China - Container Transport Project

Document of The World Bank Report No: 33620 IMPLEMENTATION COMPLETION REPORT (SCL-44440) ON A LOAN IN THE AMOUNT OF US$71 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A CONTAINER TRANSPORT PROJECT November 18, 2005  CURRENCY EQUIVALENTS (Exchange Rate Effective January 1, 2005) Currency Unit = Renminbi Renminbi 1.0 = US$ 0.12 US$ 1.0 = Renminbi 8.28 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CCTA China Communications and Transportation Association CPMO Central Project Management Office EDI Electronic Data Interchange EIRR Economic Internal Rate of Return FIRR Financial Internal Rate of Return ICB International Competitive Bidding ICD Inland Container Depot ICR Implementation Completion Report MIS Management Information System PAD Project Appraisal Document PPMO Provincial Project Management Office SETC State Economic and Trade Commission SPC State Planning Commission TEU Twenty-foot Equivalent Unit THCC Tianjin Habor Container Company TOR Terms of Reference WTI Waterborne Transportation Institute Vice President: Jemal-ud-din Kassum Country Director David R. Dollar Sector Manager Jitendra Bajpai Task Team Leader Graham Smith  CHINA China Container Transport Project CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 2 5. Major Factors Affecting Implementation and Outcome 5 6. Sustainability 7 7. Bank and Borrower Performance 7 8. Lessons Learned 9 9. Partner Comments 9 10. Additional Information 14 Annex 1. Key Performance Indicators/Log Frame Matrix 15 Annex 2. Project Costs and Financing 17 Annex 3. Economic Costs and Benefits 21 Annex 4. Bank Inputs 22 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 24 Annex 6. Ratings of Bank and Borrower Performance 25 Annex 7. List of Supporting Documents 26 Annex 8. Beneficiary Survey Results 27 Annex 9. Stakeholder Workshop Results 28  Project ID: P003653 Project Name: China Container Transport Project Team Leader: Graham Smith TL Unit: EASTR ICR Type: Intensive Learning Model (ILM) of ICR Report Date: November 21, 2005 1. Project Data Name: China Container Transport Project L/C/TF Number: SCL-44440 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Ports, waterways and shipping (100%) Theme: Access to urban services and housing (P); Export development and competitiveness (S) KEY DATES Original Revised/Actual PCD: 09/04/1997 Effective: 12/24/1999 12/24/1999 Appraisal: 07/06/1998 MTR: Approval: 03/16/1999 Closing: 06/30/2005 06/30/2005 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/STATE ECO & TRADE COMM.& FOUR PROVINCES Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Jitendra Bajpai Jitendra Bajpai Team Leader at ICR: Graham Smith ICR Primary Author: Kek Chung 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The project aimed at facilitating inland penetration of seaborne containers from gateway ports to inland cities, thus contributing to a reduction in economic disparity between coastal and inland areas.  Supplementing the primary objective, the project also sought to increase productivity of existing facilities to expand container handling capacity at the gateway port of Tianjin. The project development objective was clear and in line with the Country Assistance Strategy (CAS) presented to the Board on March 18, 1997 and further discussed in the Progress Report (CAS document number R98-107) of May 28, 1998. It also met the government's objective of promoting greater economic development in the interior regions. The project, which was intended to be a pilot development, was complex due to the large number of project entities, the wide geographical dispersion of the project sub-components and the broad range of policy actions to foster institutional improvements. 3.2 Revised Objective: The development objective remained the same throughout the implementation of the project. 3.3 Original Components: The project had two main components and numerous sub-components: (a) ICD Development consisting of the development of inland container depots (ICDs) in Baoding, Cangzhou, Handan, Tangshan and Qinhuangdao in Hebei Province; Baotou in the Autonomous Region of Inner Mongolia; and Hangzhou, Huzhou and Xiaoshan in Zhejiang Province and comprising - civil works, - the provision of equipment for operating the depots, - technical assistance for the development of an EDI/MIS, a business plan and an operational manual as well as training in various aspects of inland terminal management and operation. The ICDs would operate under a Customs regime in which import and export containers would be cleared at the ICDs. Embedded in the project were several policy actions to remove impediments to the movement of containers between gateway ports and inland cities; and (b) Upgrading Tianjin Port Container Handling Capacity through - structural improvements of existing berths, container yard and ancillary facilities, - the acquisition of additional container handling equipment for Tianjin Harbor Container Company (THCC) and - technical assistance to establish a better institutional environment for container operations. 3.4 Revised Components: There were no major changes in project components. There was a minor adjustment in the ICD Development component when Hebei decided not to proceed with the construction of a depot at Baoding shortly after the Loan became effective. This led to an amendment of the Loan Agreement on September 18, 2000 to cancel USD3.13 million from the Hebei sub-component of the Loan. The Loan Agreement was also amended on October 28, 2002 to cancel USD15.48 million from the Tianjin component as a result of savings achieved in the procurement of equipment. 3.5 Quality at Entry: Quality at entry is rated satisfactory. The assessment is based on the (a) consistency of the project development objective with the Bank's strategy for alleviating transport bottlenecks and China's policy and plan for increased economic development in interior regions; (b) attention given to lessons learned from past projects implemented by multiple agencies in the preparation and design of the project; and (c) comprehensive range of policy actions for institutional improvements. 4. Achievement of Objective and Outputs - 2 -  4.1 Outcome/achievement of objective: The development objective of the project has substantially been met. The indicator for measuring performance is the value of imports and exports to and from project cities. At project appraisal, it was expected that the ICD cities would generate some US$49.1 billion of imports and exports by 2003. Actual performance for the year turned out to be US$25.3 billion, increasing to US$ 31.7 billion the following year. The essence of the ICD component of the project was the development of an institutional and infrastructure framework in which containers could move inland without regulatory and physical impediments or constraints. When the project was conceptualized, import and export containers underwent quarantine and Customs inspections prior to delivery or shipment only at gateway ports. "Off-port" inspection and clearance of cargo were not available and there were little or no proper facilities for the handling of containers under bond in inland cities. The project overcame these impediments at the selected cities by providing them with common user container handling facilities and a system and procedure for cross-border inspections and clearances of cargo. Several policy actions were also implemented to remove certain regulatory constraints on the trucking of containers. These included declassifying sea-borne containers as heavy cargo and separating the registration of trailers from prime movers, thus providing greater flexibility in the use of vehicles. While the development objective may have been substantially achieved, the outcomes for the project are mixed. For the ICD Development component, the outcome is rated unsatisfactory. Although the framework to facilitate the inland penetration of containers between gateway ports and inland cities has been put in place, the throughput of the ICDs was disappointingly low. In 2003, only 32,918 teus were handled compared with the forecast of 572,000 teus. The low volume of containers handled by the ICDs could be due to the late commencement of operation of the ICDs and the availability of "off-port" clearance of cargo at local Customs offices of the project cities and premises of importers/exporters who could meet certain eligibility criteria. Because of delays, by 2003 most ICDs were just getting started instead of in their third year of operation as foreseen at appraisal. They would require time to grow the business. On the whole, relative to forecast, the Baotou ICD (2005, 32%) has performed better than the Zhejiang (7.9%) and Hebei (7.3%) ICDs due to lesser competition. Baotou's longer distance from the gateway port of Tianjin also makes it more compelling for the through transportation of containers. In contrast to the ICD Development component, the project outcome of the Tianjin Port component has been highly satisfactory. Productivity gains in container handling at berth exceeded 300% from 18 teus per vessel hour in 1996 to 83.3 teus in 2004. Total throughput at the Tianjin Harbor Container Company (THCC) tripled between 1996 and 2004 from some 0.5 million teus to 1.5 million teus. Productivity gains came about mainly as a result of the equipment provided under the project. THCC has also become more competitive. By 2002, the number of containers handled by THCC at 1.13 million teus exceeded the number handled by its competitor, the CSX Orient Terminal, by some 200,000 teus. Taking into account the complexity of the project, and despite the poor performance of the ICD Development component, the outcome of the project, overall, is rated satisfactory in light of the fine performance of the Tianjin Port component. 4.2 Outputs by components: A. ICD Development Outputs achieved under this component comprised: (a) civil works that included a container yard, a container freight station, a workshop, a vehicle weighing station, an administrative building and security fencing that meets the standard of the Customs for bonded cargo of varying sizes depending on the traffic at each of the cities of Hangzhou, Huzhou and Xiaoshan in Zhejiang Province; Cangzhou, Handan, Qinhuangdao and Tangshan in Hebei Province and Baotou in the Autonomous Region of Inner Mongolia. Total investment in civil works amounted to US$15.96 million; - 3 -  (b) equipment consisting of top-loaders, forklift trucks, tractor/trailers, hardware for an MIS/EDI, communication and office equipment, electronic weighing scales, a security monitoring system and ancillary equipment at a total cost of US$20.09 million; and (c) technical assistance in the form of the development of a business plan, an operational manual, an MIS/EDI and training at a total estimated cost of US$0.42 million. Bank financed training was supplemented by a program funded by the Canadian International Development Agency to enhance the environmental and financial management capabilities of the project entities. B. Upgrading Tianjin Port Container Handling Capacity The primary objective of this component was to increase capacity and enhance the productivity of existing container handling facilities operated by Tianjin Harbor Container Company (THCC). Outputs of the investment towards the achievement of this objective were: (a) Civil Works: upgraded electrical substation and ancillary works financed locally at a cost of US$1.60 million; (b) Equipment: the procurement of three quay-side container cranes, 13 rubber tired gantry cranes, 5 forklift trucks and ancillary equipment at a total cost of US$22.56 million; and (c) Technical assistance: consulting services to establish an institutional and operational environment for intra-port competition between terminal operators, institute measures to increase productivity at berths and foreign training for Tianjin Port staff at a total cost of US$142,000. The investments in this component provided THCC the means and the capability to handle 30,000 dwt container vessels over four berths with a total length of some 1,200m. 4.3 Net Present Value/Economic rate of return: The economic evaluation covers the two components separately as well as the entire project combined. Both costs and benefits reflect December 2005 prices. The economic internal rate of return (EIRR) of the project is estimated at 25 percent, and the net present value (NPV), at a discount rate of 12 percent, is estimated at RMB 868 million; compared to the PAD estimate of 39 percent and RMB 950 million, respectively. Component-wise, the Tianjin Port (THCC) component has an EIRR of 51 percent, compared to the PAD estimate of 44 percent. The EIRR of the ICD component is estimated at 11 percent, compared to the PAD estimate of 33 percent. EIRR (in %) and NPV (12%, RMB million) Summary The ICR The PAD EIRR NPV EIRR NPV Upgrading Tianjin Port Container Handling 50.7 1,003 43.8 625 Capacity ICD Development 11.4 (27) 32.7 324 Total Project 24.7 868 39.4 950 THCC: The recalculated EIRR and NPV of the Tianjin Port component are higher than anticipated at appraisal mainly because of: (a) the lower project cost (about 30 percent lower than the PAD estimate), and (b) the higher container traffic demand (about 60 percent higher than the PAD estimate). ICD: The recalculated EIRR and NPV of the ICDs are lower than the estimates mainly due to the lower container traffic demand (average only about 9 percent of the PAD forecasted at appraisal), despite the project cost of the ICDs being lower than estimated by about one third. The detailed economic analysis is in the project file. - 4 -  4.4 Financial rate of return: THCC and the eight ICDs are financially independent companies in their provinces, responsible for the day-to-day management, operations and maintenance of the facilities. The main incomes of these companies come from container handling, transportation, warehousing, and freight forwarding. The companies plan to use operation revenue to cover their financial obligations, including the Bank and domestic loans. Based on the current revenue and operating costs, the eight ICDs may have difficulties in generating enough internal cash flow over the loan period to finance the operation, maintenance, and debt services due to the low demand for container services. The financial evaluation so far for the project finds that the project as a whole has a FIRR of 7.4 percent with a NPV of RMB 126 million, of which the Tianjin Port component is estimated to have a FIRR of 35.4 percent while the ICDs (taken together) are expected to have a negative net cash flow at least in their early years and perhaps longer. Compared with the PAD, the re-evaluated FIRR for THCC at 35.4 percent is higher than forecasted (23.5 percent), and the re-evaluated FIRR for the ICDs (negative value) is much lower than expected (22.8 percent). As a result, the re-evaluated FIRR for the entire project (7.4 percent) is less than one third of the PAD's estimated 23.2 percent at appraisal. The detailed financial analysis is in the project file and summarized as follows. FIRR (in %) and NPV (4.5%, RMB million) Summary The ICR The PAD FIRR NPV (@4.5%) FIRR NPV Upgrading Tianjin Port Container 35.4 1,246 23.5 297 Handling Capacity ICD Development -- (1,027) 22.8 171 Total Project 7.4 126 23.2 464 4.5 Institutional development impact: Despite the wide gap between forecasted and actual container traffic at the inland terminals, the project has had a positive institutional development impact. The availability of "off-port" clearances of cargo will promote the through-transportation of containers, thereby relieving congestion at the gateway ports, expediting the turnaround of containers and, in the process, reducing logistics costs of China's export/import trade. By requiring that the ICDs be developed and operated by limited liability companies, a demonstrative model for private sector participation in trade and transport logistics is in place. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: There were two major factors outside the control of both the government and the implementing agencies that had a significant impact on the ICD Development component of the project. The first was the response of the shipping, transport and trading communities to the facilities and services provided by the project. So far, the extent of use of the facilities and services available at the ICDs has been limited. This could be attributed to the ICD enterprises being new and had yet to demonstrate the level of consistency and reliability in service acceptable to the shipping and trading communities. The second factor was the degree of competition provided by local trucking companies. Intense competition has lowered the rate for the haulage of containers. At the time of project preparation in 1997, the cost for hauling a container was estimated at RMB 6 per teu-km. Actual market rate was of the order of RMB 5 per teu-km. Local competitors used locally manufactured trucks that cost much less than the imported tractors/trailers - 5 -  procured by the ICD enterprises. Local trucking companies also tended to use under-powered trucks to reduce registration fees and the payment of road tolls. Cost-wise, ICD enterprises had difficulty in competing with local private trucking companies in the haulage of containers. 5.2 Factors generally subject to government control: The major factor in the project that was subject to government control concerned "off-port" clearance of import/export containers at the ICDs. Prior to loan approval, the provincial governments of Hebei, Inner Mongolia and Zhejiang had signified their intent to designate the ICDs as Class 2 ports upon their completion. This entailed the stationing of Customs officers at the ICDs. However, the power of the provinces to designate ports was transferred to the Customs General Administration (CGA) in February 2002. Consequently the provinces could not fully implement their plan and only Baotou, Hangzhou and Xiaoshan were able to persuade Customs to station officers at their ICDs. For the rest, Customs officers from the local Customs office were available to inspect and clear cargo at the ICDs upon request until such time as the volume of traffic handled at the ICDs justified stationing them full time at the ICDs. At the same time, "off-port" inspections and clearances of cargo were extended to enterprises located at export processing zones and large importers/exporters who met certain criteria. Customs clearance could also be undertaken at local Customs offices of the project cities. The availability of such alternative sources for "off-port" clearance was not envisaged at the time of project preparation. This deviation from the original design of the project impacted significantly on the business development of those ICDs without Customs officers on their premises. 5.3 Factors generally subject to implementing agency control: Factors subjected to implementing agencies' control were those that related directly to the execution of the project. Apart from Tianjin Port Authority, ICD enterprises, newly created to implement the project, had no experience in executing Bank-financed projects. Construction of facilities at the ICDs and the procurement of equipment could have been completed earlier had the implementing agencies and CPMO been familiar with Bank procedures and procurement guidelines. The delay in the procurement of equipment at the beginning of project implementation was particularly significant. Delays in the completion of ICDs ranged from 1