Senegal - Dakar Container Port Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4625-SE STAFF APPRAISAL REPORT SENEGAL DAKAR CONTAINER PORT PROJECT March 29, 1984 Western Africa Projects Department Transportation Division I 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.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1 = CFAF 392 CFAF 1 m = US$2551 SYSTEM OF WEIGHTS AND MEASURES (METRIC) Metric British/US Equivalent 1 meter 3.28 feet (ft.) 1 square meter (m2) = 10.76 square feet (sq. ft.) 1 cubic meter (m3) = 35.50 cubic feet (cu. ft.) 1 kilometer (km) = 0.62 mile (mi.) 1 square kilometer (km2) = 0.39 square mile (sq. mi.) 1 hectare (ha) = 10,000 m2 = 2.47 acres 1 metric ton (t) - 2,205 pounds (lb) ABBREVIATIONS AND ACRONYMS ACC Agent Comptable Central BADEA Banque Arabe pour le Developpement Economique en Afrique BMOP Bureau de Main d'Oeuvre Portuaire BOM Bureau d'Organisation et Mejthodes CCCE Caisse Centrale de Cooperation Economique CEP Centre des Etablissements Publics CIF Cost, Insurance and Freight, CVCCEP Commission de Verification des Comptes et de Contr5le des Etablissements Publics DSP Directorate of Studies and Programming, Ministry of Equipment DWT Dead Weight Ton EPIC Etablissement Public a Caractere Industriel et Commercial GNP Gross National Product GRT Gross Registered Tonnage ICS Industries Chimiques du Senegal INNA/DPB Association Internationale des Aides a la Navigation/Direction des Phares et Balises (France) KF Kuwait Fund for Arab Economic Development KfW Kreditanstalt fUr Wiederaufbau (German Aid Agency) LCL Less Than Container Load LLW Lowest Low Water PAD Port Autonome de Dakar PAM Port Autonome de Marseille RCFS Regie des Chemins de Fer du Sen6gal SEFICS Societe d'Exploitation Ferroviaire des ICS SEMPAO Syndicat des Entreprises de Manutention des Ports d'Afrique Occidentale TEU 20' Equivalent Unit Container FISCAL YEAR of PAD July 01 - June 30  FOR OFFICIAL USE ONLY SENEGAL DAKAR CONTAINER PORT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. INTRODUCTION ............................................ 1 II. THE TRANSPORT SECTOR .................................... 2 A. General ............................................. 2 B. Sectoral Context .................... . 2 C. Sector Planning and Investments . . 4 D. Bank Assistance to the Sector ....................... 5 III. THE PORT OF DAKAR ....................................... 6 A. Port Facilities and Operations . . 6 B. Stevedoring Companies .. 9 C. Traffic - Past and Present . . 10 D. Port Authority of Dakar . . 12 IV. THE PROJECT .17 A. Objectives and Concept . .17 B. Project Description ..18 C. Cost Estimates ..20 D. Financing Plan ..21 E. Project Implementation and Reporting . . 23 F. Procurement and Disbursements ...................... 24 G. Action Plan ..27 H. Environmental Impact ..27 This report was prepared by Messrs. H. Levy (Economist), R. Venkateswaran (Financial Analyst), and R. Scheiner (Engineer) on the basis of an ap- praisal mission in April/May 1983. It was typed by Miss M. E. Houle and Mrs. L. Juskalian. 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.  - ii - Table of Contents (continued) V. ECONOMIC EVALUATION ..................................... .28 A. Project Objectives .28 B. Traffic Forecast .28 C. Alternative Terminal Locations .30 D. Project Benefits .30 E. Economic Return, Sensitivity Analysis and Risks 32 VI. FINANCIAL EVALUATION ....33 A. Recent Financial Performance and Current Financial Position ....................... 33 B. Financial Objectives and Targets.. 37 C. Forecast Financial Performance ....................... 40 VII. AGREEMENTS REACHED AND RECOMMENDATION .....49 ANNEXES 3-1 Port Traffic: Actual 1973-1982 and Forecast 1985, 1990, 1995 3-2 PAD Organization Chart 4-1 Project Cost Estimate 4-2 Project Execution Time Schedule 4-3 Disbursement Plan 4-4 Estimated Disbursement Schedule 4-5 Plan of Action 5-1 Forecast of Containerizable Traffic 5-2 Forecast of Containerized Traffic by Zone 5-3 Forecast of Container Traffic at Dakar by Type of Ship in 1985 5-4 Containerization Rates: Actual 1980 and Projected 1985, 1990, 1995 5-5 Container Traffic at Dakar Port: Actual 1980-1982 and Forecast 1985, 1987, 1990 and 1995 5-6 Alternative Locations of New Container Terminal 5-7 Key Data for Economic Evaluation 5-8 Costs and Benefits for Economic Evaluation 5-9 Rate of Return Sensitivity Analysis 6-1 PAD - Forecast Income Statements 6-2 PAD - Statement of Source and Applicat:ion of Funds 6-3 PAD - Forecast Pro Forma Balance Sheet MAPS IBRD 17165 Port of Dakar -- Existing Porlt and Approaches IBRD 17166 Project Detail  - iii - Senegal Dakar Container Port Project DOCUMENTS CONTAINED IN TIHE PROJECT FILE File Code 1. Report by consultant, Mr. Francis Lefebvre, Senegal - Ports (3) dated September 2, 1982. BTO - Corres. File 2. Report by consultant, Mr. Francis Lefebvre, Senegal - Ports (3) dated January 18, 1983. BTO Corres. File 3. Feasibility Study, "Etude du Terminal ai Conteneurs et du Schema Directeur du Port de Dakar," by Port Autonome de Doc. # 220-033 (Al-A8) Marseille/GETRAM, dated March 1981 (six volumes and one Annex Volume). 4. Complementary Report to the Feasibility Doc. # 220-033 (B) Study, dated September 1982. 5. Complementary Report to the Feasibility Doc. # 220-033 (C) Study, dated January 1983. 6. Port Autonome de Dakar, Statistiques Senegal - PAD - M. Comparees, December 1982. Stat.R., Dec. 1982 7. Statutes of SEMPAO. Doc. # 220-033 (D) 8. Report by Consultants Messrs. Bastard and Rivoal, dated December 1983, "Plan d'action pour l'exploitation du Doc. # 220-285 PAD, Rapport relatif a l'elaboration du plan."  - iv - SENEGAL DAKAR CONTAINER PORT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Senegal Beneficiary: Port Authority of Dakar Credit Amount: SDR 2.6 million (US$2.65 million equivalent) from IDA. SDR 4.7 million (US$4.85 million equivalent) from the Special Fund adminis- tered by IDA. Terms: Standard Relending Terms: At current IBRD interest rate -- 20 years, including four years' grace. Project Description: The project provides for (i) construction of new infrastructure for container handling, including construction of a 430 m long quay wall, reclaiming of an 8.2 ha area for con- tainer handling, and paving and installation of related utilities; (ii) rehabilitation of some port facilities; (iii) consultant ser- vices and technical assistance in project supervision, financial management and opera- tions, information systems and procedures, and tariff and port management studies; and (iv) training of port staff in operations, management and iinance. Benefits and Risks: The quantified economic benefits from the proposed project include savings in ship service time and in handling costs stemming from more effic:Lent operations resulting from the project and avoidance of double handling of containers which would have resulted due to saturation of existing port storage areas. Costs include the physical construc- tion costs, incremental maintenance and all associated capital costs, i.e., project su- pervision, training and studies, representing 90% of total project costs. On the basis of  v a 25 year economic life, the proposed project yields an economic rate of return of 23%. There are no significant economic risks asso- ciated with the project since the larger part of the project construction costs are based upon actual bid prices. Additionally, ade- quate safeguards have been taken to ensure that the new terminal will be efficiently operated and that expected benefits will materialize. On the financial side, the Port's finances are sufficiently robust to withstand reduced levels of tariff charges and a drop in forecast traffic. The base financial analysis has been tested under adverse conditions of traffic, tariff and operating cost changes which show that the downside risk is minimal. The main risk is ultimately institutional in that PAD's in- ternal structure does not develop as envis- aged and that, as a result, PAD's management does not improve to the extent forecast. The provision of technical assistance and the action plan measures to be taken early in the project would minimize this risk. Estimated Cost: ---U$ Millions------ Local Foreign Total i. Civil Works 2.53 9.13 11.66 ii. Consultant Services 0.14 0.99 1.13 iii. Technical Assistance 0.10 1.20 1 .30 iv. Training -- 0.13 0.13 v. Deferred Maintenance 0.44 0.19 0.63 Base Cost (February 1984 prices) 3.21 11.64 14.85 Physical Contingencies 0.43 1.72 2.15 Price Contingencies 0.63 2.00 2.63 Total Project Cost (Net of Taxes) 4.27 15.36 19.63 Taxes and Duties 5.55 - 5.55 Total Project Cost 9.82 15.36 25.18 Interest during Constructi-on 1.23 1.14 2.37 TOTAL Y1XANCIl MEU=ED 11.05 16.50 27.55  - vi - Financing Plan: ----US$ Millions-- Local Foreign Total Special Fund Admuinstered by TDA - 4.85 4.85 TDA -- 2.65 2.65 CCCE 1.8C 4.85 6.65 Kuwait Fuzd 1.C8 3.01 4.09 Total EKternal Sources 2.88 15.36 18.24 PAD 8.17 1.14 9.31 TOT~AL 11.05 16.50 27.55 Estimated Disbursements of Special Fund Administered by IDA: ----------U$ Millions-- FY85 FY86 FY7 FYE Annual 1.4 2.6 0.85 CumlLative - 1.4 4.0 4.85 Estimated IDA Disbursements - ---US$ MiIlions- FY85 FYB6 FY87 F_E FY89 Annual 0.7 1.1 0.6 0.15 0.1 Cunmlative 0.7 1.8 2.4 2-55 2.65 Economic Rate of Return: 23%  SENEGAL DAKAR CONTAINER PORT PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 Dakar has a major international deep-water port. While its important bunker oil traffic dropped sharply following reopening of the Suez Canal, as did transshipments for Nigeria, its general cargo import traffic grew slowly but steadily during the last decade, and container traffic increased some tenfold during the period. 1.02 Because of economic considerations in a highly competitive market, most of the shipping companies, in an effort to streamline opera- tions and reduce costs, are continuing to introduce large fully contain- erized vessels in many of their liner operations from Western Europe, the Mediterranean and the Far East to the West African main ports: Dakar, Abidjan, Lagos, and Douala. These vessels, built in the late seven- ties/early eighties, are likely to continue on this route for the next two decades. Because of the regular and reliable services offered to- gether with freight rates competitive with those of general cargo vessels and lower insurance, an increasing share of general cargo and break-bulk bagged-cargoes is shipped in containers. 1.03 During appraisal of the Port Autonome de Dakar (PAD) Fishing Port Project (Loan 1405-T-SE, US$6 million, 1977), it became apparent that the process of containerization was developing at a very fast pace. Based on experience in other countries, it was already evident that the available port facilities would soon become inadequate to handle container traffic, both from the cargo and the shipping points of view, thus reducing the potential advantage of containerization and adding unnecessary costs to Senegal's international trade. The Loan provided, therefore, some US$250,000 for a feasibility study to assess requirements for container handling facilities. The technical and economic feasibil- ity study for container handling was executed by the Bureau d'Etudes of the Port of Marseille (PAM). The study showed that port facilities, while adequate to serve most general cargo traffic needs, are indeed not suitable to handle containers efficiently. The consultant's final report was issued in January 1983; the total project cost is estimated at US$27.6 million equivalent.  1.04 The Caisse Centrale de Cooperation Economique (CCCE, France) and the Kuwait Fund for Arab Economic Development (KF) have agreed to co- finance the project; the proposed IDA Credit of US$2.65 million would finance only 10% of the project cost net of taxes and interest during construction, and the proposed Special Fund Credit of US$4.85 million equivalent would finance 28% of the same total. Both the CCCE and the KF participated in the project preparation actively, including the appraisal mission during early May 1983. II. THE TRANSPORT SECTOR A. General 2.01 Most of Senegal's 196,000 km2 are in the Sahel Region, with relatively unfavorable climate and soils for agriculture. Despite this, the population of about 6.0 million, growirng at an annual rate of 2.7%, is predominantly rural and 80% dependent on agriculture. Nevertheless, this sector generates only 25% of GDP; the principal crops are ground- nuts, mainly for export, and millet for domestic consumption. 2.02 Senegal's economic growth is hampered by lack of natural re- sources. The country's main foreign exchange earners are phosphate rock --although the price has been depressed for many years--, groundnuts, tourism and fishing. The industrial sector is small, and most consumer goods as well as food products are and will continue to be imported. An important component of the country's GNP has been the transit services to air and shipping lines provided by Dakar, the national capital, strate- gically located in the most western tip of the region. This transit role has diminished since the mid-70s due to the growth of other cities in the region and changes in airway and maritime routes requiring less transit stops. As the GNP has stagnated lately, the income per capita decreased to US$440 eQuivalent. ICS, a major phosphoric acid fertilizer plant pro- ject, is expected to make an important contribution to export earnings when it opens in October 1984, and the only other major export earning potential would be the Miferso iron ore deposits, dependent on favorable world prices. B. Sectoral Context Ports and Shipping 2.03 Dakar has a major international deep-water port in an excellent sheltered location, on the main international shipping routes connecting Europe with West and South African ports and the East Coast of South America. The Port is frequented by many conference lines. These lines, in an effort to streamline their operations and reduce costs, are intro- ducing large container vessels carrying 1,200-1,400 containers in their West African services. The port facilities are adequate to handle most  - 3 - general cargo and bulk traffic, but its limited container handling facil- ities are practically saturated causing inefficient operations. Thus, while there is no ship waiting time, the service times are unnecessarily high. Further, as in other countries, as a result of the imbalanced trade, bagged cargoes, which traditionally were exported in general cargo vessels, are increasingly shipped in containers. Details are provided in Chapter III. 2.04 Coastal shipping, serving the secondary ports at Kaolack, Zi- guinchor and St. Louis, is minimal, to some extent due to limited access, and to some extent due to faster land transport; river navigation is possible during part of the year only, and is also declining as better road connections are developed. Railways 2.05 The Regie des Chemins de Fer du Senegal (RCFS) was developed as a feeder to the Port with two main lines, one to the Mali border and one to St. Louis, and several smaller branches. The railway has gradually lost traffic to road transport; currently, it handles mostly imports for Mali and short-haul phosphate exports, each of these accounting annually for some 140 million ton-km, while only some 10 million ton-km correspond to general cargo and groundnuts. Passenger traffic declined some 70% over the last decade. The railway has major operational problems result- ing in inability to handle all available traffic. While staff numbers have been reduced over the last years, they are still plethoric and earn high and fast-rising salaries which cannot be covered with revenues. 2.06 In response to railway inadequacies, the track to Mali is being rehabilitated under the ongoing railway project, and additional financing is being considered by France (CCCE) and the Federal Republic of Germany (KfW); a Cooperative Management Service with the Malian Government was created to coordinate international services; and the Industries Chimi- ques du Senegal (ICS) created with Bank (IFC) 1/ assistance its own rail- way subsidiary, Soci6te d'Exploitation Ferroviaire des Industries Chimi- ques du Senegal (SEFICS), with rolling stock and locomotives that will lease CFS's track and run its own freight traffic starting in 1984. Mali has included in its 1981-85 Economic Development Plan facilities to adapt the railway to the needs of container traffic. Road Transport 2.07 Some 95% of all domestic transport in Senegal is done by road. Senegal's road network totals some 14,000 km, of which some 3,500 km are paved. Over the last 10 years, with relatively sizeable 1/ IFC Report No. IFC T-369. SENEGAL ICS Fertilizer and SEFICS Rail Transport Projects, May 1981.  - 4 - investments, the road network has become one of the best in West Africa: paved roads increased from some 2,250 km to 3,500 km, and all- weather gravel roads increased from some 2,280 km to 5,500 km. Some 20% of the paved roads are less than five years old and 40% less than 10 years. In parallel, the vehicle fleet has increased to some 65,000 units at about 7% p.a., and used some 7% more fuel every year. Some 80% of the car fleet and 60% of other vehicles are based in Dakar, where about 75% of all traffic originates or terminates; the most trafficked road sec- tion, joining Dakar and the rest of the network through the Cap Vert Peninsula, has reached some 14,000 vpd. Thus the importance of preserv- ing the network and keeping vehicle operating costs to a minimum. How- ever, the Government has been unable to fund properly maintenance activi- ties, and IDA and other agencies are providing assistance in this field under a recently approved Fifth Highway Project. Aviation 2.08 The main international airport at Dakar has had an impressive traffic growth during the 1970s and has been upgraded to handle it; as further growth should be slower, and the trend towards wide-bodied air- craft is expected to continue, the runway capacity should suffice until the year 2000. The traffic is mainly passengers, as freight by ship has a clear price advantage over airborne traffic. The national airline, Air Senegal, provides scheduled flights to 13 domestic airports, the busiest routes being Dakar-Cap Skirring, a touris-t resort, and Dakar-Ziguinchor, Senegal's third largest city, each with some 10,000 passengers yearly. Only two other routes, those to St. Louis and Tambacounda, have more than 1,000 passengers per year. In general, the airline runs a deficit from some low traffic routes imposed by the Government and again, road trans- port has gradually become more and more competitive as roads are improved and services expanded. C. Sector Planning and Investments 2.09 The responsibility for transport planning and coordination is shared by various agencies: the Ministries of Plan, of Equipment, and of Finance. Plan has overall responsibility for the four-year plans, while Equipment acts through its Directorate of Studies and Programming (DSP), and through the Department of Transport. Finance specifies investment ceilings in each mode, structure and level of taxes, collects all tax revenues and payments due to the parastatals, such as the Port, and allo- cates operating funds. Interministerial committees address particular subjects, as road maintenance funding, tariffs of transport services and subsidies. 2.10 A National Transport Plan which contains valuable information was completed in 1981 by the DSP under the Third Highway Project; it identified the priority projects for Senegal in all modes including the  proposed container terminal project and made policy recommendations. The transport system overall can be considered adequate, although qualified staff is in short supply, 2.11 Investments in transport in Senegal absorbed 21% of total pub- lic investment during the Fifth Plan period (1977-81). Road projects accounted for more than 70% of the transport sector investments. The past two Plan Investments were as follows: Senegal - Investnent in Transport during Fourth and Fifth Plans (Millions of CFAF) Ports and Roads Rail Shipping Aviation Total Fourth Plan, 1973/77 (actual investnents) 20,000 4,300 3,200 3,500 31,000 Fifth Plan, 1977/81 (actual investments) 40,245 3,692 8,053 3,403 55,393 The Sixth Plan foresaw a 16% allocation of total investment to the sec- tor, or CFAF 71 billion, but the Plan was significantly scaled down in 1983 since financing was not available and the Government's investment policy has been shifting, with Bank's encouragement, to maintaining as- sets, improving efficiency, and focussing investments on renewals and on projects needed to satisfy rapidly increasing demands and which will not impose a financial burden on the Government. D. Bank Assistance to the Sector 2.12 The World Bank Group has actively helped finance transport investments. Since the start of operations in Senegal in 1966 to date, the Bank Group has invested US$138.6 million under 13 loans/credits, in addition to financing feeder roads under agricultural projects, and mobi- lized considerable cofinancing. There have been five highway, four rail- way, two aviation, and two port projects. Currently underway are two highway and two railway projects. The railways, aviation and port pro- jects were conceived, in addition to helping meet Senegal's domestic transport needs, to support Dakar's role as an international transit point. 2.13 The port projects consisted of the First Dakar Port Project (Loan 493-SE, US$4 million, 1967) to improve infrastructure and opera- tions and the Second Project, the Dakar Fishing Port Project (Loan 1405- T-SE, US$6 million, 1977), cofinanced by BADEA and CCCE, which provided  - 6 - for construction of a fishing wharf and ancillary works, technical assis- tance and studies of the fishing industry and of a container terminal. The Project Performance Audit Report of the First Project stated that it had been a successful investment with a satisfactory return and the phy- sical works well executed. The physical facilities of the Fishing Port were completed well within cost and became operational in 1981; they are being efficiently utilized. Since the technical assistance components are being completed, the PCR has not yet been prepared. 2.14 The recently approved Fifth Highway Project exclusively for maintenance and the proposed container project are the only new Bank transportation projects foreseen under the Sixth Plan period. These projects' objectives support the Government strategy of emphasis on main- tenance and rehabilitation. III. THE PORT OF DAKAR A. Port Facilities and Operations Facilities 3.01 The Port of Dakar enjoys an excellent sheltered location free from heavy swells and siltation. Two long breakwaters enclose a large port basin of some 210 ha providing a total of 37 cargo and five petrole- um berths with various alongside drafts and in varying maintenance condi- tion. Twenty-seven cargo berths are for vessels with drafts of 9-1lm at LLW and 10 berths are for vessels with drafts of 5-9m at LLW (IBRD Map No. 17165). Most berthing facilities were constructed according to the traditional system of the mid-thirties to fifties, providing narrow fin- ger piers with substantial berthing length totalling some 4,380 m but having very limited operational areas totalling 16.7 ha only. The system was satisfactory since vessels' cargo unloading rates were extremely low- -50-150 tons/day--and most cargoes--in small packages--were directly hauled from ship's side to storage areas out of the port, i.e., direct delivery (similarly with loading operations). Nowadays, due to modern shipping and cargo handling technologies (Ro-Ro vessels -- roll-on, roll- off --, unitized cargoes, containers, etc.), loading speeds have in- creased 20- to 30-fold. Ships unload or load large quantities of cargo in a few hours, thus requiring large operational areas and excellent cargo handling equipment. Modern facilities require an area of about 4-6 ha per berth of 200-220m, compared to the less than one ha available at present. 3.02 Port operational areas now available for container handling amount to some 3 ha but these are dispersed and generally unsuitable for modern operations. Additional difficulties are caused by the fact that the existing facilities are located in the older section of the city, and  all containers leaving or entering the port area must use the main com- mercial thoroughfares, thus increasing traffic congestion and causing accidents. In spite of these inadequate conditions, the Port handled some 36,000 containers (40,000 TEU) 1/ in 1982 and 39,000 containers (42,000 TEU) in 1983. However, the capacity of the available areas has reached its limit, and any additional container traffic will further decrease the overall efficiency of operations, causing congestion on the wharfs and delays to vessels. A new container handling operational area of some 0.8 ha, together with Ro-Ro vessel berthing facilities, was com- pleted in October 1983. This new area, though in the vicinity but not contiguous to the existing areas, will alleviate the operational diffi- culties for two to three years only, when the number of containers handled should reach about 46,000 containers (50,000 TEU). However, the non-continuity of operational areas requires double handling and substan- tially longer hauling distances of containers by forklift and tractor/trailer. 3-03 The recently completed Fishing Port provides some 1,500m length of new berth with varying drafts of 7-lOm at LLW and 10.5 ha of reclaimed land, capable of handling all forecast fishery-related activities. 3.04 Dakar has the largest ship repair facilities on the West Afri- can coast comprising the following capacities: 60,000 DWT floating dock, 25,000 DWT drydock and 1,200 DWT synchrolift. The floating dock, fi- nanced largely through suppliers' credits, was opened early in 1981, but has since been suffering from lack of work caused by the general slump in the shipping industry. The Government hopes that ship repair facilities will eventually become a major foreign exchange earner. Operations 3.05 The Port is managed and operated on the traditional French concept whereby the Port Authority, the owner of the Port, operates the Port as a Landlord Port (Port de Service), with limited operational func- tions, mainly those of the harbor master in charge of pilotage and berth- ing of vessels, and the provision and operation of shore and floating cranes. The Port owns the pilot vessels; five 6-ton shore cranes, two of which are beyond repair; one 60-ton floating crane downgraded from 100 tons; and one 17-ton mobile crane. The floating crane and two of the shore cranes are the only equipment used occasionally by vessels for handling heavy lifts, as ships normally use their own gear. Private companies perform all cargo handling and stevedoring operations, tugboat services and other traditional port operational activities. This concept has its merits as it removes from PAD all managerial and operational burdens relating to employment of labor, handling and storage of cargo, 1/ TEU = 20' Equivalent Unit Container. One 20' container presents 1 TEU; one 40' container presents 2 TEU.  - 8 - dealing with agents and vessels, etc. On the other hand, certain difficulties have developed in the Port mainly as a result of the limited involvement of management in the Port's day-to-day operations: - inefficient operations in the Mali Port Zone (para. 3.06); - inefficient use of some of the Port's operational areas due mainly to the unscheduled arrival of food grain vessels (para. 3.10); and - insufficient control of the customs and gendarmeries' activ- ities within the Port area (para. 3.12). 3.06 The Mali Port Zones, in the Port; of Dakar, comprise an area of about 1.7 ha in the southern part of the Port on Mole 3 (for general cargo) and 1.6 ha in the northern part of the Port (for bulk). In ac- cordance with the 1963 agreements between the governments of Senegal and Mali, these zones are exclusively reserved for the cargo destined for the Republic of Mali. Railway lines connect to both areas. Although Mali traffic on M5le 3 comprises between 2% and 4% of general cargo handled in the Port of Dakar, it occupies some 18% of the operational general cargo handling areas available in the Port, i.e., a ratio of one to six. While other port operational areas suffer from congestion resulting in ineffi- cient operations at times, the Mali Port Zone has space underutilized and inefficiently operated. The storage areas of Mali cargo are highly dis- organized, and cargo is thrown around and spoiled to an extreme degree. The agreement between the two governments, however, does not permit PAD's unilateral intervention to improve the Mali Zone's operational efficiency or to reduce its allocated operational areas to suit the overall cargo demand. Such an improvement would benefit Mali economically while free- ing some operational areas which PAD could lease from them and put to good use until the new container terminal becomes operative sometime in 1987. It was agreed during negotiations to try to improve the operations in the Mali Zone following the recommendations to be made by the ongoing study "The Transportation Link Bamako-Dakar." 1/ 3.07 The project allocates major inputs to improve the Port's opera- tions and management levels through experts' services preceding Credit effectiveness and through technical assistance as part of the project. As a first step, with remaining funds from the Fishing Port Project (Loan 1405-T-SE), the Port engaged two operations experts to review in detail the Port's present managerial and operational systems, and to make recom- mendations on measures to improve Port operations, augment management's involvement in the Port's activities and ensure that the Port will be 1/ This study is financed by the "Fonds d'Aide et de Coop'eration" (FAC) of the Republic of France following the requests of the governments of Mali and Senegal.  - 9 - able to handle the growing traffic of general and containerized cargo until the new container terminal becomes operative sometime in 1987. Following the experts' recommendations, a detailed action plan together with timetable and manpower inputs, aimed at achieving the aforesaid objectives, was agreed upon during negotiations. In addition, the action plan foresees the review of alternative uses for some existing facilities (particularly M5le 2) which would remain underutilized for several years after the opening of the new terminal, with a view to reducing mainte- nance costs, and generating revenues through leasing of such facilities for other uses. Implementation of the agreed action plan will begin soon with funds remaining in Loan 1405-SE. B. Stevedoring Companies 3.08 Ten private stevedoring companies are engaged in the daily cargo handling operations. Of these, the three largest have been hand- ling, since 1980, some 75% of the total cargo throughput of the Port of Dakar, both general cargo and containers. Each stevedoring company is allocated an operational area both for general and containerized cargoes based on the quantities of cargoes and number of containers it handled in the previous year. 3.09 Operations of the stevedoring companies are regulated through the Syndicat des Entreprises de Manutention des Ports d'Afrique Occiden- tale (SEMPAO) which deals with PAD and regulates their internal rela- tions. The companies engage their stevedoring and dock labor through its service company, Bureau de Main d'Oeuvre Portuaire (BMOP). The companies have their own training program for labor and equipment operators who are efficient and hard working. Good relations prevail between the larger companies who help each other with equipment and spare parts, and share, during peak periods, some of their operation areas. 3.10 The use of the operational areas for general cargo is not very satisfactory, and disorder prevails in many areas, partially caused by the physical deterioration of the storage areas and delays caused by customs. Additional operational difficulties are caused by the unsched- uled arrival of food grain vessels which discharge up to 200,000 tons of bulk cargo per month. Because of lack of adequate storage facilities, the grain is unloaded wherever space is available. 3.11 The use of the container handling port areas is still marginal- ly efficient if we consider the given constraints. The present difficul- ties of the container handling operations are: (a) the shortage of storage areas available to the stevedoring com- panies; (b) the relatively high average length of stay of full containers within the Port area (15 days) before being claimed by owners and taken out of the Port for unstuffing;  - 10 - (c) most of the stevedoring companies maintain operational areas outside the Port where they have their own sheds to handle LCLs both for unstuffing and stuffing. The number of containers handled there is about 15% of the total container traffic. A customs officer must accompany the containers from the Port to the company's area; however, customs' time allocation is lim- ited to two hours in the morning and two hours in the after- noon, and a high cost is charged by the customs for this ser- vice; and (d) the high degree of corruption and pilferage involving, directly and indirectly, both the gendarmerie and customs, resulting in serious losses, which are passed on as higher consumer prices and result in a general feeling of insecurity. 3.12 Currently, insurance companies charge 2% of CIF landed value for breakbulk and general cargo and 1.5% for containerized cargo. Both numbers are above accepted charges in European and many Mediterranean ports. A strong and active hand of the Port Authority can improve the security situation in the Port and could facilitate the cumbersome re- quirements by the customs and gendarmerie. The recommendations of the operations experts relating to the improved use of general cargo opera- tional areas, the reduction of container dwell time, and avoidance of cumbersome customs requirements were discussed during negotiations and were included in the action plan for improvements agreed upon. As a first step, the Port will engage for a period of three years a port oper- ations expert to organize and improve the Port's operational functions (para. 4.17). C. Traffic - Past and Present 3.13 Traffic at Dakar Port, as it evolved over the past ten years, is detailed in Annex 3-1 and summarized as follows:  - 1 1 - Senegal - Traffic at Dakar Port, 1973-82 COm) Toms) 1973 1975 19 1981 1982 Dry Cargo 1,261 797 1,C86 1,185 1,232 Liquid Blk 1,711 1,347 1,276 1,072 995 Subtotal 2,972 2,144 2,362 2,257 2,227 Exports Dry Cargo 2,182 1,974 1,869 1,684 1,870 Liquid Balk 1,124 679 262 240 341 Subtotal 3,306 2,653 2,131 1,924 2,211 TOTAL 6,278 4,797 4,493 4,181 4,43B (in containers) (-) (41) (214) (233) (275) 3.14 Dry general cargo and fuels are the main import categories and phosphate is the main export. Total traffic declined slightly over the last decade and experienced shifts in its composition, mainly because of the reduction of imports of petroleum products and the export of phos- phates. Dry cargo imports were at their lowest level in 1975; they increased steadily since then, and by 1982 had reached 1.23 million tons. More recently, however, growth has been slower--4.7% per year since 1979. Food products accounted for 720,000 tons in 1982, represent- ing about 60% of total dry cargo imports. Dry cargo exports have amount- ed to about two million tons, but in recent years, they have been some- what lower due to the depressed phosphate market. In 1982, they amounted to 1.87 million tons, of which 1.56 million tons was phosphate and some 100,000 tons each were groundnut products and fish. The export of fish and its products is developing adequately following the completion of the fishing port under Loan 1405-T-SE. 3.15 Dakar Port has traditionally served a transit role for Mali and Mauritania foreign trade, handling annually some 80,000-100,000 tons and 30,000-40,000 tons for them, respectively, during the last five years. 3.16 For many years, Dakar also was an important fuel re-supply stop for ships. In 1973, the Port provided one million tons of bunkering fuel and needed to import a correspondingly high volume of petroleum pro- ducts. Mainly due to changes in maritime routes after the reopening of the Suez Canal in 1974, Dakar has been gradually losing this service which, by 1982, had gone down to 170,000 tons. Still, fuel imports are near the one million ton level per year.  - 12 - 3.17 The growth of containerized traffic has been the most signifi- cant change in Dakar's traffic and service in recent years. In 1975, the Port handled 5,800 containers (in and out) carrying 40,500 tons of dry cargo; in 1983, this traffic had reached 39,000 containers (or 42,000 TEUs), carrying some 290,000 tons. The growth of container traffic is also reviving Dakar's role as a transit stop: in 1983, some 1,900 con- tainers were in transit from or to other West African ports. D. Port Authority of Dakar Administration 3.18 The Port Authority of Dakar (Port Autonome de Dakar, PAD) was formed in 1959, and since 1960 has been an agency of the Republic of Senegal. Its legal status is that of an "etablissement public a carac- tere industriel et commercial" (EPIC). In practice, this means the pre- sence of an over-zealous control by numerous Government agencies, which often have conflicting and overlapping reEsponsibilities. It also means that the Port's financial autonomy is fairly limited by a priori control of all budget expenditures and by a centraL treasury pool into which all port revenues must be deposited under the so-called "unicit' de caisse" concept. For PAD, it has meant the inability to use its cash income for its own needs on time (para. 6.01). 3.19 The Board of Directors of the Port Authority has 18 members and meets at least three times a year. The chairman is appointed by the President of the Republic; the vice-chairman represents the Minister of Finance. Eight members of the Board are Government representatives, one each represents the Government of Mali, the National Assembly and the Chamber of Commerce, five represent the Port users, and two represent the Port's personnel. Decisions of the Board are subject to the joint ap- proval of the Ministers of Equipment and Finance. Port charges on goods also require prior agreement of the Minister of Commerce. 3.20 PAD manages and maintains the port facilities, and is respons- ible for all improvement and expansion works. All executive functions are vested in the General Manager of PAD, who also acts, under the au- thority of the Minister of Equipment, as coordinator of all activities of various Government departments and agencies in the Port--health and immi- gration services, gendarmerie, customs, and railways. These agencies, however, act almost completely independently and the PAD has very little actual say in their day-to-day activities. 3.21 Maintenance of the Senegalese navigation aids is carried out by a sub-division of PAD, and managed by expatriate staff from Association Internationale des Aides a la Navigation/Direction des Phares et Balises (INNA/DPB, France) which also provides the buoy tender LEON BORDELLE without charge.  - 13 - Organization and Staffing 3.22 PAD has a total of 727 employees engaged mainly in the non- operational service sectors. The staff is organized into five depart- ments reporting to the General Manager (Annex 3-2). The functioning of the existing organization is not very satisfactory and, excluding the director of the engineering department, none of the directors is an ac- tive decision-taking line manager, and most of the decision-making is left to the General Manager. BOM is currently carrying out a study to recommend a new organization for PAD. The action plan (paras. 3.25 and 4.17) foresees the review and comments by port organization experts of the proposed reorganization. 3.23 In particular, the lack of a financial manager and well-organ- ized financial staff has resulted in non-existent internal controls, poor follow-up of financial matters and no financial information flow. The manager of the commercial department functions as the financial officer and budget manager, but lacks both expertise and enterprise to do either job, besides taking care of client accounts, claims, billings, etc. At the same time, the Port accountant runs an isolated accounts section that is very poorly organized and that has continued to prepare annual ac- counts bearing little relation to reality. The problems of the Port financial organization have been well studied under a recently completed audit, and the recommendations form the major thrust of the organization- al reform to be carried out under the project. As a first step, with remaining financing from the Fishing Port Project (Loan 1405-T-SE), the Port will hire not later than September 1, 1984, a full-time Director of Finance (Controller), to organize the Port's financial functions, its financial information flow and set up its internal controls (para. 4.12) for a period of at least two years. In addition, provision has been made for expert assistance on an as-needed basis in other areas of accounting and general financial management. This technical assistance effort will continue at least through June 1987 under the proposed project in each area, so that PAD staff can be properly trained and financial control and management information systems established. 3.24 The 207 staff permanently employed in PAD's engineering depart- ment are in charge of new constructions and maintenance of buildings, utilities, transit sheds and port infrastructure. Larger works are done by outside contractors. The inadequate level of maintenance is caused mainly by lack of funds. It is for this reason that the proposed project includes provision of funds for deferred maintenance and for improving maintenance. 3.25 There is no port operations information system, and PAD has no organized up-to-date information relating to cargo, vessels, labor, out- puts, demurrage, etc.; all of this is kept by the stevedoring compa- nies. This lack of data prevents PAD from practically any possibility of  - 14 - monitoring the efficiency of the operational activities in the Port, and from proper setting of fees. The plan of action agreed upon during nego- tiations covers, among others, the following: (a) a more efficient deployment of PAD's staff; (b) a general improvement of the Port's financial organization; (c) a general improvement of the Port's data processing and manage- ment information systems; (d) a more efficient deployment of PAD's engineering department's staff; and (e) the general improvement of the level of maintenance. Accounting 3.26 PAD'S general accounting system broadly follows usual commer- cial principles and is based on the Senegalese Accounting Plan. There is as yet no analytical or cost accounting. Technical assistance was pro- vided under the Fishing Port Project towards the introduction of a modern cost accounting system, but this work has not been completed, partly due to delays in acquiring a computer system. The cost accounting system is now expected to be implemented and should be fully operational by mid- 1984. 3.27 Major weaknesses in the accounting procedures were revealed by the external auditors in their report of January 1983. During appraisal, measures to rectify these deficiencies and reorganize PAD accounts were discussed. The scope of work of the auditors was somewhat modified to provide for greater accounting assistance. As part of these immediate measures, PAD recruited more junior level staff to distribute the work- load more efficiently. The expert consultant attached to the Govern- ment's Central Accounting Office (CEP) was seconded to PAD on a part time basis to supervise this immediate work of rectifying major accounting errors (in fixed asset schedules, accounts receivable, billings cycle, tax liability and long term debt schedules) revealed by the audit. Much of this work has now been satisfactorily completed and the auditors are completing the FY1982 and FY1983 audit programs. Budget and Finance 3.28 Annual budgets are prepared in the Commercial Department with inputs from the other departments. The Commercial Director acts as Bud- get Director. However, this would change under the proposed project. PAD has agreed to set up a proper Finance Department to handle all finan- cial matters pertaining to budgets, investments, internal controls and  - 15 - financial planning. Under the Port statutes, which are those of an 'ta- blissement public a caractere industriel et commercial (Public Enter- prise), under Senegalese legislation, the Port's Chief Accountant func- tions under authority granted by the Minister of Finance. His main res- ponsibilities cover the basic bookkeeping and fiduciary functions. Fi- nancial planning, budget and cost control, internal audit and such other controllership functions are left to the General Manager to organize. The soon-to-be-recruited Director of Finance would assume and discharge these responsibilities in a systematic and organized manner. Revaluation of Fixed Assets 3.29 PAD last revalued its fixed assets in 1968. Under the Fishing Port Project, a new revaluation was carried out, but it was not incorpor- ated in the books due to the legal difficulties under Senegalese account- ing regulations to incorporate such changes. Moreover, the fiscal impli- cations of a major change in asset values have not been examined with the tax authorities. In all likelihood they would involve a large tax lia- bility. Moreover, the audit of FY80 and FY81 accounts revealed major underrecording of asset values and depreciation on PAD's books and thus makes PAD's proposed revaluations dubious and incorrect. A more thorough physical inventory of all fixed assets is needed before a revaluation exercise can be undertaken. During appraisal it was agreed that such a physical inventory would be carried out under the audit program now un- derway and that the existing fixed asset ledger would be first rectified and updated as at June 30, 1984. During negotiations, PAD agreed to prepare a revaluation of its corrected fixed asset base as at June 30, 1985, and incorporate the figures into a set of pro forma accounts, to be presented to the Association no later than December 31, 1985, and annual- ly thereafter. The pro forma accounts should permit PAD to demonstrate its adherence to the proposed rate of return covenant that would become operative in FY1988. Audit 3.30 PAD's external audits were carried out in the past by the Na- tional Audit Commission (CVCCEP). However, due to its limited staff, the Commission could only do an in-depth financial and management audit once every five years. The Port's audit was entrusted under the Fishing Port Project to HELIOS (a French audit firm with ties to Arthur Young) who have just completed an exhaustive audit of FY80 and FY81 accounts. The audit program would be continued under the project so that with progres- sive improvement of PAD's internal organization, certification of PAD accounts will be rendered possible. During negotiations, agreement was obtained on a four year external audit program. Beyond that, PAD also agreed to furnish annual external audits consistent with generally ac- cepted international audit practice.  - 16 - Tariffs 3.31 Port tariffs and regulations, authorized by the Board, require the approval of the Ministers of Equipment and of Finance. In the past, the Port has not experienced any delays in the approval procedures. The general tariff proposals are also discussed informally with the main port users so that a broad consensus is arrived at prior to presentation to PAD's Board. Tariff increases have been effected regularly to comply with financial ratio agreements under the Fishing Port Project, and to generate additional revenue to meet increased obligations. Tariffs have increased about 10% a year on the average. Under the Fishing Port Pro- ject, the Port carried out a study of tariffs to be applied to the new fishing facilities and substantially revised its tariff structure in accordance with recommendations of the study. However, the delays in establishing analytical cost accounting have prevented PAD from doing a more general cost-based revision of its tariff structure. 3.32 A review and comparison of PAD tariffs with those of the other major West African ports reveal that the Port of Dakar is considerably less expensive (by as much as 50% in some cases and 15-20% on the aver- age) in all areas of port activities and services--berthing, pilotage, tugboat, wharfage and general port dues. Even when the costs of steve- doring and other shore-related service charges by the private sector operators are added, the Port of Dakar compares very favorably with other large West African ports in the total costs of throughput of a ton of merchandise. However, the tariff structure in many cases is based on outdated technology when vessels had to wait many days at berth to use quayside equipment. Thus, berthing and ship-stay charges increase with the time spent at berth in days, when, in fact, many modern container vessels and other ships discharge and reload merchandise in less than half a day using their own gear, and even this short working time will be reduced with the proposed project. Such anomalies prevent the Port from obtaining a fair return on its capital investment. The tariff structure also does not have sufficient built-in incentives for efficiency of the private operators, and indeed few, if any, disincentives and penalties for poor performance. It is a passive structure consonant with the con- cept of a "public service." In the past, the availability of capacity did not require the Port to be a very active inciter of efficient beha- vior. Now, however, the Port needs to exercise its tariff setting capa- bility to require its private operators to improve performance and opti- mize space usage. Moreover, in order to maintain and enhance its compe- titive edge, the Port needs to monitor rate setting by private operators of stevedoring, tugboat and other services in monopoly or near-monopoly situations, so as to ensure that the services being provided are effi- cient and at a level consistent with the rates charged. Rate ceilings are normally approved by joint decree of the Ministers of Commerce and of Finance, after informal consultation with the Ministry of Equipment and the PAD. Since the Ministry of Commerce does not have a global view of the port services provided by PAD and the private operators, PAD has  - 17 - requested that, in future, the Ministry of Equipment be also a third party to the Interministerial decree. This has now been agreed by the Government. 3.33 One of the main project objectives is to ensure full cost re- covery for port services (para. 6.07). As a first step, PAD would con- tinue to effect tariff increases at least averaging 10% a year. In addi- tion, PAD agreed to impose a surcharge on Senegal-bound container traffic of up to 14% in FY1984. PAD's Board has already approved the FY84 in- crease; the effect would be an approximately 13% overall increase in port revenues. The approval of a tariff increase averaging 10% effective July 1, 1984, would be a condition of effectiveness of the proposed Cred- it (para. 6.21). A brief study of the impact of such tariff increases has been carried out by PAD with assistance from consultants, and the results will be incorporated by PAD in its tariff structure effective July 1, 1984, (i.e., for FY85). Some readjustments of port tariffs are being proposed pending a more general structural revision by the start of fiscal year 1988, when the new container port is opened for service and a tariff structure study would be completed. Agreement was obtained at negotiations that PAD would review the recommendations of a tariff struc- ture study not later than March 31, 1987, and incorporate these into a new tariff structure operable no later than July 1, 1987. IV. THE PROJECT A. Objectives and Concept 4.01 The main objectives of the proposed project are twofold: (a) to reduce freight costs for Senegal's external trade and en- hance Dakar's position as port of transfer for neighboring countries through provision of adequate port facilities re- quired to handle the increasing container traffic; and (b) to rehabilitate and strengthen the Port as a vital national public enterprise through: (i) improvement of the efficiency of port operations in general and cargo and container handling in particular; (ii) improvement of the Port's financial and operational management and introduction of satisfactory management information and control systems; and (iii) increase of the Port's financial autonomy.  - 18 - 4.02 To achieve these objectives, the project provides for: (a) construction of new infrastructure for container handling; (b) rehabilitation of certain port facilities; and (c) expert assistance in port operations, accounting and financial management and management information systems and procedures to help the Port progress towards being a commercially oriented, financially autonomous public enterprise. 4.03 The proposed project is the Phase I development of the contain- er port of Dakar. The consultants who prepared the feasibility and engi- neering studies have developed a long term Master Plan for the develop- ment of the container port, calling for Phase II implementation around the year 1995 when container traffic should reach about 115,000 TEU (para. 5.04). B. Project Description 4.04 The main components of the proposed project are: (a) Civil Works (i) construction of a quay wall (gravity block type) in a total length of 430 m suitable to berth simultaneously two large container vessels. The designed alongside depth is 12 m at LLW, enabling vessels with 11.5 m draft to come alongside at any stage of the tide; (ii) dredging of areas alongside the berth and from the Port entrance to the terminal area; hydraulic sand filling of the area behind the quay wall to reclaim a container handling area of 8.2 ha; (iii) paving of the container handling area, installation of services: water, electricity, telephone and fuel lines, and connecting the terminal area to the national railway grid; and (iv) rehabilitation and deferred, maintenance of certain port facilities; and (b) Consulting Services and Technical Assistance (i) consultants' services to supervise the construction of the container terminal and training of PAD engineers to work on construction supervision; (ii) study of the management of the container terminal;  - 19 - (iii) training of PAD personnel in container terminal manage- ment and operations; (iv) consultant services, technical assistance and training to improve the Port's accounting and financial manage- ment, carry out financial and managerial audits, study and recommend a new tariff structure, evaluate informa- tion processing needs, supply and install both new hardware and appropriate software, and introduce man- agement information and control systems; and (v) technical assistance and training to improve the Port's operations and operational management. 4.05 No container handling or other cargo handling equipment will be provided under this project. The stevedoring companies have recently acquired new equipment (average service life 8-10 years) which they will be able to use in the container terminal. By 1990, or about three years after opening of the terminal, the equipment will need to be replaced, and new modern equipment will then be procured to suit the operational conditions at the new terminal. 4.06 All the larger stevedoring companies use their own sheds, lo- cated outside the Port area, for stuffing and unstuffing of LCL (Less than Container Load to single consignee) containers, their own offices and their own equipment repair facilities. It has been agreed, there- fore, not to consider at present the construction of any sheds, offices or workshops under the project. The smaller companies which have no storage facilities are currently stuffing and unstuffing containers right on the wharf--causing congestion and additional operational difficul- ties. Since it is not intended to continue a similar system in the new terminal, the future terminal management will review again the need to build additional sheds--in or outside the terminal--but these would be financed by the companies themselves. 4.07 During negotiations, assurances were obtained from PAD that through the existing agreements with the stevedoring companies or other arrangements as necessary: (a) sufficient and modern container handling equipment will be available at all times for efficient and effective operation of the container terminal; (b) sheds for stuffing and unstuffing of containers will be made available for use by the smaller companies; and (c) offices and workshops will be available for efficient operation of the terminal and its equipment.  - 20 - C. Cost Estimates 4.08 The total estimated cost of the project, net of taxes and fi- nancial costs, is about US$19.6 million equivalent (including physical and price contingencies) with a foreign exchange component of about US$15-3 million equivalent. The project will not be exempted from taxes and duties amounting to some US$5.5 million equivalent, and interest during construction will amount to about US$2.4 million equivalent. Thus, total cost is about US$27.5 million. Details are given in Annex 4-1, and are summarized in the following table. Project Cost SLatiry CFAF Millons US$ MLUions % of Total Item Foreign Local Total Foreign Local Total Base Cost 1 . CIVIL WOWKI for Container Port 3,581 991 4,572 9.13 2.53 11.66 78.5 2. CX$ULTANT SERVICES (Project Supervision, Audits & Studies) 3E6 55 441 0.99 0.14 1.13 7.6 3. TEMZCAL ASSIMANCE (Operaticnal Improvements, Accountin&/Finance, Data Procesing) 469 39 50B 1.20 0.10 1.30 8.7 4.TRAINf 50 1 51 0.13 - 0.13 0.9 5. DREDMAIt r 5 1AICE 75 174 249 0.19 0.44 0.63 4.3 TOTAL BASE COSTS 4,561 1,260 5,821 11.64 3.21 14.85 10Y.0 (Febury 1984 pricem) - H>sical 675 169 844 1.72 0.43 2.15 14.5 -Price 784 245 1,029 2.0X 0.63 2.63 17.7 TOM CC flIGEJC1E 1,459 414 1,873 3.72 1.06 4.78 32.2 TOML PROJET COE (net of taxes) 6,02D 1 ,674 7,694 15.36 4.27 19.63 132.2 TAXS and DUTIES - 2,176 2,176 - 5.55 5.55 37.4 TOMAL PROJECT COST 6,020 3,850 9,87) 15.36 9.82 25.18 169.6 fINTEM UR1C(INS. /a 446 482 923 1.14 1.23 2.37 15.9 TOMAL FlNmCnu RQUTRED 6,466 4,332 10,798 16.50 11.05 27.55 185.5 Totals may not add due to rouling. /a Excludes interet during 197/88.  - 21 - 4.09 The cost estimates for the construction of the quay wall and the dredging and reclamation works (para. 4.04 (a) (i) and (ii)) are based upon the actual bid prices received in December 1983 which are valid, without escalation, until April 1984. The cost estimates for paving and installation of services and maintenance works to be commenced in 1986 (para. 4.04 (a) (iii) and (iv)) were prepared by the consultants and PAD based on final engineering designs and on costs of recent similar works, including the Fishing Port Project completed in 1980/81 and up- dated to early 1984. The estimates, reviewed by Bank staff, compare favorably with international bids received recently for similar port works on the West African coast. Consultant and advisory services to- talling 206 man-months, (long term technical assistance for opera- tional/financial management: 60 man-months; construction supervision: 50 man-months; tariff structure and container port management studies: 30 man-months; technical assistance for operations improvements: 42 man-months; and short term technical assistance for data processing and port traffic statistics: 24 man-months) are costed at an average of US$10,500 per man-month including per diem, transportation and other reimbursable items. The above fee is reasonable in light of current living conditions and costs in Dakar. Civil works are expected to be completed by end-1986 (27 months' construction time), while the technical assistance and consultant services are expected to last four years. Physical contingencies assumed vary between 10%-20% depending upon the type of work. Price contingencies have been calculated for local costs at 10% a year and foreign costs at 7.5% for 1984, 7.0% for 1985, and 6% a year thereafter. Price contingencies on Lots 1 and 2 (construction of quay wall and dredging) are based on the price revision formula proposed by the successful bidder. Under this formula, the December 1983 base bid prices will be adjusted according to the escalation formulae specified in the bidding documents for the period April 1984 (see above) to September 1984, the expected start of works. (This adjustment is estimated to reach 5% for the period.) The adjusted price would then be increased by a flat 7.5% in lieu of any price escalation during the project execution. D. Financing Plan 4.10 PAD's financing plan for the project execution period (FY84- FY88) is summarized in the following table.  - 22 - PAD - Funds Required during FY84-a3 and Financing Plan CFAF Millions U$ Millions _ Funds Required Proposed Project 7,694 19.63 43.9 Interest during Construction 928 2.37 5-3 Taxes and Duties 2,176 5.55 12.4 Renewals and Other Investnents 3,839 9.79 21.9 Payments of Arrears to Govenment 2,297 5.86 13.1 Net Purchases of Treasury Bonds 16() 0.41 0.9 Required Increase (Decrease) in Working Capital 434 1.11 2.5 Total Requirements 17,528 44.72 100.0 Source of Funds Net Inomne after Taxes but before Interest & Depreciation 13,550 34.57 77-3 Less: Debt Service 4,477 11.42 25.5 Net Internal Cash Generation 9,073 23.15 51.8 Proposed Special Fund Credit 1,895 4.83 10.8 Proposed IDA Credit 1,036 2.64 5.9 Proposed CCCE Loan 2,607 6.65 14.9 Proposed KF loan 1,604 4.09 9.1 Total New Borrowigs 7,142 18.21 40.7 Existing Borrowings (1405-T-SE) 120 0.31 0.7 Payments of Arrears by Government 900 2.30 5.1 Total Sources 17,235 43.97 98-3 Net Increase (Decrease) in Surplus Cash (293) (0-75) (1-7) 4.11 The proposed IDA and Special Fund Credits and the CCCE and KF loans would together finance 93% of the total project cost net of taxes, which is the full foreign exchange cost and 67% of local cost. PAD's internal cash generation would finance all project taxes and duties, the interest during construction and the remaining 7% of the total project cost. PAD would also cover out of its internal resources any potential cost overruns or exchange rate losses. PAD's overall contribution would amount to 33% of the total project cost including taxes and duties and interest during construction. The proposed IDA and Special Fund Credits of US$2.65 million and US$4.85 million, respectively, to the Government would be onlent on standard Bank terms to PAD; the onlent amounts would be repayable in equal semi-annual installments over 20 years including a  - 23 - four-year grace period. The conclusion of an onlending agreement between the Government and PAD on terms and conditions satisfactory to the Asso- ciation is a condition of effectiveness of the proposed Credits. The proposed CCCE loan of FF 52 million (US$6.7 million equivalent) would be a blend of soft and hard terms, bearing approximately a 7% interest rate, and would be repayable in equal semi-annual amortizations over 17 years including four years' grace. The proposed KF loan of KDinars 1.25 mil- lion (US$4.09 million equivalent) would be made to the Government at a 4% interest rate, repayable over 20 years including five years' grace. I/ It would be onlent to PAD on the same terms. The Government would also impose a 1% guarantee fee on the CCCE loan that is made directly to PAD. E. Project Implementation and Reporting 4.12 PAD will be responsible for project execution with the assist- ance of qualified consultants to be employed on terms and conditions to be acceptable to the Association and co-lenders. The civil works are expected to take about 27 months to complete, starting in September 1984 (Annex 4-2). Some activities of the technical assistance program will continue into FY87/88. The engineering department will prepare and ad- vertise the bids and supervise the works to be done under the deferred maintenance program component, which will start during FY85. Technical assistance in accounting and financial management is expected to start by early 1984, and recruitment of experts is underway. Terms of reference and desired profiles have been drawn up. Funds for their recruitment are available under the ongoing Fishing Port Project and should also cover the costs of about six months of their services. Their contracts beyond September 1984 would extend for about three years each and would be fi- nanced jointly by the Association and the Kuwait Fund (para. 4.15). Other technical assistance and consulting services for studies, audits and data processing will be implemented starting June 1984 and will ex- tend through June 1988--particularly for the audit component. 4.13 In addition to the submission by PAD of annual audit reports (para. 3.30), PAD would submit quarterly project progress reports and semi-annual financial reports on its overall operations (para. 6.11), as well as annual pro forma financial forecasts (para. 6.13), the format and content of which were agreed upon during negotiations of the project. PAD would also prepare a project completion report and provide such in- formation as may be reasonably requested by the Association for the post- project performance audit. In addition, PAD will report on a semi-annual basis, for a period of five years after project completion, on the fol- lowing: traffic -- general cargo and containerized; vessels and service 1/ The Kuwait Fund has agreed to a loan of KDinars 2.1 million (US$6.88 million equivalent) prior to the proposed award of bids on Lots 1 and 2. Any amounts in excess of the indicated KF participation in the financing plan would be cancelled at the end of the project.  - 24 - times; and financial performance, including a comparison of budgeted vs. actual results. F. Procurement and Disbursements 4.14 Procurement arrangements are summarized in the table which follows: Methods of Procauenent under the Project (US$ Millions) Procurnent Method Total Project Element ICB LCB Other Cost Civil Works 1. Lot #1 (Quay Wall) - - 6.66 6.66 2. Lot #2 (Drdng/ill) 3.90 -- - 3.90 (1 -37) (1-37) 3. Lot #3 (Paving/Utilities) 4.93 - - 4.93 (4.83) (4.83) (Special Fumd) 4. Deferred Maintenance - 0.83 - 0.83 (0.29) (0.29) Consultant Services & - 3.31 3.31 Tecbmical Assistance _ (0.98) (0.98) Total Cost (Net of Taxes) 3.90 0.83 14.90 19.63 (1.37) (0.29) (5.81) ( 7.47) Note: Figures in parentheses are the respective amounts to be financed by the Association/Special und. Lot #1 (US$6.66 million), the constructicon of quay walls, would be fi- nanced by the CCCE on the basis of competitive bidding which was limited to the Franc Zone. Lot #2 (US$3.90 million), dredging and fill, would be jointly financed by the Association and KF on the basis of international competitive bidding (ICB) following IBRD guidelines; KF had earlier approved the list of prequalified contractors. Lot #3 (US$4.93 million), utilities, would be financed by proceeds from the Special Fund Credit, and procurement would be limited to goods produced in, or services from, any of the following countries: (a) any Part II member of the Associa- tion and (b) those countries who at the time of signing the Credit Agree- ment have notified or advised the Administrator in writing that they intend to make an SF Contribution in a minimum amount conforming with paragraph 4 of the Special Fund Resolution, or (c) which had notified or advised the Association in writing that they intend to make a Special  - 25 - Contribution in such a minimum amount to the FY84 Account and had advised the Association in writing that such Special Contribution was to be trea- ted in the same manner as an SF Contribution for purposes of any future adjustment of the voting rights of the members of the Association. De- ferred maintenance works (US$0.85 million) would be procured through local competitive bidding procedures acceptable to the Association, in- cluding award of contract to the lowest evaluated bidder. Consultants for training, technical assistance, studies and audits would be selected in accordance with IBRD guidelines. 4.15 The following table provides a summary of the project disburse- ment plan agreed among the co-lenders, PAD and Government at appraisal and subsequently modified and agreed at negotiations. The plan is de- tailed in Annex 4-3. Project Disbirseent Plan (U3 Millions) K? CCCE IDA SPc. Fn PAD TAL Mt. % Amt.n%At. . Amt. % _t. % Amt. % AMT. /a Iot No. 1 (Quay Wa-) - - 5.99 90 - - - - 0.67 10 6.66 Lot No. 2 (Dredgii/FM.) 2.46 63 - - 1.37 35 - - 0.07 2 3.90 Lot No. 3 (Paving-Utilities) - - - - - - 4.83 98 0.10 2 4.93 Other Cponentsm_ - Pzoject iSpervision - - 0.29 48 0.29 48 - - 0.03 4 0.61 - Defered Maintenance - - - - 0.29 35 - - 0.54 65 0.83 - Taining - - 0.18 10) - - - - - - 0.18 - Data Processing - - - - 0.20 10) - - - - 0.20 - Studies, Audit, Tech. Assistance 1.29 77 - - 0.38 23 - - - - 1.67 - Ation Plan 0.34 54 0.19 29 0.11 17 - - - - 0.64 Total Net of Taxes 4.09 21 6.65 34 2.65 13 4.83 25 1.41 7 19.63 interest during Constructicn - - - - 2.37 10) 2.37 Taxes - - - - 5.55 10Q 5.55 Total Project 4.1'; 9 24. 2.65 10 .8. 19 ,.M .M /a Totals may not add due to r=uning. The disbursement plan is based upon joint and parallel financing of the civil works lots, and mainly joint financing of the other components. The experts to be recruited to assist PAD in the immediate operational  - 26 - improvements would be initially financed under the existing Fishing Port Project Loan (1405-T-SE) as would the experts to help in PAD's financial management. The training programs would be funded solely by CCCE. Pro- ject supervision would be carried out by PAM consultants and funded jointly by CCCE and the Association. Data processing services and equip- ment would be solely funded by the Association. The Action Plan consul- tants would be funded jointly by the three co-lenders. All other consul- tant services and technical assistance contracts would be procured fol- lowing IBRD guidelines, and funded jointly by the Kuwait Fund and the Association. Should any particular contract awarded be ineligible for disbursement under either the IDA or the Kuwait Fund or CCCE regulations, these items would be set aside for parallel financing by one or the other of the co-financiers. All contracts would be financed by the co-lenders on a net of tax basis, and the relevant taxes and duties will be sepa- rately invoiced, accounted and paid by PAD (para. 6.18). 4.16 The tentative IDA Credit and Special Fund Credit disbursement schedules are summarized below and detailed in Annex 4-4. They are pred- icated upon Credit effectiveness occurring around September 1984. The major civil works contracts would require a contract mobilization and down payment of about 15% for Lots #1 and #2. PAD would pay the advances out of its Special Account (para. 6.08) and would thereby allow for con- tract execution to start on September 1, 1984. Monthly billings for works would require payment within 90 days. Payments for consultant services would take on the average 45 days after the monthly invoices are prepared, verified and sent to the financing sources. The Bank-wide profile for Ports projects has been used, but it has been modified for two reasons: firstly, the civil works will only require about 27 months to be executed; secondly, the recent experience under the Fishing Port Project has been very satisfactory both as to time and cost. The Fishing Port Project was disbursed as follows: 28% at end of year 1, 73% at end of year 2, 86% at end of year 3, 89% at end of year 4, and 93% at end of year 5, the long tail (still incompleted) being attributed to continued upward movement in the US$/CFAF exchange rate and a late start on tech- nical assistance components. Under the proposed project, it is not ex- pected that the combined disbursement rates of the IDA and Special Fund Credits will be as rapid. Instead, a more gradual build-up is forecast, but with a less pronounced tail, as much of the technical assistance will be procured early at the start of the project, unlike under the previous project, and as one major civil works contract will be let before credit effectiveness of the IDA and Special Fund Credits.  - 27 - Smmaary Forecast Disbursements (U$ Millions) IDA CREDIT SPEIAL FUN CREDIT Fiscal Year In FY Cumulative % In FY Cumulative % Combined % 1985 0.7 0.7 26 - - 9 1986 1.1 1.8 68 1.4 1.4 29 43 1987 0.6 2.4 91 2.6 4.0 82 85 1988 0.15 2.55 96 0.85 4.85 1(X 99 1989 0.1 2.65 100 - 4.85 100) 100 G. Action Plan 4.17 In order to achieve the objectives of the project -- to improve PAD's port operations and strengthen its organizational, operational and financial management -- an action plan was agreed upon during negotia- tions. Accordingly, the various experts to be engaged under the techni- cal assistance program of the project will help PAD's management to achieve the aforementioned objectives. The Government and PAD have agreed to undertake all actions required to carry out the seven steps listed in the action plan as per the following dates: (Annex 4-5). Action ry Date 1. Engage port operations expert .. .............. Credit effectiveness 2. Engage Senegalese national to be trained as director of Port operations ....................... September 01, 1984 3. Engage experts for financial management .................. September 01, 1984 4. Prepare 1986/8 IData Processing Plan .................................... June 30, 1985 5. Complete reorganization study for PAD's headquarters . .. Denmber 31,1984 6. Complete reorganization study for PAD's engineering departnent .......... December 31, 1984 7. Prepare training program for PAD's personnel . .December 31, 1984 H. Environmental Impact 4.18 No adverse ecological impact is expected to occur with the construction of the proposed container port. Of the 420,000 m3 of mater- ial to be dredged within the Port area, some 60,000 m3 will be dumped and disposed outside the Port area in depths of 20 meters, and the balance be used for reclamation of an industrial zone just outside the Port's north- ern breakwater. In addition, some 600,000 m3 of sand will be dredged from a sandbank north of the Port and pumped over a water distance of 5 m to reclaim the container handling area of 8.2 ha. No significant distur- bance to marine ecology in the vicinity of the existing Port is expected to occur.  - 28 - V. ECONOMIC EVALUATION A. Project Objectives 5.01 The physical components of the proposed project are designed to ensure that PAD will be able to handle the growing number of containers efficiently and at a reasonable cost. Without the project, container handling would be increasingly slow and expensive at ill-adapted facili- ties, adding unnecessary costs to Senegal's international trade. The project would also reinforce the role of Dakar as a transit port for Mali and Mauritania and for transshipment to and from other West African ports. 5.02 The project's institutional deve]opment components, which con- tinue and expand those included in the First Dakar Port Project and the Dakar Fishing Port Project, are aimed at assisting the Port of Dakar to move progressively towards a fully commercial, financially autonomous operation through a package of technical assistance and short and medium term measures. This should result in improved operating and financial performance and ensure that existing and future port facilities are ef- ficiently utilized and investment costs adequately recovered. B. Traffic Forecast 5.03 Traffic projections were prepared by Port of Marseille consul- tants and agreed with PAD and the appraisal mission. They are based on a commodity by commodity analysis, the latest revision of Senegal's Sixth Development Plan and the implementation status of major projects and activ-ties with significant traffic content. The projections are de- tailed in Annex 3-1, as well as in Annexes 5-1 through 5-5 and summarized below. The key assumptions of the traffic forecast as they relate to the proposed project are: (a) Senegal will continue to import over 700,000 tons of food pro- ducts annually until 1990 with a possible decrease to 600,000 tons by 1995 if major agricultural projects under preparation are successful; (b) imports of consumer products will continue to grow in accord- ance with projected annual increases in GNP of about 4%; (c) imports of intermediate goods will grow following the require- ments of major projects -- the main one being the ICS industri- al project, which will become operational in 1984 -- and should reach 325,000 tons by 1990 compared to 205,000 tons in 1982; and  - 29 - (d) fish exports, mainly shipped in refrigerated containers, would more than double during the present decade and would be expect- ed to reach 220,000 tons by 1990. 5.04 Container traffic has been projected to grow as follows: Dakar Port - Container Traffic Forecast 1975 1982 1985 1937 1990 1995 Actul TEU (thousand units) With project - - - 65.7 91.3 115.0 Without project 5.8 40.0 52-5 65.7 74.3 94.3 TON (in thousands) With project - - - 465 715 931 Without project 41 275 350 465 544 719 The main assumptions, with the project, are that dry cargo will continue to be containerized at increasing rates, particularly since a growing percentage of ships serving Dakar will be full container vessels. In addition, it is anticipated, based on current trends, that new container shipping lines connecting West Africa with the United States and Japan will start service within the next five years. By 1995, the rates of containerization for containerizable cargo moving between Dakar and Eu- rope would be on average about 80% for general cargo, 40% for refrigerat- ed cargo and 40% for bagged cargo, compared to an average rate for all three categories of about 50% in 1980. The relatively high rate of con- tainerization projected for bagged cargo stems from Senegal's trade imba- lance which makes it profitable to containerize bagged export commodi- ties. Even if the project is not carried out, container traffic will-- mainly because of the cargo composition and the pressure of the shipping lines--continue to grow at a high pace (see table above). The handling costs of containers would, however, in that case, increase substantially (paras. 5.07-5.11), and at the same time, it is likely that the economic- ally advantageous transit traffic of Dakar would partially diminish as shipping lines seek other faster ports with adequate modern container terminals to deposit transshipment containers destined for ports not on their list of calls. Similarly, it is likely that because of long ser- vice times and inadequate conditions at Dakar, some shipping lines may, at times, choose to unload containers destined for Dakar at more effi- cient nearby ports. These containers would then be transshipped to Dakar on feeder vessels resulting in much higher cost without actually reducing the total number of containers handled at Dakar.  - 30 - C. Alternative Terminal Locations 5.05 In their feasibility study, the consultants proposed three port zones -- for which they prepared a total of seven alternative site lay- outs -- for possible location of the new container terminal (Annex 5- 6). The recommended alternative, consisting of the construction of 725 meters of wharf and 17.5 ha of container handling area in the Port's northern area between Moles 6 and 8, is a satisfactory technical solu- tion. Its Phase I development, comprising the construction of 430 meters of quay and 8.2 ha of container handling area including the west side of Mole 6 but allowing the continued full use of the phosphate quay and of Mole 8 in its present form for general cargo, will be built under the proposed project. While this alternative has less expansion potential than the external one (Annex 5-6), it would still allow, when fully de- veloped, to cover needs beyond the year 2000, has good road and rail transport access, and its construction would only minimally constrain ongoing port operations. The possibility of building initially only one berth of about 250 m length with a corresponding smaller storage area has been considered but discarded as the savings in the initial construction cost of some US$4 million out of US$16 mil:Lion would have been offset by the overall increase in construction cost (higher unit cost because of smaller quantities in addition to double mobilization and supervision costs, when the extension to 430 m were to be built) and the increase in vessels' and cargo's handling costs. These cost increases would stem from the diversion of a large number of container vessels to the existing facilities because of the reduced berthing and container handling capac- ity at the smaller container terminal. D. Project Benefits 5.06 The analysis assumes that the operational improvements referred to in paras. 3.07 and 4.17 would allow, without the new investments in- cluded under the poposed project, a certain increase (possibly 10-15%) in the utilization of the existing storage. However, these improvements would gradually be reduced with the increase of the number of containers due to the physical constraints imposed by the limited container handling areas available. Therefore, the benefits attributed to the project in- vestment are over and above the increases in capacity brought about by the policy and operational agreements and improvements reached in connec- tion with the project. 5.07 The quantified benefits from the proposed project are savings in ship service time and in handling costs stemming from more efficient operations allowed by the project and avoidance of double handling of containers which would have resulted due to saturation of existing port storage areas. The benefits are computed based on the container traffic projected without the project. Potential additional benefits which would occur if the incremental traffic with the project materializes are exclu- ded from the base economic evaluation. The main assumptions are ex- plained below and details given in Annex 5-7.  - 31 - Savings in Ship Service Time 5.08 The construction of the proposed new terminal will allow ships docking at the new facility, mainly full container ships and Ro-Ro ves- sels (with slewing ramps), to enjoy a much faster service than they would in the increasingly congested existing port area for containers. In addition, Ro-Ro vessels with fixed stern ramps and multi-purpose vessels carrying general cargo as well as some containers will continue to be served in existing facilities but will be handled more efficiently since congestion at berth-side and storage areas will be alleviated as a result of most container movements being diverted to the new terminal. The quantification of ship service time savings is based on separate analysis of service times for ships docking at the new terminal and at the exist- ing Port; and for the latter, savings are differentiated between multi- purpose ships carrying containers as well as general cargo and conven- tional ships carrying general cargo only. Similarly, the costs per ship- day have been assessed for each type of vessel. The proposed project would save the equivalent of 526 ship-days by 1990, when some 205 full container ships are expected to call at Dakar Port. 5.09 Most of the ships which will benefit from the improved service are foreign-owned. Empirical evidence indicates that in shipping, there are significant time lags until savings to shippers are fully transferred to users through lower rates. Overall, for the purpose of this analysis, it is assumed that only 50% of the ship service time savings would be retained initially by Senegal. Conversely, without the project, the increased congestion and resulting further decline in service efficiency would likely be reflected in increased maritime costs to Senegal. Sav- ings in service time accruing to domestic ships are fully transferred to the Senegalese economy. Freight carried today under the Senegalese flag by four small domestic shipping lines which either lease hatch-space or vessels, or own small vessels, is small but is increasing. On this ba- sis, it is assumed that by 1992, Senegal would augment the portion of retained service time savings to 60%, a percentage which would be expect- ed to remain constant until the end of the project's economic life. Cargo Handling Savings 5.10 The proposed project will also allow more efficient handling of containers at the new terminal as well as improved efficiency of cargo handling at the existing Port due to increased operational areas avail- able, resulting in cargo handling savings. The benefit quantification considers each type of cargo handling operation and specific handling rates with and without the project for full container, roll-on--roll-off, multipurpose and conventional ships; it takes into account the equipment and labor handling costs for the traffic served at the existing Port, and savings in labor costs only in the new terminal since the increased effi- ciency will require a proportional increase in equipment. Savings in  - 32 - labor costs have been taken at relevant shadow prices in the case of general cargo only, since handling of containers requires skilled equip- ment operators who are in high demand. Savings in Double Transport of Containers 5.11 The traffic of containers projected without the project would largely exceed the capacity of the Port's existing storage areas. These areas which are, in addition, dispersed, were saturated in 1982/83. An additional 8,000 m2 of new area (the new Ro-Ro Terminal) which were put in service in October 1983 will alleviate the congestion, and improved operationa:L measures should help the Port handle the traffic until the new terminal is operational. Without the project, containers exceeding the Port's capacity would have to be transported to an intermediate in- bond storage area outside the Port until cleared by customs for delivery to consignee. Even full utilization of existing areas requires some double transport for grouping by stevedoring companies; transport bet- ween the Port's Northern and Southern area is expensive since it has to go through city streets, and costs some US$90 per container, excluding road user (fuel) costs and taxes. Transport to an outside storage area would cost at least as much. The proposed project will eliminate the need for such unnecessary transport and its related investments in in- bond storage infrastructure, equipment, and operating costs. E. Economic Return, Sensitivity Analysis and Risks 5.12 The economic analysis compares a reference (without) case con- sisting of continuing utilization and increasing congestion of the exist- ing Port facilities with a situation where the new container terminal is built. The economic benefits considered are those described above and the costs (excluding all taxes) comprise the construction and incremental maintenance of the terminal and all associated services (construction supervision, management and operation study, and related training), rep- resenting 90% of all project costs. The remaining project costs comprise technical assistance to the rehabilitation of PAD as a vital public en- terprise, for which no separate economic analysis has been done. The economic life of the facility is taken at 25 years. Savings in unskilled labor have been quantified at their shadow price. Savings in ship ser- vice time have been taken only to the extent that they are expected to be retained by Senegal. Costs and benefits are summarized in Annex 5-8. 5-13 On the basis of these assumptions, the proposed project would yield a satisfactory rate of return of 23%. The first-year benefit is estimated at 15%. The estimate of the investment cost is based on actual bid prices received and on similar works recently completed at Dakar under the Fishing Port Project and should not be subject to large varia- tions. Overall, the sensitivity analysis, including increases in costs and shortfall as well as lag in benefits, gave satisfactory results even under pessimistic assumptions: if all benefits were to lag by two years, the return would be 18%, and if investment costs were 20% higher and all  - 33 - benefits 20% lower, the return would be 17% (Annex 5-9). Benefits from container traffic which the project might generate, both transshipment and additional cargo that could be containerized with the project, were considered uncertain and excluded from the main evaluation; benefits from additional PAD revenues and reduced transport insurance charges on the incremental containerized cargo to and from Senegal would bring the return to 24%. 5.14 There are no economic risks of significance associated with the project since there has been a good base to estimate construction costs (bid prices for major civil works were known before negotiations), and adequate safeguards have been taken to ensure that the new terminal will be efficiently operated and that expected benefits will materialize (para. 4.07). 5-15 The project's economic rate of return is substantially higher than the 5-6% financial rate of return on PAD's revalued net fixed assets projected through 1995 (para. 6.15). Two reasons explain this differ- ence. First, the two rates are not comparable because the economic re- turn is based on benefits accruing to the Senegalese economy while the financial return is based on Port's revenues. While the Port will recov- er some of the economic benefits through appropriate charges on its new facilities which will ensure recovery of the investment, other benefits such as savings in cargo handling and avoidance of double transport will accrue to private operators and will be expected to be passed on to con- sumers through lower stevedoring charges. Second, the economic return is incremental on the container terminal investment costs (and benefits) only, while the financial return is based on all Port's assets. The Port has a large asset base which cannot be utilized at optimum capacity be- cause changes in shipping and packing technologies, particularly with the introduction of containers, have made them temporarily idle which brings the financial returns down. VI. FINANCIAL EVALUATION A. Recent Financial Performance and Current Financial Position 6.01 PAD's recent financial performance is summarized in the table which follows. It shows a deterioration of PAD's annual rate of return on fixed assets, mainly due to inadequate tariff levels in relation to operating costs. PAD's tariff revision formula works on the basis of the agreed rate of return targets set forth in the ongoing Fishing Port Pro- ject. However, due to the delays in revaluing the asset base, and due to material error in the fixed asset and depreciation accounts, the rate setting formula resulted in inadequate revenue levels. Besides the tar- iffs being too low, the revenues they generate mainly served to increase  - 34 - PAD's theoretical liquidity in the Senegalese Treasury. This is due to the cash pooling arrangement that public enterprises in Senegal are sub- ject to. Effectively, enterprises such as PAD, and the Post and Tele- communications entity, which are generally profit-making entities with substantial cash flows (despite weak tariff structures), provide the operating cash to support weaker enterprises in the pool. In addition, the pool, which is maintained as an account in the Treasury, serves to shore up the Government's weak finances. The solidarity and integrity of this pooling arrangement have been zealously guarded by the Ministry of Finance and form the main bone of contention of enterprises such as PAD seeking greater financial autonomy and more independent use of their own cash flows. On the books, however, PAD's financial position remains sound with a low debt/equity ratio even after the borrowings for the Fishing Port Project.  - 35 - PAD - Recent Summary Inomoe Statenents (CFAF Millions) ACTUAL ESIMALE 77/78 78/79 79/80 80/81 81782 -W8-3 Operating Revenues 2,623 2,699 2,648 3,010 3,585 3,800 Working Expenses Staff 637 717 780 872 980 1,1Dl Other 548 622 581 702 904 995 Depreciation 755 500 542 584 579 561 Provisions - 17 77 - 320 _- Net Operating Revenues 1,083 523 668 852 802 1,143 Interest Charges 326 164 83 218 140 408 Net Incone before Tax 757 359 585 634 662 735 Taxes o Income 152 60 115 106 110 - Net Inoome 605 299 470 528 552 735 Extraordinary Gain (loss) - - - - - (2,235)/c Net BEok Profit (loss) 605 299 470 528 552 (1 ,50) Working Ratio (%) 45 50 51 52 53 55 Operating Ratio (%) 59 76 71 72 72 70 Rate of Return /a on Average Net Fixed Assets7b 11.6 4.9 4.9 5.8 5.1 8.7/d Rate of Return /a-if Revaluations Had Been Carried Out in 79/80(%) 11.6 4.9 4.9 4-0 3-5 3.5 /a After tax. /E Historic asset values. /c One time correction of i) writeoffs of unrecoverable accounts receivables; (ii) under-recorded depreciation in prior years; and iii) under-recorded interest charges on long-term debt onlent to PAD. /d Anomalous increase because tax liability expected to be zero due to imaact of large extraordinary book loss.  - 36 - 6.02 The main points worthy of note in PAD's recent income accounts are: (a) the increase in PAD's wage bill due to general salary increases mandated by the Government; (b) the inadequate level of maintenance expenditures, caused in part by PAD's inability to use! its internal cash generation; and (c) the increase in revenues derived from fishing port operations-- a beneficial impact of the improvements introduced with the completion of the Fishing Port Project. PAD's published statements reflect inadequate depreciation charges and provision for losses on accounts receivable and omit the differential interest charge on the onlent IBRD and BADEA loans for the Fishing Port Project. The correction of these errors and omissions is likely to pro- duce a net impact on PAD's 1982/83 income statement of about CFAF 1 500 million in extraordinary losses, when the final audited statements become available sometime in early 1984. 6.03 PAD's accounts receivable increased substantially between 76/77 and 80/81 mainly due to increasing arrears in payments by Government agencies, and due to inadequate client account supervision and follow- up. Improved collection since then has reduced the level of net receiv- ables to around 35-40% of annual revenues (if adequate loss provisions are netted out of the balance sheet figures). Whilst this is still high, PAD management has been taking stringent measures and expects to reduce the level to around three months of revenues by mid-1984. A first step in this process is a complete overhaul of PAD's client accounts to recti- fy major errors, and to accurately identify potential losses. The tech- nical assistance team and the auditors are helping PAD in this cumbersome process. 6.04 The following table summarizes the recent evolution of PAD's financial position and the estimated corrected FY1983 balance sheet. Despite the corrections to be effected, PAD's financial position remains sound with a low debt/equity ratio, and an adequate level of net working capital.  - 37 - PAD - Recent Sumnay Balnce Sheets (CFAF Millions) At June 30 1978 1979 1980 1981 1982 1983 (est.) 'Net Fixed Assets 8,672 10,597 12,200 13,6C8 13,228 12,587 Other Assets (net) 348 348 400 423 345 150 Net Curxent Assets 2,1C0 2,141 2,250 2,570 3,376 2,454 Total Net Assets 11,120 13,086 14,850 16,601 16,949 15,191 Finnced by: Iong Term ebt 530 1,721 2,750 3,849 3,574 3,316 Equity and Retained&nirlgs 10,590 11,365 12,100 12,752 13,375 11,875 Total long-term capital 11,120 13,C06 14,850 16,601 16,949 15,191 Debt/Equity Ratio 5:95 13:87 19:81 23:77 21:79 22:78 6.05 However, there is one worrisome issue relating to large amounts due from the Government for services performed by PAD in the maintenance of buoys and beaconage on Senegal's coastline and for operating the Dakar-Goree ferry. The most recent level of payment arrears at March 31, 1983, showed an amount of nearly CFAF 1 billion, going back to FY79. At the same time the audits have revealed a potential income tax liability, the magnitude of which needs to be estimated during the next phase of the audit program. The Government and PAD discussed with the Association at negotiations a plan and timetable for clearing all their mutual debts and obligations. The plan also covers the measures to be taken through appropriate budgetary mechanisms to prevent a reoccurrence of Government payment arrears. A covenant to this effect was agreed at negotiations. The signature of a formal agreement between PAD and the Government on the compensation of past mutual debts and obligations would be a condition of effectiveness of the proposed Credit. B. Financial Objectives and Targets 6.06 PAD's stated long-term objective is to be a fully autonomous, commercially-oriented public enterprise. In recent years, however, the Government has exercised an over-zealous control over PAD and has been responsible for setting financial policy contrary to the objective of full-cost recovery: although no direct operating subsidies are involved, ad-hoc tax exemptions and insufficient recurrent expenses for maintenance due to unavailability of funds result in artificially low costs, further  - 38 - aggravated by the postponement of asset revaluations. Tariffs covering these costs are low and are currently earning an insufficient return on its invested capital. The Government has up to now been unwilling to release PAD from the strict control of its treasury pooling arrangement. 6.07 This situation would change under the proposed project. The Government has recognized the need to undertake a total reform of the parapublic sector and has agreed that an essential step would be the return to the objective of full cost recovery of enterprises like the Port of Dakar. Coupled with this, the Government has agreed that finan- cial and managerial autonomy would be restored to the enterprises--albeit in a progressive manner. Under the project, the major emphasis would be on preparing PAD's internal structure and strengthening PAD's internal organization to fully assume the statutory objective of financial and managerial autonomy and accountability. This process will take at least the next four years to achieve; several intermediate objectives have been agreed at appraisal and were confirmed during negotiations. These are as follows: (a) no exemption of taxes and duties on the project investment; (b) creation of a mechanism to isolate at the source, a part of PAD's cash revenues into a separate account so that these funds are directly available to PAD to finance its share of project costs (including taxes) and its annual renewals and invest- ments; (c) increase of the ceiling (from CFAF 10 million to CFAF 125 mil- lion) of PAD's existing revolving fund for operations, so that a greater portion of PAD's cash flow would also be isolated from the currency pool; and (d) setting up of an arrangement to ensure regular payment by Gov- ernment of its bills for services rendered by PAD (primarily in operating the navigational aids and buoyage and beaconage ser- vices along the Senegalese coastline, and in running the de- ficit-ridden Dakar-Goree ferry services). 6.08 The Government and PAD management have taken the first three of the above steps. PAD's Special Account in the Treasury has been opened and since July 1983, 15% of daily revenues are being transferred to this account, from which PAD will transfer out to an external bank account the funds needed for the project. The percentage of transfer will rise to 30% in FY85 and 40% in FY86 and FY87. Nearly 50% of incremental revenues over the project period will be so transferred and isolated. Together with the increase in PAD's revolving fund for operations, PAD will be able, in practice, to control nearly 70-80% of its annual cash flow. 6.09 By the time the new container facilities are opened in July 1987, the objective would be to set PAD completely free of the a priori  - 39 - expenditure control system. This was agreed at negotiations. The tech- nical assistance provided under the project would have instituted and strengthened internal controls and management structures within PAD so that annual external audits, coupled with any other ad-hoc external re- views by the Government's control organizations, should be sufficient means of supervising PAD's financial and managerial performance. Insofar as the pooling of cash flows is concerned, it was agreed at negotiations, that the Government would present for the Association's review and com- ment, not later than June 30, 1986, a comprehensive plan to transform PAD's legal status to such a suitable form as would permit greater finan- cial and managerial autonomy than what has been agreed under the pro- ject. In addition, the Government has agreed on a series of interim measures to provide PAD with increasing autonomy under the scope of pre- sent legislation. These interim steps would be implemented before the end of 1984. Among the interim measures are further relaxation of the a priori expenditure control system and the progressive separation of a greater part of PAD revenues into a Special Account. 6.10 The translation of the full-cost recovery objective into action would require changes in PAD's tariff structure and levels. As stated in para. 3.33, a tariff structure study is being carried out by PAD and the results would be incorporated into PAD's tariff structure by July 1, 1984. Adjustment of tariff levels to fully reflect the cost of new fac- ilities and retirement of assets no longer deemed productive would not occur before FY1988 when the terminal would be in full operation. A rate of return objective would not therefore be practical to specify and moni- tor until after project completion. A realistic target that would satis- fy full cost recovery has been estimated at 6% of average re-valued net fixed assets in use. This estimate would be reviewed no later than June 30, 1987, and incorporated as the long-term financial objective for PAD. During the project implementation period, in view of the need to isolate PAD's cash flow to finance PAD's share of project costs, and to ensure an adequate flow of cash into the Special Account mechanism, a specific cash flow covenant will be set as the short-term financial cove- nant under the project. The rate of return objective will permit PAD to more easily and simply defend its tariff policy vis-a-vis the main port users in the long term; the cash flow covenant will permit PAD to ensure adequate internal cash generation for the project and for ongoing renew- als and other capital investments. Simply put, PAD's tariff increases or structural changes should generate sufficient additional revenues each year to cover PAD's cash operating needs, debt service, PAD's share of project costs (including interest during construction and taxes and du- ties), provide fully for annual renewals and reinvestment needs at least equal to its book depreciation, and cover all required increases in work- ing capital. This requirement would mean that each year PAD would cover  - 40 - at least 40% of the average capital expenditures for the prior, current and following years out of the current year's internal sources after meeting debt service. The averaging procedure would smoothen large an- nual variations in capital investment needs. 6.11 Financial targets in line with the above financial objectives agreed upon at negotiations are summarized as follows: PAD - Fnancial Targets 81/82 84/85 85/86 86/87 87/88 and Byond (Actual) --- Objective--- a) Cash Flow from Operations after Debt Services as % of 3-year Average Arnml Capital EKpenditures 131 - - Not less than 40---- b) Rate of Return on Revalued Net Fixed Assets in Use (%) not specified- not less than 6 c) Accounts Receivable as % of Anmnal Operating Revenues (not to exceed) 45 35 30 30 25 During the project implementation period, annual consultations would be held with PAD at least 90 days prior to close of the fiscal year, so that PAD's proposed budget for the following year can be reviewed in time to ensure any corrective action needed to achieve the above targets. During negotiations, agreement was obtained on the format of semi-annual report- ing by PAD on a set of key indicators of financial performance (working ratio, operating ratio, ageing of accounts receivable, variances from budget revenue and expenditure forecasts, etc.). C. Forecast Financial Performance Income Account 6.12 The financial forecast for FY1984-1990 has been developed in current prices (with an average rate of inflation of 10% a year on oper- ating expenditures 1/ -- corresponding to recent PAD experience) on the 1/ A sensitivity test of a higher rate inflation in operating costs has been carried out (see para. 6.20). No reductions in staff arising from produc-tivity improvements envisaged under the project have been taken into account in the base analysis.  - 41 - basis of the financial objectives, the project financing plan and traffic forecasts. The revenue forecast closely follows the traffic forecast and no allowance has been made for the beneficial effects that a restructur- ing of tariffs would have. Revenues in constant terms are forecast to increase an average of 3.5% a year through 1989/90, i.e., at about the rate of growth of total traffic, and 1.5% a year thereafter. 6.13 The calculation of the annual rate of return has been adjusted for a pro forma revalued asset base, given the legal difficulties of having PAD's books reflect the revaluation (para. 3.29). After PAD has carried out the asset revaluation, it will use these values as the basis for future tariff setting, even though the books may not reflect the revalued asset values. PAD agreed at negotiations to furnish annually pro forma statements demonstrating that its rate of return on revalued net fixed assets in use meets or exceeds the agreed targets. PAD also agreed to maintain the pro forma revaluation current by appropriate in- dexing and should review at least once every five years the physical condition of its assets. The summary forecast income account is shown in the table which follows and detailed in Annex 6-1.  - 42 - PAD - Summary Forecast Income Statements (CFAF Millions) 82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 (Et.) - --------Forecast-- - Operating Revenues 3,8X0 4,452 4,860 5,532 6,299 7,172 8,016 8,959 Working Expenses 2,096 2,442 2,522 2,774 3,C51 3,356 3,692 4,061 Operating Expenses 2,657 3,373 3,519 3,877 4,273 4,987 5,530 5,895 Operating Income 1,143 1,079 1,341 1,655 2,026 2,185 2,486 3,064 Interest Charges 409 456 571 725 872 926 888 825 Net Income before Tax 735 623 770 930 1,154 1,259 1,598 2,239 Taxes on Income - - - 137 192 291 533 746 Net Income: 735 623 770 793 962 968 1,065 1,493 Extraordinary Gains (Losses) (2,235) -- -- - -- - - Net Book Profit (Loss) (1 ,5C0) 623 770 793 962 968 1,065 1,493 Working Ratio(%) 55 55 52 50 48 47 46 45 Operating Ratio (%) 70 76 72 70 68 70 69 66 Rate of Return Revalued Average Net Fixed Assets in Use 19,740 18,781 19,972 22,274 27,045 28,150 29,840 31,630 Net Income after Tax and before Interest Corrected for Depreciation on Revalued Asset Base 691 743 891 1,156 1,472 1,690 1,805 2,075 Rate of Return (%) 3.5 4.0 4.5 5.2 5-4 6.0 6.0 6.6  - 43 - 6.14 The main assumptions used in the forecast are summarized below: (a) After the average tariff increase of 13% enacted by PAD's Board prior to the start of FY84, revenue increases through tariff increases and structural changes are expected to total an aver- age of 10% (composed of an 8% average on all traffic categories and a 12% surcharge on Senegal bound container traffic) in each of the fiscal years 85, 86, 87 and 88 and a nominal 8% (i.e., no further surcharges) in years thereafter. (b) A provision for losses on receivables has been set at 5% of prior years' revenues and 3% of revenues of the year before. This is in accordance with recent review of the potential los- ses on PAD's accounts receivable. However, with improved man- agement of client accounts, PAD should be able to reduce this provision annually to about 3% of revenues (2% of prior year and 1% of the year before); beyond FY87, the lower figures are used in the analysis. (c) Taxes on income are calculated on the basis of existing tax code provisions which permit loss carryforwards of up to five years and deduction from taxable income of up to 50% of invest- ment expenditures financed from internal sources subject to no more than a 50% reduction of taxable income in any year; any excess investment tax credits are carried forward up to seven years (the income tax rate is 33%). (d) PAD would not capitalize interest during construction. The analytical accounting adjustment for depreciation on a revalued asset base has been made on the basis of a revalued base calculated using aver- age international inflation indices of manufacturing and estimates of future international inflation. At the same time, allowance has been made for a possible reduction of PAD's assets in use beyond 1987 when the new terminal would enter into service and some existing berths become redundant, or are put to new uses (para. 3.33). 6.15 The main conclusions from the analysis are: (a) PAD should raise additional revenues in each year through tar- iff increases or structural adjustments to achieve the cash flow targets in FY85-87 and earn a rate of return on average revalued net fixed assets in use of at least 6% in FY88 and each year thereafter. (b) PAD should make appropriate loss provisions as recommended by its auditors.  - 44 - Cash Flow Analysis and Forecast Financial Position 6.16 The forecast Statement of Source and Application of Funds is summarized in the table which follows and detailed in Annex 6-2. PAD - Summary Forecast Sources and App]ication of Fands (CFAF Millions) Total 82/83 83/84 84/85 85/86 86/87 87/8f Project 88/89 89/90 (E-st.T ) 8488) Tnternal Sources 1,704 2,010 2,338 2,621 3,056 3,525 13,550 3,791 4,152 Borrowings -- 60 2,477 2,726 1,853 146 7,262 - -- Total Sources 1,704 2,070 4,815 5,347 4,909 3,671 20,812 3,791 4,152 - The Project (incl. taxes) - --- 3,246 3,796 2,654 174 9,870 - Interest during Construc. -- - 134 312 482 - 928 -- - Other (Investments and Renewals) 6C0 703 730 726 800 880 3,839 960 1,200 - Net Compensation Ptyments /a -- -- 328 56 180 833 1,397 953 -- - Increase (Decrease) in Worklng Capital 230 531 (97) (362) 15 347 434 36 79 - Net Purchases of Treasury Bnds -- 60 62 31 1 6 160 1 68 - Debt Service 685 798 790 7X T77 1,324 4,477 1,788 1,736 Total Applications 1,515 2,092 5,193 5,347 4,908 3,564 21,105 3,738 3,083 Net Increase (Decrease) in Surplus Cash 189 (22) (378) 0 0 107 (293) 53 1,069 Debt Service Coverage 2.5 2.5 3.0 3.3 3-9 2.7 3.0 2.1 2.4 % of Capital Expenditures Financed by Intermal Sources after Meeting Debt Service /b 131 172 40 40 57 147 62 209 201 /a Fayments of arrears and back taxes owed to Goverment less payments received frcm Govenment. /b Average of prior, current and following year's capital expenditures.  - 45 6.17 Over the project implementation period, PAD cash flow under the minimal tariff/revenue increase assumptions of para. 6.14 would provide full coverage of PAD's share of project costs and all of its renewal and investment needs, together with its debt service obligations and minimum needed increases in working capital. It would also provide sufficient surplus cash to permit PAD to settle its outstanding income tax and in- terest arrears with the Government, under the terms of a compensation plan that was discussed and agreed upon at negotiations. The debt ser- vice coverage is adequate at over 2.0 in all years of the forecast pe- riod; coverage of total capital expenditures out of internal cash gene- ration is satisfactory and in keeping with the stated financial object- ives. The coverage of the maximum debt service (occurring in FY90) in- creases from just under 1.0 in FY84 to 1.25 in FY86 and nearly 1.8 by the end of the project implementation. This is satisfactory. However, to ensure that the position does not deteriorate during the critical years following implementation of the project, a financial covenant was agreed at negotiations stipulating that until completion of the project, no additional debts (other than those agreed under the project financing plan) may be incurred by PAD without prior agreement of the Association if the maximum debt service resulting from the additional debt and the debt service from the existing debt were not in toto covered at least 2.0 times by the cash flow from internal sources in the year in which such additional debt is to be incurred. At the same time, it was agreed that the final shape of the compensation plan specifying the annual reciprocal payments should be acceptable to the Association. The proposed plan with known amounts would be initialed by PAD and the Government as a condi- tion of effectiveness of the Credit. 6.18 A separate analysis of the flow of funds into PAD's Special Account mechanism showed that some flexibility in payment of project taxes out of the Special Account will be needed so that sufficient funds are always available in the Account to cover the next three months of PAD's share of project expenses and provide a reserve against possible exchange losses. However, in no circumstances should this flexibility permit a delay in PAD's settlement of its fiscal liability beyond July 1, 1989. This was confirmed at negotiations. All project related contracts would be let net of taxes, and separate project tax accounts would be maintained by PAD so that the extent of its tax liability is fully recorded and payments made out of the Special Project Account. The detailed mechanism for achieving PAD's payment of project related taxes is spelled out in a side letter. 6.19 PAD's forecast financial position is summarized in the table which follows and detailed in Annex 6-3.  - 46 - PAD - Summary Forecast Balance Sheets (CFAF Millions) At June 30 1984 1985 1986 1987 1988 1989 1990 ASSETS Net Fixed Assets in Use 12,650 13,045 16,915 22,283 22,320 21,990 21,740 Work in Progress - 2,921 2,847 133 - - - Other Net Assets 2,940 2,593 2,20B 2,089 1,972 1,847 1,786 Current Assets 4,170 3,951 4,019 3,774 3,925 4,301 5,711 Iess: Current Liabilities 1,392 1,398 1,964 2,368 2,687 2,032 2,305 Net Current Assets 2,778 2,553 2,055 1 ,406 1 ,238 2,269 3,406 TOT1AL N ASES 18,368 21,112 24,025 25,911 25,530 26,106 26,932 FINNCED BY Net Long Tenn Debt 5,115 7,10B 9,331 10,666 9,789 8,752 7,701 Other Long Term Liabilities 2,622 2,266 1,786 953 -- - - Eqiuity and Reserves 10,631 11,738 12,90X3 14,292 15,741 17,354 19,231 TOTAL 18,368 21,112 24,025 25,911 25,530 26,106 26,932 Current Ratio 3.0 2.8 2.0 1.6 1.5 2.1 2.5 Total Debt/Equity Ratio 42:58 44:56 46:54. 45:55 38:62 34:66 29:71 Net Accounts Receivable/ Gross Operating Revenues(%) 42 40 35 30 25 25 25 PAD's debt/equity ratio reaches a peak of 46/54 in FY86 due to the highly leveraged financing plan. However, as shown in para. 6.17, the debt service coverage remains adequate. PAD's current ratio remains high and is entirely satisfactory. Other assets include the capitalization of the estimated exchange losses on PAD's external debt under the Fishing Port Project, as the repayment of such debt is denominated in US dollars; they are amortized in relation to the annual repayments taking place. They also include the compensation payments due from Government beyond 12 months, as well as PAD's net balance of treasury bonds. Other long term liabilities include the compensation payments owed by PAD beyond 12 months. The current portion of all compensation payments is reflected in the net current assets, as are the short term deferrals of payments of project taxes and duties. Major Risks and Sensitivity Analysis 6.20 The main risk associated with the project is institutional (para. 6.22). On the financial side, the Port's finances are sufficient- ly robust to withstand even lower levels of tariff changes and even a drop in traffic. The base analysis was carried out on a fairly conserva- tive traffic forecast and the downside risk is minimal. Sensitivity tests were carried out to see the effect of a lower traffic growth, a higher rate of inflation in working expenses, and lower tariff/revenue increases. The results are summarized in the table which follows.  - 47 - PAD - Sensitivity Analysis of Financial Indicators (CFAF Millions) 83/84 84/85 85/86 86/87 87/88 88/89 89/90 BASE CASE: 1. Net Income after Tax 623 770 793 962 968 1,065 1,493 2. Net Internal Sources after Meeting Debt Service 1,212 1,548 1,833 2,Z79 2,201 2,003 2,416 3. Cash Surplus (Deficit) (22) (378) - -- 107 53 1,019 4. Project Taxes Paid - 332 593 779 472 - --- 5. Debt Service Coverage (tines) 2.5 3.0 3.3 3-9 2.7 2.1 2.4 6. Rate of Return (%) 4.0 4.5 5.2 5-4 6.0 6.0 6.6 7. Net Compensation Payments to Gov. /a - 328 56 180 833 953 - 8. Current Ratio 3.0 2.8 2.0 1.6 1.5 2.1 2.3 9. % Capital Investments Covered by Internal Sources 172 40 40 57 147 209 201 CASE 1: Lower traffic growth (2.5% a year versus 3.5% a year) + higher rate of inflation of working expenses (12.5% vs 1C% a year). 1. Net Incme after Tax 623 770 696 745 687 694 896 2. Net Internal Sources after Meeting Debt Service 1,212 1,548 1,736 2,060 1,912 1,618 1,806 3. Cash Surplus (Deficit) (22) (378) -- -- - -- 4. Project Taxes Paid - 332 578 741 525 - - 5. Debt Service Coverage (times) 2.5 3.0 3.2 3.7 2.4 1.9 2.0 6. Rate of Return (%) 4.0 4.5 4.6 4.2 4.3 3.9 4.0 7. Net Coapensation Payments to Gov. /a - 311 (43) (16) 491 5CB 456 8. Current Ratio 3.0 3.1 2-3 1-9 1.8 1.9 1.7 9. % Capital Investments Covered by Internal Sources 172 40 38 52 123 169 151 10. Additional Tariff Increases (%) Needed to Attain Cash Flow and ROR Targets --- - +2 - +2.5 -- +2 CASE 2: Base traffic growth (3.5% a year) + higher rate of inflation (12.5%). 1. Net Income after Tax 623 770 740 844 845 833 1,170 2. Net Internal Sources after Meeting Debt Service 1,212 1,548 1,780 2,161 2,078 1,771 2,093 3. Cash Surplus (Deficit) (22) (378) - - -- -- 117 4. Project Taxes Paid - 332 593 779 472 - - 5. Debt Service Coverage (times) 2.5 3.0 3-3 3.8 2.6 2.0 2.2 6. Rate of Return (%) 4.0 4.5 4.9 4.7 5.2 4.7 5.2 7. Net Compensation Payments to Gov. /a - 311 (21) 34 7C8 745 573 8. Currant Ratio 3.0 3.0 2.2 1.7 1.6 1.7 2.2 9. % Capital Investments Covered by Internal Sources 172 40 39 54 139 184 174 10. Additiornal Tariff Increases (%) Needed to Attain Cash Flow and ROR Targets - - +2 - +1.5 - -- CASE 3: Lower traffic growth (2.5% a year) + higher rate of inflation (12.5%) + no container surcharge after FB84. 1. Net Income after Tax 623 681 550 479 295 373 640 2. Net Internal Sources after Meeting Debt Service 1,212 1,459 1,585 1,781 1,498 1,262 1,523 3. Cash Surplus (Deficit) (22) (378) (87) (107) (99) 60 63 4. Project Taxes Paid - 315 518 632 711 - - 5. Debt Service Coverage (times) 2.5 2.8 30 33 2.1 1.7 1.9 6. Rate of Return (%) 4.0 4.0 3.6 2.7 1.8 2.1 2.8 7. Net Compnsation Payments to Gov. /a - 270 (50) (50) - - - 8. Current Ratio 3.1 3.0 2.2 2.1 2.2 2.4 1.1 9. % Capital Investments Covered by Internal Sources 172 38 35 46 86 131 127 10. Additional Tariff Increases (%) Needed to Attain Cash Flow and ROR Targets - +2 +1.5 -- +4.0 - +2.0 /a Net jsyments = payments made - peyments received.  - 48 - 6.21 Four major effects are discernible. First, as a result of a lower cash flow in the three alternatives tested, PAD needs a longer period to complete its payments of income tax arrears to the Govern- ment. The worst case scenario (case 3) shows that with the cash flow available, PAD is not able to settle its outstanding arrears (amounting to an estimated CFAF 2,500 million) during the project years nor during the entire projection period. Second, there is a lowering of the debt service coverage. However, even in the worst case, the debt service coverage remains a satisfactory 1.7 in the peak debt service year (1988/89). Third, there is a lowering of the target rate of return in the outer years and reduction of the coverage of capital investments by internal sources, particularly in the critical years of projet execu- tion. In the worst case scenario, the coverage drops to 35% in 1985/86. Additional tariff increases will then be needed to attain the targets. These are estimated in the table, but are fairly marginal in- creases except in the worst case scenario. Nevertheless, it is amply evident that PAD will need to effect the minimum tariff increases postu- lated in the base analysis (para. 6.14) in order to withstand the com- bined effects of lower traffic growth and higher level of working expen- ses. It is for this reason that PAD must at a minimum implement a tariff increase of the order of 10% at the start of FY85 as a condition of ef- fectiveness of the proposed Credit. Further tariff increases will be needed in FY86 and FY87 and will be monitored through the proposed cash generation covenant. Annual consultation will be required at least one month prior to close of PAD's fiscal year so that the cash flow target can be reviewed and corrective action taken. The importance of the cash covenant and timely tariff increases is further underscored by the fourth major effect in the above table, i.e., the current ratio, which in the worst case scenario falls to a low 1.1 at the end of FY90. In each case, however, the lower net revenues result in lower income taxes, thereby mitigating the effect of lower traffic growth and higher inflation. Cash flow from operations thus does not fall as steeply as do net operating revenues and even in the worst case scenario, PAD is able to maintain sufficient flexibility to cover any conltingent increases in project costs. This flexibility is provided both by the cushion of available liquidity and the ability to defer payment of project taxes (para. 6.18). 6.22 In the final analysis, the main risk is that PAD's internal structure does not develop as envisaged and that as a result, its finan- cial management does not improve to the extent forecast. This would re- sult in inefficient use of the heavy investment by Senegal in a container port facility and possible loss of tax revenues to the Government, due to PAD's inability to generate the level of revenues it would have been equipped to do.  - 49 - VII. AGREEMENTS REACHED AND RECOMMENDATION 7.01 The following agreements were reached with the Government and/or PAD during negotiations: (i) Plan of Action for: improving operations in the Mali Port Zone (para. 3.06); reorganizing operational areas (para. 3.10); reducing container dwell time (para. 3.12); improving customs' and gendarmeries' activities within the Port area (para. 3.12); redeployment of PAD staff and improvement of maintenance (para. 3.25); and related target dates (para. 4.17); (ii) PAD to revalue its committed fixed asset base and in- corporate the new values into pro forma accounts to be presented for Association review no later than December 31, 1985 (para. 3.29); (iii) external audit program (para. 3.30); (iv) PAD and Government to review recommendations of the tariff structure study not later than March 31, 1987, and convert these into a new tariff structure operable not later than July 1, 1987 (para. 3.33); (v) assurances from PAD that the new terminal will be oper- ated with modern and sufficient container handling equipment; and that sheds, offices and workshops will be made available (para. 4.07); (vi) draft compensation plan on the settling of reciprocal debts and on avoidance of future arrears between the Government and PAD (para. 6.05); (vii) the mechanism for transfer of a part of PAD's daily cash revenues into the Special Account, and annual percentage of revenues to be transferred (para. 6.08); (viii) not later than June 30, 1986, Government to present for Association review and comment a comprehensive plan to increase PAD's managerial and financial autonomy and to effect a suitable transformation of PAD's legal status (para. 6.09); (ix) annual review of long-term rate of return target (para. 6.10) and consultation on financial performance no later than June 30, 1987 (para. 6.10);  - 50 - (x) financial targets on rate of return, accounts receiv- able and net internal cash flow as percent of capital expenditures (para. 6.11); (xi) reporting requirements (paras. 4.13, 6.11, 6.13); (xii) PAD to incur no additional debts (other than those agreed upon under the project financing plan) without prior Association agreement if the maximum debt service resulting from the additional debt added to the exist- ing debt service were not in toto covered at least 2.0 times by the cash flow from internal sources in the year in which such additional debt is to be incurred (para. 6.17); and (xiii) mechanism for PAD to reimburse the project's taxes and duties to the Government (para. 6.18). 7.02 A condition of effectiveness would be the finalization of the compensation plan referred to in (vi) above, including a schedule and amounts to be settled. A further condition of effectiveness would be the implementation of a 10% tariff increase beginning FY85 (July 1, 1984) (para. 6.21) as well as the employment of a suitably qualified port oper- ations expert (para. 4.17). Finally, the conclusion of an onlending agreement on terms and conditions satisfactory to the Association would also be a condition of effectiveness of the proposed Credit (para. 4.11). 7.03 Based on the above agreements, the proposed project is suitable for an IDA Credit of SDR 2.6 million (US$2.65 million equivalent) and a Credit from the Special Fund administered by IDA of SDR 4.7 million (US$4.85 million equivalent). WAPT1 April 1984  SPES8AL DAKAR CCAIR PORT P1WJBT S1TAFF APPRAISAL REPORT Port Traffic: Actual 1973-1952 and Forecast 1985, 1990, 1995 ('0x) tons) 1973 1974 1975 1976 19g7 1978 1979 1g90 1981 1982 1985 1990 1995 =iports A. DryCa Lo 1,261 1,058 797 1,017 1,011 1,199 1,073 1,086 1,185 1,232 1,4C0 1,529 1,535 . Geral cargo 681 593 42 7504 512 617 58f2 552 575 634 675 802 865 2. Bmp 362 323 2B 323 356 377 339 364 424 448 410 415 320 3. Bik 218 142 165 190 163 2Q5 152 170 186 150 315 312 350 B. Petroleun Products 1 ,033 875 673 503 780 1,412 755 460 454 506 640 7TO 750 C. Crude Oil (W Bo) 666 672 653 697 766 758 842 79B 595 474 600 8am 8)0 D. Other Liquid Blk (cheicals ICS) 12 15 21 28 14 23 26 18 23 15 45 60 75 Total 2,972 2,620 2,144 2,245 2571 3,392 2,696 2,362 2,257 2,227 2,685 3,089 3,160 Erports A. y0 Cargo 2,182 2,407 1,974 2,052 2,348 2,175 2,263 1,869 1,684 1,870 2,140 2,485 2,855 1. General cargo 174 232 159 278 255 251 195 205 214 258 325 496 2. BNpg119 144 77 43 45 85 64 76 97 57 115 145 19D 3. Rl1k (inc. ICS fertilizer) 1,899 2,031 1,738 1,731 2,048 1,836 2,001 1,58B 1,373 1,555 1 ,700 1,850 2,000 B. Petroleun Products 70 40 39 73 151 102 248 14 64 86 115 220 225 C. BlkerrEuel 1,002 778 512 447 454 376 281 203 138 168 150 100 100 D. Other Liquid Ba]k (IC%, other) 52 82 128 155 130 39 102 45 38 87 180 230 275 Total 3,306 3,307 2,653 2,727 3,CB3 2,692 2,894 2,131 1,924 2,211 2,585 3,035 3,455 'YTAL 6,278 5,927 4,797 4,972 5,654 6,0e4 5,590 4,493 4,181 4,438 5,270 6,124 6,615 Sarre: PAD, Feasibility Study by PAM (1983) and Bank estimates. March 19s4  Accounting 0 r General Office-- - n 5 a r Personnel OD rSocial Assistance a Medical o Services r \ Public a z HRelations \ c o \o5 0 a Statistics \/ v & Computer \ *0~~~~~~~~~~ Invoicing _ _D2 a Claims tm Office- r :3 Controler Makein C) Pinlotage ___ a 0~~~~~~~~~~~~~~~~~~~~ lParbor Yiaster Pilots and _ _ I Pofficeaf Workshops 1 Operationso// & Equipment - r/ Land Use oH' Cargo Operations Marine and H~~~~~~~~ ~ Zq New Works~o ~ 0 Buildings ,-i r w rD Hardstandings o - H Roads & Railways _ - o 0N - ~ ~ ~ ~ N z-E XiNNV ~ ~ ~ ~ ~ 0 _ 0 05  - 53 - ANNEX 4-1 SENEGAL D3AKAR CONTAINER PORT PROJECT STAFF APPRAISAL REPORT Project Cost Estimate 84/85 85/86 86/87 87/88 TOTAL OCF07 HILL) TOTAL (IN US$ HILL) Z TOTAL FOREIaN LOCAL TOTAL FOREIGN LOCAL TOTAL FOREOTH LOCAL TOTAL FORE108 LOCAL TOTAL FOREIGN LOCAL TOTAL FOREIGN LOCAL TOTAL DAOECGST 1. CIVIL AORKO LOT l(00AY WALL) 790 340 1,135 589 252 841 88 38 126 - - - 1,472 630 2,102 3.755 1.007 5.362 36.1 LIT 2(0REDOING/FILL) 560 49 609 416 36 452 62 6 60 1,038 91 1,129 2.648 0,232 2.880 19,4 LIT 3(PAVING/OTILITIES) - - - 446 113 559 625 157 728 - - - 1,071 270 1,341 2,732 0.689 3.421 23.0