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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Public Disclosure Authorized Not For Public Use

Report No. P-1490-JM

REPORT AND RECOMMENDATION

Public Disclosure Authorized OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO Public Disclosure Authorized

FOR AN

AIRPORT DEVELOPMENT PROJECT

August 21, 1974 Public Disclosure Authorized

This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsbility for the accuracy or completeness of the report. Currency Unit Jamaica Dollar

US$1.00 J$.909

J$1.00 US$1.10

Fiscal Year - April 1 to March 31 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO JAMAICA FOR AN AIRPORT DEVELOPMENT PROJET

1. I submit the following report and recommendatian on a proposed loan to Jamaica for the equivalent of US$12.5 million to help finance an airport development project. The loan would have a term of 25 years, in- cluding four years of grace, with interest at 8% per annum. US$11.3 mil- lion of the proceeds of the loan would be relent on the same terms to the Airports Authority of JaMaica (AAJ). A Project Agreement would be signed between the Bank and the AAJ.

PART I - THE ECONOMY

2. Economic Report (No. 257a-JM) entitled "Current Economic Position and Prospects of Jamaica" was distributed to the Executive Directors on March 12, 1974. Country data sheets am attached as Annex I to this report.

3. During the decade 1962-72 the economy expanded rapidly with the annual rate of growth accelerating from about 4.5% to about 5.5%. At the same time the economy experienced major structural changes. Mining, alumina production and tourism, all supported by large private capital inflows, expanded, while agriculture stagnated and agricultural exports, notably of sugar, declined. This shift in the production pattern was accompanied by rapid urbanization, and by the emergence of severe and persistent unemploy- ment and of sharp disparities in income distribution. Large-scale emigration during the decade resulted in the loss of significant numbers of skilled and semi-skilled workers; the consequent shortage of technically qualified personnel has been aggravated by deficiencies in the academically oriented educational system.

4. As a result of its limited resource endow-ment and the small size of its domestic market, Jamaica has a very open economy heavily dependent on the external sector. Until 1972 a widening current account deficit in the balance of payments had been offset by substantial private capital in- flows for expansion of the bauxite/alumina industry. These inflows fell off sharply in 1972 with the completion of major investments in alumina capacity. Partly as a consequence, but also due to some weakness in monetary and fiscal programs, Jamaica for the first time since independence experienced serious balance-of-payments difficulties. Corrective action taken late in 1972 and early 1973, including devaluations, the imposition of import restrictions and a tightening of credit policy, was successful in temporarily reversing the reserves drain during the middle of 1973. However, subsequently exchange reserves have fallen again and by the end of 1973 were down to about one month's imports. The situation has been aggravated by the tripling of petroleum prices at the end of 1973 which will cost Jamaica about US$90 million extra in 1974, equivalent to about 13% of 1973 export earnings. To conserve foreign exchange reserves the - 2 -

government in early 1974 took additional measures including an increase in gasoline taxes, further restrictions on imports and credit availability and an increase in interest rates. Jamaica has recently obtained increases in the prices of its sugar and banana exports to the United Kingdom and in M1y of this year announced increases in taxes and royalties on the U.S. and Canadian- owned bauxite companies, estimated to yield an additional $155 million in a full year. The greatly increased revemnes in prospect from bauxite taxation would provide substantial relief to Jamaica's balance of payments during the rest of 1974 and in ensuing years. The larger revenues should offset the higher cost of oil and other commodity imports and enable Jamaica during the next 2 to 3 years to restore a reasonable level of foreign exchange reserves following their depletion during 1973 and early 1974. The current account is still likely to remain in deficit reaching on average over $200 million per annum through 1979, although to offset this deficit substantial inflows of capital are in prospect (see paragraph 8).

5. The government action to increase taxes and royalties followed the failure to reach agreement with the companies on a renegotiation of the tax clauses in the original company contracts. The companies have objected to the tax increases announced and indicated that they would take legal action; three US-owned corn- panies have requested arbitration before the International Centre for Settlement of Investment Disputes (ICSID). The requests for arbitration have been registered by the Centre. The next step will be the constitution of arbitral tribunals. The Convention creating the Centre establishes rules for the constitution of tribuhals, including rules for the appointment by the Centre of arbitrators in case of failure of the parties to act. * intend to follow developments in this matter closely. In addition to the issue concerning the taxes and royalties, there are other out- standing issues (such as land ownership, government participation in companies, and guaranteed supply of bauxite for companies), on which the companies and the gorernment are negotiating.

6. Over the last 18 months or so there has been a sharp increase in Jamaica's domestic price level which during 1973 increased by an average of 19% over the previous year. By April 1974 the consumer price index had increased by about 29% over April 1973, owing in part to recent increases in world prices and higher import prices resulting from devaluation. However, under the pressure of active trade unions, wage settlements in recent years have outstripped increases in productivity and have been particularly high during the last few months, reaching 25% in the construction industry and even higher levels in other sectors. The government is considering the adoption of an incomes policy which would be related to increases in productivity and which, if effective, would help Jamaica retain its international competiveness. The government is keeping under review the level of interest rates, which have become negative in real terms as a result of recent price inflation. Higher interest rates would encourage savi.ngs, and help reduce the present incentive to invest funds abroad rather than in Jamaica.

7. kithout a sustained rate of economic growth of about 7% annually it will be difficult for the country to achieve its principal objective of a signi- ficant reduction in the high rate of unemployment, currently about 15%. The need for increased job creation will become even more acute in the years ahead since the growth rate in the total population of working age is expected to rise from 0.5% to 3% during the period to 1980 due to falling emigration and an increase in the birth rate in the 1950s. For the immediate future the potential for increased growth and employment is encouraging. In agriculture, a compre- hensive review of the sector has recently been undertaken with assistance from the Bank. Government initiatives are already under way to rehabilitate the important sugar industry; other government plans to revitalize the sector include land-use reorganization to increase productivity and employment, and measures to stimulate other export crops and domestic food production. In the mining sector, bauxite and alumina output should increase substantially as a result of recent investments. A substantial investment in an oi- refinery is in prospect with the possibility of associated investments in petro-chemicals; and in manufacturing, there is potential for increased contribution to export growth. Further growth in tourism (the country's second largest foreign ex- change earner) may also be expected after present uncertainties about the energy situation have been resolved. However, the extent to which Jamaica's agri- cultural and industrial growth potential can be realized will depend in large part on how successful the government is in implementing policies to improve Jamaica's competitive position.

8. The increased rate of growth necessary to make a significant impact on unemployment will require substantially higher inflows of private and public capital than in the recent past. Such inflows are in prospect over the next few years and given continued progress in public policies, it is likely that they could be maintained for the rest of the decade. The source and direction of commitments of external public loans (including government- guaranteed loans) from 1965 to 1972,which have averaged over $hO million per annum, are given in the table in Annex I. For the five-year period 1974-78, public capital inflows, including guaranteed loans to the private sector, could average nearly US$100 million a year. From existing indications, about 60% will be raised from official sources - the Bank, IDB and bilateral aid sources - while the remainder would consist of medium-term loans from suppliers and financial institutions. Jamaica will also need to mobilize increased domestic financial resources, both public and private. It will thus be necessary for the government to take measures to restrain the growth of government current expenditures and to achieve a further growth of revenue relative to GDP. A recovery in private sector savings can be expected only if the government maintains fiscal discipline and discourages consumption by the appropriate use of monetary policy.

9. Jamaica will need to take prompt and determined policy measures in the critical areas of the economy outlined above, and discussed at greater length in the Economic Report, to maintain economic stability and achieve a reasonable rate of sustained economic growth. Assuming sound policies are pursued, public debt service as a ratio of export earnings is projected to rise sharply from nearly 5.0% in 1973 to a peak of 7.5% in 1976 and then to decline steadily to about 4% by the end of the decade. Given that exports including non-factor services accounted for over 4C% of Jamaica's GNP in 1972, the sharply increased level of public debt service forecast for the next two years, largely on account of heavy Euro-dollar borrowings in 1973/74, is high; however, it is not unmanage- able, and we do not consider that it will give rise to problems of creditworthiness. Although no special terms of Bank lending appear justified on country grounds, the foreign exchange component of projects which the Bank may finance in sectors -4-

agriculture, urban development and population, may be relatively such as external small; in order, therefore, to help achieve an adequate level of in these capital inflows some local currency financing would be justified cases.

PART II - BANK GROUP OPERATIONS IN JAMAICA

Introduction eleven 10.. Since the country's independence in 1962, the Bank has made half loLns to Jamaica totalling just over $100 million. Of this amount about supply and has been for infrastructural investments in electric power, water agricultural highways; the remainder has gone into education, family planning, be the first creidit and a sites and services project. The proposed loan would IFC a for airports development. There have so far been only two operations; in loan in 1961 to a pre-mix concrete company, and an equity/loan investment Bank loans 1968 in a hotel project. Annex II contains a sumuary statement of and IFC investments as of June 30, 1974 together with notes on the execution problems of ongoing projects. As noted in the Annex, the Bank is experiencing with in the exacution of some of its projects in Jamaica, and is in discussion the governmont and relevant agencies on measures to improve performance.

Future Direction of Bank Lending to provide some 11. The case for continued Bank lending rests on the need policies Jamaica's external financing requirements and to support appropriate of As in the in critical areas of the economy mentioned in Part I of this report. in infra- Bank lending will also be directed towards achieving improvements past, and to structure, at contributing to the alleviation of the unemployment problem After a lull in assisting in the wider distribution of the benefits of growth. and slow project Bank lending 1972/73 - due largely to institutional constraints The Bank's preparation - the pace of B-nk operations has recently accelerated. 9% in 1974 to share of external public debt is projected to increase from about to the peak of about 23% in 1979. This sharp increase is also attributable a contracted by fact that a substantial part of the heavy Euro-dollar borrowings Jamaica in 1972 and 1973 will have been repaid by end 1979. lend support to 12. In infrastructure, the Bank plans to continue to were identified high priority investments in the transportation sector which out in 1968/70. by a national transportation survey financed by CIDA and carried million loan for In July of this year the Executive Directors approved a $13.5 government's arterial road construction constituting the first phase of the the government 1974-79 arterial road investment program; it is expected that program to start will seek further Bank assistance for the second phase of the help relieve con- in about two years' time. The project now before you would a more straints upon the future growth of international air traffic and provide international sound financial and institutional base for managing Jamaica's two airports. 13. Other infrastructure investments being considered by the Bank would have as a primary objective improving essential facilities for the rapidly expanding Kingston Metropolitan Area (KMA), which itself accounts for over one-quarter (about 550,000) of the total population of Jamaica and a large proportion of its industry and comerce. A proposed sewerage and water supply project would provide limited extension of Kingston's sewerage system to meet its most urgent needs, and also additional water so as to avoid shortages which would otherwise develop over the next three to four years. The project would also include engineering studies and pre- paratory work necessary for the next major water supply project for Bank financing. More generally the proposed infrastructural investments would help strengthen the institutions concerned.

14. In the social areas, in addition to the recent sites and services project, we propose to continue our association with the education sector with a third education project. However, the scope of this project will not be defined until the conclusions of a recent survey of the education sector, undertaken by AID with Bank participation, have been discussed with the govern- ment and more progress made in implementing the ongoing second project. Further ahead, it is expected that a second family planning project, which might include a nutrition component, would be considered.

15. In the directly productive sectors, the Bank is already involved in agriculture through a loan to the Jamaica Development Bank (JDB) for on-lending for agricultural credits and a second loan has recently been approved. At the request of the government, the Bank assisted in the conduct of an agricultural sector survey with a view to revitalizing this sector as a means of promoting exports, stimulating import substitution and helping to check the population drift from the rural to the urban areas. We expect to be able to assist the government in implementing the program of action which is emerging from this study, and will be placing increasing emphasis on agriculture in our future lending to Jamaica. Detailed feasibility studies are already under way which should result in a project for Bank financing to rehabilitate the important sugar industry. Looking further ahead, it is expected that the government would wish the Bank to assist in the preparation and financing of a project designed to ameliorate the situation of small farmers; the content and scope of such a project have not yet been defined but may take the form of a rural development project including components for improving land utilization and crop production.

PART III - TRANSPORTATION IN JAMAICA

16. Jamaica's system consists of about 9,500 miles of arterial, secondary main and parish roads, a government-owned railroad of about 180 miles, six airports, 13 seaports and 30 miles of private railway. The basic system is generally adequate serving most of the population centers - 6 -

and productive areas, although there is considerable need for expansion in capacity and improvement in condition. There is also scope for improving transport planning and, following upon discussions with the Bank in the con- text of the recently approved Bank-financed third highway project, the gov- Ecrnment is now taking steps to strengthen its transport planning capability.

17. Most of the internal transport needs are met by roads. Road trans- port has expanded rapidly in recent years, growing at an average rate of 8.5% per annum between 1964 and 1972; and vehicle density, one per 20 persons, is the fifth highest among the Latin American and Caribbean countries. Generally, roads are narrow, winding and in relatively poor condition making travel slow and vehicle operation costly. Based upon a CIDA-financed transport survey conducted by the consulting firm, Lamarre Valois International Ltd. (Canada) in 1968-70, major improvements to the road network system are being undertaken. A Bank loan of $9.3 million (ln. 899-JM) in June 1973 is helping to Linance a road improvement and maintenance project and a loan of $13.5 mil- 3ion for construction of about 20 miles of arterial roads was approved by the Rank in July of this year. Assistance is also being provided by CIDJA for a bridge construction program, by the IDB for the construction of secondary main and parish roads, and by AID for construction of rural feeder roads.

18. The railway, run by the Jamaica Railways Corporation (JRC) has in recent years lost most of its general traffic to the roads and is now largely a contract carrier for the bauxite mining companies. The JRC is operating at a small loss (J$500,000) largely because it provides a subsidized passenger service to some of the poorer areas where the road system is deficient. The two main seaports at Kingston and are general cargo ports and handle most of the country's imports; other ports are specialized and handle mainly exports. A major program is under way for the development of Kingston as a transshipment port at an estimated cost of J$41.0 million.

Air Transport in Jamaica

19. Two international airports and several small domestic airports and airstrips serve air transport requirements. The international airports are located at Montego Bay (Sangster Airport) on the north coast, serving mainly the tourist industry, and Kingston (Norman Manley Airport) on the south coast, catering primarily to business and private travel by residents. The national airlire, (in which Air Canada has a 34% equity interest), and 11 foreign airlines provide scheduled international services between Jamaica and over 40 foreign centers. As a result of increased tourism to the island and the country's expanding economy, air traffic has grown rapidly in Jamaica. Over the period 1967-72 the annual growth of foreign passenger traffic at Sangster Airport has averaged 13% and at Manley about 11%. In 1972 the two airports handled an aggregate 1.6 million passengers and 93,000 aircraft movements. In 1973 the rate of growth in the number of tourists was not as rapid as in previous years and this may continue through 1974., partly as a result of the recent slower growth in the number of flights and increases in ticket prices; consequently some decline was experienced in the rate of growth of passenger traffic at the two international airports during 1973 and during the first six months of 1974. However, despite recent increases in prices of fuel and their impact on traffic demand from tourist- generating countries, as well as other prospective consequences of recent changes in international oil prices, the situation is expected to improve after 1974 and average annual rates of growth in total passenger traffic are forecast for both airports at just under 8-1/2% from 1972 to 1977 and of almost lC0 for Sangster and 8-1/2% for Manley from 1977 through 1980. The higher growth at Sangster reflects the larger proportion of tourist traffic. Somewhat slower annual growth rates in freight and aircraft movements are also expected.

20. At present the Civil Aviation Department (CAD) of the Ministry of Public Utilities, Communications and Transport is responsible for the control and regulation of all civil aviation activities in Jamaica, including the operation of airports and related facilities such as air traffic control and navigational aids. The present organization, however, suffers from a number of weaknesses. There is a clear need for financial objectives to be established, supported by appropriate financial and accounting systems, so that major revenue-earning enterprises such as the airports can be operated on a proper commercial basis. In addition, there is need for more effective forward planning and the development of a well-defined management and staffing structure. To this end, the government, on the recommendation of consultants, enacted legislation on July 31, 1974 to establish a new independent statutory body, the Airports Authority of Jamaica (AAJ) to take over the day-to-day operations and management of the two international airports; responsibility for all other aspects of civil aviation under the existing Civil Aviation Act will remain with the CAD.

PART V - THE PROJECT

21. Following the recommendations of the national transport survey undertaken by Lamarre Valois International (paragraph 17 above) a master plan for the long-range development of the two internationml airports was prepared, under terms of reference agreed by the Bank and with CIDA-financing, by the consulting firms, Kates, Peat, Marwick and Comparn and the Montreal Engineering Company. The master plan included as a first stage investment a substantial expansion and upgrading of both international airports. However, in view of its other public investment priorities the government decided in 1972 to concentrate on developing Sangster airport with only limited interim improvements to Manley airport. The Bank appraised a project on these lines in May 1973 but increasing budgetary constraints and the onset of the energy crisis led to a further redefinition of the project at the end of 1973. The major change is that a new passenger terminal building at Sangster airport has been deferred for the time being. - 8 -

22. Negotiations for the proposed loan were held in Washington in May of this year and final approval of the loan documents by the govern- ment and the newly established AAJ was received on August 20, 1974. The government negotiating team was led by Mr. H. Barber, Financial Secretary, Ministry of Finance. The AAJ was represented by the-then Chairman designate, Mr. A. Alberga. A report entitled "Jamaica - Airport Development Project" (No. 405a-JM dated August 20, 1974), is being distributed sepa- rately to the Executive Directors. The main features of the loan and the project are summarized in Annex III of this report.

Project Objectives

23. The principal objectives of the project are to relieve capacity constraints to continued growth of international air traffic to Jamaica, thereby supporting a major source of foreign exchange, and to improve the institutional base, both managerially and financially, for operating the tw'o international airports. The project would provide the minimum acceptable 1980, level of passenger and aircraft service to meet forecast traffic until and would provide a sound starting point for a longer-term development of the airports thereafter.

Project Description

24. The proposed project includes: (a) physical works at the two international airports to improve aircraft ground handling and passenger processing; (b) improvement of air traffic control and air navigation facili- ties to reduce delays and increase safety; and (c) technical assistance to help organize and establish the AAJ and to supervise the execution of the physical aspects of the project. 25. At Sangster, the existing terminal building would be modified to increase passenger capacity, and improve processing procedures. A new partly constructed parallel taxiway would be completed, a simple separate structure to handle charter passengers would be erected and the aircraft parking apron extended to accommodate wide-body aircraft. At Norman Manley, modificaticns would be made to the terminal building to improve passenger flow and to the parking apron to provide an additional aircraft position and improved apron utilization. The runway would be lengthened by 600 feet to provide better take-off parameters for Air Jamaica's long-range aircraft which have recently commenced non-stop service to Europe. At both airports improved baggage handling and rearrangement and expansion of passenger waiting areas would be undertaken to alleviate problems of passenger processing. Electrical distribu- tion systems, switchgear and airfield lighting would be modernized and improve- In inents would be made to the water, sewerage and storm-water drainage systems. addition, more effective navigation aids would be installed at both airports. The project would also include the provision of telecommunications equip- ment to improve air control, air-ground communication as well as modern crash/rescue equipment and motorized runway sweepers. The government has agreed that by December 31, 1976 a program satisfactory to the Bank for air traffic control, aeronautieal cowminications and aviation mot.orologieal services including related training and syFites modernization will be drawn up by the government, and thereafter implemented (draft Loan Agreemnt; Section 4.03). Tho governxnt will also by December 31, 1976 - 9 - establish regulations to safeguard the orderly development of the airports and protect their environment (draft Loan Agreement, Section 4.02).

26. The above improvements would result in increased efficiency, and greater safety of operations and comfort of passengers at the Sangster and Manley airports. However, current forecasts indicate that by 1980 traffic capacity at both airports will again be severely strained and that, as recommended in the master plan, additional passenger terminal space will be required at both airports. It is expected that the government will approach the Bank to help finance this expansion. In order to prepare for the planned expansion during 1978 to 1980, the project includes detailed engineering and architectural studies and design for the next phase of the master plan. Any substantial investment subsequent to the project and before 1981 would be decided on in agreement with the Bank (draft Project Agreement; Section 4.05); this would permit the Bank to be satisfied that the scope and timing of any such investment is justified by the projected rate of increase in traffic after 1976/77. The planned expansion of the airports would complement the large investments in tourist and transportation infrastructure already under way in Jamaica. To ensure a coordinated and orderly approach to future tourist investment the government has undertaken to formulate an integrated tourist development plan for the island (draft Loan Agreement; Section 4.02).

Project Execution

27. As the AAJ is a newly created entity which has not yet been fully staffed it is proposed that the Bank loan be made to the government and that the physical aspects of the project be implemented by the Ministry of Works. For this purpose a project team would be formed within the Ministry of Works and staffed by government personnel; the team would be assisted by consultants who would provide design and construction supervision services, and train Ministry counterpart ataff in the pro- ject team. The appointment of the ccnsultants and the personnel of the Ministry of Works project team on terms and conditions satisfactory to the Bank, would be conditions of loan effectiveness (draft Loan Agreement; section 6.01). In order to ensure the necessary coordination between the yarious entities and ministries involved in the project an inter-departmental steering committee will be established.

The AAJ and CAD

28. A major objective of the project is to ensure the establishment of the AAJ on a sound managerial, technical and financial basis. The organizational and salary structure of the AAJ will be determined in consultation with the Bank and the Bank will also be consulted about the appointment of the general manager and the financial, operating, and personnel managers immediately below him. It would be a condition of loan effectiveness that consultants had been contracted, on terms and conditions satisfactory to the Bank: (a) to assist the AAJ to establish its initial organization and salary structure and to advise on the intro- duction of appropriate management, accounting and information systems, including management training and development; and (b) to assist CAD in the improvement of its organization and its management techniques (draft Loan Agreement; Sectiorn 4.05 and 6.01). - 10 -

Cost Estimates

29. The total cost of the project is estimated at $19.6 million includ- ing contingencies but excluding duties and taxes. The Bank would finance the foreign exchange costs estimated at $10.9 million and, in order to allow a reasonable period for the newly created AAJ to establish itself on a sound financial footing, it is proposed that interest on the Bank loan during construction estimated at $1.6 million be capitalized. The loan would there- fore total $12.5 million of which $11.3 million would be relent to the AAJ, at 8% interest with the same grace period and term as the Bank loan to the government. The sub-loan would be denominated in US dollars and the AAJ would bear the foreign exchange risk arising out of any exchange rate adjustments between the US dollar and the . The government would bear the residual foreign exchange risk. These on-lending arrangements would be embodied in a Subsidiary Loan Agreement between the government and tle AAJ which would be a condition of effectiveness of the Bank loan (draft Loan Agreement, Section 6.01). The remaining proceeds of the Bank loan ($1.2 million) would be retained by the government for project expenditures by its CAD. Local costs of the project estimated at $8.8 million would be financed by a govern- ment equity contribution to AAJ of $4.3 million and an AAJ cmntribution of $4.5 million from its revenues.

Procurement

30. Major civil works and equipment procurement contracts (other than the navigational equipment referred to below) would be awarded through in- ternational competitive bidding in accordance with the Bank's "Guidelines for Procurement". Related civil works items would be grouped together as much as possible but it is unlikely that any one paokage would attract wide- international interest due largely to the diversity and small size and value of the packages. Smaller structures and related works contracts, estimated to cost a total of $1.0 million, would be advertised for local competitive bidd- ing. Certain navigational equipment, which is urgently required and needs to be standardized with existing equipment and which is estimated in the aggre.- gate to cost about $400,000, would be purchased by direct negotiation with suppliers.

Disbursement

31. Disbursement of the Bank loan would extend over about three years and would be at a rate of 55% of total expenditures for civil works, repre- senting the estimated foreign exchange component, 100% of foreign expendi- tures for directly imported navigation, communications and other equipment, and 100% of foreign expenditures for foreign consulting services and 70% of local expenditures for local consultants. Disbursement against locally pro- cured imported equipment would be at a rate of 90% of local expenditures. In order to avoid delay in the preparation of detailed design and engineering, and in setting up the AAJ,certain preparatory work is already being undertaken by consuLltants; in addition, the CAD has placed orders for certain urgently required navigational equipment for the project. It is therefore recommended that expenditures incurred after April 1, 1974 and before loan signing for these can- sulting services and navigational equipment, and not exceeding $550,000 in the aggregate, should be financed retroactively from the loan proceeds. Financial Evaluation

32. It is the government's intention that the newly established AAJ should be a commercially viable body and should earn revenues sufficient to cover cash operating expenses, debt service, and a contribution,to invest- ment including a return to government on its capital invested. The authority's financial structure will include equity consisting of ordinary shares to be held by the government and retained earnings of AAJ built up from annual surpluses. The government would provide AAJ with initial equity equivalent to: (i) the net depreciated value of the fixed assets of the two international airports taken over on vesting day and (ii) a government contribution to the local costs of the proposed project (paragraph 29 above) amounting to at least US$4.3 million. AAJ woulditBelf service its long-term debt including US$11.3 million of the proceeds of the proposed Bank loan. The government and AAJ have agreed with the Bank that (a) the existing assets of the airports to be trans- ferred to the AAJ will be valued in accordance with a method satisfactory to the Bank and that provision for depreciation will be made in AAJ's accounts based on this valuation and (b) any future transfer of domestic airports to the AAJ will be made after consultation with the Bank (draft Loan Agreement, Section 4.08; draft Project Agreement, Sections 3.04 and 3.06).

33. The government proposes to introduce substantial increases in air- craft landing fees over the period to 1978 and the government has agreed that annual revenues from the passenger departure tax in excess of the present level of J$1.2 million should be retained by the AAJ as airport operating revenues (draft Loan Agreement; Section 4.04). The level of all airport user charges will be reviewed not later than December 31, 1975 and revised as necessary to cover the costs of services provided.

34. Financial projections indicate that although operating deficits are likely in 1974 and 1975 the AAJ can cover all its cash needs during this period. Net inccme is modest during the rest of the project period but by 1980 reaches a level where AAJ can safely pay a dividend to government on its equity which for the period 1980-85 has been set at 7% per annum. Forecast revenue accounts indi- cate that AAJ should be able to achieve a rate of return on net fixed assets of about 7% in 1978 when the project has been completed, rising to about 10 % by 1981. To ensure that AAJ after a reasonable period raises sufficient revenues to meet its requirements, AAJ will undertake to take all necessary steps, including ad- justment of its charges, to produce revenues in each year commencing January 1,1978 sufficient to cover operating expenses, service debt and pay an appropriate divi- dend on issued share capital; in addition the AAJ would finance from these revenues at least 40% of capital expenditures over each three-year period (draft Project Agreement, Section 4.03). The AAJ has also agreed (draft Project Agreement, Section 4.04) that it will not incur any long-term debt (other than for financing the project) without the prior approval of the Bank, if its consolidated net revenues for the financial year or a later 12-month period ended prior to in- curring the debt is less than 1.25 times its maximum future debt service re- quirements in any succeeding financial year. - 12 -

35. With the help of consultants to be financed from the loan, the AMJ will establish a modern accounting system, capable of readily identifying the costs and revenues applicable to major functional centers at the airports within one year of the loan becoming effective. Independent auditors, satisfactory to the Bank, will be appointed within one year from the intro- duvction of the new accounting system.

_roject Justification and Economic Evaluation

36. Jamaica has shown impressive growth in tourist and business visitors in recent years. Tourism in particular is an important source of foreign exchange earnings (amounting to an estimated $115 million in 1973) as well as providing much-needed employment opportunities. In order to retain this growth, a sizable irvestment program is being undertaken in hotels, Air Jamaica is expanding its fleet of aircraft and an active program to promote the influx of foreign tourists has been launched in many foreign countries. However, in recent years invest- ment in the two international airports has consisted largely of maintenance and minor ad hoc works to cope with immediate problems. The system has not therefore been able to keep pace with the recent increase in the growth of traffic. Airport installations, including passenger handling facilities, air traffic control equipment and navigational aids have become inadequate to meet present needs at an acceptable level of service during peak periods. The result- ing delays and inconvenience to passengers and airline operations are reaching serious levels and improvements are now urgently required, in the framework of a longer-term development plan for the airports, to meet requirements during the next few years. The proposed improvements at the two international airports would complement the other large tourist-related expenditures already referred to.

For the purposes of the economic evaluation, at Sangster Airport the (puantifi.ed benefits accruing to the international community consist of the 71ircraft time-savings resulting from the parallel taxiway and improved terminal and apron area. The full aircraft cost savings accruing to Air Jamaica and the additional landing fees to be recovered from foreign airlines as a result of the project hvave been considered as a Jamaican benefit. As regards passenger benefits, t-.e;e is ev;dence that delay times at airports, under congested and trying cir- ciu:s;_nces, are likely to lead to a loss of visitors who have a wide choice .^. :-vi-,ernative destinations. The entire net foreign exchange contribution for

-!nisD loss of visitors has been considered a total potential loss to the Jamaican economy.

'.d. There is a high degree o.f interdependence between Sangster and Manley airoorts and since the two airports will offer similar services after iiprove- men- s made at both of them under the project, the proposed increases in landing Cee tariffs will have to be the same for both airports. Therefore, the same landing fee increases used for Sangster have been applied to the Manley aircraft movements as a measure of the minimrum value of the Manley improvements to the airlines. Passenger-time savings accruing to Jamaican residents have been in- cluded in the auantificaticn of benefits at Manley, but in view of the limited number of tourist visitors arriving through this airport, the potential loss frorm deterred traffic has not been included. - 13 -

39. The economic return of the project for the Jamaican economy is estimated at about 19% for each airport individually. Disregarding any passenger benefits, the rate of return is estimated at 14% for Sangster and at 15% for Manley. The first year return is above 14%.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

40. The draft Loan Agreement between Jamaica and the Bank, the draft Project Agreement between the Bank and AAJ, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately.

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

PART VI - RECOMMENDATION

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

Robert S. McNamara President

Attachments

UNBX I Page 1 of 4 pages

C0UllTR DA?_- JAIgICA

LROA POP¶)1TION0rSWT fl, 21 trel T:'ilo nii;0 (sid-i972) Per Iam f arable land

SOCIAL DIDICATORS Refere.nc Countries rrinidad & J ic. Tob.grO t>pr. U.K.. 196D 15N ~~~~~~~~~~170 Yo70 O_ PSA CAPITA us$ (ATAS toSIS) e 720 /a 940 A 1,100 IA 2,430A

Crude Oirth rot (per hsead) 42 35 /a 24 /a 22 /b 16.2 Crude death i.te (per thousand) 9 7 7 7; 7 7? 11.8 Infant ortality rfte (pee thousand li births) 51 26 /a 35 25 7i 18 /a Life expectancy at birth (years) 63 69 68 71 72

ores. reproducti, rite 3.4 2 5 1.9 1.5 1.3 Population troVt1 raTe oIt /d 1i5 /e 1.9 /a 1.1/ 0.6 /a Ptopultion 0rowth,rats - urbt. 6 7? . 2 7j 0.5 7i? Age struct-r (perc-nt) 0-14 43 46A/i 41/i 32 /i 236/i 15-64 53 49 7? 55 7i 60A7 6344 7r 65 and o... 4 71 47? a7 13.0 7r 1darncy ratio A 1.2/ 1.)7Z 1 3 7T 0.9 a' o o8 U,ban PoPultio. as peroent of total 23 /f 37 /f 12 /k 42 /b 70 /b FMn;ly planning, N. of Soptore cumulative (thous.) No. of uasre (S of married ttgn)

TOM Tibor forca (thousands) 660 750 /i 350 /i 270 25 600 Percertago .epioyed in a4riculture 37 33 7? 25 36 3 Fer-entage mnarployed 13 13-14 7? 13 3.6 ,NiCDNS DISTRIBUTrOt PescOer 0! nUTTrAl incom renved by hJoghst SS 3U /1 15 /ac Peent of n4ttoxal toeti received by h1&W% *f4 62 7. 39 7it PNicot of nationol ULcose received by loveat 2C 2 7I 6 7& ericest of national inones received by loweat 14% 8 7 19 c tST1RI"BUTI0R 07 LAND O*MmrP t osd 0y 1op lTX o owur S ond by snallest 10E of owners .. ..

HEALTH AND NUTtlON FoPulation pe/r phyician 2,500 2,630 2,320 /n 1,260 820 Population per nursing person 400A/o 1,720 /o 3607 610 310 /o Population Per hospital bed 250- 240 230 /i6 190 110i 7

Per capita calorie supply as S of requiremente a 91 /r 93 /s 96 /a 100 /a 120 Per capita Protein supply, total (gras per dayi Si 7 59 7j 64 7i 78 7i 07 Of which, anisal and puls 20 7? 29 7i 34 7i 33 7; 57 Death rati 1-4 years /7 . 1. 8 0.7 /a gBUCATION Adjusted @ prisary school enrolleont ratio 70 86 /t 310 c u 03 I/ 110 Adjustad 9 secondary school nxoll1ent retio 12 43 22 7c7 58 7V 72 lear. of schooling peorided, first and r oond level 12 12 15 12 7;; 13 Vocational anrollent as S of sec. school enroll_nt 9 9A 10 /Ic u 12 7? 5 Adult literacy rate S t0 86 7g, 90 85 97 /c hDOUSIN3 L,oriige No. of prisons per roer (urban) 1.6 1.0 /A 0.6 Z Percont of occupied Units without piped water 79 68 y 57 Aooses to electricity (as %of total ppulation) 66 R 100 Paherceotofrtural population corneoted to elo-trioity .. 90

RedSoreoeivers per 100D population 88 230 /c 276 /j 264 330 Paesonger cars per l10D population 26 /ab.ad 35 7?.ad 73 89 210 SlGctric power conruption (kth p.c.) 362 777 1,123 962 4,461 Newsprint oonsu.ption p.c. kg PDr year 2.9 4.3 5.9 2.7 27.7 Notes: " esoferrtu eltiw, to the Latoot periods or to account of enviroonental tempeatAur, body weigtts, aod the latest years. latest poriods rfeSr in principle to distribAticn by age nd sex of r tirSgl populations. the years 1956-60 or 1966-70; the latest ygs Jt pij, t Protein standards (requireaets) for all oountries as _tab- ciple to 1960 nd 1970. liahed by USt)i Eonomic Research Servic. provide for a rioe- , The Pr Cepitta ON? stiate its at Wket prices for allova of 60 gta Of total protein per day, and 20 Fp of years oth,r tban 1960,calculated br the bae soovaeroon animal and pulse protein, of which 10 ras should be animal technique as the 1972 World Bk Atlas. protein. These Standards re omewhat loser then tbhoe of 75 j Avera.grenumber of daughters per woas of reproducttive gra of total protein and 23 gra of aoiaal protein as a stbJ zraverage for the vorld, proposed by FAOin the Third World Food & Population grovth r-tea are for the decades ending i. SurOy. 1960 snd 1970. 7 So.e studies have suggested that crude death ratoe of children 4L Ratio of under 15 and 65 and over age brackets to ages 1 through 4 sAy be used as a first approximation index of those in labor force bracket of ages 15 throug 614. alnutrition. 4 7Ao reference standards repreent physiological se - Percentage enrolled of oorresponiing population of school age quircoento for norml activdty and health, taedg "s defined for eab oountry.

/a 1971; /b 1972; /c 1969; /d 1955-60; / 1960-71; If Kingeton etropolitan area and selected main towns; Six disttct towns an3 Nicodia suMrbs; /h For definition oTurban, aem UN Demographic Yearbook 1972, p. 156; 7 Stteate; /3 bitio of popUlation under Tr ad 65 and over to total labor force; /k Port of Spain, Aries borough and San Feroando tovn; /1 195e4, householda; /s 1963; /n 1964; /0 Peranmnel Tn government mervices only; / Including midwives; /c overnreent hospital eatablishents /r 196142; /s 1964-66; /t Including overage otudents; /u Oovernent maintained and aided echools Only; 7? Not including Turkish scho;;IT' /w 15 years and over; ix estimate, 1966; /s Housing units; lea Data refr to dwellings; /ab 19627 /a 1968, housanolis; /ad Included police and o0er government aeculTy vehicles.

C The U.N. has been selected as the objective country due to the similarity of the economic and social welfare pnilosophy, particularly the proninant positimo acorded toe public sector. In addition, the historical tiea reoultod In sleilar political and econosic structurea.

1< R2 July 18, 1974 ANNEX 1

2 of 4 p,aR-

04L0M'I c LOVELONMENT DATA

Arlzaoi______lInt. Iroloclo6 ~~~~~~~~~1963-17965- I1)70- 1923- 1919711 197' ~~~~~73 ~~~19I 124 _19 79 1965 1975" 19 75 1976 1960 19570 199

3-Year 6506a 9716 rcn Eno,onge Rates AIragov AlnnoaI G - tbRto SP. r

roP-,ot l-oot 966 1,278 1,42 3 4,464 2,5 30 2,0552 4. 5.6 6. 2 568 94.4 10.94. 3 Tf-rCos§j +20 -12 -41 -6 5 -95 5.6 09 -4 Si' ,'ur)otorons, 9~~~~~~~~ir8T 76 T-= 1_7295 2741T 75 T 3 .I 5. 5.4 171. T? 20737

oot -,oo NFo, 344 410, 698 299 72 9 ,- 47,2.1 5.2 5.if 37.3 4. 49.6 Tnsof5,4.~~.olsport co-aoity) 329 5248 566 568 605 909 2.6 9 .0 5. 3 4.3 213 41 46.72 .0.00Op 15 41 122 51 124I. "6.4 .4 3. 4

rtn F toroso,.on,14 91)~~85 1 1035 4, 215 1 ,226 11244 1A L. 4..5 5. 9 4,.4 749 i9 612.7 ,ooOooLt (Ool L-aks) 196 11.71 299 302 315 1.4,5 1.9 I! .6 5.6f 4.5 21.6 26.0, '_2?.

i..,OoSa,9..o+. 1 713 261 167 171 191 3 79 0l.9 7.0 5.9 44.2 20.2. 24.4 19.3 N.'tlio-I Sovio. 139 169 95 117 175 24F 1.2 6.4 4.8 Itz..! 15.6 741 10.1

ME!R41ANID:S04TIIA~DE Ann-al Dat., at Cor-t Pri- --A, P-r-ot of Total

>~~~IUt01 000510 ~~~~~~~~~74 196 199 208 245 422 6.5 21.5 L._4.'. 24.9 3 7.4 20.6 lelt --oSi~,,to iooo 10. F-[l.i '8 140 170 199 240 389 ( 12.4 6.5 j.7 ( 26.6 27.4 F-ol' 25 32 56 72 246 332 (6.5 2 .5 45.2 29.2f 72.4/ 6.1 23.,I i.00112 154 207 490 2315 262 4.8 6.8F 2.09 6.7 46.5 _29.5 19.7 OtolMorco. logorbo ~~(ri!7289 522 625, 669 972 1,421 5.9 12.6 9.0 1 3 .5 142. II 190.11 1110.11

Esp""' 6 brAi" oyrodLoIto I o-oI. f,nelI t1l6 297 301 324 535 999 4.6 11.2 7.1 21.0 811.2 86.6 64.6 FoOlS -0, -oloted -.t-r,,l 10 IS 11 12! 16 55 122.0 29.11 ( 4.5 of ,oo-hi: 7~~lOO* . . . . (14.3 .. . . (12.8 O inj to-Lo rd g..dS~- 31 36 56 63 75 165 (___ 3.1 9.0 19.7 {( 40.5 14.9 00~th MosI. E,ports (fob) 217 342 368 399 629 1,239 5.6 9.5 7.4 21.0 120.3 1011.0 900.0 ,oo-,o- 65 96 131 145 141 2611 111.2 4.1 14.1 15o.2

M,-orh-di- Trode Indj-f, A--rg. 1967-69 =100 Ioport Pieistd-o 80.9 96.3 95.7 104 130 204 4.2 3.6 1.1 11.9 l1nporl P'ric Ind- 84.0 99.6 406.8 120 154 231 2.0 3.5 2.9 11.5 To ron oT-ado, Ind-x 96.3 96.6 89.6 87 90 44 -1.9 - -1.6 ,).2 Export' .Clon- 1Indos 97.0 123.3 427.0 123 145 40~4 5.5 4.9 5.4 7.9

.41.L16ADDEDI BY0 1SECT91 An-s1 l.04 at 1967-69 Prices & E-ch,no. Rot'. Ave... e Ao,,.- I Crlroth,R,,L,, AlsP'roc o f o,t;ol

AgrionI tsr,.. ~~~ ~~~96 ~~~~93il1 117 121 147 2.2 0.6 5.2 3.9 II.,) 9. 3 7.4 In-l,.trv -d. HMIolg 3219 442 341 348 417 655 4.7 7.9 6.5 11.1 36.7 41.6 32.8 Ocrolo.' ~~~~ - ~~~~576 ~~~~459640 864 935 1,193 4.5 4.6 4.3 5.5 51.7 50.9 5 9.6 Totol 481I 1,154 4,292 1.329 1,390 1,995 4.3 5.5 6.2 7.2 100.5 1MO.0 100.0

7111)1.1 FINANCE A.. P--nrs .,l 507 Contrl onR-mept. 24/ '5/ 61 861) 2' 1. Corrono Rooorpno 16'-~ ~~~~265 ~~~300 ~ 300 356 493 6 r 91 n1 46 . 31 C--rot En7-,dit--e 18 217 275 285 303 415 6.4~/ 0O4-' 864 6.4 1617~73 19.4 Bodgrt-rv S-oo24j/ 48 25 15 53 78 3. 5 3.6. Otlr P61i 'oIr 78 37 14~/ -o. 32.0 3.3. 00-I i P,,b ~14 21 22 27 34 48 ,,, 7.3- 19.1 8. .. 2 Public Se.tor In.onet 61_/ 121 129 133 152 250 10.4 1/5.5-/ 9.0 11.4 . 9.3 11.7 CURRENT EXPENDITUR4E DETAILS Aot-al Prolirn. Ent. Proj. (,4 5. Total Cor-et Fnp-nd.) 1965 1970 1974 1972 1973 100101 Ed-.ation 19.2 4 9._9 2_1.6 19.3 19.4 DETAIL ON At 1967-69 P -d ER 1torS-,cll Ocro-o- 15.1 15.11 16.5 14.9 14.9 PUBLIC SECT06 196973 f Total AER10-3lirn .5.7 6.9 6.1 6.7 6.7 INVESTMENT PR44G414M Oth-r Eoon..n41oSerice 8.3 7.7 8.7 6.6 6.7 SociIl Oroto- 167 25.27 Ad.ini,trotian. & llefeone 36.3 32.0 27.1 26.6 25.8 Agrtc-lt-r 98 15.1 Other 15.6 19.4 19.8 25.9 26.5 Industry and Mining 78 12.0 Totol Cn--ot Eop-ndit.Earn -10.0 170.0 100o.0 T100.0 100.0 Ponoer 79 12.0 ______Transport and cTon...np-t:io.d 120 11.5 Other 108 16.7 T.tol Eopondit--e 650 100.0 SELECTED, INDICATORS 1960. 1965- 1970- 1973. ICOlo-1.,tod from 3-yor --orgod dtat;) 1965 1970 1975 1928 FIN1ANCINGI A-orog ICOR 4.4 4. 21 3.83 3.9 Pabli. SOoLot oog 342 52.6 I~port Elootloity 0.93 1.34 0.98 0.97 Progra oid Eoon.torpot 177 27.2 DornoI cnrtl la-ingo Rate 2.19 0.19 0.14 4.20 Poroign Pro nct Aid 131 20.2 M-t;rJ-!a Noti-ol S-oinRs Rate 0.15 0.14 4.12 0.15 Total Finsol-j5040.1

LABOR FOR4CE AND Total Labor PFrEe Can- Addrl Pe- Wlrkcr (1967-69 Prioo E.On. Ratoc) OUTPUT PER W40R6FR Thonsando , of Total 1960-70 In1 U.S.Dollo- 2. of A-.rg. 1960-70 1960 1970 4960 1970 G-.th RarE 1960 11274 19602 19(70 r,o-th Rate ii

Ageiloolo- 234 234 41.1 36.1 - 355 410 24.3 21.8 i.5 inioStry 93 116 16.3 18.9 2.2 2,817 4,155 224.8 221.1 4.0 Service ~~~~ ~~~~264 ~~~~~~24342.6 43.0 0.6 1L.519 2,8 121.2 116.1 3.7 T0L,.1 570 614 400.0 150.0 0.7 1,253 1,879 100.4 400.0 5.1

D/onetio -npoos on1y Cn- 1960-70 2/1562 3/ 1971 4,/ 1962-67 5/ 1967-72

not oppli-oble Country Er-Rrrn Peportoont 14 not os.il,,ble Lati,, Am-i-c,,od Coribbe-n Retio... 1 oCfi- nil or n-RliRible August 1974 ANNEX I Page 3 of 4 pages JAMAICA - BALANCE OF PAYMENTS, EXTERNAL ASSISTANCE AND DEBT (amounts in millions of U.S. dollars at current prices)

Actual Estimated Projected 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

SUMMARY BALANCE OF PAYMENTS

Exports (incl. NFS) 456.6 511.2 531.5 617.5 641 917 1,094 1,243 1,395 1,565 1,739 Imports (incl. NFS) 516.9 598.1 632.5 712.0 777 1,050 1,170 1,327 tlAlS _l525 1j2l3 Resource Balance (X-M) - 60.3 - 86.9 101.2 -94.5 136 -133 - 76 - 84 - 20 40 108

Interest (net) 4.5 5.7 3.1 0.3 - 12 - 22 - 32 - 35 - 38 - 40 - 42 Direct Investment Income - 91.5 -103.9 -105.9 -125.9 -138 -140 -140 -140 -150 -160 -170 Workers' Remittance 9.4 10.4 11.6 12.8 14 15 - 17 19 20 23 24 Current Transfers (net) 14.3 21.8 20.7 24.3 23 25 27 30 32 35 38 Balance on Current Accounts -123.6 -152.9 -171.7 -183.0 -249 -204.6 261.6 -235.7 -181.8 -182.3 -174.5

Private Direct Investment (net) 99.4 154.2 162.5 125.6 76 70 90 100 108 117 126 Official Capital Grants ------

Public M< Loans Disbursements 16.2 14.6 43.4 47.2 161 178 90 98 103 115 118 -Repayments - 5.4 - 8.3 - 12.0 - 19.5 - 19 - 27 - 37 - 41 - 37 - 35 - 34 Net Disbursements 10.8 6.3 31.4 27.7 142 151 53 57 66 80 84

Capital Transactions n.e.i. - 13.6 21.2 - 26.5 8 Actual Change in Net Reserves - 13.4 21.2 43.4 - 56.2 - 23 1959 1970 1971 1972 1973

GRANT AND LOAN COMDITMENTS DEBT & DEBT SERVICE Official Grants and Grant-like - 6.2 8.7 3.0 - Public Debt Out. & Disbursed 123.9 129.1 162.3 188.1 321.1

Public M< Loans Interest on Public Debt 8.4 8,3 9.6 10.9 17.4 IBRD 5.0 5.7 13.5 - 9.3 Repayments on Public Debt 5.4 8.2 12.1 14.2 18.8 IDA - - - - - Total Public Debt Service 13.8 16.5 21.7 25.1 36.2 Other - - - - - Other Debt Service (net) .. .. Other Multilateral - - 2.1 - 6.9 Total Debt Service (net) .. .. Governments 2.0 17.9 34.3 14.2 27.8 Suppliers - - 13.6 10.0 2.2 Burden on Export Earnings (%) Financial Institutions 3.0 - 30.9 50.7 81.5 Bonds - - - 10.0 14.0 Public Debt Service 3.0 3.2 4.0 4.1 4.7 Public Loans n.e.i. - - - - - Total Debt Service .. .. Total Public M< Loans 10.0 23.6 94.3 105.1 141.8 TDS+Direct Invest. Income 22.6 23.1 23.4 23.1 22.4

Actual Debt Outstanding on Dec. 31, 1973 Average Terms of Public Debt Disbursed Only Percent Int. as %/Prior Year DO&D 7.3 6.7 7.4 6.7 9.2 Amort. as 7, Prior Year DO&D 4.7 6.7 9.4 8.7 10.0 EXTERNAL DEBT World Bank 36.6 11.4 IBRD Debt Out. & Disbursed 23.7 29.8 33.7 34.8 36.6 IDA - -" as °1 Public Debt O&D 19.1 23.1 20.8 18.5 11.4

Other Multilateral 1.3 0.4 ' as % Public Debt Service 10.8 11.7 13.2 11.5 12.0 Governments 81.3 25.3 Suppliers 14.2 4.4 IDA Debt Out. & Disbursed - - - - - Financial Institutions 129.7 40.4 " as 7, Public Debt 0O&D- Bonds 57.9 18.0 " as 7 Public Debt Service - - - - - Public Debt n.c.i. _ TotAl Public M< Debt 321.1 100.0 Country Programs Department 3I and Caribbean Regional Office August 1974 Page 4 of" 4

COMMITMENTS OF EXTERNAL PUBLIC LOANS (INCLUDING GOVERNMENT-GUARANTEED) BY SECTOR AND SOURCE, 1965-t2

Commercial Capital TOTAL

IBRD IDB CDB U.S. Canada U.K. Banks Suppler MYarkets US$ Mn 7

Administrative Services 0.7 1.0 1.7 0.5

Social Services 25.0 4.7 3.6 33,3 i.l Education (23.0) (4.7) (1.6) (29.3) 08.9) Health (2.0) (2.0) (4.3) (1.2)

Community Services 31.2 61.3 27.8 23.8 0.1 144.2 44.9 PommunityeServices (320.7) (28.9) (21.8) (71.1) (21.7) Roads and Transport (5.5) (12.4) (4.3) (2.0) (0.1) (24.3) (8.5) Housing (20.0) (0.2) (0.2) (,.1) Telecommunications (19.3) (19.3 (,.9) Water and Sewerage (5.0) (4 .0) ( 9.0) (2.7)

Economic Services 3.7 15.2 1.2 9.7 1.2 1.6 22.4 16.6 71.6 21.8 Agriculture (3.7) (9.2) (2.7) (4.2) (19.8) (6.0) Industry (6.0) (3.0) (1.2) (10.2) (3. Tourism (1.2) (4 0) (1.6) (18.2) (16.6) (41.6) (12.,

Studies 3.8 3.8 1.2

Non-Project 28.5 41.9 70.4 21.5

TOTAL

US$ mn 59.9 19.9 1.2 71.0 37.1 2.6 74.7 16.7 41.9 325.0 100.0

Percent (18.2) (6.1) (0.4) (22.6) (11.3) (0.8) (22.7) (5.1) (12.8)

April, 1974 ANNEX II Page 1 of 3

STATUS OF BANK GROUP OPERATIONS IN JAMAICA

A. Statement of Bank Loans (as at June 30. 1974)

Loan Fiscal (US$ million) No. Year Borrower Purpose Amount (less cancellati Bank Undisbursed

3 Loans fully disbursed (408,454 and 468) 2 35.8 598 1969 The Water Commission Kingston, Jamaica Water Supply 5.0 1.0 690 1970 Jamaica Population 2.0 1.3 719 1970 Jamaica Development Bank Agriculture 3.7 1.8 727 1971 Jamaica Education 13.5 13.0 899 19731/ Jamaica Highways 9.3 9.0 1003 1974, Jamaica Development Bank Agriculture 5.5 5.5 1004 1974-/ Jamaica Sites and 1/ Services 15.0 15.0 1032 1975- Jamaica Highways 13.5 13.5 Total (net cancellation) 103.3 60.1 of which has been repaid 5.8 Total now outstanding 97.5 Amount sold 1.5 of which has been repaid 1.4 0.1

Total now held by Bank 97.4

Total undisbursed 60.1

B. Statement of IFC Investments (as at June 30, 1974)

Type of (US$ million) Year Obligor Business Loan Equity Total

1961 Jamaica Pre-Mix Ltd. Pre-mix concrete 0.2 0.2

1968 Pegasus Hotel of Jamaica Ltd. Tourism 2.2 0.7 2.9

Total gross commitments 2.4 0.7 3.1

Less cancellations, terminations, repayments and sales 1.1 1.1

Total commitments now held by IFC 1.3 0.7 2.0

Total undisbursed - - - 1/ Not yet effective 2/ The telecommunications loan (481-JM) was made in 1967 to the Jamaica Telephone Company and was cancelled by the Borrower during 1967. ANNEX II Page 2 of 3

C Proje-2ts in S:_cKutiorr-

Lr No. 727 Second Education Project; US$13.5 million of March 25, 1971 Closing Date: December 31, 1975

Managerial weaknesses in both the Education Ministry and the proj3ct unit have caused delays in the implementation of the project; imple- mentation is about two years behind appraisal schedule. It is expected that all the project items will be completed by December 1976. A postponement of the closing date by a year and a half is likely to be required. Because of the late implementation, devaluation of the Jamaican dollar and inter- national inflation a cost overrun of about 25% is likely. The project unit is understaffed. The project director, whose contract has expired, has not yet been replaced and the project architect post is vacant. The government is considering the possibility of transferring project implementation to a new govenment agency and the Bank is in contact with the government on the urgent need to strengthen the management of the project.

Ln No. 719 Agricultural Credit Project; US$3.7 million of December 28, 1970 Closing Date: December 31, 1974

After a slow start the project picked up momentum during the last year and the Bank loan is now about fully committed. Disbursements have not improved equally but the Jamaica Development Bank (JDB) has taken steps to streamline and simplify procedures which have mainly accounted for the delays. The Bank has agreed to a second reallocation of the loan proceeds to increase credit availability for beef and dairy production.

Ln No. 690 Population Project; US$2.0 million of June 18, 1970 Closing Date: March 31, 1975

There have been dalays in the design/construction programs for the Victoria Jubilee Hospital (VJH) and ten rural maternity centers (RMCs), due primarily to problems of coordination, and weaknesses in the management of the family planning program. However, more recently improved progress has been made in implementing some of the principal aspects of the program. Construction of all ten RMCs has been physically completed, 5 are already operating and the remaining five will open within the next 3 months. Con- structicn has started on the VJH expansion; during a Bank supervision mis- sion in April, the Ministry of Works agreed to undertake stricter supervision of the contractor and to provide site security, in response to earlier problems that were causing constructian delays. Progress has been slow in implementing the training and home encouragement aspects of the family planning program, but intensified efforts are being made in these areas through the use of com- munity health aides. The family planning services have been integrated into the Ministry of Health and the Bank is providing technical assistance for redesigning the program. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this senee, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 of 3

Ln No,98 Kingston Water Su Project; US$5.0 million of May 1h, 1969 Closin& Date: December 31, 1974

After initial delays over the acquisition of land rights and in the award of contracts, impLementation of the physical aspects of the project has improved and the works are now partially in operation. Full service should be in operation by July 197T although optimum pressure w41ll not be available until after delivery of certain booster pumping equipment in about 3 months' time. The loan closing date, originally June 30, 1972, has been postponed to December 31, 1973 and again to December 31, 1974h. However, the financial position of the Water Commission remains weak and the amnual rates of return over the last three fiscal years were significantly below the 8% required in the Loan Agreement. Substantial increases in water rates were introduced in June 1973, but since then increased operating costs, largely due to higher wages, have again eroded the Commission's financial position. However, the Water Commission is taking action to reduce its operating costs and is considering measures to ensure the maintenance of adequate revenues from water tariffs. Other measures to remedy staffing and management weaknesses are currently under discussion between the Bank and the Borrower.

Ln No. 899 Road Improvement and Maintenance Project; US$9.3 million of June 1, 1973 Closing Date: December 31, 1978

This loan became effective August 31, 1973 and is progressing satisfac- torily. Consultants to carry out the technical assistance component of the project started their assignment in October 1973 and government has appointed all counterparts. Contractors for the first phase of the resealing work have been engaged and works started in June. A number of roads to be resealed under the project were damaged by floods in late 1973. In order to get them back into operation as quickly as possible and prevent further deterioration, the Bank agreed that about 40 miles of the total 250 miles to be resealed under tho project should be repaired by force account rather than by contractors; this work is under way. Bids for equipment have been received and invitations to bid for phase I of the asphaltic concrete overlay work were issued in July.

Ln No. 1003 Sites and Services Project; US$15.o million of June 13, 1974 Closing Date: December 31, 1978

Invitations to bid for the infrastructure and for the core housing units have been issued for the Camplands, Marcus Garvey and Spanish Town sites. The Director of the Sites and Services Unit has been appointed. Invitations will be shortly issued for proposals for the clagnostic study of the programs, organization and staffing of the Ministry of Housing. The terminal date for the effectiveness of the loan has been postponed from August 14, the original date, to September 13, 1974 to provide additional time for the Borrower to execute the Subsidiary Loan Agreement.

Ln No. 1004 Second Agricultural Credit Project; US$5.5 million of June 13, 1974 Closing Dste: December 31, 1977

This recently signed loan is not yet effective.

Ln No. 1032 Third Highway Project; US$13.5 million of July 26, 1974 Closing Date: December 31, 1977

Prequalification of contractors for the civil works is under way. Invita- tions will be sent to consultants not later than the end of August 1974 for proposals for supervision of the execution of the civil works. The loan is not yet effective. ANNEX III Page 1 of 2

JAMAICA - AIRPORT DEVELOPMENT PROJECT

Loan and Project Summary

Borrower: Jamaica

Amount: US$12.5 million equivalent in various currencies.

Beneficiary: US$11.3 million of the proceeds of the loan would be re- lent to the Airports Authority of Jamaica (AAJ). The remaining proceeds would be retained by the government for project expenditures by its Civil Aviation Department (CAD).

Terms: Payable in 25 years including 4 years of grace at 8% per annum.

US$11.3 million of the proceeds of the loan would be relent to the AAJ for 25 years including 4 years of grace at 8% interest per annum.

Project Description: At Sangster airport, expansion of passenger terminal and aircraft apron facilities, and completion of taxiway;at Norman Manley airport, modifications to passenger terminal, improved aircraft apron facilities, and lengthening of runway; related infrastructure works at both airports; supply of navigational and other equipment; and consulting services for design and supervision of construction and for improving financial, manageinent and accounting systems. Estimated Cost and Financing Plan: Total project costs are estimated at $19.6 million. The Bank loan would finance the estimated foreign exchange costs of $10.9 million (55%) plus interest during con- struction estimated at $1.6 million. The remaining pro- ject costs would be financed by the AAJ from its revenues and by government from budgetary appropriatiens. ANNEX III Page 2 of 2

Estimated Cost (Us$ 'OOO) and Financing Plan: Application of Funds Local Foreign Total % (cont) Aircraft maneuvering areas 1,840 1,331 3,171 16 Terminal modifications 1,790 2,102 3,892 20 Navaids - 856 856 4 Other Buildings and Utilities 1 742 2 212 3,954 20 Sub-total 11,873 ;

Contingencies Physical 16% 859 1,041 1,900 10 Price 15% per annum 1,676 1,824 3,500 18 Engineering, supervision and other consulting services 855 1,514 2,369 12 Total Project Cost 8,762 10,880 19,642 100 Interest during construction -1620 1 620 8,762 12,500 21,262

Source of Funds

From government budget 4,257 4,257 20 From AAJ revenue 4,505 4,505 21 From Bank loan 12,500 12,500 59 8,762 12,500 21,262 100

Estimated FY75 FY76 FY77 Disbursements: Annual 5.0°52 2.3 Cumulative 5.0 10.2 12.5

Procurement Arrangements: Major civil works and equipment procurement contracts(other than the navigational equipment referred to below) would be awarded through international competitive bidding. Smaller civil works contracts would be advertised for local competitive bidding. Certain navigational equipment (estimated to cost about $400,000 in the aggregate) would, for reasons of standardization, be purchased by direct negotiation with suppliers. Expenditures incurred after April 1. 1974 and before loan signing for consulting services and navigational equipment, and not exceeding $550,000 in the aggregate, would be financed retroactively from the loan proceeds.

Technical Assistance: Consultants would be engaged (a) to provide training, design and construction supervision services, and (b) to assist the CAD and AAJ variously in establishing management, accounting and information systems, including management training.

Rate of Return: The economic rate of return is estimated at about 19%.

Appraisal Report: No. 405a-Jm dated August 20, 1974.