Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No. P-327 7-PA
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
REPUBLIC OF PARAGUAY
FOR A Public Disclosure Authorized
SEVENTH HIGHWAY PROJECT
April 19, 1982 Public Disclosure Authorized
i This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof 1 their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
US$1.00 d 126 a 1.00 US$0.008 a 1,000 Us$7.94 a 1,000,000 US$7,937
GLOSSARY OF PRINCIPAL ABBREVIATIONS USED IN THIS REPORT
DGV - General Directorate for Highways MOPC - Ministry of Public Works and Communications OCPIT - Office of Coordination and Integral Planning of Transport UNDP - United Nations Development Programme
WEIGHTS AND MEASURES
2 1 hectare (ha) = 10,000 m = 2.47 acres 1 kilometer (km) = 0.62 miles 2 l-square kilometer (km ) = 0.39 square miles = 100 ha 1 kilogram (kg) = 2.20 pounds 1 liter (1) = 0.26 gallons 1,000 kg = 1 metric ton = 0.98 long ton
GOVERNMENT OF PARAGUAY
FISCAL YEAR
January 1 - December 31 FOR OFFICIAL USE ONLY PARAGUAY
SEVENTH HIGHWAY PROJECT
Loan and Project Summary
BORROWER: Republic of Paraguay
AMOUNT: US$46.0 million equivalent (including US$0.7 million front-end fee).
TERMS: Repayable in 17 years, including 4 years of grace, at 11.6% interest per annum.
PROJECT DESCRIPTION: The project would consists of: (I) Civil works and related supervision services for: (i) widening of a 64-km section of Route 2 between San Lorenzo and Eusebio Ayala, including the construction of two additional lanes along 30 km; (ii) upgrading, including paving of a 98-km section of Route 3, between Tacuara and Santa Rosa; and (iii) upgrading, including paving of a 28-km section of Route 8, between Villarrica and Numi. (II) Upgrading the Ministry of Public Works and Comunications' planning, technical and managerial capabilities through: (i) initiation of an annual planning and programing system for the transport sector; (ii) strengthening the Ministry's Planning Department; and (iii) implementation of a staffing and training program for the Ministry's Roads Directorate. (III) Improvement in the efficiency of the Directorate's maintenance operations, through programming and monitoring.
PROJECT RISKS: The arrangements proposed for the finalization of the financing plan would give the Government and the Bank the necessary discretion to adjust the project scope in the event that co-financing does not materialize, an unlikely possibility given the country's creditworthiness. The annual review of the highway program would also provide an opportunity to assess overall funding requirements (in particular those related to the on-going projects) and compare them with the level of resources available to MOPC. The relatively good performance of Paraguay in the implementation of similar components of previous projects suggests that the risks attached to the civil works components are low. The key problem of adding more engineers to DGV has been directly addressed with specific timing applied to the undertakings from the Government. The implementation of the new planning process, including the development and consolidation of the system, would take several years and presents a high element of uncertainty since the process entails a new approach by agencies involved. Inadequate coordination between agencies and lack of follow-up are the main potential source of difficulties and delays which will have to be dealt with during supervision. This document has a restricteddistribution 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. - ii -
ESTIMATED COSTS: Local Foreign Total Items ---- (US$ Millions)---
Part A
I. Construction and Upgrading of Primary Roads Civil works for: (i) San Lorenzo-Eusebio Ayala 10.6 24.7 35.3 (ii) Villarrica-Numi 2.3 5.5 7.8 (iv) Supervision of Construction 1.3 3.0 4.3 Subtotal 14.2 33.2 47.4
II. Technical Assistance to DGV and OCPIT (i) Management of the Equipment Fleet and Workshops 0.1 0.4 0.5 (ii) Purchase of Vehicles, Office Equipment and Pavement Evaluation Equipment - 0.1 0.1 (iii) Training of Engineers 0.1 0.3 0.4 (iv) Assistance to OCPIT - 0.3 0.3 Subtotal 0.2 1.1 1.3
Base Cost (At February 1982 Prices) 14.4 34.3 48.7 Contingencies: physical 1.4 3.3 4.7 price 5.2 5.7 10.9
Total Part A 21.0 43.3 64.3
Part B Construction and Upgrading of Tacuara- Santa Rosa 11.2 26.0 37.2 Supervision of construction 1.1 2.6 3.7 Base Cost 12.3 28.6 40.9 Contingencies: physical 1.2 2.9 4.1 price 6.5 7.5 14.0
Total Part B 20.0 39.0 59.0
Total Project Costs 41.0 82.3 123.3 1/ Front-end Fee of Bank Loan - 0.7 0.7
Total Financing Required 41.0 83.0 124.0
1/ Directly imported items are exempt from taxes and duties. Taxes for other items are not significant. - iii -
FINANCING PLAN: Local Foreign Total ---(US$ Millions)----
Bank 46 46 Government 41 41 Co-financing 37 37
Total 41 83 124
ESTIMATED DISBURSEMENTS: 2/ Bank FY: 1983 1984 1985 1986 1987 1988 ------(US$ Millions)------
Annual 1.5 0.5 0.2 25.5 16.7 1.6 Cumulative 1.5 2.0 2.2 27.7 44.4 46.0
RATE OF RETURN: 21%
STAFF APPRAISAL REPORT: Staff Appraisal Report - Seventh Highway Project, Report No. 3791b-PA, dated April 19, 1982
2/ Assumes that the US$37 million in co-financing would become available by October-December 1983. a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF PARAGUAY FOR THE SEVENTH HIGHWAY PROJECT
1. I submit the following report and recommendation on a proposed Loan to the Republic of Paraguay for the equivalent of US$46.0 million, which includes a capitalized front end fee of 1.5% on the Bank Loan, to assist in financing the Seventh Highway Project. The Loan would have a term of 17 years including 4 years of grace, with an interest rate of 11.6%.
PART I - THE ECONOMY
2. An economic mission visited Paraguay in November 1980 and its report "Economic Memorandum on Paraguay" (3569-PA, September 1981), covering short- and medium-term developments, has been distributed to the Executive Directors. The following discussion is based on the findings of this mission. Country data sheets are presented in Annex 1.
Economic Performance
3. Agriculture, including livestock, forestry and fishing, is the mainstay of Paraguay's economy. Over the last two decades these activities directly contributed about 30% of GDP, 40% of employment and 80% of merchandise exports earnings. Indirectly, their contribution is even larger, since most of Paraguay's manufacturing industry consists in the processing of agricultural materials, both for home consumption and for export. Although no significant mineral resources have been found in Paraguay, the country is endowed with ample land suitable for farming and livestock raising, as well as significant forest stands. These land resources are located east of the Paraguay river. The area west of that river--the Chaco, particularly its northern half--is generally unsuitable for agriculture owing to insufficient or uneven rainfall. Of the 8 million hectares in the eastern half of the country suitable for farming, only some 1.4 million--less than 20%--are at present under crops.
4. During the 1960's, agriculture's and overall economic growth was slow: 1.8% and 4.3% annually, respectively, in constant prices. The introduction of soy beans in 1970 accelerated growth, and both crop production and forestry exploitation expanded substantially. Livestock production also increased, though somewhat less. The construction of the Itaipu hydroelectric dam on the Parana river jointly with Brazil, started in the mid-1970's, gave a new and strong impulse to the economy, the more so as it coincided with favorable conditions in world markets for cotton and soy beans, Paraguay's main export crops. The combined effect of both factors made it possible for Paraguay to achieve during 1974-80 an average growth rate of just under 10%. This has been accompanied by other improvements in the standard of living, as reflected in the increased life expectancy and literacy rates, while child mortality has declined. Nutritional levels are comparable to those found in countries with higher per capita incomes. The agricultural growth of recent years has brought about an improvement in the real incomes of the rural population, which comprises about three-fifths of the total. A significant share of production of cotton and soybeans, which account for most of the recent expansion, is grown by small farmers, many of whom have received land under government and privately sponsored colonization programs. Rural wages have, though with some lags, generally been rising in real terms. Thus, the benefits of agricultural growth have been fairly widely shared. Despite the significant progress made in recent years, however, Paraguay's per capita income is still low and large segments of the population still live in poverty. On the other hand, rising incomes, the new dynamism of the economy and the greater social mobility, are creating new and more diverse needs, both at the individual and national levels, as well as stronger expectations that they be satisfied. This creates for the government and the private sector new demands for expanding much needed social services, particularly with regard to education and health services.
5. The considerable increase of Paraguay's agricultural production in re- cent years has been achieved by expanding the area under cultivation. This has been taking place through a process of colonization carried out largely by small farmers, who, particularly at the beginning, migrated from the minifundia area around Asuncion. This process, initially organized by the government, became massive and largely spontaneous, and of late has been fur- ther stimulated--and to some extent guided--by the construction of roads into new lands and the improvement of the existing road network.
6. The construction of the Itaipu hydroelectric dam has provided well-paid employment to several thousand skilled and semi-skilled Paraguayan workers and given rise to a constellation of productive activities supplying construction materials and services for the dam itself and also for the rapid expansion of Ciudad Presidente Stroessner, thriving on the boom arising from the huge hydroelectric project. Both the construction of the dam and the expansion of the nearby city have increased the demand for food and consumer goods--many of them agricultural-based--thus creating an additional powerfull attraction for further expanding agricultural production into the eastern regions.
7. The high rate of economic growth and per capita incomes, sustained now for nearly a decade, and the relatively broad distribution of their benefits, as well as some features of the development process itself, are rapidly changing important aspects of Paraguay's economy. The growing stronger links with the outside world expand outlets for the country's production and increase the need for investment capital and the adoption of modern, more efficient technology. This process also subjects the economy more than ever before to changing world economic conditions.
8. The rapid growth of aggregate demand had been slowly pushing prices upwards for three years. These pressures were reinforced in 1979 by the second round of oil price increases and a poor crop-year resulting from unfavorable weather. Consequently, inflation accelerated to 28%, compared to 10.6% the previous year. The authorities adopted in 1980 a series of trade liberalization measures intended to induce greater registration of imports, and increase lagging Central Government customs revenues. The maintenance of a restrictive public sector expenditures policy and a record crop helped to lower the inflation rate to 22%, at the same time that a real growth rate of 11.4% was achieved, and international reserves increased by US$167 million.
9. In 1981, growth slowed to 8.6%. This slower, albeit still satisfactory, pace of the economy was caused mainly by a 5% drop in commodity exports and the cessation of tourism from and exports to Argentina as a result of the large devaluation of the Argentinian peso and recession. These developments weakened the Central Government financial position, though strong restraint of current expenditures reduced the over-all deficit. Balance-of-payments performance was satisfactory, as the larger current account deficit was covered by capital inflows, and net international reserves increased by US$45 million.
10. The authorities reacted to the slower pace of economic activity by adopting a series of measures designed to bolster lagging Central Government revenues, stimulate commodity exports and arrest the growth of imports. Several tax measures were enacted, and steps were taken to strengthen tax administration. In the credit, monetary, and foreign exchange fields, the Central Bank adopted regulations allowing the banks to pay higher interest rates on savings deposits and to operate in the free foreign exchange market. This latter measure should strengthen the Central Bank's control of foreign exchange transactions. The Central Bank also now allows exporters to negotiate 50% of their foreign exchange earnings in the fluctuating market, thereby improving their competitive position, while all imports--except petroleum and wheat--are now required to acquire foreign exchange in that same market.
Economic Prospects
11. Paraguay's economic prospects are favorable. The country still has unutilized agricultural land sufficient to sustain for many years the recent expansion of production, though greater attention will also have to be paid to increasing agricultural productivity. Though the large capital inflows associated with the construction of Itaipu are likely to taper off in the near future, it is expected that this reduction will be largely compensated by official external borrowing and inflows associated with the construction of the Yacyreta hydroelectric dam. Also, once Itaipu comes on stream, the 4 Paraguayan Government willl begin to receive compensation for its sales of electric energy to Brazil.
12. With the expected expansion of agricultural acreage and continued construction of the hydroelectric projects, the economy could grow at an average annual rate of about 7-8% during 1982-85. This projected rate is lower than the average of 1977-80 as a consequence of the expected decline of construction activity on Itaipu after 1982. In the light of the experience of recent years, and taking into account the stronger and more articulated government support to the ongoing agricultural expansion, real exports are projected to grow at 11% annually; imports are projected to grow somewhat less, partly as a result of slower GDP growth and partly as a result of the transfer of their payment to the free exchange market, which eliminates the incentive represented by the purchase of foreign exchange at the official rate. Based on the above assumptions, Paraguay's resource gap would be some- what larger during the projection period than in recent years, amounting on the average to about US$600 million. However, it would drop from the present 14% of GDP to 9% by 1985. Thus, Paraguay would need some US$2.4 billion of net capital inflows during that four-year period. Of this amount, $0.3 billion would result from direct private investment; some $0.9 billion would come from long-term multilateral loans by private creditors and about US$1.0 billion from Itaipu and Yacyreta hydroelectric projects. Public sector borrowing of about $0.7 billion would thus be required, of which some $0.4 would be for amortization. According to our projections the debt service ratio* will be around 17% this year, drop to 10% in 1983 and to 5% by 1985.
13. The role of the Government in this context is to continue to support economic expansion through private sector initiative and ensure a greater participation by the population in the benefits of growth. Instrumental in this will be the effort to remove the most important contraints facing the small farmers, such as lack of infrastructure, marketing facilities, credit, extension and the provision of social services. The rising income and the plentiful supply of agricultural raw materials provide, at the same time, a favorable environment for the manufacturing sector. Government support in the provision of capital and the development oL manpower will be required. To play an effective role, the Government also has to expand its technical and administrative capacity to prepare and execute a larger investment program. The need to increase the absorptive capacity of the economy, particularly that of the public sector, is an attainable and imperative goal in the light of the financial resources that will in time be accruing to the Government in compensation for the electric power sold to neighboring countries. Given the continuation of current economic policies, the country's growing capital requirements, and the projected capital inflows, Paraguay is expected to maintain its creditworthiness for external financing.
PART II - BANK GROUP OPERATIONS IN PARAGUAY
14. To date, Paraguay has received US$368.9 million (net of cancellations) of Bank loans and IDA credits. Of this amount, US$319.1 million has been in the form of 22 Bank loans, and US$49.8 million for eight IDA credits. As of March 31, 1982, the Bank and IDA held US$351.6 million, including US$181.0 million undisbursed. The amount held by the Bank and IDA as of December 31, 1980, was equivalent to about 22% of Paraguay's external debt, with a blend of about 18% IDA and 82% IBRD; this share is not expected to increase. The service on this debt amounted to 12.6% of total debt service in 1978 or about 1.2% of exports of goods and non-factor services. On a sectoral basis, Bank and IDA assistance to Paraguay to date has been 43% for agriculture, 29% for transportation; 11% for industry, 10% for education, 2% for preinvestment studies in various sectors, and 5% for water supply. Execution of these projects has, on the whole, been satisfactory. Similarly, the record in the disbursement of the corresponding credits/loans, has been good.
* Calculated on the whole external debt, public and private. -5-
15. IFC has had three operations in Paraguay. In 1974, it financed a wood processing project through a US$4.0 million loan, an equity partici- pation of US$1.0 million, and a contingent loan for the financing of cost overruns of US$0.4 million. The project experienced critical financial and managerial problems, and efforts to restructure it did not succeed. IFC is in the process of divesting itself of such assets. In 1980, IFC financed a US$1.2 million hotel operation in the city of Encarnacion. In 1981, an IFC investment in an agricultural project in southeastern Paraguay, was approved, consisting of a US$5.0 million loan and a US$2.0 million equity partici- pation. Lastly, the Board approved this fiscal year, an IFC supported hotel operation in Asuncion entailing a US$2.5 million loan and a US$0.881 million equity participation. Annex II contains a summary of Bank loans, IDA credits and IFC investments, as of March 31, 1982, and notes on the execution of ongoing projects.
16. Bank Group lending to Paraguay in FY82 consists of the Caazapa Area Development Project, recently approved. The proposed project is closely related to this operation and to a Rural Development Project in Eje Norte, which is being presented to the Executive Directors separately. Preparation work is underway on projects in: ports and inland waterways, urban and rural development in Southeastern Paraguay, agricultural credit, livestock development and education.
17. In lending to Paraguay, the Bank Group tries to assist the Govern- ment in achieving four major objectives, which are interdependent and comple- mentary. One objective is to spread the benefits of growth more widely than before and, more particularly, to attack directly the problem of rural poverty. A second goal is to help Paraguay expand output, including exports, by supporting projects that directly or indirectly make large contributions to production and employment. A third objective is to support programs that will bring about improvements in the management of the economy and, particularly, that will help to strengthen public institutions and financial intermediaries. A fourth goal is to help the public sector increase its investments in support to the productive sectors and to expand perceptibly into the social sectors.
18. Bank Group assistance for education, rural development and rural water supply is designed to help ease the rural poverty problem and to improve the living standards of the lowest 40% on the income distribution scale. Similarly, Bank Group lending for industry, agricultural development and livestock is aimed at increasing value added and exports of agricultural products, and at expanding marketing outlets, particularly for small farmers. Lastly, loans in the transport sector are designed to help improve institutional structures and policies of the sector, which play a vital role in supporting the production activities of the agricultural and industrial sectors. As agriculture constitutes the backbone of the Paraguayan economy, these operations are designed to support, either directly or indirectly, the development of that sector, by underpinning in particular the Government's efforts in extending social and other backup services, financial support and technical assistance to existing and new agricultural settlements. In particular, Bank-financed highway projects in Paraguay emphasize support to programs designed to improve the living conditions in rural areas. Pre- investment projects are aimed at supporting programs that help overcome - 6 - institutional constraints, in particular in planning, economic management, and project preparation and execution. The proposed project is in line with the objectives of supporting the programs designed to improving living conditions in rural areas, and the strengthening of public institutions such as those providing basic services and infrastructure to the rural poor and supporting agricultural development efforts within the framework of ecologic- ally sound measures.
PART III - THE TRANSPORT SECTOR
Background
19. After a prolonged period of isolation that ended in the 1950's Paraguay depends increasingly for its continued economic development on the maintenance and expansion of its transport system, as its economy is based on high volume/low product value of primary and processed agricultural products. Some 80% of the population, most of the rich agricultural soils, and all of the country's major hydroelectric resources are concentrated southeast of the Paraguay River in what is known as the "Triangle" area of Asuncion-Encarnacion-Ciudad Presidente Stroessner. Historically, economic growth was centered in this area while the main artery for external trade has been the Paraguay River south of Asuncion entering the River Plate Basin and the sea. Since the late 1960s, the Government has made determined efforts to expand outwards from this base with the objective of: (a) improving communications between the principal populated centers; (b) improving links with the road systems of neighboring Brazil and Argentina, affording alternative routes to the Atlantic Ocean; (c) providing access to agriculturally rich farmland east of the Paraguay river while progressively penetrating the Chaco, the under populated ranchlands northwest of the Paraguay River; and (d) maintaining and improving domestic airport facilities.
The Transport System
(a) River Transport and Ports
20. About 60% of Paraguay's international traffic is handled by river. The Paraguay and the Parana are the principal navigable rivers of Paraguay and, with the Rio de la Plata constitute a 1,600 km system. Bulk exports, such as wood products, cattle and meat, tobacco, cotton and soya are mostly shipped from ports on the Paraguay River to Buenos Aires for onloading to seagoing vessels. North of Asuncion, the Paraguay River provides communication to agricultural settlements around Concepcion and the northeast border with Brazil. However, river transport is restricted by the limited depth and width of navigable channels in the Paraguay River and the high speed of current in the Parana River. The Government is in the process of converting its merchant fleet from self-propelled ships to push-tow barges and tugs. The port of Asuncion, improved with Bank financing (Loan 437-PA, US$2.8 million, December 1965), is by far the largest of the country's ports and has sufficient capacity, but limited investments are needed to renew obsolete equipment and facilities and to provide equipment and storage to handle the small volume of container traffic using the port. Congestion in - 7 -
the port zone in related urban areas is exacerbated by export of bulk goods through Asuncion, and alternatives are being sought; a project to strengthen port facilities in Asuncion and neighboring Villeta is under preparation with financing under IDA Credit 587-PA and Loan 1780-PA (First and Second Preinvestment Studies Projects).
(b) Air Transport and Airports
21. International passenger traffic is growing at a rate of 5.5% p.a. over the past five years. Domestic air traffic, while low in terms of absolute numbers, is important because it often constitutes the only means of transport among various sections of the country, especially during the wet season when many roads are closed. Two Paraguayan airlines provide scheduled air transportation, one domestically and the other internationally. The growth of domestic aviation is hampered by antiquated aircraft, inadequate air fields and poor navigational aids, and there is a need for institutional development. Studies were carried out by consultants with financing from IDA Credit 587-PA with a view to developing proposals for improvements in the subsector. The Government, however, did not agree with the recommendations, either because of the location of some of the selected airports or because of design standards. Ten airports provide commercial services; only Asuncion has a paved runway and facilities that allow 24-hour operations. In addition, with external financing, major all-weather airports are expected to be constructed in Ciudad Presidente Stroessner and Pedro Juan Caballero; and the Army is constructing a paved runway in the Chaco, at Mariscal Estigarribia.
(c) Railways
22. The continued operation of the Presidente Carlos Antonio Lopez railway is a permanent tenet of Government policy. It links Asuncion to Encarnacion (376 km) and is connected by ferry to the Argentine railway. Railway traffic is small in absolute and relative terms when compared to other modes and the railway does not attract sufficient traffic to be financially self-sustaining. In 1971 the Bank obtained a Government undertaking to limit railway subsidies. However, the deficit of the railway has increased from US$630,000 in 1971 to US$2.1 million in 1980. Several studies have suggested limited track rehabilitation, which would maintain the railway in operation at lower cost and would allow it to increase its freight traffic while continuing to provide an alternative to river and road transport connecting with Argentina.
23. The Government has been considering proposals to upgrade the existing railway and to electrify its operations. Concern with the financial viability of the railway led to inclusion under the Loan Agreement 1529-PA and 1736-PA (Fifth and Sixth Highway Projects) of a Government undertaking not to make investments in the railways' permanent way and rolling stock without prior review by the Government's transport planning agency (OCPIT); and to consult the Bank on the findings of the above review in case of investments of more than US$5 million in any given year. Such a review would include an assessment of the impact of the proposed investments on the public finances. Moreover, construction of a new railway has been agreed in principle between Paraguay and Brazil. The first stage of the 377 km section in Brazil is under construction. The investment cost of the railway section in Paraguay would be about US$500 million, the economic justification of - 8 - which is currently under review. The proposed alignment would go through Coronel Oviedo and meet the existing line in Villarcica. From there to Asuncion, a third rail would be added to the existing track to permit narrow gauge operation of the new railway.
(d) Highways
24. Road development in Paraguay really commenced in 1950 when the total road network was only 850 km; today the network totals 10,300 km, of which about 1,500 km (15%) are paved. Past efforts were concentrated on economic and population centers and paving the most heavily travelled roads. Hlowever, because of rain, some of the roads are closed for periods totaling about 100 days per year affecting adversely the economic development of vast areas of the country. Some 7,500 km of the network are secondary and feeder roads. The latter were constructed by various Government agencies and by farmers, but are sporadically maintained and are impassable during the rainy season. The feeder road network is presently being inventoried by a Feeder Road Unit, a part of the Ministry of Public Works and Communications (MOPC), that was established under the Sixth Highway Project to plan and coordinate all related activities. The existing road network is densest in the south- eastern part of Paraguay. The two principal inter-urban routes, Asuncion- Ciudad Presidente Stroessner (376 km), and Asuncion-Encarnacion (370 km) are paved all-weather roads. Historical traffic survey data are not reliable, but estimates are that traffic on the primary network has grown consistently above 8% p.a. over the last five years.
25. Road transport regulation is the responsibility of the MOPC's General Directorate for Transport, but in practice domestic truck transport is practically unregulated. Competition among domestic truckers and with international operators competitors is keen, and service levels are good; freight rates compare favorably with those of neighboring countries. The Paraguayan trucking fleet, while still small, has been growing rapidly. Overloading of vehicles remains a serious problem in Paraguay. The Fifth Highway Project provided for the purchase of weighing scales and for the construction of weighing stations. The same loan also provided for a study of the regulatory framework and institutional arrangements for effective enforcement of weight regulations. After the study was completed, the Government prepared an axle load enforcement program that will be implemented once the weighing stations become operational. The vehicle weight control system will be fully operating by late 1982.
26. Highway expenditures increased from an annual average of US$4.5 million over the period 1970-1972 to US$41.9 million over the period 1978-1980, which represents a real increase of about 170%. Present commit- ments average a level of annual expenditures for the 1982-1984 period of about US$115.0 million. Of these, 44% are provided by external loans while the rest stems from the general budget. Until 1976, road infrastructure expenditures were lower than road user charge revenues. Since then, and basically because of fixed nominal value fuel taxes established in 1963, the real value of road user taxes decreased while highway expenditures increased. Revenues from user charges covered 64% of highway expenditures in 1980. In September 1981, the Government increased the taxes on vehicle fuels and changed the tax base from fixed to ad valorem. This measure would allow - 9 - road user charge revenues to cover an substantial proportion of highway expenditures, including all current expenditures and about 80% of capital expenditures, which is considered an adequate level given the stage of development of Paraguay.
27. The transport sector is the main consumer of petroleum products which are totally imported: gasoline, diesel and aviation fuel represent about 95% of the overall consumption. The structure of petroleum product consumption has changed in the past 20 years. Diesel fuel increased its share of national consumption from about 15% to close to 60%. The trend to increase the price of gasoline relative to diesel has helped to change the truck fleet to more efficient diesel powered engines; current prices are among the highest in the world. The trend has also increased the number of diesel fueled cars which now fail to make a proportionate contribution to highway finances.
Transport Investment Planning
28. Paraguay is slowly moving toward the development of transport sector planning as a systematic task. Over the last 20 years, several medium- and long-term investment programs have been prepared with UNDP or Bank financing. They provided a framework to support expanding and upgrading the primary road network and, later on, the maintenance system. Paraguay's transport system has grown in complexity and size. The focus of the planning effort must shift from large individual primary and secondary road projects to diversified programs requiring coherent planning and programing methods. In October 1972, OCPIT was set up as a sectoral planning advisory group within MOPC. Assisted by consultants, this group initiated the development of in-house planning capacity for the transport sector. Severe staff constraints have, however, restricted the role of OCPIT to preparation of feasibility studies and it has had little impact so far upon the overall operations of DGV. Accordingly, during the preparation of the proposed project, measures were agreed with the Government to strengthen, and make more explicit, the role of OCPIT within the transport sector.
29. A decree was issued on October 22, 1981, by MOPC establishing procedures and schedules for the preparation of a four-year transport sector working and investment plan, to be updated annually, starting with the period 1983-86. The individual agencies within MOPC, amongst them DGV, would each prepare their own program, with OCPIT having the responsibility for overall coordination. The plan would be sent to the Bank for comments by not later than July 31, each year, starting on July 31, 1983 (Section 3.07 of draft Loan Agreement). This planning effort forms part of Government steps to develop medium-term public sector investment programs, supported through current Bank preinvestment projects.
30. The same Ministerial Decree specifies that OCPIT would prepare, and carry out jointly with each agency, a system to monitor the implementation of their four-year programs. The Government confirmed that such system would be reviewed with the Bank not later than October 31, 1982 and would start to be utilized by December 31, 1982 (Section 3.08 of draft Loan Agreement). The implementation of the new sectoral planning system would constitute the core of OCPIT's activities. In addition, OCPIT would carry out a review of - 10 -
pricing policies, especially road user charges, and would collect and publish sectoral data. The work program for 1983-1984 was reviewed during negotiations, at which time the Government confirmed that OCPIT's work program would be updated periodically in consultation with the Bank (Annex B to Schedule 2 of draft Loan Agreement). In addition, to assist the planning process, under the Fifth Highway Project, the Government agreed-to institute a systematic traffic counting program. The results of this, program, it was agreed at negotiations, would be submitted to the Bank every six months, starting from December 31, 1982 (Section 3.06 of draft Loan Agreement).
Management of Maintenance and Rehabilitation Operations
31. DGV is responsible for planning, constructing and maintaining all national and departmental roads, except in the Chaco area where the Army has responsibility for roads (with the exception of the Transchaco trunk road). The strong demand for qualified technical personnel for the Itaipu and the Yacyreta hydroelectric projects has reduced the Ministry's ability to retain experienced staff, especially at DGV's headquarters. DGV has been able to alleviate the situation to some degree by "topping-up" the salaries of key personnel and hiring consultants, a policy supported under the ongoing Bank- financed projects. The tapering off of the hydroelectric projects should further alleviate the problem. Under the proposed project the staffing requirements were identified and and agreed by the Government (Annex C to Schedule 2 of draft Loan Agreement). In addition, the Government and the Bank agreed to review annually, not later than July 31, starting in 1983, DGV's staffing situation (Section 3.14(b) of draft Loan Agreement). Because of the shortage of highway engineers, most positions would be filled primarily with recently graduated professionals, who would be trained on-the-job under a special technical assistance provided by the proposed project.
32. DGV's capacity to execute road maintenance improved over the last decade. The equipment fleet expanded considerably, provision of spare parts and workshop tools improved, and yearly budgetary allocations grew in line with agreed estimates of requirements. The basis for planning road maintenance and betterment was developed under the Fourth and Fifth Highway Projects: a 1982-1986 maintenance and betterment subprogram was prepared to be adjusted systematically year by year in the context of the Four-Year Highway Program. The Government agreed that it would: (a) update and implement the Four-Year Maintenance and Betterment subprogram; (b) carry out and monitor the resulting activities; and (c) provide the yearly budgetary allocations to carry out such activities (Section 4.03 of draft Loan Agreement).
33. DGV's fleet comprises about 900 units, of which about 50% are devoted to maintenance operations; the remaining 50% is used for construction of a primary highway (Chaco), contruction and betterment of feeder roads and other activities. The current fleet would be adequate were a higher proportion to be devoted to maintenance. The proposed project would provide the financing of a technical assistance program to improve management of the - 11 -
fleet, workshops and spare part warehouse. The Fifth Highway Project provided for the purchase of a stock of spare parts which is currently supplementedby purchases financed from DGV's operating budget. The Government confirmed that it would continue to provide funds for the timely supply of spare parts and that DGV would implement a system for the control of spare parts not later than July 31, 1983 (Section 3.14(e) of draft Loan Agreement). The Government also confirmed that the San Lorenzo Workshop will be staffed according to recommendationsof the consultants on workshop and equipmentmanagement, not later than July 31, 1983 (Section 3.14(d) of draft Loan Agreement).
34. Under the Fifth Highway Project, MOPC undertook to create a fund * for the renewal of equipment in order to alleviate the serious problem caused by previous practices of bulk purchases, every four or five years, through external financing. A provision of US$1.3 million was included in the 1981 MOPC budget for equipment renewal, but the funds have not been used because the equipment at hand was sufficient for the needs of that time. Some equip- ment units must now be replaced, and a replacementprogram must be prepared. The Government confirmed that it would continue to provide funds for renewal of equipment (Section 3.11 (b) of draft Loan Agreement), and that an equipment renewal program would be sent to the Bank for comments not later than July 31 of each year, starting from 1983 until project completion (Section 3.11(a) of draft Loan Agreement).
35. Although Paraguay is still in the process of building up its primary network, it has about 1,500 km of paved roads, some of which are more than ten years old and have experienced annual traffic growth consistently above 8%. Pavement strengtheningand, in some instances, rehabilitationare becoming important components of DGV's program. The project would support the establishment,within DGV, of a pavement evaluation group to conduct a systematic survey of the existing paved network over the period 1983-1985. The tentative list of roads to be surveyed annually over the 1983-1985period for possible rehabilitationwould be prepared by DGV and submitted to the Bank for comments; the list would be updated annually (Section 3.13 of draft Loan Agreement). The project would provide the necessary specialized equipment, the vehicles and the related technical assistance. This technical assistancewould be imparted by the pavement specialistswho would participatein the training program for DGV engineers. At negotiations,the * Government confirmed that, no later than July 31, 1983, DGV would establish, within its Engineering Department, a Pavement Evaluation Group to conduct a condition survey of existing pavement and to prepare and update the pavement strengtheningand rehabilitationcomponent of DGV's Four-Year Program (Section 3.12 of draft Loan Agreement).
Accounting and Auditing
36. The Government is preparing, through a UNDP-financed project, measures to strengthen and integrate the Government's accounting system. During 1982, MOPC would benefit from this technical assistance,which should establish upgraded accountingprocedures. The Government confirmed that, during 1982, MOPC would start implementingthe integrated accounting system on the basis of the ongoing UNDP project (Section 4.02 of Loan Agreement). - 12 -
The Government also confirmed that, starting with the 1982 accounts, it would engage independent auditors to audit the accounts of the ongoing Fifth and Sixth Highway Projects (Loans No. 1529-PA and 1736-PA) and of the proposed project and the accounts of MOPC's Central Workshop and warehouse. The rele- vant audit reports should be submitted to the Bank not later than April 30 of each year, starting in 1983 (Section 4.02 of draft Loan Agreement).
Past and Prospective Bank Assistance for Highways
37. The Bank has been involved in Paraguay's highway subsector since 1951 when equipment to build feeder roads was financed as part of an agricul- tural project. Since October 1962, six highway projects have been financed (total lending about US$103.0 million), four of which have been completed. When the two ongoing projects are completed, more than 1,200 km of primary roads will have been upgraded/strengthened and a maintenance capacity will have been established in DGV. Four agricultural projects have provided about US$16.0 million for improvement and maintenance of about 1,500 km of feeder roads. Besides highways and feeder roads, the Bank financed in 1965 a port project for Asuncion (Loan 437-PA). The preparation of recent highway projects as well as road components of agricultural and rural development projects have been financed to a large extent under two Preinvestment Projects (supported by Credit 587-PA and Loan 1780-PA).
38. Project Performance Audit Reports (PPAR) No. 558 of October 30, 1974 and No. 2023 of April 14, 1978 for the Second Road Project (Loan 443-PA of 1966) and for the Second Road Maintenance Project (Loan 652-PA of 1970), respectively, concluded that they had met their objectives. The latter report stressed the importance of pursuing the strengthening of the maintenance organization for which three steps were required: (a) adequate supply of spare parts; (b) systematic replacement of equipment; and (c) strengthening of DGV staff. Action on these three points was initiated under subsequent projects. The Fourth Highway Project (Loan 1059-PA) has recently been completed but no PPAR is available yet.
39. Bank involvement in the highway subsector falls into three phases. The first, extending up to some five years ago, consisted of supporting the Government's investments in physical facilities, starting by linking together the key cities and towns. Some preliminary efforts were made on maintenance and planning of investments. In the second phase the Bank has been addressing the more difficult institutional issues involving staffing of key agencies, studies of the construction industry, feeder roads surveys, and the need to integrate the subsector with efforts in the area of rural and agricultural development. The proposed project extends this phase toward more systematic planning of sector investments in the medium term, and to the increasingly complex task of maintaining the greatly expanded higilway network. This effort is consistent with Bank assistance to Paraguay in project preparation, preinvestment planning and resource mobilization but it is a difficult task in a country with limited tradition of medium-term planning. A subsequent phase will be based on the results of the current activity. It is expected that within five years, the country will have achieved the capacity to produce intermodal transport plans for the medium term, and identify and prepare high priority projects, closely associated with agricultural investments. The more complex sectoral issues of road pricing, user charges and regulation and other broader policy issues will start to be addressed under the proposed program of OCPIT. The role of the Bank has been shifting from one of resource transfer to one of providing - 13 -
guidance and technical assistance to the subsector, as reflected on the agreements noted above. The Bank's financial contributions have continued to decrease (in the proposed project the Bank would be financing about half of the foreign exchange costs), and future involvement should provide an opportunity to consolidate institutional developments and maintain a dialogue on critical issues.
PART IV - THE PROJECT
40. A report entitled "Staff Appraisal Report - Seventh Highway Project" (No. 3791b-PA, dated April 19,1982)is being distributed separately. A Loan * and Project summary is being placed at the front of this report. A supplementary project data sheet is appended as Annex III. The project was identified by MOPC in late 1980 as having the highest priority within the highway sub-sector. The northern road (Tacuara -Santa Rosa) crosses the area of the prospective Eje Norte Rural Development Project, while the southern road (Villarrica - Numi) adjoins the area of the Caazapa Area Development Project, recently approved. These projects contain complementary elements representing an integrated approach to these regions. The bulk of the engineering and feasibility studies of the roads were carried out under the Second Road, Fifth Highway Project, and First Preinvestment Studies Projects. The total project was then prepared in detail by consultants and was appraised in September 1981. Negotations were held in Washington in March, 1982; the Paraguayan delegation was led by Dr. Cesar Romeo Acosta, President of the Central Bank of Paraguay.
Project Objectives and General Description
41. The objectives of the project are to: (a) provide construction and upgrading of primary roads, thereby encouraging the agricultural development of the regions concerned and improving connections with Brazil; (b) improve the Government's capacity to plan for the transport sector through strength- ening MOPC's technical, planning and managerial capabilities; and (c) increase the scope and efficiency of national road maintenance operations. To this end, the project would consist of:
(a) Civil works and related supervision services for: widening of a * 60 km section of Route 2 between San Lorenzo and Eusebio Ayala, including the construction of two additional lanes along 26 km; upgrading, including paving of a 98-km section of Route 3, between Tacuara and Santa Rosa; upgrading, including paving of a 28-km section of Route 8, between Villarrica and Numi.
(b) Upgrading of sectoral planning, and technical and managerial capabilities through: implementation of an annual planning and programming system for the transport sector; implementation of DGV's staffing program; training of DGV's engineers; and strengthening of OCPIT.
(c) Improvement in maintenance operations through: country-wide implementation of the maintenance management system; technical assistance for management of the equipment fleet and the workshops; and implementation of pavement evaluation methods including the required equipment. - 14 -
Implementation of the project is expected to take five years (mid 1982-mid 1987).
(a) Civil Works
42. The existing asphalt paved San Lorenzo - Eusebio Ayala (64 km) road will be improved and widened under the proposed project. This road is a part of the Asuncion - Ciudad Presidente Stroessner Highway (about 376 km) which, at present, is the most trafficked road of the country. The traffic along the initial 26 km of the road to be improved (San Lorenzo to San Bernardino junction) ranges between 5.000 to 8.000 vehicles per day; this section will be widened to four lanes. From the San Bernardino junction to Eusebio Ayala (34 km), the existing two lane road would be improved and by-passes would be built around the towns of Ipacarai and Eusebio Ayala.
43. The upgrading and paving of the earth surfaced Tacuara-Santa Rosa (98 km) road constitutes a phase of the staged upgrading of the transport corridor of Northeast Paraguay. The Northern region of the country is agri- culturally important, increasingly so as the areas to the south become settled, and should be integrated with the rest of the country; foreign trade with and through Brazil is carried out partially through the Coronel Oviedo- Yby Yau-Pedro Juan Caballero corridor (about 400 km). The road along the corridor is being progressively upgraded: (a) the section Coronel Oviedo- Tacuara (about 91 km) is being upgraded with financing under the Fifth High- way Project; (b) the Tacuara-Santa Rosa section (about 98 km) would be upgraded under the present project; and (c) the upgrading of the Yby Yau-Pedro Juan Caballero section (about 100 km) is scheduled to start soon through a financial agreement between the Governments of Paraguay and Brazil. This would leave the Santa Rosa-Yby Yau section (about 100 km) to be upgraded at a later stage. This road would serve the area of the proposed Eje Norte Rural Development Project, which lies entirely on both sides of the road north of Tacuara and which includes feeder road expansion/improvements. DGV would be responsible for their implementation through the Feeder Roads Unit to ensure necessary coordination of these complementary projects. In addition the Inter-American Development Bank is considering two projects in the area which increases the importance of this link.
44. The Villarrica-Numi (28 km) road is part of the Southern section of the axis that in the long run will reach Coronel Bogado. The Villarrica-Numi section is a two lane earth surfaced road which should be upgraded to all weather standards to, inter alia, serve the surrounding g-ricultural areas. In particular, in close coordination with the recently approved Caazapa Area Development Project, the proposed project would complete the link with Route 6 (Encarnacion-Ciudad Presidente Stroessner). Complementary investments are included in the Caazapa Area Development Project.
(b) Institutional Strengthening & Technical Assistance
45. As described in detail in Part III, the proposed project would complement the sectoral objectives of ongoing projects in the following areas: (i) strengthening of the planning and financial programing process in the transport sector; (ii) introduction of a four-year highway program as a vehicle to upgrade the subsector's management; (iii) staffing of DGV - 15 - and training of its personnel; (iv) improvement in management of maintenance and rehabilitation operations; (v) upgrading of the accounting and auditing procedures; (vi) staffing and technical assistance to OCPIT. In terms of technical assistance, special attention will be given to the improvement of management and operations of the San Lorenzo Central Workshop, the District Workshops and of DGV's equipment fleet. Individual experts would be hired. On the planning side, the project would finance the purchase of equipment for pavement evaluation so that DGV can plan in advance its pavement rehabilitation program.
46. Supervision of Civil Works. The civil works component of the pro- posed project would be supervised by selected consultants, most likely foreign-local joint ventures, under terms and conditions of contract satis- factory to the Bank (Section 3.02(a)(i) of draft Loan Agreement).
47. Training of DGV's Staff in Highway Engineering. The proposed project would include technical assistance to build up, through a functionai training program, the capacity of DGV's engineers. Local engineering firms would be invited by DGV to send participants to the training. This component would be carried out in Paraguay during a period of 18 months, starting in June 1983 after the planned staffing of DGV had been completed. All courses would have a strong practical component. The same as the case of specialized consultants retained for other key elements of the project, the consultants for this component be retained to prepare and carry out the training program, would be employed under conditions and procedures satisfactory to the Bank (Section 3.02(a)(ii) of draft Loan Agreement). It is anticipated that about 40 of DGV's engineers would participate in the program. Emphasis would be on practical and operational aspects of their tasks, including: (a) maintenance management system; (b) pavement evaluation and strengthening; (c) feeder road betterment; (d) equipment management; and (e) subsectoral planning and programing.
Cost Estimates and Financing
48. The total cost of the project, net of taxes and duties (since imported goods are exempt such charges), is estimated at about US$124.0 million with a foreign exchange component of US$83.0 million. The Loan and Project Summary contains a detailed breakdown of project costs. A contingency allowance of 10% has been included to cover increases in construction quantities. About 19% of the project base cost plus physical contingencies has been allowed for foreign price variations and 40% for local price variations over the implementation period. For consulting services (providing training and advice in workshop equipment management), the cost per man/month range from US$2,500 to US$8,000 for technicians of different grades among Paraguayan and expatriates. The consulting services for technical assistance would require a total of 172 man/months. Annual price increases during the period would be as follows: (i) for local costs: 18% (1982), 15% (1983), 13% (1984), 12% (1985-1987); for foreign costs 8.5% (1982), 7.5% (1983-1985) and 6% (1986-87).
49. The Bank loan would finance US$45.3 million of the foreign exchange component excluding the front end fee of 0.7 million. The Government intends to finance the remaining US$37 million of the foreign exchange cost through co-financing arrangements. The prospects for obtaining co-financing are favorable in view of the country's good creditworthiness. However, in order - 16 - not to delay project implementation on account of securing such additional financing it is recommended that the Bank loan should be made even if the entire financing is not secured. For this purpose the construction program would be divided in two parts as follows: Part A, consisting of the San Lorenzo-Eusebio Ayala (64 km) and the Villarrica-Numi (28 km) sections, and technical assistance at a total cost of US$64.3 million (US$43.3 million foreign exchange); and Part B, the Tacuara-Santa Rosa stretch (93 km) at a total cost of US$59 million. Both parts are self-contained and are justified on their own. In the unlikely event that co-financing does not materialize, the Government would have to provide, besides the financing of local costs (about US$21.0 million), the US$8.0 million necessary to complete the financial requirements of Part A. The Government will, with Bank assistance, try to secure such co-financing and review the situation with the Bank by June 30, 1983 (Section 3.15(c) of draft Loan Agreement). If by that time, the co-financing has not been secured, the Government and the Bank would decide whether (a) to reduce the scope of the project to Part A, thereby enabling the Bank to cancel US$10.0 million from the loan, or (b) to finance the local and the remaining foreign component of Parts A and B with the Government's own resources.
Execution, Procurement and Disbursements
50. Execution of the project would be the responsibility of MOPC through DGV and OCPIT. Contracts for civil works would be awarded through international competitive bidding in accordance with the Bank's "Guidelines for Procurement" (March 1977, July 1980 edition). Contractors would be prequalified and works would be carried out on the basis of unit price con- tracts. The San Lorenzo-Eusebio Ayala and Tacuara-Santa Rosa roads would be subdivided into two bidding sections each; the Villarrica-Numi road would constitute one bidding section. Because of the still relatively large size of the contracts (between close to US$8 and US$18 million) it is likely that the contracts will be awarded to foreign firms with local firms participating in joint ventures or as sub-contractors. The purchase of vehicles, office and training equipment as well as pavement evaluation equipment (totalling US$100,000) would be on the basis of local procurement procedures, which are acceptable to the Bank. These arrangements will not preclude foreign parties from participating in the bidding process. The project implementation schedule has been reviewed and confirmed during negotiations, taking into account the staging referred to in paragraph 49. The closing date would be December 31, 1987 (Section 2.04 of draft Loan Agreement).
51. Project expenditures eligible for disbursement of the Bank loan for Part A of the project would be as follows: (a) for civil works: 100% of foreign expenditures and 20% of local expenditures; (b) for supervision of construction: 100% of foreign expenditures and 30% of local expenditures; (c) for technical assistance: 100% of foreign expenditures and 10% of local expenditures; and (d) for the purchase of vehicles, office equipment and pavement evaluation equipment: 100% of foreign expenditures when imported and 90% of total cost when locally procured. Disbursements for Part B of the - 17 - project would be agreed upon after the co-financing arrangements are completed. Disbursements of the Bank Loan would be made against normal documentation.
Economic Evaluation
52. The economic benefits quantified were: a) vehicle operating cost savings resulting from the upgrading of the roads, improved design characteristics and avoidance of road closures; and b) road maintenance cost savings. For the San Lorenzo-Eusebio Ayala road only because of its semi suburban character, an analysis of congestion was carried out, and time savings were found to be significant, in addition to the abovementioned benefits. Benefits would accrue directly to road users but given the high degree of competition, they are likely to be passed on to a significant extent in the form of lower prices for inputs/outputs. The civil work component of the project as a whole was found to have an economic rate of return of 20.5% and each component has an economic rate of return clearly above what is taken to be the opportunity cost of capital (12%) for Paraguay. Sensitivity analysis showed that, even with the most unfavorable set of assumptions noted below, for the project section with the lowest return, and which can bear the lowest increase in costs and decrease in benefits (Villarrica-Numi), the project, and that section, would still have a satisfactory rate of return of over 12%: (a) a 41% increase in construction costs; or (b) a 29% decrease in benefits.
Risks
53. The road construction component of the project does not present special risk; engineering is complete and final cost estimates available, and Paraguay has had a consistently good record in executing similar civil works. The assumptions underlying the economic evaluation are conservative, especially concerning benefits due to generated traffic. This, together with the results of the sensitivity analysis shown above should provide enough room for contingencies. Completion of financing arrangements present a certain element of risk. However, the arrangements proposed for the finalization of the financing plan, while offering flexibility, would give the Government and the Bank, the necessary discretion to adjust the project scope in the unlikely case that co-financing does not materialize. The annual review of the highway program would also provide an opportunity to assess overall funding requirements (in particular those related to the on-going Fifth and Sixth Highway Projects) and compare them with the level of resources available to MOPC.
54. A higher element of risk is attached to the institution building objectives of the project. The key problem of adding more engineers to DGV has been directly addressed and the undertakings from the Government are clear with specific timing. The increase of twenty-three staff would take place in the early phase of the project. The risk affecting this undertaking has been reduced as much as possible but remains significant: the implementation of the new planning process, including the development and consolidation of the system, would take several years. Inadequate planning coordination between agencies and lack of continuity in the maintenance area are the main potential source of difficulties and delays which will have to be dealt with during supervision. - 18 -
Reporting and Monitoring
55. Reports on the various project components would be prepared by consultants. MOPC would issue quarterly consolidated reports summarizing the progress of all project components and the financial situation of the project. During negotiations, the Government confirmed that reports would be sent to the Bank not later than two months after the end of the quarter starting with the first quarter of 1983. Monitoring of project implemen- tation would be carried out through normal supervision and would cover, besides the progress of civil works, the following indicators:
(a) the implementation of the sectoral planning and programing system through annual review and exchange of views in July of each year starting 1982;
(b) DGV's Four-Year Highway Program to be the object of annual review and exchange of views in July of each year;
(c) the utilization and availability of the equipment fleet and the procurement, delivery and availability of spare parts; and
(d) the staffing situation of DGV, including the number of engineers and para-professional personnel at the end of each semester and the number of engineers trained.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
56. The draft Loan Agreement between the Republic of Paraguay and the Bank and the Report of the Committee provided for in Article III, Section (iii) of the Bank's Articles of Agreement are being distributed to the Executive Directors separately.
57. Special conditions of the Loan are being listed in Section III of Annex III. It would be a condition of disbursement for the US$10 million assigned to the construction of the Tacuara-Santa Rosa Road that a financing plan, satisfactory to the Bank, be secured to complete the financing of the proposed project.
58. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.
PART VI - RECOMMENDATION
59. I recommend that the Executive Directors approve the proposed loan.
A. W. Clausen President By Ernest Stern April 19, 1982 Attachments - 19 - Annex 1 Page 1
PARAGUAY- SOCIAL INDICATORS DATA SHEET
PARAGUAY REFERENCEGROUPS (WEIGHTEDAVER.GES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 406.8 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 162.5 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE
GNP PER CAPITA (US$) 250.0 390.0 1070.0 1616.2 2609.1
ENERGY CONSUMPTIONPER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 85.0 166.6 251.1 1324.1 2368.4
POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 1774.0 2301.0 2974.0 * URBAN POPULATION (PERCENT OF TOTAL) 35.6 37.1 39.1 64.2 53.2
POPULATION PROJECTIONS POPULATIUN IN YEAR 2000 (MILLIONS) 5.1 STATIONAKY PUPULATION (MILLIONS) 9.0 YEAR STATIONARY POPULATION IS REACHED 2080
POPULATION DENSITY * PER SQ. KM. 4.4 5.7 7.3 34.3 80.6 PER SQ. KM. AGRICULTURAL LAND 12.0 15.0 17.8 94.5 133.9
PoPULATION AGE STRUCTURE (PERCENT) 0-14 YES. 45.9 46.0 44.4 40.7 30.1 15-B4 YRS. 50.8 50.7 52.2 55.3 61.5 65 YRS. AND ABOVE 3.3 3.3 3.4 4.0 8.3
POPULATION GROWTHRATE (PERCENT) TOTAL 2.6/c 2.6/c 2.9 2.4 1.5 URBAN 2.9 3.1 3.4 3.7 3.1
CRUDE BIRTh RATE (PER THOUSAND) 42.8 40.4 38.1 31.4 22.9 CRUDE DEATh RATE (PER THOUSAND) 13.0 9.3 7.9 8.4 9.1 GROSS REPRODUCTION RATE 3.2 3.1 2.7 2.3 1.6 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. 26.0 USERS (PERCENT OF MARRIED WOMEN) .. .. 15.5
POOL AND NUTRITIOli INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 94.0 103.0 114.0 108.3 119.8
PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRLMENTS) 109.0 121.0 122.0 107.6 125.7 PROTEINS (GRAMS PER DAY) 71.0 77.0 80.0 65.8 92.5 OF WHICH ANIMAL AND PULSE 40.0 42.0 46.0 34.0 39.7
CHILD (AGES 1-4) MORTALITY RATE 16.3 9.8 6.9 7.6 3.4
HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 56.0 61.2 64.3 64.1 68.9 INFANT MORTALITYRATE (PER THOUSAND) .. 64.0 .. 70.9 25.2
ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 11.0 13.0 65.7 URBAN .. 22.0 25.0 79.7 RURAL *- 5.0 5.0 43.9
ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 6.0 10.0 59.9 URBAN .. 16.0 28.0 75.7 RURAL ...... 30.4
* POPULATION PER PHYSICIAN 1804.7 2249.3 2151.7 1728.2 973.3 POPULATION PER NURSING PERSON .. 2221.0 2258.0 1288.2 896.6 POPULATION PER HOSPITAL BED TOTAL 430.0 600.9 695.0 471.2 262.3 URbAN .. 361.5 282.0 558.0 191.8 RURAL .. 5506.3 6260.0
ADMISSIONS PER HOSPITAL BED ...... 18.2
tlOUSING AVERAGESIZE UF HOUSEHOLD TOTAL 5.5/d 5.4/e URBAN 5.3S/d 5. o7 .. RURAL 5.71/d 5. 7/ce
AVERAGE NUMBEROF PERSONS PER ROOM TOTAL 2.6/d 2.4/e URBAN 2. 67d 1. 77 .. RURAL .. 3.1/e .
ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 13.0/d 17.5/e URBAN 33.2/(d 41.5/e . RUKRA 1. 27T 1.27 .. -Sn
- S.,., - Annex 1
PARAGUAY- SOCIAL INDICATORS DATA SHEET
PARAGUAY REFERENCE GROUPS (WEIGHTED AVERA9GS - MOST RECENT ESTIMATE) - MDST RECENT MIDDLE INCOME MI2DLE INCOME 1960 /b 1970 /b ESTIMATE /b LATIN AMERICA & CARIBBEAN EUROPE
EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 98.0 88.0/f 85.0/f 101.7 105.9 MALE 105.0 91.07? 87.07? 103.0 109.6 FEMALE 90.0 86.07? 84.07? 101.5 102.2
SECONDARY: TOTAL 11.0 17.0 25.0 35.3 66.3 MALE 11.0 17.0 26.0 34.9 73.2 FEMALE 11.0 17.0 25.0 35.6 59.5
VOCATIONALENROL. (l OF SECONDARY) 7.0 6.0 6.0 30.1 28.4
PUPIL-TEACHER RATIO ^ PRIMARY 28.0 28.0 28.0 29.6 26.8 SECONDARY 8.0 11.0 12.0 15.7 23.6
ADULT LITERACY RATE (PERCENT) 75.0/d 81.1 84.0 80.0 75.4
CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 6.6 7.0 42.6 83.9 RADIO RECEIVERS PER THOUSAND POPULATION 82.4 73.4 66.7 215.0 181.6 TV RECEIVERS PER THOUSAND POPULATION .. 14.8 19.6 89.0 131.1 NEWSPAPER ("DAILY GENERAL INTEREST) CIRCULATION PER THOUSANDPOPULATION .. 43.0 38.9 62.8 123.8 CINEMA ANNUALATTENDANCE PER CAPITA ...... 3.2 5.7
LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 576.7 728.0 955.8 FEMALE (PERCENT) 21.7 21.4 23.3 22.6 32.9 AGRICULTURE (PERCENT) 56.0 52.6 49.5 35.0 34.0 INDUSTRY (PERCENT) 19.0 19.2 19.4 23.2 28.7
PARTICIPATION RATE (PERCENT) TOTAL 32.5 31.6 32.1 31.8 42.3 MALE 51.7 50.0 49.3 49.0 56.5 FEMALE 13.9 13.5 15.0 14.6 28.5
ECONOMIC DEPENDENCYRATIO 1.5 1.6 1.5 1.4 0.9
INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 20 PERCENT OF HOUSEHOLDS LOWEST 40 PERCENT OF HOUSEHOLDS ..
POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. RURAL ...... 187.6
ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 260.0 513.9 RURAL .. .. 260.0 362.2 385.1 1
ESTIMATED POPULATION BELOWPOVERTY INCOME LEVEL (PERCENT) URBAN .. .. 19.0 RURAL .. .. 50.0
Not available Not applicable. NOTES
/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform.
/b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979.
/c Due to migration of Paraguayans to neighboring countries (Argentina and Brazil), population growth rate is lower than rate of natural increase; /d 1962; /e 1972; /f Net enrollment. * The updated 1980 GNP per capita and population estimates, to be shown in the 1981 World Bank Atlas, are $1,340 (at 1979-80 prices) and 3062 thousand, respectively. May, 1981 -2 1- Annex I
nras: Alt~.houghth data are leave fros san.g rlyjudgedrh aos auhrttv .a r.liablg. it *held als ho -ta that thysy ot be intar- natinall cosarais ... of thet lat of radarded.. dafi~tutoo and ton-pt used by differn tooreai thete abs daa "adtass os
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tatioolveree prduce price neg";It-,17.od17 di oa ao ycajhuad) toalal acIe pesn,inldn Peroniasol frlces(ecn fruioers optdPo te fortes- and. ftsu hut ru lulto housn e ..studetset.. pedp.b ilale supplies 19upri0r Icstc rdol9.lprt ea o epeai;79I 977n 97 aa tacte.en .cares.stud. - a eupl --ir Iu Is- anma teed,. seed., ONUPeste nereof-rsl ao oc .pcecg fitllbrfe f.naav sat5inure by60PuP Ised on0-thscoie 'teirtra2ct-felgCeonneo oa lao:oce-9P 17 n 17 aa
an itriujvof6plcvce taluta1 ereiiraaetodhlrrctp ne-al ea pretg oftoa lao. L o. e. hi hou 9hl6leel 1970-tt, 1979.ad17 d ata. 7lbad- 1979-eta Pac aoIa... v iorit -Iua IIf da)-Ptecooetoprcpls ercptocaijacec i -htItoal sale,.adf-l - Parirp 4iano netsiply f fnd rla.d NeL uopc oo sdinde ahoos.c is- aciiyrer r o-ue s oa,sle n asl eo fare a
Ll ilynn-ce -ftly oefi-y-e p-orcic .. dagL.y 1960,g1970cfecd 1979 190 1970- oalOlhTta Th...c bae -tlL'ferlcb-p-tterie pus .rti,ofsih1.rv.aol aala protriir.-Tdearenand- csf lbcingagese nauth eo the -upldtn..edln ietad
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ECOiNOMICINDICATORS ANNEXI Popufation: 3.3 million 11981)/1 pop 4 GNPPer Capita: USSI,340 (1980) /1
Indicator Amount Average Annual Increase (S) Share of GiP at Market Prices IS) (million USS current) (at constant 1977 prices) (at current prices) 1980- 1981 /1 1965-70 1970-75 1975-80 1965 1970 1975 1980 1981
National Accounts Gross domestic product (At factor cost) 3,811 4,131 4.4 6.2 10.4 100.0 100.0 100.0 100.0 100.0 Agriculture 1,123 1,342 1.6 6.1 7.2 36.7 32.1 36.9 30.9 29.5 industry 876 911 6.0 6.5 15.3 18.1 19.6 19.6 22.7 23.0 Services 1,812 1,878 6.1 6.2 10.6 45.2 48.3 43.5 46.4 47.5
Consumption 3,055 3,301 4.1 3.7 10.2 86.1 85.7 76.7 78.0 78.0 Gross Investment 1,038 1,218 6.0 15.8 20.0 15.1 14.7 24.1 28.8 29.0 Exports of goods and NFS 701 672 3.8 12.1 12.2 16.1 16.0 16.8 20.0 16.0 Inports of goods and NFS 1,265 1,325 3.9 5.8 19.8 17.2 16.4 17.6 33.0 32.0
Gross domestic savings 473 555 5.3 25.0 11.4 13.9 14.3 23.3 20.0 20.0
Amount Average Annual Increase I1) Convosiltion of iMerchandise Trade 1%) (million USS current) (lt constant 1977 pricesl (at current prices) 1980 1981 /1 1965-70 1970-75 1975-80 1965 1970 1975 1980 1981
Merchandise Trade Merchandise exports 630 598 3.6 16.4 9.6
Merchandise Inports 1,087 1,030 5.3 6.0 19.9 100.0 100.0 100.0 100.0 100.0 Rood 24 33 -1.7 -10.7 19.4 10.9 8.2 3.3 2.2 3.2 ~et~-oleum 130 95 11.0 1.9 7.5 8.5 8.1 14.4 11.9 9.2 9e-u nery and equipment BO 173 -0.5 14.0 13.8 26.7 24.2 22.2 7.4 16.8 Ot1-en 853 729 3.0 19.0 20.1 53.9 59.5 60.1 78.5 70.8
1975 1976 1977 1978 1979 1980 1981
Prices and Terms of Trade GP deflator (1977=1001 87.2 91.6 100.0 110.4 133.1 155.5 160.0 Exchange rate (G/USS) 126.0 126.0 126.0 126.0 126.0 126.0 126.0
Export prlo lndgw 72.3 7i.5 100.0 9!.4 96.1 168.4 101.9 lIport pric "de.a fi.3 98.4 "04 . If_3. 12.* 1f.1 1i- Term of trade lndw 73.6 81.7 100.0 66.5 77.9 76.9 85.6
As 5 of GDP (at current prIces) 1965 1970 1975 1979 1980 198)
Public Finance (Central Administration) Current revenue 10.4 11.7 9.4 10.1 9.4 9.6 Current expenditure 8.4 10.2 7.6 6.7 7.6 8.3 Surplus (xi or deficit (-I 1.9 1.5 1.8 3.4 1.6 1.3 Capital expenditure 1.7 1.9 2.3 2.8 2.3 2.5 Flnancing (net) -0.2 0.4 0.5 -0.6 1.1 2.1
1965-70 1970-75 1975-80 1980-85
Other Indicators GNP growth rate (Sl 4.4 7.0 10.5 9.3 GNPper capita gromth rate 'S1 1.7 4.1 7.6 6.4
ICOR 2.9 2.4 2.4 3.0 Marginal savings nate 27.3 53.0 24.5 23.4 Iport ninsticlty 1.1 1.0 1.9 1.8
/i Estinatv.
'Current guaranles converted at 146.1 per OS$, based on estIlating that 60S and 40S transactions take piace in the free and the official exchange markets. respectively.
Sources; Centrnl Bank of Paraguay, IMF and nisslon estimates.
April 9, 1982 - 23 -
8ALANCEOrF PAYMENTS, EXTERNAL CAPITAL AND DEBT Annex A (mil1lon US$ at current prices) Page 5
Populatlon: 3.3 miltion (19i1) /1 GNPPer Capita: USS1,340 (1980) /1
Actual /I Projected
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
BALANCEOF PAYMENTS Net exports of goods and services -172.6 -190.8 -343.6 -434.4 -565 -663 -634 -629 -601 -539 Exports of goods and services 237.0 409.2 503.3 661.1 778 762 1,253 1,541 1,895 2,331 Imports of goods and servlces 409.6 600.0 846.9 1,095.5 1,343 1,425 1,887 2,170 2,496 2,870
Net transfers 4.2 1.2 5.8 7.3 14 16 17 19 21 23 Current account balance -168.4 -189.6 -337.8 -427.2 -551 -647 -617 -610 -580 -516
Direct private Investment 11.4 17.0 21.9 51.9 30 65 69 76 84 92 M & LT loans net 64.0 121.9 134.9 111.0 123 109 158 250 366 448 Official 50.0 47.6 89.6 38.9 110 99 68 76 75 80 Private 14.0 74.3 45.3 72.1 13 10 90 173 292 368 Other capital 143.1 159.6 349.7 432.8 565 518 350 300 200 100 Change In reserves I- = Increase) -50.1 -108.9 -168.7 -168.5 -167 -45 40 -16 -70 -124
Internatlonal reserves 161.5 269.4 438.1 606.6 774 819 779 795 865 989 Reserves s months of imports 4.7 5.4 6.2 6.6 6.9 6.9 5.0 4.4 4.2 4.1
EXTERNALCAPITAL AND DEBT (Public & Private) Gross Disbursements 74.0 142.1 163.5 216.5 206.0
Concesslonal loans 30.7 26.9 38.3 21.1 34.0 DAC 10.4 4.6 28.4 5.8 - IDA 2.6 5.2 5.3 3.6 2.9 *Cther 17.7 17.1 4.6 11.7 31.1
NJon-concessional loans 43.3 112.2 108.7 136.1 111.5 .ficial export credits 9.5 8.1 10.1 29.2 16.5 IBRD 4.6 6.9 7.8 16.4 30.1 Other multilateral - - 9.6 4.3 4.1 Priv-te dv.2 97.3 81.2 86.2 60.8
External debt Debt outstanding and disbursed 281.2 394.7 543.1 698.6 818.1 Official 236.8 335.2 457.3 560.5 667.3 Private 44.4 59.5 85.8 138.1 150.8 Undisbursed debt 181.1 150.2 215.7 489.0 414.4
Debt service Total service payments 31.3 42.6 50.4 93.7 134.1 Interest 9.6 12.7 18.2 34.7 51.0 Payments as %exports 13.2 10.4 9.9 14.2 17.2
Average Interest rate on new loans (S) Official 5.6 6.6 6.6 6.5 5.6 Private 8.4 7.5 10.3 8.4 12.6 Average maturity of new loans (years) Official 23.7 20.2 23.3 21.1 26.2 Private 7.0 7.2 8.4 10.7 12.6
As S of Debt Outstanding at End of Post Recent Year (1980)
Maturity structure of debt outstanding Maturities due within 5 years 71.5 Maturities due within 10 years 89.3
Interest structure of debt outstanding Interest due within first year 6.7
/1 Estimate. April 9, 1982 - 24 - ANNEX II Page 1
STATUS OF BANK GROUP OPERATIONS IN PARAGUAY
A. Statement of Bank Loans and IDA Credits (March 31, 1982)
------(US$ million)------Loan or Amount (less cancellations) Credit No. Year Borrower Purpose Bank IDA Undisbursed
Nine loans and seven credits fully disbursed 1/ 50.3 45.8
587 1975 Paraguay Preinvestment Studies - 4.0 .8 1346 1976 Paraguay Rural Education 8.0 - .3 1418 1977 Paraguay Rural Development II 22.0 - 15.6 1419 1977 Paraguay Industrial Credit 10.0 - .9 1502 1977 Paraguay Rural Water Supply 6.0 - 1.5 1529 1978 Paraguay Highways V 33.0 - 4.5 1674 1979 Paraguay Livestock and Agricultural Development 25.0 - 8.1 1736 1979 Paraguay Highways VI 39.0 - 32.4 1780 1979 Paraguay Preinvestment Studies II 5.0 - 5.0 1866 1980 Paraguay Industrial Credit and Regional Development 31.0 - 30.7 1979 1981 Paraguay Livestock Development 30.0 - 21.5 1992 1981 Paraguay Rural Primary Education 17.0 - 16.9 2014 1981 Paraguay Second Rural Water Supply and Sanitation 11.8 - 11.8 2087 2/ 1982 Paraguay Caazapa Area Development 31.0 31.0
Total (net of cancellations) 319.1. 49.8 181.0 of which has been repaid 15.5 1.8
Total now outstanding 303.6 48.0
Amount sold 1.3 of which has been repaid 1.3 0.0
Total now held by Bank/IDA 303.6 48.0
Total undisbursed 181.0
1/ Includes exchange adjustment.
2/ Not effective. - 25 -
ANNEX II Page 2
B. Statement of IFC Investments - March 31, 1982
Type of (Amount in US$ million) Year Obligor Business Loan Equity Total
1974 FINAP, S.A. Wood Processing 4.4 1.0 5.4 1980 NOVOTEL (Encarnacion) Hotel Development 0.9 0.3 1.2 1982 Golondrina S.A. Agricultural Development 5.0 2.0 7.0 Total gross commitments 10.3 3.3 13.6
Cancellation, sales, repayment and terminations (4.4) (1.0) (5.4)
Net held by IFC 5.9 2.3 8.2
Total undisbursed 5.3 2.0 7.3 - 26 -
ANNEX II Page 3
C. Status of Projects in Execution as of March 31, 1982
Credit 587-PA Preinvestment Studies Project, US$4.0 million, October 17, 1975; (Date of Effectiveness: April 15, 1976; Closing Date: September 30, 1982. 1/
The entire amount of the credit is now committed. Substantial progress on the institution building side has been accomplished on the basis of experience gained under this project, which led to the preparation of a second operation, now under execution. The closing date was extended a second time from December 31, 1981 to September 30, 1982 to permit making final payments to study consultants and to complete the technical assistance program provided to the government.
Loan 1418-PA Second Rural Development Project, US$22.0 million, May 18, 1977; (Date of Effectiveness: January 17, 1978; Closing Date: December 31, 1983).
The project is progressing well even though disbursements for subloans and infrastructure are behind schedule. With regard to the subloans the 1981 lending season was hampered by the participation of the extension/credit agents in the agricultural census. This work was required to be carried out in August and September which are also the peak months for loan request applications. The infrastructure disbursements will be accelerated since construction of the community centers, health facilities and the first section of the all weather road have begun. Advertisments for bids for the second and third stages of the all weather road were published in December 1981.
1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 27 - ANNEX II Page 4
Loan 1419-PA IndustrialCredit Project, US$10.0 million, May 18, 1977; (Date of Effectiveness: January 17, 1978; Closing Date: September 30, 1982).
One of the main objectivesof the Project was BNF's financial and institutionalrehabilitation. Satisfactoryprogress has been made towards meeting this objective,which was achieved in part due to a reduction in operating costs, a higher financial spread, and a capital contributionof 0 1.3 billion that the Governmentmade under the Loan. BNF's debt recovery efforts have been contributinglately in decreasing the portfolio arrears. Institutionalimprovements, on the other hand, a UNDP-financedBank-executed technical assistanceprogram was instrumentalin acceleratinginstitutional improvements. Regarding the financing of industrialprojects under the Loan, BNF has submittedto the Bank over 50 subprojectsthus comitting the bulk of the loan; disbursements,however, were running somewhat behind schedule.
Loan 1502-PA Rural Water Supply Project, US$6.0 million, December 16, 1977; (Date of Effectiveness: July 13, 1978; Closing Date: June 30, 1982).
Project execution is proceding at a good rate. It is estimated that the project will be completedby September 1982. Disbursements,as of March 31, 1982, amounted to US$4.5 million. The new project (under Loan 2014-PA) has been designed so as to cover new areas with both water supply and sanitary facilities;special emphasis is being placed on the southeasternpart of the country.
Loan 1529-PA Fifth Highway Project, US$33.0 million, March 17, 1978; (Date of Effectiveness: December 5, 1978; Closing Date: June 30, 1983).
Civil works on the repaving of Route I (Paraguari-Encarnacion,303 km), on the basis of a revised pavement design, were completed in July 1981. Constructionworks on the Coronel Oviedo-SanEstanislao road are well underway; completionis scheduledfor late 1982.
Loan 1674-PA Livestock and AgriculturalDevelopment Project, US$25.0 million, April 6, 1979; (Date of Effectiveness: November 20, 1979 Closing Date: June 30, 1984).
Three of the componentsof this project have been completed. Fondo Ganadero has disbursedall funds, the wholesale market has been completed and is functioning. Final disbursementrequest should be received soon. The AgriculturalCensus has been carried out and data are being analyzed. In each of these componentsthe technicalassistance programs financed with loan funds and UNDP funds are continuing. The small farm component is behind schedule but a full complementof extension and credit agents is in the field. Constructionof feeder roads should begin in March 1982; meanwhile maintenance of existing roads is being carried out. - 28 - ANNEX II Page 5
Loan 1736-PA Sixth Highway Project, US$39.0 million, July 13, 1979; (Date of Effectiveness: December 5, 1979; Closing Date: June 30, 1985).
The Government has engaged consultants to assist the establishment of the Feeder Roads Unit; the Unit was officially created in late November 1981. The Government's Feeder Roads Coordinating Committee has been established by Decree. The designs of feeder roads will be carried out by consultants to be engaged shortly. Contracts have been awarded for the construction of the two sections of Route 6; works are well underway.
Loan 1780-PA Second Preinvestment Studies Project, US$5.0 million, December 19, 1979; (Date of Effectiveness: September 19, 1980; A Closing Date: December 31, 1984).
The key technical assistance advisors located in various sectoral ministries and agencies, and in the new Financial Programming Division of the Ministry of Finance, have been appointed, and are well advanced with their work. While preinvestment studies involving over 25% of the funds under the project have been approved by the government for financing under this loan, only one subproject has reached the stage of execution so far.
Loan 1866-PA Industrial Credit and Regional Development Project, US$31.0 million, June 26, 1980; (Date of Effectiveness: June 1, 1981; Closing Date: December 31, 1985).
Execution of the project has been slow. Commitment and disbursement are behind schedule. There are now much better prospects that the Fondo Especial de Desarrollo (FED) component will be implemented effectively. FED expects to meet the corresponding conditions of disbursement within the next 1-2 months. BNF intends to increase the use of Bank resources during 1982. BNF's institutional development process has advanced satisfactorily. While the different components for its institutional development are at different imple- mentation stages, there is a positive attitude and decision in BNF to implement several changes and recommendations. To obtain this, BNF has established a second-stage technical assistance program (building up on the technical assistance hitherto provided under a UNDP Program) financed with own funds. BNF also has advanced satisfactorily in improving its debt collection efforts. Regarding the management training component, Servicio Nacional de Promocion Profesional (SNPP) is initiating the corresponding activities. The feasibility study for the industrial estate in Encarnacion, a feature of the project's regional emphasis on the south-eastern area of the country, is well underway. - 29 - ANNEX II Page 6
Credit 1979-PA Livestock Development Credit, US$30.0 million, June 11, 1981; (Date of Effectiveness: December 4, 1981; Closing Date: December 31, 1985).
This loan was made effective on December 4, 1981. The loan is being committed at a faster rate than anticipated at the time of appraisal; the strong demand for credit affects all three categories (large, medium and small- scale) of producer, and the project's extension component for small scale producers is being executed. The cofinancing loan from the OPEC Fund has recently become effective.
Loan 1992-PA Rural Primary Education Project (IV), US$17.0 million, July 16, 1981; (Date of Effectiveness: December 2, 1981; Closing Date: June 30, 1986).
This loan was made effective on December 2, 1981. Project prepara- tion is fully completed, including final designs of schools, equipment and furniture lists, selection of consultants and counterpart staff. Bid documents, and local funds are available. During the first week of January 1982, the Project Implementation Unit will process bidding for the procurement of equipment for existing rural schools and for the construction of new ones. No implementa- tion problems are foreseen to date.
Loan 2014-PA Rural Water Supply and Sanitation Project, US$11.8 million, July 16, 1981; (Date of Effectiveness: February 10, 1982; Closing Date: June 30, 1986).
This loan was made effective on February 10, 1982.
Loan 2087-PA Caazapa Area Development Project, US$31 million, February 25, 1982; (Date of effectiveness: no later than June 26, 1982; Closing Date: June 30, 1988).
This loan is not yet effective. - 30 -
ANNEX III Page 1
PARAGUAY
SEVENTH HIGHWAY PROJECT
Supplementary Project Data Sheet
Section I - Timetable of Key Events
(a) Time taken to prepare the project: About 12 months A
(b) Preparation by: Ministry of Public Works and Communications and consultants partly financed under Credit 587-PA (First Preinvestment Studies Project)
(c) First Presentation to the Bank: Early 1980
(d) First Bank Mission: October 1980
(e) Appraisal Mission Departure: September 1981
(f) Negotiations: March 1982
(g) Planned Date of Effectiveness: August 1982
Section II - Special Bank Implementing Actions
Detailed engineering for the project roads has been completed. The highway sector maintenance budget and counterpart funds for the project during the project's execution period have been agreed upon.
Section III - Special Conditions of the Bank Loan
(a) It would be a condition of disbursement for the US$10 million from the loan assigned to the construction of the Tacuara-Santa Rosa road that a financing plan, satisfactory to the Bank, to complete the financing of this project has been secured (see (n) below);
(b) Completion of the equipment overhaul program by mid-1983 (para 34);
(c) Submission to the Bank of a road betterment subprogram for comments not later than April 30, starting from 1983 (para 32);
(d) Preparation of annual Four-Year Transport Plans; such plans to be sent to the Bank for comments no later than July 31 of each year (para 29); - 31 - ANNEX III Page 2
(e) Review and approval of the 1983-i984 program of activities of OCPIT with the understanding that subsequent programs would be discussed with the Bank (para 30);
(f) Sending to the Bank for review, not later than December 31, 1982, the OCPIT/Agencies monitoring system for the Four-Year Plans (para 30);
(g) Preparation of Four-Year Highway Programs starting from 1983; such programs to be sent to the Bank for review by July 31 of each year (para 29);
(h) Review of the DGV staffing schedule and the assumptions under which it was prepared and review annually, not later than July 31 of each year starting in 1983, of DGV's staffing situation (para 31);
(i) Updating, implementing and monitoring of the maintenance program and providing the yearly budgetary allocations for the proper maintenance of the road network (para 32);
(j) Continuing to provide funds for timely supply of spare parts and implementing, not later than July 31, 1983, a system for the control of such parts (para 33);
(k) Implementing a staffing program for the San Lorenzo workshop not later than July 31, 1983 (para 33);
(1) Continuing to provide funds for renewal of equipment and submitting to the Bank, not later than July 31 each year, starting from 1983, an equipment renewal program (para 34);
(m) Preparation of a tentative list of roads to be surveyed annually for possible rehabilitation and/or strengthening (para 35);
(n) Expediting the search for co-financing and keeping the Bank informed of the progress achieved; reviewing the proposed arrange- ment with the Bank by June 30, 1983. If co-financing does not materialize, the Government would provide for the financing of local cost (US$21.0 million) for Part A, plus US$8.0 million to complete the foreign exchange component of such Part (para 51). A~ . SE° t' 57° CABALLERO 56 I
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