Ecuador - Emergency Petroleum Reconstruction Project

Dosum.ut of The World Bank FOR OFFICIAL USE ONLY Report No. P-4515-EC MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF TIE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$80.0 MILLION TO THE REPUBLIC OF ECUADOR FOR THE EMERGENCY PETROLEUM RECONSTRUCTION PROJECT April 24, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. its contents may not otherwise be disclosed without Worid Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Sucre (S/.) S/. 1.00 = 0.0067 US$ US$ 1.00 = 150 SI. The US Dollar/Sucre exchange rate has been floating since August 1987. Conversions in the Memorandum of the President were made at the US$1.00 S/. 150 which represents the average exchange rate at the time of the appraisal. PRINCIPAL ABBREVIATIONS AND ACRONYMS B/D Barrels Per Day CAF Corporacion Andina de Fomento (Andean Development Corporation) CEPE Corporacion Estatal Petrolera Ecuatoriana (National Oil Company) IDB Inter-American Development Bank LPG Liquefied Petroleum Gas MOP Ministry of Public Works USAID United States Agency for International Development  FOR OmCA USE ONLY ECUADOR EMERWRNCY PETROLEUm RECONSTRUCTION PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Ecuador Beneficiary: Corporacion Estatal Petrolera Ecuatoriana (CEPE) Amount: US$80.0 million equivalent Terms: Seventeen years, including four years grace, at the standard variable interest rate. On-Lending Terms: US$79.7 million would be channeled to CEPE as an equity contribution; the remaining US$0.3 million would help finance an emergency preparedness study. Financing Plan: Local resources US$10.2 million CAF US$11.7 million IBRD US$80.0 million Total US$101.9 million Economic Rate of Return: Over 100% Staff Appraisal Report: None Thidocumenthas a restricted distribution and may be used by rcipients only in the perfonnance of their dkiofdutie Its contents may not othbrwise be dWscid without Wodd Bank authoduion.  MEMORANDUM AND RECOMMDATION OF THE PRESIDENT OF THE INTERNATIONAL 1ANK FOR RECONSTRUCTION AtNl DEVELOPIDNT TO THE EXECUIIVE DIRECTORS ON A PROPOSED LOW TO TEE REPUBLIC OF ECUADOR FOR THE EMRGENCY PETROLEUM RECONSTRUCTION PROJECT 1. The following report and recommendation on a proposed loan to Ecuador for US$80.0 million equivalent is submitted for approval in response to a request for emergency assistance by the Government of Ecuador within the context of its earthquake reconstruction program. The proposed loan would have a term of 17 years, including four years grace, at the standard variable interest rate, and help finance the reconstruction of the Trans-Ecuadorian Pipeline urgently required to restore oil production and exports. The Government of Ecuador would channel US$79.7 million of its loan to the Corporacion Estatal Petrolera Ecuatoriana (CEPE) as an equity contribution, and would use US$0.3 million for the execution of an emergency preparedness study. 2. Background. On March 5 and 6, 1987, the remote oil-producing north-eastern region of Ecuador was hit by two major earthquakes, accompanied by destructive landslides. The earthquakes resulted in a death toll of qt least 1,000, left about 16,000 persons homeless, and destroyed rural infrastructure. The major economic cost to Ecuador is undoubtedly the interruption of oil production and exports which resulted from damage to major sections of the Trans-Ecuadorian crude oil and LPG pipelines, and the impact of this on the economy, given the fact that the petroleum sector accounted for 15 percent of GDP and about half of all exports in 1986. The cost of restoring oil exports, through rebuilding the damaged pipeline system, construction of a connection to the TrRns-Andean pipeline through Colombia (with Mexican assistance), and related works is estimated at US$117 million. Road and bridge infrastructure damage is estimated at US$20 million. Damage to agriculture, housing, health and urban services, while substantial, would have been worse had it not been for the low population densities and limited productivity of the affected areas. By contrast, foregone oil revenues, until the end of July 1987, are valued at about US$600 million, and the multiplier effect of reduced exports, decreased public expenditure and restricted domestic oil consumption is likely to be substantial. All in all, a conservative estimate of the overall damage would be about US$1.0 billion, equivalent to about R percent of GDP. When combined with loss of export revenues equivalent to 8 percent of GDP associated with the 1986 oil price decline, these adverse exogenous developments are creating an extremely difficult economic situation for the country. 3. Reconstruction Program. From an economic perspective, the Government reconstruction program gives top priority to the immediate restoration of oil production and exports. However, the Government is also engaged in plans to resettle refugees, to minimize the effects of the events on indigenous peoples, to rebuild the housing stock and to reconstruct basic services. Substantial bilateral and private assistance has been mobilized in these areas. In addition, the Bank is preparing to reformulate the ongoing National Low-Income Housing Loan (Ln. 2135-EC) to assist in housing reconstruction. Attention is also being given to the restoration of communications through reconstruction of the road which  - 2 - parallels the pipeline, and the construction oi additional road links to the affected communities, with USAID, IDB and self-help assistance. Present plans to deal with the direct environmental impact of crude oil spilled when the pipeline was destroyed provide for clean-up and subsequent monitoring of water quality in the adjacent river systems. In addition, an environmental impact study of the earthquake, including a review of its impact ori ind:genous peoples, is being carried out with USAID funding. 4. Prior to the disaster, Ecuador was producing about 280,000 barrels of crude oil per day (of which 120,000 equivalent were for domestic use) equivalent to an annual production rate of 102 million barrels. Ecuador currently plans to produce 66 million barrels in 1987, a shortfall of 36 million barrels, valued at about US$600 million at current world prices.1/ Government plans assume a 30-percent drop in domestic energy use. This would be achieved through rationing of supplies to wholesalers or consumers. Demand management is also benefitting from the recently- announced increases in domestic oil product prices which have brought the price of gasoline to international levels and that of the composite barrel of oil products consumed to 75 percent of international levels. This will help curb consumption and smuggling to Colombia and Peru, as well as generate an estimated US$120 million in additional fiscal revenues in 1987. 5. In addition to the measures being taken in the petroleum sector, macro-economic measures being planned to mitigate the effects of the earthquake on the economy include a five-percent reduction in public sector expenditures (including reductions in the investment program), and a restriction on imports by public sector agencies. The decline in oil production in 1987 is expected to lead to a small reduction in real GDP. In spite of these difficult economic circumstances, the Government is determined to maintain the economic policy reforms, aimed at liberalizing the Ecuadorian economy, instituted over the last two years. 6. Project Objectives. The primary objective of the proposed project would be to restore urgently oil production and export flows. In addition, the project would help (i) minimize the environmental impact of the disaster and related reconstruction programs; (ii) enhance CEPE's capacity to deal with the crisis and its aftermath; and (iii) enhance the Government's preparedness to deal with future national emergencies. 7. Project Descriptione The proposed project would consist of: (i) equipment and civil works related to the reconstruction of the Trans-Ecuadorian crude oil and LPG pipelines, including repair and reconditioning of related pumping and loading installations, and clean-up of oil spills caused by the earthquake; (ii) well-workovers and rehabilitation/maintenance works required to avoid long-term damage to the oil fields due to the interruption of production; (iii) oil field development to boost oil extraction to a level of about 320,000 B/D by 1/ This is a rough estimate of the opportunity cost. It ignores increased transportation and processing costs, and the incremental LPG import costs related to the reduced output of the Ecuadorian refinery. A recent Venezuelan protocol agreement to swap 12.5 million barrels of crude oil is to be repaid in crude, barrel for barrel, over a 7-month period. An arrangement with Nigeria for 1.5 million barrels of crude oil is presently being negotiated.  - 3 - end-1987 in order to recoup lost production; and (iv) technical assistance, including engineering, management and inspection services, and consultants to prepare a plan for the management of future national emergencies. The Government would be the Borrower and US$79.7 million of the loan proceeds would be passed to CEPE as equity to help strengthen its finances. The remaining US$0.3 million would be used by the Government to carry out the emergency preparedness study. 8. Reconstruction of the crude oil and LPG lines and related works would be implemented by Texaco (operator of the CEPE-Texaco Consortium)2/ and would be completed by August 15 and September 1, 1987, respectivelyi3/ Oilfield work would be carried out by the Consortium and CEPE in their respective production areas over a period of about 9 months. The total project cost is estimated at US$101.9 million, with a foreign exchange component of US$57.0 million (56 percent). A breakdown of costs and the financing plan are shown in Schedule A. The Corporacion Andina de Fomento (CAF) would provide US$11.7 million in co-financing to be assigned to items procured in the early phase of the reconstruction. The CAF loan would be for 13 years, including 3 of grace, at a variable interest rate (currently 8.25 percent p.a.). Given the urgency of the project, the Bank loan would provide for US$20 million (25 percent of loan amount) in retroactive financing, and streamlined procurement procedures are being used to combine speed of execution with economy and efficiency in acquisition of goods and services. These procedures involve presentation of at least three quotations from qualified suppliers/contractors, under procedures acceptable to the Bank. The main pipeline construction contract, currently being negotiated, was bid using these procedures. Amounts and methods of procurement and of disbursement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Ecuador are given in Schedules C and D, respectively. A map and Technical Annex are also attached. 9. Rationale for Bank Involvement. The Bank's strategy in Ecuador has been to support major structural reforms aimed at creating a more open economy, and to support the expansion of essential productive activities and social and physical infrastructure. Given the key role which the petroleum sector plays in the economy, the benefits of this program will not be realizable until petroleum production and exports are fully resumed. Rapid Bank response to the disaster would provide not only urgently needed financing in the wake of the sudden curtailment of Ecuador's most important source of revenues, but would also provide assistance to ensure that the reconstruction is carried out in a quick yet orderly fashion. 10. Agreed Actions. CEPE and the Ministry of Public Works have signed an agreement to coordinate pipeline and road works in the project 2/ Owned 62.5 percent by CEPE and 37.5 percent by Texaco; it accounts for 84 percent of the country's oil production. The pipeline is wholly owned by CEPE (but operated by Texaco). 3/ Texaco's ultimate parent company, Texaco, Inc., entered into Chapter 11 proceedings under the U.S. Bankruptcy Code on April 12, 1987. The Bank has been informed by CEPE and Texaco that, as of this date, none of Texaco's subsidiaries involved in Ecuador are directly affected by the proceedings. The legal documentation for the loan includes pertinent safeguards.  - 4 - area. Moreover, CEPE has selected (and is moving expeditiously to hire) external auditors and consultants to assist it in the monitoring of project execution and cost control. At negotiations, the Government confirmed its agreement with. the following actions: (i) by June 30, 1987, to prepare and agree with the Bank on a plan of action to take into account, as appropriate, the conclusions of an ongoing review of the environmental impact of the disaster, and carry out that action plan, and by November 30, 1987 to review its implementaion with the Bank; (ii) to monitor water quality in the affected areas; and (iii) by June 30, 1987 to prepare a plan of action for earthquake victims (including resettlement), to carry out that program, and by November 30, 1987 to review its implementation with the Bank. CEPE also confirmed its agreement with the following: (i) to take acrions required to clean up oil spilled during the earthquake; (ii) by September 30, 1987, to complete, jointly with the Government, a study to assess the full impact of the disaster on CEPE's finances, prepare and agree with the Bank on a plan of action to improve them, and by November 30, 1987 to review its implementation with the Bank; (iii) by July 1, 1987 to hire consultants to carry out an Emergency Preparedness Study; (iv) by November 30, 1987, to have a study of its future insurance needs related to the pipeline carried out by specialized consultants; and (v) to provide monthly project progress reports to the Bank. 11. Justification. Economic benefits under the project are the value-added from oil production which, without the reconstruction, could not be exported or consumed locally. The project would have a pay-back period of about one month, and an internal economic rate of return of well over 100 percent. Because of the area's unfavorable geology and climate, the rough and unstable terrain, and steep slopes and erosion suffered along the damaged stretches of the pipeline, a detailed review of alternative alignments for pipeline reconstruction was made. It concluded that of three possible alternative routes to the existing one, all would incur higher construction costs and longer completion times, but only one would significantly reduce seismic and geologic risks. That alternative would, however, require at least an additional 13 months to construct, and therefore is not a practical option for immediate pipeline reconstruction. Nevertheless, CEPE would carry out an economic and technical analysis of the feasibility of building a back-up pipeline along that route, to act as insurance against similar disasters ia the future. This study would include an analysis of the causes of, and circumstances surrounding, the damage to the pipeline, and would be financed partly from an ongoing Project Preparation Facility and partly under the proposed project. 12. Risks. The main risks include time and cost overruns which could result from challenging terrain conditions, and inadequate management and cost control. Texaco's experience in operating the pipeline, combined with the special project monitoring assistance to be provided to CEPE, will minimize these risks. Close Bank supervision will also be provided. 13. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. April 24, 1987  Schedule A ECUADOR EMERCKNCtY PETOLEUM RECONSTRUCTION PROJECT Estimated Costs and Financing Plan Estimated Costs Local Foreign TOTAL ~~~~~~~~~~--(US* million) ~~ (a) Pipeline Reconstruction (i) pipeline constr. (incl. clean-up) 15.3 8.5 23.8 (ii) pipe (26") - 4.1 4.1 (iii) pipe (10") - 0.3 0.3 (ivl other materials 4.8 1.0 5.8 (v) bridges 0.4 5.1 5.5 (vi) telecommunication 0.3 1.6 1.9 (vii) Balao terminal 1.2 2.8 4.0 (viii) air logistics 3.2 0.8 4.0 Subtotal 25.2 24.2 49.4 (b) Maintenance and rehabilitation of Consortium fields (CEPE's share) (ii drilling, work over & well services 2.4 7.5 9.0 (ii) equipment and others 1.4 1.1 2.5 Subtotal :g YX 1F.T (c) Aecelerat. devetop. of CEPE's fields TTj- drilling, well service & marinten. 1.8 7.4 9.2 (ii) equipment and vehicles 4.6 7.4 12.0 Subtotal 6.4 Ib75 M177 (d) Technical Assistance li) engineering and Mgt (Texaco) 0.3 0.6 0.9 (ii) monitorin; and inspection 0.1 0.2 0.3 (iii) CEPE studies 0.1 0.1 0.2 (iv) emergency prep. study 0.1 0.1 0.2 Subtotal 0.6 1.0 1.1 Base Costs 36.0 48.6 84.6 Physical Contingencies/ 8.6 8.4 17.3 Total Costs 44.9 57.0 101.9 1/ 35 percent for pipeline construction, 25 percent for other pipeline items (exept 26" pipe) and technical assistance, and 10 percent for oil field development and rehabilitation components. Financing Plan Local Foreign TOTAL -- (US$ million) ----- Government ICEPE 10.2 - 10.2 CAF - 11.7 11.7 IBRD 34.7 45.3 80.0 TOTAL 44.9 57.0 101.9  -6- Schedule B ECUADOR I_GtC Y PETOLBEM RCONSTRUCTION PROJECT A. Procurement Project Element Procurement Methods Total Cost L.I.B. Int'l L.C.B. Local Other Shopping S Shopping 1. Pipeline Construction 32.1 32.1 (22.5) (22.5) 2. Other civil works and 5.7 4.0 9.7 logistics (4.7) (4.0) (8.7) 3. Pipe 4.4 4.4 4. Other pipeline - related 12.4 3.0 1.5 16.9 materials & equipment (10.3) (3.0) (1.5) (14.8) 5. Oi' field works 17.5 5.0 22.5 (14.5) (5.0) (19.5) 6. Oil field equip. & mat. 14.3 14.3 (12.5) (12.5) 7. Project mgt. & monitoring 1.4 1.4 (1.4) (1.4) 8. Studies 0.6 0.6 (0.6) (0.6) TOTAL 49.6 40.8 8.0 1.5 2.0 101.9 (38.3) (30.2) (8.0) (1.5) (2.0) (80.0) LIB: Limited International Bidding. LCB: Local Competitive Bidding. Figures in parenthesis are amounts to be financed by IBRD Loan. B. Proposed Disbursements by Cacegory Category Amount Percentage (US$5=on) Pipeline construction 22.5 70% of expenditures Other pipeline-related civil works 8.7 100X of expenditures Pipeline equipment and materials 14.8 ) 100% of foreign expenditures Oilfield equipment and materials 12.5 ) and 75% of local expenditures Oilfield works 19.5 100Z of expenditures Technical assistance 2.0 100I of expenditures TOTAL 8o.0 C. Estimated Bank Disbursements Bank FY 87 88 ---- US$ million Annual 22.1 57.9 Cumulative 22.1 80.0  -7- Schedule C ECUADOR EMERGENCY PETOLEUM RECONSTRUCTION PROJECT Timetable of Key Processing Events (a) Time taken to prepare: Two weeks (b) Prepared by: Government and CEPE with Bank assistance (c) First Bank mission and Appraisal Mission Departure: March 11, 1987 (d) Negotiations: April 13, 1987 (e) Planned Date of Effectiveness: May 29, 1987  -8- Schedule D Page 1 of 2 ECUADOR E4ERGENCY PETROLEUM RECONSTRUCTION PROJECT THE STATUS OF BANK GROUP OPERATIONS IN ECUADOR A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1987) --- US$ million--- Amount Loan or (less cancellations) Credit Fiscal H4umber Year Borrower Purpose Bank IDA Undisbursed 22 loans and 6 credits fully disbursed 277.3 37.5 - 1429 1977 Ecuador Highways 14.3 - 0.3 1644 1978 Ecuador Rural Development 18.0 - 10.1 1776 1980 Ecuador Guayaquil Urban Development 31.0 - 9.3 1882 1q80 Ecuador Highways 55.0 - 27.3 1991 1981 Ecuador Rural Development 16.9 - 13.3 2044 1982 Ecuador Rural Development 16.1 - 12,7 2096 1982 Ecuador DFC 60.0 - 0.9 2135 1982 Ecuador Housing 35.7 - 16.8 2171 1982 Ecuador Education 16.0 - 12.5 2221 1983 Ecuador Small Scale Enter- prise Credit 40.6 - 2.8 2516 1985 Ecuador Public Sector Management 6.0 - 5.9 2626 1986 Ecuador Agriculture Sector 100.0 - 33.1 2672 1986 Ecuador Industrial Finance 115.0 - 49.9 2673 1986 Ecuador Third Small-Scale Enterprise Credit 30.0 - 20.0 2713 1986 Ecuador Power Sector Improvement 1/ 8.5 - 8.5 2752 1987 Ecuador Agriculture Credit 2/ 48.0 - 48.0 2774 1987 EMAP-G Guayaquil1/ Water Sup. II 31.0 - 31.0 Total 919.4 37.5 of which has been repaid 208.2 3.4 Total now outstanding 711.2 34.1 Amount sold 3.2 of which has been repaid 3.2 - - Total now held by Bank and IDA 711.2 34.1 Total undisbursed 302.4 1/ Not yet signed. 2/ Not yet effective.  -9- Schedule D Page 2 of 2 B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1987) Type of (amount in US$ million) Fiscal Year Business Loan Euity Total 1966 & 1972 La Internacional, S.A. Textiles 3.7 0.2 3.9 1969, 1973, Compania Financiera 1975 & 1977 Ecuatoriana de Desarrollo 1981, 1982 S.A. (COFIEC) DFC - 0.5 0.5 1976 Sociedad Agricola e Indus- trial San Carlos, S.A. Sugar Mill 5.0 - 5.0 1978, 1980, 1982, 1983, 1984 Cemento Nacional (CEM) Cement 12.0 1.0 13.0 1980 Adamas Andina. S.A. 11 Pulp and Paper 3.3 1.0 4.3 1981 Compania Minera Toachi, S.A. Mining 1.0 0.3 1.3 Total gross commitments 25,0 3.0 28.0 Less cancellations, terminations, repayments and sales 22.7 1.6 24.3 Total commitments now held by IFC 2.3 1.4 3.7 Total undisbursed - _ 1/ Cancelled by letter of April 26, 1982  I1- V: i 0~ z p.4 C,.' ~Ee ci)  - 11 - TECHNICAL ANNEX ECUADOR EM EGENCY PETROLEUM RRECONSTRUCTIO PROJECT A. TUE ANRT aD THEIR AFTERM Earthquake Impact 1. Two major earthquakes, each registering about 7 (as) on the Richter Scale, struck the remote oil-producing north-eastern part of Ecuador on March 5, 1987. A third earthquake, rating 5.5 (ms) on the Richter Scale, hit on March 6, 1987. The epicenters of the earthquakes were close to the volcano E1 Reventador, on the eastern slopes of the Andes, overlooking the Amazonian Basin about 80 km northeast of Quito (Map IBRD 20415). Unstable slopes and riverbeds, rugged terrain and sparse populations characterize the affected region, which is populated by a mixture of indigenous peoples and settlers. Most of the damage was caused by massive landslides and mud flows triggered by the earthquakes, following a period of unusually heavy rain. In all, the earthquake and attendant landslides left about 1,000 people dead and 16,000 homeless, mostly located in the mountainous areas north-west of the epicenter; of these, about 2,000 will need to be resettled in other areas (para. 7). In addition, about 10,000 persons (both indigenous people and recent settlers) living in river basin areas of the eastern slopes have been affected. Given the severity of the earthquakes, it is fortunate that they hit an area of relatively low population densities. On the other hand, from an economic perspective, the consequences of the earthquake are severe since the lifeline of Ecuador's energy economy, the Trans-Ecuadorian oil pipeline and its related facilities were seriously damaged. All of Ecuador's crude oil flows through this system, and the destruction of this vital infrastructure resulted in a cessation of petroleum production and exports. This is a calamity for an economy in which petroleum accounts for 15 percent of GDP and about half of exports. Physical Dmage 2. The petroleum sector was the most severely affected, with the direct cost of reinitiating oil production tentatively estimated at about US$117 million (see para. 22; estimates contain an unusually high level of contingencies). Damage to the transport sector has also been important, resulting in a cut-off of communIcation to the Amazonian province of Napo. The only existing land connection between Quito and the Amazonian oil fields--the 160 km Baeza-Lago Agrio road-was heavily damaged by the landslides and flooding. The 30 km between the Salado and Reventador rivers suffered the most severe damage, with 16 km completely washed out or covered by mudt and 14 km seriously damaged. The two adjacent 15 km sections to the north and south suffered major interruptions due to local slides. Two major bridges, each 150 m long, and 6 minor bridges collapsed.  - 12 - The reconstruction cost of this road has been estimated at US$7.4 million. To provide an additional land connection to the oil region, a missing 25 km section of the Hollin-Loreto-Coca road is expected to be built with Inter-American Development Bank (IDB) and United States assistance. The cost to complete this road connection, including 12 bridges, is estimated at US$4.3 million. In addition, many rural roads in the mountainous regions affected by the earthquakes are reported to have suffered heavy damage, and will be reconstructed, again with IDB support as well as self-help. 3. Total damage to housing is tentatively estimated at US$13 million. About 2,000 urban houses were destroyed or damaged, and about 8,700 houses in rural areas were affected. Health service infrastructure, schools, historical and religious buildings, and water supply and sewerage systems were also damaged. In stmmary, current estimates of total direct physical damage (excluding pipelines) from the earthquake are in the order of US$250 million. This does not include physical damage to forestry and agriculture, but that is not considered to be large given the limited value of physical assets in, and the low productivity of, the area. On the other hand, agricultural and forestry activities have been severely disrupted by the disaster, not only due to the human toll but also by the lack of trans- portation, which has restricted shipment of naranjilla, cocoa, coffee, palm oil and wood products, as well as traditional crops. Pump-priming activities at the grass-roots level (including emergency credit arrangements), temporary bridges, and rehabilitation assistance are the focus of government actions. Private and international emergency assistance is also being deployed to revive the regional economy. Impact on the Petroleum Sector and the Sconomy 4. While the direct physical damage is substantial, the indirect impact of the earthquakes on the economy and society is potentially much more severe. Total oil production in 1987 is expected to reach only 66 million barrels, 49 million barrels less than Ecuador's production capacity and 36 million barrels less than its 1986 production. The reduction in oil output, as compared to its 1986 level, is valued at US$600 million at current world prices (5 percent of GDP). These figures assume that Ecuador would be able to resume partial oil production on May 8, 1987 thanks to the planned construction of a pipeline link to the Colombian network (para. 9). 5. This 30 percent decline in oil sector output coupled with indirect repercussions from reduced public expenditures, oil rationing and transport disruptions, is expected to be a severe blow to the economy. On the other hand, the non-oil sectors of the economy are expected to retain their buoyancy. On balance, despite the mitigating income generation impact of the reconstruction efforts, it is likely that GDP will decline somewhat during 1987. The challenge facing the Government is to maintain the direc- tion of its economic policy, combining adjustment with growth and diversi- fication. The direct damage, together aith the loss in foreign exchange revenues from reduced oil exports, and the multiplier effects of reduced oil production and public expenditures, is expected to exceed US$1 billion (8 percent of GDP).  - 13 - tavirosmental and Social Impact 6. Some 140,000 barrels (i.e. about 17,000 tons) of crude oil were released into the Coca rivtr as a result of the destruction of the Trans-Ecuadorian pipeline. / In addition, about 5,000 barrels of crude oil were spilled from a damaged storage tank in the Salado pumping station, into the river and the area immediately adjacent to the station. It appears that the force of the wave of water and mud carried by the river was sj powerful that most of the oil quickly moved downstream into the Rio Napo.- As a result only small and localized oil spills can be observed in the area of the damage, essentially in stagnant waters on the river banks, with tree trunks serving as natural boom systems. Clean up of oil spills in river banks and near the Salado station will be undertaken as part of the pipeline reconstruction work (see para. 21), in accordance with acceptable environmental standards (i.e. through disposal of polluted soils and waters in landforms), and is not expected to pose any problem. Monitoring of river and well water quality in the area would also be carried out by the Ministry of Energy and Mines. Secondary effects of the oil spills are, however, not yet known, and would be researched as part of an environmental impact assessment of the disaster which a local environmental group, Fundacion Natura, is carrying out under USAID funding. Under the project, the Government has agreed to prepare and agree with the Bank by June 30, 1987, on an action plan, based on the recommendations of that study as appropriate to address the environmental impact of the disaster. In addition appropri- ate construction techniques and soil stabilization safeguards would be used so as to minimize soil erosion in the area of the reconstructed pipeline. 7. Three types of populations groups, each with their own distinct needs, were affected by the earthquakes. In the highlands north-west of the epicenter, indigenous and mestizo communities, who derive their income from agriculture, will mainly require housing reconstruction assistance. Bilateral assistance as well as assistance from private voluntary groups is being mobilized in this area. The Bank is also considering reformulation of an ongoing housing loan (2135-EC) to assist in housing needs. The situation in the sparsely populated Amazonian river basins east of the epicenter is more complex, with two groups affected, indigenous pnnulations and recent settlers. The number of indigenous people affected and the impact of the earthquake on them is not well known, due to the lack of census. Preliminary indications are that they have been affected by the river siltation and some oil pollution which has affected water quality and fishstock in some rivers, and by loss of canoes and out-board motors, the mainstays of their river-based economies. A number of private voluntary organizations are assisting in programs to ensure that these communities are protected, with suitable assistance strategies adopted to protect their natural habitat. In this case, assistance in-situ rather than resettlement is indicated. The third group of about 300 families of recent settlers who 1/ The protection system for loss of pressure was activated by the breakage and only the oil contained in the pipe between block valves was spilled. 2/ It is estimated that the wall of mud and water, about 7 meters high, moved at about 20-30 km/h and carried about 40 million tons of debris.  - 14 - were displaced by the landslidest will also require special assistance program. This group lost, through the effects of the flooding on the river banks, their arable land and means of livelihood, and will require resettlement to less risky areas without abridging local indigenous communities. During negotiations, the Government has agreed to prepare by June 30, 1987, and carry out an acceptable plan for assistance to displaced persons (including resettlement), which would minimize the impact of the settlers on the fragile Amazonian environment while providing sustainable economic opportunities for them. Government-Response 8. - After concentrating its initial efforts on post-disaster rescue and relief operations, the Government is now preparing plans to resettle refugees and to reconstruct urban and rural housing and basic infrastruc- ture. A high-level (Cabinet rank) Inter-institutional Coordinator has been appointed to oversee and coordinate external aid (para. 12). On March 17, the Government established the Center for National Emergency operations (COEN) to oversee emergency reconstruction implementation. Implementation responsibility wilt remain with the line agencies and public entities under whose jurisdiction the affected sectors normally fall. To facilitate quick and effective implementation of the reconstruction program, a Presidential Decree was issued which allows for greater flexibility in procurement and contracting procedures. In this context, top priority is being given to the Ministry of Energy and Mines' program of petroleum infrastructure reconstruction aimed at prompt resumption and acceleration of oil production and exports. 9. The Government has taken a number of steps to mitigate the impact of the earthquake on the energy sector. First, an oil-swap agreement has been reached with Venezuela whereby Venezuela provides Ecuador, starting mid-March, with 5 million barrels of crude oil for utilization in Ecuadorian refineries (at a rate of about 65,000 B/D) and 7.5 million barrels of oil for exports to Ecuador's main customers (at a rate of about 50,000 B/D). These quantities would be reimbursed in kind by Ecuador as soon as oil production is reinstated, in 6 and 7 months respectively. More recently a similar swap agreement was reached with Nigeria for 1.5 million barrels to be delivered at the rate of 10,000 BD starting April 1, and to be repaid in 4 months. Second, Ecuador and Colombia have agreed to connect the Oriente fields with the Trans-Andean (Colombian) pipeline system through the construction of 37 km of 10"/12" pipeline (31 km in Ecuador to be financed under Mexican export credits, and 6 km in Colombia to be financed by ECOPETROL, the Colombian national oil company); this will enable Ecuador to transfer 50,000 B/D of crude oil to the Esmeraldas refinery by sea, starting May 8, 1987. Third, CEPE is accelerating the development of its oil fields so as to allow for an increase in the country's total production to about 320,000 B/D to make up for lost production. Fourth, the Government raised domestic petroLeum prices, by 56 percent on average, raising these from about 50 percent to 75 percent of opportunity cost (international price plus domestic transportation and distribution). Gasoline prices are now slightly above international prices. This will help dampen domestic demand, cut down on smuggling and raise about US$120 million in additional public revenues in 1987. In addition to the price increases, fuel is being rationed. In all,  - 15 - the Government expects that domestic consumption will be reduced oy 30 percent. 10. Complementary macro-economic measures have also been initiated. A 5 percent decline in public expenditures has been set as a target, to be achieved through freezing government salaries and by reducing investment expenditures, and by restricting imports by public sector agencies. Continued restraint in monetary policy, maintenance of a floating exchange rate and continued liberalization of financial sector policies are expected. 11. In the aftermath of the disaster, the need to evaluate the response of Ministries and institutions with overlapping jurisdictions became evident. Even though there is a National Security Law which provides the outline for emergency response, regulations for implementation of the Law have not been promulgated. Under the project, a study of the Government's response to the disaster, and recommendations for improving emergency preparedness, would be carried out by the National Security Council (para. 21). The Government has agreed to hire coiisultants for that purpose by July 1, 1987. Mobilization of External Resources and Aid Coordination 12. The Government has initiated a series of meetings with potential donors to mobilize external assistance. Besides supplies and food received to assist in immediate relief efforts, firm commitments to date total US$4 million, destined mainly for housing and rural infrastructure reconstruc- tion. In addition to the proposed Bank loan, other assistance under consideration includes reallocation of funds under an existing Bank housing loan (para. 7); reallocation of IDB Loans for road reconstruction and education (US$20 million); Corporacion Andina de Fomento loans for pipeline reconstruction (US$11.7 million); and U.S. provision of temporary bridges. Bank Response 13. A Bank damage assessment mission, which included experts in pipeline construction, geology, and the environment, visited Ecuador five days after the earthquake. The mission appraised the proposed project. A housing mission visited Ecuador April 7 to 14 to determine the necessity and scope of reallocation of Loan 2135-EC, and to assist in development of a coherent plan of assistance to displaced persons (para. 7). The Bank is also reviewing its country assistance strategy, and is assessing whether other projects could be reformulated in light of changing Government priorities. 14. Soon after the earthquake, informal meetings between Bank staff, USAID, IDB and the United Nations Development Program were held in Washington at the Bank's initiative to coordinate reconstruction assistance. It was decided at that time, and later ratified by the Government, that IDB would take the lead in road reconstruction efforts and the Bank in pipeline reconstruction works. The Bank is continuing to closely coordinate its efforts with other donors.  - 16 - B. THE PROJECT Sectoral Background 15. Since oil production started on a major scale in 1972, the economy of Ecuador has depended to a large extent on its oil industry, which in 1986 contributed about 15 percent of GDP and 45 percent of total merchandise exports. Oil reserves are currently estimated at about 1.8 billion barrels, mostly concentrated in the eastern part of the country (Oriente). Fields operated by the national oil company (CEPE) produced about 15 million barrels in 1985, i,e., 14 percent of the country's produy ion whereas fields owned by the CEPE-Texaco Consortium (operated by Texaco) , produced 86 million barrels (84 percent). Total production was averaging about 280,000 BD in early 1987. The Government has been successfully promoting exploration by foreign oil companies: 12 exploration/production contracts have been signed since 1984, and exploration drilling has already started on several blocks, with encouraging results. The petroleum sector is thus expected to maintain a predominant role in Ecuador's economy for the foreseeable future. The Pipelines 16. The Trans-Ecuadorian 26" pipeline (total length of 502 km), was built in 1972 by Texaco-Gulf to transport crude oil from newly discovered oil fields in the Oriente (Lago Agrio) to the port of Esmeraldas. Its capacity was recently expanded to 300,000 BD in 1985. The Shushufindi-Quito 6" LPG pipeline, which follows the same route, was built by CEPE in 1981 to transport the LPG produced in its Shushufindi gas plant. The Trans- Ecuadorian crude line was owned jointly (50/50) by CEPE and Texaco, and operated by Texaco, until March 1986 when it became sole property of CEPE under the terms of the original contract. Texaco, however, remained entrusted with the operation and maintenance of the line under a special agreement with CEPE. In 1985, 102 million barrels of oil, or 99.6 percent of the country's production, was transported via the Trans-Ecuadorian pipeline. Earthquake Damage to Petroleum Infrastructure 17. The unusually heavy rains that were experienced in the region of Rio Coca (see map) during February 1987 affected soil stability and had already caused some damage to a pipeline bridge when the earthquake struck on March 5, 1987 causing enormous landslides and floods which (i) wiped out or heavily damaged a 33 km section of the crude line and approximately 45 km of the LPG line between Salado and Lumbaqui (where the lines were laid on very steep mountain slopes), (ii) destroyed five bridges and 30 km of the road running alongside the pipeline, and (iii) damaged the Salado pumping station and storage tanks. As a result, oil production in the Oriente was brought to a halt and land communication with the Eastern Region rendered impossible. 1/ Owned 62.5 percent by CEPE and 37.5 percent by TEXACO.  - 17 - Reconstruction Design Alternatives 18. Because of the area's unfavorable geology and seismicity, and the rough and unstable terrain conditions along the damaged stretches of the pipelines, Texaco carried out a detailed analysis of four possible alignments for the reconstruction of the lines, one following substantially the original route close to the Coca river bed, two others following the upper mountain ridges on either side of the valley, and the last one involving a substantial detour to the South through flatter terrain. The three alternate routes would require the building of additional pumping capacity, meaning increases not only in construction cost but, above all, in completion time (and therefore in lost oil production). Only one of these (the latter) would significantly reduce seismic and geological risk, but would increase costs by as much as US$70 million and completion time by at least 13 months. Texaco therefore recommended that, in view of the urgent need to reinstate oil production, immediate reconstruction of the lines follow the original alignment, but that concurrently a study be undertaken to assess in detail the technical/economic feasibility of building another line along the fourth route as a long-term back-up option. The scope of the forthcoming Trans-Ecuadorian pipeline expansion study, to be financed under an ongoing Project Preparation Facility advance would be revised accordingly. It would also include an analysis of the causes of, and circumstances surrounding, the damage to the pipeline, and of measures that can be taken to avoid a recurrence. In order to minimize the risk of future damage from landslides and flooding, the reconstructed lines will also be buried one to two meters deep and river crossings will be rebuilt underground. A pipeline construction expert hired by the Bank concurred with this approach. Project Objectives 19. The objectives of the proposed Project are: (i) to reinstate crude oil production and exports in the shortest possible time so as to minimize the cost of interrupted oil production to the economy (ii) to avoid potential long-term damage to the oil fields due to the expected 4-5 month interruption in production by undertaking necessary oil field maintenance and reaccivation requirements; (iii) to enable the country to boost oil extraction to a level of about 320,000 BD as soon as possible after the pipeline is back in operation in order to make up for lost production; (iv) to minimize the environmental impact of the disaster; and (v) to enhance the Government's capability to deal with future emergencies. Project Scope 20. The project would consist of four main components: (i) investments directly related to the reconstruction of the Trans-Ecuadorian pipeline and related installations; (ii) investments required to maintain oil field facilities; (iii) investments in oil field development necessary to increase oil extraction; and (iv) technical assistance.  - 18 - Detailed Features 21. The detailed features of the project are as follows: (a) The Trans-Ecuadorian Pipeline Component would include: (i) replacement/repair of 33 km of the 26" crude line between Salado and Lumbaqui; (ii) replacement of a 44 km stretch of the 6" LPG line; (iii) replacement of a 1.5 km stretch of the production line between Bermejo and Lwmbaqui; (iv) reconstruction of two major bridges and three minor ones; (v) repair of the Salado pumping station; (vi) repair of pipeline telecommunications facilities; (vii) reconditioning of the Balao maritime terminal; and (viii) clean-up of remaining oil spills. (b) The Maintenance and Rehabilitation of the CEPE-Texaco Consortium Fields would include: (i) drilling of 8 wells in the Shushufindi, Sacha, and Guanta fields; (ii) workover1qf 68 wells and pump replacement and repairs; and (iii) related well-services, tubulars and well-site preparation. (c) The Accelerated Development of CEPE's Fields would include: (i) drilling and completion of 20 wells in the Libertador, Bernejo, Tetete-Tapi, and Tiguino fields; (ii) rehabilitation of 12 wells;1/ (iii) completion of 4 production stations (Pichincha, Bermejo, Tiguino and Tetete-Tapi) and related surface facilities; and (iv) related infrastructure and logistics (including purchase of vehicles). (d) Technical Assistance would include: (i) engineering and management (provided by Texaco) and services of monitoring consultants, related to the Pipeline Reconstruction component; 1/ The crude produced from these fields is parafinic. Before resuming production, pumps and some wells will have to be cleaned and serviced and/or eventually replaced to ensure uninterrupted flow of oil.  - 19 - (ii) studies to be mtndertaken by CEPE regarding the expansion and/or reputing of the Trans-Ecuadorian pipeline (para. 18)_ and possible follow-up to the environmental impact study; and (iii) an emergency preparedness study to be carried out the National Security Council (para. 11) to recommend institutional arrangements necessary to ensure proper coordination among concerned institutions during future emergencies, and assist in their implementation. Project Cost 22. The total cost of the proposed project is estimated at US$101.9 million, with a foreign component of US$57.0 million (56 percent) (see Schedule A of the Memorandum of the President). Base cost estimates for the pipeline reconstruction component were reviewed by the Bank. The recon- struction base cost estimates correspond to 1.75 times US costs to take into account the particularly difficult terrain conditions in the affected area, the extra earth work involved due to recent landslides, and the need for two underground river crossings. Cost estimates for the field rehabilitation and development components are in line with recent costs in Ecuador for similar work. Physical contingencies of 35 percent have been included in the cost for the pipeline civil work due to the lack of detailed engineering and the significant risk of construction delays due to challenging terrain conditions (para. 18). Physical contingicies of 25 percent have been used for the other pipeline reconstruction items and technical assistance components, and 10 percent for the oil field rehabilitation and development components. Costs do not include price contingencies due to the short project implementation period (four to nine months depending on the component). Financing Plan 23. The project financing plan is summarized in Schedule A of the Memorandum of the President. Corporacion Andina de Pomento (CAF) has agreed to reassign to the proposed project an undisbursed loan to CEPE of US$11.7 million which was to finance the next expansion of the Trans-Ecuadorian pipeline (13 years maturity with 3 years of grace, and variable interest 1/ Funds under that category would complement the remaining funds under the PPF advance (US$350,000), to cover the additional cost resulting from the expansion of the scope of the study. 2/ Except for the cost of the 26" pipe which has already been ordered from Italy (following Limited International Bidding).  - 20 - rate).1/ CAF's contribution would cover the purchase of pipe (26" and 10") i.e. about US$4.4 million, as well as about 23 percent of the main pipeline construction contract in co-financing with the Bank. Cross-effectiveness with the CAF loan is provided under the Bank's Loan Agreement. The proposed Bank loan of US$80 million would cover 70 percent of the main pipeline construction contract, most other materials required for pipeline reconstruction, engineering/management and control services, as well ae 87 percent of CEPE's oil field developmeut expenditures and the technical assistance component. CEPE's contribution of US$10.2 million (10 percent of total project cost) would cover the remaining cost of pipeline reconstruction, oil field rehabilitation and development investments. 24. The proposed Bank loan would be m V e at standard IBRD terms to the Government and passed on to CEPE as equity_ so as not to burden its already weak finances. CEPE, which suffered a net loss of US$35 million in 1986, is expected to lose revenues of about US$60 million (after tax) between March and July 1987. The full impact of the pipeline damage on CEPE's finances remains to be determined, however, as many factors which are not yet fully clear are involved (forward sale of Venezuelan and Nigerian crude, decreased refining activity and domestic sales of products, increased production following completion of repair etc.). The Government has therefore agreed to analyze this impact in detail, together with CEPE, and to prepare and agree with the Bank by September 30, 1987 on a plan of action to put back CEPE on a sound financial footing, and review with the Bank its implementation by November 30, 1987. Project Justificatiov and Risks 25. Economic benefits under the project are the value added from oil production which, without the reconstruction, could not be exported or consumed locally. At current oil market prices and considering marginal extraction costs of less than US$2 per barrel, the reconstruction project is expected to pay for itself in less than a month, leaving no doubt as to its economic justification. 26. Although the risk of occasional and localized landslides will persist during pipeline reconstruction and the next few years, potential damage is unlikely to be major as the reconstructed lines will now be buried (see para. 18).WY Landslides, together with soil instability, may however cause construction delays, which in turn would translate in to cost overruns. Cost overruns may also result from a lack of appropriate schedule and cost monitoring. Texaco's experience in operating the pipeline, combined with special project monitoring and inspection assistance to be provided to CEPE (see para. 29) are expected to minimize these risks. 1/ Currently 8.25 percent per annum. 2/ Except for US$0.3 million assigned to the emergency preparedness study. 3/ 13 line breaks due to landslides were experienced in the first seven years of the pipeline life, usually requiring one or two days repair.  21 C. PROJECT DIPLEMNTATION AND INSTITUTIONAL ABRANGENTS Project Organization 27. CEPE has designal7d Texaco as project manager for the Pipeline Reconstruction component.- A project organization chart has been agreed upon and is included in Attachment 1. Texaco will staff the project with expatriat3s from its Houston headquarters as well as pipeline operations personnel from the Consortium (currently idle due to the interruption of pipeline operations). CEPE would draw selected staff from its own Pipeline Department to act as counterparts to Texaco's staff. In addition, CEPE has agreed to hire specialized pipeline consultants (three experts) to assist in monitoring of project scheduling and costs, and works inspection, under terms of reference agreed with the Bank. Hiring of these experts is expected by April 24. In order to ensure smooth project execution, a clear division of responsibilities would be agreed between CEPE/Texaco and the Ministry of Public Works (MOP) whereby CEPE/Texaco would be in charge of the pipeline reconstruction until it is completed, whereas MOP would subsequently be in charge of the construction of the road (which is expected to use the same alignment as the pipeline). An Agreement to this effect was signed on April 22. 28. The oil field maintera-se and rehabilitation component would be carried out under the responsibility of Texaco as the operator of the Consortium fields. The Oil Field accelerated development component would be carried under the responsibility of CEPE's Department of Production, which is qualified. The Government has designated the National Security Council to oversee the emergency preparedness study. Implementation Schedule 29. A schedule for the pipeline reconstruction component is shown in Attachment 2. It provides for mobilization of the main civil works contractor by April 24, delivery of the 26" pipe on Mav 8, completion of the crude line by August 15 and completion of the LPG line by September 1, 1987. Delays may occur, however, as a result of unforeseen construction difficulties due to soil unstability and the normal onset of heavy rains in July. The Oil Field Maintenance and Development components would be carried out between March and December 1987. The Emergency Preparedness study would be carried out from June to November 1987. 1/ Texaco's ultimate parent company, Texaco Inc., entered into chapter 11 proceedings under the US Bankruptcy Code on April 12, 1987. The Bank has been informed by CEPE and Texaco that, as of this date, none of Texaco's subsidiaries involved in Ecuat.or are directly affected by the proceedings. In order to guard against possible negative implications concerning project implementation, CEPE agreed during negotiations to a number of contingency measures should circumstances require them in order to protect its ability to carry out the Project. The legal documentation for the loan also includes pertinent safeguards.  - 22 - Procurement and Coutracting 30. A summary of procurement procedures to be used for main project items is shown in Schedule B of the Memorandum of the President. The Government and CEPE have decided that Texaco would be the general contractor for the Pipeline Reconstruction component, passing on all sobcontractors invoices at cost to CEPE. Texaco will thus act as both project engineer and procurement agent. The contract between CEPE and Texaco stipulates that Texaco: (i) will get at least three quotations from suitable contractors/suppliers for all works and goods to be procured under the project; and (ii) CEPE will participate in all bid evaluations and approve all subcontracts. Given the urgency of the project and Texaco's unique qualifications to take quick anA' effective actions required, this arrangement is appropriate. A large portion of the Bank loan (28 percent) would be disbursed against the main civil works contract for the pipeline reconstruction component, for which bids were requested on March 14 from six qualified contractors. Five of these contractors had responded by the March 19 deadline and following review by the Bank of the bid evaluation report on March 30, negotiations were started with the lowest evaluated bidder (Willbros, USA). Contract signature is scheduled by April 30. All Bank- financed items would be procured in accordance with Bank Guidelines, mostly through (i) LCB, LIB and international shopping for the pipeline reconstruction component; and (ii) LIB and LCB for oil field rehabilitation and development. Bank guidelines would also be used for the selection oi consultants for engineering, management and monitoring services, and studies. Prior review by the Bank of contracts for goods and works of more than US$0.5 and US$2.0 million, respectively, is provided for undcr the Loan Agreement. Disbursements 31. The bulk of the loan amount is expected to be disbursed in the fourth quarter of FY87 and the first quarter of FY88 (28 percent and 60 percent respectively). Assuming loan signature in mid-May 1987, it is expected that up to US$20 million (25 percent of the loan amount) would correspond to retroactive financing. In order for CEPE to be able to repay Texaco within the 10 days following presentation of the invoices provided for under the contract; the Bank would set up a Special Account of US$40 million in the Central Bank corresponding to the peak 3-month average of estimated loan disbursements (i.e., 50 percent of the total loan amount). Disbursements under the loan would be fully documented. External Audit 32. The Contraloria General de la Nacion (Auditor General) has, on February 16, 1987 invited 8 private external auditing firms to make proposals for the audit of CEPE's annual financial statements for 1985 and 1986. Hiring of a firm is expected by April 30 and completion of the audit report by October 15, 1987. The selected firm would be requested to carry out, as part of its work, a specific audit of the accounts of the pipeline reconstruction component; that report would be sent to the Bank within four months of completion of that component. CEPE has also agreed to have its future annual financial statements audited by independent auditors satisfactory to the Bank, and send their report to the Bank within four months of the end of each fiscal year.  - 23 - Insurance 33. Even after the Trans-Ecuadorian pipeline became the sole property of CEPE on March 1, 1986, insurance policies in force on the assets operated by the Consortium continued to be carried in the name of Texaco, with CEPE as the bereficiary. An initial expert review of these policies requested by CEPE and providod to the Bank reveals that (i) the Salado pumping station was covered and (ii) the LPG and Bernmejo lines, which have always belonged to CEPE, were not insured. The coverage status of the main crude line is less clear, and CEPE has recently presented a claim for US$32 million. The likelihood of this claim being settled any time soon and for the amount requested is, however, considered remote. While the non-insurance of pipelines is not unusual in the oil industry, CEPE has agreed under the proposed loan to have specialized consultants carry out by November 30, 1987 a review CEPE's future insurance needs in relation to the Trans-Ecuadorian pipeline and related installations. Reporting Requirements 34. Monthly reports as well as bimonthly telexes would be sent to the Bank by CEPE on the progress of the pipeline reconstruction component; they would be prepared with the assistance of the special monitoring consultants (para. 27). Monthly progress reports would be sent for the other components by CEPE. Formats for these reports were agreed during negotiations. D. AGRFFSENTS REACHED 35. Under the Loan and Project Agreements, the Government/CEPE have agreed to the following actions: (a) The Government to prepare and agree with Bank by June 30, 1987 on an action plan addressing the environmental impact of the disaster, carry it out, and review its implementation with the Bank by November 30, 1987 (para. 6); (b) the Government to prepare by June 30, 1987, and carry out a plan for assistance to displaced people (para. 7); (c) the Government to hire, by July 1, 1987, consultants to carry out the emergency preparedness study (para. 11); (d) CEPE and the Government to take appropriate actions to clean up oil spills and monitor water quality in the affected areas (para. 6); (e) CEPE and the Government to carry out jointly, a detailed study to assess the impact of the disaster on CEPE's finances; prepare, and agree with the Bank, by September 30, 1987, a plan of action to strengthen them (para. 24) and review with the Bank its implementation by November 30, 1987;  - 24 - (f) CEPE to have specialized consultants carry out by November 30, 1987 a study of its future insurance needs related to the Trans-Ecuadorian pipeline and connected infrastructure (para. 33); and (g) CEPE to provide monthly project progress reports to the Bank, in accordance with formats agreed with the Bank (para. 34).  ECJADOR Emnergency Petroleum Reconstruction Project Project Organization Chart TMM c~~~~~~~~~~~~~~~~~~~~~~~~~~eneoi POW* ft.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~P6ll r . ~~~~~~~~~~0, , oo seIrvc ck1a Prc asrio 1 Enginee (tCEPE) SU"WK . ! - O# - RoWd&K &4*Bidesan P Cosrufio River CrG s k"Wtof keinspecto r inspectorC hiqaecior" ue q2cw Roaco R _ x_ ig _I. & _IFI*. hCh Wod bank 31t53  ECUADOR Emergency Petroleum Reconstruction Project SCHEDULE TO RkUILD & RESTORE FIPELINE & SALADO STATION March I April I hay June 1 July Task 16 330 16 13 ,OZ7 7 4 11t 18 I I 8 15 2 29 16 13 20 27 Road to Salado 8ridge I XXXXXXXXXX I I Salado Bridge I I I I US Army survey s XXXXXXXt S Order, make, ship bridge SXXXXXXXXXXXXXSXXXXXXXXXXXXXS US Army construct abutomnt I SXXXXXXXXXXXXXSXXXXXXXXXXXXXSXXXXXXXXX US Army construct bridge I I S XXXXXX I Aguarico bridge I s S US Army survey I XXXXXXXS I Order, make, ship bridge I SXXXXXXXXXXXXXSXXXXXXXXXXXXXS US Army construct abutment I SXXXXXXXXXXXXXSXXXXXXXXXXXIXXxXXXXX Sa US Army construct bridge 1 I I XXXXXX t Clear mud from Salado Station I XXX I t Clear mud from around Station XXXXSXXXXXX S I I Clear road east of KM 98 S Aguarico-Lago Agrio I XXXXXXXS s l:M 96-Aguarico, KM 51 1 XXXXXXXXKXXXXXXKXXXXKXXX S : Pipe repairs, n" 96-Aguarico I tNeed on-the- ground insps Iction S Order, manufacture, *hip pipe S I S t Receive pipe at Easmraldas I S Clear F/L ROW; build tewp road I I Woriing east from sM III S S XXXXXXXXXXXXXXXXXXXXSXXX I WarLing West from KM 96 1 XXXXXXXXXxXXXXXXXXxxxxt . Pipeline Construction I I Worlning east fro M 111 : : I XXXXXXXXXXXXx: XXX Worl.ina West from IiM 96 I 1 xxxxxxxxxx:xxxxxx I S a ~ ~ ~ ~~~ I > Salado Station I I Site cleaning, danage burvei XXXXXXXXXX:XXXXXXXXX I Geotechnical study : XXXXXXXXXXXXXXXXXI S S Mechanical repairs I xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Foundation repars I I xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx s Pump 8. OAtv,l House repairs I xxxxxxxxxxxxxxxxxxxxxxxxxxxxx:* Camp repairs I XXXXXXXXXXX,XXXXXXXXXXXXXXXXXXXXXXXXXEXXXXXXXXXXXXX I Inst ft Elec repairs S XXKXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX : Site protectwOn or$ ixxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx : a a : a  ECUADOR , EMERGENCY PETROLEUM RECONSTRUCTION PROJECT , i Tob*cundo S Z~~~ 6.~~~~~~~~~~~~. _1 87 79- 'N k- 77.be I S /~~~~~~~~~~~~~ w* S > W D w d n *" w _r" w / XtX ~ ~ ~ ~ ~ ~~~~~ ~~~~~~~~~~~~~~~~~~~~~~ jS / ~ _,~~~~~~~~ ~ ~ ~~~~~~~~~ ocg A