Document of

FI llLE lCDPY The World BankFOR OFFICIAL USE ONLY

Repot No. P-2O2O0HO

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

AND THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

EMPRESA NACIONAL PORTUARIA

WITH THE

GUARANTEE OF THE REPUBLIC OF HONDURAS

AND A

LOAN AND A CREDIT

TO THE

REPUBLIC OF HONDURAS

FOR A

THIRD PORT PROJECT

March 15, 1977

L This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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Currency Equivalents

US$ 1.00 2 Lmpiras

L 2,00 = US$1.00

Fiscal Year

January 1 - December 31

FOR OFFICIAL USE ONLY

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A

PROPOSED LOAN TO TIIE EMPRESA NACIONAL PORTUARIAWITH THE GUARANTEE OF THE REPUBLIC OF HONDURAS

A PROPOSED LOAN AND AN IDA CREDIT TO THEREPUBLIC OF HONDURAS FOR

A THIRD PORT PROJECT

1. I submit the following Report and Recommendation on proposed loansequivalent to US$12.0 million and a proposed development credit equivalent toUS$5.0 million to Honduras to help finance a Third Port Project. A loan ofUS$7.0 million to the Empresa Nacional Portuaria (ENP) with the guarantee ofthe Republic of Honduras would have a term of 20 years including 4 1/2 yearsof grace with interest at 8.5 percent per annum. A loan of US$5.0 million tothe Republic of Honduras would be on standard Third Window terms with thefirst payment due January 15, 1983 and the final payment on January 15, 2001.The development credit would be on standard IDA terms. The Third Window loanand the development credit would be relent to the Empresa Nacional Portuariaon the same terms and conditions as the loan to the ENP.

PART I - THE ECONOMY I/

2. A report entitled "Economic Position and Prospects of Honduras"(1165-HO) was distributed to the Executive Directors on August 23, 1976. Thefindings of the Report are summarized below, and a country data sheet isattached as Annex I.

Development Prospects

3. The long-run growth rate of the Honduran economy has been modest:real GDP per capita grew at less than 1 percent per year between 1950 and1975. With a per capita GNP of US$350 in 1975 (World Bank estimate), Hondurasis the poorest country in Central America and the majority of the populationlives on a subsistence income. A major reason for the poor growth performanceis the continued dependence of the economy on the production and export of afew agricultural commodities, especially bananas, and thus on fluctuatingworld market and weather conditions. This was illustrated dramatically whensubstantial hurricane damage to the banana plantations in September 1974reduced banana export volumes in 1975 to about half the level of previousyears. At the same time the recession in the developed world affected beef

1/ Substantially identical to Part I of the President's Report datedNovember 11, 1976, for the Honduras Seventh Highway Project.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. l i contents may not otherwise be disclosed without World Bank authorization.

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and lumber exports, and rising oil prices led to a severe deterioration inHonduras' terms of trade. In early 1975, an emergency basic grains programdesigned to offset the consequences of the hurricane destruction failed,largely because of a drought. The result was two years of recession, withreal GDP stagnant in 1974 and 1975.

4. There are many reasons for the continued dominance of bananas in theHonduran economy. The resource base is small. Known mineral deposits are notextensive. Land suitable for agriculture is available and the country hassizeable forest resources, but because of a serious lack of basic infrastruc-ture, and of deficient development policies in the past, these resources haveremained underutilized. Some progress has been made during the last twodecades, especially in the area of transport development, but the mountainoustopography of the country has made the expansion of the road network slow andcostly. This limits the size of the domestic market and hampers industrialdevelopment. Honduras' participation in the Central American Common Market(CACM) in the early 1960's was an attempt to gain access to a larger marketfor its industry, but the process was halted by the conflict with El Salvadorin 1969. However, even while the expanded protected market of the CACMlasted, Honduras did not receive the expected benefits, as it was unable tocompete with its neighbors in attracting new investments or developing newindustries. A further obstacle to economic development in Honduras is thesevere scarcity of entrepreneurial talent and the low productivity of thelabor force. About 50 percent of the adult population is illiterate andnutrition and health standards are very deficient.

5. The agricultural sector has accounted for about one-third of GDPin the 1970's. While there is considerable potential for improving utiliza-tion of resources and the productivity of the agricultural sector, uneven landdistribution and frequent underutilization of larger holdings have retardedincreases in productivity and resulted in considerable peasant unrest. TheGovernment recognizes that a correction of this situation is vital for thefuture stable development of the country and, although hampered by a shortageof competent personnel, it is making serious efforts to address the problem.It began substantial land redistribution in 1973 under Decree Law 8. This wasfollowed by Decree Law 170 in 1975, which established the operating regulationsfor the comprehensive agrarian reform program necessary for long-run improve-ments in agricultural productivity. A great deal has already been accomplished.Since 1973, the Government has distributed land to over 30,000 families. Theprogram, however calls for land distribution to an additional 70,000 families,and peasant organization demands for a rapid as well as an effective agrarianreform process can be expected to continue. Failure to accommodate theirneeds on the part of the Government could cause renewed rural unrest andseriously undermine private sector confidence. Thus far, however, this hasnot happened and the private sector is financing a major expansion of sugarproduction. Four new sugar mills are scheduled to come on stream in 1977 and1978.

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6. The state forest corporation (COHDEFOR) has made significant pro-gress towards the further development of the country's substantial forestresources. COHDEFOR is now preparing a project in the Olancho, the area withthe country's largest forest reserve, for timber milling and industrializa-tion and for a pulp and paper plant. Decisions have now been taken regardingthe implementation schedule and the financing package for the first stage ofthe project (timber milling). In addition, several projects are being pre-pared for processing installations for rough-sawn lumber; it is expected thatthese will stimulate the development of intermediate and end-product indust-ries such as furniture and molding. Forest management work is being under-taken through eight district offices and negotiations are underway withCanada for assistance with this and other forestry activities.

Balance of Payments

7. The balance of payments deteriorated sharply during 1974 and1975, mainly as a result of the combined effects of weakening terms oftrade, the world recession, the September 1974 hurricane, and the droughtin 1975. Inflows from foreign grants, the IMF Oil Facility, the VenezuelanInvestment Fund, along with borrowings from bilateral and internationallending agencies financed the bulk of the def'cit during these years. Balanceof payments management is expected to continue to be difficult during the nextseveral years. Net international reserves were equivalent to about six weeks'imports in December 1975. The recent sharp increases in coffee prices haveled to improved terms of trade in 1976 and a temporary strengthening of thebalance of payments but, given present expectations, sizeable resource gaps inthe balance of payments are projected for the period 1977-81 owing to largeimport requirements and only moderate export growth. During 1977-81, thegrowth of banana exports will largely reflect'recovery from the 1974 hurricane,and increases in the volume of the other major exports, coffee, beef, andwood, are expected to be modest. Anticipated increases in the prices of woodand beef, added to increased coffee prices, are expected to keep Honduras'terms of trade at their 1976 level through the end of the decade. Other ex-ports are also expected to grow, and sugar may become a significant export itemby 1980 if the planned production increases are realized on schedule. The pro-jected recovery of banana-exports and the anticipated increase in sugar, beef,and wood exports will depend, however, on improvements in managerial capaci-ties and efficiency as well as on orderly progress in the agrarian reformprogram.

Public Investment and External Debt

8. The Government plans to accelerate economic growth over the mediumterm through an ambitious public investment program, which would at thesame time alleviate major bottlenecks to long-term development. Large invest-tments are planned in roads, power and communications, and in the area ofexport production: lumber mills, a pulp and paper plant, a tourism project,and agricultural projects and a sugar mill. Because consumer goods alreadyaccount for only a small share of imports and cannot be reduced without hard-ship, imports will be growing fairly rapidly as the public investment program

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is realized. The financing of the projected resource gaps will requiresubstantial capital inflows and the bulk of the foreign capital requirementswill have to be met through public borrowing. In the past, Honduras hasmanaged to keep its external debt service ratio fairly low, because foreignloans were almost all on concessional terms. It is important that the countrycontinue to borrow on reasonably soft terms lest the planned public' investmentprogram result in an excessive debt service burden in the future. Even ifHonduras is successful in obtaining most of the financing it needs for itsinvestment program on terms similar to those offered by the internationallending agencies, the debt service ratio is still likely to rise from about 5percent in 1975 to about 15 percent by the early 1980's. Because Honduraswill continue to depend on exports of a few commodities with volatile priceprospects, and because, historically, natural disasters have sharply reducedthe volume of exports every few years, prudent debt management will requiremaintenance of a rather lower debt service ratio than might be considered safefor more diversified economies.

Public Finance

9. During the last three years the public finance situation hasremained sound because of improvements in tax collection, and because thegrowth of capital and current expenditures has been limited. Nonetheless,greater demands on the public sector for reconstruction (after the 1974hurricane) and development expenditures have resulted in an increase of theoverall public deficit from about 2 percent of GDP in 1973 to nearly 5 percentin 1975. The Government has taken steps to improve the fiscal outlook andadopted new tax measures in December 1975 estimated to have raised the taxratio from 12 percent of GDP in 1975 to about 13.5 percent in 1976. Despitethe greater tax effort, however, public savings cannot be expected to financeall of the local costs of the public investment program without unduly res-tricting current expenditures, nor can the shortfall be financed out ofdomestic borrowing without generating unacceptable levels of inflation.Therefore, some local cost financing on the part of official lending insti-tutions will be required to implement the stepped-up public investment pro-gram.

External Assistance

10. The Bank is Honduras' largest creditor, holding 25.3 percent of theUS$445.5 million external public debt outstanding--including undisbursed--repayable in foreign currency, as of December 31, 1975. IDA holds an addi-tional 8.0 percent of the total. Although IDB has made loans totalling theequivalent of US$124.5 million, most of this amount is repayable in localcurrency, so that IDB's share of the public debt repayable in foreign currencyis only 7.5 percent. CABEI accounts for 21.6 percent of the total, the U.S.Government for 20.3 percent, Venezuela 7.2 percent and privately held debtfor 10.1 percent.

11. In terms of the sectoral thrust of the lending by the principalexternal agencies, apart from the Bank, AID has concentrated on agriculture

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and education, the IDB on transport, agriculture, education and housing,

and CABEI on transport. It is expected that AID and CABEI will continuelending primarily in these sectors in the future, while IDB is expected to

concentrate mainly on agriculture, industry and power. The lending of these

agencies from 1950-1975 is as follows:

IBRD IDA AID IDB CABEI TOTAL

Total Gross Lending 1950-1975 130.4 34.2 94.4 124.5 88.3 471.8

Gross Lending 1950-1965 25.9 12.5 26.7 27.2 8.1 100.4Gross Lending 1966-1975 104.5 21.7 67.7 97.3 80.2 371.4

Sectoral Lending 1966-1975Transport 41.2 -- -- 32.1 51.9 125.2

Power 60.3 9.5 -- -- 9.0 78.8

Telecommunications -- -- -- -- 5.6 5.6

Education 3.0 3.0 10.5 14.4 -- 30.9

Health -- -- 2.6 5.2 8.8 16.6

Housing -- -- 5.0 12.5 -- 17.5

Agriculture -- 9.2 37.5 30.9 1.2 78.8

Industry -- -- 1.5 2.2 1.3 5.0

Other -- -- 10.6 -- 2.4 13.0

Eligibility for Third Window Lending

12. Honduras is considered eligible for Third Window financing on thebasis of the following considerations:

(a) Poverty: Its per capita income was US$350 in 1975 andUS$300 in 1972. 1/

(b) Performance: Honduras has made impressive accomplishmentsin the last three years in promoting social and economicdevelopment. It has undertaken a major agrarian reformprogram, and has arranged for the financing and begun thelast stage of preparation of a major project for the ex-ploitation of its substantial forest resources. Publicinvestment has been substantially increased, from an averagelevel of 4.5 percent of GDP in the 1971-73 period to 8.1percent in 1975, and should remain at a high level for thenext several years in view of the number of projects now inpreparation.

1/ World Bank Atlas.

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(c) Creditworthiness: Honduras' external debt and debt servicehave been relatively low in the past but can be expected toincrease quite rapidly by the early 1980's in line with theincrease in public investment necessary to carry out itsdevelopment plans. At the same time the country's exportsare of a quite volatile nature, with bananas and coffeeaccounting for about one half of total merchandise exports.In these circumstances, Honduras' creditworthiness forconventional and commercial type loans is limited, andexternal assistance on concessional terms is highly desirable.

(d) Alternative Sources of Finance: The projected increasein public investment in Honduras will require substantialborrowing from the major multilateral and bilateral lendingagencies (including the Venezuelan Investment Fund); theincrease required from agencies other than the Bank, beforetaking into account the financing requirements of the ThirdPort Project, is already about the maximum that could beexpected given the resource constraints of these agencies.

PART II - BANK GROUP OPERATIONS IN HONDURAS

13. Beginning with a loan of US$4.2 million for roads in 1955, Hondurashas to date received sixteen Bank loans totalling US$165.2 million and eightIDA credits totalling US$47.6 million, both net of cancellations. The pro-posed loans would raise the total of Bank Group assistance from US$212.8million to US$229.8 million. Execution of projects financed by the Bank Grouphas, on the whole, been satisfactory. Annex II contains a summary statementof Bank loans, IDA credits and IFC investments, and notes on the execution ofon-going projects.

14. In the past, Bank Group lending was heavily concentrated on trans-port and power, where inadequate facilities hampered the development ofthe country. The First Livestock Development Credit approved in 1970, how-ever, marked a first step towards the diversification of our lending. Sincethen, there have been operations for a Second Livestock project; a FirstEducation project, which included as major components primary teacher trainingschools, support for the national agricultural secondary school and vocationaltraining centers; and a First Agricultural Credit project to finance livestockand crop development with emphasis on assisting agrarian reform settlementsthrough investment credits and a substantial technical assistance program.

15. In future lending to Honduras, we plan to support the priorities ofthe Government's investment program by giving increased emphasis to investmentin the productive sectors and in education, while continuing to lend for phy-sical infrastructure, where there are still deficiencies to be overcome. Inaddition to the Agricultural Credit project approved last May, preparation

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efforts are now beginning on a rural development project for the GuayapeValley to help support the agrarian reform program in that area, and a followon to the First Agricultural Credit project, as well as additional ruraldevelopment projects which are now being identified, are being planned. BankGroup support is also being considered for COHDEFOR's pulp and paper project.Honduras also has potentially excellent tourism sites which are now beingstudied to determine whether a project is feasible. As part of its agrarianreform program, the Government wishes to improve its agricultural trainingprogram for technicians, and has proposed the creation of rural developmentcenters which would provide comprehensive educational services to ruralcommunities. Bank assistance in this effort will be considered as a possiblemajor component of a second education loan. In transport, after the SeventhHighway Project (approved in November 1976), we will place emphasis on assist-ance in the construction of a network of feeder and access roads to supportthe Government's agricultural program. The Bank made a US$35.0 million loanfor a Sixth Power Project in 1975 and contemplates continuing its assistanceto the power sector in the future.

17. It is expected that the Bank Group share of total external publicdebt disbursed and outstanding will drop to about 21 percent by 1980 becauseof increasing lending by other external agencies and commercial borrowing.The Bank Group share of debt service in 1975 was 41 percent and this is pro-jected to decline to about 13 percent by 1980.

18. IFC's activities in Honduras have so far included a 1964 loan anda share subscription, of US$295,000 and US$66,750 respectively, in a tannery,Empresa de Curtidos Centroamericana, S.A. (ECCASA); and a US$75,000 sharesubscription in a pilot promotional company, Compania Pino Celulosa de CentroAmerica (COPINO) in 1969. COPINO was established to develop an industrialproject based on timber from the Olancho Forest Reserve, but a series ofobstacles to project development arose and efforts to go forward with it werevirtually halted in 1971. While current plans for the Olancho forest indus-tries project do not include a role for COPINO, the IFC is assisting theGovernment in creating an organizational structure for the project andselecting a technical partner.

PART III - THE TRANSPORT SECTOR

Background

19. The principal agricultural and industrial areas of Honduras arethe Sula Valley and the nearby Atlantic coastal strip. San Pedro Sula, whichhas emerged as the country's main industrial center, and the ports of Cortesand La Ceiba are the principal cities in the area. Further to the south liesTegucigalpa, the capital city and the second industrial center. The corridorjoining Tegucigalpa with San Pedro Sula and Puerto Cortes in the north andthe Pacific port of San Lorenzo in the south has been the main conduit ofthe country's economic activity.

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20. Development of the transport sector has taken place only duringthe last two decades, mainly in the highway and port subsectors. The con-struction of the Inter-American highway in the southern region was startedin the mid fifties, and an all-weather road between Tegucigalpa and SanPedro Sula was completed in 1971. Modernization of Puerto Cortes was begunwith Bank financing in the late sixties. A second expansion of Puerto Corteswas completed recently, and the construction of a deep water port at SanLorenzo is presently under way, both with Bank financial assistance. PuertoCastilla, to be financed under the proposed loans and credit, would serve theincreasingly important agricultural and timber areas of eastern Honduras: theAguan Valley and the Olancho forest reserve. A number of highway projects arenow under construction, or about to begin which would complete most of thecountry's primary highway network, and the Government is paying greaterattention to the improvement and expansion of the feeder and access roadsystem. Honduras can thus look forward to having, in the medium term, atransport system to serve its most important productive areas and to meet theneeds of its international trade.

Highways

21. Because of the topography of Honduras, road construction, ingeneral, has been difficult and expensive; nevertheless, the road networkgrew from about 3,200 km (110 km paved) in 1960 to about 6,100 km (1,240 kmpaved) in 1975. In addition to the principal roads mentioned in the preced-ing paragraph, the primary system includes a road southwest from San PedroSula to the El Salvador border and a road along the north coast to La Ceiba.The country's secondary and tertiary road system is not yet well developed.Major road projects now under construction or due to be commenced shortlyinclude three highways from the Tegucigalpa-San Pedro Sula corridor to thecentral region: the Progreso-Yoro road in the north; the Tegucigalpa-Juticalpa-Catacamas highway in the central area (financed under the Bank'sSixth and Seventh Highway Loans); and the Tegucigalpa-Danli road in the south.The road system to connect the Olancho forest reserve areas with the sitesfor the planned sawmills, the proposed pulp and paper factory project, andPuerto Castilla are now in the design/engineering phase. Construction ofthese roads should start in mid-1977 with financial assistance from theInter-American Development Bank (IDB).

Ports

22. Ports are a critical component of the transport sector since theyhandle nearly 95 percent of the country's international trade. Because of thelarger trade with gulf and east coast ports of the United States, port capac-ity has developed mainly on the Atlantic coast, where three out of the fourprincipal ports are located. Puerto Cortes is the principal general cargoport, while Tela and La Ceiba are mainly banana handling facilities. SanLorenzo on the Pacific side is presently a lighterage port, but will soon havealongside facilities to service ocean-going vessels and will be able to handleincreased sugar and lumber exports. Puerto Cortes, which handles over 1.8million tons, or 79 percent, of the overseas traffic, is the largest port of

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Honduras, with an excellent natural harbor, and provides efficient service.It is quickly adapting to new types of traffic such as roll-on/roll-off,containers, and lighter-aboardship. A gantry crane for handling containers isscheduled to be installed in 1977.

23. The ports of Honduras are administered by Empresa Nacional Portuaria(ENP), the national port authority, established with Bank assistance inDecember 1965. ENP is an autonomous government entity with an Executive Boardof seven members consisting of three Ministers, one representative of theNational Planning Council and one delegate each from the Chamber of Commerceand Industry, the trade unions and the shipping companies. The dav-to-dayadministration is the responsibility of the General Manager. The manage-ment and operations of ENP are considered highly efficient, and its finan-cial position is sound. The port subsector, during the decade since thecreation of ENP, has responded adequately to the needs of the growing volumeand variety of overseas traffic.

24. Two previous Bank loans approved in 1966 and 1971 (Loans 463 and767-HO) have provided almost all the external financing for port expansion inHonduras. The ENP has carried out these two previous port projects forimprovement of Puerto Cortes and the construction of San Lorenzo, in a verycapable manner. There was a long delay in the start of construction of SanLorenzo which resulted in a large cost overrrun and required a US$3.0 millionsupplemental loan from the Bank (approved July 1975). This, however, was theresult of a political objection to the location of the port raised by thegovernment which came into office after the loan had been signed, and was notthe fault of the ENP. The succeeding government approved the original site,and since approval of the supplemental loan, project execution has been pro-ceeding normally. The San Lorenzo port is now expected to be completed bySeptember 1977.

25. ENP has the sole responsibility for port planning. Its planningprocess includes development of a rolling five-year plan that covers econo-mic, engineering and financial analyses, most of which are done by ENP's ownstaff. The inclusion of a cash flow analysis in the five-year plan effec-tively integrates the ENP's planning and capital budgeting process.

Other Transport

26. The railway system consists of three narrow-gauge lines, alllocated in the north and serving mostly the banana plantations in the SulaValley, the northern coastal strips, and the upper Aguan Valley. Hondurashas two principal airlines; between them they provide adequate domesticand international service. With the improvement of the road system since1970, domestic air traffic has declined steadily. Little intermodal trans-port planning is done since air and rail transport are relatively unimportantand highway/port coordination is not complex.

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PART IV - THE PROJECT

Project Objectives

27. The primary objectives of the project are (a) to ptovide suitableport facilities at Puerto Castilla and at San Lorenzo for the efficient hand-ling of new export traffic expected to be generated in the near future;(b) to carry out a channel depth study for San Lorenzo; and (c) to train ENPstaff in container operations.

Project Description

28. To support the above objectives, the proposed project containsthe following components:

(a) Civil Works

At Puerto Castilla: Construction of a 450 m wharf, one transitshed, one warehouse, two lumber sheds, storage tanks for palmoil and petroleum, office building, and miscellaneous services.

At San Lorenzo: Extension of the pier (presently under construc-tion) to provide an additional berth 145 m long, and constructionof a sugar storage shed and two molasses tanks.

(b) Equipment

At Puerto Castilla: Provision of general cargo and lumber han-dling equipment, chip-loading equipment, a used tugboat and alaunch.

At San Lorenzo: Provision of (1) equipment for handling sugar,lumber and general cargo and for pumping molasses; and(2) navigational aids.

(c) Consultant Services for

Detailed engineering and supervision of construction, and

(d) Technical Assistance for

(i) Channel depth study at San Lorenzo; and

(ii) Training of ENP staff in container operations at PuertoCortes.

Puerto Castilla

29. The facilities at Puerto Castilla are needed to serve importantexport development projects now being undertaken by the Government in theAguan Valley and Olancho Forest Reserve. The first phase of the Aguan Valleyagricultural development project, which received financing from IDB, hasbeen completed, and the IDB has recently approved a US$40.0 million loan fora more ambitious second phase. Surpluses of corn and beans are already beingproduced in the Valley, and production of grapefruit and palm oil from thefirst phase will become substantial within a few years. Although all of theseproducts except grapefruit would be primarily for the domestic market, thoseto be consumed internally will all be shipped via Puerto Castilla to PuertoCortes since land transport is very expensive. The Government is also goingahead with the first stage of the Olancho forest industries project with IDBand Venezuelan financial support to produce timber and chips, for export.In February 1977 the IDB signed a loan for US$59.5 million with the HonduranGovernment to finance the road infrastructure for this project. Three sawmillswill be constructed during the 1979-1981 period. For the second stage a pulpand paper factory is to be constructed in the early 1980's to produce linerboard which will then largely replace chips in the export program.

San Lorenzo

30. The works proposed at San Lorenzo are related to the expansion ofthe sugar industry, which is presently under way in the southern region ofCholuteca. Since the sugar companies developed their export plan after thepresent contract for the port works at San Lorenzo was awarded, the facilitiescurrently under construction are inadequate for handling the expected trafficand, therefore, need to be expanded. The sugar companies have contracted witha large international firm to provide technical assistance and to serve astheir marketing agent. The exports are expected to be profitable since thecost of production in Honduras compares favorably with the price level atwhich the world market for sugar is forecast to be within two years (atabout USi12 per pound FOB in constant 1974 prices). Because the sugarmills are close to San Lorenzo and expect to export some production to Japan,the owners have requested that facilities be provided at San Lorenzo. Inorder to justify the provision of the storage and handling facilities, thesugar companies have offered to guarantee ENP a minimum tonnage of exports.It has been agreed that ENP would not sign the contract for the constructionof additional facilities at San Lorenzo until an agreement satisfactory to theBank on minimum tonnages has been obtained from the sugar companies (Section3.04 of the draft Loan Agreement).

31. Lumber and general cargo-handling equipment for San Lorenzo wasoriginally included in the Second Port Project (Loan 767-HO); however, becauseof the cost overrun on the civil works, it was agreed, when making the supple-mental loan of US$3.0 million, that the unordered equipment would be deletedand might be considered for inclusion in a subsequent project. Accordingly,since the equipment is still needed, provision for it has been made in thisproject.

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Technical Assistance

32. The channel depth study will examine the feasibility of deepeningthe access channel to San Lorenzo to permit the use of larger vessels than cannow enter the port for export of sugar and molasses, and the training willprepare ENP staff for the efficient handling of the growing container traffic.

Project Costs

33. The total cost of the project is estimated at US$29.9 million, witha foreign exchange component of US$17.0 million, as summarized below:

-------------- US$ million -------------Percent of

Local Foreign Total Foreign Cost

Civil WorksPuerto Castilla 7.5 6.4 13.9 46San Lorenzo 1.2 1.9 3.1 60Sub-total 8.7 8.3 17.0

EquipmentPuerto Castilla 0.2 2.8 3.0 95San Lorenzo 0.1 1.0 1.1 95

Sub-total 0.3 3.8 4.1

Consultant ServicesPuerto Castilla 0.5 0.8 1.3 60San Lorenzo 0.1 0.2 0.3 60

Sub-total 0.6 1.0 1.6

Technical AssistanceChannel Depth Study 0.1 0.2 0.3 60Training 0.0 0.1 0.1 60

Sub-total 0.1 0.3 0.4

ContingenciesPhysical 1.2 1.2 2.4 48Price 2.0 2.4 4.4 56

Sub-total 3.2 3.6 6.8

Total 12.9 17.0 29.9 57

34. The base cost estimate for civil works and equipment has beenobtained by updating to December 1976 the consultant's estimate, which wasbased on 1975 prices. Contingency provisions include: (a) physical varia-tion in civil works at 15 percent for Puerto Castilla and 10 percent for SanLorenzo; and (b) annual price escalation at 12 percent for civil works, 8

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percent for equipment and 6 percent for consultant services for the 1977-1979period. The cost of a total of 440 man-months of consultancy services andtechnical assistance are estimated at an average, for foreign and local con-sultants, of US$3,900 per man-month.

35. The proposed Bank Group financing would cover the estimated foreigncosts. The local currency costs (US$12.9 million equivalent) would be metpartly by ENP's own resources and partly by domestic bond issues with a10-year term. It has been agreed that the Government would underwrite the ENPbond issues, or make other financial arrangements satisfactory to the Bank, inorder to ensure that the local resources necessary to complete the project areavailable (Section 2.02 of the draft Guarantee Agreement).

Project Implementation

36. ENP would be the Borrower and the Executing Agency. As demon-strated in the case of the two previous Bank financed port projects, ENP has acapacity to execute the project satisfactorily. For carrying out engineeringand supervision of construction, the channel depth study and the training ofENP staff in container operations, ENP would contract for consultants whosequalifications, experience and terms of reference would be acceptable to theBank. Construction on both ports is expected to commence in mid-1977. Thework at San Lorenzo would be completed by March 1978 and that at PuertoCastilla by September 1979.

Financial Analysis

37. The ENP's financial performance for the five years from 1971 through1975 has been good. During this period, ENP's operations were profitable,and the return on unrevalued net assets was above 16 percent. Since 1971,revenues have grown by 70 percent, partly because ENP has assumed responsi-buility for the operation of additional ports and partly because of the growthin traffic handled. Net income during this time, however, has increased onlyby 41 percent because increases in expenses have not been matched by increasesin tariffs. As a result, the operating ratio increased from 44 percent in 1971to 63 percent in 1975. The debt equity ratio at the end of 1975, althoughhigher than the 35/65 ratio in 1971, was a satisfactory 44/56.

38. Forecasts for the 1977-1983 period indicate that there are goodprospects for satisfactory financial performance by ENP. A tariff increasewas implemented in February 1977 which should enable ENP to achieve an8 percent rate of return on revalued assets in 1977. While this tariffincrease was accompanied by some restructuring of tariffs, there is need forfurther restructuring so as to relate tariffs to the present value of assetsand to the real cost of providing port services and facilities. ENP hasagreed to make such further adjustments to its tariff structure not laterthan July 1, 1978 (Section 5.09 of the draft Loan Agreemenet), based upon afull revaluation of its assets to be completed by October 1, 1977. ENP alsoagreed to carry out further asset revaluations at least once every three years

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(Section 5.04 of the draft Loan Agreement). Information regarding the cost ofport services and facilities will be provided by a cost accounting systemwhich ENP is now preparing and has agreed to put into operation by October 1,1977 (Section 5.05 of the draft Loan Agreement). Furthermore, ENP has agreedto increase tariff levels as necessary to maintain an annual rate of return ofnot less than 8 percent on revalued assets (Section 5.06(a) of the draft LoanAgreement), and in order to maintain a satisfactory cash flow, it has agreedthat it will limit capital expenditures during the construction period foritems not included in the Second and Third Projects to a maximum of US$500,000per annum (Section 5.08 of the draft Loan Agreement).

39. The total planned investment of ENP during the period 1977 to 1983is US$49.3 million. Of this total US$29.5 million relates to project items,and the balance of US$19.8 million is for the ongoing construction of SanLorenzo/Amapala under the Bank's Second Port Project and the new free tradezone at Puerto Cortes. Free trade zone investment is not related to portoperations, and in order to insure that non-port operations do not become afinancial burden on port operations ENP has agreed to the following:(i) ENP will retain each year an amount equivalent to 8 percent of net fixedport assets for investment in port services and facilities (Section 5.06(b) ofthe draft Loan Agreement); (ii) ENP will use its best efforts to ensure thatnon-port operations earn sufficient revenue to cover their expenses(Section 5.07 of the draft Loan Agreement); (iii) ENP will advise the Bankprior to any changes in port tariff levels in order, among other things, toafford the Bank an opportunity to comment on increases which might not berelated to port operations (Section 5.09(b) of the draft Loan Agreement).

40. As a result of the present project and other investments being made,ENP assets are forecast to increase by 140 percent, or US$41.7 million, by1979, pushing up the debt/equity ratio to a peak of 56/44. However, after1979, because the rate of growth is expected to decline and ENP will generatesubstantial amounts of surplus funds, the debt/equity ratio will decline to asatisfactory level of 35/65 by 1983. With these projected surpluses, ENP willbe in a position, and has agreed, to set aside funds each year sufficient toretire the local bond issue (para. 35) at maturity (Section 5.11 of the draftLoan Agreement) . With the intended revision of tariffs, debt service coveragewill be at least 1.75 to 1 throughout the 1977-83 period, and ENP has agreedthat, as has been provided in prior Loan Agreements, no debt will be incurredwithout Bank agreement unless net cash generation for the preceding 12 monthsis at least 1.75 times the maximum total debt service requirements for anysucceeding fiscal year.

41. Although ENP accounting procedures and control are generally satis-factory, individual accounts separate from ENP's over-all accounts should beestablished and maintained for each of the major development projects. Ithas been agreed that such separate accounts would be set up and maintained(Section 5.01(b) of the draft Loan Agreement).

- 15 -

Procurement and Disbursement

42. All contracts for civil works and equipment for Puerto Castilla andSan Lorenzo would be awarded on the basis of international competitive bid-ding, except that the used tugboat for Puerto Castilla, for which sources ofsupply are expected to be limited, would be procured by international shop-ping. With regard to the civil works for San Lorenzo, ENP proposes tonegotiate with Colombus Latinoamericana (the contractor which is carryingout ongoing port works at San Lorenzo) an extension of the existing contract.ENP's proposal is practicable and would result in the facilities being readyearlier than would be the case if new bids were invited. It is doubtful thatinternational contractors would be interested in the new bid, not only becauseof the modest size of the contract (estimated cost US$3.1 million), but alsobecause of the effective competition which Columbus Latinoamericana is in aposition to offer because it is already on the site. Since the currentcontract with Columbus Latinoamericana was awarded in 1975 on the basis ofinternational competitive bidding, and the prices applicable thereto wouldprovide a basis for negotiating the price of the new contract, ENP's proposalis considered acceptable and the terms of the revised contract will be subjectto Bank approval.

43. The proposed Bank Group financing will be disbursed to cover theestimated foreign exchange costs of the various project items as shown inparagraph 33. In order to meet the tentative schedule for completing theport works at Castilla by the end of 1979, work on the detailed engineering ofthe project has already been started. Also, because of the possibility ofutilizing, at a favorable price, the services of a dredging contractor (whichwould be financed by ENP) who is scheduled to complete a job in Corinto,Nicaragua in the latter half of 1977, ENP has also begun the channel depthstudy. Retroactive financing of up to US$500,000 is therefore recommended tomeet foreign expenditures incurred on consultant services for engineering andtechnical assistance after November 1, 1976.

Environmehtal Impact

44. Since no dirty or dusty cargoes would be handled at either of theproject ports, and since normal precautions would be taken in handling thesmall quantities of petroleum at Puerto Castilla, there should be no adverseeffect upon the ecology as a result of the port development proposed underthis project. The ecological implications of the proposed sawmills and thepaper and pulp factory have been considered by the Government and IDB, andsuitable provision for controlling air and water pollution would be includedin their design.

Economic Analysis

45. Traffic projections for Puerto Castilla are based on the Government'sprogram for export of forestry products (sawn timber, woodchips and eventuallyliner board) from the Olancho forestry reserve, and of agricultural products

- 16 -

(corn, beans, citrus fruit and palm oil) from the Aguan Valley, and the esti-mate of imports is based on the projected inputs (machinery, chemicals, ferti-lizers, petroleum) to the forestry and agricultural development projects.Major financial commitments have already been made in both these developmentschemes. The port, which will handle the traffic generated by the Aguan andOlancho projects, is justified as part of this larger package of investments.The fundamental economic issue is whether the agricultural and forestrydevelopment programs are economically viable, and the question has beenanswered affirmatively by formal economic and financial analyses. Thus, theanalytical task for the port project was to identify the least cost solutionfor the required infrastructure, i.e., the optimal location, timing, and sizeof the port facility. This exercise, together with the determination of anappropriate port tariff structure that will generate revenues to cover thefull cost of the port, has established that the investment is justified.

46. Starting at a level of 264,000 tons in 1980, the total traffic isexpected to increase to 1,049,000 tons in 1983, when the export of chips willreach a peak of 643,000 tons. With the expected startup of the pulp andpaper factory in 1984, chip exports will decline rapidly and will be replacedby a smaller tonnage of liner board (133,000 tons), bringing the total trafficto 794,000 tons in 1986. These traffic projections are conservative sincethey include only the reasonably firm traffic related to the forestry andagricultural projects, and do not take into account export traffic such ashardwood products, sugar from the Aguan Valley and bananas from the Isletaarea, which is likely but not yet certain.

47. At San Lorenzo, the traffic is expected to rise from the 1976 levelof 172,000 tons to 240,000 tons in 1978, when the export of sugar and molassesis to commence. Thereafter, the traffic will gradually build up to 276,000tons in 1986. Based on firm figures of export traffic which the sugar industrywill guarantee and on a conservative estimate of growth of lumber and generalcargo, these projections are considered to be realistic.

48. The overall rate of return for the project is 25 percent, with firstyear benefits of 23 percent. The benefits attributable to the proposed facili-ties at Puerto Castilla are mainly the avoided cost of the closest alternativeto the proposed investment, i.e., (a) land transport of the export cargo toPuerto Cortes and (b) a wharf and ancillary facilities at Puerto Cortes whichwould be needed for handling the additional traffic at that port. Thesebenefits yield an internal rate of return of 27 percent with first yearbenefits of 25 percent for this investment which accounts for 80 percent ofproject costs.

49. In the case of San Lorenzo, if the proposed extension of the pier isnot carried out, the least cost alternative would be to divert the sugar andmolasses traffic to Corinto in Nicaragua, which is the nearest suitable porton the Pacific side. The avoided cost of land transport and port charges atCorinto would be the benefits from the proposed investment at San Lorenzo.In addition, there would be savings in waiting time for lumber and general

- 17 -

cargo vessels. Together, these benefits yield a return of 14 percent, withfirst year benefits of 14 percent for this investment which accounts for 20percent of project costs.

50. Sensitivity analysis in which the cost and benefit streams arevaried by 25 percent indicate that the return would be no lower than 22percent for Puerto Castilla and 10 percent for San Lorenzo.

Project Risks

51. A delay in the startup of the first of the three proposed sawmillsat Corocito is a possible uncertainty associated with the project. Thisdelay might result from (a) slow progress in preparation of the sawmill phaseand (b) the necessary road infrastructure, which is being financed by IDB, notbeing ready in time. In order to expedite construction of the sawmill, theGovernment has assigned it high priority and has appointed a ministerialcommittee to monitor progress and resolve any problems that may arise. Also,IDB has provided a senior executive to assist COHDEFOR in preparing andexecuting the project. Design of the sawmills is now proceeding on schedule.Financing for the sawmills will be provided by the Government, IDB, andsuppliers. Preliminary discussions have begun with a number of bilateralexport finance agencies, and final arrangements are expected to be concludedby September, 1977. In order to ensure that there are no administrativedelays in the forest roads project, the Minister of Public Works has expandedan existing project execution unit for the forest roads.

52. In view of the steps taken, and progress made so far on meeting pre-paration schedules and arranging the necessary financing for the sawmill andforest road projects, it appears that there is little risk of significantdelay. However, since the usefulness of having the proposed port facilitiesat Castilla in operation by the end of FY1979 is dependent to a large extentupon the completion of the supporting road system, it has been agreed with theENP that bid documents for the port works at Castilla would be issued onlyafter satisfactory bids have been received for the forest road works(Schedule 4, Part A.3 of the draft Loan Agreement).

Conclusion

53. The proposed project fully merits Bank Group support. It will pro-vide suitable 6utlets for export commodities which will help Honduras toearn valuable foreign exchange and will yield acceptable rates of return of27 percent and 14 percent on its two main components. The facilities proposedat Puerto Castilla are essential for the success of two important projects ofthe Honduran Government, i.e., the Aguan Valley Agricultural DevelopmentProject and the Olancho Forest Industries Project, which have been undertakenwith the object of developing the northeastern region. Without the proposedfacilities at San Lorenzo, sugar enterprises, which have already committedconsiderable investment to expansion of capacity, will face higher costs inexporting their products.

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PART V - LEGAL INSTRUMENTS AND AUTHORITY

54. The draft Loan Agreement between ENP and the Bank, the draft ThirdWindow Loan and Guarantee Agreements between the Bank and the Republic ofHonduras, the draft Development Credit Agreement between the Association andthe Republic of Honduras; the Report of the Committees provided for in ArticleIII, Section 4(iii) of the Articles of Agreement of the Bank and in Article V,Section 1(d) of the Articles of Agreement of the Association, respectively;and the text of the resolutions approving, respectively, the proposed loansand the proposed development credit are being distributed to the ExecutiveDirectors separately. The effectiveness of the Loans and Credit are condi-tioned on the execution and delivery of a subsidiary loan agreement on behalfof the ENP and the Republic of Honduras, and in addition, the effectivenessof the draft Development Credit Agreement, the draft Third Window Loan Agree-ment and the draft Loan Agreement are conditioned on the effectiveness of eachother. Special conditions of the project are listed in Section IIl ofAnnex IV.

54. I am satisfied that the proposed loans would comply with theArticles of Agreement of the Bank and with the established criteria for ThirdWindow operations, and that the development credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

55. I recommend that the Executive Directors approve the proposed loansand development credit.

Robert S. McNamaraPresident

by J. Burke Knapp

AttachmentsMarch 15, 1977

AMJEX IPage 1 of L pages

TAB'LE SAHoNouRtAS- SOCIAL IMlOICATORS DATA SHEET

LAND AREA (THOU KN2) .. ..........------- - -------------------- ~~~~~~HONDURkS REFERENCE COUNTRIES (1910)

T)TAL 112.1 MOST RECENTLOgIC. .. 1960 1970 ESTIMATE PARAGUAY DOMINICAN RIEP. COSTA RICA '

GOP N'ER CAPITA (USI) 170.0 290.0 350.0 ~d 350.0 310.0 560.0

POPULATION AND VITAL STATISTICS

PO'ULATION (HIO-SR. HILLION) 1.9 2.5 2.9 Ld. 2.2 4.1 1.7

POPULATION DENSITYPER SQUARE KAN. 17.0 22.0 26.0 /d 6.0 83 .0 34.0'ER SQUARE KM. AGRIC. LAND *.. . 68.0 106.0

VITAL STATISTICSCRUDE B IRTH RATE PER THOUSAND 5L.0 51.5 4L9.3 h1 .8

1j7.3 0i.1

CRUDE DEATM RATE PER THOUSANO 26.5 19.1 1L.6 10.1 13.L 8.3INFANT MORTALITY RATE C/THOU) .... 18./a 67.0 103.0 ~A. 62.0LIFE EXPECTANCY At BIRTH (YRS) L1:; 4;.i 53.50 60.1 55.L 65.bGROSS REPRODUCTION RATE .. 3.4 3.3 3.2 3.5 3.41

POPULATION GROWTH RATE (IhTITAL 3.0 2.? 2.7 /e 2.5 /a 2. 9 b 3. 3JRBAN 0.3 7. 9 5.0 3.4 5.6 4.r

URBAiN POPULATION (I OF TOTAL) 23.0 32.0 31.0 36.0 40.0 46.0

AG-' STRUCTURtE (PERCENT)0 TO 14 YEARS 4r.8 46.7 45.7 46.4 47.3 49.0

1S TO 64 YEARS 49.7 50.9 52.1 50.4 49.4 48.061 YEARS AND OVER 2.15 2.4 2.2 3.2 3.1 3.0

AGE DEPENDENCY RATIO 1.0 1.0 0.9 1.0 1.0 I.EC3NOHIC DEPENDENCY RATIO 1.6/a 1.5 /a 1.5/ 1.6. .L .

FAMILY PLANNING-ACCEPTORS (CUMULATIVE. THOU) . 20.7 80.1 . 36.8 35.5USERS (I Of HARRIED WOHEN) . ..

EM PLOYM E NT

TOTAL LABOR FORCE (THOUSAND) 570.0 800.0 860.0 700.0 1100.0 540.0LABOR FORCE IN AGRICULTURE (1) 67.0 65.0 66.0 53.0 55.5 43.0UNEMPPLOYED (I OF LABOR FORCE) 6.0 8.0 .. 3.5L t4.o0&d 5.1 Lb.

INCOME DISTRIBUTION

I 3F PRIVATE INCOME REC*O BY-IO(AI=T 5% OF IIDUSEIED * 28.0~ .3. 2 6.3e/ Q/HIG0lW 2C~07 OF HUSEHI)LDS *. 60.6 .. 062.0 54. 3 5,*3 7kUAWEST 20% cr )H3UT.LS * 2.5~ .4.0 4. 4s .1lIWBvT 40s OF HiUSHmKzS 8.4~ . . 12.4 I.1. .

DISTRl8UT1iO OF LAND OWNoERtSHIP...-.-.... q---------

I OWIED 87 TOP 102 07 DWNERS ........ 6.7I OWNED 8Y SMALLEST 101 OWNERS ... .1.8

HEALTH AND NUTRITION

POPIJLATION fIR PHYSICIAN. 3710.0 /. 37100 [2340.0 /e 2100.0 1630.0POPULATION fiE NURSING PERSON 2190.0 . 2070.0 j2 310.0 7- 3930.0 1690.0POPULATION PER HOSPITAL BED 590 .0 cS 570.0 800.0 620.0 350.0 250.0

PER CAPITA SUPPLY OF -CAtLORIES (I Of REQUIREMENTS) 84.0 96.0 94.0 121.0 91.0 110.0PROTEIN (GRAHS PER DAY) 53.0 5. 6. 74.0 '30.0 63.

0FWHICH ANIHAL AND PULSE 21.0 /d 2S.0 .. 41.0 29. 35.

DEAT RATE 04THOU) AGES t-4 14.0 1 0. 0 9.0 -6..9 1T6.0

EDUCATION

ADJUSTED ENROLLMENT RATIOPIRINARY SCHOOL. 61.0 86.0 81.0 /a 93.0 /d 507.0 108.0SECONDARY SCHOOL 6.0 10.0 18.0 Z 17.0 19.0 28.0

YEARS OF SCHOOLING PROVIDED(FIRST AND SECOND LEVEL) 12.0 1.2.0 12.0 120 12.0 11.0

VOCAIT INAL ENROLLMENT(I OF SECBONARY) 24.0 18.0 .. 6.0 5.0 1.

ADULT LITERRCY RATE (2) 4s7.o 52.0 79.0 50.0 890,O

HOUSINMG

PERSONS PER NOON (AVERAGE) 1.8 .. .. .OCCUPIED DWELLINGS WITHOUTPIPED WATER (Z) 88.0 /e . 60.0 /a

ACCESS TO ELECTRICIrY(3 oF ALL DWELLINGS) 15.0 ..

RURtAL OVELLOUGS CONNECTEDTO ELECTRICITY (1) 2.0 ..

CONSOIMPT ION

RADIO RECEtIERS (PER THOU POP) 68.0 57.0 56.0 71.0 38.0 r1.0PAkSSENGER CARS (PER THOU POP) 3.0 5.0 6.0 1.0 10.0 23.0ELECTRICITY (UMH/YR PER CAP) 52.0 127.0 14S.0 91.0 227.0 591.0NEWSPRINT (MG/YR PER CAP) 0.4 1.0 0.7 1.? 1.0 6.2

.a.-- - - - - - - - - - -- - - - - - - - - - - - - -- - - - - - - - - - - - - -- - - - - - - - - - - - - -SEE NOTES AN9DOEFINITIONS ON REVERSE

ANNEX I

Page 2 of ,Pages

Uo lsoher-se noted, data for 1960 refer to any year betwee 1959 and 1961, for 1970 betwee 1968 and 1970, and for Moat Re.cnt EstLimate between19 71 aod 1973.

* L-rgely doe to m-gr-tb- s-..e 1969 of Ei Solvadore-n resident in Hondoras, population gr-th ratrei I -oe thee the rate of -alore increas.

Cost Rica h.. b-e selectd as on ebjec.ive .o.a.t-y for Hend-,a becsause both onsatri.. are -1ai, open anonoie-, dependent on citalualeportsand both have special trade relationahips with othar Central Atmericar, cosntriea. Yet, Costa Rica has aebhivd a ouch higher tst.noard of l1ivig andamore eve distribution of the benefita of devlopmen t than Honduran.

HNtlDCRAS 1960 /a Ratio of popslation sader 11 and 65 end over to total labor force, lb 1963, including midwioe and ...agstant -onree,F. 1962, /d 1961-63, /n Piped water inaide.

1970 /a Ratto of popslatin under 15 and 65 and over to total labor force. lb 1967-68, Staff "tiUSt*j Le 1.g±at.srd, not aUPracticing in the .... try.

MOST RECENT iSTIMATE' /a IB11D Mi-sio estimate. /b Ratio of population under 15 and 65 and over tc total labor force, /c 1974./d 1975. Ia 1970-75.

PARAGUAY 1970 I Due to migration, the frouth rate la lover than the rate of natural increnas, /b Regiutrerd only, /c Covrage ofdata solksown /d Inuluding primary evening sbo

DOI9iNICANf RaP. 1970 Iac-nun figure, lb flue to Jigration, growth rate Rn lowe than rate of natural ienre...e; Ic Ratio of population under15 and 65 and ove to total labor farce. /d Santa Domingo only ; /e Santa Domingo, urba..

COSTA RICA 1970 In Ratfo of population under 17 sod 65 and ovrto total labor force; lb open unetploynet. /c 1971

R16, AsguaL 24. 1976

.DEPThITIONS OPNOCIAL INDICATORlS

Land Arca (thus 55 P.P.tation per nursing Person - Population divided by nunhe of PracticingTotal -Totalaufc area cspr is ing land area and is.Iand waters, male and f,muale graduate srn,"trained" or "certified" u--ss, andAgril. -Most -reet estimate of agricu1taral area usand tmup-rrily or Per- auniliary persann1 With training or experience.manently for crops, pauturna, market & kitchen gardens or to lie fallow population per hospital bed - Population divided by nucber of hospital

CNPpe caia )$ - GNP per capita estimatsu 1 at .rorretmarhEetptbeds available in, public and.private general and spenialieed hospitalcatrultrd by -n cee-rs ion ethd as Woerld Hank Atlas. (1973-75 bania) . ad rehbhilitatien enorera; emelds resein h-.w and eatabliobmets1960, 1970 and 1975 data, for cusatadial and preventfve care.

par capita supply of calories ft of reosirenoonts) - Computed franPopulation and ugtal ntaListica energy equivalent ef net fond supplies available In counstry perPopulatior, (mid-yr million) - An of July first: if m,,t -valsble, average capita per day, available supplies cemprise domestic production, imports

of two end-year estimate.. 1960, 1975 and 1975 data lens reports, and changes in, stock, met supplies seclude anIal feed,neede, quantities used in food processing and lessene in distribution;

PPoplationdest-nensaeh - Mid-year pepulati-u per square bilo- rquirenaenta war entiosted by PAD ba..ed on physiological needs formater (100 hberearen of total ara onl ciiyad health ceaide-ing envircntal t-nperatarn, body

Pensatio denity ee nsa_ Isisof aAri.. land - Competed us above for wegt, agR ndas distributions at populatien, and allowing 107. foragricultural land only. Waste at housmehld leve.

Per copita supply of protein (gran par day) - Protein content of PerVital statistics capita net nupply of fnod per day, net supply of food Ia defined asCrude birh rate pe thousand - Annual live birtho per thousand of mid-year above. reqaireoseots for all countries established by ESDA REonomict

pplaion ; ten!yeararithmetir averages ending in 1960 and t970, and five- Re...areb Servi... provide far a minino alwac of 60 gram of totalyear average ending in 1975 far mane recen.t eatimate protein per day, and 20 gram of animal and puIoe protein, of which

Crude death rate Per thousand - AnnualI deaths per thousan d of mid-year 10 gram should be animal protein; these standards are levr thanpopulation; tan-year arithsmstic averages ending in 1960 and 1970 and those af 71 grace of total protein and 23 gramso of animal protein asfive-year average ending In 1975 for naut rece.nt eatimate. an averge for the world, preppaed by FAO In the Third World Pood

Infant mortality rate f/thou) - A...al d-oths of infants under one year ofSrv.age pr thousand Ine, births. Pa aiae ansnyfo nml and ouI.. - Pretain supply of

Lie omentanc at birth, (yr.) -Average nomber at years of life remainin food derivedfrmailsndpse ingmserayat birth; usually five-year avrages ending In 1960, 1970 and 1975 far Death rate (/thou5 ages 1-4 - Annual deaths per thousand in age group 1-4developin,g c-,ntres years, tchildr- In thin age group, anggested as an indicator ofraarerduc tion rate -Averag. somber of lIve dughters a woman. w.l manutrit ion.

bear in her normal reproductive period if she esperi-enee Prene..t age-specific fercility rates usually five-yea averges ending in 1960, Education. r-vsho

197 an 191fr eveloing conre.Adjusted enrollment ratiao rmrysho Enruflan of all ages as

Pap.l.tion gM-frowh rafte )- total - Compoud annual groth rates of old- percentage of primary anhoul-age population, intlu.des children agedyear peplio for 19060. 1960-70 and 1970-75. 6-1I yeara but adjusted for different lengths ai primaory eduntiun

Populaiongrwt rt %-urban - Computed like growth rate of total for countries With univer-o educa.tion, enrollmnt may emc eed 100%.population; different definitious of seban arenas may affect tompara- sin.cunam pupila are below or above the official school age.bElie7 , of data among couantries. Adjusted enrollemunt ratio - secondary achool - Computed as above;

Urband,pnultti-n 7 af ttlS -:I Ratio cf urban to total populatio.. diffe- secondary ducation requires at.least four yearn of approved primaryrentdefnitia furaareas may affect potparbility of data samon inatrsation; provides general, votional or teacher training

co res. insatructiona for pupils of 12 to 17 years, of ogt; correspondess..Acesructre (Percent) - Children (0-14 yan.workiog-age (15-64 yearn), courses are generally excluded.

anM etrd (65 years and ovr) an percentages of mid-year population. Years of schwoling provided (first and second I-lels - Total years ofAc epnameratio- Raioof pepal.tion under 15 and 65 and over to schooling, at secondary level, vocational instrution may he Portially

those of ages 15 tlhrengb 64. or completely ...nluded.Eco-Ac deedec rtio _-Rtio of population undnr 15 and 65 and over Vocatioassl enollment C% of secondary) - Vocationel institutions,

to the labr force in age grou o1-6yer.include technical, indus trial or other programsa which operate Rinds-Family Plannaing - .-nptors (sauative. thou) - _Cnolati_ nomber of pndently or aa depertwnnts of secondary inotItutioa

acceptors af birth-control devices under auspices of national family Adult literacy rate (15 - Literate adults (able tc read and write) asplanning program, since inception, percetage at total adult population aged 11 years end over.

Fmilv Piamai -uers 7 f married woman) - Percentages of marriednof child-bearingae 1-4 er)who use birth-control devicesHu iu

to all married -mm in ame age grasp. Pa'sons Par room~ (averane) - Average esn-er of persona per room inoccupied conventiossal dwellings in uban areas; dwellings emclude on

Enploys,et permnen aratre an unoccupied parts.Ttllbrforce (thousad) - Econovicaly active person, including Ouid wl.ga itotpiped wtatr (7X)-Ocuid oentna

and farces. and unmplyed b.t ucluoding housewive.. students, etc. ;dwellings im urbam and rural areas Without inside or outside pipeddefinItIow in various countries are net comparable, Water fasilitiss as p.eretage Pf all ocpied dwellings.

Labor force In agriculture (7. - Agricultural labor force (in farming, Accsas to electricity ft of all dwellings.) - Conventional dwellings withUfrsr=y,,hunting and fishing),as percentage of itetl labor force, electricity in living quarters an percent of total dwellings in urban_telyd f labor force) - Umployed are usually defined as peraves and rura areas.

who are able ad Miling to take a job, out of a jab en a given day, gura1 dwellings c....crad t.o eectricity Ct) -Coputed as above forramined out onf a job, and see king work for a specified mnissna period rural dwellings only.not.e.ceoding one wek. may not be coparable between conties dun todifferent definitions of naplayed and source of data, e.g. , mPloy- Censou,tionwant office statistics, sample surveys., computnery unMpleyment insurance. Radio receivesprthue)-Al typea of recei vers for radio broad-

cats to generalpbli per thousand ef ppulation, secludes selice...edIscone distribution - Percentage of private incom (batk in cash and kind) receivers in cosantrisa end in years when registration of radio sets was

recivad by richeat 5t. richest 20%. ponrest 20%, and poorest 40% of in effect; data for recent years may not ho comparable niece masthouseholds, countries abolished licasing.

Passenger cars (per thousp - Pa.eng-r cars comprise motor cars seatingDisribtio oflan onarahip - Pern...tagaa of land onmd by waalthinsc less than sighs peroo enludas ebulamnee, haar.eas and military

10% and pooreat 10Zfln wes eicle..Electricity (boh/yr par cap) - Amnusl comatsaption of industrial. .- r-

Health and Hutrition ci.1, public and private electricity in kilowatt hour per capita.Popula,tion per phy.ician - Population dIvided by member of practicing generally based on prodction data, without allowance for leases in

phyacians qualified from a medical school at university level. grids but allowing for impots and exports af electricity.tew ttrint (be/r per cp) - Per capt annua conso,ption in kilogramas

estmatd fam ometic production plus net imports of newsprist.

HONDURAS

ECONOMiC P Y EW~0' DATA ANNEX 1(Axoun~ 0 mlli~eof U.S. dollas

A -c~tual Projected1970 1973 1975 190122 12..8 19-70 1975 19-80

NATIOLNAL ACCOUNTS, At 1967-69 Prices & Exchange Rates Average Annual Growth Hates As PerCent of WJ)f

Cross Domestic: Product 67F 17W.6 D. (. 2.4j 5.0 100.9 1O4L.8 103.3Gains from Terms of Trade (+) -6.0 -2.0 -35.1 -31.1 *-0.9 -4~.8 -3.3Cross Domestic Incoe 672.1 73~ ~1.6 5.3 16 1W. -100.

U9POsct (soul. NiFS) 222.4~ 214.9 229.1 302.0 0.6 5.7 33.1 31.4 32.0Export2 s (import capacity) 178.9 208.4~ 166.1 264.5 -1.5 9.8 26.6 22,8 2b.0Resource Gap 43.5 6K.5 63-.0 77. 5 -55 -TT -7n;

Consumption Expenditures 569.1 634.1 .627.6 767.6 2.0 4.1 84.7 86.1 81.4Investment . (mnci. stocks) 146.5 135.2 163.9 213.4 2.3 5.4 21.8 22.5 22.6

Domestic Savings 103.0 128.7 100.9 175.9 -0.4 11.8 15.3 13.9 18.6National Sav-ings 88.4 110.1 82.7 127.6 -1.3 9.1 13.2 11.4 13.5

MERCHANDISE TRADE Annual Data at Current Prices As Percent of Total

TmportsCapital Goods 55.3 69.3 88.5 185.8 9.9 16.o 24.8 22.1 23.5Petroleua, Oil & Lubricants 1.4.7 26.0 63.1 130.6 34.0 15.7 6.6 15.8 16.6Other Intermediates 84.5 120.2 160.0 342.0 13.6 16.4 38.0 4o.o 43.3

Cons'umpti-on goods 68.2 54.1 88.5 130.9 5.3 8.1 30.6 22.1 16.6Toal March Imports (cif) 222.7 79 400.1l 7T9.3 12.4 14.6 in" ID") 1u0

ExportsPrimary, products 128.3 203.5 165.5 466.3 5.2 23.0 72.0 58.8 67.4Petroleum Derivatives 6.2 4.1 13.0 28.9 16.0 17.3 3.5 4.6 4.2

Manuactured goods 43.6 60.6 102.9 196.5 18.7 13.8 24.5 36.6 28

.4sTotl Mrc. Exports (fob) 17. 6.2 281.4 691.7 9.6 19.710. 100 100

Merchandise Trade Indices Averge1967- 69. 100Export Price Index 10M. 398 12.8 262.1 9.0 10.0Import Price Index 109.8 141. 3 199.6 297.2 12.7 8.3Terms of Trade Index 96.4 98.9 81.6 88.2 -3.3 1.6Exports Volume Index 99.5 113.4 102.2 156.1 0.5 8.8

A=nima Daat 1967-69 PricesVALUE ADDED) BY SECTOR 5. came ates Average Annual Growth, Rates As Percent of Total

Agriculture 242.8 275.3 258.9 331.3 1.3 5.0 35.8 33.9 34.0Industry and Mining 147.8 172.9 188.6 243.7 5.0 5.3 21.8 24.7 25.0Service 287.5 316.6 316.1 399.6 1.9 4.8 42.4 41..4 41.Total 6778.1 76-4.8 7~63.6 -974.6 2.4 5.0 100.0 100.0 100.0

PUBLIC FINANCE As Percent of GDP(Central. Government)

Current Receipts 88.8 96.4 102.3 159.8 2.9 9.3 13.1 13.4 16.4Current Expenditures 74.6 80.3 90.1 134.5 3.8 8.3 11.0 11.8 13.8Budgetary Savings lz- 2' I -M T- TO TT **T **TOther Public Sector 7.5 8.4 15.3 14.6 15.3 -0.9 1.1 2.0 1.5Public Sector Cap.Expenditures 50.9 40.5 65.7 95.5 5.2 7.8 7.5 8.6 9.8

CENThAL GOVERNMENTCURRENT EXPENDITURE DETAILS Actual DETAIL ON la Percent of Total

As % Total current Expend. 190 9714 PUBLIC SECTOR Actual Pro~Education RL1 31.3 AIAEENTW S-Other Social Services ll4.6 16.0 S7ocial Sectors 18.8 20.6Agriculture 5.2 4.4 Agriculture 3.4 6.6Other Economic Services 9.9 11.8 Forestry - 11.1Administration and Defense 30.9 24.5 Power 20.9 18.3Other 13.3 12.0 Transport and comssmications 48.1 32.3Total Cuirrent Expenditures Other 8.8 1 1.1

______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ _____ Tota Expenditures 100.0 100.0

SELECTEID INDICATORS 1957 1973-75 1975-80 FINANCING

Average ICON 4.25 vf 4.49 Public Snector Savings 39.9 36.5Import Elasticity 1.19 aJ1.13 Capital Revenues 4.4 1.6

Average National Savisis Eate 0.314 01 0.13 Etrternal Fnnsnoing 44.9 48.4Marginal National Savings Rate 0.17 a/ 0.24 internal Borrowing 10.8 1.

Total FinaLncing W -07

Total Liibor Force ~~~~~Value Added Per WGrlcerLABOR FORCE AND Toa_aorFre(1967..69 Priesa & x.at)OUTPUIT PER WORKER In Millions In U.S.Dollars Percent ofAver1 ge

-LY14 1YL ~1974 1974

Agriculture 0.566 64.3 475 54.3Industry o.104 11.8 1760 201.4Service 0.210 23.9 158172.5Total OW100.0 874h 100.0

not applicable - nil or negligib'le~/Meaningl.ess, because of an absolute decline in GDP.

HONDURAS

ANNEX 1BALANCE OF PAY14ENTS, EXTERNAL ASSISTANCE AND DEBT Page 4 of S

(In millions of US dollars at current prices)

A c t u a 1 Prnai"+4-1970 1973 1975 1980 1985

SU:*OU1Alf BAiANCE OF PAfMENTS

Exports (including NFS) 196.5 294.5 313.9 743.7 1394.7 A t 1244.3 303.7 432.8 849.2 1503.6 ctua

tesource Balance (X-M) -7*d 7 -ll 9 - DEBT AND DEBT SERVICE 1970 1973 1975

Interest (net) - 2.6 -11.9 -21.L -64.5 -125.0 Public Debt Out.&DisbursedDirect Investment Income -20.0 -21.3 -16.9 -31.0 - 49.9 (end of year) 90.1 132.4 273.3Workers' hemittance - - - - - Interest on Public Debt 2.5 5.6 9.2Current Transfers (net) 6.6 7.0 17.5 16.0 21.0 Repaymenta on Public Debt 3.1 5.6 5.5Balance on Current Accowits -63.8 -35.4 -139.7 -185.0 -262.8 Total Public Debt Service 5.6 11.2 15.0

Private Direct Investment 8.4 6.5 19.0 30.0 48.3 Burden on Export Earnings (S)Official Capital Grants 6.5 2.5 7.0 - - Public Debt Service 2.9 3.8 4.8

DS+Direct Investment Inc. 13.0 11.0 10.2

Public M&LT LoansDisbursements 28.7 16.9 103.9 207.1 342.5 Average Terms of Public Debt

-Repayments -3.1 -5.6 -5.8 -58.3 -123.3 Int. as % Prior Year DO&D 3.9 4.7 5.11Net Disbursements 25 6 -IT 7 9b 1 Amort. as % Prior Year DO&D 4.8 4.7 3.4

Other M&LT Loans IBRD Debt Out. & Disbursed 30.0 40.0 56.7Disbursements - - 4.7 25. 39.3 " as % Public Debt O&D 33.3 30.2 20.8

-Reosyrsents _ _ _ -0.5 -25.0 3 as % Public Debt Service 39.3 41.1 38.7-Rpye ntlswsamns- - . .5 -25.0

Net Disbursements 14- .3 IDA Debt Out. & Diabursed 15.2 25.8 28.7

Capital Transactions n.e.i. 15.6 11.0 28.6 - - n as % Public Debt OkD 16.9 19.5 10.5Change in Net Reserves (-increase) 7.7 4.1 -17.7 -10.7 -19.0 as % Public Debt Service 1.8 2.7 2.0

GANT AND LOAN COMMITMENTS

Official Grants & Grant-like - 7.0 7.0 Actual Debt Outstanding as of Dec/31/757*0 7*0 EXTERNAL DEBT Disbursed Grl Perernt

Public M&LT Loans World Bank 56.7 20.8IBRD 5.5 18.8 33.0 IDA 28.7 10.5IDA 8.1 6.6 - Other Multilateral 85.6 31.3IDB - 1.0 20.5 Governments 86.3 31.6CAEI 9.1 1.0 5 Suppliers 11.0 4.0Governm s -. 5.6 54.9 a/ Financial Institutiona 5.0 1.8Governmenta - 6.2 46.0 Bod -Suppliers - 7.8 - Public Debts n.e.i.Financial Institutions - 4.1 1.5 Totl Publi n.Dbi.Bonds - - - Total Public MkL Debt 273 To

Public Loans n.e.i. -Total Public MALT Loans .7 I 160

/ Includes US$25.0 million frem Central American Stabilization Fund.

- Nil or negligible.

ANNEX IIPage 1 of 3

THE STATUS OF BANK GROUP OPERATIONS IN HONDURAS

A. STATEMENT OF BANK LOANS AND IDA CREDIT

(As of January 31, 1977)

Loan or US$ million amountCredit Year Borrower Purpose Bank IDA UndisbursedNo.

Fourteen loans and credits fully disbursed 52.1 26.5

767 1971 Emp. Nacional Portuaria Ports 9.0 3.7841 1972 Emp. Nacional de Energia Generation and

El6ctrica Transmission 12.3 1.5896 1973 Honduras Roads 18.8 6.9434 1973 Honduras Second Livestock Dev. - 6.6 3.5452 1974 Honduras Education - 3.0 1.5954 1974 Honduras Education 3.0 - 3.0

1081 1975 Emp. Nacional de Energia Generation andEl6ctrica Transmission 35.0 - 26.6

628 1976 Honduras Agricultural Credit - 14.0 14.01341/2 1976 Honduras Highways 35.0 - 35.0

Total 165.2 50.1 95.7of which has been repaid 20.1 0.5

Total now outstanding 145.1 49.6

Amount sold 2.9of which has been repaid 2.5 o.4 -

Total now held by Bank and IDA /1 - 9-

Total undisbursed 76.7 19.0 95.7

B. STATEMENT OF IFC INVESTMENTS(As of January 31, 1977)

Amount in US$ millionYear Obligor type of Business Loan Equit Total

1964/66 Emp. de Curtidos Centro-americana S.A. (ECCASA) Tannery 0.30 0,08 0.38

1D6&970 Cia. Pino Celulosp. ie Centro-

america (COPINO) Thul .nd Daper - o0o8 0.08

Total gross commitments 0.30 o.16 n,Ikless cancellations, termination,repayments and sales 0.30 0.16 o,46

Total commitments now held by IFC -

Total undisbursed - - -

Li Prior to exchange adjustments.

ANNEX IIPage 2 of 3

C. PROJECT IN EXECUTION I/

Loan/Credit No.

Ln. 767 Second Port Project: US$6.0 million Loan of June 25, 1971;and US$3.0 million Supplemental Loan of July 30, 1975;Date of Effectiveness: February 22, 1972;Closing Date: June 30, 1977.

The project consists of the expansion of Puerto Cortes on theNorth Coast of Honduras, and the construction of the new portof San Lorenzo, in the South. The San Lorenzo port was delayedabout 18 months as a result of Government reconsideration ofits location. The Puerto Cortes expansion was completed inMarch 1975. The Bank provided additional financing of US$3.0million, which was necessary to cover the increased cost of theSan Lorenzo port resulting from the high level of inflationduring the period of the delay. Construction of this port isnow proceeding satisfactorily and should be completed inSeptember 1977.

Ln. 841 Fifth Power Project: US$12.3 million Loan of June 28, 1972;Date of Effectiveness: December 12 1972;Closing Date: June 30, 1977.

The Honduras-Nicaragua interconnection line, a principalelement of this project, is now complete and in operation.Other elements of the fifth project (extensions to new areas,the 26 MW La Ceiba Diesel plant, consulting services andtraining) have either been completed or are proceeding oftschedule.

Ln. 896. Sixth Highway Project: US$18.8 million Loan of May 30, 1973;Date of Effectiveness: August 27, 1973;Closing Date: June 30, 1977.

This project, for construction of the Tegucigalpa-Talangahighway, was delayed by about six months while the Governmentredesigned sections of the road in an attempt to lower costs.Construction has proceeded satisfactorily and was completedin December 1976. Engineering studies of feeder roads tocomplement the highway have been completed.

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any pro-blems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

ANNEX IIPage 3 of 3

Loan/Credit No.

Cr. 434 Second Livestock Project: US$6.6 million Credit ofOctober 29, 1973; Date of Effectiveness: January 18, 1974;Closing Date: June 30, 1979.

Commitments under this project slowed during 1975 because ofuncertainty resulting from the implementation of the AgrarianReform Law. With an increased level of commitment in 1976 asprocedures under the Law became clarified and the allocationof up to US$1.0 million in uncommitted funds for the rehab-ilitation of the Isleta Agrarian Reform settlement, this creditis expected to be fully disbursed by mid 1977.

Ln. 954 First Education Project: US$3.0 million Loan and US$3.0 millionCr. 452 Credit, both of January 9, 1974;

Date of Effectiveness: April 8, 1974;Closing Date: June 30, 1978.

The project is proceeding normally with the construction oftraining and teaching facilities.

Ln. 1081 Sixth Power Project: US$35.0 million Loan of January 27, 1975;Date of Effectiveness: May 5, 1975;Closing Date: December 31, 1979.

Construction is proceeding on schedule, and is expected to be

completed by December 1978.

Cr. 628 First Agricultural Credit Project: US$14.0 million Credit ofJuly 2, 1976; Date of Effectiveness: November 30, 1976;Closing Date: June 15, 1981.

This credit became effective on December 10, 1976.

Ln. Seventh Highway Project: US$35.0 million Loan (including US$7.0

million on Third Window Terms) of December 16, 1977; TerminalDate of Effectiveness: March 16, 1977; Closing Date:December 31, 1981

The Government is in the process of satisfying the conditions

for effectiveness.

ANNEX IIIPage 1 of 4

HONDURAS

THIRD PORTS PROJECT

Borrower: Loan - Empresa Nacional PortuariaLoan on Third Window Terms and Credit -

Republic of Honduras

Guarantor: Republic of Honduras

Amounts: Loans - US$12.0 million including US$5.0 million onThird Window terms

Credit - US$ 5.0 million

Terms: Loan - 20 years including 4 1/2 years grace, interestat 8.5 percent per annum.

Loan on Third Window terms - Standard, with the firstpayment due January 15,1983, and the finalpayment on January 15,2001.

Credit - Standard.

Project Description: The project consists of:

I. Civil Works

At Puerto Castilla: Construction of a wharf, 450 mlong; one transit shed; one warehouse; two open-sided lumber sheds; office building; maintenancebuilding; one palm oil storage tank and miscella-neous structures.

II. Equipment

At Puerto Castilla

(a) 14 forklifts (nine of 2 ton and five of 5 ton)and 500 wooden pallets for handling generalcargo;

(b) four forklifts (two of 10 ton and two of 5 ton),three tractors and six flat bed trailers forhandling lumber;

ANNEX IIIPage 2 of 4

(c) three front-end loaders, five dump trucks andone portable loader, for handling woodchips;and

(d) one used tugboat for berthing operations andlaunch for general harbor duties.

At San Lorenzo

(a) One mobile crane - 15 ton, five forklifts -5 ton, four tractors and 10 flat bed trailers,and 500 pallets for handling lumber and generalcargo;

(b) two mobile cranes - 15 ton, two front endloaders, two tractors and five flat bedtrailers, steel buckets for handling sugar;

(c) pumping equipment for handling molasses; and

(d) six light buoys for aiding navigation.

III. Consultant Services for

Detailed engineering and supervision of the construc-tion for Puerto Castilla and San Lorenzo.

IV. Technical Assistance for

(a) A study to determine the optimal depth of theaccess channel for San Lorenzo; and

(b) a manual detailing the procedures and documen-tation for container operations, and trainingENP's staff in the management and operation ofthe container berth and consolidation depot atPuerto Cortes (the container facilities are nota part of this project).

ANNEX IIIPage 3 of 4

Estimated Cost:(US$ million)

Local Foreign Total

I. Civil Works

(a) Puerto Castilla 7.5 6.4 13.9(b) San Lorenzo 1.2 1.9 3.1

II. Equipment

(a) Puerto Castilla 0.2 2.8 3.0(b) San Lorenzo 0.1 1.0 1.1

III. Consultant Services -

Engineering andSupervision for

(a) Puerto Castilla 0.5 0.8 1.3(b) San Lorenzo 0.1 0.2 0.3

Sub-total 0.6 1.0 1.6

IV. Technical Assistance

(a) Dredging Study 0.1 0.2 0.3(b) Training 0.0 0.1 0.1

Sub-total 0.1 0.3 0.4

V. Contingencies

(a) Physical 15% onI(a) and 10% onI(b) 1.2 1.2 2.4

(b) Price 2.0 2.4 4.4

Sub-total 12.9 17.0 29.9

Financing Plan: US$ million Percent

IBRD/IDA 17.0 56.9ENP 12.9 43.1

29.9 100.0

ANNEX IIIPage 4 of 4

Estimated Disbursements: (US$ million)

FY77 FY78 FY79 FY80

Annual 0.5 6.4 4.2 5.9Cumulative 0.5 6.9 11.1 17.0

Procurement Arrangements: The contracts for civil works at Puerto Castillaand for the equipment for both Puerto Castilla andSan Lorenzo would be awarded on the basis of inter-national competitive bidding in accordance with Bankguidelines. The civil works at San Lorenzo would beexecuted under an extension to the on-going contract,which was awarded in 1975 to Columbus Latinoamericanaunder the Second Port Project on the basis of inter-national competitive bidding. Applicable prices inthis contract would provide a basis for negotiatingprices for the additional work.

Rate of Return: The overall rate of return for this project isestimated at 25 perceht.

Appraisal Report: Report No. 1347a-HO, dated March 8, 1977.

ANNEX IVPage 1 of 2

HONDURAS

THIRD PORT PROJECT

Supplementary Project Data Sheet

Section I: Timetable and Key Events

(a) Project Preparation - Feasibility study of Puerto Castillaby consultants - January 1976

(b) Project Preparation Agency - Empresa Nacional Portuaria

(c) Preparation - Preappraisal

(i) First presentation of project to Bank -This project has been discussed with the Government andthe ENP during supervision missions for the past two years.

(ii) First Bank mission to consider project - February 1976.

(d) Appraisal Mission Departure - July 12, 1976

(e) Negotiations Completed - February 1977

(f) Loan Effectiveness Planned - July 1977

Section II: Special Bank Implementation Actions - None

Section III: Special Conditions

With. ENP:

The terms of the revised contract with Columbus Latinoamericanafor executing the civil works at San Lorenzo to be satisfactory tothe Bank and the contract not to be signed unless an agreementacceptable to the Bank is obtained from the sugar companies regard-ing the minimum tonnage of exports (paras. 30 and 42);

The bid documents for port works at Castilla to be issued only aftersatisfactory bids have been received by the Government for theforestry road works (para. 52);

Establishment of separate accounts for ENP, establishment of sepa-rate project accounts and segregation within all port accounts, asappropriate, of port and non-port expenses and investments(para. 41);

ANNEX IVPage 2 of 2

Complete revaluation of its assets by October 1, 1977; also furtherrevaluations to be made at least every 3 years (para. 38);

Adoption of cost accounting procedures satisfactory to the Bankby October 1, 1977 (para. 38);

Tariff structure to be revised by July 1, 1978 and tariff levelsfrom time to time there-after to reflect reasonably the costs ofservices and facilities and to yield an annual rate of return notless than 8 percent on the current value of net operating fixedassets (para. 38);

Limitation on ENP capital expenditures during the constructionperiod for items not included in the Second and Third Ports Projectsto a maximum of US$500,000 per annum (para. 38);

ENP to retain each year an amount equivalent to 8 percent of netfixed port assets for investment in port services and facilities(para. 39);

ENP to use its best efforts to ensure that non-port operations earnsufficient revenue to cover their expenses (para. 39);

ENP will advise the Bank prior to any changes in port tariff levels(para. 39);

ENP to set aside from its revenue surplus each year an amountsufficient to accumulate a fund for the repayment of the bondissue on maturity (para. 40); and

Inclusion, in the agreement for the proposed loan, of a covenantsimilar to Section 5.06 of the agreement for Loan 767-HO on debtservice coverage (para. 40).

With the Government:

Bond issue by ENP to be underwritten by the Government (para. 35).

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