Tunisia - Third Port Project

Document of The World Bank | FOR OFFICIAL USE ONLY Report No.P-2682-TUN ,REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE ,INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE OFFICE DES PORTS NATIONAUX TUNISIENS WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA FOR A THIRD PORT PROJECT December 27, 1979 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 Unit Tunisian Dinar (TD) The exchange rate of the Tunisian dinar is floating. The rate used in the report, which approximates the current rate, is: US $ 1 = TD 0.4 TD1 = US $ 2.50 OPNT's Fiscal Year January 1 to December 31 Weights and Measures 1 hectare (ha) 2.47 acres 1 meter (m) 3.28 feet 1 kilometer (km) 0.62 miles 1 ton 1 metric ton of 2,208 pounds Abbreviations ERR Economic rate of return ICB International competitive bidding IDA International Development Association IFC International Finance Corporation MTC Ministry of Transport and Communication OPNT Tunisian National Ports Authority (Office des Ports Nationaux Tunisiens) STAM Tunisian Stevedoring and Cargo-handling Company (Societ6 Tunisienne d'Acconage et de Manutention)  FOR 1JF7,_J+tr;Ai USE ONLY TUNISIA THIRD PORT PROJECT LOAN AND PROJECT SUMMARY Borrower: Office des Ports Nationaux Tunisiens (OPNT) Guarantor: Republic of Tunisia Amount: US$42.5 million Terms: 17 years, including 3.5 years of grace, at 7.95 percent per annum. Project Description: The proposed project would enable the ports of La Goulette and Sfax to cope with changing shipping technology (roll-on/roll- off), accommodate future traffic up to the year 2000, improve efficiency of port operations, and decrease urban traffic congestion. It would consist of: (i) at La Goulette - construction of about 350 m of quays and of jetties for roll-on/roll-off vessels at a new site on the south bank of the Tunis/La Goulette canal and related dredging and reclama- tion; dredging of access channel; open storage areas; transit sheds; port access road; port administration and ancillary buildings; provision of utility services; and purchase of cargo-handling and workshop equipment and material for manu- facture of pallets; (ii) at Sfax - construction of about 515 m of quays including one roll-on/roll-off berth; transit and customs sheds; open storage and parking areas; port access road; provision of utility services; purchase of cargo-handling and workshop equipment; and (iii) technical assistance through provision of 220 man-months of expatriate consulting services at an average cost of $7800 per man-month, and 370 man-months of local services at an average cost of $2600 per man-month to (a) supervise civil works at both ports; (b) assist OPNT and STAM in reorganizing port workshops and maintenance proce- dures; and (c) develop and implement training programs for port workers. Project benefits in the form of reduced ship-waiting and turnaround time, lower cargo-handling costs, avoidance of diversion costs and reclaimed land are expected to accrue to OPNT and the Tunisian economy. The project is free from any major risk. This docutnent has a restricted distribution and may be used by recipients oniy in the performance of their offi;it iduties. ls contents may not ctherwise be disclosed without World Bank authorization.  - ii~ - Project Costs: Local Foreign Total (US$ millions) 1. La Goulette - Civil works 21.2 29.5 50.7 2. Sfax - Civil works 7.6 8.6 16.2 3. Equipment 0.9 6.7 7.6 4. Consultants and Training 1.0 2.0 3.0 5. Contingencies 10.7 16.0 26.7 Physical 2.9 4.2 7.1 Price 7.8 11.8 19.6 6. Taxes 21.6 -- 21.6 7. Total 63.0 62.8 125.8 Financing Plan: Local Foreign Total Civil Works Equipment Technical La Goulette Sfax Assistance (US$ millions) IBRD 39.9 2.6 42.5 Export Credits 9.5 6.8 16.3 Financial Credits or Government 2.4 1.6 4.0 Internally Generated 63.0 63.0 Total 63.0 39.9 11.9 8.4 2.6 125.8 Disbursements: 1980 1981 1982 1983 1984 1985 (US$ millions) Annual 2.0 8.2 9.9 12.7 8.7 1.0 Cumulative 2.0 10.2 20.1 32.8 41.5 42.5 Economic Rate of Return: 16.5 percent Staff Appraisal Report No. 2641a-TUN.  INTERNATIONAL BANK FOR REC` '`R 2TION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO OFFICE DES PORTS NATIONAUX TUNISIENS FOR A THIRD PORT PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$42.5 million to the Office des Ports Nationaux Tunisiens (OPNT), with the guarantee of the Republic of Tunisia, to help fi- nance a Third Port Project. The loan would have a term of 17 years, including 3.5 years of grace, with an interest rate of 7.95 percent per annum. Financ- ing for the remaining foreign exchange cost of $20.3 million has been partly secured in the form of export credits in an amount of $16.3 million, the balance ($4 million) to be provided as financial credits or by the Government. PART I - THE ECONOMY 1/ 2. An economic mission visited Tunisia in June 1978. Its report entitled "Economic Position and Prospects of Tunisia" (No. 2201-TITN) was issued on November 16, 1978. This part reflects its findings and those of an updating mission which visited Tunisia in July 1979. Country Data sheets are attached in Annex I. 3. Tunisia is rather poorly endowed with agricultural resources. Much of the country is arid or semiarid. Agricultural activity is concentrated along the coast in the North but corntinues to play an important role in Tunisia's economic structure. The mnain crops are wheat and olives. These crops are subject to sharp annual outfut fluctuations because of irregular rainfall in the case of wheat and a natural production cycle for olives. Tunisia's most important raw materi tls are phosphates and petroleum. The large phosphate deposits are of low quality. Known oil reserves are rela- tively small. Industrial developmenat, although rapid, has been hampered by shortages of industrial entrepreneurs, the small domestic market and difficul- ties in marketing Tunisian products abroad. The most important sector is services; during 1970-78 it generated about half of GDP, a quarter of that sector's contribution consisting of government services. Tourism has developed rapidly during the 1970s. Workers' remittances have become a significant item in the balance of payments, generating about 12 percent of current account receipts during 1970-78. 4. Tunisia's economy has performed remarkably well during 1970-78. Real GDP grew at an average annual rate of 8.1 percent, nearly twice as fast as during the 1960s. Per capita GNP in 1978 reached $998, which in real terms is some 67 percent above its level of 1969. Tunisia was one of the few countries in the world whose per capita GNP during 1970-76 increased at an average annual rate of 6 percent or more. 1/ Part I is updated froma President's Report No. P-2592-TUN of June 18, 1979 for a Second Fisheries Project.  5. This performance was partly attributable to improved economic man- agement, and partly to fortuitous factors. In 1969, Tunisia changed its inward-oriented investment strategy dominated by state activities. The new policy orientations, announced during the 1970s, resulted in a change towards a more open and export-oriented economy in which private initiative could play an increasing role. A number of decontrol measures were introduced, albeit slowly. Overall, the new policy orientation proved beneficial for the country. In addition, the economy benefited from favorable weather conditions resultin2 in good agricultural crops while the change in world market prices during 1973/74 brought sizeable windfalls as the terms of trade improved sharply. This allowed domestic savings to increase to 21 percent of GDP during 1970-78, compared with 15 percent during the 1960s. Tunisia's dependence on external financing declined from about 32 percent of investment in 1969 to 29 percent in 1978; the share was as low as 15 percent during 1973-76, when gains from the terms of trade were at their peak. The balance of payments had been in continuous overall surplus since 1967. But after 1975, this was no longer the case as the terms of trade began to deteriorate while imports continued to increase rapidly. In 1978 there was another turnaround and reserves increased in the wake of heavy capital inflows. However, Tunisia's debt service payments in relation to exports of goods and non-factor services (debt service ratio) in 1978 were still a low 10.9 percent, compared with 20 percent in 1970. 6. Rapid economic growth allowed Tunisia to make substantial social gains during the 1970s. By 1976, primary school enrollment had reached 100 percent and secondary enrollment 20 percent of the relevant age groups. Educa- tion is free through university. Public health services have been expanded, with many services provided free. A family planning program has been intro- duced and since 1973 has met with substantial success. The birth rate declined from 43.8 per thousand in 1966 to 32.0 per thousand in 1978 while the rate of natural growth declined from 3.0 to 2.6 percent in the same period. Attempts have been made to reduce regional imbalances and to improve the lot of the poor. The share of the population living in absolute poverty declined from 30 percent in 1966 to 18 percent in 1975. However, important disparities remain between income levels among individuals and regions. In coping with the social aspects of development, Tunisia faces strongly increased aspirations of its population in the face of limited natural and financial resources. 7. The most important problem for the Tunisian economy is widespread open and hidden unemployment. In 1978, about 13 percent of the labor force-- some 231,000 people--were unemployed and the unemployment rate has been rising. In addition, there is considerable hidden unemployment in agriculture which provided 39 percent of employment in 1978. If one considers that about 40 percent of this labor force does not have full time jobs, the effective overall unemployment rate is more like 25 percent. An increasing number of young people born during the high birth rate years are reaching working age and a growing number of women are joining the labor force. About half of the registered unemployed are young people seeking their first employment. These are mostly relatively educated people whose job aspirations cannot be met. 8. During 1970-78, agriculture provided more than 40 percent of total employment, 25 percent of merchandise exports and 17 percent of GDP. Food processing accounted for another 4 percent of GDP and comprised 35 percent  -3 - of value added in manufacturing. Agricultural prodtuction rose substantially, largely as a result of favorable weather. Current policy, which emphasizes proJects that make a rapid and direct contribution to production, iecognizes various constraints on agricultural development: insecurity of land tenure; inadequate access to agricultural credit; inadequate extension services; insufficient agricultural education; and underutilization of irrigation investments. Under the Fourth Plan (1973-76) about $140 million was allocated to a rural development fund executed by the provincial administrations. These rural development efforts are being continued under the current Plan (1977-81). 9. During the 1960s, manufacturing production in Tunisia increased by 8 percent annually. This growth rate accelerated during 1970-78 to 10 percent annually, due partly to record years for the olive oil processing industry and to favorable developments in the textile and chemical industries. The early thrust of industrialization came from large import substitution projects. These suffered, however, from the small domestic market and shortages of experienced staff and management. Since 1970, more emphasis has been put on export-oriented private industries, particularly in food processing, textiles and mechanical and electrical industries. Foreign and domestic private invest- ment is now stimulated by a comprehensive incentive framework and facilitated by streamlined approval procedures of the investment promotion agency. Apart from finance, foreign investors are expected to contribute know-how and over- seas marketing capability. Although an agreement between Tunisia and the European Economic Community signed in April 1976 provided for duty free entry into the Community of nearly all Tunisian industrial products, import restric- tions on some of them were imposed in 1977 and 1978. The Government has estab- lished a special fund to encourage growth of small industries and industrial decentralization, and it has started a program to establish industrial estates. 10. The development of tourism In Tunisia is relatively recent. Foreign- visitor arrivals reached 1.1 million in 1978, with an average annual rate of growth during 1970-1978 of 13 percent -- sharply higher than that of the Mediterranean tourism market as a whole. Since 1970, tourism has become 2 major source of foreign exchange earnings, reaching $412 million in 1978; this was slightly more than earnings from all manufacturing exports and was exceeded only by petroleum exports. The rapid development of tourism in Tunisia has created new demands on infrastructure (particularly recreational facilities), trained manpower, and related services, which have been met only partly. The Government is endeavoring to alleviate these constraints through a variety of measures including revised investment incentives, increased marketing and training efforts, codes to enforce quality standards, more stringent zoning laws, and development of recreational facilities. 11. The main objectives of the current Five-Year Plan (1977-81) are: (i) full employment of the additions to the labor force; (ii) self-sufficiency in major foodstuffs (defined as a balanced trade account for agricultural goods); (iii) increases in the standard of living; and (iv) social stability through incomes policies and wage and price harmonization. The Plan foresees an average annual rate of real GDP growth of 7.3 percent. This is somewhat  - 4 - below the 9.2 percent achieved during 1970-7b, mainly because the fortuitous factors prevalent during the early 1970s were not expected to continue. Investment is projected at TD 4.2 billion ($9.8 billion) in current prices during the Plan. In real terms, average annual investment would be 54 percent greater during 1977-81 than during the preceding Plan. Nonetheless, the targeted average annual rate of growth of real investment during the Fifth Plan is only 4.1 percent, as this rate is influenced by the very high invest- ment level achieved in the base year, 1976. 12. The Fifth Plan's strategy emphasizes in particular export-oriented industrial development and agricultural growth. Special attention is given to employment creation and to balance of payments considerations. Substantial investments are to be made in hydrocarbons, manufacturing, water development, transport and housing. The Plan prescribes increased domestic production and processing of Tunisia's mineral resources (phosphates, petroleum) to raise the value-added component of exports as much as possible. Private sector initia- tive is expected to dominate investment in textiles, mechanical and electrical industries, and tourism. It is in these activities that the authorities expect most employment creation to take place. Employability of the labor force is to be increased through education and training programs. Efforts towards regional development are to be pursued through establishing regional planning structures, strengthening regional administration and developing incentives for the decentralization of productive activities. The strategy proposed for the Fifth Plan does not represent any major departure from the strategy pursued successfully during the preceding Plan. 13. Tunisia's existing resource base, its institutional and infrastruc- tural framework, its good performance in the earlier part of this decade, and the desire of the authorities to support further development with appro- priate policy measures and institutions are fundamental factors pointing towards continuing rapid economic growth during the Fifth Plan. The 7.3 percent growth target is in line with the possibilities of the economy. The investment priorities formulated in the Plan are considered necessary to support the sectoral strategies. There are, however, some less favorable signs. Tunisia will have to rely increasingly on its own resources since the fortuitous circumstances of the early 1970's are unlikely to be repeated. As the resource base is relatively narrow, available resources need to be more efficiently deployed. Achieving the Plan targets presupposes the timely introduction and successful execution of measures to: (i) strengthen the absorptive capacity for investment, especially for labor intensive projects; (ii) promote exports; (iii) base economic management on an efficient price and incentive system and improve productivity; and (iv) mobilize the resources needed to realize the comprehensive social development targets while maintain- ing domestic and external financial stability. The Tunisian authorities have begun to introduce measures in these respects. To increase the absorptive capacity for investment, institutions like the Investment Promotion Agency (API) and the National Center for Industrial studies (CNEI) were strengthened. The activities of the Export Promotion Center (CEPEX) were widened to include investigations on non-traditional markets, especially in the Middle East and Japan.  -5- 14. Substantial efforts in domestic and external resource mobilization in particular will be of crucial importance to finance the planned level of investment. On the domestic side, there is a need for increased savings and improved financial intermediation. The Government sector, in particular, will again be called upon to contribute substantially to the savings effort. The Plan suggests that this should be done by prudent expenditure policies and increased revenue collections (selective tax increases and better tax collec- tion). Measures to this end have been taken by curtailing the growth of budgetary expenditures, increasing taxes on real estate and luxury consumer goods and making payment of taxes a pre-condition for obtaining administra- tive licences of all kinds. In addition, the public enterprise sector will have to increase substantially its contribution to public savings through better management and especially through cost-related increases in the sale prices of selected enterprises. Steps in this direction have been initiated through tariff raises on water, power and port services. Externally, Tunisia would have total financing requirements (disbursement basis) of some $3.1 billion during the Fifth Plan, of which $1.3 billion have already been obtained during 1977-78. Given the country's creditworthiness, Tunisia should be able to mobilize the remaining $1.8 billion of such financing without straining the country's debt servicing capacity (para. 16). 15. Since the early 1960s, Tunisia has obtained large amounts of offi- cial aid. A Consultative Group chaired by the Bank provided a forum for aid- coordination among major donors in the past. During 1970-78, annual loan commitments from public sources averaged $395 million, or about $47 per capita. About 50 percent of these commitments came from bilateral public sources, chiefly from France, Canada, and the Federal Republic of Germany. About 15 percent of the bilateral aid came from oil-producing countries, whose share increased rapidly from 8 percent in 1970 to 29 percent in 1978. Commit- ments from the Bank Group during 1970-78 accounted for 20 percent of total public commitments. Most aid has been obtained on relatively soft terms; in 1978 the average terms of borrowing were 5.4 percent interest and 20 years maturity, including 5 years of grace. During 1970-78, Tunisia also received annually some $40 million in grants. Loan commitments from private sources averaged $125 million a year. While direct foreign private investment has been comparatively small, it has gained momentum since 1974 following incre- ased activity in the petroleum sector and new incentives offered to foreign investors in manufacturing. Net direct foreign investment increased from $19 million in 1969 to $96 million in 1978, with most of it going to the petroleum sector. 16. At the end of 1978, total foreign debt (disbursed and outstanding) was estimated at about $2.4 billion, or 41 percent of GDP. The debt service ratio in 1978 was 10.9 percent, compared with 20 percent in 1970. This sig- nificant decline in the debt service ratio was mainly due to the sharp increase in export earnings following the changes in world market prices in 1973/74. External borrowing at the rate projected for 1977-81 (para. 14) would increase debt service obligations to around 14 percent of exports of goods and non- factor services by 1981 and 15 percent by 1986, according to current Bank projections. At these levels, the debt service burden would be manageable, particularly when seen in the light of Tunisia's long record of prudent and  -6- skillful balance of payments and external debt management. Tunisia is there- fore considered creditworthy for further Bank lending. PART II - BANK GROUP OPERATIONS IN TUNISIA 17. Since 1962, Tunisia has received a total of thirty-six loans and eleven credits amounting respectively to $569.2 million and $70.1 million, net of cancellations. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of November 30, 1979, and notes on the execution of ongoing projects. While disbursements of some loans and credits have been slower than foreseen at appraisal, on the whole project execution has been satisfactory. In a number of sectors, important institutional improvements have been achieved and autonomous agencies have been created or strengthened. 18. The Bank's lending strategy in Tunisia aims at supporting Government efforts to (a) increase employment, (b) encourage more balanced growth and distribution of income among regions and income groups, (c) promote export- oriented policies and investments, and (d) provide selective support for the development of infrastructure and for institution building in key public services. The main supporting feature of this lending strategy is to support the Tunisian authorities in timely and well-coordinated preparation of proj- ects, with emphasis on technical assistance. The Bank is also cooperating with the Government in its efforts to increase the mobilization of domestic and foreign resources, in part through encouraging project cofinancing; the latter is particularly important in view of the extent of Tunisia's external resource needs, the large size of many priority projects and the limited availability of Bank resources relative to the country's needs. 19. Within this broad framework, past lending emphasized support for long-term investments in infrastructure and social development. Lending for urban and social development, including water supply, sewerage, education, family planning, urban low-cost housing, and the Tunis planning and public transport project has accounted for 33 percent of Bank/IDA commitments in Tunisia since 1971. Lending for transport, power and tourism infrastructure has accounted for 28 percent. Agriculture and fisheries have received 20 percent of total commitments. Industrial and hotel financing, through the Banque de Developpement Economique de Tunisie (BDET), has accounted for 15 percent, and the Gafsa phosphate development project for 4 percent. 20. An irrigation project is being presented to the Board simultaneously with the proposed project. In addition to these, loans for highways, agricul- tural credit to small and medium farmers and agroindustries, and gas distribu- tion projects are also expected to be presented to the Executive Directors in this fiscal year. Projects being prepared for subsequent consideration include those for agricultural development in the Northwest, a second population project, vocational training, textile rehabilitation, assistance for small- scale industrial development, and other priority urban and rural social development projects.  7 - T'he bank Group accounted for about i3 percent ot total public com- mcirents to Tunisia during 1970-78. The Bank Group's share of total debt outstanding and disbursed at the end of 1978 (including loans from private sources) was 11 percent and of debt service during 1978 was 14 percent. The Bank Group's share in Tunisia's disbursed external debt by 1986 is expected to remain unchanged at about 11 percent, but its share in debt service would decline to about 12 percent. 22. IFC has invested in NPK Engrais (a fertilizer plant), in BDET, in Compagnie Financiere et Touristique (COFIT, a company to promote and invest in tourism projects), in Societe Touristique et Hoteliere RYM (a large hotel development) and in Industries Chimiques du Fluor, which will produce alumi- nium fluoride from local fluorspar for export, and in the Sousse-Nord inte- grated tourism development project. IFC's net commitments in Tunisia total $15.0 million. PART III - THE TRANSPORT SYSTEM AND THE PORT SUBSECTOR The Transport System 23. At independence in 1956, Tunisia inherited a relatively well- developed transport system. No major improvements were undertaken until after a Transport Survey was conducted in 1968. During the Fourth Economic Develop- ment Plan (1973-1976), major infrastructure investments brought capacity closer to demand. However, urban transport development could not keep pace with the rapidly expanding centers of Greater Tunis and Sfax. In the current Plan (1977-1981), $1,250 million are allocated for transport investments and about $500 million were actually spent during the first two years. The Fifth Plan emphasizes the development of rural roads and urban transportation, and increased efficiency of the system. Maritime investments account for almost 25 percent of the Plan total. In preparation of the Sixth Plan (1982-86), the government has engaged consultants to review the overall coordination in the sector and draft subsectoral development plans. 24. The transport system now consists of 17,600 km of classified roads; 2,000 km of standard and narrow-gauge railways; five commercial sea ports; and four airports. The railways continue to lose traffic to roads. In 1976, they accounted for 34 percent of freight traffic (other than phosphates and iron ore) and 23 percent of passenger traffic, compared with 45 percent and 30 percent in 1967. However, air passenger traffic increased at an annual average rate of 29 percent from 1970 to 1977 and total cargo handled by the five major sea ports by about 4 percent annually from 1972 to 1978. The Port Subsector 25. Most international cargo traffic is handled through the commercial sea ports: Tunis/La Goulette, Sfax, Bizerte, Sousse, and Gabes. This traffic, mostly with Southern Europe, accounted for 85 percent of the 11.0 million metric tons of cargo handled in 1978. Most of the remaining 15 percent coastal  traffic is shipment of petroleum products from Bizerte to Sfax and La Goulette. The ports of Bizerte and Gabes handle essentially bulk cargo traffic such as crude oil, refined products and fertilizer materials. Sousse and Bizerte handle some general cargo of construction materials for local use. Thus, although Sfax and, to a lesser extent, La Goulette handle bulk cargo, they are Tunisia's major general cargo ports and the centers of the country-wide rail and road distribution system. In addition to the commercial ports, there are approximately forty-five fishing ports of varying sizes. 26. A recent but rapidly growing phenomenon in the Mediterranean is the conversion of general cargo shipments from conventional to roll-on/roll-off vessels. They are best suited to the short distance and commodity trade characteristics of the region. Between 1978 and 1985, roll-on/roll-off traffic is expected to increase from 200,000 tons to 770,000 tons, or by about 20 percent per year, at La Goulette and from 27,000 tons to 160,000 tons, or by close to 30 percent per year, at Sfax. To take advantage of this trend specialized berths and facilities (including adequate back-up areas) are required to increase the productivity of the ports. 27. The Tunis/La Goulette port complex is the largest, accounting for 30 percent of all port traffic of the country. It is also the main port of call for cruise ships and passenger car ferries. La Goulette now has five general cargo berths, and one berth each for roll-on/roll-off vessels, cruise ships and car ferries. The older Tunis port has only general cargo berths; in 1978 it handled 19 percent of the 3.2 million tons which passed through the port complex. The total number of commercial vessels calling at La Goulette in 1978 was 1,547: 524 general cargo liners; 289 roll-on/roll-off vessels; 319 car ferries; 317 bulk carriers; and 98 cruise ships. Only conventional vessels, including small bulk carriers, call at Tunis. 28. Sfax, located 240 km south of Tunis, is the second largest port and serves as the gateway to the southern region. With five general cargo and three specialized bulk berths, the latter owned by user companies, Sfax handles the largest volume of dry bulk cargo (mainly phosphate rock for export). It also serves for general cargo and some liquid bulk and as the supply depot and home port for vessels supporting offshore oil exploration. Its traffic consists mostly of conventional vessels, although 4.8 percent of the 1978 cargo volume was carried by roll-on/roll-off vessels despite the lack of specialized berths. Commercial vessels calling at Sfax totaled 1,392: 527 general cargo vessels and 865 bulk carriers. 29. Subsector Management. Commercial port facilities in Tunisia are owned and operated by the Office des Ports Nationaux Tunisiens (OPNT), with the exception of Gabes which OPNT manages on behalf of the Ministry of Trans- port and Communications (MTC). MTC is responsible for the coordination of all transport modes, the administration of regulation and tariffs and the sectoral planning and development. The broad overall responsibility for transport development in the context of national economic development rests with the Ministry of Planning. The Sectoral Commission for Transport (Commission Sectorielle des Transports) representing the administration, transport agencies and other users, advises the above two Ministries from the point of view of  business and user interests. OPNT is an independent public authority under the Minister of Public Works. The Ministry of Public Works through its Harbor Department has the main responsibility for developing and managing fishing ports. Separate companies are in charge of cargo handling in the port areas. The most important cargo-handling company is the Societe Tunisienne d'Acconage et de Manutention (STAM)) a limited liability company majority-owned by the state shipping corporation, Compagnie Tunisienne de Navigation (COTUNAV). Previous Bank Involvement 30. Since 1964, the Bank Group has been extensively involved in the development and strengthening of the Tunisian transport sector. To date eight projects have been financed through eight loans and a credit for the development of ports, highways, railways, rural roads, and a gas pipeline. Two projects have been completed in the ports subsector. The first loan (Loan No. 380-TUN) for $7.0 million, signed in 1964, financed the development of the initial infrastructure for a modern port at La Goulette. OPNT was set up in the context of this first lending operation and received technical assistance in accounting and financial management. A second loan (Loan No. 573-TUN) of $8.5 million, signed in 1968, was a continuation and expansion of the first. Components of this project were: capital dredging at Bizerte, Sfax and La Goulette; reconstruction of a breakwater at Bizerte; provision of a new bulk grain facility at La Goulette; and provision of cargo-handling equipment. A port subsector Master Plan was also partially financed by this loan (para. 32). 31. The Project Performance Audit Report on the first two projects (Report No. 1049 of February 26, 1979) described them as a successful attempt to develop a modern port infrastructure in Tunisia and found the institution- building and technical assistance to have resulted in a financially viable OPNT, capable of playing a major role in future development. However, the report notes that despite substantial investments in equipment, correspond- ing improvements in productivity failed to materialize. The proposed project addresses this problem (para. 38). PART IV - THE PROJECT Project History 32. A master plan study for long-term port planning was undertaken in 1974 by the Government, partially financed by the second Bank loan (Loan No. 573-TUN). Based on the needs thus outlined, OPNT retained consultants to prepare engineering plans for the expansion of La Goulette and Sfax for the period 1979-90. Appraisal took place in September 1978. However, questions remained concerning the timing of the project, appropriateness of the La Goulette expansion at a new site, and the selection of specific proposals for technical assistance to improve operations. Therefore, following discussions in Washington and Tunis, including a decision to request bids in order to have accurate cost estimates, a mission visited Tunis and finalized appraisal of the project in June 1979. Negotiations were held in Washington and completed on December 17, 1979; the Tunisian negotiating team was led by Mr. Mestiri of  - 10 - the Ministry of Plan. A report entitled "Sta!f Appraisal Report Third Port Project Tunisia" (No. 2641a-TUN) is being distributed separately to the Executive Directors. The main features of the loan are mentioned in the Project Summary and in Annex III. A map showing the location of Project facilities is also attached. Project Objectives 33. The project has three major objectives: (i) to enable the project ports to adapt to changes in shipping technology, (ii) to increase the opera- tional efficiency of OPNT and the cargo-handling companies, and (iii) to increase port capacity for future traffic needs. Changing technology in sea transport, specifically the advent of roll-on/roll-off vessels in the Mediter- ranean, has had a significant impact on reducing transport costs. Tunisia will be able to take advantage of this development with the provision of specialized berths. 34. Operational efficiency in the port areas has been a concern of the Bank since the design of the first port project. In the proposed project, construction of additional storage areas and transit sheds, provision of additional cargo-handling equipment, and upgrading of equipment repair and maintenance facilities will allow OPNT in conjunction with STAM and the other cargo-handling companies to institute more efficient operating procedures. Special attention will therefore be given in the project to training of the port workers themselves in the use of more efficient cargo-handling methods, such as pallets, and in more orderly storage of cargo in the open areas and transit sheds (para. 38). The training program will be carried out with training personnel whose qualifications, experience and terms and conditions of employment shall be satisfactory to OPNT and the Bank (draft Loan Agreement, Section 3.02). 35. The third major objective, to increase port capacity, will enable La Goulette and Sfax to cope with future traffic by installing berths capable of handling innovations in shipping technology. The specialized berths for roll-on/roll-off vessels will also allow these ports to increase their through- put. At La Goulette, the 1978 average daily throughput was 385 tons for general cargo and 600 tons for roll-on/roll-off. With the new facilities, equipment and training provided in the proposed project, throughput is expected to increase to 450 tons for general cargo and 710 tons for roll-on/roll-off by 1985. Similarly at Sfax, throughput is estimated to increase by 1984 from 395 tons to 500 tons for general cargo and from negligible to 700 tons for roll-on/ roll-off. Project Description 36. The Bank has reviewed and agreed with OPNT on the selected port layouts and development schemes which are least-cost solutions compared with alternatives analyzed during the preparation of the Master Plan for ports. At La Goulette, the project is the first major step in the development of a new port area on the south bank of the Tunis/La Goulette canal. The deepening and widening of the canal and dredging of a new deep-water basin will facilitate  - 1 ! ' the construction. of about 350 m of quays for six new berths and back-up areas on the south bank while also providing OPNT with the potential for further expansion, when required, at a relatively low cost. Four of the new berths would be roll-on/roll-off and two multipurpose. Transit sheds, storage areas, and utilities are also included. 37. At Sfax, further expansion of the existing port area, particularly the back-up and storage areas, is impractical because of the proximity to the old city. Existing access roads, which pass through the city, also contribute to congested city traffic. Thus, the construction of new port facilities on the south bank of the basin constitute the physical project components at Sfax. The civil works consist of about 515 m of quays for one roll-on/roll- off and two general cargo berths, a port access road, storage and parking areas, transit sheds, and provision of port utilities. 38. The potential for increased operational efficiency at both ports increases with the use of more roll-on/roll-off cargo-handling. But actual improvements in operating efficiency depend upon optimal use of the physical equipment, better methods of cargo-handling, and improved procedures for handling and storage, such as the removal of unclaimed or customs-detained cargo to warehouses. To accomplish these objectives, the project includes provision for additional cargo-handling and repair workshop equipment, mate- rials for the manufacture of 20,000 pallets, and technical assistance. The last includes three components: (i) consulting services to assist in the supervision of civil works construction, (ii) consulting services to assist in reorganizing the repair workshops and maintenance procedures, and (iii) developing and implementing training programs for port workers (para. 34). Cargo-handling improvements, such as sorting, storage, and the introduction of pallets, have begun at La Goulette following an initial reorganization of STAM in August 1978 that included a start to introducing palletization, developing a training program and constructing separate warehouses for long-term storage. Further actions under the project will be carried out according to an agreed plan which is expected to result in a productivity increase in handling operations (draft Loan Agreement, Section 4.04). 39. The proposed project accounts for 86 percent of OPNT's 1980-84 investment program of $145.9 million. Of the remaining investments, the main items are the ongoing construction of warehouses at La Goulette, and upgrading of facilities at all ports. As presently constituted, OPNT's investment plan is considered feasible and justifiable. Assurances have been obtained that, until completion of the project, OPNT shall not undertake investments in excess of $2.5 million per year, which are not included in the agreed invest- ment program (draft Loan Agreement, Section 5.05). Cost Estimates and Financing Plan 40. Total project cost is estimated at TD 50.4 million ($125.8 million), including physical and price contingencies, with a foreign exchange component of TD 23.1 million ($62.8 million). Duties and taxes account for TD 8.7 million ($21.6 million) of the TD 25,2 million ($63.0 million) local component.  - 12 - Physical contingencies of 10 percent for civil works and 5 percent for equip- ment are included as well as price contingencips T 9 percent in 1980, 8 per- cent in 1981 and 7 percent per year thereafter f. c;vil works, equipment, and technical assistance regardless of foreign or anca. origin. Cost estimates for civil works reflect the availability of local construction materials and labor. Although the main works will be undertaken by foreign contractors, local contractors are likely to participate as subcontractors. Manpower requirements for technical assistance are split into expatriate and local. Two hundred and twenty man-months of expatriate consultants include 150 man- months for supervision of civil works construction; 5 man-months, organization of repair workshops and services; and 65 man-months, training of port workers. Moreover, for supervision of civil works, 370 man-months of local manpower is estimated: 110 man-months of consultants and 260 man-months of technicians. Cost per man-month for expatriates have been estimated at $7,800; for local experts, $4,000; and for local technicians, $2,000. 41. Cost estimates for civil works are based on the ICB bids received in June 1979, and for equipment and technical assistance on manufacturers' and consultants' current prices. For some components of the civil works, the bids have been lower than costs prevailing in recent years. For example, the prices quoted for dredging were about 35 percent below such costs adjusted for inflation. Without these favorable market conditions, which are not expected to persist, overall costs would have been about 12 percent higher than were actually obtained. 42. The Bank loan of $42.5 million would cover 68 percent of the foreign exchange cost, or 34 percent of the total project cost, and would finance the foreign exchange cost of civil works at La Goulette, as well as of the tech- nical assistance required under the project. The Tunisians have secured export credits for 80 percent of the foreign exchange cost of civil works at Sfax and for equipment in an amount of $16.3 million. The balance of $4.0 million will be provided in the form of financial credits or by the Government out of its general borrowing. The export credits for the civil works at Sfax ($9.5 million) would be at 8.5 percent for 12 years, and the various export credits for equipment are on satisfactory terms. The financing plan is shown in the Project Summary. OPNT would be the borrower of the Bank loan and carry the foreign exchange risk. It has the authority to secure loans from any source with the approval of the Government. Estimated local currency costs, includ- ing taxes and duties, will be financed from OPNT's internally generated funds. Provision has been made for cross-effectiveness between the Bank loan and the other external credits (draft Loan Agreement, Sections 7.01 and 7.02). Project Implementation 43. OPNT would execute the project with the help of consultants. The Authority was established in 1965 in the context of the first loan and was the borrower of the second loan (para. 30). Over the years, -t has developed into a mature organization with competent and efficient management and staff. It is managed and acts through a Board of twelve members, ap ->c-ed by the Minister of Public Works. A financial controller, appointef- ? y the Minister of Planning, and a technical controller, appointed by the Minfistter ^ Duillic Works, attend Board meetings in an advisory and surp-visory capLcciy. A  - 13 - r es4den: Director-General (PDG) chairs the Board and is res7cns.-'e for -n.'_Memnting Board decisions and day-to-day management. He is s-ynacrted by an Assistant Director General and five department directors a.mffi