Honduras - Puerto Cortes Port Project

R E S T R I C T E D Report No. TO-45Zb This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE PUERTO CORTES PROJECT HONDURAS July 11, 1966 Projects Department  HONDURAS APPRAISAL OF PUERTO CORTES PROJECT TABLE OF CONTENTS Page No. SUMiMARY I. INTRODUCTION II. GENERAL BACKGROUND 1 A. Ports of Honduras and Neighboring Countries 1 B. Inland Transportation 2 C. Administration of the Ports 2 D. Future Port Development 3 III. PUERTO CORTES 3 A. General 3 B. Existing Facilities 3 C. Former Management and Operation of Existing Facilities 5 D. Efficiency of Present Operations and Management 6 E. Past and Present Traffic 7 F. Past and Present Finances 8 IV. FUTURE TRAFFIC 10 V. ADDITIONAL FACILITIES REQUIRED 12 VI. THE PROJECT 12 A. Description of Project 12 B. Estimated Cost 13 C. Engineering Design, Construction and Procurement 13 D. Phasing of Construction 14 VII. ECONOMIC JUSTIFICATION 14 VIII. FUTURE ORGANIZATION AND MANAGE&ENT 15 IX. FUTURE FINANCES 16 X. CONCLUSIONS AIND RECOMMENDATIONS 18 This appraisal report is based on the findings of Bank missions to Honduras in April/May 1963, July 1964, and October 1965 consisting of Messrs. A. H. Clark and J. W. Lowdon and on-the reports of the consulting firms of TAiS Ingenieria S. A. and J. C. Buckley, Inc. Mr. M. S. Parthasarathi also participated in the preparation of the report.  -2- APPENDICES 1. Provenance and Ownership of Existing Facilities 2. Ship Arrivals, Time in Port, and Delay 3. Ratio of Traffic Handled at Puerto Cortes to That of the Whole Country 4. Statement of Traffic, 1955-56 and 1960 to 1964 5. Statement of Cash Revenues and Expenses from Port Operations by the Customs Administration, 1958 to 1964 6. Estimates of Traffic, 1965 through 1971 and for 1980 7. Estimate of Cost 8. Assumptions as to Future Finances 9. Statement Showing Estimated Revenues, Expenses, and Net Income, 1965 to 1971 Inclusive 10. Statement of Estimated Cash Flow, 1966-1971 Inclusive 11. Pro Forma Balance Sheets as at December 31, 1966 to 1971 MAPS 1. Port Service Area 2. Proposed Ndew Facilities  HONDURAS APPRAISAL OF THE PUERTO CORTES PROJECT S UMMARY i. The Bank has been asked by the Government of Honduras to help finance improvements and extensions at the port of Puerto Cortes, speci- ficaIly the construction of two additional berths, together with a transit shed, warehouse and auxiliary works, and the provision of cargo-handling equipment; funds have also been requested to carry out studies in connection with other Hooduran seaports. ii. Puerto Cortes is the principal port of Honduras. The existing facilities have been inadequate for some years, resulting in serious con- gestion in the port. Traffic is expected to increase steadily and the project is necessary to handle the present traffic and the increase expected in the near future. iii. The estimated cost of the project is U.S. $7.2 million equivalent, including U.S. $4.8 million equivalent of foreign exchange. The loan has been requested to meet the foreign exchange costs. iv. The port has hitherto been managed and operated by the Customs Department, an unsuitable arrangement. The Government recently set up an autonomous undertaking to manage and operate the port, the Empresa Nacional Portuaria (ENP). The loan would be to the ENP. v. The project is technically and economically sound. The cost estimates are realistic. Procurement procedures proposed are acceptable to the Bank. Consulting engineers and operations consultants acceptable to the Bank will be employed. vi. The ENP is expected to have effective management and, to be financially sound. It should be capable of providing the local currency required for the project from its own surplus revenues. vii. The project is suitable for a Bank loan of U.S. $4.8 million equiv- alent to be made to the ENP. A term of 25 years, including a five-year period of grace, would be appropriate.  HONDURAS APPRAISAL OF THE PUERTO CORTES PROJECT I. INTRODUCTION 1. The Honduran Government has asked the Bank for a loan to meet the foreign currency costs of improvements and extensions at the port of Puerto Cortes, amounting to approximately US$4.8 million equivalent out of a total of US$7.2 million equivalent. The Government has recently set up an autonomous port undertaking which would be the Borrower. 2. The project consists of the construction of two deep-water marginal cargo berths, a transit shed and a warehouse, improvements to existing fa- cilities, the acquisition of cargo-handling equipment, various minor items, and the carrying out of studies in connection with development at other Honduran seaports. 3. The following appraisal report is based on reports by two consult- ing firms, TAMS Ingenieria S.A., Panama, and J. C. Buckley, Inc., New York, and on the findings of Bank missions consisting of Messrs. A. H. Clark and J. W. Lowdon which visited Honduras in April/May 1963, July 1964 and October 1965. The TAMS report deals mainly with the engineering and economic aspects of the project, the Buckley report with those of management and finance. The reports were financed by the Bank as a measure of technical assistance. II. GENERAL BACKGROUND A. Ports of Honduras and Neighboring Countries The Ports of Honduras (Map 1) 4. The Republic of Honduras borders on Guatemala, El Salvador and Nicaragua. It has a 650 km. coastline on the Caribbean Sea and a 65 km. coastline on the Pacific Ocean. 5. There are four deep-water ports on the Caribbean coast. Puerto Cortes, near to the Guatemalan border, is the country's major banana export center and leading port for other cargoes. Tela, east of Puerto Cortes, was developed by the United Fruit Company for banana exports; at present it is used mainly for general cargo imports, mostly for the Company's own require- ments, but is being rehabilitated for banana traffic. La Ceiba, still further east, is used mainly for banana exports by the Standard Fruit Company. At Tela and La Ceiba ships are berthed at unprotected piers unuseable during storms. Puerto Castilla, at the mid-point of the Caribbean coast, is at present virtually unused. 6. Amapala, on the island of Tigre, is the only port on the Pacific coast. Here cargoes are loaded and discharged by lighters, and transported, also by lighters, 30 km. to and from San Lorenzo, on the mainland.  Principal Ports in Neighboring Countries 7. On the Caribbean coast to the north lie Puerto Barrios/Matias de Galvez (Guatemala), where there are deep-water facilities, and Belice (British Honduras), a lighterage port. To the south, in Nicaragua, the only port on the Caribbean is El Bluff, a lighterage port with few facili- ties. On the Pacific coast are Acajutla and La Union (El Salvador) and Corinto (Nicaragua) which have deep-water facilities, and La Libertad (El Salva4or) a lighterage port. B. Inland Transportation 8. Inland transportation in Honduras is comparatively undeveloped. Three relatively short railway systems exist. The National Railroad and the Tela Railroad, 31-6tI gauge, connect Puerto Cortes with the Ulua Valley and Tela, and there is a 3I-O" gauge system, owned by the Standard Fruit Company, serving the area between Tela and Balfate, on the Caribbean coast. 9. The existing highway network in Honduras is insufficient to serve adequately the present needs of commerce and the Government has extensive improvements in hand and contemplated. Paved highways Puerto Cortes-San Pedro Sula and Tegucigalpa-San Lorenzo, part of the Bank Loan 195- HO project, were completed in 1962. Extension of the Western Highway, to link San Pedro Sula with the El Salvador highway system at Nueva Oco- tepeque, has been completed and improvement of sections of the Western Highway are being carried out, all under Credit 1-HO. The Bank (Loan No. 400-HO) and IDA (Credit No. 71-HO) are assisting in the financing of the new arterial north road, linking Tegucigalpa and San Pedro Sula, which is expected to be completed in 1970. The upgrading of the surface and the pavement of parts of the Western Highway is also expected to be completed by 1970 and the construction of a highway between San Pedro Sula and Ceiba is planned. Total expenditure on this program during the period 1966- 1970 is envisaged as being of the order of US$55 million. The Puerto Cortes project can be regarded as complementary to this large development. C. Administration of the Ports 10. In the past, port administration has been the responsibility of the Directorate General of Customs and Indirect Taxes in the Ministry of Economy and Finance, the operation of publicly-owned facilities, includ- ing cargo handling,being the responsibility of the Customs Administrator in each port. Minor functions, e.g. the clearing of vessels, security and immigration procedures are performed by local army personnel. At certain ports, facilities are either owned or leased by private interests, which operate the facilities concerned. 11. Under a lawY passed October 14, 1965, which caine into effect on December 1, 1965, and -ith the approval of the Bank, the Government has now created an autonomous port undertaling, the Empresa ;Jacional Portuaria (ENP), to be responsible for all seaports in the country. The law is satisfactory to the Bank. Details of  - 3 - ENP's organization and management are given in Chapter VIII. ENP will take over Puerto Cortes in the first place and extend its activities to other ports gradually. The Government and ENP have undertaken that ENP will not take over any additional port until the physical facilities included in the project have been completed without the agreement of the Bank. D. Future Port Development 12. In 1958 TAMS prepared a report entitled "Development Plan of Ports of Honduras" for the Government. This recommended improvements at Puerto Cortes on the lines of the present project, minor works at Tela, La Ceiba and Puerto Castilla, and a substantial expenditure on a new Pacific coast port. The Government agreed with these proposals in principle and proposes to commission a further study of improved port facilities on the Pacific coast and of possible future port development on the Atlantic coast. It regards the Puerto Cortes project as of highest priority and intends to proceed with this project first. III. PUERTO CORTES A. General Location of Port Facilities (Map 2) 13. The existing port stands on the north side of the Bay of Omoa. The bay affords ample anchorage for the shipping using the port, deep water extends close inshore at the site of the facilities and, as the site is well protected from the prevailing northeast winds, the use of the port is unaffected by weather. Port Service Area (Map 1) 14. The area expected to constitute the port service area in 1970 is shown in red on Map 1. The area has been plotted on the basis that by 1970 major port improvements will have been made on the Pacific coast. Not all of the water-bornetraffic originating or terminating in the area will pass throuf Puerto Cortes. In some parts of the area, certain types of goods will be routed via Puerto Cortes or the Pacific coast according to their origin or destination. 15. The Puerto Cortes service area thus delineated contains approxi- mately 1.0 million people, or 55% of the total population of Honduras. B. Existing Facilities (Map 2) 16. The principal existing facilities comprise the following: Main Facilities (a) A 960-foot long marginal wharf with reinforced concrete  - 4 - piling, detached from the shore over part of its length, known as the "Banana Wharf." This wharf was built in 1919 and has since suffered large and uneven settlements of up to 6 feet so that over a considerable length the deck is now at water level. Widespread cracking has taken place with consequent corrosion of the reinforcement. After a detailed examination, TAMS's opinion was that "Continued loadings at the present level will probably result in settlement of three to eighteen centimeters over the next ten years. Although small in comparison with past record, this settlement would nevertheless result in further weaken- ing of the structure and possibly the collapse of a key part so that the wharf would be rendered unuseable. In view of the fundamental structural weakness of the wharf, repairs are not considered practicable." (b) A reinforced concrete wharf, 640 feet long, with a 34,500 square foot transit shed, known as the "Government Wharf." This modern facility was built in 1955,and although in need of minor superficial repairs is structurally sound. (c) Warehouse accommodation comprising three warehouses with a total floor area of 43,000 square feet, two of which are in very bad condition. (d) Various railway tracks and paved areas; the layout of the former is unsuitable to present-day requirements and the latter are insufficient and in bad repair. Petroleum Terminal (e) A terminal for the discharge of petroleum, situated west of the above facilities. The terminal, constructed in 1959, is in excellent condition. Navigational Aids, etc. (f) Navigational aids comprise an occulting harbor entrance light with a radio beacon mounted on the same structure, and a flashing beacon near the Banana Wharf. Long range communication with shipping is made through Tropical Radio, Inc., a subsidiary of the United Fruit Company. There is no short range radio communication with ships in the harbor. Ownership of Existing Facilities 170 The Banana Wharf and the Government Wharf are owned by the Govern- ment. Both wharves were built by the United Fruit Company on behalf of the Government which has repaid in full the cost of the Government Wharf but not that of the Banana Wharf. The petroleum terminal is owned by Texaco  - 5 - Caribbean, Inc. The navigational aids are owned by the Tela Railroad Com- pany, a subsidiary of the United Fruit Company. Information regarding these matters is given in paragraph 40 and Appendix 1. C. Former Management and Operation of Existing Facilities General 18. The Board of Directors of ENP has been appointed and will take over port operations in August 1966. Until then, responsibility for the administration of the port and for the operation of the government-owned facilities is being borne by the Customs Administrator at Puerto Cortes, who combines this function with his fiscal duties in the Puerto Cortes Customs area. The Administrator's general cargo handling functions at the Banana Wlharf are undertaken by the United Fruit Company. 19. The Administration has had no separate financial identity, its budget being part of the Customs Department budget. The Administrator's powers of expenditure have been limited to L. 50, and while he has had authority to engage labor to meet peak demands, all labor has been paid from Tegucigalpa, payments often being in arrears. Operations Stevedoring 20. All stevedoring on board ship is carried out by labor employed by the shipowner or his agent. Some cargo is palletized on ship. Cargo Handling 21. (a) Banana W4harf. The western end of the Banana Wharf is used mainly for loading bananas into United Fruit Compsny ships, using that Company's elevators and its own labor, although general cargo ships are accommodated when circumstwnrices permit. The eastern end is used solely for general cargo. General cargo is loaded or discharged by ship's gear and is handled manually on the wharf. All cargo is brought to and from the wharf by rail, since there are no effective road approaches. There being no transit shed, imports requiring examination are taken by rail to one of the warehouses and all exports are loaded directly from rail vehicle to ship. All labor is employed by the United Fruit Company. There is no palletization on shore. Petroleum imported by the Tela Railroad in United Fruit Company tankers is also discharged at the Banana W4harf. (b) Government Wharf and Transit Shed. The Government Wharf is used for loading and discharging general cargo, including lumber, grain and minerals. Loading and discharge is by  shipts gear. The position regarding palletization is as des- cribed in the case of the Banana Wharf. Exports, brought almost entirely by rail, are loaded directly from rail vehicle to ship. General cargo imports are man-handled through the shed and loaded into rail or road vehicles. Arrangements for road vehicle loading are very inadequate because of the lack of good access paving, etc. The shed is now very congested. (c) Warehouses. All cargo handling in the warehouses is manual and the warehouses are at present very congested. (d) Petroleum Terminal. This is operated entirely by Texaco. Railway Operations 22. Railway operation in the port area is nominally in the hands of the National Railroad,but in practice the Tela Railroad use their own loco- motives for shunting at the Banana Wharf. Shipping Movements 23. Berths are allocated by the Administration in collaboration with the United Fruit Company. The port is subject to frequent and heavy con- gestion of shipping. In 1964 ships waited 5,361 hours for berth assignment, the delay amounting to 15% of their time in port (Appendix 2). D. Efficiency of Present Operations and Management General 24. All general cargo handling operations are slow and inefficient and congestion is very serious. These conditions are due to:- (a) an insufficient number of berths; (b) lack of adequate transit sheds, insufficient open transit stacking areas, lack of warehouses and of paved access for road vehicles and for mechanical handling equipment; (c) an almost complete absence of mechanical handling equipment; (d) inefficient cargo handling methods. Some improvement could be obtained by mechanization and improved handling methods but even this would be restricted by the lack of adequate paving for the equipment. Labor 25. Notwithstanding the conditions described above the labor force  - 7 - is capable and willing and manual output is good. Labor disputes have been few. Customs Administration Operations 26. The senior men of the Administration have been able and have functioned efficiently to the extent permitted by the administrative system and by the facilities at their disposal. However, they and the lower level supervisors have lacked knowledge of modem port operating methods. United Fruit Company Operations 27. At the Banana W4harf bananas are loaded with great efficiency and dispatch. General cargo is less efficiently dealt with, mainly because of the unsuitability of the facilities. Maintenance 28. Maintenance of the Government Wharf, shed, and warehouses has been the responsibility of the Administration but, because insufficient funds were allocated and the Administratorts powers of expenditure were limited, actual maintenance has been negligible. PIaintenance of the Banana Wharf is provided for in an agreement with the Tela Railroad Company (Appendix 1), under which the sum of $7,000 (L.14,000) per annum was to be paid by the Government to the Tela Railroad Company for this purpose. In fact, no such payments have been made and very little maintenance has been undertaken. How- ever, rail tracks in the port area are in general adequately maintained. E. Past and Present Traffic 29. For many years the port of Puerto Cortes has been the most impor- tant foreign trade gateway of the country. Appendix 3 shows that from 1957 through 1964 the port has handled an average of about 550,000 tons each year or about 50% of the total foreign trade. By contrast the other seaports mentioned in Paragraphs 5 and 6 handled the following total tonnages in 1964:- Tela 100,353 La Ceiba 209,306 (of which 75% bananas) Puerto Castillo 397 Amapala 102,766 30. Total traffic handled at Puerto Cortes during the years 1955/56 to 1964 was as follows in thousand tons:- Fiscal year Calendar years 1955/56 1957 1958 1959 1960 1961 1962 1963 1964 Imports 126 168 161 151 154 183 193 216 213 Exports 335 367 398 40 371 410 319 339 358 Total 461 535 559 551 525 593 512 555 571  - 8 - 31. Substantial categories of traffic are accommodated at special facilities and do not affect the berthing space and cargo facilities with which this report is concerned. These categories are:- (a) Banana Exports, which are loaded into fruit ships, which have berthing priority, at the western end of the Banana lWharf where special loading conveyors are situated. (b) Bulk Petroleum Products Imports, which are discharged by pipeline either at the separate Texaco Wharf or at the Banana Wharf, each handling about 50p of the total. In the past banana cartons were imported in the fruit ships and offloaded at the banana loading end of the Banana WZlharf. However, early in 1965 this traffic ceased at Puerto Cortes (see paragraph 43). 32. This report is mainly concerned with the berthing space and facili- ties for the remaining cargo, described in this report as "general cargo" which includes a substantial tonnage of lumber and some wheat and minerals; wheat is handled by portable pneumatic equipment, but minerals traffic is not yet sufficient to justify bulk handling. Appendix 4 is an analysis of traffic tonnage at Puerto Cortes during fiscal year 1955/56 and calendar years 1960 to 1964. These tonnages may be summarized as follows:- ('000 tons) Fiscal year ----------Calendar years ------- 1955/57 1960 1961 1962 1963 1964 Lumber 91 123 92 64 72 82 Other general cargo 75 83 97 113 136 181 Total general cargo 166 206 189 177 208 263 Cargo using special facilities 295 319 404 335 347 308 Total cargo 461 525 593 512 555 571 33. Although the export of lumber fell sharply in 1961 and 1962, due to the loss of Cuban markets and import restrictions in Venezuela, it increased appreciably in 1963 and 1964, and other general cargo traffic has increased steadily and at a substantial rate. F. Past and Present Finances 34. In the past, seaports in HIonduras were operated by the Directo- rate General of Customs and Indirect Taxes, which is a division of the Ministry of Economy and ifinance. There was no separate port adminis- tration or accounting system, and port revenues and expenditures have been  - 9 - lumped with and form part of the general budget of the country. Revenues were paid directly to the general fund together with customs duties. Expenditures, other than for minor items, were met from government funds. 35. Revenue and expense accounts for the port operations have been constructed. from a variety of sources for the years 1958 through 1961. The Bank missions have obtained figures for 1962, 1963 and 1964. All these figures are on a cash basis and do not make allowance for accounts receivable and payable; in particular, they do not take account of financial trans- actions between the Government and the United Fruit Company. Under existing agreements, particularly regarding the construction, financing and use of the Banana Wharf, there are liabilities for debt service and maintenance on one hand, and revenues on the other, which have not been recorded, simply because no maintenance has been carried out and no cash has passed. Also, these figures do not provide for depreciation or for insurance, which has been carried by government, and omit any charge for head-office administration. The figures are summarized below and shown in detail in Appendix 5:- ---------