Document of The World Bank IFO O@FI ECHAL USE ONLY Report No. P-2009a-YAR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE YEMEN ARAB REPUBLIC FOR A PORT DEVELOPMENT PROJECT May 6, 1977 This docwumet has n restricted distrinbnffoon nnd rmny be used by recipienmts only in the perfoirmance of their olkcial duinties. IlRs contents maDy not otherwise be disclosed without World IB ank niuthorization. CURRENCY EQUIVALENTS US$1 = YRls 4.501/ YRls 1 US$0.22 YRls OOO ' US$222 YRls 1,00O0000 US$222,222 FISCAL YEAR JULY 1 to JUNE 30 ABBREVIATIONS CPO Central Planning Organization FRG Federal Republic of Germany PMAC Ports and Marine Affairs Corporation PRC Peoples Republic of China UNDP UBnited Nations Development Programme USAID United States Agency for International Development YAR Yemen Arab Republic 1/ No par value for the Yemen Rial has yet been declared to the IMF. All exchange transactions are effected at the Central Bank rate which has been pegged to the US dollar since February 1973. FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE YEMEN ARAB REPUBLIC FOR A PORT DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit of US$6.0 million, equivalent, on standard IDA terms, to the Yemen Arab Republic (YAR), to help finance a port development project. The proceeds of the credit would be onlent to the Ports and Marine Affairs Corporation (PMAC) at an interest rate of 9 percent per annum repayable over a period of 20 years, including five years grace. The YAR Government is ex- ploring with other external sources the provision of US$12.0 millipn towards the cost of the project, under parallel financing arrangements. PART I - THE ECONOMY 2. A report entitled "Current Economic Position and Prospects of the Yemen Arab Republic" (No. 840a-YAR), dated January 9, 1976, was distri- buted to the Executive Directors on January 20, 1976. An updating mission visited YAR in early 1977 and its findings are reflected in this section. Country data are attached in Annex I. Introduction 3. The YAR is among the least-developed countries in the world. This underdevelopment has its roots in three major factors: (a) the country's long isolation from the rest of the world, which ended with the revolution against the traditional regime of the Imams in 1962, but in fact was not fully overcome until the end of the subsequent civil war (1962-70), (b) the paucity of natural resources, and (c) the critical shortage of educational facilities and of modern technical and administrative skills. 4. The Government has successfully introduced basic elements of modern administration in recent years and has sought to alleviate the problems asso- ciated with a meagre resource base by adopting liberal emigration policies towards Yemenis seeking employment abroad and welcoming the inflow of foreign assistance. This policy has paid increasing dividends, and workers' remit- tances and foreign aid and grants (mainly from Saudi Arabia) have increased substantially, particularly over the last three years. Limitations on YAR's absorptive capacity are consequently becoming the main constraint on develop- ment. The Government is making substantial efforts to step up its development outlays, while at the same time building up appropriate institutional struc- tures and training people in necessary skills. Pressure on available skills is consequently high, and middle level skills as well as specialized skills have to be imported from abroad. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discklsed without World Bank authorization. - 2 - Economic Structure, Development Objectives and Constraints 5. YAR's economic structure, although changing, still reflects its state of extreme underdevelopment. About 70 percent of its estimated popula- tion of 6.5 million (end 1975) depends on agriculture, which consists largely of subsistence production. Internal transport and communications, though expanding, still leave many parts of the country isolated from each other. While the main -road system has been rapidly developed and the education system is expanding, the economic and social infrastructure remains largely under- developed. The literacy rate of YAR's population barely exceeds 10 percent. Modern administration systems are still in their infancy and face an acute shortage of qualified and experienced manpower. Political integration has been hindered by tribal differences. The end of the civil war left the tribal sheikhs in a stronger and more independent position than before. This frag- mentation of power, combined with the inadequacy of institutions and lack of trained cadres at the Central Government level, hindered the Government's ability to formulate national economic objectives and carry out a working program of economic development. However, Central Government control has gradually spread in recent years and continues to do so, and the building up of an administrative and security framework is among the Government's highest priorities. 6. Despite these constraints, considerable progress has been made in setting up national economic institutions and introducing development plan- ning. With significant technical assistance provided by the IMF, the Kuwait Fund and the Bank, YAR established a Central Bank in 1971, a Central Budget Bureau and a Central Planning Organization in 1972. Formal budgets were introduced in 1973/74, a Three-Year Development Program, covering the period 1973/74-1975/76 was implemented, and a Five-Year Development Plan covering the period 1976/77 through 1980/81 is currently under preparation. In addition, ministerial committees for participating in planning efforts have been estab- lished. 7. Under both these programs, the long-term goals for economic develop- ment mainly emphasize: (a) the development of agriculture to achieve self- sufficiency in food; (b) the expansion of the transport and communications infrastructure to improve economic and social integration; (c) a moderate industrialization program; (d) education and manpower development to secure the skills needed for YAR's future development efforts; and (e) government institution building at the national as well as at local levels. The Three- Year Development Program, which was confined to public sector development, envisaged total spending of YRls 936 million (approximately US$208 million). Actual development expenditure by the Government amounted to YRls 664 million (US$148 million) during the three-year period, and YRls 600 million (US$133 million) is budgeted for the first year (1976/77) of the Five-Year Plan. 8. Gross fixed capital formation in the public and private sectors reached YRls 773 million (US$170 million) in 1975/76, having grown at an average rate of 16 percent in real terms since 1969/70. The bulk of in- vestment during the Three-Year Program went-into housing (42 percent) and transport (27 percent). Investment in agriculture (12 percent) and industry (7 percent) was relatively small but increased faster than total capital - 3 - formation. The low level of investment in the productive sectors is to a large extent attributable to institutional and manpower constraints. These difficulties are, however, gradually being overcome and development expendi- tures for agriculture and industry are expected to grow rapidly during the Five-Year Plan. 9. The Plan is now in its final stages of preparation. It will be more comprehensive than the Three-Year Program and will provide the authorities with an opportunity to assess the resources (domestic and foreign) likely to be available to YAR for development. Appropriate criteria for project selec- tion are expected to be established in order to bring the number and type of projects better in line with YAR's potential in institution-building and manpower development. Investment priorities will be established in the light of sectoral growth targets, and-a global economic framework is being designed to provide the basis for a balanced development strategy. All government ministries and agencies participate actively in the Plan preparation and the Prime Minister chairs the principal decision meetings. 10. A dilemma facing YAR's planners relates to emigration of Yemenis abroad. Workers' remittances finance to a very large extent the foreign trade deficit. On the other hand, such emigration of workers possessing even rudimentary skills tends to reduce the country's absorptive capacity. A viable solution at present may require accelerating the supply of the needed manpower through rapid development of training institutions. 11. A basic constraint on development (besides the presently limited absorptive capacity) is the country's narrow resource base. In agriculture, which accounts for about half of GDP and for virtually all of the meagre ex- ports (notably cotton, coffee, and hides and skins), development is seriously constrained by physical limitations, particularly the erratic nature of rain- fall, the rugged mountainous terrain and the uncertainty of groundwater supplies. Food grains (sorghum, millet, maize, barley and wheat) for local consumption are the principal crops; only modest quantities of cash crops, mainly cotton, qat 1/ and coffee are produced. The agriculture sector is predominantly devoted to rainfed grain production, and mainly as a result of the prolonged drought of 1966-72, has been meeting a decreasing share of domestic needs. Thus, food imports, in part provided through emergency relief operations, have grown rapidly from about $20 million in 1971/72 to $176 mil- lion in 1975/76, constituting almost half of total recorded imports. Although abundant rainfall during the 1974/75 and 1975/76 crop seasons resulted in exceptionally large harvests, self-sufficiency in agriculture production remains a distant goal. 12. YAR has little mineral resources of known commercial value. Only rock salt has been exploited so far. Unlike most countries of the Arabian Peninsula, YAR has no known oil resources, although exploration is currently underway. Due largely to the scarcity of natural resources, and the small domestic market, industry was virtually non-existent until the late 1960's. 1/ Qat is a mildly stimulating leaf, chewed by a considerable portion of the adult population. It is produced in relatively large quantities. -4 - Since then a small number of medium-sized, import substitution plants have been established, mostly with bilateral ass;istance. They include a textile mill, a cement factory, a cigarette factory and other plants producing light consumer manufactures and construction materiails. Their overall production, however, still represents only about 10 perc.,nt of GDP. Future industrial growth will probably remain limited to some import substitution and the processing of agricultural products unless oi l,r miiineral resources in com- mercial quantities are discovered. Recent Developments 13. YAR's economy remains heavily based ti, :tiibsistence agriculture. But gradual transformation of the economic struit lire is underway because of rapid growth in commerce (particularly tradinig tnd banking), government services, transport, construction and manufacturinig. GDP at constant prices is estimated to have grown at about 4 percunt a year during 1970/71- 1973/74, and over 10 percent during 1974/75 and 1975/76. The recent accelera- tion in growth is due to the upsurge in economic atLivity resulting from a substantial inflow of capital and workers' remittances, as well as a large increase in agricultural production. Remittances from workers abroad (largely in Saudi Arabia) and caslh grants from the Saudi Governiment, in fact, have become by far the largest sources of foreign exchange. They have enabled the YAR to sustain large deficits in its balance of trade, and their rapid increase led to a substantial addition to reserves in 1974/75 and 1975/76 (see paragraphs 14 an(d I ). Direct budgetary support finances the government current deficit and the -bulk of development outLays (see paragraphs 16-18). 14. YAR's balance of trade has shown high and widening deficits in re- cent years. This has resuLted directly from YAR's increased needs for essen- tial commodities (particularly foodstuffs) which had to be imported at a time of shiarply rising prices, ;mnd the limited nature of its exports. Exports have stagnated in recelnt yearb ( largely as a result of declining cotton production) and amounted to about $12 million in 1975/76. hIowever, imports increased to about $382 million in 1975/76, resulting in a trade deficit of $370 million, compared with $180 million in 1973/74. The trade deficit in 1975/76 was financed throuigih workers' remittances ($457 million) which had grown rapidly in recent years. Comimodity and cash grants received (almost entirely from Saudi Arabia) amounted to $114 million in 1975/76, and together with net medium and long-term capital inflows of $54 million in the same period led to an increase in foreign reserves by $286 million. 15. Total reserves heLd by the Central Bank amounted to $473 million on June 30, 1976 or the equivaLent of 15 months' imports at the 1975/76 level. The relatively large amount of reserves reflects Yemen's limited absorptive capacity as well as the large inElows of workers' remittances and foreign aid. Yemen's imports are still at a low level ($63 per capita in 1975/76) and are likely to grow rapidly as present physical and administrative bottlenecks are being overcome. Workers' remittances and aid inflows, on the other hand, are of more volatile nature and their volume could change substantially within a relatively short time. Yemen's present comfortable reserve position may there- fore be a passing phenomenon and could be eroded quickly if recent trends in - 5 - foreign exchange inflows are not sustained. The reserve position has also to be viewed in the context of the country's dependence on agriculture and its vulnerability to the vagaries of weather. A repetition of the severe drought which gripped YAR from 1966-72 would necessitate the import of foodstuffs in even higher than the present volume adding substantially to the country's foreign exchange requirements. 16. YAR's budgetary situation is characterized by persistent deficits on current account, because of the small tax base. YAR'S aggregate tax effort remains weak, and the tax/GDP ratio (about 10 percent) is low. However, bud- getary performance has been slowly improving as indicated by the higher growth rate of government current revenues compared with current expenditures over the last few years. Current revenues increased from about YRls 200 million (US$44 million) in 1972/73 to YRls 565 million (US$126 million) in 1975/76, i.e., at an annual rate of 42 percent (substantially higher than the growth of GDP), while current expenditures increased by about 30 percent per annum over the same period to YRls 604 million (US$134 million) in 1975/76. Most of the absolute increase in revenues was accounted for by higher customs receipts from increased imports (which now provide 70 percent of total Government revenues). The increase in current spending resulted largely from higher outlays on defense and security which in 1975/76 claimed 49 percent of total current expenditure; and from salary increases for the very low-paid Govern- ment civil servants in mid-1974. Expenditures for security (including cash grants to tribes) were considered necessary, given the socio-political situa- tion and the need to strengthen the central authority. Salary increases were necessitated by the need to build up and retain qualified Government admin- istrative staff since wage increases in the private sector have generally exceeded those in the public sector. During 1975/76, the Government con- tinued to restrain current expenditures. However, another salary increase was granted in July 1976 largely for low paid government: employees to compensate for deterioration in real income caused by inflation. Nevertheless, in view of the sharp rise in revenue resulting from better Lax collection and the higher import volume, the current deficit in 1976/77 is expected to remain relatively small. 17. The deficits, together with a large part of government development expenditures, are expected to be financed, as in past years, through direct budgetary support from Saudi Arabia. In addition, the Government continues to receive substantial amounts of foreign loans. As a result, government deposits with the banking system have been increasing since 1972/73. With the improved budgetary situation the Government has recently increased Gov- ernment support (both for technical services and project financing) for projects programmed through the Central-Planning Organization (CPO). The Ministry of Finance is also making direct allocations to economic ministries for some development expenditures including small projects which the minis- tries can implement on their own. Capital Flows and External Debt 18. Prior to 1970, the major aid donors were: the Union of Soviet Socialist Republic (USSR), the People's Republic of China (PRC), Egypt and the German Democratic Republic. These have now beein replaced in importance - 6 - by Arab states and their development funds, by the UN, IDA, the Federal Republic of Germany (FRG), USA, the UK and the Netherlands. Foreign assis- tance received by the YAR is currently on highly concessional terms (largely due to the cash grants from Saudi Arabia). However, continued dependence on foreign aid has had a strong impact on YAR's existing external debt position. Total external public debt outstanding on December 31, 1976 was estimated at $519 million, of which $276 million was disbursed. The major creditors were: USSR, IDA, PRC, FRG, the Arab Fund and the Kuwait Fund. Debt contracted with IDA as of December 31, 1976, accounted for $94 million or about 18 percent of the total reported debt. One more credit totalling $10 million was signed in January 1977. 19. Over 40 percent of YAR's total debt outstanding constitutes interest free loans mainly provided by PRC and the USSR. About 35 percent have been received at service charges and interest rates ranging from 0.5 to 2.5 per- cent. These are mainly from IDA, FRG, Kuwait and the Kuwait Fund. The remaining 15 percent have been provided at interest rates reaching up to 6 percent. The debt service for 1975/76 was estimated at $3.7 million, equiva- lent to about 33 percent of merchandise exports but less than 1 percent of total exports of goods and services, including workers' remittances. Since YAR is one of the least developed countries in the world, with grossly inade- quate commodity exports, and with potentially unstable workers' remittances, it will have to continue to seek external loans on concessionary terms for some time to come. PART II - BANK GROUP OPERATIONS 20. The proposed credit would be the thirteenth to YAR, bringing total IDA commitments to US$109.8 million. Apart from the US$5.0 million Credit for the livestock project approved in October 1976, and the US$10.0 million Credit for the Sana'a Second Water Supply and Sewerage project approved in December, 1976, about 35 percent of all credits have been disbursed and about 55 percent are committed under contracts. Annex II contains a summary state- ment of IDA credits and Bank grants and notes on the execution of on-going projects, as of March 31, 1977. 21. The major focus of Bank Group activity has been to develop the basic institutions, skills and physical infrastructure, prerequisite for development, and to begin lending in the dominant productive sector--agriculture. In 1971, the Bank made a grant of US$200,000 to help finance, jointly with the Kuwait Fund for Arab Economic Development, a team of planning and economic advisors; in September 1973 a second Bank grant of US$200,000 to make possible the con- tinuation and expansion of the planning team services, was approved. In January 1976, the Bank approved a third grant of US$120,000 to provide for the continuation of the services of a planning team including those of a management/public administration expert. The Kuwait Fund joined with a grant of about US$425,000. The Bank is also providing technical assistance for institution building to the Ministry of Agriculture through the services of seven advisors, financed by UNDP with the Bank as Executing Agency. - 7 - 22. To assist in building up the essential phiysical infrastructure and related institutions, IDA has extended two credits for highways, one in 1972 for US$7.7 million and one in 1975 for US$9.0 million, which also helped to create and support a National Highway Authority. IDA extended a credit for Water Supply in Sana'a in 1974 for US$6.3 million, a credit for Water and Sewerage in Hodeidah in 1975 for US$8.1 million, and in December 1976 a credit for the Second Sana'a Water Supply and Sewerage Project for US$10.0 million, all three of which support the National Water and Sewerage Authority. The Arab Fund contributed US$21 million to finance the sewerage component in the liodeidah project and US$17.1 million to finance the water supply component in the Second Sania'a project. To assist in the development of Education, IDA has extended two credits, the first in 1973 for $11 million, which together with aid from UNDP, FRG and the United Arab Emirates, financed expansion of teacher training and secondary and vocational education; and the second for $8 million in 1976 whichi is a follow-up to the first project. To develop infrastructure and productioni in YAR's major sector, agriculture and agroindustries, IDA has made four credits. The first credit of $10.9 million in 1973 was for the Tihanma Agricultural Development Project, to which the Kuwait Fund contributed $6.4 million; to meet major cost increases, the Kuwait Fund approved in 1975 a loan of $9.6 million to the project, and IDA also approved a Supplementary credit of $10.3 million in March 1976. The second Agricultural credit of $10.0 million was made for the Southern Uplands Rural Development Project in 1975 in which the Abu Dhabi Fund participated with $10.0 million. The third credit of $5.2 million for a Grain Storage and Processing Project was approved in June 1976. The Saudi Fund for Development joined with a loan of $11.0 million tinder parallel financing arrangements. A fourth credit of $5.0 mil- lion for a livestock credit and processing project was approved in October, 1976. The Kuwait Fund (US$11.6 million), the Netherlands (US$7.5 million) and time UK (US$2.4 million) are participating in thle financing of the project under parallel financing arrangements. A $2.3 million credit for an Industrial Estate Project was approved in 1974. The project is designed to stimulate investment in small-scale industry and provide a model for future industrial development. 23. Future Bank Group activity will concentrate on reinforcing the in- stitutional progress mnade in the essential sectors of transportation, agricul- ture and public utilities, help provide the necessary manpower training, and continue to help devise an appropriate development strategy and investment program. Particular attention in preparing future projects will continue to be given to the country's ability to implement these projects and to ensuring the availability of key staff and other means needed for successful implemen- tation. In keeping with this strategy a textiles project, an agricultural project, a third highway project and a power project are in the preparation stage. The Bank Group's lending 'strategy recognizes that YAR is among the poorest of the 29 least-developed' countries 1/ and thus requires special assis- tance, which justifies IDA fiLnancing of a large part of project costs, includ- ing local expenditures. Since project costs are in excess of the limited IDA funds available, efforts have been made to obtain co-financing from other 1/ As defined by the UN. - 8 - donors. In addition to its own commitments of US$103.8 million, IDA has also, since 1973, successfully played a catalytic role through its projects in securing about US$119.0 million of co-financing from other aid donors (Arab Fund US$38.1 million; Kuwait Fund US$33.5 million; Abu Dhabi Fund US$11.0 mil- lion; United Arab Emirates US$8.0 million; Saudi Fund for Development US$11.0 million; UNDP US$6.6 million; FRG US$0.58 million; the UK US$2.4 million and the Netherlands US$7.5 million). A further US$14.5 million will be provided by the Saudi Fund for financing certain components of the Sana'a Second Water Supply and Sewerage Project. YAR's level of poverty and the weak structure of its balance of payments have in the past justified a large portion of local currency financing by the Association; however, YAR has contributed an increas- ing portion of local currency financing and is expected to continue to finance a rising portion of its development expenditures in the future. PART III - THE TRANSPORT SECTOR The Transportation System 24. The development of a modern transport infrastructure in YAR began in the late 1950's. Before that, the transportation facilities were confined to primitive tracks and the very inadequate ancient port at Mocha. In 1958 the Government began construction with assistance from the USSR of a new port at Hodeidah. Thereafter, a small international airport was built in Sana'a with the aid of FRG which provides adequate terminal facilities but is not equipped for night landing. Recently, a third port, Salif, was built mainly to handle salt from a nearby mine (see Map). A bitumen surfaced road from Hodeidah to Sana'a, and a gravel road from Sana'a to Mocha, through Taiz, were constructed between 1957 and 1970, with the assistance of PRC, the USSR, and USAID. Since 1970, FRG has financed the paving of the Sana'a-Taiz road, and IDA credits have helped finance the construction of the Taiz-Turba and Taiz-Km 64 roads, the latter being the final link in the paved road system connecting the three main cities of Sana'a, Taiz and Hodeidah, and which also constitutes a major section of the road link from Taiz to the port of Mocha. The World Food Program and various agricultural projects have initiated improvement of feeder roads. Transport Policy and Planning 25. The Central Planning Organization (CPO) is responsible for for- mulating and coordinating public investments in the transport sector, while the Ministry of Public Works and Municipalities is responsible for project implementation, administration and policy. The Highway Authority, an auton- omous agency, established in 1972 with I1)A assistance under the First Highway project (Cr. 315-YAR, 1972), is the executing agency for road projects, and executes projects either independently or with the help of contractors. It also is charged with the responsibility for highway maintenance. The Ports and Marine Affairs Corporation (PMAC) (see paragraph 34) is responsible for port management and execution of port projects. - 9 - 26. Overall transport planning has not yet been launched in YAR, because the Government has been preoccupied with the task of meeting the obvious and immediate needs of developing a basic road network, which had hitherto been largely nonexistent or limited to primitive tracks. However, from 1971, a team of experts financed by the Bank and the Kuwait Fund, and more recently a UNDP team have been attached to the CPO to help with overall economic plan- ning, identification and preparation of investment projects and coordination of external assistance. They have been instrumental in identifying a number of development projects. In addition, the feasibility studies in the highway sector financed by UNDP and later by the Association (as part of its two highway projects), as also the port development study financed by UNDP and! the Kuwait Fund, have been of particular assistance in project preparation in these sectors. 27. The transport sector has received high priority in the previous and current national development plans. In the current Five Year Development Program (1976/77 to 1980/81), the transport and communication sector is pro- visionally allocated about US$460 million, which is about 30 percent of the Program's proposed total public investments, and is the largest provision for any single sector. Highways 28. The highway network consists of about 4,090 kilometers of roads of which 1,140 kms are considered to be main roads. About 930 kms of these main roads have been paved and a further 60 kms are under construction to meet paved standards. Traffic between YAR's ports and their hinterland depends solely on road transport. The Hodeidah and Mocha ports are now linked with the main consumption areas by good roads -- almost entirely paved, while the port of Salif (see paragraphs 24 and 33), is expected to have a fair gravel road linking it to Hodeidah before long. Ports 29. YAR has three ports. Hodeidah, the principal port which is centrally located, handles over 90 percent of general cargo traffic and all oil imports. Mocha, a small lighterage port, is well located to serve the prosperous Taiz district and handles about 8-10 percent of the total general cargo. Salif is a natural deep-water harbor with a modern, salt-loading pier but has no general cargo facilities. 30. The port of Hodeidah, built between 1958 and 1961 with financial and technical assistance from the USSR, was designed to meet the traffic requirements of the 1960's. There has been, however, a steady increase in import traffic at Hodeidah over the past four years, during the first three of which it grew at an annual rate of 8 percent reaching a total of 633,000 tons in 1975. In 1976, there was a sudden jump in this traffic, which, in one year alone, increased by about 39 percent to 884,000 tons (general cargo and liquid petroleum products). This phenomenal growth is the result of an upsurge in demand for imported goods required for the investment activities which are being vigorously pursued both in the public and private sectors, - 10 - the previous low per capita availability of modern consumer and intermediate goods, and the growing domestic purchasing power due to the increase in remittances by Yemeni workers employed in the oil-rich neighboring countries. A small portion of the growth in traffic, less than 8 percent of total cargo handled in 1976 is attributable to goods re-exported by road to Saudi Arabia. Since YAR is unlikely, in the near future, to have the manufacturing capacity to meet the rising demand for consumer and internmediate goods backed by this growing purchasing power and the tempo of developmental activities which is expected to be sustained, the trend of increasing imports is likely to continue and gather momentum in the future. Although construction activities are being undertaken to expand the facilities at Hodeidah, this unexpected spurt in traffic has created serious port congestion leading to excessive ship-waiting periods, the average of which, at the end of 1976, exceeded three months, causing liner shipping companies to impose congestion surcharges of up to 100 percent of the freight rates. Losses to the country due to excessive ship- waiting time are estimated to have exceedecd US$25 million in 1976. 31. Besides the operational difficulties imposed on the port management by the prevailing physical deficiencies at Hodeidah, such as an inadequate number of berths, lack of sheds and paved storage roads, and a shortage of cargo handling and navigation equipment, and of repair facilities, it is also handicapped by a severe shortage of personnel trained in port operations and management. In spite of these problems, and pressed on by both the Government and the public to rapidly unload the urgently required imports, Hodeidah was able to achieve high output rates during 1976. The equivalent of 2-1/2 berths handled a total general cargo of 660,000 tons. This was achieved by the hard work put in by the dock workers laboring under hot and humid climatic condi- tions, accompanied at times by sand storms. A consequence has been rough handling and chaotic storage and shifting of consignments resulting in con- siderable damage to the cargo. 32. The Port of Mocha, about 180 km south of Hodeidah, has lighterage facilities, including a 200 m long pier structure built in the 1950's, for transshipping cargo from ships anchored off the coast. The existing physical facilities are in poor shape and are sorely in need of repair or replacement. The pier has deteriorated badly having been neglected and without maintenance for more than twenty years. The sixty year-old light house is in a dangerous structural condition and has not functioned for many years. The sole cargo handling equipment is a dilapidated mobile crane, and the only covered storage available is an old shed. Utility services are lacking and water has to be transported to the port from the town. Added to these is the major problem of the silting up of its basin and approaches. The berth area adjacent to the pier was virtually silted up in 1975. Dredging alongside the pier to a depth of 4.0 was started late in 1976 by PMAC, which will also undertake the dredging of a sandtrap in 1977. Faced by these problems, the Port of Mocha has been relatively idle with the volume of traffic from 1973 to 1975 stag- nating at about 90,000 tons, and dropping to 50,000 tons in 1976. However, - 11 - as a result of long waits in Hodeidah, traffic in Mocha, after completion of the dredging, is expected to increase gradually reaching 180,000 tons per year by 1982. The physical development of Mocha beyond the level of a lighterage port, however, would be extremely expensive in terms of the enormous dredging and breakwater requirements, compared to the further development of Hodeidah. 33. Salif, about 75 km north of Hodeidah, has 15 m depth of water available close inshore. The salt loading facility, completed in 1976 with financial aid from the Kuwait Fund, consists of a pier capable of accommodat- ing 50,000 dwt vessels, connected by conveyor belts to the local salt mines close to the port. Salt traffic through the facility has not yet commenced, pending contractual arrangements with potential buyers. Salif is presently connected by a sand track to Hodeidah, which is also its main link to other towns. Though Salif lacks proper facilities to handle general cargo, some ships are presently directed there to relieve the current congestion at Hodeidah. It is envisaged that Salif will concentrate on salt traffic; for general cargo it will operate only as a standby port with marginal facilities which could be used when ship-waiting in Hodeidah becomes excessive. In spite of Salif's deep-water access, it is not yet a suitable location for the next phase development of general cargo facilities on account of its longer distance from main consumption centers, the lack of supporting township and dependence on desalination plants for fresh water. Port Organization and Management 34. Acutely aware of the bottleneck to development caused by the opera- tional difficulties of its ports, the YAR Government, established in 1976 an autonomous entity, PMAC, with full administrative and financial powers to operate the ports in YAR, under the general control of the Ministry of Public Works and Municipalities. PMAC has its headquarters in Hodeidah, and presently operates both the Hodeidah and Mocha ports. The salt pier in Salif is owned and managed by the Yemen Salt Mining Corporation, but any general cargo facilities developed in Salif will be the responsibility of PMAC. 35. PMAC has a seven member Board of Directors, including the Chairman and Director-General; all are appointed by the Government. It has a total staff of about 400. About ten technical personnel from the USSR assist the ports in various operational functions like pilotage, workshop operations and training, construction works, and power plant operations and their contracts are renewed on a yearly basis. Being a newly-created entity, PMAC is still in the process of organizing itself, and given the sudden increase in the operations under its management, it would benefit significantly from tech- nical assistance and advice in building up its organizational structure. Port Investment Program 36. Prior to the completion of the master plan study (December 1976) development of the ports in YAR did not follow any long-term plan. Plans for the construction in Hodeidah of berth No. 4 with USSR assistance, together with a new 5-ton crane, were agreed in 1974 and the work, undertaken through a local contractor, should be completed by the end of 1977. The Government - 12 - has undertaken to ensure that this berth would be ready by not later than April 30, 1978 (Section 3.02(a), draft Development Credit Agreement). The Government has recently decided to build, also with USSR assistance, berth No. 5 which will be a continuation of berth No. 4 under an extension of the contract for berth No. 4. In so doing it hopes to save on mobilization costs which would otherwise have been incurred on a separate contract, and possibly gain about a year in completing its construction. The operation of berth No. 5 is anticipated to begin in late 1978. Berth No. 6 proposed for IDA financ- ing under the project is to be built at right angles to berth No. 5. Undue delays in the completion of berth No. 5 would also cause delays in bringing berth No. 6 into operation as both these berths are to be serviced by common utilities.1 The technical services department of PMAC charged with the respon- sibility df implementing the project (see paragraph 49) will coordinate the construction work of both berths No. 5 and No. 6. To ensure that delays are not encountered in the construction of berth No. 5, completion of arrangements satisfacto~ry to the Association by the Government for its timely construction has been made a condition of credit effectiveness (Section 5.01(d), draft Development Credit Agreement). Also, the Government has agreed that construc- tion of berth No. 5 would be completed by June 30, 1979 (Section 3.02(b), draft Development Credit Agreement). In addition, four warehouses, three transit sheds and one weigh-bridge are now under construction, financed by PMAC's own resources, and to be completed in 1977. The total cost of these on-going works including berth No. 5, will be about YRls 49.2 million (US$11.0 million). As a short-term emergency measure, PMAC is also planning to con- struct a temporary floating jetty at Ras Kathib (see map of Hodeidah port) at the northern end of the Khor Kathib bay. In addition to these items, PMAC's investment plan covering the next five years consists of the project outlined in this report, and conforms to the country's draft Five-Year Development Plan (1976/77 to 1980/81). To allow for a rational development of the ports sub- sector, provide for an adequate expansion of facilities beyond 1985, and prevent actions that might adversely affect the project investment, PMAC will undertake and complete by end 1981 an appropriate study in consultation with the Association to determine the future investment requirements in the ports sub-sector (Section 4.04, draft Project Agreement). The Government and PMAC will be responsible for financing this study. Also, the Government expects to exchange views with the Association before undertaking additional investments exceeding US$300,000 equivalent per year in the ports sub-sector. Previous Bank Group Operations in the Transport Sector 37. The Bank Group has assisted two projects in the transport sector, both with IDA credits for highway development. The first project (Cr. 315, FY73) consisted of construction and supervision of the Taiz-Turba road and technical assistance to the Highway Authority; the project cost was US$8.6 million, the IDA credit being US$7.7 million, and the remainder being a loan from the Kuwait Fund. A second project (Cr. 558, FY75) was for construction of the important Taiz-Km 64 road forming part of the Taiz-Mocha/Hodeidah - 13 - circuit (see paragraph 24), and for continuation of technical assistance to the Highway Authority. The estimated cost is US$15.7 million, the IDA credit providing US$9.0 million, the Kuwait Fund loan US$5.0 million and the YAR Government US$1.7 million. Both projects are making satisfactory progress. In addition, the Bank has been the executing agency for two transport sector planning studies in YAR - a feasibility study for road investments conducted in 1971, financed by the [JNI)P; and a port development study during 1975-76, financed by IJNDP and tlh Kuwait Fund, on which the present project is partly based. PART IV - THEt PROJECT Background 38. In 1975 UNDP and the Kuwait Funld responded to a Government request by financing a study of port development. The Bank Group was the executing agency for the study, undertaken by Louis Berger International (U.S.A.) and KAMPSAX (Denmark). This project developed from that study which was com- pleted in late 1976. The project was appraised by an IDA mission in October 1976. Negotiations were held in Washington from April 4 to 8 1977. The Yemeni delegation was headed by H.E. Abdullah Al Kurshumi, Minister of Public Works and Municipalities. 39. A report entitled "Appraisal of a Port Development Project - Yemen Arab Republic" (No. 1463a-YAR, dated May 5, 1977) is being distributed sep- arately. A Development Credit aiid Project Summary is attached as Annex Ill. Maps showing the project location and the proposed expansion of the ports of Hodeidah and Mocha are attached. Project Description 4(). The project would expand YAR's inadequate port facilities, by devel- opi ig thie porL of llodeidah and by rehabilitating the lighterage port of Mocha to its original capacity, to meet requirements unltil about 1985. It would also strengthen the management capability of PMAC through technical assistance and training, and strengthen the process of rational planning of future port development in the country. 41. The project would comprise the following: (a) At thie port of llodeidah - the dredging of the approach channel ancl the port basin to accommodate larger ships of np to 14,000 dWL (current limit - 8000 dwt); the construc- tionl of a new berth (No. 6); the construction of a 500-ton slipway, the first in the country, ancd to be equipped with a 20 ton mobile crane for repairs and servicing of harbor crafts; the provision of harbor craft jetties, paving of open storage areas and resurfacing of roads; the construc- tion of new service buildings to house PMAC offices, customs - 14 - and immigration facilities and a labor office; rehabilitation of the existing berths, transit sheds and oil terminal; and the procurement of floating crafts and cargo handling equipment. (b) At the port of Mocha - civil works necessary for rehabilitating the pier face and refendering it; resurfacing of roads; the construction of a transit shed, a new lighthouse and a water supply system; and the procurement of navigation lights, a generator to supply power to them and cargo handling equipment, and (c) Technical assistance to PMAC comprising engineering consultants for design and supervision of the project; technical experts to assist in cargo handling, cost and management accounting, admin- istration and documentation, dredging and slipway management, and professional training for selected staff. Project Costs and Financing 42. The total project cost is estimated at US$27.9 million of which the foreign exchange component is US$20.3 million (73 percent). The major items of expenditure include US$12.5 million for civil works, US$4.9 million for equipment, US$2.4 million for technical assistance and US$8.1 million for contingencies. Details of the cost estimates and expected sources of financing are given in Annex IlI. 43. The proposed IDA credit of US$6.0 million, which represents about 22 percent of the total project cost, would finance the entire foreign exchange costs of berth No. 6, oil terminal, harbor craft jetties and technical serv- ices (excluding the cost of the slipway project manager). The YAR Government is exploring with other external sources the provision under parallel financ- ing arrangements, of US$12 million or 43 percent of the total project cost to cover the foreign exchange costs of rehabilitating other berths and the tran- sit sheds, paving, the procurement of equipment, and the services of the slip- way manager. The signing of a loan agreement(s) between the Government and other external financier(s) will he a condition of credit effectiveness (Sec- tion 5.01 (c), draft Development CredLt Agreement). The remaining US$9.9 million or 35 percent of tlhe total project cost would be provided by the Government (US$5.0 inillion to cover local costs) and by PMAC (US$4.9 million of which IJS$2.3 miLLion would be for foreign expenditures and the balance to cover local costs). 44. Retroactive financing of up to US$50,000 is recommended to cover expenses on technical assistance (especially for the services of the dredging advisor and the consulting engineers to prepare detailed design and supervise construction) incurred after Marchi 31, 1977, so that these activities can be expedited (Schedule 1, paragraph 4, draft Development Credit Agreement). The invitation to consultants were issued in mid-April. - 15 - 45. Tthe proceeds of the credit will be onlent by the Government to PMAC throughL a Stubsidiary Loan Agreement, at 9 percent interest for a period of 20 years, iiiclLIdLng five years grace (Section 3.01(b), draft Development Credit Agreement). The loan(s) from otlher external source(s) of which the Government would be the borrower is expected t) be on terms similar to that of the Asso- ciation and wOUld al[so Ie onlent by tlhe c;overnment to PMAC. The Government contribLit ion will be in tLle form ot e(lUity. Procureiie,itL and Disbursenient 46. Civil works contracts to be financed under the credit will be awarded following internationlal competitive bidding in accordance with IDA guidelines. However, conLtracts for civil works of US$50,000 equivalent or less, but in aggregate not to exceed US$100,000 may be awarded following domestic advertis- ing in accordanice with the Government's competitive bidding procedures which are acceptable to the Association. Bidding documents for civil works will permit bidding either for the entire work or for separate groups of items so that both domestic and international contractors can participate. A 7-1/2 percent margin of preference would be allowed to domestic civil works con- tractors. Procurement of items financed from other co-financing sources would be in accordance with their own guidelines. Selection and appointment of consultants to be financed under the credit will be in accordance with IDA guidelines. 47. Disbursements for Lhe items to be financed under the proposed credit would cover 70 percent of expenditures for civil works (representing 100 per- cent of foreign exchange components) and 100 percent of foreign expenditures for technical assistance. Project Implementation 48. PMAC would be the executing agency for the project. Its management is generally competent, but would need strengthening to execute the project and to ensure efficient operation of the expanded facilities. Being new, PMAC is still evolving its management structure. Of the present Board members, five are full-time, all witlh experience in port management or shipping, while two part-time members are a legal adviser to the Government and a businessman. The present Chairmllan andl l)irector-Cenera] were the General Manager and the Assistant Ceneral-M1anager, respectively, of the formiier Hodeidah Port Authority, and share overall responsibiLity for port operations. Of the three remaining full-time members, two are in charge of operational departments - viz. Cargo Handling and Marine Affairs. PMAC meets regularly with port users and expects to continue these meetings on a regular basis with a view to improving port services. 49. A serious weakness of ttie present port management structure is that it does not yet have a suitably staffed technical services department to deal - 16 - with engineering problems, planning and project execution. At the Associa- tion's suggestion, the Government and PMAC have agreed to recruit by not later than December 31, 1977 a civil, a mechanical and an electrical engineer and a marine surveyor to man the technical services department which will be respon- sible for project implementation and will be a nucleus for a full-fledged engineering department responsible for overall maintenance and execution of works - civil, mechanical and elect:rical - in the future (Section 2.08(a), draft Project Agreement). A chief engineer to head the technical services department is to be appointed in consultation with the Association, prior to credit effectiveness (Section 5.01(f), drlLt D)evelopment Credit Agreement). PMAC has no statistical unit at present, but has agreed to set up one in its Cargo llandling i)epartment by March 31, 1978 (Section 2.08(c), draft Project Agreement). The Statistical unit will develop suitable performance indicators to monitor improvements in port operations. Technical Assistance and Training 50. In pursuing IDA's key objective of institution-building ip YAR, the project has been designed to include adequate provisions for technical assis- tance to PMAC. Experts qualified in port operaLions and administration, cost and management accounting, slipway operation and cargo-handling would be fi- nanced under the project to initially Eill the shortages in these positions. They would also assist PMAC in streamlining port procedures and regulations, help design a suitable management structure with clearly defined lines of re- sponsibilities, train maintenance technicians and provide on-the-job training for PMAC staff in cargo-handling, slipway management and general port opera- tions (Section 2.02(a)(ii), draft Project Agreement). It was agreed during negotiations that a qualified slipway expert and three supporting staff would be appointed no later than December 31, 1979 (Section 2.02(b), draft Project Agreement). The terms of reference for the appointment of the remaining experts were also discussed. The project provides for training in port operations and management abroad for PMAC staff. PMAC has agreed that staff selected for training will be given suitable responsibilities on completion of the training program (Section 2.09, draft Project Agreement). 51. The proposed credit will also finance engineering consultants' services for design and preparation of bid documents for the civil works and equipment, and for management and supervision of contracts placed. The project contains an estimated 430 man-months of consulting services including the services of technical experts (see paragraph 50). The estimated costs of these services is about US$5,100 per man-month. Appointment of the consultants will be a condition of credit effectiveness (Section 5.01(e), draft Development Credit Agreement). Finances and Accounts 52. The financial position ot o 'PAC is generally satisfactory. The accounts of Mocha are being merged with those of Hodeidah and from fiscal 1977 onwards financial statements will reflect the transactions of both ports. At the beginning of fiscal 1977, Hodeidah Port Authority had a cash surplus of YRls 22.1 million (US$5 million) covering both foreign and local currency. - 17 - Adequate maintenance and depreciation charges have not been reflected in the accounts; however, even after providing for these charges, PMAC is expected, without changes in the existing tariff (increased in July 1975), to generate sufficient surplus each year to produce by 1985 a cash balance of YRls 38.5 million (US$9 million) after meeting all obligations including the annual contribution of Rls 750,000 (about US$167,000) to the Government which it makes in lieu of income tax, and programmed capital expenditures inclusive of its contribution to the project cost. To ensure that PMAC earns an adequate return on investment, it would be required to set and periodically adjust tariffs and control costs. PMAC has agreed that it would take steps to ensure that the annual net revenues are sufficient to provide a return on net fixed assets of not less than 9 percent, except during 1981 to 1983 when it should not be less than 6 percent per annum (Section 4.03(a), draft Project Agree- ment). The projections show that PMAC is expected to achieve these rates of return. 53. The Finance Division of PMAC' (under the General Management Depart- ment), consisting of about 17 men, prepares the annual budget and compiles the accounts. The procedures for recording revenues and expenses qre gener- ally satisfactory. Accounts are compiled on both monthly and yearly basis with the latter showing a comparison of the actuals with the budgete estimates. Some deficiencies that exist such as absence of stores accounting and depre- ciation adjustments are being remedied commencing with the accounts for fiscal 1977. In view of the increasing investments and the anticipated growth in traffic, the responsibilities of this division will grow substantially. In keeping with this increased responsibility and to underscore the need for management to give due attention to the financial function in port operations, the division's status will be raised to that of a Department by June 30, 1978 (Section 2.08(b), draft Project Agreement). 54. The original investment in the Hiodeidah port was financed partly by a Government contribution and partly by an interest-free loan of YRls 80 mil- lion (US$18 million) from the USSR, which is to be repaid in 10 installments from 1978. The annual financial statements do not reflect these transactions; nor do they show the total value of the assets. As no proper record was avail- able of the capital investments, the Government appointed three committees to review the assets and to assess their values. The committees' valuation, totalling only YRIs 24.8 million (US$6 million), is felt to be too low, and a reasonable estimate would be about YRIs 100.2 million (US$22 million), the figure adopted in the appraisal report. The Government has agreed to review the work of the committees and to adopt a realistic valuation based on the original acquisition cost of land and the present value of the other assets. In order to permit a reaListic assessment of PMAC's operating targets in terms of rates of return and to compensate for the eroding effects of inflation, provision has been made Lto have PMAC revalue its assets for fiscal 1976 by no later than September 30, 1977 and periodically thereafter at not more than five-yearly intervals (Section 4.03(c), draft Project Agreement). In this regard PMAC will obtain advice on the basis and frequency of such revaluation from the cost and management accountant to be appointed under the technical assistance component of the project (see paragraph 50). The accounts for fiscal 1976 will be revised on this basis; this was confirmed during nego- tiations. - 18 - 55. The accounts of PMAC are audited and certified by a domestic firm of qualified accountants whose work is satisfactory. They have completed an audit of the accounts for fiscal 1976 on the basis of the asset valuations referred to above and will review the accounts after the Government has decided on the revised valuations. Insurance 56. The Government does not presently insure its property with any agency, but assumes responsibility for all risks. A Government Insurance Company has been started recently and the Ministry of Public Works and Muni- cipalities has indicated that it will consider, in consultation with the other Ministries, the advisability of insuring PMAC assets with this Company. Suitable provision will be made for insurance against such risks and in such amounts as shall be consistent with appropriate port practices (Section 3.04, draft Project Agreement). Environment 57. Development of the ports of Hodeidah and Mocha does not impinge on any known plans for their respective areas and there will be no additional element which might be detrimental to the existing environment. As a protec- tion measure, floating boom equipment will be provided to contain spillage that may occur at the oil terminal. By providing welfare and sanitary facili- ties for port workers, the project will improve the environment in the port area. Economic henc fits and Risks 58. Most of YAR's foreign trade passes tthrough its ports-primarily through liodeidah and partly through Mocha. YAR's total port traffic in 1976 consisted of 0.8 million tons of general cargo and 0.25 million tons of liquid petroleum prodults. Port traffic, mostly imports, in Hodeidah saw a sudden and explosive increase of about 39 percent leading to waiting times of over three months catusing shipping companies to impose congestion surcharges (see paragraph 30). Traffic is projected to increase rapidly over the next few years and more than double in volume by 1985 to about 2.5 million tons. The facilities to be provided under the on-going works by the Government and by the proposed projecL would reachi optinium utilization by then. The project oni completion wouild produce benefits through savings in foreign exchange by avoiding demurrage due to reduction in ship-waiting and service time as a result of the increased port capacity and throughput; economies of scale in using larger ships for bulk grain and petroleum products due to the deeper drafts provided by the project; savings from reduced cargo damage, brought about by relief of congestion, paved storage areas, the use of cargo-handling equipment and supervision of trained personnel; savings in internal transport cost in using Mocha for serving the Taiz area, made possible by the additional capacity needed at Mocha; and increase in employment of dock labor, equipment operators, maintenance techn,licians and office staff. - 19 - 59. The economic return on the project is estimated to be over 41 per- cent, with a first year return of 18 percent. Separate analyses for the Hodeidah and Mocha investments indicate a return of about 40 percent for Hodeidah, and a still higher yield for Mocha. These results highlight the strong economic justification and urgency of the project investments. No separate analysis of economic return has been made for the various components of the project, since, with the exception of Mocha investments, they are closely interrelated. The high rate of economic return from the project, compared to its rather normal first year return, is a reflection of the large benefits to be derived from avoiding the heavy port congestion costs that would occur from about 1985 onwards if the project were not undertaken. 60. There are no major risks associated with the project. However, sensitivity analyses have been undertaken to determine the impact on the project of less than anticipated growth in traffic and of possible increases in cost. Even with an increase of 25 percent in costs the rate of return for the entire project remains attractive at 36 percent while a decrease of 25 percent in benefits from a lower than forecast traffic volume or other causes would leave the rate of return at 34 percent, and with both these conditions occurring at the same time the return would still be a high of 29 percent. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Development Credit Agreement between the Yemen Arab Republic and the Association, the Project Agreement between the Ports and Marine Affairs Corporation and the Association, the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement and the text of the Resolution approving the proposed credit are being distributed to the Exectuive Directors separately. 62. Features of the Development Credit Agreement and the Project Agreement of special interest are referred to in Section III of Annex IV. 63. Section 5.01 of the draft Development Credit Agreement provides the following additional conditions of effectiveness: (a) the ratification of the project agreement by all necessary governmental and corporate action, (b) the execution and ratification of the Subsidiary Loan Agreement between the Borrower and PMAC, (c) the signing of Loan Agreement(s) between the Bor- rower and other co-financier(s) for an amount of US$12.0 million, (d) comple- tion of arrangements by the Borrower for the timely construction of berth No. 5, (e) the appointment of consultants to assist in implementing the project, and (f) the appointment of a chief engineer to head the technical services department. - 20 - 64. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 65. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments May 6, 1977 Ii 5~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Z5 5 ci iis1 .4l ~ 1 0 O bbw 6 0 aT.- t me 04.5 ~ ~ ~ - 0 OO F' aae -. 5~~~~~~~~~~~~~~~ 480 - 0 1 4 4 C - 0 0 a* 00 0 0 0 M *~ - 040 S S.. 54.5 ~~~~~~~ 0.t -M S S S - 5* 4004 a s-Os em~~~~~~~~~~~~~~C tC%- - ' . a 0 . ~ ~ f 1 4 a0 3 ao o4 010 1 a 4-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.4 aSh. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -- t . . - Saa .s make 1-S s&n~~~~~~~~~~~~~~W.1 z a c P-Ia IL -cjCada C] 5 ISO CS %J%j~~~~~~~~~~~~~~~~~~~~0 W laSoo fo ' j -, - ' * K'S . .~~~~~~~~~ 5.... ~ ~ ... !!.. .5. .. . * 55 . - . . ow rem -. saS .aa..s~~~ "b' :: M.. Z0 Ur a aaaaqoe.Z .05 *5 -~~QVI a ft - -mc ~~~e as ON Ce aW aZ . 0 5W a MW * .5, S~~~~~~~~~~~~~~~~~~~~~41 :Z Os 6 6~~~~~~~~~~~~~~~~~~~~~~~lV 2 2 --C as S~~90 4,- wz a :,Z GL In w a 2 L M " Ce S~~~~~~~~MVo bza f2 ~ Z W O W . z b 1-. S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a M -IOb CflStCe. 50 Ca ac o av~a e aP4 ocr ccc a a -o - a 4a *Gaw a 4855W S-S caafl 0w -ac CC -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - -- Pegs 2 of 4. pases Unless otherwisie noted, data for 1960 refeor to say y.ar betoe 1959 andl 1961, for 19T0 botwe.o~ 1968 and 1970 easd for Most Decent Zstimt* between, 1973 mnd 1P75. * Ppaletion includes rmsidents living abroad which to estiamt.d at 1 .2 minlIn in 1975. Dueb to migmhtin popnlat.ion growth rate is lassr then the rat. of omtoral inoreass. -*l Jordan is selected asmo Objective coastry for !eAn Arab Regp. singce both oitntries smr Azab with similar eonmiO sysems have no Import mineral reecarceel have Urzge ocabere of efigrents -boo.. remittances usbetantlmlly ficmea tin. Import, bill, and both aep nde foreign aid to spoMrt large porticose of their currant and goavrsasn moditare. YEHER RAB R . m Ptleatad birth and death rates for 1970 eam 0..3 end 28.7 raspectivelyj A 1964.-6. lOT 3? T3 I? /a Ketitentd birth end death ratos for 1975 mare 15.8 end 26.9 respactivelyj & Rasto of population undew 15 endl 65 mod svear to total labor forcej & labor force, relate to raeldmut popuslatioo of 4..? minion only; L.4 1969-71 average. hZMAK= 12Z Ls Including assistant unreet, aidwives end amaetant eideieeej A winsldlg eatarniv and rural lo,pitelsl La Public education Only. vimA 1M /a Personnel in govearnmemnt Nesricoo only; A Including eldieise. AM -~~~~~at bask onlY; /b Ratio Of PnPlaIt.io under 15 and 65 end over to total labor force) & 1961.-n63 Li161 LI Including MOM schools. R2, PArch 114. 1977 DEFINITIONS OF SOCIAL INDICATORS Land Aree (thou inn2) Puoulatio par -ur,inc parso - Populatiao divided by nnbar Of practticig Tot.l Total surface area conprising land ae.aend inland watera.-. coeand feacet graduate cuss"treined" or certified" auss,ad Agric. M-Mot recent eaticate of agricuitural arac used tempoa-rily or -usillesy personnel with training or eoperienac. petnacetly for croupe, peaturee, narket & kitches gardena Or to lie Popuistion per hospital bed - Popluiato divided by camber of hospital beda folios, av~~~~~~~~~~~~ailable in public acd private generl and pe.i.lizod hoapital end rehabilitation cctara; exclude. nursing hdes end astabli.lanots for GNP Par c.Pit. (US$) GNP per capita eaticatoa at -rorret market pi... cutodia1 sad pre-entiva care. .reim-thcdas Wold Bak Atl. (193- pr Per ..Pit. supply af cliCa % of requfraosscte) - Computed from, energy calculated by an ovrIo m7 hda ordbn lts(9 75 equivalect of net food suppliesa available in, country per capita per day; b..i.), 1960, 1970 and 9 5 d.t.. -4~~avilable supplian comsprise doaseotic production, imports less o.part., P ultia and vital stiatitics aad chargea im clok; act supplies seclude animal feed, seeda, luati- Populatio id-yr. aillico) -o Of July fir.t: if aa vial,tics uoad in food proceasiag and losses In distribution; requi.ements average of t.o end-year .sticat.a, 1960. 1970 and 1975 data, ware e-ciaetd by PAO hose.d en physiological amdo for ma-Ina aoeivit sand health cona idering enircneta1 temperetuce, body wsights, aSe emd PIZ' ~ ~~~~~~~~~~~~~~~~~sec distributiona of population, end allossag 101L for wste at hosseehald Pop tlaton density - per qsure ke - Mid-year population per equare kil- level. cea 100 hetrse) of tata1 area. Pe.caia net - Protein content of pet Population density - cer .4aar. le of garic. loand - Computed as aboo for --pite mar supply of food Par day, net supply of faod Is defined as agricultural land only. above; requir-xeta far .ll ovutrica establiahed bY USDA fenomasic geseAroh Servicso provide for a fniaaos, eisaoof hin aren af itel Vital statietics p-rotin per day, sod 20 er-c of aelcoI and pulse protein, of which CAJiiniXillkte j.etA2UAacd averoe - Annual live birtha per thocoand 10 Srac should be acical protein; these etandarda are lo%,er than those of old-year population; ten-yeoc acith-stic -vrIg-an sding in 1960 and Of 75 g~ren, of total protein and 23 grams of animal protein ea an 19701 cod fi-o-y.r averge ..di.. in 1975 for out Waet C.tWIVQta avroga tar the world, propacad by PAO in the Third World PF-d lrS-y. Crde lsth rare osr Ibousad. aver A I nna d.th. pa thousn.ad Of old- Per ..pit. protein aupply from animal amd pulse - Pr.taei supply of food Year population; ten-yeer asrritlcti -vrgecding In 1960 and 1970 and derived from aciola end pulasa in grnsa per day. ,five-yacravarag ending in 1975 for oust recen.t Dsiaa eath rate i/thou) aces 1-4 - Annual deaths per thoussand in age group nfaci notolity rats f/thou) - Annual deaths of infat.t under one yaar of 1-4 years, to chi1dren in thin age group, suggested as 00 indicator of age, Per thoseand live births. colnurritiao. Life e-aectancy at birth ('oral - A-eraca -abar Of yeara of life reinaing at birth; usoualy five-year average ending in 1960, 1970 and 1975 for c-ti"~o developing countries. Adu tderollment ratio - prinary school - Enr-Iltnet of all agea as Gr..a reproduc tion rate - Avrerge combat of live deughtera a woman will percantafe of primary school-age populatiem, includaa children gagd bear in her -aaaa reproductive period if she experienc.es presen.t age- 6-li years but adjuated for different lengths of prim~ary education; specific fertility ratee; "usully fiv-yea averages ending in 196O, far coutrime with universal cduc..siio, ..rol.out way e...eed 1007. 1970 and 1971 for developing csttriss. eince sam pupils Are bel1w or above the official chtoal age. Population growth Oslo (7. - total - ComPound annual growth ratea of old. Adjusted enrollment retio - -e-odary echool - Computed e above; year populerion far 1950-60, 1960-70 and 1970-75. aecendary education, reqireu at least four years of approved primary Population growth rate (7.) - urban - Compu.ted like growth rate of total inatructbon; provides general, vocational or teo.her training population; different definitions of urban eres cy affect Osaparo- instructions for pupils Of 12 to 17 years of age, caroespudndenc bility of data enog cottlstrc. -oree are generally -acluded. Urban population, (7. Of total) - Ratio of urban to total population; Years of schooling provided (firet and second levela) - Total years of different definitions of urban areas coY affect comparability Of data echeoling; at secondary level, vOostionel instruction esy be par- aenog countriea. tially or completely excludad. AAe structr.sr (Percent) - Children (0-14 y.era), wokig-ag (15-64 years), Vocational enrollment (7. of aecondart) - Vocational institutiona and retired (61 years and over) as percetages ofsid-y..r population. iaclude tecIhneil, induatrial Or Other progrmsa which operate Ace dependency ratio - Patio Of Population ceder IS and 65 and over to indpeurdeaxly or as d.parntoat of secondary lostitutica.. thooc of ages 15 through 64. Adult literacy rate (7.) - Literate adults (able to read and writ.) a Etoonomc dependency cells - Ratio of population undar IS acd 65 sod over percentage of total adult population aed 15 years amd over. Pto the laborforc,e in. age group Of 15-64 yasra. cm'sil PIaa _n - 2apet"rs fuMulti'e. thou) - C,aiulative comber of lous ingt caccptors of birth-control devina wader auspices Of national family Persona, par room, (urbne) - A-araga number of peanpronei pleasing pragram since inception, occupied convectional &wellings In urbanes delns xld Fitly pleasing - useru (I. of corried women) - P.erentages of nsrried ano-parmowest atructusres end' unoaupidd pa.tI. women of child-hearing age (15-44. years) who use birth-control devices Occupied dwellings without piped water (7.) - Occupied covetional to all corne.d wose,s In ea age group, dwellings In urban end rural .a.ea without inside Or outside piped wa1,ter clIittica apercentage ofall occupIed dwellinga. Ttllabor forc (thousawnd) - Efronoi-aly ucti-e peraons, including with electricity in living quarters em percen.t of statl dwellings In sedforces and unemployed hst acluding houowivea, studa-t, etc.; urban end rural aes de finitions In various countries are not comparable. Rural duellings conneted to electricity (7.) - Computed as above for Labor force in er~iculture (CZ) - Agricultural labor force (in faming, rural dwellings only. forestry, hunting end fishing) as percentage of total labor force. Unemployd.(7. of l1abor force) - Paemplnyed are usually defined as peruon Isosmptien who re ble nd illing to take a Job, Out Of a job on a given day, Radia receivers (par thou pop) - All types of reeivrer far radio broad- remained out of a job, and seeking work for a specified jniiom period casts to general public per thousand of population; excludes a tfexceeding one week, coy cat he comparable between countries due tv unlicensed receivers in countries end in years when registration of different definitions, of uneployed and source Of data, e.g. , coploy- radio seats usa in effect; data for recent years coy not ba cmparable cent office statistics, sample survys, c_mpulaory unemployment insurance. ainos n.at coutriss abolished licensing. Px ...nper oars (per thou PIP) - Passenger cars tnapriae cotur cars incco distribution - Percentage at private income (bath in cash and kind) ..sting less than eight persona; eclude.a mbulances * hearses end received by richest 57., richest 207., poor-st 207., and poorest 407. of cilitary vehicles. households. PEc,triciLZ (bob/yr Per cap) - Annual conesation hA industrial, co-- mercial, pbienprvte electricity in kilowatt hours per capita. binlibuionof andow rahp -Percentages of 1ond owed by wealthiest genrally based on produxtlse data, withesst allowanc fort loses in 117. end pooreet 117. of land owners, grids but allowig (no inporta end ..parts of electricity. NWasprint (ka/yr per cap) - Per capit.aennual consumaption, in kilograms Heaalth and Nutrition saticated from domestic production plus net Imparts of nemptjnt. Pnoulalt,o per physician - Population divided bly nunber of practicing Physficisn qualified from, a medical school 01 univ-raity level. ANNEX I Page 3 of 4 ECONOMIC INDICATORS NATIONAL ACCOUNTS IN 1975/76 Annual Rate of r.rowth (% constant prices) US $ Mln. % 1970/71 - 1973/74 1973/74 - 1975/76 GDP at Market Prices 1,151 100 4.0 10.0 of which: Agriculture 512 45 0.0 9.3 Industry 118 10 14.0 2.4 Services 521 45 6.9 12.8 GNP at Market Prices 1,608 100 n.a. n.a. Gross Domestic Investment 260 16 n.a. n.a. Gross National Savings 390 24 n.a. n.a. Current Account Surplus 130 8 n.a. n.a. Exports of Coods, NFS 88 6 n.a. n.a. Imports of Goods, NFS 415 26 n.a. n.a. Net FS Receipts 457 28 n.a. n.a. LABOR FORCE, 1975 Thousand Percent Agriculture 785 69 Industry 86 7 Services 201 18 Unemployed 64 6 Total 1,136 100 GOVERNMENT FINANCE (YR. MILLION) Actuals Budget 1972/73 1973/74 1974/75 1975/76 1976/77 Current Revenue 199 277 381 565 781 Current Expenditure 272 323 472 604 820 Current Deficit -73 -46 -91 -39 -39 Development Expenditure 58 139 185 340 600 Overall Deficit -131 -185 -276 -379 -639 External Financing 117 238 536 609 788 (Grants) (59) (109) (389) (380) (468) (Loans, net) (58) (129) (147) (229) (320) Residual Items 1/ 14 -53 -260 -230 -149 MONEY,'CREDIT AND PRICES (YR. MILLION) June 30 1972 1973 1974 1975 1976 Money Supply 349 489 640 964 2,028 Credit to private sector 108 111 170 286 464 Net claims on Government 103 111 91 -134 -337 Net foreign assets 546 609 700 1,180 2,605 Consumer price index (Sana'a) Fiscal Years: 1973/74 1974/75 1975/76 (1972 = 100) 154 203 237 Annual percentage change +32 +17 1/ Domestic financing, increase in Government deposits (-), errors and omissions ANNEX I Page 4 of 4 BALANCE OF PAYMENTS (US$ Million) 1972/73 1973/74 1974/75 1975176 Exports,f.o.b. 7 14 13 12 Imports, c.i.f. 120 194 258 382 Trade Deficit -113 -180 -245 -370 NFS, net -11 19 30 43 FS, net 1/ 105 112 191 457 Current Account Balance -19 -49 -24 130 Official M & LT capital, net 22 60 126 165 Cross disbursement 26 63 130 168 (Grants) (14) (31) (93) (114) (Loans) (12) (32) (37) (54) Repayments -4 -3 -4 Others 2/ 16 23 -1 -9 Changes in reserves (-increase) 31 -19 -33 -101 -286 MERCHANDISE EXPORTS (1973/74-1975/76)4/ Average US$ Million! Percent Cotton 6.5 56 Coffee 1.4 12 Hides and skins 1.4 12 Cotton seeds 0.4 3 Others 2.0 17 TOTALS 11.7 100 EXTERNAL DEBI (Dec. 31 1976) US$ Million External public debt outstanding (Dec. 31, 1976) 519 of which: disbursed 276 Debt service payments - 1975/76 3.7 Ratio of debt service to total merchandise exports in 1975/76 33 percent Ratio of debt service to exports of goods and services (including Workers' Remittances) - 1975/76 0.6 percent RATE OF EXCHANGE Through February 1973: US$1 = YR5; YRI = US$0.20 Since February 1973: US$1 = YR4.5; YRI t US$0.22 5/ 1/ Mostly workers' remittances 2/ Including errors and omissions 3/ Net reserves of Central Bank; excluding balances with Central Bank of Egypt 4/ Recorded exports only 5/ No par value for the Yemen rial has yet been declared to the IMF. All exchange transactions are effected at the Central Bank rate which has been pegged to the US dollar since February 1973. ANNEX II Page 1 of 5 THE STATUS OF BANK GROUP OPERATIONS IN THE YEMEN ARAB REPUBLIC A. Statement of IDA Credits (As of March 31, 1977 - US$ Million) Amount Credit (less cancellations) Number Year Borrower Purpose IDA Undisbursed 315 1972 Yemen Arab Republic Highways 7.7 1.7 376 1973 Yemen Arab Republic Tihama Agriculture 21.2 /1 12.3 421 1973 Yemen Arab Republic Education 11.0 7.6 464 1974 Yemen Arab Republic Water Supply 6.3 3.1 465 1975 Yemen Arab Republic Industrial Estate 2.3 1.9 545 1975 Yemen Arab Republic Rural Development 10.0 9.8 558 1975 Yemen Arab Republic Highways 9.0 1.7 559 1975 Yemen Arab Republic Water Supply and Sewerage 8.1 7.0 611 1976 Yemen Arab Republic Education 8.0 7.9 636 1976 Yemen Arab Republic Grain Storage and Processing 5.2 5.1 662 1976 Yemen Arab Republic Livestock Credit and Processing 5.0 5.0 670 1977 Yemen Arab Republic Water Supply and Sewerage 10.0 10.0 Total 103.8 73.1 Of which has been repaid - - Total now held by IDA 103.8 Total undisbursed 73.1 /1 Including supplementary credit of $10.3 million of April 9, 1976. B. Statement of IFC Investments (As of March 31, 1977) IFC has made no investments in YAR. C. Other Bank Group Activities A Bank grant of US$200,000, equivalent, was approved by the Execu- tive Directors in July 1971, to help finance, jointly with the Kuwait Fund for Arab Economic Development, a team of planning and economic advisors. The team of five advisors has helped establish the Central Planning Organization (CPO) which is responsible for preparing a development program, devising general ANNEX II Page 2 of 5 economic policies, identifying and preparing investments projects, and co- ordinating external aid. The Executive Directors approved on September 11, 1973 a second Bank grant of US$200,000 equivalent to make possible the con- tinuation of the services of the planning team. The Kuwait Fund joined with a grant of about US$300,000. In January 1976, the Bank approved a third grant of US$120,000 to provide for the continuation of the services of a planning team including those of a management/public administration expert. The Kuwait Fund also joined with a grant of about US$425,000. D. Projects in Execution 1/ Cr. No. 315-YAR - Highway; US$7.7 Million Credit of June 26, 1972; Effective- ness Date: January 15, 1973; Closing Date: March 31, 1978. After long initial delays in the implementation of the project arising from the lack of satisfactory response to construction bidding, the Borrower has arranged for force account execution of the 69 km Taiz-Turba road construction; the work started in March 1975 and is now progressing satisfac- torily. New consultants for the technical assistance component of the project have been appointed. Most of the road and engineering equipment included in the project has been delivered. Cr. No. 376-YAR - Tihama Agriculture; US$10.9 Million Credit of May 2, 1973; Effectiveness Date: September 4, 1973; and US$10.3 million Supplementary Credit of April 9, 1976; Effectiveness Date: June 18, 1976; Closing Date: June 30, 1979. The Tihama Development Authority, responsible for project execution, was set up and two advisors (technical and financial) were appointed by end of 1973. Project consultants, appointed since April 1973, have completed specification drawings of all the required contracts. Nine contracts for preliminary works including camps, access and field roads and extension offices were awarded to local contractors. Six of them have already been completed and one nearing completion. Three major contracts, one each for the construction of diversion weir, canals and the regulating gates, were put to international tendering and have since been awarded. Construction work on the diversion weirs have started and is progressing satisfactorily. The Agricultural Credit Fund (ACF) was legally established towards the end of 1974. The Credit Manager and the Field Manager for the ACF have been appointed. Measures to increase ACF's flexibility and its effectiveness have been recently taken. The total cost of the Project is now estimated at $40.8 million compared with $17.5 million at the time of initial 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evalua- tion of strengths and weaknesses in project execution. ANNEX II Page 3 of 5 appraisal. At the Government's request the Association and the Kuwait Fund agreed to provide supplemental financing. The Kuwait Fund approved in December 1975 a supplementary loan of KD 2.8 million and the Association approved on March 30, 1976 a US$10.3 million supplementary credit for the project. The reappraisal estimate of December 1978 for project completion is expected to be met. Cr. No. 421-YAR - Education Project; US$11 million Credit of July 19, 1973; Effectiveness Date: April 10, 1974; Closing Date: December 31, 1978. The project encountered some initial delays due to difficulties in recruiting qualified staff for the Project Unit and the UNDP/UNESCO Task Force. All the principal posts in the Project Unit have, however, now been filled. The delay of about eighteen months in project implementation is ex- pected to be reduced significantly as a result of measures being taken to expedite completion of designs and educational programs and the arrival of the remaining experts of the UNESCO Task Force. Construction of practically all project institutions started in August 1976 and the preparation of furniture and equipment lists are well advanced. A proposed new structure for the Ministry of Education has been prepared by the Task Force for consideration by the Government. The new structure would include a directorate for primary education and a directorate for technical and vocational training as required under the current Credit Agreement. These arrangements are expected to be implemented shortly by the Government. The Task Force is further working on the preparation of programs and curricula to be adopted for the project institutions. In the further development of the project, the Government and the Association are placing increased emphasis on ensuring the availability of a sufficient number of qualified instructors for all project institutions. Cr. No. 464-YAR - Water Supply Project; US$6.25 million Credit of March 4, 1974; Effectiveness Date: July 15, 1974; Closing Date: June 10, 1978. The execution of this project was originally delayed by the consul- tants' slow progress in preparing the final design and tender documents. All of the civil works contracts have now been placed and delivery of materials has been completed. Initial poor performance of the local civil works con- tractor has been significantly improved by his entering into a management contract with an experienced British contracting firm (Lilley International). Cr. No. 465-YAR - Industrial Estate Project; US$2.3 million Credit of March 4, 1974; Effectiveness Date:- November 27, 1974; Closing Date: December 31, 1980. Tenders for civil works were received in the last week of October as scheduled. The lowest bid was for more than double the appraisal estimate which had been prepared in early 1973. This high cost is due to the unex- pected increase in building costs that has taken place since project appraisal. ANNEX II Page 4 of 5 In the light of this cost increase and at the Government's request, the Asso- ciation agreed to retain the highest priority items in the project. The Development Credit Agreement was amended accordingly. Construction works started in February 1976. The first of the three buildings is expected to be ready around June 1977. Three entrepreneurs have already signed lease agreements with the Industrial Estate Development Authority and some twenty parties have showed interest in either renting factory space or developed plots. Cr. No. 545-YAR - Southern Uplands Rural Development Project; US$10.0 million Credit of May 13, 1975; Effectiveness Date: January 27, 1976; Closing Date: March 31, 1982. After a slow start in project implementation, the project encountered management, staffing and organizational problems. Since the fall of 1976 progress has been encouraging. Project Management has improved and a number of staff positions have been filled. Candidates for the 4 remaining vacant positions out of a total of 19 are being interviewed and are expected to assume their duties shortly. Agricultural extension, veterinary and credit activities are progressing well despite lack of adequate housing and transpor- tation for extensionists. Problems of cost escalation, labor shortage, port congestion (Hodeidah), delay in supplying vehicles, and difficulties in obtaining response from contractors for the village water supply and rural roads components are hampering the project's implementation according to schedule. A simplification in the local procurement procedures will help to overcome some of these problems. The Ministry of Public Works has agreed to implement the village water supply and rural roads components and thus would speed up implementation. Cr. 558-YAR - Second Highway Project; US$9.0 million of June 20, 1975; Effectiveness Date: January 27, 1976; Closing Date: December 31, 1978. The construction of the Taiz-Km 64 road was completed in November 1976, and the 2-1/2 years technical assistance consultancy to the hlighway Authority has until May 1978 to run. Cr. No. 559-YAR - Hodeida W4ater Supply and Sewerage Project; US$8.1 million of June 20, 1975; Effectiveness Date: December 29, 1975; Closing Date: December 31, 1980. The contract has been awarded for the drilling of test and produc- tion wells. Tenders have been awarded for the bulk supply of materials for the water supply and sewerage components. Tender documents were completed for the civil works and pipe installation contracts about three months later than the date foreseen in the appraisal schedule. Consultants' cost esti- mates based on these documents show that there would be an important financing gap due in part to Government's instructions to the consultant to include works outside the scope of the project but mainly to very high increases in local construction costs. Government is reviewing the scope of work and the project financing plan. ANNEX II Page 5 of 5 Cr. No. 611-YAR - Second Education Project; US$8.0 million of February 13, 1976; Effectiveness Date: May 10, 1976; Closing Date: December 31, 1980. Physical implementation is proceeding saisfactorily; design develop- ment is expected to be completed on schedule and construction of the Taiz Vocational Center has been advanced by about one year. However, recruitment of project experts is progressing relatively slowly. Efforts are being made by the Government assisted by IDA to adequately staff the Project Unit in the shortest time possible. Cr. No. 636-YAR - Grain Storage and Processing Project; US$5.2 million of June 7, 1976; Effectiveness Date: October 26, 1976; Closing Date: December 31, 1981. The expatriate project manager and his local counterpart, had been appointed prior to negotiations. Contract negotiations with the engineering firm Oscar Faber have been completed and the firm has commenced work on the project. The sites for the silo, the Government bakeries and the warehouses have been acquired and properly demarcated. A silo superintendent and an accountant (both local) have been appointed and eight bakery extension agents have also been selected for training starting January 1977. Applications of other expatriate experts are being reviewed and steps to initiate the storage study and nutrition survey are being currently undertaken. Project imple- mentation is proceeding on schedule. Cr. No. 662-YAR - Livestock Credit and Processing Project; US$5.0 million of November 15, 1976; Effectiveness Date: May 20, 1977; Closing Date: June 30, 1984. The Management consultants have arrived and set up office in Sana'a. Consultants for site selection have also been selected. Cr. No. 670-YAR - Sana'a Second Water Supply and Sewerage Project; US$10.0 million of January 14, 1977; Effectiveness Date: May 16, 1977; Closing Date: June 30, 1982. The Credit was approved on December 21, 1976 and signed on January 14, 1977. ANNEX III Page 1 of 3 YEMEN ARAB REPUBLIC PORT DEVELOPMENT PROJECT Development Credit and Project Summary Borrower: Yemen Arab Republic Beneficiary: Ports and Marine Affairs Corporation (PMAC) Amount: US$6.0 million equivalent Terms: Standard Onlending Terms: The Borrower would onlend the entire proceeds to PMAC through a Subsidiary Loan Agreement at an interest rate of 9 percent per annum to be repaid over a period of 20 years including 5 years of grace. Project Description: The project is designed to assist PMAC in expanding and rehabilitating port facilities at Hodeidah and Mocha and in strengthening its management and staff. The project components are: 1. (a) The development and expansion of the port of Hodeidah to include civil works for the (i) repair of existing berths; (ii) construction of a new berth, a slipway and jetties for harbor craft; (iii) dredging of the harbor channel and basin; (iv) rehabilitation and improvement of the oil terminal; (v) addition of new buildings and utilities. (b) The purchase of cargo-handling equipment and floating craft. 2. (a) Rehabilitation of Mocha as a lighterage port. Civil works include: (i) rehabilitation of, and refendering of the pier face; ANNEX III Page 2 of 3 (ii) construction of new buildings and utilities. (b) The purchase of cargo-handling equipment and navigational aids. 3. Technical assistance to PMAC comprising: (a) engineering consultants for design and super- vision of the project; (b) technical experts to support PMAC management in cargo handling, cost and management accounting, administration and documentation, dredging and slipway management; and (c) professional training for selected PMAC staff. Project Cost and Financing: Local Foreign Total Financing Component Source Amount Percent ------------(cost in US$ million)----------- 1. Hodeidah IDA 3.0 10.8 (a) Civil works 3.6 8.2 11.8 Other loan(s) 3.1 11.1 Govt. & PMAC 5.7 20.4 Other loan(s) 4.2 15.0 (b) Equipment 0.4 4.2 4.6 Govt. & PMAC 0.4 1.4 2. Mocha (a) Civil works 0.2 0.5 0.7 tOther loan(s) 0.3 1.1 (a) Civl works 0.2 0.5 0.7 ~Gvt. & PMAC 0.4 1.4 (b) Equipment - 0.3 0.3 Other loan(s) 0.3 1.1 3. Technical assistance 0.5 1.9 2.4 IDA 1.7 6.1 Other loan(s) 0.2 0.7 Govt. & PMAC 0.5 1.8 4. Contingencies 2.9 5.2 8.1 IDA 1.3 4.7 Other loan(s) 3.9 14.0 Govt. & PMAC 2.9 10.4 Total 7.6 20.3 27.9 27.9 100.0 ANNEX III Page 3 of 3 Estimated IDA Disbursements: ----------US$ Million --------- Fiscal Year 1978 1979 1980 1981 Annual 0.52 2.40 2.71 0.37 Cumulative 0.52 2.92 5.63 6.00 Procurement Civil work contracts to be financed under the credit will Arrangements: be awarded following international competitive bidding in accordance with IDA guidelines. However, contracts for civil works of US$50,000 equivalent or less, but in ag- gregate not to exceed US$100,000 may be awarded following domestic advertising in accordance with the Government's competitive bidding procedures which are acceptable to the Association. Bidding documents for civil works will permit bidding either for the entire work or for separate groups of items so that both domestic and international contractors can participate. A 7-1/2 percent margin of preference would be allowed to domestic civil works con- tractors. Procurement of items financed from other co- financing sources would be in accordance with their own guidelines. Selection and appointment of consultants to be financed under the credit will be in accordance with IDA guidelines. Technical Consultants will be employed in accordance with Bank Assistance: procedures to assist in detailed design, bid preparation and supervision of the project. Technical experts will also be recruited to assist PMAC management in training and daily operational activities (about 430 man-months). Economic Rate of Return: 41.7 percent. Estimated Completion Date: March 31, 1981. Appraisal Report: Report No. 1463a-YAR dated May 5, 1977 Regional Projects Department, EMENA. ANNEX IV Page 1 of 2 YEMEN ARAB REPUBLIC PORT DEVELOPMENT PROJECT Supplementary Project Data Sheet Section I: Timebable of Key Events (a) Time taken to prepare project: 2 years. (b) Agency which prepared project: UNDP/Kuwait Fund/Association (c) Project first presented to IDA: Early 1976 (d) First Bank mission to review project: May 1976 (e) Departure of Appraisal Mission: September 30, 1976 (f) Completion of Negotiations: April 8, 1977 (g) Planned date of effectiveness: On about October 31, 1977 Section II: Special Bank Implementation Actions No special actions necessary. Section III: Special Conditions 1. Conditions of effectiveness of the Developoment Credit are as follows: (a) the ratification of the Project Agreement by all necessary governmental and corporate action (paragraph 63); (b) the execution and ratification of the Subsidiary Loan Agreement between the Borrower and PMAC (paragraph 45); (c) the signing of Loan Agreement(s) between the Borrower and other co- financier(s) for an amount of US$12.0 million (paragraph 45); (d) the completion of arrangements by the Borrower for the timely construc- tion of berth No. 5 (paragraph 36); (e) the appointment of consultants to assist in detailed designing and con- struction supervision (paragraph 51); and (f) the appointment of Chief Engineer to head the technical services depart- ment of PMAC (paragraph 49). ANNEX IV Page 2 of 2 2. Measures to be taken by PMAC include: (a) to upgrade by June 30, 1978 the status of its finance division to that of a department and ensure the recruitment of adequate and qualified accountants (paragraph 53); (b) to establish and maintain by March 31, 1978 a suitably staffed statistical unit within its cargo-handling department (paragraph 49); (c) to introduce, maintain and periodically adjust tariffs in respect of its ports operations to realize an annual rate of return (i) of not less than 9 percent in its fiscal years 1977 through 1980, (ii) of not less than 6 percent in its fiscal years 1981 through 1983, and (iii) of not less than 9 percent in its fiscal year 1984 and thereafter on the average net value of its fixed assets in operation (paragraph 52); (d) to revalue its fixed assets in operation not later than September 30, 1977 for its fiscal year 1976 and to thereafter revalue the said assets at not more than 5 yearly internals in accordance with appropriate methods of valuation (paragraph 54); (e) to complete not later than December 31, 1981 in consultation with the Association an appropriate study to determine the expected medium-term investments, and the scope and form of long-term development, in the ports sub-sector beyond the year 1985 (paragraph 36); (f) to employ not later than December 31, 1977 a civil, a mechanical and an electrical engineer and a marine surveyor with qualification satisfactory to the association for the technical services department (paragraph 49); (g) to employ not later than December 31, 1979 a qualified slipway expert and three supporting staff to operate the slipway to be constructed under the project and to train counterpart staff in slipway operation (paragraph 50). 3. The measures to be taken by the Government include: (a) not later than April 30, 1978, complete construction of berth No. 4 of the Hodeidah port (paragraph 36); (b) not later than June 30, 1979 complete construction of berth No. 5 of the Hodeidah port (paragraph 36). BRD 12564R 771.7 \ t mIFAA '/,,ste S A U D I A R A BI A YEMEN ARAB REPUBLIC , 17771 7owHRIR IR\,hoh,aR PORT DEVELOPMENT PROJECT GENERAL LOCATION 7 11.I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.CE1M1 - - P~~~~~~~~~~~~~~~~~~~~~~~~~~~..ROJ ECT HHS 011I - o'501.1.717 ffi 9 u~ OThER PORES _ , jp .f O 0 g 8 ( -_ ~~~~~~~~~~~~~~~~~~~~~~~~PRIMARY hDADS 7SDhH COITSIH7CEI7n 7)tF|)/\ __________ 7OCTHR ROADS d TTSoo-dA 0 ,70L CAPITAl. 0 CIE IE 701/O S A:5D 'ILIAGLS 0 0 \ ) < >Z) 1 \ t oEeTol CONTOLRS IL 1,IETElS C<) \ 0/ w} ~\ t (7 - '- INIEhAT IONAL LOUNDAhlES 0 20 40 60 80 100 | VR ;h F^l- Y\X~~~~~~~~~~~~~~~~~~o2~~~~S~~~~0) 48 ~~~~~~o 40- E.I~~~~~~~~~~~~~~ROI IC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ IE 2700 ~ ~ 1 h~~~~~~~~~~~~~/9 PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN era- / I r P EMEN A~2PA FEF'BUii P. Q\~~ (\~~'~U> . PORT DEVELOPMENT PROJECT LI ~~~~~~HODEIDAH PORT Ar. f,:~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i I t5m '11117..~~~~~~~J.~4 4~~~~~~~~~~~~~~~~~~~~~~~ ':: '3o:tLGa~ tic~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ C> I - - - ii~~~~~Y. p". j c '- -\ ~~~~~~~~~~~ ~ ~~~~A ~~ 'gJ '~~~~IIL~~~~~ - -, IBRD 12566R APRIL 1977 YEMEN ARAB REPUBLIC PORT DEVELOPMENT PROJECT MOCHA PORT -4. n \ Proposed Port Facilities t Area Being Dredged by PMAC (1976-77), Not Part of IDA Project iW /////: Proposed Port Areo to be Paved < Existing Port Facilities ,-$ 4OmX > -4 5m Water Depth in Meters, Below MLWST i-",AREA ToBE', t Roads -40m, -/2,0p , 49E0 , 6E0 80 !-,- ', -wFE S 'N C,T / P-'-'TRAF',-','-! _ / ',s'', ......... 1 0 9~~~~~~~~~~~~~~0 150 2 10 240l < ; W S ~~~~~~~~~~~~~~~~~~~~~~~~METERS HARBOR MASTERS OFFICE 4 184m l 18- CUSTOMS OFFICE SOUd AOb; O RANI~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I T16R YEMEN REPLACED CUSTOMS , Z .- SHED e P- IO ' 44 u 46 TAx