Papua New Guinea - Second Port Project

Document of The World Bank FOR OFFICIAL USE ONLY Repon No. 4827 PROJECT COMPLETION REPORT PAPUA NEW GUINEA: SECOND PORTS PROJECT (LOAN 1551-PNG) December 8, 1983 Projects Department East Asia and Pacific Region This docuiment 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.  FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PAPUA NEW GUINEA: SECOND PORTS PROJECT (Loan 1551-PNG) TABLE OF CONTENTS Page No. Preface........ ........ . . . . . . . . .i Basic Data Sheet. . . . .. . . . . ii Highlights. . . . . . . . . . , . . . . . . . . . . . . . . i I. INTRODUCTION . . . . . . . . . . . , . . . . . . . . . . . . IT. PROJECT PREPARATION AND APPRAISAL . . . . . . . . . . . . . 2 III. PROJECT IMPLEMENTATION AND COST . . . . . . . . . . . . . . 3 (A) Project Scope and Content . . . . . . . . . . . . . . 3 (B) Implementation . . . . . . . . . . . . . . . . . . . 3 (C) Costs . . . . . . . . . . . . . . . . . . . . . . . . 5 IV. TRAFFIC AND OPERATIONS . . . . . . . . . . . . . . . . . . 6 V. FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . 9 (A) Rates and Charges . . . . . . . . . . . . . . . . . . 9 (B) Earnings and Financial Position . . . . . . . . . . . 9 (C) Costing Study . . . . . . . . . . . . . . . . . . . . 11 VI. ECONOMIC RE-EVALUATION . . . . . . . . . . . . . 11 VII. INSTITUTIONAL DEVELOPIIENT . . . . . . . . . . . . . . . . . 11 VIII. THE ROLE OF THE BANK . . . . . . . . . . . . . . . . . . . 12 IX. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . 13 ANNEXES 1. Major Covenants in the Project Agreement and Loan Agreement . 14 2. Costs for Works at Port Mbresby . . . . . . . . . . . . . . 17 5.1 Comparative Tariffs at September 30, 1976 and February 20, 1981 . . . . . . . . . . . . . . . . . . . . . 18 5.2 PNGHB Forecast and Actual Revenue and Expense Accounts: 1978-81 . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.3 PNGHB Balance Sheets: 1978-81 . . . . . . . . . . . . . 20 7.1 PNGHB Staff Establishment - Head Office . . . . . . . . . . . 21 7.2 Leases to be Obtained . . . . . . . . . 23 This document has a restricted distribution and may be used by recipients only in the per(ormance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - i - PROJECT COMPLETION REPORT PAPUA NEW GUINEA: SECOND PORT PROJECT (LOAN 1551-PNG) PREFACE This is the Project Completion Report (PCR) of the Second Port Project in Papua New Guinea for which Loan 1551-PNG for US$3.5 million was approved in April 1978. Final disbursement of the loan was made on January 19, 1982. The report was prepared by the East Asia and Pacific Regional Office. A PCR mission to discuss the factual basis of the report was undertaken in May 1982 in connection with other work in the country. The PCR is based on data supplied by the Papua New Guinea Harbours Board (PNGHB) and on discussions with their staff during the PCR mission. The comments of PNGHB were incorporated into the PCR prior to its being sent to the Operations Evaluation Department (OED). The PCR was read by OED but the project was not audited by OED staff. The draft audit report has been sent to the borrower in the usual manner for comments; how- ever, no further comments were received. The assistance of officials of PNGHB is gratefully acknowledged.  - Li - PROJECT COMPLETION REPORT BASIC DATA SHEET PAPUA NEW GUINEA: SECOND PORT PROJECT KEY PROJECT DATA Appralsal Actual or Actual as X of estimate estimated actual appraisal estimate Project costs (US$ million) 10.5 9.0 -16.6 /a Loan amouint (USS million) 3.5 3.5 Date Board approval 04/18/78 04/18/78 Date effectiveness 07/31/78 01/10179 Date physical components completed /b 12180 09/80 - Proportion then completed (X) 100.0 97.4 -2.6 Closing date /b 06/30t81i 01/19/82 +18 /c Economic rate of re --n (1) 4 14 Financial rate ot return (%) 7.0 9.3 +32 /d Institutional performance Fair Good CCUMULATIVE DISBURSEMENTS FY78 FY79 FY80 FY81 FY82 FY77 FY78 FY79 PY80 Appraisal estimate (US$ million) 0.15 1.36 1.40 0.69 Actual (USS million) - 2.14 0.43 0.23 0.23 ($464,000 cancelled) Actual as % of estimate - 157 31 33 Date of final disbursement 01/19/82 Principal repaid to (mo./day./yr.) (USS million) 0 MISSION DATA No. of Han-days Specializations Performance Types of Mission Date persons in field represented /e rating /f Trend /S problems lh (mo./yr.) Identification 07/76 1 n/a c - - - Preparation 02/77 2 20 b, c Appraisal 02/77 3 25 a, b, c - - - Subtotal Supervision 1 01/79 1 7 c 1 2 F, P Supervision 2 12/80 1 4 a 2 2 F, P Supervision 3 01/81 1 5 c 2 2 F, P Supervision 4 12/81 2 12 b, c 2 2 F, P Supervision 5 Supervision 6 Supervision 7 Supervision 8 Supervision 9 Supervision 10 Supervision 9 Supervision 10 Supervision 11 Supervision 12 Supervision 13 Supervision 14 Supervision 15 Subtotal 4 - 28 Total 7 - 63 OTHER PROJECT DATA Borrower Papua New Guinea Executing agency Papua New Guinea Harbours Board Fiscal year December 31 Name of currency (abbreviation) Kina (K) Currency exchange rate: Appraisal year average US$1.00 - 1.38 Intervening years average US$1.00 = 1.42 Completion year average US$1.00 . Follow-on project: Name 'ione Loan/credit number Loan/credit amount (US$ million) Date Board approval /a Lower than forecast inflation. /b Delay in receipt of legal opinion. /c Due to late receipt of outstanding invoices. 77 Improved efficiencies. 7e a - financial analyst- b - economist; r. - engineer, etc. /f I - problem-free or minor problems; 2 moderat, problems; and 3 a major problems. /g I - improving; 2 - stationary; and 3 deteriorating. PF financial, M - managerial; T - technical; P - political; and 0 a other.  - iii - PROJECT COMPLETION REPORT PAPUA NEW GUINEA: SECOND PORT PROJECT (Loan 1551-PNC) RIGHLIGHTS The purpose of the project was to expand port facilities at Port Moresby, the country's main port, so as to provide for more efficient opera- tions for containers and general cargo imports and exports. In addition a new, small, coastal port wharf was built. The work also involved reclama- tion of land adjacent to that reclaimed under the First Port Project (Cr. 326-PNG), and construction of three pilot lau1aches (para. 3.01). The work was carried out with the Harhours Board as executing agent, assisted by Consultants (Australia and PNG). Tenders for the works at Port Moresby were awarded to an Australian firm and to a firm in Papua New Guinea for the construction of the small coastal wharf (paras. 3.02 and 3.03). Implementation of the project was smooth, on-time, and under budget. The final cost of the project was US$9.0 million or 16% less than the appraisal estimate of US$10.5 million. Of the Bank's loan of US$3.5 million, US$464,000 was cancelled, reflecting the lower than anticipated rate of inflation which underlay the appraisal estimates. The project was cofinanced by the Kuwait Fund for Arab Economic Development to the same extent as the Bank's loan and on the same terms and conditions (para. 1.05). The project's purpose was achieved. This is seen in improved handling of containers up 24.5% from 1978 to 1980), reduction by half of working time for overseas ships between 1979 and 1980 and a further reduction in 1981, and improvement in container ship and break-bulk ship turn-around time of 56% and 21% respectively. These improvements are reflected in the improved financial position of the port in 1981 and in the calculated first year economic returin of 23% - satisfactorily higher than the anticipated overall return of 14% (paras. 6.01 and 6.02). The Harbours Board, through the inability of a consultant not financed under the loan to complete the study, continues to be in default of a covenant requiring completion of a cost study to determine the cost of services and facilities operated by the Board in each of its 16 ports. This matter is still under review by the Bank and by the Asian Development Bank which is pursuing the question of a costing study under the terms of its recent loan for finance of the Lae Tidal Basin Project (para. 5.04).  PAPUA NEW GUINEA SECOND PORTS PROJECT PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 Ports and shipping play an important role in the transport sector of Papua New Guinea (PNG). There are no railways and the exising road net- work is not well developed. Most of the 600 or so islands constituting PNG are mountainous and coastal plains are either narrow, terminating abruptly in formidable mountain ranges or low lying, swampy, and intersected by major rivers. 1.02 Port Moresby is the second largest of PNGs ports, serves the National Capital area, and handles a large percentage of the Australian trade, which is containerized. Prior to the project, the facilities existing for handling containers consisted of a "T" head jetty (The Main Wharf) with a design load too low for efficient container handling and limited remaining life. An open storage area provided under the Bank's First Ports Project (Cr. 326-PNG) did provide some container parking space, but required transfer of the containers from the main wharf, an expensive and time consuring operation. No land was available for expansion in the area of the main wharf. 1.03 Up to January 1982, Barnk Group assistance to PNG, in addition to the project under review, has consisted of six loans (US$67.5 million) and seven development credits (US$48.2 million). 80% of total Bank Group assis- tance has been for infrastructure development: power, telecommunications, highways and por_s. Agriculture (mainaly oil palm and livestock development) and one education project have absorbed the remaining 20%. 1.04 This is the completion report for the Bank's Second Ports Project (Loan 1551-PNG). It is based upon Bank staff supervision mission reports, the Bank appraisal report No. 1710a - PNG and information provided by the Papua New Guinea Harbours Board (PNGHB). 1.05 The Kuwait Fund for Arab Economic Development (KFAED) agreed to cofinance with the Bank on a 50-50 basis the foreign exchange requirements of the project on the same terms and conditions as the Bank Loan. Consequently, disbursement by each lene.ng agency was for 50% of every approved claim submitted by PNGHB.  - 2 - II. PROJECT PREPARATION AND APPRAISAL 2.01 In D)ecember 1974, consultants (Australia) completed on behalf of the Government a feasibility study for the expansion of port facilities at Port Moresby. The study recommended that a new location (the one developed by this project) be selected for container handling. Other consultants (UK) carried out the necessary operational studies for the project. 2.02 A Bank appraisal mission visited Port Moresby in March 1977 and recommended development of a new 125 m container wharf and reclaimed back up area. The latter would be adjacent to the area reclaimed under the First Ports Project (Cr. 326-PNG), with an extension of the existing container freight station (CFS). A new coastal wharf at Samarai was also included in the Second Ports Project as well as provision for the procurement of three pilot launches. 2.03 Local opposition on environmental grounds, related to the intrusion of the wharf expansion on waterfront yachting amenities,emerged after the appraisal and reservations were expressed concerning the proposed container wharf location. The matter was looked into by a post appraisal mission in January 1978. Subsequent studies and investigations revealed that the distance from the port inherent in any other alternative location for container operations was uneconomic, and the site initially proposed was eventually approved with the agreement of all concerned. 2.04 The total estimated project cost was K 7.6 million (US$10.5 mil- lion equivalent) of which K 5.07 million (US$7 million equivalent) would be in foreign exchange to be jointly supplied by the Bank and KFAED. The Bank loan of US$3.5 million was approved on April 18, 1978 and signed on May 18, 1978. Effectiveness was delayed until January 10, 1979 due to difficulties over the legal opinion. 2.05 The loan was closed on January 19, 1982 nearly seven months later than had been expected and US$464,560 was cancelled. 2.06 Apart from improvements of physical infrastructure, the project entailed the implementation of numerous measures to improve operational, organizational and managerial efficiency. Major covenants (Annex 1) covered: (a) the requirement to engage only one stevedoring firm for container operations at Port Moresby; (b) a study of the cost of services and facilities provided within each of the country's major ports; (c) a program of staff training; and (d) a review of dues and rates.  III. PROJECT IMPLEMENTATION AND COST A. Project Scope and Content 3.01 The project consisted of: (a) additional land reclamation adjacent to that reclaimed under the First Ports Project (Cr. 326-PNG) to increase area available for container operations by 1.6 ha to 4.2 ha; a new 125 m berth serving the reclaimed area with 10 m depth of water alongside; and and extension of the existing Container Freight Station (CFS) by 3,300 sq m; (b) a new 30 m coastal wharf at Samarai with 5 m depth of water alongside; (c) provision of three pilot launches; (d) improvements to about 400 m of the access road adjacent to the port; and (e) consulting services for design and construction supervision, tech- nical assistance, and training. PINGHB was executing agent for the project assisted by consultants for Port Moresby and Samarai. The project was expected to be completed by December 31, 1980 and the loan to be closed June 30, 1981. B. Implementation Port Moresby 3.02 In August 1977 consultants completed the design and tender documents for the container terminal at Port MAoresby. Tenders were called for in February 1978 and the lowest evaluated bid was received from an Australian firm in the sum of K( 4,176,316. The tender was awarded to this firtn in June 1978 and work commenced in August 1978. It was satisfactorily completed in June 1980 with no major problems during construction. Samarai 3.03 Design and tender documents for this work were completed in October 1978 by the consultants. Te3nders were called for in February 1979 and the lowest evaluated bid was received from a Papua New Guinea firm in  - 4 - the sum of K 294.728. The tender was awarded May 1979 and the work satisfactorily completed in September 1980. Pilot Launches 3.04 The procurement of pilot launches was not satisfactory. A large number of tenders was received showing a wide range of prices. A firm in Papua New Guinea submitted the lowest evaluated bid (K 72,500 per launich) and, although the bid was regarded as too low, it did meet the specifica- tions. The tender was accepted with Bank approval. Many difficulties were experienced. The launches were plagued by design problems. Incorrect propellers and excessive weight resulted in the specified speed of 14 knots not being achieved. The Company finally went into receivership. The cost of the three launches was K 225,000; but, taking into account rental costs and other charges resulting from their delayed delivery, their true cost was K 370,676. Improvement to the Access Road 3.05 It was originally intended to improve the road from the port to a nearby traffic roundabout in order to serve the industrial area more efficiently, but this was cancelled when it was decided not to construct a connecting road from the roundabout to the city's industrial area. It was then proposed to improve the road junction immediately in front of the port entrance in order to reduce congestion, but no work has been undertaken to date. The Department of Works and Supply (DWS) of the PNG Government was responsible for design and execution of this work. Works Supervision 3.06 Relationships among the client, the consultants and the contractor were good throughout the contract. The work was satisfactorily completed and the services of the consulting engineers were good. Payments to the contractors were made promptly. Consulting Services 3.07 In addition to the works supervision, the project included consulting services for: (a) a services costing study (see below, Section 5.05); (b) a training study carried out by consultants (UK), following which a staff manager trainer was engaged from the consultants for a two year period terminating May 1982. A staff manager designate is currently (January 1982) on a six months course and will take up his duties on return to Port Moresby.  C. Costs 3.08 The actual cost of the project compared with the appraisal esti- mate is as follows: Actual Appraisal estimate Local Foreign Total Local Foreign Total