DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Not For Public Use

FILE COPY Report No. P-1214-TR

REPORT AND RECOMMENDATION

OF THE-

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

CARONI LIMITED

WITH THE

GUARANTEE OF TRINIDAD ANb TOBAGO

FOR A

SUGAR PROJECT

March' 27, 1973

This report was prepared for official use only by the Bank Group. It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Currency Equivalents

Until Dec. 1971: TT$1.00 = uS$0.50 or US$1.00 = TT$2.00

From Dec. 1971until July 3, 1972: TT$1.00 = uS$0.54 or US$1.00 = US$1.84

Since July 3, 1972: The TT$ was allowed to float in linewith the b sterling. As of February 15, 1973:TT$1 .00 = US$0-51 or US$1 .00 = TT$1.96

The exchange rate used in the Appraisal Report is US$1.00 = TT$1.95,which represents the average rate prevailing at the time of appraisalin August, 1972.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO CARONI LTD. WITH THE GUARANTEE OF TRINIDAD AND TOBAGOFOR A SUGAR PROJECT

1. I submit the following report and recommendation on a proposed loan toCaroni Limited, with the guarantee of Trinidad and Tobago, for the equivalentof $12.0 million to help finance a project for reestablishing Caroni Limitedas a viable sugar producer. The lcan would have a term of 15 years, includingfive years of grace, with interest at 7-1/4 percent per annum. The Governmentof Trinidad and Tobago would charge Caroni a guarantee fee of one percent perannum on the outstanding amount of the Bank loan, bringing the cost of the loanto Caroni to 8-1/4 percent per annum.

PART I - THE ECONOMY

Introduction

2. An economic report entitled "Report on Employmex.t in Trinidad andTobago" ( 53-TR ), was distributed to the Executive Directors on February 21973. The report was based on the findings on an economic mission which visitedthe country last April/May; before finalization, its conclusions were discussedwith the Government in December 1972 and, subsequently, at a Board EconomicSeminar held on March 1, 1973. A summary of Country Basic Data is attached asAnnex 1.

Recent Economic Developments

3. The economy of Trinidad and Tobago is tied closely to the fortunes ofpetroleum output and refining; these account for about one-fifth of GNP, abouttwo-thirds of merchandise exports, and close to one-fourthi of central governmentrevenues. Following a period of rapid growth in the 1950s, and again from 1965through 1968, petroleum production declined by approximately 30 percent over thenext three years. The:exhaustion of traditional producing areas brought pro-duction down from 65 million barrels in 1967 to 47 million in 1971. This declinein petroleum production was accompanied by weaknesses in other export sectors,especially in agricultural exports such as sugar and coffee, and in fertilizers.The traditional agricultural sector has faced slowly growing and unstable exportmarkets as well as formidable domestic problems; the contribution of agricultureto GDP has on the whole declined from 11.9 percent in 1960 to 7.2 percent in1971. Tourism was also seriously affected by the disorders which occurred inthe spring of 1970. These trends were only partially offset by the continuinggrowth of the manufacturing industry, whose contribution Lo GDP has increasedfrom 13 percent to 18 percent between 1960 and 1971. The growth of manufacturinghas been stimulated by the establishment of the Caribbean Free Trade Association(CARIFTA); in the last five years, exports of manufactured goods to CARIFTAcountries doubled from TT$18 million to TT$36 million, accounting for roughly50 percent of the overall increase in manufactured exports. As a whole, however,

GNP rose slowly and for the decade of the 1 960s achieved an annual average in-crease of only 4 percent, or about 2 percent per capita. In more recent times,real GNP growth is estimated to have fallen below population growth. This wasaccompanied by domestic price increases of about 11 percent during 1972.

4. The slow growth of output, increases in the labor force, a deficienteducational system, and the steady emigration of skilled personnel have all com-bined to create a persistent problem of unemployment in the country. The popu-lation of Trinidad and Tobago increased at an annual rate of 3 percent in thefirst half of the 1960s; thereafter, its growth rate declined as a result ofemigration and of a lower natural growth rate. Despite limited increases in thelabor force, howeveir, the country's economy failed to generate sufficient newemployment opportunities; the recorded increase in employment in 1965-71 wasonly 1.2 percent per annum. With the growth of employment ioughly matching thatof the labor force, the unemployment situation has changed little over the pastfive to eight years; about 14 percent of the labor force were counted as unemployedin the mid-1°60s, and about 13 percent in 1971. Apart from the obvious linkbetween poverty and unemployment, with the social pressures that this implies, acontinuing high rate of unemployment becomes more striking irf the case of acountry with the per capita GNP of Trinidad and Tobago ($925). At the same time,intensive unionization and high wages prevailing in the petroleum sector makethe problem more intractable. The unemployment question is therefore centralto Trinidad's orderly development, and was a major contributing factor to thedisorders of 1970.

5. The public sector in Trinidad and Tobago expanded considerably duringthe 1960s, reflecting its growing influence on the economy. As a share of GDP,the overall public expenditures increased from 21 to 28 percent over the period1960-71. The disturbances of 1970 gave a sharper edge to the Government's concernwith the unemployment problem and both public fixed investment and current ex-penditures were stepped up. A functional breakdown of the central government'scurrent expenditure shows that by far the largest proportion is now spent onsocial services; the service of the country's social infrastructure accounts for41 percent of total current expenditures as against 35 percent in 1965. A similardevelopment is evident in public investment expenditures. The share of publicinvestment in GDP in 1969 was about 4 percent; in an effort to remedy unemploy-ment and reduce social unrest, capital expenditures were increased by one-half in1970. A further increase of nearly 20 percent was effected in 1971.

6. The financial position of the public sector until 1970 was generallysound; current surplus and capital revenue of the central government covered thecurrent deficits of the rest of the public sector, and financed the major propor-tion of overall public investment in 1965-70. Under the twin pressures of adecline in oil production and an increase in public expenditures, the fiscalsituation, however, began to deteriorate in 1970. ExcePt for the introduction ofan employment levy, no important new revenue measures were taken in 1970 or 1971.As a result, there were overall deficits of TT$48 million in 1970 and TT$104million in 1 971, and the public sector was forced to borrow much more than inprevious years in order to finance its increased expenditures.

-3 -

7. The Government's strategy in 1970-71 appears to have been designed witha view to bridging a gap until rising petroleum production leads to a strengtheningof fiscal revenues and of overall activity. An important new oilfield off theeast coast of the country came into production at the beginning of 1972. Overallpetroleum production increased by about 20 percent in 1972 over 1971, and furtherexpansion is expected in 1973 and subsequent years. Indications of a quickeningpace of activity in the private sector, after the setback of 1970, and the uptuniin petroleum production enabled the Government to plan for a reduction in theoverall deficit in 1972. Tax and royalty rates for existing and new petroleumproduction, while still appreciably below the levels now prevailing in otherpetroleum exporting countries, have been increased, other tax measures introduced,and improvements effected in incomes tax administration; as a result, currentrevenue in 1972 was expected to rise by about 28 percent over 1971, with propor-tionately smaller increases in current and capit;al expenditures. An overalldeficit of about TT$30-$40 million was to be covered by non-inflationary borrow-ing at home and abroad. The latest though as yet incomplete information receivedby us, however, points to a larger overall deficit and heavier foreign and do-mestic borrowing in 1972 than previously anticipated.

8. Growth prospects for the medium-term appear to be favorable. At theplanned rate of extraction of the new oil findings, the output of domestic crLdeoil from all sources could rise to about 90 million barrels a year in 1978, orclose to double the 1971 volume. A new desulphurization plant is under con-struction, and, if a scheme for producing liquefied natural gas for shipmentto the U.S, materializes as scheduled, this would be operating at about two-thirds capacity by the end of 1978. The liquefied natural gas scheme is beingdeveloped by the Government jointly with private U.S. companies. Some progressis reported to have been made in organizing financing for the scheme; its imple-mentation will no doubt depend upon the global arrangements which the U.S. ispresently contemplating in respect of its natural gas requirements. The success-ful exploitation of these new petroleum and natural gas resources would providethe economy with a powerful growth stimnulus. The contribution of this sectorto exports is expected to double, and royalty and tax payments, in current prices,to rise from TT$70 million in 1971 to about TT$200 million in 1978. With petro-leum and natural gas providing the major propellant, the annual growth rate ofGDP is projected to rise by some 6-7 percent annually in real terms over 1971-78,from 3.5 percent annually in the preceding six years.

9. Increased resource availability will permit the Government to furtherenlarge the role of the public sector in the economy. Savings in the publicsector are projected to rise from the present 2.1 percent of GDP to 4 percent;the National Insurance Scheme, introduced in April 1972, will become an importantsource of additional public sector savings. It was the conclusion of our recenteconomic mission that an annual growth in real public expenditure of 9 percenta year is feasible between 1972 and 1978, with public sector savings financingabout half of public investment as against 31 percent in 1965-71. The Govern-ment's third 5-year plan for 1969-73 was of relatively modest proportions, withemphasis on social services, transportation, and agriculture. The disorders of1970, and the increased concern over unemployment have, however, resulted insubstantial quantitative as well as qualitative changes in plan execution. Dev-elopment expenditures realized in 1969-71 equaled 75 percent of the total expenditures

originally planned for 5 years; actual investment was directed into specialworks programs and projects that could be quickly implemented. The overridingobjective of these expenditures appears to have been, however, to provide short-run employment rather than increased output of certain industries, in acquiringa more active role in the economy in an attempt to preserve jobs in firms whichwere threatened by closure, and to broaden the Government's political base.

10. On the basis of its discussions with the Government, our recent economicmission has outlined an investment program for 1972-78 designed to remove theworst bottlenecks in the economy, and to generate longer-term employment. Thisprogram emphasizes investment in transport and housing and related services, thereform of the educational system, and the development of agriculture, industry,and tourism by a combination of modest public expenditures, incentives, andpromotional measures. The economic mission has also put together an employmentpolicy package whose components and implications were discussed with and gene-rally concurred in by the Government in late December. In broad terms, our policyproposals are intended to correct factor price distortions in the economy whichinhibit a higher demand for labor, raise the capacity of the non-petroleum sect-or to generate increased output and employment, and alter the volume and qualityof labor supply to better match Trinidad and Tobago's requirements. A majorconstraint facing Trinidad and Tobago is the limited capacity of the public sect-or to plan and implement viable programs, aggravated by a tendency to over-centralization of decision-making in the Government. To carry out the Government'sambitious investment program, therefore, it will be necessary to strengthen pro-ject planning and implementation. Finally, pragmatic policies by the Governmentwill need to be continued to further encourage private investment, both domesticand foreign. The Government has recently issued a 'White Paper on PublicParticipation in Industrial and Commercial Activities", which indicates in somedetail the rationale for increased state participation in direct economic acti-vity, and the limits to which such participation is likely to extend. While theGovernment's recent actions should help to dispel the uncertainty surroundingprivate investment, the development of the private sector remains crucial to thecountry's overall objectives.

11. The precise impact 6f the Government's revised investment program andour economic mission's policy proposals on employment growth are difficult toproject. It would be, however, reasonable to expect that their vigorous imple-mentation could probably raise the annual rate of job creation by an additional2,000-4,000 a year over and above what might be expected in the Government's pre-vious policy framework. At the same time, provided the basic structural defi-ciencies of the economy can be overcome and output growth of about 7 percent ayear is attained, the unemployment ratio could decline from the present 13 per-cent to between 6 and 9 percent by 1978. Such a reduction in unemploymentwould naturally also mean an alleviation of poverty and easing of social pressures.

External Assistance: and Creditworthiness

12. From 1968' through 1971, Trinidad's balance of payments was characterizedby progressively widening deficits on current account, offset by heavy capitalreceipts. The deterioration in the current account performance was due mainlyto the weakening of the balance of trade. The trade surplus of $35 million in1968 had by 1971 turned into a deficit of $125 million. The balance of paymentsprospects in the medium-term will be strongly influenced by petroleum and petroleum-related developments. The completion of the petroleum expansion and liquefied

natural gas schemas coald lead, by 1978, to a doubling of the country's level ofnet foreign exchange earnings attributable to the petrolaum industry. A potentialfor growth also exists for agricultural exports; and the exports of manufactures,which have benefited from CARIFTA agreements, can be expected to continue togrow.

13. Due to sluggish public sector investment daring most of the 1960s, ex-ternal capital flows to the public sector have been relatively modest. On adisbursement basis they amnounted to $73.8 million in 1965-71. As against this,the inflows of net private investment capital in the same period totaled $387million, most of it in 1970-71 when new petroleum production facilities wereestablished. Official loan comnnitmen-ts over the period 1967-71 are sumrmarizedbelow:

IBPD IDB U.S. Canada U.K. Others Totals

(US$ millions, net of cancellations)

Transport 8.6 0.3 3.4 12.3Power and comrmanications 2.0 19.6 1.Q 23JEducation 9. 9c. IHealth 3.0 0.5Water and sewerage 7.6 7. Housing and urban development 4,3 4.3Agric-lture 5.0 3.6 2.0 2.3 12.9Industry and touri-sm 1.2 1.2Xining 2.0 2.0Others 1.0 2.8 7.2 10.0 21 .0

Total 28.0 16.5 21.6 8.7 12.9 10.0 97.9

IL. Trinidad's requirements of official capital in the mediumn-tern are ex-pected to be substantial; recent acceleration of public investment has alreadyresulted in increased conmitments from multilateral and bilateral soulrces. Theexternal public debt of the country is, however, low by in-ternatioral standards,and is not likely to pose any serious przoblens in the foreseeable future. Itsexternal public debt at, tbe and of 1971 equaled 11.2 percent of' GDP; substantialincreases in borrowing projected for 1972-76 'will result in to-tal extemnal debtincreasing tc over 23 percent of GDP, and of debt service ratio rising from thepresent b.3 percent to 6.4 percent. Trinidad and Tobago illay be therefore regardedas creditworthy for substantial borrowing on conventional termas.

-6-

PART II - BANK GROUP OPERATIONS IN TRINUMAD AND TOBAGO

Introduction

15. The Bank made its first loan to the colony of Trinidad and Tobago in1961; this loan of $21.4 million assisted in financing the development ofelectric power and was guaranteed by the United Kingdom. Since the country'sindependence in 1962, Bank lending has totaled $39.3 million, more than halfof it concentrated in the development of power and education. The remainderhas gone into highway construction, family planning, the development of anagricultural settlement, and a DFC project. A loan of $9.3 million for thesecond education project was signed on October 25, 1972, and became effectiveon February 15, 1973. A summary statement of Bank loans to Trinidad andTobago and notes regarding the progress of projects in execution as ofJanuary 31, 1973, are attached as Annex II.

Past Bank Lending

16. Bank lending in the past has been aimed at overcoming infrastructurebottlenecks through electric power and highway development, the creation ofproductive employment opportunities in agriculture and industry, and the longer-term resolution of the unemployment problem through the support of educationalreform and family planning. In almost all projects financed by the Bank, ithas provided substantial assistance in project preparation, and technicalassistance elements were built into most of the loans extended. The two powerprojects ($21.4 million, 1962; $2.0 million, 1969) helped finance a powerdevelopment program and have since been completed. The principal physicalobjectives of the Bank's loans were achieved, although idth some cost overruns.At the same time, the Bank played a crucial role in achieving institutionalimprovements. The Crown Lands development and settlement project ($5.0 million;1967) was marked by physical development that was slower than anticipated, andthe closing date had to be extended by about 18 months. The major problemassociated with the project was the management of credit which was noteffectively brought under control until 1970; nonetheless the project has provedmost useful as a basis for further agricultural development.

17. The highway project ($8.6 million; 1967) is part of the Government'splans to improve the route between Port-of-Spain, the capital, and San Fernando,the second largest city. Feasibility studies and detailed engineering for otherhighway sections are also included in the project. However, project executionhas been delayed and some cost overruns are anticipated. The eccnomic rate ofreturn of the project has, however, not been seriously affected. The two educa-tion projects ($9.4 million, 1969; $9.3 million, 1973) are meant to support theGovernment's 15-year plan for education development, whose objective is toimprove the relevance and efficiency of the education system. Bank assistancehas so far been provided for the first two phases of the plan. After an initialdelay of about seven months, progress on the first education project has been good,and disbursements on the second project are expected to commence shortly. TheBank loan for family planning ($3.0 million; 1971) is intended to enhance theeffectiveness of the Government's ongoing program of population planning and control

- 7 -

initiated in 1967. The Bank project would provide for the design, constructionand equipment of medical and training facilities; a technical assistance componentis intended to overcome institutional disabilities which haa adversely affectedthe Government's efforts in the past. After initial delay, the project is nowpicking up momentum and, when completed, is expected to contribute to reductionin the natural rate of population growth, with beneficial effects on-labor forcepressures. The DFC loan ($2.0 million; 1972) has been instrumental in the estab-lishment of the Trinidad and Tobago Development Finance Company Limited. The loanfunds are intended for investment in industrial and tourism enterprises. Thecommitments of the Bank loan are behind schedule, but with the arrival recentlyof an adviser experienced in project appraisal, the capacity of TTIFC's staff toappraise projects should be considerably improved., and the project is expectedto be back on schedule by mid-1 973. TT'fF plans to play an important role inpromoting industry and tourism through its investment program.

Future Direction of Bank Lending

18. In addition to providing capital assistance for the Government's pro-gram, the main justification for Bank lending is linked to Trinidad and Tobago'sheavy dependence on foreign technical assistance for the preparation and executionof a viable investment program. Through our lending program, we have been pursu-ing major institution-building objectives in critical areas of the economy inaddition to increasing output and employment. In line with the Government'spriorities and our own assessment of the country's requirements, our lending willbe concentrated in the future in agricultural development, highway constructionand maintenance, and education.

19. In the agricultural sector, our lending will strengthen the traditionalexports and promote such import substitution as is still possible. In additionto the loan now before you, we have planned two other loans for rural develop-ment/land settlement projects designed to continue the program initiated underthe Crown Lands project. Both projects will promote agricultural diversificationand improve production of livestock and crops. Our lending in both agricultureand industry (paragraph below) will test the adequacy of Government policiesand incentives for diversification in these sectors. The first rural development/land settlement project, to be located in Tobago and the northeastern and south-western parts of Trinidad, is presently being icientified. If implemented, itwill bring unused Crown Lands under cultivation; it will also improve agriculturalproduction in suitable areas already being cultivated by strengthening infra-structure, credit extension, and marketing services, and improve in-shore fishing.A loan for a port improvement project in Port-of-Spain was negotiated in May 1972,but is awaiting Board presentation until the Port Authority and the Governmenthave submitted a tariff increase application to the Public Utilities Conmission (PUC)in order to try to achieve a financially self-contained port organization by 197h/75.

;0. Despite its relatively high wage levels Trinidad has some advantagesfor developing industrial exports especially to the protected CARIF'TA market.The Government is already encouraging the development of manufacturing industriesthrough a variety of incentives, and financing is being provided by the IndustrialDevelopment Corporation and the Development Finance Company (DFC). In the DFC,

Trinidad has a satisfactory institution for channeling medium-and-long-termcredits into productive enterprises. We are proposing loans for manufacturingand tourism as follow-up operations to the DFC loan made in 1972. A loan forteleconmmunications would finance the improvement and expansion of the telephonesystem, and help bring about required institutional improvements. The Trinidadand Tobago Telephone Company, which has lately been taken over by the Government,has prepared a five-year development program; this has been reviewed in the Bank,

and we believe that the program could stand considerable improvement and cost

reduction. The project which we would finance would assist in reformulating thedevelopment program, in its financing, and in improving the company's managementand operations which have been unsatisfactory in the past.

21. The country's transportation system has not kept pace with the require-

ments of a growing economy; as a result, production and distribution costs are

higher than they need be. Future Bank loans for highways would follow-up on our

previous lending and help the Government in dealing with specific and well-identified bot-tlenecks. Through these loans, we would aLso aim at obtainingimprovements in highway maintenance organization and methods, and at the adoptionof a program for improved maintenance. Feasibility studies of the need for up-

grading and extending certain sections of the Southern highway are being financedas part of the Bank's first road project ; funds from the Canadian InternationalDevelopment Agency (CIDA) are also available for a feasibility study for a major

road project east of Port-of-Spain. Decisions on our proposed highwav loan willawait completion of these studies. We have also included a "sites and services"project in our lending program. The Government has already undertaken a sub-stantial effort to provide the local population of Port-of-Spain with betterquality housing. The institutional structure is, however, unduly fragnented,

and a small program of self-help housing was discontinued a few years ago. We

would hope to get the Port-of-Spain self-help program going again, and to assistin the formulation of a proper approach to urban planning and development.

22. lie are aware that important areas of Trinidad and Tfobago's developmenthave a regional aspect. The harmonization of fiscal incentives to industry, therationalization of agricultural production and marketing, the development oftourism, and exchange rate policies, all emphasize the substantial interdependenceof the economies of the Caribbean countries. We are pl anning a study of thesalient aspects of the Caribbean economies and their interdependencies later in1973 so as to determine the possibilities of coordinated regional developmentin selected fields, and the policy actions that individual countries might use-

fully take.

PART III - SUGAR AND THE AGRICULTURAL SECTOR IN TRINIDAD AND TOBAGO

23. Agriculture, with sugar, cocoa, citrus, coffee and coconuts as theprincipal crops, has failed to make much headway in the last two decades. In1971, agriculture contributed only 7 percent to GDP, and food products only 15percent to the total export value. This lack of pr tress has several reasons,

- 9 -

including: (i) a badly structured industry (ii) inadequate marketing, credit,and extension facilities; (iii) fragmentation of holdings; (iv) much part-timefarming; (v) a poor social image; and (vi) for the most part, heavy soils ofindifferent natural fertility. Only 35 percent of the land, or 44510,0 acres,is available for agriculture. The remaining 65 percent is either fcrest (45percent), urban areas (8 percent), swamp (2 percent), or abandoned tree cropsand secondary woodland (10 percent). Furthernore, about 100,000 acres of theavailable land is either in shifting cultivation or semi-derelict tree crops;as a result, only-25 percent of the land area is effectively under cultivation.Nevertheless, agriculture is important to Trinidad and Tobago for its impact onthe countr-y's balance of payments and beoause agriculture provides employment forabout 22 percent of its labor force.

24. Sugar contributed over 2C percent of Trinidad and Tobago's non-paeroleumexports and about 60 percent of the 1971 food export value. There is, in theagricultural sector, no alternative crop with comparable export outlets, nor onewhich could replace sugar as a source of foreign exchange. Land presently undercane could in theory grow other crops, but this switclh would require considerableexpenditures and many new skills. Diversification into corn, banana, and coco-nuts has been unsuccessful so far. A long-ternm but only partial alternativemight ba beef production, but at present this has not been proven profitable, andthere are a variety of technical constraints.

25. Sugarcane has been grown in Trinidad and Tobago for 350 years, and hasplayed an important part in the development of the islands. It was initiallygrown on a large nu-mber of privately owned estates, each with its own mill, butthrough amalgamation over the years both the number of estates and of factorieshas dwindled drasticallys there are only two large and four smaller sugar millstoday, as against 300 small mills which operated in 1890. Presently, sugarcaneoccupies a third of the cultivated land and emplcys almost half of the agricu)ltur-al labor force. However, t.he industry has been unprofitable for most of the lastdecade, largely due tc rising ccsts, and static or declining output. As a result.-iLOh of '.te plant anid euipre!nt is in need -f replacement, and administrati-ve andtechnical operations in need of review.

2o. Only three sugar companies are actually in opera-tion in Trinidad at pre-sent: Caroni Limited; Orange Grove National Company Lim-ited; and Forres ParkLim'ited. The first of these is dominated by the Government, the second is whollyowned by the Government, and only the third is still in private hands. Of thethree companies, Caroni is by far the largest; through its majority holding inCaroni and its complete ownership of Orange Grove, the Government controls 96percent of the sugar industryr. All three companies both grow cane and process itin their own f'actories. In addition to the companies, however, there are some10,000 independent cane farmers who supply cane to the various factories, col-lectively accounting for about 40 percent of all cane grown in the country. Theirimportance has increased steadily. Individual acreages vary from 2 to 200 acres;many farmers work only part-time; and the majority are tenants, mos-tly f7or smallprivate landlords. Fragmentation is a problem, and little attention has beenpaid to providing adequate extension and credit facilities; apart from buying their

- 10 -

cane and provicing a little seasonal credit, the three companies have furnishedno service to the fa mers. However, conditions have improved markedly following

the Government's assuming control of Caroni in 1970.

27. Over the last ten years, production of estate cane has been static -averaging 1.5 million tons annually - whereas production of farmers' cane increasedsteadily from 0.7 to 0.9 million tons. The area under estate cane at present isapproximately 58,500 acres (Caroni, 87 percent; Orange Grove, 8 percent; and

Forres park, 5 percent) while the area under farmers' cane is estimated to be in

the order of 54,000 acres. National cane yields have averaged 28.5 tons/acreduring the last 20 years. Over the same period the conversion rate for cane into

sugar was 10.2; this figure, however, deteriorated from an average of 9.9 tonsin 1952-61 to 10.6 tons in 1962-71, suggesting a decline in efficiency. Sugarproduction reached its peak with about 250,000 tons in 1965; since then, output

has declined, and in 1971 amounted to about 213,000 tons (of which caroni produced

91 percent, Orange Grove 5 percent, and Forres Park 4 percent).

28. Trinidad's sugar has five outlets: the local market, other Caribbeanislands, the United Kingdom, the United States,and Canada. Local consumption,including sugar used for industrial purpcses, presently amounts to about 42,000tons annually. The local quota is legally a first charge on sugar production;it.s price was kept static for many years, but substantial price increases have

been recently permitted. Within the Caribbean Free Tlrade Association, Trinidad

has been given a share of 10,000 tons. Traditionally, the U.K. has taken the

bulk of the islands' exports in the form of raw sugar under the terms of the

Commonwealth Sugar Agreement; Trinidad's present share is 132,000 tons, of whichCaroni is allotted 89 percent, but the country has not been able to meet the

quota every year. Following the Cuban crisis, the U.S. market too has been

opened to Trinidad. Its share of the quota varies annually; in 1971, it was20,000 tons, of which Caroni was allotted 92 percent. While the U.S. does not

provide a major outlet in terms of tonnage, the price paid for raw sugar makes

it a more lucrative market than the others. Trinidad:s share of the Canadian

market is 28,000 tons, of which Caroni's allocation is 89 percent. Marketingarrangements have been relatively stable since the introduction of the Common-

wealth Sugar Agreement and, more recently, the International Sugar Agreement.

290. Four institutions represent various interests in the sugar industry.The West Indian Sugar Association (WISA) is a regional body set up in 1942 to

administer the sugar quotas granted to Jamaica, Barbados, Guyana, and Trinidad

under the Commonwealth Sugar Agreement, the Internat-ional Sugar Agreement, and

the United States Sugar Act. The Sugar Manufacturers' Association represents themanufacturers, and serves as a link between WISA and the local industry; theTrinidad Island Wide Cane Farmers Association serves the interest of the individualcane farmers; and the Sugar Industry Control Board was established by the Govern-ment in 1966, primarily to serve as a go-between for manufacturers and cane farmers.

PART IV - THE PROJECT

30. The Project was appraised in the field in August 1972. Negotiations for

the proposed loan were held in washington in January of this year. The Govern-ment was represented by Messrs. F. Rampersad, Permanent Secretary, Ministry ofFinance, T. Lee, lawyer, Attorney-General's Office,and R. Dumas, Minister-Counsellor of the Trinidad and Tobago Embassy; the Borrower was represented byMessrs. F. Barsotti, Chairman of Caroni Ltd, G. Maingot, Managing Director, andG. Tuke, Financial Controller.

31. A report entitled "Trinidad and Tobago; Caroni Sugar Project (No. 48a-TR,dated March 26, 1973)" is being distributed separately to the Executive Directors.The main features of the loan and the project are summarized in Annex III.

The Borrower

32. The proposed Bank loan would be made to Caroni Limited with a Govern-ment guarantee. Caroni was formerly a subsidiary of Tate and Lyle Ltd., acompany registered in the United Kingdom, but a majority holding of 51 percentof the equity was purchased by the Trinidaa and Tobago Government in August1970. Tate and Lyle still retain 32 percent of the equity, the balance beingheld by numerous small private shareholders. The Caroni Board has beenrestructured with five members appointed by the Government and four by Tateand Lyle. To reflect the Government's desire to identify organized labor andthe cane farmers with policy decisions, three of its representatives are drawnfrom labor organizations, the other two being civil servants. The Board doesnot function smoothly; some of its members represent conflicting interests and,lacking wide commercial experience, do not always consider issues from a com-mercial viewpoint. However, a small but powerful Executive Committee of theBoard, capable of taking decisions without constant reference to the main Board,is being reactivated. Its current members are the Chairman, the Managing Director,and a Government nominee of wide commercial experience.

33. Cane is processed by Caroni in four factories capable of producingapproximately 250,000 tons of sugar annually. These four factories, which arevery different from each other in design, capacity,and age, are located atwoodford Lodge (capacity 25,000 tons), Brechin Castle (115,000 tons), Ste.Madeleine (100,000 tons), and Reform (15,000 tons). In addition, there is anew sugar refinery at Ste. Madeleine with a refining capacity of ten tonsper hour and a distillery producing rum, whisky, and raw alcohol. Eachcontains a miscellany of equipment that has been modified and replaced over theyears.

34. In terms of the acreage cultivated and its levels of production andemployment, the importance of Caroni for the Trinidadian economy is very consider-able. The Company controls 90 percent of the sugar industry in the country, isthe largest single enterprise other than the oil companies, and is the biggestemployer of labor apart from the Government itself. It owns 72,000 acres ofland, of which it has some 51,000 acres directly in cane with another 9,000rented to individual farmers. Sugar production has varied from 180,000 to213,000 tons annually. About 2L ,000 people depend directly on Caroni for aliving, including 13,500 employees and around 8,500 cane farmers. with theirfamilies and others who cater for and service the Company employees and farmers,about 150,000 persons - or one-seventh of the island's population - arefinancially dependent on the Company.

- 12 -

35. Caroni's profits have fluctuated during the last decade, with modestprofits in 196h, 1965, 1967,and 1969, and losses in the other years. Theselosses have been such that the Company's financial position has become unsound,its liquidity threatened, and the maintenance of its assets neglected. Thereare various reasons for this poor performance; they include a rapid rise in laborcosts, low sugar prices, little increase in production, and indifferent management.Poor profitability has led to inaciequate investments in factories and fieldequipment, in turn leading to poorer performance and higher operating costs.All in all, the Company has a record of poor industrial relations, outmodedmanagement attitudes, and inadequate technical performance.

36. Influenced by wages in the petroleum industry, Caroni's wage rateshave increased by more than 70 percent since 196h; during the same period,labor productivity has not improved to any marked extent, and the average sugarprice has only increased by 30 percent. Due to revenues from the petroleumindustry,the Government has been able, at the same time, to provide a comprehensiveprogram of public services to the community. These benefits, together with thepervasive prejudice against agricultural labor, especially cane cultivating, andsupport for the unemployed through extended family ties, collectively explain theapparent paradox that despite relatively high national unemployment, people do notwant to cut cane. Thus Caroni faces the twin problems of labor becoming bothscarce and more expensive.

Alternative Policies

37. Under existing fiscal and social policies, there are three possibleapproaches to Caroni t s problems: to abandon the industry, to subsidize labor,or to both change the structure of the industry and speed up mechanization.To abandon the industry is neither socially nor economically desirable, inview of the lack of alternative employment for the resources now used in sugar.This is true of both labor and land. The land appears to have little alternativeuse particularly in the short-run, and in any case the capital required to shiftthis land to other cultivation is more than that required to save the sugarindustry. In addition, since the country already has substantial unemployment,it is unlikely that those unemployed by abandoning the industry would be ableto find alternative employment. The second alternative, that of subsidizingthe average wage in the sugar industry, is excessively costly and unlikelyto improve the efficiency of the industry. The Government, the Company, andthe labor unions involved have rejected this approach in favor of the thirdalternative, to make parts of the production process, particularly harvesting,more capital intensive and, if further study indicates it is desirable, toincrease the importance of the small farming sector. This can only be donegradually, and explains the importance that is attached in the project to adetailed study of the Company's land that cannot be mechanized together witha program of mechanization of those lands that lend themselves to it. Themechanization program will be implemented over the time period 1973-81; it willcause no forced redundancies, the gradual reduction in jobs being offset bynatural attrition of the permanent labor force.

- 13 -

The Project

38. The proposed loan will assist in financing a program of capitalexpenditures to improve the efficiency of the Companyts field and factoryoperations, and in the study and implementation of better management pro-cedures, without any material increase in the volume of sugar produced.It provides for the overhaul and improvement of the Ste. Madeleine,Brechin Castle, and W4oodford Lodge sugar factories. No capacity increasesare planned at Brechin Castle and Woodford Lodge, but new equipment isrequired to keep the factories running and to improve their performanceand reliability. Ho-wever, at Ste. Madeleine, where cane production presentlyexceeds factory capacity, an increase in grinding capacity is planned.Much of the existing field and transport equipment, being worn and in needof replacement, would also be renewed, either imnBdiately or gradually overa five-year period. Better cultivating equipment would enable faster andmore timely operations and hasten the introductlon of improved cane varieties.

39. The project includes the conversion of 12,500 acres of flat landfrom cambered beds to ridges, enabling the introduction of machine harvest-ing and more extensive use of mechanical equipment for other operations,leading to cost savings and improved output. The majority of Caroni landin the north, some 24,000 acres, is flat and lends itself to full-scalemech.anization, unlike the hilly lands of the south. Caroni has alreadyconverted 11,500 acres to mechanized cultivation in the north, and theproject will add another 12,500 acres to this area by 1980/81,

1,0. It has been assumad, for purposes of project planning, that totalcane production would remain constant around 2.3 million tons over theperiod 7973-F1. it is also assumed that the total acreage of estate canewill decrease from 51 ,000 acres in 1 973 to 46,7CC in 1 98T, thus allOwingthe Company to remove marginal areas fron culti,vat.cn. However, this willbe compensated for by a small increase in average cane yields, madepossible by improved cultivation practices and the introduction of newvarieties. Only a marginal increase in raw sugar production is projected,largely as a result of some improvement in the ratio of cane to sugarproduced. In view of the brighter market prospects for sugar, a case couldbe argued for expanding production. This may well be feasible in the longterm. It is, however, felt that the first priority is to improve theexisting operations, and the present project is considered to be the mostappropriate to Caroni's circumstances. The project would have no directimpact on international sugar trading arrangements, the small increase inproduction being absorbed by the local market. The project has the supportof the International Sugar Organization.

41. Caroni will continue its excellent research work on insect controland undertake an expanded program under the project of research into new canevarieties and cultivation techniques. In adaition to research, the projectwill provine for three studies by consultants who will take local counterpartsto the extent possible: (i) a hydrological/irrigation survey of north Caroni;(ii) a study of the possibilities and implications of subdividing the hillysouth Caroni area for occupation by small-scale cane farmers; and (iii) astudy of all aspects of Company operations, including field and factory oper-ations, cost control and management procedures. The hydrological study would

- 14 -

investigate the drainage requirements of the flat lands being converted frombeds to ridges and would come up with a master drainage plan. The secondstudy would have wide implications for the future size and structure ofCaroni Ltd; if the hilly lands were allocated to individual farmers, it woUldcut by half the land cultivated by the Company. These lands are difficultto mechanize and not fully suited for cane production under estate style

management. The third study would be done by a small team of outside consultants,with one of the team members probably staying on to assist in implementing mutuallyagreed improvements. The study is crucial for the updating of the organizationand strengthening the management of Caroni. The study would be initiated notlater than six months after signing the proposed loan and, following its completion,

Caroni would retain a management advisory service, in the first instance for

three years, on terms of reference acceptable to the Bank. An expanded trainingand personnel development program would also be initiated. The job descriptionsand qualifications required for the posts of Managing Director, General Manager,and Financial Controller would be agreed in advance between Caroni and the Bank,

and the appointments would be maue after consultation with the Bank. In order

to represent all the sugar producing interests in the country more effectivelythan the Board of Caroni, the Governywnt would establish, within a year of theloan becoming effective, either a national sugar authority or a company wiach

would holQ all the Government's shares in sugar companies

Project Cost and Financing

42. Total project costs are estimated at $2y.1 million, of which theforeign exchange component would be $18.7 million. Cost estimates have been

prepared on the basis of current prices; the provision for price contingencies is

6 percent per annum. The proposed Bank loan of $12.0 million would cover about614 percent of the foreign exchange component during the initial developmentperiod of the project. Caroni would finance the balance out of self-generated

funds; it would also pay an additional one percent annually to the Government

for its guarantee for the Bank loan. The cost of the loan to Caroni would be

thus 8-1/4 percent per annum. While this would be below the cost of commercial

borrowing abroad, a higher guarantee fee has not been proposed because of the

nature of this project which straddles both the indust;rial and the agricultural

sectors. Cash flow projections indicate that Caroni would generate sufficient

funds both to repay the Bank loan within 15 years and to finance further

development.

Financial Prospects

43. The Company has well developed marketing arrangements for a range ofsugar and sugar by-products. Prices are known and established until 1974 underthe terms of the Commonwealth Sugar Agreement, the International Sugar Agreement,and the U.S. Sugar Act. For project purposes, current prices have been used for1972/73 and 1973/74, and 1974 prices have been projected for 1975 through 1981.The average price used for all sugar, both exports and local sales, is approxi-

mately 7.1 cents/lb. This is on the assumption that post 197L prices will showno decline and the pattern of marketing will not alter significantly. Presentindications are that prices will remain firm, and possibly move higher, as

world consumption is expected to rise faster than world production. A studyrecently made in the Bank (Sec. M72-571) projects prices about 10-20 percenthigher than those assumed for this project. Locally consumed sugar prices havebeen controlled at unrealistically low levels in the past. They will now be

reviewed every two years and be set on the basis of a formula that will enable

- 15 -

the Company to earn 8 percent rate of return after tax on the pro rata capitalemployed to produce sugar for the local market or, alternatively, be basedon the average export price, whichever is the less,

Ut. With the proposed investment, management reorganization, and introduc-tion of effective operational controls it is expected to make Caroni an effec-tive and profitable enterprise and to ensure that the finances of the Companywill be steadily strengthened in the coming years. Capital assets employedwould increase in value from TT$37 mill-ion in 1972 to TT$70 million in 1962;working capital would be increasingly financed out of retained earnings, andsufficient funds generated for future capital requirements. The financialrate of return on the proposed incremental investmrent, not taking into accountprice contingencies for capital equipment, would be 1 7 percent; with possibleincreases in the prices of imported equipment, this return would decline to10 percent. The financial return on total capital employed would range from5.3 percent in 1973 to B.3 percent in 1298.

45. In the interests of sound financial management, a statement of intenthas been obtained from Caroni Limited that it would be the Company's objectiveto achieve a rate of return on capital employed of not less than 8 percentannually from 1975. This is in line with the commercial performance standardsgenerally expected by the Government from public and quasi-public entities.In addition, appropriate limitations have been accepted by the Borrower on theincurrence of debt and on the distribution of dividends.

Procurement

46. Procurement of factory machinery and field equipment will be by inter-national competitive bidding, in accordance with the Bank's "Guidelines forProcurementt ". An exception to this will be small orders of less than US$15,000in value, subject to a maximum aggregate of US$250,000, where the size ofindividual orders is unlikely to attract international bids. In such cases,quotations would be obtained from at least three suppliers. Certain types ofvehicles are currently assembled in Trinidad, there being four asserbly plantsrepresenting nine international vehicle manufacturers. It is expected thatsuch local asserbly plants will win orders for vehicles. Rehabilitation hasalready started and equipment totaling US$1.5 million is in the process ofbeing procured. Procurement procedures have conformed to Bark practices, andit is proposed that these items be financed retroactively to April 30, 1972,from the loan. Items for land formation (US$o.6 million) wil be undertakenby the C*ipany as the only agency with necessary expertise in Trinidad. Certainitems of administrative equipment totaling US$0.15 million will be procuredlocally in small quantities after receiving quotations from at least threesuppliers. Since Caroni is exempt from import duty on equipment and materiali.nported for sugar production, preferences under the Caribbean Free TradeAssociation will not be applicable. Estimated annual disbursements of theloan are given in Annex III of this report.

- 16 -

Justification

47. By assisting Caroni Limited, the project will contribute significantlyto the rehabilitation of the Trinidad sugar industry. Improvements in fieldand factory equipment, accompanied by an increase in efficiency at all levels,would help to restore Trinidad's competitive position in world markets. Foreignexchange earnings from sugar products of at least $25 million would be maintained,and the project would continue to provide employment for about 11,500 sugarworkers and safeguard the livelihood of 8,500 independent cane farmers.

48. The economic rate of return must be measured in terms of alternativesavailable -- in this case the gradual phasing out of the industry. when orhow this would occur is difficult to estimate given the existing social ancipolitical climate. If investment is not made in the very near future, theentire sugar industry will gradually deteriorate over a 10-year period to apoint of final collapse. The difference between benefits with and without theproject is deemed to be incremental benefits. The economic rate of returncalculated on this basis, excluding price contingencies, is estimated to be26 percent. This is a conservative estimate: it is unlikely the industry wouldsurvive as long as ten years without any investment being macie. If, however,price contingencies are included in incremental costs, the rate of return dropsto 20 percent. Sugar prices used for rate of return calculations average USi 7.1/lbwhich by present forecasts is considered to be conservative. The rate of returninclusive of contingencies was therefore tested for sensitivity to sugar priceincreases of 10 percent and 20 percent. Such increases would improve the returnto 27 percent and 34 percent respectively. These figures indicate there issubstantial economic justification for the project.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

49. The draft Loan Agreement between the Bank and Caroni Limited, thedraft Guarantee Agreement between Trinidad and Tobago and the Bank, theReport of the Committee provided for in Article III, Section 4 (iii) of theArticles of Agreement, and the text of a resolution approving the proposedloan are being distributed to the Executive Directors separately. The drartagreements conform to the normal pattern for loans for such agro-industrialprojects.

50. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

PART VI - RECOMMENDATIONS

51. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

Atta chmnents by J. Burke Knapp

March 27 , 1 973

1'1ie I o,f 2C'.O7.RTR lATA - ITO [U' 1)2 A!1.) TOUAOO

Al',; P3PUTATT03 TADr?t F" 7S T313Y5w i?. 3.030,0 )02 (mid-1971() 367 u0)) (mi;1-1?71) 33,1 -1 ,m

R.-te of Growt,h: 2,3 (from 1.960 to 391i) 1F:phv;e1 723rQe 3 610 pc 23'o2 s:6bi1 1 el

Uncmplor(yrne0. Re t.e 12.,c,

PPUIA. .^tT.T3'i CIU i7C 6 EThfTST1CO r,,1707 lf{.AT.TIl _l?-Cnwlde i3L3V' r '. pnn1f36 2

1i.3 Populat.½:: por phynsici;.n 2,722.

C-nn3e DL-;,x',!i ( I .023 6. 8 Popil]atioTn pnr hpital bed 192.0Infant N'_-r-.ti Iy3 (per 3.,10 -11v c tir'Jis) 39. 8 1/

- T. .- qllintile 14.0 ri , 31 I

hif,lC,31. qll r:tAle l,8.0 % owned i: ea Iolt. 11J'.33 0:'3c;3ll * 1

.4CCRS.3 10 lpT333fl 3'if"l 1292C 3/ A00036$'3 .i rit !!(''my TCY10'!'

-Ti~iTTf ,l - 98.0 66.0rurnl 92.0

lIlT!ItIf 101i3 2t4- ED7C3TJAi:3t7(>.lor-j^ in *. :.;] - A ol req,iiremnonts 97.9 A9lu ii 3' n -t ' n 9P'er can-ita or-otein in,.&k- (gr: s) 82.5 Priraor t3 rl. nllt , 27

'Secondi. v schol enrcl] h t: ' 2B 0

GNP PE3 C,APTT,', i 3 1 ?71 925 tUS$

P00 ls:2.2 17 ' A' n,0o-YrC; TDi I'73 A122r7AI lT.T 0t GHLRtFH (gz c:* .. 1 )US $ 2]" r ]96>5 1 5- t° 2 '

G'°P a,f: trice 8 103.0 . 7-:mrx z l- Di:.-en'. t?>n: 38.9 2.3 3, .3,

G-,:is , 2 -. i 2 Xa_ -3 13.; ' .1Ce:--rn--::, A.cnllr-. Bil l:]-e -13 *3 .I3. 3 -2.2 -,2tYPOr.5-, oCGd,,: t.7 G_ .310 7122. 11.7 3.9 7.7Tmiporte of 500ad3, ' 3 7.' 716.1 5 O. 9.2 3.5 lo.l

021ri""r, 12- [373[ FORC- A!Di"PCOUCTT''T't. T'' 17',1

Value Ad led lIj .or Force V. A. P.e- i½r?'-n'U'; $ [LKm. _ n. 5

Al pir iil t3:re iD3. 7.2 .075 P2o.) b. 3-. lI!ndnI;I;r,r ! 277.2 l,7.8 .3 ' 3, 221.2 13 .OServ.ice. 399.7 L£.0 .150 110.0 t,r6:.7 ) l7 Ounallo^n.t, .I O ..0 0 8/ _ .' 8/

Tota I/Avn riage 8d8. 1.00.0 '- 3 - 10 :,C 2,42L '. 10.

GOV'FIC?3¶931'F: P3111.CC?c)C,ritral Go.-crnnt,-

T. 7-: dollBri ,-,. o?r ?'1971 2 971 193, -7(

C'urrent l Sceipta 31i5.8 18.1 16.2

Curr ernt :-iJiture 3L9.8 18.3 1l6.9Curren'. S :i.':t.s -4.o -0.2 1.3Canijal. EI.l:3'u.wtres 108.6 5.7 4.2&E-ternal Aesa.otance (n,et) 28.2 1.5 0. ;

See footnolen. at end of table.

not availablenot applicable

Pan e 2 a F 2

00010W!.[ InTO - ThYT P! P Am,l 33Ž IAC}G

t'^>~-~f, (,' -'7 d plif C4 ]96,5 1960? 3S70 1971, J131" 1 97" 20~' Ju!iL l ]72 lCJ/7,_ZiL1iorn TT *Ioip19rsO cyI.Si-anCULri C-:, prid

T'oney a:1c', Q,I<s ,9 c novi 261.9 1401;. 5 i:77- 593.Go 531 .0 57. -B kCr, ... ii.o ?Pthl c' Sic,crIc I . .... 31] 3.2 1 3. b t7. 3 li9. L 1C3.3 -

i: -7k Cre, ii to ~rrvafe St:13,8 26fD. 1 32E6.), _35q. 8 3-11 -a 8s

(Pere,!Lnd rc, t or, ITdcx. 1-,:~rrbcrs)

_ _ _ ___- J ._._<e. 72 3r: (1(,J,-' = 1l}, 1?J 102.6 I^1 219 -2 .

________ ___e _i---. - 19^/ 1.7 25 03.5 3. ;3.iC-;j.; a-r (9rss± -17.9 -1,6.t IJC.O 9 77.0 1 .3 ,7.;

o rl o St: nd rc-l. to ..tB Sctor 13 27.28 36.3 267.3 9.9 12.9

Rook! Cr oCi to Private Se,o ,3 21. 2., 5. 1

fl-I)7 209 6. -ct 3.

19>', 197rs ^~~~~ ~ ~ 97 LT Us t . .(.f Jillioos U f J . C

Eq,.: tbr- Lod (lt '1:-0j 1290.5 202.6 7 126.1 2i .8 1trol 1 / e'- ?: I &'^r>~ c: C '(;fo.i, i - " -5i1. 5 - 6;k.5 -71f,.-1 i 'ood t -oe;r a ,:37.f 215 .1iReso:;r. e C (r .i c i: - 2] 1.7 -11.5 2.7 I A 1 o rht r 3. 5 1.3 -

To' al Sr j. l c- ' -OT r .(ne1 '6 * -75.6 -39 72

''-. Tlayif--s ~~~ ~ ~~~~~~~~12.:5 -1.9 -12 ,,-ii..c r1 -c;prrtr o CUed" "301 690-ll <O.5 58.1 tt -;.0 -ole 1

L''c :'-'1.5 . -66.5 716 1 Pood 0..... .. PoS , 37:, 6 13O 1. 59.6 71.0 3L7

:: .-oe--''- (6: IC. - .3 ' -2.0 -11.5 8 1 2 .F UtSAll;! -rVerirar 0 LIl .( 1

t o l l 1 1t

- e. or- v---. .- 3.s -60 7 * ..... ............ 6 - 1 T O;v<-75Oi ; .6. ; uXi, S1J 2 ' ai G;:-i:, -.i i; --i wO ........................., 3.C

12.5 -~~~1.9c 1 .2QI/. C)1 U' e

-2. .1 i Cor rc71 - 1-. 0.

-act>.< -; fSCOC'S (-) 0.1 7.2 -24.1 I:i2]tS;lFAtSAra1 SII; O VrRnTa8::IS .,7.

(enc -- 61.5 56.7 eri.iO 00181.0

Tote Cttc'cr - ha,

C * *. 7 0 1 Ct 3£..

TT S 1,,,, -l0.5' 15 U 0-itstoLnd-wng; :inbursed 3U2- l,, linciiSbrn-sd '21.3

F- 1A-- -: ' 5 137 7- 0utStarrdang i;;1 t-"-iishu-cI 52 S1^. .> .5i; - ,; u' US$3 _.330-I; \ I5, 1971 2

TV* I - ob U,.S 0 ; 51

es 1' 1:>; Cas.-us data. TPn 3S of or ner covers farmro wiftI! 57;' acres endc or"er 3/ SeP'v-ed 0cv 1-UrSCOTS '-I 0 :. ;S:: I . era .66 , L/ Url-a.n and rc-a11. 5/ LiC eracr ratre r-'rosa' e erS to tw 3abor

fc ':aest s-rt !lrken Dreirr, all car gr orth rates ere based rno current roie:. 7/ Tnc1-r" cr n/I.6' 1ie-:er 0:.:? . 2rTc,ve ° / Central ?rnr-::e'. ennroxriratos closely to general rorerrn-en; i- l30. pn/-sa' ron-n

d..-;-. )n., git-i i ;>:-e^: :-->:. (net). r' .vol a irrdex. 9/ Net of Crude oil 5Žp-urtJ. 9/ To -rc., . .,.. i-; -. : I;1och z-' rayon fznto. - / Net priv..te capita' 1. 2 Refers tD i;lic debt incl.udi:gc g,:.rntad.

co-c -:0- i. :nd re t o; t'hc publici sec tor. A/ iaortiration arei inLeresit rsyrs nraants a Js '

N ' :\ F:r.~ t.-. JiC Q oil -norts. L -7c/ltldind all.oceUio:i of S3DRs. 20/ Sioce Juby 'I72, the TTi, i.as c-Ien

.3 >;. d .o ' I,> .:,ith S-erling.

no'. availablenot alpplricale

ANNEX UPage 1 of2

THE STATUS OF BANK GROUP OPERATIONS IN TRINIDAD AND TOBAGO

A. STATEMENT OF BANK LOANS (as at January 31, 1973)

US$ millionAmount (less cancella-

Loan tions)Number Year Borrower Purpose Bank Undisbursed

Two Loans fully disbursed 23.4 -

h86 1967 Government of Trinidad and Tobago Agricul-ture 5.0 0.2

b97 1967 Government of Trinidad and Tobago Highway 8.6 2.1

564 1969 Government of Trinidad and Tobago Education 9.4 4.7

743 1971 Government of Trinidad and Tobago FamilyPlanning 3.0 3.0

81 9 7972 Trinidad and Tobago DevelopmentFinance Company (guaranteed byGovernment of Trinidad and Tobago) DFC 2.0 2.0

862 1 973 Government of Trinidad and Tobago Education 9.3 9.3

Total 60.7 21.3

Of which has been repaid to Bank 8.2

Total now outstanding 52.5

Amount sold 17.0

Of which has been repaid 5.1 71.9

Total now held by Bank 40.6

Total undisbursed 21 .3

ANNEX IIPage 2 of 2

1/B. PROJECTS IN EXECUTION-

$8.6 Million Loan of June 12, 1967, for Highways (LDi 97-TR)

Project execution was delayed due largely to the poor performance of theinitial consultants who were replaced late in 1969, but also because of delays

by the Ministry of Works with regard to the prequalification of contractors and

the awarding and signing of contracts. Construction works are not expected to be

completed before the end of 1973, and the feasibility studies on the road exten-sions possibly even later; as a result, the closing date of June 30, 1973 willhave to be postponed a second time. Total project costs are estimated at $19.0million, of which the foreign exchange componernt will be about $10.0 million,resulting in a cost overrun totaling $2.0 million. The Government intends meetingthe cost overruns. Since benefit increases have been approximately parallel to

cost increases, the economic rate of return of the project has not been seriouslyaffected.

$9.4 Million Loan of October 16, 19,68, for Ed,cation (Ln 56li-TR)

There was an initial delay of about seven months duae to difficulties in theselection of architectural consultants, and furtiier delays in construction resulting

from labor problems and adverse weather. Project implemenzation is now progressingsatisfactorily, and completion of construction is e:ipected by the closing date ofDecember 31, 1973. Project cost overruns are estimated at about $425,000, or two

percent of the total; these cost overrwus will be met by the Government.

$9.3 Million Loan of October 25, 19722 for 'Education (Ln 862-TR)

The Loan Agreement became effective on February 15, 1973.

$3.0 Million Loan of May 28, 1971, for Population Project (Ln 7-3-TR

The loan was declared effective on January 31 , I '72, after contractural

arrangements were completed with the architectural hospital consultants, and anarchiteet to head the population section of the project implementation unit wasappointed. Progress on the non-physical aspects of t'e project fell behind schedulebecause of difficulties in recruiting suitably qualffied p0rsonnel. However, some

progress has recently been achieved. The evaluatioci advisor has arrived in thlefield, and every effort is being made to ensure that the principal advisor (manage-ment) and other needed advisors,to be provided by PAHO, are recruited shortly.

$2.0 Million Loan of May 15, 1.973, for a Development Finance Company (Ln 819-TR)

The loan was declared effective on July 3, 1972. lthough requests forreimbursement on subloans are expected shortly, none have been so far received.

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 beingencourntered, 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 balancedevaluation of strengths and weaknesses in project execution.

ANNEX IIIPage 1 of 2

TRINIDAD AND TOBAGO - CARONI SUGAR PROJECT

Loan and Project Summary

Borrower: Caroni Limited

Guarantor: Trinidad and Tobago

Amounts US$12.0 million equivalent in various currencies.

Terms: Payable in 15 years including a 5-year period of grace at74 percent interest per annum.

Project Description: The project consists of reestablishing over a period of fiveyears the sugar estate Caroni Limited on a viable basi3,by means of reequiping its factories, transport fleet, andharvesting and field equipment; in addition, funds would beprovided fcr completing land preparation prior to theintroduction of mechanical cane harvesting on those cane landsthat lend themselves to full mechanization, and forundertaking three technical studies designed to improveoperational and administrative efficiency. The project wouldreduce costs and improve efficiency, thus assuring asatisfactory return to the country's sugar industry, and tothe largest employer of labor apart from the Government itself.

Estimated Cost: Total project costs for the five-year period 1972/73 through1976/77, estimated at US$21 .9 million, of which the foreignexchange component is US$18.7 million (85 percent), aresummarized below:

ForeignLocal Foreign Total Exchange

___~~~~S 00-______ yan- ------- US$loooG .-----

Factory Equipment 706 6,352 7,058 90Cultivation, Harvesting,Haulage,and Transport Equipment 806 7,248 8,o054 90

Land Fbrmation 369 246 61 5 l40Administrative Equipment 62 92 i54 90Research, Training and

Technical Studies 687 1,26o 12,97 60

Total (Before Contingencies) 2,629 15,199 17,828

Contingencies:Physical (5% flat pa) 131 760 891

Sub- total 2,76 159 18719

Price (6% compound pa) 476 2,734 3,210

Total 3,236 1 8693 21,929 85

ANNEX IIIPage 2 of 2

Financing Plan: The Bank loan of US$1 2.0 million equivalent would financeabout 64 percent of the foreign exchange component duringthe initial development period, the balance being providedby Caroni Limited from self-generated funds.

Estimated US$ millionDisbursements: FY 1973 FY 1974 FY 1975 FY 1976

1.57 4.3 3 2.4

ProcurementArrangements: Factory machinery and field equipment would, subject to

standardization requirements, be procured on the basisof international competitive bidding in accordance withthe Bank's guidelines for Procurement. However, sincerehabilitation has already started, and equipment totalingU.S.$1.5 million is in the process of being procured inaccordance with Bank practices, it is proposed that theseitems be financed retroactively out of the proposed loan.Items included under land formation totaling u.S.$o.6million would be undertaker. by Caroni Limited itself;administrative equipment totaling U.S.$0.15 million,including laboratory, medical, and training equipment,would be procured locally in small quantities afterreceiving quotations from at least three suppliers.

Consultants: Funds would be provided under the project to financemanagement advisory services and three technical studies,to be carried out by consultants. Advisors would beappointed to visit Caroni Limited at regular intervalsto provide its management with technical, financial,and administrative advice; their purpose would be tokeep management up to date, and to report to the Boardof Directors at half-yearly intervals. The threestudies, to be carried out by consultants, would be:(i) a hydrological/irrigation survey of North Caroni;(ii) a study of all aspects of Caroni operations, includingfield and factory operations, cost control, and managementprocedures; and (iii) a study of the possibilities andimplications of subdividing the hillV company-owned landsin the South for occupation by small-scale cane farmers.

Rate of Return: The annual financial return on total capital employed isestimated to be 5.3 percent in 1972/73 rising to 8.3percent in 1979/80. The financial rate of return onincremental investments is 17 percent. In addition,continued employment would be provided for about 11,500sugar workers, and the livelihoods of 8,500 independentcane farmers would be safeguarded.

Appraisal Report: Report No. 48a-TR, dated March 26, 1973

IBRD 10051I , BAAMA 15LANDS

OCTOBER 1972

)MI PUERTO RI'1 ; 7

I30'-JAMAICA . g . , S 7 810nchISLANDS

Se TsA TC4O HE DRAGOV'S MOUTHS Mnn-rpn pBluR Bosn

v . t R3NIDAC7 EMDA Huevos Ids .\ - ; )2 <

COLOMBIA - V UE Aj 0\'M 6y

OVA' ,nAnn,nnnn, oQ t:sp ,o I' V. Island Goe ° r IFlnn d - ; | SI.Joseph t o l 1l$ldBblisnd ibotAlbrex ~~~~~~~~~G-ade OF 7SP-N ;IC vn|

TRINIDAD & TOBAGO Pr\CARONI SUGAR PROJECT R.fon1

|1 : I AREAS OF LANDS, OWNED & CULTIVATED BY CARONI LTD. cm.

AREAS OF LANDS, OWNED BY CARONI LTD, AND RENTED TO FARMERS Gulf 7Jn

AREAS OF LANDS, OWNED BY PRIVATE SUGAR CANE FARMERS

0 SUGAR FACTORIES

MAIN ROADS

SECONDARY ROAS D r ' t ,)

RAILBOADS USED FOR SUGAR CANE TRANSPORiT B-hm

* AIRPORTS Pt Li- C ,St Tb.q,

'SWAMPS

|RIVER, G.Slo [. Bs - B GNBv

SPN FRNANDO.- -

1 o Z ., . W sS>Sn s 41 * x*Z

,fnt/g ~~~~Fyz.bodd

C.d Isl P.,oin,t _