Madagascar - Ports Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6294-MAG STAFF APPRAISAL REPORT MADAGASCAR PORTS REHABILITATION PROJECT November 14, 1986 Transportation Division Eastern and Southern Africa 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 Unit Malagesy Franc (FMG) US$1.00 FMG 630 a/ FMG 1 million US$1,587 a/ WEIGHTS AND MEASURES: METRIC 1 meter (m) 3.28 feet (ft) I cubic meter (m3) 35.29 cubic feet (cu.ft) 1 kilometer (>I) 0.62 mile (mi) 1 square kilometer (km2) 0.386 square mile (sq.mi) 1 hectere (ha) 2.47 acre (ac) 1 kilogram (kg) 2.2 pounds (lbs) 1 metric ton (m ton) 2,204 pounds (lbs) 1 liter (1) 0.26 US gallons (gal) ABBREVIATIONS CCCE - Caisse Centrale de Cooperation Economique CMN - Compagnie Malgache de Navigation DAC - Direction de l'Aviation Civile, de la Mari.e Marchande, et de la Meteorologie, MTRT DGP - Directeur General du Plan FAC - Fonds d'Aide et Cooperation MC - Ministry of Commerce MPARA - Ministere de la Production Agricole et de la Reforme Agraire (Ministry of Agriculture) MTP - Ministere des Travaux Publics (Ministry of Public Works) MTRT - Ministere des Transports, du Ravitaillement et du Tourisme (Ministry of Transport, Supplies and Tourism) NTP - National Transport Plan PIP - Public Investment Program RNCFM - Reseau National des Chemins de Fer Malagasy (Madagascar National Railway) SEPT - Societe d'Exploitation du Port de Toamasina (Toamasina Port Authority) SMTM - Societe Malagasy des Transports Maritimes TSM - Transport Sector Memorandum Fiscal Year January 1 - December 31 a/ See para 3.20  (M) FOR OMCIAL Usr ONLY MADAGASCAR PORTS REHABILITATION PROJECT STAFF APPRAISAL REPORT Table of Contents Pate No. I. THE TRANSPORT SECTOR A. Geographic and EconomicSetting..........................1 B. The Transport System ................................ 9999 2 C. Transport Sector Management...... .................. 4 D. Transport Policy ...................................... 5 E. Sector Investment Planning ........................,.....6 F. Bank Group Role in Transport .......................,...7 G. Rationale for Bank Involvement.............,.............7 II. THE MARITIME SUBSECTOR A. InternZational Shipping 8 B. Coastal Shipping ...8 C. Shipping Fleet ...........................................9 D. ThePot9 III. THE PROJECT A. Project Objectives ......................................16 B. Project Scope ........ C. Project Description ....................... ...17 D. Cost Estimates 999999.99 ................................. 19 E. Financing .....999999999.9.9........ ...............2 F. Project Implementation and Monitoring .............................22 G. Procurement ...................,... .................23 H. Disbursements ......... ...ooo..o...o.ooo..ooo..o.o...24 I. Env'ronmental Aset ...................27 IV. ECONOMIC EVALUATION A. General Objectives .........o.o......................28 B. Forecast of Future Traffic..............................29 C. Navigation Aids and Shipping ............................30 D. Cargo Handling Improveihents and Dredging ............. .31 E. Economic Rate of Return ................... F. Rik .P32 Silvio Capoluongo (Mission Leader), B. Bostrom (Senior Economist), A. Litvak (Port Engineer), C. Tran-Luu (Training Specialist), J. Curien and J. McCaul (Consultants) prepared this report. Dr. Mario D. Fenyo assisted in Its preparation. 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.  M) V. FINANCIAL EVALUATION A. Societe d'Exploitation du Port de Toamasina (SEPT) ...... 34 B. The Ports Budget ...............................37 C. The Cargo HandlingCompani.............................38 D. Financial Objectives .................................... E. Financial Covenants ................ . 39 VI. AGREEMENTS REACHED AND RECOMENDATION ..................#41  ANNEXES 1.1 Public Investment Plans for the Transport Sector 2.1 Develonment of Port Traffic 2.2 Development of Toamasina Traffic 1978-84 2.3 Cabotage Fleet as of November 1985 2.4 Port Installations 2.5 Physical Description of the Port Sector 2.6 New Organization 2.7 Organization Chart-September 5 1985 2.8 SEPT Action Plan and Performance Indicators 3.1 Cost Estimates 3.2 Training Program 3.3 Implementation Schedule 3.4 Performance Indicators for Ports Other than Toamasina 4.1 Forecast of Port Traffic 1990-1995 4.2 Ship Loading!Unloading P.ates 4.3 Summary of Costs and Benefits 4.4 Details of Economic Benefit Calculations 4.5 Summary for Each Project 4.6 Economic Returns and Sensitivity Tests 5.1 SEPT Income Statements for the Years Ended December 31st 5.2 SEPT Balance Sheets at December 31st 5.3 SEPT Funos Statements 5.4 SEPT Ratio Analysis 1980-1985 5.5 SEPT Financial Forecast - Assumptions 5.6 SEPT Pro-forma Income Statements for the Years Ended December 31st 5.7 SEPT Pro-forma Balance Sheets at December 31st 5.8 SEPT Pro-forma Funds Statements 5.9 SEPT Pro-forma Ratio Analysis 1986-1995 5.10 1984 Ports Budget 5.11 Ports Budget - Main Accounts 5.12 Pro-forma Ports Budget 5.13 Pro-forma Ports Budget: Assumptions Map 1. Madagascar, Ports Rehabilitation Project (IBRD #19595)  (iv) MADAGA_ AR PORTS REHABILITATION PROJECT LIST OF DOCUMENTS AVAILABLE IN THE PROJECT FILE 1. Dossier 1, Trafic maritime, situation actuelle et perspectives, MTRT, November 22, 1985 2. Dossier 2A, Les projets techniques, MTRT, November 22, 1985 3. Dossier 2B, Projet de renforcement institutionnel, MTRT, November 22, 1985 4. Dossier 2C, Plan de formation, MTRT, November 22, 1985 5. Dossier 3, Moyens de desserte, November 22, 1985 6. Dossier 4, Evaluation economiqre des projets, MTRT, November 22, 1985 7. Dossier 5, Analyse financiere des projets, MTRT, November 22, 1985 8. Dossier 6: Les dragages, MTRT, November 22, 1985 9. Dossier 7, Etude operationnelle et financiere, premiere phase, MTRT, January 31, 1986. 10. Etude de la desserte maritime de Madagascar, phase 2, Ponds d'Aide et de Cooperation, December 1983 11. Madagascar Ports Project: Aspects institutionnels et organisationnels, Bossard International Entreprise, January 1986 12. Preliminary Assessment of Madagascar Shipping, International Maritime Associates, Inc., January 24, 1986 13. Renseignements statistiques, Annie 1983-1984, SEPT, n.d. 14. Rapport d'audit des etats financiers de l'exercice clos le 31 decembre 1984, SEPT, April 1986 15. Madagascar: etude de la signalisation maritime, tome I, MTRT, September 1985 16. Elaboration d'un plan de formation, propos'tion du 4/12/85, MTRT 17. Elaboration d'un plan de redressement du port de Toamasina, MTRT.  MADAGASCAR PORTS REHABILITATION PROJECT I. THE TRANSPORT SECTOR A. Geographic and Economic Setting 1.01 Madagascar is a large and diverse island with a good natural base for agriculture. Ecological zones are varied and the agricultural sector is equally diverse. Rice and assava are the main food crops, while cattle raising is common in most areas. Most exports, of which coffee, cloves and vanilla are the most important, are of agricultural origin though some minerals, mainly graphite, chromite and mica, are also exported. The country's mineral resources are limited, but recenu exploration indicates that petroleum might be found in commercial quantities. Manufacturing consists almost entlrely of consumer goods industries ctering to local demand and agro-industries. 1.02 Fourth largest island in the world, Madagascar covers an area of about 590,000 km2. The topography is generally rugged and a central mountain range traverses the country from north to south. The climate is marine tropical with cyclones and heavy rainfall particularly frequent on the east ceast. The country is sparsely populated (about 17 per km square) and the population is unevenly distributed, with about one half of all inhabitants occupying the central one-quarter of the island. Total population is estimated at about 9.8 million and growing at about 3% p.a. Ninety percent of the population works in the agricultural sector; its output accounts for 401 of the Gross Domestic Product. Industry accounts for 14X of GDP and annual per capita income is about US$265. Madagascar is thus at an early stage of development. 1.03 Prompted by economic stagnation and a 12% decline in per capita income in the 1970's, significant investments were made in all sectors of the economy in 1979-81. Financed largoly by foreign borrowing, the spending boom left the country with a debt service burden that is straining the economy. Economic developments over recent years reflect the need to correct serious imbalances on external account and in the Government budget. With generally declining expor.s, the imbalance on external account has been corrected by cutting back imports. Imports declined steadily betweena 1981 and 1984; the volume of imports in 1984 was 23% lower than in 1979. Reduced imports of raw materials and spare parts have adversely affected production. The volume of GDP declined by about 9% in 1981, and 2% in 1982. Estimates for 1983-85 suggest a growth of 1% to 2% p.a. Industrial output has declined and there are now serious shortages of a number of basic goods such as soap, candles, oils. Shortages of new equipment and spare parts have affected the transport system and greatly diminished its capacity. Economic policy has recently focused on structural adjustment with IMF and World Bank support. Progress, however, continues to be constrained by the external debt overhang and the legacy of past policies. I  -2- B. The Transport System 1.04 Madagascar depends on shipping for its transport link witut the outside world. It has four international ports, 13 coastal shipping ports, about 15 minor ports and a navigable canal along part of the east coast. The country's internal transportation infrastructure includes an extensive but poor road network, two rail systems of considerable length and a well- developed air network. The transportation infrastructure fails to provide access to all productive areas of the country. Madagascar's lifeline, between the port of Toamasina and the central plateau where most of the population lives, consists of a railway line and a highway, RN 2, two thirds of which has just been rebuilt with assistance from China. The old sections of RN 2 are built to inadequate standards. Costly road construction, poor road maintenance (paras 1.17 and 1.26) and inadequate overland communications have led to the development of an extensive system of ports and coastal shipping and to an air transport network derser than in most comparable countries. Road Transport 1.05 About 5,200 km. of Madagascar's nearly 50,000 km. of roads are paved. The paved highway network consists of a main north-south link connecting Mahajanga on the west coast with Antananarivo, the capital, and Fianarantsoa in the highlands, and the east-west road linking Antananarivo, Moramanga and Toamasina (Map IBRD t 19595). Only parts of the north-south highway can sustain heavy vehicle traffic. A new paved section of the Toamasina-Moramanga road provides all-weather transit between Moramanga and Brickaville on the coast. While this development greatly improved road communications between Antananarivo and Toamasina, heavy truck traffic will continue to be constrained because the highland Moramanga-Antananarivo road (115 km), as most of the island's roads, was built to low standards, and is narrow and badly aligned. The Bank and Switzerland are financing the rehabilitation of the Manajanga-Antananarivo road, RN 4, under the Sixth Highway Project. In the framework of the priority road network established under that project, other donors (European Development Fund, Germany, Switzerland, and the African Development Bank) are financing rehabilitation of the worst stretches of the main highway axes. 1.06 Tota_ vehicles in 1984 numbered 42,000, some 13,000, or 31%, of which are trucks and pickups. Less than 50% of the commercial fleet is operational. By contrast, in 1976, there were 104,000 vehicles, 47% of which were commercial. This development reflects scarce funds for fleet replacement as well as a severe decline in economic activity (para 1.03). Passenger transport is provided by cooperative and individual carriers and regulated by the Ministare des Transports, du Ravitaillement et du Tourisme (MTRT) and provincial authorities. The trucking industry is also regulated by MTRT and local authorities. Until early 1986, entry to the industry was nominally screened by the Government on the basis of supply and demand, but, in practice, was generally open to capable entrants. Transport tariffs were determined within a minimum-maximum rate system established by MTRT and lagged behind cost inflation. Under the Sixth Highway Project, the Bank urged further liberalization. During negotiations of the Third Railway Project (Cr. 1694-MAG), in March 1986, Government agreed to remove remaining restrictions to the free movement of goods and to freedom of pricing and has since ac ed to carry out this agreement.  -3- Rail Transport 1.07 The railways are operated by the Reseau National des Chemins de Per Malagasy (RNCFM), a parastatal agency under the supervision of MTRT. ~he railways consist of two separate and unconnected single track systems ,Map IBRD #19595). The northern system (about 700 km) connects Antananarivo, the capital, and industrial areas in the high plateau region with the main port of Toamasina and the rice and chrome producing area of Lac Alautra. The southern system (163 km) connects the regional center of Fianarantsoa and the main coffee producing areas in the South with the port of Manakara. The Antsirabe-Antananarivo-Toamasina line is t.e most important line and the main mode of transport between the most populated and developed parts of the country. Almost half the population of Madagascar lives in the area served by the railway. 1.08 RMCFM is expected to remain the main means of transport for bulk commodities such as petroleum products, grain, chemicals and construction materials from Toamasina to the central highlands. Long-term projections indicate that rail traffic is unlikely to increase significantly even if the economy continues to grow, due to increased road competition for non-bulk commodities. Freight traffic by rail is thus expected to stabilize at the current level of 224 million ton-km p.a. In the short-to-medium term, despite some 302 decline in passenger traffic since 1979, the peak year, the railway will still continue to carry a substantial number of passengers because many existing road vehicles need to be replaced. Their replacemeLt may take some time given the current scarcity of foreign exchange. Air Tranasort 1.09 By regional standards, Madagascar has developed a dense domestic air transport network in response to the distance between population centers, the rugged terrain, costly construction and the poor condition of surface transport. There are 56 airports, 17 of which are built to all- weather standards and five of which are suitable for international flights; the remainder are gravel or grass strips. The international airport at Antananarivo handles 502 of all traffic; 15 small airports generate 30% of the traffic; and 40 very small airports share the remaining 20Z of total traffic. Service to many small airports is not financially profitable but ensures access to otherwise isolated areas. 1.10 Air Madagascar, 80% owned by the Government, 18X by Air France and 2% by private shareholders, provides international service to Paris, Marseilles, several countries in East Africa and all domestic service. Aircraft in its fleet include a B-747 (combination cargo/passengers) for service to Europe, two B-737's for domestic and regional service, two HS- 748's and four Twin Otters for domestic service, and several smaller aircraft for air-taxi and charter services. In 1984, Air Madagascar successfully renegotiated maturities on its long term debt obligations to foreign banks, and in 1985 began a financial improvement program. Ports and Coastal ShiDpint 1.11 Because it is an island, Madagascar will continue to rely on maritime shipping for the bulk of its foreign trade and on coastal shipping  -4 - for an important part of its internal trade. Indeed, shipping by water is the only means of transporting freight between many areas of the country with no access to all-weather roads. Toamasina, the main international port, handles 552 of the total traffic; Mahajanga, 11%; Antsiranana, 5%; and Toliara, about 4%. The remaining 25% of traffic is handled by all other ports catering almost exclusively to coastal shipping vessels. The port of Toamasina has adequate capacity to handle present tra!fic, but operations are hampered by low labor productivity and poor condition of the equipment for lack of maintenance and spare parts. Poor performance at the port of Toamasina has led to the diversion of some international traffic to the port of Mahajanga. Capacity there is limited, howr-,er, as the port requires lightering and the transfer inland of goods delivered at Mahajanga is restricted by the condition of the road connecting it to the capital (RN 4). Rehabilitation of the worst sections of RN 4 is included in the ongoing Sixth Highway Project. 1.12 The Societe Malgache des Transports Maritimes (SMTM), the state controlled international shipping line, operates three cargo vessels. Coastal shipping is handled primarily by the Compagnie Malgache de Navigation (CMN), 92% state-owned, operating nine vessels of which eight are leased from the government. The government-owned oil company, SOLIMA, operates three tankers, and a number of lighters and barges. Several private operators operate small vessels along the coast and to nearby islands in the Indian Ocean. Parts of the intracoastal waterway on the East Coast are being rehabilitated with AfDB financing but initial traffic is expected to be light (para. 1.20). It is Goverment's objective to improve the efficiency of coastal fshipping and ports' services. To this end, in 1983, the Government carried out a comprehensive sector survey with French aid. This study (paras. 1.21 -1.23) forms the basis for the proposed project. C. Transport Sector Management 1.13 Several ministries and Government organizations share responsibility for the transport sector: the Ministry of Transport, Supply and Tourism (Ministere des Transports, du Ra,vitaillement et du Tourisme, MTRT) and the Ministry of Public Works (Mitnistere des Travaux Publics, MTP) play the most important role. MTRT is responsible for road, rail, air and water transport, end ovetsees several autonomous Government agencies, including the national Railway (RNCFM), Air Madagascar, the Port of Toamasina, and the shipping companies. MTP is responsible for planning, building and maintaining highrays and other Government civil works except ports and airports. 1.14 Other Government agencies that influence transport policy include: the Ministry of Commerce (MC), the Ministry of Agriculture (Ministere de la Production Agricole et de la Reforme Agraire, MPARA), the Director Genetral of Planning (Directeur General du Plan, DGP), and the local governments. MC's responsibility to collect and market crops significantly affects road transport capacity and its control of prices of basic commodities influences transport tariffs. MC also regulates the importation and assembly of motor vehicles, and, in concert with the Central Bank, allocates foreign exchange for imports. MPARA and the military operate large state-owned road transport enterprises. Finally, each provincial government operates a trucking company.  1.15 MTRT's Planning Director is charged with transport sector planning. The director's main task is to coordinate transport investment plans with other agencies. Pending the completion of a WAtional Transport Plan (para 1.19), scheduled for December 1986, the DGP began to establish a Public Investment Program (PIr) with assistance primarily from MTRT and MT? for the transport sector. IDA and other bilateral and multilateral aid agencies have helped improve sector planning, but more assistance is needed. During preparation of the Sixth Highway Project, planning improved. The office of MTRT's planning Director was established and supported by technical assistance financed by France and IDA. The planning effort was well coordinated with DGP and MPARA and yielded a priority 'Economic Road Network" list of about 10,000 km (4,300 km psved roads, 3,300 km engineered earth roads and 2,400 km feeder roads). This was the agreed basis for the IDA Sixth Highway Project. D. Transport Policy 1.16 Development of the transport sector has been influenced by: (i) rugged topography and a tropical climate with heavy rains and frequent cyclones; (ii) unevenly distributed population concentrated in e few isolated regional centers; and (iii) lack of suitable construction materials in some parts of the island. As a result, road construction and maintenance is costly and the less populated regions remain relatively isolated. Transport needs are relatively well served on the central plateau where half of the population is concentrated. 1.17 Government. policy towards transport development is to: (i) connect regional capitals by all-weather roads; (ii) improve corimunications between the centrally located capital and the main seaport of Toat asina (the Antananarivo- Moramanga-Toamasina road/rail corridor); (iii) improve road maintenance; and (iv) improve the transport organizations and services. An overriding objective is to satisfy the country's quantitative and qualitative transport requirements at a reasonable cost, taking into account balance of payments difficulties. IDA is in general agreement with these objectives, and has successfully supported them through several projects (para. 1.24). 1.18 A program of action to better coordinate measures relating to infrastructure and means of transport has been established for the 1984-1987 period. It seeks to: (i) coordinate and plan transport services, complementarity, infrastructure, and pricing; (ii) improve the quality of service by introducing competition between the different transport modes and, where possible, between different operators of a given type of transport; (iii) reorganize training of infrastructure specialists and transport company personnel; (iv) rehabilitate transport companies by importing sufficient quantities o- spares and supplies and through regular upkeep of infrastructure; and (v) replace obsolete transport material and keep the fleet properly maintained. Other objectives relate to the general development of Madagascar. The overall policy goals are to provide transport at a lower cost and to reduce regional isolation through rehabilitation of the secondary road network.  -6- E. Sector Investment Planning National Transport Plan 1.19 The Government's sector policy objectives are likely to change little over the medium term. What may change, however, is the relative emphasis on different aspects, modes, or geographical areas. To assist in this process, IDA and FAC are supporting the development of a National Transport Plan (NTP) by MTRT. The NTP work began in 1985 and the MTRT team has so far completed several detailed studies concernlng tariff policy, origin and destination of road traffic, relation between road transport costs and tariffs, and port services in the northeast of Madagascar. A first draft investment plan for the sector for 1986-1990 has been prepared and considered in the formulation of the project. 1.20 The draft investment plan (Annex 1.1) continues to emphasize road rehabilitation and maintenance but is otherwise fairly balanced between transport modes and clearly meets many of the urgent needs for rehabilitation of the sector. The main problem is availability of resources. Less than half the investments originally planned for 1984 and 1985 were in fact made mainly because of budget cuts. A separate issue is the investment in the Canal des Pangalanes (para. 1.12), financed by AfDB. About 9% of the total investment of the National Transport Plan is allocated to this project. While the general project objectives appear reasonable, the assumptions underlying the economic evaluation of this project, particularly the traffic forecasts, appear rather optimistic. In the context of the Public Investment Review, the Government has expressed the intention to work closely with the Bank as well as AfDB to ensure that investment and operating costs of the Canal be kept to a minimum and the risk of cost overruns be prevented as much as possible. The Ports Rehabilitation Prozram 1.21 The need for port rehabilitation was recognized in 1982. This recognition led to an agreement with France's FAC to finance a study of ports and shipping completed in 1983. The objectives of the study were: (i) to develop a program to rehabilitate and maintain Madagascar's ports; (ii) to Improve coastal shipping; and (iII) to collect relevant port and traffic statistics to be used as a basis for a sector investment plan. The study was divided in two phases. During the first phase, the consultants prepared an inventory of all ports and their physical characteristics, studicd the economies of each coastal area and their transport needs, and prepared traffic projections. 1.22 During the second phase of the study, the consultants evaluated alternative ways to meet the transport needs of the coastal regions and catried out a comparative economic analysis of all practical alternative investments. The report also included hydrographic surveys and studies on port maintenance, cargo !'andling and coastal shipping. Furthermore, it recommended that thie Government rationalize and streamline institutional arrangements, establish improved accounting and financial systems for all ports, and employ specialists to design an effective system of navigational aids.  - 7 - 1.23 In 1984, the Bank found that the study financed by France was a good basis for a port rehabilitation program and, at the request of the Government, agreed to finance technical assistance required to prepare the proposed project with a PPF advance, to supplement grants for the same purpose by France and the UK . F. Bank Group Role in TransRort 1.24 Bank involvement in Madagascar9s transport sector is substantial. Between 1974 and 1986, the Bank supported ten transport projects with IDA Credits totalling just over US$110 million, six in highways, one in ports, and three in railways. The Bank has played and expects to continue to play a critical role in improving the institutional capacity and policy framework for the sector. 1.25 The first port project (Credit 200-MAG, US$9.6 million, 1970) consisted of the extension of the deep water berth at Toamasina, the creation of the Toamasina Port Authority (SEPT), and technical assistance for management and training. In 1973, the credit was increased by US$1.8 million to cover a shortage of funds resulting from a currency realignment. PPAR No. 2299, dated December 22, 1978, concluded that (i) the physical objectives of the project were satisfactorily carried out; (ii) a lower, revised economic return of 7.0% i-as due to lack of traffic growth resulting from adverse local and international political and economic conditions that could not have bQen foreseen at the time of appraisal; and (iii) although the technical assistance for institution building did not achieve fully satisfactory results, initially because of the poor performance of technical assistants, the Port Authority made some progress towaris autonomy and Improved management. These positive achievements. however, were relatively short-lived because of the country's economic deterioration, SEPT's weak management, and labor problems. G. Rationale for Bank Involvement 1.26 Transport is a key sector in the Bank's lending strategy in Madagascar because transport constrains economic development in other sectors as indicated in the Transport Sector Memorandum (TSM). The Bank has invested heavily in the sector and has seen results: (i) a gradually increasing emphasis on rehabilitation versus new investments; (ii) progress towards the creation of a highway maintenance system; and (iii) increased management and financial autonomy for the Railway which enabled it to significantly improve its operations. The Bank has been promoting an integrated approach to transport to help Madagascar's economy, to maintain an ongoing dialogue with the Government with a view toward promoting policy reform, and to balance the Bank presence among subsectors.  -8- II. THE MARITIME SUBSECTOR A. International Shioping 2.01 Because it is an island, Madagascar depends on shipping by sea for all its foreign trade except for a mitor volume of high value commodities shipped by air freight. Only about 5,000 tons of total 1985 exports and imports totaling about 1.1 million tons were shipped by air. International sea trade essentially falls into three categories: scheduled liner services, dry bulk, and liquid bulk transport. Most high value general cargo moves by regular scheduled liner services and conference lines; the conference between Europe and the Indian Ocean is the most important. This conference, CIMACOREM, includes European carriers and the Societe Malagasy des Transports Maritimes (SMTM) which operates two modern ships equipped to handle containers. The major part of bulk cargoes such as rice imports and chrome exports are shipped by specially chartered vessels. The same applies to the third major category, oil imports, except for a minor volume handled by the national oil company SOLIMA on its own ships. 2.02 Madagascar's most important international port is Toamasina on the east coast. In 1984, it handled dry cargo imports of some 321,000 tons, 169,0OO tons of trans-shipment, and 250,000 tons of oil imports, or about 80% of the country's total oil consumption. Exports through Toamasina were 182,000 tons or 58% of total exports of 315,000 tons. An overview of port traffic in Madagascar is given in Annex 2.1 and in more detail for Toamasina in Annex 2.2. The clear domination of Toamasina is due to several factors, the most important of which is that it is the only deep- water port with easy road and rail access to the capital and to the central plateau, the most populated and developed area of the country. This in turn made it the obvious choice for the SOLIMA oil refinery. Other ports with direct export traffic are Nosy Be and Port St. Louis for sugar and fish, Mahajanga for textiles and Tolagnaro for sisal and mica. Ports with direct import traffic include Nosy Be for oil, and Mahajanga, Antsiranana, Toliara and Morondava for dry cargo. B. Coastal Shipping 2.03 Coastal shipping performs two main functions: it distributes locally produced commodities such as rice, sugar, salt and corn to other parts of the island, and it acts as a collector for trans-shipment of exports such as coffee, cloves and certain minerals and imports such as cement, rice and oil products. The coastal shipping fleet is listed in Annex 2.3. In 1984, some 224,000 tons of dry cargo and 120,000 tons of petroleum products were carried Dy a fleet of 14 vessels larger than 500 dwt, three of which are tankers. By way of comparison, international traffic was 763,000 tons of dry cargo exports and imports, and 314,000 tons of imported oil. Most ports have lighterage operations; the main exceptions are Toamasina and Toliara in the southeast, Vohemar and Antsiranana in the north. Port installations are summarized in Annex 2.4. Another 15 or so smaller communities are only served by sailboats and small lighters, but the total volume of cargo is very limited. Coastal shipping typically operates into several ports on the same voyage be it around the island or on either the west or the east coast. Cargo handling rates in  - 9 - the ports are generally low, partly reflecting the constraints inherent to lighterage operations. Many of the ships are old and poorly maintained. Weather and sea conditions increase the difficulties and further decrease ship utilization. Due to geogr6phic and demographic constraints, coastal shipping will continue to play an important role in the foreseeable future. 2.04 Poor infrastructure and equipment conditions in several ports affect coastal shipping adversely. Coastal shipping patterns have changed to overcome some of these constraints; examples of change are the use of small beachable roll-on/roll-off ships (Landing Craft, LCT's) to certain ports and the changed use of Mahajanga, where traffic is already largely handled by small shallow-draft vessels or by lighterage. The proposed project has been designed to take these trends as well as possible future changes into account. Examples of possible future shipping alternatives are the use of LCT's to Morondava and Maroantsetra and shallow-draft motorized barges at Morondava. Small LCT's could also serve some of the communities now served only by sailing craft. C. Shipping Fleet 2.05 As indicated in Annex 2.3, the major part of the Malagasy coastal shipping fleet is very old and in poor condition because ship owners have had little incentive to invest and limited opportunity to obtain foreign exchange for vessel replacement and maintenance. The Malagasy international fleet, however, is relatively modern. SMTM and CMN each operate two modern ships. SMTM's two newest ships are part of the liner conference to Europe (para 2.01), while a third one is used for regional and inter-island trading. In addition to smaller vessels, CMN operates two 5,300 DWT ships serving domestic and regional trade between Southern Africa and the Indian Ocean Islands. Some private ship operators occasionally also operate in inter-island trade. In addition to the ships listed in Annex 2.3, about 110 schooners and 140 dhows serve small communities without port installations. Although these sailboats carry only about 3% of coastal traffic, some isolated communities along the coast depend entirely on these traditional craft. D. The Ports Physical Description 2.06 In spite of the vital role which it must perform, since 1975 the ports subsector has been affected by inadequate maintenance, overdue equipment replacement, institutional problems, and declining traffic. Though there are numerous small ports (Annex 2.4), served occasionally by small private motor or sail vessels, about 97% of the total traffic is concentrated in 10 ports, which are the only ones included in the proposed project. A description of these ports is given in Annex 2.5. 2.07 Sea conditions are quite different on the east and west coasts: The east coast is exposed to the wave action and swells of the Indian Ocean, while the west coast, which faces the Mozambique Channel, is fairly well protected. This difference affects both the type of vessels that can operate safely, and the type and productivity of port operations.  - 10 - 2.08 The east coast is roted for its inhospitable shores, subject to strong SE winds and heavy swell from April to October. From November to March rain squalls are frequent and cyclones may occur. Two devastating cyclones have hit the northern regions, including Toamasina, in the last three years. There are no good storm shelters to be found on the east coast. Toamasina, the most important port of Madagascar, and Antairanana at the northern tip, are its only deep water ports. These, together with Vohemar are the only ports along the east coast which do not require lighterage. The rest of the ports along the east coast, the most important of which are Manakara and Tolagnaro, are built in unprotected sites, and rely on lighterage operation4. 2.09 Because it is protected from the trade winds, the west coast, from Antairanans to Cape St. Marie, is more sheltered than the east coast. The north-wer4 coast from Antsiranana to Mahajanga is served by Port St Louis, Hell-Ville on the island of Nosy Be and Mahajariga, the second port of the country. From Mahajanga to Cape St. Marie, the west coast is sparsely populated, with few ports: Morondava and Tollara are the most significant ones. The west coast's only relatively deep water port, at 8 meters water depth, is Toliara. All other ports depend on lighterage operations, assisted by a tidal range of almost 3 meters. 2.10 Functionally, the ports of Madagascar are classified in the following groups: - Main ocean goina vessels: open to long distance international shipping, as well as local coastal vessels; Toamasina is the only port in this category; it is organized through an independent port authority (SEPT). - Secondary ocean going vessels: open to all ships except some specifically indicated by Government regulationls, as well as coastal ships; includes Antsiranana, Mahajanga, and Toliara; their operations are supervised by a Port Director, assisted by a local committee. - Main coastal vessels: open to all coastal vessels; includes 8 ports, six of which--Manakara, Morondava, Nosy Be, Port-Saint- Louis, Tolagnaro, and Vohemar--are included in the project; their operations are supervised by a Port Agent. - Secondary coastal vessels: only open to non-international coastal shipping; these ports are not included in the project due to their low level of traffic, about 3% of the total. Port Problems 2.11 The infrastructure problems are deterioration and advanced age of many wharves, buildings, and pavements to such an extent that unless prompt repairs are carried out the investments required will be much larger due to total loss. The poor condition of rolling surfaces, coupled with a chronic lack of spare parts and of preventive maintenance, have also resulted in a critical equipment situation. Additionally, some of the equipment recently acquired through bilateral aid has not been very well suited to the  - 11 - specific needs, and has in fact added a burden to the respective operating firms. In summary, the ports need rehabilitation and replacement of equipment, with only a very small amount of new items, mainly paved surfaces. It is also necessary to establish an institutional framework to ensure that there will be no recurrence of past neglect of maintenance activities, both for equipment and for civil works. DredRina 2.12 Except at Manakara, hardly any dredging has been done in the last ten years. Yet the impact on port activities and on shipping has not been dramatic, because lighterage operations have continued, and the demand for maritime trensportation has decreased, although this may be partly due to the high cost and low productivity of these services. Initial proposals to return to the dredging patterns of the 1960's have been carefully evaluated and found uneconomical at current traffic levels. At appraisal, Government agreed to a much reduced dredging program. Regular dredging under MTRT supervision would continue at Manakara, while a bottom cleaning operation would be conducted in Mahajanga (once only), and minor dredging would be carried out sporadically with small equipment by private stevedoring and lighterage companies in Toliara and Tolagnaro. Navigation Aids 2.13 During the last decade, Government has not carried out adequate maintenance of lighthouses, markers, and buoys, nor has it carried out regularly charting and hydrographic surveys. As a result, considerable capital investment is required to catch up with deferred maintenance. The logistic problem of supplying remote lighthouses and the degree of deterioration of the existing equipment make it adv-.sable to replace some 21 lights with solar powered units. In general, hoever, much of the existing old equipment is highly regarded and can be rehabilitated. Operators are well trained and, given a reasonable supply of spare parts and management encouragement, can continue to service the old equipment well. Other important needs are provision of buoys, rehabilitation of structures, a vessel to service the installations, and improvements in management and technical assistance. Port Institutions 2.14 In recent years, the most difficult problems facing the Madagascar ports subsector have been institutional weaknesses. The 1983 study (para 1.21) indicated that the administration of the port subsector was carried out by three ministries, MTRT, MTP, and the Ministry of Finance, and that the attributions and responsibilities of the two former ones was quite unclear, with resulting gaps as well as overlaps in the discharge of their functions. While the infrastructure was under the supervision of MTP, the administration of the ports was under the supervision of MTRT. Though MTRT was supposedly in charge of planning new investments, MTP was responsible for their execution. While the navigation aids were under MTP, the means of transport to the lighthouses and buoys were provided by MTRT. The dredges were procured by MTP, but their operation and maintenance was done by MTRT. There was little coordination between the two ministries, and funds were insufficient. The work indeed suffered, the ports deteriorated, and productivity declined.  - 12 - 2.15 The consultants recommended the incorporation of dredging, hydrography and navigation aids under a single division of MTRT, to be given sole responsibility for the administration, planning and maintenance of the ports, with the proviso that MTP would continue to provide assistance in the execution of new works and certain maintenance activities, when requested to do so by MTRT. This was done by Government decree of February 1985, giving full attributions to MTRT, under the Director of Civil Aviation, Merchant Marine, Meteorology and Ports (DAC), which is now fully in charge of all ports, except Toamasina, and of maritime transport. This institutional setup is satisfactory and should remain in effect because it is conducive to a more efficient allocation of scarce resources and adequate maintenance of infrastructure and equipment. 2.16 The new (March, 1986) organization, Chart shown on Annex 2.6, is an improvement from the previous one shown on Annex 2.7. It follows closely the recommendations of the 1983 study as well as new ones made by consultants financed under a PPF advance resulting in an enhanced institutional framework. DAC has now four port oriented departments: Mi) Seaways; (ii) Merchant Marine; (iii) Port Services, and (iv) Provincial Services. In addition to the above, there is at each port a representation of the Port Services Department, which at Antsiranana, Mahajanga, and Toliara is carried by the local head of the Provincial Services Department. The Port Services department controls activities at all ports, except at Toamasina, where the stevedoring, cargo handling, and port authority functions are delegated to the Societe d'Exploitation du Port de Toamasina (SEPT). Decentralization of headquarters authority has been implemented by the creation of the provincial departments responsible for coordinating activities in each coastal region. The main objectives of this reorganization are: (i) reinforcement of local port administrations; (ii) clear definition of operational objectives; (iii) clear definition of lines of authority; and (i'J) giving each port the means and support it needs to achieve its objectives. OrRanization of the Ports 2.17 DAC's staff working on port oriented activities consists of 72 at Antananarivo, and 132 at the various ports. While the central staff is adequate and needs only upgrading, the field staff is quite underutilized due to lack of means to carry out the work, a situation which should change in the near future. For example, 39 dredging workers are essentially idle; even under the new dredging plan, most will continue to be redundant, and will be reassigned. 2.18 Seaways Department is in charge of maritime accesses, including navigation aids, hydrography, dredging and civil works. For navigation aids it has a buoys maintenance yard, repair shop and training center at Antsiranana, but it cannot discharge its duties due to lack of a buoy tender. Currently it cannot discharge its dredging functions either, because practically all the dredges are out of service. Nor can it carry out any hydrogrephic work because it does not have a single appropriate vessel. 2.19 Dredging constitutes a unique situation because, until 1985, the service depended on MTP, and the dredging staff was charged to the budget,  - 13 - when in fact no dredging at all was being done, except at Manakara. 2.20 Herchant Marine Degartment supervises Malagasy shipping lines (traffic studies, tariffs, conference agreements, etc), and compliance with maritime regulations. 2.21 Port Services Deiartment establishes the operational budget and supervises operations and administration of the ports, including the issuance of financial statistics, negotiation of concession agreements, and setting of tariffs. 2.22 Provincial Services Department is at present only in charge of local merchant marine matters but will soon include local representation for all the central services described above. 2.23 At each port stevedoring and cargo handling activities are contracted to a single private enterprise or to a consortium under concession agreements. Contractors handle cargo on their own behalf and on behalf of others. The firms having concessions are, by port: - SEPT at Toamasina. - Toliara Lighterage, organized by the local chamber of commerce. - Tolagnaro Lighterage, an affiliate of SOMACODIS, a parsstatal trading Company. - Manakara Lighterage, organized by the local chamber of comerce. - Nosy Be Lighterage, organized by the local chamber of commerce. - Vohemar Stevedoring, subsidiary of a large trading firm. - CMDH, a private company at Mahajanga and Antsiranana. - SECIAM, the meat trading company, and Sociote Dublois at Morondava. 2.24 The situation of the cargo handling and lighterage firms is quite poor, due to the double disadvantage of too much personnel and insufficient tariffs to recover costs. Equipment in their possession is usually lacking in maintenance, and the infrastructure in which they operate is not maintained at all. They are, however, the only entities which at the local level have demonstrated capability to operate, and who have means to carry out operations, in contrast with harbor masters and port captains who do not have offices or vessels to carry out their duties. Societe d'Exploitation du Port de Toamasina (SEPT) 2.25 SEPT is responsible for services to ships such as piloting, tug services, line handling, stevedoring, cargo handling, warehouses, storage yards, port infrastructure, shops, maintenance, and police at Toamasina and other non - port related commercial activities. It is autonomous but subject to the supervision of MTRT and Ministry of Finance, administered by  - 14 - a 12 member board, in which there is Government, unions, and ship owners' representation. The Chairman of the Board is appointed by the Council of Ministers. 2.26 Though piloting, line handling, and tug services provided by SEPT do not present in general difficult problems, stevedoring and cargo handling do. The symptoms of the problem have been poor productivity, low level of security, and damage to cargo, to such an extent that shipping rates to Madagascar are considerably higher than to similarly located ports on the same route. The causes of the problems are complex, but can generally be reduced to: (i) lack of competition; (ii) job tenure resulting in disincentive for work; (iii) strong union pressure on management; (iv) absence of motivation; (v) inadequate equipment, due to poor maintenance and operating practices, and (vi) lack of certain specific qualifications at the highest management positions. There are some highly qualifled staff who have been ineffective because they lacked authority or management support. Toamasina's situation contrasts sharply with that of some small ports, such as Manakara and Vohemar, where there is a reasonably efficient operation. 2.27 A new General Manager was appointed in April 1986, with strong backing by the highest Government levels, and a clear mandate to turn SEPT around. Since his appointment, the new General Manager actively participated in the preparation of SEPT's Action Plan (Annex 2.8 and paras 5.06-5.08) and is committed to its implementation. The Action Plan consists of a series of measures aimed at improving SEPT's performance during the first two years of project implementation. Improvements at the port were noticeable only few weeks after the arrival of the new General Manager: tighter discipline, enforcement of simple house-keeping measures, and improved staff morale. For example, the port appeared much cleaner, a third shift was instituted for handling certain commodities, working hours are beginning to be respected, and overtime has been reduced by more than half. 2.28 The highlights of the Action Plan are divestiture of non-port related activities, strengthening of the entire upper management, training and development of staff at all levels, reduction of number of staff, new tariff system, new budgeting system, establishment and pursuit of overall objectives clearly defined, speeding of invoicing and collecting procedures, improved house-keeping practices, improved maintenance of storage yards, improvement of ship loading and unloading rates, complete overhaul of maintenance methods, facilities and personnel, and development or a system of incentives to motivate stevedores. 2.29 Management improvements would be complemented by a program of physical rehabilitation. The deep water berth (Pier C) is damaged and is losing fill material; rolling surfaces and container handling yards are rough; maintenance sheds are in poor condition; and the electric, water, and drainage networks are out of order. Container traffic has increased steeply over the last years, and represents a good opportunity tc improve productivity and reduce shipping costs for the country. The port needs some equipment to handle containers more efficiently, as well as appropriate surfaces for the operation of the equipment. These investments, together with technical assistance and training, would provide the necessary means to improve performance.  - 15 - 2.30 The cyclone that struck Toamasina in March 1986 (Honorinina) caused serious damage to the breakwater and to Pier C. The breakwater repairs have been included in the Supplemental Credit to the Cyclone Rehabilitation Project (Cr. 1526-HAG), approved by the Board in August 1986. The Pier C repairs match well the objectives of the proposed Project, and have thus been included. Role of the Private Sector 2.31 Private firms play a limited though important role in Madagascar shipping and port sectors. At Toliara, Manakara, and Nosy Be cargo handling functions are carried out by firms organized by and dependent on the local chambers of commerce, which are controlled by the private sector. At Vohemar and Morondava cargo handling is done by private firms, for whom these ports represent a trade link. At Mahajanga and Antsiranana stevedoring is done by private companies. At Port St. Louis and Tolagnaro cargo handling is done by mixed companies. At Tosmasina, where there is an independent port authority, there are opportunities for privatization of cargo handling, and these will be pursued during the life of the project.  - 16 - III. THE PROJECT A. Protect Objectives 3.01 The proposed project aims to rehabilitate the physical infrastructure, including equipment, in selected ports, primarily to reduce overall transport costs to the users of shipping services. These ports account for about 97X of port traffic in 1984. Secondly, the project aims to develop the institutional capacity to manage, operate, and maintain at a reasonable level of efficiency the ports subsector and its restored assets. Thirdly, it aims to eliminate delays and safety hazards to navigation. These objectives are consistent with the Bank's sector strategy formulated in the 1983 Transport Sector Memorandum and the 1985 Selected Transport Issues paper. The project represents a logical extens .on to the ports subsector of efforts underway in the road iubsector (Sixth Highway Project), and in the railway subsector (Third Railway Project) to promote policy reform and rehabilitate infrastructure. A seventh highway project is presently being prepared. B. Prolect Scope 3.02 The proposed project includes the ports of Toamasina, Manakara, Tolagnaro, Toliara, Vohemar, Morondava, Mahajanga, Nosy Be, Antsiranpna, and Port Saint Louis; it will consist of the following components which would be phased over 6 years, beginning in 1987: (a) Rehabilitation and enhancement of ports infrastructure. Rehabilitation, repair and minor new construction of quays, slipways, yards, buildings, and utilities. (b) Modifications and Improvements to cargo handling. Procurement of new cargo handling equipment, floating craft, spare parts, and materials. (c) Services to shipaing. Dredging at Manakara, Tolagnaro, Toliara, and Mahajanga; navigation aids and hydrographic surveys capability covering the entire island; and spare parts for the international and coastal shipping fleet. (d) Institutional development. Technical support to develop and strengthen technical skills, improve management, cargo handling operations, maintenance, navigation aids, and dredging. This support would be made available to MTRT and to SEPT. Training, including a training specialist, scholarships, training materials, and appropriate training for about 500 staff of MTRT, SEPT, and local stevedoring and lighterage firms. 3.03 A summary of project components for each port is shown on Table 3.1 on the following page:  - 17 - Table 3.1 Sumary of components at each port MAHA MORO TOLI TOLA MANA TONA VOHE ANTS NOBE STLO A) Infrastructure (a) Quays, slipways X X X X X X X X (b) Yards X X x X X X X 'X (c) Buildings X X (d) Utilities X X X X X B) Cargo handling I (a) Equipment X X X X X X X X X X (b) Floating craft X X X X X X X X X (c) Spare parts X X X X X X X X X X and materials C) Ship Services (a) Dredging X X X (b) Navigation aids X X X X X X X X X X (c) Spare parts for X X X X X X X X X X coastal shipping D) Institutional Development (a) Technical support X X x X X X X X X X (b) Training X X X X X X X X X X C. Proiect Description (a) Rehabilitation and enhancement of ports infrastructure 3.04 Quays, slipwavs and trestles. With the exception of Antsiranana and Tolagnaro, all the ports included in the project need urgent repairs to the waterfront structures, such as concrete encasement of sheetpile walls, sealing of fill behind concrete blocks, replacement of pier beams, installation of fenders, and repairs to the pier and trestle surfaces. A new quay and earthfill would be the most economic solution at Vohemar, to improve productivity and to allow continuity of operations during repairs. A new slipway is required at Manakara to maintain the lighterage flest, and a new passenger ramp at Mahajanga to replace the old one, no longer operational. 3.05 Yards. In all the ports, with the exception of Nosy Be and Port Saint Louis, cargo handling operations are seriously affected by the poor condition of storage yards, circulation and access areas, a situation which causes equipment damage, and lowers productivity. Thus the project includes preparation and paving of approximately 140,000 m2 in eight ports, as well as some truck loading and unloading ramps. 3.06 Buildings. Generally, the ports buildings are sufficient and in  - 18 - acceptable condition, so the project includes only an administration building at Toliara, and maintenance sheds at Toamasina. 3.07 Utilities. The project includes badly needed lighting, drainage, and water and electric distribution at Toamasina, Toliara and Tolagnaro. (b) Modifications and improvements to cargo handling 3.08 Equipment. Generally, due to aging, poor maintenance, bad rolling surfaces, and chronic lack of spare parts, cargo handling equipment in all ports under consideration is in very poor condition, idle, or completely out of service. The project includes the provision of unsophisticated equipment for all the ports except Saint Louis, consisting primarily of: (i) four tire-mounted 30-ton container cranes; (ii) 22 25-ton chassis; (iii) four 90 HP tractors; (iv) two small mobile cranes; and (v) one 25-ton and 13 5-ton forklifts. Additionally, the project includes the reconstruction of the chromite ore conveyor system at Toamasina and a four- wheel drive vehicle for Toamasina. 3.09 Floating craft. Of the ten ports included in the project, seven require lighterage, and all require pilot launches and line boats. With the exception of some work boats recently acquired under bilateral aid, the general condition of the floating craft is very poor, and many cann-t be rehabilitated. The project provides 14 barges ranging from 80 to 150 ton, two 160 HP tugs, two 60-ton landing craft, and one line handling boat. 3.10 Spare parts and materials. Supply of spare parts and materials and tools has been a serious and chronic problem in the entire port sector of Madagascar. The project provides parts and materials for about four years of operations. Most of the lot is allocated to Toamasina, which is consistent with the distribution of tonnages handled, and the appraised needs. Also included are 3,000 pallets badly needed at various ports. (c) Services to shippinR 3.11 Dredging. Siltation has been a major problem in Mahajanga and Manakara, and, to a lesser degree, in Toliara and Tolagnaro. The project provides for bottom cleaning in Mahajanga using a barge mounted clamshell excavator and a split bottom barge, a small suction pump to be mounted on a pontoon for use in Toliara and Tolagnaro, and the rehabilitation of the existing dredge at Manakara. The solution retained in the project represents the least cost solution taking into account the cost of dredging, the cost of cargo handling and lighterage, and the cost of shipping. It also considers the poor track record of the public sector in maintaining the dredges operating. In essence the approach was to eliminate dredging to the extent to which it was possible and economic to do so. 3.12 Navitation aids and hydrographic equipment. Madagascar's lights, lighthouses, buoys, beacons and marks have been seriously neglected, to the extent of endangering the security of coastal and international shipping, neglecting compliance with international regulations and agreements. Similarly, charting, hydrographic surveys, notices to mariners, and weather service have been disregarded. The project provides new buoys, solar powered lights, repairs to lighthouses, spare parts, a mobile repair shop,  - 19 - workshop, radio and telephone communication system. Also included is a combination navigation aids-tender-hydrographic surveys launch. 3.13 Spare parts for the coastal shipping fleet. The project provides spare parts and their installation, as appropriate, for the largely private coastal shipping vessels, which have suffered from lack of foreign exchange. Private owners who operate a small but potentially important fleet are expected to benefit substantially from this provision. (d) Institutional development and reform. 3.14 Technical support. The project provides 274 staff-months of technical support in the following areas: (i) a ports advisor, for technical matters, coordination, and project implementation assistance, during five years (60 staff-months); (ii) mainterance and cargo handling experts, during five years, to assist the governmetut with project implementation and improvements to the efficiency *.- the port sector in general (60 staff-months); (iii) one-year assistance by a dredging expert, to assure continued operation and development of dredging personnel (12 staff-months); (iv) one to two-year missions by experts in accounting, administration, hydrography and navigation aids (118 staff-months); and (v) miscellaneous saort duration missions, of less than six months in specific assignments such as follow-up of the implementation of SEPT's Action Plan and training in procurement procedures (24 staff-months). The breakdown is shown in Annex 3.1. 3.15 Training. The project will include the followiag comprehensive training programs (i) a training specialist for two years; (ii) scholarships and overseas training for about 60 upper and middle level staff; (iii) training materials such as projectors, books, furniture; and (iv) training of 500 staff covering MTRT, SEPT and cargo-handling companies in port operations, dredging, navigation aids, and hydrographic surveys. Details of the training program are given in Annex 3.2. D. Cost Estimates 3.16 The total project cost is estimated at FMG 26,542 million (US$42.1 million), including contingencies and local taxes. The loreign exchange cost is estimated at FMG 18,005 million (US$28.6 million), or about 682 of total project costs. The project cost, net of taxes and duties, is FMG 21,918 million (US$34.8 million). Detailed cost estimates are presented in Annex 3.1 and the project cost summary is shown on Table 3.2, on the following page.  -- 20 - Table 8.2 Project Cast S,immr LOCAL TAX A FOIRI4 TOTAL TOTAL LOCAL TAX A SMIf TOTAL TOTA anr S To OvY EX TTD ---ILL -- -- --N W 2. PM$TS DVnASIWJC A. SYS, sLNY MD OmTRom. 441 815 63 1.,. 1,184 o. 0.5 1.1 2.8 1.8 U. YAM 441 815 6 1,8 1,071 0.7 0.8 1.0 2.2 1.7 C. JIlDSN 68 0 68 la 16 0.1 0.0 0.1 0.2 0.2 D. VJ=LT1 18 126 815 S0 804 0.8 0.2 0.8 1.0 0.8 JWfOTAL PORTS V*lA8 JCE 1,184 76 1,701 8,591 2,83 1.8 1.2 2.7 6.7 4.8 ZS. CAIWO WNCLDIO A. EJW9T 252 56? 1,575 2,394 1,827 0.4 0.9 2.5 8.8 2.9 -. ROATIO CPAFT 169 19 S6 1,006 819 0.8 0.8 1.0 1.6 1.8 C. SPANS PAT AN DATNUALS 18 1,006 0,894 8,891 2,8k 0.8 1.6 8.8 8.7 4.1 SUOTAL CARGO K8SUM 68 1,764 4,599 6, 8.29 1.0 2.6 7.8 11.1 8.8 ZUt. 6190 A. ORWa 19 252 680 1.071 819 0.8 0.4 1.0 1.? 1.8 6. NMVTTSN AM 262 282 1,00 1,512 1,26O 0.4 0.4 1.e 2.4 2.0 C. VSARN PARTWS PM COATAL SWIPPINO as 189 04 756 57 0.1 0.8 0.8 1.2 0.9 .WOTAL SHIPPDO 804 N8 2.142 3,8 2,64 0.8 1.1 8.4 5.8 4.2 Iv. DINSTUTIWEAL O 0YUJPII A. T#ICAL SWPUN1 16 0 1,575 1,701 1,701 0.2 0.0 2.5 2.7 2.7 S. TRADIO 252 n3 1,4e 1,764 1.701 0.4 0.1 2.8 2.0 2.7 UTOTAL NSTIUTIONAL OV.DW 8as 6s 8,024 8,4U 8,402 0.6 0.1 4.0 5.5 5.4 V. 8ODERSN, 81D DOASn AND MS WIPSY 1i 90 1,JSO 1,483 1,44 0.2 .0 2.1 2.8 2.8 TOTAL BAEuLK COSTS 2,77S 8,801 12,776 18,686 15,855 4.4 8.2 20.8 29.0 24.7 ~ omm mmp=aa man~tmem -=xmmm m== PFSCAL CPINS00CY 270 5A0 1.W 1,868 l,8 0.4 0.5 2.0 8.0 2.5 PrImC CWIanAcy SW 998 8,951 8,800 4.607 1.4 1.6 6.8 9.2 7.6 TOTAL PROJEIT COStS 8M9U 4,624 10,006 29,542 21,918 8.2 7.8 28.6 42.1 84.0  - 21 - 39'-17, Cost estimates were prepared by engineering consultants, financed by IDA under a PPP advance, reviewed by the appraisal mission, and revised as appropriate to reflect known costs for similar items at mid-1986 prices. Local taxes and duties, included in the estimates, amount to about FMG 4.6 billion (US$7.3 million). Physical contingencies were calculated at 10% of base costs. Price escalation for foreign and local costs is based on projected increases in international US dollar prices of 7.2% p.a. in 1986, 6.8X p.a. in 1987 and 1988, 7.0% p.a. in 1989, 7.1% p.a. in 1990, and 4.0% p.a. thereafter. The international rates have also been used for local cost *esc4etion assuming that the difference between domestic and inteenational price inflation will be offset by adjustments in the foreign exchange rate, in accordance with Government policy. 3.18 Cost estimates have been derived as follows: (i) for equipment, spare parts, materials and supplies, defined at final engineering level, they are based on engineers' estimates and are supported by informal quotationst witch is acceptable since most project items are standard, "off-the-shelfa components; (ii) for civil works, where applicable, estimates are based on preliminary engineering for the quantities and on current contracts for the unit prices; (iii) for technical assistance and engineering ser4ices, the estimates were based on actual costs for similar services rendered under other projects in Madagascar. Detailed engineering for civil works has been substantially completed. About US$ 1.3 million out of the estimated US$ 2.3 million for engineering, bid documents and supervision, has been spent with financing from France, UK, and the PPF advance. E. Financing 3.19 Project ;xpenditures net of taxes and duties (US$ 34.8 million equivalent) would be financed by Caisse Centrale pour la Cooperation Economique (CCCE) and Ponds d' Aide et Cooperation (FAC) of France, KfW of the Federal Republic of Germany, IDA, and local sources, including lovernment, cargo handling companies, and SEPT. The UK provided a grant to assist in project preparation. The Project financing plan is shown on Table 3.3 below: Table 3.3: Prolect Financing Plan Source Local Foreign Total ----- US$ million ------ IDA 2.4 13.6 16.0 GCCE 0.0 10.0 10.0 KfW 0.0 2.6 2.6 FAC 0.0 2.3 2.3 ODA 0.0 0.1 0.1 Local Sources 3.8 0.0 3.8 Total 6.2 28.6 34.8 3.20 ProJect items to be financed by IDA are shown in Table 3.4, Procurement Arrangements. The proposed IDA Credit of US$16.0 million would finance 46% of total project expenditures net of taxes and duties. The 1US$1.0 million PPF advance would be refinanced by the IDA Credit. The financing plan for this project was negotiated between Government and the  - 22 - donors, including the Bank, on the basis of this report's cost estimates. The exchange rate prevailing in mid-1986 was used in the report. When the IMF's Sixth Stand-by program was initiated, a 20X step devaluation occurred. In November 1986, the exchange rate was US$1 - FMG 750. No underfunding of the foreign exchange costs of the project, estimated at about 82X of total project expenditures, is expected to result from this change in the parity of the FMG. Significant overfunding of the local costs of the project is also unlikely because the effect of the depreciation of the FMG is expected to be suostantially offset over the project period by local inflation (para 3.17). 3.21 The Government would onlen4 atout US$2.7.mil.ion equivalent to SEPT on the following terms ond conditions: (i) final mat rity of 20 years; (ii) six years grace; (iii) interest rate of 9.1% p.a.; (iv) commitment fee of 0.75% on the undisbursed portion of the loan; and (v) borrower to assume the foreign exchange risk. Execution of a subsidiary loan agreement satisfactory to the Bank would be a condition of credit effectiveness. Financing of all ports except Toamasina will be allocated to the Ports Budget (para 5.14). The Treasury will recover the cost of the investments including a reasonable capital charge through the Ports Budget over the life of the assets. It will recover its investment costs from port users through tariffs and from private beneficiaries such as cargo handling companies through concession agreements acceptable to IDA for the use of Government property. F. Proiect Implementation and Monitorint 3.22 The project would be implemented by MTRT, which would be the main executing agency, and by SEPT, which would be responsible for all investments in Toamasina. To this effect, technical assistance for both MTRT and SEPT will be provided for project implementation. The project is expected to start in early 1987, and to be completed by September 30, 1992. The implementation schedule shown in Annex 3.3 was discussed and agreed upon during negotiations. 3.23 MTRT's recent reorganization (paras 2.17 - 2.24) provides a coherent structure, which csa serve as framework for the Technical Assistance component, as well as a vehicle for developing the capability to carry out fu4ture projects. SEPT has, in the past, been able to carry out projects and, with the technical assistance provi4ed under the project and Qovernment support of the Action Plan, is expected to develop sufficient institutional capability to implement its part of the project. 3.24 It will be critical to follow up on the Port Subsector devei.opments by moxBitoring performance indicators shown at the end of Annex 2.8 for SEPT, and in,Annex 3.4 for the other po;ts. At negotiations, a0suFances.were received that MTRT and SEPT will prepare qu4rterly reports of the pejfrWaance of the ports based on the agreed upon indicators. The targets will be revised nnu4Xly, in consultation with IDA, to reflect the performance attained during the previous year.  - 23 - 0. Procurement 3.25 Proposed procurement arrangements are summarized in Table 3.4 belows Table 3.4 - Procurement Arrangement - Procurement Method - ICB Other N.A. Total (US$ millions) (a) Civil Works Quays, slipways, trestles 3.3 3.3 Yards 3.1 3.1 Buildings 0.2 0.2 Utilities 1.5 0.0 0.0 1.5 8.1 0.0 0.0 8.1 (5.0) (5.0) (b) Equipment Port and cargo handling 1.0 4.3 0.0 5.3 1.0 4.3 0.0 5.3 (0.5) (0.5) (1.0) (c) Floating craft For lighterage 0.0 2.3 0.0 2.3 For dredging 1.0 1.4 0.0 2.4 1.0 3.7 0.0 4.7 (0.5) (0.5) (1.0) (d) Spare parts and materials For port equipment 4.0 4.1 0.0 8.1 For coastal shipping 0.0 1.6 0.0 1.6 4.0 5.7 0.0 9.7 (2.0) (2.0) (4.0) (e) Navigation aids 3.3 0.0 0.0 3.3 3.3 0.0 0.0 3.3 (1.0) (1.0) (f) Consulting services Technical support 0.0 0.0 3.8 3.8 Engineering supervision 0.0 0.0 3.3 3.3 0.0 0.0 7.1 7.1 (2.0) (2.0) (g) Training 0.0 0.0 3.8 3.8 0.0 0.0 3.8 3.8 (2.0) (2.0) Total 17.4 13.7 10.9 42.0 (9.0) (3.0) (4.0) (16.0) Notet Figures in parenthesis are the respective amounts financed by IDA.  - 24 - 3.26 Civil works contracts would be awarded following ICB procedures, with appropriate local preferences, if applicable. New equipment, floating craft, tools and materials for SEPT and MTRT financed by IDA would be procured on the basis of ICB, in accordance with Bank Group Guidelines with a separate contract for each type or groups of similar types of goods. Itemo costing no more than US$ 50,000, but not exceeding US$1.0 million in the aggregate, would be procured by international and local shopping on the basis of at least three quotations from different suppliers, dealers or manufacturers. Proprietary spare parts for an amount estimated at US$1.0 million would be procured by direct contracting after negotiations. Each cargo handling entity or ship owner would be responsible for procurement of its own spare parts and materials (US$1.0 million). MTRT would, with the assistance of consultants, approve the lists of spares with their respective quotations. The firms would pay the Central Bank cash in local currency equivalent, and these funds would be allocated to MTRT's ports budget as counterpart funds. Procurement would be made by users on the basis of international shopping through local representation, if available, or from foreign suppliers using technical assistance which MTRT would make available to prepare the lists of spare parts, to carry out all the imports transactions, to obtain the import licenses and foreign currency. The consultants will also ensure that the procurement guidelines are adhered to in the process. Each user would be fully responsible for all the transactions required for purchase, shipment and receipt of the parts in Madagascar. Total exceptions to ICB would not exceed US$3.0 million. All contracts above US$100,000 would be submitted to IDA for prior review. 3.27 All studies and preparation of bid documents will be carried out by MTRT and SEPT with the assistance of consultants as appropriate. Experts and consultants, financed by IDA, would be recruited as needed, under terms and conditions satisfactory to IDA and in accordance with the Bank's 'Guidelines for the use of consultants". Training would be provided by specislized institutions selected by Government in accordance with the specific needs, after evaluating several candidates, and under terms and conditions satisfactory to IDA. H. Disbursements 3.28 Funds from the IDA Credit would be allocated as follows: Table 3.5 IDA Credit Allocation Thousand US$ a) Civil Works: SEPT 1,400 Other 3,100 4,500 b) Cargo Handling Equipment, Floating Craft, Spare Parts, Navigation aids, Training Equipment, Tools and Materials SEPT 1,000 Other 4,500 5,500 c) Con:ultants' Services 1,000  - 25 - t) Training services and scholarships 2,000 .) Refinancing of PPF 1,000 f) Unallocated 2,000 Total 16,000 3.29 IDA credit funds would be disbursed on the following basis: (i) Civil works: 100X of foreign and 75% of local expenditures; (ii) cargo handling equipment, navigation aids, floating craft, spare parts, tools and materialst 100% of foreign and 60% of local expenditures; (iii) consulting services: 100% of foreign and 801 of local expenditures; and (iv) training services and fellowships: 1001 of foreign and 601 of local expenditures. , 3.30 All claims would be fully documented, except for claims relating to any contract, purchase order, or training activity valued at less than US$20,000, which would be submitted under statement of expenditures. The documentation for these claims would be kept at MTRT and SEPT and made available for inspection by IDA supervision missions. In order to expedite and facilitate disbursements, MTRT and SEPT would each open a Special Account in foreign currency at a commercial bank on terms and conditions acceptable to IDA. IDA would deposit into M!RT's Account US$600,000 equivalent and into SEPT's Account US$400,000 equivalent. The Accounts would be replenished on the basis of withdrawal applications. These applications would also comprise a statement of account movements since the last application, and a reconciliation showing that the balance represents the original amount deposited in the account less payments for which the application is submitted. 3.31 The estimated schedule of disbursements of IDA funds is shown in Table 3.6. It is about 5% faster than the standard disbursement profile to reflect disbursement of the PPF advance. The closing date for the Credit would be March 31, 1993.  - 26 - Table 3.6 Estimated disbursement schedule of IDA credit Disbursement Cumulative Cumulative IDA fiscal Year During Disbursement at Disbursement and Quarter Quarter end of Quarter As Z of total -US$ million- 1987 March 31,1987 1.0 1/ 1.0 6.3% June 30, 1987 0.6 1.6 10.0% 1988 Sept.30, 1987 0.6 2.2 13.8% Dec.31, 1987 0.7 2.9 18.1% March 31,1988 0.8 3.7 23.1% June 30,1988 0.8 4.5 28.12 1989 Sep.30,1988 0.8 5.3 33.1% Dec.3111988 0.8 6.1 38.1% March 31,1989 0.8 6.9 43.1% June 30,1989 0.8 7.7 48.1% 1990 Sep.30,1989 0.8 8.5 53.1% Dec.31,1989 0.8 9.3 58.1% March 31,1990 0.8 10.1 63.12 June 30,1990 0.7 10.8 67.5% 1991 Sep.30,1990 0.7 11.5 71.9% Dec.31,1990 0.7 12.2 76.3% March 31,1991 0.6 12.8 80.0% June 30,1991 0.6 13.4 83.8% 1992 Sep.30,1991 10.6 14.0 87.5% Dec.31,1991 0.5 14.5 90.6% March 31,1992 0.5 15.0 93.8% June 30,1992 0.4 15.4 96.3% 1993 Sep.30,1992 0.3 15.7 98.1% Dec.31,1992 0.3 16.0 100.0% NOTE _1/s This amount is repayment of the PPF. November 10, 1986  I - 27 - I. Environmental Aspects 3.32 None of the proposed works will affect adversely the ecology of Madagascars maintenance dredging of less than 20,000 m3lyear will be much less than what was done through the 1960's. Initial dredging will be less than 50,000 m3; annual dredging, a lower amount. Dredging spoils will be disposed of at landfill sites at all locations. The civil works envisaged consist mainly of paving of work areas and repairs to old piers. There will be no changes in the demographic distribution as a consequence of the project, nor will there be pollutant discharges into the sea.  - 28 - IV. ECONOMIC EVALUATION A. General Oblectives 4.01 As discussed in Chapter II, international and coastal shipping play an important role in Madagascar's transport sector. Virtually the entire foreign trade by volume is carried by sea while coastal shipping accounts for about 202, or some 245 million ton-km, of the total domestic merchandise traffic. Shipping, however, suffers from several constraints at many of the nation's ports. The Government's subsector investment program, of which this project is a major part, will attempt to alleviate the most important constraints tv efficient port operation, and thus complement major rehabilitation efforts in other subsectors. 4.02 The proposed project aims to reduce the cost of shipping primary commodities such as rice, sugar, salt, cement and petroleum products, and to fAcilitate exports through improved cargo handling. The main quantified direct result of port improvements would be improved ship utilization. Proposed investments will lower the cost of exports of coffee and cloves from Vohemar and Manakarat sisal from Tolagnero, textiles from Mahajanga and meat from Morondava. By 1990, some 85,000 tons of these exports are expected to have significantly lower handling costs. Improved cargo handling in Toamasina will reduce the cost of imports and exports. Safety and ship utilization will be greatly improved by rehabilitation of lighthouses, buoys and other navigation aids. Cargo losses will also be reduced by better cargo handling techniques. Costly reconstruction of facilities will be kept to a minimum. 4.03 Wherever possible alternative investment proposals were evaluated and the least cost solution adopted. For example: no dredging versus dredging at Morondava, embankment versus pier on piles for the new pier at Vohemar, and repairs versus new sheetpile wall at Mahajanga. 4.04 While the basic infrastructure at Toamasina is generally adequate, the coastal shipping ports need limited dredging, rebuilding or repairing of quays, and some new cargo handling equipment. Navigation is unsafe and delays are .acurred because navigational aids are not in working order due to corrosion and decay. The Government has been unable to allocate sufficient resources to the maintenance of equipment and infrastructure. Resource constraints dictate a selective approach to capital investments to be included in this project. However, the institutional development components of the project will address the resource management needs of the sector globally. An important aim of this project is to provide Madagascar with the capacity to prevent the recurrence of these past problems. 4.05 Because of the difficult terrain and lack of adequate infrastructure, it has been said that Madagascar is an archipelago, rather than an island. For example, some freight traffic between Antsiranana in the north and Antsirabe, or between Toliara in the south west and Antananarivo is shipped to Toamasina and is then trans-shipped by railway to the central highlands (Mip IBRD #19595). The priority ports included in the project are vital nodal points of domestic traffic linking Madagascar's coastal regions to each other as though they were islands.  - 29 - B. Forecqst of Future Traffic 4.06 ' As for other transport modes, port traffic levels depend to a large extentlon the condition of and projected growth for the overall economy. This has been particularly evident for imports of petroleum to Toamasina, whereas coastal shipping has been less affected by variations in the economic conditions, as indicated in Annexes 2.1 and 2.2. A forecast of cargo traffic by port is shown in Annex 4.1. Dry cargo traffic is projected to grow at about 12 p.a.; oil products traffic at 3.6% p.a. through 1995, for the main ports of Madagascar. 4.07 MTRT, with the assistance of consultants financed under the PPF, prepared traffic forecasts under different economic growth and development assumptions. The most conservative of these forecasts has been adopted for the economic evaluation of the proposed project. The proposed port investients have been designed to complement the ongoing program of road rehabilitation, taking into account the comparative cost advantage of coastal shipping in the long haul of relatively low value commodities. Because of planned road development and the difficult and costly nature of port operations in Morondava, on the west coast, traffic in that port is expected to decline. 4.08 Current economic trends support a GNP growth rate projection of about 3% p.a. through 1990, about equal to the projected rate of population growth. Since 1979, imports of oil products have been declining, partly becauie of substitution by hydroelectric power (Andekaleka power-station finan_ed in part by Credit 817-MAG), partly because of declining exports, mostly because of economic stagnation. This has affected the overall port traffic volume significantly. With resumed economic growth, a rate of growth of oil imports slightly higher than that for GDP is likely. Similarly, dry cargo imports will also increase though at a lower rate than oil imports. Export promotion programs supported by the Bank group and other donors are expected to achieve positive results. Traffic forecasts have been established commodity by commodity after dividing the country into economic zones for each port and under different growth scenarios. 4.09 In addition to the main agricultural exports such as coffee, cloves, sisal, fish and cacao, the traffic forecasts take into account projected domestic consumption of staples such as sugar, beans, bananas, salt and corn. Exports of chrome, graphite and mica, and petroleum trade have all been projected separately. The forecast of dry cargo traffic is summarized below: 1990 1995 Dry cargo exports 306,000 tons 362,000 tons Dry cargo imports 447,000 tons 465,000 tons Coastal shipping 236,000 tons 286,000 tons 4.10 As explained above, these traffic forecasts assume a low rate of economic growth. Less conservative, but plausible projections of economic growth would yield a forecast of 466,000 tons of dry cargo imports by 1990, growing to 554,000 tons by 1995. Very low levels of rice imports have been assumed to reflect higher domestic production which is expected to result from the implementation of policy reforms supported by the Agricultural  - 30 - Sector Adjustment Credit (Cr.(1691-MAG). It was assumed that some of the cement imports will be replac4d by coal imports for the new cement plant at Ibity, south of Antairabe. Oil product traffic has been forecasted, but it is nbt expected to have a significant effect on port requirements since loading or unloading installations in most ports are specialized, are adequately operated by SOLIMA, the national oil company, and do not require improvements. l 4.11 Traffic growth prospects for the seven ports excluded from the project are limited. They are: Sambava, Antalaha and Maroantsetra in the Northeast, Mananjary, eventually to be connected by the Pangalanes Canal on the Southeast Coast, Morombe, Analalava and Antsohihy on the West Coast. Total traffic in these ports in 1985 was only 46,300 tons. The traffic of Sambava, Antalaha and Morombe is expected to shift to other ports with better facilities and land access. Among the project ports, Vohemar and Manakara show good prospects for coffee exports, whereas sugar ports such as Nosy-be and Port St. Louis are likely to experience declining traffic. Toamasina, Antsiranana and Mahajanga, which are recovering from the ravages of the 1984 and 1985 cyclones, are expected to show moderate traffic increases in the early 1990's as the economy improves. 4.12 In 1984, only about 44,800 tons, mainly general cargo imports and coffee exports, was moved in containers in Toamasina. RNCFM, SEPT and shipping agents are actively promoting this traffic with through bills of lading. Containerization is expected to increase in several ports. The pace at which this will happen is difficult to forecast but, judging from other experiences with similar types of cargo, the proportion of exports and imports likely to be shipped in containers will grow to about one third of dry cargo traffic. By 1990, containerized imports to Toamasina, Tolagnaro and Mahajanga are projected to grow to 153,000 tons and exports to 108,000 tons. By 1995, they could increase to 184,000 tons and 123,000 tons respectively. In addition, about 55,000 tons coastal shipping traffic at Antsiranana, Manakara and Vohemar can be expected to move in containers after 1990. C Navigation Aids and Shipping 4.13 The condition of the shipping fleet and lighthouses, buoys and other navigation aids is very poor because of age and lack of maintenance funds, particularly foreign exchange. Hydrographic surveys have not been carried out for some time. To avoid the risk of ship loss or damage, prudent shippers have been reluctant to sail at night or during poor visibility with the result of increasing voyage time and therefore costs. Despite precautions, accidents have occurred: a number of ships have sunk or have -un aground because lights were off, shoal markings were destroyed by storms, and ships were poorly maintained. Losses of small passenger carriers have occurred and some operators have found the cost of insurance coverage to be prohibitive. Expected savings from the avoidance of losses of human lives and ships have nQt been quantified. However, these losses are of such a magnitude that the investment in rehabilitation of lighthouses and buoys and the provision of spares for the coastal shipping fleet could be fully justified on those grounds alone. 4.14 The only benefits which have been quantified for this project component are those related to improved ship utilization. The benefits  - 31 - expected to derive from improved safety of navigation, though substantial, have not been quantified. Ship utilisation will improve mainly because ships aill take less time than now to enter ports and they will be able to work at night at lighterage ports. Savings for large ships, nearly all Malagasy flag vessels, have been calculated on the basis of an average daily cost of US$4,800 (FMG 2.9 million); for small vessels, US$840 (FMG 0.5 million) per day. D. Cargo Handling Imlrovements and Dredging 4.15 The anticipated economic benefit of this component, the project's largest, is a reduction in the transport costs to the users. In addition to freight, transport costs include other expenditures such as insurance, interest for capital tied up in goods while in transit, delays and cargo losses. Many of these are very important but difficult to quantify in direct relation to the conditions prevailing in each particular port. For example, insurance rates in Madagascar, while very high, differentiate only between ports with direct access from ship to shore and ports served by lighterage operations. The direct beneficiaries would be exporters and importers, freight forwarders and ship owners (para 4.19). 4.16 Cargo tariffs established by MTRT for coastal shipping only give a partial indication of relative costs of different ports. Furthermore, as customary, these tariffs do not apply to the use of chartered vessels. Over the longer term, actual tariffs paid to ship owners do reflect the relative costs of port handling, espe'cially since, due to the low productivity of most ports, Malagasy ships spend a disproportionate amount of time in port rather than at sea. 4.17 The best indicator of port productivity is vessel turnaround time. If the rate is low, the vessel must wait in port longer than it would if cargo moved at a faster rate. Ship's waiting time affects the voyage turnaround time and, because ships are expensive, the longer this time, the higher the cost of shipping which must be recovered by the shipper through a higher freight rate. As shown in Annex 4.2, current cargo handling rates at most ports are low. The itprovements in productivity of cargo handling expected to result from project investments in each port have been estimated and are also presented in Annex 4.2. The savings in ship waiting time which would derive from these productivity improvements as well as from dredging, where applicable, provide a measure of projected economic benefits. Annual benefits after project completion were calculated at about US$5.5 million, equivalent to the annual cost of two typical deep-sea vessels and three coastal vessels. This saving is unlikely to lead to a surplus of ships, because many ships need to be phased out of service due to their old age and poor condition. 4.18 All factors affecting ship time have been taken into account in this analysis. Each port has been evaluated as a separate sub-project. All project costs have been included in the analysis except training and the indirect cost of technical assistance. In total about 861 of total project costs have been separately evaluated. The costs and benefits calculations for the individual sub-projects are presented in Annex 4.3. Details of the methodology for the estimates are given in Annex 4.4 and a surnary for each sub-project in Annex 4.5.  -32 - 4.19 Financial costs, excluding taxes and duties, have been used as the basis for the economic cost calculations at price levels prevailing in mid- 1986. Costs for Malagasy flag ships in port or at anchorage are given in Anneo 4.2,. One half of the typical demurrage rate, or some US$3,500 per day has been used for all other flag vessels to estimate freight savings importers and exporters are expected to make as a result of reductions in ship waiting time. An FOB value of US$2.50 per kg has been used to calculate savings in transit time for coffee. These assumptions are consistent with international costs for similar ships. Ship time savings will be monitored against the operational targets presented in Annex 2.8 for Toamasina and in Annex 3.4 for other ports. A reduction in anticipated damages and cargo losses of 12 of the cargo value has been used to calculate the economic benefits of switching from lighterage to direct ship-to-shore cargo handling operations. Current cargo insurance rates are as high as 4- 51 of the value of the goods. 4.20 Benefits which have not been quantified include institutional and technological improvements this project is expected to help bring about. In addition to promoting stronger and more effective institutions, the project would facilitate the process of containerization already underway. Equipment will be provided for handling 20-foot containers. This equipment would enable exporters to ship high value commodities such as coffee by containers from the port of origin through Toamasina where the containers must now be stuffed. The use of LCT's on the west coast will be encouraged, in addition to a general improvement of cargo handling. This will also make it worth-while for ship owners to introduce more efficient vessels to take further advantage of improved port productivity. E. Economic Rate of Return 4.21 The project's overall economic rate of return has been calculated at 292. The economic rate of return for the navigation aids and shipping investments was calculated at 26S. Returns for individual ports were calculated at rates ranging from 19% for Port St. Louis to 531 for Nosy Be. Details are shown in Annex 4.5. The sensitivity of the economic rate of return to changes in the level of costs and benefits was tested for each project component. Annex 4.6 shows the results of this analysis and a test of first year returns assuming an economic cost of capital of 121. If the project's economic benefits were 201 lower than estimated, the project's overall economic rate of return would still be satisfactory at ;2%. Virtually all these tests yielded rates of return above the economic cost of capital. In conclusion, even under the conservative traffic assumptions adopted and taking into account only part of the expected economic benefits, the project would be economically justified over a period of less than ten years. F. Risks 4.22 The main project risks are underestimation of costs and quantities of project components and overestimation of the possibility of achieving meaningful institutional reform. The first group of risks (costs and quantities) is mitigated by several factors; civil works are limited in scope and in most cases are not critical for the performance of other project components; the equipment includes rather standard units for which quotations are accurate, and if *Ete need should arise, adjustments could be  - 33 - made in the quantities to be procured. The institutional risk is higher, but nevertheless worth taking, because Government has already shown tangible signs of its commitment to change: it has agreed to an excellent Action Plan for SEPT, it has accepted the provision of technical assistance for project implementation and for day to day ,perations. Restrictive covenants covering all of the above are recommended. The port of Toamasina with its powerful unions and low productivity presents an additional risk, which is addressed by the Action Plan discussed in para. 2.27, and by the changes already introduced by its new management.  - 34 - V. FItUANCIAL EVALUATION A. Societe d'Exploitation du Port de Toamasina (SEPT) 1. Past Performance 5.01 SEPT's Income Statements for 1980-85 are shown in Annex 5.1; Balance Sheets, in Annex 5.2; Funds Statementa, in Annex 5.3; and Ratio Analysis in Annex 5.4. Table 5.1, below, shows SEPT's Financial Highlights. Table 5.1s SEPT's Financial Hixhlights 1981 1982 1983 1984 1985 ---------uneudited-------- audited (million FMG*s) Port Revenues 4,400 3.671 4,985 4,391 4,954 Other Income 136 155 368 368 344 Working Expenses 3,642 3,984 4,167 4,947 5,531 Net Income 115 (807) (196) (2,791) (2,091), Working Capital 3,559 2,889 3,638 1,335 (941) Net Fixed Assets 6,229 6,011 5,677 4,502 4,364 Total Assets 18,075 17,199 17,707 13,051 13,350 Equity Capital 6,852 6,115 6,753 4,097 2,630 Traffic (thousand tons) 570 627 513 597 600 Working Ratio 83% 1092 842 1132 1122 Receivables (days) 806 906 718 371 327 5.02 The above table shows that SEPT's operating performance deteriorated significantly from a net income of FMG 115 million reported in 1981 (1980, FMG 805 million) to losses of FMG 2,791 million in 1984 and FMG 2,091 million in 1985 (Annex 5.1). While revenues were rather stable, salaries, paid to a work force averaging 4,500, increased 39% from FMG 2,713 in 1981 to FMG 3,759 in 1985, largely accounting for the rising losses. In additiorn to port and cargo handling services, SEPT ope-ates the Toamasina city buses, a forestry product division, and transport services on the Pangalanes canal. A1l of these activities are operated at a loss. The accounting firm that carried out the 1984 and 1985 external audits, the first ones in SEPT's recent history, recommended extraordinary charges to earnings of FMG 1,487 million in 1984 and FMG 766 million in 1985 to reflect physical asset valuations, write-downs and loss provisions. Adjustments to the 1985 financial statements may also be recommended once the draft financial restructuring plan for SEPT is agreed between Government and the donors. Final approval of such plan would be a condition of Credit effectiveness. 5.03 The recent gradual erosion in SEPT's earning power has adversely affected its financial condition, squeezed liquidity, and eroded its  - 35 - capital base.. The current ratio has fallen from 1.5:1 in 1981 to O.9:1 in 1985; in 1985, SEPT had a negative working capital of FMG 941 million (Annex 5.4). Though the amount of long term debt outstanding is relatively low, the operating losses have created a need for a fresh infusion of equity funds into SEPT's capital in 1986/7. The need is estimated at about FMG 2.0 billion (US$2.7 million), pending finalization of the financial restructuring plan. 5.04 Furthermore, during the period under review, SEPT's plant has deteriorated and collection of receivables has been slow, which in turn has forced SEPT to delay payments to suppliers. Despite stagnant traffic and in the absence of significant tariff increases, revenue turnover increased from 71% in 1981 to 114% in 1985 (Annex 5.4), reflecting a drop in the boos value of net fixed assets from FMG 6,229 million in 1981 to FMG 4,364 million in 1985. This drop was the combined result of deferred maintenance and lack of financial resources for equipment replacement. 5.05 Under pressure from the Minister of Transport, who is also SEPT Board Chairman, SEPT's old management attempted to improve the rate of receivable collection but the results were unsatisfactorys at the end of 1983, SEPT was carrying nearly two years - 718 days - of uncollected revenues on its books; in 1984, 522 days; and, in 1985, an estimated 630 days. During the recent audit, receivables were written down to 371 days for 1984 and 327 days for 1985. tack of financial controls, billing delays, and lack of customer follow-up were part of the explanation, but weak management appears to be the root cause of SEPT's poor financial performance in this as well as other areas. 2. SEPT's Action Plan 5.06 At appraisal, the Government accepted that Bank support of the proposed project be conditional on a satisfactory Action Plan for SEPT. In November 1985, the Minister of Transport appointed an ipterministerial committee with a clear mandate to prepare a comprehensive recovery plan for SEPT by the end of March 1986. At the Government's request, IDA provided financing for two consultants to the committee under a PPF advance. The draft recovery plan was reviewed by an IDA mission in April 1986, discussed, modified, and approved by the Council of Ministers in October 1986. 5.07 An Action Plan, essentially a summary of the recovery plan prepared by the committee, waslagreed upon with SEPT's new General Manager and is presented in Annex 2.8. The Action Plan includes specific targets such as performance indicators, staffing requirements, and financial provisions. More specifically, the initial Action Plan contains a list of actions to be undertaken by SEPT in 1986, 1987 and 1988, sone of which are linked to decisions to be taken by other Government agencies and by donors. 5.08 In addition, the Action Plan contains annual Operational Performance Targets agreed upon with SEPT. These performance targets would be reviewed and revised annually in consultation with the Bank. At negotiations, implementation of the Action Plan was reviewed, its content discussed and modified, .and assuran- as received that the Action Plan agreed upon will be carried out as part of the project.  - 36 - 3. SEPT's Financial Projections 5.09 The major assumption used for projecting the financial statements of SEPT is the implementation of the Action Plan presented in Annex 2.8. In particular, it was assumed that SEPT will phase out its non-port activities, improve staff productivity, and sensibly increase the rate of receivable collection. In addition to the tariff increase approved by the board in October 1986 (para 5.13), it was assumed that SEPT's tariffs would further increase by 20% in real terms in 1987. 5.10 Traffic demand projections for general cargo and oil are presented in Annex 4.1. and the projected rate of inflation is the same as that used for estimating price contingencies on project costs (para 3.17). Project investments were added to SEPT's assets. New and existing fixed assets were revalued each year and the added value credited to equity capital. Debt drawdown, amortization, inteest and fees reflect the project financing plan (para 3.19) and proposed onlending terms (para 3.21). Details are shown in Annex 5.5. 5.11 SEPT's pro-forms Income Statements for 1986-95 are set out in Annex 5.6; Balance Sheets, in Annex 5.7; Funds Statements, in Annex 5.8; and Ratio Analysis, in Annex 5.9. Table 5.2, below, shows a summary of SEPT's financial projections. Table 5.2: SEPT's Summary Financial Projections 1986 1987 1988 1989 1990 -p-------------D rojected------------------ (million FMG's) Revenues 4,796 5,905 7,292 7,692 8,120 Working Expenses 5,153 5,388 5,632 5,895 6,174 Depreciation 526 668 810 892 993 Net Result (883) (151) 850 905 953 Working Capital 1,549 2,002 2,714 2,514 2,404 Net Fixed Assets 5,045 7,876 10,440 10,977 11,805 Total Assets 12,764 15,178 17,525 17,768 18,333 Equity Capital 2,538 3,136 3,498 3,672 3,789 Traffic (thousand tons) 590 580 570 560 550 @ 1986 FMG/ton 5,600 6,720 8,064 8,064 8,064 Annual increase 7% 20% 20% - - Working Ratio 107% 91% 77% 77% 76% Receivables turnover (days) 415 323 252 197 153 Current Ratio 1.3 1.4 1.6 1.6 1.7 5.12 Table 5.2 shows that SEPT would need to charge customers real tariff increases in order to gradually restore profitability and generate sufficient cash to meet operating expenditures, to service its debt, and fund its share of project investments. This goal is attainables it would represent a sustainable burden to port users who have benefited from an erosion in real terms of SEPT's average unit tariffs since 1980 (para  - 37 - 5.04). Users would willingly pay more than they now do for better port service and savings in ship waiting time. 5.13 In order to enable SEPT to comply with the revenue covenant proposed below (para 5.27) and to ensure a smooth tutrnaround in SEPT's profitability, on October 31, 1986, SEPT.s board agreed to increase tariffs by 502 (about 202 in real terms after accounting for local inflation and currency depreciation as explained in para 3.20). B4 The Ports Budget 1. Financial Condition 5.14 With the exception of Tosmasina, the Malagasy ports do not follow commercial accounting practices, and do not issue income statements and balance sheets. The Ports Department of MTRT in Antananarivo prepares an annual budget of operating expenditures, investments and receipts of 17 main ports known as 'The Ports Budget'. This budget is prepared on a cash basis and does not account for depreciation of fixed assets. Consultants financed under a PPF advance have valued the ports' assets and revised the 1984 Ports Budget to include depreciation charges and other accruals. The revised 1984 Ports Budget is presented in Annex 5.10. An explanation of the main accounts is given in Annex 5.11. 5.15 Annex 5.10 shows that, in 1984* five of the 17 ports included in the budget, Antsiranana, Mahajanga, Morondava, Port St. Louis and Nosy Be reported operating receipts in excess of working expenditures, while only three, Mahajanga, Port St. Louis and Nosy Be had sufficient income to cover estimated depreciation charges. Because the profitable ports are the ones with most traffic, the consolidated Ports Budget shows a cash surplus of FMG 40 million or about 122 of gross receipts, after charging total working expenditures. To cover depreciation charges, estimated at FMG 230 million, receipts should have been 692 higher than they were. Revenue increases re4uired in each port to balance the budget vary widelys in 1984, Manakara, for instance, recovered only 302 of operating costs excluding depreciation, while Antsiranana had a surplus of nearly 602. 2. Financial Prospects 5.16 A five-year financial projection of the Ports Budget is presented in Annex 5.12. The assumptions adopted for the projection are given in Annex 5.13. Essentially, the key assumptions are that (i) the Ports Budget's revenues will equal total expenses; (it) staff will be reduced by 10%; (iii) the maintenance budget will increase threefold; and (iv) project investments will be depreciated over their estimated useful life. Individual financial projections of the six largest ports, Antsiranana, Mahajanga, Hanakara, Nosy Be, Tolagnaro and Toliara, and aggregate financial projections of eleven small ports are in the project file. 5.17 The financial projection of the Ports Budget shows that it will be possible to achieve full cost recovery of the ports sector including adequate depreciation charges for new and existing assets, a financial charge for the use of Treasury funds, and adequate funds to catch up with deferred maintenance, provided that tariffs are gradually increased in real terms between 1986 and 1990.  - 38 - C. The Cargo Handling Companies 5.18 The Government grants the exclusive right to handle cargo to a private company in each port. In Mahajanga, however, it is estimated that about one third of the total traffic is handled by others, wostly ship owners. The financial statements of five of these companies have been reviewed and filed. The analysis has shown operating losses and insufficient liquidity, resulting from inadequate tariffs and plethoric staff. 5.19 As was the case for the ports, the analysis revealed great disparities in cost recovery rates among the various companies. However, unlike the ports, where the case could be made for attaining cost recovery globally, each company must be financially viable for the obvious reason that one investor cannot offset his losses against another investor's profits. It is the Government's policy to ensure that investors in companies that perform a vital role in the economy of the country, as these companies do, earn an adequate return on their investment. 5.20 To implement its policy, the Government must take concrete measures, including the setting of new rates for cargo handling and lighterage, that would enable each company to pay MTRT adequate concession fees (currently the source of about 50% of total receipts of the Ports Budget), meet operating expenditures, and have a sufficient incentive to continue investing in their operation so as to reduce to a minimum the financial burden of the ports to the Treasury. At negotiations, assurances were received that Government, with the assistance of consultants financed under the project, will review the level and structure of all port related rates and will revise them, in consultation with IDA. While it is understood that the required revisions may be taken in steps, the target date of June 30, 1988 was agreed for the rate revisions to become fully effective (para 5.27). D. Financial Objectives 5.21 The main financial objective of the proposed project is to reestablish full cost recovery for the port sector. Regarding the port of Toamasina, implementation of the agreed SEPT's Action Plan (para 5.07) is expected to ensure the achievement of this objective. 5.22 Regarding the ports budget, Government's objective is to set port tariffs at a level that would ensure the recovery of all costs, including depreciation, and the generation of a profit to finance working capital and debt service requirements. Ideally, these objectives should be achieved for each port as well as for the consolidated Ports Budget. However, in view of the great diversity of local operating conditions, the low volume of traffic of the small ports and their vital role in providing what is often the only outlet to the rest of the country for small isolated communities, it appears reasonable to pursue the priority objective of full cost recovery individually for the six largest ports. These ports are Antsiranana, Mahajanga, Manakara, Nosy Be, Tolagnaro and Toliara. Together, they account for over 80S of traffic at the ports under MTRT's administration. In order to balance the consolidated Ports Budget, the six  - 39 - largest ports need only generate a small extra profit to offset the losses of the small ports. ! 5.23 Finally, regarding the cargo handling companies, the objective is to enable the private investors to earn a reasonable after tax return on their investment. Because the six companies in the largest ports belong to five different groups of investors, the tariff adjustments must be made individually for each of those ports taking into account the differences in each local situations, the type of operation, the facilities and equipment currently available and individual investment plans. 5.24 It is expected that it will take about three years to bring about the overall level of rates required to ensure full cost recovery for the ports sector. Therefore, this process, which started in December 1985 when the Government approved substantial rate increases in most ports, should be concluded in 1988. As further evidence of Government's commitment to sector reform, and to ensure that the right signals are sent to private investors, ship owners and traders, as well as public sector entrepreneurs, the Government undertook a second round of rate increases in October 1986, before negotiations of the proposed Credit. 5.25 The new rate increases were as follows: Table 5.3: Rate Increases Port: Port dues Cargo Rates Antsiranana 40X 402 Mahajanga 45% 452 Manakara 302 302 Nosy Be 02 752 Tolagnaro 30X 302 Toliara 432 432 Other Ports 02 02 5.26 The above rate increases are warranted by the analysis of the existing situation and the projections presented in this chapter. The increase approved for cargo handling rates at Nosy Be is higher than that for other ports because the local cargo handling company has experienced falling traffic and a four-year rate freeze. By contrast, port dues at Nosy Be were increased by over 1002 in 1985 and were not revised in 1986. E. Financial Covenants 5.27 In order to assist the povernment and the Bank monitor financial performance and the achievement of the project financial objectives outlined above, the following protective covenants were agreed: (i) SEPT and Government will take all steps necessary to ensure that, beginning in 1988, SEPT's operating revenue will be no lower than the sum of total operating expenses, including a depreciation charge calculated on revalued assets, interest and amortization on all borrowed moneys as they may be adjusted following currency fluctuations, and dividends and other retributions on capital if any;  - 40 - (i4) SEPT will not undertake any investments larger than US$300,000, other than those included in this and other ongoing development projects revimeed by the Bank without the explicit consent of the Bank; (iii) Government will not undertake investments estimated to cost the equivalent of US$50,000 or more in the ports subsector, other than those described in the project, without prior consultation with the Bank; (iv) Government will take all steps necessary to ensure that, beginning in 1988, the Ports Budget's operating revenue will be no lower than the sum total of operating expenses, including a depreciation charge calculated on revalued assets, and a capital charge of at least 102 calculated on the value of net fixed assets in use by the 17 ports included in the Ports Budget; (v) by December 31, 1987, Government will complete a review of the structure and level of port tariffs, cargo handling charges and concession fees, and consult with the Bank on the outcome of such review; and (vi) by June 30, 1988, Government will revise the level and structure of all port related charges after taking into account the Bank's coaments. 5.28 Within six months of the end of each fiscal year, SEPT will submit to the Bank its financial statements, including statement of expenditures (para. 3.30), audited by independent accountants acceptable to the Bank. The Government will also submit to the Bank audited consolidating statements for the Ports Budget. The auditors will be required to attach a report of compliance with financial covenants to the audit reports. Finally, within six months of the closing date of the Credit, the Government and SEPT will prepare and submit to IDA a completion report for the project.  _ 41 - VI. AGREEMENTS REACHED AND RECOMMENDATION 6.01 Before negotiations, the Government approved port tariff increases substantially in the amounts presented in para 5.25. 6.02 IAt negotiations, the following matters were discussed and agreement reacheds (i) Project Implementation Schedule (para 3.22); (ii) Ports performance indicators (para 3.24); (iii) SFPT's Action Plan (para 5.08); and (iv) Proposed financial covenants (paras 5.27- 5.28) 6.03 Execution of a Subsidiary Loan Agreement and submission of a Financial Restructuring Plan for SEPT satisfactory to the Bank would be conditions of Credit effectiveness (paras 3.20 and 5.02). 6.04 Subject to the above conditions, the Project would be suitable for a Credit to Madagascar of US$16.0 million equivalent on standard IDA terms. November 14, 1986  - 42 - Annex 1.1 Psac 1 of 1 MADAGASCAR PORTS REHABILITATION PROJECT Public Invesetent Plans for the Transuort Sector 1984 - 87 1986 - 90 FMG billions FMG billions Foroin Local Total Foreign Local Total Hiahway Infrastructue Rehabilitation 88.146 53.061 141.207 113.245 59.161 172.406 Workshop, equipment, 2.782 2.951 5.733 and studies 4.423 610 5.033 90.928 56.012 146.940 117.668 59.771 177.435 Rail Trgns2ort Rehabilitation 6.076 2.552 8.628 16.9S7 10.105 27.062 New Works -- 1.000 1.000 3.800 3.800 Studies & Tech. Asst. 2.502 711 3.213 6.076 3.552 9.628 19.459 14.616 34.075 Air Transport Rehabilitation -- 7.566 7.566 5.507 3.634 9.141 New Works - 168 168 Studies & Techn. Asst. 300 300 -- 7.734 7.734 5.807 3.634 9.44k Maritime Transport Rehabilitation 8.073 819 8.892 8.129 2.776 10.905 New Projects 714 2.427 3.141 Studies & Techn. Asst. - - 1.759 42Z 2.181 8.787 3.246 12.033 9.888 3.198 13.086 River and Canal Transport Rehabilitation 13.310 1.490 14.800 19.976 2.219 22.195 (Canal of Pangalanes) Studies - 755 160 915 13.310 1.490 14.800 20.731 2.379 23.110 National Transport Plan 782 40 822 806 567 1.373 TOTAL 119.883 72.074 191.957 174.359 84.165 258.524 Sources MTRT March 1986  - 43 - Annex 2.1 Page 1 of 1 MADAGASCAR PORTS REHABILItATION PROJECT Development of Port Traffic 1977-85 (000) tons 1977 1978 1979 1980 1981 1982 1983 1984 1985 Antsiranana 112.9 205.1 157.0 226.5 186.5 191.9 119.1 93.4 117.5 Vohemar 12.0 14.9 17.6 22.2 25.1 29.2 30.6 27.5 27.9 Sambavall 8.1 8.8 6.5 8.7 3.1 2.8 - - - Antalahal/ 9.3 4.7 5.2 5.0 6.4 4.6 5.1 3.4 10.0 Maroantsetral/ 11.2 14.7 13.6 13.3 11.9 8.1 6.9 6.1 9.5 Toamasina 1,363.4 1,148.5 1,252.7 1,429.9 1,167.6 1,222.7 954.5 921.8 1,194.0 Manakara 61.1 88.2 74.6 61.6 60.8 56.8 50.5 65.0 56.9 Mananjaryl/ 16.9 9.9 15.5 28.9 33.1 24.5 15.2 13.4 11.0 Tolagtaro 43.8 38.3 39.2 36.4 41.5 35.3 35.0 32.5 24.6 Nosybe-Port St. Louis 150.7 156.8 130.9 175.2 117.0 172.5 234.3 236.9 123.7 Analalava- 11I Antsohihyl/ 24.0 42.5 60.7 57.2 36.8 29.8 12.4 27.9 9.4 Mahajanga 351.5 386.0 423.0 385.6 307.0 319.6 243.3 197.9 183.7 Morondava 16.4 16.5 17.3 22.9 20.8 15.2 15.7 34.9 55.3 Toliara 93.4 92.4 78.4 96.9 97.8 97.6 76.0 66.9 66.5 Morombel/ 13.6 16.4 9.1 8.3 5.2 5.0 9.2 10.4 6.4 2,288.3 2,243.7 2,301.3 2,578.6 2,120.6 2,215.6 1,807.8 1,738.0 1,896.4 Source: Service des Douanes May 1986 /1 Not a project port.  - 44 - ML8X 2. MADAGASCAR PORTS REHABILITATION PROJECT Develoomnt of Toamasina traffic 1978-84 a 7.L 1 71 1980 9fi 1982 1983 1984 cargo (000) tons Imports Rice 86.7 91.0 122.4 134.2 232.8 150.2 100.5 Other dry cargo 205.0 241.1 251.3 153.3 153.7 151.1 199.9 Exports 175.3 193.9 175.1 150.5 151.4 124.4 189.2 Cabotage 69.4 118.8 118.1 129.8 88.8 87.1 107.3 Total 536.4 644.8 666.9 567.8 626.7 512.8 596.9 Petroleum products 612.1 607.9 763.0 597.8 596.0 441.7 324.9 Total traffic 1,148.5 1,252.7 1,429.9 1,167.6 1,222.7 954.5 921.8 Source: S.E.P.T. January 1985  - 45 - Annex28 MADAGASCAR PORTS RNASILITATION PROECT CobotOeo Fleet as tf Novgemr 19865 Draft Comrnny Shi OW -- T e Current Rout CMN Onib SW0? 6.6 a. 197w OC Toes.lna4oAfr-Comors-O Iego-Toss Ontlaby 6827 8.6 1979 CC maheJenlo-Mozem-mahaJangs Se,iboks 100 7.5 1962 QC Toam-SoAfr-Colomb.-Slngapore- Reunlon-Mouritius-Toe. V.deMsnnknre 1550 4.0 19"1 C Toua-Mnakera-Toe. Vetay 1460 4.6 1957 CC TowamD Ie"o-Nosy Be-Uhmi anga-To lIars- Menkeara-Toam Vat.y 4 ' 1014 2.9 1960 LCT Tonm-To Iare-Morondava-Tollara-Toes Vatty 8 1014 2.9 1979 LCT Tim chartered for drilling support Vatay 2 2C0 2.1 1979 LCT Toem-M roanteetra-Toam J. Ream 1t0 1.8 1977 LCT Tollare-Morondava-Tollara Trans 7 Vole 120 3.0 (ost) 1969 CC (1) Toa.-Voh.ar-Dl.go-MahaJ nga-Toam (2) Tom-Manakakre-Toe. Baby 106n 8.0 (set) 1972 CC Tomn-TToliara-NahaJsng*-Manakara-Toam Kait Kartal 1400 3.5 (..t) 1964 QC Soliu Tlsirero 68S0 7.2 1978 Butan-/Oll Toam-Round Island Bemeolng 4060 6.0 1962 Oil ' Tolsisnraka 28S0 4.8 1987 Oil ' t Cap d'Ambro 206 1.9 1906 Oil Local delivery from Mahajanga Tongatetpa 10 2.0 1970 Oil Isle de France 106 2.0 1970 Oi l 5 Socotrat Ce.. Pau 250 2.6 1919 QC West Cost service Hoded 250 2.2 1910 CC * Yealy Raded 10 1.9 19.r PL Local service ftro Mahajanga Sofia 120 1.2 197W PL ' S Mountaxar 90 2.2 1970 PL * 3 S Mareebitey 90 1.0 1940 PL a 5 U r Eric Express No. 1 860 2.6 (set) 1945 LCT West Coast service Tawakal Ravinala 60 1.t 1964 PL Local service from Mahajanga (ox Fiama) Hereul gO 1.5 N/A PL * I Vitaforns 120 2.8 PL ^ * a Lewis Upton Msjungais 20 2.6 1987 Cc West Coast service Wubbind 210 2.2 1980 cC * a * Transmed St. Louis 06 2.2 (set) N/A PL Local service West Coast No. 2 69 (ent) 1.5 (*et) N/A PL  - 46 - Annex 2.8 Pose 2 of 2 Draft Company Ship tW- G;;d Built TYD Current Route Foul Bay Cheelanol 100 1 2 (st) N/A 8 Loeal eirvice West Coast Nafoia 3o 2.0 ("ot) N/A T/C ' r * No. a S (eat) 1.5 (set) N/A PL Port servicte i Mahajasna Sto Trans- Pangalans U1 N/A, 1062 CC East Cost Service ports Marl- timse Cot. Est Caroi Premier so 2.0 (set) N/A ac Nose Be-Ambanjn CIC N/A 1 (ett) 2.6 (set) N/A QC Local service from Mahajanga Aximar Fast 1 8 .8 1984 LCT Oil tiold servico from Merondava Legend: OC - Coneral Cargo Vessel PL - Powored Lighter LCT - Beach Landing Vossel B - SC rge Oil - Tankor T/C - Tug with cargo capacity Sourco: MTRT, tonsultants February 1988  - 47 - PTS R BILUTAIN FJCT Port 1Iatllatla9n Po"t _dLJ ubdirn, ;i.LIiM 2t11akLn ANTSIRANANA WelI Eoy Dir.ct 801 8.50 1.4o 18,000 9,000 protected to 4uay 62 4.50 Good 15 000 9,000 81 2.00 Gootd VOHS"IR Veol I a. DiOect 80 8.20 0.98 diuo B00 protected to Quay SAM4AVA Estuary Badly LiGhterage wood 0.98 modius Little 8.000 700 cited dock improved beach AN-ALAMA Eapo.d Difficult Lightersge wood do1ck 0.98 medium 2,000 563 MAROANTSETRA Calm Peor Lighterego 20 wood 0.70 medium Bosch 800S away 450 TOASIN Good EASY Dir ct 259 8.80 0.70 0ood 80,000 67,000 to Quay 1oo 6.80 1I0 9.00 171.8 12.00 192 3.80 41 10.00 354.8 10.00 190 3.80 200 8.80 MANANJARY Exposed Poor Lighteruo 3 x S0 0.80 (actual) 0.80 Nsd)ua 6,S00 3,400 Siltod 30 1.40(in theory) MANAKARA Expo.ad Poor Lighttor 1Jo00 4.50 0.80 Needs re- S21pey 7.800 2,000 Suited 88 1920 3 t.so contutt6o5 1833 21 6O TOLAO4AR Expoaed Exposed Lightersge 48 0.80 0.30 Good Slupwa;O 8,800 3.000 71. 1.00 (actual) Cron* 0 8.80(,n theory) TOLIARY Eel lay Direct to 120 7.80 (actual) 2.10 Good 7.800 2.100 sheltered Quay and 90 *8:0(,n theory) lighteraes 2 x 32 2.00 (actual) Meadium 8.500 2 x 82 2.50(Cn theory) EORBE Sheltered Easy Lighterage 1S 0.00 2.70 - - MORW.VAVA Expoa.d Difficult Lighterage 50 2.80 2.40 fedius beaching by 13,425 2.575 Si ltitxg AMOCO MHAAJANCA Sheltered Difficult Lighterage 183 Dry at low tide 2.90 ledium S chnpcy OIC 88,000 17.800 Silting 184 Port Schneider 109 1.00 164 1.00 IS0 1.00 ANTSOHIHY River Difficult Quay aem l00 8.0 3.00 Good Beaching 11.000 1,000 Coastere 100 NOSY-BE SheItered Esey Lighterage 160 1.80 2.80 Hediuo Ports of: 20.000 3,380 as 2.00 SOLIMA 50m 100 0.00 PEOE jetty SLICR8IE 100. PORT SAINT Exposed at hi,h- Lighterage 100 1.00 2.20 2 -lipwaya 2,000 s9.000 ;LOUIS atoor,ng tide SO 0.00 crane of Ist Source: Consultants F*bruary 1986  - 48 - Annex 2.5 Page 1 of 4 Hadagascar Ports Rehabilitation Project Physical description of the port sector East coast 1. Antsiranana. The main activity of the city in which the port is located is the SECREN shipyard, even though the port does serve as an evacuation point for local produce (mainly salt), reception point for local consumption, and in a reduced role as transshipment point for export. The port has 414 m of piers, generally in good condition, of which 301 m have 8.5 m water depth, and the rest is used for coastal shipping, and small craft. The port is located in an excellent site, with good depth, easy access, and year around shelter. However the productivity is very low due to limited port handling equipment, particularly cranes, tractors and chassis and due to poor condition of the pavement and rolling surfaces, which worsens the cargo handling equipment situation, by accelerating its wear and tear. During 1984 cyclone Kamisy produced damages to the infrast;ucture, which have now been repaired through an IDA Emergency Credit. 2. Vohemar. The main acti'tity of the port has been export of coffee for transshipment at Toamasina, Its role will be increased due to a recent Government decision to re-route port traffic from SambavL and Antalaha to Vohemar. The port is located in a shaltered bay, with a rather limited access, but sufficient for the largest coastal ships operating around Madagascar. The port's only pier is a T-shaped installation, with a 50 m long pier, connected to land by a 37 m trestle. The pier needs repairs due to a collision with a ship, a complete reconstruction of its fendering system, and possibly reconstruetion of the superstructure and additional piles. There are very limited storage yards and a small warehouse in the vicinity of the pier. The productivity of the port is limited due to the condition of the pier, to the difficult operation resulting from a narrow trestle connection to an equally narrow pier, to the lack of nearby yards and warehouses, and to the lack of suitable equipment: chassis, forklift, and a crane which would permit the shipment of coffee directly in containers. Also indispensable are a line handling workboet and wood pallets. 3. Toamasina. The ma..n port of Madagascar, located in a rather exceptional site on the east coast, Toamasina is naturally sheltered by reefs and the coastline configuration, and has excellent natural water depth. Toamasina has been developed by stages, the latest of which (extension of pier C and prolongation of the breakwater) was completed in 1975. Like the rest of the ea3t coast, the port is vulnerable to Indian Ocean cyclones, and was setiously damaSed by Honorinina in March, 1986. The port has relatively good access, but large ships require tug assistance. Though litoral drift may cause some siltation problems in the future, it is not at present a serious problem.  I - 49- Annex 2.5 Pasge 2 of 4 4. The port, with 1300 m of piers and depths ranging from S to 12 m, can accommodate simultaneously four ships, one tanker, three coastal shipping vessels, and a number of small craft. The available yard surface is about 80,000 m2, and the combined surface of sheds and warehouses is about 60,000 m2. In addition, there are specialized handling and storage facilities for bulk, grains, and liquids, as well as refrigerated storage. The general condition of the infrastructure is satisfactory, except for the yards and tolling surfaces which arp in very poor condition, the inadequate drainage and electric and water distribution networks, and the loss of fill material being experienced at Mole C, where the newest and deepest piers are located. Moreover, there is need for improvements to the maintenance shops and for lighting of some storage areas. The equipment existing at the port though generally sufficient in quantity, is in very poor state of conservation due to very poor maintenance; much of it needs replacement. Additionally, there is the major problem of the inadequacy of the chrome ore handling system, which needs to be reconstructed to be able to take large lumps. The damages to the breakwater, caused by Honorinina, are extensive and need to be repaired urgently, which will be carried out under the Supplemental Credit for Emergency Cyclone Repairs. 5. Toamasina, in spite of having sufficient physical plant as well as reasonable cargo handling equipmen,t and facilities, has an extremely low productivity, one of the world's lowest for a similarly equipped port. The port's poor performance can be attributed primarily to management and labor problems, and to a lesser extent to lack of access to foreign exchange for procurement of spare parts, and an almost incessant rainy season, which interferes with daily stevedoring operations. As illustration of how low productivity really is, the port of Mahajanga using lighterage and even poorer working conditions, has consistently had better productivity than Toamasina. The problem is institutional. In April 1986, SEPT initiated a major plan to improve the situation, which was considered acceptable by a Bank mission, and which is covered in more detail in Annex 2.8 6. Manakara. The main coffee exit point for Madagascar, and serving the hinterlands of Parafangana and Fianarantsoa, Manakara is an important lighterage port, oqapable of receiving coastal steamers, provided they are equipped with gear to carry out lighterage operations. The port is located at the estuary of the river Manakara, fully sheltered against the seas; it has about 250 m of shallow piers, part of which are in urgent need of repairs; the yards behind the piers are in very poor condition, in need of repairs and paving. There is also need to provide lighting in order to commence loading of barges before daylight. The equipment is quite suitable to the needs, and only a forklift and an additional barge are required, as replacement of very old units which are about to be decommissioned. 7. The main problem of this port is to keep the 'pass" or access channel open to the lighters, a task which requires periodic dredging. The existing dredge has done a satisfactory job, but requires spare parts, as well as some major repairs; also there is a need for a new slipway to repair small craft, as the old is completely silted, and it would be more expensive to repair it than to build a new one.  - 50 - Annex 2.5 Page 3 of 4 8. Tolagnaro. Taking advantage of a natural bay, but having limited protection against the seas, reduced at present to about 2.5m water depth, Tolagnaro is a lighterage port serving the area of the some name. The physical infrastructure consists of about 100 m of piers, a rather restricted storage area, a silted slipway and a barge maintenance area with a heavy lift. Generally the condition of the installation is reasonably good, except for the yards and rolling surfaces, which badly need repairs. Also the port has no security enclosure, and the electric distribution system needs to be worked over. The lifting equipment is very old and spare parts are no longer available for some of it. The barges used in lighterage operations are in terrible condition, and it is not practical to continue rebuilding them periodically. West Coast 9. Toliara. A sheltered port, built on an reef and connected to the shore by a trestle, provides 8.5 m depth berth side mooring, as well as lighterage possibility for larger vessels. Though it is generally in good condition, repairs are required for tht access trestle, the pier, and the yards. Lack of area lighting prevents night operations. A small amount of dredging is required periodically, and because it has not been done the available depth at pier side has been reduced considerably. Some of the equipment is very old and needs to be replaced; there is currently no tug available for the lighterage operationa; and given the distance between the port and warehouses in the town, it is indispensable to acquire some chassis to complete the existing fleet. 10. Morondava. The port is currently the only available means of communication between the area and the rest of the country, but this situation will shortly change as a new road will be open towards the plateau region. Port Bebe is situated on a canal accessible via the mouth of the Morondava river through a "pass" subject to continuous siltation and erosion. Dredging was carried out periodically until about 10 years ago, and it has not been done since. Even though the pass is dry at low water, there is always a 2.Om tide which allows lighterage vessels to enter or exit in a narrow but well defined time window. Oil exploration has been been very active, based on Morondava, and the firms carrying it out have used LCT vessels, which can be "beached" directly, without need to access the canal and Port Bebe. This approach was studied by the consultants as the normal operation of the port, and discarded as impractical; instead the recommendation is to use shallow draft, beaching type motorized barges, in conjunction with a "beach" inside the pass, next to Port Bebe. This approach, though a still lighterage operation, would render dredging unnecessary. Also required would be resurfacing of the yards, lighting and drainage works, and replacements for aged equipment, tractor, chassis, and forklifts. 11. Hahajanga. A lighterage port, located in the estuary of the Betsiboka river, it has been the second port of Madagascar, and in the past has competed with Toamasina. There has been significant changes of the estuary configuration due to the siltation produced by the river sediments, but these have not yet seriously affected the port operations. In spite of the absence of dredging, smaller coastal vessels (150 dwt or less) can continue to berth alongside. The larger ones (over lOOOdwt). were never able  - 51 - Annex 2.5 Page 4 of 4 to anter the harbor. The productivity of the port Is comparable to that of Toamasina, which is an achievement considering that it requires lighterage. Damage produced by the 1984 cyclone (Kamisy) is largely repaired and some new equipment is already in operation. However, repairs to very old piers are needed to prevent their complete destruction, and the yards need to be paved to reduce damage to cargo handling equipment. Efficiency would be enhanced if the port's very l4mited capability for handling of containers would be increased. Some of the lighterage barges are no longer suitable to be repaired, and thus new ones should be acquired. In addition to the above a hclearing' of rip-rap which was displaced Is urgently required to prevent damage to the vessel's bottom, as "bottoming" occurs at every low tide. 12. Nosy-Be. The public facility at Hellville is an important lighterage port. In addition there are private facilities operated by sugar, fishing and oil interests, which permit direct access to coastal vessels and lighterage for deepse4 vessels. The public pier, a very old structure, is in need of repairs, and it also requires some paving to increase its efficiency and reduce damage to the equipment; the lighterage craft is in extremely poor condition, and replacement barges and a small tug are urgently needed. 13. Port Saint Louis. A private concession to SIRAMA a sugar and molasses export company, it is lo9ated at the estuary of the river Mahebo. It is a tidal lighterage operation, in which the barges sit in the bottom at every low tide, and exit or return only during the high tide periods. Dredging was carried out continuously until 1981, but it is not certain that it should be re-started, as the costs do not seem justified by the benefits, and the exports can in fact continue by lighterage at hign tide. The pier is very old and needs repairs.  - 52 ANNEX 2.6 Pag. 1 of 1 MADAGASCAR PORTS REHA ILITATION PROJECT NEW ORGANIZATION I CIVIL AVIATION SERVICES FINANCES X METEOROLOGY NAVIGATION AIDS SERVICES DIVISION_ INFRASTRUCTURE _ SEAWAYS SERVICES_ DIVISION MERCHANT MARINE 1 RR. ~~SERV2CES i. FDREDOING DIVISION |-__ _A LOCAL PROVINCIAL 1 REPRESENTATION SERVICES OPERATIONS [ PORT 4 1 SERVICES J ADMINISTRATION FINANC TARIFFS AND STATISTICS_ ELUP-  -53- ANNEX 2.7 Page I of I PORTS REHABILITATION PROJECT ORGLNIZATION CHART - SEPTEMBER 1985 CIVIL AVIATION| SERVICE_ METEOROLOGY | SERVICES xAVIGATION ArDS MERCHANT MARtINE DIVISION _SERVICES _ . DREDGING MARITIME j DIVISION __ SERVICES _ HYDROGiAPHY _ Co j DIVISION _ 0 I z PORT EXTERNAL MARINE | AUTHORITY SERVICES _o OPERATIONS _ DIVISION _ INVOICING. OFFICE_ TREWASURY DISBURSEMENTS __ OFFICE | SUPPLIES ACCOUNTING PORT I OFFICE r | DIVISION SERVICES PERSONNEL |_ OFFICE| | PROCUREMENT - OFFICE STUDIES DIVISION June 1986  - 54 - Fe-g I of 4 MADAGASCAR--PORTS REHMSIUTATION PROJECT SEPT ACTION PLAN (tNt oaone: this schedule Indicates the proposed date for vorious meaours. Actual dates would depend on certain external fators descrlbed herein as constraints) Coementa or Nr. C A T E 0 0 R Y DATE Constraint* Explanation A. ORGANIZATION Rolinguiehing subsidiary activities la stop bus operations and l1y-off Spt,. 1980 done staff lb divestiture of municipal bus-lines DOc/S1/W ye To be taken over by a munieipal transport authority 20 stop forostry operations and lay- end 1908 of f staff 2b divestiture of forestry operations 1937 y Agreement wIth a firs yet to be Identified 3a Stop Inland water transport service nd 1993 3b divestiture of the Pangalanoe Canal 1"7 Yes To be negotiated wlth IMI Transport Authority - Internal reoranization 4 New management team Jan. 1987 6 reorganization Jan 1937 With the help of consultants financed under PPF e training of new managers a) In general managment July 1937 In conjunction with the uni- versity and project training component b) in port management 1938 Reduction of personnel: 7 Introduction of early retirment program 8 Divestiture of subsidiary activities project period *Actions by Institutions other then SEPT.  - 55 - Annex 2 Pae 2 of 4 Nr. C A T E 0 0 R Y DATE Constraint Coements or Explanation 9_ SOlective analysis of 658 fi%ed-term contracts 10 Abolition of automatic confirmation of daily workers Moy I988 done 11 Introduction of uniform conditions of pro1act yes Study Included In the projeet *mployment poriod 12 Creation of a Dmaortment of Human Rolatlona: Sop 198B done 13 M"sures rogarding punctuality and Sep 1986 attendonce done 14 Restoration of tho administrative buildings of SEPT May 198 15 Development and Introduction of new project ye. Study Included In the projeet EDP system poriod B FINANCES 18 First modification of tariffs Jul 198 yes Approval of Ministry of Flaonces-- done 17 1988 budgot review Oct 1988 done 18 Preparation of 1987 budget Nov 1988 done 19 Introduction of manageont information system; monthly follow-up on budget Feb 1987 20 Monthly cash-budgeting system Fob 198? 21 Analytical aecounting system project period 22,23 Instant billing July 1988 done 24 New procedure for preparing budget July 1988 done 25 Procedure for purchase of spare parts: Approval ot Ministry of Finance- - EPI ACCOUNT June 1988 yes VERY IMPORTANT STEP--done 28 New tariff structure 1989 yes Must follow the introduction of analytical accounting system Technical Assistance to be provided under the project 27 Roconciling or rescheduling of credits July 1988 and debt. 28 Auditing of 1985 accounts Sep 1986 done 29 Introduction of a system of debt I recovery with aceptable dolays Apr 1907  - 56 - Abmx 2 Nr. C A T E 4 0 R Y bATE Constralnt Explanation - C EXPLoITAiON. OERATIONS. PRODucTiVIY 30 Clean up of port fscillties2 *crap end 19s I Pon 81 Paving of terrain and access roads: tilling of potholes end less 32 flushing of gutters Oct low done 83 Lighting Jan. log? ye Depends on JIRAM 34 Security against ptifering Project period 36 Sectorization Apr 1987 To be folloed up 38 Unloading of rice In bulk end 19BW yoe Depends on political decisions; purchase of two pices of mtahinery of the Vigan or Vacuvttor type; typo; oval labilIty of pares--done 87 Continuous loading of chrome ore Apr 1mW yes sIgning of concession agreemnt with KRASMA; fInancing of mdfications to conveyor beIt (CCCE) B8 Construction of 2 container terminals end 18 Ye finaneing of 2 PPM typ cranes and spreae (se 89) go Purchase of 2 PPM or selotti cranes end sW yefunds *val abilly; pving of 0 MAINTENANCE 40 Inventory of machinery on hand end 1989 yes technical assostnce 4i. List of needed spare part end iWO yoe techalcal asistnce 42 Repalrs to fork-lifts id-1987 yes MOST URGENT On condition external funds for spare parts are made oval table, 43 Rehabilitation of workshop end 190f ye If funds available for reassembly of hanp r and A.? 44 System of mnagemnt of stocks Feb 1m7 Yes finanein of otudies, mtril (and computer) 45 System of supplies (procurement center) Apr 1N7 yts follow up on Nr. 44 48 Purchase of five S-ton to'kilfts end 1908 yoe fi"nancin 47 Manufacture of large paddles 19W6 (and after) 46 Purchase of fIve 25 ton trailers end 1907 y f inancing 49 Rehabiltation of tractors end 1Wt? yes financing for Spare part so Construction of line-handling boat end 1a80 yes purchan of 100 hp motor PRmDUCTIVITY 51 ProfIt-sharing by longshoreon end 1987 Contractual poliCy 62 Introduction of a third shift, on May 1984 dne as neded basis  MADAGASCAR - PORTS REHAILITATI0k PROJECT SEPT ACTION PLAN - PERFORMANCE INDICATORS iTEII UN4IT 1/1/S6 1/1/Bt 1/1/66 1/1/89 1/1/90 1/l/9 1/1/92 1/1/95 1/1/94 1/1/95 Tehnical Employes Nller 4200 31S60 no $61 3440 837? 33ff 830 a m30 0 5;f Containera: TEU/gang/hour -Fu II cont. ship 4 6 1 10 10 1i s 10 19 1 -sime tship 4 6 a 8 8 9 a 9 1 Rice bags Ton/shift/ship 1ff 140 10 2f 210 220' 229 220 220 229 Chrom ore Ton/day 7f0 710 209 20 f 2009 29ff 2000 20 223 Barrel* Ton/shift/ship 70 s0 119 lO ll 1ts 11i l1 l1 1i General cargo Ton/shift/gang 26 86 79 7i 70 70 79 79 70 79 Borth Occupancy U -7* - 6S So sio 6S0 so W 5C Ratiq waitg time to 38 230 1O 1O 1O 1i 19 10 is 19 5Xtt co tim x Ti Watin Days/ship 2 1.6 1 1 1 1 1 1 1 1 Mean port time: Hours/ship lose then LOA 196 199 1SO 120 120 120 120 120 120 129 -mers then ISO LOA 142 1SO l1 90 99 s9 96 90 90 96 Financial Current ratio 1.2 1.2 1.C 1.6 1.5 1.5 1.5 1.6 1.5 1.5 Recoivables Turover 709 Sf 403 Bff 260 1i9 1S 159 159 1SO Working ratio 1 l1 96 S0 so s0 76 75 75 7C 7i Operating Ratio X 126 119 95 96 9 99 es eS eS as Return fixd assets X 6 6 6 9 9 9 9 9 0X D.btto oqsity 1 42 as es 09 SO 80 09 56 69 45 t;  - 58 - ANN*t 8.1 MADAGASCAR Pag 1 of 8 PORTS REHABILITATION PROJECT DETAILED PROJECT COSTS - MID 1908 PRUCES REHAULTATION AtC) ENHANCEMENT OP PORTS IVPRASIRUCTUB PORT LOCAL TAX & FOREIGN TOTAL TOTAL DUTY EX.T.& 0. -----MILLION FMG ---------- 811 22% 47% 1991 79X A. qUAYS, SLIPWAYS AND TRESTLES A.1 Repair* to quay Coste MAHA P4 69 129 272 212 A.2 Forry access ramp MAHA 26 19 41 66 67 A.) Motorized Barge accos rap MORO 17 12 25 65 48 A.4 No Quay So a long VONE of 68 146 262 223 A.5 Embankmnt Whind pier VOHE 46 8 69 140 116 A.* Repairs to access; enbnkment TOLU s 26 57 121 95 A.? Rpire to quay TOU 4 8 6 13 9 A.6 Repirs to sheetpile quay MAMA 1s 11 23 48 as A.9 NW Slipway MAMA 19 14 28 61 47 A.19 Repair8 to quay CS TOMA of 42 99 193 l15 A.11 Repairs to quay STLO 46 82 66 145 118 A.12 Reptirs to quay NOBE 7 5 12 25 20 SUBTOTAL qUAYS, ... 441 815 898 1,449 1,14 B. YARDS 6.1 20,009 m2 prop. and paving MAMA 168 111 192 490 847 8.2 60690 .2 prep. and paving MORO s9 22 47 100 78 H.8 4,900 .2 prop. and paving tOLI 1 11 28 46 38 8.4 4,909 *2 prop. and paving TOLA 16 11 28 46 38 8.6 Extension of crane yard TOLA 7 6 12 24 19 8.o #,NO m2 prep, and paving MAMA 21 1i 32 67 S8 B.7 Loading platforms MANA 4 8 7 16 12 B.8 56,9900 2 quay C pavments TOMA 195 76 159 389 264 8.9 18,000 m2 quay 8 pavements TOMA so 26 66 116 9g 8.10 2,09f .2 prep. and paving STLO 12 6 17 37 26 8.11 18,669 .2 yard repairs ANTS 41 29 08 188 194 SUBTOTAL YARDS 441 816 i 88 1,366 1,071 C. WUILODVGS C.2 Administration building TOLI 2 0 8 8 a C.8 Maintenance sheds L.S. TOMA 61 9 89 120 120 SUBTOTAL BUILDINGS 68 0 68 126 126 0. UTILITIES 0.1 Lighting quays' area TOLI 22 18 84 72 57 0.2 Electric distribution TOLA 8 2 5 12 9 D03 Fence around port TOLA 7 6 12 24 19 D.4 Lighting quay's area MANA 4 a 7 16 12 0.6 Lighting container park TOMA 38 26 67 121 96 0.6 Drainage older area TOMA 22 16 34 72 57 0.7 Water and eloctric distrib. TOMA 64 52 161 264 231 0.8 Lighting, drainage, sewage MORO 9 6 15 89 24 SUBTOTAL UTILITIES 169 126 815 69 504 TOTAL INFRASTRUCtURE 1,184 758 1,791 3,691 2,68 m - - _  - 59 - ANNEX 8.1 MAOAOASCAR Pag 2 of 6 PORTS ASITATION POECT OLTAILED PROJECT COSTS - MID 19 PRICES MOOIFICATIu AN rwRyEMETS TO ;AQ0 HANDLONG POIRT LOCAL TAX OEI4N TOTAL TOTAL DMTY EX.T.& 0. -----ILLIGON _MQ_----- A. EqIuvmENT A.1 Mobile ra" f at S MAIA 18 72 290 209 217 A.2 i Two 25t chassis MAHA 2 a 14 22 16 A.3 OneP s MP tretor MAMA 2 3 11 16 13 A.4 OneofMPtractor MORO 2 8 11 16 18 A.$ Two 25t chassis MORO 2 6 14 22 16 A.6 Two St forklift MORO 5 14 S9 s8 44 A.? Mobile crano 2t at go VOHE 13 42 126 181 139 A.$ On. St forklift VOQE 3 6 20 29 23 A.9 Thre 25t chnssl VONE a 9 21 84 24 A.10 Four St forklifts TOLa 11 27 76 1l6 68 A.11 Five 25t chassls TO" 5 16 36 55 40 A.12' Two mobile cranes 4t at o TOLA 8 29 64 122 92 A.13 One St forklift MAMA S 6 20 29 23 A.14 Two mobile creae. 3t at Sm TOMA 36 146 399 580 435 A.1S Reconstruction of conveyors TOMA 114 121 820 653 438 A. 16 One 25t forkiIft ANTS 14 J9 113 166 127 A.17 Two 25t chasses ANTS 2 6 14 22 16 A.1S One soP tct.or ANTS 2 8 11 16 13 A.19 One St forklift NOSE 8 6 26 29 28 A.20 Oneof HP tractor NOSE 2 8 11 16 13 A.21 Two 26t chessis NOSE 2 6 14 22 16 SUBTOTAL EQUDIPMENT 262 567 1,576 2,894 1,827 S. FLOATING CRAFT 8.1 Four 160t barge MAMA 34 46 105 165 139 9.2 Two 60t landing craft MORO 1S 32 106 161 126 8.3 One 76 H line launch VOHE 14 13 68 84 71 8.4 One 16O HP tug TOLI 11 17 62 109 92 8.5 Four Oft baree TOLA 84 16 97 162 136 3.6 Two Oft bersee MANA 23 16 34 72 57 8.7 One 160 HP tug NOSE 11 17 82 109 92 8.6 Thre 8ft bargeo NOSE 36 24 so 109 85 8.9 One Ot barge ANTS 12 8 17 37 28 SUBTOTAL FLOATING CRAFT 169 189 630 1,08 819 C. SPARE PARTS AND MATERIALS C.1 3,000 pallets 37 5 0 42 37 C.2 Stoel plate and electrode. 0 1i 38 63 38 C.3 Spars, tool., shop rehabilitation 131 709 1,936 2,866 2,067 and equipment replacemnt Toameasins_l/ C.4 Sparo parts and tools, other porto 21 189 426 630 441 SUBTOTAL SPARES A MATLS. 189 1,966 2,894 3,591 2,583 TOTAL CARGO HANDLING .30 1,764 4,609 6,098 6,229 NOTES: 1. To includo five St foeklifts, fl4o 25t chassis, and one 4x4 vehicle.  - 60 - ANNEX 3.1 MADAGASCAR Page a of 6 POM RAITATION PROJECT DETAILED POJECT COS"S - MID 106 PIRICES __ ENANCMtS TO INTERNATIONL AD COASTAL SHPING PORT LOCAL TAX & FOREIGN TOTAL TOTAL DUTY EX.T.& D. eM--MILLION fMG e .. A . DREDGING A.1 Bar ounted buckt dredg MAMA 42 126 857 626 899 End Ip lt botttoe bar A.2 Suction pump on a barge and TOLI 37 74 164 274 261 490 I.*. of flexible duet A.8 Rehabilitation of existing MAmA Ili 52 10D 272 219 Hydroland type dredge SUBTOTAL DREDGING 19 262 on 1,571 619 B. NAVIGATION AIDS 5.1 Combined navigation side/ 26 862 484 a96 hydrographic surveys lounch 3.2 Supply of buoys, reconstruc- 26B 216 C6 1,076 662 tion of lighthouse, rpair of lights, spores, shops and rediocaumunIcation SUBTOTAL NAVIGATION AIDS 2C2 262 1,666 1,612 1,280 C. SPARE PARTS FOR THE COASTAL SHIPPIN SECTOR C.1 Spar perts for Mto coastal 68 169 544 76C 6 shipping sctor - --- TOTAL ENHANCEMENTS TO SHIPPING 64 698 2,142 $,8$8 2,646 -----  - 61 - ANNEX 8.1 Page 4 of 6 MADAGASCAR 'PORTS REIHAIUTATION PROJECT OETAILED PROJECT COSTS - MID 19O PRICES INSTIIUTIONAL DEVELOPMN AND REFORM MAN LOCAL TAX FOREIGN TOTAL TOTAL MONTH DUTY EX.T.& 0. A. TECNICAL SUPPORT A.1 Ministry odvisor 6s 81 9 862 891 891 A.2 Accounting 24 11 0 186 147 147 A.$ Administration 10 4 0 5? 61 01 A.4 Dredging 12 S 6 es 78 78 A.S Maintenances Tamatavo 40 18 0 227 245 245 Other ports 20 9 0 118 128 123 A.6 Navgatlon aide 12 5 O 66 78 78 A.7 Cargo handling: Tamatave 40 18 0 227 246 245 Other port 20 9 0 118 12$ 128 A.8 Hydrography 12 6 9 66 78 78 A.9 Misce llneoua aesietnc. 24 11 0 186 147 147 SUBTOTAL TECONICAL SUPORT 274 126 0 1,57S 1,791 1,791 S. TRAININ 0.1 Training specialist 24 14 9 186O I1 Is 8.2 Traning materials - 16 10 16 16 17 s.8 Scholarships - 454 464 464 B.4 Training of 99 staff - 222 47 791 971 924 SUBTOTAL TRAININ 262 68 1,449 1,704 1,701 TOTAL NST. DEV. AND REFORM 878 683 ,024 8,406 8,402 I aaa inu ame  - 62 - ANO4EX 3.1 eeee MDA"" Pap t of G PORTS RE3ABIUTATION PROJECT COST ESTIMATE - iD6 186 PRICES LOCAL TAX A FOREIGN TOTAL TOTAL DUTY EX TI -- ------ ILLION FM0 e S. PORTS INFRAS7RUCTURE A. QUAYS, SLKPWAYS AND TRSES 441 315 09 1,449 1,134 S. YARDS 441 315 63 1,866 1,571 C. BUILDNGS 68 a 63 120 120 0. UTILITIES 139 126 316 688 W64 SUBTOTAL PORTS INFRAST CTURE 1,134 750 1m1 3,591 2,B3 1I. CARGO HANDLING A. EqJIPWEI 252 507 1,575 2,894 1,627 B. FLOATIN CRAFT 100 139 630 1,55 B10 C. PARE PARTS AND MATEtIALS 19 1,m 2,394 3,591 2,663 SUBTOTAL CARG HANDLING 6U 1,764 4,999 0,993 5,229 IlI. SHIPPIN A. DREDGIM 1t9 262 63 1,571 819 B. NAVIGATION AIDS 252 252 1,553 1,612 1,269 C. SPARE PARTS FOR COASTAL SHIPPIMG 68 160 6" 750 667 SUBTOTAL SHIPPING 604 093 2,142 3,339 2,646 IV. INSTITUTIONAL DEVELOPMENT A. TECHNICAL SUPPORT 126 6 1,S76 1,701 1,761 B. TRAINING 252 63 1,449 1,764 1,701 SUBTOTAL INSTITUThTNAL DrVELOPMENT 873 68 3,024 3,405 3,402 V. ENGINEERING, BID DOCUMENTS ANM SUPERVISION 132 25 1,810 1,406 1,443 TOTAL BASELINE COSTS 2,778 3,301 12,776 18,865 15,565 =~ wnausas rn= zuau PHYSICAL CONTINGENCY 278 U30 1,278 1,38I 1,656 PRICE CONTINGENCY 066 998 3,951 5,855 4,86? ssa - _ n TOTAL PROJECT COSTS 3,912 4,624 13,005 28,642 21,010  C' I - 63 - ANMN 8.1 MADA"SCAR Pae. 6 qt 6 PORTS RAtUTATION PROJECT COST ESTIMATE - MID lo6 PRICES LOCAL TAX A FOREIGN TOTAL TOTAL cm EX TAD - nasLLION FMG ------ - I. PORTS tNVRASTRUCTURE A. qUAYS, SLIPWAYS AND TRESTUS 621 441 977 2,640 1,698 B. YARDS 621 441 988 1,981 1,609 C. BUILDINGS 89 0 so 177 178 D. UTILITIES 2" 176 444 867 710 SUBTOTAL PORTS INRASTRUCTURE ' 1,9 1,O96 2,897 6,065 8,9 zx. CAOO HANDLING A. EUIPUENT 8U5 794 2,220 8,870 2,574 B. FLOATING CRAFT 266 26 888 1,419 1,154 C. SPARE PARTS AND MATERIALS 266 1,412 8,874 5,656 8,04 SUBTOTAL CARGO HANDLNG 887 2,471 6,461 9,48 7,88 III. SHIPPING A. DREDGING 266 858 688 1,566 1,164 S. NAVIGTtON AIDS 866 85$ 1,421 2,128 1,775 C. SPARE PARTS FOR COASTAL SHIPPING 69 28 710 1,084 799 SUBTOTAL SHIPfIN 710 971 3,019 4,7a 8,76 IV. INSTITUTIONAL DEVELOPMENT A. TECHNICAL SUPPORT 177 0 2,220 2,394 2,397 B. TRAINING 855 88 2,942 2,488 2,897 SUBTOTAL INSTITUTIONAL DEVELOPMENT 682 88 4,262 4,977 4,794 V. ENGINEERING, BID DOCUMENTS AND SUPERVISION 186 85 1,646 2,086 2,088 TOTAL COSTS (IncludTn contTng.ncleu) 8,912 4,624 10,085 26,642 21,918 *Small discrepancies are due to riunding of figures.  - 64 - Annex 3.2 page 1 of 11 MADAGASCAR PORTS RF.RAMILITATInN PROJECT A. Training Program: MTRT 1. This Annex deals with project training arrangements for the ports MTRT supervises, which are listed in Annex 2.4. 2. This Annex is comprised of the following sections: General considerations concerning the organizational structure and personnel of the headquarters departments responsible for managing the secondary ports. - Personnel situation of the iey divisions responsible for managing the secondary ports. - Situation of the provincial departments responsible for managing the secondary port*. - General situation of the lighterage companies and assessment of, their training needs. - Training needs of the headquarters departments and the secondary ports. - Training resources  - 65 - Annex 3,2 .page 2. of '11 General considerations concerning the organizational structure and Personnel of the headQuarters deoartments resoonsible for managing the secondary ports 3. In accordance with a recent decision by the Malagasy authorities, the Seaways Department (Service des Voies Maritimes) and the Ports Department (Service des Ports) have been radically reorganized. Henceforth the Seaways Department will comprise the following divisions: Lighthouses and Beacons, Hydrography, Dredging, Infrastructure, and Administrative and Financial Affairs. The divisions of the Ports Department will be: Port Operations, Tariffs and Statistics, Port Equipment, Port Administration, and Financial Affairs. 4. Decentralization of headquarters authority has become a reality with the creation of a Department at the level of each Province (Toamasina, Antsiranana, Mahajanga and Toliary). Each department is responsible for coordinating activities in its province in all three aveas: Seaways, Ports Management, and Merchant Marine. As will be mentioned later on, this new structure meets a real need for efficiency in management but has not been installed without numerous difficulties, both human and physical. S. The new departments are in process of organization. They still need time to define their relationships with other the other headquarters and province departments and also to draw up distributions and definitions of tasks for the staff of their component divisions and sections. The directors have good university training and substantial field experience (above 15 years service). However, most of the section chiefs have only a baccalaureat (high school) education and have difficulty in conducting technical studies or in efficiently performing the management tasks of a maritime administration (tariff studies, statistics processing, spare parts inventory forecasting, study of labor and service contracts, and so on). Personnel age structures are, overall, still good and do not pose succession problems for the moment. 6. The staff have civil service status. Basically, account is taken of the diplomas they hold, not of the posts they actually occupy. To change grade, a staff member must in principle obtain a diploma giving access to the higher grade. A disadvantage of this system of grading by diploma level is that it fails to take account of skill levels acquired through basic, refresher and advanced professional training. That is a fundamental obstacle to the training efforts recommended by the Project. Moreover, the salary system compares very untavorably to that of the lighterage companies. For example, a division chief has almonthly salary in the range FMG 74-107,000, whereas a mechanical workshop cAief of a lighterage company can earn FMG 110,000 a month -- just over twice as much as a mechanic in a technical department of the Administration at the end of his career.  -*66 Annex 3.2 page,3 of 11 Personnel situation of the key diviiions resgonsible for managing the 7. The personnel situations of the key divisions of the Seaways and the Ports Departments have been studied to define their training needs precisely. These divisions are: Lighthouses and Beacons, Hydrography, Dredging, Infrastructure, Port Operations, Tariffs and Statistics, Port Equipment, and Port Administration. - The Lighthouses and beacons Division comprises S specialists with secondary-level education diplomas. Two of them have received 12 months of additional training in a technical training center at St.-Nasaire. Taking into account the country's corps of 44 lighthouse masters and keepers, the Division has a not inconsiderable manpower potential. According to Crown -- a firm of consultants commissioned to do a study of M1adagascar's lighthouses and beacons -- many of these staff members are adequately qualified to perform maintenance of the existing equipment. All that is needed is to ensure an adequate supply of spare parts and to motivate the personnel through a more appropriate bonus system. However, they will need refresher training in electricity and maintenance engineering.. As regards the new type of equipment to be furnished under the Project (21 solar energy lights and 14 solar energy buoys), Crown proposes to train 2 engineers and 8 technicians in this specialized field. The training program would be drawn up by the supplier, in agreement with the technical departments concerned. It would also be necessary, in the province departments, to build or renovate stores and maintenance workshops and to provide basic or refresher training for the mechanics and storekeepers who are to operate them. The number of mechanics to be given basic or refresiier training would total 12 (3 for each province). The Hydrography Division still lacks a division chief. At the moment it comprises 3 secondary-level technicians. Two of them have taken a 12-month course at the School of Hydrography in Brest. The third is specialized in shipping maneuvers. They are all former staff members of the Cartography Division. The Division is awaiting the arrival, expected soon, of a French cooperation expert, a highly qualified engineer. He will assist the Division to draw up a program of activities for the next few years and to define the physical and human resources required to carry it out. The ordering of a 300-hp hydrography motor boat, provided for under the Project, will affect the training program, which will take into account the type of equipment imported. It is planned to assign the motor-boat to the west coast and to equip it with radiolocation and sounding gear. In the initial stage (12-18 months), it would be desirable that, the supplier, in addition to ensuring the installation, entry into service and operation of Chis new equipment, also concern himself with training of the Malagasy team. In the second phase, the team will take over entire responsibility, with the supplier providing support, targeted to specific problems, every b months for A period of 2 years.  - 67 - Annex 3.2 page 4 of 11 The Dreduing Division Is the one most short of personnel. rt does *pt yet have a division chief. Its staff is limited to a Studies 'Section chief with e technical secondary school education. This Division, too, will receive technical support from the French cooperation expert mentioned above. The dredging program provided for in the Project will in fact be carried out by private companies. It would nevertheless be desirable to include a training component in the dredging contracts concluded with these companies. That would allow the Malagasy personnel to familiarize thenselves with the technique under real working conditions. At the management level, the Division needs to be strengthened by 2 public works engineers, who will receive 12 months supplemental specialist training abroad in dredging. The tnfrastructure Division comprises a Division Chief (engineer), a technician who doubles as chief of the New Works 3anagement and Development Section and chief of the Maintenance Section, 3 technicians and a 6-man maintenance squad (masons, carpenters, etc.). While the Division is adequately staffed to prepare the technical documentation for maintdnance work of secondary importance and to supervise and monitor its execution, it is not totally equipped to perform the technical studies for major port works. This situation is not critic*l, since preparation of the documentation for major works will be entrusted to private consultants. rn the future, however, it will be important to strengthen the Division's technical capacity so that it can monitor, supervise and control the consultants' work. The Port Operations Division has a staff of three. The Division Chief holds a university diploma and has in addition received 12 months training in Antwerp. However, it is absolutely necessary that the Division be strengthened by the addition of a contracting specialist. This need is all the more urgent in that the existing contracts have not been reviewed for a very long time, they are no longer suited to the current situation, and many of them have expired. The Tariffs and Statistics Division consists of a Division chief with a higher-level diploma in management, a Statistics Section chief with a secondary education, and two secretaries. None of these people have received statistics training. The Port Equipment Division has a staff of 15. The Division Chief is an engineer. The chief of the Lighterage Equipment section is a former harbormaster and a former director of a private lighterage company. He appears to have appropriate experience. However, the chief of the Service Equipment Section appears to have very little experience in that field. Both appear to need training in contracting procedures since, while it is planned to have consultants draw up the technical specifications for the equipment to be purcnased under the Project, neither really has any training in the arganization oe public contracts.  -68- Annex 3.2 page-5 of I1 The Port Administration Division is responsible for managing the ,port personnel covered by the appended budget. Only the Division Clief is a university graduate. None of the Division's IS staff has been trained in personnel management. Situation of the 2roviAcial departments 8. At the province level, the now structures are still in the embryonic stage, whereas the heavy work will have to be done there: compilation of traffic statistics, billing, managemeit and operation of the ports, safety control, loading control, mzintenance of lighthouses, beacons, equipment and port infrastructure, and so on. rt is noteworthy that a number of contracts with concession- or license-holders have expired. These need to be revised to spell out the rights and obligations of each party and prescribe a formula and/or provisions for periodical adjustment of tariffs in light of economic indicators and tonnages actuaily handled. The presence of an ever growing number of permit-holders also poies an urgent problem. 9. Moreover, a number of concepts are very imprecisely defined and vary from one province to another: definition of tasks within each department, manner of performance of those tasks, work procedures tailored to specific cases. and limits of legal competence vis-a-vis concession-holders. rt would be helpful if training and coordination seminars could be organized, with the assistance of a Le Havre expert, during the second project preparation financing period, The purposes of these seminars would be (M) to define the functions ann responsibilities of the province department, its organization and its relations with the headquarters departments; (ii) to identify the most urgent problems common to the provincp departments, and (iii) to work out solutions to the problems identified or recommendations for more detailed studies. 10. The provincial port administrations suffer from a very serious shortage of human and physical resources. By way of example, at Antsiranana, apart from the department chief and the harbormaster, all the staff (10) are of the execution grade; none has received accounting training. Means of communication with the lighthouse facilities are lacking -- the department is not informed of a lighthouse breakdown until a week after it has happened. Supply of these stations with gasoline or gas-oil is very difficult, for lack of meana of transportation from depot to quay. Moreover, supervision of the concession-holders' work is little more than symbolic. rhe traffic statistics are based essentially on these companies' own statements. General situation of the lighterage companies and assessment of their training needs 11. Generally speaking, the performance of the lighterage companies is good - particularly that of the Compagnie Malgache de Manutention (CDt). Tonnage loaded and unloaded at Mahajanga totaled 73,710 tons in 1985, against 96,031 tons in 1984; that handled by the Company at Antsiranana totaled 84,653 tons in 1985, against 77,215 tons in 1984. The CODM's potential has not been fully exploited because traffic throughout the country has been falling sharpLy for a number of years for economic reasons. MDM's personnel at Mahajanga totals 249, including 5 mechanics and 3 mechanic's mates responsibe  - 69 - Annex 3.2 page 6 of 11 for thb mechanical maintenance repair workshop. Its Antairanana staff totals 210, inclt4ing 6 mechanics. The equipment is well maintained and the workshop well organised. The personnel are well qualified to maintain and repair the Company's equipment properly, much of which is fairly old and has been in department for about 20 years. There are no major imediate training needs, except for training in hydraulic Sear and refresher training for crane operators. With respect to management triining, CMDM officials have expressed the wish to participate in visits to ports abroad to observe the organization and also the evolution of handling e4uipmant. The CMDM moreover spent FMC 85 million in 1985 on the purchase of spare parts and some new equipment for its .