Public Disclosure Authorized
_sr CIRCULATtNG COPY
,,
TO BE RETURNED TO REPORTS DESK
RESTRICTED
~-~-------.
Report No.
P-1087
Public Disclosure Authorized
This report is for official use only by thc Bank Group and spccifically authorized organizations
or persons. It may not be published, quoted or cited without Bank Group authorization. The
Bank Group does not accept responsibility for the accuracy or completeness of the relport.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
Public Disclosure Authorized
REPORT AND RECOMMENDATION
OF THE
PRESIDENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
Public Disclosure Authorized
TO
EMPRESA NACIONAL DE LUZ Y FUERZA
WITH THE GUARANTEE OF
NICARAGUA
FOR A
POWER PROJECT
June 12,
1972
CURRENCY BEUIVALENTS
U.S.$ 1.00
=
7 Cordobas (C$)
C$ 1
=
$ 0.1428
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEiOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENT
TO THE EXECUTIVE DIRECTORS ON A
PROPOSED LOAN TO EMPRESA NACIONAL DE LUZ Y FUERZA
WITH THE GUARANTEE OF NICARAGUA
FOR A POWER PROJECT
1.
I submit the following report and recommendation on a proposed
loan to Empresa Nacional de Luz y Fuerza (ENALUF) with the guarantee of
the Republic of Nicaragua for the equivalent of $24 million to help finance
a project for power. The loan would have a term of 24 years, including
4-1/2 years of grace, with interest at 7-1/4 percent per annum. The Central
American Bank for Economic Integration (CABEI), with the assistance of untied
funds provided by the German Government, would make a loan of $6.1 million
to ENALUF to help finance this project.
PART I - THE ECONOMY
2.
No special developments have taken place since my report to the
Executive Directors on a Second Water Supply Loan (R72-41, dated February
24, 1972), which gave recent information on the economy (see Annex II).
A report entitled "Current Economic Position and Prospects of Nicaragua"
was distributed to the Executive Directors on April 27, 1971. An economic
mission is scheduled to visit the country in July and to complete a report
by end 1972.
PART II
-
BANK GROUP OPERATIONS IN NICARAGUA
3.
Annex I contains a summary statement of Bank loans, IDA credits
and IFC investments as of April'30, 1972, and notes on the execution of ongoing projects.
4.
Nicaragua has to date received 16 Bank loans and one IDA credit,
totalling $69.8 million,net of cancellations. Seven loans, totalling $42.3
million, have been made for power; three loans, totalling $10.3 million,
for transportation; one loan, amounting to $4.0 million, for education;
four loans, totalling $3.3 million, for agriculture; and a credit and a
loan, amounting to $9.9 million, for water supply. The last operation, a
loan for water supply, was signed in March 1972.
-2-
5.
As of April 30, 1972, a total of about $10.2 million remained to
be disbursed on two loans, one for education (Loan 532-NI) and one for water
supply (Loan 808-NI). Disbursement of a loan for the Seventh Power Project (Loan
543-NI) was completed in May, but overruns of about $4.5 million above the
original cost estimate. of *21.8 million have resulted from unforeseen geological
conditions (see Annex 1). The project, however, is expected to be completed on
time, by end June 1972. The proposed loan includes $1.5 million to cover the
foreign exchange component of the cost overruns (see para. 20). All other
projects have been completed satisfactorily.
IFC has made one investment in Nicaragua, in 1968, in a new cotton
6.
and synthetic fiber textile company (FABRITEX), consisting of a $1 million
loan (fully disbursed) and an equity participation of about $1.1 million equivalent. IFC is presently assessing the company's need for additional financing.
The possibility of other operations in the country is under review.
In the past, the Bank assisted Nicaragua in those areas where it had
7.
special expertise and where finance on softer terms from other development
agencies was unavailable. Thus, the Bank lent for economic infrastructure
such as power, ports and roads, and, to a lesser extent, for agriculture and
social sectors such as water supply and education. Bank lending was interrupted in 1969-71 because of inadequate economic policies and lack of suitable
projects, but lending was resumed in 1972 as the country's development effort
had materially improved.
For the immediate future the Bank is considering several agricultural
8.
operations, in line with the Government's strategy to put the main thrust of
development on diversifying production and putting to use the country's natural
resources. Two FAO missions which visited Nicaragua in February 1972 have
reported favorably on the possibility of Bank financing for livestock and
agricultural credit projects. A UNDP/UN mission is carrying out ground water
investigations which may result in a project for Bank financing in the mid
1970's. With respect to industry, the Bank is exploring the possibilities
for channelling financing to Nicaragua and the other Central American counThe Bank also plans to continue to assist the developtries through CABEI.
ment of social and physical infrastructure in Nicaragua in line with the growth
of the economy. A UNESCO mission visited Nicaragua in January 1972 to assist
the Government in the preparation of a project in secondary education. Preparation of a second port project, for sea defense and expansion of the Port of
Corinto on the Pacific, is well advanced. Consideration of other high-priority
projects is expected as a result of the Bank economic mission scheduled for
July.
The above lending program would give substantial support to the Gov9.
ernment's policy of increasing public investment and lengthening the maturity
structure of its debt. Net disbursements to Nicaragua from Bank loans may be
expected to rise to about $45 million in FY73-77, compared to about $10 million
in FY6C-73. Nevertheless, the composition of the lending program beyond
FY73 is still tentative, pending completion of the public investment program
-3and detailed definition of the Government's priorities. Furthermore,
Nicaragua will have to make a substantial effort in mobilization of
domestic savings and project preparation if the proposed size and structure of Bank lending are to materialize. Details on the aid provided
to Nicaragua by the most important aid donors is given in para. 13 of
Annex II.
PART III - THE POWER SECTOR
10.
An adequate and reliable supply of power has played a key role in
the industrial growth of the 1960's. Sales to industry increased at 28 percent annually on the average from 1959 to 1970, and their share of total sales
rose from 22 percent to 42 percent over the same period. Per capita generalion, 245 kWh in 1970, is second only to Costa Rica (500 kWh) among the
Central American countries. In 1970 about 30 percent of the population had
electricity, and at the expected rate of expansion about 40 percent will
be supplied by 1975. ENALUF operates the integrated main system, with a
generating capacity of 189 MW, or 80 percent of the country's total.
Captive plants of industrial consumers account for most of the balance.
Tle Bank has supported power development in Nicaragua since 1953.
11.
In 1969 ENALUF started a program of village electrification based on
the establishment of four consumer cooperatives. The cost of the program
($22.2 million) is financed from USAID loans ($14.5 million), government grants
($4.3 million) and ENALUF oontributions ($3.4 million). These funds are lent
to the cooperative on terms similar to the USAID loan (2.5 percent, 35 years,
including a grace period of 10 years). ENALUF provides technical assistance
on procurement, construction and staff training. Upon completion of the program in 1974, about 23,000 cooperative consumers, or 10 percent of the country's consumers, would be served by a 2,000 km network. Three cooperatives
have already been established, with 15,600 members. The Government expects
that this program will contribute to bringing about more irrigated farming,
interest of the participants in self management and education, decreasing inclination to leave the countryside for the towns and lower birth rates.
12.
The annual increase in power generation, which averaged an impressive
23 percent from 1958 to 1966, remained at a substantial 14 percent from 1966
to 1971.
Power demand in Nicaragua is projected to increase by 13 percent in
1972-76 and 10 percent in 1977-85 as a result of growing industrial requirements and village electrification. Preliminary explorations of geothermal
resources have given favorable results, and the United Nations Development
Program (UNDP) is financing a feasibility study for a project in which the
Bank has expressed its special interest. Geothermal resources, however, are
insufficient to meet the expected demand, and identification of major hydro
resources is in its early stages. Consequently, for the next decade ENALUF's
requirements will have to be met mainly by thermal plants, unless hydro power
is imported from Honduras and Costa Rica.
Nicaragua-Honduras Interconnection
13.
With the encouragement of the Bank, Nicaragua and Honduras have
reached agreement on a long-range program for the coordinated development
of the respective power sectors based on interconnection of their power
systems, the first between Central American power entities. The first
stage of the program comprises thermal power stations and extension of
transmission lines in Nicaragua and Honduras, and interconnection of
the power systems of the two countries. As a result of the first
stage, Nicaragua will sell energy to Honduras from 1975 through 1977. A
second stage of the program includes construction of a large hydropower
plant in Honduras (El Caj6n, about 450 MW) scheduled to start supplying
power to both countries in 1978.
14.
Interconnection will bring substantial benefits to both countries:
the market in Honduras is not sufficiently large to absorb El Caj6n's potential, but with interconnection both Honduras and Nicaragua will be able to
use low-cost hydropower. In addition, interconnection would make it possible
to interchange emergency power, and the combined reserve requirements of the
interconnected systems would be lower than for independent systems. The
interconnection program is the least-cost alternative for discount rates of
up to 20 percent, as compared with the best independent programs for the
Nicaraguan and Honduran power systems.
t5.
To provide for the exchange of power, the Nicaraguan and Honduran
Governments have signed a treaty to record their agreement to interconnect
their power systems and to authorize the respective power agencies to take
the necessary action. A contract for the sale of power by ENAIUF to ENEE
(the Honduran power agency) during 1975-77 is expected to be signed in June.
PART IV - THE PROJECT
16.
A report entitled "Appraisal of the Eighth Power Project - Nicaragua"
(No. PU-92a, dated June 2, 1972) is being distributed separately. The main
features of the project are summarized in Annex III. Feasibility studies were
prepared by Electroconsult (ELC) of Italy and Kuljian Engineers/Contractors
of the United States. The project was appraised in the field in October 1971
and February 1972. Negotiations for the proposed loan were held in Washington
in May 1972. ENALUF was represented by Messrs. Luis Manuel Debayle, Executive
President, Arturo Roa, General Manager, Eduardo Roman, Financial Manager, and
Aristide Somarriba, Legal Advisor. The Government was represented by Mr.
Gustavo Escoto-Goenaga, Minister Counselor of Economic Affairs of the Nicaraguan Embassy in Washington.
17.
The proposed project consists of the Nicaraguan portion of the interconnection line; a new 100 MW steam-electric station at Puerto Somoza, on the
Pacific Coast, and associated 230 kV transmission lines; extensions to ENALUFts
138 kV transmission system; and consultant studies for management improvement. The project would be carried out during 1972-76 with the object of
providing sufficient generation capacity to meet Nicaragua's requirements
up to 1978 and to provide power also to Honduras, until completion of the
large hydro-power project in that country.
18.
ENALUF has adequate technical and administrative capacity to carry
out the project. In view of its recent rapid expansion, however, the company
needs some organizational improvements. For this purpose ENALUF intends to
retain management consultants and to consult with the Bank on the implementation of their recommendations. Engineering design and supervision of construction of the project would be carried out by private consultants: Kuljian,
for t;he Puerto Somoza plant and for the associated 230 kV transmission lines,
and Electroconsult, for the interconnection line, both in Nicaragua and
Honduras, and for the extensions to ENALUF's 138kV transmission facilities.
Cost and Financing
19.
The estimated cost of the project proposed in Nicaragua is $34.7
million including $24.7 million in foreign currency. About 40 percent of the
total represents the cost of the facilities whose construction ENAUJF will
have to advance by 3-4 years for the specific purpose of supplying power to
Honduras. This adds significantly to ENALUF's capital requirements. The
project accounts for most of the $65 million financing for ENALUF's 1972-76
investment program. The good financial position of ENALUF will allow it to
provide $23.1 million from internal sources for this program, including $8
million for the proposed project. Existing loans ($8.4 million) and other
small loans tentatively arranged ($3.4 million) would provide $11.8 million,
leaving a gap of $30.1 million including $2 million in local currency. Further reduction of the program would be unjustified after the cuts ENALUF
has already made on the advice of the Bank. Delaying the execution of the
village electrification now in the program would leave the gap substantially
unchanged, since the share of ENALUF's own financing of village electrification is low. Cutting on other parts of the program -- mainly extensions to
distribution -- would create bottlenecks.
20.
In view of the size of the financial requirements, and the relevance of the project for the progress of regional integration, the Bank
would finance the project jointly with CABEI. The proposed Bank loan of $24
million is expected to be disbursed wholly for foreign expenditure and would
include part of the interest during construction of the interconnection ($2.1
million) and $1.5 million of the cost overrun on the seventh power project
financed by a Bank loan of $15.3 million in 1968 (Loan 543-NI). The remaining $3.0 million of the cost overrun, representing the local cost, will be
covered by ENALUF out of its own funds. CABEI's loan of $6.1 million would
cover $3.6 million of the foreign cost, $2.0 million of the local cost and
$0.5 million of interest during construction for the years 1972-74. It
would be for a term of 24 years at 6 percent per annum. The German Government:
is considering to make an important contribution to the financing of the
project by providing CABEI - through Kreditanstalt fur Wiederaufbau with an untied loan of DM12 million ($3.7 million equivalent) on concessionary terms; CABEI would use the proceeds of this loan to finance its
contribution to the foreign exchange costs of the project.
21.
Cost and financing arrangements (in millions of dollars) are
shown below:
VII Power
Project
Overruns
Interconnection
Project
Interest
During
Construction
Total
Financing
CABEI loan for
project
preparation
0.7
CABEI loan for
construction
5.6
0.5
6.1
0.7
IBRD loan
1.5
20.4
2.1
24.0
ENALUF
3.0
8.0
2.1
13.1
4.5
34.7
4.7
43.9
1.5
24.7
4.7
30.9
Totals
of which is in
foreign exchange
22.
The fulfillment of all conditions necessary to permit disbursemelnts under the loan agreement between ENALUF and CABEI would be a condition
of effectiveness of the Bank loan. The Joint Financing Agreement between
ENALUF, CABEI and the Bank, which is being distributed separately, includes
all covenants which are of common interest. The Bank has reached agreement
with CABEI on coordination of project supervision and disbursement.
23.
ENAIUF's financial position is sound and is expected to remain so.
According to ENAIUF's financing plan for 1972-76, about 36 percent of the total
construction cost of its investment program is expected to be generated from
within the enterprise. In the past few years, however, ENALUF's overhead and
operational costs (excluding fuel oil cost) as well as the number of personnel
have been growing more rapidly than its sales and revenues. ENALUF has
agreed to take remedial steps and improve efficiency. ENALUF has also
agreed to maintain a rate of return of at least 9 percent on average net
fixed assets in operation. The rate of return is expected to vary between
9 and 10 percent in 1972-76. ENALUF's debt service ratio is projected to be
satisfactory, increasing from 1.4 in 1972 to 2.0 in 1976. ENALUF has agreed
not to undertake any medium or long-term debt without the Bankts approval,
unless its net revenues cover debt service by at least 1.5 times.
- 7 24.
Goods financed by the Bank and CABEI would be procured through
international competitive bidding. Under the arrangements contained in the
Central American Agreement on Fiscal Incentives for Industrial Development,
manufactureres within the Central American Common Market would receive a preference of 15 percent of the c.i.f. price or 50 percent of existing custom
duties, whichever is the lower. The value of orders placed in Central
America under the proposed arrangement is expected to be less than $100,000.
No orders of substantive size are expected to be placed in Nicaragua.
Contracts for the engineering consultants ($2.1 million) have already been
placed.
Economic Justification
25.
The project is technically sound and economically justified. The
economic return of the Puerto Somoza station and associated transmission
facilities is estimated to be about 15 percent, on the conservative assumption that the cost of electricity to the consumers is a minimum measure of
economic benefits.
Disbursement
26.
The Bank and CABEI would disburse in the proportion of 85 to 15 the
parts of their respective loans which finance the foreign exchange component
of the cost of equipment and services for the interconnection project. In
addition, it is proposed that the Bank loan finance retroactively up to $1.5
million of expenditures for the foreign exchange component of the cost overruns
under the Seventh Power Project.
ENALUF is making the related payments in
May-June, 1972.
It is also proposed that the loan finance up to $100,000 of
expenditures in respect of engineering consulting services that have been incurred between March 1, 1972, and the date of the signing.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
27.
As indicated in the report to the Executive Directors on the
Water Supply Loan (R72-41, dated February 24, 1972) a number of constitutional changes are now underway in Nicaragua.
In August 1971 Congress
dissolved itself and granted legislative powers to the President.
In
February 1972 a Constituent Assembly was elected, which appointed in April
a three-man Junta (including a member of the opposition) which acts as the
executive power as from May 1, 1972. Presidential and congressional elections are scheduled for September 1974, and the new President and Congress
are to take office in December 1974. I am satisfied that the Government has
authority to guarantee a loan in present circumstances.
28.
The draft Loan Agreement between the Bank and EWNALUF, the draft
Joint Financing Agreement between ENALUF, CABEI and the Bank, the draft
Guarantee Agreement between the Republic of Nicaragua and the Bank, the
Report of the Committee provided for in Article III, Section 4 (iii) of the
Articles of Agreement and the text of the Resolution approving the proposed
loan are being distributed to the Executive Directors separately. The draft
agreements conform to the normal pattern for loans for power projects. Of
special interest are the provisions concerning ratification of the interconnection treaty between the Governments of Honduras and Nicaragua and effectiveness of the sales contract between ENEE and ENALUF as conditions of disbursement of the portion of the loan allocated to the interconnection components of the project (Section 2.02, Loan Agreement).
I am satisfied that the proposed loan would comply with the Articles
29.
of Agreement of the Bank.
PART VI - RECOMMENDATION
30.
I recommend that the Executive Directors approve the proposed loan.
Robert S. McNamara
President
Attachments
June 12, 1972
ANNEX I
Page 1 of 2
THE STATUS OF BANK GROUP OPERATIONS IN NICARAGUA
A.
STATEMENT OF BANK LOANS AND IISA CREDITS
(as at April 30, 1972)
Loan or
Credit
Number Year
Borrower
Purpose
Fifteen loans and credits fully disbursed
532
1968
Government
Education
543
1968
ENALUF
Power
808
1972
Empresa Aguadora de
Managua
Water Supply
40.6
3.0
-
4.0
-
3.3
15.3
-
0.2
6.9
-
6.9
Total
of which has been repaid
66.8
23.7
3.0
0.0
Total now outstanding
43.1
3.0
Amount sold
of which has been repaid
B.
$ million
Amount (less cancellations)
Bank
IDA Undisbursed
10.4
4.2
0.6
3.6
Total now held by Bank and IDA
42.5
Total undisbursed
10.4
3.0
10.4
STATEMENT OF IFC INVESTMENTS
(as at April 30, T972)
Year
Obligor
Type of Business
Amount in $ million
Loan
Equity
Total
1968
Textiles Fabricato de
Nicaragua, S.A. (FABRITEX)
Cotton and polyester blend fabrics
1.0
1.1
2.1
1.0
1.1
2.1
less cancellations, terminations,
repayments and sales
0.6
0.4
1.0
Total now held by IFC, fully disbursed
o.4
0.7
1.1
Total gross commitments
ANNEX I
Page 2 of 2
C. PROJECTS IN EXECUTION
As of April 30, 1972, a total of about $10.2 million
be disbursed on two loans, one for education and
to
remained
one for water supply.
The eduxcation project (Loan 532-NI) had a very slow
start, mainly because of initial financing and management problems mostly originated by lack of expertise in the project
unit. Adequate budget allocations have now been made, and
the project unit is being strengthened. Although disbursements are now picking up, the original closing' date (June 30,
1973) will have to be postponed by about twelve months.
The loan for water supply (Loan 808-NI) was signed
1972, and became effective in April; the project
March,
in
satisfactorily.
progressing
is
The Seventh Power Project, including facilities in
Managua and Santa Barbara (Loan 543-NI, fully disbursed as of
May 31) has cost overruns of about $4.5 million above the original
cost estimate of $21.8 million. The additional cost resulted from
unfavorable rock structure in a tunnel and relocation of a dam
because of unforeseen foundation conditions. The project, however, is expected to be completed on time, by end June 1972.
The proposed loan includes $1.5 million to cover the foreign
exchange component of the cost overruns. ENALUF is covering
the local cost component ($3 million) from its own resources.
NICARAGUA
A.
COUNTRY DATA
Page 1 of 7
I. SIZE
Area (square kilaneters)
148,000
1960
Population (million)
v
Annual growth rate (X)
Density per square km.
GNP per capita atlkctor cost ($)
II.
1965
1.41
3.0
".0 9.5
231
. 1969
1970
1971
1.63
1.82
2.8
12.3
1.87
2.8
1.92
2.8
.19
329
415
435
386
ECONOMIC INDICATORS
GDP at current factor cost
(m mllion)
Sector origin (0)
Agriculture
Manufacturing
Construction
Trade and finance.
Public administration
Other
2,298
3,857
5,O63
5,615
30
10
2
26
8
24
30
13
3
25
8
21
27
16
3
23
9
22
27
17
3
24
9
20
1969
1970
1971
9.8
5.1
12.0
2.5
13.5
12.3
15.1
9.0
h.0
AMnual changes (i)
1961-68
6,120
GDP at current market prices
GDP at 1958 market prices
Manufacturing value added (constant prices)
Agriculture value added (constant prices)
Exports, f.o.b.
Imports, c.i.f.
Money and Quasi-money
9.5
7.8
13.3
7.3
12.2
14.3
5.3
5.7
9.0
6.7
-2.2
-4.0
5.2
Total banking system credit
14.4
10.0
5.2
9.6
to public sector, net
to private sector
GDP deflator (1958 - 100)
-2.0
i6.6
1.7
68.8
6.2
-0.4
-8.0
6.6
4.7
12.7
9.3
5.0
1960
1.965
1969
1970
12.3
(2.4)
(9.9)
2.2
87.7
12.3
2.2
17.7
4.2
(13.5)
2.3
82.4
17.6
2.4
15.4
(3.6)
(12.6)
2.1
83.8
i6.2
2.3
15.0
(3.8)
(11.2)
2.1
64.9
15.1
2.0
?ercent of GDP at current market
Gross Fixed investment
Pablic sector
Private sector
Inventory investment
Consumption
Gross domestic saviags
Resource gap (surplus n)
a/ As estimated by the Central Bank.
2.3
8.0
14.0
ANNEX II
Page 2 of 7
1960
1965
1969
1970
1971
(minlions of c6rdobas)
Public Sector Finances a/
655
(15.5)
475
(11.2)
180
185
-5
16
11
Current revenue
(% of GDP at current market prices)
Current expenditure
(Y of GDP at current market prices)
Current surplus
Investment expenditure
Surplus/Deficit
Net external financing
Net domestic financing
862
0$.?)
743
(13.6)
119
212
-93
33
60
641
933
(l5.5) (10.0)
512
759
(12.6) (8.1)
119
17h
235
302
-117
-128
93
129
24
-1
(millions of dollars)
Balance of Payments
Exports of goods and non-factor
services
Imports of goods and non-factor
services
Resource gap
Factor income, net
Current account deficit
Transfers, net
Official capital, net
Private capital, net
Reserve changes, net(-.: increase)
77
168
194
220
226
84
-7
-3
10
3
-1
12
-4
183
-15
-15
30
6
7
18
-1
211
-17
-25
42
6
11
18
7
236
-16
-28
44
6
25
26
-13
253
-27
-30
57
6
h3
18
-10
30
2
18
44
13
29
18
20
18
22
39
58
219
224
4.2
9.4
10.3
Concentration of Commodity EXorts
(% of exports, f.o.b.)
Coffee
Cotton
External Public Debt
Medium and long term outstanding
as reported to IERD (including
undisbursed, repayable in
foreign currency, in
millions of US dollars)
Debt service ratio (I of foreign
exchange earnings)
a/ Central Government only for 1971.
-
-
ANNE II
Page 3 of 7
1960
L965
1969
'1970
1971
Net foreign exchange reserves
uS$ millions
28
Coverage of current payments
(number of weeks)
-9
7
IBRD/IDA loans and credits
as of January 31, 1972:
of which outstanding:
5
15
1
3
$62.9 million
$39.9 million
IMF data: /
Quota
Fund holdings of c6rdobas (Feb. 11, 1972)
Allocation of SDR's 1970
1971
1972
Stand-by arrangement (Feb.
9, 1972 - Feb. 8, 1973)
III.
SDR 27
million
1.tl% of quota
3.2 million
2.9 million
2.9 million
SDR 10.8 million
SOCIAL AND RELATED INDICATORS
PQpulation
Birth rate (per 1,000 pop.) bJ
Death rate (per 1,000 pop.) b/
Infant mortality (per 1,000 live
births)
Life expectancy (years)
Dependent population (% oe total
pop.)
Urban population (% of total pop.)
45.2
8.9
42.0
7.3
70.2
51.6
69.4
33.8
43.9
8.2
42.6
45.3
52.1
1.7
43.7
52 3l
45.6
31.6
32.6
32.8
58.1
U1.7
30.2
55.6
11.8
32.6
5h.9
11.8
33.3
Employment
Economically active population
U of total pop.)
D.;stribution of econamically
active population ( of tocal):
Agriculture
industry
Other
/ SDr 1
=
7.6 Corcioba = 1.OY,
/ Registereadrates, unadjusted.
ANNEX II
Page 1iof 7
1960
1965
1969
1970
2.2
2.8
3.8
3.7
22..8
27.2
35.7
33.7
60.7
61.3
61.2
Central Government !cpenditures
on Social Sectors /
X
of GDP at current market prices
X
of Central Government expenditures
Income Distribution
Wages and salaries as percentage
of national-income
Education
Literacy rate (% of adult pop.)
Primary school enrollment Tof
school age pop.)
Secondary school enrollment (% of
school age pop.)
Primary school retention ratio
Secondary school retention ratio
60.0
50.4
45.6
54.2
13.0
52.0
13.3
42.4
58.3
60.8
19.6
21.4
Health
Doctors per 10,000 population
Population per hbapital bed
Access to potable water (% pop.)s
Urban
Rural
Access to sewerage services
(% of population):
Urban
Average daily caloric intake
per person
3.5
435-
4.2
1436
5.1
371
37.0
0.3
36.0
2.1
87.3
5.9
95.0
10.3
18.3
14.7
32.4
43.6
2,420
2,350
Other
Access to electricity (% of pop.)
Number of radio receivers (per
1,000 pop.)
Daily distribution of newspapers
(per 1,000 pop.)
Housing deficit (1,000 units)
30.0
61.o
58.3
49 °
115.5
133.4
al/ Education and Culture, Public Health, Social Security and Welfare.
ANNEX II
Page 5 of 7
B. EXTRACT FROM THE PRESIDENT'S REPORT AND RECOMMENDATION ON A PROPOSED
LOAN TO EMPRESA AGUADORA DE MANAGUA FOR A WATER SUPPLY PROTECT (R72-41,
DATED FEBRUARY 24, 1972).
"7.
Nicaragua's economic fortunes have been traditionally linked to
fluctuations in the production and export of one or two commodities. Over
the last five decades Nicaragua has developed from a banana to a coffee and
then, more recently, to a cotton economy. This great dependence on one or
two export commodities and a high import coefficient have resulted in recurrent balance of payments crises which have limited Nicaragua's ability
to develop its ample agricultural resources.
A rapid increase in cotton production for export allowed Nicaragua's
8.
economy to grow at about 10 percent annually in current prices during 1961-67.
Inflation was negligible during this period, and real per capita income increased at about 6 percent per year or about twice as fast as population growth.
The establishment of a Central American Common Market in the early sixties
stimulated rapid growth of industrial exports, and a large increase in meat
sales to the United States also contributed to the diversification of Nicaragua's
exports. None the less, the economy remained dependent on cotton. Between
1966 and 1970 cotton production fell sharply, after extension into marginal
lands had created unmanageable pest control problems. The decline of cotton
was only partially offset by the growth of other exports and real per capita
income stagnated in 1966-69. Economic growth recovered in 1970, mainly because
of increased coffee prices and stepped up sales of manufactures to Honduras
and Costa Rica. In 1971, however, the pace of growth slowed down somewhat, as
declining coffee prices and regional sales offset the effects of a marked recovery of cotton exports. Over the next few years the real growth of GDP is
unlikely to exceed 5 percent annually because of limited export prospects for
cotton, coffee, beef and manufactures, but, if a longer view is taken, Nicaragua's ample unexploited resources offer the possibility of sustaining a considerably faster growth.
During the last two years the Government adopted fiscal and monetary
9.
policies aimed at arresting a sharp fiscal and balance of payments deterioration which the cotton crisis and inadequate policies had brought about in
1967-69. In May 1970 the Government introduced a 5 percent general sales tax
and raised interest rates to levels more in line with those of the world money
markets. As a result of the fiscal measures, government current revenues increased sharply in 1970 (17 percent) and continued to grow substantially in
1971 (10 percent), while the expansion of current expenditures was limited to
about 6 percent in each year. Central government savings increased from $4.9
million equivalent in 1969 to $12.7 million in 1970 and $17 million in 1971.
Total public sector savings recovered from roughly 2 percent of GDP in 1969 to
3 percent in 1970, while public investment rose from about 4 to 5 percent of
ANNEX II
Page 6 of 7
GDP, and the gap was financed through official external borrowing. The share
of public investment financed by public savings also increased, from 56 percent in 1969 to 58 percent in 1970. Preliminary estimates point to a continuation of this favorable trend in 1971. The Government plans to introduce
new tax measures in 1972-73, designed with assistance from the IMF.
10.
Nicaraguats balance of payments also improved in 1970-71.
international reserves -- negative in 1969 --
Net
increased by $13 million in
1970, thanks to increased foreign exchange earnings from coffee and manufactures, the slower growth of imports, and a stepped up inflow of long-term
foreign loans to the public sector. Net reserves increased further by $10
million in'1971 to an estimated $15 million at the end of the year -- equivalent to about 3 weeks current payments -- a level, nevertheless, which is
still low in view of the cyclical instability of Nicaragua ts exports.
Nicaragua's debt service ratio increased from about 4 percent in
11.
1965 to 10 percent in 1970, following a substantial increase in short and
medium-term borrowing from foreign commercial banks in 1967-68. In 1971
the Government took steps to lengthen the maturity structure of the debt and,
as part of a stand-by arrangement negotiated with the IMF, agreed to-set a
limit in 1972 on new external borrowing with maturities of less than 12 years.
Accordingly, the debt service ratio is expected to'decline after outstanding
shorter term external liabilities are repaid over the next three years or so.
The Government is increasingly aware of the need to diversify and
12.
strengthen the economy and is striving to create a suitable administrative
framework. A new Planning Office, established in April 1971, is working on
a five-year development plan for 1972-76. A development fund will be established shortly within the Central Bank and a project preparation unit is
being developed with assistance from consultants. This unit is concentrating its efforts on projects in agriculture and industry, in agreement with
the Government's policy of placing increasing emphasis on the promotion of
projects with a direct impact on production. The Government also intends to
distribute the benefits of development more widely than in the past, mainly
through sizeable investment in social infrastructure, especially in education
and water supply. If the savings effort of the last two years is sustained
and project preparation effectively strengthened, Nicaragua will continue to
deserve external support for its development prograz1s.
Apart from the Bank, external financing is principally provided by
13.
USAID, the Interamerican Development Bank (IDB) and the Central American Bank
for Economic Integration (CABEI). USAID has made loans for highways, agriculture, industry, rural electrification, housing, education and health. IDB
is financing water and sewerage, higher education, agriculture and transport.
CABEI is financing projects with a regional impact, principally in transport
and industry. The past lending of these agencies is summarized below. The
size and composition of their lending programs are still uncertain, but it is
ANNEX II
Page 7 of 7
likely that they will continue to focus on the sectors which they financed
in the past.
Lending 1950-1965
IBRD
(US$ millions)
IDB]_/
AID
IDA
35.6
3.0
Lending 1966-1971
Transport
Power and Telecommunications
Education
Health
Housing
Agriculture
Industry
Others
Total
-
20.3
4.0
-
-
-
-
-
-
_
_
_ '
2.8
15.0
2.0
6.13.7
17.6
4.5
9.4
'
59.9
20.7
3.0
81.8
CABEI_/
42.4
13.3
3.5
22.5
4.6
Q.7
-
0.3
8.4
6.o
19.7
-
-
6.5
16.9
l.'
81.3
64.5
1/ Includes some local currency loans.
Loans from these agencies are usually on softer terms than Bank
14.
loans, a factor which'limits the Bank's ability to support the Government's
programs in areas of development such as rural electrification and rural
water supply. AID loans are for a term of 40 years with interest of 2 to
3 percent, and most IDB loans are extended from the Fund for Special Operations, carrying 3-4 percent interest rates and terms ranging from 15 to 30
years. The terms of CABEI loans -- which often provide 100 percent financing
of local expenditures -- vary in accordance with CABEI's sources of financing,
but generally contain a substantial concessionary element. USAID, which held
roughly one-third of the debt repayable in foreign currency at the end of 1971,
is Nicaragua's largest external creditor. Liabilities to the Bank Group represented less than one-fifth of debt repayable in foreign currency."
ANNEX III
Page 1 of 3
NICARAGUA - EIGHTH POWER PROJECT
LOAN AND PROJECT SUMMARY
Borrower:
Guarantor:
Empresa Nacional de Luz y Fuerza (ENALUF)
Republic of Nicaragua
Amount:
$24 million
Terms:
Payable in 24 years with 4-1/2 years of grace
at 7-1/4 percent interest per annum.
Project
Description:
(1) Construction of a generating plant at Puerto
-Somoza, comprising two steam-electric generating
units with an aggregate generating capacity of
about 100 MW, fuel unloading and storage facilities, a substation, and personnel housing.
(2) Construction of about 105 km of 230 kV singlecircuit transmission lines between Puerto Somoza
and Tiscapa south of Managua, and Puerto Somoza
and Leon.
(3)
Construction of a 230/138 kV substation at
Tiscapa including a load dispatch center and of
a 230/138 kV substation at Le6n and installation
of communication, metering and control equipment
at the Puerto Somoza plant and at the Tiscapa
and Le6n substations.
(4) Construction of about 70 km of 230 kV singlecircuit transmission line between Leon and the
Honduran border for interconnection with the
Honduran network.
(5) Construction of about 75 km of 136 kV singlecircuittransmission line around Managua.
(6) Construction of a 138 kV substation at Los
'Braziles and switching bay additions to the
existing 135 kV substations at the Managua Thermal Plant and Masaya.
(7) Construction of about 90 km of 138 kV singlecircuit transmission lines from Sebaco to Yalaguifa.
ANNEX III
Page 2 of 3
Project
Description:
(con't.)
(8) Construction of a stepdown substation at
Yalaguinia and a switching bay addition to the
existing 138 kV substations at Sebaco.
(9) A study of improvements in ENALUF's organization, procedures and operations, including
financial planning and budget control.
(10) Additionalwork resulting from unexpected
geological problems encountered in the execution of the Seventh Power Project (Bank Loan
543-NI).
Estimated Cost:
Local
Puerto Somoza
230 kV and 138 kV
transmission
Engineering
Management Consultants
Contingency - Physical
6,690
1,740
490
50
1,030
7,230
2,420
200
2,430
930
930
24,660
34,660
3,000
1,500
4,500
13,000
26,160
39,160
-
Total Eighth Power Proj. 10,000
Total
Financing Plan:
($ million)
VII Power
Project
Overruns
.14,760 21,450
5,490
1,930
150
1,400
Contingency - Price
Cost overruns under
Seventh Power Project
$ thousand
Foreign Total
Interconnection
Project
Interest
During
Construction
Total
Financing
CABEI loan for
project
preparation
0.7
CABEI loan for
construction
5.6
0.5
1.5
20.4
2.1
24.0
3.0
8.0
-2.1
13.1
4.5
34.7
4.7
43.9
1.5
24.7
4.7
30.9
IBRD loan
ENALUF
-
Totals
of which is in
foreign exchange
0.7.
6.1
ANNEX III
Page 3 of 3
Estimated
Disbursements:
$ million)
Procurement
Arrangements:
Consultants:
1972
1973
1974
1975
1976
3.3
5.7
10.5
3.0
1.5
All Bank-financed items by international competitive bidding. Suppliers in the Central American
Common Market countries would receive a margin of
preference in bid evaluation of 50 percent of the
applicable external tariff or 15 percent of the
c.i.f. price, whichever is the lower. Up to $1.5'
million for expenditures under the Seventh Power
Project and up to $100,000 for engineering expenditures incurred between March 1, 1972, and
the date of signing would be reimbursed to the
Borrower.
Kuljian Engineers /Contractors of the U.S.A.;
Electroconsult of Italy.
Economic Rate
of Return:
1 ,-percent.
Appraisal Report:
PU-92a, dated June 2, 1972.
-
NICARAGUA
EMPRESA NACIONAL DE LUZ Y'FUERZA.-i
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