Papua New Guinea - Port Project

RESTRICTED R*porf No. PTR-108a This report iS for official use only by the Bank Group and speciflaly authoriazed rpnizations or perons It nay not be published, quoted or cited without Bank Group authorizAtion. The Bank Group does not accept responsibflity for the accuray or completenes of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A PORT PROJECT PAPUA NEW GUINEA April 10, 1972 Transportation Projects Department  Currency Equivalents Currency Uhit - Australian Dollar US$1 a A$ 0.8397 A$ 1 * US$1.1909 A$ 1 dilion = US$1,190,900 Weights and Measures 1 ton * freight ton, i.e. 2,2240 lb or 40 cu ft Financial Year July 1 - June 30 ACronyrms and Abbreviations Administration - Administration of Papua New Guinea DOT - Department of Transportation dwt - Deadweight tons EIU - Economist Intelligence Unit LwOST - Low Water Ordinary Spring Tide PNG - Papua New Guinea PNGHB - Papua Now Guinea Harbours Board su ft - Super foot: timber measurement equal to one board foot or one foot square by one inch thick.  PAPUA NET I GUI1iIEA APPRAISAL OF PORT PROJECT Table of Contents Page NSe SUMVIARY AND CONCLUSIONS iii 1. INTRODUCTION 1 2, BACIKGROTID 2 A, Economic Setting 2 B. The Transport Sector 3 C. Transport Adininistration, Coordination and Development 4 3. PORT ORGANIZATION AIND ADMINISTRATION 6 4. THE PROJECT PORTS 9 A. Port Traffic., Current and Required Facilities 9 B. Port Operaticns 10 5. THE PROJECT 12 A. Project Items 12 B. Cost Estimates 12 C. Subsoil Conditions 13 D. Execution 14 E. Engineering Consultants Services 14 F0 Procurement and Disbursement 14 Go Land Acquisition 15 H. Finance 15 I. Other Port Developments J. Ecology 15 6. TRAFFIC FORECASTS AND ECONOMIC EVAUJATION 16 A. Traffic Forecasts 16 B. Economic Evaluation 17 7, FINANCIAL ASPECTS 19 A. Present Position 19 B. Financial and Tariff Policy 19 C. Future Earnings 20 D. Financing Plan, Cash Flow and Balance Sheets 21 E. Conclusions and Undertakings on Financial Aspects 23 8. RECOMMENDATIONS 2' This report was prepared by Messrs. A.H. Clark (inancial analyst), N. Heggemsnes (economist), C. John (economist), D, Johnson (engiree.r) and 2, Scheiner (consulting engineer) and edited by Mfiss A-o 3sifer. Mr. .loSI Parthasarathi assisted in the economic eval:iatior>  -2- TABLES 1. Cost Estimates 2. (a) Project EXpenditures (b) Disbursement Schedule 3. Port Development Program 4. Traffic Forecasts (a) Port Moresby (b) Lae - with traffic diversion to Mad'ng (c) Lae - without traffic diversion to Madang (d) Kieta (e) Samarai/Alotau 5. Economic Benefits of the Project 6. Economic Return Sensitivity Analysis 7. Current Tariffs 8. Recommended Tariff Rates 9. Revenue Accounts 10. Total Debt Service 11. Balance Sheets 12. Existing Debt 13. Sin,king Funds 14. Cash Flow S;.atement ANNE2E,) 1. Tof,al Foreign Traffic Development 2. Port Operations 3. Existing Facilities in Project Ports 4. Stevedoring Labor Awards 5. Project Items 6. Project Alternatives 7. Future Cargo Flows through Project Ports 8. Rationale of Economic Evaluation 9. Generated and Negative Benefits - Alotau 10. Simulation - Lae 11. Financial Assumptions MAPS 1. Papua New Guinea 2. Port of Port Moresby 3. Port of Lae 4. Port of Kieta 5. Port of Alotau  PAPUJA NEM GUINEA APPRAISAL OF PORT PROJECT SUMHARY A\ID CONCLUSIONS i. This report appraises a project to improve three of the main public seaports in the Territory of Papua New Guinea (PNG) - Port Moresby, Lae and Kieta - and construct a new port at Alotau to replace old facilities on an off-shore island at Samarai. The project also includes some equip- ment and a training program for port accounting staff. The total cost is estimated at US$11.1 million equivalent, of which costs to be incurred outside PNG (off-shore costs 1/) are est3.rnated at US$9.2 million equivalent and will be financed by the proposed IDA credit. ii. The project originated with a UNDP-financed and Bank-supervised Transport '3urvey. It will cover most of the firm major port items in the PNG Administration's investment program for the period 1971/72-1975/76 (based on the Survey), except for expansion of the port of Nadang, the justification for which must await a decision on construction of a new access road from Madang to the interior Highlands to tap a large developing area. Feasibility st0ies of this road are scheduled to be comapleted soon. Further investmelits are planned for Port Moresby and Lae extending into the later 1970's but these will depend on traffic developments and further studies. iii. The Conmonwealth of Australia will guarantee the credit on behalf of PNG (Borrower) which Australia administers. This credit will be the first Bank Group lending operation for ports in PNG. In June 1970, the Bank and the Association jointly provided US$9 million for a highways project (Loan 693/Credit 204-PNG). iv. The Papua New Guinea Harbours Board (PNGHB), which will be the beneficiary, assumed operational responsibility for the principal ports in July 1967 and financial responsibility on January 1, 1968. PNGHB is a statutory corporation with adequate powers to conduct its affairs in accordance with sound practices, subject to certain overriding policy powers held by the PNG Administrator and Minister of Transport. v. Traffic through the project ports grew from 634,o000 tons in 1968/69 to 1.114 million tons in 1970/71. Although this included major construction items for a large copper mine now under development near the project port of Kieta on Bougainville Island, other traffic increased by 11% p.a. over the two-year period. Over the longer term, traffic, exclusive of copper ore, is expected to increase about 6% annually to nearly 1.5 millicn tons in 1980/81. Growth has been and continues to be greatest at the port of Lae 1/ "Off-shore" costs relate to all expenditures for goods and services made outside PNG, including those made in Australian dollars, the local currency. They represent the equivalent of a foreign exchange component to an independent country. This distinction has been made in all pre- vious lending to PNG.  - ii - resulting from the opening up of the New Guinea interior by the 1966 com- pletion of a road connecting Lae with the Western Highlands; expanding areas are being put under cultivation for both market gardenirg and cash crops (notably coffee) by the indigenous population and by expatriates. The Lac- Highlands road is being improved under Loan 693/Credit 204-PNG. vi, The demand for port services has outstripped investments, especi- ally at Lae, which accounts for nearlytwo-thirds of the project. Because of the geographic conditions, coastwise traffic has grown generally with foreign traffic and at all project ports a shortage of berthing and/or stor- age facilities has resulted in serious congestion, relieved somewhat by in- creased productivity from a marked trend towards cargo unitization, including containers. Another factor, contributing to congestion, has been inefficient operational practices stemming from a multiplicity of private stevedoring services and lack of overall organization and control. The PNGHB has the powers necessary to correct these features and is now doing so. It is now agreed that the existing port By-laws will be enforced immediately and a continuing review of further operating improvement requirements wil.. be under- taken. vii. PNGHB's management is able and its staff is cormpetent. However, at present, most senior staff members are expatriates. PNGHB intends to in- crease its management staff to enable it to handle its expanding responsibil- ities >^nd to train indigenous staff members to take more respcnsible posts. The project includes training for accounting staff. viii. PNGHB's tariffs have, in general, not changed since 1958; they are not only too low but also badly structured and unrelated to costs. With a new tariff structure, as recommended by consultants, PNIGLB will become fi- nancially viable and the prompt introduction of appropriate revisions will enable PNGHB to finance the local currency costs. Credit effectiveness is dependent upon approval of revised tariffs. ix. Consalting services will be provided by the Australian Mrinistry of Works and the PINIG Public Works Department. Procurement will be on the basis of international competitive bidding in accordance with IDA guidelines. Retroactive financing of about US$250,000 will be required for detailed engineering and soil surveys. x. The credit proceeds will be relent to PNGHB on Bank terms, i.e., for a period of 25 years including four years' grace with interest at 74% p,a. There will also be a project agreement between PcNGHB and the Association. xi. The proposed project would earn an economic return of 27% and is suitable for an IDA credit of US$9.2 million equivalent on the usual terms to the Administration of FNG with the guarantee of the Commonwealth of Australia.  1. IMTRCDUCTIOI 1.01 The Administration of Papua New Guinea (PNG) has requested the Association, through the Government of Australia, to assist in financing improvements to the ports of Port Moresby, Lae arid Kieta and construction of a new port at Alotau to replace existing but obsolete facilities at Samarai. 1.02 The proposed project originated with a UNDP-financed and Bank- supervised transport survey in 1968/69 by Sir William Halcrow and Partners (UK), which recommended that master plans for development be drawn up for all ports under the jurisdiction of the Papua New Guinea Harbours Board (PNGHB). Feasibility studies and master plans were prepared by M4aunsell and Partners (Australia) for Port Nloresby, and by NEIEC0 (Holland) for Lae, Kieta and Alotaus A study for Port Madang by Sir Bruce White, Wolfe-Barry and Partners (UK) is nearing completion. In August 1971 the Econonist Intelligence Unit (EIU (UK) ) completed a tariff study for all ports which handle foreign cargo in PNG. 1.03 The total cost of the proposed proJect would be US$11.1 million equivalent of which the off-shore component, to be financed by the proposed IDA credit, would be US$9,2 miMlion equivalent. The credit would be to the PNG Adminis