Ecuador - Highway Maintenance and Construction Project

R E S T R I C T E D Report No. P-142 This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS of the PRESIDENT to the EXECUTIVE DIRECTORS on the PROPOSED LOAN to the GOVERNMENT OF ECUADOR for A PROGRAM OF HIGHWAY MAINTENANCE AND CONSTRUCTION September 10, 1957  IIJTMRNTA TIUOiTL BA.NK ?OR RECON-MTRUCTION N'ID DEVELOPIi71T4T REPORT ANTI RECadEhNDATIONiS OF THE PRESIDEINT TO THE ;XECUTIV5 DIRECTORS ON A PROPOSED LOA.N TO THE GOVfERlRiJNT OF ECUADOR FOR A PROMAPL OF HI GWThAY IK_ITTE-NATNCE AJTD CONSThU OTTION 1. I submit herewith the following report and recoxnendations on a proposed loan in an amount in various currencies equivalent to 4;I1b.5 million to the Republic of Ecuador to finance the foreign exchange cost of a project of highway maintenance and construction. PART T - HISTORICAL 2. The possibility of the Bank assisting in financing a project of this type was discussed, with representatives of the Government of Ecuador as early as 1953 when a Bank Mlission visited Ecuador to studr the highway project of the Comite de Vialidad de la Provincia del Guayas for which a loan was made in 1954 (9h EC). At that time, however, the Gor-ernment was not prepared to take the steps necessary for the successful execution of a highway program. 3. By 1955 tha Government, having in the meantime found it was making little progress in the execution of its hlighway program, inf'ormed the Bank that it would be prepared to alter its methods and asked the Bank to assist in financing a project for highway maintenance and construction. h. On the basis of the findings of a Bank hlission which visited Ecuador in 1955, and of further discussions with the Government on the methods to be adopted, I wrote to the President of the Republic (R-950 Annex B) informing him that the Bank was prepared to consider making a loan of about 4Ul million to assist in firnancing a program of hiliway maintenance and construction upon the following bases - (a) that qualified consulting engineers assist in preparing and executing the program; (b) that highway construction be limited to a small group of high priority roads; (c) that the organization and staff of the Highway Department be improved and strengthened; and (d) that satisfactory arrangements be made to finance the local currency costs of the project and the practice of issuing dollar bonds in payment to contractors be discontinued.  5. The new Government which took office cn September 1, 1956 ful1.v agreed with the bases worked out with its pred .essor, and after discussions with the Bank in October 1956 signed a contract with qualified consulting engineers. 6. Negotiations for the proposed loan began in Wrlashington on July 22. The Ecuadorian Government was represented by lir. Sixto Duran Ballen, the Minister of Public Works, Dr. Jose Chiriboga, the Ecuadorian Ambassador and lHr. Francisco Albornoz, Director of Public Wlorks. 7. If the proposed loan is made, it would be the first to the Republic of Ecuador. The Bank has already made the following loans in Ecuador:- Year Loan Borrower Purpose Amount Principal disbursed - No. (in milin$) as 6f Ju1y 31, f9T7 1954 94EC Comite de Highway Cons- $8.5 $3,930,000 Vialidad truction in the Province of Guayas 1956 137EC Enpresa Power t5.o $192,000 Electrica, Development Quito 8. Tn addition to the loan proposed herein, I expect soon to present for your consideration a loan of about '`5 million to the Empresa Electrica de Quito to supplement Loan 137EC. The two loans would bring the total of Bank loans in Ecuador to '33 million. PART II - DESCRIPT1ON OF THE PROPOSED LOAN 9. The proposed loan would finance the foreign exchange cost of - (a) Organizing, training and equipping the Highway Maintenance Department for effective hirhway maintenance, and the execution of a highway maintenance program for a period of about 4 years (estimated to be equivalent to about '.3.5 million); and (b) A program for the construction of four main roads, totalling about 550 kilometers (estimated to be equivalent to about 1.0 million); as more fully described in Schedule 2 of the Loan Agreement.  -3 - 10. The Loan would have the follow,.ing characteristics: Borrower: The Republic of Ecuador Amount: The equivalent in various currencies of 1.h4,5 million. Term: The Loan would be for a Deriod of 20 years and amortized by semi-annual instalments from Nviarch 15, 1'362 to september 15, 1977. Interest Rate: 5-3/4%h per annum including 1% commission. Commitment Charge: 3/4 of 1. per annum. PART III - INSTRUMENTS Legal Instruments and Legal Authority 11. Attached is a draft Loan Agreement (No. 1). It follows the general pattern of the Bank's Loan Agreements in all important respects. aittention is, however, drawm to the following points: (a) As in the case of the negative pledge clauses contained in the Guarantee Agreements of Loans