Colombia - Sixth Highway Construction Project

RESTRICTED FILE CO Y XReport No. P-800 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 The report may not be published nor may it be.quoted as representing their views.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 BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR THE SIXTH HIGHWAY PROJECT April 30, 1970  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REFORT AND RECOMMENDATION OF THE FRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROFOSED LOAN TO THE REPUBLIC OF COLOMBIA FOR THE SIXTH HIGHWAY FROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$32 million to the Republic of Colombia. PART I - HISTORICAL 2. The Bank has been closely associated with highway development in Colombia since 1951, having made five loans totalling US$84.5 million equivalent in 1951, 1953, 1956, 1961 and 1968 respectively. In addition an IDA credit of US$19.5 million was made in 1961. The emphasis of the projects financed by these loans has been, initially, to create a viable national highway network and, subsequently, to upgrade and expand the network to meet rising traffic demands and to improve maintenance of the Colombian highway system generally. The Bank has now been asked to help finance a continuation of the Government's program of improving priority highways through a loan for the paving of approximately 1,600 km.,. of highway, the construction of a major bridge over the Nbgdalena River at Barranquilla, the upgrading of 9.5 km. of highway between El Pailon and Buenaventura, and consulting services for the supervision of the paving and construction work. 3. A Bank mission to Colombia appraised the proposed loan during November-December 1969, and negotiations were held in Washington during Irjarch 23-27, 1970. The Government was represented by Dr. Bernardo Garces, Minister of Fublic Works, who was assisted by Dr. Carlos Ospina, a private consultant. 4. The proposed loan, which would be the forty-first made to Colombia, and the proposed loan of US$6.5 million to the Republic of Colombia for a Second Education Project, would increase the amount of Bank loans to ColombiI to US$656.8 million' (net of cancellations). The US$19.5 million credit mentioned above represents the total of IDA lending to Colombia. The folloming is a suimary statement of Bank loans and IDA credits to Colombia as of March 31, 1970:  -2- Loan of Amounts (US$ Million) Credit Undis- No. Year Borrower Furpose Bank IDA bursed Fully disbursed loans and credits 313.7 19.5 345 1963 Acerias Paz del Rio, S.A. Steel 30.0 1.0 369 1964 Empresas Eublicas de Medellin Power 42.0 12.h 448 1966 Government Agricultuie 16.7 6.4 451 1966 Banco de la Republica Industry 25.0 2.1 499 1967 Empresa Nacional de Te'Le- Communi- comunicaciones cations 16.0 9.7 502 1967 Instituto Colombiano de Irri- la Reforma Agraria gation- 9.0 8.5 534 1968 Banco de la Republica Industry 12.5 6.1 536 1968 Empresa de Acueducto y Alcantarillado de Water Bogota Supply 14.0 8.6 537 1968 Empresa de Energia Electrica de Bogota Pbower 18.0 10.0 550 1968 Government Roads 17.2 11.2 551 1968 Ferrocarriles Nacionales Railways 18.3 16.7 552 1968 Government Education 7.6 6.5 575 1968 Interconexion Electrica, S.A. Power 18.0 13.5 624 1969 Government Agri- culture 17.0 17.0 625 1969 Banco de la Republica Industry 25.0 24.5 *651 1969 Government Agri- culture 18.3 18.3 Total (less cancellations) 618.3 19.5 172.9 of which has been repaid to Bank and others 128.5 Total now outstanding 489.8 Amount sold 17.5 of which has been repaid 15.3 2.2 Total now held by Bank and IDA 487.6 19.5 172.9 Loan not yet effective.  - 3 - 5. The status of disbursements of loans is described in paragraph 5 of MYDy Report and Recommendation on the loan for the Second Education Project ( P-799), dated Ap5ril 30, 1970. 6. IFC has made 34 investments and underwriting commitments in seventeen enterprises in Colombia totalling US$17.9 million (net of cancella- tions). PART II - DESCiiIPTION OF THE PROFOSED LOAN 7. Borrower: Republic of Colombia. Purpose: To help finance the paving of approximately 1,600 km. of national highways, the construction of a major highway bridge, the construction of a 9.5 km. highway, and consulting services for the supervision of the paving and construction work. Amount: Equivalent in various currencies of US$32 million. Amortization: In 25 years, including a four-year grace period, through 42 semi- annual installments beginning December 1, 1974 and ending June 1, 1995. Interest rate: 7 percent per annum. Commitment Charge: 3/4 of one percent per annum. PART III - THE PROJECT 8. A detailed description of the Project is given in the attached report entitled "Colombia - Appraisal of the Si--th Highway Project" (PTR 44a). 9. The three mountain ranges which cross Colombia from northeast to southwest present formidable barriers to movement between population centers, which until recently developed as essentially isolated, largely independent regional communities. It is only within the last twenty years that a national highway system began to develop, and, owing partly to the assistance of Bank loans, it now consists of about 19,000 km. of trunk highway linking the principal population centers and of secondary roads linking the smaller towns to the primary network. Neveitheless, only about 20 percent of the national network is paved, and the main purpose of the  - 4 - Rroject is to bri ng the paved portion of the network up to the level justified by increased traffic demand. The paving of the approximately 1,600 km. of highway included in the Project would increase the total of paved national highways from about 4,000 km. to about 5,600 km. The Project includes the construction of a major bridge across the Magdalena River, which would replace overcrowded ferries on the only direct highway between Barranquilla and Santa Marta, the two largest ports on Colombia's Atlantic coast. The project also includes the upgrading of a 9.5 km. highway from El Pailon to Buenaventura, thus improving access to Colombia's largest port on the Pacific coast. 10. The total cost of the Project is estimated at the equivalent of about US$62 million, including a foreign exchange component of US$31.2 million. The proposed loan would finance this foreign exchange component, plus US$800,000 equivalent of local expenditures on consultants. At the request of the Colombian authorities, and in order to avoid any apparent discrimi- nation between foreign and local consultants,I agreed to recommend Bank financing for 50 percent of consultant services irrespective of their source. Since it now appears that Colombian consultants will do a major part of the work, the foreign exchange component of consultant services comes to only $1.0 million as compared with the $1.8 million proposed to be financed by thc Bank. 11. The executing agency would be the Ministry of Fublic Works assisted by consultants. Construction contracts for the paving, bridge and El Pailon Buenaventura sub-projects would be let in accordance with the Bank's normal international competitive bidding procedures. Costs incurred prior to the signing of the Loan Agreement would not be eligible for financing under the Loan. For bidding purposes, the 48 sections of roads in the paving program have been grouped into 13 packages, which have been determined on the basis of geographical proximity, and are of a size which ensures wide opportunities for international competitive bidding. 12. The economic rates of return on the various sections of the Froject range from 10.2 to 25 percent. PA.iT IV - LEGAL II\'STRUNENTS AND AUTHORITY 13. The draft Loan Agreement between the Republic of Colombia and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement, and the text of the Resolution approving the proposed loan, are being distributed to the Executive Direc- tors separately. 14. The draft Loan Agreement contains provisions generally used for highway projects. The Borrower would undertake a study of the effects of tolls upon the traffic using the Barranquilla Bridge, and in the light of  the study, agree with the Bank on the criteria to be employed in deter- mining the structure and level of such tolls. The Borrower would also conduct a study to determine methods of improving cargo handling opera- tions at major ports, especially reducing the turn-around time for trucks serving the port of Buenaventura,and consult with the Bank on the recommen- dations resulting therefrom. Finally, the Borrower would undertake to continue the reorganization of the Ministry of Public Works, which was begun as part of the Fifth Highway Project (Loan 550 CO). PAiRT V - THE ECONOMCY 1h. A summary of recent economic developments and a favorable con- clusion regarding Colombia's creditworthiness for additional external borrowing is contained in paragraphs 15 - 20 of my Report and Recommendation on the loan for the Second Education Project (P-799 ), dated April 30, 1970. PART VI - COMPLIANCE WITH THE ARTICLES OF AGREEMENT 15. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - RECOMMENDATION 16. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments lWashington, D.C. April 30, 1970