Papua New Guinea - Port Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2985 PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) May 20, 1980 0 Py Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their oficlal duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Table of Contents Page No. PREFACE ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iii-iv HIGHLIGHTS v-vi PROJECT PERFORMANCE AUDIT MEMORANDUM 1 ATTACHMENT A: BORROWER'S COMMENTS 2-5 ATTACHMENT B: PROJECT COMPLETION REPORT I. Introduction 7 II. Project Preparation and Appraisal 7 III. Project Implementation and Cost 8 IV. Operating Performance 14' V. Financial Performance of the Borrower 17 VI. Institutional Development 21 VII. Economic Reevaluation 23 VIII. Role of the International Development Association 26 IX. Conclusions 26 Tables 1. Existing Port Facilities in Project Ports at Appraisal 27 2. Actual and Expected Project Implementation 28 3. Work Included in Major Project Contracts 29-30 4. Rates of Exchange Applying during Disbursement Period 31 5. Project Costs 32-33 6. Disbursement Schedule 34 7. PNGHB's General Dry Cargo 1968/69-1976/77 35-36 8. Operating Statistics at Port Moresby, Lae and Kieta 37 9. PNGHB Tariffs Effective September 30, 1976 38 10. PNGHB Forecast & Actual Revenue and Expense Accounts: 1972/73 to 1976/77 39 11. PNGHB Balance Sheets: 1972/73 to 1976/77 40 12. PNGHB's Development Program on Non-Project Items during the Construction Period of Credit 326-PNG 41 13a. Economic Rate of Return: Moresby 42 13b. Economic Rate of Return: Lae 43 13c. Economic Rate of Return: Kieta 44 Maps 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 - PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Preface This report represents a performance audit of the First Ports Project in Papua New Guinea (PNG) supported by Credit 326-PNG for US$9.2 million made in April 1972. The credit was closed in April 1979, and final disbursement took place in September 1979. The report consists of Highlights and a brief Project Performance Audit Memorandum prepared by the Operations Evaluation Department (OED) and a Project Completion Re- port (PCR) prepared by the Association's East Asia and Pacific Regional Office. The Borrower has provided some of the basic data for the PCR while additional information was collected by a supervision mission for a follow-up project. OED has reviewed the PCR against the Appraisal and President's Reports and the minutes of the Executive Directors' meeting which con- sidered the project; it has interviewed the operational staff who were directly involved in the project. OED has found that, after some of its suggestions were taken into account, the PCR now covers in a comprehensive manner the implementation experience of the project. On the basis of this limited review, OED finds no reason to question the analysis and findings contained in the PCI and summarizes them in the Highlights. No mission was undertaken for this audit by OED staff. In connection with OED's policy studies, the Government has com- pleted a questionnaire on the supervision experience of this project in which it points out that the Bank's contribution to the technical and legal aspects was generally good. However, project supervision missions lacked experience in the field of port administration in such matters as tariffs. Help provided by the missions with financial and managerial problems was rated as fair, while there was some dissatisfaction over the lack of staff continuity for other than technical staff. The draft audit was sent to the Government in the normal course, and the comments received from the Government and the Papua New Guinea Harbours Board have been noted in the report and are appended in full as Attachment A.  - W1 - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) KEY PROJECT DATA Original Actual of Item Plan Reestimate Total Project Cost (US$ Million) 11.1 10.6 Underrun (%) 4.5 Credit Amount (US$ Million) 9.2 9.2 Disbursed ) 9.2 Cancelled As of 3/31/80 Repaid ) Borrower's Obligation ) 9.2 Date Physical Components Completed 6/30/76 2/07/78 Proportion Actually Completed by above Date (%) 87 100 Proportion of Time Overrun (%) 40 1/ Economic Rate of Return (%) Moresby 50 22 Lae 23 13 Kieta 31 14 Samarai/Alotau 31 N.A. Financial Rate of Return (%) at least 8 5 (1977) Cumulative Estimated and Actual Disbursements (US$ Thousand) FY73 FY74 FY75 FY76 FY77 FY78 FY79 FY80 (i) Estimated 1,815 5,395 7,645 9,200 9,200 9,200 9,200 9,200 (ii) Actual 1,200 5,370 7,200 8,000 8,900 9,140 9,140 9,200 % of (ii) to (i) 66.1 99.5 94.1 87.0 96.7 99.3 99.3 100 OTHER PROJECT DATA Item Original Plan Revisions Actual First Mention in Files 11/70 Negotiations 3/13-17/72 3/13-28/72 Board Approval 4/25/72 Credit Agreement 7/21/72 Effectiveness 2/08/73 Closing Date 9/30/77 4/30/78 4/30/79 Borrower Government of Papua New Guinea Executing Agency PNG Harbours Board Fiscal Year of Borrower January 1 - December 31 21 Follow-on Project Name Second Port Project Loan No. 1551-PNG Loan Amount US$3.5 Million 3/ Loan Agreement Date May 18, 1978 1/ Overrun occurred for works not included in original project. 2/ Was July 1 to June 30 until June 30, 1977, with a six-month period July 1 - December 31, 1977. 3/ Additional US$3.5 million provided by the Kuwait Fund. - iv - MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Man-weeks Report Preappraisal 4/71 2 2 4 7/08/71 Appraisal 9/71 2 5 10 4/10/72 Total 4 14 Supervision I 6/72 1 1 1 7/07/72 Supervision II 7-8/73 2 1 2 10/09/73 Supervision III 6/74 2 2 4 8/06/74 Supervision IV 6/75 2 1 2 8/18/75 Supervision V 5/76 2 1 2 8/10/76 Supervision VI 3/78 2 3 6 1/ Total 11 17 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Kina (K) Appraisal Year Average (1971) Exchange Rate: US$1 = K 1.1423 Intervening Years Average 1972 US$1 = K 1.1980 1973 US$1 = K 1.4292 1974 US$1 = K 1.4423 1975 US$1 = K 1.3102 1976 US$1 = K 1.2620 1977 US$1 = K 1.2640 1978 US$1 = K 1.4432 Completion Year (1979) US$1 = K 1.4106 1/ In conjunction with appraisal of Second Ports Project. - v - PROJECT PERFORMANCE AUDIT REPORT PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) Highlights The purpose of the project was to increase the capacity of Papua New Guinea's (PNG) principal ports in view of the anticipated traffic vol- umes and to adapt facilities for more efficient cargo handling. To achieve this, a port project was formulated with an anticipated cost of US$11.135 million which was supported by an IDA credit for US$9.2 million. The proj- ect consisted of expansion of open and covered port storage areas in Port Moresby; extending the berths and improving storage facilities for the ports of Lae and Kieta; construction of a small new port at Alotau to replace ob- solete facilities at Samarai; procurement of cargo handling equipment; and consultants' services for design, construction supervision and management studies. Both the physical elements and the technical assistance were im- plemented as planned except for the procurement of handling equipment (5% of estimated project cost) which was deleted (PCR, para. 3.02). Since some funds remained under the credit, the Association agreed to a number of addi- tional works at a cost of about US$1.4 million, comprising mainly the fur- ther expansion of the storage area in Port Moresby; extension of the ocean berth and provision of a new cargo shed at Kieta; and a barge ramp at Alotau (PCR, para. 3.04). A few technical problems were experienced with the loca- tion of the facilities at Alotau because of inadequate survey data (PCR, para. 3.12) and with the pile driving at Lae (PCR, para. 3.11). The actual cost of the civil works as appraised was about 15% below the appraisal esti- mate, even though the final cost of the contracts exceeded the bid amounts by some 20%. Implementation of the physical components as appraised was delayed by nine months, mostly due to late arrival of piles and because, with one contractor carrying out three contracts, some works were done in sequence while with different contractors for each port, they could have been done simultaneously. The total time overrun for the project, includ- ing technical assistance and additional works, was 40%. The project has met many of its objectives. Ship waiting time in the Port of Lae (40% of the project's civil works cost) has been re- duced considerably in spite of the fact that over the period 1972-78, over- seas traffic grew by about 45% and coastal traffic by over 100% (PCR, paras 4.01 and 4.10). The reestimated economic return according to the PCR is 13% against 23% at the time of appraisal. In Kieta, ship waiting time has also decreased considerably while traffic grew by about 60% over the six- year period. The reestimated economic return in the PCR is 14% against 31% at the time of appraisal. In Port Moresby, ship waiting time was vir- tually eliminated, but total traffic handled by the port decreased by 7% during 1972-77 and has only shown an increase in 1978 although still re- maining 10% below the appraisal estimate for that year. The reestimated - vi - economic return according to the PCR is 22% against 50% when appraised. The PCR states that in spite of the lower traffic, the investment was timely because of the rapidly increasing container traffic which, with- out the project, could not have been handled efficiently. In the case of Alotau, traffic has not yet fully diverted since the old pL.-, of Sa- marai will not be closed to all traffic; as a result, it appears that the investment in this new port will probably have an unsufficient econ- omic justification (PPAM, page 1). The financial performance was not fully satisfactory and the requirement that a return of 8% on net fixed assets be earned was not met. Lower than expected traffic and increasing costs without timely adjustments in the tariffs were the main reasons for a deficit in 1976. However, tariff increases in late 1976 led to a return of 5% on assets in 1977 and further tariff adjustments are expected (PCR, paras 5.01 and 5.02). The institution-building efforts under the project, in part with the assistance of consultants, have made an especially useful con- tribution to port handling improvements (PCR, paras 4.06-4.09); better accounting (PCR, para. 5.03); and training of local staff. Some aspects, such as costing of individual port services, have not yet been undertaken (PCR, para. 5.03); and audits of the accounts have been very late (PCR, para. 5.08). During project implementation, there was only one visit by a financial analyst, and a higher staff input in this field might have prevented some of the above problems. Some points which may be of particular interest are: - cost estimates for two of the four ports were un- satisfactory, with bid and final costs at about 50% below the appraisal estimates (PCR, Tables 2 and 5). For the other two ports, bids were close to the appraisal estimates but in the case of Alotau, there was a 34% cost overrun on the contract; - actual traffic in 1978 for the four ports as a whole was about as forecast, but traffic in two of the ports varied as much as 50% from the forecast (PCR, paras 4.01-4.03); - the unanticipated growth of container traffic has led to project modifications and to some invest- ments (PCR, para. 3.04) which are not fully adapted to the revised needs. PROJECT PERFORMANCE AUDIT MEMORANDUM PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) 1. Even though the abbreviated procedure was used for this audit, OED found a few omissions in the PCR which are covered below: (a) the PCR has not reestimated the economic return for the new port of Alotau. In view of a cost overrun combined with a considerable shortfall in traffic, this port investment would now prob- ably have an insufficient economic justification, especially where the port of Samarai will not be closed to coastal traffic; and (b) the appraisal had estimated that half of the savings in ship time generated by the project would accrue to Papua New Guinea's economy. The project's overall economic return at appraisal was 27%, and based on the above assumption, the return to the country was estimated at 20%. When using the same assumptions as in the appraisal, it would appear that at least for the port invest- ment at Lae, the economic return to the local economy will be well below the opportur.ity cost of capital, even though the overall ree.stimated economic return is satisfactory. However, a more definite answer to this question is only possible by analyzing the shipping pattern in detail which is beyond the scope of the abbreviated audit. U09c0 WORILdANK - 2 - ATTACHMENT A FINANCE NE2221 (1 A/'CE/VED PAPUA NEW GUINEA 11TH APRIL 19OU 1980 APRI1 WOLD bANK WASHINGTON ATIN. SHIV S.KAPUR, OP.hATIONS EVALUATION DEPT. RL: PROJECT PLRFORMANCE AUDIT REPORT ON CREDIT :.>2o PNG. I KEFEIR TO YOUR LE-TTEL OF 21 FC.B AND URAFI REPORT. WE HAVE NO COMMLATS ON TH DRAFT FROM THE GOVE-RNMENT'S POINT OF VIlW. I UNESTANU THAT PKG HARBOURS tOARD V-(LL COMMUNICATE THEIR COMMENTS TO YOU INDEPENDENTLY. MA C LAREN FOR :)LLRETARY FOR FINANCz PAPUA NEA GUINEA 4 WURLdANK HARbOUR NE2224 . - 3- ATTACHMENT A DISTRIBUTIUN WG HARbOUR Nc2224j(TLx Number) Mr. S.Kopur QED WORLD BANK INTcR3AFRAD VASHINGTON D.C. USA T/471 ATTENTION: SHIV S. KAPUR - DIRECTOR - OPERATIONS EVALUATION DEPARTMENT. kLFERENCE YOUR LETTER OF 213T FEBRUARY 19oU RE: PROJECT PLkFORMANCE AUDIT HEPORT ON PAPUA NEW GUINEA FIRST PORTS PUJECT (CREuIT j2o PNG) PARTICULAR COMMENTj ARE AD FOLLOWS:- AA) AUDIT REPORT - HIGHLIGHTS - PAGE VIII QUOTE. " AND SOME ACCOUNTING PRACTICES,. SPECIALLY PERTAINING TO THE PROJECT COSTS, HAVE BLEN CONFUSINVI SUGGEST DELETION OF ThI6 SENTENCE - METHOD WAS ADOPTED BY PRLVIOUS CHILF FINANCIAL OFFICER FOR EXCELLENT REASON ENSURING ALL LOAN MONIES ACCURATcLY ACCOUNTED FOR. NO CONFUSION EXISTS AT ThIS END AND ALTHOUGH MTHOD MAY BE 0ME lhAl DIFFERtNT TO THAT NORMALLY EMFLJYED HA BELEN APPROVWd bY TWO (2) wETS OF AUDITORS. - 4 - ATTACHMENT A Bb) PROJECT COMPLETION REPORT PAGE 20. (D.07) SUB PAR /A. A SIMILAR ObJECTION AS IN AA) EXISTS TO THE WORDING OF THIS PARAGRAPH . THERE IS NO QUESTION THAT PROJECT Cool NOT PROPERLY CAPITALISLD AS EVIDENCED BY TWO INDEPENDENT AUDIT REPORTS. ALSO INSPECTION OF ACCOUNTS WOULD VERIFY THIS. CL) TO PLACL OUr COMMENTS ON AA) N BB) IN PROPER CONTEXT IT SHOULD br- NOTED THAT ONLY PARTS OF PROJECT CLAIMED FROM IDA 'ERE DIFFErENTIATEU FRUM OTHER CAPITAL WORKS COSTS IN ORDER TO bE ABLE TO ACCOUNT TO IDA ACCURATELY FOR EXPENDITURES FROM IDA MONILS AS REQUIRED BY LOAN AGREEMENT. THIS DOES NOT INFER THAT FULL EXPENDITLRE ON THE PROJECT (IDA N PNGH8 MONIEs) VWAS NOT GREATER THAN ThIb FIGURE. u) PROJECT COMPLETION REPORT PAGE II PARA j.03 AND ALL SUBSEQUENT:- RECOMMEND DELETION OF WORD "INDIGENOUS" AND ITS REPLACEMENT WITH "NATIONAL" IN THIS AND ALL 3UBSEQUENT kEFERENCES. :u) PhOJiCT COMPLETION RLPORT PAGE 1 PiARA u.jj A) QUUTL "THE sYSTEM 00ES NOT PRUVIDE FOR COSTING OF INDIVIDUAL PORTS AND SRVICES1 THE SYSTEM DOES PHOVIDE FOR ThL COSTING OF INDIVIJUAL PORTS AND SLRVICLS IT IS NOT HUWEVR FULLY UTILI,LD FUR THEbc PURPOSES As NO REDISTRIBUTION OF OVERhLADS LTC. - 5 - ATTACHMENT A FF) PROJECT COMPLETION REPORT PAGE 16 PARA 6.01 C) K500,000. REPRESENTS INSURANCE FISCAL END 1973 K7b0,OO WAS FUNDED EARLY FISCAL YEAR 1979. WI.TH FINAL BALANCE AT END 1979 KlUO0,00U. DISAGREE WITH QUOTE - ' AS THE PNGHB MANAGED FUND WHICH IS INVESTED IN GOVERNMENT SECURITIES GROWS, THE COMMERCIAL INSURANCE WILL BE SCALED DOWN ACCORDINGLY" - AS OVERALL COMMLRCIAL INSURANCE WILL BE A FUNCTION OF ASSET VALUE GROWTH AND CAN ONLY BE EXPECTED TO INCREASE. GU) PROJECTCOMPLETION REPORT PAGES 9 N 2u PARAS 4.U3 N 7.U9. REFERENCES TO CLOSURE OF PORT OF SAMARAI SHOULD BE DELETED AS THIS COURSE OF ACTION IS NO LONGER CONTEMPLATED AND STATEMENTS ARE THUS IN ERROR. HH) AUDIT REPORT - PROJECT COMPLETION REPORT - GENERAL COMMENT. HE ARE IN AGREEMENT WITH THE CONCLUSIONS OF THE PCR EXPRESSED ON PAGE 2U. J. HALL RE TARY PNG HARbOURS BOARD PJhT MORL-6bY 440098 WORLDBANK HARBOUR NE22243  - 7 - ATTACHMENT B PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT I. Introduction 1.01 The Papua New Guinea Harbours Board (PNGHB) was created in 1963. It has been responsible for operating PNGHBs principal ports since 1967 and financially responsible for them since 1968. At the time of appraisal of the project in September/October 1971, nine ports were under its control: Port Moresby, Lae, Kieta, Samarai, Madang, Rabaul, Kavieng, Kimbe and Wewak. As of November 1978, PNGHB was responsible for 16 ports (para. 6.01). PNGHB does not undertake any cargo handling or stevedoring activities; these services are undertaken by companies licensed by PNGHB. 1.02 The project was originally concerned with improvements at Port Moresby, Lae, and Kieta (coastal facilities) as well as construction of a new port, Alotau, to take over ocean trade from Samari. These three major ports and Samari handled approximately two-thirds of Papua New Guinea (PNG) total seaborne traffic in 1970/71. The project was later extended to provide further improvements at Kieta and Port Moresby (Section III). Details of the facilities existing at the project ports prior to the improvements financed by Credit 326 are set forth in Table 1. 1.03 When the project was appraised, Papua New Guinea was administered by Australia and currency was the Australian dollar. Independence was achieved in September 1974 and the currency was changed to the Kina, which at that time was at par with the Australian dollar. Throughout the report the Kina is used to describe local currency. 1.04 Since 1971 the Bank Group have financed transport projects in Papua New Guinea totalling $40.7 million; two projects for highways ($28.0 million) and two for ports ($12.7 million). The Second Ports Project approved in April 1978 was financed jointly by the Bank and the Kuwait Fund which also provided $3.5 million. II. Project Preparation and Appraisal 2.01 The project originated with a UNDP-financed, Bank supervised, transport survey in 1968/69 by Sir William Halcrow & Partners (UK) and subsequent feasibility studies and master plans for Port Moresby by Maunsell and Partners (Australia) and for Lae, Kieta and Alotau by NEDECO (Holland). Also a tariff study for all ports handling foreign cargo in PNG was undertaken by the Economic Intelligence Unit (UK). 2.02 The Association appraised the project in September/October 1971 and recommended improvements at all four ports included in the feasibility studies referred to above. Although the port of Madang had also been studied, no investment was recommended at appraisal, as traffic growth depended upon the building of a new highway from Madang to the Central Highlands in addition to - 8 - that already existing from Lae. Subsequently, the Madang/Central Highlands road did not prove to be economically justified and has never been built. 2.03 Total project cost was estimated at appraisal as K 9.35 million (US$11.135) including foreign exchange at K 7.725 million (US$9.2 million). The Association's credit to the Government covered the entire estimated foreign exchange cost, the credit was to be onlent to PNGHB at 7-1/4% for a period of 25 years including a four year grace period. 2.04 Matters of particular importance which were raised by the appraisal mission were: (a) PNGHB's land tenure at port sites; (b) inadequate port costing of services and insurance arrangements; (c) port tariffs to be increased to enable PNGHB to finance the project and its other port investments and earn an 8% financial rate of return; and (d) improvements required in port operations and training - all stevedoring and cargo handling in PNGHB's ports was undertaken by private companies, which supplied their own labor; training of this labor was considered necessary. III. Project Implementation and Cost A. Project Scope and Content 3.01 The project was approved by the Association on April 25, 1972 and consisted of: I. Civil Works (a) At Port Moresby - Reclaiming approximately 1.2 ha of land about 1 km from the existing port; construction of a 1,800 sq m cargo shed, and paving of remaining area for open storage; fencing and ancillary works. (b) At Lae - Construction of a 185 m extension to existing berths, (11 m depth alongside); provision of a 4,000 sq m transit shed and 3.25 ha, paved, open storage area behind the shed; ancillary buildings and services; mooring posts and breasting dolphins for coastal tankers (total berth length available on completion of the project would be about 430 m). (c) At Kieta - Construction of two coaster berths each some 60 m long (5.5 M depth alongside) two small cargo sheds totalling 1,335 sq m on land reclaimed behind the new berths; and improved internal access and open storage areas; and - 9 - (d) At Alotau - Construction of new port facilities with one overseas berth about 90 m long (11 m depth alongside) and one coastal berth 55 m long (5.5 m depth alongside), provision of two sheds totalling about 7,700 sq m, open storage areas and road access to existing highway. II. Engineering Services including Soils and Hydrographic Studies III. Cargo Handling Equipment; and IV. Provision of improved accounting and management reporting systems including training. B. Changes in the Project as Executed 3.02 The proposal to include cargo handling equipment was based upon the intention that PNGHB would provide cargo handling equipment for operations at the new port of Alotau, and also some specialized (bulk copra) handling equipment at other ports; bulk handling equipment was not provided by the stevedoring companies. As it turned out, (a) PNGHB preferred that Alotau should operate on the same basis as its other ports, i.e. that the companies provide the equipment, and the Association agreed; (b) a study was undertaken to determine the need for specialized equipment to handle copra (Copra handling in Papua New Guinea by GEM Consulting and Engineering BV in 1974) which concluded that expenditure on special equipment would not be warranted, but recommended other improvements, mainly on receiving and handling. There was therefore no expenditure on cargo handling equipment under the Credit and funds were transferred to the unallocated category. 3.03 The Association agreed with a proposal by the PNGHB that it provide the necessary training facilities for training of labor employed in cargo handling and stevedoring at which the private contractors would conduct training courses to help meet the requirement for such training stressed by the appraisal mission. 3.04 Subsequently the Association also agreed to: (a) a further land reclamation project providing an additional 1.3 ha, for container storage at Port Moresby; this and the original reclamation were subsequently included in the container terminal provided under the second port project; (b) an extension of the ocean berth at Kieta by 60 m to enable all hatches of the ocean going ships to be loaded without moving the ship, and provision of a new shed 36 m x 31 m, chiefly for copra. (c) a barge ramp at Alotau; and (d) payment of the final outstanding balance in the Credit toward the cost of the consultants for design of the Second Ports Project. (The consultants proceeded to complete final designs and contract documents for the Second Ports Project due to the urgent need to provide a container terminal. The project and loan were delayed for some months due to the need for some environmental studies.) - 10 - C. Consultant Services 3.05 For the design and supervision of the civil engineering works included in the original project. PNGHB, with the Association's approval (a) appointed the Australian Commonwealth Works Department for the major works at Lae and Port Moresby, and another consultant for those at Alotau and Kieta; (b) appointed architects for the training center at Lae; and (c) locally based consultants were appointed for the mock up ship's hold. 3.06 For the additional works approved, the consultant appointed under 3.05(b) was also appointed for the Overseas Wharf Extension at Kieta and the Barge Ramp at Alotau; and an Australian firm for the extension of the reclaimed area at Port Moresby. 3.07 The services rendered by the consultants were satisfactory except that as noted below in Section D there were errors in the hydrographic survey at Alotau which was undertaken prior to design of works. 3.08 The consultant services provided under Category IV of the credit are discussed in Sections IV and VI of this report. D. Implementation of the Project (i) Contractors 3.09 Details of the contracts let for the seven items included in the original project and the three additional items approved are given in Table 2. The contracts for the Lae, Kieta and Alotau works were let to one contractor, although for one of the contracts (Lae) another bid was actually lower, however, the successful contractor offered a reduction in the bid amounts for all three contracts of K 32,000 if they were awarded all three contracts; they were the lowest bidder at Kieta and Alotau. This overall reduction offered by the successful contractor on all three contracts was more than the difference in their bid and that of the alternative choice, at Lae - K 21,527. 3.10 The position was further complicated because a bid from another contractor for Alotau (K 1,133,965) was actually lower than the successful contractor's bid for that port (K 1,138,869); but that bid was itself conditional upon the firm being awarded the Lae tender for which their bid was higher. Details of the work covered by each major contract are given in Table 3. (ii) Execution of the Works - Alotau, Lae, and Kieta Main Contracts 3.11 As it turned out the letting of these three contracts to one contractor was not as advantageous an arrangement as it initially appeared. Late arrival of steel piling from Japan at the start of the contracts prevented efficient operation of the successful contractor's plan to move its pile driving plant from site to site, and consequently delayed the start of - 11 - work at Alotau for many months. The piling situation was further aggravated by a requirement to drive some additional piles at Lae, due to adverse soil conditions on a section of the wharf. While this was not a major problem in itself, in that it was resolved by reducing pile bent spacing over a short length of the berth, the consequent need for additional piles further delayed the start of work at Alotau. 3.12 The above events, coupled with the staffing problems which the contractor experienced and his apparent lack of planning capability, at any rate in PNG, caused friction with the consultants for Alotau. The position was further complicated when it was found that an error in the soundings taken at Alotau required relocation of the overseas wharf about 20 feet closer to land than originally intended; this resulted in further dredging being required before pile driving could commence. 3.13 Nevertheless, all three contracts were satisfactorily completed within nine months of the original estimated dates; the actual total increases in original contract prices for claims and extra works and the individual time delays, were: Cost increase Delay Alotau - K 388,000 4 months Lae - K 456,000 1 month Kieta - K 199,000 3 months Further, of the K 32,000 to be deducted from the successful contractor's bid for award of all three contracts, which was distributed between Lae (K 17,146) Kieta (K 6,557) and Alotau (K 8,497), PNGHB also agreed not to deduct the amount allocated for Alotau in the final settlement in view of outstanding claims so that the actual cost of the works was further increased by this amount. 3.14 There was very little delay in the start of work at Kieta. The delay incurred was a combination of pile driving delays and the method adopted for construction. The contractor elected to build a bund around the new basin to simplify the placing of the rock face on the seaward slopes of the new fill. The bund was not as effective as had been expected and took time to remove. (iii) Execution of the Work at Port Moresby 3.15 There were no problems in the execution of this project and the final cost showed a decrease of K 6,400 over the contract price due to slightly reduced quantities. The work was executed to a good standard. However, the contractor's delay of some seven months in completing the work was considered justification for enforcing limited damages in accordance with the contract (K 17,000). (iv) Execution of Work on Other Contracts 3.16 The three remaining contracts let for projects (Table 2) originally approved for financing under the Credit were for comparatively minor works and no difficulties were encountered. - 12 - 3.17 Work on the contracts for the three additional projects approved for financing encountered no major problems but resulted in expenditures in excess of estimates at: Port Moresby - K 204,000 Kieta - K 13,400 The increased expenditure at Port Moresby was largely due to an extension of the reclaimed area northwards, (K 120,000) and a decision to build an embank- ment seaward to test ground conditions which would be encountered in the second port project (K 84,000). The extension of Kieta's overseas wharf proceeded without major problems. However a small error in alignment, resulted in the need for a change to the fender system on the existing structure. 3.18 All the work was executed satisfactorily, with only minimal increases in the contract periods for the works. E. Costs 3.19 Total cost of the works financed under the Credit, as completed and as estimated at the appraisal, were: Final cost Appraisal estimate Item Local Foreign Total Local Foreign Total ------------------- K '000 --------------------- Civil works (82% FE) 1,270 5,810 7,080 1,430 6,845 8,275 Mechanical equipment - - - - 500 500 Engineering consultants - 877 877 145 280 425 Training & Tech. Assistance /a 78 78 50 100 150 Total 1,270 6,765 8,035 1,625 7,725 9,350 US$ equiv. ('000) 1,710 9,137/b 10,847 1,935 9,200/b 11,135 Unexpended (US$ equiv.) - 63 - - - - /a Local costs consisted of salaries of staff sent on the overseas courses and is small. There are considerable local expenditures in PNGHB's own training scheme (para. 6.04). /b Both the total US$ expenditure and Kina expenditure for the final foreign exchange cost are actual expenditures and this average ratio (K one to US$1.35) is used for conversion of all final costs. The US$ equivalent of the estimated Kina cost at appraisal was at an exchange rate of K one to US$1.19. The changes in exchange rate during the project are at Table 4. Until PNG independence the currency was Australian dollars, but for simplicity all local currency is referred to in Kina, PNG's currency after independence. 3.20 The bids for the seven contracts let to construct the civil works items originally included in the project (Table 2) amounted to - 13 - K 4.83 million with foreign exchange content (82% of cost)/l, about US$5.35 million equivalent. The bids for the civil works items subsequently approved were: Total bid cost Foreign exchange '000 K K ($ equivalent) /a Port Moresby extended reclamation for container traffic 323 265 (355) Kieta ocean wharf extension 646 530 (715) Alotau barge ramp 32 26 (35) Total 1001 821 (1105) /a Calculated at $1.35 = K 1.00. Thus the original bids for all civil works amounted to K 5.83 million including foreign exchange of US$6.45 million equivalent. Final completed cost of the civil works was K 7.08 million including US$7.84 million foreign exchange, an increase of about K 1.25 million (Z11l) and $1.39 million (16%) over the bid price, which includes physical and cost increases. 3.21 Consultant costs (Table 5, page 2) for preparation of contract documents, supervision of the works, and settlement of contractors amounted to K 613,000 for the original seven contracts and K 110,000 for the additional works. In addition, K 154,000 was spent for the Second Port Project design. The increase in expenditure over the original estimate is accounted for by: (a) consulting services which were financed but not included in the original appraisal and (b) an increase of K 188,000 or 44% in the cost of the services provided for in the original works due to increased supervision time. 3.22 The number of consultants employed on the contract reflects PNGHB's desire to employ locally based consultants for smaller works. F. Disbursements 3.23 Disbursements of the Credit, except for US$63,000 unexpended, was completed by June 30, 1978. The original estimated date for completion of disbursement was June 30, 1977 at which date, in fact, some 87% of the Credit had been disbursed. Details are at Table 6. The expenditure in each category of the Credit was: Final Original -- US$ million --- I Civil works 7.85 5.85 II Engineering consultants 1.18 0.32 III Mechanical equipment - 0.60 IV Technical assistance and training 0.11 0.11 V. Unallocated - 2.32 Total 9.14 9.20 /1 In accordance with the Credit Agreement. - 14 - IV. Operating Performance A. Traffic 4.01 The dry cargo traffic at the project ports for the years ending June 30, 1977 and June 30, 1975 compared to the forecast in the appraisal report and compared to 1971/72 was as follows: REVENUE TONS '000 6/30/72 6/30/75 6/30/77 1978 6/30/77 1978 Actual Actual Actual Actual Appr. Est. Appr. Est. Overseas Alotau 19ja 6jb 12 27 29 Kieta 55 75 64 100 56 61 Lae 337 430 467 491 423 463 Port Moresby 271 314 233 295 344 360 Coastal Alotau 20/a 15/c 18 31 32 Kieta 40 58 46 54 38 43 Lae 65 98 111 134 106 113 Port Moresby 82 94 96 119 97 102 /a At Samari. /b A further 5,000 tons was still handled at Samari. /c A further 9,000 tons was still handled at Samari. Details of traffic handled at PNGHB's ports, from 1971/72 to 1976/77 inclusive, are given at Table 7. Total dry cargo in all ports was 1.31 million revenue tons in 1971/72 and 1.45 million revenue tons in 1976/77. 4.02 However, on June 30, 1975, following the financial year in which independence (September 1974) occurred, the total overseas and coastal traffic was as shown above. Except at Lae, therefore, there was some decline in overseas traffic between June 30, 1975 and June 30, 1977, particularly at Port Moresby where most expatriates and Government staff were domiciled. Lae, which has a larger hinterland including the productive highlands area, was only slightly affected by independence; there was a reduction of some 90,000 tons in 75/76 compared to 74/75 but this was more than regained in 76/77 (increase of 131,000 tons). 4.03 The major change in forecast traffic is at Alotau where expected development of forest areas in Milne Bay has not yet taken place. Consequently there has been a reduction in both import and export traffic compared to the original estimate. Also the main trading companies have been reluctant to - 15 - abandon their installations in Samari so that development at Alotau has been slower than anticipated; however, the overseas wharf at Samarai is being demolished in 1979, thus more traffic will go to Alotau as the main port for the Milne Bay area. B. Operations 4.04 As previously noted, PNGHB does not undertake cargo handling operations in its ports, but licenses private stevedoring companies to do the work. A study undertaken for the Board in 1973/74 on this aspect of its operations recommended that PNGHB change the organization structure at the ports in one of the following ways, each of which was considered practical and would offer improvements on the then existing situation: (a) continue to license stevedores but with a reduced number of operators; (b) directly subcontract operations; or (c) encourage a consortium of companies to act as sole concessionaire. 4.05 As a result, the Board set guidelines for the licensing of stevedores to the effect that there would be sufficient licenses issued at each port to ensure both competition and economic and efficient services. Where there were too many licencees at a port these were to be reduced by normal attrition. When the project was completed, the poition in the ports handling overseas trade was: four companies operating at Port Moresby, three at Lae, two at Alotau, Madang, Oro Bay, Rabaul and Wewak and one at Kavieng, Kieta and Samarai. While the number could with advantage be further reduced at some ports, this was probably the best solution politically. Subsequently, due to containerization of the overseas traffic, the stevedoring companies at Port Moresby have formed a single consortium. 4.06 The report also made a number of secondary recommendations for operational improvements, and these were implemented as follows: (a) installation of proper security fences; (b) introduction of a pass system which excluded all outside labor and unauthorized persons from wharf areas; (c) delivery to the consignee's truck by the handling contractors; (d) the checking of cargo at the port gates taken over by PNGHB from the Customs Department; (e) labor taken on outside the port areas; - 16 - (f) more orderly stacking in transit sheds achieved through the Port Managers exercising their existing powers. 4.07 Except at Port Moresby where labor is unionized, the stevedore companies empl7:- gangs which are recruited by village headmen and which normally turnover two or three times per annum. The system works satisfactorily and suits the local labor. There are sufficient permanent employees to ensure efficiency. 4.08 At Port Moresby, the Board has provided a separate facility for taking on the stevedore's daily labor requirement over and above those permanently employed. A labor roster is kept of available employees; those presenting themselves on any particular day, but not taken on for work, are moved up the list and paid attendance money. The scheme is operated by a PNGHB officer and is financed by a separate charge on all cargo handled. 4.09 The security system introduced by the Board at Port Moresby in 1974 has proved very successful and has reduced pilferage, a major problem in earlier years. It is being extended to Lae and other ports as staff can be recruited and trained. 4.10 One indication of the improvement in operations which has resulted from the execution of the project is the reduction in ships' waiting time. Despite the increase in traffic (except overseas traffic at Port Moresby) previously reported at the project ports, waiting time for berthing a ship has been significantly reluced. The large increases in traffic in Port Moresby and Kieta in 1978 reEulted in some increase in waiting time as shown in the table below: ACTUAL SHIP WAITING TIME (Days) 1971/72 1972/73 1976/77 1978 Overseas Coastal Overseas Coastal Overseas Coastal Overseas Coastal Port Moresby 15.24 1.74 16.80 - 4.29 - 43.54/a 6.25/a Lae 214.05 106.75 134.29 64.22/c 21.62 18.75 13.29 19.83 Kieta 43.51 21.04 18.10 5.70 14.50 - 27.29/b 49.05/b /a Coastal traffic increased 24% over 1976/77 and overseas traffic 26%. /b Coastal traffic increased 17% over 1977, and overseas traffic by 56%. /c Completion of a coastal facility at Lae in 1972 resulted in substantial reduction in ship waiting time depicted above. Traffic and other operating statistics are set forth in Table 8. - 17 - V. Financial Performance of the Borrower A. Rates and Charges 5.01 Tariffs have been uniform for all ports administered by PNGHB. The major tariff changes from FY73-77 are as follows: (a) increased berthage charges came into effect July 1972; (b) increased wharfage charges came into effect July 1973; and (c) tariffs remained unchanged from FY73-76, with revised dues and charges taking effect on September 30, 1976. Details of the September 1976 tariff increases are set forth in Table 9. The principal changes affecting revenues included an average 20% increase in overseas wharfage rates, a 23% increase in coastal wharfage rates and a 100% increase in overseas berthage rates. The resulting incremental revenue enabled PNGHB to return to profitability after experiencing an operating deficit in FY76. 5.02 Presently, PNGHB is negotiating with a stevedoring consortium with regard to an annual rental charge for the use of the container facilities at Port Moresby. In addition further tariff adjustments will soon be introduced to ensure compliance with the rate of return requirements of the Second Port Project. B. Accounting and Costing Systems 5.03 Over the past three years, PNGHB has introduced a system of responsibility accounting which provides relevant statistical data, revenue and expense information on a port-by-port basis within three weeks of the end of each four-week accounting period. The system represents a substantial improvement over the methods employed in the past. It is simple, workable and capable of easy assimilation by national staff, and it provides an adequate information base for proper management of PNGHB. However, costing of individual port services and facilities, such as is required by Section 4.04(b) of the Project Agreement for Credit 326-PNG has not yet been under- taken. For this reason PNGHB is not in compliance with Section 4.04(c)(iii) of the Project Agreement, which requires dues and rates to be cost-based. A costing study will commence in the near future in the major ports under the Second Port Project and, in fact, draft terms of reference have been prepared by PNGHB. Subsequently these costs will be reviewed annually in relation to the revenues derived from each of the services. C. Earnings 5.04 The profit and loss statements for FY73-77 (forecast at the time of appraisal and actual), are set forth in Table 10 and summarized below. The financial ratios reflect the earnings of that period: - 18 - 1973 1974 1975 1976 1977 ------------------ K'000 Operating revenue (forecast) 1,836 2,960 3,816 3,403 3,655 Operating revenue (actual) 1,595 2,544 2,890 2,496 3,841 Operating expenses (forecast) 860 955 1,092 1,309 1,419 Operating expenses (actual) 815 1,328 2,080 2,547 2,662 Net operating revenue (forecast) 976 2,005 2,094 2,094 2,236 Net operating revenue (actual) 778 1,216 810 (51) 1,179 Operating ratio % (forecast) 47 32 34 38 39 Operating ratio % (actual) 51 52 72 102 69 Financial rate of return % (forecast) 9 16 13 11 9 Financial rate of return % (actual) /a 12 5 (0.2) 5 /a Not comparable. Earnings recorded on substantial assets not yet brought into accounts. The financial performance in 1973-77 was substantially weaker than the forecast in the appraisal of the First Port Project and except for 1974, the return on fixed assets in use were consistently less than the 8% required under Section 4.03 of the Project Agreement for Credit 326-PNG. PNGHB's financial experience in these years can be largely explained by the Government's unwillingness to increase tariffs sufficiently to offset the unanticipated increase in operating expenses. During this period, depreciation increased nearly seven fold reflecting the enhanced valuation of port assets, and total operating expenses more than tripled, primarily because of an increase in salaries and staff (the number of ports increased from 9 to 16). As a result of these trends, PNGHB incurred an operating deficit in 1976. Even in 1977, which included the effect of September 1976 tariff increases, the above ratios needed further improvement, as shown. Subsequent improvement in traffic in FY78 has further restored PNGHB's financial health. 5.05 The large increase in revenue in FY74 is due to the increase in wharfage rates in July 1973. The appraisal forecast of revenues varied at an average of 14% above the actual revenues from 1973-77 due largely to an overestimation of traffic. However, the major deviations between the forecasted and achieved financial results occurred in the projection of administrative and management costs. Whereas the appraisal assumed an annual increase in administrative and operating costs of about 8%, actual cost increases were much greater. The magnitude of these deviations is illustrated below by comparing the forecast and the actual costs for fiscal 1976. - 19 - 1976 Forecast Actual Operating costs ---------- K'000 -------- Operating ) 200 Administrative and management ) 656 1,393 Insurance 103 245 Total working expenses 759 1,838 Depreciation 550 709 Total operating expenses 1,309 2,547 D. Financial Position 5.06 Balance sheet data for FY73-77 are presented in Table 11 and summarized below: 1973 1974 1975 1976 1977 ------------- K '000 --------------- Current assets 806 953 1,841. 1,548 2,211 Net fixed assets in operation 3,540 10,141 21,404 22,700 22,870 Work in progress 32 2,410 1,616 696 1,557 Investments 70 145 178 519 682 Total assets 4,448 13,649 25,039 25,463 27,320 Current liabilities 100 640 1,144 650 958 Long-term debt 1,457 2,267 5,271 6,734 7,348 Funds and reserves 279 368 506 671 899 Net equity 2,612 10,374 18,118 17,408 18,115 Total liabilities and equity 4,448 13,649 25,039 25,463 27,320 Ratios Current 8.0X 1.5X 1.6X 2.4X 2.3X Debt/equity 36/64 18/82 23/77 28/77 29/71 The substantial increase in the equity account and fixed asset account in 1974 reflect the value of assets taken over from the Government for which leases were granted. In 1975, the balance sheet figures again changed abruptly with PNGHB's assumption of substantial additional debt (Credit 326-PNG) and with the revaluation of its assets which resulted in a 75% increase in the equity account. Throughout, the debt/equity ratio remained - 20 - modest and the current ratio was ample. PNGHB's historical balance sheets are satisfactory. The Harbour Board's future liquidity position is highly dependent upon timely tariff adjustments as required under the Loan Agreement for the Second Ports Project. 5.07 Cash requirements and sources of funds over the 1973-77 period are summarized below: Appraisal Actual % Forecast % (K '000) (K '000) Cash required Investment - Credit 326 5,877 /a 9,300 - Non Project costs 4,401 7,000 Increase in cash balance 1,402 200 Total 11,680 16,500 Cash available Internally generated cash 7,306 9,600 Less: Debt service (1,388) (2,400) Reductions in operating working capital 633 (200) Dividend (150) (2,100) Payment to sinking and insurance funds (612) - Internal cash available for investment 5,789 50 4,900 42 Loans 5,891 50 11,600 58 Total 11,680 100 16,500 100 /a PNGHB's total investment charged to Cr. 326 is K 5,877,000 which is substantially less than the project cost recorded in para. 3.19. We are assured by the Board's Chief Financial Officer that the difference has been properly capitalized on the balance sheets. PNGHB's accounts have been fully audited by two independent auditors./l Insufficient tariff relief over the period enabled PNGHB to produce only 77% of the internally generated cash forecasted at appraisal. Nevertheless, with a more limited investment program than forecast for nonproject investments, nominal dividend distributions (with Government agreement) and lower interest payments than forecast due to a slower assumption of debt, PNGHB was able to finance approximately half of its 1973-77 Investment Plan from internal sources as compared with 42% anticipated at appraisal. In fact, only in fiscal 1976 were net revenues less than 1.5x maximum debt service requirements as agreed in Section 4.05 of the Project Agreement for Credit 326-PNG. Further, throughout the 1973-77 period there was /1 See comments from the PNG Harbours Board in Attachment A of this report. - 21 - sufficient cash generation to service debt, finance the investment program, and maintain an adequate cash position without the injection of Government funds. E. Auditing 5.08 During the 1973-77 project period the Association did not receive certified copies of PNGHB's audited financial statements in a timely fashion as required by Section 4.02 of the Project Agreement. In fact, due to staffing constraints the Auditor General's office was over two years late in completing the audit for FY75. Subsequently the audits for FY76, 77 and the half year ending December 31, 1977 have been received. Presently, PNGHB's audits are in conformance with Section 4.02 of the Project Agreement. VI. Institutional Development A. Increase of Responsibilities 6.01 Papua New Guinea Harbours Board was created by the Harbours Board Ordinance of 1963. It assumed operational responsibility for six ports in 1967. These were: Port Moresby, Samarai, Lae, Madang, Rabaul and Kavieng. Kieta was added in 1971 and Kimbe and Wewak in 1972. In 1972 five of the ports were directly operated by the Board, and the balance either by Customs Department or the District Commissioner as Agent for the Board. Subsequently, ports have been taken over as follows: As of June 1974 Oro Bay and Lorengau As of June 1975 Aitape and Nanimo As of June 1976 Alotau and Daru As of June 1977 Buka The total now controlled is 16. 6.02 During 1977 the Harbours Board (Pilotage) Act was passed which enabled it to carry out the function of a pilotage authority under the 1975 Merchant Shipping Act and to collect pilotage dues and fees. 6.03 In 1973/74 a study of some managerial aspects of PNGHB was undertaken by management consultants including organization of shore handling of cargo, (paras. 4.04 and 4.05) and the following three matters: (a) Cost and financial information. To examine the needs of the Board regarding management accounting and information systems and to make appropriate recommendations regarding their installation and the training of local staff at all levels in the operation of these systems. The consultants designed a management accounting and information system which was accepted and implemented. The system does not provide for costing of individual port services and facilities (para. 5.03)./1 (b) Organization, administration and salaries. To examine the management and administration structure of the Board and taking /I By contrast, the PNG Harbours Board in their comments (see Attachment A, para. EE) points out that, in their view, the system does provide for the working of individual ports and services; it is not, however, fully util- ized for these purposes. - 22 - into account proposals regarding accounting systems and respon- sibility for cargo, recommend the required establishment, with proposed job specifications, and salaries, having regard to salary levels in PNG. The recommendations included detailed job specifications and gradings for each position in the organization. The Board accepted the new staff structure which has 1_oed satis- factory. (c) Insurance assessment and recommendations. To examine the insurable risks borne by the Board and to make recommendations with regard to insurance coverage and the amendment of legisla- tion which may be necessary to ensure that the Board was ade- quately protected against risks for which it was not insured. Subsequently, PNGHB arranged an adequate insurance program comprising a PNGHB management fund (currently approximately K 1,000,000) supplemented by commercial coverage. B. Staff Training 6.04 PNGHB has consistently run an internal training program to provide indigenous wharf superintendents with a view to their subsequent promotion through Assistant Port Manager and Port Manager to the highest supervisory positions. However, there was some difficulty in finding suitable candidates in the earlier years. Since 1972 the number trained in the Board's facilities at Lae has been: 1972: 6 1973: 8 1974: 13 1975: 8 1976: 17 1977: 9 Total 61 In 1972 the number of indigenous staff employed was 9 while in 1977 there were 47 indigenous staff employed including the Port Managers of all ports except Port Moresby. Three senior expatriate port managers' posts, each covering a number of ports, were created to assist the national port managers in their duties. Of the 9 staff employed in 1972 and 61 staff trained over the period 1972-76, only 47 remained in the Board's employ as of June 1977. The remainder had left PNGHB's employ to join private industry or had proved unsuitable, mainly the former. It is likely that, with the current level of national expertise in Papua New Guinea, the movement of trained personnel to private industry will continue for some time. 6.05 More advanced training overseas has been provided at the University of Wales, Cardiff, where two students have completed and two more are under- taking the maritime management course; a further seven students in all have attended operations courses at Singapore or middle management/personnel courses in Australia, Sweden or Japan. 6.06 Seven additional students have attended the technical college at Lae; one engineering and two accounting students have successfully completed the course to date. - 23 - 6.07 PNGHB's efforts to provide suitably trained national staff have been commendable and largely successful. C. Development Program 6.08 In addition to the works actually financed under the First Port Project, new capital works to the value of K 1.5 million were completed, Table 12, plus deferred maintenance on existing wharves to a value of K 225,000. D. Land Tenure 6.09 PNGHB have experienced considerable difficulty in obtaining leases of the land contained within the boundaries of the ports they operate and control of the water area within the ports' seaward limits. These difficulties have stemmed from the legal position, which did not permit transfer of land until compensation had been agreed; further, ownership by local tribes included land below high water mark. This naturally led to difficulties on agreeing compensation and the position was further complicated by the lack of written records and the large turnover of staff in the land department in recent years. However, the Government has now passed a law permitting compulsory acquisition of land required for Government purposes with compen- sation to be agreed between the parties after the transfer. As a result the position has already improved and is expected to be resolved very shortly. VII. Economic Re-evaluation Introduction 7.01 The Project was designed to increase capacity and cargo handling rates in all the ports. Accordingly, the Appraisal Report based the economic justification of the project on the following benefits: (a) reduction in anticipated ship waiting time; (b) reduction in ship service time through increased cargo handling rates; and (c) reduction in cargo-handling costs. The appraisal report estimated "waiting time" through use of a queuing model developed by the Association. Unfortunately, neither the model nor related documentation have been retained in the Association's files. Also, with the exception of the one year of economic benefits set forth in Table 5 of the appraisal report, the stream of economic benefits and supporting calculations for each of the project ports were not preserved. Given these limitations, we have, nevertheless, attempted to duplicate the appraisal report's methodology as closely as possible. The economic re-evaluation for each of the project ports follows: - 24 - Port Moresby 7.02 The pattern of traffic at Port Moresby has changed since 1975. Due to the large increase in the cost of stevedoring in Australia, the palletized cargo ships which handled the trade have been replaced by container ships. Australian traffic represents about 50% of total overseas traffic. Thus while the project provided for increased productivity in handling palletized cargo, the volume of this traffic has been reduced so that the anticipated benefits from the traffic could not be achieved. However, if the additional land area had not been reclaimed and subsequently extended under the credit, PNGHB would not have able to efficiently handle and stack containers in the existing port. Thus, either (a) containerization would have been drastically reduced with substantial increases in freight rates; (b) container ships would have arrived and been excessively delayed; or (c) the Board would have had to provide an alternative storage site which would have involved rental charges and much longer hauls. We have assumed the latter alternative as the "without" case. 7.03 The second port project appraisal determined the containers could be handled at a rate of at least 10 container per hour. Subject to the availability of the new stacking area this handling rate would have been reduced by only about 25%. Also, additional haulage would have been involved which cannot be fully quantified as the site is hypothetical, but the cost of movement from the existing wharf to the project site was $18.75 per container for the two-way movement and the nearest available alternative area which could have been used (adjacent to the Champion Oval) is twice the distance. Thus the provision of the new area would save about $18 per container for the two-way movement. In addition, the area required for container handling would have had to be leased. An estimate of the cost of such lease is calculated as equivalent to a 12-1/2% return on the investment required to provide the area reclaimed under the project, i.e. about K 65,000 p.a. which excludes any provision for a transit shed. 7.04 Benefits have been calculated on the saving of expenditure for lease of the area which would have been required and reduced expenditure of movement from the unloading berth to the stacking area. Also, in 1974, ship waiting time was 48 days and palletized cargo 169,000 tons; in 1975 waiting time was 13 days and palletized cargo 194,000 tons. The saving in 1975 was therefore no less than 35 ship days. The resulting rate of return is 22% compared to 50% at appraisal. Lae 7.05 The economic re-evaluation of the project at Lae differs from the economic analysis in the appraisal report in two major respects: (a) first, the development of containerized traffic which was not anticipated in the appraisal report necessitates a redefinition of the "without" case. The essential feature of the redefined "without" case is that the containerized traffic representing approximately 50% of the overseas traffic results in a substantially enhanced productivity (tons per hour). For example, we estimate that without the project, containers could have been transferred at the rate of 7.5 containers per hour. Since the average container at Lae, loaded and unloaded, holds about 12 revenue tons, containerization enables a transfer rate of about 12 x 7.5 = 90 tons per hour which compares favorably with the 1972/73 handling productivity for palletized traffic of 48 tons per hour. Thus the present economic re-evaluation is starting from a much higher - 25 - productivity base than the original economic assessment. (b) Secondly, the ship waiting time estimated in the appraisal report was excessive. In Table 5, the appraisal report estimated that in 1975/76 with expected overseas and coastal traffic of 386,000 tons and 101,000 tons respectively, there would be a savings of 531 ship days; yet in 1970/71 with comparable traffic, the actual aggregate ship waiting time was only 60% of that figure. In summary, for the reasons discussed above, the economic reevaluation has only limited comparability to the original analysis in the appraisal report. 7.06 The cost and benefit streams of the economic re-evaluation together with the underlying assumptions are set forth in Table 13b. The present container handling productivity is estimated to be 10 containers per hour. All costs and benefits have been calculated in 1976 prices. Further, cargo handling benefits were an order of magnitude less than the two other cate- gories of benefits and were therefore omitted from the present analysis. The ex-post analysis of the economic valuation of the project results in a rate of return of 13% compared with the appraisal forecast of 23%. The rate of return is highly sensitive to the assumed rate of traffic growth. The present analysis assumes that overseas traffic will grow at 2% p.a. which is conservative based on historical results. Kieta 7.07 The appraisal report computed an economic rate of return associated with the construction of coastal berth facilities at the port of Kieta. Subsequently, the Association decided to finance two consecutive projects at Kieta (a) the aforementioned coastal berth (1974/75) and (b) an extension to the overseas wharf (1976/77: see para. 3.04(b) of this report). The small time interval between these projects makes it difficult to apportion the economic benefit stream among the two projects. The task is further complicated by recognizing that construction of the coastal berth affects the cargo handling productivity of both coastal and overseas traffic. Therefore, rather than assuming an arbitrary allocation of the total benefits to two separate projects, the two investments are treated as a single project in the ex-post economic analysis. 7.08 The costs and benefits of the project are presented in Table 13c. The associated footnotes contain the major assumptions. Again, costs/benefits are calculated in 1976 prices and traffic is assumed to grow at 2% p.a. Ship waiting time benefits which are small have not been included in the present computation. Actual cargo handling productivity gains as a result of the project have exceeded the 50% gain assumed in the appraisal report. However, the increased cost of the combined project is not fully balanced by the higher than expected productivity gain with the result that the first-year actual rate of return is 16% compared with about 20% in the appraisal report (see Tables 2(a) and 5). The ratio of ship service time benefits to cargo handling benefits is approximately the same in the economic re-evaluation (see Table 13c) as in the appraisal report (see Table 5). The resulting ex-post economic rate of return is 14% compared with the appraisal estimate of 31% for the coastal berth project alone. The difference in these returns - 26 - is largely explained by the traffic growth rate assumed by the appraisal report (approximately 10% p.a.) as compared to the growth rate assumed in the present analysis (2% p.a.). Alotau 7.09 Alotau was constructed at the administrative center of Milne Bay province to replace Samarai, located on an offshore island. As noted in para. 4.03, traffic has failed to develop as anticipated and the total traffic handled in 1977 was only 21,000 revenue tons compared to the forecast 58,000 tons. Although the port of Samari had not completely closed to overseas traffic in 1977 and this will be accomplished under the Second Ports Project, the resulting increase in traffic at Alotau is only expected to be about 9,000 tons p.a.I In these circumstances the benefits foreseen at appraisal have not occurred. Thus although there is insufficient data to make a formal economic reevaluation, the internal rate of return is clearly substantially less than anticipated in the appraisal report. Nevertheless the advantages of having the main part of the region at the administrative center will assist in its overall development, especially the forestry industry. VIII. Role of the International Development Association 8.01 Project supervision was appropriate in its intensity but would have been improved by inclusion of more financial staff on supervision missions. This might have resulted in more attention to the fact that the required financial rate of return was not being achieved (para. 5.04) and the require- ment to determine the cost of the various services provided by PNGHB was not being met. However, these matters were discussed in the Association and it was accepted that: (a) the Board's cash position was adequate and that it was failing to meet the rate of return largely due to difficulties in obtaining tariff increases sufficient to balance the increase in operating costs; and (b) that the general requirement to determine costs of services was too broad and should be limited to major services in the major ports; it was also recognized that the costs in these ports would be very different on completion of the works under the project. Accordingly this work was deferred until the Second Ports Project. The issue of tariff increases and cost accounting were also addressed under that project. IX. Conclusions 9.01 The project as originally conceived and subsequently expanded has proved well justified except at Alotau when development of traffic has proved to be slower than anticipated. Alotau is nevertheless located at the administra- tive center of the Milne Bay area and it is expected that the port works will be justified, particularly when the overseas wharf at Samarai is demolished. The project has been completed within the original appraisal estimate. 9.02 PNGHB's ability to generate cash from internal resources has remained satisfactory throughout the project period despite a small operating deficit in 1975/76 and its future prospects are good. 9.03 PNGHB has improved its procedures and increased its staff to handle its growing responsibilities. In particular it has made extensive and successful efforts to train and integrate national staff. /1 See also comments by the PNG Harbours Board appended as Attachment A of this report. PAPUA NEW GUINEA FIRST FORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Existing Port Facilities in Project Ports at Appraisal PORT MORESBY LAE KIETA ALOTAU (a) WHARVES Main wharf 700' x 60' T-head 800'x40' head, connected to Main wharf 208'x38' of Small ships wharf only, connected to shore by 270'x36' shore by five approaches 105' precast concrete slabs L-shaped with head access way. long, two being 22' wide and on steel piles, located 120'x21', shore connec- Concrete deck on steel piles, other 30'. in front of a steel tion 75'x21' and 100' General condition: fair Concrete deck on steel piles. sheetpile retaining wall. long causeway. Condition good except for Sheet piles provide 100' Prefabricated concrete Coastal feeder wharves - five fendering. Privately owned & 196' respectively at slabs on steel piles. privately owned, to east of area outside of the designated western and eastern ends Condition good. main port area. port. for coastal feeder berths. General condition: good. Two privately owned coastal feeder wharves exist. (b) COVERED Two sheds, each 240'x80' Five sheds - one 200'x60' One shed 150'x80'; one STORAGE one shed 140'xOO', closed two 180'x80', two 180'xl0O'. open storage shed 60'x30' only on eastern end and provided with 20' canopy to sides. (c) OPEN 61,400 sq ft 130,000 sq ft (currently 29,000 sq ft STORAGE being increased) (d) RAMPS Available concrete ramps: i) PNGHB ramp - 30'wide ii) Australasian Petroleum Company - 20' wide iii) Marine Naval Base - 30' wide May 7, 1979 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Actual and Expected Project Implementation Contract Final cost Work Contract Work /a Successful Bid value award of work completed Final No. bids No. Site undertaken bidder Kina actual Expected Kina Expected actual certificate received 1 Lae New berth, transit sheds and ancillary works Barclay 2,298,092 05/15/73 06/30/73 2,754,421 11/24/74 12/12/74 03/23/76 7 2 Lae Dock workers training center Dyson 78,070 06/30/73 75,940 08/29/75 10/13/75 05/21/76 5 3 Lae Mock up ship's hold at training center Dyson 15,691 06/30/73 15,491 11/27/75 02/09/76 08/09/76 2 4 P.Moresby Reclamation of new open storage area. New shed and ancillary works Hornibrooke 418,830 05/15/73 06/30/73 412,465 05/14/74 12/12/74 12/17/75 6 5 Kieta New coastal ship- ping berths storage area, sheds, and ancillary works Barclay 852,077 05/15/73 06/30/73 1,051,152 11/12/74 08/15/75 01/24/77 3 6 Kieta Stevedore amenities Watkins Ltd. 27,129 11/05/74 06/30/73 27,311 02/25/75 05/25/75 10/30/77 4 7 Alotau New overseas and coastal wharves, shed storage and ancillary works Barclay 1,138,869 05/15/73 06/30/73 1,527,431 05/13/75 09/12/75 01/24/77 7 Subtotal 4,828,758 5,84,211 8 Alotau Barge ramp Craig & Hammersly 32,654 08/04/77 06/30/73 32,654 08/12/77 02/01/78 05/02/78 2 9 Kieta Extension to existing overseas wharf Barclay 646,556 07/12/76 06/30/73 659,956 07/10/77 07/03/77 03/10/78 2 10 P.Moresby Extension of item 4 to enable containers to be Uni. Trans- stored port Ltd. 322,875 11/02/76 06/30/73 526,862 06/30/77 07/26/77 02/18/78 6 Total costs 5,830,843 7,083,683 /a Details at Table 3. - 29 - Table 3 Page 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Work Included in Major Project Contracts Contract No. 1 Lae New overseas wharf 606' x 120' New transit shed 432' x 120' Waterside workers mess Ablution block Administration office building Mechanical workshop New open storage area, sealed 78,033 sq ft New open storage area, gravel 90,000 sq ft All necessary roads All within wharf complex leading directly out into Lae town and to the hinterland Contract No. 4 Port Moresby Increased storage area facilities Reclaimed area approximately 3 acres Transit shed 168' x 120' = 20,160 sq ft Open sealed area approximately 110,000 sq ft Drainage and armor stone protection seaward Contract No. 5 Kieta Coastal wharf 191' x 30' Feeder wharf 191' x 27' Barge ramp 40 ft wide Copra storage shed 119' x 100' and office block Coastal cargo shed 100' x 61' Administration office and alterations Open sealed storage area 60,000 sq ft Gatehouse - 30 - Table 3 Page 2 Contract No. 7 Alotau Complete new facility Overseas wharf 305' x 59' General cargo shed 168' x 120' includes copra shed Coastal wharf 183' x 32' Coastal shed 100' x 60' Office administration block 2 officer's quarters Gatehouse Open storage area 82,200 sq ft Contract No. 9 Kieta New overseas berth 194' x 39' New transit shed 118' x 102' Extra storage open sealed 10,000 sq ft Within existing wharf complex with direct access to main road Contract No. 10 Port Moresby Increase of storage area by an additional 3 acres of reclaimed land with necessary surfacing, drainage, and armor stone protection seawarad. A test embankment was also installed seawards to test ground conditions which could be incorporated in the next reclamation contract now in hand. This cost K 84,000. - 31 - Table 4 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Rates of Exchange Applying During Disbursement Period 08/31/72 US$1.19 to $K 08/31/72 to 08/71/73 US$1.43 to $K 08/31/73 to 08/31/74 US$1.48 to $K 08/31/74 to 11/30/74 US$1.3236 to $K 11/30/74 to 02/28/75 US$1.3137 to $K 02/28/75 to 05/31/75 US$1.3407 to $K 05/31/75 to 08/31/75 US$1.2769 to $K 08/31/75 to 11/30/75 US$1.2546 to $K 11/30/75 to 02/29/76 US$1.2576 to $K 02/29/76 to 05/31/76 US$1.2236 to K 05/31/76 to 08/31/76 US$1.3050 to K 08/31/76 to 11/30/76 US$1.1916 to K 11/30/76 to 02/28/77 US$1.2390 to K 02/28/77 to 05/31/77 US$1.2471 to K 05/31/77 to 08/31/77 US$1.2612 to K 11/30/77 to 02/28/78 US$1.3631 to K 05/31/78 tO 08/31/78 US$1.4432 to K - 32 - Table 5 Pase 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Prolect Costs (K '000) Actual cost as Actual Appraisal estimate % of appraisal Local Foreign Total Local Foreign Total estimate Civil Works Lae 496 2,258 2,754 885 4,245 5,130 54 Port Moresby 74 338 412 140 695 835 49 Kieta 190 861 1,051 170 805 975 107 Alotau 275 1,252 1,527 235 1,100 1,335 176 Training Center and Mock-Up Hold at Lae 17 74 91 - - - - Kieta Ocean Wharf 119 541 660 - - - - Port Moresby Extension 94 432 526 - - - - Other works 10 50 60 - - - - Subtotal 1,275 5,806 78081 1.430 6 8,275 Engineering consultants 877 877 145 2,800 425 206 Training and technical assistance , 78 78 50 100 150 52 Mechanical equipment - - - - 500 500 0 Total (kina) 1 8, 1 7 9, Total (US$ equivalent) 1,710 9,137 10,847 1,935 9,200 11,135 - 33 - Table 5 Page 2 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Consultant Costs - Design and Supervision (K '000) Consultant or Consultants' Description design agency fees 1. Lae R&C New berth 256,246 2. Lae HL Dockworkers training 7,426 center 3. Lae BFC Mock-up hold 1,200 4. Port Moresby H&C Reclamation 57,703 5. Kieta PWD New coastal facilities 133,376 6. Alotau PWD New berths 154,403 7. Kieta PWD Stevedores amenities 2,715 8. Alotau PWD Barge ramp 2,569 9. Kieta PWD Extension of overseas wharf 60,423 10. Port Moresby Maunsell Reclamation at Port Moresby 200,960 Total 877,021 H&C = Department of Housing & Construction, PNG HL = Higgin Lloyd and Partners - Architects PWD = Department of Public Works, PNG BFC = Bull Ferranti and Collier - Consulting Engineers Maunsell = Maunsell PNG PTY, LTD - Consulting Engineers - 34 - Table 6 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Disbursement Schedule (US$'000) Bank fiscal Appraisal estimate Actual year and qtr Quarter Cumulative Quarter Cumulative 1973 1 300 2 375 675 3 500 1,175 470 4 640 1,315 730 1,200 1974 1 800 2,615 1,500 2,700 2 850 3,465 440 3,140 3 950 4,416 1,350 4,490 4 980 5,395 880 5,370 1975 1 750 6,145 1,060 6,430 2 550 6,695 720 7,150 3 500 7,195 50 7,200 4 450 7,645 - 7,200 1976 1 450 8,095 100 7,300 2 450 8,545 300 7,600 3 450 8,995 200 7,800 4 205 9,200 200 8,000 1977 1 600 8,600 2 - 8,600 3 - 8,600 4 300 8,900 1978 1 - 8,900 2 8,900 3 - 8,900 4 240 9,140 Unexpended 60 9,200 - 35 - Table 7 Page 1 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT - 326-PNG PROJECT COMPLETION REPORT PNGHB's General Dry Cargo 1968/69-1976/77 (Revenue Tonnes) Overseas cargo Coastal cargo Variations on previous year Port Year Discharged Loaded Total Discharged Loaded Total All Tonnes Overseas Coastal All ---------------------------------------------------------------7--- %--------------- Port 1968/69 233,450 30,573 264,023 14,758 43,201 57,959 321,982 - - - - Moresby 69/70 243,372 42,135 285,507 20,319 25,111 45,430 330,937 +8,954 +8.13 -21.62 +2.78 70/71 227,852 50,001 277,853 43,568 44,917 88,485 366,338 +35,401 -2.68 +94.77 +10.69 71/72 220,520 50,574 271,094 44,477 38,117 82,594 353,688 -12,624 -2.43 -6.62 -3.45 72/73 229,904 43,199 273,103 40,175 35,861 76,036 349,139 -4,549 +0.74 -7.94 -1.29 73/74 204,521 41,862 246,383 36,775 42,606 79,381 325,764 -23,375 -9.78 +4.40 -6.70 74/75 267,950 46,327 314,277 42,775 51,053 93,828 408,105 +82,341 +27.56 +18.20 +25.28 75/76 206,803 36,629 243,432 42,135 40,521 82,656 326,088 -82,017 -22.54 -11.91 -20.10 76/77 199,000 34,000 233,000 46,000 50,000 96,000 329,000 - - - - Lae 1968/69 195,593 55,460 251,053 10,787 28,590 39,377 290,430 - - - - 69/70 288,270 67,348 355,618 12,309 40,736 53,045 408,663 +118,233 +41.65 +34.71 +40.70 70/71 279,346 65,012 344,358 21,242 61,538 82,780 427,138 +18,475 -3.16 +56.05 -4.52 71/72 268,164 69,481 337,645 16,318 49,101 65,419 403,064 -24,074 -1.94 -20.97 -5.63 72/73 260,357 89,637 349,994 12,755 42,859 55,614 405,608 +2,544 +3.65 -14.98 -0.63 73/74 287,173 124,219 411,392 33,267 53,775 87,042 498,434 +92,826 +17.54 -56.51 +23.8P 74/75 322,582 108,213 430,795 23,364 75,082 98,446 529,241 +30,807 +4.79 +13.10 +6.18 75/76 246,815 108,483 355,298 26,325 65,869 92,194 447,492 -87,749 -17.53 -6.35 -15.45 76/77 341,000 126,000 467,000 33,000 79,000 112,000 579,000 - - - - Rabaul 1968/69 120,670 62,839 183,509 22,517 12,953 35,470 218,979 - - - - 69/70 139,282 62,052 201,334 25,833 17,805 43,638 244,972 +25,993 +9.71 +23.03 +11.87 70/71 113,323 58,238 171,561 32,125 25,348 57,473 229,034 -15,938 -14.79 +31.70 -6.50 71/72 116,124 54,108 170,232 30,504 22,954 53,458 223,690 -5,344 -0.77 -6.99 -2.33 72/73 86,553 44,882 131,435 19,486 12,922 32,408 163,843 -59,847 -22.79 -39.38 -26.75 73/74 95,885 46,514 142,399 20,660 9,748 30,408 172,807 +8,964 +8.34 -6.17 +5.47 74/75 107,804 53,572 161,376 19,456 9,277 28,733 190,109 +17,302 +13.33 -5.51 +10.01 75/76 72,006 41,245 113,251 12,030 4,172 16,202 129,453 -60,656 -29.82 -43.61 -31.91 76/77 8,400 37,000 121,000 12,000 5,000 17.000 138,000 - - - - Madang 1968/69 46,039 27,594 73,633 13,349 2,703 16,052 89,685 - - - - 69/70 54,540 24,884 79,424 15,384 3,843 19,227 98,651 +8,966 +7.86 +19.78 +9.99 70/71 44,292 24,514 68,806 18,568 5,908 24,476 93,282 -5,369 -13.37 +27.30 -5.44 71/72 47,652 27,360 75,012 17,848 4,853 22,701 97,713 +4,431 +9.02 -7.25 +4.75 72/73 47,652 26,054 73,706 12,867 4,870 17,737 91,443 -6,270 -1.74 -21.87 -6.41 73/74 46,424 24,475 70,899 11,238 3,795 15,033 85,932 -5,511 -3.81 -15.24 -6.03 74/75 49,090 32,056 81,146 14,122 4,188 18,310 99,456 +13,524 +14.45 +21.80 +15.74 75/76 38,845 30,143 68,988 12,061 1,514 13,575 82,563 +16,893 +14.98 +25.86 +16.99 76/77 37,000 30,000 67,000 12,000 1,000 13,000 80,000 - - - - Kavieng 1968/69 8,199 16,001 24,200 10,036 1,686 11,722 35,927 - - - - 69/70 9,267 17,892 27,159 13,669 1,369 15,038 42,197 +6,275 +12.33 +28.29 +17.47 70/71 9,023 21,583 30,606 14,807 1,810 16,617 47,223 +5,026 +12.69 +10.50 +11.91 71/72 8,313 20,342 28,655 12,975 1,624 14,599 43,254 -3,969 -6.37 -12.14 -8.40 72/73 7,375 16,851 24,226 9,509 5,282 14,791 39,017 -4,237 -15.46 +1.32 -9.79 73/74 5,900 14,347 20,247 8,197 627 8,824 29,071 -9,946 -16.42 -40.34 -25.49 74/75 9,646 19,195 28,841 9,753 470 10,223 39,064 +9,993 +42.45 +15.85 +34.37 75/76 6,796 13,245 20,041 9,722 520 10,242 30,283 -8,781 -30.51 +0.19 -22.48 76/77 8,000 17,000 25,000 11,000 1,000 12,000 37,000 - - - - Samarai 1968/69 10,797 8,539 19,336 10,037 8,564 18,601 37,937 - - - - 69/70 11,400 9,427 20,827 11,324 9,780 21,104 41,931 +3,994 +7.71 +13.46 +10.52 70/71 9,857 7,365 17,222 13,446 12,327 25,773 42,995 +1,064 -17.31 +22.11 +2.54 71/72 9,368 9,387 19,755 10,858 9,223 20.081 38,836 -4,159 -8.90 -22.09 -9.67 72/73 9,302 10,326 19,628 11,457 10,932 22,389 42,017 +2,181 -0.64 +11.49 +5.47 73/74 5,791 5,382 11,173 8,101 5,672 13,773 24,946 -17,071 -43.08 -38.48 -40.63 74/75 6,496 8,348 14,844 6,582 3,688 10,270 25,114 +168 +32.86 -25.43 +0.67 75/76 4,537 6,280 10,817 6,535 3,942 10,477 21,294 -3,820 -27.13 +2.02 -15.21 76/77 5,000 - 5,000 4,000 5,000 9,000 - - - - - - 36 - Page 2 Overseas cargo Coastal cargo Variations on previous year Port Year Discharged Loaded Total Discharged Loaded Total All Tonnes Overseas Coastal All -------- % ---------- Kieta 1971/72 44,354 11,489 55,843 28,933 11,248 40,181 96,024 - - - - 72/73 46,589 11,489 58,078 31,042 10,938 41,980 100,058 +4,034 +4.00 + 4.48 +4.20 73/74 35,074 17,661 52,735 32,242 15,248 47,490 100,225 + 167 -9.20 +13.13 40.17 74/75 49,964 25,331 75,295 42,989 15,142 58,131 133,426 +33.501 +42.78 +22.41 +33.13 75/76 48,123 24,200 72,323 39,896 16,531 56,427 128,750 -4,676 -3.95 - 2.93 -3.50 76/77 44,000 20,000 64,000 31,000 15,000 46,000 110,000 - - - - Wewak 1971/72 21,650 2,040 23,699 11,295 9,715 21,010 44,709 - - - - 72/73 33,173 3,409 36,582 12,399 10,107 22,506 59,088 +14,379 +54.36 +7.12 +32.16 73/74 22,803 4,859 27,662 17,274 13,273 30,547 58,209 - 879 -24.38 +35.73 -1.49 74/75 23,574 2,138 25,712 18,550 12,358 30,908 56,620 -1,589 -7,05 +1.18 -2.73 75/76 22,548 3,940 26,488 15,513 10,122 25,635 52,123 -4,497 +3.02 -17.06 -8.63 76/77 24,000 3,000 27,000 18,000 12,000 30,000 57,000 - - - - Kimbe 1971/72 2,886 935 3,821 6,246 90 6,336 10,157 - - - - 72/73 9,324 1,092 10,416 13,660 1,041 14,701 25,117 +14,960 +172.60 +132.02 +147.2q 73/74 11,598 3.263 14,861 12,379 3,531 15,910 30,771 +5,654 +42.67 +8.16 +22.51 74/75 9,669 6,539 16,208 17,246 2,652 19,898 36,106 +5,335 +9.06 +25.07 +17.34 75/76 7,233 13,743 20,976 13,875 2,890 16,765 37,741 +1,635 +29.42 -15.75 +4.53 76/77 7,000 13,000 20,000 13,000 4,000 17,000 37,000 - - - - Oro Bay 1972/73 - - - 8,688 3,568 12,256 12,256 - - - - 73/74 - - - 11,954 5,098 17,052 17,052 +4,796 - +39.13 +39.13 74/75 - - - 15,487 3,497 18,984 18,984 +1,932 - +11.33 +11.33 75/76 - - - 13,016 4,012 17,028 17,028 -1,956 - -10.30 -10.30 76/77 - - - 16,000 7,000 23,000 23,000 - - - - Aitape 1973/74 - - - 1,885 666 2,551 2,551 - - - - 74/75 - - - 3,476 1,117 4,593 4,593 +2,032 - +79.65 +79.65 75/76 - - - 4,566 916 5,482 5,482 +899 - +19.62 +19.62 76/77 - - - 4,000 1,000 5,000 5,000 - - - - Lorengau 1973/74 1,007 1,347 2,354 3,243 764 4,007 6,361 - - - - 74/75 898 667 1,565 4,446 520 4,966 6,531 +161 -33.69 +23.62 +2.53 75/76 - - - 4,681 4,375 9,056 9,056 +2,525 - +82.36 +38.66 76/77 - - - 5,000 2,000 7,000 7,000 - - - - Vanimo 1974/75 - - - 4,975 1,597 6,572 6,572 - - - - 75/76 - 667 667 5,024 2,008 7,032 7,699 +1,127 - +7.00 +17.15 76/77 - - - 5,000 2,000 7,000 7,000 - - - Alotau 1975/76 - 652 652 5,767 1,161 6,928 6,928 - - - - 76/77 - 6,000 6,000 12,000 3,000 15,000 21,000 - - - - Daru 1975/76 - - - 607 115 722 722 - - - - - - - 9,000 2,000 11,000 11,000 - - - - All 1968/69 614,748 201,006 815,754 81,484 97,697 179,181 994,935 - - - - ports 69/70 746,131 223,738 969,869 98,838 98,644 197,482 1,167,351 +172,416 +18.89 +10.21 +17.32 70/71 683,693 226,713 910,406 143,756 151,848 295,604 1,206,010 +38,659 -6.13 +49.68 +3.31 71/72 739,040 245,716 984,956 179,454 146,925 326,379 1,311,135 +105,125 +8.16 +10.41 +8.71 72/73 730,220 264,939 977,168 172,038 138,380 310,418 1,287,586 -23,549 -0.77 -4.89 -1.79 73/74 716,176 283,929 1,000,105 197,215 154,803 352,018 1,352,123 +64,547 +2.34 +13.40 +5.01 74/75 847,673 302,386 1,150,059 223,221 180,641 403,862 1,553,921 +201,798 +15.00 +14.73 +14.92 75/76 653,706 279,227 932,933 211,753 158,668 370,421 1,303,354 -250,567 -18.88 -8.28 -16.12 76/77 749,000 286,000 1,035,000 231,000 189,000 420,000 1,455,000 - - - - -37 - Table 8 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT Operating Statistics at Port Moresby, Lae and Kieta - 1972/73 and 1976/77 1972-73 1976-77 1978 Net Gang Net Gang Net Gang Tonnes Hours Rate Tonnes Hours Rate Tonnes Hours Rate Port Moresby 1. Overseas unitized 166,758 4,702 35.46 144,083 3,369 42.77 161,625/a - - 2. Overseas non-unitized 102,788 6,519 15.76 92,995 5,429 17.13 108,741 7,252 14.99 3. Coastal 69,404 4,159 16.69 41,143 2,336 17.61 99,179 6,269 15.82 Lae 1. Overseas unitized 181,122 5,147 35.19 236,745 5,660 42.77 212,004/a - - 2. Overseas non-unitized 166,957 9,086 18.37 200,158 11,274 17.13 230,670 14,180 16.27 3. Coastal 61,952 3,708 16.71 97,115 4,952 17.01 113,174 7,360 15.38 Kieta 1. Overseas unitized 17,233 505 34.12 30,687 431 71.18 21,964/a - - 2. Overseas non-unitized 41,896 3,155 12.87 33,866 1,471 23.02 82,756 2,487 33.36 3. Coastal 42,224 2,983 14.16 33,401 1,459 22.89 44,074 1,559 28.27 /a Excluding vehicles. - 38 - Table 9 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Tariffs Effective September 30, 1976 Overseas carge Coastal cargo (rate per unit) (rate per unit) Cargo Unit Inward Outward Inward Outward -------------------------------K-------------- Horses, cattle, dogs sheep, goats, pigs Each animal 1.00 1.00 0.40 0.40 Oils (in bulk) Ton of Petroleum (in bulk) 1,000 litres 0.44 0.35 0.35 0.35 Bunkers Boats, iron, tanks (empty) Meter length 10.00 10.00 1.50 1.50 Charcoal, coal, coke, road, metal, sand, soil, cement, re- turned empties (in- cluding containers & pallets) Ton weight 1.00 1.00 1.00 1.00 Copra, cocoa, coffee bagged agri. product. Ton weight 1.50 1.00 0.90 0.90 Goods not enumerated Ton weight or above 1 m3 whichever is greater 1.50 1.00 1.00 1.00 Overseas Coastal Berthage Meter-hour 0.20 0.06 Container Container - - Port dues Meter 2.00 4.00 Cargo dues Ton 0.10 0.10 Storage Ton-dayy 0.50 0.50 (level after expiration of seven days) * 39 - Table 10 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Forecast & Actual Revenue and Expense Accounts: 1972/73 to 1976/77 (Kina thousand) 1972/73 1973/74 1974/75 1975/76 1976/77 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Operating Revenues Port and cargo due 45 55 46 46 136 Berth reservations 47 50 37 39 39 Storage 137 168 248 146 295 Electricity 47 57 58 46 13 Licenses 12 13 15 15 59 Pilotage - - - - 176 Rental 42 - - - - Other 58 57 61 139 276 Subtotal 430 388 469 400 506 465 541 431 584 994 Berthage 651 542 690 632 731 709 768 593 814 994 Wharfage 755 663 1,801 1,512 1,949 1,716 2,094 1,472 2,257 1,853 Total Operating Revenues 3 1593 2960 2,544 3 2,890 3,403 2,496 3,655 3841 Operating Expenses Operating 263 212 238 200 251 Admin. & management 411 749 1,145 1,393 1,302 Subtotal 518 674 561 961 632 1,383 656 I5 706 I5 Insurance 68 33 87 51 94 111 103 245 111 335 Pilotage - - - - - - - - - 39 Total Working Expenses 586 707 648 1,012 726 1,494 759 817 1 Depreciation 274 108 307 316 366 586 550 709 602 735 Total Operating Expenses 860 815 955 1,328 1,092 2 Operating Surplus (Deficit) 976 778 2,005 1,216 2,094 810 2,094 (51) 2,236 1,179 Interest Earned - - 1 49 3 167 13 148 33 84 Interest Charge 198 87 297 102 644 264 854 443 1,055 492 Revenue Surplus before Divident 778 691 1,609 1,163 1,453 713 1,253 (346) 1,214 771 Dividend 650 - 720 - 720 - 720 150 720 - Revenue Surplus after Divident 128 691 889 1,163 733 713 533 (496) 494 771 Sinking Fund Appropria- tion 29 29 29 29 29 29 29 48 29 65 Revenue Surplus to Balance Sheet 99 662 860 1,134 704 684 504 (544) 465 706 Ratio: Operating 47 51 32 52 34 72 38 102 39 69 Times interest earned 4.9x 8.9x 5-1x 11.9x 3.3x 3.lx 2.5x (0.lx) 2.lx 1.5x - 40 - Table 11 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB Balance Sheets: 1972/73 to 1976/77 (Kina thousand) 1972/73 1973/74 1974/75 1975/76 1976/77 ASSETS Current Assets Cash & short-term deposits 553 800 1,600 1,300 1,960 Other 253 153 241 248 251 Total Current Assets 806 953 1,841 1,548 211 Fixed Assets Gross non-depreciable - 1,641 4,001 4,312 4,324 Gross depreciable 3,865 9,142 18,629 20,315 21,207 Subtotal 3,865 10,783 22,630 24,627 25,531 Less accumulated depreciation 325 642 1,226 1,927 2,661 Net fixed assets in opEcation 3,540 10,141 21,404 22,700 22,870 Work in progress 32 2,410 1,616 696 1,557 Total Fixed Assets 3,572 12,551 23,020 23,396 427 Investment 70 145 178 519 682 Total Assets 4,448 13,649 25,039 25,463 27,320 LIABILITIES AND EQUITY Current Liabilities 100 640 1,144 500 958 Dividend - - 150 - Long-term Debt 1,457 2,267 5,271 6,734 7,348 Funds and Reserves Sinking fund 139 178 207 254 319 Insurance reserve 140 190 299 417 580 Total Funds and Reserves 279 368 506 671 899 Equity Accounts Capital - 6,335 7,830 7,830 7,830 Appropriations 2,612 3,746 4,429 3,885 4,592 Revaluation reserve - 293 5,859 5,693 5,693 Total Equity 2,612 10,374 18,118 17,408 18,115 TOTAL LIABILITIES AND EQUITY 4,448 13,649 25,039 25,463 27,320 Ratios: Current 8.Ox 1.5x 1.6x 2.4x 2.3x Debt/Equity 36/64 18/82 23/77 28/72 29/71 - 41 - Table 12 PAPUA NEW GUINEA FIRST PORTS PROJECT - CREDIT 326-PNG PROJECT COMPLETION REPORT PNGHB's Development Program on Non-Project Items During the Construction Period of Credit 326-PNG Port Work undertaken Value (K) Madang Coaster wharf 330,000 Port Moresby APC wharf transit shed and reclamation 85,000 Lae Staff quarters 30,000 Lae Coastal facilities 750,000 Lae Modification to Shed No. 3 27,000 Lae Provision of fertilizer shed 37,000 Lorengau Rehabilitation of wharf 35,000 Lae Oil discharge dolphins 180,000 Port Moresby Improvements to port office 14,800 Port Moresby Extension to head office 15,000 Total 1,503,000 Deferred maintenance Rehabilitation and upgrading of wharf fendering at Aitape, Lae, Lorengau, Port Moresby, Rebaul and Wewak 225,000 - 42 - Table 13 a PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Moresby (US$ 000) Savings in Year Investment Ship Waiting Time Cargo Handling Costs Ship Service Time Total 1973 105 1974 307 1975 - 84 - - 84 1976 40 38 30 68 1977 336 72 57 129 1978 102 80 182 1979 102 80 182 1980 102 80 182 1981 102 80 182 1982 102 80 182 1983 102 80 182 1984 102 80 182 1985 102 80 182 1986 102 80 182 1987 102 80 182 1988 102 80 182 1989 102 80 182 1990 102 80 182 1991 102 80 182 1992 102 80 182 1993 102 80 182 1994 102 80 182 1995 102 80 182 1996 102 80 182 1997 102 80 182 Internal Economic Rate of Return (ER): 22% Assumptions (1) Traffic will remain constant after 1978. (2) Container handling productivity with project: 10 containers per hour without project: 7.5 containers per hour (3) Ships' operating cost in port, taken at US$213 per hour for container ships. (4) Avoided cost of transporting containers, estimated at US$18 per container for the two way movement. (5) In subsequent years the palletized cargo was containerized. - 43- Table 13 b PAPUA NEW GUINEA FIRST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Lae (US$ 000) Savings in Year Investment Ship Waiting Time Ship Service Time Total 1973 454 1974 2018 1975 1761 1976 78 205 - 205 1977 432 91 523 1978 331 129 460 1979 349 131 480 1980 371 134 505 1981 392 136 528 1982 417 139 556 1983 447 142 589 1984 492 145 637 1985 532 148 680 1986 579 151 730 1987 630 154 784 1988 691 157 848 1989 756 160 916 1990 839 163 1002 1991 943 166 1109 1992 1066 170 1236 1993 1202 173 1375 1994 1361 177 1538 1995 1541 180 1721 1996 1732 184 1916 1997 2009 187 2196 Internal Economic Rate of Return (ER): 13% Assumptions: (1) 2% p.a. growth rate in overseas traffic (2) Container handling productivity with project: 10 containers per hour without project : 7.5 containers per hour (3) Handling productivity of unitized cargo - with project: 31.4 tons per gang hour without project: 22.6 tons per gang hour (4) Handling productivity of non-unitized cargo - with project: 12.5 tons per gang hour without project: 13.6 tons per gang hour (5) Ships operating cost in port, taken at US$213 per hour for container ships and US$100 per hour for other overseas ships. (6) Normal working hours: 0800 hours to 2200 hours (7) Ship waiting time in 1997 in the "without" project case is of the same order as the larger average waiting times previously-experienced at Lae. -44- Table 13 c PAPUA NEW GUINEA IUST PORTS PROJECT (CREDIT 326-PNG) PROJECT COMPLETION REPORT Economic Rate of Return: Kieta (US$ 000) Savings in Year Investment Cargo Handling Costs Ship Service Time Total 1974 1004 1975 653 1976 261 60 122 182 1977 543 73 150 223 1978 42 131 252 383 1979 133 257 390 1980 136 262 398 1981 138 267 405 1982 141 273 414 1983 144 278 422 1984 147 284 431 1985 150 289 439 1986 153 295 448 1987 156 301 457 1988 159 307 466 1989 162 113 475 1990 165 320 485 1991 169 326 495 1992 172 332 504 1993 176 339 515 1994 179 346 525 1995 183 353 536 1996 186 360 546 1997 190 367 557 Internal Economic Rate of Return (ER): 14% Assumptions (1) 2% p.a. growth in overseas and in coastal traffic (2) Handling productivity of unitized cargo - with project: 53.5 tons per gang hour without project: 20.9 tons per gang hour (3) Handling productivity of non-unitized cargo - with project: 15.8 tons per gang hour without project: 10.9 tons per gang hour (4) Handling productivity of coastal cargo - with project: 19.6 tons per gang hour without project: 11.2 tons per gang hour (5) Ships' operating cost in port, taken at US$213 per hour for container ships, US$100 per hour for other overseas ships, and US$31 per hour for coastal ships (6) Cargo handling costs calculated at $30.91 per gang hour 一  P- Pura N,F Pw ue, I 900 ECR EATIEON ..LI --693 -  PAPUA NEW GUINEA PORT OF LAE First Ports Project The boundare.- ono,ti pd o untpyåtendorsement or aceptantce by tthe fl ttWorldhBank,tandttts ffthaltes f0 PROP, -i No. 3 Berth development Produce Inspector & - - -- - Possible future extension webd. -------Proposed coastal facilities --- financed by Harbours Board Existing building - - -l . -Existing structures to be demolbshed New build;ngs - -- - - - --Contours shown in feet - - "-å- . 1. ,-l- ..t n | JrddUnis.-  PAPUA NEW GUINEA i N ' E PORT OF KIETA - --First Port Proiect U.C. -l -- --c - - -- - - -*- -L- - 14 r -1 - _ - -1 4 - --- -- - - - - -- - t - - - t . CI:.LAIMED ' . e is s -hlI 1.DNG OPERATIONS Existing facihties 1 - - !Proposed new facihities $5Sealed access ureas (new work) -iSeo(ed storage areas (new work) Dredged area TO ARAWA C.PI o.t 150 200 ANEWA BAY . - Fence 30 Contours shown in feetLO A -1 SCALE The oN da e hown ,,n r1m map d, no>/ *1LiBRD- 3695 R JANUARY 1972  MAP 5 SA, C I F 1 C O C E A N z G U N1 É PAPUA NEW GUINEA PORT OF ALOTAU First Porrs Projedl --- - -- - 1 I5 PIU EWGIE - ,',5 ,I,,' 1 - 1./1 - II |• I I II -- 1 ..