Liberia - Road Project

RESTRICTED fY| ' Gftpy Report No. P-444 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 The report may not be published nor may it be quoted as representing their views.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 BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSALS TO AMEND LOAN AGREEMENT 368/LBR (ROADS) OF JANUARY 8, 1964 BETWEEN THE BANK AND THE REPUBLIC OF LIBERIA July 30, 1965  INTERNATIOATAL BAWK f'QR RECONSTRUCTIOh AND DEVEIOFHENT PRESIDENT'S REFORT AND RECO1MMENDATION TO THE ExECUTIV, DIRECTORS ON PROPOSAIS TO A1'END LOAN AGMEEMENT 368/LBR (ROADS) OF JAI'TUARY 8, 1'4 BET7EEN THE BANK AND THE REPUBLIC OF LIBERIA PART I -- EIISTORICAL 1. On January 8, 196h, the Bank made a loan (368/TER) to the Republic of Liberia of $3.25 million to assist in the financing of the construction of two roads (Kle-Pujehun and Schiefelin-Robertsfield) and the procurement of maintenance equipment. The amount of the lo?.n covered the foreign exchange component (65%) of the estimated construc- tion cost, the total cost of imported equipment and interest during the construction period. My Report and Recommendations of December 30, 1963 and the attachments thereto, which was distri'buted (R63-141) on the same date described in detail various aspects of the loan and the project. 2. The loan became effective on March 11, 1964. All equipment is on order and shipments have begun to arrive in Liberia. Contract prices for equipment are substantially lower than was expected at the time the loan was made, resulting in a saving of about $150,000. Contracts for the construction of the roads were awarded in March 1965, actual work started in Nlay of this year and the first withdrawal applications are expected shortly. Contract prices for this work were, however, approxi- mately 30% higher than wvas foreseen when the loan was signed because the final designs and engineering of the roads had to be changed sub- stantially as a result of a review by a firm of consultants. 3. The Bank's loan did not include the cost of supervision of con- struction because -- on the basis of discussions in progress between the Government and USAID at the time that the Bank's loan was made -- it could be reasonably expected that these costs would be provided irom sources other than the Bank or the Government. These discussions did not, however, lead to firm financial arrangements and contrary to expectations the Government has to cover the entire cost of supervision of construction. PART II -- PROFOSED ADDITIONAL FINANCING 4. A supplementary'Appraisal Report (TO-h88) is attached; it describes in detail the reasons for -- and the amounts of -- the revised cost estimates. If no additional funds were to be provided from outside, the Government's share in the cost of the project wou'd increase from approximately 35%, as initially estimated, to well over 50%.  - 2 - The Liberian Government considers thi.s to be too heavy a strain on its buidget for the next fews years and it has now requiested the Bank to increase the amount of the loan by $1 million to provide the following: a) 65% of the increased cost of road construction $600,000 b) 65% of the cost of supervision $200,000 c) 65% of 10% contingency allowance for variations in quantities $300,000 d) Interest and other charges during construction on the proposed increase in the amount of the 'oan $ 50,000 $ i,17Io, e) Less: saving on cost of equipment 150,000 $ 1,000,000 5. The requested additional loan financing would not riaterially affect the economic -ustification of the project, and it Js considered reasonable to maintain the Government's share of the financing of the project at a level of approximately 35%. I recomm.end, therefore, that Loan 368/LBR (Roads) of January 8, 196h, be increased from $3.25 million to $h.25 million. PARIT III -- LEGAL DISTIWIENTS AND AUTHORITY 6. A draft agreement amending Loan Agreement 363/LBR is being dis- tributed separately. In addition to a revised amortization schedule reflecting the increase in the loan amount, the draft agreement provides for a reduction of the original commitment charge from 3/4 of 1'o to 3/8 of 1% and for payment of the commitment charge on the additional amount, to commence from a date sixty days after the date the draft agreement is signed. All other covenants of the existing Toan Agreement would remain in force. 7. The report of the Committee provided for in Article III, Section h (iii) of the Articles of Agreement of the Bank is also being distri- buted separately. 8. I am satisfied that the proposed amendment would comply with the Articles of Agreement of the Bank.  - 3 - PART IV -- RECOItflENDATION 9. I recommend that the Executive Directors adopt the following resolution: RESOLVED: THAT the Bank shall enter into an agreement with the Republic of Liberia amending the Loan Agreement (Road Project), dated January 8, 1964, between the Republic of Liberia and the Bank to increase the amount of the loan provided for therein by an amount in various currencies equivalent to one million United States Dollars (US $1,000,000) such amount to mature on and prior to June 1, 1982, to bear interest at the rate of five and one-half per cent (5-1/2%) per annum, and to be upon such other terms and conditions as shall be substantially in accord- ance with the terms and conditions set forth in the form of Agreement between the Republic of Liberia and the Bank which has been presented to this meeting. Washington, D.C. George D. Woods July 30, 1965 President