Report No. 2373-EC dL COPY DevelopmentProblems and Prospectsof Ecuador SpecialReport
(In Three Volumes)
Public Disclosure Authorized Volume 11:Sectors and Regions June18, 1979 Latin America and the CaribbeanRegion Country ProgramsI FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized
Public Disclosure Authorized Document of the World Bank
This document has a restricteddistribution and may be used by recipients only in the performanceof their official duties Its contents may not ~otherwisebe disclosedwithout World Bankauthorization CURRENCYEQUIVALENTS
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ABBREVIATlONS
AIPSE Asociacion Independiente del Pueblo.Shuar de Ecuador (Independent Association of Shuar People in Ecuador) ASA Agencia de Servicios Agropecuarios (Agency for Agriculture and Cattle Services) BCE Banco de Cooperativas del Ecuador (Ecuadorian Bank of Cooperatives) BEV Banco Ecuatoriano de la Vivienda (Ecuadorian Housing Bank) BNF Banco Nacional de Fomento (National Development Bank) CAME Conscripcion Agraria Militar Ecuatoriana (Ecuadorian Agrarian Draft) CEDEGE Comision de Estudios para el Desarrollo de la Cuenca del Rio Guayas (Studies Commission for the Development of the Guayas Basin) CENAPIA Centro Nacional de la Pequena Industria y Artesania (National Center for Small Industry and Artisans Industrial Development) CENDES Centro de Desarrollo Industrial (Center for Industrial Development) CEPCO City Ecuadorian Production Company CEPE Corporacion Estatal Ecuatoriana (Ecuadorian Petroleum Corporation) CEPECA Cautivo Empresa Petrolera Ecuatoriana (Cautivo Ecuadorian Petroleum Enterprise) CIP Centro Internacional de Informacion de Pre-inversion (International Center of Pre-investment Information) COFIEC Corporacion Financiera Ecuatoriana (Ecuadorian Development Finance Company) CREA Centro de Reconversion Economica de Azuay, Canar y Morona (Center for thp Economic Rehabilitation of Azuay, Canar and Morona) CRM Centro de Rehabilitacion de Manabi (Center for the Rehabilitation of Manabi)
CV-CFN - Comision de Valores - Corporacion Financiera Nacional (National Finance Corporation) DECE Departamento Ecuatbriano de Construcciones Escolares (Ecuadorian Department of School Construction) DGH - Direccion General de Hidrocarburos (Department of Hydrocarbons) DINE Directorio Industrial de las Fuerzas Armadas (Industrial Directorate of Armed Forces) DNP Direccion Nacional del Personal (National Personnel Directorate) ECUFINSA Ecuatoriana Financiera, S.A. (Ecuadorian Financiera S.A.) EMAG Empresa Municipal de Alcantarillado de Guayaquil (Guayaquil Municipal Sewerage Company) ENPROVIT Empresa Nacional de Productos Vitales (National Vital Products Company) ENAC Empresa Nacional de Almacenamiento y Comercializacion de Productores Agropecuarios (Storage and Sale of Agricultural Products Company) ENDES Empresa Nacional de Semen (National Semen Company) FECOPAM Federacion de Cooperativas Agricolas y.de Mercadeo (Federation of Agricultural and Marketing Cooperatives) FINANSA Financiera Nacional S.A. (National-Fi-nancieraS.A.) FODEM Fondo de Desarrollo Municipal (National Municipal Development Fund) FODERUMA Fondo de Desarrollo del Sector Rural Marginal (Development Fund for the Rural Marginal Sector) FONADE Fondo Nacional de Desarrollo (National Development Fund) FONAPAR Fondo Nacional de Participacion (National Participation Fund) FONAPRE Fondo Nacional de Pre-inversion (National Pre-investment Fund) FOPEX Fondo de Promocion de Exportaciones (Export Promotion Fund) IEOS Instituto Ecuatoriano de Obras Sanitarias (Ecuadorian Institute of Sanitary Constructions) IERAC Instituto Ecuatoriano de Reforma Agraria y Colonizacion (Ecuadorian Institute for Agrarian Reform and Colonization)
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. IESS Instituto Ecuatoriano de Seguro Social (Ecuadorian Institute of Social Sccurity) IETEL Instituto Ecuatoriano de Telecomunicaciones (Ecuadorian Tele- communications Institute) INEC Instituto Nacional de Estadisticas y Censos (National Institute of Statistics and Census) INECEL Instituto Ecuatoriano de Electrificacion (National Electrification Institute) INERHI Instituto Ecuatoriano de Recursos Hidraulicos (Ecuadorian Institute of Hydraulic Resources) INCRAE Instituto Nacional de Colonizacion de la Region Amazonica Ecuato- riana (National Institute for the Colonizacion of the Ecuadorian Amazon Region). INIAP Instituto Nacional de Investigaciones Agropecuarias (Agricultural Research National Institute) JNV Junta Nacional de la Vivienda (National Board for Housing) J-UNAPLA Junta Nacional de Planificacion y Coordinacion (National Board for Planning and Coordination) MAG Ministerio de Agricultura (Ministry of Agriculture) MFF Mecanismo de Fondos Financieros (Financial Funds Mechanism) MICEI Ministerio de Industrias, Comercio e Integracion (Ministry of Industry, Commerce and Integration) MRNE Ministerio de Recursos Naturales y Energia (Ministry of Natural Resources and Energy) MOP Ministerio de Obras Publicas (Ministry of Public Works) MSP Ministerio de Salud Publ-ica (Ministry of Public Health) NIE Instituto Nacional de Energia (National Institute of Energy) OIPE Oficina Integrada de Planificacion de Esmeraldas (Integrated Bureau for Planning of Esmeraldas) PIDA Proyectos Integrados de Desarrollo Agropecuario (Integral Ag.ricultural Development Projects) PREDESUR Programa Regional para el Desarrollo del Sur de Ecuador (Regional Program for the Development of Ecuador's South) SECAP Servicio Ecuatoriano de Capacitacion Profesional (Ecuadorian Professional Training Institute) SPA Sector Publico Agricola (Agriculture Public Sector) DEVELOPMENT PROBLEMS AND PROSPECTS OF ECUADOR
SPECIAL REPORT
TABLE OF CONTENTS
VOLUME II - SECTORS AND REGIONS
Page No.
VIII. AGRICULTURE
1. Introduction ...... 138
2. Sector Characteristicsand Performance... 138 (i) Output and Foreign Trade . .139 (ii) Price Trends .. 141 (iii) Management and Technology - Improvement in Resource Use . .142 (iv) Production and Productivity . 143 (v) Conclusio-n= ...... 147
3. AgriculturalImprovement Programs .... 148 (i) The Commodity-BasedPrograms . .149 (ii) Regional Development Programs. 152 (iii) Educationand Research . .155 (iv) Conclusion .. 156
4. Economic Incentives,Disincentives and Constraints ...... 157 (i) AgriculturalTaxation ...... 157 (ii) Prices and Subsidies . .158 (iii) Marketing ...... 162 (iv) Credit ...... 163 (v) Rural Roads . .165 (vi) Conclusions .. 166
5. Policy Assessment and Recommendations ... 166 (i) The Public Sector Organization and Policy Investments ...... 167 (ii) Project Selection and Implementationby Regions ...... 175 (iii) Low-Income Population as Development Target. 180 (iv) Forestry and Fisheries Resource Use ... 182
./ Volume II Table of Contents (Continued)
Page No.
IX. THE ORIENTE REGION
1. Foreword ...... 184
2. Organization and Policy Framework ...... 184 (i) Background ...... 184 (ii) Institutional Framework ...... 184 (iii) Settlement Policy ...... 186
3. The Oriente Region: Physical and Human Characteristics ...... 187 (i) Natural Resource Endowment ...... 187 (ii) Access ...... 189 (iii) Population Characteristics ...... 190 (iv) Some Aspects of Socio-Cultural Organization ...... 191 (v) Settlement ...... 197 (vi) Agriculture ...... 200
4. Development-Activities ...... 206 (i) Government Supported Projects ...... 206 (ii) Private Industry Projects ...... 213
5. Recommendations and Outline of Projects for PotentialDonor Financing ...... 214 (i) Recommendations...... -.. 214 (ii) Projects for Potential Donor Financing ..... 215
K. INDUSTRY
1. Recent Trends ...... 219 (i) Growth Performance ...... 219 (ii) Industrial Structure ...... 219
2. Government Policies ...... 225 (i) Investment Incentives, Tariff Protection and Export Promotion ...... 226 (ii) Industrial Financing ...... 232
3. Development Prospects ...... 235 (i) Development Options and Government Strategy. 235 (ii) Development Policy Requirements .237 (iii) Government-Sponsored Industrial Development Projects . ... 246
4. Projected Industrial Growth, 1978-85 . ... 251 Volume II Table of Contents (Continued)
Page No.
XI. PETROLEUM
1. Introduction ...... 254
2. General Framework ...... 256
3. Petroleum Industry - Production ...... 261
4. Domestic and Foreign Markets - Demand .... * ..... 266
5. Pricing System ...... 270
6. Taxes ...... 272
7. Conclusions and Recommendations ...... 275
XII. ORGANIZATION OF THE PUBLIC SECTOR
1. Summary of Recommendations ...... 280
2. Development Administration ...... 288 (i) Role of the Public Sector in the Economy ... 288 (ii) Adminis-trative Machinery ...... 288 (iii) Personnel Policies ...... 297 (iv) Budget Formulation and Implementation ...... 305
3. Setting National Priorities ...... 313 (i) The Planning Agency ...... 313 (ii) The Experience of the 1973-77 Development Plan ...... 314 (iii) Development Priorities in Economic Decision-Making ...... 316
4. Project Administration and Processing ...... 320 (i) The National Projects System ...... 320 (ii) The Project Cycle in Ecuador ...... 326 (iii) Conclusions ...... 333 Volume II Table of Contents (Continued)
Page No.
XIII. PUBLIC INVESTMENT
1. Major Public Sector Projects, 1979-83 ...... 335
2. A Projects-Specific Five-Year Public Investment Program, 1979-83 ...... 345
3. Project Briefs ...... 358 (i) Agriculture ...... 359 (ii) Air Transport ...... 410 (iii) Education ...... 415 (iv) Electric Power ...... 416 (v) Fisheries ...... 430 (vi) Health ...... 437 (vii). Highways ...... 438 (viii) Industry ...... 458 (ix) Petroleum ...... 474 (x) Preinvestment ...... 489 (xi) Railways ...... 491 (xii) Sea Transport ...... 492 (xiii) Tourism ...... 501 (xiv) Urban Development ...... 508 (xv) Water Supply/Sewerage ...... 511 Text Tables Page No.
51 Industrial Structure, 1970; 1974; 1977 ...... 220 52 Relative Shares of Factory Industry and Small-Scale Industry in Industrial Value-Added, 1975 ...... 221 53 Wage Cost and Productivity per Employed, Ecuador and Colombia, 1970-75 ...... 222 54 Industrial Returns, 1973-76 ...... 223 55 Foreign Trade in Industrial Goods, 1970-77 ...... 224 56 Average Returns for Incentive-Induced Industries, Ac- tual and in the absence of Duty Exemptions and Tariff Protection, 1974-75 ...... 229 57 Fiscal Sacrifice resulting from Industrial Incentive Schemes, 1970-77 .. 230 58 Industrial Exports to the Andean Cormon Market and Third Countries, 1972-77 .. 245 59 Projected Growth of Industrial Value-Added, 1978 and 1985 ...... 253 60 Contribution of Petroleum to the Economy ...... 255 61 Recoverable Reserves 1972-88 ...... 256 62 Crude and Refinery Production, 1970-77 ...... 258 63 Main Indicators of Petroleum Sector ...... 259 64 Production /a and Demand for Petroleum Products, 1977 264 65 Consumption of Petroleum Products by Sector in 1977, in Percentages .. 267 66 Consumption of Petroleum Products by Sector in 1977 268 67- Exports of Crude Oil from Oriente by Destination 269 68 Structure of Petroleum Product Prices ...... 271 69 Distribution of Petroleum Income Tax Revenues to Different Beneficiaries .. 274 70 Example of a Portiont of the Reprogrammed Budget of the Ecuadorian Institute of Agrarian Reform and Colonization .. 311 71 Distribution of Public Sector Fixed Investment by Sector (1972 Sucres) 1973-77, Planned and Actual 316 72 Public Sector Investment Projects: 1979-83 ...... 337/341 73 Public Sector Investment Program, 1979-83 ...... 347/357 i
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VIII. AGRICULTURE
1. Introduction
400. Increasing emphasis has been placed on agricultural/ruraldevelop- ment in recent years. Public outlays for agriculturehave been sharply increased; a detailed study of socio-economicconditions and the natural resource base at local levels is about to be completed;the production - and income impact of the agrarian reform program has been evaluated; the organizationand administrationof public services to the rural sector have been redesigned;the inadequacyof the agriculturalstatistical base has been recognized;and the project preparation effort has been expanded and improved. These and related measures will provide the basis for more effective and efficient policy and programs in the rural sector in the years ahead if implementationrates can be improved and if the private sector is more con- structivelyintegrated into the overall rural developmenteffort.
401. Section 2 of this report outlines some of the more important features of the rural sector, and its recent performance trends. Section 3 summarises agriculturaldevelopment programs carried out by the Government. Public policy as it affects the economic environment of farmers is discussed in Section 4. (TechnicalAnnex II discusses the sector's institutional framework). Section 5 brings together a set of suggestionsfor the considera- tion of Government on possible ways of helping to solve some key problems faced in the rur-alsector.
2. Sector Characteristicsand Performance
402. Although somewhat overshadowedby the rapid growth in the petroleum industry since 1972, agriculture continues to provide most of the nation's food and makes important contributionsto foreign exchange earning and the demand for labor. The 1974 census data indicate that about 46 percent of the economicallyactive population was in agriculture in that year. However, there has been little improvement in agriculturalstandards of living because of low productivitylevels. Although average rural incomes have risen 1/, poverty is widespread and,underemployment rates are high.
1/ Estimates by the Ministry of Agriculture indicate that the average daily wage rate for farm labor rose from the S/ 15 - S/ 20 range in 1972-73 to the SI 50 1evel in 1974, to about SI 60 in 1975, and to the S/ 70 figure in 1976. However, no current profile of the income and living levels of the rural population is available. INEC (National Statistics and Census Office) has underway a sample survey of household incomes and expenditures;this will provide basic evidence on the scale and nature of the poverty problem. The only previous work of this sort was done in the 1960s. - 139 -
(i) Output and Foreign Trade -
--Output
403. The Mission estimates that agriculture (including forestry and fisheries) accounted for 21.3 percent of GDP in 1977, down from 29.2 percent in 1970. 1/
1970 1977 1970 1977 -S/ million --
Agriculture 9,471 31,279 29.2 21.3 Total GDP 34,289 153,811 100.0 100.0
404. The agricultural sector's contribution to GDP grew at an average annual rate of 5.0 percent in the 1970-77 period, with the subsector rates for crops - 4.1 percent; livestock, 6.0 percent; forestry, 10.1 percent; and fisheries, 13,4 percent. 2/
405. Although: declining in relative importance,, in 1976 crops still accounted for almost half of the contribution of agriculture to GDP. The estimates of t-he Central Bank--and the National Planning Board (JUNAPLA) for the main subsectors for 1970 and 1976 were as follows:
-1970 1976 1970 1976 --- SI million 3/---
Crops 5,437 6,219 57.4 47.4 Livestock 2,830 4,612 29.9 35.2 Forestry 928 1,548 9.8 11.8 Fisheries 252 703 2.7 5.4
406. Output growth rates for the main food crops varied substantialy in the 1970-76 period, as for example: rice, 15.3 percent; peas, -4.8 percent; beans, -3.4 percent; broad beans, -0.5 percent; soft maize, -11.4 percent; wheat, -2.4 percent; potatoes, -2.2 percent; cassava, 7.2 percent. This broadly negative picture underlies the current concern with the supply
1/ Most Government officials stress that the available statistical informa- tion on agriculture is subject to a wide margin of error. The data presented in the following paragraphsmay not be more than broadly indicative.
2/ The JUNAPLA growth rate estimates for the 1972-76 period are 6.8 percent for the sector, 5.3 percent for livestock, and 9.2 percent for fisheries.
3/ In 1970 prices. -140- outlook for domesticallyproduced staple foods, particularlyif the uptrend in rice production is seen in terms of its vulnerabilityto weather conditions.
Exports
407. In 1972, before petroleum became an important export item, the agricultural sector accounted for over 75 percent of total commodity exports. Although agriculturalexports have since risen notably (in current terms), petroleum has taken over first place on the export list. The export data, based in part on export permits, are:
Exports of AgriculturalProduce
% of Total 1972 1974 1977 1977 ------US$ million (FOB)…
Unprocessed 231.7 328.0 413.9 (36.7) Processed 29.1 78.2 236.1 (20.9)
Total Agri. 260.8 406.2 650.0 57.6
Total - All Exports 326.3 962.4 1,127.3 100.0
408. Cacao, coffee, and b-ananasare the main agriculturalexports. In 1977, cacao exports (in raw and processed form) were valued at US$245 million; coffee, US$160 million; and bananas, US$138 million. The exports of fisheries products totalled US$70.5 million in 1977.
Imports
409. Imports of products of agriculturalorigin, as indicated in part by import permits, are estimated at US$56.7 million in 1972, and US$147.5 million in 1976. The distributionby groups of products was as follows: I/
1/ Note that the data exclude capital goods for agriculture. - 141 -
1972 1976 US$ million (CIF Prices)
Consumer Goods Foods 2.1 11.1 Beverages 2.4 7.9 Tobacco 8.6
Inputs for Agriculture Animal feeds 0.2 1.8
Inputs for Industry Edible agric. products 17.9 67.0 Non-edible agric. products 25.6 59.8
Total 56.8 147.5
410. The main import items are wheat, vegetable oils, animal fats, and dairy products, supplementedfrom time to time by items such as rice and sugar.
411. The CartagenaAgreement (Acuerdo de Cartagena) of May 1969 has not had a significanteffect on trade in agriculturalproducts.
(ii) Price Trends -
412. Prices. In terms of 1970 Sucres, there has been a significant uptrend of late in the annual average wholesale price of most farm products. The percentage increase in 1976-77 wholesalp prices over 1970-72 prices for important food items approximatesthe following:
Price Increases 1970/72 - 1976/77 (%)
Rice 159 Yuca 326 Peas 170 Tomatoes 374 Lentils 157 Plantains 242 Wheat 115 Apples 117 Potatoes 372 Beans 168
413. Data for the city of Quito indicate that in 1977 the consumer price index for the food and beverage group was 183 percent higher than in 1-970,as compared to 135 percent for the overall consumer index.
414. Land price data are scarce. The available evidence suggests that a sharp upward movement is underway. For example, irrigated land in dairy zones in the Cuenca area is reportedly priced at some S/100,000 per ha, about double that of five years ago. In the San Gabriel zone, the price of land suitable for dairy farming ranged from S/ 60,000 to S/ 80,000 per ha in 1977. - 142 -
(iii) Management and Technology - Improvement in Resource Use
415. Technical inputs. The rate of technologicalchange and the upgrading -of resource use appears to be low, although growth rates for yields are estimated to have been positive for most crops in the 1970-76 period. Major exceptions were rice, beans, plantain, and coffee; for rice and coffee, expansion in harvested area is estimated to have been sufficientto sustain a positive output trend. However, close observers of the agriculturalscene point out that the probable margins of error in the available data are large, and that there is no reliable empirical base for judgments on recent technical and economic change and its impact on productivity.
416. Fertilizer imports, as indicated by data on import permits, fluc- tuated widely from year to year in the 1970-76 period. The lowest annual figure for the period was 29,300 tons (gross weight basis) in 1971; the highest figure was 231,000 tons, in 1973. There does not appear to have been a significant upward trend in fertilizer use in recent years, and bananas continue to dominate the use pattern.
417. Urea (mainly for bananas) and phosphate rock typically account for a large part of fertilizer imports (for example, 47 percent of the tonnage in 1972 and 84 percent in 1976). Phosphate rock is processed by FERTISA, which, in addition to superphosphate,produces a range of formulae designed to meet the needs of specific localities. 1/ FERTISA's annual output averaged slightly more-than 23,000 tons in-1974-76 period. Distribution is handled through.cooperatives, the BNF, and private agencies, mainly the latter.
418. The supply of certified seed for use in 1977 was as follows (in tons): wheat, 1,344; rice, 238; maize (flint), 416; soybean, 309. At seeding rates of 100 kg per ha for wheat; 25 kg per ha for flint maize, 30 kg per ha for soybeans and 100 kg per ha for rice (paddy), the supply of certified seed was sufficient for about 33 percent of the wheat acreage, 10 percent of the flint maize area, and only 2-3 percent of the rice acreage.
419. The Ministry of Agriculture estimates that there are about 6,000 tractors on farms. 2/ Low fuel prices, exemptions from import duties, improvementsin servicing facilities and the supply of spare parts, and the upward trend in wage rates have stimulated interest in tractor power in recent years. Imports in 1975 totalled 1,520 units; in 1976, about 1,140; and in 1977, about 1,010. The trend is toward higher horsepower equipment.
420. The Ministry of Agriculture provides machinery services to farmers. In early 1978, the service had 130 tractors (60-84 hp) and a range of land preparation and harvesting implements, including two self-propelledcombines. The program, begun in 1974, operates out of 11 regional offices and serviced some 20,000 ha in 1977.
1/ Located in Guayaquil, the FERTISA plant is largely government-owned.
2/ In relation to cultivable area, knowledgeable observers believe the tractor horsepower/hectareratio approximates0.1. This ratio is negligible in relation to those of Western European countries. - 143 -
421. The imports of pesticides,mainly herbicides and nematocides, increased from an estimated 2,200 tons in 1972 to about 9,000 tons in 1976. Preliminarydata suggest that imports in 1977 were less than in 1976, perhaps because of higher prices. The CIF value of pharmaceuticalproducts, feed additives, and veterinary supplies imported for use in the livestock subsector approximatedS/ 62 million in 1972 and S1 116 million in 1976.
422. The Ministry of Agriculture operates two salt mineralizationplants and a distributionsystem, and in 1976 began an artificial insemination program for beef and dairy cattle. The latter program is handled by ENDES (Empresa Nacional de Semen), a decentralizedagency which reports to the Minister of Agriculture. ENDES operates through 14 field units in the Sierra and Coastal regions.
423. It is estimated that feed mixing plants 1/ almost doubled output in the 1972-76 period, with productionin the latter year approximating 95,000 tons, mainly for poultry and hogs.
424. One of the major problems requiring urgent attention in Ecuadorian agriculture is soil erosion. Unless effective and widespreadmeasures are taken, erosion will sharply constrain area expansion and productivitygains over the intermediateterm. A recent report notes that severe erosion has taken place in many parts of the Sierra, from Tulcan in the north to Loja in the south and in Oriente. 2/ Among the causes are row-croppingsteep hillsides,. over-grazing,burning pastures and stubble, deforestation,wind (in the area south of Riobamba), improper management of irrigation water, and road design and constructionshortcommings. In the coastal region, the problem is most severe in the cotton zones between Boliche and Pedro Carbo. More generally, river flooding is an important source of erosion on the coast, and itself is partly caused by improper soil and water management upstream. In the Pichilingue zone, where rainfall is high and the terrain rolling, the ongoing shift from banana to maize and soybeans is likely to lead to severe erosion unless appro- priate soil conservationmeasures are taken. Programs for opening the Amazon Basin must be designed with conservationas a principal component.
(iv) Production and Productivity
425. The outlook for productivitygains in livestock is promising. The output of livestock and livestock products is estimated to have increased from S/ 3,359 million in 1970 to S/ 5,367 million in 1976 (at 1970 prices). The commercial poultry industry showed outstanding growth in this period. The output distributionby species in 1976 was as follows: cattle, 61 percent; sheep, 2 percent; pigs, 17 percent; poultry, 14 percent; others, 6 percent.
1/ Agro-industry,discussed elsewhere inthe Mission report, centers to a considerableextent now in food processing,mainly in sugar, cocoa, vegetable oils, and fish. Aside from general industrializationincen- tives, developmentmeasures in the 1973-76 period included Government financial participationin some 20 private agricultural product and input enterprises.
2/ INIAP, Reporte de los Problemas de Erosion del Suelo en Ecuador, by J.C. Hicks, December 1977. - 144 -
--426. The 1974 census estimated the cattle population at 2.46 million, pigs at 1.1 million, and sheep at about the same figure of 1.1 million. Sheep are concentrated in the Sierra, with both the pig and cattle population being about equally distributedbetween the coast and the Sierra. About 29 percent of the cattle population is specialized in milk production, 40 percent in beef, and 27 percent are classified as dual purpose. The milk industry is concentratedin the Sierra, and more than half of the output is sold for off-farm processing. The evidence, including a strong demand for breeding stock and the tendency to improve pastures suggests that the cattle enterprise is being expanded at the expense of crops in the Sierra, allegedly because of an outflow of labor to the cities (which discouragescropping), and the relatively remunerativeprices of milk and beef; and, in Santo Domingo and Quevedo areas, because of the relocation of banana production to more suitable zones.
427. Dairy farmers have a long way to go to reach satisfactorypro- ductivity levels, in spite of the fact that they already make a considerable use of modern production techniques. A recent study of 29 farms in Carchi, an important milk-productionzone, highlights some of the problems. The study showed that the majority of farmers were using one or several modern inputs and improved production practices, such as parasite controls, vaccines, fertilizers,rotational grazing, tractor power, concentrates,and mineralized salt. Nonetheless,59 percent of the farms had reproductionrates of 70 percent or less; 17 percent had a calf loss rate of 20 percent or higher; and 31 percent had adult loss rates of 5 percent or higher. The explanation lies in shortcomingsin herd and pasture management - such as inattention to input and practice complementaries,bookkeeping, herd culling, feed programs to enable calving at younger ages, and measures to shorten periods between calving and upgrade stock quality. These observationsare important, because the management problem to which they point is equally severe in other sub- sectors, and because they suggest the great contributionwhich an effective extension service could make in expanding production and increasing productivity in agriculture.
428. Beef ranching is undertaken largely in the tropical zones; nearly 90 percent of the ranches are located in the coastal region. The stock is predominantlycriollo-Brahman crosses. The weaning rate is about 55 percent, age at slaughter from 3 to 4 years, offtake around 13 percent, and annual beef output per ha ranging from 50 kg to 500 kg liveweight. Assuming an average carcass weight, including offal, of 175 kg, annual beef production is about 64,000 tons, a supply sufficient for a per capita average consumption of around 9 kg. There is, however, a substantialborder trade in live animals which goes unreported and is not reflected in these figures.
429. Management shortcomingsand the associated nutrition problem are mainly responsible for the low weaning rates and the lengthy period required to reach slaughter age. Animal health is not a major problem provided preventive measures are taken to control foot and mouth disease, tick infestation and internal parasites. Tick infestation,particularly in the coastal region, can cause serious losses unless frequent dipping is practiced. Improved grazing management and the adoption of measures to control internal parasites could contribute significantlyto reducing the calf mortality rate. - 145 -
With improved husbandry and appropriatetypes of investment, the offtake could be readily raised to 20 percent and carrying capacity could be sharply increased.
430. The commercial production of eggs and broilers has grown rapidly of late, particularlysince 1973 when strong demand began to strengthen prices. Although estimatesvary widely, the number of birds in commercial flocks may exceed four million, and annual growth rates may be of the order of 20 percent for the laying hen population and 35 percent for broilers. The industry centers in the Portoviejo, Quito, Guayaquil and Cuenca areas. Improved management and disease control, along with assuring the feed supply through imports of maize and sorghum as needed, have brought broiler prices down close to the beef price level. It is probable that the industry will continue to expand, in part because of gains in efficiency which remain to be picked up through improved marketing and economies of scale. Over the' longer-term,the poultry research work now getting under way in INIAP will be helpful.
431. Although efforts to improve the sheep industry have been underway for many years, only limited progress has been made. Parasites take a heavy toll, as do nutritional deficiencies.
432. - The Lo& industry,until recently centered in the Santo Domingo area, is tending to shift southwards to Guayas and El Oro where feed is more readily available, including banana, cassava, and rice by-products. Among the more important production problems is cholera. The demand for improved breeding stock is strong, and INIAP, by far the main source, has a long waiting list for its output.
433. With the MAG Livestock Directorateas the planning and monitoring agency, an animal health program is underway nationr-wide.This centers on key disease problems, including aftosa and brucellosis. A quarantine station for imported livestock is in the advanced planning stage, as are control stations for the within-countrymovements of livestock. To promote genetic upgrading, about 26,500 Cebu cattle were imported from Costa Rica in 1976, and made available to farmers through BNF finance. Some 100 water buffalo were imported in early 1978 to test their suitabilityfor the Oriente.
434. The fisheries subsector has grown rapidly in recent years, in part because of a sharp expansion in the catch of a sardine-relatedspecies 1/ and the associated growth in the output of fish meal and oil. On a tonnage basis, the sardine-type catch accounted for about 85 percent of the total catch in 1977. In that year, the catch of sardine-typespecies, some 370,000 tons, was more than ten times that of 1970.
435. Fisheries exports aproximated US$70.5 million in 1977, a more than threefold increase since 1970. Shrimp accounted for about 33 percent of export value in 1977; fish meal, 23 percent; and tuna, 14 percent.
1/ Locally known as pinchagua, or arenque, or hirring, or sardina. - 146 -
436. Shrimp farming is currently expanding at a rapid rate, and cultivated shrimp accounted for about 11 percent of total exported tonnage in 1977. Shrimp cultivation is centered in El Oro, although some of the several hundred enter- prises operate in Guayas, Manabi, and Esmeraldas. 1/
437. - The Ministry of Natural Resources is preparing a national development plan for the fisheries subsector. A substantial rate of expansion is foreseen, through such measures as Ecuadorian processing of tuna caught under license by foreign fleets in national waters; 2! solutions to technical problems of shrimp cultivation;growth in canning of sardines;basing fish meal production only on plant wastes; modernization of the pesca blanca activity (white meat fish such as corvina, pargo, and dorado); and more intensive exploitationof the resource at the 300-400 m depths on the continental slope for species such as hake and small shrimp.
438. Design work for fishing ports at Manta and Posorja is underway. Foreign financial assistance is being sought for the Manta port, and the project is ready for appraisal.
439. Almost 70 percent of the nation's total area is under natural forest. Most of this is in the Amazon basin; only limited although uncontrolled exploitationhas taken place, and the overall potential is not known. In contrast, the other major forest resource, the tropical hardwoods of the western lowlands,mainly in Esmeraldas, are likely to be exhausted within 10 to 15 years. The Sierra has already been over-cut, and its contribution to the future supply of forest products depends on the rate of afforestation. The optimum use of the Andean slopes will continue to be for environmental protection.
440. Balsa is the major item on the forest products export list; annual exports of balsa averaged about US$8.6 million in 1975-77. Plywood exports have grown sharply in the last few years, and are provisionallyestimated at some US$4.7 million for 1977. Ranking at the top of the list of forest products imports, and at some US$40 million exceeding by several times total annual exports of forest products, are linerboard and corrugated medium for the manufacture of boxes used for exporting bananas.
441. Based mainly on bagasse and waste paper, the paper industry has grown rapidly in recent years. Installed capacity of some 55,000 tons per year (three mills) is roughly sufficient to meet current domestic market
1/ Icaza y Arana, Criadores de Camarones -- Diagnostico y Recomendaciones, Instituto Nacional de Pesca, Serie Informes Pesqueros No. 09/78, 1978.
2/ The national catch, which is now about 25 percent of the total processed tonnage, is based on shipjack, and output tends to vary on a 5 to 7-year cycle. The yellowfin, available in more distant waters and requiring larger boats, is exploited under a quota system managed by the Inter- american Tropical Tuna Commission;the supply outlook appears to be satisfactory. - 147 - requirements,excluding linerboard for banana boxes; production in 1975 was about 34,000 tons. The plywood and sawn lumber industries have also been expanding of late. The tropical hardwoods, mainly from the Esmeraldas basin, are the main raw materials for these industries. Eucalyptus from the Sierra plantationsranks second as a source of material for sawn timber. (The eucalyptus is, however, also widely used in the Sierra as fuel for heating and cooking. Demand is strong, and prices (ranging from S/ 400 to S/ 600 per m 3) force the lower income population to seek alternative fuels in ways which hasten the denuding of the countryside.
442. The programs now being developed seek to promote a conservation- oriented exploitationof the natural tropical resource in the Oriente, through post-inventoryconcessions to the private sector and the armed forces. In zones suitable for permanent use for crops and livestock, the forest activity is to be linked to colonizationand rural development. Several studies are now underway to further this effort, including WB-assistedwork in Morona- Santiago. In the Sierra, emphasis is on afforestationwith pine, 1/ to provide long-fiber raw materials for the paper industry and promote-soiland water conservation;project development is severely handicapped by the lack of technical information,as noted above. The plantings of eucalyptus and other hardwood species in the Sierra are to be expanded to produce sources of fuel and sawn wood for local use. In Esmeraldas, utilization studies of the tropical hardwood resource,which includes many secondary and tertiary species not readily marketable, are being carried out.
443. The Forestry Department of the Ministry of Agriculture is preparing a project to reforest 50,000 ha with various species of pine in the 3,000-3,600 m zones of Pichincha and Cotapaxi provinces (the cantons are Quito, Cayamba, Mejia, Pedro Moncayo, Tuminahui, Latacunga and Saquisil). The cost of the 10-year project is estimated at S/ 358 million, of which S/ 100 million is in foreign exchange. At an estimated growth rate of 12 m3/ha/year and current prices, a remunerativecost-benefit ratio is foreseen, assuming a 15-year rotation and an interest rate of 12 percent. The project would be carried out through contract with landowners. The analysis shows that the proposed areas are now completely unproductive. The contributionof the project to employment and resources conservationwould be substantial,as would the saving of foreign exchange through the production of long-fiber materials for pulp and paper. A high-altitudespecies research component is included in the project. Although PREDESUR has had a greater experience in that area than the Forestry Department, it is hoped that the project will be promptly and efficiently implemented.
(v) Conclusion
444. Although a great deal remains to be done to improve the organization and use of agriculturalresources, the available performancedata for recent years, even if adjusted downward somewhat,.do not justify any serious expressions
1/ The CAME (ConscripcionAgraria Militar Ecuatoriana)program is now assisting with colonizationand forestation work, and recently provided much of the labor for a 10,000-ha reforestationproject in Cotapaxi. - 148 -
of alarm. The data suggest that considerableprogress is being made in some subsectors such as fisheries,livestock, and vegetable oils. The present concern with the inability of the sector to fully satisfy the recent rapid growth in the demand for food is well-founded,but should not be allowed to lead to emergency remedial measures, which by their very nature are likely to have a low return.
445. The domestic food supply problem now emerging, as evidenced by upward pressures on food prices and increasing imports, is partly a result of the chain of events set in motion by the petroleum-basedeconomic expansion which began in the early 1970s, along with unfavorableweather conditions in 1977 and early 1978 and, in the case of sugar, labor-managementrelations. While the need for a radical change in methods of agriculturalorganization and technology is pressing, it is unlikely that a largely traditional and export-orientedagriculture could do it quickly enough to meet fully this demand growth. 1/ It is now constrainedby a limited infrastructure;little meaningful farm-level technical guidance; severe inter-sectorcompetition for financial resources; an antiquated tax system; substantialproduct price fluctuationsand marketing shortcomings;yield uncertaintieson investment which grow out of the ongoing land redistributionprogram; and generally difficult climatic and natural resource endowment conditions.
446. Both the fisheries and forestry subsectors merit a continuationof the increasing attention which they have been given of late, and each in the conservation context.
3. AgriculturalImprovement Programs
447. Agricultureand the modernization of the rural sector now have a prominent place in public policy, although many of the development activities underway have not been in place long enough to produce a significant impact. The Government has been able to make this particular effort because since 1972 the petroleum sector has generated sufficient funds to finance new agricultural/ruraldevelopment programs.
1/ To illustrate the point, assume a population growth rate of 3.4 percent per year, a per capita income growth rate of 1.7 percent per year, and an income elasticity of demand of 1.0 for food at retail level. The result of these not unrealisticassumptions would be a growth rate of around 5.1 percent a year in the demand for food. If the above assumptionsare adjusted in one respect only, by increasing the income growth rate from 1.7 percent to 2.6 percent, the growth rate in demand for food becomes 6 percent, or a 60 percent increase in less than a decade. If to this illustrativeconstruction there is added the income-inducedshift in con- sumption patterns and the inevitably lengthy periods typically required for on-farm resource expansion and shifts in use, it should not be surprising if shortages and upward price pressures appear for certain products supplied mainly by the domestic agriculture. - 149 -
-448. Through land redistribution,colonization, and integrated rural developmentprograms, the Government intends to raise the living standardsof the rural poor. Income-earningopportunities for the underprivilegedare to be expanded by providing access to land, production and marketing services, and farm management assistance. Plans call for the provision of a full set of social services to the low-income groups. At the same time, the economit environmentof the agriculturalsector is to be improved by a wide range of measures, such as those aimed at stabilizingprices, reducing inefficiencies in product and input marketing, and promoting technology generation and transfer.
(i) The Commodity-BasedPrograms
449. The CommodityProgram offices of the MAG are charged with moder- nizing productionmethods and domestic and export marketing systems, developing producer associations,promoting integrateddevelopment of the areas in which the commodity of primary interest is concentrated,and making recommendations on policy and program design.
450. The common element in these programs is that each is concerned with a commodity which is important in the context of agriculture'snet impact on the balance of payments, and in all cases, there are ample opportunities for output growth through technical change, area expansion,and improved farm management, although the banana enterpriseis constrained by the market. Outline observationson each of these crops follow:
451. Coffee. Coffee, a major export item, is grown on some 250,000 ha, with Manabi accounting for slightly over half of the acreage and some 59 percent of the output. Some 54,000 farms grow coffee, and an estimated 60,000 families earn a significantpart of their livelihood from the industry. Public revenues from coffee taxes approximatedS/ 1,273 million (US$51 milliion)in 1976 and exports are valued at US$205 million in that year and US$157 million in 1977.
452. Yields are low, with a national average which seldom exceeds 7 qq/ha, less than half that in El Salvador, about 60 percent of the Colombia level. The National Coffee Program estimates that some 75,000 ha are in need of renovation (replantingwith improved varieties at higher densities),with the remainder needing rehabilitationthrough pruning, fertilization,and disease control measures. Substantialoutlays for access roads, 1/ expanded technical assistance,and a larger supply of improved planting materials are required, along with more long-term farm credit. Funds are also needed for processingand marketing facilities,and for expanding the role of cooperativesin the industry (there are now 45 active cooperatives,some of which handle exports).
453 Cacao. Some 56,000 farms produce cacao on about 287,000 ha, and from 60,000 to-70,000 families are largely dependent on the industry. Production,which varies greatly from year to year in response to weather
1/ Costly transport by mule to truck pick-up points is currently common. - 150 -
conditions, averaged 66,000 tons per year in the 1974-76 period. Fungus diseases take a heavy toll and are a main reason for the low average yields of --about 6 qq/ha -- an industry characteristicwhich is partly offset by the high quality of the product.
454. The export tax for cocoa en grano is 25 percent ad valorem. This tax, along with export subsidies for processed cacao and other industrialization incentives, has led to a sharp upturn in the export of semi-processedcacao (powder, paste, butter and liquors) in recent years. Fourteen processing plants are now in operation. In 1972, semi-processedproducts accounted for about 21 percent of total export earnings from cocoa. The comparable figure for 1976 was 66 percent. The preliminary estimate for semi-processedcacao exports in 1977 approximatesUS$185.7 million, an increase in current terms of eightfold over 1972. Cacao prices at point of first sale are fixed by government, based on the New York quotations.
455. Cotton. Cotton production is centered mainly in Guayas and Manabi. Output targets are geared to meeting domestic demand. Medium staple cotton was grown on about 17,000 ha, mainly rainfed, in 1977. Production approximated 0.54 million qq of seed cotton. Short staple production was about 62,000 qq. Small farmers account for some 80 percent of the output. Ginning plants are ,required to pay farmers the Government-establishedprice. The official price for the 1978 seed cotton crop at the ginning plant is S/ 700 per qq.
456. Rice. -Althoughrice acreage and production have been trending upward, sharp fluctuationsin output are typical because only about 10 percent of the area devoted to the crop is equipped with adequate infrastructure (flood control, drainage and irrigation)and because of the price policy followed (para. 755). Good weather and a large outturn depress prices and affect credit repayments. This leads to declines in acreage and shortfalls in output. Significantinvestments in land and water development will be neces- sary to stabilize and expand output. If complementedby the development and use of disease resistant varieties and fungus control measures, a relatively small acreage double-croppedin rice would assure an adequate supply for domestic use. The area suitable for relatively low-cost development for rice is much greater than needed to meet the domestic market requirements.
457. Oil Crops. Of the three edible oil crops (soybeans, groundnut, and sesame) being promoted by the MAG Program, soybean is by far the most important. Centered in the Quevedo, Babahoyo, and Milagro areas, soybean acreage increased from about 1,200 ha in 1973 to 14,000 ha in 1977, and in the latter year produc- tion was about 19,000 tons (on a harvested 'areabasis, the yield was 35 qq per ha). The lack of certified seed has been a key problem; EMSEMILLA is now expanding its production program and making interim import arrangements. Farmers will receive S/ 420 per qq at plant, clean and dry basis, for the 1978 crop if the official price is paid.
458. The outlook for the oil crops in the Program depends in part on the rate of growth-in the output of African oilpalm. Palm acreage in recent years has grown rapidly in contrast to the slow growth during the decade and a half following the introductionof the crop in 1953. Planted acreage in 1970 was - 151 - estimated at a little over 7,000 ha; the comparable figure in 1977 was -21,600ha. The substantialprivate investment in the industry has included foreign funds, and has been strongly complementedby BNF loans. As of 1976, there were 14 extraction plants in operation, with a total capacity of 39.7 tons of raw material per hour. The bulk of the current acreage is planted with improved materials (Tenera) produced or imported by INIAP. - The national average yield in 1975 was estimated at 11.45 tons per ha (1.76 tons oil). At that time, about 33 percent of the 8,142 ha in productionwas in low-yieldingvarieties; and some 61 percent of the producing acreage which was under improved varieties was less than seven years of age and hence not in full production. At nine years of age, the INIAP variety yields approximately 15 tons per ha (2 tons of oil).
459. The palm industry is located in the lower part of the Santo Domingo- Quininde-Quevedotriangle and plantations probably average about 150 ha in area. It was estimated that in 1975 the industry employed some 3,500 laborers.
460. Several privately-sponsoredprojects of substantialsize are in an advanced stage of preparation for both the Santo Domingo area and the northern Oriente, and the public sector is preparing a project for the latter area which will link African palm developmentto smallholdercolonization. 1/ Given the current large shortfall in domestic vegetable oil production relative to requirements,the adequate-supplyof technical and managerial talent at hand, and costs which should permit exports, a continuing rapid rate of growth in African palm investmentand output is foreseen.
461. Sugarcane. Although sugarcane is largely a plantation crop and is not included in the CommodityProgram list, its expansion potential and the industry'sneed for finance make the crop an important one for public policy. The production of sugarcane for sugar is centered in the provinces of Guayas and Canar, in which the three mills account for about 86 percent of the national milling capacity. Sugarcaneacreage has been increasing,and in 1974 exceeded 104,000 ha for the first time. Yields are around the 68-70 ton/ha level on national average, although one enterprisegets close to 100 tons/ha. Production was estimated at 7.4 million tons in 1975. About 40 percent of the cane output is used for sugar (at about a 10 percent yield), 36 percent for panela, and the remainder for alcoholic beverages.
462. Domestic consumption of sugar has been growing rapidly, and approximated31 kg per capita in 1975. This has led to decline in exports, which averaged about 68,000 tons per year in the 1972-75 period. In anti- cipation of a continuing strong domestic demand, the larger mills are expanding and modernizing capacity and enlarging planted area. Again, price policy has been critical in the development of this sector.
463. Sugar marketing is handled by ENAC (discussed below) on the basis of provincial quotas. Prices at the mill, at wholesale, and at retail are established by-an inter-agencycommittee chaired by the Ministry of Agriculture. Export quotas are assigned to each mill. The interests of consumers allegedly weigh quite heavily in the pricing and quota discussions,even though it is recognized that this bias is self-defeatingin the intermediateterm.
1/ The northern Oriente is discussed in another part of the Mission report. - 152 -
(ii) Regional DevelopmentPrograms
464. Besides the recently created INCRAE (InstitutoNacional de Colonizacionde la Region Amazonica Ecuatoriana),which, when it becomes operational,will be responsible for the Oriente colonizationwork, regional development agencies have been active for some years (although several have not yet moved much beyond the study stage).
465. PREDESUR. The regional program for the southern zone, PREDESUR (ProgramaRegional Para el Desarrollodel Sur de Ecuador) is an outgrowth of the Ecuadorian Sub-Commissionset-up in 1971 to plan for the joint development with Peru of the Puyango-Tumbesriver basin (a latter agreement covered the Piura-Chira system, of lesser interest to Ecuador). Based on a reservoir on the Ecuador side, the Puyango-Tumbesscheme would irrigate 50,000 ha in El Oro and 20,000 ha in Peru. On the basis of initial studies, which included prefeasibilitywork for the Tahuin irrigation sub-projectbased on the Rio Arenillas, and the JUNAPLA Overview of the development potential of Zamora Chinchipe province, it was decided to expand the Puyango-Tumbeswork to a region-orientedlevel covering the provinces of Loja, El Oro, and Zamora Chinchipe, an area of some 3.5 million ha.
466. The Sub-Commissionand PREDESUR completed a socio-economicdiagnosis of the provinces in 1974. Since then the Program has completed a forest inventory, using-foreignassistance, and identified about 56 project possibili- ties as the first step in the preparation of a master regional developmentplan and to forestall delays in getting investment underway. These project proposals include a number of irrigation possibilities,reforestation in Loja, and assistance for spontaneouscolonization in Zamora Chinchipe. A mineral resource inventory is underway, and tourism possibilitiesare being explored, along with economic and social infrastructurerequirements. Foreign consultants have been brought in to assist with the preparation of the development plan, and negotiationsfor a foreign loan of about U$$17 million to support a Zamora integrated rural development project are well advanced. This multi-component loan with IDB support centers on agriculturalcredit and rural roads.
467. PREDESUR works mainly through agreements (convenios)with government agencies, and 100 agreements are now active. Its 1977 budget approximates S/ 400 million, and its technical staff members about 170. This institution has shown dynamism and efficiency.
468. CRM. The regional development agency CRM (Centro de Rehabilitacion de Manabi), set up in the 1960s, has a technical staff of about 45, and an annual budget of some S/ 800 million (mainly financed by the Ministry of Finance plus an ear-marked fuel tax at the national level and a special levy on the income tax payable by residents of Manabi). Its main ongoing work is to complete the Poza Honda potable water and irrigationproject and develop the Chone-Charrizalirrigation scheme.
469. The Poza Honda reservoir and the urban water distribution system have been completed;the distributioncanals and drainage facilitiesfor the proposed 10,000 ha irrigation component of the project are scheduled for completion in 1981, provided the land redistributionprogram goes forward as planned. - 153 -
-470. The first phase of the Chone-Carrizalproject, a 5,500 ha irrigation scheme based on a dam at Esperanza, is costed at S/ 1,200 million and is to be locally financed. The dam is scheduled for completion in 1981, simultaneously with the distributionsystem. The area to be irrigated is now cropped in the rainy season, a part using supplementalirrigation. Some land redis- tribution is planned, mainly in the northern zone. The cropping pattern includes the basic grains, fruits, vegetables, cotton and sugarcane.
471. At an estimated cost of S/ 1,000 million, the second phase will expand the irrigated area to a probable total of some 18,000 ha through the constructionof additional distributionsystems and pumping stations for the Esperanza water drainage facilities,and a dam to control seawater intrusion in the Rio Chone. The second phase, for which foreign finance is being sought, is scheduled for completion in 1984.
472. Although costs are high, approximatelySI 2,200 million including access roads and on-farm development,the carefully-studiedproject is seen by Governmentas the economic way of bringing a substantial agricultural resource into production and improving rural living levels.
473. OIPE. The Oficina Integrada de Planificacionde Esmeraldas,with JUNAPLA and OEA assistance, is developing a series of development projects for the Esmeraldas River Basin. This Basin, the second largest on the Pacific Coast, includes both the Pichincha and Esmeraldas Provinces. The latter has 1.5 million ha of the total basin area of 2.1 million ha; its population has approximatelydoubled between 1955 and 1974 to some 203,000 persons (65 percent rural)., Despite this substantial-in-migration,the population density is still relatively low; large parts of the province are still in the public domain and covered by virgin, humid-tropicalforest. Precipitationranges from 1,000 mm annually on the coast up to 3,500 mm in land at the foot of the Andes. Soils are shallow and frequently difficult-tomanage, but may be suitable for such crops as bananas, citrus, mangoes, oil palm, and for pastures.
474. Since the mid-1960s, the economy of the lower basin area has suffered from a decline in banana production. Owing to a change in consumer preferences, the effects of the Panama disease and a shift to the Cavendish variety, the center of Ecuador's banana industry has moved to the south. In Esmeraldas and Pichincha Provinces about 80 percent of the arable area is not cultivated; while there are 740,000 ha of pastures and 2,000,000 ha of forests. The pro- vision of economic and social infrastructureand services to the zone has not kept pace with the rapid populationgrowth. Illiteracyin the rural areas is higher than the national average, and health-servicesare also poor by national standards. Owing to these factors and the production potential of the basin, the Government attaches considerablepriority to activities designed to improve conditions therein.
475. CEDEGE. Established in 1967 as a project preparation agency, CEDEGE (Comisionde Estudios Para El Desarrollode la Cuenca del Rio Guayas) is now implementingprojects in its area of responsibility,the lower Guayas Basin. The basin covers 3.5 million ha or approximatelyhalf the coastal region of Ecuador. It is situated just south of the equator between a low coastal - 154 -
mountain range and the high Andes. Its climate is hot and humid, with average monthly temperaturesranging between 230 and 270 C and an average annual rainfall of 1,500 mm or higher. The Guayas basin had 2.3 million people in 1971, about one-third of the national population. In the period 1971-73, the population of the basin has grown at an estimated 5.4 percent per annum (5.2 percent in the city of Guayaquil) in comparison with the overall 3.4 percent growth rate for the country, thus indicatingthe extent of inter- regional migration into not only the metropolitan center but to the rural areas. The migrants, like the rest of the rural population,are confronted with adverse economic and social conditions. Health services and schooling are deficient.
476. The Lower Guayas Basin covers about 1.5 million ha, including the ecologicallysimilar area extending to the Naranjal river. The lowlands have favorable conditions for substantialagricultural production similar to such areas as the river deltas of Mekong, Ganges, Irrawaddy and Mississippi. The soils are excellentbut suffer from poor drainage and serious annual floods. According to recent estimates, at least 200,000 ha in the Basin are flooded every year because of river overflow and insufficientdrainage of rainfall. The flooding and poor drainage cause large-scale crop losses (mainly rice), serious damage to roads and buildings, and poor sanitary conditions, especially in villages and small towns. Moreover, haphazard constructionof roads and dikes, typically undertaken without access to any type of plan, is progressivelyworsening the situation.
477. CEDEGE has tended to concentrate attention on the potential of the coastal area for irrigation,with only secondary emphasis on flood-control and drainage. 1/ This concentrationmay result in part from a tradition of irrigation, largely rudimentary,practiced for centuries in the comparatively dry Sierra. The lack of emphasis on flood control and drainage in the Lower Guayas Basin is also due to the fact that a comprehensivelong-range develop- ment plan has yet to be prepared. In turn, the latter has been caused in large part by absence of adequate basic daea such as aerial photographyin the center and eastern sections of the basin where flood control has to be carried out through a system of dikes, floodways, drainage canals and river channel improvementsbecause sites for storage reservoirs are lacking. Such works, if properly planned and phased, would contribute to a very significantincreased
1/ For example, studies are nearing completion for the Daule-Peripaproject. At a cost on the order of US$500 million to US$600 million, the project would construct a dam to store 5.4 million m3 of water, irrigate 50,000 ha in the Daule watershed, provide water for Guayaquil and for 50,000 ha of irrigation in the Santa Elena peninsula, and produce 50 million Kwh of electricity. (These studies were initiated in the context of long-run energy development planning, and in recognition of the power-irrigation relationship,the impressive magnitude of the Guayas resource, and the considerableamount of time required to develop and analyze data for projects of this type. Like ongoing studies for other major projects, the Daule-Peripa studies provide an invaluablebody of information for the public decision-makingprocess, the appropriate time-phasingof project implementation,and the determinationof the optimum national investment pattern for the years ahead.) - 155 - in the agriculturalproduction of this fertile region (preliminaryestimates range between 5 and 10 times) and to improving the living conditions of the rural poor. Moreover, these types of works are considerablyless costly per ha, and higher yielding, than conventionalirrigation projects, as well as being non-redundantwith respect to any complementaryirrigation development work which may be undertaken in the future.
478. CEDEGE's annual budget is about SI 330 million, including foreign loans for the 11,0QO ha Babahoyo project under implementation. Technical staff numbers about 120.
479. CREA. The Centro de ReconversionEconomica de Azuay, Canar y Morona Santiago,with its predecessoragency, has been operating for some 25 years. For agriculturalwork it has an annual budget of about S/ 20 million and a technical staff of 50. Working mainly through groups of farmers, it uses demonstrationcenters and field visits to promote the use of yield-increasing technologiesin Azuay and Canar, and cooperates in self-help schemes for road constructionand other capital improvements. Its second task is to develop infrastructureand assist settlers in Morona Santiago province.
480. Settlement schemes are based on careful selection of applicants. Settlers must .agreeto reside in the area 10 months per year, and have home- steading work well underway before bringing in the family (settlers receive a daily wage to meet subsistencecosts during the early homesteadingperiod). The trunk road system is being given increasingattention. The Cuenca-Macas all-weather road (which needs improvement)is now being extended to Puyo by MOP, and CREA (with MOP funds) is-building a road from Mendez to Gualaquiza. A Mendez-Morona road is under study, along with a road to link Taisha with the Macas-Puyo leg. The latter would enable exploitationof the substantial forest-pastureresource of the Taisha region.
(iii) Education and Research
481. Two ongoing studies are of considerableimportance for the longer term. One is intended to help with the design and implementationof rural developmentpolicy. The other deals with the outlook for trained personnel.
482. Regionalization. Assisted by France, a highly detailed nationwide inventory of the agriculturalresource base and potential, socio-economic conditions,and infrastructurehas been underway for several years and is about ready for publication.1/ The data, recorded and interpreted on a sub-cantonbasis, will enable a refined delineation of agricultural/rural development regions and zones in terms of potentials and needs; the programs of the action agencies can be designed and coordinated.
1/ Published-inJanuary of 1978 by MAG and ORSTOM (Office de la Recherche ScientifiqueEt Technique Outre-Mer), RegionalizationBulletin No. 2 provides a detailed list of materials awaiting release. - 156 -
483. Training. Being undertaken by JUNAPLA, the investigationof the supply-demandoutlook for agriculturalpersonnel is timely because more and more institutionsare offering courses related to agricultureand there is no assurance that quality standards are being maintained. Eight of the 12 public and five private universitiesand professionallevel polytechnicalschools in Ecuador offer agriculture-relatedcourses. The two main facilitiesare the state universitiesin Quito and Guayaquii, which offer specializationsin crops, plant sanitation,agricultural mechanization, irrigation and drainage, soils, veterinary medicine, and animal production. Forestry is offered at the Esmeraldas Technical University, and at the Chimborazo Polytechnical School. A specializationin basic sciences is available to the Catholic University in Guayaquil;in probability analysis, at the Catholic Univertity in Quito; and in agriculturalengineering at the Technical Universities in Manabi, Loja and Esmeraldas. Eight of the university-levelschools offer specializationin economics. A fisheries course is available at the PolytechnicalSchool in Guayaquil. All of these schools are autonomous. Fees are minimal in the state institutions,and admission is not subject to entrance examinations.
484. Enrollments in the agronomy, veterinary, and fisheries courses approximated7,400 in 1977. The Central University of Quito graduated 52 agronomists and 30 veterinarians in 1977. Plans are being made to extend the course by one year to a six-year basis, and to move the agricultural faculty to a 100-ha facility near--Tumbaco;this is now used for experimental work and field training. The ongoing experimental farm of 106 ha at Calcedo (Cotapaxi) is.to be continued in that use. Preliminarywork has also been done on the design of a post-graduatecourse in technical agriculturalfields, and for a 2-year practical course for secondary school graduates in agriculture.
485. About 1,400 are enrolled in agriculturalcourses in secondary schools offering that specializationin the final three years of a six-year program. These schools include both private and public institutions;the latter are administeredby the Provincial Governments. The agricultural schools in Ambato, Latacunga, Chone, Daule, and Cuenca are among the most prominent in terms of staffing, facilities and product quality.
486. Informal training programs are underway on a significant scale. SECAP (El Servicio Ecuatoriano de CapacitacionProfesional) is increasing its work in agriculturaltraining. About 23 percent of the 1,060 short courses given in 1976 were for small farm operators and workers in agricul- ture. In 1977, some 350 agriculturalcourses were given; the courses were full-time over a one-or two-month period, with enrollmentaveraging 18 (mainly primary school leavers). The courses are of a practical nature, and center on the basics of crop and animal husbandry, the operation and maintenance of machinery, and farm management. The Ministries of Agriculture,Education, Labor and Defense cooperate with SECAP in this training program.
(iv) Conclusion
487. Despite a rapid expansion in recent years, agricultural/rural development efforts are still very modest. It is difficult to estimate the output of the effort, in either absolute terms or in relation to cost. - 157 -
Neither baseline or impact data are available and, in any case, program -effectsare difficult to extricate from other sources of change. Moreover, most types of agriculturalprograms are unlikely to have much impact in less than five years and, in many cases, eight or ten.
488. As a general judgment, it appears that the recent direction of change in the organizationand administrationof the public services to agriculture is of the right sort if appropriate follow-up steps can be taken, particularlyconcerning inter-agencycoordination at both the planning and implementationlevels. Nonetheless,it can be forcefully argued that a major weakness in the present approach to agricultural/ruraldevelopment is in trying to attack on all fronts intensivelyand simultaneously;and that weak- ness is unlikely to disappear as long as major provinces keep a large degree of political autonomy.
4. Economic Incentives,Disincentives and Constraints
489. Although efforts are being made to establish an economic environment which will provide incentives for production expansion, a great deal remains to be done, both in terms of measures which penalize resource under-use and those which offer positive stimuli for investment and the adoption of modern production practices.
(i) AgriculturalTaxation
490. No data are available on the yield of the agricultural income tax. However, few farmers pay taxes on income from agriculture,and most, none. The governing legislation is dated 1962. Farmers who do not keep accounts are liable for taxes on income estimated on the basis of the DINAC-established value of the land and improvements(see below). From this presumptive income, the amount of outstanding loans on the farm unit is deducted, and the balance draws a tax which varies from 3 percent to.6 percent.
491. Sales taxes on product transactionsat the farm level are not levied and there are no import taxes on inputs for agriculture. Furthermore,the rates on the inheritance tax are minimal. Decree No. 869 of 1966 governs real estate taxation. The implementationagency for rural properties is DINAC (Direccion Nacional de Avaluos y Catastros) 1/ of the Ministry of Finance, which is responsible for the appraisal and billing. The municipios for which the tax is a main source of revenue, manage the collections. DINAC's property appraisals are determined by means of an integratedmulti-purpose rural cadastre. This involves a detailed compilation of data on climate, ecology, soils (current and potential use), production costs for the main farm enter- prises, infrastructure(including social capital and irrigation-drainage facilities),and historic and current land transaction prices. Detailed property maps and records are prepared. The exercise is intended to provide
1/ Formerly ONAC, which began to operate in 1966, and through mid-1970 had completed a cadastre on about 12,000 farms with a total acreage of about 775,000 ha at a cost of about 12 sucres per ha. Ths work included the five cantons of Cotapaxi, and resulted in a rural real estate levy for 1970 at S/6.7 million as compared to a pre-cadastrelevy of SI 3.1 million in 1967. - 158 -
not only the basis for equitable taxation, but also the informationneeded for developmentplanning. The multiple-purposecadastre, first undertaken in 1976, requires a considerableinput of professionalstaff time, and to date DINAC has been able to complete only six of the nation's 116 cantons (municipios),plus four zones for which development projects are being pre- pared. In addition to financial resources, a major problem is the lack of large scale aerial photography. Personal declarationsof property values (some 50,000 properties),along with the property records (generallyhoary) of the cantonal offices and the above-mentioned1966-75 work of the DINAC predecessor agency, complement the availablemultiple-purpose cadastral data in providing the base for rural real estate taxation. Based on these data sources, DINAC now issues tax notices (cartas de pago) for 80 of the 116 cantons. Properties in the remaining 36 cantons are taxed, but typically at nominal amounts based on very old property values and incomplete registration. (Even in the 80 cantons in which DINAC functions, property registrationis highly defective. In one of the six cantons for which a multiple-purpose cadastre has been done, the existing records showed 400 rural properties, equivalent to about 13 percent of the 3,000 properties recorded and mapped by DINAC.) The tax rate is progressive;it begins at 6 per mil of the assessed value of the land (property improvementsare excluded from the tax base). DINAC receives 10 percent of the revenue generated by the rural real estate tax. This is supplementedby funds from the Ministry of Finance.
(ii) Prices and Subsidies
492. The Government influences the prices of farm products at farm, wholesale, and retail levels through its control of imports and exports, through buying and selling in the market, through price decrees backed by the police powers of the state, and by means of subsidies.
493. Prices. The governing decree of August 1977 on pricing groups products into three classes (basic, strategic and other) and authorizes a specific type of interventionfor each class: a maximum consumer price may be established for basic products; a minimum producer price may be set for strategic products; and, for all other products,marketing margins may be set. Product classificationis based on recommendationsof the directly concerned ministries. When approved, each ministry may then proceed to design price interventionmeasures of the sort prescribed for each class of product. If the proposed measures are approved by higher authority, the concerned ministry issues a resolution and undertakes implementation.
494. The pricing work in the MAG is a responsibilityof the Vice-Minister, assisted by the Director of Planning and the Director of Marketing (Comerciali- zacion). Three types of activities may be distinguished. First, the MAG main- tains five regional offices which have the task of monitoring prices, and (jointly with the Ministry of Government, which may invoke its police powers, and with consumer associations)including compliance with official price decrees. Second, based mainly on cost-of-productionstudies, the MAG sets minimum producer prices for selected farm products, implemented through a purchase - 159 - program. Third, the MAG is responsiblefor the management of ENAC and ENPROVIT, the public agencies which purchase and sell in the market. 1/
495. Price Policies. It is in this area that the sector has probably most suffered from the government'swell-intentioned although occasionally erratic paternalism. The approach to price policy for the sector has tradition- ally been consumer-oriented. There is virtually no careful analysis available on the extent to which it has had economicallysignificant negative or positive impacts on consumers and producers. Foodstuffs basic to the urban middle class have been subject to price controls, although some movement to a more balanced position has appeared in the past year or so. Prices are fixed for such key food items as meat, milk, sugar, rice and wheat flour, in most cases at both producer and consumer levels. More numerous are the products (largely perishable) covered by indicative prices which are intended to serve as guidelines, as they are not policed as closely as fixed prices. The indicative list includes fruits, vegetables, pulses, potatoes and eggs.
496. As examples of the compoundingof errors that has arisen from the government'sprice policies, the recent experienceswith wheat, milk and rice could be quoted. As regards wheat, just before the 1975 planting season the government announced that the price of wheat would be supported at 250 sucres per quintal (100 pounds). 2/ _Shortlyafter the farmers planted their wheat, the government announced a cash support price change from 250 sucres per quintal -to200 sucres per quintal, 3/ the remaining 50 sucres being paid to the farmer in the form of a certificate good for 30 sucres in fertilizer and 20 sucres in improved seed. After harvest, the farmer could take the certi- ficates received on the sale and exchange them at the distributingagency for fertilizer and improved seed. But at the time of harvest when farmers are generally pressed for repayment of loans obtained for financing their crop production,many small producers sold their 50-sucre in kind certificates to intermediariesat a discount. The seed and fertilizer for which the certificatescould otherwise have been exchanged would not be required until the next planting.
1/ ENAC (Empresa Nacional de Almacenamientoy Comercializacionde Productores Agropecuarios)and ENPROVIT (Empresa Nacional de Productos Vitales) are discussed in detail in another part of the mission report. Although ENAC took over ongoing programs from other agencies, the ENPROVIT was set up in 1971, each agency is still in the development stage, and has yet to acquire the needed infrastructure. The ENPROVIT budget for 1978 calls for a subsidy of some S/ 40 million to help meet administrativecosts; the comparable figure for ENAC is S/ 62 million. The operating loss of ENAC is estimated conservativelyat S/ 88 million in 1974-76. Similarly, ENPROVIT losses were substantial.
2/ US$220/metric ton.
3/ US$176/metric ton. The world price dropped in 1975 from the high level of 1974 (IBRD Report 814/76, p. 35). - 160 -
497. While the raison d'etre of setting an official producer price of wheat is that it would serve as an incentive to production, total output -is short of demand and increasingamounts have had to be imported in recent years to fill the gap. In order to keep flour prices from rising above the level fixed by the government and at the same time prevent increases in the consumer cost of bread, a subsidy is paid on imported wheat received by millers. For example, in July 1973, the government indicates that it would pay millers a subsidy on the cost of imported wheat above 3,224 sucres (US$129) per metric ton c.i.f. Guayaquil. This was done to maintain a national wholesale flour price of 253 sucres per quintal (US$10.12per hundredweight)at the mill. While the milling industry has (quite naturally) been generally satisfied with the wheat import subsidy program (as it promotes the use of subsidized imported rather domestic wheat), the cost to the governmenthas been significantas world wheat prices rose substantiallyafter the subsidy was instituted. 1/ (In 1975 alone, the wheat import subsidy cost the equivalentof about US$8.7 million.)
498. As a first step, the Government should review its policy objectives with respect to this crop and tailor its actions accordingly. National self- sufficiencywould be an overly costly and inappropriategoal; adequate areas for efficient wheat production on such a scale may not be present.
499. In the case of milk, the government fixes prices on all sales in the chain from the producer to-the consumer. As an incentive to the production of fluid milk and to prevent increases in consumer prices, the government was paying to dairy farmers a subsidy on their deliveries of fluid milk to plants. Producers who sold it in other ways did not receive the subsidy (although they may have received more than the official price). For fluid milk delivered to proce-ssingplants (about 20 percent of total fluid milk consumption),producers received a subsidy payment of 54 centavos per liter in the form of vouchers for purchasing fertilizer and balanced feed for their cattle. Since fluid milk prices are controlled more rigidly than are prices of butter and other dairy products, producers and plant operators tended to divert increased quantities of their milk from fluid milk into more profitable dairy products such as butter and cheese. The effect of this diversion has been to reduce the supply of processed fluid milk, and resulted in the substantialimport of powdered milk. In order to overcome this distortion in fluid milk utilization and at the same time improve returns to dairy farmers as a production incentive, the subsidy was ended in September, 1976 when a 50 percent increase in fluid milk cash prices at producer and retail levels was decreed.
500. As an incentive to expand rice production, the government increased producer support prices to a level which compared favorably with international
1/ An analogous situation exists for the processingof domestically produced soybeans.' - 161 -
prices. 1/ With a considerableamount of credit made available under the national rice program, both small and large producers brought about progressive increases in output in 1974 and especially1975. A large crop was also effective in 1976. These large crops have encountered serious marketing difficultieswhich had not been anticipatednor were the necessary logistics for dealing with such problems developed,e.g., there was a great shortage of storage space. Concurrently,there has been a decline in international rice prices as compared with Ecuador's high fixed price levels for domestic production. Many farmers found themselvesunable to repay BNF loans because intermediariesbuying rice were not paying the official prices.
501. Subsidies. A considerablenumber of subsidies are now current in the food and agriculturalsector. Defined in terms of commodity transactions which involve financial losses to the government,subsidies were estimated at S/ 3,200 million for the 1973-76 period. However, slightly over 50 percent of this sum is not a result of a defined subsidy policy. Instead, it reflects a misreading of the internationalfertilizer market and a resort to subsidies to move into use the large stocks of fertilizer accumulated on public account in 1974, along with emergency purchase measures taken to support rice, maize, and other crops (mainly in 1975).
502. The only product for which .farmersnow receive a direct subsidy is wheat. Initiated in 1976, the subsidy takes the form of a certificateusable at face value in purchasing inputs. It was initiated in part as a way to help move excess fertilizer stocks into use (as noted above), and represents a financial loss which does not derive from agriculturalpolicy per se. The cost of the subsidy has been estimated at about S/ 40 million for 1976. (A similar scheme for milk producers has been discontinued;its cost for the year 1976 approximatedS/ 56 million).
503. Financial losses on exports of farm products,mainly maize and rice, totalled some S/ 405 million in 1973-76. This reflects the disposal of excess stocks accumulatedas a result of the emergency measures noted above.
504. Losses on imports of food commoditiesaccount for the remainder of the subsidy for food and agriculture. The most important item is wheat, with financial losses estimated at about S/ 950 million in the 1973-76 period. Other items are rice, vegetable oils and powdered milk, for which losses totalled about S/ 137 million in the 4-year period. The primary objective of the import subsidy has been to stabilize consumer food prices.
1/ US$317 per m.t. (milled). We must recognize the widely fluctuating nature of this crop's internationalprice. According to IBRD Report 814/76 (p. 35) the,1970/72 internationalprice was US$140, rising to US$542 in 1974 and then dropping to US$363 in 1975 and US$260 in the first half of 1976. - 162 -
(iii) Marketing
505. The view that the agriculturalmarketing task is done poorly and at -veryhigh cost is almost universally held in Ecuador. The marketing subsector is often described as being disorganizedand anarchic, with the result that pro- ducer prices are unduly depressed and consumer prices are needlessly high. Indeed, this judgment underlies the creation of ENAC, ENPROVIT, the HAG Directorate of Marketing, the Superintendencyof Prices 1/, and the launching in 1973 of the Programa Nacional de Mercadeo Agropecuario. The strategy of the program centers on expanding the marketing activities undertaken by the public sector, thereby contributingdirectly to technical and economic improve- ments in the national system as well as indirectly by activating competitive forces.
506. As noted above, MAG provides outlets for farmers for the basic grains, and, from time to time, for certain other products such as cotton. However, ENAC has been short of storage space and rural buying stations, and on occasion has faced surplus situations which led to severe losses, as with rice. More- over, it enters the market only when prices are above the support minimums (which are scheduled to be announced before planting time). On the retail side, ENPROVIT, for which the enabling legislationwas revised in July of 1977, has the task of "regulating the internal market by means of direct participation in the distributionof essential consumer items with the aim of benefitting the lower income groups."
507. So far-as is known to the mission, no comprehensivestudies of the impact and cost-benefitaspects of these public purchase and distributionpro- grams have been made. However, attention has been called to the lack of an overall plan, inadequate coordinationamong the responsible agencies, and the shortage of infrastructureand qualifiedmanagement personnel.
508. In the case of livestock marketing, a limited number of traders exer- cise considerablecontrol over the marketing of live animals, the operation of abattoirs, and the distributionof carcass.meat to retail outlets and processors. This group has resisted measures to modernize the livestock marketing system through improved slaughteringfacilities, introduction of beef grading, the establishmentof local auction yards and other means. Apart from three modern abattoirs, two of which are expanding their activities,most livestock are still processed in municipally-ownedand country slaughterhouses. The upward price trend for cattle (some 50 percent in the 1972-76 period), along with price interventionby the government only for low quality cuts at retail, has probably lessened farmer interest in marketing reforms. The marketing problem has also been somewhat overshadowedat times by the extent to which the government tolerates the inflow of live cattle from Colombia and the outmovement to Peru.
1/ This office was discountinued in 1977, with its functions being taken up by several ministries, including the Ministry of Agriculture. - 163 -
509. Input distributionis handled mainly by the private sector, although --untilrecently the BNF operated a network of distributioncenters for inputs and tractors. The MAG has ten major distributioncenters (as of mid-1977), and CREA has 16. FERTISA sells a part of its output directly to users. EMSEMILLA is in process of installing a network of seed distributionfacilities. Farmer associations,such as the Asociacion de Ganaderos de La Sierra, maintain input sales depots (the sales of the six depots of the Asociacion totalled S/ 22 million in 1977).
510. Several recent developmentsin the marketing field are of potential importance. First, ENAC is taking steps to ease one of its primary constraints, the shortage of storage space. Its constructionprogram is scheduled to start soon, and is expected to include 61,000 tons of capacity in grain production zones in the coastal region; a 20,000 ton port facility at Guayaquil; and, in a second phase, 30,000 tons to 60,000 tons in the Sierra. This construction will sharply expand the ENAC facilities,which now total about 64,000 tons (of which almost half is for non-bulk storage), and adds a significantincrement to the total national facility.
511. Second, the private sector is showing increasing interest in installing modern grain handling facilities. A new 31,000 ton silo installationwas opened in Duran in May 1978. This plant receives, dries, cleans, grades and stores grain on the basis of negotiable certificatesof deposit and published service charges. The system representsboth a technical and economic innovation in grain marketing, and through putting pressure on margins can help induce improvementsin the facilitiesand business methods of the entire grain-handling industry, including the ubiquitous rice millers. Moreover, it can lead to the development of commodity markets.-
512. Third, the Government is preparing terms of reference for a compre- hensive foreign-assistedstudy of the marketing of agriculturalproducts and inputs. It was expected that the study would begin in 1979, and will result in a set of specific proposals for the development and management of marketing facilities by the private and public sectors.
(iv) Credit
513. The amount of credit made available to the sector by the banking sys- tem expanded sharply in recent years, both in absolute terms and relative to non-agriculturallending. Loans to all sectors totalled S/ 35,736 million in 1976, up 157 percent on the 1972 figures of S/ 13,896 million. In.1972, agriculturalloans accounted for slightly over 12 percent of total loans by the banking system. The comparable figure for 1976 was 16 percent.
514. BNF. The BNF (Banco Nacional de Fomento) which through its 56 branches typically provides some 60 percent to 70 percent of the institutional credit for agriculture,increased its lending in current terms from SI 587 million in 1973 to S/ 3,412 million in 1976. Crops accounted for 60 percent of the total BNF lending in 1975; livestock and pastures, 28 percent; farm machinery, 5 percent; on-farm infrastructureand related activities, 3 percent; and other, including finance for product marketing, 4 percent. About 75 percent of the credit made available to agriculture in 1976 was for the Coast, - 164 -
as in most previous years. The proportion of the total loan volume going to -the lower-income groups (that is, credito de capacitacion) increased from about 12 percent in 1970 to 35 percent in 1974 and 37 percent in 1975.
515. The percentage distribution of BNF loans in 1976 by major activity, size, and term was as follows:
On-farm Machinery & Infra- Total Crops Livestock Implements structure Agriculture
Size of loan
Less than S/ 50,000 22 20 6 9 20 More than S/ 200,000 54 42 82 80 53
Term Less than 1 year 78 8 5 2 52 More than 5 years 6 24 27 68 14
516. The amount of funds made available for crops in 1976 was about nine times larger than the amount in 1970. The increases were particularly notable for rice and wheat, which, together with cotton, account for a large portion of the credit.for crops (69 percent in 1976). Neither the import substituting oil crops, nor the main export crops are major outlets for credit; in 1976, the percentage of total crops credit going to oilseeds, cacao, coffee, banana, and sugarcane was about 15 percent. The distribution of BNF crop loans by commodity group in 1976 was as follows: cereals, 57 percent; edible pulses, 1.4 percent; tubers, 5 percent; vegetables, 2.6 percent; fruit, 3 percent; oilseeds, 6 percent; fiber crops, 15 percent; others, 9.5 percent.
517. Loans for the livestock industry increased by a factor of about five in the 1970-76 period. Pasture development accounted for 13 percent of the livestock loan volume in 1976, poultry 9 percent (up from 5 percent in 1970). For fixed investment, such as land and water development, farmers use BNF credit only to a very limited extent.
518. In money terms, about 15 percent of the BNF lending in 1976 represented renewals of outstanding loans. The comparable figure for 1975 was 17 percent. The delinquency position improved notably in the 1972-76 period and, after renewal adjustments, stood at about 12 percent at end of 1976. Recent droughts and anti-inflation measures have reversed the trend, and the arrears figure approximated 18.5 percent as of February 1978.
519. In spite of the recent rapid rate of growth in BNF operations, and its continuing effort to improve management, the proportion of farmers served by the banking system ig well below 10 percent and concentrated on two or three crops. - 165 -
520. Banco de Cooperativasdel Ecuador (BCE). Set up in 1964, the --CooperativeBank has made only limited progress. l/ The Bank serves some 318 member cooperatives(of which 78 are agricultural,with an average member- ship of 25), and also lends to individualswho carry deposit accounts. A recent study of 113 of the member cooperativespoints up their severe capitalizationand management problems, along with the need for measures to improve and coordinatethe development efforts being carried out by government agencies. 2/
521. Financial Funds. The Central Bank's rediscount facility is available to the BNF and the commercial banks; this operates through a set of Fondos Financieros designed to channel both domestic and foreign resources into development activities, particularly agriculture.
522. Commercial banks are required to hold 20 percent of their loan portfolios in agricultural paper (for foreign banks, the figure is 25 percent). Shortfallsin this account may be covered by holding low-yieldinggovernment bonds.
523. Interest-rate. A part from earmarked foreign credits, the maximum interest rate for agriculture is 9 percent, plus a commission intended to promote longer-termlending. 'Thecommission-rate is 2 percent to 2.5 percent for loans of more than three and less than five years; 3 percent to 3.5 percent-for loans of more -thanfive and less than eight years; and 4.5 percent for loans of more than eight years. This commission system, which was announced in late 1976, leaves interest rates for longer-term lending in agricultureup to figures still below the rates for non-agriculturalloans. 3/
(v) Rural Roads
524. The available data suggest that only linited progress is being made in providing farmers with the roads needed-for the-movementof products and inputs at reasonablecost. Taking the all-weather road as a proxy for the feeder road which reaches the farmgate, and assuming adequate maintenance, the system available to farmers-expandedat an annual rate of some 142 km in the 1962-70 period.
525. In March of 1973, the MOP set up a Department for'Rural Roads (caminos vecinales) and through June of 1976 (when the Department was eliminated),a rural road constructionprogram was carried out with FONADE funds. This program was based on the Plan Nacional de Carretera,which was completed in 1973 following detailed study in which foreign consultant services were used.
1/ At end 1977, deposits totalled S/ 107.5 million; capital and reserves, S/ 50.2 million; loan portfolio, S/ 184 million.
2/ BCE, Breve Estudio de las CooperativasSocias, 1978.
3/ It is public policy to maintain some inter-sectordifferentials which favor agriculture. - 166 -
Since mid-1976 the MOP rural roads work has centered on completing the pro- jects which were underway or in an advanced planning stage at that time. Much of the work is done through contracts with provincialgovernments, with the latter providing the machinery and the MOP paying machinery operating costs and doing the design work. MOP also contracts with CREA.
526. Estimates of the proportion of total MOP funds assigned to rural roads in recent years range up to one-third. It seems likely that a pro- portion of this magnitude includes expenditures for the entire secondary system, rather than rural roads alone. 1/ The MOP expects to spend only some S/ 180 million on rural roads construction in 1978. 2/ This is in sharp contrast to the recommendationsof the MOP study which called for an outlay for rural roads of some SI 2,500 million in 1977. The study suggested the constructionof 1,280 km of rural roads and 4,350 m of bridges, along with the design for 1,860 km of roads and for 2,815 m of bridges. A continuing program of this general magnitude was proposed.
(vi) Conclusions
527. There would appear to be a number of measures which could be taken to adjust the economic environment of agriculture in the national interest. Not least is the rationalizationof the real estate tax. As used so far, subsidies are primarily consumer-oriented,and to a considerableextent of an ad-hoc nature. Steps underway to expand storage facilitieswill enable a more effective price stabilizationeffort; this will help improve the marketing sector, but a great deal more information is needed before a comprehensive attack on marketing problems can be mounted.
5. Policy Assessment and Recommendations
528. The preceding pages have outlined some of the more important features of the rural economy and the measures which are being taken to promote production expansion and improve the living levels of the rural poor. This review makes it clear that the increasingeffort of recent years to develop the agricultural/ruralsector has given rise to a variety of problems. In general, there appear to be four broad problem categorieswhich need attention: the public agricultural sector performance,mainly in terms of inter-agencyplanning and operation relationships;activation of commercial agriculture;the project selection and implementationprocess; and the rural low-income subsector. These are discussed below, along with some general observationson the forestry and fisheries subsectors.
1/ During the late 1960s public outlays on roads averaged about S/ 450 million per year. Of this amount, some 18 percent represented expendituresby the provincial and local governments for secondary roads, with the remainder being spent by the Ministry of Public Works (MOP) mainly for the primary road system.
2/ The expenditure forecast defines a rural road as an engineered all-weather 6-meter road, with bridges. Average cost is on the order of S/ 1 million to S/ 1.3 million per km. - 167 -
(i) The Public Sector Organizationand Policy Investments
Organizationand Responsibility
529. Steps to date have brought the major agriculturaldevelopment agencies under the aegis of the Ministry of Agriculture,thereby facilitating planning and budgeting for the sector. 1/ This was the necessary first step in improving public sector performance. The task ahead is to continue to refine the planning and budgeting process, while simultaneouslymoving ahead with measures which will improve program implementation,both in terms of program design and inter-agencycoordination. 2/ It is suggested that con- sideration be given to greatly expanding the responsibilityand authority for program design and implementationwhich is delegated to the managers of the various MAG agencies and Program offices. This delegation of powers and responsibilitiesshould be backed up by organizationaladjustments which would promote effective inter-agencycoordination at field level.
530. Although there is no easy answer to this problem, a possible step toward its solution might be to install regional development agencies for the entire country (only a few areas are not now so covered), and assign to each such agency the needed powers of coordinationfor all rural development activities within its region. The MAG zonal offices would become a part of the regional developmentagencies. The central offices of the participating agencies would provide specializedtechnical assistance for operations (much of their central staff would be reassigned to the field), and help their field offices develop annual and long-term plans for the use of the regional agency and the Ministry of Agriculture in their planning and budgeting exercises. The heads of the regional development agencies could be selected from expe- rienced technical staff (preferably familiar with administration),and carry Vice-Ministerstatus (both because of the inherent difficultiesof the task and to indicate the importance which the government attaches to the agricultural/ rural developmenteffort).
531. The regional annual and longer-termplans submitted to the Ministry by the regional developmentagencies would incorporate the activitiesof the participatingagencies (such as INERHI and BNF) on the basis of projects and programs. The Ministry itself would not be concerned with detailed activity design (which now consumes a great part of its resources, seemingly with a minimal result), 3/ but rather with the broader aspects of scarce financial and human resource allocation as seen from the point of view of impact on output and the low-income problem. Additionally the Ministry headquarters would install and operate a system for monitoring and evaluating each of the approved activities in the regions. So far, only limited attention has been paid to the monitoring task. A Senior Vice-Minister for Operations might be
1/ See Technical Annex IV, the structure of the public sector in Agriculture.
2/ The word "program" is used to mean "activity", and includes projects.
3/ See, for example, MAG, Politicas Para el Sector Agropecuario,1978. - 168 -
appointed in MAG to manage monitoring and serve as a troubleshooterfor each of the regional developmentoffices. A similar post might be created for -planning,programming and project appraisal. Considerationmight be given to bringing in an Organizationand Methods Team to assist the Vice-Ministersin designing a new management system*
532. The gains to be expected from this form of procedure would include improvements: (a) in inter-agencycoordination of operations (because coor- dination would be built in at the planning stage); (b) in regional planning, because the planners would be able to readily draw on the field staff of the participatingagencies (such as INERHI), as well as the knowledgeablelocal private sector; (c) in Ministry planning, because its decisions would be based on carefully designed and integrated regional proposals; (d) in the use of scarce talent, because much of the central staffs would be relocated to on-site operating positions; and (e) in operating efficiency,because the regional Vice-Ministerswould be implementingfully approved and budgeted activities, and most problems could be solved at the regional level.
533. In principle, the regions should be designed to include parts of the Coast, Sierra and Oriente in each, as development complementaritiesare likely to involve zones of differing natural and human resource endowments. Sub-regions,basically ecological,may turn out to be a useful device for programming;these can be readily determined on the basis of the regionalizationstudy mentioned above.
534. It is stressed that this proposal does not involve major organi- zational change in the public agricultural sector; basically, it is a change in procedures. It recognizes that change in a structural sense is costly. The sector has undergone a considerablenumber of structure-relateddisloca- tions in recent years, and these should be held to a minimum in the future.
535. The Information Base. By centering both planning and operational decisions at levels closer to the site of activities, the above proposal would help solve another key problem of the MAG, i.e., the inadequacy of the informationat hand on which to base decisions. Nonetheless,two additional steps are needed to help strengthen the informationflow to the MAG head- quarters. One is to arrange to draw on the first-hand knowledge of the rural scene which is available in the private sector. The second is to develop the primary data collection and analysis system.
536. Although regulations governing the MAG make specific provision for participationof the private sector in discussions concerning public decisions affecting agriculture,such participationseems to have occurred only to a very limited extent. The apparent breakdown in the dialogue between some parts of the farming community and the public policymakershas tended to cut off the latter from valuable sources of information and judgement, and has predisposed the private sector to harshly criticize agriculturalpolicy and question the public sector capacity. In fact, there hase been little support for either official policy and its implementation,or for the associated bureaucracy. Most of the commercial agriculturalsector and perhaps parts of the public agricultural sector appear to have been alienated in some degree. - 169 -
537. It would be useful to recognize the mutual inter-dependenceof the private and public sectors in agriculture,to tap farmers and farm organizations as a source of information,and take steps to assure a mutually constructive exchange of views on a regular schedule basis.
538. Modernizing the statisticalsystem is the second step which should be taken to improve the informationbase. Analysts, policymakers,and program designersmust now work with agriculturaldata which are widely believed to be guesstimatesof the crudest type, and even these are of limited coverage. Under these circumstances,little more than the high visible trends in the sector can be recognized,and policy prescriptionand activity design are necessarily built on a weak emprirical base.
539. The problem is widely recognized. For example, in its preliminary evaluation of the 1973-1977national development plan, the JUNAPLA stressed the need for more and better informationand statisticaldata. In the same vein, the shortcomingsin the agriculturalstatistical d.ata were brought to the attention of the Government in a World Bank report of 1972.
540. Efforts to improve the data system have been underway for a long time, and include a number of FAQ-supportedactivities and the work of various ad hoc inter-agencygovernmental committees. A landmark in the chain of events was. the successful completionof the 1974 Agricultural Census, the final volumes of which-are about to be published. A second important step was the 1976 legislationwhich made INEC (Instituto Nacional de Estadisticasy Censos) res- ponsible for the nation's statistical system. Pending completion of its work (and that of its predecessoroffice) on the Agricultural Census, INEC found itself unable to undertake work on an agriculturaldata system, 1/ and the collection of current data has continued to be the task of MAG, working through its various dependencies,including the Commodity Programs. As a preparatory measure, however, INEC set up an agriculturalstatistics committee (which includes representativesof MAG, Central Bank, BNF, and JUNAPLA) charged with establishinga National AgriculturalStatistics System (SEAN). As of early 1978, the committee was making final plans to get SEAN underway by mid-year. UNDP assistance is being planned, and the Central Bank will participate.
541. This sample survey exercise, institutionalizedon a regular twice- a-year basis, along with the associatedanalysis and prompt publication,merits a top priority in the agricultural/ruraldevelopment effort.
542. Monitoringand Evaluation. In view of the magnitude of the on-going and planned agricultural/ruraldevelopment effort and the multi-sectorialnature of many of its projects and programs, it may be useful to consider installing a formal monitoring and evaluation system for each of the major activities
1/ With the exception.ofparticipation in the Programa de Encuestas de Conyuntura,an opinion survey which use the BNF loan supervisors to assemble qualitativeinformation from farmers concerning production trends and the investmentoutlook for basic crops and livestock. The eighth crop survey and the second livestock survey were published in March of 1978. - 170 - which comprise that effort. If so, it would probably be desirable to bring assistance from abroad for this purpose, and thereby capitalize on the con- siderable experience which has been accumulated in recent years in this -field.
543. The work, which should be carried out by a specializedunit of the Ministry of Agriculture,would be designed to provide the Minister with up-to-date informationon the rate of progress in project and program implementation;on impending delays in time to enable corrective measures to be taken (i.e., an early warning network); on alternativeways of avoiding similar types of delays in the future; and on the completion of the project or program, an evaluation of the result in relation to cost. This evaluation becomes a datum for use in future planning, and for project selection and design.
544. A two-phase project might be considered. The first phase would review current MAC monitoring practices and identify major shortcomings; examine major classes of projects to identify for each class its key administrativeelements (such as procurement)and the critical states (or points in the implementationprocess) to which the information system should be tied; specify the needed information,including financial; prepare a plan of action for the second phase, including the outline of the proposed monitor- ing system, its staffing requirements,organization, procedures, and costs, along with a staff training program.
545. If acceptable, the proposed action plan would be carried out in a second phase. The system would be installed, tested, and revised (as necessary), the core staff would be trained, a computerizationdesign would be developed, a Project Monitoring and Evaluation Manual would be written, and training materials would be prepared.
546. The foreign exchange cost of this project would range between $400,000 and $500,000 on the reasonable assumption that from 5 to 8 man- months of specialist time would be required for the first phase; and three specialists,each for two years, for the second phase. This is an insignifi- cant sum in relation to the level of public expendituresfor agricultural/ rural developmentwhich is targeted for the immediate future. The direct return to the Ministry of an outlay of some $500,000 to improve the project monitoring and evaluation system is likely to be high even leaving aside its indirect contributionthrough information feedback into the planning process.
CommercialAgriculture
547. The bulk of the nation's farm resources, including technical knowledge and management capacity, is now in the commercially-orientedsector of the rural economy. It is to this sector that Ecuador must look for output expansion over the intermediateterm. To activate this sector requires an economic environmentwhich will promote investment and the use of modern technology. With this in mind, a good number of measures have been introduced in recent years, such as duty-free importationof inputs and increases in credit resources. On the other hand, commercial agriculturehas had to adapt to such factors as an outflow of labor, rapidly shifting prices, a generous industrializationpolicy, and land reforms. It is unlikely that this set of circumstanceshas stimulated investment and technical change in agriculture. - 171 -
--548. If expanded production and higher productivityare public objectives for agriculture,the position of the sector relative to industry as outlets for investment is likely to need reconsideration,as is recognized in the debate concerning revisions in the Ley de Fomento Agropecuario. Similarly, the threat of expropriationof productivefarms will have to be eliminated. As another possible stimulus to growth in agriculture,it may be useful"to consider a real estate tax which makes it costly to leave farm resources underused.
549. Real Estate Taxation. The real estate tax burden is now insigni- ficant. This tax is based on cadastral data which, over much of the country, do not even remotely reflect current market values or ownership patterns. Given the importanceof this tax for the efficient use of the land and for redistributivepurposes, it is suggested that these data be updated on an emergency time schedule,and that the updated figures be used for the land tax. A review and updating should be undertaken at frequent intervals,say five years. In the interim years, the valuation for tax purposes should be adjusted automatically,perhaps on the basis of an index of agricultural product and input prices.
550. DINAC is technicallyable to carry out this exercise. It would need additional funds to enlarge and train staff, and to meet the operating costs for photography in areas for which photos of useful scale are not now available. This outlay would be more than offset by the increase in local government revenues over a period of a few years and, in turn, enable expan- sion of municipal developmentexpenditures without recourse to the central government budget. Most importantly,the installationof a reasonable real estate tax levy on farm land would impact on land use and the land market and thereby complementthe already considerablearray of measures now at work to stimulate production expansion and the use of yield-increasingtechnologies.
551. Modernization of the real estate tax system might be linked with the phased eliminationof regressiveand counter-productiveexport taxes on commodities.
552. Extension Services. Contrary to a widespread view, commercial farmers need extension services. There are some who are themselves able to procure technical informationfrom research reports, farm journals, and other sources, and inject this informationinto their production practices and farming systems. But even in these rare cases, the process is by trial and error, and slow. The large gains waiting to be picked up from a wider use of the existing stock of technical information are well illustratedinthe INIAP study of dairy farming, which makes it clear that while most farmers are using one or another improved practice, few are using many and practically all are likely to respond to information if it were readily available and competently delivered.
553. Farmers give very low marks to the existing extension work, and few have much confidence in the judgments and recommendationsmade by the service. Again, this is illustrated in the INIAP dairy study, which notes that, unless intensive training of the current extension staff is provided, the existing service could become a constraint to improvement. - 172 -
554. Although farming systems information is still limited, the extension -problemis not a result of a shortage of proven technical information.1/ To produce this the nation has spent large sums of money during the last two decades, and the process has created a research institutionwhich is inter- nationally recognized. Nor is the problem a,shortage of able and interested staff, although most begin work with minimal practical experience. Nor is it an overall lack of funds, although over-expansionin staff has left too little money available for transporationand extension materials. The key problem is lack of staff training to bridge the gap between centers of informationand individual farmers.
555. The only way to create a productive extension service is through a'lengthy process of personnel development,combined with concentrationon a few commoditiesand farming systems in a few zones, and careful selection of clients whose successes can become a model on which neighbors build. The first step is to select and train young graduates for a specific task, and progressivelyenlarge the service in strict accord with the supply of trained and experienced staff. The second step is to ensure an adequate research- extension linkage. To this end, considerationmight be given to progressively increasing the resources of INIAP for use in extension work. It is noteworthy, -in this context, that INIAP has already begun to work on technology transfer in the field through seven small projects.
556. Quick results should not be expected. But within a decade, the impact on commercial agriculture can be significantenough to merit giving considerationto an extension project which utilizes funds borrowed from abroad. This would facilitate training and the introductionof proven extension methods, and help capitalizeon the large investment already made in generating improved technologies.
557. Credit. Both the government and farmers stress the importance of credit as a means of developing commercial agriculture,and studies have shown a close correlationbetween the amount of credit disbursed by the BNF and the contributionof the agriculturalsector to GDP. However this finding is explained, it would be useful to undertake an in-depth investigationon a random sample basis of a series of substitutionand diversion questionswhich derive from the fungibilityof credit and the fact that it is not a physical resource. For example, to what extent, if any, does a BNF or commercial bank agriculturalloan substitute for an informal loan, and hence what is the additionalityeffect? To what extent does a formal sector loan lead to a lesser use of the borrower's own resources? What is the extent of diversion of BNF agriculturalloans to uses in other sectors? And, very important, what is the impact of BNF activity on modern input use and technical change? Does the level BNF lending influence the amount of non-BNF formal sector funds made available to the sector?
1/ At recent-costsand prices, illustrativereturns to technologicalchange are estimated as follows (in terms of benefit/costratios): traditional to intermediate,for maize 1.4 to 1.9; traditional to modern, rice 1.6, wheat 1.9, and potato 1.4; intermediate to modern, cotton 4.1. - 173 -
558. Although answers to these kinds of questions are difficult to -produce,even limited empirical evidence would provide useful notions on how to strengthen the contributionof the formal credit system to commercial agriculturalgrowth. As of now, the contributionand the institutional performance is judged solely in terms of loan volume trends and repayment rates. Although relevant, these criteria leave unanswered a great many questions concerning the rural financialmarkets.
559. This type of informationwould also be useful in the continuing effort to improve the performanceof the BNF, an agency which draws a good deal of criticism from farmers and others. This criticism has given rise to various kinds of proposals for improving the credit system. Some of these suggest a phased narrowing of the kinds of activities undertaken by BNF, and the creation of new mechanisms to take up the discarded activities. One such proposal is that BNF lend only to farmers, and that large farmers be excluded from its clientele.
560. This might be complementedby setting up a series of specialized fondos financierosmanaged by the Central Bank; under this scheme, internal and foreign funds would be made available to the banking system for a wide range of specific uses, such as reforestation,small-scale rural industry, coffee promotion, on-farm storage facilities,and the development of new crops such as soya.. The end result,of this proposal would be a Development Funds System in which each component would operate under lending terms specifically designed to suit the nature of the activity being supported. The System would be backed up by a Guarantee Fund designed to encourage an expanded partici- pation of commercial banks in agriculturaldevelopment lending. An automatic by-product of the proposed system would be a lessening of the reliance of the agriculturalsector on the BNF and, through a reduction in the range of BNF activities,a less difficultmanagement problem.
561. Market Intervention. The governmentis intervening in the pricing and marketing of farm products Linways which commercial farmers find to be counter-productiveand in need of reconsideration. One question concerns ENAC's commodity list. It is not clear why ENAC should concern itself with sugar and cotton. There are only a few plants involved in sugar production and cotton ginning, and these can be readily monitored if this is believed necessary. And the number of producers of sugarcane and cotton is relatively few as compared to basic grains.
562. Second, it is important that the government effort to improve marketing center on improving the performance of ENAC and EMPROVIT. These agencies buy and sell in the market, which is the only way to achieve price effects which need not endanger productive resource allocation. In contrast, the current widespread price decrees are enforceable only through draconian measures. If not enforced, they have little or no impact. If enforced, they can quickly weaken private marketing channels and, through promoting the developmentof-higher-cost distribution systems, worsen the position of the low-income consumer. It is suggested that considerationbe given to dis- continuing the price decree and the associated use of the police power of the state as components of the development program for food and agriculture. - 174 -
563. For similar reasons, ENAC and ENPROVIT must become financially self-sustaining. If they continue to operate on the basis of subsidies, they -will constrain investmentand management improvementby private firms in the marketing sector. If this were to occur, the net impact of ENAC and EMPROVT on the marketing system would be negative.
564. To avoid this possibility,the interventionagencies need to be freed from the constraintsunder which they now operate. This will require a substantial amount of public funds. Both agencies should be free to buy and sell at prices which reflect their view of market conditionsand prospects. This could mean, for example, that ENAC could buy at prices which are above the support levels if its view of the market outlook indicated that such a course would likely be profitable. Its objective should be to stabilize prices rather than to raise the level of prices (which it cannot do over any signi- ficant period of time). Until physical facilities are available and more experience is acquired, the stabilizationhorizon should be the agricultural year. With emphasis on intra-year price stability, the problem of deciding on interyear stock carryoversand the associated risks will be minimal. Errors in forecastingcrop outturns and demand conditions will result in financial losses in some years, and in unforeseeablegains in others. Over a period of several years, the stabilizationagency should seek to arrive at a no-profit- no-loss position, after having met operational costs and capital charges, and possibly incentive payments to management. Any other result is an indication that the design and management of the program is counter-productivein terms of contributing-to national economic growth.
565. A supply and price stabilizationscheme of this sort obviously requires that the responsibleagency be able to design its purchasing and sales programs in the light of the government'simport-export policy. The latter might be announced in terms of a permissible range of prices, with imports and exports being undertaken only when prices move outside of that range. If foreign trade policy departs from this guideline,any resulting losses incurred by the stabilizationagency should be reimbursablefrom the public treasury.
566. A stabilizationsystem of the sort outlined cannot be installed overnight. However, it represents the desirable direction of change, and can be attained within a few years if the storage constructionprogram is carried out and the emerging effort to improve the collection and analysis of agricul- tural data is successful.
567. This rationalizationof the ENAC activity needs to be accompanied by three additional measures. The first is to increase the amount of credit available to the private sector for use in expanding storage and marketing facilities, including on-farm storage. The second is to expedite completion of the agriculutralproduct and input marketing study for which FONAPRE (Fondo Nacional de Pre-inversion)is about to invite bids. This study will probably identify a considerablenumber of high-yielding outlets for investments in the marketing system, along with practical proposals for management training and the improvementof grades and standards. Third, the subsidy system needs review. - 175 - 568. The present subsidy system is regressive,counter-productive, and wasteful. This is widely recognized, and certain corrective measures may -be in the offing. For example, it is to be expected that steps to reduce ENAC and ENPROVIT losses will be taken, and that input policy will hereafter avoid problems of the sort which have been generated by large public sector fertilizerimports. In the case of wheat import subsidies,which are part of the broad effort to stabilize food prices, it needs to be recognized that the beneficiariesinclude the well-to-do as well as the poor, and that resource use is affected adversely, particularlyin the cereals, roots and tubers subsectors. For these, as well as other subsectors,it would be desirable that domestic prices fully reflect internationalprices. It may be that other ways of assisting low-incomefamilies can be devised, although difficult administrativeproblems are to be expected.
569. Export subsidies,as illustrated by the financial losses incurred in disposing of the 1976 rice crop, are unlikely to become a major issue. The planned expansion of storage capacity will reduce the surplus disposal problem. In years of exceptionallygood weather and high production,it would seem desirable that any subsidy element in a disposal program benefit domestic consumers rather than those abroad.
570. Rural Roads. The Mission was unable to review the current plans for rural roads development. Farmers and local leaders are unanimous in the view that.more and better.access roads would pay heavy dividends through stimulating land use upgrading and technical change, and reducing marketing costs and input prices. Regional developmentagencies, such as CREA and PREDESUR, place a considerableemphasis on access road construction (although handicapped by lack of funds, including maintenance resources). And it is expected that the integratedrural developmentprojects now being designed will include appropriateaccess road components; some will stress labor- intensive constructionmethods. In view of the scale of the rural roads problem and its impact on modernizationand commercializationof the rural sector, it might be useful to reconsider the comprehensivedevelopment proposals set forth in the 1976 MOP study.
(ii) Project Selection and Implementationby Regions
571. Increasing attention has been given to project identificationand preparationwork in recent years, and a considerableamount of foreign assistance has been mobilized to help with the task. A good number of projects are under preparation;some are nearing the design stage; others are at the pre-feasibility level; many, like the Daule-Peripa,and Chone-Carrizal,and the Puyango-Tumbes involve a resource commitment of the magnitude likely to sharply constrain other work in the rural sector for a considerablenumber of years. 1/
572. Project priorities for implementationwill have to be established at an early date. This is a difficult task, in part because the recent rate of expansion in agricultural/ruraldevelopment work may not be sustainableover the next few years unless the financial outlook improves.
1/ Project possibilitieslikely to require funding from abroad are inven- toried and described in outline in another part of the Mission report. - 176 -
573. The basic determinantof project priorities is the national develop- ment strategy. So far as is known to the mission, no clear statement on -strategyis available. However, recent policy implies a strategy which assigns to agriculture an important developmentrole. For example, some aspects of policy are designed to promote a rapid growth in agriculturaloutput, thereby increasing the net contributionof the sector to the foreign exchange supply and to the national investment capacity, as well as supporting industrialization through stable food prices and other ways. It would, therefore, appear that agriculture ranks high on the priority list in relation to other sectors.
574. The picture is less clear on priorities within agriculture. The 1973-77 development plan states that agrarian reform is the centerpiece of the agriculture component of the plan. And, consistent with this reform emphasis, colonizationand integratedrural development projects have been given a good deal of attention in the last year or two. Although any given project can impact on the low-income subsector as well as on output expansion, it is nonetheless necessary to decide on the relative emphasis to be given to each objective before agriculturalproject priorities can be decided.
575. The practical answer, as strongly indicated by the less than salutory history of the agrarian reform effort, is to recognize that human resource and institutionalconstraints provide a clear-cut upper limit to the development effort in rural welfare improvement. Even with a maximum effort, it will require several years to ease these constraints. This fact, jointly with the contributionof agricultural production expansion to overall economic growth, suggests that the production objective should be given a prominent place in project selection in the immediate future.
576. If this view is accepted, the Coastal region becomes the primary candidate for projects. This is because of its natural resource endowment and degree of resource under-use as compared to other regions. For reasons of its climate and soil and water resources, the Coast, not least the Guayas basin and its environs, has an impressive production potential for food and feed crops, pasture, and cash crops. Rice, maize, oilseeds, and sugarcane, now among the crops typically on from time to time in short supply, rank high on the list of crops suitable for the region. And the expansion of soya in the coast, and in its drier areas, grain and pasture-foddersorghum, could make a sizeable contributionto expansion of the poultry, hog, and cattle industries. The potential in cacao is impressive,and coffee can be sharply expanded. And double or continuous cropping is feasible in much of the region.
577. The distributionof human and land resources between the various regions is as follows (data for 1973-74): - 177 -
Costa Sierra Oriente Total
Total Population (thousands) 3,169 3,140 168 6,477
Rural Population .1,712 1,940 145 3,797
Land Resources (,000 ha) 6,692 6,686 12,740 26,118
Arable land Actual 880 653 34 1,567 Potential 1,840 1,043 834 3,717
Grasslands Actual 1,183 1,614 394 3,191 Potential 1,190 1,992 3,777 6,959
Forests Actual 2,770 3,630 12,312 18,712 Potential 3,246 2,052 6,595 11,893
Rural population/arableland density (ha/capita) Actual 0.51 0.34 0.23 0.41 Potential 1.07 0.54 5.75 0.98
578. In short, the production potential of the coastal region has scarcely been scratched. But it should be remembered that much of this potential cannot be exploited without substantialland and water development. Although unit costs need not be high in relation to returns, any development program of meaningful scale would require.a considerableexpenditure and a serious institutionaldevelopment.. As a partial offset to this is the fact that in the present state of technologyand reasonable expectationon costs and prices, optimum land use patterns include a high proportion of labor- intensive farm enterprises.
579. In contrast, crop expansion in the Sierra depends almost totally on technologicalchange. Although considerableprogress has been made in improving plant materials for the Sierra (includingrecently, a quick- maturing maize variety) and productionpractices, climatic conditions will continue to impose lengthy gestation periods for crops and thereby constrain improvementsin farming systems. Rough topography, a high rate of population growth, high-cost transportation,the rainfall pattern, and ineffectivepublic services to agriculturehave reuslted in a -severe-erosionproblem which calls for shifts in land use patterns towards forestry and pasture. Additional development of the water resource for irrigationcan be defended on economic grounds only on the basis of high value crops, such as fruits and vegetables; 1/ and for these the possibilityof demand limitationsmust be admitted, even given improved storage, processing, and marketing facilities.
1/ In line with its firm policy of undertaking tasks for which it has the required specialized staff, INIAP is only now beginning to research fruits and vegetables. Significant results should not be expected in much less than a decade. - 178 -
580. Some of the 10 or so major valleys, such as Cayambe, have a resource base which can productivelyabsorb outlays in support of technologicalchange, -feederroads, farm management improvement,and the upgrading of resource use, particularlyif oriented towards the dairy industry. It is to be expected that the region, under the influence of petroleum-inducedeconomic change (which increases alternativeoutlets for labor and upgrades the type of food in demand), along with an expanding supply of competitiveagricultural products from the Coast, will shift farm resources increasinglyinto milk production. The subsidizationof wheat imports, if continued, will strengthen this trend.
581. Although very little is known about the third ecological region of the nation, the Oriente, it is likely to require a conservation-oriented exploitation system centering on forestry and complementedin varying degrees (depending on the particular area) by pasture and a few tree crops such as African palm and rubber. Much of the needed infrastructureremains to be installed, and marketing costs will be relatively high. The contributionof the region to agriculturalproduction over the next decade or two will be limited.
582. These considerationslead to the view that project emphasis for the next few years should be on the coastal region, particularlyon quick- yielding drainage and flood control schemes in the Guayas, complementedas necessary by credit and technical support for farmers for the development of the associated supplemental-irrigation facilities where these are economic. There is-ample scope for this type of project in the roughly 1,000,000ha lower Guayas zone. Pending the completion of the basic resource studies of the zone (which will require several years), it would be desirable to center develop- ment activities on several areas for which considerablepreparatory work has already been done. These include-ManuelJ. Calle, Samborondon,Mata de Cacao, and Churute, which total to some 70,000 ha.
583. These are short gestation, quick-yieldingprojects which through land and water development and cropping intensificationcan contribute to the output of crops which are periodicallyin short supply (such as rice and sugarcane) as well as helping raise the incomes of the rural poor. The project selection process-shouldalso recognize the likely high return to projects which enable the exploitationof the available technologiesin higher value crops, particularlycacao. Consideration should also be given to mounting a sorghum programnfor the drier areas, such as the semi-arid Chone 1/ and similar areas in Guayas, El Oro and Los Rios. Under these ecological conditions, sorghum, which requires less sophisticatedcultural practices than crops such as maize and rice, is likely to produce more satisfactoryresults than most other annual crops. And an ample domestic market for sorghum is at hand.
584. Major complex irrigation projects involving heavy financial commit- ments and long gestation periods should be avoided in the years just ahead; except as they are integral parts of power project which do not depend on the
1/ Where, for example, rice is produced under partial irrigation,with doubtful economic results. - 179 -
irrigation component to produce an acceptable rate of return. Feasibility studies, and, in some cases, engineeringwork, have been completed on some seven major power developmentschemes. Work is now underway to establLsh priorities for these projects in the context of a long-horizonenergy develop- ment plan; this work will be very useful in deciding on agriculturalproject priorities.
585. In choosing specific projects,Ecuador is in the enviable position of having establishedresearch priorities. A good number of feasibility studies are underway,many at an advanced stave. This will enable an effective use of the economic criterion in selecting project for implementation,and make clear to decision-makersthe cost of undertaking projects on grounds of social and political considerations. This cost information should accompany the priority ratings for projects for implementationwhich JUNAPLA is required to submit to the Cabinet level of government for the latter's use in making the final decisions on the public investmentprogram.
586. The JUNAPLA project priority rating must also reflect its judgments on the capabilitiesof the action agencies and the effectivenessof the inter-agencycoordination mechanism. These are important determinantsof the set of projects to be chosen for implementation. However, carefully a project may have been'appraised,the 'appraisalcarries implicit assumptions on the performance of the agency or agencies which will carry it out. These assumptions need to be checked to avoid overloading the implementationsystem or any of its parts, as has happened recently in such cases as the agrarian reform program and the Guayas irrigationdevelopment schemes.
587. To assure a flow of studied projects from which a selection for implementationcan be made, ample technical staff and financial resources need to be available to FONAPRE and to the.project identificationoffices of the Ministries and their dependencies.-
588. There is one type of project that of soil and water conservation which appears to have not yet entered the project selection process with an emphasis it deserves. Part of the reason may be the common belief that conservationactivities are low-yielding,a view which is questionablein the light of modern conservationtechnology. INIAP is now preparing a project for the conservation,management, and rehabilitationof soils to be undertaken jointly with the MAG and several of the regional developmentagencies. The project would produce a diagnosis of the present situation,with emphasis on critical areas in Imbabura, Pichincha, Chimborazo, Canar, Loja, Pedro Carbo, Quevedo-Balzar,and the North-West; install and operate facilities for measuring soil losses under the more common farming systems; and test the effectivenessand economy of alternative conservationsystems, including contours, strip farming, minimal tillage, grassed watercourses,and various crops-pasture-protectiveforestry mixes. Provision is being made for overseas training of professionalstaff; for local training courses; for technical assistance from abroad; for demonstration farms to familiarize farmers with conservationtechniques and for the collection and analysis of data needed for conservationplanning for the longer term. The 3-year project is costed at some S/ 15 million, including laboratory and field equipment. - 180 -
589. The project merits a high priority. Even if substantiallyenlarged, it would be no more than a modest start towards solving a serious problem. It should be followed by a major nation-wide program in soil and water con- servation and fully interfaced with the sierra afforestationeffort and the opening of the Oriente to settlement.
(iii) Low-IncomePopulation as Development Target
590. In addition to policies aimed at creating income-earningopportu- nities through promoting a maximum rate of growth in GDP, the intent is directly to assist the rural underprivilegedthrough land redistribution and colonization,and through integrated rural development projects (PIDAs). A detailed study of land redistributionthrough the Agrarian Reform has been completed and the findings are expected to become the basis for revisions in the program, including the IERAC management system. Both on grounds of equity and production expansion, it would be desirable to clarify the criteria which make a property subject to redistribution. These criteria should center on the efficiency of use of individual farm resources and recognize the positive impact of appropriate tenancy arrangementson investment,remunera- tive employment,and income distribution--ratherthan establishingeligibility for expropriationin terms of the size of the farm unit as measured in hectares, or on the basis of the tenancy status. The criteria should be quantitatively explicit, readily understandable,written into law, and enable administration of the land distr-ibutionand titling programs.
591. Secondly, the growth of minifundia which is resulting from the elimination of precarious forms of tenancy should be reversed by follow-up measures which promote resource use efficiency, such as enlargement of the farm management unit through associative forms oE organizationand, in some cases, enlargement of family operated holdings. The public services needed to help improve management of the new units should be made available, as was planned at the time when the reform effort was initiated. In this same vein, the acquisition of land for redistributionshould be closely time- phased with the availabilityof production-orientedfollow-up services.
592. The supply of land for agriculturaluses and for eventual transfer to the under-privilegedis now being threatened by the voluntary break-up of farms in smaller units, particularlynear major towns and cities, in response to sharp upward trends in land prices. Although data are not available, the phenomenon is said to be widespread. Much of this land is being held in under-use in anticipationof a growing demand for land for non-agricultural uses. It is inevitable that economic growth will lead to some land moving out of agriculture into higher-yieldinguses. For this reason, land use zoning will ultimately become necessary. In the interim, IERAC has the legal power to forestall land distributionof the above-describedtype, which is counter- productive in the national economic sense over the medium term. This power should be exercised. Adjustments in the real estate tax system, as discussed above, also need attention in this context. - 181 -
593. Both for reasons of efficiency and to simplify the task of improving -themanagement of IERAC, it would be desirable to limit IERAC activities to (a) procurementof land for distributionand titling; and (b) organizationof beneficiariesand the preparationof resource use and land developmentplans for their holdings. The tasks of providing production support servtces and building infrastructureshould be assigned to agencies specializedin such tasks, perhaps under a reimbursementcontract or some other type of arrange- ment. 1/ However done, close inter-agencycoordination, beginning at the early planning and budgeting stage, is essential.
594. Although the IERAC performancehas left a great deal to be desired, it should be admitted that the rate at which land redistributionmoves forward, and its impact on production,productivity, and income improvement,depend more on the will and attitude of the rural populationand of power structure than on any changes in program design and management, however well these are conceived and carried out.
595. The potential opportunitiesfor opening new land for settlement are mainly in the four provinces of the Oriente region. However, the available informationon the natural resource base of the Oriente is very limited. The opening of the northern zone through petroleum exploitation, along with the work of CREA and PREDESUR, is strengtheningthe view that the region may be able to provide sustainableincome improvementoppor- tunities for a considerablenumber of settlers using variable mixes of crops-livestock-protectiveforestry activities.2/ At the same time, it is recognized that income improvementthrough colonizationis necessarily a slow process, as the build-up in production capacity is conditioned by the rate of development of infrastructureand technology,which itself requires a good deal of preparatorywork and financialresources. With this in mind, a new agency (INCRAE-Instituto Nacional de Colonizacionde la Region Amazonica Ecuatoriana)was created in 1978.
596. It is imperativethat exploitation of the Oriente be subjected to a strict resource conservationsafeguard. "The use of this region for crops and livestock, without special resource management techniques,can result in a grave disequilibriumin the eco-system."3/
597. The third and most recent element in the attack on rural low incomes is the PIDA. It may be possible to reach annual increments of a thousand or so families a year through this device, although the likelihood of subs- tantial rates of income improvement is limited, particularlyin the sierra.
1/ One possible way of producing technical and management services is through contracting private teams. Monetary incentives based on quantifiableperformance indicators might be written into the contracts.
2/ MAG, La Colonizacionde la Region Amazonica Ecuatoriana,Obra Nacional, 1977.
3/ INIAP, op. cit. - 182 -
This is because high-yieldingtechnological packages are not available and farming systems research is just getting underway. Moreover, there is only a very limited extension capability which can be mobilized in support of PIDAs, and it will require a decade to improve it substantially. It should also be noted that the problems of inter-agencycoordination for a PIDA-type activity are formidable,particularly when tenure and water development are involved, as well as inter-sectorrelationships. Another potential problem is in linking PIDAs with other activities in the natural region of which the PIDA area is a part--such as, for example, the valley bounded by the eastern and western cordillerasand the Cotapaxi and Urbina paramos. The regionalization study now being completed by MAG will be very useful in selecting areas for PIDAs, and in assuring that areas with a minimal resource base are avoided. Areas such as the Samborondonin the Guayas will rank high on the priority list.
598. It would seem desirable to undertake PIDA activity on a purely pilot basis, expanding it only as experience is accumulated, trained personnel become available, and the operating procedures of FODERUMA (Fondo de Desarrollo de Sector Rural Marginal) are designed, tested, and refined. This Fund, recently created by the Central Bank, can provide the financial support for rural developmentwhich has hitherto been lacking, if appropriate arrange- ments for implementinginstitutions and inter-agencycoordination (parti- cularly for technical assistance) can be made. Funded initially at S/ 100 million, FODERUMA is designed to assist mainly those members of the rural population with per capita annual incomes of less than S/ 7,000 and will work through PIDAs and land distribution and colonizationprograms. The Fund, if complementedby a renewed effort to strengthen and coordinate government activities in the rural cooperative field, can have a useful impact on the development of cooperative institutions. Little progress has been made in this area in recent years.
599. One of the most interestingaspects of FODERUMA is the insistence on self-help, and the refusal to impose paternalisticdevelopment models. Aware that it is often the most needy who never hear about such programs, the fund's team is using local radios and languages extensively,as well as channelling information through national and regional campesino and Indian organizations. Typically, when a rural group asks for FODERUMA support, a study of the community's problems is carried out, while at the same time one specific area is chosen for immediateaction to show serious commitment. Once the overall diagnosis is completed, with community participation,an integrated rural development project is drawn up.
600. Project elements can include health informal education, a revaluation of cultural traditions, infrastructureand productivity. Investment in infrastructureand productivity is not repayable, but loans for agriculture, fishing, crafts or other productive activities must be paid back. Wherever necessary, agreements with ministries or other organizationsare made and FODERUMA supplies the resources.
(iv) Forestry and Fisheries Resource Use
601. The development strategy for the forest sector Ls to promote output expansion in ways which strengthen the contributionof the sector to soil - 183 -
and water conservation. This reflects the recognition of the increasingly critical interfacebetween agricultureand forestry and of the productive as well as production functions of the forest resource. The strategy recognizes the urgent need to restore to forestry use some lands now in agricultureor recently abandoned,as well as the possibilitythat the economic use of some lands now in forestrymay be in crops and livestock.
601. It would be useful to produce a careful long-term estimate of the domestic demand for forest products. This would strengthen the framework for the considerationof policy alternatives,and for the design and time- phasing of exploitationand aforestationprograms. The research on pine species for the Sierra should be expanded. Improvementsin the facilities for education and training in forestry are needed. For the years just ahead, a greater use of foreign schools is suggested. Activities in forestry should be closely linked with the INIAP project in soil and water conservation. Furthermore,adequate financial incentivesand technical guidance for private afforestationare needed.
602. Exploitationconcessions should be carefully policed, and the fiscal return needs to be monitored to assure appropriate stumpage pricing and optimum use of the stand being cut, particularlywhere there is a heavy density of secondaryand tertiary species relative to species in strong demand. The MAG forestry unit is likely to need more finance and staff strengtheningas it moves forward with expansion plans for the sector. But, although pulp and paper industry has been declared "strategic,"its growth seems to be too premature since it should appear as the consequence of a previously organized and sustained effort on forestry and not as a parallel of predated development.
603. Under the impetus of such factors as industrial incentive legis- lation, a strong product price outlook, infrastructuralimprovements, and the extension of the national fishing zone, th-efisheries sector is growing rapidly. It may be desirable to expand research and technical guidance for the cultivated shrimp industry, and to assure that funding and staffing arrangementsare adequate for data collection and analysis concerning basic resource trends and optimal catch levels.
604. If the Government intend to enforce the prohibitionconcerning the use of sardine-typefish for fishmeal, the catch and earnings are likely to fall in the years ahead. This is because the relevant species are probably not of a high enough quality to enable a large volume of exports in canned form. - 184 -
IX. THE ORIENTE REGION
1. Foreword
605. This chapter addresses itself to an.analysisof the agricultural potential, the economic activities and constraintsfor development of the Oriente region only. It does not examine comparative investment opportunities in the Andean and Western regions, both of which also have areas for potential settlement. Since development of the latter is generally more advanced than that of the Oriente, it may well be that economic returns on projects in those regions might be higher than in the Oriente. The report does not address the question of priority areas for settlement between regions. It tries to describe current conditions and prospects in the Amazon region where a sizeable - and growing - population is looking for Government initia- tives that would help them increase production and improve their standard of living.
2. Organizationand Policy Framework
(i) Background
606. Compared to the highlands and coastal region, the Oriente is still practicallyvirgin land. It makes up 48 percent of the national territory, but held-only 2.7 percent of the nation's population at the time of the 1974 census. Settlementsare concentratedalong the eastern Andean slopes and along the rivers, and 95 percent of the region is covered by natural tropical forest. Until very recently, little reliable informationon the suitability of the region for agricultural and other exploitationexisted. But the discovery of oil in the northern part of the Oriente region in the 1960s provided road access to the Amazonian lowlands for the first time and systematic efforts to establish a reliable inventory of regional resources have been continuingever since.
(ii) InstitutionalFramework
607. Management of national lands and colonizationschemes before 1964 was distributed among several government agencies and subject to various regulations. 1/ In 1964, the Agrarian Reform Law 2/ created IERAC under the Ministry of Agriculture. The Public Lands and Colonizationlaws 3/ consolidated national land and colonizationlegislation, and centered the responsibility for their management with IERAC. All public lands became IERAC's property and IERAC was given the authority to award parcels to individualsand issue titles of ownership. Public lands were generally to be awarded as family
1/ Mainly Emergency Regulation No. 12, May 31, 1957: Creation of the National Institute,ofColonization, then under the Ministry of Economy.
2/ Agrarian reform law issued by Decreto Supremo 1480 of June 11, 1964.
3/ Public lands and colonizationlaw, issued by Decreto Supremo 2120 of September 22, 1964. - 185 -
-farms to individualsorganized in cooperatives,although, by following certain procedures and charging higher prices for the land, IERAC could issue titles for units larger than family farms and to companies. In 1973, a new Agrarian Reform Law was issued (Decreto Supremo 1172 of October 7, 1973), mainly to modify land redistributionprocedures, but without changing IERAC's respon- sibilities. Under these laws, IERAC has awarded some 27,400 titles for-more than some 1.1 million ha between 1964 and 1976 and has promoted several settle- ment schemes. 1/
608. In the south of the country, two other GovernmeTetorganizations have also been responsible for land settlement operation --CREA and PREDESUR. Both are legally authorized to plan, promote and, in some cases, implement development plans in their areas of jurisdiction. CREA's area takes in the severely over-populatedand depressed provinces of Azuay and Canar in the Andean region and Morona Santiago in the east, while PREDESUR covers the Oro province in the West, the over-populatedand poor province of Loja in the Andes and Zamora Chinchipe in the east. From rural and area devel'opment viewpoints, both organizationshave the dual aim to develop the poor Highland areas through rural developmentprojects and to establish colonizationschemes in the eastern provinceswhere people from the crowded Andean zone can settle.
609. In early 1978, the Government issued the law for Colonizationof the Amazonian region-2/, under which INCRAE, an autonomous agency attached to the Ministry of Agriculture (MAG), was created. INCRAE is to be responsible for planning, coordinatingand executing colonizationin the eastern provinces of Napo, Morona Santiago,and Zamora Chinchipe. To ensure participationof the various Government agencies c-oncerned(which has been a problem for regional development institutionslike CREA and PREDESUR), the law states that eight ministers 3/ and JUNAPLA's president will be ex-officiomembers of INCRAE's board of directors. At this time, INCRAE is still in the very early stages of establishingitself. A coordinator (title of the Director) has been appointed and a group of professionals,on loan from MAG and several other specializedGovernment agencies has begun to map out a work program. What needs to be clarified in the first instance is whether, and how, INCRAE is going to coordinate(or take over) work that other agencies are now handling. The law specifies that the ongoing small colonizationschemes being carried out by IERAC in the Oriente are to pass to INCRAE, but IERAC is to contLnue to be responsible for land titling country-wide,and for some settlement schemes in the coastal region.
670. The relationshipwith CREA and PREDESUR is not clear. Although early drafts of the law stated that these institutionswill act as INCRAE
1/ By comparison, IERAC's land redistributionprogram awarded title to 63,750 beneficiariesfor 850,000 hectares in all - much of it very poor land-(see Table 9.1).
2/ This was issued by Decreto Supremo 2092, January 12, 1978.
3/ Foreign Relations, Agriculture,Public Works, Health, Education, Natural Resources, Finance and Defense. - 186 -
representativesin their respective eastern provinces, the matter is not mentioned in the final version. CREA and PREDESUR influence areas and development plans have a west-east direction across the country, whereas INCRAE's present orientation implies a north-south developmentapproach in the eastern zone. To reconcile the two approaches, INCRAE might better concentrate at first on developing the two northern-mostprovinces (Napo! Pastaza) and let CREA and PREDESUR continue to work in their respective areas, all within a national colonizationframework established by the Government.
611. The question of funding of INCRAE is a second important issue to be clarified. This was to be provided by (a) US$40 million worth of settlement bonds which were to be issued in 1977, they have not been as yet; (b) 50 percent of the revenue generated by oil price increases (which are not likely to occur in the short term); and (c) loans from unidentifiedsources. Neither of these alternativesare likely to guarantee a secure flow of money in the next few years. The Institute, if it is to start functioning effectively,will thus have to be properly funded from the general budget.
(iii) Settlement Policy
612. Settlementof the virgin-lands along the west coast and of the Amazonian East has been an important facet of recent Ecuadorian development plans. The 1964-73 plan outlined a very ambitious settlement program designed to both support ongoing spontaneous settlementsand to start new projects. This plan identified some 28 projects, 13 of which were in the Oriente. The 1973-77 plan also considered land-settlementas one of the strategies for agriculturaldevelopment. Both plans outline the objectives of settlement which are: exploiting natural resources, reallocatingpeople from the Andean over-populatedareas and, especially in the east, occupying national territory to protect national sovereignty. The latter objective has been stressed by the Government in recent years and seems to be one of the main reasons for creating INCRAE. Moreover, the INCRAE law, although considering civilian farmers as potential settlers, states that preference should be given to cooperativegroups of settlers selected from among army veterans and organized and supported by the Armed Forces. However, neither of the two plans indicated the priority to be given to settlement,nor did they specify budgetary resources to be allocated to it.
613. Regarding the types of settlement schemes envisaged, the 1964-73 national development plan proposed a system consisting of (a) support of spontaneous settlementsby providing basic infrastructureand services and (b) establishingnew projects with land use and settlement patterns planned in advance, but with Government interventionlimited to constructionof basic infrastructureand services, leaving to the settlers the initiative to move themselves into the areas and to develop their farms. The 1973-77 devel- opment plan and-the INCRAE law call for tae establishmentof directed and semi-directed settlement schemes where government would provide basic infra- structure and housing as well as select the settlers and transport them and their families to their new homes. In practice, however, colonizationhas been mostly spontaneousand, except for land titling, it has received little Government support. - 187 -
614. Although not often stressed, there is, of course, a close inter- relation between agrarian reform and land settlementpolicy. Officially, both programs are considered to be complementaryin that they aim at solving the same problem in different ways: agrarian reform operates in the long settled (Highland/Coast)regions and aims at.conferring ownership of land from the latifundia (mostly absentee) landlords to those who have been actually cultivating it; land settlement schemes offer to faraers that are "surplus" in their traditionalcommunities an opportunity to win and own (land) property in hitherto unsettled regions. The record of IERAC's activity in Ecuador to date seems to underline the general principle that it is easier to support emerging structures than to change existing ones. The extent of land titled by IERAC in new settlement areas greatly surpasses that in the agrarian reform zones, (1,100,000vs. 433,000 ha), and many of the 50,500 'beneficiaries'from land redistributionstill do not have economicallyviable holdings.
615. Since settlementactivities tend to be accompaniedby considerably less social friction than those of land reform, there would seem to be a good chance that Government support for INCRAE will be forthcoming to the degree indicated in the draft law. If so, INCRAE has an opportunity to become a powerful policy-makingand implementationagency. Management should con- centrate in the first instance on building up an expert professionalgroup which, with the help of local and/or foreign assistance, could prepare regional developmentplans as-well as feasibility studies for one or more projects already identified. As these would be implemented,a sound empirical basis could be developed for future projects of more ambitLous scope.
3. The Oriente Region: Physical and Human Characteristics
(i) Natural Resource Endowment
616. The Oriente (East) region covers,about 130,000 km2, or about half of Ecuador's land area. It comprises the Eastern provinces of Napo (51,800 km2), Pastaza (32,000 km2), Morona-Santiago(25,430 km2), and Zamora-Chinchipe (20,800 km2 ), and extends from 00 30 N' to 40 o, 30'S latitude and from 750 20' to 780 O' longitude. Ecologically, the region divides into two distinct zones: (i) The Eastern Andean slopes and the region of the so-calledThird Cordillera (Cordilleradel Condor, Cutucu) in Morona-SantiagoProvince and (ii) the Amazonian plains. The first zone is located roughly between the 600 m and 1,500 m elevation and is characterizedby a combination of plateaux, small valleys and rolling country. It narrows towards the south where the Cutucu and the Condor mountains, with elevations up to 2,500 m, are located. The Amazonian plain begins at about 600 m elevation and slopes gently toward the east. Above 300 m elevation,the plains consist of gently rolling country and alluvial valleys marking the transition between thieAndean zone and the Amazonian basin. Below 300 m elevation, the lands are flatter and present the general characteristicsof the Amazonian region. Rivers are generally navigable up to this line.
617. The Napo and Maranon river watersheds are located in the Oriente region; the confluence of these rivers forms the Amazon. Main rivers dis- charging into the Napo are (from north to south) the San Miguel, Aguarico, - 188 -
Coca and Curaray. The Maranon river itself runs beyond the Ecuadorian border, but the Tigre, Pastaza, Morona and Santiago rivers, whose main water sources are in the Ecuadorian east, discharge water into it. Data on annual discharge of these rivers are not available. 1/ It is known, however that in their upper courses they present considerablehydro-power potential.
618. Meterological information is limited. The 13 meteorological stations in the area, located mainly in the western (foothills)part of the region. Most of them have records that go back only nine years, although some have been operated since 1961. 2/ The RegionalizationDepartment of MAG has prepared national temperature,precipitation, evaporation and ecolo- gical maps (scale 1:1,000,000)interpolating data from sources in other countries (Colombia, Brazil) wherever feasible. Average annual rainfall estimates range between 2,000-4,000mm, the extreme being 6,315 mm in Tena (capital of Napo province) and 1,240 mm in Papallacta (at the northern end of the Third Cordillera). In general, rainfall increases from north and south toward the upper center and decreases from west to east. Rainfall levels do not vary greatly over the year and all months have some rainy days. December is reportedly the driest, July the wettest month. Ecologically, most of the low plains can be classified as humid tropic, with some very humid tropical spots around the Tena area. In the foothills, the predominant climate is very humid pre-montane,,changingto humid pre-montane to the south.,
619. There are no records available on sunlight. Some report that sun hours are, in general, limited, but they seem to increase to the east. Average temperature ranges from 190C to 260 C, increasing from west to east. Maxima range between 29 C ad 34°C and minima between 120C and 190 C.
620. The RegionalizationDepartment of MAG is carrying out a reconnaissance soil survey of the Oriente. A soil map (1:200,000)has been published for the northeasterly part of the region (Napo/Pastazaprovinces); similar studies and maps are being prepared for the southerly provinces as well. Part of these (Morona-Taishaarea) have been surveyed by consultants establishinga forestry inventory for CREA, but results are not yet published.
621. Except for the alluvial valleys, the predominant soils in the east are the typical red and acid soils of the Amazonian basin. They are clay, with poor internal drainage and low nitrogen and phosphorus content. Their
1/ Estimated annual discharge as reported in: Luis Carrera de la Torre, Obras Hidraulicas y la Supervivencia del Ecuador, Quito, 1972, are:
Rio Napo = 49,250 x 106 m3 Rio Pastaza = 29,000 x 106 m3 Rios Zamora Santiago 20,000 x 106 m3 All Oriente rivers 137,215 x 106 m3
2/ The reliability of the measures is, however, considered doubtful for some years and stations. - 189 -
.fertility and agricultural potential are thus low and present management problems. There is great controversy about the optimal use to which these soils might be put: steep slopes should definitely be kept in forest. In other'areas of the Amazonian basin, part of these soils are being used for natural grass; some tree crops (oil palm, rubber) could also be grown on them.
622. Alluvial soils are found in the small intermontanevalleys, in the Andean slopes and in the Amazonian plain along the river banks. They are particularlyabundant in the northeast region between the Aguarico and Napo rivers in Napo provinces, where the reconnaissancesoil survey identified some 600,000 hectares of such soils. Alluvial soils are constitutedby recent deposits of volcanic ashes and have the following general charac- teristics: slightly acid; high organic material content; fine to medium texture; variable depth; and brown-gray color. These deposits are, in general, flat and some have drainage problems or are subject to flooding. Fertility, however, seems to be good and provided management is appropriate, they offer great potential for crop and pasture development. The majority of existing settlementsin the Lago Agrio-Coca region are located on these soils.
623. The major renewable.natural resource of the Oriente are its tropical forests. However, to get maximum value out of these, a careful plan of forest management needs to be developed. Although it contains some fine soft and hard wood, the natural forest is generally hetereogeneouswith as many as 200 species per ha. According to some preliminary forestry inven- tories, average density of usable-trees (87/ha) and volume of wood (140 m3/ha) are low, making commercial exploitationdifficult. Despite of this, wood is presently the region's main product, especially in areas of active spontaneoussettlement. Here, some uncontrolled- and locally potentially destructive- exploitationof the most valpable hard woods has taken place. While damage is as yet relatively insignificant,much of the lesser quality woods are being needlessly wasted and no attention is paid to the danger of erosion resulting from careless cutting along steep slopes and close to river banks.
624. The main resource of the lowland zone to have been exploited to-date is oil. Important reserves were identified in the region between the Aguarico and Napo rivers in Napo province in the 1950s, and full scale exploitation started after completion of the pipelines to Esmeraldas (and Quito). The highest output achieved to date was in 1973 with 76.2 million barrels; 1977 production was significantlylower.
(ii) Access
625. Until the discovery of oil, there had effectivelybeen no land access to the Amazonian plains from the West. The only (gravel/earth)roads leading east from the Central Andean Highway were those from Ambato-Banos (120 kms) towards Puyo and Pastaza areas, and from Canar-Azogues-General Plaza towards the Macas area. These roads to the foothill settlementsin the East provided fair-weatheraccess only, becoming often impassable during - 190 - the rains. But the few settled locations in.the lowlands could be reached only by air or, more often by river transport. The first road connection to the lowlands was a 266 km gravel road (but not all-weather)from Baeza, to Lago Agrio, the center of oil exploration. From there, another leads south towards Sacha, and Francisco de Orellana-Coca(84 kms). Even in the absence of any incentive other than the prospect of owning a sizeable piece of land, settlers have been following the new road trajectoriesin increasing numbers and established themselves in a region that hitherto had been the exclusive domaine of a few scattered tribes of Amazonian Indians.
(iii) Population Characteristics
626. The 1974 census established the total population of the four Oriente provinces at 173,500, less than three percent of the country's total popula- tion. Related to area, this translates into a population density of 1.3 persons/km2, compared to 24/km2 for all of Ecuador. While small in absolute terms, the Oriente population has been among the fastest growing in the country: in the 1962-74 inter-censalperiod it increased from 73,900 to 173,500 or by 135 percent, compared to a 46 percent increase registered for the whole country. Data collected for Napo province 1/ indicate a continued 15 percent annual growth-ratebetween mid 1974 and December 1976, so that a rough estimate would put the total population of the Oriente at the beginning of 1978 close to 250,000 - 265,000.
627. According to the census in 1974, the eastern region (along with Pichincha 2/ province) had the highest net migratory gains in population in the country. They ranged from 39 percent in Zamora-Chinchipe,29 percent in Napo 20 percent in Morona-Santiagoto 15 percent in Pastaza. The proportion of lifetime migrants 3/ among the region's population is almost half (48 percent) for the Oriente, compared to a quarter for the country.
628. As might be expected in an area of new settlement,the ratio of males to females (118/100) is significantlyhigher in the Oriente than the country average (100/100). The proportion of economicallyactive population (i.e. over 14 years of age) is 60 percent compared to 50 percent on average for the country. Over a third (37 percent) of the economicallyactive popula- tion in the Oriente is employed in the primary sector; the share is under
1/ Ministry of Agriculture/O.R.S.T.O.M.:Report on Settlement in Napo Province and on the Change in Indigenous Societies, Quito, 1978.
2/ Migratory gain for Pichincha was + 19.5 percent. This reflects both rural-urbanmigration towards the capital and new settlements in Santo Domingo. The only other provinces for which immigration exceeded emigration were Guayas (+12 percent) El Oro (+10.5 percent) and Esmeraldas (+8 percent). Source: Ministry of Agriculture, Department of Planning, O.R.S.T.O.M.Study "Population Migration in Ecuador", Sept. 1975.
3/ Defined as those born in another province than that where they are currently settled. - 191 -
a fourth (24 percent) for the total country population. While 41 percent of Ecuador's people are classified as living in urban areas those so classified in the Oriente as a whole are only 13 percent. The proportion of urban householdsis lowest in Zamora (11 percent) and Napo (7 percent) provinces.
629. Given the paucity of health care facilities,it is difficult to assess the state of health and nutrition of area residents. Live births per 1,000 inhabitantsare slightly above (38.7 vs 36.0), total deaths are somewhat below (7.6 vs, 9.9) country averages: this may well reflect no more than the prevalenceof younger age-groups among migrants. With respect to morbidity, a particularlyhigh incidence of malaria (418/10,000)was estab- lished for Napo province. Tuberculosisand typhoid also occur at a higher rate than in the rest of the country. A household sample survey 1/ in Napo mentioned anaemia and malnutrition,especially among children,as the most serious problems; skin diseases are also said to be most prevalent among the lower age groups. A high incidence of tuberculosis,anaemia, gastro-intestinalinfections and skin disease was mentioned as well by health service volunteers interviewed in the region.
630. With respect to basic education level, the region comes close to the country aveage: 73 percent (vs. 74 percent overall) of those 10 years and older can read and write.
(iv)- Some Aspects of Socio-CulturalOrganization
631. While the standard census descriptors indicate in general terms how the population in the Oriente compares to that in the rest of Ecuador, more detailed examinationof area residents' origin and socio-cultural organizationare needed to develop an appreciationof the particularityof the region and the transformationit is presently undergoing.
632. The Indigenous Inhabitants. The'1974 census confirmed that a very sizeable minority (about 40 percent) of the Oriente population are native Amazonian Indians. The main communitiesare the Shuar in Morona and Zamora provinces (25-30,000),and the Yumbo in the Tena-Baeza area of Napo province (22-25,000). Amazonian Indians differ substantiallyfrom those of the Sierra, in appearanceand language as well as in social organizationand cultural values. They differ even more from the mixed-background"white" settlers who are entering the region in increasing numbers.
633. Historically,the Amazonian Indian tribes have been remarkably able to maintain their independencefrom would-be conquerors: they defeated the Inca Huayna Capac when he tried to make them part of his Empire in the 14th century; they destroyed the early Spanish settlements of the 16th century in Macas and other places in the Andean foothills. In the 19th century, some of them were forced to work (practicallyas slaves) for settlers exploiting the wild rubber in the northern forests and for gold panners in the south. In the 20th century, some gave up their gathering/hunting/fishing
1/ Gonzalez, A., and Ortiz de Villalba, J..S.Biografia de una Colonizacion, Centro de InvestigacionesCulturales de la Amazonia-Ecuatoriana. (CICAME), 1976, p. 63. - 192 -
way of life and started emulating settlers on the Andean slopes, who turned forest into pasture for cattle. Others retreated further into the forests both before the influx of the prospective"colonizers" that followed early routes to Tena, Puyo and Macas, and the new settlers who took up the land along the roads built in the course of exploiting oil in Napo province. As late as 1973, Auca Indians killed a team of three geologists-explorerswho trespassed on the area to which they retreated. But this incidencewas an exceptional one, a defensive gesture by a completely selvatic tribe numbering only a few hundred families. The major effort of the various large indigenous communi- ties at present is directed towards establishingvalid title to a large enough portion of what they had unquestioninglyconsidered as "their land" to allow them to prosper alongside the new in-migrants,and make it possible to retain their cultural identity while doing so.
634. Traditionally,indigenous people (mostly Shuar or Jibaro) lived in small extended family units that migrated regularly between a number of sites - each of which they occupied for a period of 2-3 years. They would erect a dwelling and plant their basic staples (yuca, banana, maize) on small clearings of land, supplementingtheir harvests with the plentiful takings from fishing and hunting. This usually assured the small communities an adequate living and a nutritionallybalanced diet.
635. Indigenous agriculturewas thus based on rotation of cultivation among often quite distant locations any one of which might be planted for no more than 2 out of every ten years. In each of the settlement sites, the small extent of the clearings and the short period of cultivationminimized erosion and optimized yields. Right-to-land was a right of usufruct - customary law regulated what particular plots and fields were allocated to each household in the community. -Given the vast extension of the region and the small number (40-50,000) of native people, conflict over land was quite unknown.
636. When settlers began to move into the Tena-Puyo-Macasarea at the turn of the 20th century, the Indians - unaware of western concepts of land-ownership- often had the best lands traded away from them for a pittance. When, with acceleratinginflux of settlers in the sixties, a similar process threatened them in the lowland areas to which they had retreated, some of the communitiesbegan to organize in order to protect their interests.
637. An example of how one such organizationdeveloped is the "Federation of Shuar Centers". The Shuar live mostly in Morona and Zamora provinces, although small groups of them are found in other parts of the Oriente. Closely related tribes live to the south in the border area between Ecuador and Peru. The main Shuar population (of which 25-30,000 people) is concentratedin the region between the Palora river in the North, the Zamora river in the south and the Morona river in the east. In 1961, some Shuar communities or centers around the town of Sucua, supported by Salesian missionaries, formally estab- lished themselves as an Association. Other communities followed their example and in 1964/65, some seven Associations representing52 villages or centers constituted themselves into a Federation. The Federation is headed by a - 193 -
seven-membergroup of community representativeselected to office for two year periods: Presidentand vice-presidentplus five officers, each of whom is in charge of a particularactivity-area. These are: the facilitation of land-titlingarrangements; the promotion of production and marketing of agriculturalproducts and local handicrafts;provision of educational and religious services; coordinationand extended coverage of health services; and finally establishmentof communicationsmedia (radio) to help build and foster a sense of community and common purpose among all members.
638. In brief, the Shuar communityover the past 10-15 years, has been trying to evolve its own development program 1/ in the light of its own
1/ It may be instructiveto list some of the projects being undertaken in the various working groups. The group in charge of landtitling is establishinga complete civil register of all Shuara families and, individualsand carrying out topographicmeasurement of all Shuara center lands - a task that IERAC should be doing but has fallen behind on, due to lack of money and personnel. So far, measurementshave been completed for 86/156 centers. The group in charge of works and marketing has built a number of hanging bridges and pully crossings to facilitate access to various communities. It constructed a modern youth training center in Sukua, and built a "typical" Shuara house - the beginning of a planned Shuar museum. The group contracted with the Ministry of Education for joint constructionof 180 classrooms: the local communities - provide the wood and build the classroomscontributing their labor free - the Ministry provides the metal roofs. Finally, this group has organized 68 cattle upgrading projects-throughoutthe region. For these, it provides veterinary services, credit supervisionand marketing support, as well as improved breeding stocks from an experimentalfarm. The medical group, while depending on German medical personnel,has trained 90 Shuar health--visitorswho work in the centers, concentratingon basic sanitary education and control of tuberculosis. The first Shuar medical doctor is in training abroad. The group in charge of education has financed 140 secondar,yand 15 university scholarshipsfrom a revolving fund establishedfor the purpose. Most of the graduates have returned to the organizationto work. Finally, and perhaps most unusually, the group for social communicationmedia has developed a very successful radio program that regularly presents information (and invites discussion) not only on Shuar, but on wider Latin-Americanproblems. It promotes music and cultural informationand, most importantlyhas a daily bilingual (Shuar/Spanish)school program that serves 224 classes (grade 1-4) in 130 Shuar center schools: in fact, two-thirds of all Shuara children in primary school depend on the radio-schoolprogram. The Federation presently has two 5 KW and one 10 KW transmitter. The communications group also has some thirty publicationsto its credit; these range from textbooks, through a collection of Shuar legends, to discussions of Shuar/settlerintegration. - 194 -
priorities. Despite difficultiesand set-backs in the early years, the Federation has continued to grow. By the end of 1976, it counted 13 Associationsrepresenting 156 centers. Over this period, reliance on the missionaries has been steadily reduced. Outside technical assistance is welcomed in fields where Shuar expertise is still deficient: two medical doctors, a radio technician and three topographersfrom various aid-organization are presently working with the Shuar. But one of the major of the major aims of the Federation is the training-by-doingof Shuar people to fill management/ planning/organizing/technicalfunctions at all levels of the Federation's program.
639. To date, the Federationhas been operating on a shoe-stringbudget. In the beginning, funds were provided by the Salesian mission exclusively (until 1969); subsequently,the Federation has relied on contributions from various national and internationalcharities. The state pays the salaries of 70 of the 224 tele-auxiliaryteachers. Credits and grants from several (national and international)development agencies are used to finance cattle purchases for a number of Shuar centers: in 1975-76, a total of 6.1 million sucres (or just under US$250 thousand equivalent)were lent out (at 5 percent interest) to 932 farmers. Recovery rates reportedly have been very good.
640. Despite the Federation'ssubstantial accomplishments,a considerable number of Shuar and other indigenous groups are unwilling to join it. There is notable opposition from communitiespatronized by protestantmissionaries. They have their own organization: The IndependentAssociation of Shuar People - in Ecuador (AIPSE) (with about a third the membership of the Federation) and stress is on the 'old fashioned-workethic' rather than on traditional Shuar values. There also are families who feel they can do better for themselves individuallyand who do not identify with traditional Shuar culture. The Shuar Federation is trying to lessen what it sees as basically "foreign" induced animositiesbetween indigeneous people by concentratingon basic development projects that will give all of-them a better and more secure level of living. Reaching beyond their own community, the Shuar Federation is presently working on a Quiche language radio-school program for the large Yumbo Indian group (22,000) concentratedin the Tena and Baeza area of Napo province. While essentiallymuch more "acculturated"than the Shuar, this population is currently experiencingacute pressures on available cultivable land. Many of the migrants newly settling along both sides of the Napo river south of Coca, as well as in the Shushufindiarea are Yumbo people. Reportedly, 1/ they are experiencing considerablediscrimina- tion and suffer often unfair treatment from settlers that have come from outside the province.
641. The Settlers. Among area residents who have migrated to the region from other parts of the country (or abroad), there are two distinct groups, which might be labelled the 'old' and the 'new' settlers. The former are located mostly on the Andean slopes (along the Baeza/Tena/Puyo/Macasline) where permanent settlementsbegan to be established in the late 19th century, with another marked influx in the 1930's and 1940's. Many of the settlers
I/ Ministry of Agriculture/O.R.S.T.O.M.1978, op. cit. pp. 48 ff. - 195 - first came to seek their fortune panning for gold in the mountain rivers, -then stayed and began to develop cattle farms. Often, they took over lands from establishedIndian communities;having sold their land at derisory prices, Indians found themselvesin many places, working as farmhands and menials on the land that had been their own for centuries. However, the old settler communitiesremained small, self-containedand, for lack of access, subsistenceoriented; out of a total population in the Oriente of 46,500 in 1950, probably not more than 10-15,000were 'white' settlers,who were only precariously,if at all, integrated into the national economy.
642. With population pressure mounting in the Sierras and some of the coastal regions, "new" immigrationof population into the hitherto unoccupied low-land areas increased in the late 1950's and acceleratedwith the discovery and exploitationof oil in the region. By 1976, new settlers in Napo province were estimated to outnumber the established (indigenousand old settler) population by a ratio of 54/46. 1/ The process is probably less advanced in the other three Oriente provinces, but there, too, the influx of new settlers has been accelerating.
643. A number of surveys have been carried out that establish some characteristicsof the new migrants to the region. 2/ Analysis of the 1974 census data shows that the majority of new settlers migrate to the province that is most easily accessible from their region of origin: 76 percent-of the immigrants to Zamora-Chinchipecome from neighboringLoja province; 68 percent of immigrants to Morona-Santiagooriginate in Azuay; and 36 percent of those settling in Pastaza are from Tungurahua immediately to the west. While the greatest share (26 percent) of immigrants to Napo province also originates in neighbouringPichincha, the Lago Agrio-Coca area attracts migrants from all provinces of the country. Some of these are looking for employment in the petroleum industry, but the majority by far come in quest of land: a 1976 sample survey of households 3/ showed that 79 percent of respon- dents were farmers, compared to 14 percent day-workers (part of them employed in agricultureas well). Nine out of ten of the households surveyed plan on staying in the region. But 10 percent expect to move away: these are often people who came east to get away from difficult personal problems at home, but have no real intention to settle down.
644. Selected settler biographies4/ suggest that the typical "new" migrant is in the 25-40 year age range; with little or no land in his
1/ Ministry of Agriculture/O.R.S.T.O.M.1978 op. cit. p. 23
2/ Ministry of Agriculture/O.R.S.T.O.M.1975 op. cit.
3/ CICAME, op. cit. p. 56.
4/ See CREA,-DiagnosticoSocio-Economico de Azuay, Canar of Morona-Santiago, Part Six: Colonizaciony Poblacion Indigena en Morona-Santiago, Cuenca, July 1976. - 196 - community of origin; with minimal savings from wage employment (mostly in agriculture);with ambition to own his own farm and raise a herd of cattle, which he expects to market at a good profit. Spending a first year alone in the settlement area most easily accessible from his home community, he begins to establish a claim on a plot of 40-50 hectare by occupying the corner of it closest to a road or foot path and beginning to clear part of the land for subsistencecrop cultivation. As his savings give out, he tries to find salaried work with already established settlers. In the second year, he may bring his family, erect a more substantial shelter and continue to work on clearing enough of his plot (5 ha) to qualify Eor receiving title to his land from IERAC: to receive this, he should also join a pre-cooperativewith some of his neighbours.
645. Eventually,the cooperativemay receive some government assistance in community ventures such as the building of a school or the construction of small roads. At this time, the only likely source of cash income for the settler from his farm is the sale of commercial quality timber. Mostly, this will be cut by a roving team of "timber-fellers"equipped with heavy logging tractors. While hauling out the trees, they are likely to destroy the fertile surface soils and start a process of erosion. The settler will try to avoid this by sowing cover grass: to qualify for official credit for the purchase of cattle, he not only has to have title to his land, but also 10 hectares under pasture.
646. Probably not being familiar with the types of crops grown for subsistence in th-isnew region, the farmer will have to rely on trial and error - and observingwhat has worked for his neighbors. There are no extension agents to help him identify suitable crops or avoidable pests. For many years (especiallywhile having to seek outside employment to satisfy his family's basic needs)-the settler may feel no better - and often worse off than he was in his old community, where he had closer ties to family and friends, and where at least some rudimentary community facilities existed. In the absence of any supporting services and extremely tenuous access to market for any of his potential products, the settler may find himself, after years of back-breakingwork, a "cattle-farmer without cattle" on a 50 hectare lot which is slowly being taken over by the forest again. This is when he may look for a buyer and return to his old community or join the stream of migrants to the big cities.
647. On balance, the settlers - coming from a different environment and facing the hard task of establishing their farm with little capital and no support except that of their immediate families - are in a more precarious situation than the native people of the region. Both groups need assistance to lift them from their marginal level of living to that which, given the area's agriculturalpotential, could be realized. A preconditionfor this is the provision of adequate basic infrastructureand services. Although IERAC's functions were to have covered support of existing (spontaneous) settlementswith such basic services, budgetary constraints have restricted IERAC activity in the Oriente to the provision of land titling services and the establishment of a few, experimental-scale"directed" settlements involving no more than a few hundred families over the past ten-to-twelve years. - 197 -
(v) SettlementPatterns and Infrastructure
648. Settlements. In all of the Oriente region, there are onlyl120 towns or villages with a population of 300 or over. Examining the spatial distribu- tion of the region's inhabitantsmore closely reveals some interesting differencesbetween "old" and "new" settlement areas. "Old" settlers' farms, situated mostly in a few fairly circumscribedareas around Tena in Napo, Puyo in Pastaza, Macas-Sucua in Morona and Los Encuentros in Zamora are either concentratedin small villages or scattered throughout the territory in irregular fashion. A few are found in the lowlands, almost always spread along the borders of the major rivers which have served as the main communica- tion link with the rest of the world. A large number of these populationsare indigenous groups.
649. The "new" settlers, by contrast, have almost all established themselves in a regular pattern along both sides of the new roads in the region (see Map of Napo province for illustration). Aware of IERAC land titling rules, the settlers stake out a claim to a plot along the road which is 200-250 meters wide and 2,000 meters deep, i.e. provides 40-50 hectares the maximum IERAC allows for family farms. As locations immediatelyalongside the road fill up, newcomers move to the 2,000 m line where the earlier settlers' property ends and stake out parallel parcels there. Along both sides of the Lago Agrio-Coca road as well as on several others in Napo and Morona provinces, these settlement lines ("respaldos")are now four to six deep - putting those in the last line at least six to ten kilometers away from the existing all- weather roads.
650. Since most settlers have been able to clear only a small portion of their prospectiveholdings, even the establishmentof a footpath or mule-trail to these "respaldo" settlementsis a back-breaking task; there exist practically no motorable side-roads.fromthe main spine to the back- ward locations where the majority of the nfewsettlers live. Their isolation is almost total; access to services or even the small local markets is extremely difficult.
651. Settler housing tends to be of the most basic quality. The typical migrant constructs a one-room (6 m x 4 m) hut using the lesser woods from his plot to construct a slightly elevated rough floor, wall and roof supports. The walls are made of hollow cane, the rooE often consists of a leaf cover, but metal is preferred and installed as soon as the settler can afford this basic shelter from the ever falling rains. Furniture usually is no more than a rough-hewn table and soae stools or benches. A small part of the house is partitioned off for the parents' sleeping quarters. Stoves are primitively fashioned of clay and metal - and most households use wood for cooking fuel. Many rely on artesian wells for water. No other amenities exist. By contrast indigenous people build much larger and more solidly constructed houses, usually measuring 7 x 12 meters. Living quarters are always separated from the kitchen, and floors are raised well above the ground to protect them from humidity as well as from animals. Furnishings are minimal; but the tribes produce and use attractive pottery. - 198 -
652. Only in the longer established towns and in the few locations where IERAC and CREA have initiated pilot "directed" settlement schemes is there any housing of sound quality and more attractive design. The -towns also have some basic facilities such as piped water (mostly untreated); electric power (mostly temporary);some health services; and a few shops (where prices are reportedly 1/ about 40 percent above those charged in Quito). But the more than 90 percent of the population which is classified as rural lives without even the most basic infrastructuresupport.
653. Regional Infrastructure. Given the particularityof the Oriente region - a relatively small population widely dispersed over a vast area - statistics on existing infrastructureservices presented on a 'per capita' basis tend to suggest a more satisfactoryendowment than is actually enjoyed by area residents. 2/ As regards health services for instance,the number of establishments(hospitals, health centers) and hospital beds per thousand people served is actually higher in the Oriente than for the country as a whole, the ratio of dentists, nurses and nurses auxiliaries per 100,000 population is close to or higher than for the rest of the country, although that for medical doctors is lower (2.59 vs. 4.75/10,000). The problem with these services are two: access and quality. Not unexpectedly,health estab- lishments are found in the major settlements,where only a minority of the regional population live. For the rest, a trip to the hospital may involve a day's journey or more by canoe and on foot which emergency patients are in poor position to endure. There are complaints 3/ that the care available at the hospital is often very deficient, while the prices charged are high. Only the military doctors in some of the region's army camps are said to provide competent care gratuitously.
654. Regarding educational services, again quantitativecoverage compares well with other regions 6f Ecuador at least as far as primary schools are concerned. 717 out of a total 760 primary schools in the region are in rural locations: most children are within an hour's walking distance from a school. However, the majority of the school-buildingsare no more than single room structures with a few benches and tables and, maybe, a blackboard. Books or other teaching aids are rarely available: what - or whether - children learn depends mostly on the dedication and resourcefulnessof the teachers. While some of those working in the Oriente excel in both, there are many who do not. From interviews in the field it would seem that the attrition rates for pupils in the higher grades are quite substantial.
655. The most serious infrastructuralconstraint brought up again and again by area residents however is not in the social services, but in the service most vital to their economic viability: access to markets. From the Lago Agrio-Coca area in Napo to the Gualaquiza valley in Zamora- Chinchipe, the settlers are saying that existing (fair-weather)roads do
1/ CICAME, op. cit. p..38
2/ See Table 9-3 for summary
3/ Cf: CICAME, op. cit., p. 62/3 - 199 - not begin to meet the basic function of connecting them to the country's major consumptioncenters where they should be selling their products.
935. The total road network in the Oriente is currentlyno more than 1,170 km or just over five percent of the country's total. There are only 40 km of paved roads, the remainder are rough gravel (880 km) and earth (250 km) roads. As presently completed, they provide a basic north-southconnection - the 'marginal de la selva' - from Loja-Zamora to Baeza-Lago Agrio (950 km). This links the foothill settlementswith each other and with the few east west connectionsto the Central Andean Highway. The importantmissing links, under constructionfor several years, but abandoned by the contractors because of heavy cost-over-runs,are Macas-Rio Pastaza (62 km), the Pastaza bridge crossing, and a stretch of about 12 km to the north of the river. In Morona, constructionof the road connection between Gualaquiza and Limon (about 80 km) also has only recently been started. A new road (40 km) is planned between Los Encuentros and Miazhi as part of a proposed settlement project (prepared by PREDESUR to be financed by BID), in the Nangaritza River Valley; currently, this region has a few cattle tracks only and otherwise relies on river trans- port.
936. The second part of the Oriente road system consists of the incipient network constructedby the oil companies in Napo province. Essentially,this is the start of a "lowlands north-south road" following more or less the 300;meter contour line, roughly 60-80 kilometers east of the 'marginal de la selva'. It presently consits of a 120 km gravel road from Puerto San Miguel - Lago Agrio-Shushufindi-Cocato a location just north of the Tiputini river some 60 kilometers to the south-east of Coca. There also is a 50 km road east-north-eastfrom Shushufindito the Aguarico river. Eventually, it is planned to extend the "Amazon road" southward towards Curaray (on the river of that name), Montalvo (on the river Bobonaza, a tributary of the Pastaza) and thence southwestwardto a proposed new settlement area in the Taisha region (between the Cangaime and Macuma rivers) of Morona province. The area of the proposed trajectory is presently almost all virgin forest; soil maps indicating extent of areas potentially suitable for agricultraluse are only now being prepared. East- west connections from the 'marginal de la selva' are planned between Rollin (north of Tena) via Loreto to Coca; from Canelos (south of Puyo) towards Vilano and Curaray to the northeast, and towards Montalvo in the southeast. The longer-term strategy thus envisages road access up to those points, at which the major rivers become reliably navigable for larger-sized (5-15 ton) craft.
937. While continuing oil exploration activities will doubtlesslyresult in some of the "Amazon road" being constructedduring the next few years, first emphasis really should go to make the existing Coca-LagoAgrio-Baeza road truly "all-weather"by reconstructingthe two vital bridges across the Coca river (Canon de los Monos) and the Aguarico river just south of Lago Agrio. Both of these structures were swept away, a short year or so after their completion,during a particularlydevastating flood in July 1973. As a presumably short-term measure, a ferry service was instituted for which the Government and the oil-companies(who are still officially charged with the maintenance of their roads) each have been paying a daily fee since then. Over the past five years, these ferries have cost more than reconstructionof - 200 - the bridges would have - and have provided highly unreliable service. 1/ Incipient production (of plantain, yucca and vegetable crops) for the market (Quito, Cuenca, Guayaquil) has practicallyceased since 1973/74 (when most of the crops rotted in the fields). Even sales in the local are markets are severely affected by the missing bridges since the two major towns, Lago Agrio and Coca, both are "across the river" from the main production areas. Goods traffic is practicallyreduced to 'non-perishables': wood, cattle, and in rarer instances, plantain.
659. After reliable, all-weather access to the region has been assured, the second priority must be the provision of a basic feeder road network which will serve to integrate the "backliners" into the intra- and inter- regional communicationsystem. Only in this way will it be possible for actual land use patterns to develop in accordance with agriculturalpotential: in the absence of roads, present patterns of land use are restricted to cattle pasture and small, garden-typecrop areas for subsistenceconsumption.
660. River transport, while potentially important if settlement increases in the eastern lowlands, is currently of little commercial importance except for the canoes providing transport across the Coca and Aguarico rivers when the ferries are not operating. At times when the oilroad from Lago Agrio to Quito becomes impassable (landslides),river transport on the Napo resumes with passengers going from Coca to Mishahualli,whence they can get a bus to Puerto Napo and Quito. In the Nangaritza valley where settlement is increasing, but no road exists as yet, Shuar people provide river transport. The motor- boats they use carry loads of up to 1.5 tons.
661. Air transport is the only link to some of the remote eastern settle- ments. In all, the region has 53 airstrips, forty of which are strictly for small private planes. Commercial planes (DC-3) serve 13 airports with varying frequency; five of these are situated in the foothills, the remainder in the lowlands. There are two sizeable military airports in Coca and Puyo, the center of operations for the Oriente. Weather conditions severely restrict flight operations during the most rainy months, and there is little regularly scheduled service. But it is common practice to let settlers "hitch rides" on any free seats of a military or private company plane, if they are at the landing strip in time.
(vi) Agriculture
662. Land Holdings and Tenure. The 1975 census of agriculturalestablish- ments registered a total of 23, 510 UPA's (AgriculturalProduction Units) with combined landholdingsof 716,400 ha. 2/ This implies a mean size of holding
1/ The saying goes: "Either the rivers are high - so the ferry can't go, or the rivers are low - so the ferry can't go. And if the river is fine, the ferry breaks down - so the ferry can't go." Miraculously, both ferries worked at the time of the Mission's field visit.
2/ Encuesta AgropecuerioNacional, Departamentode Regionalizacion,MAG, quoted in NIAP, Boletin Tecnico 23, December 1977. - 201 - of just over 30 ha-higher than in the Coastal region (22 ha/UPA) and consider- ably higher than in the Sierra (9.5 ha/UPA). Compared to the rest of the country, the pattern of distributionof farms by size (see Table 9-4) is much more balanced: farms of 100 ha and more account for 14 percent of the land, but the bulk of holdings (65 percent) are between 10 and 100 ha in size and have 83 percent of the land. Of course, this is a reflection of IERAC's recent practice that allows 40 to 50 ha for family farms. This practice has served well to introduce a certain discipline into the actual occupationof new lands. On the other hand, it takes no account of the 'quality' and agriculturalpotential of the land for which titles are awarded: a 50 ha. farm is a rich dotation in areas suitable for intensivecrop cultivation,but may be a 'minifundium'in areas where soils are poor and suitable for pasture only.
663. Practically all farmers are owner-occupiers,but not all of them have valid title to their land. Only for 50 percent of the 716,000 hectares held by area farmers had clear titles been issued. Eight percent of the area were under various precarious forms of ownership, but 42 percent of the farm area was held without title. In part, this is the result of settlement activities out-strippingIERAC's capacity to carry out the necessary topo- graphical work to prepare the titles; but some of the settlers simply do not have the means to pay the (nominal) title fees of 100 - 300 sucres/hectare.
664. A special situation-existswith respect to some of the indigenous communities. Having occupied their land since well before the influx of the new settlers and having held it under communal ownership, they requested that IERAC give them legal title to-their lands and absolve them from having to pay any fees for it. For a-long period, IERAC insisted on issuing 50 hectares individual titles or none at all. This resulted in many of the traditional communities'lands appearing as 'untitled' and being invaded by outside settlers, causing considerableconflict and friction. With the organization of Shuar centers and other indigenous organizations,IERAC has now developed procedures to award communal titles to land; there are over 25,000 ha of these in Morona-Santiagoprovince, as well as a sizeable number in Napo province.
665. To sum up: with respect to land tenure, future settlement projects should try to:
(i) speed up the process of land titling;
(ii) allow agriculturalpotential to be taken into consideration in decisions on farm size; and
(iii) ensure that there is some flexibilityin accommodatingand legalizing traditional indigenous patterns of land-ownership.
666. Land Use. As already mentioned, most of the Ecuadorian east is still tropical forest, with less than one percent of total area in agriculturaluse. The 1975 AgriculturalCensus 1/ established cultivated area as 356,000 ha
1/ INIAP, 1977, op. cit., see also Table 9-5. - 202 - in all; given the continuinginflux of settlers into the region, the figure in early 1978 is probably closer to 600,000 ha. Until more detailed soil survey coverage becomes available on all of the Oriente, it is difficult to estimate what proportion of potentially cultivableland this represents; -inNapo province,where lowland soil conditions are probably more favorable than in the southern provinces, area under cultivationis roughly 16 percent of potentially cultivable land.
667. By far the majority of the cultivated area in 1975 was grassland for cattle raising: of the 356,000 ha 70 percent were artificial pasture and 15 percent natural grass. Only 12 percent were under crop and 3 percent were in fallow. Most (70 percent) of the improved and natural grasslands are located in the two southern provinces,with Napo and Pastaza accounting for 20 percent and 10 percent respectively. The main pastures in the area are elephant grass 1/ and gramalote morado. 2/ There have been attempts to introduce other graminea and leguminosa3/ but only small areas are as yet planted to these.
668. Crops are almost all grown on small plots around the settlers' houses. They are mostly destined for home consumption,although there are occasional exports to other areas. The two most widely cultivated crops are corn (12,000 ha) and naranjilla fruit 4/ (12,000 ha). Plantain (6,000 ha) and cassava (4,500 ha) are other important basic staples. Three thousand hectares are planted to sugar cane and 1.5 thousand hectares to coffee. In the Palora area of Pastaza provinces an 800 ha. tea plantation has been established. -Plannedfurther -expansion of this has reportedly been constrained by lack of labor. Crops grown at a smaller scale include rice, banana, cocoa, citrus, and various leafy vegetables. Oriente conditions thus allow cultivation of a wide range of crops besides those (e.g. rubber, cocoa) that are indigenous to the Amazonian region.
669. According to the MAG survey, there were some 141,000 heads of cattle in the east (1975); this translates into an average stocking rate of 0.6 animals per hectare. It would seem that this low rate reflects not so much the poor quality of pasture lands, but lack of financial and technical assistance and actual cattle shortages. What cattle there is produced finds a ready market with outside traders, but prices paid to producers are low.
670. Of the 141,000 heads of cattle, 67 percent were in the Morona-Santiago and Zamora-Chinchipeprovinces, 23 percent in Napo, and 9 percent in Pastaza. Most of the cattle are native breeds crossed mainly with Brahma and to a lesser
1/ Pennisetum purpureum.
2/ Axmipus scopuarius.
3/ e.g., Guinea (penisteummaximum), Puntero (hypanirheniarufa), Pongola (digitariadecumpens), desmondium hetherophiliumand pueraria pheseoloides.
4/ Solarium sp. This is grown mainly in the Andean foothills in Napo and Morona provinces; production is declining because of a disease. - 203 -
extent, with Holstein, St. Gertrudes and Charolais. In most parts of the Oriente, people use a rather unusual pasturing technique they call "sogueo": -the animals in the pasture are tied to a stake by their horns with a rope 4-5 meters long for periods of about 8 hours, after which they are moved to another spot. This practice seems to ensure efficient use of pasture and to prevent over-tramplingand over-grazing;it also cuts down on the need for fencing.
671. Hogs are an importantlivestock activity in the east, mostly for local consumption. There are some 175,000 heads. Sixty percent of these are in the southern provinces,35 percent in Napo and 5 percent in Pastaza. Most settlers also keep fowl of some kind; these provide some much needed protein in the settlers'diet, as well as a source of "petty cash" when sold in the local markets.
672. AgriculturalProduction and Marketing. As even estimates of area cultivated show considerablevariation depending on the source consulted, correspondingestimates of Oriente production are evidently indicationsof order of magnitude at best. Figures provided by the StatisticalDepartment of MAG 1/ for 1976 seem to indicate that yields for most crops are lower than the country average; this tendency is especially marked for grains and roots and tubers; less for fruit and tree crops such as coffee and cocoa. Poor yields reflect both poor cultivationpractices and non-adapted seed-materials;also, in some areas-settlershave located on soils which are unsuited for crop cultivation. Given basic technical assistance (extension),productivity should increase considerably.
673. At present, however, the region is not even self-sufficientin food crops: it imports such products-as rice and potatoes as well as processed foods, much of it for the immigrant population working in the oilfields. Information on wood production and cattle extraction- the currentlymost important products of the region for the market - is not available at all.
674. What little marketing activity takes place in the region is done by private intermediaries,with practicallyno government interventionby such entities as ENPROVIT 2/ (there are 2 or 3 shops in Macas/Limon). There are some local traders who buy products from farmers, but most of the more important intermediariesactive in the region come from outside. Todate, the total truck fleet registered in the Oriente consists of only 110 vehicles (or 1.7 percent of the national total). 3/ There are thus relatively few potential
1/ Quoted in: "La Colonizacionde la Region Amazonica Ecuatoriana,"MAG, Quito, March 1977.
2/ Empresa de Productos Vitales, an agency retailing basic consumer goods at fixed prices through fixed shops or shops-on-wheelsin throughout the country. ENAC (=Empresa Nacional de Almacenamientoy Commercializacion) fulfills similar functions at the wholesale level.
3/ Total number of vehicles registered is 1,381 (or 2.8% of the national total); for details see Table 9-3. - 204 -
buyers for the region's products who provide practicallythe only chance for the settlers to sell anything for cash. Traders are in a typical "spatial monopoly" position to exploit producers, paying them only a small fraction of the price they themselves realize in the larger consumption centers. Only in Morona province seems there to be an incipient effort of settlers to form transport cooperativesand do their own marketing to ensure themselves of an acceptable return on their products.
675. Wood and cattle presently are the major exports of the region. Typically, wood is cut, sawn and exported by professionalloggers (some independent,some employed by large companies),who only buy hard woods of high commercialvalue paying the farmer/settlersno more than 100-150 sucres per tree. The major market for these high value woods is Quito. Total exported volume is difficult to estimate.
676. Cattle is practically always sold "on the hoof", usually in the small local markets, and mostly to outside traders serving the big-city markets in Quito, Guayaquil, Ambato, Cuenca and Loja. Usually, there are no scales in the local markets to which farmers bring their animals in sometimes 2 and 3 day marches. Animals are sold based on estimated weight; even cattle marketed through cooperativesto city-slaughterfacilities are paid for the carcass weight only, not for skins, etc.
677. Among crop, naranjilla, plantain and yucca (=cassava) are the only ones currently exported from the region in any quantity; surplus maize and other crop production is sold in local markets.
678. The only systematic informationon exports by road from, and imports to Oriente is provided by a one-week origin-destinationsurvey undertaken by JUNAPLA and MOP between November 24-30, 1975. 1/ All trafic leaving or entering the Oriente region was counted at the junctures of east-west roads with the central road net in Papallacta (Lago Agrio and Tena Roads), Banos (Puyo road), Gualaceo (Macas road) and Loja (Gualaquiza road). The survey counted a total of 1,538 vehicles entering the region and 1,496 vehicles leaving the region. They carried a total of 10,948 passangers from the Oriente to the rest of the country, more than half of whom (57 percent) travelled by bus and taxi. Overall volume exported was 1,962.7 tons (=280t/day), 60 percent of this being wood, 9 percent live cattle and 5 percent naranjilla fruits. The correspondingvolume of imports was 982.3 tons (=140t/day); among these diesel oil, gasoline and cement (16 percent, 13 percent, 3 percent) were most important.
679. Assuming that the week of survey - being in a fairly dry period - had perhaps somewhat higher than aver-agetraffic levels, a reasonable estimate
1/ Flujos de transporte terrestre regional oriental con el resto del Ecuador, Junta Nacional de Planificaciony CoordinacionEconomica, con colaboracion del Ministerio de Obras Publicas, August 1977. - 205 -
of average annual daily traffic might be about 70 percent of the volume --reported. This would put annual Oriente exports of wood at around 43,000 m3 of timber; about 18,000 heads of cattle (10 percent of national production), 3,800.tons of naranjilla (18 percent of total produced) and 2,500 tons of plantain (1 percent of total-produced).
680. Almost two-thirds (64 percent) of exported volume originated in Napo province, another fifth from Morona-Santiagoand the remaining two provinces had a share of about 8 percent each. The majority of exports was destined for Quito (58 percent; mainly from Napo province); the next highest volume went to Cuenca (11 percent, mainly from Morona-Santiago province). A sizeable amount of exports (9 percent and 7 percent respec- tively) were for Ambato and Loja markets; the rest went to destinations all over the country.
681. AgriculturalSupport Services. The low yield figures for Oriente crops are at least partly due to an almost complete absence of agricultural support services in the region. Although a "Zonal Delegation" of MAG has been established in each of the four Oriente provinces to provide extension services to settlers, the total number of professionalsand technicians is less than 50, i.e. each of them theoreticallywould have to deal with 400-500 farms in widely dispersed locations. Besides provision of sporadic veterinary services, no viable technologicalpackages for the various sub-areas have been developed to-date.- Supply of improved seeds, fertilizer and other agricultural inputs is almost non-lexistent,and overall, the extension program is of very little impact. Settlers, often coming from areas with very different soil and climatic conditions,have to develop suitable crop mixes - and plant materials - by trial and error, and are often devastated by plant diseases they never encountered in their zones of origin.
682. Some promise of help for them is beginning to emerge from the work of the National AgriculturalResearch Institute (Instituto Nacional de InvestigacionesAgropecuarias, INIAP). A number of small-scaleplant-trials are currently being carried out in cooperationwith IERAC (Payamino and Coca in Napo province), CREA and PREDESUR. Experiments to develop a sustainable humid tropics farm-system for 30-50 hectare holdings are in progress in Limon-Cocha in Napo province. 1/ The goal is to adapt the 'rotational agriculture'principles developed by the indigenous populations to a typical family-farm plot by judicious combination/sequencingof crop/livestock/ forestry activity, that preserves and improves soil fertility while providing the farmer an acceptable return to his labor. Investigationsare only in their early stages, but already patterns are emerging which would seem to improve on current hit or miss techniques employed by most settlers, although probably not yet 'optimal' in terms of local conditions. There should be increased emphasis on practical on-farm application of the "better", while
1/ The program is being developed under the direction of Dr. Bishop of the University of Florida, whose work is being supported by the MAG Livestock Program and partially financed through Loan 1459-EC. - 206 -
waiting for "best" to emerge from continued experimentation. INIAP also has firm plans to establish a large (800 ha) experimental station at Kilometer 50 on the Lago Agrio-Coca road. Scheduled for opening in 1979, this station will concentrateon experimentswith perennial cash crops (such as oil palm, rubber, coffee and cocoa, pasture), which are expected to become important facets of area agricultureas settlement extends.
683. Access to credit at present is another serious problem for farmers in the Oriente. The National Development Bank (BNF) has five agencies in the region: two each in Pastaza and Morona, one in Zamora province. In 1974, the most recent year for which information is available, BNF gave out total credits in the amount of S/ 83.8 million; 91 percent of these were for livestock operations. Most of the remaining 9 percent of credit was presumably received by the tea-plantationin Palora.
684. Present levels of credit in the region are unknown. The 'Coopera- tive Bank' (Banco Cooperativo)has given some credits in Napo provinces recently, but so far does not have an agency there. Farmers' general complaint is the non-availabilityof credit - especially for the smaller operators. This is borne out by the experience of the Livestock Program financed under IDA Credit 222: records show that all sub-loans awarded in the Oriente went to farms of more than 100 hectares in size. 46 percent of the amount on-lent in the project went to 4 operators with holdings of 800 hectares and more. Average loan-amount for the remainder was 535,000 sucres/farm. These findings suggest that any regional develop- ment plan for the Oriente must include a program to give smallholders access to official credit.
4. Development Activities
685. As pointed out earlier, there have been a number of modest settlement initiatives aimed at developing some of the Oriente's potential contribution to the country's economy. These present at least some tangible experiences of the difficultiesand promises of settlement activities in the Amazonian east; their approach as it,has evolved (or failed to evolve) over the past 5-7 year period is examined in some detail below.
(i) Government Supported Projects
686. Government has supported a number of small-scale settlement projects, executed by IERAC in Napo, by CREA in Morona Santiago, and by PREDESUR in Zamora Chinchipe. The similaritiesin their approach are greater than the differences,although differential availabilityof financing, as well as of planning and implementationcapacities between organizationsand over time are clearly reflected in the projects examined.
687. IERAC. The 1964 'Public Lands and ColonizationLaw' gave IERAC a mandate (i) to award titles to land, (ii) to provide spontaneoussettlements - 207 -
with infrastructureservices, and (iii) to promote 'directed'settlement --projects. In actuality, lack of funds 1/ prevented IERAC to develop any larger scale activity other than land titling.
688. In the Oriente, and more specificallyin Napo Province, IERAC has initiated three "directed settlements"to-date: Shushufindi,Payamino, and San Miguel. Of these, Shushufindiis the oldest (1972). Located in a region of excellent agriculturalpotential along the Lago Agrio-Coca road (about midway between these two towns), the project comprises a total area of 3,500 hectares and is intended to accommodateabout 80 settler families, who would hold and work the land as a cooperative. Actual farming was to be partly individual,partly communal: each settler receives 1 hectare for his house and "subsistencegarden" plot, plus 10 hectares of farmland to cultivate individually;the remainder of the land is cultivated communally. As of early 1978 Shushufindihad a total of 34 settler families.
689. -The settlers are expected to work four days per week for the coopera- tive - clearing land, tending cattle, looking after the hogs, developingan experimentaloil palm plantation etc. For this, they are paid a nominal cash wage (30 sucres or about 60 percent of the going wage rate in the area) and credited with a number of points which entitle them to a certain share of future profits. At present, co-op income is mostly derived from sale of cut timber; 2/ in future-,sale of--cattleis expected to become the more important, source of operating funds and profits.
690. No detailed informationis available on how prospective settlers of the Shushufindiproject were selected and recruited. As a rule, settlers should be in the 20-40 age group; married, with a background in agriculture or a craft, and landless in their place of origin. Each prospective settler in Shushufindihas to undergo a three months 'probationperiod': he partici- pates in the co-op's activitiesalong with the regular members (i.e. being paid a nominal wage only). If the coop-membersfind him a desirable work- mate, he will be accepted into the community. Many reportedlyleave before the 3-month period is up, preferring to try and establish themselves on their own. To reach the current core of 34 Coop members, a total of over 300 would- be settlers passed through Shushufindi.
691. This is a strikinglyhigh desertion rate in view of the considerable support provided by IERAC. Several reasons were adduced to explain it: first, in the early years of operation, project people experienced considerable hostility from surrounding"spontaneous" settlers, some of whom were evicted by IERAC from holdings they had begun to work - without title - in the lands zoned for the co-op; secondly, the degree of "long-term" economic thinking required by the co-op discipline (low cash wages, long-term build up of
1/ Over the 1964-76 period IERAC on avetage disposed of only 20 percent of planned and 50 percent of budgeted operating funds.
2/ Sawmill operating costs are paid by IERAC. - 208 - equity) was difficult for most prospective settlers to accept: being from very marginal backgrounds,they tend to put high value on "cash now" and little trust in "future assets"; thirdly, there may be reluctance by estab- lished co-op members to share the by now growing assets of the co-op among a wider group: their demand was for more machines rather than for additional members.
692. The Payamino project, initiated in late 1975, is-located just north of Coca, on the right bank of the Payamino river near its confluence with the River Napo. It is jointly supported by IERAC and "Hermanos de los Hombres" (HH) a Swiss-based private aid organization. As presently planned, the 16,000 hectare project is expected to accommodate 400 families, all from Mariano Acosta in Imbabura province, where RH have been working for several years and where pressure on available land is fierce. Again, each settler is to receive a 12 ha individual plot, while 5,200 of the remainder of the land would be exploited communally (each settler having the obligation of clearing and putting into production 5 ha/year). A total of about 6,000 hectares of project land is expected to remain as a forestry reserve. Settle- ments are to be clustered in villages with 30-40 families each. The project is to provide credit for housing, cattle purchase and annual crops.
693. By April 1978, the project administrationbuildings including a school and a medical post were constructed- all of local materials, but to a very high standard of workmanshipand equipped with a first-rate sanitary system. 1/ Demonstrationplots had been planted to a range of different subsistence crops. However, the total number of families settled was only 14; 90 hectares of land had been cleared and planted to pasture, and 120 heads of cattle had been acquired. There is some ongoing experimentation with water-buffalos- these promise a potentially higher return than cattle. The center operates a saw-mill and has a forestry tractor and several trucks provided by IERAC.
694. The San Miguel project, located sgven kilometers north of Lago Agrio on the road to the San Miguel river, was started in August 1976. It comprises 18,000 hectares and is intended to be settled by 360 families in all. As planned, there would be 9 modules of 2,000 hectares, each of which would accomodate 40 families. These would be settled in the center of the module, with individual 10 hectare plots extending radially from the farms, and communally exploited areas forming an outer ring. Modules are to be connected to each other and to the Lago Agrio-San Miguel road by an all-weather feeder road. The first module, including an administrativebuilding and a saw-mill, is centered on the existing road. So far 12 families have been settled; they work in land clearing, construc- tion of housing and (part) operation of the saw-mill: the main equipment is still in crates and waiting to be made operable. The project also has an impressive park of road constructionequipment (grader, loader, 3-4 trucks)
1/ Constructioncosts for professionalpersonnel housing reportedly were between US$10-11,000per house. - 209 -
which, to-date, has worked on constructionof the first module road --(900 meters) and improvementof the main road towards the San-Miguel river; it seems under-employed.- Among IERAC project personnel is a sociologistwho helps settlers with some of their adjustment problems to the new environment- a seeminglyefficiept move to prevent the high turnovers experienced in the earlier (Shushufindi)project.
695. A fourth project, San Pedro (Rucullacta)Tena differs from the others in that it basically supports existing settlements,both of native Yumbo Indians and of recent highland migrants to the area, with social infrastructureand credits. The San Pedro project area covers 41,000 hectares and has around 500 beneficiary families. Landholdingsare mixed: individual,communal (traditional),and cooperative. Besides sizeable agriculturalproduction for subsistence,the project includes 4,000 hectares under pasture stocked with 3,000 heads of cattle. IERAC activity in this relatively densely settled region has centered on facilitation of credit for cattle purchases (via landtitling)and constructionof communitymeeting houses and schools in ten sub-centersin the region; provision of a medical center in the main center Rucullacta; improvement of access roads to the area (Hollin-Rucullacta(7 km), plus a number of smaller connectionsbetween sub-centers);and establishmentof a demonstra- tion farm.
696. - Available informationon the comparative costs of the San Pedro vs. the three-"directed" settlement projects is too spotty to allow any valid assessment of relative cost-effectiveness. For 1977 alone, IERAC infrastructureinvestments in Shushufinditotalled 4.9 million sucres (US$200 thousand equivalent),i.e. 144 thousand sucres per actual settler (=34), 61 thousand sucres per planned (=80) beneficiary family; those in San Pedro amounted to 6.4 million sucres or 13 thousand per actual beneficiary family. While indicative only, these figures do underline the high cost per beneficiary of the 'directed' schemes and raise doubts.about their replicabilityon a scale where settlementactivities would begin to be large enough to relieve population pressures in the highlands and to actualize agriculturalpotential in the Amazonian lowlands.
697. There seems, at present, to exist a contradictorytendency between the two major IERAC activities: through its land-titlingpractice (for spontaneous settlers), IERAC encourages an orderly (row by row, side by side 50 ha parcels) but highly dispersed pattern of settlement,for which it will be very costly to provide adequate road and social service infra- structure. In its settlement activity on the other hand, IERAC is promoting nucleated settlement patterns which facilitate provision of infrastructure services. While these should attract migrants, the added requirements,in those directed settlements,of partly communal exploitationof land and forced savings in the interst of equity build-up in fact seems to deter potential settlers, and it is spontaneous settlement that keeps increasing despite the almost complete absence of service facilities of any kind in the newly occupied areas. A possible solution - now that more information on soils/crops/yieldsetc. is available for the region-mightlie in using the process of land-titlingitself to achieve a more desirable pattern of - 210 - land-use and settlement,leaving the choice between individual or joint exploitationup to the settlers. This might-be done by simply designating different sub-areas for different types of farm-organizationand publicising which are which. At present it would seem that a significantpart of the settler population in Napo province is not at all affected by IERAC's activities, while a very small number of privileged farmers enjoy a range of supporting services which it will be impossible to extend to a majority of area residents because of budgetary constraints.
698. In Morona Santiago province, IERAC's activity also has been confined to the legalizationof landholdingsby spontaneous settlers who began to occupy the region in sizeable numbers over the 1937-70 period. 1/ Between 1964-74 alone, IERAC issued titles for 212,000 hectares to some 4,000 beneficiaries. There were plans for a directed settlement project to be implemented by IERAC in the Palora region, but they were aborted through lack of funds.
699. CREA, the regional development institution first created in 1952 to help alleviate the economic distress of Azuay and Canar provinces following the break-down of the panama hat industry, added 'settlement'and socio-economic development of Morona-Santiagoprovince to its scope of work in 1965. Since then, CREA has initiated three projects. The first provides support services to spontaneous settlers in the Upano river valley; the second assists the semi-directed'settlements in the Upanao-Palora region; the third is a 'directed' settlement in Morona. The main component of the Upana project, (initiated in 1966) was the constructionof 128 km of trunk road between Limon Indanza and General Proano, which opened the right bank of the Upano river for settlement; in addition, about 60 km of feeder roads were constructed;the airstrips in Macas, Sucua and Chupianza were improved; a dispensary was constructed in Macas; and agriculturalcredit for cattle purchases, totalling 22.6 million sucres were facilitated. Total project costs amounted to 100 million sucres, 60 percent of which were covered by an IDB credit.
700. The Upano-Paloraproject started in 1969. It was to cover the area bounded by the Upano, Palora and Pastaza rivers extending over 120,000 hectares. The project foresaw settlement of 3,800 families, the development of four urban-rural growth'polesand the formation of 50 villages over a 10 year period. During project implementationit was found, that 80 percent of the proposed project area was in fact settled by native Shuar people who, through intermediationof the Shuar Federation, finally were given valid titles to their lands. In the thus significantlyreduced project area (24,000 ha), there exist at present 7 settler cooperatives(or pre-cooperatives). CREA provides them with food support and housing credit for the first two years; thereafter it provides technical assistance to give settlers access to bank credits, medical and dental services, primary and adult education services, some marketing support (-admittedlynot sufficient). CREA also contributes to the constructionof community houses and basic social
1/ 1930-41: gold mining influx - pull; 1950 onwards: decline of panama hat industry in Azuay and Canar - push. - 211 -
services. The project has suffered initially from poor planning, under- -- financing, and lack of qualified professional personnel; CREA considers it more a learning experience than a prototype project.
701. The latest CREAproject (Morona Project) was launched in the area east of the Cutucu mountains and is comprised of approximately 300,000 hectares situated between the Undamangosiza, Cangaime and Morona rivers. Ultimately, this is expected to provide farms for 4,250 families from Azuay and Canar provinces. There are first phase plans for the creation of a regional growth pole of about 1,000 families, and for the formation of 12 cooperatives.
702. At present, the area is accessible by air only. An airstrip has been constructed at about 3.5 km from the first cooperative (San Jose de Morona, about 65 settlers) which is serviced weekly by FAE 1/ planes and irregularly by others. The closest village is a Shuar settlement about 15 km away. To connect the cooperative to the nearest existing road in Mendex, about 180 km of road would have to be constructed.
703. During the first year or two of settlement, the only source of income for the Morona settlers has been the pay received from CREAfor the construction of the basic infrastructure. This averaged about 50 sucres per day (1975/76) of-which 12.5 sucres were deducted for food. It is expected that each settler work for about 60 days/year on community infrastructure projects. In his own time, he constructs his house (from local materials, but with CREA credit) and begins clearing land for planting subsistence crops. Since a school has only recently been opened in the cooperative, many settlers still haven't brought their families there: total population after the first year was 156 people.
704. Based on IERAC land titling records, on data from the Cooperative Settlement Program and on its own project experience, CREA estimated 2/ average direct settlement costs in the Oriente on a per family and per hectare basis. These are as follows:
1/ Fuerza Aerea Ecuatoriana
2/ Resumen del Diagnostico Socio-Economico, op cit. p. 195 - 212 -
ComparativeCosts of Direct Land Settlement (1976)
Cost per family Cost per hectare 2/ Sucre US$ (equivalent) Sucre or US$ (equivalent)
(i) Land titling only 5,000 200 134 5
(ii) Support to Spontaneous Settlements1/ 20,000 800 500 20
(iii) Directed Settlements 90,000 3,600 3,000 120
-1/ This includes mostly roads, school, health, community center services. 2/ PREDESUR (DesarrolloRural Integral, Canton Zamora, June 1977, pp. 142-3) estimated operating costs and returns on a 30 ha farm consisting of 5 hectares crop/gardens,15 hectares pasture for 26 cattle and 10 hectares forest (to be developed over a ten-year period) as follows:
Sucre US$
Year 9: Gross Value of Production 71,000 2,840 Cost of Production 10,000 400
Net Value of Production 61,000 2,440
One might consider the first as closest to the actual level of settler support, the last as the desired, but unsustainablelevel, and the second as a probably viable one which might be improved upon. CREA is currently drawing up a detailed socio-economicinventory of existing settlements throughout Morona-Santiagoprovince along with surveys of the resource potential of unsettled lands. On the basis of-these, it will be possible to establish sound priorities concerning the type(s) of settlement activities to support, and to plan a proper sequence of the support services most needed by present and future settlers.
705. PREDESUR. In Zamora-Chinchipeprovince, PREDESUR have in fact concluded detailed socio-economicsurveys 1/ of the Zamora and Nangaritza valley regions and, based on their findings, proposed an integrated regional development project or plan. 2/ The proposed project area is the canton of Zamora; it extends over 7,800 km2 and includes the two river valleys mentioned
1/ "DiagnosticoSocio-Economico de los Valles de los Rios Zamora y Nangaritza', PREDESUR Publication No. 70, Quito, June 1977, and 'DiagnosticoSocio- Economico del Valle del Rio Nangariza', PREDESUR PublicationNo. 71, April 1977.
2/ "DesarrolloRural Integral - Provincia de Zamora-Chinchipe,Canton Zamora." PREDESUR Publication No. 72, Quito, June 1977. - 213 - above. The Zamora valley already has a considerablespontaneous settler population (about 4,000 families); the Nangaritza valley has a small native (Shuar) population plus a few settlers and offers considerablesettlement potential.
706. Total project costs are estimatedat US$31.3 million; just under half of this (US$15.2 million) is to be financed by an IDB credit. The-foreign exchange component is expected to amount to US$8.6 million (=33 percent). The project envisages infrastructure(roads, community centers, health centers, drinking water, schools, topographicsurveys) investments of US$21.1 million (67.5 percent of total project cost); production support investments (tech- nical assistance to farming and livestock;forest reserve and forestry research center; feasibilitystudy for explorationof silicum deposits) of US$4.2 million (13.3 percent), and credit for livestock purchases and for housing constructionof US$5.3 million (16.9 percent). Proposed project implementationperiod is four years. There are expected to be 3,000 direct beneficiaryfamilies (new settlers),and 4,625 indirect beneficiary families (=70 percent of the present population of the province) who will benefit from the proposed infrastructureimprovements, as well as from the expected increase in economic activity in the region.
707. As presented,the PREDESUR project would seem to provide a good proto-type project: it sets out a comprehensive,coherent and concrete developmentp'lain for a whole sub-region,that provides support to both existing and prospectivesettlers, stresses good management of existing renewable resources; and does so at a cost per -beneficiaryfamily of US$4,100 (which includes a very sizeable infrastructurecomponent).
(ii) Private Industry Projects
708. To date, hardly any private industry development (apart from the oil companies')has taken place in the Oriente. In view of the region's distance from the main consumpti6n centers, any integrated regional developmentplan should try to promote local "transformation" capacity for high volume primary products, so as to minimize transport cost, increase the Oriente's competitiveadvantage and diversify sources of potential wage employment for area residents.
709. The first agro-industrialproject to have been initiated in the Oriente is a joint Government/industryventure: the tea plantation complex in Pastaza province. The mission was unable to obtain data on its operational record.
710. Following a period of exploratory surveying, several companies are presently considering the establishmentof oil palm plantationin Napo province. Palmeras de los Andes, a Colombian firm, is farthest advanced in its plans: it has obtained title to some 10,000 hectares from IERAC and has begun experimentalplantings in an area northeast of Shushufindi. Belgian (Sofinco)and Swiss (H.V.A.) companies are reportedly considering to establish plantations in the Huashito area (southwestof Shushufindi), where the Government wishes to promote small-holder oil palm production. - 214 -
711. The Industrial Development Center (Centro de Desarollo Industrial del Ecuador, CENDES), under the Ministry of Industry, Commerce and Integration -hasbeen actively promoting a number of potentially interesting agro- industrial projects for the Oriente. Among these are meat processing facilities; palm oil mills; cassava-flourplants; and wood-processingfacilities of various kinds. Coffee and tea-processingcapacity should be provided in the longer term. However, little industrial development is likely to materialize until basic infrastructureis available in the region.
5. Recommendationsand Outline of Projects for Potential Donor Financing
712. From this overview of the resource potential and current settlement activities in the Oriente, the lack of feeder roads and basic agricultural support services clearly appear as the most binding constraints on development. In addition, investments in both social infrastructure services and agriculturalresearch on humid tropic crops will also be required to help settlers achieve a minimally adequate level of life. This would suggest an action program along lines set out below.
(i) Recommendations
713. The Government should define clearly the relative priority of:
(a) settlement schemes in agriculturaldevelopment generally; and
(b) settlement in the Oriente vs. promotion of schemes in other regions.
Should settlement of the Oriente be high on the list of priorities, INCRAE should start work as a coordinating,rather than an executing agency. It should concentrate on developing a coherent concept for a region-wide settle- ment support plan, but rely on the field capacity of existing organizations for project implementation. CREA and PREDESUR should continue to implement settlement projects in their respective areas of influence.
714. If it is decided that IERAC - which has been undertaking settlement projects in Napo province (as well as in other regions of Ecuador) - is to concentrate on land -- titling/landreform issues exclusively,INCRAE should take more direct responsibilityfor project planning and implementation in Napo and Pastaza provinces. It must be borne in mind that any regional 'INCRAE-SettlementUnit(s)' would have mainly planning, coordinatingand supervisoryfunctions, while actual execution of the various project com- ponents would remain the responsibilityof different specialized agencies such as MAG, MOP, MEP, BNF etc.
715. The first strategy for any Oriente settlement program should be to provide basic productive, infrastructure,and social support services to existing 'spontaneous'settlements in areas of confirmed agricultural potential. The most essential components of such a program would be:
(a) provision of agriculturalextension, credit and land-titling services for smallholders; - 215 -
(b) provision of reliable access to the main extra-regional markets (Quito, Guayaquil) and constructionof a skeleton, all-weather,feeder road network within the more density settled sub-areas;and
(c) provision of social service facilities such as a basic network of health-centers,and training of (local) paramedics to staff them; education facilities;administrative and community service centers.
716. New areas to be opened up in later stages should be contiguous with those of existing settlements,i.e. they should extend the agriculturalfrontier gradually, thus ensuring the widest possible sharing of any new administrative and other infrastructureservices to be developed. Initially, no more than access roads to selected areas might be provided, together with information on soils and suitable crops for various sub-locations,and a clear delinitation of those parts of the proposed settlementareas, where forest could not be cut and would remain as reserve to ensure erosion control.
717. Concurrentlywith any settlement program(s),the Government will have to pursue and strengthen agricultureresearch, possibly using the few 'directed settlements'as test sites or pilot projects for developing appropriate farming systems for the region.
718. Preiiminary investigationsindicate that oil-palm and rubber are potential crops in the Lago Agrio-Coca area. Tea, coffee, and cocoa might be promising in other-provinces. For many of these however, initial plantings of not less than 1,000 hectares are required to justify installation of technical support and processing facilities. Most probably, a specialized entity would have to be set up to plan, establish and manage any plantation/ mill complex; such a unit could be either a parastatal,a private enterprise or a cooperative of settlers.
719. Exploitationof forestry resources, which has hitherto occurred in disorderly simply as a by-product of settlement activities, should be put on a more rational basis. Forestry program of careful long-term management of this major renewable resource of the country.
(ii) Projects for Potential Donor Financing
720. There are thus two different types of projects which may be suitable for - and would benefit from - Bank or other Aid Agency financing, namely:
(a) Support Project(s) for Spontaneous Settlements
(b) Oil Palm/Rubber DevelopmentProject(s)
Settlement support project(s) would seem most needed in two locations in Napo province: Lago Agrio-Coca and Baeza-Tena; each with approximately 5,000-7,000 beneficiaryhouseholds; and in two locations in Morona Santiago province: Upano-Paloraand the region east of the Macas-Sucua road, each - 216 - with a 3,000-5,000household population. All but the Lago Agrio-Coca region are located in the Andean foothillswhere the main agriculturalpotential is for pasture developmentand cattle breeding. While this is currently also the focus of agriculturalactivity in the lowland region, that area has potential for more diversified agriculturalexploitation including oil palm development.
721. Possible new settlement infrastructuremight be located in the- area to the north and west of Coca (Huashito,280 km2) and/or in the 670 km2 area southwest of Coca) of which Loreto is the center.
722. The support project(s) for spontaneous settlementswould aim at providing basic services to some 5,000 settler families over area of 200,000 - 300,000 hectares. Socio-economicstudies carried out by MAG and INIAP in NAPO, and by CREA in Morona province provide information to prepare development plans for these areas. Preparationof such plans and feasibilitystudies should be kept simple and oriented towards addressing the basic needs of the settlers by providing the services outlined before. Preparation of the plan should be carried out by Ecuadoriantechnicians (presumably from INCRAE/CREA), assisted by one or two specialistsin project preparation/projectorganization/ humid tropic crops.
723. Oil palm developmentproject(s) might consist of a central 'plantation' of some 5,000 ha, to be established over a 5-7 year period, plus some 2,000 ha. of smallholder outgrowers from among the spontaneous settlers in contiguous areas whose anticipated production would also be part of the project. It has been shown that ecological conditions in Napo province are suitable for oil palm; in fact, a private plantation is in the process of being established there. However, additional informationon soils and meteorologicalcondi- tions will be required to select a suitable project ara. The decision on the type of enterpriseto be charged with developing the project would have to be made by Government.
724. The success of any project in the Oriente will depend critically on improved links between the region and the rest of the country. Mini- mally, this would require the provision of bridges across the Coca and Aguarico rivers and more reliable all-weather access to the Highlands, perhaps through a more direct road connection between Hollin (on the Baeza-Tena road) - Loreto-Coca (for which preliminaryplans exist). Close coordinationand complementaryproject timing between MOP and MAG will be crucial for oil Oriente settlement activity.
725. Indicative project components and costs for the two suggested project types are outlined below: - 217 -
A. Support Project for SpontaneousSettlements
N Beneficiaries - 5,000 families Area of Influence - 2,000-3,000km Project Horizon - 5-7 years
% of Sucre US$ Equivalent Total (million) (million)
Production Support 275-385 11.0-15.5 50-53
On-Farm Investments 225-335 9.0-13.5 (for 1,000-1,500families, for land development (cattle/treecrops)
15 ha - @ Sucres 15,000/haaverage
Extension Services
(Facilities,training) 50 2.0
InfrastructureSupport 205-265 8.2-10.5 37-36
Feeder Roads 155-210 6.2-8.5 -
(Minimal grid to serve respaldos 120-160 km, @ Sucres 1.2 million/kim)
Market Centers 50 2.0
Social Service Facilities 75 3.0 13-11
Sanitation programs, health facilities incl. medical/para- medical services, community centers etc.
565-725 22.6-29.9 100-100 - 218 -
B. Oil Palm DevelopmentProject (Phase I & II)
(Estate plus SmallholderOutgrowers)
N Beneficiaries - 1,000 estate worker families 2,000 sm llholder families Area of Influence 1,000 km
Project Horizon - Estate development 2 7 years Outgrower development = 5 years starting in year 5 of project
Sucre US$ Equivalent % (million) (million)
Establishment of Plantation 562.5 22.5 38-35
(including landclearing,roads + drainage, planting, maintenance etc. @ Sucres 37.5 thousand/ha)
Estate (5,000 ha) 187.5 7.5 Smallholders(10,000 ha) 375.0 15.0 (startingyear 5) -
Processing Facilities
@ Sucres 43,700-50,000per hectare) 875-1,000 35.0-40.0 60-63 (to be installed in stages) -
Worker Housing 25.0 1.0 2-2 (for about 1,000 families)
Total 1,190-1,588 58.5-63.5 100-100 - 219 -
X. INDUSTRY
-1. Recent Trends
.(i) Growth Performance
726. In line with overall economic expansion in the 1970s, industrial growth was high and acceleratedin recent years. The increase in industrial value-added averaged almost 10 percent p.a. (measured in 1970 prices) -- volume growth was slightly higher -- and since 1975 exceeded GDP growth by a significantmargin. Virtually all subsectors participatedin this expansion, with above-averagegrowth for newer industries such as production and process- ing of chemicals, non-metallicminerals, metals and metal products. Industrial developmenthas traditionallybeen based on agroindustriesincluding those related to fisheriesand forestry,and more recently, on relatively labor- intensive activities such as light metals manufacturing. Expansion was stimulated by fast growth of incomes in the wake of the country's transforma- tion to a petroleum-basedeconomy, a favorable investment climate resulting from beneficial government policies towards the private sector, financial stability, and to a certain extent, the emergence of the Andean Common Market which has contributed to a more outward-lookingorientation of Ecuador's industries.
727. Industry's share in--GDPduring 1970-77 remained nearly unchanged at 17.5-percentbut excluding the petroleum sector,-it increased from 17.5 percent to nearly 20 percent. Industry thus accounted for somewhat less than one-fifth of the increment in GDP. Its share in fixed investment in the 1970s might have been around 25 percent, including foreign investment which increased in 1970-75 from US$60 million to US$196 million. On the other hand, its contributionto employment generation was much smaller. Additional employment generated in industry during 1972-77 was just about 60,000, or 18.5 percent of the increase in the labor force~. It is estimated that the number of industrial employees grew at 2.7 percent p.a. 1/ since -1970,and amounts to about 332,000. Its share in overall employment in the latter year would have been 15 percent, remaining nearly unchanged since the early 1960s.
(ii) Industrial Structure
728. Despite its fast growth, industry as a whole has remained at a relatively early stage of development,with a small modern segment of import- substitutingindustries super-imposedon a largely traditional sector where small firms prevail. Traditionalactivities such as food processing, textiles, and wood processing accounted in 1970-75 for 55 percent of value-added and
1/ This would suggest that increases in labor productivityprovided nearly three-fourthsof industrial growth, increasing at the high rate of 7.3 percent p.a. in 1970-77. However, labor productivityin factory employment during 1970-75 increased by 3 percent p.a., which suggests that either labor productivityincreases in small industry were sub- stantially above the average, or that the increase of industrial employ- ment was 'ineffect higher, and labor productivityincreases corres- pondingly lower, than derived from the above data. - 220 -
nearly two-thirds of fixed investment in the sector whereas chemicals, non- metallic minerals and metals contribute just about one-third to both value- -addedand investment. The share of consumer goods in industrial value-added during 1970-77 slightly increased whereas that of intermediategoods (including chemicals and some other new production lines) declined and the small share of capital goods remained virtually constant (Table 51).
Table 51: INDUSTRIAL STRUCTURE, 1970; 1974; 1977
Current S/ million Percent 1970 1974 1977 1970 1974 1977
Industrial Value-Added 5,671 12,803 25,743 100.0 100.0 100.0
Consumer Goods 3,341 7,819 15,722 58.9 61.1 61.1 Food, Beverages, Tobacco (1,942) (4,448) (9,056) (34.2) (34.7) (35.2) Clothing, Footwear (36) (114) (230) (0.6) (0.9) (0.9) Furniture (61) (222) (436) (1.1) (1.7) (1.7) Paper, Printing (527) (1,175) (2,335) (9.3) (9.2) (9.0) Chemicals - Final Products - (588) (1,468) (2,928) (10.4) (11.5) (11.4) other (187) (392) (737) (3.3) (3.1) (2.9)
IntermediateGoods 1,739 3,641 7,307 30.7 28.4 28.4 Textiles, Leather (760) (1,694) (3,423) (13.4) (13.2) (13.3) Wood -(194) (335) (658) (3.5) (2.6) (2.5) Chemicals - Intermediate Products (454) (869) (1,733) (8.0) (6.8) (6.8) Non-metallic Minerals (251) (572) (1,161) (4.4) (4.5) (4.5) Basic Metals (80) (471) (332) (1.4) (1.3) (1.3)
Capital Goods 591 1,343 2,714 10.4 10.5 10.5 Machinery, Equipment (591) (1,343) (2,714) (10.4) (10.5) (10.5)
Source: Table 9.1, StatisticalAppendix.
729. The average size of industrial firms has remained small. Small- scale industries and artisan workshops (i.e., firms employing less than 7 persons) have provided during the 1970-77 period 75 percent of industrial employment but just somewhat above one-third of industrial value-added (Table 52). They accounted for 38 percent of value-added growth yet contributed only 20 percent to the increase in industrial employment, indicating a productivity
1/ The contributionof small firms to growth of value-added and employment might be underrepresentedsince a significantnumber of these establish- ments has passed from the "small" to the "medium to large" category. - 221 -
growth well above that of industry as a whole. 1/ They are important in wood -processing, chemicals, printing, and textiles whereas their share in basic metals (as distinct from metal products) is very low. 1/ There might now be about 1,500 medium-'and large-sized firms in existence, -representing about 5 percent of industrial establishments. However, even these firms are small by international standards: in 1974, only about 150 firms (out of 1,255 included in the manufacturing survey for that year) employed more than 100 persons, and only 5 firms -- in textiles, chemicals, and metal products -- have had employ- ment of more than 500 and annual gross production of about US$10 million equivalent. Factory employment per firm during 1970-75 rose, from 49 to 56 persons.
Table 52: RELATIVE SHARESOF FACTORYINDUSTRY AND SMALL-SCALEINDUSTRY IN INDUSTRIAL VALUE-ADDED,1975
(percentages)
Small-Scale Industry S.I.T.C. Industry and Artisans
TOTAL 63.9 36.1
31 Food, Beverages and Tobacco '72.6 27.4 32 Textiles and Clothing - 66.7 33.3 33 Wood and Wood Products 52.8 80.5 34 Paper and Printing 47.7 52.3 35 Chemicals and Products 43.0 57.0 36 Non-metallic Minerals 75.5 24.5 37 Basic Metals 96.3 3.7 38 Metals Products; Machinery and Equipment 67.9 32.1 39 Other 95.6 4.4
Source: Banco Central del Ecuador; INE.
730. Labor Costs, Productivity and Returns. The -small firm size pre- vailing in industry puts limits to increasing-efficiency. -As-a result of the shallow industrial structure, value-added in factory industry has never exceeded 40 percent of gross production and has tended -todecline -inrecent
1/ The small industries' high share in production of chemicals is probably due to this type of activity mainly being carried out by laboratories rather than factories. The metal products' subsector obviously includes repairs where small establishments prevail. - 222 - years. A comparison of recent trends in labor costs and productivityin Ecuador and Colombia is illustrativein this regard. Labor costs in factory employment in Ecuador increased during 1970-74 by 9 percent p.a. as measured in current US$ terms, (but just about 1 percent p.a. in constant S/ terms) which was nearly twice as fast as in Colombia. Since 1975, these increases in Ecuador have accelerated to about 20 percent p.a. (7.5 percent in constant terms) mainly because of emerging shortages for skilled labor and increased labor union activity. Ecuador's slight competitive edge over Colombia pre- vailing during the early 1970s disappearedand starting in'1974, Ecuadorian wage costs were on average 15 percent above those of Colombia. While indust- rial value-added per employee up to 1974 was comparable, 1/ the share of labor costs in value-addedalready in that year was above Colombia's (i.e., 35 percent vs. 30 percent). Also, industrial labor costs as a proportion of gross output in Ecuadorian industry remained nearly unchanged during 1970-74 at 13.5-14 percent whereas a significantreduction in this share was attained in Colombia (from 15 percent to some 12 percent). Furthermore,industrial labor costs in Ecuador exceed economy-wide labor costs by a margin much larger than industrial labor productivityexceeds productivityin the overall economy. Thus, costs per industrial factory employee in 1975 were 4.7 times as high as average labor costs per employee in the economy whereas value-added per industrial factor worker exceeded GDP per employee by a factor of 3.08 (com- pared to 2.45 and 2.82, respectively,in Colombia) indicating the privileged position of the industrial labor force within Ecuador's economy (Table 53).
Table 53: WAGE COST AND PRODUCTIVITY PER EMPLOYED, ECUADOR AND COLOMBIA, 1970-75
(in US$ at current exchange rates)
ECUADOR COLOMBIA 1970 1974 1975 1970 1974 1975
(1) Industrial Wage Cost 1,319 1,936 2,320 1,393 1,678 1,815 (2) Industrial Value-Added 3,611 5,482 5,586 3,950 5,537 5,742
(3) Economy-wideWage Cost 241 410 494 466 679 741 (4) GDP per Employed 799 1,614 1,811 1,132 1,870 2,034
(1):(3) 5.47 4.72 4.70 2.99 2.47 2.45 (2):(4) 4.52 3.40 3.08 3.49 2.96 2.82
Note: 1975 figures are provisional.
Source: INEC, Banco Central del Ecuador; INEC, Banco de la Republica (Colombia).
1/ US$5,482 equivalentvs. $5,537 equivalent in Colombia. However, the results for Ecuador might be inflated by the overvalued exchange rate. - 223 -
831. Growth in labor productivityin factory industry amounted to 3 per- --cent p.a. during 1970-74 thus exceeding the increase in labor costs. While such growth might have accelerated in more recent years, labor cost increases have probably overtaken productivitygains. On the other hand, capital pro- ductivity is likely to have grown in line with improved capacity utilization which together with import duty-exempt imports of capital goods and raw materials by firms receiving investment incentives results in unit cost reductions and improved returns. Increases in industrialwholesale prices during 1974-77 averaged 14.5 percent p.a. 1/ However, since this index gives significantweight to some price-controlleditems (such as foodstuffs and petroleum fuels) the bulk of industrial prices ought to have increased more than indicated by the index. Industrial returns have declined somewhat since the early 1970s -- probably reflecting real increases in wage costs -- but have remained high for major export industries (fishing; cocoa processing) and import substitutionindustries with a substantialdegree of tariff protec- tion (metal processing;electrical appliances). At the other end of the scale, returns have been low or even negative for industries that in general are conservativelymanaged and are subject to price controls such as foodstuffs (Table 54).
Table 54: INDUSTRIAL RETURNS, 1973-76
(percentages)
Return /aon Net Worth Return/a on Sales Labor Intensityib 1973 1974 1975 1976 1973 1974 1975 1976 1973 1974 1975 1976
Fishing 54.0 52.9 45.0 41.1. 36.8 40.0 36.1 30.2 14.2 15.4 15.2 14.3 Cocoa Processing 17.5 24.8 27.0 .. 9.8 12.1 12.1 11.4 10.6 10.6 Metal Processing 34.5 41.9 37.5 35.1 24.1 17.0 15.9 12.3 .. 20.6 .. 27.5 Electrical Appliances 28.4 24.6 19.9 15.0 13.4 15.9 7.6 5.7 10.4 17.7 18.2 15.6 Textiles 16.6 17.2 15.0 19.9 11.8 10.5 9.4 11.8 26.6 28.0 32.6 31.6 Pharmaceuticals 25.6 25.8 11.1 14.4 14.8 14.1 5.8 8.6 19.1 .. .. 24.4 Wood Processing 13.2 13.3 .. .. 14.8 ...... 21.1 Beverages 3.9 2.6 4.6 3.8 3.2 1.5 2.6 1.7 7.5 6.4 7.7 7.9 Foodstuffs 8.2 -2.7 .. .. 2.1 -1.4 ...... 8.1
Not available. -
/a Profits before taxation. lb Share of labor costs (including administration)in sales net of distribu- tion costs.
Source: Company SupervisoryBoard, based on financial statements by firms representativefor individual subsectors.
1/ The index was started in 1974. - 224 -
732. Import Dependence and Export Capacity. The expansion of industry has been associated with even faster growth of import requirementsfor capital goods but also for current inputs, and even consumer goods. During the 1970-77 period, capital goods imports in current US$ terms increased nearly 10 times and that of current inputs, 4 times which has been in excess of the increase in industrial output. Medium- and large-scale firms import nearly one-half of their current inputs, a proportian which has changed little over the past decade. The import share in current inputs is particularlyhigh among branches with value-added below the industrial average, e.g., paper and basic metals. At Ecuador's stage of industrialization,large import require- ments for capital goods are to be expected. However, the excess of domestic inflation over internationalinflation, the constant exchange rate and accelerating labor cost increasesmake it profitable to Ecuadorian firms to mechanize and to increasinglyrely on imported equipment and materials, to the detriment of using domestic resources, including labor. Needless to say that growing import dependencemakes the sector susceptible to the foreign exchange position of the economy.
733. Meanwhile theze has been a remarkable increase in industrial exports which reached US$290 million in 1977, compared to less than $20 million in 1970. However, both in respect to their size and composition,industrial exports reflect the early stage of sector development compared to more in- dustrializedcountries in Latin America. Two-thirds of the increase in industrial exports was due to substitutionof processed cocoa for raw cocoa exports, but fish products (for animal and human consumption),wood products and electrical appliances also scored important increases. The duty-free access of some Ecuadorian products to the Andean Common Market had a bearing as well, although exports to the Subregion grew less than to the rest of the world (Tables 7.8, 7.9 of StatisticalAppendix). These important advances notwithstanding,there has been a widening gap between industrial exports and imports required by industry reaching US$586 million in 1977, up from US$139 million in 1970 (Table 55).
Table 55: FOREIGN TRADE IN INDUSTRIAL GOODS, 1970-77
(US$ million)
1970 1973 1975 1976 1977
Imports by the Industrial Sector 158.0 233.3 528.3 609.3 876.4 Raw Materials and IntermediateProducts (116.1) (149.3) (292.4) (355.4) (475.9) Capital Goods (41.9) (84.0) (235.9) (253.9) (400.5)
Industrial Exports 18.6 48.4 83.8 119.9 290.5 Cocoa Products (2.6) (8.8) (28.4) (62.4) (185.7) Others (16.0) (39.6) (55.4) (57.5) (104.8)
Source: Tables 9.6, 9.8 of StatisticalAppendix. - 225 -
734. Constraintsto IndustrialDevelopment. Recent fast growth of industry notwithstanding,a number of factors have impeded the development of the sector. First, the institutionaland physical infrastructurehas not developed fast enough to cope with rising requirementsassociated with industrialization. Power supply has often been inadequate, causing interrup- tions in industrial production. By the mid-1970s, nearly 30 percent of electricity consumed by industry was self-generated,resulting in high power costs to industrial producers. The transport and telecommunicationssystem is also approachingcapacity limits. With ongoing investment in the power sector, energy supply constraints should in due course be overcome. Shortages of qualifiedmanagement personnel and low technical preparationof the labor force depress productivitylevels, a problem likely to be solved over the medium to longer term.
735. Second, the domestic market for most products is limited because of the small size of the domestic economy and low incomes accruing to most of the population. Whereas products in mass demand tend to be produced primarily by traditional, often backward small firms, many of the newer and more dynamic firms cater mainly to higher-income groups, with products like domestic appliances,cosmetics and pharmaceuticals,etc., for which they are approachingmarket saturation. Third, existing growth opportunities were often not taken up by firms partly because of heavy concentrationof industrial ownership and reluctance on the part of capital owners to accept new share capital, entrust professionalmanagers with the running of their enterprises,and-to take other measures prone to make the industrial sector more open and dynamic. Fourth, Government policies relying mainly on invest- ment subsidies and tariff protection have contributedlittle to increase industrial efficiency. Fifth, limited availabilityof financing for indus- trial firms with less than prime credit rating, particularlysmall firms, has also held back industrial expansion. Finally, the lack of managerial skills and difficultiesof adaptation and absorption of new technology add a further dimension to the previously mentioned constraints.
736. These limits to industrial expansion also explain the prevailing low export intensityof the majority of firms which, in turn, are reinforcing the constraints to growth of industry. Existing export opportunitiesare often not exploited because of the lack of experience, inability on the part of firms to secure regular deliveries on a scale which often exceeds their productive capacity, and also because profitabilityis generally higher on domestic than on export markets. Thus, except for a few export-intensive industries,firms tend to export only surpluses not saleable domestically, often at marginal cost. On the other hand, the relatively high import depen- dence of leading growth industries has tended to impede the development of linkages to supplying industries and other sectors of the domestic economy that could provide industrial inputs.
2. Government Policies
737. The Government over the last two decades has aimed at advancing the industrializationprocess in order to stimulate import substitution,indus- trial exports, generation of employment and a more balanced regional develop- ment of the economy. To bring these aims about, the Government had tradition- ally relied on the private sector rather than on direct participation -- as - 226 -
investor or producer -- in industrial activities. However, equity participa- tion in industry by Government financial entities has become more significant and the industrial directorateof the Armed Forces (DINE) has started producing a range of goods, apart from entering as a shareholderinto some industrial firms.
738. The Government stimulates industrial activities through fiscal incentives, tariff protection,and financing at favorable interest rates. More recently, export incentivesthrough tax credits for non-traditionalexports and duty exemptions for imported inputs incorporated into exported products have also been applied.
(i) Investment Incentives,Tariff Protection, and Export Promotion
Fiscal Investment Incentives
739. Tax exemptions and reductions are the most important component of the Government's policy of industrial incentives. They consist of exemptions from import duties for machinery and equipment and from minor taxes such as on real estate transfer, stamp duties, etc. The extent of these tax exemp- tions and deductions depends on the nature and location of investment in question. They are largest for industries that utilize local raw materials, establish new lines of production and are located outside the Quito and Guayaquil regions (i.e., those classified in the "Special" and "A' categories of the Industrial Incentive Law). Conversely, the lowest or no incentives are given to firms in industries already established or being established in the more advanced regions of the country. Comparable incentives exist for small- scale industries and artisans which appear to be granted with less scrutiny than those for medium- and large-scale industries.
740. Ecuador's investment incentivesare among the most generous in Latin America. They have recently been increased for operations in specified locations outside the Quito and Guayaquil regions in an effort to give a stronger stimulus to industrial development in relatively underdeveloped regions. Incentives conveyed by the "List of Special Investments"(Lista de Inversiones Dirigidas; LID) include full exemption from income taxes for 10 initial years (i.e., not only in lieu of re-invested profits), higher export tax credits and additional personal tax allowances for employees of firms included in the LID scheme. Import duty exemptions and reductions are without time limit.
741. Protection. As part of the incentive package, industrial firms receiving tax incentives are also granted import protection. The degree of protection is based on an assessment of the firms' production costs, profit margins and capacity to supply the domestic market, among others. Import protection is mainly granted through tariffs: the use of quantitativerest- rictions including import prohibitionshas been restricted in order not to interfere with adequate supplies for industry in terms of costs and quantities and to forestall the emergence of local monopolies. Quantitativerestrictions are therefore applied mainly to luxury type items such as motor cars. Never- theless, Government entities and firms receiving fiscal incentives are expected to "buy local" insofar as the goods required are domestically produced. Nominal - 227 -
tariffs used to be very high but since the 1974 tariff reform, moderate (i.e., zero - 20/30 percent) rates have been applied to imports of machinery and --equipmentand raw materials whereas tariffs on consumer goods are in the 50-70 percent range and approach 200 percent for some items, e.g., private automobiles. Also, a 30 percent surcharge is levied on imports of non- essential consumer goods but also on imports.of some industrial inputs produced locally. The dispersion in rates (including the surcharge) between industrial inputs on the one hand and finished products on the other, can result in effective protection of as high as 100-150 percent. In addition, prior import deposits have been in effect since 1975 ranging from 10-30 per- cent of the CIF value depending on the nature of the imported article. 1/ Firms classified in the "Special" and "A" categories of the Industrial Incentive Laws are exempt from prior import deposits.
742. Export Promotion. Government policies to stimulate exports were initiated in the early 1970s. Exports other than agriculturalraw materials and crude petroleum receive a tax credit whose range depends on the export value of the preceding year.
Exports in Preceding Year Tax Credit (US$ million, FOB) (% of FOB Export Value)
up to 3.0 7.0 5.0 9.0 7.0 11.0 10.0 13.0 above 10.0 - 15.0
Firms operating under the LID scheme receive an additional 3 percent export tax credit. The credit was originally given only to firms receiving fiscal incentives but was later extended to all firms. Likewise, all exporters, irrespectiveof whether they receive fiscal incentives or not, are allowed to temporarilyimport duty-free those goods incorporatedinto exports ("impor- tacion temporal"),a system which has obvious advantages to the exporter over repayment of duties on imported inputs once exports materialize ("draw-back").
743. Apart from tax credits, the Government also supports exports through special financing facilities for both pre- and post-shipment. The introduction of an export insurance scheme is under active consideration.
744. Assessment of IndustrialPolicies. Fiscal investment incentives combined with tariff protection have acted as important stimuli to growth and diversificationof the industrial sector. During the 1970-77 period alone,
1/ The customs surcharge as well as the prior deposits scheme have been applied for balance-of-paymentsreasons -- i.e., to dampen import growth in 1974-75 - rather than to increase protection for domestic industrial production. - 228 -
486 medium- to large-sized firms and 1,432 small firms registered investments under the incentive schemes, with a significantacceleration since 1973. Over the same period, incentive-inducedprojects are reported to have generated some 48,200 additional jobs which would be equivalent to 96 percent of the increase in industrial employment during 1970-77, and contributed at least one-fifth of growth of industrialvalue-added. 1/ Incentive-inducedinvestment has resulted in a build-up and modernization of industrial capacity which compares favorably with other Andean countries,providing a significantgrowth potential over the medium-term future.
745. However, the incentive system has tended to favor an industrializa- tion pattern which does not contribute much to mobilizing comparativeadvant- ages of the economy and which could adversely affect industrial structure and efficiency. The exemption and reduction of duties on imported capital goods and current inputs has provided a bias towards capital- and import-intensive activities. Including expansion of existing firms, investment costs per job created have been rising sharply and are now close to US$30,000 equivalent in medium- and large-sizedindustries and even $6,500 in small-scaleindustries. A considerableproportion of current inputs is imported, especially among newer industries (chemicals,metal processing) but also in textiles. The number of purely assembly-typeoperations, while still small, appears to be growing. As a result, relatively few linkages to the rest of the economy are created and utilization of Ecuador's natural resource endowment, which consists primarily of agro-industrialpotential and labor, is not given proper emphasis. Also, value-added created by incentive-sponsoredfirms appears to be lower than for industry as a whole, i.e., around 30 percent for medium to large firms and 33 percent for small firms. The combination of tax subsidiesand tariff protection-- the latter being granted according to the competitive position of the firm requesting protection and not according to the nature of the product -- have resulted in high returns for firms receiving incentives. Oligopolieshave emerged whose pricing practices go largely unchecked by imports and which furthermorereceive substantial tax rebates, whereas bene- fits to firms resulting from fiscal incentives have hardly ever been passed on to consumers. According to the Mission's estimates, returns of firms receiving incentives would drop by about one-fourth-- from 18.4 percent to 14.1 percent -- if no duty-free imports of raw materials were allowed. If import tariff protection were removed, returns would turn negative, indicating the vulner- ability of incentive-inducedinvestment to changes in the Government'stariff policies (Table 56).
746. Finally, the investment incentives cause a loss of fiscal revenue from industry which in 1976 amounted to US$13.5 million equivalent with regard to import duty exemptions (up from US$5.7 million in 1970) and an estimated US$2 million of income tax on account of re-invested profits. Whereas the
1/ However, data on investment,output and employment of firms under incen- tive laws are based on information derived from applications,with no follow-up on these targets. According to the Ministry of Industry's estimate, about 80-85 percent of investment indicated in applicationsis carried out. Table 56: AVERAGERETURNS FOR INCENTIVE-INDUCEDINDUSTRIES, ACTUALAND IN THE ABSENCEOF DUTY EXEMPTIONSAND TARIFF PROTECTION, 1974-75
Gross Production Domestic Inputs Imported Inputs Actual Profits Profits w/o Profits w/o I Duty Exemption Tariff Protection (1) (2) (3) (4) (5) (6) (7) (7)- (5)-(6) (7)-[(1)-(2)]+ Domestic Prices World Prices Domestic Prices World Prices Domestic Prices Domestic Prices [(3)-(2)] Pd/ (1+ta) Pd/ (1+ti) w/o Exemptions with Exemptions Pd (1+.20)
100.0 55.6 28.9 22.2 25.7 21.4 18.4 14.1 -19.3 . ~~~~N
Assumptions: ta - 80% (Tariff on final product) Import duty exemption received by incentive-sponsoredfirms to average 66.7%. ti - 30% (Tariff on inputs) Pd Domestic price.
Source: Ministry of Industry, Commerce and Integration;INEC; mission estimates - 230 - fiscal sacrifice has been acceptable in relation to value-added generated by incentive-inducedinvestment it amounts to a substantial proportion of tax collectionsfrom the industrial sector. Since the major advantage of incentive- related investment is conveyed through tariff protection rather than tax reductions,it can be assumed that the larger proportion of such investment would have also been carried out in the absence of import duty-exemptions1/ and consequently,that the fiscal sacrificewith regard to import duty exemp- tions was largely unnecessary to stimulate investment (Table 57).
Table 57: FISCAL SACRIFICE RESULTING FROM INDUSTRIAL INCENTIVE SCHEMES, 1970-77
(S/ million and percentages)
1970 1973 1974 1975 1976 1977
(1) Value-Added -- /1 1,007 2,000 3,620 5,740 9,100 (2) Imports by Industry under Duty Concessions /2 448 1,104 2,162 2,683 2,676 (3) Import Duty Concessions 115 241 295 314 336 (3) as % of (1) .. 23.9 14.8 8.7 5.9 (3) as % of (2) 25.7 21.8 13.6 11.7 12.6 (4) Income Taxes Paid by Industry /3 .. 240 359 407 (3) as % of (4) .. 100.0 82.2 77.2
/1 As only investment during the 1970-77 period is considered here, produc- tion would come on stream in 1971 (assuming one-year lag). /2 Capital goods and current inputs. /3 Including tax on working capital, university levies, and other.
Source: Ministry of Finances; CENDES; Mission estimates.
747. The Government is aware of the shortcomingsof the existing incen- tives and has prepared a new incentive law which is likely to be enacted soon. In the future, incentives will be granted more selectivelyand made dependent on contributionto growth and modernization of industry by the investment for which incentives are required, as indicated by:
(1) creation of value-added;
1/ This is corroboratedby the fact that firms receiving incentives often prefer to import raw materials and to pay duty (instead of buying local products), irrespectiveof the costs involved. - 231 -
(2) linkages with the rest of the economy;
(3) net foreign exchange earnings or savings;
_(4) the producer'smarket position and product prices charged;
(5) technologyused; and
(6) the distributionof shareholdingcapital (openness of companies).
Large-scale,technologically advanced industries ("basic industries")are to receive somewhat higher incentives. Mergers among firms leading to increased efficiency will be stimulated. Finally, the re-investmenttax credit will be expanded by allowing expenditureon technologicalresearch as a deductible item.
748. The envisagedmodifications will remove some of the shortcomingsof the existing scheme but others remain to be tackled. Most importantly,duty exemptions for imports of capital goods and raw materials should be restricted. While capital- and import-intensiveproduction technologiesmight be chosen because they are more efficient, the incentive system in its present form makes capital and imported inputs cheaper whereas labor is made more expensive than otherwise through social benefits, obligatory distributionof profits to employees and other charges which effectively act as a wage tax. Incentives directly related to increasing employment and the use of locally produced inputs should be considered,e.g., through tax credits for incremental employ- ment and the shift from imported to locally produced inputs. Relatively larger incentives could be given to small-scaleindustries without, however, inducing those firms to "stay small." Industrial incentives should be made more dependent on criteria such as productivity,expected growth, and company organizationamong others, and should not be granted if firms do not meet minimum levels of efficiency. At any rate.,incentives should be phased out over a maximum period of, say, five years irrespectiveif firms by then operate efficiently or not. Finally, compliance by firms receiving incentiveswith their stated aims should be regularly monitored.
749. In contrast to investment and import incentives,export incentives are not excessive and do not appear to go beyond mitigating the cost disadvan- tages sustained by Ecuadorian producers. Export-relatedtax credits in 1970-77 averaged 11 percent of manufactured exports. This is less than in Latin American countries with an industrial export potential more important than Ecuador's and probably also much less than the cost disadvantage for industrial goods proper exported by Ecuador 2/ including that effected by the over-valued
1/ This is to argue against high wages per se, but in favor of increasing the capacity of absorption of unemployment,new labor force and under- employed by the industrial sector.
2/ As indicated by tariff protection. - 232 - exchange rate. However, a haphazard export promotion pattern has emerged with the bulk of tax credit being for products which do not need such incentives, i.e., semi-processed products and goods exported to the Andean Common Market -where they are duty-exempt. 1/ On the other hand, newly exported products to international markets receive little or no incentives, at least in initial stages, as tax credits depend on exports in preceding years when the latter might have been very small or non-existent.
750. The export incentive scheme therefore should be made more rational in order to stimulate export-destined production of those goods for which Ecuador has comparative advantages. The size of exports in preceding years as the yardstick for incentives should be dropped. Differentiations in benefits, if any, should be made in accordance with the value-added incorporated into the ptoduct in proportion to the overvaluation of the Sucre and to indirect taxes and tariffs not returned to producers through other mechanisms and initial costs of entry into foreign non-protected markets. Hence, tax credits granted for those exports to Andean countries where they are import duty exempt should be promptly revised. Also, export incentives should be gradually phased out over a fixed period once Ecuadorian producers become internationally competitive.
(ii) Industrial Financing
751. The availability of industrial financing has substantially increased since 1974, due primarily to monetary expansion in the wake of increased petro- leum export earnings, larger inflov of foreign loans, and some increase in domestic resource mobilization. At the same time, an important process of institution-building has taken place through the National Development Bank (BNF), and especially in CV-CFN.and COFIEC in which successive IBRD lending operations and IFC equity participation have been instrumental. Six new development banks (financieras) have recently come into existence, in part with technical and capital assistance by CV-CFN. While lending mainly short-term, these institutions are in the process of building up their medium- to long-term portfolio.
752. The increase in industrial lending in 1974 alone amounted to 65 percent but slowed down in the following three years to some 23 percent p.a. Adjusted by the deflator for the industrial sector, these increases were 39 percent in 1974 but only 9.4 percent p.a. in 1975-77, which was less than the growth of industrial value-added in the last three years. The bulk of industrial lending is short-term and has been provided through the Central Bank (through direct credit and indirectly, rediscounts and advances) and commercial banks. The development banks as principal source of long-term credit increased their share to over 30 percent in 1974-77, compared to less than 25 percent in the preceding four years. This includes industrial lending by BNF. The increase in equity financing through shareholding by
1/ Of the tax credit for exports granted between 1970 and June 1977, 42 percent were for processed cocoa; 34 percent, for fish products; and 10 percent-for products largely or entirely exported to the Andean Common Market. - 233 -
CV-CFN and COFIEC since 1975 is even more noticeable. It was equivalent to 11 percent of these institutions'overall industrial financing (i.e., loans and -equity) in 1975-77, up from 4.6 percent in 1970-74. Equity investmenthas been concentratedin food processing,textiles, chemicals and metal products which, except for the first category, score high returns. Including foreign funds channeled through the financial system, the latter might have provided close to one-half of industrial investmentfinancing, the remainder being contributed in about equal parts through retained earnings and foreign suppliers' credits. Finally, export financing for nonr-traditionalproducts 1/ has been available since 1972 through FOPEX, a scheme administeredby CV-CFN. This is in addition to pre-export financingmainly for agriculturalcommodities provided by the Central Bank ("operacionessui generis"). FOPEX funds are available both for pre- and post-exportfinancing at low interest (8 percent p.a.) and a maximum period of two years, for up to 80 percent of the export value.
753. Constraints to IndustrialFinancing. Although availabilityof loan funds has not been a major impediment to carrying out profitable investments, financing of industrial developmentposes some problems which ought to be resolved in the interest of efficient resource allocation. Firms meet a proportion of their capital expenditure through retained earnings which, on average, does not exceed 37 percent, with a resulting high degree of leverage. This in part is due to very restricted industrial ownership, reinforced by a provision in the company law that any capital increase should be taken up first by existing shareholders. As a result, very few new shareholdersenter existing firms except for developmentbanks, and new capital tends to be accepted only-by newly established firms or firms in financial difficulties. Ecuador's two stock exchanges are insignificant for mobilizing domestic investment capital. But, at the same time, 70 percent of loans used by corporationscome from "related parties" that is from their owners, which implies, in the first place a lower "real" leverage than the one defined above, and in the second place, a tendency.to concentrationof industrial capital not reflected in the distributionof equity and finally, a strong difficulty to develop an open and more efficient capital market. Industrial firms are in the process of increasing the share of self-financing,in part because of insistence by the development banks, which make their financing contingent on a minimum contribution through the firms' own funds. This move may help in increasing the involvement of actual owners into long-term liabilities,but won't necessarily increase the openness and efficiency of the capital market, although it may increase the proportion of long-term loans in total credit.
754. A relatively limited share of industrial lending is extended medium- to long-term which, however, is the type of credit required by firms in the process of fast expansion. The development banks are virtually the only source of medium- to long-term financing 2/ but only CV-CFN's portfolio is predominantly(75 percent) long-term. Of recent loans extended by COFIEC
1/ I.e., all products except agriculturalraw materials and crude petroleum.
2/ Commercial banks are legally barred from extending loans for more than two years except for mortgage-securedlending (i.e., mainly financing of construction). - 234 - and BNF, just about one-half appear to be for more than two years. This in part has been due to limited availabilityof long-term financial resources but also because effective lending rates (includingcommissions) through the mid-1970s were higher for short-term loans, making this form of lending more profitable to financial intermediaries. With the 1976 interest rate reform, some of these deficiencies have been corrected and interest rates now increase in line with lending periods. 1/ More recently, private sector financing has been made more difficult by large-scale bond issues on part of the Treasury and Central Bank at conditions which financial intermediariesfind hard to meet 2/ and which largely pre-empt the small domestic capital market. For this reason but also because medium-term financing can be obtained more cheaply abroad, CV-CFN and COFIEC as well as some larger industrialfirms have substan- tially increased their borrowing from foreign banks. Suppliers'credits to industry have also increased in importance. While interest rates on interna- tional markets are lower than in Ecuador, financial intermediariesand ultimate borrowers could become overly exposed to foreign exchange risks if substantial increases in external borrowing continue.
755. Credit to small industries and artisans is limited which is bound to affect growth of these firms. Since the minimum size limits for loans applied by most development banks exceed operations typical for small-scale industries, the latter are restricted to BNF for investment credit. However, BNF as industrial lender has not been very effective because of inexperience in preparing and supervising industrial loans; its organizational set-up is primarily geared towards agricultural lending; insistence on high collateral; and shortage of funds for industry. Although BNF has access to special rediscount facilities with the Central Bank ("fondos financieros")and with CV-CFN, its loans to small-scale industries have typically amounted to less than 20 percent of lending by development banks, i.e., less than the small industries' share in value-added 6f the industrial sector. Of a US$3 million IDB loan to BNF made in 1976, just about one-half has been disbursed thus far. A Guayaquil-basedcommercial bank has recently started to make working capital loans available to small industries and artisans although lending under this facility as yet has not reached US$1 million equivalent. Small firms there- fore have frequently to resort to financing outside the organized capital market which generally is high-cost and without certainty that it is available when required.
1/ While the basic lending rate has remained unchanged at 12 percent, commissions have been increased, amounting to 2-2.5 percent for a lending period of 3-5 years, 3-3.5 percent for up to eight years, and 4-4.5 percent for more than eight years.
2/ Government and Central Bank bonds, which are mainly for financing of the public sector deficit and for soaking up excess liquidity, are mainly short-term and their interest is tax-free. In contrast, bonds emitted by financial institutionsare normally for 8-10 years, pay the same legal interest rate (i.e., 12 percent) and interest payments are liable to an 8 percent tax. - 235 -
756. Given the capital needs of small-scale industries,increased lending by the larger developmentbanks and commercial banks is required, possibly on the basis of an expanded credit line with the Central Bank. As BNF is likely to remain a major channel for lending to small-scale industries,its administra- tive capacity including project appraisal and supervisionought to be consider- ably strengthened. While the creation of a small industries'bank does not appear appropriateat this time, an improved and expanding-industriallending branch at BNF and at commercialbanks could provide the basis for such a development in the future.
757. Export financinghas grown substantiallysince its inception but more recently, it has been growing less than industrialexports. As a share of the latter, it was just about 9 percent in 1977 compared to 17.5 percent in 1975. The scope for expanding export financing is limited because of FOPEX's low capitalizationamounting to just about US$4 million equivalent. As in the case of export-relatedtax credits, export financing has been mainly for products whose competitiveposition on internationalmarkets is already strong (e.g., processed cacao and fish products) or are destined to Andean Common Market countries. Just about one-third of credit was for exports of other products to extra-regionalmarkets. Also, lending is relatively short-term in comparison to schemes in other Latin American countries. (However,as longer term export financing is importantmainly for exports of capital goods which are virtually.non-existentin-Ecuador, the absence of such financing seems to be a minor impediment.)
758. In order to improve export financing, the Government plans to extend FOPEX lending terms to 5-6 years. Funds of the Andean Development Corporation for financing interregionaltrade are also being made available through SAFICO, an affiliate of the Corporation. The planned introductionof an export insurance scheme would give exporters more flexibility in extending credit to their customers. In the interest of stimulatingexport diversification-- in terms of products and markets -- the Governmentmight consider measures aimed at channelinga larger proportion of credit towards newer exports to non-regionalmarkets, possibly by hardening credit terms for exports that are already competitiveand/or are destined to Andean countries.
3. DevelopmentProspects
(i) Development Options and Government Strategy
759. The Government aims to accelerate industrial development,to enhance the sector's contributionto output and employment growth, to reduce the sensitivityto world market fluctuations,to lessen the degree of social and economic dualism in the country, to sustain a policy of geographic depolari- zation of economic activity, and to a strengtheningof the balance of payments. It is envisaged that industry replaces petroleum as the leading sector once the potential of the latter starts to decline. Growing industrialemployment, which is of relatively high productivity, is to raise overall income and equity in the economy. With the export potential of the other sectors of the economy growing relatively slowly, industry is to provide the main propellant for growth and diversificationof exports. - 236 -
760. At Ecuador's present stage of industrialization,two different developmentstrategies can be visualized. The first strategy is based on mobilizing the economy's comparative advantages through intensifieduse of Ecuador's natural resources. Industry is to be specialized in areas where it is internationallycompetitive. Increased efficiencyis to lead to faster growth of industrialexports. Given the constraints to expansion -- capital, skilled manpower, and industrial infrastructure-- the most promising potential for efficient industrial development over the medium term appears to be embedded in agriculturalresources including fishing and forestry. 1/ Export prospects for these products are good, in some cases excellent. There would also be a readily expanding domestic market especially for food products. These industries are relatively labor-intensive-- though not skill-intensive-- and do not require sophisticatedtechnology. Simultaneously,selective import substitutionwould be continued through production of new intermediategoods and also, some capital goods. Such a strategy would enhance industrial efficiency and at the same time, contributemore significantlyto employment generation, developmentof linkages to other sectors of the economy, as well as growth and diversificationof exports.
761. The second alternative strategy is oriented towards a substantial accelerationof backward linkages and capital deepening of the sector and therefore stresses the establishmentof advanced intermediateand capital goods industries for import substitution. There are doubts about the appro- priateness of such a strategy for Ecuador, in the light of the economy's resource'endowmentand development requirements. Industries of this type are very capital intensive,involve complicated technology, and often require a high proportion of imported inputs which limits foreign exchange savings expected from import substitution. They provide little employment yet require a qualified work force which often has to be trained abroad. The domestic market in most cases would be too small for efficient production. There is thus little likelihood that a country like Ecuador would become internationally competitive in capital- and technology-intensiveindustries in the foreseeable future and export possibilitiesfor these industries appear remote. Serious distortions in the structure of the industrial sector could emerge and overall efficiency would inevitablybe affected by higher costs of domestically produced inputs or increased protection vis-a-vis competing imports.
762. Government policies contain elements of both alternative strategies. They aim to enhance the viability of the industrial sector through intensified use of indigenous natural resources; to increase productivityof industrial investment; to develop stronger linkages within the industrial sector and to the rest of the economy; and to stimulate regional decentralizationof invest- ment. To this end, the Government plans to increase substantiallyits direct participation through setting up relatively large-scale,capital-intensive
1/ This includes cocoa processing and sugar refining; processing of vegetable oils and fruits including for exports; fish products for both animal and human consumption;processing of natural fibers and organic chemicals; and timber-based industriessuch as plywood, pre-fabricatedstructures, but also furniture and pulp and paper. - 237 - industriesin "basic" sectors which are either to utilize indigenousnatural resources (e.g., cement production,direct reduction of iron ore, petrochemi- -cals)or to supply the Andean Common Market under production sharing agreements (automobiles;petrochemicals). The Government considers these ventures as a vehicle for technologicaladvancement and is therefore interestedin partici- pation by foreign firms in order to gain access to both capital and technology. For other than "basic" sectors, the Government emphasizes selective import substitutionbased on comparativeadvantages and taking into account industrial investment commitmentsunder the Andean Pact. Industrial exports are to be stimulatedthrough fiscal incentives.
763. Expanded manpower training programs through SECAP are expected eventually to result in higher labor productivity. Regional decentralization of industry is to be assisted by industrialparks and other infrastructural improvementsin areas outside the traditional centers of economic activity, in addition to special investment incentives. Finally, support for small- scale enterprises is to be intensifiedin order to utilize more fully their potential as a low-cost source of domestic supply and to provide industrial jobs for those entrants into the labor force who cannot find factory employment. Appropriatemechanization is to increase productivityand output quality among small-scaleindustries and artisan shops whereas Ecuador's rich tradition in handicraftsis expected to provide the basis for developing exports of products with a relatively high unit value.
(ii) DevelopmentPolicy Requirements
764. Efficient industrialgrowth which enhances the sector's contribution to the balance of payments, generation of employment and improving income distribution,basically requires Government action in two policy areas. First, structural policies and public investment should bring about basic improvementsin the infrastructure. Second, Government policies impacting on factor prices should aim at removing or reducing distortions in factor and product markets, thus stimulating industrializationbased on Ecuador's long- term comparativeadvantages. These policies would favor a shift from capital- and import-intensiveto labor-intensiveproduction -- to the extent compatible with industrial efficiency - improving employment and income distributionin its wake. Domestic markets for industry would be expanded, which together with improved resource allocation,would enhance its growth potential.
765. StructuralPolicies. The contributionof industry to employment generation could be significantlyenhanced through stronger linkages to labor-intensiveactivities such as agriculture and services. However, serious structural obstacles impeding the development of those sectors have to be overcome if the stimulus exerted by industrial expansion is to lead to more intensifiedemployment generation in the rest of the economy. Policies aimed at sustained increases in productive capacity in agriculture including improve- ments in marketing are therefore important for developing agro-industries. For utilizing development opportunitiesin industry proper, substantial improvementsin the physical and institutionalinfrastructure will be required. This includes upgrading of public services, especially transport and power supply but also improving competence of management and upgrading skills of the labor force. Making expenditureson in-plant training tax deductible could help to accelerate training in industry. Also, tax incentives for industrial - 238 - research -- as already envisaged by the Government-- concentratingon finding solutions to practical problems could make an important contributionover the medium to long term to enhancing productivity.
766. Policies Impacting on Factor Prices. A policy of setting the exchange rate at or near its equilibrium level is a basic condition for successful industrialdevelopment. Increased prices of imported inputs would give industry an incentive for intensifieduse of local resources. Increased protection implicit in higher import prices would stimulate those lines of domestic production in which Ecuador is potentially competitive. Industrial exports would become more competitive internationallyand more profitable vis-a-vis the domestic market. Realistic exchange rate policies would thus create the same effect as duty protection and export promotion without produc- ing price distortionsand permanent requirementsfor corrective intervention inherent in the present system of dispersed tariffs and export tax rebates. The incentive to substituteimports and increase exports would be general, contributing to employmentgrowth. Income gains and their distributionwould be based on contributionsto industrialgrowth rather than or distorted incentives and oligopolisticmarket conditions.
767. A realistic exchange rate would allow more equitable tariff policies and more liberal foreign trade policies, leading to a scaling-downof discrim- ination between different product categories. The dispersionamong import duty rates (includingsurcharges) should be further reduced. The aim should be to equalize effective protection for industrialactivities rather than unifying nominal tariffs for individualgoods. 1/ Tariffs and other charges on imports of intermediateand consumer goods competingwith domestic produc- tion should be lowered from their high levels which would strengthencompeti- tion and limit price increases for final products. This should also include excessively high duties on luxury-type consumer goods which condone inefficient domestic production at high profit rates and which could be replaced by higher indirect taxes on both imported and domesticallyproduced items. On the other hand, duty concessions for capital goods and current inputs, which exert a stimulus to capital- and import-intensivemethods of production, should be largely restricted. There might be a case for somewhat higher protection for newly established industries (both through tariffs and export subsidies; see para 586) but this should be strictly temporary and on a declining scale to avoid .that inefficientactivities are establishedand indefinitelymaintained. However, direct subsidies through provision of infrastructure,industrial research, etc., would probably be preferable to higher protection rate.
768. As a corollary to tariff policies, the present system of export incentives should be made more rational and effective. These incentivesare justified inasmuch as they sitmulate production of commoditieswith compara- tive advantages for markets which are practicallyunlimited, given the size of Ecuador's industrial sector. In turn, increased exports contribute to efficient,outward-looking industrialdevelopment and obviate the need to advance industrializationthrough import substitutionat ever increasing costs. Ideally, incentives should be granted across the board for all industrial exports at rates not exceeding the average tariff for industrialimports
1/ See Balassa, Reforming the System of Incentives in Developing Countries, World Development,Vol. 3, No. 6, June 1975. - 239 -
(assuming the latter reflects the relative cost disadvantageof domestic ~producers)which would provide an advantage to inherently efficient activities. However, relatively new industries might justifiablyreceive larger incentives to offset their initial cost disadvantagesand the risk involved in penetrating new markets. In order to stimulateefficiency, export incentives should be granted for a limited period only and should not be given to products that are already internationallycompetitive or are exported to regional markets if the latter are effectivelyan extension of the domestic market. The costs of the expanded export incentive scheme could be covered by in- creased indirect taxation. However, the magnitude -- and costs -- of the scheme could be reduced if the exchange rate were set closer to its equili- brium level, thus largely removing the relative cost disadvantageof domestic industry. In this context, import duty exemption on inputs incorporatedinto exported products as already applied in Ecuador is important as it enhances the profitabilityof exports vis-a-vis domestic sales. The requirementsfor direct export subsidies could also be reduced through application of supple- mentary measures, such as expanding export credit, export insurance,tax deferral with regard to export incomes, and export promotion through Govern- ment agencies.
769. In addition, policies aimed at increasing factor mobility will be needed to mobilize Ecuador's comparative advantages for industrial growth. Labor and wage policies should contribute to dismantling institutional restrictionsto expanding industrial employment. The Government could attempt, through guidelines, that wage cost differentialswithin industry and between industry and other sectors of the economy are based on productivitylevels and that wage increases are.in line with productivitygrowth. Social benefits granted to employees in the indus2trialsector, which effectively act as a wage tax, might be financed at least partly from public revenues rather than by employers and should be brought into line with benefits prevailing in other sectors of the economy. The Government could also ease restrictive labor legislation especiallydismissal procedures-- which have often acted as a deterrent for firms to expand employment-- under due considerationof pre- serving a reasonable degree of job security for employees. As a result of such policies, the incentive to substitute capital for labor would be reduced and income distributionin the overall economy, as well as among industrial workers, be improved insofar as the number of relatively high-paying jobs in industry grows and not solely incomes of a slow-growingindustrial labor force, which is the case under present conditions.1/
770. While the Governmenthas little direct influence on prices of indus- trial inputs it should ascertain, through tariff policies and policies impact- ing on domestic competition,that prices for domestic raw materials and
1/ In general terms, industrial employment could be enhanced through changes in production processes and in product composition-- with a relative increase in the output of wage goods -- as well as through market growth. However, since Government interventionin the first two areas would have to be very specific and uncertain in outcome, no policies are recommended beyond those aimed at realigning factor prices and improving income distribution. - 240 -
intermediategoods are set as closely as possible to internationallevels. The aim should be to avoid (a) below-cost provision of some goods (e.g., price controlled agriculturalcommodities) which stifles production incentivesamong suppliers to industry,and (b) prices for domesticallyproduced intermediate goods in excess of world market prices, which affect production costs through- out industry. No subsidizationshould be effected through below-cost public utility prices especially for energy, which often act as an additional incen- tive to capital (and energy) intensive production.
771. Credit policies should be conducive to increasing the share of domestic resources made available to medium- to long-term industrial financing. This has direct implicationson overall monetary and fiscal policies as it necessitates (a) increasedmobilization and improved intermediationof domestic financial resources which in turn requires positive interest rates for deposits as well as loans; and (b) reduced reliance on domestic credit for financing fiscal deficits. By increasing the credit volume and allocating industrial credit according to efficiency and growth potential of firms, industrial growth would be further enhanced.
772. Macro-economicpolicies favoring saving and investmentwill act as an important stimulus to development of industry. If additional and specific incentives to private investment are deemed to be required, they should be conveyed through temporary income tax advantages for re-invested profits. The existing incentivesto re-investmentcould be extended, possibly through strengtheningof income tax provisions in favor of non-distributedprofits (and concomitantly,higher taxes on distributed profits). Income tax-related incentives would be neutral with regard to capital intensity and to origin of inputs (i.e., imported vs. domesticallyproduced) provided that the overall policy setting favors industrial development along the lines of comparative advantages. Since profitabilityunder this setting would be a fair indicator of efficiency, fiscal incentives favoring profitable (rather than import- intensive) firms give an enhanced stimulus to industrial efficiency. On top of the improved profit position of firms --through strengthenedexports, wage restraints, etc. -- income tax incentives would assist in increasing self- financing of investment. On the other hand, higher rates on distributed profits would penalize excessive consumptionby capital owners, thus contri- buting to more equitable growth.
773. The Government'spolicy of attracting foreign investment in the industrial sector has been reasonably successful. Restrictions imposed by Andean Common Market regulations do not yet apply to Ecuador to the full extent as in the larger member countries. Regulations with regard to foreign investment should also in the future be applied as flexibly as permissible under Common Market regulations especially if such investment is to be directed towards relatively underdevelopedregions of the country. Ways should be explored to enhance the contributionof foreign investment to industrial finan- cing, employment generation,development of.appropriate technologies,and export growth. 1/
1/ Thus far, foreign firms in Ecuador have contributed little to developing more labor intensive technologies. - 241 -
774 Development of Small-ScaleIndustry. The viability of the indus- trial sector could greatly gain from faster expansion of small-scaleenter- prises. Indeed,given the importance of small firms for Ecuadorian industry, no development strategy could be successful that ignores the small-scale segment of the sector. The potential for small industrial producers is primarily in agro-industries,wood processing,and building supplies, but also includes simple garments for export and electronic parts. While small-scale enterprises form a heterogeneousgroup stretching from small factories to one-man workshops, they have common features which seem to correspond well to Ecuador's industrialdevelopment requirements,viz --
(1) They are much less capital intensive and rely less on imported inputs than medium- to large-sized firms, thus being of importance for employment generation,broadening the domestic market, and development of linkages.
(2) Operating costs including overheads are comparativelylow which makes them competitivevis-a-vis larger firms.
(3) They produce mainly wage goods which, while of lower quality and price, are within reach of, and in demand by, lower income groups, thus providing a positive contributionto more equitable economic growth.
(4) They are more strongly represented in underdevelopedregions of the country and better suited to meet the relatively small and unsophisticateddemand of fragmented markets outside main urban centers.
(5) The savings propensity among small industrial producers is high.
(6) They contribute to the developmentof entrepreneurialtalent and technical skills required for further developmentof the overall industrial sector.
775. On the other hand, small firms generally have serious deficiencies in management, administration,production, and marketing. Decisions are usually not based on rational criteria rather than on intuition and long- standing practices and recent technologicaldevelopments are often unknown. There are management weaknesses as a result of the smallness of the team and lack of specializationin areas such as financing, purchasing, sales, and labor administration. Accounting often is rudimentary. Production planning and quality control are poor or non-existent. The firms normally have very limited knowledge about markets, product design and marketing techniques. Material inputs tend to be of inferior quality and their provision irregular, in part as a result of the lack of working capital. Small firms are often unable to provide steady deliveries and product quality fluctuates. Due to their concentrationin underdevelopedregions of the country, they tend to be more strQngly affected by inadequate infrastructure.
776. The Government'sindustrial policies have traditionallyfavored large enterprises over small ones. Although basically the same investment - 242 -
incentives are offered to both groups of firms, the bias towards capital- and import-intensiveproduction inherent in the present incentive system benefits primarily larger firms or might induce small firms to over-mechanize. Like- wise, export incentives benefit mainly larger firms. Government technical and institutionalassistance and job training programs do not seem to extend much beyond medium-sized firms. Specializedinstitutions for promotion and tech- nical assistance (CENAPIA) and for marketing of handicrafts (OCEPA) have been in existence for some years but their impact has been limited due to the absence of a Government strategy for small industry development and lack'of funds and of experiencedstaff.
777. A more balanced policy of industrial developmentas outlined above would go a long way to eliminate the bias towards capital- and import-intensive production. In order to overcome the structuralweaknesses inherent in Ecuador's small-scale industrial sector, the Government should undertake a massive and well-coordinatedtechnical assistance program, supported by specialized internationalorganizations. Existing Government agencies should in effect be transformed into a small industries extension service to provide assistance among others in management training and subcontracting,and dis- seminate information about Government regulations including industrial credit. Financial intermediariescould also make important contributionsto increasing efficiency of small firms and ways should be explored to combine technical and financial assistance which are largely interdependent. Assistance require- ments for marketing are especially pressing for firms located outside major urban areas. These firms need-institutionalsupport to obtain information on growth markets and related design, quality and pricing requirements. Research into appropriate technology for small-scale industrial production would provide benefits over the medium to longer term. Joint services such as for purchasing and sales, equipment lease and project preparation would assist the smallest firms and artisans in particular.-Establishment of industrial parks, which forms part of the Government's development program, will contribute to improv- ing infrastructureand to developing inter-industrylinkages.
778. The lack of adequate financing for small-scale industriesdespite the existence of special credit lines at subsidized interest rates has been noted already. Small firms are particularlyin need of working capital -- often their major investment -- to attain a more even production flow and fuller capacity use. Obstacles to financing result because smaller firms are considered a poor credit risk with often inadequate financialmanagement, transaction costs on smaller loans are comparativelyhigher but also because of the inability of small firms to provide sufficient collateral as in appraising loan requests, banks tend to put more emphasis on present assets and less on growth prospects of borrowers. Increased long-term lending - which has been particularlylacking - to small-scale industries, especially to those in a growth phase and at the threshold to becoming medium-sized firms, would contribute significantlyto faster expansion of the entire sector. By stimulating investing in small firms, such lending would mobilize an important savings potential. There is evidence that the repayment record of small firms - 243 -
in Ecuador is at least as good as that of large borrowers. 1/ Collateral requirements could therefore be handled more flexibly, e.g., or the growth in the availability of "fondos financieras" for this purpose by accepting equity participation. The creation of a Government guarantee fund could make small- ~scale industrial lending more acceptable. In particular,it could make commercial banks and savings and loan associationsmore accessible to small borrowers. Compared to credit availability,interest rates are less signi- ficant. They should not be lower than for other industrial lending. To the extent that loans to small firms are consideredmore risky, interest rates equal to those for large borrowers already imply a subsidy. Potentially viable small firms ought to be able to afford interest rates prevailing in organized markets. Also, conventionallending terms would help to instill financial discipline and profit consciousnessamong small firms. So the main thrust of the credit policy should be towards the increase in the availability of short- and long-term financing.
779. Andean Common Market Policies. Among the member countries of the Andean Common Market, Ecuador attaches heightened importance to this grouping as a stimulus for further industrial development. The objectives of Andean integration are the establishmentof a subregionalmarket as a basis for accelerated industrialization. This is to be attained by means of (a) trade liberalizationamong member countries through eliminating internal tariffs and a common external tariff vis-a-vis third countries, (b) development of new industries on a regional basis, and (c) joint investment policies, especially vis-a-vis foreign investment. Ecuador expects its incipient industries to benefit more than proportionatelyfrom the emergence of an enlarged and protectedmarket. As a relatively less developed country, Ecuador (together with Bolivia) has obtained preferential status which allows duty-free access for a number of its products ahead of customs liberalization,a longer period for eliminating its own duties on imports from member countries and applying the common external tariff, and more flexible provisionswith regard to foreign investment.
780. Like other Common Market countries, Ecuador is particularlyinte- rested in the establishmentof new region-wide industries as part of the Andean agreement. These industries include (a) a heterogeneousgroup producing small mechanical devices, special paper, etc., (b) metal processing, (c) automobile manufacturing,and (d) petrochemicals.2/ Some industries assigned to Ecuador under the first two programs have already been established and are exporting to the Subregion. Others are in the process of being established. As regards the latter two programs, the Government is negotiatingwith foreign investors about setting up facilities for automobiles and parts and has commissioneda prefeasibility study for petrochemicals production.
1/ Of BNF's outstanding loans to small industrial firms and artisans, about 10 percent are in arrears whereas arrears reach 20-30 percent for larger industries. In the commercial banking system, small industry lending accounts for 15 pexcent of the portfolio but only for 2 percent of arrears.
2/ Joint development is also envisaged for iron and steel, pharmaceuticals, and electronics but this might not proceed beyond exchange of information, joint data gathering, etc. - 244 -
781. On balance, the Andean Common Market has had a favorable impact on Ecuador's industrial development. Without digressing from a basically adequate industrializationpattern, investment has been undertaken on the strength of the expanded market which would not have been viable for the domestic market alone, contributingto diversificationof the industrial structure. Indus- trial exports to the Andean countries have grown substantially,by 45 percent p.a. in 1972-77, although not as fast as those to third countries (56 percent p.a. over the same period). However, the Subregionhas been the most important market for a number of products whose unit value is relatively high, and their proportion of value-added more significant,such as wood products, pharmaceuti- cals, and metal products. Ecuador's industrial trade in the Market for the 1972-77 period has been roughly in balance (Table 58). Industrial exports to the Andean market over the short to medium term should continue to grow reasonably fast although some slow-down is to be expected. The competitive- ness of Ecuadorian industry within the Subregion is limited even with its preferential tariff position because of its comparativelyearly stage of development,small product capacity and higher production costs (especially labor costs) than most other member countries, with the possible exception of Venezuela. New products allocated to Ecuador under sectoral assignments are not likely to provide the basis for a sustained export drive, all the more as other Andean countries are producing goods that directly or indirectly compete with those assigned to Ecuador, or will probably start doing so. Finally, there is some uncertainty about the market potential presented by the Andean group as some of the countries prone to balance-of-paymentsdifficulties could take recourse to import restr-ictionsregardless of liberalization commitments.
782. Turning to the major sectoral assignments under the Andean Pact, the viability of automobile and petrochemicalsproduction in Ecuador is ques- tionable. These schemes are very capital intensive and technologically complex, and thus depend strongly on foreign capital and technology. Creation of employment and of inter-industrylinkages would be slight. Technology requirementsdictate production volumes far in excess of the Ecuadorian and even the Andean market, making exports to third countries necessary. Should production costs be above internationallevels as it is likely, exports to third countries would have to be subsidized.
783. The implementationof the automobile and petrochemicalsassignments would involve exceedingly large investment and planning efforts whereas bene- fits expected from these schemes -- i.e., import substitution,technological advancement,building up of productive assets -- are uncertain at best. 2/ These schemes should not be implemented before it is clearly demonstrated that investments of equal size in other industries or other sectors of the economy do not produce faster growth of output, incomes and employment. The Mission is aware that if Ecuador does not carry out its sectoral assignmentsunder
1/ Joint development is also envisaged for iron and steel, phamaceuticals, and electronics but this might not proceed beyond exchange of informa- tion, joint data gathering, etc.
2/ For a fuller discussion of these projects, see paras 793-796. - 245 -
Table 58: INDUSTRIAL EXPORTS TO ME ANDEAN COMON NUARKET AND THIRD COUNTRIES, 1972-77 - ~~~~~~~~~~(US,$"i Ilion)
1972 1973 1974 1975 1976 1977
Andean Common Market 10.0 16.1 24.7 30.3 42.0 63.0 Refined Sugar and Molasses - - - - - 0.5 Cacoa Products 2.1 3.5 5.9 12.9 17.5 19.5 Fish Products 5.9 7.9 12.0 11.4 13.9 20.2 Other 2.0 4.7 6.8 6.0 10.6 22.8
Third Countries 24.7 32.3 66.1 53.5 77.9 , 227.5 Refined Sugar and Molasses 13.2 14.0 23.8 16.4 6.2 10.5 Cacoa Products 4.4 5.3 17.7 15.5 44.9 166.2 Fish Products 6.0 11.1 22.9 15.0 17.0 35.1 Other 1.1 1.9 1.7 6.6 9.8 15.7
Total Industrial Exports 34.7 48.4 90.8 83.8 119.9 290.5 Refined Sugar and Molasses 13.2 14.0 23.8 16.4 6.2 11.0 Cacoa Products- 6.5 8.8 23.6 28.4 62.4 185.7 Fish Products 3.1 6.6 8.5 12.6 20.4 38.5 Other 11.9 19.0 34.9 26.4 30.9 55.3
Source: Table 7.9 of Statistical Appendix - 246 - the Andean agreement,some other member country might undertake the invest- ment in which case the products in question would have to be imported from the Andean group rather than the -- lower-priced -- world market. Assuming that the implementationof the automobile and petrochemicalsagreements go ahead as planned and Ecuador's assignmentswould indeed be taken up by some other country, it might still be less costly, in the long run, to import from the Andean market rather than setting up those industries if this involves a massive distortion of the industrial structure. As in the case of its overall industrial strategy, Ecuador's links with the Andean market should reflect its comparative advantages within the Subregion. It appears, then, that process- ing of natural resources peculiar to the country would offer the widest scope for expansion on the Andean market as well. Finally, the Andean Common Market may have in the future another favorable impact on Ecuador's industrial develop- ment. As analyzed in previous paragraphs, the structure of tariffs favor an industrial compositionwhich is quite artificial and removed from comparative advantages of the country. To the extent that the common external tariffs agreed upon by members of the Acuerdo de Cartagena is more reasonable or less inefficient than the prevailing Ecuadorian situation, to the extent that the binded application of it is not delayed indefinitely,and that the Government is willing to comply with the new rules, then a necessary change in the tariff schedule that otherwise would not have occured will take place. But, this favorable impact should be weighted against the imperfectionof the common tariff structure agreed upon from the point of view of Ecuador if the country cannot reach its preferred position in the bargaining process and against the willingness and capability of the Government to move in the near future towards a preferred tariff schedule in an independent way. 1/
(iii) Government-SponsoredIndustrial DevelopmentProjects
784. The Government is promoting a wide range of industrial projects including agroindustries,pulp and paper, pharmaceuticals,and simple machinery but also large-scale ventures such as cement, iron and steel, automobiles, and basic petrochemicalsincluding fertilizer. Only some of these projects are likely to contribute to increase the viability of the overall industrial sector. These projects vary greatly in their degree of Government participa- tion which is intended to be nominal in agroindustriesbut would take a more significant form in other ventures. In basic petrochemicals,the Government is to hold the majority of equity. Some companies composed of public sector institutionshave been formed to get the larger schemes underway (Selva Alegre for cement, ECUASIDER for iron and steel; CORDINAUTO for automobiles). CV-CFN is envisaged to be the principal agent for organizing and capitalizingthe ventures (together with CEPE for petrochemicals). This would effectively transform CV-CFN into an industrial development corporation and might affect the character of the institution,to the detriment of its industrial lending function.
1/ The Government is currently discussing tariffs changes. This move could be consistentwith a show of strength and rationalitybut it is also consistent with a desire to prepare the bargaining of the common external tariff. - 247 -
785. As regards agroindustrialincluding forestry-basedprojects, an expansion of sugar refining is planned in order to exploit more fully existing export opportunitiesunder internationalagreements. Production of alcohol from cane molasses is to increase domestic supplies and reduce import require- ments. For the same purpose, processing of edible oils is to be increased as an integral part of a palmoil plantation scheme as well as of other projects. 1/ As part of the Cayapas forestry project, facilities for production of wood logs and veneers, corrugated cardboard and wrapping paper are planned to be set up. Finally, a project for production of special paper is under prepara- tion. (The latter production is assigned to Ecuador under Andean pact agree- ments.)
786. These projects are based on a substantialexpansion of productive capacity in agricultureand forestry,which involve considerable investment and lead times. Outlays for the industrial components of these projects should not be very large whereas important benefits would accrue through enhanced value-added and employment,import savings and strengthenedexport capacity although these may not be sufficient to make all of these projects attractive at border prices. In contrast, other Government projects are very capital and technology intensiveand have long lead times in almost all cases. Their contributionto industrialgrowth, import savings and export growth would vary considerably. The major projects are analyzed briefly below.
787. Production of cement is potentiallyone of the most important resource-basedactivities in-Ecuador. On the strength of the construction boom, domestic cement demand over the past decade grew nearly 11 percent p.a., outstrippingoutput increases by a wide margin. Of domestic demand totalling 1.2 million tons in 1977, about 40 percent had to be met through imports. Price controls depressed in-vestmentfor extended periods but from 1975 onwards, a significantexpansion has taken place which increased capacity by about 20 percent (to 2,400 tpd in 1977). Additional capacities totalling 2,800 tpd are to be installed by the early 1980s requiring investment of about US$225 million (1977 prices). As in the past, there will be a substantialpublic sector participation.2/ Loans from IDB and Canadian commercial banks have been attracted for some of the projects. Despite this substantial expansion, domestic production in the early to mid-1980s would still fall short of demand by at least 0.4 million tpy even if demand growth were to slow down. It might therefore be opportune to consider the viability of further capacity expansion beyond what is presently envisaged.
788. While cement expansion is not likely to create much additional employment, it is to provide import savings of at least $40 million per year. Also, expansion of existing plants will lower unit production costs which presently are somewhat above internationallevels. In order to secure the
1/ Traditionally,over two-thirds of edible oil consumptionhad to be met by imports.
2/ At presen't,the cement companies are largely owned by public sector entities, e.g., BNF, CV-CFN, and the Housing Bank (Banco de la Vivienda). - 248 - natural resource base for long-term expansion of the industry, explorationfor limestone by the Government'sgeological service should be intensified. In the interest of improving the financial position of the cement industry, price controls should be removed.
789. Plans are advanced for integrated steel production based on direct reduction of iron ore or pellets, using natural gas located off-shore in the Gulf of Guayaquil in the process. Assuming future growth of domestic steel consumption to be in the order of 12 percent p.a. through the mid-1980s, planned capacity is set at 0.41 million tpy for billets (two-thirdsof it to be sold to rolling mills already existing) and 0.14 million tpy of rolled products. Investment is estimated at some US$340 million without including power and water supply, however. Foreign sources are expected to provide over 75 percent of equity, in addition to the entire loan financing.
790. The Government considers as primary benefits accruing from the project (i) utilization of natural gas resources, (ii) securing steel supplies at stable prices, and (iii) net import savings of at least US$70 million per year. However, there are some doubts if these benefits are commensuratewith the required investment effort and if this project is indeed viable. Since there exist no iron ore deposits of significancein Ecuador, raw materials would have to be imported. Investment for supplying natural gas, electricity and water is substantial 1/ and could delay the start-up of the project.
791. At present, there is-no solution in sight for developing the off- shore natural gas deposits, nor is the size of those deposits clearly estab- lished. While'the impact on employment would be slight -- less than 1,200 jobs are expected to be created--- a large proportion of the labor force would have to be highly qualified, requiring training abroad. Operating costs of the steel venture could exceed internationallevels by a significantmargin, probably around 30 percent. Even with correspondingtariff protection and a 10-year income tax exemption, the financial rate of return is estimated to be just about 10 percent, which is low for a steel project based on direct reduction technology. Returns are particularlylow at the final processing stage -- which would compete with existing production-- as unit costs are high due to relatively small production volumes and unfavorable product mix. The project depends entirely on the domestic market as other steel-producing countries in the Subregion plan substantial expansion which will make them largely self-sufficientand might even create some export surplus capacity.
792. If the project were to be undertaken at all, it should probably be reduced in scope (to say, one-half of its presently envisaged capacity) and limited to its most profitable portions. The feasibilityof expansion could be assessed in the light of future domestic and internationalmarket develop- ments, including productive potential and alternative uses for natural gas.
1/ Annual natural gas requirementsfor the scheme would be close to 3.5 bn CF and power requirements,420 GWH (the latter is equivalent to about 25 percent of present annual power generation). - 249 -
793. Motor vehicle production in Ecuador is presently limited to small volume assembly of buses and passenger cars, with a high import component for -both. Although domestic demand for automobileshas grown fast, the market has neverthelessremained too small and the overall industrial structure too incipient to allow establishinga sophisticatedindustry for which economies of scale are very large. Based on the assignment of automobile production within the Andean Common Market, 1/ the Government plans to set up facilities to produce 16,000 light (up to 4.6 tons) trucks, 40,000 small-sized(1,050- 1,500 cm3) passenger cars, and a substantiallylarger number of parts and accessories (engines,gearboxes, etc.). The latter are planned to be exported also to third countries. It is expected that some of the parts production assigned to Ecuador will be undertaken by Venezuela in exchange for assembly of jeeps whose production has been assigned to the latter country. The Government is negotiatingabout participationwith foreign investors who are expected to market a proportion of the parts production in third countries, in addition to providing capital and technology including preparationdf feasibility studies and project design. Required investment is estimated at $250 million, of which 40 percent is to be financed through equity. As less than one-third of equity would come from domestic sources, with the remainder to be contributedby foreign investors, the bulk of financing including loans would thus be provided from abroad.
794. The Government expects that this scheme will directly provide about 6,500 new jobs, overland above employment in suppliers' industries. Of total production estimated at some US$300 million, 80 percent are to be exported. Automobile production is also expected to stimulate development of a proper industrial technology. However, with the very small output size and relatively deep backward integrationas envisaged by the Government,motor vehicle production in Ecuador is bound tb be very inefficient and production costs even higher than those in other Andean countries where automobile industries
1/ The Andean market agreement aims at standardizationof vehicle production for the entire Andean market in order to obtain efficient production runs. For this purpose, it has allocated four groups of passenger cars, six groups of trucks, and one jeep model among member countries which are to enter the entire Andean market free of duty from about 1982 onwards. By the same time, a common external tariff for imported motor vehicles is to be established. In order to qualify as "Andean" product, a minimum proportion of inputs has to be produced within the Market or else, extra-regionalcomponents exceeding that proportion have to be balanced by exports to third countries. The automobile agreement also allows co-productionof particular types of vehicles by two or more member countries and interchangeof assignments for both vehicles and parts production. - 250 -
already exist. I/ This might be less for buses and trucks which normally are produced in comparativelysmaller series, are somewhat more labor intensive and where transport cost savings vis-a-vis imports are more significant. For passenger car production,however, the optimum size for a single basic vehicle type is in the order of 240,000 units per year. The Government'sdecision to locate automobile production in relatively underdevelopedareas would further aggravate operational inefficiencies. Virtually the entire labor force would have to be trained from scratch. Although there would be scope for domestic production of inputs, costs and reliabilityof supplies would be adversely affected if supplying industries are fragmented and not well organized as passenger cars produced in Ecuador would have to compete on the Andean Market - including in Ecuador itself - with a comparable model already produced in Colombia, the market for this product could turn out to be much smaller than envisaged. As a result, automobile production in Ecuador would require extremely high protection on the Andean level, to the detriment of consumers not only in Ecuador but in other Andean countries as well. Plans for produc- tion of petrochemicalsare still at very preliminary stages of evaluation. A prefeasibilitystudy contracted with BEICIG (Bureau d' Etudes Industrielleset de Cooperation de l'Institut Francais de Petrole) is to identify feasible products and markets within and beyond the Andean region. According to the Government's present conception,a US$1.5 billion complex is to be established consisting of a new petrochemicalrefinery, a 0.3 million tpy ethylene cracker and other units for intermediateand final products (i.e., resins, plastics, materials for fiber production.,synthetic rubber). About one-third of invest-, ment is to be cov-eredby equity, with nearly 60 percent of the la-iierbeing reserved for the Government. Foreign direct investment and loans combined are expected to provide nearly 75 percent of financing.
795. The Government considers as the main advantage of petrochemicals production the creation of higher value-added, in comparison to crude petro- leum exports, which is of importance for a country like Ecuador with a rela- tively limited export surplus capacity for crude. 1/ According to tihe Government's preliminaryestimates, final sales of petrochemicalproducts are to be in the order of US$450 million once full capacity is reached. The Andean Market is expected to absorb 30-40 percent of output, with the remainder to be exported to third countries, possibly Brazil and Argentina. While substantial overcapacitywill probably depress the internationalmarket for petrochemicals over the medium term, demand for ethylene -- the most important petrochemical
1/ Internationally,unit production costs level off at an annual output of about 120,000 units on assembly operations, 240,000 for engines and other power train parts, and 600,000 for body stampings which is attained only by the largest firms in industrializedcountries and is probably beyond the market capacity of the Andean Group as a whole. Experience with auto- mobile industries in developing countries shows that production costs on average exceeded those in developed countries by about 15 percent if only assembly is undertaken but this increases substantiallyif more domestic- ally produced parts are incorporated,reaching 75 percent with incor- poration of domesticallyproduced engines and transmissions. See: Baranson, Automotive Industries in Developing Countries,World Bank Occasional Paper No. 8, 1969. - 251 -
building block -- is estimated to grow by at least 7 percent p.a. through 1985, which would bring supply and demand again into balance by the early to mid 1980s. Investment completedby then could be feasible if output is primarily destined towards domestic and regional markets. However, the Ecuadorian scheme largely depends on internationalmarkets which will remain very competitive. On the other hand, even the large-scale production volumes planned for the scheme relative to the Andean market potential appear to remain in some cases below the present minimum economic size of petrochemical plants. Should the regionalmarket for petrochemicalsfall significantly short of minimum economic production,the only vlable option open to Ecuador might be to produce final products such as plastics and synthetic fibers -- from imported raw matertals and intermediates. Finally, it is not yet clear if Ecuador's crude oil reserves are larve enough to meet feedstock requirements for the entire life of the petro-chemicalcomplex, over and above providing fuel supplies for domestic use and exports.
796. While the notion of petrochemicalsproduction in Ecuador should not be discarded outright, its feasibility depends on (a) future demand on the domestic and Andean markets, and (b) the ultimate size of petroleum reserves. Both should be clearly establishedbefore a decision to go ahead with such a scheme is made. Given the large-scale investmentrequired, implementation would obviously be possible only in stages over a period of 10-15 years.
797. Finally, the Government plans to expand fertilizerproduction based on ammonia urea through utilizationof natural gas. Ecuador's present produc- tion of nitrogen and compound fertilizersamounts to approximately20,000 tpy, equivalent to one-fifth of domestic consumption. The Government is evaluating various alternativeswith respect to the size of investmentand output mix, the latter including production of methanol for exports. The minimum economic size of a project as envisaged by the Government amounts to 1,000 tpd of ammonia/1,500tpd of urea, requiring 40 million cu ft/d of natural gas. Investmentwould be close to US$300 millio&iwithout including gas pipelines. The feasibilityof fertilizerproduction is susceptible to the natural gas price and, obviously, availabilityof sufficient supplies. If output were to be absorbed entirely on the domestic market, fertilizer consumptionwould have to grow by 15 percent p.a. over the next 10 years or so. However, some exports to fertilizerdeficient countries in the Region should be possible once full capacity use is reached.
4. Projected IndustrialGrowth, 1978-85
798. Future industrialgrowth will continue to be largely determined by overall economic expansion which is expected to decline from the very high rate sustained during the early and mid-1970s. In line with projected growth trends in domestic income and expenditure,demand growth for industrial products is estimated to be about 5.5 percent p.a. during 1978-85. However, since some import substitutionis likely to occur for intermediateand final goods industries, it is assumed that demand growth for domesticallyproduced industrial goods will be somewhat higher, i.e., 6.0 percent p.a. Industrial exports are likely to grow parallel with production destined to the domestic market, thus allowing overall growth of industrial value-added during 1978-85 to be about 6 percent p.a. Based on that assumption, the share of industry in - 252 -
GDP would increase slightly and reach 18 percent in the last year, compared to 17.5 percent in 1977. Intermediateand capital goods productionwould grow somewhat faster than industry as a whole. The share of exports in industrial -productionis expected to increase during 1978-85 from 12.5 percent to nearly 16 percent (Table 59).
799. Estimated investment requirementsfor industrial expansion could be in excess of S/ 75 billion, equivalent to over US$290 million (both in 1977 prices) on annual average. 1/ Assuming that the share of domestic sources in financing industrial investment-- both retained earnings and domestic loans -- could be increased from 60 percent as estimated now to an average of 75 percent for the 1978-85 period, close to US$73 million p.a. would have to be obtained through foreign institutionallenders, commercial banks, suppliers' credits -- a target which appears attainable.
800. Industrialgrowth and financing requirementswould be quite different should the Government go ahead with implementationof projects in iron and steel, automotive industries,and petrochmicals. These projects by 1986 could enhance industrial value-added by about 10 percent and GDP by somewhat less than 2 percent. However, about S/ 50 billion (in 1977 prices) would be added to investmentand financing requirements. On balance, the adverse effects on the structure of industry and industrialefficiency that would result from these projects are more far-reachingthan a short-lived leap forward for industrial output.
1/ This is based on an ICOR of 3.2. - 253 -
Table 59: PROJECTEDGROWTH OF INDUSTRIALVALUE-ADDED, 1978 AND 1985 (1977 S/ million and percentage)
Shares (%) Increase p.a. 1977 1985 1977 1985 (%)
TOTAL 25,743 41,030 100.0 100.0 6.0
Consumer Goods 15,722 23,920 61.1 58.3 5.4 Domesticallyconsumed (13,302) (19,762) (5.1) Exported (2,420) (4,158) (7.0)
IntermediateGoods 7,307 12,391 28.4 30.2 6.8 Domesticallyconsumed (7,037) (11,565) (6.4) Exported (270) (826) (15.0)
Capital Goads 2,714 4,718 10.5 11.5 7.2 Domesticallyconsumed (2,644) (4,658) (7.1) Exported -(70) (150) (10.0)
Source: Mission estimates - 254 -
XI. PETROLEUM
1. Introduction
801. Petroleum production on a major scale began in Ecuador in 1972. From this year on productionand exports of petroleum contributed to the economy as a major form of economic activity. Increases in internationaloil prices of October 1973 and January 1974, which were accompanied by adjustments in the petroleum fiscal system, considerablyenhanced participation of this sector in the economy. Value-added in the petroleum industry contributes over 10 percent of Ecuador's GDP (when expressed in current prices) and accounts for about 50 percent of export earnings and 25 percent of current public revenues (Table 60).
802. Production,after reaching a peak of 76 million barrels per year (m B/Y) in 1973 has fluctuated around a lower average level of 67 m B/Y. Net crude oil exports have averaged about 46 m B/Y and have been declining owing to the combination of rising domestic consumption,relatively stable production and in 1977, the operation of a new refinery which has upgraded about 6 m B/Y of crude oil exports into fuel exports of refined products. But, even includ- ing refined products, exports fell both in volume and as a proportion of total exports. Public revenues from petroleum production have also been declining.
803. At present, the sector is facing problems of.stagnating explora- tion activity, declining proven reserves, lack of adequate investment strategy, and low domestic petroleum product prices, resulting in heavy subsidies to the user, sharp increases in domestic consumption,and a reduced exportable surplus. If the present production and consumption trends continue, Ecuador would become a net importer of hydrocarbons in the mid 1980s. However, technical possibilitiesand resource prospects suggest adequate potential for development in the oil and possibly also the natural gas sectors. Constraints to achievement of this potential include uncertainty concerning foreign participationin oil exploration,failure tp rank priorities for petroleum development investment and domestic price policy for petroleum products. These issues must be resolved soon since there is an urgent need for a clear and sustained state of operational stability in the sector. The formulation of a well defined long-termenergy policy covering all issues related to energy supply, demand, pricing and investmentwould help eliminate the current uncertainty.
804. Under the present price and tax systems, domestic sales are a source of financial losses to producers and yield only minor tax revenues to the Government. A substantial decline in exports would thus present a need for financial readjustmentswithin Ecuador as well as for a replacement of lost foreign exchange income from oil export receipts. If we assume that the Government will give oil producers the resources needed to maintain operations and that public expenditures outside the oil industry will not be cut drastically,the resource gap that would result from a drop in petroleum export revenues can only be met by consumers through increased prices for oil products, increases in non-petroleumtaxes, or both. Table 60: CONTRIBUTION OF PETROLEUM TO THE ECONOMY
(SI million)
1972 1973. 1974 1975 1976 1977
GDP at market prices 47,102 63,575 93,583 108,246 130,183 153,8l1
Petroleum Sector Value Added 1,092 5,496 15,197 12,976 16,489 16,366
Percentage of Petroleum Sector 2.3 8.6 16.2 12.0 12.7 10.6 to GDP
Total Current Revenue Receipts 9,721 13,158 21,343 23,837 27,824 28,395 n
Petroleum Revenue ! 939 2,744 7,889 8,889 9,692 7,103
Percentage of Petroleum Revenue to Total Revenue 9.7 20.8 37.0 37.3 34.8 25.0
(US $ million)
Total Exports 323 585 1,225 1,013 1,307 1,401
Petroleum Exports 60 192 626 617 735 651
Percentage of Petroleum Exports 18.6 32.8 51.1 60.9 56.2 46.5 to Total Exports
a/ Includes transfers from FONADE to Central Government and excludes revenues accruing directly to FONAPRE, FODEM and retained by FINADE. - 256 -
2. General Framework
805. QuantitativeVariables. Since early 1973, exploration has been at a standstill;the number of explorationwells drilled fell from a peak of 17 in 1972 to just 5 in 1977. Stagnation in exploration activity is a consequence of inadequateincentives to attract foreign capital on the one hand, fear of instabilityin the rules of the game and lack of funds and sufficient experi- ence to undertake the required exploration work by CEPE. 1/ Stagnating drilling activity has resulted in a decline of proven reserves since 1974. These reserves decreased from a peak of about 1,460 million barrels in 1974 to 1,269 in 1977, an annual decline of 4 percent (Table 61).
Table 61: RECOVERABLE RESERVES 1972-88 /a
Year Reserves Production (million barrels) (thousand barrels per day)
1972 1,290 78,480 1973 - >1,263 208,820 1974 1,460 177,020 1975 1,402 160,960 1976 1,335 187,290 1977 1,269 183,430 1978 - 1,100 219,000 1979 1,025 204,000 1980 1,030 204,000 1981 1,000 200,000 1982 950 193,000 1983 900 183,000 1984 850 169,000 1985 800 153,000 1986 750 140,000 1987 700 127,000 1988 650 117,000
/a 1972-77 actuals, 1978-88 estimates, including probable reserves would increase by 695 barrels. All on assumption that no major new oil discovery will be made.
Source: Direccion General Hidrocarburos,Ministerio de Recursos Naturales y Energeticos,January 1978.
1/ CorporacionEstatal Petrolera Ecuatoriana. - 257 -
806. After reaching a peak in the first year of full operation, 1973, the production of crude oil has been fluctuatingaround an average level of 65 m B/Y, below the legal maximum of 76.7 m B/Y allocated by the Government to CEPE-TEXACO (which accounts for 99 percent of the total). This behavior is explained by external market conditions,coupled with inappropriatemarketing policies, pipeline breakdowns and insufficientstorage capacity. Part of the production is exported but a growing share of it (28.9 percent in 1977)-is diverted to the domestic refineriesmainly for domestic consumption (Table 62). This share has increased substantiallyin 1978 when the new refinery in Esmeraldas reached around 70 percent of full capacity. As a consequence, imports required for domestic consumptionand exports used to finance them under a "compensation"scheme fell. Only 55.8 percent of crude production went into direct exports in 1977, while 19.6 percent was assigned as "com- pensation" for imports (Table 63). Increasing exports of derived products are developing as a result of the growth of the refining capacity and of the difficulty in absorbing domesticallythe production of all refined products: e.g. fuel oil. 1
807. Institutions. The principal institutionsactive in the petroleum sector in Ecuador are: the State oil company (CEPE), the Department of Hydrocarbons(DGH) 1/ of the Ministry of Natural Resources and Energy (MRNE) and the Ecuadorian subsidiary of TEXACO, which operates in a consortium with CEPE.
808. CEPE is the vehicle for direct Government participationin the sector. It was founded in 1972 2/. It is a 62.5 percent owner of the consortium that produces 99 percent of Ecuador's oil and a 50 percent owner of the Trans-Ecuadorianpipeline and associated export terminal facilities. It owns the largest oil refinery (Esmeraldas)and the product pipelines and distributionterminals. It has a near monopoly on internal wholesale trade in petroleum products, but contracts with a public shipping concern (FLOPEC) and private sector firms for most product transportationother than by pipeline. Retail distributionoutlets are privately owned. CEPE does not have complete administrativeautonomy, but is "attached" to MRNE and is tied to Government personnel policies. Its budget and major investment decisions are subject to approval by a Board of Directors consisting of the Ministers of MRNE, Industry, Finance and the heads of the National Planning (JUNAPLA)and the Joint Command of the Armed Forces.
809. CEPE is a young agency which has grown very rapidly. It has been subject to frequent changes of management and, apparently to substantial government influence in matters such as pricing and personnel policies that must have - almost unavoidably-limitedits ability to fulfill its role efficientlyand effectively. Its weakest points are planning, overall coordinationand control. Planning does not cover a long enough time horizon. There is no coordinationamong departments,both in terms of arranging the appropriatemeshing of, for example, the capacity, location, and construction
1/ Direccion General-de Hidrocarburos.
2/ Direccion General de Ridrocarburos. Table 62-- CRUDE AND REFINERY PRODUCTION, 1970-77 (Thousand Barrels per year)
1975 1976 1977 1971 1972 1973 1974 Products 1970 58,752.0 68,361.0 66,954.0 1,200.0 28,579.0 76,211.0 64,616.0 Crude _ 14,454.5 15,274.0 14,364.5 9.842.1 10,320.3 11,489.5 12,892.8 Refined 8,607.6
1,246.0 846.9 Gasoline 1,302.6 1,311.6 1,393.3 1,400.0 63 Octane 1,375.1 1,433.7
Gasoline 4,280.5 4,833.5 4,092.1 X 2,086.6 2,302.0 2,790.8 3,544.2 80 octane 1,724.3 U, 6,079.5 4,939.0 X 3,604.6 4,102.4 4,837.5 5,680.4 Total 3,099.4 3,520.3 1,429.0 1,914.6 1,900.0 388.9 417.0 399.5 593.6 Kerex 502.2 2,885.8 2,063.7 2,313.7 2,730.3 3,113.0 3,154.6 Diesel Oil 1,842.4 2,072.5 466.3 466.9 375.5 546.8 811.9 920.3 960.5 Turbo fuel 611.9 3,775.7 4,954.2 3,002.4 3,161.0 3,277.8 3,582.0 Residual oil 2,330.1 3,169.1 127.3 131.6 104.1 130.7 159.3 169.6 97.5 Spray oil 212.3 7.0 10.9 14.5 5.7 4.0 8.0 3.5 Solvents 5.2 8.0 9.0 13.6 8.0 7.4 8.4 9.4 Mineral turpentine 4.1 ------Asphalt -
Mensual de Hidrocarburos Source: Estadistica Petrolera 1976. Boletdn de Recursos Naturales y Energeticos Direcci6n General de Hidrocarburos, Ministerio Table 63: MAIN INDICATORS OF PETROLEUM SECTOR
(In millions of barrels of crude oil equivalent mless otherwise specified)
1970 1971 1972 1973. 1974 1975 1976 1977 (Jan9i2pt.)
Production Crude 1.2 28.6 76.2 64.6 58.8 68.4 67.0 54.o Derived products (in product equivalent) 8.6 9.8 10.3 11.5 13.0 14.5 15.3 19.h 21.0
Exports Gross 25.0 71.1 59.2 52.3 61.3 50.5 37.4 Direct 25.0 59.0 43.8 42.8 37.0. Compensation - 12.1 15.4 9.5 14.2 13.1 2.5 Derived products 0.1 1.7 4.5
Consumption- (Productequivalent) 8.1 9.2 9.1 10.3 11.9 13.9 16.0 19.4 19.4 @
Imports (Product equivalent) 7.8 9.0 7.1 9.6 9.8 9.6 9.1 1.9 a/ Crude 7.1 .Q 8.5 h Q. 9.5 .0 5.2 _ Products 0.7 0.1 0.2 0.2 0.2 0.3 1.6 3.9 1.9 a/
Note: the ratio of crude equivalent to product equivalent fluctuates every year due to changes in the compo- sition of production and for consumption of refined products. a/ For January-June pexiod only. - 260 -
schedules of processing and transportationfacilities and in terms of setting overall investmentlevels and priorities consistent with the country's needs. The management informationsystem is built ad hoc, with the generation of data from accountingand other sources slow, and scant, which results in an inadequatebasis for decisions and control. The lack of sufficient delegation of responsibilityand authority to middle management results in a number of bottlenecks and multiplies the difficultiesof efficient operation. Aware of these problems, CEPE has commissioneda consulting firm to review its organi- zation and proceduresand to design new managerial information,accounting and control systems.
810. DGH is the technical and administrativearm of MRNE dealing with petroleum. It predates CEPE considerably,as there was a privately operated oil industry in Ecuador which required some degree of governmentmonitoring for over 50 years before CEPE was established. DGH administers contracts with foreign oil companies operating in Ecuador and licenses firms involved in petroleum products distribution. It also prepares analyses on the basis of which the Central Bank withhqlds royalties and tax payments, and does a wide variety of technical and economic studies, including many which would normally be done by the state oil company.
811. During 1978, an Energy Council was established with a similar composition as CEPE's board of directors and responsible for devising energy policies. Further to improve coordinationat board level, a National Institute of Energy (NIE) was created to serve as a meeting place for executivesof the agencies involved in the sector and to sponsor and coordinate the prepara- tion of energy studies. Given the urgent need to focus on the energy problem and its alternative solutions as a whole, the creation of NIE may appear as a step in the right direction. Nevertheless, it may also imply a danger of additional bureaucracywith little significantcontribution to resolving problems, since the DGH is already responsible for the same kind of studies. Moreover, in spite of the composition of the board of directors of CEPE, the coordinationbetween CEPE and the agencies working in the energy sector, such as INECEL 1/, has been seriously deficient. This lack of coordination suggests that the solution to the sector's problems will probably not be obtained by the creation of new institutions.
812. TEXACO has a 37.5 percent interest in the major producing fields and a 50 percent interest in the Trans-Ecuadorianpipeline. It is also the operator for the facilitiesin which it has an interest and has a very small refinery located near the oil fields to supply fuel for its operations.
813. The City Ecuadorian Production Co. (CEPCO), owned by the City Investing Co., a US-based holding company, shares with CEPE the ownership of the country's second largest petroleum producing operation.
1/ Instituto Ecuatoriano de Electrificacion,in charge of power generation and distribution. - 261 -
-814. Both the TEXACO and CEPCO arrangementsare often referred to as "consortia" to reflect the joint ownershipwith CEPE. However, these consortia do not exist as separate legal entities,although in the case of CEPE/TEXACO, a jointly owned operating company is being created.
815. Other companies operating in Ecuador are Gulf Oil and Anglo-Ecuadorian Oilfields ("Anglo"),which own and run two small refineries processing oil under contract with CEPE. CEPE has acquired minority interest in both of these refineriesby investing in facilitiesneeded to expand production. Nego- tiations, particularlywith Anglo, to modify the existing contract are underway.
816. In the explorationphase of the industry besides CEPE, TEXACO and CEPCO, operates also the Argentine state oil company (YPF) an agreement covering an area in the Oriente, and Northwest Corporation,a US firm, with rights to a natural gas-bearing area off-shore in the Gulf of Guayaquil.
3. Petroleum Industry - Production
817. It is convenient to think of the Ecuadorian petroleum industry in terms of three segments: one involved in exploration,another in production- related activities,a third in the supply of domestic markets.
818. Exploration. Explorationhas been made in the past in the Santa Elena peninsula and in Oriente and more recently off-shore, in the Gulf of Guayaquil.
819. Proven reserves in the peninsula represent less than one percent of total reserves. After 50 years of slowly declining production, it is estimated that only 12 percent of the original oil in place has been exploited, although further study is needed to confirm this. Nevertheless,a rehabilita- tion recovery program would be more efficient than new wells to exploit this field fully and work is being done to prepare the rehabilitation. In fact, a number of wells have been-drilledlately in the region, both on- and off-shore, but no commercialdiscoveries have been made. Given modern technologiesand prices, however, the coastal zone to the north of the Santa Elena fields should not be ruled out. To the southeast,under the Gulf of Guayaquil, there is a large natural gas field and oil is being produced by Peru off-shore quite close to demarcationline. Being qualitativelysimilar to the Santa Elena peninsula, this region also appear to be worth further investigation. The estimates made on gas reserves for this Gulf of Guayaquil field (Amistad)vary widely from 2 to 12 trillion cubic feet equivalent to about 0.3 to 2 billion barrels of oil in heating value. The wide range of estimates is due to the small number of wells and the geological complexity of the area, which has many faults and hence many separate potentiallyproductive blocks. The field lies under 80-140 feet of water at depths of up to about 10,000 ft. under the floor. About 75 km of 'under-waterpipeline would reportedlybe needed to develop the field. The major technical-economicbarrier to the use of this resource seems to be that economies of scale in production facilitiesand pipelines, require a larger market than may be available to bring unit costs down to competitivelevels. Anyhow a seismic explorationby Oda oil company has been made for the whole coastal region. - 262 -
820. The Governmentis discussingwith Northwest Company, the holder of concessions in the Gulf of Guayaquil,a further explorationand development of gas reserves. So far, four wells have been drilled in the Amistad field, of which three are successful. Although some legal issues in the US affecting Northwest (next para) may explain the slow activity to date, this is also due to some current points of disagreementbetweeh Northwest and the Government related mainly to utilization of gas to be developed. While the Government wants the gas to be utilized for fertilizersand other petrochemicals,Northwest proposed the use of gas for electricitygeneration. The Government'sview is that when alternative sources of energy (hydro) are available for electricity purposes, natural gas should be used for higher value-added uses. As a result, Northwest has done little to develop the gas field. The Governmenthas been preparing a plan of minimum investmentfor Northwest, according to which the company is expected to invest in two platforms to drill nine wells stretched for a period of three years. These wells are needed to delineate the struc- ture and prove the reserves. To date, it is not clear whether Northwest Company will carry out this program by itself or in association with CEPE. If Northwest refuses to agree to this minimum program, the Government is considering terminationof the contract with the company.
821. In this connection, it should also be noted that Northwest obtained its contract from the Government of Ecuador for an area which Ada Oil Company had earlier explored. Ada Company>,a U.S. firm, has accused Northwest of breaking the confidentialityof its contract when it used the geological data of the Gulf of Guayaquil area, and is suing Northwest in U.S. courts. In these circumstances,there is every reason to believe that Northwest would want to delay the development of gas until the dispute is resolved.
822. The pattern that has emerged thus far from petroleum exploration in the Oriente is that there is a generally north-south axis of large, productive reservoirs running from Lago Agrio and Aguarico - Shushufindi south to Auca flanked to the east and west by smaller fields, most of which are dry or hold heavy oil. The northern extension of the most attractive strip crosses the border into Colombia,while the Southern end seems to be Auca; Conanaco, Tiguino and Curaray are all relatively small fields. The major fields account for about 1.5 billion of the 2.1 billion barrels of recoverablereserves classified by CEPE as proven or probable in the Oriente.
823. In the vertical dimension,producing strata in the major CEPE- TEXACO fields are 9-10 thousand feet deep; the CEPE-CEPCOwells are a little shallower. Several deeper wells are being drilled this year in the Shushufindi field to test whether deeper strata which have been identified by seismic studies as potentially productive, in fact hold commerciallyproducible hydrocarbons. They offer the only hope for a dramatic discovery in the immediate future.
824. In general, as one gets further from Lago Agrio, the eastern terminus of the Trans-Ecuadorianpipeline, the density of exploration effort decreases; not much is known about the area within of about 100 km of the 1942 protocol line. This area appears to warrant additional exploration,especially since oil has been found in commercial quantities on the Peruvian side. - 263 -
825. Between 1973 and 1977, only one foreign oil company entered into a new (as opposed to a renegotiated)petroleum exploration and development contract with Ecuador and subsequentlyactually drilled a well. This is YPF, the Argentine state oil company,whichdrilled three exploratorywells in 1977 on a 200,000 ha area for which it acquired an association contract in January 1975. No further drilling is planned.
826. The Government has been revising the hydrocarbonslaw and in November 1978 it issued a codificationof this law. The law provides a general basis for inviting foreign companies for exploration and to form joint ventures with CEPE for developmentand production of hydrocarbonsin those blocks that are not under CEPE's own control. The Government is now working on different types of model terms, contracts and incentives to attract foreign companies to come to Ecuador to explore for oil. This work on these aspects is expected to be completed shortly. So far, as many,as 15 foreign companies have shown interest in exploring for oil in Ecuador.
827. Although the Government seems to be aware of the benefits of associating foreign investment in oil exploration,action on this front is rather slow. The current political transitionperiod has further heightened uncertainty about future policies. As a result, no concrete action is expected to emerge during 1979. This postponementof much needed intensifica- tion of oil exploration is likely to affect Ecuador's balance of payments until -productionlevels begin to rise again.
828. Production-RelatedActivities. The major production-related activities are the operation of the CEPE-TEXACOconsortium, which produces about 200 thousand barrels per day (MBD), from about 150 wells in four fields in the Oriente and transports this oil via the Trans-EcuatorianPipeline to Esmeraldas, or Balao as the oil shipping terminal is sometimes known, most of this oil is loaded for export onto tankers through undersea loading lines and floating buoy. About 35 MBD was refined iti1977 at Esmeraldas-anda similar amount was shipped to La Libertad on the Santa Elena peninsula to the west of Guayaquil to be refined there.
829. A plant is being built by CEPE at Shushufindito separate the natural gas produced in associationwith the oil from this field into several separate streams: the "natural gasoline" and LPG components are to.be shipped to Quito through a common pipeline while the remainder, mostly methane, will be reinjected into the reservoir or flared. 1/ This operation will replace the present procedure of flaring all the gas produced. 2/
830. The-CEPE-CEPCOconsortium began -productionin mid-1978 and produces about 3 MBD from three small fields in the Oriente. This oil is also transported via the Trans-EcuadorianPipeline to Esmeraldas.
1/ Under Ecuadorian law, all associated gas is property of the State.
2/ It is not practical to reinject gas without extracting the components which would liquify under the pressures exerted in the pumping process. - 264 -
831. About 2 TBD are produced at the Santa Elena Peninsula by CEPE and CEPECA 1/ from about 800 wells in fields which have been in production for some 50 years.
832. Ecuadorian crude varies considerablyin quality. The great bulk, however, is from 30 to 330 API 2/ with about 0.8 percent sulphur content, yielding about 50 percent fuel oil on simple atmosphericdistillation. These characteristicsmake it less desirable than Saudi crude used as the price benchmark but better than heavy Venezuelan crudes. The oil-produced by - CEPE-CEPCO,on the other hand is only 210 API while the Santa Elena crude is not only light (about 360) but has qualities useful for the production of lubricants.
833. Supply of the Domestic Market. About 19 MBA (product equivalent) of petroleum products are currently being consumed in Ecuador, and about 13.1 MBA of crude are diverted from the "direct" export stream for use as refinery inputs or for sale as "compensation"crude exports, used to finance product imports. Production of refined products is well balanced with domestic demand with two exceptions: heavy fuel oil which is produced in excess of domestic demand and of which about 1.0 MBA was exported in 1977, and gasoline which was in substantialdeficit during the same year. The same imbalancemay be expected in the near future (Table 64).
Table 64: PRODUCTION /a AND DEMAND FOR PETROLEUM PRODUCTS,1977
(in thousand barrels)
Production Actual Production Demand Surplus + Deficit (-)
Gasoline 6,144.0 7,496.6 - 1,352.6 Kere/Kerosenes 2,381.2 2,484.5 - 103.3 Diesel 3,234.3 4,355.2 - 1,120.9 Jet/turbofuel 537.4 51.8 + 485.6 Residual/Fueloil 6,669.0 3,343.4 + 3,325.6 Asphalt 208.0 479.2 - 271.2 Spray oil 104.0 116.6 - 12.6 Rubber solvent 14.5 11.2 + 3.3 a! Preliminary figures.
Source: Ministerio de Recursos Naturals y Energeticos,Estadistica Petrolera 1977.
1/ Cautivo Empresa Petrolera Ecuatoriana, a CEPE subsidiary. 2/ A density scale from -131,4O to infinity in which a higher number indicates a lighter (less dense) and, usually, more desirable crude. Most of crudes will go between 120 and 450 - 265 -
834. There are four petroleum refineriesoperating in Ecuador. The largest is CEPE's refinery at Esmeraldas. It is designed to process 55.6 TBD --of Oriente crude but appears to be restricted in practice to about 40 TBD by the capacity of the "provisional"facilities available for transferring products from the refinery onto tankers. It is a new refinery; the processing rate was built up from 0 to 30 TBD through the spring and summer of 1977.
835. It is worth noting that value-added by this refinery calculated at border prices does not cover costs when amortizationis included in the latter. Esmeraldas produces about 30 percent residual fuel oil and 65 percent light products and loses about 5 percent by volume. At the prices of recent transactionsthe value-added per barrel processed can be estimated as approxi- mately:
$15.20 X 0.65 $9.88 per barrel
$10.50 X 0.30 = 3.15
product value 13.03
minus crude oil value 12.50 (internationalprice)
difference = value added 0.53 1/
When the refinery is able to operate at its rated capacity of 55 TBD, the annual value added at present prices would be about $11 million annually, compared with an investment in excess of the $120 million. Consequently,to meet any future increase in domestic demand, above the actual refining capacity it appears appropriate for the Government to weigh seriously the possibility of imports of refined products against the alternative of domestic expansion of refineries, particularlyin light of current excess refining capacity in the Caribbean countries, even if by some criteria, a refinery should be considered as "strategic"2/.
836. Two small refineries operate in the Santa Elena area. 3/ 'The larger of the two, operated by Anglo-EcuadorianOilfield has a capacity of about 30 TBD when operating on Oriente crude. The Gulf refinery processes about 7 TBD. Both of these refineries were built to run on locally produced Santa Elena crudes. As the supply of these crudes dwindled, imported feedstocks 4/ were used to supplement them and they were run on a mix of Oriente crudes, some Santa Elena crude, and imported materials. Since the Esmeraldas refinery began operating at the 30 TMD level, the
1/ All are 1978 prices.
2/ Late 1978, an expansion of the Esmeraldas refinery was decided.
3/ Since .1974,CEPE has acquired an interest in both refineries by paying for improvementsto expand their capacity.
4/ Light Bolivian crude and Venezuelan crudes with the heavy elements removed. - 266 - two Santa Elena refineries have used only Oriente crude together with the small amount of oil produced in the Santa Elena peninsula.
837. The fourth refinery is operated by the CEPE-TEXACOconsortium at Lago Agrio and processes only about one TBD for use in the Oriente oilfield operations.
838. The domestic market for petroleum fuels is currently supplied by CEPE with products coming from CEPE's refinery at Esmeraldas and the two- small refineries on the Santa Elena peninsula and with some imports paid for with the proceeds of "compensation"exports.
839. With the exception of the small topping plant at Lago Agrio, Ecuadorian refineries are located on the coast. The location of the refinery industry poses problems with respect to the domestic transportationof refined products. CEPE has already commissionedconstruction of two product lines. A 259-km pipeline with a capacity of 58.4 TBD is to be built from Esmeraldas to Quito. This will handle "white" products (gasoline,kerosene, diesel fuel) and is scaled to allow for expansion of the Esmeraldas refinery.
840. Another pipeline for which financing has been arranged will carry up to 6.5 TBD of LPG and "natural gasoline" from the gas separationplant under constructionat Shushufindi to Quito.
841. Three other pipeline projects are contemplated. One would connect the two Santa Elena refineries with Guayaquil and Duran. Another would reverse the direction of flow in the 14.4 TBD Duran-Quitopipeline (from northbound to southbound) and the third would add a spur from this line to serve Cuenca.
4. Domestic and Foreign Markets - Demand
842. Domestic Market. The consumption of petroleum products in Ecuador has grown at an annual rate of 12.4 percent between 1968-77 to reach almost 53 TBD (Table 65). During 1972-77, when Ecuador became a commercial producer of oil, the rate of growth of GDP jumped from an average 5.5 percent between 1965 and 1971 to an average of 9.7 percent between 1972 and 1977 and domestic supplies continued to be priced very low. As a result, consumption increased sharply growing annually by 16 percent since 1972 compared with growth rate of 7.8 percent between 1968-72. The consumptionof petroleum products by sector in 1977 shows that the transport sector accounted for 60 percent, followed by electricity,industry and domestic sectors (Table 66).
843. In the transport sector, very low petroleum product prices coupled until recently with a policy of unrestrictedimport of automobiles also contributed to this sharp increase in domestic consumptionof gasoline. Be- tween 1970-77, the number of automobilesincreased from 82,000 to 223,f00 registering a 15.5 percent annual growth. The ratio of increase in gasoline consumption to increases in automobileswas 1.35. The electricity and indus- trial sectors lag far behind with regard to the transport sector. Industries, given the cheap oil policy, have tended to produce their own electricity. If the use of fuel oil by this sector and for this purpose is deducted from the Table 65: - CONSUMPTION OF PETROLEUM PRODUCTS BY SECTOR IN 1977, IN PERCENTAGES
Petroleum Products Agriculture Fisheries Domestic Industry Electricity Transport Shipping Air Transport Total
Gasoline 80 oct. 0.1 0.0 - 0.6 0.1 99.0 0.2 - 100.0
Gasoline 63 oct. 0.0 0.0 - 0.4 - 99.3 0.0 - 100.0
Kerex 0.3 0.Q 70.0 3.3 26.4 - 0.0 - 100.0
Diesel oil 1.3 1.9 - 15.7 25.2 52.1 3.8 - 100.0
Residual (heavy) 2.4 0.2 _ 36.4 40.9 10.6 9.5 - 100.0
Asphalt 1.5 0.0 - 13.5 3.7 81.3 0.0 - 100.0
Spray oil 59.6 - - 1.8 - 38.6 - - 100.0
Solvent - - - 96.3 - 3.7 - - 100.0
Mineral turpentine - - - 96.9 - 3.1 - - 100.0
Fuel oil 14.7 - - 18.3 - - 67.0 - 100.0
Bunker - - - - 100.0 - - - 100.0
Turbo fuel ------100.0 100.0
Total 1.4 0.5 9.8 11.0 16.4 57.4 3.1 0.4 100.0
Source: Direcci'onGeneral de Ridrocarburos Table 66: - CONSIMPTION OF PETROLEUM PRODIJCTS BY SECTOR IN 1977
Petroleum Products Agrlculture Fisheries Domestic Industry Flectricity Trarsport (Shipping Air Transport
Casoline 80 oct., 6,134 60 - 40,282 5,893 6,457,935 14,132
Gasoline 63 oct. 1,262 71 - 4,149 - 993,424 695
Kerex 6,962 1,254 1,781,179 83,343 670,535 - 1,517
Diesel oil 53,593 82,356 - 663,989 1,067,278 2,208,009 159,969
Residual (heavy) 70,709 5,893 - 1,072,377 1,203,352 312,851 280,334
Asphalt 6,095 2 - 55,436 15,476 334,318 5
Spray oil 79,455 - - 2,397 - 51,502
Solvent - - - 19,451 - 757 - -
Mineral turpentine - - - 11,844 - 381 - -
Fuel oil 23,557 - - 29,150 - - 106,588 -
Bunker - - - - 1,786 -
Turbo fuel ------51,799
Total 247,767 89,636 1,781,179 1,982,418 2,962,534 10,359,177 563,240 51,799
Percentage 1 4 0.5 9.8 11.0 16.4 57.5 3.1 0.3
Sour ce: Direccion Geeneral de llidrocarburos - 269 -
consumptionof oil made by industry for other purposes, the low volume of consumption of other derived products suggests indirectly the relatively small --size of this sector within the economy. Low petroleum prices have adversely affected efforts towards energy saving and conservationand have contributed to sharp increasesin consumptionsince 1973. The impact of increased domestic consumption at uneconomic prices with little-boost in production levels has led to a decline in exports.
844. Foreign Market. Foreign markets remain the main factor behind total demand for Ecuadorian oil. In spite of the fast increase in domestic consump- tion, net exports still absorbed 58 percent of supply in 1977 (Table 63).
845. Prospects for exports of Ecuador's crude are a function of its competitivenessin the world market vis-a-vis other crudes. In addition to traditionalcompetition from the Caribbean and Middle East, Ecuador has to.face competitionfrom new sources of supply: Alaska and Mexico. In 1975 the US market still accounted for more than 40 percent; it fell t0 27 percent in 1977. However, Ecuador has been able to diversify its export markets by increased exports to Canada and gaining a new market in Colombia (Table 67). Despite the flow of crude oil from alternative sources like Alaska and Mexico to the US market, export prospects should not suffer in the long-run because firstly, Ecuador is only a small producer and secondly, since 1978, it has allowed more flexibilityin pricing of oil exports. Prior to 1978, government taxes on crude exports were calculated on a reference price of US$13.90 per barrel. Since January 1978, government taxes are based on actual export prices and this permits companies to reduce prices to a limited extent if necessary; this new scale applies retroactivelysince January 1977.
Table 67: EXPORTS OF CRUDE OIL FROM ORIENTE BY DESTINATION
(Barrels).
Country 1975 1976 1977
Antilles - 2,211 411 Bahamas - Brazil - - - Canada 319 1,132 2,669 Colombia - 3,520 - Chile 4,895 5,154 5,649 USA 17,510 9,897 10,097 Panama 11,170 12,784 9,587 Peru 4,627 9,706 8,266 Puerto Rico 4,107 1,042 715 Trinidad - 1,693 -
Total 42,628 47,139 37,394
Source: Banco Central del Ecuador. Boletin EstadisticoNo. 26. - 270 -
5. Pricing System
846. Ecuador export prices are related to OPEC's market crude price and while some adjustmentsmay be needed from time to time to remain competitive, they are expected to stay in line with internationallevels. Pricing of petroleum products in the domestic market played an importantrole in encouraging domestic consumption. In fact, the prices of petroleum products in Ecuador have been maintained at the level fixed decades ago, with the exception of a slight modification for tax purposes. Crude oil for domestic consumption is priced at US$1.48 per barrel, and oil derivative prices average about US$6.40 per barrel, both among the lowest in the world. Table 68 shows the structure of prevailing product prices. The implicit subsidy given to consumers in 1977 when the alternative internationalcost of both crude oil and refined products is taken as the basis of comparison with actual prices, amounted to US$270 million or 4.4 percent of GDP of the same year. 1/
847. It must also be noted that, since every barrel of oil consumed in the domestic market displaces exportable surplus, the low prices have encouraged domestic consumption,the Public Sector is losing revenue and the country is losing foreign exchange. Assuming for the period 1973-77 a buoyancy coefficient of petroleum consumption of one, which is on the low side even taking into account the effect of price hikes, the country would have been losing around US$100 million per year (6.6 percent of 1977 exports of goods and 1.7 percent of 1977 GDP) since 1973.
1/ This estimate is based on the consumption of 24.5 MBA crude oil equi- valent (Table 66) and internationalprice of crude oil of US$12.50 per barrel of refined products. - 271 -
Table 68: STRUCTURE OF PETROLEUM PRODUCT PRICES
(Crude prices at $1.48 per barrel)
(Prices per gallon in Sucres)
Special gasoline Ordinary gasoline Diesel
Crude oil prices 1.07 1.07 1.07 Ex-refinery prices 2.30 1.70 1.55
Taxes 1.88 1.86 1.14 Prices at consumptionoutlets 5.02 4.52 3.53
Prices at consumptionpoints 5.84 5.33 4.36
Actual sales prices in Quito 4.65 4.10 3.55
Losses (-) 1.19 (-) 1.23 (-) 0.81
Source:- Direccion General and CEPE.
848. Moreover, the price policy may have affected negatively the supply of petroleum. Due to the low prices paid to CEPE and TEXACO for oil destined to domestic consumption,CEPE ran into financial problems and neither of them made additional investmentsto maintain or to raise production. 1/ On the assumption that with US$70 million of foreign investment per year, production could have been maintained at the 1973 level, 2/ Ecuador lost an average additional export of 11 MBA, 3/ or in other terms US70 million net annually in foreign exchange and additional income to the country. 4/ This loss of US$70 million should be balanced against the present value of the flow of future income that the country can obtain for exports of the reserves not exploited due to the abovementionedlack of policy. But given the high rate of discount that most probably should apply to this kind of project in Ecuador, the result obtained can be taken as a useful approximation. Thus,
1/ Other aspects of the Petroleum Law may have had some influence too on this passivity.
2/ Lags are not taken into account.
3/ 76 MBA minus the average 65 MBA of effective production since 1974.
4/ Annual value of exports minus annual foreign investment. - 272 - we can conclude given the assumptionmade above, that the price policy has cost the country a total annual US$170 million per year (US$680 during 1974-77) due to lower-than-marketdomestic prices and to foregone additional investment. This is equal to an annual 2.8 percent of the 1977 GDP (an accumulated 11.3 percent since 1974).
849. By fixing domestic prices at an artificiallylow level, the Government'spricing procedure has not only encouraged wasteful consumption of petroleum products but also has prevented the generation of surplus - revenue in the petroleum sector for financingneeded investments. It has stimulated inefficient investment in small generating units and in energy using industries and the vested interests created could resist rationalization of this petroleum policy. Even if the price structure is not changed the priorities, at least for public investment, should be carefully reviewed as some of the investments considered (petrochemicals,expansion of refinery capacity and fertilizers)may not be economic and could absorb a great proportion of the investible resources. Evaluation of public projects should be made on the basis of the internationalprice of oil, not on the artificially low one.
6. Taxes
850. Prior to October 1, 1975, there were as many as 18 different taxes and fees that had to be taken into considerationwhile calculating the tax-paid costs per barrel of exports. In December 1977, Decree No. 2059 simplified this procedure to a considerabledegree and set forth the basis for calculation of tax-paid costs for foreign producers, viz., TEXACO and CEPCO. An earlier decree in August 1977 defined the basis for calculating CEPE's taxes. One important feature of the new basis is that it no longer uses the theoreticalprice of US$13.90 per barrel for purposes of tax calcula- tion. Instead, at present, taxes for both TEXACO and CEPE are based on the actual average monthly export prices f.o.b. as obtained by CEPE for its direct exports. However, the tax system particularlyfor CEPE can still create significantdistortions in terms of the proportion of taxes to be paid as related to earned income given that taxes are calculated on production and exports and do not take into account deduction of costs.
851. The most important element of the tax system in terms of determining the flow of resources from the oil industry to the public sector exclusive of CEPE are royalties, income taxes and "participations"the earmarked return flow of tax revenue to CEPE. Their main features are as follows:
(1) Royalties. The base on which published royalties are computed is the product of 85 1/ percent of the f.o.b. price 2/ corrected by the pipeline transport cost 3/ and a
1/ A holdover from an earlier system that included a 15 percent export tax.
2/ The higher of the declared price of a shipment or a monthly average price obtained by CEPE.
3/ Pipeline cost estimate for CEPE and TEXACO. CEPCO is to pay a higher toll and presumably will get a correspondinglyhigher deduction. - 273 -
given factor which is assumed to represent production of crude. 1/ 2/ The rate applied to this base is 17 percent for CEPE, 18.5 percent for TEXACO, and 12.5 percent for CEPCO. 3/ In addition, there is a decree 4/ establishinga royalty-type levy of 8 percent of the value of "direct" exports 5/ earmarked for the National Defense Board, CEPE pays this in addition to published royalties. In the case of private companies,it is not an additional tax but a first claim on profits taxes. No tax is applied to the exports of refined products made by CEPE.
(2) Income Taxes. 6/ (a) For private companies, the base of this tax is total revenue 7/ 8/ from crude oil sales with deductions for royalties, actual production cost and the pipeline charge ($0.226/barrelfor TEXACO). The-rate is 87.31 percent for TEXACO. (b) For CEPCO, the tax deductions for cost of production are $4.92 per barrel. CEPCO pays also one cent to CEPE/TEXACO for transportingits heavy crude (c) CEPE pays 72 percent of its "direct" export earnings net of royalties and of the 8 percent levy.
1/ Actually, the .base is only the export volume, but the rate is multiplied by the estimated ratio of production to exports.
2/ The correspondingformula is: R = r (Pv-x 0.85-TO) x Q/(l-a) where R = value of royalty r = percentage of royalty Pv = effective F.O.B. sales prices TO = Pipeline Transport cost Q = net direct export quantity in barrels l-a = adjustment factor for convertin from Q (exports) to production.
3/ Rates for private companies are on a sliding scale with production.
4/ But, Nuevo No. 46, updated, p. 26 reports its date-and number.
5/ I.E., excluding "compensation" exports.
6/ In CEPE's case, the term "tax" is not used, but CEPE's profits are distributed according to a formula that has^the same effect.
7/ Again, the formula used actually employ an export-base, but the rate is multiplied by an estimated factor to make it equivalent to a-total revenue base.
8/ For purposes of this tax, revenues from exports for each month are computed as the higher of the actual and a figure based on the -average price received by CEPE adjusted to 30 days credit. - 274 -
(3) "Participation,"CEPE receives a 0.1236 percent share of the proceeds from the "tax" on its income and a 0.1154 percent plus US$.20/barrel(of TEXACO's exports) share of TEXACO's income tax.
852. Also important is the requirement that producers supply crude oil for domestic consumption at a price of about $1.50 per barrel. (less than the royalties they effectively pay to produce this oil) in proportion to- their share in national production. "Domestic consumption"in this context includes for exports of products in the compensationscheme. CEPCO is paid a higher price ($6-7/barrel)and is required to deliver a lower percentage of output (20-25 percent, as opposed to 30-40 percent for CEPE and Texaco). Another complicatingfeature of the tax system is that revenues are earmarked for distributionamong a large number of agencies. The system was somewhat simplified in 1977 but revenues still have to be split 16 ways (see Table 69).
Table 69: DISTRIBUTION OF PETROLEUMINCOME TAX REVENUES TO DIFFERENT BENEFICIARIES
Percentages
National Fund for Electrification 2.8254 Development of Esmeraldas Province 0.1808 Ministry of Public Health 1.6754 Ministry of Social Welfare 2.5137 National Child Care Association 0.8370 Bank of Ecuador for Housing 3.3508 General State Budgetary Allocation 33.3059 National Fund of Participation 6.0730 Universitiesand State Polytechnics 2.2682 Universitiesand Private Polytechnics 0.2270 (FONADE) National Development Fund 43.5815 CEPE 0.1154 Central Bank of Ecuador 0.0248 Institute of Ecuador of Educational Credit and Scholarships 0.1314 National Defense Union 1.7338 Ecuadorian Air Force 1.1559
100.0000
Source: Decree No. 2059 dated December 15, 1977. Ministry of Finance, Ecuador. - 275 -
853. The administrationof taxes on producers added several complications to those inherent in the tax law. One was that taxes were witheld on the basis of administratively-determinedestimates of production costs and domestic consumptionthat were only adjusted to reflect actual data irregularly and sometimes with substantialdelay. Another is that timing of distributionby the Central Bank of the proceeds from export.swas not regular. Some of these difficultiesdisappeared with Decree No. 2059, but others showed up like the management of a tax basis calculated on the effective internationalprice which varies dailys.
854. Another factor to be closely considered is the impact of the tax system on CEPE's finances given the definitions used. At present (1978) the system results in CEPE paying taxes amounting to about 55 percent of total revenues and about 78 percent of income before taxes. The problems are that taxes relate mainly to CEPE's revenues (particularlycrude oil export revenues net of compensationexports) and not to profits and in the case of the royalty tax, to crude oil production irrespectiveof revenues and costs. Assuming increasingdomestic demand and declining exports, taxes would decline, but as the royalty tax is based on crude oil production, the possibility exists that CEPE would pay more in taxes than it earns. The system also can work incorrectlyin the reverse way. If domestic prices were increased and CEPE's profitabilitysubstantially improved, although still under a scenario of increasing domestic demand and declining exports, CEPE's contribution to the exchequer and the proportion bf its profits going to taxes would deline, as at present-thebulk of the taxes are levied on export revenues.
7. Conclusions and Recommendations
855. There is danger of a substantial reduction in the sector's contri- bution to the economy if the Government does not design and implement policy changes. It is clear that the direction af such policy should be towards (i) increases in domestic prices to eliminate regressive subsidies and control the growth in local consumption;(ii) a consistent approach to foreign investors with adequate incentives for attracting their capital and expertise in the case they are found necessary; (iii) the strengtheningof the institutionalapparatus of CEPE; (iv) rationalizationof the investment program to give priority to investments that would allow increases in recoverable reserves and production; and (v) further simplificationand rationalizationof the tax system both for foreign investors (in connection with the review of incentives) and for CEPE. It is not possible at this time to recommend the detailed measures that should be taken concerning these five aspects of policy. A complete sector study should be undertaken to determine needed policy changes, following which an action program could be prepared. However, the initial measures in the direction discussed above, particularlyregarding investmentlevels and domestic prices should be addressed promptly.
856. A change in price policy has been justified elsewhere (Chapter II). The desired level and the strategy to reach it are the main issues at stake. In principle, the internationalprice of crude oil FOB (any Ecuadorian port) should be the reference price for refineries and the CIF price of refined products should be the basic price for consumption. In both cases, these prices represent the opportunity cost of oil consumed domestically. In the - 276 - first case, instead of getting the low artificial price of US$1.48 per barrel sold domestically,CEPE or the "country" could obtain US$12.50 per barrel by selling it in foreign markets. This can be expressed either in domestic or in foreign goods, but it is expressed as the cost equivalent of foreign goods. Consequently,the real, alternative cost, or cost in domestic resources to the refinery of one barrel used is not US$1.48 but US$12.50. 1/ Likewise, the "alternativecost" of one barrel of refined products consumed domesticallyis its CIF price at some Ecuadorian port (without taxes). 2-/ Here a discussion could arise on the choice of the FOB or CIF prices; the correct decision could depend on the capacity for refining but it can be considered as a detail in the main issue presented.
857. Taxes and subsidies are not contradictoryto the previous recommenda- tions. Redistributivemotives, control of consumption,fiscal income, road users charges or strategic reasons may be advocated to impose taxes on top of the reference price or to subtract subsidies from them. But, these taxes and subsidies may have costs associated with them, either in terms of resource allocation and/or in terms of redistributionof income. In the Ecuadorian case, although the existing indirect taxes put some spread between the prices to producers and those to consumers, the relevant and most significantinter- ference with the reference prices is the subsidy of 88 percent on the basis price to users of oil. To judge the "adequacy" of this policy, an appropriate weight should be assigned on the different justificationsfor the subsidy. But it is difficult to see how the-enormouscosts in terms of resource alloca-, tion and redistributionof income can be and have been compensated by any social benefit.sof similar magnitude.
858. In a nutshell, the internationalprice should be used as the price of reference for economic analysis and decision-makingand as the appropriate information to estimate the costs and benefits of any tax-cum-subsidypolicy to be chosen.
859. Given that actual prices are way'below reference and "reasonable" prices, how should the country adjust to a new level? Two main alternatives are open: the one step policy and the step-by-steppolicy or "rising peg". The economic effects of both policies have been analyzed elsewhere (see chapter on outlook and related projections). The benefits of the first alternative are greater than of the second alternative when trade balance, income distributionand fiscal revenues are considered. Even in terms of growth, the first alternativeallows a quicker exploitationof the comparative advantages of the country and consequentlyof its potential for growth. So, in spite of a possible temporary disruption of the economy due to the once- for-all change in the price of petroleum, a higher rate of growth may even- tually compensate for the transitory loss of income. Both alternatives imply an increase in the importance of the public sector relative to the private sector (especiallywith respect to total savings capacity), but the first one
1/ Here, differences in quality of oil are not taken into consideration.
2/ If the refining capacity exists in the country, the FOB price should be chosen; if it does not exist, it cannot satisfy domestic demand at internationalprices, and the CIF price should be used. - 277 - would make the change in one stroke leaving to the public sector the additional burden of proper allocationof new revenues without time to prepare itself for that new responsibility. Of course, the petroleum sector could easily absorb all the additional revenues for several years, but different factors remain to be analyzed: (1) to what extent is the social return of any additional invest- ment in petroleum greater than the shadow price of capital; (2) what are the proper projects to invest in; and (3) should the developmentof the petroleum sector depend entirely on the use of its own funds? The "rising-peg"allows time for Governmentand the private sector to anticipate and adapt to the changing situation. Time, of course, will depend on the choice of mechanism. Possibilitiesare many, ranging from daily adjustment to annual changes and from small real rises to significantjumps. It is impossible to analyze all of them here. Nevertheless,it may be helpful to focus on one of them, which could be considered as a point of reference. To avoid major disruptions in the economy but at the same time to make some significantchanges, the increase in price could be chosen so as to freeze the actual level of domestic consumption for several years. 1/ If the rising-pegalternative is chosen, the approximate schedule of price changes should be announced to allow for a revision of investmentplans to avoid the selection of unprofitableprojects. Even if "final" prices are not reached, new public investments,at least, should be appraised within the framework of final prices. No serious analysis on petroleum price policy has been made. A quick and serious effort should be directed towards some of the issues raised so far as to the propositionof alternative paths of adjustment, the inflationaryimpact of each proposed alternative,complementary measures to the changes in prices, etc.
860. Since the refined produce is a composite of over ten products: (a) the suggested change under-any option in the average price of the composite could be accompaniedby some changes in the relative prices of its components (for example particularconsiderations of income redistributionmay suggest subsidizing kerosene and taxing high octane gasoline); (b) the effects of a change in the average price will not have the same impact on the demand of each component;some sectors will react mqre than others. Therefore, adjust- ments in oil production and/or imports will have to be made simultaneously with adjustment in the prices of certain oil-consuminggoods and services like electricity and transport. This is especially true and important for the energy sector whose future structure is heavily tied to oil prices.
861. If the price problem is solved, and if CEPE obtains most of the additional funds which would accrue to the country, this institution could have substantial risk capital at its disposal for oil exploration and develop- ment necessary to avoid a rapid decline in production. If prices are raised very slowly foreign funds will be needed to substitute for would-be domestic ones. But even if the government obtains the greatest possible revenues from its petroleum, it can still be convenient for the country to obtain additional foreign funds to be invested into the sector. So, a number of steps should be taken which would help prepare the basis for -sucharrangements in the future. They are:
1/ A detailed analysis of the Ecuadorian market will be required to obtain the relevant elasticitiesand parameters involved. - 278 -
(a) Establishing consistentlygood working relationshipbased on mutual trust with foreign oil companies: the return that currently active foreign oil companies (TEXACO and CEPCO) are allowed to make on their investmentswill be taken into considerationby prospective investors;
(b) Developing an efficient incentive system which could be attractive to potential investors and at the same time acceptable to Ecuador. As a corollary, if a decision to increase domestic product prices is taken, it would show the necessary resolve and strength to take unpopular but economicallynecessary measures;
(c) Simplifyingthe fiscal treatment of petroleum operations. The government has been aware of some problems and has shown willingness to make changes. Decree No. 2059 of December 15, 1977 is a good example although it has changed the rules of the game for private investors export facto. But some difficulties still remain, e.g. the basis of application of tax to CEPE; the daily variation in prices; and
(d) Uniform tax treatment of foreign oil companies.
862. Administrativeor organizationalmeasures with respect to CEPE that may -be helpful are:
(a) Increasing the corporation'sindependence from standard Government administrativeregulation, particularlywith regard to personnel selection and administration. While CEPE is probably too important to be given complete budgetary autonomy, the system chosen should allow for rapid implementationof decisions both between the government and CEPE and within CEPE itself. Longer-term plans should be developed to allow a relatively stable growth effort and more efficient insertion of Government planning targets and priorities within CEPE and vice-versa.
(b) Strengtheningthe planning, coordinationand information functions within CEPE, accounting, control and overall organi- zation procedures. Some issues that require early attention are investment programming and evaluation to facilitate long-term projections and priority-settingboth for CEPE and for consortia and contractors;solutions to weaknesses in present accounting and auditing of CEPE should allow the clear allocation of respon- sibility and source of profitabilityamong its different depart- ments. This also would allow a better measurement of the costs to the economy of CEPE operations (especiallyexploitation, transport, refining);
(d) Avoiding the transformationof the new institutionalframework, especially the National Institute of Energy, into an inefficient bureaucracy; and
(e) Promptly undertaking the much required overall energy study from which CEPE policies could be derived in the future. - 279 -
863. A vigorous effort of exploration should be undertaken to avoid the expected decline in production and the likely prospect of soon becoming a net importer; the coast of Manabi, the south eastern part of the country and the Gulf of Guayaquil are the most interestingareas for a systematic search. The momentum in oil activities or desired changes should not be postponed or lost.
864. It is not possible, given the informationavailable, to outline the pattern of investment in product processing and distributionfacilities that should be followed. Determining such a pattern requires comparison of a large number of alternativesystems and their developmentover time, just as does electric utility systems planning. CEPE should obtain experienced outside expertise to do this work, at least for developing an initial plan which can later be modified or extended as needs be.
865. However, it does seem reasonable to raise some general questions here for which an answer should be prepared and then used for optimal invest- ment decisions:
(a) Given a certain stock of proven reserves, what should the optimal.time-path of exploitationbe within a framework of changing world prices, costs, conditions and political environment? The determinationof the optimal size of the exploitationwould be a related question;
(b) Should the country prefer foreign to domestic savings to develop the petroleum industry? To what extent should anyone of these be used? Although concerned with macroeconomicsthe question applies to the petroleum sector since investments in this sector may represent a significantshare of total investment, since foreign savings may be tied to foreign investment and because the risk factor may be importantenough to affect the domestic of investment in this sector. Should the country prefer tied to untied foreign funds to promote oil production?
(c) Recoverable reserves may increase by enlarging stock of proven reserves through successful explorationand/or by secondary recovery. A careful and continuous evaluation should be made between these two possibilitiesbefore deciding going into new fields; and
(d) Should refining capacity be increased by investment in the country or by relying on foreign capacity given the present excess capacity in the Caribbean area? CEPE should realize its scarce funds available for investment could have better alternative destination than increasing refining capacity. Moreover, if an increment in the refining capacity is to be made. a careful analysis of the location should precede the final decision to avoid unnecessary costs.
These and other questions raised in different parts of this chapter require a thorough analysis which should be extended to all aspects of the energy sector. - 280 -
XII. ORGANIZATIONOF THE PUBLIC SECTOR
1. Summary of Recommendations
866. The followinganalysis suggests a number of measures to improve the public sector's administrativemachinery and practices which are summarized here.
867. The Structure of the Government. Numerous reorganizationssince 1970 which, on one side, have shown the willingness of the Government to improve the public administration,on the other, have created a confusing situation and complicated its task. There is a need to take stock of these changes and to define national policy in some areas. Specific actions which could be taken in this regard are the following:
(i) Changes could be introduced in the operations of state enter- prises to adapt them better to the important role they have been assigned in Ecuadorian development. These enterprises should be given greater autonomy and flexibilityand should adopt commercial operation practices. This would require that the managers of state enterprisesbe technically-competentadministrators, rather than political appointees, that bureaucraticcontrols over day-to-day activities of the enterprise be eliminated and the entities be given greater flexibilityin their personnel policies than the rest of the public sector, that all enterprisesadopt modern and consistent practices of accounting and financial control, that they be allowed to charge reasonable rates for their services and apply part of their income toward their costs.
(ii) Better coordinationof the decentralizedentities could be achieved by strengtheningthe planning offices of the central ministries so they can formulate comprehensiveyearly plans of action for the public institutiongin their sectors and provide informationneeded for decisions on allocation of resources through the budgetary process. Coordinationcould be improved in this field by strengtheningthe project directors, giving them power over all project personnel. Coordinationwould also be enhanced by a better specificationof responsibilitiesof coordinatinggroups and direct- ing boards which fail to function properly, interfere in the oper- ations of state enterprises,delay decisions, and waste the time of top executives. A national policy should be defined toward the remaining groups and boards of directors so as to establish the proper level of representationand to encourage participantsto better exchange informationand coordinate actions. Where strong direction of daily operations is required (such as in state enter- prises), considerationshould be given to eliminating the board of directors entirely or, at least, to limit clearly its attributions. - 281 -
(iii) A number of steps have been taken to decentralizesome activities, but there are still numerous instances where routine decisions must be referred to Quito, causing delays, raising costs and complicatingadministration, particularly of projects. Regional representativesshould be given more explicit policy guidelinesand a clearer understandingof their functions in order to establish fully which actions or decisions can be - taken in the field. More coordinatingmechanisms in the field, such as planning groups for certain regions, would also promote decentralizationby allowing entities to communicate directly rather than through central offices in Quito.
868. A number of improvementsare underway in public sector systems for gathering and processingdata that should increase the amount of reliable, up-to-date and consistent informationavailable to Ecuadorian administrators. In this respect, some suggestedactions are:
(i) Decisions about data to be collected and the classification schemes to be implementedas part of these improvementsshould be made in consultationwith the functionarieswho will use the data. Correspondingly,these functionariesshould be trained to determine their needs for informationand to exploit the informationfully.
(ii) Public institutionsshould be more fully informed about informationgathering by their governing bodies and should be encouragedto exchange data, to collaborateon investigations and to examine the reasons for conflicting statistics.
(iii) A regularly updated inventory of public sector information would be invaluable.
(iv) There is also a need for nationdl guidelines restricting the circulationof information,so that useful information is not needlesslyclassified as secret.
869. In personnel policies, there are actions which could be taken to ameliorate some of the problems which improve efficient operation of the public sector, such as administrativeinstability, highly centralized and rigid personnel administration,poor and deterioratingpay scales for assuring a sufficient supply of qualified public servants and for training public employees.
(i) Administrativeinstability is related to the rate of turnover of top level managers which can only be prevented by a high level political decision. If this high rate of turnover persists,new executives should be discouragedfrom indulging in reorganization,at least in institutionswhich have already been restructuredduring the last year. - 282 -
(ii) The high turnover of second and mid-level managers can be reduced by administrativepolicy. Efforts should be made to establish channels of promotionwithin institutionsand to give preference to promoting qualified personnel within the institutionsin order to increase the continuity of at least a core of administrativestaff. Certain posts might be designated as discretionarypositions, puestos de confianza, and their occupants subject to change at the whim of the chief- executive while the remainder of the administrativestaff could not be changed without cause. This would help assure that the high rate of turnover of top managers does not translate into general institutionalinstability.
(iii) Public sector personnel policies should be made more flexible and responsive to the needs of the various insti- tutions. Personnel offices should be strengthenedand given the capacity to plan the human resource needs of their institutionsin collaborationwith the entity's planning unit and the National Personnel Office. An educational bonus and hardship pay for locations away from home would also increase the flexibilityof the system.
(iv) A study should be made of governmental professionalstaff, their numbers and productivity;to determine the need for selective salary increases, especially where there is a high rate of attrition of trained personnel, such as personnel directors, planners, project managers. Public sector salaries should not be allowed to continue to decline in real terms since that drives out the best qual-ifiedpersonnel and increases costs in the long run by increasing inefficiencyand waste.
870. There is a pressing need for change in the budgetary process in Ecuador to make the budget a better tool for promoting development. For a number of reasons described below the present system is biased against invest- ment expenditures,tends to encourage foreign borrowing and is characterized by stringent controls over the appropriationand distributionof some funds and loose control over special accounts and other funds. Rigiditiescaused by earmarked funds and special accounts make it difficult to allocate public resources to high priority uses. For the budget to be transformed into an instrument of development planning, it should be based on a process that first forecasts available resources, then ranks expendituresaccording to development priorities,and finally allocates resources and authorizes foreign indebtednessaccording to development priorities.
871. Some of the specific actions which could make the budget a better tool of developmentadministration are the following: - 283 -
(i) The budgets of all public entiti-esshould be presented in one document using uniform classifications,with consolidated informationon public revenues and expendituresby sectors. This would give authoritiescomplete informationneeded for programmingand evaluationof public sector activities.
(ii) The formulationand executionof the budget could be made more flexible by determiningallocation and controlling disbursementsat an aggregate level. Budgetary programming and evaluationwould take place at the level of programs and execution would be decentralizedin the executing agencies. This would clearly entail strengtheningthe programming and budgetary control capacity of public entities, as well as the government'saccounting systems.
(iii) Uniform proceduresand schedulesfor elaboratingthe budget should be implementedthroughout the public sector. To assure a more realistic informationbase for elaboratingand evaluating the draft budgets, the various agencies would provide the central office with information on budget execu- tion and costs and the Budget Directorate would give the entities a preliminaryindication of their probable global allocation. JUNAPLA and other insitutionswould provide additional informat-ion,such as projected costs of imported inputs.
(iv) Once proceduresare adopted to insure that development planning becomes the basis for resource allocation and measures are taken to make the budget more flexible, the special accounts should be incorporatedinto the budget and the earmarking of revenues eliminated. As part of this move to restore control over resources to the Government, FONADE and FONAPAR should also be incorporatedinto the budget.- This will not preclude the proposed transformationof FONADE into a development bank.
872. The process of determiningand implementingnational economic prioritiesin Ecuador has suffered from, firstly, a lack of specific operative plans and secondly from a lack of strong institutionalties between the planning process and the actual allocation of resources. The new Government will have an opportunity to reform the process for setting development prior- ities since under the new Constitutiona National Development Council presided by the Vice President will replace the National Planning Board and the Planning Secretariatwill be transformedinto the Technical Secretariat of the Council. The Governmentcould undertake a number of actions to assure that the new structure of planning in Ecuador leads to preparationof operative plans with consistent, ranked developmentpriorities, used as the basis for the allocation of resources. - 284 -
(i) The new National Development Council should act as the decision- making apparatus required if planning is to be more than a theoreticalexercise in Ecuador. A functioning Council would provide the direction needed to assure that JUNAPLA's plans are guided by the decisions of major economic policy makers. A Development Council that meets frequentlyand has the backing of the President would also be a mechanism to assure that develop-, ment priorities expressed in the plans form the basis for the allocation of resources.
(ii) Because the size of the Council might make it sometimes difficult to convene a meeting of many high level functionariesat one time, it might be advisable to create a small, technically competent and prestigiousgroup of advisors to the Development Council and the President to recommend policy direction and to give guidance to the planning process between Council meetings.
(iii) For this reform to be effective it should coincide with a strengtheningof JUNAPLA's ability to prepare operative planning, which would entail improving its staff's technical and analytical capacity and its data gathering procedures.
(iv) The various planning and project units would also be strengthened and made capable of formulating action plans for the implementing .agencies in a process that would be closely coordinatedwith JUNAPLA's elaboration of national plans and programs. The capacity of project units to identify and prepare projects correspondingto the sectoral strategy would also be strengthened. The interchangebetween 'JUNAPLAand the sectoral planning and project units would be aimed at producing a ranking of priori- ties and projects that reflect national development goals and would be used as a basis for formulatingdraft budgets and allocating resources through the budgetary process.
(v) The reestablishmentof the Committee of External Credit would be another fundamental step in the process of creating the institutionalmechanisms linking development prioritiesto major economic decisions.
(vi) A strong institutionaltie between the planning process and budget formulation,such as a revitalized Budget Committee, would also be essential, in order for the operative plans to form the basis for budgetary decisions.
873. Many of the recommendationsto improve public sector efficiency at the general level that are mentioned above,would also have a beneficial impact on the identification,preparation, and execution of development projects in Ecuador. Realistic national and sectoral operative plans would form the basis for better project identificationand evaluation. Stream- lining the budgetary process would eliminate costly delays in project execution. - 285 -
Improved coordinationamong public institutionswould allow joint efforts at the project level. More flexible personnel policies and efforts to retain - qualified staff would help assure continuity of competent project staff and eliminate the problems associated with the high rate of turnover of administratorsat the project level.
874. Some recommendationsspecifically directed at streamliningthe project cycle and assuring an adequate inventory of well prepared projects follow:
(i) Personnel policies to help assure a sufficient supply of qualified project staff should be implemented,including training programs in all phases of project management (identification,preparation, supervision, bidding, evaluation),salary and administrativepolicies to retain staff, and more independencefor project directors.
(ii) One agency or unit should be assigned primary responsibility for all aspects of the project, including coordinatingother public institutionsinvolved in the project follow-up and maintenance. This directing unit would plan interdependent work schedules, communicatewith other public entities, and, if possible, control all funds and project staff.
(iii) More attention should be given to project follow-up and main- tenance. Projects should be evaluated after they have operated for some time, perhaps one year, in terms of their social and economic impact as well as the more direct project output.
(iv) A study should be made of the project cycle and the laws relating to it (such as the law regulating competitive bidding - ley de licitaciones)in order to discover ways to streamline procedures and eliminate bottlenecks. For example, the law might be redefined to clarify and simplify the conditions for price adjustmentsin contracts. Or, to take another example, ways to reduce the time required to disburse FONAPRE funds might be found.
(v) The public sector in-house capacity for project preparation should be improved through training and allocation of sufficient funds. A large number of projects, especially smaller, simpler projects, are prepared by Government agencies without the use of consultants. Improvementof their in-house capacity could have an immediate beneficial impact on the project inventory.
875. An examinationof the operations of the public sector in agricul- ture 1/ also suggests certain possible improvementsbeyond the general improvementsdiscussed earlier.
1/ See Technical Annex 4. - 286 -
(i) On the basis of the expanded data base that will result from the research of the MAG's RegionalizationProgram, it will be possible to analyze the strategic options in the sector and develop a medium term plan of action. This plan should be formulated in collaborationwith other public agencies in agriculture, the private sector and JUNAPLA and integrated with JUNAPLA's general economic strategy. Ideally, this - sectoral plan will replace the present fragmentedplans and programs with comprehensivegoals and a framework for coor- dinating action in agriculture.
(ii) Coordination in agriculture could be improved on the basis of this comprehensivesectoral plan through the use of existing mechanisms, such as the Supreme Agricultural Council, and the coordinatingpowers of the Ministry of Agriculture. The presentationof a consolidatedbudget for the sector would also enable improved coordination.
(iii) Improve coordinationin the field by giving zonal offices and PIDA's a catalytic role similar to that sometimes played by regional organizations. Agencies would sign agreements to cooperatewith a PIDA and the PIDA staff would be assigned to assure that this,cooperationis effective with the collabo- ration of the zonal offices. The zonal offices and PIDA's should be given the option or offering salary bonuses for work in rural areas to assure that they can attract qualified personnel. _ cm) -
I RECOMMEND ACTION TYPE OF DECISION0TIKE EGETEH RSULTS_ _ Top i n -- 1 dier-e After Grda- -oonoy Greater I=pro- btter attinfustior Le-el terial in n 1 jane C.tpl. nl of i ffin- -ement ;leeds of I-atio Polit_ Deore i.9i. Adnin Study FMd. he orcen iency umr lore (owe: better ionS Cb ncge Teem jian- or Eevir. wbOOdS niths | 'n bage jaG han Opera- c Coot teas _ _tint iervt i eedE
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I. I t il - 288 -
2. DevelopmentAdministration
(i) The Role of the Public Sector in the Economy
876. The role of the Ecuadorian public sector in the economy has grown markedly since the early 1960s. This growth was particularlydramatic in 1972-74 due to the inflow of petroleum resources,which eliminated financial constraintson public spending, coupled with the commitment of the Government to greatly expand the participationof the public sector in the developmentprocess, expressed in the National Develoment Plan, 1972-77. Although the decline in petroleum revenues in 1975 and 1977 put an end to this rapid expansion, the level and scope of public sector involvement in the economy and the size of the government apparatus had grown significantly.
877. There was also a large expansion in the size of the public service from 77,218 employees in 1973 the nonfinancialpublic sector grew to 109,187 in 1976. Most of the additional employees were in education, health and agriculture. Correspondingly,the proportion of national government current and capital expendituresallocated to health increased from 3.6 percent in 1970 to 7.2 percent in 1977 and agriculturewent from 1.6 to 6.3 percent, while education continued to receive over 20 percent of the national government expenditure (24.1 percent in 1977). 1/
(ii) AdministrativeMachinery
878. Structure of the Ecuadorian Government. Since 1972 the structure of the Ecuadorian governmenthas- consisted of the executive branch under the joint command of the armed forces and the judicial branch. The most important decision-makingbodies in terms of-Ecuador'seconomic development are the Economic "Front" (Frente),the InternationalFront and the Monetary Board. This structurewill change when the new Constitution,adoptedJanuary 1978, is implemented after the elections. The new Constitutioncreates a unicameral legislaturewith 12 members elected at large, two members from provinces of more than 100,000 inhabitantsand one from all others and one delegate for every 300,000 inhabitants. The executive branch will be headed by the President and Vice President and a new body will direct economic decision making: the National Development Council. 2/ The structure of the rest of the executive branch will not change.
879. The administrativemachinery of the country consists of the office of the Presidency which has 12 so-called "support" institutionsattached
1/ See Tables 11.1 and 11.2 in the StatisticalAppendix.
2/ The members are: Vice President (who acts as Chairman), the Ministers presiding the Economic Front (Finance), the Internal Front (Government), the External Front (Foreign Relations)',and the Military Front (Defense), a delegate'of the House of Representatives,the president of the Monetary Board, representativesof the labor movement, chambers of production and the university system. - 289 -
(adscritas)to it (such as the National Personnel Board, the Planning Office, the StatisticalInstitute), the 11 ministries, 43 decentralizedentities --attached to the Ministries, 24 public (municipal)enterprises and nine public sector financial institutions(see OrganizationalChart 2). In addition, there are approximately160 other decentralizedentities including 25 mixed enterprises,five local port author;ities,12 universitiesand poly- technics, 14 municipal enterprises,20 local electrical systems, etc. 1/ There are also 42 committees,commissions and councils of coordinationand consultation,plus about 155 public institutionswhich are headed by a Board of Directors.
880. The 43 decentralizedentities in the Central Government consist of semiautonomousentities (entidades adscritas) and public enterprises. State public enterprisesare relatively new in Ecuador and their role in the public sector has not yet been clearly defined. There is no clear distinctionbetween state enterprisesand other decentralizedentities; such institutions,as the Ecuadorian State Petroleum Enterprise (CEPE) and the National Electrification Institute (INECEL) are classified by JUNAPLA as semiautonomousentities rather than state enterprises. The operations of the state enterprises are varied; some do not maintain a commercial balance; some depend heavily on Central Government subsidies (80 percent of the revenues of the railway system come from the Central Government). The autonomy of all the decentralizedentities in the Central Government depends upon their age, ability to build an indepen- dent power base, access to income other than General Budget funds, and the strength or weakness of the central ministry in their sector. A project of law on public enterprisesis now in discussion.
881. As far as local administrationis concerned, the country is divided into provinces, cantons or municipalities,and parishes. The 20 provinces are governed by a prefect and a provincial council and the 116 municipalitiesare governed by a mayor and a municipal council, all elected by direct popular vote. The Central Government is represented by a Governor in each province, a political chief in each canton and a political lieutenant in each parish, appointed by the president.
1/ These numbers are approximate since the number of public sector entities is continually changing and sources differ as to the way to classify the public sector. ;mEg [3i~~~~~~~~~~~~~~~~~------*~~~-- ~~~~~~~~~ I 'I 09SiSEAe
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882. The nuaber of public sector entities has been sharply reduced by government reorganizations. There were an estimated 1,400 entities before the 1970 reorganizationwhich reduced this amount by half. Subsequent reorganizationshave further reduced the number to under 300 (excluding the 20 provincial and 116 municipal councils). In comparison, the three Western Hemisphere countries for which informationwas available closest to Ecuador in population size, Chile, Guatemala and the Dominican Republic, all have less than 150 public institutions.1/
883. The Central Government of Ecuador (ministries,semiautonomous entities attached to ministries and public enterprises)is not unusually large for a country of its size. There appears to have been a proliferation of local government institutionsand mixed enterpriseswhich has expanded the public sector. Many municipalitieshave their own university and/or trade schools; Guayaquilhas its own telephone company, port authority, road committee and transit commission,socialwelfare board, urban development enterprise. In addition, the Government is involved in four milk companies, two meat companies, two food companies, a fruit and vegetable company, a citrus company, a cement company, an alcohol company, institutionsto promote handicrafts,combat cancer, eradicate malaria, etc.
884. There are instances of overlapping responsibilities,mainly between regional and local entities and the national public institutions.2/ Most of the local public entities fall outside the lines of authority of the central government and operate independently. Administrationis also complicated by the fact that the structure of the public sector is constantly in flux. New entities are being created, a large number of old entities are being absorbed and many existing entities are being reorganized. More problems arise, however, because of deficienciesin the administrationand coordina- tion of the governmentalagencies. The number of public entities also strains Ecuador's scarce supply of managerial talent.
1/ Includes ministries, decentralizedand autonomous agencies, local enterprises,non-financial and financial public institutionsbut excludes local government legislationbodies. Estimates based on informationin IMF, Government Financial Statistics Yearbook (Vol. I, 1977): Guatemala: 39, Chile: 86, and Dominican Republic: 122.
2/ One of the most recent efforts to create a new public body appears to be an example of overlapping functions and a failure to clearly define areas of responsibility. INCRAE, the new National Institution for the Coloni- zation of the Ecuadorian Amazon Region, will be responsible for coloniz- ing the Amazon region even though colonization is the responsibility nationally of IERAC. Yet IERAC is only referred to in passing in the law creating INCRAE and the problem of overlapping responsibilitiesis never mentioned. Furthermore,while INCRAE is nominally in charge of four Amazon provinces, there are two regional entities operating in two of these provinces (CREA in Morona Santiago and PREDESUR in Zamora Chinchipe),which are left under the charge of the colonizationdepart- ments of the regional institutes "until INCRAE judges it convenient". - 292 -
885. Coordinationand Direction. Outside of the budget, which is discussed later, there are two mechanisms used in Ecuador to coordinate the decentralizedinstitutions. One is to attach the institutionto a Ministry and the other is through coordinatingcommittees and boards of directors. The central ministries are responsiblefor overall policy and direction in the sector and are expected to assure that the semiautonomousentities in the sector coordinate their actions with the general policy line.
886. In most cases, however, subordinatingan institution to a Central Government Ministry has not been effective in achieving coordination. Many of the decentralizedentities now reporting to a ministry were previously autonomous from ministerial control and some are older than the Ministry they are attached to. Although the Ministries have formal control over transfers of resources to their affiliated decentralizedentities, in most cases this allocation is actually a decision of the Ministry of Finance with some guidance from the Economic Front. Few ministries allocate sufficient resources or personnel to assure that the decentralizedentities are coordinatingtheir activities in line with a general sector plan of action if such a plan exists.
887. This has created situations where a decentralizedentity is independentlyprogramming an activity crucial to the central ministry. For example, the planning of schools is done by the Ministry of Education while the planning of school buildings is done independentlyby a decentralized entity. The .Ministryof Education is responsible for educationalplanning in Ecuador and administers the educational system through its provincial boards. Attached to the Ministry is a decentralizedentity responsible for school construction: the Ecuadorian Department of School Construction(DECE). The Ministry formulates plans to meet the educational needs of the country and on that basis it creates schools-,that is, it puts teachers, students and books together in a temporarybuilding or, in some rural areas, meeting outside. In any province there will be a number of schools meeting in a temporary place and the Ministry's provincial boards will apply to the DECE for buildings to be constructed for these:schools. The DECE has its own plans for school constructionand it evaluates the requests for school buildings according to its own criteria.
888. A similar situationmay arise in health. The Health Ministry does not have a current plan or diagnosis of health needs. It determines the types of health service to be constructed after analyzing demands by residents for services and directs the Ecuadorian Institute of Sanitary Services (IESS) to construct the facility. This situationmay change since IESS has formulated an extensive plan for constructionof health services based on an analysis of the concentrationor dispersion of inhabitants,the accessibilityof existing services, the utilization of existing services and the existing and future road network. This plan determines the ideal site for future construction to achieve "maximum coverage". If accepted, this plan would give IEOS a new role in planning health service which has previously been the function of the Ministry. Nevertheless,although the Ministry does-not have'a plan or evaluation of health needs in Ecuador, it is the agency responsible for Ecuador's health policy and might be - 293 -
expected to take a broader view of health improvement than the construction agency. In general it seems more appropriate for the central ministry, which is responsible for overall direction of the sector, to plan investment in the facilitieswhich it must operate.
889. The administrationof decentralized.public entities in Ecuador is complicated by the fact that many of them have access to earmarked public incomes and the informationon their financial operationsis not consolidated in the national budget. In some cases (for example the commodity programs of the Ministry of Agriculture)even when an entity has been officially absorbed into another institution(in this case a Ministry) it will continue to receive earmarked income that the larger entity cannot control and continue to draft a separate budget. This creates difficultiesin obtaining complete and timely information about public sector activities and in planning and directing the future course of these many entities.
890. A second form of coordinationused in Ecuador is through boards and committees. There are a number of committees with representativesfrom various public institutionsoperating in the same sector which are charged with formulatingpolicies and coordinatingactivities in some area (for example, the Consejo Agrario Superior in Agriculture,the Consejo Nacional de Poblacion with regard to populationpolicy or the Comite de Informaciony Contacto Externo in coordinating commercialcontacts with foreign countries). In addition mogt decentralized-entfties have a board of directors composed of delegates from the major public institutionsoperating in the same or similar sector as that entity, which are responsible for directing the activity of the institution. As-mentioned,there are close to 200 of these boards, committeesand commissions.
891. Due to their very number, the boards and committeeshave not operated as effective mechanisms for coordination. For example, the Ministry of Finance participatesin 45 groups with the Minister required to participate personallyin 12. The strain of these activities on scarce top managerialmanpower of the ministries has reduced the time devoted to the Ministries own functioningand has meant that only a few groups receive the level of representationrequired to allow effective coordinationof activities.
892. As a result, many of these groups cannot meet for lack of a quorum of high level functionariesor are attended by delegates who lack the author- ity to make decisions and who are not prepared for their task. In most cases the participatingentities have no defined policy toward these boards and committees and no staff support for the representatives.1/ The area
1/ A number of these points are raised in a May 1976 study of the Ministry of Agriculture's participationin these groups by the Ministry of AdministrativeDevelopment Commission. See also National Personnel Directorate,El Estilo de Direccion en la AdministracionPublica Ecuatoriana,(Quito, 1977), and CoordinatingGroup of Administrative Development,Inventario de Cuerpos Colegiados (Quito, 1977). - 294 -
of responsibilityof these groups and committees is often poorly defined and there is usually no required schedule of meetings or specified operating procedures. For these reasons, an unknown number of -boardsand committees meet infrequentlyin order to rubberstampdecisions and documents as required by law which can create delays if the approval of the board is required to proceed. 1/
893. Even when these boards and councils do operate,-thecause of- coordinationand efficientmanagement is not necessarily advanced. One study notes that the consultativeand coordinatinggroups "delay decisions" and in general interferemore than assist in the negotiationsbetween executives, and, what is worse, in the majority of cases, they represent a dead end for the resolution of importantmatters. 2/ The directing boards and councils can hinder effectivemanagement of the public entity they rule by dividing responsibilityand interferingexcessively in daily operating decisions.
894. Centralizationof Authority. As is common in Latin American public administration,decision-making in the Ecuadorian national government is highly centralized both at the top levels of administrationand in Quito. Although some public entities have done a great deal recently to create local offices, many of their activitiesand even routine decision-makinghave continued to be centered in Quito which especially complicates administrationin a country as regionally diverse as Ecuador. For example, in the Municipalityof Cuenca there are local representativesof the Ministries of Industry and Finance and the Central Bank, as well as a Provincial Governor. Nevertheless,in order to import materials for construction,the Municipalitymust work through the Ministry of Government in Quito, not the Governor, to get approval of the Ministries of Industry and Finance, the Monetary Board and the Central Bank, all in Quito. Similarly,the National Personnel Directorate did not have local offices until 1975 and approval for a classificationstill must come from Quito, a process which can take as long as two years. The Social Security Institute maintains all its records in Quito and problems that may arise, such as an error in the record of contributions,must be referred directly to the capital. Centralizationalso complicatesmatters for the many local and regional bodies. One regional entity (PREDESUR) maintains its headquartersin Quito, another (CREA) has two or three people in the capital every week.
895. Centralizationin Quito introduces delays and raises costs as documents and personnelmust travel to and from the capital. Because of Ecuador's rugged terrain, communicationcan be difficult. For instance the refinery in Esmeraldas which requires headquarter'sapproval for many of its activities (such as any expenditure over US$4,000) must rely on radio-telephone communicationwith Quito which is frequently not operating.
1/ See, for example, the section on FONADE below.
2/ DNP, El Estilo de'Direccionen la AdministracionPublica Ecuatoriana, p. 13. - 295 -
896. The level of centralizationis surprisinggiven the strong regional disparities in Ecuador. Guayaquil, in particular,has a local public institu- tion to duplicate many of the functions of the national government. Recently, some national entities have not so much decentralizedtheir operations as absorbed previouslyautonomous local entities.
897. Centralizationof authority has also created problems for project implementation. The dispositionof personnel and equipment in a project is usually controlled by the headquartersand not by the project director who may suddenly be ordered to send some necessary equipment to another locale. Equipment not suited for the project (such as overpowered tractors) is sometimes procured by headquarters staff unaware of the needs at the project site.
898. Data Collectionand Processing. Data collection,processing and distributionby the public sector in Ecuador is an uncoordinatedand spon- taneous activity. There is little exchange of information among entities and even technical data or reports are often arbitrarily classified as restricted, which prevents the institutionitself from fully utilizing the information. There are no consistent criteria for classifying data among entities or, in some cases, within entities. For example, at one point the Institute of Statistics and Census (INEC) classified an infant as a person after it survived 24 hours and the Ministry of Health after 48 hours, resulting in different infant mortality rates. 'Theuse of different regions and zones as a basis of operationsand data collection is another problem that has already been mentioned. There is also considerableduplication of data gathering activities without coordination.(for instance, the Ministry of Health sends one questionnaireto hospitals and other facilities while INEC sends a different one to hospitals only). -
899. The Ministry of Agriculture is a prime example of some deficiencies in the information system of public entities. The informationon production of 50 crops by the Ministry's Department of.AgriculturalEstimates are based on subjectiveestimates made by extension agents. At the same time other dependencieshave their own statistics: the National Rice and Corn Program collects data on those two'crops, the National Grain Program does sample surveys of wheat production,the National Banana and Tropical Fruit Program collects information on bananas, etc. As a result data on production, cultivated area, and so on, often differ and governmentauthorities must operate without reliable information on this crucial sector.
900. Current informationon exports and imports is not available, instead permits issued for exports and imports are used. However, since not all permits that are issued are used, these figures could be substantially distorted. Demographic data and information on public sector account are examples of areas where estimates often conflict. Lack of financial data and the failure to use consistent accounting procedures is another problem. For example, until recently the National Telephone Company had no balance sheet and no income statement. Information on public sector accounts produced by the Budget Office, the Treasury, JUNAPLA, the Central Bank, and the comptroller'soffice are not consistent with one another or with the informa- tion of the individualpublic institutions. - 296 -
901. Some steps have recently been taken which should improve the situation considerably. A National System of Statistics is being created and --in the process INEC is elaborating an inventory of all informationavailable in public entities as a first move toward coordinatingdata gathering, establishingsimilar methodologiesand classifications. Also underway is a joint pilot scheme to establish criteria for a coherent system for gathering and processing agriculturalstatistics. Activities to improve the quantity and quality of data available are widespread in the public sector. For example, the Ministry of Agriculture is undertaking a comprehensivedata gathering program as part of its regionalizationprogram, the Ministry of Health is revising its questionnairesand adapting them more to the needs of its technicians,the Central Bank has been revising the national account data and a number of efforts are underway to introducemodern and consistent accounting procedures,the most noteworthy being the training being done by the Comptroller'soffice.
902. The improvementsplanned in gathering and processing data in the public sector are noteworthy. It is hoped that the decisions about the kinds of data to be collected and the classificationschemes to be used in projects like the INEC-MAG Project are made in consultationwith the functionarieswho must use the information. These managers should be trained to determine their data needs and to fully exploit the information. Another useful step would be the creation of a regularly update inventory of public sector information. A revision of the policies for restricting the circulationof information in order to determine national guidelines in this respect would also be valuable.
903. As a result of the various reorganizationssince 1970, the structure of the Ecuadorian public sector has been substantiallyaltered. A number of state enterpriseshave been created, decentralizedbodies have been absorbed into ministries, new decentralizedbodies have been created, and many national government institutionshave decentralized regionally. These structural changes have paralleled the expansion of the economic role of the public sector described earlier. There is now a need ti take stock of these changes and to define national policy in certain areas where confusion persists.
904. The role of decentralized institutions,including state enterprises, in Ecuador should be determined. State enterprises are usually conceived as public entities operating in commercial areas in competitionwith the private sector or in a monopoly position which are given considerableautonomy in their day-to-day operations under general government supervision (through audits, inspections,appointment of directors). They are ordinarily expected to charge a reasonable amount for their services and to apply the income toward their expendituresand are often given flexibility in personnel practices. Clearly, this sort of autonomy cannot be abruptly given to those state enter- prises in Ecuador which presently do not even maintain a balance sheet. Nevertheless,since government enterprisesare playing an increasingly important role in Ecuador's economy, considerationshould be given to estab- lishing common commercial practices in these enterprisesand increasing their flexibilityby reducing bureaucraticcontrols. Since this would also imply increasing the powers of the director, it would be essential that a competent manager with some knowledge of the field be appointed to head the enterprise, rather than a political appointee. - 297 -
905. Coordinationof decentralizedentities is a universal problem of modern public administration. Strengtheningthe planning capacity of central ministries plus some changes in budgetary procedures suggested below could help improve coordinationin Ecuador. Better coordinationin the field could be achieved by strengtheningthe role of project directors, giving them power over all personnel on the project, regardless.of the entity which employs them, and over pooled funds, constructionschedules, etc. In this respect the experience of the Ministry of Agriculture with the new PIDA's (Integral AgriculturalDevelopment Projects) will be of interest. 1/
906. The various studies and inventoriesof the directing boards and coordinatinggroups made by the Government of Ecuador have called for the definition of a national policy toward these groups to eliminate the un- necessary ones, establish the proper level of representationand encourage participation to make better use of these bodies to exchange informationand coordinate action. In particular,where strong direction of day-to-day operations is required (such as in state enterprises)consideration should be given to eliminating the board of directors entirely.
907. As far as decentralization is concerned it is important that regional representativesbe given explicit policy guidelines and a clearer understanding of their functions in order to establish fully which actions or decisions can be taken in the field. More coordinationmechanisms in the field, such as planning groups for certain regions, would also promote decentralizationby allowing entities to communicate directly rather than through the central offices in Quito.
(iii) Personnel Policies
908. Some features of personnel policies in Ecuador have acted against the efficient operation of the Government. The public sector is characterized by administrativeinstability, highly centralized and rigid personnel adminis- tration, poor and deterioratingpay scales for professionalsand inadequate mechanisms for assuring a sufficient supply of qualified public servants and for training public employees.
909. AdministrativeInstability. Administrativeinstability is a result of frequent reorganizationsin the public sector and the high turnover of top administrators. There is little administrativeplanning and most reorganizations,like the last sweeping changes in the Ministry of Agriculture, are decreed from above without the participation of the units in charge of planning such reforms or of coordinatingoperations. The affected individuals are often left confused about their new functions and have therefore a sense of insecurity. These reorganizationsare related to the high degree of turn- over among top officials. In the last 15 years, Ecuador has had 12 chief executives (and alternated between eight different forms of government);the
1/ See section on Agriculture in the technical annex. - 298 -
average term of a Minister of Finance has been about nine months, for a Minister of Agricultureand Education,approximately one year. Most new ministers tend to reorganize their institutions.
910. There is also evidence of instabilityat the second level of public administration,among directors and managers or subdirectors. A survey of 42 of these directors found that more than 80 percent had been in the public sector for more than two years and close to 70 percent for more than five years. In contrast to this long service in the public sector, about 75 per- cent had been in their post and in their department for less than 2 years and 45 percent had been in their institutionfor less than two years. 1/ A very similar distributionwas found for heads of personnel and training units in the same institutions. This would appear to indicate a very high degree of mobility from institutionto institutionwithin the public sector and from department to department with an institution. At the same time, the survey indicates a much lower degree of movement between the private sector and the public sector.
911. Since decision-makingis highly centralized in the Ecuadorian public administration,the fluctuationof directors and other top administrators prevents continuity in policy. Furthermore,institutions are frequently paralyzed temporarilyduring the period when the new administratoris adapting to his role. High rates of turnover of staff have also affected project implementatiQnin Ecuador. For example, a project unit created in the Ministry of Education to-oversee constructionof 28 secondary and normal schools had six project directors and seven architects during its first nine years. During that same period there were 11 Ministers of Education. Each change in project unit staff creates delays while the new director becomes familiar with the status and operations of the project. The lack of continuity in the director position may also mean that the lessons of the past history of the project are lost, mistakes are repeated or time is wasted finding -solutionsfor problems that have been solved before.
912. Personnel Administration. Ecuador has a civil service system which is administeredcentrally by the National Directorateof Personnel and which is founded on the concept of competitive selection on the basis of merit and uniform classificationof posts to assure equal pay for equal work. By the end of 1977, the civil service encompassed over 87,000 posts out of a total of about 150,000 public servants. Excluded from the system are, among others, the Police, Customs officials, the Armed Forces, public sector teachers and professors,elected officials, judges, members of the diplomatic service. There are approximately45,000 teachers in the public sector.
1/ Direccion Nacional de Personal, La Capacitacionen la Administracion Publica Ecuatoriana (Quito, 1977). - 299 -
913. Although the attempt to create a career civil service has a long history, with a serious effort to create an orderly system in 1964, the present system dates only to 1973 and most of the pertinent regulations and laws are even more recent. As a result most of the civil servants were not selected on the basis of competitive testing and the main thrust of the system has been to classify existing posts according to an orderly system.
914. There are over 1,000 posts, each of which is valued at one of 42 salary scales which range from less than US$700 a year to a maximum of about US$14,000 a year. The salary system has proven to be quite rigid because there are no in-grade increases and, although provision was made for bonuses for length of service or additional education and for hardship pay for geo- graphic location, the implementing regulations for these subsidies were not passed. (A bonus for service of over four years was recently decreed). Although secretarial and other support posts have been revalued recently, most professional posts have not.
915. Some public entities have avoided the rigidity of the civil service wage system by seeking special classifications with higher pay scales for their employees. For example, INIAP, the Agriculutral Research Institute, classifies its employees as Agricultural Researchers rather than Agricultural Engineers which gives them a slightly higher pay level than they would earn at the Ministry of Agriculture. Reclassification are frequently used in order to increase wages.. In 1977, for example over 16,000 posts were reclassified, or 18 percent of the total. As a result of these adjustments, the system has not been successful in assuring equal pay for equal work in the public sector.
916.. Public Sector Salaries. Although reclassifications have allowed some adjustment for inflation, the-average public sector salary during the period 1973-1977 was below the 1972 level as the following figures show:
Average Monthly Salary (in 1970 Sucres)!/ National Ministries Government bi only
1970 1,825 1971 1,679 1972 2,027 1973 1,998 1974 1,878 1975 1,866 1976 1,911 1,867 1977 1,942
a/ Deflated by consumer price index bl Includes ministries, affiliated entities, and public enterprises - 300 -
917. Although no systematicstudy has been done, it also appears that public sector salaries have lagged behind the private sector for professional --and technical categories. For example, the financial and administrative manager of an enterprise with average sales of over S/ 100 million earns on the average between S/ 34,000 and S/ 44,000 a month (plus S/ 3,000 to S/ 26,000 in participationin profits) while the Minister of Agriculture (with a central operating budget of over S/ 200 million and a total budget of S/ 2 billion for 1978) earns S/ 20,000 a month, the UndersecretarySI 18,000 and the& General CoordinatorS/ 15,900. A financial director in the private sector will earn between SI 19,000 and SI 42,000 on the average (plus profit partici- pation between S/ 5,000 and S/ 15,000) while the most a public sector financial director earns is S/ 14,700. To take an example from the technical side, a petroleum engineer at CEPE with one to two years' experiencecan expect a salary increase of 50 to 100 percent by moving to the private sector. There is also competitionwithin the public sector itself; a nurse aide earns S/ 1,600 a month in the Ministry of Health, S/ 2,800 at the Social Secvrity Institute and S/ 3,500 a month with the Armed Forces hospitals.
918. In this respect, it should be kept in mind that the private sector is not necessarily competing with the public sector in all fields, despite the differences in pay scales. For example, a doctor in the Ministry of Health earns S/ 7,000 a month if he works a four-hourday and S/ 9,000 for an eight- hour day (in itself an odd situation)while the Medical Association of Pinchincha estimates.that a doctor in private practice earns S/ 20,000 a month. Nevertheless,because of oversupplyof doctors and the short hours of the Ministry (78 percent of its staff doctors.work four hours), it faces a glut- not a shortage of doctors. (In contrast, the Ministry, which trains nurses aides, loses most of them to other public medical services). Similarly, the large proportionof administrativedirectors with over five years in the public sector mentioned above contrasts sharply with the pay differentials between the public and private sectors just described. Furthermore,public sector employees can and frequently do hold teaching jobs at universities,which supplement their salary. The public sector appears to suffer the most severe competition from the private sector for skilled technicians. Public entities which give training or practical experience to staff generally complain about losing personnel to the private sector; CEPE and INIAP are two examples of this. Similarly, the vocational training institute (SECAP) has problems keeping its qualified technical professors,such as engineers and architects, because of low wages.
919. Mechanisms to Supply Qualified Public Servants. In general, there is little attempt by the Government to influence the size or quality of the personnel supplied by the educational system. There is no detailed diagnosis of manpower requirementsof the public sector that could be used to guide the educational system and there are few contacts between schools and universitiesproducing techniciansand professionalsand the public sector entities hiring their graduates.
920. A related problem stems from the fact that the number of university students has expanded rapidly in recent years, largely due to a more liberal access policy. The number of university students increased from 40,000 in 1970-72 to 170,000 in 1976-77. The capacity of the system has expanded far less - 301 - rapidly (the ratio of students to teachers which was 9 to 1 in 1965, went up to 14 to 1 in 1970 and 24 to 1 in 1974) and the quality of education has suffered.
921. In fields such as medicine, agronomy, economics, this has resulted in a scarcity of properly trained applicantsand an oversupply of improperly prepared job seekers. Both oversupply and scarcity can have serious implica- tions since the Ecuadorian Government,which employs one-third of all profes- sionals in the country is under pressure to prevent unemploymentof educated individuals.
922. These problems can be seen in the case of doctors. According to the Ministry of Health, the training of doctors is generally poor, there is a lack of facilities,a strong emphasis on curative medicine and little preparation in prevention or health promotion despite the emphasis of the Ministry on these areas. The Health Ministry has no control over the universities' policies in this respect. In fact, the universitiesare the only institutions with power to certify graduates as doctors, nurses, etc. and the Ministry must apply to them for certificationof graduates of its own training programs. Thus the Ministry of Health has little influence over the production and quality of medical personnel. University admissions policies are set by the students and policies have become increasinglylax. 1/ Admission to the Faculty of Medicine is open and free (there is a token fee of about US$15 per year) with no admission requirementsbeyond a B.A. and no admissions testing. The graduates in medicine doubled in 1977 and the university is expected to produce 1,000 doctors this year. The Ministry of Health is required by law to hire all intertisfor a year's practice in rural areas (at an estimated yearly cost of US$96 million) and the r-ecentexpansion of graduates has resulted in an overstaffing of rural health centers, some of which have two doctors serving as few as 16 people. -
923. In 1977 Ecuador had 4,664 doctors, a number which exceeds its capacity to utilize them fully since the country has too few nurses, nurses aides and hospital facilitiesrelative to the number of physicians. 2/ The Medical Association of Pinchincha estimates that there will be 12,500 doctors in Ecuador by 1982 which means 7,836 additional doctors in five years. In contrast the Ministry of Health plans for only 1,500 additional posts by 1982 and the Medical Association estimates the total number of new places in the public and private sector at 2,500 from 1978 to 1982.
1/ Policies of the Central University are set by the Assembly where 42.5 per- cent of the votes are held by professors, 42.5 percent by students and the rest by the service staff who usually vote with the students.
2/ Ecuador had 3.8 doctors to every nurse, 1.6 nurses aides per doctor and 3 hospital beds per doctor in 1977. In comparison the U.S. has 3.9 nurses per doctor, 2.7 nurses aides per doctor and 4.1 hospital beds per doctor. Colombia has 1.1 nurses per doctor, one aide per doctor and 4.2 beds per doctor. Chile has 2.3 doctors per nurse, 3.5 aides per doctor and 6.6 beds per doctor. - 302 -
924. The waste of resources, both human and financial, implied by these numbers is a cause for much concern. Also worrisome is the likely pressure that this oversupply of doctors will place on the public sector to expand its posts for doctors, with all that implies in terms of investment in costly curative services with limited coverage. Moreover, this may replace its present plans for more low cost rural health programs and more extensive preventive care.
925. In agricultureas well, the public sector entities have little in- fluence over the training of professionalsin their field. Every provincial university has a faculty of Agronomy. This has led to widely dispersed public resourceswhich makes it even more difficult to plan the production of agriculturaltechnicians. The faculties offer only limited practical prepara- tion and they are located in the urban areas. Most public entities operating in agriculture complain about the "theoreticalt' training given in univer- sities but none of them have contacted the agronomy schools in order to try jointly to develop programs that would suit the needs of the public sector for trained manpower in agriculture. Rather, these institutionsuse on the job training to improve the level of their professionals. For example, the AgriculturalResearch Institute, INIAP, temporarilycontracts students who have finished their course work to finish their thesis while working for INIAP and gaining practical experience. It can then evaluate whether to hire these students as permanent employees. This helps INIAP recruit qualified personnel despite the low salaries it could offer and helps to improve the poor practical training of its applicants at a small cost.
926. Training Programs. Training of public employees is fairly wide- spread in Ecuador and there are 23 permanent training units in various central government institutions. A survey of 40 public entities found 11,606 persons being trained in 1976. 1/ Since these4O institutionshad a total of 22,772 employees this implies that close to half were receiving training (assuming that the participationof functionariesin more than one course or of functionariesfrom outside the 40 institut'ions is not large). Two thirds of the trainees were enrolled in so-called "substantive"areas (such as petroleum engineering,medical technology,project administration)and one third in "support" areas (personneladministration, human relations, organizationand methods). Coursesmay last from one week to a year and one institutionmay offer 10 different courses while others offer one or none. About half of the institutionsstudied have a specific budget allocation for training which ranges from $200 to $2 million. The entities which appear to be most active in training their staff are CEPE, the telecommunicationsentity (IETEL), the electrical corporation,the Central Bank and the Development Bank, while the Comptroller General Office is especially active in training functionaries from other institutions.
927. The number of courses offered in the substantive areas bears out the complaintheard in many institutionsthat they must compensate for the poor training, or lack of training, available in the educational system. For
1/ Direccion Nacional de Personal. La capacitacionen la administracion publica Ecuatoriana (Quito, 1977). - 303 -
example, CEPE offers courses on petroleum engineeringand IETEL offers a course called "An Introduction to Telecommunications" to its professionals. Since about 60 percent of the participantswere trained in a course of two - weeks or less in 1976, this training cannot be very effective in making up for the deficiencies in the education of, for instance, a petroleum engineer.
928. Education and training is especially important in the case of managers since these are the key people in determining the direction and efficacy of public sector activities.
929. Based on a sample of 43 percent of public employees in the Central Government and autonomous entities in Ecuador, there are close to 5,000 middle and upper-levelmanagers in these institutions(out of a total of 52,653 public servants).1/ The distributionof these managers and the proportion with college education is as follows:
EducationalBackground of High Public Servants
% college % with some % graduates college training
'Directors (305) 6.5 50 74 Division Chiefs (255) - 5.4 76 99 Department Heads (1486) 31.8 38 73 Section Chiefs (1977) 42.2 40 78 Regional Heads (359) 7.7 61 70 Special Advisors (271) 5.8 87 95 Others (28) 0.6 51 98
TOTAL (4,681) 100.0 46 80
In addition, some 16 percent of the total have graduated from high school.
930. Directors seem to be less well educated than other managers, a fact which may be partially compensated for by the better educated advisors and division chiefs.
931. The number of managers required to run Ecuador's public sector seems large in comparison to the capacity of its education system and is a reflection of the large number of public entities mentioned earlier.
932. In comparison,about 1,-000persons studying administrationand economics leave (not all graduates) the university system every year and the total student body of the school of public administrationis only 300. Training so many managers is an extensive task. The survey found the following proportion of managers had received some training:
1/ Direccion Nacional de Personal, op. cit. - 304 -
% of % of % of Division Area of Training Total Directors Chiefs
Planning 24 10 3 Budgeting 11 8 2 Financial Admin. 10 11 2 Personnel Admin. 23 4 3 0 and M 21 4 5 Negotiations 23 5 - Training Techniques 19 - 3 Research 21 8 3 Info. Systems 23 4 - Other 17 3 1
Although about one fourth of the total functionarieshave received training in planning, personnel administration,etc., far less of the top level functionarieshave participatedin training courses.
933. Furthermore,the number of managers who are getting training in budgeting or financial administrationis especially low given the problems in these areas described below.
934. Conclusions. The high rate of turnover of top personnel in Ecuador can only be prevented by a political decision and is therefore beyond the scope of this paper. In any event, new executives should be discouraged from indulging in reorganizations,at least if their entity has been reorgan- ized during the last year. The turnover of second-and-mid-levelexecutives and project directors, on the other hand, appears to be more a question of administrativepolicy, and probably has more serious implicationsin the long run for continuity of policy in the institution since frequent changes of ministers or directors can be compensatedfor by a permanent cadre of expe- rienced second-rankstaff members. It is not clear to what extent the turnover of mid-level directors is related to the turnover at the top, whether top administratorstake their subordinateswith them or make a policy of appointing new directors when they arrive. The fact that there is also high turnover at the level of personnel directors or heads of training units and that many of these mid-level managers are from different posts and departments of the same institutionwould indicate that the problem is partially an administrativeone. Efforts should be made to establish vertical promotion within institutionsor departments,to give preference to promoting qualified personnel within the institution in order to increase the continuity of at least a core of adminis- trative staff. Certain posts might be designated as discretionarypositions (puestos de confianza) and their occupants would be replaced subject to personal decisions taken-by their high superiors but the remainder of the administrativestaff should not be changed without cause.
935. An effort should also be made to make personnel policies more flexible and responsive to the needs of the various institutions. Personnel offices in public institutionsshould be strengthenedand given the capacity to plan the human resource needs of their institutionsin collaboration - 305 - with the agency's planning unit and the National Personnel Office. This planning will be most effective if it also coincideswith closer ties with the educationalinstitutions which supply the public sector. Once public agencies have studied their needs they should cooperate with training schools and universitiesto help them develop programs which answer those needs. It seems apparent that the training system in the public sector can't compensate for the deficienciesin the university system, particularlyin the case of managers. This should not be taken to mean that public sector training should not be encouraged and expanded. One way to do this might be to set minimum budget appropriationsfor training in all public entities that could be applied toward training programs or scholarships.
936. The added flexibility of the educationalbonus and the hardship pay for locations away from home should be implemented. Salaries of public sector employees should not be allowed to decline in real terms since this drives out the best qualified personnel and has a greater cost in the long run. Regardless of whether the often heard argument that cost of living adjustments to the public sector are especially inflationarybecause of the pyschologicalimpact is valid, in the long run the cost to the economy of bad decisions, inefficiencyand waste in the public sector because of loss of qualified personnel will be higher.
937. There is also a need for an inquiry into selective salary increases for professionalstaff especial-lyin cases where there is a high attrition of trained personnel, such as CEPE engineers and nurses aides at the Health Ministry. Considerationshould also be given to revaluing logistical support staff such as personnel director-sand planners, to attract qualified people to these functions and upgrade the units. Special attention should be given to project management in both trainin-gprograms and salary adjustments.
(iv) Budget Formulation and Implementation
938. The processes of formulatingand disbursing the budget in Ecuador have a number of features which have worked against effective implementation of development priorities. The formulation of the public sector budgets is a complex and fragmented process with highly centralizeddecision-making. The structure of the system curtails the control policy makers have over public resources, the procedures introduce a bias against new programs and the time-consumingprocess for disbursing the National Budget introducesdelays in investment projects.
939. Structure of Accounts. The allocation of resources in Ecuador is a complex procedure because of the fragmentationof the public sector. The National Budget represents 62 percent of total public revenues and 43 percent of expenditures,and the rest is allocated among a large number of other accounts. The structure of these accounts is the following: - 306 -
1. Central Government
Budget
Special Funds: National ParticipationFund (FONAPAR) National DevelopmentFund (FONADE) National Municipal Development Fund (FODEM) National Pre-InvestmentFund (FONAPRE)
SemiautonomousAgencies
State Enterprises
Extra-BudgetarySpecial Accounts of the Central Government
2. AutonomousEntities
a. Local Governments Provincial Councils Municipal Enterprises
b. Autonomous Non-FinancialPublic Enterprises
c. Special Accounts of Autonomous Entities
It should be.noted that the Social Security Institute, IESS, is classified as an autonomous financial entity. Only the budgets of the Ministries and the funds the Ministries transfer to other public entities are included in the National Budget. The budgets of the other entities are not presented in a consolidatedformat.
940. The allocation of funds among the different public institutionsis a complicated process because of the system of earmarked revenues. For example, 90 percent of the income tax earnings go to the General Budget Fund and 10 percent goes to FONAPAR, 60 percent of the revenue from the tax on enterprises which benefit from the Industrial DevelopmentLaw goes to the Budget Fund, 36 percent to the National Alcohol Board and 4 percent to the Ecuadorian Service for ProfessionalTraining (SECAP), half of the earnings from police fines go to the National Prison Board and half to the Minister of Government. The most important earmarked revenues are the petroleum revenues which are distributedamong the budget (about 36 percent), FONADE (about 46 percent) and 14 other public institutionsincluding the Petroleum Corporation(CEPE).
941. The system is further complicated because of the use of special funds and accounts. The income in special accounts is earmarked tax money, revenue from fines or charges, foreign loans, the own income of the entity, or (less frequently)budgetary transfers..Although the funds and special accounts are subject to general control by the Ministry of Finance, the procedure for disbursementof these funds is much more flexible than that used for budgetary resources, which is a prime reason for their continued existence. New programs, especially high priority investment projects are often financed thorugh special funds. Also, most foreign loans go into special accounts as do most non-tax revenues. - 307 -
942. The numerous special accounts make financialmanagement and control more difficult. While some special accounts allow funds for priority projects to be disbursed without the delay associated with the General Budget Fund, other accounts are not used for any specific purpose except as funds in reserve. Idle funds can build up in the special accounts at the same time that the unified account is starved for income. Although control has been increasing,in the past many special accounts were used as slush funds.
943. There are still over 100 special accounts in the public sector although the number was reduced with the creation of a unified current account for most of the Central Government in 1975. It should be noted that the account does not eliminate the concept of earmarked income, although it simplifies transactions. An entity with rights to certain tax income continues to have a claim on these funds when they are deposited in the unified current account.
944. The special funds such as FONADE and FONAPAR present problems similar to the difficultiescaused by special accounts. 1/ They fragment accounts and increase problems of administration;they make it difficult to allocate public resources according to developmentcriteria.
945. The National ParticipationFund (FONAPAR) was established in 1971 in order to group together a large number of earmarked taxes into a single fund. FONAPAR'.sincome comes from-earmarkedtaxes (in 1977 over half eame from taxes on internationaltrade and most of the rest from stamp and income taxes) and its -resourcesare allocated to provincial councils,municipalities, educational institutionsand other public entities. The experience of FONAPAR is interesting since it represents an intermediatemove away from earmarked revenues. The participantsin FONAPAR received a proportion of the fund's resources equal to the income they previously received from earmarked taxes, but any increases in the fund's resources are assigned according to the needs of the entities and the criteria of the Ministry of Finance which administers the fund.
946. The National Development Fund (FONADE) was created to assure that petroleum resources are allocated to key projects for Ecuador's development. The fund receives a share of petroleum revenues to allocate to investment projects. FONADE is part of the Ministry of Finance and is supposed to be administeredby an inter-institutionalcouncil (composed of the Ministers of Finance, Public Works, Natural Resources, Agriculture and Industry, and the President of JUNAPLA) which was never convened. Applicationsfor funds are evaluated by JUNAPLA as they arrive and the Junta determines if the project has a high priority. Since the projects are evaluated one by one, priorities are established in isolation and not by evaluating a pool of alternative projects; a process that is especially difficult in the absence oF an operative investment program. In addition, some projects are not evaluated since the Frente Economico can order FONADE to finance a project or to transfer part of its funds to finance the budget.
1/ See the Chapter on Public Finance for more details about the income and expendituresof these funds. - 308 -
947. Some 20 percent of FONADE's resources have been used to finance the budget and about one-fourth of its funds went to finance the petroleum refinery. The remaining funds have been allocated to a wide variety of sectors and projects including transfers to financial entities. There is no apparent ranking of priorities in the allocation of these funds, with the exception of the emphasis on petroleum, and the distributionof resources has not differed significantlyfrom that of investment expendituresfinanced by the Budget Fund. Furthermore,the use of FONADE income to finance the budget is clearly in contradictionwith its original intent. In fact FONADE has functioned as an extra-budgetaryfund administeredby the same decision- makers who administer the budget.
948. FONADE is currently overcommited,due to the decline in oil revenues and to the lack of planning in assigning its resources. Normal income of the fund will finance only an estimated 50 percent of the projects approved for financing. As a result, it is considering seeking foreign credits to cover the deficit. The whole situation is incompatiblewith the original intent of FONADE, which was to allocate the limited oil wealth of Ecuador among the best of all possible alternativeuses in terms of the country's future development.
949. FONADE has not functionedeffectively as a mechanism to allocate funds according to developmentpriorities for several reasons. First, Ecuador's developmentpriorities are not clearly enunciated in terms of programs and projects. Second, the decision-makingapparatus that was to oversee the allocation of the funds never functioned and in its absence the usual interplay of institutionalforces determined the allocation of resources. Furthermore,FONADE has increased the fragmentationof public income and further complicated the administrationof these resources.
950. On the other hand, FONADE has served a purpose in channeling petroleum funds into investment rather than current expendituresalthough the transfers to the budget and the BNF cannot really be considered investments. For the reasons described below, had the petroleum income been incorporated into the budget it would have been far less likely that it would have been assigned to investment projects.
951. The structure of Ecuador's budgetary system makes development planning and the rational allocation of resources according to the plan's priorities exceedingly difficult. First, as a result of the existence of so many separate budgets and so many earmarked uses for income, it is difficult to determine the resources allocated to a particular program or the amount expended on that program by the consolidatedpublic sector. This makes it difficult to evaluate the results of past-public expendituresin order to plan future actions. Second, the earmarked funds represent income which cannot be allocated according to ranked development priorities. Many earmarked resources go back a number of years and the special purpose for which the income is used is seldom evaluated against alternative activities. Since this evaluation does not occur, the situation can arise when projects of lower priority have surplus funds in a special account, while high priority projects wither for lack of income or are funded through external indebtedness. Furthermore,as the situation changes the revenues may also change, which means that the income assigned to a particular purpose or institutionwill go up or down with- out any decision about the advisabilityof increasing or decreasing the funds assigned to that activity. - 309 -
952. The earmarking of revenues has other drawbacks as well. It makes financial administrationrigid and complicated. Income from a minor tax may -haveto be distributed among several different institutions. For example, 70 percent of earnings from charges and fines on fishing go to the Navy, 20 percent to the National Council, five percent to the National Fish Enterprise. Furthermore,much of the earmarked revenues come from additional rates on taxes which make the tax system especially complicated and difficult to administer. Even these additionalrates may only be applied in certain regions, which means the tax burden varies from region to region and tax to tax. For example, in Guayas, 16 percent additional is charged to the inheritance tax which is earmarked for the Junta de Beneficenciade Guayaquil, and one percent additional is added to the tax rate on legal inheritances and donations for the Colegio de Senoritas de Guayaquil. Similarly, in Manabi an additional eight percent is added to the income tax which is earmarked for the Center for the Rehabilitationof Manabi and in Guayas an additional eight percent is charged (for the Guayas Transit Commission),while nationwide an additional 10 percent is charged for the State Universitiesand technical schools and one percent for private universities.
953. The earmarking of funds can also act as a disincentive for public entities to increase their own income by raising rates or operating more efficiently. Earmarked tax income means that public funds are automatically transferred to the recipient without regard to the institution'spotential for generating-itsown resources.
954. Decition-makingabout allocation of funds has become increasingly centralized in the Ministry of Finance. Draft budgets are submitted to the Minister of Finance by the various public agencies and Finance determines the global amounts to be allocated to each entity and in most cases decides appropriationsby line items. (There were 2,606 line items in the 1977 budget).
955. b. Budget Formulation. The main;factors taken into consideration in drafting the budget are the interplay between different institutions,the guidelines of the Frente Economico, the fiscal policies of the Minister of Finance, the previous year's budget, and the draft budgets presented by the entities. The draft budgets are probably of less importance than they should be in this process since they are generally regarded as inflated and not reflecting the real costs of the programs. The use of the preceding year's budget as a guideline is due to the lack of historical information about expenditures. The deficienciesof the accounting procedures used in the public sector mentioned above also mean that there is little reliable infor- mation on which to base the budget. Because of the lack of input from the implementingagencies and the scarcity of information about costs plus the fact that the Finance Ministry allocates amounts by line items, the approved budget may have little relevance to the real needs of the implementing agency.
956. A good deal of time and resources are wasted in the preparation of draft budgets which must be completely redrafted in line with the amounts allocated by Finance. (Decentralizedministries like Agriculture or Health formulate their draft budgets after extensive consultationwith field per- sonnel). A common complaint of budget directors in the public sector is the - 310 -
failure of the Ministry of Finance to give-them any estimate of the income they will be allocated that could be used as a basis for formulating draft budgets. Since Finance makes allocations by line items, reprogramming requires a complete revision of goals and expenditures as shown in Table 70. The example shown in Table 70 is a revised draft budget for the Loja agency of the Agrarian Reform Institute (IERAC). The draft budget was submitted in October of 1977 and the reprogrammed budget was still under consideration by the Ministry of Finance in May 1978.
957. Not surprisingly, the budget of most public institutions are subject to frequent modifications. For example, the 1976 expenditures exceeded the General Budget by S/ 3.8 million and 1977 expenditures were S/ 6.2 million more than budgeted. 1/ Notwithstanding the frequent modi- fications, the system is rigid; the approved budget becomes law and even minimal increases, decreases or transfers of funds from one item to another require approval by the Minister of Finance. Public entities try to regain their flexibility by getting special accounts and "global" (i.e., unassigned) budgetary allocations. (In 1978, eight percent of total expenditures net of transfers in the General Budget were allocated to "global" expenses).
958. Disbursement. The National Budget Fund is disbursed through a time-consuming quota system applied at a very detailed level. Every line item in the National Budget must be assigned a quarterly quota for the disbursement of funds. For variable expenses, especially capital expenses, the quota must be requested from the Minister of Finance with appropriate documentation including work plans or receipts and justification of the expense. This pro- cedure can result in delays of several months in investment projects, due not only to the bureaucratic negotiations and paper work involved but also to delays introduced when funds were temporarily exhausted. For example, a school construction project begun in 1968, which is now five years behind schedule, experienced numerous delays both because of failure to budget counter- part funds to the international loan and the failure to promptly disburse the funds. In 1973, for instance, S/ 40 million were allocated to this project in the budget. In April of that year S/ 15 million of the appropriation were released and used to pay overdue bills, but construction had to be stopped to await additional disbursements.
959. The disbursement procedure is a reason why so few capital expenditures are channeled through the National Budget. Since the quota system is not applied to extra-budgetary accounts, it is another cause of the fragmentation of accounts and helps to explain why new activities are usually embodied in decentralized entities rather than central ministries. Also as a result, similar programs have their funds disbursed in very different ways; some are subjected to exhaustive control and delays, others operate in virtual autonomy.
960. Conclusions. Budgeting in Ecuador, particularly the Central -Budget, has been used primarily as a means for controlling expenditures rather than as a tool for promoting development. The rigidity caused by earmarked
1/ The General Budget includes the Ministries and their transfers to the rest of the public sector. - 311. -
Table 70: EXAMLE OF A PORTION OF THE REPROGRAMMEDBUDGET OF THE ECUADORIANINSTITUTE OF AGRARIANREFORM AND COLONIZATION
REPROGRAMMINGOF ACTIVITIES AND EXPENDITURESIN THE SOUTHERNREGION (LOJA)
1978 ACTIVITIES
Draft Reprogrammed Budget Budget
No. of Legal Expropriations actions to be taken 26 18 Adjudications " 16 17
Assistance of Campesino Organizations No. of Organ. to be Promotion of Groups Assisted 10 5 Organizationof Groups - 9 4 Legalization of Organizations it 9 4 Training of Campesinos " 16 4 Surveying No. of Hectares to Surveying hbe surveyed - 8
1978 EXPENDITURES
Item Draft . Reprogrammed Budget Allocation
Wages 1,100,000 166,000 934,000 13th-Salary 92,000 20,000 72,000 14th Salary 92,000 20,000 72,000 Living Costs 210,000 190,000 400,000 Travel 30,000 70,000 100,000 Rent 12,000 12,000 - Employer Contribution 83,000 1,000 82,000 Reserve Finds 92,000 20,000 72,000
260,000 239,000
Source: Draft budget of IERAC submitted to Finance Ministry October 27,1977 and reprogramming of budget (undated) under consideration in May, 1978. - 312 - funds and tight controls over appropriationsand distributionsthrough the General Budget have been countered by special accounts and loose control over funds outside the Budget.
961. For a number of reasons this system is biased against new programs and in favor of fixed expenses. The lack of information about actual expendi- tures and the use of the preceding year's budget as a guide make it easier to budget recurring current expenditures. The important role played by the Finance Ministry with its long history of trying to curb expendituresand the lesser importanceof developmentplanning in the budget make it more difficult to win approval of new expenditures,especially new investmentprograms. Also, as mentioned, the system of disbursing the General Budet through quotas is also biased against investment expenditures. For these reasons, investment expendituresare frequently financed by establishingspecial funds or through foreign borrowing since this income is usually through special accounts.
962. The rigidity of the system, plus present policies of fiscal restraint,and Ecuador's high credit rating among internationallenders, have made foreign borrowing an easier way for some agencies to obtain funds that through the budgetarymechanism. The controls over external indebtednesshave been less stringent than those over internal funds and a number of entities mentioned an intention to borrow in order to cover budgetary deficits so as to complete priority projects. The earmarking of funds has also contributed to the increase in foreign borrowing -sinceit allocates public resources to uses which are not always of high priority, leading the Government to borrow to finance high priority projects. For example, CEPE's share of petroleum revenues plus loans from FONADE have not covered its financial needs and the Corporation has resorted to foreign credits to finance its investment projects which have a very high priority for Ecuador. At the same time, petroleum revenues are earmarked for regional and local governments,the Ministries of Labor and Health, the Housing Bank, state universitiesand vocational schools and other uses which are afforded much lower priority.
963. Only if the budget is transformed into an instrumentof planning can some of the problems mentioned earlier, such as the bias against investment expendituresand the tendency to encourage foreign borrowing, be eliminated. This means that a forecast of available resources is calculated,expenditures are ranked according to development priorities,resources are allocated,and foreign indebtednessis authorized, according to developmentpriorities. This will require improvementsin the process of setting development prioritiesin Ecuador. There are also a number of changes that could make the budget a better tool of developmentadministration.
964. First, the budgets of all public entities should be presented in one document, using uniform classifications,with consolidatedinformation on public revenues and expendituresby sector. This would give authorities complete informationneeded for programming and evaluation of public sector activities. Second, greater flexibilitycould be introducedin the formulation and execution of the budget by determining allocations and controlling disbursementsat a more aggregate level than line items. Budgetary programming and evaluation would take place at the level of programs and execution would be decentralizedin the executing agencies. This would clearly entail - 313 - strengtheningthe programming and budgetary control capacity of public entities, as well as the government'saccounting systems. Greater flexibilitywould simplify the administrativeprocedures for allocating funds and remove one of the main reasons underlying the pressures for special accounts.
965. Third, uniform procedures and schedules for elaborating the budget should be implementedthroughout the public sector. As part of this procedure, the various entities would provide the central office with information on budget execution and costs and the Budget Directorate would give the entities a preliminaryindication of their probable global allocation. JUNAPLA and other institutionscould provide additional information such as projected costs of imported inputs. This would assure a more realistic informationbase for elaborating and evaluating the draft budgets.
966. Fourth, further efforts should be made to eliminate the special accounts and the earmarked revenues. Once procedures are adopted to insure that development planning forms the basis for resource allocation and measures are taken to make the budget more flexible and reduce delays, the special accounts should be incorporatedinto the budget and the earmarking of revenues eliminated. Both institutionsand special purposes would be funded through budgetary transfersand their allocationsbased on ranked development priorities. Because of conflicting institutionalclaims on earmarked income, it may be necessary to use some sort of intermediatemechanisms, such as a fund of special accounts,with built-in provisions to diminish gradually the earmarked protion. -As part of this move to restore control over resources to the Government, FONADE and FONAPAR should also be incorporatedinto the budget. This would not preclude the proposed transformationof FONADE into a develop- ment bank and would eliminate the two main parallel budgets.
3. Setting National Priorities
(i) The Planning Agency
967. Formal responsibilityfor elaborating development plans and programs rests with the National Planning Board (JUNAPLA). JUNAPLA was created in 1954, and during its 24 years of-existence it has undergone a number of changes in status. In 1961, JUNAPLA played a major role in economic decision-making. It was made direct advisor to the President and given powers to oversee the execution of the plans, including broad powers of budgetary revision and a power over external public indebtedness. In 1969, its influence over economic decision-makingwas downgraded, JUNAPLA lost its broad powers and much of its technical staff. Some of its status was restored in 1972 when the new Government relied on JUNAPLA to formulate a development plan, although it was not given the authority it once had over the execution of the plans. - 314 -
968. JUNAPLA has a Board of Directors-composedof the major economic decision-makerswhich is responsible for formulatingthe general policy guide- --lines that underlie the plans. 1/ At the same time, the Board members are to receive the advice and analysis of JUNAPLA's technical staff as inputs for their economic decisions and to act as an avenue for distributingthe plans and progiams throughout the public and private sectors. JUNAPLA is headed by a President and divided into an administrativedepartment and a technical department. The technicaldepartment is further subdivided into sections for short term planning, general and regional planning and sectoral planning and has a special office for Guayaquil. JUNAPLAhas prepared nine development plans; the last plan was the Integral Plan of Transformation and Development, 1973-77. JUNAPLA is currently preparing a long term developmentstrategy for the future. JUNAPLA does not formulate yearly operative plans although it has prepared yearly lists of priority projects and estimates for their finan- cial requirements. It also collaborateswith the ministries and decentralized entities in elaboratingprograms of activities and draft budgets.
(ii) The Experience of the 1973-1977Development Plan
969. The intention of the Ecuadorian DevelopmentPlan --Integral Plan of Transformationand Development,1973-77 (PITD)--was to use the petroleum wealth to transform the country's productive structure. The Plan noted that Ecuador had experiencedother periods of prosperity due to an increase in exports and concluded that the country did not make sufficient use of these periods to transform and develop its productive structure. "The periods of relative bonanza were translated in a short while into economic instabilitymanifested in balance of payments problems and a fiscal deficit of even greater magnitude than prevailed prior to the periods of prosperity".2/ The strategy of the PITD was based on this analysis of Ecuador's history and sought to take full advantage of the new cycle of increasing export income to substantiallymodify the country's economic and social conditions.
970. The basic objectives of the Plan,were to (1) strengthen the country through greater national integrationand a reaffirmation of sovereignty; (2) improve the living conditionsof its inhabitants,especially the poorest sectors; and (3) strengthen and expand the productive apparatus to increase the absorption of the labor force at growing levels of productivity.3/
1/ The members are: a representativeof the President of the Republic (Chairman);Minister of Finance; Minister of Agriculture;Minister of Natural Resources; Minister of Public Works; General Manager of the Central Bank; General Manager of the National Development Bank; one representativeof the agriculture,industry and commercial sectors designated by its respective Chamber.
2/ Government of Ecuador, Plan Integral de Transformaciony Desarrollo, 1973-77. (1972), p. 3-4.
3/ PITD, p. 4. - 315 -
To achieve its goals the Plan called for a more decisive intervention by the state in the economy and in particular through three basic reforms: agrarian reform, tax reform and reform of the public administration. The reform of public administration would give the state the apparatus it needed to participate effectively in promoting the transformation of the economic structure; the tax reform would provide the state with the income it needed for its investment program and contribute to the objective of income redistri- bution; the agrarian reform was fundamental to the Plan's goals to eliminate rural poverty, increase productivity, and promote social integration and a more rational use of economic space by transforming the structure of agricul- ture and offering productive employment to marginal groups.
971. Although the Plan contained a number of other programs and projects for promoting Ecuador's economic development, these three reforms were basic to the PITD's objectives. The reform of the tax system did not occur and the achievements in agrarian reform fell far short of goals. 1/ More progress was made reforming the public sector and expanding its role in promoting economic development, but there, too, results fell short of goals, despite the fact that the resources available to the public sector were far more than planned because of the increase in the price of petroleum exports. 2/ Although public sector fixed investment grew at an annual average rate of 21.5 percent (in 1972 prices) from 1972 to 1977 and thus exceeded the Plan's goal of 19.5 percent, the distribution of investment differed from the planned amounts (see Table 71). Far less attention was pa-id to industry and to health and welfare than was planned. Furthermore, current expenditures grew at a much higher rate than planned during this period (11.6 percent a year real growth versus a projected increase of 7.2 perceTLt a year in the PITD). This was due in part to the failure of the Plan to project adequately the current expenditures required by certain capital outlays (such as hospitals). Public sector expen- ditures did not grow steadily as the plan foresaw but spurted forward in 1973 and 1974 and then declined in 1975, grew again in 1976 and then barely increased in 1977, following the trend of petroleum revenues. 3/ The failure to implement the planned tax reform left public sector expenditures in parti- cular investment expenditures (which are easier to reduce than current expen- diture in Ecuador), vulnerable to the fluctuations in petroleum revenues.
1/ See chapters on public finance and agriculture.
2/ Petroleum exports were more than double the planned amounts. From 1973 to 1977 the total value of petroleum exports FOB was US$2,540.1 million versus a value of US$1,235.5 million in the PITD. (Petroleum revenues averaged 69 percent of exports during this period.)
3/ See Table 11.1. - 316 -
Table 71: DISTRIBUTION OF PUBLIC SECTORFIXED INVESTMENTBY SECTOR (1972 SUCRES) 1973-77, PLANNEDAND ACTUAL
(percentages)
Planned Actual
Social Sectors 20.5 12.8 Education 4.9 5.3 Health 11.8 6.9 Welfare and Urban Development 3.8 0.6
Economic Sectors 77.8 86.7 Transportationand Communication 30.7 31.7 Agriculture 15.5 11.9 Natural Resources and Energy 20.1 43.0 Industry and Commerce 11.5 0.1
General Public Services 1.7 0.5
Total 100.0 100.0
Source: Table 3.6 in the StatisticalAppendix (deflated by public investment deflators of the Central Bank of Ecuador) and p. 16 Plan Integral de Transformaciony Desarrollo, 1973-77.
(iii) DevelopmentPriorities in Economic Decision-Making
972. The process of setting national prioritiesas a basis for economic decision-makingin Ecuador has suffered from a lack of specific operative plans that can be translated into projects and used as a basis for allocating resources among alternatives. The development strategy in the 1973-1977 PITD was never fully spelled out in operational terms, and its public investment goals were not formulated into yearly investment programs and broken down into projects. Nor are there yearly operative plans which evaluate past perfor- mance and present circumstances,estimate available resources, and then develop priorities for public expendituresand policies to guide private activities on this basis. Planning has also suffered from the lack of reliable and consistent data and the poor interchangeof information in the public sector described earlier.
973. JUNAPLA has made some effort to develop lists of priority projects for the public sector, but these attempts have suffered from a lack of infor- mation about resource availability,past performance,and the current economic situation, as well as from a lack of institutionalmechanisms to relate these lists to the budget process (see below). The 1976 program was formulated after the budget was in execution and consists of estimates of additional resources needed for some priority projects. The 1977 program did assign resources to priority projects. How effective these allocations could be is questionable - 317 - since the same document forecasts the financial accounts of the central governmentwith fixed investment totalling S/ 14.1 billion of which one-third is in projects in execution which are not contemplatedin the list of priority projects. The actual Central Government investmentin 1977 was SI 10.0 billion but no informationis available as to how much of this was in the priority projects. The 1978 list contains priority prajects which are significantly different from the 1977 list in almost all sectors even though most of these projects were in execution in 1977.
974. JUNAPLA has been working to develop a capacity for operative plan- ning with the assistanceof the UNDP. This effort plus the programs to improve the data base mentioned earlier are expected to develop a better understanding of recent developmentsin sectoral production, the balance of payments, external debt, the monetary situation,prices and public finance; to compare past performance with goals and to review the results of major policies such as price policy, credit policy, exchange rate policy; and to forecast economic trends and the available public resources. This would give JUNAPLA a basis for ranking prioritiesand projects in a public sector investment plan and for formulatingannual plans that can be incorporatedinto the budget. Greater effort is also needed to follow up the planning process by evaluating whether resources were allocated to priority projects and how much of the project has been executed.
975. The process of incorporatingdevelopment priorities into economic decision making in Ecuador is weakened by the lack of strong institutional ties between the planning process and the actual allocationof resources. To begin with, the Board of Directors of JUNAPLA does not meet because the governmenthas not used it as a major decision-makingbody. This cuts JUNAPLA off from its most potent avenue of influence over economic decisions and also reduces the legitimacyof its programs.
976. Currently, general economic policy is set by the Frente Economico while credit and monetary policy is set by the Junta Monetaria. The Frente Economico is presided by the Minister of Finance and has the Budget Director as its Secretary which gives it a different orientation from that expected of the Planning Board presidea by a delegate of the President and including repre- sentatives from the private sector. 1/ As part of the yearly allocation of
1/ The actual compositionof the groups are: Frente Economico: Minister of Finance (Director);President of JUNAPLA; Minister of Natural Resources and Energy; Minister of Agricuture and Livestock; Minister of Public Works and Communications;Minister of Industry, Commerce and Integration; National Budget Director (Secretary);National Budget Subdirector (Subsecretary). Junta Monetaria: Delegate from the President (Chairman); Minister of Finance; Minister of Agriculture and Livestock; Minister of Natural Resources and Energy; Minister of Industry, Commerce and Integration;President of JUNAPLA; Representativeof private banks; Representativeof the Chamber of Production of the Sierra; Representative of the Chamber of Production of the Costa; General Manager of the Central Bank; Superintendentof Banks. - 318 -
resources each Minister presents a definition of the goals and policy of his sector for the year to the Frente Economico where it is discussed and trans- --lated into broad guidelines to be used for formulatingthe budget. The link between JUNAPLA and the process of resources allocation is through the participationof its president in the Frente Economico. JUNAPLA used to have another link through the Budget Committee,Which included the President of JUNAPLA, the Minister of Finance, the ComptrollerGeneral, the Director of Personnel and representativesof the agencies whose budgets were under consideration. This Committee received the guidelines of the Frente Economico and the investment priorities formulated by JUNAPLA and held discussions to determine the appropriateallocation of resources. With the elimination of this Committee in 1977 the Junta lost a link to the budgetary process and the executing agencies lost a forum for defending their programs. In 1978 JUNAPLA elaborated an investment program but in the absence of the Budget Committee it was never presented and the allocation of public sector resources was largely the decision of the Minister of Finance with the guidelines of the Frente Economico. It should be noted that the Minister of Finnace is not legally required to consult with the implementingentities in this process.
977. A similar situationoccurred in the case of external credits. Insti- tutions were required to present projects requiring external financing to JUNAPLA which did a study of the project's priority and presented a report to the External Credit Committee. This Committee, headed by the Minister of Finance and consisting of the-Minister of Foreign Affairs, the President of JUNAPLA, and the General Manager of the Central Bank, would then approve or reject the application to contract a foreign credit. Subsequent approval was then required from the Monetary Board and the Attorney General. The demise of this Committee in 1977 eliminated the review of external indebtednessin the light of develonmentpriorities.- Fortunately, the Government has recently decided to reinstate the External Credit Committee.
978. Another weak institutionallink in translatingdevelopment priorities into reality are the planning offices in the Ministries and decentralized entities. These offices vary widely in their organizationand functioning and some key public sector entities, such as the Ministry of Finance and CEPE, do not even have planning offices. Most of the offices-arechronically under- staffed. Their primary function is usually the preparation of the budget according to policies that are elaborated elsewhere, usually by the directing executives without their participation. In many cases these budgets are not based on any sort of sectoral plan or strategy, but on the isolated goals of the various dependenciesof the ministry or agency developed without a clear idea of what the resource constraints will be. The coordinationbetween these offices and JUNAPLA is generally limited to collaborationin the preparation of the draft budget. JUNAPLA also offers criticisms of annual programs and development strategies of government agencies but has been less involved in assisting in plan development or in strengtheningplanning units. A related problem is the weak project identificationand preparationcapacity in the government agencies (see below). As a result of these factors, sectoral and project planning in-most government institutionsis inadequate or entirely nonexistent. - 319 -
979. An improved opportunitywill arise in the future for reforming the process of determiningand implementingnational economic priorities in Ecuador. Under the new Constitutionthe National Development Council will replace the National Planning Board and the Planning Secretariatwill be transformed into the technical secretariat of the Council. The Council will be presided by the Vicepresidentof the Republic, which brings the planning function closer to the presidency. This could give the planning process a greater efficacy and also assure greater continuity of leadershipfor JUNAPLA. The membership of the Council differs from the Planning Board since it includes the presiding officers of the various "Fronts" and the Monetary Board, which have been the loci of economic power in the present government. 1/ The Council does not include the General Manager of the Central Bank, however, which could weaken its influence over credit and monetary policy. The size of the Council is also cause for concern since it will be difficult to convene so many high level functionariesat one time. It might also create a small, technically competent and prestigiousgroup of advisors to the Development Council and the President to recommend policy direction and to give guidance to the planning process between the Development Council Meetings.
980. The existence of the Development Council gives an opportunity to activate the decision-makingapparatus needed if planning is to be more than a theoretical exercise in Ecuador. The Council's direction should assure that JUNAPLA's plans are guided by the decisions of the major economic policy makers. For this change to be effective,however, it would have to coincide with a strengtheningof JUNAPLA's ability to do operative planning which means improv- ing its staff's technical and analytical capacity and its data gathering procedures, and which also entails strengtheningthe various planning and project units in the ministries and decentralizedentities. The individual planning offices should be made capable of formulatingaction plans for the implementingagencies in a process that would be closely coordinated with JUNAPLA's elaboration of national plans and programs. The capacity of project units to identify and prepare projects appropriate to the sectoral strategy would also be strengthened. The interchange between JUNAPLA and the sectoral planning and project units would be aimed at producing a ranking of priorities and projects that reflect national development goals, as well as the practical circumstancesof implementingagencies, and that could be used as a basis for formulating draft budgets and allocating resources through the budgetary process.
981. The success of this reform will also depend upon the establishment of strong institutionalmechanisms to assure that development priorities form the basis for the allocationof resources. A Development Council that meets frequently and regularly and has the backing of the President would be one such mechanism; the Committee of External Credit could be another. There is also a need for an instituti6naltie between the planning process and the budget formulationthat can ensure that the operative plan guides budgetary decisions.
1/ See page 317. - 320 -
4. Project Administrationand Processing-
982. Many of the institutionalissues already raised with regard to the public sector in Ecuador have repercussionson the preparation,implementation and use of public investmentprojects. An examination of the institutional framework for projects itself illustrates the effects of the interplay of institutionalfactors described above at the project level.
(i) National Projects System
983. In order to assure that public sector resources are assigned to well prepared and carefullyanalyzed investmentprojects that have a high priority for national development,the Government of Ecuador is implementinga National Projects System. This system consists of JUNAPLA which has responsibilityfor establishingand ranking investmentpriorities; the planning and project offices in the implementingagencies, which must identify,prepare and execute projects within the guidelinesof the Development Plan; FONAPRE, which provides funds and training for project preparations;and FONADE, which funds the execu- tion of high priority projects.
984. JUNAPLA. The operations of JUNAPLA were described above. The Junta is handicapped in performing its role in the project system by the lack of an investment program integratedwith a recent development plan. Although JUNAPLA has compiled 4 project inventories,the last containing close to 1,000 projects (of which over half are in execution), these listings of projects are not and do not purport to be investmentprograms based on national development goals. Rather, the inventoriesrepresent compilationsof information on activitiesplanned or underway in the public sector which may or may not conform to the prioritiesof the-plan.
985. In order to assign a priority to a project, the Planning Office should have a coherent set of developmentgoals and a plan of action to achieve these goals based on a realistic appraisal of present and potential resource availability. This plan of action should distribute available resources among sectors and the planned actions of public institutionsshould be disaggre- gated into major projects, each with an assigned priority and target starting date. In Ecuador all of these ingredientsare now missing. The Development Plan is six years old and its goals have not been reexamined in the light of new circumstances. The Plan was designed for a period of rapidly expanding public revenues which is now past and although its general objectives are still relevant, there is need for a strategy base on a new assessment of resources. The Plan gave total targets of public and private direct invest- ment by sector in 1972 Sucres but in many sectors investment programs are neither disaggregatedinto projects with estimates of costs and starting dates, nor ranked according to priorities. The few lists of priority pro- jects, which have no continuityor evaluation of past results and no estimates of expenses beyond one year, are not adequate either. As a result, when JUNAPLA receives a project proposal from FONADE or FONAPRE, it evaluates its priority on the basis of its sectoral knowledge but it cannot rank it against all the alternative projects planned in all the sectors on the basis of the development strategy. - 321 -
986. Planning and Project Units. After-JUNAPLA,the second link in the National Projects System are the planning and project units in the public institutions. These units vary widely in their size and functions and in their capacity to identify, prepare, execute and evaluate projects. For example, PREDESUR, a regional entity operating in three provinces,has 18-20 people in project identificationand preparationwhile the Ministry of Agriculture,with nation-wideresponsibility, has a project unit of 12. The MAG project unit does not identify projects, even though this is one of its official functions; it prepares projects (when a consulting firm is not used) at the request of the various programs in the Ministry. Some public entities do not even have general planning units. The lack of such a unit in CEPE, for example, was one reason why the refinery was built at Esmeraldas without adequate provision for transportingits production. 1/
987. The lack of recent sectoral plans and the scarcity and poor quality of data mentioned before make it difficult for project units to diagnose the situation and needs of their sector and to identify feasible projects which would have a high priority for sectoral and national development. Under these circumstances,the projects which are identified are often poorly adapted to the sector's needs. For example, a project to develop groundwaterfor irriga- tion in the coastal lowlands area was located in a region subject to yearly flooding and had to be reoriented toward drainage and flood control.
988. The capacity of the public institutionsto prepare projects varies and the use of consultantsfor this purpose has been limited in the past by lack of funds and the application of the civil service pay scales to consultants.- It is hoped that some of the problems associated with the use of consultants would be overcome by FONAPRE, although it will be some time before FONAPRE has much impact on the project pipeline.
989. As far as the capacity of public sector entities to execute invest- ment projects is concerned, a review of some of the projects currently in execution indicates some persistent problems associated with project imple- mentation in most sectors. 2/ Insufficientqualified local staff to super- vise project implementationappears to be the most serious bottleneck delaying execution. Entities such as the Ministry of Public Works, for example, have difficultieshiring and retaining experienced engineers because public sector salaries are not competitivewith the private sector in this field. Because the government is reluctant to waive the requirement that consultants be paid according to civil service salary categories, it is almost impossible to hire local consulting firms to supplement the agency's staff. There is a tendency instead to hire individual consultantswhich can delay initiation of the project and make administration more complicated.
1/ See technical Annex 4.
2/ This review is based on evaluations of budgetary execution by the Ministry of Finance-and evaluations of projects execution by the IBRD and IDB. - 322 -
990. A related problem is the high rat-eof turnover in project staff and other personnel in the implementingagency due to personnel leaving for better paying jobs in the private sector or simply due to the fluid situation of public employees. New project staff members may be fully qualified,-but because they are not familiar with the history of the project, misunderstandings and delays arise. Frequent changes in the top administrativestaff of the executing agency can also introduce delays and problems. The new director or minister may be less committed to the project which might be identifiedwith his predecessorand the project may no longer receive the attention or funding it needs. In other cases the new administratormay delay implementationuntil he has time to reevaluate the project or just familiarizehimself with it. For example, a project to build and staff a training school for fishermen was delayed 3 months while the new Subsecretaryfor Fishery Resources and his staff in the Ministry of Natural Resources familiarizedthemselves with the project. The consultantsto the project were shifted from work on preparing the on-site installationsto preparing a progress report and analysis of the obligations of the parties to the contract for the Ministry. Delays have also occurred because the changes in the board of directors of an entity have changed the composition of the awards committee (comite de licitaciones)while it was reviewing bids.
991. Inadequateplanning of project implementationis another chronic problem, causing delays because strategicequipment or materials are not availablewhen neeed. More complicatedprojects are especially prone to delays since the-executingentity may not have any global control or schedule for the project, only individualwork schedules for the different contracts. Inadequate control of the use of equipment is another commonly cited problem (often related to the centralizationissue discussed earlier). Poor financial planning and control is a widespr-eaddifficulty mentioned by the Finance Ministry, which has been exacerbatedby the inflationarypressures experienced by Ecuador since 1970.
992. The accelerationin the rate of inflation in Ecuador since 1972 has created new problems for project implementation. Some projects have suffered delays or changes because they were designed prior to the increasing growth in prices or underestimated the impact of price increases on project costs. For example, a project to design and construct 12 tuna purse seiners for sale to Ecuadorian individualshad to reduce the number of boats to 4 because of the lack of demand due to a number of causes, not the least of which was the increase in the price of purse seiners. Some projects have been caught in a vicious circle of delays during which time costs increased, additional funding had to be negotiated which introducedmore delays during which time costs continued to increase, etc.
993. Further difficultiesarise when project implementationrequires cooperation between executing entities. For example, the irrigation project being executed by INERHI in the Milagro area was designed with inputs from five other public agencies. Project implementingagreements were signed with each of these institutionsin 1973. The Land Reform and Colonization Institute, IERAC, was to arrange land titles and assist in realigning boundaries, the Agricultural InvestigationInstitute, INIAP, was to direct - 323 - research activities related to the project, provide improved seeds, give seminars, etc., through an experimentalstation located near the project which was to cooperate closely with INERHI; the Ministry of Agriculture's (MAG) extension service was to cooperate with INERHI in providing technical assistance to project farmers; the National Development Bank (BNF) was to work with INERHI to provide credit to project farmers; and the Federation of Agricultural and Marketing Cooperatives(FECOPAM) agreed to assist in setting up cooperatives. By mid-1977, none of these agreements were operating satisfactorily. FECOPAM had disappeared and nothing had been created to replace it. IERAC has issued only 62 titles (most of the 1,052 farmers in the area do not have titles), although all farmers in the project region were expected to have titles by the beginning of 1975. No orderly program for implementingthe agreements with INIAP, MAG or BNF were in operation yet and contacts between the project unit and the local offices of these entities were informal and occasional. The project unit was not aware of the amount of BNF loans received by farmers in the project.
994. Even in projects where only one executing entity is involved, the failure to coordinate and exchange informationcan delay the project. For example, the Municipal Water Enterprise of Guayaquil had to delay a water project over 4 months because it had designed the project without consulting the Ministry of Public Works about the location of water trans- mission lines on the shoulder of a major highway. The Ministry required the lines to be relocated 15 to 20 meters from the road. The same project had to be redesigned in one area because of the decision of the Guayaquil Urban Developmententerprise to build a new settlement without provision for sewage in a site where there was danger-of sewage infiltrationinto the project's water system.
995. As mentioned above, some projects have experienceddifficulty because there was no clear delineation of the authority of the project director or because decisions were too centralized in Quito. As a result, in the first case, the central authority in Quito would issue instructionsthat conflicted with the decisions of the project director at the site. In the second, Quito would sometimes override the project director on the basis of less informationabout conditions in the field or the project might be delayed because the project director had to await a decision from Quito.
996. FONAPRE. The third major component of the Projects System is the Fund for Project Preparation (FONAPRE). FONAPRE was created in order to increase the number of high priority, well prepared projects available for public and private investment. FONAPRE finances consulting services for preinvestmentstudies which are judged to be of high priority by JUNAPLA. FONAPRE functions as an autonomous public entity, attached to JUNAPLA, with a Board of Directors composed of the President of JUNAPLA, the Minister of Finance and the General Secretary of the National Security Council. In part because of the weakness of many of the project units in the executing entities, FONAPRE has gone beyond its original function and is now involved in a variety of aspects of project preparation. It prepares terms of reference and draft contracts, evaluates consulting firms and maintains an inventory of past performance of firms; it supervises the preparation of the study and evaluates the results. It also assists in selecting consultantsat the request of the - 324 -
borrower. Furthermore,FONAPRE trains public functionariesin project prepa- ration activitiesand is responsible for organizing and maintaining an -InternationalCenter of PreinvestmentInformation (CIP). FONAPRE has expanded rapidly. From six functionariesin 1974 it had grown to over 60 by early 1978.
997. By March 1978, FONAPRE had received 156 loan applicationsof which 38 had been signed (and eight of these had completed studies) and another 28 were under active consideration. Of the remainder, seven will be considered if FONAPRE receives sufficientfunds. Thirteen were rejected by JUNAPLA as not being priority projects, 17 were rejected by FONAPRE for not meeting their legal or technicalnorms and 3 for not being "within the field" of FONAPRE's financing, 26 were withdrawn by the applicants, 17 were "abandoned"by the applicants, and 7 were suspended by the Board of Directors.
998. The procedures for evaluating the applicationshave proven to be very time-consuming,as shown in Chart 3. The chart gives the average times required for each stage for those loan applicationswhich had completed that stage (based on a study of the first 123 applicationsof the 150 processed by FONAPRE). FONAPRE estimates 229 days as the average time from application to first disbursement;the average time for the 18 loans (reviewed in Chart 4) that completed the entire cycle is 480 days. With the exception of the first phase (from applicationto the issuance of JUNAPLA's report on priority), the average time required for each step of loan processing exceeded appreciably the time allotted for these steps by FONAPRE in its PERT chart.
999. Some of these delays stem from the slowness of operations in FONAPRE. The expansion in the volume of.loan applicationscoupled with FONAPRE's involve- ment in so many aspects of the negotiations,as well as its activities in training and the CIP seem to have overburdenedits personnel. Although the staff has grown, many of the employees are new and inexperiencedand the Fund has lost qualified staff because of low salaries. The flow chart also indi- cates that the directoratehas become a bottleneck in processingloans, requiring over 50 days instead of four to approve a loan which has been thoroughly studied by FONAPRE's technical staff. Delays have also been caused by the complex bureaucraticprocedures required by law. In June of 1977 FONAPRE was exempted from complying with some of the more cumbersome regula- tions 1/ in cases where funds from internationalagencies are involved. This should speed the process somewhat.
1000. It will be some time before FONAPRE can have much impact on Ecuador's effort to create an adequate pool of well prepared, priority projects. As of February 1978, seven studies had been completed satisfactorilyunder the
1/ These include the required reports from the Attorney General, the Controller'sOffice, the Ministry of Finance and the Monetary Board, the need for a specific presidentialdecree to allow Ministries and public institutionsthat have no separate, legal existence to sign a contract and the need to comply with the Bidding Law and the Civil Service Laws when contracting consultants. - 325 -
C EAR T 3
ECUADOR PROCEDUREFOR REVIEWING A LOAN APPLICATION TO PONAPRE
Time Average time Average time for those for 18 FNNAPRE JUAPLA EECUTING AGENCY OTHER a3:10ted abte applications applications Directorat e operations ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PUBLICPUBLI_CAGENCIEAGENCIES , Pby which completed which reached Each Stage cl/ disbursement
of. 55 Days 49 Days 35 Days Referenc (68 Applications) r
4 Days 72 Days 51 Days s ort (62 Applications) Approval I(or re,ect1on'
.Formation Project
Gays~(23iatoAplctos ~ ~~~~ ~ Presep tation of ______| TermC of Reference
170 321 Days 286 Days Selecti ofisof Consultiew Days (23 Applications) Review Fira .ys ayssBids Reports by Ministry Reiwof Bd . I required for loans witorneyaeneral foreigncreditco .ot
. _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~. | Approval;| Document l ~ ~ Cotr::
IDS Days 108 Days Lor Domin 8gature ( 18 App lic-ations __1 Loa
a! agency.~~~~~~~ofAt the request of the executing t Firsti ~~~~~Documentsinace,Conroler
e/ Esedonf te frst125applcatonstostdy ONAR.Iof hic 18hadreparahed dtisbursementard
Total Time
229 550 480 Days ~~Days Days
1/ At the request of the executing agency. b/ Not required for loans with a foreign credit component. c/Based on a study of the first 125 *pplications to FONAPRE of which 18 had reached disbursement. - 326 -
auspices of FONAPRE, another two had acceptable drafts of final reports and 13 were proceeding satisfactorily. As mentioned, there were also 28 projects -being actively considered at that time, but judging from the average times required to process applicationsin the past, all but two of these projects were at least a year away from the first disbursement.
1001. FONADE. The operationsof the final segment of the project system, FONADE, have already been examined.
(ii) The Project Cycle
1002. In order to illustrate the project cycle in Ecuador, two sample projects are presented in Charts 4 and 5. The first is a 220-bed hospital constructedunder the auspices of the Ecuadorian Institute of Sanitary Constructions(IEOS), and the second is an irrigation project of the Ecuadorian Institute of Hydraulic Resources (INERHI). These are hypotheticalprojects and the times given are averages. Some factors which may cause delays or other changes in the project cycle are also presented. 1/ These factors are based on the experience of a number of projects and agencies and do not necessarily represent the experience of IEOS or INERHI.
1003. IEOS is an affiliated entity of the Ministry of Health, responsible for planning and executing potable water and sewage projects, and planning, executing and-maintaininghealth services at the behest of the Ministry of Health, IEOS was created in 1965 -andattached to the Ministry when the latter was formed in 1967. IEOS has a Board of Directors presided by the Subsecretary of EnvironmentalHealth and Sanitary Works of the Ministry of Health.
1004. INERHI is also an affiliated intitute, in this case of the Ministry of Agriculture. It was created in 1966 as the principal entity responsible for planning, executing and maintaining irrigation and drainage projects, and is also responsible for promoting soil conservationand rational exploitation of water resources. INERHI's Board of Directors is headed by the Minister of Agriculture.
1005. Identification.-Since there are no regular procedures for identifi- cation of health service projects, no set time is allocated for the identifica- tion of the hospital project in Chart 4. Most health projects are generated in response to demand for health services expressed by residents of an area to a high level government official,usually the Minister of Health. There is no health plan and no diagnosis of need or potential demand for services. If the Minister decides to respond to the demand, the Minister's planning office
1/ Some examples of other project cycle times are: a school construction project signed in June 1968, effective August 1968; scheduled to be completed in June 1972; completed in December 1977 (9 years). A fishery project effective in 1968, originally scheduled to be completed in June 1974; now-scheduled to be completed during 1978 (10 years). A water supply project effective January 1975; scheduled to be completed in September 1977; now scheduled to be completed in 1980 (5 years). CItA I 4 SAMPLEPROJECT CYCLr, CONSTRUOTIONOF A 220-BMD HOSPITAL BT I E 0 S
Bidding Biddi.6 Bigosor P-og-mPeiAn- t C_ .. tt. Go_itte. Toot-t C. Pt-
P-oje-t I pprniftl TR:,i.e Rp-rt, PorCb. Co ProJect _Tochical Fqaipont ppro- of ------P-ronn 1
.~~~~~~~~~~~~~~~~~~t CY
TeChnical P,pr Pp I l c C l1 na Stady P-ojoot Do-neto oiei CoOtCoct Aoopoa. copioe S.l..j_ i.. 4(Adnot for T,hortW.k PI..ina~u .electtoo otto. I Techo1coliANe Pr-1 I I I W.001 PBlid" Acofynl. of - i-tc et Notbly oFip nten.. | P-cPooa Report .tiotenoCo otadjee,1 ,,~~~~~~~ojot) coet O~~~~~~'g .. ti t.. C~~~~~~~~~~~~~~~~~~.-Cntructionw eto. b, Eqoipteot
C-rtifci Repot of ppr.. Beeje Mothly OP Cotol-Mljtyrporte & Aothorte .Otn . _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0
... th I .. ttha 30 ...0th. 12 Durati.. I nontb ...mth. nrth 3 nth. 1
AComolted 3-1/4 yearn 4-1/4 7-or. Tio Locoe I nonth 4 ... th. 7 *onthn 8 000th. 9 .. o.th. - 323 - CHART 5 SAMrt1:17tOJECJ CYCLI: CONSItic1rION (IF AN I_UAlATl1.O SYSTEIM LY 1Npr1r
I VI iti r I Cuntulative Time Process of :Operation
Identi r icuaion 1-1-112 viont.hs 1o-1t1/s Pr_j c
4 montlhs 3 monthS r Irslasiility | Study
FYiwi Study 4-112 mDrlths 15 days A1ialysis AvailabJe _ ~~ ____
I t~~~~~~oXsequosz.OII l.oan - for iPcril?'rcaratiruI_ T0FO'AmYF. 20 viouths 16 Months of rrojvc.) Approvc Lopn |
2 years wcd 6 mouiths r Iro 2 mOnlhI, -- yC.2:r- j - Lr
yearn plid 6 ItIm - | Neotiatc Fin,!Cilci. ni.Lb Luouth: 11 year i.or.al A,ncy;Intcrn'l
Appro_sl of FiRancinC Approv. Js 1,5 J2;AI.A.
y0 ornltir 2 Months Sig,n Cotitract, ComLply Ilonetr.! M!n.ar' _i Pre-ccnditionr-nth ____i
r Call fdor - F,,+]jc SiddKiug8
! . _ __--- Prulic Bidding, 3ycZ,11: L:;,tl mollths-._
Sclecrt PTrpo50s'n Sir|tu CvntractG
)-2 da ^ | - 9 ttil,i_t_,~~~~~~~~~~~~~~tv._ 1, ir .an, v [2 2 days t DXAutlhorisDisbrse:en
&)1;.~~~ ~ - 3-.4yer Cin st ruc Li oI I
3-4 mofnttlin_,
II/ Sec- sc.::isll: ollFn Y.OUM'F .. ;. . ,t.;-- 1JSee. Cl: r1 t I - 329 -
analyzes the statistics of mortality and morbidity in the region, the location and type of existing services,the demographiccharacteristics in the area, as well as the available resources that could be applied to the project. -The type of health service to be provided is then determined on the basis of population size, location and the importance,geographically and politically, of the region.
1006. INERHI completed a three-year diagnosis of the North Western river basins and the sample project in Chart 5 was identified on the basis of that study. INERHI has also done less extensive studies of other regions to determine possible projects. Projects are also formulated in response to requests from other public agencies in the field. The Ministry of Agriculture does not play a major role in identifyingor directing INERHI projects.
1007. Preparation. The hospital in Chart 4, a so-called base hospital, was prepared by IEOS. The Institute has general project plans for hospitals, health centers, etc., which it adapts to the special needs of the locale. In the case of hospitals with special requirements(such as the Children's Hospital), IEOS would contract consultants to do the study.
1008. Similarly, INERHI might do its own study or, if it intends to seek international funding, it might hire consultants to prepare the project (as in the case of the sample project in Chart 5) in order to meet the requirements of internationallenders. The functionariesat INERHI maintain that they have the capacity to do all their own studies but lack the resources. Since FONAPRE can only finance studies by consultants,INERHI must therefore hire consultants in order to obtain funds from that source.
1009. Once the project is prepared, the entity may negotiate international financing. Internal financing or counterpart funds must be included in the budget (in the case of IEOS in the Ministry's budget) and the international contracts signed prior to a call for public bidding. The INERHI project allocates two months for signing an internationalloan agreement and complying with the pre-conditionsof effectiveness. However, this can require a consid- erably longer time. For example, the Second National Highway Project loan (with IBRD financing) was delayed a year because of the time needed to fulfill several conditions of effectiveness.1/
1010. Public bidding is required for all contracts with a value of more than approximately$145,000 (in 1978). 2/ The procedures for public bidding were changed in 1976; present practices are illustrated in Chart 6. Every
1/ Most time-consumingwas the establishmentof a revolving fund for the project which required the approval of five government entities, and a legal enactment. These funds are a common condition of international loans to Ecuadorian public ministries because of the problems associated with disbursing counterpart funds from the general budget (see above).
2/ The actual value varies from year to year and is equal to .015 percent of the budget for a simple bidding procedure (concurso de ofertas) and .03 percent (or US$292,000) for a licitacion. - 330 -
entity is required to have a bidding committee including a representativeof the ComptrollerGeneral, which appoints technical commissionsto study the .-offers. If all goes smoothly,this procedure takes about six months. The 1976 law placed maximum time limits on some phases of the bidding process which preciouslyhad been the most time-consuming. The most important time limit is that placed on the Monetary Board, Comptrollerand Attorney General for their reports on the documents, proposal, and draft contract. If the reports are not received by the end of the specified period, the documents, contracts, etc., can be considered to be approved. In practice, however, many entities wait to receive the documents. The law also placed a maximum of 90 days for receiving bids but the Bidding Committee can and often does extend this period. The Technical Commission can also extend the period for its review "for technical reasons only." 1/
1011. Although the provisions of the bidding law are broadly worded, some public institutionshave adopted restrictive interpretationsof the law which can result in delays and complaints by bidders. In some cases bidders have been disqualifiedfor violating a very minor rule of the bidding procedure of which they were not aware. For example, internationalbidders have been dis- qualified for having documents notarized by a foreign notary instead of an Ecuadorian notary at the Embassy or Consular Office. In some instances suffi- cient number of bidders have been disqualifiedto result in cancellationof the bidding and a new invitation to bid. This introduces delays and makes internationalbidders reluctant to participate in future bidding on Ecuadorian contracts.
1012. Another problem is the restrictionson the use of price adjustment clauses in government contracts. The decrees which refer to price adjustments only allow adjustment in cases where constructioncosts have changed as a result of a law, decree, or government regulation that authorizes a price increase or change in the minimum wage, or where the internationalmarket price of asphalt, cement and structural steel has increasedmore than 15 per- cent over officially established based prices. The adjustment is then estab- lished by a committee composed of delegates from the contracting parties and the Comptroller'soffice. The ley de licitacionesdoes not make it clear whether a price adjustment formula can be included in the bidding document or contract. The laws relating to price adjustmentsare confusing and have been inconsistentlyapplied by government agencies, resulting in frequent conflicts with contractorswhen rising constructioncosts have outstripped official price increases.
1013. Delays can also occur after the bid is awarded. For example, a contract for a market study for a fishery project was awarded in October to a foreign firm. This firm received the draft contract, translated it and rejected it and submitted a revised draft contract in December to the Ministry of Natural Resources. In January the Ministry asked the firm to send someone to negotiate the contract and the firm requested that such a visit be at the government'sexpense. No further word was received by the firm until May when it was told that the draft contract was not negotiable. When there are such
1/ Art. 33, Ley de Licitaciones. - 331 - CHART 6_.._a Chart of Bidding Procedure for Contracts in Excess of US$292,000'
|li.ddings Colllemittce | Arppoi.nt . * H ~~~~~~TechnicalComnission
Prepare Dociments
Call for Public Bidding, Draft Froposal,Instructions, Terms of Refcrence, Technical Specifications, Plans, Draft Contract, etc.
Minister Finances Bidding Com.ittee. Certificate of Available Fina!ncing
Review and Monetary Board, Approve Documents Controller, Attorney
______General Report on Documoents 10 days
3 days
Pro-Qua.if icaLions 15 days
Sttldy and Report by Technical. Commzziission 15 days
M4onctary Board ,Cont:rol l cr Attornecy Geral Liddlup. cThmlnnttc.c, Stiuly Technical. lReporL Rcport: on Prop,osal and ancld sclct 1'rolposal Draft Conltract 6 day__ 6 dar,
rrc]jralt.ion conltract
annL Si.E,,mivxrEc.
-2fTimc1 liwito ieI.-resent lJ'!Cll nI:iinu>. Soil-ec: Vi-i.Eion ;timatces based on Tcy do IcitmaOionCs - 332 -
4-month gaps between communications,by the time the issue is resolved, infla- tion may have made the original contract cost too low and lead to additional -negotiationsand delays over price adjustments.
1014. Once the contract is signed, it must be authorized by the Ministry of Finance. Although the main reason for th.isis to assure that the insti- tution has the funds required by the contract, the Ministry can also reject the contract for other reasons. For example, the Ministry of Finance recently rejected a contract IEOS had negotiatedwith a German firm because it was denominated in Marks and it was decided that further revaluationof the Mark vis-a-vis the Sucre would make the work too costly.
1015. Execution. The EngineeringDivision for Health Constructionof IEOS names a project director and auditor from its staff to supervise the project. The latter is permanentlyon the project site. Detailed monthly reports on the progress of the work are sent to the EngineeringDivision which must be submitted to the Ministry of Finance for the quarterly authorizationof the disbursementof funds for the project. The Ministry of Health recruits personnel and purchases necessary equipment while the hospital is being constructed in order to begin operations as soon as the project is completed.
1016. The INERHI project is supervisedby a project team on the site. INERHI must also submit quarterlyevaluations of budget execution in order to receive authorizationof its budgetary allotment.
1017. The estimate of the time required for the authorizationof the quarterly disbursementof those funds which come from the national budget (i.e., the transfers from the Ministries of Health and Agriculture)ranged from one to two days for INERHI to three to four months for IEOS. Delays in authorizingallotments occur when Finance is short of funds. Counterpart funds for projects with internationalfinancing are less likely to suffer delays than projects financed entirely by internal revenues. Since agencies affiliated to Ministries such as IEOS and INERHI have access to income outside of the budget they can cover some of the cost of the project with these funds if the budget transfer is delayed. Furthermore,INERHI has the advantage of keeping its funds in special accounts which gives it much more control over disbursement.
1018. Some problems associatedwith executing projects have already been mentioned. The difficultyof coordinatingimplementation with other public entities is one. Delays in delivery of related services such as water, sewer- age, and electricity,or in the case of INERHI projects, land titles, extension services, credits, etc., can complicate implementationand reduce the impact of the project (for example, on farm production). Difficultieswhich can arise because a governmentinstitution not directly involved in the project makes decisions which affect project implementationw-ith-out coordination with the project unit have also been mentioned. Other problems are those associated with the high rate of turnover of project staff, the centralizationof authority in Quito, the weakness of most project units in plannlingand supervisingmutli- faceted projects and problems associated with inflation. - 333 -
1019. Other delays and difficultiesarise because of the need to get approval of other government agencies for contracts, disbursementsof funds, price adjustmentsdue to inflation, etc. The effect of these procedures on -the project's execution seems to depend on the executing agency. Some agencies negotiate actively to assure sufficient funding for their projects and to speed bureaucraticprocedures and approvals;others take a passive attitude toward those phases of the projects that are not directly their responsibility.
1020. Use, Maintenance and Evaluation. Once the project is completed, other issues can arise. Many implementingagencies in the Ecuadorian public sector regard themselvesas constructionagencies. There is also a tendency to isolate the constructionfunction in a separate agency from the institution which uses the completed projects (IEOS in the case of health or DECE in the case of education). This can mean that neither the project executor nor any governmentagencies which might use the project feel fully responsible for assuring proper use and maintenance of the project. For example, INERHI builds primary and secondary irrigation systems but tertiary systems are left to the farmers. Neither INERHI, nor the Ministry of Agriculture,nor the Banco de Fomento assure that poorer farmers have the credit and assistance they need to arrange for proper access to the water and for its use. This can result in inadequate distribution systems which waste water; it can worsen income distributionif wealthier farmers have income or credit to fully utilize the water while poorer farmers do not.
1021. -Similarly,problems can arise over proper maintenance. While IEOS and INHERI take responsibilityfor maintenance and do periodic revisions of their facilities in other cases the responsibilityfor maintenance is not clearly defined. In the case of school buildings, for example, instances have arisen where newly constructed schools have been overused even before being completed,with neither the constructionunit nor the Ministry taking respon- sibility to assure that the schools were adequatelymaintained.
1022. Few public entities evaluate the economic and social impact of their projects a year or more after completion. Such evaluationswould make apparent the problems that arise after the project is completed and also be invaluable in planning future investmetts. To be effective this sort of evaluation would have to be done by an agency which takes responsibilityfor assuring that the projects fulfills its objectives and follows up on the evaluation to correct any deficienciesor problems discovered.
(iii) Conclusions
1023. A revision of the project cycle in Ecuador indicates that the insti- tutional structureand many of the procedures are not adequate for a country pursuing a dynamic development policy. The lack of operative national and sectoral plans and the weakness of project preparationand identification procedures within the government have hindered the effectivenessof the national project system. Problems of coordination, the lengthy bureaucratic procedures, the failure to maintain and follow up on projects have all delayed projects and reduced their impact. In some cases these problems could be reduced by streamliningprocedures (such as procedures for disbursing budget - 334 -
allocations)and redefining laws (such as allowing price adjustments in con- tracts and clearly defining the conditions for adjustments). Other problems are related more to the lack of qualified personnel and high rate of turnover of project staff. There is clearly a need for people trained in project management, not just in identificationor preparation,but in supervision, bidding procedures,evaluation. However, training programs in these areas will only be successful if they are combined with measures to attract and retain skilled project staff. This is not simply a question of higher salaries. In some cases where higher salaries were paid to project staff it caused resentment in the rest of the executing agency and isolated the project unit without increasing continuityof staff. As a result of this isolation,the projects did not receive the support of the rest of the agency when needed (for example, support for budgetary allocations). Efforts to improve the staff directing projects have to be combined with the general improvementsin salary levels and training of personnel described earlier and administrative measures to promote continuity. This would also ensure that administrators who originally conceived of and supported the project remain, to lend support during execution. Furthermore,it would be pointless to hire skilled project directors at higher salaries and train them in project management if they are not allowed to act more independently. Measures to give the project director more control and prestige will also better enable him to coordinate other agency contributions.
1024. Problems of coordinationand failure to follow up on projects are related to the deficienciesof coordinationdescribed earlier and to the frag- mentation of responsibilityfor the project'svarious phases among different units and different institutions. One agency or unit should take responsibil- ity for all aspects of the project, including phases which involve other insti- tutions, to plan the inter-dependentwork schedules and the related projects and to communicatewith other public entities that might be involved. If possible, this directing unit should control all funds and project staff.
1025. As far as project preparation is.concerned, the creation of FONAPRE should not lead to the neglect of the in-house capacity for project prepara- tion in the public sector. While FONAPRE has added seven well-prepared projects to Ecuador's projects inventory, the bulk of project preparation is not being done with FONAPRE financing. A number of agencies have the capacity to prepare their own projects and some projects should not require the expense of a consulting firm. Since the creation of FONAPRE, there has been a tendency to cut budgetary allocation for project preparationby the staff of the public institutions(such as INHERI and the Ministry of Public Works). Not only could this slow project preparation (given the time consuming procedures in FONAPRE), but it also could result in a scarcity of smaller, simpler, low-cost projects which are not appropriate candidates for FONAPRE funding. - 335 -
XIII. PUBLIC INVESTMENT
1.- Major Public Sector Investment Projects, 1979-83
1026. Whether or not economic and social developmentcan be given further momentum in the five-year period from 1979 to 1983 depends on the choice of sound public sector invvestmentprojects and on their effi- cient implementation. The public sector's ability to identify and prepare high-priorityprojects has been considerablyenhanced compared with earlier years. There are now a fairly large number of projects in the pipeline for the Government and external aid agencies to consider for financing. There still remain, however, some important shortcomingsin the planning and execution of projects to which reference has been made elsewhere in this report (ref. Chapter XIV).
1027. This chapter of the report presents a list of public sector projects (including some mixed public/privatesector projects) for which external financing may be required during the five-year period (1979-83) (Table 72). These projects are at different stages of identification/preparation,which range from mere project concepts to fully prepared projects practicallyready for implementation. Many projects, particularlythose listed for implementa- tion in 1980 or later will require considerablymore work and planning effort -before they can reach the implementationstage.
1028. ProjectPriorities. The projects list includes some 125 projects, involving a total estimated investment cost of about US$6.8 billion 1/ (with a foreign exchange component of about US$4.3 billion). 1/ It is clear that an investment of such magnitude will exceed by far the public sector's absorp- tive capacity and would strain the -Government'sfinancial resources. Many projects which are listed for implementationduring 1979-80 may well be delayed and some dropped altogether. The list in its entirety does not necessarily reflect the Government'scurrent priorities,at this time, except that some 22 projects in petroleum, road transport, electric power, industry and fisheries sectors which are advanced in preparation and have been singled out for early considerationfor financing by external aid agencies (these projects are identified in the Project Briefs; see references to them in the "Mission's Comment" sections). The Bank Mission has attempted to give the projects listed its own rating ("A", "B", or "C" as indicated in the "Mission's Comment" sections) which are defined as follows:
1/ Preliminary estimates without adequate price and physical contingency provisions.- - 336 -
"A": Projects which, prima facie, appear feasible and worthy of pursuing as priority investments;
"B": Projects which appear to be feasible and can be desirable investment propositionssubject to availabilityof the required investment funds;
"C": Projects which, on the basis of data available at this time, do not appear to be feasible on technical, economic or financial grounds, or may not qualify for financial support at this time.
The Bank Mission, in an attempt to formulate a project-specificfive-year public investment program, has grouped all projects into three broad catego- ries, taking into account the sectoral/subsectoralpriorities advanced in this report, status of preparation of proposed projects and relevant inter- sectoral relationships. Included in the Mission's first category are projects which, in the Mission's judgment, appear to be feasible and should receive priority considerationfor in-depth studies and when justified--financing during the 1979-83 period. The Mission's second category includes projects which, in the Mission's opinion, may also be feasible but should have a some- what lesser priority than those included in the first category. The remaining projects, which constitute the third category, are a mixed group; the Mission' has doubts on their priority or feasibilityon technical, economic or financial grounds. It should be emphasized,however, that this tentative categorization of projects has been made on the basis of the presently available data; the position may change as feasibilitystudies are completed or new economic prior- ities may emerge, or, as new projects--notconsidered in this list--appear feasible and high in the new socio-economicpriorities. It may change also if new projectionsof market conditions alter their economic rate of return. Finally, displacementsof degree of absorptive capacity among public institu- tions as much as general changes in the absorptive capacity of the public sector as a whole may alter seriously the priority ratings established here. So, the Government, as well as potential external lenders, should take the Mission's listing and ranking as highly tentative and subject to further detailed analysis relevant to each project. - 337 -
Table 72: PUBLIC SECTOR INVESTMENTPROJECTS: 1979-83
Est. External Est. Total Financing Est. Year
Cost Required - of Sectors/Projects (US$ million) Commitment
Agriculture
Credit/GeneralAgriculture
AgriculturalStorage and Marketing 20.0 10.0 (?) 1980 Cacao Rehabilitation 30.0 10.0 1979 Oriente Oil Palm 50.0 25.0 (?) 1980 Oilseeds Development 33.0 16.5 1979 LivestockDevelopment 19.8 10.0 (?) 1979 Agriculturaland LivestockDevelopment in Carchi 132.0 24.5 1979 Milk Production 56.7 31.4 1979 Wheat Production 45.0 35.0 1979 Subtotal 385.5 162.4 Forestation
Cotopaxi and Pichincha Forestation 14.3 7.2 n.a.
Irrigation/Drainage
Churute 4.0 3.0 1979 Manuel J. Calle 21.0 10.5 1979 Samborondon 20.0 10.0 (?) 1979 Chaupi-Palama 45.6 25.6 1980 El Artezan-ElAngel-Mira 20.0 10.0 1979 Mocha-Tisaleo-Cevallos 3.6 1.8 1980 Pedro Moncayo 4.4 2.2 1979 Pillaro 12.0 7.2 1980 Pimanpiro 7.2 3.6 1981 Tabacundo 32.0 12.& 1979 Carrizal-Chone 66.0 33.0 1979 Daule-Peripa 220.0 165.0 1980 Santa Elena 150.0 100.0 1979 Jubones 100.0 50.0 1978 Naranjal Siete 32.0 16.0 1981 Rio Jama 42.1 21.5 1979 Subtotal 779.9 472.2 Land Settlement
Puerto IlIa-Chone 40.0 20.0 1979 Nor Oriente Land Settlement 20.0 10.0 1980 San Miguel de Putumayo n.a. n.a. n.a. Subtotal 60.0 30.0 - 338 -
Table 72: (cont'd)PUBLIC SECTOR INVESTMENTPROJECTS: 1979-83
Rural Development
Quininde-Malimpia-Nueva Jerusalem (Esmeraldas) 25.0 12.5 (?) 1980 Tungurahua 56.0 24.2 1978 Latacunga-Salcedo-Ambato 26.9 21.5 1979 Pindo-Calvas 30.0 18.6 1979 Puyo-Gualaguiza 25.0 12.5 (?) 1979 Quimiag-Penipe 9.0 6.7 1980 Zamora-Chinchipe 30.1 14.0 1979 Cayambe 20.0 10.0 1980 IERAC Farm Management 12.1 n.a. Cont. Prog. Subtotal 234.1 120.0 Subtotal (37 projects) 1,474.8 791.8
Air Transport
Quito InternationalAirport 197.0 144.0 1978 Domestic Airports Development (Cuenca, Machala, Coca and Pastaza) 40.0 30.0 1979 Guayaquil InternationalAirport 140.0 112.4 1978
Subtotal (3 projects) 377.0 286.4
Education
Rural Education 36.5 13.2 1978
Subtotal (1 project) 36.5 13.2
Electric Power
Agoyan HydroelectricPower Generation 98.6 70.1 1979 Coca HydroelectricPower Generation,Phase I 800.0 600.0 t?) n.a. EsmeraldasThermoelectric Power Generation 68.8 58.8 1978 Regional Power Subtransmission& Distribution 110.0 60.0 1978 Cuenca ThermoelectricPower Generation 12.0 9.6 1979 Mi.lagroGas ThermoelectricPower Generation 5.0 4.5 1979 Paute TransmissionSystem, Phases C and D 58.2 35.8 1978 Rural Electrification 60.0 45.0 1980 Montufar HydroelectricPower Generation 71.2 50.0 .1980 Paute HydroelectricPower Generation,Phase II n.a. n.a. n.a. Taochi-PilatonHydroelectric Power Generation 451.3 290.7 1979
Subtotal (11 projects) .1,735.1 1,224.5 - 339 -
Table 72: ~ont'd)PUBLIC SECTOR INVESTMENTPROJECTS: 1979-83
Petroleum
La Libertad-Guayaquil Pipeline and Storage Terminals 51.0 45.9 1979 Santa Elena Oil Field Rehabilitation 10.0 9.0 1979 Sacha and ShushufindiFields Water Injection 30.0 27.0 1979 Oil Well Drilling (Tivacuno& Shiripuno) 30.0 25.0 1979 Esmeraldas Refinery Maritime Terminal 53.7 37.6 1978 Petroleum Products Storage Terminals 26.7 16.0 1979 Expansionof EsmeraldasOil Refinery 153.6 122.9 1979 Ammonia Urea Fertilizer 145.0 72.5 (?) 1980 PetrochemicalsComplex 572.0 400.0 1984
Subtotal (9 projects) 1,072.0 755.9
Preinvestment
Project PreparationIII 16.0 13.0 1979 TechnicalAssistance II 12.0 10.0 1980
Subtotal (2 projects) 28.0 23.0
Railways
Railways Rehabilitation 15.0 10.0 1982
Subtotal (1 project) 15.0 10.0
Sea Transport
Purchase of two ships for transportationof petroleum between Ecuador and foreign ports 25.0 24.0 1979 Purchase of four ships for domestic transportationof petroleum 36.0 35.0 1980 Esmeraldas Port, Phase II 24.6 12.3 1980 Expansion of Port of Manta 30.0 13.5 1980 Port of Bolivar Expansion, Phase II 17.2 8.6 1980 Naval Shipyards (ASTINAVE) 177.0 106.2 1981
Subtotal (6 projects) 309.8 199.6
Tourism
Galapagos Islands Conservationand SelectiveDevelopment 10.7 8.6 1978 EsmeraldasHotel 3.1 1.6 1978 Guayaquil Hotel 20.2 10.0 1979 HuaynacabacHotel (Cuenca) 2.9 1.5 1978 National Tourism Development 105.0 52.5 1979
Subtotal (5 projects) 141.9 74.2 - 340 -
Table 72: (cont'd)PUBLIC SECTOR INVESTMNT PROJECTS: 1979-83
Fisheries
Credit for Developmentof Private . FishingFleets 50.0 35.0 1979 Manta Fishing Port -33.0 20.0 1979 PosorjaFishing Port 38.0 23.0 1979 Expansion of Fishing Plant and Equipment of "Empresa Pesquera Nacional" 1.0 0.9 1979
Subtotal (4 projects) 122.0 78.9
Health
Rural Hospitalsand Health Centers 23.5 11.7 1979
Subtotal (1 project) 23.5 11.7
Highways Banos-Puyo 30.0 12.0 1979 Guayaquil-DauleExpressway 28.0 17.0 1978 Hollin-Loreto-Coca Road 13.8 8.3 1979 Quito-Aloag Expressway 24.0 15.0 1979 Sesme-Jama - 10.5 5.3 1978 SIMA-Pedernales Road 17.3 8.7 1978 Cuenca-Azogues Road 20.0 10.0 1979 GuayaquilBeltway 32.0 16.0 1979 Improvementof Manta-PortoviejpRoad 4.0 2.0 1979 Improvementof Roads in El Oro Province 12.0 6.0 1980 Improvementof Nobol-JipijapaRoad 13.0 6.5 1979 Improvementof Quininde-EsmeraldasRoad 10.0 5.0 1980 Improvement of San Juan-Vinces-Palestina Road 12.0 6.0 1980 Loja-Zamora Road 11.0 5.5 1980 Manta-Rocafuerte Road 4.0 2.0 1981 Pifo-Papalacta Road 11.0 4.4 1979 Quininde-Chila Road 6.4 3.2 1979 Quiroga-Pichincha Road 5.9 3.0 1979 Quito Beltway 64.0 32.0 1981
Subtotal (19 projects) 328.9 167.9
Industry
African Palm Oi Development& Processing 21.2 15.0 1978 Cotopaxi Cement 70.0 50.0 1980 PREDESUR-Puyango Cement 60.0 36.0 1981 Ammonium Sulfate (Fertilizer) 5.4 2.7 1979 Cayapas Forestry 92.1 51.3 1979 Latacunga IndustrialPark 6.0 3.0 1979 Productionof Alcohol from Cane Molasses 6.0 4.2 1979 Sugar Mill 40.0 26.0 1979 Automotive Industry 250.0 150.0 1978 IntegratedSteel 350.0 226.8 1979
Subtotal (10 projects) 900.7 565.0 - 341 -
Table 72: (cont'd) PUBLIC SECTOR INVESTMENT PROJECTS: 1979-83
Urban Development
Guayaquil Sites and Services 20.0 12.0 1979 Quito Market Development 6.0 4.0 - 1979
Subtotal (2 projects) 26.0 16.0
Water Supply and Sewerage
Guayaquil Sewerage, Phase II 24.0 17.0 1978 Salinas Sewerage 1.8 1.1 1979 De Daule Sewerage 1.6 1.0 1979 La Libertad Sewerage 2.0 1.2 1979 Milagro Sewerage 4.0 2.4 1979 Santa Elena Sewerage 1.0 0.6 1979 Ambato Sewerage 4.0 2.4 1979 Babahoyo Sewerage 3.2 1.9 1980 Drinking Water for Different Urban Centers of Ambat6 District 2.0 1.2 1979 El Oro Province Water Supply 24.0 14.0 1978 Latacunga Drinking Water 1.2 0.7 1979 Machala Sewerage 4.8 2.9 1979 Quevedo Sewerage 3.6 2.2 1979 Salcedo Sewerage 0.4 0.24 1979 Pita-Tambo Water Supply (Quito), Phase II 121.2 60.6 1980
Subtotal (15 projects) 198.8 109.4
GRAND TOTAL (126 projects) 6,790.0 4,299.16 - 342 -
1029. Sectoral Breakdown. A sectoral breakdown of the projects listed is presented below (in the alphabeticalorder):
Number Total Foreign Exch. of % Cost 1/ % Component 1/ Sectors Projects Total (US$ million) Total (US$ million)
Agriculture 37 29.4 1,474.8 21.7 791.8 Air Transport 3 2.3 377.0 5.6 286.4 Education 1 0.8 36.5 0.5 13.2 Electric Power 11 8.7 1,735.1 25.6 1,224.5 Fisheries/FishingPorts 4 3.2 122.0 1.8 78.9 Health 1 0.8 23.5 0.3 11.7 Highways 19 15.0 328.9 4.8 167.9 Industry 10 7.9 900.7 13.3 565.0 Petroleum 9 7.1 1,072.0 15.8 755.9 Preinvestment 2 1.6 28.0 0.4 23.0 Railways 1 0.8 23.5 0.3 11.7 Sea Transport 6 4.8 309.8 4.6 199.6 Tourism 5 4.0 141.9 2.1 74.2 Urban Development 2 1.6 26.0 0.4 16.0 Water Supply/Sewerage 15 11.9 198.8 2.9 109.5
Total- 126 100.0 6,790.3 100.0 4,327.5
1/ Excluding those for which cost estimates are not yet available and the on-going investments. -
In terms of total number of projects, agriculture,highways, water supply/ sewerage and electric power sectors are prominent. In terms of total costs of investment,electric power, agriculture,petroleum and industry sectors stand out.
1030. Investment Priorities. The Government'sdevelopment objectives in agricultureare to increase agriculturalproduction and to improve economic and social conditions of population living in rural areas. A fairly large number of projects in general agriculture (credit), irrigation and drainage, land settlement,rural developmentand forestry have been identified or prepared. On the whole, however, progress in planning and implementationhas been slow. Of the projects listed, agricultural storage and marketing, cacao rehabilitationand oil palm development projects, Churute, Manuel J. Calle, Samborondonirrigation/drainage projects, Puerta Illa-Chone (Garrapata) and Nor-Oriente land settlement projects, Quininde-Malimpia-Nueva Jerusalem and Tunguruhua rural developmentprojects are considered by the Mission high investment prioritiesat this time. To accelerate the country's exploitation of its potential in fishing development,projects to extend credit to private and Government-owned fishing operators to improve their capital equipment, as well as projects to expand fishing ports, have been identified for priority attention. - 343 -
1031. In the petroleum sector, the immediate priority areas, in the Mission's opinion, are development of the country's productionpotential and utilization of the existing infrastructureto yield maximum productivity. Within this framework, the Mission accords high priority to Esmeraldasoil refinery maritime terminal,petroleum products storage terminals in various ports, and Libertad-Guayaquilpipeline projects (which would maximize the benefits of existing investments),to rehabilitationof two existing oil wells, and to new oil-well drilling in the Oriente. A proposed expansion of the Esmeraldas oil refinery may also be justified. The Mission has consider- able doubts, however, on the priority at this time of a proposed large petro- chemicals complex (see Chapter X above) and of a proposed ammonia urea fertilizer plant.
1032. The Government,assuming an annual 13 percent growth in electricity demand in Ecuador during the next decade, has developed a two-prong approach to meet it. Under a "national interconnectionsystem", a number of hydro- electric and thermoelectricstations will be developed during the 1977-86 period, together with ancillary investments,to generate up to 1,817.4 MW of electric power for INECEL. In addition, "regional electric systems" will be developed mainly for the regional electricity agencies to purchase power from INECEL for distributionto consumers in their service areas. These regional agencies, in appropriatecases, will be allowed to have their own hydroelectricor thermoelectricpower generation plants (138.2 MW in total capacity). The-list of electric power projects, which reflects this basic strategy,.includesa number of large hydroelectricschemes. One of three priority projects (Coca, Paute II and Taochi) should be implementedduring the next five-year period. The Government'sdecision will await completion of the necessary technical and financial studies. Among the other projects listed, Agoyan hydroelectric,Esmeraldas and Cuenca thermoelectric,and Milagro gas thermoelectricgeneration projects, Paute transmission,regional power subtransmissionand distributionprojects and the proposed rural elec- trificationproject are consideredby the Mission fairly high investment priorities.
1033. The Government'smain objectives in promotion of industrialization in Ecuador have been import substitution,increased exports and employment, and more balanced interregionaldevelopment. Traditionally,the Government has relied mainly on private investment, to achieve these objectives and, for this purpose, it has provided tax incentivesand credit for industrialistsand artisans. Increased income from petroleum and creation of the Andean Market have provided additional stimuli. However, equity participationby govern- mental financial entities in selected industrialventures, is becoming more frequent. The industrialdevelopment projects listed in this report broadly reflect the Government's current policy objectives. Among these, the African palm oil project and Cotopaxi and PREDESUR Puyango cement projects are considered by the Mission as high priority investments. The aluminum sulfate (fertilizer), Cayapas forestry, sugar mill, industrial alcohol and Latacunga industrial park projects may also be given fairly high priorities. The Mission has considerable doubts, however, on the priority at this time of two large projects, one concerning the development of an automotive industry and the other for an integrated steel plant (see Chapter X above). - 344 -
1034. Projects in infrastructure,which are included in the projects list, consist of projects for constructionof airports and highways, rail- way rehabilitationand shipping and ports development. Of the three airport developmentprojects, the Mission considers the Quito InternationalAirport a high priority investment. The proposed domestic airports developmentprogram may also justify priority. On the other hand, development of a second new internationalairport in Guayaquil does not seem to command priority at this time. The existing land transportationsystem, including transportation services, basicallymeet current demands for transport in Ecuador. However, costs are relatively high and investmentdecisions in various subsectors require coordinationat both planning and project preparation stages. Improvementof road access to major cities, especially to Quito and Guayaquil, is needed. Development of sea ports has to be harmonizedwith complementaryland transport. But secondary and feeder road systems deserve the highest priority in this subsector being essentialbasic condition of regional and rural development and given the relative lack of attention they have received in the past. Several projects listed are responsiveto these needs. On the other hand, the Mission has considerabledoubt on the priority of a proposed railway rehabili- tation project which is included in the projects list. There is at present a congestion at Ecuador'smajor ports partly due to a steeply increased volume of traffic in recent years. The Government is implementingprojects to expand the capacity of the Esmeraldas and Bolivar ports. It also plans to increase the port capacitiesby adding new or expanded landing and storage areas, new terminals and additionalport-equipment at the ports of Manta, Bolivar and Esmeraldas. Projects related to these ports, as well as to purchase of ships for petroleum shipmentsand to building of a much reduced naval shipyard, are included in the projects list;-they deserve priority consideration. (A high priority project for a Libertad-Guayaquilpetroleum pipeline is included among the petroleum sector projects). -
1035. Ecuador, while possessing important natural and historical attrac- tions, has not yet developed much of its tourism potential. The projects list contains is an interestingproject designed to develop the country's unique Galapagos region as a "natural museum." There are listed, also, a few hotel schemes and a proposed "national tourism development project" which requires further planning and preparation.
1036. The projects list includes only a few projects in the social sector (education,public health and urban development),-mainlybecause of the Government'spreference to finance such projects with domestic resources. The few education, health and urban development projects which are included in the list are of high priority. The projects list also includes several water and sewerage projects, most-of them small, which deserve high priority (excepting the large Pita-Tambowater supply project I).
1037. Finally, Ecuador still needs considerableexternal assistance in preinvestmentfield and the two projects, included in the projects list for this purpose, are high investment priorities. - 345 -
2. A Projects-SpecificFive-Year Public InvestmentProgram, 1979-83
1038. Based on the projects reviewed and within the framework of the -Mission'sanalysis of Ecuador's sectoral prioritiesand public finance capacities during the next five-year period, a projects-specificpublic sector investmentprogram has been prepared. It is presented in Table 73. All projects listed therein are selected out of the projects which are included in the Mission's first and second project categories as described in para. 1171 above. Some adjustments are made in project sizes or in phasing of proposed investmentsduring the 1979-83 period.
ContingencyProvisions
1039. Except for the electric power sector, where it is understood that adequate physical and price contingencieshave been added to costs of proposed projects, a flat 25 percent contingency provision has been added to costs of projects in all sectors, in an effort to present a more realistic project costs structure. It is understood that practice in various Ecuadorian Government Departments in respect of cost contingencyprovisions for projects differ considerably. In some sectors (such as highways and water and sewerage) and in the case of some agriculturaldevelopment projects, some provision (albeit inadequate)is made for contingencies. It is considered by the Mission that a flat 25 percent allocation in Table 73 would even out these differencesas far as overall cost estimates and annual cost of total invest- ments are-concerned. At a later stage, accurate contingencyprovision for each project has to be provided before any commitment can be made.
1040. Additional Projects. Provision has been made in Table 73 for costs of "ongoing projects" (i.e. projects already approved for execution or projects in execution); these provisionsare based essentiallyon the JUNAPLA records and the Mission's own estimates. Provision has also been made for "new projects" which may subsequentlybe approved for execution, after satisfactory completion of the necessary feasibility studies. These projects may come essentially from the list of low priority (priority "C") projects according to the Mission's priority rating at this time. It is assumed that this category of projects would become significant in 1982 and, particularly,in 1983.
1041. Proposed Program. Listed below is a summary of the proposed 1979-83 public investmentprogram by sector; details of projects, with annual alloca- tions, are presented in Table 73: - 346 -
Number of % Total Projects Total ! Cost Total !(US$ million)
Agriculture 23 23.0 ! 726.7 14.7 Air Transport 2 2.0 ! 285.6 5.8 Education 1 1.0 ! 287.0 5.8 Electric Power 7 7.0 ! 800.1 16.2 Fisheries/FishingPorts 4 4.0 ! 235.3 4.7 Highways 19 19.0 ! 468.2 9.5 Industry 8 8.0 ! 380.1 7.8 Petroleum 7 7.0 1 580.1 11.7 Preinvestment 2 2.0 ! 51.5 1.0 Public Buildings ! 181.4 3.4 Public Health 1 1.0 ! 293.5 5.9 Sea Transport/Ports 6 6.0 1 150.3 3.0 Tourism 4 4.0 ! 67.5 1.4 Urban Development 2 2.0 ! 243.7 4.9 Water Supply/Sewerage 14 14.0 ! 203.0 4.1
TOTAL 100 100.0 I 4,954.0 100.0
1042. The total investment cost (about US$4.9 billion) for the five-year period includes provisions for contingencies,costs of ongoing projects and ''newinvestments". The annual amounts of capital expenditure (in current US$ million), which range between US$680,900 in 1979 and US$1,128,500in 1983, are in harmony with the aggregate amounts of the capital expenditure recommended in Chapter VI of this report, taking into account the Mission's analysis of Ecuador's financial resources and its absorptive capacity during the next five-year period.
1043. Sectoral Breakdown. The sectoral allocationsreflect the general sectoral priorities set forth in this report. The availabilityof high- priority projects has also been a determining factor. In total number of projects, agriculture/fisheries, highways and water supply/sewerageare the prominent sectors. In terms of total amount of'investmentcost, agriculture/ fisheries (19.6 percent), electric power (16 percent), and petroleum (11.8 percent) are the major investment sectors. The highways (8.8 percent), industry (7.7 percent), public health (6 percent), education (5.8 percent), air transport (5.8 percent) and urban development (5.0 percent) are also prominent investment sectors. The projects component of the proposed invest- ment program reflects informationwhich is available to the mission at this time; as project feasibilitystudies are completed in future, there may be need and justificationfor adjustments in the projects composition. - 347 -
Table 73: PUBLIC SECTOR INVESTMENTPROGRAM, 1979-83 TOTALEXPENDITURE BY SECTORS SUMMARY
Estimated Expenditure (US$ '000) 1979 1980 1981 1982 1983 Total
1. Agriculture 44,148 99,037 161,954 204,864 216,740 726,743 2. Air Transport 25,625 37,937 50,250 74,875 96,938 285,625 3. Education 25,314 48,183 62,707 73,779 77,006 286,989 4. Electric Power 118,203 171,616 189,573 182,111 138,634 800,137 5. Fisheries/FishingPorts 32,777 28,819 44,130 62,115 67,430 235,271 6. Highways 64,958 105,366 118,563 90,954 97,464 477,305 7. Industry 20,162 42,375 99,950 106,638 110,925 380,050 8. Petroleum 77,240 128,337 125,688 121,188 127,600 580,053 9. Preinvestment 3,000 6,000 13,500 13,750 15,250 51,500 0. Public Buildings 52,531 28,292 27,530 31,977 41,105 181,435 1. Public Health 55,978 43,047 54,219 60,281 80,000 293,535 2. Sea Transport/Ports 46,573 10,477 17,573 27,573 48,104 150,300 3. Tourism 3,065 1Q,989 16,412 17,950 19,106 67,522 4. Urban Development 59,781 44,586 41,940 46,065 51,354 243,726 5. Water/Sewerage 26,172 35,377 43,993 46,672 50,572 202,966
TOTAL 655,527 840,438 1,067,982 1,160,792 1,238,408 4,9b3,147
"Leads and Lags" +25,37-3 -55,138 -162,082 -115,892 -109,908 -417,647
Total Adjusted Capital Expenditures 680,900 785,300 905,900 1,044,900 1,128,500 4,545,500 - 348 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENTPROGRAM, 1979-83 TOTALEXPENDITURE BY SECTORS
1. Agriculture Sector
Estimated Expenditure (US$ '000) 1979 1980 1981 1982 1983 Total
Storage and Marketing - - 2,000 4,000 6,000 12,000 Cacao Rehabilitation 3,000 6,000 9,000 9,000 3,000 30,000 Oil Palm (Oriente) - - 5,000 7,500 10,000 22,500 Oilseed Development - 13,200 19,800 - - 33,000 Churute Irrigation - 800 1,800 1,400 - 4,000 Manuel J. Calle - 2,100 3,150 4,200 6,300 15,750 Samborondon - 2,000 4,000 6,000 .5,000 18,000 Chaupi-Palama - 4,560 6,840 9,120 20,520 El Artezan-ElAngel-Mira - 2,000 4,000 8,000 6,000 20,000 Mocha-Tisaleo-Cevallos - - 360 720 1,440 2,520 Pedro Moncayo - 440 880 1,760 1,320 4,400 Pillaro - 1,200 2,400 3,600 7,200 Pimanpiro - - 1,440 3,240 4,680 Tabacundo 3,200 6,400 9,600 9,600 28-,800 Puerto Illa-Chone 4,000 8,000 16,000 12,000 40,000 Nor Oriente Land Settlement - - 2,000 3,000 4,000 9,000 Quininde-Malimpia-Nueva Jerusalem - 2,500 3,750 5,000 11,250 Tungurahua 5,600 8,400 11,200 16,800 8,400 50,400 Latacunga-Salcedo - 2,690 2,690 4,035 4,035 13,450 Pindo-Calvas - 3,000 6,000 9,000 9,000 27,000 Puyo-Gualaguiza - 2,500 3,250 5,000 7,500 18,250 Quimiag-Penipe - - 900 900 1,350 3,150 Zamora-Chinchipe - 3,010 6,020 12,040 9,030 30,100
Subtotal 8,600 53,340 104,710 133,385 125,935 425,970 Contingencies 2,150 13,335 26,177 33,346 31,484 106,492 Ongoing Projects 23,398 17,362 11,067 8,133 9,321 69,281
Subtotal 34,148 84,037 141,954 174,864 166,740 601,743 New Projects 10,000 15,000 20,000 30,000 50,000 125,000
Total Agriculture 44,148 99,037 161,954 204,864 216,740 726,743 349 -
Table 73: (cont'd) PUBLIC SECTOR INTVESTMENTPROGRAM, 1979-83 TOTAL EPENDITURE BY SECTORS
2. Air Transport Sector
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total uito Airport 19,700 29,550 39,400 59,100 29,550 177,300 omestic Airports - - - - 8,000 8,000
Subtotal 19,700 29,550 39,400 59,100 37,550 185,300 Contingencies 4,925 7,387 9,850 14,775 9,388 46,325
Subtotal 24,625 36,937 49,250 73,875 46,938 231,625 New Projects 1,000 1,000 1,000 1,000 50,000 54,000
Total Air Transport 25,625 37,937 50,250 74,875 96,938 285,625
3. Education Sector
Lural Education 3,650 5,475 7,30U 10,950 5,475 32,850
Subtotal 3,650 5,475 7,300 10,950 5,475 32,850 Contingencies 912 1,369 1,825 2,738 1,369 8,213 Ongoing Projects 19,752 40,339 52,582 50,091 30,162 192,926
Subtotal 24,314 47,183 61,707 63,779 37,006 233,989 New Projects 1,000 1,000 1,000 10,000 40,000 53,000
Total Education 25,314 48,183 62,707 73,779 77,006 286,989 - 350 -
Table 73: (cont'd) PUBLIC SECTOR INVESTbENT PROGRAM, 1979-83 TOTAL EXPENDITUREBY SECTORS
4. Electric Power Sector
Estimated Expenditure (US$ '000)- Projects 1979 1980 1981 1982 1983 Total
Agoyan Hydroelectric - 19,720 44,370 34,510 - 98,600 Esmeraldas Thermoelectric 6,880 13,760 27,520 20,640 - 68,800 Regional Power Distribution 11,000 22,000 33,000 33,000 11,000 110,000 Cuenca Thermoelectric - 2,400 5,400 4,200 - 12,000 Milagro Gas Thermoelectric - 1,000 2,250 1,750 - 5,000 Paute Transmission 11,640 26,190 20,370 - - 58,200 Rural Electrification - - 6,000 12,000 24,000 42,000
Subtotal 29,520 85,070 138,910 106,100 35,000 394,600 Contingencies Ongoing Projects 87,683 85,546 49,663 26,011 3,634 252,537
Snubtotal - 117,203 170,616 188,573 132,111 38,634 647,137 New Projects 1,000 1,000 1,000 50,000 100,000 153,000
Total Electric Power 118,203 171,616 189,573 182,111 138,634 800,137
5. Fisheries/FishingPorts Sector
Credit for Private Fisheries - 5,000 10,000 15,000 15,000 45,000 Manta Fishing Port - 3.,300 6,600 13,200 9,900 33,000 Posorja Fishing Port - 3,800 7,600 15,200 11,400 38,000 Expansion of Empresa Pesquera - 360 540 - - 900
Subtotal - 12,460 24,740 43,400 36,300 116,900 Contingencies - 3,115 6,185 10,850 9,075 .29,225 Ongoing Projects 31,777 12,244 12,205 6,865 2,055 65,146
Subtotal 31,777 27,819 43,130 61,115 47,430 211,271 New Projects 1,000 1,000. 1,000 1,000 20,000 24,000
Total Fisheries/Fishing 32,777 28,819 44,130 62,115 67,430 235,271 Ports - 351 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENT PROGRAM, 1979-83 TOTAL EXPENDITURE BY SECTORS
6. Highway Sector
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total
Banos-Puyo - 12,000 18,000 - - 30,000 Guayaquil-Daule 11,200 16,800 - - - 28,000 Hollin-Loreto-Coca - 2,760 6,210 4,830 - 13,800 Quito-Aloag 4,800 10,800 8,400 - - 24,000 Sesme-Jama 4,200 6,300 - - - 10,500 Suma-Pedernales 6,920 10,380 - - - 17,300 Cuenca-Azogues - 4,000 9,000 7,000 - 20,000 Guayaquil Beltway 6,400 14,400 11,200 - 32,000 Manta-Portoviejo 800 1,800 1,400 - 4,000 Road Improvement in El Oro - - 2,400 5,400 4,200 12,000 Nobol-Jipijapa - 2,600 5,850 4,550 - 13,000 Quininde-Esmeraldas - - 2,000 4,500 3,500 10,000 Saa Juan-Vinces-Palestina - - 2,400 5,400 4,200 12,000 Loja-Zamora - - 2,200 4,950 3,850 11,000 Kanta-Rocafuerte - - - 1,600 2,400 4,000 Pifo-Papalacta - 4,400 6,600 - - 11,000 Quininde-Chila - 640 1,280 2,560 1,920 6,400 Quiroga-Pichincha - 1,180 2,655 2,065 - 5,900 Quito Beltway - 6,400 12,800 25,600 44,800
Subtotal 27,120 79,060 89,595 68,255 45,670 309,700 Contingencies 6,780 19,765 22,399 17,064 11,417 77,425 Ongoing Projects 30,058 5,541 1,569 635 377 38,180
Subtotal 63,958 104,366 113,563 85,954 57,464 425,305 New Projects 1,000 1,000 5,000 5,000 40,000 52,000
Total Highways 64,958 105,366 118,563 90,954 97,464 477,305 - 352 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENT PROGRAM, 1979-83 TOTAL EXPENDITUREBY SECTORS
7. Industry Sector
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total
African Palm Oil Processing 2,120 2,120 3,180 3,180 4,240 14,840 Cotopaxi Cement - - 14,500 31,500 24,500 70,500 Predesur Cement - - 6,000 12,000 18,000 Ammonium Sulfate Fertilizer - 2,160 3,240 - - 5,400 Cayapas Forestry 9,210 18,420 36,840 27,630 - 92,100 Latacunga Industrial Park - 1,200 2,700 2,100 - 6,000 Alcohol from Molasses - 1,200 2,700 2,100 - 6,000 Sugar Mill 4,000 8,000 16,000 12,000 - 40,000
Subtotal 15,330 33,100 79,160 84,510 40,740 252,840 Contingencies 3,832 8,275 19,790 21,128 10,185 63,210
Subtotal- 19,162 41,375 98,950 105,638 50,925 316,050 New Projects 1,000 1,000 1,000 1,000 60,000 64,000
Total Industry 20,162 42,375 99,950 106,638 110,925 380,050 - 353 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENTPROGRAM, 1979-83 TOTALEXPENDITURE BY SECTORS
8. Petroleum Sector
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total
Santa Elena Oil Fields - 2,000 4,500 3,500 - 10,000 Sacha and Shushufindi Fields - 12,000 18,000 - - 30,000 Esmeraldas Terminal 21,480 32,220 - - - 53,700 Libertad-Guayaquil Pipeline 10,200 22,950 17,850 - - 51,000 Oil Well Drilling - 12,000 18,000 - - 30,000 Petroleum Storage Terminals 2,670 5,340 10,680 8,010 - 26,700 Expansion of Oil Refinery - 15,360 30,720 61,440 46,080 153,600
Subtotal 34,350 101,870 99,750 72,950 46,080 355,000 Contingencies 8,588 25,467 24,938 18,238 11,520 88,751 Ongoing Projects 34,302 1,000 1,000 - - 36,302
Subtotal 77,240 128,337 125,688 91,188 57,600 480,053 New Projects - - - 30,000 70,000 100,000
Total Petroleum 77,240 128,337 125,688 121,188 127,600 580,053
9. Preinvestment Sector
FONAPRE III - 3,200 7,200 5,600 - 16,000 FONAPRE II - - 2,400 5,400 4,200 12,000
Subtotal - 3,200 9,600 11,000 4,200 28,000 Contingencies - 800 2,400 2,750 1,050 7,000 Ongoing Projects 3,000 2,000 1,500 - - 6,500
Subtotal 3,000 6,000 13,500 13,750 5,250 41,500 New Projects - - - - 10,000 10,000
Total Preinvestment 3,000 6,000 13,500 13,750 15,250 51,500 - 354 -
Table 73: (cont'd)PUBLIC SECTOR INVESTMENTPROGRAM, 1979-83 TOTAL EXPENDITUREBY SECTORS
10. Public Buildings
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total
Ongoing Projects 51,531 27,292 12,530 6,977 6,105 104,435 New Projects 1,000 1,000 15,000 25,000 35,000 77,000
Total Public Buildings 52,531 28,292 27,530 31,977 41,105 181,435
11. Public Health Sector
Rural Health Centers 4,700 10,585 8,225 - 23,500
Subtotal 4,700 10,585 8,225 - 23,500 Contingencies 1,175 2,644 2,056 - 5,875 Ongoing Projects 54,978 36,172 40,000 35,000 30,000 196,150
Subtotal 54,978 42,047 53,219 45,281 30,000 225,525 New Projects 1,000 1,000 1,000 15,000 50,000 68,000
Total Public Health 55,978 43,047 54,219 60,281 80,000 293,525 - 355 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENT PROGRAM, 1979-83 TOTAL EXPENDITURE BY SECTORS
12. Sea Transport/PortsSector
Estimated Expenditure.(US$'000) . Projects 1979 1980 1981 1982 1983 Total
Purchase of (two) Ships I 25,000 - - - - 25,000 Purchase of (four) Ships II - - 7,200 16,200 12,600 36,000 Naval Shipyard - - - 2,000 4,000 6,000 Esmeraldas Port II - - - - 6,000 6,000 Manta Port - - 1,000 2,000 4,000 7,000 Bolivar Port - - - - 3,440 3,440
Subtotal 25,000 - 8,200 20,200 30,040 83,440 Contingencies 6,250 - 2,050 5,050 7,510 20,860 Ongoing Projects 14,823 9,477 6,323 1,323 554 32,500
Subtotal 46,073 9,477 16,573 26,573 38,104 136,800 -NewProjects 500 1,000 1,000 1,000 10,000 13,500
Total Sea Transport/Ports 46,573 10,477 17,573 27,573 48,104 150,300
13. Tourism Sector
Galapagos Development 1,070 1,605 2,140 3,210 1,605 9,630 Esmeraldas Hotel 1,240 1,860 - - - 3,100 Guayaquil Hotel - 4,040 9,090 7,070 - 20,200 HuaynacabacHotel - 1,160 1,740 - - 2,900
Subtotal 2,310 8,665 12,970 10,280 1,605 35,830 Contingencies 578 2,166 3,242 2,570 401 8,957 Ongoing Projects 77 58 100 100 100 435
Subtotal 2,965 10,889 16,312 12,950 2,106 45,222 New Projects 100 100 100 5,000 17,000 22,300
Total Tourism 3,065 10,989 16,412 17,950 19,106 67,522 - 356 -
Table 73: (cont'd) PUBLIC SECTOR INVESTHENTPROGRAM, 1979-83 TOTAL EXPENDITUREBY SECTORS
14. Urban Development Sector
Estimated Expenditure (US$ '000) 1979 1980 1981 1982 1983 Total
Guayaquil Sites and Services - 4,000 9,000 7,000 - 20,000 Quito Markets Development - 600 1,200 2,400 1,800 6,000
Subtotal - 4,600 10,200 9,400 1,800 26,000 Contingencies - 1,150 2,550 2,350 450 6,500 Ongoing Urban Projects 52,453 35,506 26,933 18,474 19,000 152,366 Ongoing Municipal Projects 6,828 2,830 1,257 841 104 11,860
Subtotal 59,281 44,086 40,940 31,065 21,354 196,726 New Projects 500 500 1,000 15,000 30,000 47,000
Total Urban Development 59,781 44,586 41,940 46,065 51,354 243,726 - 357 -
Table 73: (cont'd) PUBLIC SECTOR INVESTMENTPROGRAM, 1979-83 TOTALEXPENDITURE BY SECTORS
15. Water Supply/Sewetage Sector
Estimated Expenditure (US$ '000) Projects 1979 1980 1981 1982 1983 Total
De Daule Sewerage 640 960 - - - 1,600 Guayaquil Sewerage II 2,400 3,600 4,800 7,200 3,600 21,600 La Libertad Sewerage 800 1,200 - - - 2,000 Milagro Sewerage - 1,600 2,400 - - 4,000 Salinas Sewerage - 360 810 630 - 1,800 Santa Elena Sewerage - 400 600 - - 1,000 Ambato Sewerage - 1,600 2,400 - - 4,000 Babahoyo - - 1,280 1,920 - 3,200 Ambato Drinking Water - 800 1,200 - - 2,000 El-Oro Water Supply 2,400 4,800 7,200 7,200 2,400 24,000 Latacunga Drinking Water - 1,200 - - - 1,200 Machala Sewerage 960 2,160 1,680 - 4,800 Quevedo Sewerage 1,440 2,160 - - 3,600 Salcedo Sewerage 400 - - - 400
Subtotal 6,240. 19,320 25,010 18,630 6,000 75,200 Contingencies 1,560 4,830 6,252 4,658 1,500 18,800 Ongoing Projects (Sewerage) 11,181 8,671 4,426 4,426 3,140 31,844 Ongoing Projects (Drinking Water) 6,691 2,056 7,805 3,958 112 20,622
Subtotal 25,672 34,877 43,493 31,672 10,752 146,466 New Projects 500 500 500 15,000 40,000 56,500
Total Water Supply/Sewerage 26,172 35,377 43,993 46,672 50,752 202,966 - 358 -
3. Project Briefs
1044. Presented in the followingpages are summary data regarding major public sector investment projects for which external financingmay be required during 1979-83 (ref. paras. 1030 - 1037 above). To indicate the Mission's classificationof projects into first, second or third categories (para. 1028), (1), (2) or (3), respectively,is included in the "Mission's comment" sections at the bottom of each project brief.
(Accordingly,the necessary changes will be made in project briefs as above.) - 359 -
(Agriculture)
New Project
Project Name: AgriculturalStorage and Marketing
Location: Country-wide
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: Approximately$20.0 million
External Financing Required: To be determined
Expected Year of Commitment: 1980
Purpose of the Project: To improve marketing, conservationand distribution of agriculturalproducts through provision of better storage and marketing facilities and crop forecasting.
Project Description: The project would include storage facilities, parti- cularly in rural areas, and regional wholesale markets. Provision would also be made for strengtheningof crop forecastingand marketing information.
Present Status: Following advice by an FAO/IBRD mission regarding the feasibilityof the proposed project, terms of reference for consultantsfor studies were prepared by the Ministry of Agriculture and Livestock, ENAG and FONAPRE. FONAPRE may finance the studies under an IBRD technical assistance loan.
Execution Period: About five years.
Mission's Comment: Priority rating "A". The IBRD may consider the proposed project for its financing in 1980-81. - 360 -
(Agriculture - Credit)
Project Name: Cacao Rehabilitation
Location: Country-wide
Executing Agency: Ministry of Agriculture and Livestock/ National Agricultural Development and Diversi- fication Program
Total Estimated Cost: $30.0 million
External Financing Required: $10.0 million (foreign exchange component)
Expected Year of Commitment: 1979
Purpose of the Project: To increase cacao production through rehabilitation and renovation of orchards; to increase cacao ex- port and foreign exchange earnings; to create employment.
Project Description: The project will help finance a program for replanting and rehabilitation of 32,500 ha. of cacao orchards. Some 4,000 ha. have already been replanted and rehabilitated with USAID financing. The project components would be the following:
(a) Rehabilitation-and replanting: Supported by development credits, work would be carried out according to the program indicated below:
Year Rehabilitation Replanting Total
1978 1,500 ha. 3,000 ha. 4,500 ha. 1979 2,000 " 5,000 " 7,000 " 1980 3,000 " 6,000 " 9,000 " 1981 4,000 " 8,000 " 12,000 "
Rehabilitation costs per hectare would be $320; replanting costs per hectare would be $720. - 361 -
(b) Technical assistance to farmers to improve farming techniques including pest control and replanting;
(c) Provision of equipment for maintenance of feeder roads;
(d) Marketing services;
(e) Institutional development (strengthening of the National Agricultural Development and Diversification Program to better administer the project).
The estimated project cost would be: million
Rehabilitationand Renovation 19.2 Technical Assistance 0.8 Equipment for Feeder Roads 0.3 Marketing Services 0.3 Institutional Development 0.2
Total $20.8
Present Status:. This is an on-going program. For the project, it is proposed that FONAPRE finance a feasi- bility study by international consultants (under the existing IBRD technical assistance loan to it) which may take 9-12 months to finalize.
Execution Period: About four years.
Mission's Comment: The mission accords a high priority (priority "A") to this project. The IBRD may consider it for its financing. -362-
(Agriculture - Credit)
New ProJect
Project Name: Oriente Oil Palm
Location: Napo Province
ExecutingAgency: Ministry of Agriculture and Livestock
Total Estimated Cost: Approximately$50.0 million (tentative estimate).
External Financing Required: To be determined
Expected Year of Commitment: 1980
Purpose of the Project: To develop oil palm growing and processing in the Oriente to meet increased demand for vegetable oils within .thecountry and-to increase incomes-and :employmentof the project beneficiaries.
Project Description: -The.maincomponents of the project would be a centralplantation of.about 5,000 ha. plus some 2,000 outgrowers in the areas of spontaneous settlement. Provision would be made for an oil palm mill and refinery.
Present Status: There is adequate.basicinformation to show that oil palm can be,grown in the Oriente. Location of the development area and preparation of the necessary feasibility studies still to be done.
Execution Period: About six years.
Mission's Comment: Priority rating: "A". The:IBRD may consider this project.for financing in 1980-81. - 363 -
(Agriculture - Credit)
Project Name: Oilseed Development'
Location: Country-wide
Executing Agency: Ministry of Agriculture and Livestock/ National Agricultural Development and Diversification Program
Total Estimated Cost: $33.0 million
External Financing Required: $16.5 million
Expected Year of Commitment: 1979
Purpose of the Project: To increase cultivation of short-cycle oilseeds, with a view to meeting the country's demand of edible oils and fats and reducing its dependence on imports.
Project Description: With USAID financing, some 18,000 ha. of land has already been planted with oilseeds. For total self-sufficiency in oilseeds, a further area of 80,000 ha. will have to be planted. As a first phase of the program, a four-year planting is proposed under which a total area of 27,120 ha. would be planted 'according to the following schedule:
1977 4,860 ha. 1978 5,760 ha. 1979 8,340 ha. 1980 8,160 ha.
The proposed project would cover the 1979 and 1980 plantings.
Present Status: This is an on-going program. Provision has been made under IBRD technical assistance loan to FONAPRE for preparation of the necessary feasibility studies.
Execution Period: About two years. - 364 -
Mission's Comment: The program began in 1973 with USAID financing and has had reasonablesuccess. Additional funds are needed to continue with the program for which the mission's priority rating is "B". - 365 -
(Agriculture - Credit)
Project Name: Livestock Development
Location: Country-wide (Sierra, Pacific Coast and Oriente regions)
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $19.8 million
External Financing Reguired: To be determined
Expected Year of Commitment: 1979, subject to availability of finance.
Purpose of the Project: Per capita milk consumption in Ecuador decreased from 64.9 liters in 1974 to about 59.8 liters in 1977. The government has adopted, as an important policy objective, an increase in domestic production of milk for higher consumption and substitution for imports. The project would result in significant increases in incomes of low and medium-size farmers. It would also aim at some institutional development concerning the Ministry of Agriculture and Livestock.
Project Description: The project will .promote development of 1,062 milk farms by means of' special loans to be administered by "Banco Nacional de Fomento." These farms will extend over 30,060 ha. of land in the following geographical areas:
(a) 1,011 farms in the Sierra region (20 and 50-ha. models);
(b) 51 farms in Pacific coast and the Oriente regions (40 and 100-ha. models).
Present Status: A feasibility study will be conducted.
Execution Period: Five years. - 366 -
Mission's Comment: The main component of this project would be medium and long-term credit, a large part of which would be obtained through the existing IBRD and IDB agricul- tural credit project loans in Ecuador. There would be additionalneeds, however, to train and equip incrementalcredit/extension staff as required to execute the proposed project. In IBRD agricultural credit lending operationsin Ecuador, the Central Bank Trust Fund (rather than Banco Nacional de Fomento) has been used as the main intermediaryto rediscountmedium and long-term subloans granted by eligible lending institutionsto the beneficiaries. The Central Bank Trust Fund has been responsible for repaymelitof the Bank loan on behalf of the Government. The mission's priority rating of this project is "C". - 367 -
(Agriculture - Credit)
Project Name: Agriculturaland Livestock Development in Carchi
Location: Carchi Province
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $132 million
External Financing Required: At least $24.5 million (foreign exchange component)
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To increase farm output and productivityand thereby to improve the standard of living of farmers in the Carchi Province. The project would benefit about 30,000 people and develop about 35% of the total cultivable land area of the province (18,191ha.)
Specific project objectives are the following:
(a) Increases in production of potatoes, beans green peas and maize; (b) Increases in farm productivityand livestock population; (c) Development of livestock (in 1972 farms with a total area of 6,300 ha.); (d) Pasture dev&lopment (over 4,020 ha. during the first three years of the project execution); (e) Purchase of 1,779 milking cows.
Project Description: The main componentsof the project would be:
(a) Agriculture:
(i) Mechanization (purchaseof 23 tractors); (ii) Pest control; (iii) Use of fertilizers; (iv) Seed development,etc.
(b) Livestock:
(i) Fodder development; (ii) Pasture development; (iii) Watering facilities;mechanization; animal health services. - 368 -
(c) Raising of "cuyes" (guinea pigs?)
(i) A breeding station for "cuyes" (with a capacity of 660); (ii) Distributionof "cuyes" to farming families (10 "cuyes" each).
(d) Training: 104 courses to accommodate about 3,680 farmers for training on subjects such as:
(i) Farm management (basic law, cooperatives accounting and other farm management topics); (ii) Agriculturaland livestock technology (fertilizers,sowing, animal health, pest control, etc.); (iii) Home economics.
(e) Marketing: Arrangementsfor selling of potatoes direct by farmers to wholesalers,assisted by use of a rented warehouse in Quito. (Depending on its success, the scheme could be expanded.)
Estimated internal rate of return of the project would be high.
Present Status: An investment study has been prepared.
Execution Period: About 10 years.
Mission's Comment: See comment regarding the "Livestock Development project" on the-availabilityof externally financed credit funds in Ecuador. Mission's priority rating of this project: "C". - 369 -
(Agriculture - Credit)
Project Name: Milk Production
Location: Pichincha, Cotopaxi, Azuay, Chimborazo, Loja Carchi, Imbabura, Tungurahua, Canar and Bolivar Provinces.
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $56.7 million
External Financing Required: $31.4 million (foreign exchange costs)
Expected Year of Commitment: 1979
Purpose of the Project: To increase milk production in Ecuador through assistance to develop small and medium-size farmers. The project would involve setting up of some 1,062 milk farms.
Project Description: The project would provide for:
(a) increase in alfalfa growing by 6,695 ha. over a four-year period;
(b) improvement in alfalfa growing over 23,365 ha. in a period of three years;
(c) increase in breeding stock by 7,942 milking cows and 836 bulls;
(d) increases in milk production (1,065,573,700 liters) and sales of dairy cattle (209,967 heads);
(e) improvements in farm yields and incomes in the designated areas.
The "Banco Nacional de Fomento" would lend funds to farmers for development of milk farms according to the following guidelines:
(a) During the first four years of development, up to 80% of total investment costs (for "20-ha. model" or "50-ha. model" farms); - 370 -
(b) During the first two years of development,up to 80% of total investment costs (for "40-ha. model" or "50-ha. model" farms);
(c) Interest rate in both cases will be 12% p.a.
Present Status: An investment study has been completed.
Execution Period: About four years.
Mission's Comment: See comment regarding the "livestock development project." Mission's priority rating: "C". - 371 -
(Agriculture - Credit)
Project Name: Wheat Production
Location: Carachi, Inbabura, Pichincha, Cotopaxi, Tungurahua, Chimborazo, Bolivar, Canar, Azuay and Loja Provinces
Executing Agency: Ministry of Agricultureand Livestock
Total Estimated Cost: $45 million
External Financing Required: $35 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To increase production and yields of wheat and there- by to raise per capita income of wheat farmers in the project areas. The project would also help improve wheat marketing system, particularly for the benefit. of small and medium farmers, an would lessen Ecuador's dependence on imported wheat.
The specific objectives of the proposed project are:
(a) To increase wheat prodution from about I million quintals to 2.8 million quintals by the ninth year of the project operations; also, to increase the productivityfrom 21 quintals per ha. to 32 quintals per ha;
'(b) To establish eight regional warehouses for improved wheat storage and marketing;
(c) To hold domestic wheat prices at remunerative levels by means of governmental intervention, as necessary.
Project Description: The proposed project would include the following major components:
(a) Credit: Credit would be provided through the banking system to inance up to 80% of develop- ment costs by wheat farmers. To increase the effectiveness of credit, technical assistance would be provided by means of: (i) visits to farms by extension workers; (ii) ad hoc trainina sessions for farmers. - 372 -
(b) Training: -Some 152 courses would be organized for 3,840 farmers and 720 technicians over a three-yearperiod. The courses would focus on cooperatives,crop raising, livestock development,mechanization, farm management, marketing, and other related subjects.
(c) Marketing: Through the system of regional warehouses, wheat would be purchased from farmers, cleaned, dried, sorted, packed and marketed. The capacity of each warehouse would be between 10,000 and 20,000 quintals.
A high internal rate of return is estimated for the project.
Present Status: A prefeasibilitystudy has been prepared.
Execution Period: About 10 years.
Mission's Comment: See comment regarding the "livestock project" on the availabilityof externally financed credit funds in Ecuador. The mission's priority rating of-the proposed project is "C". It is understood that the IDB may initiate a much smaller project in the Cayambe area. - 373 -
(Agriculture - Forestation)
Project Name: Cotopaxi and Pichincha Forestation
Location: Cotopaxi and Pichincha Provinces
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $14.3 million
External Financing Required: $7.2 million
Expected Year of Commitment: Forestationwork over 1,000 ha. has started as a pilot project. Start of main works will depend on availabilityof external finance.
Purpose of the Project: To build-forestsover 50,000 ha. of land in Cotopaxi and Pichincha Provinces. Trees to be grown will be mainly of pine family which grows quickly in the project area. The project will allow:
- production of timber to replace imports; - production of raw material for the paper industry; - improvementsof the ecological conditions in the project area; and - increased employment in the project area which is largely undeveloped. It is estimated that the project would require an input of manpower in excess of 12,300 man-years, plus about 300 agriculture and forestry specialists.
Project Description: Trees to be planted will include pinus radiata, pinus patula and pinus pinaster varieties. Other species may be added depending on the outcome of research and experimentation.
Forestationworks would be located within the 100 km. radius of a sawmill which would be erected to process the forestry output. Land owners in the project area would be provided with long-term, low-interestloans to carry out forestationwork. - 374 -
Present Status: A pilot project extending over 1,000 ha. has started. It would be extended over 50,000 ha. when finance is available.
Execution Period: About 10 years.
Mission's Comment: Economic rate of return of the proposed project requires particular attention. Foreign exchange component is likely to be low. Mission's priority rating: "C". - 375 -
(Agriculture - Irrigation/ Drainage)
Project Name: Churute
Location: Guayas Province
Executing Agency: INERHI (InstitutoNacional Ecuatoriano de Recursos Hidraulicos),a governmentalagency which is charged with developing and managing of irrigation projects in Ecuador. Administratively,it is controlled by the Ministry of Agriculture and Livestock.
Total Estimated Cost: $4.0 million
External Financing Required: $3.0 million
Expected Year of Commitment: 1979
Purpose of the Project: Agriculturaldevelopment through irrigation.
Project Description: The project would be located in the area Taura. The total surface to be irrigated is about 6,000 hectares, with access through Boliche-PuertoInca Road. The irSigation system will carry a water volume of 4 m Is at Puerto Inca, a section of the Canar river. It will serve eight cooperatives settled in the area, with about 2,000 families.
Present Status: A prefeasibilitystudy by INERHI is expected to be completed in 1978. The final design will be prepared during 1979.
Execution Period: The execution period is estimated at three years.
Mission's Comment: Priority rating: "A". Together with Samborondon, M.J. Calle and Mata de Cacao projects, the Churute project may constitute an "interim" project (Guayas I) as basis for an IBRD loan during 1979/80. - 376 -
(Agriculture - Irrigation/ Drainage)
Project Name: Manuel J. Calle
Location: Canar and Guayas Provinces
ExecutingAgency: INERHI
Total Estimated Cost: $21 million
External Financing Required: $10.5 million
Expected Year of Commitment: 1979
Purpose of the Project: Agriculturaldevelopment by improving the existing irrigation systems.
Project Description: The project would be located in southeast of the Manuel J. Calle district. The area is humid with an annual median temperatureof 24.6 C, suitable for banana, cacao and sugarcane cultivationand for.pastures. There exist in the project area:
(a) a main canal, (b) distributionsystem, (c) tertiary canal systems.
The main canal has a capacity of 12 m/sec. and is 6,160 meters of length; the distributionsystem has two canals, Vainillo and Manuel J. Calle, of 28,500 meters and 9,500 meters, respectively;tertiary canal systems start from the Vainillo Canal, of 4,000 meters; and from Manuel J. Calle, of 2,300 meters. The work remaining to be completedunder the proposed project includes 2,400 (net) hectares to be put under irrigation.
Present Status: A feasibility study was prepared by INERHI. Final design studies will be prepared during 1978.
Execution Period: The execution period is estimated at seven years.
Mission's Comment: Priority rating: "A". Together with Samborondon, Churute and Mata de Cacao projects, the Manuel J. Calle project may constitute an "interim" project (Guayas I) as basis for an IBRD loan during 1979/80. - 377 -
(Agriculture - Irrigation/ Drainage)
Project Name: Samborondon
Location: Guyas Province
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $20.0 million (tentativeestimate)
External Financing Required: To be determined
Expected Year of Commitment: 1979
Purpose of the Project: Increased agriculturalproduction and improved physical and social infrastructurein Urbina Jado-Samborondonareas.
Project Description: The project area, about 30,000 hectares, has a median elevation of 1,000 m. and median temperature of 250C. 50-60,000 inhabitantswould benefit from the project which is designed to increase production of rice and other crops and to provide the inhabi- tants with better access to physical and social infrastructure.
Present Status: Prefeasibilitystudies undertaken by Ministry of Agriculture,INIAP and INERHI are scheduled for completion by the end of 1978.
Execution Period: Five years.
Mission's Comment: Priority rating: "A". Together with M.J. Calle, Churute and Mata de Cacao projects, the Samborondonproject may constitute an "interim" project (Guayas I) as basis for an IBRD loan during 1979-80. - 378 -
(Agriculture - Irrigation)
Project Name: Chaupi-Palama
Location: Cotopaxi Province
Executing Agency: INERHI
Total Estimated Cost: $45.6 million
External Financing Required: $25.6 million
Expected Year of Commitment: 1980
Purpose of the Project: To irrigate about 14,200 ha. (net) of land on both sides of the Cutuchi River to benefit about 6,000 farmers. The project would result in an increase in the cultivablearea; it would also improve crop yields and would bring about general economic and social advancement.
Project Description: The project wouXd use water from Pucara hydroelectric plant, plus I m /s of additional water from the Yanayacu River. The amount of water from the Pucara plant3would be a residue after allocating a fixed amoung (3 m /s) for the Pillaro irrigation scheme. The main canals which would carry water for the Chaupi-Palamaproject will be about 70 km. long.
The project would include:
(a) constrrctionof a water intake (for an average 13.2 m Is) from Pucara; (b) a 3,500 m. long tunnel (10 m3/s capacity)between Pucara and the regulatory pond;
(c) a water regulation dam in Muyuso Quebada 3 (200 m. long, 30 m. high and with a 500,000 m capacity);
Present Status: A project feasibilityreport has been prepared. A feasibility study by INERHI started in 1978 and is scheduled for completion by 1979. The design - work would be completed in 1980. - 379 -
Execution Period: About six years (1981-86).
Mission's Comment: Priority rating: "B". - 380 -
(Agriculture - Irrigation)
Project Name: El Artezan-El Angel-Mira
Location: Carchi Province
Executing Agency: INERHI
Total Estimated Cost: $20 million
External Financing Required: $10 million
Expected Year of Commitment: 1979, subject to the availability of finance.
Purpose of the Project: To increase agricultural production by irrigation.
Project Description: The project is designed to irrigate about 2,500 hectares of land within the San Gabriel-El Angel districts. The irrigation works would be based on water from Carchi, San Gabriel and El Angel rivers. Two small dams for storage would be built.
Present Status: A prefeasibility study of the project was undertaken in 1965. The design work is scheduled for completion in 1978.
Execution Period: The project execution period is estimated to be four years.
Mission's Comment: Priority rating: "B" - 381 -
(Agriculture- Irrigation)
Project Name: Mocha-Tisaleo-Cevallos
Location: Tungurahua Province
Executing Agency: INERHI
Total Estimated Cost: $3.6 million
External Financing Required: $1.8 million
Expected Year of Commitment: 1980
Purpose of the Project: To increase agriculturalproduction by irrigation.
Project Description: The project is intended to irrigate 3,090 hectares of land in the vicinity of Mocha and Tisaleo town- ships. The irrigationwater would be derived from the Mocha and Quebrada Olalla rivers. The project 0 area has a median temperature of 11.4 C and a relative humidity of 80%.
Present Status: A feasibility study of the project will be under- taken by the INERHI during 1979. The design work would be completed in 1980.
Execution Period: The project exectftionmay take four years (1981-83).
Mission's Comment: The cost estimate may be too low. It is advisable that the project design should include adequate provision for on-farm development,extension and marketing services. Considerationmay also be given to include in the project some rural develop- ment components. This would require close collaborationbetween INERHiIand the Ministry of Agriculture and Livestock. The mission's priority rating of the project: "B". - 382 -
(Agriculture - Irrigation)
Project Name: Pedro.Moncayo
Location: Pichincha Province
ExecutingAgency: Ministry of Agricul-tureand Livestock (Direccion de Desarrollo Rural)
Total Estimated Cost: $4.4 million
-ExternalFinancing Required: $2.2 million
Lxpected Year of -Commitment: 1979, subject to availability of finance.
-Purposeof the Project: To improve the living conditions of poor rural inhabitants of :the,PedroMoncayo country..
Project.Description: The project is-designedto: (a) irrigate 15,000 hectares of land; (b) -promotebetter land utili- zation; (c) reduce high unemployment,and (d).control contagious.diseasesand waste of resources (mainly land).
Present Status: The project is at an.early stage of definition a.andpreparation.
Execution Period: About1four yeaLs.
Mission's Comment: Priority rating: "B" - 383 _
(Agriculture - Irrigation)
Project Name: Pillaro
Location: Tungurahua Province
Executing Agency: INERHI
Total Estimated Cost: $12.0 million
External Financing Required: $7.2 million (estimated foreign excfrangecost)
Expected Year of Commitment: 1980
Purpose of the Project: Based on a hydroelectricscheme in Pucara on Yanayacu River, the project would help irrigate approximately 7,800 ha. (net) of land in Guapante, Chaupi-Rosario and Teran areas. It wold increase crop yields by as much-as two folds, with resultant increases in farm incomes. About 1,400 farming families would benefit.
Project Description: The project would include: (a) a water intake at Pacaes with up to 18.6 m /sec. capacity. This water would be used by both Pillaro and Chaupi-Palamairrigation projects;
(b) a 3.00 x 3.00 m. wide and 600 m. long caeal to take water to a dividing point where 3 m Is of water would be taken for She Pillaro project and the remainder (15.6 m /s or less) would be left for the Chaupi-Palamoproject; and
(c) 7.5 km. of tunnels (2.00 x 2.00 m.) to the irrigation areas.
Present Status: A prefeasibilitystudy was prepared by Harza Engineering in 1971. Detailed engineeringstudies were prepared by Italconsult in 1973. Additional work to update feasibility studies and final design work are expected to be completed in 1978 and 1979, - 384 _
respectively. This project and the Huachi-Pilileo and Quero projects constitute the main components of the Tungurahua Province irrigation plan.
Execution Period: About five years (1981-84)
Mission's Comment: It is advisable that the project design should include adequate provision for on-farm develop- ment, extension and marketing services. Considerationmay also be given to include in the project some rural developmentcomponents. This would require close collaborationbetween INERHI and the Ministry of Agriculture and Livestock. The mission's priority rating of the project: "B". - 385 -
(Agriculture- Irrigation)
Project Name: Pimanpiro
Location: Imbabura Province
Executing Agency: INERHI
Total Estimated Cost: $7.2 million
External Financing Required: $3.6 million
Expected Year of Commitment: 1981
Purpose of the Prolect: Increased agricultural production by irrigation.
Project Description: The project provides for irrigationof 4,000 hectares of land in the area of Pimanpiro and Ambuqui townships. The water would be derived from the Pisque river, Puruhuante lagoon and the Chamacham river. The project area has an average elevation of 2,000 meters above the sea level, with a median temperatureof 180C and relative humidity of 80%.
Present Status: A prefeasibilitystudy of the project was undertaken in 1976. A feasibility study by INERHI is scheduled for completion in 1979 and the design work for 1980.
Execution Period: The project would-be executed over three years.
Mission's Comment: Priority rating: "B". - 386 -
(Agriculture- Irrigation)
Project Name: Tabacundo
Location: Pichincha-Province
Executing Agency: INERRI (InstitutoNacional Ecuatoriano de Recursos Hidraulicos)
Total Estimated Cost: $32 million
External Financing Required: $12.8 million (estimatedforeign exchange cost)
Expected Year of Commitment: 1979
Purpose of the Project: To irrigate about 14,000 ha. of land in Pedro Moncayo and Cayambe districts which are the nearest agricul- tural areas to Quito and provide the capital with its supply of vegetables, meat, milk and other food items. There exist about 1,840 farms and 13,500 -- - inhabitants in the project area.
Project Description: The-project would:
(a) riaisethe stor ge capacity of the San Marcos Lake to 40 h m by means of a 30-m. - high dam;
(b) extend a 4.6-km. tunnel from the San Marcos Lake to Chimba-River;
(c) construct a dam in Olmedo (at a distance of 2 km. from Olmedo City);
(d) build a main irrigation system of 42.5 km (16.1 km. of tunnels and the remainder in the form of canals) to irrigate 12,500 ha. of land;
(e) tap undergroundwater sources to provide irrigation -wateradequate for 1,500 ha. of land; and
(f) construct roads (155 km.) and drainage system (135 km.).
The estimated internal rate of return of the project is 26.9%; it would create 5,000 new jobs. - 387 -
INERHI will be completed Feasibilitystudies by Status: work in 1979. Present in 1978 and the design
About five years. Execution Period: Mocha-Tisaleo-Cevallos comment regarding the Comment: See scope. The mission's Mission's project about the project priority rating: "B". - 388 -
(Agriculture- :Irrigation)
Project Name: Carrizal-Chone
Location: Manabi Province
ExecutingAgency: CRM (Centro de Rehabilitacionde Manabi)
Total Estimated Cost: $66 million
External Financing Required: $33 million
Expected Year of Commitment: 1979
Purpose of the Project: The primary objective of the project is to regulate the Carrizal River water flow during rainy season to reduce flooding of the.lower.basin. A dam with 400-m 3 /H capacity will be constructedto control the flow and to irrigate an area of 18,000 ha. during dry season.
Project Description: Under a first phase of the project, a 35-m. high dam-will be constructed. During construction,the Carrizal River will be diverted through a tunnel of 220.m. long and 1.6 meters in diameter. During rainy -season,the excess water will be diverted .into.atunnel of.283 m-.long and 4 m. in diameter. Under a second phase project, an irrigation system to cover 18,000 ha. would be .completed. The project would also include constructionof a permanent road between Quiroga and the dam, and service roads to the spillway and diversion tunnel.
Present Status: Feasibilitystudies were prepared during 1977. Final design studies are expected to be completed in 1978.
Execution Period: About four years.
Mission's Comment: Priority rating: "C" - 389 -
(Agriculture- Irrigation/ Drainage)
Project Name: Daule-Peripa
Location: Guayas Province
Executing Agency: CEDEGE (Comisionde Estudios para el Desarrollo de la Cuenca del Rio Guayas)
Total Estimated Cost: $220 million (for dam only); total cost: probably $400 m.
External Financing Required: $165 million (for dam only)
Expected Year of Commitment: 1980, subject to availabilityof finance.
Purpose of the Project: To provide for irrigation,drainage and flood control works in the Daule/Peripabasin; power generation; and drinking water supply for the city of Guayaquil.. The project, extending over an area of about 32,000 km2, would benefit approximately2 million people. Some 90% of the annual rain in the project area falls during the January - May period. The project-wouldallow year-round crop raising by irrigation,with increased production and diversity of crops.
Pro ect Description: The project will include:
(a) Daule-PeripaDam over the Daule River, near its confluence with the Peripa River: The dam will be 80 m. high and 250 m. long, with a storage capacity of 5,400 million cubic meters. It will have two control towers of 9 m. diameter (1,700 m3 /s) and three gates (17 m. wide and 8.53m. high), with a maximum capacity of 3,500 m /s;
(b) Lateral dikes amounting to 12 km. in total- length, of various heights up to 15 m. (average: 10 m.);
(c) Power House: Four generators of 65,000 KW each, together with ancillary equipment; - 390 -
(d) Balzar Dam: A dam built on the Daule River, 10 km. from Balzar City, after the confluence of the Daule and Puca rivers.
Under a first stage of development,irrigation, flood control and drainage works over an average of 30,000 ha. will be provided on both sides of thn Daule River. In addition,water at a rate of 54 m Is will-be extracted from the Daule River foi diversion to the Santa Elena Peninsula (about 44 m /s of it for agriculturalu9e over an area of 50,000 ha.) and the remainder 10 m /s to provide drinking water for the city of Guayaquil.
Present Status: (a) A feasibilitystudy on the Daule-Peripadam will be completed by 1978;
(b) A feasibilitystudy on Balzar dam will be completed by 1979;
(c) A feasibilitystudy on the proposed irrigation and drainage system over 30,000 ha. of land has been completed. A flood control study is under way;
(d) A feasibilitystudy on water extractionfrom the Daule River for diversion to Santa Elena Peninsula has been completed.
Execution Period: About four years.
Mission's Comment: The project requires major investment of financial and manpower resources. The mission's priority rating: "C". Alternative investment opportunities in the lower Guayas, with lower cost per hectare than the Daule River development,should be considered before a commitment on Daule-Peripa project as proposed. - 391 -
(Agriculture- Irrigation/ Drainage)
Project Name: Santa Elena
Location: Guayas Province
ExecutingAgency: CEDEGE Direccion de Desarrollo Rural
Total Estimated Cost: $150 million
External Financing Required: $100 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To raise the standard of living of population in Santa Elena Peninsula through irrigation,land reform, agriculturaldiversification and improved economic and social infrastructure.
2 - Project Description: The project area, 34 km. in total, is located a El Chongon-Playasand Azucar-Sube and Baja. It has a median elevation of 300 m. and an annual median temperatureof 24.50C. The main crops at present are cotton, watermelon, soya beans and tomatoes. It is planned that a dam at El Chongon will be constructedby 1979 with local financing. A total area of 50,000 ha. will be brought into production by irrigation through a diversion of the Daule River. The proje6t area has good potential for agriculturaldiversification; cattle, sugarcane, oilseeds and other crops can be raised in addition to those raised at present. The project would include land distributionfeatures, create new employment and provide for physical and social infrastructure. About 440,000 people may benefit from it.
Present Status: Prefeasibilitystudies are being prepared by Centros de Estudios iydrograficos (Spain) under a technical assistance grant by the Spanish Government. Final design of the El Chongon Dam is being done by CEDEGE. The feasibility study of the total project area will be prepared by Centros de Estudios Geograficos during 1978. - 392 -
Execution Period: About five years.
Mission's Comment: Priority rating: "C". Alternative investment opportunities with lower cost per hectare should be considered. - 393 -
(Agriculture- Irrigation/ Drainage)
Project Name: Jubones
Location: Oro Province
Executing Agency: INERHI
Total Estimated Cost: $100 million
External Financing Required: $50 million
Expected Year of Commitment: 1978
Purpose of the Project: Agriculturaldevelopment in the lower basin of the Jubanes River through drainage and irrigation. The project will also have flood control and hydro- electric energy components.
Project Description: The project area will cover about 55,000 ha, consisting of the lower Jubones Basin with slopes of 0.15% and good potential for growing bananas, cacao and other tropical crops. The upper Jubones Basin area, 30 km. long, has gentle slopes and lesser agricultural potential. The project will include provision for control of the flow of the Jubones River. The irri ation system will have a total capacity of 47 m3/s. The main irrigation canals will be 40 km. long. The project will generate hydroelectricpower for most of the Oro Province through the construction of a dam. The project, as a whole, will benefit 4,500 people.
Present Status: Feasibility studies on the project were prepared by internationalconsultants and INERRI during 1976. Additional work is being carried out by INERHI and consultants to integrate the project components. Final design was completed in 1977. Work was initiated during 1977 to construct the drainage system.
Execution Period: About six years.
_ission'sComment: This is a major undertaking to enhance multi- sectoral development in the lower Jubones basin. The number of beneficiaries seem to be low as related to the total estimated expenditure. Mission's priority rating of the project: "C". - 394 -
(Agriculture - Irrigation)
Project Name: Naranjal Siete
Location: El Oro Province
Executing Agency: INERHI
Total Estimated Cost: $32 million
External Financing Required: $16 million
Expected Year of Commitment: 1981
Purpose of the Project: To increase agricultural production by use of underground and surface waters.
Project Description: The project provides for irrigation of 75,000 hectares of land falling between the Naranjal river in south and Siete river in north. The townships of Tengel, Pence Enriquez, Balao Grande, Balao Chico, Jesus Maria and Naranja would benefit from the irrigation works. The 0 project area has a median temperature of 25.2 C, suitable for increased production of maize, rice, bananas, cacao and other crops and livestock.
Present Status: A feasibility study is scheduled to start in 1978 for completion by 1980.
Execution Period: The project execution may take four years (1981-84). An IDB soft loan of $260,000 was made in 1970 f-or preinvestment studies.
Mission's Comment: Priority rating: "C". - 395 -
(Agriculture- Irrigation/ Drainage)
Project Name: Rio Jama
Location: Manabi Province
Executing Agency: CRM (Centrode Rehabilitacionde Manabi)
Total Estimated Cost: $42.1 million
External Financing Required: $21.5 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: Regulation of the flow of the Jama river, irrigation power generation and drinking water supply in the area of the Sucre district.
Project Description: The project is designed to regulate the river flow, irrigate 4,550 hectares of land, to generate 10,800 KW of electric power and to provide drinking water for Sucre. The project may benefit 40,000 people of which 25,000 live in rural areas and 15,000 in urban areas.
Present Status: Prefeasibilitystudies will be arranged.
Execution Period: Four years (1980-W3)
Mission's Comment: The project is in an early stage of development. The mission's priority rating: "C". - 396 -
(Agriculture- Land Settlement)
Project Name: Puerto Illa-Chone (Garrapata)
Location: Pichincha and Manabi Provinces
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $40 million
External Financing Required: $20 million
Expected Year of Commitment: 1979
Purpose of the Project: Rural development to support existing spontaneous settlements in the Upper Guayas River basin with a view to increase productivityand to raise income levels of families living in the project area.
Project Description: The proposed constructionof the Puerto Illa- Garrapata Road will open an approximately100,000- 150,000 ha. of land to agriculturaldevelopment and will facilitate marketing of crops in major .distributionareas. Through credit and extension services, the project will increase production of livestock, coarse grains, oilseeds and African palm. It may include components on agriculturalextension, credit, water supply, sewerage, education and marketing. Feeder roads would be financed under an existing IBRD highway loan.
Present Status: The project came about as a part of the study by the Tams-Astec group in February 1975 related to the Puerto Illa-Garrapataroad project. A feasibility study on it will be prepared by ASTEC, together with other consultants as required, for completion by April 1979 (being financed under IBRD highway project).
Execution Period: About four years.
Mission's Comment: Priority rating: "A". The project may be considered for the IBRD financing by IBRD during 1979-80. - 397 -
(Agriculture - Land Settlement)
New Project
Project Name: Nor Oriente Land Settlement, Phase I
Location: Napo Province
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $20.0 million
External Financing Required: $10.0 million
Expected Year of Commitment: 1980
Purpose of the Project: To support ongoing spontaneous settlement in the Lago Agri-Coca area of the Napo Province. The overall area to be assisted by the project would be 200,000-300,000ha. and the number of estimated project beneficiariesabout 5,000 families out of which some 1,500 families would receive direct benefits.
Project Description: The project would be the first of a number of projects for settlement. The main project components are likely to be feeder roads, social infrastructure, land titling, agriculturalextension and credit.
Present Status: Several socio-economicstudies carried out by the Ministry of Agriculture and Livestock and INIAP provide informationbase for plantation of a development plan for the project area. About a year would be required to prepare a project feasi- bility study by the government technicians,assisted by outside consultants.
Execution Period: About few years.
Mission's Comment: Priority rating: "A". The IBRD may consider this project for financing in 1980-81. - 398 -
(Agriculture - Land Settlement)
Project Name: San Miguel de Putumayo
Location: Napo Province
Executing Agency: IERAC-CAME
Total Estimated Cost: To be determined
External Financing Required: To be determined
Expected Year of Commitment: To be determined
Purpose of the Project: Settlement of new land.
Project Description: The project is designed to settle about 360 families in various climatic zones of the Napo Province over 18,000 hectares of land. The project area has 3200 m.m. of rain a year in average and 25 C median annual - - temperature. It is served by Quito-Lago-Agrico-Rio San Miguel roads.
Present Status: A feasibility study by IERAC was completed in 1977.
Execution Period: To be determined.
Mission's Comment: Project is at an early stage of identification. The mission's priority rating: "C". - 399 -
(Agriculture - Rural Development)
Project Name: Quininde-Malimpia-NuevaJerusalem (Esmeraldas)
Location: Esmeraldas Province
Executing Agency: Ministry of Agriculture
Total Estimated Cost: $25.0 million
External Financing Required: To be determined
Expected Year of Commitment: 1980
Purpose of the Project: To support spontaneouscolonization in tropical lowlands, northwest of Santo Domingo de los Colorados. Likely project components: feeder roads, social infrastructure,land titling, extension.
Project Description: The project will provide for increased production and productivity,employment and better provision of basic social and physical infrastructure(health, education, roads). It would benefit 50-60,000 rural inhabitants over an area of 15,000 hectares. The project area is tropical,with a median elevation of 2,800 m. and median temperatureof 25 deg. C.
Present Status: Basic informationneeded for project formulation is being compiled by a governmentalworking group which is being assisted by FAO. A feasibility study will be prepared within six months.
Execution Period: About five years.
Mission's Comment: Priority rating: "A". The project may be consideredfor an IBRD loan during 1980-81. - 400 -
(Agriculture- Rural Development)
Project Name: Tungurahua
Location: Tungurahua Province
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $56.0 million
External Financing Required: $24.2 million
Expected Year of Commitment: 1978
Purpose of the Project: To provide economic and social development in the Tungurahua project through increased agricultural production;better infrastructureand improved social services. The project would improve living conditions of the rural poor in one of the densely. populated parts of the country.
Project Description: The project would include interrelatedinvestments in infrastructure,agricultural credit, production support measures and social services. Beneficiaries would be about 15,800 families in a total area of about 30,000 ha. About 9,600 ha. of this area would be irrigated. Provision would be made for increased extension services, production credits, farm-produce collection centers and organizationof farmers' cooperatives. Paramo grasslands, which have a high potential for agriculturalproduction, would be developed. Feeder roads would be built to connect unaccessibleparts of these areas to main centers. Potable water, latrines, health facilities and community centers would be included.
Present Status: Feasibilitystudies are completed. The project was appraised in February 1978 by an IBRD mission for a proposed IBRD loan of about $17.5 million.
Execution Period: About six years.
Mission's Comment: Project priority rating: "A" - 401 -
(Agriculture - Rural Development)
Project Name: Latacunga-Salcedo-Ambato
Location: Cotopaxi and Tungurahua Provinces
Executing Agency: Ministry of Agriculture and Livestock
Total Estimated Cost: $26.9 million
External Financing Required: $21.5 million
Expected Year of Commitment: 1979; subject to availability of external finance.
Purpose of the Project: To elevate living standards of poor farmers in the Latacunga-Salcedo-Ambato areas through land redis- tribution, formation of cooperatives and provision of some social amenities.
Project Description: The project area would extend over 59,000 ha. with some 56,000 inhabitants. Land holdings are fragmented and farmers' standard of living is quite low. There is need for land redistribution and development of improved farming techniques. The project would provide for these, as well as for improved physical amenities such as drinking water and community centers. Some 103 cooperatives or other forms of producers' associations would be formed.
Present Status: A feasibility study was completed in 1976 by the Ministry of Agriculture and Livestock. A diagnostical study is now under way.
Execution Period: The proposed program would be implemented over a 15-year period.
Mission's Comment: The IDB, in 1977, made a loan of $11.7 million for irrigation development on 7,140 ha. of land in the Latacunga, Salcedo and Ambato districts. In finalizing the proposed rural development project, particular attention should be given to how the activities under the project would complement the investment in irrigation under the IDB-financed project. The mission's priority rating: "B". - 402 -
(Agriculture - Rural Development)
Project Name: Pindo-Calvas
Location: Loja Province
Executing Agency: PREDESUR (Subcomision de Desarrollo de las Provincias del Sur)
Total Estimated Cost: $30 million
External Financing Required: $18.6 million
Expected Year of Commitment: 1979
Purpose of the Project: To promote integrated development of the Pindo-Calvas Basin through programs to increase production and employment to improve standard of living of the rural poor, and to conserve natural resources in the area.
Project-Description: The project area, which extends over 82,000 ha., is near the Peruvian border. The population (about 30,000 people) is rural. There has been a steady flow of emigrants from the area to major urban centers in the country. The land holdings are mostly small plots (1 to 5 ha. each).
The project components would be the following:
Directly Productive Sectors Land clearing and preparation, Crop raising and agricultural development over Pastures and cattle improvement an area of 50,000 Ha. Forestry Irrigation Fish Culture Artesan Industries
Social Sectors Rural education Health
Technical Assistance PREDESUR has begun some preliminary work in the project area; forest nurseries are being established, aiming at 30,000 ha. of forestation over a 10-year - 403 -
period; fish culture ponds (13 as part of a 100-unit program); irrigation,feeder roads, agricultural research,rural education and potable water system improvementsare under way.
Present Status: PREDESUR began the program in 1974 and has so far financed it out of its own budget. Feasibility studies are in preparationby PREDESUR.
Execution Period: About five years.
Mission's Comment: Priority rating: "B" - 404 -
(Agriculture - Rural Development)
Project Name: Puyo-Gualaguiza
Location: Santiago and Porte sur Pertazo-
Executing Agency: Ministry of Agriculture - CREA (Centro de Reconversion Economica del Azuay, Canar y Morona Santiago)
Total Estimated Cost: Approximately$25.0 million
External Financing Required: To be determined
Expected Year of Commitment: 1979
Purpose of the Project: To improve agriculture-andliving standards in the areas of Gualoquiza,Limon Indoza, Sucuia, Puyo Morona and Polora.
Project Description: The project area, about 500,000 hectares, is mainly tropical with a median elevation of 2,000 m. and median humidity of 240 C. About 50,000 inhabitants would be affected by the project. The project would-include components to promote better land utilization,expanded credit, increased employment (agriculturaland non-agricultural),infrastructure and social services.
Present Status: The project is at an early stage of identification and preparation. A prefeasibilitystudy will be undertaken by CREA in December 1978.
Execution Period: About seven years.
Mission's Comment: *Priorityrating: "B" - 405 -
(Agriculture - Rural Development)
Project Name: Quimiag-Penipe
Location: Chimborazo Province
ExecutingAgency: Ministry of Agriculture and Livestock
Total Estimated Cost: $9 million
External Financing Required: $6.7 million
Expected Year of Commitment: 1980
Purpose of the Project: To increase agriculturalproduction and productivity, and to promote social development, through improved physical and social infrastructure,production credits and expanded technical services. The project will benefit about 13,000 people in the Chimborazo Province.
Project Description: The proposed project will include provisions for:
(a) Infrastructure: improved supplies of drinking water, sanitation services,health services, housing accommodation,roads, irrigation water and electricityservices;
*(b) Production Credits: loans for increased production of agriculturalcrops, forestry exploitationand livestock development. These loans would have maturities of up to 15 years, including grace periods of up to seven years; special loans for milk production, covering up to 80% of the total project cost, would be provided. Land reform and community farms developmentwould be encouraged;
(c) Technical Services: expanded government services in support of agriculturalproduction (extension services) and marketing (market places); training courses for farmers in agriculture and health care. - 406 -
Under the project, farms with 0.5-5 ha. would be assisted. Sixty milk farms would be developed with 300 ha. of alfalfa; 4,440 ha. of pine forests and 3,000 ha. of eucalyptus forests would be developed.
The allocationof funds under the proposed project would be as follows:
(a) Infrastructure: $360,000; (b) Production loans: $6.8 million; (c) Equipment and supplies: $356,000; (d) Salaries for administrativeand technical personnel: $1.2 million; (e) Courses for technical advancement: $380,000.
Present Status: Feasibility studies were prepared in 1975 by the Ministry of Agriculture and Livestock and Office of Rural Development. These are being reviewed to make them more responsive to the internationallending agencies' requirements.
Execution Period: About 10 years.
Mission's Comment: In reviewing of the feasibility reports, particular attention should be given to improving data on soils, farm models, marketing and cost estimates (including- foreign exchange costs). The mission's priority rating of the project: "B". - 407 -
(Agriculture - Rural Development)
Project Name: Zamora-Chinchipe
Location: Zamora-ChinchipeProvince
Executing Agency: PREDESUR (Subcomisionde Desarollo de las Provincias del Sur)
Total Estimated Cost: $30.1 million
External Financing Required: $14 million
Expected Year of Commitment: 1979
Purpose of the Project: Integrated rural developmentwith emphasis on increased production and incomes, higher employment, better utilization of human and natural resources and increased economic, social and cultural opportu- nities for the rural inhabitantsin the province.
Project Description: The project provides for constructionof about 200 km. of roads, building of 23 school rooms, four health centers, community centers and other facilities. The project would benefit about 25,000 people of which about 22,500 would be rural residents.
Present Status: Feasibility studies by PREDESUR were to be completed by mid-1978. The IDB is expected to finance the project.
Execution Period: 4 years.
Mission's Comment: Priority rating: "B" - 408 -
(Agriculture - Rural Development)
Project Name: Cayambe
Location: Pichincha and Imbabura Provinces
ExecutingAgency: Ministry of Agriculture
Total Estimated Cost: $20.0 million
External Financing Required: $10.0 million
Expected Year of Commitment: 1980
Purpose of Project: To improve living standards of rural population in the Cayambe and Tabacundo areas, by an increase in agriculturalincomes and increased employment in industry.
Project-Description: In the project area of 50,000 hectares, the Govern- ment plans to: (a) increase the size of farming plots by consolidatingthe existing fragmented plots and by redistributionof land to establish economicallyviable farming units to help low- income families; (b) create a small industrial park to release pressure on agriculturalemploy- ment in the project area; (c) establish a pilot district for land conservationin sloped areas exposed to erosion; and (d) water services, for domestic and irrigation purposes, parallel to redistributionof land. The project is intended to overcome the present pattern of very small farming unit, with inadequate crops, land erosion and low productivityand incomes. To increase the income levels of poor families, farms that are at present underutilizedwould be redistributed.
Present Status: Feasibility studies are planned to begin during 1978.
ExecutionPeriod: The execution period of the proposed project may be up to ten years.
Mission's Comm-ent: The project has still be to clearly defined and prepared. The mission's priority rating: "C". - 409 -
(Agriculture - Rural Development)
Project Name: IERAC Farm Management
Location: Various Provinces
Executing Agency: IERAC (Instituto Ecuatoriano de Reforma Agraria Y Colonizacion)
Total Estimated Cost: $12.1 million
External Financing Required: n.a.
Expected Year of Commitment: Continuing program.
Purpose of the Project: Agricultural development and reconstruction of lands taken over by, or transferred to IERAC.
Project Description: This program is implemented on a country-wide basis under the Government's "agricultural reform act". Methods and project components vary depending on the location. IERAC collaborates with other agencies to secure supplementary works.
Present Status: The program is in abeyance due to a lack of finance.
Execution Period: Continuing program.
Mission's Comment: IERAC still has to gain experience in farm management. Beneficiaries of land reform programs need assistance in access to training, credits, etc., which may be made available under various on-going programs. The mission's priority rating of the project: "C". - 410 -
(Air Transport)
Project Name: Quito InternationalAirport
Location: Pichincha Province
Executing Agency: Direccion de Aviacion Civil (NationalCivil Aviation Agency)
Total Estimated Cost: $197 million
External Financing Required: $144 million
Expected Year of Commitment: 1978, subject to availabilityof finance.
Purpose of the Project: To provide the city of Quito with a new and larger airport to respond to internationaland domestic air traffic demands and to be in operation 24 hours a day. The existing airport is too close to the ci-tyand permits operationsonly during daytime.
Project Description: The project would be located at Puembo, on a relativelyflat plateau at a distance of approxi- mately 30 km. from Quito. It would have the following components:
(a) Airfield: A 4,300-m. runway strip with parallel airfield layouts;
(b) Terminal complex: passenger terminal, auto- mobile parking, flight center, support facilities and on-airportaccess roadways;
(c) Civilian plane park: the exact size and configurationto be determined. (An area of 100 ha. will be reserved for developmentof military facilities.) - 411 -
Estimated Costs: $ Million
Land acquisition 10.4 Access highway 34.3 Utilities 4.2 Site preparation 25.0 Airfield development 46.7 Navigation and landing aids 3.7- Terminal area development 70.1 Internal access and vehicle parking 2.6
Total $197.0
After completion of the new airport, the existing airport would be closed and its land would be sold for urban development. It is expected that the land sales would yield sufficient funds to enable the Government to meet a large part of the domestic costs of the new airport.
Present Status: Feasibility studies were prepared by the group InternationalEngineering (U.S.) and the ConsultoresAsociados Ecuatorianosin 1976. Final technical-economicfeasibility studies are scheduled for completion in 1978.
Execution Period: About six years.
Mission's Comment: Financia-lviability of the project as proposed is likely to be low and the project size needs to be critically examined for possible cuts in costs. However, there does not seem to be a better alter- native to the overall project concept. Priority rating: "A". - 412-
(Air Transport)
Project Name: Domestic airports development (Cuenca, Machala, Coca and Pastaza)
Location: Azuay, Pastaza, El Oro and Napo Provinces
ExecutingAgency: Direccion de Aviacion Civil
Total Estimated Cost: $40.0 million
External Financing Required: $30.0 million.
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To improve air transport access to major regions of the country.
Project Description: The four airports have been included in a single project because of technical and economic inter- - relationships. The project would include for these airports:
(a) constructionof paved runways; (b) t-erminalbuildings; (c) access roads; (d) communicationnetwork; (e) improvement of safety operations.
Present Status: Feasibility studies are expected to be completed in 1979 by the firm Sir Frederick Snow. Advanced engineeringstudies will be completed later by the same consultingfirm.
Execution Period: About three years.
Mission's Comment: While improvementsin the Cuenca, Machala, Coca and Pastaza airports seem justifiable,to avoid straining of project implementationcapacity, it is highly desirable that the commitment date should be deferred to 1983. Overall project priority: "B". - 413 -
(Air Transport)
Project Name: Guayaquil InternationalAirport
Location: Guayas Province
Executing Agency: Direccion de Aviacion Civil
Total Estimated Cost: $140 million
External Financing Required: $112.4 million
Expected Year of Commitment: 1978, subject to availabilityof finance.
Purpose of the Project: To provide the city of Guayaquil with a new and larger airport which will meet future traffic requirementsand will be in operation 24 hours a day.
Project Description: The proposed new airport at Chongon would include a runway; with parallel taxiways, that will satisfy the demand for the next two decades or more. Two terminals, one for internationalflights and the other for domestic traffic, would be built with possibilitiesfor future expansion.
Estimated Costs: $ Million
Land acquisition 6.9 Access highway 6.9 Utilities 4.1 Site preparation 7.4 Airfield development 39.9 Navigation and landing aids 3.7 Terminal area development 69.2 Internal access and vehicle parking 1.9
Total 140.0
After completion of the new airport, the existing airport would be closed.
Present Status: Feasibility studies were prepared by the group InternationalEngineering Co. (US) and Consultores Asociados Ecuatorianos. Final economic feasibility studies are scheduled for completion in 1978. - 414
Execution Period: About six years.
Mission's Comment: The mission has considerabledoubt on the need for this project as proposed. It appears that, with relativelyminor improvements,the existing airport would meet the traffic needs in the foreseeable future. The execution of this project, parallel to the execution of the Quito airport project, could -seriouslystrain the existing capacity to implement -theseprojects. In all probability,it is highly advisable that tentativedate for a commitment on this project should not be before 1983. ?riority rating: "C". - 415 -
(Education)
-ProjectName: Rural Education
Location: Country-wide
Executing Agency: Ministry of Education
Total Estimated Cost: $36.5 million
External Financing Required: $13.2 million
Expected Year of Commitment: 1978 onwards
Purpose of the Project: To provide basic education to the rural population of Ecuador.
Project Description: The project includes creation of 100 educa- tional institutionsdesigned to serve about 1 million students, as follows:
(a) Primary education, to serve 580,000 pupils, six years and older;
(b) General education, to serve 420,000 students, up to 24 years old.
This is an ongoing program; the Ministry of Education has completed 23 educational institu- tions. The total estimated project costs refer to the remaining 77 institutionsincluded in the program.
Present Status: Feasibility studies, prepared in 1973 by the Ministry of Education, were updated in early 1975.
Execution Period: A continuing program.
Mission's Comment: This program increases access to primary education, particularlyin the lesser developed provinces of the country, and will establish adult education programs and training courses for beneficiaries of current or future rural development projects. As such, the program should have a high priority (priority "A") in access to investment funds. The estimated costs, as listed above, may be unrealisticallylow and an amount of $100-120 million would be a more realistic estimate. - 416 -
(Power)
Project Name: Agoyan HydroelectricPower Generation
Location: Tungurahua Province
Executing Agency: INECEL (InstitutoEcuatoriano de Electrificacion, which is the national agency for planning, construction,operations and control of power generation and distributionin Ecuador)
Total Estimated Cost: $98.6 million, including contingencies
External Financing Required: $70.1 million
Expected Year of Commitment: 1979
Purpose of the Project: As a part of an integrated development plan for the Pastaza river basin, the proposed project would supply power to the national interconnectedsystem, to meet the growing power demand and to replace some costly thermoelectricgeneration plants. The project location would be 180 km. southeast of Quito, 45 km. from Ambato and 65 km. from Puto -- all major provincial centers.
Project Description: The project would include: (a) a 35-m. high concrete dam with spillway for excess control, (b) a 2.5 km. long pressure tunnel (700 m. of it as a reinforced concrete tunnel), (c) a 150 MW (2 x 75 MW) power plant with an initial central plant factor of 0.5, and (d) a double circuit transmissionline of 138 KV, 45 km. long, to Ambato and another transmissionline of 69 KV, 65 km. long, to El Puyo. The annual power productionwould amount to 700,000 MWH.
The project would make use of a drainage area of 8,200 km2 in a location known as "Puente de Pastaza", profiting from a volume of water of 60 m3 per second, assured at least 95% of the time. The impoundment created by the dam would act as primary means of soil clearance. A secondary and continuous soil clearing system, adjacent to the intake, would carry water to the equilibrium chimney. - 417 -
INECEL expects that, due to the provision of all the basic infrastructure elements and of favorable topographicand geological condi- tions, the execution of the project would be carried out without undue delays. The regime and flow of the Pastaza river are complementary to those of other Andean rivers flowing to the ocean. Pastaza's period of increase in water flow takes place during the low water mark of other Andean rivers.
Present Status: Feasibility studies have been completed.
Execution Period: About three years
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating: "B". - 418 -
(Power)
Project Name: Coca HydroelectricPower Generation, Phase I
Location: Napo Province
Executing Agency: INECEL
Total Estimated Cost: $800 million (?)
External Financing Required: To be determined.
Expected Year of Commitment In abeyance
Purpose of the Project: To increase INECEL's power generation capacity to enable it to meet growing energy demand in Ecuador. The project would be based on hydroelectric resources of the Coca River.
Project Description: The project area is in the Central Andean region, northeast of Quito. The development program as a whole would consist of three phases, with a total capacity of 3,100 MW.
The fixst phase (the project) would consist of a 120-m. high dam on the Coca River, a 20-m. long pressure tunnel, and five generators (type Francis) of 100 MW each. The project would be connected to the national:gridby a 230-KV transmissionline of about 170 km. long.
Phases II and III, which would involve installing of additional capacity of 2,600 MW in total, would not be consideredbefore 1988 or .1989.
Present Status: Prefeasibilitystudies are prepared by Group Hydroservice,Integral, Ingeconsult,ADEC and IDCO. INECEL at this time has given high priority to the Paute I and Toachi-Pilatonhydroelectric projects. A decision on the Coca project has been deferred.
Execution Period: About six years.
Mission's Comment: Priority rating: "B". - 419 -
(Power)
Project Name: Esmeraldas ThermoelectricPower Generation (Central Termico Esmeraldas)
Location: Esmeraldas Province
ExecutingAgency: INECEL
Total Estimated Cost: $68.8 million, including contingencies
External Financing Required: $58.8 million
Expected Year of Commitment: 1978
Purpose of the Project: To increase INECEL's power generating capacity to enable it to meet the power demand in Ecuador which is estimated to grow at an annual rate of 13% during the next decade. The project is a part,of a program which includes other thermo- electric and hydroelectricgenerating plants, as well as expansion and improvement of the existing transmissionand distributionsystems.
Project Description: The proposed project, with a total generating capacity of 120 MW or 618.5 GWP per year, would be located in the city of Esmeraldas, adjacent to the oil refinery. It would use as fuel for its steam turbines the residue of oil refining process. The Esmeraldas location would also ensure a dependable supply of electricity for ,thenorthern part of the country. With a 150-km. long, 138-KV transmissionline to Santo Domingo de los Colorados, the project output would connect with the national grid and be available for major consumptioncenters of Quito and Guayaquil.
Present Status: Feasibility studies have been completed. Inter- national bidding by suppliers is called.
Execution Period: About four years.
Mission's Comment: Priority rating:. "B". - 420 -
(Power)
Project Name: Regional Power Subtransmissionand Distribution
Location: Country-wide
Executing Agency: Various "Empresas Electricas"associated with INECEL
Total Estimated Cost: $110 million, including contingencies
External Financing Required: $60 million
Expected Year of Commitment: 1978
Purpose of the Project: To: (i) increase efficiencyof electric power production and distributionby integratingsmall local systems and by interconnectingthem with the national grid; (ii) expand local distribution networks of the Empresas. The project would also contribute to strengtheningof the regional systems in their technical and managerial aspects.
Project Description: The project would include: (i) 1,750 km. of 69 KV-subtransmissionlines and 480 MVA of transformer capacity 69 KV/distributionvoltage (34.5 KV, 22 KV or 13.8 KV) power; (ii) 5,250 km. of lines of distributionvoltage to serve approximately2251,500 new consumers. The following regional systems would be covered by the proposed project:
(a) The Northern System: the whole of Carchi and Imbabura Provinces, plus some areas of Pichincha Province;
(b) The Pichincha System: Pichincha Province, excepting the areas served by the Northern -system;
(c) The Center-NorthSystem: Cotopaxi, Tungurahua, Chimborazo,Bolivar and Pastaza Provinces;
(d) The Center-SouthSystem: Canar and Azuay Provinces;
(e) The Southern System: Loja and Zamora Provinces; - 421 -
(f) The Esmeraldas System: Esmeraldas Province;
(g) The Manabi System: Manabi Province;
(h) The Guayas-Los Rios System: Guayas and Los Rios Provinces;
(i) The El Oro System: El Oro Province.
Present Status: A continuing program, being prepared/implemented as resources are available.
Execution Period: About five years.
Mission's Comment: Priority rating: "B". - 422 -
(Power)
Proiect Name-: Cuenca Thermoelectric Power Generation
Location: Azuay Province
Executing Agency: Empresa Electrica Cuenca C.A., a regional power ;generation and distribution agency
Total Estimated Cost: $12 million, including contingencies
External FinancinR Required: $9.6-million
Expected Year of Commitment: .1979, subject to availability of finance.
Purpose of the Project: To increase:power.supply through a thermo- electric generating plant to meet increased demand in center and southern sections of Ecuador (Azuay and Canar Provinces).
Project Description: The proposed project., with.a capacity of 30 MW,-would include:
- a 10-MW gas generator, and
- two 10-MW generators using Bunker C oil.
Present Status.: Feasibility studies scheduled for completion in 1978.
Execution Period,: About three years.
Mission's Comment: Priority rating: "'B". - 423 -
(Power)
Project.Name: Milagro Gas ThermoelectricPower Generation
Location: Guayas Province
Executing Agency: "Empresa ElectricaMilagro", a regional power generation and distributionagency
Total Estimated Cost: $5 million, including contingencies
External Financing Required: $4.5 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To increase power supply through a gas thermo- electric generating plant to meet increased power demand in Guayas and Rios Provinces.
Project Description: The project will include a gas thermoelectric station with a capacity of 20 MW. It will include two sets of 10-MW or three sets of 7-MW generators. This project will augment the electricity supplies of the "Empresa Electrica Milagro" and "Empresa Electrida Los Rios."
Present Status: The project feasibility study is scheduled for completion in 1978.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 424 -
(Power)
Project Name: Paute Transmission System, Phases C and D
Location: Country-wide
Executing Agency: INECEL
Total Estimated Cost: $58.2 million, including contingencies
External Financing Required: $35.8 million
Expected Year of Commitment: 1978, subject to availability of finance.
Purpose of the Project: To interconnect the Paute I hydroelectric scheme with consumption centers in various parts of the country.
Project Description: The project would constitute the last stage of the Paute hydroelectric project transmission system. Phase C includes three 195 km. long, 138 KV transmission lines to cities of Quevedo- Portoviejo, Milagro-Babahoyo, Santo Domingo- Esmeraldas. Phase C would also include substations at Portoviejo, Babahoyo and Esmeraldas. Phase D includes three transmission lines of 138-230 KV, with a total length of 380 km., to cities of Milagro-Machala, Pascuales-Santa Elena, Cuenca- Loja and Paute-Mendez. Phase D would also include substations in Machala, Santa Elena, Loja and Mendez.
Present Status: Feasibility studies are completed.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 425 -
(Power)
Project Name: Rural Electrification
Location: Country-wide
Executing Agency: INECEL
Total Estimated Cost: $60 million, including contingencies
External Financing Required: $45 million
Expected Year of Commitment: 1980
Purpose of the Project: To extend electricityto the rural population of Ecuador and thereby to promote agricultural productivityand social advancement.
Project Description: The projepctwill be executed in stages. Under a first stage, relatively few development areas will be selected for project works (costingprobably about $25 million). As experience is gained, new ateas will be brought into the scope of the project.
Present Status: Progress with the preparation of this project will await advancementof INECEL's current preparatorywork related to major power generation and distributionprojects.
Execution Period: About four years
Mission's Comment: Priority rating: "B", - 426 -
(Power)
Project Name: Montufar HydroelectricPower Generation
Location: Carchi Province
Executing Agency: INECEL (InstitutoEcuatoriano de Electrificacion)
Total Estimated Cost: $71.2 million, including contingencies
External Financing Required: $50.0 million
Expected Year of Commitment: 1980, subject to availabilityof finance.
Pur-poseof the Project: Using the water resources of the Apaqui, San Gabriel and Chingual rivers, the project will develop the Apaqui river basin through water regulation, power generation and irrigation. The irrigation part of the project has already been developed by the INERHI (NationalHydraulic Resources Institute of the Government of Ecuador).
Project Description:- The proposed project would consist of a 69-m. high - Vdam(Chamizo Dam, one kilometer downstream from the confluence of the Minas and Guasmal rivers), the-gallery and pipes leading to the turbine house and-the generator group.
The dam would-regulate the waters of the Apaqui, 3 San Gabriel and Chingual rivers through a 73 km. capacity impoundment. The pressure tunnel would be 2.7 m. in di'dmeter and 20.1 km. long. It would lead to three sets of Pelton-type turbines with 50 MW in capacity each. Outside the main plant, there would be transformersand 138-kv. trans- mission lines to carry the project output to Ibarra, Otavalo and Quito.
The irrigationworks, which will be assisted by the regulation effect of the dam and spillway components of the project, extend over 3,750 ha. in the Carchi Province.
Present Status: Project feasibilitystudies have been completed by the Intecsa and Integral consulting firms. - 427 -
Execution Period: About four years.
Mission's Comment: This project has been selected by the Government as a priority investment for participationby external lending agencies. Mission's priority rating: "C". - 428 -
(Power)
Project Name: Paute HydroelectricPower Generation,Phase II
Location: Azuay Province
ExecutingAgency: INECEL
Total Estimated Cost: To be determined
External Financing Required: To be determined
Expected Year of Commitment: To be determined.
Purpose of the Project: To increase INECEL's power generating capacity to enable it to meet the growing power demand in Ecuador. The project would be based on the hydro- electric resources of the Jubones River and comple- ment the Paute I hydroelectricscheme now under construction.
Project Description: The project, to be located at a site 80 km. to northeast of the city of Cuenca, would consist of a 150-m. high second dam on the Jubones River tribut-ary,a 6.2 km. long pressure tunnel and addition of five turbines of 100 MW each to the existing generating plant at the Molino I power- house (to double the Paute I capacity of 500 MW). The new dam would help to control sedimentation and increase water supply to the generating plant.
Present Status: The project is one of the major hydroelectric schemes (Paute I, Toachi-Pilaton,Coca I and Paute II) which INECEL intends to develop during the next decade. At present, a higher priority has been accorded by it to the Paute I and Toachi-Pilatonprojects. A decision on the Paute II project, as well as on the Coca I, has been deferred for the time being.
Execution Period: About six years.
Mission's Comment: Priority rating: "C". - 429 -
(Power)
Project Name: Toachi-Pilaton Hydroelectric Power Generation
Location: Pichincha Province
Executing Agency: INECEL
Total Estimated Cost: $451.3 million, including contingencies
External Financing Required: $290.7 million
Expected Year of Commitment: 1979, subject to availability of finance.
Purpose of the Project: To increase INECEL's power generating capacity to enable it to meet the growing power demand in Ecuador. The project, to be located near the town of Santo Domingo de los Colorados, would be based on hydroelectric resources of the Toachi River.
Project Description: The project would be a generating capacity of 300 MW to produce 1,520 million KW/H per year. It would consist of: (a) a 154-m. high dam over the Toachi River to impound 139 million m. (91 million m.3 usable) of water; (b) an 8.3 km. tunnel, 6 m. in diameter for a maximum long pressure flow of 120 m3 per second; (c) a two-chamber equili- brium chimney, a 1 km. long shielded well; (d) four generators (Pelton type) of 75 MW each; and (e) an intake and adduction tunnel for the Pilalon River, with 40 m 3 per second of free runoff, 3,75 m. in diameter and 6 km. long, to deliver water to the Palo Quemado impoundment.
The project's location in the Pichincha Province would place it in the proximity of Quito and Guayaquil, the most important power consumption centers in Ecuador.
Present Status: Feasibility studies were prepared by Mobessco (Switzerland) in 1973. Final studies for bidding have been completed.
Execution Period: About four years.
Mission's Comment: This project has been selected by the Government as a priority investment for participation by external lending agencies. Mission's priority rating: "C". - 430 -
(Fisheries)
Project Name: Credit for Development of Private Fishing Fleets
Location: Country-wide
Executing Agency: Central Bank of Ecuador
Total Estimated Cost: Approximately $50 million
External Financing Required: $35 million
Expected Year of Commitment: 1979, subject to availability of finance
Purpose of the Project: Development of national private fishing industry through loan finance at appropriate terms.
Project Description: The project will provide for long-term loan finance for private fishing fleet owners and operators to enable them to purchase fishing craft and to improve their operational effectiveness. Fish is -among Ecuador's most important export products. Fish exports increased 262% from 1976 to 1977, amounting to $38.6 million in value and 44,625 in tonnage. Capital equipment owned by private fishing operators has an estimated value of about $160 million. In 1977 alone, these operators acquired 18 new vessels and rehabilitated'30 old vessels.
Loan funds under the proposed project would be made available to finance fishing craft of several sizes, with cold storage facilities, and other capital equipment for fishing. The loan terms, in general, would be seven to nine years.
The proposed project would contribute to increased production of fish and its by-products, improved quality and better integration of the industry. Increased domestic consumption and export sales of fish will ensue.
Present Status: The project is being defined; prefeasibility studies have not yet been prepared.
Execution Period: About four years.
Mission's Comment: Priority rating: "B". - 431 -
(Fisheries)
Project-Name: Manta Fishing Port
Location: Manabi Province
ExecutingAgency: The Fisheries Undersecretariatof the Ministry of Natural Resources and Energy
Total Estimated Cost: $33.0 million
External Financing Required: $20.0 million (60% of the total estimated cost)
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: The project is designed to increase productivity and efficiency of fishing based on the port of Manta by provision of better services and facilities for fishing craft.
Project Description: Adjacent to the existing commercial port at the city of Manta, the project would make provision for:
- constructionof an unloadingwharf; - constructionof a fishing terminal building; - an ice factory; - a shipyard and moor; - facilities for,the provision of water and fuel; and - installationof a refrigerationplant.
The city of Manta already has some facilities and basic infrastructure,as well as several fishing enterprises,which would facilitate the execution of the project.
Fishing plays an important role in the economy of the Manabi Province. It is expected that some 100,000 tons of fish would be unloaded at the Manta Port by 1980. The main catch would be tuna fish, although other types of white fish would also be caught. Provision would be made for production of fish fillets and fish flour. - 432 -
Care would be taken not to adversely affect the environment;effective hygienic control would be maintained by the Government. The port would have capacity to handle 89 fishing vessels up to 900 tons and would have special electricityinstallation for use in case of emergency.
Present Status: Prefeasibilitystudy and initial design work have been completed. The final design work is under way.
Execution Period: About four years.
Mission's Comment: The project cost estimate has been revised on the basis of the recently completed final engineering study by MRT-RPT-PauteCia. The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating: "B". - 433 -
(Fisheries)
Project Name: Posorja Fishing Port
Location: Guayas Province
Executing Agency: The Fisheries Undersecretariatof the Ministry of Natural Resources and Energy
Total Estimated Cost: $38.0 million
External Financing Required: $23.0 million (60% of the total cost)
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To provide the necessary port infrastructure and facilities at Posorja to supply and service fishing fleet and thereby to increase productivityand efficiencyof fishing in Ecuador.
Project Description: The project would involve constructionof a protected port in the western riverside of the Canal del Morro, together with necessary installations to unload, maintain, repair and supply of fishing craft. There would also be a cold storage house and plant, a fish and by-products processingplant, an ice production plant and admiuistrativebuildings. The port would have modern facilities to service 85 fishing craft of various sizes.
With the project, Ecuador would have a strategically located center to maintain its fishing fleet and to exploit rich fishing areas nearby. The larger part of the catch would be sold within Ecuador and the excess would be exported. The project would have significancein terms of increased employment and protein consumption.
Present Status: Feasibility studies and preliminary design work of the project have been completed. The final design work is under way. - 434 -
Execution Period: About four years.
Mission'.sComment: The -projectcost-estimate has been revised on the basis of the recently completed final engineering study by MRT-RPT-Paute.Cia. The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating: "B". - 435 -
(Fisheries)
Project,Name: Expansion of fishing plant and equipment of "Empresa Pesquera Nacional"
Location: Country-wide
Executing Agency: Empresa Pesquera Nacional (EPNA) which is a government-ownedfishing agency with head- quarters at the port of Manta. The agency is within the jurisdictionof the Ministry of Natural Resources and Power
Total Estimated Cost: $1.0 million
External Financing Required; $0.9 million
Expected Year of Commitment: 1979
Purpose of the Project: To increase and improve EPNA's plant and equip- ment to place it in the same competitive footing as private sector fishing undertakings. The project would increase EPNA's efficiency and price competitiveness.
Project Description: The project would include the following components:
(a) Processing:
(i) a canning plant; (ii) a fish flour plant.
(b) Fishing Craft:
(i) a 55-foot fishing vessel (with 25 tons of carrying capacity);
(ii) a 65-foot fishing vessel (with 40 tons of carrying capacity).
With the project, the EPNA would be able to integrate its production and marketing opera- tions, increase its white-fish production and extend its fishing activities over new species such as tuna and mackarel. The production - 436 -
capacity for canned fish and fish flour would be about 250 boxes a day. By using the new capacity (1 ton per hour), it would be possible to process all leftoverswhich are not at present fully utilized. This would have beneficial effect on environment.
Present Status: The project is at an early stage of preparation.
Executing Period: To be determined.
Mission's Comment: Priority rating: "B". - 437 -
(Public Health)
Project Name: Rural Hospitals and Health Centers
Location: Country-wide
Executing Agency: Ministry of Health
Total Estimated Cost: $23.5 million
External Financing Required: $11.7 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide improved health services in rural areas.
Project Description: The project would include construction of 315 health centers to serve an estimated total population of 134,700 (63% urban, 37% rural). These centers will-offer general health services and education in sanitation and general improvement on living conditions.
Present Status: A feasibility study, financed by FONAPRE, was completed in 1977.
Execution Period: Three years
Mission's Comment: Priority rating: -"B". - 438 -
(Highways)
Prolect Name: Banos-PuyoRoad
Location: 'Tungurahuaand Pastaza Provinces
Executing Agency: Ministry of Public Works and Communications
Total Estimated Cost: $30.0 million
External Financing Required: $12.0 million
Expected Year of Commitment: 1979, subject to availabilityof finance
Purpose of the Prolect: This road is part of the central access road to the Oriente Ambato-Puyo, extending in the future to Curaray and Montalvo. When completed,the road would allow speedy transportationof forestry and -agriculturalproducts between the fast developing Oriente areas around Puyo and the Sierra.
Project Description Under the project, the existing Banos-Puyo road would be reconstructed (56 km) to paved standards in accordancewith engineeringdesigns currently being prepared.
Present Status: *Preliifinaryproject feasibility studies have been prepared. Substantial revisions of engineering and economic studies are now under preparation.
Execution Period: :Abouttwo years-commending 1980.
Mission's Comment: This road constitutes one of the priority invest- -mentsto stimulate development of the Oriente region,.wherethe need for adequate all-weather access from the Sierra is of the basic importance. Priority rating: "A". - 439 -
(Highways)
Project Name: Guayaquil-DauleExpressway
Location: Guayas Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $28 million
External Financing Required: $17 million
Expected Year of Commitment: 1978, subject to availabilityof finance.
Purpose of the Project: To alleviate traffic congestion between Guayaquil and Daule. This road would be a part of the Guayaquil-Quitoroad connection.
-ProjectDescription: Under the project, a 35-km. highway would be built capable of handling more than 8,000 vehicles daily. It would start from the northern part of Guayaquil, cross the townshipsPasquales and Nqbol and end at an intersectionof the Guayaquil-Empalme highway, near the town of Daule. -It would use the existing bridge over the Daule River.
Guayaquil is the country's most important industrial and commercial center and has its biggest port. A new road connection is needed in order to cope with rapidly growing traffic.
Present Status: Preliminary project feasibility studies were prepared by the Consortium Hidroservice (Brazil) and Astec (Ecuador) in April 1977. Final design work is underway.
Execution Period: About two years starting 1979.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Missi.on'spriority rating: "A". - 440 -
(Highways)
Project Name: Hollin-Loreto-CocaRoad
Location: Napo Province
ExecutingAgency: Ministry of Public Works
Total Estimated Cost.: $13.8 million
External Financing Required: $8.3 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide an alternativeaccess through the main highway system to the Oriente region which is the largest oil-producingarea in Ecuador. In addition to its promotion of oil prospecting and production, the project would also assist agriculturaland forestry development in the areas which it would traverse and would facilitate agriculturalsettlements.
Project Description: The proposed road would start at Hollin, the juncture of the Baeza-Cotundohighway, and would follow northeast leading to the Francisco de Orellana (Coca) township where it would meet the existing highway to Lago Agrio. It would be constructed-accordingto the Ministry of Public Works Class IV standards; the total length would be 115 km.
Present Status: A prefeasibilitystudy was prepared by a Tams-Astec consortium. Feasibility studies are under way and would be completed by the end of 1978.
Execution Period: About three years starting 1980.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating: "A". - 441
(Highways)
Project Name: Quito-AloagExpressway
Location: Pichincha Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $24 million
External Financing Required: $15 million
Expected Year of Commitment: 1979
Purpose of the Project: To alleviate present traffic congestion and to meet future growth in traffic between Quito and Aloag. The project would be a part of the Riobamba-Quito-Guayaquilfreeway system which is intended to be built according to the future traffic needs.
Project Description: The project provides for constructionof a 22-km. expressway, designed to carry an average daily traffic of 8,000 vehicles. The four lanes which would be constructed under the project could be expanded to eight lanes at a later stage.
The city of Quito from which the expressway would originate is the main administrative center of the country, with important indus- trial and commercial activity.
Present Status: Preliminary feasibility studies were prepared by the Consortium Hydroservice (Brazil)and Astec (Ecuador)in April 1977. Final design work in progress.
Execution Period: About three years commencing 1979.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating; "A". - 442 -
(Highways)
Project Name: Sesme-Jama
Location: Manabi Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $10.5 million
External Financing Required: $5.3 million
Expected Year of Commitment: 1978
Purpose of the Project: This road will provide outlet for agricultural products of part of the Manabi Province and will increase productivityin the area (65,000ha.). With complementaryinvestment, it could also promote tourism and fishing development. With the completion of this road, the distance from - Sesme to Jama will be reduced from 38 km. to 31 km. and the cost of transportationwill be 58%-less.
Project Description: The proposed road would traverse the Manabi Province from east to west. Sesme is the connec- ting point with the Santo Domingo-Chone road, 27 km. to Chone. The road would be 60 km. long and would have the Class IV characteristics, of gravel, according to design standards adopted by the Ministry of Public Works. It would serve about 40,000 people..
Present Status: Preliminary feasibility studies were prepared by the group Tams-Astec and detailed engineering by ADEC, both in 1975.
Execution Period: About two years commencing 1979.
Mission's Comment. The Government has selected this project as a p-riorityinvestment for participationby external lending agencies. Mission's priority rating: "A". - 443 -
(Highways)
Project'Name: Suma-PedernalesRoad
Location: Manabi Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $17.3 million
External Financing Required: $8.7 million
Expected Year of Commitment: 1978
Purpose of the Project: To open up for development the northern part of the Manabi Province.
Project Description: Located in the Manabi Province, Suma is the connectingpoint with the Santo Domingo-Chone road. The proposed road would traverse through the mountains of Cuaque and Mache at 440 m. until it reaches Pedernalesalong the Pacific Coast. The road would have Class III technical characteristics(unpaved); it would be 89 km. long.
With the constructionof this road, 41,250 ha. of land will have an improved chance of being brought into production, iwithparticular emphasis on crop-raising,cattle developmentand forestry. The road may also help fishing and tourism development along the Pedernales coast. About 10,000 people will be the beneficiaries.
About 1,000 new settlers (or 7,000 people in total) may be settled in the area to be served by the road. These settlers would largely be small farmers being assisted under the National Agrarian Reform.
Present Status: Prefeasibility studies were completed by the group Tams-Astec in 1975 and detailed engineering studies by CIAR, both in 1975. Studies on proposed agriculturaland forestry development were also completed. - 444 -
Execution Period: About two years commencing 1979.
Mission's Comment: The Government has selected this project-as a priority investment for participation by external lending agencies. Mission's priority rating: "A". - 445 -
(Highways)
Project Name: Cuenca-Azogues Road
Location: Azuay and Canar Provinces
Executing Agency: MIinistry of Public Works
Total Estimated Cost: $20 million
External Financing Required: $10 million
Expected Year of Commitment: 1979
Furpose of the Project: The existing Cuenca-Azogues road is inadequate to handle the present traffic. The position will be even more tight in future due to addi- tional traffic to be created by:
(a) the Paute hydroelectric project; and
(b) a flow of increased traffic to the Oriente region when the Puyo-Macas road is-completed.
The project is designed to meet the present and future traffic needs in the area.
Project Description: The new road, 45 km. long, would include Cuenca- Descanso highway with four lanes and Descanso- Azogues road with first class specifications under the Ministry of Public Works classification.
Present Status: Prefeasibility studies were prepared by 1973 by the Tams-Astec group as a part of the National Road Plan. Traffic studies were completed early 1977 and final design work late in 1977.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". 446 -
(Highways)
Project Name: Guayaquil Beltway
Location: Guayaquil City (Guayas Province)
Executing Agency: Ministry of Public Works
Total Estimated Cost: $32 million
External Financing Required: $16 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: To alleviate present traffic congestion and to meet future growth in traffic in Guayaquil parti- cularly when a proposed expansion of the Guayaquil port is carried out.
Project Description: The proposed beltway would have two interconnection systems:
(a) One originatingfrom the proposed Guayaquil- - Daule Expressway (south)which would connect *with the Guayaquil-SalinasExpressway and would terminate at the Guayaquil port; and
(b) The other originating from the Guayaquil- Daule Expressway (north)which would connect with La Puntilla-Samborondonroad and Duron-El Triunfo road in Unidad Nacional bridge.
Present Status: Preliminary project feasibility studies have been completed.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 447 -
(Highways)
Project Name: Improvement of Manta-Portoviejo Road
Location: Manabi Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $4 million
External Financing Required: $2 million
Expected Year of Commitment: 1979, subject to availability of finance.
Purpose of the Project: To provide easy access to the Port of Manta by reducing travel time and costs. The road length would be reduced and inter-urban connections between Manta and Portoviejo would be improved.
Project Description: The exiseing Manta-Portoviejo road would be upgraded according to the Ministry of Works Class III road specifications. Rectifications in the roadwa-y would be made and a special pass through Montecristi would be provided.
Present Status: Preliminary project feasibility studies have been completed.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 448 -
(Highways)
Project Name: Improvement of Roads in El Oro Province
Location: El Oro Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $12 million
External Financing Required: $6 million
Expected Year of Commitment: 1980, subject to availability of finance.
Purpose of the Project: To reduce costs of transportation and to contri- bute to general development of the province.
Project Description: This project would include mainly an improvement of the El Guabo-Sta. Rosa-Huaquillas road and construction of some lateral roadways in the cities served by this road.
Present Status: Preliminary feasibility studies have been completed.
Execution Period: About three years.
Mission's Comment: Priority rating: T B". - 449 -
(Highways)
Project Name: Improvementof Nobol-JipijapaRoad
Location: Guayas and Manabi Provinces
Executing Agency: Ministry of Public Works
Total Estimated Cost: $13 million
External Financing Required: $6.5 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: The project is designed to increase economic activity in its area of influence in the Guayas and Manabi Provinces. It will, in particular,meet the traffic generated by the Port of Manta. It will reduce trans- portation costs.
Project Description: Under the project, the Nobol-Jipijaparoad, 110 km. long, would be improved up to Ministry of Works Class II specificationswith asphalt cover on it.
Present Status: Preliminary feasibility studies have been prepared.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 450 -
(Highways)
Project Name: Improvement of Quininde-EsmeraldasRoad
Location: Esmeraldas Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $10 million
External Financing Required: $5 million
Expected Year of Commitment: 1980, subject to-availabilityof finance.
Purpose of the Project: The Esmeraldasprovince-represents one -of the fastest developing parts of the country and requires improvementin its infrastructure. -The proposed road improvementwould enable the province to cope with increased traffic, particularly-the important traffic originating from the oil refinery (RefineriaEstatal and Puerto de Balao).
Project Description: The Quininde-Esmeraldasroad would be improved according to the Ministry of Public Works Class II specifications(with asphalt cover).
Present Status: Preliminary feasibility-studieshave been prepared.
ExecutionPeriod: About three years.
Mission's Comment: Priority rating: "B". - 451 -
(Highways)
Project Name: Improvement of San Juan-Vinces-PalestinaRoad
Location: Los Rios and Guayas Provinces
Executing Agency: Ministry of Public Works
Total Estimated Cost: $12 million
External Financing Required: $6 million
Expected Year of Commitment: 1980, subject to availabilityof finance.
Purpose of the Project: The proposed road improvementwould allow better and less costly transportationof products from the project region.
Project Description: The 65-km.-long road connection between San Juan and Palestina would be improved by asphalt cover and general improvementswould be made.
Present Status: Preliminary feasibility studies have been completed.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 452
(Highways)
Project Name: Loja-Zamora Road
Location: Lojas and Zamora Provinces
Executing Agency: Ministry of Public Works
Total Estimated Cost: $11 million
External Financing Required: $5.5 million
Expected Year of Commitment: 1980, subject to availabilityof finance.
Purpose of the Project: Constructionand improvementof this road will support development of southeast area of Ecuador by providing access for production of this area to reach Loja and La Costa markets.
Project Description: This proposed road, 60-km. long, will be asphalted according to Class III technical specifications of the Ministry of Public Works.
Present Status: The project prefeasibilitystudies were prepared by the Tams-Astec group in 1973 as part of the National Road Plan. ADEC of Ecuador-hasprepared preliminary feasibilitystudies. The design-work has been completed recently.
Execution Period: About three years.
Mission's Comment: Priority rating: "B". - 453 -
(Highways)
Project Name: Manta-RocafuerteRoad
Location: Manabi Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $4.0 million
External Financing Required: $2.0 million
Expected Year of Commitment: 1981, subject to availabilityof finance.
Purpose of the Project: To reduce by 32 km. the existing road connection between Rocafuerte-Portoviejo-Manta,to save transportationcosts and time.
Project Description: The project would consist of a 25-km. long paved road of Class III specificationsby the Ministry of Public Works.
Present Status: Preliminary feasibility studies have been completed.
Execution Period: About two years.
Mission's Comment: Priority rating: '."B". - 454 -
(Highways)
-ProlectName: Pifo-PapallactaRoad
Location: Pichincha and Napo Provinces
Executing Agency: Ministry of Public Works and Communications
Total Estimated Cost: $11.0 million
External Financing Required: $4.4 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: This road is a part of the northern access road to the Oriente Quito-Baeza,extending in the future to Coca. At Baeza, it interconnectswith the Marginal de la Selva road, under continuous development. When completed,the road will allow speedy transportationof products between the Oriente and the Quito and Sierra region at reduced cost.
Project Description: Under the project, the existing Pifo-Papallacta road would be reconstructed (50 km) to paved standards in accordancewith engineering designs currently being prepared.
Present Status: Engineering studies have been completed. No economic feasibility studies have been prepared. A revision of the engineering design and an economic feasibility study are now under preparation.
Execution Period: About two years commencing 1980.
Mission's Comment: This road constitututes one of the priority invest- ments to stimulate development of the Oriente region, where the need for adequate all-weather access from the Sierra is of basic importance. Priority rating "A" but dependent on possible reductions in estimated cost during current design revisions. - 455 -
(Highways)
Project Name: Quininde-Chila Road
Location: Manabi and Esmeraldas Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $6.4 million
External Financing Required: $3.2 million (foreign exchange cost)
Expected Year of Commitment: 1979; subject to avaiLability of finance.
Purpose of the Project: To provide access to an area of 53,400 ha. in the Esmeraldas (southwest) and Manabi (north) Provinces, which has good potential for agri- cultural development.
Project Description: The proposed road, 66 km. long, will run parallel to the Quininde River. The northern end of the road would be located 6 km. south of the Quininde-Santo Domingo Road and the southern end at the Chila River, connecting with the Suma-Pedernales road. The new road will have Class III road characteristics (unpaved).
Present Status: Preliminary feasibility studies were prepared by the group Tams7-Astec in 1975. Detailed engineering was completed by IECA in December 1975.
Execution Period: About four years starting 1980.
Mission's Comment: Priority rating: "B". - 456 -
(Highways)
Project Name: Quiroga-PichinchaRoad
Location: Manabi Province
Executing Agency: Ministry of Public Works
Total Estimated Cost: $5.9 million
External Financing Required: $3.0 million
Expected Year of Commitment: 1979; subject to availabilityof finance.
Purpose of the Project: To increase agriculturalproduction and commercial activity in the eastern-central sections of the Manabi Province. The project area (46,000)has about 20,000 inhabitants.
Project-Description: The proposed road, 68 km. long, would traverse the Manabi Province from east to west. -It would be a part of the Tosagua-Cacceto-Quiroga road. An existing road in the area, which is passable only in summer season, will soon disappear as a result of the constructionof La Esperanza dam. The.proposed road would have Class IV characteristics,of gravel, designed to hold a daily average traffic of 100 to 300 vehicles.
Present Status: Preliminary feasibility studies were prepared by the group Tams-Astec and.detailedengineering by Cie. General de Geotecnica,both in 1975.
Execution Period: About three years starting 1980.
Mission's Comment: Priority rating: "B". - 457 -
(Highways)
Project Name: Quito Beltway
Location: Quito City (PichinchaProvince)
Executing Agency: Ministry of Public Works
Total Estimated Cost: $64 million
External Financing Required: $32 million
Expected Year of Commitment: 1980, subject to availabilityof finance.
Purpose of the Project: In line with rapid urban developmentin Quito and regional infrastructureprograms such as Tamballo-Sangolqui-Pifoand Avenida Oriental connections,it has become necessary to construct a beltway to avoid traffic congestions. The proposed project will respond to this need.
Project Description: The proposed beltway would be connected with various roads including the Quito-Aloag Express- way and-the PanamericanaSur. Other inter- connectionsare:
(a) Valle de los Chillos Expressway; (b) Tumbaco Road; (c) Nayon and Zambiza Road; (d) PanamcucanaNorte; .(e) San Antonio Expressway; (f) Avenida Occidental, Quito.
Present Status: Preliminary project feasibility studies have been completed.
Execution Period: About four years starting 1981.
Mission's Comment: Priority rating: "B". - 458 -
(Industry)
Project Name: African Palm Oil Development and Processing (Palmerasdel Ecuador SA - PALMESA)
Location: Esmeraldas Province (Canton Quininde) -
ExecutingAgency: CorporacionFinanciera Nacional (under a joint venture with PALMESA)
Total Estimated Cost: $21.2 million (without provision for contingencies)
External Financing Required: $15.0 million
Expected Year of Commitment: 1978, subject to availabilityof external finance
Purpose of the Project: The proposed project is intended to develop palm oil planting and processing in Ecuador to meet in part domestic consumptionrequirements for edible oils. When fully operative, the project would produce in excess of 19,000 tons of palm oil per year.
Project Description: The project would include:
(a) Agriculturaldevelopment:
- cultivation of 4,000 ha. with palm by PAlMESA over a seven-year period; and - cultivation of 1,000 ha. by out-growers under agreements with PALMESA to sell their product to the latter.
(b) Industry:
- an oil extracting plant with a capacity to process 30 tons of fruit per hour.
(c) infrastructure:
- a main road (25 km.); feeder roads (20 km.) and access paths for cropping (160 km.); - a cable bridge over Guayllabanse river; - a weighing platform (20 tons); and - water, sewerage and electricity connec- tions. - 459 -
The project will employ about 729 persons in a normal year of operation. It is anticipatedthat the cost of production of palm oil will be about 25% below the current world price. The output will be sold in domestic market, to save foreign exchange as much as $6.6 million per year. The project will open up for agriculturenew lands which are not at present in use. It should give rise to no adverse environmentaleffects.
Present Status: A prefeasibilityreport was completed by H.V.A. Internationaland CV-CFN. Detailed studies are under way.
Execution Period: For planting of palm: 7 years For constructionof processing plant: 3 years
Hission's Comment: A priQrity project as it promises efficient import substitutionand important possibilitiesfor backward integration (into agriculture),with beneficial direct and indirect employment effects. The mission's priority rating: "A". - 460 -
(Industry)
Project Name: Cotopaxi Cement
Location: Cotopaxi Province
Executing Agency: Cementos Cotopaxi C.A., a mixed company owned by the governmentaland private investors (30/70%)
Total Estimated Cost: $70.0 million
External Financing Required: $50.0 million
Expected Year of Commitment: 1980
Purpose of the Project: Based on limestone deposits at Unacota at the Zumbahua parish of the Pujili region, the project would increase the amount of domestically produced cement in Ecuador, thereby reducing costs of con- struction and saving foreign exchange.
Project Description: The project would be designed to produce about 400,000 tons of portland cement per year and would employ about 200 persons. The cement plant would be erected at a site about 45 km. from the lime- stone -eposits. Limestone from the quarry would be transportedto the plant through a pipeline. Quito, at a distance of 84 km. to the proposed plant, is the major consumption center for cement (accountingfor 46% of the national consumption). The new plant would be a cement producer nearest to Quito.
The executing company owns 2,000 ha. of land where large deposits of good quality limestone exists. According to perforations made over an area of 60 ha., the limestone deposits should be sufficient to meet the requirementsfor at least the next 100 years.
The project output would meet the growing-need for cement and would subsequently allow construction of roads, etc. (with reduced maintenance costs as compared with asphalt roads). - 461 -
Present Status: A prefeasibilitystudy of the project was made by Watts Griffis and McQuat (Canada) and a feasibility study by Crescent EngineeringCompany (USA). At present, detailed engineeringwork is under way. Laboratory tests of the raw materials were made in Ecuador, Canada, the USA and, more recently, in Germany by the firm of Humboldt and Polyseous. The results have been similar and satisfactory.
Execution Period: About three years commencing 1981.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. In view of Ecuador's present need to import cement, a project such as this would make sense provided an optimum size plant is selected to minimize unit production costs. (At pr;esent,the unit production costs in cement in Ecuador is higher than similar costs in neigh- boring countries.) The mission's priority rating of the project: "A". - 462 -
(Industry)
Project Name: PREDESUR-PuyangoCement
Location: El Oro Province
Executing Agency: PREDESUR
Total Estimated Cost: $60 million
External Financing Required: $36 million
Expected Year of Commitment: 1981
Purpose of the Project: To meet domestic market demand for cement.
Project Description: Studies recently completed indicate adequate reserves of rock cement and gypsum in El Oro Province to permit a cement plant with a production capacity of 2,000 TM of portland cement per day. A dry production process would be used. Demand studies have been carried out, taking into account the proposed Cementos Cotopaxi production. These studies have establisheda cement deficit in 1985 that otherwisewould have to be imported.
Present Status: Geological, chemical and mineral studies and a prefeasibilitystudy by PREDESUR and a Spanish consultant were carried out during 1976. PREDESUR expects to conclude feasibility studies in 1978.
Execution Period: About five years starting 1982.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. In view of Ecuador's present need for imported cement, a project such as this would make sense provided an optimum size plant is determined to minimize unit production costs. (At present, the unit production costs in cement in Ecuador is higher than costs in similar neighboring countries.) The mission priority rating of the project: "A". - 463 -
(Industry)
Project Name: Ammonium Sulfate (Fertilizer)
Location: Guayas Province
Executing Agency: FERTISA
Total Estimated Cost: $5.4 million
External Financing Required: $2.7 million
Expected Year of Commitment: 1979
Purpose of the Project: To produce fertilizers to meet in part the local demand for ammonia fertilizers.
Project Description: The project envisages installations to produce 720,000 tons of sulfat de amonio per year from ammoniac. The project components would include civil works, machinery and working capital. The total value of the annual production would be about $18.1 million.
Present Status: Feasibility studies which are being conducted by FERTISA are expected to be completed by 1978. FERTISA has plans for building a second fertilizer plant based on ammoniac; however, the project is still at an early stage of conception.
Execution Period: About two years.
Mission's Comment: While the project appears to be a priority invest- ment considering the country's need for ammonia fertilizers, a domestic market study is needed to confirm the marketability of the project output. The mission's priority rating of the project is medium-to-high ("B"). - 464 -
(Industry)
Project Name: Cayapas Forestry
Location: Esmeraldas Province
Executing Agency: Forestal Cayapas, a mixed government/private sector company
Total Estimated Cost: $92.1 million
External Financing Required: $51.3 million
Expected Year of Commitment: 1978, subject to availabilityof finance
Purpose of the Project: The project is a part of a multi-phase program designed for industrial exploitationof mixed tropical forests extending over 213,000 ha. in Northwest Ecuador, San Lorenzo coastal area. The proposed project would constitute the second phase, providing for establishment of a fast- growing coniferous plantation for production of corrugatingmedium and linerboard.
Project Description: The first phase of the program, now in operation, involved3erecting of a sawmill with a capacity of 90,000 m of sawnwood per year. Under the proposed project, provision would be made for processing of:
- 150,000 m of wood logs and veneers per year; - 50,000 metric tons of corrugatedcardboard per year; and 115,000 metric tons of wrapping paper per year.
All based on the sulphic process. Provision would also be made for a system of permanent roads, landing sites and social infrastructure.
The project would be a significantfactor in creation of employment, increased incomes and tax revenues in the region. It would also contribute to the domestic economy by provision of wood products for parallel industries. - 465 -
Present Status: Feasibility studies have been completed by H.A. Simons InternationalLtd. (Canada). Testing of the woods in the area has also been completed.
Execution Period: About four years commencing 1979.
Mission's Comment: The Government has selected this project as a priority investment for participationby extertal lending agencies. The project, which would process domestic raw materials, should command priority. The marketing prospects, related to estimated costs of production, should, however, be carefully considered before a decision on implementation. The mission's priority rating: "B". - 466 -
(Industry)
Project Name: Latacunga Industrial Park
Location: Cotopaxi Province.
Executing Agency: Municipio de Latacunga
Total Estimated Cost: $6.0 -million
External Financing Required: $3.0 million-
Expected Year of Commitment: 1979
Purpose of the Project: To promote industrial development of the region, through creation of new industries and strengthening of establishedindustries, in accordance with urban developmentplan of the municipality.
Project Description: The project components are:
(a) constructionof modular standard buildings; (b) basic infrastructure: water, sewerage, electricity,telephone service and - technical assistance; and (c) Other communal services: workshops, laboratories, storage and technical assistance.
Present Status: A feasibility study is expected to be completed by the end of 1978.
Execution Period: About three years.
Mission's Comment: Considerationshould be given to accommodate small- scale enterprises under the project. The mission's priority rating: "B". - 467 -
(Industry)
Project Name: Production of alcohol from cane molasses
Location: Canar Province
Executing Agency: CorporacionFinanciera Nacional
Total Estimated Cost: $6 million
External Financing Required: $4.2 million (foreign exchange costs: $4.5 million)
Expected Year of Commitment: 1979
Purpose of the Project: The project is designed to increase domestic produc- tion of alcohol through processing of cane molasses. Ecuador depends on imported alcohol for a part of its requirements. The project would save foreign exchange and ensure a dependable domestic supply of alcohol based on domestic raw materials.
Project Description: The project would include:
- constructionof a fully automated alcohol distillationplant with a capacity of 30,000 liter per day; - storage3capacity for molasses (90 days or 5,500 m ) and for alcohol (50 days or 1,500 m - water and electricity installations.
The Canar province, where the project would be located, is a relativelyless developed part of Ecuador, with an average per capita income below the national average. The distillationplant would employ about 41 highly skilled workers. The return on the proposed investment is estimated at 25%.
Present Status: Feasibility study under way.
Execution Period: About three years.
Mission's Comment: The project can be considered a fairly high priority investment considering the need for an efficient producer of industrial alcohol in the country. The location of the plant, however, should be reconsideredto ensure ready accessi- bility to molasses and skilled labor. The mission's priority rating of the project: "B". - 468 -
(Industry)
Project Name: Sugar Hill
Location: Los Rios Province
Executing Agency: A mixed (government/private)company to be set up by the Ministry of Agriculture and Livestock.
Total Estimated Cost: $40.0 million
External Financing Required: $26.0 million
Expected Year of Commitment: 1979
Purpose of the Project: To increase sugar production through expansion of sugarcane-plantedarea in suitable parts of the Los Rios Province and by constructionof a new sugar mill. The output would meet the domestic demand and the excess would be exported.
Project Description: The project would provide for:
(a) planting of 10,000-14,000ha. of cane, with an estimatedyield of 80-90 metric tons per hectare; and
(b) constructionof new sugar mill with a milling capacity of 7,000 tons per day to produce 100,000 tons of crude and sulphurized sugar. The new mill would be located in the city of Vinces.
Ecuador has good natural conditions for production of s.ugarand, in the past, has exported some of its output to foreign countries including mainly the USA. In 1975, the country has met only 40% of its export quota set by the USA. Without the project, it is likely that all sugar exports would soon come to an end. The project would also have significant employment value.
Present Status: In 1977,-HVAInternational of Netherlands, Motor Columbus of Switzerlandand INCONEL of Ecuador - prepared a feasibility study on the project which was completed in mid-1977. - 469 -
Execution Period: About four years commencing 1979.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. There are factors (such as the availabilityof local raw materials, labor, etc.) to justify this priority. Cost competi- tiveness of sugar refining in Ecuador, however,-. should be given particular attention considering the prevailing fairly high level of wages in the country as compared with some foreign competitors. The mission's priority rating of the project: "B". - 470 -
(Industry)
--Project Name: Automotive Industry (ProyectoPrioritario del Programa Automotriz Ecuatoriano)
Location: Different locations in Ecuador.
Executing Agency: Ministry of Industries is at present developing the project which would subsequentlybe executed by "COORDINAUTO"(a company created in May 1977 with a capital of $720,000 equivalent). Together with foreign and domestic investors, COORDINAUTOwould set up several companies to develop various compo- nents of the project (see Project Description below). About 30% of the shares would be held by the Government,while foreign investors could have up to 60% of the shares.
Total Estimated Cost: $250 million.
External Financing Required: $150 million (foreign exchange component: $175 million.
Expected-Yearof Commitment: 1978, subject to availabilityof finance.
Purpose of the Project: The project is designed to:
- manufacture vehicles and automotive parts for domestic use (starting in 1980) and for export to other Andean Agreement countries (starting in 1982); -
- develop national technologicalknow-how to reduce Ecuador's dependence on foreign technology;and
- increase employment and national value-added; and to save foreign exchange.
Project Description: The project would consist of the following compo- nents:
(a) a truck plant (to produce 16,000 3-, 4- and 6-ton trucks annually by 1982);
(b) an automobile assembly plant (to produce 40,000 vehicles annually by 1982); - 471 -
(c) separate manufacturingplants to produce gear boxes, 1,050-1,500c.c. engines, carburetors, dashboard instruments,steering systems, axles, flexibus shafts, foundry products and forging.
Geographicallocations of these plants have not yet been determined. It is understood that they will be established in different areas of the - country with due regard to economic and employment factors. The industry would create about 6,450 new jobs.
It is estimated that, by 1980, Ecuador will require to import 12,000 commercial 20,000 passenger vehicles at a total estimated cost of $150 million. proposed project would meet the bulk of these requirements. Moreover, under the Andean Agreement, Ecuador enjoys advantages to facilitate exports of vehicles and automotive parts (assignmentof produc- tion of certain types of automobiles and trucks and certain import duty privileges). These advantages are considered important in export of the output from the proposed investment. The total value of productionby the new automotive industry by 1982 is estimated at about $306 million. Of this, the exported vehicles and automotive parts would account for about $250 million.
Present Status; The Ecuador Ministry of Industries prepared in 1975 market studies related to demand in the Andean region. Complete feasibilitystudies are expected to be undertaken by the foreign investors when they participate in the proposed project.
Execution Period: Three to five years.
Mission's Comment: The project as proposed would be highly capital intensive, would require a high proportion of imported inputs, and would largely depend on export sales. In all probability, the project may not, for a long time to come, reach optimum levels of production which would reduce its competitiveness in export markets. Complete feasibility studies responsive to these aspects should be prepared before any commitment to this project. The mission's priority rating: "C". - 472 -
(Industry)
Project Name: IntegratedSteel
Location: El Oro Province
Executing Agency: ECUASIDER (The Ecuadorian Steel Company)
Total Estimated Cost: $350.0 million
External Financing Required: $226.8 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: By using natural gas resources of the Gulf of Guayaquil, the project would produce steel and semi-finishedproducts out of imported iron ore, to substitute for imports.
Project Description: The project envisages installationof a processing plant with a capacity of 410,000 metric tons of iron and semi-finishedproducts per year (including ingots, profiles, etc.) for sale in the domestic market. Iron ore would be imported from Chile and Peru, either as concentratedor as pellets. Domestic supply of scrap iron would also be used. The production process would include:
- direct reduction of imported ore, with natural gas as fuel, to obtain sponge iron;
- by means of electric ovens, conversion of the sponge iron and scrap iron into liquid steel;
- production of semi-finishedsteel products (constructionbars, light profiles, cables, etc.) by means of lamination process.
The proposed location of the project, in the city of Puerto Bolivar, is determined with due consider- ation of easy access to natural gas supplies of the Gulf area, as well as to supplies of electricity, transportationand potential markets. The ammonia- methanol project, being developed by CEPE and Northwest, is also important for this project. - 473 -
It is estimated that the proposed project would meet Ecuador's iron and steel products requirements through 1985. It would lead to establishmentor expansion of some parallel industries in the fields of metal processing,mechanics, construction,auto- motive, etc. At present, Ecuador imports steel products at an annual value of $100 million. The project would employ some 1,200 workers.
Present Status: The company that will develop and manage the project (ECUASIDER)has been created. Technical and feasibility studies have been completed. Korf Industries (Germany)and Acres Consultant (Canada) have prepared plant location and material inputs studies.
Execution Period: About three years.
Mission's Comment: This project has been selected by the Government as a priority investment for participationby external lending agencies. In financial terms, the project as proposed seems only marginally viable, estimated by the consultants (KORFF) to attain a financial rate of return of about 10% only with 30% duty protection. Substantial exports to the Andean market seem questionableas other member countries are expanding their own steel production capacity and may build up capacity for exports. It appears that the estimated costs of the proposed project do not include facilities for natural gas transport, electricitygeneration and water supply, which would increase the overall costs considerably. The mission's priority rating of the project: "C". - 474 -
(Petroleum)
Project Name: La Libertad-Guayaquil Pipeline and Storage Terminals
Location: Guayas Province
Executing Agency: CEPE (Corporacion Estatal Petrolera Ecuatoriana), a government agency responsible for development and exploitation of oil in Ecuador.
Total Estimated Cost: $51.0 million ($23 million for pipeline; $28 million for storage terminals; including 10% provision for physical contingencies)
External Financing Required: $45.9 million (estimated foreign exchange component; $20.7 million for pipeline, $25.2 million for storage terminals)
Expected Year of Commitment: 1979
Purpose-of the Project: To provide for -efficient and less costly means of supply of gasoline, kerosene and diesel oil from the-La Libertad and Esmeraldas refineries to Guayaquil and, through a connecting pipeline, central and north highlands regions including Quito. At present, refined products move from La Libertad and Esmeraldas by coastal tankers and barges to Duran where product storage is limited and from where products are pumped to Quito by pipeline; when the Duran tanks are full, the barges and tankers have to unload at Guayaquil for later transfer to Duran by barge. This cumbersome and costly system of transport supplies the two largest consuming areas of the country, Guayaquil and Quito (these shipments would cease when the Esmeraldas-Quito pipeline, partly financed by IDB, is built).
Project Description: The project would provide facilities to enable pumping up to 23,000 barrels per day of white petroleum products to Guayaquil: it would comprise a 123 km 10-inch diameter pipeline between La Libertad and Guayaquil, pumping facilities in La Libertad, the relocation to Pascuales (near Guayaquil) of a pump station on the Duran-Quito pipeline and a 28 km 6-inch pipeline between Pascuales and the Duran-Quito pipeline. The erection of four product storage and distribution terminals in El Austro, Manta, - 475 -
El Triunfo and Pascuales with a total storage capacity of 808,000 barrels would also be included. The economic rate of return of the pipeline component is estimated at about 25%.
Present Status: A prefeasibility (basic engineering)study was prepared by CEPE in 1975. Detailed design work is at hand. Together with data needed to assess economic rate of return of the terminals compo- nents, the project preparation documentation should be completed by 1978.
Executing Period: About three years.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating: "A". The IBRD may consider this project for its financing. - 476 -
(Petroleum)
Project Name: Santa Elena Oil Field Rehabilitation
Location: Guayas Province
ExecutingAgency: CEPE
Total Estimated Cost: $10.0 million (excludingcontingencies)
External Financing Required: $9.0 million (foreign exchange component)
Expected Year of Commitment: 1979
Purpose of the Project: To improve the output of the Santa Elena oil fields by rehabilitatingexisting wells and by carrying out certain other measures designed to improve efficiencyof oil recovery. Project Description: The oil fields of Santa Elena in Western Ecuador commenced production on a commercial scale in 1927, and although cumulative produc- tion to date is over 100 million barrels, there probably remain some 800 to 900 million barrels of oil in the reservoir. The oil is a high quality low sulphur crude. Nearly 3,000 wells have been drilled in Santa Elena, but fewer than 800 are still producing; the average depth of the wells is about 2,700 feet. CEPE completed the takeover of the oil fields in 1976 by which time they were quite neglected, and very little has been done since then to improve the situation. All equipment is old and in poor conditionand there is an acute shortage of spare parts.
The project would be designed to increase production of the Santa Elena field from 1,700 to 3,500 barrels per day. It would comprise purchasing of oil field service equip- ment, improving and renovating the existing production facilities,reconditioning some existing wells, recompletingselected existing wells, drilling additionalwells and consultancy services to implement the project, gathering of the necessary engineeringdata to evaluate field performance and the possibilityof secondary recovery, and training of CEPE staff. The economic rate of return would be about 35%. - 477 -
Present Status: The project is at a preliminary stage of preparation. Preparation of the necessary geological analyses would take about six months.
Executing Period: About three years.
=Mission's Comment: This is a very complex project requiring a great deal of sustained attention and super- vision. The cost estimate is tentative; it might prove to be higher. Mission's priority rating: "A". The IBRD may consider the project for its financing. - 478 -
(Petroleum)
Project Name: Sacha and ShushufindiWater Injection
Location: Napo Province
Executing Agency: CEPE/TEXACO
Total Estimated Cost: $30 million ($12 million for Sacha field; $18 million for Shushufindifield; excluding contingencies).
External Financing Required: $27 million ($10.8 million for Sacha; $16.2 million for Shushufindi). It is assumed that TEXACO would participate in financing of the project.
Expected Year of Commitment: 1979
Purpose of the Project: The Sacha oil field is currently producing 20,000 barrels/day and, although cumulative production to date amounts to less than 2% of the oil in place, the field has suffered a drastic decline in pressure. If this decline is not arrest-ed,the reservoir pressure will reach the bubble point pressure of the oil in two years' time, threateninga decline in production and remaining of considerableamounts of oil in the reservoir that could otherwise have been produced. A similar situation exists regarding the Shushufindi field except that the pressure decline has not been as acute; however, each year's delay in the start of water injection represents a permanent and unrecoverableloss of about 1% of the oil in place, or about 30 million barrels. The project is designed to arrest this decline in production.
Project Description: The project would comprise the facilitiesnecessary to inject water at rates of 60,000 barrels/day and 100,000 barrels/day,respectively, in the Sacha and Shushufindifields. These would consist of water supply systems, water treating facilities, water injection pumps and electrical generatorsand drilling and reconditioningseveral wells for water - injection. The project benefits would consist of recovering an additional 520 million barrels of oil over the life of the project, and the rate of return would be above 100%. - 479 -
Present Status: Thb-project is at a preliminary stage of prepara- tion. The necessary reservoir studies may take about six mouths. TEXACO, which is involved in production,would largely prepare the project.
Execution Period: About two years.
Mission's Comment: Project has a very high (A) priority. The IBRD- may consider it for its financing. - 480
(Petroleum)
Project Name: Oil Well Drilling (Tivacunoand Shiripuno)
Location: Napo Province
Executing Agency: CEPE
Total Estimated Cost: $30.0 (?)
External Financing Required: $25.0 (?)
Expected Year of Commitment: 1979
Purpose of the Project: To increase the country's petroleum production.
Project Description: The project is intended to develop petroleum pro- duction and exports from the Tivacuno and Shiripuno fields through the necessary tests and installation of production and treatment facilities,as well as storage, shipment and pipelines. The Tivacuno area covers about 160 ha and the Shiripuno are about 120 ha. The reserves are estimated by CEPE at about 5.6-million barrels in the Tivacuno area and about 15.9 million barrels in the Shiripuno area.
Present Status: The CEPE intends to proceed with the project as soon as financial resources are available.
Execution Period: About two years;commencing1980.
Mission's Comment: The mission considers that investment in new exploration and development of oil resources should have a high priority (priority"A"). However, it is not entirely clear whether these two areas are the best among other alternatives. A study on this matter is needed. - 481 -
(Petroleum)
Project Name: Esmeraldas Refinery Maritime Terminal
Location: Esmeraldas Province
Executing Agency: CEPE
Total Estimated Cost: $53.7 million
External Financing Required: $37.6 million
Expected Year of Commitment: 1978
Purpose of the Project: To facilitate shipping of petroleum products from the Esmeraldas refinery, for distributionin coastal areas of Ecuador and for exports. The project would help to raise the current production volume of the refinery which is operating at 67% capacity, owing to inadecquatecapacity for shipping of products. It would also facilitate import substitutionand increased exports related to certain refinery products.
Project Description: The exis7tingterminal has facilities to accommodate ships with 6,000-20,000TPM capacity. It has, how- ever, several important limitations including a lack of capacity to evacuate LPG; in evacuation of fuel oil, it is not possible to carry scrapers through the line, nor is it possible to exactly measure the product's shipment. There is also some risk of water contamination. Under the proposed project, an offshore platform would be built with breakwater, able to handle ships between 6,000 and 40,000 TPM. Two landing sites would be installed to service all kinds of ships and products, includ- ing LPG and fuel oil. There would be evacuation facilities for purposes of coastal trade and exports, dispatch inlets, reception and return lines, automatic dispatchingsystem, all with minimum water pollution.
Present Status: Preliminary feasibility and design studies have been completed by Sir William Halcrow and Associates of Ecuador and the TransportationDepartment of CEPE in January 1978. - 482 -
Execution Period: About two years.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Mission's priority rating of the project: "A"_- - 483 -
(Petroleum)
Project-Name: Petroleum Products Storage Terminals
Location: Guayas, Manabi and Azuay Provinces
Executing Agency: CEPE
Total Estimated Cost: $26.7 million
External Financing Required: $16 million (foreign exchange costs)
Expected Year of Commitment: 1979
Purpose of the Project: To supply different regions of the country with petroleum products; to eliminate seasonal shortages.
Project Description: The program would include four terminals, with warehouses and distributionfacilities, in Guayaquil,, -Manta,El Triunfo and El Austro. The following is a summary of the proposed investment:
(a) Guayaquil:
(i) First Stage: 487,302 bs of storage capacity and 65,646 bs of daily distri- bution capacity;
(ii) Second Stage: an addition of 318,420 bs to storage capacity.
(b) El Triunfo: storage capacity: 112,244 bs (for both civilian and military use).
(c) El Austro:
(i) First Stage: 97,397 bs of storage capacity;
(ii) Second Stage: an addition of 78,308 bs to storage capacity.
(d) Manta:
(i) First Stage: 92,326 bs of storage capacity;
(ii) Second Stage: an addition of 50,557 bs to storage capacity. - 484 _
The first stage would cover the 1980-83 period; the second stage, 1984-89.
~PresentStatus: Basic engineeringstudies have been completed.
Execution Period: About four years (first stage).
Mission's Comment: Priority rating: "A". - 485 -
(Petroleum)
Project Name: Expansion of Esmeraldas Oil Refinery
Location: Esmeraldas Province
ExecutingAgency: CEPE
Total Estimated Cost: $153.6 million
External Financing Required: $122.9 million
Expected Year of Commitment: 1979. The project will require favorable decisions on related infrastructureinvestment including Esmeraldas-Quitopipeline, maritime terminal and storage space.
Purpose of the Project: To meet growing domestic demand for light petroleum in Ecuador which at present is being imported. The project would meet the country's requirements through 1985.
Project Description: To enlarge the existing refinery, a new "topping" unit would be installed, together with a new atmospheric distillery to produce gasoline, kerosene and diesel. A second unit of fluid catalytic cracking for processing of petroleum residues would be erected to increase production of high octane gasoline from the residues and a new unit of vis- breaking to reduce the viscocity on the residues.
Present Status: Prefeasibilitystudies have been completed by the Universal Oil Products (UOP) Company.
Execution Period: About three years.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. In addition to the project design described above, alternative less expensive solutions, which would allow for a gradual build-up of the capacity,need to be considered. Mission's overall project priority rating: "B". - 486 -
(Petroleum)
Project Name: Ammonia Urea Fertilizer
Location: El Oro Province
Executing Agency: CEPE
Total Estimated Cost: Up to 145 million
External Financing Required: To be determined
Expected Year of Commitment: 1980
Purpose of the Project: Using natural gas resources of the Gulf of Guayaquil, the project will produce fertilizer to enable Ecuador to meet all of its domestic requirements for fertilizerand to have some surplus for export.
Project Description: The CEPE has two alternativeproject designs under consideration:
(a) CASE A: To produce 250 tons per day of ammonia and 400 tons per day of urea; or
(b) CASE B: To have an increased capacity of 400 tons per day of ammonia and 600 tons per day of urea.
The "B" case would allow export of a part of the production. However, capacity utilization in the early years would be relatively low and government subsidies may be required for the CEPE to stand competitionin export markets.
In broader aspects, the project (whichevercase is adopted) would secure an adequate and dependable supply of fertilizer for domestic market and would save foreign exchange by import substitution.
Present Status: A prefeasibilitystudy was prepared in 1975 by de Golyer and Mac Naughton. CEPE expects to complete final feasibilitystudy in 1978.
Execution Period: About four years.
Mission's Comment: Marketing studies would be needed to determine absorptive capacities of the domestic and export markets. The cost estimates have to be confirmed. Mission's priority rating of the project: "C". - 487 -
(Petroleum)
Project Name: PetrochemicalsComplex (ComplejoPetroquimico Ecuatoriano)
Location: Esmeralda Province (location of the project is still tentative, subject to confirmationafter completion of a project feasibility study)
Executing Agency: CEPE
Total Estimated Cost: $572 million (excludingan infrastructurecomponent)
External Financing Required: $400 million
Expected Year of Commitment: 1984; subject to availabilityof external finance.
Purpose of the Project: To produce refined petroleum mainly for sale in the domestic market and petrochemicalsfor both domestic consumptionand exports (includingsales in the Andean Region where Ecuador has certain concessions). The project will increase local value-added and employment and will contribute to Ecuador's balance of payments.
Project Description: The project will include the following major components:
(a) A refinery which will produce refined petroleum and raw materials for petrochemical plants;
(b) An olefins plant;
(c) An aromatic plant;
(d) An intermediateproducts plant.
The minimum capacity of plant is intended to be 200,000 tons of etylene and 150,000 tons of BTX (Butane, Toluene, Xylene) per year. However, definite decisions on the plant capacities and locations will await completion of a project feasibility study. The project will require: (a) an increase in Ecuador's oil production to support the proposed petrochemicalscomplex, and (b) external financial participation. - 488 -
Present Status: A prefeasibilitystudy was completedby CEPE in 1975. Feasibility studies will begin in 1978 by BEICIP (France)and Procunsult, and are expected to be completed by mid-1979.
Execution Period: About five years.
Mission's Comment: The project was originally conceived on the assump- tion that Ecuador's petroleum production would reach 350-400,000 BPD by mid-eighties. It is not yet clear-whetherthis target would be achieved. The proposed project requires heavy investment which has to be justified in terms of the project's economic, as well as technical feasibility. The mission's priority rating of the project at this time is "C". - 489 -
(Preinvestment)
Project Name: Project Preparation III
Location: Country-wide
Executing Agency: FONAPRE (Fondo Nacional de Preinversion)
Total Estimated Cost: $16 million
External Financing Required: $13 million
Expected Year of Commitment: 1979
Purpose of the Project: To accelerate economic and social development through preparation of sound development projects in priority investment sectors. The FONAPRE supports major preinvestment studies, including final design studies, which are likely to lead to investment decisions.
Project Description: The proposed project, like the two preceding ones, would provide funds for FONAPRE to augment its government allocations in financing of project feasibility studies. The loan funds would be available to finance studies related to public sector investments in high-priority sectors. Specific projects to be supported would be selected in accordance with government priorities.
Present Status: With progress in the execution of the preceding IBRD-financed project, this project may also be financed by IBRD.
Execution Period: About three years.
Mission's Comment: Priority rating: "A". - 490 -
(Preinvestment)
Project Name: Technical Assistance II
Location: Country-wide
ExecutingAgency: FONAPRE
Total Estimated Cost: $12 million
External Financing Required: $10 million
Expected Year of Commitment: 1980
Purpose of the Project: To accelerate economic and social development through preparation of sound development projects in priority investment sectors. The FONAPRE supports major preinvestmentstudies, including final design studies, which are likely to lead to-investment decisions.
Project Description: The proposed project, like the preceding one, would provide funds for FONAPRE to augment its government allocationsin financing of project feasibility studies. The loan funds would be available to finance studies related to public sector investments in high-prioritysectors. Specific projec ts to be supported would be selected in accordance-with government priorities.
Present Status: With progress in the execution of the preceding IDB-financed project, this project may also be financed by IDB.
Execution Period: About three years.
Mission's Comment: Priority rating: "A". - 491 -
(Railways)
Project Name: Railways Rehabilitation
Location: Various Provinces
Executing Agency: EMFE (Empresa Nacional de los Ferrocarriles)
Total Estimated Cost: $15 million
External Financing Required: $10 million
Expected Year of Commitment: 1982
Purpose of the Project: To improve the Ecuador national railway system's capacity and efficiency.
Project Description: Purchase of new rolling stock, accessories and equipment. Under the project, five diesel electric locomotives,four other locomotives, 10 motor carriages, 10 freight cars, 10 wagons, 20 tanker cars,.four refrigeratedcars and other equipment would be purchased. Suppliers' credits may be used, although there has yet been no decision by the railways administrationon the type of external financing required.
Present Status: A prefeasibilitysreport was prepared in 1975 and 1976 by SOFRERAIL. FONAPRE conducted a feasibility study in 1977. The government has not yet decided -on the execution of the project.
Execution Period: The project execution may take seven years.
Mission's Comment: A railway modernization program, of the magnitude of the SOFRERAIL proposal, may be difficult to justify in economic terms, consideringhighly subsidized road transportationin Ecuador. Indeed, the economic viability of even a much smaller investment in railway improvementmay prove difficult to prove in view of strong competitionof road transport. It appears that the railways suffer from a high incidence of derailmentsdue to poor condition of the track. Considerationmay be given to a modest project for track improvement. Overall project priority: "C". 492-
(Sea Transport)
Project Name: Purchase of two ships for transportationof petroleum between Ecuador and foreign ports
Location: National
Executing Agency: FLOPEC (Flota Pesquera Ecuatoriana),a government- owned corporation
Total Estimated Cost: $25 million
External Financing Required: $24.million
Expected Year of Commitment: 1979
Purpose of the Project: To replace two existing ships of 32,000 tons each which are now operated.byFLOPEC. As at present, the new ships would be used in export of Ecuadorian crude and fuel oils and in import of other oil derivativeswhich are not produced in Ecuador.
Project Description: The-two new ships .tobe purchasedwould each be of about 32,000 tons.
Present Status: Preliminaryproposal.
Execution Period: Two years.
Mission's Comment: The cost estimatesmay be on the low side. Overall priority rate: *"A". - 493 -
(Sea Transport)
Project Name: Purchase of four ships for domestic transportation of petroleum
Location: National
Executing Agency: FLOPEC
Total Estimated Cost: $36 million
External Financing Required: $35 million
Expected Year of Commitment: 1980
Purpose of the Project: To contribute to domestic distributionof petroleum. Specifically:
(a) Crude petroleum would be shipped from Balao to refinery (Refineria de la Libertad); and
(b) Pet-roleumderivatives would be shipped from production centers to various consumption centers (Guayaquil,Puerto Bolivar, Manta in particular).
These four ships would complement shipments of petroleum by means of pipeline and land transport vehicles and would eliminate the shortcomingsof the present network.
Project Description: The four ships to be purchased would be 12,000 tons each.
Present Status: Preliminary proposal.
Execution Period: Three years.
Mission's Comment: The cost estimates may be on the low side. A feasi- bility study has to be carried out to determine economic justification for the project. Overall priority rating: "B". - 494
(Ports)
Project Name: Esmeraldas Port, Phase II
Location: Esmeraldas Province
ExecutingAgency: Esmeraldas Port Authority
Total Estimated Cost: $24.6 million
External Financing Required: $12.3 million
Expected Year of Commitment: 1980
Purpose of the Project: Constructionof additional port facilities and installationsfor general cargo and fishing vessels for handling of local traffic.
Project Description: The first part of the program, which consists of the following components,is under construction (IDB loan):
(a) dredging and disposal of filling material;
(b) s-tabilityand alignment of breakwater;
(c) construction of two wharves and one service wharf;
(d) storage facilities;
(e) Fadministration.buildings,port equipment, roads and paved areas, utilities.
The second part, which would constitute the pro- posed project, would include two additional wharves, warehouses, open storage, port equipment and miscellaneousworks.
Present Status: A feasibility study of the project was prepared by Livessey and Henderson in 1975. An updated feasi- bility study and detailed engineering,which are now being prepared by the Port Authority, will be completed by the end of 1978. Constructionof the - project will await progress with the construction of the first phase development. - 495 -
Mission's Comment: 1985 would be a more realistic target date for the commitment of funds for this project. It is also likely that the growth of dry cargo at Esmeraldas will not justify a phase II development of the scale proposed. A smaller project could well be adequate, with a total estimated cost of $15.0 million (foreign exchange component $9.0 million). Priority rating: "B". - 496 -
(Ports)
Project Name: Expansion of Fort of Manta
Location: Manabi Province
Executing Agency: Manta Port Authority
Total Estimated Cost: $30 million (excludingequipment and contingencies)
External Financing Required: $13.5 million
Expected Year of Commitment: 1980
Purpose of the Project: To enable the Port of Manta to cope with increased volume of traffic.
Project Description: The project is designed to expand the port's cargo handling area and storage space and to install new electrical equipment. It is expected that the port will handle each year about 15,000 tons of imports traffic (combustiblecargo) and about 60,000 tons of exports traffic.
Specifically,the proposed project would include:
- Dredging of 5 to 7 m near the marginal piers; - Enlargement of landing pier; - New pier for oil trade; - Silos for liquids and grains; - Warehouse (2,400 m 2) for imported merchandise; - 2,500-ton tanks (for liquid); - Tourist pier; - Office space for maintenance crew.
Present Status: Feasibility studies and detailed engineeringare expected for completion in 1978.
Execution Period: About four years. - 497 -
Mission's Comment: The recent increase in traffic at Manta port, largely due to the present congestion in the port of Guayaquil, is likely to subside when the expan- sion works currently under way are completed by 1980. The need for a large increase in the capacity of Manta port may not arise during the next few years. A more modest expansion,based on a care- fully prepared traffic forecast and feasibility study, may be justifiable and may cost about $10.0 million (with $6.0 in foreign exchange component). Overall project priority: "B". - 498 -
(Sea Transport)
Project Name; Port of Bolivar Expansion, Phase II
Location: El Oro Province
ExecutingAgency: Port of Bolivar Port Authority
Total Estimated Cost: $17.2 million (excludingequipment and contingencies)
External Financing Required: $8.6 million
Expected Year of Commitment: 1980
Purpose of the Project: To enable the Port of Bolivar to cope with increas- ing traffic, including particularlyexports of bananas, sugar and molasses.
Project Description: The project would expand the port's general cargo handling capacity to amount to approximatelyone million tons a year each for export and import trade.
Present Status: The project is being defined.
Execution Period: After completion of the necessary feasibility and engineering studies, the project would be executed over a three-year period.
Mission's Comment: The first phase of the Port of Bolivar expansion was recently completed. In view of slow growth potential of the banana traffic, the need for the phase II developmentmay not arise for some time. The target date for commitment for this project may be deferred to 1983. Nevertheless, for a firmer decision, a review of the traffic forecast should be made. Overall project priority: "B". - 499 - (Sea Transport)
Proiect Name: Naval Shipyards (ASTINAVE)
-Location: Guayas Province
Executing Agency: DIMERC (DireccionGeneral de Desarrollo Maritimo de la Fuerza Armada del Ecuador). ASTINAVE, a mixed government/privatecompany, will develop and manage the project. Foreign participation is welcomed.
Total Estimated Cost: $177 million
External Financing Required: $106.2 million
Expected Year of Commitment: 1981
Purpose of the Proiect: To develop an industry for the constructionand maintenance of ships; to increase employment, and to save foreign exchange.
Project Description: The project will be divided into several phases as shown below:
(a) At a total cost of $13 million, construction of a shipyard with a capacity of 1,000 tons, to-constructand maintain ships;
(b) A dry dock for maintenance of ships of 40,000 DWT, at a total cost of $84 million;
(c) A constructionplatform for the construction of ships of 6,000 DWT;
(d) A dry dock for constructionof cargo ships of 16,000 DWT, or petroleum tankers of a higher capacity.
The total cost of Phases (c) and (d) would be $80 million.
Present Status: A prefeasibilitystudy was completed in July 1977 by DIMERC and foreign consultants. Several ship- yard companies in Japan, Germany and Brazil have shown interest. Final studies will not be ready before 1978. - 500 -
Execution Period: About nine years.
Mission's Comment: While the (a) and (c) sections of the project seem to be of fairly high priority (priority "B"), economic justification for the (b) and (d) sections, which would account for a very large part of the total estimated pToject costs, has to be carefully examined. Priority rating for sections (b) and (d): "C"i. - 501 -
(Regional Development/Tourism)
Project Name: Galapagos Islands Conservation and Selective Development (Plan de Conservacion y Desarrollo Selectivo por la Provincia de Galapagos)
Location: Galapagos Province
Executing Agency: CONGLAP (Comite de Conservacion y Desarrollo de la Provincia de Galapagos, a specially created project coordination committee) (with assistance from the Ministry of Agriculture and Livestock and Department of National Parks)
Total Estimated Cost: $10.7 million
External Financing Required: $8.6 million
Expected Year of Commitment: 1978, subject to availability of finance.
Purpose of the Project: To preserve/restore natural characteristics of the Galapagos Islands which would be designated as "Parque Nacional Los Galapagos." With its original-fauna and flora restored, the islands would offer a unique opportunity for scientists as a natural laboratory and area of scientific research. The project would also provide for selective tourism,.development and amenities to assist in improving the standard of living of the local people.
Project Description: The project would include:
(a) "Parque Nacional": infrastructure; eradication of fauna alien to the area; developmet of scientific research directed to both land and sea areas of the islands.
(b) Urban planning: control of human settlement and land ownership; improving housing and infrastructure; regulation of beach use; etc. - 502 - (c) Tourism: Constructionof tourist reception and orientationcenters; training of tourist guides; youth hostels; preparation of promo- tional materials; acquisition of small craft; constructionof observationpoints; etc. About 436 rooms would be added to the existing tourist accommodations,to raise the annual tourist intake to 12,000 (maximum). A general charge of $30 would be payable by foreigners and $4 by Ecuadorians.
(d) Supplementarysubprojects:
(i) developing of small agriculture and fishing;
(ii) training of artisans;
(iii) road maintenance;
(iv) telephones and other equipment for intra-islandscommunications;
(v) electricity;
(vi) improvement of education, health, water supply and sewerage services.
Present Status: A feasibility study has been prepared.
Execution Period: About five years.
Hission's Comment: An interestingproposal which calls for a well- integrated intersectoralapproach. Environmental conservation,limited tourism development,urban settlement conttol, provision of amenities and simultaneousdevelopment of suitable rural and industrial activities for the local population present a package of separate but independent development effort which constitute parts of the proposed project. The mission's priority rating: "A". - 503 -
(Tourism)
-Project Name: Esmeraldas Hotel
Location: Esmeraldas Province
Executing Agency: CorporacionFinanciera Nacional
Total Estimated Cost: $3.1 million
External Financing Required: $1.6 million
Expected Year of Commitment: 1978, subject to availabilityof finance
Purpose of the Project: To provide first-class (four-star)hotel accommoda- tion in downtown Esmeraldas City where a mere 17 first-classhotel rooms are available at this time. A number of major infrastructureprojects (port, refinery, etc.) have recently been built in the city, with increased commercial and administra- tive activity. The new hotel would cater to visit- ing businessmen in the first place and may also encourage tourism.
Project Description: It is'planned that the new hotel would have 80 first-class rooms, with the possibility of raising it to 112 rooms in future. Provision would also be made for restaurants,cafeteria, pool and recreation areas. It would provide employment for 117 people. The internal rate of return of the pr6posed project is estimated at 11.85%.
Present Status: A feasibility study has been completed.
Execution Period: About two years.
Mission's Comment: The Government has selected this project as a priority investment for participationby external lending agencies. Prospects for private sector financing of the project should be examined. The mission's priority rating: "B". - 504 -
(Tourism)
--Project Name: Guayaquil Hotel
Location: Guayas Province
Executing Agency: Corporacion Financiera Nacional
Total Estimated Cost: $20.2 million
External Financing Required: $10.0 million
Expected Year of Commitment: 1979
Purpose of the Project: To increase the supply of luxury-type hotel accom- modation in the city of Guayaquil, to serve tourists and businessmen. The existing hotels in the city are operating at fully capacity, as evidenced by occupation ratios of 88% or higher.
Project Description: The proposed hotel would include 300 luxury-class rooms in a 15-floor tower which would raise over a 3-floor frame. It would be located near Guayas River to benefit from the natural beauty of the site. The profitability of the proposed investment is based on an occupation ratio of at least 69.5%. The initernalrate of return would be in excess of 14%. The hotel is expected to contribute to inter- national commerce and tourism by offering much- needed luxurious type accommodation in Ecuador's largest city and port.
Present Status: A feasibility study has been completed by the firm Frederic Harris and ICA of Ecuador in 1977; also completed are the architectural designs.
Execution Period: About three years.
Mission's Comment: The Government has selected this project as a priority investment for participation by external lending agencies. Prospects for private sector financing of the project should be examined. The rationale for increasing capacity in "luxurious" category, rather than in others, has to be stated. The mission's rating: "B". - 505 -
(Tourism)
Project Name: Eluaynacabac Hotel
Location: Azuay Province
Executing Agency: Corporacion Financiera Nacional
Total Estimated Cost: $2.9 million
External Financing Required: $1.5 million
Expected Year of Commitment: 1978, subject to availability of finance.
Purpose of the Project: The proposed hotel will increase attraction of Cuenca and its region for foreign tourists. The existing first-class hotel in Cuenca, with 98 beds, is not sufficient to meet the current demand by local and foreign travellers.
Project Description: The proposed construction would involve two areas, one for commercial leaseholders and the other for tourist accomodation both in the western part of Cuenca. The latter would constitute the project. The hotel would be in the luxury class, with 100 rooms, a restaurant, cafeteria, sauna, snack bar, swimming pool, etc. There would be a horizontal building, for social gatherings and general services, and a tower for the lodging. It is estimated that the project will have an internal rate of return of 13.5% and will-employ about .98 people.
Present Status: Feasibility studies and an architectural design have been completed.
Execution Period: About two years.
Mission's Comment: The Government has selected this project as a priority investment for participation by external lending agencies. Prospects for private sector financing of the project should be examined. The rationale for increasing capacity in "luxurious" category, rather than in others, has to be stated. The mission's rating: "B". _ 506 -
(Tourism)
Proiect Name: National Tourism Development (Plan Nacional Desarrollo Turistico)
Location: Country-wide
Executing Agency: Direccion Nacional de Turismo (a government department)
Total Estimated Cost: $105 million
External Financing Required: $52.5 million
Expected Year of Commitment: 1979, subject to availabilityof finance.
Purpose of the Project: The project is designed for developing domestic and internationaltourism in Ecuador and thereby increas- ing foreign exchange earnings, in a well coordinated manner. It is planned that tourism investments in the country would support projects which are comple- mentary to each other rather than competitive.
Project Description: The project would.consist of provision of buildings and infrastructure,as well as improvementand rehabilitationof tourism facilities, in the following tourism areas of the country:
(a) S-ierra(Quito area): Improvementsin City of Quito, Tourism amenities at the San Pablo lake;
(b) North Coast: Improvementof the Balneario de:Sua beach, ocean-side roads;
* (c) Central Coast: Improvement of beaches in Manta and Bahia:roads along the ocean coast;
(d) South Coast: Improvement of beach areas; drinking water in the Santa Elena Peninsula;
(e) Jambeli-Islands: Improvement of beaches, and commercial and residential areas;
(f) Cuenca Basin: Improvements of river-side beaches, Arqueological Center in Ingapirca;
(g) Forest areas: Plant and Animal reservations; - 507 -
(h) Galapagos Islands: Conservationand selective development for tourism.
The project assumes an annual growth rate of 7.5% in tourist arrivals, which could reach 266,000 by 1982.
Present Status: Prefeasibilitystudy completed.
Execution Period: To be determined.
Mission's Comment: This is a broad program which has to be related to specific projects or subprojects for particular regions or tourism enterprises. The mission's rating for this proposal at this time: "C". - 508 -
(Urban Development)
Project Name: Guayaquil Sites and Services
Location: Guayas Province
ExecutingAgency: Municipalityof Guayaquil (Municipio de Guayaquil) and Banco del Pacifico (for the employment component)
Total Estimated Cost: $20.0 million
External Financing Required: $12.0 million
Expected Year of Commitment: 1979
Purpose of the Project: The project is designed to accelerate implementa- tion of a poverty-orientedinvestment program in Guayaquil, to provide for:
(a) site and services/upgrading: to initiate the first phase of an expanded yet manageable' program which would demonstrate the feasibil- ity of providing lower-standardservices to marginal areas and recovery costs, and build implementationcapacity for larger scale projects to follow; and
(b) lending to small-scaleenterprises to demonstrate the feasibility of expanded programs in this area which would generate jobs for low-income workers throughout the city.
Project Description: As presently designed, the project would directly benefit at least 16,000 families, nearly 10% of the city's population. It would include:
(a) Settlement Upgrading: to improve basic infrastructureand to provide needed facil- ities to selected existing neighborhoods such as the "suburbio." The choice of neighborhoods would be determined by an evaluation of socio-economic,physical and technical conditions. The project would affect about 3,000 households in two areas. The services to be provided would be afford- able to 90% of the population of the neigh- borhoods to improved (Guasmo and Mapasingue). Community facilities and regularizationof tenure would be included; - 509 -
(b) Serviced Plots: concurrentwith upgrading of existing areas, the project would provide for 3,000-4,000new plots. The sites would be minimally serviced (without superstructure), economical in terms of both cost and adminis- tration, so that they will be affordable to very low income groups.
Present Status: A prefeasibilitystudy by consultants is scheduled for completion by June 1979.
Execution Period: About three years.
Mission's Comment: A high priority ("A") project. It is under consi- deration for lending by the IBRD. - 510 -
(Urban Development)
Project Name: Quito Markets Development
Location: Pichincha Province
Executing Agency: Municipality of Quito
Total Estimated Cost: $6 million
External Financing Required: $4 million
Expected Year of Commitment: 1979, subject to availability of finance.
Purpose of the Project: To improve the living conditions of urban popula- tion in the city of Quito through a program of improved markets. The proposed project would be the second phase of a continuing program.
Project Description: The project would include construction or major expansion .of the following markets in Quito:
(a)- District market "El Inca," with a capacity of 533 to 800 units;
(b) Sectoral market "San Roque," with a planned capacity of 1,420 units (expansion);
(c) District-market "Sur Occidental" with a capacity of .520 to 800 units;
(d) Sectoral market "La Floresta" with a capa- city of 320 units;
(e) Various smaller markets.
Present Status: The municipality of Quito has engaged the services of Camp Dresser & McKee International Inc. in 1973 to prepare a "Market Plan" for the city of Quito. The IDB has financed the first phase of the program.
Execution Period: About four years.
Mission's Comment: Priority rating: "B". - 511 -
(Water Supply and Sewerage)
Project Name: Guayaquil Sewerage, Phase II
Location: Guayas Province
Executing Agency: Municipalityof Guayaquil
Total Estimated Cost: $24 million
External Financing Required: $17 million
Expected Year of Commitment: 1978, subject to availabilityof finance.
Purpose of the Project: To provide the city of Guayaquil with adequate sewerage services).
Project Description: The project constitutes the second phase of a program which provides for collection and treat- ment of sewerage in the north and southern sections of the city of Guayaquil. It would consist of:
(a) Sanitary sewerage systems to provide the existing low income settlements (Guayaquil Suburbio) with secondary collection systems to service 22,000 dwellings;
(b) Pluvial seweiage systems in the same area to recollect rain water to improve health conditions of the settlements.
Present Status: A feasibility study was prepared by Parsons (NY) and Ecuadorian consultants. Additional informa- tion, required to complete the project prepara- tion, is being collectedby the Municipality staff, with assistanceby the IDB which had financed the first phase of this program. It is likely that the IDB will finance also the second phase of the program including the "suburbio" component.
Execution Period: About six years.
Mission's Comment: This is considered a high priority ("A") invest- ment, particularly the "suburbio" component of the proposed second phase program. -512-
(Water Supply and Sewerage)
Project Name: Salinas Sewerage
Location: Guayas Province
Executing Agency: IEOS (Instituto Ecuatoriano de Obras Sanitarias), a government department
Total Estimated Cost: $1.8 million
External Financing Required: $1.1 million
Expected Year of Commitment: 1979
Purpose of the Proiect: To complement the existing potable water system, the project will provide sewerage services for the city of Salinas (pop. 17,000)
Project Description:- The project would include sewerage lines and an oxidation pond for treatment of sewerage.
Present Status: A feasibility study has been completed by an Ecuadorian consulting firm.
Execution Period: About 30 months.
Mission's Comment: In view of the installation of water house connec- tions in the project area, provision of adequate sewerage facilities is needed to avoid future sani- tation problems. The project has a high priority ("A"). This project, as well as several other small sewerage/water supply projects which follow, have been presented to-the IBRD for possible financing. _ 513 -
(Water Supply and Sewerage)
Project'Name: De Daule Sewerage
Location: Guayas Province
Executing Agency: IEOS
Total Estimated Cost: $1.6 million
External Financing Required: $1 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of De Daule (pop. 17,000).
Project Description: The project would include sewerage lines and a sewerage-treatment pond.
Present Status:. A feasibility study was completed in 1975; minor updating will be necessary.
Execution Period: About two years.
Mission's Comment: In view of the installation of water house connec- tions in the project area, provision of adequate sewerage facilities is needed to avoid future sanitation problems. The project has a high priority ("A"). - 514 -
(Water Supply and Sewerage)
Project Name: La Libertad Sewerage
Location: Guayas Province
Executing Agency: IEOS
Total Estimated Cost: $2 million
External Financing Required: $1.2 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of La Libertad (pop. 32,000)
Project Description: The project would.include sewerage lines, pumping station and a sewerage treatment pond.
Present Status: - Feasibility studies have been completed by an Ecuadorian consulting firm.
Execution Period: About two years.
Mission's Comment: In view of the installatin of water house connec- tions in the project area, provision of adequate sewerage facilities is needed to avoid future sanitation problems. The project has a high priority ("A"). - 515 -
(Water Supply and Sewerage)
Project Name: Milagro Sewerage
Location: Guayas Province
Executing Agency: IEOS
Total Estimated Cost: $4 million
External Financing Required: $2.4 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of M4ilagro(pop. 67,000)
Project Description: The project would include sewerage lines, pumping station and a sewerage treatment pond.
Present Status: Feasibility studies have been completed by the end of 1978.
Execution Period: About two years.
Mission's Comment: In view of installatinof water house connections in the project area, provision of adequate sewerage facilities is needed to avoid future sanitation problems. The project has a high priority ("A"). - 516 -
(Water Supply and Sewerage)
Project Name: Santa Elena Sewerage
Location: Guayas Province
Executing Agency: IEOS
Total Estimated Cost: $1 million
External Financing Required: $0.6 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of Santa Elena (pop. 9,000)
Project Description: The project would include construction of main and secondary sewerage lines, a pumping station and a sewerage treatment pond.
Present-Status: A final feasibility study is near to be completed.
Execution Period: About two years.
Mission's Comment: In view of the installation of water house connec- tions in the project area, provision of adequate sewerage facilities is needed to avoid future sani- tation problems. The project has a high priority
("A"I).* - 517 -
(Water Supply and Sewerage)
Project Name: Ambato Sewerage
Location: Tungurahua Province
Executing Agency: IEOS
Total Estimated Cost: $4 million
External Financing Required: $2.4 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of Ambato (pop. 89,000)
-ProjectDescription: The project would provide for major improvementsto the exisfing sewerage system. To avoid pollution resulting from flow of sewerage water into the Ambato River, a treatment plant would be constructed under-the proposed project.
Present Status: Feasibility study, being prepared by the consulting firm Astec, will be ready by 1978.
Execution Period: About two years.
Mission's Comment: Priority rating: "B". - 518 -
(Water Supply and Sewerage)
Project Name: Babahoyo Sewerage
Location: De los Rios Province
Executing Agency: IEOS
Total Estimated Cost: $3.2 million
External Financing Required: $1.9 million
Expected Year of Commitment: 1980
Purpose of the Project: To provide sewerage services for the-city of Babahoyo (pop. 35,000)
Project Description: The project would include constructionof sewerage lines, a pumping station and a sewerage treatment -pond.
Present Status: A project feasibility-studywill be completed by the-end of .1979.
Execution Period: About two years.
Mission's Comment: Priority rating: "B". -519-
(Water Supply and Sewerage)
Project Name: Drinking Water for Different Urban Centers of Ambato District
Location: Tungurahua Province
Executing Agency: IEOS
Total Estimated Cost: $2 million
External Financing Required: $1.2 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide drinking water for about 13,000 inhabi- tants of the Ambato District.
Project Description: The project would include:
(a) a regional service system for Tisaleo, Iluachi, Grande, Montalvo, Cevallas, Picaihua, San Bartolome, as well as for Santa Lucia, Alabamba, Yanahurco, San Francisco and La Esperanza;
(b) independent systems to serve Santa Rosa, Pilahuin, ConstantinoFernandez and Juan Beningno Vela.
These systems will provide for supply, treatment, distributionand storage of water, together with house connections.
Present Status: Feasibility studies, undertaken by the consulting firm Astec, will be completed by the end of 1978.
Execution Period: About two years.
Mission's Comment: Priority rating: "B". - 520 -
(Water Supply and Sewerage)
Project Name: El Oro Province Water Supply
Location: El Oro Province
Executing Agency: IEOS
Total Estimated Cost: $24 million
External Financing Required: $14 million
Expected Year of Commitment: 1978, subject to availabilityof finance
Purpose of the Project: To provide drinking water to 12 towns in the Oro 'Province,where existing systems are inadequate.. It is a part of a program to be implemented in two phases. Under the first phase, which would consti- tute the project, about half of the capacity would be-installed; the full capacity would be attained in about 15 years' time.
Project Description: The.project is -partof regional drinking water supply system to serve two principal towns, Machala and Puerto Bolivar, and to extend services in 10 additional smaller towns, mostly with individual house connections,but in some cases with public water outlets only. The project-wouldinclude the following components:
(a) spillway 1.8 m with a capacity of 650 liters -per second;
(b) water storage systems;
(c) water treatment (cooling and disinfecting systems);
(d) transmissionsystems;
(e) distributionsystems.
It is estimated that the project will provide drinking water to a total population of about 116,500. - 521 -
Present Status: The project is being prepared by IEOS, with assis- tance by the IDB which may finance it.
Execution Period: About five years.
Mission's Comment: Priority rating: "B". -522-
(Water Supply and Sewerage)
Project Name: Lacatunga Drinking Water
Location: Cotopaxi Province
Executing Agency: IEOS
Total Estimated Cost: $1.2 million
External Financing Required: $720,000
Expected Year of Commitment: 1979
Purpose of the Project: To provide drinking water for the city of Lacatunga (pop. 26,000).
Project Description: The project will include installations for securing, treatment and distribution of water and will provide for house connections.
Present Status: A project feasibility study by the consulting firm IEOS will be completed by the end of 1978.
Execution Period: About a year.
Mission's Comment: Priority rating: "B". - 523 -
(Water Supply and Sewerage)
Project-Name: Machala Sewerage
Location: El Oro Province
Executing Agency: IEOS (Instituto Ecuatoriano de Obras Sanitarias)
Total Estimated Cost: $4.8 million
External Financing Required: $2.9 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of Machala (pop. 94,000).
Project Description: The project would include sewerage lines, pumping station and sewerage treatment pond.
Present Status: A project feasibility study will be completed by mid-1979.
Execution Period: About three years.
Mission's Comment; Priority rating: "B". - 524 -
(Water Supply and Sewerage)
Project Name: Quevedo Sewerage
Location: De los Rios Province
Executing Agency: IEOS
Total Estimated Cost: $3.6 million
External Financing Required: $2.2 million
Expected Year of Commitment: 1979
Purpose of the Project: To provide sewerage services for the city of Quevedo (pop. 58,000).
Project Description: The project would include sewerage lines and a sewerage treatment pond. These works are necessary to.complement the existing drinking water system.
Present Status: A feasibility study and detailed design.work are being completed by the consultingfirm Aquaestudios.
Execution Period: About-two years.
Mission's Comment: Priority rating: "B". - 525
(Water Supply and Sewerage)
Project Name: Salcedo Sewerage
Location: Cotopaxi Province
Executing Agency: IEOS
Total Estimated Cost: $400,000
External Financing Required: $240,000
Expected Year of Commitment: 1979
Purpose of the Project: Combined sewerage services for the City of Salcedo (pop. 5,000).
Project Description: The project would include main and secondary collection lines and disposal system.
Present Status: A project feasibility study was completed in 1976.
Execution Period: About a year.
Mission's Comment: Priority rating: "B". 526 _
(Water Supply and Sewerage)
Project Name: Pita-TaiaboWater Supply (Quito), Phase II
Location: Pichincha Province
Executing Agency: Empresa Municipal de Agua Potable de Quito
Total Estimated Cost: $121.2 million
External Financing Required: $60.6 million
Expected Year of Commitment: 1980, subject to availabilityof finance.
Purpose of the Project: To provide the city of Quito with additional drinking water source, to sustain its social well being and economic growth.
Project Description: The first phase of this project, financed by the IDB has been completed. The second phase will- provide the city with additional drinking water of 500 liters per second through the year 1985, and with 1,000 liters per second through the year 2000. The project will also provide drinking water to the follow-ingsuburban centers: San Antonio and Potomaski, Calderon, Cumbaya, Tumbaca, Puembo and Pito.
The project works would include:
(a) constructionof a second water intake;
(b) canals;
(c) expansion of the existing water treatment plant; and
(d) distributionsystems.
Present Status: A project feasibility study was prepared by Camp- Dressner & McKee Internationaland Consultores Ecuatorianos. The study is being reviewed by Empresa Municipal. The IDB, which has made a low-interestloan for the pre-investmentstudies, may consider financing of the project. - 527 -
Execution Period: The execution period is estimated at five years.
Mission's Comment: This is an expensive project (it may cost more than $150 per capita on the basis of the present popula- tion of Quito) and careful considerationshould be given to the project timing, as well as ways to reduce capital costs. The mission's priority rating: "C".