Somalia - Mogadiscio Port Extension Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3052 PROJECT PERFORMANCE AUDIT REPORT SOMALIA - MOGADISHU PORT AND PORT EXTENSION PROJECT (CREDITS 359-SO AND 586-SO) June 27, 1980 Operations Evaluation Department 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 disclosed without World Bank authorization.  - FOR OFlCIAL USE Of .!Y PROJECT PERFORMANCEAUDIT REPORT SOMALIA - MOGADISHUPORT AND PORT EXTENSION PROJECT (CREDITS 359-So AND 586-SO) Table of Contents Page No. PREFACE ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iii-iv HIGHLIGHTS v PROJECT PERFORMANCE AUDIT MEMORANDUM I. Introduction 1 II. The Project 1 III. Project Implementation and Results 2 IV. Points of Special Interest 3 V. Conclusions 6 ANNEX Chronological List of Main Events Leading to the Construction of Mogadishu's New Deep-water Port 8 ATTACHMENT: PROJECT COMPLETION REPORT I. Introduction 11 II. Project Preparation and Appraisal 11 III. Physical Implementation and Cost 13 IV. Traffic and Operations 15 V. Financial Performance of the Borrower 15 VI. Institutional Development 18 VII. Economic Reevaluation 23 VIII. The Role of the Financing Agencies 25 IX. Conclusions 26 Annexes 1. Actual and Expected Project Implementation 28 2. Actual and Appraisal Estimates of Project Cost 29 3. Actual and Forecast General Dry Cargo Traffic 1973-1977 30 4. Actual and Projected Balance Sheets 31 5. Actual and Projected Income Statements 32 6. Actual and Appraisal Expectation of Project Financing 33 Chart 34 Map This document has a restnc:te distribution endmay bL used byrwipients zn In Lprfzomance the duties. lts of their official contents may not otherwise be disclosed without World Bankauthorization. A  - ii - PROJECT PERFORMANCE AUDIT REPORT SOMALIA - MOGADISHU PORT AND PORT EXTENSION PROJECT (CREDITS 359-SO AND 586-SO) Preface This report presents a performance audit of the Somalia Mogadishu Port Project supported by Credit 359-SO for US$12.5 million and the Moga- dishu Port Extension Project supported by Credit 586-SO for US$5.2 million. The two credits were approved in March 1973 and September 1975, respectively. Credit 359-SO included refinancing of US$180,000 disbursed under a Credit for Engineering and Accounting Assistance (Credit S5-SO made in March 1969) which covered the final engineering of the project as well as some tech- nical assistance. Credit 359-SO was closed fully disbursed in June 1978, and all but US$220,000 of Credit 586-SO had been disbursed by April 30, 1980. This report consists of a memorandum prepared by the Operations Eval- uation Department (OED) and a Project Completion Report (PCR) prepared by the Bank's Eastern Africa Regional Office, the substance of which was dis- cussed with the Ministry of Public Works of the Government of Somalia and the Somali Ports Authority who fully cooperated in its production. OED has reviewed the PCR against the Appraisal Report for Credit 359-SO and the President's Reports for both credits. There was no separate appraisal report for the second credit which covered one additional berth which had been included as an option under the civil works contract for the original project. The transcripts of the Executive Directors' meetings which considered the projects, together with project files and documents, have also been reviewed and discussions were held with Bank operational staff. No mission was undertaken for these projects by OED staff. The draft audit report was sent for comments to the Borrower and the Fonds Euro- peen de Developpement which co-financed the project; however, no comments were received. OED has found that the PCR covers adequately the implementation of these projects and reevaluation of their justification. However, the audit memorandum provides additional comments on the time needed for proj- ect preparation; the exceptional contingency allowances; the traffic fore- casts; and the joint financing with the European Development Fund (FED). I  - iii - AdtDIT BASIC DATA SHEET PROJECT PERFORMANCE SOMALIA- MOGADISHU PORT AND PORT EXTENSION PR(JACT (CREDITS 359-SO AND 586-50) KEY PROJECT DATA Credit 359-SO Credit 586-SO Original Actual or Original Actual or Plan Reestimate Plan Reestimate Total Project Cost (US$ Million) 25.0 27.2 6.45 6.8 Overrun (M) 9 5 Credit Amount (US$ Million) 12.95 g 5.2 Disbursed ) 12.95 4.98 Undisbursed ) 0.22 Cancelled ) As of 4/30/80 Repaid ) - Borrower's Obligation ) 13.03 2/ 4.98 Cofinancing fJ 12.5 12.5 Date Physical Components Completed 5/76 10/77 1/77 10/77 Proportion Actually Completed by above Date (%) 100 100 Proportion of Time Overrun (Z) 40 60 Economic Rate of Return (x) 15 (16 4/) 17 5/ 16 17 5/ Financial Performance GooT Gool Institutional Performance Poor Poor Cumulative Estimated and Actual Disbursements (Credit 359-SO) (US$ Thousand) FY73 FY74 FY75 FY76 PY77 FY78 FY79 (i) Estimated 1,770 5,350 9,350 12,950 12,950 12,950 12,950 (ii) Actual - 2,260 4,643 8,696 12,000 12,900 12,950 % of (ii) to (i) - 42 50 67 93 99.6 100 Cumulative Estimated and Actual Disbursements (Credit 586-SO) (US$ Thousand) FY76 FY77 FY78 FY79 FY80 (i) Estimated 2,600 5,200 5,200 5.200 5,200 (ii) Actual 0,696 3,400 4,600 4,640 4,980 6/ Z of (ii) to (i) 27 65 88 89 95.8 OTHER PROJECT DATA Credit 359-SO Credit 586-SO Original Original Plan Revisions Actual Plan Revisions Actual First Mention in Files 1102/66 8/28/74 Negotiations 5/--/72 9|-/72 9/--/72 5/--/75 5/-/75 Board Approval 6/--/72 2/27/73 3/06/73 6/24/75 8/19/75 9/23/75 Credit Agreement Date 3/15/73 10/15/75 Effectiveness Date 9/10/73 1/15/76 Closing Date 6/30/77 12/31/77 6/30/78 12/31/77 6/30/78 6/30/80 Borrower Government of Somalia Executing Agency Ministry of Public Works Fiscal Year of Borrower Calendar Year Follow-on Project Name Mogadiscio Port Extension Project Somalia Fourth Port Project Credit No. Credit 586-SO Credit 838-SO Credit Amount (US$ Million) 5.2 5.5 Credit Agreement Date 10/15/75 8/23/78 1/ Includes US$450,000 for refinancing of the engineering credit. 2/ Includes US$0.08 million for exchange adjustment. 3/ Fonds Europeen de Developpement (FED). 4/ Reestimated at the time of appraiial of the Port Extension Project but covering the entire port investment. 5/ Reeetimated for both projects together. 6/ Disbursed as of April 30, 1980.  - iv - MISSION DATA 1/ Credit 359-SO Credit 586-SO Month/ No. of No. of Date of Month/ No. of No. of Date of Year Weeks Persons Man-weeks Report Year Weeks Persons Man-weeks Report Identification 2/64 Preappraisal 5/67 2 4 8 12/--/67 Desk Appraisal 11/71 3 4 12 2/14/73 / Appraisal 9/11/75 Total 5 20 Supervision I 9/73 2 2 4 11/29/73 Joint supervision with Credit 359-SO Supervision II 2/74 2 2 4 3/27/74 Supervision III 9/74 1 1 1 11/07/74 Supervision IV 11/74 1 1 1 12/13/74 (BTO) Supervision V 5/75 1 2 2 6/11/75 Supervision VI 10/75 1 1 1 11/24/75 Supervision VII 6-7/76 2 2 4 9/03/76 Supervision VIII 12/76 1 2 2 2/03/77 Supervision IX 5/77 1 2 2 6/28/77 Supervision X 12/77 1 2 2 2/--/78 Completion 6-7/78 1 2 2 1/31/79 14 25 COUNTRYEXCHANGE RATES Name of Currency (Abbreviation) Somali Shilling (So.Sh) Rate Used in Appraisal (Credit 359-SO, 1971) Exchange Rate: US$1 = So.Sh 6.9 Rate Used in Appraisal (Credit 586-SO, 1974) US$1 = So.Sh 6.2 Intervening Years Average 1972 US$1 - So.Sh 7.0 1973 US$1 - So.Sh 6.3 1974 US$1 - So.Sh 6.3 1975 US$1 - So.Sh 6.3 1976 US$1 - So.Sh 6.3 1977 US$1 - So.Sh 6.3 1978 US$1 - So.Sh 6.3 I/ Excluding missions made in connection with the technical assistance grant and engineering credit which financed the project preparation.  - v - PROJECT PERFORMANCE AUDIT REPORT SOMALIA - MOGADISHU PORT AND PORT EXTENSION PROJECT (CREDITS 359-SO AND 586-SO) Highlights The projects which were intended to provide more efficient port operations at Mogadishu through the construction of a new deep-water port have achieved their purpose. The anticipated benefits, consisting m3stly of foreign exchange savings from avoided shipping surcharges and reduced cargo damage, were realized, resulting in a reestimated economic return of 17% against 15%-16% estimated at the time of appraisal. Traffic volumes handled by the port in 1979 were within 5% of the original forecast. Port construction encountered ony relatively minor technical dif- ficulties (para. 7). The entire project, including the extension, was com- pleted 40% later than expected which was caused in part by construction of the additional berth and further by some mostly unforeseeable circumstances. In spite of contractor's claims and inflation, the total cost of the two projects was only 6% above the funds originally allocated. Points of particular interest are: - the 9-year preparation period for the project illustrates the need for a very early identifi- cation of projects when they involve a large investment in relation to the economic strength of the country, while studies, administrative decisions and co-financing arrangements can be time-consuming (paras 12-15, 26); - the project included 40% in unidentified contingency funds (paras 16-17, 27); - the joint financing with FED has been successful but contract administration problems point to the need for even more careful consideration of administra- tive procedures to be used (paras 21-24, 28). I I  PROJECT PERFORMANCEAUDIT MEMDRANDUM SOMALIA - MOGADISHUPORT AND PORT EXrENSION PROJECT (CREDITS 359-SO AND 586-SO) I. Introduction 1. Somalia,with an area of 630,000 km2, is located on the Horn of Africa and has a long coastline of 3,000 km on the Gulf of Aden to the north and the Indian Ocean to the east. It is an extremely poor country: much of it is arid; water supplies are scattered and often unreliable,and periodic droughts bring great hardship to both the people and their live- stock. The population, estimated at just above 3 million, is largely no- madic. Cultivation is possible on about only 13% of the land. Reliable data on the country are scarce and even basic figures such as GNP, popu- lation, number of livestock or output of crops are at best rough estimates. 2. The developmentof Somalia'slimited resourceshas been inhibited by the lack of adeqaute transportation facilities. Roads are few and traf- fic on them is generally light, there are no railways and air transport is at an early stage of development, while there is also little coastal traf- fic. Somalia has 27 ports on its long coastlinebut only three are of any size: Kismayo to the south and Berbera to the north constructed as deep- water ports with the help of the USAID and U.S.S.R., respectively ,/ and, in between, Mogadishu, the capital and main port serving the country's most productive area. Mogadishu, like Kismayo and Berbera, started off as a lighterageport and the Bank Group's contribution has been to help the Gov- ernment build a new deep-water port 1 1/2 km south of the old, inadequate and uneconomic lighterage facilities. 3. The Bank Group's commitments in Somalia total US$141 million, covering 19 projects. Seven of these projects, for an amount of about US$50 million, have been in the transportation sector (three highways and four ports). II. The Prolect 4. The Mogadishu Port Project took a long time to materialize (PCR, para. 2.01) - from identification in January 1964 to approval in March 1973, a period of nine years. The reasons for this are discussed in paras 12-15 below. The objective of the project was to provide - within the ambit of a master plan prepared during the preparationprocess - a new deep-water port which would be more efficient, economic and reliable to operate, particularlyduring the southwestmonsoon season, than the exist- ing shallow water lighterage port, with the additional bonus of diverting to the new port, when completed, traffic which was being moved uneconomic- ally via other ports. 1/ Kismayo was completed in 1968 and Berbera in 1969.  - 2 - 5. The original project included: a 770 m breakwater with two general cargo berths, one banana export berth and a dolphin berth for livestock; two transit sheds, one warehouse and miscellaneous buildings; operating equipment; and technical assistance for management, operations, accounting and training. The total estimated cost was US$25 million, wh1ich was jointly and equally financed by IDA (Credit 359-SO) and FED without any provision for a local currency contribution by the Borrower which was the Government!/ nor by the Somali Ports Authority (SPA). 6. The second stage development of the new port was designed as an extension to the ongoing project. Due to difficulty in projecting traffic growth from an erratic traffic data base, the first stage was designed conservatively. However, dry cargo import traffic increased more rapidly than projected and the Government obtained the Association's agreement that it would assist in financing a third general cargo berth. This required a 180 m extension to the 770 m breakwater already being built and, within its shelter, a 180 m long general cargo berth in line with the two already approved. Financing for the extension project was approved about two years after the first stage was financed; the total cost was estimated at US$6.45 million and was to be covered for 80% by IDA (Credit 586-SO) and 20% by the Government. III. Project Implementation and Results 7. The civil works under the project were built as planned. The construction contract was awarded after minor complications (see PCR, para. 2.06) on the basis of normal ICB procedures. The only major un- foreseen technical problem encountered during construction was the need to remove old World War II explosives in the area to be dredged. This, plus the late arrival of construction equipment (PCR, para. 3.01), late arrival of materials because of strikes in Italy as well as some minor problems caused a request for time extension by the contractor which was granted. In addition, certain works had to be postponed until the exten- sion project was completed and altogether this led to a time overrun of 40% on the original project. The time overrun on the extension project was 60%. Price escalation and a number of claims paid to the contractor led to a cost overrun of 6% in terms of US dollars on the two projects combined. This low cost overrun, however, resulted from unusually high contingency allowances as discussed in paras 16-17. The amount included under the project for port operating equipment was too low and cargo handling equipment was financed from SPA funds (PCR, para. 3.06). 8. Actual traffic in 1979 was within 5% of the forecast made under the original project, but certain categories of traffic developed differ- ently from the appraisal forecast, which is further discussed in paras 1/ This unusual arrangement was an accommodation of IDA's usual prac- tice to FED's policy of 100% grant financing; it took into account the Government's weak budgetary position and the importance of IDA FED working closely together.  -3- 18-20. No operational targets were set for the port under the two prcj- ects, mostly because such appeared difficult where operations were cieng- ing from lighterage to modern deep-water port facilities. However, .hen the next project was financed in 1978 (Credit 838-So), agreement was reached to aim at an increase in productivity of about 40% over the pe- riod 1978-1981. 9. The economic return was reestimated by the PCR at 17%, using assumptions similar to the ones in the appraisal. The Appraisal Report for the original project contained an estimated economic return of 15%, while that for the port extension put the estimated economic return over the two parts of the project at 16%. In view of the difficulty in esti- mating the benefits accurately, the slightly higher results found by the PCR are not necessarily significant. 10. The financial performance of SPA!/ has been satisfactory. From 1974-1979, the return on net fixed assets has exceeded the 5% figure agreed on when the first credit was granted. The operating ratio for 1976 and 1977, however, has been less satisfactory than projected (PCR, Annex 5). SPA has mostly complied, be it sometimes after some delay, with the financial covenants in the Project Agreements, including increas- ing its tariffs and revaluing its assets; it has also met its financial ob- ligations to the Government annually. 11. SPA was established in 1962; it is a semi-autonomous Government agency responsible for the administration, operation and maintenance of the country's ports. It was reorganized in 1970. The project included technical assistance for management, port operations and accounting. The consultants were appointed only three years after the Credit Agreement in spite of the Association's insistence on early action. Reasons for the delay were reluctance by local officials to the use of a firm since they preferred individual experts, and complications arising out of the joint financing by IDA and FED (PCR, para. 6.06). The consultants' services were useful and, amongst other things, led to the introduction of a cost- based tariff structure in 1977. However, implementation of several of their recommendations, notably the management information system and oper- ational improvements, was handicapped by the shortage of qualified local staff. The latter was aggravated by the unforeseen outflow of skilled manpower from Somalia to the nearby oil producing countries. Further technical assistance is being financed by FED, and under the ongoing fol- low-up project, which also includes the preparation of a training program. IV. Points of Special Interest Long Period Required for Project Preparation 12. Project preparation took over nine years. The Annex to this memorandum gives a chronological listing of the main events from identi- fication to financing of the project. The time was required for planning 1/ This refers to the consolidated accounts of all ports under SPA's jurisdiction.  - 4 - studies, financing arrangements and decision-making. The technical studies required somewhat over three years; the feasibility studies took about two years since hydrological studies, including model testing, were needed. After that, about a year was devoted to detailed engineering. 13. A period of 21 months elapsed between the completion of the feas- ibility studies and the financing of detailed engineering. This delay ap- parently was caused by the Association's uncertainty over the viability of the project as a result of the still unknown impact on shipping to Somalia after closure of the Suez Canal; the ongoing heavy investments in two other major ports in Somalia and the resulting need for adjustments in the cap- ital structure of SPA if it were to earn a satisfactory return on its net fixed assets; SPA's relatively unsatisfactory data base, financial accounts and auditing arrangements; and a shortage of IDA funds. After making an investment risk analysis, the Association decided to finance detailed en- gineering and consulting services with a view to improving the statistical and financial data needed for management and planning purposes. 14. Sixteen months expired between the completion of detailed engi- neering and the start of project appraisal. The continuing uncertainty over traffic developments and the difficulty in obtaining data from SPA after a change in its management contributed to the delay. This period was also used to explore the need for external financing in addition to IDA, since the estimated project cost exceeded available IDA funds. Fur- thermore, there were also delays resulting from Bank staff shortages and the project was finally appraised with the help of two consultants. 15. Lastly, another 15 months lapsed between appraisal and credit approval. A substantial part of this time was needed to settle the ad- ministrative arrangements for the co-financing with FED. Exceptional Contingency Allowances 16. Bids for the civil works were opened two months before IDA's Board considered the project and, at the time of Board approval, the con- tract had been awarded (PCR, para. 2.06). The Appraisal Report includes a base cost for the civil works which is 40% higher than the actual con- tract. In addition, 6% and 12% were allowed, respectively, for engineer- ing quantity and price contingencies. Overall, however, the project in- cluded about 65% for contingencies. The Appraisal Report mentioned that bids had been received and that the contract price would be well within the cost estimates. 17. It turned out that, because of the sudden increase in oil prices, inflation was well in excess of the official price contingencies provided for at the time of appraisal. Settlement of a number of claims by the con- tractor (see PCR, para. 3.02) also contributed to a much higher than ex- pected increase in the project's cost which in the end exceeded the amount of the original contract by 80% and still resulted in a shortage on the total made available by the Association and FED (see para. 24 and PCR, Annex 2). Traffic Forecasts 18. Traffic forecasts for the original project were based or five assumptions: (i) cargo imports would initially continue to grow -.an annual average rate of 10%, tapering to 5% by 1982; (ii) traffic cur ._itly diverted from Mogadishu during the southwest monsoon season to the eep- water port of Kismayo would pass through Mogadishu; (iii) there wouli be generated traffic from the development potential of the area; (iv' the considerable banana export traffic, up to 100,000 tons p.a., would b- di- verted to Mogadishu by 1977 from Merca, a lighterage port some 90 -um to the south; and (v) some of the livestock traffic which was diverted from Mogadishu to Berbera when it became a deep-water port would return to Mogadishu. 19. Dry cargo imports grew faster than expected at the time of ap- praisal, which led to the decision in 1975 to finance an additional berth under the Port Extension Project (Credit 586-SO). In fact, total dry cargo traffic forecast under the original project for 1979 was 454,000 tons but actual traffic was 435,000 tons. Even though the forecast for total traf- fic for 1979 was good, it should be noted that dry cargo imports exceeded the forecast tonnages by about 30%, while dry cargo traffic outbound was 44% below the forecast for that year. The shortfall was caused mostly by the smaller than expected banana export traffic. In 1979, banana traffic no longer used the lighterage facilities at Merca but it turned out that total banana production had been overestimated and of the available traf- fic, 32,000 tons is using the port of Mogadishu while the remaining 29,000 tons diverted to the deep-water port of Kismayo. However, the banana berth is now partially used for general cargo traffic, which is necessitated by the reduced availability of one general cargo berth because it will be used for oil traffic, until the new oil facilities financed under Credit 838-SO have been completed (PCR, para. 4.03). 20. At present, there is no indication that the dolphin berth for livestock traffic will be used for that purpose. Considering that the port of Berbera in the north of Somalia is much closer to Jeddah in Saudi Arabia, which is the major market for Somalia's livestock exports, and that the sea voyage from Mogadishu to Jeddah is more than twice as long as from Berbera since it involves the considerable detour around the Horn of Africa, it is less probable that the livestock traffic will divert to the port of Moga- dishu. The livestock berth, however, is apparently not wasted since it is now used for coastal traffic and the mooring of tugs. It is not clear what arrangements had been envisaged for coastal vessels and tugs under the orig- inal project. Co-financing with FED 21. A noteworthy feature of the project was the co-financing with FED and the effect of this on project administration. The cost of the original project was to be shared equally between IDA and FED. As noted earlier, :he much smaller extension project was financed by TDA and. the Government without financial involvement by FED (para. 6). However, since the exten- sion was an indivisible part of the entire undertaking and carried out by the same contractor, FED was still involved in the administration. 22. Arranging the co-financing which required detailed arrangements on procurement, supervision and disbursement procedures has been time- consuming (para. 15). The effect of the financial arrangements on procure- ment were only relatively minor and the problem of translating contract documents (PCR, para. 2.04) will presumably be of a one-time nature. 23. Contract administration was based mostly on FED rules which some- times differed from IDA's. FED maintained an office in Mogadishu for con- trol of their projects in Somalia and under the Administration Agreement FED appointed a resident controller to their Mogadishu office who was re- sponsible for the approval of disbursement requests of all IDA and FED funds for the port project. Much of this has been helpful to the smooth implementation of the project. However, procedures used for settling claims by the contractor resulted in differing views between IDA and FED. 24. As pointed out in the PCR (para. 3.02), the contractor filed a number of claims. IDA's position in such cases is to let the borrower handle the situation with the advice of the consultants in charge of con- struction supervision and in extreme cases, the Association advises the borrower to seek the help of an experienced lawyer. Ultimately, claims were to be referred to arbitration which was only to take place after com- pletion of the project. In this case, however, FED decided that a settle- ment of claims should be arranged earlier. The settlement of outstanding claims was reached through the intervention of FED. At this event, IDA was represented only by an observer and little attention was paid to the recommendations by the consultants in charge of project supervision. The agreements reached covered the original project and the port extension which was not financed by FED. The settlement reached was higher than the amount recommended by the consultants and was considered excessive by the Association. FED provided some supplementary financing (PCR, para. 3.02) but the Association declined to make additional funds available and the extra financial burden fell on the Government. V. Conclusions 25. The project has resulted in much more efficient port operations and is making a useful contribution to Somalia's economy with a reestimated economic return of 17%. The benefits consist mostly of foreign exchange savings from avoided shipping surcharges and reduced cargo damage. 26. The project demonstrates the necessity to start planning major investment projects well in advance, especially in smaller countries which have greater difficulties in securing financing for large investments, while also taking account of delays which frequently occur because of local difficulties in providing data or slow administrative decisions. 27. The Appraisal Report's cost picture was not fully up-to-date since it was already known that the project base cost was much lower than the amount given in the appraisal cost table. In effect, therefore, con- tingency funds under the project were 65% rather than the 18% mentioned in the Appraisal Report.  -7- 28. The cooperationbetween the Associationand FED has been success- ful and was essential for the realization of the project. However, in spite of efforts to synchronizeadministrative procedures,there were dif- fering views on the settling of claims. In future, when joint financing is considered,this aspect should receive special attention.  - 8 - ANNEX Chronological List of Main Events Leading to the Construction of Mogadishu's New Deep-water Port september 1963 Bank economic mission to Somalia mentions Mogadishu Port as a possible project for Bank Group technical and finan- cial assistance. 7anuary 1964 Bank Group technical mission reviews Government's pro- posal for a deep-water port at Mogadishu and identifies need for detailed hydraulic studies contrary to other technical advice being given to the Government. June 1964 Independent expert confirmation received of need for hydraulic studies and possibly for model tests. November 1964 Bank Group makes technical assistance grant of US$311,000 for feasibility study and preliminary engineering by con- sultants, including review of suitability of existing (lighterage) site or suitable location for a new one. Study with model testing expected to take about two years. February 1967 Consultants complete a flexible master plan for an extend- able 7-berth deep-water port about 1 1/2 km south of the existing lighterage port. Hay 1967 IDA project appraisal mission to Mogadishu. (June 5, 1967, closure of Suez Canal.) March 1969 IDA Credit S5-SO for US$550,000 for final engineering by consultants; also appointment other consultant services to introduce a statistical and accounting system to SPA who have responsibility for administering and operating all the country's ports. (October 21, 1969, change of Government in Somalia; March 1970, SPA management dismissed by new Government and replaced by military.) June 1970 Final engineering completed and tender document prepared by consultants but implementation of accounting studies delayed and no financial statements available. September/ Exchange of correspondence between President, Somalia, November 1970 and President, World Bank, re possible association of IDA with FED for external financing. February 1971 Somalia Government asked to provide certain information preparatory to appraisal for construction project.  - 9 - June/July 1971 Information from Government received. November/ December 1971 Appraisal mission to Mogadishu. 1972 Preparation of report and intensive discussions between IDA and FED re all aspects of cooperation between IDA and FED. March 1973 Board approval of project, Credit 359-SO. I  - 11 - ATTACHMENT PROJECT COMPLETION REPORT SOMALIA - MOGADISHU PORT PROJECT AND PORT EXTENSION PROJECT CREDITS 359-SO AND586-SO I. INTRODUCTION 1.01 A lighterageport for Mogadishu was completed in 1935. The need for a deep-waterport for Mogadishu, the capital of the country and by far its largest city, was recognizedand advancedin the years following Soma- lia's independencein 1970. However, before its construction was started in 1973, two deep-waterports for Somalia had been completed;Berbera in the north financedby the Soviet Union, and Kismayo in the south financed by the United States were completed in 1968 and 1969 respectively. 1.02 This report covers the first two stages of the developmentof the port of Mogadishu. The first stage was jointly financedwith the European DevelopmentFund (FED) on a fifty-fiftybasis without any local currency contributionby the Borrower or its port authority. The second stage which became necessary during constructionof the first stage, as actual traffic exceededforecasts,was financed 80% by IDA and 20% by the Government. The third stage, a tanker terminal project (SomaliaFourth Port Project)was ap- proved by the Board on July 6, 1978, to be financed 84% by IDA and 16% by the Government. II. PROJECT PREPARATIONAND APPRAISAL 2.01 In February 1964, a Bank Group mission visited Somalia to review a Governmentproposal to construct a deep-waterport at Mogadishu. In No- vember 1964, the Bank made a technicalassistancegrant of US$311,000for engineeringconsultants'study of the suitabilityof the existing lighter- age port for expansion or alternativelythe developmentof a suitableloca- tion for a deep-waterport. The study which was completed in February 1967 resulted in a master plan for an extendableseven-berth, breakwater-protected new port. Following an IDA mission in May/June 1967, an engineeringcredit was approvedfor US$550,000 (S5-SO,March 3, 1969) for detailedengineering and preparationof tender documents for a two-berth,first stage of the master plan, and for accounting services to the port authority. This work was com- pleted in 1970. Appraisal was delayed until November/December 1971, largely because of uncertaintiesabout availabilityof IDA funds, traffic developments after the change in Governmentin 1969, and after the closure of the Suez Canal. 2.02 The main objectivesof the project were: (a) to provide alongsidedeep-waterport facilitiesto accommodatethe forecast traffic,and thus reduce ocean freight rates, cargo handling costs, cargo damage and losses, as well as to avoid diversion of traffic to other ports resulting in costly land transportation; and  - 12 - (b) to improve the Somali Port Authority (SPA) by providingmanagementport operationsand account- ing consultancyservices. 2.03 The main project componentswere: (a) a 770 meter long breakwaterwith two general cargo berths along its inside; (b) a banana berth and a livestockberth; (c) transit sheds for the two general cargo berths; (d) a warehouse, paved open storage areas and a modest administration building; (e) port operating equipment;and (f) technical assistanceby managementand engineering consultants. 2.04 The cofinancingagency, FED, required the use of its conditions of contract for civil works construction. These conditionsof contract were not available in English. To meet the Government's requirementof using English as the official contract language, the engineeringconsultants made a translationinto English from the officialFrench text of the FED conditionsof contract, but this was poorly done. 2.05 Invitationsfor prequalification were published in early July 1972. Twenty-eightcontractorsand joint ventures were found qualified to tender. The consultantshad recommendedthat the firm to which the contractwas eventuallyawarded should be prequalifiedonly if it entered into a joint venture with another contractorwith more experiencein port construction. This recommendation, which was sound, was overruledon the basis of a request from FED, which IDA accepted. 2e06 Tender documents were issued on October 6, 1972. Tender opening was originallyscheduledfor December 18, 1972, but was postponed to January 4, 1973 at the request of several tenderers. Nine tenderswere received. The lowest bid was So.Shs. 88.7 million (the appraisalestimatewas So.Shs. 135.2 million excludingphysical and price contingencies). However, the bid did not conform to the tender documents and containeda number of reservations. The tendererwould not make the necessary changes, and his bid was therefore rejected. The next lowest bid of So.Shs. 96.5 million was acceptedand the contractwas awarded in February 1973. The work started in March 1973. 2.07 Actual general cargo traffic for 1974 nearly reached the traffic forecastfor 1977. In early 1974 it had become obvious that there was a clear need for an additionalgeneral cargo berth and a corresponding breakwater  - 13 - extension. In May 1974 the Governmentofficiallyrequested financingfor this extensionfrom IDA and FED, but because of funding problems, the latter declined to participate. A desk appraisal was carried out in March-April 1975, and soon after negotiationswere carried out in Mogadishu in May 1975. III. PHYSICAL IMPLEMENTATION AND COST Construction 3.01 The contractorwas slow in orderingthe required construction equip- ment, some of which was further delayed as a freighterwhich carried it suf- fered engine damage, and was idle for severalmonths. The contractor'searly site managementwas not as competentand well staffed as it should have been, and later the project manager was replaced. Further, only one shift was worked in the beginning. 3.02 In February 1974, less than one year after start of construction, it was estimated that the contractorwas six months behind schedule, in July 1974, he started to work two 10-hour shifts. However, shortly after this he submittedhis first claim for extension of the construction time based on strikes in manufacturers' plants and in ports in Italy, as well as the shippingdelay referred to earlier. A three-monthextensionof the con- struction time was granted. The contractorsubmitteda number of claims during 1974 and 1975, several of which were settled with the assistanceof the constructionsupervisionconsultants. The remainder were settled on the basis of an agreementreached between the Governmentand the contractor. This settlementwas mainly concernedwith the contractor's losses on his Italian Lire payments,which amounted to 83% of his total payments. The Lire was devalued considerablyafter the signing of the contract,whereas the paymentswere based on a fixed exchangerate versus the Somali Shilling, the latter being the contract currency. According to the new settlement,all paymentswere to be made in Somali Shillings and the contractorwas allowed to convert up to 80% of the payments to Lire at current exchange rates. The other major settlementitem was additionalcompensation for rock quarry ex- ploitation. As the average sand overburdenin the quarry was thicker and the average layers of rock thinner than foreseen, the contractorwas compensated for additionalquarry exploitation costs. We think this was a fair settle- ment. However, as the contractor's claims became increasingly more unrea- sonable after this settlement, it was probably, in hindsight,entered into too soon, in particularthe part concernedwith the Italian Lire devaluation compensation, wNhich could have been used as a bargaining point later, if it had been left unsettled. In February 1977, the contractorreferred two claims *or arbitrationby the InternationalChamber of Commerce according to a pro- vision in the contract,whfichalso has a provisionpr_venting arbitr-atio from taking place until after completioziof coristructiortn The contractc-^ co-luinued to submit numerous and excessive claims, but IDA advised the Government to postpone settlement of all major claims until ad-te- construction com,p.letion. However, FED was in favor of the Government making an early settlevaent.and in- dicated it would provide additionalfinancing faor its share of the settlement costs. In July 1977, FED sent a mission to Mogadishu, and duri-g the ensnuing discussionsagreementwas reached with the Governmentto settle all the remaining  - 14 - claims for So.Shs. 22.4 million, and to grant a six-monthextensionof construc- tion time. The settlementalso includedpayment for claims which were exclusively concernedwith the port extensionproject financedjointly by IDA and the Govern- ment, without FED participation. The part of the settlementconcernedwith the extensionwas So.Shs. 4.8 million. FED financedthe settlementto the extent of So.Shs. 8.8 million, which is about half of the settlementcost for the original project. FED proposed to IDA that the latter finance the remainder of the settlement. IDA declined to provide additional financingregardlessof whether the cost overrun resulted from the settlementor otherwise. Thus the Government had to finance the remainder of the cost overrun. This is describedfurther under "Construction Costs" below. ConstructionCosts 3.03 Annex 2 summarizesactual and estimatedproject costs. The cost over- run for the originalproject amounts to So.Shs. 15.3 million, correspondingto 9%, which is less than the originalproject's part (So.Shs.17.6 million) of the July 1977 settlement (after deducting the So.Shs. 4.8 million relating to the extensionproject). FED provided additionalfinancingfor half of the settlement (So.Shs.8.8 million), which left a cost overrun of So.Shs. 6.5 million to be financedby the Government. Unforeseeablecosts (not part of the settlement)for surveys and removal of World War II explosivesfound on the sea bottom in the area covered by the originalproject during dredging amounted to So.Shs. 1.2 million. 3.04 We believe that the constructioncosts were somewhatoverestimatedat appraisal and the major reasons, in addition to the excessive settlementamount (para. 3.03), why it was actually reached and exceeded are: (a) the contract terms expressed in the English language lacked clarity; (b) the price escalationformula in the contractwas too simple to be representative of the major equipment construction material and labor inputs; and (c) the treatmentof the contractor'searly claims was too generous. 3.05 The cost saving for the extensionproject amounted to So.Shs. 2.5 million (6%). If a reasonablesettlementhad been reached, there would have been a cost saving of So.Shs. 4.9 million. Unforeseeablecosts (not part of settlement) for surveys and removal of the explosivesfound on the sea bottom amounted to So.Shs. 2.1 million.  - 15 - Port OperatingEquipment 3.06 The appraisalestimate for port operatingequipmentwas much too low. The amount of So.Shs. 4.2 million originallyallocated in the project for this purpose was insufficient, and IDA and FED ended up financingjust one harbor tug the cost of which amounted to So.Shs. 5.4 million. The port authorityfinancedwith its own funds the purchase of cargo handling equip- ment, such as mobile cranes, forklifts,tractorsand trailers. The harbor tug was deliveredwell in advance of start of operationsof the port. IV. TRAFFIC AND OPERATIONS 4.01 Annex 3 shows actual general dry cargo traffic and appraisal fore- casts made in March 1972 for Credit 359-SO and in 1978 for Credit 838-SO. The originalport project shows traffic forecasts startingwith year 1977. These are generallywell in line with the actual traffic. 4.02 The major differencein traffic compositionis that the banana traf- fic from the port of Merca had not yet, at the end of 1976, been diverted to the new port of Mogadishu. 1/ The small amount of livestock traffic which had been forecast is not likely to materialize. 4.03 With the coming on stream of the new Mogadishu refinery in mid-1978, the Governmentdecided on the partial use of the third general cargo berth for tanker berthage until the new tanker terminal is completed in October 1980. IDA's July 1978 supervisionmission reported that oil handling installations and fire fightingtowers at the third cargo berth will seriously limit the use of this berth for general cargo handling. This limitationwill be removed when the new tanker terminal financedunder IDA Credit 838-SO is constructed. 4.04 No operationaltargets were establishedin the originalproject but the productivityassumptionsof 12 tons per gang hour and three gangs per ship which were used for the extensionproject seem to be in line with the actual operationsas observed shortly after the new port was commissioned. V. FINANCIAL PERFORMANCEOF THE BORROWER 5.01 Income statements and balance sheets of the Somali Port Authority (SPA) are shown in Annexes 4 and 5. SPA's operating results have been satis- factory and have provided a dependablesource of revenue for the Government. Under Credit 359-SO, SPA was required to produce a 5% return on net fixed assets; however because of the higher investmentcosts connectedwith the 1/ The diversion actually started in 1979.  - 16 - addition of a third general cargo berth under the IDA financedextension project (Credit 586-SO),the above rate was reduced to 4.5% for 1977, though retained for subsequentyears. The 5% rate is also a requirementunder the ongoing project (Credit838-SO for the Mogadishu Tanker Terminal). The return so far achievedhas exceeded 5% in every year. 5.02 According to Law No. 58 of July 31, 1972, relating to the finances of Public Enterprisesand Agencies, SPA is obligated to make the following remittances 1o the Government: (a) Turnover Tax: The percentageto be assessed on turnover is fixed by the Finance Minister each year. For SPA this has resulted in an annual impositionof 5% on gross income. (b) Share of Profit: Net income is first computed after allowing for provision for depreciation, bad debts and turnovertax. Then appropriations are made for staff bonus and welfare funds (15%) and for SPA's own capital investments (excludingthose financedby centralized capital funds). The remainder is transferredto the State Budget. (c) DepreciationFund: The Minister of Finance determines annually the percentage of SPA's annual depreciation provisionwhich SPA is to transfer to the State Budget as its share of the national depreciation fund for development. In 1973 and 1974 it varied between 50% and 60% of SPA's annual depreciation provision,but from 1975 onwards the Ministry of Finance has been allowing SPA to keep the full depreciation provision for purposes of funding SPA's own annual routine capital investments. meeting these obligationsto the Governmentevery SPA has been satisfactorily year. 5.03 SPA introducednew tariffs effectiveDecember 1, 1977 as a result of tariff revision studies undertakenby the consultants (Price Waterhouse Associates,UK) under the project. The tariffs that existed prior to the revisionwere unchanged from 1970, and were not based on costs. The tariff studies undertakenby the consultantshad as their objectives: (a) the recoveryof the financialcosts; (b) the matching of cost and revenue cash flows in such a way as to maintain adequateliquidity; (c) the productionof at least a 5% annual rate of return on net fixed assets; and (d) the developmentof adequate financial resourcesfor further investmentand maintenancerequirements.  -17 - SPA followed the recommendations of the consultants in general, although in the case of a few items where the rates proposed by the consultants were relatively high, SPA lowered the range within acceptable levels. SPA's contention was that the consultants failed in some instances, to take into account market considerations involved in implementing a new tariff system. SPA's concern was that any immediate higher rates without better quality of service would be unreasonable, but it has given assurances that as the expected operational improvements take place, particularly in the new Mogadishu port, they will restudy the tariff situation and introduce such changes as are necessary to maintain and improve its financial performance. 5.04 The new tariffs basically meet the terms of Section 4.04 of the Project Agreement which require that: (a) tariff revisions would be made by January 1, 1976 (delayed by 23 months); (b) separate rates would be set for individual opera- tions; (c) the same rate would be applicable to all ships and traffic; and (d) the tariffs would be based on, and cover not less than, the economic costs of providing the services or facilities, and would take into account the desirability of ensuring that economic benefits (particularly those enjoyed by ships) resulting from the port investments accrue to the economy of Somalia. 5.05 The Ministry of Finance decided to treat as direct revenue to the Government the earnings from Harbor Tax C.1-1/2%on ad valorem) effective 1972, and the Anchorage charges (So.Shs. 0.60 per arrival per net Registered Tonnage 30 days) and Accostage charges (for berthage So.Shs. 0.10 per foot per hour) effective 1975. While the principle of denying SPA the income from the Harbor Tax has been accepted by the Association (this was forecast in the Appraisal Report for Credit 359-SO), the reason for treating the income from Anchorage and Accostages charges as direct revenue to the Government was questioned by the Bank staff, the latter two services involving some outlay on the part of SPA. Although the Government seemed to agree in principle, no action was taken, but with the revised tariff structure this problem has disappeared. 5.06 SPA's fixed assets were revalued in 1977, and it is expected that the new values, together with investment costs of the Mogadishu port project will be incorporated in SPA's fixed assets and depreciation accounts for the year 1978. 5.07 As the income statement shows SPA earned annual rates of return on net fixed assets of 9.0% in 1974, 13.4% in 1975, 5.3% in 1976, and 5.7% in 1977. The higher returns in 1974 and 1975 were due to the considerable increase in bagged cargo imports in connection with the urgent drought relief measures undertaken during those years.  - 18 - 5.08 SPA's financialcondition is good. Its cash holdings as at December 31, 1977 amounted to some So.Shs. 7.1 million which is expected to be sufficientto finance most of its routine investmentand maintenance requirements. VI. INSTITUTIONALDEVELOPMENT Intended InstitutionalDevelopment 6.01 The main problems identifiedin the appraisal reportswere as Eollows: (a) shortcomingsin efficiencyand effectivenessof SPA management; (b) the failure on the part of SPA to benefit fully from the accountingsystems introducedand the staff train- ing undertakenby the accountingconsultants provided under Credit S5-SO. The principal reasons were: (i) a lack of understandingand interest in the use and value of management informationsystems and sta- tistical data on the part of SPA's management; (ii) the transfer of trained accountingand statistical staff to other posts; and (iii) failure to appoint a qualified and experiencedfinancial director. Also the need for an integratedfinancial and management accountingsystem which takes into account the iden- tificationof cost centers and the determination of costs related to various services providedby SPA. The existing documentation and informationsystems were unsatisfactory as they did not provide the neces- sary cost data on the principal facilitiesand services used by ships and cargo respectively. This was accepted and agreed as part of the management consultants' work program under the project; (c) the lack of comprehensive port regulations. The Govern- ment was to issue them before December 31, 1973; (d) the introductionof trainingprograms. Accepted and agreed as part of the managementconsultants'work program; (e) need for improvementof audit practicesemployed by the Magistrateof Accounts; (f) the absence of insurancecoverage for SPA's assets and public liabilities. SPA was to obtain insurance by March 31, 1974.  - 19 - 6.02 The conditionsof effectivenessfor Credit 359-SO were the execu- tion and delivery of the CommissionAgreement (FED financing agreement)and the IDA Credit, Project and SubsidiaryLoan Agreements. The effective date was set as July 20, 1973, and the credit became effective on September 10, 1973. 6.03 The Mogadishu Port ExtensionProject (Credit 586-SO) was identi- fied and prepared during the supervisionmissions for the ongoing project under Credit 359-SO. This resulted in a desk appraisal. The financingwas arrangedwithout FED participation, the total cost of US$6.45 million being shared by IDA (US$5.20million) and the Government (US$1.25million equivalent). Most of the weaknesses identifiedearlier and listed above continuedto exist in SPA. In an attempt to remedy this, management consultantswere appointed in April 1976. The credit was approved on September11, 1975 and became ef- fective on January 15, 1976. Actual InstitutionalDevelopment 6.04 SPA's chief executivesare a President and a General Manager. Their responsibilities are to some extent duplicatedand although this has not caused any overt conflict, the lines of demarcationare vague and inhibit the orderly functioningof SPA. The management continuesto be weak in areas such as plan- ning, informationsystems and accounting,and there is a clear need for inject- ing sounder managementpractices in controllingand directingSPA's activities. 6.05 SPA's functionalactivitiesare organizedunder four departments, namely, Technical,Planning and Coordination, Administration and Finance, and Personnel. The planningactivity is limited to annual investmentprograms for equipment purchasesand minor constructionand maintenanceworks. Port managers of the four major ports report directly to the General Manager. 6.06 As requiredunder the project, the management consultantswere ap- pointed in April 1976, the costs of the consultants'servicesbeing jointly financedby FED and IDA. Because of FED's special terms for the financing of consultantsselectedfrom EEC countries,there were considerable delays in paying the consultantsfor their services (the contractfees were expressed in US dollars as against the FED requirementof expressingthe fees in one of EEC currencies). The consultantshad to wait for six months to obtain their initial payment from FED. 6.07 The consultantswere required to recommend and implementnew and improvedmethods in the followingareas: (a) port operationsand operationalplanningprocedures; (b) tariffs; (c) financialand managementaccounting; (d) cost accounting;and (e) revaluationof fixed assets.  - 20 - Their recommendations were sound, but because of the unavailability of suit- able staff in sufficientnumbers (as a result of the exodus of educatedand skilled Somalis to the neighboringoil producing countries),the successful implementation of these recommendations was put under serious jeopardy. There- fore under the new Ports IV Project (Credit838-SO for Tanker Terminal) SPA has been required to appoint by January 1, 1979 a recognizedport management expert to advise and assist in the satisfactoryimplementation of the consult- ants' recommendations and an appropriatetraining program. FED has agreed to finance the expert's services for a period of two years. 6.08 Port regulationswere issued by SPA on April 15, 1978. There is room for improvementof this document, but it is acceptableas a starting point. 6.09 SPA has been maintaininga simple double entry bookkeepingsystem. The consultantsattempted to introducean improvedfinancial and cost accountingsystem based on the followingplan: (a) developmentof a monthly management accountinginforma- tion system which includesstatementscovering each port such as port operatingresults,port profit center summaries,etc.; (b) developmentof consolidatedfinancial statementsfor SPA as a whole such as balance sheet, operatingresults, profit center summaries,return on assets employed, cash flow report, etc.; (c) development of new and improvedaccountingproceduresto enable the preparationof the foregoing statements. This involves the introduction of appropriatefinancialand cost accountsclassifications(balancesheet, and profit and loss accounts, cost/profitcenters, etc.) and monthly closing of accounts; (d) identification of staffing needs and the trainingof staff; (e) recognitionthat there is no valid case for introducing mechanizationat the present stage; (f) introductionof budgetary controls and responsibility accounting; (g) developmentof fixed asset and depreciationrecords; and (h) revaluationof assets. 6.10 The IDA supervisionmission of December 1976 found the above approach to be satisfactory. The mission, however, drew the attention of the Governmentand SPA to the following problemsand urged the need for corrective action. The mission's report dated February 3, 1977 states:  - 21 - "Ca) the consultantshave so far not laid sufficientstress on the introductionof analyticaltechniquesfor the proper evaluationof the management informationsystem; and Eb) there is a strong possibilitythat the consultants' expectationsthat SPA staff will carry out a large part of the basic work involved in developingand implementing the accountingand informationsystems will not material- ize. While the consultants' approachwould be practicable in many other countries,it will not he realistic to expect much contributionfrom local staff because of the present acute shortage of individualswith even the bare minimum of education to functionwell in junior office positionsin Somalia generally at the present time. Thus there is a strong likelihoodnot only of the progress of the consultancywork falling behind, but also of the trainingaspect of the program not being fulfilled. SPA and the Governmenthave promised to do their best to find suitable staff as counterpartsand trainees,but the basic problem is that a large number of both skilled and unskilled Somalis are finding employmentin oil-rich neighboringArab countries,particularlySaudi Arabia." 6.11 The most recent supervisionmission (July 1978) reportedas follows on the general situationin SPA. (It should also be noted that during the mission several of SPA's senior officialswere away from Mogadishu attending seminars or courses): "The Ministry of Public Works (MPW) took the initiativeto arrange a general meeting of representatives of SPA, the Mogadishu Refinery, the contractor,the engineeringconsultantsfor the new Tanker Terminalproject, the FED and the IDA. Several problems of common interestwere discussed,chief among which are as follows: (a) the quay wall protection fenders at the new Mogadishu port which have been designed for ships up to 15,000 tons, are inadequateto withstand pressures generatedby ships (of up to 20,000 tons) that have been calling at the new harbor. SPA and the contractoragreed to look into the problem and devise strongerand safer fenders; (b) the Mogadishu refinery is expecting a 52,000 ton tanker to arrive around mid-August1978 to discharge 36,000 tons of crude. As mentioned earlier fenders protectingthe quay at the new Mogadishu port are quite inadequate,and they will not be able to withstand pressures that will be produced by a tanker of such size. The meeting recommendedthat the refinery should request the crude oil suppliers to send two or three tankers of smaller size rather than the one big tanker;  - 22 - (c) the refinery constructioncontractorwho has been responsiblefor laying the pipe through the quays to the third general cargo berth at the new Moga- dishu port apparentlydamaged the filter system of the quays as well as electricaland other installa- tions. This has resulted in some subsidenceof the quay surface, and about half of the lighting is not working. SPA and the MPW would ensure that the re- finery contractorcomply with their undertakingto restore the quay structuresand installationsto their original condition; (d) the oil handling installations and fire fighting towers of the third berth will seriously limit the use of this berth for general cargo handling. The officials agreed to look into the question of im- proving the utilizationof valuable berth capacity; and (e) various Governmentofficials,as well as the local FED representative have been expressingsome fears about the advisability of locating the proposednew tanker terminalon the landsidenorth of the Mogadishu port, which is so close to the city. The consultants pointed out that the danger of explosion of crude oil tankers is not unduly serious and that tankers carry- ing productsare too small to be dangerous to the city. ReportedlySPA is purchasinga salvage vessel costing about So.Shs. 18 million. The mission has not been able to obtain of- ficial confirmationof this but wonders whether sufficientatten- tion has been paid to the economics and the technicalitiesof the operation and maintenanceof such a specializedvessel. The Back-to-Office Report dated June 27, 1978 of a previous super- vision mission referred to undesirablepracticesregarding cargo handling operationsand storage at the new Mogadishu port. Al- though some minor improvementshave been observedin one of the sheds, the general situationremains one of inadequateorganiza- tion and managementof cargo handling and storage. SPA's management continues to suffer from lack of adequate planning and professionalcompetence. The need for the port management expert, emphasizedduring the tanker terminalproj- ect appraisal,is urgent. There is also urgent need for a qualifiedmanagementaccountantto run the accountingand manage- ment informationsystems on a current and thoroughbasis. The maintenanceof accounts and traffic statisticson a currentbasis for calendaryear 1978 has not yet begun. FED is financingthe port managementexpert. Provision should be made to finance the position of managementaccountantfrom IDA-financed Technical AssistanceProject."  - 23 - 6.12 SPA has not prepared any trainingplans or conductedany training programs,even though it has difficultyin finding the staff with at least the basic minimum skills as do most other organizations in Somalia. Th-L man- agement consultancyservices providedunder the project included so-Due training elements; however, because of shortageof suitablestaff, the training could not be satisfactorily carried out. SPA's personnel departmentshould actively cooperatewith appropriatetraining institutions in the country for securing good candidatesfor employmentand take the initiativeto arrange selective training for its staff, utilizing existingovercapacityof these institutions. It was,therefore,a requirementunder the new Ports IV Project that SPA should prepare a trainingprogram in consultation with the port management expert and the Association for implementation not later than June 1, 1979. FED is cur- rently financinga trainingprogram for pilots and harbor tug captains. 6.13 SPA is currently in the process of recruitinga port management ex- pert to be employed for a period of two years. 1/ The financing is provided by FED. 6.14 SPA's audit by the Magistrateof Accounts (MOA) is judged to be un- satisfactory;the audited statementsfor 1975 and 1976 were found to contain some arithmeticalerrors; and they have been received by IDA some 14 to 20 months late. The audit practices employedby MOA were reviewedby the Bank Group's Director of InternalAudit, who has recommendeda plan of action through technicalassistanceand training. The Director'sreport dated Nov- ember 10, 1978 has listed problemsand the correctiveaction required not only for the MOA, but also for the developmentof an accountingprofessionin Somalia. 6.15 After a delay of some four years, SPA finally obtained satisfactory coverageof its major insurablerisks such as fire, damage and loss of property, and third party liability. VII. ECONOMIC REEVALUATION 7.01 The new port started full operations in late 1977, which began generatingbenefits as envisaged in the appraisal reports. The economicre- evaluationconsiders actual project costs adjusted to 1978 levels, and bene- fits calculatedon the basis of I actual . and forecast traffic. 7.02 At the time of appraisalof the original port project, the esti- mated economic return compared to a continuedlighterage6perationwas 15% based on benefits from: (a) shipping surcharge savings 53% (b) reduction in cargo losses 33% (c) import diversion (Kismayo) 6% (d) banana export cost savings 6% (e) livestock diversion (Berbera) 2% 100% 1/ His employment actually started in January 1979.  - 24 - 7.03 For the port extension project the estimated economic return was 20% based on benefits from reduced ship waiting time with three general cargo berths compared to the original port project with only two berths. 7.04 The analyses of the two projects was thus different. However, at the time of appraisal of the port extension project a calculation of the economic return for both projects combined was made which resulted in an economic return of 16% based on the same methodology applied for the first project. 7.05 Since it is impossible to distribute the benefits between the original project and the extension project the present analysis considers the two projects as one port project, which incidentally corresponds to the physical implementation of the two projects. 7.06 The phasing of the actual total costs of the projects has been esti- mated based on actual disbursements. Any balance between total actual cost and the total cost so estimated has been allocated to 1978. The costs have been expressed in 1978 prices using the following rates of inflation: Rates of Inflation (%) Year Local Foreign 1973 18 10 1974 19 18 1975 8 16 1976 17 14 1977 11 9 A shadow rate of 1.43 has been applied to the foreign exchange component from 1976 onwards. 7.07 On the benefit side it now appears that banana export cost savings are not likely to materialize in the foreseeablefuture and the livestockdiver- sion from Berbera also appears dubious. The so-called banana berth is, however, used as a general cargo berth and thus generatesfull benefits from reduced ship waiting time. The livestockberth on the other hand may not generatethe expectedbenefits and no immediatealternativeuse is envisaged. However,no separaterate of return was calculatedfor the livestockberth and since its appraised benefits for 1977 accounted for only less than two percent of the total benefits its impact on the overall economicreturn of the project is negligible. The other more importantbenefits from shipping surcharge savings, reduction in cargo losses, and import diversion remain and have been evaluated along the same lines as in the original report i.e. compared to ,a lighterage operation. 7.08 The shipping surchargesimposed were a result of excessive ship waiting time due to the unprotectedanchorageand inefficientlighterageoper- ations and although not yet lifted completely (partlybecause the third berth is also used for oil tanker traffic) they are expected to have been a lot higher were it not for the introductionof the new port facility. For the evaluation of this benefit the surcharge in the original report has been adjusted for inflation to 1978, as above, yielding an average surcharge of US$13.30 per ton of dry cargo.  - 25 - 7.09 Similarly the cost savings from reduced cargo losses are estimated at US$8.61 for imports and US$4.12 for exports. Finally, the diversion of imports from Kismayo to Mogadishu is estimated to yield US$27.60 per ton. This saving is applied against an estimated traffic of 14,000 tons in 1977 increasingto 27,000 tons by 1986 and beyond. 7.10 Based on the above, the following table of costs and benefits has been produced. Benefitsare kept constant from 1984 onwards since invest- ments in additionalberths will then be economicallyjustified. (US$ '000) Cargo Damage Project Surcharge and Loss Kismayo Net Year Costs Savings Reduction Diversion Benefits 1973 6,048 ( 6,048) 1974 7,015 ( 7,015) 1975 10,434 (10,434) 1976 10,645 (10,645) 1977 10,480 (10,480) 1978 8,827 4,362 2,766 414 ( 1,285) 1979 4,828 3,045 442 8,315 1980 5,293 3,324 497 9,114 1981 5,892 3,644 524 10,060 1982 6,690 4,048 552 11,290 1983 7,488 4,452 607 12,547 1984 8,286 4,857 662 13,805 to 2016 8,286 4,857 662 13,805 7.11 The resulting economicreturn is 17% or slightlyhigher than when the project was reappraisedin connectionwith the extensionproject. This is due to a somewhathigher actual traffic level than forecastduring the port extensionproject. VIII. THE ROLE OF THE FINANCINGAGENCIES 8.01 The cofinancingwith FED on a fifty-fiftybasis was in the form of joint financing,because more than 90% of the total project costs were for one civil works contract. 8.02 IDA and FED regulationsand practices,as well as their basic at- titudes in the role of a financing agency, particularlyin regard to the re- lationshipto the contractorand the Government,are very different. This has caused a number of problemsbeginning in the early stages of project preparationand continuinguntil after completionof construction. The major problems are summarizedbelow.  - 26 - 8.03 FED has its own (both general and special)conditionsof contract which it required for tenderingand as part of the contract for construction of the port. However, at the time no English-speaking countrieswere members of the European EconomicCommunity,and the FED conditionsof contractwere not available in English, which the Governmenthad specifiedas the contract language. IDA agreed to the use of these conditionsof contract, and the consultantswere requested to translatethe officialFrench version into English. The contract documents expressedin English became the official version and these lacked clarity. 8.04 FED has a Resident Representativewith technical staff in Mogadishu. The requests for IDA reimbursementof half of the paymentsmade by the Govern- ment were processed and certifiedby this local FED staff, which was no doubt an advantage for IDA. 8.05 FED and IDA policies and proceduresdid not always coincidein regard to their involvementin the physical implementationand, therefore, IDA's role has been difficult. Nevertheless, we do believe that our super- vision staff has provideduseful technicalassistanceto the MPW and SPA. IX. CONCLUSIONS 9.01 IDA's involvementin the developmentof the ports subsectorin Somalia is a necessary and unique role. The Ministry of Public Works (which is responsiblefor constructionof infrastructure projects) appears to have placed considerabletrust in the Associationnot only in its capacityas a financing agency, but also in the role of an objectiveadviser. This has served the country well so far in making the right type of decisions,and in avoiding unnecessaryinvestmentsin the ports subsectorof the type it can ill afford. 9.02 The Somali Ports Authority needs further strengthening as the man- ager of the country'sports. It is true that the importantports of the country are operatingwithout major mishaps and glaring inefficiencies, but there is room for much managerialimprovement. It needs help, particularly in areas such as planning,informationsystems, accounting,and coordination with interestedagencies such as the Ministry of Public Works. There is a continuinglack of understandingof the use and value of management informa- tion systems and statisticaldata. The shortage of trained staff, partic- ularly in the accountingand statisticalareas, is a serious problem. Fi- nally, some of the staff appear to lack motivation to produce satisfactory work. These problems can be alleviatedin the long term by providingbetter management and accountingeducation in the country,and also by improving the remunerationscales of staff, especiallythose employed in the parastatal bodies, so as to attract and retain competent staff. At present,many of the educatedand skilled staff continueto seek employmentin oil-richArab coun- tries. Thus there is a shortageof educated and skilled individualsin the country. For the short term as far as SPA is concerned,the recently approved Ports IV Project, which provides for the appointmentof a port management ex- pert and the preparationand implementation of a trainingprogram, should help  - 27 - to overcome its deficiencies. A recent UNDP report issued in January 1979 by its shipping and ports adviser enumeratesmore or less the problemsmen- tioned earlier in this report and also endorses solutionsalong the same lines as recommendedby the Bank staff. 9.03 Also the Governmenthas given insufficientthought to the advance planning for the provision of berthing facilitiesfor oil tankers that are expected to carry the crude and refined products for the new Mogadishu re- finery. This has resulted in the hasty conversionof the third general cargo berth to a specializedberth for use by tankers, thus seriouslylimiting its originallyintended purpose.  PROJECT COMPLETION REPORT SOMALIA - MOGADISHU PORT PROJECT AND PORT EXTENSION PROJECT (CREDITS 359-SO AND 586-SO) Actual and Expected Project Implementation Percent of the Works Dates of Completed Beginning Completion By Expected Project Bid Receipt Contract Award of Work of Work Completion Component Nationality Actual Expected Actual Expected Actual Expected Actual Expected Date Civil Works Italian 1/4/73 12/18/72 2/73 2/73 3/73 4/73 10/77 1/77-/ 80% co 1/ Including port extension project. Source: Bank staff December 1978  PROJECT COMPLETION REPORT SOMALIA - MOGADISHU PORT PROJECT AND PORT EXTENSION PROJECT (CREDITS 359-SO AND 586-SO) Actual and Appraisal Estimates of Project Cost So. Shs. Million Actual Cost Appraisal Estimate of Cost Actual Cost as a Proportion of: Appraisal Project Contract Estimate Contract Component Local Foreign Total Amount Local Foreign Total of Cost Amount (1) (2) (3) (l).t(3)xlOO (1)+(2)x100 1. Civil Works a. Original Project 30.9 150.8 181.7 96.5 31.8 134.6 166.4 1.09 1.88 b. Extension Project 7.4 30.7 38.1 None-/ 7.8 32.8 40.6 0.94 2. Port Operating Equipment - 4.2 4.22/ - - 4.2 4.2 1.00 3. Technical Assistance 0.1 1.9 2.0 2.0 0.1 1.9 2.0 1.00 1.00 TOTAL 38.4 187.6 39.7 173.5 213.2 1.06 1/ Extension was ordered under original contract, which provided for additional works. 2/ Only part of cost of one harbour tug was financed under IDA Credit and FED Grant. Source: Somali Ministry of Public Works and Bank Staff. March 1980  PROJECT COMPLETION REPORT SOMALIA - MOGADISHU PORT PROJECT AND PORT EXTENSION PROJECT - CREDITS 359-SO AND 838-SO Actual and Forecast General Dry Cargo Traffic 1973-1977 ('000 Tons) 1973 1974 1975 1976 1977 1979 Actual Actual Actual Forecast Actual Forecast Actual Forecast Actual Forecast Mogadishu Port Inbound 188.1 233.0 353.31/ - 297.8 - 316.0 253 .02/ 357.0 277.0 Outbound 31.6 26.7 20.8 - 12.4 _ 12.5 129.0?-/ 77.8 177.0 Total 219.7 259.7 374.11/ - 310.2 - 328.5 382.O= 434.8 454.0 Forecast General Dry Cargo Traffic 1980-1984 3/ ('000 Tons) 1980 1981 1982 1983 1984 Inbound 375 405 440 475 510 Outbound 23 38 63 88 113 Total 398 443 503 563 623 1/ Includes some 80,000 tons of drought relief shipments. 2/ From Credit 359-SO. 3/ From Credit 838-SO. April 1980  PROJECT WMIE.ETION REPORT SOMALIA - MGADISHU PORT PROJECT AND PORT EXTENSION PROJECT - CREDITS 359-SO AND 586-So Actual and Projected Balance Sheet (under Credit 359-SO) of the Somali Ports Authority (SPA) Expressed in thousands of Somali Shillings (So.Sh.) 1972 1973 1974 1975 1976 1977 As at December 31, Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Assets assets 1/ 8,453 7,334 7,543 27,461 7,767 28,620 8,327 15,607 9,092 16,000 Current fixed assets 134,098 173,929 222,139 138,589 270,349 146,746 284,859 157,794 278,241 149,284 Net Deferred charges 3.353 3.201 3.049 2.897 _ 6077 5.789 Total 145,904 184.464 232.731 166.050 281.013 175.366 299.263 173,.401 293.122 165,284 Liabilities Current liabilities 2/ 464 1,146 6,491 4,000 debt 59,596 76,565 98,382 1,052 120,199 5,861 128,167 9,695 123,579 5,000 Long-term Equity 86.308 107.899 134.349 164.534 160.814 168.359 171.096 157.215 169.543 156.28 Total 145904 1 464 232731 166.050 281.013 175,366 299.263 173.401 293.122 165.284 1/ Excluding accounts receivable, which is not accounted for. 2/ Not provided for in the appraisal forecast. Sources: Bank Appraisal Report, SPA's Financial Statement December 1978 I  REPORT PROJECT COMPLETION SOMALIA- MOGADISUU PORT PROJECT AND PoRT EXTENSIONPROJECT - CREDITS 359-SO ANB 586-So Actual and Proiected Income Statement (under Credit 359-SO) of the Somali Ports Authority (SPA) Expressed in thousands of Somali Shillings (So,Sh. For the year ending December 31, 1972 1973 1974 1975 1976 1977 Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Appraisal SPA's Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Forecast Accounts Operating Revenues Ships' dues 1,066 1,147 1,231 3.318 1,317 1,934 2,627 1,156 13,685 1,800 Stevedoring 3,753 3,999 4,245 6,503 4,527 7,948 4,812 6,636 5,415 8,000 Lighterage and store handling 19,448 20,784 22,206 24,207 23,848 31,588 24,909 26,117 27,539 28,000 Storage 1,275 1,365 1,450 5,615 1,557 7,545 1,730 7,846 1,890 6,200 Miscellaneous 104 1 0 116 467 122 772 128 647 135 700 Harbour tax 7.455 8,155 8.755 9.275 9,795 Total 33.101 35.560 38.003 40.110 40.646 49.787 44.001 42.402 48.664 44.700 Operating Expenses Labour costs 11,327 12,267 13,249 11,356 14,353 11,522 15,436 10,146 17,481 10,500 Maintenance and administration 7,023 7,374 7,744 11,636 8,132 14,368 8,132 17,449 9,215 18,700 Depreciarion 53037 5.037 5.072 4.668 5.072 4.714 6.239 6.769 7.406 6.800 Total 23.387 242678 267065 .660 27557 30.604 29.807 34.364 34.102 36.000 Net Operating Income 9,714 10,882 11,938 12,450 13,089 19,183 14,194 8,038 14,5 2 8,700 Operating Ratio (7.) 71 69 69 69 68 61 68 81 70 81 Return on Net Fixed Assets (7) 9.0 13.4 5.3 5.7 Sources: Bank Appraisal Report, SPA's Financial Statements December 1978  - 33 - ANNEX 6 PROJECT COMPLETION REPORT SOMALIA - MOGADISHU PORT PROJECT AND PORT EXTENSION PROJECT CREDITS 359-SO AND 586-SO Actual and Appraisal Expectation of Project Financing Expressed in thousands of Somali Shillings (So.Shs.) Local Currency Foreign Currency Appraisal Appraisal Source of Funds Actual (%) Expectation (%) Actual (%) Expectation (%) European Development Fund 17.5 (45) 15.9 (40) 77.6 (41) 70.4 (41) IDA 12.2 (32) 16.0 (40) 104.8 (56) 103.1 (59) Government 8.7 (23) 7.8 (20) 5.2 (3) - (0) Total 38.4 39.7 187.6 173.5 March 1980  SOMALIA GENERAL PLAN OF MOGADISHU HARBOUR ----- BUOY t-i TANK FAR Ui ' tX .SS ~~~~~~~~GENERAL CARGOBERTHS|. ' '12 /\ = 14 / WorlWR.Ok - IBUB  I B R D 15101 (PPA) JLNE 198i ,PEOPLE'S DEMOCRATIC OF YEMEN REPUBLIC -1 2- /DJIBOUTI /o 'o Bereda ! 2- DJIBOUTI I .'A Seyla Adado Bosaso A .>! i M oit < l+(t \' iil.~Mat 9 V . ~~~~~Berbero g gavoi r LzD .( A ., -. , ,, '\: usciu: Tug to oe o - An e e tuogoi+Fal Gar O Bender Buroo t t Beile r ogol\* s \; ML -- -- t; \ -41 sr-cr x ,.hleh \Ai,,o.\ .'b Las Anod / . hot~~~holeh Wein oe SOMAALIA PORTPROJECT MOGADISHU PROJECTPORT IlTUMINOUSSURfACED ROADS ;CA.A TO^1 GRAVEL/EARTH SUiRFACEDROADS ;: MAJOR PORTS DOMESTICAITRFIELDS * INTERNATIONAL AIRFIELDS i RIVERS -ISTRICT BOUNDARIES REGION BOUNDARIES INTERNATIONAL BOUNDARIE S / .: eBele inE Bur f ,oEI 0 onn aBurt <, ooT0 5,0 0O0 150 200 50 0 30 2 # \Lbo BonkoelesYKLOMETERS , - f -Azdinlet <~~BrAkobo. F .X :. ;. ) ~~~~~~_ - ~Jowhor r 'c dD~~~~~i \ nsor ABard~~Orere >\ w fo l 7...C7aC @ 52 0wo oo evt hd onare &sr n nreel SC uqes \t~~ Golvey gnn~~ole .1E ACGADIiSHU 4 '*MOGADISHU IAA.R. fi-- E K SA U DI A RA B IA < /KoE |._ _ +sK elromo .. ,sayo g '~ ~ B:.nk.~ ~ ~ ~,.: ~ ~ ~ N~ ~ ~ ~ .ugioaSt UAD 5UDA N92HN UJ Bele~~s \ . DJ180UT/ OR, \Badode y . t¢.' 0m E T H I 0 PI A 4 \GobNZ. UGANDA .44 *0' r , KENYA X~~~~~~~~~~4 48' TAN2ANIA