Philippines - Provincial Ports Project

Document of The World Bank FOR OFFICIAL USE ONLY ig. S1g03-rd Report No. P-4448-PH HEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TN AN AMOUNT EQUIVALENT TO USS32.0 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A PROVINCIAL PORTS PROJECT May 5, 1987 This tlwumset has a restricted distribution and may be used by reipients only in the performance of their *Sfcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENT Currency Unit = Pesos (P) (As of December 1986) US$ P 20 P $1.00 = US$0.05 FISCAL YEAR January I-December 31 ABBREVIATIONS AND ACRONYMS AADT - Annual Average Daily Traffic ADB - Asian Development Bank CIF - Cost, Insurance, Freight GNP - Gross National Product CRT - Gross Register Ton MARINA - Maritime Industry Authority MIS - Nanagement Information System DOTC - Department of Transportation and Communications DOB - Department of Budget DLG - Department of Local Government DPWH - Department of Public Works and Highways NEDA - National Economic and Development Authority NTPP - National Transportation Planning Project PIP - Public Investment Program PHIU - Port Management Unit PPA - Philippine Ports Authority PPAR - Project Performance Audit Report PPTC - Port Personnel Training Center PNR - Philippine National Railways RRIP - Rural Roads Improvement Project  FORFFIAL 18 ONY PHILIPPINES PROVINCIAL PORTS PROJECT Loan and Project Summary Borrower: The Republic of the Philippines Beneficiary: The Philippine Ports Authority (PPA) Amount: US$32.0 million equivalent Terms: Twenty years, including a five-year grace period, at the standard variable interest rate. Onlending Terms: Same as above. PPA would bear the foreign exchange risk. Financing Plan: PPA $14.6 million IBRD $32.0 million Total $46.6 million Economic Rate of Return: 27Z Appraisal Report: Staff Appraisal Report No. 6566-PH This document has a restricted distribution arid may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE PHILIPPINES FOR A PROVINCIAL PORTS PROJECT *1. 1. The following report on a proposed loan to the.Republic of the Philippines for US$32.0 million equivalent is submitted for approval. The proposed loan, which would be onlent to the Philippine Ports Authority (PPA) would help finance a provincial ports project; it would be for twenty years including a five-year grace period, at the standard variable interest rate. 2. Background. The proposed project was identified during preparation of the Philippines Third Ports Project (Loan 1855-PH). A component of that project was a feasibility study, carried out by consultants for PPA, for 16 secondary ports in Southern Luzon and adjacent islands, and the Visayas and Mindanao. These ports were selected for study from a long list of ports recommended by the National transportation Planning Project (1982). The feasibility study determined that several of them would require some expansion of facilities to meet the projected volumes of traffic while others could be rehabilitated at relatively low cost to serve projected traffic. The ports of Calapan, San Jose, Tagbilaran, Nasipit, Surigao and Pulupandan were selected for expansion and the ports of Bauan, Cagayan de Oro, Sta. Cruz, Legaspi, Tabaco, and Pulauan were selected for rehabilitation. Under the Third Ports Project, detailed engineering of the selected ports was undertaken and final designs and tender ;ocuments prepared. In addition, the project includes ten ports to be selected shortly for minor rehabilitation/maintenance; this will enable the project to respond in a flexible way to additional rehabilitation( maintenance needs. 3. Project Objectives. The proposed project is designed to strengthen the institutional setup for the management of ports in the Philippines and help expand and improve port capacity by (a) expansion of facilities at six ports and rehabilitation/maintenance works at six others, with further provision for rehabilitation at ten additional ports to be identified; and (b) technical assistance in project implementation, financial management, training and studies needed for further development of the port system in the country. 4. Project Description and Cost. The proposed project would: (a) expand facilities at six ports, Calapan, San Jose, Tagbilaran, Nasipit, Surigao and Pulupandan; (b) rehabilitate/maintain existing facilities at the ports of Bauan, Cagayan de Oro, Sta. Cruz, Legaspi, Tabaco and Pulauan, and ten additional ports to be prepared and selected according to criteria re- viewed and approved by the Bank; (c) procure equipment for communications, water supply and sewerage, management information system (MIS) and fire- fighting; (d) provide technical assistance to PPA for construction supervision, MIS, feasibility studies for future port projects, special  - 2 - studies, and training; and (e) provide training of personnel in port planning, design, management and operations. Three to six week workshops/seminars will be conducted by expatriate consultants to train staff in port engineering, intermodal transport and port operations and management. The project wilL be carried out over five year. 5. The total cost of the project is estimated at P 933 million (US$46.6 million equivalent) with a direct and indi-ect foreign exchange component of P 530 million (US$26.5 million). A breakdown of costo and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disburse- ments, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in the Philippines are given in Schedules C and D, respectively. A map is also attached . The Staff Appraisal Report, No. 6566-PH dated Hay 1, 1987, is being distributed separately. 6. Rationale for Bank Involvement. One of the Bank's principal objec- tives in transport sector lending in the Philippines has been, and continues to be, to improve the infrastructure of the country. The Bank has also assisted in strengthening the institutions dealing with the sector, especially in establishing an appropriate framework for planning and policy develop- ment. Continued assistance in attaining these objectives is needed in the context of the country's constrained economic conditions. The Bank has had a Long association with the Philippine ports subsector and was instrumental in the creation of PPA. It is important that the Bank maintains this close collaboration with PPA now that it has completed work in the major ports and is moving to improve secondary and tertiary ports in the provinces. This is in line with the new Government's and the Bank's focus on aLleviating the conditions in some of the more deprived areas of the country. Because of the importance of shipping to an archipelago country like the Philippines, it is also important that the Bank assist the Government in addressing issues affecting the maritime sector as a whole. The proposed project would provide a vehicle to reduce barriers to domestic trade in the form of unnecessary customs procedures and to improve safety of ships in interisland traffic. 7. Agreed Actions. During negotiations, PPA and the Government agreed with the Bank on the following actions: (a) furnish the Bank by February 1 ench year with a draft of PPA's annual expenditure plan for comment, and furnish by August 1 each year the final plan to the Bank; (b) establish procedures to separate passenger and cargo traffic flows in ports by June 30, 1988; (c) develop a plan to define PPA's role in port operations (which now varies from port to port) and review current revenue collecting procedures by December 31, 1987; (d) prepare an inventory of additional rehabilitation/maintenance needs by December 31, 1987, submit an action plan for such work to the Bank by June 30, 1988, and report on the implementation of the said action plan by March 31, 1989, and each March 31, thereafter; (e) maintain a project executive comfittee to oversee implementation of the project; (f) use the established selection criteria for ten additional ports to be chosen for minor rehabilitation; (g) continue to revalue PPA's fixed assets at their estimated replacement cost every five years starting December 31, 1991; (h) maintain PPA's operating expenses below 65% of PPA's operating revenues for fiscal years beginning after December 31, 1987;  - 3 - (i) finance at least 30% of PPA's capital investments from PPA's internally generated funds for fiscal years beginning after December 31, 1987; (j) deveLop a pLan of action by June 30, 1988, to improve safety of operations in domestic shipping; and (k) develop a plan of action satisfactory to the Bank, by June 30, 1988, to facilitate domestic shipping and cargo clearances. Prior to loan effectiveness, the Government and PPA would sign a subsidiary loan agreement on terms and conditions satisfactory to the Bank. 8. Justification. The principal benefits of the port investments are increased port capacity, which would result in avoided lighterage operations, avoided inland highway diversion and avoided congestion in ports, thus reduc- ing ship waiting time. The principal beneficiaries will be the people living in the economically deprived hinterlands of the project ports. The gradual introduction of Roll on-Roll off (ro-ro) services, made possible by the pro- posed project, will enable increased transport of perishable farm products to existing and new markets. Improved port facilities should also make the hinterlands more attractive tocations for industry, stimulating employment. However, these and other development benefits are difficult to estimate and have not been taken into account in the economic evaluation. Even so, the quantifiable benefits yield economic returns ranging from 17Z to 86% for the project ports and an average return of 27% for the entire project. 9. Risks. The project poses no particular risk other than unrealized traffic expectations. It is hoped, however, that the long delayed economic recovery of the Philippines will soon accelerate. When this happens, the project will help the selected ports to cater to the accompanying development requirements for increased port capacity. 10. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber Conable President Attachments: May 5, 1987 Washington, D.C.  SchoduLe A PHILIPPINES PROVINCIAL PORTS PROJECT Estimatad CostE and Financing Plan (US$ million) Local Foreign Total Estimated Costs: /a Civil works 9.9 17.3 27.2 Equipment 3.8 2.9 6.7 Technical assistance 2.1 2.4 4.5 Base Cost 15.8 22.6 38.4 Physical contingencies 1.9 2.7 4.6 Price contingencies 2.4 1.2 3.6 Total Project Cost 20.1 26.5 46.6 Financing Plan IBRD 5.5 26.5 32.0 PPA 14.6 - 14.6 Total 20.1 26.5 46.6 /a As of March 31, 1987, including taxes and duties of US$2.8 million.  Schedule B PHILIPPINES PROVINCIAL PORTS PROJECT Procurement Method and Disbursements (US$ million) Procurement Hethod Total Project element ICB LCB Other cost Civil works 28.14 7.00 - 35.14 (17.50) (4.00) - (21.50) Equipment and 7.00 - - 7.00 material (6.00) - - (6.00) Services 4.50 4.50 - (4.50) (4.50) Total 35.14 7.00 4.50 46.64 (23.50) (4.00) (4.50) (32.00) Note: Figures in parenthesis represent amounts financed through proposed loan and include contingencies. Disbursements Category Percentage Civil works 67% (of total expenditures) Goods 100% (of foreign expenditures) 65Z (of imports procured locally) 100% (of local expenditures) Technical assistance and training 100% (of total expenditures) Estimated Disbursements Bank Fiscal Year 1988 1989 1990 1991 1992 1993 --US$ million--------------------- Annual 4.5 11.0 7.0 6.0 2.5 1.0 Cumulative 4.5 15.5 22.5 28.5 31.0 32.0  Schedule C PHILIPPINES PROVINCIAL PORTS PROJECT Timetable for Key Project Processing Events (a) Time taken to prepare 3 years (b) Prepared by Philippine Ports Authority with Bank assistance (c) First Bank mission January 1985 (d) Appraisal mission departure September 1986 (e) Negotiations April 22-24, 1987 (f) Planned date of effectiveness July 15, 1987 Cg) List of relevant PCRs and First Shipping Project PPARs (PPAR No. 4910) Second Port Project (PPAR No. 5698)  Schedule 11 THE STATUS OF BAUK CROUP OPERATIONS IN THE PHILIPPINES A. STATEMENT OF BANK LOANS AND IDA CREDITS /a As of March 31, 1987 Loan or Amount in US$ million credit (less canceilat