RETURN TO FILE RESTRICTED

REPORTS DESK FILE AO[Y Report No. TO-486a

WITHINONE WEEK

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

PORT OF ASUNCION PROJECT

PARAGUAY

December 3, 1965

Projects Department

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

US $1 = 126G 1 = 0.79 US Cents

UNITS

Port traffic is given in metric tonsby weight throughout.

FISCAL YEAR

January 1 - December 31

PARAGUAY

APPRAISAL OF THE PORT OF ASUNCION PROJECT

TABLE OF CONTENTS

Page

SUMMARY i-ii

I. INTRODUCTION 1

II. BACKGROUND 1

A. General 1B. Resources, Trade and Routes 3C. River Transport Facilities 5

Paraguay and Parana Rivers 5River Ports and Shipping 6Asuncion Port 6

D. Administration of River Transport 7

III. TRAFFIC THROUGH THE PORT 9

A. Present Traffic and Port Capacity 9B. Future Traffic 11

IV. THE PROJECT 12

A. General Description 12B. Cost Estimate 13C. Execution of the Project 14

V. FINANCIAL ASPECTS OF THE PORT OPERATION 15

A. Former Financial Position and Tariff Policy 15B. Financial Position of the A.N.N.P.* 16C. Earning Power of the A.N.N.P. 18

VI. ECONOMIC JUSTIFICATION 19

A. Quicker Ship Turn-around 19B. More Efficient Cargo Handling 20C. Reduction of Overtime Work 20D. Economic Rate of Return 20

VII. THE QUESTION OF CHANNEL DREDGING 20

VIII. CONCLUSIONS AND RECOMMENDATIONS 21

*Administracion Nacional de Navegacion y Puertos

TABLE OF CONTENTS(Continued)

ANNEX 1 Summary of the River Treaty between Paraguay andArgentina.

ANNEX 2 Assumptions on which Financial Projections of A.N.N.P.are Based.

TABLES:

1 Estimate of Costs2 Foreign Trade of Paraguay, 1947-19643 Cargo Traffic Through the Asuncion Port, 1958-19634 Export Cargoes Through the Port of Asuncion, 1958-1963,

and Projection to 19755 Import Cargoes through the Public Wharves of the Port

of Asuncion, 1958-19636 Analysis of Time Spent in Asuncion Port by Foreign Trade

Ships During 19637 Receipts and Disbursements and Cash Flow, 1958-19638 Forecast of Revenues, Expenses and Surpluses: Interest and

Debt Service Coverage 1964-1975 for the Port of Asuncion9 Forecast of Debt Service, 1964-1975 for the Port of Asuncion

10 Estimated Cash Flow, 1966-1970 for the Port of Asuncion11 Pro Forma Balance Sheets as of December 31, 1964 - 1970 for

the Port of Asuncion12 A.N.N.P.'s Funds Available for Investment Derived from the

Port of Asuncion

Chart 1 Variations in Water Level of the Paraguay River Measured atAsuncion, 1959-1964

Maps

1 Ports and Service Areas2 Navigation Channel: Confluencia - Asuncion and Major Shoals3 Port of Asuncion

PARAGUAY

APPRAISAL OF

PORT OF ASUNCION PROJECT

SUMARY

i. The Paraguayan Government has asked the Bank for a loan of US$2.75million equivalent to pay the foreign exchange and part of the local currencycosts of expanding and improving the port facilities at Asuncion. The

project costs total an estimated US$3.95 million equivalent, of whichUS$2.50 million represents foreign exchange requirements including interestduring construction.

ii. Paraguay being a land-locked country with only limited overlandtransport facilities, its foreign trade as well as domestic commerce relyheavily on the river transport over the Paraguay and Parana Rivers. Theport of Asuncion on the Paraguay River is the only port in the country with

facilities to serve large river craft and ocean-going ships. The port'shinterland covers practically the whole of the country's territory.

iii. Until recently the port was operated by an agency of the Governmentresponsible for both customs and port operating functions. The ParaguayanParliament has now passed a law, satisfactory to the Bank, creating an autono-mous Port Authority (Administracion Nacional de Navegacion y Puertos - A.N.N.P.

to take over port operations and navigational responsibilities. The A.N.N.P.

would be the borrower and responsible for carrying out the project,and the

Government would guarantee the loan.

iv. The facilities of the port are inadequate for the present traffic.This slows vessel turn-around, makes cargo handling costly and affects

adversely the foreign trade as well as domestic commerce of the country.

v. The project consists of dredging, reclamation, construction of 320

meters of quay, a pontoon wharf and two transit sheds, acquisition of cargo-handling equipment, repairing and adapting the existing on-shore facilities,and providing various auxiliary works, together with engineering and opera-

tions consultants' services.

vi. The cost estimates have been prepared by the engineering staff of

the former Port Administration assisted by foreign experts hired by theGovernment. The estimates are realistic. All the works would be carried outunder unit-price contracts which, together with equipment orders, would be

awarded on the basis of international competitive bidding. The new A.N.N.P.will be assisted by consultants for review of designs and supervisionof construction works. The project will take about 4 years to complete.Operations consultants will be retained, as part of the project, to advise

the A.N.N.P.

- ii -

vii. Applying present tariffs and using conservative estimates offuture traffic, the expanded port would produce sufficient revenue to coverits working costs and debt service of the requested Bank loan. There wouldbe about 4.6 per cent return on the net fixed assets, including land, duringthe first year of operation of the expanded port, which will increase toover 10 per cent in the fifth year of operation.

viii. The project is economically justified from reduction in ship turn-around time and savings in cargo handling costs. Besides these direct,measurable benefits, the project would materially contribute to the economicdevelopment and expansion of foreign trade of Paraguay.

ix. The project is suitable for a loan to the A.N.N.P. of US$ 2.75million equivalent; an appropriate term would be 25 years including 5 yearsof grace.

PARAGUAY

APPRAISAL OF PORT OF ASUNCION PROJECT

I. INTRODUCTION

1. The Paraguayan Government has asked the Bank for financialassistance to help pay the costs of (a) a project to expand and improvethe existing port facilities at Asuncion on the Paraguay River and(b) a project to deepen the navigation channel on a section of shoalsextending downstream from Asuncion.

2. Each of these projects meets operational needs and would yieldeconomic benefits which are independent of the execution of the other.However, only the proJect for expansion and improvement of the Asuncionport can be considered at present for Bank financing. The channel deepen-ing project will not be finalized until the results of the proposed U.N.Special Fund navigation study on the Paraguay River (see paragraph 12) areknown and Paraguay and Argentina complete negotiations for a new treaty,in place of an existing treaty, governing the channel dredging, navigationalaids, and traffic control on the Paraguay-Parana-Rio Plata waterway routes.

3. The port project is estimated to cost US$ 3.95 million equivalent,of which US$ 2.50 million would be the foreign exchange cost of equipment,materials and services, and US$ 1.45 million equivalent would be localcurrency payments for labor, materials and supplies. The proposed loanwould cover the foreign exchange component together with a small part ofthe local costs. The borrower would be the Administracion Nacional deNavegacion y Puertos (A.N.N.P.), an autonomous body recently created bythe Government to be responsible for (a) administering and operating all theports in Paraguay and (b) navigation of the rivers. The Government wouldguarantee the loan.

4. This appraisal report is based on economic and technical dataprepared by the Asuncion port officials in response to a detailed Bankquestionnaire; on studies of the Paraguay river system made in 1954 and1963 by the Corps of Engineers, U. S. Army; on a report by the Organizationof American States in 1962 on river transport in Paraguay; on a reportprepared in 1961 by an operations consultant hired by the Bank; and on thefindings of a Bank appraisal mission which visited Paraguay in October-November 1964. The appraisal report has been prepared by Messrs. S. Heienand S. Y. Park, who were members of the Bank Mission, and Mr . A. HorrellClark.

II. BACKGROUND

A. General

5. In 1958 a Bank economic mission studied the Paraguayan economyand concluded that transport development should focus on coping with theproblems inherent in the country's position as a land-locked area whoseprincipal outlet to overseas markets is a 1,600 km river route.

- 2 -

6. Acting on this suggestion, the Government approached the Bankin 1959 to finance the expansion of port facilities at Asuncion. Thiscity, of 350,000 inhabitants, is the capital of Paraguay, its main com-mercial and industrial center, and has the largest and best equipped riverport.

7. The Bank's consultant who studied the facilities and operationsof Asuncion port in 1961 concluded that the proposal to enlarge and modern-ize the port facilities was sound in principle. However, no loan followedbecause it then appeared that, firstly, necessary plans for the port exten-sion had to be prepared taking into consideration the dredging of a deeperapproach channel downstream from Asuncion; and secondly, no such channeldredging, if necessary, could be carried out until Paraguay and Argentinare-negotiated their 1941 treaty on the dredging, navigational facilities,and traffic control of the Paraguay-Parana-Rio Plata waterways.

8. Subsequent studies led the Bank to conclude that there mightwell be a good case for expanding and improving the public port ofAsuncion regardless of whether or when a deeper channel was dredged.The Bank therefore sent a preliminary project mission to Paraguay inearly 1964, and an appraisal mission in October-November 1964.

9. A loan for the Asuncion port project would continue the Bank/IDA'spast efforts to help solve the difficult transport problem of Paraguay.The cumulative amount of loans and credits to Paraguay in connection withtransport to date totals US$ 13.2 million. The individual loans andcredits are as follows:-

Bank Loans US$ million

PA-55 - (1951) Agriculture and Transport 5.0PA-396 - (1964) Roads (additional to PA-12 below) 2.2

7.2

IDA Credits

PA-12 - (1961) Highway Improvement and Maintenance 6.o

10. The Asuncion port project is closely related to the penetrationroads, access roads, and main highways which the Bank and IDA have helpedand are helping to finance. The primary functions of all these routesare to carry agricultural produce, forestry products, and livestock toAsuncion, and to bring back imported goods, local manufactures and pro-duce.

- 3 -

11. In addition to financing road development, the Bank is theexecuting agency of a U.N. Special Fund Technical Assistance grant the pur-pose of which is to study the southern part of the country in order to selectareas of large agricultural potential, and to draw up a plan of feederroad construction to facilitate the future development of these areas.The study is now under way and is expected to be completed in 1966.

12. The United Nations Special Fund has also granted the Governmentof Paraguay assistance for a navigation study of the Paraguay River betweenAsuncion and the confluence of the Paraguay and Parana Rivers. The pur-pose of the project is to determine the most appropriate method to improvethe navigability of sections of shallow water between Asuncion andConfluencia. The United Nations will be the executing agency. The mainactivities under the project will include:-

(i) a topographic survey;

(ii) investigation and analysis of all available hydro-logical data;

(iii) investigation, sampling and siltation studies ofthe river bed;

(iv) an economic analysis of costs and benefits of theimprovement works.

The U.N. Special Fund (UNfSF) over a period of four years will provideadvisory services in the fields of navigation, hydraulic engineering, andsedimentology. It will also provide fellowships and training to Para-guayan nationals. The Government of Paraguay will provide professionaland auxiliary personnel, some equipment, including a dredge, and officefacilities. These studies are basic to the channel dredging referred toin Chapter VII and to the long-term improvement of river navigation,but will not directly affect the project.

B. Resources, Trade and Routes

13. Paraguay is an inland country, 1,600 km from the sea by anavigable waterway route. It is bordered on the northwest by Bolivia,on the north and northeast by Brazil, and on the south and southeast byArgentina. The Paraguay River separates Argentina on the right bank fromParaguay on the left bank for several hundred miles upstream from the con-fluence with the Parana River.

14. With a land area of about 410,000 km , Paraguay is approxi-mately the same size as California or Japan. Its population, as of mid-1964, is estimated to be about 1.9 million and is growing at about 2.3per cent per annum. About half the population is concentrated in andaround Asuncion, and most of the other half are engaged in agricultureand livestock raising in the areas southeast and northeast of Asuncion.

15. Agriculture, cattle raising and forestry are the main pro-ductive activities outside Asuncion. M4anioc, corn and sugar cane arethe most important crops for home market use. The most important exportsare lumber, beef, cotton, oil seeds and tanning extracts. Industrialactivities are concentrated in and around Asuncion. The most importantplants are: meat canneries, cotton textile mills, cement mills, clothingfactories, and food processing plants. Commercial banking and tradefacilities are also concentrated in Asuncion.

16. The internal trade of Paraguay is carried mainly (a) by truckover a road network which radiates out of Asuncion and is extended bysecondary and penetration roads reaching most of the productive areas;and (b) by river craft moving between Asuncion and various small portsalong the Paraguay River. An over-age, rundown railway from Asuncion tothe southeast used to be an important route, but now carries decreasingvolumes of traffic. The Government indicated in 1961, incident toCredit PA-12, that it did not intend any substantial investments in theexisting railway. There are also certain privately-owned railways trans-porting lumber and serving wood-processing plants.

17. Practically all the foreign trade of Paraguay is carried byriver craft and small ocean freighters along the Paraguay-Parana-Rio Platarivers which constitute the main outlet to overseas markets. Most of thegoods are trans-shipped in Buenos Aires or Montevideo, but part is car-ried directly to/from Europe. Though imports converge on Asuncion, lumberand other exports are loaded mainly at small river ports and privateloading stages. With the completion of the international bridge across theParana River, the borderline between Brazil and Paraguay, another outletfor Paraguay's foreign trade is possible through the port of Paranagua onthe Brazilian coast. The distance by road between Asuncion and the inter-national bridge is approximately 400 km and from the international bridgeto the port about 700 km. Paving of the Paraguayan section of the roadwill be completed during 1965, but the Brazilian section will still lackpavement for about 30 per cent of the distance. This road connection maycarry some traffic to/from the Port Stroessner service area, but wouldhave little or no impact on the traffic to and from Asuncion.

18. Paraguay's road system is still rudimentary but it is beingextended and improved (See M4ap 1). Highway No. 1 from Paraguari toEncarnacion is being rebuilt with the help of an IDA credit and a Bankloan. Completion is expected by late 1967. Highway No. 2 from ColonelOviedo to Puerto Stroessner is being extended and improved, and the above-mentioned road bridge across the Parana to Brazil has recently been completed5.A third important highway, crossing the Chaco from Villa Hayes to theBolivian border, was completed in 1964. Also under construction aresecondary roads meant to help develop remote districts. The roads ingeneral converge on Asuncion or reach small river ports served by craftoperating to/from Asuncion.

- 5 -

19. The Government gives high priority to enlarging and improvingthe river ports and maintaining and improving the navigability of theriver routes. The Asuncion port project is a first important expressionof this policy. Improvements of the minor ports will follow in due coursewhen the Government finalizes a comprehensive program of developmentalinvestment. The river approaches to Asuncion will be deepened once Para-guay and Argentina complete the negotiation, now in progress, of a newtreaty in place of the 1941 treaty.

C. River Transport Facilities

Paraguay and Parana Rivers

20. The river routes of Paraguay's trade are: the mainstream ofthe Paraguay River for a distance of 390 km between Confluencia andAsuncion; the Parana, navigable only by smaller craft for much of itslength, which flows into the Paraguay at Confluencia, and the northernpart of the Paraguay upstream from Asuncion to the Brazilian and Bolivianborders.

21. The Paraguay River is today almost in its natural state. Thestream rises in the swamps bordering the Parecis Mountains in Mato Grosso,Brazil. Navigation between Asuncion and Confluencia is hampered by aseries of shoals (See Map 2). The width of the river along this stretchvaries from 400 m. to 1,200 m. A 6 ft. (1.83 m.) deep navigation channelhas been dredged through the shoals, but the works were executed 10-15years ago when the ships using the route were smaller than at present.Traffic complications result because the level of the stream fluctuatesover a wide range seasonally, running well above the critical depths forcraft loaded to 9 ft. (2.74 m.) in January-July, and falling well belowthese depths in September-November as a rule. Chart 1 shows the variationsin the water level of the Paraguay River during the years 1959-1964. Thenormal low water level is marked 0, and the water depth required for a shipwith 9 ft. draft is marked by a straight black line. In the past variationsof up to 8 m. have been measured a5 Asuncion. The discharge into the3shoals section varies from 1,020 m /sec. during low water to 11,000 m /sec.during high water.

22. The seasonal rhythm of high and low water is extremely variablefrom year to year. As an average, the low water season lasts threemonths. Occasionally, the river may remain navigable by fully loadedcraft almost all year round; sometimes for only 4-6 months.

23. The seasonal drop in water level does not stop ship traffic.Instead, the large river craft and small ocean freighters which carrycargo between Asuncion and the Plata estuary must then navigate theshoals section with reduced loads. To do so, they off-load part of thecargo into lighters below the main shoals or leave Asuncion with a partialload and complete loading in the river.

- 6 -

24. The river below Confluencia is dredged by Argentina to a depthof 10 ft. (3.05 m) from Confluencia to Parana, 19 ft. (5.8 m) from Paranato Rosario, and 21 ft. (6.4 m) from Rosario to Buenos Aires.

River Ports and Shipping

25. Ports on the rivers vary in size and character. Some areequipped with a custom house, small sheds, wooden wharves, or a pontoonquay. Others, called loading points, are mere wooden platforms extend-ing from the river bank, or rafts which rise and fall with the water level.The smaller ports have a limited depth and are used mainly by small craftcarrying local traffic to and from Asuncion. Asuncion - 390 km upstreamfrom the confluence of the Paraguay with the Parana River - is by far thelargest of the country's ports. It serves the most important productiveareas, and is the only one equipped with modern berthing facilities andcargo handling equipment. It clears nine-tenths of the country's importvolume, roughly one-third of the export volume, and the great bulk of theriver-borne domestic trade, the balance being handled by other small ports.

26. Over the past ten years Paraguay's State Merchant Fleet hasacquired thirty vessels with a carrying capacity ranging from 600 to 1,200dead-weight tons. Fully loaded, the ships have drafts of about nine feet.Some foreign vessels of about 1,500 to 2,000 dead-weight tons and withdrafts of eleven to twelve feet also participate in the river transport.Some of these ships, both Paraguayan and foreign, are ocean-going vesselstransporting a considerable amount of the country's foreign trade directlyto and from world markets. Part of the inland traffic is carried bysmaller craft, lighters or barges towed between the various ports or toand from Buenos Aires. There is also considerable passenger traffic onthe Paraguay and Parana rivers, and the State Merchant Fleet has two newpassenger vessels under construction in Spain to meet the growing demandfor passenger transport.

Asuncion Port (See tap 3)

27. The Asuncion port consists of a quay, loading equipment, andgoods sheds which are used by river craft and deep-sea freighters carry-ing general cargo to/from Asuncion. There are also specialized privatefacilities along the riverfront, for use by small oil tankers and smallfreighters which bring in bulk wheat and together handle about half ofthe local traffic.

28. In 1927, the public port at Asuncion consisted of a few masonryand timber wharves where small river craft could moor. To provide moreadequate facilities, the Government granted a concession to a privateU.S. firm, Asuncion Port Concession Company, to build and operate a suitableport. The new facilities became operative in 1929/30; they included: (i)a reinforced concrete quay 585 m. long and 12 m. wide; (ii) three concrete

- 7 -

sheds with a totgl floor space of about 5,000 mi2 ; (iii) a stacking areaof about 1,000 m ; and (iv) a small administration building. The quay waslaid with rail and crane tracks and equipped with electric quay cranes anda large fixed crane.

29. When the concession expired in 1940, the Government purchased thefacilities and continues to operate them as a public port. A gear storeand a repair shop were constructed, and more cargo-handling equipmentprocured. In 1960/61, an administration building and passenger terminalwere erected on the quay, the latter to serve the growing passenger trafficwhich is estimated to have surpassed 150,000 passengers during 1964. Thesestructures have reduced the effective berthing space for general cargo froman original 585 m. to a present 385 m. and have greatly curtailed the spaceashore for working and transferring cargo.

30. The present handling equipment includes the 10 quay cranes andthe fixed crane referred to above, 2 mobile cranes, some forklift trucks,ordinary trucks, and a shunting locomotive. Some additional mobile cranesand forklifts will be delivered in 1965.

31. The facilities of the public port have been fairly well main-tained. However, the sheds are old and unsuitable for mechanized equipment.Their floors are 1.2 mA. above the quay apron, making it both difficult andcostly to move cargo by truck-trailer to and from the quay.

D. Administration of River Transport

32. Until recently, all the public ports, including Asuncion, werecontrolled by a governmental entity, the Consejo de Administracion de .Aduanasy Puertos (Administrative Council for Customs and Ports), consisting of 3members appointed by the President of the Republic. The Consejo's functionsincluded operating, making improvements to and expanding and maintainingthe public ports and waterways of the country, and collecting customsduties at ports of entry, including Asuncion. At Asuncion the Consejocarried on the day-to-day port operations through a division known as theDireccion General del Puerto de la Capital (the Asuncion Port Adminis-tration).

33. The interest of a Customs administration is primarily the col-lection of fiscal revenue and is unrelated to or incompatible with theorderly, speedy and efficient accommodation of shipping and handling ofcargo. It is an unsatisfactory arrangement for a single entity to combinethe two functions and frequently results in port operations being sub-ordinated to the primary function of fiscal revenue collection. In orderto improve the efficiency of the port operations, the Bank's consultantrecommended in 1960 that the river ports should be operated and managedby a Port Authority to be set up as a self-supporting public enterprise.The Government accepted this recommendation, and Law No. 1066 was passedon August 17, 1965, creating the Administracion Nacional de Navegacion yPuertos. This law conforms to the Bank's general policy with regard toautonomous port undertakings and is satisfactory.

- 8 -

34. The law gives to the A.N.N.P. a satisfactory degree of financialand administrative autonomy. The chief executive officer is the full-timePresident of the Board of Directors who is appointed by the ExecutiveBranch of Government. There are satisfactory provisions regarding theappointment of other Board members and of a Manager and other staff. Thefirst President of the Board has been appointed with the approval of theBank and, in order to ensure continuing good management, the Governmenthas agreed to inform the Bank of any proposal to appoint a new Presidentof the Board, giving the Bank a reasonable opportunity to express its viewsthereon. It has also been agreed that any change in Law No. 1066 (whichcreated the A.N.N.P.) will require the prior agreement of the Bank.

35. The A.N.N.P. operates the terminal facilities at Asuncion, makesnecessary arrangements with shippers and consignees, and carries out theloading and discharge of general cargo and its transfer between vesselsat berth and vehicles ashore. Handling on shore is performed by theA.N.N.P.'s own labor. Cargo-handling equipment is provided, operated andmaintained by the A.N.N.P. The lighters into which river vessels off-loadcargo during the low water season and out of which they complete theirloading are operated by both the A.N.N.P. and private enterprise.

36. A substantial amount of the cargo is handled directly to/fromships without using transit sheds; that is, the goods are brought manuallyover floating wharves which extend from the river bank or the beach to thewarehouses. Operations could be improved considerably through betterorganization, by using more mechanical handling equipment, and by extend-ing and modernizing the present facilities. Advice on and assistance inimproving cargo-handling methods, port management, and operating proceduresare badly needed and the A.N.N.P. has agreed that operations consultantswill be employed to give such services and that such employment will bea condition of effectiveness of the Loan Agreement.

37. The arrangements for channel dredging, navigation facilities, andtraffic control on the Paraguay River between Asuncion and Confluencia areregulated by the 1941 treaty between Paraguay and Argentina, which is sum-marized in Annex 1. Broadly speaking, Argentina alone is responsible fordredging the channel between Confluencia and Formosa to a sufficient depthfor the passage of ships drawing 6 ft. at low water; the section fromFormosa to the mouth of the Pilcomayo River near Asuncion is jointly fi-nanced by Argentina and Paraguay but undertaken by Argentina; and Paraguaydoes the work in the vicinity of Asuncion and pays the full costs.

38. The Paraguayan Navy is at present responsible for Paraguay'sinterests in lighting, buoys, hydrographic survey, dredging and pilotageon the Parana River and on all Paraguay River sections except those whereArgentina is responsible. These powers and responsibilities will be takenover by the A.N.N.P.

- 9 -

III. TRAFFIC THROUGH THE PORT

A. Present Traffic and Port Capacity

39. Practically all of Paraguay's foreign trade and a substantialamount of its domestic trade are carried by its rivers. Export volume (SeeTable 2), largely timber, has tended to fluctuate in the last 10-15 years,while import volume, stimulated by industrial and agricultural development,population growth and expanding use of petroleum, has been increasing 6 percent annually. There are no consistent statistics available on the river-borne domestic trade, but as the bulk of the volume of this type of tradeis trans-shipment and distribution of export and import cargo, it is as-sumed that the increase in the river-borne domestic trade is similar tothat of foreign trade.

40. More than 90 per cent of the imports by volume, about a third ofthe exports and a sizeable portion of domestic trade are carried to/fromthe public and private port facilities in Asuncion or trans-shipped there.The total movement of cargo through the Port (Table 3) has increased from360,000 tons in 1958 to 470,000 tons in 1963, as follows:-

Cargo Handled by Public and Private Port Facilities in Asuncion

000 metric tons1958 1963

Exports 80 92Imports 200 296Domestic Trade 78 80

Total 358 468

41. Much of the present cargo, particularly bulk petroleum broughtin by tankers and bulk wheat brought in by freighters, is discharged atprivate facilities near the public port, from which no revenue is obtainedby the A.N.N.P. Substantial amounts of export goods, such as lumber,tanning extracts, cotton, corn and tobacco, are carried to Asuncion bysmall craft and trans-shipped in the bay to larger craft. Part of thedomestic cargo through the port is loaded or discharged by small crafton public beaches adjacent to the quay. Only 40-50 per cent of the totalvolume is loaded or discharged at the A.N.N.P.'s quay; this includesthree-fourths of the exports, a third of the imports, and half thedomestic cargo.

42. The total movement of goods across the quay has held within anarrow range of 175,000 - 210,000 tons annually for some time. Importvolume has grown steadily, but not enough to offset fluctuating amountsof exports and diminishing amounts of domestic cargo.

- 10 -

Cargo Handled Across the Wharf by Public Port of Asuncion

000 metric tons1958 1960 1963

Exports 75 47 74Imports 83 83 99Domestic Trade _47 44 39

Total 205 174 212

43. The exports loaded from the quay include small amounts ofdiversified goods such as lumber, cotton, sugar, tobacco, corn and indus-trial oils. Volume fluctuates from year to year (See Table 4). The importsdischarged at the quay are largely food and beverages, metals and manu-factures, fuel (non-bulk) and lubricants. Volume increased 4-1/2 per centannually from 1958/59 through 1962/63 (See Table 5). The domestic cargois mainly inbound food, timber and industrial materials for Asuncion, andlocal manufactures for communities along the river. Volume decreasedmaterially from 1958/59 through 1962/63 because congestion at the quayforced more and more small craft to load and discharge at the publicbeaches next to the quay.

44. The public port has been operating beyond its economic capacityfor the past five years because of insufficiencies of ship berthing andcargo-working space. This has induced chronic congestion in the form ofprolonged delays to ships awaiting a berth, excessive stays at berths toload and discharge cargo, and congestion of cargo. Since the advent ofthe present Government regime there have been no labor troubles and noneshould be experienced in the near future.

45. The possibility of delays has deterred many craft, which wouldotherwise load and discharge at the quay, from doing so. To avoid thedelays ship operators have resorted increasingly to trans-shipment in thebay, to loading and unloading on the beach, and to using private wharves ifpossible.

46. In 1963, the latest year for which complete data are available,329 river craft, ocean freighters, and tankers brought in imports toAsuncion and/or carried away exports. During the same year, 340 smallriver craft, mainly barges, launches and lighters, entered the port toload or discharge domestic cargo.

47. Of the 329 craft which called to load exports and/or dischargeimports, 303 used the public port. Only 86 of these were able to turnaround within the period, 48 hours or less, which may be considered normalfor loading or discharging an average of 500 - 600 tons per ship. Morethan a third had to stay in port from 48 to 144 hours and another third hadto stay more than 144 hours (Table 6).

- 11 -

48. The 340 river craft which called to load or discharge domesticcargo also underwent prolonged delays. Considering their small size andtheir average loads of only 100 tons, a 24-hour turn-around would bereasonable. Instead, two-thirds of the craft had to stay in port morethan 24 hours, and close to a third more than 48 hours.

B. Future Traffic

49. A much larger volume of goods would be moving across the quay ifthere were more berths and more working space ashore. The limited facili-ties not only force ships to wait longer for a berth, but also slow loadingand discharge after the ships come alongside.

50. Once the public port is enlarged and improved, the movement ofcargo across the quay is estimated to grow from 210,000 tons in 1963 to350,000 in 1970 and then to 440,000 in 1975. This projection is based on:(a) Planning Agency estimates of export volumes of individual commodities,which Bank staff has adjusted to reflect a more realistic view of the tempoand scope of Paraguay's economic development (See Table 4); (b) assumptions,which the Bank staff deems conservative, that (i) import volume, for whichno commodity-by-commodity analysis is available, will increase 5 per centannually compared with 4-1/2 per cent in recent years and (ii) the volumeof domestic cargo through the port will increase 5 per cent annually, whilethe proportion of this cargo loaded or discharged at the quay will increaseas congestion eases, from a present 50 per cent to an eventual 75 per centby about 1975.

51. Future traffic across the wharf, as projected by the mission,compares with recent traffic as follows:-

Actual Projected1958 1963 1970 1975

(in thousand metric tons)

Exports 75.4 74.3 125.0 155.0Imports 82.4 99.3 140.0 180.0Domestic River Trade 47.3 38.5 84.8 106.5

205.1 212.1 349.8 441.5

52. Special factors affecting the movement of river cargo throughAsuncion point toward the likelihood of greatly increased exports of beefand maize by 1970-1975, and substantial exports of new commodities suchas lime, cocoa soap and edible oils which are not presently exported byParaguay (See Table 4). These factors include the export preferences ac-corded Paraguay under the Treaty of Latin American Free Trade Association;

- 12 -

the recent de-control of livestock marketing which was long subject to rigid.complex controls; the recent establishment of a National Development Bank toprovide medium and long-term credits to industrial and agricultural pro-ducers; and the construction and improvement of important penetration roadssuch as the Trans-Chaco road which traverses an area with many large cattleranches.

IV. THE PROJECT

A. General Description

53. The project would enlarge and improve the facilities of thepresent public port of Asuncion by:-

(a) extending the main quay in order to provide moreberthing space alongside and more cargo workingspace ashore;

(b) constructing additional transit sheds on the extendedquay and supplementing these sheds by additionalstacking space;

(c) procuring new cargo-handling equipment; and

(d) building a pontoon wharf, repairing and enlargingsome present structures, re-locating a drainage creek,improving road access to the port, and extending thecrane tracks on the quay.

54. Quay Works. The effective length of the present quay will be nearlydoubled by extending it 320 m. westward; the necessary fill will be obtainedby dredging about 160,000 m3 of sand in the port area. The extended quaywill provide 4 more general cargo berths each 80 m. long with a 12 ft.(3.7 m.) depth alongside at low water. (The depth can be increased at alater stage, if need be.) A ramp about 60 m. long will be built at theeastern end of the present quay. This ramp will be equipped with floatingpontoons to accommodate barges and other small craft (See Map 3).

55. Sheds and other Buildings. Two transit sheds, each with a floor areaof 3,500 m2 will be built on the extended quay. Two old buildings on theexisting quay will be repaired and converted into a maintenance workshopand a gear store.

56. Port Equipment. Forklifts, tractors, and other mechanized equipmentwill be bought to speed the movement of cargo across the quay. Machinetools will be bought for the workshops and fire-fighting equipment for thesafety services.

- 13 -

57. Auxiliary Works. A drainage creek which obstructs operations willbe relocated; road access to the port will be improved and part of the portarea re-paved. Water mains and sewers will be built to serve the new build-ings. A transformer station will be erected and electric cables installedto serve the quay cranes, the workshop, the gear store and other buildings.Telephones will be installed.

58. Consultant Services. Detailed designs have been prepared by thestaff of the former Port Administration, who are competent,and will con-tinue to be employed by A.N.N.P., and foreign engineers specially en-gaged for the purpose. The designs will be reviewed by engineeringconsultants acceptable to the Bank, who will also prepare tender docu-ments and supervise construction. Operations consultants will advisethe new Port Authority on the operation of port facilities, on measuresto improve efficiency and on the formulation and use of suitable account-ing methods for a self-supporting public enterprise.

B. Cost Estimate

59. The project is estimated to cost about US$ 3.95 million equiva-lent, of which US$ 2.50 million would be foreign exchange for importedequipment, materials, and services, and $ 1.45 million equivalent wouldbe local currency expense as shown in Table 1, which is summarized below:-

Local ForeignCost Cost Total

Guaranies ---US$ thousand---million

1. Dredging 12 150 2452. Quay extension, sheds and

other structures 129 883 1,9103. Roads, utilities, and

stacking area 12 200 2934. Equipment - 487 4875. Consulting services, and

construction supervision 6 200 2506. Contingencies - 15% 24 290 4757. Interest during construction - 290 290

TOTAL 183 2,500 3,950

60. The cost estimates have been prepared by the engineering staffof the former Port Administration and the foreign engineers employed, andare considered realistic. They include adequate provision for contin-gencies, full allowance for engineering services, and interest duringconstruction.

- 14 -

61. The A.N.N.P. will not be able to generate sufficient operatingsurpluses during the construction period of the project (1966-1969) to payfor the local currency costs, to service the existing debt and to provideadequate working capital and Government financial contributions will benecessary (See paragraphs 71-76). However, there is a serious shortageof local currency resources available to the Government to finance all theurgent development requirements of the country. For this reason it isrecommended that the Bank loan include an amount of US$ 0.25 million tohelp finance the local currency costs of the project. The foreign ex-change component is 63 per cent of total project cost, while the proposedloan would be 70 per cent of this cost.

62. The project would take four years to complete, and expenditurewould be phased approximately as follows:-

Millions of GuaraniesTotal --- Bank Loan------ OwnCosts (US$ million) Resources

Year 1 90.0 64.o (0.51) 26.02 140.0 96.o (0.76) 44.03 140.0 95.5 (0-76) 44.54 128.0 91.0 (0.72) 37.0

498.0 346.5 (2.75) 151.5

C. Execution of the Project

63. The A.N.N.P. has agreed that the project will be carried out asfollows:-

(a) The present plans and designs will be reviewed bycompetent consultants who will then prepare thebidding documents.

(b) These documents will be reviewed by the Bank, afterwhich tenders will be invited.

(c) The construction contract will be awarded and theoperating equipment procured through internationalcompetitive bidding; and

(d) The A.N.N.P., as the Borrower, will be responsiblefor executing the works with the help of consultantsto supervise construction.

- 15 -

V. FINANICIAL ASPECTS OF THE PORT OPERATION

A. Former Financial Position and Tariff Policy

64. The former Asuncion Port Administration was a departmental entitywhich had no financial or operational autonomy. The Consejo to which it wasattached was an executive organ of the Ministry of Finance, not a publicenterprise. Neither the Administration nor the Consejo prepared income ac-counts or made financial statements. However, over the period 1958-1963,the total receipts of the Administration enabled it to cover its total cur-rent expenditures, including debt service, and a substantial expenditurefor non-routine maintenance (see Table 7).

65. The Administration's sources of funds included operating revenuesin the form of charges on ships and cargo, temporary advances from the Cus-toms Administration, and, in principle only, budgetary appropriations whichthe Government has not actually paid in recent years. The Administration'sreceipts were applied to working costs for labor, fuel, materials, routinemaintenance, and administrative overhead; to purchases and replacement ofequipment; to non-routine expenditure such as repair of quays and shedsand dredging of the port basin and to debt service, mainly interest andamortization of the purchase price of the port facilities which the Govern-ment acquired from the former Asuncion Port Concession Company. There wasno provision for depreciation in excess of debt amortization.

66. The current tariff charges, which amount to between US$ 2.50 andUS$ 4.00 per ton of general cargo, depending on the kind of cargo, appearto be on the low side, particularly in view of the lower efficiency ofcargo handling inherent in a river port where water levels vary consider-ably. The charges are low compared with those used in other general cargoports in Latin America financed by the Bank. There is, therefore, a reason-able margin for increasing the port charges, should this course becomenecessary, without jeopardizing the volume of traffic through the port orthe economy of the country.

67. The A.N.N.P. law provides that the tariffs of charges for ser-vices shall be drawn up so as to ensure that the revenues resulting fromtheir application permit the A.N.N.P. to cover the whole of its operatingcosts and to ensure to the undertaking the availability of the necessaryfunds to meet the service of its debts and for the normal expansion ofits services. Agreement has been reached on the interpretation and ap-plication of this provision in conformity with the Bank's usual require-ments regarding the tariff policy of similar port undertakings.

68. In order to carry out the tariff policy referred to above, itwill be necessary that qualified experts review the existing tariff struc-ture and make recommendations to the Port Authority on appropriate adjust-ments of the port charges, and the A.N.N.P. has agreed that the operationsconsultants to be engaged under the proposed project should include in

- 16 -

their task a review of the tariff structure. The A.N.N.P. has stated thatit is its intention that charges for each type of service will be reason-ably related to the costs attributable to such service.

69. Until now the greater part of domestic cargo loaded or dis-charged on the beaches in the port area has been free of port charges anda very small tonnage is handled free over the wharf (see Table 3). Thelaw creating the A.N.N.P. provides that no person, whether natural orjuridical, shall be exempted from payment of, or granted any reduction in,the scheduled charges for services rendered by the A.N.N.P.

70. The A.N.N.P. has agreed (a) that it will keep separate accountsin respect of the port of Asuncion, the other ports administered by it andoperations concerning river maintenance and navigation, (b) that theoperations consultants shall also install suitable commercial accountingand costing systems, which will be maintained and used in revising thetariff of charges from time to time and (c) that it will have its accountsregularly audited, at least once a year, by independent auditors accept-able to the Bank. It has also agreed to take out and maintain, or makeother adequate provision for, insurance consistent with good commercialpractices.

B. Financial Position of the A.N.N.P.

71. A precise assessment of the financial position of the A.N.N.P.is not possible because:-

(a) the former Administration did not keep commercial accountsfrom which meaningful income statements and balance sheetscan be derived;

(b) the A.N.N.P. will, in addition to operating Asuncion, oper-ate the various other river ports and be responsible forriver conservancy and navigation.

The activities in respect of the other ports will be relatively small andit should be possible to recover the cost from acceptable charges. Asstated earlier, costs that will be incurred in connection with river con-servancy and navigation are unknown. They may be substantial, quite apartfrom Paraguay's share under the treaty with Argentina. Also, shippingother than commercial vessels trading with Paraguay will enjoy benefitsfrom these facilities, as, for example, ships of the Paraguayan Navy andships navigating to and from river ports of other countries. In thesecircumstances it seems possible that the total costs could not be recoveredby A.N.N.P. from dues on ships using the commercial ports of Paraguay.The Government has undertaken that, if this were to be so, it would make upthe shortage, or cause it to be made up, so that the financial position ofthe A.N.N.P. will not be adversely influenced but will conform to the lawand the Bank's requirements.

- 17 -

72. In view of the foregoing it would be unrealistic to attempt toprepare financial forecasts in respect of the activities described in (b)above and the following analysis deals with operations at Asuncion alone.Under the law the A.N.N.P. is exempt from all municipal and fiscaltaxes, duties and contributions and retains all net earnings.

73. The Bank staff has prepared, for the Asuncion port undertaking,projections of revenue accounts (Table 8), debt service (Table 9), cashflow (Table 10) and pro forma balance sheets (Table 11). Certain basesand assumptions have been used regarding traffic volume, tariffs, oper-ating costs, debt service, etc., as explained in Annex 2.

74. On the basis of available financial data, the assets, liabili-ties and capital of the A.N.N.P. on January 1, 1966, relating to theAsuncion port undertaking, would be as shown below (for details seeTable U ). The derivation of the balance of funds available for invest-ment and of working capital is shown in Table 12.

December 31, 1965 0 million

Fixed Assets:Land, at market value 225.4Structures, plant and equipmentat replacement cost less depreciation 261.6

487.0Net current assets:

Funds available for investment 16.2Working capital 20.8 37.0

Total assets 524.0

Represented by:Debt 73.3Equity 450.7

524.0

75. The main debt would consist of 0 62.7 million representing theremaining balance of the debt due to the Asuncion Port Concession Company,repayable by 1968. Allowing for other small debts, the Government equitywould be about 0 450 million.

76. Because of the incidence of service of the existing debt, whichwill be taken over by the A.N.N.P., the funds generated during the periodof construction of the project, 1966-1969, with the present tariffs, willbe insufficient to finance the excess of local currency costs over the

- 18 -

amount it is proposed should be financed by the Bank (see paragraph 62).No immediate increase in tariffs is proposed to cover the shortfall, since(a) the present tariff structure is to be reviewed by consultants (seeparagraph 68), (b) it would not be desirable to increase tariffs beforethe new facilities provided by the project come into operation, and (c)the financial forecasts presented below indicate that the financial posi-tion of the Authority will be satisfactory in the future with the presentgeneral level of tariffs, provided that these are applied to all cargoeshandled over the wharf. To make good this deficit the Government hasagreed that it will provide, on terms and conditions acceptable to theBank, the balance of the funds required for carrying out the project(presently estimated at 40 million Guaranies.) Assuming such funds areprovided in the form of advances, the cash flow position during the con-struction period would be as summarized below. Details are given inTable 10. Provision has been made in the Cash Flow Statement for an ade-quate amount of working capital on the basis of 15 per cent of revenues.

1966-1969Funds Required 0 million

Investment - Bank project 498.0Debt Service - existing debt 75.2Working capital 25.7

598.9

Funds Available

Balance brought forward 37.0Operating surplus before depre-ciation 203.1

IBED loan 346.5Advances from Government 40.o

626.6

Surplus 27.7

C. Earning Power of the A.N.N.P.

77. The financial projections show that with no tariff increases,but with all cargoes handled over the wharf paying the existing charges,the A.N.N.P. would be immediately self-supporting after completion ofconstruction of the new facilities at the end of 1969, earn its interestcharges and debt service by adequate and increasing margins and earn ade-quate investment returns. It would also be capable of repaying theGovernment advances, starting in 1970, without the necessity to increasethe tariff for this purpose.

- 19 -

78. Some basic criteria of financial performance would evolve asshown below:-

1970 1975

Operating ratio 77.3% 63.4%Times interest earned 2.2x 5. 4 xCover of debt service 2.Ox 3.7xReturn on net fixed assets:Excluding land 6.1% 15.0%Including land 4.6% 10.7%

79. Substantial and increasing amounts of cash would be generatedfrom operations after meeting all debt service. The cumulative accretionof cash would total 0 314 million by 1975 as compared with estimated needsof approximately 0 185 million for renewals of facilities. This cash sur-plus is after providing for adequate working capital and the A.N.N.P.should therefore have a considerable margin with which to finance futureexpenditure for additions and improvements.

VI. ECONOMIC JUSTIFICATION

80. The project would yield an adequate economic return by savingsin the form of quicker ship turn-around, more efficient cargo handlingand reduction of overtime work and would also provide other developmentalbenefits.

A. Quicker Ship Turn-around

81. The limited facilities of the present public port force shipsto waste considerable time waiting for a berth. (See paragraphs 47 and48 and Table 6). After completion of the proposed expansion project, veryfew of the craft would have to stay in port longer than consistent withtheir size and payload - i.e., not more than 48 hours for the larger craftwhich carry export-import cargo and not more than 24 hours for the smallercraft which carry domestic cargo. There would be enough berthing space,working area, and handling equipment to ensure prompt turn-around through1975 or later.

82. An analysis of the complete record of ship arrivals and departuresin 1963 shows that the craft in foreign trade lost a total of 718 ship-daysfor want of such facilities as the project would provide. Each day such aship is idle costs, on the average, about 0 38,000. The enlarged and im-proved port would therefore save 0 27.3 million annually, for the 1963volume of foreign trade, by speeding ship turn-around. To this should beadded analogous savings of 0 2.7 million annually because of prompter turn-around by the small craft which carry domestic cargo. Thus, on the basisof the 1963 level of traffic, the project would save a minimum of 0 30million annually by eliminating present ship delays due to the lack ofadequate port facilities.

- 20 -

B. More Efficient Cargo Handling

83. Presently a shore gang of 8 men load or unload 60 tons of cargoin one 8-hour shift. The A.N.N.P. plans to reduce the size of the gangto 7 men with introduction of more cargo handling equipment under theproject, and double the daily productivity to 120 tons. This will resultin a saving of at least 0 20 per ton of cargo handled, which would yielda saving of about 0 4.1 million a year at the 1963 level of trafficvolume.

C. Reduction of Overtime Work

84. The limited facilities of the present port force many ships towork overtime. The resulting extra costs to ship owners and merchantsin 1963 totalled 0 17.5 million - i.e., overtime charges averaging 0 500a ton for wharfage, stevedoring and customs services applied to the load-ing or discharge of 35,000 tons of cargo worked outside normal hours.It is expected that, with the new facilities to be installed, a savingamounting to 85 per cent of the extra cost in 1963, i.e., about 0 15.0million, can be made.

D. Economic Rate of Return

85. The total annual savings under all three categories on the basisof 1963 traffic volume would be almost 0 50 million. Taking into con-sideration the expected traffic growth to 1970, the first year of operationafter completion of the project, the savings for that year would be about0 75 million. Projected over the 30-year average economic life of thefacilities to be installed, and allowing for traffic growth to 1975 only,taking no account of further growth thereafter, the savings resulting fromthe project would produce an internal rate of economic return of about17 per cent.

86. In addition, there would be important benefits which cannot bequantified. A return on the port investment, even if large, is by no meansan adequate measure of the impact of more efficient river transport onParaguayan development. Any long-term efforts to foster a more viablenational economy would be futile unless an adequate outlet for foreigntrade is provided.

VII. THE QUESTION OF CHAILNEL DREDGING

87. It has already been mentioned that the justification of the portexpansion project does not depend on the dredging of the river channel asthe economic benefits of the former are expected to be obtainable indepen-dently of the execution of the latter. However, in order to assure asmooth flow of traffic to the expanded port facilities throughout the year,it is highly desirable to undertake the channel dredging as soon aspracticable.

- 21 -

88. A good case can be made for dredging the river channel betweenAsuncion and Confluencia to a 10 ft. depth (3.05 m.). This would materi-ally reduce river transport costs by eliminating the need, during the lowwater season: (a) to use barges costing ¢ 400 a ton to carry goods betweenships in the stream and Asuncion port; (b) to pay lighterage costs of0 300 a ton in the port itself; and (c) to impose a 10 per cent surchargeon the freight rates applicable during the high water season. Accordingto estimates by the State Merchant Fleet, the enterprise incurred ad-ditional costs of 0 162 million (US$ 1.29 million) in 1964 because it couldnot use the full loading capacity of its freighters, tankers and refriger-ator ships during the low water season.

89. However, as explained earlier, no dredging project can be con-sidered by the Bank until Argentina and Paraguay complete the negotiations,now in progress, for a new treaty. Apart from the uncertain timing andterms of the new treaty, the required amount and costs of dredging arestill indeterminate. Conceivably, US$ 2.5 - 3.0 million worth of dredgingequipment3might have to be procured to remove an estima5ed total of 1.5million m for initial construction, plus 0.5 million m annually for sub-sequent maintenance. However, these estimated quantities are only broadorders of magnitude on which a loan project cannot be based. The Govern-ment has confirmed its intention to negotiate the new treaty.

VIII. CONCLUSIONS AND RECOMMENDATIONS

90. The project is technically sound and will be carried out byacceptable procedures. The designs will be reviewed, and the constructionsupervised, by consultants satisfactory to the Bank. Construction will becarried out under a unit-price contract awarded to a qualified contractor onthe basis of international competitive bidding. Orders for equipment willbe placed on the same basis.

91. The project is economically justified; the savings in trans-portation costs would yield about 17 per cent annual return and the projectwill contribute substantially to the economic development of Paraguay.

92. The law creating the A.N.N.P. gives to it adequate autonomy;A.N.N.P. management appears to be effective and should continue to be so;the future financial position seems assured.

93. The project is suitable for a Bank loan to the AdministracionNacional de Navegacion y Puertos of US$ 2.75 million equivalent for a termof 25 years, including a five year period of grace. The Government of theRepublic of Paraguay would be the Guarantor.

December 3, 1965

ANNA 1

SUSriARY OF THE RIVER TREATY BETWEEN

PARAGUAY AND ARGMETINA

1. An agreement between the Governments of Paraguay and Argentinaconcerning the Dredging and Buoyage of the Paraguay River was signed inBuenos Aires on February 10, 1941.

2. The most important provisions of this Agreement are as follows:

(a) A minimum depth of the Paraguay River of 6 feet, equivalentto 1 meter and 83 centimeters will be maintained by carryingout of the dredging work;

(b) The Government of Argentina will be solely responsible forthe dredging work from Confluencia to Formosa;

(c) The Government of Argentina will also be responsible for thedredging from Formosa to the mouth of the Pilcomayo River,but the cost of dredging will be equally shared by thegovernments of Argentina and Paraguay; and

(d) The Government of Paraguay will be responsible for the dredgingfrom the mouth of the Pilcomayo River to Asuncion, and it willbe solely responsible for its cost.

3. Both governments have agreed to facilitate the work of the twotechnical commissions responsible for studies and surveys of the ParaguayRiver, as well as for the dredging work.

4. The work of dredging will follow the channel found to be mostsuitable and efficient for navigation. Both countries have agreed thatthe original course of the section of the river Paraguay between Confluenciaand Asuncion at the time the agreement was signed, would be considered to bethe one indicated in the map of that river, published in January 1939 by theMinistry of Public Works of Paraguay.

ANNEX 2

ASSUMPTIONS ON WHICH FINANCIAL PROJECTIONSOF A.N.N.P. ARE BASED

1. The former Port Administration recently revalued its assets,which will be transferred to the A.N.N.P., in order to provide a basis

for establishing depreciation charges. A market value has been set for

the land,but it is not possible to judge the reasonableness of this valu-ation for the purpose of calculating returns on investment. Fixed assets

other than land have been valued on the basis of replacement cost, less

depreciation. Although it has not been possible to check these values,Bank staff consider that they are reasonably acceptable. The total valu-

ation as of the end of 1964 would amount to i 495 million, made up of land,0 225.4 million, and fixed assets, 0 269.6 million. Rates of return oninvestment have been calculated both including and excluding land.

2. The total receipts have been estimated by adjusting the PortAdministration's forecast taking into consideration the more conservative

traffic projections prepared by the Bank's mission.

3. Operating expenses, including routine maintenance, repair andadministrative overhead have been estimated from present performance withallowance for improved efficiency resulting from the new facilities andfrom improved operating methods.

4. The prior obligation to the former Asuncion Port Concession

Company of New York (APCC) to 1968 and the repayment of a small local cur-rency loan from a Spanish enterprise were taken into account as a part ofthe A.N.N.P.'s debt service obligation. The annual debt service on the

proposed Bank loan was calculated on the basis of a 25-year term including5-year grace period at an annual interest rate of 5-1/2%.

5. The annual depreciation of the facilities is assumed to be 3% onthe basis of the estimated service life of the facilities of 30 to 35 years.Depreciation has been charged on both the existing facilities and the newinvestment under the proposed project.

6. The financial forecasts are based on the existing tariff schedule.It is assumed that all cargoes handled over the wharf will pay charges asprescribed in the present tariff law, as from January 1, 1966. With regardto the larger tonnages of local traffic handled on the beaches free ofcharge, no allowance has been made for revenues from such traffic except to

the extent that they will, in future, be handled over the wharf on com-pletion of the project.

TABLE 1

PARAGrUAY: PORT OF ASUNCION4 PROJECT

Estimate of Costs

Local Currency Foreign Total CostsCosts Exchange

iMillion Costs Million ThousandItem Guaranies Thousand US$ Guaranies US$

1. Dredging, filling,and compacting160,000 m3 12.0 150.0 30.9 245.2

2. Quay extension320 m. x 15 m. 82.3 h61.6 140.5 1,115.0

3. Construction oftwo sheds with atotal area of7,000 mi2 28.0 222.0 55.9 444.0

4. Paving of roads andstacking area 7.5 59.6 15.0 119.2

5. Public utilities,telephone 4.4 140.0 22.0 174.6

6. Pontoon quay andapproach 13.0 152.0 32.2 255.4

7. 'Restoring andmodifying oldbuildings, andrelocation of adrainage creek 6.o 47.6 12.0 95.3

8. Cargo-handlingequipment - h87.2 61.4 487.2

9. Review of designand engineeringsupervision 6.3 100.0 18.9 150.0

10. Operations -consultants= 100.0 12.6 100.0

'. Contingencies--15 per cent,Items 1-10- . 23.9 288.1 60.2 477.9

12. Interest duringconstruction 290.0 36.5 290.0

($1,455.7) 183.4 2,498.1 498.1 3,953.8

Rounded up 183.0 2,500 498.0 3,950

TABLE 2

PARAGUAY: PORT OF ASUNCION PROJECT

Foreign Trade of Paraguay,1947 - 1964

(in thousand metric tons)

Year Exports Imports Total

1947 236.2 56.9 293.1

1948 285.2 113.1 398.3

1949 305.1 117.8 422.9

1950 366.1 113.1 479.2

1951 594.1 152.2 746.3

1952 288.1 148.6 436.7

1953 299.5 125.4 424.9

1954 251.4 182.2 433.6

1955 259.2 174.0 433.2

1956 356.5 197.1 553.6

1957 331.6 192.2 523.8

1958 341.6 222.9 564.5

1959 .236.2 227.2 463.4

1960 299.4 244.7 544.1

1961 341.3 273.5 614.8

1962 350.4 287.3 637.7

1963 311.1 295.7 606.8

1964 (estimated) 306.0 327.0 633.0

PARAGUAY: PORT OF ASUNCION PROJECT

Cargo Traffic Through the Asuncion Port, 1958-1963

(in thousand metric tons)

1958 1959 1960 1961 1962 1963Exports

Public Wharves 75.4 68.7 47.2 54.0 68.5 74.3Transhipment 4.8 13.7 18.4 15.4 16.9 17.3

Total 80.2 82.4 65.6 69.4 85.4 91.6

Imports

Public Wharves 82.4 76.7 83.2 93.3 95.1 99.3Private Piers 117.2 163.0 168.2 159.0 151.0 196.4

Total 199.6 239.7 251.4 252.3 246.1 295.7

Total Exports & Imports 279.8 322.1 317.0 321.7 331.5 387.3

of which Public Wharf Traffic 157.8 145.4 130.4 147.3 163.6 173.6

Total Local Traffic 78.4 79.2 82.2 85.1 81.3 80.2

of which:

Wharf Paid Traffic 45.7 50.8 41.0 41.5 35.2 36.8Wharf Free Traffic 1.6 2.4 2.3 2.0 1.5 1.7Beaches Paid Traffic 12.9 12.1 14.8 13.2 16.3 13.0Beaches Free Traffic 18.2 13.9 24.1 28.4 28.3 28.7

Grand Total 358.2 401.3 399.2 406.8 412.8 467.5

of which:

Public Wharf Traffic 205.1 198.6 173.7 190.8 200.3 212.1Beach Traffic 31.1 26.0 38.9 41.6 44.6 4i.7

236.2 224.6 212.6 232.4 244.9 253.8

Transhipments 4.8 13.7 18.4 15.4 16.9 17.3

Private Pier Traffic 117.2 163.0 168.2 159.0 151.0 196.4

TABLE 14

PARAGUAY: PORT OF ASUNCION PROJECT

Export Cargoes Through the Public Wharves of the Port of Asuncion,1958-1063, and Projection to 1975

(in thousand metric tons)

1958 1959 1960 1961 1962 1963 1970 L975------ (--TActual)-------------- Projected)-

Beef 6.2 4.8 0.9 0.9 1.9 o.6 8.o 10.0

Lumber 6.7 4.0 9.1 8.6 11.4 6.5 9.0 12.0

Cotton Fibres 5.0 4.7 1.0 3.8 4.9 6.0 7.5 9.0

Industrial Oil 3.8 5.4 3.7 3.6 4.0 5.0 6.5 7.5

Hides 5.3 8.1 5.7 4.7 3.5 3.6 6.0 8.o

Fruit 1.1 0.9 1.8 1.4 2.6 3.3 4.0 4.5

Tobacco 2.4 2.3 6.1 6.2 11.8 7.4 9.5 11.0

Corn 16.8 1.2 6.5 2.1 0.3 2.5 20.0 25.0

Coconut Shell .9 4.6 3.6 4.8 7.5 4.9 7.0 9.0

Coffee 0.1 0.5 0.7 0.7 1.5 2,9 4.0 5.0

Oilseed 1.9 3.2 2.6 6.o 9.5 4.9 6.0 7.0

Sugar 3.6 15.5 1.0 3.0 0.4 6.o 8.5 11.0

Hydrated Llie - - - - - 1.0 1.5

Coco Soap - - - - - - 1.0 1.5

Edible Oil - - - - - - 1.0 1.5

Other 21.6 13.5 4.5 8.2 9.2 20.7 26.0 31.5

Total 75.4 68.7 47.2 54.0 68.5 74.3 125.0 155.0-

PARAGUAY: PORT OF ASVhCION PROJECT

Import Cargoes through the Public Wharves of the Port of Asuncion,195B-1963

(in thousana metric tons)

1958 1959 1960 1961 1962 1963

Food and Beverages 28.7 30.7 29.7 32.1 35.8 33.3

Fuel and Lubricants 8.2 9.0 10.4 11.9 12.3 13.5

Paper, Cardboard 2.2 2.2 2.9 3.4 3.2 3.4

Chemnicals and Pharmaceuticals 2.9 3.4 2.8 3.3 3.2 3.0

Transport Accessories 2.9 2.8 8.4 13.3 4.2 3.5

Textiles and i4anufactures 3.2 2.1 2.4 3.1 3.0 2.5

Agricultural Implements 0.8 0.6 0.6 0.5 0.5 0.4

Iron, Steel and Other Metals 17.6 9.4 10.3 10.6 10.2 13.4

Machinery, Motors 3.8 2.4 3.4 2.8 3.5 3.1

Other 12.1 14.1 12.3 12.3 19.2 23.2

Total 82.4 76.7 83.2 93.3 95.1 99.3

TABLE 6

PARAGUAY: PORT OF ASUNCION PROJECT

Analysis of Time Spent in Asuncion Port by

Foreign Trade Ships During 1963

Less than 48 Hrs. 48 Hrs.- 144 Hrs. More than 144 Hrs.

No. of Total No. of Total No. of TotalShips Hours Ships Hours Ships Hours

January 8 244.95 6 480.80 15 3,657.95

February - - 4 277.30 10 3,936.20

March 4 107.50 3 349.55 2 422.60

Apri-l 3 83.70 3 294.15 4 1,026.30

May 4 121.45 9 931.20 U1 2,734.10

June 3 101.70 8 732.90 4 7,185.65

July 6 106.50 14 1,269.90 4 668.95

August 15 409.00 19 1,566.90 9 1,727.90

September 15 425.60 4 373.30 16 3,563.60

October 10 221.95 13 1,240.45 4 883.35

November 10 283.00 22 1,975.40 12 3,537.80

December 8 174.05 8 696.25 13 3,523.70

86 2,279.40 113 10,188.10 104 32,868.10

PORT OF ASUNCION PROJECT

Asuncion Port Administration

Receipts and Disbursements and Cash Flow, 1958-1963

in Million Guaranies

1958 1959 1960 1961 1962 1963

Operating ReceiptsCharges on Cargoes 72.3 69.2 85.0 87.9 103.0 108.2Charges on Ships 841 7.3 8.5 11.5 9.7 8.0Miscellaneous Operating Income 8.7 11.1 11.0

89.1 86.9 104.8 110.5 123.7 125.7

Operating ExpenditureWi 8ag and Salaries 39.6 43.3 44.6 52.4 61.0 71.6Ovurneads 6.4 :7.0 7.3 8.2 9.9 7.1Maintenance and Repair 3.4 3.8 4.0 5.2 5.8 10.8Other 3.4 1.5 1.2 2.0 - 3.

52.8 55.6 57.1 67.8 76.7 92.5

Operating Surplus 36.3 31.3 47.7 42.7 47.0 33.2Other Receipts 4.4 2.7 5.5 - 3.2 -

Local Borrowing - 6.o0 6eP - _40.7 40.0 59.2 42.7 50.2 33.2

Capital Disbursements:Non-routine maintenance 20.2 18.1 20.5 20.0 18.3 -

liachinery and equipment 2.9 2.3 1.4 2.5 2.5 9.4Debt service 19.7 21.8 22.0 22.5 22.5 22.5Repayment of local borrowing and lending - 6.- 13.0 -

42.8 42.2 49.9 45.0 56.3 31.9

Annual Surplus (D.D2icit) (2.1) (2.2) 9.3 (2.3) (6.1) 1 ? Balance Brought For`rard 5.1 3.0 18 10.1 l7. 3.1

Balance Carried Forward 3.0 .8 10.1 7.8 1.7 3.0

2.1Reduction in Cash Funds

PORT OF ASUNCION PROJECT

Forecast of Revenues, Expenses and Surpluses; Interest andDebt Service Coverage 1964-1975 for the Port of Asuncion.

in million GuaraniJa

1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975(Estinated) - - _ _

Operating RevenuesCharges on CargoesWharfage 50.0 54.6 57.9 61.0 64*3 68,2 72.8 75.5 79.2 83.0 86.9 91.2Storage and other charges 53.0 55.9 59.0 62.0 65.4 688 72.5 76.2 80.1 84.0 88.2 92.4Local cargo 7.5 8.2 9,1 10.0 10-7 E 15.7 1U2 _9%2 _20.2 21.1 22.1

110.5 118.7 126.0 133*0 140.4 148,7 161.0 169.9 178.5 187.2 196.2 205.7

Charges on Ships 8.5 8.8 9.2 9.7 10.2 10.? 11.1 11.8 12.4 13X0 13.7 143Miscellaneous Operating Income 11.0 11.0 112 1 - ,1.6 8 LZ4 12.2 1 i2J 1.8 0

130.0 138.5 146.4 154.1 162.2 171.2 184.1 193.9 203.3 212.8 222.7 233.0

Operating ExpensesSalaries and fges 78.8 79.0 79.5 80.1 82.0 83.0 84,0 84.4 84.8 85.2 85.6 86.0Overheads 4.4 4.5 4.8 5.2 5.5 6.2 6.7 6.9 7.1 7.3 7.4 7.6Materials 6.9 7.0 7.0 7.2 7.4 7.6 7.9 7.9 8.0 8.1 8.1 8.2Maintenance and Replacements 3.4 4.4 9.0 7.0 7.2 7.8 14.2 14.5 214.7 14.9 15.2 15.4Other S0 . 5.3 5.8 6.2 7.0 7.5 7 _ 7.9 a1 8.3 8.5

98.5 99.9 105.6 105.3 108.3 111.6 120.3 121.4 122.5 123.6 124.6 125.7

Depreciation 8.0 8.0 8.0 8.0 8.0 8.0 22.0 22,0 22.0 22.0 22.0 22.0

106.5 107.9 113.6 113.3 116.3 119.6 142.3 143.4 144.5 145.6 146.6 147.7

Operating Surplus 23.5 30.6 32.8 40.8 45.9 51.6 41.8 50.5 58.8 67.2 76.1 85.3

Operating ratio 81.9 77.9 77.6 73.5 71.7 69.9 77.3 74.0 71.1 68.4 65.8 63.4

Interest Expense 4.5 3.5 2.6 1.5 .5 - 18.9 18.4 17.8 17.2 16.5 15.9

Interest covered-times 5.2x 8.7x 12.6x 27.2x 91.8x - 2.2x 2.7x 3.3x 3.9x 4.6x 5.4x

Operating Surplus plus Depreciation 31.5 38.6 40.8 48.8 53.9 59.6 63.8 72.5 80.8 89.2 98.1 107.3

Total Debt Service 27.7 22.4 22.4 24.9 25.3 2.6 31.5 28.8 28.8 28.8 28.8 28.8

Debt Service covered-times l.lx 1.7x 1.8x 2.0x 2.lx 22.9x 2.0X 2.5x 2.8x 3.Lx 3.hx 3.7V

Balance to Earned Surplus _ 8.4 10.4 15.9 20.6 49.0 10.3 21.7 30.0 38.4 47.3 56.5

Return on Net Fixed Assets Excluding Work in Progress:Excluding Land 11.5% 12.7% 16.3% 19.0% 22.1$ 6.1% 7.7% 9.2% 10.9% 12.9% 15.o%

Including land 6.2% 6.8% 8.6% 11.8% 11.2% 4.6% 5.7% 6.8% 8.0% 9.3% 10.7%

Source: Asuncion Port Administration,modified by Bank staff.

PORT OF ASUNCION PROJECT

Forecast of Debt Service 1964-1975 for the Port of Asuncion

Million Guaranies

1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

Interest

APCC 4.5 3.5 2X6 1.5 .5

IBRD 18.9 18,4 17.8 17.2 16.5 15.9

4.5 3.5 2.6 1.5 .5 - 18,9 18.4 17.8 17.2 16.5 15.9

Amortization

APCC 23.2 18.9 19.8 20.8 22.1

IBRD 9.9 10.4 11.0 11.6 12.3 12.9

Other 2.6 2.7 2.6 2.7

23.2 18.9 19.8 23.4 24.8 2e6 12,6 10.4 ll,O 11.6 12.3 12,9 |

Total Debt Service 27,7 22.4 22.4 224.9 25.3 2.6 31.5 28.8 28.8 28.8 28.8 28.8 '0

Source: Asuncion Port Administrationand 3ank staff.

PORT OF ASUNCION PROJECT

Estimated Cash Flow - 1966-1970 for the Port of Asuncion

Millions of Guaranies

1566 1957 3163 1969 1970 Total

Funds Required,

Investment in Bank Project 90.0 140.0 140.0 128.0 493.o

Debt Interest 2e6 1.5 .5 - 18.9 23.5

Debt Amortization 19.8 23.4 24k.O 2.6 12.6 83.2

Repayment of Government Advances 30.0 30.0

Increase in Working Capital 1.2 1.2 1.1 1.4 2.3 7.2

113r6 3.66.1 166c4 132.0 63.@ 64L 9Funds Available

Operating Surplus before Depreciation 4o.8 48.8 53.9 59.6 63.8 266.9

IBRD Loan 64.0 96.0 95,5 91.D 346.5

Advances by Government (assumed) 25.0 15.0 40.0l107.-8 -W93.T 711T.7 15607 6r _63____

Annual Surplus 3.7 18.6 - 11.5Deficit 8e8 2.0 CD

BaL ace of Funds brought forward 16,2 7.4 11.1 9.1 27.7 16e2

Balance of Funds carried forward(excluding working capital) 7.4 11.1 9.1 27.7 27.7 27.7

Worlc'ng Capital 22.0 23.2 24.3 25.7 28.0SOM1`R : Bank Staff

PORT OF ASUNCION PROJECT

Pro Forma Balance Sheets as of'Decemher 31, 1964 - 1970 for the Port of Asuncion

(Millions of Guaranias)

1964 1965 1966 1967 1968 1969 1970 1975Assets

Fixed assets

Land 225.4 225.4 225.4 225.4 225.4 225.4 225.4 225.4Structures, Plant and equipment 2,,Str(cnures, Plant andrequipment 269.6 269.6 261.6 253.6 245.6 237.6 691.1 581.1(net of depreciation)

Total as of December 31, 1964 Net 495.0 495.0 487.0 479.0 471.0 463.0 916.5 806.5Less Depreciation (annual) - 8.0 8.o 8.o 8.0 8.o 22.0 22.0

495.0 487.0 479.0 471.0 463.0 455.0 894.5 784.5Work in Progress - Project - - 88.0 222.0 351.0 461.5 -

495.0 487.0 567.0 693.0 81 4 .0 916.5 894.5 784.5

Suspense Account, Interest during construction - - 2.0 8.o 19.0 36.5 34.7 25.7Net Current Assets

Funds available for investment ( 16.2 7.4 11.1 9.1 27.7 27.7 314.320.8

Working Capital ( 20.8 22.0 23.2 24.3 25.7 28.0 35.3

515.8 524.0 598.4 735.3 866.4 1,006.4 984.9 1,159.8

Capital

Debt: IBRD - - 64.0 160.0 255.5 346.5 336.6 278.5Other 92.2 73.3 53.5 30.1 5.3 2.7 - -

92.2 73.3 117.5 190.1 260.8 349.2 336.6 278.5

Equity: Capital Reserve 423.6 450.7 470.5 493.9 513.7 521.3 532.1 581.2Earned Surplus - - 10.4 26.3 46.9 95.9 106.2 300.1Government Advances 25.0 40.0 40.0 10.0 -

423.6 450.7 480.9 545.2 605.6 657.2 648.3 881.3

515.8 524.0 598.4 2 866.4 1,006.4 98h.9 1,159.8

Debt/Equity ratio 18/82 14/86 20/80 26/74 30/70 35/65 34/66 24/76

Source: Bank Staff

Table 12

PORT OF ASUNCION PROJECT

Estimate of ANNP's Funds Available for InvestmentDerived fron thlie iort o,'f suncion

as of January 1, 1966 Million Guaranies

Balance of cash funds availableDecem}ber 31, 1963 3.0

Add balances due from Government 14.0

17.0

December 31, 1964

Operating surplus plus depreciation 31.5

Less debt service 27.7

3.8

20.8

December 31, 1965

Operating surplus plus depreciation 38.6

Less debt service 22.4

_1O.2

37.0

Deduct Working Capital - say 15% ofRevenue (1965 G. 138.5 million) 20.8

Balance available for investmentJanuary 1, 1966 16.2

CHART I

PORT OF ASUNCION PROJECTVARIATIONS IN WATER LEVEL OF THE PARAGUAYA RIVER MEASURED AT ASUNCION(IN METERS)

700 ,, T F fl 1T - - - m- - -ri, 7.00

6.50 L 6.50

6.00 1959 6-00

550 ......... _./.- 5.50...... . .. ... N

5.0 5.00

4 .5 - ............... 4 5

4.00u . ~ 4.500

3.50 S... .............

% -l"~~~~~~~~~~~~~~~-

I I~~~~~~~~~~~~~~~~~~~~~~~1

2.50 ---- *.. 19612.50/ ~~~~~%/ S I~~~~~~963-'.

2.00 ~ ~- ____ AN--/-2.00

~'Pesel w#LId~wI requ red for 9~p draft

1.00 y~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 0

1 5 10 1520 2530 510 1520 2530 510 1520 2530 510 1520 2530 510 1520 25 305 1 15 20 25 30 510 1520 25305 10 152025 30 510 152025 30 510 152025 30 510 152025 30 510 1520 2530

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

ABOU T

2 METERS

TO CHANNEL BOTTOMIBRD- 2530

MAP I

R 0A D S

Asphalt PARAGUAY

Under rnnonnstructlon ,4 0()T 2 $i 2 0 [ t2i

and pavIng

ParCly Irproved

In_o-- Undr non stroctlan or proponsedi1

b

Rollasy ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~oipIS 0 L I V I A °o ' 1° 1 1 0

C ... . * * v . * 5... n .. . O\ttinyn sePrc o f -ice area. . ~ ~ ~ ~ ~ ~ ~ ~ A q. - -A

. ... . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~A.. i~ - -A

Villa Haev S i ce are

. .5.. .5 5.* *.*~~~~~~~~~~ O~~d~~vns, ~Port of Aon. ion

M Žinn Ports

* * *~.~****.~ *5.~%~ts.~gP. n~ 5 "ASUNCI P..a

8 R A Z~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~00oRC

'NsooviA ~ ~ ~ ~ ~ 9orsnaa '0o

0X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~XAPRIL 1965

IBRD-1461RI

PARAGUAY

R&M 1l ifON) CHODlNW NEL CONdIFLUENCidE s!H$UDOMIO N ~MOM SMORS 'APDO

Etnao,.o. to ct. P-.2 Tri.id.d

o X.oooo. So.aI

0 ~ ~ ~ ~ ~ 5 0 00; 30y J_ W CsCP

Asph.It ~ ~ ~ ~ ta sr R..d(. S

cisrtlts @ati w0 ~~~~\/ Volea0 YAyc

- - - - - - - F-I p .... d dA J lAN C-S

K - W s} -

-I.dic.tr.. SHOALS X,:L oan

p~~~~~~~~~~~~~

K.. 27J7, m

oF, 0 Rot N

¢ > vill. pli-a -- = 0 Yby-u

-'~~~~zX-CMSS 6-

-

6-i-t -. E a X \ ';-

K 'X .. U.bd -r a m ir g _ ___ _ =__ n E S y /;~~~~~~~~

| g ~ , fD.-h.do.UTST

DECEMER 196 __a 4s -_~

:~~~~~~

'Ito/. j II I I

I) 0~~~~~~~~~~~C