Nicaragua - Second Corinto Port Project

FILE COPY DOCUMENF OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 13a-NI NICARAGUA APPRAISAL OF SECOND CORINTO PORT PROJECT January 5, 1973 Latin America and the Caribbean Projects Department This ;eport was prepared fer offic4al ufe only by the Bank Group. It may not be published, quoted or cited without Bank Group authoiization. The Bank Group does not accept responsibitiiy lot the accuracy or completencss of ttc report.  Currency Equivalent US$1.00 7 Nicaraguan Cordobas Units Traffic data are in metric tons or freight tons Metric ton 2,205 lb Freight ton ho cu ft 1 Kilometer 0.62 mi 1 Meter = 3.28 ft 1 Cubic meter - 1.20 cu yd 1 Hectare - 2.47 acres Depth of water is in feet at low, spring tide Fiscal Year January 1 - December 31 Abbreviations CPA - Corinto Port Authority GDP - Gross Enonest1^ Product I IvSET - Livesey and Henderson of London, - U.K., and SETEC of Paris, France MLWST - Mean low water, sprirg tide  N-ARAGUA APPRAISAI (F SECOND CORINTO PORT PROJECT TABLF or CONTENTS Page No. SUMMARY ANhD CONCLUSIONS ....... ............-i I. IN4TRODUCTION .........o...... * .......... ................1 II. BACKGROUND ..................... 2 A. General 8.1 * ...... ......... *.............. , 2 - B. Economic Setting ............. .......... ,, 2 C. Transport Sector ... .... ... *. 2 III. PORT ORGAINIZAIION, INSTALLATIONS AND OPERATIONS .... 4 A. Present Organization ... 4 B. Exlksting instailations . .. . 5 C. Operations . ........................... 5 D. Labor ....... 5 IV. TIIE PROJECT ................ ........... o 6 A. Project Description.. 6 B. Cost Estimates... 7 C. Project Execution. . . 8 D. Project Financing. ... 8 Eo Procurement ................. . 9 F. Disbursement .. .....*. 9 C. Retroactive Financing 9 .. 0 ..... 9 II. Road Access to the Port .. 10 1. Ecology ........................ * , 10 V. ECONOMIC EVALUATION . .... 10 A. Introduction . .. . ... ..... 10 B. Traffic Forecast ... 11 C. Cost-Benefit Analysis .................... .. . 12 D. Justification for Coastal Defense Works 15 VI. FINANCIAL EVALUATION . . . 16 A. General. .. .. .. . ... *..... .. 16 B. Accounts, Audit, Budgets and Insurance .16 C- Past Earnings ........ .. ... ........ * .,.. 16 This Appraisal Report has been prepared by Messrs. Parthasarathi (Economist), H. Jones (Financial Analyst), Newman (Engineer) and Chandler (Financial Analyst;/Consultant), and has been edit-S by Mr. J. Zedalis and His* V. R. Foster (Technical Editors).  TABLE OF CONTENTS - Continued Page No. D. Present Financial Position ........... . ...... 17 E. CPA's Financial and Tariff Policy . . 18 F. Financing Plan and Future Cash Flow ......... . . 19 G. Future Earnings ............ ...... . ... ,. .,. 20 H. Future Financial Position ........... .......... 21 VII. AGREEMENTS REACHED AND RECOMENDATION .... .......... 21 ANNEXES 1 Existing Port Facilities 2 Project Description 3 Corinto Traffic Forecasts 4 Coastal Defense Works 5 Corinto Port Authority - Schedule of Charges 6 Estimated Schedule of Project Execution TABLES 1 Estimated Cost of the Project 2 Estimated Schedule of Disbursements 3 Traffic in 19u8-1972 and Forecast for 1973-1032 4 Economic Return - Sensitivity Analysis 5 Income and Expenditure Accounts 6 Sources and Applications of Funds 7 Comparative Balance Sheets MA.PS 10139 Nicaragua - Transportation Network 10140 Corinto Port Area 10141R Port Installations Layout  NICARAGUA APPRAISAL OF SECOND CORINTO PORT PROJECT SUMMARY AND CONCLUSIONS i. Nicaragua is the largest of the Central American countries. Trade with its neighboring countries increased rapidly in the 1960's with the es- tablishment of the Central American Common Market. Nevertheless Nicaragua's economy remains principally dependent on exports outside of Central America and on seaborne trade, eapecially with the United States, Europe and Japan. Pxpulation and economic activity are concentrated along the Pacific Coast waiere Corinto, the country's only seaport with de!pwater berths, is located. ii. The port, which is operated by the autonomous Government-owned Ccrinto Port Authority (CPA), was expanded and modernized around 1960 with the assistance of a Ba_k loan (143-NIC). The project was carried out satis- factorily. The resulting facilities and the irstitutional improvements carried out during the same period helped to make Corinto an excellent port, efficiently run and financially viable. CPA recently completed construction of a new berth for mechanized handling of boxed cargo (principally bananas) from its own resources. Certain installaLions which were built over 60 years ago now require replacement, and the capacity of the port needs to be increased to handle increasing traffic, Also, the time is appropriate for establishing container-handling facilities at Corinto to handle both Nicaraguan and non- Nicaraguan traffic, which would produce substantial benefits to the Nicaraguan econoomy. iii. Land access to the port by both road and rail was satisfactory, but both the rail line and the highway are threatened with destruction by erosion from the sea. In fact, rail access is now frequently disrupted and isr maintained only by continuous emergency repairs. iv. The pro'cct appraised in this report is designed to: (a) satisfv present and projected traffic demands up to about 1985, by replacing and augmenting inadequate lnstallations; (b) permit establishment of container-handling facilities; and (c) protect road and rail access. Specifically, the project comprises: (a) construction of a new 240 m wharf with 40 ft depth (MIWST) alongside and various buildings, storage areas and utilit.es;  - ii - (b) purchase of container-handling equipment; (c) channel dredging; (d) coastal defense works; (e) consultants services; and (f) staff training. v. The total estimated cost of the project is 99.1 million Cordobas (US$14.16 million equivalent) with a foreign exchange component of 77.0 million Cordobas (US$11.0 million equivalentj. Retroactive fiaancing of approximately US$250,000 is recommended for expendi:ures on consulting ser- ices incurred after November 1, 1971 and for expenditures on coastal defense works incurred after January 1, 1973. vi. The project is economically justified with rates of return of 14% on the conve.ational port facilities and 19% on the container-related facilities. The coastal defense works are justified as the least-cost means of preserving essential land access to the port. vii. During the past five years, CPA has had satisfactory earnings and nas maintained a strong financial position. Some adjustments are needed in iLs tariff structure to relate rates and charges to costs. CPA is ex- pected to remain financially viable in the future. The loan vwll cover the estimated foreign exchange costs of the project and will be made to CPA, which should be able to contribute the local currency costs of the port works. Since the Government is responsible for the coastal protection works, it will provide the local currency costs of such works and will sarvica that portion of the loan made for these works. viii. The project provides a suitable basis for a Bank loan of US$11.0 million to CPA for a term of 24 years including four years of grace.  NICARAGUA APPRAISAL OF SECOND CORINTO PORT PROJECT I, INTRODUCTION 1.01 The Bank's involvement in the improvement and expansion of the Port of Corinco began in 1956 when it made a loan (143-NI) of US$3.2 mil- lion to the Corinto Port AuthoP!ty (CPA) for the construction of two berths and tran.it sheds. The project was completed satisfactorily in 1961 after about two years' delay aue to construction difficultlis. 1.02 On March 13, 1967, the Bank made a grant to CPA for an engineering and economic study to determine the feasibility of further expansion of the port. This study, carried out by LIVSET (a loint venture of Livesey and Henderson of London and SETEC of Paris), was completed in 1968 ano recom- nended construction of new wharves and ouildings, land acquisition and hydrographic studies of channel deepening. CPA carried out a land acquisi- tion program based on LIVSET's recommendations. 1.03 In 1969-70, the Bank conducted a Central American Ports Scudy which .dentified the high priority investments needed in the seaports of the region. The srudy report recommended that three additional berths be constructed at Corinto. It also included a prelininary analysis of the potential for con- tainer traffic in the region. 1.04 Based on the LIVSET study, in 1969, the Government requested the Bank's assistance in financing extension of the port installations. The project then appraised (draft report PTR-39, January 26, 1970) consisted of berth construction, buildings, equipment and dredging at a total estimated cost of US$8.05 million equivalent and a foreign exchange component of US$5.25 million. This loan was deferred pending the implementation of fiscal reforms by the Government of Nicaragua. 1.05 In November 1971 the Government renewed its request to the Bank for assistance in financing expansion and improvement of Corinto Port. The resulting project appraised in this report incorporates much of the 1970 proposal as well as certain additional elements. It consists of a new 240 m wharf, various buildings, open storage area, utilities, channel dredging, container-haudling equipment, coastal defense wo,rks, consultants' services and training with a total cost of US$14.16 million equivalent, including . foreign exchange component of US$11.0 million. 1.06 Ihe appraisal report is based on: (a) results of studies by con- sultants, Frederic R. Harris (USA and Netherlands), Cisneros y Conrado (Nicaragua), Santos & Heilemann (Nicaragua) which in turn were based partly on the LIVSET and Bank studies (paraes 1.02 and 1.03), and (b) the findings of a Bark appraisal mission to Nicaragua in July 1972 consisting of Messrs. Parthasarathi (Economist), Newman (Engineer) and Chandler (Financial Analyst/ Consultant). The report was edited by Mr. J. Zedalis and Miss V. R. Fo3ter (Technical Editors).  -2- II. BACKGROUND A. General 2.01 Nicaragua is the largest couatry in Central America, bordered by Honduras on the north and Costa Rica to the south. It has coastlines on both the Pacific Ocean and the Caribbean Sea and a land area of 118,000 km2, besides 9,000 km2 of lakes (Map IBRD No. 10139). 2.02 The 1971 population of Nicaragua was just under 2 million with an estimated annual growth rate of about 3%.. The population is concentrated in the Pacific Coast region. The swampy plain east of the inuntains contains 60% of the land area but only 7% of the population. B. Economic Setting 2.03 The Gross Domestic Product (GDP) at current market prices in 1971 was 6,490 million Cordobas (US$927 million equivalent) and had grown in real terms at an average annual rate of over 7%' since 1960; per capita GNP was US$430 in 1970. 2.04 The most important sector of the economy is agric>lcure, which accounts for about 24% of GDP and 71% of export earnings. The country's main agricultural exports are cotton and its by-products, coffee, meat, sugar, and, since this year, bananas. 2.05 Manufacturing is the most dynamic sector of the economy with a 1965-70 growth rate of 9.5%, compared to 1.5% for agriculture. Since the markets for its products are largely within the Central American Common Market, and reached by land transportation, manufactured produ_ts will not directly increase seaborne commerce but will provide a substantial source of demand for seaborne import of raw materials. 2.06 The main region of economic activity is the Pacific coastal area, close to Corinto, which is the main export outlet for agricultural products. The country's main imports are consumer goods, raw materials and capital goods for industry, and petroleum products. C. Transport Sector 2.07 Nicaragua's transportation network is concentrlted in the Managia- Corinto region and surroundings; the main highways, the only railroad, the only international airport and the only deepwater port with.alongside berthing facilities are all located there.  -3- Highways 2.08 Nicaragua's land transport is based on its highways wh'ch carried over 97Z of the land cargo tonnage in 1970. The roal network totals 13,000 km, of which 1,300 km are paved roads. The road network is relatively dense in the Pacific Coast area where it is connected to the neighboring systems of Honduras and Costa Rica. There is no direct road link to the east coast. Railways 2.09 The Government-owned Ferrocarril del Pacifico de Nicaragua operates from Cc.into to Granada on Lake Nicaragua via Leon and Managua. The total route length of 319 km is paralleled by good paved roads. Traffic has been steadily decreasing; only 123,000 tons of freight were carried in 1971, of which approximately 80,000 tons were to or from Corinto. The railroad operates at a financial loss with annual revenues of 4.0 to 4.5 million Cordobas and operating expenses of cver 6.0 million Cordobas. Air Transport 2.10 There is one interna.lonal airport at Managua and two other air- fields at Puerto Cabezas and Bluefields, both on the east coast, to which scheduled air flights are operated. There are also several landing strips for small aircraft. Lakes and Waterways 2.11 There is some passenger and cargo traffic on Lake Nicaragua; the total cargo handled is less than 5,000 tons per year. 2.12 The Rio Escondido is navigable with depths usually over 20 ft from El Bluff on the east coast to Rama, some 80 km upstream. From Rama a road connection exists to the Pacific area. Oceangoing ferries operate between Rama and Miami, U.S.A., carrying cargo in trailers. In addition, a small amount of cargo moves on the river between the El Bluff-Bluefields area an6 Rama. Improvement of the road to Rama is under way and some improvement of the ferry terminal is planned. 2.13 There are several other navigable rivers in the eastern region, Rio Grande, Rio Prinzapolka, Rio Curinwas, Rio San Juan and others, but very little traffic moves on them as the area is sparsely populated and economic activiLy is low. Ports 2.14 In addition to Corinto, which is described in Chapter III, there are two other Pacific Coast ports (Puerto Somoza and San Juan del Sur) and three ports on the east coast. Puerto Somoza, about halfway between Corinto and Managua, in 1970 handled 85,000 tons of dry cargo by lighterage and 670,000 tons of petroleum products through an offshore buoy and pipeline.  -4- San Juan del Sur near the Costa Rican border handled 41,000 tons by lighter- age. Development of deepwater, alongside berths at Puerto Somoza does not appear to be feasible. San Juan del Sur has a small natural hiarbor, but has several disadvantages, including its remoteness from the main area of ecor.omic activ,4ty. 2.15 Except for the road-waterway link to El Bluff, the east coast ports are isolated from the region of 1mportant economic activity in Nicaragua. Total cargo handled by the three ports (Puerto Cabezas, Puerto Isabel and El Bluff) amounted to 103,000 tons in 1971. Government policy favors develop-- ment of the east coast area and various proposals to induce economic and demographic growth in the area are being considered. Thesa include a high- way link to Puerto Cabezas from the Pacific area, an intra-coastal waten:av from Puerto Cabezas to El Bluff, and improvement of the harbor at El dluf:. which is now being studied by consultants (Livesey and Henderson). 2.16 Th.e ports of Corinto and Puerto Cabt-zas are operated by CPA; Puerto Somoza and Puerto Isabel are privately owned; San Juan del Sur and E1 3luff are Government-owned. A ferry terminal at Potosi on the Gulf of Fonseca to serve highway traffic to El Salvador will be operated by CPA. Except for the Corinto project appraised in this report and the El Bluff study, there are no plans for any major improvements at Nicaraguan ports. III. PORT CRGANIZATION, INSTALLATIONS AND OPERATIONS A. Present Organization 3.01 The port of Corinto is administered by the Autoridad Portuaria de Corinto (CPA) which was established as an autonomous entity under Decree No. 64 dated January 24, 1956. 3.02 Policy-making is the responsibility of the Board of Dire_tors com- posed of six members: the Minister of Development and Public Works (Chairman of the Bo3rd), the Mlinister of Finance, a representative of the National Chamber of Co:-merce and Industry, a representative of the Agricultural and Livestock Association, a representative of the shipping industry, and a rep- resentative of the minority political party. The Board has the authority to establish ope,-ating budgets and to set and amend taritfs, rates and charges. The Board is assisted by economic, technical and legal advisors. CPA's perfor- mance is satisfactory. 3.03 The CPA organization at Corinto is. headed by a Manager appointed by the Board of Directors. The Manager attends all Board meetings, dealq with all administrative and operational matters, and is assisted by the Chiefs of the three main departments: uperations, Administration, and Maintenance; there is also a small Personnel section. CPA has extensive control over all operations performed within the port area.  -5- 3.04 In 1968, CPA was made responsible for the management and adminis- tration of Puerto Cabezas on the Atlanric coast by Government decree. Puerto Cabezas has a separate Manager and accounts. CPA has recently been given responsibility for manapement of the ferry port at Potosi, from which a ferry service to El Salvador is soon to begin operation. B. Existing Installations 3.05 Corinto Bay, situated at the mouth of the Realejo estuary, provides natural eeepwater anchorage and is protected from the ocean by Cardon Island and the Castanones Peninsula (see Map IBRD No. 10140). The harbor entrance, known as the Cardon Channel, has a depth limitation of about 24 ft at MLWST, over two bars. The tidal range of about 7 ft pe-rits vessels up to 2i ft draft (about 10,000 to 12,000 dwt) to enter and leave the harbor under favor- able sea and weaLher conditions. 3.06 Under Bank Loan No. 143-NI, two modern reinforced concrete berths, having a total length cf 370 m, were built south of the old pier, along with two transit sheds havin, a total floor area of 11,760 m2 and paved open storage area of 10,000 m2. In 1972, CPA completed construction from its own resources of a pier for mechanical loading of boxed -argo, principally bananas (see Map IBRD No. 10141). 3.C0 The existing facilities also include the old timber-decked pier to the north of the existing berths, 160 m long and 16 m wide. rhe project includes replacement of this pier which !.3 obsolete and structurally unsound. Further information on existing port fac