FIlE COPY Report INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FIlE COPY Report RESTRICTED No. p-479 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT EXECUTIVE AND RECOMMENDATION OF THE PRESIDENT TO THE ON A PROPOSED TO DIRECTORS LOAN THE REPUBLIC OF PERU FOR THE PORT OF PISCO PROJECT April 20, 1966

2 REPORT AND RECOZMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAM TO THE REPUBLIC OF PERU FOR THE PORT OF PISCO PROJECT 1. I submit the following report and recommendation on a proposed loan in an arnount in various currencies equivalent to $9.1 million to the Republic of Peru for the construction of facilities at the new Port of Pisco and for consulting services. PART I - HISTORICAL 2. The Government of Peru has requested the Bank to help finance the cost of construction of the Port of Pisco and the preparation of feasibility studies for other ports. The Port of Pisco would be the third Peruvian port financed by the Bank. The Bank made a loan in 1952 and another in 1958 for expansion and modernization of the port of Callao, the largest Peruvian port, for a total of $9.1 million. In 1964 the Bank made a $3.1 million loan for the construction of new port facilities at the Port of Paita in northern Peru. 3. Negotiations took place in W,,Jashington from March 9 through 25. The Government was represented by Mr. Mateo Kalafatovich, Director of Administracion Portuaria (DAP), assisted by Dr. Maximilian Gamarra, Director of Credito Publico amld Dr. Carlos Gibson, Financial Minister in W4ashington. 4. The proposed loan would increase total Bank lending to Peru from $182.3 million to $191.4 million. The status of previous loans as of March 31, 1966 is summarized below: Year Borrower ose20 Amount ($ million) Original Undisbuursed Republic of Peru Various Republic of Peru Roads Republic of Peru Roads Republic of Peru Port Republic of Peru Irrigation Republic of Peru Roads Various Borrowers Various Callao Port Authority Port Lima Light Power Peruvian Corporation Railways Banco Agropecuario Agriculture 15e0 8.5 Total undisbursed 61.6 Total original amount 182.3

3 -2- Amount ($ million) Original Undisbursed Total undisbursed 61.6 Total original amount (less cancellations) of which has been repaid 32.7 Total now outstanding Amount sold: 15.2 of which has been repaid Total now held by Bank Total undisbursed 61.6 No IDA credits have been made to Peru. 5. Disbursements on the existing loans on the whole are proceeding on schedule. The San Lorenzo Project financed with Loan 418 PE of June 18, 1965 had a slow start owing to the change of management; but a substantial disbursement application has now been made. The situation is being followed closely with frequent project supervision missions. The Port of Callao Project financed with Loan 208 PE of September 17, 1958 has been delayed by organizational and physical difficulties. A reorganization plan for the project was submitted to the Executive Directors on Septenber 9, 1965 with a recommendation for a postponement of the closing date. Work was rescheduled in mid-1965 and is now proceeding satisfactorily. The financial situation of the Peruvian Corporation (Loan 334 PE) continues to be unsatisfactory in spite of some benefits from the Bank-financed rehabilitation program and an increase in traffic. 6. Several Bank loans are under consideration for Peru and two of them are at the appraisal stage: (1) loan for a power distribution project of $9-10 million and (2) loan for education of up to $6-8 million. The loans are expected to be presented to the Executive Directors in the next few months. PART II - DESCRIPTION OF THE PROPOSED LOAN 7. Borrower: Republic of Peru Beneficiary: Amount: Direccion Administracion Portuaria $9.1 million

4 -3 - Purpose: To help finance:- (a) the construction of new port facilities at Pisco consisting of a four berth marginal wharf and related facilities: (b) feasibility studies in connection with the ocean port of Chimbote and four river ports: (c) improving port operations and procedures, including carrying out personnel training. Term of Amortization: 25 years including five years grace. First and last repayments, May 15, 1971 and May 15, Interest Rate: Six percent per annum. Commitment Fee: 3/8 of 1 percent per annum. PART III - THE PROJECT 8. An appraisal report of the Project is attached (TO 522a). 9. The major portion of the loan would be used for the construction of new port facilities at Pisco in southern Peru. The new port facilities would be on the Bay of Paracas directly across from the present port and town of Pisco. A road under construction in the essentially desert area, will provide access to the Port from the Panamerican Highway. 10. The proposed loan would be made to the Peruvian Government but responsibility for the construction and operation of the Port wrill be vested in the Direccion de Administracion Portuaria (DAP), which is the office of the Peruvian Finance Ministry in charge of all Peruvian public ports except Callao and Salaverry. The Peruvian Government intends to reorganize the DAP into a National Port Authority and when this happens responsibility for the Project would be transferred to the new entity. 11. The new port facilities at Pisco are urgently needed and economically well justified. The present port facilities permit only lighterage operations and are entirely inadequate to handle the present traffic and, even more so, the traffic which is expected to develop in the future, especially fish meal and mineral ore exports. Substantial benefits are expected as a result of a reduction of cargo handling and bagging costs; elimination of physical losses during the overland haulage to Callao; and a reduction of vessel turn-around time. 12. The Port of Pisco is the main item of the Peruvian Ports Development Program for When this Program is completed, Peru will be endowed with the major portion of a modern system of ocean and

5 - h - river ports. Feasibility studies for the new Port of Chimbote and four ports at Iquitos, Yurimaguas, Pucallpa and M4aldonado on the Amazon River system, would be financed out of the proposed loan. The Program would be financed to the extent of 65 percent by earmarked revenues of the DAP and the balance would be supplied by the Bank, Export-Import Bank or other external lenders. 13. The Peruvian Government has undertaken to establish a National Port Authority with jurisdiction over all the public ports in Peru, excluding Callao which is already organized as an autonomous entity, and with wide management powers and financial autonomy. Agreement has also been reached on the phasing out of the present system of special revenues earmarked to finance port expansion, and, concurrently, their replacement by a unified system of rates reasonably related to the cost of specific port services. In particular, the Borrower has undertaken to establish and maintain charges at the ports of Pisco and Paita which will assure a reasonable return on the investment. The Borrower lhas agreed to hire qualified operations consultants to install a modern commercial accounting system for the port administration, prepare the initial tariffs and advise on matters related to the proposed reorganization of the port administration. 14. The cost of construction of the Port of Pisco will be about $14.3 million, not including $0.4 million for the port feasibility studies, but including allowrances for physical contingencies and price increases. The proposed loan would represent slightly over 60 percent of the total cost of $14.7 million and would cover the entire foreign exchange cost of the project. The balance of $5.6 million will be supplied by the Borrower. As an additional contribution to the Project the Peruvian Government is providing an 18 Km access road and housing for the port workers at an estimated cost of $2.8 million. 15. The construction contract will be awarded and equipment will be procured through international competitive bidding. The design and bidding documents for the port construction have been prepared by the DAP with the assistance of qualified consultants. The same consultants are expected to supervise construction. PART IV - LEGAL INS TRUMETS AND AUTHCITY 16. The Draft Loan Agreement between the Republic of Peru and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank, are being distributed to the Executive Directors separately. 17. The Draft Loan Agreement follows the general pattern of loan agreements for similar projects. The followfing provisions are of special interest:

6 a. In Section 5.08, the Borrower undertakes to establish and maintain adequate charges for services at the ports of Paita and Pisco. b. In Section 5.10, the Borrower agrees to set up a National Port Authority. c. Under Section 5.11, the Borrower will cause the National Port Authority to have at all times ccmpetent and experienced management. PLRT V - THE ECONO01Y 18. An economic report entitled "An Appraisal of the Public Investment Program of Peru" (WH-155a) was distributed to the Executive Directors on January 19, As described in this report inflationary pressures continued during 1965 and coincided with a 30 percent rise in real investments and a 26 percent increase in imports. The Peruvian authorities, recognizing the need to bring about a better internal and external equilibrium in the economy and to preserve a fully convertible currency, have taken a number of measures to contain excessive increases in monetary demand. In late 1965 the monetary authorities raised marginal reserve requirements for the second time within half a year by requiring increases in deposits over the November 30, 1965 level to be covered fully by reserves. In February 1966 the uovernment decreed a reduction of 7.5 percent of budget expenditures, as authorized by Congress. The financial program of the Peruvian authorities for 1966, based mainly on these fiscal and moneta±'y measures, would check the increase in dcmestic prices, and go far to assure a satisfactory balance of payments. 20. Continuing a long series of stand-by arrangements with the IMF, Peru has entered a new arrangement for the period through March 30, In addition the Peruvian Government plans to obtain new foreign credits on a substantial scale. With continued satisfactory financial policies and Peru' s continued growth, the margin for such borrowing is considerable. External public debt now amounts to about $578 million and debt service requires about $70 million a year representing some 10 percent of current foreign exchange earnings. PART VI - COMPLIANCE lnith ARTICLES OF AGREEN2T 21. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

7 - 6 - PERT VII - RECOI'ThDATION 22. I recommend that the Executive Directors adopt the following resolution: RESOLUTION NO.. Approval of Loan to Republic of Peru (Pisco Port Project) in the Amount of the Equivalent of US-$9,1 million RESOLVED: THAT the Bank shall grant a loan to the Republic of Peru in an anount in various currencies equivalent to nine million one hundred thousand United States dollars (US$9,100,000), to mature on and prior to May 15, 1991, to bear interest at the rate of 6 percent (6%) per annum, and to be upon such other terms and conditions as shall be substantiauy in accordance with the terms and conditions set forth in the form of Loan Agreement (Pisco Port Project) between the Riepublic of Peru and the Bank, which has been presented to this meeting. George D. Woods President Attachment Washington, D.C. April 20, 1966

FIE, COY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A

FIE, COY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FIE, COY RESTRICTED Report No. P-548 This report was prepared for use within the Bank