Mauritania - Road Project

RESTRICTED FILE COPY Report No. P7412 This.report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND. RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A ROAD PROJECT December 14, 1964  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOHIENDATIONS OF TIIE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE ISLAMIIC REPUBLIC OF IAURITANIA FOR A ROAD PROJECT 1. I submit herewith the following report and recommendations on a proposed development credit in various currencies equivalent to $6.7 million to the Islamic Republic of Mauritania to help finance the Nouakchott-Rosso road project. PART I - HISTORICAL 2. The Islamic Republic of Mauritania became independent in November 1960, and joined the IMF, IBRD and IDA in September 1963. In May 1963, the Government submitted an application for a loan or credit to assist in financing the construction of a 200 km. road from Nouakchott, the capital of Mauritania, to the port of Rosso on the Senegal River. Preliminary engineering studies were undertaken by the Bureau Central d'Etudes d'Outre-Mer (BCEOM) under French Government technical assistance, and an appraisal mission from the Association visited Mauritania in April 1964. In September the Mauritanian Government, in consultation with the Association, requested the European Development Fund (FED) to join in financing the construction of the Nouakchott-Rosso road. Representatives of the Association, FED and Mauritania met in Brussels in November for negotiations. 3. The proposed credit would be the first operation of the Association in Mauritania. In March 1960, the Bank made a $66 million loan, with the guarantees of Mauritania and France, to the Societ6 Anonyme des Mines de Fer de Mauritanie (1%3iFJMA) for the development of a high grade ore deposit in the northern part of the country. 14. As of October 31, 1964, the status of this loan was as follows: Amount ($ million Year Borrower Purpose equivalent) 1960 Soci6t6 Anonyme des Mines de Fer Iron ore mining 66.o de Mauritanie (MIFERMA) Repaid 0 Total Now Outstanding 66.0 Amount Sold 48.3 of which repaid 0 Net Amount Held by Third Parties 48.3 Net Amount Held by Bank 17.7  PART II - DESCRIPTION OF THE PROPOSED DEVELOPMENT CREDIT 5. The main characteristics of the proposed credit would be as follows: Borrower: Islamic Republic of MIauritania. Amount: The equivalent in various currencies of $6.7 million. Purpose: To help finance (i) the construction of the Nouakchott-Rosso road; (ii) the employ- ment of consultants to carry out the final design and supervision of the project; and (iii) a general study of read maintonance requirements. Term and Amortization: 50 years with no amortization for the first ten years. Repayment to be in 80 installments, 1/2 of 1% of the principal amount to be re- paid semi-annually beginning June 1, 1975, and ending December 1, 1984, and 1-1/2% semi- annually thereafter to December 1, 2014. Service Charge: 3/4 of 1% per annum on the principal amount of the credit disbursed and outstanding. Payment Dates: June 1 and December 1. PART III - APPRAISAL OF THE PROPOSED CREDIT The Economy 6. A report entitled "The Economy of Mauritania" (IMo. AF-28a) was circulated to the Executive Directors on December 14, 1964. 7. Mauritania has a population of less than one million people, about 75% of them nomads. Harsh physical conditions and meager natural resources have hampered economic development and, until recently, the principal economic activities have consisted of extensive and rather unproductive stock raising, rudimentary agriculture, mainly concentrated on the right bank of the Senegal River, some river and sea fishing, and the collection of a few thousand tons of gum arabic. Since 1960, the economy has been broadened and strengthened by the development of high grade iron ore deposits at Fort Gouraud by the Soci6t6 Anonyme des Mines de Fer de Mauritanie (MIFERMA). There is also some hope for the development in the not too distant future of some other mineral resources (copper, ilmenite, gypsum).  - 3 - 8. Prospects for rapid growth remain limited, although MIFERIA's operations have had and will continue to have considerable impact on the structure and development of the economy. Exports of iron ore began in June 1963 and are expected to amount to 4.7 million tons in 1964. When the planned operating level of 6.0 million tons is attained in 1965-1966, ore exports (at present prices) should rise to 12 billion CFA francs, or about three times the value of all traditional exports taken together, bringing about a radical change in the balance of trade position. Improved prices for iron ore and further expansion of capacity are possibilities. As a consequence of the development of the deposit and commencement of iron ore exports, fiscal receipts have increased substantially. This increase, combined with a determined policy of austerity, including a 15% cut in government expenditures in 1963 and 196h and an increase in taxation rates, has enabled the Government to dispense with current budget subsidies from France since mid-1963. Over the next few years, however, further budgetary receipts are likely to be absorbed by the normal growth in government expenditures. 9. The direct external debt of Mauritania is low. The Government is a guarantor with France of the IBRD loan of $66 million to MIIFERia. Excluding debt service payments by MIFERMA ($6.5 million in 1966 rising to $9.5 million from 1969) which are in effect underwritten by the principal shareholders, service on the present public debt amounts to about $750,000 equivalent a year, corresponding in 1964 to about 5% of budgetary resources and about 1.5% of exports. WJhile these proportions may be thought modest in themselves, they have to be viewed in the light of Mauritania's limited natural resources, low income levels and saving possibilities. Given its determined budgetary performance to date, Mauritania appears eligible for financing from the Association. The Project 10. A report, "Appraisal of a Road Project, 14auritania" dated December 11, 1964 (TO-h42b), is attached. 11. The proposed project is in three parts: the final design of the 200 km. Nouakchott-Rosso road (Part A); supervision of construction and a study of road maintenance requirements (Part B); and construction of the road (Part C). The total cost of the project is estimated at about US$10.0 million equivalent, of which US$9.3 million corresponds to the cost of construction of the road, and US$720,000 to the cost of consultants' services. The entire project is expected to be completed within three and a half years. 12. Construction of the road does not present any particular technical problems. Starting from Nouakchott, a 100 km. section of the road would be constructed as a two-lane road with an improved soil sub-base and a sea- shell surface, which appears adequate for the present traffic volume. On the remaining 100 km. to Rosso, the sea-shell surface would receive in addition a single bituminous treatment. The length of the section to  -h - receive bituminous paving was determined solel" by maintenance cost con- siderations; this section is located too far a;way from the sea-shell pits to permit economic use of this material for maintenance. The road would be built sufficiently above the maximum flood level of the Senegal River to prevent interruption of traffic due to periodic floods. 13. In agreement with FED, construction of the road would be under- taken in one contract to be awarded on the basis of international competi- tive bidding. In view of the experience with the project already gained by BCEOM, it is proposed to invite them to carry out the final design and supervision of construction. BCE0OM would also be used for the proposed study of maintenance requirements for the entire road network. The Mauritanian Government will undertake to assure adequate maintenance of the Noualchott-Rosso road and gradually to improve maintenance of other national roads in accordance with the recommendations of the consultants. 14. The southern part of Mauritania, extending roughly from Nouakchott to the Senegal River, is the most densely settled and agri- culturally promising part of the country. At present this region is supplied largely through the Port of Dakar in Senegal. After a 260 km. train haul from Dakar, goods are transported another 120 km. by road to Rosso before being distributed either to Nouakchott or the Senegal valley. 15. FED is financing a new wharf at Nouakchott which will give the capital direct access to the sea. The project road would provide a permanent artery between the capital and this new wharf, and Rosso. Con- structi-on of the project would reduce transport costs between Nouakchott and the Rosso area and, with the gradual development of the Nouakchott wharf, would reduce substantially the distances to be travelled by Mauritanian imports and exports. The directly measurable benefits of the new road would be a reduction in the cost of vehicle operations and a saving in road maintenance costs. Important indirect benefits would also accrue to lauritania: the expected development of traffic through Nouakchott would stimulate Mauritania's commercial activity, create new employment opportunities, and provide important additional budget revenues in the form of taxes and import duties. The Financing Plan 16. In the course of the Brussels negotiations, FED and the Associatioli agreed, in principle, to finance jointly the construction cost of the road. To this end, if the proposed credit is approved by the Executive Directors, FED will recommend to the Commission of the European Economic Community, at its session of ilarch 1965, that a grant be made to Mauritania of US$3.22 million equivalent, corresponding to 35% of the construction cost of the road. Of the proposed US$6.7 million IDA credit, US$5.98 million would be applied to the cost of construction of the road, representing 65% of the construction cost. The balance of the proposed IDA credit, that is, US$720,000, would finance the cost of final design, supervision of con- struction and the study of road maintenance requirements.  17. As has been explained in paragraph 8, NIauritania's budgetary position leaves scant room for a local contribution to the capital cost of the project. Mauritania is in a customs union with Senegal under the terms of which customs duties and other taxes on imports into the two countries are divided between them in the proportion of 9 for Senegal to 1 for Nauritania (approximately the relative importance of their imports). While it is impracticable to obtain exemption for project goods and supplies, most of which would enter through Senegal and in a form not readily identifi- able, IFauritania has undertaken to make available for financing the project its share (estimated at about US$100,000 equivalent) in the import duties and taxes which would be payable on the project goods and supplies. PART IV - LEGAL INSTRUIENTS AND AUTHORITY l. The draft Development Credit Agreement betwzeen Iiauritania and the Association, which has been circulated separately to the Executive Directors together with the draft Administration Agreement between Miauritania, the European Economic Community and the Association, follows the general pattern of agreements for road projects, except that: (a) Withdraw,als for Parts B and C of the project would be withheld until such time as FED is legally committed to the project (Section 3.03); withdrawals for Part A could be made, however, as soon as the Credit becomes effective. (b) Any suspension of Mauritania's right to utilize the funds of FED and any breach by it of the Administration Agree- ment are made events of default under Article 5.02. 19. The draft Administration Agreement provides the machinery for withdrawals for Part C, contains general covenants ensuring complete co- operation and exchanges of information among the three parties in respect of the entire project, and confirms that the Association would act as prime coordinator in dealing with Mauritania. Mauritania's obligations toward FED will terminate when FED's grant has been fully disbursed and its agree- ment with Mauritania fully carried out,as provided for in Section 5.01 of the draft Administration Agreement. PART V - COMPLIANCE WITH ARTICLES OF AGREEMENT 20. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association.  - 6 - PART VI - RECO1IIEIiDATIONS 21. I recommend that the Executive Directors adopt the following resolution: RESOLVED: That the Association shall grant a development credit to the Islamic Republic of Mlauritania in an amount in various currencies equiva- lent to six million seven hundred thousand dollars ($6,700,000), to mature on or prior to December 1, 201h, to bear a service charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum, and to be upon other terms and conditions substantially in accordance with the terms and con- ditions set forth in the form of Development Credit Agreement (Road Project) between the Islamic Republic of Mauritania and the Association and the form of Administration Agreement (Road Project) between the Islamic Republic of Mauritania, the European Economic Community and the Association which have been presented to this meeting. Washington, D.C. George D. Woods December 14, 1964 President Attachment