Honduras - Western Highway Project : proposed change in development credit

r~~~ RESTRICTED Report No. P-387 . 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 The report may not be published nor may it be quoted as representing their views.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 CHANGE IN DEVELOPMENT CREDIT (NO. 1-HO) TO HONDURAS July 6, 1964 0  I  INTERNATIONAL DEVELOPI=T ASOCTATION REPORT AND RECOTIMENDATIONS CF THE FRZSIDENT TO THEfl EECTTIAE DIRECTORS ON A ROPCSE7 CHANZE T.N DEE,OPHTI CR-DIT (N6e. 1--HO) TO HONDURAS 11 On Slay 12, 1961 the Association concluded Development Credit No. 1-HO for US$9 million writh the Government of Honduras for a highway project in Honduras. 2. The project consisted of: i) the construction of about 100 kilometers of an all-weather highway from the terminus of the WrJes+ern Highway at Santa Rosa de Copan to the El Salvador border (hereinafter referred to as '"Western Highway Extension"); ii) the construction of feeder roads to connect with the Western Highway and its Extension; iii) the continuation of a highway maintenance program for two years; and iv) a highway planning survey. 3. The total cost of the project was estimated at about M3l3.5 million. Ir addition to the Credit of $g9 million from the Association, the Government of Honduras obtained a loan of $2,250,000 from the Inter-American Development Bank (hereinafter referred to as "IADB") for the project. The balance of $2,250,000 was to be financed from the Governmentts oTm funds. 4. The Credit became effective on June 29, 1961 and progress in the project has been generally satisfactory. The construction of the Western Highway Extension is expected to be completed by September of this year, a few months earlier than originally scheduled. The highway planning survey was completed in August 1963 and on the basis of its findings the Government has approached the Bank for a loan for a project for the construction and improvement of the highway between Tegucigalpa and Puerto Cortes (Northern Highway) in Honduras, The two year period of assistance in the highway maintenance program ended on August 31, 1963. The feeder road portion of the project will not be completed until about September 1966, due primarily to the delay in engineering. 5, Vjlith the construction of works on the YTestern Highway Extension nearing completion within the next months, a more realistic estimate has been made of the cost of the project. On the basis of this estimate, it is expected that a surplus of about $1.7 million will accrue in the Credit Accounit.-'This saving is''dBue-pfrin-ipally to the original cost estinates fori -the WTestern Highway Extension having included a large contingency factor and to the fact that no difficulties of significance were encountered in the course of the construction of the Western Highway Extension. A corresponding surplus of a smaller amoumt is expected to accrue also under the IADB loan to the Government.  .~~~~~~~~~~~~~~~~ 6. In view of the above, the Government of Honduras has requested the agreement of the Association to apply this expected surplus to the improvement of about 80 kms of still unimproved sections on the highway between Santa Rosa de Copan and Chamelecon (hereinafter referred to as "Western Highway"). The Government has simultaneously approached the IADB for agreement on the use, for the same purpose, of the prospective surplus accruing under the IADB loan. IADB is expected to agree to this request in the near future. 7. The Wlestern Highway is about 150 kms long and, together with the Western Highwvay Extension, connects the Northern Highway in Honduras (Tegucigalpa - Puerto Cortes) with the Northern Highnay in El Salvador (Ocotepeque - San Salvador). A first stage improvement of this highway has already been carried out with the assistance of Loan 195-.H0 made by the Bank in 1958, which provided for the construction of bridges and culverts on the highway and of accesses and approaches to them for a total length of about 70 kms. The Governmentts proposal is now to improve the remaining 80 kms to the same standard as the other 70 kms, mainly by widening or realigning the road, improving drainage structures, and providing a gravel surfacing. The standard is also the same for the Western Highwvay Extension- 8. The Western Highwa3 , the Western Highway Extension and the feeder roads connecting with these two highways form an integral system serving the econcxr of the western region, one of the most important agricultural regions in Honduras. The first two also serve as the principal road connection of Honduras with El Salvador. A significant growth in traffic has been seen on the completed sections of the highlwTays and it is now considered of high priority that the full-length of the Vestern Highwfay and its Extension be improved to a uniform standard, The total cost of the proposed improvement is estimated at about 7t3.0 million, of which about $1.7 million is expected to be covered by the prospective surplus in Credit No. 1-HO, about $0.5 million by the IADB loan concerned and the balance by the Government. 9. If approved, the proposed construction could be started in July 1964 and be completed towards September 1966. Since the present closing date of the Credit is September 30, 1965, the closing date should be extended to December 31, 1966, allowing for a three month period to settle payments. Recommendation 10. I recommend that the Executive Directors: (a) approve a revision in Schedule 2 of the Development Credit Agreement and the extension of its closing date from September 30, l965 to December 31, 1966 in the form attached as Annex rNo. 1; and 0  - - 3 - (b) adopt a Resolution to that effect in the form attached as Annex No. 2. George D. Woods President Washington, D. C. July 6, 1964 0 0 0 a  Annex No. 1 /Letterhead of Republic of Honduras_j Z DateJ7 International Development Association 1818 H Street, N.W, Washington, D.C,, 2Ch33 Gentlemen: Re: IDA Credit No. I.-HO: Description of the Project; and Extension of Closing Date * We refer to the Development Credit Agreement between us, dated Hay 12, 1961, and more particularly to Schedule 2 thereto (Description of the Project). We hereby request your agreement that such Schedule 2 be amended by * adding at the end the following words: "Part V. The engineering and construct-on of the unimproved portions of the Western Highway bet-ween Chamelcon and Santa Rosa de Copan. The locations of the works will be determined by agreement between the Borrower and the Association." It is understood and agreed that the foregoing amendment will become effective only (i) when the Association shall have received evidence satisfactory to it that the amendment has been duly authorized and ratified by, and executed and delivered on behalf of, the Republic of Honduras (including a legal opinion satisfactory to the Association to the effect that all applicable constitutional requirements have been satisfied in connection with this letter agreement) and (ii) as of the date upon which the Association dispatches to the Republic of Honduras notice that the Association has accepted the eridence submitted.  *2 We also request your agreement that the Closing Date of September 30, 1965 be postponed to December 31, 1966o Please signify your agreement with the foregoing by signing and returning the enclosed duplicate copy of this letter, Yours very truly, REPUBLIC OF HONDURAS By ____ Authorized Representative CONFIRIVED: INTERNATIONAL DEVELOPMENT ASSOCIATION * By_______ Legal Department Draft of July 2, 196L  Annex No. 2 INTERNATIONAL DE1MI,OPPE1JT ASSOCIATION ( DRAFT ) RESOLUTION NO. RESOLVED: THAT, in accordance with the recommendations of the President dated July 6, 1964, the Association shall enter into an agreement with the Republic of Honduras, amending the Development Credit Agreement between the Association and the Republic of Honduras, dated May 12, 1961, upon terms and conditions substantially in accordance with the terms and conditions of the draft letter which has been presented to this meeting. Legal Department Draft of July 2, 1964  S*/^4;~~~~~~ A S R~~~~ s Plo. Cort~~~~~~~~~~~~~~~~~~~~~s ~~Lo Cei'ba Area C | t Cholo7- A T L A N T I D ACB -. p, By <0p Telm8S u'a E s q u l , \<, | N l; B U C A }