Tanzania - Second Port Modernization Project

Document of The World Bank FOR OFFICLAL USE ONLY Repw No. P-5209-TA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 28.9 MILLION EQUIVALENT TO THE UNITED REPUBLIC OF TANZANIA FOR A PORT MODERNIZATION PROJECT II JANUARY 10, 1990 Thi document ha a resicted disribution and may be used by recipienls only In the performance of their offlcal duties. Its contents may not otherwise be dlsclosed without World anuth osdization.  CURRENCY EQUIVALENT (as of November 30, 1989) Currency Unit Tanzanian Shilling TSh 1.0 - US$0.005 US$1.0 TSh 190 US$1.0 . SDR 0.7792 SDR 1.0 - USS 1.28336 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) - 0.62 miles (mi) 1 metric ton (tonnes) - 1.02 short tons GLOSSARY OF ABBREVIATIONS DANIDA ' Danish International Development Agency FINNIDA - Finnish International Development Agency NORAD - Norwegian Agency For Development Cooperation PPAR - Project Performance Audit Report STDA Swedish International Development Authority SDR Special Drawing Right THA - Tanzania Harbours Authority FISCAL YEAR July 1 to June 30  FOR OMCIAL USE ONLY TANZANIA PORT HODERNIZATION PROJECT II CREDIT AND PROJECT SUMHMARY Borrower: United Republic of Tanzania Beneficiary: Tanzania Harbours Authority and the Customs Department of the Ministry of Finance Credit Amount: SDR 28.9 million (US$37.0 million equivalent) Terms: Standard, with 40 years maturity On-Lending Terms: Payable in 20 years, including five years of grace, with 11? interest rate. Foreign exchange risk to be borne by the beneficiary. Financing Plan: US$ million IDA 37.0 Finnish International Development Agency 17.9 Danish International Development Agency 4.2 Norwegian Agency for Development Cooperation 11.5 The Government of the Netherlands 5.4 Swedish International Development Authority 17.5 Tanzania Harbours Authority 28.8 TOTAL 122.3 Economic Rate of Return: 20? * Financial Rate of Return: 14Z Staff Appraisal Report: Report No. 8149-TA Map: IBRD Nos. 21936 and 21937 This document has a restficted 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 authorexLioa.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED RE.?UBLIC OF TANZANIA FOR A PORT MODERNIZATION PROJECT II 1. I submit the following memorandum and recommendation on a proposed Credit to the United Republic of Tanzania for SDR 28.9 million (US$37.0 million equivalent) for approval. The proposed Credit would be on standard IDA terms with 40 years maturity. and would assist in financing the development and modernization of the port of Dar es Salaam, a major regional port on the eastern coast of Africa. The total project cost is US$122.3 million and will be parallel financed by Finland (US$17.9 million equivalent), Denmark (US$4.2 million equivalent), Norway (US$11.5 million equivalent), Netherlands (US$5.4 million equivalent), and Sweden (US$17.5 million equivalent). The proposed IDA credit would be passed on to the Tanzania Harbours Authority (THA) at an interest rate of ill per annum (p.a.), repayable over 20 years, including five years grace. THA will bear the foreign exchange risk as well as finance certain foreign exchange costs and the full local costs of the project (US$28.8 million). 2. Background and Strategy. The Government of Tanzania with assistance from IDA, launched a systematic process of policy reforms in 1986 which has yielded positive economic responses, including a steady growth of GDP of between 4 and 5Z p.a. over the last three years. However, further recovery is very much constrained by the deteriorated transport infrastructure and the poor operating performance of transport parastatals. The road infrastructure, because of insufficient funding and a virtual lack of maintenance, has deteriorated to a point where over 70Z of the network is either impassable during the rainy season or unmaintainable; the two railway systems, despite their strategic network offering the least cost for long distance haulage, are unable to carry much of the traffic demanded due to operational inefficiency and deteriorated infrastructure; and the ports, the gateway for the major portion of the irport/export traffic, are becoming congested due to a lack of physical capacity, and weaknesses in the port operations and customs administration. The direct cost to the economy of the poorly functioning transport system has been estimated at nearly US$200 million p.a., equivalent to over one-third of the export earnings of the country. Given the critical state of the transport sector, the Government convened a Transport Sector Donors' Conference in December 1987 in Arusha to present a document prepared with the assistance of IDA entitled "Programme for Transport Sector Recovery'. The Programme outlined the basic policy, institutional changes and rehabilitation requirements of the sector in order to rehabilitate the transport infrastructure and services to cater to the requirements of the economy. This project, along with the proposed Integrated Roads Project (FY90) and Railways Restructuring Project (FY91), totaling nearly US$1,230 million over the next eight to ten years, forms an integral part of the comprehensive program discussed and agreed at the Conference. 3. The port of Dar es Salaam is the main port for Tanzania's overseas trade and is a key regional port for the neighboring landlocked countries (Zambia, Burundi, Uganda, Rwanda, eastern Zaire and Malawi), The efficiency and cost effectiveness of port operations, therefore, is of paramount  a 2 . importance to the Tanzanian economy and its neighbors. A program to modernize the port, enabling it to handle the growing container traffic, was begun in early 1965 under the Tanzania Port Rehabilitation Project (Cr. 1536- TA) co-financed by six donors (DANIDA, NORAD, FINNt4DA, the Netherlands, Italy, and the UK). The physical facilities were satisfactorily completed and handad over to THA ln March 1989. In May 1988, THA, IDA and the donors carried out a Port Mid-Term Review to evaluate the port operations and the effectiveness of the on-going program. The review concluded that although port productivity and profitability of operations have improved as a result of the on-going assistance, there are still significant problems in the areas of physical facilities, human resource and institutional development. The key problems/lssues includes Ci) the containerized traffic has increased at nearly 20S p.a. over the last five years and the demand is forecast to exceed the capacity of the newly constructed container terminal by 19921 (ii) inefficient customs procedures and weak administration have increased the container dwell time to an unacceptably high level, leading to excessive congestion and reduction in the effective terminal capecityl (iii) the efficiency of cargo handling needs to increase at a more rapid pace if THA is to avoid further congestion at the ports (iv) given the overall traffic growth of 7S p.a. over the past five years and the continuing good performance of the economy, overall projected demand will exceed total port capacity by the late 1990s, and a long term port development study is required to determine further port expansion requirements; (v) the on-going technical assistance program has not achieved its full objective due to THA's inability to coordinate and monitor the effectiveness of the various donor- funded assistance and to provide suitable counterparts; (vi) the financial management policy of TBA needs to be more commercially oriented; And (vii) coordination should be stepped up to channel available funds to the most urgent requirements of TEA. Based on the results of the Mid-Term Review, a port subsector donors' meeting was convened in February 1989, and it was agreed that IDA should take the lead in assisting the Government to formulate a project which would address these issues and improve the port facilities to enable TEA to meet the expected demand in the early 1990s. 4. Since the February meeting, THA and the Government have taken the following actions: (i) reduced the container dwell time by over 20Z through (a) various operational changes taken by the Container Dwell Time Working Group (consisting of port users including Customs) and (b) Customs increasing the number of auctions of containers unclaimed for more than 21 days from four times a year to four times a month; (ii) requested UNCTAD to assist Customs on streamlining customs procedures; (iii) carried out a thorough review of the technical assistance program and agreed with each donor on specific changes to the T.A. program; (iv) began a process of engaging a technical assistance coordinator; (v) filled majority of counterpart positions; and (vi) prepared and ratified the new Corporate Financial Strategy (approved by the THA Board and the Government) which would, inter alia, commit THA to repay to the Government the principal and interest owed on all debts relating to both donor grants and loans incurred since the formation of the Authority in 1977, and also to institute a productivity based incentive scheme for its workers. 5. Prolect Obiective and Rationale for IDA Involvement. The main objectives of the project are to expand the physical, managerial and operational capabilities of THA to meet the traffic volume expected in the  -3- 19909, to provide a more reliable and cost effective transport link with the neighboring landlocked countries, and to improve the profitability and commercial discipline of port operations. The rational for IDA involvement is based on: (i) the importance of the port sector to the economic recovery program; (ii) IDA's leading role in formulating the port modernization program; and (iii) requests by THA and donors that IDA coordinate assistance to THA in the port subsector, particularly in the areas of operational improvements and institutional development. 6. Project Description. The project would consist of: (i) civil works to expand the port container terminal by 200?, complete the Ubungo and Kurasini inland container depots, pave the lighterage wharf for container storage, construct a port access road, complete the second phase of general cargo terminal rehabilitation and repair concrete piles and fenders; (ii) rehabilitation of the port central workshop and provision of technical assistance for training of mechanics; (iii) procurement of container and general cargo handling equipment; (iv) management assistance and training for middle and upper management of THA; (v) technical assistance to Customs to introduce a simplified documentation process, computerize customs processing and train customs officers; (vi) addition of a technical assistance and training coordinator to the Project Coordination Unit; (vii) a development study to review the options for future port capacity expansion, including a study of the possible privatization of certain port activities; and (viii) consulting services for supervision of civil works and detailed engineering. 7. The total cost of the project is estimated at US$122.3 million, of which about US$100.5 million (82Z) is in foreign exrhange. Details of the project costs and the financing plan are shown in Schedule A. Procurement methods, amounts involved, and the disbursement schedule are given in Schedule B. A timetable of key project processing events and Bank Group operations in Tanzania are given in Schedules C and D, respectively. A map of the port of Dar es Salaam, noting the various locations of civil works under the project, is attached. The Staff Appraisal Report No. 8149-TA is being distributed with this Memorandum. S. Actions ARreed on. The following main actions were discussed with the Government and THA at appraisal and were agreed upon during negotiations. As conditions of effectiveness: (i) THA to carry out a thorough census of its vorkforce; (ii) THA to submit to the Association the report and recommendations of its study on the operational guidelines for the incentive scheme; and (iii) execution of a subsidiary loan agreement between the Government and THA. Other agreements are as follows: (i) the incentive scheme to be instituted by October 1, 1990; (ii) all investments outside the proposed project larger than US$2 million equivalent for civil works and US$500,000 equivalent for equipment to be undertaken only after agreement with IDA, (iii) THA's annual budget and financing plans to be reviewed by IDA March 31 of each year, before being effected; (iv) no material change to take place in TEA's Corporate Financial Strategy, including the commitment to repay all debts (principal and interest) to the Government according to the agreed schedule; (v) THA to attain annual productivity, equipment availability and container dwell time targets as set and agreed with IDA (details are in Annex 2-6 of the Staff Appraisal Report); (vi) the port development study, whose terms of reference were agreed at negotiations, to be completed and the recommended development plan to be submitted for IDA  review by June 30, 1992; and (vii) TSA's debt-to-equity ratio to be kept below 60.40. 9. 3gefit.s The project will benefit the entire economy of Tanzania and its landi`ckedneighbors, through lower freight costs on a wide variety of imported and exported products through faster and more efficient cargo handling at the port. Additionally, the introduction of the Corporate Financial Strategy would enable THA tot (i; increase its contribution to the Government's general revenues through debt service payments, taxes and dividends from the current level of 22 to about 8S of Government's current revenues by 1996197; (ii) increase its annual foreigp exchange earnings from the present 82 to about 142 of the country's export earnings by 1996/971 and (iii) Improve its staff morale and productivity through an incentive scheme. 10. Risks. Possible risks includes Mi) lower than expecte4 traffic growth; and (ii) higher than targeted dwell time for containers. The first risk is minimal. Conservative assumptions have been used for the traffic forecasts, and growth at one-half of the projected rate would still justify the investment. If the targets for container dwell time reduction are not met, the port will, again, experience severe congestion by the mid-1990s. Sowever, THA has already begun coordination of port users to pursue actively policies which aim at reducing dwell time. These activities will be supported by the project, ln particular by providing technical expertise and training for Customs to speed uo document processing and improve its operating practices. Regular revi- ;s and advice on corrective measures will be carried out by IDA, and TRA will submit the latest status and actions taken in their quarterly report to IDA and the donors. 11. Recoendations. I am satisfied that the proposed Credit complies with the Articles of Agreement of the International Dfvelopment Association and recommend that the Executive Directors approve it Barber B. Conable President Attachments Washington D.C. January 10, 1990  -5-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SCHEDMLE A UNITED REPUBLIC OF TANZANIA PORT MODERN%ZATION PROJECT It ESTIMATED PROJECT COSTS AND FINANCING PLAN Estimated Costs Local Foreitn Total USt Million Port Container Termlnal 4.3 12.7 17.0 Copper Road 0.6 0.9 1.5 Berth 9, 10, 11 1.1 3.2 4.2 Lighterage Wharf Rehabilitation 0.9 2.6 3.5 Belgian Wharf Rehabilitation 0.4 1.1 1.5 Port Central Workshop 0.3 0.4 0.7 Kurasini Oil Jetty 1.4 7.6 9.0 Berths 1-8 Rehabilitation 3.5 9.5 13.0 General Cargo Equipment 0.0 4.0 4.0 Container Handling Equipment 0.0 15.2 15.2 Office Equipment 0.0 1.0 1.0 Central Workshop Equipment 0.0 2.0 2.0 Design and Supervision 0.6 2.7 3.3 Port Developmeat Study 0.2 0.8 1.0 Workshop Study 0.0 0.2 0.2 Technical Assistance 3.8 15.2 19.0 Total Base Cost 17.0 79.1 96.1 Physical Contingencies 1.5 5.8 7.3 PiLce Contingencies, 15.6 18.9 TOTAL COST a/ 21.8 100.5 122.3 al inclusive of taxes and duties (about US$8.6 million) Financing Plans IDA 0.5 36.5 37.0 FINNIDA - 17.9 17.9 DANIDA - 4.2 4.2 NORAD - l1.5 11.5 Netherlands - 5.4 5.4 SIA - 17.5 17.5 THA 21.3 7.5 28.8 TOTAL 21.8 100.5 122.3  SCHEDULE B Page 1 of 2 UNITED REPUBLIC OF TANZANIA PORT MODERNIZATION PROJECT II PROCUREMENT METHODS Procurement Method Total Project Component ICB 1/ Other2/ Cost USS million A. Civil Works 1. Port Container Terminal 21.9 (16.4) 21.9 (16.4) 2. Copper Road 1.9 (1.1) 1.9 (1.1) 3. Berth 9, 10, 11 5.4 5.4 4. Lighterage Wharf Paving 4.3 4.3 5. Belgian WLarf Rehab. 2.0 2.0 6. Port Central Workshop 1.0 1.0 7. Kurasini Oil Jetty 11.9 11.9 8. Berths 1-8 Rehabilitation 17.1 17.1 B. Equipment 1. General Cargo Equipment 5.0 (5.0) 5.0 (5.0) 2. Container Terminal Equip. 10.2 10.2 3. Ship-to-Shore Gantry 8.7 8.7 4. Office Equipment 1.2 (1.2) 1.2 (1.2) 5. Central Workshop Equipment 2.4 (2.4) 2.4 (2.4) C. Design/Supervision 1. Design Al, A2 0.4 0.4 2. Supervision Al, A2 1.8 (1.3) 1.8 (1.3) 3-7. D/S A3 - A7 1.8 1.8 8. Port Development Study 1.2 (1.0) 1.2 (1.0) 9. Workshop Study 0.2 0.2 D. Technical Assistance/Training 1. Project Coordination Unit 2.0 2.0 2. Management T.A. 19.5 (6.2) 19.5 (6.2) 3. T.A. to Customs 2.4 (2.4) 2.4 (2.4) TOTAL 31.2 (24.9) 91.1 (12.1) 122.3 (37.0) 1/ ICB - International Competitive Bidding 2/ In accordance with each financing agency's procedures and regulations (Figures in parentheses are the amounts financed by IDA)  -7- SCHEDULE B Page 2 of 2 UNITED REPUBLIC OF TANZANIA PORT MODERNIZATION PROJECT II DISBURSEMENTS Categorn Amount 2 (US$ miilion) (1) Civil Works 14.1 100Z of foreign expenditure (2) Equipment 6.9 100Z of foreign expenditure (3) Consulting Services and 7.0 1002 of foreign Training for TEA expenditure (4) Training for Customs 1.6 1002 (5) Equipment for Customs 0.4 0OOS (6) Unallocated 7.0 TOTAL 37.0 Estimattd Disbursement of IDA Credit: IDA FYs 91 92 93 94 95 96 97 Annual 1.2 6.4 10.7 7.6 5.2 4.7 1.2 Cumulative 1.2 7.6 18.3 25.9 31.1 35.8 37.0  UNITID MPUML C OF TANZANIA 1ORT MODINIZATZON P1030? 1S Timetalke of Key Prolect Proaesesna Events (a) Time taken to prepares 12 months (b) Prnpared bys THA, censultants, IDA (c) First IDA missions May 1968 Cd) Appraisal mission departures June 1989 (e) Negotiations$ December 1989 (f) Plnned date of .ffectiveness: June 1990 Cs) List of Relevant PCR SecondtZhird Harbour Project (PCR and PPAR No. 4029)  Annex D Status Of Bank Grouo Operations In TANZANIA Page 1 of 2 PFDDR25 - Su"arv Stateut 04 Loans and IDA Credits t-OA dat as ef 1t/30/9 - NIS deta as of 01/041/) Aount in US9 illion leus cancellations) Loan or Fiscal Undis- Closino