Bolivia - Export Corridors Project

- i W rld,Bank, , \, FC* OFINCIAL USE ONLY , \ ' /~~~~~~~~~~~~~~~~~~~~~~~~~~ , . ' ' . J . ~~~~~Repqft No. P-5042.tBO . , PF SFENT OFUS O ON - PRMOAPOSEAD CREDOIEDAIT OFSD 283 ILIO IWrTERNiATIONAL DELOMET ASSOCITION< - ~~TO THE - R~~XECUIiTVE DIRECTORS ON A PROPOSED CREDIT l' ~~~~~~OF SDR 28.3 MILLION- TO THE REPUBLIC OF BOLIVIA FOR AN EXPORT CORRIDORS PROJECT APRIL 12, 1989 This document bas a restricted distribution and may be used by recipn only in the performance of their official duties, Its contents may not otherwise be disclosed withot World Bank authorization.  ICY~~~~~~~~~~~~~~~~~~~~~~~~~~~~C ./ CUREC ROUIVALE., 'as of December 31, 1988) US$1.00 2.44 bolivianos ($b) US$0.41 2 1.00 boliviano US$1.00 2 SDR.0.76 US$1.31 = SDR 1.00 FISCAL YEAR January 1 - December 931 ACRONYNS AND AIBRIVIATIONS AADA& Autonomous Customs Warehouse Administration ("Administracion Autonoma de Almacenes Aduanerosn) CA . Andean Development Cqrporation ("Corporacion Andina de Fomento") ENFE Bolivian National Railway (QEmpress Nacional de Ferrocarriles del Estadoa) ER Economic return ESF Emergency Social Fund FCALP Arica-La Paz Railway ("Ferrocarril Arica-La Paz") GDP Gross Domestic Productt ICB International competitive bidding IDB Inter-American Development Bank INPEX National Institute for Export Promotion ("Instituto Nacional de Promocion de las Exportacionesn) LCB Local competitive bidding MTC Ministry of Transport and Communications PPF Projection Preparation Facility RIC aeconstruction Import Credit SNC NUtional Road Authority ("Servidio Nacional de Caminos") UN . United Nations  FORFFIAL USE ONLY NV _LC OF BOLIA EXPORr CORRIDORS PROJECT CREDIT AND PROJECT SUHHARY Borrowert Republic of Bolivia Beneficiaries: W1ini.try of Transport and Communications Servicio Nacional de.Caminos (SNC) Empress Nacional'do Ferrocarriles del Estado (ENFE) Emergency Social Fund (ESF) Ministry of Industry, Trade and Tourism A^mounts ' SDR 28.3 million (USS 37 million equivalent) Terms: Standard, with 40 years maturity On-lendini Terms: US$11.3 million on-lent to ENFE at LIBOR + 0.5Z, 15 years amortization, 3 years of grace Grant: US$3.7 million equivalent passed on t6 ESF Fitnancing Plan of Part Is IDA Proijct the Protram: IDA $37.0 million Government 10.1 " Total $47.1 n Part II: IDB Proiect IDB $37.9_ Government $12.7 Total $50.5 * Grand total, Program $97.6 million Economic Rate of Return: Over 40% (IDA Project) Staff Apvraisal Aevrt: Report No. 7700-BO Mapt IBRD 21592 This document has a resrd distdbuion ad may be ed by recpints only in the pfonne thofeir offic duties ts contents may not otherwise be diulosd wihout Wodd Bank auth n.  'F01 THlE DRlOOHR AssocaMO TO TIM ECUlCUTI VIRCTORS QN A PROPOSED CREDIT TO'TR 0PUWC OF , LIV' FO AN URTCORRIDOR P.ROWET-- 1. The following memorandum and reccum endation on a proposed development credit to the Repullc of Bolivis for SDR 28.3 million (US$ 37.Q million equivalent) is submitted for approval. The proposed credit would be on standard terms mith 40 years of maturity and would help to finance an export corridors project. The project is part of a program expected to be co-financed by IDB vith a loan of about US$38 million. 2. Backgroundt After Bolivia's economic crisis and hyperinflation of 1980-85, the stabilization and adjustment program introduced by the new administration in 1985 has restored order in fiscal management and slowed inflation. However, the hoped-for response from, the private sector to boost non-traditional exports has yet to gain momentum. A major probltm is that transportation to potential markets is costly and unreliable. Actions are needed to inprove the road and rail lnfrastructure, make the transport and terminal operations more efficient, and slmplify documentatioi. This is all the more urgent because foreign exchange earnings from'natural gas, Bolivia's principal export in 1988, are expected to drop after,ltf9, when the present contract with Argentina expires. Zmplementation;of an August 1988 agreement to sell gas to Brazil instead is still uncertain. The prtmitive state of transport In eastern Bolivia Is one factor that threatens. to delay implemensatAton of that agreement. 3. Rationale-for IDA Involvement: IDA strongly supports the Governent's economic program and its efforts to promote non-traditional exports.. Participation in the project will enable IDA to play a major role in addressing one of the main obstacles to export growth, the lack of. adequate infrastructure and efficient, reliable service in th, principal transport corridors. IDA is currently financing spare parts for SNC {the National Roads Authority) and ENFE (the National Railway Company) under two, Reconstruction Import Credits (RICs) (FY86 sad FY87), as well as labor- intensive road maintenance under two credits to the Emorgency Social Fund (ESP) (FY87 and FY88). The project would build on the experience gained through these projects. 4. Project Obiectivess The project consists of major aowponents of a program which atms to promote Bolivia's exports and reduce the costs of its foreign trade by: (a) providing two well-functioning corridors by 1992-3, one to the Atlant,ic and one to the Pacific; (b) strengthening railway management to make it more market-oriented; (e) Improving road and rail maintenance; (d) strengthening the Ministry of Transportation and Communications (MTC) in'planning and policy-making; and (e) facilitating the use of containers and airfreight. - 5. Project Description: The program components to be fiwnaced by IDA fall into three groups: improvements to the corridor from La Paz to-the Pacific, to the corridor from Santa Cruz to the Paraguay River and BE xi2_% and to the transport system as a whole. Specifically, in the Pacific , corridor, it comprises: (a) deferred maintenance (asphalt concrete overlay)  -2- on the La Pas-Oruro highway (228 km), and construction supervision (482 of project cost); (b) a feasibility study and detailed enginiering for the Patacamayya-Tambo Quemado road, which would complete the.-Bolivian portion of the La Paz-Arics (Chile) highway (refinancing of a PPF - 1X of project cost); (e) minor track Improvements on the La Pas-Arica rail line and at the La Paz rail freight terminal (31 of project cost). The Atlantic corridor improvements (20% of project cost) comprises (d) rehabilitation of track and replacement of two bridges on the Santa Cruz-Corumba (Brazil) railway line, (e) conversion of boxcars to multiple use on ENFE$s Eastern network, and (f) construction of a new freight terminal in Santa Cruz. The system-wide improvements comprise: (g) maintenanee works and drainage improvements on the main road and rail export routes, to be carried out by labor-intensive small contracts through the ESF (9Z of project cost); (h) purchase of telecommnications equipment for both Andean and Eastern rail networks (61); and (i) technical assistance and studies (112 of project cost) for (i) MTC in planning (including an evaluation of investment requirements in the La Paz-Cochabamba-Sants Cruz corridor), (ii) SNC in road maintenance, (iii) ENFE in management and marketing, external audit, and terminal design and management, and (iv) the National Institute for Export Promotion in facilitating the use of containers and airfreight. Finally, the project will also finance procurement services for the above (21). 6. The balance of the program consists of construction of an all- weather gravel road between Patacamaya and Tambo Quemado (188 km) and supervision of construction, expected to be financed by IDB. 7. The total cost of the entire program will be about US$98 million. The IDA-assisted part, to be carried out over five years, is expected to cost US$47.1 million equivalent, with a foreign exchange component of US$29.5 million (63%). IDA will contribute approximately 791 and the Government 211 of the cost of the IDA project; within this, IDA will finance the foreign cost of the railway goods and civil works (601), 80% of SNC-managed road works, 901 of ESF-financed maintenance works, and 1001 of all consultant services. The Government will on-lend US$11.3 million to ENFE for 15 years with three years of grace, at an interest rate of LIBOR plus 0.5; ENFE will bear the boliviano dollar exchange risk. The Government will also pass on US$3.7 million of the IDA credit to ESF as a grant. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement are shown in Schedule B. A timetable of key project processing events (Schedule C), the status of Bank Group operations in Bolivia (Schedule D), and a map are also attached. The Staff Appraisal Report, No. 7700-BO dated April 12, 1989, is being distributed at the same time. 8. Agreed Actions: A memorandum of understanding with IDB defining the two banks' shared interests in the export corridor program and agreeing on procedures for coordination is to be signed in April, 1989. The Government has agreed to earmark the necessary counterpart funds for the project in its annual investment budget. First disbursement against works on the La Paz-Oruro highway will be conditional on MTC providing the counterpart funds needed for those works. It has also agreed that each year it will submit to IDA for comment the transport sector investment program for the following year, and show that any major road and rail investment in export corridors it proposes to undertake outside the project is justified economically and financially. Submission by SNC of an acceptable detailed national road maintenance program for 1990 and an outline plan for 1991-1993  -3- will be a eondition of effectiveness; submission and implementation of a satisfactory program for each subsequent year until the project is completed will be a dated covenant. SNC has also agreed to put its maintenance and equipment management systems (now under development) into full operation throughout the country by mid-1991. 9. A condition of first disbursement against the railway civil works and goods purchases is that NTC and ENFE will have put into effect a performance agreement ('acuerdo progr-ma5), in which MTC agrees to limit its intervention to the setting of strategic policies, objectives and profitability goals and ENFE commits itself to achieving appropriate performance goals against which it can be held accountable. Dated covenants will require MTC and ENFE to renew the agreement after the first two years and to report to IDA each year on compliance. Two other conditions of first disbursement against the same railway items will be: hiring of consultants for the manaaement assistanve, and a restructuring of ENFE'si freight rates and passenzer fares, so that each service covers at least its long-run variable cost. ENFE's awarding of a management contract for the Santa Cruz freixht terminal in a manner satisfactory to IDA will be a condition of first disbursement for the terminal. To ensure that ENFE and the Chilean railway company sustain their recently improved co-ordination of operations on the La Paz-Arica line, disbursements for the improvements on that line will be conditional on ENFE keeping the number of loaded freight cars awaiting traction in Arica and Charaua (Bolivian border) below an average of 100 (each) during the two previous months; ENFE will sustain such efforts throughout the project. Finally, ENFE has agreed to achieve a working ratio of 871 or lower in 1989-90 and 831 or lower thereafter. 10. Project Benefits: Direct benefits will be reductions in transport costs and increased reliability of international freight movements. In turn, these are expected to give an important stim.lus to exports. Savings in direct transport costs and the avoiding of costly reconstruction of infrastructure left unmaintained should yield an ER of at least 401. We have no estimate of the value to users of more reliable service, which is over and above this, but we believe it to be large. 11. Risks: The main risk is delay, due to lack of counterpart funds and of qualified staff in the implementing agencies. The above covenants on the budgeting of counterpart funds and the technical assistance to be provided address these risks. Achieving the proposed improvement in the railway will be difficult, but made more feasible by ENFE's agreement to recruit an expatriate management advisory team. Underpinning the success of the whole project is continued sound macro-economic management, on which IDA will continue to provide advice. 12. Recommendations I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber Conable President Attachments Washington, D.C. April 12, 1989  4 - Schedule A -Pal of 2 O OLIVIA UNtRS CORUVORS PlSKLUP-- COST ESTHATZS ..... ..........._ Share Portign of tIRANCING PLAN component Local Forenip Total Cost Total IDA rD8 Cort --(US$ nlllion)-- (2) (2) U8Sa US$3 USSR ,-------------- --------------- ... .. .. __ ...... ^_....... __ ....._.__ _ __................................. PART I 1OA PROJECT Paciflc Corridor Overlay on La Paz-Oruro Hby & construction supervision 5.5 12.8 104 70 48 14.8 reasib. study of Patacamaya-Tambo Quemado toad (PPF refinanced) O .1 0.3 0.4 70 1 0.4 Rail track iMprovements. La Pot- Charana & La Paz terainal 0.6 0.5 1.1 42 3 0.5 0.6 Atlantic Corridor Track rehab.. Sta Cruz-P.Quijat;r 1.8 2.5 4.3 58- 1i 2.3 1.8 Boxcar conversions 0.0 0.1 0.1 s0 0 0.1 0.0 Construction Sta Cruz terminal 1.7 1.4 3.1 45 8 1.4 1.7 system-wide improvements Labor-intens, road & rail maintce 3.1 0.8 3.9 20 10 3.5 0.4 Telecosmunications 0.1 1.9 2.0 95 5 1.9 0.1 institutional strengthn8g. TC -SPtC - trans. policy & plang. 0.3 0.3 0.5 50 1 0.5 SNC - maint. & project adoLn. 0.2 0.3 0.5 65 1 0.5 RSPE - managt. audit, terminals 0.6 2.5 3.1 80 a 2.1 Containers & airfreight 0.0 0.2 0.2 60 1 0.2 Procurement services (2.52) 0.3 10.5 0.8 60 2 0.8 ubtotal, base COSt 144 23. 9 39.3 62 100 30.2 8 1 Physical contingencies (102) 1.1 2.3 3.4 2.7 0.8 Price escalation (132) 2.0 3.4 .5.4 4.1 1.2 -------------_ - __._._____________.____ ____._.......... . ................ _ .____.,_..._____............ __..............._ Total. IDA Project 17.6 29.6 47.1 63 37.0 10.1 PART IIs IDB PROJECT Constr.. superv. & procureat. of Patacaaaya-Tambo Quemado road * 11.6 25.7 37.3 69 28.0 9.3 Physical contingencies (15?) 1.7 3.9 5.6 4.2 1.4 Price escalation (182) 2.4 5.2 7.6 5.7 1.9 Total. IDB Project 15i. 34.8 50.5 69 37.9 12.6 GR1 TOTAL, PROGRAM 33.3 64.3 97.6 66 37.0 37.9 22.8 -------------.........-- ................... ............. .... ....... ....... ........... . .. .. 2.44 boliviame - US$1.00 *Pr*l y inis 55tt3t@ based on prefeaIbility rtudy, assmIng gravel surface  -5- Schedule A Page 2 of 2 mCING PLAN Local ForeS.n Total ------ (US$ million) ----- PART I: IDA PROJECT IDA 7.5 29.5 37.0 Goversnnt 10.1 0 10.1 Total 17.6 29.5 47.1 PART II: IDB PROJECT IDB 3.1 34.8 37.9 Coverumnt 12.6 0 12.6 Total 15. 34.8 50.5 Grand Total, PROGRAM 33.3 64.3 276  Schedule B Mm9R COR_IDO.$S P0 PROCRflIUT MTHOD) ANbDISUWE Breakdomw of Procurement by Procurenotb M tod Project Element Procurement Method Total ICB LCB Other Cost ------US$ million)--&---- Road dvii work 21.5 4.1 25.6 (17.2) (3.7) (20.9) Railway civil, vorks 6.5 0.6 0.57. (2.9) (2.9) Equipment and materitals 5.2 0.8 6.0 (5.2) (52 Consultant se'rvices 8.0, 8.0 (8.0) (8.0) TOTAL 33.-~ 1.4 12.5 47.1 - ~~~~~(25.jr) (11.7) (37.0) IDA c-ontribution is shown in parenthep-s. Other 1. Road civil works financed by EPSF wifl apply ESF's standard unit-price procedure used under Credits 1829-BO and 1882-B0, unless contrac-ts are for over US$2$0,0001, when LCBwvill be applied. 2. For rail civil works ENFE will use its own labor force to place rails, : ballast, etc. DISBURSEDENTS BCatepos: Amount (US$ mill-ion) Road civil works, SNC 17.2 .26 Road and railway civil works, ES6 3 0.67 901 Rail civil (orks, ENFE 2.9 431. Equipment and materialsl, ENFE 5*2 1001 of foreign expend. Consultant services 8.0 1001 ESTIMATED IDA DISBURSEMENS IDA Fiscal Year 90 91 92 2 94