| RFTURN TO||REPORTS DEEKM t r p RESTRICTED

WITHIN wrLi J Report No. TO-399b

Ti;il eporiL wais preparedu for use W2tL!n tLe Bank an' its affilliaited organization.

They.do not accept responsibility for its accuracy or completeness. The report maynot be pulisl-ed nor may it be quoted as representing views.

l _ _D _ I _ __eri_ l

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISALT OF

THE PORT OF PATTA PROJTrrT

rL,1iP U

April 9, 1964

Denartment of Tech-nic-al Operations

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CURREN,CY EQUIVALENTS

1 U.S. dollar = 26. 8 solesI so, = :'. 7 7cerUs

I million dollars = 26. 8 million soles1 million soles = U. S. $37, 300

PERU

AP'°RAISAL OF THE FORT OF PAITA PROJECT

Table of' Contents

Page

SIJVIMARY i - iii

I. INTRODUCTION 1

II. GETERAL BACKGROUND 1

A. Ports of Peru 1B. Administration of Ports 2C. The Port Development Plan, 1962-1972 3D. Port of Paita 5

III. TRAFFIC THROUGH THE POCRT 6

A. Port Service Area 6B. Fresent Traffic 7C. Projection of Future Traffic 8

IV. THE FROJECT 10

A. General Description 10B. Cost Estimate 11C. Execution of the Project 12

V. FINANCIAL ASPECTS OF THE PROJECI' 12

VI. ECONOM!'IC BENEFITS OF THE PROJECT 15

VII. CONCLUSIONS AND RECO.'MENDATIONS 17

ANTE XES:

1. R'eceipts and Disbursements. D.A.P.2. Number of Ships Visiting Port of Paita, 1962-19633. Dry Cargo Movement, 1953-19634. Traffic P'rojection5. Cotton Fibre Production6. Estimate of Cost7. D.A.P. Scurces and Application of Capital Funds, 196L-19668. I)erivation of Estimated Receipts and Working Expenses at

New Port, 1967/68 and 1971/72

Table of Contents

9. Forecast of Fixed Assets and Debct Structure of HypotheticalPort Enterprise, 1968-1972

10. Forecast of Income Account, Financial Return, and Cash Flowof Hypothetical Port Enterprise, 1968-1972

11. Es;timated Savings and Economi.c Feturn, 1967/68 and 1971/72

MAPS:

1. Major Ports and Service Areas2. Road IlMap of Part of Hinterland3. Port of Paita

PHOTOGRAPHS:

Aerial View of Paita Showing Part of Port Project

PERU

APPRAISAL OF THE PORT OF PAITA PROJECT

S'UMIiORY

5,. The Peruvian Government has asked the Bank for a loan of US$3.Lmillion equivalent to pay the foreign exchange costs of constructing a newport at Paita in northern Peru and of retaining consultants to help improveport management. The project costs tctal an estimated US$5.1 million equiva-lent, of which US$5.0 million for the port works and equipment and US$0.1million for the consultants.

ii. Except for Callao, Peru lacks good public ports. About 20 smallregional ports are located at varying intervals along a 2,000 km coastline.Most of them are old, badly run-down, and equipped with obsolete facilities.The Paita project is part of a long-range port development plan designed tocorrect the present insufficiencies.

iii. The Port of Paita, about 900 kn. north of Lima, is the natural outletfor a large part of northern Peru. It, is a lighterage port at present. Theservice area includes several coastal departments and some interior depart-ments in the eastern foothills of the Andes.

iv. The facilities of the port are inadequate for the present traffic.This slows vessel turn-around, makes cargo-handling more costly than it needbe. and causes uneconomic diversion through Callao and other Dorts of Dart ofthe ocean trade of Paitals service area.

v. If the planned new port is built on schedule, the dry cargo movementthrough Pait2 cnnldr reasonably be expected to increase )O nhove the present.volume by 1967/68 and 65% by 1971/72. These projections allow for the normalgront.h of producntioin nand trade in the Pni t_ servi re area and some traffic d i-

version from other ports but do not allow for the traffic expansion whichwol-l-d occuririfv' i f i eist.in i rr,i gntjnfigaton w iks1 were to be'h fuVlly nrctA-iat.Pr in the

next 5-10 years, and planned irrigation works brought into service con-currentlyr

vn T'he construction of the new port is estimated to tnke about 3 'rnY-.It consists of dredging, reclamation, construction of a 4-berth deep-waterpier,-_ iston of cargo-handling. equipm.en-, repairi and adapting pr-sent

transit sheds and warehouses, building of an access road around the to rn to thepor.+, andA pro-rin¶fl Ain. ¶r'5 varnious ailiaries-, nr. The~P1,n An deep=ater,,h nyu n

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1 A pie ndekl a +

berth four ocean-freighters simultaneously. It is agreeable that a 3-berthf'acili+r ml "t+ suff'ice for. the vorle i-o n a t Av c^-r o tre4fic now ln

sight: about 170,0C)0 tons a year by 1967/68 and 200,000 tons a year by 1971/72.H-ownever, it; s sound 'o builA a f-.0r 4'aci 41 y now becaue addi t-onal berths,

will be needed soorL after 1971/72 (or perhaps earlier) depending on the paceV. X41 AL] L U.'JiL, LJ. X. OAiLU.i1. WV O CLt LxJ l.ULL Ot CLkiUi. V OV ' L@ .L* L VU " IiV.L . UUl VAG % LI

of building a 4-berth project in two-stages would not be warranted.

vii. Management consultants will be retained to advise the Direccion de~~~ -- 3. .-l A 2' . h .. .../~.

AdUmnistracIion PLortuariLa (id.UL.VU UD Or.A.P.)t , a i Depar-tmuenti wIIcuh VuildsO,,maintains, and operates all the regional ports. Their assignment will be to

he-lp- 4 --- rae ormetions nnA increas-n efciency aal +hIe nfl P. nrt_¶jJ -JVt .JtJa1_ &*'' .'C a O. & 'Jortc,-'

not Paita alone. Their retention is vital for the future good management ofPata bu 4s -not 4 part--4 ofe4 the Dait 4a constuto SproJ4c4---- t.-4± LJ. UL)'~ UU .L L IU Uiit P LI _L' LILL dJ uU ~A L Loi t, Li.VLU piJ 1JJr Li

viii. The cost estimates have beein prepared by qualified engineerlng con-sultants, and are realistic. All the works would be carried out under unitprice contracts awarded on. the bDcal sizs of international com[etitive U .

The D.A.P., as the responsible entity for the regional1prts, would be res-ponsible for executing _h. prote 1 Consu_Ling _.t _.. t_epon LUKIJlU IUS C ;Ub.LIl UlJt: pX-UJt; tVIb tt Lu.1r it:tI; ;JtU;:idtb.UL;,)r Li UIlm:

Bank would be retained for the final design and to supervise construction.

ix. The construction at Paita iEs one of the projects in a port develop-ment program for 1964-i968 on which the Government and the Bank have agreed.The other projects, besides Paita, are the extension of wharves at fourfishing por'ts, the construction of an additionai quay and cnannei ciearancesat Matarani, the purchase of cargo-handling equipment for the public ports asa whole, arnd some minor work and dredging to complete the modernization oI theSalaverry port.

x. I'he 196h-1968 program would require a total expenditure of someUS$21 million equivalent. Of this, US$15 million is needed for port con-struction and equipment, US$h.5 million for the repayment of outstandingsuppliers! credits (Salaverry works and ciredging), and US$1.5 million fordebt service arising from the agreed projects. The funds to carry out theworks and procure the equipment would be provided by the proceeds of allo-cated special charges (so-called Tasa Unica charges) on ships and cargo usingthe public ports (US$14.2 million); a recent port equipment loan from theEximbank (US$1.5 million); and AID credit for fishing ports and Matarani. nowbeing negotiated (IJS$2.3 million); and the proposed Bank loan for Paita(US$3.0 mi-Llion). Though adequate funds are in sight for the constructionperiod as a whole, D.A.P.1s working capital position is now tight and willremain tight for the next few years.

xi. As for the Paita project separately, the foreign exchange cost;swould be met from the Bank loan and the local currency costs from the pro-ceeds of the special charges on ships and cargo. The Government has agreednot to undertake during the construction period of Paita any works in addi-tion to the agreed program without first consulting the Bank.

xii. The D.A.P. is technically and administratively competent to operatethe planned new port, but there is room for improving its procedures andmethods. There is good reason to expect that Paita and the other D.A.P. portswill be better managed as a result of the Government t s decision to retainmanagement consultants.

xiii. The Government's plan for enlarging and modernizing the regionalports extend beyond the completion of' Paita and include construction of newports on the Amazon as well as ocean ports on the Pacific. As port develop-ment continues, it may be necessary to increase the yield of the Tasa Unicacharges assigned to port development and from other port user charges out ofwhich D.A.P.ts operating expenses are paid. The Government recognizes thispossibility and has agreed, accordingly, to review the present tariff on shipsand cargo at the D.A.P. ports in order to be able to modify them appropriatelyas the need may arise-

xiv. A new port of direct loading and discharge is needed at Paita be-cause the present lighterage port wo-uld be inadequate and uneconomic for thetraffic in sight. The planned new port would pay for itself economicallyfrom the start of cperations by elimLinating tne ignterage oI cargo, improvingthe efficiency of cargo-handling on shore, reducing vessel turn-around time,and making it feasible to discharge ge!neral cargo imports for northern Peruat Paita instead of bringing them in via Callao, as at present, and thenhauling them by truLck 900 km to market.

xv. lLpplying present tariffs and using conservative estimates of futuretraffic, the planned new port would bring in sufficient revenue above work-ing costs to cover the debt service of the requested Bank loan from the startof operations, and to reach a 5-6% returni on the net fixed assets five yearsthereafter. Earnings could be increased materially by slightly raising thepresent charges on ships and cargo. These are exceptionally low at the D.A.P.ports compared with charges at comparable ports outside Peru.

xvi. The project is suitable for a loan of US$3.1 million as re--quested. Considering the economic life of the facilities and the length ofthe construction period, a term of 25 years including 31T years of grace wouldbe appropriate.

I. INTROEUCTION

l. 'ihbe BUarl-l h"as bDeen asked ,byth Peruv"an Covcrnument for a loan ofUS",3.1 million equivalent of which US13.0 million equivalent would be used tomteet ULLe 1Lfore.8ignLA curenc1y 1,~U cost o.UU cntucting.Lr,.odernt.; LiaJcl._lities au theu Port

of Paita an.d US:oO.l million would be used to retain consultants on the opera-Ution a-:u ma.nagerent of po'uts.

2. The construction project is estimated to cost 'US;'.D5.0 million equiva-lent including local currency as well as foreign exchange expenditure. Itconsisbs of' redging, reclamatlion, construction of a deep-water pier, ac-quisition of cargo-handling equipment, repairing and adapting present transitshedsand warehouses, improvement oI an access road around the town to the port,and some minor items.

3. The following appraisal report is mainly based on engineering andeconomic reports prepared by the Governmentis consultants, Livesey andHenderson (London, June 1962) and Consultores e Ingenieros Asociados S.A..,(Lima, December 1961); on the findings of a Bank rmission which visited P eruin December 1962, and information made available subsequently by the Bank1 srepresentatives in Peru and by Government officials and advisors concerredwith the development, operation, and financing of ports.

II. GENERAL 3ACKGROUN D

A. Ports of Peru

4. Geographically, Peru comprises three distinct natural regions.Along the 'Pacific seaboard, there is a narrow coastal plain out of which themountain chain of 'the Andes rises abruptly. Lack of rainfall makes this plaina desert, 'but in river valleys and where irrigation is provided, the land isfertile. The "Sierra" of the Andes, on the other hand, contains rich m.ineraldeposits but has l:imited agricultural possibilities. To the east of the Andesthere are 'large areas of potentially productive land, which at present areunexploited largely because of the difficulties of providing adequate com-munications.

5. The 2,000 km coastline of Peru lacks natural harbors and therefore,in the past, seaborne goods were loaded and discharged on the more shelteredbeaches near the mouths of the cultivated valleys crossing the coastal pDlain.Towards the end of the nineteenth century more effective facilities were pro-vided at a number of these sites, in most cases by the construction of shallow-water piers, from which cargo was lightened to and from vessels lying at anchorsome distance from.the shore. These piers are usually connected by rail lineswith the particular valleys they serve.

6. Since that time, with the exception of certain specialized privateports such as the petroleum port of 1'alara and the iron ore port of San Juan,only Callz,o has been developed into a maLjor port with modern facilities; it

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h±and~les anr a.unual cargo ton±.naget~ of4 the ore of 3 to lT±.l4llon tons. Teohe

ports, about twenty in number, are small local ports, w1ose combined tonnageoL carto- has14-- 4-- appro1iU--I 2- i tn per anm in r

of these ports, Chimbote (as frorn 1942), ikfatarani (1951), and Salaverry (1961),hiave Ldeep-ater p-i±ers. 'iive olUhler small portJu-s are liglht1.era e portUs w.,ith olete facilities, fifty or more years old, that in many cases are dilapidateda-iiu be,Tund eLonomic0al ea 1- upalr.J

7. mTe Government has long Teelt that it snoulu modernize tne iacilitiesof the lesser ports and with this purpose cornissioned the Tudor EngineeringCompany of San Francisco in i957 to make a comprehensive study. The Tudorreport recommended replacement of the inefficient lighterage ports by a smallernumber of modern deep-water ports, at Faita, Salaverry and Hiatarani, where allships could come alongside piers.

8. In conformity with these reccnrendations, the Government is buildinga deep-water port at Salaverry iwihich 'Wll soon be fully operational; proposesto build a deep-water port at Paita, the loan project, which ought to be inservice by mid-1967; and is carrying out certain interim works at i'iataran:ipending eventual major extension starting about 1972. The Goverrnent is alsoplanning to build a deep-water port at Pisco and an Amazon River port atIquitos starting in 1968.

B. Administration of Ports

9. All the public ports of Peru, except Callao, are managed and operatedby the "Direccion de Administracion Portuaria,"t (D.A.P.), a department of theI4inistr-y of Finance and Commerce. Each port has a Port Manager who is directlyand solely responsible to the Director of D.A.P. in Lima. D.A.P. is responsibleat its ports for lighterage, if needed, for moving cargo across the w-harf, andfor maintaining all facilities; these functions are generally performed by D.A.P.staff.

10. The administrative and technical abilities of the senior headquartersofficials are reasonably good, but better trained personnel are needed in thefield for port management. D.A.P. is aware of this need and will seek appropri-ate advice from the managerment consultants whose services are included in theloan project.

11. D.A.P. has no financial autononmr. All the receipts from charges onships and cargo at the D.A.P. ports are paid to the Government. The operatingexpenses of D.A.P. and its ports are met from the Government's annual budget.Port construction and upkeep are paid from specific and ad valorem charges onexport/import goods earmarked to a special fund established for this purposeby lawi. The charges which feed this fund are so-called Tasa Unica charges,

12. In recent;years, the receipts of D.A.P. ports have exceeded theirdisbursements for onerations, upkeep and canital wiorks inclucding deht servicetherefor (Annex 1). Most o- the e.cess has been retained by the Government asgeneral revenue and thep remainder assipned to D_A.P as working capita1 As of'1962 retention by the Government was stopped. All balances hereafter accruingto the speelal fnrd [Lill he nqqipnePr to nA=P for nport. ,Torksz andi t.heir dehtservice.

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13. The tariff for port user charges is established by law. The struc-.ture of these charges is arbitrary and complicated. It is not boased on thevalue or cost of the services rendered. The larger revenues are needed be-cause (a) the Government intends to build, enlarge and improve various publicports in the next ten years; (b) maintenance of the ports will have to be in-creased; and (c) the Government may decide to transform D.A.P. into an aLito-nomous self-supporting port authority. The Government has agreed to reviewthe present charges on ships and cargo at the public ports in order tomodify them if necessary so as to vield larger revenue.

C. The Port Development Plan, 1962-15972

1h. The previous Government prepared a port development plan for 1962-1972 which envisaged the improvement, expansion and construction of tencoastal ports; the improvement of three inland river ports, and acquisitionof eouinment and maintenance materials. The total expenditure would have beenan estimated S/. 1,922 million (US$71,7 million) or close to SI. 200 milliona year,

15= The brenkdown off tfhe planned expendituire was as fe oIws:

.- rfnntriiction of the Port. of' Paita S/. 105.0 million2. Completion of the current expansion project

in qnl averrr 113.

3. Dredging of Paita and Salaverry 44.O)i -Rv- -nc!;rn, nrf' nTs ;n , TE 0

5. Further expansion of Salaverry and Matarani 680.06. «xpar. or-, ofl 44-e --- of' Chirbc;t0e 200. onI

7. Exoansion of ports of Supe, Huacho, Chancay and Ilo 39.085. Cons tV.ruct. on ofI t1hie port of Pkisco 190.0 X

9. Construction of a fishing port 300.010. ()Sher L-4 -VLst±- 4il n -- IA... LE- .iI. tI o4 three

inland river ports and acquisition of equipmentan Ar,aterials 203.2 I

S/. 1,922.5 million

16. The plan for financing the expenditures was as follows:

1. Suppliers' credits already obtained S/. 113.3 million(''`2 m.)

2. Foreign long-term public loans (to be0 v U 1,057,2 d J n.UZ TL_Iion

($39.5 m.)3. "overriment:s own financing 752.0 mnillion

($28.0 m.)

'/ 1 ooo U rni 1 n,

(TUS71.7 m7llior.)

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It would have been necessary to raise US$5 million per annum of foreign creditsduring 1963-1966, and US63 million per annum thereafter to 1972.

17. I'he above plan was over-ambitious and contained large elements ofeconomic waste. It was at variance with the main recommendations of theGovernment's earlier consultants (Tudor Engineering Company) in that theGovernment proposed to diffuse investmnent over 13 ports instead of concen-trating on 3 or 4 of them. A program limited to priority works at the portsof Paita, Salaverry, Matarani and (perhaps) Pisco, would require only halfthe expenditure of the recent Plan which called for local currency spendingfar hbyond the resourees of the Port Dlevelopment Flnrl 2ni for foreign creAi tsin amounts which the Government could not; be certain of raising.

18. The size,, timing, and financing of a realistic program of portdevelopment;wnere diiscussed with the Government during loan negotiations Asa result of these dliscussions, the previous program was cut back substantiallyin nvvAor frn l i mt. rnrnqfr.r,1p+., nn i t.n nr;i n ;t.ir ,.Tnruv. nno :nA t.h im i. mn nrf

construction was rephased to accord with available resources and administra-tiver capabilities.Joc

First, the Go)er-ment agred Ati" d r +l he Pniat

construction period, it would not undertake without first.nnncnr,l 4, n ro 4-in n _,nlr ,n,nr nv'r+- .trn,4 'e nv-nanr

4-4-in ho ,l1 n,.r; ncrr

SI. Million1. Construction of the Port of Paita 137.0 a/2. Construction of the Port of Salaverry 117.0 b/3. E'xtension of berth and rock clearance

at Port of Mlatarani 48.oh. Improvement of fishing ports: Ilo,

Chancay, Huacho and Supe 35.05. Purchase of equipment for D.A.P. ports

as a whole 42.06. Allowance for price contingencies and

non-Paita engineering expense 34.0

(US15.3 million)

a/ Excluding interest-during-construction.D/ Largely repayment of suppliers! credits for prior works

and dredging.

The total cost of the above worlks plus reasonable pro-vision for emergency works at the various D.A.P. portsplus the debt service of IERD, Lximbank, and AID loansin Support of the 1964-196;5 program would be of the broadorder of V/. 560 million.

Second, the Government indicated its intention to limitport development in 1968-19-'72 to construction of a deep-waterport at Pisco, the construction of river ports, particularlyIquitos, and the initial stages of building additional berthsat ilatarani. The total conistruction cost, some S/. 300 millionplus debt service arising i'rom the 1964-1968 program, some

SI. 70 million, could be raised, without adrditional borrowing, from tbeecteH ei1lrH of the Taqp Urica claroes at their present rate.

D. Port of Paita

19. Faita, a town of approximnately 8,000 inlLabitants, is situated inthe Piuira Department approYimately 900C km north of' Gallao the principal por+of the co-untry. Paita is the natural outlet for northern Peru (see Map 1).The town. is located by the sea in a valley surrounded by cliffs which rise toa height of 75 m. above sea level and extend into the Sechura desert. P-aita

sconnectedA bt roadts^ to the P^ Ar:e^r4 can h; .- o.-s D, 54 11-.n o1 nn.

munication centres respectively for the Piura and Chira valleys (Map 2). A-oad -A-e costutin rm 0l1-0- 4tWr--fh the Por^-'la TPass to the AmXazonas, _- ,,, n nsn'l .,n f U111,, fl 0e cm 1.10LI6,nn .11 + I-ca Dr.,,i1 cmc'4- c-Ic 4-h A e

and San Martin areas, will connect the port with the potentially rich interior

n. The Port 4 o Patis 4 eup - i-- . sml piers,L s w J,w_ LI a ' Iv CL. UC L. aL L.L>VJIL'n; I J,; U vvs U-JLLP U cYJu LIL LIx;v V._ VV D111CIL . a . .

and livestock and fishing wharves. The greater part of the existing porta.4 Jlties11 were built i-- with the construction of the Pat-Piura

U L- U J- c nne t 4oi,w-.4l LH ILL I~ ~ u± J_ UJ. LJ UJ IAIM jCQt±UGtr.Lur

railroad about 70 years ago and are obsolete. The harbor is situated towardIle southern en' of the Bay of -Pa'D- - ld- is wel shelere agis _-_3 -anulli ~U,I±LI L ~LUu IAI L I ay 0 J. daIU a ±u,L Wlc;L± CUIi::±Ij:;_t:U C%cd±LLIOL W±LLIU WULi

waves by Punta Nermete. The port has never been closed because of thevwratULier an'U is considLuered tUo be UIthLe'i best naturc111 hiarbUor on1 thLe ,U0U Aikr

Peruvian coast.

21. The mechanical handling facilities consist of five old 3-ton steamcranes, one 10-ton fixed derrick, two smail fixed wincnes, and one truck crane.The floating equipmLent consists of six small tugs, twenty-two lighters andthree 60-ton barges. Formerly, when the Paita-Piura railroad was in operation,water was brought from the Chira River by rail-tank car and delivered to shipsby a water barge. At present no water supply is available to shipping. Mostof the ground and floating equipment is out of date and inefficient.

22. Ihe difference between Mean High Water and Mean Low Water SpringTides at Paita is approximately 1.5 m. Exceptionally high and low tides areoccasionally experienced on this coast arnd are caused by tidal waves generatedby seismic 3zhocks. The periods of such waves vary from several minutes toseveral hours and the effect is that water will rise and fall to exceptionallevels during these periods.

23. There is ample anchorage available in Paita Bay over good holdingground of mud and sand. The port has several mooring buoys and there is asubmarine pipeline for delivery of export sperm oil, which is supplied by anearby whaling station.

24. Operations at Paita and other D.A.P. ports are not as efficient asthey shoulcd be. As indicated earlier, one of the main causes is the shortageof trained personnetl; another is inadequate coordination between D.A.P.headquarters in Lima and field staff. Though the port's size and trafficwould not justify retaining an expert to manage it full time, the managementconsultant to be retained for D.A.P. would advise on improving operations atPaita as well as other ports.

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III. TRAFFIC THROUGH THE PORT

A. Port Service Area

25. The service areas of the Port of Paita may be broadlv grouped intotwo main regions, rnamely, the inmnediate service area comprising the whole orpart of the four coastal departments. Tumbes. Piura. Lambaveaue and Caiamarca.and the interior hinterland comprising, the departments of Amazonas and SanMartin.

26. Virtually all the present careo of the Paita nort originates in oris dest'necl to the immediate service area. The area is characterized by agently rol-ling terrain slonine toward thei Pacific fron the Andes mountainrange, which is in striking contrast to the narrow and rugged terrain of' therest of the PeruviaLn coastal zones The area is we]l suited for irrigated-agriculture. Cotton and rice growing are predominant pursuits of the area,while fruitl- wheat and corn are also being nroduced in substantial quantitv.Most of the cotton produced in this area is exported through the Port of' Paita.

27. The Government is taking various measures to promote the agricul-tural develonTnent of northern Peru_ it considers such develonpment to be ofthe highest priority for-the growth of the national economy. As goverrnmentalmeasures are carried out - large parts of the se.m.-desert area along the coastwoulcd become productive and. the workload on the port of Paita would becomemuch heavier.

PR_ Olni larnre irrigatinn nrnoint. in rnrthtern Perui - C iurnos (SAn TLrn 7 n(see Map 1) - has already been construicted with the help of a Bank loan: thedam, resenroir, and channels uwere complet1 several years ago. The fulIirrigating capacity of these facilities has not yet been utilized, but progressis ben M..leAn A prorn

4ect is *. r cns-i -era+io lh,y the( rc.wm.en to ex+=ver.

the works westward in the Imichira area, this would multiply the capacity oft'he existi-ng workl, and 4th ereby mUake it4 possible to ' Lring Jinto cult i4v.atic;n U orAJI Jl

make suitable for grazing an eventual total of 60,000 hectares. Full acti-vation LILLe L.a joreIzo fJacLiUtes wouldU b U y ite. IrI,u Lak tecnstruct.lon of

the planned port imperative.

29. Irrigation works serving about 60,000 hectares in the Olmos area mayalso be built i the next 10 -years or so depenLding on the results of a ',pecialFund - FAO study of the feasibility of such a project.

30. In addition to its agriculture, the Department of Piura, where suchimportant towns as Piura ipop. 4-3,000), 3ullana (pop. 35,000) and Talara(pop. 49,000) are 'Located, is quite important for its industries as well.-There is a iarge petroleum refinery in Talara with a daily capacity of i47,200barrels, handling all the petroleum produced in the region (about 2.5 milliontons per annum). There are also within the Department fish processing plants(for freezing, canning, fishmeal and fishoil manufacturing); a whaling station;14 cotton gins which supply the raw materials for three cotton seed oilfactories; and a 'large yarn-making and weaving factory.

31. The interior departments of Amazonas and. San Martin on the-easternslope of the Andes have large agricultural potentials but, hitherto, verylittle development has occurred due largely to their geographical isolation.

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However, wihen the Trans-Andean (Olmos--Bagua-Yurimaguas) road constructionproject currently being carried out is complete, tne economic potential ofthe region would gradually be realized. Presently certain quantities ofagricultural andt forest products are flown out to airfielas near ocean portsfor export,,

B. Present Traffic

32. About 40 ships a month now call at Paita (Annex 2). Of 416 shipswhich called during the first 10 months of 1963, 319 were ocean-going sh.ipswhich loaded and discharged an average cargo volume of about 250 tons and 97were coastal ships loading and discharging about 280 tons. The daily nuLmberof ships that called were irregular; there were 33 days when no ships enteredthe port and 100 days when 3 or more ships entered.

33. Paita handles approximately 100,000 tons of dry cargo a year ofwhich about 75 percent is foreign trade and the balance coastal trade (Annex 3)In addition, an estimated 10,000 tons of sperm Whale oil is exported by pipe-line. The dry cargo includes petroleulm transported in drums. Lxport loadingsare principally cotton and cotton seed cakes and imports are mainly of chemicalfertilizers in bags. Coastal trade is mostly inbound fertilizer and outboundstaple foodstuffs such as wheat, flour and rice.

3h. There were some considerable increases in both import and coastalcargoes due to construction activities such as the San Lorenzo IrrigationProject until a few years ago. The import of cement and coastal inboundlshipment of construction materials was quite important, but recently suchcargo is nearly non-existent. Grcwth of such traffic will again be experi-enced if and when planned irrigation projects in the region materialize.

35. Though the total volume of cargo has fluctuated within a narrowrange of 80.000 tons to 130,000 tons annually during the past 10 years. therehave been important changes in the composition of cargo. Export shipments ofcotton and cotton cakes and imports of fertilizer have increased whereas othercategories of cargo have remained constant or declined. Consequently, l;heproportion of the combined volume of cotton, cotton cakes and fertilizerin the total dry cargo tonnage increased from 35 percent in 1953 to 77 percentin 1961. Cotton and cotton cakes alone accounted for L! percent of total drycargo in 1961 compared to 17 percent in 1953. If cement and constructionmaterials are excluded, general cargo as a whole shows a fairly consistenttrend of increase over the years.

36. The present lighterage port has been working close to or beyondits nractical economic capacitv. about 100,000 tons of drv cargo annually.throughout the past 10 years. Ships have had to stay in port longer thant.heyv qhoni fd fnhrthF nmTnnt. of cn.ran thev bring in and take out Tt has beendifficult to lighter cargo to and from the ships with dispatch and to loadand lnlnod n-ro promprntlv at. t.he quay. Be-au1se. of the nort trs deifinineipssome of the general cargo, equipment, and vehicle imports of the Paita servicearea are truck-hauled from C ollro 900 miles to the South, and some of tnemmove through other public ports in northern Peru or private ports such asTal.araO

C. Projection of Future Traffic

37. Tihough dry cargo traffic through Paita has fluctuated around a normof 100,000 tons annually for some years, volume should reach substantially

higher levels by 1967-1]971 because of increasing agricultural production asthe new irrigation facilities of the service area gradually come into fulleruse, a growth of local industries and tradie in response to agriculturaldevelopment, and thes diversion to the new port of general cargo imports n1owtruck-hauled to northern Peru all the way from Callao.

38. A well-equipped h-berth port would provide several times as muchcapacity to service ships and work cargo as the present over-burdenedlighterage port. This will speed ship turn-around and cargo working time,and thereby make Paita a more economic port for the ships which call thereand for the export/import trade of the area.

39. The new port could induce additional traffic, conceivably substantialamounts, by helping to widen the profit margin of merchants and helping to im-prove the prices realized by producers. There is scope for developing theagricultural potentialities of the portDs immediate service area and of thedeoartrments of Amazonas and San Martin on the eastern slopes of the Andes.A well-equipped h-berth port at Paita would speed the development.

4o. The availability of good port facilities tends to create its owrndemand to some extent at all general cargo ports. Recent experience atMatarani and Salaverry shows that, in Peruvian circumstances, the transforma-tion of a l.ighteragme Dort into one of direct loading and discharge is ant toinduce appreciable traffic volume by stimulating production and trade. Con-struction of imnroved facilities was soon followed bv lareer increases incargo volume than could be accounted for by normal growth of the area and bydiversion from other norts.

Li. ]:t is conceivable that Paita traffic could reach 300,000 tons ofdry cargo annually by 1971. Such a volumie would readily develop if the variousirrigation nroiects; which the Government is carrying out or planning innorthern Peru could all be fully activated promptly.

42. However, there have been de:Lays in exanding cultivation and i.n-creasing oumtput 2S ranidly as t.he irr:igation facilities might nermit. TheGovernment is now taking measures for a fuller utilization of the irrigation,and there is reasozn to expect a faster tempo of devetlpm.ent. hereft.er_

),. '1T|rhe temnp no . TwThicrh theo nrP.sint. nndi nlqnnprd irricvt.i;an work.s w-illactually increase production cannot nDw be definitely assessed. The mission'sprojection of i-t-ffic is hnbasre onn i!r its i p-.ci oni'njg tf the normal aroT.^lh

of production and trade in the Paita service area with conservative all]owancefor the diversion Of traffic from othe r ports. The pronection is surmarilyas follows:

- 9 -

(In thousand cargo tons)

1962/63 1967/68 a/ 1971/72 /Actual PotentialPaita PaitaTraffic Traffic Total

Exports 76.6 4.0 80 e 95.r 116.0Imports 27.0 16.0 43.0 51.0 59.0Coastal Trade 30.0 30.0 36aO 4o.o

Total 133.6 20.0 153.6 182.0 215.0

Less:Liquid cargo l0.6 - 10.6 12.0 15.0

Dry cargo 123.0 20.0 143.0 170.0 200.0

a/ To be understood as the first year of full operation.b/ To be understood as the fifth year following completion of the port.

Source: Annex 4

4h. Cotton production in the Paita hinterland has increased rapidly inthe past decade, from 6,900 tons in 1951 to a 30,000 ton level in recent years(Annex 5). Growth may slow down wuless the cultivated areas are expanded.Assuming better utilization of water arid improved agricultural technologybut not any substantial expansion of the cultivated areas, the volume ofexportable cotton might well increase to 40,000 tons in 1967/68 and 50,000tons in 1971/72. Cotton seed cake production should also increase pro-portionately, but a. large share is apt to be consumed locally as cattle feed,leaving a relatively small additional quantity for export. The export offishery products should increase somewihat. The annual fish catch of thenorthern region has been growing about 8 percent per annum, from 28,000 tonsin 1950 to an estimated 60,000 tons in 1960. Following the long run trendin Peru, the fishmeal industry of the North which has onlv recently started,promises to expand substantially. The projected export of 5,000 tons a yearof fishmeal through Paita is therefore a minimum expectation.

h5. Imports cf fertilizer are foreseen to increase from 18,000 tonsannually at; present to 24h,000 tons annually in 1971/72 as existing crop landscome to be cultivated more intensivelv and as the area under cultivation comesto be somewhat expanded. Imports of machinery, vehicles, and other specialtvnes of genera1 cargo in the Paita service area are now brought in largelvvia Callao, partly through Salaverry and also throughout northern lighterageports= The- plnnnerl new port would make it nposihbl to divert, in the interestof economic routing, a minimum of 16,,000 tons a year now imported throughother -ortsz.

- 10 -.

L6. Outbound shioments of rice, fish and meat to other parts of Perushould increase gradually over the ne-xt 5-10 years. Inbound shipments offertilizer should increase proportionately as arricultural Droduction is in-tensified.

TV T-Fl P ?Jx1T7.(

A. General. Description

47. The project would modernize the present port by providing a deep-7...7tpr ipffar n nPhle of berthing four oceann-noina vessels; quate wnrki ngareas; warehouses, sheds, maintenance facilities, a new access road to thenort, andi l;he ni1lrrhnP of up-to_r1.n-dat c -nv-?nhqnr1!inrr onii,.mant.-

IaR )rprynaina A- .d-,rmn nn W::r-n - t.hn zi-.% in Pnit.n RaPnr wi'rp t.hp ncr.r

pier would be located is shallow. In ordier, therefore, to reach a depth of10) m. alongside t;he jetty, about 600,000 M of spoil nould have to bedredged. The contract for this work has already been signed, and the dredgingand Mark-;,i: ofP 1-e now h,arbor aea. are scheduled t o be fi nished by Sept. 1,

".14.£14. .L1j £J.1 4fUv fi l Lat hJ.J aJ r0 I 'JU1 & -LA.L. £Jj t1 .4. ~ 14 -11¼A LJ -_'.j £~ .

196L4. As w,raves and current are insignif:icant in the bay no substantial amountV J.L.L U U.L'JUL L .V U AIJU UVO.o .LMU vL C t LI e * o LJA. L .W . W V vu L JU LJ

arrangements to ensure future maintenance dredging as may be required.

149. The Jetty. The jetty would be built and equipped to berth fourshi.ps si,multaneousLy. An installation l.ike this operating single shift exceptin peak seasons could economically handle up to 300,000 tons of general cargoa year or 50 pereen'1t Ir-iore tonnage thian bhe forecast -vol-w.iie oI -197/72. I 1-u-though three berths might seem to be sufficient capacity to start with, thetrue alternative is a 2-berth or a 4-berth installation since thie jetty wouldbe a "finger" pier useable on both sides. The 4-berth alternative is pre-ferable because the extra cost - some US$800,000 equivaient - would have to beincurred soon after 1971/72 at the latest; because it would be much moreexpensive to build a 4-berth jetty in. two stages than all at once; and becauseno port can operate efficiently without a margin of spare capacity to deal withpeakload traffic pressure and to be ready for inmminent traffic growth.

50. The work will consist of buLilding an approach, constructed as areclamation area with steel sheet piles on one side, pitched slope on theother, and with a reinforced concrete! piled area on the seaward side; and,as shown in Map 3, construction of an open reinforced concrete "finger" pier,325- m. lon.g and 36 m. wide, founded on precast concrete piles and with aminimum water depth of 10.5 m. for berthing. The new quay extends from theexisting railroad station, wnere all buildings and other facilities whichcannot be utilized. after the port expansion will be removed to make room foradequate storage area.

51. Sheds and other buildings. No new transit sheds or warehouses needto be built. The Government has bought from the Paita Piura Railway Ccmpanyseveral existing sheds, warehouses and other buildings on the port pren:,iseswhich will be repaired and made useable for port services. The two sheds tobe repaired have aL combined floor space of 4,500 m' and the two warehouses3,000 m2 . There are also two brick buildings, each with a floor space of

- 11 -

approyimately 500 mn2 which are to he redesig3ined as the Port. Administ.rqMtonand the Customs Offices. However, it is necessary to construct a maintenanceworkshop, a gear storpe generator house_ a fire-fighting building with hosetowqer, a guard house, a goods-checking hut, a weightbridge pit, and staffnmreni ti c

5?2 Roads nnd Utilities. All traffic to and from the port moves hyroad transport, except for cotton from the nearby baling plant, which isbrflought in hb rail The pncassa frorm t.he port t.o t.he main PNiura highiowayr

through the narrow, steep streets of Paita would not only be inadequate, butnlson a hazaUnrd ton the11 fo.MMni+ty. Tlhe pronet thrfore, includes a new.

road to the port along the face of the sand cliff behind the town, which willallow the entire ra.il line to be closed. Roads an.d pavement in the port areaare also included.

53. The fresh. water supply of Paita is poor both in quality and quantity,cu J- L tepJYlsu.Ly of .L Je leU ctrL1UtUyLU iI.s i.L Jae ThU L11%ci LUkud

pipelines on the quay, water mains, and sewers to all the new buildings. Plansfor inLcreasing the supply of water suwficiently to serve the town of Paita,the port facilities and ships which call there have been prepared by theGuoveririent.. Pending their execution, the m-u-icipaliy which o-ws and operatesthe present; waterworks feeding out of the Chira river has underta'ento deliver an adeqtuate supply for the operational needs of the port.

54e Port Equipment. Most of the existing D.A.P. tugs, lighters andbarges wil:L not be needed after the improvement of the port. Some of thecargo-nandiLing equipment now in use may be utilized at the new jetty. Hiowever,much of it is old, obsolete, and is not well suited for efficient operation ofa modern port. Purchase of additional equipment for cargo-handling, workshopand fire-fighting Ls provided for in the project.

B. Cost Estimate

55. The estimated cost of building and equipping Paita as planned isS/. 134 million (us$5 million equivalent). Expenditures in foreign exchangewould amnount to S/. 80.4 million (US$3 million equivalent). The estimate in-cludes the cost of engineering design and supervision still to be carried out,and incorporates, :for each item, an allowance of 10 percent for constructioncontingencies plus an allowance of 5 percent for possible cost increases. Theconstruction estimate is based on the latest unit prices for works of asimilar nature in Peru, and the amount for dredging is based on the contractalready signed. The estimate is considered to be realistic. The detailedcost estimate for the construction project, separated as to foreign exchangeand local currency is given in Annex 6. The following is a summary of thisestimate:

Item Million Soles

1. Dredging 19.002. Jetty and approach 71.503. Sheds and buildings 10.054. Roads and utilities 14.075. Equipment 8.096. Miscellaneous 5.937. Engineering design and supervision 5.36

13h.00

56. Expenditure is scheduled approximately as follows:

Local Currency Foreign Currency TotalMi.l.lionU OU.1es ThIUousand UC&> Milnion So0les Mhousc^Ul UQ'V

ist year 10.0 746 30 11202nd year 21.1 7h6 41 15303rd year 14.6 1134 45 1680hth year 7.6 374 18 670

53.6 3,UUU i34 5T,uCO

57. The Bank estimates that the fees, salaries, and allowance of themanagement consultants would amount to l100,00OdurLng the t,'o year pericd ofservice -U±cFh Ehould be carried out before the completion of the constructionproject at Paita. The entire amount would be foreign exchange.

C. Execution of the Project

58. The designs for the new port have been prepared by Livesey &Henderson, consultants,who will also supervise construction. Completion ofthe project, including dredging, is expected to take about 3 years.

59. The necessary tender doctments have been prepared by the consuLtantsand are satisfactory to the Bank. The dredging contract has been awarded,after international tendering, to Palacios-Batingolles-Courbot, a firm alreadyengaged in dredging at the port of Salaverry. The dredging of Paita is dueto startin April. All other contracts for the project will also be awardiedon the basis of international competitive bidding. Invitations for tendersare now being asked and actual construction should be in progress by the endof the year.

60. D.A.P. would be responsible for the execution of the project with theassistance of the consultants.

V. FINANCIAL ASPECTS; OF THE PROJECT

61. The Government proposes to finance both the local currency cost ofconstruction and the debt service of the requested loan out of the TasaUnica charges earmarked for port works. In principle these seem to be suitablearrangements.

62. By Government decision, the Tasa Unica charges have to be applied,in the first instance; to repaving sunnliers' credits incurrRd for nort workqat Salaverry which are now nearing completion. The outstanding credits arenow about S/- 100 million (includin-g accrued and accruing interest') ton whichshould be added back payments on dredging to the amount of S/. 20 million.They are repayable in annual installm.ents up to 1967.

63.~Tlhee f,wnds in. sight too reepay t1hese. suppliersol credits, to fnenc

the agreed port works for 1964-1968, and to meet the debt service of portdevelopment Ios total about S/ A6 r llion (A--- 7)0 The bulk, or

- 13 -

S/. 420 million would come from the port user charges allocated to port de-velopment. and the balance or SI. 186 million from external loans and creditsas follows:

S/. Million. 196L-1968

Iasa Unica funds: balance, start of period 15Estimated. receipts during period 405

Allocat,ed charges on ships and cargo 420

Eximbank loan (port equipment) 40Proposed 1BRD loan (Paita) 84AID credit being negotiated (fishing ports

and Matarani) 62Total 6

64. The funds in sight would be sufficient to meet all the claims due toarise in 1964-1968 on account of outstanding suppliers' credits, the agreedport works, and intervening debt servLce (Annex 7). In fact, D.A.P.Is wrorkingcapital would increase substantially over the period as shown below.

S/. Million, 1964-1968ol ancQ r e r rlx fiofrlc c! F rt of nrv.4 nA 1 <

,,_,~0 - -, _ - - , S- 5 - -E v - _- --- _

Additional funds of period: Tasa Unica charges 405E xternal loanc an.dcredits 186

Fu.nds .n s i ght 0=56

Subt-,rac':Salaverry suppliers' credits and dredging

paym.ents 121Agreed port works and equipment i 371.Provisi.on for e.n.ergency works expense 26

Debt service of Eximbank and IBRD loans 140

Balance of working funds, end of period 48

a 1/ .Iludg fo p contViJLgnL LUJ.UHL ies and non-Paita IlUilLZ.L UeL1 .

expense.

65. D.A.P.fs working capital position would nevertheless be tight forthe next few years, largely because of hea-v-y payme Ints for prior -works anddredging a.t Salaverry. The annual inflow and outflow of capital funds (Annex7) is brieily as IollOows:

S/. Million

Balance: Balance:qstart of yvar Tnflow Outflow n end of ,year

1964 15 145 (151) 91965 9 134 (133) 101966 10 126 (109) 271967 27 97 (71) 531968 53 89 (94) 48

- 14 -

66. Th.e D.A.P. is not financially autonomous; the user tariffs at itsports are not baseLd,U oJn th1e value or' cost' of.'J. -- " 1. rendered, Ut oe

ating expenses of local staff, labor, materials, and equipment are paid iromL,it JUVtII ent t1±L 4 -- A- -UUL1L -L- - - - - -UU LUL I;~IiI~ L-Jd -U-ULthie Governm,ent, s boud'.get . Th-e port entijti.es do noWu Aeept; cruV1U11,,erCLa ac3co,,W1t

from which true income statements and balance sheets can be derived. It isnevertheless possibLe to make a pro Iorma assessmen.1t of financial v-abilItyby regarding the port of Paita as if it were a public enterprise obligatedto pay its own way.

67f in oruer to make this a sssr-ntu: (a) total receipts have beenestimated by applyin.g to 1967-1971 traffic as forecast in this report, thepresent scale of ordinary and special charges on ships and cargo 'Annex 3))(b) working expenses including maintenance, repair, and administrative over-head have been estimated from present performance with ailowance for improvedefficiency resulting from the new facilities; (c) it has been assumed that theGovernrment would charge the new port for the full debt service of tne proposedBank loan; (d) such debt service has been calculated on the basis of a loanat 5= percent annual interest repayable in 25 years including aj3 year graceperiod; (e) the value of the new port at original cost is assumed to beS/. 145 million, equal to the estirnate.d total costs of building and equippingthe 4-berth facility, plus interest-during-construction; and (f) since thleaverage life of the new facilities works out to 30 years, depreciation isassumed chargeable at 3.3 percent annually on the total investment (Annex 9).

68. Pro forma earnings and finances have been estimated for 1967-1971(Annex 10) but for no later period because realistic forecasts of trafficgrowth beyond 1971 are not yet practicable.

69. The new port could pay its debt service out of revenues and yield asmall but increasing investment return from the start of operations. Itsfinancial performance in the first year it becomes fully operational wouldbe as follows:

Operating ratio 62%Return on net fixed assets 3.0%Times interest earned l.OxCover of debt service l.4xCash generated by operations

after amortization of debt SI. 2.7 million

70. Five years from the start of operations, the port's earning powerwould have increased substantially due tc growth in traffic and fuller u.se ofcapacity. The financial ratios as of 1971/72 would be as follows:

Operating ratio 54%Return on net fixed assets 5.4%Times interest earned 1.7xCcver of debt service 1.8xCash generated bv operations

after amortization of debt SI. 5.0 million

71. 1'he above analysis assumes that. ships and cargo will pay the samecharges as they now pay. These charges ,work out to $2.30 a ton on generalcargc exports or irrports, $1.15 a ton on whale oil exports, and only 60¢ atorn on coa.stal trad"e .1tj They aever-y J.Vw UVJJcL1Z,Upr .withU thoseU of. - atl.l aoGuayaquil, and other general cargo ports financed by the Bank; and very low,also, co,mpared with comparable small ports outside Peru. There would thereforebe scope for increasing tariffs if needed to maintain the port's earning power.rnwever, WlLe CXrtX[1L uU WIuri ultie pIeJIebt'IIU Uar±b oUUlU pI'UpUI.iy Ute iLUneasdUcan be determined only by careful and detailed studies of the main factorsaff'ecting operations at all the D.A.P. ports, not merely Paita. Tihe Goverrunienthas agreed to review the adequacy of t;he present scale of cnarges in the lightof D.A.P.:s future need of funds for construction, debt service, arncd operations.

VI.. EC0N10MIC BENEFITS 0F THE PROJECT

72. The new port would yeild an adequate economic return for its invest-ment cost from the start of operations. It would do so by: (a) eliminatingthe lighterage of cargo, (b) improving the efficiency of cargo-handling onshore, (c) reducing vessel turn-aroundl time, and (d) eliminating the longoverland haulage of' certain goods presently imported via Callao.

73. Cargo at the new port would be handled to and from ships at berth,thereby averting costly lighterage. FBased on the consultantts estimates ofthe present cost of lightering cotton and fertilizer, an average saving ofS/. 20 per ton of dry cargo could be realized.

74. Cargo would be handled more eff'iciently on shore because ofmechanized loading and discharge, more amlple working space, and a better lay-out of the facilities. The consultants estimate that a saving of S/. 5 perton of dry cargo could be attained.

75. Feing able to load and discharge directly, ships calling at the newport would be able to turn around much faster than at present. The consultantsestimate that only 3,115 hours of ship time would be required at the new portfor the same volume of foreign trade (80,000 tons) which required 6,070 hoursin 1960.

76. About 4o ocean freighters a month normally call at Paita (Annex 2)to load or unload an average of 200-300 tons of cargo each. Their turn-around time, which has been slowing in recent years, ranges from 12 to 36hours as a rule. According to the consultants, it costs about ';1,200 a dayto keep one of these freighters waiting in port. On this basis, if theplanned new facilities had been available in 1960, the 80,000 tons of foreigntrade which moved through Paita could have moved for i150,000 less cost inidle ship time. The annual saving as of 1967/68 might well be of the order of$340o,000, considering that (a) 134,000 tons dry cargo exports and imports,or nearly 70 percent above the 1960 volume, would have to be moved throughthe port, and (b) moving the increasecl volume with the present facilitieswould cause serious ship delays, and thus prolong average waiting time con-siderably.

- 16 -

77. The savings of ship time would be shipowners' benefitE in the f:Lrstinstance, mostly benefits to foreign shipowners. They might or might not,depending on the practices of particular shipping conferences, result in lowerbasic freights on foreign trade to and from Paita. However, equivalent oreven larger benefits would gradually accrue to the Peruvian economy in suchforms, above all, as (a) the avoidance of the surcharges whici-h shipping con-ferences frequently impose on cargo tc, and from slow-workingr ports, (b) thecapability of the new port to attract tramp shipping, the cheapest form ofocean transport (when practicable), and one where the charges immediatel;y andfully ref-lect the turn-around speed at. particular ports. Furthermore, part ofthe savings in ship time would accrue to Peru directly since coastal trade toand from Paita is carried in Peruvian ships, and (c) a possible increase ofthe port charges.

78. T'here would be large savings on each ton of import goods fornorthern Peru which could be unloaded at the new port of Paita instead ofbeing discharged at, Callao, as at present, and then trucked 900 Ion to thePaita servi.ce area. Based on the consultant's analysis of traffic countsmade in 1960, a minimum of 32,100 tons a year of import goods is broughtby truck all the way from Callao to northern Peru. This includes:

Machinery, vehicles, tools 6,500 tonsFertilizers 11,800 "

Steel ancl other metal 7,500Construction materials 6,300 "

'otal 32,100 "

79. In view of the present staJe of economic development of the Paitaservice area and the considerable truck traffic which the mission observedheading to Piura and further north. over the Pan-American Highway, it isreasonable to suppose that one-third of northern Peru's imports via Callaoare to the Paita service area. The savings in inland transport which couldresult, as of 1967/68, from using Paita instead of Callao to import goods fornorthern Peru may be estimated at S/. 3.3 million as follows:

1L960 voluime of import goods to Paitaservice area via Callao 10,000 tons

iExoected growth of traff'ic to 1967/68 2,000 "

a. Tonnage to be diverted 12,000*b. Reduction in length of haul; distance

from Callao to Olmos minus distancefrom Paita to Olmos 686 km

c. Saving per ton diverted.; present truckingcost (S/. 0.40 tkm) multiplied by 686 km S/. 275

d. Saving for 1967/68 volume; S/. 275 km tonx nn tons S/ 3,300,000

80. The total economic benef'its from the new port would thus be of theorder of S/. 16 mUllion ann-ually in the first year of operatLon and would soonincrease to the order of S/. 19 million annually five years thereafter('Annex 11).

S/. miliiion

Type Of Benefit 1 6., I/0 i9 7i/7

Elimination, of Lighterage 3.4 4.0Reduction in cargo-handling cost ashore .9 1.0Reduction in vessel turn-around time 9.0 10.7Savings in overland transport costs 3.3 3.9

Total 1606 19.6

81. Projected over the 30-year average economic life of the facilities,the annual savings at the start of operations represent an 11 percent invest-ment return. (Annex 11). Allowing for traffic growth in the first 5 yearsonly, the initial annual savings woulcd yield a 12' percent return.

VII. CON!CLUSIONS AiiT) 1ECO11ENDATIONS

82. The project is technically sound and would be carried out byacceptable procedures. Preliminary design has been prepared by competentconsultants. Final design and supervision of construction would be entrustedto consultants satisfactory to the Barik. The execution of the works would beawarded to qualified contractors chosen through international competitivebidding.

83. The project is justified on the basis of its economic benefits andwould pay for itself frorm revenue.

8B. The following matters have been agreed with the Borrower duringloan negotiations:

a. The size, timing and financing of the public ports program.

b), The desirability of reviewi.ng the present tariffs on shipsand cargo.

co Effective methods for improving port operation and managerent.

cd. Appropriate procedures for allocating port construction funds.

85. The Government has agreed:

a. To consult the Bank before undertaking any port worksin additiontn those set fnrth in Uth aPgrePe 1960i-1968 propram-

_ in- 10 -

b. To authnori.ze 'u-e retent-ion uy D.A.P. 0f1 co0s1ultants on pormanagement and operations.

86. The project is considerecd suitable for a loan of US$3.1 millionl asrequested. A suitable term would be 25 years inciuding 35years oI grace,.

April 9, 1964

ANN'EX 1

Page 1

PERU: PORT OF PAITA PROJECT

Receipts and Disbursements,Direccion de Amn.tai Portuainria

1959-1963

(Million Soles)

-L)7 IJ ' 196 '1tJ

Jan.-OcteUL; I.

1. Ordinary Accoun-t

ReceiptsPort charges on ships and

d.ry cargo 9.2 11.4 13.2 16.3 l4.3Charges on petroleum and

other liquid cargo 1.1 1.0 1.1 1.0 0.8Miscellaneous charges 1.0 0.9 1.1 1.0 0.9

TOTAL 11.2 13.3 15.4 18.4 16.0

DisbursementsSaLaries and wages of

Port personnel 11.1 12.1 14.0 18.4 15.6D.A.P. administrative

expense and materialsand supp-lies 3.3 3.7 3.4 3.7 3.3

MiScellaneous expense o.6 o.6 o.6 0.9 o.6

TOTAL 14.9 16.4 18.0 23.0 19.5

Receipts less Disbursements (3.7) (3.1) (2.6) (4.6) (3.5)

2. Special Account for Port Development and Upkeep

Receipts 46.3 57.3 57.7 68.7 80.8

DisbursementsaDebt service of supnliers'

credits i.ncurred forport eonstruntion 2P( 26.8 2)t7 42.0 lh6-9

MIaintenance and repair ofTort fanilities :3_6 3.7 3.9 13. 20

Technical and economic studiesof port develop.m .. . .. .... ...ent.t - . .. ..... .... 1.1 A 6 0.7 0.2

TOTAL 29.9 31.6 34.6 56.2 49.0

Receipts less Disbursements 16.h 25.7 23.1 12.5 31.8

AINNEX 1Page 2

1959 1960 1961 1962 1963Jan .-

Oct.

3. Surplus of total receipts 12.7 22.5 20.6 7.9 28.3

Retained by Government 8.0 23.6 17.3 - -

AssiLned to :D.A.P. h.7 (1.0) 3.3. 7.9 28.3

4= Sirpnlius of Snec:ial AccountReceipts 16.4 25.7 23.1 12.5 31.8

Credited to balance ofSpecial Account 8.4 2.1 5e8 12.5 31.8

Credited to Glovernment 8.o 23.6 17.3

Ulote: Some slight discrepancies in totals are due to rounding.

Source: Direccion de Administracion Portuaria

AI\X,T 9

PERU: PORT OF PhITA PROJECT

NAimber of Ships Visiting Port of Paita, 1962-1963

Days VJ.L ULI

Days vwith or More ShipsShips in Ships ir., - Ship in 'or' aU

1962 Foreign Trade Coastal Trade Total in Port -Samd' Time

January 32 7 39 3 15February 28 o 314 2 1OMarch 31 c 40 7 10April 19 1i. 30 10 47.ay 25 12' 37 4 5June 23 26 1 0July 26 5 34 4 10Auigust 24 6 30 7 5September 43 1li 57 4 12October 35 4 49 6 6November 48 12 60 2 15December 39 11 50 4 10

1963

January 33 3 411 3 13February 29 6 35 4 11Aarch 38 12 50 2 9April 26 10D 36 5 ].1May 28 7 35 4 5June 30 15 45 5 6July 32 12 144 5 6August 38 13 51 3 1September 34 9 43 1 12October 31 5 36 1 .!6

Total: 12 mnonths1962 371 113 486 514 llO

10 -months1963 319 97 ,16 33 1 0

Source: Direccion de Administracion Fortuaria

ANIEX 3

PERU: PORT OF PAITA PROJECT

Dry Cargo Tovement, 1953-1963

- 000 metric tons -

1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963Jan.

EXPorts Oct.

Cotton 11.6 16.1 17.5 25.1 18.5 27.1 28.8 29.9 29.7 32.6 30.0Cotton cake 7.6 7.5 7.5 6.8 10.7 18.5 9.9 15.8 15.7 20.5 18.4Fish 1.6 5.2 3.4 3.1 2.9 3.0 8.2 4.9 4.6 4.3 2.1Fishmeal * a ° * 0.3 1.6 2.4 0.7 2.0 2.8 1.9Other goods 2.8 8.4 1.4 2.3 0.9 1.9 1.3 0.7 1.3 6.5 3.3

Sub-total 23.7 37.3 29.7 37.3 33-3 52.2 50.6 52.1 53.1 66.7 55.7

Imports

Fertilizers 1.3 7,6 5.1 10.1 1]2.2 11.2 6.6 19.8 16.2 17.9 15.5Cement 32.9 * 1.7 25.8 21.2 6.1 . .Others 10.2 4.0 10.4 12.1 12.3 9.2 10.8 6.0 6o7 6.5 8.2

Q U +LU I U1. L44J .. *. -. I .1.570 4 5 LJ ) Lff. 7 .dS) A E 5 *LJ7 . off A A.e' LLJ.L 4.

FerIii 17 -5r 23.90 922 29-R 30-' 1l.9 14.2 21. 3 17T IA f A I).-

Flour &: Rice 7.9 3.6 0.3 o 0.2 * 2.9 22.4 7.6 13.3 11.1

materials 3.6 1.0 2.4 0.6 2.9 . 1,2 . 0.2 *FiSh 3.1 6.7 3,3 30 1-3 1.9 I Other goods 8.3 6.6 5.8 3e0 2.7 1.3 1.1 1.6 1.0 0.1 1.9

Sub-total 40.4 41.0 34.0 36u3 40.5 18.1 21.8 50.9 26.1 29.9 27.1

Total drycargo 1o8. 89.9 80.9 121.9 lL9.51 96.8 89.9 128.7 102.1 121.0 106.7

Cement & con--stru.ctionmaterials 36.5 1.0 4.1 26.4 24.1 6.1 1.2 . 0.2

All othergoods 71.9 88.9 76.8 95.5 95.4 90.7 88.7 128.7 101.9 121.1 106.7

Inbound fer-

tilizers 18.8 30.6 27.4 40.2 42.7 26.1 20.8 41.1 33.6 34.4 29.6Rblnnep Of

dry cargo 53.1 58.3 49.4 55.3 52.'7 64.6 67.9 87.6 68.3 86.7 77.1

Niote: Some slight di;screpancies in tot,als are due to rounding.

Source: Direccion de AdministraciorI Pcrtuaria

T\TT,1nV I

PERU: PORT Ci) PA_TA PROm A_

Traffic Projection

(In thousands of metric tons)

Average 1962-63 1967/68 a/ 197L/72 b/Actual Traffic As s-MingCargo Potertial in NormalVoJlw-neU ra iaUulg,r J.tUaUdl Sight Growth

Neigh-boringPorts Callao

Exports

Cotton 34.0 - 34h0 400 5°OIotton seed cake 21.0- - - 21.0J 25.0 0.0

Frozen fish 365 1.7 - 5.2 6.o 7.0tldadLe andri 'U L.LSIIII±.C" -- 1 _oiOthers 5.0 2.3_ 7.3 8.0 9.0

Total dry cargo 66.0 4.o 70.0 83.0 101.0

Liquid Cargovt. aLe and oter

marine oils 10.6 _ 10.6 12.0 15.0

Total Export 76.6 4.O 80.6 95.0 116.0

ImportsFertilizer lo.0 - - 18.0 20.0 24,0Machines and Vehicles 2.0 2.0 5.o 9.0 10.0 12.0Building materials - - - - 3.0 3.0Others 7.0 L.O 5.0 16.0 18.0 20.0

Total Imports 27.0 6eO 10.0 h3.0 51.0 5:9-0

Coastal TradeRice 16.0 - - 16.0 18.0 20.0Fertilizer 13.0 - - 13.0 14.0 1.5e0Building rnaterials - - - - 3.0 3.0Others 1.0 - 1.0 1.0 2,0

Total Coastal Trade 30.0 - - 30.0 36.0 4O.OTotal Dry Cargo 123.0 10.0 10.0 143.0 170.0 200.0Total Liquid Cargo 10.6 - - 10.6 12.0 15.0

GRAND TOTAL 133.6 10.0 10.0 153.6 182.0 215,0

* The volumas of cargo that presently move through other ports but expectedto be shipped through Paita when the proposed project is complete.

a/ Annual rate on expected completion of project by mid-1967 or earlier.Ul tUl11UUd_L V-ZtUt. ;) Yt:,.L0 ; 11UII11 U I b iUd-r U Lo.L UL" i UPt,LCU .L11 dUlI U U1 1U, 11ttV PU U,,

ANNEX 5

PERU: PORT OF PAITA PROJECT

COTTON FIBRE ^1R-ODUCTION

(Tn thousand toons of' winned cotton)

Paita Se-rvice Peru Paita Service AreaProdut.ion as

Area Percentage of Total

Production of Peru

1951 6.9 83.2 8.3

4952 13.1 96.5 13.6

1953 12.5 96.0 13.0

1954 20.2 112.0 18.(

1955 18.2 105.0 17.3

1956 26.0 115.0 22.6

1957 22.4 105.8 21.2

1958 29.6 11.5 25.8

1959 28.2 116.7 24.2

1960 33.4 130.3 25.6

1961 32.6 131.1 25.1

1962 (Estimate) 32.5 145.6 22.3

Source: Banco de Fonenuo Lgropocuario

ANNEX 6

PERU: PORT OF PAITA PROJECT

ESTTIATE OF COST

Item Local ForeignCurrenev Cost Currencv Cost Total CostMllion Soles) lThousand US$ (Million (Thousand US$

eauivalent) Soles) equivalent)

1. Dredging 2.47 517 16.32 6'0

2. Approach filling withsteel she!et piledwall 5 0° 187 10.00 373

3, Main iett,y 36 mwide 325 m long 27.06 1,285 61.50 2,295

4. Road acceXss frommain hi Vui,j to Port. J4J 72 6.L0 239

5. RestorinvgP &rmodify,ingvarious railroad

structiorL of newJ. ;1 4;AJ. t QLIUU 7 ^. Ir Un r ^7

in port a.rea 1.47 23 2.10 78

7. Water supply,sewerage,catodLic protection 0.6U 70 '.4( 92

O. Li ghti -ng,eIectri cequipment & telephone .30 104 3.10 115

9. Cargo handling &-- I- 1--- L 0 n) ~ ~~~~ ~ ~~~~~~~6 (\c)n'WorrIlkshop EaqulptipmjL. 3 8.0

10. ±'uree±anlreous 2.30 135 .9322

11. Engineering,vDesignand Supervision 2.68 200 8.04 300

Total 53.60 3,900 134.00 5,000

12. Management consultantsfor D.A.t'. 100 2. l68 100

Grand. total 53.60 3,100 136.685 5,100

Note: Estimates for individual items incorporate a 10% allowance for normalconstruction contingencies plus 5%0 allowance for possible price increasesduring construction period.

AMNEX 7

PERU: PORT OF PAITA PROJECT

DAP Construction ProgramSources and Application of Capital Funds, 1964-1968

IC6O, I 1Q6 I 966 19(67 1968

- Millioion ole -

Sourc1YesA o f plinei

Special Account Balance: start of year 1.5 9 10 27 53Special Accont Receiptis 73 77 81 85 8OTasa Unica Funds 7 91 112 172

AID Credit 22 27 13 - -

IBRD Loan 20 20 32 12 -

F.xternal Finnc>ling ,c72 12 TCtal 160 1'3 136 12 142I10 t., aU. .LUV .144) ,)U .LCL4 L44C

Aippli,cationL of1 F;unds

Salaverry: Suppliers' Credits 35 3? 17 17 1L:De.ding IIJ 6 4I - - _

Sub-total 7)l 36 17 177

Paita Project 30 39 46 22 _Portvqu quipmlentl a/ 31 1 e

Fishing Ports ana M4atai-ani Priorityirlorks U/ 3° 36 i7 _ _

Allowance for Price Corntingencies . 12 12Engineering Expense other than Paita 2 4 -

Sub-total 93 77 3 -

Development of Pisco * - - - 50Development of River Ports c/ - _ - 25Emergency Works 5 5 5 5 6Sub-total 01

Debt Service: Eximbank Loan 1 2 6 6 6IBRD Loan 1 2 4 5 7

Sub-total 2 4 10 11 13

Total 151 133 109 71 94

Balance: Emnnd of Year 9 10 27 53 48

a/, Including local currency costs of assembly.i Fishing ports are Supe, Huacho, Chancay, and Ilo.c/' Initially, Iquitos.

PERU: PORT :iF P-AITA PROJECT

Derivation of Estimated Receipts and'Working Expenses at NTew Port, 1967/68 and 1971/72

Volume of traffic Port Charges j RevenuesRevenues (Thousands of tons) (S/. per ton) (In thousand soles)

Special1967/68 1971/72 Dockerage Charge Total 1967/68 1971/72

International Cargo:

Dry Cargo 1314 160 6o.OO b/ 2 62.00 8,308 9,920

Liquid Cargo 12 15 3C)000 b/ 1 31.00 372 465

Coastal Trade Charge 36 40 15.00 b/ 1 16.00 576 640

Rentals:

Cargo HandlingEquipment - Z _ _ _ 1,932 2,576

,arehouse snace - - -1 - 370 1500

182> 215 11,558 14,101

Working Expenses Expenses

Salaries and wages 800 1,)000

Maintenance, spare parts,, andmaintenance dredging 900 950

Fuel and consumables 150 200

Office and other expenses 80 ].00

D.A.P. overhead 500 5'00

2,430 2,750

Excess of Revenues over Expenses 9,128 11,351

a/Equal to present scale.17 Total of separate charges now made for berthage, wharfage, and cargo handling;- excludes rental of equioment and warehouse space.

FERU: PORT ,F PAITA PR.iJECT

Forecast of Fixed Assets and DebtC U._ .. L.~ *J. _ ._ v T±Lt_L A 4L 1nJA L _ | v _ ± A e L Q J a 7 I

1968 1969 1970 1971 1972'

Fixed assets -at original cost(Including interest during const.) 145.0 145.0 1415.0 145.0 145.(j

Accrued depreciation lto endof year a/ 4.8 9.7 14.5 19.3 2L4.,!

Net fixed assets: end of year 14'.2 135.3 130.5 125.7 120.8: average in use 142.6 137.8 132.9 128.1 123.3

Outstanding debt b/Start of year 80.4 78.4 76.3 74.1 71.6Repayment of principal c/ 2.0 2.1 2.2 2.3 2.5,End of year 7b.4 76.3 74.1 71,T 69.-L

Ratio of outstanding debt to netfixed assetsStart of year 55.3% 55.97% 56.4% 56.8% 57.0(%End of year 55.9 56.4 56.8 57.0 57.2

Note: Slight discrepancies in totals are due to rounding.

a/ Assumes average econornic life of fixed assets to be 30 years.b/ Portion of proposecl IBRD loan representing foreign exchange costs of Pai.ta

work and equipment.c/ Assumes repayment of debt at 512 percent interest in 44 equal semi-annual

installments beginling 1968; resultant annual debt service, includinginterest, would be S/. 6,350,000.

ANTEX 10

r'Rtu. rurti J_ 1J A IAA -O Jlu1

Forecast of Income Accoimt Financial Return,and Cash Flow of Hypothetical Port Enterprise, 1968-1972

(In Mlillion Soles)

:L968 1969 1970 1971 1972

Operating revenue 11.6 12,? 12.8 13.4 14.1Working costs 2.4 2.5 2.5 2.6 2.8Operating income 9.1 9.7 10.3 10.o 11,4Depreciation allowance 4.8 4.8 4.8 4.8 4.8

Net operating income 4.3 149 5.5 6.0 6.6interest charges 4.14 4.3 4.2 4.1 3.9Net income (0.1) - 1.3 1.9 2.7

Wlorking margin a/ 78% 79% 80% 81% 81%Operating ratio b/ 62% 60% 57% 55% 514%

Return on net fixed assets c/ 3.0% 3.6% 4.1% 4.7% 5.14%

Times int;erest earned l.Ox l.lx 1.3x 15x 1.7x

Operating incoTme (S/. million) 9.1 9.7 10.3 10.8 11.4

Debt service (interest plusamortization) 6.14 6.4 6.4 6.4 6,,4

Net cash accretion: Arnual 2.7 3.3 3.9 414 5.14Cumulative 2.'7 6.0 9.9 14.3 1943

Cover of debt service e/ 1.14 1.5 1.6 1.7 14.8

Note: Slight discrepanicies in totals are due to rounding.

a/ Ratio of operating income to operating revenue./ Ratio of working cost plus depreciation allowance to operating revenue.c Net oneratinag income as percent of average net fixed assets in use.a/ Ratio of net operating income to interest charges.e/ Ratio of onerating iLncome to debt service.

ANNEX 11

PTETRT: °DOPT OF DAITA DPnT'CT

Estimated Savings and Economic Return, 1967/68 andl 1971/72

Forecast traffic

Saving per (thousand cargo Annual savingEconory- ton of cargo tons) ZS/. 0uu

3Lt~~~1 i97/60/ 197i/72 'l >007O/ 681 -iy1-72.

A. Elimination of lighterage 20 170 200 3,00J U4,000

'B. reduction in cargo-nandlingcosts ashore 5 170 20e 850 :1,000

C. Reduction in vessel turn-around time (Ifor inter-national dry cargo only) 67 13h 160 8.980 10,720

'D. Saving in overland trans-port (goods iraportedthrough Callao) 275 12 14 3,300 _3,850

16,530 19,570

Measure S/. million

Investment cost of project (including interestduring construction) 145

P.V. of annual savings, 1967/68 traffic volume, 30 years: at 11% 144

P.V. of annual savings, 1971/72 traffic volume, 30 years: at 12-1% 152

Subtract: P.V. of incremental savings, 1972 over 1968: 5 yearsat 12e$ 7

1.45

fiIon,i± ' urtU[n measured -n terms o. iLi.l trafflc 'l%7

Economic return measure,i in terms of inritial traffic plusgrowth in first 5 yea:rs of operation 12%

MAP 1

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) >- n~~~~~~~~F HINITER1l pin'-'' -FiR;

.. : /, <- ....... /-'- 5 10 15 20 -/

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FEBRUARIY 1963

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K .~~~~~~~~~~~~~~~~... ......

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1~~~~~~~~~~~~~~~~~~~~~I Trn, Sned- A'sC.Stoms ....... .... ~~~~~~~~~~~~~~~~~~~~~~~~~~.StraeSnd

PERU

PQRT OF PAITA

0 50 100 150 dOSD 250 300_

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~~~~~~~~- -- - - .~--=-

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AerialIliemrof Paia Showw*Pa t . LPor .Pro-ect

Aerial Viewt of Paita Sh,owin P>art of Plort Proiect