Public Disclosure Authorized RESTRICTED FLE CO Y Report No. E P -7 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 The report may not be published nor may it be quoted as representing their views. Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE Public Disclosure Authorized PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF LIBERIA FOR A PORT DREDGING PROJECT Public Disclosure Authorized June 5, 1969
INrERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMEMT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF LIBERIA FOR A PORT DREDGING PROJECT 1. I submit the following report and recommendation on a proposed loan in an amount in various currencies equivalent to US$3.6 million to the Republic of Liberia for a port dredging project. PART I - HISTORICAL 2. Liberia is Africa's biggest and the world's fifth largest exporter of iron ore. Following modest beginnings made in the fifties, iron ore today accounts for around 30 per cent of the GDP and 70 per cent of the exports of Liberia. Over half of these exports are channelled through the Port of Monrovia. Transportation costs form a significant part of the delivered price of iron ore. The increasing use of special purpose large size ore carriers in place of traditional tramps has helped reduce transportation costs considerably. Ports of destination for Liberian ore in Germany, Netherlands, France, Italy and Belgium have developed facilities to receive carriers of 60,000-90,000 dead weight tons (DWT) compared with a maximum of 45,000 DWT which the Port of Monrovia can handle at present. Use of the larger carriers from Monrovia to these European ports would reduce freight costs by at least 15 per cent. In order to be able to compete in these markets, it has become essential for Liberia to improve its facilities at the Port of Monrovia. Liberia has also been trying to develop a market for its iron ore in Japan which consumes about one-third of the world exports of iron ore and is entirely dependent on foreign ores. In view of the distance between the two countries Liberia is not likely to succeed in this effort unless larger ore carriers are used and transportation costs reduced. 3. In February 1968, the Government of Liberia approached the Bank for assistance in financing a project to dredge the Port of Monrovia and requested the Bank to appraise this project on a priority basis. The Government also informed the Bank that one of the iron ore companies in Liberia had entered into a contract with a Japanese buyer, the effectiveness of which was contingent on a commitment by the Liberian Government to improve the port facilities at Monrovia by dredging the port to a substantial depth by April 1, 1969. The appraisal mission scheduled to visit Liberia was delayed because it was found necessary to investigate
- 2 - the stability and adequacy of the breakwaters at the harbor entrance before agreeing to proceed with dredging. After this investigation, the appraisal mission visited Liberia in September 1968. Negotiations were held in Washington in April/May 1969. The Liberian delegation was led by The Honorable J. Milton Weeks, Secretary of the Treasury, and included, among others, Dr. Cyril Bright, Secretary of Planning, Mr. Frank Stewart, Under Secretary of the Treasury for Fiscal Affairs, and Mr. George Tubman, Executive Director of the National Port Authority (TPA). 4. The following is a summary statement of the only previous Bank loan to Liberia as of April 30, 1969: Loan or Amount (US$ million) Credit ino. Year Borrower Purpose Bank Undisbursed 368 LBR 1964 Republic of Road Liberia construction 4.25.10 Of which has been repaid Nil Total now outstanding.25 Amount sold:.30 Total now held by Bank 3.95 5. The Government's requests for a loan for power and another to the Liberian Bank for Industrial Development and Investment are under consideration.
- 3 - PART II - DESCRIPTION OF TH-E PROPOSED LOAN 6. BORROWER: Republic of Liberia BENEFICIARY: AMOUNT: PURPOSE: AMORTIZATION: INTEREST RATE: COIMfITMENT CHARGE: NIational Port Authority Equivalent in various currencies of US$3.6 million. To finance the foreign exchange cost of dredging the Port of Zlonrovia; purchase of port equipment; and consultants' services. In 15 years including a 2-12 year grace period through semiannual installments beginning on December 15, 1971 and ending June 15, 1984. Six and one-half per cent per annum. Three-quarters of one per cent per annum. PART III - THE PROJECT 7. An Appraisal Report entitled "The Port of Monrovia Dredging Project" (PTR-5a) is attached. 3. The project provides for dredging an area near the iron ore loading piers in the Port of M1onrovia up to a depth of 45 feet to enable larger size ore carriers of up to about 90,000 DWT to enter the harbor, compared with a maximum of 45,000 DWT size the port can handle at present. It would also provide for two 1,250 horsepower tugs, a pilot launch, additional buoying and lighting for the clhannels, management assistance and engineering consultants'services. Feasibility studies for improving the road approaches to the port are included. 9. The project is estimated to cost US$4.2 million equivalent, and the proposed loan would cover its foreign component. The loan would be made to the Government which would relend US$3.385 million to NPA on the same terms. The balance would be retained by the Government for the feasibility studies of the approach roads.
10. The Port of Monrovia is at present managed by the Monrovia Port Management Company (MPMC) under a contract with the Government. MPMC, a foreign corporation, has provided efficient day-to-day management of the port; however, under the contract with the Government, it has also been performing certain functions of a port authority including pilotage and control of shipping within port limits. The Government considers that it may not be desirable to allow a foreign-owned management company to continue to exercise these powers. Therefore, legislation was enacted setting up a National Port Authority which commenced functioning in November 1968. The Government has assigned to NPA its rights and obligations under the Monrovia Port Management Contract, thereby enabling NPA to exercise the control over Monrovia Port hitherto exercised by the Government. It is the Government's intention that NPA should eventually function as a port authority for all the ports of Liberia and exercise the functions normally exercised by such port authorities. In pursuance of this, the Government has entered into an agreement with MPMC providing for the termination of the Monrovia Port Management Contract on or before June 30, 1970. After such termination NPA will assume all the functions and powers of a port authority in respect of the Port of Monrovia. It has also been agreed that prior to December 31, 1969 EPA will enter into arrangements satisfactory to the Bank with MPMC or some other firm providing for day-to-day management of the NPA ports to take effect on termination of the Monrovia Port Management Contract. I1. The Government also recognizes that NPA should have sufficient administrative and financial autonomy to enable it to function effectively. It would take all steps, including the introduction of legislation to the extent necessary to ensure this. NPA will need to be strengthened by establishing and filling kep positions and setting up a suitable organizational structure. Agreement on these measures was reached during negotiations, as well as on the principle that NPA should soon earn a return of five per cent for the year 1971, and of seven per cent for the year 1972 and thereafter, on the value of net fixed assets in operation at the Port of Monrovia. 12. The harbor dues paid by the iron ore mining companies have been limited by concession or lease agreements and are inadequate to cover the cost of the service. However, the Government and NPA have undertaken to institute by May 31, 1970 a revised and comprehensive system of tariffs and charges for services and facilities at the Port of Monrovia which shall be reasonably related to the cost of providing such services and facilities. As an interim measure, an understanding has been reached during negotiations between the Government and the mining companies that the schedule of port dues for the ore carriers would be revised to ensure sufficient revenues to cover the cost of providing them safe anchorage including the cost of dredging. NPA has given effect to this understanding by revising its schedule of port dues on ore carriers, effective from December 1, 1969, by which time dredging is expected to be completed.
13. Agreement has been reached during negotiations that NPA would prepare future port development plans and decide on its investment programs in consultation with the Bank. The Government will relieve NPA of any responsibility for financing port developments not included in programs agreed upon by the Bank, the Government and NPA. 14. The project is well conceived and is technically and financially sound. The economic rate of return is estimated at 28 per cent. The project would result in modernizing the Port of Monrovia and would help to maintain and improve the competitive position of Liberian ore in the export markets. It would accelerate the process of establishing NPA as a viable public authority and would be instrumental in introducing a tariff structure reasonably related to costs. 15. In view of its commitment to dredge the port to a substantial depth by April 1969 and in the light of the situation referred to in paragraphs 2 and 3, the Government entered into the contract for dredging in lnovember 1968 after international competitive bidding, and work began in February 1969. The draft Loan Agreement accordingly provides for retroactive financing of expenditures on dredging made after February 1, 1969; the amount eligible for reimbursement is estimated to be US$400,000 as of May 31, 1969. PART IV - LEGAL I1ISTRUMENTS AiC AUTHORITY 16. The draft Loan Agreement between the Republic of Liberia and the Bank, the draft Project Agreement between the Bank and the National Port Authority, the Report of the Committee provided for in Article III, Section 4(iii), of the Articles of Agreement and the text of a Resolution approving the proposed Loan are being distributed to the Executive Directors separately. 17. The draft Loan Agreement and draft Project Agreement substantially follow the pattern of loan and project agreements for port projects. The following provisions are of particular interest: (a) (b) Liberia will take action satisfactory to the Bank to ensure that the National Port Authority has the requisite powers, management, resources, capital structure and financial policies for the efficient execution of its responsibilities (see paragraph 11 above and Section 5.11 of the draft Loan Agreement); and Liberia will take all necessary action to ensure that no Government department or agency enjoys any exemptions from port tariffs and charges (see Section 5.10 of the draft Loan Agreement).
- 6 - PART V - THE ECONOMY 18. A report entitled "The Current Economic Situation and Prospects of Liberia" (AW-5a) has been circulated to the Executive Directors on June 2. The economy of Liberia has continued its rapid growth during the 19 6 0's, mainly due to strongly expanded iron ore and rubber production. During 1960-1967 GDP increased by about 6 per cent a year. Per capita GDP in 1967 is estimated at US$218 but income distribution is very uneven. Outside the small modern sector per capita incomes are extremely low. The iron ore mines, and, to a lesser extent, the foreign rubber plantations are self-contained enclaves which have exerted relatively little impact on the rest of the economy. There has been a certain expansion of infrastructure facilities and of education but traditional agriculture, in which over 70 per cent of the economically active population is engaged, has remained virtually stagnant. 19. In recent years government attention has been mainly directed to the implementation of a stabilization program with financial and technical assistance from the 2TIF. During the years 1958-1962 the Government had incurred large foreign debts and when iron ore and rubber prices dropped below what had seemed to be reasonable expectations, a difficult fiscal situation arose. Agreement was reached with principal creditors on a rescheduling of repayments due during 1963-1968 and the Government started its efforts to restore fiscal balance. By and large, these efforts have been successful. Revenue has increased considerably and a small but growing surplus is being realized. However in order to avoid a peak in debt servicing obligations in the next several years, the Government recently negotiated a new rescheduling agreement regarding repayments due during 1969-1971. Notwithstanding this agreement, debt servicing payments will continue to make heavy demands on fiscal resources, claiming approximately 22 per cent of forecast public revenues during 1969-1975. After 1975 however service on existing debt will decline rapidly in importance. 20. GDP growth in the next several years will be slower than in the past two decades, mainly because the rapid expansion of iron ore production has, at least for the time being, come to an end. Rubber production will continue to grow rapidly in the next four or five years as new and replanted acreage reaches maturity but will then slow down considerably. The stage has not yet been set for accelerated growth of the rest of the agricultural sector with the exception of forestry and perhaps a few other products. However, the Government has recently started preparations for increased action in the field of agriculture. Overall growth of GDP in real terms, taking into account the prospects for iron ore and rubber prices, leads to the expectation of GDP growth at a rate of 4.5 per cent a year during 1967-1975 and growth of export earnings of about 5 per cent a year.
- 7-21. In the longer run Liberia should be able, in view of its agricultural and mineral resources, to achieve a considerably increased production level. Owing to the still difficult financial situation of the public sector, it is desirable that part of external financial assistance continues to be provided on concessional terms. However, the Government should be able to achieve further increases in public savings which should make a growing contribution towards the financing of development expenditures while allowing at the same time the amortization of a modest amount of new debt to be incurred on conventional terms. PART VI - COMVIPLIANCE WITH ARTICLES OF AGREEIIENT 22. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - IECIKENDATION 23. I recommend that the Ececutive Directors approve the proposed loan. Attachment Washington, D.C. June 5, 1969 Robert S. * Mc amara President