Haiti - Fifth Transport Project

Document of FILE CoPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2256-HA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF HAITI FOR A FIFTH TRANSPORT PROJECT May 4, 1978 This document has a restricted distribution ant may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit = Gourde (G) US$1 = G5.00 Gl = US$0.20 (The Gourde has, since 1919, been pegged to the dollar at the rate of G5 = US$1.) Fiscal Year October 1 - September 30 Weights and Measures Metric British/US Equivalent 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 2 0.62 mile (mi) I square kilometer (km ) 0.386 square mile (sq. mi) 1 metric ton (m ton) 2,204 pounds (lb) Abbreviations and Acronyms AAIPP - Administration da l'Aeroport International de Port-au-Prince (International Airport Authority) APN - Autorite Portuaire Nationale (National Port Authority-successor agency to Administration Portuaire de Port-au-Prince) APP - Administration Portuaire de Port-au-Prince (Port-au-Prince Port Administration) BNRH - Banque Nationale de la Republique d'Haiti (National Bank of the Republic of Haiti) CEBTP - Centre d'Etude du Batiment et de Travaux Publics CONADEP - Conseil National de Developpement et de la Planification (National Development Planning Council) CPS - Coastal Ports Service FAC - Fonds d'Aide et de Cooperation (French Bilateral Aid) GRT - Gross Registered Tons IDB - Inter-American Development Bank NTS - National Transport Study SAT - Service Autonome des Transports (Autonomous Transport Service) SEPRRN - Service d'Entretien Permanent du Reseau Routier National (National Road Maintenance Service) TPTC - Secretairerie des Travaux Publics, des Transports et des Communications (Ministry of Public Works, Transport and Communications) UNDP - United Nations Development Program USAID - United States Agency for International Development  FOR OFICIUL UK ONLY HAITI FIFTH TRANSPORT PROJECT Credit and Prolect Summary Borrower: Republic of Haiti Beneficiaries: Autorite Portuaire Nationale (APN), for the coastal shipping ports component. 'mcunt: US$15.0 million equivalent Terms: Standard IDA terms Relending Terms: The proceeds of the credit for the coastal shipping ports component would be relent by the Government to APN for 2i years, including six years of grace, at 1 percent interest until 1985 and at 2 percent there- after. Prolect Description: The project will help achieve a better balance between road transport and coastal shipping, overcome the is"'lation of outlying areas and foster regional economic activity. The project includes: (i) Road and Bridge Component: Reconstruction or upgrading of five road sections in the Northern Plain totalling about 54 km and of about 13 km in ;.e Southwest; construction of new bridges to replace the Hyppolite and Trois Rivieres bridges, and preinvestment studies of high priority projects in the transport sector. (ii) Coastal Shipping Ports Component: Construction of coastal shipping port f-cilities at Port-au-Prince, Jeremie and Port-de-Paix. The project would also include 485 man/months of technical assistance for design work, super- vision of construction, management advisory services and studies. The project would benefit about 900,000 persons, mostly low-income rural inhabitants. The road and bridge component does not present any special risks; risks for the port component are acceptable, as preliminary engineering has been carried out in sufficient detail to minimize the risk of important cost overruns. APN's experience as a port operator would allow it to expand its responsibility to include coastal shipping ports without any special risks. Traffic estimates are conservative in the sense that they do not consider the full growth potential attributable to the project. I This document hu a rstrictod distribution ao may be ued by recipients only in the performance I of their oficil duties. Its contents nay not otherwise be disclksd without World bak authorization.  - ii - Estimated Costs: Local Foreign Total ------- US$ million ------- A. Roads and Bridges a.1 Civil works 3.10 7.96 11.06 a.2 Supervision and studies 0.32 1.29 1.61 B. Ports and Coastal Shipping b.1 Civil works 0.74 1.90 2.64 b.2 Engineering and supervision 0.10 0.38 0.48 b.3 Studies and technical assistance 0.28 1.11 1.39 C. Contingencies Physical, Part A 0.33 0.86 1.19 Physical, Part B 0.11 0.29 0.40 Price (Parts A and B) 0.47 1.21 1.68 Total 5.45 15.00 20.45 Financing Plan: US$ million Percentage IDA Credit 15.00 73.35 Government 5.45 26.65 Total 20.45 100.00 Estimated Disbursements: IDA FY1979 1980 1981 1982 -------- US$ thousands -------- Annual 4,200 8,460 2,160 180 Cumulative 4,200 12,660 14,820 15,000 Rate of Return: 21 percent, corresponding to a weighted average of 23.5 percent for the road and bridge component and 14 percent for the coastal shipping port component.  - iii - Staff ADpraisal Report: Report No. 1903a-HA dated April 28, 1978 Regional Projects Department Latin America and Caribbean Regional Office   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF HAITI FOR A FIFTH TRANSPORT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Haiti for the equivalent of US$15.0 million on standard IDA terms to help finance a fifth transport project. The Government would onlend US$3.3 million of the proceeds of the credit to Administration Portuaire de Port-au-Prince, in respect of the coastal shipping ports component, at an annual interest rate of 1 percent until 1985 and 2 per- cent thereafter, for a period of 25 years, including 6 years of grace. PART I - THE ECONOMY 2. The most recent economic report on Haiti, Report No. 1243-HA entitled "Current Economic Pasition and Prospects of Haiti" was distributed to the Executive Directors on December 15, 1976. Social and economic data are pre- sented in Annex I. A Bank Economic Mission which was in Haiti in February 1978 is preparing an Updating Economic Memorandum. 3. Haiti is the poorest country in the Western Hemisphere; it is also included in the U.N. list of least developed nations. GNP per capita in 1976 stood at US$200. An infant mortality rate of about 150 per thousand live births, an average life expectancy of 50 years, low nutrition and sanitation standards (malnutrition and gastroenteric diseases account for over half of the deaths in the country) and an adult illiteracy rate of about 80 percent characterize the depressed living standards of the population. 4. The Haitian economy depends heavily on the agricultural sector. Agriculture provides the economic base for about 77 percent of the population. During the past 7 years, the sector's share in real GDP (1955 prices) averaged about 42 percent but its contribution to GDP growth amounted to only about 25 percent. During the 1960s, GDP virtually stagnated while agricultural production declined slightly. A process of economic growth was initiated in the early 1970's. During 1970-77 the economy grew at an average annual rate of 4 percent, led by urban residential construction, public works and manufacturing. The year-to-year pattern has been rather erratic mostly influenced by fluctuations in agricul- tural production. The continued vulnerability of agriculture is reflected in a GDP growth of only 2.6 percent in 1977, when the country experienced a severe drought, compared to 9.4 percent in 1976, a good agricultural year. The agricultural sector's weak performance is also reflected in rapidly increasing food imports. Sustained economic growth and a broadening of its benefits requires measures to improve the productivity of agriculture. After  -2- devoting considerable resources to the rehabilitation df.tbd road network--a prerequisite for agricultural development--the Government has recently initiated programs to introduce improved grain varieties, rehabilitate coffee plantations and restore the major irrigation systems. 5. Since 1972, public investment has increased at an average annual rate of 29.7 percent in real terms. Moreover, the sectoral composition of Government outlays has undergone significant changes. Whereas during the first Five-Year Plan (1971-76) only about 10 percent of total government devel- opment expenditures was for agriculture, the latter's share in the second Five-Year Plan (1976-81), on the basis of projects already approved, will be about 24 percent. Other areas of high priority are transport, education and health, especially geared to rural areas. The overall orientation of the 1976-81 development program also clearly reflects the Government's objective to decentralize economic activity in favor of rural areas and provincial towns. Their share of total development expenditures is likely to increase from about 50 percent in the recent past to about 70 percent during the second Five-Year Plan period. 6. During the period of the first Five-Year Plan, actual development expenditures were 13 percent below budgeted targets. Taking unplanned infla- tion into consideration the real shortfall may well have been in the order of 20 percent. Generally speaking, these shortfalls, which varied strongly among sectors, were due to poor preparation, inadequate organizational structures and staffing as well as a lack of coordination among different entities within the Haitian public sector as well as between the Haitian Government and external donor agencies. The Government is aware of these problems and has taken steps to improve performance. Institutional strengthening is one of the second Five-Year Plan's highest priorities, and technical assistance for project preparation and implementation has been considerably increased. Furthermore, a Joint Commission for the Implementation of External Cooperation Programs has been established in order to consider the country's economic situation and expected technical and financial assistance. The Commission, for which the Organization of American States (OAS) provides the secretariat, is composed of senior government officials and of repre- sentatives of the multilateral and bilateral aid agencies active in Haiti. The Commission serves to coordinate the efforts of participating agencies, and the Government has proved to be receptive to its advice. 7. The provision of local counterpart funds for development projects and the financing of recurrent expenditures after the completion of these projects could, in the future, create serious fiscal difficulties. Government current revenues are of the order of 11 percent of GDP, which is about in line with other countries at a comparable stage of development. However, the fiscal system which relies heavily on specific rates has a relatively low elasticity and is subject to erosion, especially during periods of high inflationary pressure. The Government recently took some measures to increase revenues. Among these are the levy of an additional specific coffee export tax, which is applicable at prices above US$1.00 per kg, adoption of a new system of taxation of bauxite exports and more effective collection of import  -3- duties and corporate income taxes. A new income tax law, which became effective October 1, 1977, increases the taxation of higher incomes, mainly those of the liberal professions. Finally, a new customs code is expected to be signed into law shortly. Its application is likely to result in an additional increase of customs revenues. 8. There may be some scope for the mobilization of additional resources through the integration of various special accounts now held at the Central Bank into the budgetary process. One important step in this direction was the Government's decision to allocate 50 percent of the profits of the Regie du Tabac, an autonomous public sector monopoly, to a National Investment Fund. The Government, with technical assistance from the IMF, is now also undertaking a comprehensive review of the special accounts which is expected to result in the adoption of uniform accounting procedures for the entire fiscal system. 9. During the past five years, Haiti has considerably increased its investment efforts--from about 11.5 percent of GDP in the early 1970s to about 17.5 percent during 1975-77. The increase took place almost exclusively in the public sector. The attainment of this investment volume has depended heavily on financing from foreign savings. During 1975-77, gross national savings financed an average 57 percent of gross domestic investment. The remaining 43 percent was financed through loans on concessionary terms (18.5 percent), grants (19.0 percent), direct investment (2 percent), and external credits to the private sector (3.5 percent). Public sector develop- ment expenditures, which in 1975-1976 accounted for about 44 percent of total investment and, in addition, comprised outlays for technical assistance, were financed to about 75 percent through loans and grants from abroad and to about 25 percent from public sector savings and domestic credit. In 1977, net disbursements from loans increased sharply, and domestic financing from savings and credit were probably of the order of 15 percent. 10. In spite of the growing resource gap (from 3.2 percent of GDP in 1970 to 7.8 percent in 1977), Haiti did not experience serious balance-of- payments problems, largely as the result of an unprecedented inflow of trans- fers (both to the Government and the private sector) and of official long-term concessionary capital towards the end of this period. Net reserves of the banking system reached about US$6.3 million as at the end of September 1977. Gross reserves amounted to US$26.7 million, equivalent to about one month's imports of goods and non-factor services. 11. The rapid increase in net imports (net of imported inputs for the assembly industries) resulted only partially from higher investment levels (about 25 percent). The main source of increase was private consumption (about 75 percent) in which food imports with an average annual growth of 20 percent in real terms, play a very important part. Weak agricultural performance and substantial rural-urban migration are the factors underlying the increasing food gap. At the same time, these factors also add to the sluggish development of (net) exports, 60 percent of which come from agriculture. Thus, the balance of trade is affected by a major structural weakness, which in the long run could cause balance-of-payments problems. Agricultural development programs, now under way, should result within the next few years in increases  -4- of production mainly relating to foodstuffs for domestic consumption. Some expansion of export crops is also expected. In addition, measures should be taken to control non-essential imports; a more effective collection of existing import duties and/or imposing higher rates would serve three purposes: slow down the increase in imports, add to Government resources and make the fiscal system more equitable. 12. Since there has been relatively little net foreign borrowing other than on highly concessionary terms, the debt service ratio is relatively low (about 7.3 percent in 1977). Nevertheless, the balance of payments is likely to constitute a constraint to economic development in view of the limited growth prospects of Haiti's agricultural exports, and because export diversif- ication through the development of manufacturing and tourism is still at an early stage. In view of the country's poverty and the dependence of its balance of payments on world demand for a few commodities, Haiti will continue to require external assistance on concessionary terms for a long time if it is to achieve a significant improvement in the standard of living of its population. PART II - BANK GROUP OPERATIONS IN HAITI 13. The Bank Group has had nine operations in Haiti. One loan and one credit, both for highway maintenance and rehabilitation, were made in 1956 and 1962, respectively, and have been fully disbursed. Two credits for highway projects were made in 1974 and 1975. In 1976, credits were made for a power project and for a first education project. A credit for a rural development project was approved in 1977. In the current fiscal year, two credits have been approved for a provincial towns water supply project and for a second education project, respectively. The total of credits outstanding is US$78.5 million, of which US$37 million are undisbursed. Annex II contains a summary statement of the Bank loan and IDA credits as of March 31, 1978 and notes on the execution of ongoing projects. IFC has not made any invest- ments in Haiti but is considering a number of projects. 14. Various multilateral and bilateral development agencies are active in Haiti. IDB has made loans for rural development, industrial credit, rural education, water supply in Port-au-Prince and road construction. USAID is providing assistance for integrated rural development projects, community development, malaria eradication, maternal-child health and family planning, modernization of coffee production and marketing, construction of feeder roads and for highway maintenance. CIDA (Canada) is supporting a rural development project in the Southern Peninsula and is assisting agricultural and technical education and the construction of school facilities. It has completed a study of Haiti's water resource potential both for irrigation and for power produc- tion. France is financing seed production, education planning and research, road construction and equipment for provincial airports. The Federal Republic of Germany is providing technical and financial assistance for a regional  -5- development project in the Gonaives Plain, and, together with France, is providing technical assistance for the execution of the IDA-financed rural development project in the Northern Plain. 15. UNDP has an active program in Haiti: UNDP/FA0 have ongoing programs for agricultural education, soil conservation and animal production. UNDP/ UNESCO are assisting education planning, radio, non-formal, primary and agri- cultural education. UNDP/ILO assistance is being provided for vocational education and UNDP/UNESCO programs are assisting nutrition, radio, and teacher- education and the purchase of radios. Table 1: GRANT AND LOAN COMMITMENTS TO HAITI, 1966-77 IDA IDB Bilateral Total ------------- US$ million ---------------- Agriculture 10.0 8.4 58.1 76.5 Industry - 4.5 3.3 7.8 Transportation 30.0 64.7 30.5 125.2 Education 15.5 10.9 6.6 33.0 Water and Sewerage 6.6 7.4 - 14.0 Power 16.0 - 5.5 21.5 Health - 6.3 26.5 32.8 Other / - - 47.8 47.8 Total 78.1 102.2 178.3 /I 358.6 2 /L Including general budgetary support. /2 Of which $113.3 million estimated to be in grants. 16. Recent and prospective IDA operations take into account the ongoing and planned roles of other official lending agencies. In line with the Government's Five-Year Economic and Social Development Plan (1976-81) and with the priorities of Haiti's perceived needs, current and planned IDA operations are meant to support the improvement and expansion of basic infrastructure in transportation and power; to expand educational opportunities and upgrade technical skills and to promote regional development both in rural areas (as in the Rural Development Project in the Northern Plain) and in provincial towns, as in the water supply project. The Fifth Transport Project proposed for IDA financing is in line with the recommendations of the National Transport Study (NTS) for which the Bank was Executing Agency. The study emphasized the rehabilitation of secondary roads and the development of coastal shipping. 17. The Bank was also Executing Agency for a UNDP-financed power study which was completed recently. The study estimates energy supply/demand balances and recommends investment priorities, taking into account the possibility of using Haiti's deposits of lignite as fuel for thermal plants as well as the country's hydropower potential determined on the basis of the CIDA-financed survey mentioned in paragraph 14. A second power project suitable for IDA  -6- financing has been identified as a result of the study and is scheduled for appraisal in June 1978. The ongoing IDA-financed rural development project provides for the preparation of another project which would extend the scope of the Regional Development Agency's programs throughout the Northern Plain. 18. The Bank Group's share in Haiti's public external debt outstanding and disbursed amounted to 24.7 percent as at September 30, 1977. The Bank Group's share of external public debt service in 1972 was about 0.2 percent. Its share of outstanding public external debt would rise to about 26 percent by 1980, raising its share of external public debt service to about 5 percent. PART III - THE SECTOR AND SUBSECTOR Background 19. Haiti's insular situation, rugged mountainous terrain, long coastline, the dispersion of its agricultural production and the dominance of one city, Port-au-Prince, are of particular significance to its transpori sector. Haiti is a relatively small country, with an area of about 27,700 km and a popu- lation of about 4.7 million, of which about 77 percent is rural. Only about one-third of the land is cultivated (the balance is 18 percent pasture, 9 percent forested and 39 percent uncultivated) and the agricultural areas, which support 77 percent of the population, are widely dispersed. The size distribution of urban centers is highly unbalanced; in addition to the capital city of Port-au-Prince which has a population of over 600,000, there are seven provincial centers ranging in size from 12,000 to 50,000, and 61 towns with populations of 2,000 to 9,000, many of them poorly served by the present transport system. 20. Internal transport (about 700,000 tons in 1975) moves primarily by road and is largely concentrated on a few recently reconstructed primary roads which form the backbone of the transport system. Besides roads, coastal shipping accounts for 18 percent of domestic freight tonnage and 10 percent of domestic passenger movements. Domestic air travel is light, primarily serving tourists and a limited local market of Government officials and businessmen. Haiti's road network deteriorated drastically during the 1960's, because road maintenance was totally neglected; as a result, provincial centers became isolated from one another and from the capital. Since 1971, the Government has recognized the importance of transport and has undertaken the reconstruction of the basic road network. Sectoral Development Priorities and Planning 21. The first Five-Year National Development Plan (1972-76) reflected the priority attributed to the rehabilitation of transport infrastructure as a prerequisite for agricultural development. Since 1972, the transport sector has benefited from substantial assistance from multinational and bilateral  -7- lending agencies mostly for reconstruction of the road network and the improve- ment of road maintenance. IDA lent a total of US$30.0 million through two Credits (Cr. 478-HA, 1974 and Cr. 556-HA, 1975) for the reconstruction of the Northern Road connecting the capital to Cap Haitien (250 km), Haiti's second city. Haiti's other main trunk road, the Southern Road (160 km), link- ing Port-au-Prince to Les Cayes, is being rebuilt with IDB financing amounting to US$52.6 million. The Fonds d'Aide et de Cooperation (French Bilateral Assistance, FAC) has provided about US$7 million for the construction of the 40 km spur between the Southern Road and the regional capital of Jacmel. In 1973, USAID started its support for road maintenance through financing of equipment, technical assistance and training in road maintenance. More recently, USAID has supported a feeder road construction program. USAID assistance for transportation since 1973 totals about US$21 million. IDB has also provided financing to expand the international port of Port-au-Prince (two loans; US$10 million in 1972 and US$7.5 million in 1976) and FAC has equipped small domestic airports with navigational aids. Except for construc- tion of the Southern Road, all these projects have been completed or are reaching completion. The Government organizes twice-yearly meetings to coordinate assistance to the transport sector. These meetings have been useful in informing interested agencies of programs, progress and problems in the sector. 22. While the urgent need to reconstruct the main trunk roads was clear and could be undertaken without the benefit of a full sectoral plan, planning was needed to determine the relative priority of subsequent investments. To improve institutional support of the transport sector, two important measures were agreed in connection with the Third Highway Project: creation in 1975 of the Service Autonome des Transports (SAT), the national transport planning agency, within the Ministry of Public Works, Transport and Communications (TPTC); and the execution of the NTS to provide the sectoral input for the second five-year development plan (1976-1981). The NTS was financed by a UNDP grant of US$600,000, for which the Bank was executing agency, and was carried out between 1975 and 1977. 23. The NTS comprised an analysis of future transport demand and recom- mended a transport policy well adapted to the country's potential, giving the highest priority to maintenance and rehabilitation of existing infrastructure and to complementary transport investments, mostly roads, in support of integrated agricultural development programs. The NTS also recognized the potential of coastal shipping and explored two integrated transport strategies: (i) emphasis on road improvements with no government support for coastal shipping; and (ii) emphasis on coastal shipping improvements, combined with improved maintenance and selected upgrading and rehabilitation of existing roads. It recommended the second strategy as the least cost alternative. The Government has generally accepted the recommendations of the NTS and adopted them as the basis for the transport component of the current Development Plan (1976-1981). 24. Further measures, however, would be necessary to strengthen the planning framework so as to pursue long-term objectives such as the develop- ment of coastal shipping and the strengthening of road maintenance. Con- sequently, the Government agreed to: (a) prepare and adopt, after consultation with the Association, an updated transport investment program for the next five-year period, and (b) update such program annually. (Section 4.03 of the draft Credit Agreement.)  -8- Institutional Framework 25. The National Development Planning Council (CONADEP) plays a central role in planning; it defines national development strategy and reviews, con- solidates and coordinates the proposals of the ministries and agencies. SAT has, since late 1975, provided the basis to develop sectoral planning capacity in a continuous and systematic manner. The outline of SAT's work program in the field of transport planning for the 1978-1980 period was reviewed and agreed during negotiations; such a work program would include, in particular the revision of, and periodic updating of the Government's transport investment program and analysis of related funding requirements; the systematic collection of statistical information on the operations of the transport system; and the economic and financial assessment of investment proposals with estimated costs above US$1 million (Section 4.02 of the draft Credit Agreement). 26. While TPTC plays a central role in the operation of the transport sector, the Ministry of Finance and Economic Affairs, the National Bank of the Republic of Haiti (BNRH) and the Ministry of Commerce and Industry are also closely involved. The Minister for Finance and Economic Affairs, assisted by the Director of the National Bank, is responsible for monitoring port develop- ment and operations, for the custom services and for the collection of transport taxes. In addition to these Ministries, three autonomous agencies have been formed in response to particular needs, specifically (a) the Port-au-Prince Port Administration (APP) responsible for international ports; (b) the International Airport Authority (AAIPP) responsible for airport operation in Port-au-Prince, and (c) the National Road Maintenance Service (SEPRRN). 27. TPTC is responsible for highway planning and design (SAT), highway construction (the construction service) and highway maintenance, through SEPRRN which is under the authority of the Minister, in addition to other important responsibilities for urban works and public utilities. In the early 1970's, the Government had to formulate the 1972-76 Development-Plan with inadequate institutional capacity in TPTC, the most important of the technical ministries. The establishment of autonomous agencies and specialized services offered a way to escape the limitations of the existing TPTC departments and was also well suited to meet the requirements of external development agencies concerning the implementation and operations of specific projects. The resulting institutional framework, however, is unwieldy and suffers from a number of deficiencies. Duplication and gaps exist in important aspects; internal and external liaison between agencies and services functions poorly and routine coordination depends too often on direct action by the Ministers themselves. The matter has been discussed with the Government, which recognizes that the present phase would have to be followed by some reorganization. However, most of the new agencies and services are still in a formative stage and should be allowed to gain additional strength before a reorganization is undertaken. This point would be reviewed with the Government during project implementation in coordination with other lending agencies. Financing 28. The financial situation of the transport sector is generally sound. Revenues currently collected from road user charges are adequate to cover the operation and maintenance of road transport infrastructure and facilities,  -9- as well as about 20 percent of the investment cost. International port charges cover terminal operating, maintenance and debt service; and international airport charges at international terminals cover operations and-maintenance. Local funds for externally financed development projects are provided through a matching fund, to which 5 percent of general revenues are channeled, and by special allocations. These mechanisms have generally ensured adequate local financing. 29. The construction or reconstruction of basic infrastructure under- taken since 1972 has required a relatively high level of investment in the transport sector. Expenditures for large transport projects have, over the 1974-1977 period, averaged about US$30 million equivalent annually, accounting for 24 percent to 47 percent of development outlays. About 75 percent of transport sector investment has been financed externally. The current Develop- ment Plan (1976-1981) projects a diminishing level of capital expenditures for the transport sector, tapering off to about US$10 million equivalent per year. This reflects the transition from the 1972-1977 phase of reconstruction to a phase of improved maintenance and gradual upgrading while allowing a higher level of investment for agriculture, social services and other sectors. The Highway Network 30. The inter-city road network totals close to 3,725 km of motorable roads, of which about 750 km are paved (or currently being paved); 1,550 km are surfaced with natural gravel; and the balance are earth tracks, mostly less than 4.5 m wide. The generally poor condition of unpaved roads still reflects the total lack of maintenance through the 1960's and in the early 1970's. Since 1974, government efforts in road rehabilitation and expanded maintenance services have checked road deterioration and restored a minimum level of serviceability on much of the primary network. Traffic on some important roads has, however, been interrupted by bridge failures. Haiti has a number of aging steel bridges built more than 50 years ago. Three major bridges have collapsed during the past five years; others are seriously damaged or in precarious condition. Paved fords on lightly traveled roads are also often in need of substantial repair. Road Traffic 31. Port-au-Prince is the hub of the road transport system and traffic flows are largely concentrated on a few main roads. Almost half of the network carries less than 10 vehicles per day while substantial tonnages are carried by human portage and pack animals, mostly along country trails. In 1977, the motor vehicle fleet numbered about 24,300 units, of which slightly less than 90 percent were registered in Port-au-Prince. The fleet includes about 15 percent cargo trucks, 22 percent public passenger vehicles and 63 percent cars and jeeps. Between 1970 and 1975, expansion of the fleet averaged about 10 percent p.a. Projected long-term traffic growth ranges between 4 percent and 8 percent per year for goods, about 8 percent for public passenger transport and about 11 percent for private vehicles. The road transport industry is subject to minimum regulation. Inter-urban tariffs for passengers and freight are competitive. The capacity of the industry is generally adequate although some areas of the country are still not well served because of the poor condition of the road network.  - 10 - Highway Engineering, Construction and Maintenance 32. The SAT, within TPTC, performs the dual role of highway planning and engineering office and has recently started to supervise engineering design services by consultants. Engineering for major road projects has been prepared by foreign consultants. Over the last few years, small domestic firms have begun to be organized by foreign-trained Haitian engineers who are beginning to participate in the preparation of projects. It is expected that in the future, most of the routine engineering work will be handled by domestic firms in association with foreign firms. 33. The need to foster the development of a competitive local road construction industry was recognized at the time of appraisal of the Third Highway Project in 1974, and a study of local contractor capability was included in the NTS. The NTS recommended increased use of local construction capability and emphasized the need for a parallel development of TPTC capacity to manage and administer local contracting and consulting services. On the basis of the NTS's recommendations, the Government is initiating, with assistance from USAID, a program for the rehabilitation of agricultural roads. About 600 km will be reconstructed by government construction brigades and another 300 km by local contractors. The program envisages leasing of equip- ment to contractors and provides for the development of labor-intensive methods of construction for feeder and penetration roads. 34. Since 1972 the Government has undertaken to strengthen highway maintenance. SEPRRN, the semi-autonomous highway maintenance agency estab- lished in 1972, has benefitted from USAID assistance (about US$5 million) over the 1974-1977 period to build up its equipment fleet and workshops. In 1975, SEPRRN adopted a Five-Year Maintenance Program (1975-1980) which is still in effect and has been supported by adequate budgetary allocations. The major bottleneck to adequate road maintenance is not so much lack of physical resources and funds but the insufficient number of trained staff in SEPRRN which, over the next five years, should at least double its work force and upgrade it through training. The Government plans to pursue the strengthening and expansion of SEPRRN and has obtained further support from USAID (US$8.6 million, in November 1977) for advisory services and equipment, to support the planned expansion of maintenance activities over the remaining three years of the Five-Year Program. 35. Although IDA is not providing direct support for road maintenance in view of USAID's assistance for maintenance, IDA has consistently stressed the need to improve maintenance capacity and has informed the Government that improvement in road maintenance was a prerequisite for continued IDA support to the road rehabilitation program. The adoption of the Five-Year Maintenance Program met one of the requirements of Credit 556-HA. The scope of the second USAID program is generally adequate but should be expanded in two important aspects: (a) specific roads to be brought under full maintenance each year should be defined and (b) the training component should be strengthened through the establishment of a separate training unit in SEPRRN. Measures to deal with these points have been discussed with the Government and USAID and were confirmed during negotiations (Section 4.04 (b) and (c) of the draft Credit Agreement). The scope and schedule of the Government's program for enforcement  - 11 - of vehicle weight regulations, in compliance with the provisions of Credits 478-HA and 556-HA, was also discussed and confirmed (Section 4.05 of the draft Credit Agreement). Experience with Previous Projects 36. The Third and Fourth Highway Projects have provided for the recon- struction of the Northern Road from Port-au-Prince to Cap Haitien (250 km). In addition, the projects financed pre-investment studies for preparation of the road and port component of the proposed project. The Third and Fourth Highway Projects have been substantially completed. Because bids were higher than originally estimated, the scope of the Third Project was, with the authorization of the Executive Directors, reduced from 150 km to 80 km in November 1974. The cost of the Third Project, as revised, and of the Fourth Project, have been within the estimates. The Closing Date of Cr. 478 was postponed to allow completion of road signs and minor additional improvements. Coastal Shipping System 37. Waterborne transport has traditionally played an important role i Haiti. Haiti has a shoreline of 1,530 km or more than 1 km for every 20 km of land area, with numerous coastal population centers. After the cessation of international shipping directly to and from some of the smaller ports in the 1950's, and the deterioration of the existing road system in the 1960's, the importance of domestic coastal shipping as an internal transport mode increased. There are at present some 580 sailing ships ranging in size from under 10 tons to over 60 tons capacity, and about 30 motorships with an average capacity of 123 tons. Most of the vessels are individually owned and many are owner-operated. 38. Operating conditions for the coastal shipping fleet are extremely poor. Major problem areas for the industry are: (a) the inadequacy of existing ports, even for small vessels; (b) unsafe condition of most of the fleet due to primitive construction methods and the lack of maintenance and repair facilities; (c) inability to obtain insurance coverage for vessels and cargo, and (d) the absence of aids to navigation and of assistance to vessels in distress. There has been little government support for coastal shipping. Taking into account the results of a study on the further develop- ment of coastal shipping, the Government would make arrangements satis- factory to the Association for the regulation of, and provision of support services to, the merchant marine (Section 4.06 (a) of the draft Credit Agreement). 39. APP was created in 1973 to operate the international harbor facil- ities at Port-au-Prince. It functions under the supervision of the Ministry of Finance. The largest of the coastal shipping ports is also at Port-au- Prince, where APP built a wooden pier for coastal shipping services in 1973; this facility, highly congested in peak traffic, is the hub of the present coastal shipping system. There are 12 other coastal shipping ports with significant terminal facilities and 37 anchorages where cargo is handled over the beach or by small lighters.  - 12 - 40. The NTS concluded that projected volumes of traffic would justify investment in port improvements and in modernization of the fleet. Recommen- dations for coastal shipping foresee a fleet of locally constructed motorized vessels, somewhat larger and better built than at present, operating on fixed routes and schedules, with regular maintenance, repairs and insurance. Vessels of 100- to 200-ton capacity are envisaged to carry both freight and passengers on major routes. However, traditional sailboat coastal shipping would continue to play an important role as a feeder service and for certain commodities (e.g. salt). To accommodate such coastal shipping traffic, the NTS proposed improvement of port facilities at 19 coastal locations. Coastal Shipping Traffic 41. The annual total volume of cargo handled by coastal shipping is a relatively modest 125,000 tons, of which 85,000 tons have Port-au-Prince as origin or destination. The largest share of passengers and cargo is carried by motor vessels, which have a cost advantage over sailing ships in spite of low labor costs in Haiti. Coastal traffic as reflected in the tonnages handled in the hub of the system, Port-au-Prince, has increased by an average of 1.6 percent per year over the past 15 years. This traffic falls into two categories: (a) the movement of goods and passengers to or from parts of Haiti that are inaccessible by road; and (b) the movement of relatively low-value, non-perishable commodities, where sea transport is cheaper than road service. Examples of the first category are shipments to and from Jeremie, where cargo traffic has grown 6 percent annually in the past few years, and the two islands, La Tortue and Gonave. An example of the second category is Port-de-Paix traffic in low-value commodities, such as salt, to and from Port-au-Prince or Cap Haitien. PART IV - THE PROJECT 42. A report entitled "Staff Appraisal Report - Fifth Transport Project" (No. 1903a-HA dated April 21, 1978) is being distributed separately. A Credit and Project Summary is at the front of this report. A Supplementary Project Data Sheet is appended at Annex III. The project was identified by an IDA mission in December 1975 and subsequently prepared by the Government and consultants, with the assistance of IDA, between March and September 1977. The project was appraised in October/November 1977, followed by a post-appraisal mission in February 1978. Negotiations were held in Washington from April 4 to 12, 1978. The Haitian Delegation was led by the Minister of Finance and Economic Affairs. Objectives and General Description 43. The Government's development strategy for transport recognizes the need to optimize investments through a proper balance between road transport and coastal shipping, and between maintenance and new construction. The strategy also aims at overcoming the isolation of outlying areas and extending the benefits of economic development to regional centers. The proposed project  - 13 - would support these objectives. It would: (i) improve secondary roads linking areas of agricultural activity with regional centers; (ii) reconstruct major bridges that serve as gateways to the northwest and northeast of the country, and (iii) modernize three coastal ports, with related institutional measures, as an initial step to develop more fully the potential of coastal shipping. 44. The project would have two main components: The road and bridge component would include: (i) upgrading, includ- ing paving, of 54 km of priority roads around Cap-Haitien serving the Northern Plain; (ii) construction of a new bridge and its approaches to replace the Hyppolite Bridge which collapsed recently; (iii) construction of a new bridge and approaches to replace the severely deteriorated Trois Rivieres Bridge; (iv) upgrading, to all-weather standard, of the 12.8 km agricultural access road linking Marche Leon with the coastal shipping port of Jeremie in the Southern peninsula, and (v) preinvestment studies to prepare a countrywide bridge reconstruction and rehabilitation program and other priority projects. The coastal shipping port component would include: (i) improvement of three coastal shipping ports for motorized and sailing vessels at Port-au- Prince (five berths at a new site), Jeremie (four berths) and Port-de-Paix (two berths); (ii) management advisory services to APN; (iii) a study of the further development of coastal shipping, and (iv) preinvestment studies for improvement of the Cap Haitien port. Cost Estimates and Financing 45. The total cost of the project (See Project Summary) is estimated at about US$20.5 million (the project is tax-exempt), of which about US$15.0 million, representing the foreign exchange component, would be financed by the proposed credit; the balance would be financed by the Government. Civil works represent 83 percent of the estimated total cost, construction supervision 7 percent and preinvestment studies and final design the remaining 10 percent. The first phase of the coastal shipping studies (US$160,000 not included in project costs) is proposed to be financed by a UNDP grant, with the Bank acting as executing agency. Implementation of the project is expected to take about three years (1978-1981). Retroactive financing, of up to US$200,000, is proposed for advance contracting of consulting services and for final engineering design of the port component, starting in March 1978. 46. A contingency allowance of 10 percent was used for all road and bridge civil works except in the case of the Hyppolite bridge, for which 15 percent was adopted because final engineering design has not yet been completed. A 15 percent contingency allowance was used for all port civil works, for the same reason. Contingencies for price escalation were based on 9 percent annual increases through 1978 and 8 percent annually thereafter, both for local and foreign exchange costs. Based on the project implemen- tation schedule, estimated price escalation throughout the implementation period amounts to 12 percent of construction costs.  - 14 - Consulting Services 47. A total of 485 man/months of consulting services are included in the project for detailed engineering and construction supervision, for manage- ment assistance to APN for studies to prepare a bridge rehabilitation and replacement program and for the development of future coastal shipping. It is estimated that about 40 percent of the professional services may be provided by Haitians. Costs per man/month average US$2,200 for Haitian engineers and US$6,900 for foreign experts. These costs are consistent with current rates for similar services in other countries. Disbursements 48. Disbursements of the credit would be made between September 1978 and September 1981, based on 72 percent of total expenditures for civil works, and 80 percent of total expenditures for consulting services. Execution and Procurement 49. TPTC would be responsible for the road and bridge component and the National Port Authority, (APN) the successor to APP, for the coastal shipping port component. 50. Civil works construction for roads, bridges and coastal shipping ports would be awarded through international competitive bidding after pre- qualification of firms in accordance with Bank/IDA Procurement Guidelines. For bidding purposes, the road and bridge works would be divided into four lots. There would be a single contract for all three ports. Local bidders would be allowed a preference margin of 7.5 percent on bid evaluation. The smaller and simpler lots of road construction correspond to the estimated capacity of the best local contracting firms. The other lots would offer opportunities for sub-contracting. 51. TPTC and APN intend to use the consultants who prepared the engineer- ing designs for construction supervision in both road and port civil works. APN also intends to retain the consultants who prepared the financial/organi- zational study of the ports component for the management advisory services. These arrangements would be acceptable to the Association. Preinvestment studies would be carried out by consultants acceptable to the Association under terms and conditions satisfactory to the Association. Financing Plan for Coastal Shipping Ports 52. APN is an efficient organization. Its financial position is satis- factory and revenues generated from international port terminals cover the full cost of operations and debt service charges and generate a yearly surplus. An organization and financial study undertaken by consultants provided back- ground on APN's present and prospective financial position, recommendations on the structure and level of user charges for the coastal shipping ports, and a  - 15 - basis for the financing plan and projections prepared during appraisal. The proposed financing plan and tariff policy for improvement of the coastal shipping ports reflects the need to strike a balance between two objectives: (a) to enable APN to operate the coastal shipping ports which have so far incurred losses, without jeopardizing APN's financial viability; and (b) to establish port tariffs for project ports that would be within users' ability to pay, encourage waterborne coastal traffic, and facilitate future development of additional ports in the system. 53. APN's proposed tariff for coastal shipping ports, reflecting the above objectives, is based on recovery of about 80 percent of the direct financial benefits accruing to port users. A comparison of projected revenues with operating and capital expenditures shows that revenues generated by the proposed rates would more than cover working costs of the coastal shipping ports from the start of operations, and, by 1985, as traffic gradually increases, would reach a level at which full depreciation costs will also be covered. The terms and conditions on which capital funds would be made avail- able to APN were adjusted to ensure that APN's borrowing for the coastal shipping ports could be serviced from new revenues from these ports. It is an objective of the financing terms of the sub-loan to APN, and of related operating and working ratios, to overcome deficits in the pilot project ports and to allow APN to assume personnel and operating costs that are presently borne by the Government. 54. The Government would enter into a separate agreement with APN, providing for on-lending of US$3.3 million equivalent from the proposed Credit and for an equity contribution of US51.1 million (Section 3.02 of the draft Credit Agreement). Government would on-lend the IDA funds for a 25-year term, including six years of grace, at an interest rate of 1 percent per annum between 1978-1985 and 2 percent thereafter. The timing of the increase in interest rate to 2 percent coincides with the physical expansion of the coastal shipping ports system following the planned development studies, expected improvements in the technology of coastal shipping and a projected increase in coastal shipping port tariffs. Administration of Coastal Shipping Ports 55. Agreement was reached with APN regarding the organization of a Coastal Ports Service to administer the project ports and submission to the Association, by the end of September 1978, of proposals for the organization of the Service (Section 3.02 of the draft Project Agreement). The Government agreed not to expand the responsibility of APN to coastal ports other than those included in the pilot project without prior consultation with the Association (Section 4.06(g) of the draft Credit Agreement). APN would establish, for each of the project ports, accounting and cost accounting procedures (Section 4.04 of the draft Project Agreement). APN would consult with the Association before adopting its annual budgets and would not increase its administrative expenditures or investments for coastal shipping ports by more than 10 percent without prior consultation with the Association (Section 4.05 of the draft Project Agreement). Coastal shipping port tariffs would be  - 16 - set at levels that would result in improvements of the working ratio from 86 in 1980 to 61 after 1985, and in the operating ratio, from 131 in 1980 to 92 after 1985 (Section 4.06 of the draft Project Agreement). APN's assets in use would be revalued in 1980 and every three years thereafter (Section 4.03 of the draft Project Agreement). IDB's loan agreement for the international facilities at Port-au-Prince includes financial covenants limiting APN's debt and investments, requiring that tariffs for the international port be suffi- cient to earn a 6 percent rate of return on assets and allowing APN to retain the port charges it collects. In line with these arrangements, the Government agreed that APN would retain port charges that it collects, and APN agreed to a debt limitation of US$1 million and to a 6 percent rate of return on assets (Section 4.06(e) of the draft Credit Agreement and Sections 4.07 and 4.08 of the draft Project Agreement). Environmental Aspects 56. The construction included under the road and bridge component is not expected to have an adverse impact on the population centers or areas served by project roads. Similarly, construction for the port component is not expected to have any negative ecological impact; nor is operation of the ports likely to have any adverse effect on Haiti's relatively unpolluted coastal waters, as the cargo that is transported is not of a polluting nature. Benefits and Risks 57. About 500,000 small and medium farmers and rural inhabitants live in the area of influence of the road and bridge component, where agriculture is the leading economic activity. A number of agricultural development programs already initiated in the Northern Plain (population 400,000) would benefit from the project. Among these is the ongoing IDA-financed Rural Development Project (Credit 675-HA, of January 1977), which would, over the 1978-1984 period, increase production of sugar cane, vegetables, milk and meat. The Caldos Sugar Company, near Limonade, has recently expanded its capacity to refine sugar cane from about 200,000 tons to 850,000 tons annually. Under that part of the Government's coffee rehabilitation program located around Dondon (between Grande Riviere du Nord and St. Raphael), annual coffee exports from the region would increase from 350,000 sacks to 500,000 sacks in ten years. These programs could be adversely affected by transportation bottle- necks. The collapse of the Hyppolite bridge has disrupted communications between the Northern Plain and Cap Haitien, the regional capital. Collapse of the badly deteriorated Trois Rivieres Bridge would virtually cut off 175,000 inhabitants, who are still affected by the aftermath of recent droughts and depend on the road for basic supplies. The shortest alternate detour involves an added travel distance of about 40 km on some very bad roads. In the Southern Peninsula, the improvement of the road to Marche Leon, a market town serving the 30,000 inhabitants of the area, will provide all-weather access to the rich valleys of La Voldrouge and Des Roseaux. 58. The detailed economic evaluation of the road and bridge component is based on an analysis of quantifiable benefits including reduced vehicle operating costs and travel time, reduction in road closures and savings in road maintenance costs. The time saving of road users was estimated separately. All costs and benefits considered in the economic analysis are net of taxes.  - 1 7 - 59. The port component of the project would affect a large share of the coastal shipping industry since improvements would be made to the two most important ports of the system: Port-au-Prince and Jeremie. The competitive position of coastal shipping would be strengthened, and the two relatively isolated areas of Jeremie and Port-de-Paix would be better integrated. This would be achieved with a much lower level of investment than that required to provide a corresponding level of service through road improvement. The quanti- fied evaluation is based on the difference in transport costs with and without the project: savings in cargo handling cost; improved protection to ships and cargo; and improved passenger handling; reduced transit time for cargo (Jeremie), reduced road distance to city center (Port-au-Prince); and reduced transport cost compared to existing trucking over poor roads (Port-de-Paix). The major part of the port investment is for wharf construction and associated dredging which will allow more efficient use of existing larger and proposed more modern ships suitable for coastal services in Haiti. 60. A significant advantage of the coastal shipping port component of the project that is difficult to quantify is its role as an intermediate technology transport solution. Although part of the quantified benefits relates to more efficient use of existing and new motorized vessels, the major part is for improved cargo handling and ship protection, which is equally essential for the still important traffic by sailing ships. The continuation of such services, which are helped by favorable wind conditions and low labor costs, depends on whether improved coastal shipping can retain and develop its market share of transport. 61. The overall economic rate of return for the project is 21 percent. The rate of return for the road and bridge component, the cost of which is US$14.7 million, is 23 percent. The rate of return for the coastal shipping pilot ports component, the cost of which is US$3.8 million, is 14 percent. Because road transport services in Haiti are competitive, reduction in vehicle operating costs would be passed on to rural producers and consumers served by the project roads and bridges. Decreased transport costs and improved reliability of coastal shipping would directly benefit low-income producers and small traders. 62. The road and bridge component does not present any special risks. All the road sections and bridges have been engineered, with the exception of the Hyppolite Bridge. The latter is quite similar in span and type to other major bridges recently built in Haiti. The only difference in cost would arise from variations in foundation design; the probable resulting variation in total cost is expected to be less than 5 percent. Traffic forecasts on the Northern roads are based on normal growth and planned development of agricul- tural production in ongoing rural development programs. The traffic projec- tion for the short road to Marche Leon, near Jeremie in the South, is affected by a higher degree of uncertainty since there are, at present, no specific programs to support agricultural development of the area. The area is, however, populated and endowed with good agricultural potential. 63. For the coastal shipping ports, the risks are also reasonable. The preliminary engineering carried out for the technical-economic studies is in sufficient detail to preclude large cost overruns. The proposed tariff policy  - 18 - has been designed to provide sufficient inducement to ship owners to encourage use of the new facilities. Project traffic estimates are conservative in the sense that they do not consider the full potential growth which might come from further improvement, triggered by the project, in particular the modernization of the fleet and upgrading in the quality of services. Al- though considered a first "pilot" step in the full development of coastal shipping, this component of the project has been evaluated on its own merits. Adequate attention has been paid to preserving the financial and institutional integrity of APN in expanding its responsibility for coastal shipping ports: in view of APN's experience, this added responsibility is not expected to create any special risks. PART V - LEGAL INSTRUMENTS AND AUTHORITY 64. The draft Development Credit Agreement between the Republic of Haiti and the Association, the draft Project Agreement between the Association and the National Port Authority (APN) and the recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. 65. In addition to the features of the draft Credit and Project Agree- ments referred to in the text and listed in Section III of Annex III, a special condition of effectiveness would be that the Subsidiary Loan Agreement between the Government and APN had been signed. 66. I am satisfied that the proposed Credit would comply with the Articles of the Association. PART VI - RECOMMENDATION 67. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments May 4, 1978 Washington, D.C.  - 19 - ANNEX I Page 1 of 4 pages TABLE 3A HAITI .. . - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM21 ------------------------- _________ _____ HAITI REFERENCE COUNTRIES (19701 TOTAL 27.8 MOST RECENT AGRIC. 14.7 1960 1970 ESTIMATE CAMEROON HONDURAS IVORY COAST** GNP.PER CAPITA fUSSI 100 0* 120.0* 200.0* 210.0* 250.0* 350.0* POPULATION AND VITAL STATISTICS