Haiti - Port Development Project

Document of FIL copYs The World Bank CAPY FOR OFFICIAL USE ONLY Report No. 3205b-HA STAFF APPRAISAL REPORT PORT DEVELOPMENT PROJECT HAITI February 24, 1981 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents US$1 = G 5.00 G 1.0 US$0.20 G 1 million = US$200,000 Weights and Measures: Metric Metric British/US Equivalent 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 mile (mi) I square kilometer (km ) = 0.386 square mile (sq mi) 1 metric ton (m ton) = 2,204 pounds (lb) Fiscal Year October 1 to.September 30 Abbreviations and Acronyms AAIPP - Administration de I'Aeroport International de Port-au-Prince (International Airport Authority) APN - Autorite Portuaire Nationale (National Port Authority) formed as successor to Administration Portuaire de Port-au-Prince APP - Administration Portuaire de Port-au-Prince (Port-au-Prince Port Administration) BRH - Banque Nationale de la Republique d'Haiti (National Bank of the Republic of Haiti) CONADEP - Conseil National de Development et de la Planification (National Development Planning Council) CSDS - Coastal Shipping Development Study GRT - Gross Registered Tons KfW - Kreditanstalt fur Wiederaufbau IDA - International Development Association IDB - Inter-American Development Bank NTS - National Transport Study SAT - Service Autonome des Transports (Autonomous Transport Service) SEPRRN - Service de Entretien Permanent du Reseau Routier National (National Road Maintenance Service) TPTC - Secretairerie des Travaux Publics des Transports et de Communication (Ministry of Public Works, Transport and Communications) UNDP - United Nations Development Program  STAFF APPRAISAL REPORT FOR OFFICIAL USE ONLY PORT DEVELOPMENT PROJECT HAITI TABLE OF CONTENTS Page No. I. THE TRANSPORT SECTOR A. Background . . ............................................... 1 B. The Transport System . ............................... ... . 2 C. Transport Investments and Priorities . 3 D. Institutional Framework. . . ................................ 4 E. Past IDA Assistance to the Transport Sector ............ 5 II. THE MARITIME SUBSECTOR A. International Ports and Maritime Services . 6 B. International Port Development Program ..................... 7 C. Present Coastal Shipping System..... 9 D. Coastal Shipping Development Program. . ... 9 E. Port Administration ............... ..................... 11 F. Port Financial Management ....... 13 G. Government Support to Maritime Sector . . ..... 15 tII. THE PROPOSED PROJECT A. Objectives and General Description ...... 15 B. Cost Estimates and Financing .................... o ........ . . 16 C. Cap Haitien Terminal Facilities. . .. ..... 18 D. Coastal Shipping Ports . .................... . 19 E. Port of Jeremie ...... 21 F. Port-au-Prince Development Program ........... 21 G. Institutional Development and Studies ..... 22 H. Execution, Procurement and Disbursements ...... 22 I. Project Monitoring .. . ................... . 23 J. Environmental Impact..... 23 IV. ECONOMIC EVALUATION A. General .............f.. 23 B. Forecast of Future Traffic . . .24 C. Evaluation of Cap Haitien Facilities . ........ . 25 D. Evaluation of Coastal Shipping Ports .. .26 E. Overall Project Evaluation . . 27 F. Risks ......... ..27 This report has been prepared by Messrs. Peter Engelmann (Senior Transport Engineer), Bengt Bostrom (Senior Transport Economist) and Tamas Markus (Financial Analyst) and Ms. Beatrice Buyck (Research Assistant) on the basis of an appraisal mission in June-July 1980 and a supplementary appraisal mission in September 1980. The report has been edited by Miss Virginia Foster. 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.  Table of Contents (Continued) Page No. ANNEXES 1 Outline of Proposed Technical Assistance ..... ............ 63-65 2 Functions and Responsibilities of a National Maritime Agency ......................*.*........... .. 66 3 Traffic Forecasts and Economic Evaluation ................ 67-71 4 Assumptions on Financial Forecasts - Detailed Results of the Projections .................................... 72-80 5 Selected Documents and Data Available in Project File .... 81 CHARTS 1 World Bank 22214, Present Organization of APN 2 World Bank 22215, Implementation Schedule MAPS IBRD 13293R - General Map of Haiti IBRD 15245 - Caribbean Cruise Routes IBRD 15246 - Cap Haitien - Proposed Port Development IBRD 15247 - Coastal Shipping - Proposed System and Ports  Table of Contents (Continued) Page No. V. FINANCIAL ANALYSIS A. Recent Financial Performance of APN ..................... 28 B. Financial Objectives of APN ............................. 29 C. Financial Forecasts ..................................... 30 D. Project Financing and Balance Sheet Projections ......... 32 E. Sensitivity Analysis .. ................................. 33 F. Long-Term Financial Obligations of APN and Proposed On-Lending Terms ...................................... 34 VI. AGREEMENTS REACHED AND RECOMMENDATION ...................... 35 TABLES: 1.1 Transport Sector Investment Program FY 1976/77-1980/81 .... 38 1.2 Road Transport Investment Program FY 1979/80-1983/84 ...... 39 2.1 Recent International Cargo Movements Through Port-au-Prince .................. *....................................... 40 2.2 Recent Coastal Shipping Ports Traffic .......o ............ 41 3.1 Project Cost Estimate Breakdown (4 pages) .... .o_o....... 42-45 3.2 Estimated Schedule of Disbursements .... o ..... o........... 46 4.1 Analysis of Port Traffic at Cap Raitien . ............. 47 4.2 Analysis of Projected Coastal Shipping Port Traffic oo .... 48 4.3 Evaluation of Costs and Benefits of Cap Haitien Port Project: Basis for Calculations (1985) (2 pages) - ..... 49-50 4.4 Calculation of Costs and Benefits of Cap Haitien Port Project (1980-1995) .... o............ ..*.... -o............................. 51 4.5 Details of Economic Evaluation of Coastal Ports Savings in Transport Cost 1985 ..oo ................. ............. 52 4.6 Costs and Benefits of Coastal Shipping Ports .............. 53 4.7 Summary of Economic Returns and Sensitivity Test . ........ 54 5.1 APN Income Statements 1976-1980 ....................... 55 5.2 Port-au-Prince International Operations, Income Projections ........ ............. . ................... 56 5.3 Port-au-Prince International Operations, Sources and Applications of Fund Projections ........................ 57 5.4 Cap Haitien, Income Projections _..- ................... 58 5.5 Cap Haitien, Sources and Applications of Funds Projections 59 5.6 Coastal Shipping Ports, Income Projections ........ o ....... 60 5.7 Coastal Shipping Ports, Sources and Applications of Funds Projections ... ... .. ... ...... ......... -. ... .......... 61 5.8 APN Consolidated Balance Sheet 1979-1985 .62   Table of Contents (Continued) Page No. ANNEXES 1 Outline of Proposed Technical Assistance .......... ........ 63-65 2 Functions and Responsibilities of a National Maritime Agency .......................................... 66 3 Traffic Forecasts and Economic Evaluation ................ 67-71 4 Assumptions on Financial Forecasts - Detailed Results of the Projections .................................... 72-80 5 Selected Documents and Data Available in Project File .... 81 CHARTS 1 World Bank 22214, Present Organization of APN 2 World Bank 22215, Implementation Schedule MAPS IBRD 13293R - General Map of Haiti IBRD 15245 - Caribbean Cruise Routes IBRD 15246 - Cap Haitien - Proposed Port Development IBRD 15247 - Coastal Shipping - Proposed System and Ports   I. THE TRANSPORT SECTOR A. Background 1.01 Haiti i! a relatively small country; it covers an area of approx- imately 27,800 km and is situated on the western thyrd of the Island of Hispaniola. The country has a shoreline of 1,530 km , or more than 1 km per 20 km of land area. The interior, however, is very mountainous: 40% of the land is above 500 m in altitude. Only some 60% of the land is suitable for cultivation, and agricultural areas are widely dispersed. Total popu- lation2is estimated at approximately 5 million. With some 180 inhabitants per km and a per capita income of about US$260, it is one of the most densely populated and one of the poorest countries of the world. Haiti is still a predominantly rural society; according to the most recent estimates, urban population accounted for only about 25% of total population. The urbanization process is dominated by the growth of the Port-au-Prince metropolitan area, where over 70% of the total urban population is concentrated; the development of provincial towns falls far behind. Besides Port-au-Prince, with a total population of approximately 900,000, there are seven provincial centers ranging in size from 20,000 to 60,000 inhabitants and 61 smaller towns, many of them poorly served by the present transportation system (Map IBRD 13293R). 1.02 The country's location, its rugged terrain, its long coast line, the dispersion of its agricultural production and the dominance of one city determine the characteristics of Haiti's transport system and underscore the importance of the transport sector in the country's economy. In external trade, maritime transport accounts for over 98% of Haiti's freight tonnage; the balance is moved by air or by land transport to the Dominican Republic. Over the years, Port-au-Prince has developed into the major international shipping center of the country. Although important tonnages such as bauxite, petroleum products, wheat and cement are also handled at specialized private terminals elsewhere, Port-au-Prince handles 95% of the country's general cargo imports and exports. International passenger traffic is moved mainly by air and by cruise ships. The latter serve Port-au-Prince and Cap Haitien and bring an important number of one-day tourists to the country (close to 200,000 in 1978) (Map IBRD 15245). 1.03 Internal transport moves primarily by road and is largely concentrated on a few recently reconstructed primary roads, such as the North Road (Map IBRD 13293R). The concentration of international shipping activity and population in Port-au-Prince has a major bearing on the internal transport demand. Haiti's road network deteriorated drastically during the 1960s; this situation contributed greatly to the spatial imbalance which characterizes Haiti's pattern of economic and social development. Since 1971, the Government has recogrized the importance of transport and has given priority to the reconstruction and improvement of transport infrastructure; maintenance of basic road network has, however, remained inadequate. Besides roads, coastal shipping accounts for 18% of domestic freight movements. Domestic air travel is light. It serves tourists primarily and, to a lesser extent, Government officials and the local business community.  -2- B. The Transport System (i) General Perspective 1.04 As mentioned in paragraph 1.03, the Government, in the early 1970s, recognized the role of the transport sector in the development of the country's economy and accorded priority to the rehabilitation and reconstruction of the transport infrastructure. In 1975, the Government agreed to the execution of a national transport survey; subsequently, the National Transport Study (NTS), for which the World Bank was executing agency, was carried out between 1975 and 1977, with a UNDP grant of US$600,000. After analyzing future transport demand, the NTS recommended a transport policy adapted to the country's needs and potential. The study concluded that, after rehabilitation of existing roads, highest priority areas consisted of: (a) improvement of international and domestic shipping facilities at Cap Haitien; and (b) expansion and development of coastal ports, as an alternative to more costly road connections. The Government has adopted the NTS recommendations as part of its national transport policy in the second Five-Year Plan for 1977-1981 (Table 1.1). (ii) Maritime Transport 1.05 Haiti's foreign trade is served predominantly by foreign-owned shipping lines through the port of Port-au-Prince. In FY 1978/79, about 840,000 tons were handled in Port-au-Prince, of which 373,000 moved through private facilities and 467,000 through the recently modernized commercial port which is managed by the National Port Authority (APN). Since 1973, investments in international port facilities have been concentrated in Port-au-Prince. Cap Haitien, the second international port of the country, has not seen any major improvements since 1953, although the port is vital to the economy of the north. 1.06 Domestic coastal shipping has traditionally played a significant role as a means of internal transport in Haiti. While the ongoing rehabili- tation of the road system will tend to reduce the relative share of water- borne traffic, the continuing importance of domestic maritime trade has been recognized (para 1.04), and an increase in coastal shipping traffic is expected. The maritime subsector is dealt with in detail in Chapter II following. (iii) Road Network 1.07 The inter-city road network totals 3,725 km of motorable roads, of which 750 km are paved, 1,715 km are surfaced with natural gravel and the balance consists of earth tracks, most of which are less than 4.5 m wide (Map IBRD 13293R). As mentioned, it was not until the early 1970s that the Government accorded priority to the rehabilitation and improvement of the basic road network. Today, much of the main network has been improved, but the rehabilitation of some bridges and some old paved and secondary roads and the necessary improvements of some priority roads are still pending. In 1979, the motor vehicle fleet numbered 30,200 units. Vehicle ownership is Iawt six, vehicles -er 1,000 tnhabitants, the lowest of the entite Latitn America and Caribbean Region. Although accurate statistics of vehicle regis- tration are not available, the NTS analysis for 1975-1977 (para 1.04) indicated  - 3 - that the fleet expands by 10% p.a. on average. Imports of new and used vehicles have increased steadily in recent years; in the 1975-1978 period, over 15,000 vehicles were imported, increasing from 2,721 in 1975 to 4,989 in 1978. The price of gasoline has been increased to US$1.85 per gallon. Gasoline taxes and import taxes on vehicles provide the major income from road user charges. 1.08 Almost half of the vehicles in circulation carry a combination of goods and passengers. Traffic flows are largely concentrated on a few main roads, e.g., the North Road, as mentioned in paragraph 1.03. About half of the network carries fewer than ten vehicles per day (vpd); 10% carries between 10 and 50 vpd and 40% carries more than 50 vpd. Substantial tonnages are carried by human porters and pack animals, mostly along country trails. Port-au-Prince is the center of the road transport system; in 1979, some 90% of vehicles were registered in Port-au-Prince; the origin and destination surveys conducted during the NTS showed that 64% of all trips, representing 85% of total tonnage and 72% of total passengers, had their origin in Port-au-Prince. (iv) Air Transport 1.09 The share of air transport in total traffic in Haiti is small but important (para 1.03) since Haitian export-oriented industry, especially the assembly industry, has performed dynamically in recent years. In 1978, about 24,000 tons of cargo were handled by the international airport of Port-au-Prince. In addition, 360,000 arriving and departing passengers were channeled through the airport. The international airport of Port-au-Prince is managed under contract by a foreign airline (American Airlines), and its main runway was recently extended to 3,000 meters. Most of the international traffic is carried by foreign airlines. The nation's second airpert is located at Cap Haitien; it has a runway of 1,500 m, which was paved recently; expansion of this airport is envisaged in the future to accommodate tourism and industry development of the area. Domestic air traffic, as indicated in paragraph 1.03, is light and is served by Haiti Air Inter. Another local company, Air Haiti, handles international cargo needs with C-46 and jet aircraft. (v) Railways 1.10 Haiti has about 75 km of rail line running from Leogane to Plaine de Cul de Sac via Port-au-Prince. This railroad is owned and operated by HASCO, the Haitian American Sugar Company, and is used exclusively for the transport of sugar cane. In the 1979/80 harvest year, 400,000 tons of sugarcane were transported by this system. C. Transport Investments and Priorities 1.11 In the first Five-Year Plan (FY1970/71-1975/76), the Government focused upon the need to supplement the productive sectors of the economy with adequate transport infrastructure and, accordingly, included expenditures that reflected the needs in that area. Today, transport investments account for about 23% of the Government's second Five-Year Plan (FY1976/77-1980/81) (Table 1.2). In an effort to correct the spatial imbalances which characterize the country, the Government aims primarily at further reconstruction and improvement of the road network and at expanding the coastal shipping services  -4- in order to integrate presently isolated community centers and rural areas and to achieve a better balance between Port-au-Prince and the provincial towns. As a result of this strategy, much of the main road network has already been improved; the main road from Cap Haitien via Port-au-Prince to Les Cayes and Jacmel has been constructed; further improvements, however, especially to secondary roads, are required. In addition, the ongoing urbanization process calls for adequate infrastructure investments, particularly in the Port-au- Prince metropolitan area. The 1979-1984 road improvement program proposed by the Autonomous Transport Service (SAT) includes an investment (in 1978 prices) of approximately US$3 million for the construction of paved roads and about US$33.5 million for the construction of gravel roads (Table 1.2). 1.12 With regard to coastal shipping, the Government has adopted the NTS proposed strategy to develop provincial ports as an alternative to more costly road projects. New terminals for shallow draft vessels are under construction at Port-au-Prince, Port-de-Paix and Jeremie, and a further expansion of the system is envisaged. 1.13 Tourism accounts for an important share of Haiti's gross foreign exchange earnings; in 1979, it represented more than one-third of merchandise exports. It also constitutes an important source of employment generation. The development of the tourist sector has been hampered in the past by the lack of suitable air and land transportation. However, the recently completed and ongoing improvements of internal transport infrastructure and other efforts by the Government at improving tourism, e.g., transport-oriented facilities such as the improvement of the Port-au-Prince airport and the planned Cap Haitien port expansion, should contribute actively to the further development of the sector. D. Institutional Framework 1.14 Overall responsibility for transport investment lies with the Ministry of Public Works, Transport and Communications (TPTC), but the Ministry of Finance and Economic Affairs, the Bank of the Republic of Haiti (BRH), the Ministry of Commerce and Industry and, since 1978, the Ministry of Planning are also closely involved. 1.15 The Ministry of Finance and Economic Affairs, assisted by the Governor of BRH, is responsible for monitoring port development and operations, for customs services and for the collection of transportation taxes. The Ministry of Commerce and Industry oversees airport operations through the Civil Aviation Service, which regulates air transport and domestic airports. The Ministry of Planning defines national development strategy and reviews, consolidates and coordinates the proposals of various ministries and agencies. In addition to these ministries, three autonomous agencies have been formed in response to particular needs: the National Port Authority (APN, previously APP); the International Airport Authority (AAIPP) and the National Road Maintenance Service (SEPRRN). 1.16 TPTC's responsibilities, as defined by law of June 17, 1971, include - in addition to roads and bridges - public buildings, zoning and construction regulations, city streets and public utilities. The increase in transport investment and the proposals of external lending agencies led to the  - 5 - establishment of three specialized services within TPTC: the National Laboratory of Public Works, responsible for materials testing and standards; the Construction Service and Coordination Unit, responsible for contract supervision; and SAT, responsible for planning, engineering and coordination. SAT was established in December 1975 and acts as a sectoral planning unit and a highway planning and engineering office. Since its establishment, SAT has cooperated with the Ministry of Planning on rescheduling NTS projects, con- solidating them with urban projects and other development priorities to form the transport sector investment program for the current Five-Year Plan (1977- 1981). In addition, SAT is involved in project preparation and supervision; it prepared the transport inputs for the current National Development Plan and presently supervises consulting services for the proposed projects. The organization and staffing proposed for SAT provided for project engineering and design mostly by consultants, with supervision and coordination ensured by SAT. SAT, furthermore, conducts annual traffic counts and prepares designs for street improvements in Port-au-Prince. In highways, SAT is responsible for planning and programing highway improvements and related expenditures, for updating road inventory, and for the systematic collection of traffic data. E. Past IDA Assistance to the Transport Sector 1.17 The Bank Group has made one loan and extended four credits to Haiti for road improvement, totaling US$48 million since 1956. The last credit, extended in 1978, also included a coastal shipping component. 1.18 Bank Group involvement in the Haiti transport sector began with a Bank Highway Loan (Loan 141-HA, US$2.6 million, 1956) for a Maintenance and Rehabilitation Project which involved about 1,000 km of roads. The second operationi (Credit 32-HA, US$350,000, 1962) for an Interim Highway Project was to complete works undertaken under the first project. The third and fourth operations (Credit 478-HA, US$10 million, 1974 and Credit 556-HA, US$20 million, 1975) included the NTS, reconstruction of the Northern Road and rehabilitation of major bridges. 1.19 The fifth transport operation (Credit 807-HA, US$15 million, 1978) consists of a road and bridge component and a coastal shipping component. The road and bridge component comprises essentially the upgrading of 54 km of roads in the Northern Plains region and of a feeder road to the port of Jeremie, and the reconstruction of two major bridges. The coastal shipping part includes a pilot port project which will provide new terminals for shallow draft vessels at Port-au-Prince, Port-de-Paix and Jeremie at a total cost of US$3.5 million. The praject, which constitutes the initiation of the Bank Group's activity in the Haiti coastal shipping system, is proceeding satisfactorily; it is discussed in detail in Chapter II.  II. THE MARITIME SUBSECTOR A. International Ports and Maritime Services 2.01 International shipping was served at numerous small ports in Haiti up to the 1950s. While the 1962 Customs Code still recognizes 25 coastal ports, of which 12 are "open to foreign trade," international shipping and trading patterns changed in the 1960s, and, with the centralization of commercial activities in the capital, the terminal at Port-au-Prince has become the major center for maritime transport of Haiti. At present, the only public berthing facilities in Haiti which can accommodate general cargo and tourist vessels of conventional size (e.g., with about 9 m draft) are at Port-au-Prince and Cap Haitien; these two ports are expected to remain the primary public terminals for the country's maritime exports, imports and tourism. While both ports receive regular calls by tourist ships, only Port-au-Prince has significant international freight services at present. 2.02 The international port at Port-au-Prince has modern facilities for general cargo and container vessels, completed in 1978 with Inter-American Development Bank (IDB) financing at a cost of US$20 million; they consist of a marginal wharf 460 m in length (effectively used as three berths), with depths alongside of 9.52m; this terminal has a container crane, two modern transit sheds (11,200 m total area), and ample paved yard areas. In addi- tion, the port has two ramps for Ro-Ro 1/ vessels and a finger pier with two berths for major tourist ships. The tourist pier is connected to the shore by a 10 m wide pier which can provide additional berthing space for three medium-sized cargo vessels and which has been reconstructed recently (at a cost of US$5 million); this space is frequently used for cargo traffic and also serves as the main access for tourist passengers and taxis; this frequently causes congestion and hazardous operating conditions. On the whole, however, international operations at this port are well organized and adequate for current needs; regular calls by container lines (CAROL, Sealand, Seatrain) and general cargo vessels are handled rapidly and with reasonable efficiency, moving nearly a half million tons in 1979 (a summary of recent cargo movements through Port-au-Prince is given in Table 2.1). The port operates on two six-hour shifts (7AM to 7PM) weekdays and one six-hour shift Saturdays at normal rates, but overtime work (at premium rates) is frequent. The six berths used for cargo operations had an average occupancy rate of 55% during 1979, and ship waiting time has been minimal since the new facilities became operational. A very high proportion of Haiti's international trade is carried in containers, as indicated by the following: 1974 1979 Percentage of Exports Containerized 66 87 Percentage of Imports Containerized 49 59 Percentage of All Cargo Containerized 54 67 1/ Roll-On/Roll-Off: for movement of containers on chassis.  - 7 - 2.03 Cap Haitien's terminal facilities (Map IBRD 15246) were constructed in 1952/53 and comprise a marginal wharf in two sections. One is for international traffic (181 m length), effectively one berth designed for tourism and general cargo vessels of up to 9 m (27 ft.) draft; this section is equipped with a narrow transit shed and a 30-ton derrick. The other section (87 m length) is shallower (1.5-3.0 m) and is used mostly by coastal shipping and small pleasure craft. The terminal also has several small buildings, a sugar warehouse and a molasses tank. The wharf is of steel sheetpile construction, does not have corrosion protection and is in an advanced stage of deterioration despite remedial measures recently attempted by APN. Tourist ships are the only regular traffic at the international wharf at present (normally two vessels per week). Nearly all cargo through the port is currently handled by coastal vessels. B. International Port Development Program 2.04 The most urgent needs for improvement of port facilities serving international traffic in Haiti are at Cap Haitien because of the deteriorated condition of the existing wharf structure and because of prospects for significant increases in trade which could not be accommodated with present capacity constraints. Since the port of Cap Haitien is expected to play a major role in the development of agriculture, industry and tourism in the northern region of the country, the repair and expansion of this port, already recommended in 1977 by the NTS (para 1.04), are considered among the highest priority investments in the transport sector of Haiti. 2.05 Financing was, therefore, provided under Credit 807-HA for prepara- tion of a long-range port development plan for Cap Haitien and a feasibility study for the first phase of recommended construction. To undertake this work, APN selected a French consulting firm (Bureau Central d'Etude pour les Equipements D'OutreMer, BCEOM), which, in 1979, surveyed existing conditions, assessed alternative development schemes and recommended a program of port improvements, which was discussed with representatives of the local community and APN officials. Upon general agreement regarding the recommended port development program, BCEOM prepared preliminary engineering designs, economic and financial analyses and a final report on the next stage of port develop- ment, which constitutes the major part of the proposed project described in Chapter III. Detailed engineering designs for this work were contracted by APN (with the same consulting firm) in July 1980 and are expected to be completed by March 1981. 2.06 The need for expansion of the international port at Port-au-Prince, while less urgent than the development of Cap Haitien because of recently completed terminal facilities financed by IDB (para 2.02), nevertheless requires study because of a variety of prospective trade developments and physical changes in the immediate vicinity of the port, which should be coordinated with port activities. Among the factors to be considered at Port-au-Prince are expansion of a central market complex 1/ and major road 1/ An urban project for which the Association is considering lending.  -8- improvements adjacent to the international terminal, construction of a new coastal shipping terminal (under Credit 807-HA, para 2.11), proposals to create an international Free Trade Zone within the port, expansion of con- tainer-related terminal activities, and possibilities of establishing a transshipment center at this port for the distribution of container traffic within the Caribbean region. Since there were no firm plans for the expansion of port terminal facilities at Port-au-Prince, APN retained consultants (J.C. Buckley, Inc.) to study alternatives, in the light of prospective traffic and the factors mentioned above, and to prepare a general plan for development of the port of Port-au-Prince. This plan is to provide a basis for the phased construction of port facilities and a program of future investments, to serve both foreign and domestic trade, and to define future uses of the land and water areas under APN's jurisdiction so that land-use controls can be imple- mented effectively and coordinated with related activities. The Port-au-Prince planning study, begun in late 1979, is nearly completed at this time, and provides a good basis for decisions on the next phase of port development. During negotiations, a time frame for terminal expansion at Port-au-Prince was agreed, and adoption of a general land-use plan would be a condition for disbursement under the proposed project for the study and engineering work at Port-au-Prince (para 3.20). 2.07 A subject of particular interest to APN has been the prospective need for cargo-handling equipment at the existing international terminal of Port-au-Prince, and the possibility of including financing for urgently needed equipment at this port was considered during preparation of the proposed ports project. The consultants retained for the port development planning study at Port-au-Prince were therefore requested to make a detailed analysis of present general cargo and container operations and to determine the need, if any, for acquisition of additional equipment to expedite the movement of imports and exports through the existing terminal. This subject was covered in an Interim Report by the consultants (presented to APN prior to the appraisal mission), which concluded that present equipment in the port is generally sufficient and underutilized, except during occasional days of peak traffic, and that prospective growth of imports and exports in the next three to four years would not justify significant investment in cargo-handling equipment. While major expansion of the terminal would probably be required by 1985, such investment would require a combination of berth construction, expansion of terminal areas and equipment acquisition (paras 3.19-3.20). 2.08 At both Cap Haitien and Port-au-Prince, questions of APN's legal title to properties needed for proposed port developments and related issues of effective control over future uses of land and water areas have been raised, 1/ with potential impact on future port construction and operations. These matters were particularly urgent at Cap Haitien, where a sugar company (CALDOS) maintains terminal facilities within the existing port, which could interfere with the proposed development. APN is taking steps to obtain clear title to the properties involved. 1/ Similar problems may also exist at the coastal shipping port terminals mentioned in paragraphs 2.11 and 2.14.  - 9- C. Present Coastal Shipping System 2.09 Despite an almost total absence of Government support for coastal shipping over the past 30 years, there is significant activity in Haiti by privately owned and operated sailboats and motorized vessels which plays an important role in the country's domestic trade. Last year, there were 403 sailboats in Haiti, ranging in size from one to 70 DWT, and 15 motorboats, ranging from 50 to 500 DWT, with a total carrying capacity (per trip) of over 12,000 tons (10,388 tons for sailboats, 2,160 tons for motorboats) and over 5,000 passengers (4,195 for sailboats, 1,071 for motorboats). In 1977, this fleet carried an estimated 340,000 tons of freight and 317,000 passengers among more than a dozen ports (Table 2.2). Service is largely on a sporadic basis, responsive to demand, but several routes from Port-au-Prince to coastal towns in the southern peninsula have regular service by motorized vessels. 2.10 This coastal trade complements internal land transport, which is hazardous and costly in many parts of the country. However, the maritime alternative, where it exists, also presents difficulties, such as: (a) inadequacy of existing ports, even for small vessels; (b) unsafe conditions of most of the fleet due to primitive vessel construction methods, lack of maintenance and repair facilities, and absence of effective inspection and controls; (c) inadequate operating crews and lack of training for vessel operators; (d) inability to obtain insurance coverage for vessels and cargo; and (e) absence of aids to navigation and of rescue services for vessels in distress. D. Coastal Shipping Development Program 2.11 The proposal to expand and modernize domestic coastal shipping in Haiti was made in 1977 by the NTS (para 1.04) and was adopted by the Government at that time to complement the development of the country's road transport system. In the NTS report, which compared overall economic costs of land and maritime transport, the development of 19 coastal ports was recommended; however, this recommendation was not based on a comprehensive analysis of alternative systems that might be adopted for coastal shipping services, nor was it established at the time which Government agency (or agencies) would be made responsible for such port development and the required parallel support of fleet services and auxiliary systems. It was therefore  - 10 - decided to: (a) go forward initially with only three "pilot ports," at locations where there was clear evidence of a need for terminal improvements, even without decisions on an optimal system for coastal shipping services; and (b) test the capability of the port administration of Port-au-Prince to become an agency of national scope, with responsibilities for terminal development at smaller communities along the coast. The three pilot ports selected were Port de Paix (a small town on the north coast of the northern peninsula), Jeremie (a medium-sized town on the north coast of the southern peninsula) and Port-au-Prince (the "hub" of the existing coastal shipping freight system, where over one-third of all freight tonnage is handled). Investments of US$3.5 million in new facilities at these three pilot ports were financed under Credit 807-HA (Map IBRD 15247). 2.12 Concurrently with the initiation of terminal developments at the three pilot ports, a Coastal Shipping Development Study (CSDS) was undertaken, with UNlDP and IDA financing, to assist the Government in defining a program for development of Haiti's coastal shipping system in the next decade. The objectives of Phase I of the CSDS, for which the Bank acted as UNDP's Executing Agency, were to provide: (a) an analysis of alternatives for development of the coastal shipping system that would complement existing and prospective land transport services in Haiti; (b) definitions of the vessel and fleet characteristics best suited for expansion of coastal shipping operations, under conditions prevailing in Haiti, and identification of technical and financial assistance needed for fleet development; (c) identification of the highest priority port improvements for future operation of the proposed coastal shipping fleet, together with related road construction or upgrading required to improve land access for port traffic; and (d) recommendations for a program of Government actions to support the most effective and economic development of coastal shipping for Haiti. 2.13 During 1979, Phase I of the CSDS reviewed all existing coastal ports and fleet operations, prepared traffic projections, and developed and evaluated alternative systems solutions. This operation resulted in recom- mendations to support the development of a regularly scheduled service by modernized motor vessels among 11 coastal ports (the three pilot ports, Cap Haitien, and seven others) and to supplement the motorized service by improved feeder services of conventional sailboats to and from smaller communities. While the motorized fleet would primarily handle traffic of general high-value cargo, agricultural produce and passengers, sailboats would continue to serve movements in salt and charcoal, which constitute a large but low-value portion of the traffic. For the period 1981-1990, the development program as recommended (Map IBRD 15247) would require a  - 11 - coastal fleet, port construction and related support services estimated to cover over US$20 million; however, the economic justification of an investment of such magnitude would depend upon implementation by the Govern- ment and private sector of a number of coordinated actions, and it is there- fore proposed to implement the program in stages consisting of investments that would be individually justified. 2.14 Phase II of the CSDS, initiated in late 1979 and completed in September 1980 with financing under Credit 807-HA, consists of preliminary engineering designs, economic analyses and financial forecasts for port terminal developments at the following ports: Gonaives, Anse a Galets, Baraderes, Corail, Anse d'Hainault, Port-a-Piment, and Les Cayes. This phase of the CSDS provided the basis for appraisal of the coastal shipping ports component of the proposed project. 2.15 Success of the proposed coastal shipping development program will depend in large measure upon decisions to be taken by the Government concerning support for development of the maritime sector in general. Specific recommenda- tions on this subject were made on the basis of Phase I of the CSDS, but their implementation was considered premature since there had been insufficient time for discussion among the various agencies concerned. Phase II of the CSDS was therefore designated as a period during which the Phase I recommendations would be considered in detail, with the objective of reaching a consensus on key issues relevant to coastal shipping. Proposed Government actions are summarized in paragraph 2.27. E. Port Administration 2.16 The 1962 Customs Code made administration and management of all ports in Haiti the responsibility of the Customs Service in the Ministry of Finance and Economic Affairs. In 1973, jurisdiction over the ports of Port-au-Prince and Cap Haitien was transferred to a new public agency, the Port-au-Prince Port Administration (APP), and, by Presidential Decree of 1978, APP was replaced by a national port authority (APN), with jurisdiction extended to the ports of Port-de-Paix and Jeremie. While it is foreseen, under existing law, that responsibility for other ports will eventually be transferred to APN, the Customs Service to date is in charge of vessel clearance, collection of duties and provision of facilities in all ports other than Port-au-Prince, Cap Haitien, Jeremie and Port-de-Paix. In practice, however, the Customs Service exercises jurisdiction only over ports designated as "open to foreign trade" (para 2.01), delegating responsibility for "local ports" to the Internal Revenue Service. The Internal Revenue Service also collects a franchise tax on all vessels under the Haitian flag. 2.17 APN is a public service agency, defined as a juridical entity, with administrative and fiscal autonomy, and is exempt from income tax. Although APN is legally autonomous, it does report to the Government through the Ministry of Finance and Economic Affairs. APN is governed by a Board of Directors, which consists of the Minister of Finance and Economic Affairs, the Minister of Commerce and Industry, the Minister of TPTC, the Governor of the BRH and the Director General of APN. Day-to-day management and operation of  - 12 - APN is under the Director General, who is assisted by the Directors of: (a) Port Operations; (b) Administrative Services; (c) Port Security; (d) Technical Services; and (e) Coastal Ports. Chart 1 shows the present organization of APN and departmental responsibilities in summary form. Specific responsibil- ities and staffing of these departments are as follows: (a) Port Operations, the largest department, employs approximately 300 people and has responsibility for passenger and cargo operations in the port and for related marine activities. At present, tug services and dredging are provided under contract by a private contractor. Another contractor, POSECO (Port Service Company), handles the operation of the container crane and is responsible for maintenance of all port equipment. (b) Administrative Services is responsible for administrative matters and for APN's financial management, including account, budgeting and statistical work. About 100 persons are employed in this department. (c) Port Security is responsible for overall safety in the port area. This department, which includes a fire brigade, employs approximately 90 persons. (d) Technical Services is responsible for planning, construction and maintenance of port facilities. It employs some 40 persons who, with the assistance of consultants, prepare and execute port-related investment projects and also repair and maintain channels and structures. (e) Coastal Shipping was created at the time of APN's establishment (Article 3 of the Presidential Decree of April 7, 1978). At present, APN is vested with the legal authority to manage the coastal shipping ports of Port-au-Prince, Cap Haitien, Jeremie and Port-de-Paix; its jurisdiction, as mentioned in paragraph 2.16, will gradually be extended to other coastal shipping ports. Twenty-one persons are currently employed in this department. 2.18 As mentioned above (para 2.16), APN is responsible for administra- tion and operation of the domestic and international shipping facilities at Cap Haitien. Day-to-day management of Cap Haitien is entrusted to the Port Director, who supervises a permanent staff of approximately 15 persons plus casual labor. Expansion of APN's staff and organization at Cap Haitien to a level that would be adequate for effective administration and operation of the proposed project was agreed during negotiations. 2.19 Except for the addition of the Coastal Shipping Department, APN's structure is identical to that of its predecessor. However, APN's salary scales are lower than those of private enterprises and thus are not sufficient to attract qualified technical and professional personnel. Without substantial  - 13 - salary adjustments and fringe benefits, even the retention of trained staff will become difficult. Agreement was reached during negotiations on per- sonnel policies that would ensure adequate staff capabilities at APN. F. Port Financial Management 2.20 APN is empowered to collect charges for its services, based on rates which it develops, and to utilize accumulated funds for capital expendi- ture, working capital, loan redemptions, etc.; the Minister of Finance has ultimate financial control over APN by approving operating budgets, tariffs, borrowings, and the sale and purchase of assets. While APN has not been provided with share capital, the Government may lend interest-bearing funds to APN or make equity contributions. 2.21 APN's financial position is dominated by current operations at the international terminal in Port-au-Prince, where tariffs comparable to those of ports in other countries provide revenues in excess of expenses. Tariffs in Cap Haitien are considerably lower, and port revenues do not cover current operating costs. Traditionally, port facilities for coastal shipping have been provided by the Government free of charge, except at Cite Simon (Port-au-Prince), which has a minimal dockage charge, but its revenues do not cover the costs. Apart from direct operating revenues, APN receives levies from operators of private terminals and a budgetary alloca- tion for port improvements in Cap Haitien. 2.22 Of some 100 employees working in the Administrative Services Department of APN, only about 25 have any formal accounting, legal or statis- tical training. APN's salary scales, lower than those of the private enter- prises, do not attract qualified personnel (para 2.19). 2.23 Different accounting systems are used in Port-au-Prince and in Cap Haitien. Port-au-Prince has a commercial type of system, adequate for the overall control of the port's finances. Cost accounting was developed for this port in the mid-1970s (in accordance with the loan agreement between APP and IDB), but the system as implemented is incomplete, and, although improved as a result of the IDA credit conditions, it still does not provide the information required for effective management control. Monthly financial reports, without cost-center related information and budget comparisons, give only limited assistance to port management to analyze and direct the opera- tion. Cap Haitien's accounting system is cash-based, depreciation and accruals are not accounted for and only part of the assets employed are in APN's books. During negotiations, agreement was reached that assets employed in Cap Haitien would be verified, valued and brought into the accounts of APN. In accordance with the IDA Credit Agreement (807-HA), APN has to revalue its assets every three years; this obligation was restated during negotia- tions and the first revaluation should be in 1981. Accounting for the Cap Haitien assets, part of this exercise, would be a condition for disburse- ment under the proposed credit. Management advisory consultants financed under Credit 807-HA developed an accounting system for the coastal shipping pilot ports which is well designed and which is expected to provide more meaningful information for management control than that of Port-au-Prince;  - 14 - the system would be extended to other coastal shipping ports as they become operational under APN's jurisdiction. For effective management and financial control, uniform accounting procedures and budgeting systems are necessary for APN's entire operation; it was agreed during negotiations that APN would implement the uniform system by end-1982. Accounting in Port-au-Prince should be upgraded to the standard proposed for the coastal ports system and cost accounting should be further developed; accrual-based accounting is to be designed for Cap Haitien. It should be of equal standard and amenable to integration with APN's other systems. Under the proposed project, appropriate consultancy assistance (about 14 man-months) is provided for these tasks (Annex 1). 2.24 Annual operating budgets are prepared by APN and submitted to the Minister of Finance for approval. In the past, the budgets were not sufficiently detailed, and data were not provided in form suitable for analysis; the budget could not be used as a planning document. For 1980, APN's consultants developed a new budget format as an initial step toward more intensive management control. To further improve APN's financial planning, management and control, agreement was reached during negotia- tions that the 1982 and 1983 annual operating budgets would be based on quarterly, and thereafter on monthly, projections. It was also agreed that, through 1986, APN would present its budgets for IDA comment two months prior to the beginning of the budget year. 2.25 Apart from a rate of return requirement, APN has no long-term financial objectives or plans. Tariff adjustments are based on short-term cost considerations and on the need to maintain a 6% rate of return on the net assets employed (a requirement under the IDB Loan and under IDA Credit 807-HA). Capital investment and various business proposals (borrowing, leasing areas, establishing a free trade zone) are not subject to comprehen- sive economic and financial analysis to evaluate their impact on APN's finances. It was agreed during negotiations that, for better utilization of financial resources, from 1981, investment proposals over US$350,000 would be subject to economic and financial evaluation and that the analysis would be forwarded, through 1986, for IDA comment prior to implementation. It was further agreed that each year, from 1981, APN would prepare a five-year capital investment budget and forward it, through 1986, to IDA together with the operating budgets. This should improve APN's ability to review performances against budget targets, to develop long-range financial objectives, and to analyze the impact of investment proposals. 2.26 APN's financial statements, prepared in a commercial manner, are usually ready for year-end audits within three months after the end of the fiscal year (September 30). The accounts are audited by an independent firm in accordance with the existing IDB and IDA loan and credit agreements. While past audits were conducted properly, the reports were not as extensive as would normally be expected from an audit firm having substantial experience with large enterprises. Audit reports with wider analytical scope should be prepared, and it was agreed during negotiations that, for this purpose, an audit firm experienced in auditing accounts of large international ports would be engaged. The appointment of the auditor would be subject to TDB and IDA concurrence, and the next appointment is due in 1981.  - 15 - G. Government Support to Maritime Sector 2.27 Government actions to support the maritime sector (paras 2.13-2.15), as recommended in Phase I of the CSDS, were discussed in Haiti during 1980. The principal actions on which there appear to be consensus are (a) the introduction of stricter vessel inspection and licensing procedures so that vessel owners can obtain insurance and financing and (b) the establish- ment of a national maritime agency to promote and regulate the domestic and international fleet of Haiti and to coordinate all relevant Government policies and actions (Annex 2). It has been proposed that this new maritime agency be within or under the Ministry of TPTC. Agreement was reached during negotia- tions on appropriate steps toward implementation of these institutional developments, for which technical assistance is to be financed under the proposed project (paras 3.21 and 3.22), and on the functions and responsi- bilities of the proposed national maritime agency. III. THE PROPOSED PROJECT A. Objectives and General Description 3.01 The purpose of the proposed project is to: (a) rehabilitate and expand the second international shipping port of Haiti at Cap Haitien; and (b) support the development of a modern coastal shipping system for domestic transport in Haiti by installing new port terminals in selected locations and by assisting in related institutional developments. 3.02 The main components of the proposed project are: (a) at Cap Haitien, engineering and construction for two vessel berths to serve international tourist and freight traffic, a coastal shipping wharf, and auxiliary terminal facilities; (b) at the coastal shipping ports (Baraderes, Corail, Anse d'Hainault, Port-a-Piment, Anse a Galets, Gonaives and Les Cayes), construction, rehabilitation and engineering super- vision for coastal shipping wharves; (c) at the port of Jeremie, a supplementary construction for shore protection at the coastal shipping terminal financed under Credit 807-HA; (d) at Port-au-Prince, preparation of a general plan for port development, feasibility studies and design for the next phase of development in terminal facilities for international trade; and (e) institutional development and studies in the maritime sector, for which technical assistance will be needed.  - 16 - 3.03 The scope of the proposed project is considered appropriate for the current phase of transport development in Haiti, and the selected project components are of high priority in the country's investment program. The proposed coastal shipping ports would carry forward the program initiated with the pilot ports financed under Credit 807-HA and would be supplemented by port feeder roads financed by other sources. B. Cost Estimates and Financing 3.04 The total cost of the project is estimated at about US$23.7 million, of which about US$17.0 million, representing the foreign exchange component, would be financed by the proposed credit (US$11.0 million) and a grant under consideration by the Kredit Anstalt fur Wiederaufbau (KfW) (US$6.0 million); the balance would be financed by APN, which has confirmed that adequate funds would be allocated for this purpose. 3.05 A summary of the proposed project cost is given on the following page, and a detailed breakdown of these costs is given in Table 3.1. Proposed co-financing with KfW would be confined to the Cap Haitien component of the project. The project financing plan would be as follows: Estimated Cost (US$ Millions) IDA KfW APN Total (a) Cap Haitien Port 6.3 6.0 5.0 17.3 (b) Coastal Shipping Ports 2.5 - 1.1 3.6 (c) Supplementary Construction at Jeremie 0.3 - 0.1 0.4 (d) Port-au-Prince Planning and Feasibility Studies 1.3 - 0.3 1.6 (e) Technical Assistance to Maritime Sector and APN Sector 0.6 - 0.2 0.8 Total 11.0 6.0 6.7 23.7 3.06 Cost estimates for the Cap Haitien port construction are based on preliminary engineering studies prepared by BCEOM; detailed engineering for this project component is in progress and should be substantially completed by March 1981. Cost estimates for the seven coastal ports are based on preliminary engineering studies prepared by J.C. Buckley, Inc.; detailed engineering for these project components is to be done under the existing contract with this firm and should be completed by March 1981. Cost estimates for the supplementary construction at Jeremie are based on designs by APN's consultants for the pilot ports (INGEROUTE-SOHICCO), and on a contract already awarded. 1/ Cost estimates for consulting service are based 1/ This contract was awarded in August 1980 to the Dominican Republic contracting firm "COSIMAR," which was selected for construction of the three pilot ports (financed under Credit 807-HA) after international competitive bidding in accordance with Bank guidelines and is now working in Jeremie.  HAITI PORT DEVELOPMENT PROJECT Project Cost Estimates and Financing Estimates in Gourdes Estimates in US$ Foreign Proposed IDA (Millions) (Millions) Exchange Financing Local Foreign Total Local Foreign Total % % US$'000's Port Construction / Cap Haitien 23.30 54.45 77.75 4.66 10.89 15.55 70 32 2/ 4.96 Coastal Shipping Ports 4.90 11.40 1h. in 0.98 2.28 3.26 70 70 2.28 Supplementary Works at Jeremie 0.60 1.40 v nn 0.12 0.28 0.40 70 70 0.28 Subtotal - Construction 28.80 67.25 96.05 5.76 13.45 19.21 70 - 7.52 EngLineering Services for Project Construction 2.20 8.00 .J1020 0.44 1.60 2.04 80 80 Technical Assistance to APN and, Government Planning and Design for Port- au-Prince 1.60 6.40 8.00 0.32 1.28 1.60 80 80 1.28 ASsistance in Coastal Shipping 0.40 1.60 2.00 0.08 0.32 0.40 80 80 0.32 Development Advisory Service to APN 0.40 1.60 2.00 0.08 0.32 0.40 80 80 0.32 Subtotal - Technical Assistance 2.40 9.60 12.00 0.48 1.92 2.40 80 80 1.92 T 0 T A L 33.40 84.85 118.25 6.68 16.97 23.65 - 46 11.04 1/ Including Physical and Price Contingencies. 2/ Co-financing by KfW would be about 38% of total construction cost at Cap Haitien, so that full foreign exchange cost is financed. December 1980  - 18 - on current man-month rates for similar services (about US$10,000 per man-month of foreign experts' time, including salary, costs, fees, international travel and subsistence). All costs are calculated free of taxes and duties since Haiti has exempted international contractors and consultants from such duties. 3.07 The foreign exchange component for the civil works is estimated at 70% for Cap Haitien and the coastal shipping ports. The foreign exchange component for engineering services and technical assistance is estimated at 80%. A contingency allowance of 10% to 15% was used for all civil works at Cap Haitien and 15% for civil works at the coastal shipping ports. Basic costs of construction and equipment have been given in mid-1981 prices, and contingencies for price escalation were based on annual increases of 8% for the implementation period of 1981 through 1983. C. Cap Haitien Terminal Facilities 3.08 The proposed construction of a new port terminal at Cap Haitien would comprise both the extension and the replacement of existing berthing facilities. Since this work has to be conducted under traffic (e.g., without impairing tourist operations at the existing terminal), a phased construction program is proposed. 3.09 The first phase of construction would consist of a new berth for tourist vessels, outshore of the existing wharf, in a location where present water depths are between 10 m and 11 m; orientation of this berth would be at an angle to the existing wharf in order to facilitate approach and departure maneuvers (Map IBRD 15246) and to minimize dredging. The berth would be dredged to a depth of 11.5 m and would consist of 115 m of wharf and a breasting dolphin to provide a total berth length of 200 m; the wharf would be adjacent to a new land-fill area connected to the shore by a new access road that bypasses the existing port terminal. When this facility becomes operational, a tourist vessel can be berthed there without affecting the existing wharf, and construction of the next phase can begin. 3.10 The second phase of construction would consist of about 250 m of multi-purpose wharf, 85 m of which would be designed for a depth of 11.5 m and 165 m for a depth of 10.0 m; the latter would be constructed in front of the existing berth for international traffic and would replace the deteriorated sheetpile bulkhead. This would provide berthing space for a second large tourist vessel or for two moderate-sized cargo vessels. An existing transit shed parallel to the present wharf, currently used for export cargo, would continue to be used for foreign trade, but provision has been made in the plan to replace it, at a later stage, with a larger, more modern shed, if this should be found justifiable. The inshore end of this multi-purpose wharf would be equipped with an end-ramp for Ro-Ro vessels which are likely to be used in container traffic between Cap Haitien and such ports as Miami and San Juan, Puerto Rico; adequate provisions for parking of containers would be made on existing and filled-land areas near the ramp.  - 19 - 3.11 The project at Cap Haitien would also include reconstruction of the coastal shipping dock by installing a new wharf in front of the existing sheet-pile bulkhead; this wharf would be about 100 m in length and would be designed for water depths of 4 m. Filling and paved areas adjacent to this wharf would provide adequate areas for cargo operations related to coastal shipping; an existing shed near this wharf, currently used for import cargo, would be made available for domestic trade, and all international traffic (tourist and cargo) which currently passes over the coastal shipping wharf apron would be re-routed through a new port entrance to be located outside the coastal shipping terminal area. Furthermore, provision would be made in the harbor basin adjacent to the coastal shipping dock for a marina area, to serve small private craft which have become an increasingly important part of Cap Haitien's tourist trade; these craft, which normally stay in port three to five days, would be provided with simple moorings adjacent to a land area to be created with dredged material from the harbor basin. Minimal facilities for road access, parking and utilities would be provided in this area. 3.12 The proposed development at Cap Haitien would provide a considerable degree of flexibility for future operations at this port. The principal port activity at present, the tourist ships, 1/ could continue to operate through- out the construction period at its current volume, but could more than double when two tourist berths become available (para 4.03). At the same time, the second berth would provide general cargo and Ro-Ro traffic handling capacity which would be unimpaired while only one tourist ship is in port; this consideration is of particular importance in view of prospective indus- trial and agricultural developments in the region (paras 2.04 and 4.07). The proposed facilities for international traffic (tourism, general cargo and Ro-Ro) are expected to provide Cap Haitien with sufficient capacity at least through 1990. Concurrently, coastal shipping traffic is expected to become increasingly important for development of the region, and provisions are being made to improve the facilities for this traffic also. Effective operation of the proposed terminal complex, however, would require strengthen- ing of APN's organization and staffing at Cap Haitien (para 2.18) and clarifi- cation of jurisdictional issues relating to ownership of facilities and land-use control (para 2.08). D. Coastal Shipping Ports 3.13 The selection of the ports included in this project for expansion of coastal shipping has been based on analyses of alternative systems for these operations (paras 2.11-2.13). These analyses have been supplemented by pre- investment studies for individual ports to define their exact configuration, scope of investment and economic/financial aspects (para 2.14). Basic design concepts for the proposed coastal shipping terminals are identical to those 1/ Cap Haitien now has a minimum of two tourist ships per week, involving about 800 disembarking passengers each; the operation is associated with a large market activity near the pier (where locally manufactured goods are sold) and with a major bus-taxi service which transports visitors to the Citadelle and other nearby points of interest. Tourist ships normally stay in port one day.  - 20 applied in the pilot ports financed under Credit 807-HA. The facilities would provide berthing space for motorized coastal vessels, land access by road, and a minimal paved area for the transfer of cargo and passengers between vessels and vehicles. No cargo-handling equipment is foreseen, and transfer operations are expected to continue, as at present, by manual methods and (in some cases) the use of ships' gear. 3.14 In the ports of Anse a Galets, Baraderes, Corail, Anse d'Hainault and Port-a-Pimant, the construction of entirely new terminal facilities is foreseen. Based on field investigations and soils analyses in the vicinity of each proposed facility, conducted during Phase II of the CSDS (para 2.14), alternative sites and terminal layouts were investigated, and APN defined development plans for each of the five new facilities. Functionally, these facilities would provide berthing space for two vessels of up to 200 DWT capacity, either at two sides of a finger pier about 50 m in length (at Port-a-Piment, Anse d'Hainault and Corail) or along a single marginal wharf about 90 m in length (at Baraderes and Anse a Galets); structurally, these facilities would all be of similar design, using modular components for precast concrete deck sections supported on prestressed concrete piles. The proposed terminal designs provide for dredging of channels to 4 m depth at all ports, but the initial construction would comprise dredging to only 3 m depth since this depth is considered sufficient for the initial operations (all but one of the motorized vessels currently in the coastal trade of Haiti can navigate fully loaded in 3 m depth). 3.15 In the ports of Gonaives and Les Cayes, proposed improvements will be limited to dredging, navigational aids, and minor improvements to shore facilities (repairs to existing dock structures). Existing sheds and upland areas are expected to be adequate for initial operations at these terminals. 3.16 The estimated costs of the proposed terminals at each site, including physical and price contingencies, are as follows (in US$ thousands): Gonaives 205 Anse a Calets 495 Baraderes 450 Corail 505 Anse d'Hainault 852 Port-a-Piment 605 Les Cayes 148 Total 3,260 A breakdown, showing costs of major project components, is given in Table 3.1 (page 3 of 4). At two of the proposed ports, operation of coastal shipping terminals would depend on road improvement; this involves: (a) construction of a connecting road between the town of Baraderes and the proposed terminal site (about 3 km away); and (b) upgrading of existing roads north and south of Anse d'Hainault (to Dame Marie and Les Irois). Therefore, agreement was reached during negotiations that these road improvements would be undertaken by the Government at the appropriate time, and that construction of the road at Baraderes would be a condition of disbursement for the construction at this port.  - 21 - E. Port of Jeremie 3.17 Supplementary construction at Jeremie is required to provide security for the new terminal area being constructed adjacent to the coastal shipping wharf, under Credit 807-HA. This area, which extends into the harbor basin and receives some natural protection from rock formations in the bay, is exposed to wave action under certain weather conditions. The original design, on which the current construction contract is based, provides for slope protection around the terminal area with stones of 100-600 kg, based on a maximum significant height of incident waves of 1.5 m. Recent observations, however, indicated that protection against higher waves would be justified, and the supplementary construction included in the proposed project would comprise the placement of rocks weighing 600 kg to 2.5 tons over the stone protection originally contracted. This additional work is expected to provide adequate protection for incident waves in the 2.5-3.0 meter range and would add about 12% to the cost of the original contract for the pilot ports. 3.18 This supplementary work has been contracted by APN on a negotiated basis with the construction firm (COSIMAR, of the Dominican Republic) that was selected for the coastal shipping ports component of the Fifth Transport Project (Credit 807-HA), after international competitive bidding (ICB) procedures in accordance with Bank guidelines. The contractor is in the field and would obtain the additional rock from the same quarry being used for stone protection under the original contract. This contracting procedure is considered appropriate since it would reduce costs and time of implementa- tion; time is of particular importance in this instance because the heavy wave action, against which protection of the fill is required, could commence in December; retroactive financing in the amount of US$280,000 is recommended for this project component (para 3.25). F. Port-au-Prince Development Program 3.19 Preparation of a general development plan for the land and water areas under APN's jurisdiction in the harbor of Port-au-Prince is considered a prerequisite for effective operation and future expansion of the interna- tional and coastal shipping terminals in this port and for required auxiliary port installations (a Free Trade Zone etc.), all of which may play an impor- tant role in the future development of the country (para 2.06). The planning study currently being completed is based on terms of reference which the Association has reviewed and found satisfactory, and is being executed by consultants whose qualifications are considered adequate. This study has already been of assistance, in connection with the appraisal of the proposed project, by providing an analytical basis for evaluating the cargo-handling equipment needs at the international terminal of Port-au-Prince (para 2.07). 3.20 Following the preparation of a general port developmant plan, there will be a need for preliminary engineering and economic studies of specific components of the port development program recommended for the next stage of construction and preparation of detailed engineering designs for high priority projects. Preliminary drafts of the port development plan indicate that the investments needed in Port-au-Prince for cargo terminals and other facilities to be constructed in 1983-1985 would be on the order of US$30 million (of which about half would be in local currency).  - 22 - G. Institutional Development and Studies 3.21 Institutional development within APN will require the assistance of outside expertise in the areas of management and finance (paras 2.25, 5.05 and 5.07). Also, further assistance will be required for the establish- ment of Governmental services in support of the maritime sector (para 2.27) and for studies of future coastal shipping port development. 3.22 A number of specific tasks have been proposed for this technical assistance. An outline of the proposed scope of the assistance is given in Annex 1 and a breakdown of the estimated cost is given in Table 3.1 (page 4). H. Execution, Procurement and Disbursements 3.23 Implementation of the proposed project would be the responsibility of APN, which would retain consultants satisfactory to the Association for this purpose and would expand its own staff capabilities, as discussed in paragraphs 2.18 to 2.20. 3.24 The proposed project is expected to be completed within a period of three years. Execution of the project would be in accordance with the Implementation Schedule given in Chart 2. 3.25 All works to be financed under the proposed project would be awarded to prequalified international contractors, in accordance with ICB procedures specified in the Bank's guidelines, except for the supplementary construction item at Jeremie (paras 3.17-3.18). Professional services for engineering, planning and management advisory services would be retained in accordance with procedures acceptable to the Association. Retroactive financing is foreseen for three items contracted by APN in 1980 (Table 3.1, page 1), covering sup- plementary construction in Jeremie (US$280,000), final engineering for Cap Haitien (US$319,000) and the port development plan at Port-au-Prince (US$520,000). 3.26 Disbursements of the credit would be made against: (a) 32% of total expenditures for Port Construction at Cap Haitien; (b) 70% of total expenditures for Construction of coastal shipping ports and supplementary works at Jerremie; and (c) 80% of total expenditures for the Engineering Services for Project Construction and for Technical Assistance for (i) Planning and Design for Port-au-Prince; (ii) Assistance in Coastal Shipping Development; and (iii) Advisory Service to APN. All disbursements would be fully documented. IDA funds for the proposed project are expected to be disbursed in accordance with the estimates given in Table 3.2. It was agreed during negotiations that, for the Cap Haitien port component of the project, in which co-financing with KfW is being consid- ered, disbursement would be conditional upon effectiveness of the KfW grant.  - 23 - I. Project Monitoring 3.27 For the purpose of monitoring the project during implementation, progress on the following matters would be reviewed with APN: (a) cargo movements and berth utilization at coastal shipping ports (in particular, those completed under Credit 807-HA); (b) container and general cargo movements and related berth utilization at Port-au-Prince and Cap Haitien; (c) cruiseship calls and cruise visitors at Port-au-Prince and Cap Haitien; (d) APN's financial performance (operating ratios for coastal shipping ports and the return on net fixed assets for Cap Haitien and for APN's overall operation); and (e) staff development in APN's operating and technical departments. Specific efficiency indicators to be used in monitoring of the above items will be included in the reporting requirements for the proposed project. J. Environmental Impact 3.28 The Cap Haitien component of the project involves slight changes in the shoreline configuration for the bay and deepening inshore of the existing minus 11 m bottom contour, in and around the existing terminal area. However, these are not expected to have a significant impact on sea current and marine life in the Bay of Cap Haitien. Construction of the seven coastal shipping ports is even less significant in scale and should have no measurable effect at all on shore and sea conditions. 3.29 The development of a modernized coastal shipping system, increasingly utilizing motorized vessels in service among the ports (rather than sailing vessels), is bound to have a slight effect on the environment, but traffic volumes are low (on the order of two to four vessel calls per week, for most ports), so that pollution of water or air by vessel operations should be insignificant. IV. ECONOMIC EVALUATION A. General 4.01 As indicated in Chapter II, transport by sea occupies an important position in the economic development of Haiti. About 98% of exports and imports move by sea, the cargo volume by coastal shipping is some 18% of domestic transport and close to half of foreign visitors arrive as cruiseship passengers. The project will assist continued development of sea transport in essentially three areas. The major part of the project will develop the port of Haiti's second largest town, Cap Haitien. The other two parts will continue the efforts to modernize transport to smaller isolated communities, particularly  - 24 - on the southern peninsula, which began under Credit 807-HA, and to prepare for anticipated growth of Port-au-Prince. Future project preparation and institution- building for APN cannot be verified by a numeric economic evaluation but are equally vital for the growth of this subsector. Thus, the evaluated benefits for this project consist primarily of additional cruiseship passengers and transport cost savings by more direct transport for the port of Cap Haitien and reduced cargo handling and more rapid transit for the coastal shipping ports. B. Forecast of Future Traffic 4.02 Traffic forecasts for Cap Haitien and the coastal shipping ports have been difficult to obtain. For both, the constraining effect of existing facilities or the total absence of terminals cannot be determined with preci- sion. For the financial projections for Port-au-Prince, traffic forecasts can be done more accurately since general exports can be better determined. Various consulting firms have prepared traffic forecasts in recent years. The National Transport Study in 1976 gave the initial information concerning the growth of coastal shipping under various assumptions. This work was followed in 1977 by the feasibility studies for coastal shipping ports under Credit 807-HA, and in 1979-1980 by the CSDS (Phases I and II) and the Cap Haitien Feasibility Study. The findings of the latter two have been used for this appraisal. 4.03 The market position of Cap Haitien for cruiseship trade in the Caribbean can best be visualized by Map IBRD 15245, on which its advantageous location on the main Florida-Virgin Islands route is shown. This trade is probably the most rapidly growing segment of weekly cruises since it minimizes fuel use both for the ships and associated air transport between Florida and the main market generators. The trade has one peculiarity, i.e., a marked preference for weekend arrivals and departures in Miami or Fort Lauderdale. In view of a 36-hour steaming distance from Florida to Cap Haitien, this preference poses an unavoidable peak problem whereby cruiseship calls (in port for 8-10 hours) will take place only on certain days of the week. Since only one berth is presently available, capacity is effectively constrained to three to four calls per week and normally to only two calls. The construction of an addi- tional berth will, therefore, not only avoid the need to close the port while reconstruction of the existing berth takes place, but will also allow an approximate doubling of ship calls when both berths are operating. It will also permit larger ships to use the port. 4.04 Thus, traffic growth at Cap Haitien rests on the following premises: the continued 5-6% growth of the Florida-Virgin Island cruiseship trade, continued growth of ship sizes and removal of the one-berth port constraint for a place in this trade. In view of experience with traffic growth in Miami, and the rapid growth of air tourism, the growth rates used may prove to be conservative. These rates have been adopted for Cap Haitien, however, to avoid over-investment in the port in case the market does not develop as rapidly as anticipated. Forecasts adopted are shown in Table 4.1 for ship calls and passengers. For passengers, a yearly growth of about 7.5% for the first five years after completion of the project, followed by a yearly 2.5% growth to allow for increased ship sizes, has been assumed.  - 25 - 4.05 For cargo, both for Cap Haitien and the coastal shipping ports, an assessment of production and consumption in the ports' tributory areas has been made, and maritime traffic components have been calculated on the basis of a modal split analysis, taking into account the transport costs by alternative modes. The resulting forecasts are shown in Table 4.1 (Cap Haitien) and Table 4.2 (coastal ports). A more detailed description of traffic forecasting techniques used is given in Annex 3. The total increase in cargo to and from the new coastal ports (i.e., other than Gonaives and Les Cayes) amounts to some 53,500 tons from 1980 to 1995. C. Evaluation of Cap Haitien Facilities 4.06 As explained earlier, the existing dock at Cap Haitien is reaching the end of its useful life as a result of corrosion of sheet piling. Major reconstruction of this facility would be necessary in the next few years, merely to retain it in service. Furthermore, the bulkhead construction would not allow deepening of the berth alongside. The economic effects of a curtail- ment of cruiseship calls, which would result from a collapse of the dock, would be very severe. Berthing alongside the dock is not imperative, but, with few hours in the port, the number of passengers who would go ashore by lighter would drop to such an extent that ship owners would be reluctant to call on the port. Thus, the number of sightseers and shoppers would be reduced drastically, with a serious loss of employment opportunities in the area. The relatively short port stay is very labor-intensive since not only a large handicraft market but also a large group of jeep drivers, guides and horsemen for visits to Milot and the "Citadel" is completely dependent on these visitors. This trade has far-reaching effects for the whole area. In the numerical eval- uation, the precise reduction in passengers as a result of a dock collapse is difficult to ascertain since two reactions are possible: (a) cancellation of certain cruiseship calls; and (b) reluctance of certain passengers to go ashore without direct docking. In the absence of such information, the cost of reconstruction was used as the more practical way of evaluating at least the cost to APN of continued port operation in Cap Haitien. This underesti- mates the advantage to the Haitian economy of continued operation of the port for cruise vessels since the potential loss of only half the existing traffic over a ten-year period would justify a cost of reconstruction of some US$4.0 million. 4.07 Another important aspect is the potential cargo growth to and from the area. This area is important as a secondary center to relieve the population growth in Port-au-Prince, and various means of commercial diversification have been sought for the region. A major hotel development is under way, and an airport extension and an industrial park are being planned. These projects have been assisted by improved electricity and better water supply (IDA Credits 895-HA, EEC special action Credit 4-HA and KfW). The northern road program (IDA Credits 478-HA, 556-HA and 807-HA) will improve land access to the port At present, the port is not able to cater to direct shipments abroad, except by traditional break-bulk cargo-handling methods, with the result that almost all export production from the area moves by road to Port-au-Prince to be containerized. Direct Ro-Ro services to Cap Haitien would make exports more competitive since the 250-km roadhaul could be  - 26 - avoided. 1/ Similarly, imports for the industrialized zone and other develop- ment projects would be facilitated as a complement to air transport. Better cargo services to this port would also encourage coastal shipping, especially on the north coast of Haiti. The population of Cap Haitien has increased in a few years from about 40,000 to 60,000. The result of the development of the area, therefore, is expected to lead to a population of 200,000-250,000 by 2005. 4.08 The numerical estimates of the benefits and costs of the Cap Haitien project are explained in Annex 3, and the calculations are summarized in Tables 4.3 and 4.4. One of the main benefits is additional earnings from foreign cruiseships which provide various foreign exchange receipts to the Haitian economy. Another of the main benefits is derived from an average net shore expenditure of US$14 per foreign visitor calculated on current expendi- ture patterns. Other main components are the savings in road transport cost, as explained in Annex 3, and an estimate of the cost of a future collapse of the existing dock, if not replaced. The rate of return is 26%. D. Evaluation of Coastal Shipping Ports 4.09 The main emphasis for the smaller coastal shipping ports is to enable improved access to communities which are not connected by roads to the rest of the country or which are reached by road for only part of the year, primarily to the market of Port-au-Prince. In due time, roads to some of these communities will improve, but experience has shown that the necessary investment is high and the time required for construction is long. Even though roads will be built, coastal shipping using the advantage of favorable wind conditions and the 1,530 km of Haiti shoreline will remain competitive for certain trades and certain commodities. Various alternatives for a developed coastal shipping system were worked out in Phase I of the CSDS referrred to in paragraphs 2.12 and 4.02, which included a transport cost analysis for the coastal fleet. The major limitation of the smaller ports for such a system is that operations are now mainly over the beach using lighters or small docks without direct transfer from ship to shore. There is little or no protection to ships and cargo. The advantage of the new small port facil- ities is that access to shore is provided for small (up to 200-ton) motorized vessels. This improved access will enable more regular services to be pro- vided at virtually the same en route costs as before but with reduced damages and losses and fewer handling costs. 4.10 The main benefit from an improved coastal shipping system is the development of an alternative regular transport system. The developmental impact will be obtained at a lower cost than would be needed for new road connections over difficult terrain to some of the ports. Economic development of the areas served can, therefore, take place much sooner. The full impact is difficult to quantify, except for transport cost. For the coastal shipping ports, detailed calculations of different combinations of maritime and land transport, including losses to cargo and transfer costs for each port, have been made. The benefit assigned has normally been the difference of the cost for the selected coastal shipping alternative compared to the transport cost 1/ The location is strategic for Ro-Ro services on the Miami-Haiti-Dominican Republic-Puerto Rico route, as can be seen on Map IBRD 15245.  - 27 - of the next best solution for each main commodity group. Feasible ports under these selection criteria are those with a return exceeding 8% (the opportunity cost of capital). The quantified rate of return varies from 11% to 16% for the different ports (Tables 4.5-4.6), and, for all coastal ports, it is 14%. E. Overall Project Evaluation 4.11 The main emphasis of the overall project is to assist in the development of communities other than the capital of Port-au-Prince, and in regional integration. The quantified benefits result in a rate of return for Cap Haitien, conservatively estimated over only a 12-year period, of 26%. Sensitivity tests indicate a minimum of 12% under adverse assumptions (Table 4.7), and the first year return (of 22%) is also more than adequate. For the coastal ports, the total return is 14%, based only on transport cost savings over a period which varies from 10 to 25 years, depending on location. The sensitivity test of treating all traffic growth as generated traffic gives a rate of return of 12%. The first year return for the small coastal port system is higher than the opportunity cost of capital. For the project as a whole, the rate of return is 24%. F. Risks 4.12 The design and scope of the project have avoided risks of over investment to the extent possible, i.e., by staged construction at Cap Haitien and minimal investment at the smaller coastal shipping ports. Nevertheless, the most significant risk is that development in shipping may not take place as, and when, anticipated. In the case of Cap Haitien, a conservative valuation of benefits as above gives a high return, which, in extreme cases of 25% and even 50% reduction of benefits, yields a rate of return of 20% and 12% respectively. The likelihood of serious cost overruns is less, but a 15% cost overrun combined with a 25% reduction in benefits gives a return of 17%. The cost of reconstruction of the existing dock in 1988-1989 has been included as a benefit. In fact, this work may be required earlier, but, in the event that no reconstruction at all would be done in the period 1981-1995, the return would still be 17%. 4.13 For the coastal ports, the situation does not appear equally secure. Total benefits, however, have probably been underestimated because development impact on agricultural production is not quantified; therefore, the risk of cost overrun is likely to be more important. The return varies from port to port, but a 15% cost overrun in real terms gives a return of 11% for the system as a whole and 10% assuming 25% lower benefits. To assess the risk element for each individual port (costing about US$.5 million in current terms) would not be meaningful. The experience with port construction in Haiti has been reasonably good, and, for all parts of the project, detailed engineering cost estimates are under preparation.  - 28 - V. FINANCIAL ANALYSIS A. Recent Financial Performance of APN 5.01 APN has been a profitable organization over the past five years and has not needed financial assistance from the Government other than tax exemption. Between 1976 and 1980, the Authority's aggregate net income was about US$8.3 million, the aggregate net operating revenues exceeded US$6.2 million and the total cash surplus was over US$10.8 million. While the increasing port traffic was the major source of APN's profitability, the important role of the non-operating revenues, i.e., fees received from the operators of private port facilities, is noted. Between 1976 and 1980, the annual non-operating revenues averaged US$726,000 and represented about 43% of the average annual net income. Despite the positive financial results, APN's profitability has deteriorated since 1976. The 1980 net income (US$1.002 million) was US$401,000 lower than in 1976 and represented 17% of the total revenues as against 41% in 1976. The profit erosion was due to increasing financial expenses and to the fact that the operating expenses grew at a faster rate than the operating revenues. 5.02 Up to 1978, APN's financial expenses were relatively small, but, since 1979, APN has had to pay substantial interest on funds borrowed from IDB for terminal expansion at Port-au-Prince. In 1979, the interest bill was about US$642,000, representing almost 10% of total revenues, and the 1980 interest bill (US$706,000) is expected to be 10.4% of revenues. Since 1976, the operating expenses have increased by 150%, while the operating revenues grew by 112%. As a result, APN's operating ratio worsened from 71% in 1976 to 83% in 1980. The cost of operating and maintaining the port's new container crane (installed in 1978) and other cargo-handling equipment and the introduction of realistic depreciation charges in 1979 were the main reasons for the faster cost increases. 5.03 Details of the past financial results are presented in Table 5.1 and are summarized in the following: APN - Financial Results -/ 1976 1977 1978 1979 1980 2/ (US$ thousands) Operating Revenues 2,856 4,307 4,105 5,769 6,047 Working Expenses 1,816 2,195 2,596 3,636 4,087 Depreciation 215 221 267 769 989 Operating Expenses 2,031 2,416 2,863 4,405 5,076 Net Operating Revenue 825 1,891 1,242 1,364 0,971 Non-Operating Revenues 580 847 753 714 737 Net Income Before Interest 1,405 2,738 1,995 2,078 1,708 Interest 002 114 155 642 706 Net Income 1,403 2,624 1,840 1,436 1,002 1/ APN's Financial Year ends on September 30. 2/ Preliminary figures, prior to year-end audit.  - 29 - B. Financial Objectives of APN 5.04 The Government and the management of APN are firmly committed to maintaining the Authority as a profitable, financially self-sufficient entity. Through its various operations, APN is to generate sufficient revenues to meet all liabilities and to administer its facilities according to sound commercial practices. APN's financial target, to earn an annual return of at least 6% on total net fixed assets employed, was established in its loan agreement with IDB, at a time when international operations in Port-au- Prince represented the bulk of APN's activities. APN is committed to revalue its fixed assets every three years and to adjust the tariffs as necessary to maintain the target (para 5.08). 5.05 The character of the Cap Haitien operation would be similar to that of Port-au-Prince; consequently, similar financial targets would be appropriate for both ports. However, since Cap Haitien is one of the least expensive ports in the region with relatively low traffic, it might take sev- eral years before this port could achieve a 6% rate of return on its assets. Major traffic increases would take place only after the completion of the new facilities, but, even with the expected growth, substantial tariff increases would be necessary to make the operation profitable. For example, in 1985, one year after completion of the proposed project, cargo-related tariffs would have to be doubled and cruiseship charges increased about 24 times to achieve a 6% rate of return. Gradual tariff increases, to achieve phased improvement in rates of return, are considered more appropriate. Therefore, it was agreed during negotiations (a) that, in 1981, all Cap Haitien tariffs would be increased to and subsequently maintained at, the Port-au-Prince level and (b) that, in 1982, the potential of the cruiseship market would be assessed with consultaftts' assistance (four man-months) and, subject to a review, further adjustments would be made to the cruiseship tariffs (and passenger charges) as necessary, to ensure that, the rate of return on net assets in Cap Haitien would be at least 3% in 1987 and 6% in 1989 (Annexes 1 and 4). 5.06 For the coastal shipping "pilot ports" financed under Credit 807-HA, there is no rate of return requirement; according to the IDA Credit Agreement, steadily improving working and operating ratios have to be achieved each year. These targets reflect the need to balance two objectives: (a) to maintain the profitability of APN while its operational responsibilities are expanded to domestic coastal shipping ports; and (b) to establish, for the coastal shipping ports, cost-oriented tariffs, affordable to the users, while facilitating coastal traffic and the further development of the port system. 5.07 Based on a rcovery of about 80% of the direct financial benefits accruing to port users, a tariff structure was designed for the "pilot ports" in 1978. Recently, the benefit calculations were updated, and tariffs appli- cable to the coastal shipping port system were adjusted. The proposed tariffs' impact upon the traffic would be reviewed with consultancy assistance (four man-months) one year after the "pilot ports" commence operations and the tariffs, if warranted, would be revised (Annexes 1 and 4). Port revenues  - 30 - based on the proposed tariffs would not recover all the costs, and the opera- tion would not yield positive financial results in the foreseeable future. The international operation in Port-au-Prince, on the other hand, is estimated to provide profits and cash surpluses during the next ten years and could, therefore, provide sufficient financial support for the coastal shipping ports. Since there is a genuine need for these ports and since they would yield adequate economic returns, financial support from APN's other operation is warranted. Nevertheless, to control costs and to limit the financial assistance, working ratios, improving each year, were adopted as financial targets for the coastal shipping ports. During negotiations, it was agreed that the working ratios would not exceed 80% in 1982 and 1983; 75% in 1984, 1985 and 1986; and 67% in 1987 and thereafter. 5.08 During the next four years, APN would have to generate substantial cash surpluses for the project's counterpart funds and for supporting Cap Haitien and the coastal shipping ports. The Port-au-Prince operation would generate sufficient funds but, having about US$30 million in additional assets during the next five years (1981-1985), APN would not be able to maintain the desired 6% rate of return on all its assets with the current tariffs. Until 1979, APN's rate of return was higher than 6%. In 1980, however, because of cost increases and asset acquisitions (cargo-handling equipment and land), the rate of return was less than 3%. A surcharge would, therefore, be introduced in February 1981 and subsequently replaced by appro- priate adjustments to the tariffs, increasing the operating revenues by about 30% and allowing APN to meet its financial targets through 1984; thereafter, inflation and revaluation of assets would again cause deterioration unless tariffs were suitably increased (about 20% increase is envisaged in 1984). Therefore, agreement was reached during negotiations that APN would adjust port tariffs as necessary and would retain the revenues to achieve its financial targets; also, the Government agreed that APN could continue to levy charges on cargo handled in private terminals. C. Financial Forecasts 5.09 Based on the projected traffic and the financial objectives discussed above, separate financial forecasts were prepared for three components of APN's operations: (a) Cap Haitien; (b) the coastal shipping port system; and (c) the international operation at Port-au-Prince. The forecasts have been developed and analyzed in current prices (Tables 5.2-5.8 and Annex 4). 5.10 For Cap Haitien, the forecasts extend to 1989; by then, the port's financial performance is expected to be similar to that of Port-au-Prince. The financial results of the coastal shipping ports' operations were developed over the same period, sufficient to indicate cost and revenue trends beyond 1989. The financial forecasts for the international operation at Port-au-Prince were extended only to 1985, which is sufficient to demonstrate that this operation could provide counterpart funds for the proposed project as well as cover operational deficiencies of Cap Haitien and the coastal shipping ports.  - 31 - 5.11 A summary of the projected income and expenses of the international operation in Port-au-Prince together with the fund requirements of Cap Haitien and the coastal shipping port system follows; details are given in Annex 4 and in Tables 5.2 to 5.8. Port-au-Prince Operation - Projected Financial Results and APN's Funding Position 1981 1982 1983 1984 1985 ----------------(US$ thousands)------------- Operating Revenues 7,630 8,952 9,494 11,990 12,640 Working Expenses 4,344 4,705 5,098 5,527 5,996 Depreciation 1,536 1,621 1,668 2,616 2,654 Net Operating Revenue 1,750 2,626 2,728 3,847 3,990 Interest 714 715 712 699 686 Non-Operating Revenues 788 839 889 940 991 Net Income 1,824 2,750 2,905 4,088 4,295 Total Internal Cash Generated 3,360 4,371 4,573 6,704 6,949 IDA Credit 640 800 160 - - Investments 2,075 1,350 550 350 350 Loan Repayments - - 167 343 343 Increase/(Decrease) in Working Capital other than Cash (834) (497) 59 513 91 Port-au-Prince Operation Surplus 2,759 4,318 3,957 5,498 6,165 Cap Haitien's Fund (Requirement)/Surplus (355) (3,639) (1,091) 486 591 Coastal Ports Fund (Requirement)/Surplus (231) (521) (539) 20 (35) APN's Consolidated Surplus 2,173 158 2,327 6,004 6,721  - 32 - D. Project Financing and Balance Sheet Projections 5.12 The plan to finance APN's various investments, including the proposed project, is summarized as follows: Financial Plan for Investments in 1981-1985 (US$ thousand) Coastal Port-au Cap Shipping Prince Haitien Ports System Total Investments Project 2,000 17,217 4,433 23,650 Other 2,675 - - 2,675 Total Investments 4,675 17,217 4,433 26,325 Sources Funds generated by APN 3.075 4,908 1,342 9,325 IDA Credit 1,600 6,309 3,091 11,000 KfW Finance - 6,000 - 6,000 Total Sources 4,675 17,217 4,433 26,325 5.13 During the next five years, APN's financial position would remain sound. Although borrowings for the investment program would be substantial, the debt/equity ratios would improve from 1982 onward. The liquidity position is expected to be satisfactory and, by the end of 1985, APN is forecast to accumulate about US$16.6 million cash surpluses. However, about 90% of these funds would be required for the additional equipment and berthing needs in Port-au-Prince (para 2.07). Both the composition and the timing of this investment program are subject to further assessment; therefore, the fund requirements were not included in the preceding projections. While APN's official commitment is subject to the completion of the assessments, it is firmly expected that, between 1983 and 1985, there would be additional break- bulk facilities, separation of passenger and cargo facilities, development of the warehouse area and access and construction of internal circulation roads, costing some US$28.4 million. The local currency component, which APN has to finance, would amount to some US$14.8 million. APN's Balance Sheets are shown in Table 5.8 and are summarized on the following page.  - 33 - APN Balance Sheets 30 September 1979 1980 1981 1982 1983 1984 1985