Colombia - Fourth Highway Project

FILE COPY R EST R I CTE D Report No. P Z61 P (IDA) 5 This report was prepared for use within the Bank and the Association. It may not be published nor may it be quoted as representing their views. The Bank and the Association accept no responsibility for the accuracy or completeness of the contents of the report. TNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF COLOMBIA FOR A ROAD PROJECT August 7, 1961  INTERNATIONAL BANK FOR RECONSTRUCTION ANJD DEVELOPIENT INTERNATIONAL DEVELOPiENT ASSOCIATION REPORT AND RECOil]ElNDhAT! _NS OF THE P-RESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AhD A PROPOSED DV-VELO0W,PI<;NT CREDIT TO THE REPUBLIC OF COLOllBIA FOR A ROAD PROJECT 1. I submit herewith the folloW,ing report and recommendations on a proposed Loan from the Bank in an amount in various currencies equivalent to ;l9.5 million and a proposed Development Credit from the Association in an amount in various currencies equivalent to 19.5 million, both to the Republic of Colombia to help finance a highway construction and main- tenance project. PART I - HISTORICAL 2, The Bank has already made three loans totalling $47.4 million in Colombia to finance the foreign exchange costs of highway construction, rehabilitation and maintenance. The first of '16.5 million, made in April 1951, covered a three-year emergency project consisting of the re- cnr.struction of about 2,900 km of existing roads, the construction of about 155 km of new roads, and some maintenance requirements. The second of SlL.35 million was made in September 1953 to finance completion of the original project, with some minor changes and additions, to higher stand- ards; 33.1 million of this loan was to assist in establishment of a compre- hensive maintenance program and purchase of maintenance equipment. The third of !"16.5 million was made in June 1956 to cover increased costs of completion to higher standards of the original Bank project and to cover the cost of 60 km of new roads. 3, The periodic need for supplemental financing to complete the roads in previous Bank projects had its origin in the emergency basis cn which the road program was started. This led to commitments which, it has be- come clear in retrospect, did not provide the means for adequately executing the program, even though the program did give a great impetus to the Colombian economy. Sufficient time was not taken to make detailed studies of traffic forecasts and to prepare adequate plans and specifica- tions. As the program proceeded the volume of traffic increased more sharply than had been foreseen. This made necessary higher design standards and additions to the highway system. Supervision of the work by the Ministry of Public Works was inadequate. Changes in design standards were made on a piecemeal basis often resulting in low standard work which subsequently had to be redone. Furthermore, the unprecedented size of the work, the exceptionally difficult terrain and often inclement weather led to long delays and large cost increases.  - 2 - 4. In 1959 and 1960 the Bank discussed with the Government its request for financing to complete the highways being financed by the 3ank, to con- struct several new complementary trunk roads, to prepare a road mainten- ance program, and to purchase maintenance equipment. In January 1961 the Government engaged consultants to prepare a road construction and maintenance program, including detailed studies on engineering design, costs and priorities. A preliminary report was completed in May 1961. 5. Negotiations began on July 13, 1961. The Government was represented by Dr. Carlos Sanz de Santanaria, Colombian Ambassador in Washington, and Dr. Ignacio Mesa, Minister Counsellor, Dr. Humberto Valencia Garcia and Dr. Miguel A. Paz of the Ministry of Public lWorks, and Dr. Luciano Elejalde, New York representative of the Ministry of Public Works. 6. The proposed Credit would be the first financing by the Association in Colombia. 7. The proposed Loan would increase the Bank's lending from 4200.6 million to !'220.1 million. The B3ank has already made the following loans to Colombia. Amount of Loan Net of Year Purpose Cancellations 1949 Agricultural Machinery Project $ 4,925,4h1 1950 Anchicaya Hydroelectric Project 3,530,000 1950 La Insula Hydroelectric Project 2,600,000 1951 Highway Project 16,500,coo 1951 Lebrija Hydroelectric Project 2,o00,000 1952 National Railroads Projects 25,000,000 1953 Supplementary Highlway Project 14,350,000 1954 Second Agricultural Machinery Project 5,000,000 1955 Anchicaya and Yumbo Power Project L,500,000 1955 Railroad Extension Project 15,900,000 1956 Plan Vial I Project 16,500,000 1958 Yumbo Extension Power Project 2,800,0co 1959 La Esmeralda Power Project h,600,000 1959 Guadalupe Hydroelectric Project 12,000,000 1960 Bogota Power Project 17,600,0C0 1960 Yurmbo III - Calima Power Project 25,o0CO,000 1960 Atlantic R.ailroad Equipment Project 5,400,000 1961 Guddalupe Hydroelectric Project (Second Stage) 22,000,000 Total (net of cancellations) $200,605,441 of which has been repaid X5,761,881. Total now outstanding 5154084,00 Amount sold $9,5814,800 of which has been repaid 7,135,800 2,U49,000 Net amount held by Bank as of June 30, 1961 $152,395,000 I/ Includes $50,0 million not yet disbursed as of June 30, 1961.  - 3 - 8. The Bank has at present under consideration additional projects in the fields of agriculture, industry, electric power and railroad rehabilitation. PART II - DESCRIPTION OF THE 7-1OPOSED LOAN AIND DEVELOPIMENT CREDIT 9. The proposed Loan and the proposed Credit would have the following characteristics: Borrower: Retublic of Colombia, Loan Amount- Equivalent in various currencies to $19.5 million. Credit Amount: Equivalent in various currencies to $,19.5 million. Purpose: To assist in financing construction and betterment of about 1,275 km of roads and bridges, related engineering services, and design of 500 km comple- mentary roads; preparation ofaroad maintenance program and purchase of maintenance equipment. $7.6 million of the Bank Loan would be for the maintenance program; and the balance of the Loan and all of the Development Credit, for construction and engineering design. Term and Amorti- zatXon of Loan: 15 years; 23 semi-annual payments starting Sep- tember 15, 1965 and ending September 15, 1976. Tern and Amorti- zEtion of Credit: 50 y-ars; M0 semi-annual repayments of the nrin- cipal, 1/2% of principal amount to be repaid semi- annually beginning December 1, 1971 and ending June 1, 1981 and 1-1/2% semi-annually beginning December 1, 1981 and ending June 1, iOll. Interest Rate on Loan: 5-3/4% per annum, including 1% per annum commission. Coforritment Charge cn Loan: 3/4 of 1% per annum. Service Charge on Credit: 3/X of 1% per annum on the amount disbursed and outstanding, payable semi-annually. PART III - LE-AL INSTRWIENTS AND AUTHORITY 10. Attached are a draft Loan Agreement (No. 1) and a draft Development Credit Agreement (No. 2) together with a draft Disbursement Agreenent between the Bank, the Association and the Borrower (No. 3). 11. The draft Loan and Credit Agreements follow in substance the normal pattern of agreements for projects of this kind. The following provisions are of special interest:  (a) Section 2.03 (a) (i) of the Loan Agreement and Section 2.03 (a) of the Development Credit Agreement entitle the Borrower to withdraw from the Loan Account and from the Credit Account percentages of the amounts expended by the Borrower for goods required for carrying out Part A (construction part) of the Project. Those percentages are set forth in the Disbursement Agreement. (b) Section 7.01 of the Loan Agreement provides, as a condition of effectiveness, that the Borrower shall have entered into a contract with a firm of engineering consultants satisfactory to the Baik, 12. The Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are attached (Nos. 4 and 5). PART IV - APPRAISAL OF THE PROPOSED LA N AND DEVELOPMENT CREDIT 13, A detailed appraisal (TO No, 292b/TO (IDA) 8b) of the Project is attached (No. 6). The Project 1. flountainous terrain has made transportation difficulties one of the principal obstacles to Colombia's economic development. The 1950 report of the general survey mission, organized by the Bank, gave considerable emrohasis to the need for investment in transportation and recommended the first national highway plan as well as the construction of part of the Atlantic Railroad. With the assistance of the Bank's highway loans and expenditure of a considerable part o, the Goverrment's own investment re- sources, major portions of a national trunk road system have now been com- pleted and construction of other high-priority sections is under ways The new highways have given considerable impetus to Colombia's economic growth both by interconnecting principal markets and production centers and by accelerating development of several agricultural regions. Important bene- fits are also expected to be derived from the comoletion of the Atlantic Railroad which was opened for through traffic in July. 15. The development of Colombia's transportation system has now reached a new stage in which considerable further investments are necessary for: (a) completion of the high-priority sections of the national trunk road system, most of which are already under construction; (b) construction of a system of secondary roads feeding into the trunk roads and the new Atlantic Railroad; (c) rehabilitation of traction, rolling stock and other properties of the Colombian National Railroads. A general transportation survey group, organized and financed with assistance of the 3ank, is now preparing a coordinated program for investment in all sectors of transporta- tion for the next ten years.  - 5 - 16. The Project envisages the completion of most of the highways in- cluded in the Bank's third highway loan, to the paving stage. The most important of these roads is the main north-south link from the Caribbean port of Cartagena to Medellin and Cali. The Project also includes cunstruc- tion of eight new roads; all but one are complementary to or extensions of those previously financed. 17. The preparation of a comprehensive maintenance program and purchase of maintenance equipment have beccDme necessary as a resu t of the deteriora- tion in maintenance practices diiiing recent years. Moreover, owing to the substantial increase in the lengLh of roads to be maintaired, there has been a considerable increase in maintenance equipment recquirements which the Government is unable to cove.- -wTith its own resources. Completion of the roads under the new construct.