Nicaragua - Second Corinto Port Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2734 PROJECT PERFORMANCE AUDIT REPORT NICARAGUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-NI) November 6, 1979 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT NICARAGUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-1-NI) Table of Contents Page No. PREFACE iii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iv HIGHLIGHTS v PROJECT PERFORMANCE AUDIT MEMORANDUM 1 - 7 I. Introduction 1 II. Project Results 2 III. Points of Special Interest 4 A. Reduction in Port Capacity During Construction 5 B. Complementary Investments 6 IV. Conclusions 6 ATTACHMENT I: PROJECT COMPLETION REPORT 9 - 26 I. Introduction 9 I. Project Preparation and Appraisal 9 III. Project Implementation and Cost 11 TV. Traffic and Operations 16 V. Financial Performance of the Borrower 17 VI. Institutional Performance of the Borrwer 21 VII. Economic Reevaluation 22 VIII. The Role of the Bank 25 IX. Conclusions 26 TABLES 1. Actual and Expected Project Implementation 27 2. Actual and Appraisal Estimates of Project Cost 28 3. Actual and Forecast Traffic of Major Commodities 1972-78 29 4. Efficiency Indicators 30 5. Actual and Projected Balance Sheets 31 6. Actual and Projected Income Statements 32 7. Actual and Appraisal Expectation of Project Financing 33 - ii - Page No. ATTACHMENT II: PROJECT COMPLETION REPORT 35 - 43 (PREPARED BY THE BORROWER) TABLES 1. Import and Export Products 44 2. Consolidated Balance Sheet 45 3. Products, Expenditures, and Profits 46 MAPS 1. Final Design for Liquid Cargo and Container Berths 2. IBRD 10140 3. IBRD 10141R - iii - PROJECT PERFORIIANCE AUDIT REPORT NICARAGUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-1-NI) Preface This report presents a performance audit of the Nicaragua Second Corinto Port Project for which Loan 879-NI in the amount of US$11.0 million and Loan 879-1-NI for US$5.0 million were closed fully disbursed in June 1979. It consists of a memorandum prepared by the Operations Evaluation Department (OED), a Project Completion Report prepared by the Latin America and the Caribbean Regional Office (PCR I) and a PCR prepared by the Corinto Port Authority (PCR II). OED has reviewed both PCRs against the Appraisal and President's Reports and the Minutes of the Executive Directors' Meetings which considered the project and has discussed the project with Bank staff. The Borrower's PCR, while brief, has provided background material for the Bank's PCR, which is fairly comprehensive. The comments contained in the Borrower's PCR, especially on the Bank's role in adding a liquid cargo berth to the project, the usefulness of Bank supervision missions and the consultants' performance, are reflected in the audit memorandum. The draft audit report was sent to the Government in the normal course, but no further comments were received. In addition, the audit memorandum comments on the need to consider, during the preparation of the project, the effects of a temporary reduction of capacity during construction and the desirability of including in the loan funds to finance works complementary to the project.  - iv - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET NICARAGUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-1-NT) KEY PROJECT DATA Original Actual or Item Plan Current Estimate Total Project Cost (US$ Million) 14.16 50.53 Overrun (%) 257 Loan Amount (USS Million) 11.00 16.0 Disbursed 16.00 Cancelled Outstanding to November 1978 Date Physical Components (civil works) 12/1/75 12/77 Completed Proportion Completed by Above Date (%) 44 10/ Proportion Time Overrun (2) -- 73 Economic Rate of Return 15 14 First Year Return 11 10 Financial Performance -- Good institutional Performance -- Good Guarantor's Performance -- Not Satisfactory Cumulative Estimated and Actual Disbursements 1973 1974 1975 1976 1977 1978 (i) EstimatedA 1.3 7.1 10.3 11.0 13.0 16.0 (ii) Actual 0.3 3.2 4.5 6.5 14.0 16.0 % (ii) to (1) 23 45 44 59 108 100 OTHER PROJECT DATA Supplemental Loan 879-NI Loan 873-I-NI Original Actual'or Item Plan Actual Current stmate First Mention in Files 4/24/69 Government's Application 1/72 Negotiations 7/72 12/05/72 7/75 Board Approval 9/72 1/30/73 1/15/75 I.oan Agreement Date 1/73 2/02/73 8/01/75 Effectiveness Date 3/73 3/23/73 3/11/76 Closing Date 12/31/76 6/30/79 6/30/79 burrower Corinco Port Authority (CPA) Executing Agency - do - Fiscal Year of Borrower Calendar Year Follow-on Project Name None MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Manweeks Repo.rt Edentification/c 4/69 0.7 2 1.4 5/09/69 Preappraisal 2/72 1 1 1.0 3/27/72 Appraisal 7/72 2 3 6.0 1/05/73 Supervision 1 3/73 0.5 3 1.5 4/13/73 Supervision 11 12/73 1 1 1.0 1/31/74 Supervis3n 111 2/74 0.5 2 1.0 3/13/74 Supervision IV 5/74 1 2 2.0 5/30/74 Supervision V 5/75 0.5 1 0.5 7/09/75 Supervision Vi 10/75 0.5 1 0.5 12/17/75 Supervision' VII 3/76 1 2 2.0 4/08/76 Supervision Vill 9/76 0.5 1 0.5 10/05/76 Supervision IX 3/77 1 1 1.0 4/14/77 Supervision X 10/77 0.5 1 0.5 10/21/77 Supervision X1 5/78 0.5 1 0.5 5/31/78 PCR mission 8/78 1 2 2.0 8/14/78 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Cordoba () Year: Appraisal Year 1972e Intervening Year Average 1xhne 1ae S$1 - $ 7.0) Completion Year Average NIS$o ne 7.0 /a Installation of container crane and procurement of ancillary container-handling equipment vh~ich was not Bank financed, has not been completed. /b Supplementary loan of US$5 million was made on August 1, 1975 and disbursements were reestimated accordingly. c Consideration of a loan was deferred until fiscal reforms were undertaken.  - -v - PROJECT PERFORMANCE AUDIT REPORT NICARACUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-1-NI) Highlights The purpose of the project was to replace obsolete facilities of Corinto Port while enlarging, deepening and equipping the port so that it would be able to meet the projected traffic demand up to about 1985 and also accommodate container traffic. The project comprised construction of a new wharf and shore facilities; dredging; and coastal defense works to protect the access route to the port. The project was successfully implemented but with substantial modifications. It took some 75% longer to complete than estimated at the time of appraisal, mostly because of the loss of design documents during the earthquake in 1973, project changes, and the time needed to secure additional financing. The project incurred a cost increase of about 250%. This was due to the increased scope of the project (paras. 5 and 6) and price increases resultLng from inflation and the earthquake. The original Bank loan of US$11 million was increased by a supplemental loan of US$5 million. The remainder of the cost increases were funded by local funds and a loan from the Central American Bank for Economic Integration (CABET). Tratfic handled by the port ha, mostly exceeded the appraisal forecasts with especially export traffic consistently higher than anticipated. However, container services have not yet started. In spite of the higher costs, the reestimated economic return on the new port facilities is 14% .against 15% at the time of appraisal (para. 8). Points of special interest are: - the appraisal apparently did not consider the difficulties to port traffic that would arise during the period when the old wharf would be demolished and the new one taking its place not yet completed (paras. 14-17). - it would have been desirable that the road improvement needed for better access to the port would have been funded under the loan (PCR, para. 18).  PROJECT PERFORMANCE AUDIT MEMORANDUM NICARAGUA SECOND CORINTO PORT PROJECT (LOANS 879-NI AND 879-1-NI) 1. Introduction 1. Nicaragua has coastlines on both the Pacific and the Caribbean but the population of about 2-1/2 million is concentrated in the Pacific coastal region. Corinto is the only port on the Pacific coast with deep-water berths and is the country's main point of entry for goods other than crude oil which is handled by offshore buoy and pipeline at Puerto Somoza about 65 km from Corinto. The port is located on an island and is linked to the capital, Managua, by road and rail. 2. Since 1951, the Bank has provided Nicaragua with US$26.2 million for four transport projects. Two of the loans which totalled US$7.0 million, financed highway construction and the remaining amount of US$19.2 million financed improvement projects for the Port of Corinto. 3. A loan for the First Corinto Port Project (Loan 143-NI) was made in 1956 for US$3.2 million and helped finance the construction of 370 m of quay and the creation of the Corinto Port Authority (CPA). A second project was prepared in 1969/70, but consideration of it was deferred pending the implementation of fiscal reforms by the Government. A revised version of this project became the Second Corinto Port Project which was supported by Loan 879-NI for US$11.0 million of 1973 and by supplemental loan 879-1-NI for US$5 million of 1975; the latter helped cover substantial cost increases occurring since the time of appraisal. 4. The project, which was estimated at appraisal to cost US$14.16 million, consist of: a) construction of a 240 m container quay with equipment, build- ings and associated dredging which would provide for expected traffic demands up to 1985 (77% of original cost); b) construction of sea defenses to protect the rail and road links between Corinto and the capital (18%); and c) consultants' services for feasibility studies, engineering and project supervision and staff training abroad (5%) (PCR 1, paras. 2.02-2.03). The Government agreed to reimburse the Borrower, the Corinto Port Authority, for the cost of the sea defenses.,and to improve road access to the port. - 2 - II. Project Results 5. All civil works were completed by the end of 1977 about two years behind the schedule set at appraisal. Some of the equipment--the container crane and ancillary container-handling equipment--which was not financed by the loan, has still not been installed. The delay in completing the container berth resulted from the loss of the design papers during the earthquake in December 1972, which devastated Managua and by the decision to add a liquid cargo berth to the project to prevent a reduction of port capacity during construction of the container berth (see Map 1). Securing financing for this additional item and to cover cost escalation, and disagreement between CPA and its consultants also contributed to the delay (PCR I, paras. 3.02, 3.09 and 3.13; PCR II, pp. 3 and 8). The sea defenses were completed on time. 6. The final cost of the project of US$50.5 million represents an overrun of almost 260% over the appraisal estimate of US$14.2 million as seen below: Estimated and Final Costs (US$ Million) Estimated Interim Estimated for At Appraisal: Estimate: Supplementary Final 1/73 5/74 Loan: 7/75 Cost: Sea defenses 2.5 3.3 3.6 3.6 Container wharf construction and 11.7 24.3 39.0 39.3 related items TOTAL (original 14.2 27.6 42.6 42.9 items) Extra items: - liquid cargo berth -- 1.0 2.8 3.6 - tugs, etc. (estimate) -- -- -- 4.0 GRAND TOTAL 14.2 28.6 45.4 50.5 The 44% increase in the cost of sea defense work resulted from price increases following the earthquake, inefficient quarry operations by force accountI/ 1/ Securing stones of proper size and weight in quarry operation requires specialized skill and experience; despite the fact that a quarry expert was retained to supervise the work, quarry operations by force account provided to be inefficient. A similar problem occurred in the Guyana Second Sea Defense Project (Loan 765-GUA) where it was found that the supply of stone of proper specification could only be secured by con- tracting experienced, private firms (PPAR, No. 2123, paras. 11-12). The final cost of the quarrying operation is not given in the PCRs nor in the files. The latest available estimate of March 1974, about eight months before the works were completed, was US$1.2 million compared with the appraisal estimate of US$252,000, representing an overrun of 376%. In addition to the inefficiency of force account work, the modification of the design which required larger-sized stones contributed to the cost increase. - 3 - anJ design changes (PCR I, paras. 3.02-3.03). The greatest inc-eas, of about US$35.2 million occurred on the construction of the container my Twenty-two percent of this increase was due to the addition of items n included at appraisal--the liquid cargo berth, two tugs and extra conu_ iner- handling equipment, and the remainder was the result of price escaInti-In and the 1972 earthquake. The lack of competition in bidding, which was due to the diversion of the international contracting industry to OPEC countries, was probably also a factor which contributed to the high prices. 7. It seems that the earthquake in December 1972 produced an especial- ly unfavorable effect on contract prices in Nicaragua. A supervision mission noted that bids for civil works increased by 80-120% soon after the earth- quake, while prices in general increased by only 40%. Thus, the appraisal cost estimates were "under-estimates" by the time the loan became effective in March 1973. It became clear when engineering was being completed in early 1974 that costs were likely to be much higher than expected--at least double the apprisal estimate. To meet this cost increase additional financing was sought from several sources. In the end, most of the needed additional funds were provided by the Bank through a supplemental loan for US$5 million in August 1975 and by the Central American Bank for Economic Integration (CABEI) through its loan for US$10.3 million. The CABEI loan financed the liquid cargo berth, container equipment and dredging works, thus providing parallel financing (PCR I, para. 3.07). Other sources of finance are shown in PCR I, Table 7. 8. At appraisal, the rate of return for the container facilities including dredging work was estimated at 15%; the rate of return on completion of the project as reestimated in PCR I is 14%. The project has maintained an adequate level of return despite the large cost increases and the fact that container cargo has not begun to use the new facility as shipping companies have deferred the container service program until some time in 1979. This result is attributed to (a) the greater than anticipated savings in vessel operating costs during post oil-crisis inflation, (b) the benefits of the liquid cargo berth, not included in the project at appraisal, and (c) in- creased traffic (PCR I, paras. 7.01-7.06). Traffic increased sharply in 197, and 1974 as earthquake relief and construction materials entered the country and for most of the subsequent years the actual traffic volumes were substnn- tially above appraisal forecasts (PCR I, Table 3). The liquid cargo berth has permitted some traffic previously carried as general cargo to be handled in bulk with big savings in sea freight and it has recently attracted new traffic to the port (PCR I, Table 3). 9. The appraisal did not estimate a rate of return for the sea defense work but concluded it was,a least cost solution to preserve Corinto's access to the mainland. The alternatives considered were relocation of the road - construction of sea defenses furt-her inland, both estimated to cost from 1.. to 45% more. The PCRs have not attempted to determine whether the sea defence work, in retrospect, was the least cost solution in view of the large co_t overrun. 10. There were several financial covenants associated with the project (PCR I, paras. 5.10-5.14). The requirement that net revenue should be at least 1.75 times debt service was waived at the time the supplemental loan was made. The Borrower has complied with the rate of return covenant and indeed has generally exceeded the returns stimpulated (PCR I, para. 5.13). Tariff revision required under the Loan Agreement (PCR I, para. 5.03) was carried out in 1974 and 1976. The overall tariffs are now reasonably related to costs. However, the Loan Agreement (Section 5.05) required that the CPA establish cost-based tariffs for various services at individual ports so that each port would earn an adequate return on its assets.! This has not been fully achieved at non-project ports. PCR I (para. 5.13) points out the problem of trying (unsuccessfully) to persuade the Borrower to implement this policy at the small, non-project ports and suggests that, in the case of such ports, financial self-sufficiency, viz. no requirement to earn profits, might be a more reasonable target. This problem has also occurred in other port projects audited by the OED and it appears that this policy has not been uniformly required in port projects. In view of the obvious difficulty of implementation in small ports, a review of this question by the Bank with a view to formulating a guideline for application of such a policy, indicating the circumstances where it is feasible, would be desirable. 11. The Government has not fully met other loan covenants. It failed to reimburse CPA a substantial amount of the sea defense work and about US$3 million toward the port improvements. Nor has it improved the road access to the port (discussed in para. 18). This is in part due to the unanticipated increase in the Government's obligation under the loan: at the time of loan signature, the total Government contribution was expected to be US$0.5 million equivalent but, as costs increased and supplemental fi- nancing was required, the Government's contribution increased to US$12.8 million. 12. The Borrower is satisfied with the Bank's role in the implementa- tion of the project. It considers that the Bank's supervision missions and the feedback it received from these missions have been helpful in dealing with the design changes and cost increases. The Borrower, however, expressed some dissatisfaction with the Bank's position on the addition of the liquid cargo berth (see para. 17). III. Points of Special Interest 13. Two points of special interest arise from the implementation of this project: namely, the need to consider the effects of a reduction in port capacity during construction; and the treatment of auxiliary components which complement the project but were not included in the Bank loan. 1/ In addition to the Port of Corinto, CPA is also responsible for the Caribbean port at Cabezas and the ferry port at Potosi. -5- A. Reduction in Port Capacity During Construction 14. At the time of appraisal, Corinto had three general cargo berths: two relatively new berths constructed under the first loan in 1956 and an obsolete timber wharf. The project involved demolishing the timber wharf and constructing a container berth in its place, thus reducing, for the duration of construction, the number of general cargo berths from three to two. Even with the modest traffic increase as forecast in the appraisal report for the period of construction, the reduction would have caused difficult problems in the handling of general as well as liquid cargoes (oil and molassess). The feasibility study prepared by the consultants did not analyze the effect this reduction in capacity would have on traffic. The Appraisal Report and the project files also do not indicate that this problem was considered. Apparently, Bank staff felt that Puerto Somoza, which handled most petroleum products, could absorb the liquid cargo traffic, thus relieving the pressure on Corinto during construction. This expectation did not ma- terialize; instead, the sharp increases in traffic following the earthquake compounded the problem of insufficient port capacity. 15. In light of this, the CPA in January 1974 decided that taking one berth out of use was operationally unacceptable and proposed that, as foreign oil companies were then planning to make Corinto their principal distibution center for the Pacific coast of Central America, the construction of a liquid cargo berth was desirable to handle imports of oil products and exports of molassess. This proposal was seen to have both short- and long-term benefits. In the short term, it would prevent congestion and allow service to continue while, in the longer term, additional traffic would be attracted to the port. The project consultants explored the feasibility of the liquid cargo berth and it was subsequently included in the project but was financed by CABEI and the government. Since its completion 1977, bulk liquid cargo traffic has increased rapidly (about double the projected volume both in 1977 and 1978) and the berth has proven to be a good investment (PCR I, Table 3). 16. The experience of having to add the liquid cargo berth to the project during imnplementation highlights the importance of considering the effects of any reduction in port capacity at the appraisal stage. An explicit statement of the measures to be taken to make up for the capacity reduction should be formulated and a calculation of the effect should be made, including a sensi- tivity analysis based on the likely variations in traffic. 17. In adding the liquid cargo berth to the project, the Borrower per- ceived the Bank to be somewhat inflexible in that it "...disputed the justi- fiability of the liquid cargo berth and refused its financing" (PCR II, p. 7). The Borrower's reference appears to be partly directed at the Bank's insistence on carrying out a feasibility study for the liquid cargo..berth, including prparation of cost estimates. The audit's review of the file suggests that the feasibility study which started in January 1974 took seven months to complete involving, at least, two revisions. The revisions were - 6 - called for because the cost estimates were too low and alternatives were not adequately considered in the economic analysis. However, when the cost estimates were firmed up and the economic justification established, the Bank agreed to the construction of the liquid cargo berth and suggested that this work be included through an addendum in the bids for the main port expansion works. Because of the need to secure additional financing (c.f. para. 7) the civil works contract was not signed until August 1975. It appears therefore that the feasibility study was not a contributing factor to the delay in project execution whereas it served to refine cost estimates and establish economic viability. Moreover, while the Bank's supplementary loan of US$5 million was not adequate to cover the cost of the liquid cargo berth as well as other project cost increases, the Bank assisted CPA in securing finance from the CABEI. B. Complementary Investments 18. Two related investments were necessary to ensure that full and continuing benefit was obtained from the new berth in Corinto. The road and rail link between the port and Managua had to be protected from further sea erosion by the defense works, and road access to the port had to be improved (see Map 2). The sea defense works, which were included in the project, have been completed as planned. However, the improvement of the road access which was included as a loan covenant under the project (Guarantee Agree- ment, para. 3.01) has not been started (PCR I, paras. 3.18 and 6.05). At first this improvement had to be delayed while plans were prepared for a town drainage scheme. In 1975 the details of the road improvements were agreed upon but the Public Works Department's (PWD) budget was reduced preventing implementation. At one stage it was suggested that the CPA should undertake the work and apply for remibursement from the Government, but the CPA did not agree to this and now the Goverment does not have the funds for the work. In retrospect, it would have been desirable to have provided for the cost of this improvement, which was small, in the project to ensure its timely completion. IV. Conclusions 19. The project experienced a two year delay in implementation and a cost overrun of almost 260%. Despite the delay and cost overrun the project justification was largely unaffected due to the rise in traffic and greater unit benefits than anticipated at appraisal. 20. While some of the reasons for the delay and cost overrun could not have been anticipated (e.g., the earthquake and the lack of bidder competi- tion), part of the problem was due to inadequate project preparation. Indeed, part of the large cost increase was merely a reflection of underestimation and/or omission of physical requirements at the time of appraisal. For exanple, the need for a liquid cargo berth was recognized only a year after the signing of the loan when there was an upsurge in traffic following the December 1972 earthquake--mainly in the form of relief supplies. However, the effects of a reduction in capacity should have been recognized at the apprai- sal stage. Even without the higher than expected traffic, the construction - 7 - of the liquid cargo berth would have been necessary before the old pier could be demolished. 21. The project experience highlights the importance of making items which are necessary for fully realizing project benefits, such as the access road connecting the Port of Corinto, part of the project and their financing included in loans, rather than making their execution merely conditions of the project. 22. There was good cooperation between the Borrower and the Bank during project execution. Indeed, the Borrower has 'expressed satisfaction with Bank supervision of the project and found the exchange of views with Bank staff useful. From the Bank's viewpoint, the dialogue with the Borrower on tariff questions produced satisfactory results. With their increase and restructuring, the tariffs are now not only reasonably cost-based but have also improved the CPA's finances substantially.  ATTACHMENT I PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT I. INTRODUCTION 1.01 Nicaragua, the largest country in Central America, has its popula- tion and economic activity concentrated in the western region along the Pacific Coast. Agriculture is the most important sector of the country's economy and accounts for more than 70% of the foreign exchange earnings through export of cotton and its by-products, as well as coffee, meat, sugar and bananas, largely to the USA, Europe and Japan. A very large portion of the country's foreign trade is seaborne and is handled through the Port of Corinto, a goodnatural harbor in a central location on the western seaboard of Central America. The importance of Corinto as the principal gateway of Nicaragua was fully demonstrated when, following the earthquake of December 1972, large quantities of international aid supplies had to be received at that location. Its importance is further evidenced by the two projects under- taken to develop Corinto Port in the last two decades. The vital role of Corinto Port in the country's economy is well recognized by the Government and the Port Authority. 1.02 The Bank's participation in the development of Nicaragua's port sector started in 1956 with Loan 143-NI (US$3.2 million) for the First Corinto Port Project, under which the construction of two berths and two transit sheds was completed in 1961. This was followed by a grant in 1967 for a feasibility study for the expansion of the port. Based on this study, carried out by LIVSET,l/ the Government prepared a port expansion project of US$8.05 million which was appraised by the Bank in 1969. Consideration of the loan proposal was deferred pending the implementation of fiscal reforms by the Government. The proposal was revised in 1971, and the Government requested Bank assistance to finance an enlarged version of the earlier project, with additions based on a new study. The revised project, appraised in 1972, is the subject of this completion report. 1.03 The following are the sources of information on which the PCR is based: (i) Appraisal Report; (ii) Feasibility Study on Corinto Port Expansion by Frederic R. Harris, Engineering Corporation, Cisneros y Conrado and Santos y Heilmann, dated December 1972; (iii) Supervision Summaries; (iv) Quarterly Progress Reports; (v) LAC Information Center and Document Collection and (vi) Draft PCR prepared by Corinto Port Authority. II. PROJECT PREPARATION AND APPRAISAL 2.01 Because of the urgent need to protect the rail and road access to Corinto from erosion by the sea, the Port Authority, in agreement with the Bank, selected consultants (Frederic R. Harris, Cisneros y Conrad and Santos y Heilmann) in November 1971 to prepare designs and bid documents for the Coastal Defense Works. The terms of reference also included the preparation of a 1/ LIVSET: a joint venture of Livesey and Henderson of London and SETEC of Paris. - 10 - feasibility study for the expansion of Corinto Port based on the earlier study by LIVSET. At the same time, the Government renewed its request for Bank assistance in financing the port expansion project. The Bank appraised the project in July 1972, by which time the main findings of the study were available, although the final feasibility report was readv only in Decembpr 1972. 2.02 The objectives of the project were: (a) to replace the existing timber-decked pier and other obsolete installations in order to meet projected traffic demands up to about 1985; (b) to provide equipment and deepen the harbor to permit establishment of container-handling facilities;and (c) to protect road and rail access threatened by sea erosion. 2.03 The project appraised was generally in accordance with the recommendations of the study and consisted of: (a) construction of a new 240 m berth with 40 ft of water depth alongside at MLWST; (b) construction of a new administration building, minor service buildings, service and storage areas and utilities; (c) purchase of container-handling equipment; (d) harbor and channel dredging and provision of navigational aids; (e) coastal defense works; (f) consultant services for engineering and supervision; and (g) staff training. 2.04 For improving the financial management of the Port Authority, suitable covenants (discussed in Chapter VI) relating to the following items were proposed by the Bank and accepted by the Borrower for inclusion in the Loan Agreement: (a) debt limitation (Section 5.04) (b) financial and tariff policy (Section 5.05) including (i) revision of tariffs by January 1, 1974; (ii) revaluation of assets; and (iii) rate of return to be achieved on net fixed assets. - 11 - 2.05 No technical assistance for tariff revision was considered nec- essary since the Port Authority was expected to be able to carry out this exercise with its own staff, using the results of a study carried out for the Acajutla port in El Salvador. 2.06 For administrative convenience, the financing of the coastal defense works was included in the loan to the Port Authority, although these works were the responsibility of the Government. Specific provision was made in the Guarantee Agreement to indicate that the Government would bear the cost of the coastal defense works (Section 2.03) and the work required to improve the access road to the port area (Section 3.02). 2.07 Although the identification, preparation and appraisal process had correctly addressed the issues in the light of the conditions then pre- vailing, it is felt in retrospect that the project should have provided for a liquid cargo berth, which was later found necessary and was included, and that the condition regarding improvement of the access road should have been framed in such a way that it could have been enforced effectively at an early stage of project execution. III. PROJECT IMPLEMENTATION AND COST 3.01 As will be seen from Tables 1 and 2, the implementation of the project was extended considerably with regard to time as well as to cost. 3.02 In the case of the coastal defense works, which were the first part of the project to be implemented, bids received in December 1972 were high because of the lack of competition, which the consultants attributed to bidders' reluctance to undertake quarrying operations. Since the earth- quake of December 23, 1972 had further reduced possible contractor inter- est in such operations, CPA decided to quarry stone by force account and to reinvite international bids for only the construction of the revetment using that quarry production. A second bidding in May 1973 also failed to interest more than one bidder, and the only bid received was accepted. Because of the time taken for organizing the quarry production, the contrac- tor could start work only in November 1973. Soon his work ran into diffi- culties because the toe of the revetment, comprising crushed stone wrapped up in plastic filter fabric in the form of a bulb, failed under wave action. The design was modified by replacing the bulb with two stones, each of 3 to 4 tons. The change slowed down the progress of the contractor's work, which was completed in June 1974. The failure of the bulb also strained the relations between CPA and the consultants (Frederic R. Harris, Cisneros y Conrado and Santos y Heilmann). Thereafter, CPA became increasingly dis- satisfied and terminated the contract in December 1974. Because of its doubts about the design, CPA retained a Mr. Caldwell, retired coastal expert for US Corps of Engineers,:to report on the coastal defense works. He reported in November 1974 that, with some minor exceptions, the work had been well executed. The actual experience during the last four years has shown the coastal defense works to be satisfactory. 3.03 The actual cost of the coastal defense works amounted to US$3.6 million, as against the appraisal estimate of US$2.48 million. The increase was largely due to the steep rise in prices after the earthquake, inefficient quarry opera- tions by force account and worldwide inflation. The change in the design - 12 - increased the cost of quarrying, but this was largely compensated for by the saving in the cost of rock crushing required for the bulb design. In retrospect, it would appear that CPA might have fared better if it had accepted the December 1972 bid of US$2.62 million instead of rejecting it as too high. 3.04 In the case of the second and major part of the project, i.e., the port expansion works, there was a delay of nearly three years before the construction was even started. Initially, the earthquake of December 1972, in which the consultants' office in Managua and part of the records were burnt, slowed down the progress of detailed engineering and preparation of bid documents. Later, the differences which arose between CPA and the con- sultants over the coastal defense works delayed this work further. From the large increase in the traffic at Corinto in 1973 (which exceeded the forecast for 1976),mainly due to the imports for reconstruction of the earthquake damage, it was realized that the transfer of the traffic then handled at the old timber wharf (which had to be demolished for the proposed construction of the container wharf) to the other general cargo berths not only would cause serious delays to shipping but also would not be practicable in the case of the petroleum products and molasses. CPA decided,in agreement with the Bank,that provision of a new liquid cargo berth was therefore necessary before pulling down the timber wharf. Completion of the feasibility studies and engineering for the liquid cargo berth and the time required for its construction pushed back the start of work on the container wharf by more than a year. Another factor which made a major contribution to the delay was the need for CPA to arrange for the additional funds required for meeting the substantial increase in the cost of the project. 3.05 Bids for container works and other civil works were invited in March 1974 and were scheduled to be opened on June 13, 1974. The bid opening was postponed at the Bank's suggestion to September 17, 1974 in order that the liquid cargo berth could be included in the same bid. Although as many as 17 firms had purchased bid documents, only three submitted bids. Of these, only one, Julius Berger, offered to carry out all the works covered in the bid documents, while the other two were prepared to execute part of the works. All the bids were substantially higher than the consultants' estimate, revised after detailed engineering. The lack of bidder interest could be attributed mainly to the intense port construction activity among the OPEC countries at this time. Since reinvitation of the bids was not expected to result in better competition, the Bank agreed with CPA's proposal to cancel all bids and to negotiate contracts with the low bidders, viz Westminster Dredging Company for dredging of the access channel and Julius Berger for all other civil works. Based on the results of such negotiations and suitable provision for contin- gencies, the cost of the project (excluding coastal defense works) remaining to be executed was estimated at US$41.8 million as against the appraisal esti- mate of US$11.6 million (the latter amount did not make any provision for a liquid cargo berth,for which US$2.8 million was included in the former figure). 3.06 An economic evaluation of the project (excluding the liquid cargo berth) was made on the basis of the revised costs and benefits, and it was - 13 - estimated conservatively that the project would still yield an acceptable return of 10%. The Bank therefore decided to support CPA's efforts to raise additional funds required to complete the execution of the project. 3.07 CPA approached the Government, the Bank and the Central American Bank for Economic Integration (CABEI) for assistance. In order to meet the administrative and policy requirements of CABEI (which could not assist on the basis of financing cost overruns of a World Bank Project), it was agreed that the principal components of the project should be divided into two groups which could be financed separately in parallel by the Bank and CABEI. Accordingly, it was agreed that the new liquid cargo berth, the dredging of the access channeland the container-handling equipment would be partly financed by CABEI with a loan of US$10.0 million, while the Bank would assist in the financing of the foreign costs of the container wharf, con- sultant services and training, by a supplementary loan of US$5.0 million. The balance of the increase was to be met by equity contributions of US$12.8 million by the Government .4id US$2.4 million from CPA's own resources. In agreeing to this financing arrangement, the Bank accepted a minimum debt service ratio of 1.2, as againstl.75 required under Section 5.04 of the Loan Agreement. 3.08 After the above financing arrangements were firmed up, CPA signed a contract with Julius Berger on August 31, 1975, nearly one year after the opening of the bids. As negotiated, the contract made Julius Berger responsible for executing the whole contract including liquid cargo berth, container berth, pavements, buildings and dredging of the access channel. The last item was to be carried out by Westminster Dredging as sub-contractor. 3.09 In November 1974, CPA appointed King and Gavaris (US) and Karim D'Arce Associados(Nicaragua) as its consultants for the project in replacement of Frederic R. Harris, Cisneros y Conrado and Santos y Heilemann. The new consultants who, according to the Bank's requirement, had to accept full responsibility for the project, expressed some reservations about the design for the container wharf and proposed an alternative desig4 i.e., decking of pre-cast units, wholly supported on piles and a sheet-pile bulk-head instead of a rock dyke for retaining the back-fill. Apart from making the wharf structurally safer against earthquake vibrations, this design was expected to be executed in less time ,and at lower cost. Further, it had the advantage of minimizing interference with port traffic during construction by eliminating the need for trucking large quantities of stone required for the dyke and by shifting the bulk of the concreting operations away from the port. CPA initially felt that the design change was being proposed by the consultants merely to earn some additional fees. When it was explained that the pro- posal should be viewed not only in the light of the soundness or otherwise of the rock dyke design but also considering its advantages and the important need for avoiding division of responsibility between the designer and the supervisor, CPA accepted the Bank's advice and agreed to the new design. 3.10 The execution of the project proceeded without serious problems. The advantages claimed for the alternative design were fully realized. The container wharf was completed and taken into use for general cargo opera- tions in December 1977, three months in advance of the contract completion date. The bulk of the construction materials were handled from the waterside by barges, without any interference with the port operations. The price - 14 - negotiated for the alternative design was lower by C$ 3.1 million (US$0.44 million) than that quoted for the rock-dyke design. 3.11 Another item which involved design change was the pavement of the area behind the container wharf. Because of the high wheel loads of the front- end loader which, under the advice of a container operations specialist, CPA had decided to purchase in preference to a straddle carrier, the consultants considered it necessary to provide a 30 cm thick reinforced concrete slab instead of 10 cm cement concrete block pavement as originally envisaged. 3.12 In the case of the dredging of the access channel, the sub-contractor found,after a detailed soil investigation,that the bed material covering 75% of the channel length consisted of very fine compact sand, which could not be dredged with the dredge he had originally planned to use. The dredge which could handle this material was not equipped for on-shore pumping of the spoil. It was therefore not possible to use the spoil from the access channel for filling the reclamation area as desired by CPA. After seeking the advice of a dredging expert from Texas regarding the validity of the sub-contractor's contention and reasoning for disposing of the spoil at sea, CPA accepted the proposal. The dredging operations met with problems in two places. A small rock outcrop encountered on the edge of the access channel could not be cleared by the suction dredger. Similar difficulties were presented by a mound of boulders (apparently thrown by the contractor for the First Corinto Port Project in 1961) in the harbor channel opposite the container wharf. In both instances, the undredged materials do not presently constitute a hazard to shipping; however, CPA has plans for clearing them by blasting with small explosive charges. 3.13 Also during the execution of the port expansion works, CPA had differences with its consultants on the question of whether unwashed sand could be used by the contractor. Although an independent laboratory in Managua had reported that the unwashed sand met with the specifications, CPA sent supplies to two other laboratories in Costa Rica and the USA. Since both of them cor- roborated the consultants' opinion, the matter was dropped, but, in the process,the resident engineer resigned,and a director of the Nicaraguan partner of the consultant consortium had to assume that position until the completion of the project. Later a personality conflict developed between the Nicaraguan partners and the senior engineer of the US partner; fortunately, the problem was resolved before it became serious, when,at the suggestion of the Bank, another engineer of the US firm agreed to handle all the work of this project. 3.14 The contractor's execution of the works was consistently well planned and organized. All the works were completed within the contract period, without major disputes or claims. Equipment 3.15 After inviting international competitive bids, CPA ordered a con- tainer crane from Liebher Container Cranes, Ireland, for a sum of US$2.5 million. First consignment of fabricated parts of the crane arrived in Corinto in the last week of November 1978. Because erection and testing are expected to take lu-l2 weeks, the crane should be operational early in March 1979. - 15 - In modification of the original proposal to acquire a straddle carrier, CPA has decided to acquire a front-end loader and two transtainers for shore handling of containers. It is also proposed to purchase two tugboats for which no provision was made in the project. This equipment is to be procured with suppliers' credit for which negotiations with potential suppliers are in progress. The present un- settled political condition in the country may present some problem in the timely conclusion of the arrangements for this equipment. Provided that the delay is not too long, the port should be able to function satisfactorily using temporary measures. Training 3.16 An engineer of CPA received practical training in USA in the maintenance of coastal protection works and in dredging operations. The Bank assisted in ar- ranging the four-month training program with the cooperation of the US Army Corps of Engineers. The training of another executive in container operations was no longer required since CPA was able to recruit a person with suitable qualifications. Cost 3.17 The main civil engineering contract, which accounts for the major part of the project cost, was negotiated with Julius Berger in August 1975 for the amount of C$ 55.05 million + HF1 12.42 million + DM 50.68 million. At the exchange rates ruling,viz 1 DM = 1 HFl = C$ 2.63, the negotiated price of the contract amounted to C$ 221.01 million, or US$31.57 million, i.e., 375% of the appraisal estimate for civil works. This cost increase reflected the steep rise in the port construc- tion industry following the energy crisis of October 1973 and was in line with other Bank projects in Brazil and Honduras, which were appraised in 1971-72 and executed after 1974. The final cost of the contract as executed amounted to C$ 66.0 million + HFl 12.62 million + 56.38 million, equivalent to US$34.48 million when converted at the same exchange rate. The base increase in cost was then 9.26%, which is reasonable considering the expected variations in quantities and escalation during the 33 months of the contract period. However, as a result of currency realignment, the actual cost incurred by the CPA in Cordobas was much higher and amounted to US$37.98 million, an increase of US$3.50 million or 10%. Access Road 3.18 Despite repeated urging by the Bank during the execution of the project, the Government has not improved the access to the port as required under Section 3.01 of the Guarantee Agreement. In the early stages of the project, it was said that the improvement of the streets would be carried out in coordination with a drainage and sewerage program to be taken up soon in Corinto. Later,the work was linked with a reclamation scheme which would make it possible for the port access to bypass the city streets. Recently, financial constraints appeared to be the main problem (para. 6.05). The Ministry of Public Works was reported to be planning to take up the access improvement work at the end of 1978, and, provided it does so in the near future, the traffic congestion problems in the town itself should not pose a constraint to port operations. The Bank's reminder and urgings were not successful, and there was no effective leverage which the Bank could use without risking delays to the project. For instance, the Government was requested to place funds covering the estimated cost of access improvement at the disposal of CPA, which would execute the work, but CPA was not prepared to do this. In retrospect, it is felt that better results might have been obtained if this work had been required to be performed as part of the project, and the provision of the necessary Government funds to CPA had been a condition of loan effectiveness, at least at the time of the supplementary loan. - 16 - IV. TRAFFIC AND OPERATIONS 4.01 Table 3 shows the appraisal forecast and actual traffic at Corinto from 1973 to 1978. In the two years following the 1972 earthquake, the traffic exceeded the forecast mainly because of the abnormal imports for reconstruction of earthquake damage. After a temporary reversal in 1975, the forecast traffic has been consistently below the actual, although by a smaller margin. It remains to be seen if the rising trend will be interrupted as a result of the recent disturbances and unsettled political situation in the country. 4.02 Container traffic has been much lower than expected. Because the shipping line's program for starting container service along the west coast of Central America was deferred until the beginning of 1979, the delay of more than two years in the completion of the container facilities has not resulted in any significant loss to the country's economy. On the other hand, it has meant some saving of interest charges to CPA. 4.03 From Table 4, it will be seen that the operations at Corinto Port have been maintained at a satisfactory level of efficiency. The increase in berth utilization and the higher tonnage per meter of quay in 1976 and 1977 reflect the reduction of available quayage for dry cargo during the construc- tion of the container berth. Corinto does not maintain statistics of gang/ hour output, but the labor production is satisfactory. Almost all cargo is handled on pallets, and a throughput of 40 to 45 tons per gang/hour for bagged cargo and 12 to 15 tons per gang/hour for lumber and general cargo is commonly obtained. 4.04 The relations among the management of CPA and the staff and labor were excellent throughout the period of project execution. 4.05 The port operations have not, so far, been materially affected by the current political disturbances. However, if the situation continues to be unsettled for a long period, it is inevitable that port traffic, in general, and the development of container operations, in particular, will suffer. - 17 - V. FINANCIAL PERFORMANCE 5.01 Tables 5, 6 and 7, attached to this report, review the financial performance of the port authority during the project execution period and compare it with the projections made at the time of appraisal. In summary, it can be seen that revenues have been substantially higher than at appraisal (72% higher in 1977), and so have costs (62% higher in 1977), with the result that operating surpluses have been greater than anticipated (132% in 1977) and financial indicators have also been better. A major contribution to these differences is the fact that the appraisal was prepared on the basis of constant currency and thus did not include inflation. However, the sub- stantial increase in project costs over the estimates made at appraisal has imposed strains on the financial strength of the institution, adversely affecting debt service coverage, liquidity and borrowings. 5.02 Revenues increased from 26.9 million Cordobas in 1972 to 76 million Cordobas in 1977, an average growth rate of 23% per year, whereas the appraisal forecast predicted that revenues would increase to 44 million Cordobas in 1977, an average growth rate of 12% per year (constant currency). The reason for the revenues being so much higher than forecast was twofold: first, traffic passing through the port has been higher than forecast in each year and the major portion of this increase has been in the higher revenue earning imports; second, existing tariffs were increased substantially in 1974, and additional charges were imposed at that time and in 1976. In 1977. traffic was 19% higher than forecast (62% of the increase arising from imports), and unit revenues were 45% higher than forecast. 5.03 In an attempt to comply with Section 5.03 of the Loan Agreement, CPA revised the tariffs substantially in 1974, following a review of the Port Authority charge structure made by independent consultants (Turner, Moore, Cummins and Zimmerman of the United States). The Port Authority adopted a 20-30% increase in existing charges as well as the introduction of new tariffs for port dues, dockage, longshore cargo handling, cargo sorting and special services such as wharf cleaning. While this adjustment was a definite improve- ment in the tariff structure, these new charges did not, in fact, reflect a full analysis of the cost structure of the port handling operations. The primary intent at that time was to take prompt action to improve the earnines of the Port Authority. Tariffs were further revised in 1976 to increase charges for wharfage and onshore cargo handling, and the charge system since that time has been, on an overall basis, reasonably related to costs. The Port Authority has not, however, adjusted charges at Potosi and Puerto Cabezas to reflect costs at these ports, although such action is required under the Loan Agreement; the management feels that the revenues and costs associated with those ports are not of sufficient importance to justify such action. This issue is discussed further in paragraph 5.13. 5.04 Operating expenses have been substantially higher than the forecasts made at appraisal throughout the period under review. Between 1972 and 1977, operating expenses increased from 26 million Cordobas to 62.6 million Cordobas (160%) as against the forecast figure of 21.8 million Cordobas in 1972 increasing to 38.5 million Cordobas in 1977 (76%). This reflects the fact that the appraisal did not include an allowance for inflation. Actual inflation during the period, expressed in terms of consumer prices, was 67%; thus, costs in terms of constant - 18 - currency were actually below those forecast at appraisal, in spite of the higher traffic volumes. 5.05 Since operating incomes in each year were above those forecast at appraisal, cumulative operating income in the 1972-1977 period was 59.5 million Cordobas as against 39 million Cordobas forecast. Operating ratios were also better, reflecting the higher tariffs charged; the ratio in 1977 was 82 against 87 forecast. Return on assets in operation was substantially higher than forecast, at 11.9% in 1977 as against 5% forecast at appraisal. This high return was achieved in spite of the fact that assets were revalued during this period. 5.06 Actual and projected balance sheets for the period are summarized in Table 5, and it can be seen that there is a dramatic difference between the results achieved and the appraisal expectations. Total assets at the end of 1977 were 451 million Cordobas, 640% higher than the assets in 1972 and 230% higher than anticipated. The principal reason for the dramatic increase in assets was the substantially higher-than-anticipated cost of the project and the additional investments made. Because the project was not complete, most of the fixed assets were still classified as work in progress at the end of 1977, and yet actual fixed assets in operation were approximately equal to the appraisal forecast for 1977 (which included the project investments). The reason for this correspondence was the substantial increase in assets resulting from asset revaluation carried out during 1976. This revaluation was required under the terms of the Loan Agreement (Section 5.05 (b)) and resulted in an increase in valuations of 170%. 5.07 The substantial cost overrun that occurred during execution of the project also affected the liabilities side of the Balance Sheet. Thus, total debt at the end of 1977 was 159 million Cordobas against a forecast figure of 80 million Cordobas in the appraisal and an actual figure of 5 million Cordobas in 1972. In spite of these higher borrowings, the debt-equity ratio of 40/60 in 1977 was better than the figure of 44/56 forecast at appraisal. The improve- ment resulted from higher earnings by the port authority, Government equity contributions and the effect of the asset revaluation. In fact, the debt/equity ratio would have been even further improved if the Government had fully met its promises on equity contributions made at the time the supplemental Bank loan was approved (para. 5.08). 5.08 Also, because of these cost overruns, the financial plan had to be adjusted substantially. Under the original plan, 100% of the foreign exchange costs of the project (78% of total costs) were to be financed by the original World Bank loan of US$11 milion, and most of the remainder (18.6 million Cordobas) was to be financed by the Port Authority. In 1975, it was decided to supplement the original loan with a further US$5 million loan from the World Bank. In addi- tion, further co-financing of US$10 million was arranged through CABEI, and the Government of Nicaragua agreed to provide the major part of the remaining finan- cing through equity contributions to CPA of US$12.8 million equivalent. As can be seen from Table 7, the final project financing will differ again from that anticipated when the additional loan was made, in that costs have further in- creased and the Government has contributed less than had been agreed, resulting in a shortfall of over US$8 million which will be made up by an additional loan of US$5 million from a private bank, US$3.2 million in suppliers credits, and the rest through additional internally generated funds from CPA. As a result, the - 19 - World Bank's net contribution to the project cost, after repayments made during the execution period, will be about 31% of the total expenditures and about 42% of the foreign exchange costs. 5.09 In view of the additional debt needed by CPA to complete the project, CPA will be under some financial pressure over the short term. Assuming that arrangements are made for the added financing needed to finish the project, debt service payments are expected to increase to C$ 14.4 million in 1978, 18.6 million in 1979 and peak at 29.4 million in 1981. This will mean that CPA will not be able to meet the debt service coverage targets in .the Loan Agreement (Section 5.04) as actual net revenues will not exceed 1.75 times the maximum projected future debt service. However, the projected current coverage ratios for the next five years are all expected to be satisfactorily over 1.75 once the new facilities commence operating. Rates of return for CPA are expected to be above 8% in all future years and to reach 13.6% by 1983 as a result of tariff increases scheduled by CPA. The principal uncertainty affecting future revenues lies with the assumed revenues to be received from container traffic as negotiations with the shipping lines covering tariff levels are not yet completed. Review of Financial Covenants 5.10 The usual financial covenants were included in the Loan Agreement. They covered reporting and auditing requirements, negative pledges on the creation of liens on property, debt service coverage, rate of return on assets and restrictions on the disposal of assets. In general, these covenants seem to have been soundly based and to have functioned effectively during the execu- tion of the project, and the borrower has complied with all of them. 5.11 Reporting and auditing have all been satisfactory throughout the period. The auditors used by CPA have been the local affiliates of Price, Waterhouse and Company, and their reporting has been timely. In addition, they have developed a useful close advisory relationship with CPA. 5.12 As has been pointed out earlier in this report, the CPA approached the Bank to ask permission to contract additional debt although this debt would cause them to fall below the debt coverage ratio stipulated in Section 5.04 of the Loan Agreement. 5.13 The borrower has been in compliance with the rate of return covenant throughout the period and, in fact, has generally exceeded the stip- ulated returns by a good margin. In this case, it appears that the financial pressures imposed by the increased project costs made the borrower strive to earn as much as possible to improve internal cash generation. However, the rate of return covenant also required that -the charges at CPA's other ports be adjusted to earn satisfactory returns at these locations, and CPA did not do this in spite of the issue being raised a number of times during supervision. It is a common problem during supervision to convince a borrower to take the same approach to raising charges at non-project facilities as it does at project facilities, especially when non-project facilities are small. It is felt that this problem appears so often that the most that can be hoped for is financial self-sufficiency for such facilities, with some constraints on - 20 - future investment without prior Bank approval and/or matching tariff action. It appears that the financial covenant for the other ports would have been better if written in these terms. 5.14 With respect to the discussion of the rate of return covenant above, the borrower revalued its assets and revised tariffs at the port of Corinto in a manner to better reflect the costs of operations in accordance with the detailed stipulations of the Loan Agreeement. However, while the most recent revision of tariffs,made in 1976, was satisfactory, it was based on limited information on the costs of various port operations. CPA is currently de- veloping and refining a cost accounting system which has been introduced with the assistance of UNCTAD and, when this becomes fully operational and suffi- cient information is available, CPA will further improve its tariff structure. - 21 - VI. INSTITUTIONAL PERFORMANCE OF THE BORROWER 6.01 The management and operations of CPA were satisfactory. The General Manager and the Board of Directors took personal interest in the execution of the pro- ject. Sometimes this interest led to conflicts with consultants as explained in paras. 3.02 and 3.13. 6.02 CPA's approach to its tariff policy has been very satisfactory. It has shown a continued interest in maintaining real returns on investments in operation and has made earnest efforts to increase its contribution in meeting the project costs. The active interest shown by CPA in developing a cost accounting system with the assistance of UNCTAD (Transmar Project) and its offer to be a model for the development of a costing system that would be applied to all Central American ports are praiseworthy. 6.03 On the whole, reporting requirements were met in a satisfactory manner. 6.04 CPA's performance with regard to compliance of the special covenants in the Loan agreement has been satisfactory. 6.05 On the other hand, the performance of the Government in complying with the covenants in the Guarantee is considered less than fully satisfactory. In the case of Section 2.03 of the Guarantee Agreement (provision of funds to the Borrower), the Government has not reimbursed to CPA for a substantial part of the amount spent on the coastal defense works. Part of the equity contributio; promised to CPA under the revised financing plan agreed with the Bank when the supplementary loan of US$5.0 million was made. remains unpaid. Because of its difficult financial situation, the Government advised CPA, in February 1978,of its inability to provide funds and suggested that CPA should itself raise a loan,of US$5.0 million which would be guaranteed by the Government. CPA has been negotiating with a consortium of Swiss and German banks for this loan but has still not succeeded in getting the agreement signed. In the meanwhile, a sum of nearly US$3.0 million due to the contractor, Julius Berger, remains unpaid. Not being able to obtain necessary funds from the Government, CPA has been seeking suppliers' credit for the procurement of ancillary con- tainer handling equipment and tugboats. Further, as mentioned in paragraph 3.18, the improvement of the port access has not been started even though it is more than six months since other components of the project were substantially completed. In view of the Government's continuing financial difficulties, which have been aggravated by the climate of political uncertainty and violence of the last year, it is not possible to predict when the Government will be in a position to fulfill this obligation. - 22 - VII. ECONOMIC REEVALUATION Economic Return 7.01 The appraisal analysis separated benefits over a 20-year useful life for the container berth and a 30-year useful life for the improvements to the existing facilities. For the project as a whole, the economic return was expected to yield a 15% return with a first year return of 11%. The ex-post evaluation for a 20-year life would give an economic return of 14% with a first year return slightly above 10%. Various reasons explain this good result despite large increases in costs. The cost increases to a large extent are due to post energy crisis inflationwhich has had a similar impact on vessel operating and shore handling costs. The increased scope of the project by in- cluding a liquid cargo berth has been more than compensated for by handling cost savings and increased port revenues from additional petroleum traffic. A third reason is the delayed implementation of the project with higher traffic the first year of container berth operation (Table 3). For the ex-post evaluation, the following forecast has been used with a 6% traffic growth after 1983consistent with the previous trend. Actual New Forecast 1971 1977 1981 1983 Exports Cargo (000) Tons Liquid cargo 39 57 69 76 Specialized cargo - 128 155 172 General cargo 253 389 473 521 Sub-total 292 574 697 769 Imports Liquid cargo 32 169 205 227 Specialized cargo 53 98 120 132 General cargo 191 313 380 419 Sub-total 276 580 705 778 Regional container traffic - - 167 229 Total 568 1154 1569 1776 7.02 A very large part of the estimated project benefits in the early years were due to savings of ship time. In 1976, these benefits were expected to amount to some 245 ship days saved waiting for berth, 30 ships days saved in berth, 33 ship days saved waiting for tide and 150 days saved because of the better cargo handling through containerization. In 1977 (when the project was still incomplete), the actual ship days lost (which could have been saved) due to the first three causes was a bit higher, or 355 days compared to 308 days above. The savings in ship time due to container handling the first year of operation (1979) would prob- ably be less than 150 days due to the use of larger ships. The cost saving in real terms would also be less than the appraisal estimate due to higher operating cost of new container vessels. For similar reasons, the benefits to Nicaragua of containerized cargo to or from other countries via Corinto may also be less in real terms. This, however, is more than compensated for by earnings from increased traffic in bulk petroleum products due to the liquid cargo berth, which, in turn, was helped by the dredging works. - 23 - 7.03 A summary of first year benefits is given below: Appraisal New Estimate Estimate for 1979 at 1976 1976/77 Prices Facility Improvement US$ thousands Ship waiting time savings 540 2,341 Cargo diversion - - Savings in cargo-handling 55 ) 454 and ship time at berth 66 ) Subtotal 661 2,795 New Berths New port dues for liquid cargo - 722 Savings in ship time 330 150 Savings in cargo-handling 165 375 Savings in ships waiting for tide 75 144 Non-Nicaraguan container cargo 300 208 Increased port dues for container ships - 17 Subtotal 870 1,616 TOTAL 1,531 4,411 Timing of the Project 7.04 The original schedule of project execution anticipated the com- pletion of the project at the end of 1975. This target was not met, but the actual completion of the container wharf two years later gave a first year return,as indicated above,of 10%. This implies that the actual time of com- pletion,with the changed costs and benefits,was close to optimal. Substan- tial container traffic willin any event, not start before the early months of 1979; therefore, the main benefit foregone by the delayed project comple- tion relates to the ship delays in 1976 and 1977. Savings in ship time, be- cause of better cargo handling or any other benefits related to container vessels, will only begin in 1979. The liquid cargo terminal benefits in the form of additional pout revenues were already being earned in 1977. 7.05 The benefit foregone by late completion relates primarily to ship waiting time cost. During the period 1974 to 1977, ship hours lost waiting for berths were as follows: - 24 - Total Cargo loaded Ship Hours and unloaded Lost Waiting Year (000) tons for Berths 1974 1125 6265 1975 871 3069 1976 1015 5167 1977 1154 8026 7.06 Earlier completion would have avoided the ship delays in 1976 and 1977,or a total of about 542 shipdays. This could have represented a saving of about US$3.8 million. On the other hand, 225 million Cordobas (US$32 million) would have been spent two years earlier at an interest cost (at 8%) of US$5.3 million. Even if account is taken of inflationary cost increases, earlier completion in real terms would not have been worthwhile. - 25 - VIII. THE ROLE OF THE BANK 8.01 During all stages of the project cycle, the Bank made useful and cons- tructive contributions which were felt by the borrower to have been of major import- ance and value in evaluating the many changes in design, costs and objectives. 8.02 In resolving the financing problems caused by the steep increase in project costs, the Bank played a very active role in assuring that the project would go ahead and that sufficient funds would be available. After determining that projected economic benefits were still sufficient to justify the much larger investment, Bank staff were instrumental in developing a revised financing plan and promoting a loan from CABEI. It is evident that a key feature of this achievement was the Bank's willingness to supplement the initial loan with additional funds, thus indicating continued support of the project. However, at that time, the Bank may well have been advised to make the Frantine o additional financial support to CPA hv the rovernment, a conditicr- of effectiveness of the supplemental loan. 8.03 The Bank's supervision was adequate and helped to avoid or reduce delays in project execution. Bank staff played a constructive role in resolving the problem caused by the differences between the directors of the consulting engineers and the Port Authority. Relations with the co-financier, the borrower and the Government were cordial throughout. 8.04 With regard to project content, it is felt, in retrospect, that it was a mistake during the preparation stage not to include the liquid cargo berth in the project. In the circumstances which actually developed during the execution of the project, the delays and cost increases attributable to this omission were, fortunately, not significant since they were absorbed by much larger time and cost overruns due to other reasons. In normal circum- stances, the consequences of the omission would have been substantial. 8.05 Considering that the covenant regarding improvement of the access road had been originally included in the first port loan (Loan 143-NI) and was not complied with by the Government, and in view of the importance of this improvement, a more effective means of ensuring that this work would be done should have been negotiated with the Government prior to loan approval. 8.06 The financial projections made at appraisal were somewhat conserva- tive, but, more importantly, suffered as a result of having been prepared in constant currency terms. While uncertainty over anticipated inflation makes such an approach to financial forecasting understandable, it is felt that it is only through an attempt to include the effects of such inflation in the finan- cial projections that a realistic picture of fund needs can be developed. This is especially true when the debt and investment figures included in the balance sheet reflect anticipated actual amounts which include an-assessment of inflation effects. A further inconsistency in the financial projections was the non-inclusion of any effect of asset revaluation that was stipulated under the Loan Agreement. - 26 - IX. CONCLUSIONS 9.01 The civil works,including the container wharf financed by the Bank, have been completed satisfactorily. The installation of the container crane financed by CABEI and procurement of other essential equipment should be ac- complished, hopefully, within the next few months, after which the project will be fully operational. A proper assessment of the success of the project will be possible when the port is adequately equipped to provide container service. 9.02 The substantial delay and cost overrun which have occurred in this project were largely due to reasons (such as earthquake, energy crisis, currency realignment) which could not have been foreseen. The project still remains economically viable, yielding an estimated economic return of 14% and first year return of 10%, provided the political situation in the country returns to a relatively normal state in the near future. 9.03 It appears, in retrospect, that the rejection of the first bidding for coastal protection works and the non-inclusion of the liquid cargo berth in the project during the preparation stage were not good decisions. 9.04 Given the experience regarding the Government's performance with regard to the condition in Loan 143-NI for port access improvement, it would have been conducive to better results if, in this project, the responsibility for such improvement had been placed on CPA and the provision of the necessary funds to CPA by the Government had been made a condition of loan effectiveness, at least prior to the provision of funds under the supplemental loan. PROJECFC ' CO- ETTON REPORT NICARAGUA - LO.:: 879-N! SECOND CORINTO PORT PROJECT 1/ ACTUAL AND EXPECTED PROJECT IMLEIENTATION CONTRACTOR/CONSULTANT . DATES 0 F PERCENT OF THE WORKS ANDM 31D R;,CEIPT CON--RACT AT.';RD BEGINNING OF WORK COPLETIUMN OF W7= COMPL.ETED BY EXPECTEL) PROJECT COMPONENT NATIONALITY ACTUAL EXPECTED ACTUAL EXPECTED ACTUAL EXPECTED ACTUAL EXPECTED CCPLETION DATE Coastal Defense Works Amsterdam Ballast May 30/73 Dec. 72 July 20/73 March/73 Nov. 1/73 March/73 June 6/74 June/74 100% Dutch Container Berth Julius Berger Sept. 17/74 Aug./73 Aug. 31/75 Sept./73 June 15/76 Oct./73 Dec./77 Dec./75 NIL A/ Bauboag. Ag., German Liquid Cargo Berth Sept. 17/74 Aug./73 Aug. 31/75 - April 1/76 - Dec./76 NIL Buildings Sept. 17/74 Aug./73 11.a. Sept./73 May 15/76 Oct./73 Feb. 28/78 Dec./75 NIL Dredging Sept. 17/74 Aug./73 Aug. 31/75 Sept./73 Sept. 17/77 March/74 March/78 Dec./74 WIL Container Crane Liebber Container Jan. 14/77 Aug./73 Aug. 18/77 Sept./73 Sept. 15/77 June/74 March/79 Dec./75 NIL Cranes, Irish (Eatimated) Other Container 3/ Handling Equipment Not yet Aug./73 Sept./73 i.*a. Dec./75 and Tugs determined 1/ At appraisal. ./ Not envisaged at appraisal; included in the project at a later stage. I/Negotiations in progress with potential suppliers who are expected to offer credit. SOURCE? APC-9/78 1- PROJECT COVILETLUN RLPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT ACTUAL AND APPRAISAL ESTIMATES OF PROJECT COSTS (Us$ 10oo) L C T UA L C 0 ST SfOPR.J SAL EST;MATE OF COST ACTUAL COS' AS A PROPORTION OF PR7OJECT -APPRAISAL LOCAL FO'EIGN TOThL USS CO'TrPCT LOCA. FCREICH TOTAL US$ ESTitT E CONFACT i CGHPONEVT CURRENCY US$ EQUVlLENT Art0 NT ,CURRENCY US$ EQUIVALENT OF COST ( W MOUNT () 1/ Coa5t al Defense 'orkb 2,005 ;8 3,603 1.439 500 1,980 2,480 145 N.A. Containdr Ber-1 & Pavements 6,249 19,125 25,374 -0,827 1,680 4,890 6,570 386 121.8 Liqu;d Cargo Berth 1,380 2,516 3,606 3,135 - - - - N.A. Buildings 1,119 2.088 3,207 2,384 330 470 800 00 146.8 Oredging 362 5,437 5,795 5,518 230 2,140 2,370 244 105.1 Co-Isultant/Engineers 1,702 663 2.365 1,7i3 420 280 700 337 132,6 Training - 10 10 - 20 20 50 100.C Container Crane , 51 2,500 2,551 2 o50- - 1,220 1,220 209 101.9 Other container equipment 803 3,212 4 015 Not awarded ._ and two tug boats T 0 T A L 13,371 37,159 50,530 37,399 3,160 11,000 14,160 357 00 Sour-ce: APC-9/73 1/ Excluding cost of rock, which was quarried by force account and supplied with payment by the contractor. CEW\W/9cc9 PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT Actual and Forecast Traffic of Major Commodities 1972-1978 1 9 7 2 1 9 7 3 1 5 7 1 1 5 75 1 9 7 5 1 9 77 I 9 7 8 1 X P -0 ' TS A(.TU,)L FORECAST ACTUAL F-714EC,S1 A.TUAL FO.r C ACT,.- OREC. ACTUAL FQO : CAST ACTUAL FORECA;T FTAL FORECAST 1. LiOuid Caroo 1/ TZ Iasses 35 35 43 30 30 25 26 26 67 26 57 26 ..0 26 2. SpeciaIiLed Cargo bananas 47 45 113 130 133 160 136 200 12h 200 128 200 1 ?4 200 3. GeneraI Cargo Cott,n 103 95 108 100 142 1C5 1110 110 121 112 127 114 1- 115 Cotton Linters 11 12 11 13 17 1 16 15 16 15 . 16 16 13 16 Cotton Seed, Oil and Cake 37 3C 58 29 94 28 63 27 59 27 72 27 76 28 Fesume Seed 5 5 5 5 4 6 5 6 6 6 4 7 5 7 Coffee 29 28 ' 29 29 30 37 32 45, 26 44 24 46 22 71 54 5, 50 47 48 50 45 92' 46 54 48 5 .o Meat 11 12 13 13 3 14 5 15 9 15 7 15 7 15 Lumber 77 20 72 15 56 10 55 - 77 - 54 - 56 - Other General Cargo 8 20 12 21 13 22 8 24 15 25 11 26 11 28 Sub TOTAL: GENERAL CARGO 352 276 371 275 I05 277 379 274 44[ 272 389 277 407 8 SUB TOTAL EXPORTS: 434 356 527 435 568 462 541 500 635 498 574 503 602 507 , I MP 0 RT S 1. Liquid Cargo, 1. oiud am rolducts & S3vcnts 43 40 45 50 50 58 23 26 60 75 161 90 165 100 Tallow 6 - 4 - 7 - 8 - 5 - 8 - 5 - SUB TOTAL LIQUiD CARGO BULK 0 9 50 57 5 31 66 65 75 169 90 17- 100 2. Specialized Cargo Bulk wheat 38 45 23 50 32 55 48 60 43 64 54 68 5 72 Fertilizer 29 15 67 16 40 1 13 20 18 21 40 22 4 23 OU ts a- 4 - 1. - 2 - 3 - 4 - - Others - 7 - 9 - - - - - - - - - SUB TOTAL: BULK CARGO C , -10 l 66 E 5 73 65 80 64 85 09 t 9 3. General Cargo Certil , Iniecticides 12 30 15 'o 37 50 7 61 18 62 51I 63 5 64 Motor Vehicles 22 29 4. 0 C 32 27 34 23 35 45 36 4 36 !Machinery E Equipment 14 23 1' 25 ;J 27 45 30 32 31 21 32 33 iron & Steel Products 1b 33 62 36 97 40 32 45 35 47 36 4S i 51 lther General Cargo 100 92 181 ;5 96 191 98 116 100 144 102 157 104 16. 106 SU3 TOTAL CENERAL CARGO I0T 207 320 2 415T 7 237 270 252 277 313 284 325 299 SUa TOTAL IMPORTS: 293 307 470 342 557 373 331 416 381 437 580 464 11 435 10TAL: EA'CT. G IMPORTS: 727 663 997 777 1.125 4') 572 916 1,016 935 1,154 967 12' 9 2 C) REGIONAL -CONTAINER TRAFFIC - - 50 - 70 _l 90 TO,AL TRAIFIC (Ai3i-C) 721 663 997 777 1.125 840 372 16 1,016 085 1,154 1,017 1,227 1.062 1/ Actual for eight months and estimated for four months. PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT Efficiency Indicators 1972 1973 1974 1975 1976 1977 Actual Actual Actual Actual Actual Actual 1) Tons/Ship/Day: Liquid Cargo NA 2,875 2,175 2,036 2,200 2,022 Bananas NA 715 864 919 984 762 General Cargo NA 782 1,030 952 1,150 1,766 2) Berth Utilization (%) 82.3 79.7 61.8 86.2 89.1 C) 3) Tons Handled/Meter of Quay 1,048 1,436 1,621 1,256 1,463 1,658 1 4) Average Cargo/Ship (tons) 1,352 1,855 1,984 1,797 1,991 2,076 5) Ship Turnaround time (days) NA 3.5 3.1 2.5 2.5 2.8 6) Waiting time for berths NA NA 6,265 3,069 5,167 8,026 (hours) Source: APC - 9/78 PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT Actual and Projected Balance Sheet of the Port Authority 1972-1974 (Figures in Cordobas '000) 1972 1974 1976 1977 Actual Forecast Actual Forecast Actual Forecast Actual Forecast Assets Current assets 11,150 8,069 45,779 19,108 41,414 10,079 13,070 10,272 Other assets 1/ 5,769 5,143 24,654 4,043 25,546 5,843 26,283 4,543 Net fixed assets in operation 43,710 45,397 45,518 40,933 113,792 115,127 110,909 119,377 Work in progress 2 2,104 10,781 54,044 114,914 10,000 300,750 5,000 Total Assets 69641 58213 126,732 104,928' 295,666 137,049 451,012 134,992 Liabilities and Equity Current liabilities 3,949 2,500 9,096 3,200 32,629 4,000 47,873 4,200 Long term debt 5,250 5,157 52,721 38,551 61,103 61,650 159,241 60,118 Other liabilities - - - - - 1,960 - - Equity and Reserves 51,432 52,696 6,91 66377 201,943 73,439 243,898 74,874 Total Liabilities and Equity 60,631 58,213 126,732 104,928 295,666 137,049 451,012 134,992 Current ratio 2.8 3.2 5.0 2.8 1.3 2.5 0.3 2.4 Debt/Equity ratio 9/91 9/91 45/55 37/63 23/77 46/54 40/60 44/56 1/ Other assets principally reflect Coastal Defense Works carried out on behalf of the Nicaraguan Government. M Source: Corinto Port Authority June 1978 PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT Actual and Projected Income Statement of the Corinto Port Authority 1972-1977 (Figures in Cordobas '000) 1972 1974 1976 1977 Actual Forecast Actual Forecast Actual Forecast Actual Forecast Operating Revenues Corinto: Port Operations 26,902 24,006 58,476 34,906 65,958 41,478 71,617 43,020 Other 142 - 50 - 73 - 532 - Other ports 1 1 2,8 Total Operating Revenues 28,052 25166,2 608 813 4,0 75,980 44,270 Operating Expenses Corinto: Personnel 16,725 16,600 28,910 21,051 33,441 25,026 36,830 25,717 Other expenses 4,718 2,386 13,859 3,253 14,759 5,279 19,578 5,510 Other ports 981 750 2,361 780 1,922 815 2,219 835 Depreciation 1 2 1 3,988 6,450 Total Operating Expenses 22 62,615 38,512 Operating surplus 4,038 3,350 13,744 8,060* 14,162 5,633 13,365 5,758 Net fixed assets in operation 43,712 45,597 45,518 40,933 113,792 115,127 110,909 119,377 Return on net fixed assets (%) 9.8 8 30.2 19 17.7 5 11.9 5 Operating ratio (%) 86 87 77 78 79 87 82 87 Source: Corinto Port Authority June 1978 10, PROJECT COMPLETION REPORT NICARAGUA - LOAN 879-NI SECOND CORINTO PORT PROJECT Actual and Appraisal Expectation of Project Financing Local Currency Foreign Currency Actual Appraisal Expectation Actual Appraisal Expectation Cordobas % Cordobas % US$ % US$ % Self-financing by APC 26,897 28.7 18,620 84.2 2,647 7.1 - - Government 66,700 71.3 3,500 15.8 - - - - IBRD - - - - 16,000 43.1 11,000 100.0 1 CABEI - - - 10,300 27.7 - - European Banks 1/ - - - - 5,000 13.5 - - Suppliers' Credit - - 3,200 8.6 - - Total 93,597 100.0 22,120 100.0 37,147 100.0 11,000 100.0 1/ Loan being negotiated. Source: APC/9/78  ATTACHMENT II 0UAk,4 AUTORIDAD PORTUARIA DE CORINTO 9 *o,. CORINTO, NICARAGUA 00 1956 PROJECT COMPLETION REPORT Prepared by : THE CORINTO PORT AUTHORITY Project : SECOND CORINTO PORT PROJECT Loan : WORLD BANK LOAN 879-NI Date : JUNE 24th., 1978 BACKGROUND: As a result of a series of stidies carried out by the CORINTO PORT AUTHORITY between 1960 and 1970, studies in which the WORLD BANK also took part, the GOVERNMENT OF NICARAGUA determined the feasibility of further development of the PORT OF CORINTO which had improved and expanded its facilities in 1956 when it was granted by the WORLD BANK a loan of US$3.2 million (Loan 143-NI). In 1969, a loan request made by the Government of Nicaragua to the BANK, was deferred pending certain fiscal reforms by the applicant, however in November 1971, the Government renewed its request for financing of the SECOND CORINTO PORT EXPANSION PROJECT which consisted of: 1. A new 240-meter container berth 2. A new administration building and other buildings 3. One container gantry crane and ancillary equipment 4. Dredging of access channel and turning basin 5. Coastal defense works 6. Training of personnel 7. Consultants' services The original estimated cost of the Project was US$14.16 million with the BANK supplying the foreign exchange component of US$11.0 million and the Government of Nicaragua and the Corinto Port Authority local currency-of US$3.16 million. The Government of Nicaraaua was specially interested in the protection of the island of Corinto from erosion from the sea and interruption of rail service, as well as expansion of the port to meet demands of increasina cargo vo)um APARTADO POSTAL No. 11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUA A o09UA,, AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA 0 0 -36 - 1956 The project was appraised by the BANK in July 1972 and found justifiable and feasible. The appraisal mission recommended very strongly that the tariff structure of the Corinto Port Authority be adjusted so that rates and charges would be reasonable related to costs, however the mission maintained that the Corinto Port Authority was expected to remain financially viable in the future. The Loan was signed by the Minister of Finance of behalf of the Government of Nicaragua and the BANK on February 2nd., 1973, and officially became LOAN 879- NI. The firm of FREDERIC R. HARRIS-CISNEROS & CONRADO-SANTOS & HEILEMANN, a con- sortium, contracted in November 1971 as Consultants for the Port Expansion and Coastal Defense Project, was approved by the BANK for the implementation of the Project and would supervise actual construction of the Project as well as performing therexecution of the engineering design. The Corinto Port Autho- rity was acknlowledged as having the technical and administrative capacity to carry out the Project. THE LOAN Once LOAN 879-NI was approved and the contract signed, intensive activity was commenced by the CONSULTANTS to prepare the bid documents for the Project. In the meantime, during the second semester of 1973 and early in 1974, it became apparent that the port was in need of additional facilities to properly attend the volume of liquid cargo being handled. The Board of Directors of the Corin- to Port Authority considered the construction of a LIQUID CARGO BERTH justifi- able and therefore it was included in the SECOND CORINTO PORT PROJECT. Also, during this period, important fluctuations in worldwide economy, inflated the cost of the Project far beyond the original estimates. Constant exchange of correspondence with the BANK durinq this period, resulted in a June 1974 esti- mate of US$27.58 for the total cost of the project. APARTADO POSTAL No.11 TELEFONOS 211 - 215 TELEX 27 CABLE PORT6ARIA OVTUAo, AUTORIDAD PORTUARIA DE CORINTO 0 4CORINTO, NICARAGUA . -37 - 1956 The BANK agreed to increase loan 879-NI from US$11.0 million to US$16.0 million providing additional funds of US$5.0 million, however the necessity of additional funds provoked a division in the financing of the Project as it became necessary to seek funds elsewhere. The Central American Bank of Economic Integration was approached for a loan to complement the monies already acquired from the BANK. The application was approved and a loan of US$7.8 million was secured to complete with cost of the Project. During this period, a conflict surged between the Corinto Port Authority and the Consultants due to several irregularities on the part of the latter. The BANK was duly informed of these problems as well as of the decision of the Board of Directors of the Corinto Port Authority to cancel the contract with the Consultants. Cancellation would become effective late in 1974. During the second semester of 1974, the bid documents were completed and bid- ders requested to tender. Minor changes were made to the bid documents which delayed the bid-opening, however by November 1974, the Board of Directors of the Corinto Port Authority were in a position to finally award the bid to the firm of JULIUS BERGER BAUBOAG, A.G. who were given a contract for the entire project. The dredging of the access channel and turning basin was sub-contract- ed out to the firm of WESTMINSTER DREDGING CO. by the contractor Julius Berger Bauboag A.G. On November 8th., 1974, the Board of Directors of the Corinto Port Authority, awarded the contract as Consulting Engineers to the consortium of KING & GAVA- RIS, CONSULTING ENGINEERS (a U.S. firm) associated with KARIM-D'ARCE (a Nicara- guan firm) for the duration of the Project. THE PROJECT Coastal Defense Works: In Decenber of 1973, the Coastal orotection works wer APARTADO POSTAL No.11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUARIA U AV AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA 00 oo -38 - 1956 commenced by the firm AMSTERDAM BALLAST INTERNATIONAL. This involved the ex- ploitation of a rock quarry which was carried out directly by the Corinto Port Authority as being the cheapest and most effective way to supply the con- tractor with the stones required for the protection works. Problems encountered at the begining of the works were promptly overcome by opportune changes in the original design of the rock dike. The project was carried out by the Corinto Port Authority solely as a delegate of the Nicara- guan Government who appointed the Port Authority to administrate the protection works and to keep up the maintenance of the protection, however all funds for maintenance would be supplied by the Nicaraguan Government. This is therefore a Government project and not a project of the Corinto Port Authority. The annual maintenance executed as programmed, has contributed to conserve the revetment, which was completed in June 1975, in very good operating condition during the past five (5) years. CONTAINER BERTH, BUILDING, ETC. The new Consultants carried out a complete revision of the original design of the Project as received by them from the previous consortium. A series of re- commendations were made which tended to reduce the cost of the Project without detracting from the strength and durability of the berth. The BANK was made aware of these changes and after due consideration of all relevant factors, informed that the changes met with their approval. The contract was signed with the firm of JULIUS BERGER-BAUBOAG A.G. on July 31, 1975. Work was actual- ly commenced on October 1st., 1975. The new design of the Project resulted in the following major benefits: 1. Reduction of cost 2. Reduction in the period of construction Precasting of the components introduced by the new design, also contribu,t dto APARTADO POSTAL No.11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUARIA 10UAR/4 AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA 00 -39 - 195b avoiding congestion of the port and destruction of the city streets since the new design allowed for the majority of the precast components to be transport- ed by water direct to the construction site. The actual construction of the container berth, the administration and other buildings, the storage yards, etc., proceeded at a very satisfactory pace during 1975, 1976 and 1977. Completion date was set for March 1978 however it was estimated that the Project would be completed before then. The adminis- tration building was inaugurated in the month of January 1978. The Container berth was completed in February 1978. The final report presented by the Consultants, shows great satisfaction with the way the project was developed by the Contractors JULIUS BERGER-BAUBOAG A.G. Except for a few final details, the Project was completed in February 1978 instead of March 1978 and in the end consisted of the following: 1. Coastal Protection Works of Paso Caballos 2. Liquid Cargo Terminal 3. Dredging of access channel and turning basin 4. Construction of Container berth 240 meters long 5. Reclammation and paving of container marshalling yard of approximately 23,000 meters 6. Paving of 20,000 square meters of flexible bituminous pavement for open- air storage 7. Drainage and Electrical systems for new areas 8. Fresh-water supply system and salt-water fire-fighting system 9. Two Electrical sub-stations 10. Stevedore building 11. Maintenance and Repair Shop 12. Administration Building APARTADO POSTAL No. 11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUARIA lotUAR4 AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA 0 -40 - 1956 Final costs were as follows: MILLIONS OF CORDOBAS NICARAGUAN DIVISION TOTAL COST WORLD BANK CABEI GOVERNMENT C.P.A. DREDGING 42.848 --.--- 35.000 7.000 0.848 CONTAINER PIER, ETC. 172.785 98.610 --.--- 72.000 2.175 BUILDINGS 17.609 --.--- --.--- 10.000 7.609 LIQUID CARGO TERMINAL 25.931 --.--- 19.600 6.000 0.331 CONTAINER CRANE 18.200 --.--- - 17.500 --.--- 0.700 CONSULTANTS 16.283 2.062 --.--- --.--- 14.221 TRAINING .140 .140 --.--- ----- ----- TOTALS 293.796 100.812 72.100 95.000 25.884 TOTALS IN U.S.DOLLARS 41.97 14.40 10.30 13.57 3.70 PERCENTAGES OF TOTAL 100.00% 34.31% 24.54% 32.34% 8.81% The container crane has been ordered from the contractor and is actually under construction by LIEBHER CONTAINER CRANES to whom the bid was awarded. Date of delivery is programmed for December 31, 1978. The ancillary container-handling equipment has been partially purchased. A front-loading RAYGO-WAGNER lift-truck has been approved for purchase by the Board of Directors and the contract is being prepared. It has been assured by the supplier that the unit will be delivered before December 31, 1978. Bid specifications for two tug-boats have been published and tenders are being received. Opening date has been set for July 17th., 1978. The outcrop of rock located in the access channel after the dredging, will be blasted loose. Several offers have been received and are beinq analized to see which is most convenient. The BANK will be informed of developments in thi di- rection. APARTADO POSTAL No.11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUARIA U AuI4 AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA -41 - 1956 The following traffic chart will show the behavior of the port in cargo volume handled from the year the appraisal was made up to date: FIGURE IN 1000 TONS 1971 1972 1973 1974 1975 1976 1977 FORECAST EXPORTS 292 356 435 462 500 498 503 ACTUAL EXPORTS 308 434 527 573 542 635 574 FORECAST IMPORTS 276 307 342 378 416 437 464 ACTUAL IMPORTS 259 293 470 552 331 381 580 FORECAST TOTALS 568 663 777 840 916 935 967 ACTUAL TOTALS 567 727 997 1125 873 1016 1154 We also include financial charts showing a steady increase in the port income over a period of five years and projection for the coming six (6) years. COMMENTS The constant monitoring and consistent reporting back by the BANK's missions w e r e . of major importance and value id evaluating the many changes in design, costs and objectives during the development of the project. We feel however, th.t BANK policy should include a certain flexibility in the negotiated terms to allow for relevant changes of objectives as was the case when the BANK disputed the justifiability of the Liquid Cargo Terminal and refused its.financing. It pleases us to inform that there has been an increase of 80% in the volume of liquid cargo handled during the January/June semester as compared with the similar period of 1977. The liquid cargo terminal as financed with funds from CABEI and the Nicaraguan Government. a APARTADO POSTAL No. 11 TELEFONOS 211 - 215 TELEX 27 CABLE POR FARIA A AUTORIDAD PORTUARIA DE CORINTO :-4 CORINTO, NICARAGUA - 42 - 1956 We also believe that in transactions of this nature, where financing covers a period of years, some provision should be made to allow for financial costs. As a result of fluctuations in the exchange rates of european curren- cies, the project suffered financial costs of approximately 31% of the total cost. The role of the consulting Consortium was ambivalent. While the Port Autho- rity was quite satisfied with the Nicaraguan partners, the same can not be said for the American counterpart of the Consortium which presented problems with which the BANK is well acquainted. FUTURE As a result of our having the LIQUID CARGO FACILITY, we have been approached by the Oil Corporations of EXXON and SHELL with the following requests: 1. Area on the reclaimed land behind the actual tank farm on which they in- tend to locate refineries to supply not only Nicaragua but the other centralamerican countries as well. 2. A second storey on the liquid cargo trestle to lay additional pipes. This will greatly increase the liquid cargo volume and will erase any doubts as to whether this berth was justified. Since January 1978, we have been in continuous contact with EUROPACIF a con- sortium of HAPAG-LLOYD, KNSM and CGM, and other Steamship Lines who are in- terested in extending their cargo service with container vessels to the Pa- cific Coast of Central America using the port of Corinto as a regional ter- minal for cargo destined to GUATEMALA, HONDURAS, EL SALVADOR, NICARAGUA and COSTA RICA. The most advanced plans are those of EUROPACIFIC who intends to commence operations as soon as the container gantry crane is installed, that is, early in 1979. They have also assisted us with recommendation in regards to the ancillary equipment use in other container terminals and the capac*ty of the tug-boats that wilt be to seevie./ / APARTADO POSTAL No. 11 TELEFONOS 211 - 215 TELEX 27 CABLE PORTUARIA o0UAR, AUTORIDAD PORTUARIA DE CORINTO CORINTO, NICARAGUA o -43- 195b As part of our preparation for the advent of container traffice, we have en- gaged the services of Mr. A. J. MCCUNNIFF, well known by the BANK, to assist us in preparing a tariff which would be adequate for the services to be given and the facilities involved. Mr. McCunniff has had previous experience with container traffic and tariff in the ports of Puerto Cortes, Honduras and Santo Tomas de Castilla, Guatemala and we believe he has the expertise required for this study. We trust the BANK will agree with us. Finally, we would like to mention what we consider a very important ommission due to oversight of both the Corinto Port Authority and the BANK in not having included the expansion of the BULK HANDLING FACILITY in the Project. No one can be blamed for this exclusion however we want to keep this necessity in sight and trust that the BANK will also consider the importance of such a fa- cility to complement the installations already in service. Bulk cargoes are being handle on the conventional berths in an ever-increasing volume and at a rate of discharge which is not satisfactory nor compatible with the requirements of the modern-day technicisms and demand of berth. With the new berth in operation, the lack of a special bulk-handling facility is not as conspicuous as it estimate it will be in the near future, and we would like to transfer this anxiety of ours to the BANK. THE CORINTO PORT AUTHORIT June 24th., 197 , . ARARTADO -POSTALoNo. 11 TELEEONGS2091- - 215 TELEX -27 tABE PORTUARJA  UTOR)IDAD POPT11ARTA DE COPTNTO PPC)DUCTOS DE TIPORTACTON Y !XOPTACION MANEJADOS DE 1972-1977 Y CSTIMADOS DI: 1971-1983 C o R 1 N T o (TONS.) A)E X P o R T A C 1 0 N 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Carga L:quida : Morlaza 34,544 43,075 30,259 25,876 67,232 56,725 59,561 62,539 65,666 68,949 72,396 76,016 Aceite de Sem. de Algod6n 5,095 1,317 6,1G7 3,502 - - - - - - - - Otros - - - - - - - - - - - - S U M A N 39,639 44,392 36,426 29,378 67,232 56,725 59,561 b2,539 65,666 68,949 72,396 76,016 Carga, Esneciailizada : Bananos 46,793 112,997 132,701 136,404 124,214 128,037 134,433 141,155 118,213 155,624 163,405 171,575 Carga a Granel: Algodn 103,294 107,909 141,735 139,635 120,675 126,673 133,007 139,657 146,640 153,972 b1,671 169,755 Borra de Algoddn 11,475 11,232 17,236 16,201 15,959 15,931 16,728 17,564 18,442 19,364 20,332 21,349 Sanilla y 'ITrta de Algod6n 32,181 56,276 87,326 59,693 58,623 72,448 76,070 79,874 83,868 88,061 92,464 97,087 Ajonjolf 4,758 5,347 4,386 4,606 5,741 4,392 4,612 4,843 5,085 5,339 5,606 5,886 Café 28,663 34,629 29,454 36,905 49,298 43,978 46,177 48,486 50,910 53,456 56,129 58,935 Azucar 71,383 56,848 46,843 49,484 92,104 54,124 56,830 59,612 62,656 65,789 69,078 72,532 Carne 10,525 12,502 3,425 5,443 9,362 6,670 7,004 7,354 7,722 8,108 8,513 8,939 Madera 77,177 72,109 55,706 54,825 76,679 53,859 56,552 59,380 62,349 65,466 68,739 72,176 Otros 8,000 12,412 13,020 8,249 14,858 10,881 11,425 11,996 12,596 13,226 13,887 14,581 S U M A N 347,456 369,264 141,735 375,041 443,299 388,956 408,405 428,826 450,268 472,78 4,19 521.240 'IrAL EXPORTACICN 433,888 526,653 568,258 540,823 634,745 573,718 602,399 632,520 664,147 697,354 732,220 768,831 B)IMPORTACION Carqa LfTuida: Petr¿leo y Solventes 42,560 45,065 49,722 22,620 60,459 160,579 168,608 177,038 185,890 195,185 204,944 215,191 Sebo 6,113 4,314 7,310 7,799 4,507 8,367 8,785 9,224 9,685 10,169 10,677 11,211 S U M A N 48,673 49,379 57,032 30,419 64,966 168,946 177,393 186,262 195,575 205,354 215,621 226,402 Carga Especializada: Triqo 38,250 22,763 32,340 48,422 42,621 53,911 56,607 59,437 62,409 65,529 68,805 72,245 Fertilizantes 29,309 67,004 39,853 12,551 18,359 40,298 42,313 44,129 46,650 48,983 51,432 54,004 Avena 4,045 3,793 3,793 2,020 3,019 4,024 4,225 4,436 4,658 4,891 5,136 5,393 Otros 9,400 7,352 9,465 - - 346 363 381 400 420 4,11 463 S U M A N 81,004 100,912 85,451 62,993 63,999 98,579 103,508 108,683 14,117 119,823 12,8714 132,105 Carga General: Fertilizantes/Insecticidas 11,952 15,208 37,313 16,455 18,103 53,379 56,048 58,850 61,793 64,883 68,127 71,533 Vehículos 21,536 47,626 59,398 27,366 22,800 45,321 47,587 49,966 52,464 55,087 57,841 60,733 Maqpuinarias y Equipos 13,737 13,802 29,670 45,322 32,381 20,810 21,851 22,944 24,01 25,296 26,561 27,889 Hierro y Acero 16,384 61,935 96,781 32,375 34,466 36,178 37,987 39,886 41,880 43,974 46,173 48,482 Mercaderfa General 100,140 180,794 191,059 115,686 143,952 157,078 164,932 173,179 181,838 190,930 200,477 210,5T1 S U M A N 163,749 319,365 414,221 237,204 2517T2 312~766 328/05 3-¯325 312¯¯66 380,17 3,179 419,138 'I0TAL IM43PrtACIC4: 293,426 469,6561 556,704 330,616 380,667 580,291 609,306 639,170 61,758 705,347 740,614 777,645 C) TRAFICD LE CWITEEIRES (*) -- C~ ~ ~ 15,000 60,000 140,000 167200 198,400 228.900 'IOTAL CAFR MNEJADA 727,314 996,309 1124,962 871,439 1,015,412 1154,009 1,226,705 1,33,?,290 105,905 1569,901 1671,234 1775,376 (*) Tráfico Fgional M,~ M/Cco  AUTORIDAD PORTUARrA DE CORINTO H.ALANCE GI1:PAT CONS0LIDADO ACTUAL 1973-1977-ESTIMADO 1973-1983 1973 1974 1975 1976 1977 1978 1979 Y)q0 1981 1982 1983 A_C T I VO ACTIVD CIrCULA¿TE Ca3a y Bancos 3,525 35,646 25,930 30,909 2,201 2,104 9,212 39,902 72,195 107,446 153,697 Ctas. y Drn. por Cobrar(Nútn)3,197 7,823 2,920 3,868 5,273 5,273 5,273 5,273 5,273 5,273 5,273 Mltezialcs (Neto) 1,282 2,310 3,796 6,637 5,596 5,596 5,596 5,596 5,596 5,596 5,596 S U M A N 8,004 45,779 32,646 41,414 13,070 13,173 20,101 50,771 83,064 118,315 164,566 OTfrf ACriMis Carqos al Gob. Central 6,132 23,734 24,446 22,681 21,551 21,551 21,551 21,551 21,551 21,551 21,551 ACTIV) FIJO Planta en Operaci6n (Neto) 45,524 45,518 48,235 113,792 110,909 429,710 462,820 450,430 438,040 425,650 413,260 Obras y Trabajos en Proceso 8,100 10,781 48,756 114,914 300,750 29,769 - - - - - S U M A N 53,624 56,299 96,991 228,706 411,659 459,479 462,820 450,430 438,040 425,650 413,260 PCTIVO DIFERIDO Cargos Diferidos 1,102 920 2,105 2,865 4,732 4,492 4,492 4,492 4,492 4,492 4,492 'ITAL DEL ACTIvO 68,862 126,732 156,188 295,666 451,012 498,695 508,964 527,244 547,147 570,008 603,869 PASIVO PASIVO CIlFCUMAN'E Ctas., retenc. y Gastos Acun. 5,465 9,096 11,021 32,629 47,873 25,895 25,103 24,156 22,906 21,689 20,427 OrFI PASIVOS Préstrms. por Pagar 8,344 52,721 31,727 61,103 159,241 223,562 216,823 207,111 191,851 176,346 162,136 WAL [EL PASIV 13,809 61,817 42,748 93,732 207,114 249,457 241,926 231,267 214,757 198,035 182,563 C A P I T A L Patriwonio 55,053 64,915 113,440 201,934 243,898 249,238 267,038 295,977 332,390 371,973 421,306 'ITAL EL PASImO Y CAPITAL 68,8G2 126,732 156,188 295,666 1,012 498,695 508,964 527,244 547,147 570,008 603,869 CM/qc0g U UTORIDAD PORTUARTA DE CORINTO PRODULTOS , CASTOS Y UTIL ) DAD ACTUAL 1973-1977, PROYECTADO 1978-1983 INGRES0S OPEMTT\ 1973 1974 1975 1976 1977 1978 1979 1980 19281 1982 )933 Servicios 36,703 58,476 53,354 65,958 71,617 81,719 91,296 91,861 100,654 105,687 110,971 Contenedores - - - - - 4,770 15,909 31, [00 34,980 38,478 42,326 Rcuperaci6n de Costos 64 42 41 45 293 308 323 339 356 374 393 Otros 15 8 9 28 239 251 '264 277 291 305 320 Puerto Cabezas y Potosf 1,699 2,096 2,409 2,162 3,831 4,022 4,223 4,434 4,656 4,888 5,132 T O T A L 38,481 60,622 55,u73 68,193 75,980 91,070 112,006 132,711 140,937 149,732 159,1 12 GAS'IOS OPf:ATI\)S: Personales 22,056 28,910 28,143 33,441 36,830 42,134 43,819 50,129 52,134 59,641 61,027 Costo qxraci6n cnntencdores - - - - - 754 2,544 5,098 5,597 6,156 6,772 íparaci6n y Mantenii.nto 2,533 4,113 4,880 3,567 3,738 4,112 4,523 4,975 5,473 6,020 6,622 Consuno de Materiales 527 1,045 1,492 1,706 1,558 1,714 1,885 2,074 2,281 2,509 2,760 Otros Gastos 503 683 892 964 1,025 1,127 1,239 1,363 1,499 1,649 1,814 Generales 4,850 8,018 6,886 8,522 13,257 7,529 8,282 9,110 10,021 11,024 12,126 Puerto Cabezas y Potosf 1,728 2,361 1,708 1,922 2,219 2,330 2,447 2,569 2,697 2,832 2,974 S U M A N 32,197 45,130 44,001 50,122 58,627 59,700 64,739 75,308 79,702 89,"31 94,095 Depreciaci6n 1,728 1,748 2,281 3,909 3,988 11,144 12,390 12,390 12,390 12,390 12,390 'I'IAL GAS'TOS 33,925 46,878 46,282 54,031 62,615 70,844 77,129 87,698 92,092 102,221 106,485 i INGRESO NE'IO OPEPATIVO 4,556 13,744 9,591 14,162 13,365 20,226 34,877 45,013 48,845 47,511 52,657 INGRESOS FINANCIERE 309 1,031 4,121 4,596 828 - - 525 3,150 6,300 9,450 INGRESO NE'IO AN'IES rE IN'ERESES 4,865 14,775 13,712 18,758 14,193 20,226 34,877 45,538 51,995 53,811 62,107 GASTOS FINANCIEROS 1,256 4,914 3,937 451 194 14,886 17,077 16,599 15,582 14,228 12,774 UTILIAD NETA 3,609 9,861 9,775 18,307 13,999 5,340 17,800 28,939 36,413 39,583 49,333 NOTA: No incluye cálculo del Impuesto sobre la Renta de 1978 a 1983.- CEWW/gcog _ T1, ..... APEO "---C ADDIT REPORT rRGAFKSPIOD(AGD - r£WE JERII - E_STAC- ACO A.CCWC --1 1Ne. -- ----------- tj'E~E~I DE CONVE:H-D~ \AAICCC AMIWRI1- LTACz_ON N=- -, DE ANA OOS.- ~~GEi&ERAL CARGO EERTE ·· -- -- • - . 1 - - a - . - - a - .sw - -,-¢-1=. ,i r-T m - - - ..-t DBRD 10140 SEP TEMBER 1972 A'/anneNICA RAGUA Ocean CENTRAL PORT OF CORINTO AMERICA APPRAISAL OF SECOND PORT PROJECT NICARAGUA Co,nnio Pc//frc Ocecan 10 ri i 11 j lat aIEl Reolejo cabo cebel~Iol rEo t.- COASTAL DEFENSE WORKS /s/a de/ G--nd,/o Roads i Railwoys Estero San r,sco Built-up areas Rivers Project works WHARF /s/a Encon/odc CORINTO r4 Bay of Cor,nto Es L' el Cord6n Pnn/aCastoñones 0 500 1000 METERS 0 500 1000 YARDS  NJCARAGUA PORT OF CORINTO MEXICO APPRAISAL OF SECOND PORT PROJECT ANoefAN ATEMA5DONDURAS EL SALVADOR ICARAG PORT OF COSCO CORINTO W FOH EXISTING INSTALLATIONS ENEW INSTALLATIONS PROJECT AREA XISTING AROADSA I CN PROJECT RAILROADS PROJECT PIPElPNE I S0 100 EXISTING FENCE METERS PROJECT FENCE - O by~ Ih