Nicaragua - Second Managua Water Supply Project

CCRtULTING CO,Y RESTRICTED TO BE RETURNED TO REPORTS DESK Report No. P-1032 F'IELIE COPY3 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group, does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA AGUADORA DE MANAGUA WITH THE GUARANTEE OF NICARAGUA FOR A SECOND WATER SUPPLY PROJECT February 24, 1972  CURRENCY EQUIVALENTS US$ 1.00 = 7 C6rdobas (C$) C$ 1 = $ 0.1428  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESA AGUADORA DE MANAGUA WITH THE GUARANTEE OF NICARAGUA FOR A SECOND WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed loan to Empresa Aguadora de Managua with the guarantee of the Republic of Nicaragua for the equivalent of $6.9 million to help finance a water supply project. The loan would have a term of 24 years, including 3 1/2 years of grace, with interest at 7-1/4 percent per annum. PART I - INTRODUCTION 2. Nicaragua has to date received fifteen Bank loans and one IDA credit, totalling $62.9 million net of cancellations. Seven loans, totalling $42.L million, have been made for power; three loans, totalling $10.2 million, for transportation; one loan,amounting to $h.0 million, for education; four loans, totalling $3.3 million, for agriculture, and a credit, amounting to $3.0 million, for a water supply project. The last operation, a loan for power, was signed in June 1968. In addition to the proposed loan, the Bank expects to make a loan of about $20 million for power in FYi972. 3. As of January 31, 1972, a total of about $6.0 million remained to.-be disbursed on two loans, one for education and one for power. The eaucation project (Loan 532-NI) had a very slow start, mainly because of initial financing and management problems which seem now to be solved. Although we expect disbursements to pick up over the next few months, the original closing date will have to be postponed. The power project (Loan 543-NI), which includes facilities in Managua and Santa Barbara, is nearing completion. Owing largely to delays in delivery of equipment, installation of a thermal unit in Managua fell some fifteen months behind schedule, but difficulties have now been solved and the project as a whole is expected to be completed on time. II. IFC has made one investment in Nicaragua, in 1968, in a new cotton and synthetic fiber textile company (FABRITEX), consisting of a $1 million loan (fully disbursed) and an equity participation of about $1 million. IFC is presently assessing the Company's need for additional financing. The possibility of other operations in the country is under review. 5. A summary of Bank loans, IDA credits and IFC investments is in Annex I.  - 2 - PART II - THE ECONOMY 6. A report entitled "Current Economic Position and Prospects of Nicaragua" was distributed to the Executive Directors on April 27, 1971. Basic data on the economy are in Annex II. 7. Nicaragua's economic fortunes have been traditionally linked to fluctuations in the production and export of one or two commodities. Over the last five decades Nicaragua has developed from a banana to a coffee and then, more recently, to a cotton econamy. This great dependence on one or two export commodities and a high import coefficient have resulted in recurrent balance of payments crises which have limited Nicaragua's ability to develop its ample agricultural resources. 8. A rapid increase in cotton production for export allowed Nicaragua's economy to grow at about 10 percent annually in current prices during 1961-67. Inflation was negligible during this period, and real per capita income increased at about 6 percent per year or about twice as fast as population growth. The establishment of a Central American Common Market in the early sixties stimulated rapid growth of industrial exports, and a large increase in meat sales to the United States also contributed to the diversification of Nicaragua's exports. None the less, the economy remained dependent on cotton. Between 1966 and 1970 cotton production fell sharply, after extension into marginal lands had created unmanageable pest control problems. The decline of cotton was only partially offset by the growth of other exports and real per capita income stagnated in 1966-69. Economic growth recovered in 1970, mainly because of increased coffee prices and stepped up sales of manufactures to Honduras and Costa Rica. In 1971, however, the pace of growth slowed down somewhat, as declining coffee prices and regional sales offset the effects of a marked recovery of cotton exports. Over the next few years the real growth of GDP is unlikely to exceed 5 percent annually because of limited export prospects for cotton, coffee, beef and manufactures, but, if a longer view is. taken, Nicaragua's ample unexploited resources offer the possibility of sustaining a considerably faster growth. 9. During the last two years the Government adopted fiscal and monetary policies aimed at arresting a sharp fiscal and balance of payments deterioration which the cotton crisis and inadequate policies had brought about in 1967-69. In May 1970 the Government introduced a 5 percent general sales tax and raised interest rates to levels more in line with those of the world money markets. As a result of the fiscal measures, government current revenues increased sharply in 1970 (17 percent) and continued to grow substantially in 1971 (10 percent), while the expansion of current expenditures was limited to about 6 percent in each year. Central govern- ment savings increased from $4.9 million equivalent in 1969 to $12.7 million in 1970 and $17 million in 1971. Total public sector savings recovered from roughly 2 percent of GDP in 1969 to 3 percent in 1970, while public investment rose from about 4 to 5 percent of GDP, and the gap was financed  -3- through official external borrowing. The share of public investment financeci by public savings also increased, from 56 percent in 1969 to 58 percent in 1970. Preliminary esti-mates point to a continuation of this favorable trend in 1971. The Government plans to introduce new tax measures in 1972-73, designed with assistance from the IMF. 10. Nicaraguas balance of payments also improved in 1970-71. Net international reserves -- negative in 1969 -- increased by $13 million in 1970, thanks to increased foreign exchange earnings from coffee and manufactures, the slower growth of imports, and a stepped up inflow of long-term foreign loans to the public sector. Net reserves increased further by $10 million in 1971 to an estimated $15 million at the end of the year -- equivalent to about 3 weeks current payments -- a level, nevertheless, which is still low in view of the cyclical instability of Nicaragua's exports. 11. Nicaragua's debt service ratio increased frcm about 4 percent in 1965 to 10 percent in 1970, following a substantial increase in short- and medium-term borrowing from foreign commercial banks in 1967-68. In 1971 the Government took steps to lengthen the maturity structure of the debt and, as part of a stand-by arrangement negotiated with the IMF, agreed to set a limit in 1972 on new external borrowing with maturities of less than 12 years. Accordingly, the debt service ratio is expected to decline after outstanding shorter term external liabilities are repaid over the next three years or so. 12. The Government is increasingly aware of the need to diversify and strengthen the economy and is striving to create a suitable administrative framework. A new Planning Office, established in April 1971, is working on a five-year development plan for 1972-76. A development fund will be established shortly within the Central Bank and a project preparation unit is being developed with assistance fron consultants. This unit is con- centrating its efforts on projects in agriculture and industry, in agree- ment with the Government's policy of placing increasing emphasis on the promotion of projects with a direct impact on production. The Government also intends to distribute the benefits of development more widely than in the past, mainly through sizeable investment in social infrastructure, especially in education and water supply. If the savings effort of the last two years is sustained and project preparation effectively strengthened, Nicaragua will continue to deserve external support for its development programs. 13. Apart from the Bank, external financing is principally provided by USAID, the Interamerican Development Bank (IDB) and the Central American Bank for Economic Integration (CABEI). USAID has made loans for highways, agriculture, industry, rural electrification, housing, education and health. IDB is financing water and sewerage, higher education, agriculture and transport. CABEI is financing projects with a regional impact, principally  in transport and industry. The past lending of these agencies is summarized below. The size and composition of their lending programs are still un- certain, but it is likely that they will continue to focus on the sectors which they financed in the past. (US$ millions) IBRD IDA AID IDB j CABEI 1/ Lending 1950-1965 35.6 3.0 20.7 42.4 13.3 Lending 1966-1971 Transport - - 2.8 3.5 22.5 Power and Telecommunications 20.3 - 15.0 - h.6 Education 4.0 - 2.0 0.3 0.7 Health - - 6.1. 8.4 - Housing - - 3.7 6.0 6.5 Agriculture - - 17.6 19.7 - Industry - - 4.5 - 16.9 Others - - 9.h 1.0 Total 59.9 3.0 81.8 81.3 64.5 / Includes some local currency loans. 14. Loans from these agencies are usually on softer terms than Bank loans, a factor which limits the Bank's ability to support the Government's programs in areas of development such as rural electrification and rural water supply. AID loans are for a term of hO years with interest of 2 to 3 percent, and most IDB loans are extended from the Fund for Special Operations, carrying 3-4 percent interest rates and terms ranging from 15 to 30 years. The terms of CABEI loans -- which often provide 100 percent financing of local expenditures -- vary in accordance with CABEI's sources of financing, but generally contain a substantial concessionary element. USAID, which held roughly one-third of the debt repayable in foreign currency at the end of 1971, is Nicaragua's largest external creditor. Liabilities to the Bank Group represented less than one-fifth of debt repayable in foreign currency. 15. In the past, Bank Group lending has been directed mainly towards the strengthening of economic infrastructure such as power, ports and roads, and to a lesser extent toward agricultural activities and social sectors such as water supply and education. Bank lending_was interrupted in 1969-71 because of inadequate economic policies and lack of suitable projects, but the resumption of lending is now possible as the country's developnent effort has materially improved, partly as a result of the Bank's influence.  - 5 - 16. For the immediate future, the Bank plans to continue to assist Nicaragua in those areas where finance frcm other agencies is not available. Several agricultural operations, in line with the Government's strategy to put the main thrust of development on the diversification of production, are being considered. Appraisal of a fisheries project is being completed. Two FAQ missions visited Nicaragua, in February 1972, to explore the possibility of Bank financing for livestock and agricultural credit projects. A UNDP/UN mission is carrying out ground water investigations which may result in a project for Bank financing. With respect to ind stry the Bank is actively expLoring the possibilities for channelling financing to Nicaragua and the other Central American countries through the Central American Bank for Economic Integration (CABEI). The Bank plans to contine to assist the development of physical and social infrastructure of Nicaragua in line with the_growth of the econamy. A seco,d prolqect in secondary education is expected to be necessary within 2-3 years. Accordingly, a UNESCO mission visited Nicaragua in January 1972 to assist the Government in the preparation of this project. Power demand has increased rapidly in the sixties and power availability will continue to be important for the industrialization of Nicaragua. As a result of its efforts to foster power interconnection in Central America, the Bank expects to negotiate soon loans to Nicaragua and Honduras for interconnection of their power grids. These projects are an interim stage prior to the construction of a large hydro- power project in Honduras, in the late seventies, to serve both countries. Preparation of a second port project, for the expansion of the Port of Corinto on the Pacific, is well advanced, and appraisal is planned fot FY1973. PART III - THE PROJECT Sector Background 17. Nicaragua's water supply system developed during the sixties, and contributed substantially to improving health conditions. By the end of the decade, Nicaragua had surpassed the goal set out in the 1961 Charter of the Alliance for Progress to provide water supply for at least 70 per- cent of urban population in Latin America. At the end of 1969, about 87 percent of Nicaragua's urban population and 6 percent of its rural pop- ulation were served by piped water. 18. The capital city's main supplier of potable water is the Empresa Aguadora de Managua, which serves about 280,000 people (72 percent of the city's population) with metered connections, in addition to 5,000 to 10,000 people with community standpipe service. Independent systems of governmental and private entities serve the remainder with house connections and ccnmunity standpipes or wells. Some large industrial users have their own groundwater sources.  - 6 - 19. Demand for water in Managua is expected to grow, as in the past, at about 8 percent per year, mostly as a result of population growth in the city (about 6 percent per year) and a modest increase of per capita con- sumption. The latter, about 70 gallons per day, is about the same as in other cities in Latin America where the Bank has financed water supply projects. The proposed project is the second stage of a long-range program, started in 1963, to expand the Empresa's water supply system. Its execution is essential to prevent deterioration of health conditions in the rapidly expanding urban community of the capital. In addition, the project would meet the growing requirements of industrial development around the capital. A third stage of the long range program for water supply in Managua is planned for the early eighties. 20. Responsibility for water supply outside the capital is shared by municipal governments and an agency of the Ministry of Health, the Water Supply and Sewerage Department (Departamento Nacional de Acueducto y Alcantarillado - DENACAL). With financial assistance from IDB, DENACAL recently completed a $3.3 million program of water supply improvement in 75 small communities, and is planning to invest another $13.6 million in water supply and sewerage projects for an additional 64 communities and 10 cities between 1972 and 1976. This program includes the acquisition of some supply systems which municipal governments are now operating with limited efficiency. 21. Development of sewerage services in Nicaragua, however, has lagged behind that of water supply. With only 32 percent of urban population served by sewerage, Nicaragua is still well below the 70 percent target set by the Alliance for Progress and the standards reached in most of the neighboring countries. DENACAL, which is responsible for public sewerage systems in Nicaragua, will start construction in 1972 of a $8.5 million expansion of Managua's sewerage system with financial assistance from IDB. This project includes design and construction of treatment units and a sewerage outfall to help,relieve the polluted condition of Lake Managua. Project Entity 22. Empresa Aguadora de Managua has been a governmental utility since 1932. Although administratively attached to the Ministry of Public Works, the Empresa operates independently and reports directly to the President of the Republic. It has its own assets, prepares its budget and generates its own funds. The General Manager, appointed by the Government, is responsible for all managerial and administrative functions. It has a staff of 370. 23. The Empresa was the beneficiary of IDA Credit 26-NI, in 1962, for the first water supply project. It completed that project satisfactorily in 1966, _and attained virtually all institutional objectives which IDA had sought. It is well managed and water supply operations are efficiently run. Nevertheless, the Bank can still perform a significant role  -7- in strengthening the Empresals organization, in line with the expected expansion of its operations. Thus, the Empresa has agreed to (i) revise its by-laws, in consultation with the Bank; (ii) engage management consultants to review personnel administration, accounting, inventory control, computer utilization and internal auditing; and (iii) establish a program of improvements, in consultation with the Bank, based on the consultants' recommendations. Project Description and Financing Plan 24. A report entitled "Appraisal of the Second Managua Water Supply Project, Nicaragua" (No. PU-82a, dated February 9, 1972) is being distributed separately. The main features of the project are summarized in Annex III. 25. The project was appraised in the field in May 1971. Negotiations for the proposed loan were held in Washington in January 1972. The Empresa was represented by Messrs. J. Santos Zelaya, General Manager, Adan Cajina R., Director of DENACAL, ALfredo Guerrero, Technical Manager of ENALUF (National Light and Power Company), and Alejandro Romero C., Legal Advisor. The Government was represented by Messrs. Felix Hernandez Gordillo, Director General of the Budget,and Gustavo Escoto-Goenaga, Minister Counsellor of Economic Affairs of the Nicaraguan Embassy in Washington. 26. The project consists of: (a) construction of water wells with an aggregate yield of about 17 million gallons per day (including stand-by capacity); (b) construction of new booster pumping stations with a combined capacity of about 56 million gallons per day; (c) construction of two service reservoirs, about 60 kam of trans- mission mains and about 45 km of distribution pipelines; (d) installation of about 9,400 service connections; (e) construction of a new administration building; (f) acquisition of mobile construction equipnent for water system maintenance and expansion; and (g) review and improvement of the Empresa's operation, with the assistance of management consultants.  - 8 - The project would be carried out during 1972-74, with the purpose of (i) increasing the quantity of water available from an average of 2l to 35 million gallons per day (net of stand-by capacity); (ii) doubling, approximately, the capacity of the transmission network and improving its operational characteristics; (iii) expanding the distribution network by about 15 percent to enlarge the area served; (iv)- providing a new adbministration building to improve office staff efficiency and customer service. During negotiations the Empresa accepted Bank recommendations aiming at keeping the building's design, materials and cost within functional needs. 27. Total cost of the project is estimated at $10.0 million equivalent. The proposed loan of $6.9 million would cover the foreign exchange cost of the project. The project is the main part of the Empresa's $11.8 million investment program planned for 1972 to 1975, for which a satisfactory financing plan has been prepared. About 41 percent of the funds required for this program are expected to be generated from within the EmDresa and 59 percent from the proposed Bank loan. 28. The project would have no adverse effect on the environment and appropriate safeguards are planned to protect the Empresa's water sources. The planned expansion of Managua's sewerage system would provide for satisfactory disposal of sewerage, including additions resulting from the proposed water supply project. The Empresa's groundwater sources could be contaminated by industrial wastes now discharged to the soil and, if the water table were excessively lowered by overpumping, by infiltration of poor quality water from Lake Managua. Appropriate action to prevent possible contamination was agreed upon during negotiations,-and related provisions have been included in the loan documents. Financial Position of the Borrower 29. The Empresa's financial position, which has been improving since completion of-the 1962 project, is sound and is expected to remain so. The rate of return on average net fixed assets in operation in 1971 to 1973 is expected to be over 7 percent. The Empresa has agreed to maintain a rate of return of no less than 7 percent during the term of the loan except for the years 1974 to-1977, when it will maintain a rate of return of no less than 5 percent. The exception is made because of the sharp increase in the book value of net fixed assets with the conmiissioning of new facilities and the rate is adequate to assure the Empresa's financial viability. An increase of about 10 percent in the average tariff is expected to be necessary by 1975 to comply with this rate covenant. 30. The Empresa's debt service ratio is projected to be satisfactory, dropping to 2.0 when loan amortization begins and recovering to 2.6 by 1978. The Empresa has agreed not to undertake any medium- or long-term debt without the Bank's prior approval, unless the Empresa's net revenues would cover debt service by at least 1.5 times.  -9- Procurement 31. Goods financed by the Bank would be procured through international competitive bidding. Suppliers within the Central American Common Market will receive a preference of 50 percent of existing import duties or 15 percent of the c.i.f. cost, whichever is the lower. 32. Nicaraguan firms are expected to be awarded all civil works contracts, for about $3.7 million equivalent, with a foreign exchange component of about $1 million. It is expected that virtually all equipment supply contracts, in the amount of $5.5 million equivalent, would be awarded to foreign firms, including up to about $0.2 million to suppliers from other Central American countries. It is proposed that up to $150,000 be reimbursed to the Empresa from the proposed loan for expenditures in respect of engineering and management consulting services that have been incurred between September 1, 1971 and the date of the signing. Economic Justification 33. The project is technically sound and economically justified. The internal financial rate of return is about 11 percent. This rate understates the economic return on the project, because benefits to public health and better fire protection are not fully reflected in the price charged for water. Furthermore, without the project, the Empresa would either have to refuse to make new connections to its supply or allow water pressures to fall and, by 1974, begin to interrupt the service -- which, because of possible seepage of contaminated groundwater into the distribution pipes, could threaten the potability of the supply. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 34. A number of constitutional changes are now under way in Nicaragua. In August 1971 Congress dissolved itself and granted legislative powers to the President. In February 1972 a Constituent Assembly was elected to prepare a new constitution by mid-1974 and to act as the legislative power in the meantime. The Constituent Assembly will also appoint a three- man Junta (including a member of the opposition) which will act as the executive power as from May 1, 1972. Presidential and Congressional elections are scheduled for September 1974, and the new President and Congress are to take office in December 1974. I am satisfied that the Government has authority to guarantee a loan in present circumstances.  - 10 - 35. The draft Loan Agreement between the Bank and the Empresa, the draft Guarantee Agreement between the Republic of Nicaragua and the Bank, the Report of the Cammittee provided for in Article III, Section L (iii) of the Articles of Agreement and the text of the Resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft agreements conform to the normal pattern for loans for water supply projects. Of special interest are the provisions concerning (i) environmental and water quality protection (Section 4.02, Loan Agree- ment and Section 3.03, Guarantee Agreement); and (ii) preference for Central American suppliers (Schedule L, paragraph 3, Loan Agreement). 36. I am satisfied that the proposed loan would camply with the Articles of Agreement of the Bank. PART V - RECOMMENDATION 37. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments. Washington, D.C. February 2h, 1972  .NNEX I ag eIo f 2 STATEKENT OF BANK LOANS AND IDA CREDITS TO NICARAGUA AT JANUARY 31, 1972 Loan or Credit Amount (US$ millions) Number Year Borrower Purpose Bank IDA Undisbursed 44 1951 Banco Nacional Agriculture 1.2 - - 45 1951 Government Roads 3.5 - - 52 1951 Government Grain Silos 0.5 - - 81 1953 Government Roads 3.5 - - 82 1953 Government Power 0.5 - - 121 1955 Empresa Nacional de Luz y Fuerza (ENALUF) Power 7.1 - - 122 1955 Inatituto de Fauento Nacional Power 0.4 - - 130 1955 Instituto de Fonento Nacional Agriculture L.5 - - 143 1956 Autoridad Portuaria de Corinto Port 3.2 - - 154 1956 ENALUF Power 1.6 - - 259 1960 ENALUF Power 12.5 - - 26 1962 Government Managua Water Supply - 3.0 - 332 1963 Government Irrigation O.1!a - - 470 1966 ENALUF Power 5.0 - - 532 1968 Governimnt Education 4.O - 3.6 5h3 1968 ENALUF Power 15.3 - 2.4 Total (less cancellations) 59.9 3.0 6.o of which has been repaid 23.0 0.0 Total now outstanding 36.9 3.0 Amount sold 4.1 of which has been repaid 3.6 o.5 Total now held by Bank and IDA 36.4 3.0 Total undisbursed 6.o 6.o i Of the original loan of US$2.6 million, US$2.5 million was cancelled.  ANNEX I Page 2 of 2 StATEMENT OF IFC INVESMTS IN NICARAGUA AT JANUARY 31, 1972 Amount (USanillions) Year Campany Loan Equity Total 1967 Textiles Fabricato de Nicaragua, S.A. (FABRITEX) 1.0 1.0 2.0 Total 1.0 1.0 2.0 less sold or repaid 0.5 0.4 0.9 Now held 0.5 o.6 1.1  NICARAGUA BASIC DATA ANNEX II Page 1 of 4 I. SIZE Area (square kilometers) 148,000 1960 1965 1969 1970 1971 Population (million) 1..41 1.63 1.82 1.87 Annual growth rate (%) 3.0 2.8 2.8 Density per square km. 9.5 11.0 12.3 12.6 GNP per capita atfictor cost (US$) 231 329 386 415 II. ECONOMIC INDICATORS GDP at current factor cost S ( million) 2,298 3,857 5,063 5,615 6,120 Sector origin (f') Agriculture 30 30 27 27 Manufacturing 10 13 16 17 Construction 2 3 3 3 Trade and finance 26 25 23 24 Public administration 8 8 9 9 Other 24 21 22 20 Annual changes (M) 1961-68 1969 1970 1971 GDP at current market prices 9.5 5.3 9.8 9.0 GDP at 1958 market prices 7.8 5.7 5.1 h.0 Manufacturing value added (constant prices) 13.3 9.0 12.0 Agriculture value added (constant prices) 7.3 6.7 2.5 Exports, f.o.b. 12.2 -2.2 13.5 2.3 Imports, c.i.f. 14.3 -4.0 12.3 8.0 Money and quasi-money 5.2 15.1 Total banking system credit 14.4 10.0 5.2 to public sector, net -2.0 68.8 -8.0 to private sector 16.6 6.2 6.6 GDP deflator (1958 = 100) 1.7 -0.4 4.7 5.0 1960 1965 1969 1970 Percent of GDP at current market prices: Gross fixed investment 12.3 17.7 16.4 15.0 Public sector (2.4) (4.2) (3.6) (3.8) Private sector (9.9) (13.5) (12.8) (11.2) Consumption 87.7 82.b 83.8 84.9 Gross domestic savings 12.3 17.6 16.2 15.1 Resource gap (surplus -) 2.2 2.4 2.3 2.0  BASIC DATA ANNEX II Page 2 of 4 1960 1965 1969 1970 1971 Public Sector Finances (millions of c6rdobas) Current revenue 655 862 933 641 a/ (% of GDP at current market prices) (15.5) (152iP (15.5) (iO.o) a/ Current expenditure 475 743 759 512 i (% of GDP at current market prices) (11.2) (13.6) (12.6) (8.1) i Current surplus 180 119 174 119 i Investment expenditure 185 212 302 235 i Surplus/Deficit -5 -93 -128 -117 i Net external financing _16_ _33 _ 129 93 ia Net domestic financing 11 60 -1 24 i Balance of Payments (millions of US dollars) Exports of goods and non-factor services 77 168 194 220 226 Imports of goods and non-factor services 84 183 211 236 253 Resource gap -7 -15 -17 -16 -27 Factor income, net -3 -15 -25 -28 -30 Current account deficit 10 30 42 44 57 Transfers, net 3 6 6 6 6 Official capital, net -1 7 11 25 43 Private capital, net 12 18 18 26 18 Reserve changes, net -4 -1 7 -13 -10 Concentration of Cammodity Exports (% of exports, f.o.b.) Coffee 30 18 13 18 18 Cotton 24 44 29 20 22 External Public Debt Medium and long term outstanding as reported to IBRD (including undisbursed, repayable in local and foreign currency, in millions of US dollars) 39 i 58 bJ 268 283 Debt service ratio (% of foreign exchange earnings) 4.2 9.4 10.3 16.0 a/ Central Government only. / Repayable in foreign currency.  BASIC DATA ANNqX II Page 3 of !, 1960 1965 1969 1970 1971 Net foreign exchange reserves US$ millions 28 -9 5 15 Coverage of current payments (number of weeks) 7 3 IERD/IDA loans and credits as of January 31, 1972: US$62.9 million of which outstanding: 39.9 million IMF data:a/ Quota SDR 27 million Fund holdings of c6r- dobas (Feb. 11, 1972) 141 of quota Allocation of SDR's 1970 3.2 million 1971 2.9 million 1972 2.9 million Stand-by arrangement (Feb. 9, 1972 - Feb. 8, 1973) SDR 10.8 million III. SOCIAL AND REIATED INDICATORS Population Birth rate (per 1,000 pop.)bJ 45.2 42.0 43.9' 42.6 Death rate (per 1,000 pop.) 8.9 7.3 8.2 Infant mortality (per 1,000 live births) 70.2 51.6 45.3 Life expectancy (years) 69.4 Dependent population (% of total pop.) 52.1 52. Urban population (% of total pop.) 33.8 41.7 43.7 h5.6 Employment Economically active population (% of total pop.) 31.1 31.6 32.6 32.8 Distribution of economically active population (% of total): Agriculture 58.1 55.6 54.9 Indastry 11.7 11.8 11.8 Other 30.2 32.6 33.3 3 SDR 1 = US$1 at the parity of US$35 for 1 ounce of gold. / Registered rates.  BASIC DATA ANNEX II Pag"677 of 4 1960 1965 1969 1970 1971 Central Government- xpenditures on Social Sectors / % of GDP at current market prices 3.8 3.7 X of Central Government expenditures 35.7 33.7 Income Distribution % of National Income: Lower 20X of population Highest 20% of population Wages and salaries as % of national income 60.7 61.3 61.2 Education Literacy rate (% of adult pop.) 50.4 60.0 Primary school enrollment (% of school age pop.) 45.6 54.2 58.3 60.8 Secondary school enrollment (% of school age pop.) 19.6 Primary school retention ratio 13.0 13.3 21.4 Secondary school retention ratio 52.0 h2.h Health Doctors per 10,000 population 3.5 4.2 5.1 Population per hospital bed 435 436 371 Access to potable water (% pop.): Urban 37.0 36.o 87.3 95.0 Rural 0.3 2.1 5.9 10.3 Access to sewerage services (% of population):1 Urban 18.3 14.7 32.4 43.6 Average daily caloric intake per person 2,420 2,350 Other Access to electricity (% of pop) 30.0 Number of radio receivers (per 1,000 pop.) 61.o Daily distribution of newspapers (per 1,000 pop.) 49.0 Housing deficit (1,000 units) 58.3 115.5 133.14 a! Education and Culture, Public Health, Social Security and Welfare,  Annex III Page 1 of 3 NICARAGUA LOAN AND PROJECT SUMMARY BORROWER: Empresa Aguadora de Managua. GUARANTOR: Republic of Nicaragua. AMOUNT: US$6.9 million equivalent. The whole or virtually the whole amount would be' disbursed for foreign expenditures. TERMS AND CONDITIONS: Payable in 24 years with 3-1/2 years of grace at 7-1/4 percent interest per annum. PROJECT: Second Managua Water Supply Project (1) Construction of water wells in the vicinity of Las Mercedes, Altamira and San Cristobal with an aggregate yield of about 17 Mgd. (2) Construction of a new low-service booster pumping station with a capacity of about 28 Mgd. and a new high-service booster pumping station of about 12 Mgd., both in the vicinity of Las Mercedes; and an increase of about 16 Mgd. in the aggregate capacity of the existing booster pumping stations at Laguna Asososca. (3) Construction of: (a) two service reservoirs with a capa- city of about 500,000 gallons each; (b) about 60 Km. of 12 to 36 inches transmission mains; and (c) about 45 Km of 2 to 8 inches distribution pipelines. (4) Installation of about 9,400 service connections. (5) Construction of a new administration building. (6) Acquisition and use of mobile construction equipment for routine water system maintenance arid expansion. (7) Review and improvement of the Borrower's operations in the fiel of, inter alia, salaries and wages, budgetary control, accounting, inventory management and control, computer utilization, and internal auditing. j Mgd = million gallons per day.  ANNEX III Page 2 of 3 COST OF PROJECT: (US$ million) Local Foreign Total Supply System Wells and Well Pumps 0.17 0.5h 0.71 Pump Stations and Pumps 0.22 0.72 0.94 Distribution System Mains 1.03 3.10 L.13 Service Reservoirs 0.08 0.0 0.12 Service Connections 0.20 0.44 O.6L Administrative Building 0.21 0.18 0.39 Construction Sub-Total 1.91 5.02 6.93 Mobile Equipment - 0.04 O.Oh Land 0.10 - 0.10 Engineering and Management Consultants 0.30 0.51 0.81 Con t ingencies: Physical- 0.45 0.78 1.23 Price 0.31 o.55 o.86 Total Project Cost X 6.90 9.97 = (US&million) Local Foreign TotaL FINANCING OF PROJECT- IBRD - 6.9 6.9 Empresa - net internal cash generation 3.1 - 3.1 Total 3.1 6.9 10.0 PROCUREMENT ARRANGEMENTS: All Bank-financed items by international competitive bidding. Suppliers in the Central American Common Market countries would receive a margin of preference in bid evaluation of 50 percent of the applicable external tariff or 15 percent of the c.i.f. price, whichever is the lower. Up to $0.15 million; for engineering and management study expenditures incurred between September 1, 1971, and the date of signing wouId be reimbursed to the Empresa. ESTIMATED (US$ .'OO1_Q Total DISBURSEMENT: 1972 1973 1974 17 1972-75 1,700 31,410 5 0 6,900  ANNEX III Page 3 of 3 ENGINEERING CONSULTANTS: Joint venture of Hazen and Sawyer (USA) and J. Agustin Chan (Nicaragua). MANAGEMENT CONSULTANTS: Pan American Health Organization. RATE OF RETURN: Internal financial rate of retuxn is estimated at 11 percent. APPRAISAL REPORT: Report No. PU-82 a.Public Utilities Department.   MAP I 88 86' 85n 84' 83, NICARAGUA _t5D TRANSPORT FACILITIES 15- H O N D U R A S Moin roads Roads under construction Biwaskurma Railways LeimusWos spam Rivers i+ Ports * Airports Internotional boundaries 0 10 20 30 40 50 60 Miles Bona - 14' 0 20 40 60 80 tOO Bonza Puerto Cabezas 14