Dominican Republic - Puerto Plata Tourism Project

Report No. 414b-DO wT Appraisal of the Puerto Plata Tourism Project Dominican Republic October 10, 1974 Tourism Projects Department Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Croup. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  DOMINICAN REPUBLIC APPRAISAL OF THE PUERTO PLATA TOURISM PROJECT CURRENCY EQUIVALENTS Currency Unit: Dominican ReDublic Peso (DR$) US$1.00 - DR$1.00 WEIGHTS AND MEASURES EQUIVALENTS 1 meter (m) 2 3.28 feet (ft) 1 square meter (m ) = 10.76 square feet (ft2) 1 kilometer (km,) 2 0.62 miles (mi) 2 1 square kilometer (km ) = 0.39 square miles (sq.mi ) 1 hectare (ha) = 2.47 acres (ac) 1 cubic meter (m3) = 35.29 cubic feet (ft3) 1 cubic meter per day (m3,1d) = 264 gallons per day 1 kilogram (kg) = 2.205 pounds (lb) 1 metric ton (m ton) = 2.205 pounds (lb) 1 liter (1) = 0.22 British gallons (gal) 1 liter per second (1/sec) = 22,800 gallons per day ABBREVIATIONS AND ACRONYMS CAA = Com-ision Administrativa Aeroportuaria CDE = Corporacion Dominicana de Electricidad CDT = Compania Dominicana de Telefonos FIDE = Fondo de Inversiones para el Desarrollo Economico INFRATUR - Departamento para el Desarrollo de la Infra- estructura Turistica INAPA Instituto Nacional de Aguas Potables y Alcantarillado INVI Instituto Nacional de Vivienda UCMM = Universidad Catolica Madre y Maestra FISCAL YEAR January 1 to December 31  DOMINICAN REPUBLIC APPRAISAL OF THE PUERTO PLATA TOURISM PROJECT Table of Contents Page No7. SUMMARY ..... 1-i............i-iii 1. INTRODUCTION .................................... . 1 2. BACKGROUND ... A. The Economy .... B. The Tourism Sector .... ........ ... 2 3. THE PROJECT ..... 5 A. Background ................................ 5 B. Physical Planning and Environmental Aspects 6 C. Project Description. 8 D. Cost Estimates ................. 11 E. Amount of Loan and Lending Arrangements ........ 13 F. Procurement ................ ................... 13 C. Disbursements .................. ..O 14 H. Project Execution. 14 I. Organization for Operation . .15 4. JUSTIFICATION.. 18 A. Accomnmodation Development. 18 B. Market Demand. 19 C. Financial Aspects. 2 (i) Financial Objectives ...22 (ii) Financial Forecasts ..... .................. 22 D. Economic Justification .... 25 (i) Economic Rates of Return . . .25 (ii) Balance of Payments Effect ............... 0 27 (iii)Employment Effect ....27 (iv) Budgetary Position . . 28 (v) Distribution of Benefits . . .28 5. SOCIAL IMPACT ..... 29 6. AGREEMENTS REACHED AND RECOMMENDATIONS .. 29 This report is based on the findings of an appraisal mission consisting of Messrs. Menezes, Vera, Assimakopoulos, Bauer, Christie, Jacob and van Gent. The water supply, sewerage, solid waste disposal and environmental sanitation components were evaluated by Mr. J. Freedman, and the airport by Mr. Ewing. Legal aspects were reviewed in the field by Mr. Cabezas. Mr. Sharpston assisted the mission on the economic aspects of the project.  TABLE OF CONTENTS (Cont'd) LIST OF ANNEXES, CHARTS & MAPS ANNEXES I - S'tatistica:L Appendix on the Tourism Sector IT - F'roject Description and Cost Estimates III - Water SuppLy, Severage and Solid Waste Disposal IV - Electric Power Supply V - Airport -VI - The Construiction Industry VII - INFRATUR VIII - M.arket Dezmarnd IX - H'otels and Resort Facilities X - Rate of Return Computation CHARTS 1 - Implementation, Expend4tures and Disbursement Schedule WB 83662 (R) MAPS/ 1 -The Dom' -Ini4a -Republic Location of Project Areas IBRD 10758 2 - The, ?aertc Pata icRLBED W0759 3 - Playa Dorada/Bergantin Land Use Plan IBRD 10760 Ls - P?laya Grande Lai d Use Plan IBRW 10761 5 - Puerto Plat:a International Airport Master Plan IBRD 11037 1/ All maps are assigneo the IBPiD and WB reference number respectively. The numbering indicated here and in the text refers only to the order in which they appear in this report.  DOMINICAN REPUBLIC APPRAISAL OF THE PUERTO PLATA TOURISM PROJECT SUMMARY i. This report appraises a project to provide infrastructure and common resort facilities for tourism development at Playa Dorada and Playa Grande, on the North Coast of the Dominican Republic. The infrastructure would consist of site preparation, internal roads, water supply and sewerage systems, electric power, telecommunications, solid waste disposal and en- vironmental sanitation. The resort facilities would include a shopping center, restaurants and sport facilities. These works would support a first-phase development of 1,900 hotel rooms to be built by private investors. The pro- ject also includes water, sewerage and solid waste disposal systems in the village of Rio San Juan, near Playa Grande, and site works for 200 housing units for hotel staff near Playa Dorada; a terminal building and ancillary facilities for the partially completed Puerto Plata international airport; and a hotel training program. ii. The Dominican Republic and Haiti share the island of Hispaniola, which was described by its discoverer, Columbus as "the fairest land my eyes have ever beheld". Although in the past five years a number of modern hotels have been constructed and tourist arrivals have begun to increase, the Re- public's wealth of tourism resources is still largely untapped. In 1973 accommodation of international standard amounted to 1,600 rooms (as against 9,000 in neighboring Puerto Rico) and tourist arrivals numbered 134,000, iii. Recently, the Dominican Government accorded tourism high priority, created the National Tourism Directorate, enacted a tourism incentives law and put the Central Bank in charge of preparing and implementing tourism infrastructure projects. Several factors still hamper the growth of the sector, however. Tourism promotion, hotel credit, investment incentives and hotel training are inadequate in scope. iv. The UNDP-financed studies which served as a basis for appraisal are well conceived. They are environmentally-oriented and are based on a form of nucleus development which makes good use of infrastructure investments and provides hotels with the benefits of shared common facilities. Development in Playa Dorada would focus on a family vacation village, catering to middle- income tourists, whereas development in Playa Grande would consist of hotels and cabanas designed for higher-income tourists. Strict building codes and zoning ordinances would ensure protection of the environment not only in the project areas, but also in the surrounding region. v. The project is estimated to cost about US$36 million, including contingencies. The proposed loan of US$21 million would cover the foreign exchange component of the project. The balance of the funds required to finance the project and any cost overruns would be provided by the Central Bank.  - ii - vi. Maior civil works and equipment contracts would be awarded under international competitive bidding in accordance with Bank guidelines. A contract for dynamlic soil consolidation, however, for an estimated total of US$2 million would be negotiated directly with a "specialist-contractor" firm. In evaluating international bids for equipment contracts, Dominican manufacturers would be allowed a prefereantial margin of the lower of 15% of the CIF costs of competing imports or the prevailing customs duties. vi4i The Central Bank, one of the more efficient agencies of the government, with experience in handling complex development schemes, would be in charge of implementing the projezt in cooperation with other government agencies. At the onerational stage, the Central Bank would retain ownership of the land and of the resort fac41ities, whereas operational responsibilities for the main income-producing infrastructure components, would be turned over to various specialized technical agencies. All agencies would adhere to sounT1 financial principles iI the operation of the facilities. Charges and leases would be adequat:e to ensuwe a reasonable financial return on each major com- ponent and or. the project's overall investment costs. vli-i. The justification for the proposed project is the expectation that investors would build accortmodation in the project areas, that tourists would be attracted to these areas ar. that their expenditures would result in adequate ecornomic iberef.'ts at both national (e.g. increase in foreign exchange earnings) and regional . reduction of regional unemployment) levels. To stimulate hotel investors' interest, the Dominican Government would rationali-2.e the tour4Sr -incsntive law and hotel credit conditions. To attract touri:st r'Jows, it wo-,d undertake promotional campaignrs aimed at internationral tourism mark ets, ix. Thns '-'._r. Ecir-tet,-f ou .cu. on attracting middle-income fanllIv traffXc to Plava Dlorrada an.d 11ghler-irc-me visitors to Playa Grande, mTainly zrorn ltLe unJite States,-2. ; ,y e oner,_ost-related slowdown in the e-,x.'nJa.ts-io;;.2L'.5 ;T-a5. t. U S. t,urlsn -ml'vket is likely to affect least the Caribbean-bounid s.are. o r:' r.arket traveh trade expects -- and first- quarter 19.'74 st.'"t' "' z's b h.a 's out :- that w.it1h continuee high fuel prices, an increasin,l r'umber oz Ji.S -our^ists would substitute air travel. to nearby destinations slich as the iar-iobeaan, for bot-h do-.estfi destinations requiring extensive automobile travel and faraway foreign destinations. x, ~The econcm.c -ate o-f return is esrtimated at 1.5.,%I. "hen fully operati,nal in %986, the pro'Iect vill eipoloy about 3,90C workers in hotels and other tourism facilities. An additional 4,000 jobs would be generated in handicrafts. agriculture, local trarnsnortation, and for a decade at least, in construction. Net foreign excthange earnings are estimated to amount to US$1.2 million in 1977 and to aboett USI19.0 million ner year from 1986 onwardsi. These Figures ccmpare favotralv with the estimated foreign exchange requireme.nt olf tl-e infrast;ructiire prolect (1>S^9 milliion) and the estimated forei,n exchange requirement of the hotel and other tourism facilities (UJS$25 mi.llion) . I'n a1ddition to the net inc.ome from government-owned facil- ities, the Government iS expected to receive tax revenues of USSO.4 million i.n 1977, US$2.4 million in 1986 and US$4.7 million in 1943.  - iii - xi. The Republics northern region has ample agricultural resources which have been only partially exploited. The balanced expansion of the agriculture and tourism sectors could be a key element of successful regional development. xii. The project is suitable for a Bank loan of US$21 million equiv- alent, to the Central Bank, with a guarantee from the Dominican Republic, for a term of 30 years including a grace period of 10 years.  DO MINICAN REPUBLIC APPRAISAL OF THE PUERTO PLATA TOURISM PROJECT I. INTRODUCTION 1.0'i In 1970, the Domninican Government requested Bank assistance to provide infrastructure for developing tourism in one of four priority regions which had beer selected on the basis of a UNESCO-financed study. Subsequent Bank project identification missions singled out, in consultation with the Government, the economically depressed but scenically attractive Puerto Plata region on the North Coast as offering the best prospects for international tourism development. 1.02 Tn September 1971, with the assistance of a UNDP grant for which the Bank was executing agency, the Government retained consultants to identify the areas most suited for first-phase tourism development in the Puerto Plata region and to carry out the necessary feasibility and technical studies. The project proposal emerging from these studies was submitted for consideration by the Bank in the fall of 1973. 1.03 This would be the first Bank loan for tourism in the Dominican Republic. 2. BACKGROIUND A. The Economy 2.01 Although well endowed with natural resources, the Dominican Republic is one of the poorest island countries in the Caribbean. Thus far, it has not tapped its considerable tourism assets to any significant extent and has only recently started to exploit some of its mineral wealth. In 1972 agri- culture, with sugar cane the main crop, accounted for about 20% of GDP, 80% of exports and 60% of total employment. During the period 1960-1968, poli- tical disturbances and drought kept the annual growth of GDP per capita below 1% in real terms. Since 1969, however, the Republic's economic performance has been among the best in the Western hemisphere. With improved weather conditions, heightened international demand for sugar and increased public and private investment, GDP per capita has growfn at more than 10% per annum. 2.02 If current economic growth rates are to be maintained, or at least not allowed to slow down significantly, a growing demand for imports will have to be met. The long-term prospects are for limited increases in the production of sugar, coffee, cocoa, bauxite and ferronickel, which presently account for over 85% of total commodity export earnings (Annex I, Table 1). Tourism may thus become increasingly important as an additional source of foreign exchange.  2. J3 UnemDlovmiient anOl underemployment are still widesxread. T. is prob- lem is felt less in the aiore developed areas around the capital city of Santo Domingo than in the nooorer rural regions. Since the country's tourism potential tends to be concentrated in the latter, development of the tourism sector vill be instrumental in reducino regional imbalances in employment and income. 2.04 Wfork has started on a US.39 million agricultural project in the Rio Yacue del Norte Valley, one of the Rlepublic's most fertile areas some 60 lio south of Puerto Pla ,a. The project, co-financed by IDB and IDA (Credit 352-DO)1 will brirg 13,5001 na of new land under irrigation and boost the regin' 1s production of rice, tobacco and vegetables. This agricuitural schem-,e and the proposed tourism development at Puerto Plata would be mutually b ene- ficial. Hotels caterirng f-or international ronr