Ecuador - Fisheries Project

RESTRICTED FILE COPY Report No. P-624 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 The report may not be published nor may it be quoted as representing their views.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 RIECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ECUADOR FOR A FISHERIES PROJECT July 18, 1968  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECONMbEDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ECUADOR FOR A FESHERIES PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies of US$5.3 million to the Republic of Ecuador. PART I - HISTORICAL 2. In March/April 1967, an FAO project identification mission, under the Bank/FAO cooperative program, collaborated with the Ecuadorian authori- ties in outlining the project. Further assistance was provided when a Bank/FAO project preparation mission visited Ecuador in August 1967. The request for financing was submitted to the Bank in September 1967, and the project was appraised in November/December 1967. Negotiations for the proposed loan took place in Washington from June 24 through July 3, 1968. Ecuador was represented by Ambassador-at-Large J. Federico Intriago Arrata, Ambassador Carlos Mantilla Ortega, Mr. IManuel Calisto (National Planning Board), Mir. Jaime Morillo (Corporacion Financiera Nacional), Mr. Jose Iturralde (Corporacion Financiera Nacional) and Dr. Gonzalo Paredes (Embassy of Ecuador). 3. Since 1954, the Bank and IDA have made seven loans and two credits to Ecuador for a total of US$71.1 million (net of cancellations). The proposed loan will increase the total of Bank loans and IDA credits to Ecuador to US$76.4 million. The following is a summary statement of Bank loans and IDA credits to Ecuador as of June 30, 1968:  -2- Loan/ Amount (US$ Million) Credit No. Year Borrower Purpose Bank IDA Undisbursed 94 EC 1954 Comite Ejecutivo de Roads 7.5 - - Vialidad del Guayas 137 EC 1956 Empresa Electrica Quito Power 5.0 - - 177 EC 1957 Empresa Electrica Quito Power 5.0 - - 176 EC 1957 Republic of Ecuador Roads 14.5 - - 212 EC 1958 Port Authority of Port 13.0 - - Guayaquil 379 EC 1964 Republic of Ecuador ) 9.0 - 2.8 Roads 51 EC 1964 Republic of Ecuador ) - 8.0 7.0 501 EC 1967 Republic of Ecuador Agri- 4.o - 3.9 culture 12 EC-/ 1968 Republic of Ecuador Edu- 5.1 _ cation Total (less cancellations) 58.0 13.1 13.7 of which has been repaid to Bank and others 17.6 Total now outstanding 40.4 Amount sold: 1.5 of which has been repaid 0.9 0.6 Total now held by Bank and IDA 39.8 13.1 Total undisbursed 6.7 7.0 13.7 4. The Consortium Highway Project (Loan 379/Credit 51) is a two- stage project which is being financed jointly by the Bank/IDA, AID and IDB under the chainnanship of the Bank. Disbursement has been delayed as a result of adverse weather conditions during 1965-1966, lack of local 1/ Not yet effective.  - 3 - contractors qualified to undertake civil works and lack of interest among qualified foreign contractors in submitting bids for civil works. Dis- bursement of the IDA Credit commenced recently as this Credit is solely for the financing of Stage II of the project. The project is progressing reasonably well and is being kept under close review. 5. IFC has one investment, made in 1965, of approximately US$2 million equivalent in equity and debt of La Internacional, a major Ecuadorian textile firm. PART II - DESCRIPTION OF THE PROPOSED LOAN 6. Borrower: Republic of Ecuador. Amount: The equivalent in various currencies of US$5.3 million. Purpose: To assist in financing the foreign exchange costs of acquiring twelve tuna purse seine fishing vessels, a training program for key crew members of these vessels, and harbor studies to provide data for possible future expansion of fisheries harbors. Amortization: 20 years including 6 years of grace; 28 semi-annual repayments beginning on January 1, 1975 and ending on July 1, 1988. Interest Rate: 6 1/4 percent per annum. Commitment Charge: 3/4 of 1 percent. PART III - THE PROJECT 7. A report entitled "Appraisal of a Fisheries Project" (TO-640a) on the project is attached. 8. The project represents the first stage in the Govemrment's program to expand the fishing industry. It will make use of abundant off- shore fish resources and give support to what may become an important activity in an economy badly in need of diversification. The project has also been given special priority by the Ecuadorian Govermment because of its potential for increasing the country's export earnings.  9. Included in the project is the design and acquisition of 12 tuna purse seine fishing vessels, a training program for key crew members of these vessels, and harbor studies to provide data for possible future expansion of fisheries harbors. 10. The project would introduce to Ecuador a more efficient method of fishing for tuna and would more than double present production. Studies carried out by the Inter-Amerlcan Tropical Tuna Comrr.isaion for the area in which the vessels would operate) in the Pacific off the Ecuadorian Coast, indicate that the abundance of tuna is more than sufficient to warrant the expanded exploitation which is envisaged. When all vessels are in full operation, an increase of over US$3 million in annual foreign exchange earnings is expected. This increase represents almost 45 percent of the foreign exchange eamings for the erntire Ecuadorian fishing industry in 1967. 11. The Government would lend the proceeds of the loan allocated for acquisition of the vessels to its wholly-owned development finance corporation, Corporacion Financiera Nacional (CUN), which would then lend to private fishing companies and individuals acceptable to the Bank on terms and conditions satisfactory to the Bank. Sub-loans by CFN would be for 14 years including 2 years of grace at a rate of interest of 10 percent, and CFN would amortize its loan from the Government as it received capital repayments from sub-borrowers. The Government would bear the foreign exchange risk on all repayments due to the Bank. The National Fisheries Institute, under the Ministry of Industries and Commerce, would operate the training program for key crew members and would also provide technical advice to CFN. The harbor studies would be carried out by the National Planning Board. 12. The estimated cost of the project is US$6.6 million equivalent, of which US$4.5 million is for the design, supervision of construction, construction and equipment of the vessels, US$0.8 million for the training program, US$0.3 million for harbor studies and US$1L0 million for interest during construction. The proposed loan of US$5.3 million would cover most of the foreign exchange component estimated at US$5.9 million. The remainder of the foreign exchange requirement would be provided by the individual fishing enterprises, which would also meet the local currency costs relating to their sub-projects. The balance of local currency expenditures, in respect of the harbor studies and the training program, would be provided by the Government. 13. Procurement of vessels would be made on the basis of international competitive bidding under the supervision of CEN. PART IV - LEGAL INSTRUMNTS AND AUTHORITY 14. The draft Loan Agreement between the Bank and the Republic of Ecuador, the draft Project Agreement between the Bank and Corporacion  Financiera Nacional and the Report of the Committee 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 agreements contain in the main covenants similar to those found in agreements for previous fisheries projects. Attention is drawn to the following particular provisions: a. The construction of the vessels will be phased in order to permit adequate evaluation of the performance of the initial vessels before further vessels are constructed (Section 2.07(a) of the draft Project Agreement). b. The sale of fish for export by direct transshipment in Ecuadorian ports by project vessels will be on terms and conditions not less favorable than those enjoyed by processors on land (Section 5.10 of the draft Loan Agreement). c. The Central Bank will sign the Loan Agreement in order to give effect to the negative pledge undertaking on its behalf (Section 5.09 of the draft Loan Agreement). In view of the autonomous status of the Central Bank, this has been the practice in all previous loan agreements with Ecuador. PART V - THE ECONOMY 16. The judgements provided in the Section on the Ecuadorian economy in the recent President's Report on the Education Project (P-607, June 5, 1968), are still valid. PART VI - COMPLIANCE WITH ARTICLES OF AGREEMET 17. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - RECOMMENDATION 18. I recommend that the Executive Directors adopt the following resolution: RESOLUTION NO. Approval of Loan to Republic of Ecuador in an amount equivalent to US$5,300,000.  -6- RESOLVED: THAT the Bank shall grant a loan to Republic of Ecuador in an amount in various currencies equivalent to five million three hundred thousand United States dollars (US$5!,300,000), to mature on and prior to July 1, 1988, to bear interest at the rate of six and one-quarter percent (6 1/4%) per annum, and to be upon such other terms and conditions as shall be substantially in accordance with the terms and conditions set forth in the form of Loan Agreement (Fisheries Project) between Republic of Ecuador and the Bank, and the form of Project Agreement between the Bank and Corporacion Financiera Nacional which have been presented to this meeting. Robert S. McNamara President Attachments Washington, D. C. July 18, 1968