Dominican Republic - Second Puerto Plata Tourism Project

Document of The World Bank FOR OFFICIAL USE ONLY 0PY FILE rOP Report No. 2419-DO STAFF APPRAISAL REPORT DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT April 30, 1979 Tourism Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT CURRENCY EQUIVALENTS Currency Unit = Peso (RD$) US$1.00 = RD$1.00 RD$1,000,000 = US$1,000,000 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.2 pounds (lb) 1 hectare (ha) = 2.47 acres ACRONYMS AND EQUIVALENTS DNTI - Direccion Nacional de Turismo e Informacion FDD - Fundacion Dominicana de Desarrollo FIDE - Fondo de Inversiones para el Desarrollo Economico INAPA - Instituto Nacional de Aguas Potables e Alcantarillado INFRATUR - Departamento para el Desarrollo de la Infraestructura Turistica FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT TABLE OF CONTENTS Page No. I. THE TOURISM SECTOR ...................................... 1 II. THE PROJECT ............................................. 6 A. Project Origin and Objectives .... ............ 6 B. Project Description .................................. 6 C. Project Costs ..................................... 10 D. Project Implementation ............ .. .............. 13 E. Financing Plan ................ .. ................... 17 F. Lending Terms ................... ................... 18 G. Procurement .................... .................... 18 H. Disbursements ................... ................... 19 III. PROJECT JUSTIFICATION ................................... 20 A. Market Prospects ................................... 20 B. Financial Analysis ................................. 21 C. Economic Analysis .................................. 27 IV. RECOMMENDATIONS .................... ..................... 34 ANNEXES I. Statistical Tables and Organizational Chart II. Cost Estimates III. Statement of Lending Policies IV. Financial Analysis V. Related Documents and Data Available in the Project Files MAPS IBRD 14100 13981 10759R 13982 13980 The appraisal mission consisted of Messrs. Jean-Francois Bauer, Basil Assimakopoulos, Herbert Boehm and Michael Sarris. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   I. THE TOURISM SECTOR 1.01 Despite its varied attractions, the Dominican Republic has been a late starter in the Caribbean tourism trade. Up until 1970 the country's accommodation capacity amounted to about 1,100 rooms catering mainly to busi- ness traffic. In the '70s, with a return to political stability and the introduction of a generous incentives system, private investors undertook a program of hotel construction which brought the country's capacity to about 3,570 rooms (Table 1, Annex I). This additional capacity, two thirds of which is located in the capital city of Santo Domingo, includes three large luxury establishments planned to cater to affluent North American business and leisure visitors plus a number of small hotels aimed at domestic and Puerto Rican visitor traffic. Despite considerable gains (para. 1.03), visitor traffic has not matched thus far the abrupt increase in accommodations in Santo Domingo. While slow economic growth in the Dominican Republic has constrained the expansion of business traffic, Santo Domingo's limited tourism assets (the capital city has neither beaches nor the tropical atmosphere that the typical tourist expects to find in the Caribbean) have failed to attract the number of vacationers hotel investors had expected. As room occupancies and prices declined (the latter under the impact of the luxury hotels' efforts to market their services to cheap package tours) (Tables 2 and 3, Annex I) the operating results of Santo Domingo's accommodations deteriorated, leading to a halt in construction of new hotels in the capital city. With the expected gradual build-up of business demand, occupancies and tariffs are expected to increase to levels ensuring the profitability of most establishments except the lavishly expensive. 1.02 The Dominican Republic has only started to tap its beaches, its best tourism asset. In 1977 Dominican beach hotels had a total capacity of 780 rooms; by comparison beach hotels in the Bahamas and Jamaica had capaci- ties of 4,400 and 7,500 rooms respectively. The Republic's beach accommoda- tions include the luxury La Romana resort owned by the US company, Gulf and Western, the Government owned complex in Samana and smaller, largely privately-owned hotels scattered along the coast. Beach hotels are faring reasonably well with occupancies around 60% (Tables 2 and 3, Annex I). 1.03 Foreign visitor traffic by air to the Dominican Republic grew by some 18% annually over the 1968-77 period and the country's share in the total Caribbean traffic increased from 1.2% to 3.6% (Tables 4 and 5, Annex I). In 1977 airborne foreign tourists numbered 262,400. 1/ Over the 1968-77 period, the number of cruise visitors to the Dominican Republic increased at the spectacular annual rate of 52%, attaining a level of 133,400 in 1977. About 90% of the 1977 cruise arrivals were recorded at Puerto Plata on the north coast; Santo Domingo and Samana shared the remainder. 1/ In 1977 Dominican tourism statistics also recorded 47,100 arrivals by Dominicans residing abroad, mainly in the US and Venezuela. The large majority of them visit the country for Christmas and the summer vacation and stay with friends or relatives.  1.04 Dominican Republic tourism is overwhelmingly dependent on the US market which generates over 80% of all arrivals, one third of whom are Puerto Ricans. The number of visitors from Europe and Canada have doubled since 1975 and together currently account for 8% of all arrivals (Table 6, Annex I). Tourism traffic is seasonal with two peaks, December and July, and two valleys, April-May and September-October (Table 7, Annex I). The Dominican Republic's progressive tapping of the holiday market and the introduction of 7 nights/8 days packages have resulted in increased concentration of airborne tourists in the period December-February and in lengthened sojourns (the average stay of foreign visitors has extended from 4.5 to 6.4 days between 1970 and 1977). 1.05 In keeping with the experience of most other tourism destinations, the composition of foreign visitor traffic in the Dominican Republic has changed as accommodations have expanded and diversified. According to a survey carried out by the Central Bank, the share of business traffic, which is relatively insensitive to supply increases, declined from 43% in the winter season of 1972/73 to 20% in the winter season of 1976/77; conversely, the share of holiday visitors increased from 29% to 44%. For the entire year, an estimated 50% of total foreign visitors by air are now holiday visitors, 30% business visitors and the balance are attracted to the Dominican Republic for mixed pleasure and business reasons or for visiting relatives and friends. 1.06 Tourism's major economic impact is on the balance of payments and employment. In 1977 airborne visitors spent on an average an estimated US$44 per day and cruise visitors an estimated US$16 per visit. On this basis, gross foreign exchange receipts from tourism would be about US$77 million, representing 10% of total merchandise exports in the same year (Table 8, Annex I). Since the import component of tourism receipts is estimated at about 25%, the net foreign exchange receipts of the sector in 1977 amounted to about US$58 million. 1.07 Direct employment in tourism consists primarily of jobs in hotels and other tourism facilities and self-employment opportunities in transport and the production and sale of handicrafts. Employment in hotels, restaurants and entertainment is estimated at somewhat more than 5,000 persons. Over 1,500 people are employed in the production and sale of handicrafts, most of which are purchased by tourists, and another 500 in internal transport catering to tourists, which includes taxis, buses and domestic aviation. In total, as many as 7,000 persons earn their livelihood from tourism. Further indirect employment is generated in other activities (e.g., agriculture and light industry) which supply part of their output to the tourism sector. 1.08 The rapid increase of tourism facilities in the Republic has been encouraged by highly generous incentives. The tourism incentives law of 1971 (Law 153) grants full exemption from income taxes for ten years to all approved projects and, if the need is demonstrated in the project feasibility study or if at least half the ownership of the enterprise is in Dominican hands, the exemption can be extended to 15 years. In addition, the law provides exonera- tion (for the same period) from construction, registration and capital sub- scription taxes. Tourism investors are exempted from all duties on imported materials and equipment necessary at both construction and operation stages,  - 3 - provided these cannot be obtained locally at competitive prices and comparable quality. Furthermore, the foreign exchange necessary for these imports is provided by the Central Bank at the official exchange rate. 1/ Finally, profits invested in tourism, irrespective of their origin, are not subject to income tax. The incentives system is administered by a Tourism Development Board, chaired by the Director of Tourism (para. 1.10) and including repres- entatives of the Ministry of Finance, the Ministry of Industry and Commerce, the Technical Secretariat of the President's Office, the Central Bank and the private sector. Until recently, the Board granted incentives routinely following only a scant review of the proposals submitted. Also, in the past, the President's Office granted incentives beyond those included in the law, a situation which led to a number of abuses. 1.09 The Direccion Nacional de Tourismo e Informacion (DNTI) and the Central Bank of the Dominican Republic have responsibilities in the tourism sector. DNTI, established in the President's Office in 1968, is in charge of promoting foreign tourism, formulating tourism policies and regulating tourism development. Until recently, DNTI's resources were limited--a budget of about RD$ 1 million in 1978 and a staff of 50, including fewer than ten with pro- fessional training--and was unable to fulfill its mandate. Most of the country's promotion as a tourism destination has thus resulted from the marketing effort of hotel firms, especially the Gulf and Western subsidiary, rather than from DNTI's endeavors. The Central Bank has taken over the responsibility of producing statistics. Planning, project analysis and regulatory functions in the tourism sector have never been properly exercised. 1.10 In September 1971 the Monetary Board decided that the Central Bank should become more deeply involved in the tourism sector and created the Departamento para el Desarrollo de la Infraestructura Turistica (INFRATUR). INFRATUR was allocated an initial RD$ 5 million to develop and administer tourism infrastructure projects. Later it became the channel for Central Bank financing of both hotel and handicrafts projects. INFRATUR sponsored the studies for two integrated resorts. The one at Boca Chica near Santo Domingo was aimed primarily at the domestic market but did not materialize, chiefly because of difficulties in securing the land. The other, on the north coast near Puerto Plata, was aimed at the international market and proposed develop- ment of the sites of Playa Dorada and Playa Grande, located 5 and 80 km respectively, east of the city of Puerto Plata (see Map 10759R). In November 1974 the Bank approved a US$21 million loan (first Puerto Plata tourism project, Loan 1051-DO) to the Central Bank to finance the infrastructure works (site preparation, roads, water, sewerage, power and telecommuni- cations systems) and common facilities for Playa Dorada and Playa Grande. Development of the two sites would then be continued by private investors, both local and foreign, who would build accommodations for a total of 5,200 1/ Otherwise hotal investors would have to pay for their imports with foreign exchange purchased on the parallel market at a premium which now stands at about 25%.  -4- rooms. The Bank loan also included funds for the terminal building of the Puerto Plata International Airport, the runway of which was constructed in 1971. 1.11 In order to encourage hotel investment, the Government has provided not only the tax and other incentives described above, but has also assisted in providing loan capital on terms appropriate for hotel investors. As in most developing countries, no private domestic financing institutions are able or willing to provide funds on the terms required--at least 12 years' maturity, with a grace period covering a major part of the construction and start-up period, and at market rates of interest--while the amount of private loan capital obtainable from abroad for hotel investment is severely limited. Consequently, in order to mobilize private equity capital for hotel construc- tion, the Central Bank has provided long-term loan capital. 1.12 Until the establishment of INFRATUR, the Central Bank had been pro- viding funds through its Fondo de Inversiones para el Desarrollo Economico (FIDE) for small hotels, mainly located in Santo Domingo. INFRATUR has con- centrated its financing on large hotels and its portfolio includes 11 loans to 6 hotels, mostly in Santo Domingo, for a total of RD$ 35 million. Funds for the hotel credit operations came from its original RD$ 5 million, loans from two private foreign banks for a total of US$18 million, 1/ and interest- free advances from the Central Bank. Since the Central Bank, of which INFRATUR is a part, lends directly only to financial intermediaries, INFRATUR's hotel credit funds are channeled through financial intermediaries who carry the commercial risk. Because of the size of the loans and the risk involved, only the Government-owned Banco de Reservas and the Bank of America controlled- Corporacion Financiera Asociada 2/ have been willing to make hotel loans. INFRATUR has been lending up to 70% of estimated project costs, for terms of up to 30 years including grace periods of up to 10 years, at an interest rate of 5% (9 loans) and 9% (the 2 most recent loans) to intermediaries and 9% and 11% to final borrowers (Table 9, Annex I). 3/ INFRATUR's experience in hotel financing has been disappointing. The three luxury hotels it financed in Santo Domingo were plagued with cost overruns and contributed to overcapacity 1/ Including US$15.0 million from the Royal Bank of Canada (at interest rates of 1% over LIBOR for the first five years and 1-1/8% over LIBOR thereafter, with 12 years' maturity including five years' grace) and US$3.0 million from a consortium headed by the Chemical Bank of New York (interest 1.25% over LIBOR with eight years' maturity including four years of grace). 2/ The loans through Corporacion Financiera Asociada were guaranteed by Gulf and Western. 3/ For two hotels the Central Bank also agreed that "blocked" funds be invested and that they be registered as foreign capital and as such be eligible for repatriation as dividends.  - 5 - in this category of establishment (para. 1.01). To date none of these hotels has been profitable. Although they are still in the grace period of their loans, two of them are in arrears in payment of interest to the financial intermediaries. 1.13 Sale of handicraft products to tourists represents a potentially significant source of benefits from the growth of tourism to the Dominican Republic. These benefits, however, have been limited because the existing handicraft products are often of poor workmanship and unimaginative design and are poorly marketed. 1.14 On August 12, 1976 the Monetary Board provided INFRATUR with RD$ 500,000 to assist the Fundacion Dominicana de Desarrollo (FDD) in develop- ing handicrafts production for export and sale to tourists. FDD is a private non-profit institution devoted to developing rural areas. Through its handi- crafts program, FDD trains artisans, helps them organize their cooperatives, finances workshops and working capital and markets part of the production. Loan funds are provided by INFRATUR to FDD through the Banco Popular. The maximum amount of each loan is RD$ 15,000 for a term of four years including one year of grace. Interest rates charged to the intermediary, FDD and the final borrowers are 3%, 5% and 8% respectively. By the end of May 1978, FDD had trained 340 artisans in leather and ceramics in two centers and made loans amounting to RD$ 130,000. FDD has plans to expand its handicrafts program to include other specialties, in particular, amber jewelry which, in view of the Dominican Republic's outstanding resources in raw amber, has promising pros- pects for export and sale to tourists--provided the quality can be substan- tially improved. 1.15 The Government which came to power in August 1978 decided to improve the organization and strategies of the sector. It has introduced legislation in parliament to upgrade the status of DNTI to that of a ministry and has pro- vided it with a substantial budget for 1979 (RD$ 4 million including RD$ 1.8 million for promotion). DNTI needs further strengthening of its technical capability and has approached various agencies with requests for technical assistance. The Dominican authorities are also in the process of preparing new regulations for the granting of incentives based on the recommendations of a study carried out under the first Puerto Plata tourism project. This study argues for a reduction in the level of the incentives, careful defini- tion of eligible projects on the basis of economic analysis and elimination of import duty exemptions for furniture, fixtures and all items needed for operation. Import duty exemptions for construction materials and equipment would not be limited to goods on a list established by DNTI. The availa- bility of foreign exchange at the official rate would be limited to imports which qualify for duty exemption. 1.16 In addition, the Government has decided to concentrate its tourism development efforts on the Puerto Plata region. With the completion of the infrastructure works, scheduled in mid-1979, the region, already a popular stop for Caribbean cruise ships, will possess the assets required to become  - 6 - a major tourism pole. An additional stimulus to the tourism develonment of Puerto Plata would be the Drovision by INFRATUR of adequate loan financing to private investors interested in the construction of hotels and other tourism superstructure in the region. II. THE PROJECT A. Project Origin and Objectives 2.01 In early 1977 the Central Bank sought Bank assistance in establish- ing a credit facility for hotel investors in the Puerto Plata area. An iden- tification mission visited the Dominican Republic in May 1977 and recommended Bank financing of the accommodation development planned through 1983. In sub- sequent discussions with Dominican authorities, it was agreed to broaden the scope of the project to include works in the city of Puerto Plata to consoli- date its position as a major port of call for cruise ships out of Miami, as well as to provide for training in handicrafts and for technical assistance to DNTI and INFRATUR. Further Bank involvement in the Dominican tourism sector was made contingent upon concrete evidence of the Government's intent to rationalize the incentives system, a commitment the Government had already made under the first project. Accordingly, the Dominican authorities prepared a draft of the new regulations on the incentives system which was modified during negotiations to take into account the Bank's comments (para. 1.15). Enactment of the regulations by a presidential decree is a condition of loan effectiveness. 2.02 The main objectives of the proposed project are to: (a) assist the Central Bank in setting up a proper hotel credit mechanism to finance construction of tourism acccommodation facilities in Playa Dorada, Playa Grande and Puerto Plata; (b) enhance the tourism potential of Puerto Plata for cruise ship passengers and visitors to Playa Dorada and Playa Grande alike; (c) provide investment, training and employment oppor- tunities in the tourism sector and selected handi- crafts activities for the population of Puerto Plata; (d) strengthen the administration of the sector; and (e) provide assistance to the Dominican authorities in establishing sound tourism policies.  - 7 - B. Project Description 2.03 The project includes four components: (a) a line of credit to finance tourist accommodations and tourist services in Playa Dorada, Playa Grande and Puerto Plata; (b) urban works in the low lying area of Puerto Plata near the tourism pier; (c) an artisan center; and (d) technical assistance to INFRATUR and DNTI. Line of Credit 2.04 The line of credit will be used primarily to provide loan funds for construction of tourist accommodation facilities with a total capacity equivalent to 1,600 rooms, some 1,200 in Playa Dorada, 300 in Playa Grande and 100 in the city of Puerto Plata itself. Accommodations in Playa Dorada and Playa Grande would develop as follows: Table 1: SUMMARY OF ACCOMMODATION DEVELOPMENT (Rooms) Playa Dorada Playa Grande GRAND Year Hotels Apartments Villas Total Hotels Apartments Villas Total TOTAL 1979 225/a - - 225 - - - - 225 1980 475 280 - 755 - - - - 755 1981 675 280 - 955 250 - - 250 1,205 1982 875 280 - 1,155 250 70 - 320 1,475 1983 1,125 280 - 1,405 250 260 /b - 510 1,915 1984 1,375 280 160 1,815 250 440 110 800 2,615 1985 1,625 480 160 2,265 500 440 250 1,190 3,455 1986-90 1,925 480 560 2,965 500 630 250 1,380 4,345 After 1990 1,925 830 560 3,315 600 840 500 1,940 5,255 /a Already under construction and financed entirely by the Central Bank. /b 210 apartments expected to be completed in 1983 in Playa Grande would not be financed under the line of credit.  - 8 - 2.05 The accommodation capacity to be financed in Playa Dorada and Playa Grande under the proposed project to be built between 1979 and 1983 would be sponsored in the main by private investors. The first Puerto Plata tourism project included funds to finance a campaign aimed at attracting Dominican and foreign investors to the project. INFRATUR has prepared the required promo- tional materials and hired an investment promotion advisor. However, because of the political changes which occurred in the Dominican Republic in 1978, a systematic promotional effort was not undertaken. Following a presidential decision that the project would remain a responsibility of INFRATUR, putting an end to the uncertainty as to which agency (DNTI or INFRATUR) was to admin- ister the Puerto Plata project, INFRATUR has begun an intensive investment promotional campaign (in Europe, the US and Venezuela), the first phase of which was completed before negotiations. The campaign has received a favor- able response among private investors and it is expected that enough investors would be identified to permit accommodation development in accordance with the timetable indicated in Table 1. 2.06 In the meantime, the Central Bank had to take upon itself the devel- opment of the first hotels. It is constructing a 225-room bungalow hotel due to open in October 1979 and is completing the final design of a 250-room hotel, both at Playa Dorada. In the event ongoing negotiations with private investors for their participation do not succeed, the Central Bank plans to go ahead with construction of this hotel as soon as the final design is com- pleted. Meanwhile investors' interest in constructing apartments has been strong. Final design of a 280-room complex at Playa Dorada has been com- pleted; the developer plans to sell units to individuals (Dominicans and for- eigners) who would use them for a maximum of two months and make them avail- able to tourists during the rest of the year. The Central Bank has worked out a scheme whereby the individuals purchasing the apartments would lease them on a long-term basis (10-15 years) to a management company which would administer them as if they were part of a hotel operation. During negotiations, the Central Bank and the Bank agreed that the applications for each aparthotel subproject would include draft contractual arrangements acceptable to the Bank, between the Central Bank, the developer and the management company. These arrangements which would also include the long-term lease contract between the management company and the owners of the individual units, would provide the basis for the Central Bank to use the proceeds of the proposed loan to finance a maximum of 350 rooms in apartments to be sold to individuals. 2.07 At present hotel capacity in the city of Puerto Plata amounts to 150 rooms catering primarily to Dominicans visiting the beach on weekends and during summer vacations. A minor market is made up of the crews of yachts calling at Puerto Plata for repairs and supplies. With the nearing of the opening of the Playa Dorada resort and the expected inauguration of the Puerto Plata International Airport, local investors have expressed interest in in- creasing Puerto Plata's accommodation capacity by building new establishments, extending existing ones or converting old houses into pensions. These estab- lishments would be used chiefly by the segments of the international market attracted more by the quaint charm of Puerto Plata than by the sport and  entertainment facilities of Playa Dorada and Playa Grande. The Central Bank would use the funds of the line of credit to finance a maximum of 100 rooms in Puerto Plata, of which about 60% would be in renovated houses. In order to encourage small local investors, the maximum size of establishments to be financed would not exceed 25 rooms. 2.08 About 7% of the line of credit is earmarked for financing tourism services such as restaurants, cafeterias, shops and tourism transport in the city of Puerto Plata and the two resort areas of Playa Dorada and Playa Grande, as well as for financing a 30-boat marina. Tourism services to be located in buildings of architectural and historical value would be financed with funds from the line of credit only if the exteriors of the buildings were restored according to the plan which was prepared under the first Puerto Plata tourism project and registered with the Office of Cultural Heritage. Urban Works 2.09 The urban works would be aimed at improving the area between the tourism pier and the city, restoring the central park to its Victorian splendor and extending the city's sewerage system to include the area near the tourism pier. 2.10 Cruise ships use a pier constructed in 1918 which is in bad condi- tion for lack of maintenance. The pier is separated from the city by a desolate expanse of reclaimed land partially occupied by warehouses--an unfitting introduction to Puerto Plata for disembarking cruise visitors. The Ministry of Public Works and Communications started improvements to the pier in January 1979 including structural repairs to the piles, beams and deck, asphalting the deck and replacing existing fenders and dolphins. Under the proposed project, the waterfront area would be converted into a landscaped park. Access to the pier would be redesigned to provide separate areas for the taxis, buses, motorbikes and horses offered for rental to the tourists. The old unused railway station at the entrance to the pier would be converted into a tourist information office. The proposed project includes funds for earthworks, paving and landscaping and restoration of the railway station. 2.11 Puerto Plata's central square was an architectural jewel until 1930 when it underwent major reconstruction including the replacement of a wooden bandstand by an incongruous concrete structure, which is now deteriorating. Under the proposed project, the bandstand would be restored to its original style and the square would be landscaped anew. 2.12 About 80% of the city of Puerto Plata is served by a sewerage system, including treatment in stabilization ponds. The collection network was not extended to the lower part of the city because funds were insufficient to finance the network in an area with a high water table. At present waste- water from this part of the city runs in gutters and open drains into an open channel which discharges into the harbor next to the tourism pier. The sanitary conditions in this area are particularly bad after rains. Under the proposed project the sewerage network would be extended to the low lying area  - 10 - of the city. Sewage would be collected by gravity to a low point within the area and pumped from there into the existing network. The proposed loan would also provide funds for a separate system for stormwater drainage consisting of drainage by surface and underground mains discharging into open channels in the port area. Handicrafts Center 2.13 The Puerto Plata region is endowed with some of the world's richest amber mines. The amber is mined by primitive methods and processed mostly in Santo Domingo and Santiago. Part is then shipped back to Puerto Plata to be sold to cruise visitors. The objective of this component of the project is to build a center where about 50 artisans, 20 of whom would already have had some experience in the trade, would be trained each year. In addition to acquiring improved workmanship, the trainees would be taught how to develop designs appealing to a wider market. Trained artisans would be encouraged to set up cooperatives which could obtain financing for their workshops from the Central Bank (para. 1.14). The center would also assist the cooperatives in purchasing materials as well as marketing and distributing their products. The project provides funds for transforming a house in Puerto Plata's historic center into a training center and for purchasing and installating the required equipment. I/ Technical Assistance 2.14 The project includes a total of 132 manmonths for technical assis- tance. Technical assistance to INFRATUR would provide the services, for term assignments, of experts in specialized fields such as land development, hotel construction and equipment. These assignments would amount to 12 manmonths spread over three years. An economist and a financial analyst would assist DNTI for a two-year period with sectoral planning, economic evaluation of projects and administration of the tourism investment incentives. Three instructors, to be hired for two years, would assist in the start-up of the handicrafts center. C. Project Costs 2.15 Project costs are estimated at US$71 million equivalent including US$4.0 million equivalent in taxes and duties. The foreign exchange component of the project cost is estimated at US$33 million. Detailed cost estimates for the various categories of expenditures are given in Annex II and are summarized in Tables 2 and 3 below. 1/ Most of the equipment can also be used to work on larimar--a local semiprecious stone--and on horn and shells. The center would also train some artisans in these fields.  - 11 - Table 2: ESTIMATED PROJECT COSTS (RD Pesos/US Dollars '000) % Base- % Foreign Component Local Foreign Total line cost Exchange A. Line of credit 36,400 31,600 68,00 - 46.5 Tourist accommodations in Playa Dorada, Playa Grande & Puerto Plata 34,600 28,800 63,400 - 45.4 Tourist services & common facilities 1,800 2,800 4,600 - 60.9 B. Urban works 789 453 1,242 51.4 36.5 Pier front area 294 153 447 18.5 34.2 Town square 91 39 130 5.4 30.0 Sewerage system 346 239 575 23.8 41.6 Stormwater drainage 58 32 90 3.7 35.6 C. Artisan center 317 278 595 24.6 46.7 D. Technical assistance 183 397 580 24.0 68.4 Sectoral planning 80 190 270 11.2 70.3 Subproject evaluation 33 67 100 4.1 67.0 Training of artisans 70 140 210 8.7 66.7 Baseline cost (B+C+D) 1,289 1,128 2,417 100.0 46.7 Contingencies (B+C+D) 322 272 594 45.6 Physical (12.5%) 167 135 302 44.7 Price (12.1%) 155 137 292 46.9 TOTAL (A+B+C+D) 38,011 33,000 71,011 46.5 Rounded figures (including taxes & duties) (38,000) (33,000) (71,000)  - 12 - Table 3: ESTIMATED COST BY CATEGORY OF EXPENDITURE (RD Pesos/US Dollars '000) % Foreign Component Local Foreign Total Exchange A. Line of credit 36,400 31,600 68,000 46.5 B. Other components Civil works 910 473 1,383 34.2 Furniture and equipment 29 258 287 89.9 Professional services 167 - 167 - Technical assistance 183 397 580 68.4 Baseline cost (B only) 1,289 1,128 2,417 46.7 C. Contingencies (B only) 322 272 594 45.8 Physical 167 135 302 44.7 Price 155 137 292 46.9 TOTAL PROJECT COST (A+B+C) 38,011 33,000 71,011 46.5 Rounded figures (38,000) (33,000) (71,000) (including taxes & duties) 2.16 Investment costs of tourist accommodation facilities in the program outlined in paras. 2.05 and 2.06 have been estimated on the basis of prevail- ing construction costs per hotel room in the Dominican Republic. The average construction cost per room amounts to US$40,000 including contingencies. The average foreign exchange component is estimated at 47%. 2.17 Civil works costs for the urban works and the handicrafts center have been estimated on the basis of prevailing construction unit costs and on a preliminary analysis of space requirements for buildings and quantities for other works. Their foreign exchange component averages 34%. The estimated costs of furniture and equipment are based on average prices either in the Dominican Republic or abroad. Their foreign exchange components amount to 75% and 90% respectively. An average increase of 12.5% has been allowed to cover physical contingencies for civil works, equipment and furniture for all items not included in the line of credit. Technical assistance will be  - 13 - engaged for an estimated total of 132 manmonths at an average cost of about US$5,000 per manmonth. 1/ The foreign exchange component of technical assis- tance has been estimated at 70%. 2.18 Price increases are estimated over April 1979 base costs according to the implem-atation schedules of individual project components and the following annual price escalation rates: Table 4: ANNUAL PRICE ESCALATION RATES (%) Civil works Furniture & Professional Year Local costs Foreign costs equipment services 1979 9.0 7.0 6.0 7.0 1980 8.0 7.0 6.0 7.0 1981-85 7.0 7.0 6.0 7.0 D. Project Implementation 2.19 INFRATUR will bear the responsibility for project implementation. The project will be implemented within five years from loan signing with a terminal date for submission of subprojects under the loan of December 31, 1982 and a proposed closing date of December 31, 1984. Funds in the line of credit are expected to be fully committed within three years from loan signing, with all construction completed in five years. The urban works and handicrafts center will be completed within two years of loan signing. Promptly after completion of the project, but not later than one year after the closing date of the loan, INFRATUR shall prepare and furnish to the Bank a completion report on the execution and operation of the project. INFRATUR's Organization 2.20 The chart below summarizes the organization of INFRATUR. Its governing body is a board which is chaired by the Governor of the Central Bank and includes the Bank's manager, its legal counsel, a member of the Monetary Board and the Director of DNTI. INFRATUR's Director acts as the board's secretary. 1/ This figure includes subsistence and travel and is an average of the following elements: Sectoral planning: 48 manmonths at US$6,250; Subproject appraisal: 400 mandays at US$300; Artisan training: 72 manmonths at US$3,300.  - 14 - INFRATUR Organizational Chart Board Director ~~7tatist ca ~~~~Legal Studies Deputy Director Projects Puerto Plata Infrastructure Administration Division Office Diisl Architect Adviser in Adviser Land Development Project Investment Technical SuperviDion Development Technical Analysis Promotion 'Unit Unit Control Office Unit Lnit. _ _'__Unit  - 15 - 2.21 INFRATUR has two operating divisions: Infrastructure and Projects. The Infrastructure Division which implemented the first Puerto Plata tourism project consists of two units and a technical office. The Supervision Unit is responsible for the completion of the first Puerto Plata tourism project and supervision of the urban works and handicrafts components of the proposed project. The Development Control Unit is in charge of enforcing the controls established on the north coast under the first Puerto Plata tourism project. INFRATUR's newly created Projects Division would be in charge of the line of credit. Its head has long standing experience in tourism and will be assisted by an architect-advisor and an advisor in land development. The Division includes an Investment Promotion Unit which would be responsible for attracting investors to the project sites, a Project Analysis Unit to be in charge of appraising the various subprojects and a Technical Unit which would supervise their implementation. The head of the Project Analysis Unit is an economist with long experience in the Central Bank. The Puerto Plata office, under the supervision of the Infrastructure Division, will take charge of and maintain the infrastructure works once they are completed and will be responsible for relations with local authorities. 2.22 During negotiations, the Central Bank agreed that INFRATUR would consult the Bank prior to replacing the head of either division or of the Project Analysis Unit. INFRATUR's revised internal regulations were discussed during negotiations and found acceptable to the Bank. Implementation of Line of Credit 2.23 The policies and regulations that will govern INFRATUR's operations in tourism financing are set forth in a statement (see Annex III). This statement, which provides a satisfactory basis for channeling Bank funds for onward lending for tourism investments under the proposed project, was finalized during negotiations. Any subsequent modification of the statement would require Bank approval. 2.24 Subprojects to be financed would be presented to INFRATUR jointly by investors and intermediary institutions. INFRATUR's Project Analysis Unit would appraise the subprojects which would then be submitted for review by INFRATUR's loan committee comprising its director and subdirector, the Central Bank's deputy manager for finances and the head of the Projects Division. The subprojects would finally be presented to INFRATUR's board for approval. All accommodations subprojects with total investment cost exceeding US$300,000 and nonaccommodation subprojects in excess of US$100,000 would require prior Bank approval. This would permit the Bank to review all accommodation sub- projects in Playa Dorada and Playa Grande, about 50% of the accommodation projects in Puerto Plata and 50% of the nonaccommodation projects. 2.25 The subloans would be channeled through financial intermediaries who would assume full credit risk on subloans and would service their debt to the Central Bank in accordance with fixed amortization schedules. Com- mercial banks, financieras, savings and loan associations and mortgage banks  - 16 - would all be eligible. Whereas several mortgage banks, as well as the Govern- ment owned Banco de Reservas, have expressed interest in serving as interme- diaries, private commercial banks are unlikely to participate due to the poor experience of hotel lending in Santo Domingo (para 1.12). If the first hotels built in Puerto Plata prove profitable, it is possible that more interme- diaries would elect to participate, individually or as part of consortiums. Since the Central Bank is likely to invest in pioneering hotel projects (para. 2.06) in Playa Dorada, a maximum of US$6 million of the proposed loan could be used by the Central Bank to invest in its own hotel projects. These proj- ects would be submitted to the appraisal and review procedures described in para. 2.24. Before the Central Bank sells any of its hotels, it would agree with the Bank on the terms and conditions of the sale. 2.26 Typical accommodation subprojects would be financed to the extent of 35% by investors' equity and 65% loan funds of which 62% would be derived from INFRATUR and 3% (the working capital) would be provided by financial interme- diaries from other resources. Accommodation subloans would include grace periods of up to four years (typically to cover two years of construction and the first two years of operations) with final maturity up to 17 years. The following terms would apply to nonaccommodation subloans. Table 5: TERMS OF NONACCOMMODATION SUBLOANS Maximum Maximum Maximum Type of subprojects % financed by INFRATUR maturity grace period Restaurants and shops 75 5 2 Tourism transport /a 80 4 0 Marina 70 15 2 Building renovation 80 10 1 /a INFRATUR would be a last resort lender and give priority to borrowers from Puerto Plata. 2.27 At present a usury law provides a ceiling of 12% on interest rates in the Dominican Republic. In practice, effective lending rates are in- creased above 12% by the addition of closing costs and fees. The Central Bank plans to charge intermediaries 9% for hotel subloans and 9.5% for other subloans and to allow them to charge final borrowers 12% annually plus one- time closing costs of about 3-4% of the amount of the loan. Under this arrangement, the Central Bank would have a margin of about 2% above the World Bank rate to cover its administrative expenses and the exchange risk. If  - 17 - inflation rates in the Dominican Republic do not increase beyond predicted levels, 1/ the proposed interest rate structure for hotel lending would ensure that final borrowers are charged positive interest rates in real terms. During negotiations, the Central Bank agreed to review in consultation with the Bank the adequacy of the interest rate structure in June 1981. If inflation rates should then reach or exceed 12%, no further commitments of funds from the line of credit would be made, unless the Bank were satisfied that the final borrowers would be charged positive real interest rates. In the event the interest rate ceiling rate were removed, the rate to the final borrowers would be linked to a rate which reflects market conditions, i.e., that which the mortgage banks would charge on loans exceeding seven years for commercial construction, leaving the intermediaries' margin intact. Implementation of Other Components 2.28 Execution and subsequent maintenance and operation of the urban works and handicrafts center would be based on interagency agreements among INFRATUR, the Puerto Plata Municipality, the Instituto Nacional de Aguas Potables y Alcantarillado (INAPA) and FDD. INFRATUR would be responsible for implementation; it would thus be in charge of land acquisition, final design, advertising requests for tenders, evaluating bids and entering into contracts for these components. Upon completion, the sewerage system would be owned, operated and maintained by INAPA and the other urban works by the Puerto Plata Municipality. The Municipality and INAPA would reimburse INFRATUR for the cost of the works. The handicrafts center would be leased to FDD. A condition for disbursing the relevant funds from the loan account is for INFRATUR to enter into agreements satisfactory to the Bank with the Municipality, INAPA and FDD. E. Financing Plan 2.29 The project financing plan provides for an IBRD loan of US$25 mil- lion equivalent, or 35.2% of total project costs. The Central Bank contribu- tion will be US$10 million, or 14% of total project costs. Financial inter- mediaries are expected to participate in the project with US$2 million of their own funds, or 3% of the line of credit. Equity investment in the facil- ities to be financed by the line of credit will amount to US$24 million, or 35% of the total investment in these facilities. The Central Bank has sub- stantially completed arrangements with a foreign commercial bank to obtain cofinancing for the project in the amount of US$10 million. A condition of loan effectiveness is that the loan agreement with the commercial bank be signed. The sources and uses of project funds are summarized below. 1/ The following inflation rates were registered: 1975, 14.5%; 1976, 7.8%; 1977, 16.4%, and 1978, 5.5%. The following inflation rates are projected: 1979, 8%; 1980 and beyond, 9-10%.  - 18 - Table 6: FINANCING PLAN (in US$ million) World Commercial Central Bank Banks Bank Equity Total Line of credit 23.6 12.0 /a 8.4 24.0 68.0 Urban works 0.6 - 0.9 - 1.5 Training center for artisans 0.3 - 0.5 - 0.8 Technical assistance /b 0.5 - 0.2 - 0.7 TOTAL 25.0 12.0 10.0 24.0 71.0 /a US$10 million from foreign banks which would be lent directly to the Central Bank and US$2 million which would be provided on a project by project basis by Dominican banks to finance working capital. /b The amount of technical assistance included in the World Bank loan would be decreased to the extent that the Dominican authorities find financing on more favorable terms from multi- or bilateral sources. With INFRATUR's promotion campaign (para. 2.05) and the hotel credit facility established under this project, it is expected that private capital will be forthcoming. In order to assist investors in raising equity for pioneering projects, the Central Bank is considering permitting them to invest blocked funds or itself participating in the equity through contributions of land. F. Lending Terms 2.30 The Bank loan of US$25 million equivalent would be for 17 years with a 4-year grace period at the prevailing Bank lending rate of 7.9% and the standard commitment fee of 0.75% annually. The loan would be made to the Central Bank with the guarantee of the Government. This loan would include US$300,000 of retroactive financing to reimburse INFRATUR for expenditures incurred before loan signing on two subprojects in Playa Dorada. G. Procurement Line of Credit 2.31 Before subloans are extended prospective borrowers will generally be required to submit to INFRATUR at least three bids for civil works accompanied by an evaluation report. INFRATUR's review will take into account the bidder's  - 19 - financial position, previous experience and work capability with respect to personnel and equipment. For contracts for the supply and installation of equipment, furniture and fixtures amounting to more than US$2,500 equivalent, the borrower would be required to submit at least three quotations from qualified suppliers registered with INFRATUR. Prudent shopping would be allowed for purchases of less than US$2,500 equivalent provided their total amount would not exceed US$10,000 for each project. (Similar procurement procedures would be used by the Central Bank for its own hotel investments.) In the event of disagreement between INFRATUR and a prospective borrower as to the estimated cost of civil works and/or equipment, the parties will seek arbitration from the technical department of the Banco Nacional de la Vivienda. Other Components 2.32 Since it is unlikely that foreign construction companies would be interested in bidding for such small scale works as those called for by the remaining components, the related contracts for civil works, furniture, materials, fixtures and equipment totaling about US$2.4 million equivalent would be let on the basis of competitive bidding after local advertising. The Bank's prior review and approval of invitations to bid, proposed awards and final contract will be limited to those contracts in excess of US$100,000 equivalent for civil works and US$50,000 equivalent for furniture, materials, fixtures and equipment for each component. H. Disbursements 2.33 The following disbursement percentages will be applied: (a) with respect to the line of credit, 54% of the amounts disbursed by INFRATUR under each subloan and 35% of the expenditures by the Central Bank on its own hotel investments. Only expenditures made within 180 days prior to the date on which the Bank receives an application to disburse on a subloan would be eligible for Bank financing. The Bank's normal 90-day limit would be modified because double intermediation requires a longer time period; and (b) with respect to all other components: (i) 30% of total expenditures for civil works; (ii) 70% of foreign expenditures for goods; and (iii) 70% of the expenditures for technical assistance expenses including travel and subsistence.  - 20 - The estimated schedule of disbursements is shown in Table 6, Annex II. Dis- bursements for the line of credit would be made against statements of expendi- tures by subloans, certified by INFRATUR. Detailed documentation would not be submitted to the Bank but would be retained by INFRATUR for expost review by the project's supervision missions. Disbursements for all other components would be made against standard documentation. III. PROJECT JUSTIFICATION A. Market Prospects 3.01 After sustained growth in the years 1968-73 (8.4% per annum), tourism traffic to the Caribbean stagnated in 1974 and 1975 as a result of the severe recession in Europe and North America. In 1976 traffic growth resumed (by less than 1%) and picked up substantially in 1977 (7%) to reach 4.9 million arrivals for the Caribbean area. Partial figures for 1978 in- dicate an even higher growth rate. The bulk of the traffic consists of North American and European vacationers seeking relief from the cold winters at home on the beautiful and sunny Caribbean beaches. The US accounts for 48% of total tourist arrivals in the Caribbean, Canada for about 9% and European countries for 6%. 3.02 With an increasing number of North Americans and Europeans attaining income levels compatible with medium- and long-haul travel, tourism to the Caribbean is expected to continue to expand at a substantial rate. Travel trade sources estimate the likely growth in overall tourism to the Caribbean region over the long term at 6% per annum. Growth prospects are particularly favorable for middle-income visitors traveling in groups, whose numbers have increased by a remarkable 80% per annum since the US Civil Aviation Board decided to deregulate charter flights in 1975. This is precisely the market segment for which accommodations planned at Playa Grande and Playa Dorada are intended. Located within an hour of the Puerto Plata International Airport, which can handle all types of aircraft and which will be open to charter flights, these accommodations will be reasonably priced and offer a full range of sports and entertainment activities, including golf courses, a close-at-hand marina and shopping facilities provided both within the project areas and in nearby Puerto Plata. 3.03 Inclusive trips of eight days, seven nights from New York (includ- ing group air fare, hotel accommodations, transfers and taxes, but excluding meals, recreation, excursions and trips), would start at US$280 to Playa Dorada, i.e., at cost levels considerably below those of similar trips to other Caribbean destinations which start in the US$300-370 range. 1/ Costs 1/ US$299 to Cancun. US$349 to Jamaica. US$360 to the Bahamas and Puerto Rico.  - 21 - of packages to Playa Grande would start at US$390, a competitive price in the Caribbean for a more exclusive resort area. Furthermore, accommodations in Playa Dorada and Playa Grande will benefit from an important form of indirect promotion in that they will be visited by cruise passengers disembarking at Puerto Plata as part of their off-shore tour. 3.04 Occupancies of hotels to be financed under the proposed project are projected at 65-70% in Playa Dorada and 65% in Playa Grande; the latter is a more exclusive resort where a larger share of individual travel is expected. These occupancies which would be reached over a three-year build-up period, are similar to those current in other Caribbean destinations such as Barbados (65.2% in 1976), Puerto Rico, the Virgin Islands (64.2% in 1976) and Cancun (68.5%), 1/ and below those experienced in 1977 by Mexico as a whole (73.7%) and the Bahamas and Bermuda in 1976 (76.3%). 3.05 Assuming double occupancy factors of 1.7 persons per room in Playa Dorada and 1.6 in Playa Grande, an average length of stay for foreign travelers of seven days and allowing for 10% of bednights by domestic travelers, pro- jected occupancies would require 155,000 international arrivals in 1986 and 260,000 in 1993. These targets are achievable. Even if the country's total capacity outside the Puerto Plata area increases by 1,000 2/ additional rooms by 1986 and by another 2,000 in 1993, and if all establishments achieved the same occupancies as those projected in Puerto Plata, the total number of foreign visitors to the Republic would have to reach 475,000 in 1986 and 725,000 in 1993, an average annual growth rate of 7%. This growth rate is considerably lower than that achieved by the Republic in the past decade and only slightly higher than that projected by the Caribbean Tourist Association for the Caribbean region as a whole. B. Financial Analysis Hotel Profitability 3.06 Hotel investments likely to be financed under the proposed line of credit include four types of hotel subprojects: Type A is based on a proposal for Playa Grande submitted to INFRATUR by Dominican investors; Type B is similar to the hotel at Playa Dorada which the Central Bank has been studying (para. 2.06); Type C and the aparthotel are representative of the more modest accommodation facilities expected to be built at Playa Dorada. The invest- ment costs inclusive of the costs of land assumed for each type are summarized below. 1/ Cancun has reached an overall 68.5% occupancy in its third year of oper- ation. 2/ Including the 300-room Club Mediteranee in Punta Cana whose construction is expected to start in 1979.  - 22 - Table 7: HOTEL INVESTMENT COSTS /a (in 1978 prices) Hotel type No. of rooms Per room (US$) Total (US$ million) A 250 46,500 11.6 B 250 40,100 10.0 C 100 25,900 2.6 Aparthotel 225 28,700 6.5 /a Including physical contingencies but excluding interest during con- struction. 3.07 Projected operating results of each hotel type are detailed in Tables 1 to 4, Annex IV, and summarized in Table 8. According to these pro- jections, the four different types of hotels should attain satisfactory levels of gross operating profits (GOP), ranging from 24.6% to 38.9% of hotel reve- nues in the fourth year of operation. The financial internal rate of return after taxes (IRR) in real terms would range accordingly from 9.2% to 16.5% on total investment and from 15.4% to 30.3% on equity for hotel Types B, C and the aparthotel. The variations in operating results stem primarily from dif- ferences in investment costs, occupancies and tariffs. Financial returns for the Type A hotel (6.4% on total investment and 9.9% on equity) are less attractive because the higher investment costs are not fully compensated by the higher tariffs. However, the only Type A hotel project envisaged under the program, according to the proposal submitted to INFRATUR (para. 3.06), will be implemented jointly with a 260-room aparthotel, which will allow higher rates of return on the overall project. Internal rates of return for each type of hotel are summarized in Table 9. 3.08 Hotel profitability has also been analyzed with respect to changes in the underlying assumptions. Table 9 illustrates the sensitivity of the internal rate of return on total investment and on equity to variations in investment costs, occupancies and tariffs. The analysis indicates that fluctuations within a reasonable range (+ 10%) in any of these key variables have only a moderate effect on hotel financial returns. Profitability of the more expensive types seems to be less certain than that of the cheaper hotels and aparthotels; this argues for submitting such projects to a particularly stringent financial analysis.  - 23 - Table 8: OPERATING PROJECTIONS FOR MODEL HOTELS IN TYPICAL YEAR OF OPERATION (in US$'000) (1978 prices) Hotels Type A Type B Type C Aparthotel Number of rooms 250 250 100 225 Average investment cost per room 46,530 40,070 25,850 28,740 Average room occupancy 60% 65% 65% 65% Average double occupancy factor 1.7 1.7 1.8 1.5 Average room rate 45.10 41.00 29.90 34.40 Bednights sold 93,075 100,830 42,700 80,070 Operating Revenues Room 2,469 2,432 709 1,836 Food 1,506 1,452 577 581 Beverage 856 827 317 360 Other 617 608 142 160 Subtotal 5,448 5,319 1,745 2,937 Cost of Sales Food 633 581 219 227 Beverage 265 248 89 104 Payroll 611 520 184 221 Other 599 532 140 264 Subtotal 2,108 1,881 632 816 Overhead Expenses Administration 1,001 981 289 540 Marketing 236 229 52 73 Energy 436 426 87 147 Property operation 327 319 87 220 Subtotal 2,000 1,955 515 980 Gross Operating Profit 1,340 1,483 598 1,141 as % of Total Revenues 24.6 27.9 34.3 38.9 Depreciation 561 466 113 242 Interest 131 113 29 73 Taxes 240 334 169 306 Net profit after taxes 408 570 287 520 Net profit/initial investment (%) 3.5 5.7 10.1 8.0  - 24 - Table 9: INTERNAL RATE OF RETURN (IRR): SENSITIVITY (in 1978 prices) Type A Type B Type C Aparthotel IRR on IRR on IRR on IRR on total IRR on total IRR on total IRR on total IRR on invest. equity invest. equity invest. equity invest. equity Best estimate 6.4 9.9 9.2 15.4 16.5 30.3 12.2 24.5 Changes in assumptions: Investment cost + 10% 5.4 7.9 8.0 12.9 14.8 27.0 10.7 20.7 - 10% 7.7 12.5 10.6 18.3 18.5 34.0 14.0 29.0 Occupancy - 10% 4.6 6.4 7.3 11.4 13.9 25.3 10.2 19.3 + 10% 8.2 13.5 11.1 19.2 18.9 34.9 14.2 29.6 Average room rate - 10% 5.3 7.7 8.0 13.0 15.1 27.6 10.7 20.6 + 10% 7.5 12.2 10.4 11.9 17.8 32.8 13.7 28.3 3.09 Table 10 shows debt service coverage ratios in current prices for individual types of accommodation during the first five years of operations. Since grace periods of the subloans extend to the first two years of operation, a decline in the debt service coverage ratios of hotels occurs in the third year when principal must begin to be repaid. Table 10: DEBT SERVICE COVERAGE (in current prices) Year of operation Hotel type 1 2 3 4 5 A 1.0 1.5 1.4 1.6 1.8 B 1.2 1.8 1.7 2.1 2.4 C 2.3 3.0 2.8 3.4 3.8 Aparthotel 1.4 1.8 2.0 2.4 2.7  - 25 - Other Components (a) Handicrafts Center 3.10 FDD has forecast annual sales for the center at about RD$ 200,000 and operating costs at RD$ 150,000 (RD$ 30,000 for administrative expenses, RD$ 40,000 for salaries to students and RD$ 80,000 for raw materials), leaving a surplus of about RD$ 50,000 adequate to earn a return of 8% on the invest- ment and to cover the lease of the facilities. (b) The Urban Works 3.11 The investment in the urban works would be recovered from the fees paid by cruise ship visitors. At present cruise passengers do not pay fees in Puerto Plata as they do in many other Caribbean harbors. Once the urban works have been carried out and made the city more attractive to cruise ship pas- sengers, Puerto Plata could charge a fee of US$1.25 per cruise visitor (lower than most competing ports) without running the risk of diverting traffic. On the basis of the number of cruise passengers expected for the 1978/79 season (165,000), the fee would generate over US$200,000 annually, enough to recover the investment in the urban works and provide a rate of return of 12%. The procedure for introducing the fee, as well as the split of revenues and obligations between INAPA and the Municipality will be regulated in the agreements these agencies will enter into with INFRATUR (para 2.28). Financial Analysis of INFRATUR (a) Existing Situation 3.12 INFRATUR has separate accounts which are summarized in Annex IV, Tables 5 and 6. At the end of 1977 its total assets amounted to RD$ 67.1 million, with hotel loans accounting for RD$ 34.7 million and the first Puerto Plata project investment for RD$ 26.6 million. The remaining assets included participation in the Hotel Hispaniola in Santo Domingo (RD$ 1.2 million), preparation of the Boca Chica infrastructure project (RD$ 0.8 million) and loans through the handicrafts program (RD$ 0.1 million). The assets were funded from (a) the initial Central Bank contribution of RD$ 5 million; (b) interest-free advances from the Central Bank amounting to RD$ 31.3 mil- lion; (c) RD$ 3.6 million as the Central Bank's counterpart to Loan 1051-DO; (d) RD$ 5.5 million withdrawn from Loan 1051-DO; and (e) RD$ 18 million from loans from foreign commercial banks. 3.13 INFRATUR has not yet received any income from its infrastructure investments. Its revenues consist almost entirely of interest income on its hotel loans. This income increased steadily from RD$ 331,000 in 1974 to RD$ 1.7 million in 1977 while interest and related expenses to foreign banks fluctuated with LIBOR reaching a peak of RD$ 1.7 million in 1975 (Annex IV, Table 6). INFRATUR incurred losses on its hotel loans until 1976 as a result of its early loans which were made available to intermediaries at an interest rate 5% below the cost of its resources. In 1977 interest revenues exceeded  - 26 - interest costs by RD$ 400,000; this, however, was not enough to cover the administrative and general expenses which amounted to RD$ 460,000. Since its inception, INFRATUR has incurred overall losses amounting to RD$ 3.7 million. (b) Projected Infrastructure Operations 3.14 INFRATUR's infrastructure investment in Playa Dorada and Playa Grande amounts to RD$ 26.7 million in 1978 prices. This amount excludes the investment in the Puerto Plata airport which will be the responsibility of the Comision Aeropuertuaria and the water and sewerage systems which will be transferred to INAPA. INFRATUR's revenues will be derived from land sales, leases of the facilities, operation of the two golf courses and service charges levied on accommodation facilities. INFRATUR's operating costs associated with the infrastructure will include expenses for administration, maintenance, promotion and payment of interest on the Bank loan. Assumptions on revenue and expenses are detailed in Annex IV-B. On the basis of these assumptions, INFRATUR will earn a 10.6% internal rate of return in real terms on its infrastructure investment. (This rate of return would exceed the target rate of 9% originally set in the loan documents of the first Puerto Plata tourism project.) The pro forma income statement of INFRATUR's infra- structure operations is presented in Table 7, Annex IV. (c) Projected Lending Operations 3.15 On the basis of the accommodation development scenario presented in para. 2.04, INFRATUR would finance projects costing a total of RD$ 71 million up to 1984. Its 1984 loan portfolio will amount to RD$ 45.0 million. For the period 1979-84 INFRATUR's interest income will exceed interest expenses by an average 3.0% margin; this will cover its operating expenses (1.3%) and all or a major portion of the foreign exchange risk. The statement of INFRATUR's lending operations is presented in Table 9, Annex IV. (d) Projected Consolidated Operations 3.16 Table 10, Annex IV, consolidates INFRATUR's infrastructure and lending operations and Table 11 summarizes the statement of INFRATUR's sources and uses of funds. They show that until 1982 INFRATUR would accumulate cash deficits requiring Central Bank contributions of RD$ 5.4 million. From 1985 on INFRATUR's annual net cash generation is expected to average around RD$ 9 million. This latter amount would be adequate to provide loan financing, for example, for a 350-room Type B hotel per year or 550 rooms of Type C hotel. Thus if it so chose, INFRATUR would be able to continue providing credit for future accommodation development in Playa Dorada and Playa Grande once the line of credit has been exhausted. (e) Audit 3.17 INFRATUR's accounts are audited by the Superintendent of Banks and an independent auditor acceptable to the Bank. These auditing practices would continue under the proposed project.  - 27 - C. Economic Analysis 3.18 The investments to be financed by the proposed loan are part of a regional tourism development program in the Puerto Plata area which was begun under the first Puerto Plata tourism project. The program consists of infra- structure works in Playa Dorada and Playa Grande; accommodation facilities supported by this infrastructure and to be built over the 1978-85 period; ancillary facilities, such as sports, shopping, transport and the production of handicrafts; and urban works in the city of Puerto Plata. The proposed project can therefore be economically evaluated only in the context of the first Puerto Plata tourism project. The analysis undertaken here reevaluates the economic returns to the entire investment program, including all the infrastructure works which have already been largely completed. A rate of return is also calculated on the incremental investment in accommodation development financed by the proposed loan. Investment Costs 3.19 Financial investment costs in infrastructure works under the first Puerto Plata tourism project are estimated at US$43.3 million, in 1978 prices. These costs include land acquisition, roads, water supply and sewerage systems, solid waste disposal, lighting and telecommunications, golf courses, central facilities and public beach facilities. They also include hotel training facilities, technical assistance, project administration, investment promotion, the completion of the airport and the water and sewerage systems of the ad- joining village of Rio San Juan. Urban works and the handicrafts center in the city of Puerto Plata to be financed under the proposed project, would cost about US$2 million. The economic costs of these infrastructure works, expressed in 1978 prices, amount to US$48.5 million, or about 7% higher than the financial investment costs, with annual replacements estimated at 2% of the original investment cost. The economic costs differ from the financial costs in that they exclude half the price of land (about 5% of total costs) reflecting limited alternate uses and the fact that INFRATUR has had to pay significantly inflated land prices as the project became known; on the other hand, the investment costs were adjusted upwards by 12%, reflecting an esti- mated foreign exchange premium of 25% over the official rate, for the import content of these investments. 3.20 The accommodation development program for the 1978-85 period provides for the development of 2,265 rooms in Playa Dorada and 1,190 rooms in Playa Grande, in different types of facilities such as hotels, villas and apart- hotels at an average investment cost per room, in 1978 prices, of US$33,000. The economic investment costs for this superstructure, after adjusting for interest charges during construction and shadow pricing foreign exchange, are US$102.5 million. Annual replacement costs, after three years of operations, are estimated at 3% of the original financial cost, a weighted average of 1.5% for construction, 12% for furniture and 10% for equipment.  - 28 - 3.21 Foreign visitors attracted by the project will demand a whole range of goods and services provided outside the accommodation facilities. There are already a number of shops and restaurants as well as some trans- port facilities in the city of Puerto Plata, but they are not sufficient to cover projected demand. The investment costs of expanding the provision of these goods and services in any one year is projected to equal 60% of the incremental tourist expenditures outside hotels for the following year. The total additional investment cost in nonhotel tourist activities is estimated at US$30.0 million for a ten-year period, including replacements, taken as 15% of the original investment costs after three years of operations. Operating Costs and Revenues 3.22 The operating costs and revenues of the accommodation facilities are derived from the financial forecasts outlined in Tables 1 to 4, Annex IV. 1/ These forecasts have been modified for the economic analysis. Economic oper- ating costs have been raised by 7.5%, reflecting the premium for foreign purchases. The gross economic benefits also include the service charge (10%), the tips (2%) and the portion of the 5% room tax paid by foreigners. Foreign tourists' expenditures for accommodation facilities (expected to account for 90% of such revenues), have also been shadow priced. 3.23 On the basis of the experience of similar enterprises, the operating costs of activities outside hotels are estimated to average 70% of sales. Nonhotel expenditures by hotel guests are expected to average US$20 per visitor per day. These would be spent on the purchase of handicrafts and other shopping, the renting of cars and boats, public transportation and restaurants. Earnings of labor in nonhotel activities are assumed to equal their economic opportunity cost. This may introduce a conservative bias because employment opportunities in these activities tend to reduce seasonal unemployment and to increase the earnings of people already partially occupied with these activities. 3.24 In addition to expenditures on accommodation and other tourist facilities, revenues from the project would include visitor expenditures for tourist cards (US$2) and departure taxes (US$3) and the cruise visitor fee (US$1.25). There will also be incremental spending by those cruise visitors who would not have disembarked without the improvements in the city and those who may spend more because of increased spending opportunities. These benefits have not been taken into account. Nor have the benefits to the local population in Rio San Juan and Puerto Plata from the water and sewerage and other urban works been credited to the project. 1/ The maximum occupany for 750 of the rooms to be built under the program has been assumed at 50% for the best estimate of the economic returns to the program. This reflects the assumption that villas and apart- hotels will be occupied for some of the time by their owners.  - 29 - Rate of Return and Net Present Value 3.25 The economic cost and benefit streams resulting from the above assumptions, projections and estimates are presented in Table 12 below. On the basis of these streams and of an economic life of 32 years (with no resi- dual value taken into account), the internal economic rate of return for the entire investment program is 17.5%. The present value of the program's net operating benefits (i.e., gross benefits minus operating costs), dis- counted at 11%, is US$250 million, about 1.5 times as high as the present value of all investment costs including replacements. The rate of return for the accommodation investment program alone (including the supporting infra- structure) is 16.3%, while investments in nonhotel tourist activities have an internal rate of return of 40.7%, as summarized in Table 11. When the ori- ginal investment costs of infrastructure are excluded (but maintenance costs included), the economic rate of return is 31.3% and the NPV US$137.4 million. Table 11: SUMMARY OF ECONOMIC RATES OF RETURN AND NET PRESENT VALUES ERR NPV /a (%) (US$ million) Accommodation development /b 16.3 69.5 Nonhotel activities 40.7 15.0 Overall investment program 17.5 84.5 /a At 11%. /b Infrastructure investments are included here and in the overall invest- ment program (see Table 12). 3.26 The economic analysis has been carried out on the assumption that none of the tourism activity generated in the Puerto Plata area would have occurred in the absence of the infrastructure investments and the credit made available through the Central Bank, Most of the existing capacity in the Dominican Republic is situated in the capital city of Santo Domingo. About half of the 780 rooms classified as beach accommodations in various parts of the country are situated by the sea but they either do not have beach facilities nearby or are too primitive to be used by North American tourists on group tours. Further, some of the proposed beach-tourism expansion in Puerto Plata will be complementary to existing facilities in Santo Domingo because tourists who now stay away due to the absence of beach facilities can henceforth divide their vacation time between the capital and a beach resort. Thus, for the best estimate, net diversion of tourist traffic from existing facilities was considered negligible and expenditures by visitors accommodated in facilities built by the project were accordingly treated as fully incre- mental to the country.  TABLE 12: ECONOMIC COST AND REVENUE STREAMS (in US'000) Investment Costs Gross Benefits Site City of Operating Costs Tourist Net Year Infrastructure Puerto Plata Hotels Nonhotels Hotels Nonhotels Hotel Nonhotels Taxes Benefits 1 45,000 /a - 2,900 - - - - - (47,900) 2 4,907 271 15,349 1,626 1,250 690 2,504 986 42 (20,561) 3 3,073 1,051 14,950 2,065 5,783 2,586 10,768 3,695 176 (14,869) 4 695 191 16,200 1,497 12,109 4,995 22,245 7,136 306 (6,000) 5 781 54 11,576 2,488 16,018 6,741 29,872 9,630 413 (2,306) 6 931 25 17,083 3,942 21,023 8,736 39,018 12,480 535 293 7 931 30 15,639 5,079 27,216 11,992 51,349 17,131 734 (8,327) 8 931 30 10,314 3,588 35,893 15,884 67,571 22,692 973 24,596 = 9 931 30 2,300 3,712 38,569 17,148 73,179 24,497 1,050 36,036 f 10 931 30 2,600 3,915 39,752 17,928 75,708 25,612 1,098 37,262 11 931 30 2,940 4,187 40,037 18,296 76,452 26,137 1,120 37,288 12 931 30 2,940 4,187 40,037 18,296 76,452 26,137 1,120 37,288 13-32 931 30 2,940 4,187 40,037 18,296 76,452 26,137 1,120 37,288 PV at 11% (58,180) (1,406) (83,210) (29,181) (229,779) (102,985) 435,792 147,122 6,320 84,493 Internal economic rate of return: 17.5% /a This fieure includes a11 infrartructure expenditures for the 1973-78 period in 1978 prices and compounded to 1978 at 11%, the assumed opportunity cost of capital.  - 31 - Sensitivity Analysis and Project Risks 3.27 Sensitivity of the internal economic rate of return and net present value of project benefits to changes in cost and revenue assumptions are shown in Table 13. Also shown is sensitivity with respect to delays in the imple- mentation of the program of superstructure development and to valuing foreign exchange costs and receipts at the official exchange rate. Economic returns to the proposed investment program are more sensitive to increases in operat- ing costs than to changes in investment costs. The switching values for these variables (i.e., the percentage change which reduces the present value of net benefits to zero at the opportunity cost of capital) are over 50% for invest- ment costs and 27% for operating costs. Such an increase in operating costs without a corresponding increase in revenues would imply a very large decline in operating efficiency. Although management performance may fall short of the level assumed in the hotel financial projections, the likelihood of a large and persistent shortfall is small. 3.28 Net economic returns from the program would tend to zero if occupan- cies fell to below 40%, an unlikely outcome. Although a shortfall in the projected traffic is one of the most important project risks, it would take very large drops in both occupancies and prices to reduce the economic rate of return of the program below the opportunity cost of capital. Experience from other comparable destinations suggests that such drops are not likely to occur. Finally, to reduce the net benefits of the program to zero, the superstructure development program would have to be delayed by seven years. Again the probability of such a long delay is small. 3.29 Although the proposed investment program has been found to be econ- omically justified, the economic viability of each subproject will have to be demonstrated on a case-by-case basis. The analysis will be carried out by the Project Analysis Unit of INFRATUR. After the first subprojects come into operation, the analysis of further subprojects will be based on the market, seasonality, occupancy and price experience of the Puerto Plata accommodation establishments.  - 32 - Table 13: ECONOMIC RATE OF RETURN AND PRESENT VALUE OF NET BENEFITS FROM THE PROGRAM: SENSITIVITY ANALYSIS ERR NPV at 11% (%) (US$ million) Best estimate 17.5 84.5 Changes in assumptions: Investment costs /a + 10% 16.5 73.1 + 20% 15.4 61.7 Operating costs + 10% 15.1 51.2 + 20% 12.6 17.9 Occupancies - 10% 14.9 46.1 Tariffs - 20% 13.9 34.1 Hotel revenues /b - 10% 14.6 40.9 Best estimate without shadow exchange rate 12.5 17.5 Superstructure delayed by: 1 year 16.4 70.4 2 years 15.5 57.6 5 years 13.1 26.5 /a All investment costs except site infrastructure expected to be completed by June 1979. /b Equivalent to assuming that the service charge is part of the opportunity cost of labor or that about 15% of hotel revenues (and the corresponding operating costs) are not incremental to the economy. Employment Effect 3.30 In addition to the nearly four years of continuous employment for a large number of construction workers in infrastructure works, the construction of the various superstructure facilities is expected to generate over 10,000 manyears of employment. Another 3,800 new permanent jobs would be created once all the accommodation facilities built under the program are in full operation. Employment would also be generated in other tourist activities such as restaurants, shops, tour agencies, entertainment and recreational facilities and the production and distribution of handicrafts; incremental employment in these occupations is expected to amount to 3,000 jobs. Addi- tional jobs will be created indirectly in activities which supply goods and services to the tourism sector. Total permanent employment attributable to the program is thus expected to exceed 8,000 jobs.  - 33 - Budgetary Impact 3.31 When the incremental tourism traffic attracted by the facilities built under the project reaches its full potential, the Government will be collecting annually about US$1.0 million from the sale of tourist cards, from air departure taxes and from landing fees for cruise visitors. A further US$1.2 million of budgetary revenues will derive from the 5% bednight tax. There will also be budgetary revenues from duties on goods imported by tour- ism establishments and from income taxes on wages and salaries of tourism employees. After the period of tax holidays is over, the Government will also begin collecting taxes on hotel profits. When all tourism accommodation facilities are paying their full profits tax, budgetary revenues from this source are expected to amount to US$4.3 million. Total Government receipts once the project is in full operation are thus estimated to amount to US$7 million annually. Balance of Payments Effect 3.32 Incremental foreign exchange receipts from the proposed program of tourism development are projected at about US$65 million in 1985, rising to US$74 million by 1988 (see Table 14). This compares with estimated total receipts from tourism to the Dominican Republic of US$77 million in 1977. About US$21 million of foreign exchange payments, however, will have to be made annually in order to maintain and operate the tourism facilities built under the program. Thus, once these facilities are in full operation, the net foreign exchange inflow is expected to be US$53.7 million, or 72% of gross receipts. Table 14: BALANCE OF PAYMENTS IMPACT IN SELECTED YEARS (US$'000, 1978 prices) Net Outflows inflows Gross Operating Replacement & Net as % of Year inflows costs maintenance inflows gross 1981 21,183 4,878 1,156 15,149 72 1985 65,304 14,782 2,901 47,621 73 1988 74,323 16,662 3,955 53,706 72 Project Beneficiaries 3.33 The main beneficiaries from the tourism activity to be generated by the project will be the Government, the private sector enterprises investing in hotels and other tourist facilities and the local labor force. The Govern- ment will gain substantial revenues through taxation of tourists and tourist  - 34 - enterprises. Unskilled labor will benefit particularly because wages, bene- fits and overall earnings will be appreciably above their maximum earnings in the next best alternate employment opportunity in the low-wage economy of the area. Producers and distributors of handicrafts will also increase their earnings through higher productivity and larger tourist demand. All of these benefits are incremental and would not materialize without the project. Social Impact 3.34 The social impact of the proposed tourism investment program on the Puerto Plata region is expected to be largely favorable. The economic activity generated by the development of tourism in the area will touch the lives of the majority of the local population. Living standards will rise as employment opportunities in tourism enterprises are created and as self- employment in small tourism-related enterprises becomes widespread. Ensuring broad access to the benefits from tourism is of primary importance in mini- mizing the potentially adverse effects arising from a large influx of middle and high income visitors into a traditionally depressed and isolated area. The inclusion in the line of credit of funds especially earmarked for handi- crafts and other tourist services is expected to encourage the participation of local entrepreneurs in the tourism development of the area. 3.35 The increasing cruise visitor traffic of recent years has already brought the local population into gradual contact with foreign holiday travelers. This process has been useful both for introducing the people of the area to the gains from tourism development and for detecting some of the potential adverse effects of this type of encounter. The Puerto Plata community is aware of these problems. Its representatives will be working with a sociologist retained by INFRATUR (with funds from the first tourism loan) first to identify and then to implement appropriate solutions. IV. RECOMMENDATIONS 4.01 During negotiations the Government and the Central Bank agreed that: (a) the Central Bank would consult with the Bank in case incumbents in any of the following positions are to be replaced: heads of INFRATUR's two divisions and the head of the Project Analysis Unit (para. 2.22); (b) any modification of INFRATUR's lending policy statement would have to be approved by the Bank (para. 2.23); (c) the Government, the Central Bank and the Bank would review the adequacy of the interest rate structure in June 1981.  - 35 - If inflation rates should then exceed 12%, no further com- mitments of funds from the line of credit would be made unless the Bank were satisfied that the final borrowers would be charged positive interest rates (para. 2.27); and (d) if the interest rate ceiling were removed, the interest rate charged to the final borrowers would be equal to the one charged by mortgage banks on loans exceeding seven years for commercial construction (para. 2.27). 4.02 Conditions of effectiveness of the proposed loan are that: (a) the presidential decree enacting regulations for the tourism incentives law be issued (para. 2.01); and (b) the loan agreement with the private commercial bank be signed (para. 2.29). 4.03 Conditions for disbursing the relevant funds relating to the urban works and handicrafts center component are for INFRATUR to enter into agree- ments satisfactory to the Bank with INAPA, the Municipality and FDD (para. 2.28).  -36 - ANNEX I DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT List of Tables and Chart Table 1 - Development of Accommodation Capacity Table 2 - Sample Survey of Hotel Occupancies Table 3 - Sample Survey of Hotel Room Receipts Table 4 - Tourist Arrivals, 1968-77 Table 5 - Distribution of Foreign Arrivals by Means of Transportation, 1968-77 Table 6 - Foreign Arrivals by Major Nationality Table 7 - Seasonality of Foreign Tourist Arrivals by Air, 1972-77 Table 8 - Balance of Payments Summary Table 9 - INFRATUR: Hotel Loan Portfolio  DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT DEVELOPMENT OF ACCOMMODATION CAPACITY Santo Domingo hotels Beach hotels Other Total No. of % of % No. of % of % No. of % of iNo. of % Year Rooms capacity increase rooms capacity increase rooms capacity increase rooms increase 1969 622 55.8 - 119 10.7 - 373 33.5 - 1,114 - 1970 622 49.3 0.0 248 19.7 8.4 391 31.0 4.8 1,261 13.2 1971 673 51.3 8.2 248 18.9 0.0 391 29.8 0.0 1,312 4.0 1972 673 44.9 0.0 436 29.1 75.8 391 26.0 0.0 1,500 14.3 1973 842 46.8 25.1 482 26.8 10.6 476 26.4 21.7 1,800 20.0 1974 1,096 52.2 30.2 528 25.1 9.5 476 22.7 0.0 2,100 16.7 1975 1,613 60.2 47.2 554 20.7 4.9 512 19.1 7.6 2,679 27.6 1976 1,929 64.0 19.6 574 19.0 3.6 512 17.0 0.0 3,015 12.5 1977 2,283 63.9 18.4 779 21.8 35.7 512 14.3 0.0 3,574 18.5 Source: INFRATUR H H  - 38 - ANNEX I Table2 DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT SAMPLE SURVEY OF HOTEL OCCUPANCIES Occupancy rate (X) Hotel No. of rooms 1973 1976 1977 City Hotels El Embajador 310 66.6 47.7 40.4 Jaragua 212 53.0 56.0 48.0 Comercial 75 52.0 46.0 38.8 Cervantes 56 86.0 85.6 60.7 Lina 66 - 54.7 74.9 Hispaniola 164 - 60.0 52.6 Plaza Dominicana 320 - 41.o0la 55.0 Santo Domingo 220 - 56.5 69.5 TOTAL 1,423 Weighted average 62.2 54.2 53.0 Beach Hotels Romana 77 72.6 70.4 66.0 Casa de Campo 128 - 52.0 59.9 TOTAL 205 Weighted average 58.9 62.2 /a October through December Sources: INFRATUR and hotels  - 39 - ANNEX I Table 3 DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT SAMPLE SURVEY OF HOTEL ROOM RECEIPTS Average room receipts US$ Category 1975 1976 1977 City Hotels Hotel A Luxury 50.97 44.61 52.55 Hotel B First category 22.71 22.52 21.27 Hotel C Second category 16.88 18.34 18.08 Hotel D Second category 18.98 14.38 13.39 Beach Hotels Beach hotel Luxury - 44.61 50.93 Beach hotel First category 34.10 30.28 32.13 Source: Hotels  DOIIINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT TOURIST ARRIVALS, 1968-77 By air By sea Total Year Foreigners % change Dominican/a % change Total % change Number/b % change Nuwber % change 1968 57,000 8,300 65,300 3,200 68,500 1969 69,100 21.1 19,500 134.9 88,600 35.7 5,100 59.4 93,700 36.8 1970 63,000 (8.7) 22,200 13.8 85,200 (3.9) 4,500 (11.7) 89,700 (4.3) 1971 89,100 41.4 31,000 39.6 120,100 41.0 17,400 286.7 137,500 53.3 1972 113,100 26.9 48,200 55.5 161,300 34.3 22,000 26.4 183,300 33.3 1973 134,100 18.7 44,600 (8.5) 178,700 10.8 47,900 117.7 226,600 23.6 1974 175,200 30.6 58,800 31.8 234,000 30.9 74,300 55.1 308,300 36.0 1975 177,400 1.2 44,400 (32.4) 221,800 (5.2) 55,700 (25.1) 277,500 (10.0) 1976 216,600 22.1 43,200 (2.7) 259,800 17.1 101,400 82.0 361,200 30.2 1977 262,400 21.1 47,100 8.9 309,500 19.1 133,400 31.6 442,900 22.6 /a Residing abroad, mainly in the US /b Mostly arrivals of cruise ship passengers Source: INFRATUR CD>4  - 41- ANNEX I Table 5 DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT DISTRIBUTION OF FOREIGN ARRIVALS BY MEANS OF TRANSPORTATION, 1968-77 By air By sea Total Year Number % Number % turmber 1968 57,000 94.7 3,200 5.3 60,200 1969 69,100 93.1 5,100 6.9 74,200 1970 63,000 93.3 4,600 6.7 67,600 1971 89,100 83.7 17,400 16.3 106,500 1972 113,100 83.7 22,000 16.3 135,100 1973 134,100 73.7 47,900 26.3 182,000 1974 175,200 70.2 74,300 29.8 249,500 1975 177,400 76.1 55,700 23.9 233,100 1976 216,600 68.1 101,400 31.9 318,000 1977 262,400 66.3 133,400 33.7 395,800 Source: INFRATUR  DOMINICAN REPUBLIC SECOND PUERTO PLATA TOTTRISM PROJECT FOREIGN ARRIVALS BY MAJOR NATIONALITY - Continental b/ Total a/ United States Puerto Rico- United States Canada Venezuela Haiti Europe Other- TOTAL 1968 19,700 28,600 48,300 n.a. 1,100 200 n.a. 10,600 60,200 1969 22,600 34,300 56,900 n.a. 2,300 300 n.a. 14,700 74,200 1970 28,100 26,600 54,700 1,000 1,100 300 n.a. 10,500 67,600 1971 52,100 37,400 89,500 1,400 1,600 400 n.a. 13,600 106,500 1972 65,300 50,100 115,400 1,600 3,500 500 8,600 5,500 135,100 1 1973 94,200 62,400 156,600 3,100 3,300 600 10,300 8,100 182,000 1974 - - 211,700 3,600 5,900 1,200 13,800 13,300 249,500 1975 - - 194,800 3,100 4,400 1,000 15,700 14,100 233,100 1976 - - 265,300 6,600 4,300 4,600 21,200 16,000 318,000 1977 - - 327,700 11,500 5,900 7,000 24,000 19,700 395,800 /a Most of the other visitors are from South American countries. /b Up to 1974, Puerto Ricans were tabulated separately. Since 1974, they are classified together with other US citizens. It is estimated that in 1977, about one-third of US arrivals were Puerto Ricans. Source: INFRATUR  - 43- ANNEX I Table / DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT SEASONALITY OF FOREIGN TOURIST ARRIVALS BY AIR, 1972-77 Month 1972 1973 1974 1975 1976 1977 January 7.3 7.0 7.4 7.4 7.1 8.8 February 8.3 5.7 9.5 7.7 8.2 9.2 March 7.7 6.2 7.8 8.1 7.2 8.0 April 6.5 7.2 7.4 7.0 7.8 7.3 May 6.9 7.4 5.5 8.1 6.7 6.3 June 8.3 8.4 8.2 8.8 8.4 7.7 July 12.3 13.3 12.3 12.4 12.8 11.7 August 9.3 10.9 9.7 8.8 8.2 8.3 September 6.8 6.3 6.4 5.9 6.9 6.7 October 7.5 7.5 7.5 7.2 7.6 7.1 November 7.2 8.1 7.4 7.7 7.7 7.7 December 11.9 12.0 10.9 10.9 11.4 10.9 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Source: INFRATUR  - 44 - ANNEX I Table8 DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT BALANCE OF PAYMENTS SUMMARY (US$ million) Annual growth rate (%) 1972 1973 1974 1975 1976 1977 1972-77 A. Total merchandise exports 347.6 442.1 636.7 893.8 716.6 780.5 17.6 B. Tourism receipts 32.9 37.9 53.5 55.4 64.3 77.0 18.5 C. Tourism share in % (B:A) 9.5 8.6 8.4 6.2 9.0 9.9 Source: Central Bank of the Dominican Republic and World Bank estimates  DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PPOJECT INFRATUR; HOTEL LOAN PORTFOLIO (RD$ million) as of June 30, 1978 Amount Terms to intermediaries Terms to hotels Purpose approved Interest Maturity Grace Interest Maturi_y Grace Through Corporation Financiera Asociada: Hoteles de la Costa Renovation of Hispaniola 2.4 5% 25 5 9% 25 5 Corporacion de Hoteles 1. Santo Domingo Hotel 4.2) 5% 25 5 9% 25 5 2. Santo Domingo ) Hotel 1.1) 9% 25 5 11% 25 5 7.7 4- Through Banco de Reservas: Promociones y Proyectos 1. Plaza Dominicana 9.5) 5% 30 10 9% 30 10 2. Plaza Dominicana 2.9) 5% 30 10 9% 30 10 3. Plaza Dominicana 4.4) 5% 30 10 9% 30 10 Luis Jimenez Parador Costambar 0.8 Hoteles Nacionales 1. ,Sheraton 6.1) 5% 25 5 9% 25 5 2. Sheraton 2.3) 5% 25 5 11% 25 5 3. Sheraton 1.5) 9% 25 5 11% 25 5 Operadora Hotelera Bacha 0,5 9% 25 5 11% 25 5 Bacha 28.0 TOTAL 35,7 Source: INFRATUR  - 46 - ANNEX II DOMINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT List of Tables Table 1 - Summary of Estimated Project Costs Table 2 - Contingency Allowances Table 3 - Investment Costs Per Room - Hotel Table 4 - Investment Costs Per Room - Aparthotels Table 5 - Project Implementation Schedule Table 6 - Estimated Schedule of Disbursements Table 7 - Key Performance Indicators  DO)MINICAN REPUBLIC SECOND PUERTO PLATA TOURISM PROJECT SUMMARY OF ESTIMATED PROJECT COSTS (in 1978 RD$/uS'O000) Costs in December 1918 prices Total cost in General buildings & Furniture Physical Profeb"ional Technical Line of RD$'000 an.d No. Project compouient development civil works & fixtures Equipment facilities services assistance credit US$OOO A. Line of credit: - (68,000) (68.000) Tourist accomaodations - - - 63,400 63,400 Tourist services - - - - - - 4,600 4,600 B Urban works - (986.0) - (123.0) (1,109.0) (133.1) - - (1,242.1) Pier tront area - 320.0 - 79.0 399.0 47.9 - - 446.9 Town square - 108.0 - 8.0 116.0 13.9 - - 129.9 Sewerage - 478.0 - 36.0 514.0 61.7 - - 575.7 Stormwater drainage - 80.0 - - 80.0 9.6 - - 89.6 C. Artisan center (317.0) (80.0) (38.0) (126.0) (561.0) (13.7) - - (594.7) D. Technical assistance: - - - (580.0) - (580.0) Sectoral planning - - - - 270.0 - 270.0 S.bproject evaluation - 100.0 - 100.0 Artisan training - - - - _ - 210.0 - 210.0 TOTAL BASE ClST 317.0 1,066.0 38.0 249.0 1,670.0 166.8 580.0 68,000 70,416.8 Coetingencie.: Physical increase (M.) 47.6 130.6 5.7 35.2 219.1 25.0 58.0 - 302.1 Price increase (7.) 4.8 147.2 4.2 23.9 180.1 29.4 82.6 - 292.1 Total contingencies (7.) 52.4 277.8 9.9 59.1 399.2 54.4 140.6 _ 594.2 1OTAI. COS'i' 369.4 1,343.8 47.9 308.1 2,069.2 221.2 720.6 68,000 71,011.0 TOTAL FOREIGN EXCIIANCE COMPONENT: PerceLtage 197. 397, 75% 927. 447- 687, 47*/ 477 Total 65.e 524.1 35.9 282.3 898.2 - 492.1 31,600 33,000.0  DOHINICAU REPUELII SEC(IlD _tUEIl11 P1A rA lOURISM f'OJECET CONTINGENCY ALLOWANCES (i,E 1918 EDS/US$'000) Ge.eral d-vrlor.eo.t bo.,io,.o/c,Ytl kor. Pollore D flxr.. E-dp- et __'Pro_. leicro TocE. I-E-noe Li.n of credit GRAND TOTAL Local Foreign Tot-l .ocal Foreign ToLal Locol Fo-olg, Total Loc-l Fore.ig To.zl Local ForeigK Totol Local For-el8 Total Local Foretgn Total Loel Fore1gn Tot.l lTOTAL PROJECT CcIS'f EXCLUDING CONTINGENCIES 264.0 53.0 317.0 646.0 4211.0 1,066.0 9.5 28.5 38.0 19.6 229.4 249.0 166.8 - 166.8 183.2 396.8 580.0 36,400 31,600 68.000 37,689.1 32,727.7 70,416.8 Prl-t.ge ot t10.1 83.3 16.7 100.0 60.6 39.4 100.0 2).O 75.0 100.0 7.9 92.1 100.0 100.0 L 100.0 31.6 68.4 100.0 53.5 46.5 100.0 53.5 46.5 1UO.0 C0or1iogenc1cs Allo.ance otr proba-l. price InCtoaae: I'occa,tac 6E6.7 33.3 100.0 62.6 37.4 100.0 26.2 84.5 100.0 10O.0 90.0 100.0 100.0 - 100.0 32.7 67.3 100.0 _ _ _ 53.2 46.8 100.0 A-toonr 3.2 1.6 4.8 92.2 55.0 147.2 1.1 3.1 4.2 2.4 21.5 23.9 29.4 - 29.4 27.0 55.6 82.6 _ 15 5.3 136.8 292.1 All -.-e ler.- sslorrYea CCC, otoro: Pter nl.gr 76.0 23.2 100.0 61.4 37.6 100.0 24.b 75.4 100.0 10.8 89.2 100.0 100.0 - 10 0 31.6 68.4 100.0 _ _ _5.1 44.9 100.0 A.o-ao 36.6 11.0 47.6 81.5 49.1 130.6 1.4 4.3 5.7 3.8 31.4 35.2 25.0 - 25.0 18.3 39.7 58.0 - _ _ 166.6 135.5 302.1 Total cootlo8eflcy aIhMancer.: Porcenroge 76.0 24,.0 100.0 62.5 37.5 100.0 25.3 74.7 100.0 10.5 89.5 100.0 100.0 - 100.0 32.2 67.8 100.0 - - _ 52.5 47.5 100.0 0 e0001 39.8 12.6 52.4 173.7 104.1 277.8 2.5 7.4 9.9 6.2 52.9 59.1 54.4 54.4 45.3 95.3 140.6 3 _ _ 321.9 772.3 594.2 Peccenrago 0f to,al 12.4 4.6 8.8 54.0 18 3 46.8 0.7 2.7 1.7 1.9 19.4 9.9 16.9 - 9.2 14.1 35.0 23.6 _ _ _ 100.0 100.0 100.0 TOM3A. PROJEC:I ItIT INCLEIIING C.NI'IINCICIES 303.8 65.6 369.4 819.7 524.1 1,343.8 12.0 35.9 47.9 25.8 282.3 308.1 212.2 - 212.2 228.5 492.1 720.6 36,400 31,600 68.000 38,011.0 33,000.0 71,011.0 I'rrcoi, tCgc 01 101l 82.2 1/.8 100.0 61.0 39.0 100.0 25.1 74.9 100.0 8.4 91.6 100.0 1 100. 100.0 31.7 68.3 100.0 53.5 46.5 100.0 53.5 46.5 100.0 _.______ ___ __ _ __ _ _ _ __ . .-~~~  DOMINICAN REPUBLIC SFWN0N PUE'1to PIAtA ft)U0ISM Pl.JECT INViS'IMENT COSTS PER ROOM - IIOTEI (in 1918 Rb4/1US$) - j~yp~ A type B __________ype- /c loca pForeign Total Local ForeigEi Total Local Foreign Total ICe works 1,(00 500 1,500 700 300 1,000 900 350 1.250 .1 strileto,res 7,770 8,300 16,000 7.500 5,500 13,000 7,000 4,000 10,000 CLISL of eq.,lpiPeelt 600 5,400 6,000 400 3,600 4,000 400 1,600 2,500 'st oL furnishings io02 5,900 1,000 4,000 _, 990 900 2_100 3500 SItdotal 10,400 20,l0t 30,500 9,600 13,400 23,000 9,200 8,050 17,250 Prof->im,rsl servi,es 2_100 1,400 _3500 i-200 1 300 _,S W800 950 1_750 iotal -ost ot constructlon 12,500 21,500 34,000 10,800 14,700 25,500 10,000 9,000 19,000 (37/.) (63%) (100Q) (43%) (57%) (100%) (53%) (47%) (100%) Prl[q,olinig e.penses 950 650 1,600 700 500 1,200 45O 300 750 Wo-rking capital and inventory bO( 600 1,200 50(1 5100 1 000 300 250 50 Shiobtal 1,550 1,250 2,800 1,200 1,000 2,200 750 550 1,300 Land ,sts 5_5(0 -