Mauritius - Port Development and Environment Protection Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23880 IMPLEMENTATION COMPLETION REPORT (TF-23047; COFN-03580; PPFB-P2150; SCL-39080; SCL-39090) ONA LOAN IN THE AMOUNT OF US$30.5 MILLION TO THE REPUBLIC OF MAURITUS FOR A PORT DEVELOPMENT AND ENVIRONMENT PROTECTION PROJECT June 5, 2002 AYFTR Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. l  CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2001) Currency Unit = Mauritian Rupees Rs.1 = US$ 0.033 US$ 1 = Rs. 30.3 FISCAL YEAR July 1 -June 30 ABBREVIATIONS AND ACRONYMS BPML Business Parks of Mauritius Ltd BPMLFS BPML-Freeport Services CHCL Cargo Handling Corporation Ltd CAS Country Assistance Strategy GOM Government of Mauritius HRD Human Resources Development IT Information Technology MCT Mauritius Container Terminal MPA Mauritius Ports Authority MMA Mauritius Marine Authority MFA Mauritius Freeport Authority PSEC Port Safety and Environment Committee PUC Port Users Council QAG Quality Assurance Group SCL Single Currency Loan SP Social Plan VRS Voluntary Retirement Scheme Vice President: Callisto Madavo Country Manager/Director: Hafez M.H. Ghanem Sector Manager/Director: Maryvonne Plessis-Fraissard Task Team Leader/Task Manager: Marc Juhel  FOR OFFICIAL USE ONLY MAURITIUS PORT DEVELOPMENT AND ENVIRONMENT PROTECTION PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings I 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 14 6. Sustainability 15 7. Bank and Borrower Performance 16 8. Lessons Learned 18 9. Partner Comments 19 10. Additional Information 31 Annex 1. Key Performance Indicators/Log Frame Matrix 32 Annex 2. Project Costs and Financing 33 Annex 3. Economic Costs and Benefits 35 Annex 4. Bank Inputs 49 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 51 Annex 6. Ratings of Bank and Borrower Performance 52 Annex 7. List of Supporting Documents 53 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Project ID: P00 1926 Project Name: PORT DEV. & ENV PROT Team Leader: Marc H. Juhel TL Unit: TUDTR ICR Type: Core ICR Report Date: June 6, 2002 1. Project Data Name: PORT DEV. & ENV PROT LIC/TF Number: TF-23047; COFN-03580; PPFB-P2150; SCL-39080; SCL-39090 Country/Department: MAURITIUS Region: Africa Regional Office Sector/subsector: BB - Public Sector Management Adjustment; ME - Economic Management; TP - Ports & Waterways; VV - Environment Adjustment KEY DATES Original Revised/Actual PCD: 05/28/1993 Effective: 03/04/1996 Appraisal: 12/15/1994 MTR: 03/26/1997 Approval: 06/20/1995 Closing: 12/31/2001 12/31/2001 Borrower/lImplementing Agency: Government of Mauritius; Mauritius Ports Authority/Mauritius Freeport Authority; Mauritius Ports Authority Other Partners: European Investment Bank (EIB); Japan Export-Import Bank (Jexim); Government of Luxembourg STAFF Current At Appraisal Vice President: Callisto E. Madavo E.V.K. Jaycox Country Manager: Hafez M. H. Ghanem Andrew P. Rogerson Sector Manager: Maryvonne Plessis-Fraissard Maryvonne Plessis-Fraissard Team Leader at ICR: Marc H. Juhel Alain F. Ballereau ICR Primary Author: Marc H. Juhel; Sati Achath 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: HS QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The overall objective of the project was to enhance Mauritius' transport and trade competitiveness in the maritime sector in an environmentally sound manner. To this end, the project aimed to help:(i) increase port productivity, efficiency and capacity to meet the demand of port users and operators at competitive rates through extension of facilities, mechanization and improved management of Mauritius Port Authority (MPA), formerly Mauritius Marine Authority (MMA), Cargo Handling Corporation (CHC) and Mauritius Freeport Authority (MFA); (ii) re-define the role of MPA as a landlord port authority working through a system of competitive concession contracts with performance indicators for port operations; (iii) support the development of MFA to promote Mauritius as an attractive tax-free base for regional entrepot trade; and (iv) accompany port development with sound environmental protection, including control of marine pollution, and port operations and vessels' safety enhancement. The objective of the project was clear, important, and realistic. It was also consistent with the Bank's 1994 Country Assistance Strategy (CAS), which focused on helping Mauritius achieve and sustain a higher level of economic performance based on increased competitiveness and diversification of production and exports, including the development of skills-intensive and service-based activities. Among other things, this required improving the efficiency and competitiveness of key infrastructure, such as the port in an environmentally sound manner. The Bank's involvement through this project aimed to contribute to achieve that goal. This economic competitiveness objective was also a main thrust of the following 1997 CAS, so by spanning two CAS periods, the project appears to be part of a continuous and consistent effort to adapt the Mauritian economy to the new global challenges it has to face. The project also aimed to supplement the Bank's existing programs such as the economic and sector work (Mauritius - Technology Strategy for Competitiveness, Report No. 12518-MAU, September 1994) and lending (Technical Assistance to Enhance Competitiveness Project, LN. 37360-MU). By supporting and guiding the modernization and extension of the port, and achieve the appropriate blend of institutional reform, capacity extension, and financial engineering, the project strengthened Mauritius' drive to reach a higher level of performance. In addition, the environmental component of the project was significant for its demonstration value for other countries in the area of marine pollution and vessel safety control. The project envisioned several benefits to Mauritius, which included: (a) developing international and regional entrepot trade by improving the competitiveness of the country's transport and trade; (b) lowering transport costs through reduced ship and cargo waiting time; (c) better land use, in particular for prime areas reclaimed from the sea; (d) better response to the needs of private investors and operators by strengthening the regulatory roles and organization of MPA and MFA; (e) substantial and positive social impact by providing more efficient and reliable conditions for Mauritian trade; and helping indirectly to generate new business in the intemational trading sector; and (f) reduced environmental risks through less polluted port water, better handling of hazardous cargo, and improved ship safety control. The project took into account lessons leamed from previous Bank-assisted projects in the environmental and transport sectors in Mauritius, which showed that the success of Mauritius' -2 -  implementation performance stemmed mainly from (i) good institutional capacity; (ii) strong ownership as a result of involving institutions at the outset; and (iii) strong follow-up, once decisions were made. These lessons also demonstrated that whenever the focus of new operations were directed toward more complex institutional goals, and required the cooperation of various interest groups, there were slower pace of project preparation, delays in start-up and slower disbursement. In order to enhance project ownership and commitment of all stakeholders, the project was prepared in close cooperation with the Government of Mauritius (GOM), MPA/CHC and MFA, and in consultation with relevant private sector and trade union representatives. The project also focused specifically on strengthening MPA and MFA, increased transparency and efficiency in port operations through structural changes and expanded private sector involvement. The project also benefited from cofinancing from the Japan Export-Import Bank (Jexim), which granted an equivalent amount to the Bank loan to MPA for the new container terminal, from the European Investment Bank (EIB), which granted a loan to MPA to finance ship-to-shore container handling equipment for the new terminal, and from the Government of Luxembourg which offered a grant to MFA for the building of new warehouses. The project also recognized and took into account the following three risk factors which could affect project implementation, viz: * the possibility of partial implementation of the institutional changes, especially the labor redundancies at MPA and CHC. This risk was minimized through the use of client consultation and beneficiary participation. All the interested parties, including the government, MPA, CHC, port users and labor unions participated in the planning of the institutional studies, as well as in the review of conclusions prior to their adoption by GOM. * the effect of annual cyclonic stonns on the operations of the new terminal. This risk was mitigated by analyzing the possibilities of weather-related loss and building the appropriate level of precaution into the design of the berth to enable it to withstand waves of even exceptional storms. In addition, provisions were made to have gantry cranes secured to the ground, and yard equipment moved to safe shelters during such storms. * the interest rate risk, especially for MPA, associated with a LIBOR-based Single Currency Loan (SCL). While assessing this risk, it was estimated that the benefits of the reduced currency risk from SCL which Mauritius was eligible for, outweighed the interest rate risk. The project was responsive to the needs of the Borrower. It was timely and appropriate for boosting the image of Port Louis as a hub port in the Southern Indian Ocean for non-captive cargo, particularly in light of globalization and increased competition from the region. With increased productivity, competitive tariff and higher quality of service resulting from the project, it was expected to elevate Mauritius to a level where it would be in a better position to face the future with more confidence and competence. The project was also moderately complex and reasonably demanding on the Borrower because it involved significant sector reforms and changes in social plans. Implementing Voluntary - 3-  Retirement Scheme (VRS) and declaring staff redundancies under the Social Plan (SP) was expensive as well as burdensome to both MPA and CHCL. Likewise, productivity parameters and their monitoring by the Bank and MPA were demanding to the CHCL. In addition, since CHCL was not fully conversant with terminal management, its staff had to be trained especially on container terminal operations. However, even though Mauritius had never before undertaken a project of this magnitude, in terms of resources both implementing agencies were well geared. But in terms of time, it was demanding for the management of MPA and CHCL, technicians, engineers and contractors. In addition, it was a challenging task to get the commitment of all stakeholders to develop the new facility at Mer Rouge. 3.2 Revised Objective: Not applicable. 3.3 Original Components: The project consisted of the following three components. The components were reasonably related to achieving the objectives. The implementing agencies, MPA and MFA, had sufficient administrative and financial capacity for successful implementation. Since this was a second port project in Mauritius, MPA staff had had previous experience in project management. (A). Port Development (MPA) Component. This included: (i) Institutional strengthening to make MPA a more commercially-oriented landlord port authority, with sole legal authority over port operations, standards, and land use, fostering streamlined port handling operations through concession contracts with port operators, including CHCL. Consequently, it implied that henceforth CHCL would buy or lease cargo handling equipment put at its disposal by MPA and would open its capital to private investors including an experienced container terminal operator. (ii) Improvement in the management and operations of MPA and CHCL through the implementation of their corporate plans, including organizational restructuring to achieve inter alia, cost containment and rational marketing and pricing. (iii) Construction of a new three berth container and oil terminal, and procurement of related equipment including two gantry cranes for container handling; fire-fighting and computer equipment; a passenger terminal building and an intemal road network for new port areas; civil works and pipelines to relocate oil and gas storage; and (iv) supervision contracts for civil works; and specialized short-term assistance to develop and implement actions needed to strengthen the institutional set-up, management and operations of MPA and training. (B). Freeport Development (MFA) Component. This included: (i) a study on the modalities for liberalization of the national regime governing air transport licensing, to allow for chartering of cargo planes to permit sea-air links, to facilitate sea-air transshipment activities to take into account, reciprocity in international air traffic agreements; (ii) implementation of a targeted trade development strategy through the execution of MFA's corporate plan to strengthen its organization and operations as well as rationalize its marketing and pricing; (iii) site preparation of 15 - 4 -  hectares of land at Mer Rouge including the construction of roads and office and customs buildings; and (iv) supervision contracts for civil works, and specialized short-term assistance to develop and implement actions needed to strengthen management, operations and training at MFA. (C). Environment Protection Component. This included: (i) A study to define the requirements and to design facilities for collection and disposal of land and ship-based oily waste, and to draft regulations required to enforce safety in port operations and control vessels' sea- worthiness. (ii) Construction of facilities for collection and pre-treatment of oily waste. (iii) supervision of contracts for civil works and equipment and training to fight oil spills and control vessels' sea-worthiness. 3.4 Revised Components: Not applicable. 3.5 Quality at Entry: Since the project design predates the existence of the Quality Assurance Group (QAG), there is no official assessment of the project's quality at entry. Nevertheless, the ICR finds the quality at entry to be satisfactory As mentioned earlier, the project objectives were consistent with the CAS and the government priorities and met the critical needs of the transport sector. Since the implementing agencies had the required administrative, financial, and technical capacity, the quality of project design was generally adequate to meet the project's overriding objective. During preparation of the project, major risk factors and lessons learned from other earlier projects in Mauritius were considered and incorporated into the project design. The project design also included a noteworthy innovation to standard Bank financing arrangements in Africa. By allowing a better exchange rate risk management, the single currency, US dollar-based loan offered significant value to MPA, which earns most of its revenue in US dollars; the SCL's long tern, 15-year maturity spread better the annual financing costs for MPA, compared to its short-term and higher-cost alternative option. The same terms were secured for the project's co-financing arrangements with JEXIM and EIB. In addition, the private sector equity financing of equipment reduced reliance on debt financing. Such financing sources included Mauritius' emerging stock market, thus furthering the capital market-strengthening objective. As mentioned in Section 7.1 under Bank Performance, the project design adopted a participatory approach by involving port unions in project preparation as well as in the sector reform process. Likewise, the project design also included regular consultations with the private sector. In hindsight it might appear that the Bank took some risk by not formally linking disbursement with sector reform, in the event that the government did not fully implement the sector reform. However, the Bank decided to finance the container terminal without any conditionality in light of: (i) the substantial commitment from the government to proceed with the sector reformn as per the Bank's agreement with the Letter of Government Policy; (ii) the climate of trust and - 5 -  confidence built upon past credentials of Mauritius as a country which keeps up its commitments; and (iii) the fact that this being an IBRD project, the Borrower had the choice of not accepting the Bank's conditionalities. In retrospect, it also became apparent that MPA lacked sufficient support to deal with the legal matters on sector reforms as well as on project implementation. Since it had to rely on the State Law Offices for legal advice, there were delays in taking timely decisions. On the other hand, having a legal expert on board to look into legal issues would have been very useful during critical periods of project implementation. However, legal advice was provided under project-financed technical assistance, in particular for the drafting of the new Ports Act and of the related regulations. Also, the HRD Plan could have been incorporated as part of the project right from the outset, which would have enabled MPA to look in detail on issues such as quality and capacity of resources, and capacity-building skills. Instead, the HRD Plan came into existence only after the Ports Act of 1998. Likewise, implementation of the Social Plan could have been one of the components of the project, so that it would have been financially less strenuous for both MPA and CHCL. It should be remembered, however, that when the project was negotiated in 1995, the possibility for the Bank to finance labor redundancy packages through investment lending operations had not been approved yet. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Highly satisfactory. The project succeeded in achieving its project objective. Among other things, achievement of the project included completing the sector reform, and enhancing port productivity substantially, which in turn generated many economic benefits. The major outcome and achievements of the project are as follows: Sector reform: The new Ports Act was approved by the National Assembly on May 26, 1998 and became effective on August 1, 1998. Consequently, the Mauritius Marine Authority (MMA) was renamed the Mauritius Ports Authority (MPA) and became the Landlord Port Authority, whereas the CHCL formally became a full-fledged operator. Complementing the new Law, Port Regulations comprising port operations, safety, hazardous cargos, licensing, finance, and environment protection came into effect soon after, and a Port Users Council (PUC) was established as a permanent consultative forum. The new Freeport Act which was passed on 17th July 2001 along with Freeport Regulations, defined the new role of MFA as a regulator and promoter. With the enactment of Freeport Transfer of Undertaking Act on the same date, MFA's assets were transferred to Business Parks of Mauritius Ltd (BPML). Subsequent to these Acts, BPML established a subsidiary under the name BPML-Freeport Services to provide logistical support services such as warehousing, open storage yard, and office space to Freeport operators. Productivity. Since the start of operations on the Mauritius Container Terminal (MCT) on January 15, 1999, operational performance improved significantly throughout the year 2000, with September 2000 reaching 19.4 moves per gross crane hour, the best result so far, repeated in - 6 -  August and October 2001. Average productivity per ship working hour also increased substantially reaching 28.7 in 2001, compared to 21.9 in 1999. The following table displays detailed monthly results of MCT operations: Month No. of No. of Moves per Moves per Moves per Ship Ships Moves Gross Crane Ship Working Hour at Berth Hour Hour (*) (*) 1999 TOTAL/ 386 108,043 A VERA GE 14.4 21.9 17.7 2000 TOTAL/ 429 127,521 A VERA GE 17.8 28.3 20.0 % 2000/1999 + 11% + 18% +24% +29% + 13% January 2001 38 9,773 18.0 28.0 24.6 February 2001 37 8,823 18.9 28.5 17.1 March 2001 45 11,777 16.9 25.8 18.1 April 2001 40 11,731 18.5 30.9 28.0 May 2001 43 11,746 17.3 28.0 20.3 June 2001 42 10,967 18.2 29.3 20.9 July 2001 44 12,019 19.1 30.6 22.1 August 2001 40 10,907 19.4 31.9 22.4 September 2001 43 10,729 18.6 26.7 19.1 October 2001 49 13,650 19.4 28.3 21.8 November 2001 42 11,248 19.1 31.1 21.4 December 2001 45 11,639 17.7 25.1 18.9 2001 TOTAL/ 508 134,809 A VERA GE 18.4 28.7 21.2 % 2001/2000 +18.4% +5.7% _____ _____ _ ___ __ __ _____ +3.4% +1.4% +6.0% (*) for large ships having been handled with two gantry cranes simultaneously for at least part of the call. These results show that ship productivity is on the rise, in particular for those vessels that can be operated with more than one crane. In fact, a closer analysis focussing only on those ships which can be operated with two or more cranes during the whole call, which is representative of the quality of service which can now be offered to the most demanding ships, shows ship productivity coming close to, and sometimes going beyond, 40 moves per hour, which is today the international standard required for competitive service. Mauritius is therefore now in a position to offer this quality of service to the most demanding ships which can be operated with two or more cranes during the whole call. In order to consolidate and improve these operational results, CHCL management is in the process of securing an agreement with all the four unions regarding staggered meal time with the objective of eliminating the loss of productivity stemming from the meal break. Furthermore, agreement was also reached on working systematically with two gantry cranes during the third shift. These changes are expected to help strengthen significantly the commercial performance of - 7 -  the MCT and its credibility among shipping operators. Traffic: At the end of the calendar year 2001, the global traffic at Port Louis reached 4.81 million tons, providing a 7.62% increase rate in comparison with the previous year traffic of 4.46 millions tons. This was 1% above the SAR's estimated global traffic of 4.77 million tons for 2001. For reference, the1995 traffic stood at 3.42 million tons. Containers: During calendar year 2001, Port Louis handled 161,634 TEUs, providing a 2.7% increase in comparison with 157,420 TEUs in the calendar year 2000. This was 19% above SAR's estimate of 136,290 TEUs for 2001. For reference, thel995 traffic stood at 92,882 TEUs. Concession contract between MPA and CHCL: The concession contract for existing terminals, which became effective since June 1 st, 1997, was a key event in the port modernization which was the result of nine months of discussion between CHCL, MPA and the Unions, and was quoted as "..a new era in the history of the port". The concession introduced new working hours in the port, enhanced flexibility to carry out operations, and a clear commitment from MPA and CHCL staff and management to achieve measurable minimum productivity targets. Concession contract for the MCT: The concession contract between MPA and CHCL for the operation of the MCT was signed on January 9, 1999 for five years, and became fully operational in January 15, 1999. CHCL Institutional Evolution and Corporate Strategy: Complying with the spirit of the 1998 Ports Act on separating public landlord functions from commercial activities, the GOM decided to formally withdraw MPA's 40% shareholding from CHCL, thereby providing an opportunity for CHCL to enter into a strategic partnership with an international container operator. The involvement of such an operator would benefit Mauritius in terms of gaining shipping lines' better patronage in a competitive environment, and also for meeting CHCL's need to increase its container handling capacity, starting with new container gantry cranes and additional yard equipment, and higher investment and purchasing power. Furthermore, this opening of CHCL's capital could then be pursued in making it possible for domestic investors, as well as CHCL staff, to become shareholders of the company. This process is now underway (see para.6.2). Human Resources Development (HRD) Plan: On the basis of the recommendations of the HRD consultant, a new salary structure for the MPA staff was implemented with effect from July I, 2000, which has resulted in creating a motivated and better contented work force. A salary raise in the range of 12-16% was given to 85% of the employees and about 20% to the senior and middle-level management. A third shift was also introduced for the marine/operational department with effect from October 15, 2001. In addition, following the consultant report, MPA is also envisioning to introduce a Performance Management System (PMS) with effect from January 1, 2003 with the objective of gaining more efficiency. Training Center: With the support of a grant from the European Union (Euros 400,000), a full-fledged Port and Maritime Training Center was established in June 2001, for both public - 8 -  and private sector staff. The Training Center has started the first phase of implementation by equipping it with appropriate equipment, and recruiting the training consultant. The first training courses started in February 2002. The Training Center is planned to be expanded to cater for broader national and regional training needs. In addition, in line with the govemment policy to transform Mauritius as a cyber island, and the need of MPA to set in place a port computer system, MPA has also set up a Computer Training Center, which started delivering courses since June 2001 to port employees and children living near the port area. At project closing, the Computer Training Center had given training to 90 MPA staff and to about 120 children as part of the social program. Port Safety Management Plan: MPA set up in November 2000, a Port Safety and Environment Committee (PSEC) under the chairmanship of the Deputy Director-General of the MPA and consisted of many related organizations including Mauritius Police Force, Fire Services, Department of Environment, Municipal Council of Port Louis, and CHCL. Since its inception, the Committee met about 15 times and sub-committees were established to fulfill its objectives. For the safety of port operations, and also for the harmonious development of both the port and the city of Port Louis, a Port Safety Management Plan was put into place. A Port Safety Seminar was organized on July 9-11, 2001, by PSEC, with Bank participation, which provided the opportunity to raise awareness on the critical importance of safety for port operations. Freeport Regulation and Operations: MFA withdrew from Freeport commercial operations, and under a new institutional scheme, MFA was split into two, fully independent entities: (i) a Freeport regulatory agency, only in charge of issuing Freeport licenses and of regulating Freeport operations; and (ii) an operating company, transferred to Business Parks of Mauritius Ltd (BPML), a company incorporated under the 1984 Companies Act, with a mandate to develop and implement business and industrial parks in Mauritius, and in the region as opportunities arise. In order to manage the assets transferred from MFA to BPML, the latter established a new subsidiary called BPML Freeport Services (BPMLFS), which was incorporated on November 19th, 2001. Thirty-eight former MFA staff were transferred to BPMLFS, thereby reducing MFA staffing to eight. This was a significant outcome which will help secure long-term involvement of industrial operators to boost Mauritius as a regional logistics platform and effectively play a critical facilitation role in attracting investments into the Freeport. LPG storage: MPA consolidated the conclusions of the consultant studies, into a series of recommendations submitted to the Government. The main thrust of these recommendations was to relocate, in the short-term, the existing above-ground storage to Mer Rouge, on the area dedicated to oil products. Oil Products Storage at Mer Rouge: Class A products storage will be relocated on the dedicated area on Mer Rouge. Storage capacity extension in the port will be undertaken on this area only. To the extent that available space permits, some Class B and C products would also be similarly relocated. To facilitate oil products handling at this location, MPA is planning the construction of a dedicated oil jetty, which will also improve the overall operational safety of the -9-  facility. This jetty is scheduled to be completed by end-2003. Social Aspects of Sector Reform: The project facilitated implementing sector reform through an effective Social Plan. Even though the reform process involved staff reduction to the extent of 119 in MPA and 430 in CHCL, there was no social unrest or any disruption in the port operations because of the collaboration of the unions, secured through the following fundamental guarantees granted by both MPA and CHCL management: (a) a social plan for all redundant employees; (b) new conditions of service not less favorable than the ones previously enjoyed by the affected staff; (c) participation of the unions in the decision-making process for reform; and (d) for CHCL unions, a firm commnitmnent that, were CHCL to meet the agreed performance targets on container handling on the existing terminal, the concession contract for the MCT would be awarded to CHCL. 4.2 Outputs by components: Mauritius Ports Authority Mauritius Container Terminal (MCT). Construction of MCT (Terminal III) adjacent to the existing harbor of Port Louis was completed in July 1998. The major infrastructure works undertaken included the reclamation of an area with about 570,000 cubic meter of coral sand, the construction of a 560 m long quay, and installation of container crane rail track. Three units of Rail Mounted Quay Cranes (RMQC) were commissioned on September 30, 1998. Connection of the new oil berth to existing storage tanks: MPA pre-financed the pipelines connecting the new oil berth to the existing storage facilities. Accordingly MPA signed a contract for the laying of pipelines at the oil berth and the white oil pipeline from the berth to the existing pipelines. The main works were completed by November 1999, and the final connection to the existing white oil pipeline was implemented in April 2000, following the decision to finalize the allocation of the new storage areas among the oil companies. At the Borrower's request, the Bank is still assisting MPA in negotiating a final agreement with the oil industry on this issue, so as to reach a sustainable long term agreement on oil products handling and storage in Port Louis, consistent with the overall safety policy now being implemented in the port area. Negotiations to this effect took place in London in March 2002. Port Master Plan Update: MPA reviewed the 1996 Port Master Plan with a view to updating it to the 2025 horizon. MPA sees this exercise as an opportunity to rethink the role of the port authority as a main player in promoting economic development by better integrating port and urban development strategies. Wave Data Report. The Consultants submitted their 12-month wave data report in June 1998. The study confirmed earlier estimates of potential disruption of MCT operations due to swells, coming out with an estimate of up to 18 days a year. Experience so far shows disruption time limited to 10 days or less per year. Development of Vieux Grand Port at Mahebourg: The study concluded that strong - 10 -  negative environmental impact, added to weak potential economic returns, leads to give up on developing alternative port facilities at Mahebourg. Transshipment study: The transshipment study, which aimed at assessing the potential market for Mauritius to provide regional container operation services, was not done during the project implementation period, mainly because of difficulties with mobilizing the financing initially proposed by the European Union. Commercial developments having taking place since the commissioning of the MCT in January 1999 led MPA, MFA and CHCL to rethink the scope of the study which will now be turned into a marketing instrument. Training: Training for both CHCL and selected MPA staff was organized with support from the International Labour Organization. (ILO), using the Portworker Development Training Package. About 950 trainees followed the course during the implementation period. An additional session was also organized for the benefit of the private sector. Cargo Handling Corporation MCT Information Technology (IT) System: CHCL selected the operating software to be implemented on the MCT. Customizing was being carried out at project closure and the system is expected to be effective by June-July 2002. MPA/CHCL tariff study: The study was completed and reviewed by MPA, CHCL and the Bank. Overall, the proposed amendments to the existing tariff reflected the costs of the new investments and the consequences of the new organization, their distribution between MPA and CHCL being devised in order to ensure the competitive position of Port Louis in the short run, with a view to develop transshipment activities on a regional basis, while guaranteeing full infrastructure cost recovery and a sound financial situation for both MPA and CHCL. The new tariffs became effective on January 1st, 2000. Mauritius Freeport Authority A Freeport Workshop was held on July 5-6, 2001, with Bank participation, which was quite successful in allowing all stakeholders in Freeport operations to voice their concerns and expectations as to the provisions of the new draft Freeport Bill. Further to the workshop, the new Freeport Bill was approved by Parliament on July 17, 2001, incorporating most of the recommendations coming out of the workshop. According to the new bill, MFA's mandate is now concentrated around the public regulation of Freeport activities. This institutional evolution now sets the stage for the new development phase of the Freeport, enhancing its chances of success and the long term sustainability of its operations. Environment Protection Component. The study to define the requirements and to design facilities for collection and disposal of land and ship-based oily waste was conducted. A private company has completed the construction of facilities for collection and pre-treatment of oily waste. - 11 -  4.3 Net Present Value/Economic rate of return: Results show the gross EIRR standing at 21%. Based on the SAR assumption that 75% only of the benefits would accrue to the Mauritian economy, the project EIRR would stand at 17%, against 19% in the SAR. In fact, increased competition on container shipping services coming from the global carriers now serving Port Louis on a regular basis, which is a significant change compared to the prevailing conditions at the time of project appraisal, would definitely warrant a corresponding increase in the proportion of benefits likely to accrue to the national economy, be it through lower freight rates or in the way of new adding-value services being developed in the wake of the agreements reached with the global carriers. Maersk Logistics, for instance, the logistics services provider subsidiary of Maersk-Sealand, has already set up a branch in the Port Louis Freeport to market additional logistics services to domestic and regional shippers. Based on these considerations, an 80% share of benefits for the Mauritian economy seems reasonable, which would put the ex-post Project EIRR at 18%. 4.4 Financial rate of return: Mauritius Ports Authority 1.1 Financial Performance From 1995 to 2000, MPA experienced a rapid expansion of its asset base, matched by improvement in its operating performance, funded by external borrowing. While this strategy did involve some financial risk, the materialization of additional traffic, resulting from improved handling performance and enhanced facilities, combined with the application of a revised tariff policy have fully justified this approach. MPA Asset Growth. MPA assets have grown by 80 percent between 1995 and 2000, to reach a total of RS3.6 billion (US$138 million equivalent), primarily due to a RS1.5 billion increase in net fixed assets. The increase in non-current assets between 1994 and 2000 was almost three time more than projected in the SAR. Operating Performance. The operating performance of MPA, as measured by its operating margin (excluding depreciation Including depreciation in operating expenses the Operating Margin has increased from 3% in 1995 to 32% in 2000.) has constantly improved over the period from a low of 42% in 1995 to 68% in 2000, a result consistent with the best case scenario in the SAR. Net operating income more than trebled over the period to RS380 million. The large investments by MPA and improved performance by CHC resulted in a sharp increase in traffic, which combined with the tariff adjustment in early 2000, contributed to raise the revenue from RS246 million in 1995 to RS560 in 2000. This result exceeds the SAR best case scenario. Profitability. The large increase in financial charges between 1995 and 2000 from RS28 million to RS 125 million (or 22% of revenues) has reduced the impact of improved operating performance on net income. Nonetheless profitability measured by the return on assets has increased to 2.6% in 2000, demonstrating the ability of MPA to draw profits from its new investments and exceeding the minimum objective of 2% established in the SAR. - 12 -  1.2 Financial Intemal Rate of Return Although no financial intemal rate of return assessment for MPA was provided at appraisal, an ex-post FIRR calculation is presented in Table 8. The following elements were taken into account: (a) on the revenue side, total revenue flows include: (i) the increase in berthing fee levied at the MCT (US$ 18 per TEU); (ii) the fixed part of the concession fee, made of a flat fee for the lease of the land, a flat fee for the use of the quay cranes, and the maintenance and insurance costs of the quay cranes, for a total amount of US$5,623,571; and (iii) the variable part of the concession fee, based on the number of TEUs handled annually and on the number of ship/hours alongside berths. To err on the conservative side, the average ship service time, estimated to be 14 hours in 2001 as noted above (Table 4), has been progressively brought down to 8 hours to account for increased productivity throughout the period, therefore limiting the corresponding amount to be paid to MPA. Note that it was agreed that in order to ease the financial burden on CHCL during the first years of operation, the total concession fee be frozen to US$6,757,000 annually until January 2003; (b) on the cost side, the total investment cost of the MCT and the related maintenance expenses, as they appear in the economic analysis, are factored in accordingly. Based on these assumptions, the Financial Internal Rate of Return for MPA comes out at 15%. Mauritius Freeport Authority. The Government intended to develop MFA over the five years of project implementation and to progressively ensure that it would become self-sustainable, recover the full costs of its business and yield a reasonable return on its investment. MFA's assets have grown twenty times since 1995, fuelled by large capital grants in particular from the Govemment (RS204 million). The fixed assets are now worth about US$12.6 million and include warehouses, buildings and a large area under development. MFA management has been successful in attracting local private investors, and is now also succeeding in attracting foreign investors albeit after a slow start. The new Freeport Act 2001 will definitely enhance the freeport's attractiveness in this regard. MFA has managed to significantly improve its operating performance since 1995, starting from a negative operating margin of 240% to reach a small yet positive operating margin of 9% in 2000. Accordingly MFA reached the goal of covering its operational costs through revenue generation by 2000, as projected during project preparation. Worth noting is the fact that with the enactment of new Freeport Act and Transfer of Undertaking Act on the same date, MFA's assets were transferred to Business Parks of Mauritius Ltd (BPML). MFA was split into two, fully independent entities: (i) a Freeport regulatory agency, only in charge of issuing Freeport licenses and of regulating Freeport operations; and (ii) an operating company, transferred to Business Parks of Mauritius Ltd (BPML), a company incorporated under the 1984 Companies Act, with a mandate to develop and implement business - 13 -  and industrial parks in Mauritius, and in the region as opportunities arise. In order to manage the assets transferred from MFA to BPML, the latter established a new subsidiary called BPML Freeport Services (BPMLFS), which was incorporated on November 19th, 2001. Accordingly, the present financial assessment considers only the situation of MFA up to June 30, 2001, before the new Freeport Act was implemented. 4.5 Institutional development impact: Satisfactory. The project resulted in profound institutional development impact. The change in the role of MPA to become a regulator and landlord of the port, and that of CHCL as a full-fledged port operator consequent to the enactment of the Ports Act of 1998 have substantially transformed the port operation scenario in Mauritius. The concession contract awarded to CHCL and its monitoring by MPA has given a modem outlook and new approach to ports management. It has also resulted in significantly increasing productivity in port operations. Furthermore, the Government's decision to withdraw MPA's 40% shareholding from CHCL and to seek a Strategic Partner (with international container operating experience) for CHCL's operations is expected to add to the favorable institutional impact on port operations in consolidating the results achieved so far throughout the reform process, thereby further enhancing the already strong sustainability prospects of the institutional and operational transformation having taken place throughout the project. With the transformation of MPA as a landlord of the port, MPA has started getting substantial rental revenue (approximately $700,000 per year) directly from land lessees, including private operators, bulk sugar terminal operators, central electricity board, oil industry, and Mauritius Chemical Fertilizer Industry (MCFI). Sale of yard-handling equipment to CHCL in line with the provisions of the Ports Act, and royalty payment for the facilities of MCT are also additional sources of income for MPA. The Social Plan implemented under the project was instrumental in reducing staff at MPA and CHCL and improving their operational efficiency. It also facilitated in giving enhanced role for trade unions in decision-making processes. Frequent meetings between management and unions have helped foster a spirit of mutual understanding while addressing important issues related to port activities. Another major institutional development has been the inception of Port Users Council (PUC) consisting of shipping agents, operators, port and customs authorities, as a forum to raise strategic development issues such as master planning, promotion of the logistics platform, tariff policy, and regional competitiveness. It is playing a major role in pushing for the resolution of critical problems for the whole port and maritime community. The PUC has established several committees such as Marketing Committee, Rice Committee, and Cruise Committee to review important operational issues. Following an amendment to the composition of MPA's Board, the PUC Chairman is now a full member of the Board. This has enhanced the role and importance of the PUC in the strategic management of the port. Implementation of the higher salary structure for the MPA staff in July 2000 and the third shift - 14 -  for the marine/operational department with effect from October 15, 2001 are expected to improve the efficiency and productivity of the port operations. Courses offered by the Training Center, especially on safety, cargo handling, performance parameters were instrumental in achieving the targets in terms of productivity as set up by the Bank. Computer training courses given by the Center will be useful in improving the efficiency of the MPA and private sector employees. The project has facilitated improving Freeport activities with the concept of integrated logistics platform which includes warehousing, office space, container parks, and service plots of land for private development. By strengthening Freeport facilities, it is expected that Mauritius would be able to attract more foreign investors. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: Series of cyclones disturbed civil construction and port operations. Cyclone Daniella which hit Mauritius on December 9, 1996, caused considerable damages to the effect of MRs. 143 millions and a delay of four months in project implementation. As a result of the Cyclone Davina which hit in March 1999, the MCT was not operational for a few days because of the swell entering the port area. Following the tropical depression that passed close to Mauritius in January 2001, heavy flooding occurred on the MCT, disrupting operations for a couple of days. In addition, inclement weather during annual cyclone season was disrupting port operations as well as implementation activities for a few days during most of the project period. Because of the damage caused by the cyclones, particularly the Cyclone Daniella, the contractor had to get the compensation from the insurer which did not cover all the costs. The contractor subsequently presented a list of claims to MPA. After an amicable settlement, MPA agreed to pay a little more than $1 million, which was a reasonable outcome given the fact that the contractor's original claims were more than double this amount. Fluctuations in foreign exchange was detrimental to the financial standing of the MPA. MPA consistently suffered substantial foreign exchange loss since 1996 because of the appreciation of US Dollar vis a vis Mauritian Rs, and because of the difficulty to buy US Dollars on the local market to hedge against exchange rate variations. In FY 2001 alone MPA lost approximately US$5 million on this account. In addition, fluctuations in the LIBOR rate, which went up to 6.5% in mid-2000, also had an adverse financial impact on implementing agencies. 5.2 Factors generally subject to government control: Continuity in the commitment of the government despite change of administrations was a favorable factor which contributed to successful project implementation. 5.3 Factors generally subject to implementing agency control: Works Completion Report. Despite numerous requests from MPA, the consulting - 15-  engineer for the civil works of MCT, did not deliver an acceptable Works Completion Report together with all associated maps, detailed layouts and as-built drawings. At project closing, MPA was in the process of taking necessary legal action to get the consulting engineer to comply with the contractual commitments. Structural Disorders on the MCT's Working Areas. MPA had a technical audit carried out by an independent expert team to assess the surface disorders appeared at one end of the MCT's Working Areas, establish the reasons for the disorders, and propose the remedial measures to be implemented to correct them and prevent them from occurring again. The audit report noted that insufficient attention might have been paid to soils compressibility both at the design and construction stage. Important settlements, localized on the areas where the thickness of the compressible layer is maximum, were responsible for the structural disorders noted at the surface of the terminal. MPA would soon be doing the remedial works required to restore the terminal to normal operational conditions by the time CHCL's Strategic Partner comes on board by end-2002. Delay in disbursements. Disbursements were delayed in the initial stages of project implementation due to relative lack of experience with Bank procedures. However, after attending the training course on disbursement procedures conducted by the Bank in Washington, D.C. in April 1998, it became easier for MPA, CHCL, and MFA staff to avoid bottlenecks and implementation subsequently became smooth. 5.4 Costs andfinancing: The total cost of the project was US$ 64.4 million compared with the SAR estimate of US$100.2 mnillion. The difference is mainly due to competitive bids received in respect of civil works and quay cranes contract; appreciation of US Dollar vis a vis French Franc under civil works contract for the MCT; and reduced scope of work for the oil berth. Upon the Ministry of Finance's request, the undisbursed amount of $1.4 million was cancelled from the Loan 3908-MAS on December 14, 2001, and the undisbursed amount of $8.0 million was cancelled from the Loan 3909-MAS in two stages, $7.0 million on July 1, 1999 and $1.0 million as of August 1, 2001. 6. Sustainability 6.1 Rationale for sustainability rating: The sustainability of the project is highly likely considering that the government has taken the steps to carry forward the institutional framework reforms and also handled well the social aspects of the sector reforns. In addition, the government's decision to go ahead with the finding of a Strategic Partner has enhanced credibility for future operations. With the good-will and the technical know-how that comes along with the Strategic Partner, the image of Mauritius as an intemational player would be further strengthened and the probability of attracting transshipment cargo would be higher. Increased productivity achieved during implementation period is likely to be sustained, in particular because of the dymanic and continuous use of monitoring indicators on port operations. In addition to the authorities monitoring the operations, clients are equally given the - 16 -  opportunity to monitor them. Members of the PUC are given the Monitoring Indicators every month, vessel by vessel, which would also enable them to monitor their own vessels. Since the basis for improved productivity, quality and efficiency of port operations are already clearly laid out, it would be easier to sustain the project outcome. MPA's implementing the Corporate Plan 2002-2004 would also go a long way in carrying forward the results of the sector reform program, thereby strengthening the long term sustainability of the reform's achievements. In addition, MPA's updated Port Master Plan covering up to the 2025 horizon would be useful in improving the sustainability by redefining the role of the port authority as a main player in promoting economic development by better integrating port and urban development strategies. The sustainability of the Training Center is likely. EU has expressed its willingness to continue financing the Center for another year or two, in addition to the first grant of 400,000 Euros. PUC has also suggested two options for financing, either as a direct contribution from all stakeholders in the port community or by directly putting some toll on cargo for this purpose. Sustainability of Freeport activities is highly likely. The institutional evolution of MFA as regulator and the creation of BPML as a provider of Freeport services are expected to set the stage for the new development phase of the Freeport activities, which are likely to enhance the chances of success and the long term sustainability of its Freeport operations. With a regular source of revenue from rental income, storage of container fee and other service charges, BPML is expected to be financially self-reliant. Likewise, MFA is also expected to be self-reliant with the license fee received from Freeport traders. The government is also envisioning to create Freeport facility at the international airport in order to establish a link between sea and air cargo. The synergy created between sea and air cargo would be beneficial for increased trade. 6.2 Transition arrangement to regular operations: At project closing, the government's search for Strategic Partners for CHCL was in progress. It is expected that the new Strategic Partner would be in place by December 2002. Two issues to be sorted out during transition period are related to increasing productivity and reducing labor cost. CHCL is in the process of negotiating with the trade unions for introducing flexible shift which would improve productivity. It is expected that flexi- shift would be in place by June 2002. MPA has also expressed interest in seeking the Bank support in an advisory capacity for the next two years to overlook the continuing plans, such as in the selection of Strategic Partner, preparation of corporate strategy, review of Port Master Plan, implementation of PMS, capacity building in training, installation fully integrated IT system, and the launching of ISO Total Quality Management Plan. The Bank responded positively to this request in agreeing with the Government to include Transport as one of the priority sectors to benefit from Bank's technical support under the umbrella of the first PERL now consolidating Bank assistance to Mauritius, - 17 -  which was approved by the Board on May 7, 2002. 7. Bank and Borrower Performance Bank 7.1 Lending: Satisfactory. The Bank was proactive in initiating the dialogue with the government for the sector reform. Project preparation was well organized and satisfactory. The Bank, which had a harmonious team with a good skill mix, brought in the state of the art expertise into project design, and was very clear in developing strategies. During the project appraisal, the Bank assessed the project's risks and benefits. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. The Bank adopted a participatory approach in designing the project. For instance, this was one of the first Bank projects which recognized trade union leaders as part of the negotiation team. The Bank had formally invited, with the government concurrence, the President of the Port Louis Harbor and Dock Workers Union to join in the negotiations conducted in Bank's headquarters in Washington, D.C. in 1995. The Bank also held regular consultations with the private sector, which led to the setting up of PUC for reviewing issues of common interest and participating in the long-term development of the port. 7.2 Supervision: Satisfactory. Over the six years of project implementation, there were 17 supervision missions, with an average of three missions per year. The Bank's client relationship was very cordial and productive. Supervision teams included the Bank's transportation specialist, port operations specialist, transportation economist, financial analyst, environment specialist, and disbursement officers. The Bank took a dynamic role in the supervision of the project implementation. Aide-Memoires were regularly prepared and transmitted, which alerted the government to problems with project execution and suggested remedies in a timely manner, in conformity with Bank procedures. The Form 590s and PSRs realistically rated the performance of the project both in terms of achievement of development objectives and project implementation. Whenever delays in implementation occurred, the Bank was able to define concrete steps and a timetable for putting the program back on track. Extemal consultants were used for specific aspects of project components. Bank staff worked closely with the government and the implementing agencies and provided them with extensive assistance, in terms of providing suggestions for drafting the laws and regulations, reviewing legal drafts, and giving technical comments. 7.3 Overall Bankperformance: Satisfactory. Overall, the Bank performance was satisfactory during project preparation, appraisal and implementation. - 18 -  Borrower 7.4 Preparation: Satisfactory. During the preparation stage, the Borrower displayed an adequate level of commitment to the objectives of the project. The government officials and staff of the implementing agency worked closely with the Bank's project team on a continual basis, with full cooperation and enthusiasm. 7.S Government implementation performance: Highly Satisfactory. Despite change in administrations, the government consistently maintained its commitment throughout the implementation, and the thrust of sector reform was not challenged in any way. The government was very resilient and robust and had a good agreement with the Bank on macroeconomic policy unlike other African countries. It had established good project implementation units and the day to day implementation of the project was very smooth. 7.6 Implementing Agency: Highly Satisfactory. The project which was carried out by MPA and MFA, consisted of highly qualified people with professional capacity. The implementing units of these institutions were very well organized and effective in dealing with procurement, disbursement, progress reports, and in maintaining proper records of the project. Appropriate levels of review and approval were in place, expenditures were duly authorized before they were incurred and documentation was maintained properly for an adequate period of time for the purpose of review. In addition, complete transparency from the implementing agencies helped create a working environment conducive to enhancing good industrial relations. 7.7 Overall Borrower performance: Highly Satisfactory. The overall performance of the Borrower was highly satisfactory. 8. Lessons Learned * The success of the project was mainly attributable to consistency in political will, clear government commitment, and a strong level of government ownership on the project, irrespective of change in administrations. Because of its success, this project is looked upon as role model in the implementation of other projects in Mauritius. * Participatory approach and broad consultation process were helpful in diffusing social risks and clearing misunderstandings during project preparation, negotiations and implementation, especially with the trade unions. For a project of this nature where many types of stakeholders were involved, the Master Plan Study participative management and a good Project Steering Committee were very useful. * Continuity of the task manager from the beginning of project implementation for four years enabled the Bank to build a strong relationship with the government, trade unions, and all other stakeholders. - 19 -  * Well documented monitoring indicators were very useful for measuring operational performance and productivity during implementation period. Monitoring indicators and closer supervision have likely helped in reaching increased productivity in port operations. In addition, port users also have benefited, especially in terms of faster settlement of claims. * The project was instrumental in creating a new vision for port management and social aspects. The concept of VRS introduced by MPA is now being replicated by other organizations in Mauritius, as in the case of sugar sector. * The exchange risk issue faced by MPA exposed the limitations of the existing financial market arrangements, which to a large extent were beyond MPA's control. It also conveys the message that the Government possibly should think of other financial instruments to provide more institutional ability to hedge against foreign exchange risks. This is an issue which could also be investigated under the upcoming PERL umbrella. In parallel, the Bank should consider introducing some mechanism/formula to limit client's exposure on foreign exchange as a percentage of its revenue. * Even though the contractor remains in all cases responsible for its design, a Bank-managed cross-checking process is seen as an added protection against design flaws, in particular in the case of key/critical designs on sensitive infrastructure projects. Even though it is not considered feasible to set up within the Bank a systematic mechanism for this purpose, seeking a second opinion in sensitive cases could be a way to mitigate potential technical risks in future projects. 9. Partner Comments (a) Borrower/implementing agency: A. Mauritius Ports Authority 1. Introduction Following the request formulated by the Government of Mauritius in September 1992, a World bank Mission visited Mauritius in April 1993 with main objective to identify port extension projects which could be jointly financed by the Bank and Government and whose goal would aim pirnarily at supporting:- The growth of the economic activities of the country and the Freeport Development and The development of Port Louis as a hub port in the Southern Indian ocean region. The main findings and recommnendations of the Mission were:- The Port was not operating on a 24 hour basis which lead to under utilisation of heavy capital investment. The tariff structure prevailing did not encourage a faster ship rotation while at quay. - 20 -  The proposed construction of the Container Terminal at Mer Rouge to be considered only after a thorough review and updating of the Port Master Plan. This was to ensure that the new development was compatible with the planned land use and was not in conflict with any of the development schemes including the freeport development. The protection of the environment to be a prior consideration in Port development including safety. Major policy reforms were required and these should be based on increased in demand generated by a more competitive port policy and excellent service which may stimulate transhipment activity and turn Port Louis Harbout into a hub. 2. Port Development and Environmental Protection Project The main objectives of the Port Development and Environmental Protection Project were to: (i) Increase port productivity, efficiency and capacity to meet the demand of port users and operators at competitive rates through extension of facilities, mechanisation and improved management of Mauritius Ports Authority, Cargo Handling Corporation Ltd and Mauritius Freeport Authority. (ii) Re-define the role of MPA as a landlord port authority working through a system of competitive concession contracts with performance indicators for port operations. (iii) Support development of MFA (iv) Accomplish port development with sound environmental protection. 2.2 Implementation In order to achieve the above objectives, the Port Development and Environmental protection Project had to be implemented which composed three components, namely Port Development. Freeport Development and Environment protection. The Ports Authority was responsible for the Port Development and the Environmental Protection component, whereas the Mauritius Freeport Authority led the freeport development component. 2.3 Port Development The Port Development Components of their project and the budget estimate were:- (i) Construction of a Container Terminal including procurement of quay cranes - US$ 78.5 M (ii) Construction of Roads and Services at Mer Rouge - US$ 5.0 M (iii) Construction of a Passenger Terminal Building - US$ 0.7 M (iv) Relocation of oil handling storage facilities - US $ 2.7 M (v) Institutional Strengthening - US $ 2.4 M The total budget allocated for the port development components was US $ 89.3 M. 3. Project Implementation - 21 -  3.1 Container Terminal The new container terminal has been constructed adjacent to the existing harbour of Port Louis. The major infrastructure works undertaken comprise the reclamation of an area with about 570,000m3 of dredged coral sand, the construction of a 560 m long quay, the installation of container crane rail track supported on 1016 mm diameter steel tubular piles, casting of 560 m long by 37 m wide quay apron, the laying of concrete blocks over an area of 78,500 m2, together with 59,300 m2 asphalt concrete and provision for electricity, lighting, fresh water and surface water drainage. Building works include gate houses for access control to the Terminal and a substation to house electrical switch gear and transforrners. Construction works started in February 1996 and were completed in July 1998. The facility went into commercial operation in January 1999. The progress of works was severely affected by the passage of Cyclones Daniella in December 1996 and Anacelle in February 1997. 3.2 Contract MH35/2 - Procurement of Container Handling Crane for the New Container Terminal at Mer Rouge For the efficient loading and unloading of ships at the container terminal, the Port Authority decided to procure three post-panamax container handling gantry cranes. The Contract was awarded to Hanjung - Korea Heavy Industries & Construction Co. Ltd. in January 1997 and the three Quay Cranes were commissioned in September 1998. 3.3 Contract MH35/7 - Container Terminal Buildings at Mer Rouge The contract for the construction of the Terninal Buildings, Custom Verification Centre and Workshop/Stores Buildings was awarded to Gamma Civic Ltd. in December 1999. The project was completed in December 2000. 3.4 Contract MH41 - Infrastructure Development of Mer Rouge Area The project comprised the construction of 30,000 m2 of flexible pavements and associated drains, culverts, shoulders and footpaths. The ancillary works for the road network are the road lighting, new gatehouse and services networks such as electricity, water, telephone and wide area network for the future port facilities. The Works also include for the supply and installation of miscellaneous road equipment and furniture such as road signs, carriage way markings, cat's eyes, handrails, guardrails etc. The contract was awarded to Besix/Gamma Civic Joint Venture in May 1998 and was completed in June 1999. 3.5 Passenger Terminal Building The scope of works and the project proposal was split into two components as follows:- (i) Renovation of part of existing Shed E, to accommodate the Passenger Terminal Building - 22 -  with a floor space of about I 000m2. (ii) Improvement and upgrading of the road network in the Peninsular area including construction of a dedicated new access drive to the Passenger Terninal and associated services. The contract for the Passenger Terminal Building was awarded to Messrs PADCO in August 2001 and is expected to be completed by mid April 2002. The contract for the Road Works was awarded to Trio Development in August 2001 and is expected to be completed in April 2002. 4. Port Performance 4.1 Introduction The Authority signed a Concession Contract with CHCL for Terminals I and II in April 1997 and established inter-alia the container handling performance parameters to be achieved by CHCL which were as follows:- (i) 8 Teus/gross gang hour for standard full container vessels; and (ii) 13 Teus/gross gang hour for modem full container vessels. It was clearly pointed out that the level of performance of CHCL would be one of the most important detenring factors for the appointment of the operation of the New Container Terminal. 4.2 Analysis of Performance Period June 1996 - Dec. 1998 Modern Full Container Vessels The Operator exceeded the targeted productivity of 13 Teus per gross gang hour in June 1998. Standard Full Container Vessels The targeted performance of 8.5 Teus/gross gang hour was reached in May 1998. 4.3 Analysis of Performance Period Jan. 99 - Dec. 2001 The average monthly productivity has shown marked improvement - from 10.4 ECM/gross CR hour at the start of operations in Jan. 99 to +19 ECM/gross CR hour, at present. The crane production progress are considered as satisfactory but do not meet the objective of the shipping lines which are more interested in ship's productivity which determines ship turn round and hence the total cost of vessel's call. Presently standing at around 28 moves, the number of moves per ship hour at berth should reach 40+ moves per ship hour which is the acceptable level of productivity for a full container ship operating at a modern container terminal. There is an urgent need to provide more efficient working practices in particular staggered meal break and the use of the 3 RMQC's during the third shift. - 23 -  5.0 Financial Aspect of Project 5.1 Proiect Costs and Financing At time of appraisal, the port component of the Port Development and Environment Protection Project was estimated to cost some US$ 89.3 M as highlighted in the table below:- Port Component Appraisal Actual/Latest _____ Estimate Estimate CONTAINER TERMINAL A. Quays (560m) 31.5 27.2 B. Earthworks 2.5 2.8 C. Yard Paving 6.4 4.5 D. Buildings 1.1 2.3 E. Services (Water, Electricity, Telephone) 6.6 4.2 F. Firefighting Equipment 2.2 G. Oil Discharge Equipment 0.7 H. Panamax Ship-to-Shore Gantry Cranes (2) 13.0 16.0 (3) I. Yard Equipments 9.2 J. Spare Parts 2.6 0.8 K Computer System, Office & Workshop Equipment 1.2 L. Technical Assistance 1.2 1.0 M. Training 0.3 0.1 ROAD & SERVICES A. Mer Rouge Road Network 3.3 2.5 B. Security & Services 1.5 C. Engineering 0.2 0.2 OIL STORAGE RELOCATION A. Pipelines 2.6 0.8 B. Engineering 0.1 PASSENGER TERMINAL A. Buildings 0.7 1.1 B. Engineering 0.0 0.1 - 24 -  INSTITUTIONAL STRENGTHENING Mauritius Ports Authority (MPA) Training 2.0 0.1 Technical Assistance 0.4 0.7 TOTAL 89.3 64.4 However the actual costs linked to the implementation of the Project reached only some USD 64.4 M. This overall saving in cost has been achieved through the competitive international bid that has been secured for the civil works for the container terninal and also due to the fact that some projects such as the oil storage relocation projects have not been implemented in full. The significant reduction in loan financing was brought about by a multiple of factors involving amongst others, the substantial appreciation of the US dollar vis a vis the French franc during the loan period resulting in a beneficial effect on the draw down of the loan for the civil works contract which was largely denominated in French Franc. Secondly the local currency component of the contract for civil works was higher than what was anticipated.Lastly, various other sub projects such as the container terninal buildings and road network did not qualify under the loan financing, given that their foreign currency component was negligible.Accordingly a total amount of USD 15.8 M was cancelled from the joint World Bank/Jexim loan financing during the loan period in an effort not to pay unnecessary commitment fees and not to tie down loan capital unnecessarily. 5.2 Financial Performance Some salient points regarding the Authority's financial performance have been tabled below:- Prior to implementation of Project RS'M F/Year 1994 1995 1996 1997 1998 Operating Revenue 236.8 246.0 252.5 318.6 439.3 Operating Expenses 246.0 266.8 264.1 318.5 360.0 Operating Surplus (Loss) (9.2) (20.8) (11.6) (0.1) 79.3 Operating Ratio (%) 54.9 57.9 56.4 50.4 54.5 Return on Net Assets (%) (0.7) (1.7) (0.95) 0.01 5.0 Debt/Equity Ratio 0.30:1 0.31:1 0.35:1 0.71:1 0.98:1 Traffic ('000 Tons) 3,383 3,430 3,588 3,690 4,001 - 25 -  Post implementation of Project RS'M F/Year 1999 2000* 2001 WB Operating Revenue 516.1 559.6 735.7 Operating Expenses 493.6 504.0 519.9 Operating Surplus (Loss) 35.5 55.6 215.8 Operating Ratio (%) 39.2 32.3 23.1 40 Return on Net Assets (%) 1.09 4.95 5.86 2 Debt/Equity Ratio 1.32:1 1.05:1 0.68:1 1.5:1 Traffic ('000 Tons) 4,184 4,323 4,675 *New Tariffs/Payment of Concession Fees implemented as from 14 January 2002 As it will be noted the financial performance has improved with the successful implementation of the project including its corollary implications such as payment of concession fees by the operator for the lease of facilities and the new tarrification system in place, reflecting the new system of container handling at Port Louis. The loan covenants attached to the World Bank loan pertaining to the operating ratio, gearing ratio and return on net assets are largely being respected. 5.3 Forex An interesting feature surrounding the World Bank & Jexim US dollar loan financing, is with regards to the evolution of the rate of exchange of the dollar versus the Mauritian rupee. as explained below: Movement of dollar rate over the last 5 years Date Rate of Percentage Exchange-Prevai increase for the ling year 01.07.1996 20.218 30.06.1997 20.990 3.82%} 30.06.1998 24.420 16.34%} 30.06.1999 25.389 3.97%) 30.06.2000 26.264 3.45%} 30.06.2001 29.383 11.88%} Average increase over last five years 39.46/5 = 7.890/o or 8% (approx.) - 26 -  Movement of US$ over the last 5 years 30.000 29.000 28.000 27.000 q 26.000 ' 25.000 - Rate of Exchange- revailing 24.000 22.000 20.000 0 0 0 0 - _0 o 0 0~~~c 4 w CD~~~~~~~~~. Year end From the above, it can be gathered that the dollar has appreciated by an average annual rate of 8% over the financial years 1996-2001 with peaks of 16.34% and 11.88% for FY1997/98 and 2000/2001 respectively. This substantial appreciation of the dollar has caused the Authority to realise considerable losses associated to foreign exchange fluctuations over the years as follows: - (MRs.'M) Flnancial Year 1996 1997 1998 1999 2000 2001 Foreign Exchange (Losses)/Gain (41.0) (13.2) (81.9) (53.0) (45.0) (148.7) _ Foreiien Exchan-fe Ris Given that the interest rates attached to both the World Bank and Jexinm financing are floating rates, linked to the LIBOR, the Authority is suffering from both transaction risk and translation risk. The LIBOR, which reached as high a figure as 6.47% p.a. in July 2000 plummeted to 2.16% p.a in November 200e1. The above trend of the LEBOR clearly exposes the Authority to tranaction risk. - 27 -  5.3 Possible financial strateeies to mitieate Fore.x losses In an effort to address the problem of foreign exchange losses, the Authority has in the past substituted its costly foreign borrowings by local borrowings, through the issue of tax free secured debentures thereby limiting its exposure to translation risk. Additionally, the MPA has also resorted to the operation of dollar based accounts with the regular purchases of dollars and their locking up in fixed deposits with maturity dates matching the maturing dates of foreign liabilities. In a further effort to redress the onerous issue of forex losses, the Authority intends to implement the following financial strategies:- (a) early part redemption of the IBRD and JExim loans for a total amount of US$10.0 M over '02; (b) financing future port development projects though the Authority's own surplus funds. 6. Lessons Learnt 6.1 Financial Aspects: During the loan period, the Authority has been exposed to a considerable amount of transaction and translation risk resulting in substantial foreign exchange losses. The Authority would have to be careful in the future when resorting to loan financing and ensure that its interests are fully safeguarded. 6.2 Planning of the Container Terminal: The World Bank originally recommended that only a two berths quay be constructed at the Terminal. The MPA maintained the need for a third berth, which was approved by the World Bank on the condition that the third berth be designed to enable unloading of petroleum tankers. Accordingly a berth of 560m was constructed which was designed for three average vessel of 160 m long. At present the Port is already accommodating third generation vessels of 275 m long, and most of the time the 3 berths terminal is accommodation only 2 ships. With the present ship arrival pattern and the requirement of major shipping lines to obtain priority berthing on arrival, additional length of quay is required. The MPA is now proceeding with the extension of the terminal which will be commissioned in 2004/2005. 6.3 DesiFgn:Though a mathematical wave model study was carried out which confirned that the quay would be exposed to 8 m high wave, the consultants maintained the quay level at only 2.6 m above Chart Datum. A higher level of the quay deck would have reduced the risk of flooding at the terminal during passage of cyclones.Furthermore, some settlement has been observed behind the quay deck which is mainly due to a poor design of the interface between the fixed quay structure and the flexible pavement. 6.4 Operation at the Terminal: The terminal layout was designed for RTG operation with RTG running beams constructed. However, it was subsequently decided to operate the terminal using forklift truck and Reach Stackers which require a much larger area.The Port Authority is now proceeding with the construction of additional paved area which would enable the operator to continue with FLT/RS operation up to around 2005. 6.5 Consultants Performance:The consultants on the Container Termiinal Project has been unable to submit a complete set of as-made drawings and a completion report. Furthermore, the overall performance of the consultants mainly in respect of advice tendered and decisions taken on several issues were not to satisfaction of the Client. - 28 -  6.6 Finalisation of Claim: The assessment of the claim submitted by the contractor on the Container Tenninal project in respect to the passage of Cyclones Daniella, Anacelle and the Forex issue and the discussion held in finalisation of the claim was an enriching experience. 6.7 Participation of the Union: The participation of the union in the development programnme has been the key towards the successful implementation of the project including the Port Sector Reform. B. Mauritius Freeport Authority INFRASTRUCTURAL DEVELOPMENT OF FREEPORT ZONE #6 t BACKGROUND On 12th August 1997, the Mauritius Freeport Authority invited tenders from fifteen intemational construction firms in accordance with Intemational Competitive Bidding procedures of the World Bank. These fifteen fimis were prequalified following a prequalification exercise carried out at the beginning of the year. The whole prequalification exercise was done in full compliance with the guidelines of the World Bank (funding agency for the project) and the list of prequalified contractors was approved by both the Central Tender Board and the World Bank. The works to be carried out under the Infrastructural Development of Freeport Zone #6 are divided in two separate lots. Lot 1 consists in the site preparation and development of approximately 7 hectares and includes the construction of flexible and rigid pavements, engineering services (electricity, water, telephone, waste water disposal, surface water drainage, ducts for data communications, etc.), security fencing and foundations and industrial floors of 15 000 m2 for three warehouses. Lot 2 consists of the construction of an administration building of an approximate area of 4000m2, and including all the services. On 17th December 1997, the Central Tender Board approved MFA's recommendations: 1. Grinaker Construction Co. Ltd. be awarded the contract for Lot 1 for the tender amount of Rs 165 455 772.75; and 2. Beijing Chang Cheng/Sotravic Ltee Joint Venture be awarded the contract for Lot 2 for the tender amount of Rs 78 343 519.50. On 5th January 1998, World Bank gave its no objection to the award of both contracts. EXECUTION OF CONTRACT FOR LOT I- CIVIL WORKS Contract Agreement The Letter of Award was sent on 26th January 1998 and the Contractor's acceptance was received on 27th January 1998. The Order to Commence Works was issued on 20th February 1998 after receipt of the Performance Security and the Insurance Policy. The Contractual Start Date is 20th February 1998 and the Completion - 29 -  Date shall be 21st December 1998, i.e. duration of works 305 calendar days. The Contract Agreement between MFA and Grinaker Construction Ltd. was signed on 27th February 1998. Progress of works The works have been completed in February 1999 and the Practical Completion Certificate has been issued on 8th March 1999. The defects liability certificate was issued on 12th February 2000. EXECUTION OF CONTRACT FOR LOT 2 - ADMINISTRATION BUILDING Contract Agreement The Letter of Award was sent on 27th January 1998 and the Contractor's acceptance was received on 29th January 1998. The Order to Commence Works was issued on 20th February 1998 after receipt of the Performance Security and the Insurance Policy. The Contractual Start Date is 20th February 1998 and the Completion Date shall be 21st December 1998, i.e. duration of works 305 calendar days. The Contract Agreement between MFA and Beijing Chang Cheng/Sotravic Ltee Joint Venture was signed on 3rd March 1998. A first extension of time of three (3) weeks without costs was granted to the Main Contractor and the Completion Date was revised to 12th January 1999. A second extension of time was granted to the Main Contractor owing to the construction of a fourth floor, which took the Completion Date to end September 1999. Progress of works The construction of the building has been completed in October 1999 and the Practical Completion Certificate has been issued on 7th October 1999. The defects liability certificate was issued in October 2000. 2 STATUS OF LOAN ACCOUNT ON PROJECT COMPLETION The total sum earmarked for the Part B of the project was USD 6M out of which USD 5.587M has been disbursed. 3 DESIGN AND PROJECT MANAGEMENT The consultancy services were financed by the Government of the Grand Duchy of Luxemburg and were procured through a restricted (to Luxemburg based consultancy firms) bidding exercise carried out in Luxemburg. The conceptual and detailed design, and project management for the project was awarded to Luxconsult S.A and the project team organization structure is depicted below: - 30 -  The consultants' performance during the execution of the contract was satisfactory owing to the following: * Luxconsult S.A. has a local subsidiary, Luxconsult (Mauritius) Ltd, who has extensive knowledge of site conditions, fully versed with local regulations and has undertaken a number of infrastructural development projects in the country. * The other sub-consultants are local firms, again, who are familiar with local constraints and conditions. 4 WORLD BANK PERFORMANCE The broad perspectives (i.e. the project development in relation to the Staff Appraisal report, the progress of disbursements) adopted by the World Bank during the supervision missions were highly valued as they kept the project in focus, bearing in mind that MFA was at that time deeply involved in construction works. As regards the Bank's response to application for direct payment to contractors, both MFA and the contractors have noted a remarkable response time. It is worth mentioning that at the start of the project, a review mission took place in Washington in April 98 when officers of MFA had the opportunity to meet the disbursement officer in charge of this project when the procedures, documentation and other related matters were clarified. It was an enriching exercise that proved its worth during the course of the project when not a single application for disbursement was rejected. 5 PROCUREMENT On the issue of procurement of works, while the Staff Appraisal report indicates that the Freeport component would be procured under National Competitive Bidding, the actual procurement took place through Intemational Competitive Bidding upon instructions of the Bank. The ICB prequalification exercise took longer and costed more because of publication in UN Development Business and one other foreign publication. The net effect was a delay in the procurement of the works. 6 LESSONS LEARNED DURING PROJECT IMPLEMENTATION The following lessons were learned during the design and construction: I. Clear and precise requirements from the Client are required to ensure satisfactory project development, especially as regards the Client-Consultant relationship during the design stages. 2. The presence of a knowledgeable Client's representative to ensure that the technical aspects of the project are captured and retained by the Client, especially for further development and maintenance purposes. 3. The monitoring of specialist subcontractors is crucial during the construction works because of 1) coordination between trades 2) specifications of equipment that are mostly imported and have long lead times. 4. Avoid over-reliance on consultants for technical and cost-effective solutions - for example, during the construction of the warehouses and the administration building the contractors proposed alternative foundations design that were more economical and faster to construct. Similarly for the warehouse flooring, where the contractor proposed a floor using steel fibres instead of traditional steel mesh reinforcement. (b) Cofinanciers: - 31 -  (c) Other partners (NGOs/private sector): 10. Additional Information Summarized Timetable of Key Steps of the Port Sector Reform Process and Project Implementation Dates Key Steps June 5, 1992 Freeport Act April 28, 1995 Port Reform Policy Statement by the Government of Mauritius May 30, 1995 Approval of the World Bank Port Development and Environment Protection Project April 4, 1997 CHC and Unions sign the Agreement on the CHC Social Plan April 30, 1997 MMA/CHC Concession Agreement on existing terminals September 17, 1997 Launch of MMA Social Plan May 26, 1998 New Ports Act approved by Parliament August 1, 1998 New Ports Act becomes effective January 9, 1999 MPA/CHC Concession Contract for the New Container Termnal January 15, 1999 Start of Operations at the New Container Terminal June 11, 2001 Decision by the Govermnent to seek a Strategic Partner for CHCL July 17, 2001 New Freeport Act approved by Parliament December 31, 2001 Closing Date of the World Bank Port Development and Environment Protection Project May 7, 2002 Board Presentation of the First Public Expenditure Reform Loan (PERL) to the Republic of Mauritius - 32 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: F M " ,S R B 2 X |'aActuaULatest Estm . M X l I. MPA Financial Indicators 1994 95 96 97 98 99 '00 '01 1994 95 96 97 98 99 '00 '01 Salaries, wages, benefit & maintenance (20%) (10%) (20%) (16.7%) Working Ratio () 55 50 45 40 63.1 57.9 56.4 50.4 41.8 39.3 32.4 23.2 Tariffs (-^) +15% +8% +15% +10% Debt/Equity 1.5:1 1.5:1 1.5:1 1.5:11.5:11.5:1 0.30:1 0.31:1 0.35:1 0.71:1 0.98:1 1.32:1 '00 '01 '00 '01 1.5:1 1.5:1 1.05:1 0.68:1 Retum on net assets(-) 2% 2% .7% 1.7%.9% 0.01% 5.0% 1.0% 1.1%.2% II. MFA Financial Indicators Warehouse rental 7 Mau. Rs/ft2/mth 8 Mau. RsM2/mth at Ex Flour shed 9 Mau. Rs/ft2/mth at Airport Warehouse Land price 250,000 Mau.Rs/Arpent (revised from $4,200 per hectare per annum time to time to market value) Office 15 Mau. Rslft2/mth 35 Mau. Rsh/ft2mth at the Trade and Marketing Centre 15 Mau. Rs/ft2mth at Airport Freeport Zone Ill. Cargo Handling Rates 12/94 12/95 12/96 12/97 12/98 Gross TEUs per gang per hour (Class A&B vessels) 6.19 5.71 7.38 7.67 7.50 IV. Equipment Availability (%) 1994 1996 1998 2000 1999 2000 2001 Cargo Handling Equipment 45% 60% 70% 75% 90% 90% 90% Mobile quay cranes 55% 60% 70% 80% 90% 90% 90% Ship-to-shore Gantry cranes >95% >95% 90% 95% 97% V. New Container Terminal Dec.99 June'00 Dec.'00 Dec.'01 Dec.99 June'00 Dec.'00 Dec.'01 Handling rates forcontainervessels (moves 18 20 22 >22 17.1 18 19.4 21.2 per hour/crane) Handling rates for full container vessels 40 25 38 (moves per ship/per hour at berth) (*) Costs/Revenues (**) Average (***) Not less than Output Indicators: 71 .X r