Paraguay - Second Road Project

RESTRICTED Report No. P-472 FILE COPY 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 The report may not be published nor may it be quoted as representing their views.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 A PROPOSED LOAN TO THE REPUBLIC OF PARAGUAY FOR THE SECOND ROAD PROJECT March 23,- 1966  INTERNATIONAL BANK FOR RECONSTRUCTION AID DEVELOPMENT REPORT AND RECOP11l1ENDATION OF THE PRESIDENT TO THE- EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PARAGUAY FOR THE SECOND ROAD PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US" 2.1 million to the Republic of Paraguay. PART I: HISTORICAL 2. In August 1964 the Government of Paraguay requested the Bank to consider granting a loan for the improvement and paving of a 43 kilometer road from Coronel Oviedo to Villarrica to serve an important agricultural area of Southeastern Paraguay. 3. A Bank Mission appraised this project in November/Decenber 1965 and recormnended a Bank loan of US';; 1.5 million for this purpose. The same Mission examined the progress of a roa;d and agricultural survey in South- eastern Paraguay being carried out with assistance from the United Nations Development Program for wqhich the Bank is executing agent. The iission found that the survey was advancing rapidly. An interim report on the identification of the zones (and of the roads to serve them)) which the Bank received in February presented a good prima facie case for the construction of about 800 kilometers of roads to permit the development of the selected zones. The survey should be completed by September 1966. In order to assure the continuity of the development of selected zones the Paraguayan Government requested that the proposed loan be increased to cover the foreign exchange costs of feasibility studies and final engineering of about 400 kilometers of all-weather roads out of the 800 kilometers referred to above. 4. Negotiations for the proposed loan began in Washington on March 1, 1966. The Government of Paraguay was represented by Dr. Juan Plate, Paraguayan Ambassador to the United States and Mr. Oswaldo Sitjar, General Director of Highways. 5. The summary statement of Bank loans and IDA credits to Paraguay as of February 28, 1966 is included in my report No. P-473 of this same date.  -2- PART II: DESCRTIPTION OF THE PROPOSED LOAN 6. Borrower: Republic of Paraguay. Amount: The equivalent in various currencies of US]j 2.1 million. Purpose: To assist in financing the improvement and pavement of a 43 kilometer road from Coronel Oviedo to Villarrica and feasibility studies and final engineering of about 400 kilometers of all-weather roads in Southeastern Paraguay. Term and Amortization: 20 years (including a 5 year period of grace); 31 semi-annual repayments beginning on February 15, 1971 and ending on February 15, 1986. Interest Rate: 6 per cent per annum. Commitment Charge: 3/8 of 1% per annum. Payment Dates: February 15 and August 15. PART III: THE PROJECT 7. An Appraisal Report entitled Second Road Project (TO 524-a) is attached. 8. The proposed project consists of two independent parts: PART A: the improvement and pavement of the 43 km. road from Coronel Oviedo to Villarrica; PART B: feasibility studies and final engineering of about 400 kms. of secondary all-weather roads in Southeastern Paraguay. 9. The existing road from Coronel Oviedo, built some 20 years ago, does not nrovide reliable access to the Villarrica area. It is closed to traffic during and after heavy rains (about 40 days a year) to avoid permanent damage. The improvement to be made would consist of (1) removing the un- satisfactory base course, compacting the subgrade, and building a new base to be protected by a six meter wide asphalt surface; and (2) replacing timber bridge spans by permanent concrete structures. 10. Villarrica is the center of the second most important economic region in Paraguay with about 400.000 hectares of excellent crop and pasture land. The railroad connecting Villarrica with Asuncion is in bad condition  - 3 - and is likely to be abandoned in the near future; and the projected road would then be the only reliable ineans of transport serving the region. It is estimated that the project would generate savings in the form of reduction in vehicle operating cost which would produce a rate of economic return of 12%. In addition, there are other direct and indirect benefits which cannot be quantified readily such as the stimulus to furthering agricultural production provided by an all-weather transport link to the national road network. 11. The survey of Southeastern Paraguay financed by the U.N.D.P.(SF) is divided into three phases: (1) aerial photography, (2) identification of the most suitable areas for colonization and tentative location of roads to serve the area and (3) closer study of the selected area and final planning of the appropriate road network. Phases 1 and 2 are complete and phase 3 should be completed in September 1966. The network proposed in ph1ase 2 includes two all-weather secondary roads (about 400 kms.) traversing the selected area; the exact location of these roads would be determined in phase 3. 12. The National Directorate of Highwvjays, in the 1,iinistry of Public Works, will be responsible for carrying out the project with the assistance of engineering consultants. The Directorate is capably managed, well organized and adequately staffed and therefore highway administration is generally satisfactory. Consulting engineers for the supervision of Part A have already been selected by the Government. The construction contract for Part A will be awarded on the basis of international competition. 13. The total cost of the project is estimated at $ 2.8 million of which the foreign exchange component to be financed by the Bank loan is estimated at 75%. The Government would provide USA 700,000 equivalent for the local currency cost from a special 5% surcharge on imports which is earmarked for use on roads financed by the Bank or IDA. This source should be sufficient to cover all local costs in the first (IDA Credit 12-PA and Bank Loan 396-PA) and second projects. PART IV: LEGAL INSTRIMENTS AND AUTHORITY 14. The draft Loan Agreement as well as the reDort of the Comittee provided for in Article III Section h (iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. 15. The draft Loan Agreemient follows the general pattern of loan agreement for similar projects. The following provisions are of special interest: a) In Section 5.10, the Borrower undertakes to adequately maintain its main roads. b) In Section 5.11, the Borrower agrees to limit the dimensions and axle-loads of vehicles using its main roads.  16. The Loan Agreement would be submitted, after signature, to the legislature of Paraguay for approval. In order to enable the Government to seek this approval a period until July 31, 1966 has been allowed for the fulfillment of the conditions of effectiveness of the loan. PART V: THE ECONOMTY 17. A review of the economic situation is included in my report numbered P-4,73 of this same date on the proposed development credit for the second livestock project. As stated in that report Paraguay is creditworthy for modest amounts of Bank lending, preferably with extended periods of grace. Hence the grace period for the proposed loan is 5 years instead of the 3 years which would be justified on project grounds alone. PART VI: COMPLIANCE WITH THE ARTICLES O' AGRIEI4TT 18. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Bank. PART VII: RECCIEIMNJDATION 19. I recommend that the Executive Directors adopt the following resolution: RESOLUTION No. Approval of Loan to Republic of Paraguay (Second Road Project) in the amount of US43 2.1 million RESOLVED: THAT the Bank shall grant a loan to the Republic of Paraguay in an amount in various currencies equivalent to two million one hundred thousand United States dollars ($ 2,100,000), to mature on and prior to February 15, 1986, to bear interest at the rate of six percent (6%) per annun, and to be upon such other terms and conditions as shall be substan- tially in accordance with the terms and conditions set forth in the form of Loan Agreement (Second Road Project) between the Republic of Paraguay and the Bank which has been presented to this meeting. George D. Woods President Washington, D. C. March 23, 1966 Attachments