Somalia - Engineering and Accounting Assistance Project

RESTRICTED FILE COPY Report No. P-668 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE SOMALI REPUBLIC FOR ENGINEERING AND ACCOUNTING ASSISTANCE February 5, 1969  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE SOMALI REPUBLIC FOR ENGINEERING AND ACCOUNTING ASSISTANCE 1. I submit herewith the following report and recommendation on a proposed development credit in an amount in various currencies equivalent to US $550,000 to the Somali Republic. PART I - HISTORICAL 2. In February 1964 an IDA mission visited Somalia to review a request from the Government for financing the construction of the Port of Mogadiscio. The mission recommended that further studies be made and in November 1964 the Executive Directors approved a $311,000 technical assistance grant (R64-134) for hydraulic studies and preliminary engineer- ing, which were undertaken by the French consulting firm SOGREAH and completed in February 1967. The consultants recommended the construction of a two-berth deep-water harbor at Ras Sif, a site 1lq km. from the existing port. The Government, in consultation with the Association, has agreed with these recommendations. 3. An appraisal mission which visited Somalia in May 1967 found the proposed project for the construction of the port to be economically and technically sound. However, the project was estimated to cost about $15 million. The scarcity of IDA resources, particularly in the face of Somalia's financial situation, which requires external financing for an exceptionally high proportion of project costs, made it impracticable to proceed at once with financing port construction. To avoid delaying the project, it was accordingly proposed to the Government that the Association should negotiate a credit to enable final engineering, including the preparation of tender documents to proceed and to provide the services of accounting consultants to assist the Somali Ports Authority in the establishment of proper accounting and costing systems. 4. Formal negotiations for a credit were concluded in Mogadiscio in July 1968, but its presentation to the Executive Directors had to await the selection of consultants and the determination of the cost of their services. 5. In March 1965, the Executive Directors approved a $6.2 million credit (74-SO) for a road project, in participation with FED and UNDP. A $2.3 million supplementary credit (123-SO) for this project was approved in June 1968. These two credits have been the only Bank Group lending in Somalia to date. Due to delays in design and the increase in the cost of the road, the contract for construction of the road was not signed until January 1968. Construction is now proceeding satisfactorily.  -2- As of December 31, 1968, $1.4 million has been disbursed from Credit 74-50. Disbursements from Credit 123-SO will begin when Credit 74-SO has been drawn domn. 6. This will be the only lending operation in Somalia for fiscal year 1969. On the completion of final engineering under the proposed credit, a credit for financing the construction of the port may be ready for consideration by the Executive Directors by the end of fiscal year 1970. Other possible projects include the Hargeisa-Berbera road, final engineering for which is being financed by the 1)1WP with the Bank as Executing Agency. PART II - DESCRIPTION OF TIE PROPOSED CREDIT 7. Borrower: The Somali Republic Amount: $550,000 equivalent in various currencies. Purpose: To finance the foreign exchange cost of final engineering of the Mogadiscio Port (Ras Sif) and of the services of accounting consultants to assist the Somali Forts Authority. Amortization: 10 years, including 2-year period of grace, in ecsual semi-amnual installments beginning Jil, 1, 1971 and endcing Decerar' 1, 1978. Service Charge: 3/4 of 1% per annum. PART III - PURPOSE 8. A report on the project entitled "Proposed Credit for Detailed Engineering and Accounting Assistance - Somalia" (TO-653a) is attached. 9. The Republic of Somalia, with a coastline of some 1,800 kms., has three major ports: Berbera in the north on the Gulf of Aden; Mogadiscio, the capital city, in the center; and Chisimaio, near the Kenya border in the south. These ports, as well as twelve other smaller ports, are operated by the Somali Ports Authority, which was established in 1962. Each of the major ports has its own hinterland. Long distances between the ports together with the high investment cost for providing alternative land transport make it more economical to operate three separate ports. 10. The existing Port of Mogadiscio, which currently handles over 45% of the country's imports, is a lighterage port. Cargo handling is slow and costly and there is considerable loss and damage to cargo. The pro- posed new deep-water port estimated to cost $1h.6 million, including  - 3 - engineering costs and consultantst fees, is expected to yield an economic rate of return of over 10%. 11. The proposed credit would finance consulting services for final engineering of the Port of Mogadiscio and the establishment of a proper accounting system for the Somali Ports Authority. After consultation with IDA, the Somali Government has selected the French firm SCGREAH to perform the engineering services and a British firm, Associated Industrial Con- sultants, to give accounting assistance. Based on SGGREAHfs signed contract and preliminary discussions with the selected accounting con- sultants, the project will cost $610,000, including contingencies. The foreign exchange component of $550,000 would be financed by the proposed credit, with the Somali Government providing approximately $60,000 in local cost. The detailed engineering is expected to take 9 months and the accounting consultants' work would be completed in about 18 months. 12. Carrying out the detailed engineering at this stage would permit construction of the proposed port facilities to commence without undue delay as and when construction financing can be arranged. Provision of the accounting consultants services would lead to the establishment of a commercial accounting system for the Somali Ports Authority, essential for effective financial control of port operations and the formulation of financial policy. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 13. The draft Development Credit Agreement between the Association and the Somali Republic, the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement and the text of a Resolution approving the proposed Development Credit are being distributed to the Executive Directors separately. 14. The draft Development Credit Agreement contains provisions normally included in agreements for engineering credits. The preamble envisages the refunding, if the Association so requests, of this engineering credit out of the proceeds of any credit or Bank loan which may later be made for the construction of the port works concerned. PART V - COMPLIANCE WITH ARTICLES OF AGREEMENT 15. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 16. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachment by J. Burke Knapp Washington, D.C. February 5, 1969