China - Ningbo and Shanghai Ports Project : Ningbo Port

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15790 IMPLEMENTATION COMPLETION REPORT CHINA NINGBO AND SHANGHAI PORTS PROJECT: NINGBO PORT (LOAN 3006-0-CHA) JUNE 25, 1996 Infrastructure Operations Division China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Name = Renminbi Currency Unit = Yuan (Y) Yuan rate per $1.0 1985 2.94 1990 4.78 1986 3.45 1991 5.32 1987 3.72 1992 5.53 1988 3.72 1993 5.76 1989 3.76 1994 8.60 1995 8.50 FISCAL YEAR January I - December 31 MEASUREMENT EQUIVALENTS Aletric System British/US system I meter (m,) = 3.281 feet I square meter (m) 10.764 square feet I cubic meter (m') = 35.3 15 cubic feet I kilometer (km) 0.621 mile I ton-km = 0.621 ton-mile I ton = 2208 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED BCC - Beilun Container Companv dwt - deadweight ton (for vessel) EA2DR - Office of Director, Country Department 2. East Asia and Pacific Region EA21N - Infrastructure Division, Country Department 2, East Asia and Pacific Region EIRR - Economic Internal Rate of Return GOC - Government of China ICB - International Competitive Bidding ICR - Implementation Completion Report LCB - Local Competitive Bidding Ln - Loan LRMC - Long Run Marginal Cost MOC - Ministry of Communications MOF - Ministry of Finance NPA - Ningbo Port Authority NPV - Net Present Value REIRR - Reevaluated Economic Internal Rate of Return RFA - Reevaluation on Average Net Fixed Assets RRFA - Rate of Return on Average Net Fixed Assets RVP - Office of Regional Vice President SAR - Staff Appraisal Report teu - twenty-foot equivalent unit (for container) TA - Technical Assistance  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT CHINA NINGBO AND SHANGHAI PORTS PROJECT: NINGBO PORT (LOAN 30060-CHA) CONTENTS PREFACE ...................................................... H EVALUATION SUMMARY ...................................................... ii PART I. IMPLEMENTATION ASSESSMENT ...................................................... 1 A. Project Objectives ..1.................................................... B. Achievement Of Objectives ...................................................... 2 C. Major Factors Affecting the Project ...................................................... 9 D. Project Sustainability ...................................................... 9 E. Bank Performance ...................................................... 9 F. Borrower Performance ...................................................... 10 G. Assessment of Outcome ...................................................... 10 H. Future Operations ...................................................... 10 I. Findings and Lessons Learned .......................................................11 PART II: STATISTICAL ANNEXES ...................................................... 13 Table 1: Summary Of Assessments ...................................................... 13 Table 2: Related Bank Loans/Credits ...................................................... 14 Table 3: Project Timetable ...................................................... 14 Table 4: Loan Disbursement ...................................................... 15 Table 5: Key Indicators for Project Implementation ...................................................... 16 Table SB: Training ...................................................... 17 Table SC: Procurement (Under ICB) ...................................................... 18 Table 6: Key Indicators for Project Operation (Action Plan) ...................................................... 19 Table 7: Studies Included in the Project ...................................................... 20 Table 8: Project Costs, Financing and Allocation of Loan Proceeds ............................................ 2 1 Table 8A: Project Cost ...................................................... 21 Table 8B: Project Financing ...................................................... 22 Table 8C: Allocation of Loan Proceeds ...................................................... 22 Table 9: Economic Cost, Benefit and Major Financial Indicators ................................................ 23 Table 10: Status of Covenants ...................................................... 24 Table I 1: Bank Resources: Staff Input ...................................................... 25 Table 12: Bank Resources: Missions ...................................................... 25 Appendix A: ICR Preparation Mission's Aide-Memoire ...................................................... 27 Appendix B: Borrower's Contribution To The ICR ...................................................... 28 Appendix C: Map ...................................................... 31 Annex 1: Financial Analysis ....................................................... 33 Annex 2: Economic Analysis ...................................................... 36 This document has a restricted distribution and may be used by recipients only in the performance of their |official dutics. Its contents may not otherwise be disclosed without World Bank authorization. l   - 11 - IMPLEMENTATION COMPLETION REPORT CHINA NINGBO AND SHANGHAI PORT PROJECT: NINGBO PORT (LOAN 30060-CHA) PREFACE The Ningbo component of the Ningbo and Shanghai Ports Project in China, Loan 30060- CHA for $30 million, was approved on December 13, 1988 and made effective on May 9, 1989. The loan, extended once for two years, was closed cn December 31, 1995. Final disbursements were made on March 16, 1995. The loan was fully disbursed. This ICR was prepared by Messrs. Toshiro Tsutsumi (Task Manager) and Han-Kang Yen (Economic and Financial Analyst) of the Infrastructure Division, China and Mongolia Department of the East Asia and Pacific Region and reviewed by Messrs. Richard Scurfield (Chief, EA2IN) and Juergen Voegele (Acting Project Adviser, EA2DR). The Borrower provided comments that are included as Appendix 2. A separate ICR has been prepared for the Shanghai Port. T he ICR was begun just before the loan closing and was based on material in the project file. The Borrower contributed to the ICR by evaluating the project's execution and initial preparation.   - 111 - IMPLEMENTATION COMPLETION REPORT CHINA NINGBO AND SHANGHAI PORT PROJECT: NINGBO PORT (LOAN 30060-CHA) EVALUATION SUMMARY Objectives 1. When the project was identified in the mid-1980s, most Chinese ports were badly congested and container berths, bulk cargo berths, port equipment, storage yards and transport infrastructure (for distribution) were in short supply. In fact, it appeared that congestion would threaten the expansion of China's foreign trade. The Government began to reform the port sector in 1984, which included self-financing port operations, funding investments by internal cash generation and promoting competition among ports. Ningbo Port spans three districts, Ningbo, Zhenhai, and Beilun; the port is located on Hangzhou Bay and connects with the Shanghai region by coastal shipping. The Ningbo district, which is the oldest, is shallow and situated on the Yungjiang River. The Zhenhai district is located 21.5 km downstream of Ningbo city near the mouth of the Yungjiang. The Beilun district, the site of the project, is 37 km from Ningbo city; the port is deep and located on Hangzhou Bay. 2. The main objectives of the project were to make Ningbo port's handling of containers and general cargo more efficient by constructing special berths with modern equipment. The project also promoted efficiency by rehabilitating existing facilities and training both operational and managerial staff. Finally, it optimized future development by studying the potential of the port to distribute cargo more economically. Implementation Experience and Results 3. The project was completed satisfactorily by December 31, 1995. The closing date was extended for two years due to a delay in the Shanghai Port component which is under the same loan. The Ningbo Port component was completed on time. 4. Project implementation was highly satisfactory because all objectives were achieved: Physical components were constructed ahead of schedule, equipment was procured, and the action plan, training and a study were carried out. Training provided extensive courses for both managers and workers and the Ningbo Port Authority (NPA) operational and maintenance capacity was improved [paras. 10(d) and 11]. The Master Plan and Port Optimization Study provided a solid basis for future development [para. 10(a)]; implementation of an action plan improved the port environment; port operations became more efficient [para. 10(c)], and physical capacity was substantially increased with the addition of container/multipurpose berths. These achievements were partly due to the project's relative lack of complexity and to coordination  - iv - between the Ningbo Port Authority (NPA) and the Ministry of Communications (MOC), which has overall responsibility for the port sector. 5. The project's benefits included savings in: (a) cargo-handling costs, (b) ship waiting and berthing time, and (c) cargo time. The economic internal rate of return (EIRR) was estimated at 29.1 percent against 26.7 percent in the SAR, which is considered satisfactory (para. 31). 6. Cost estimates at appraisal were reasonable. The final cost was estimated at about $63.3 million (or Y 136.8 million plus $30.0 million) against $75.7 million (or Y 182.2 million plus $30.0 million) at appraisal (para. 15). The difference when expressed in US dollars is due to the devaluation of the local currency. 7. NPA's financial performance is solid. Although the operational ratio (operating costs/ operating revenues) was higher than estimated in the SAR (61.8 percent against 56.5 percent) due to sharp domestic price increases in 1992-94, NPA absorbed this by increasing the amount of container traffic it handled. Since container traffic will most likely expand further, NPA's financial condition will remain solid. 8. No environmental or resettlement problems arose during implementation. Sustainability 9. At completion, the project appeared sustainable. Because port traffic will undoubtedly grow along with rapid economic development in the Ningbo area, the expanded facilities are clearly needed. In fact, traffic in containerized cargo has soared, and the project's container terminals operate efficiently due to the modern facilities and equipment and trained staff provided under the project. In addition, NPA is financially stable and has enough resources to maintain and operate the port properly, if it maintains its current operating scale. Findings and Lessons Learned 10. The findings and lessons include the following: (a) NPA capably carried out the construction, procured equipment, conducted studies and developed its organization; NPA completed construction of berths four months ahead of the schedule with satisfactory quality; (b) With regard to the procurement of equipment, there is a risk that problems will surface when the lowest bidders with marginal experience are awarded contracts (para. 9); (c) Projects should be designed as independently as possible. Although they are separate and independent projects (the project entities and activities are both different), the Ningbo and Shanghai Port Projects were combined to facilitate project preparation. The Ningbo port project, implementation of which was on  time, could not be closed due to the delay in the Shanghai Port Project, and had to wait for two years (para. 12); (d) Performance indicators with regard to port operations, maintenance and environmental quality were clearly stated in the SAR (to monitor the project's progress) and proved quite useful; (e) Project design was relativeiy straightforward and thus avoided problems of coordination among various agencies; and (f) When tariffs are regulated and price increases are high, actual tariffs cannot reflect actual costs. It is suggested that some mechanism should be added into the tariff calculation to reflect actual operational costs.   - 1 - IMPLEMENTATION COMPLETION REPORT CHINA NINGBO AND SHANGHAI PORT PROJECT: NINGBO PORT (LOAN 30060-CHA) PART I. IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. When the project was identified in the mid-1980s, most Chinese ports were badly congested and container berths, bulk cargo berths, port equipment, storage yards and transport infrastructure (for distribution) were in short supply. In fact, it appeared that congestion would threaten the expansion of China's foreign trade. To remedy the situation, the Government began to reform the ports in Tianjin Port in 1984, and gradually applied to other ports, through decentralization of responsibilities, which included self-financing of port operations, generating investment funds through internal cash generation, and promoting competition among ports for cargo. 2. Three districts, Ningbo, Zhenhai, and Beilun, make up Ningbo Port, which is located on the Hangzhou Bay and connects with the Shanghai region by coastal shipping. Ningbo district, on the Yungjiang River, is the oldest and shallow. The Zhenhai district is located 21.5 km downstream of Ningbo city near the mouth of the Yungjiang. Beilun district, the site of the project, is 37 km from Ningbo city, deep and located on Hangzhou Bay. 3. The main objectives of the project were to make Ningbo port's handling of containers and general cargo more efficient by constructing special berths with modern equipment. The project also promoted efficiency by rehabilitating existing facilities and training both operational and managerial staff. Finally, it optimized future development by studying the potential of the port to distribute cargo more economically. 4. Development under the project consisted of: (a) Constructing a jetty about 694.0 m long and 47.0 m wide for one container berth and two general purpose berths with a depth of 14.4 m, and two 14.0 m wide causeways that connect the jetties to the yard. The berths involved (i) paving yards and roadways and constructing railway connections, sheds, buildings, water supply and sewage systems; (ii) procuring container cranes, mobile cranes, forklifts, vessels, tugboats, vehicles and computers with which to operate the facilities; (b) Rehabilitating existing facilities; (c) Training of operational and managerial staff;  - 2 - (d) Updating Ningbo Port's master plan, which involved reviewing the effects of the port expansion on nearby commercial activities, residential areas and transport infrastructure; (e) Preparing a port optimization study on how to best exploit the deep water potential at Ningbo port through transshipment of cargo, using large vessels; (f) Improving the environmental monitoring system in the port area; and (g) Implementing an action plan to improve port operations and maintenance. B. ACHIEVEMENT OF OBJECTIVES Project Implementation 5. This was the fifth Bank-assisted port project in China, following the Three Ports Project, Tianjin Port Project, Huangpu Port Project, and Dalian Port Project (Table 2). It was the first Bank-supported project for Ningbo port. The Ningbo Port Authority (NPA) has overall responsibility for project implementation. 6. Civil Works. The sole contract, which was for the construction of the container wharf and multipurpose berths, was awarded to No. 3 Navigation Engineering Bureau, MOC, through International Competitive Bidding (Package 1, see Table SC). Construction was completed on time. 7. Beilun Harbor Construction Command, NPA, supervised the construction with the advice of foreign consultants. This arrangement was quite successful, as it familiarized the Borrower with international practices. 8. Procurement of Equipment. Procurement was in three tranches under international competitive bidding (ICB). One was for major equipment needed for the container and general cargo handling (Package 2); another was for a fuel tanker and vehicles (Package 3); the last was for a rubber-tire gantry crane. Unlike the experience of other port projects in China, the evaluation period was not too lengthy (only about six months), largely due to NPA's effort to expedite project implementation. It was accomplished in two stages (which is common in Bank- financed port projects). The first was at the regional level by the NPA and the second at the central level, by the State Evaluation Committee. 9. The contract for two quay-side container cranes was awarded to a foreign bidder (at a very low price) that had only marginal experience. When the equipment was installed and tested, it experienced many problems and considerable time was needed to correct them. The cranes still encounter small problems and require frequent maintenance. Thus, this is another example that shows that the risk increases when contracts are awarded to bidders with limited experience.  - 3 - 10. Technical Assistance (TA) and Training. This involved: (a) updating the master plan study, (b) preparing a port optimization study, (c) improving the environmental monitoring system, (d) devising an action plan for operations and environmental protection, and (e) training. (a) Updating the master plan study and preparing a port optimization study were combined and implemented by a foreign consulting firm. The study was successfully completed in December 1991. Some of its recommendations, such as to expand the iron ore berth (using local funds) and construct the highway between Ningbo-Hangzhou-Shanghai (using Bank and local funds) and the double track railway between Ningbo-Shanghai (using local funds), have been adopted and are being supported with local and Bank funds. (b) The environmental monitoring system was developed under the project and further strengthened by the Bank under the Global Environmental Facilities Project and Ship Waste Disposal Project (Cr. 2391/TF. 28613-CHA). Water and air quality are being monitored periodically. (c) The action plan for operations and maintenance included seven elements to improve operations and four to improve maintenance. The target for the berth throughput and average berth time (for vessels) has mostly been achieved (see Table 6). (i) With regard to operations, the warehouse at Zhenhai terminal was improved by constructing a new pavement. Throughput at Beilun was substantially increased because most operations for general cargo were shifted from the Ningbo and Zhenhai terminals to Beilun (which has deeper seawater). Finally, the average number of berth days was significantly reduced (see Table 6). (ii) Periodic inspections and maintenance have become routine, and workshop equipment was improved. (d) NPA conducted extensive training (both in China and abroad). The extent of training was reduced from what was planned in the SAR (for overseas training, 82 person-months against 108 person-months and for domestic training, 774 staff against 1,005 staff) due to the reduced size of the new staff (1,201 against 3,821 in the SAR) (Table 5B). This reduction was due to the change in the type of cargo handled. Originally, general cargo (particularly timber), which is labor intensive to handle, was expected to increase; but, dry bulk, iron ore and coal, which could be efficiently handled by advanced equipment, increased instead. Given this shift, the numbers originally thought appropriate for training were considered excessive. Domestic training, which was for staff at the new stevedoring company, Beilun Container Company (BCC) (which operates the new berths), was carried out at the Training Institute; on-the-job training was given at the stevedoring companies and other ports (Dalian, Tianjin, Shenzhen) and at another institute (the Ningbo Truck Technical School).  - 4 - 11. All the new staff at BCC (491 out of 871) received training. In addition, the Ministry of Communications (MOC) organized domestic training for port staff with foreign experts. In 1992, about 60 staff from NPA attended a Container Management Seminar for three weeks. Another 51 managers, two operators and one worker attended courses at the Singapore Port Training Institute, Rotterdam Port Training Institute and Belgium Port Training Center. Computer training was particularly helpful since the new container/general cargo operations required advanced computerized technology. If Ningbo and Shanghai ports were separate and independent projects, supervision and the preparation of the ICR would have been easier. The preparation of the ICR for Ningbo port had to wait for two years. 12. The project closing date was extended for two years due to the delay in the Shanghai Port component. The Ningbo Port component was completed on time. Project Results 13. All the project objectives were achieved during implementation: (a) NPA's operational and maintenance capabilities were improved, as the targets in the action plan were achieved; (b) The port became more efficient (see Table 6) and its capacity was substantially increased by the addition of container/general cargo berths; (c) The port's environmental quality was improved; and (d) The training was quite helpful, particularly as it related to containers. This activity was new for Ningbo Port, and container cargo handled reached 140,000 teu in 1995. Considering that there are only two quay-side container cranes and six rubber tired gantry cranes at the yard, this volume is high, as is BCC's productivity. 14. Major project benefits were achieved, including savings in: (a) cargo-handling costs, (b) ship waiting and berthing time, and (c) cargo handling time. The Economic Internal Rate of Return (EIRR) is reestimated at 29.1 percent against the estimated 26.7 percent in the SAR, which is considered satisfactory. 15. Cost estimates at appraisal were reasonable. Final project costs were estimated at about $63.4 million (or Y 136.8 million plus $30.0 million) against $75.7 million (or Y 182.3 million plus $30.0 million) estimated at appraisal (Table 8a). The difference when expressed in US dollars is due to the devaluation of the local currency (Y 1.0=$1/3.7 at appraisal against Y 1.0=$1/8.50 at completion or Y 1.0=$1/4.101 overall average). 16. No environmental or resettlement problems arose during implementation.  -5 - Financial Performance 17. Major Financial Reform. After project preparation and during implementation, some major changes occurred that affected NPA's financial condition and the reporting procedures. These changes were: (a) Decentralization. Since 1987, some of the port's management and financial functions were decentralized from the State (MOC) to the municipality. Port authorities at this level assumed a large part of responsibility for handling daily management, operations, budget, construction and development functions. And, although MOC still approves major projects and plans that affect the port's long- term development, the port now bears the financial obligations for any loans it obtains. Concurrently, the Government reduced the tax the port pays by requiring an annual flat-rate payment. This improved the port's capacity to generate cash and this arrangement has not changed substantially to date. The main financial terms are: (i) projects costing over Y 30 million need State approval; (ii) annual income tax payments to the State were replaced by an annual lump sum payment of Y 5.27 million; and (iii) other taxes paid totaled from Y 1.0 million to Y 4.0 million during 1988-93. Beginning in 1994, the total annual tax payments were recalculated to one single payment of Y 6.0 million. (b) New financial reporting procedures. Under instructions from the Ministry of Finance (MOF), NPA improved its financial accounting procedures in July 1993 to be consistent with international accounting standards. The new accounting and reporting system will accelerate the port's commercialization and privatization. (c) The revaluation of fixed assets (RFA) of NPA occurred in 1995. The overall value of fixed assets increased by about 29.5 percent. 18. Past Financial Performance: Although NPA's operating ratio from 1987 to 1994 was higher and net profit was lower than the SAR estimates, the port's overall financial performance was still satisfactory. The total volume of traffic handled in 1994 was 47.1 million tons which is 37.9 percent higher than the SAR forecast (of 34.1 million tons). However, net profit in 1994 was only Y 55.0 million (against Y 99.0 million forecast). The main reasons were: (a) the rapid increase in operation-related (sales) taxes and average operating costs, 29.8 percent and 31.6 percent a year, respectively (against 18.2 percent and 16.2 percent projected in the SAR); and (b) the rapid increase in nonoperating and other overhead expenses. 19. The SAR's financial forecasts were developed when there were rigid State tariff and price controls for almost every major commodity. As a result, cost increases and inflation were low and predictable. In addition, the State had subsidized the cost of many commodities during the previous three decades (including cargo) and charged users only the planned prices. When the SAR was prepared, there was no indication that either the cost of resources or the rate of inflation would change. Therefore, financial forecasts assumed that port charges would remain virtually constant, and the rate of inflation would be low (from 6.5 percent to 8.0 percent during 1987-94). Although  - 6 - reasonable at the time, these assumptions now appear very conservative due to a much higher-than- expected inflation. 20. In recent years, price controls were removed from almost all commodities. During 1987-94, despite the strict control of the State on tariff increases, unit tariffs rose by an average of 14.0 percent per year. This increase, however was offset by: (a) a 12.4 percent increase in unit operating costs (3.9 percent projected in the SAR); and (b) a 10.1 percent increase in unit nonoperating expenses (6.8 percent projected in the SAR). Other (overhead and financial) expenses grew particularly rapidly, having increased by 50 times during 1988-94. 21. The higher operating costs were mainly due to increases in: (a) the cost of fuel, materials, wages-most of which have to be paid on the basis of market prices; and (b) depreciation, resulting from revaluation of fixed assets. The higher nonoperating and other expenses were mainly the result of: (a) NPA having to bear the costs of many social services; and (b) changes to the financial reporting procedure in 1993, which split the headquarters' expenses from operating costs to other expenses. Highlights of the NPA's income statements for selected years, as compared with the SAR forecast, are summarized below with details shown in Table- N1.1, Annex 1. 1987 1990 1994 I1995 Actual SAR Actual SAR Actual | Estimated Revenue 82.64 175.17 149.15 285.86 622.86 620.00 Less: Operating taxes 3.00 5.94 5.41 9.69 18.12 19.40 Operating costs 54.49 103.26 96.87 156.16 373.30 450.00 Operating profit 25.15 65.97 46.87 120.01 230.94 150.60 Less: Nonoperat. expense (net) 1.44 7.38 13.17 11.74 169.91 130.60 Profit before Tax (A) 23.71 58.60 33.51 108.27 61.03 20.00 Taxes 6.87 9.22 9.27 9.27 6.00 60.00 Net profit 16.84 49.37 24.24 99.00 55.03 14.00 Average net fixed assets (B): 489.69 687.65 583.30 759.29 1,340.22 1,679.39 Retum on Average Net Fixed Assets (A/B)(%) La 5% 9% 6% 14% 5% 1% Operating Ratio lk 68.4 61.0 67.4 56.5 61.8 74.9 La Return on average net fixed assets = profit before tax/average net fixed assets. Lb Operating ratio = operating costs/(revenue-operating taxes). 22. The operating ratios were slightly higher than the targets (for 1994, 61.8 percent against 56.5 percent in the SAR). These were due to rapid increases in cost and other expenditures. 23. In 1994, the rate of return on average net fixed assets (RRFA) was 5 percent, which showed no change from 1987 (before the project). After years of investments, the unchanged RRFA indicates the use of capital can be improved and operations made more efficient. The improvements can be reached by increasing operational efficiency and rationalizing nonoperating and other expenses.  - 7 - 24. Present Financial Performance. Despite the increases in operating costs, the port's financial position was generally acceptable at the end of 1995. The debt service ratio in 1994 was 2.6. This was lower than the 7.2 forecast in the SAR but was still satisfactory. In 1994, the port's debt and capital ratio increased to 40 percent (against the 17.3 percent forecast in the SAR), rising from 0.5 percent in 1987 due to borrowing for new development. The high borrowing also affected the current ratio: In 1994, it was 1.2, which was much lower than the SAR forecast of 9.1 (if the current ratio is less than 1.0, the port has short-term solvency problems and needs to strengthen its finances), but it is still considered to be acceptable. 25. The salient points in the port's balance sheet are found in Table Nl.2, Annex I and summarized below: V J987 I ~~~~~~~100 100509 lg Aeh,.I ' SAR Arbtl SAR RAchsa A F.AtimntMA Net fixed assets 535.56 535.21 729.78 751.28 1,141.07 1,947.72 Currenttassets 87.62 103.38 197.29 470.96 951.77 1,116.58 Special fund assets 36.36 162.60 36.36 36.36 - - Total 659.54 851.19 936.43 1,258.60 2,362.84 3,064.30 Equity 535.56 490.96 576.77 523.05 779.33 1,202.35 Port development funds 4.35 5.23 60.16 236.89 146.80 147.39 Long-tern debt 2.64 93.48 124.17 158.72 618.11 626.77 Current liabilities 17.98 45.35 34.08 51.53 818.60 1,087.79 Special funds 99.01 216.20 168.25 288.41 -- - Total 659.54 851.19 936.43 1,258.60 2,362.84 13,064.30 Debtt(debt+equiry)in % 0.5 15.9 16.3 17.3 40.0 31.7 Cwuerntratio 4.9 2.3 5.8 9.1 1.2 1.0 Za Including the deferred assets. 26. Future Financial Performance. It is expected that inflation will be stabilized, and thus, NPA's operating cost will also stabilize. Since port traffic will undoubtedly continue to grow, NPA's financial performance will remain healthy. In addition, NPA may enjoy the reduced payments to the State initiated since decentralization of the port in 1987 and still being continued. 27. However, NPA needs to strengthen its future financial condition to prepare for its future development. The port's new responsibility for self-financing all its capital investments has not yet had a major impact on its flow of funds (Tble Nl.3, Annex.1), but is expected to do so in the future because construction of the next phase (estimated at Y 3.0 billion during 1997-2002 for four container berths) will require additional funding. MOF provided, in return for self-financing, the preferencial financial agreement with NPA which expired in 1995. NPA should negotiate with MOF for streamlining tax payments. Furthermore, NPA should focus on the following: (a) Tariffs. At present, the Central Governnent devises the standard tariff schedule applied to all ports. However, it is recommended that port authorities be allowed  - 8 - some flexibility to set their own tariffs at a level that would enable them to cover all operating costs, strengthen their finances and compete with other ports by providing better services; (b) Revaluation of fixed assets (RFA). An RFA should be legally required on a regular basis; (c) Services reforms. Some welfare and social activities not directly related to the port's daily operations, such as the running of schools and hospitals, should be transferred to local agencies along with their operating costs. Economic Reevaluation 28. The economic analysis presented in this report is based on the revaluation of data on traffic, operational performance, economic costs and the benefits of project components. The methodology used in the ICR is similar to that in the SAR and is summarized as follows: (a) Capital investment and maintenance costs were revised to reflect December 1995 prices and are included in the cost stream; (b) The benefit stream, also reflected in December 1995 prices, was included, and consists of savings in port handling, ship port time (berth and waiting), and cargo port time (berth and waiting); (c) A project life of 20 years was assumed; the capital investment period for all berths was from 1989 to 1994; and (d) Benefits started to accrue fully in 1992. 29. The decrease in general cargo traffic (by 41.7 percent in tonnage) was totally offset by the better-than-expecttd container traffic (an increase of 107 percent in tonnage) (Annex 2). 30. Based on the revised data, the reevaluation of the economic internal rate of return (REIRR) for this project was reestimated at 29.1 percent, which is slightly higher than the SAR estimate of 26.7 percent. A detailed analysis is presented in Annex 2. 31. The REIRR and the SAR estimates in terms of economic rate of return and net present value (NPV) are given below. SAR ICR Best estimate of rate of return (%) 26.7 29.1 NPV (12% million Yuan) 579.7 L 919.5 la Y 302.7 million in July 1988 prices were inflated by a factor of 1.9151 to reflect December 1995 prices.  - 9 - C. MAJOR FACTORS AFFECTING THE PROJECT 32. Positive influences included: (a) A rapidly developing regional and national economy that increased port traffic (particularly container traffic); (b) The Borrower's experience in implementing similar type of projects; and (c) A close working relationship between the Borrower and Bank. The only negative factor was the higher-than-expected price hikes that significantly increased NPA's operating costs. D. PROJECT SUSTAINABILITY 33. At completion, the project appeared sustainable. Because port traffic will undoubtedly grow, along with rapid economic development in the Ningbo area, the port's expanded facilities will be needed. In fact, traffic in containerized cargo has soared and the project's container terminals are efficient, due to the advanced facilities, equipment and trained staff provided. In addition, NPA is financially stable and has enough resources to maintain and operate the port efficiently. E. BANK PERFORMANCE 34. The Bank identified the issues and prepared the project in a timely fashion. It was identified in April 1987 and appraised in March 1988. Bank supervision was also efficient: The annual average input of staff resources was 17.5 staff-weeks combined with the Shanghai Port Project, which included various specialties (see Table 12). This was possible because the supervision of six Bank-financed port projects was well coordinated. 35. With regard to procurement, the Bank took a consistent position and provided guidance, when necessary. F. BORROWER PERFORMANCE 36. In general, the Borrower's performance was good and preparation and implementation were excellent. The operations and maintenance action plan targets were substantially met during implementation, and as shown in Table 10, Part II, covenants were generally met, as well. The Borrower's performance, therefore, was evaluated as highly satisfactory. G. ASSESSMENT OF OUTCOME 37. This project is assessed as "highly satisfactory" because it achieved all major objectives without any major shortcomings.  - 10- 38. Net present value was positive, Y 919.5 million against Y 579.7 million in the SAR (see para. 31), when flows were discounted at 12 percent for a major part of the investment. H. FUTURE OPERATIONS 39. The project provided facilities that should be able to handle traffic until the late 1990s. However, due to the rapid increase in traffic, NPA extended the project jetty (using funds from a local bank), thereby providing another three general cargo berths. To operate optimally, NPA will need to obtain additional equipment for container handling; it estimates that this will cost $30 million for three quay-side container cranes, nine rubber-tire gantry cranes, and other equipment. 40. The decentralization of port management from the central government to the municipal level has been successful: NPA, an autonomous entity under the municipal government, has shown it can implement projects and manage the port capably. However, it has enjoyed a monopoly position since it was established (as have other port authorities in China) and has therefore not lowered operating costs significantly. Thus, to improve its operational efficiency even more, NPA could introduce the concept of competition among its subsidiary companies that operate terminals; or, it could promote joint ventures with experienced foreign operators. 41. Adjacent to the port, a national project, Daxie Island Development, is being planned that includes extensive industrial and port development. A joint venture of the China International Trust & Investment Corporation (under the State Council) and a foreign consulting firm is preparing the project and foreign investors as well as NPA are being invited to invest. NPA has revised its master plan, including Daxie Development, and MOC has coordinated and authorized the project under the long-term port development plan. NPA may become a partner of the Daxie Island Development or compete with the Daxie port district. If Daxie port is developed, NPA's monopoly situation will disappear. 42. To increase the port's efficiency, authorities will need to monitor it carefully, along with its financial performance. To accomplish this, they will need to evaluate: (a) tariff level and operational cost; (b) staffing level for management and operation; (c) traffic level; and (d) productivity indicators, including: (i) ship waiting time, and (ii) cargo handling volume per day per vessel and moves (load/unload) of container boxes per hour per crane. I. FINDINGS AND LESSONS LEARNED 43. The findings and key lessons from project implementation include: (a) NPA capably carried out the construction, procured equipment, conducted studies and developed its organization; NPA completed construction of berths four months ahead of the schedule with satisfactory quality; (b) With regard to the procurement of equipment, there is a risk that problems will surface when a contract is awarded to a company with only marginal experience (para. 9);  - I1 - (c) Project components should be designed as independently as possible. Although project activities at Ningbo and Shanghai ports were separate and independent (the port entities were different and the two activities had no interaction), they were combined to facilitate project preparation. The Ningbo port component, implementation of which was on time, could not be closed on time due to the delay in the Shanghai Port Project (para. 12); (d) Performance indicators with regard to port operations, maintenance and environmental quality were clearly stated in the SAR (to monitor the project's progress) and proved quite useful; (e) Project design was relatively straightforward and thus avoided problems of coordination among various agencies; and (f) When tariffs are regulated and inflation is high, actual tariffs cannot reflect actual costs. It is suggested that some mechanism should be added into the tariff calculation to reflect actual operational costs. 44. Since this is the sixth completion report for Chinese port projects approved in the 1980s (after two Project Completion Reports for the Three Ports Project and Dalian Port, and three ICRs for Tianjin, Huangpu and Xiamen Ports), it is worth summarizing findings and lessons learned from these projects as shown below: (a) Decentralization of the ports has been satisfactory. This was proven by the operational and financial performance of the port authorities. (b) Although still limited, involvement of the private sector in container terminal operation has been initiated-it is already established in Shanghai and Dalian, and being prepared in Xiamen and Ningbo. (c) Simple project designs and clear implementation targets, with a single executing agency, were the key for successful implementation of the projects. (d) The major reason for implementation delays was procurement, due to long evaluation periods. In order to avoid confusion in the evaluation period: (i) postqualification criteria should clearly be provided in bidding documents; (ii) an evaluation report should provide clear and sufficient reasons for nonresponsiveness, if the lowest bidder is not proposed to be awarded; and (iii) sufficient time should be reserved for the procurement process. (e) The SAR's inclusion of action plans for operational improvement was effective for supervision and implementation of projects. Productivity was improved through implementation of action plans in Huangpu, Xiamen, Shanghai and Ningbo ports.  - 12 - 45. For future port development, the following changes are suggested: (a) The port tariff is largely regulated by the Central Government and not based on the actual operating cost. This should be corrected. (b) Competition is the key factor for operational improvement. Since many ports enjoy a monopoly situation, it is important to introduce the concept of competition among the terminal operators. (c) Some nonport activities such as schools and hospitals should be transferred from port authorities to local agencies.  - 13 - PART II: STATISTICAL ANNEXES TABLE 1: SUMMARY OF ASSESSMENTS A. Achievement of objectives Subktanfin Partial Neligible Not applicable Macro policies x Sector policies x Financial objectives x Institutional development x Physical objectives x Poverty reduction x Gender issues x Other social objectives x Environmental objectives x Public sector management x Private sector development x Other (specify) x B. Project sustainability Likely Unlikely Uncertai x Highly C. Bank performance satisfactory sasfaw I2eficient Identification x Preparation assistance x Appraisal x Supervision x D. Borrower performace Preparation x Implementation x Covenant compliance x Operation (if applicable) x E. Assessment of outcome x  - 14 - TABLE 2: RELATED BANK LOANS/CREDITS Loan/credit title Purpose Year of approval Status Preceding operation 1. Three Ports Project expansion 1982 completed on 6/30/88 2. Tianjin Port Project expansion 1986 completed on 10/31/94 3. Huangpu Port Project expansion 1987 completed on 12/31/94 4. Dalian Port Project expansion 1988 completed on 12/31/93 Following operations 1. Xiamen Port Project expansion 1988 completed on 3/31/95 2. Shanghai Port Restructuring and Development Project expansion 1992 to be completed on 6/30/99 TABLE 3: PROJECT TIMETABLE Item Date planned Date actual Identification 04/87 Preappraisal 09/87 Appraisal 01/88 03/88 Negotiations 04/88 09/88 Board approval 06/88 12/13/88 Signature 02/13/89 Effectiveness 05/09/89 Project completion 12/31/93 12/31/95 Loan closing 12/31/93 12/31/95  - 15 - TABLE 4: LOAN DISBURSEMENT (in $) Period Planned Actual Disbursements Cumulative Disbursements Cumulative disbursements disbursements 7/31/88 - 9/30/88 0 10/1/88- 12/31/88 0 0 1/1/89 - 3/31/89 1,000,000 1,000,000 4/1/89 - 6/30/89 4,000,000 5,000,000 3,545,923 3,545,923 7/1/89 - 9/30/89 2,000,000 7,000,000 1,247,306 4,793,229 10/1/89 - 12/31/89 2,000,000 9,000,000 743,976 5,537,205 1/1/90 - 3/31/90 2,000,000 11,000,000 2,728,177 8,265,382 4/1/90 - 6/30/90 3,000,000 14,000,000 2,949,781 11,215,163 7/1/90 - 9/30/90 2,000,000 16,000,000 2,793,030 14,008,193 10/1/90 - 12/31/90 2,000,000 18,000,000 2,131,722 16,139,915 1/1/91 - 3/31/91 2,000,000 20,000,000 6,748,003 22,887,918 4/1/91 - 6/30/91 2,000,000 22,000,000 2,713,943 25,601,861 7/1/91 - 9/30/91 1,000,000 23,000,000 1,712,920 27,314,781 10/1/91 - 12/31/91 2,000,000 25,000,000 0 27,314,781 1/1/92 - 3/31/92 1,000,000 26,000,000 780,715 28,095,496 4/1/92 - 6/30/92 1,000,000 27,000,000 1,250,481 29,345,977 7/1/92 - 9/30/92 1,000,000 28,000,000 0 29,345,977 10/1/92 - 12/31/92 2,000,000 30,000,000 0 29,345,977 1/1/93 - 3/31/93 0 29,345,977 4/1/93 - 6/30/93 0 29,345,977 7/1/93 - 9/30/93 0 29,345,977 10/1/93 - 12/31/93 0 29,345,977 1/1/94 - 3/31/94 0 29,345,977 4/1/94 - 6/30/94 0 29,345,977 7/1/94 - 9/30/94 0 29,345,977 10/1/94- 12/31/94 241,202 29,587,183 1/1/95 - 3/31/95 412,817 30,000,000 4/1/95 - 6/30/95 Undisbursed: 0  Table 5: Key Indicators for Project Implementation Planned Actual 1987 1988 1989 1990 1991 1992 1993 1994 Item\Year Start Complete Start Complete 1. Constnuction of container & multipurpose wharf Jun-89 Jun-91 May-89 Jun-91 construction 2. Land area and storage yard Jun-87 Jun-91 Feb-88 Dec-90 : 3. Road Apr-88 Sep-90 May-88 Sep-90 4. Railway Apr-88 Aug-89 Mar-88 Dec-89 5. Equipment Aug-89 Jun-91 Aug-89 May-92 6. Auxiliary building Apr-88 Jun-91 Apr-88 Nov-90 0% 7. Water supply and sewerage May-89 Dec-89 Apr-88 Dec-90 8. Power supply Apr-89 Dec-89 May-89 Dec-90 E Z 9. Enviromnental protection May-90 Mar-91 Apr-90 Dec-90 77.: :::: :; : : IPlanned Actual  - 17 - Table 5: (CONT'D) TABLE 5B: TRAINING Overseas Training Planned Actual No. of Person- No. of Person- Person Month Person Month Management 17 17 51 79 Technicians 5 15 0 0 Drivers or Operators 6 36 2 2 Maintenance Workers 10 40 1 1 Total 38 108 54 82 Domestic Training Planned Actual 1989 1990 1991 Total 1989 1990 1991 1992 1993 1994 Total Direct Production 200 250 150 600 56 72 115 87 72 38 440 Engineering Technicians 30 50 20 100 0 10 6 18 12 26 72 Management 30 50 20 100 18 40 62 51 31 33 235 Security 10 30 10 50 0 0 2 5 1 4 12 Serviceman 34 61 60 155 0 0 4 5 3 3 15 Total 304 441 260 1,005 74 122 189 166 119 104 774 Staff Number of NPA Planned Actual 1990 1986 1990 1994 Direct Production 6,364 4,657 5,392 Engineering Technicians 637 494 650 Management 1,055 884 971 Security 125 120 146 Serviceman 1,021 867 930 Others 957 80 169 Total 10,159 6,338 7,102 8,258  TABLE 5C: PROCUREMENT (UNDER ICB) Planned Actual Commodity inspection Commodity inspection Equipment, work and communication Equipment, work and communication Marine structure boats & vehicle navigation facilities Marine structure boats & vehicle navigation facilities Rubber-tired (Package 1) (Package 2) (Package 3) (Package I) (Package 2) (package 3) gantry crane Start Complete Start Complete Start Complete Start Complete Start Complete Start Complete Start Complete General Procurement Notice 12/25/87 12/25/87 Prequalification documents 05101/88 06/30/88 05/03/88 06/30/88 Prequalification evaluation 07/01/88 07/30/88 07/01/88 08/26/88 Submitting bid documents 07/30/88 08/15/88 07/30/88 08/15/88 03/01/89 04/15/89 07/30/88 09/01/88 07/30/88 08/01/88 03/24/90 04/03/90 11/10/92 11/18/92 oo to the Bank Prnting bid documents 08/15/88 08/30/88 11/01/88 12/01/88 04/15/89 05/15/89 08/15/88 09/01/88 11/01/88 12/01/88 11/30/92 01/08/93 Bidding 09/01/88 11/01/88 12/01/88 02/15/89 05/15/89 07/30/89 10/20/88 12/21/88 03/18/89 12/14/89 01/09/93 04/16/93 Evaluation 11/01/88 12/30/88 02/15/89 04/15/89 0/01/89 10/01/89 12/21/88 01/14/89 07/24/89 03/20/90 07/11/90 07/16/90 02/15/93 04/16/93 Submitting evaluation 01(01/89 01/30/89 05/01/89 06/01/89 10/01/89 11/01/89 01/14/89 03/14/89 09/07/89 05/10/90 0424/91 06/30/91 04/16/93 06/18/93 report to tie Bank Contract 01/30/89 02/28/89 06/01/89 07/01/89 11/01/89 12/01/89 04/04/89 04/16/89 08/10/89 07/05/90 10/20/92 10/21/92 06/19/93 Construction start 04/15/89 10/15/91 05/03/89 06/29/91  - 19- TABLE 6: KEY INDICATORS FOR PROJECT OPERATION (ACTION PLAN) Operational Efficiency (i) Berth Throughput (,000 tons) Existing Planned Actual 1990 1995 1994 Beilun District Berth No. 1, ore discharging 5,801 7,650 10,000 14,120 Berth No. 2, ore loading 2,203 3,325 5,000 6,625 Berth No. 3, ore loading 2,354 3,325 5,000 7,089 Berth No. 4, general cargo 51 400 500 714 Berth No. 5, container (proposed) 720 2,380 Berth No. 6, multipurpose (proposed) 590 873 Berth No. 7, multipurpose (proposed) 590 756 Zhenhai District BerthNo. 1, coal loading 216 500 700 713 Berth No. 2, coal discharging 1,768 1,800 2,000 2,638 Berth No. 3, coal discharging 660 1,000 1,409 Berth No. 4, general cargo 100 400 415 Berth No. 5, general cargo 88 300 500 401 Berth No. 6, general cargo 95 200 400 419 Berth No. 7, general cargo 8 50 200 122 Berth No. 8, general cargo 38 100 200 45la Berth No. 9, general cargo 161 250 400 241Ua Berth No. 16, liquid chemicals 15 100 200 327 Ningbo District 7 general cargo berths (5,000 dwt) 1,138 1,400 1,400 458La . general cargo berths (1,000 dwt) 245 250 250 374la (ii) Average Berth Time of Vessels (Whole Port, Loading) Coal 0.8 0.7 0.6 0.5 Metal ores 1.9 1.8 1.6 1.0 Steel 2.5 2.0 1.5 1.6 Cement 1.8 1.5 1.0 2.1 Nonmetallic ore 5.4 4.8 3.0 5.3 Bagged fertilizer 5.8 5.0 4.0 1.0 Bulk grain 4.9 4.0 3.0 1.4 General cargo 3.3 3.0 2.0 2.0 (iii) Average Berth Time of Vessels (Whole Port, Discharging) Coal 2.6 2.2 2.0 2.4 Metal ore 8.3 7.0 5.0 3.5 Iron and steel 7.8 7.0 6.0 2.8 Cement 8.4 8.0 6.0 3.7 Timber 12 1 11.5 10.1 4.2 Nonmetallic ore 5.8 5.0 4.0 1.1 Bulk fertilizer 3.3 3.1 3.0 14.8/k Bulk grain 3.4 3.0 2.0 15.3L& General cargo 4.8 4.0 3.0 2.5 LA Due to the increase of vessel size for general cargo, more than 50 percent of general cargo is unloaded at Beilun area and transshipped to these berths. Since transshipped cargo is not included in the statistics, cargo volume at these berths appears less than half of the actual volume. lb This is the exceptional case (Cargo was not in the proper condition and required an extra time). I& Vessel size and cargo volume are increasing, but the port has no specialized bagging system. NPA should is considering provision of a specialized system for bulk grain.  - 20 - TABLE 7: STUDIES INCLUDED IN THE PROJECT Updating of Master Plan and Preparation of Port Optimization Study (a) Purpose as defined at appraisal The study was to update NPA's port master plan for expansion, enabling the port to cope with the anticipated traffic increase. Also, it would provide a long-term plan until 2005 and enhance NPA's planning capability. (b) Status Satisfactorily completed in December 1991. (c) Impact of the study NPA updated the master plan, along with the assistance of foreign consultants, and improved its planning capabilities.  - 21 - TABLE 8: PROJECT COSTS, FINANCING AND ALLOCATION OF LOAN PROCEEDS TABLE 8A: PROJECT COST Planned Actual Local Foreign Total Local Foreign Total Local Foreign Total Local Fotein Total (Y 000) --- ------ ------ (S 000) ---- ---- - ---(Y 000) - - -S00 A Civil Works I Marine structures 15,54 43,99 59,53 4,20 11,890 16,09 18,20 57,249 75,45 4,44 11,62 16,059 2 Reciamation 9,60 9,60 19,21 2.59 2,596 5,19 23,22 0 23,22 5,66 5,664 3. Soil treatment 2,16 2,16 4,32 58 585 1,17 1,63 0 1,63 40 400 4 Communication pipes 3 3 7 1 10 2 8 0 a 2 20 5. Open ditches for yard drainage 79 79 1,59 21 215 43 1,47 0 1,47 35 359 6. Railway 1,40 1,40 2,81 38 380 76 3,17 0 3,17 77 775 7. Road 1,33 1,35 2,70 36 363 73 3,35 0 3,35 *1 SIS 8. Storage yard pavement 2,03 2,03 4,07 55 550 1,10 2,38 0 2,3t 58 5Sa 9 Cableditches 14 14 29 4 40 8 41 0 41 10 100 10 Lighttower foundation 5 5 11 1 15 3 12 0 12 3 31 11 Auxiliary civil works 11,80 11.80 23,60 3,19 3,190 6,38 27,85 0 27,85 6,79 6,791 12 Water supply and sewage 51 51 1,03 14 140 28 1,27 0 1.27 31 311 13 Heating and ventilation 24 24 48 6 65 13 62 0 62 15 152 14 Environmental protection 28 28 56 7 76 15 80 0 80 19 197 15. Components outside port 2,14 2,14 4,29 58 580 1,16 3,51 0 3.51 *5 857 16. Temporary works and land acquisi 10,10 10,10 20,20 2,73 2,730 5,46 15,41 0 15,41 3,75 3,75S Subtotal H8 2 86 14490 i.157 Z422 916 103.5 5I2M IA16 I2 l"L 36S74 B Equipment 17. Cargo handling equipment 1,42 48,06 49,48 38 12,990 13,37 10,07 74,159 84,23 2,45 15,05 17,509 18. Machinery repair equipment 3 14 18 1 40 5 24 0 24 5 59 19 Working boat and vehicles 4,95 4,95 1,340 1,34 1,96 0 1.96 47 479 20 Powe supply 1,77 1,77 3,55 48 480 96 3,56 0 3,56 S6 S6" 21 Compuler 3,73 3.73 1,010 1,01 0 0 22 Communication and navigation 1,62 92 2,55 44 250 69 1,87 1,232 3,10 45 25 706 23 Other cargo equipment and facilities 8,28 8,28 2,240 2,24 44 3,942 4,38 10 t0 909 0 Subtotal 486 6789 7275 131 18U 196 1816 79333 97A2 442 161J 2ft3 Spare paru (10