SECOND PORTS PROJECT Public Disclosure Authorized March 14, 1978

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No.P-2255-CY

REPORTAND RECOMMENDATION

OF THE

PRESIDENT OF THE Public Disclosure Authorized

INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT

TO THE

EXECUTIVEDIRECTORS

ON A

PROPOSED LOAN

TO THE CYPRUS PORTS AUTHORITY

Public Disclosure Authorized WITH THE GUARANTEEOF

THE REPUBLIC OF CYPRUS

FOR A

SECOND PORTS PROJECT Public Disclosure Authorized March 14, 1978

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. CURRENCY EQUIVALENTS (As of January 1, 1978)

Currency Unit = Cyprus Pound (LC) (1,000 Milliemes) US$1.00 = SC 0.40 US$1.0 million = LC 400,000 EC 1.00 = US$2.50 EC 1.0 million = US$2,500,000

Fiscal Year - January 1 to December 31

ABBREVIATIONS

CPA - Cyprus Ports Authority (formerly Cyprus Ports Organization) DCA - Department of Civil Aviation LBI - Louis Berger International, Inc. MCW - Ministry of Communications and Works PWD - Public Works Department FOR OFFICIAL USE ONLY

CYPRUS

LIMASSOL AND LARNACA PORTS EXPANSION PROJECT

LOAN AND PROJECT SUMIARY

Borrower: Cyprus Ports Authority

Guarantor: Republic of Cyprus

Amount: $8.5 million

Terms: 15 years, including three years of grace, at 7.45 percent per annum.

Project Project provides for expansion of port facilities at Limassol Description: and Larnaca as well as technical assistance, including the following:

(1) At Limassol: Construction of about 480 m of quay, 11 m in depth, with two berths for container vessels, one for passenger ships and a roll-on roll-off ramp; paving and surfacing of roads, open storage and parking areas in the port area; construction of transit sheds, warehouses, passenger terminal, port administration and ancilliary buildings; provision of utility services for expanded facilities, including water supply, electricity, drainage, sewerage, etc.; purchase of cargo handling, container handling, and workshop equipment.

(2) At Larnaca: Construction of a transit shed, baggage hall, port administration building and ancilliary building; paving and surfacing of open storage and parking areas in the port area; and provision of utility services for expanded facilities, including water supply, electricity, drainage, sewerage, etc.; purchase of cargo handling and workshop equipment.

(3) Technical Assistance: Consulting services for (a) engineering design and supervision of all civil works at both ports; (b) assisting CPA to improve management and operational policies and procedures; and (c) for training of CPA personnel.

Project Objectives: To relieve congestion at the ports of Limassol and Larnaca and to accommodate future traffic growth at these ports up to 1983; to improve the management and operational efficiency of the Cyprus Ports Authority; to introduce new technology in the form of specialized container cargo handling equipment, and to create employment opportunities.

This document hasa restricteddistribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. - ii -

Risks: The project provides for sufficient port facilities to cope with forecast traffic up to 1983 at minimum cost and accords with an investment policy which minimizes risks since it takes account of the possibility that other ports might become available.

Project Costs: Local Foreign Total % of Project Costs ------US$ million------

1. Limassol 7.24 10.82 18.06 61.00

(a) Civil Works 7.12 7.74 14.86 50.00 (b) Equipment 0.12 3.08 3.20 11.00

2. Larnaca 1.58 1.87 3.45 12.00

(a) Civil Works 1.58 1.12 2.70 (b) Equipment - 0.75 0.75

3. Consultants and Training 0.30 1.20 1.50 5.00

4. Contingencies 2.96 3.50 6.46 22.00

(a) Physical 1.43 1.55 2.98 10.00 (b) Price 1.53 1.95 3.48 12.00

5. Total 12.08 17.39 29.47 100.00

Financing Plan: Local Foreign Total ----- US$ million------%

IBRD - 8.50 8.50 29.00 Internally generated funds 12.08 - 12.08 41.00 Other (suppliers credits and through Government) - 8.89 8.89 30.00

Total 12.08 17.39 29.47 100.00

Estimated Disbursements: FY79 FY80 FY81 FY82

----- … US$ million------

Annual 1.4 3.4 2.9 0.8 Cumulative 1.4 4.8 7.7 8.5

Rate of Return: 31 percent

Staff Appraisal Report: No. 1861b-CY, dated March 7, 1978 INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

REPORT AND RECOMMENDATIONOF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CYPRUSPORTS AUTHORITY WITH THE GUARANTEEOF THE REPUBLIC OF CYPRUS FOR A SECOND PORTS PROJECT

1. I submit the following Report and Recommendation on a proposed loan to the CyprusPorts Authority, with the guarantee of the Republic of Cyprus, for the equivalent of $8.5 million to help finance a second ports project. The loan would have a term of fifteen years, including three years of grace, with interest at 7.45 percent per annum.

PART I - THE ECONOMY

2. The last economic report on Cyprus (1151-CY) was circulated to the Executive Directors in May 1976. The Country Economist who visited Cyprus in April 1977 to update the information and analysis, also visited the economically important areas in the northern part of the island and held discussions with Turkish Cypriot officials. Since sufficient reliable data are still not available for the northern area, it is only possible to review adequately the economic situation and prospects for the southern Government- controlled part of the island. Findings of the April 1977 visit are reflected herein.

General Background

3. Cyprus' economy grew at 7 percent per annum between 1960 and 1972, despite tension between t:heGreek Cypriot and Turkish Cypriot communities. The major contributing factors to this growth were: a competent Government, dynamic entrepreneurs, a high rate of investment especially in the private sector, a rapid increase in agricultural exports contributing to strong overall balance of payments, and flexible fiscal and monetary policies, which helped to stimulate growth while maintaining domestic price stability.

* 4. The unprecedented drought of 1973 caused serious economic difficulties, and subsequently the events of July/August 1974 shattered the growing economy. Since then, Cyprus has been divided into two parts by a cease-fire line, with little movement of people or goods between them. The southern part, under the Government's control, constitutes 64 percent of the area of the island; the northern part, 36 percent of the land area, is under Turkish Cypriot control. About one-third of the total population was displaced, with over 150,000 Greek Cypriots moving south and approximately 45,000 Turkish Cypriots moving north. 'he displaced population has, in good part, been resettled with humanitarian assistance provided largely through the UN. In 1976, the Government-controlled area had an estimated 480,000 people; with 150,000 in the area under Turkish Cypriot control. Pending an island-wide political solution based on the principle of federation, the Turkish Federated State of Cyprus was proclaimed in February 1975. UN-sponsored intercommunal talks towards such a possible solution have been held intermittently, but have so far not been productive. With new initiatives recently undertaken by UN Secretary General Waldheim, such talks are scheduled to resume shortly.

5. The division of Cyprus into two zones has resulted in significant structural changes and difficulties for the island's economy. Immediately following the events of July/August, 1974, GNP per capita dropped by some 19 percent and the unemployment rate jumped to approximately 25 percent of the labor force in the Government-controlled area. The northern part of the island also faced a similar loss in income and increase in unemployment. The balance of payments position also suffered as both exports and imports of the area under Government control fell by about 55 percent in the second half of 1974. The drop in export earnings in the Government-controlled area reflected the loss of over 47 percent of Cyprus' cultivated land area in the north (including areas which produced over half the Island's agricultural exports), but which have only partially been exploited since 1974 by the Turkish Cypriots.

Recent Developments

6. The Government, through bold measures, succeeded in arresting and, in 1976, reversing the economic decline in the area it controls. In August 1975, it consolidated initial and new measures for economic recovery into an Emergency Economic Action Plan for 1975 and 1976. This Plan called for fixed investment of $275 million to create 16,000 to 20,000 new jobs, and efforts to reactivate industry and agriculture. In industry, it aimed at a major revival of industrial activity, through the creation of additional capacity in labor- intensive, export-oriented industries to rehabilitate the available labor force, and increase the utilization of existing capital. These efforts led to a rapid recovery of GDP and employment in 1975, from their very depressed levels at the end of 1974. The Cypriots were also successful in earning foreign exchange and obtaining significant employment opportunities abroad by winning construction contracts in the Middle East. In addition, the inflow of refugee aid reached $57 million. Despite these improvements, the balance of payments remained in deficit and reserves fell to the equivalent of six months' imports of goods and services.

7. There was a further strong export-led recovery in 1976, with a revival of private sector confidence and initiative stimulated by Government fiscal policies and direct investment in rehabilitating and expanding productive capacity. GDP increased by 14 percent in real terms, a remarkable achievement, with value added in both agriculture and industry up 20 percent. The unemployment rate fell to 10 percent. As a result of the success in exporting labor for civil works contracts won by Cypriots in the Middle-East, some industries began to experience some labor shortage. Private consumption rose 14 percent in real terms, while Government current expenditures remained level. As a result total consumption increased only 11.5 percent. On the other hand gross investment increased by only 9.3 percent and fixed capital formation increased by 12 percent with most of the increase in private investment and refugee housing. Large budget deficits continued as the Government stimulated recovery and tried to meet the needs of refugees, but consumer prices rose less than 4 percent, reflecting the existence of substantial unutilized resources.

8. In 1976, there was also a remarkable turn-around in the balance of payments position after ithreeyears of increasing deficits. Receipts from merchandise exports soared 73 percent, mostly from agricultural produce for the United Kingdom, cement, clothing and footwear for the Middle East and Eastern Europe. Payments for merchandise imports rose 33 percent in support of economic reactivation and export production. The current account balance was only slightly negative. The Government obtained $40 million from the IMF oil and compensatory financing facilities, and $2 million from SDR holdings and it was successful in reopening, although quite limited, external borrowing from bilateral and multi:Lateral official sources during 1976. These funds coupled with short-term external factors, which included $47 million in international refugee aid, were sufficient to result in an overall balance of payments surplus of $43 mil:Lion, and to increase reserves to $288 million by the end of 1976, equivalent to nearly seven months' imports of goods and services.

9. Despite these achievements, investment, employment and GNP per capita in constant prices (of 1967) had still not gained their pre-1974 levels by the end of 1976. In evaluating Cyprus' creditable economic performance and recovery in 1976, it should be kept in mind that in addition to the short-term internal factors which influenced the supply side, such as the existence of unutilized lplant capacity, surplus labor, low wages and low inflation rates, much of the rapid growth was due to short-term external factors affecting the demand side, which are unlikely to recur, including: greatly increased exports to Lebanon and large expenditures in Cyprus by Lebanese temporary residents as a result of the Lebanese civil war; an agricultural export market boosted by severe drought conditions in Western and Eastern Europe; and continuing international refugee aid.

10. This is reflected in the lower GDP growth rate for 1977 in contrast to the 14 percent growth rate in 1976. Preliminary indications are that GDP increased by eight percent in real terms in 1977. Construction and trade were the leading sectors. Investment activity appears to have increased rapidly, with the import of capital goods doubling in the first six months of 1977 over thle 3ame period in 1976. Reserves stood at $323.6 million at the end of November 1977, equivalent to seven months of imports of goods and services, comparable to the level attained at the end of 1976.

Short and Medium Term Outlook

11. Cyprus can count on several favorable factors to sustain continued economic growth. These are: unutilized, although difficult to harness, - 4 - water resources; dynamic and responsible entrepreneurship; skilled labor; lower wage levels than in continental Europe; and favorable location in relation to Middle Eastern markets.

12. The pace and shape of future economic development, however, will depend largely on the political situation. The Government has followed up on its previous plan, by finalizing a Second Emergency Action Plan for 1977 and 1978. It envisages an 8.5 percent per annum growth in GDP and a 44 percent increase in gross fixed capital formation; 12 percent of this will be destined for the primary sectors, 28 percent for the secondary sectors and the remaining 60 percent to the tertiary sectors. As a result of this allocation, the level of real investment in the primary sectors is projected to remain unchanged. However, the levels of real investment in the secondary and tertiary sectors are projected to increase by 56 and 52 percent respectively over their levels during the First Emergency Action Plan. This allocation reflects the priority being given to industrialization and the recovery of the tourist sector, with the complementary infrastructure investments that will be necessary in transportation, communication and housing. Overall this investment program is expected to be increasingly capital intensive, as the underutilized labor pool available a year and a half ago has been diminished considerably.

13. Approximately $300 million (over 77 percent) of the $387.5 million investment program for the 1977/78 plan period is expected by the government to be financed through national savings, including transfers. A capital inflow of approximately $115.0 million, will be required to cover the deficit and to maintain the level of reserves.

14. The average GDP growth rate envisaged in the Second Plan appears feasible. However, as pointed out in the Plan it will be contingent upon a rapid expansion of exports and a favorable balance of payments position. Indeed, beyond 1978, balance of payments prospects, rather than supply potential, will determine the feasibility of continuing the high growth rates of the last few years. Over the medium-term, a six to seven percent per annum growth in output appears possible, given continued expansion in exports particularly to the Middle-Eastern Countries, and the re-establishment of the tourist industry. In the longer-term, however, growth will have to be based increasingly on an export-oriented manufacturing sector, whose success will depend on achieving competitive prices, consistent quality, and longer production runs. To ensure competitiveness it will be necessary to restructure industry over the medium-term. This effort should be facilitated by the two-year extension in 1977 of the Association Agreement with the European Economic Community.

15. Despite the good prospects for export growth and import-substitution, the overall balance of payments outlook over the medium and longer-term will depend on increasing success in external borrowing, while maintaining a more ample level of reserves than is currently normal elsewhere, which in Cyprus' recent political experience and circumstances appears to be most prudent. 16. Cyprus' recent.experiences in mobilizing external resources given the volatility of the political situation, is encouraging. It successfully raised its first Euro-currency loan of $30 million in early 1977. This has encouraged it to try ancl raise a commercial bank loan of between $35 to 50 million to cover a portiLon of the estimated $115 million in foreign exchange, required for development expenditures in its Second Emergency Plan. Prospects for the finalization of this limited commercial borrowing, are bright. In 1976, KfW also resumed bilateral German aid to Cyprus through small loans for irrigation and the Cyprus Development Bank (CDB). The Council for Europe also commenced channelliLng limited assistance in 1977, part of which was tied by the Government to cover the foreign exchange cost of the Pitsilia Rural Development Project financed in July 1977 by the Bank. With Bank encouragement to try and gradually diversify its sources of official aid further, Cyprus also succeeded in obtaining co-financing from the Kuwait Fund for the Bank-financed N:icosia-Limassol Highway Project (1344-CY). In the context of the proposed ports project, Cyprus will try to obtain a portion of the foreign exchange financing required, through suppliers' credits. After 1978, however, ba:Lance of payments deficits are likely. Hence, medium- term growth will probably have to be kept at a moderate level, as mentioned above, restricting the development of the economy's potential and further delaying the rehabilitaltion of refugees.

17. Cyprus' external debt has remained low, as a result of both the Gov- ernment's past policy of financing development internally and its past limited borrowing ability in a relatively uncertain political context. Total long- term public debt disbursed and outstanding was $94 million as of December 31, 1976 with short-term debt of a further $58 million. Public debt service was only 3.6 percent of exports in 1976. Given expected export growth, debt service should remain Low through the next decade. The Bank has always held a high proportion of Cyprus' external public debt (42 percent of disbursed debt as of December 31, 1976), and received 34 percent of service payments on public debt in 1976. Through this, the Bank has helped overcome Cyprus' relative inability to borrow abroad during the 1960s and early 1970s. The Bank's exposure, although high, remains reasonable, given Cyprus' low external debt and debt service ratio, and the Government's good economic management and policy of maintaining ample reserves. The exposure is expected to continue to decline as Cyprus continues to endeavor diversifying its external borrowings. Cyprus is creditworthy for additional Bank borrowing.

PART II - BANK GROUP OPERATIONS IN CYPRUS

18. Bank lending to Cyprus began in 1963 and as of January 31,1978, com- prised thirteen loans totalling $96.0 million (net of cancellations), of which $82.3 million was held by the Bank. These include four power loans ($31.6 million), two highway loans ($15.4 million), two loans to the Cyprus Develop- ment Bank ($8.9 million), two sewerage loans for Nicosia and Famagusta ($4.6 million), an irrigation loan ($14.0 million); an integrated rural development - 6 - loan for the economically depressed Pitsilia region ($10.0 million), and a ports loan ($11.5 million). Details of Bank loans to Cyprus are given in Annex II.

19. The events of 1974 caused a temporary break in Bank operations until June 1976, and resulted in delays in the execution of some projects. In par- ticular, the execution of the following projects are affected: (i) the sewerage project in Famagusta, which lies entirely in the area controlled by the Turkish Cypriots; and (ii) the cotistruction of the Nicosia-Morphou highway, the alignment of which coincides with the cease-fire line. (The loan was amended at the request of the Government in November 1976, to make available the balance of uncommitted funds for construction of the new Nicosia-Limassol highway financed by Loan No. 1344 approved by the Executive ri-e ors in December 1976). The Nicosia Sewerage Project also remains - oe completed because some final work is needed to complete the treatment plant located in the area under the control of the Turkish Cypriots. With the initiative of UNDP and the Bank and the cooperation of the two sides, the Nicosia Sewerage Board and the Turkish Cypriots reached tentative agreement in September 1977, to proceed with the completion of this project. This development, which will need careful nurturing by both sides if only to implement the tentative agreement, offers some promise for possible cooperation by both communities in respect of ongoing projects. The Bank, together with UNDP, will continue to make sustained efforts to find ways of promoting similar cooperation.

20. The Bank's objectives in Cyprus are to finance projects to meet urgent needs for productive employment, exports and rehabilitation; to invest in essential infrastructure useful in the context of the whole island; to cooperate in attracting long-term development capital from other sources; and to accelerate the recovery of the Cypriot economy to the level prevailing before the events of 1974. When a political settlement is reached, the Bank would seek to help both communities through support of projects developed to improve living standards of those groups left out of the growing prosperity prior to 1974; to encourage development of a national water policy; to develop resources on which both communities are dependent; and to continue to help attract long-term capital from other sources for Cyprus' development. At present the Government is preparing an irrigation project in the Vassilikos Pendaskinos region, which should be ready for Board presentation in FY79.

21. IFC's first investment in Cyprus was in a cement company in 1972. The company has since become a leader in the country's successful export drive. IFC has most recently invested in an asbestos cement pipe plant and is currently exploring opportunities for further investment on the island. As of January 31, 1978, gross commitments totalled $3.6 million, of which $2.7 million are still held by IFC. Details of IFC investments in Cyprus are given in Annex II. PART III - THE TRANSPORT SECTOR, THE PORT SUB-SECTOR AND THE BORROWER

The Transport Sector

22. The transportaltionsystem in Cyprus, prior to 1974, was reasonably balanced, encompassing roads, ports, airports, and some coastal shipping. As Cyprus has no railway system, highways play a critical role in the transportation system. After the 4eventsof 1974, the Government concentrated on transportation investments, to cope with the immediate demands of the economy and is now beginning to focus on long-term planning for the transport sector. Planned investment in the Second Emergency Economic Plan (1977/78) in order of priority, is as follows: housing, manufacturing, transport and communications, services, and agriculture. Government development expenditures for transport and communications are projected to increase to +C 7.8 million in 1977/78 from +C 6.8 million in 1975/76. The Government plans to use the increase in funds for thez construction of major infrastructure projects, mainly new trunk roads and port and airport works, which are considered necessary for the provision of facilities for the marketing of local producLion.

23. The Planning Bureau is responsible for the preparation (and implementation) of overall, regional, and sectoral plans including the transportation sector. Plans for the transport sector are formulated in consultation with the Ministries concerned. The Government regulates public passenger and freight transport under the Motor Transport Regulation Law of 1974 as amended; the Law is administered by the semi-independent Licensing Authority and by the Licensing Department in Mlinistryof Communications and Works (MCW). The Gov- ernment controls fares and schedules for public transport routes and imports of buses and trucks. These controls and regulations are administered flexibly and do not affect competition in the industry. The current organization of the transport sector is based on the pre-July 1974 framework. MCW is responsible for supervising the Public Works Department (PWD), Department of Civil Aviation (DCA), and the Cyprus Ports Authority (CPA) which are responsible for roads, airports, and ports respectively. The Forestry Department of the Ministry of Agriculture and the Municipalities are responsible for the remaining roads.

24. The highway network radiates from the capital of Cyprus--Nicosia-- to the main coastal centers at Limassol and Larnaca and to the hinterland. The total network of national highways for the southern part of the island is 1,479 km, almost 90 percent of which are paved. As the roads are the only mea:.- of overland transport, they are being used to capacity and the network has not been developed fast enough to keep pace with the country's economic development. The Bank is assisting in financing the construction of a new Nicosia-Limassol highway to accommodate growing traffic and changes in traffic patterns caused by the 1974 events.

The Ports Sub-Sector

25. Before the events of 1974, the main general cargo port in Cyprus was Famagusta which, in 1973, handled over 80 percent of the total traffic -8- for the country, much of it serving the capital city, Nicosia. Next in im- portance were the ports of Limassol and Larnaca, both located on the south coast. The other small ports, Paphos in the soutuwebL and Kyrenia on the north coast, handled a minimal amount of traffic, basically servicing the immediate vicinity. There were also two privately operated mineral exporting ports: Karavostassi on the northwest coast, and Vassiliko/Zyyi on the south coast between Limassol and Larnaca. Oil imports were handled at an offshore terminal at Larnaca.

26. As a result of the events of July 1974, the general cargo ports of Famagusta and Kyrenia, and the mineral port of Karavostassi are under Turkish Cypriot control. This has resulted in considerable shift in the traffic flow, and now all the general cargo traffic for the capital, Nicosia, and for southern Cyprus is handled by Limassol and Larnaca. As an indication of the drastic shift in the traffic flow, and the consequent burden being borne by Limassol and Larnaca, total cargo traffic handled by Famagusta, Limassol and Larnaca in 1973 was 1.8 million tons (out of which traffic handled by Limassol and Larnaca accounted for 0.3 million tons), while in 1976 Limassol and Larnaca alone handled 2.3 million tons. This amounts to approximately three times the design capacity of the two ports, and an inevitable consequence of this growth in traffic has been port congestion and foreign exchange costs in the form of surcharges imposed by the shipping companies. Barring a political settlement which would bring Famagusta back into operation, projections show that by 1985 Limassol and Larnaca will be handling over four million tons of traffic which is within the projected capacity of the two ports in view of the planned further development of Larnaca port beyond the scope of this project.

27. Based on economic factors discussed in Part I, traffic is expected to grow from 2.3 million tons in 1976 to 4.1 million tons in 1985. In order to cope with this problem, expansion of the port facilities is required and the proposed project is designed to help solve these problems. The expansion at Limassol and Larnaca is both needed and justified even if the facilities at Famagusta were to become available.

The Borrower

28. The Cyprus Ports Authority (CPA) will be the borrower of the proposed loan and will be responsible for implementing the project. The establishment of an autonomous national ports authority was agreed under the First Ports Project (Loan 628-CY) and CPA was established as an autonomous corporation in 1973 under the Cyprus Ports Authority Law, and is responsible for managing the ports in Cyprus. Although CPA was created in 1973, it did not become fully effective until August 1, 1976, because of the political and administra- tive disruptions of 1974, and delays in the transfer of the assets and liabili- ties of existing ports to CPA. Despite the changed situation since 1973, the reason for creating the Authority is still valid. CPA is empowered to: (i) regulate and control port operations and provide navigation services; (ii) levy dues and charges for the use of the ports and port installations; (iii) acquire, rent or lease properties; (iv) borrow from the Government and other sources. CPA is governed by a Board of seven members, all appointed by the Council of Ministers; the Director of Customs is an ex-officio member of the - 9 -

Board. The General Manager is appointed by the Council of Ministers in consultation with the Board and takes care of day-to-day management and imple- ments the decisions of the Board. CPA has sufficient autonomy to carry out its responsibilities satisfactorily.

29. As CPA became fully operational only in August 1976, it is premature to judge its overall performance. However, operational performance at Limassol and Larnaca has been good, as evidenced by the fact that the two ports together handled more than three times the traffic load they were originally designed for. This was made possible by close cooperation between the CPA, customs departments, shipping agents, stevedores, licensed porters and labor. On the managerial side there is also good cooperation and excellent working relation- ships between the General Manager, the Financial Manager and the two port managers. Nevertheless, as the traffic through the ports increases, the appointment of an Operations Manager is essential to coordinate the daily operations of all the ports and free the General Manager to concentrate on broader policy issues, all the more so if Famagusta were to come under the control of CPA. Agreement has been reached on filling the position of the Operations Manager by the end of August, 1978 (Loan Agreement, Section 4.01). Similarly, as the size and complexity of the port operations grow, CPA will need its own technical services unit to take over the maintenance operations currently being performed by the Public Works Department. The CPA has undertaken to establish a technical services unit as soon as practicable, and in any event not later than December 1978.

PART IV - THE PROJECT

Project History

30. The expansion of port facilities at Limassol and Larnaca was ini- tially identified through a port expansion study completed by Louis Berger International Inc. (LBI), U.S.A. in 1976. It was financed under the Bank's first highway loan (Loan No. 904-CY). The project was prepared by CPA, since the expansion of port facilities at Limassol and Larnaca in southern Cyprus was confirmed by this study as having the highest priority for port development. Bank missions visited Cyprus in June and September 1977, to discuss and guide the Government in its preparation efforts. The project was appraised in September 1977. Negotiations took place in Washington in February 1978. The Cypriot delegation was headed by CPA's General Manager, Mr. Bayada, and included Mr. Theophilou of the Finance Ministry. A Staff Appraisal Report entitled "Second Ports Project, Cyprus" (No. 1861b-CY) dated March 7, 1978 is being distributed separately. Supplementary Project data is contained in Annex III.

Project Rationale and Objectives

31. The main objective of the proposed project is to relieve congestion at Limassol and Larnaca, which have become major ports in the country in the last 3 to 4 years, and to accommodate future traffic growth there up to 1983. - 10 -

Fhe proposed project is, in essence, a follow-up to the first port project completed in 1975. The project will complement the improvements being carried out to the Nicosia Limassol highway, financed by the Bank's second highway loan, and ensure that the benefits stemming from that project are fully achieved. Partly because of the unforeseen political events of 1974, which made the port of Famagusta inaccessible to the Government and therefore significantly changed traffic patterns, the first port project expanding the port of Limassol turned out to be too limited in scope. This is reflected in the Project Performance Audit Report on the First Ports Project. The handling in Limassol and Larnaca of a much larger traffic load than originally projected was made possible by a combination of considerable overtime, a decline in passenger traffic, and good port management. Nevertheless, in 1976, these two ports experienced approximately 2,600 ship days of waiting time with an average berth occupancy of 88 percent. Moreover, as the current economic development strategy of Cyprus relies to a large degree on the expansion of the industrial sector and promotion of industrial and agricultural exports from southern Cyprus, increasing demands will be made upon port facilities as a result of increased exports and imports.

32. The project's additional objectives are also to help introduce new technology in the form of specialized container cargo-handling equipment and facilities, and, through consultant services and training programs, upgrade CPA's management capabilities as well as the operational efficiency and skills of its workers.

33. The scope of the project has been defined taking into account the possibility of a political solution whereby the port of Famagusta would become available, and also the Government's other investment priorities. It is a least cost solution: the project is a fairly straightforward port expansion project with few technical complications. Final engineering is already underway.

Project Description

34. The proposed project includes the construction of a 11 meter deep and 480 meters long quay at Limassol, as well as transit sheds, warehouses and a passenger terminal building at that port. It also includes the construction of port administration and ancilliary buildings at both Limassol and Larnaca, as well as the paving and surfacing of roads, open storage and parking areas, besides provision of necessary utilities at both ports. Cargo handling and workshop equipment for both ports and container handling equipment for Limassol will also be provided.

35. Besides the above, the project includes the provison of consultancy services to assist CPA in the engineering design, preparation of tender documents, and supervision of construction and civil works. The services of consultants experienced in the administration and operation of ports are also included in the project to (i) advise CPA in management, operation and technical policies and procedures; (ii) assist in establishing cost based tariffs and the revaluation of assets; and (iii) organize vocational training programs for CPA personnel and port workers. Approximately 180 man months of experts - 11 - and about 200 man months of technicians are envisaged at rates of $5,000 and $3,000 per man-month, respectively. CPA will review with the Bank the consultants recommendations and the action it proposes to take thereon (Loan Agreement, Section 3.02(c)).

CPA Investment Program

36. The project ($29.5 million) accounts for a major part (64 percent) of CPA's Investment Program for 1978-82 totalling $46 million. Other items in the program total about $16.5 million, the main item being the provision for further expansion of port facilities at Larnaca at an estimated cost of $8.5 million. CPA's program up to 1982 as presently constituted, is considered feasible and justifiable. CPA has agreed not to make any material changes in the investment program without consulting the Bank, and any such investments should be fully justifiable on economic and financial grounds (Loan Agreement, Section 5.05). The Government is planning the development of port facilities at Paphos to further the economic development of the region but this is not likely to take place during CPA's current investment program.

Project Cost and Financing

37. The total project cost (including contingencies) is estimated at $29.5 million (excluding domestic taxes and customs duties since CPA is exempt from both), of which $17.4 million is in foreign exchange. These estimates assume the availability of local construction materials and labor and also that local contractors would be unlikely to undertake main civil works (quay construction), since they lack the construction equipment and the experience required. Cost estimates of civil works are based on the feasibility study prepared by Louis Berger International, Inc. (LBI) in 1976, and on prices given by PWD based on updating of recent contracts for similar works. Equip- ment costs are based on quotations from foreign suppliers at the end of 1976 and also updated to reflect current prices. Bills of quantities are computed on the basis of preliminary engineering, and construction equipment rates are based on actual productivity during construction of existing port facilities.

38. Price escalation of foreign and local components are based on inflation rates as follows: for civil works at 9 percent per annum for 1978-79 and 8 percent per annum for 1980-81, and for equipment at 7.5 percent per annum for 1978-79 and 7 percent per annum for 1980-81.

39. The proposed loan of $8.5 million would finance about 50 percent of the foreign exchange costs of the project. It would be utilized to finance the foreign costs of major civil works at Limassol and consultants services. The $9.0 million balance of the foreign exchange required will be financed by: (i) equipment suppliers who would, if the CPA so desires, submit financing terms with their bids in order to make their bids eligible for consideration; their bids would then be evaluated in conjunction with the financing terms; and (ii) by the Government on-lending to the CPA the remaining foreign exchange required. About $4.5 million is thus expected to come through suppliers' credits and roughly anoither $4.5 million from the Government. The Government is currently negotiating with a consortium of foreign commercial banks to - 12 - finance expenditures under its current Economic Development Plan, and prospects appear bright that this will soon be successfully placed on Eurocurrency loan terms. The Guarantor will then retain the option, with CPA's agreement, to provide the full $9.0 million of foreign exchange required from this commercial loan instead of as mentioned above. In that case, the terms of on-lending to CPA will have to be on terms acceptable to the Bank. As the CPA will not be inviting bids for equipment for at least eighteen months, a condition of loan effectiveness (Loan Agreement, Section 7.01) is that the Government should have granted the CPA a loan to cover the foreign exchange gap. That loan may later be reduced by the amount CPA subsequently gets through suppliers' credits. Local costs will be borne by the CPA, from internally generated funds.

Procurement and Disbursements

40. Procurement of all items financed by the Bank included in the proposed project will be based on international competitive bidding in accordance with Bank guidelines. It is expected that one single contract will be awarded for the main civil works (quays), to be financed by the Bank at Limassol. It is unlikely that local contractors will submit tenders for these works. All other works at both ports will most probably be won by local contractors, either under separate contracts or as sub-contractors. Procurement of equipment, none of which is to be financed by the Bank, will depend on sources of financing. The tender documents for equipment could, if the CPA so desires, stipulate that the financing terms should be provided by suppliers. The bid evaluation would then include both the evaluation of the technical bid, as well as the credit terms.

41. Project execution started in October 1977, with the employment of the engineering consultants. Retroactive financing of up to $150,000 is rec- ommended for these services. Since engineering for civil works is expected to be completed by April 1978, and construction completed by December 1981, procurement of equipment will take place between 1978 and 1981. The management consultants are expected to be selected by September 1978. The execution of the project will be carefully monitored by using a critical path analysis and learning from the experience of the first port project. The findings contained in the Operations Evaluation Department's report on the first ports project will be taken into account in the execution of the project. Disburse- ments for all civil works included in the project for Bank financing will be on the basis of 58 percent of the total costs for Limassol. Consultant services, including technical assistance, will be reimbursed on the basis of 100 percent of the foreign expenditures. All other foreign expenditure and 100 percent of local expenditures will be financed by or through CPA.

Project Implementation

42. CPA will be responsible for implementing the proposed project. It is competent to execute the project. CPA will have the technical support of the Public Works Department of the Ministry of Communications and Works and the assistance of the consultants for the preparation of engineering designs, tender documents, evaluation of bids, monitoring or project execution (including the critical path program) and supervision. The consultant engineers have - 13 - already been employed in accordance with Bank guidelines. The terms of reference for engaging the management and administration experts were discussed and agreed during negotiations (Loan Agreement, Section 3.02).

43. During the project implementation, CPA will also generate information needed for it to prepare, in cooperation with the Bank staff, the Project Completion Report, to be submitted to the Bank no later than six months after the closing date of the loan (Loan Agreement, Section 3.04).

44. The proposed project has no adverse environmental impact. To safeguard against any such contingency CPA will study and make recommendations for the prevention of pollution due to ships' wastes or spillages in the ports under its jurisdiction by the end of December, 1978 (Loan Agreement, Section 3.01(b)).

Tariffs

45. The tariff structure currently in effect is the same as that in force prior to the establishment of CPA and charges are not cost-related, although their level is sufficient to produce adequate revenues for the present. CPA increased tariffs on August 1, 1976 and is currently considering partial revision of the tariff structure. It is, however, essential for a complete review to be undertaken with emphasis on cost-related charges and the revaluation of assets to ensure that the benefits from the investment are captured by Cyprus. A revised tariff structure should be introduced not later than December 31, 1981 (Loan Agreement, Section 5.06). Consultant services being provided under the loan will assist CPA in this task.

Financial Covenants

46. While it is too early to formulate judgements on CPA's financial performance, due to the short period of its existence, indications are that the quality of financial management is good. Cash flow projections indicate that CPA will be able to finance the local costs of the project from internally generated funds, and will have an operating ratio of around 41 percent from 1978 to 1982. The rate of return on assets, adjusted to reflect current replacement costs, would be 10 percent in 1978 and would fall to about 8 percent in 1982. CPA is also expected to have ample coverage of interest charges on its loans.

47. To safeguard its financial position, CPA will (i) not incur any further debt, without the agreement of the Bank, unless its net revenues for the fiscal year preceding the date of such incurrence is not less than 1.5 times the maximum debt service requirements for any succeeding year (Loan Agreement, Section 5.08); (ii) maiLntain its revenue at a level which will enable it to generate a return on average revalued net fixed assets of 7 percent up to 1978, 8 percent from 1979 to 1981, and such rates thereafter as may be appro- priate (Loan Agreement, Section 5.07). - 14 -

Project Benefits and Risks

48. The benefits from the project would result mainly from (i) savings in ship-waiting time produced primarily by increased port capacity, (ii) savings in ship-service time and handling costs brought about by the use of new equipment and facilities. The new container crane provided under the project may also serve to encourage the introduction of larger, more efficient container ships thereby reducing shipping costs. A further benefit would be improved safety and operational efficiency of handling passenger movements within the ports through provision of new passenger facilities. In assessing the benefits, however, only savings in ship-waiting time, and only a portion of savings in ship-service time, have been quantified. Of the project benefits that have been quantified, only the share accruing to Cyprus has been taken into account for calculating the economic return from the project, such as a reduction in the prices of imported goods and improved net sales prices for Cypriot exports.

49. For the purpose of economic evaluation, the project is assumed to include the new quays to be built at Larnaca with resources to be provided by the Government. On this basis, the economic rate of return for the project is 31 percent, even under the conservative assumptions made. The economic rate of return was tested for its sensitivity to variations in the cost and benefit parameters assuming (a) a 25 percent increase in costs and (b) a 25 percent decline in benefits. The project would still yield a rate of return of 26 percent under assumption (a) and 24 percent under assumption (b). Under a third assumption of a straight 25 percent reduction of traffic at Limassol and Larnaca, the project would still yield an economic return of 23 percent.

50. The proposed development of port facilities at Paphos (para 36) could have some adverse impact on traffic volumes through Limassol/Larnaca, particularly if it becomes operational prior to 1986 while adequate capacity is already available to handle shipping requirements. However, Paphos is unlikely to divert significant traffic from the existing port facilities; the port would serve a relatively underdeveloped and agriculturally-oriented hinterland comprising less than 10 percent of the Cypriot population and, relative to the other ports, it would entail higher inland transport costs for traffic destined for or originating from major consumption areas of Crypus. (Traffic through the port would consist largely of agricultural exports from the region and lesser amounts of general cargo. Traffic diverted from Limassol/Larnaca would probably not exceed 150,000-200,000 tons annually.) However the impact of the Paphos port development on the project has been assessed under the conservative assumption that it becomes operational in 1983 with an initial capacity of about 400,000 tons annually, roughly equal to two years' growth in Cypriot port traffic volume. On that basis, the economic return of the project would be 26 percent.

51. The justification of the project was also examined from the stand- point of a political settlement and unification of the country whereby the port of Famagusta would become available and the ports of Limassol and Larnaca would serve the whole country. Assuming that the port of Famagusta becomes available in 1981, when the proposed project would be completed, sensitivity - 15 - analysis still shows an economic return of 20 percent. Therefore, the project is justified not only from the point of view of a satisfactory rate of return in the context of the area controlled currently by the Government, but also in the context of the island as a whole. It is also justified in terms of benefits accruing to the island's economy in the form of employment opportunities created, new technology and skills introduced into the country, lower prices of imports to consumers, and potential for increasing foreign exchange earnings because of price competitiveness of exports.

52. In order to minimize risks, the projet takes into account the political situation of the island, investment priorities, traffic growth, and the experience of the first ports project outlined in the Operations Evaluation Department's report. The project provides for sufficient port facilities to cope with forecast traffic up to 1983 at minimum cost, and accords with an investment policy which minimizes risks since it allows for the possibility that other ports might become available.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

53. The draft Guarantee Agreement between the Republic of Cyprus and the Bank, the draft Loan Agreement between the Cyprus Ports Authority and the Bank, and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The draft agreements conform generally to the normal pattern for loans for port projects. Special conditions of the project are listed in Section III of Annex III.

54. A special condition of loan effectiveness is the effectiveness of loans from other sources to meet the balance of the foreign exchange costs of the project.

55. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATION

56. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamara President

Attachments March 14, 1978 Washington, D.C.

IABLE 3A ANNEX I CYPRUS - SOCIAL INDICATORS DATA SHEET Page 1 of 6 pages LAND ARLA (THOU KM2------CYPRUS REFERENCE COUNTRIES (1970) T.ALRC 90 17 MOST RECEN 4 AGRic. 5;3 1960 1970 ESTIMATE * PANAMA JAMAICA**** NETHERLANOS***'E* GNP PER CAPITA (USS) 4T° ° 90.0 1480.0*/a S50.08 J70.O 5770.0w

POPULATION AND VITAL STATISTICS ------POPULATION (MID-YR. MILLION) 0.6 0.6 0.6 /a 1.4 1.9 13.0

POPULATION DENSITY PER SQUARE KM. 62.0 68.0 a 19.0 170.0 319.0 PER SO. KM. AGRICULTURAL LAND 109.0 1Au.M 119.0 /t 85.0 384.0 5B2.0

VITAL STATIStICS CRUDE BIRTH RATE (/THOU, AV) 26.6 24.2 22.2 39.8 38.5 20.1 CRUDE DEATH RATE (/THOU.AV) 7.5 7.4 6.8 8.7 8.6 8.0 INFANT MORTALITY RATE (/THOU) 30.0 29.4 28.4 41.0 32.2 12.7 LIFE EXPECTANCY AT BIRTH (YRS) 68.1 70.2 71.4 64.9 67.8 71.8 GROSS REPRODUCTION RATE 1.7 1.5 1.4 2.8 2.7 1.3

POPULATION GROWTH RATE {%) TOTAL 1.5*HX* 1.0*H* 0.4*1*H 3.1 1.4 B 1.3 URBAN 4.2 1.9 2.4 4.3 6.2 2.0

URBAN POPULATION (% OF TOTAL) 36.0 39.1 42.2 47.6 37.1 72.2

AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 36.7 31.8 28.8 43.7 45.9 27.3 15 TO 64 YEARS 57.4 60.6 61.7 52.3 50.4 62.5 65 YEARS AND OVER 5.9 7.6 9.5 3.5 3.7 10.2

AGE DEPENDENCY RATIO 0.7 0.7 0 0.9 0 0.6 ECONOMIC DEPENDENCY RATIO 1.0/a 0.9/a 0, /b 0.5 1:7 1.0

FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) ...... 498- USERS (S OF MARRIED WOMEN) ......

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 235.0 265.0 289.0 500.0 /a 600.0 /a 4800.0 LABOR FORCE IN AGRICULTURE (%) 40.0 36.0 3q0 38.0 33.0 6.4 UNEMPLOYED (% OF LABOR FORCE) .. 1.1 1.2 7.0 / 14.0 /a 1.1 /a

INCOME DISTRIBUTION

% OF PRIVATE INCOME REC O BY- HIGHEST 5% OF HOUSEHOLDS .. 12.1Xb/ 22.2/b 22 /b HIGHEST 20% OF HOUSEHOLDS .. 391 .2 lb 22,0 tl LOWEST 20% OF HOUSEHOLDS .. 7.9 4 .1 I 490 LOWEST 40% OF HOUSEHOLDS .. iS.6 13.3. 787 . 4.0 7 DISTRIBUTION OF LAND OWNERSHIP …______% OWNED BY TOP 10% OF OWNERS ...... 45.0 % OWNED BY SMALLEST 10% OWNERS .- .- .- 1.0

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 1390.0 IC 1290.0 1160 0 1550.0 2630.0 800 0 POPULATION PER NURSING PERSON 1080.0 /td 6 1 0 .0 lC 4300D /c 1420 0 1710 0 410:0 /c POPULATION PER HOSPITAL BED 220.0 /7C 9o.o 200.0 360.0 240.0 90.0

PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 99.0 99.0 lB 0 Id 109.0 103.0 122.0 PROTEIN (GRAMS PER OAY) 78.0 78.0 8620 /4 61.0 56,0 84.0 -OF WHICH ANIAAL AND PULSE .. 33.0 /d . 31.0 29.0 /b 55.o /d

DEATH RATE (/THOU) AGES 1-4 1.7 .. .. 7.5 4.2 0.8

EDUCATION

ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 100.0 82.0 Ia 86.0 /e 105.0 101.0 102.0 SECONDARY SCHOOL 48.0 57.0 /e 64.0 7-e 41.0 24.0 91.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 12.0 12.0 Ie 12.0 /e 12.0 12.0 12.Q VOCATIONAL ENROLLMENT (% OF SECONDARY) 4 0 12.0 /e 13.0 /e 32.0 9.0 50.0 ADULT LITERACY RATE (X) 81:0 /e 85.0 . 82.0 82.0 99.0

HOUSING

PERSONS PER ROOM (URBAN) 1.3 . 1.0 1.8 OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) 72.0 23.0 /f 74.0 78.0 /C ACCESS TO ELECTRICITY (X OF ALL DWELLINGS) 43.0 .. 99.0 L 52.0 27.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) 22.0 . 16.0

CONJSUMPT ION RADIO RECEIVERS (PER THOU POP) 153.0 263.0 265.0 157.0 376.0 278.0 PASSENGER CARS (PER THOU POP) 48.0 88.0 123.0 32.0 39.0 200.0 ELECTRICITY (KWH/fR PER CAP) 412.0 987.0 1309.0 585.0 825.0 3110.0 NEWSPRINT (KG/YR PER CAP) 1.8 2.7 3.8 4.0 4.6 29.1 SEE NOTES AND DEFINITIONS ON REVERSE ANNfEX I Page 2 of 6 pages NOT S

Lislessotherwise noted, data for 1960 refet to any year between 1959 and 1961, for 1970 between 1968 and 1970, and fot MosL Recent Estimate

1 * 12 r E - Alta-euts Lt -n t-he hcrlu rusk Atlh s n-thsd.lngy (_9/-b6 basis' fe Data refer to period before July 1974, no oemparable data can be provided at present to reflect the changed citrntstannes in Cyprus.

DIe to migration population growth rate is loner than the rate of natural inrease.

Sioce 1970, Cyprus has auffered the shock of the events of 1974, wh-n the island wa- divided and cnn-third of the population displaced from their homas There was a decline in economic activity as.a rasult which hoe not yet been wade p. This has allowed a rounsty like Jmaica. to catch up with Cyprus, an that the disparity is CNP p-r -apita between it and Cyprus is nuch smaller sow tho then, and i 1-it able country for -ompariso.

Netherl-nds has heen selected as an objective country for Cyprus because it is a relatinely small advanced country

CYPRUS 1960 Is 1946-60; /b Ratio of population under 15 and 65 and over to total labor force. c 1962; /d Including -assltan5nurses; Is levee years and over, read and write.

1970 /o Rart of population under 15 sod 65 and over tn toctl labor force; /b 1966, urban; /c Including assistont nuaccess' /d 1964-66; /e fExluding Turbish schools.

MOST RECENT ESTIMATE: La 1976; Lb Ratio of population under 11 and 65 and oven to tcal labor force; / Including *Rsi-tanrt- raes ; /d 1969-71, average; /e Eicluding Torkish s/hools, /f Inside only; Crban only.

Itottlls 1970 Is Incloding residents working in Ctnal Zose; /b Incot e recipievts; /n G-oernment only; /d 10 years and over; /e Inside aly.

iAMAC; 1970 /a Data based on official definition which includes those willing to work but -ot actively teebkig employnent; /b 1964-66; /c Inside only.

N'ihERLUNDS 1970 Ia Registered smployed; /b 1967, income rewipi-nts; /c Coverage of dat.a unbknsom /d 1966-68. R7 ruly 14. 1977

DEFINITION5S OF SOCIAL INDICATORS

Laud urea (thou us I Population oar oarscinR parson - copulation divided by sorbersDf raooiu_nf Total - Total s", iace ara cumprising land orea asd inland waters male and female graduate nurses, "trained" or 'certified" nurses, and tonic. - Most recent no itate of ugnicolrsrg l area osed tenpnrarily or p.rna- aoniliary persnonel with training or experlnce. senile for -rop, pastures-, rket 6 kitche- gardes or tc lio fallow Pspulation per hosnital bed - Popula-i-n divided by number of hospital beds available in public and private general and spenialleed hospital and tCNPperr caclta InS)) - GSP perc napita east mates as currant varkot pricer, rehobilitation cntemesesantcludes nurs inn honas and aeteblislasantsfor calculated by sae conoers ior, othnd as World Bank utla- (1973-75 bais); custodial sod preventio care. 1960; 1970 asd 19/1 data, Pe1qninslets nt Eenrlly of oatsfEi clsis .fondapplis (Iofruee-t.aivei;labIe in countrY- Computed er na pitafrs perenergy day; Iop,lativs,and sital -staciaic availablo supplies comprise dsesctic production, imports less eports. and uoPlatLon (mid-year millios) As of July fir=, if nor -vailhbls, average changas In stork; net supplies es"lude antmal feed, seeds, quanit tt used of two -nd-yar estimatese; 1160, 1970 and 1975 data in food prone -ing and Iasses in distribution; requrements worn esti-ated by PA0 based an physiological needs for normal autloity and health -nnsid- Populatlon density - ret square km - Mid-year population pe squar-e kilometer gring ennirs-eSntal temperature, body weights, age and ss distributions vf (109 hectares) of total arIo. population, sod allowing 107 for ws-te at household level. PonolattIn density- euare us of a-ri- land - Cowp-csd os abkon for Par ca-.rotein ita sanely of farame per den) - Protein content of par pita agrirsltunal land only, net rupply of fond per day; net supply of food ih defined as habve; rq.ire- nmnts for all coantries established by 11116 loonom'i geaearoh lervios Vital statistics provide for a minimum allowasne of 60 gras of toea protein per day, and Crude birth rate per thonsand. soeage - Annu-l Ine births pet thousand of 20 grams of animal and pulse prot-in, of which i0 ge- should he animal nid-year ropulanion; ten-year arithietit averages eding in 1960 and 1970, protein; shese staf dards are lsr thas thcse of 75 grn a of total protein and fios-year averago ending in 1975 for mostteeno t estimate, and 23 gras of nimal protein -s an avrage for the noeld, proposed by FAl Crude dath rate net thousand. average - Annual deaths per thousand of mid-year in the third World Flad Sur-y. population; ten-year arithmetit averages ending Is 1960 and 1970 and fine- Per canita Protein anenir from animal and Pnise - Protein s-pply of fond year avarage onding in 1975 for mos reecent en elate, derived from animals and pulses in gnme per day. Infant noenality rate (/thou) - Aonual deaths of infants und-r .n. y-ar of age Death rate f/thou) ages 1-4 - Annual deaths per thousand in ags omowp 1-4 par thousand itvo births. years, o children Io this a8g group; suggesced as an indicator of Life ePe-ctancy at birth (yrI - uverage number of years of life eamaining at malmotrinion birth; usuaIiy five-year averages ending in 1960, 1979 amd 1975 for developing couutria. Education Grosa raprodoctton rats-_uverage numnber of ltve daugh tars a woman will hear Adlonted enrollment ratio - rrotasrv school - Enrollment of all a ges as par- in her noroal reproductive period if she experiences present ge-apeoific centage of primary school-age populsti-o; includes childrsn aged 6-11 years fertility rates; usually five-year averages ending in 1961, 1970 and 1975 but adjusted for different lengths of primary educati,n; foe con-tries with for developing crn,riea. universal oducotion, enrollmnt may onceed 1007 since ass puptls are below Pouelantio growth rate ig) - toals - tompoond annual1 growth rates of mid-year or above the offinial snhool a1ge. populattom for 1990-60, 1960-70 and 1970-75. Adla ted enrollment ratio-sncnndary arhool - Computed as above; secondary Population growth rate (7,) - urban - CoPuted like growth rate of tonsl education requires at least for years of approved primary ipatruction; population; different defiottioma of urban areas nay affani comparability of provides general, vonational or tesoher training insersotions for puptis data among countries. of 12 to 17 years of age; correspondence courses are generally escluded. Urban populatIon (%. of total) - Ratio of urhav to total population; different Tears of anhooling srovided (firat and second lewels) - Total years of defieitions of urban eeean may effeot comparability of data among countries. acoboling; at secondary lanai, nonarissel instructiton may ha partially or omeplenely entcluded. 4Sn structuro (nervestl - Cibldren (0-14 years), working-age (15-64 yearn), Rotational enrollment 17%of encondary) - Vocational inutitutiass include asd retired /65years and soar) as percentages of mid-year population, technical, industrial or other progralms which operatei edependen ora Age deneodency ratio - Ratio of population under 15 and his and over to chose doparnuonts of secondary Institutions.enee n ra of ages 15 through 64. adult literacy rate (X) - Literate adults (able cresred and wrlte/ as pot- tcovamic dependency ra tic- Ratio of population under 15 and 65 and over co centage of total adult population oged lb ynaro and over. tae labor force is age group of 15-64 years. Frmly elanoim - atoescorn (cumulative. thou) - Cuoulatioe somber of acceptors Housing of birth-control dovices under ausepices of national family planning program Persona onr room (urban) - Average nonber of persons per room in occupied- tsine incertion - oonvsntiamal dwellings in urban areas; dsniiiegt nxclude non-permanent Fasils elanniong-usern (7 of married women) - Percentcages of married womennof structures and unuccupied parts. chlld-bnarivg age (15-4h years) who use birth-contcol devises to all narriedl occupied dwellings nithouc piped water (%)l - oopied onoentional dwelltnss grasp. is urban and rural areas without inside or outside piped astver facilities v men it, sane age -f t-C-1) pe hoyid.d pe i~~~~~Pssngrcas- Pasage cascmrs sctor etn as percentage of all octupied dwellisgs fmnlone7nc uccoeas to elencricyitv of all.1 deellinos) - Conuescional doelllins weth Tocol Iabor force (thousand) - inonasically attive persons, isniodieg armed nlectriniiy is living quarters as percont of total dwellings in urban and foncee and utepl 6yedhut exoluding ye.l.elLeli;hou1eeiv5s, .d -.1. ) students,..:,Idyeor etc P~Irj.defintions pshliorural areas.so rvt letiyi bidwat onelprwIpia,geerlly.d in cantons coon tries are nottamparahie. Rural dwe1lsgns connected to electrinity (7) - taspoted as above for rural Labor force in agriculture (l - Agricsltural lIabor fort- (is farmitg, for1-cry, dwellings only. huntingsoad fishing) as parnantasg of total labor farce. Pnoeloved 1(%of labor forue) - Unemployed are nasally dettood an persons awho to eusutio are able and willing to take a jab, out of a job on a given day, remained nut tiadtneon balers (ie chau pop) - A11 types of receivers for radio d of a joh, sad seeking sorb nar a specified si-mu period sot exceeding one to gemena e pslic per tihousad of population; ecliudes unlicene rostrs week; may not be capanahis bervaeeu countries due to different definitions in cousnti-s and is years when registration of eAdia ants waA mneffen t of unemployed and source of data, e.g. mplsynmnt office statistics, sample date for recast years eray not be comparable since most counrie btoLished surveys, coppulsory unemployment i-etrance idcensing. unt es ldd.

Income distribution - Percentage of private insanle (bath in nash and kind) less than eigp ers estlIdee ambulances, hoarnes and military received by richest 5%, rinhest 207, poorest 20°/, and poorest 407- of house- vehicles. holds. Electricnity fitublr earnap) - Amnumalnosansupriom of indus trial. noameecial,

Aistribution of r land o-erabie - Peroentages of land owned by wealthiest lie base on prodstto e, without 9-iasa h epc lessee in gride hut allo- and ponnent 10% af land senere. ing f or Dports and enpdrtd of electiciry.

Population per - PepulationRhysi.ian divtded by numaer of practicing it pe ca) - er e of neapint physiciaam qualified fran a nedicsi school at university level. ANNEX I Page 3 of 6

ECONOMIC DEVELOPMENT DATA

Actual Preli inary Projected Growth Rates . Share of GDP

1970 1973 1975 1976 1977 1978 1980 1985 1970-73 1975-76 1976-85 1976

A. NATIONAL ACCOUNTS 12 9 6 (S million,l 7 prices)

GDP (at m.p.) 819.3 1011.0 660.0 753.1 815.6 882.9 980.9 1351.5 7.2 14.1 6.7 100.0 Gaine from Terms of Trade 24.8 16.3 -3.8 - -12.6 -14.8 -22.8 -32.5 - - - GDY T844.1 1027.3 656.2 753.1 803.0 868.1 958.1 1319.0 7.2 14.1 6.4 100.0

Exports (g + nfs) 300.5 402.7 286.0 407.3 448.6 508.6 613.8 947.0 10.4 42.4 9.8 54.1 Imports (g + nfs) 373.2 529.9 -426.4 -491.9 -532.2 -569.4 -650.3 -915.9 12.6 15.3 7.1 65.3 Resource Balance (tt adj.) -47.9 -110.9 -144.2 -84.6 -83.6 -75.5 -59.3 -1.5 ...... 11.2

Consumption 683.9 911.3 630.1 702.6 736.4 776.9 838.7 1063.8 9.9 11.5 4.7 93.2 Investment 258.2 279.1 123.9 135.5 150.2 166.8 178.6 256.6 2.6 9.3 7.3 18.0

Domestic Savings 160.2 116.0 26.1 50.5 66.6 91.2 119.3 255.1 -8.5 93.4 19.7 6.8 National Savinge 199.1 156.8 54.8 87.3 128.9 136.2 149.0 272.5 -8.3 59.3 13.5 11.6

GDP (At current m.p.) 545.0 960.4 691.5 753.1 858.5 988.4 1309.5 2651.6 14.0 21.6 13.5

B. SECTOR OUTPUT (share of GDP) (Sector Growth Rates)

Agriculture 17.1 13.1 16.7 18.4 18.3 18.3 18.2 17.9 -7.1 20.4 6.3 18.4 Industry 28.5 28.8 24.7 26.2 26.5 26.9 27.6 29.4 9.0 20.2 8.0 26.2 Services 54.4 58.1 58.6 55.0 55.2 54.8 54.2 52.7 9.1 13.0 6.0 53.4

C. PRICES (1976=100)

Export Price Index 50.5 72.6 91.3 100.0 104.7 113.1 131.2 186.2 12.9 9.5 7.1 Import Price Index 52.7 74.8 90.2 100.0 107.6 116.5 136.3 192.9 12.4 10.9 7.6 Tems of Trade Index 95.8 96.9 101.2 100.0 97.3 97.1 96.3 96.6 0.4 -1.2 -0.5 GDP (m.p.) Deflator /3 67.5 80.9 93.8 100.0 106.0 114.5 133.5 196.2 6.2 6.6 7.1 Average Exchange Rate (CL1=$) 2.40 2.86 2.72 2.44 2.50

D. SELECTED INDICATORS 1968-73 1973-75 1976 1976-85

Incremental Capital/ Output Ratio 3.1 . 1.0 2.7 Import Elasticity 1.6 1.3 2.0 1.1 AverAge NationAl Savings Rate (%) 17.3 6.0 15.0 16.5 Marginal National Savings Rate 9.9 27.5 Imports/GDP (7) 46.3 56.3 65.3 66.7 Investment/GDP (7) 23.4 21.6 18.0 18.8 Resource Gap/GDP(%) 8.1 16.8 11.2 5.2 E. LABOR FORCE 1970 1973 1975 1976

F. PUBLIC FINANCE 1970 1973 1975 1976 Labor Force ('000) 269.3 279.7 207.7 204.4 (7.of GDP at current M.P.) Employment ('006) 266.5 276.4 174.2 185.0 Agriculture (7. 36.1 34.0 25.9 25.0 Current Revenue 16.4 16.2 16.6 15.8 Industry (7) 25.2 26.1 21.4 23.6 Tax Revenue 12.0 13.1 11.1 10.7 Services (7) 38.7 39.9 52.7 51.4 Current Expenditure 11.6 14.6 22.6 18.5 Unemployment ('000) 2.8 3.3 33.5 19.4 Government Savings 4.8 1.6 -6.1 -2.8 (%) 1.0 1.2 16.1 9.5 Capital Expenditure 3.6 4.3 4.5 4.1

/1 Official data up to July 1974 refer to the whole of Cyprus; data thereafter refer to southern Cyprus only and Are therefore not directly comparable with those for earlier yeara. /2 Estimates derived from fragmentary national Accounts data. /3 GDP deflator up to 1976 based on local currency, constant 1967 price. March 14, 1978 ANNEX I INPORT DETAIL i/ Page 4 of 6

Preliminary Actual Estimate PrT2i!2ted Growth Rates 1970 1973 1975 1976 1977 1978 19801985 1970-73 1975-76 1976-85

A. Volumes ($ millions at 1976 prices)

Food 62.3 100.0 64.4 78.2 81.5 84.6 90.5 109.4 17.1 21.4 3.8 Other consumer goods - - - 47.3 55.2 58.3 64.0 82.9 - - 5.5 Petroleum and products - - - 54.0 58.5 62.7 72.1 102.5 - - 7-4 8.0 Other intermediate goods - - - 193.5 204.8 221.1 257.9 379.0 - - Capital goods 79.3 107.0 37.3 65.8 74.8 80.9 94.8 141.2 10.5 76.4 8.9

Total goods (c.i.f.) 432.3 593.6 364.9 438.8 474.7 507.6 579.4 815.1 11.2 20.2 7.1

Non-factor services (nfs) 52.8 69.9 61.5 53.1 57.5 61.7 70.9 100.8 9.8 -1U.7 7.4

Total goods and nfs 485.0 663.5 426.4 491.9 532.2 569.4 650.3 915.9 11.0 15.3 7.2

B. Price Indices (1976 = 100)

Food 51.0 92.3 109.5 100.0 107.4 117.9 152.2 232.0 21.9 - 8.7 9.8 Other consumer goods - - - 100.0 107.5 116.1 133.5 187.3 - - 7.2 Petroleum and products - - - 100.0 108.5 117.6 135.0 189.4 - - 7.4 Other intermediate goods - - - 100.0 107.5 116.1 133.5 187.3 - - 7.2 Capital goods 59.5 73.1 90.2 100.0 107.5 116.1 133.5 187.3 7v1 10.8 7.2

Total goods 52.7 74.8 90.2 100.0 107.6 116.6 136.6 193.6 12.4 10.8 7.6

Non-factor services 52.7 74.8 90.2 100.0 107.5 116.1 133.5 187.3 12.4 10.8 L.2

Total goods and nfs 52.7 74.8 90.2 100.0 107.6 116.5 136.3 192.9 12.4 10.8 7.6

C. Values ($ million at current prices)

Food 31.8 92.3 70.5 78.2 87.5 99.7 137.7 235.8 42.6 10.9 13.0 Other consumer goods 38.9 45.0 25.6 47.3 59.3 67.7 85.4 155.4 5.0 84.8 13.1 Petroleum and products 16.3 24.4 52.2 54.0 63.4 73.8 97.4 194.2 14.4 3.4 15.3 Other intermediate goods 93.8 204.4 139.3 193.5 220.1 256.7 344.5 709.9 29.6 38.9 15.8 Capital goods 47.2 78.2 41.6 65.8 80.4 94.0 126.6 264.4 18.3 58.2 16.7

Total goods (c.i.f.) 228.0 444.3 329.2 438.8 510.8 S91.9 791.7 1577.7 24.9 33.3 15.3

Non-factor services 27.6 52.0 55.5 53.1 71.8 71.6 94.7 188.9 23.5 - 43 15.1 15.3 Total goods and nfs 255.6 496.3 384.7 491.9 572.6 663.5 886.4 1766.6 24.7 27.9

/ Data up to July 1974 refer to the whole of Cyprus; data thereafter refer to southern Cyprus only and are therefore not directly comparable with those for earlier years. March 14, 1978 ANNEX I Page 5 of 6 EXPORT DETAIL /

Preliminary Rates Actual Estimate Pro ected Growth 1975-76 1976-85 1970 1973 1975 1976 1977 1978 19 0 1985 1970-73

A. Volumes ($ million at eprices)

- 5.4 71.4 7.7 45.8 37.4 25.2 43.2 57.0 59.9 66.0 84.2 Potatoes - 2.3 5.0 26.8 47.7 12.8 12.5 13.1 13.8 15.2 19.4 21.2 Citrus - 57.0 5.1 - 0.3 14.2 22.3 25.0 25.0 35.0 35.0 Cement 70.0 - - 14.7 Clothing - - - 20.4 27.0 35.0 45.0 39.0 _- 15.0 Footwear _ - - 11.1 15.0 18.0 24.0

Total goods (incl. others) 664.7 4.8 58.1 11.7 (f.o.b.) 196.1 225.5 155.7 246.1 287.9 323.8 403.8

184.8 210.0 282.3 29.9 2j.7 6.4 Non-factor services (nfs) 146.6 321.7 130.3 161.2 173.4 947.0 16.9 42.4 9.8 Total goods and nfs 342.7 547.2 286.0 407.3 461.3 508.6 613.8

B. Price Indices (1976 - 100) 106.1 148.8 22.7 20.6 4.5 Potatoes 35.6 65.8 82.9 100.0 85.0 91.4 126.0 176.7 14.6 - 9.3 6.5 Citrus 64.6 97.1 110.2 100.0 101.5 109.6 116.1 133.5 187.3 - 12.5 7.2 Cement - 100.0 114.1 100.0 107.5 133.5 187.3 - - 7.2 Clothing - _ - 100.0 107.5 116.1 187.3 - 7.2 Footwear - - 100.0 107.5 116.1 133.5

Total goods (incl. others) 183.8 12.8 9.5 7.0 (f.o.b.) 50.5 72.6 91.3 100.0 102.9 111.5 130.0 1353 187.3 - 3J.5 5.2 7.2 Non-factor services 77.5 69.6 95.1 100.0 107.5 116.1 131.2 186.2 4.4 7.5 7.1 Total goods and nfs 62.1 70.8 93.0 100.0 104.7 113.1 c. Values ($ million at current prices) 125.3 5.0 106.7 12.5 Potatoes is.6 24.6 20.9 43.2 48.5 54.7 70.0 15.1 34.3 38.8 - 11.3 11.9 Citrus 17.3 46.3 14.1 12.5 13.3 19.1 46.7 65.6 - 37.6 12.7 Cement - 0.3 16.2 22.3 26.9 29.0 60.1 131.1 164.6 119.4 23.0 Clothing 1.3 5.8 9.3 20.4 29.0 40.6 32.1 73.0 6.7 136.2 23.3 Footwear 1.4 1 7 4A7 11.1 16.1 20.9

Total goods (incl. others) 1221.9 18.2 73.2 19.5 (f.o.b.) 99.1 163.7 142.1 246.1 296.3 361.0 525.1 541.9 25.3 30.1 14.4 Non-factor services 1137j 223.8 123.9 161.2 186.4 214.5 280.4 1763.7 22.1 53.1 17.7 Total goods and nfs 212.8 387.4 266.0 407.3 482.7 575.5 805.5

to southern Cyprus only and are therefore not directly 3j Data up to July 1974 refer to the whole of Cyprus; data thereafter refer comparable with those for earlier years. March 14, 1978 ANNEX I Page 6 of 6

BALANCE OF PAYMENTSAND EXTERNAL ASSISTANCE /1 (In US$ Million)

Actual Preliminary Projected Growth Rates ______-Estimate ______

1970 1973 1975 1976 1977 1978 1980 1985 1970-73 1975-76 1976-85

A. SUMMARYBALANCE OF PAYMENTS

Exportsul goods (f.o.b.) 99.1 163.7 142.1 246.1 296.3 361.0 525.1 1221.9 18.2 73.2 19.5 Importsof goods (c.i.f.) 228.0 444.3 329.2 438.8 510.8 591.9 791.7 1577.7 24.9 33.3 15.3 Non-factor services,net 86.1 171.8 68.4 108.1 124.6 142.9 185.7 353.0 25.9 54.5 14.3 Resource Balance -42.8 -108.8 -118.7 -84.6 -89.9 -88.0 -80.9 -2.9 36.5 -28.7 14.1

Interest and investment income, net 1.2 5.5 -1.3 -4.7 1.2 -1.8 -6.9 -15.9 24.3 261.5 14.5 Workers' remittances 0.9 1.5 6.8 14.6 10.0 10.8 12.4 17.4 7.6 114.7 2.0 Other factor service income 6.3 6.2 3.9 4.8 5.3 5.8 7.0 11.3 -0.5 84.6 10.0 Total factor service 8.4 13.2 9.4 14.7 16.5 14.8 12.6 12.9 16.3 81.9 -1.5 income, net

Net transfers 17.0 14.9 72.2 59.7 56.5 51.5 27.0 19.7 -4.3 -17.3 -11.6

Balance on current I account -17.4 -80.7 -37.1 -10.2 -16.9 -21.8 -41.3 29.7 66.8 -72.5

Direct foreign investment 9.4 4.6 -3.3 10.0 12.0 12.2 16.0 25.7 -21.2 . 11.1 Public M + LT loans disbursements 6.7 15.6 7.3 23.6 45.2 33.9 35.0 70.3 12.8 223.3 12.9 amortization -1.1 -3.4 -5.5 -8.0 -6.3 -9.9 -19.6 -51.1 17.5 45.5 22.9 net 5.6 12.2 1.8 15.6 38.9 24.0 15.4 19.1 11.8 766.7 2.3 Short-term capital 6.0 20.9 -4.3 5.6 7.5 2.3 12.1 19.5 19.5 . 14.9 IMF, net -6.0 - 2.4 42.3 -10.5 -10.6 -10.6 - Capital, n.e.i. 20.3 31.0 11.4 -19.9 -5.0 3.0 6.1 -12.1

Overall balance 17.9 -12.0 -29.1 43.4 26.0 9.2 -2.3 81.9

B. LOAN COMMITMENTS 1970 1973 1975 1976

Tota1 public M + LT leans 5.9 5.4 5.6 47.1 D. DEBT & DEBT SERVICE /2 IBRID- 5.4 - 16.0 Public Debt Outstanding Other international & Disbursed (DOD), organizations - - 5.6 24.0 end-period 36.8 57.3 76.3 94.4 Governments 5.9 - - 7.1 Public Debt Service 5.4 8.3 10.0 14.6 Total commercial loans 0.7 11.2 1.4 0.3 Interest 2.3 3.0 4.9 5.3 Suppliers 0.7 8.3 1.4 0.3 Amortization 3.1 5.3 5.1 9.3 Financial institutions - 2.9 Burden on Export C. MEMORANDUMITEMS (all loans) Earnings (7.) 2.5 2.1 3.8 3.6 Interest as 7. Prior- Grant element (%) 26.3 15.8 8.2 18,4 Year DOD 6.9 7.5 6.5 6.9 Average interest rate (%) 5.0 6.7 8.3 7.0 Amortization as % Average maturity (years) 12.6 14.4 7.0 13.3 Prior-Year DOD 9.5 13.3 6.7 12.2

IBRD DOD 15.2 30.3 38.9 39.7 IBRD DOD as % Public DOD 41.3 52.9 51.0 42.1 IBRD Debt Service as % Public Debt Service 17.0 34.5 47.0 34.4

/1 Data up to July 1974 refer to the whole of Cyprus; data thereafter refer to southern Cyprus only and are therefore not directly comparable with those for earlier years.

/2 Yearly information on private debt is not available. However, total private medium and long-term debt outstanding is very small as a result of the 1974 events. Total short-term debt outstanding was $58 million at the end of 1976.

March 14, 1978 ANNEX II Page 1 or 4 pages

THE STATUS OF BANK GROUP OPERATIONSIN CYPRUS

A. STATEMENTOF BANK LOANS (As of January 31, 1978)

US$ Millions Amount Loan Number Year Borrower Purpose (less cancellations) Undisbursed

Six loans fully disbursed 46.0

729 1971 Sewage Board Sewerage of Nicosia System 2.7 .5 730 1971 Sewage Board Sewerage and of Famagusta Drainage System 1.9 .5 904 1973 Republic of Highway I Cyprus 5.4 4.0 960 1974 Republic of Paphos Cyprus Irrigation 14.0 13.1 1278 1976 Cyprus Develop- DFC ment Bamk 6.0 3.9 1344 1976 Republ:Lc of Highway II Cyprus 10.0 10.0 1483 1977 Republic of Rural Cyprus Development 10.0 10.0

Total of which has been repaid 96.0 13.7

Total now outstanding 82.3

Amount sold 2.3 of which has been repaid 2.3

Total now held by Bank 82.3

Total undisbursed 42.0 ANNEX II Page 2 of 4 pages

B. STATEMENT OF IFC INVESTMENTS (As of January 31, 1978)

Amount of US$ Year Obligor Type of Business Loan Equity Total

1972 Cyprus Cement Company cement 2.3 0.6 2.9

1977 Cyprus Pipes Industry construction material 0.5 0.2 0.7

Total gross commitments 2.8 0.8 3.6

Less cancellations,sales terminationsand repayments 0.9 - 0.9

Total commitmentsnow held by IFC 1.9 0.8 2.7

Total Undisbursed - - - ANNEX II Page 3 of 4

C. PROJECTS IN EXECUTION

Loan No. 729 - Nicosia Sewerage Project: US$2.7 million loan of April 5, 1971. Effective Date: July 16, 1971. Closing Date: (original) March 31, 1975; (current) September 30, 1978.

The system was largely completed in July 1974 when construction was interrupted. After prolonged negotiations, a mutually acceptable solution was reached between the Turkish Cypriots and the Nicosia Sewage Board, and provisional arrangements were agreed for the completion of the final stages of the project. The Nicosia Sewage Board has prepared rough estimates covering the remaining works. The Canadian consulting engineering firm is to send a representative in mid-February 1978 to accurately identify the elements which remain to be completed.

Loan No. 730 - Famagusta Sewerage Project: US$1.9 million loan of April 5, 1971. Effective Date: July 16, 1971. Closing Date: (original) March 31, 1975; (current) March 31, 1978.

The project was about 90 percent complete by July 1974, when construction was interrupted. The project site lies completely in Famagusta, which is under the control of the Turkish Cypriot administration. Completion of this project therefore depends on a political settlement. Following the visit of a UNDP representative in September 1977, the Famagusta Sewage Board has requested the assistance of UNDP to initiate maintenance operations on the equipment and machinery already installed. The Sewage Board is also in the process of negotiating a solution to the outstanding claims of the contractor, CYBARCO, Ltd. Under the circumstances, the current closing date of March 31, 1978 will need another extension.

Loan No. 904 - First Highway Project: US$5.4 million loan of June 12, 1973. Effective Date: September 12, 1973. Closing Date: (original) December 31, 1976; (current) December 31, 1979.

The construct:ionelement of this Loan, a new four-lane divided Nicosia-Morphou highway, was interrupted by the events of July/August 1974 shortly after its start in May 1974. The Bank has agreed to the Government's request to a change of :Loandescription that allows the use of up to US$3.6 million to make up the foreign exchange shortfall for the construction of a new Nicosia-Limassol highway under the Second Highway Project, Loan 1344- CY. Amendments to the Loan Agreement were concluded in 1977.

Loan No. 960 - Paphos Irrigation Project: US$14.0 million loan of January 30, 1974. Effective Date: October 10, 1975. Closing Date: June 30, 1982.

Engineering of project works is nearing completion. Work on the main canal including excavation and lining of canal and building of syphons, bridges, culverts, and drop structures is progressing satisfactorily. Bids for construction of Asprokremos Dam were opened December 15, 1977, and are being reviewed. The contract award date for the Dam is set for March 16, 1978. Estimated completion date for central office building is February, 1978. ANNEX II Page 4 of 4

Land consolidation is progressing satisfactorily with about 10% of the area to be consolidated already completed. Cost overrun is estimated at about 34%, but more accurate estimates will be possible following award of major contracts on about March 16, 1978. Overall progress is satisfactory.

Loan No. 1278 - Second Cyprus Development Bank Project: US$6.0 million loan of June 3, 1976. Effective Date: October 1, 1976. Closing Date: June 30, 1981.

Commitments and disbursements are more rapid than foreseen at the time of the appraisal, reflecting the surging economic recovery in which CDB is playing an active part. After organizational delays, commitments under the $0.75 million small-scale industry (SSI) component of the loan began in 1977. It is expected that the full amount of the loan, including the SSI component, will be committed in 1978 and that disbursement will be completed well ahead of the Closing Date. The management and expanding staff of CDB are capable and have developed an excellent project appraisal and supervision capability. The SSI work, after some start-up difficulties, is now also progressing smoothly despite the increased emphasis in Cyprus on larger, more capital intensive industries due to developing labor shortages.

Loan No. 1344 - Second Highway Project: US$10.0 million loan of December 31, 1976. Effective Date: October 11, 1977. Closing Date: April 30, 1982.

Bidding documents and grouping of contracts have been agreed with the Government, and contracts are expected to be awarded in mid-1978. The terms of reference for consultants to assist in supervising construction and undertaking feasibility studies have also been agreed.

Loan No. 1483 - Pitsilia Integrated Rural Development Project: US$10.0 million loan of August 18, 1977. Effective Date: November 7, 1977. Closing Date: June 30, 1983.

The Project Coordinator and his assistant have been designated. Project Policy Committee (PPC) and Project Coordination Committee (PCC) have been established. Project Management is actively recruiting appopriate consultants to assist in the Study of Agricultural Investment Financing. Physical execution of the Project is expected to begin as scheduled by March 1978. ANNEX III

SUPPLEMENTARYPROJECT DATA SHEET

Section I - Timetable of Key Events

(a) Time taken by the Cyprus Ports Authority (CPA) to prepare the project: January-June 1977

(b) Agencies which prepared the project: Cyprus Ports Authority (CPA) and the Ministry of Communications and Works (MCW)

(d) Departure of appraisal mission: September 1977

(e) Date of completion of negotiations: February 24, 1978

(f) Planned date of effectiveness: July 1978

Section II - Special Bank Implementation Actions:

None

Section III - Special Conditions

(a) The completion of satisfactory financial arrangements by the Government and CPA for filling the foreign exchange gap of the project :isa condition of loan effectiveness (para. 39 and Loan Agreement, Section 7.01).

(b) The appointment of an operations manager not later than August 31, 1'978to further improve the management and operational efficiency of the Authority (para. 29 and Loan Agreement, Section 4.01).

(c) The establishment of a technical services unit as soon as practicable, and in any event not later than December 1978, responsible for repair and maintenance of port equipment and facilities (para. 29 and Supplemental Letter).

(d) CPA to carefully review major new investments in port facilities before undertaking such investments (para. 36 and Loan Agreement, Section 5.05).

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