworks: The volume of earthmoving required depends upon the terrain. Each of the five sites chosen have a flat terrain with good topsoil. On the average, it will be necessary to remove one-third of a cubic meter of topsoil. Unit costs for comparable earthworks in Nicaragua approximate US$1 per cubic meter. Consequently, a 110 m2 lot will require 37 mS of earth- moving. Earthwork costs attributable to the household are therefore $37 for the lot and $4 for the 1/2 circulation costs attributable. Total earthworks for the site are estimated on the following basis: 6,000 lots x $37 US$222,000 Lots represent 55% of site area Earthworks required on the remaining 45% of site area for circulation and community facilities = 222,000 x 45 = 182,000 55 US$404,000 The earthworks included here is simply for the removal of total site topsoil. The amount of earthworks required for streets and footpath construction is included in their respective infrastructure components below. 3. Infrastructure (a) Urbanization Works (i) Streets and footways In each site an allowance has been made for a collector road which will carry bus traffic. It will be a seven- meter roadway with a double bituminous surface treatment. Minor streets will have a five-meter roadway with single surface treatment. Footpaths of two meters will also be provided. The costs of the roadworks and footways are estimated at $108.21 per lot (see details in Table II below) or US$649,000 total costs. SITES AND SERVICES ANNEX 2 Page 4 (ii) Water Distribution System Individual water supply will be provided to each lot serving a w.c., shower and pilar (washing) unit. A half-inch water service will be provided to each lot. The costs per lot of water supply reticulation (6" and 4" pipes) are estimated at US$37.90 (see details in Table II below). Capitalizing as part of the project the water meter costs of US$9, the unit costs to a household are $46.90 for water supply. Total costs are therefore 6,000 x $46.9 = $281,000. Annex 6, Figures 1-2 show the preliminary designs for the water supply (agua potable) system for the project sites in Leon and Granada, (iii) Sewerage All lots will have individual sanitary units and sewerage facilities. The costs of the sanitary unit are shown under lot development below. The design of the sewer system is based on 80% of the water supplied reaching the sewers plus an allowance for infiltration. This is the calculated dry weather flow designed to give a capacity of three times the dry weather flow. The trunk infrastructure costs for the sewerage, utilizing pipes of 6 and 8 inches, are estimated at US$57.39 per lot (see details in Table 2 below) or US$344,000 total costs. Annex 6 figures 3 and 4 show the preliminary designs for the project's sewerage system in Masaya and Jinotepe. (iv) Drainage The design criteria for surface water drainage is based on a storm intensity of three inches per hour and a permeability factor of .7 - .85. Along the surfaced carriageways, gulleys and piped drainage will be provided in passages and other areas open channels will be used. The surface water drainage costs are estimated at $30.77 per lot (see details in Table 2 below) or US$184,000 total costs. SITES AND SERVICES ANNEX 2 Page 5 (v) Electricity and Street Lighting The usual practice is for a municipality to request ENALUF to install street lighting and enter into an agreement to pay for the installation and running costs. In order to avoid delays, and because the municipalities have no funds available, street lighting has been allowed for in the capital costs of the project, estimated by ENALUF at 040 per lot. The capital cost of installing a power connection in a house and meter board is 0110 of which 070 is refundable property. Therefore, 040 per lot is included in the capital costs of the project. Electric wiring allowing for 3 switches, 3 drop socket outlets and 2 plug sockets is estimated by ENALUP at 0120. The above 3 items total 0200 or US$28.57 per lot yielding US$171,000 for the 6,000 lots.  EARTHQUAKE RECONSTRUCTION PROJEC1T - NICARAGUA INFRASTRUCTURE - URBANIZATION COSTS Basic Group of 364 L Lots Component Specifications Quantity Unit Cost Total Sub Total Per Lot US$ UsS UST 1. Roads - (Sub-totals di- a. Bus Collector Roads 13 meter road reserve for 150 meters .42 6,300 vided by 364) a 7 meter surfaced carri- ageway double bituminous surface treatme.it. b. Minor Roads 9 meter reserve for a 5 meter single surface treat- ment including cul-de-sacs and access roads. 630 meter 35 /2 22.,050 c. Footpaths 2 meters, non-surfaced. lump sum L - 11 040 39,390 108.21 2. Water Distribution Pipes 6 inches; asbestos cement 350 meters 8 2,800 Pipes 4 inches; asbestos cement 1,332 meters 6 7,992 Fire Hydrants 6 inches 3 400 1,200 Fire Hydrants 4 inches 9 200 1,800 13,792 37.90 3. Sewerage Pipes 8 inches; asbestos cement 1,022 meters 7 7,154 Pipes 6 inches; asbestos cement 1,300 meters 5 6,500 Manholes Heavy duty 8 200 1,600 Manholes Light duty 31 150 4,650 Connections 27 25 675 Rodding Eyes 52 6 312 20,891 57.39 4. Surface Water Drainage Open channels 1,000 5 5,000 Head walls 20 15 300 Pipes 24 inches 200 meters 25 5,000 Manholes - 6 150 900 11,200 30.77 1 Consists of 26 Clusters of 14 lots each. Quantities for the basic group of 364 lots were arrived at after discussions with Nicaraguan engineers and quantity surveyors. /2 Includes road reserve, tarmac, surface water drainage. /3 Quantities for footpaths will only be known when detailed design and engineering is complete. A lump sum r Q of US$30 per lot ($11,040 for 364 lots) has been provided based upon experience elsewhere.  SITES AND SERVICES ANNEX 2 Page 7 (b) Clustering The lot layout has been designed on a cluster basis in order to avoid the static, "barracks" appearance of many low-cost housing projects. Fourteen lots will be clustered around a small open space, with a cluster size of 45 x 40 meters. The costs attributable to this clustering are: Costs Per 14 lots US$ Open Space 150 8" Concrete Tube Sewers 225 2 Manholes 255 Sewerage Connecting to the Lot Boundary 210 2" p.v.c. Water Pipes 161 Water Connections 350 Surface Water Drainage 155 Roads (620 meters at $8 per meter) 112 1 .618 Divided by 14 for unit cost attributable to household on the premise that the household pays for full custering costs 115.57 Therefore, costs for 6,000 lots = US$693,000. 4. Lot Development: Construction costs on lot development are estimated to consist of about 60% materials and 40% labor costs. The breakdown of the sanitary unit cost of $233 shown in Table I is as follows: Sanitary Core Unit Cordobas US$ Foundations 125 18 Walls (concrete blocks) 408 58 Horizontal reinforcements 14 2 Columns 223 32 Beams 186 27 Floors 70 10 Roof 60 9 Doors, windows and hardware 100 15 Plumbing 1/2" 88 13 Sewerage, including pilar 116 17 Toilet, etc. 225 32 TOTAL 1j615 233 SITES AND SERVICES ANNEX 2 Page 8 The breakdown of the US$836 costs for the sanitary core unit and minimum shelter unit shown in Table 1 is as follows: Sanitary Core Unit and Minimum Shelter Unit Cordobas US$ Cleaning and levelling 45 7 Foundations 287 41 Walls 1,400 200 Column 345 49 Bathroom columns 223 32 Sec. Columns 146 21 Horizontal Reinforcements 90 13 Total Bond Beam 720 103 Floors 630 90 Roofs 810 115 Doors, windows and hardware 380 54 Plumbing 88 13 Sewerage including pilar 132 19 Bathroom Fixtures 225 31 Kitchen 160 23 Electricity 180 25 TOTAL 5j861 836 The total costs for lot development shown in Table were arrived at as follows: Sanitary Core Unit: 6,000 lots x $233 = 1,398,000 Minimum Shelter Unit: 5,500 lots x $603 = 3,317,000 Since materials are estimated to constitute about 60% of the $603 minimum shelter unit costs, a household materials fund of $360 per lot will be provided for the 500 lots without minimum shelter unit in the pilot program yielding a total cost of US$180,000 on these lots. 5. Community Facilites (a) Schools: The project includes classroom facilities for primary schooling for all eligible children on the basis of 17% of the population being of primary school age. The land requirements for a six-classroom primary school are approximately 4,200 sq meters whose costs are included in the total land costs above. The $29,000 capital costs per school are derived as follows: us $ Building (6 classrooms at $4,000 per classroom) 2 24,000 Infrastructure costs (4,200 at $1.2 per m ) 5,040 $29,040 Total costs for 12 schools = $348,000 SITES AND SERVICES ANNEX 2 Page 9 (b) Clinics: Provision has been made for 250 sq meter health clinics. the land requirements amount to approximately 400 sq meters, and have been included in the total land costs above. Capital costs per clinic building are estimated as follows: US$ Building (250 m2 at $60 per m 2) 15,000 Infrastructure costs (400 m 2 at $1.2 per m) 480 $15,480 Total costs for 12 clinics = $186,000 (c) Community Meeting House/Child Care Centers: The project allows for a community center to be provided for every 500 families, each center to consist of a meeting room/chapel, two special- purpose rooms, administration room and sanitary facilities. A 220 sq meter building on 1,000 square meters of land is estimated to cost as follows: Us$ Building costs of $60 per m 2 2 13,200 Infrastructure costs of (1,000 m a $1.2 per a) 1,200 $14,400 Total costs for 12 community houses $173,000 Community centers could rapidly be adapted for use as child care centers or pre-primary schools to help widows of the earthquake often having four or five dependents. (d) Markets/Commercial Services: An allowance has been made for an area of 1,000 sq meters to be set aside as a market for every 500 families. The sites will probably be chosen by the people themselves and provision has been made in the cost estimates for surfacing and draining the area and for water supply and washing facilities at a total cost of US$4,180 excluding land. Total costs for 12 markets are therefore $50,000. A large proportion of the lots will probably convert to shopping or commercial uses; but for design purposes an allowance has been made for grouped commercial facilities on the basis of one shop per 25 households. An allowance has been made at the rate of 4 ha of land for every 1,000 house- holds. SITES AND SERVICES ANNEX 2 Page 10 6. Detailed Engineering and Construction Supervision: Calculated on the basis of 6% and 3% fees respectively of costs for site preparation, infra- structure, lot development and community facilities, the estimated costs are $763,000. Unit costs attributable to households amount to US$110 cal- culated on the same items, excluding community facilities, and divided by 6,000. 7. Technical Assistance: 40 man-months of advisory staff (engineer, sociologist, architect) $4,000 per man-month - $160,000. B. Calculation of Household's Monthly Payments The monthly payments shown in para. 3.15 were derived as follows: Table 3. Calculation of Household's Monthly Payments (US$) Unit costs Attri- ,Capital to Repay Monthly butable to Households DoMayment- M_onthly Ptan /2 Managua Lot 1,845 92 1,753 10,96-7 ot in Secondary ;ities 1,720 86 1,634 10.22- !1 5% of unit costs attributable to households. The amounts are equivglpt to about eight monthly payments. a'-ulated on a mortgage loan for 22 years with 5% compound interest com- uQed or the agnaid monthly ba.ance, namely, 264 payment perio4s and on a;ont1lv capital recovery fctor of .0062528075. This system, which is urntl employed by Banco Vivienda, works to the advantage of house- Iclds as compared w1th the more common system of computing the annual paym,ent on the onpaid annual balance and dividing it into 12 equal n1onthli payments. In this latter case, the monthly payment would be US$11.10 for a Managua lot, or $0.14 higher than in the above table. ANNEX 3 Page 1 SITES AND SERVICES PROJECT EXECUTING AGENCY - BANCO DE LA VIVIENDA DE NICARAGUA (BVN) Organization, Operations and Financial Situation 1. The operations of Banco de la Vivienda (BVN) date back to 1959 when Banco Hipotecario, a bank which made loans to industry and agriculture, was converted into a National Housing Institute, Instituto 1 icaraguense de la Vivienda, INVI, (Decree No. 46, March 19, 1959). Between 1959-1966 INVI constructed about 5,000 housing units in the low-middle cost range (US$1,500 - 4,000) financed partly by loans from IDB. On June 1, 1966 by means of Presidential Decree No. 1192, the Government created a new organization, Banco de la Vivienda de Nicaragua, incorporating two new departments in addition to the INVI department: - Savings and Loan Department, CACE (Caja Central de Ahorro y Prestamo) - Mortgage Insurance Department, FRA (Fomento de Hipotecas Aseguradas) 2. A USAID loan of $3.7 million as seed capital for the Savings and Loan Department formed an integral part of the broadening of INVI operations into the BVN organization. Since then AID's Housing Investment guarantee program has provided funds to the Mortgage Insurance Department (FRA) and IDB has continued to finance a portion of INVI's operations. Table 1 below lists the loans made by USAID and IDB to BVN (or INVI prior to 1966) in the last ten years amounting to US$25 million. Table 1 (millions of Cordobas) gency Date of Loan Loan Amount Amt. Undisbursed IDB 1962 5.2 1DB 1965 5.3 AID (Savings and Loans) June, 1966 3.7 - AID (Housing Investment Guarantee Program) Oct., 1969 4.0 1.5 IDB Nov., 1971 7.0 3.0 25.2 4.5 3. The National Housing Bank is a soundly managed institution enjoying a healthy financial situation compared to similar housing institu- tions in many countries. Separate accounting and lines of responsibility have been maintanied by the BVN management for each of the three departments. ANNEX 3 Page 2 BVN's operations are quite diverse spanniag the housing sector through its three departments. The diagram below depicts this financing process and the roles played by BVN's three departments in the housing sector: House Developer/Seller INVI or others FRA provides mortgage insurance House Buyer < > Savings & Loan Association originates mortgages CACE - discounts mortgages CACE does not make direct loans to households, this being the function of the three savings and loan associations: - Financiera de la Vivienda, S.A. - Centroamericana de Ahorro y Prestamo, S.A. - Inmobiliaria de Ahorro y Prestamo, S.A. In 1972 CACE "discounted" US$11 million worth of mortgages by making direct loans to these savings and loan associations. FRA provided mortgage insurance to about 4/5 of the 120 mortgages originated by the savings and loan associations. FHA does not conduct any secondary market mortgage operations. 4. Since 1969 the INVI Department has been concentrating its attention on low-income housing needs with the completion in 1971 of the two projects in Managua of a thousand units each (primero de Mayo, Unidad de Proposito) mentioned in para 3.19. INVI concluded individual "tenant-purchase" con- tracts with the 2,000 families whereby they acquire ownership after 22 years when they have fully paid their monthly payments of principal (6%) and insurance, interest amounting to 071 (US$10.1) per month. During the payment perioa the family can only transfer the house to other family members or friends who then assume the remaining payments obligations and the right to the house thereafter. This tenant-purchase system has the advantage to INVI that the family is discouraged from abandoning the house because the past payments become ach like rent paid except that the family will obtain from INVI the difference between the assessed rental value of the house at the time of abandonment and the sum total of its payments discounted at the market rate of interest. The disadvantage of transfer of ownership being made only after 20 odd years is that the family is uct induced to consolidate the basic house (extend the area under roof and build additional rooms inside). Ac- cording to the proposed project agreement for the sites and services project, families would be offered mortgages at 20-year terms carrying a 5% rate of interest. Ownership will be transferred after consolidation takes place to the extent of the first self-help room being built, inspected and approved by INVI. ANNEX 3 Page 3 5. BVN's financial position is sound. Table 1 shows BVN's actual balance sheets for 1970-71 and estimates for 1972. BVN's total assets/equity and liabilities in 1971 amounted to 0285 million ($40.7 million) and about 0339 million ($48.4 million) just prior to the earthquake. The debt/equity ratio is 2.4. Table 2 shows BVN's Income Statement, 1970-72. Total revenues have been increasing by about 20% per annum mainly because of the interest due from the substantial increase in mortgage loans granted during 1971 and 1972. Operating income constituted 31% of total revenues in 1971 and is estimated to amount to a similar proportion in 1972. By year-end 1972, BVN's undivided profits are estimated to amount to 026.6 million ($3.8 million). In accordance with Article 9 of the 1966 law establishing BVN, the Board of Directors is required to make an accounting distribution of the annual operating income. Furthermore, the June 1966 contract agreement with AID requires the annual operating income of each operating department to be retained by that department for future projects. Nevertheless, to date the accumulated profits have still not been distributed. In accordance with Article 10 of the BVN's Organic Law the Government must absorb any operating loss that the INVI Department may suffer in the year following that in which the operating loss was experienced. Althoug the external audit by Peat, Marwick, Mitchell and Co. is of BVN as a whole, adequate separate accounts are maintained for each of the three BVN Departments. The 1971 IDB loan document restricted the use of IDB funds to INVI's operations and similarly the AID 1966 loan was restricted to CACE's Savings and Loan operations. The IDA sub-credit will be restricted to INVI's operations and accounted for in INVI's accounts.  BA CO DE LA VIVIEIDA - OAGAalZATIOAf CHART Board of Directors Administration- Financial Accounting President Legal Planning Savings & Loan Mortgage Insurance Low Cost Housing Department Department CACE FHA INVI Manager Magerer Loan Savings Division of Technical Community Engineering Economics & Division Division Finances and Division Development Division Accounting Investment Division Division Technical Mortgage Section for Section Analysis and Supervision of' Projects Operations Accounting Section Section April 12, 1973  ANNEX 3 Table 2 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA BANCO DE LA VIVIENDA DE NICARAGUA BALANCE SHEETS AS OF DECEMBER 31, 1970-1972 (in thousands of Cordobas) 1970 1971 1972 (Actual) (Actual) (Estimated) ASSETS Cash on Hand and in Banks 17,312 15,125 5,084 Loans and Accounts Receivable 189,970 227,773 286,470 Less Allowance for Bad Debts 6,718 6,112 7,100 Net Loss and Accounts Receivable 183,252 221,661 279,370 Investments 26,864 46,436 36,391 Bank Premises and Equipment /1 at Cost Less Accum.Depeciatio - 1,441 1,426 16,263 Other Assets 1,396 957 1,504 TOTAL ASSETS 230,265 285,605 338,612 LIABILITIES AND EQUITY Bank Overdraft 364 - - Funds Borrowed 136,1437 173,734 240,107 Debt on Land Purchased 7,524 9,754 Mortgage Bills 321 257 81810 Mortgage Bonds - 2,750 Other Liabilities 6,124 6,676 Unearned Income 5,037 7.,771 1,500 Total Liabilities 155,807 200,942 250,417 EQUITY Initial Contribution from the Gov't 51,825 51,825 51,825 Subsequent Contribution from Gov't 8,315 12,583 13,583 Donations Received 615 615 615 Undivided Profits (Capital Reserve) 13,702 19,638 221172 Total Eauity 74,457 84,663 88,195 TOTAL LIABILITIES ANT EQUITY 230,265 285,605 338,612 /1 Since the Bank's premises were destroyed in the earthquake, this item will be written off and converted into cash received once payments are received from the insurance company. The claim is in process. April 12, 1973  ANNEX 3 Table 3 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA BANCO DE LA VIVIENDA DE NICARAGUA INCOME STATEMENT, 1970-1972 (in thousands of Cordobas) 1970 1971 1972 Year Ending Dec. 31 (Actual) (Actual) (Estimated) REVENUES Interest 11,500 15,612 18,900 Rentals on Leased Houses 298 175 160 Premiums on Mortage Insurance and Savings Deposits 770 1,021 1,290 Insurance Appraisal Fees 222 161 115 Commissions 563 727 434 Miscellaneous 1,145 630 628 Recovery of Bad Accounts 795 616 510 TOTAL REVENUES 15,293 18,942 22,037 EXPENSES General & Administrative Expenses 4,934 5,609 5,110 Interest 3,622 6,484 8,815 Commissions 698 793 800 Technical Insurance Reserve 107 83 92 Miscellaneous 430 479 550 SUB TOTAL 9,792 13,448 15,367 Less additional charges applied to investments 91 442 250 NET EXPENSES 9,701 13,oo6 15,117 Net Operating Income Trans- ferred to Undivided Profits 5,592 5,936 6,920 Undivided Profits at January 1 8,110 13,702 19,638 Undivided Profits at Dec. 31 13,702 19,638 26,558 April 12, 1973 ANNX 3 Pf.ble 10 Banco de la Vivienda (INVI Department) Low-Income Sites and Services/Housing Fund The annual amount of $1.5.-2.0 million to be paid into' the fund (para 3.24) was derived as follows: A. Repayments from Entities Loan Repayment Interes Loan Amount Term Grace Period Period Rate ($ million) ---------Years--------------- Power (ENALUF) 5.0 20 5 15 7.25% Water Supply (AGUADORA) 2.5 20 6 14 7.25% Industry (INFONAC) 2.5 12 3 9 6.75% 10.0 /l Interest free during grace period. Therefore, annual payments to be received in the housing fund are: (i) Principal US$ Power $5 million 333,000 (commencing year 7) 15 years Water Supply $2.5 million 179,000 (commencing year 6) 14 Industry $2.5 million 278,000 (commencing year 4) 79o,ooo (ii) Interest 54,000 844,000 B. Repayments from Sites and Services Beneficiaries W10.5 per month x 12 x 6,000 756,000 TOTAL $1,600,000 April 12, 1973 ECONOMIC EVALUATION ANNEX 4 Table 1 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA Economic Costs of the Project (in US$ million) Site Preparation 0.51 Infrastructure (excluding social services) 2.32 /l Other Unit and Shelter 6,000 Sanitary Core Units 1.373 1 5,500 Minimum Shelter Units 3.317 1 Materials Fund for 500 Shelter Units .175 1 Value of self-help labor .090 2 4.95 Engineering, technical assistance and physical contingencies 2.19 Total (excluding land costs) 9.97 Land 1.30 TOTAL (including land costs) 11.27 Cost of adding the first room $285 Cost of completing consolidation of each house (additional rooms) $538 1/1 Costs taken from para 3.14, and excluding 3% taxes on con- struction materials, which constitute 60% of capital costs. /2 The cost of labor (US$241.2) for a shelter unit is estimated at 40% of total costs. The value of self-help labor (US$181) has been shadow priced 25% below its market value. The self-help labor costs for the pilot program units are therefore 500 x $181 = $90,000. April 12, 1973 U4 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA Monthly Rental Values A (US$) Minimu Like1y One-Room Housing Unit 14.3 21.4 Two-Room Housing Unit 17.8 25.0 Consolidated Housing Unit 25.0 35.7 (three rooms plus a kitchen- dining room) /1 These are rental values for housing in Managua with running water and sewerage. April 12, 1973 NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT ANNEX 4 Table 3 Benefits and Rates of Return of the Project (thousands of US Dollars) I 1i I2L Years min. likely min. likely min. likely 1 0 0 0 0 0 0 2 950.1 1,427.1 998.0 1,474.6 998.0 1,474.6 3 I " 1,045.8 1,522.3 1,045.8 1,522.3 4 "f 1,084.0 1,569.8 1,084.0 1,569.8 5 " 1,141.3 1,617.9 1,141.3 1,617.9 6 " 1,189.2 1,665.0 1,189.2 1,665.0 7 it " 1,213.0 1,700.7 8 "t " " 1,236.9 1,736.4 9 t " " t 1,284.6 1,807.8 10 " 1,308.5 1,843.5 11 "t " " 1,332.3 1,879.2 12 "t " " 1,356.2 1,914.9 13 " " " 1,380.1 1,950.6 14 " " " 1,404.0 1,986.3 15 " " " 1,427.9 2,022.0 16 "t " " " i" 17 " f " " " 18-30 " " " " " " Rates of Return Inc. Land Costs 7.5% 12.4% 8.3% 12.7% 8.7% 13.1% Excl. Land Costs 8.9% 14.2% 9.6% 14.4% 9.9% 14.8% Assumptions: /l Streams I assume that no consolidation will take place. /2 Streams II assume that one room will be added to all core units in the first five years of occupancy. / Streams III assume that half of the houses will be consolidated (by adding two more rooms) between years 6 and 16 occupancy. April 12, 1973  NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT SITES A2D SERVICES PROJECT Implementation Schedule- -----------173------ ------------- -------------- ------ 1975----- Months: AM JJASOL ,D JFMAM JJASO D JFMA4J 1. Detailed Engineering 2. Contract Award 3. Site Preparation . Infrastructure Works 5. Core Unit Construction and Community Facilities 1/ Work on sites in each city to proceed simultaneously. (D H April 12, 1973  SITES AND SERVICES ANNEX 5 Table 1 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA Estimated Schedule of Disbursements (in millions of US Dollars) Cumulative Quarter Date Amount Disbursements 1 June 30, 1973 0.1 0.1 2 Sept. 30 0.3 0.4 3 Dec. 31 0.3 0.7 4 March 31, 1974 0.5 1.2 5 June 30 0.7 1.9 6 Sept. 30 0.9 2.8 7 Dec. 31 0.8 3.6 8 March 31, 1975 1.1 4.7 9 June 30 1.3 6.0 10 Sept. 30 1.2 7.2 11 Dec. 31 0.8 8.0 April 12, 1973  ANNEX 6 7r9g.re 1 Li~~LOTES 1000 POBLACI ON = 6000 HABITANTES CONSUMO DE MAX. HORA = 375 GRM. 1 ~ A 775 mi. 0 56= 4O00 -,7- 4"A C 480 m1e.8 45= 210OO _ 3AC 615 ri 32. 19"sO 2-AC 5,000 mJ. e 28=40000 -~ jii tll j224,680 r T10% ACCESORIOS 22i68 ~ARD --I 247jL48 ARDIN DE A 1000 Corx. 250 c/u 250P0 iATO0T AL It 497,148 -ESCUELA -SIMBOLO!8 C ENTRO" NE RCAD V- ARIN DE i EE E 7~2 PF80YECTO DE LOTES URBANIZADOS L EON GOBENNO DE NICAGU --r BNCI MNLD I:A0L--  0 - 0> ) -~ - ~ ' - _ s _ .~u ~, 0r II WO  ANN 6 Figure 3 SSiMBOLOGIA ø 6" - c j 0.0 CEMENTERIODS PROYECTO DE LOTES URAAZDS M SY \E -R p97 TUBERiAO: MTO EN 4,564 .1 8' "- 182,160\ 1,484 .1 W 0" --- 66,780 POZOS DE VISITA: 114 -- .10 cONEXIONES ~ LJAREM 8 40+ !,6 0 SISTEMA DE A LCANTARILLADO SANITARIO ESCL120 PROYECTO DE LOTES URBAINIZADOS MASAYA G OBIE R N O D E NICAR AG UA - B A N C 0 M U N D l A L M NIC  ANN1! 6 Figure -4 GRý SIMBOLOGIA . -------- ør i6" Ø 8' ø 12" P.v.S AREA VERD LONGITUDES 6" = 5080 mi. Ø 8" = 18 50m. - ErR OQUE CMEC - 10" 400 ml S12 • 30 mL TOTAL " 7630 ml 0 5STO S 5080 Ø 6" Ø 203,200 1850 Ø 8" 14 83.250 E 400 Ø 10" , 5,600 300 ø 12" 5. 20,400 115 ø PS 4# 138,000 TOTAL ø 470,450 1069 Conexiones, .1213,800 Lag.de Oxidacon 11l50,000 GRAN TOTAL =K834,250 ES,CALA 1 2000 .\ SISTEMA DE ALCANTARILLADO SA ITARIO ,OXN PROYECTO DE LOTES URBANIZADOS JINOTEPE FEDRERO - 1973 GOBSIER NO DE NICARAGUA - B AN NC0- MU)N.0DIAL MAN AG UA - NIC  NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT List of Proposed Investments, by City Total Financing Number of City/Firm Product Project Cost Cost Project Status Employees (thousands of Cordobas) GRANADA 1. Earthquake-destroyed firms Nicaragua Export Clothing 630 630 Appl. received 60 Trnjes Gomez Clothing 1,000 800 60 Kikatex Clothing 1,000 700 50 2,63 2,130 170 2. Expansions Jaboneria Prego Soap 1,500 900 Appl. received 15 E. Chamorro Glycerine 1,800 800 Appl. received 10 E. Sandino Animal feeds 800 500 Appl. received 10 3,100 2,200 35 3. New Projects Ind. Pesquera Continental Fishing 1,800 246 INF approved project 56 Municipal Slaughterhouse Meat 1,4o0 700 Appl. received 50 3,200 946 106 TOTAL 8230 5 E6 311 ACp 2 H '-3 April 12, 1973 Total Financing Number of c ity/Fir: Product Project Cost Cost Project Status Employees TthousandiTf Cordobas ) MASAYA 1. Earthquake-destroyed firms Castro Gulke Printing 286 264 INF has approved 12 C. Baharet Shirts 603 264 INF has approved 35 J. Zuniga & Cia Flavorings 141 105 INF,has approved 9 Irsa Cosmetics 500 500 Feasibility study presented and under study by INFONAC 20 Inca Nails, wires,etc. 7,200 900 Chamber of Commerce project 338 R. Salvatierra Printing 722 304 Appl. receivedl 12 Julio Jerez Shirts 50 50 Appl. received 20 A. de Gaitan Lamps, Steel Bars - 60 Appl. received - Joyeria Deher Jewelry - 450 Appl. received - 9,502 2,897 446 2. New Projects Slaughterhouse Meat Products 1,400 700 Appl. submitted to IBRD Unknown 0. Ordenana Food Products 210 110 Appl. received Unknown Nicarguinia Paints - 1,100 Appl. pending Unknown 1,610 1,910 Unknown TOTAL jLL2 4,80 Total Financing Number of City/Firm Product Project Cost Cost Project Status Employees (thousands of Cordobas) LEON 1. Earthquake-destroyed firms La Moderna Garments 300 300 Approved but being 120 expanded 300 300 120 2. Expansion of existing facilities Rafael Sosa Printing 100 100 Application received 10 Albertina Bustos Soap 60 60 Application received 20 160 160 30 3. New Projects Municipal Slaughterhouse Meat 1,400 700 Applied to INFONAC 50 Nicapellets Animal feed 2 000 1,500 Application received 20 3,400 -2,200 70 TOTAL 3,860 21660 220 dJ Total Project Financing Cost Cost Number Cordobas Cordobas of City Firm Product (OOO) (000) Project Status Employees JINOTEPE DIRIAMBA 1. Earthquake-destroyed firms - project status firm Laboratories Ahlers Chemicals 335 140 Studies completed - INF has approved 6 Cosco Deserts, etc. 200 100 Application processed 10 Galletas Cristal Crackers,etc. 2,000 1,000 Application being submitted 50 Drogeria Calvali Phanna- ceuticals 150 12 Application submitted 9 Plasticos de Nicaragua Plastic products 62784 875 INF studies completed 35 Sub total 9,469 2,127 110 2. Expansion of existing facilities Nicalit Asbestos roofing 1,500 800 Study completed but project being expan0ed 50 Argo Industrial, C.A. Food prod. 700 500 Application being presented 20 Acevedo Bendana Coffee mill 800 800 INF has application 200 Hilanica Clothing 1,319 486 INF has application 80 Sub total 4,319 2,586 350 3. New Projects Jua: Ml.espin Clothing 226 131 Approved but being revised 15 Mxt.-c-p:l Slaughterhouse Meat 1,400 700 Application received 90 C1.1 Bandes Shirts - 417 Sub total 1,626 1,248 65 4. Eartllic9ake-destroyed firms - project status not known or no formal INFONAC application Manuel A. Romero Furniture 1,000 600 Unknown 50 Lazaro Parodi Brake fluids 200 100 Unknown 10 Laboratories Frech Pharma- ceuticals 200 100 Unknown 15 Sub toLal 1,400 800 75 TOTAL 36 814 6,761 600 Total Project Financing Cost Cost Cordobas Cordobas Number of City/Firm Product (000) (000) Project Status Employees Non-Refugee Cities Outside Managua ATLANTIC (new) Pesquero Anticorrosivos Shrimp boats 6,000 1,200 Application received 34 Frigorificos de Carribe Cold Storage 1 116 685 Application received 35 Sub total 7,116 1,885 69 Outside Managua (new) Telplanicsa Vinyl leathers 3,500 1,730 Application received 25 Oliver Fagot Garments/ furniture 150 80 Application received 15 Francisco Castrillo 120 Conception Vela quez 50 Sub total 3,650 1,980 40 Matagalpa (new) Producto Minerales Inertos Minerals 323 100 Application received 34 Queseria Bavaria Cheese 1,332 620 Approved by INFONAC 31 Sub total 1,655 720 65 Others Luis A. Valdivia - 75 - Manuel Martinez 200 - ALTESA Furniture 1,095 - Tuma Tannery 350 - TAMSA Leather goods 524 Sub total -2,244 - TOTAL 12,421 6 829 174-I- Total Number Project Financing of Firm Product Cost Cost Project Status Employees (thoucands of Cordobas) Projects OUtside Managua Whose Location Locations Remain to be Identified La Favorita 160 In active study by INFONAC Ind. Lac. Les Brasiles 98 In active study by INFONAC 258 OJ' INDUSTRY ANNEX 8 Page 1 EARTHUAKE RECONSTRUCTION PROJECT - NICARAGUA DECENTRALIZATION SCHEME PROPOSED BY THE CENTRAL BANX AND MINISTRY OF ECONOMICS WORKING GROUP 1. Government has under consideration a number of fiscal incentives to promote the decentralization of industry throughout the Departments: (a) deducting from taxable income (from any origin) the investments made in the geographical areas to be developed; (b) destroyed industrial enterprises which would relocate in the Departments would receive industrial classifi- cation as new projects, giving them fresh benefits; and (c) new industrial enterprises locating in the Departments will be exempted from the production tax and the 2.2% tax on factory sales. 2. Benefits will be given for the period established by the National Law for Protection and Encouragement of Industrial Development, incorporating such criteria as employment and origin of raw materials. 3. Enterprises located in Managua which decide to relocate will receive the same benefits. Firms already located in the Departments, seeking re- classification and expansion will receive local tax exemptions by virtue of Decree 11-2. 4. Additional benefits being considered are: (a) exemption from taxes on raw materials, machinery and equipment (a tax usually called piso, i.e. floor) which are charged by some municipalities and juntas locales; (b) exemption from license taxes in the municipalities and juntas for a three-year period; (c) exemption from the maximum percentage in the category which corresponds to the 30% tax for Economic Stabilization; (d) a preferential price for electricity for industrial enterprises locating in the Departments; and (e) permitting small industries duty free import of machinery, equipment and raw materials. INDUSTRY ANNEX 8 Page 2 5. Other aspects of the decentralization policy might include: (a) development and promotion institutions, e.g. INFONAC would prepare projects for the private sector. They would offer liberalized terms and interest rates and would provide technical assistance. On the last point the Technological Research Department of the Central Bank would participate actively; (b) the Central Government, in cooperation with the municipal authorities, could construct industrial parks. Infra- structure would be provided and buildings rented to industries. Other buildings could be included according to the needs of each enterprise. This scheme would reduce each enterprise's investment and economics of scale would be obtained if complementary industries are located in such industrial zones. In any case, the necessary infra- structure including access roads, would have to be built in the Departments in order to induce industries to move there; and (c) defining the National District in Managua as a zone not suitable for new industrial installations because of safety conditions would be the most effective measure for decentralization. INDUSTRY ANNEX 9 Page 1 INFONAC - Organization, Appraisal Procedures and Financial Situation Organization Structure 1. INFONAC was reorganized in September 1972 when the three technical departments -- Agricultural Projects, Industrial Projects and Economics Departments -- were regrouped into (see Figure I, attached): (a) Banking Department; (b) Study, Supervision and Control Department; (c) Promotion and Development Department; and (d) Administration Department. These departments together with the various sections within each department and the role of the Superior Council, Executive Board and the President (General-Manager) are shown in the attached organization chart. Some 250 employees, of which 60 are professionals, are allocated among the departments. 2. The Superior Council meets about six times a year to set general policy and approve the budget, annual report and foreign loans. Its nine members comprise: (a) Ministry of Economy (Chairman); (b) Minister of Finance; (c) Minister of Agriculture; (d) President of the Central Bank; (e) President of Banco Nacional; (f) Head of the Planning Office; (g) A representative from the minority political party; (h) A representative from the industrial sector; and (i) the General Manager of INFONAC (non-voting member). The Superior Council does not approve/reject specific loans or equity invest- ments made by INFONAC. INDUSTRY ANNEX 9 Page 2 3. The Six-Member Board of Directors is chaired by the General Manager of INFONAC, and includes a representative of the Executive of the country, a representative of the minority party, and representatives from the industrial, commercial and agricultural sectors. The Board is required to approve every loan made by INFONAC in excess of 0100,000, including additional loans to companies of lesser amounts but which exceed 0100,000 when aggregated with previous loans. 4. The General-Manager of INFONAC is appointed by the Superior Council. The present General Manager (Mr. Noel Pallais Debayle) has been in office for 6 months. In addition to his functions on the Superior Council and Board of Directors, the General Manager can approve/reject loan applications below 0100,000. 5. Much of the day-to-day operations of INFONAC are delegated to the Deputy-Managers who are at the same time department heads. The particular functions of the three "operating departments" (excluding the Administrative Department) can best be understood in the context of the evaluation process for loan/equity investment applications. This process consists of the follow- ing steps: (a) A loan application is first submitted to the Banking Department which checks whether the activity in question conforms to INFONAC's basic policies; (b) The Banking Department checks financial information on file if the company is an existing INFONAC client or requests this information and a feasibility study if it is a new client; (c) The feasibility study is then sent to the Evaluation Division of the Department of Studies, Supervision and Control for analysis. A report is written and sent back to the Banking Department. This stage takes from 2-4 weeks; (d) The Banking Department makes the basic recommendations and formulates conditions and terms for the loan, and then the proposal is sent to the General Manager. This stage takes one week; (e) If the Board approves the loan proposal, it is returned to the Banking Department to conclude the legal documents and begin disbursement. This appraisal process takes about 4-6 weeks in most cases but can take up to 6 months with difficult cases. INDUSTRY ANNEX 9 Page 3 6. The appraisal process for operations such as the proposed credit to promote decentralization would vary somewhat. In this case the Promotion and Development Department assists the client directly in carrying out the feasibility study. It also evaluates the proposals and sends them on to the Studies, Supervision and Control Department for further evaluation. The proposal then goes through the usual process. Financial Situation 7. Table 1 shows the Balance Sheets for 1970-71 (actual) and estimated for 1972 (unaudited at this time) show INFONAC's position a year before and shortly after the earthquake. Table 2 shows the Income Statement for 1971 and 1972 and the Sources and Uses of Funds for 1970 and 1971 are shown in Table 3. INFONAC's estimated net loss of 014.2 million in 1972 is a slight increase over 1971's figure (attached). The table below lists INFONAC's losses since 1967: INFONAC's Annual Net Losses Year Annual Net Loss (in 0 millions) 1967 4.6 1968 7.7 1969 13.6 1970 9.9 1971 13.9 1972 14.2 8. INFONAC's losses have been caused by some poor investments, high overheads and administrative expenses, e.g. in 1972 General and Administrative Expenses represented 55% of total revenues, although this might be expected in a development bank whose operations are technical/clerical in nature - and by the increasing cost of raising money. The table below shows this de- creasing spread. Much of INFONAC's portfolio is long term for which it has lately had to borrow short term funds at high rates of interest. INDUSTRY ANNEX 9 Page 4 INFONAC's Interest Spread /1 /2 Total Yield - Financing Cost -- Spread ---------------------- % 1965 10.2 4.6 5.6 1966 8.1 3.3 4.8 1967 8.8 4.8 4.0 1968 8.8 5.0 3.8 1969 9.5 6.0 3.5 1970 9.0 7.2 1.8 1971 8.3 7.5 0.8 /1 Total interest, commission and other income as percentages of total gross loan portfolio (year-end balances). /2 Total interest, commissions and other borrowing costs as percentages of year-end balances of total indebtedness. 9. A feature which distorts INFONAC's profitability picture is that research and development costs are charged against operating income such as the annual 04 million, or 030 million incurred to date, on the forestry pro- gram which represents a very good investment whose returns are likely to be about US$20 million per year by the early 1980's. These costs should be separated from the regular income statements and reflected in the asset side of the Balance Sheet. 10. Another factor is INFONAC's under-capitalization of equity causing a high debt/equity ratio of about 4:1 in 1971. This was somewhat alleviated in 1972 when Government paid in to INFONAC 080 million (US$11.4 million) 030 million as reimbursements for previous losses (according to Article 7 of INFONAC's organic law) and 050 million as additional equity (see attached Balance Sheet). Consequently, the debt/equity ratio at year-end 1972 dropped to 2.6:1. 11. At year-end 1972 INFONAC's loan portfolio stood at t261 million, up $30 million from 1971 (attached). The sectoral breakdown of this portfolio is shown below: INDUSTRY ANNEX 9 Page 5 INFONAC's Loan Portfolio by Sector 1967 - 1971 (in million Cordobas) 1967 1968 1969 1970 1971 Industry 81.6 102.1 126.0 127.7 126.2 Agriculture: 51.5 69.6 84.7 98.8 97.8 Bananas 19.4 28.3 38.8 40.5 40.0 Tobacco 19.5 27.8 32.5 45.3 51.2 Other 12.6 13.5 13.4 13.0 6.6 Cattle 2.6 2.5 3.7 3.7 5.1 Loans to Savings Depositors 1.0 1.1 1.4 1.3 0.9 TOTAL 136.7 175.3 215.8 231.5 230.0 As can be seen from the above table, industrial lending, which has not in- creased in the last three years, constitutes slightly over half of INFONAC's loan portfolio. However, it is expected to constitute a greater proportion in the next few years. 12. INFONAC's investment portfolio stood at 081.6 million at year-end 1972, an increase of t4.1 million over 1971. It is difficult to obtain an accurate idea of the current value of this portfolio since the investment figures contained in the Balance Sheets are valued at cost and not market value. Yet an allowance for decline in value has been made. A similar allow- ance for increases in value should be shown. Shares in industrial companies stood at 039.9 million in 1971 or 52% of INFONAC's total investment portfolio. 13. INFONAC has received a number of loans from IDB, AID as shown in the table below: Loans Made to INFONAC by IDB & AID Agency Date of Loan Amount of Loan (Month, Day, Year) (in millions of Cordobas) IDB 7 / 11 1961 2.0 9 / 14 1964 1.4 12 / 13 1965 3.5 2 / 26 1969 5.0 AID 12 / 23 1964 4.0 10 / 23 1967 5.0 In addition, INFONAC has received long-term loans and one person as technical assistance from Kreiditanstalt of Germany. INDUSTRY ANNEX 9 Page 6 INFONAC's Flow of Funds 14. Table 4 shows the 1972-1975 projected cash flows in a format kept by INFONAC and insisted upon by the Nicaraguan Superintendent of Banks. This format differs from the customary Sources and Uses of Funds statement shown in Table 3. Table 5 shows INFONAC's loan program and its financing from foreign and local funds. 15. In Table 4 figures are provided for 1972 (estimated), for 1973 as estimated prior to the earthquake, and for 1973-1975 as estimated in February 1973 by INFONAC and the reconstruction project appraisal mission. The follow- ing should be noted: (a) An operating deficit is projected for each year when amortizations are excluded from the calculation; (b) The operating deficit for 1973 is projected to be 0 10 million more than the pre-earthquake estimate. At least t6 million represents postponement of interest payments to firms destroyed or damaged by the earthquake; (c) The post-earthquake estimate of the cash deficit is projected at 046 million for 1973, or 038 million more than the pre-earthquake estimate. This change primarily results from the following: (millions of Cordobas) Decrease in amortization receipts 6 Decrease in sales of bonds 10 Decrease in savings deposits 6 Decrease in sale of stock 4 Increase in cash operating deficit (excluding amortization payments or receipts) 10 Miscellaneous 2 38 16. While the above revisions were caused by the earthquake in large part, they also resulted from overoptimistic estimations made prior to the earthquake. Part of the losses will be made up in 1974 or 1975 from insurance payments. Nevertheless, the three-year estimate of the total deficit of INFONAC resources increased from 016 million, pre-earthquake to 055 million, post-earthquake, an increment of 039 million. Decreases in sales of stocks and bonds, decreases in deposits, decreases in repayments and increases in the operating cost deficit, account for the increased losses. INDUSTRY ANNEX 9 Page 7 17. INFONAC proposed to meet the cash deficit by selling 048 million of stock, prior to approval of the IDA Credit loan. The latter will require counterpart funds from INFONAC of 014 million. This will be met in part from the 7 million of counterpart released by IDB when it reduced its loan require- ments for counterpart from 40% to 10%. The stock sale could be increased to 055 million. 18. There will be few funds available from INFONAC's own resources for project lending unless large influxes of government funds and/or large scales of stocks are made. As an alternative for the counterpart financing, Govern- ment could promptly cover INFONAC's operating deficits for 1972 and prepay 1973. It is recommended that as a condition of the IDA sub-Credit, Government cover INFONAC's operating deficits for 1972 and 1973 estimated at about 014 million for each year. Only half as much stock would then have to be sold.  1 3 31 Ern  NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT ANNEX 9 Table ~ INFONAC - Balance Sheets as of December 31, 1970-72 (In thousands of Cordobas) 1970 1971 1972 Assets 8,188 15,918 Cash on hand and in banks 7,223 - Obligations of Government 16,163 - Loans and Accounts Receivable Loans to public 231498 230,081 261,165 Interest, Commission and Accounts Receivable 36)250 42,792 51 124 267,7b8 272,873 Less Allowance for bad debts 15,993 16 911 12,529 251,755 2259592 Investments, at cost Stocks (less allowance for decline in value) 28,882 39,879 51,391 In projects 46,998 37 584 30,181 751,8057 Inventories at cost 2,330 2,277 3,58 Property and equipment at cost 4,135 4,340 4,511 less accumulated depreciation (2,327) (2,575) (2,850) Other assets 4,643 8,362 5,333 Total Assets 359,802 354,017 407,602 Liabilities and Equity Savings Accounts 32,592 38,347 37,889 Borrowings 243,635 213,909 Bonds issued 21,520 22,239 239,785 Other liabilities 15,170 13,356 312,917 257,851 277,77 Initial Contribution of the State 50,000 50,000 50,000 Subsequent Capital Contributions 10,564 28,890 50,746 Donations received 4 137 137 60,568 79,027 100,883 Capital Reserve 18,696 Less Accumulated deficit pending - - 18,696 reimbursement 13,682 12,872 14,237 (1972 loss) Total Equity 66,155 105,3942 TOTAL 359.,8o3 354,017 407, 602 Source: Peat,Marwick, Mitchell Report, May 8, 1972 and INFONAC accounts. ANNEX 9 Table 2 NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT INFONAC INCOME STATEMENT, 1970-72 (in million Cordobas) 1970 1971 1972 (Est.) Income Interest earned 18.7 20.6 23.1 Investment income 14.6 8.4 8.3 Commission 2.1 1.8 2.5 Other income 2.0 1.1 0.2 37.3 31.8 34.1 Expenses General and Adninistration Expenses 17.4 17.6 18.5 Interest and Commission paid 22.2 19.0 18.7 Expenses incurred by companies and agricultural projects 7.4 8.9 10.8 Other expenses 0.2 0.2 0.3 47.2 45.4 48.3 Net Operating Loss (9.9) (13.9) (14.2) Source: Peat, Marwick, Mitchell Report, May 8, 1972 and INFONAC accounts. April 12, 1973 ANNEX 9 NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT Table 3 INFONAC STATEMENT OF SOURCES AND USES OF FUNDS, 1970-71 (thousands of Cordobas) 1970 1971 Funds Provided (Sources) Increase in: Funds borrowed 148,111 122,092 Bonds issued 815 720 Savings deposits 5,902 5,756 Donations - 133 Subsequent capital contributions - 18,326 Decrease in inventories 1,426 53 Net contribution of State 115220 30,866 167,474 177,946 Funds Applied (Uses) Net loss for the year 9,904 13,893 Less charges not requiring funds: Provisions for bad debts 6,135 4,717 Provisions for property foreclosed - 865 Depreciation 392 294 Amortization 2,275 2,904 Funds applied to operations 1,102 5,112 Increase in: Loan and accounts receivable 19,484 8,068 Investments 9,459 4,380 Premises 153 355 Other Assets 445 5,441 Decrease in: Funds borrowed 135,481 151,807 Other liabilities 930 1,814 167,056 176,981 Increase in Cash on Hand and Banks 418 965 Source: Peat, Marwick, Mitchell Report, May 8, 1972. April 12, 1973 NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT SOURCES AND USE OF INPONAC FUNDS (EXCLUDING FOREIGN FUNDS) Pre-Earthquake Post-Earthquake Projections Estimates Projections Post Pre 1972 1973 1973 1974 1975 /5 3_15 (e 87t (millions of Cordobas) INFONAC Resources ----------------(thousands of Cordobas)----------------- Source of Funds Initial Balance - 2,208 2,208 2,569 892 Recuperation 31,936 32,972 26,497 42,039 50,037 118.6 122.7 Sale of land 484 1,412 358 677 714 1.8 4.8 Sale of stock 3,207 4,133 270 - 4,300 4.6 11.9 Sale of bonds 14,000 5,800 (4,000) 4,400 4,400 4.4 13.6 Increase in savings (4,000) 2,ooo (4,000) 3,000 3,000 2.0 6.0 Sub-total - funds 45,627 48,525 21,333 52,685 63,343 131.4 139.0 Use of Funds Legal Cash Deposit 3,000 Forestry Program 1,600 1,300 1,800 1/ 1/ 1.8 4.5 Aortization 70,265 Y 13,365 13,365 17,1.+2 22,231 53.0 53.0 Guarantee Payments 10,110 2,790 2,790 1,315 216 4.3 4.3 Operating Cash Deficit 3/ 9,182 4,558 14315 3,486 _2441 20.2 3.5 Sub-total 94,157 22,213 32,270 22,243 24,888 79.3 65.3 Loan Program 31,799 34,312 34,662 36,55 36,273 107.5 109.8 Sub-total - uses 125,956 56,525 66,932 58,793 61,161 186.8 175.1 Surplus Deficit (80,329) (8,000) (45,599) (6,108) 2,182 55.4 16.1 Financing of deficit Stock sale 48,168 7,000 55.2 - Government funds 75,076 .l 8,000 7,000 8.0 Final Balance - - 2,569 892 3,054 Source: INFONAC and mission estimates. l/ Forestry program to be capitalized. Government reimbursement used in part to reduce debt. Does not include amortization receipts or payments but does include interest. April 12, 1973 NICARAGUA - EARTHQUAKE RECONSTRUCTION PROJECT DOMESTIC AND FOREIGN FINANCING OF INFONAC LOANS (thousands of Cordobas) Pre-Earthquake Post-Earthquake Actual Projections Projections 1972 1973 1973 197 Proposed Loan Program of INFONAC Total 76,767 108,400 123,750 36,015 77,005 Foreign resources 45,968 74,088 89,088 49,465 40,732 INFONAC's own resources 31,799 34,312 34,662 36,550 36,273 of which: IBRD Program - - 25,000 101000 - IBRD 7- 15,00 6 INFONAC - - 10,000 4,000 Funding Foreign Resources 46968 - 89,088 49,465 40,732 BCIE 2,800 - - - AID 15,099 - - - KW 6,732 - 8,243 - IDB 11,240 - 17,431 31,673 Private (US$6,00,ooo) 10,343 - 31,027 - ICO 754 - 1,829 2,860 New Loans - 15,568 - 40,732 IBRD - 15,000 6,000 - INFONAC Resources Total to Loans 31,799 34,312 34,662 36,550 36,273 To IBRD loan - - 10,000 4,000 - To other foreign loans 13,299 15,312 5,162 13,050 16,273 To tobacco 18,500 19,000 19,500 19,500 20,000 April 12, 1973 (D  NICARAG UA EARTHQ UAK E REC 0 NSTRUCTI 0 N PR 0 JECT -EDUCATION SECTOR In US$ 000's Project PART I PART IT Items SGeneral Type of Secondary Schools 2 Multilateral 1 Technical TOTAL OF PARTS I & II Expenditure (100 Classrooms) Schools Institute Estimated Costs Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Cost Construction & I Site Development 140 330 470 527 528 1,055 270 270 540 797 798 1,595 937 1,128 2,065 68.3 Furniture - - - 9 81 90 5 45 50 14 126 140 14 126 140 4.6 Equipment - - - 15 135 150 - - - 15 135 150 15 135 150 5.0 Professional Services - - - 53 52 105 28 27 55 81 79 160 81 79 160 5.3 Technical Assistance 2 10 12 - - - - - - - - - - 10 1 0.4 Sub-Total 142 340 482 604 796 1,400 303 342 645 907 1,138 2,045 1,049 ,47 2,527 83.6 Contigencies: Unforeseen - - - 60 80 140 31 34 1 65 91 114 205 91 114 245 8.3 (10-114) Cost Incregses - - - 86 114 200 42 48 90 128 162 290 128 162 290 9.9 - ( 14%) 1 Sub-Total - - - 146 194 340 73 82 155 219 276 495 219 276 535 18.7 Total Cost 142 340 482 750 990 1,740 376 424 800 1,126 1,414 2,540 1,268 1,754 3,022 100.0 Proposed Credit Percentage (64) (100) (90) (11) (100) (63 (18) (100) (60) .(14) (100) (621 (19) (100) (66) Amount 90 340 430 100 990 1,090 56 424 480 156 1,414 1,570 246 1,754 2,000 66.0 April 15, 1973 00  EDUCATION NICARAGUA EARTHQUAKE RECONSTRUCTION PROJECT Implementation Schedule -- Education Sector Year First - 1973 Second - 1974 Third - 1975 Quarter 1 2 3 4 5 6 7 8 9 10 11 12 PART I Civil Works Preparation of Tender Documents x Tendering x Bid Evaluation Contract Awarding Construction x x x Liability Period x x x Technical Assistance OneManYear xx x xxx xxx xx x PART II Civil Works Briefing and Contracting Consultant Architects Site Surveys x x x Preparation of Tender Documents x x x x x x Tendering Bid Evaluation Contract Awarding xxx Construction XX x XXX XXX Liability Period xxx xxx xxx xxx Furniture and Equipment Preparation of Lists and Tender Documents xxx xxx xxx Tendering xxx Manufacturing, Delivery & Installation xxx xxx Liability Period xxx xxx xxx xxx PROJECT DISBURSEMENTS Credit 2,000 430 35 35 35 420 420 420 100 35 35 35 Local 1.022 __9 20 20 20 260 260 260 70 20 20 20 Total 3,022 482 55 55 55 680 680 680 170 55 55 55 April 15, 1973  WATER SUPPLY ANNEX 12 EQUIPMENT AND MATERIALS Equipment and materials for repair rehabilitation and maintenance for which the Bank has authorized purchase without international competitive bidding: ITEM QUANTITY Leak detectors and pipe locators 2 One-ton pick-up truck 3 Four-ton truck 1 Truck with mobile shop 1 Tractor mounted backhoe 2 Small crane 1 Two-way radio 5 Arc welder 1 Pipe tapping machines 7 Pavement breaker 3 Soil compactor 3 Portable generator 2 Pipe threaders 4 Hand tools and pipe repair clamp - s WATER SUPPLY ANNEX 13 EARTHQUAKE RECONSTRUCTION PROJECT - NICARAGUA Draft Description of Project, Schedule 2 (Water Supply Component) The Project consists of the following parts: A. Replacement of up to three steel reservoirs of 126,000 gallons capacity each. B. Repair of four reinforced concrete reservoirs. C. Correction of the unstable embankment above the Lake Asososca low-service pumping station. D. Securing the power line to the Lake Asososca low-service pumping station. E. Construction of maintenance building and chlorination station. F. Leakage survey. G. Acquisition and use of equipment and materials for water system repair and maintenance. H. Parts A, B, C and E of Schedule 2 (Loan 808-NI) below: A. Construction of water wells in the vicinty of Las Mercedes, Altamira and other suburban areas to be selected by agreement between the Borrower and the Bank with an aggregate yield of about 14 Mgd. B. Construction of a new high-service booster pumping station with a capacity of about 10 Mgd, in the vicinity of Las Mercedes; and an increase of about 16 Mgd in the aggregate capacity of the existing pumping stations at Lazuna Asososca. C. Construction of: 1) two service reservoirs with a capacity of about 500,000 gallons each; 2) about 70 kma of 12" to 36" transmission pipelines; and 3) about 150 kms of 2" to 10" distribution pipelines. D. Installation of about 9,400 service connections. E. Construction of a new administration building.  WATER SUPPLY ANNEX 14 Table 1 NICARAGUA EARTHQUAKE RECONSTRUCTION PROJECT ALLOCATION OF CREDIT Amount of Credit % of Expenditures Category Allocated to be Financed I Civil Works for: (a) Parts A, B, C, D and E 675,000 80% of total expendi- tures. (b) Part G 1,260,000 55% of total expendi- tures. II Equipment and Materials for Part F 200,000 100% of foreign exchange expenditures or 95% of local expenditures III Unallocated 365,000 Total 2,5000,00 WATER SUPPLY ANNEX 14 Table 2 NICARAGUA EMPRESA AGUADORA DE MANAGUA ESTIMATED SCHEDULE OF DISBURSEMENTS IBRD FY and Quarter Misbursenents Accumulated During quarter Disbursements -----------US$ thousands----------- 1972/1973 June 30, 1973 800 800 1973/1974 September 30, 1973 200 1,000 December 31, 1973 300 1,300 March 31, 1974 300 1,600 June 30, 1974 200 1,800 1974/1975 September 30, 1974 200 2,000 December 31, 1974 100 2,100 March 31, 1975 100 2,200 June 30, 1975 100 2,300 1975A976 September 30, 1975 100 2,400 December 31, 1975 100 2,500 WATER SUPPLY ANNEX 15 AGUADORA CASH FLOW 1973 - 1975 C$ US$ --------Million--------- Sources Internal Cash Generation Gross Operating Revenues 33.3 4.8 Less Cash Operating Costs 24.9 3.6 Net Internal Cash Generation 8.4 1.2 Loans and Credits /1 IBRD Loan 808-NI1-1- 46.9 6.7 Proposed IDA Credit 21.0 3.0 Local Short-Term Borrowing 4.9 0.7 Decrease in Working Capital 2.0 0.3 Total Sources 83.2 11.9 Applications Project Works /2 Under Modified Loan 808-NI-- 66.8 9.6 Under Proposed IDA Credit 7.4 1.1 Debt Service Interest on Existing Loans 3.7 0.5 Amortization on Existing Loans 5.3 0.7 Total Debt Service 9.0 1.2 Total Applications 83.2 11.9 /1 Does not include expenditures prior to January 1973. /2 Includes local cost of civil works financed by IDA Credit.  POWER ANNEX 16 Page 1 NICARAGUA EMPRESA NACIONAL DE LUZ Y FUERZA (ENALUF) Project Description The proposed project consists of: 1) the repair of damages to existing installations; 2) the extension of the distribution network and expansion of several transformer substations; and 3) the execution of a series of programmed works for the period 1973-74, as follows: 1. Repair of Damages to Existing Installations a) Power Plant and Substations i) Repair of three generating units, boilers and other equipment and the Managua steam plant building; and ii) Replacement of damaged equipment in the sub- stations and repair of the indoor substation of the Managua steam plant. b) Distributions i) Replacement of damaged equipment and materials to serve the outlying areas of Managua; and ii) Dismantling and withdrawal of damaged components of the distribution network. c) Consumer Connections and Meters Approximately 15,000 consumer connections, including replacement of damaged equipment and materials, and new measuring transformers; meters, insulators, switches and fuses. 2. Extension of the Distribution Network a) Extension of the primary and secondary network and consumer connections to provide electric service to more than 12,000 provisional housing units being constructed in the outlying areas of Managua; and POWER ANNEX 16 Page 2 b) Expansion of the original substations on the outskirts of Managua and substations at Masaya, Jinotepe and Chichigalpa and acquisition of two mobile 15 MVA substations. 3. Annual Work Program for 1973-74 a) Primary and Secondary Distribution i) Expansion of the distribution network and public lighting facilities in various localities throughout the country; il) Improvement of various suburban areas of Managua; and iii) Acquisition of regulation and protection equipment, cables, control and public lighting equipment meters. b) Transmission System and Substations i) Expansion of the Sosacloro (Managua) sub- stations; and ii) Acquisition of spares for substations. c) Office Buildings, Warehouses and Workshops 1) Offices for the Department of Meters, Casa Colorada and San Rafael del Sur substations and substations servicing the interconnected national system; ii) Conditioning of the Santa Rosa warehouse and expansion of other warehouses; and iii) Central automotive workshop. d) General i) Acquisition of vehicles and parts; and ii) Communications equipment. POWER ARNX 17 NICARAGUA EMPRESA NACIONAL DE LUZ Y FUERZA (ENALUF) Cost of the Project US$ million L.C. F.C. Total 1. Repairs of Existing Installations a) Power Plant and Substations 0.39 0.86 1.25 b) Distribution 0.06 0.17 0.23 c) Customer Connections and Meters - 0.25 0.25 Sub-Total 0.45 1.28 1.73 2. Extension of the Distribution Network a) Distribution for Provisional Housing 0.13 0.34 0.47 b) Sub-Transmission and Substations 0.27 0.66 0.93 Sub-Total o.4o 1.00 1.40 3. Other Construction a) Primary and Secondary Distribution 0.68 1.27 1.95 b) Transmission System and Substations 0.04 0.20 0.24 c) Office Buildings, Warehouses and Workshops 0.19 0.04 0.23 d) General Property (vehicles) - 0.44 0.44 Sub-Total 0.91 1.95 2.86 4. Contingencies (12%) 0.16 0.55 0.71 Total Cost of Project 1.92 4.78 6.70 POWER ANNEX 18 NICARAGJA EMPRESA NACIONAL DE LUZ Y FUERZA (ENALUF) Estimated Schedule of Disbursements (in thousands of US Dollars) Disbursements During Cumulative Disburse- IDA Fiscal Year and Quarter Quarter ments at End of Quarter 1972/1973 June 30, 1973 1,000 1,000 1973 1974 September 30, 1973 84o 1,840 December 31, 1973 1,650 3,490 March 31, 1974 660 4,150 June 30, 1974 4oo 4,550 1974/1975 September 30, 1974 340 4,890 December 31, 1974 130 5,000 POWER ANNEX 19 NICARAGUA EMPRESA NACIONAL DE LUZ Y FUERZA Estimated Sources and Applications of Funds 1973-1974 (in thousands of Cordobas) Year Ending December 31 1973 1974 SOURCES Internal Cash Generation: Net Income Before Interest 9,870 31,336 Depreciation 16,700 17,224 26,570 45,560 Borrowings: AID (Elect. Rural Coops) 10,500 2,100 IBRD Loan 840N3 34,850 79,630 BCIE 20,150 16,650 Other Loan - 18 000 65,500 Contributions: Consumers 2,100 2,200 Consumer Deposits 2,600 1,700 4,700 3,900 TOTAL SOURCES 96,770 168,840 APPLICATIONS Construction: Proposed IBRD/CABEI Project 42,000 98,610 Other Construction 17,480 15,480 Other Investment 10,500 11,900 Investment in Coops 18 410 9,800 88,390 135,790 Debt Service: 46,320 47,450 Additions to Working Capital (750) 4,380 TOTAL APPLICATIONS 1332960 187,620 FINANCIAL GAP 37,190 18,780  ISRD 10367 ［면  ! ㅂ992이－O뇝티 l