Ecuador - Fisheries Project

RETURN TO RESTRICTED REPORTS DESK w'iVt Report-Nc. TO-640a WITHIN tiL; JUL_ ONE WEEK -. 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 The report may not be published nor may it be quoted as representing their views.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 FISHERIES PROJECT ECUADOR July 18, 1968 Projects Department  CURRENCY EQUIVALENTS U.S.$1 - 18.00 Sucres (per IMF schedule of par values) 1 Sucre U.S.$o.06 1 million Sucres - U.S.$55,600 WEIGHTS AND MEASURES British/U.S. System 1 nautical mile - 1.15 statute miles - 1.85 kilcmeters 1 short ton - 2,000 pounds - 907 kilograms 1 U.S. gallon = 3.79 liters  ECUADOR FISHERIES PROJECT TABLE OF CONTENTS Page No. SUMMARY i I INTRODUCTION 1 II BACKGROUND 1 General 1 Current Position of the Fishing Industry 2 Fisheries Administration 2 Research and Training 3 Tuna Resources off Ecuador 4 The International Tuna Market 4 U.S.A. Market for Tuna 5 The Ecuadorian Tuna Fishing Industry 6 III THE PROJECT 7 Project Description 7 Purse Seine Fishing Vessels 7 Training Program 8 Harbor Studies 9 Project Costs 9 Proposed Financing 10 Procurement 12 Time Schedule and Disbursement Estimates 13 IV ORGANIZATION AND MANAGEMENT 13 Loans to Sub-borrowers 13 Training Program 14 V OPERATING ARRANGEMENTS AND FINANCIAL PROJECTIONS 14 VI JUSTIFICATION 16 VII CONCLUSIONS AND-RECOMMENDATIONS 17 This report is based on the findings of a Bank appraisal mission in November/December 1967, to Ecuador, composed of Messrs. M.J. Walden and F. Vibert (of the Bank), Mr. R.E. Green (Consultant to the Bank), and Mr. F. Bourgois (of F.A.O.).  TABLE OF CONTENTS (Continued) ANNEXES 1. Ecuador's Fisheries and Export Statistics. 2. Tuna Fishing off Ecuador. 3. Processing and Marketing of Ecuadorian Tuna. 4. Comision de Valores - Corporacion Financiera Nacional. 5. Training Program. 6. Outline Specifications of Tuna Purse Seiner. 7. Time Schedule and Disbursement Estimates. 8. Sub-borrowers - Estimated Income Statement of one Purse Seiner. 9. Sub-borrowers - Estimated Cash Flow of one Purse Seiner. MAP Western Ecuador, Fishing Ports and Grounds  ECUADOR FISHERIES PROJECT SUMMARY i. The Government of Ecuador has asked the Bank for a loan to finance a project to expand the fishing industry. The project would comprise the construction of twelve tuna purse seiners, a training program for key crew members of project vessels and harbor studies to provide basic data for possible future expansion of fisheries beyond the proposed project. ii. The borrower would be the Government of Ecuador who would lend the proceeds of the loan relating to construction of purse seiners to a public development finance corporation, the Corporacion Financiera Nacional (CFN) at interest of 6-1/4 percent. CFN would on-lend these to approved private fishing companies and individuals at interest of 10 percent. The loans to these sub-borrowers would be for 14 years, including two years of grace. CFN would repay the Government as repayments were receiveable from sub- borrowers. iii. The training program is a most important part of the project be- cause of the present lack of trained key crew members for project vessels. It would be the responsibility of the National Fisheries Institute which would also assist CFN in certain technical matters. iv. The purse seiners would operate in the Pacific, off the Ecuadorian coast. Researches indicate that the predominant species there, skipjack tuna, occurs in sufficient quantities to warrant more intensive exploitation. Demand and prices for tuna have risen and are expected to continue rising. v. Ecuador is the world's third largest producer of skipjack tuna, although very far below Japan, the largest. The method used by its present fleet is, however, inefficient and incapable of further substantial in- creases in production. The project purse seiners would introduce a more up-to-date and efficient method of fishing and would more than double present production. vi. Ecuador is at present overly dependent upon agricultural products, notably bananas, for its foreign exchange earnings. The project would as- sist in diversifying foreign exchange earnings, which is in line with Govern- ment objectives, and would increase these by more than US$3 million annually. vii. Assuming a 15-year operating life for the purse seiners, the pro- ject would yield a rate of return to the economy of about 21 percent. viii. The project cost would be US$6.6 million of which US$5.9 million would be in foreign exchange. Subject to the inclusion of the training pro- gram, the project is financially and economically sound and suitable for a Bank loan of US$5.3 million for a term of 20 years including 6 years of grace.   ECUADOR FISHERIES PROJECT I. INTRODUCTION 1.01 The Government of Ecuador has requested a Bank loan of US$5.3 million to expand its tuna fishing fleet and to carry out harbor feasibility studies. The total cost of the project is estimated at US$6.6 million of which US$5.9 million would be in foreign exchange. 1.02 The project is in accordance with the Government's aims to expand export sectors. The estimated catch of the proposed additions to the fleet would be approximately 24,000 short tons per year of which a substantial part, if not all, would be exported in frozen or canned form. The harbor feasibility studies are necessary for the further expansion of fishing production, although present facilities are adequate for the vessels to be constructed under the project. 1.03 The borrower would be the Government of Ecuador. The loan proceeds relating to the purchase of vessels would be channelled to private fishing companies through a public development finance corporation, the Corporacion Financiera Nacional (CFN). In addition to selecting sub-borrowers, CFN would invite bids and award tenders for vessel construction and equipment. 1.04 The National Fisheries Institute (NFI) would assist CFN as tech- nical adviser and would operate a training scheme for key personnel which is included in the project. 1.05 The project was identified and prepared under the FAO/IBRD Cooperative program. This report is based on the findings of a Bank ap- praisal mission in November/December 1967, to Ecuador, composed of Messrs. M.J. Walden and F. Vibert (of the Bank), Mr. R.E. Green (Consultant to the Bank), and Mr. F. Bourgois (of FAO). II. BACKGROUND General 2.01 Ecuador is one of the smallest and poorest countries of South America, and its population of about 5.4 million has an approximate average per capita income of US$193. The economy is based on agriculture, and over 80 percent of exports are agricultural products, mainly bananas (Annex 1, Table 6). The Government wishes to diversify exports, and the fisheries sector offers opportunities for this. 2.02 Ecuador borders the Pacific across the equator, and off-shore waters have greater fish resources than is usual in tropical seas. This is because the area is influenced by the Peru current, which flows up the west  - 2 - coast of South America, and by the flow from the Guayas River. Both the current and river flow are rich in nutrients, resulting in abundant fish stocks. 2.03 Ecuador does not fully exploit these resources. A traditional fishery of canoes, balsa rafts and sailing boats catches a variety of species, but only over the last 15 years has a modern commercial fishery of any size developed. This fleet, which is privately owned, comprises about 300 motorised vessels ranging in size from 18 to 100 feet (Annex 1, Table 1) and mainly catches tuna and crustaceans. Current Position of the Fishing Industry 2.o4 Ecuadorian fish production has increased rapidly since the early 1950's, largely because of the growth of United States demand for shrimp, lobster and tuna, species which are plentiful in Ecuadorian waters. Fish landings rose from 17,000 short tons in 1955 to 53,000 tons in 1966. Landed value in 1966 was US$7.8 million, and exports of an estimated US$6.3 million were made, accounting for 3.4 percent of the country's foreign exchange earnings (Annex 1, Tables 2 and 6). 2.05 The growth in production has been of export species and production for domestic consumption has developed slowly. Two main reasons account for this; first, marketing problems which result from scattered settlement and the lack of inland cold storage facilities; and second, inadequate harbor facilities. Because of this, prices on the domestic market are high and the effective demand low. Domestic consumption will not expand significantly until prices are lowered. This will require more and better harbors, con- nected by good roads to markets, to replace the many beach landing sites used at present (Annex 1, Table 5). 2.o6 Harbor facilities for the largely export tuna and shrimp catch are adequate for present and projected levels of production. Facilities for the shrimp fleet are mainly located on the Guayas river and those for tuna vessels at Manta (see Map). Shrimp docking facilities are associated with processing plants and usually have been constructed by the processors. In Manta, tuna processing plants are privately owned while the port authority controls both the fishing harbor where smaller vessels berth and the com- mercial port which the larger fishing vessels use. 2.07 It is estimated by the authorities that at the end of 1965, US$11.1 million was invested in the fishing industry; US$6.5 million in vessels and gear and the balance in processing plants (Annex 1, Table 3). Of 17,000 persons employed in the fishing industry in 1965, 1,700 were employed in the large scale industrial fleet and a further 1,700 in the related processing industry (Annex 1, Table 4). Fisheries Administration 2.o8 The Ministry of Industry and Commerce is responsible for fishery policies, and its Fisheries Division for the enforcement of fisheries legislation, the grant of fishing permits and export authorizations, and  - 3 - collection of fisheries statistics. Its main offices are in Guayaquil and it has fisheries inspection units at all main landing sites. The personnel of the division have changed with every change in Minister of Industries and Commerce; this has caused instability and poor efficiency. Addition- ally, since the division's main office is not in the capital, consulta- tions between the Minister and the Director of the division are impeded and decisions are taken by the Minister on fisheries matters without the division's advice. The work of the division is largely regulatory apart from a loans program administered for traditional fishing. 2.09 Fisheries planning is the responsibility of the National Plan- ning Board. This is composed of representatives of appropriate ministries and other bodies concerned with economic growth. The Board's president has ministerial rank and is attached to the Office of the President of the Republic. The Board has a permanent staff headed by a technical director. Its functions are the planning of economic development, the coordination of government activities for this purpose, and the evaluation of projects sub- mitted by Government agencies, or by private enterprise when the latter wish to benefit from the laws regulating industrial development. In fish- eries development, the Board's staff receives advice from, and works in close cooperation with NFI (para 2.12). 2.10 Two other ministries are concerned with fisheries regulations. The Ministry of Health and Welfare supervises the quality of fish products and the conditions of their sale on the domestic market; and the Ministry of Defense, through its Merchant Navy Division, grants construction per- mits and seaworthiness certificates, and participates with the Fisheries Division in enforcing fisheries legislation. The navy's vessels are in charge of this enforcement at sea. 2.11 Ecuador, together with Chile and Peru, is a member of the South- east Pacific Commission, established in 1952. The members each claim a territorial sea extending 200 nautical miles (230 statute miles) from their coasts. Many other nations do not recognize these claims. Ecuador requires substantial licence fees from vessels of other nationalities fishing within the limit, and vessels failing to obtain licenses are subject to seizure and payment of fines. United States tuna vessels are the most affected and consequently, discussions have been initiated and are still under way be- tween the United States and the members of the Southeast Pacific Commission with a view to resolving this problem. Research and Training 2.12 NFI is an autonomous institution under the Ministry of Industries and Commerce, and responsible for fisheries research and training. It was founded in 1961 and has a staff of 14 professionals, and about 35 other employees, excluding the crews of its vessels. Its headquarters and main laboratory are in Guayaquil and a small field laboratory and net workshop is at Salinas. NFI operates a 70 foot research vessel with a permanent crew of 11 and two smaller craft.  -'4- 2.13 NFI research includes oceanography, marine biology, experimental and exploratory fishing, fish processing, and fisheries economics and sta- tistics. It has carried out an overall survey of fisheries production and exnorts, a study of the shrimp population in the waters off Ecuador, ex- ploration of the trawling grounds on the continental shelf, experimental fishing for lobster in the Galapagos islands and the continental coast of Ecuador, and a statistical study of shrimp and tuna production. 2.14 Ecuador is a member of the Inter-American Tropical Tuna Commission (TATTC). NFI has cooperated with IATTC in research and this has been of benefit both to the national tuna industry and to the other members of IATTC. The purpose of IATTC is to conduct scientific investigations of tuna and tuna-bait fishes in the eastern tropical Pacific with the objective of recommending to member governments necessary steps for conservation and optimum utilization. Ecuador has recently given notice to discontinue its membership of IATTC, and although it is unlikely that this will have an adverse effect on Ecuador's catches of tuna, it may be anticipated that in the future there will only be informal cooperation between NFI and IATTC. 2.15 NFI provides the only facilities for fisheries training, and its activities have included courses in fisheries statistics, fish identifica- tion and fisheries regulations for government fisheries inspectors; the demonstrations to coa3tal fishermen of the installation and operation of small diesel engines distributed under the government's credit program; and demonstration of the production of fish meal and fish extracts from small fish by using simple methods and equipment. Tuna Resources off Ecuador 2.16 Two distinct species of tuna, skipjack and yellowfin, occur in abundance in the waters off Ecuador. Both are widely distributed in the eastern tropical Pacific where they are exploited mainly by American, but also by Japanese, Ecuadorian, Mexican, Peruvian and Chilean vessels. IATTC studies, made throughout the tropical Pacific, show that skipjack, the main species caught in waters off Ecuador, occur in sufficient stocks to warrant more intensive exploitation. Catches of yellowfin, however, have been greater than the level that will ensure a maximum sustainable yield. As a result, a catch limitation has been agreed internationally for yellowfin since 1966, and Ecuador has taken the necessary internal steps to enforce this. The agreement is not expected to limit an expansion of Ecuador's tuna industry which is largely based on skipjack. The International Tuna Market 2.17 The demand for all species of tuna has increased considerably and steadily over the last 12 years, although minor fluctuations in trade volume and value have arisen from cyclical and seasonal variations in sup- ply. Both the strong growth in demand and these fluctuations are expected to continue.  -5- 2.18 Japan is the world's largest producer and, despite its own very large consumption, is also the main exporter. Almost universally, coun- tries purchasing tuna prefer to import it whole and can it in their own factories. Thus, while markets are usually open to frozen fish, import duties or quotas are applied to the canned product. 2.19 The United States and Italy, importing in 1966 225,000 and 47,000 short tons respectively of fresh and frozen tuna are the major importers, and the canning industries of these countries are protected with duties and quotas. The only significant importer of canned tuna is West Germany where Japan is the predominant supplier. U.S.A. Market for Tuna 2.20 The U.S. is the second largest producer of tuna, but since con- sumption greatly exceeds its production it is the largest importer. Since 1954, the U.S. situation has been characterised by a levelling of annual tuna production at around 170,000 short tons and a considerable growth in imports of frozen tuna. Tuna imports are subject to several conditions: (a) tuna canned in oil 1/ is subject to an ad valorem duty of 38 percent which is so high as to practically eliminate imports; (b) imports of tuna canned in brine are restricted to 20 percent of the amount canned in the U.S. during the previous year and subject to an ad valorem duty of 14.5 percent; (c) imports of tuna canned in brine above quota are liable to double import duty but the quota is rarely reached; (d) imports of raw frozen tuna are without restriction of tonnage and free of import duties. Puerto Rico, where there are large processing plants, is governed by the same regulations and trade between Puerto Rico and the U.S. is free. 2.21 Annex 3, Table 3 shows United States production and imports from 1955 through 1966, and Annex 3, Table 4 prices paid to United States fish- ermen from 1956 through 1966. The latter table shows that in most years there are wide fluctuations in prices, although no statistics are available on the actual quantities which moved at these prices. Price estimates take no account of an informal system of bonus payment which operates. The considerable imports of tuna to the United States from Japan, Spain and Ecuador, representing respectively 70, 15 and 7 percent of total imports, 1/ Usually the liquid in which tuna is canned is edible oil or brine. That in oil is in relatively small cans designed for sale to the ultimate retail consumer without further processing. Tuna in brine is in considerably larger cans and is designed for sale to institu- tional consumers.  -6- are governed by private agreements between companies, and the details of these are not published. However, available evidence appears to indicate that many of these imports may command higher prices than those paid to American fishermen. The Ecuadorian Tuna Fishing Industry 2.22 After shrimp, tuna is Ecuador's most important fishery. The tuna fleet consist of about 60 vessels, ranging widely in individual size from 18 to 110 gross tons. Most vessels have been financed by the tuna process- ing companies. Loans are made to vessel owners on very favorable terms, but involve agreements under which the vessel's catch is sold to the finan- cing company. National tuna production was 13,200 short tons in 1966 (Annex 1 Table 2), of which about 12,000 short tons were skipjack; Ecuador is the third largest world producer of skipjack, after Japan and the United States. 2.23 Few tuna vessel owners, who are individuals or partnerships, own more than two vessels (Annex 2 Table 1). Most owners have substantial loans outstanding for boat purchases and many for working capital in addition. Consequently, few owners could handle a larger operation even were substan- tial loan capital available, because their freely disposable financial re- sources would be inadequate for any reasonable level of equity participation. On the other hand many owners, especially those who captain, or have cap- tained, tuna vessels have valuable technical experience to contribute to an enlarged operation, although the close relationship between processors and owners has prevented the development, among owners, of commercial entre- preneurship. 2.24 Two methods can be used for catching tuna when it occurs in iden- tifiable schools, as is the case in the waters off the Ecuador coast. 1/ First, the operation of bait boats (also known as the live bait or pole and line method). This is the main method used by the Ecuador fleet. The oper- ation involves fishing in-shore for small fish for tuna bait. This bait is kept alive in tanks aboard the tuna boat which then hunts for tuna schools. When these are located, the live bait is released and the tuna feeding on it are fished with unbaited hooks on lines attached to poles. The principle is that the tuna are so excited by the concentration of live bait that they will take the unbaited hooks. The second method is purse seining. This involves no bait and when a school is located, the purse seiner encircles the whole school with a large net. When the circle is completed, the net is drawn in, bringing the fish to the side of the purse seiner for loading. Less than 10 purse seiners operate under the Ecuadorian flag (Annex 2 para 6) but while these have only recently been introduced, they are without refrig- eration and too small for efficiency. 2.25 The range of the bait boat fleet is limited by the need to first catch bait, which is in limited supply, and by the lack of refrigeration 1/ Longlining, as in the case of the two Chinese projects financed by the Bank, is unsuitable for Ecuadorian conditions. It is used in deep-sea areas where tuna are present in reasonable quantities but not in indenti- fiable schools.  - 7 - for the tuna catch. These limitations mean that vessels of the fleet not only compete for bait, but also for tuna close to the coast. Because of these limitations, it would seem unlikely that the bait boat fleet is capa- ble of further expansion on an economic basis. An expansion of the tuna fishery demands longer range fishing, and thus purse seiners equipped with refrigeration. 2.26 In Manta, tuna freezing, cold storage and canning capacity is being increased considerably through private investments. The increase is such that processing capacity is rising more quickly than the catching capacity of the fishing fleet, thus making desirable an increase in the number of vessels and an extension of their range of operation. 2.27 Ecuadorian law excludes direct transshipment of catch from a fish- ing boat to a freezing vessel or freighter for transport abroad; this is to ensure that any value added to catch in the form of freezing or other pro- cessing accrues to Ecuador. Dispensations have been allowed, but usually where processors have operated freezing vessels as a first step towards establishing a shore facility. The general effect has been that tuna fish- ermen have been obliged to sell to processors located in Ecuador, and, to date, has probably not had much practical significance since most fishermen are tied by loan and supply agreements, and their product, fresh and frozen tuna is too small for direct transshipment. However, the restriction could hamper operations of boats not subject to loan and supply agreements and delivering large quantities of frozen tuna, since these boats must land their catch in Ecuador where processors could hold prices below interna- tional levels. III. THE PROJECT Project Description 3.01 The project is the construction, equipment and operation of 12 tuna purse seiners, and the training of crews to operate these. The objec- tive is to increase Ecuador's foreign exchange earnings by an expansion in the production and export of tuna. The project includes a study of addi- tional harbor facilities required for further increases in fish production, for both the export and domestic markets. 3.02 The proceeds of the Bank loan relating to the construction of purse seiners would be lent by the Government to CFN who would on-lend to qualified individuals and companies. Details of the arrangements for this are given in paras 3.14 through 3.20. Purse Seine Fishing Vessels 3.03 The proposed 12 tuna purse seiners would each be of approximately 90 feet overall length and 150 short tons carrying capacity and would re- quire a crew of 13. They would be of modern standardized design equipped with up-to-date gear and deck machineries. The main engine would have a  maximum power of 500 bhp. Deck machineries would include a power block, a purse-seine davit, boom topping winch and other equipment adequate to oper- ate a purse-seine net of 2,500 feet in length and 300 feet in depth. An auxiliary boat, a skiff with a diesel engine of 75 bhp, and a small motor boat, would be carried. The vessels would have a brine immersion freezing0 system for freezing and storing the catch on board at a temperature of -17 C (Annex 6). Their fish catching characteristics would be those of purse seiners of other countries fishing the eastern Pacific, but their hold capac- ities would be smaller because their operating bases would be closer to the fishing grounds. In the same way, their navigational equipment would be simpler than that of larger long range boats. Training Program 3.o4 As purse seining is a relatively new introduction to Ecuador, training must be provided for the key crew members of project vessels. The method selected as most appropriate is as follows; more complete details together with an outline of rejected alternatives are given in Annex 5. NFI, assisted by a consultant, would provide a one year training course for the three senior members of each crew - the captain, chief engineer and net bosun. To enable early implementation of the training program, NFI would purchase a second-hand purse seiner of the approximate speci- fications of the project vessels. Three Spanish speaking experts would be obtained for a period of one year in the capacities of instructors as cap- tain, engineer and net bosun. These probably would be foreign since few, if any, Ecuadorians have the needed experience. For the purpose of the project, the training program would run for a period of four years with each trainee receiving one year's instruction on shore and on board the training vessel. During the first year of training, the foreign experts would train crews for the first three purse seiners to be constructed under the project and would also train their local counterparts who would replace them as instructors. The trainees and counterparts would be re- cruited on the basis of their general sea and fishing competence. The construction of a purse seiner would take at least one year and the train- ing of crews would take place concurrently with the construction of their vessels (para 3.21). Problems are not foreseen in obtaining either the foreign experts or a used purse seiner of the required characteristics. 3.05 Some owners would wish, and be able, to directly obtain experi- enced foreign key crew members and such owners would not be obliged to use the training program. It is expected that because of the relative scarcity and high. cost of these on the international market, only a few of the sub- borrowers are likely to obtain such crews. Therefore, the training program has been designed so as to meet the need for training Ecuadorian crews in accordance with the construction schedule of project vessels (para 3.21). If the training program did not entirely meet the requirements, the awards of construction contracts would be phased so as to be compatible with the number of trained crews available. A slow down in construction would cause the project to be protracted beyond the phasing now projected, but the only major economic consequence would be the delay in expanding the tuna indus- try, as Bank approval of sub-borrowers (para 4.02) and construction contract awards (para 3.20) would be given subject to evidence that satisfactory crewing were possible.  -9- Harbor Studies 3.06 The studies would be of two areas; first, the Santa Elena penin- sula and bay, and second, Manta. Landings by vessels based in the Santa Elena area total about 4,000 tons annually, and all are made at beach sites. The fleet exploits some of the best fishing grounds for bottom and pelagic fish, and supplies canneries in Santa Rosa and Guayaquil, inland fish markets and the lobster export market. Increased production is ham- pered by the lack of berthing, loading and ice supply facilities. The studies would be directed to locating, designing and costing a fishing har- bor to serve the area. Manta is the base of the tuna fleet, but any major expansion beyond the project vessels will require extensions to berthing and servicing facilities. Improved facilities are required also for the canoe fishing fleet. The proposed studies would examine possible methods and costs of providing these expanded facilities. The National Planning Board would be responsible for this work and would employ consultants to carry out the studies. Selection of consultants and their terms of refer- ence would be approved by the Bank. Project Costs 3.07 Total project costs are estimated at US$6.6 million equivalent, including working capital. The following table suimmarises project costs. SUMMARY OF PROJECT COST ESTIMATES (us$ '000) Foreign Exchange Local Currency Total Purse Seiners Construction (including net, skiff and motor-boat) 4,200 4,200 Designs and Supervision 120 - 120 Purse seiners' Working Capital - 192 192 Sub total 4,320 192 4,512 Training Program 397 480 877 a/ Harbor Studies 185 98 283 Interest During Construction 54- 954 TOTAL 5.856 770 6,626 a/ Percentage of Total 88.4 11.6 100.0 a/ The estimated catch of the training vessel might reduce these amounts by US$320,000 over four years.  - 10 - 3.08 Purse seiner construction cost estimates are based on a recent contract for a similar vessel built by an established North American ship- building yard. A shipbuilder with yards in South America, but with no pre- vious experience in this type of vessel, currently offers similar specifica- tions at a price 20 percent lower, and a French naval architect has given an estimate between the two. Therefore no specific contingency has been added to costs. Construction of vessels would be phased over five years, (para 3.21). The average unit cost is not expected to vary substantially, since the larger size of the contract for vessels to be built late in the period would bring economies which would offset the general rising trend in ship- building cost. 3.09 Vessel construction costs account for 63 percent of total project costs and the high foreign exchange component, 88 percent of project costs, reflects the fact that the vessels would be built abroad. Imported fishing vessels of less than 150 short tons refrigerated fish hold capacity are subject to import duty. The proposed project vessels would be approximately this size but according to the detailed designs produced by the naval architect retained by CFN, they could be slightly smaller. The Government intends to allow the vessels to fall within the duty free category even if this is the case; this is accepted by the Bank and official confirmation to this effect was obtained during negotiations. The imported vessels would be subject to an ad valorem monetary stabilization charge which applies to all imports, and in the case of the project vessels, is 10 percent. Project cost and financing estimates exclude this charge throughout this report except for the paragraph and annexes relating to the financial position of sub-borrowers and their in- dividual purse-seiners (para. 5.08 and Annexes 8 and 9). 3.10 Working capital, required over the life of the project, amounts to US$16,000 per vessel. This is equivalent to the cost of operation of a vessel for two months, approximately four fishing trips, to provide a mar- gin for the recovery of sales proceeds. 3.11 Training costs include the cost of foreign experts for the first year of the scheme, local experts for the remainder of the period, and a consultant throughout the four years. Approximately one quarter of the cost of the training program is accounted for by the purchase of a second- hand vessel. Arising from the operation of the training program, a fish catch, worth US$80,000 per annum or US$320,000 over the course of the pro- gram, might be expected. These earnings would be used to offset the cost of the program. Proposed Financing 3.12 The following table shows proposed sources of project finance.  FINANCING PLAN (us$ o000) Foreign Govern- Sub- Exchange Bank ment borrowers Total Percentage Purse Seiners (including net, skiff and motorboat) 3,570 - 630 4,200 100.0 Designs and Supervision 120 - - 120 100.0 Purse Seiners' Working Capital - - 192 192 - Training Program 397 336 a/ 144 877 a/ 45.3 Harbor Studies 185 98 _ 283 65.4 Interest During Construction 954 - - 954 100.0 TOTAL 5,226 434 a/ 966 6,626 a/ Percent 78.9 6.5 14.6 100.0 a/ The estimated catch of the training vessel might reduce these amounts by US$320,000 over four years. 3.13 Of total project costs, about 88 percent would be in foreign exchange and the Bank would finance about 79 percent. The Bank would not finance any local currency expenditures. 3.14 The Government of Ecuador would be the borrower and the proceeds of the loan relating to the purse seiners and design and supervision would be on-lent to selected sub-borrowers through a lending agency - the Corpo- racion Financiera Nacional (CFN). Proceeds of the loan relating to the training program and the harbor studies would be administered on behalf of the Government, by NFI and the National Planning Board respectively. 3.15 Eighty-five percent of purse seiner construction costs would be financed by the Bank and the remaining 15 percent by sub-borrowers. Sub- borrowers would also pay the wages of their crews during training and provide working capital and the total of these items is considered to be a reasonable contribution towards financing their sub-projects. Design and supervision costs, entirely in foreign currency, would be financed by the Bank. 3.16 All working capital would be provided by the sub-borrowers in local currency as would be the wages of crews in training. The Bank would finance all training costs incuurred in foreign exchange - the cost of the consultants, the cost of foreign experts during one year and the purchase of the training vessel. The Government would finance all training costs incurred in local currency - the cost of local experts and the running costs of the training vessel over the four years of the program. Proceeds from the sale of fish caught during training operations would offset local  - 12 - costs and reduce the Government contribution. However, assurances were obtained during negotiations that the Government would initially make budget allocations available for gross costs, and the proceeds of catches would only be used to reduce the Government's contributions in the years succeeding such catches. 3.17 The Bank would finance foreign exchange costs of the harbor studies and the Government would finance local currency costs (65 percent and 35 per- cent respectively). 3.18 Sub-borrowers would repay to CFN all costs incurred in construc- tion and interest during construction. Each sub-borrower would be allowed a grace period of two years covering the construction of his vessel and its initial operations. Thereafter, repayment would be made to CFN over 12 years; 14 years in total. CFN would repay to Government the capital element of sub-borrowers' repayments as these were receivable, together with its interest liability. The Government would bear the foreign ex- change risk on all repayments due to the Bank. 3.19 There are only limited sources of long term loans in Ecuador and, therefore, no freely established interest rate exists for such finance. Long term funds have been provided mainly through foreign aid programs, and interest rates to final borrowers have not been related directly to the interest charged by the original lenders. Where long term loans have been made the annual interest rate has usually been at, or slightly below, 10 percent which is the legal limit in Ecuador and is the rate at which all CFN loans have been made. The proceeds of the Bank loan relating to vessel construction would be on-lent by the Government to CFN at 6-1/4 percent and by CFN to sub-borrowers at 10 percent. Over the period of the sub-loans, this would yield a gross profit to CFN of approximately US$1 million, out of which it would pay its costs of administration relating to the project includ- ing any bad debts arising therefrom. It is expected that CFN would make a profit after deduction of these and that consequently, for the purposes of the project, the rate of interest to be charged to sub-borrowers could be lower by between 1 and 2 percent. However, under the terms proposed, the sub-borrowers' financial projections are satisfactory (para 5.08) while such a reduction would create difficulties with CFN's other borrowers. Further, any profits to CFN, like all other profits to CFN, would contribute to re- serves available for further development lending (Annex 4, para 12). Procurement 3.20 CFN would engage a naval architect acceptable to the Bank to draw up detailed specifications for the project vessels. The specifications and other bid documents would be subject to the approval of the Bank. Bids would be invited under international competition and the invitation to bid would specify pre-qualification criteria, including experience in the construction of vessels similar to those proposed in the project. Tenders would be ana- lyzed by the Board of Directors of CFN and proposed awards submitted to the Bank for approval. Construction contracts would be signed between the sub- borrowers and the successful tenderer, with CFN guaranteeing the performance  - 13 - of the sub-borrowers' obligations. At the same time, loan agreements would be signed between CFN and the sub-borrowers. CFN would arrange for the supervision of construction. Time Schedule and Disbursement Estimates 3.21 Annex 7 contains details of project costs and disbursement analysed by type and by year. In the first year of the project, preliminary design work would commence on project vessels, the training purse seiner would be purchased and the training consultant and training experts engaged. In the second year of the project, designs would be completed, sub-borrowers selected, and construction started of the first three project vessels. The training program and harbor studies would begin. In the third year, the first three project vessels would commence operation but no contracts would be let for further construction. The handling characteristics and operational results of the vessels would be evaluated to determine any needed design modifications. In the fourth year, construction of a further five vessels would begin following selection of sub-borrowers, and the harbor studies would end. In the fifth year, a further four vessels would be constructed and the training program for project crews would end. In the sixth year, the last four vessels would become opera- tional. IV. ORGANIZATION AND MANAGEMENT Loans to Sub-borrowers 4.ol CFN is now an autonomous institution established in its present form by decree in 1964 and its Board is composed of representatives of both the public and private sectors. It originated in 1948 as a branch of the central bank and until 1964 it assisted Government initially, and later private industry, in obtaining funds through bond issue. Since 1964, CFN has also acted as a public development finance corporation and for this purpose has obtained funds from the central bank and foreign lending insti- tutions. It is too early to accurately assess its operating results in this new activity but indications are that it is performing successfully. Manage- ment and staff now have considerable experience and CFN is suitable for the  functions required by the project. The accounts of CFN are audited annually by the Colombian office of Price, Waterhouse and Co. and these arrangements are satisfactory for the purposes of the project. The Bank would receive the audited accounts in the form in which they are produced at present, together with a statement of accounts relating to the project, certified by the auditors. Further details of CFN are contained in Annex 4. 4.02 CFN would invite applications from potential sub-borrowers and, assisted by NFI on technical aspects, would appraise their financial sound- ness and commercial competence. Those applicants approved by the CFN Board of Directors would be submitted to the Bank for approval as would proposed draft contracts with sub-borrowers. In addition, the Bank would be furnished with details of rejected applications and the technical opinion of NFI. 4.03 The decree which governs CFN's lending policies demands a high degree of security coverage for loans for assets such as purse seiners. It is unlikely that present tuna bait boat operators will be able to provide this level of security and there may be considerable difficulty in finding individuals who can meet both the technical and financial requirements. Therefore, partnership arrangements will probably be necessary between indi- viduals, such as bait boat owners, possessing technical knowledge and others with the financial resources to furnish the required security. Training Program 4.o4 NFI, with the assistance of a consultant who would be employed with the approval of the Bank, would organize the training program and would be responsible for all aspects of it. 4.05 NFI would draw up general specifications for a used vessel to be obtained as a training boat. This would be done with the assistance of the naval architect engaged by CFN. The boat's specification would be approved by the Bank and bids for the supply of the vessel invited interna- tionally. The Bank would approve the purchase contract. 4.o6 NFI would engage, with the concurrence of the Bank, three foreign experts in the capacities of captain, engineer and net bosun for approxi- mately one year. It would also engage local counterparts for the experts, in consultation with the Bank, initially as trainees and subsequently as instructors. V. OPERATING ARRANGEMENTS AND FINANCIAL PROJECTIONS 5.01 Purse seiners financed under the project would fish principally in the waters off Ecuador. The operational schedule is shown in Annex 8. After the first two years of operation, the annual catch is estimated at some 2,000 short tons; an average of 11 short tons per fishing day. Harbor facilities in Ecuador, although not ideal, are adequate for the operation of the project vessels, and it is expected that most would operate out of Manta.  - 15 - 5.02 Sales of project catch would be made to processing plants located or being constructed in Ecuador. Processing and freezing capacity in operation or under construction would be more than adequate for catches anticipated from the project vessels. However, to ensure that purse seiner operators enjoyed a price in line with international prices, assurances would be sought from the Government during negotiations, that no obstacle, either legal or fiscal, would bar vessel operators from transshipping their frozen catch directly abroad. 5.03 Estimates of financial results for a project purse seiner and the assumptions on which they are based are shown in Annex 8. 5.04 Income statements assume that of the yearly tuna catch of 2,000 short tons per vessel, 90 percent would be skipjack and 10 percent the more valuable yellowfin tuna. This estimate is based on data of IATTC for total catch, and average catch per standard fishing day for vessels fishing off Ecuador (Annex 2). 5.05 It is assumed that catch prices would be US$93 per ton of skipjack and US$114 per ton of yellowfin (Annex 8). The assumption that prices would not fall below these levels rests partly on technical and partly on market considerations. First, the existing market price reflects a situation of limited capacity in processing whereas a situation of excess capacity is developing (Annex 3). Secondly, current prices in Ecuador reflect the very favorable terms which the owners of almost all boats enjoy on their loans from processors. Under the project proposed, the purse seine fleet would be independent of processors's finance. Market factors therefore, would change in favor of independently financed boat operators and this would be accentuated by the end of the near monopoly position which has existed until recently in the processing industry. Finally, the quantity of fish caught by the project purse seiners would be sufficiently large and in frozen form to make transshipment for direct export feasible. This pos- ibility should ensure that prices paid by processors in Ecuador would not be substantially below world prices. 5.o6 Operating expenses have been based on costs of operating similar vessels in the eastern Pacific with appropriate modifications to Ecuadorian prices and conditions. It is customary on Ecuadorian bait boats, as on other countries' tuna vessels, to remunerate the crew by a share of catch proceeds. The share basis assumed for Ecuadorian purse seiners is less per ton than that now paid to bait boat crews, but because of the higher catch capacity of the purse seiners their crews should earn substantially more. 5.07 The vessels would be insured for their full value and the insur- ance would cover damage and loss to normal standards, with the exception of damage sustained by the net during normal operations. In the case of the complete loss of a vessel, the actual circumstances, especially the finan- cial situation of the sub-borrower, would determine whether the correspond- ing sub-loan should be repaid immediately or the proceeds of the insurance used for the replacement of the vessel. In order that either circumstance would not present exchange difficulties, the insurance policy claims would be payable in a readily convertible currency.  - 16 - 5.08 Annex 8 gives the estimated income statement while Annex 9 sets forth the cash flow estimates for one purse-seiner. The financial return on the total investment in a purse-seiner would be about 17 percent while the return on equity invested by the sub-borrower would be about 28 percent. Be- cause of the substantial net cash inflow which is projected to reach US$25,000 after the second year of operations, consideration has been given to accele- rating the repayment of sub-loans either by shortening the period of all sub- loan repayments or by requiring the early repayment of sub-borrowers whose results were favorable enough to allow this 1/. In view of the possible fluctuations from the average from year to year in earnings from an enterprise such as fishing, it would not be desirable to increase the fixed annual repay- ment commitment beyond that proposed. An early repayment provision under specified circumstances would not have this disadvantage but would create very considerable difficulties of administration and enforcement. Because of these difficulties and the fact that this project would be introducing a new method of tuna fishing to Ecuador (which was not the case in either of the Chinese loans) an early repayment provision would not be desirable. VI. JUSTIFICATION 6.01 The construction and operation of 12 purse seiners would more than double Ecuador's tuna landings. Since domestic demand is incapable of rapid expansion, virtually all of the increased catch would be exported and generate substantial foreign exchange earnings. Export earnings which would be derived from the project would be dependent on the proportions of the catch exported in canned form and in frozen form. The most conservative estimate is that the total catch would be exported in frozen form. On this basis, using the individual vessel catch and price assumptions given in paragraphs 5.04 and 5.05, and assuming all ex-country costs would accrue to countries other than Ecuador, annual export earnings would amount to about US$3 million. 6.02 Assuming a 15 year operating life for the purse seiners, the project would yield a rate of return to the economy of about 21 percent. 6.03 If a substantial proportion of the production were to be canned the additional added value would contribute to export earnings and there would be further benefits to the economy from a fuller utilization of pro- cessing facilities. 1/ An early repayment requirement was incorporated into the Second Deep Sea Fisheries Project, Republic of China, IBRD Report No. TO-568b, although no similar provision was incorporated in the earlier fisheries loan to the same country, IBRD Report No. TO-372a.  - 17 - VII. CONCLUSIONS AND RECOMMENDATIONS 7.01 The provision of trained key crew members would be the most critical requirement for the success of the project. For this reason, a training program (paras 3.04-3.05 and 4.o4-4.o6) would be essential. With- out it, the project would proceed only as experienced (foreign) key crew members were obtained by applicants at reasonable cost; the delays in- herent in this cannot be accurately estimated but would be considerable. 7.02 The project as planned, subject to the inclusion of the train- ing program, is financially and economically sound and suitable for a Bank loan of US$5.3 million for a term of 20 years including 6 years of grace. 7.03 During negotiations, assurances were obtained from Government with regard to the following matters: (a) annual budget allocations would be made to cover the gross costs, less the proceeds from prior year's fish sales, of the training program administered by the National Fisheries Institute (para 3.16); (b) a naval architect acceptable to the Bank would be engaged by CFN (para 3.20); (c) the training consultant would be approved by the Bank (para 4.04); (d) where necessary, to ensure reasonable prices for project catch, direct trans-shipment to freighters, without legal or fiscal obtacles, would be authorised (para 5.02). July 18, 1968   ANNEX 1 Page 1 ECUADOR FISHERIES PROJECT ECUADORIS FISHERIES AND EXPORT STATISTICS Table 1 Ecuadorian Motorized Fishing Fleet Table 2 Landings of Fish and SheUfish in Ecuador Table 3 Capital Invested in Fisheries Table 4 Employment in Fisheries Table 5 Fish Landing Sites in Ebuador Table 6 Principal 7Aports from &uador July 18, 1968   ECUADOR FISHERIES PROJECT ECUADORIAN FISHING FLEET MOTORIZED VESSELS CLASSIFIED B LEENGTH AND AREA OF OPERATION Playas Peninsula of and Gulf of Overall Length Esmeraldas Manta Santa Elena Posoija Guayaquil Total Up to 20 feet - 3 - - - 3 21 to 30 feet 1 21 24 1 2 49 31 to 40Ofeet 1 8 8 12 5 34 41 to 50 feet 3 21 5 25 24 78 51 to 60 feet 17 19 1 25 17 79 61 to 70 feet 10 1 - 9 8 38 71 to 80 feet 1 2 - 2 5 81 to 90 feet - - - 1 1 91 to 100 feet - _ 1 1 TOTAL 33 85 38 72 60 288 Source: National Fisheries Institute of Ecuador. July 18, 1968  ECUADOR ANNEX 1 FISHERIES PROJECT Table 2 Landing of Fish and Shellfish in Ecuador, 1961-66 Q: Quantities in thousand short tons (landed weight) V: Value in thousand US$ (landed value) 1961 1962 1963 1964 1965 1966 Tuna Q: 12.8 12.6 14.8 10.8 16.3 13.2 V: 726 852 995 722 1,067 960 Groupers, snappers, Q: * * 0.4 0.4 1.0 1.0 croakers, etc. V: * * 41 39 108 105 Thread herrings, Q: * * 4.3 7.3 7.8 8.9 anchovies, etc. V: * * 47 81 99 108 Crustaceans Q: 6.3 6.9 8.o 7.2 8.0 7.6 V: 1,965 2,407 2,690- 2,727 3,577 3,989 of which: Shrimps Q: 5.1 5.2 5.7 5.5 6.3 5.8 V: 1,812 2,182 2,397 2,454 3,304 3,726 Lobsters Q: 0.1 0.2 0.4 0.3 0.3 0.2 V: 41 68 102 141 128 110 Other Q: 1.1 1.5 1.9 1.3 1.4 1.6 V: 112 157 191 132 145 153 Molluscs Q: 1.3 3.1 3.5 3.5 3.6 3.9 V: 82 194 221 241 269 311 Unsorted and unidentified Q: 22.1 24.3 24.4 21.9 22.2 18.5 fishes V: 2,429 2,668 2,680 2,630 2,707 2,287 TOTAL Q: 42.5 46.9 55.4 51.1 58.9 53.1 V: 5,202 6,121 6,674 6,440 7,827 7,760 w =-= :=~ z = =2= ~=:= in= = * Data not available. Source: National Fisheries Institute. July 18, 1968  ANNEX 1 Table 3 ECUADOR FISHERIES PROJECT CAPITAL INVESTED IN FISHERIES (1965) PRODUCTION Industrial Fisheries No. of Vessels Investment ('000 US$) Tuna Fleet 60 1,095 Shrimp Trawling Fleet 166 3,542 Lobster Fleet 4 187 SAll Purse Seiners 2 34 Tuna Fishing Gear U1 Inshore Fisheries Lobster Boats (Motorized) 38 61 Motorless Shrimp Canoes 47 4 Miscellaneous Vessels 5,539 769 Fishing Gear 847 TOTAL: 6,550 PROCESSING No. of Plants Tuna processing plants 1/ 3 1,380 Shrimp freezing plants 5 2,755 Lobster freezing plants 3 205 Thread herring canning plants 3 110 Fish refrigeration and freezing plants 2/ 4 146 TOTAL: 4,596 TOTAL INVESTMENT IN PROCESSIING AND PRODUCTION 11,146 1/ Includes tuna cold storage vessels. v/ Excluding tuna processing plants. Source: National Fisheries Institute July 18, 1968  ECUADOR FISHERIES PROJECT EMPLOYMENT IN FISHERIES (1965) FISHING OPERATIONS HANILING AND PROCESSING _________________________ _____ ___________________EMPLOYMENT IN FISH Industrial Inshore WORKERS FISHING AND fisheries fisheries Technical and PROCESSING SPECIES Clerical Staff Fishermen Full time Occasional Male Female Male Female Male Female Male Female Male Female Total Tuna 787 ... --- 83 138 296 42 14 1,050 310 %360 Shrimps 762 97 178 5 505 67 17 931 700 1,631 Lobsters 106 325 _4 __ 1 __ 6 1 442 1 443 Thread Herrings 8 ... --- 25 44 ___ 177 12 5 45 226 271 Other fisb --- 13,092 20 __l ___ 14 2 13,126 2 13128 Molluscs 859 _ __ _-- -- 859 859 TOTAL 1,663 133417 859 229 222 144 978 39 15,59b 2,098 67692 15,939 1,753 17,692 July 18, 1968  ANNEX 1 Table 5 ECUADOR FISHERIES PROJECT Fish Landing Sites in Ecuador by Type Condition Number Beach on open sea 71 On estuary bank 28 1/ In estuary with very shallow depth 18 On deep water channel 12 On open anchorage 9 In sheltered anchorage 7 In river with difficult access to sea 3 On both open sea beach and estuary 2 In both river and estuary 1 On river bank with landing quays (Guayaquil) 1 Within commercial harbor (Manta) 1 153 v/ Out of which only 7 have easy access to sea for small boats. July 18, 1968  ECUADOR FISHIRIE-1 PROJECT Principal Exports from Ecuador (fob values in US$'000) 1967 1961 1962 1963 1964 1965 1966 1967 Percentage Bananas 80,900 88,500 85,200 98,000 95,900 105,300 108,000 52.4 Coffee 14,802 20,953 18,255 21,165 38,236 32,144 39,833 19.3 Cacao 15,388 15,913 19,795 16,194 19,132 17,206 24,852 12.1 Sugar 2,529 5,963 5,614 7,115 7,304 6,508 7,548 3.7 Fisheries products 4,724 5,399 6,318 6,300 6,300 6,300 6,950 3.4 Other products 2! 11,057 11,872 15,218 12,626 13,428 19,442 18,817 9.1 TOTAL: 129,400 148,600 150,400 161,400 180,300 186,900 206,000 100.0 ~,/ Includes: Rice, timber, castor beans,, phanuaceutical products, molasses, pyrethr=m, etc. Sources Ministry of Finance 1961-64 Central Bank Estimates 1965-67 July 18, 1968  ANNEX 2 Page 1 ECUADOR FISHERIES PROJECT TUNA FISHING OFF ECUADOR Catches of Present Fleet 1. Because the vessels which operate from Manta return to land their catch every day, their range is limited to a radius of about 40 miles. 2. In spite of this restricted range, tuna landings by the Manta fishing fleet have risen from 12,800 short tons in 1961 to 16,300 short tons in 1966. Ecuador is the third world producer of skipjack tuna (after Japan: 147,800 tons and the United States: 49,900 tons, in 1965). How- ever, Ecuadorian catches are only 13 to 16 percent of total world skipjack landed production. Existing Limitations in Fishing Range 3. With only a few exceptions, the tuna fishing fleet in Manta use the pole and line fishing method which requires the catching and keeping of live bait. They do not have insulated holds and do not carry ice. The fish used for live bait is mainly anchovy, which, in the Manta area, schools in shallow water close to the shore. The necessity to catch fresh live bait every day before starting actual tuna fishing operations compels the boats to remain clost to the coast. Once the tuna is caught, it has to be landed before it spoils. For these two reasons, actual fishing operations can be carried on only during a few hours every day and the operating range of the vessels is limited to about 40 miles. Fishing Seasons 4. There are marked fluctuations in the quantity of tuna found within the very restricted range of operations of the Manta fleet. Catches are usually low in January and negligible in February-March. The fishing season begins generally in May (sometimes in April) and catches increase rapidly to a maximum occurring generally in June-July, but sometimes earlier (Chart 1). Catches generally drop in August but, in most of the years, rise again during the "little fishing season" occurring generally in October-November. 5. The amount of catch by pole and line vessels depends not only on the abundance of tuna but also on the occurrence of bait schools. As favor- able oceanographic conditions for skipjack and for the fish used as bait may not coincide, the pole and line vessels lose many days of operation by lack of bait when tuna is present in the fishing area. Because of the above limitations, pole and line fishing vessels from Manta operate only 140 days per year on the average.  ANNEX 2 Page 2 Composition of Tuna Fleet 6. The composition of the tuna fleet in 1966 was as follows: Number of Pole Number of Overall Length and Line Vessels Purse Seiners Total Up to 40 feet (12 m) 8 1 9 41 to 50 feet (12 to 15 m) 20 1 21 51 to 60 feet (15 to 18 m) 13 5 18 61 to 70 feet (18 to 21 m) 10 _ 10 71 to 80 feet (21 to 24 m) 2 2 TOTAL 53 7 60 7. During the peak season, when tuna is abundant within the operating range of the fleet, catch depends more on the daily carrying capacity of the vessels than on their catching efficiency. Thus, average catches by the larger vessels are proportionally higher, hence a recent tendency to build larger vessels. 8. The average catch per year by a medium size vessel (40-44 feet) is approximately 320 tons while catch for a 55-60 foot vessel is about 480 tons, but in 1966 these averages were only 133 and 305 tons. Possibility of Extending Fishing Range and Seasons 9. Tuna are caught in profitable operations by foreign purse seiners off the coast of Ecuador, outside the area exploited by the Manta fleet and during months of the year when most of this fleet remains inactive. Opera- tions of these foreign vessels extend along the coast off Manta as well as in the Gulf of Guayaquil. Need for Purse Seine Vessels 10. The experience of foreign operators shows that tuna can be caught successfully over a wider area than is presently exploited by the vessels based at Manta and during the months when these vessels remain inactive. The present range of operations of tuna fishing vessels from Manta can be extended only if two conditions are simultaneously fulfilled. First, use of a fishing method not requiring live bait; second, use of vessels equipped to preserve the fish on board. Size of Vessel 11. As skipjack tuna, and some yellowfin, are present nearly all the year off the coast of Ecuador, the range of the vessels need not extend more than 200 miles. For this reason, the size of the vessels need not exceed 90 feet overall length.  ANNEX 2 Page 3 lnatn for Catch Estirates for Project Fleet ,2. In its bulletin Vol. 8, No. 6 (Alverson, 1963,), the Inter- Arerican Tronica). Tuna Cormission !:ives data on the distribution of fishing effort 1/ and tuna catches in the tropical area of the Easterr. Pacific. 13. Total tuna. catch, fishing effort, end. catch per unit of effort .re riven by souare areas of five degrees latitude and. longitude for easch nruarter of the years 1959 through 1962. The distribution of catches per ocean areas of one degree souares are also given. 1P|. A new publication showing data for the years 1963 to 1966 is in rrerParation and these data. were made available to the aprraisal mission. 15. The area. falling, between the eouator and latitude 5 degrees south and between meridians 80OW and 83oW% roughly cover fishing grounds west of the Ecuador coast (Map). tr.licability of IATTC Data to Projected Purse Seining, Off Ecuador 16. The data have been adjiisted. to a standard. purse seine vessel of between Ol-200 short tons frozen tuna carrying capacity and a register len,gth 2/ of between 70-115 feet. The project vessels would feall within these len,gths. Purse seiners this small, particularly U.S. vessels, do not often fish off Ecuador because of the distance from their bases. IATT2C obtained efficiency factors standardizing fishing effort by compari- sons between various sized vessels fishing at the saeie time and. in the sa.me place. 17. The area covered by IATTC catch statistics covers the fishing grounds off Ecuador south of the equator and includes the area in which the Manta. bait boat fleet operates, as well as the Gulf of Guayaquil and its a.' rnroaches. It extends to the west to a distance greater than would be the nornal range of onerations of the proiect purse seiners. The area a]so covers a segment of about one and a. half degrees longitude off the *northern coast of Peru. 1/ Fishing effort is the number of standard fishing days, i.e., the number of days spent in fishing or searching for fish (excluding navigation to and from the fishing grounds) by a "standard vessel" (paragraph 16). Catch per unit of effort is the asverage catch per standard fishing day. 2/ Register length: the register length of a vessel is the length measured. on the top of the tonnage deck, from the fore spart of the outer nlanking or plating- at the bow to the after part of the stern- rost of screw steamers, and to the a.fter nart of the rudderpost of other vessels. Register length is thus shorter than overal] length (in this case by about 10 feet).  ANNEX 2 Page 4 18. IAT'TIC catch statistics show that poor or no catches have been rerorted outside the limits of the ground.s shown on the map attached to this rerort. Catch per standard fishing day for the whole area covered by the IPiT!:C statistics is thus slightly lower than if calculations had been i-v%de onlv for the part of this area within the limits in which the project purse seiners woul.d. operate. 19. 'or these reasons, figures for catch ner unit of effort in the nxrea t.re used to estimate the catch of the nroposed purse seiners which would orerate within the limits and between the eouator and 40S. Catch Estimates for Project Fleet 20. The combined catch figures for skipjack snd yellowfin tuns., and stpndr.cr fishing day figures recorded by IATTC, for each quarter of the years 1962 to 1966 have been added, quarter by quarter, with the following results: Fishing Effort Catch per Unit of Combined Catch during each Ouarter Effort (short tons Period during each C,uarter (standard. fishing per standard of Yea.r - (short tons) da fishing day) Jen.-.March 444,328 .1 3,597.6 12.3 Anr.-Juie 67,003.3 4,260.6 15.7 Jul.-Sept. 66,588.6 6,387.4 10.4 Oct.-Dec. 39,229.9 6,339.2 6.2 21. The project nurse seiners would choose the less productive neriod of the year for overhauling, refitting, etc., and it can be assumed. that they woulo onerate only during the three most productive quarters, making a total season of nine months. As tuns. are found close to the coast, the vessel would spend nractically 811 its operating time searching for fish and fi.shing. Ajlowing time for turn-rounds end minor repairs, it can be safely assumed that the vessel would fish 180 days per season. If these fishing days are evenly distributed during the first three quarters of the year, the catch can be estimated as follows: First quarter 60 davs x 12.3 = 738 short tons Second quarter 60 days x 15.7 = 942 short tons Third quarter : 60 days x 10.4 = 624 short tons Total 180 days 2,304 short tons 22. If, for a more conservative estimate, it is assumed that the vessel would fish for only 156 days equally distributed in the three first quarters of the year, the estimated catch would be 2,000 short tons.  ANNEX 2 Page 5 23. Better catch estimates could be obtained by analyzing the IATTC records established for each month and each square degree area of the fish- ing grounds off Ecuador. This would give a more accurate determination of the optimum fishing season, as catches are likely to be better in the latter part of the first quarter and in the earlier part of the third quarter than averages for these complete quarters indicate. 24. This analysis would require a considerable time, but would be very useful for the Ecuadorian tuna fishing industry. It is suggested that NFI should request this basic data from IATTC and proceed with this analysis. Distribution of Catches by Species 25. The bulk of catches off Ecuador is skipjack tuna, but in the period of five years 1962-1966, yellowfin tuna accounted for 42 percent of catches in first quarters, 29 percent in second quarters and 17 percent in the third. 26. It is not anticipated that the catch of purse seine vessels based in Ecuador would contain such a high proportion of yellowfin as the vessels which are the source of these figures operate far from base and consequently find it more profitable to concentrate on the more valuable yellowfin. Such concentration would not be necessary in the case of the project purse seiners based in Ecuador and not operating for long as freighters of their own catch. For this reason, income calculations (Annex 8) assume a catch including only 10 percent yellowfin. 27. The 1966 IATTC annual report states that fluctuations in size of skipjack populations from year to year in the eastern Pacific are not related to the intensity of fishing, "... Therefore, it is believed that the skipjack stocks can support catches greater than the current harvest." 28. IATTC population studies on yellowfin show that the stock has been exploited above the level of maximum sustainable catch. Since 1966 the yellowfin fishery had been regulated; the catch being limited by an annual quota with the purpose of restoring the stock to its optimum size. Since this regulation is being enforced, the catch per unit of effort is not likely to diminish during the quarters of the year when project purse seiners would be operating. July 18, 1968   ECUADOR ANNEX 2 Table 1 FISHERIES PROJECT OWNERSHIP OF ECUADORIAN TUNA FL ET Number Number of Boats Owned of Owners by each Owner Total 22 1 22 5 2 10 2 3 6 1 4 4 1 5 5 1 6 6 1 7 7 33 60 July 18, 1968   ANNEX Z CHART I ECUADOR: MEAN MONTHLY LANDINGS OF TUNA, 1962-66 (SHORT TONS) 2,500 ,2,500 2,000 - 2,000 1,500 1,~500 1,000 1,000 500 500 0 A JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC IBRD -3729   ANNJEX 3 Page 1 ECUADOR FISHIERIIES PROJFCT PROC'ESSING AITD. MAFRITING OF ECtJADORIAI' TUT.A '. Tuna processing plants in Manta produce frozen tuna, tuna canned ir brine and tune. canned in oil. 2. Prozen tuna and tuna canned in brine are exported. to the U.S.A. (includineC Puerto Rico). Tuna canned in oil is not exnorted to the U.S.A. because of the heavy customs duties. It is partly sold on the Fcuadorian market where demand. is gradually increasing, and nartly exnorted to Colombia. Plant Operation 'Q. The freezing installation receives fresh fish directly from the fishinF vessels. when the fish is kept in cold storage until it is canned or shipped for export. The freezing enuinment operates only during the peak fishinp season and its rate of utlization varies with the daily fluc- tuations of the fishing fleet catch. It. The canning installation also receives fresh fish directly from the vessels but, whenever the catch is not sufficient to use full plant caracity, it cans fish which has been previously frozen and stored. Thus, operation of the canning installe.tion is not affected by daily catch fluctuations. Plant Capacity 5. The naximum daily capacity of a plant is the sum of the daily capacities of its freezing and canning units. Since tuna catches fluctuate sharnly during the fishing season, occasions occur when the plant cannot process all the fish available and thus the fleet has to limit its opera- tions. On other occasions a relatively small proportion of plant capacity is used. 6. The first processing plant was constructed. in Manta in 1952 with the object of freezing tuna for export. In the beginning it operated with its own bait boat fleet with foreign registered vessels and foreign captains. The plant gradually replaced its own vessels by financing a locallv owned fleet. By 1957 a cannery had been added to the plant and the fishing'fleet was wholly operated by local owners linked to the plant by loan and fish supnly agreements. Plant capacity was low in comparison with the catching capacity of the fleet which had to limit its catch during the peak season. 7. In order to stimulate development of the tuna fishery, the Govern- rent irn 1963, temporarily authorised U.S. vessels to freeze and store tuna in the harbor of YM,anta and this led to an increase in production. Since then,  ANNEX 3 Page 2 production has further increased and in 1967, three shore plants were in operation in addition to freezing vessels (Table 2). Further construction ashore is planned and in progress and by 1969 will give total daily capaci- ties of 145 tons canning and 590 tons freezing, and 6,800 tons of cold stor- age. These capacities exceed requirements of the present bait boat fleet and make an increase possible. 8. The mission estimates that these capacities would be more than adequate to handle the catch of the bait boat fleet and the project vessels. It is anticipated that the catch of the project vessels would not peak as sharply as that of the bait boat fleet and therefore would assist in filling non-utilized capacity, particularly during off-peak periods of the year. International Tuna Prices and Market 9. Variations in prices in tuna in the U.S.A are shown in Table 4. For the future, the 1966 annual report of IATTC states that in the foresee- able future, growth in demand is likely to continue to outstrip supply and as a result, prices are likely to edge upwards. Prices and Market for Project Catch 10. The catch of the 12 project purse seiners is estimated to reach a total of 24,000 short tons yearly. The catch, frozen on board, would be sold to the processing plants in Manta. 11. The processors purchase unfrozen tuna directly from boat owners at prices established by yearly contracts. The prices have gradually risen to US$78 per short ton for skipjack and US$100 per short ton for yellowfin in 1967. These are very low in comparison to prices paid to U.S. fishermen in the U.S.A (Table 4). However, to some extent, they reflect the very favorable terms which the owners of almost all boats enjoy on their loans from processors. In addition, until recently, competition between plants has been limited. 12. It is believed that with the increased capacity there will be greater competition for the fish between processors, particularly for the catches of boats financed independently and this will lead to improved prices. In addition, fish caught by project purse seiners in the off-peak periods for bait boats would command a higher price as it would enable processors to maintain a high level of activity. 13. The returns estimated for the project do not take account of these improved marketing circumstances. Except for an addition of US$15 per ton for the value added by the freezing process on board project vessels, the prices used are those paid in Ecuador for unfrozen tuna in 1967. July 18, 1968  ECUADOR FISHERIES PROJECT Evolution of Tuna Processing Capacity in Manta Years 1962 1963 51967 1969 Number of shore plants 1 1 1 3 4 Number of cold storage vessels 0 2 2 2 0 Cold Storage Capacity: Shore plants 2,425 2,645 2,645 4,630 6,835 Vessels - 670 670 1 380 Total 2,1425 3,315 3,315 06 Daily Freezing Capacity: Siore plants 70 200 275 370 590 Vessels 100 100 65 - Total 70 300 375 590 Daily Canning Capacity - shore plants ' 50 50 50 90 145 Total Maxiamu Daily Capacity 1' 120 350 425 525 735 g Capacities in short tons. 2/ Capacity in 1969 is calculated on the basis of new plant construction and assuming that these new plants will replace the vessels which are being used as freezing plants and cold storage in 1967. July 18, 1968 -Ii  ECUADOR FISHERIES PROJECT Tuna Processing Capacity Available in Manta At Beginning of 1967 Season (Short tons) Daily Capacity Cold Storage Enterprise Canning Freezing Facilities Industrial Nacional E4pacadora de Alimentes (INEPACA) - shore plant 90 275 2,980 Del Monte del Ecuador, C.A. - freezing vessels 65 1,380 Productos del Mar, S.A. (PROMASA) - shore plant 55 1,100 Frigorificos Manta C.A. (FRIGOHANTA) - shore plant 140 550 Total: 90 4|35 6,010 July 18, 1968  ANNEXA ECUADOR FISHERIES PROJECT UNITED STATES TUNA MARKET UNITED STATES' PRODUCTICN AND IMPORTS OF TUNA Imports U.S. Catch Fresh and Canned Year Round Weight Frozen Round Weight In Oil In Brine - short tons - 1955 145,936 82,OU 409 17,372 1956 177,601 76,470 293 18,814 1957 161,642 9h,576 534 21,659 1958 172,442 131,586 379 22,723 1959 154,000 156,077 415 27,652 1960 159,556 152,464 298 25,580 1961 178,427 134,582 216 29,1u6 1962 170,374 182,264 179 28,180 1963 179,322 160,455 112 28,635 1964 177,1Ul 189,621 100 27,223 1965 186,736 189,318 106 25,356 1966 166,082 224,916 80 30,700 Source: Fisheries of the United States 1966, U.S. Bureau of Commercial Fisheries, C.F.S. 4400, p.43 July 18, 1968  ECUADOR - ~~~~~~~~~ANNEX FISHERIES PROJECT Table 4 UNITED STATES TUNA MARKET TUNA PRICES PER TON PAID TO FISHERMEN IN THE U.S.A. 1/ Year Yellowfin Tuna Skipjack Tuna 1956 270 230 1957 270-230-270 230-190-230 1958 275-283-263 235-252_223 1959. 270-240-253 230-200-217 1960 250 210 1961 240-290 210-260 1962 300-290 260-250 1963 290-240 250-200-210 1964 245-270 200 1965 245-336 200-286 1966 315-480-350 260-392-290 Source: Pacific Fisherman, January 25, 1967 j/ These figures do not indicate the quantities which were sold at the various prices. They do not indicate seasonal fluctuations, premium prices or bonuses. In addition, prices paid for fresh and frozen imports are not governed by the above. July 18, 1968  ANNEX 4 Page 1 ECUADOR FISHERIES PROJECT COMISION DE VALORES - CORPORACION FINANCIERA NACIONAL Origin and Aims 1. The Comision de Valores, Corporacion Financiera Nacional (CFN), originated in 1948 as a body to trade in, and establish an open market for, Government bonds. In 1953 this body, which operated as a branch of the Central Bank, was replaced by the Comision de Valores as an autonomous agency. Its functions were extended to cover operations in private securi- ties, in particular the purchase of mortgage deeds issued by banks for agricultural and industrial development purposes. In August 1964, the decree establishing CFN, as it now operates, was passed. The principal purpose of the new decree was to allow CFN to enter the field of long-term lending to private industry. 2. The present functions of CFN are primarily to provide long-term finance to private industry. Concurrent with building up this activity, loans to the Government and forms of indirect industrial financing chan- neled through the private banks have been reduced. CFN also retains its aim to build up the capital market mainly through its operations in govern- ment securities, but also through private sector securities operations. Organization and Management 3. CFN is headed by a Board of Directors of five: a nominee of the President of the Republic, a joint nominee of the Minister of Finance and the Minister of Commerce and Industry, and two representatives of the private sector nominated by the Chambers of Commerce of the Coast and the Sierra. The fifth member is the General Manager of the Central Bank. Board membership of CFN therefore reflects a balance of private and public interests. All loans involving amounts over US$55,000 go to the Board of Directors for approval. The Board also decides all matters of principle, such as whether to make loans in a new field. In addition it appoints its Chairman and the General Manager of CFN, whose tenure is renewable annually. 4. Beneath the Board of Directors, there is an Executive Committee of three members composed of the President of the Board, one other member of the Board, and the General Manager. All loans of US$11,000 up to US$55,000 are approved by the Executive Committee. Loans of amounts under US$11,000 may be approved directly by the General Manager of CFN. 5. CFN staff numbers about 70, and is grouped in three main divi- sions under assistant managers reporting to the General Manager (Chart 1).  ANNEX 4 Page 2 6. The sections under the Technical Assistant Manager appraise loan applications and supervise disbursement and repayment. The Evaluation section has a staff of 17 and includes engineers, economists and market analysts. A loan application is appraised independently by an economist, engineer and market analyst, and a draft report goes to the Technical Assistant Manager. After discussion with him, a final version is presented to the Board in cases of both negative and positive findings from appraisal. In cases where loan applications fail during appraisal, the appraisal halts at the point in question, e.g., unsatisfactory commercial references. The conclusions of an appraisal report are rarely altered at the Executive Committee or Board level. The usual period between a loan application and the issuing of the appraisal report is 60-90 days. 7. Loans usually stipulate conditions which have to be met prior to agreement, prior to disbursement and during the period of the loan. A control section of six exists to ensure loan conditions are met. A records section keeps check on interest due, and records payments and payments due. 8. The Administrative Assistant Manager is responsible for the accounts section in the Quito head office and the branches at Guayaquil and Cuenca, as well as the administrative section - a total of about 25 staff. 9. A third division under an Assistant Manager deals with the securi- ties work of CFN and includes the treasury section and external relations. Accounts and Audit 10. Table 1 shows recent balance sheets of CFN. The assets reflect the build-up in long-term loans to industry and the decline in lending to government. In lending to the government CFN was in part acting as an inter- mediary on behalf of the Central Bank which was excluded by its charter from lending direct to the government. The Central Bank lent to CFN which on-lent, to the government. Accordingly, the balance sheets show that loans payable to the Central Bank have declined. 11. CFN security holdings are mainly in government bonds, which are usually resold to-third parties. A portion of these are redeemable at par on presentation and CFN is required to keep a cash reserve of 10 percent of these securities. Recently, CFN has taken small direct shareholdings in two private concerns and in addition, has underwritten a capital issue by a textile company. 12. Paid-in share capital virtually represents the authorized limit of 500 million sucres. It has been subscribed by the Government. The small decline in 1967 reflects a recent settlement with the Government of certain liabilities. CFN is not contemplating an increase in share capital but aims to supplement its sources of funds by building up its reserves out of profits. This policy is aided by the fact that CFN is under no obligation to pay divi- dends on its share capital and has no proposals to do so. CFN would not wish  ANNEX 4 Page 3 to resort to the Government for further finance since it believes its auton- omy would be impaired thereby. In the future, CFN is aiming to increase its holdings of private securities to the point where it can make public offers of loan portfolio participation certificates. Such certificates, some with a fixed term and rate of interest, and others with a variable return, would it is felt, be attractive to investors. 13. A loan from the U.S. Agency for International Development (AID) of $5 million was made available in mid-1962 and has now been fully allo- cated. The loan was for 40 years, with a ten year grace period, at the rate of three quarters of one percent and was tied to purchases in the U.S.A. The AID loan was followed by a loan for a similar amount from the Inter- American Development Bank (IDB). Of this amount, $2.5 million is provided by the Special Operations Fund, at a rate of 4 percent per annum and is tied to purchases in the U.S.A. The other $2.5 million comes from regular IDB sources at a rate of 6-.