Announcement of World Bank Lends Eighty Million US Dollars for Emergency Reconstruction in Ecuador on May 6, 1987

" fOR IMMEDIATE RELEASE World Bank 181 8 H Street. N.W., Washington, D.C. 20433, U.S.A.• Telephone: (202) 477-12 34 BANK NEWS RELEASE NO. 87/59 Contact: Ciro Gamarra (202) 477-5320 WORLD BANK LENDS $80 MILLION FOR EMERGENCY RECONSTRUCTION IN ECUADOR WASHINGTON, May 6 -- Two months after severe earthquakes hit northeastern Ecuador, the World Bank approved an $80 million loan for emergency reconstruction. The loan will help finance the reconstruction of the Trans-Ecuadorian pipeline urgently required to restore oil production and exports. On March 5 and 6, 1987, two major earthquakes, accompanied by destructive landslides, hit a remote oil-producing province of Ecuador. The earthquakes resulted in a death toll of at least 1,000, left about 16,000 persons homeless, and destroyed rural infrastructure, the major economic cost to Ecuador is undoubtedly the interruption of oil production and exports which resulted from damage to major sections of the Trans-Ecuadorian oil and liquified petroleum gas pipelines. The petroleum sector accounts for 15 percent of gross domestic product and about half of all exports in 1986. Following a direct appeal to World Bank's President Barber Conable by the President of Ecuador, Mr. Leon Febres Cordero, a World Bank assessment mission, which included experts in pipeline construction, geology, and the environment, arrived Ecuador five days after the earthquake. A follow-up group visited the country in April to determine the necessity and scope of reallocation of resources from other loans in the housing sector and to assist in development of a plan of assistance to displaced persons. Soon after the earthquake, informal meetings with major official organizations active in Ecuador were held at the World Bank's initiative to coordinate reconstruction assistance. It was confirmed at that time that the Inter-American Development Bank (IDB) would take the lead in road reconstruction efforts and the World Bank in pipeline reconstruction work. The cost of restoring oil exports, through rebuilding the damaged pipeline system, construction of a connection to the Trans-Andean pipeline through Colombia (with Mexican assistance), and related works are estimated at $117 million. Road and bridge infrastructure damage is estimated at $20 million. The main cost to the economy, however, are the forgone oil revenues, which are valued at about $600 million, and the multiplier effect of reduced exports, decreased public expenditure and restricted domestic oil consumption. NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - Thus, a conservative estimate of the overall damage is about $1 billion, equivalent to about 8 percent of GOP. This is roughly equivalent to the loss of exports revenues associated with the 1986 oil price decline. The cumulative impact of these adverse phenomena is creating an extremely difficult economic situation for Ecuador. In addition to restoring oil production and export flows, the project will help minimize the environmental impact of the disaster and related construction programs; enhance the national oil company's (CEPE) capacity to deal with the crisis and its aftermath; and enhance the government's readiness to deal with future national emergencies. The Government of Ecuador will channel $7?.7 million of the loan resources to CEPE as an equity contribution to help strengthen its finances, and will use $300,000 for the execution of an emergency preparedness study. The project will provide equipment for the reconstruction of the Trans-Ecuadorian crude oil and liquified gas pipelines, including repair and reconditioning of related pumping and loading installations, and clean-up oil spills caused by the earthquake. It will also include rehabilitation and maintenance works to avoid long-term damage to the oil fields due to the interruption of production, and oil field development to boost oil extraction capacity to a level of about 320,000 barrels per day by the end of 1987 to help recoup of lost production. The government's reconstruction program also includes plans to resettle refugees, minimize the effects of the events on indigenous peoples, rebuild the housing stock and reconstruct basic services. Substantial bilateral and private assistance has been mobilized in these areas. In addition to the new loan, the World Bank is preparing to reformulate an ongoing national low-income housing project to assist in housing reconstruction. About $4.5 million from the $35.7 million loan, which was approved in May 1982, would be used for this purpose. Attention is also being given to the restoration of communications through reconstruction of the road that parallels the pipeline, and the construction of additional road links to the affected communities. Present plans to deal with the direct environmental impact of crude oil spilled when the pipeline was destroyed provide for cleanup and subsequent monitoring of water quality in the adjacent river systems. In addition, an environmental impact study of the earthquake, including a review of its impact on indigenous peoples, is being carried out by an independent national foundation.  - 3 - The project cost is estimated at $101.9 million. The Corporacion Andina de Fomento (CAF) will provide $11.7 million in cofinancing. The remaining $10.2 million will be provided by the Government of Ecuador, through CEPE. The bulk of the World Bank loan is expected to be disbursed in the fourth quarter of fiscal 1987 and the first quarter of fiscal 1988. The $80 million World Bank loan is for 17 years, including four years of grace, with a variable interest rate, currently 7.92 percent, linked to the cost of the Bank's borrowings. I~ also carries an annual commitment charge of 0.75 percent on the undisbursed balances. - 0 -