Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6565 PROJECT PERFORMANCE AUDIT REPORT ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) December 23, 1986 Operations Evaluation Department 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 "orld Bank authorization. COUNTRY EXCHANGE RATES (Lei per US$) Year Rate 1976 15.00 1977 15.00 1978 18.00 1979 18.00 1980 18.00 1981 15.00 1982 (to June) 16.50 1983 (July-December) 17.50 1984 (to October) 21.56 1984 (Noven.ber-December) 17.50 1985 17.50 1986 (to June) 17.50 THE WORLD BANK FO OFFICIAl USE ONLY Wash-m1ton DC 20433 U S A O1fire nt OntectoI-neWa December 23, 1986 MEMORANDUM TO THE EXECLTIVE DIRECTORS AND THE PREJIDENT SUBJECT: Project Performance Audit Report on Romania: Danube-Black Sea Canal Project (Loan 1794-RO) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Romania: Danube-Black Sea Canal Project (Loan 1794-RO)" prepared by the Operations Evaluation Department. Attachment rits document as a restricted distribution and may be used by recipients only in the performance Of !heir offcial duties Its contents may not otherwise be disclosed without World Bank authorization ACRONYMS AND ABBREVIATIONS IB Banca de InveEtitii (or Investment Bank of Romania) DBSCA Danube-Black Sea Canal Administration MTTc Ministry of Transport and Telecommunications dwt deadweight tons mt metric tons IPTANA Road, Water and Aerian Design Institute FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) TABLE OF CONTENTS Page No. . Preface... .... ..... .. ..... . . . ... .. ... .i Basic Data Sheet................................................... 11 Evaluation Summary.......................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. BACKGROUND............................................... 1 The Danube International Waterway........................ 1 River Traffic...6&. . .. . . ... *. . .. . .. . .. . .. .... 2 Legal and Administrative Provisions for Navigation....... 2 Improvement of Navigation on the Danube.................. 3 Formulation of the Project ............................... 5 Objectives of the Project................................... 9 I1'. PROJECT IMPLEMENTATION ...................................# 9 De s i gPROJECT .IM.PLE.E..TATION. . . . . . . . . . . 0 . . . . . . . . . . . 0 . . 6 0 . . . . . ..9 Construction........,........0....4.................4....... 1 Other Essential Investmens.. ......... 13 Cost of the Project...................................... 15 Ill. PROJECT RESULTS.......................................... 16 Overall Objectives................................ 16 Ca&nal Traffic.. . . . . . . . . . . . . . . . . ....... 17 Financial Performance of DBSCA................. .... 19 Economic Reevaluation................................... 21 Sustainability ..... ..... . . . . . . . . . . . . ....... 23 Findings and Lessons............. ...... .......* . ... 24 PPAM TABLES 1. Appraisal Estimates and Actual Project Costs............. 27 2. Estimated and Actual Traffic ........................... 28 3. Canal Tariffs.,........ ............... . 0....0............. 29 4. Balance Sheets for 1984 and 1985....................... 30 5. Appraisal and Audit Estimates of Economic Rates of Return.......................... 31 CHART Shipping, Dry Cargo, One-Year Timecharter Rates.......... 32 ANNEX A Borrower Comments..*$..* ....... . * .......... ......... 33 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. Table of Conteuts (cont'd.) Page No. PROJECT COMPLETION REPORT I. Introduction ............................ II. Project Preparation and Appraisal......................... 38 III. Project Implementation. .........**...... ........ . .. . 39 IV. Economic Reevaluation... . ...............C............. . 43 V. F inancial Evaluation.00* 0*0C C C * e .. . . .e . e C* e * * * 47 VI. ConclusiEnsvaluat ....... . .......... ............ 49 ANNEXES 1(a). Danube-Black Sea Canal Administration Organization 37 1(b). Trcinslation of the Decree Creating the Administration..,.. 52 2.~ Construction Pors................... . *CC C54 3 . Dis8burs eme nts a ..*. . .... . ..... . . e e.e .... 5 5 4. Project Exedtrs .... ~ *~*** C...C 56 5. Meeting of the Executive Political Committee of the Central Committee of the Romanian Communits Party Of July 21, 198, (Excerpt)ooo,,,........................ 57 6. Details Of Pusher Tugs and Barges for Canal Use Presently Available and Prjce.CCCCeCCCCCCSCCCeCCCCCCCCCCCC. 58 7. Operating Costs .... Cc.eCe.eCCeeeCe Cee 59 8. Map of ntermediate Canalrs. ............ 60 BORROWER'S PROJECT COMPLETION REPORT Basic Data Sheet .............................. 69 *SuCmary and Conclusionsr. ........ ....................... 5 I. rIntroduction e C r C C e C a C C t n C C C C C C C C C C A C C C C C d.. 5 C C C C 67 II. Project Preparationand. ....................... 68 III. Project mplementationuandrCost........... .... .. . 71 IV. Traffic and Operations.e 0 P C C C Ca l 6 C C C C C Com m C C Ct e C C C C C C e 76 V. Financial Performance of Danube-Black Sea Canal Ofministration July... 278 VI. Dnstitutional DevelopmentdBage CforCCCCC Ca CUseCCCCCo 78 VII A *Economic Reevaluation.Cte......................... 5 7II . Opr atluin * os s..C C .CC .....C..C....CC..C..C..C..C..C..C..C..C..C..C..C..C C59 ANNEX Implomentation Schedule and Critical Path................. 81 TABLERS 2A. Actual and Origin. Estimates of Project Costs...... ... 82 2B. Original Estimsd and Actual Project Expenditure andDisbursementfromLoani. ............ .......... 83 3. Actual and Original Estimates of Loan Allocation.......... 84 4. Actual and Projected Traffic by Main Comodities.......... 85 Table of Contents (cont'd.) Page No. 5. Actual and Projected Bal.nce Sheets of Danube- Black Sea CanalAdministration.......................... 86 6. Actual and Projected Income Statements of Danube- Black Sep Canal Administration......e.................. 87 7. *Ex-Post and Original Estimates of Economic Rate of *Not received from borrower. MAPS IBRD 14313R IBRD 19040 IBRD 19041 - 1 - PROJECT PERFORMANCE AUDIT REPORT ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) PREFACE This is a Project Performance Audit Report (PPAR) on the Danube- Black Sea Canal Project for which Loan 1794-RO for US$100 million to the Banca de Investitii (IB) was approved January 22, 1980. The Closing Date was December 31, 1983, but the loan was fully disbursed May 13, 1982. The project is not yet fully completed, but the canal has been open to traffic since May 26, 1984. The PPAR consists of an Audit Memoraudum (PPAM) prepared by the Operations Evaluation Department (OED), a Project Completion Report (PCR) prepared by the Europe, Middle East and North Africa Regional Office dated July 31, 1985, and a PCR prepared by the Borrower, dated March 6, 1985. The PPAM is based on a review of the Appraisal and President's Reports for the project, the Minutes of the Executive Directors' meeting at which the loan was approved, the Loan Agreement, Bank files and records, interviews with Bank staff familiar with the project, and a field visit in May 1986, during which interviews were held with representatives of shipping companies and goverment transport officials in other Danubian countries, officials of the Danube Commission, and staff of the borrower, especially of the 18 and the Ministry of Transport and Telecommunications (MTTc). The Audit found that the PCR fairly described the implementation of the project and agrees generally with its comments. However, the Audit has some additional comments on the formulation, composition and execution of th project and expands on the relationship of the project to other major works which together constitute a very large international cooperative effort t, greatly increase transport capacity and efficiency of the Danube. It reache- slightly less optimistic conclusions on the economic and financial aspects of the project, at least in the short and medium terms. But it acknowledge,, that ..n the long term the project, as part of the current major upgrading o" navigational conditions on the Danube, wilL probably significantly assist industrial development of the Danube Basin, and that its contribution to suci benefits are only partly included in the economic analysis. The draft report was sent to the Borrower ior comments which have. been reflected in the report as well as reproduced as Annex A to the PPAM. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) KEY PROJECT DATA Appraisal Actual or Current Item Estimate Estimate (E) Toral Projevt Cost (USS Million) 1,750.0 1,897.0 (E) Overrun (%) 8% Financing (USS Million) 1,750.0 1,897.0 (E) Internal Funds 1,427.8 1,597.0 External Aid Agencies 551.7 300.0 of which - IBRD Lan 100.' 100.0 - Co-f i nanc ing 200. 0 2030. Other Sources 251.7 Lå)an Amount (USS Million) 100. f). Di s hu rsed 101.0 lr .3f Cancel led - Completion of Physical Components - Bank-f inanced vomponents 06/83 36/82 - Canal open for traffic 12,82 05/8' - Final Completion 12/84 la 12/87 (E) /b o nic Rate of Return ( /) 19 9 ( E) /c Cumulative Estimated and Actual Dishursements rs , i iTT -) Y FY 1 1-Y82 FY83 t imrated .l 6 ' 87. 5 1 op. f A1tal - /7. 1 . f Etal/[stimated - 4 MTHE R P 3>.3-EC1I.DAT A Aktual or E-cimated item Original Plan kevislons Actoal First Mentioned in FIles 06/06/?5 ,vernmentÄ's Application - 03/L1/77 Appral sal - 07/ 16/79 Negot iat ions - - 12/03/79 Board Approval ()1/22/80 - 01/22/8 L.oan Agreement 04/ 3)/>18' - 04/ 30/ 80 Effectiveness Dat e 07/30/80 - 09/0 5/80 Closing Dato 12" 31 /83 - 12/ /83 Brrower: Baca de Investitil E.xecuting Agenv: Ministry of Transport. & Telecommunl(-atitons (MTrfe) ')anuhe-Bla,k Sea (inal *iministration (DBSCA) Fiscal Year of Borrower: Janoary 1 - De(tmher 31 Fc 1 w-on Pr iec t: None 9a Esstimated date for <ompletion ot a l ca nal w,rks ( L.A. #3.02) 'h stimated date for completion of ali canal works based on most recent s upervtstlon mission. Remaining works comprise mainlv trimming and stahiltzation of side slopes to the east of km 48. Z 9t hased on audit estimates; 11% hased on Danuhe-B1lak Sea Cana l Ad-fi nistrat lon ( DBSCA) estimats and on PCR estimates. - iii - MISSION DATA Month/ No. of No. of Person- Date of Item Year Persons Weeks Week& Report Identification 03/78 2 1 2 03/10/78 Preparation 10/78 2 2 4 11/14/78 Preappraisal 02/79 3 5 15 04/23/79 Appraisal. 07/79 3 1 3 12/20/79 Total 24 Supervision I 04/80 2 1.5 3 04/11/80 Supervisior. II 11/80 2 1 2 11/24/80 Supervision III 03/81 4 0.5 2 04/15/81 Supervision IV 11/81 2 1 2 11/19/81 Supervision V 10/82 2 0.5 1 10/20/82 Supervision VI 09/83 2 1 2 09/30/83 Supervision VII 08/84 2 1 2 08/25/84 Supervisicn VIII and Completion 05/85 3 1 3 07/09/85 Total 17 - iv - PROJECT PERFORMANCE AUDIT REPORT ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) EVALUATION SUMMARY Incroduction Proposals for a Danube-Black Sea Canal were first made as early as the mid nineteenth century. Construction was started in 1947, but halted in 1953 for lack of adequate resources and the excavation was incorporated into an irrigation canal. By the mid 1970s economic expansion of Romania and other countries in the Danube Basin had created greatly increased freight traffic, including the transport of growing volumes of heavy raw materials from oversear. The Danube was seen to offer great po#ential for such traffic, especially in view of the major upgrading of the river's navigational conditions and capacity which has been made through the construction of dams and locks, and more are under construction and proposed. These developments, together with a canal link, Danabe-Main (and hence with the Rhine), also under construction, represent a great international cooperative effort to increase the capacity and efficiency of transport on the Danube and have important implications for transit traffic; they are detailed in the Memorandum (PPAM, paras. 8-13). However, a Black Sea deep water port, connected with the Danube, was also needed for the economical oean transport of bulk materials. The Romanian Government rejected the construction and op..cation of such a port at the Danube delta as too expensive because of silting. The Government decjiod instead to build a 64 km canal from Cernavoda on the Danube to the Black Sea at the existing deep water port of Constanta, which would be extended to take large bulk carriers. Construction was started in late 1975 (PPAM, paras. 15 and 16). An informal approach by the Government to the Bank for financing was made in 1973; and a formal approach in 1975. However, it was not until, late 1978, three years after construction of the canal had been started, that the Bank reviewed the feasibility of the project on the basis of data supplied in the meantime by the Government. Since the main elements of the project had already been committed, the Bank's review was largely limited to satisfying itself that what was being done was acceptable for Bank financing (PPAM, para. 22). It was decided not to include in the project other essential investments, particularly the expansion of the Port of Constanta, and two river ports needed to handle materials for new or expanded ste.. plants (PPAM, para. 24). -v - Objectives The principal objective of the project was to peovide Romania with low cost inland water transport via the Danube, especially for imported heavy bulk raw materials. An additional objective was to bring in toll revenue to Romania from transit traffic of other Danubean countries expected to be attracted to the canal (PPAM, para. 26). Implementation Experience Construction of the canal involved a huge volume (300 million cubic meters) of excavation, mostly in a 20 km plateau section with cuts up to 70 m deep. The canal opening was 17 months later than scheduled, but this was still a good performance in view of the magnitude and difficulty of the project. The work was generally good (PPAM, para. 34). Slides occurred in the deep cut section; repairs are in progress and will continue for a year or more (PPAM, paras. 31 and 32). Loading/unloading equipment is mostly yet to be provided for the canal ports (PPAM, para. 33). The estimated final cost of the project is less than 10% over the appraisal estimates, including contingency allowances (PPAM, paras. 44 and 45). But failure to complete the Constanta Port extension and the river port of Calarasi has significantly affected traffic through the new canal (PPAM, paras. 47 and 49). Results The project is not yet producing the expected financial results or economic benefits because canal traffic is, so far, much below appraisal estimates (PPAM, para. 48). The main reason is the the 1981 world recession which caused a decrease in ocean freight traffic and led to a slowdown in complementary investments, that is in the construction of steel and other plants, in expansion of Constanta port and construction of Danube river ports (PPAM, paras. 49 and 50), including the provision of efficient cargo handling facilities (paras. 38, 39, 52 and 53).1/ Consequently, the financial results 1/ Banca de Investitii (IB) has commented (Annex A, pages I and 3): "As you know, in the first few years of operation, the actual traf- fic on the Danube-Black Sea Canal was under the Appraisal estimations and this was due, mainly, to the general decrease of the ocean traffic under the unfavourable world economic conditions. Under the conditions of a lower traffic dr.mand, uncompletion of "Other Essential Investments" had not seriously aflected the canal use, as it is shown in PPAM (items 37 to 41 and 52)... ""Evaluation Summary", pag. vii, "Results", the first phrase to be completed with: "...much below appraisal estimates (PPAM, para. 48), due, mainly, to the ui. avourable world economic conditions leding on the one hand to the general decrease of the ocean traffic, and on the other hand to the temporization of some Investments in the local Industries using the canal and of the investments related to the canal."' - vi - are below appraisal estimates (PPAM, paras. 58 and 59). Economic benefits are also lower than estimated because of the shortfall in traffic, but also are further substantially lowered because the sharp fall in ocean freight rates has so far reduced to less than half the expected savings through switching to larger bulk carriers (PPAM, paras. 62 and 63). Future projections of economic benefits depend on estimates of t-affic and also of changes in ocean freight rates which are sensitive to oil price variations. But it now apears likely that the economic rate of return will be reduced from the 19% estimated at appraisal to the range of 11% to 9% (PPAM, paras. 66-68). However, the analysis does not include all the benefits from lorg term regional development which might be apportioned to the project (PPAM, para. 79). Sustainability In the short term, the canal project is not yet operating effi- ciently, pending completion of port and cargo handling facilities (PPAM, para. 52), nor can it sustain itself financially without Government (Ministry of Transport and Telecommunications) subsidies (PPAM, paras. 55, 58 and 59).2/ However, the Government is proceeding with the remaining port works and is also continuing to support financially the Danube-Black Sea Canal Administration (DBSCA) until it becomes self-supporting. In the meantime, the DBSCA has trained adequate staff and is technically and administratively well qualified to operate the canal. WiLh a reasonably cautious estimate of traffic growth, it is likely that the project will become fully sustainable by about 1992 (PPAM, paras. 58 an,d 69-71,. Findings and Lessons Two questions are posed by the project. First is the Bank's role. This became mainly one of supplying finance (about 5% of the total) a.,! helping to encourage co-financing (about 1C%) because of the Bank's late effective involvement. The second main auestion concerns the inclusion of essential complementary works (particularLy the Constanta port extension a;! the river ports) in a loan covenant rather than directly in the project (PPAM, paras. 72-76). 2/ 18 has commented, Annex A, page 3: "Also, in pag. vtil, "Sustainability", in the first phrase, "...without Government subsidies" to be replaced with: "...without Ministry of Transport and Telecommunications subsidies out of the over- all results of this ministry." Accordingly, in the second phrase, to be specified that temporarly the Ministry of Transport and Telecommunications will support financially the Danube-Black Sea Cana' Administration." - vii - It would have been preferable for the Bank to participate earlier in the project cycle so as to have an opportunity to review and comment on technical and economic analyses before decisions were made. Also, the essential port investments should have been integral parts of the project to help ensure the better synchronization of the closely interdependent works (PPAM, paras. 76-77). Nevertheless, the canal works were well carried out. More importantly, the project forms a vital link in the efficient use of the Danube as a major low cost transport facility. As such, it is likely to help in the long term industrial aevelopment of the countries in the Danube Basin. The benefits of the canal's contribution to such development are only partly captured in the revenue from canal tariffs, and therefore in the economic analysis (PPAM, paras. 68 and 79). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) I. BACKGROUND The Danube International Waterway 1. To place the Danube-Black Sea Canal project in perspective it is necessary to understand the major developments of the Danube, as a waterway, which have already taken place and the further developments in progress and planned . The canal may then be preceived as an important link in this long term upgrading process, affecting the entire Danube Basin, in addition to its direct use for transport within Romania. The Danube has historically been one of the more important navigable waterways in Europe. The main navigable length is 2,414 km from the Romanian Coast at Sulina to Kelheim in Germany. A farther 173 km, from Kelheim to Ulm, also in Germany, is navigable by smaller vessels. 2. Long as the Danube waterway is already, it will soon be linked with the river Main by a canal now under construction and hence via the River Rhine with Rotterdam and the North Sea. The Danube-Main canal is 171 km long between Kelheim and Bamberg. The 72 km section between Bamberg and Nuremberg was completed about ten years ago and the remaining 99 km between Nuremberg and Kelheim is well over half finished and scheduled for opening by 1992. This section rises to a summit 406 m above sea level before falling again to 338 m above sea level at Kelheim. The total length of the Black Sea-North Sea Waterway will then be 3,870 km: Section km No. of locks 1. River Danube from Black Sea 2,415 19 (incl. four under (Sulina) to Kelheim construction) 2. Danube-R. Main Canal, under 171 16 construction, from Kelheim to R. Main at Bamberg 3. R. Main, Bamberg to Mainz 384 35 4. R. Rhine; from Mainz to North 900 - Sea 3,870 70 -2- River Traffic 3. The total freight traffic on the River Danube in 1984 was about 89 million tons. The average haul was about 260 km. About 402 of total weight of cargo was national traffic and the remainder was international traffic. The river passes through, or borders, eight countries: USSR, Romania, Bulgaria, Yugoslavia, Hungary, Czechoslovokia, Austria and Germany. For the sections of river in Romania, Bulgaria, Yugoslavia and Hungary, about 30% of the total cargo in each section is transit traffic, that is passing through the section from end to end. Czechoslovakia, which has a relatively short section of the river, has 45% transit traffic. As the head of the river is approached, Austria has 15% transit traffic, and Germany has none. Recent annual growth of traffic va the Danube has been about 5%. The traffic levels are greater in the lower part of the river, than in the upper part of the Danube. The volume in the Romanian section of the river is about 60% higher than the average. The total freight in the Romanian section was about 30 million tons in 1984. 4. By comparison, freight traffic on the river Rhine (just over one-third the length of the Danube) in 1981 was about 270 million tons, reflecting the very heavily industrialized areas of Germany, as well as of the Netherlands and part of Eastern France and Northern .witzerland which are served. Traffic on the Rhine grew strongly till about 1970, but it has stagnated since then. The less mature economies of the Centrally Planned Eastern European countries, are still developing heavy basic industries, which accounts for their continued growth of inland water transport. Nevertheless, the total of inland waterway traffic in ton-km in the countries bordering the Rhine is still nearly 20% of those countries' total freight traffic volume. Rail traffic is growing slowly and takes about 30%, while road traffic has grown strongly and is over 50% of the total. 5. The relevance to the Danube-Black Sea Canal project is the possibility of increased transit traffic when the Danube is linked with the Rhine around 1992. Since the combined waterway will traverse the most heavily industrialized parts of Europe, it seems likely that significant traffic will develop. A certain amount of traffic may appear fairly quickly by diversion from other modes.Nevertheless, any substantial volume of traffic would probably depend on a shift in sources of supply for bulk materials, and changes in patterns of trade. Such changes are likely to take a number of years to occur. Legal and Administrative Provisions for Navigation 6. The Danube functions as an international waterway under the terms of the 1948 'elgrade Convention. This covers navigation on the Danube from Ulm to the Black Sea, including the Sulina Canal through the river delta. The terms of the convention are administered by the Danube Commission, consisting of representatives of the eight riparian countries, with offices in Budapest. The terms of the convention provide for the free use of the waterway by all nations, except for toll charges (or tariffs) for use of the - 3 - Sulina Canal and the locks at the Iron Gates (on the Yugoslav/Romanian border). These charges are accepted because the Sulina Canal was built late in the last century and requires constant dredging, while the dams and locks at the Iron Gates eliminated the need for towing river craft by locomotives against the previously strong river current. The Rhine, also, is an interaational waterway freely used by all countries, and is administered by a commission located in Strasbourg. However, there is one important difference between the two systems. In the case of the Rhine, trade and traffic is fully liberalized. But in the case of the Danube, traffic within a country is subject to the laws of that country, which has resulted in local shipping on the Danube within the borders of each state being restricted to its national fleet. 7. The Danube Commission administers only the navigable waterway of the Danube. It does not have any jurisdiction over ports, links with other waterways, such as the new Danube-Black Sea Canal, or the proposed Danube- Main Canal. However, the Government of Romania issued a unilateral declara- tion, at the time of negotiation of the Bank loan, indicating that the Danube-Black Sea Canal would be open to use by all nations without discrimi- nation in regard to tolls (tariffs) or otherwise. Improvement of Navigation on the Danube 8. The Danube has always been navigable but it had serious limitations particularly in regard to the depth at times of seasonal minimum flow, and in some places because of the swift current and narrowness and curvature of the channel. Gradual improvements have been made over a great many years, and the pace has accelerated in more recent times. The main navigational part of the Danube starts at Kelheim, about 60 km up river from Regensburg. On the "Upper Danube," from Kelheim to about 100 km east of Vienna, the river is relatively steen and falls 220 m over a distance of 600 km. A total of thir- ceen dams, with locks for river traffic, have been completed on this section and a further three are still under construction. Another eight are planned but not yet scheduled. Mostly the dams are multi-purpose, including power generation with a high volume of water but rather low head of about 15 m. When all these dams are complete, the entire length of the upper Danube will have been converted to a contin-ious series of reaches between the dams. 9. The "Middle Danube" extends about 900 km, running through Budapest and Belgrade to the Iron Gates, about 200 km east of Belgrade. The first approximately 600 km, through Belgrade, has a relatively gentle gradient with a total fall of about 40 m. On the next 300 km, including the Iron Gates gap, the river falls about 75 m. However, two dams at the Iron Gates, one recently completed, have eliminated about 40 m of the river's gradient in its steepest part. A further dam west of Budapest is under construction by Hungary which will provide a reach more than 100 km upstream to the beginning of the upper Danube and will still further improve navigation in this section. 10. The "Lower Danube" is about 900 km from the Iron Gates to Sulina, at the Black Sea end of the 110 km Sulina Canal constructed through the river's delta during the late nineteenth century. The canal has no locks, but it is subject to silting, and there is also heavy silting at the sand bar beyond its mouth. The can&l and the bar have to be regularly dredged to maintain a minimum depth of 7.3 m. This allows ships up to about 15,000 tons fully loaded to reach the river ports of Izmail and Reni, on the USSR side of the river, and the river ports of Galati and Braila in Romania. Galati is about 150 km upriver from Sulina, and Braila about 170 km. From these ports upriver, transport is mainly by barges and tugs, and sometimes by self-pro- pelled barges. 11. There are no serious problems on the lower Danube for navigation of barge convoys, thoup,i a few sections require maintenance dredging to provide a minimum depth when the river is at its lowest level. The Danube has a good flow of water, averaging about 6,000 cubic meters per second, but it varies from about 2,000 cubic meters at its lowest level, which occurs between late August and October, and maximum flow of about 12,000 cubic meters per second. Two dams for hydroelectric power are planned for construction jointly by Romania and Bulgaria in the lower Danube. One is under design, but no construction schedule has been established yet. The new 64 km long Danube-Black Sea Canal joins the Black Sea deep water port of Constanta with Cernavoda on the lower Danube 300 km upstream from its mouth at Sulina. 12. It will be seen that all these works on the Danube are having a major impact on navigational conditions. The reaches above the many dams not only increase the navigational depth and width, but greatly reduce the strong currents which previously existed on the steeper parts of the river. The normal size of barge was about 1,500 to 1,800 tons and convoys were usually limited to two or four. In the upper parts of the river, generally only self-propelled barges were used. With the improvements, the standard barge for the lower Danube, and through the Iron Gates to Belgrade and Budapest, is now 3,000 tons capacity. It is a little over 80 m long, 11.4 , wide and draws 3.8 m when fully loaded. They are operated in convoys of s thus totaling 18,000 tons cargo capacity, with a pusher tug. When the three .'6ms now under construction above Budapest are completed, such convoys will be able to reach Bratislava in Czechoslovakia, about 1,850 km from the mouth of the Danube. The three future dams between there and Vienna are also planned to have locks large enough for the six-barge convoys. Above Vienna the locks, and river configuration, will probably allow four-barge convoys and above Regensburg to Kelheim only two-barge convoys may be possible. 13. When the two dams on the lower Danube are constructed, a minimum depth of 6 to 7 m will be maintained up to Belgrade, allowing the passage of small seagoing ships of about 5,000 tons. Such ships can also pass through the Danube-Black Sea Canal. Navigation on the Danube is subject to interruption from ice. The closures vary widely according to the severity of the winter. Some years there are virtually no closures, but under rare extreme conditions traffic may be Interrupted for about two months. Work is about to start on another canal 70 km long to join Bucharest with the - 5 - Danube. It will have similar dimensions to those of the Danube-Black Sea Canal, with a depth of 7.5 m. The terrain conditions for the Bucharest Canal are apparently easy and it follows the Argesul River which is a tributary of the Danube. Formulation of the Project 14. The large scale works undertaken on the Danube, chiefly in connection wit hydroelectric power projects, have steadily upgraded the river's capacity and efficiency as a major inland water transport artery. As described above, the improvements are continuing. The river's transport facilities have attracted the establishment and expansion of heavy industry requiring large quantities of heavy bulk raw materials, an increasing proportion of which are imported from overseas. But the efficient use of the river for this purpose has been severely 'ondicapped by the lack of a deep sea port. As noted (para. 10), the river ports near the Sulina Canal and at its mouth can take only relatively small ships. But the efficient trans-oceanic transport of large quantities of materials such as iron ore, coal, phosphates, etc., requires the use of large bulk carriers of 80,000 tons and upwards. The problem which was becoming acute by the early 1970s was, therefore, to connect the Danube with a deep sea port whece the bulk cargoes could be transshipped to barges for river transport. In the absence of such a port facility, increasing use was being made of the only deep sea port available, Constanta, where ships of up to about 50,000 tons could be handled. But this involved hattling the materials by rail to the inland plants. Apart from rail transport being much more expensive, in terms of operating costs, than water transport, the capacity of the railway was becoming inadequate, particularly in the summer when there is a large volume of passenger traffic. 15. Three possible solutions were apparently considered: (1) construction of a deep sea port at Sulina at the mouth of the Danube; (1i) a major extension of the port of Constanta to the south (at Agigea) and linking it with the Danube (at Cernavoda) with a new canal 64 km long; (iii) extension of the port of Constanta (as in (ii) above) and expanding the capacity of the railway from Constanta either (a) to a Danube river port to be constructed at Cernavoda to transfer the materials to barges; or (b) to expand the railway system beyond Cernavoda as necessary to transport the materials entirely by rail. 16. For alternative (i), it is not clear what investigations were carried out, but the possibility of constructing a port at Sulina was discarded on the grounds that silting problems at the delta would make the cost of construction and of maintenance dredging prohibitive. The Government, in 1973, decided to adopt solution (ii), that is the extension of - 6 - Constanta (Agigea) port together with construction of a canal, and design work was started. Informal approaches were made to the Bank for finance beginning in April 1975, in response to which the Bank requested information on the project. Apparently some information was provided with a formal request for financing in March 1977. The Bank found this information inadequate for the consideration of financing and responded with a detailed questionnaire including requests for data on its economic justification involving a comparison of the canal solution versus other modes of transport. The questionnaire was wide-ranging to provide the kind of background material and other information needed for preparation of an appraisal report. However, the Government, in October of 1977, responded that it could not provide such wide and detailed information. Meanwhile, the Government had started work on the construction of the canal in the last quarter of 1975. 17. The Bank sent an indentification mission for this project in March 1978, followed by a preparation mission in October 1978. On the basis of information obtained, and further information requested from the Government, a mission was sent in February 1979 to appraise the project. However, some questions arose, mainly concerning the operating institutions to be set up and a further shorter mission was sent in July 1979. 18. A review of the investigations which were carried out as to the feasibility of the project, including possible alternative solutions, presents difficulties since there were apparently no formal studies undertaken, leading to consolidated reports and conclusions. The appraisal mission presumably had some problems in this respect and the available documents consist essentially of working papers, largely in manuscript, a number of which were prepared in July 1979 during the follow-up appraisal mission. However, from these it is evident that evaluations were carried out for possible alternatives based on an extension of Constanta (Agigea) together with either: a canal to Cernavoda [alternative as para. 15(ii)]; or with a new rail line from Agigea to Cernavoda together with a new river port there for transshipment to barges [alternative para. 15(iii)(a)]; or with a new rail line from Agigea to Cernavoda and increased capacity of other rail lines as needed for transport of materials entirely by rail (alternative as in para. 15(iii)(b)]. There is no documentation of investigations, if any, in regard to a possible port at Sulina (alternative para. 15(i)]. 19. The economics of the canal project hinged on a rapid and very large increase in traffic volume of bulk materials which depended heavily on the construction or extension of steel plants at Calarasi and Galati on the Danube and, to a lesser extent, the supply of materials for cement and chemical plants (particularly fertilizer) and for an older established steel plant at Hunedoara in western Romania. The analysis also anticipated large expected savings in ocean freight by substituting large bulk carriers made possible by the new port extension at Constanta instead of using smaller ships to the river ports via the Sulina Canal at the mouth of the Danube. On this basis it was concluded that the extension of the Constanta Port was justified together with the construction of a canal to Cernavoda. - 7 - 20. The canal was chosen over the rail alternative on the grounds that the much greater capital cost (then estimated at about US$2 billion, compared with about US$1.2 billion for the railway expansion) would be more than outweighed by the much lower operating costs by water, which were calculated to be only about 23% of those by rail. This conclusion would apply unlees a discount rate higher than 16% were chosen. Some tests were run as to sensitivity in regard to possible alternative variations (each considered separately) in canal costs, traffic volumes, rail costs, etc., and none resulted in a "cross-over" discount rate of less than 14%. The analysis assumed that construction would be completed by the end of 1982, with 1983 as the first full year of operation. Traffic was expected to build up quickly and it was predicted to reach 51 million tons in 1985, 75 million in 1990 and 102 million in the year 2000. No test was done to determine whether a further alternative, such as partial expansion of railway capacity (including replacement of the bottleneck single line bridges by new double line bridges), would have been adequate until the Agigea port expansion had been completed, thereby delaying the need for the very heavy capital expenditure on the canal by perhaps several years. For that matter, since the new steel plant at Calarasi is only about '50 km from Constanta and the other steel plant at Galati about 200 km, perhaps road transport either instead of, or to supplement, rail capacity might have been possible during the interim period. Presumably these or other alternatives were not raised, or seriously considered during appraisal, since construction of the canal nad already been underway for over three years. Even before that, a start had been made in 1947 on excavations for a Danube-Black Sea Canal between Cernavoda and Constanta but the work was interrupted in 1953 for the lack of adequate financial, physical and technical resources. The works which had been carried out were incorporated into an irrigation canal. 21. The possibility of a substantial delay in completion of the canal, the Agigea Port works, or the steel plants was apparently not considered in the evaluation, though such events could have a significant effect on the results of the economic justification in view of the heavy front end loading of the high project costs. 22. We may summarize the formulation of the project in relation to the Bank's involvement. In 1975, when the Bank was first formally approached by the Government, it was already clear, as described above, that the Danube had been developed as a high capacity inland waterway transport route. Its efficiency and capacity was continually being further enhanced by on-going and proposed construction of additional dams and locks. It was also clear that its major weakness was the lack of adequate facilities to handle large volumes of overseas bulk freight traffic. For this, a deep water port and facilities for cargo transfer to Danube barges was needed. Although design work had been in progress for a canal, construction had not yet started (it was begun in late 1975). It was, therefore, possible at that stage to consider alternatives, including interim measures, to be followed by construction of a canal later, as indicated in para. 20. However, by the time the Bank had decided to seriously consider the project for the lending program, and the Government had provided some information on the proposed - 8 - project, the Government was already committed to the canal as construction was in progress. Also, the Government was committed to the expansion of steel output at the Galati plant where work had been started in 1976, and the construction of a new plant at Calarasi where work was started in 1977, so there was no possibility of considering resiting steel plants to minimize handling and transport of imported materials. At the time of appraisal in 1979, therefore, the only alternetives available to the Bank were in effect to oarticipate in financing the canal or not to participate. In regard to the expansion of Constanta/Agigea Port also, work was started in 1979 and the scope for any possible suggested changes were very limited. The economic analyses of possible railway alternatives carried out during appraisal were, therefore, intended to satisfy the Bank that what had already been decided appeared reasonable, rather than to seriously consider any alternatives or significant changes. 23. The project as finally negotiated consisted essentially of: (a) construction of the canal, including locks, canal ports, utilities, buildings, etc.; (b) provision of equipment to be installed for operating the lock gates, pumping stations for operating the locks, and cargo handling equipment for the canal ports; (c) provision of control, communications and navigational equipment; (d) reclamation of agricultural land to replace, as far as possible, the land to be occupied by the canal; and (e) provision of equipment, materials and facilities required for implementing the project. 24. As noted, a large proportion of the estimated benefits at appraisal were expected to be obtained from savings in ocean freight costs. These savings were to be achieved through the Agigea/Constanta Port extension which would enable a switch to be made to large bulk carriers of 80,000 to 150,000 tons, and would reduce ship waiting time caused by congestion at the existing Constanta Port. Furthermore, the Agigea Port extension was essential to the use of the proposed canal. The initial approach of the Bank was to include both the canal and the port in the project. However, prior to negotiations, not only the construction of the south Constan*a/Agigea Port was omitted from the project description, but also consttuction of the Danube River Ports of Galati and Calarasi which were essential for barge traffic to supply the two steel plants, dredging of the river where needed between Cernavoda and these two ports, and provision of the barge and tug fleet. Instead, a covenant was incorporated in the Loan Agreement obligating the Government to complete these works, and to expand the fleet to the extent necessary to handle the forecast traffic for the canal by the time it was opened. It is not clear why this change was made. It would have been more appropriate to have included these items in the project since they were in effect vital parts of an integral transport project. 25. Apart from the covenant described in para. 24, for the Government to undertake the Constanta/Agigea Port extension and other essential investments, issues which were agreed upon before or during negotiations included, (i) a Government letter confirming its undertaking to operate the canal permitting its use by other nations in a non-discriminatory manner; a letter to this effect was issued to the Bank December 14, 1979; (ii) the - 9 - Government, by decree of May 1, 1979, established the Danube-Black Sea Canal Administration (DBSCA) to operate the canal when completed; and (iii) the Government confirmed its intention to seek substantial cofinancing for the project; the Bank was providing assistance to the Government in this regard. Objectives of the Project 26. The overall objective of the project was to provide Romania with low cost inland water transport via the Danube, chiefly for large volumes of bulk raw materials from overseas to serve rapidly growing industries on or near the Danube. A further objective was to attract transit traffic of other countries to the canal and so bring in toll revenue for Romania. II. PROJECT IMPLEMENTATION Design 27. Following the June 1973 decision by the Government, the designs of the canal and the extension of Constanta/Agigea Port were undertaken by the Road, Water and Aerian Design Institute (IPTANA), which is the design agency for the Ministry for Transport and Telecommunications (MTTc). But assistance was given by about 37 other specialized institutions in regard to hydrograph- ical, geological and soil and construction material investigations, model studies for the canal and operating systems, and other specialized services, These studies, and the designs produced, were apparently reviewed by the appraisal mission in Romania. However, as they were prepared "in-house" by many Government institutions, there is no consolidated report of the studies and findings which can now be reviewed. Similarly, the engineering designs do not have any consolidated report on methodology, summarizing the data and designs prepared, etc. However, a brief site inspection does not indicate any obvious major deficiencies in the ovorall design or details. But, in the absence of reports and data concerning investigations and analyses, it is not possible to confirm some design features and decisions. 28. For example, in regard to The canal, a major problem was the plateau ranging from 50 to 70 m above sea level for about 20 km at the Constanta end of the canal. The material underlying the plateau is chalk and limestone. An earlier brief description sent to the Bank indicates that consideration was given to two possible designs. One was to construct the canal all at a single level, slightly below the normal river level at Cernavoda, but above the sea high water level at Constanta. This would have two locks only, one at each end. An alternative three-lock layout was considered with the canal level raised perhaps to 20 m through the plateau section to reduce the volume of ,xcavation. However, this alternative was evidently discarded and the two-lock, one-level canal design was adopted. The remaining 44 km of the canal is In relatively flat terrain requiring little excavation. But the massive cut through the plateau involves about 300 million cubic meters of excavation, including a substantial amount of - 10 - rock which had to be blasted. There were also groundwater problems to be dealt with, especially at the many faults in the limestone. The additional volume of earthworks for the selected one-level design would obviously be very costly. However, this would have to be balanced against the more difficult operation with additional locks and the need to pump wrter for the high level portion of the canal, in other words, higher 3p,rating and transport costs. The high locks would have been comparable in size and height with those at the Iron Gates on the Danube. 29. Apart from the question of cost of the huge volume of excavation involved, the one-level canal design adopted performs well. As the canal bottom is abo-t 1 m above the Black Sea, which is entered through a lock, there is no possibility of the canal, which is used also for irrigation purposes, being contaminated by sea water. At the junction with the Danube at Cernavoda the canal is sufficiently below river level to enable it to be supplied by gravity fLr nearly all the year. However, a pumping station was constructed to provide water to the ca!al. whet; the river is at its lowest level for about a month during the autumn. The canal is 7 m deep. The width in the flat terrain section is 70 m at the bottom and 124 i at the water surface leveL. In the plateau, deep cut section, the waterway is 90 m wide between vertical retaining walls. The width is sufficient for the standard 6 x 3,000 ton barge convoys, with pusher tugs, to pass in each direction. The depth is sufficient for small ocea;, going vessels of up to about 5,000 tone. The twin locks at each end of te canal also permit two-way traffic and with a length of 310 m and a widtr! of 25 m can take the full assembled barge convoys. At the time of the audit mission, convoys were seen transitting the canal, including one wi iron ore for Yugoslavia. The ranal operation was proceeding smoothly. 30. The design of the canal bank appeared satisfactory for stability and for orcrection against wave acti1. The craft usin the canal are allowed to travel. up to 12 kph. 31. There is a major question concerning the stability of the deep cuts. These were evidently initially designed, and constructed, with relatively steep slopes which are stable where the ground conditions are favorable. However, massive slides have occurred in many places, such as where large quantities of grourdwater have been encouncered, at faults in the rock, etc. Many have already been dealt with and remedial works are in progress at others. But it must be expected that other falls will occur over perhaps a prolonged period. The forecast was that ti,is work would be completed by the end of 1986, but this seems unlikely. 1le question may be posed whether this represents an important failure of desigi. It is possible that more extensive field investigations would have located sime of these difficult zones before the cut was made. However, it would have been difficult to identify precisely these areas in variable material and groundwater conditions. Of course, one way to minimize such slides would have been to greatly flatten all the slopes, but that would have involved a great and unnecessary quantity of a1ditional excavatlon. The slides are not inEefering with canal traffic, s0 we the sides of the canal itself have - 11 - concrete retaining walls to a height of 10 m and from this point there is a level berm 11.5 m wide which provides space to deal with the earth slides. It is likely, therefore, that the excavat! n of the cutting with a slope suitable only for the better soil conditions, and accepting that further works would have to be carried out over a period as found necessary, may well be the least cost solutinn even though it means dragging out the completion and does not create a superficially good impression. 32. Where repairs were needed, they are being well carried out, using a variety of methods appropriate to the conditions. These included the provision of gabions, and other means of support and revetment, together with the provision of culverts and drainage channels to deal with the subsoil and surface water and slopes were being flattened to a stable condition. The section of the canal over flat terrain did not show any sign of problems. There was no indication of water leakage and the standard bank protectiun consisting of stone pitching, or 15 cm concrete slabs to below water level and stone oit:hing on fascines below water, all usually laid over plastic geotextile sheeting was performing satisfactorily. Indications are that after another year or so, when the deep cut slides should largely have finished, and been dealt with, the canal should need only normal maintenance. 33. The designs, and completed civil works, of the canal ports of Cernavoda, Medgidia and Basarabi appear satisfactory, though most of the loading/unloading equipment has not yet been provided. The four rail and four road bridges have been satisfactorily designed and completed and the irrigation system is in operation. The total draw-off from the Danube to the canal for all purposes, including supplying the irrigation system, is only 150 cubic meters per second. This is insignificant in relation to the total flow in the river; when it is at its lowest level of about 2,000 cubic meters per second, water is not drawn off the canal for irrigation. Construction 34. Construction of the project has been carried out by a special state agency set up for the purpose, the Danube-Blick Sea Canal Central (CCDMN). Its initial nucleus was staff transferred from the "Iron Gates" Danube project. Supervision has been by the design agency IPTANA. On the canal, canal ports, and other associated works have to be accepted by the DBSCA before payment can be made According to the Government's schedule, the canal should have been opened by the end of 1982, though the Bank had reservations on this forecast. It was actually opened 17 months later, May 26, 1984. The delay was attributed mainly to unexpected difficulties in the excavation of the very large volumes of chalk and limestone in the plateau region. Major difficulties were undoubtedly experienced, but it is less clear why they should have been unexpected, unless there was a failure to undertake adequate site investigations, borings and laboratory tests. Although the construction equipment was almost entirely of Romanian manufacture, difficulties were reported in obtaining spare parts and tires and this contributed to the delay. Nevertheless, it was still a very considerable feat to opjn the canal within 8 years of construction, - 12 - especially as a substantial part of the equipment was not available until around 1980. The quality of the work is good but, as noted under "Design" above, work will continue probably until the end of 1987, or beyond, in repairing the earth slides in the deep cut section (para. 31). Meanwhile, the canal is in full operational condition. 35. The main civil works have been completed on the canal ports and other associated works, but the loading and unloading equipment is mostly still lacking. The largest of these ports is Medgidia. It is intended to handle over 5 million tons of raw materials and output of a cement factory, which has started operation, as well as coal for a power station. So far the port has only a single crane for general cargo and loading equipment for bulk cement to barges rated at 300 tons per hour.1/ It does not yet have unloading equipment for limestone and coal. The limestone will be brought in barge through the new Midia canal which is being constructed between the Danube-Black Sea Canal at Poarta Alba and Navodari near the site of the proposed Midia port which is intended to serve a repair shipyard and fertilizer and chemical industries. 36. The Midli canal is about 30 km long and is scheduled for completion about the end ot 1987.2/ It is being built to the same dimensions as the Danube-Black Sea Canal. It will be used to bring limestone from near Navodari by barge to the cement factory at Medgidia. In the meantime, the limestone is being transported by railway. Construction of the Midia canal is not part of the Danube-Black Sea project. However, it is being designed and constructed under the supervision of IPTANA and for the time being at least the works are also subject to acceptance by the DBSCA. It has not yet been decided whether the operation 'f the Midia canal, when it is completed, will be under the DBSCA or whether there will be a separate autho 'ty. The Government stated that adequate loading/unloading facilities will have been installed at Medgidia by the time the Midia canal is opened. 1/ IB has commented, Annex A, page 2: "In connection with the actual traffic on the canal, we mention that the cement traffic is normally done between Medgidia and Constants where there are used specialized floating facilities for the unloading the barges; similarlly for phosphates and ore traffic. Also, the construc- tion materials (ballast and broken stone) traffic is normally done with barges from the Danube on the canal to the port for the construction trust's requirements there; the unloading, the stacking aid the forward- ing are fully mechanized, the respective equipment being into commis- sioning." 2/ IB has commented, Annex A, page 2: "Also, in the item 36, in the second phrase, to result that, how- ever, the length of Midia canal is different from those of Danube-Black Sea Canal." - 13 - Other Essential Investments 37. While the Danube-Black Sea Canal suffered only moderate delay of 17 months to its opening in May 1984, the "Other Essential Investments" have suffered much more serious delay and are still far from fully operational. As a result, the canal usage has been seriously affected. This situation is of course contrary to the provisions of Section 4.01(b) of the Loan Agreement and the provisions of the Supplimental Letter No. 2. Since these works are essential for realization of the full project benefits, it is necessary to review their progress even though they were not financed under the project nor part of the project itself. 38. Construction of the Constanta/Agigea Port Extension is the princi- pal item of the "Other Essential Investments." The part of this port chiefly affecting the canal traffic is the provision of berths for large bulk carri- ers, loading and waiting berths for barge convoys, and unloading and loading equipment, and the provision of large stockpile areas for bulk materials, together with conveyors and equipment for stacking and reclaiming. Five berths are being provided, two are for vessels up to 150,000 tons and three for vessels up to 100,000 tons. So far, the quay walls have been constructed and the access channel. dredg-d, but the fill has not been completed for the areas of the quays and for the stockpiling of up to 1.8 million tons of bulk materials.3/ The equipment has not yet been procured and installed for un- loading the ships, conveying and stockpiling the bulk materials, and for reclaiming them and loading them onto barges. The work is being designed and supervised by IPTANA under the general direction of the Constanta Port Authority. The works, including the tnstallation of material handling equip- ment, were said to be scheduled for completion about the end of 1987. Some of the handling equipment had been ordered. It was being manufactured in Romania, though with some collaboration with foreign firms. 39. In the meantime, bulk carriers of about 50,000 tons were using the existing quays at Constanta Port which had a total of 6 bulk unloaders, though not of very large capacity. A temporary conveyor system had been laid from those berths to the barge loading quay, but this also has low capacity and could only load one barge at a tlme. One of the new berths was being partially used by ships of up to 85,000 tons. However, unloading was by a stop gap method using a floating crane And off-loading directly into barges. This was slow and could take more than 5 days to unload a ship. Much of the bulk material is still being transported from the port by railway. According to shipping companies from other countries on the Danube, the arrangements for unloading and transshipment of bulk materials at Constanta are slow and expensive. They expected to use Constanta/Agigea Port and the Danube-Black Sea Canal when the Agigea Port and hnandling arrangements were satisfactory. 3/ 18 has commented, Annex A, page 2: "We also specify that, there is completed the required dredging eusuring the access of the larger bulk carriers Lo tho herchs in the new are of the port." - 14 - However, in the meantime, they expected that bulk materials would, to a con- siderable extent, continue to be imported via the Sulina canal and river ports, even though smaller ships were involved. 40. A further problem for the use of Agigea Port by barges is the ques- tion of waves from the Block Sea. Loaded barges can only take waves up to about 0.5 m. The original intention had been to build a north-south break- water outside the harbor. But this would be about 4 km long in water over 20 m deep and would be extremely expensive, so its construction has been indef- initely postponded. However, the walls have been constructed for a number of new berths and areas to be reclaimed in the Agigea harbor, as well as a new secondary breakwater. These largely protect the mouth of the Danube-Black Sea Canal and the new harbor area, including the barge loading and waiting berths. Also a barge channel has been constructed to give access for barges from the canal mouth and new harbor arpa to the new mineral quay (for large bulk carriers) without having to go around via the open sea, thus greatly re- ducing the barges' exposure to wave action.4/ Nevertheless, there is still a significant gap at the mouth of the new harbor not protected by break- waters. At certain times of the year, chiefly in spring and autumn, there are occasions when rough weather in the Black Sea, especially with a south- east wind, causes waves greater than 0.5 m to enter the harbor through the gap and prevent the movement of loaded barges. This could affect barge traf- fic for up to about 50 days per year. The problem may be somewhat reduced when the cargo berths now under construction on the south side of the canal mouth have been completed, thereby further narrowing the gap to the open sea. 41. The new Danube river port of Calarasi has also not been completed. It is being constructed to serve the new steel plant at Calarasi which is under construction but also delayed. However, the first stage, to produce 0.4 million tons of steel per year, originally scheduled for 1980, has been in operation since 1983. The raw materials for it are being transported by rail. The second stage, to bring production up to 4.0 million tons of steel, 4/ IB has commented, Annex A, pages 1 and 2: "We would like to specify that the works implementation in Constanta/Agigea Port in the acces area into the canal is correlated with the traffic demand for the canal and would be completed by about Che end of 1987. No matter what is the implementation status of the works in Constanta/Agigea Port, in the acces area into the canal, the traffic on the canal may be normally done, without any restrictions, due to the possibilities offered by a connecting channel (of about 800 m length) which was implemented from 1985 ensuring the connection between the new area and the old area of Constanta port. In this way, the barges have a simplier acces in to the existing port where from they may take, using the exis ig facilities, as large as volumes of different commodities. "The connecting channel also ensures the barges circulation in the protected area of the port, thus the aspects shown in the item 40 in PPAM regarding the safety of the barges circulation are avoid." - 15 - originally scheduled for end 1984, is now scheduled for end 1988. The 5 km long canal connecting the new port with the Danube has been constructed, ex- cept for the bank protection, which' is about half complete. Quay walls have been built for the barge berths, but here, also, a large volume of fill is still required to bring the area of the quays, and particuarly the bulk material storage areas, up to level. General cargo cranes have been installed for loading steel products onto the barges, but equipment has yet to be provided for unloading bulk materials from barges, conveying it to stockpiles, and reclaiming it and conveying it to the steel plant nearby.5/ 42. There was no opportunity to visit the Danube port of Galati whtch was reuidred to be extended under the covenant for "Other Essential Works". / However, the Government reported that both the expansion of the steel works to 10 million tons capacity, and extension of the river port had been completed. It was also reported that dredging had been carried out, as required, on the Danube between the Danube-Black Sea Canal entrance at Cernavoda and Galati, as well as Cernavoda to Calarasi, and that maintenance dredging would be undertaken as necessary. The Government barge and pusher fleet was stated to be adequate for the present traffic requirements and that it would be increased to keep pace with increasing demand. So far, the traf- fic is far below the appraisal estimates. 43. The DBSCA provides pilots for all craft using the canal. Ample numbers of pilots and other canal staff have been trained and should be ade- quate to meet substantially increased traffic demand. Cost of the Project 44. The project is not yet completed. As noted, considerable remedial and finishing work is still being carried out, and will continue over the next I to 2 years, on the deep cut faces of the canal, reinstatements of land disturbed during the construction and the procurement and installation of equipment, mainly for the canal ports. The Government estimated that as of January 1, 1986, a total of USS324.9 millio: equivalent was required to 5/ j8 has commented, Annex A, page 2: "As regarding Calarasi port, we would like to mention that the works implementation in this port is, also, correlated with the traffic demand of Calarasi Steel Plant, of which completion by the final capacity was temporized under the unfavotirable world economic conditions." 6/ TB has commented, Annex A, page 2: "Other specifications are required for tI: other items in PPAM. This, in the item 42 there is required to resu that the audit mission d4d not visit Galati port for lnck of time, but " supervision missions -f the Bank had vIsited both CalatI port and t; , ther ports: Braila, Calarasi, Constanta-south/Agge ., duriug the pr .t .trmplementation." - 16 - complete the project. Including this sum, the total cost of the project is estimated at US$1,897 millicn equivalent, compared with US$1,750 million equivalent at appraisal, including contingency allowances. Expenditures in Romanian currency have been converted to US$ at current exchange rates at the time of the expenditure. On this basis, the total cost overrun would be a littie over 8% (Table 1). 45. The bulk of the overrun is in "Land Replacement," that is restoring land where disturbed by the works, under the item "Expropriation and Compensation." Other overruns were in "Miscellaneous Including Supervision," due mainly to the time overrun for completion, and a smaller overrun for "Equipment and Its Installation." The cost of the main item "Civil Works" which includes the canal construction, was slightly less than the cost estimates, including contingency allowances. Altogether, an overrun of less than 10% in a project of this magnitude, extending over a period of about 12 years in total and over 8 years since the appraisal estimates were made, must be considered good. These costs, of course, refer only to the project as defined in the Project Description. They do not include the "Other Essential Investments" such as the Constanta/Agigea Sea Port Extension, the construction and extension of Danube ports and the provision of new barge and pusher fleet, though these are included in the economic evaluations. III. PROJECT RESULTS Overall Objectives 46. When the project is completed, it will undoubtedly fulfill its primary objective of providing low cost inland water transport of bulk materials to the Romanian industries along the Danube. In fact a significant impact !s likely to be felt throughout the 2,415 km length of the navigable Danube. With completion of the works already underway on the Danube, it will soon be possible to operate 18,000 ton barge convoys (6 x 3,000) from Constanta to Belgrade, Budapest and Bratislava. With further works planned, such convoys will be able to reach Vienna and smaller convoys of such barges will reach Kelheim in Germany. 47. However, delay in completing the extension of the Port of Constanta, to provide facilities for large bulk carriers and rapid transshipment to barges, has prevented the full efficiency of the system from being realized. Also, the delay in completing the project and other essential investments increases the effective economic cost, even if total current financial costs are not significantly raised. For this reason, and because traffic demand so far, and at least for some years to come, is less than was forecast, the economic eLurn on the project will be much lower than the 19% predicted it appraisal. - 17 - Canal Traffic 48. Traffic so far is falling far short of the appraisal estimates. These assumed an immediate diversion of traffic to the canal on opening (then assumed to be end 1982) of 40.7 million tons in 1983; in fact the canal was not opened until mid 1984. Traffic estimated and actual in the first few years may be summarized (million tons): Estimated Traffic Actual Year Appraisal PCR Traffic 1983 40.7 - - 1984 48.0 8.0 8.0 1985 56.4 27.0 18.0 1986 58.5 42.5 (9.0 for 4 months Jan-April) 49. Detailed traffic projections, by commodities, were given in the Appraisal Report for the years 1985, 1990 and 2000 and these have been revised in the PCR (Table 1). In addition, during the audit, the DBSCA provided revised detailed forecas's by commodities, for the years 1987 and 1990, and total for the year 2000. These estimates, together with estimates made by the Audit, are shown in PPAM .'able 2. These projections show wide divergencies and clearly the various estimates of economic return will vary accordingly. The traffic in the first few years is grossly under the Appraisal predictions, but this forms only a limited guide %o the future since port and transshipment facilities at Constanta are not yet satisfactory; nor is the canal port for the new steel plant at Calarasi yet operational. Overall traffic will, of course, depend substantially on general world economic conditions. These have been less buoyant than was probably expected at the time of appraisal in 1979, since shortly afterwards there occurred the second oil price rise and the world recession of 1981. At the same time the deteriorating conditions led to a cut-back in the rate of public investment in Romania and this was one of the factors which doubtless has delayed the completion of Constanta port extension and other works. It has also resulted in a slowdown of investment in the Romanian steel industry, which was expected to account for nearly 50% of total traffic to use the Danube-Black Sea Canal. 50. In 1979, the Government's steel expansion projects aimed at an increase of about 8 million tons by 1985, to a total of about 20.4 million tons. Most of this expansion was to take place at two steel plants on the Danube: a major existing one at Galati, and a new one being built at Calarasi. The additional 3 million tons projected at Galati has now been provided. However, at Calarasi, the first production of 0.4 million tons predicted for 1980 was not achieved until end 1983, while the increase of 3.6 million tons to 4 million tons pradicted for 1984 is not now expected to be achieved until end 1988. A further 6 million tons expansion of Calarasi, by - 18 - about 1990, was originally contemplated; if this expansion in fact takes place, it seems unlikely to occur before the period 1995 to 2000. It was expected that 8 million tons of imported raw materials fir Calarasi would use the canal and about 19 million tons (out of a total of over 25 million tons) of raw materials at Galati would use the canal by 1985. Even if the canal and supporting port facilities were in full operation, the canal traffic projected for 1985 could clearly not have been achieved. The Appraisal Report's projections of steel related traffic beyond 1985 were in fact somewhat reduced compared with the Government's long range projections for steel capacity. 51. The DBSCA produced, through the IB, revised projections of canal traffic, broken down by commodities, for 1987, 1990 and 2000 (PPAM Table 2). These were stated to be on the basis of forecasts provided by the various ministries concerned. The projection for 1987 was reduced to a total of 45 million tons compared with 61.6 million at appraisal. However, by 1990, DBSCA predict 80.0 million compared with 75.2 million at appraisal and 72.1 million in the PCR. For the year 2000 the original estimated total of about 102 million tons is retained both in the PCR and by DBSCA. It is not impossible that the new DBSCA forecasts will be achieved. Clearly it will depend on world economic conditions (which also affect other industries which influence canal traffic) and the ability of the internal economy to use the steel produced, even if the steel plants are expanded as planned. Obviously other projections could be made based on different assumptions. However, by way of comparison, the Audit has assumed an alternative lower rate of traffic build up, particularly in the earlier years, with total traffic only reaching the DESCA targets by 1995. The assumption of lower total traffic in the earlier years is also based on a belief that it takes several years for traffic patterns to readjust, for example to new sources of supply, as well as to induced new activities, when a major new transport fIcility is provided, or a substantially upgraded one as in this case. 52. Tn any case the build up of canal traffic will depend not only on total traffic demand but on the combined competitIve position of the canal and its port of Constanta/Agigea. Constanta port traffic has so far been restricted by its overall capacity. The Audit noted about 20 sh1ps waiting for berths. This situation should be relieved by the port's southern extension at Agigea, but its construction is lagging the canal by several years. For the bulk traffic, which uses the canal, although one of the new bulk carrier berths has been constructed to a stage where it is partly usable, its unloading equipment has not been provided, nor c,nveyors, stacking areas and barge loading facilities. The improvised arrangements for unloading directly into barges is slow and inefficient. So far, only limited quantities of bulk materials have been attracted to Constanta port and the new canal, as can ne seen from the port traffic in 1985: - 19 - Traffic Throurh Constanta Port in 1985 (million tons) Oil: 20 Bulk Commodities: Ore 7 Phosphate 3 Cereals 3 Coal 1 Subtotal 14 Other Cargo: 15 Total 49 53. It is clear that until speedy and efficient bulk cargo handling facilities are provided at Constanta Port, the canal cannot realize its traffic potential. In the meantime, much of the transit, as well as domestic, traffic may continue to be handled via the lower Danube delta ports, of the USSR as well as Romania, even though involving the use of smaller ocean ships. This point was made to the Audit by representives of shipping companies and transport ministry officials of other Danubean countries. They were clearly keen to use the canal. But they would only do so when Constanta has handling and stacking facilities to provide for rapid unloading and loading at low cost. The early completion of bulk cargo berths and cargo handling installations at Constanta/Agigea, and also at the Danube river port of Calarasi, should be a high priority to permit the benefits of the heavy investments already made in the canal to be realized. 54. European industries are becoming more dependent on overseas raw materials. When Constanta/Agigea port is well developed for bulk cargoes, and with the past and on-going upgrading for navigation of the river itself, the Danube's low-cost transport facility should offer strong competition for the traffic and help accelerate the switch to new overseas sources of supplies. In the process it may also divert some bulk traffic from rail lines in central Europe, and perhaps in Yugoslavia, which supply materials to the Danube area. Financial Performance of DBSCA 55. The DBSCA is an entity under the Ministry of Transport and Telecommunications (MTTc). DBSCA is intended to become self-financing. But this is within the context of the MTTc providing all the capital needed on very easy interest terms. For external loans, the interest rate to DBSCA is - 20 - only 2% and it pays no interest on capital provided from local funds which make up by tar the greater part of the DBSCA's capital for investment in the canal construction and related works. For capital repayments, the aim is for DBSCA to meet repayments on external loans as they fall due. For local finances, the repayments are spread over 65 years. These payments in effect take the place of provisions for depreciation. Furthermore, MTTc meets any shortfalls, capital or current, and adds the funds so provided to the DBSCA's total debt in local currency. DBSCA is thus effectively subsidized. 56. Income of DBSCA is primarily a function of traffic volumes and the levels of Tariffs (or tolls). Their rates are proposed by DBSCA but have to be approved by the Government. They are set at levels intended to avoid diverting potential traffic away from the canal (PPAM Table 3). The tariffs are incremental according to the tonnage brackets of each vessel. However, for the main category of river-going barges or self-propelled vessels, which are normally of 3,000 tons, the actual charge amounts to just under US$1.00 pet metric ton, when loaded, and about US$0.75 for vessels when empty. For vessels partly loaded, the charge is made as for a fully loaded vessel. 57. The charge for sea-going vessels which can use the canal is on a similar basis, but is levied per net registered ton (NRT) and tapers from US$2.7 to US$2.1. The charge would thus average about US$2.24 per NRT. This compares with about US$1.16 per NRT, when loaded, using the Sulina Canal. However, the traffic on the Danube-Black Sea Canal is overwhelmingly barges. Few sea-going vessels seem likely to use it at present, though ships of up to about 5,000 tons could do so. They would, in any case, be travelling up the Danube and use of the canal would save them nearly 250 km of canal/river travel compared with entering the Danube via Sulina. But of course most of the sea-going vessels using Sulina are off-loading, or transshipping to barges at the delta ports. Clearly the DBSCA's rates for barge traffic, combined with the use of large bulk carriers to Constanta (when -atisfactory facilities exist) should be very competitive compared with the u8e of small ships and the extra travel distance, via Sulina. 58. DBSCA provided audited Balance Sheets, as required by the Loan Agreement, for each year 1979 through 1983 (IB's PCR, Table 5). It has since also provided audited Balance Sheets for 1984 and 1985 (PPAM Table 4). DBSCA has not provided Income and Expenditure Statements. However, the Bank's PCR (Annex 7) indicates traffic, average tariffs and cost per ton, operating revenues and operating expenses, as well as amortization, interest and capital payments, for 1984 and projections for 1985 through 1990. These indicate 4--ficits through 1988, but surplusses thereafter. But this was on the basis of PCR revised forecasts for traffic which are not being realized, at least in the earlier years. DBSCA's revised forecast at the time of the audit would indicate traffic at the PCR forecast levels by 1988. "his seems uncertain, and the Audit estimate is for traffic to lag behind the DBSCA's revised estimates, and PCR estimates, until around 1995. In the latter case it would probably be about 1992 before a small surplus is achieved. - 21 - 59. In any event, as noted (para. 55) DBSCA's payments for interest on loans is far below the usual levels. If it had to meet such interest payments at normal rates, it is likely that deficits would persist far into the '90s at present tariffs. In any event, the MTTc continues to provide finance from its budget to meet deficits in current finance as well as for continuing capital expenditure to complete the project, and for constructing new projects, such as the Midia Canal. However, one point of note is that the tariff level of Lei 12.4 per ton shown in the PCR Annex 7 corresponds to conversion from the US$ at the "Official Pate" of Lei 12.7 - US$1. If the tariff receipts (which are collected in US$ or Roubles) were converted at the economically more realistic "Commercial Rate" of about Lei 17.5 - US$1, DBSCA's revenues, which are expressed in Lei, would be 38% higher. On that basis the deficits might in fact be eliminated by about 1989, according to the present method of accounting. Economic Reevaluation 60. A project so large in scope raises a question as to an appropriate apr.oach to its economic evaluation. Since the project is intended to provide the principle means of transport for imported bulk raw materials (including solid fuels) it will have a wide impact on many industries which use such materials. One view is that the project should, for economic purposes, include, in addition to the canal, not only the necessary expansion of the Port of Constanta and the river ports, but also the main industries to be served. This would particularly include the steel industry which was scheduled to generate nearly half of the total traffic. Furthermore, as noted under "Formulation of the Project" (para. 15), a number of alternatives might have been considered for the composition and timing of the transport part of such a project. However, the global project concept was not pursued and the question of transport alternatives was in any case overtaken by events. Nevertheless, the adopted project remained dependent on the traffic to be generated by the various industries and traffic projections were made on the forecasts of the industries' parent ministries. The project Is therefore reevaluated as a transport project, including the port development and barge transport fleet, which were not included in the project itself, as well as the effect of ocean shipping costs, as in The appraisal. 61. The appraisal analysis, after first discarding a railway alternative, compared the project with an alternative of increasing capacity as necessary on the then existing routes. That meant expanding the delta river ports, and the barge fleet, to handle growing volumes of bulk commodities, and to expand rail capacity for other traffic. As noted, these evaluations, and other studies, are not available in any final consolidated form. They appear to have been carried out as working papers, largely in manuscript. It was not possible to reconstitute the details of the analysis which had been performed. The Audit therefore focussed on determining whether rElative costs of various modes had changed and then adjusted the costs and benefits in proportion to the revised costs and to actual traffic volumes so far, and revised estimates of future traffic volumes. - 22 - 62. It was verified that there had been very little change in relative costs as between inland water transport and rail. The operating costs for these could therefore be reasonably proportioned according to traffic. However, there was a major change in the relative costs of ocean fre:'ght since the appraisal in 1979. This is important as approaching 502 of the total benefits assessed at appraisal would be derived from the saving in ocean freight costs through switching from small ships using the Sulina Canal to large bulk carriers discharging at Constanta Port. 63. Ocean freight rates at the time of appraisal in 1979 were rising steeply and they continued to do so until about the end of 1980. However, they then plunged until they hit bottom about the end of 1982 (Chart, showing Shipping, Dry Cargo, One-Year Time Charter Rates). The rates were then only about half the amounts they had been at appraisal in mid 1979. They have remained depressed since. They had a slight gentle rise through 1983, remained flat through 1984, but again dipped in 1985 and early 1986 almost to the floor reached in 1982. The result is that the "savings" per ton, through the differential between the rates of large bulk carriers and ships of around 20,000 tons, have also been halved. In 1979, the rates for 20,000 ton ships were around US$8/DWT/month against about US$4 for large bulk carriers of 70,000-120,000 DWT. In 1986, the rates for 20,000 DWT ships had fallen to around US$3.50-US$4.00, while the rate for 70,000-120,000 DWT ships had fallen to a little under US$2. The differential has therefore halved, even in current prices, since 1979. Consequently, the savings in ocean shipping costs estimated at appraisal have also been halved at the present time, for equivalent volumes of traffic in current prices, or to only about 34% in 1979 prices. A major problem in reevaluating the project is therefore to determine a reasonable projection for ocean shipping costs in future. 64. Ocean shipping rates are, of course, determined partly by world conditions and the resulting demand for shipping, and partly by the underlying cost of building and operating the ships. In the short run, the current market conditions tend to dominate, though costs must prevail in the long run. The sharp run up from 1978 into 1980 was largely a market boom. However, from 1979, it was also probably fueled by the doubling of oil prices from the region of US$15 per barrel to over US$30. The oil price is important, as it represented about 30% of the total cost of operating bulk carriers at 1979 prices, but this ratio rose to about 50% in late 1981. This rise in fuel costs may have helped drive the rise in shipping rates. However, from its peak in 1979, world oil consumption fell gradually by about 10% to 1985, as a result of the high oil prices and linked world recession of 1981. Oil prices slipped slightly between their peak in 1980 and early 1985. But from late 1985 through early 1986 prices fell precipitously and remained for several months in a range of about US$9-US$12 per barrel. There was a slight recovery in August 1986 to about US$12-US$15 per barrel (in current prices). 65. A prediction of future shipping rates depends substantially on a prediction of oil prices. There is little sign of a major sustained recovery yet, but a massive fall in drilling and exploration activity, together with a - 23 - probable resumption of at least some rise in oil use stimulated by the low price, is likely to lead to eventual equalibrium and, presumably a recovery in oil prices. A long term prediction is difficult, but a fairly cautious assumption may be that the price will gradually recover to the 1979 level in real terms by say 1995. 66. Similarly, with shipping rates, the presently very depressed condition may be expected eventually to begin to recover as an aging fleet, combined with reduced new building and probably some recovery in traffic demand, ake effect. Short term flucuations are likely to occur, but an assumption of a gradual return to 1979 prices, in real terms, by 1995, in parallel with oil prices, may be reasonable. 67. The PCR indicates that the economic rate of return will have been reduced to about 11% from the 19% (not 13% as stated in the PCR) estimated at appraisal, including sunk costs. This revision is based on the sensitivity analysis of the appraisal calculation, and on the PCR's revised traffic forecast, but apparently does not take into account the change in relative costs of ocean freight. The Audit has computed revised estimates of the economic rate of return using the appraisal streams of costs and benefits (at 1979 prices) adjusted on two bases (PrAM Table 5): (1) Using DBSCA's revised traffic projections of mid 1986, with no change in the 1979 real price levels; that is, it is assumed that ocean shipping rates will recover swiftly and not significantly distort the benefit streams; and ( ) Using Audit's projections of traffic, and adjusting ocean freight rates downward to 50% of 1979 levels in current prices (to 34% in real terms) through 1986, with a gradual recovery thereafter to 1979 real price levels by 1995. 68. The revised economic rate of return on the basis of ki) above is about 11%; on the basis of (ii) above it is about 9%. However, even the Audit's estimate (Ii) of 9% assumes that there will be no further delay in the expansion of Constanta/Agigea deep water port and the completion of the river port at Calarasi, including provision of efficient bulk handling facilities In each case, and in completing the steel plant at Calarasi. Sustainability 69. The Danube-Black Sea Canal is essentially a long term investment. The Government has attributed to it a nominal 65 years useful life and in fact it will almost certaLily continue beyond without substantial reconitruction. There has so far been no real test of its full operation as the associated sea port works have not yet reached a stage to accept the larger bulk carriers and to provide efficient and cheap transshipment to barges. Also development of a3sociated industries has been somewhat slowed. The economic rate of return of the whole project has thus been significantly reduced to a rather disappoint Ip 9%-1 1% ra:ge. But the canal has been well - 24 - constructed and will probably have adequate capacity for the 30 year period used for its economic evaluation. It is possible that an increase in capacity, at least of the locks, may be needed later to meet traffic demands, especially if a large volume of transit traffic for other Danubean countries builds up. Such traffic may well be generated by the canal and the continuing navigational improvements throughout 1he Danube's length. There should even be some traffic with northern Europe after the Danube-Main Canal is opened about 1992. Also further additions to the port of Constanta/Agigea will be needed in stages to keep pace with traffic demand; this will require the preparation and periodic updating of a long range overall plan for the port and associated developments. 70. A satisfactory management and operational organization has been established. Staff has been trained and in fact there is some surplus, which is temporarily employed elsewhere as required, pending the build-up of traffic. The canal is functioning smoothly and is unhindered by the remedial anJ finishing riorks which are still in progriss in the deep cut section. Furthermore, when the expected traffic builds up over the next few years, the DBSCA should become self-financing, at least on the bas.s of the favorable (subsidized) debt servicing accorded to it by the Government. Even without such a subsidy, the DBSCA could be self-financing if it were allowed a more favorable and economically realistic rate of exchange (say the "Commercial" rate instead of the low "Officiai" rate for conversion of its receipts which are collected in US$ or roubles). 71. Clearly the Government intends to push the project, including its essential associated developments, to early completion. When that is achieved, and with the continuation of the Government's financial support for DBSCA until it becomes self-financing, the project will thereafter be fully sustainable. Findings and Lessons 72. The first question is perhaps "What was the Bank's role?" The project did not follow the normal project cycle of the Bank in that it was not involved significantly, if at all, in the project's formulation and design. The Bank's first tentative contact concerning this project was made between the Government and the Bank in early 1975, a few months before construction was started. But it was not until 1978, when the project had been under construction for nearly 3 years, that the Bank became closely involved in reviewing the project and preparing for its appraisal. A close examination and economic analysis were not undertaken until the appraisal mission in 1979. 73. This situation seems to have occurred largely because all studies and designs were done "in-house" by a large number of Romanian Wovernment institutions. Formal consolidated reports were not prepared as they normally are by consultants or the borrowers in the more usual Bank financed projects. Also, on the Government's side there may have been reluctance, at least in the early stages, to provide information to the Bank. This applied - 25 - especially to information of a broader nature concerning the transport sector as a whole, which was required by the Bank to help see the project in perspective and in relation to overall transport needs, priorities, and plans. 74. By 1978 there was no possibility of the Bank having any effective influence on the scope, phasing or design, at least of the canal component itself, and no alternatives could in practice be considered. The Bank's appraisal examination could then only seek to confirm that what was being done was economically acceptable for financing, but not necessarily the optimum composition or phasing. It seems to have been for that purpose that a comparison was made at appraisal with a railway alternative. 75. The main purpose of the 'ank's involvement seems to have been to assist Romania financially by a loan, though it only covered about 5% of the total project cost, but also indirectly by encouraging cofinancing which amounted to a further 10% of the cost. This was achieved. But clearly more direct and earlier participation by the Bank, together with a willingness of the Government to provide more information, would have been preferable. 76. A second question is whether the "Other Fssential Investments" should have been included as items in the project itself instead of being the subject of a covenant. These investments were the Agigea extension of Constanta Port, and the construction and extension of the canal ports of Calarasi and Galati, all provided for the purpose, and with suitable equipment, for the rapid and efficient handling of bulk materials. In fact these items have lagged several years behind the opening of the canal. This has inhibited the full use of the canal, even though temporary arrangements have been made at Constanta to use existing berths for transshipping the bulk materials to the canal barges. But those berths are limited to about 50,000 ton ships and cannot take the larger bulk carriers. Also the handling system is necessarily improvised and slow in operation and port congestion will continue until the 5 new large bulk carrier berths are completed and in operation. The river port at Calarast is not yet in operatioi for bulk cargoes and the iron ore and other materials for the new steel plant there are so far transported by rail. 77. A further reason for including the Constanta/Agigea Port extension in the project would have been to integrate better the physical construction worKs. In particular, the canal required the excavation of a very large volume of soil and rock totalling about 300 million cu m, while the port requires large quantities of fill material. The actual amounts depend on the number of berths, not only for bulk materials, to be built at this time as well as on building up a large area which is intended for a future free trade zone (see map). The canal excavation material is being used for the port. But better synchronization of the works would have enabled the material for the port to be mainly d-eposited as it was excavated from the canal. This would have reduced the amount of double excavation and handling resulting from the need for much of the required excavated material from the canal to be dumped in large tempotary stockpiles and moved later for use in the port. This operation is now in progress. - 26 - 78. The difficulties in synchronizing the works seemed to have arisen largely through the economic recession and the consequent financing problems and slowdown in investments. Perhaps such risks are inherent in tackling a very large project and related investments as in this case. That tends to point to the need to select and design projects to be executed in smaller but complete stages as far as possible. In the case of the canal this would have been difficult, but even there, a relatIvely modest redistribution of effort and finances from the canal to the works most closely related might have produced better synchronization. 79. Nevertheless, the project must have very positive future implications. The canal is in itself a remarkable engineering feat. In conjunction with adequate expansion and equipment of the Constanta deep sea port, it makes possible for the first time very large quantities of raw materials to be brought economically across the oceans to the Danube using large bulk carriers. The river is of course well suited for this type of traffic and it, also, has been the object of many large investments in the form of dams for power generation but which, with locks, have also greatly contributed to the improvement of navigation. With the completion of further such works now under construction, the Danube will have a formidable carrying capacity, in 18,000 ton barge convoys, for over 1,800 km from its mouth, as far as the Hungarian/Czechoslovakian/Austrian frontiers near Bratislava, and eventually the further 150 km to Vienna. Smaller convoys will be able to reach Kelheim in Germany 2,400 km from the river mouth. Traffic hetween the Danube at Kelheim and the Rhine will be possible from about 1992 when the Danube-Main Canal is completed. The project must therefore be seen as an important link in the completion and upgrading of a major transport artery running from the Black Sea right th-!gh the Danubean couiitries as far as southern Gprmany, and eventually 'on .'ecting with the North Sea. The resulting substantial reduction 1, tra .port costs must have a wile long term effe-t on the devel pmert not oniy oft Romania but of the entire Danube reg 'on. The benefits of such developrwnt which could be apportioned to the canal are only partly repregented hy the canal tariff revenues and thu; included in the economic analysis. - 27 - PPAN TABLE I PROJECT PERFORMANCE AUDIT MEMORANDUM ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794 - RO) Appraisal Estimates and Actual Project Costs (Expressed in Le Million and US$ Mllion Equivalent) raisl Estimate Actual Cost /a Actual Cost as a in Let in US$ mil in tLei in USF mil % oq Appraisal million E tuivalent million equivalent Estimate 1. Civil Works Canal 17,825 990.3 17,819 1,038.5 105 Locks 1,807 100.4 1,741 123.8 123 Canal Port 1,343 74.6 ',152 68.8 92 Utilities )04 16.9 304 17.5 104 Buildings 144 8.0 44 2.4 30 Reinstatement of 1,581 SY.A 1,.,59 108,2 123 affected facilities Subtotal 23,004 1,278.0 22,61 1,359.2 106 2. naLMM Equipment Cost 1,024 56.9 1,146 65.9 116 Installation 2t3 14.6 57 26.2 179 Subtotal 1,287 71.5 1,60 92.1 129 3,Si alingand Control Signalling 54 3.0 75 3.8 127 Control System 26 1.4 22 1.6 114 Subtotal 80 4,4 97 5.4 123 4. Kxpropriation and Compensation Exploration 61 3.4 /. 8.4 114 Compensation 153 8.5 14 0.8 10 Land Replacement 140 7.8 4,002 228.3 2,927 Subtotal 35., 19,7 4.,086 237.5 1,2 06 5. Miscellaneous, Including Supervision 1,43 /9.H 2,911 164.7 206 studies and Design Studies and Research 228 12.7 158 13.6 106 Design 395 21.9 425 24.7 113 Subtotal 623 34.6 583 38.1 110 Subtotal Items 1-6 26,784 1,488.n 31,799 1,897.0 7. Contingency Allowances Physical 2,410 133.9 - - - Price 2,306 128.1 - - - Subtotal 4,716 262.0 Total Project Cost 31,500 1,750.0 31,799 1,891.0 108.4 Project Expenditures Per Year (Calendar) (USS Million Equivalent) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 3.7 86.2 151.1 87.0 88.7 253.3 324.2 379.9 i117 86.7 210.0 114.5 /a Includes estimated cost of Let 5,680 million (USS324.5 million equivalent), as of January 1, 1986, to complete the project . The remaining works are mainly to complete sloping and revetment of ranal banks, reinstatement oi land and procurement and installation of equipment. Source: IB July 1986 PROJECT PERFORMANCE AUDIT MEMORANDUM ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 17Q4-RO) Estimated and Actual Traffic (Cargo, in million tons) Actual Estimated June- Jan.- 1985 1987 1990 2000 Dec. Apr. DHSCA DBSCA DBSCA 1984 19f. 1986 Appraisal PCR PCR Revised Audit Appraisal PCR Revised Audit Appraisal PCR Revised Audit Imports Iron Ore 1.7 7.2 13.5 10.2 15.0 2i.6 26.6 28.3 20,3 28.5 Coal 1.0 3.4 13.1 2.5 5. r. 5 8.0 9.6 10.6 10.0 Coke - 0.1 1.2 0.4 0.6 1.3 1.0 0.6 1.4 1.4 Non-ferrous metals - 0.5 1.4 0.8 2. 1.9 2.5 2.5 2.3 3.5 and Concentrates Chemicals( Phosphates) 0.1 0.2 1.8 0.6 '.9 2. 2.0 4.8 4.5 5.0 Other Commodities - - 0.2 - 0.3 0.2 0.2 0.2 0.2 am Total Imports 2.8 11.4 21.2 14.5 23.5 32.6 40.3 46.0 39.3 48.6 Ex port a Rolled Products 0.7 0.6 2.0 1.5 2.5 2.4 2.4 3.0 2.8 3.0 Cement - 0.4 1.5 1.1 2.0 1.5 1.5 1.6 1.5 1.6 Cereals at.d other Agri- - 0.4 0.8 1.0 1.5 0.8 1.4 1.4 1.3 1.4 cultural Products Fertilizer 0.2 0.3 3.0 1.0 2.0 3.0 2.2 2.2 3.0 2.8 Other Commodities - 0.2 1.7 0.5 1.0 1.9 1.5 2.7 3.1 3.2 Total Exports 0.9 1.9 9.0 5.0 9.0 9.6 9.0 10.9 11.7 12.0 Internal Traffic (Quarry products, 3.2 2.2 13.6 3.5 5.5 22.6 10.0 10.3 37.1 25.0 cereals etc.) Transit Traffic 1.1 2.5 7.5 4.5 7.0 10.4 12.8 12.8 13.8 14.0 Total 8.0 18.0 9.0 51.3 27.0 50.1 45.0 40.u 75.2 72.1 80.0 60.0 101.9/a 101.9 101.9 101.9 /a Total traffic is assumed to grow at 2% p.a. beyond the year 2000. Source: Appraisal, DBSCA. Bank PCR and Audit estimates. July 1986 - 29 - PPAM TABLE 3 PROJECT PERFORMANCE AUDIT MEMORANDUM ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) Canal Tariffs Rate /a No. Vessels designation and class Unit Passage Lb Pilotage 1. Loaded cargoboats 1.1 Self-propelled cargo inland vessels without train for one passage: - the first 1000 MT; MT 1.20 0.110 - the following 1000 MT; MT 1.00 0.040 - the rest of the tonnage. MT 0.75 0.030 1.2 Self-propelled cargo inland vessels with train, or non-propellea cargo inland vessels, either pushed or in tandem, for one passage: - the first 1000 MT; MT 1.20 0.040 - the following 1000 MT; MT 1.00 r.030 - the rest of the tonnage, M. 0.75 0.020 1.3 Sea-, and river-going vessels or sea-going argoboats for one passage: - the first 500 NRT; NRT 2.70 0.130 - the following 1000 NRI; NRT 2.50 (.85 - the rest of the tonnage. NRT 20 .nf 2. Technical and auxiliary vessels and passenger vessels 2. elf-propelled push boats, tug boats and other technical and auxiliary vessels, withrut train, for one passage: - the first 100 HP; HP 1.35 - the following 400 HP; HP ).4 .8 - the following 1000 HP; HP '.15 0.020 - the rest of the power. HP .07 2.2 Technical vessels and floating installations, non-propelled passenger vessels, included in a train for one passage; - the first 100 cu.m; co.m LWD 1. 35 . In - the following 400 cu.m; cu.m LWD 1,10 0.u50 - the following 100 cu.m; cu.m LWD 0.80 0.030 - the rest of the volume. cu.m LWD 0.50 0.010 2.3 Self-propelled passenger vessels and floating hotels, for one passage: - the first 100 cu.m; oun.m LWl ) tk 0.00 - the following 400 cu.m; cu.m LWD 1.15 0.080 - the following 1000 cu.m; cu.m LWD 0.80 0.020 - the rest of the volume. cl.m LW) (,50 0.010 a- Rate (*S$ or roubles). Rates for categories 1.1, 1.2 and 1.3 are reduced by 25* for vessels which are empty or in ballast. Rates in those categories are increased by 20% for vessels carrying dangerous cargoes. h Rates for -essels to and from the inland canal ports, that is not travelling the full length of the canal, are reduced proportionateiy to the distance travelled, but not less than 50 US$ or roubles and 25 'SS or roibles for pilotage. Source: DRSCA July 1986 - 30 - PPAM TABLE 4 PROJECT PERFORMANCE AUDIT MEMORANDUM ROMANIA: DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) Balance Sheets for 1984 and 1985 (Lei Thousand) 1984 1985 ASSETS 30,182,133 27,717,0C9 1. Fixed Assets 19,747,393 20,150,463 - Gross Fixed Assets 19,820,927 20,399,255 - Less: Accumulated Depreciation 73,534 248,792 - Net Fixed Assets 19,747,33 20,150,463 2. Current Assets 8,977 28,876 - Cash and other assets 468 1,569 - Inventory 6,630 19,682 - Receivables (clients and debtors) 1,879 7,625 3. Means and Expenditures for Investment 10,365,332 7,432,752 of which: - Investments in progress 4,712,893 7,36,252 - Equipment and materials for investments 80,372 64,672 - Commissioned investments 5,03,071 259 - Receivables for investments 68,996 2,569 4. Profit Payments and Provisions, and Losses 60,431 104,918 LIABILITIES 30,182,133 27,717,009 1. Fixed Assets Fund 19,747,393 20,150,463 2. Current Liabilities 69,408 133,794 3. Sources for Investments 10,365,332 7,432,752 - Funds from MTTc and State Budget 5,950,567 3,653,750 - Foreign Loans 4,365,790 3,534,816 - IB Loans - - - ther Sources 48,975 244,186 Source: IB July 1986 州轟·｝&&,’豐’中”&’韭”一朧唱；民 叔丰汗丰不：‘乞‘三 〕〕〕：__:!，、：:!_：一＿_:！〕！〕！ ’〕！一＿_＿一＿一＿一！、。 ，。’騷蔆；震造蘿：‘言露名言造／,/\,，〔〕！1 中 可”聶讓聶訕 ROMANIA DANUBE-BLACK SEA CANAL PROJECT (LOAN 1794-RO) PROJECT PERFORMANCE AUDIT MEMORANDUM Shipping, Dry Cargo, One-Year Timecharter Rates (US per Deodweight Ton per Month) pm, Mol- 14 13 J1- + + t + + Ä 5 OG - A 4.x 3,-x, C X, D 1 4 j A j A i 1,) A J j A i J A rý A i 4 j C i A J 0 A i 0 J 1,4 1974 ~Mo 1982 1983 1984 1985 1986 Mull! dockerý 10 20 OOC DW, Worla Bank-31~ 6-ilk Corners 20 3t OOC DW Sulk camers 31) 50 0013 DWI ------ Bulk ComerS 50 70 000 DW' t - -- qjIk L,),fle,s ± 12C OX DW! ~oc. - 33 - ANNEX A Page 1 of 3 kSast, havember 21 6 NANCA D3 INV2STI8 I ---------...-.. - (LetatesiW at data) Pereia lations unicates........... Serviu Da u -.. (A s tre" o rG. v.) We,. /JCZZ Mr. Brian Shields Chief Inergy Infrastructure and Urba Uvelopment Operations Evaluation Department WORLD BANK Re: Project Performance Audit Report on Romania Danube - Bleak Sea Canal Project (Loan 1794 - RO) We received the Project Performance Audit Report on the Danube - Black Sea Canal Project and we appreciate very much the efforte made by the Bark's Staff in drawing up a such large report and with very many details. However, we would like to make some additions and specificaticus to define more accurately some aspects in relation with Canal's implementation and operation. Thus: OED Comment: The 1. As you know, in the first few years of operation, comments of the the actual traffic on the Danube - Black Sea Canal was under the Banca de Investitti (IB) have been incor- Appraisal eatimations and this was due, mainly, to the general porated in "Evaluationdecrease of the ocean traffic under the unfavourable world eco- Summary, Results" nomic conditions. Under the conditions of a lower traffic demand, (PPAM, page v). uncompletion of "Other Essential Investments" had not seriously affected the canal use, as it is shown in PPAM (items 37 to 41 and 52). OED Comment: The We would like to specify that the works implemen- comments of IB, tation in Constanta/Agig*a Port in the acces area into the canal Annex A, pages 1 and is correlated with the traffic demand for the canal and would be 2, concerning the barge channel have completed by about the end of 1987. No matter what is the imple- been incorporated mentation status of the works in Constanta/Agiges Port, in the in para. 40. acces area into the canal, the tr-ffic on the canal may be normally done, without any restrictions, due to the possibilities - 34 - ANNEX A Page 2 of 3 offered by a connecting channel (of about 8oo m length) which was implemented from 1985 ensuring the connection between the nw area and the old area of Contani port. In this way, the brrges have a simplier acces in to the existing port where from they may take, using the existing facilities, as large as volumes of dif- feOEnt commodities. Tce connecting channel also ensures the barges circu lation in the protected area of the port, thus the aspects shown in the item 40 in PPAN regarding the safety of the barges circu- lation are avoid. OED Comment: IB's We also specify that, there is completed the require comment has been in- dredging ensuring the acces of the larger bulk carriers to the corporated in paza. bertha in the new are of the port. 38. In connection with the actual traffic on the canal, OED Comment: IB's we mention that the cement traffic is normally done between comments have been Modgidia and Constants where there are used specialized floating noted in para. 2. facilities for the unloading the barges; dimilarlly for phosphat and ore traffic. A.ls ,, the construction materials (ballast and broken stone) traffic is normally done with barges from the Danube on the canal to the port for the construction trust's requirements there; the unloading, the stacking and the foeaginj are fully mechanized, the respective equipment being into comis- si oniazg. oED Comment: bB's As regarding C l(rfi port, we would like to mention comment has been that the workA implementation in this port is, also, correlated noted in para. 41. with the traffic demand of Clrai pteel Plant, of which comple- tion by the final capacity was temporized under the unfavourable world economic conditions. lED Comment: iB's 2. Other specifications are required for the other comment has been items in PPAM. Thus, in the item 42 there is required to result noted in para. 42. that the audit mission did not visit Galai port for lack of time, but the supervision missions of the Ban had visited both Galati port and the other ports: Brila,Cglgraqi,Constanta-eouth/ Agigee, during th pro ect implementation. wED Comment: mB's Also, in the item 36, in the second phrase, to result comment has been that, however, the length of Midie canal is different from those incorporated by in- of Danube - Black lSea Canal. serting the length of the Midia Canal in para. 36. - 35 - ANNEX A Page 3 of 3 OED Comment: IB's 3. "Ivaluation Summary", pag.vii, "Results", the first comment has been incor- phrase to be completed with: ". . . . much below appraisal porated in the "Evalua- estimates (PPAM,pers.48), due, mainly, to the unfavourable tion Summary, Results t (page v). world economic conditions leding on the one hand to the genera decrease of the ocean traffic, and on the other hand to the temporisation of some investments in the local industries usinE the canal and of the investments related to the canal." OED Co=ment: IB's Also, in pag. viii, "Suatainability", in the first comments have been phrase, ". . . . without Government subsidies" to be replaced noted under "Evaluation Summary, S'istainability" with: ". . . . without Ministry of franeport and Telecommunice- (page vi). tions subsidies out of the overall results of this ministry." Accordingly, in the second phrase, to be specified that tempo- rarly the Ministry of Transport and Telecommunications will support financially the Danube - Black Sea Canal Administratioc Thank you for your cooperation and of the Bank's staff with whom we collaborated during the implementation of this huge project and we would kindly ask you that in drawing up the final report to take into account our above additions. Youre in crely, Alexandru teenu /Director -- 3 ' - én ce r - 37 - PROJECT COMPLETION REPORT ROMANIA DANUBE-BLACK SEA CANAL PRCJECT - LOAN 1794-RO I. INTRODUCTTON The Transport System 1.01 The Socialist Republic of Romania is bordered to the south by Bulgaria, to the west by Hungary and Yugoslavia, Pnd to the north by USSR. The River Danube, which is the most important navigable river in south-east Europe, flows along much of its southern border before swinging north then east to enter the Black Sea at the northern end of the country's 245 km long coastline near the USSR border. 1.02 Historically the River Danube has served as an important transportation facility for all of its riperian countries, which have continued to use it for imports and exports as well as for local traffic. In Romania with the central range of the Carpathian mountains, there has been the tendency to locate major industrial complexes which consume large volumes of bulk raw materials on or close to the Danube (I.B. PCR para. 2.1). 1.03 Due to the depth limitations on the bar at the entrance to the Sulina Channel in the Danube estuary, and to the economic need to use larger ships to carry import cargoes, particularly dry bulk, there were two possible options to facilitate extension of Danube traffic. The first was to construct a deep-water port at Sulina for large bulk carriers, but this was discarded due to the high investment costs and the substantial recurring costs to maintain adequate water depths. The second alternative was to bypass the north-east loop of the Danube and its delta problems by construction of a 64 km canal linking the port area of Constanta (and its available development area to the south) with the Danube at Cernavoda, which would also reduce the navigation distance by over 200 km. This bypass canal would also open up the Danube for international transit traffic which had been severely inhibited by the Sulina depth limitations (see Map IBRD 14313). 1.04 The decision was taken by the Romanian Government to construct the canal, and designs commenced in 1973 and were undertaken by IPTANA, a Design Institute within the Ministry of Transport and Telecommunications (MTTc) and site work was commenced in 1976 by the Construction Central, a special entity created specifically to be responsible for the construction - 38 - of the canal. The first 36 km of canal from Cernavoda utilized the existing Carasu irrigation channel which enabled about 15 km of canal to be completed by mid-1979. 1.05 In 1979, a Romanian Government Decree (No. 180) formally established the Danube-Black Sea Canal Administration (DBSCA) to operate and maintain the Canal. The DBSCA organization chart is attached -- see Annex 1(a), and the enabling Decree is shown in Annex 1(b). II. PROJECT PREPARATION AND APPRAISAL 2.01 The principal objective of the project is to provide low-cost inland waterway transportdtion for large and rapidly growing bulk raw materials needed for Romania's expanding industries and which will also encourage and facilitate the growth of international transit traffic. Briefly, the project comprises the construction of a canal 64 km in length with a minimum width of 70 meters and a water depth of 7 meters. Three port areas are provided, one at upstream end of the Canal at Cernavoda, and two intermediate ports, one at Medgidia (at Km 26) and one at Basarabi (km 40) - see Map 1794/2 for layout plans of each port. At each end of the Canal, at Cernavoda and Agigea, two pairs of locks are provided each capable of taking barge trains of 6 x 3,000 ton barges and one pusher tug, or small ships up to about 5,000 dwt. The full description of the project content is given in para. 2.09 of the IB report. 2.02 In parallel with the design and early construction of the Canal, plans were prepared for utilizing earth excavated from the Canal to reclaim areas to the South of the existing port of Constanta for future development up to and beyond the year 2000 including the more immediate needs for bulk handling facilities to service the country's steel industry through the transshipment of coal and iron ore via the new Canal. These plans also included the construction of a new mineral quay capable of handling up to 150,000 dwt ore carriers (see Map 19040R), the extension of ore unloading facilities at Galati and construction of a new fuel plant at Calarasi with associated inland port facilities adjacent to the Danube (see Map IBRD 14313), and the improvement of dredged channels in the Danube to ensure yea7 round access to the steelworks by new barges and pusher tugs using the canal. 2.03 By 1978, discussions between the Government and the Bank had ascertained that assistance in financing the foreign exchange component of the canal construction was needed, and the Bank carried out a detailed appraisal of the project in 1979 and finally agreed on a list of equipment and materials which it could finance (see para. 3.17 of IB report and Table 3, page 20). However, since the amount equated to only US$100 million, other co-financing loans were needed - and in fact, as a result of the Bank's appraisal report, international commercial banks became interested in the project and subsequently provided a loan of US$200 million. - 39 - 2.04 As stated in para. 2.04 of the IB report, the designs prepared by IPTANA followed exhaustive research and study, and no significant changes were found necessary to the original designs. Work was already in progress by the time the Bank's loan was approved, and the Bank's involvement in the project (although to the extent of only 5% of the total project cost) had a favourable impact upon project implementation by assisting in securing financing from other external sources, and also regarding some technical matters. 111. PROJECT IMPLEMENTATION 3.01 As stated in paras. 1.04 and 2.03 above, the project had already been in progress for three years when appraisal of the Bank's component took place. At that time, excavation work had made reasonable progress, and by the effective date of the Bank's loan, about one-third of the total excavation for the canal had been completed. However, the need to excavate (and dispose of) a gross total of some 300,000,000 cubic meters of earth and rock, construct some 46 km of canal protection .,alls, lay about 8.7 million square meters of side slope protection works, and using about 3.5 million cubic meters of concrete, construct the locks, intermediate ports, associated roads, railways and 36 bridges gives an indication of the enormity of the engineering undertaking. During the earlier part of the project, the winter weather was fairly average, but during the later years, the winter weather was generally more severe, and created delays due to lower rates of excavation and concreting than scheduled - see Annex 2. In addition, there were delays due to unexpected difficulties in the deep excavation of the chalk near Basarabi - see Map 14313 for cross section of canal showing strata to be excavated. The heavier strain on the excavators and dump t-ucks for moving the material from the sites took its toll on equipment availability and this was also aggravated by shortages of spare part. and tyres. In addition, the consistency of the soil removed was often so glutinous due to high moisture content that it could not be loaded onto conveyors for disposal at normal dump areas or at the reclamation areas in the South Constanta port. As a result, large temporary spoil dumps had to be created on adjacent agricultural land - one such dump is about 15 km upstream from the Agigea lock and stores over 30 million cubic meters. The projected and actual implementation schedule is shown in Annex 1, page 17 of the I.B. report. In sum, the performance of the concerned agencies within the Ministry of Transport and Telecommunications in implementing the project has been competent and the quality of work in general. satisfactory. Considering the fact that they had to work under difficult conditions such as severe adverse weather in winter, worse than expected soil characteristics and chronic shortages of spare parts of locally manufactured construction equipment, this was a considerable achievement. 3.02 The net delay of 17 months in opening the canal on which work commenT(ed in early 1976 represents a percentage delay equivalent to about - 40 - 20%, which, bearing in mind the magnitude of the project, and the problems as described above, represents a considerable achievement. Other associated canal works yet to be completed (which do not affect through traffic) are at the intermediate ports of Medgidia and Basarabi. Medgidia port will handle limestone for the local cement works and the export of cement, and is expected to become fully operational in about mid-1986. Basarabi port will handle construction materials, and should be open for operations by end 1985/early 1986. Further trimming and stabilization of upper side slopes of the canal banks between km 41 and km 60 where deep excavation was necessary, is still in progress, and is forecast for completion by the end of 1985 (although this appears optimistic bearing in mind the ground water problems as anticipated at appraisal and apgravated by the recent severe winter). Canal traffic is not affected by this continuing work. 3.03 Partly as a result of the delay in opening the canal, traffic has not de!veloped as forecast. In addition, the canal froze ovcr for about ten weeks during the past exceptionally severe winter. However, the development of the new steelworks facilities at Calarasi and extensions at Galati have not been completed to schedule, such that to date only (alati has been supplied with iron ore and coal via the canal. In addition, sinr:e the Danube dredging between Cernavoda and Galati will not be fully completed until the end of 1985, barge loads are limited to only 2,000 tons (instead of the planned 3,000 tons) due to localized river depth restrictions. Thus some ore traffic to Galati is still handled via the Su1lina Canal, pending completion of dredging. Because of these known situations, it is not surprising that other Danubian countr es have been reticent about making advance commitments to use the canal before it was fully operational. 3.04 The steelworks at Calarasi are forecast for completion by *986. Construction of the steelworks and the associated inlind purt hAs proceeded slowly, and thus the demand for iron ore and roal for Calarasi has iut yeL materialized. Para. 4.06 of the I.B. report expects Calarasi p.-! to have a capacity of L million tons by the end of 1985. The relative detailed traffic forecasts for the years 1985, 1990, and 2000 are set out in detaii in para. 4.10, Table 1, and the following summarizes the l.b. and Y8RD forecasts (in million tons): Year 1985 Year 1990 Year 2000 Traffic APR. I.B. Bank APR. I.B. Bank APR. I.B. Bank Imports 21.2 20.0 14.5 32.6 46.0 40.3 39.3 - 48.6 Exports 9.0 6.3 5.0 9.5 10.9 9.0 11.7 2 12.0 Sub Total 30.2 26.3 19.5 42.1 56.9 40.3 .0 0b Internal 13.6 3.8 3.5 22.6 10.3 10.0 37.1 Transit 7.5 4.9 4.5 10.4 12.8 12.8 13.8 - 14 TOTAL 51.3 35.0 27.0 75.1 80.0 72.1 101.9 101.i 99.6 - 41 - The steelworks development and its rate of production build-up can thus have a significant effect upon the canal traffic and the resulting revenue. 3.05 The other work closely related to tho canal project was the development of the new ore quay in South Constanta port from which the canal mineral barges were to be loaded. The new quay has already been constructed (1,000 meters long) - see Map 19040 - but has not been equipped with unloaders and other support equipment. As a result, the existing ore unloading facilities have been utilized for up to 65,000 dwt ore carriers, whereas the new berth is designed for up to 150,000 dwt carriers so that the full benefits of the larger ore carriers are not yet being realized. Temporary arrangements have been made to load barges via conveyors at both the return quay adjacent to the new mineral quay and in the nearby basin. In addition, a "cut" has been made from the mineral quay basin to the barge basin so that loaded barges do not have to negotiate areas of open sea to get to the Agigea entrance to the Canal. The use of these temporary arrangements has not, to date, inhibited Canal mineral traffic since the demand has not yet developed. However, during the next two years, ship unloading and barge loading could be critical should steel production increase significantly before the new mineral berth unloaders are provided by the user. The other related works are the completion of extensions at Galati (due end 198), complFetion of the inland port facilities and associated dredging at Calarasi (by end 1986), completion of all Danube river improvement dredging (by cnd 1986), and the provision of the barge and pusher tug fleet as necessary to handle the forecast traffic. The details of the present and projected barge and pusher tug fleet are given in Annex b. R por-ti tig 3.06 The Investment Bank has reported regularly on the progress of works (although sometimes late) and has provided the basic data required, Procurement and Disbursement 3.07 Procurement of the equipment and materials financed by the Bank has been in accordance with the Guidelines, and all contracts were won by Romanian bidders, who delivered the goods such that no delays to the works occurred. Disbursement of the loan was completed about one year ahead of the appraisal estimate - see Annex 3 for graphical presentation of disbursements. Proect Costs 3.08 The project costs have been assessed in both lei and US$ and converted by I.B. on the basis of the appicable exchange rate at the time payments were actually made. Bank supervision reports in L981. showed an estimated total cost (as provided by I.B. at the time) of US42,100 million, but subsequent changes in the exchange rate and a moe up--to--dat.e assessment of actual costs by I.B, have Thown a total cost of USti,320 - 42 - million equivalent (or 4% above the original estimate of US$1,750 million), after allowing for completion of the side slope trimming and stabilization referred to in para. 3.02. The appraisal and estimated actual costs are shown in Table 2A, page 18 of the I.B. report and expenditures in Bank Annex 4. The foreign exchange component was reduced by the manufacture of items within Romania for which international financing was not available with the result that the F.E. component of the project was reduced from US$551.7 million to US$322.9 million, of which US$300 million was financed by the Bank loan of US$100 million and the international commercial banks' loan of US$200 million with the balance provided by the Government. Training 3.09 As described in para. 4.09 of the I.B. Report, training of Canal operacing and maintenance staff was undertaken as scheduled including training of canal pilots, the use of whom is mandatory. Canal maintenance for the first year of operations was the responsibility of the Construction Central, who were also training maintenance staff during that period. Institutional Devel opment 3.10 The Decree setting up the PBSCA defined specifically the duties of the Administration, and the Director appointed in 1979 has continued in that position through constrtiction and to date, so will be well prepared for the overall runninig at thte Caiai. Te statt met by the missions also appear capable and suit6ly evpErvi Role of the Bank 3. 11 The Bank, in ippra i si ng the project and approving a loan of US$100 mill to for ptoviding equipment and materials, acted as a catalyst for other internaLiunal cummrcial banks to participate also in the project by loaning US$200 miilI ion, thus together financing 93% of the actual foreign exchange ut iizicd for ti project. 3.12 Participation by the Bank in this project enabled the Bank to assist with the review of the future development proposals for the Port of Constanta. The Po7t was intending to construct about 11 km of breakwaters at an estimated cost of US$133 million. As a result of discussions with the Romanian agencies involved, the initial design length was modified to about 4.5 km with consequent reduction in financial commi ment pending the established need for further breakwater extensions. 3.13 Prior to appraisal, the Bank reviewed various aspects ot constru-tion and suggested certain improvements, particularly regarding the use of the largest and most efficient excavating equipment available, which were accepted. The Rank in tact, tinanced some of this heavier equipment from the loan. In additio, in early 1981, the Bank had detailed - 43 - discussions in Romania on some technical aspects of the canal lock gates designs and associated equipment to help minimize maintenance problems in later years, and on resolving potential procurement problems in relation to the Bank's Guidelines. IV. ECONOMIC REEVALUATION General 4.01 The economic evaluation of the Danube-Black Sea Canal, as carried out in the Appraisal Report, was based on transport cost savings which would result from the elimination of the navigational difficulties of the Sulina Channel. As indicated earlier, the primary objective of the project was to link the River Danube with deep-water port facilities at South Constanta and thereby to utilize fully the great potential offered by the Danube as an energy-efficient and low-cost water transport system. Although the canal was opened to traffic only about a year ago, the merits of its primary objectives have already become visible and should be fully demonstrated in the future. 4.02 Romania is now at the threshold of having an extensive waterway system which is suitable for efficient barge operations. Construction of the South Constanta port is underway; the facilities which will serve the canal traffic (deep sea mineral berth, barge basin and related structures and equipment) are expected to be completed by the end of 1985 or shortly thereafter. With the availability of these facilities, raw material requirements of the Galati and Calarasi steel combines will utilize the canal and the River Danube. In July 1984, the Central Executive Committee of the Romanian Communist Party approved the construction of two new canals: one linking Porto Alba on the Danube-Black Sea Canal and Lhe Midia Port, and the other, the Danube-Bucharest Waterway (see Map IBRD 14313 and Annex 5). The construction of the Porto Alba-Midia Canal has already commenced. When completed the new 30 km-long Midia canal is expected to carry about 5 million (US) tons of traffic in its initial years increasing to 12 - 15 m tons by 1990, consisting mainly of raw materials for chemical plants located at Midia and Navodari. The 72 km-long Danube-Bucharest Waterway will be a part of the multi-purpose development project on the Arges River Basin including irrigation, power generation, water supply and navigation. The waterway will link various industrial plants located on or near the Arges River with the Danube. As a result, the modern facilities of the South Constanta Port will be accessible to these traffic-generating centers through the Danube-Black Sea Canal. 4.03 The advantages offered by the deep sea port facilities and the canal are already being utilized by some riparian countries. The Government of Romania has alieady reached agreements for transport of 2.9 m tons of traffic through the canal in 1985; negotiations are underway for an additional 2.0 m tons of transit traffic. With the expected completion of - 44- the final section of the Rhine-Main-Danube canal, the Danube-Black Sea Canal will provide a direct link between the North and Black Seas opening the way for additional transit traffic. 4.04 The cost of implementing the project was close to appraisal estimates (see para. 3.08). However, the development of traffic is likely to be below those forecast at the time of appraisal projections. Because the economic returns are sensitive to the level of benefits during the initial years, the appraisal economic rate of return estimates are modified to take account of the short-falls in traffic. Traffic Project ions 4.05 The appraisal traffic torecasts primarily were based on investment programs of the steel and chemical industries after they had been reviewed and endorsed by the Bank. However, because of Government's decision to slow down the rate of investments in industrial development, it now appears that the appraisal forecasts will not be achieved during the initial years. In addition, although the canal has been opened to traffic, works are still continuing at some major river ports which serve the canal traffic and in the Danube dredging. This will also adversely affect the development of canal traffic during the initial years. Moreover, because of the unusually severe winter, the canal traffic was disrupted during the first three nionths of 1985 (para. 3.03). This is likely to reduce further the 1985 trattic despite the compensating measures taken by the Romanian authorities. 4.06 With th completion ot the facilities at South Constanta Port which wIll taclitate the movement of bulk cargo through the canal, and the start of steel production at the Calarasi plant now scheduled for 1987 (Phase I) and 1989 (Phase II), it is expected that the appraisal's total traffic fore,asts will be attained with a delay of about five years. The short-fall in the traffic volume oturing the initial years is estimated to be in the o r ?40% in .8 , deciniiig to 20% in 1987 and to about 10% in 1989. 4.07 In the revised traffic forecasts, the steel-related traffic represents a predominant portion of the traffic. According to the new steel development plans, the production of raw steel will reach about 20 m tons by 1990. Of this amount, Galati will account for about 10.0 m tons requiring about 23 m tons of raw materials including ores, coal and coke. About 6.5 m tons of this amount will be transported by rail (coal and ores, from Poland and the Soviet Union), and through the Sulina Channel. rhe remaining 17.6 m tons are expected to be received at the South Constanta Port and transported through the Danube Canal. The Calarasi steel plant will rely completely on the canal for its raw material requirements. By 1989, the production of steel is expected to reach 4.1 m tons requiring about 10 m tons of raw materials. The other smaller steel plants, Resita, Hunedoara and Tr. Magurale, will account for 6 m tons of steel. However, only about 8 m tons of their total I I m tons of raw material requirements will be trans port ed throigh the ranal. - 45 - 4.08 Among exports, rolled steel products, fertilizers and cement are the most important. Steel exports will be generated primarily by the Galati and Calarasi plants with Hunedoara, Resita and Tr. Magurale providing the rest. The canal's steel export traffic is estimated to be about 1.75 m tons in 1985 increasing to 3.0 m tons in 1990. Fertilizer traffic will reach about 2.25 m tons in 1990 from the expected level of 1.0 m tons in 1985. Exports of cement, cereals and other agricultural products are projected to amount to 3.0 m tons in 1990 from 2.8 m ton in 1985. 4.09 The canal's internal traffic will be confined mainly to construction materials needed for the planned civil works along the Cernavoda-Cinstanta corridor. The projected internal traffic for 1985 is about 3.8 m tons reaching about 10.0 m tons in 1990. 4.10 Transit traffic projections are based on the contracts which have already been signed or are under negotiation with several Danubian riparian countries. The transit traffic in 1985, on this basis, would reach about 5.0 m tons. After completion of port facilities at South Constanta port which will serve the canal, the transit traffic is expected to reach some 10.0 m tons in 1990. Table I below shows revised traffic projections for the period 1985 to 2000. - 46 - Table 1: Traffic Projections : 1985 - 2000 (In tons) 1985 1990 2000 COMMODITIES Appraisal Projected Appraisal Projected Appraisal Projected IMPORTS Iron Ore 13.5 10.2 21.6 26.6 20.3 28.5 Coal 3.1 2.5 5.5 8.0 10.6 10.0 COKe 1.2 0.4 1.3 1.0 1.4 1.4 Non-ferrous Metal and Concentrates 1.4 0.8 1.9 2.5 2.3 3.5 Chemicals 1.8 0.6 2.0 2.0 4.5 5.0 Other 0.2 0.3 0.2 0.2 0.2 21.2 14.5 32.6 40.3 39.3 48.6 EXPORTS Rolled Products 2.0 1.5 2.4 2.4 2.8 3.0 Cement 1.5 1.0 1.5 1.5 1.5 1.6 Cereals ana Other Agricultural Prod. 0.8 1.0 0.8 1.4 1.3 1.4 Fertilizer 3.0 1.0 3.0 2.2 3.0 2.8 Otners 1.7 0.5 1.8 1.5 3.1 3.2 9.0 5.0 9.5 9.0 11.7 12.0 INTERNAL TRAFFIL. 13.6 3.5 22.6 10.0 37.1 25.0 TRANSIT TRAFFIL 7.5 4.5 10.4 12.8 13.8 14.0 GRAND TOTAL 51.3 27.0 75.1 72.1 101.9 99.6 June 1985 527UD - 47 - Reassessment of Economic Return 4.11 As noted above, the current traffic projections are below those of appraisal for the initial years of operation of the canal until about 1990. By reducing the appraisal estimates of the project benefits by the same proportions as the short fall in traffic and utilizing all appraisal assumptions, a new rate of economic return on the project is estimated. It must be noted, however, that this approach underestimates the benefits as the cost differential between rail and barge transport has changed significantly in favor of the latter. Utilizing the sensitivity analysis of the appraisal economic rate of return calculations, the expected shortfall in traffic will likely reduce the return on the project to about 11% from the 13% estimated at appraisal. However, further delays in investments in the ongoing steel plants and resulting shortfalls in the forecast traffic would further reduce the rate of return. V. FINANCIAL EVALUATION Financial Performance 5.01 The Danube--Black Sea Canal, is operated and maintained by the Danube-Black Sea Canal Administration (DBSCA) which also collects the canal dues. As such, this financial evaluation is concertied with the affairs of DBSCA only. The main problem facing DBSCA is development of the required traffic, and the added problem of the caii,l waters freezing onder severe winter conditions (as happened in early 1985;. The resultant loss of revenue has inhibited the financial growth ot DBS,A, which needs to improve its earnings to cover its working expenses and to provide for the amortizations stipulated under Section 4.01 (a) (ix) of the Loan Agreement which is the main financial covenant . At the levels of future traffic now foreseen, DBSCA is expected to break even financially at a traffic level of about 60.0 million tons per anum in or about 1t489 at thQ existing level of tariffs. DBSCA and the Government authorities are under tandably reluctant to increase the tariffs which are presently considered opetitive to attract international traffic. DBSCA will be operating Aedgidia and Basarabi ports on the canal when they are opened to trattir, but, their financial impact is expected to he minimal diiring the lnitial period. 5.02 The operating results shown in Annex 7 are based on revised traffic forecasts as compared with the levels forec,st at appraisal as shown in Chapter IV Table 1. They are broken down to show: (i) Revised forecasts by the Bank mission; (ii) Latest forecasts by the Borrower; and (iii) Forecasts at appraisal. 5.03 Annex 7 has been prepared to takt ic-cirt t the amortizations required under Section 4.01 (a), (ix) of the Lan Aur-rnent. The variatLiois among these rolumns are noted heI - 48 - Traffic - Appraisal forecast over-optimistic for reasons explained in paragraph 4.05; Borrower's latest forecast also optimistic; Bank mission's lower forecast is assumed to be more realistic. Tariffs - Appraisal levels (average rates per ton of cargo) are higher than existing levels, and thus not so competitive for attracting and retaining traffic; existing levels are considered to be more competitive. Traffic Revenues - Dependent on the traffic volumes and tariff rates assumed above. Personnel Costs -- Revised forecasts prepared by Borrower and accepted by the Bank mission are expected to be higher than appraisal estimates since the former is assumed to include cost of maintenance personnel. Repair and Maintenance - Revised forecasts prepared by Borrower and accepted by the Bank mission are expected to be lower than appraisal estimates since the latter is assumed to include rost of maintenance personnel. Amortizations Investment - The revised Bank forecasts take into account the expected total cost of the project of Lei 31.8 billion amortized over 65 years, amortization slightly higher (6.5%) due to small project cost increases. interest - The revised Bank forecasts take into account the amortization of interest costs of some Lei 2.0 billion amortized over 12 years. The appraisal figures are considerably higher possibly because of anticipated higher costs for the co-financed amounts. WorkingCapital The revised Bank forecasts take into account over 15 years the amortization of the initial working capital of Lei 45 million advanced to DBSCA by the Government. 5.04 The net results show that the above levels of amortizations as per Loan Agreement Section 4.01(a) (ix) are expected to he covered in the year 1989 according to the revised forecasts prepared by the Borrower and the Bank, whereas the appraisal expectations anticipated this in 1985. However, under the operating expenses concept developed in Annex 7, and based on the revised forecasts prepared by the Bank, the operating expenses including the amortizetion of investment should be covered in 1987. The Government will subsidize DBSCA until financial viability is achieved. Operating ratios which are over 100 in the years through 1986 hegin to reach satisfactory levels by 1988 onwards as traftic increases. - 49 - Canal Dues 5.05 The appraisal forecasts assume a canal user rate of Lei 16.9 per ton through 1987 and Lei 14.4 thereafter. The existing level is about Lei 12.4 per ton. As Annex 7 shows, the actual cost per ton is much higher in the earlier years, but when the annual traffic reaches 65.5 million tons in 1989, the operating costs and the total costs would be fully covered. According to information obtained from the Borrower, the alternative railway mode charges about Lei 45.1 per ton to move traffic from Galati to Constanta over a distance of 275 km, the estimated cost per ton being Lei 81.3 per ton. The corresponding waterway tariffs are Lei 21.0 per ton for a distance of 215 km, the estimated cost at optimum traffic levels being Lei 15.0 per ton. The conclusions to be drawn in favor of the canal alternative are clear in comparison with the railway tariffs, which are higher and cover only some 55% of the estimated railway costs. 5.06 In retrospect, too much reliance appears to have been placed on the transfer to and development of international traffic on the canal immediately upon its completion. The canal was a new concept as a route and a mode for carrying bulk traffic, and no country would make commitments to use the canal until it was operating satisfactorily, especially in view of the construction delays during the past 3 years (para. 3.03). As regards internal traffic, some additional time should also have been allowed for delays in the development 0. new traffic such as those related to the new steel mill at Calarasi (para. 4.05). Under these circumstances, the achievement of financial viability is likely to be about four years behind original expectations. Accounting Activities and Audit 5.07 DBSCA's accounting practices follow the uniform system of accounting under the National Accounting Plan of accounting classifications, record-keeping, analysis and reporting systems. Internal checks and controls are also basic requirements, as are budgetary controls and reporting. These are considered satisfactory. 5.08 Audits are conducted by auditors from the overseeing Ministry (in DBSCA's case the Ministry of Transport and Telecommunications) and inspectors from the Ministry of Finance. The Loan Agreement provides for the submission of audited annual financial statements by DBSCA and the Investment Bank (Loan Agreement Section 6.01 (e) and (f)). The Bank has received the 1983 audit reports; 1984 financial statements are still under audit. VI. CONCLUSIONS 6.01 The overall project was a highly ambitious undertaking which the Romanian Government approved and commenced depending primarily upon its own resources and expertise. That the 64 km-long canal was opened to traffic - 50 - 17 months late in a construction period from early 1976 to mid-1984 of some eight years, and within 4% of the budgeted cost is a major achievement (paras. 3.02 & 3.08). 6.02 The Bank's participation in the project, although only 5% in financial terms, provided the stimulus for other international commercial banks to participate in financing the foreign exchange component, such financing providing 93% of the actual foreign exchange required. This enabled the project objectives to be met, namely the provision of an important water transport link between the River Danube and the Black Sea to serve the hinterland industries as well as international transit traffic to other riparian countries (para. 2.03). 6.03 At the time of Bank appraisal of the project, the steel industry in Romania was expanding, but the economic adjustments after 1982 slowed down the completion of new steelworks development and the demand for iron ore and coal has not reached forecast levels so far. While the Government is optimistic that latest traffic forecasts will be achieved, the Bank is not so optimistic and has forecast lower figures for 1985, 1990 and 2000 (para. 4.05 et seq). 6.04 With any very large project, the ultimate utilization of which would require commitments by users, such potential users, especially international companies, would not be prepared to commit themselves before it became clear that the project would be completed and operate satisfactorily. It is not surprising, therefore, that other countries have been slow in utilizing the new canal resulting in a slow build-up in international traffic (para. 5.06). 6.05 Based on revised traffic forecasts, operating expenses including amorti.zation of investment should be covered by revenues in 1987 with operacing ratios at satisfactory levels by 1988. The Government will subsidize DBSCA until financial viability is achieved (para. 5.04). b.06 Since traffic projections are not now expected to reach appraisal estimates until about 1990, the shortfall in traffic would reduce the economic rate of return to about 11%. This is, in fact, the type of project where economic re-evaluation so soon after completion is based on estimates rather than on reasonably firm facts, and this should be borne in mind when viewing the re-evaluation (paras. 4.11 and 4.12). 6.07 Principal lessons learned from this project include the need to have tempered the high optimism implicit at appraisal in assuming the spontaneous movement of traffic to the canal immediately upon its opening without paying sufficient attention to possible delays in domestic industrial growth, difficulties in attracting international traffic away from their existing routes and the dredging requirements of the Danube itselt; however, on the positive side the role of the Bank in acting as a catalyst in attracting co-financing deserves special mention. - 51 - ANNEX 1(a ] i -7- . 1 - 52 - ANNEX 1(b) PROJECT COMPLETION REPORT DANUBE-BLACK SEA CANAL PROJECT ROMANIA Translation of the Decree Creating the Administration DECREE regarding the establishment of the Danube-Black Sea Canal Administration The State Council of the Socialist Republic of Romania enacts: Article 1: On May 1, 1979, the Danube-Black Sea Canal Administra- tion is hereby established, located in Agigea, Constanta Municipality, sub- ordinated to the Ministry of Transport and Telecommunications, Water Transport Department, for the purpose of operating and maintaining the canal. The Danube-Black Sea Canal Administration shall be organized accord- ing to the principle of financial self-sufficiency, with legal status and shall be operated pursuant to legal provisions for the organization and operation of state enterprises. Article 2: The Danube-Black Sea Canal Administration has the following main duties: (a) contracts the machines, installations and equipment required for operation and ensures their reception; (b) contracts ships for maintenance and operation, and the port cranes; (c) contracts design documentations, verifies and approves the execution designs, approves payment of the works; (d) carries out quality control and reception of the construction- erection works; (e) participates in the technological tests of the fixed assets that are going to be part of the Administration's endowment; (f) draws up operation and maintenance norms for the navigable Danube-Black Sea Canal; supervises the operation of the machines, equipment and buildings; (g) ensures recruitment and training of personnel required for maintenance and operation of the canal; - 53 - ANNEX 1(b) Page 2 (h) draws up regulations and technical instructions for opera- tion and maintenance personnel; (i) manages and coordinates water consumption required for navigation, irrigation, industrial and potable water supply; (j) secures control and guiding of navigation on the canal; (k) operates and ensures maintenance of telecommunications, automation, dispatching and signaling installations, as well as installations for information feed-back that con- tribute to the safety of navigation and water management on the canal; (1) ensures all operation and maintenance activity. Article 3: During the period up to the commissioning, the average number of technical, economic, administrative and other skills is of 30 jobs in 1979, 50 in 1980 and 80 in 1981 and 1982. The Danube-Black Sea Canal Administration is placed within the I-st grade of organization, Group IV of branches. Article 4: Expenditures for the operation of the Danube-Black Sea Canal Administration, including the training up to the commissioning of the canal are covered from the investment cost of the project. Article 5: Workers shall be employed within the operational depart- ments of the Administration taking ilto account the remuneration indicators approved by the Ministry of Transport and Telecommunications for the transpor- tation sector. Article 6: The personnel of the Administration having the duties of site surveyors will have the remuneration approved by Decree 109/1975 for the workers of the Danube-Black Sea Canal Central and the other rights up to the completion of the works. PRESIDENT NICOLAE CEAUSESCU Bucharest, May 12, 1979 No. 180 PROJECT COMPLETION REPORT ROMANIA - LOAN 1794-RO DANUBE/BLACK SEA CANAL - CONSTRUCTION PROGRESS 100 . --- -- - __ - 90 -- -90 00 -- - -- - _ -_ - - ___ _ - - -_ __ ESTIMAT D - - ¯. 7C0 - - -0- Mi - -¯ 00 r60 - _ - - ACTUAL PR3GRESS --- --- O 50 ---- - -- -5019 o -- --- ---------- --_-- - --_-_-_- _ _ _ _ _--_ _ --- - - - --- - - -20 4 0 -- -0 ~30 __0 10 - 1---- - --4 - - 1111 1 ii i --_ -_ 0, 8 1o 3s1 t_z__as__a___ CALENDAR YEAR - 55 - 2 3 2 }i ANNEX 3 i Øn jdV jewy AI o . a , a oCL.~tJ L r4u--j ~ Q C 5N1,11 Is 122ws s 1’·나 。 Z - 57 A,"L E X 5 MEETING OF THE EXECUTIVE POLITICAL COMMITTEE OF THE CENTRAL COMMITTEE OF THE ROMANIAN COMMUNIST PARTY OF JULY 21, 1984 (Excerpt) The Executive Political Committee examined and approved the proposals for the construction of the Poorts Albi-MIdis-Nivo- darl and the Danube-Bucharost navigable canals. Examining ft proposals for the construction of the Poorts Aft-Midis-Nivodari Canal, the Executive Political Committee highlighted both the opportuneness and necessity to have this project completed, meant to provide a direct connection between the Danube-Black Soo Canal and the MIdIs sesport. At a first stage, the now canal will take over an annual traffic of 5.4 million t, with avoilabilities to go up to 12-15 million t, mainly raw materials for the Modgidla Aggregate Mill for binders and asbestos cement general cargoes, stevedored In MIdIa "sport, products of the Midla and Nivadarl plants, coal and ores mined In the sron. The now 30 km-long waterway will accommodate navigation 1.. double file of the cargoboats to and from the Danub"lack See Canal. The Executive Political Committee examined the proposals for the construction of the Danube-Bucharest Canal and pointed out the great significance of having such a waterway opened to link Romania's capital city with the Danube and provide the complex management of the Argcq River basin. The proposals submitted to approval have stemmed from President Nicola* Cosu oscu's recommendations on the most effici*nt utilization of the Arg" river water. resources for Irrigation, navigation, electric power goneration7 drinking and Industrial water supply of towns and economic units, local flood-control, drainage of *xcessive water- areas. The total length of the over 80 m-wide canal will be of 72 km to the Part of Bucharest - 58 - ANNEX 6 PROJECT COMPLETION REPORT ROMANIA DANUBE-BLACK SEA CANAL PROJECT - LOAN 1794-RO Details of Pushel Tugs and Barges for Canal Use Presently Available and Projected Date No. of Units 1/ Capacity By 12/84 754 Barges 2/ 991,000 DWT 1985 + 77 " + 139,500 1986 + 62 " + 105,000 1987 + 67 " + 110,000 1988 + 69 " + 115,000 1989 + 71 " + 119,000 1990 + 73 " + 123,000 By 12/84 109 Tugs 148,970 HP 1985 + 25 " + 68,800 1986 + 11 " + 27,200 1987 + 12 " + 30,800 1988 + 13 " + 34,400 1989 + 13 + 34,400 1990 + 13 " + 34,400 1/ Bised on forecast volume of traffic using canal. 2/ All barges dedicated for canal use only. Source: MTTc 5270D 一，,- 糅興邢7 ，。！―·！〕―〕〕〕〕〕〕！,-，、！！。 - 60 - ANNEX 8 ROMANIA LOAN 1794-RO: DANUBE-BLACK SEA CANAL PROJECT INTERMEDIATE CANAL PORTS . ....... . . ---. r C= 4ft CERNAVODA BASARABI Commercial port on the Danube located Comm2rcis' porl equipped for a yearly i the Camel entrance equipped for a traffic of Too thousand tons arty traffic of 1 million tons and the pos- a operating berths 4 mitty to extend It to 7 million tons per Shipyard - mpait of lechnicall ships lost . 9 walling beirths 4 0 operating berths 11 0 water system area 14 he walting berths 9 platform area 9 he water system area 10 he minimum depth 6.5 M is pla"orm area 9 ha 0 minimum depth 6 m The port Is provided with 0 river station The porl is provided with 0 general goods store 0 rker station a Passenger beirths gwieral goods and grain store 0 specialLaed befts FNI goods patsengtir berths product 0 specialized berths general goods building materials farm produce oll products OM coke MEDGIDIA C= Commoircial port equipped for a yearly The poM is provided wtM rivet siAl,on. ge- itirafflic of 12 miNion tons yearly neral goods store. service shop, as well as 6 operating b*fts passenger and specialized herths Industrial porl equipped for a yearly traffic general goods Of 11.5 million tons form product Operating berths 17 oH products waiting Whs 11 building materials 0 water system area 19 he or" platform area 18 ha coke Minimum depth 7 m coal limestone r9ceplion carnisint shipping 1794/' _4 T. 9- T. i i t, nn r - Rijr+ a rpst - 61 - PROJECT COMPLETION REPORT ROMANIA: DANUBE - BLACK SEA CANAL PROJECT (LOAN 1794-RO) March 6,1985 - 63 - PROJECT COMPLETION REPORT DANUBE - BLACK SEA CANAL PROJECT TABLE OF CONTENTS BASIC DATA SHEET SUMMARY AND CONCLUSIONS I. INTRODUCTION II. PROJECT PREPARATION AND APPRAISAL III.PROJECT IMPLEMENTATION AND COST IV. TRAFFIC AND OPERATIONS V. FINANCIAL PERFORMANCE OF DANUBE - BLACK SEA CANAL ADMINISTRATION VI. INSTITUTIONAL DEVELOPMENT VII.NCONOMIC REEVALUATION VIIL CONCLUSIONS TABLES 1. Actual and Expected Project Implementation 2. Actual and Original Estimates of Project Costa 3. Actual and Original Estimates of Loan Allocation 4. Actual and Projected Traffic by Main Commodiiies,1983 - 1990 5. Actual and Projected Balance Sheets of Danube - Black Sea Canal Administration 6. Actual and Projected Income Statements of Danube - Black Sea Canal Administration 7. Ex-post and Original Estimates of Economic Rate of Return Map Organization Chart of Danube - Black Sea Canal Administration -d e - f-tGe r 1¢e - 65 - BASIC DATA SHEET Key Project Data Original Actual or Current Expectation Estimate on Decem- ber 31,1984 Total Project Cost (US$ million) 1,750.0 1,819.6 Overrun (%) 3.9 Cost of Fixed Assets (U$ million) Working Capital (US$ million) Financing (US$ million) 1,750.0 1,819.6 Internal funds 1,427.8 1,519.6 External Aid Agencies 322.2 300.0 -IBRD Loan 100.0 100.0 -Co-financing 222.2 200.0 Other Sources - Loan Amount (U3S million) 100.0 100.0 Disbursed - 100.0 Cancelled - Repaid to December 31,1984 - 8.7 Outstanding to December 31,1984 - 91.3 Completion of Physical components December 31, By the end of (date) 1984 1985 Canal opening for traffic (date) End of 1982 May 26,1984 Achievement of maximum traffic 2000 2000 (year) Maximum Traffic Level (million cargo metric tons) 101.9 101.9 OTHER PROJECT DATA Original Plan Revision Actual Board Approval - January 22,1980 Loan Agreement Date - April 30,1980 Effectiveness Date July 30,1980 September 15, September 5, 1980 1980 Closing Date December 31,1983 - December 31, 1983 - 66 - Original Plan Revision Actual Borrower Investment Bank - Investment Bank Executing Agency Danube Black Sea Danube Black Sea Canal Adminis- - Canal Adminis- tration (DBSCA) tration (DB3CA) Fiscal Year of January 1 - December 31 Borrower COUNTRY EXCHANGE RATE Name of Currency: Lei Year Exchange Rate 1976 - 1977 US 1 Lei 15.oo January 1,1978-December 31,1980 US 1 Lei 18.oo (Project Appraisal Year - 1979) January 1,1981-December 31,1982 US 1 Lei 15.o January 1,1983-June 30,1983 US S 1 = Lei 16.5o July 1,1983-December 31,1983 US $ 1 = Lei i7.5o Starting January 1,1984 4eekly exchange rate,star- ting with US$ 1 Lei 21.56 Starting November 1,1984 UJ $ 1 = Lei 17.1o,weekly revised - 67 - I. INTRODUCTION The Romanian transportation system is unitary, each transport mode complements the rest and does not compete with each other. The main objective is to combine and to coordinate different modes so as to provide the needed transport services at the minimum cost to society and with the least energy consumption. River transportation hes growing importance in the natio- nal transportation network, many large industrial enterprises which need large volumes of bulk raw materials being located on or close to the Danube. Thusfar the traffic link between the Danube river and the Black Sea has been made through Sulina Ship Canal which imposes draft restrictions (maximum 7.0 m) because of the physical conditions of the delta, tranashippment from oceangoing ships to barges and heavy uneconomic costs. The linkage provided by the Danube-Black Sea Canal enables avoidance of the Lower Danube Navigation with all the restric- tions and uneconomic costs and decongestion of the railway transport linking the country to Constanta, the main Black Sea port. The Danube-Black Sea Canal was constructed in order to secure a river transportation way for the large and ever grow- ing volumes of bulk raw materials needed by the Romanian indus- tries in expansion and enable the growth in international transit traffic. The Project is not merely a transportation way, but a multipurpose navigation complex, with particularly favorable implications for the social and economic life of the area of its location and for the entire country. The Danube-Black Sea Canal Project is the largest investment project implemented thusfar by Romania, unprecedented in size and nature and one of the largest civil works recently achieved in the world. The Danube-Black Sea Canal has been entirely implemented due to Romanian technical knowledge, being the result of the Romanian science and technique, of the substantial technical endowment of the Romanian industry at present. 0/* - 68 - The Danube - Black Sea Canal is 64.2 km long, comprising 2 locks, at Cernavoda and Agigea, and 3 new ports at Cernavoda, Medgidia and Basarabi, 61 quays for ships waiting and handling, 43 ha of bassis, 36 ha of port platforms. The Canal's construc- tive features enable the double way navigation of barges convoys with total capacity up to 1,000 tons; the total annual traffic possible through the Canal is of 60 million tons. The main financing source was secured by the Ministry of Transports and Telecommunica tions and the itate Budget. There were also used a Uo $ 100 million loan from 11I880 and a Uo $ 200 million syndicated loan from a group of international coirercial banks. II. 2ROJECT PRPAiATION AND JPPHAIJAL 2.1. The development of the industrial sector in the lIezt two decades hss had the effect of increasing trans;)ort demand in the long run, lowering the surplus capacity in the ystem. arnd the flexibility to adjust to seasonal variations and also led to creation of heavily used corridors, ouch as tne one. ining the production centers with the country's main port it Con,stan 7a Inland waterways accounted for 3% of ton-ka in tue ia tomr1l transportation network, despite the permanent preocupation in Romania to locate the industrial enterprises needing iirge volumes of raw materials close to the Danube Iiiver. The Danube iiver flows through and along the borders of :iomania over a distance of 1,015 km; it offers great potential for complementing the country's transport network by providing energy efficient transportation for bulk commodities. However, the use of the barges transportation on the river has been obstructed by the navigation conditions of the Delta. The 61 kin long ..ul.:na O'hip Canal, which traverses the Delta from Julina to Tulcta, does not enable the use of oceangoing ships, thus imposing uneconomic transportation costs. Because of the effect of the southerly flow of the littoral drift and the creation by siltation of the &hallow berm at :;ulina it is not possible and economi-cai to relieve the si uation by constructing a deep water part at .ulina for the accomodation o; large buIK carriers. Initini - 69 - investment costs would be extremly high while sutatantial recur- ring costs would be incurred in maintaining adequate water depths. On the other hand the deep sea port of Constanta is beyond the influence of the Delta and can be expanded southward. Romania, therefore decided to construct a barge canal from the Danube at Cernavoda to new South Constanta in order to use the potential offered by the waterway transportation for the raw materials and Romanian industries production at lowest costs, together with the advantages of transiting through the Canal and increased in- ternational traffic attracted by the elimination of navigation limitations on the Lower Danube. The construction of the Danube - Black Sea Canal serves the tomanian transportation strategy general objective which consists in coordinating and combining different modes so as to provide the needed transport services at the minimum cost to society and with the least energy consumption. The elaboration of the Danube - Black 6ea Canal Project design was entrusted to the ioad, Water and Aerian Design Insti- tute (IPTANA) within the Ministry of Transports and Telecommuni- cations, supported by a series of specialized institutes which prepared many studies and designs for locks, hydrology, geology, seismology, land reclamation, transport, ecology, construction, etc. In the identification ,jnd preparation stages, the Project was ;nalysed by the central synthesis organs, according to the Romanian legislation, in view of its cost and social and econoiic implications estifated. A special entity - the Danube - 31ack Jea Canul Centri - was created for the Project construction with a view to :ecui-e the technical capacity necessary for the construction iind firnl- lization of the Project. The preparation and denign ,:' the Danube - ilucr J Canal started in 1973, three years before the construction commencement, in order to ensure the details required Ly the planned construction pace. - 70 - The Danube - Black Sea Canal is the first Project of an investment program meant to develop the inland waterways of the countrI, which comprises other two Canals - Bucharest- Danube and Poarta Alb - Midia - N&voderi. The main objective of the program is to provide transportation capacities at lowest costs for the country's industry; at the same time, the projects are multipurpose - irrigations, tourism, power generation, environment improvements, etc. 2.2. Description of the Project The Project consists of the following Parts: Part I: Civil Works - A canal of 64.2 km long, 7 m deep, 70 to 90 m vide at the bottom and 135 to 95 m wide at water surface betwe--.i Cernavoda on the Danube and south Constanta on the Black Sea, provided with signaling and control system for navigation and water quality and quantity monitoring system4 - Two locks, one at Cernavoda and another at Agigea. Each lock has: two reinforced concrete chambers of 310 in arnd 25 m wide; double drop-type gates at one end and mitre- type gates with protection devices at the other end; - Three canal ports at Cernavoda, Medgidia and Basarabi equipped with necessary equipment; - Jervice roads, railway connection8, power fAcilities, water supp , 9nd sewerage, telecommunication system and neces- sary equipment; - Administrative buildings for canal construction and operation, as well as a pumping station at Cernavoda ; - Aeplacement or reconstruction of transport facili- ties, irrigation and other facilities dismantled or removed as a result of canal construction. Part II: Miscellaneous - Expropriation, reclamation and compensation for the land occupied by the canal,ports and other works included in the Project - 71 - - Facilities needed to implemeit the Project: housing for workers, concrete plants, gravel and sand sorting plants, tra,isport means and workshops; - Equipment for lock gates operation, for barges'marshal- ling in the locks, for pumping station at Cernavoda and for goods'handling in the canal ports. The Danube - Black Sea Canal Administration was established for the organization of the supervision during construction and for the canal's operation. III. PROJECT IMPLEMENTATION AND CO&3T 3.ol. Project implementation and commissioning The construction period was estimated on the occasion of Project appraisal to last until December 31,1964, with the opening for traffic by the end of 1982. The oMcial opening of the canal for traffic took place at the end of May 1984; in June 1964 a traffic of about a quarter of a million tons had already passed through the canal. The implementation of this Project which began in 1976 required outstanding efforts both as volume of work and as technical mobilization. The machines and equipment were supplied by a great number of factories and plants from all the Romanian industrial sectors. The sophistocated high technique installations of the canal, of which many are unique in the world, were entirely designed and manufactured locally. In their design more than 35 research and design institutes were involved. The works involved the excavation of 300 million c.m. of earth and rock; the construction of the 45.9 km protection walls,locks, bridges and other there were concreted 3.6 million c.m., there were used more than 11 thousand tone of plates and other important volumes of metallic structures, there were erected 20 thousand tons of equipment. The canal implementation also involved the construction of 8.7 million sq.mn. bank pro- tections using rocks and other constructive systems, 150 km of roads and crossings, about 800 km of construction roads, 60 km of railways and 36 bridges with a total length of more than - 72 - 3,650 m, of which 11 bridges are real engineering art if con- struction sophistication is taken into account. Despite all the efforts made for the canal commis- sioning when it was planned initially, the Canal opening for traffic took place with a delay of 17 months as compared with the date estimated during the project appraisal, mainly because of the unexpected difficulties encountered in excavating the limestone area at Basarabi and the unusually hard winters during three years which caused the reduction of the construc- tion pace under the one initially estimated. The difficulties caused by the excavations and the unfavorable weather conditions could not have been foreseen nor avcded. The actual and esti- mated implementation schedules are given in Annex 1. No delay was experimented because of design, tech- nical endowment and labor force ensuarance by the construc- tion enterprise. There were no changes in Project scope and design after the construction began and the Project components were achieved as they had initially been planned. At the canal opening the main components which ensure the normal traffic were commissioned: the canal, the two locks at Cernavoda and Agiges, Agiges flooding gallery, Cerna- voda pumping station, Cernavoda port, tributories' valleys junctions. There were also commissioned other works which are not directly linked with the traffic on the canal (railways reconstruction, relocation and protection for telecommunication installations, roads and bridges reconstructions). There are still to be finalized works in the ports 3asarabi and Medgidia, as well as the bank protection of the supper side of the canal banks, which do not affect the traffic. These works are planned to be finalized during of 1io. The progress reports periodically submitted to B:D and the cofinancing at nt reffered to the Project implementation status. - 73 - 3.02 Project Cost The total project cost estimated at present on basis of actual expenditures by September 1984 and of remaining works estimates is of Lei 31,799 million ( US $ 1,819.6 million), as compared with Lei 31,500 million ( US $ 1,750 million) estimated at appraisal. The total capital cost, in Lei and US dollars, in comparison with the appraisal estimate is shown in Annex 2. The table presented below summarizes on main categories of expenses the capital cost estimates. CAPITAL COST AT APPRAISAL AND ACTUAL - US $ million - Local Cost Foreign Cost Total Cost Appraisal Estimate Appr9isal Estimate Appraisal Estimate estimate on Spt. estimate on Spt. estimate on apt. 3o,1984 3o,1984 3o,19b4 Civil works 860.6 ,084.4 417.4 312.2 1,278.0 1,396.6 Equipment 58.1 68.5 13.4 10.6 71.5 79.1 Signalinz and contro 3.7 6.5 0.7 0.1 4.4 6.6 Expropriation and Compensatim 19.7 144.8 - - 19.7 144.t Miscellaneous, including supervision 79.8 157.8 - - 79.b 157.8 Studies and Design 34.6 34.7 - - 34.6 34.7 ContingeniAs 141.8 - 120.2 - 262.0 - otal poso- 1,198.3 1,496.7 551.7 322.9 1,750.0 1,819.6 Having in view the Project's magnitude, we can say that the cost estimate at the time of appraisal (year 1979) is very close at the real one, even with the capital cost overrun of US $ 69.6 million (3,9 %). - 74 - The detailed analysis by main categories of the Project cost, expressed in US $, should allow for the following: - the prices resettings in the Romanian economy in 1980 and 1983 led to the increase of the Project cost expressed both in Lei and in US dollars, the contingencies being higher than 1% annually estimated at appraisal; - the imports substitution policy adopted in the meanwhile which determined that a major part of the machines and equipment provided initially to be imported, to be manufactured and supplid in due time by local manufacturers; this also led to the reduc- tion of the foreign exchange cost and to the increase of the local coat; - the succesive changes o: the foreign exchange rate of Leu/ US dollar from 18 Lei/1 US$ in 1979-1980 (used at appraisal) to 15 Lei/l US$ in 1981-1962, 16.5o Lei/1 US$ and 17.5oLei/l US$ in 1983, 21.5b Lei/l US$ in 1964, and use of a weekly excange rate based on a basket of currencies from December 1983. 3.03. Project Financing The Project was assisted in financing mainly by the Romanian Government with funds from the State Budget and Ministry of Transports and Telecommunications and partially by the World Bank with a US $ 100 million loan and a group of commercial banks with a cofinancing loan of US $ 200 million. The actual financing plan compared with the one estimated at the time of Project appraisal is as follows: US $ million % of total equivalent cost Appraisal Actual Appraisal Actual Estimate Estimate Foreign exchange Cocts Romanian Government 229.5 22.9 13.1 1.3 IBRD Loan 100.0 100.0 5.7 5.5 Co-financing 222.2 200.0 12.7 11.0 Subtotal 551.7 322.9 31.5 17.8 Local costs Romanian Government 1,198.3 1496.7 68.5 82.2 Total 1,750.0 1,819.6 100.0 100.0 - 75 - The World Bank loan of US $ 100 million was fully disbursed until January 1982; the Loan Agreement closing date was December 31,1983. The co-financing loan of US $ 200 million was obtained in January 1981 and entirely drawn down shortly afterwords. 3.04. Procurement and IBRD Loan Allocation All the goods financed from the IBRD loan were procurred through International Competitive Biddings. There were held seven ICBs, one for each category of goods. The contracts were awarded to the Romanian firms representatives of the Romanian manufacturers. The provisions of the IBRD/AID guideliness for procurement were fully observed in the goods procurement from the IBRD loan. At the time of the Project appraisal it was estimated that,for goods of US $ 95 million, the ICBs could have been won by local manufacturers and suppliers. The remaining of US $ 5 million had been estimated to be used for imports of machines and equipment specialized for locks. Because of the prices increases, some of the goods initially proposed be financed from IBRD loan had to be financed by the Romanian Government. The IBRD loan allocation as provided in the Loan Agre- ement compared with the actual situation is the following: IBRD Loan Allocation - in US $ equivalent - Category According to the Loan Reallocated Actual Agreement 1. Equipment to be incorporated in 25,000,000 14,000,000 14,149,697.47 facilities included in the project 2. Construction materials 35,000,000 40,000,000 39,904,513.ol 3. Construction equipment 40,000,000 46,000,000 45,945,789.52 Total 100,000,000 100,000,000 100,000,000 0 /. - 76 - The detailed situation of the loan allocation to goods categories, actual and estimated at appraisal is shown in Table 3. IV. TRAFFIC AND OPERATIONS 4.01. The traffic forecasts for the Canal are based on the development plans of the industries which will be served by the canal, mainly of the steel combines, as such plans have been revised for the yeare 1984 and 1985 and on the provisions of the XIII th Congres'Directives of the Romanian Comunist Party regarding the development strategy for the following period. From Table 4, which gives the traffic forecast by main commodities at appraisal with the traffic forecasts at present, it results that the present traffic forecasts for the first operational year of the canal are below the appraisal forecasts However, beginning with the fourth operational year of the canal, the traffic forecasts exceed the traffic volumes esti- mated at appraisal. The canal will operate at maximum traffic capacity from 1990 instead of 2000 as estimated at the Project appraisal. The failure to achieve the traffic volumes estimated at appraisal for the first year of the Project operation are mainly caused by: - the reduction of activities in the port of Constanta as a consequence of the prolonged world economic crisis; - the temporization of the Calara;i Jteel Plant implemen- tation; the plant will reach the total capacity designed in the period 1965 - 1990. 4.02. In correlation with the traffic volumes to be accomo- dated by the Danube - Black Jea Canal, there have been achieved the port constructions devoted to the canal traffic. Works are in progress in the Jouth Constanta Port, the river bassin; the works will be completed gradually by 1)b7, cor- related with the estimted traffi volumes. Until the worki - 77 - completion in the South Constanta Port, there will be used the existing equipment in the Constanta Port, without any adverse effect on the Canal traffic. In the Galati Port there were completed in 1983 capacities for 17.4 million tons of ore, coke, coal, limestone and rolled products; during this year there will be commissioned new capacities for another 6.7 million tons. Chara§i Port will have in 1965 a capacity of 1.0 million tons/year for coal, following to reach a total capacity of 12 million tons/year of coal, limestone, ore, roiled products, slag,by the end of 1990. The fleet is now equipped with the barges and pushers required by the commodities traffic on the canal: 32b barges of 1,500 - 3,000 tons with a total capacity of 550,500 tons and 16 pushers of 600 - 2,400 HP with a total power of 29.4 thousand HP. The provisions for future endowment of the fleet with barges and pushers are correlated with the traffic forecesta The dredging provided for to be undertaken periodi- cally in Cernavoda - Galati and Cernavoda - Ciiiragi sections secure the necessary depth in order to secure navigation condi- tions for the barges of 3,000 tons loaded at full capacity. 4.03. Trainning In order to secure good tra'fic conditions through the canal, 114 navy officers and electromechanics were trainned in the period December 1962 - July 19t3, according to the train- ning program. The trainning for the canal personnel was made at the Iron Gates Hydropower itation for the navigation on the Danube and at the Constanta Trainning Center for Civil Navy. The trainned personnel participated in the technologycal tests for the locks during all the period until the canal opening. At present, due to the low volume o' traffic on the canal, part of the staff works in the Constanta Port and will be transfered to the Danube - Black Sea Canal 1administration when the traffic increases. - 78 - V. FINANCIAL PERFORMANCE OF DANUBE - BLACK SEA CANAL ADMINISTRATION 5.01. For the purpose of an estimate of the project's rate of return, the following major assumptions have been made: (i) capital cost in foreign currencies (which are expressed in US dollar equivalent) were converted into Lei at the prevailing rate of exchange on the date of disbursements; (ii) 19b4 tariffs for the traffic through the canal and 1984 prices and tariffs for the annual costs'calculation were used and were assumed to remain unchanged in future years; (iii) the traffic volume was assumed to increase according to the schedule shown in Table 4 and presented in Chapter IV. 5.02. fegarding the financial position of the Danube - Black Sea Canal Administration, as shown in Table 6, the following comments have to be made: - due to short repayment terms of co-financing (in iline semi-annual installments) during 1981 - 1987, the Danube - Black zea Canal Administration has very high repayment obliga- tiorns. But, this debt would be partially serviced by MTTc out of its funds which would be covered from the Danube - Black Sea Canal dmini3tration's financial results after l9d). - the fact that the Danube - Black Sea Canal Adminis- tration's obligations would be covered out of MTTc's funds, there is no risk of financial difficulties and ensure the Danube - Black Sea Canal Administration's financial viability. The actual and projected balance sheet of DBSCA is in Table 5. VI. INSTITUTIONAL DEVELOPMENT 6.01. The Danube - Black Sea Canal Project was entrusted to a separate entity. In May 1979 the Danube - Black Sea Canal Administration was established, and became the investment bene- ficiary. The Administration is an entity with legal status, operating on basis of the self-financing principle; it is subor- dinated to the Department of Water Transport within the Ministry of Transports and Telecommunications. - 79 - The Danube - Black Sea Canal Administration,as Project beneficiary, has the following duties and obligations: (i) to contract the designe,machines, installations,as well as the fleet and cranes required by the canal and canal ports operation; (ii) to ensure recruitment and trainning of operation personnel; (iii) to carry out quality control and reception of the construction-erection works; (iv) to ensure the operation and maintenance of the canal and of the telecommunication installations, to draw up operation norms for the canal; (v) to secure control and guidance of navigation on the canal. The organization chart of the Danube - Black Sea Canal Administration is given in annex. 6.02. The design was insured by the Road, Water and Aerian Design Institute (IPTANA) which had the support of other 37 Romanian institutes specialized in research and design for tests on hydraulic models, geology, seismology, land reclamation, transport, energy, Hydromechanical equipment manufacture, etc. The studies and research for the project preparation and the design itself started in 1973, three years before the Project's implementation. Due to wide profe'.ional experiere and adequate tecnnical endowment, IPTANA and the specialized institutes secured the design in due time and of the quality required for the implementation in good conditions of a Project unprecedented in size and complexity for Romania. 6.03. The Danube - Black 2ea Canal implementation was under- taken by Danube - Black 3ea Canal Central (CCDN), npecially created for the amplementation of this project and endowed with the labor force and equipment required for this project. - 80 - The CCDHN management was entrusted to a deputy minister of the Ministry of Transports and Telecommunications who had previously been responsible for the implementation of sizable and sophisticated projects. During the Project implementation, CCDMN had used almost 2,500 thousand workers specialized in all the skills required for the construction and 3,000 engineers. 巨コ，，・ ROMAN IA DANUBE - BLACK SEA CANAL PROJECT PROOCT COMPLETION REPORT ACTUAL ARD ORIGINAL ESTIMATES OF PROJECT COSTS Uriginal Be Actual estimates Lai million W11rilion Lai million US S million Local Foreign Total Local Foreign Total % Local Floreign Mal Local Poreign TotaT % Civil Woris U 0n-87 - 12,229 5,596 17,825 679.4 31U.9 990.3 56.6 14,127 3,741 17,866 797.3 249.4 1,046.7 57.5 Locke 1,066 741 1,807 59.2 41.2 100.4 5.7 1,872 496 2,368 103.6 33.1 136.7 7.5 Canal porta 68o 663 1.343 37.8 36.8 74.6 4.3 1,049 446 1,495 54.2 29.7 83.9 4.6 Utilities 218 b6 3o4 12.1 4.6 16.9 1.0 4o4 - 4o4 2o.7 - 2o.7 1.1 Buildings 141 3 144 7.8 0.2 8.0 0.4 41 - 41 2.2 2.2 0*1 Reinistatement of IP157 424 1,5,61 64.3 23.5 87.b 5.0 1,784 - 1,784 106.4 106.4 5.9 affected facilitJoe jub-totai 7777 -77517 -7TTWT 90-7 T T 7 .7 1, 7 Mo =,. T79= 4,b83 27773' TXT .7 -7=. T-,79r.T 7 Equipment 11.0 227 1,109 46.7 57.3 3.1 IquipmenT cost 8A 19b 1,024 4'_).9 '56.9 3.2 b62 10.6 1 ns t a I I a t i o r, 2 "1 0 43 2b3 12. !.4 14.6 c.e 456 - 458 21.6 - 21.8 1.2 Signali! g and Control Signallng 4j 11 A 2.4 0. 6 3.0 0 93 - 93 4.7 - 4.7 0.3 Control systems 24 2 26 1.- 0.1 i.4 C.1 J9 i 40 I.b 0.1 1.9 0.1 Expropriation and compensation Expropriation bi - 61 3.4 - .4 C.2 lb9 - lb9 11.1 - 11.1 0.6 Compensation 153 - 153 b. 14 - - 14 o.6 0.6 0.1 Lana replacement 140 - 140 7.c !.t, 0.4 7 C. - 2- 5 7 0 133.i - 133.1 7.3 Miscalloneoue,incl. 3upervision 1,436 - 1,43b '7,).L-. 74.b 4.6 1,763 2,763 157.8 - 157.8 8.7. Studies and Des n Studies and Research 22b 22d 12.7 i2.7 0.7 05 205 13.4 13.4 0.7 Deiagn. - 395 21.9 21.9 1.3 39b - 398 21.3 - 21._ 1.2 Sub-total -77767 2 6, 713 W Z55F.T, T= . i,4n-.o 777 7,M 228 -7777 Trr.7 -17.7 Contingencies rhys_ Cal 1,712 698 2,410 95.1 36.b 133.9 7.7 Price b4l' 1,465 2,jo6 46.7 tU.4 12b.i 7.2 -1,570 t '91 -31,799 1,496.7 322.9 1,819.6 100.0 Total crojectcoot 9,930 31,500 1,.Vb .3 551.7 1,75oo loo.o 2 6,6bb 4 1 I> - 83 - TABLE 2 ROMANIA DANUBE - BLACK SEA CANAL PROJECT PROJECT COMPLETION REPORT ORIGINAL ESTIMATED AND ACTUAL PROJECT EXPENDITURE AND DISBURSEMENT PROM LOAN ACCOUNT Quarter PROJECT EXPENDITURES DISBURSEMENT PROM LOAN ACCOUNT ending Original Estim.Actual and Original Estimated Actual e CEtim. Pature Calend r Cumula-Expenditures Quartor Cumulative Quarter u year tive mula- Calendar Cumu- tive year lati- ve Lei Million US $ Million 1976 66 66 66 66 - - - - 1977 1,551 1,617 1,551 1,617 - - - - 1978 2,72o 4,337 2, 72o 4,337 - 1979-198o Sept.'79 - Dec.1979 4,491 8,b2o - - - March' c 0 June'bo 5.0 5.0 - - 1900-19b1 Sept.'8o 10.0 15.0 - - Dec.'80 6.o61 14,6b9 7,474 15.0 30.0 14.) 14.9 March'8L 15.0 45.0 20.7 35.6 June'81 15.0 60.0 41.4 77.0 1 9&1-1982 Sept.'61 10.0 70.0 b.8 85.8 Dec.'81 6,83 21,772 3,b05 11,273 7.5 77.5 10.2 96.0 March'82 5.0 82.5 3.1 99.1 June'82 5.0 87.5 0.9 .oo.o 1982-1983 Sept.182 5.0 92.5 - - Dec.'82 6,55& 28,330 4,573 15,5 3.0 95.5 - - March'b3 3.0 98.5 - - June'83 1.5 100.0 - - 1983-1984 Sept.'83 Dec.'83 2,5o7 3o,917 6,425 22,277 - - - - March'4 June '84 19t4-1985 'ept. '84- Dec.'L4 583 31,oo 1,Lb4 X5,828 - - - - Total 31, 50o 31,5oo loo.o loo. aoo.o loo.t ROMAN IA PROJECT COMPLITION RIPORT DANUBI - BLACK SA CANAL PROJZCT ACTUAL AND ORIGINAL 8STIMATES OF LOAN ALLOCATION Quanti- Cost and loan allocation % of total Category ty Appraisal According Loa loan estimates the con- actually Appra- tracts con- used isal Act.- cluded based estim. ual on ICB 1.Equipment to be Incorporated into the Project 1.1 Lock gates,incl.spares 7,8oo,ooo 12,12o,ooo lo,757,697.47 7.8 1o.7 1.2 Hydraulic equipment 4,50o,ooo 2,157,ooo 2,157,ooo 4.5 2.2 1.3 Pipes,metal plates 3,30o,ooo - - 3.3 - 1.4 Floating pontoons 2,5oo,ooo 1,235,ooo 1,235,ooo 2.5 1.2 1.5 Gaskets and paints 1,6oo,ooo - - 1.6 - 1.6 Pumping station 3,000,000 - - 3.o - 1.7 Communication and Information system 1,ooo,ooo - - 1.e - 1.8 Miscellaneous equtp. 1,3oo,ooo - - 1.3 - Subtotal 25,ooo,ooo 15,512,ooo 14,149,697.47 25.0 14.1 2. Construction MHaterials 2.1. Bitumen 4o,ooo t 9,14o,911o 9,14o,911.o2 9.1 2.2. Concrete rein- for,ing steel 8o,ooo t 3o,763,6o4 3o,763,6o1.99 3o.E Subtotal 35,ooo,ooo 39,904,5131 39,9o4,513.ol 35.o 39.5 3. Construction Xquipment 3.1. Excavatora(7-8 i) -8 cs. 6,721,o91A 6,721,o91.58 - 6.7 3.2 Excavators(2.5 - 3.2 m7 -5o pca. 13,266,874oJ 13,266,874.05 - 13.3 3.3 Dump trucks So t - loo pcs. 25,oo8,8183 25,oo8,818.83 - 25.o 3.4 Mobile & tower cranes 110 mt - 12 pce. 949,oo5.o6 949,oo5.o6 - 1.o Subtotal 4o,ooo,ooo 45,945,789.52 45,945,789.52 4o.o 46.o Total loo,ooo,ooo lol, 362,3o2.53 loo,ooo,ooo - loo.c Note: Categories 1.3, 1.5, 1.6, 1.7,1.8 and the remaining amount from category 1.1 which were not able to be f out of the loan were financed out of Romanian Government' iand TABIN 4 ROMANIA DANUBE-BLACK SEA CANAL PROJECT PROJECT COMPLETION REPORT Actual and Projected Traffic by Main Commodities - million tons - June- 1985 1987 1990 Dec. 1984 Apmaiel Pro- Appraial Pro- AppraLsal Pro- Es imate jected Estmte jected Estinmte jected A. Imports Iron 1.69 13.5o 13.27 19.oo 21.6o 28.26 Coal 0.95 3.1o 4.19 6.oo 5.5o 9.6o Coke - 1.2o o.42 0.6o 1.3o o.64 Nonferrous metal and concentrates - 1.42 1.40 2.oo 1.95 2.54 Fosphates 0.14 1.80 0.70 1.oo 2.vo 4.80 Other commodities - 0.23 - - 0.25 0.16 Total imports 2.78 21.25 19.98 28.6o 32.6o 46.00 B. Exports Rolled products 0.74 2.oo 1.75 2.5o 2.40 2.99 Cement - 1.5o ].4o 2.oo 1.50 1.6o Cereals and other food products - 0.80 1.40 1.50 o.8o 1.4o Pertilizers 0.15 3.oo 1.o5 2.oo 3.oo 2.24 Other commodities - 1.7o o.7o 1.oo 1.85 2.67 Total exports 0.89 9.oo 6.3o 9.oo 9.55 10.90 C.Internal traffic 3.17 13.6o 3.84 5.50 22.63 10.30 (coary products, cereals,food products,etc.) D. Transit tmffc 1.16 7.50 4.9o 7.oo 10.4o 12.8o Grand Total 8.00 51.35 35.oo 56.10 50.10 75.18 80.oo - 86 - TABLE 5 ROMANIA DANUBE-BLACK SEA CANAL PROJECT PROJECT COMPLETION REPORT Actual and ProJected Balance Sheets of Danube-Black Sea Canal Adminiatration (in Lei Thousand) Frojected 1979 1980 1981 1982 1983 1984 ASSETS 488o 75o 1171132 16134. 2361,928 3Q&3 L Pized Asseste 12Z ?A] 5 76 9,966 14371 19,747,393 -Gross Fixed Assets 137 373 5,439 11,014 16,488 19,82D,97 -Lehs:Acumulated 3o 126 263 1,o48 775 73,534 Depreciation -Net Fixed Assets lo7 247 5,176 9,966 14,713 19,747,393 2.Current Assets - - 4- _8,977 -Cash and other assets - - - - 64 468 -Inventory - - - - - 6,63o -Recet.ables (clients and debtors) - - - - - 1.879 3.h&eanis and Expendi- Tures9for Invest- 4,649,773 7,55o,56 11,565,956 16,124,51d 23,147,151 10,365,332 ments of which: -Investments in progress 4,843,664 7,474,4o 11,276,693 15,852,276 22,276,674 4,712,893 -Equipment and ma- terials for invest- 6,o3 J 76,o29 1j5,63j 264,76o 127,992 bo,372 ments -Commissioned invest- '10 7o 459 - 2,253 5,5o3,o7l ments -Receivables for in- 5o 33,117 7,462 74,232 66,996 vestments - 4.Profit Payments and Frelevation,and Losses - - 6o,431 LIABILITIES 4,849,88o 7,550,613 11,571,132 16,134,464 23,161,928 3o2,133 1.Pixed Assets Fund lo7 247 16 9,966 14713 19,747,393 2.Current Liabilities - - - - 64 6.o 3.Sources for Invest- mae 4,849,73 7 6 11,565,956 16,124,518 23,147,t5l 1.365,332 -PUnde from MTTc and State Budget 4,b49,591 7,o6o,115 7,671, 237 11,95b, 090 18,561,b8o 5,950,57 -Foreign Loans - 267,493 3,6o,757 3,b44,95o 4,485,547 4,365,79o -IB Loans - 72 32,916 - - - -Other Sources 182 222,bd6 261,o46 321,478 159,724 48,975 4.Benefits - - . ROMANIA PROJIMT COMPLETION REPORT DAUB-Z4BAOX, SBA CAWAL PTUMET_ ACTUAL AND PROJECTED INCOME STATEMENT OF DANUBE - BLACK SEA CANAL ADMINISTRATION 19b3 1964 1985 1986 1987 1988 1989 1990 1994 1995 2000 A. Traffic Tons of commodities (t)-million - b.0 35.0 42.5 5o.1 6o.o 7o.o 8o.o 80,0 80.0 101.9 Cargo metric tons (cmt)-million - 8 38.5 46.b 55.1 66.o 77.0 88.o 88.o 88.0 101.9 Cargo metric tons km (cmtk)-million - 46c.8 2217.6 2657 3173.8 381*6 4435.o 5o6b.8 5o6B*b 5o6&8 581 Barge ton kilometers equivalent -million - 7ob.9 3411.7 4147.2 488:.7 5848.6682a4 7798.2 779.2 7798.2 874o B. Annual Costs to be covered -Lei million Amortization of Invetament Funds: Cost of investment '47 747.2 747.2 747.2 449.2 152.2 152.2 75.2 - Interest on external loans 4 1 o o!. 234.5 162.9 89.6 63.5 15.1 3.o - Recurring Expenses Labor costs: -Gross wages J3.5 e6.5 29.5 34.5 4o.o 4o.o 4o.o 4. -3ocial security 7.1 7.7 6.7 9.7 11.4 17.o 17.o 17.o 17.@ Repairs and maintenance - . .6 9.5 ll.o 13.5 14.o 15.o 15.o 15.o 15.o Miscellaneous 7.1 10.2 1 1 18.5 2o.o 2o.o 2o.o 2o.o 3ubtotal 5 =. 7- 7b.4 7 o 17.o = 9 Total 3?- .1 116.1 11o4.o 1o41.4 976.3 617.2 3o7.7 259.3 l7o.2 92.o C. Hevenues - Lei million 41./ 4i4.o 1 7.o 621.2 744 668.o 992.o 992.o 992.o123.6 D. Biefit (deficit) - L,ei taillio (4t)3b) ('134.1)(4, (42o.32(234.30 254o.8 64.3 732.7 821.8l6 0' - 8. 38. 468 551 66o 7.o 8.o 8.o 8.oCol. Propose Ladin Pacilli for I .A. Cernavoda Navodar CERNAVODA '.OCK Ar I) K m10 Medg id ia Coch r ieni Ouidiu Km 20 m3 Rosova Poarta Alba Basarobi Km40 Ville Noi Cumpana StraK Km 60 ~AGI SLOC LONGiTUDINAL PROFILE 702 55.5 m verhead highway and railway Overheod Overhead Overhead highwoy railway highway « bridge bridge bridge/ (Medgidia) (Medgidio) (Basorabi) CERNAVODA LOCK cx 12m Embankment 0n -- - in. Canal bed 0.5 m 0 5 10 15 20 25 30 35 40 45 50 55 KILOMETERS IBRD 143131(PCR) ROMANIA DANUBE-BLACK SEA PROJECT SCHEME -Midia Canal (Under Construction) Danube - Black Sea Canal Proposer' Midia Port M Locks Overhead bridges, road ir railway Hydrographic basin of rhe canal --- Roads Railways Towns LONGITUDINAL PROFILE: Slit CONSTANTA Sand, gravel Red clay limestone -Existing Constanto port Cholk Future expansion jur nPCW MAP SBASE D' )N IBRE 14313R NOVEMBER 1979 ''jftrH. I New port - E r UAMATIUN HAS BEE N u DAT ED South Crnstanta - Agigea, for detel see tBRD 190 0(PCR). E A K lometers 0 5 ic 15 20 25 64.5 m 24 28 -/-U. . S R. HUNGARY Overhead nighway bridge Overheod bridge R 0 M A N l A AGIGEA Hunedocora t2~ LOCK ajo -0 Sm Tuceae Sulina 75mD,oiect -7.5m]t - Bucharest cf~ a YUGOSLAVIA Constonfa 60 65 24. BULGARIA 2 O 0(MTOBERA 1986 iii Hune~om .45 BULGAW,A * \C C EXISTNG CONSTANTA PORT >7n S 1 CV- a er r pa4 p ~Yj BR D 9 4 R(PC FLITUIRE NORflH-SOUTH BR~EAR FUTURE DEVELOPMENT AREA FUTURE FREE AR\A TRADE ZONE UNDER -. - RFCLAMATON ARGE ADIN E?AGE 4AJiNG BEJTHS ROMANIA DANUBE - BLACK SEA CANAL PORT OF CONSTANTA / AGIGEA S5W E DE Nio NORWAY Otockholm 44 UN T-P N M A R K Lso'~oé M n,n Mom Dubi.n L.0,0.0i SE I AN D 0 V 6 GERMAN 'L A N 1 -N G D 0 M NETHERLANDS, Amsterdam fEDEkA- - å£ cor ondon * BELGIUM -1 R 34 0 so.~O -.,,SY'ERXANY 0 CJZEC-HOS-IvA: -- Cheborg 0- f eöbe - 1 1 ,ý, R er0, 'R cc k S MARR tco~ oc,ý :,. e g5ae10o Ocs VG S ooond r * I V-90 B a e - Tirane a Porto cB.., PORTUf-AL 40, Nj 0 kli C E Lisoo Ms a 8 r,' cordo lcoe 4 aienAs ans Codoo bi ~r !; ~,r T ,14 e 91-01 Robot. 0 o- i1 -'~,-- ;p lboyde 1BRD 19041R(PCR s'o0 ö0 EUROPEAN TRANSPORT NETWORK I ntended connecting canal SOJO< highways * :ar ro, 'c(15 Major r. r R S piopel nes E evaon Qoe !iUC e' s I1 ms pf,H MA- z A tll; i) 1. lWoa A <3 PRI 1985 4 30 3cJ 2C4 10 00 200 300 400 -, 7, - - - -f ro k ETQ 50' cywkers ras V se t0 me ,4na ' s' &. m a" ,e w .o., C.nan,ce corporghor ' Jeraon,fs .se and me. twÄ~anes eonass t fns mnéj do AEB O, Ode.io -vca onm Ae A - .O.TOB...19 4 - -nn< 0 -. . r- . . ro n'~s'ae- ron - T"'- C 1: etry AR £ AFGHANGITAN : CYPRU *a'.~e. dad sRA Es>b
Группа Всемирного банка · Project Performance Assessment Report
Romania - Danube - Black Sea Canal Project
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Project Performance Assessment Report
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