Report No. 947a-EC

Ecuador: Appraisal of a FILE COPYSecond Guayaquil Port ProjectApril 20, 1976

Latin America and Caribbean Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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Currency Equivalents

Currency Unit - Ecuadorean Sucre (S)US$1 - 25 Ecuadorean SucresUs$.o4 - 1 Ecuadorean Sucre

Fiscal Year

January 1 to December 31

Weights and Measures

Metric British/US

1 kilometer (km) - 0.62 mile (mi)1 meter (m) - 3.28 feet (ft)1 hectare (ha) - 2.47 acres (ac)1 metric ton - 29205 lb

Abbreviations and Acronyms

DIMERC - Directorate of Merchant MarineDIRDEM - General Directorate of Maritime

DevelopmentDWT - Deadweight tonsENFE - Empresa Nacional de Ferrocarriles

del EstadoFONADE - Fondo Nacional de DesarrolloGPA - Guayaquil Port AuthorityJUNTAPIAN - Junta Nacional de Planificaci6nLIBOR - London Inter-Bank Offer RateSICAP - Servicio Ecuatoriano de Capacitacion

Profesional

FOR OFFICIAL USE ONLY

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

TABLE OF CONTENTS

Page No.

SuMMKARY AND CONCLUSIONS ............................ i-ii

1. INTRODUCTION ............................. 1..........

2. THE TRANSPORT SECTOR ............................... 2

A. General ................ ....................... 2B. The Transport Modes ...... ................ 2C. Transport Policy, Planning and Coordination ... 4

3. PORT ORGANIZATION, FACILITIES AND OPERATIONS ....... 4

A. Organization..... 4B. The Guayaquil Port Authority . .6

C. Port Facilities . .7

D. Engineering and Maintenance . . 7E. Operations. . 8

4. THE PROJECT ............... 11

A. Objectives .... 11B. Description .... 11

C. Cost Estimates .... 13D. Project Execution ... .13

E. Project Financing . . .14F. Procurement ... 15G. Disbursements .... . . ....................... 15H. Ecology .... 15

5. ECONOMIC EVALUATION .. 15

A. General ..................... 15B. Traffic Forecasts . .16C. Economic Analysis .17

This Appraisal Report has been prepared by Messrs. Jones and Aguirre (financialanalysts/economists), Veniard (economist), Vinekar (engineer), Mosse (financialanalyst), and Scheiner (engineer/consultant) and has been edited by Miss Foster.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABLE OF CONTENTS (Cont'd)

Page No.

6. FINANCES ............. , .................... 19

A. Accounting, Audit, Budgets and Insurance 19B. Past Finances .20C. Tariffs .20

D. Future Finances ... 21

7. AGREEMENTS REACHED AND RECOMMENDATION . .23

TABLES

1. Cost Estimates2. Estimated Schedule of Disbursement3. Results of Economic Evaluation4. Balance Sheets as of 12/31 - 1972/19305. Guayaquil Port Authority Income Statements - 1972-19806. Cash Flow Forecast 1975-1980

AINNEXES

1. Organization Chart - Guayaquil Port Authority2. Existing Facilities3. Potential for Cargo Unitization in Ecuador4. Technical Assistance Prcgram5. Project Description6. Transit Shed and Open Storage Area Requirements7. Project Execution Schedule8. Traffic Forecast9. Economic Analysis10. Tariffs11. GPA Financial Forecasts

vAP S

IBRD 11413R Transport NetwiorkIBRD 11709 General Port LayoutIBRD 11710 1972 Highway Traffic Flow

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

SUMMARY AND CONCLUSIONS

i. Guayaquil is Ecuador's leading general cargo port; in 1974, ithandled some 80% of Ecuador's general cargo imports and exports, excludingbananas. Traffic at Guayaquil has grown rapidly since 1972 in responseto the country's recently accelerated rate of economic growth. In view ofthe continuing trend of traffic growth, the failure to provide additionalport facilities at Guayaquil, the country's major port and principal com-mercial and industrial center, could act as a bottleneck to the country'sdevelopment. The proposed project for Guayaquil port is therefore of highpriority.

ii. The project consists of the required dredging and constructionof three deepwater berths for general cargo and containers, three transitsheds, a container shed and workshop and maintenance facilities; the construc-tion of a bulk terminal comprising a bulk pier, mechanized loading and unload-ing facilities and storage for sugar, wheat, molasses and edible oil; theprocurement of cargo-handling equipment; consultant services for constructionsupervision and technical assistance to improve port operations, to set up aprogram for training port workers and to manage the bulk terminal for the firsttwo years of operation. The estimated cost of the project is US$83.6 million,of which US$56.7 million is the estimated foreign exchange component. Theproposed Bank loan would finance US$33.5 million of the foreign cost, andthe financing of the balance will be provided by the Government of Ecuadorand the Guayaquil Port Authority (GPA). Retroactive financing of foreignexpenditure up to US$180,000, incurred on engineering services after January 1,1976, would be provided in the Bank loan.

iii. In 1958, the Government established GPA in connection with the proj-ect for construction of the existing facilities at Guayaquil, which were fi-nanced in part by Bank Loan 212-EC. GPA was autonomous and functioned welluntil 1968-1969, when it encountered financial problems as a result of a largeincrease in expenses (principally personnel costs). Subsequently, the Govern-ment decided to reorganize port administration in Ecuador, and, in 1970, itestablished a rather hierarchical port organizational structure. GPA's auto-nomy was reduced, and it has been unable to recruit qualified staff, which hashad a serious adverse effect on its management and operational efficiency.Moreover, decision-making has been slowed by the multi-tiered administrativesystem.

iv. A program of proposed changes to improve the institutional organiza-tion of the ports subsector was discussed with the Government. Legislationhas been enacted which will restore an appropriate degree of autonomy to GPA.

v. GPA lacks experienced management Personnel. Ship discharge andloading operations are not properly planned, labor gangs and equipment are

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not assigned, and shed and open storage areas are not utilized systematically.Low cargo storage charges and complicated, time-consuming cargo clearanceprocedures caused serious congestion of the transit sheds, warehouses andopen storage areas; this, in turn, hindered cargo-handling operations andincreased ship delays. Earlier in 1975, three of the principal shipping con-ferences imposed surcharges on import cargo. Additionally, the cost to theeconomy of the cargo remaining in the port was high, and the long delays inclearing cargo from the port greatly increased losses from damage and pilferage.A program of urgent measures to reduce cargo congestion and increase portoperating efficiency was sent to the Government and to GPA in July. A Bankmission to review progress in reducing congestion visited Guayaquil inNovember and found that sufficient progress (including the elimination of twoshipping conference surcharges and :he expected elimination of the other one)had been achieved. Further measures to assure additional operating improve-ments and to permit the retention of qualified staff to manage the port andcarry out the project were agreed during negotiations.

vi. Port traffic in Guayaquil port is expected to increase from 1.8million tons to about 3.3 million tons between 1974 and 1985, including asignificant increase in container traffic. The proposed project would providecapacity for general cargo traffic until about 1985. It would also providefor bulk cargo (principally grain imports and sugar and molasses exports),which is presently handled at private river installations where draftlimitations restrict the size of ships in which these commodities are trans-ported. The new bulk pier included in the project will accommodate ships ofup to 30,000 dwt with consequent savings in transport costs.

vii. Taking into account only quantifiable direct benefits that are goingto be obtained by the Ecuadorean economy, the economic return for the bulk pieris 12%, for the three general cargo berths, 16%, and for the project as a whole,14%. Benefits that are going to be retained in the first instance by foreigninterests have been excluded from the above estimates. To the extent thatthese benefits could be recovered by Ecuador through higher charges to ship-ping, the project could increase its economic return to a maximum of 21%.

viii. The financial position of GPA is strong, and its earning perform-ance in recent years has been good. A recently approved increase in portcharges of about 20% at Guayaquil, which became effective January 1, 1976,will enable GPA to finance the local project costs, estimated to be aboutUS$26.9 million equivalent. The foreign exchange component of the project(estimated to be US$56.7 million) would be financed partly by the proposedBank loan of US$33.5 million, partly by the Government (US$20.0 million) andthe balance by GPA's internal cash generation. The Government and GPA arenegotiating with a private bank for aL US$10 million loan, and, if these nego-tiations are satisfactorily completed, the Government's contribution would bereduced to US$10 million.

ix. The project would provide a suitable basis for a Bank loan of US$33.5million for 24 years, including a grace period of four years.

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

1. INTRODUCTION

1.01 The Republic of Ecuador has requested the Bank to assist theGuayaquil Port Authority (GPA) in financing the expansion of its portfacilities. The existing port facilities were completed in 1963 and werepartially financed by Bank Loan 212-EC; the port has operated successfullysince its inauguration. The existing facilities have reached saturation,and additional berths must be constructed to handle forecast traffic. Afeasibility study for the expansion project was completed in August 1974 forGPA by its consultants, Messrs. Palmer and Baker (USA). A supplementaryreport, containing certain revisions, was prepared in January 1975.

1.02 The scope of the project, as presented in the supplementary report,was substantially increased beyond that discussed with a Bank preappraisalmission in October 1974; it included three multipurpose berths (with anoption for a fourth), three general cargo berths, a bulk terminal comprisingstorage facilities and two bulk piers, equipment and consultant services. Thesupplementary report provided no justification for the enlarged project, and,during the appraisal mission, agreement was reached among GPA, its consultantsand the mission to reduce the project scope to include three berths (with anoption for a fourth) for general cargo, containers and bananas; a bulk cargoterminal with one bulk pier; equipment and consultant services. This decisionis supported by the economic analysis of project size (paras. 5.15 and 5.16).The estimated project cost is US$83.6 million equivalent with a foreign ex-change component of US$56.7 million.

1.03 The proposed loan of US$33.5 million would finance 59% of theforeign exchange cost estimated at US$56.7 million. The balance would befinanced partly by loans from the Government (US$20 million) and partly byGPA's own resources. The Government and GPA are negotiating with a privatebank for a US$10 million loan, and,if these negotiations are satisfactorilycompleted, the Government's contribution would be reduced to US$10 million.

1.04 To date, the Bank has made five loans and one credit to Ecuadorin the transportation sector: one for ports in 1958; three loans and onecredit for highways in 1954, 1957 and 1964 (in a consortium lending withUSAID and IDB); and one for railways in 1957. The Bank's experience onthese loans has been mixed; while the port project and the first two highwayprojects were efficiently implemented, the loan for the railways was cancelled,and, in the case of the consortium project, although the complexity of a four-agency participation led to some initial delays, progress improved, and theproject was generally satisfactory.

1.05 This report is based on the consultants' reports (para 1.01) and thefindings of a preappraisal mission by Mr. J. Veniard (economist) in March 1975,an appraisal mission composed of Messrs. H. A. Jones (financial analyst/econo-mist), U. Aguirre (financial analyst/economist) and R. Y. Scheiner (engineer/

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consultant) in May 1975, and an appraisal updating mission composed ofMessrs. Jones, Veniard, Vinekar (engineer), Mosse (financial analyst), andScheiner in November 1975. The report has been edited by Miss V. Foster.

2. THE TRANSPORT SECTOR

A. General

22.01 Ecuador has an area of 271,000 km . Its geographical configurationhas been a determining factor in the location of its population and economicactivities, as well as in the development of its transport network (Map IBRD11413R). Two principal mountain chains, the western and eastern ranges of theAndes, run from north to south and divide the country into three natural anddistinct regions: the coastal region (Costa), the mountain region (Sierra)and the Amazon region (Oriente). Transport among these three regions isdifficult, particularly access to the Oriente.

2.02 The principal land transport flows (Map IBRD 11710) are to be found(a) in the two corridors which extend from the Colombian border in the northto the Peruvian border in the south - one following the Central Valley of theAndean chains and servicing the capital, Quito, and the other following theCosta, from Esmeraldas, the chief port in the north, through Guayaquil, thecountry's major port, to Puerto Bolivar in the south; (b) in the most importantcorridor of the country, between Quito and Guayaquil; (c) between the Orienteregion and Esmeraldas - mainly crude oil transported by pipeline; and (d) inthe environs of the major urban areas.

B. The Transport Modes

(i) Highways

2.03 The highway network increased by 50% between 1963 and 1973,reaching 22,000 km, and the percentage of paved roads increased significantly,especially in the last three years. In spite of the expansion and improve-ments, the condition of the main netwqork is not adequate for the existingtraffic.

2.04 Approximately 80% of the freight, and most of the passengers, inEcuador are transported by road. The vehicle fleet more than doubledbetween 1966 and 1973, reaching above 90,000 vehicles, more than 62% ofwhich are registered in the provinces of Guayas and Pichincha (Guayaquiland Quito).

(ii) Pipelines

2.05 A pipeline for refined petroleum products extends from Duran, closeto Guayaquil, to Quito (358 km), and a crude oil pipeline extends from LagoAgrio, in the Oriente, to the Port of Balao, in Esmeraldas (503 km). Smaller

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feeder lines connect these pipelines to the oilfields, such as the Lago Agrioto Shushufindi (16 km) and to Sacha (52 km).

(iii) Aviation

2.06 Thirteen airports are served by scheduled services; two of theseairports - Quito and Guayaquil - are also served by international carriers.

(iv) Railroads

2.07 The Empresa Nacional de Ferrocarriles del Estado (ENFE), thenational railway, operates 971 km of track consisting of three lines: theGuayaquil (Duran)-Quito line (452 km); the Sibambe-Cuenca branch (146 km);and the Quito-San Lorenzo line (373 km). Railway traffic has been steadilydeclining due to highway competition and deterioration of service; freighttraffic declined from 82 million to 62 million ton-km between 1966 and 1973and from 77 million to 69 million pass-km.

(v) Ports

2.08 Ecuador's ports handle 98% of its external trade. Port traffic(excluding petroleum products) increased from 2.15 million tons in 1969to 2.94 million tons in 1974, as shown for the four major ports below:

(Thousand tons)Guayaquil Manta Puerto Bolivar Esmeraldas Total

Exports 802 61 683 172 1,718

Imports 994 171 59 2 1,226

1,796 232 742 174 2,944

2.09 Guayaquil has five deepwater alongside berths and private wharvesand river moorings on the Guayas river; Manta has four berths for ocean-going ships; and Puerto Bolivar has a two-berth finger pier (an additionaltwo berths are currently under construction). Esmeraldas, where new facili-ties for ocean-going vessels are being built, is at present operated mainlyas a lighterage port. There are also two minor ports, San Lorenzo and Bahiade Caraquez, with limited facilities and negligible traffic.

2.10 The other important port facilities are two oil terminals: oneat Balao, near Esmeraldas, which is the export terminal for crude oil fromthe Oriente oil fields; and one at La Libertad, which receives crude oilfor the two refineries on the Santa Elena peninsula (near Salinas) andsome export products. There are also fishing ports at Manta and Posorjacapable of handling ocean-going trawlers.

C. Transport Policy, Planning and Coordination

2.11 Five ministries and the National Planning Board (JUNTAPLAN) currentlyshare authority in matters of transiport policy in the country, with the addi-tional intervention of provincial governments at the local level. AlthoughJUNTAPLAN attempted the formulation of national policies (for its NationalDevelopment Plan of 1973-1977), the effective policy-making has remained forthe most part a prerogative of the -- often competing -- agencies indicated,which carried out their policies separately with little or no control andcoordination by JUNTAPLAN.

2.12 With regard to planning, :Ln 1974, the Bank carried out a survey ofthe transportation sector. A number of deficiencies were identified duringthe study. For example, no one Government agency is responsible for overallplanning in the transport sector; sectoral statistics are not collected, pro-cessed or retrieved centrally; there is no coherent pricing policy for thesector as a whole, which leads to an extremely variable performance in theindividual modes; the preparation of transportation projects at the planningstage and at the level of pre-investment studies is slow, and the quality ofthe results is generally not good enough to meet the standards necessary toattract external financing; and the essential issues of intermodal planningfor meeting the long-term demand for transport are not being adequatelyaddressed.

2.13 Since the deficiencies more directly and immediately affect landtransport, this matter was discussed during the negotiations for the fourthhighway project in December 1975. It was agreed, as a condition of the loanfor that project, that an appropriate and adequately staffed agency would beset up for land transport planning and coordination within one year afterthe date of the loan agreement and that an appropriate unit for transportsector planning and coordinating all modes of transport with such organiza-tion would be established not later than two years after the date of theloan agreement.

3. PORT ORGANIZATION, FACILITIES AND OPERATIONS

A. Organization

(i) Background

3.01 In 1958, the Government established the Guayaquil Port Authority(GPA) in connection with the project for the construction of the existing portfacilities at Guayaquil, which were financed in part by Bank Loan 212-EC.The Port Authority was autonomous, with powers to fix and collect portcharges; to control ship movements, navigational aids and port maintenance;and to appoint and dismiss members of its staff and fix salaries. Its boardof directors consisted of a chairman appointed by the President of theRepublic, three representatives of the Government and three representativesof business and local interests. Day-to-day operations were in the hands ofa General Manager.

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3.02 This administrative organization worked well for a number of years.However, GPA encountered financial problems in 1968-1969 as a result of a60% increase in expenses (principally personnel costs). Subsequently, theGovernment decided to reorganize port administration in Ecuador. In 1970,a new law was passed, establishing a complex and rather hierarchicalorganizational structure with four levels:

Ministry of DefenseNational Ports CouncilDirectorate of Merchant Marine (DIMERC)National Ports Department

Another organization, the General Directorate of Maritime Development (DIRDEK),was established in 1973 and put in charge of maritime development activities.

3.03 The National Ports Council consists of the Minister of Defense asChairman; four representatives of the Navy (one non-voting); a representativeof JUNTAPLAN; and one representative of each of the following four Ministries:Foreign Relations; Finance; Public Works; and Industries, Commerce andIntegration. The Council establishes national port policy, approves porttariffs, decides on the establishment of new ports, approves the contractingof port studies and approves the budgets of the various port authorities.

3.04 In the existing port organization, DIMERC carries out the portpolicy established by the National Ports Council. Its principal powersare to:

(a) make recommendations to the Ministry of Defense concerningprivate ports;

(b) approve regulations covering the provision of port services,organizational manuals, personnel lists and internal by-lawsof the port authorities;

(c) study improvements in organizational, administrative andoperational systems in the ports and require the PortAuthorities to carry out the recommendations; and

(d) approve all port construction projects and any expenditureover 5% of a port's annual budget (despite their previousreview of the Port Authority budgets).

The National Ports Department is the technical arm of DIMERC.

3.05 The autonomy of GPA was correspondingly weakened. I/ The number ofrepresentatives of port users on GPA's Board was reduced from three to one,and GPA's authority over the financial matters affecting it (tariffs, pay

1/ There are separate Port Authorities operating the ports of Bolivar,Esmeraldas and Manta.

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levels, budget expenditures) was considerably reduced. As a result, GPA hasbeen unable to recruit qualified staff, which has had serious adverse effectson its management and operational efficiency. GPA has reacted slowly to itsrecent problems created by rapid traffic growth (congestion, increased cargodamage and pilferage). Decision-making has generally been slowed by the redtape resulting from the multi-tiered administrative system.

3.06 DIMERC has been trying to improve port operations and to reduceport congestion, but its staff does not have long-term experience in themanagement of port operations. On the other hand, GPA's management has notbeen given an active part in these efforts.

(ii) Recent Improvement

3.07 During appraisal, the above deficiencies in port administrationwere discussed with the Government and the Government enacted new port legis-lation which will (a) eliminate two Levels (the Ministry of Defense and theNational Ports Department) from the organizational structure; (b) limit DIMERC'spowers regarding improvements in organizational, administrative and operationalsystems to their study only (formerly, the Port Authorities were required tocarry out the recommendations of such studies); (c) eliminate the requirementthat DIMERC approve all expenditures over 5% of a port's annual budget; (d)increase the number of user representatives on GPA's Board from one to two;(e) spell out the qualifications of CPA's General Manager and (f) restore tothe Port Authorities the power to enatct certain operating regulations and toconduct studies for the improvement cif their operations.

3.08 This legislation provides an acceptable institutional frameworkupon which an efficient port administration could be built in Guayaquil.

B. The Guayaquil Port Authority (GP A)

3.09 As a result of the changes made since July, GPA now has a Board ofseven Directors: a member appointed by the President of the Republic from alist proposed by the National Ports Council; the Port Captain; a member desig-nated by the Minister of Finance; a member designated by the Minister ofIndustry and Commerce; a member designated by the Minister of Public Worksand two members representing port users. A General Manager, selected by theNational Ports Council, is responsible for day-to-day operations. GPA's or-ganizational structure (Annex 1), which consists of four departments (Opera-tions, Engineering and Maintenance, Finance and Administration) is basicallysound; however, the limitations on its ability to pay salaries which wouldenable it to recruit and retain qualified staff have lowered the quality ofits management and its capacity to deal with the recent problems created byrapid traffic growth. During negotiations, assurances were obtained from theGovernment that it will take all action as required to enable GPA to estab-lish salaries and fringe benefits consistent with GPA's need to employ quali-fied staff for top and middle management posts.

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C. Port Facilities

(i) GPA

3.10 From the time of the Spanish conquest, Ecuador's only commercialport of any importance was the port of Guayaquil, situated some 80 km fromthe sea on the Guayas River. Because of increasing ship sizes and drafts,new facilities (the Puerto Maritimo) were constructed in 1963 on the EsteroSalado estuary, some 4 km south of the City of Guayaquil. The port's presentlocation, although still 77 km from the sea, eliminates maneuvering difficul-ties and enables ships with lengths of 175 m and drafts of 9.25 m to use theport at MLW. The tidal range varies from 2.8 m to 4 m. There are no sig-nificant wind or current problems.

3.11 The Puerto Maritimo facilities (Annex 2) were completed in early1963 at a total cost of US$20.0 million, financed partially by Bank Loan212-EC. The port consists of five marginal berths, each 185 m long with analongside depth of 9.25 m at MLW. The wharves are of concrete constructionsupported by pre-stressed concrete piles. All berths have transit sheds,but their 12 m wide aprons are now found to be too narrow for efficient portoperations, principally because of changing ship and cargo-handling technology.One berth serves as a banana-loading and heavy lift berth-a fixed 75-ton der-rick crane is mounted tbere. The port's present u2able storage area, in5 ludingtransit sheds (32,000 m ) and warehouses (15,000 m ), is about 120,000 m . Theexisting facilities are generally in good condition.

(ii) Private Wharves and River Moorings

3.12 Some 70 private wharves and river moorings are in use on the GuayasRiver and in the estuaries surrounding Guayaquil; the more important aretwo terminals for the import of grains and separate piers for fertilizer,paper, sugar and petroleum, including the terminal at Duran, which is thebeginning of the product pipeline to Quito. Vessel sizes serving these termi-nals are restricted by the draft limitations of the Guayas River (7 m at MLW).

D. Engineering and Maintenance (GPA)

3.13 Responsibility for general maintenance, including dredging, isvested in GPA's Engineering and Maintenance Department, which has divisionsfor planning, hydrography, maintenance and dredging (Annex 1). The level ofmaintenance of the civil structures is generally satisfactory, with the excep-tion of the fender piles, which need substantial repairs. The Engineeringand Maintenance Department has performed no major marine construction for thepast 12 years and, therefore, could fulfill only secondary functions duringthe execution of the project. Most of the construction supervision will bedone by consulting engineers, whose contract includes training of GPA staffon the construction site.

3.14 Maintenance of cargo-handling equipment (Annex 2) is very poor.The advanced age of most of the equipment, in addition to the lack of spareparts, reduces the average equipment availability to some 60-65X. Port

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operating systems must be reviewed in order to improve port operating effi-ciency. During negotiations, GPA agreed to employ port operations expertsby the end of 1976 for advising port management on day-to-day operations andfor on-the-job training of staff in the Operating Department. Although theservices of these experts will be financed by the United Nations technicalassistance program, GPA agreed that the qualifications and experience of theseexperts and their terms of reference shall be satisfactory to the Bank. Theabove measures, together with the proposed establishment of a training programfor port laborers, stevedores and equipment operators (para. 4.09), shouldalso improve equipment availability.

3.15 The port owns a second-hand, 600 m3 hopper suction dredger acquiredfrom Italy in 1973. It is capable of dredging to a depth of 13.8 m and hasbeen successfully maintaining the access channel to the Puerto Maritimo at9.25 m at MLW. The port's floating craft work efficiently in spite of theirage.

E. Operations

(i) General

3.16 The lack of adequate management staff is especially pronounced inthe Operations Department of GPA. Proper planning of ship loading and dis-charge operations and of gang and equipment assignments is not carried out,and, until recently, the utilization of shed and open storage areas was notorganized in any systematic way. Moreover, until mid-1975, when emergencymeasures were instituted, efficient cargo handling was made very difficultby the serious congestion of the transit sheds, warehouses and open storageareas. This congestion was caused by low cargo storage charges and compli-cated and time-consuming cargo clearance procedures, imposed principally bythe customs authority and by the banks which finance imports; these banksare regulated by the Central Bank of Ecuador. Cargo remaining in the portreached an estimated 80,000 tons, anci the long delays in clearing cargo fromthe port greatly increased losses from damage and pilferage, estimated at5-10% of the value of imports. Moreover, the cargo congestion, together withrapid traffic growth, increased ship waiting time to the point where three ofthe principal shipping conferences had already, in early 1975, imposed sur-charges of up to US$6 a ton on import: cargo, and optional surcharges of US$3a ton on export cargo. Although two of the conferences have since withdrawnthem, the threat of imposition of surcharges is always present.

3.17 Between June and the beginning of November 1975, GPA and the Govern-ment took a number of measures to recluce the congestion in Guayaquil port, in-cluding, inter alia, increasing storage rates, extending the customs guaranteesystem, streamlining some customs procedures and providing additional storageareas.

3.18 The above measures resulted in a reduction in cargo clearance timefrom 45 days to an estimated 18 days, the removal of two shipping conferences'surcharges and the expected removal cf the third, and a significant reductionin carRo congestion in the port. During negotiations, it was agreed that the

following measures will be taken in order to further improve port operatingefficiency and to prevent and reduce congestion at the Port of Guayaquil inthe future:

(a) The Government will maintain the system of customs guarantee,whereby, whenever the port becomes congested, goods may beremoved from the port area by obtaining a bank guarantee ofpayment of the estimated customs duties to be levied thereon;

(b) The Government will take steps to simplify customs proceduresand instruct the customs authorities in Guayaquil port to makeuse of their power to auction goods remaining in the port formore than 90 days;

(c) The Government will permit GPA to further revise storage duesas follows:

(i) reduce the free storage period from ten to seven days;

(ii) charge storage tariffs on a daily basis; and

(iii) maintain rates sufficiently above commercial warehousingrates to encourage users to remove goods promptly.

(d) GPA will, by the end of 1976, engage port operations experts,as outlined in paragraph 3.14.

(ii) Cargo Handling

3.19 The port works three shifts around the clock seven days a week and360 days a year. During 1974, the port handled some 1.25 million tons overits five berths. Allowing for the fact that one berth was permanentlyoccupied by banana ships which loaded some 450,000 tons during 1974, theaverage amount of general cargo handled per berth was 200,000 tons/year.This throughput reflects the high occupancy rate of the berths during theyear (85%), which, in turn, indicates the present delays to shipping.

3.20 Handling rates for general cargo in 1974 averaged 36 weight tonsper ship working hour, or about 11 tons per gang hour based on the average3-1/4 hatches worked. In view of the principal types of cargo handled(machinery, steel, bagged cargo), these handling rates could be improved.If the measures described in paragraphs 3.24 and 3.25 are taken (greaterunitization of cargo and similar basis for compensation), cargo handlingshould improve by 15-20% by 1980.

3.21 Bananas are loaded manually from trucks at an average of about 60tons per ship working hour so that the average banana ship is loaded in 24hours. Banana loading across the wharf is supplemented at times by loadingfrom barges. However, since some 400 of the best organized and highest paidworkers are engaged in banana loading, GPA and the Government foresee serious

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labor opposition to any effort to change the existing system. For thesereasons, the establishment of mechanized banana loading is not expected inthe foreseeable future. Containerization of banana traffic is also notlikely, mainly because strong labor opposition would discourage the shippinglines from making the large investments required for refrigerated containers.

(iii) Operations of the Proposed Bulk Terminal

3.22 Most of Ecuador's bulk imports and exports are handled efficientlyby the private sector at private piers, but in relatively small ships dueto draft limitations at their installations. The Government has, for thelast few years, rejected all proposals from the private sector to expand itsfacilities. The present port project includes the construction of a bulkterminal to handle wheat, sugar, mola,sses and edible oils. The privateinterests doubt that GPA would be able to operate a bulk terminal efficientlyand fear that the Government would eventually force them to use the new bulkterminal, whatever its operating capability.

3.23 Additional facilities for bulk cargo are needed, and a multi-purpose bulk terminal is the most economical solution, provided it is operatedwith the high degree of skill and experience required for such a specializedinstallation. To assure the efficient operation of the proposed bulk terminal,the Bank and GPA discussed three possible alternatives: (a) GPA would buildand own the terminal, which would be operated initially by a team of inter-nationally recruited experts who would train CPA staff to take over operationof the terminal upon completion of their mission (para. 4.10); (b) GPA wouldbuild and own the terminal and lease it to a private company composed of theterminal's major users; or (c) a mixed economy company would be organizedto build, own and operate the terminal. GPA and the Government have decidedto adopt alternative (a). Accordingly, funds have been provided in theproposed loan for the construction of the terminal and for the requiredtechnical assistance for its efficient operation.

(iv) Unitization of Cargo (Annex 3)

3.24 The volume of prepalletized cargo arriving is still low, mostbeing palletized in the ships' holds. Some 4,500 twenty-foot containers werehandled during 1974 (up from 3,500 in 1973). Most unstuffing and containerstuffing are done in the port. Conta.Lners arrive in conventional ships asdeck load, are handled by ship's gear and are transported within the portarea by tractor trailer. A substantial amount of cargo is containerizable,and container traffic would no doubt increase if containers could be clearedby customs at inland depots, the first: of which was recently opened in Quito.The new port facilities would be constructed to support heavy deck loads andto accommodate container cranes.

(v) Labor

3.25 Stevedores are employed by the shipping companies and are paid ona cargo-output basis. Shore labor is employed by GPA and paid on a monthlybasis. This difference in the basis for compensation creates different

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incentives between stevedores and shore labor, causes friction between thetwo groups and adversely affects operating efficiency. It was thereforeagreed during negotiations that, no later than June 30, 1977, GPA wouldcarry out, with the assistance of the experts referred to in paragraphs 3.14and 3.18, a study regarding the impact of the conditions of employmentapplicable to the different categories of workers rendering services at theGuayaquil Port upon the efficiency of the operations at such Port and, afterconsultation with the Bank, would take all necessary steps to implement therecommendations of such study. In 1974, GPA's Operations Department staffnumbered some 500, which is not excessive. There are separate unions forstevedores and shore labor. There have been no strikes in recent years.

4. THE PROJECT

A. Objectives

4.01 The objectives of the project are to increase the capacity andoperational efficiency of the port of Guayaquil by:

(a) providing additional berths and facilities to relieveexisting congestion and handle forecast increases ingeneral and containerized cargo and in dry and liquidbulk cargo;

(b) strengthening the autonomy and efficiency of GPAthrough institutional changes;

(c) providing technical assistance to improve port operationsand to set up a training program for shore labor, stevedoresand equipment operators (Annex 4); and

(d) providing technical assistance to operate and manage theproposed bulk terminal for two years and to train GPAstaff to operate and maintain it thereafter.

B. Description

4.02 The project, described in more detail in Annex 5, consists of:

(a) dredging and placing of selected fill material;

(b) the construction of three deepwater berths;

(c) the construction of three transit sheds, one containerstuffing and unstuffing shed, workshops and maintenancefacilities, roads and paved areas, utilities, and minorbuildings;

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(d) the construction of one bulk terminal comprising: a bulkpier, mechanized sugar loading and pneumatic wheatunloading facilitie, and storage facilities for sugar,wheat, molasses and edible oil;

(e) the relocation of the small-boat mooring facilities;

(f) the procurement of cargo-handling and workshops andmaintenance equipment; 1/

(g) consultant services for construction supervision of(a) to (e) preceding;

(h) technical assistance for improving port operations and forsetting up a training program for shore labor, stevedoresand equipment operators; and

(i) technical assistance to manage the proposed bulkterminal for two years and to train GPA staff tooperate it thereafter.

4.03 Map IBRD 11709 shows the Layout of the new facilities. The threedeep-water berths are designed as multipurpose berths and will be able tohandle break-bulk general cargo and heavy lifts, bananas and containers.They will be able to support heavy deck loads and to accommodate containergantry cranes. The transit sheds will be well removed from the wharf face-line to provide adequate working space. The bulk terminal is multipurposeand will be handling imports and exports of both liquid and dry bulk cargoes.The project includes the construction of sufficient open storage and parkingareas (Annex 6) and an approach roac[ to the new port area, which will facil-itate traffic flows and operations in the existing port as well.

4.04 The project constitutes thIe logical extension of facilities in theport and is the least cost construction solution. The new facilities at thePuerto Maritimo could, with reasonably attainable improvements in operatingefficiency, handle forecast traffic to the mid-1980's, depending on the trendof containerization. However, because of the normal degree of uncertainty intraffic forecasts and because of the economies-of-scale in construction, theBank has agreed with GPA to include, in the contract documents, an option toconstruct a fourth berth as an extension of the three berths now planned.However, since the fourth berth is not economically justified at present(para. 5.16), agreement was reached during negotiations that construction ofthe fourth berth would not be undertaken until the completion of the works inthis project, unless its economic justification was demonstrated to the Bankand satisfactory arrangements for its financing were made.

1/ The list of specific items to be procured will be determined with theadvice of the port operations excpert and agreed between GPA and the Bankduring project execution.

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C. Cost Estimates

4.05 The total estimated cost of the project is US$83.6 million equivalent,with a foreign exchange component of US$56.7 million (68%). Imported construc-tion material used on the site is not subject to import duties--nor is construc-tion equipment--provided it is exported after completion of the works. Localcosts include a 4% sales tax on locally purchased construction materials.Detailed cost estimates are given in Table I and summarized below:

Million S/ Million US$ % ofTotal

Local Foreign Total Local Foreign Total Cost

Dredging 65.4 286.8 352.2 2.6 11.5 14.1 16.8Wharf Construction 116.7 388.2 504.9 4.7 15.5 20.2 24.1Landworks 255.0 206.5 461.5 10.2 8.3 18.5 22.1Bulk Terminal andOther Equipment 40.9 204.2 245.1 1.6 8.2 9.8 11.8

Consultant Services 61.5 41.0 102.5 2.5 1.6 4.1 5.0Technical Assistance 5.0 7.5 12.5 0.2 0.3 0.5 0.6

Sub-total 544.5 1,134.2 1,678.7 21.8 45.4 67.2 80.4

ContingenciesPhysical 23.7 52.6 76.3 0.9 2.1 3.0 3.6Price 105.5 230.5 336.0 4.2 9.2 13.4 16.0

Sub-total 129.2 283.1 412.3 5.1 11.3 16.4 19.6

Total 673.7 1,417.3 2,091.0 26.9 56.7 83.6 100.0

4.06 The bids for the main contract covering dredging, wharves, land-works, small-boat mooring and bulk terminal were opened on March 15 and arebeing reviewed by the consultants, Messrs. PalDaer and Baker (US). Untilthe analysis and evaluation of the bids is completed, GPA will not be ableto determine the winning bid; however, the cost estimates have been preparedby adopting a base consistent with the low bid and adding thereto the estimatedcosts for cargo-handling equipment, consultant services and technical assis-tance. Provision has also been made for physical contingencies at 5% and forprice contingencies amounting to about 20%.

D. Project Execution

(i) Engineering services

4.07 GPA would be responsible for the execution of the project, assistedby the consultants, Messrs. Palmer and Baker (US), who prepared the MasterPlan for the port, the detailed engineering and the tender documents, and whohave been retained by GPA for the supervision of construction works. Thisarrangement is satisfactory to the Bank. The consultants' services will

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include about 192 man-months of expatriate specialist staff at an averagecost of US$5,700 per man-month and about 348 man-months of local technicalstaff at an average cost of US$2,100 per man-month. The consultants willtrain a group of GPA engineers on site during the construction period toenable them to carry out maintenance operations. Retroactive financing isrecommended for foreign expenditure up to US$180,000 incurred for engineeringservices after January 1, 1976.

(ii) Subsoil conditions

4.08 Subsoil conditions at the Puerto Maritimo are not favorable. How-ever, the present design and construction sequence are based on the experiencegained in constructing the existing wharves when slides and damage to the super-structure occurred (Annex 5).

(iii) Technical assistance

4.09 In addition to the expert advice for reviewing port operations,whlich will be provided under a United Nations program (para. 3.14), GPA needstechnical assistance for organizing a suitable program for training portlabor, stevedores and equipment operators. For this purpose, it was agreedduring negotiations that GPA shall (a) enter into a technical assistanceagreement, satisfactory to the Bank, with the Servicio Ecuatoriano deCapacitacion Profesional (SECAP) or other suitable institution acceptable tothe Bank; (b) employ training experts whose qualifications, experience andterms and conditions of employment shall be satisfactory to the Bank; and(c) afford the Bank a reasonable opportunity to review the format and con-tents of the training program. This technical assistance program will not befinanced by the Bank loan since GPA has already received offers from theAmerican Association of Port Authorities (AAPA) and the Organization ofAmerican States (OAS) to assist in the training of its shore labor at no costto GPA.

4.10 In order to assist GPA in managing the proposed bulk terminal, 120man-months of services of technical specialists have been included in theproject at an average cost of US$4,000 per man-month. In addition to managingthe terminal for the first two years, they would train local staff to manage,operate and maintain it thereafter. The technical assistance would be phasedout during the third year, according to a program which would be agreed withthe Bank. During negotiations, it was agreed that the technical assistancewould be continued until the Bank is satisfied that the local staff isadequately trained. Bank financing for this item would prolong the disburse-ment period of the loan until 1981, but this is considered worthwhile sinceit would facilitate the hiring of qualified personnel.

E. Project Financing

4.11 The foreign exchange component, amounting to US$56.7 million, wouldbe financed partly by the proposed Bank loan of US$33.5 million, partly bythe Government (US$20 million) and the balance by GPA's internal cash genera-tion. The Government and GPA are negotiating with a private bank for a US$10

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million loan, and, if these negotiations are satisfactorily completed, theGovernment's contribution would be reduced to US$10 million. The local costcomponent would be provided by GPA from its own resources (for details, seeparagraph 6.13 and Annex 11).

F. Procurement

4.12 The main contract, comprising marine works, land works and bulkcargo-handling installations, will be awarded on the basis of internationalcompetitive bidding conducted under procedures consistent with, but involvinga slight modification of, the Bank guidelines. This permits GPA to require thesuccessful bidder to furnish a bank guarantee instead of a performance bond assecurity for the execution of the contract. This change was agreed to becausethe Law of Ecuador specified bank guarantees and precluded the right to offerperformance bonds in lieu thereof. Six bids received in response to the invita-tion sent to 17 prequalified firms were opened on March 15 and are being evalu-ated. Procurement of the cargo-handling equipment will also be made throughinternational competitive bidding.

C. Disbursements

4.13 The proposed Bank loan would be disbursed against 60% of foreignexchange expenditures. Any funds remaining upon completion of the projectwould be cancelled.

H. Ecology

4.14 The project would alter the existing embankments of the channel byreclamation of the area of the new facilities. The source of fill is materialdredged from the channel, ihich would be widened and deepened to accommodatelarger ships. The existing facilities are located on a tidal inlet some 77 kmfrom the open sea, and experience has shown that the amount of silting issmall. No large scale variations in the dredged areas and maintenance dredgingquantities are foreseen. The dredged material which cannot be used as selectedfill material would be deposited on the swampy low level mangrove areas nearthe port. The port's own dredger would carry out all maintenance dredging asrequired. The new port facilities would handle general cargo similar to thathandled at present, and the bulk terminal would handle only non-pollutingcargo, e.g., wheat, sugar, molasses and vegetable oils. No adverse effectsare therefore expected.

5. ECONOMIC EVALUATION

A. General

5.01 Guayaquil is Ecuador's leading general cargo port; in 1974, ithandled some 80% of general cargo imports and exports, excluding bananas.Traffic at the port has grown rapidly since 1972 in response to the country'srecently accelerated rate of economic growth. In view of the continuing

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trend of traffic growth, the failure to provide additional port facilities

at Guayaquil, the country's major port and principal commercial and industrialcenter, could act as a bottleneck to the country's development. The proposedproject is therefore of high priority in Ecuador's development plans.

B. Traffic Forecasts

5.02 Traffic forecasts were based on the following studies, as revisedby the Bank:

(a) Ecuador Port Development Study, Sir William Halcrow andPartners (UK), August 1974;

(b) Feasibility Study for Additional Facilities; Maritime Portof Guayaquil, Palmer and Baker (US) and Consultores Nacionales(Ecuador), August 1974, and Supplement (January 1975).

The forecasts are consistent with growth rates for imports and exportsestimated in Bank Report No. 507-EC (Current Economic Position and Prospectsof Ecuador of August 1974) as updatted by a Bank economic mission to Ecuadorin July 1975.

5.03 Guayaquil's predominance as Ecuador's main port has declined some-what in recent years since traffic, notably of bananas, shifted to other ports,especially Puerto Bolivar and Esmeraldas, as the areas of cultivation ofthe banana crop shifted to the areas of influence of these ports. During thetraffic forecast period (1975-1985), Guayaquil's share of port traffic willcontinue to decline,although at a slower pace, since the growth rate ofbanana exports, the principal factor in the shift, will be relatively low.Guayaquil's share of export traffic is expected to be 41% in 1985 as comparedto 47% in 1974; its share of imports is forecast to decline from 81% in1974 to 78% in 1985. Some additional import traffic will pass throughManta (which now has excess capacity) and through Esmeraldas, where two newberths are being constructed.

5.04 Guayaquil import traffic i3s expected to grow at 7.5% per annumin the period 1975-1985, exports at 2.5%. Traffic is forecast to growfrom 1,796,000 tons in 1974 to 3,266,000 tons in 1985. Details are givenin Annex 8.

5.05 Traffic in containers has not been significant in Guayaquil andhas not increased in the last few years. In 1974, some 30,000 tons in some4,500 containers were handled there. With expected simplification of customsprocedures, planned road improvements and the proposed open berths designedfor containers, which should increase container-handling efficiency, trafficin containers is expected to grow steadily after 1979. Based on estimatesof containerizable traffic, tonnages in containers are expected to increasefrom an estimated 60,000 tons in 1979 to 215,000 tons in 1982 and 425,000tons in 1985 (Annex 8).

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5.06 Lower transportation and handling costs at the proposed bulk terminalwill produce a redistribution of traffic from private bulk terminals and riverloading points to the new bulk pier. This will principally involve sugar andmolasses (presently loaded from barges, which will all be handled at the newbulk terminal), vegetable oils and most grain imports. Details of how thisallocation was made are spelled out in Annex 9.

C. Economic Analysis

(i) Calculation of Project Benefits

5.07 For the purpose of the economic analysis, the project was splitinto two elements, the general cargo berths and the bulk terminal pier, andeach was justified separately since each caters to a certain distinguishableshare of port traffic which is transported in different kinds of ships. Inaddition, benefits are different for each kind of traffic.

5.08 Project benefits have been calculated as the difference in directlyquantifiable port user costs with and without the project; indirect benefitswhich may be induced beyond the port sector of the economy were not quan-tifiable and have been excluded. The benefits have been calculated separatelyfor the following cost components: (a) cargo-handling costs in port; (b) costsof vessels in port; (c) costs of vessels at sea; (d) costs of lighterage; and(e) costs of traffic diversion to other ports. Cost reductions which mayaccrue to foreign ports through the use of larger bulk carrier vessels andcontainers, made possible by the project, have not been taken into account.

5.09 The berth occupancy at the port reached a high level in 1974 (para.3.19) but was combined with relatively low operational efficiency (para. 3.16).A rapid increase in average ship waiting times is therefore to be expected ifoperating efficiency is not improved. The present operating conditions, how-ever, have not been used as a basis of comparison in calculating the economicrate of return because an improvement in cargo-handling rates is expected totake place due to proposed measures (para. 3.18). The benefits have beencalculated from this improved operational base.

5.10 Benefits from constructing the general cargo berths consist ofsavings in ship turnaround time and savings from avoiding lighterage ofbananas and from diverting traffic to other ports. There would also be somesavings in the costs of handling containers (and, to a lesser extent, generalcargo) at the new berths. Based on 1974 operations at GPA wharves, shipservice and waiting time were simulated, using a computer model developedin the Bank. Operations were then simulated for a number of years, with andwithout the project, to estimate savings in ship waiting time due to theproject. In making these calculations, it was assumed that improvementswould be made (both with and without the project) in the rates of handlinggeneral cargo and bananas. See Annex 9 for details.

5.11 Benefits from constructing the bulk terminal pier consist of savingsin transport unit costs from using larger ships and savings in cargo-handlingcosts in port. Especially in the traffic of sugar and molasses, which at

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present are handled from lighters to ships in the river, savings in cargo-handling costs and in reduced ship service time will be significant.

(ii) Allocation of Project Benefits

5.12 In the calculation of the economic return (ER), only those directbenefits which are quantifiable and accruing to the Ecuadorean economy havebeen included, while benefits to other (foreign) beneficiaries have beenexcluded. This allocation has been made taking into account present trendsin the participation of Ecuador in ocean shipping (Annex 9). To the extentthat port improvement will produce additional benefits to Ecuador (para. 6.09on proposed port charge increases; para. 3.16 on surcharges), net benefits havebeen understated. Therefore, in adclition to the economic return accruing toEcuador, an analysis, including also direct benefits to foreign vessels, iscontained in the evaluation (Table 3). The actual return would lie betweenthese values (14% and 21%) and woulc depend on the degree to which new portcharges could recover benefits from foreign ships.

5.13 Cost reductions in ocean freight under Ecuadorean flag ships, orvessels chartered by Ecuadorean interests, have been fully allocated toEcuador. These represent about 55% of the total bulk freight shippingaffected by the project and nearly 50% of general cargo shipping (Annex 9).This relatively high proportion of vessels owned or chartered by Ecuador isdue to the present, almost exclusive, control by Ecuadorean vessels of bulkimports (grain, vegetable oil), the fast growing Ecuadorean Merchant Marine,and the recent Government decree (ley de Reserva de Carga) requiring that upto 50% of all import and export cargo should be carried under the Ecuadoreanflag.

5.14 Cost reductions in cargo handling in the project port have beenfully allocated to Ecuador, as well as cost reductions due to avoidance oflighterage and the elimination of traffic diversion to other ports.

(iii) Analysis of Project Size

5.15 In the analysis, it was found that the single bulk berth would soondevelop a high occupancy rate and that an additional berth would be neededin about 1985-1986, without any significant investment being needed in silos,etc. The additional berth, which is not part of the project, would providecapacity until about 1999. An analysis of the project over the period 1976-1999, including the costs of a second berth, yielded an ER of 16%.

5.16 A marginal analysis for the third and fourth general cargo berthswas made, as a result of which the proposed three-berth expansion was foundfully justified. A fourth berth however, yielded an ER of about 8% over a20-year life, but a first year return (FYR) of only 3%. An analysis of thisFYR shows that, if only three berths are built first, an additional fourthwould be justified in 1985, i.e., six years after the expected completiondate of the proposed project. A sensitivity analysis of these conclusionshas been carried out (Table 3).

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(iv) Economic Evaluation

5.17 The proposed port expansion project is well justified, with an ER ofat least 14%. The bulk terminal pier shows an ER of 12% and the three generalcargo berths, 16%, including benefits wiich are estimated to be obtained duringthe period 1979-1999. Benefits have, however, been considered as constantafter the increased capacity provided by the project is fully utilized (1992for the bulk pier, 1985 for the general cargo berths). Further, the ER givesthe return to the Ecuadorean economy because it excludes that part of thebenefits (about 35% of the total in 1980) which is assumed to be retained byforeign interests. To the extent that these benefits could be recovered byEcuador (para. 5.12), the project would increase its ER to a maximum of 21%(16% for the bulk pier, 24% for the general cargo berths, Table 3).

5.18 Sensitivity analyses have been carried out on the main parametersaffecting the economic evaluation (costs and benefits), showing that the ERwould, even under adverse assumptions, still remain at 11 to 13%, which isacceptable (Table 3).

6. FINANCES

A. Accounting, Audit, Budgets and Insurance

6.01 GPA's accounting system was set up by an international accountingfirm (Price Waterhouse), and its financial statements are prepared in acommercial manner. However, GPA needs a system of cost accounting to beestablished for management information and tariff-making purposes. GPA'soperating statistics should also be substantially improved. Therefore,during negotiations, GPA agreed, not later than December 31, 1976, with theassistance of consultants or specialists whose qualifications and terms andconditions of employment shall be satisfactory to the Bank, to implementstatistical and cost accounting systems adequate to furnish the informationneeded for tariff setting purposes. These consultants will be financed byGPA.

6.02 In 1975, GPA introduced a budget-by-programs system; budget dataare submitted in considerable detail to DIHERC and the National Ports Council.GPA's General M1anager may reallocate certain amounts among the budget cate-gories.

6.03 An international accounting firm, Deloitte Haskins and Sells, isGPA's external auditor. Existing external audit arrangements are satisfactory;however, internal audit procedures require improvements, including an adequatesystem of inventory control, as outlined by the external auditors to GPA inApril 1975. Agreement was reached during negotiations that GPA will, withthe assistance of its external auditors, establish, not later than December 31,1976, improved internal auditing procedures and a system of inventory controls.

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6.04 GPA carries adequate insurance against fire, theft and other risks,and assurances were obtained during negotiations that adequate insurance wouldbe maintained in the future.

B. Past Finances

6.05 In its 16 years of operation, GPA has had losses on its operationsin only two years, 1968 and 1969, when expenses (principally salaries andwages) were increased 60%. Since then, GPA has had a reasonable level ofearnings. Results for the years 1972, 1973 and 1974 are given in Table 5.Revenues and expenses rose rapidly in the period as traffic increased. Thefinancial rate of return on average net fixed assets was 8.8%, 13.3% and21.7%, respectively, in these years, and operating ratios 72%, 64% and 57%.Cash generated from operations has provided ample funds for debt service, andthe surpluses have either been lent, to the Government or invested in shortterm securities.

6.06 GPA's fixed assets have not been revalued since the port was com-pleted in 1963, and depreciation provisions are low. The result is thatearnings and financial rates of return are overstated. During negotiations,GPA agreed that it will contract a recognized professional firm to conducta revaluation by the end of 1976 and prepare a realistic depreciationschedule for financial and cost accounting purposes.

6.07 Balance sheets for the years ended December 31, 1972, 1973 and 1974are shown in Table 4. They indicate a strong financial position at the endof 1974 when liquid investments totaled S/ 180 million and debt was only19% of total capitalization. Moreover, the Government of Ecuador and theProvince of Guayas owed GPA some SI 35.5 and SI 12.3 million, respectively,most of which is overdue. During negotiations, it was agreed that theGovernment will repay these debts by the end of 1976 and cause the Provinceof Guayas to repay its debts to GPA not later than December 31, 1978.

C. Tariffs

6.08 GPA provides all port services except stevedoring, which is suppliedby private firms. Port charges are not cost based, and GPA provides a numberof preferential rates, especially for exports. Storage charges have been verylow historically, which has been one of the factors in the congestion ofstorage areas in the port. In mid-1975, storage charges were revised, andrates more than quadrupled.

6.09 In July 1974, GPA made a proposal for port tariff increases toDIMERC, based on a comparison between port tariffs in Guayaquil and otherwest coast ports of South America. The proposed tariff would increaserevenues by about 20%. The proposal, as revised by DIMERC, was approved inNovember 1975 by the National Ports Council, to be effective January 1, 1976.The new tariff improves, to some extent, the existing tariff structure; how-ever, further changes are envisaged prior to the inauguration of the proposedfacilities (para. 6.11). Details of the old and new tariffs are given inAnnex 10.

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D. Future Finances

6.10 Based on the traffic forecasts (Annex 8) and the allocation oftraffic among GPA and private installations outlined in Annex 9, financialforecasts were made by GPA staff and reviewed and revised by Bank staff. Theforecasts reflect the new tariff levels from January 1, 1976 as recently ap-proved (para. 6.09). A detailed list of assumptions used is given in Annex 11,and the forecasts are given in Table 5. The results are summarized as follows:

(Million of Sucres)Return

Oper- on Net DebtOperating Operating Net Interest Net ating Fixed Service

Year Revenues Expenses Revenues Cost (Net) Income Ratio Assets Coverage

1975 402 204 198 (8) 206 51 34 7.91976 419 257 162 (6) 168 61 25 5.11977 458 297 161 16 145 65 23 3.11978 494 340 154 54 100 69 22 2.11979 533 414 119 106 13 78 7 1.31980 736 486 250 75 175 66 9 2.0

6.11 The operating ratios are low and the returns on fixed assets veryhigh between 1975 and 1978 for the reason given in paragraph 6.06 (under-valuation of fixed assets). When the project facilities come into use, theseratios will be more realistic (the return on fixed assets will actually beeven lower than shown after existing port assets are revalued). More impor-tantly, debt service coverage declines to an unacceptably low level in 1979.It has, therefore, been assumed that, when the project is completed andimproved services are provided, a further increase of 25% in the level ofport charges will be made in 1980, and, thereafter, an attempt will be madeto relate the tariff structure to the cost of the services, using the datathat would be provided by the proposed costing system (para. 6.01). In addi-tion to improving GPA's debt service coverage, the tariff increase in 1980would generate funds required by GPA to finance part of its next port expan-sion expected in the mid-1980's. Therefore, it was agreed during negotiationsthat, starting in fiscal year 1980 and thereafter, GPA will achieve a rate ofreturn of at least 8% on revalued average net fixed assets.

6.12 A forecast cash flow for GPA was prepared and is given in Table 6.Results for the construction period of the project, 1976-1979, are summarizedas follows:

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MillionSource of Funds Million S/ _US$ %

Funds generated from currentoperations 771.4 30.9 32

Sale or maturity of investments (net) 280.0 11.2 12Repayment of debts by the Government 23.8 1.0 1Bank loan 830.0 33.2 35Government or private bank loan 247.5 9.9 10Government loan 250.0 10.0 10Other 0.5 - -

Total 2,403.2 96.2 100%

Application of Funds

Capital expenditures - Project 2,072.5 82.9 86Debt service (principal and interest:) 307.1 12.3 13Increase in cash 23.6 1.0 1

Total 2,403.2 96.2 100%

6.13 The above cash flow and project financing plan is based on theassumption that project foreign costs (estimated to be about US$56.2 millionplus US$0.5 million in technical assistance after 1979) are to be financedfrom the following sources: US$33.2 million (plus US$0.3 million in techni-cal assistance after 1979) by the Wcrld Bank, US$23.0 million (plus US$0.2million in technical assistance after 1979), partly by loans to GPA andpartly by GPA's internal cash generation. It has been agreed that GPA willbe provided with US$20.0 million for the project, as follows: (a) a US$10.0million loan, on terms and conditions satisfactory to the Bank, either fromthe Government or from a private bank guaranteed by the Government, as acondition of loan effectiveness; and (b) another US$10.0 million loan fromthe Government on terms not less favorable than those of the proposed WorldBank loan (Annex 11). As regards the local project costs (US$26.7 millionmillion equivalent plus US$0.2 million equivalent in technical assistanceafter 1979), GPA will be able to provide the funds from its own resources.

6.14 Forecast balance sheets for GPA are given in Table 4. They indicatethat GPA's financial position would be good throughout the forecast period.At the end of 1980, the working ratio (current assets to current liabilities)would be 4.7 and the debt/equity ratio 46/54. Both are satisfactory; however,because of the expected repayment terms of the other foreign project financing,debt service would absorb a very large share of GPA's cash flow. Duringnegotiations, it was agreed that no iurther debt would be incurred unless debtservice would be covered at least 1.5 times.

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7. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations, agreement was reached with GPA and theGovernment on the following matters:

(a) With the Government

(i) assurances that the Government will take all action toenable GPA to establish salaries and fringe benefitsconsistent with GPA's need to employ qualified stafffor top and middle management posts (para. 3.09);

(ii) maintaining of the customs guarantee system if the portbecomes congested (para. 3.18);

(iii) simplification of customs procedures and auction ofabandoned goods (para. 3.1R); and

(iv) assurances that Government obligations would be repaidin 1976 and 1978 (para. 6.07).

(b) With GPA

(i) engagement of port operations experts by end of 1976(paras. 3.14 and 3.18);

(ii) revision of storage rates (para. 3.18);

(iii) GPA to carry out a study on the impact of the conditionsof employment upon the efficiency of port operations and,after consultation with the Bank, to implement the study'srecommendations (para. 3.25);

(iv) GPA to seek approval of the Bank to undertake constructionof fourth berth (para. 4.04);

(v) technical assistance to improve port operations, establisha training program and manage the bulk terminal; continuationof the technical assistance for bulk terminal management untilthe Bank is satisfied that the staff is trained (paras. 4.09and 4.10);

(vi) new statistical and cost accounting systems to be devisedby consultants by end 1976 (para. 6.01);

(vii) improvements in internal audit system by end 1976and a system of inventory controls (para. 6.03);

(viii) maintaining of adequate insurance (para. 6.04);

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(ix) revaluation of fixed assets by end 1976 (para. 6.06);

(x) rate of return covenant (para. 6.11); and

(xi) debt service coverage (para. 6.14).

7.02 Retroactive financing is recommended for foreign expenditure up toUS$180,000 incurred for engineering services after January 1, 1976 (para. 4.07).

7.03 It would be a condition of loan effectiveness that a financing con-tract with the Government be duly signed on terms and conditions satisfactoryto the Bank (para. 6.13(a)).

7.04 The project provides a suitable basis for a Bank loan of US$33.5million equivalent for a term of 24 years, including a grace period of fouryears.

April 20, 1976

APPRALIAL OF A SZCCND oui AQUL PORT PROJECT

Cost Estimates% ofTotal

Locsl bLei TI ForeiLgn Tt- l Ctl

- - - - - (S/O 0OO0O) - - - - - )-

I. DRIDMING

Dredging including mobilization 20.30 109.38 129.68 812 4,375 5,187S9ndfill and surcharge 45.05 177.50 222.55 1,c02 7,100 8,902

Sub-total 65.35 286.88 352.23 2,614 11,475 14,089 16.8

II. CSnRuuTIoN(a) Wharf Construetion

General Cargo Bertha (3) 103.07 346.73 44 9.80 4,123 13,869 17,992Bulk eargo pier 13.42 40.53 53.95 537 1,621 2,158Srall boats moering 0.25 1.00 1.25 10 40 50

Sub-total I16.74i 388.26 505.00 4,670 15,530 20,200 24.1

(b) LandworksTransit Sheds and

Other Buildings 87.62 119.58 207.20 3,505 4,783 8,288Open storage areas and roads 126.80 24.12 150.92 5,072 965 6,037Utilities and Services 4i0.50 62.83 103.33 1.620 2.513 4.133

Sub-total 254.92 206.53 461.45 10,197 8,261 18,458 22.1

III EQUPET

(a) Bulk TerminalLoading/unloading Gentry 1.80 42.20 44-00 72 1,688 1,760Grain Silos 10.75 50.13 60.88 430 2,005 2,435Raw Sugar Storage 15.98 52.95 68.93 639 2,118 2,757Liquid Cargo Storage 6.82 26.88 33.70 273 1,075 1,348

(b) Cargo handling 5.25 29.75 35.00 210 1,190 1,400

(c) Workshop and Maintenance 0.25 2.25 2.50 10 90 zO

Sub-total III 40.85 204.16 245.01 1,634 8,166 9,800 I1.8

IT. CONSULTAXT SERVICES 61.50 41.00 102.50 2,460 1,640 4,100 5.0

V. TECHNICAL ASSISTANCE 5.00 7.50 12.50 200 300 500 0.6

Total I, II, III, nv & V 544.36 1,134.33 1,678.69 21,775 45,372 67,147

VI. CONTINGENCIES

Physical / 23.75 52.58 76.33 950 2,103 3,053 3.6Price f 105.50 230.50 336.00 4,220 9,220 13.440 16.0

Sub-total 129.25 283;08 412.33 5,170 11,323 16,493

GRAND TOTAL 673.61 1,417.41 2,091.02 26,945 56,695 83,640 100.0

V 5% on items I, II & III(a)2J Based on assumed annual percentage price increases as followse

1976 19177 1978 V279Civil Works 13 12 12 12Squipant 9 8 8 8

Source: Appraisal Updating Mission

April 1976

TAELE 2

ECUADOR

APPRAISAL OF A SECNID GUAYAQUIL PORT PROJECT

Estimated Schedule of Disbursement

(us$ 000)

Contract Awarded June 1, 1976 Disbursement (US$ 000)During the Quarter Cumulative

Year and Quarter

FE 1977 September 30, 1976 2,000 2,000December 31, 1976 2,100 4,100March 31, 1977 2,300 6,400June 30, 1977 2,300 8,700

FT 1978 September 30, 1977 2,400 11,100December 31, 1977 2,600 13,700March 31, 1978 2,600 16,300June 30, 1978 2,600 18,900

FY 197° September 30, 1978 2,400 21,300December 31, 1978 2,400 23,700March 31, 1979 2,400 26,100June 30, 1979 2,400 28,500

FY 1980 September 30, 1979 2,400 30,900December 31, 1979 2,300 33,200March 31, 1980 50 33,250June 30, 1980 50 33,300

FT 1981 September 30, 1980 50 33,350December 31, 1980 30 33,380March 31, 1981 30 33,410June 30, 1981 30 33,440

Fl 1982 September 30, 1981 30 33,470December 31, 1981 30 33,500

Total 3i 500

Source: Appraisal Updating Mission

April 1976

EaJADOR

APPRAISAL OF A SECOND GUAIAQJIL PORT PLJSET

Results of Economic Evaluation

Project Financial ,'1 Economic /2Component Cost Cost Bae ntl(0% eeisUe eeis&cu to Seuador/6

($/million) ($/million) cowq c vla tivitfl AruiLysistR5 S eo o>ala k 0t+15ffSit

Bulk Pier (1) 27.7 27.0 16 12 14 12 12 8 10 8

General Cargo Berths (3) 2.0 2 14 22 20 16 9 14 12

Total Project 69.7 68.2 21 13 19 17 14 9 13 11

Marginal Analysis:

3rd Gen Cargo berth 6.0 5.9 - 16 6 14 12

4th Gen Cargo berth 5.7 5.6 8 3 6 5

1/ DUaed on March 1976 open bids, including consultant asvices, and 5% physical contiagmcies m the Civil works.

2/ Financial costs net of taxes.

2 Basis for estimates: (J) Traffic projections as per Annex 8; (ii) costs and benefits in 1976 prices; (iii) proiect fully operational in l9bO;(iv) economic life of project, 20 years; (v) benefits include savings in cargo handling cOsts, bulk cargo ships turnaround

time, light lighterage, ship waiting time, ship service time, container handling, and traffic diversion to Manta port.

4/ ER - eorgnoic Return

FIR - First Year Return

6/ Allocation of project benefits as per paragraph 5.14, not considering recovering of benerits by futurp tariff increases.

Source: Appraisal Mission

March 2976

TABIE 4ECUADOf

APPRAAL OF . SOD GUYAQUIL POR! PROE

Ba]o. Sheetb " of 12/31

(mli. Sw.)

__---_ Actual----- ------------ Estitated----------------1972 1973 p274 1975 1976 1977 1978 1979 198

ASSETS

Current Assets

Cash 16.0 13.1 32.4 20.0 21.6 22.3 28.4 43.6 35.5Liquid investnts 113.1 148.4 179.7 305.9 395.9 275.9 25.9 25.9 165.9Accounts receivable 26.0 30.1 55.4 40.2 41.9 45.8 49.4 53.4 73.7Inventories and other 14.9 19.2 18.2 20.1 20.9 22.9 24.7 26.7 36.8

170.0 210.8 2135.7 386.2 480.3 366.9 128.4 149.6 311.9

Current Liabilities

Accounts payable 2.0 2.0 4.2 4.4 5.6 6.6 7.6 8.9 9.9Accrued epensea and other 31.5 31. 14.7 36.6 41.0 44.7 4j.5 53.0 56.9

33.5 33.4 :18.9 41.0 46.6 51.3 56.1 61.9 66.8

Net Working Capital 135.5 177.4 2146.8 345.2 433.7 315.6 72.3 87.7 245.1

Working ratio 5.1 6.3 7.3 9.4 10.3 7.2 2.3 2.4 4.7

Government debt receivable 42.4 44.4 47.8 23.8 6.3 3.3 - - -

Fixed Assets

Net fixed assets 568.8 557.9 561.9 567.6 724.5 702.3 680.6 2,700.0 2,636.3Construction in progress 2.5 33.0 50.1 180.0 232.5 832.5 1,517.5 6.9 17.5

571.3 590.9 632.0 747.6 957.0 1,534.8 2,198.1 2,706.9 2,653.8

Other assets 1.3 1.3 1.4 1.4 2.0 2.0 2.0 2.0 2.0

Total Assets 751.5 8114.0 928.0 1,118.0 1,399.0 1,855.7 2,272.4 2,796.6 2,900.9-- --- -c

LIABILITIES AND EQUITY

Long Term Debt

IBRI 204.1 18b.5 172.1 155.18 239.0 474.7 713.9 910.4 887.9Other foreign _ - - 30.0 105.8 182.8 247.5 200.0Gavernrnent 250.0 2O.

204.1 188.5 17?.1 155.8 269.0 580.5 896.7 1,407.9 1,337.9

Resferes 37.3 4.8 4.2 4.5 4.5 4.5 4.5 4.5 4.5

Equity

Capital 178.4 178.4 1713.4 178.4 178.4 178.4 178.14 178.4 178.4Retained Earnings 331.7 4.3 573.3 779.3 947.1 1.092.3 1.19Z.8 1.205.8 1,380.1

510.1 620.7 75:L.7 957.7 1,125.5 1,270,7 1,371.2 1,384.2 1,558.5

Total Capitalization 751. 814.0 92tl.0 1,118.0 1,399.0 1,855.7 2,272.4 2,796.6 2,900.9

Debt/Equity Patio 27/73 23/77 19/81 1V86 19/81 31/69 40/60 50/50 46/54

Source: Bank StaffMarch 1976

ECUADDR TABLE 5

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Guayaguil Port Authority Income Statements

Actual for Years 1972 to 1974. Estimate for 1975 and Forecast 1975 tc 1980

(Million Sucres)--------- Actual------- Eetimate -------------- Forecast------------------

1972 1973 1974 1975 1976 1977 1978 1979 1980

Operating RevenuesImport Charges 8i.6 lui.± 137.2 142.0 155.9 174.1 191.1 216.1 303.7Export charges 13.4 1s.1 .y, 13.0 18.9 19.8 20.7 21.9 28.7Ship Diues 69.7 84.0 104.3 110.0 161.1 172.2 177.4 197.2 265.0Storage 12.8 15 . 34.7 137.0 83.0 92.0 104.5 98.0 138.3

Total Revenues 177.7 213.6 290.1 402.0 418.9 458.1 493.7 533.2 735.7

Operating Expensesk'ersonnel 97.4 100.8 123.3 146.0 186.o 219.5 254.6 295.3 330.8General and Administrative 14.3 17.9 23.9 29.2 37.2 43.9 50.9 59.1 66.2Government Contributions 3.4 5.1 6.6 14.0 10.5 11.5 12.4 13.4 18.4

Working Costs 115.1 123.8 153.8 189.2 233.7 274.9 317.9 367.8 415.4

DepreciationExisting Assets 12.7 12.4 12.7 14.3 23.1 22.2 21.7 21.2 20.6Vroject Assets _ _ _ _ _ _ __ _5_ 50,0

Total Depreciation 12.7 12.4 12.7 14.3 23.1 22.2 21.7 46.2 70.6

Total Operating Expenses 127.8 136.2 166.5 203.5 256.8 297.1 339.6 414.0 486.oNet Operating Revenues 49.9 75.0 123.6 198.5 162.1 161.0 154.1 119.2 2A9.7Less Interest Expense (Income) 2.8 (.7) (4.6) (7.5) (5.7) 15.8 53.6 106.2 75.4

Net Income 47.1 75.7 128.2 206,0 167.8 145.2 10O.5 13.0 174.3

Operating Ratio 72 64 57 51 61 65 69 78 66Return on Average Net Fixed Assets 8.5 13.3 21.7 34-5 25.1 22.6 22.3 7.0 9.3Interest Coverage (Times) 18.9 8.4 4.0 2.4 1.1 3.0Debt Service Coverage (Times) 7.9 5.1 3.1 2.1 1.3 2.0

Source: Bank Staff1tarci, 197o

TABLE 6

ECUADOR

APPRAISAL OF A SECOND GUAYAOUIL PORT PROJECT

Cash Flow Forecast(Hillion Sucres)

Totals1975 1976 1977 1978 1979 1980 Total 1976-1979

SOURCES OF FUNDS

From Operations

Net operating revenues 198.5 162.1 161.0 154.1 119.2 249.7 1,044.6 596.4Depreciation 14.3 23.1 22.2 21.7 46.2 70.6 198.1 113.2Interest Income 18.0 25.0 24.0 11.0 1.8 6.7 86.5 61.8

230.8 210.2 207.2 186.8 167.2 327.0 1,329.2 771.4

Loans

World Bank - 100.5 254.0 258.5 217.0 7.5 837.5 830.0Government or Private Bank Loan - 30.0 75.8 77.0 64.7 2.5 250.0 247.5Government Loan 250.0 250.0 250.0

- 130.5 329.8 335.5 531.7 10.0 1,337.5 1,327.5

OtherSale or maturity of liquidinvestnents - - 120.0 250.0 - - 370.0 370.0

Repayment of GPA loans toGovernment 24.0 17.5 3.0 3.3 - - 47.8 23.8other (net) 15.7 2.5 (1.2) (0.6) (0.2) (25.5) (9.3) .5

39.7 20.0 121.8 252.7 (0.2) (25.5) 408.5 394.3

Total Sources of Funds 270.5 360.7 658.8 775.0 698.7 311.5 3,075.2 2,493.2

USES OF FUNDS

Capital ExpendituresProject - 232.5 600.0 685.0 555.0 17.5 2,090.0 2,072.5other 129.9 - _ - - 129.9 -

129.9 232.5 600.0 685.0 555.0 17.5 2,219.9 2,072.5

Debt Service

World Bank

Existing Loan

Principal 16.3 17.3 18.3 19.3 20.5 21.7 113.4 75.4Interest 10.5 9.5 8.5 7.5 6.3 5.1 47.4 31.8

Loan Requested

Principal - - - - - 8.3 8.3 -Interest - 5.1 23.9 43.8 62.2 35.6 170.6 135.0

Government or Private Bank Loan

Principal - - - - - 50.0 50.0 -

Interest - 4.7 7.4 13.3 19.5 21.4 66.3 44.9

Government Loan

Principal - - - - - - - _

Interest - - _ - 20.0 20.0 40.0 20.0

26.8 36.6 58.1 83.9 128.5 162.1 496.0 307.1

Purchase of Liquid Investments 126.2 90.0 - - - 140.0 356.2 90.0

Total Uses of Funds 282.9 359.1 658.1 768.9 683.5 319.6 3,072.1 2,469.6

Increase (Decrease) in cash (12.4) 1.6 0.7 - 6.1 15.2 (8.1) 3.1 23.6

Source: Bank StaffApril 1976

ECUADOR

APPRAISAL OF A SECOiD GUAYAQUIL PORT PROJECT

Organization Chart - Guayaquil Port Authority

Board of Directors

Secretary General Manager [ Legal

Lublic Relat.|| ting

Operations Department] Si Maint aenan ce Administrative Finance Department| _ an~~~~~ue DeDarmn Departen

Terminals Division PersonneDivision Controllers Division

Terilnals Sec. oapn ran

_ Cargo Check. S.1 AHydrograph Sc| EucatNna c| StiisS

A Storage Section| Navigation- Sec M edsical Ast n c0 g

jEqui.p. Oper. S.|i Mitnnc } }Sec' o a r Treasury Division|

Manoeuvres Division Mech. Equi. S. Purchasing Division D ?rses

t Pilotage Sec. | {~~~EquiD). nge(ctin|4;4MatrLde

Crew Section eInst& Uti . Security Division Dataro n

4 Prevention divis:

otr-rogmingS.

ANNEX 2Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Existing Facilities

1. *The city of Guayaquil lies on the right bank of the river Guayasjust below the confluence of the rivers Babahoyo and Daule. The river Guayasflows to the sea in the Gulf of Guayaquil by way of an extensive delta system.The greater part of the river discharge is through the river Guayas itself tothe Canal de Jambeli.

2. Guayaquil is also reached from the sea by way of the Estero Salado,and it is by this route that most of her maritime trade arrives, using the newport facilities of the maritime port of Guayaquil opened in 1963.

A. Puerto Maritimo

(i) General Description

3. The port was constructed between mid-1960 and January 1963 at atotal cost of US$20 million, financed partly by Bank Loan 212-EC.

4. The port, comprising five berths of 185 m length each, is situated77 km (48 miles) from the sea buoy and about 64 km from the coast and isreached by an access channel. Puerto Maritimo is connected with the outskirtsof the city by a dual carriageway road 7 km long. Thereafter, the traffic usesthe city streets.

(ii) The Port Installations

5. The quays are of concrete construction having prestressed concretepiles supporting in situ concrete. The berthing face is provided with atimber pile and crosstiimber fender system which is severely damaged by teredo.The fendering system seems to be ineffectual in the absorption of the ship'skinetic energy while berthing.

26. Berths 3 to 6 are each backed by a transit shed of 6,848 m . Theapron is only 12 m wide, which is too narrow for eificient port operations.The transit shed of berth 2 has an area of 5,180 m .

7. The present port area hal usable storage space, including transit 2and warehouses sheds, of 120,000 m . Of the open storage areas, some 50,000 aare fenced. This fence is in addition to the perimeter fence of the port.

ANNEX 2Page 2

(iii) Cargo Handling

8. Ship loading and unloading is achieved by means of ships' derricks.Bananas are loaded manually in 10 kg (23 lb) or 20 kg (46 lb) boxes from thequay, supplemented by loading from barges into the side ports on the waterside of the ship.

9. General cargo is handled on the quay apron by forklift trucks andtractor trailers.

10. The port's cargo handling equipment and floating craft comprises:

1 mobile crane of 35 tons in the open storage area1 mobile crane of 25 tons5 mobile cranes of 15 tons7 mobile cranes of 5 tons1 mobile crane of 18 tons1 mobile crane of 45 tons1 derrick crane of 75 tons on berth No. 24 forklifts of 22-ton capacity each86 forklifts of 1- to 5-ton capacity13 tractors70 trailers for loads of between 20 to 50 tons8 barges3 launches7 tugs (of which two under construction) - 1xI,200, 1x1,000,

2x750, 2x450, 1x200 HP rating1 600 m3 suction-hopper dredger2 pilot launches1 buoy barge

11. GPA intends to purchase additional cargo-handling equipment as partof the port expansion project.

12. The port area is provided with a fresh water firefighting system.Hydrants are spaced along the roadways at approximately 200 m intervals. Thefresh water main and hydrants on the quay can be used for firefighting, andthe two new tugs under construction are adapted for firefighting. With thenew equipment, firefightng equipment is adequate.

13. Other services available along the quay are electricity and ship-to-shore telephone.

(iv) Access to Port

14. Ships approaching the port proceed to the first buoy of the approachchannel, situated 20 km west of Pbnta del Morro. The channel is marked byboth port and starboard buoys at approximately 2 km intervals - the maximumspacing being the 6.5 km between buoys 15 and 17. The reach to Punta delMorros is beset with some navigational hazards. However, pilotage being com-pulsory, pilots are aboard at this stage. The pilot station is at Data.

ANNEX 2Page 3

Pilots leave outward bound vessels at buoy 7. The access channel in theEstero Salado was dredged during the construction of Puerto Maritimo to adepth of 10 m (33 feet) below MLWS and to a width of 122 m (400 feet).Soundings in June 1971 and August 1972 revealed a tendency to accretion incertain locations.

15. GPA purchased a second-hand suction-hopper dredger in 1973 and 600cubic meter hopper capacity and capable of dredging to a depth of 45 ft. Thedredger is engaged in the maintenance and improvement of the access channelto the port.

16. At present, ships of 8.6 m (28 feet) draft and upward are at timesobliged to await a suitable tide to cross the bar. Review of the drafts ofthe list of ships frequenting the port shows that it would be advisable tohave a channel which will allow ships of 8.6 m draft to enter at any stage ofthe tide. The tidal range: 2.8 m at neap tide and 4 m at spring tide; thereare no significant wind or current problems.

17. The depth alongside the berths is now being improved, and alongsidedepths of 9.25 m at MLWS are now available.

18. Maneuvering of ships in the vicinity of the port at present requiresthat large ships approach by one side of Isla Trinitaria and leave by theother, since there is insufficient width of navigable water opposite the berthsfor ships to turn. The curve into the approach channel at the north end ofIsla Trinitaria is rather tight, and ships generally require the help of atug or tugs to negotiate it. The port's dredger is now improving the situation.Dredging works in the new project include improvement of the approach channelat this curve.

B. The Estero Locks

19. A ship lock connects the Estero Cobina and the Rio Gualyas, thusaffording access, principally for barges up to 500 DWT from the river toPuerto Maritimo. The gates are operated by electricity supplied by thediesel-driven generator housed nearby.

20. The reason for the lock's existence is the difference in tide levelswhich can be experienced at the same point of time in the river and in theestuary. At high tide, the level in the Rio Guayas is higher than that in theEstero Cobina, and vice-versa at low tide.

March 1976

ANNEX 3Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Potential for Cargo Unitization in Ecuador

1. Substantial advantages could be gained by Ecuador's economy throughincreased unitization, i.e., containerization, provided that containers canbe forwarded for stuffing and unstuffing to inland terminals. The presentsystem, whereby all containers are unstuffed in the port, and their cargoesmoved into transit sheds because of customs regulations, deters ship ownersfrom introducing container ships and importers from demanding containerservices. Unless the containers could be unstuffed outside the port areas,the light type of packing of the goods within the container would increasethe chances of pilferage and damage. Customs has constructed a customsclearance station in Quito which may be used in the future for containerinspection. This is a step in the right direction, but not yet sufficient.

2. Although containerization is the most commonly known form of unitiz-ing cargo and eliminating break-bulk handling, there are other methods ofunitization presently used, among them:

(a) pre-slinging of cargoes;

(b) palletization;

(c) utilization of roll-on/roll-off (Ro-Ro); and

(d) utilization of barge-carryng vessels.

3. The different methods of unitization have different requirementswith regard to vessels. Barges can be handled only by specially designedbarge-carrying vessels. Although containers are most economically shippedin specially designed vessels, they can also be carried by break-bulk ships.Pallets are especially easily accommodated in non-specialized vessels. Ro-Rocargo needs vessels with facilities for driving or towing loaded vehiclesonto them. Some Ro-Ro vessels also have pallet and/or container carryingfacilities, i.e., composite rather than single purpose vessels. Pre-slungcargoes do not need special vessels and can be carried in break-bulk vessels.Palletized cargoes carried on break-bulk vessels are most easily and economicallyhandled if the vessel has side port loading and the possibility of using fork-lifts in the holds.

4. It is difficult to state exactly which form or extent of unitizationwould be the most economical for Ecuador. The fact that different methodscompete in the same industry indicates that the same method is not necessarily

ANNEX 3Page 2

suitable in every case, and that, in many cases, there is not yet sufficientexperience to allow a clearcut choike between them.

5. Decisions on whether a pairticular shipping route should be unitized,and the form it should take, are made by the ship owners after assessing theirown needs for economic operation in relation to their own costs. Countrieswith little shipping of their own are not always free to choose and may findthemselves investing in port facilities because of decisions taken by ownersin other countries.

6. The basic features of unitization are large cargo units of standard-ized shape and size and mechanized cargo handling through each step of the trans-port system. The change from conventional cargo handling to unitization should-produce savings in transport cost per unit by eliminating many steps of hand-ling and also through the higher productivity of facilities and vehicles.Transport cost savings could be increased even further by introducing largerand faster ships as well as more efficient handling equipment. Unitization is,therefore, more capital intensive and less labor intensive than break-bulktransport.

7. There are at present too nany transfer steps between the ship's hookand the importer's door, or conversely, from the exporter's door to the ship'shook. Since every step involves time and handling cost, the savings result-ing from the elimination of certain points of cargo handling would be verysubstantial. Moreover, savings will be realized, not only because of theincreased output of all the vehiclesi involved in the various transfer stepsper unit of time, but also as a result of the increased efficiency of facil-ities at each transfer point, reduction of damage to goods and reduction oftime in which the goods and funds are in the non-productive pipeline.

8. To summarize, the present project, which aims at encouraging thecontainer form of unitization at Guayaquil, is a step in the right direction.

March 1976

ANNEX 4Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Technical Assistance Program

A. Training Program for Port Labor

1. The technical assistance to be provided under this project willhelp, first, in the setting up of a training program for shore labor, steve-dores and equipment operators. The aim of the training is to improve theknowledge of employees, both those under the employ of GPA and those employedby the shipping companies. The training courses are initially intended forsemi-skilled and skilled workers and, eventually, for technicians and super-visors. The present situation in the port is that very few personnel havea chance to receive any sort of vocational training in the field in whichthey are working. At present, the opportunities for a port laborer toadvance are very slim. Frequently, the foreman is an outsider nominated bythe employer, not necessarily for his ability, while the common laborer cancontinue for years working down the hatch or in the storage areas withoutany chance of advancement.

2. The training program will enable all port laborers to receiveformal training in their field. The training program will be set up byexperts who not only will teach the basis of cargo-handling, equipmentoperating and storage organization, but also will supplement, where necessary,labor's knowledge of reading and arithmetic, and introduce the workers to thebasic concepts of port operations and management. The basic training coursefor semi-skilled labor should take between three and four months. Separatecourses, on a higher level, will be held for skilled labor, and, eventually,advanced courses will be offered for technicians and supervisors.

3. All courses are aimed at increasing the overall efficiency of portoperations while encouraging labor by providing an opportunity for advance-ment at all stages, permitting the exceptionally talented to climb morerapidly.

4. GPA will be assisted by the Servicio Ecuatoriano de CapacitacionProfesional (SECAP), a semi-autonomous Government agency, or other suitableinstitution acceptable to the Bank, in preparing the most suitable trainingprogram. The terms of the technical assistance agreement with the institu-tion, as also the qualifications, experience and conditions of appointment ofthe training experts to be employed, will be satisfactory to the Bank. GPAwill also afford the Bank an opportunity to review the format and thecontents of the training program.

ANNEX 4Page 2

5. SECAP was recently the beneficiary of Loan 1157-EC for a projectaimed at implementing the Government's plans to expand non-formal training.Hopefully, SECAP could take charge of the training program once it has beenestablished and provide training for port employees of all Ecuador's ports.In the future, the program could be expanded to include courses in equipmentmaintenance, electrical work, etc.

6. GPA will organize the training program with the financial assistanceoffered by the American Association ,f Port Authorities (AAPA) and theOrganization of American States (OAS).

B. Management of Bulk Terminal

7. Technical assistance to manage the bulk terminal for two years andto train local staff of GPA to operate it thereafter has been included in theproject. A general manager will be needed, together with a specialist in theoperation of bulk wheat facilities and a specialist in sugar and molassesbulk handling. A mechanical specialist (for maintenance and engineeringproblems) would also be needed, together with a financial expert for costing,billing and financial management of the terminal generally. During the thirdyear, the technical assistance would be phased out according to a programto be drawn up in consultation with the Bank, with due regard to the progressmade by the local staff. The program would be continued until the Bank issatisfied that the local staff is adequately trained to manage the bulkterminal. The cost of this assistance, involving about 120 man-months at anaverage cost of US$4,000 per man-month, is estimated at US$500,000, with aforeign exchange component of US$300,000.

C. Port Operations

8. GPA will engage experts in port operations to provide advice toimprove the planning of ship loading and discharge operations and gang andequipment assignments and to provide on-the-job training for staff in theOperating Department. The services of' these experts will be financed undera United Nations technical assistance program, of which GPA is a beneficiary.GPA has agreed that the qualifications and experience of the experts andtheir terms of reference will be satisfactory to the Bank.

March 1976

ANNEX 5Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Project Description

1, The project consists of the items enumerated in this annex.

(a) Dredging of some 3.2 million m of sandy clay and silty materialin order to: (i) deepen and widen the Estero Cobina in the reachesof the new facilities to enable the maneuvering there of vesselsup to 30,000 DWT; (ii) remove the top layers of the silty clays--alongside the embankment where the new facilities will be constructed(para. 4.08); (iii) widen the upper reaches of the approach channelopposite the existing facilities (Isla Trinitaria) to facilitate theapproach of large vessels;

(b) Sandfill of some 1.5 million m to replace the-removed-top layersbehind the new wharf and to reclaim and fill the low level areasbehind the wharf which will form the port operational areas; and

3

Cc) Placing of some 1.0 million m of sand fill as surcharge in orderto consolidate these areas. The surcharge will be left for aminimum of six months and removed by the contractors engaged inthe landwork.

2. The construction of three marginal multipurpose, deepwater berths,each 185 m long, with an alongside depth of 10.7 m (35 ft) at MLW. The 20 mwide wharf structure will be supported by prestressed, precast concrete piles,with a concrete sheet-pile bulkhead retaining the gill behind the structure.The deck is designed to carry heavy loads (4.5 t/m ) and will be able to carrycontainer-handling gantry cranes.

NOTE: Because of the usual degree of uncertainty in thetraffic forecasts and the degree of containerization,and because of the economies-of-scale of construction,the contract will include an option to construct afourth berth as an extension of the three berths.

3. The construction of three transit sheds of 7,200 m each, one contain-er consolidation shed (the design of which will be done at a later stage); work-shops and maintenance facilities totaling some 7,900 m ; dining rooms and otherfacilities for labor; provision of some 100,000 m of open siorage areas; accessroads, parking and other paved areas totaling some 300,000 m . Utilities andservices to be constructed include: electricity, telephone, fresh water, fire-fighting systems, drainage and sewerage, area-and-street lighting, truck scales,facilities for refrigerated containers, etc. (Annex 6).

ANNEX 5Page 2

4. The construction of one multipurpose bulk terminal comprising:

(a) One bulk pier 150 m long with two mooring dolphins and with analongside depth of 10.7 m (35 ft) at NLW suitable to accommodatebulk carriers of 25-30,000 DWT. The structure will be similar tothe cargo wharf, concrete decking supported by prestressed piles;

(b) Mechanized sugar loading facilities, including a raw sugarstorage shed of 30,000-ton capacity;

(c) Mechanized pneumatic wheat unloading facilities, includingsilos of 20,000-ton capacity;

(d) Tankfarms--for molasses--15,000-ton capacity and for edibleoil--300-ton capacity;

(e) Provision of services an,l utilities--similar to those ofthe cargo wharves.

5, The relocation of the small boat mooring facility from its presentlocation to an area between the new cargo wharves and the bulk pier. The newlocation is suitable and will not interfere with operations or future expansion.

6. Procurement of cargo-handiling equipment for general cargo handling:container-handling and yard-haul equipment and equipment for workshops andmaintenance. The equipment will be procured after the list of specific itemsis prepared on the advice of the Port Operations Expert.

7. Consultant Services

(a) Consulting engineers--for supervision of the construction.

(b) Technical assistance (i) to set up a training program for shorelabor, stevedores and equipment operators (which will include,initially, the development of local personnel as trainers);(ii) to manage the bulk terminal for two years; and (iii) toprovide advice on Port Operations (Annex 4).

8. Construction is expected to start in the third quarter of 1976 andbe completed by late 1979. Project: completion is scheduled for end 1979,except for the technical assistance! to manage the bulk terminal, which willcontinue until end 1981.

9. Subsoil Conditions

Subsoil conditions at the Puerto Maritimo are not favorable. Boringson the site of the planned extension indicate a stratum of soft organic claywith a silt content extending to some 17 meters below ground level. Belowthe clay, there is a layer of dense and firm silty sand which is highly suita-ble for bearing piles. The top soil layers cannot support fill and must be

ANNEX 5Page 3

partially removed, replaced by selected material and consolidated by placinga surcharge of sand fill for six months.

10. During construction of the existing wharves, uncontrolled hydraulicsand backfill (excessive amounts of clay and silt and too steep slopes)caused heavy slides and damage to the superstructure. These occurrenceswere investigated and remedied, and the present design and constructionsequences are based on the experience gained.

11, Ecuador lies in an active earthquake belt, and slight tremorsoccasionally occur. The piled structure and earth embankment have been designedto resist the lateral acceleration caused by ouch tremors.

November 1975

ANNEX 6Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Transit Shed and Open Storage Area Requirements

1. In 1974, the port handled some 1,256,000 tons of cargo, of whichsome 446,000 were banana exports. The 4,500 containers handled in 1974 aretreated as break bulk cargo since t]hey were stuffed and unstuffed within theport area.

2. Traffic composition for 1979, 1982 and 1985 is shown below:

1979 1982 1985---- (in 000 tons)-----

General cargo break bulk Lmports 980 1,102 1,545

General cargo break bulk esxports 739 747 7941,719 1,849 2,339

Deduct banana exports 535 480 465

Deduct container imports andexports 60 215 425

Subtotal general cargo 1,124 1,149 1,449

Less 10% of assumed direcl:delivery 112 115 145

Subtotal, general cargoto be stored 1,012 1,034 1,304

Assume 360 working days per year and examine requirements for storage areasfor an average storage time of 10, 20, 30 and 40 days. Assume storage of

1.5 ton/mr in sheds and 1.0 ton/mr in open areas and that 40% of storageareas, either in a shed or in the open, are required for the movement of goods.Forty percent of cargoes will be stored in open storage areas and 60% in tran-sit sheds.

Conclusions

3. As seen from the table on the following page, the project willsupply sufficient covered storage areas for forecast traffic provided thatcargoes do not remain more than 20 days in the port area. Sufficient openstorage area is available to handle the forecast general cargo, banana andcontainer traffic.

September 1975

ANNEX 6Page 2

ECUADOR

APPRAISAL 0F A SUCMND QUAIAQUIL PORT PROJECT

1974 1979 1982 1985

TOTAL DRY CARGO 1,256 1A719 1,849 2,339 Tons (003)

Total Import 630 980 1,102 1,545 Tons (00))

Containerized 20 30 13 25 Tons (000)General cargo break bulk imports 610 90 979 T1, 9 Tons (000)Indirect delivery 90% 585 855 881 1,166 Tons (000)Direct delivery 10% 25 95 98 129 Tons (00a)

Total Exports 626 739 747 794 Tons (000)

Bananas 447 535 480 465 Tons (00()Containerized 11 30 92 175 Tons (0a))General cargo break bulk exports 168 174 175 154 Tons (000)Indirect delivery 90% 160 157 158 139 Tons (000)Direct delivery 10% 8 17 17 15 Tons (00))Cargo passing through sheds

- 60% imports 351 513 528 670 Tons (O0())- 60% exports 96 94 95 83 Tons (000)

Cargo passing open storage- 40% imports 234 342 353 466 Tons (0a0)- 40% exports 64 63 63 56 Tons (0CC))

Cargoes in transit sheds 447 607 623 753 Tons (000)Cargoes in open storage 300 405 416 522 Tons (000)Indirect deliveries per day to shed 1,242 1,686 1,730 2,091 TonsIndirect deliveries per day

to open storage 831 1,125 1,155 1,450 TonsArea in shed for one day cargo

1.5 t/m 1,380 1,873 1,922 2,322 z2

Area in open storage for one daycargo 1.0 t/m 2 1,385 1,875 1,925 2,560 m2

Trensit shed area available- present 32,128- project 53,728 53,728 53,728 m2

Shed areas for 10 days 13,800 18,730 19,220 23,220 m220 days 27,600 37,460 38,440 46,440 A230 days 41,400 56,190 57,660 69,660 i40 days 55,200 74,920 76,880 92,880 X

Open storage area available- present 71,470 M2

- project 171,470 171,470 171,470 2Open areas for 10 days 13,800 18,750 19,250 25,600 wf

20 days 27,600 37,500 38,500 51,200 m2

30 days 41,400 56,000 57,750 76,800 n240 days 55,200 75,000 77,000 102,400 m2

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECIT

Project Execution Schedule

.'75 1976 1977 1978 1979 1980 1981

Loan EffectivenessCivil Works

TenderingEvaluation and Awsrd

DredgingConstruction-WharveaConstruction-Landwork8 - _

G^ntraton-~ 'k rier____Construction-Bulk TerminalConstruction-Boat MooringDemobilization DredgingDemobilization on Civil Works

&iuipamitPreparation of SpecificationsTenderingEvaluatien and AwardDelivery

Consultant Service.Ehgineering _Technical Assistance

Preparation of Teruo of ReferenceSetting up of School

Operations- -- -Bulk Terminal Management

t _ _ L l I I1 1 1 8 I §I I I I I I- I I T11

Source: Conoultantos ad Bank Appraisal MissionNovember 1975

ANNEX 8Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Traffic Forecast

A. Background

1. Traffic forecasts are based on the following studies as revisedby Bank staff:

(i) Ecuador Port Development Study, Sir William Halcrow andPartners (UK), August 1974;

(ii) Feasibility Study for Additional Facilities, Maritime Portof Guayaquil, Palmer and Baker (US) and ConsultoresNacionales (Ecuador), August 1974, and Supplement(January 1975).

The forecasts are consistent with growth rates for imports and exportsestimated in Bank Report No. 507-EC (Current Economic Position and Prospectsof Ecuador of August 1974), as updated by a Bank economic mission to Ecuadorin July 1975.

2. Guayaquil has been Ecuador's main port since the time of theSpanish conquest, although its predominance has declined in recent years aszraffic, especially of bananas, shifted to other ports as follows:

ANNEX 8Page 2

000 tons

Port Traffic 1968 % 1974 _

Guayaquil Bananas 971 542Other 816 1,254

1,787 83 1,796 61

Puerto Bolivar Bananas 245 662Other 19 80

264 12 742 25

Esmeraldas Bananas 42 170Other 2 4

44 2 174 6

Manta Bananas - 1Other 60 231

60 3 232 8

Total Bananas 1,258 1,375Other 897 1,569

Grand total 2,155 100 2,944 100

3. During the forecast period (1975-1985), this trend will continue,although at a slower pace, since the growth rate of banana exports, theprincipal factor in this shift, will be relatively low. Guayaquil's actualshare of total exports and imports in the years 1968 and 1974 and its forecastshare in 1985 are given below:

000 tons

% of % of % of1968 total 1974 total 1985 total

Guayaquil - Exports 1,181 78 802 47 1,070 41

- Imports 606 95 994 81 2,196 781,787 1,796 3,266

Other Ports- Exports 335 22 916 53 1,515 59

- Imports 33 5 234 19 619 22368 1,150 2,134

Total - Exports 1,516 100 1,718 100 2,585 100

- Imports 639 100 1,226 100 2,815 1002,155 2,944 5,400

ANNEX 8Page 3

Between 1974 and 1985, some growth of banana traffic will occur, and it will beexported through Puerto Bolivar and Esmeraldas. Moreover, some additionalimport traffic will pass through Manta (which now has excess capacity) andthrough Esmeraldas, where two new berths are being constructed. It is unlikely,however, that import traffic through ports other than Guayaquil will exceed600,000 to 700,000 tons in the forecast period. Guayaquil will continue tobe the principal general cargo port of Ecuador for the foreseeable future.

B. Guayaquil Port Traffic, Past and Present

4. Traffic through the port of Guayaquil is handled at a number ofprivate installations along the river Guayas and the Estero as well as atthe GPA wharves. In this annex, past and forecast traffic is given globallyfor all public and private installations. In the following annex on theeconomic justification, an allocation of port traffic is made to the variousfacilities.

5. Guayaquil port traffic by cargo types is given in Table 1 (imports)and Table 2 (exports) of this annex for the years 1970 to 1974. Imports,consisting mainly of general cargo, iron and steel, wheat, fertilizer andchemicals, grew at an annual rate of about 15% during 1970-1974. During thesame period, exports, consisting mainly of bananas, cacao, molasses, sugarand coffee, decreased at an annual rate of about 2%. The decrease has beenthe result of a reduction in sugar exports and a shift in banana exports toother ports as mentioned above.

C. Future Port Traffic

6. Port traffic forecasts for 1975-1985 for Guayaquil are presented inTables 3 and 4 of this annex and are summarized as follows:

ANNEX 8Page 4

Tons '000

GUAYAQUIL1970 1975 1980 1985

Imports

General Cargo 419.9 762.0 1,106.0 1,545.0Liquid Bulk 51.3 78,0 153.0 187.0Dry Bulk 95.9 232.0 437.0 464.0

Sub-Total Imports 567.1 1,072.0 1,696.0 2,196.0

Exports

General Cargo 839.8 702.0 733.0 794.0Liquid Bulk 38,0 52.0 106.0 175.0Dry Bulk - 75.0 87.0 101.0

Sub-Total Exports 877,8 829.0 926.0 1,070.0

TOTAL FREIGHT 1,444.9 1,901.0 2,622.0 3,266.0

The forecasts are based on the assumption that an annual overall economicgrowth rate of over 7% to the end of the decade is quite feasible, while,beyond 1980, overall economic growth prospects are not as clear, although theeconomy's rate of growth is expected to be maintained. Total Guayaquil porttraffic is expected to grow at an annual rate of close to 6% during the period1975-1985, compared with a growth rate of 5.6% experienced during 1970-1975.Imports are estimated to increase annually by 7.5%, while exports are estimatedto grow at 2.5%. The forecasts we:re made on the further assumption that nocapacity constraints will exist at the port of Guayaquil in 1979 and beyond.This assumption is based on the likelihood that a port project, with additionalcapacity as required, will be implemented and fully operational by 1979.

7. Traffic forecasts are discussed by main commodities in the follow-ing paragraphs. These estimates were based essentially on the consultants'studies, as reviewed by the mission, and on information obtained from industryand Government agencies.

Imports

8. Between 1970 and 1975, imports increased annually by 15% from567,100 tons to 994,400 tons. Impcorts are estimated to increase to 2,196,000tons by 1985, giving an annual growth rate of 7.5%. The high growth rateduring 1970-1975 is explained by the low initial level of imports in 1970,and the rapid increase in imports experienced since 1973 as a result oflarge petroleum export revenues. The estimated future growth of importsis summarized in Table 3 to this Armnex.

ANNEX 8Page 5

9. Fertilizer: Since 1973, fertilizer usage in Ecuador has been givena sharp impetus by the Government's active role in encouraging its use. Until1973, consumption of fertilizer grew at 8-10% annually. In future years, it maybe expected to rise at between 12-15%. The only fertilizer plant in Ecuadoris located in Guayaquil. This plant imports most of its raw material needs.The deficit in production is supplied by direct imports, handled at the spe-cialized pier of the fertilizer company (FERTISA) in Guayaquil. A new200,000 ton capacity plant to be located in the Guayas province is at presentbeing studied. Since this plant is to be based on expected Guayaquil bay gasreserves, the fertilizer situation beyond 1982 is difficult to forecast.However, port traffic projections have been made on the assumption that a200,000 ton capacity plant would be operational in 1982.

10. Oils and Fats: Ecuador has a deficit in animal fats and vegetableoils. Nearly half of the requirements for vegetable oil is supplied fromdomestic production, while virtually all the animal fat is imported. Theseimports have been growing at about 7% annually. In the future, as incomeincreases rapidly, consumption of soaps and edible oils -- the two main usesof oils and fats - is estimated to grow at over 12%. This demand is expectedto be met partly by increased production of short-cycle oil crops and Africanpalm. The deficit, estimated at 58,000 tons in 1982, is to be filled by im-ports, of which 80% are estimated to be handled in Guayaquil.

11. Iron and Steel: All the metal requirements of Ecuador are filledby imports either of finished products or semi-finished goods. Imports ofthese products almost doubled from 1972 to 1974 and are expected to continueto grow rapidly to sustain the expected increase in overall levels of economicactivity. By 1980, total demand is projected at about 500,000 tons. A 400,000ton capacity integrated mill is under study_1/. Port traffic projections ofiron and steel products have been made on the assumption that this projectwould be operational in 1981. However, some steel products, steel sectionsand finished products would still be imported, with a large proportion (80%)coming via Guayaquil.

12. Chemical Products: This category consists of a considerable varietyof products, of which approximately half comprises intermediate goods; thebalance includes, among other items, pharmaceuticals, insecticides, paintsand explosives. These imports are expected to increase to 195,000 tons by1985, or by 8% annually. This increase reflects the development of someimport substitution industries, although the great part of chemical productswould continue to be imported.

13. Wheat: Wheat, used mainly for bread, is not produced locally inquantity and quality sufficient to satisfy the increasing demand. AlthoughGovernment incentives and wheat programs are expected to double local pro-duction by 1982, a large amount would still be imported. Wheat imports,

1/ By the Centro de Desarrollo Industrial del Ecuador (CENDES). Plantprobably to be located at Posorja, southwest of Guayaquil.

ANNEX 8Page 6

handled almost exclusively at Guayaquil Port, are estimated to increase froma level of about 146,000 tons in 1974 to about 350,000 tons by 1985, implyingan annual growth rate of 8%.

14. Other Cereals, Oats and Barley: Other cereals, oats and barley areimported to fill deficits in local production. Rice has been imported onoccasion (as in 1974) to fill temporary needs and barley to supply breweryrequirements when local production, which has been declining in recent years,was insufficient. The import of these other cereals is expected to continueincreasing in the future at about 7Z annually, reaching a total level of64,000 tons by 1985, all to be handled at Guayaquil.

15. Asphalt and Petroleum Products: Although the major part of domesticdemand is met by the refineries at Santa Elena, west of Guayaquil, some pro-ducts, mostly aviation fuels and lubricants, are imported. LPG (liquifiedpetroleum gas) imports began in 1972 and are increasing rapidly. The importof petroleum products through Guayaquil is expected to continue increasingat a rate of 6% annually until 1977. After completion, in 1977, of the newrefinery at Esmeraldas, only LPG imparts are expected to continue throughGuayaquil. Although asphalt could be produced by the new refinery, it isexpected, due to high production costs, that highway requirements of asphaltwould continue to be met by imports. Eighty percent (50,000 tons) of theseimports, increasing to about 63,000 tons in 1982, are expected to be handledat Guayaquil.

16. Cement: Consumption is expected to expand rapidly. Imports ofcement, rising because of shortages of local supply, are expected to reach100,000 tons through Guayaquil by 1977. Productive capacity expansionplans 1/ are expected to reduce imports drastically after 1977. By 1984,cement imports are expected to be negligible.

17. Manufactured and Consumer Goods: Thirteen other commodity groups,ranging from textiles to transport equipment, are shown in Tables 1 and 3.Although import forecasts of these commodities were made on a product-by-product basis, they reflect overall expectations of stepped up levels ofeconomic activity in general and of wanufacturing and ccnstruction in particu-lar, as well as the import requirements emerging from the increased publicinvestment program. Consumer goods Lmports via Guayaquil are expected toincrease rapidly in the coming years at a rate close to 8% annually, a ratethat takes into account a gradual process of import substitution, particularlyin textile fibers, electric appliances and other consumer durables.

Exports

18. Between 1970 and 1975, exports decreased from 877,800 tons to801,800 tons due to reduction in banana and sugar exports. Future

1/ Cementos Guayaquil, Chimborazo and Guapan (1977); Selva Alegre (1983).

ANNEX 8Page 7

exports are estimated to increase to 1,070,000 tons by 1985, or at an annualrate of nearly 3%. Although banana exports are expected to continue todecline, exports of sugar, molasses, textile fibers and other agriculturalproducts are expected to expand, as shown in Table 4 of this annex.

19. Bananas: Slow growth (at 2% annually) is forecast for Ecuador'sbanana exports, as a result of the leveling off of demand in high-incomecountries and the rapid expansion of commercial production in the Far East.The export of bananas through the Guayaquil port was 542,000 tons in 1974and is expected to continue, with a tendency to decrease, at its presentlevel until 1979. After 1979, it is assumed that some port capacity expansionwould be available in Puerto Bolivar, as a result of which a gradual diversionof banana traffic from Guayaquil would occur, further reducing its bananaexports to 465,000 tons in 1985.

20. Cacao: Exports of cacao and its products through Guayaquil totaled49,000 tons, on the average, between 1970 and 1974. Although, in the last fewyears, production has gone up as a result of new plantings, plant diseasesand poor cultivation practices could slow up the export capacity of Ecuador.Export volumes are, therefore, expected to grow slowly during the next severalyears (at an estimated rate of about 3-4%), reaching 73,000 tons by 1985.

21. Coffee: Ecuadorean exports of coffee beans and processed productsare estimated to increase at 5% annually. Coffee exports through Guayaquilamounted to 30,200 tons in 1974 and are expected to increase at 5% annuallyto 52,000 tons in 1985, thus maintaining Guayaquil's share of the coffeeexports among Ecuadorean ports.

22. Sugar and Molasses: The export of sugar through Guayaquil was72,000 tons, on the average, in the last five years. These levels of exportwere achieved as a result of a significant expansion of sugar production.However, increasing domestic demand resulted in lower exports in 1974. Basedon estimates of slow increases of world consumption, but expanded domesticproduction and consumption, it is expected that sugar exports throughGuayaquil would reach over 100,000 tons in 1985. This represents an increaseof 3% annually over 1973. Domestic consumption of molasses is today about20% of total production, the balance being exported. With the expectedincrease in sugar production in Ecuador, exports of molasses should increaseeven faster, from 45,000 tons in 1974 to about 175,000 tons in 1985. Thisimplies an annual growth rate of about 13%.

23. Other General Cargo: Forecasts of general cargo exports, otherthan bananas, cacao and coffee, are detailed by products in Table 4 of thisannex. On the aggregate, this cargo is expected to increase from 75,500 tonsin 1974 to about 204,000 tons in 1985, implying an annual growth rate ofover 9%. This high growth rate is in line with development of non-traditionalexports such as fish meal, fresh fruits, canned goods and other vegetableproducts, including wood products, which are expected to capture an increasingshare of total exports.

ANNEX 8Page 8

D. Containers

24. Traffic in containers has not been significant in Guayaquil andhas not increased in the last few years. In 1974, some 30,000 tons in4,490 containers (2,437 inbound and 2,053 outbound) were handled at Guayaquil.However, because of the inability of importers to clear customs at inlandterminals, the incentive to containerize is limited.

25. Nevertheless, with expected simplification of customs procedures,planned road improvements and the proposed open berths designed for containers,traffic in containers is expected to grow steadily after 1979. Based on con-tainerizable traffic, tonnages in containers are expected to increase asfollows:

(000 tons)

1979 1982 1985

IMPORTS

Containerizable traffic 385 499 630

Tonnages in containers 30 123 250

EXPORTS

Containerizable traffic 171 219 276

Tonnages in containers 30 92 175

TOTAL

Containerizable Traffic 556 718 906Tonnages in containers 60 215 425

26. In the export traffic shown above, which is expected to be container-izable, bananas are excluded. Because of the strong labor opposition, it isnot likely that the shipping lines will provide the large capital investmentin refrigerated containers required to containerize a significant proportionof the banana traffic, at least in the foreseeable future.

November 1975

ECUADOR AN= 8

APPRILSAL O0 A OMO (UAZUTI P(3? PE)JI

Freight Traffic 1970-74 by Type of Cargo

(Thousand Metric Tons)

IORTS

Commodity Actual

1970 1971 1972 1973 1974

General Cargo

Fertilizers 50.5 39.8 53.2 96.6 114.8Oils and Fats 21.6 26.2 35.5 23.1 28.6Other Common Metals and

Metal Products 29.0 26.8 26.3 27.5 42.3Oats - 5.1 8.6 12.8 14.5Barley 5.1 - 5.5 3.2 10.4Textile Fibers and Products 10.0 15.2 13.7 16.7 17.2Iron and Steel 97.9 99.0 95.4 120.1 191.8Farm Machinery (tractors) 2.7 3.7 3.4 5.1 13.0Machinery and Equipment 6.o 12.6 22.1 17.4 24.9Paper and Products 42.5 37.4 22.3 35.6 32.ŽPaint and Products 8.4 9.3 8.3 12.1 11.8Chemical Products 48.6 56.2 59.4 74.9 90.2Spare Parts 8.6 7.3 8.1 9.5 13.2Transport Equipment 17.0 15.6 16.4 24.2 36.6Food,drink, tobacco,

vegetables (glucosa) 6.2 9.8 10.3 13.3 19.3Aluminum and Products 1.4 1.4 1.5 1.8 3.4Flour and Starch 5.7 6.5 6.o 7.1 8.0Other Consumer's Durables 7.9 6.8 6.1 6.6 8.7Other Construction Materials 11.8 10.5 10.8 8.3 13.6Electric Materials 4.7 5.5 4.3 4.7 5.8Miscellaneous 34.3 9.3 10.2 12.9 12.9

Sub-total 419.9 404.0 427.4 533.5 713.2

Liquid Bulk

Asphalt 20.3 17.6 11.5 36.7 28.3Petroleum Products 31.0 51.7 35.9 36.o 42.6

Sub-total 51.3 69.3 47.4 72.7 70.9

Dry Bulk

Cement 9.6 8.5 13.4 21.4 44.9Wheat 67.6 90.6 116.1 137.9 146.2Other Cereals 18.7 8.6 0.5 20.1 19.2

Sub-total 95.9 107.7 130.0 179.4 210.3

TOTAL 567.1 581.0 604.8 785.6 994.4

Source: Guayaquil Port Authority

March 1975

ANNEX 8Table 2

ECUADOR

APPRAISAL OF A SEOOND (OUAYAQUIL PORT PROJECT

Freight Traffic 1970-1974 by e e of Cargo(Thousand Met;ric Tons)

EXPORTS

Commodity 1970 1971 1972 1973 1974

General CargoCoffee 24.0 21.0 24.0 43.7 30.2Sugar 85.6 77.6 90.2 72.7 36.2Balsa Wood 5.8 6.3 7.1 8.1 8.7Bananas 660.3 55,5.9 520.5 479.5 542.0Cacao and Products 38.5 51.6 48.6 33.4 72.9Textile Fibers 1.0 1.6 2.7 4.7 7.9Fish & Fish Meal!! 3.1 2.9 3.9 4.2 10.7Plantains 1.4 4.9 10.0 12.2 14.1Fruits 2.0 3.4 2.7 1.9 2.2Other Vegetable Products 9.1 11.1 8.6 8.5 20.7Canned Goods 1.3 1.3 3.1 4.4 3.6Miscellaneous 7.0 4.8 7.5 15.4 7.6

Sub-total 839.8 742.6 729.0 688.6 756.8

Liquid Bulk

Molasses 38.o 53.9 35.1 62.1 45.0

Sub-total 38.0 53.9 35.1 62.1 45.0

Total 877.8 796.5 764.1 750.7 801.8

1/ Fish meal starting 1974.

Source: Guayaquil Port Authority

March 1975

ECUADOR

APPRAISAL OF A SECOND GUAOAUIL PORT PRCJECT

Forecasts of Freight Traffic 1975-1985

(Thousand Metri2 Tons)

IMPORTS

Commodity Li1973 1974 1975 1976 177 1978 1979 1980 1981 1982 1983 1984 1985

Oeneral Cargo

Fertilizers 96.6 114.8 116.0 124.0 132.0 143.0 154.o 170.0 190.0 10.0 10.0 10.0 10.0

Oils and Fats 23.1 28.6 32.0 33.0 34.o 36.o 19.0 20.0 22.0 23.0 25.0 26.0 29.0

Other Common Metals andMetal Products 27.5 42.3 43.0 45.0 49.0 53.0 58.0 65.0 56.o 58.0 61.0 66.o 72.0

Oaty 12.8 14.5 15.0 16.0 17.0 19.0 - - -

Barley 3.2 1o.4 10.0 11.0 ll.D 12.0 - -

Textile Fibers and Products 16.7 17.2 18.0 19.0 20.0 20.0 21.0 21.0 22.0 22.0 22.0 23.0 f3.0

Iron and Steel LA 120.1 191.8 205.0 230.0 270.0 340.0 420.0 490.0 375.0 425.0 475.0 520.0 680.0

Farm Machinery 5.1 13.0 17.0 20.0 23.0 25.0 26.0 28.0 29.0 30.0 31.0 32.0 33.0

Machinery and Equipment 17.4 24.9 28.0 32.0 37.0 44.o 52.0 62.0 76.o 89.0 104.0 115.0 130.0

Paper and Products (boxes) 35.6 32.2 34.0 36.o 38.0 40.0 43.0 45.0 47.0 50.0 52.0 55.0 58.0

Paint and Products 12.1 11.8 13.0 14.0 15.0 16.0 17.0 18.0 18.0 19.0 20.0 20.0 21.0

Chemical Products 74.9 90.2 103.0 114.0 124.0 132.0 108.0 116.0 120.0 - 128.0 134.0 140.0 147.0

Spare Parts (machine & vehicle) 9.5 13.2 15.0 17.0 20.0 24.o 28.o 32.0 37.0 42.0 47.0 52.0 58.0

Transport Equipment 24.2 36.6 38.0 40.0 43.0 48.o 54.o 61.0 70.0 80.0 92.0 104.0 118.o

Food, drink, tobacco andvegetable products 13.3 19.3 19.0 20.0 21.0 23.0 24.o 26.o 28.0 30.0 32.0 35.0 38.0

Aluminum and Products 1.8 3.4 4.o 4.o 4.0 5.0 6.o 7.0 8.o 9.0 11.0 13.0 15.0

Flour and Starch 7.1 8.o 8.0 8.o 8.0 8.o 8.0 8.0 7.0 7.0 7.0 6.o 6.0

Other Consumer's Durables 6.6 8.7 10.0 11.0 11.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 13.0

Other Construction Materials 8.3 13.6 14.0 15.0 16.0 18.0 19.0 21.0 23.0 25.0 27.0 29.0 32.0

Electric Materials 4.7 5.8 6.0 6.0 7.0 8.o 9.0 10.0 11.0 13.0 15.0 17.0 20.0

Miscellaneous 12.9 12.9 14.0 15.0 17.0 19.0 22.0 24.0 27.0 30.0 34.0 37.0 42.0

Sub-total 533.5 712.9 762.0 830.0 917.0 1,045.0 1,100.0 1,236.0 1,178.0 1,102.0 1,211.0 1,312.0 1,545.0

Liquid Bulk

Oils and Fats - - - - - 19.0 20.0 21.0 23.0 24.o 26.0 29.0

Asphalt 36.7 28.3 30.0 33.0 3E.0 39.0 42.0 45.0 47.0 50.0 52,0 55.0 60.0

Petroleum Products 36.o 42.6 48.o 53.0 46.o 39.0 45.o 50.0 50.0 50.0 50.0 50.0 50.0

Chemical Products _ - - - - - 35.0 38.0 40.0 42.0 44.o 46.o 48.o

Sub-total 72.7 70.9 78.0 86.o 82.0 78.0 141.0 153.0 158.0 165.0 170.0 177 0 187 0

Dry Bulk

Fertilizers /3 - _ - - - - 120.0 130.0 140.0 20.0 25.0 35.0 50.0

Oats _ _ _ _ - 20.0 22.0 23.0 25.0 27.0 28.0 30.0

Barley 1- - - - 4.0 15.0 16.0 18.0 20.0 22.0 24.o

Cement 21.4 44.9 64.o 80.0 10C.0 20.0 20.0 20.0 20.0 20.0 20.0 - -

Wheat 137.9 146.2 158.0 170.0 185.0 204.0 220.0 240.0 260.0 280.0 305.0 325.0 350.0

Other Cereals 20.1 19.2 10.0 10.0 1C.O 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

Sub-total 179.4 210.3 232.0 260.0 29E.0 234.0 284.0 307.0 329.0 373.0 407.0 420.0 464.o

Total 785.6 994.4 1,072.0 1,176.0 1,29'.o 1,357.0 1,525.0 1,696.0 1,665.0 1,640.0 1,788.0 1.909.0 2,196.0

1 Assuming Port project is fully operational in 1979. '

Assuming proposed Steel mifll would be operational in l9ol.

Assumed proposed fertilizer plant would be oper4t1onal in 1982.

Source: Mission estimates

March l975

ECUADOR

APPRAIaAL OF A 57COMD GAYAQUIL PORT PROjECT

Forecasts of Freight Traf'ic -175-1985

(Thousand Metric Tons).1

EXO0RTS

Commodity 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1955

General Cargo

Balsa Wood 8.1 8.7 9.0 9.0 10.0 10.0 11.0 11.0 12.0 12.0 13.0 13.0 14.0Bananas 479.5 542.0 588.0 56.°K0 545.0 540.0 535.0 510.0 495.o h85.o 475.o 470.0 465.0Cacao and Products 33.4 72.9 50.0 52.0 53.0 55.0 57.0 60.0 62.0 65.0 68.0 70.0 73.0Coffee 43.7 30.2 31.0 33.0 34.0 36.0 38.0 40.0 43.0 45.0 48.o 50.0 52.0Textile Fibers 4.7 7.9 8.0 9.0 10.0 11.0 13.0 15.0 17.0 19.0 21.0 24.o 26.0Fish and Fish Meal 4.2 10.7 11.0 12.0 11.0 14.n 1S400 n I rR 0 o 0 22.0 24.0 25.0

Plantains 12.2 14.1 14.0 15.0 16.0 17.0 18.0 20.0 21.0 23.0 25.0 26.0 28.oFruits 1.9 2.2 3.0 3.0 4.0 5.0 6.o 8.0 9.0 10.0 11.0 12.0 14.oOther Vegetable Products 8.5 20.7 14.0 14.0 15.0 16.0 17.0 18.0 20.0 22.0 25.0 29.0 32.0Canned Goods 4.4 3.6 4.o 5.0 6.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 21.0Miscellaneous 15.4 7.6 10.0 12.0 15.0 17.0 20.0 24.0 27.0 31.0 35.0 39.0 44.0

Sub-total 615.9 720.6 702.0 712.0 721.0 728.0 739.0 733.0 737.0 747.0 760.0 776.0 794.0

Liquid Bulk

Molasses 62.1 45.0 52.0 60.o 70.0 81.0 94.0 106.O 120.0 132.0 146.0 160.0 175,0

Sub-total 62.1 45.0 52.0 60.o 70.0 81.0 94.0 106.0 120.0 132.0 146.o 160.0 175.0

Dry Bulk

Sugar 72.7 36.2 75.0 77.0 80.0 82.0 8

4.0 87.0 90.0 92.0 95.0 98.0 101.0

Sub-total 72.7 36.2 7$.0 77.0 80.0 82.0 84.0 87.0 90.0 92.0 95.0 96.0 101.0

TOTAL 750.7 801.8 829.0 849.u 871.0 891.0 917.0 926.0 947.0 971.0 1,O01.0 1,034.0 1,070.0

Source: Miesion EItimat.s .s

March 1975

ANNEX 9Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Economic Analysis

1 The calculation of the Economic Return (ER) involved three importantsteps: (a) allocation of traffic to the project; (b) quantification of projectbenefits; and (c) distribution of project benefits between the Ecuadoreaneconomy and other beneficiaries. The procedures are summarized in the follow-ing paragraphs.

A. Allocation of Traffic to the Project

2. As mentioned in Annex 8 on the traffic forecasts, port trafficis handled at a number of private installations in the river and channel aswell as at GPA's wharves. The principal installations other than GPA wharvesare Fertisa's wharf in the channel where fertilizer is handled, Noboa wharvesin the river (handling banana exports and grain imports) and Molinos delEcuador, also in the river (handling grain imports principally).

3. Table 1 of this annex shows the tonnages of cargo handled at GPAwharves and private installations in 1974 and Bank estimates for the years1975, 1976 to 1978 (the project construction period) and the years 1980,1982 and 1985, to illustrate the expected location of cargo handling afterthe project is completed.

4. In order to reduce ship waiting time, it has been assumed that anincreasing amount of banana traffic (rising from an estimated 90,000 tonsin 1975 to 290,000 tons in 1978) will be loaded from barges rather than usethe GPA wharves. This is the cheapest alternative. Also, annual bananatraffic at private river installations is expected to increase to 50,000 tonsduring the construction period. After the proposed project is fully operational(1980), banana traffic will again be concentrated at GPA wharves.

5. Traffic handled at the proposed bulk terminal will consist of allsugar and molasses exports, edible oils (oils and fats) and a part of grainimports (wheat, oats, barley and other cereals).

6. At present, some two-thirds of grain imports (about 124,000 tons)are imported by Noboa and Molinos del Ecuador through their own port installa-tions. They also import some 40,000 tons through their installations forother wheat companies. When the new bulk pier and terminal are completed,it is expected that all the grain imports of the Sierra group will be throughthe new installation. Noboa and Molinos del Ecuador are expected to continueto use their existing piers for part of their grain imports and the new bulkterminal for the rest in order to take advantage of the bigger ships whichwill be able to use the new bulk pier (and obtain the consequent transport

ANNEX 9Page 2

savings). It was assumed that they would use their own installations upto the present levels of utilization for their own traffic (i.e., 124,000 tons).This will be roughly their capacity after allowing for the growth of othertraffic (asphalt, chemicals) between now and 1979.

B. Quantification of Project Benefjits

(M) General

7. The project was split into two elements, the general cargo wharvesand the bulk terminal pier, and each was justified separately. Each projectelement caters to a certain, distinguishable share of port traffic, which istransported in different type ships, and the project benefits are differentfor each kind of traffic.

8. In the case of the bulk terminal pier, project benefits consist,principally, of savings in freight costs due to the use of larger bulk carrierswhich will be able to call at Guayaquil. Moreover, and especially, in thecase of sugar and molasses, which, at present, are lightered from barges toships in the river, savings in cargo-handling costs and in reduced shipservice time will be significant.

9. These benefits (less estimated maintenance costs for the bulkterminal) were estimated and discounted against the capital costs. In theanalysis, it was found that the single bulk berth soon had a relatively highoccupancy rate and, although the arrival of bulk ships can be planned to someextent, it became clear that an additional bulk berth will become necessaryby about 1985-1986 without any significant additional investment in silos,etc. If an additional berth is built, it will provide capacity (at forecasttraffic growth rates) until about 1999. Costs and benefits were discountedover this period (i.e., 1976-1999).

10. In the case of the general cargo berths, project benefits consistprincipally of savings in ship turnarDund time, savings from avoiding light-erage of banana traffic and of diverting traffic to other ports. There willalso be some savings in the costs of .2andling containers (and, to a lesserextent, general cargo) at the new berths.

11. Based on 1974 operations at GPA wharves, ship service and waitingtime were simulated using a computer nodel developed in the Bank. Operationswere simulated again for a number of years with and without the project toestimate savings in ship waiting time due to the project.

(ii) Bulk Berth

12. Table 2 of this annex shows the estimated utilization of the proposedbulk pier for the years 1980, 1984 ancL 1985. Tons per ship-hour are expectedto increase, as shown in 1984-1985, as experience with operating the terminalis obtained and utilization increases.

ANNEX 9Page 3

13. Table 3 of this annex shows the size of ships now used for wheat,

sugar, molasses, and vegetable oil and the sizes which will call at the new

bulk terminal. Also shown are costs per ship day at sea and in port and the

savings per ton in freight and in reduced turnaround in port. Cargo-handling

costs with and without the project were, in turn, estimated as follows:

US$ per tonWith Project Without Project

Grain 1.60 2.80Sugar 0.80 12.00MJblasses 0.20 2.40Vegetable oils 0.20 2.00

Present handling costs were obtained from the grain importers and from a 1974

feasibility study for a private sugar and molasses terminal carried out by the

consultants Tate & Lyle. Costs with the project were estimated by Bank staff

(grain), and Tate & Lyle estimates were used for sugar, molasses and vegetable

oils.

(iii) General Cargo Berths

14. An estimate was made of the utilization of berths without the pro-

ject. Because of the present-serious delays to shipping and the surchargesimposed by the conferences, it was assumed that every effort would be made

to keep the occupancy rate below the existing level of 85%. To achieve this,

it was assumed that all banana traffic would be handled from lighters sincethis is the cheapest alternative; there are sufficient barges, and labor and

ship service time are not increased. The only costs are additional handling

charges from double handling of bananas, some barge costs and increased damage

from double handling. Also, it was assumed that some general cargo traffic

would be diverted to Manta, as is happening at present. Based on port capacity

there and its own traffic, it was estimated that a maximum of 200,000 tons

could be diverted to Manta port (Table 4 of this annex).

15. An estimate was also made of the utilization of the general cargo

berths without the project. Table 5 of this annex gives the utilization figures

with the project, based on the following assumptions:

(a) general cargo will be handled at 800 tons per ship day.This reflects an improvement of 17% over existing rates;the reasons for this improvement are discussed inparagraph 3.18 of the report;

(b) bananas will be handled at 1,300 tons per ship day --a very modest improvement of 4% over the present rate;

(c) containers are handled at 285 a day (15 per working hour).Although higher rates can eventually be expected, this isconsidered reasonable under the expected conditions ofoperation in Guayaquil port. The basis for calculatingthe number of containers is given in Table 6 of this annex;and

ANNEX 9Page 4

(d) tons per ship are expected to increase in line with recenttrends and as traffic increases from 1,270 tons per ship(general cargo) in 1974 to 2,150 tons in 1985 and from1,200 to 1,300 tons for banana ships.

Based on these assumptions, the occupancy rate of the general cargo berthswas estimated as follows for seven, eight and nine berths (the existing fiveplus two, three or four to be constructed):

1979 1981 1983 1985

7 berths 72 73 80 948 berths 63 64 70 829 berths 56 57 62 73

16. On the basis of these assumptions, ship waiting time was estimatedwith and without the project, and savings in ship time were estimated. Bene-fits from avoiding lighterage of bananas were also estimated, based on dataobtained from banana exporters, and savings from avoiding diversion oftraffic to Manta were calculated (principally land transport costs) -- forthe cargo that is destined to Guayaquil (50%) -- since port costs are aboutthe same in Guayaquil and Manta). linally, savings in container traffic atthe new facilities were estimated. The savings come from lower handlingcosts per ton and the resulting lower ship service time. No savings wereincluded for reduced damage and piliferage on containerized traffic, althoughsuch savings will probably be significant. Details are shown in Table 7 ofthis annex.

C. Distribution of Project Benefits

17. The project investment will result in considerable benefits, allof which have not been allocated to the project in the calculation of theER. Only those direct benefits which are quantifiable and attributable tothe Ecuadorean economy have been included, while benefits to other (foreign)beneficiaries have been excluded.

18. Benefits which are readily identified as attributable to theEcuadorean economy represent:

(a) savings in cargo-hanclling costs in the project ports;

(b) savings in ship waiting time and ship service time costs ofEcuadorean flag vessels and ships chartered by Ecuadorean ship-ping companies or other Ecuadorean interests, which would carryabout 55% of the total bulk freight and 50% of the total generalcargo;

(c) savings in lighterage costs; and

(d) savings in costs of traffic diversion to other ports.

ANNEX 9Page 5

19. The extent to which the Ecuadorean economy will benefit from savingsaccruing to vessels (savings in ship waiting and service time) arising fromthe project will depend on the type of service involved. For the carriageof large volumes of bulk freight, about 30% of the sugar exports will becarried in vessels owned or chartered by Ecuadorean interests, as will be 30%of the molasses exports, 65% of vegetable oil imports and over 90% of grain(mostly wheat) imports. For the carriage of bananas, about 75% will be carriedin specialized liner vessels, of which about 20% will be under Ecuadorean flagor lease, and the rest will be carried in chartered ships, of which about one-half will be by Ecuadorean interests.

20. General cargo and containers will be carried to a large extent inliner vessels (80% of total) and the rest in charter ships and some trampvessels. Based on the active participation of Ecuadorean interests in shipping(near 25% of general cargo at present) and on the recent decisions by theGovernment to drastically increase their participation in the near future (bythe fast growing fleet of the newly created, state-owned, Transnave shippingcompany and the recent Government decree (Ley de Reserva de Carga) establishingthat up to 50% of all import and export cargo should be carried under Ecuado-rean flag), it is estimated that up to 50% of general cargo will be carriedin vessels owned, leased or chartered by Ecuadorean interests during the 1980's.

21. The above distribution implies that, on an average basis, between50% and 55% of the savings in current costs to vessels will accrue to theEcuadorean economy. Benefits arising from savings in additional costs in thefuture represented by foreign liner service surcharges or longer charter timeswhich would result if the project were not undertaken will, of course, accruefully to the Ecuadorean economy. These benefits, however, in view of the lackof clearly defined causality relationships, 1/ have not been included in theanalysis. For the same reasons of uncertainty, the recouping of part of theforeign vessel benefits through revisions in the port charges has not beenincluded in the analysis.

D. Economic Return

22. Inasmuch as the benefits stated above have not been included in theeconomic analysis, the economic return of the project has been conservativelyunderstated. The project, however, even on this conservative base, is welljustified, with an ER of 14%. The bulk terminal pier shows an ER of 12% andthe three general cargo berths, 16% (para. 5.17).

23. An ER based on the estimated benefits to the Ecuadorean economy plusthose accruing to foreign interests results in a considerably higher return(16% for the bulk pier, 24% for the general cargo berth, and 21% for the wholeproject).

1/ Since surcharges and charter costs appear to be a function of the generalstate of the shipping business and other ports at the time, as much as ofthe particular port situation involved.

ANNEX 9Page 6

24. The investment cost used in the economic evaluation excluded con-tingencies for price escalation, is net of direct taxes and duties and repre-sents, therefore, a true economic cost. Sensitivity analyses of changes inthese costs, as well as in the benefits, have been carried out, showing thatthe ER, even under adverse circumstances, still remains at U to 13%, whichis acceptable (Table 3 of text).

25. A marginal analysis for the third and fourth general cargo berthswas made, as a result of which the proposed three-berth expansion was foundfully justified (para. 5.16). However, and because of the difficulty inforecasting the rate at which traffic will be containerized, a calculationwas made of the optimum size of the project from the point of view of portcapacity, if container traffic deve:Loped at a faster rate, as follows:

Container Traffic (Thousand Tons)1979 1982 1985

Best estimate 60 215 425Alternate estimate 120 430 850

26. If container traffic did develop at a rate twice as fast as thebest estimate, the third general cargo berth would not be needed until 1983,that is, only three years after the expected completion date of the proposedproject. Although some savings would be derived under these traffic assump-tions if the third berth is postpone-d (estimated on the order of US$500,000a year), the potential losses, on the other hand, if the higher level ofcontainer traffic does not develop, are substantial (up to US$1.8 million in1983). Moreover, the likelihood of the higher level of container traffic isconsidered by the mission to be less than the likelihood that the lower levelof container traffic will develop. Therefore, the construction of three berthsnow is fully justified.

November 1975 (Final results in paragrapihs 22 and 23 reflect updating costsand benefits to March 1976,)

ECUADOR

APPRMAISLL OF A BECOiD OOArAqUIL PORT PIOJIT

Allocation of Treftic Forecrsts to Part Failitie with Prewod Pj etct(Thouand of tor)

197. 1975 1976 1977 1978 IqRo 1982 1905

Pr l"SFrB (with proposed exp-io-)

RLEana.as I446.4 40B.0 308.0 205.0 200.0 475.0 bSo.0 430,0Otbar - OCiaral Cargo 179 i64o 176.0 188.0 2 262.0 3

Ilports-7wral Cargo 63o.o 676.0 753.0 5b.0 890.0 l.106.0 1.102.0 1.545,0

TOTAL (A) 1,255.8 1,238.0 1,225.0 1,235-0 1,27P.0 1,i0ho.0 1,8b.0 2,30b,0

B. Proposed New Bulk Pier

942tar 87.0 92.0 101.0Suars 106.0 13?.0 175. 0

Iwtsat, cats, barley, other cereals 163.0 709.0 290.0Oile and fats 20.0 23.0 as.o

02TAL (B) 376.0 456.0 595.0

TorAL Port Authority Wharves (A * B) B 551 71 7

C. Port AutUitty Bk0Y3 (lighterage)

BDnusaa 52.1 £0.0 150.0 250.0 250.0

TOTAL at Port Authority (A.B.C) 1,307.9 1,288.0 1,375.0 1,485.0 1,528.0 2,180.0 2,270.0 2,899.0

D. Private IstAllatl ns

(i) Private ?rves

ft4orts7Naas 32.1 50.0 50.0 50.0 50.0 35.o 35.0 35.0

El %tiliUer 98.0 100.0 105.0 11o.0 120.0 130.0 20.0 50.0Wat, oats, barley, other cereals 16b.3 168.0 180.0 198.0 214.0 124.0 1lh.0 2lib.OPetroleu produts b o.6 48.o 53.0 46.0 3Q.0 5D.o 50.0 50.0Aspbalt 27.6 30.0 33.0 36.0 39.0 bS.o 50.0 60.0Chicala 13.0 20.0 22.0 23.0 25.o 38.0 42.0 b8.0Other 20.1 .0 30.0 3.0 30.0 20.0 20.0 -

Total (i) IYw,7 b U- 4 73.0430I L2,3h0

(ii) aver (itaras) aZBan 11,4 ~ 4*0 0 40.0 400 D 40,0 _ _ _ -sowr 36.2 75.0 77.0 80.0 82.0 - - -Molasmes jQ~~~~~~~~5. 52.0 60.0 70.0 81.0 ---

Total (ii) 92 6 1670 1770 190 0 2 -

aAKD TOTAL (A.B-C.D) 1,796.2 1,901.0 2,025.0 2,168.0 2,2b8.0 2,622.0 2,611.0 3,266.0

Source: XLesion estimatesSepteubor 1975

ANNEX 9Table 2

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Utilization of Proposed Bulk Pier

1980 1982 1984 1985

Sugar - tons (000) 87 92 98 101tons per ship hour 160 160 175 175tons per ship day 3,200 3,200 3,500 3,500ship days 27 29 28 29

Molasses - tons (000) 106 132 160 175tons per ship hour 125 125 135 135tons per ship day 2,500 2,500 2,700 2,700ship days 42 53 59 65

Wheat and Cereals - tons (000) 183 209 261 290- tons per ship hour 160 160 175 175tons per ship day 3,200 3,200 3,500 3,500ship days 57 65 75 83

Oils and Fats - tons (000) 20 23 26 29- tons per ship hour 125 125 125 125tons per ship day 2,500 2,500 2,500 2,500ship days 8 9 10 12

Total Ship Days 134 156 172 189

Berth occupancy 37 43 48 53

Source: YMission estimatesSeptember 1975

= 9Table 3

E!CUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Proposed Bulk Pier

Calculation of Freight Savings Per Ton

Cost per Freight GostShip Day Number of Per Ton

Comnodity Size of Ships at Sea Days at Sea US$

A. At Sea DeT us$Iheat

Without project 7,500 5,500 10 7.33With project 25,000 9,500 10 3.80

Savings 3.53

Sugar

Without project 7,500 5,500 10 7.33With project 25,000 9,500 10 3.80

Savings 3.53

Molasses

Without project 7,500 5,500 10 7.33With project 25,000 9,500 10 3.80

Savings 3.53

Vegetable oil

WJithout project 12,000 8,300 - -Ilith project 12,000 8,300 - -

Savings

Cost perShip Day Number of Port Ship Costs

Size of Ships in Port Days in Port Per TonB. In Port

Wheat

ITithout project 7,500 4,000 6 3.20With project 25,000 7,500 8 2.40

Savings 0.80

Sgr

Without project 7,500 4,000 12 6.40With project 25,000 7,500 8 2.40

Savings 4.0)0

Molasses

WIithout projeet 7,500 4,000 6 3.20With projent 25,000 7,500 10 3.00

Savings C.20

Vegetable oil

Without project 12,000 6,200 1l-lith project 12,000 6,200 4.8 2.50

Savings

C. Total Savings from Ship Turnaround Rteduction (A + B) M Per Ton

Wheat (grains) 4.33Sugar 7.53Molasses 3.T3Vegetable oil 5 .*5

Source: Mission EstimatesSoptember 1975

ECUld)CR

APPRAISAL OF A SECOND GUAYAQUII. PORT PROJECT

General Cargo Berths

Berth Utilization Without Pro,ject

1.980 19B1 1982 1983 1984

Trafric (Thousand Tons)

:General. Cargo:

Imports 1,106 1,038 1,102 1,211 1,312axports 733 737 747 760 777

1,83*9 1,775 1,849 1,971 2,089

Deduct:

Bananas (loaded from barges) 510 495 485 475 470Traffic diverted to Manta 100 100 200 200 200

610, 95 675 675 67-0

Total traffic handled at generalca.Lrgo wharves: 1,229 1,180 1,164 1,296 1,419

Berth days required (at 800 tonsper ship day): 1,536 1,475 1,455 1,620 1,774

Occupancy rate of GPA wharves 85% 82% 81% 90% 99%

HLoI(D >-4

Source: M4ission estimatesSepternber 1975

ANNE7 9

ECUADOR

APPRAISaL 0 A SECID GUATAQIL ORT PEOJICT

(irneral Cargo Berths

Barth Utilisation with Project

1974 195O 1981 1982 1983 1984 1985

A. Traffic (Thousand tore)

Osne ral CargoImports 630 1,106 1,038 1,102 1,211 1,312 1,545Exports 626 698 702 712 725 7)j? 759

Deduct

Banannaa 447 475 460 b50 b4i0 435 h30Container traffic general 100 150 215 270 34o0 b ?2

2LW -;5 _M 75571

TOTAL Break-bulk cargo(excluding bananas) 809 1.229 1,130 i16 _1.29 44_9

B. Berth Days Required (per year)

GerA'al Cargo Operationa

Ship days (at 800 tons per shipday from 1980) 1,18L 1,536 1,413 1,436 1,533 1,599 1, 11

Banana Operatiorns

Handled at berths (Thousand toz.) 447 475 b60 h50 440 435 1j30Ship days (at 1,300 tmns per ship day

from 1980) - tone (000's) 356 365 354 346

338 335 331

Container Operations

Number of container's Handled 16,200 23,,00 31,914 3Q,000 b9,0oo 61,666Ship days (285 ccntainers per as gen.

ship day) cargo 57 R2 112 137 173 216

TGTAL Ship Days 1,536 1,058 1,849 1,809 2,008 2,107 P,35RC. Berth Bays Available (per year)

With 7 berths 2.520 2,520 2,520 2,520 2.520 2,520With 8 berths 2,880 2,880 2,980 2,880 2,88o 2,880With 9 berths 3,240 3,2I60 3,240 3,260 3,240 3,2bC

Occupancy rate (S) 7 berths (85% for 78 73 75 80 R4 918 berths 5 68 64 66 70 73 R29 berths berths) 60 57 58 62 65 7?

/1 At 686 tons per ship day.

Source: Mission EstimatesSeptember 1975

ANNEX 9Taole 6

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Calculation of Number of ContainersYears 1979, 1902 and 1985

1979 1982 1985

Import tonnage in containers 30,000 123,000 250,000Tons per container 10 10 10Number of containers 3,000 12,300 25,000Percentage available for export ca:rgo 70 70 70Number of containers available forexport cargo 2,100 8,610 17,500

Export tonnage in containers 30,000 92,000 175,000Tons per container 7.5 7.5 7.5Number of containers 4,000 12,267 23,333Number of containers available fromrimport cargo 2,100 8,610 17,500

Balance needed for export cargo 1,900 3,657 5,833

Summary

Total number of containers in:loaded 3,000 12,300 25,000empty 1,900 3,657 5,833

4,900 15,957 30,833

Total n.umber of containers out:loaded 4,000 12,267 23,333empty 9g0 3,699 7,500

4,900 15,957 30,833

Total containers handled 9,800 31,914 61,666

Source: Mission estimatesSeptember 1975

ANNEX 9Table 7

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Proposed General Cargo Berths

Project Benefits(Cost Savings, in Thousand US$)

1980 1981 1982 1983 1984

Additional Costs of Lightering Bananas

Additional tons lightered (000's) 320 310 300 300 290Additional costs (at US$3/ton) 960 930 900 900 870

Additional Ship Waiting Time

Estimated ship waiting time withoutproject (days) 800 600 550 1,150 2,700

Estimated ship waiting time withproject (days) 100 65 67 130 216

Difference 700 535 483 1,020 2,484

Savings (at an average of USP6,200per ship day) 4,340 3,320 2,946 6,324 15,400

Additional Ship Service Time (generalcargo.ships)

Ship days without project (includingtraffic diverted to Manta) 1,661 1,600 1,705 1,870 2,024

Ship days with project 1,593 1,495 1,548 1,670 1,772

Difference 68 105 157 200 252

Savings (at an average of US$6,200per ship day) 422 651 973 1,240 1,562

Additional Container Handling Costs

Tons handled in containers (000's) 100 150 215 270 340Savings (at US$2 per ton) 200 300 430 540 680

Costs of Diverting Traffic to Manta

Tons div-rt-ei to Mante 100 100 200 200 200Costs (at US$6 per ton, only 1/2 oftons diverted incurring this cost) 300 300 600 600 600

TOTAL BENEFITS 6,222 5,501 5,849 9,604 19,112

Source: Mission estimatesSeptembPr 1975

ANNEX 10Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Tar iffs

A. Present Situation

Tariff Structure

1. GPA provides all port services except stevedoring. Charges leviedby GPA are mainly port dues and charges on imports and exports. These chargesare calculated on a ton/volume basis. The tariff structure provides for agreat number of preferential rates and has no apparent relationship to costs(Table 1 of this annex). General cargo imports pay S/ 144.00 per ton, whilebagged cereals pay S/ 60.00 per ton. Banana exports pay, on the average,S/ 10.00 per ton, while sugar exports pay S/ 25.00 per ton.

2. Port dues and certain other charges are paid by the shipping lines.Import and export charges are levied on importers and exporters.

3. The last modification of port dues and import charges was made inMarch 1970; the latest change in export charges was made in January 1971.Since Ecuador has gone through an inllationary process recently, the NationalPorts Council approved, in November 11975, an increase in tariffs effectiveJanuary 1, 1976 to put the Guayaquil Port tariffs in line with those of otherwest coast ports of South America.

Storage Charges

4. Storage charges have been hIistorically low, and, as a result, theport sheds and open storage have been used as cheap warehouses. In May 1975,storage charges were doubled for periods longer than 30 days. Charges forless than 30 days were not modified. GPA should revise its storage chargesas follows:

(a) The free storage time should be reduced from 10 to seven days.

(b) The Bank guarantee system for customs clearance should bemaintained.

(c) The new charges should be a-pplied on a daily basis and not on a10-day period basis as at present.

(d) The storage rates should cover costs and be sufficiently abovecommercial warehousing rates to encourage users to remove cargopromptly from the port area.

ANNEX 10Page 2

B. New Tariff Increase

5. In July 1974, GPA made a proposal to DIMERC for increasing tariffs.The study was subsequently revised and approved by DIMERC and sent to theNational Ports Council. On January 15, 1975, the National Ports Councilsent the tariff proposal for comments to the most important Governmententities ("Frente Economico del Gobierno"); the Chamber of Commerce and otherport users also received copies. Since no observations had been receivedfrom any of them, the National Ports Council approved, in November 1975, theproposed tariff increases, effective January 1, 1976.

6. The new tariff will increase GPA revenues by about 20-25%.The tariff study was based on the existing tariff structure, and the newtariff levels were determined by comparison with those of other LatinAmerican ports. The new tariff structure has no apparent relationship tocosts. However, when further increases in tariffs are introduced, which iscontemplated for 1980, the tariff structure will be based on the cost of theservices. This "cost of services" information will be available by the endof 1976, at which time the proposed costing system will be operating.

7. The highest percentage increase in the new tariff corresponds tothe dues paid by ships. On the other hand, banana export charges to shippershave not been increased. In Tables 1, 2, 3 of this annex, some examples ofkey tariff items and percentages are stated.

March 1976

ANNEX 10Table 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Ship Dues(In Sucres)

Old New %Rate Rtate Increase Notes

1.01 Port Dues

General Cargo 50.0 70.0 40 Per ton/vol. of cargohandled (2)

Oil, Cereals,Fertilizers,Sugar, Balsa 33.75 (1) 48.75 (1) 44 Per ton of cargo handled

Palletized Cargo 47.50 NA NA Per ton/vol. of cargohandled (2)

Banana:

Terminal 33.75 (1) 43.75 (1) 30 Per ton of cargo handled

Outside Terminal 23.63 (1) 30.63 (1) 30 Per ton of cargo handled

1.02 Berthage

All ships in allport areas(terminal, river, 5.0 11.43 129% Per feet of ship length

private) and days of stay

(1) Correspond to the most common case of 1,000-2,000 tons loaded/unloadedper ship.

(2) Metric tons weight or cubic meters volume, whichever the higher up to a1:3 weight/volume relationship.

ANNEX 10Table 2

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

Import Charges(In Sucres)

Old New %Rate Rate Increase Notes

1.01 Terminal

General Cargo:

General 144 150 4 Per ton/vol. of cargo handled (1)

Food andFertilizers 60 65 8 Per ton of cargo handled

Cement 90 90 - Per ton of cargo handled

Bulk Cargo 90 95 6 Per ton of cargo handled

Palletized NA 130 NA Per ton/vol. ofecargo handled (1)

Containerized NA 130 NA Per ton/vol. of cargo handled (1)

Ro-Ro NA 120 NA Per ton/vol. of cargo handled (1)

1.02 Outside Terminal

General Cargo:

General 120 NA NA Per ton/vol. of cargo handled (1)

Food andFertilizers 60 60 - Per ton of cargo handled

Cement 60 70 17 Per ton of cargo handled

Bulk Cargo:

General 30 40 33 Per ton of cargo handled

Food andFertilizers 30 35 17 Per ton of cargo handled

(1) Metric tons weight or cubic meters volume, whichever the higher up toa 1:3 weight/volume relationship.

ANNEX 10Table -3

ECUADOR

APPRAISAL OF A SECOND GUATAQUIL PORT PROJECT

Export Charges(In Sucres per ton of Cargo)

Old New %Rate Rate Increase

Using GPA Personnel 40 50 13

Not using GPA Personnel:

General 25 30 20

Sugar and others outof terminal 15 30 100

Banana 10 10

ANNEX 11Page 1

ECUADOR

APPRAISAL OF A SECOND GUAYAQUIL PORT PROJECT

GPA Financial Forecasts

A. General

1. The financial forecasts cover the construction period (1976-1979)and the first year and one-half of operations of the new installations mid1979-1980. Operating revenues are based on the traffic forecasts (Annex 8)and on the adoption of the new tariff levels from January 1976. A furthertariff increase of 25% is assumed after project completion (January 1980).

2. Operating expenses are based on an analysis of historical data,on the basis of which operating costs were broken down between fixed andvariable costs. GPA contributions to the Ecuadorean Government (principallyDIMERC) are a percentage of GPA gross revenues as established by law. SinceGPA does not provide stevedoring services, stevedoring revenues and expensesare not included in the financial forecasts.

3. The exchange rate used was US$1 = S/ 25 (Sucres).

B. Revenue Forecast

4. Revenues were obtained by applying the proposed tariffs to thetraffic forecasts. The distribution of the cargo among the different facili-ties was based on the 1974 allocation except that increased tonnages ofbananas are expected to be handled at private installations and from lightersto reduce port congestion. This will be encouraged by the new tariff whichgives a 3.0% discount on port charges for bananas handled at installationsother than GPA wharves. After the project is completed in mid 1979, therewill be a shift of bulk cargo to GPA's new bulk terminal.

5. Since there is no tariff for bulk grain handled at GPA wharves, therate levied for bulk grain handled at private facilities was used in theforecasts as a conservative estimate.

6. The tariffs provide for charging for general cargo by weight inmetric tons or by volume in cubic meters, whichever is higher, up to a 1:3weight/volume relationship. Related revenues were increased per ton by 40%to adjust for the volume factor, which is below the 50% historical average.Containers are not considered separately since containerized general cargowill pay approximately the same charge per ton as non-containerized generalcargo.

ANNEX 11Page 2

7. Ship dues include all charges made to shipping companies. Theycorrespond principally to port dues, berthage, pilotage and various otherincidental charges. Ship dues were zalculated by applying to the cargo andship traffic forecast the corresponding tariffs. Berthage revenues were cal-culated using the ship traffic forecast and estimates of tons handled per shipper day for the various cargo types. For pilotage and other charges, therevenue forecast was made using the ship traffic forecast and the historicaltrend.

8. Storage charges have been calculated using the new storage ratesadopted in mid 1975. Revenues have been calculated by multiplying theaverage tons in storage times the yearly turnover times the average storagerate. For the calculation of the average storage rate, a distribution func-tion of the time that cargo stays in ports was estimated. The high level ofrevenues in 1975 are the result of congestion and a substantial increase instorage charges in that year.

9. Port charges in Guayaquil are low relative to those in other portson the west coast of South America and the increase, to be put into effect inJanuary 1976, will bring them more closely into line with those in other ports.A further increase in tariffs was not: projected until 1980 when the projectwill be completed and operating efficiency is improved. An increase of atleast 25% (the amount projected) should be feasible to offset inflation andto reflect the expected significant improvement in services.

Expense Forecasts

Personnel Costs

10. Personnel numbers have increased significantly in the last two yearsas follows:

Employees Workers Total

January, 1974 384 445 829January, 1975 441 449 890July, 1975 534 515 1,049September, 1975 575 513 1,0881975 Budget 598 520 1,1181976 Buget 639 534 1,173

11i Forecasts of personnel costs were based on nine months of actualresults for 1975 and the 1976 budget. For the years 1976-1979, personnelnumbers are not expected to increase; however, when the project is finished,a 5% increase in workers was forecast to handle cargo in the new bulk terminal.The number of employees is already considered ample and no increase in theirnumbers was forecast. Moreover, incr,eases in cargo-handling efficiency now

ANNEX 11Page 3

being studied by consultants and improvements due to increased unitization ofcargo are expected to permit the handling of traffic growth forecast through1980 with the existing number of workers.

12. Increases in unit personnel costs are expected to be greater thanin the past and to closely approximate expected domestic inflation. Thefollowing rates were, therefore, assumed.

1976 15%1977 18%1978 16%1979 14%1980 12%

Overhead Costs

13. Overhead costs were estimated at 20% of labor costs, which correspondsto past experience. Contributions to Government offices related to GPA were2.5% of gross revenues as required by existing legislation.

14. Depreciation was estimated separately for existing port assets andassets included in the project. Existing port assets were depreciated on thebasis of historical costs and project assets on the base of estimated projectcosts using GPA rates (2% for land improvements and capital dredging, 4% forbuildings and warehouses, 5% for marine equipment, and 10% for machinery,equipment and vehicles).

Project Financing

15. The total cost of the project is estimated to be US$83.6 millionequivalent. The foreign exchange component is estimated to be US$56.7 millionor 67.8% of the total cost. The project expenditures would be financed fromthe following sources:

(a) The proposed US$33.5 million World Bank loan to be repaid over24 years, including four years of grace, at 8-1/2% interestwith a commitment fee of 3/4% on the undisbursed balance.

(b) A US$10.0 million loan from the Government or a privatebank guaranteed by the Government, repayable over eight

ANNEX 11Page 4

years, including 3-1/2 years of grace and on other termsand conditions satisfa3tory to the Bank. 2/

(c) The balance of the foreign exchange component, estimatedto be tJ13.2 million, and the local currency expenditures,estimated to be US$26.9 million equivalent, will be financedout of the GPA internal cash generation and through anotherGovernment loan to GPA on terms not less favorable thanthose of the proposed World Bank loan.

The Republic of Ecuador will guarantee all external loans to zPA.

April 1976

j The Government and GPA are cur.rently negotiating, with a private foreignbank, a US$10.0 million loan inder co-financing arrangements with theBank. However, the Governmen. has assured the Bank that, if these nego-tiations are not satisfactori:ly completed, it will provide the sameamount to GPA on terms not less favorable than those offered by theprivate foreign bank. In the projections shown in Table 6, it has beenassumed that the interest rate over the life of this loan would be, onthe average, -8 per year.

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ECUADOR

GUAYAQUIL SECOND PORT PROJECTGENERAL EAYOUT

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ECUADORneW co+ oGUAYAQUIL SECOND PORT PROJECT

R5D pi" 0 L 1972 HIGHWAY TRAFFIC FLOW

AVERAGE ANNUAL DAILY TRAFFIC

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