Morocco - Port Sector Project

Document of The World Bank FOR OMCIUL USE ONLY A) S Z e 3 - / A v A l 68 - }ttz 4 Report No. P-5319-MOR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON PROPOSED LOANS IN AN AMOUNT EQUIVALENT TO US$33 MILLION TO THE KINGDOM OF MOROCCO AND IN AN AMOUNT EQUIVALENT OT US$99 MILLION TO THE OFFICE OF PORT OPERATIONS WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO FOR A PORT SECTOR PROJECT NOVEMBER 29, 1990 This document has a restricted distribution and may be used by recipients only in the performance of thdir ofMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CU3RWNLQm UAlU!f (as of December 31, 1989) Currency Unit - Dirham (DH) US$l - DH 8.25 DH 1 - US$0.121 WEIGHT'S AND MEASURES Metric System British/US System 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 square kilometer (knf) - 0.386 square miles (sq mi) 1 metric ton (m ton) - 0.984 long ton (ig ton) ABBREVIATIONS IPW - Ministry of Public Works (Ministere des Travaux Publics, de la Formation Professionneile et de la Formation des Cadres) ODEP - Office of Port Operations (Office d'Exploitation des Ports) ONE - National Electricity Board (Office National de 1'Electricite) (This report uses the acronyms of the French titles in those cases where the Moroccan practice is to refer to the agency in question by its acronyms). FISCALXYA January 1 - December 31  FOR OMCtCL USE ONLY XNGot OF NOROCCO - POTSECTOA PROJSCT loans and Proiect 8ummarar BOHROVERS: Kingdom of Morocco, and Office d'Exploitation des Ports (ODEP) *. UAW6RANTOR: Kingdom of Morocco (for the loan to ODEP) BENEFICI RIES: Ministry of Public Works, Ministry of Fisheries and Merchant Marine, and ODEP AMQ=N: Loan to the Kingdom of Morocco: US$33 million Loan to ODEP: US$99 million; TERMS: Both loans will be repayable in 20 years, including five years of grace, at the standard variable interest rate. wXNANCING YiAN: Government US$ 48.9miillion - ODEP US$ 90.8 million AfDB (ongoing) US$ 5.9 millioi' IBRD (ongoing) US$ 4.4 million ItRD (proposed) USS132.0 million Total US282.0 mlio- ECONOMIC Ra OF RETyR: Overall Port Investment Program: About 25Z Individual Subprojects: Range from 19X to.50% STAPF APPRAISAL RJORT: No. 8569-NOR, dated November 29, 1990 IBRD 22288 ThbsDocueunt bas arestdeYddistHb moad ca beund rreispseb *I he UpolonnwmmotfiSr ..e okdadtk& Us _wefto notn oOvirSkbLdisdosd wft t Wodd Bu& awnIra  NEKORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EMCUTIVE DIRECTORS ON PROPOSED LOANS OF US$33 MILLION TO THE KINGDOM OF MOROCCO AND US$99 NILLION TO THE OFFICE OF PORT OPERATIONS POR A PORT SECTOR PROJECT 1. The following memorandum and recommendation on proposed loans to the Kingdom of Morocco, in the amount of US$33 million equivalent, and to the Office of Port Operations (Office d'Exploitation des Ports - ODEP), in the amount of US$99 million equivalent, is submitted for approval. The proposed loans would be repayable over 20 years with five years of grace at the Bank's standard variable interest rate and would assist in the implementation of a port sector project. 2. Macroeconomic Context. The Moroccan economy has seen a remarkable, though fragile, recovery in recent years. To reinvigorate the economy and stimulate trade, the Government is presently carrying out an adjustment program with specific measures to liberalize imports, promote and diversify exports, and further develop industry, particerlarly those branches involving exports and the agriculture sector. Because the adequacy of transport infrastructure and logistics systems have a major impact on foreign trade, a number of measures have been initiated, over the past five years, to improve the efficiency of the country's ports. The most notable of these has been the establishment of a new port organizatior (CDEP). Even though this has resulted in substantial improvements, Moroccan ports are still below international levels of performance. Physical constraints limit further expansion of specialized traffic (e.g., container, roll-on roll-off). Intermodal linkages continue to be weak. Despite significant progress towards streamlining customs procedures, the overall quality and flow of information related to trade transactions needs considerable improvement. The proposed project would therefore support a program of port modernization and institutional strengthening aimed at removing bottlenecks to export growth and facilitating continued growth in foreign trade. 3. Rationale for Bank Involvement. The proposed project forms an integral part of the Bank's strategy to support Morocco's adjustment efforts. Accordingly, it is designed to help increase public enterprise efficiency, ritionalize public investment programs, and promote exports. It also forms part of a longer-range transport sector strategy in which the Bank continues to play an active role; our most recent involvement includes the development of a National Transport Master Plan Study and a Highway Sector Project. The ongoing Bank-assisted Ports of Casablanca and Mohammedia Project (Loan 2657-MOR), though limited in scope, has already helped improve operational efficiency in the port of Casablanca, enhance management of ODEP and rationalize the pricing of port services. Furthermore, the Bank serves as executing agency for a UNDP-financed Trade Facilitation Project. 4. Continued Bank involvement would provide critical support in several areas. First, the proposed project would Felp improve cost recovery policies and strengthen investment planning both at the subsector level and in the individual ports. A National Port Master Plan Study would address the issues  of coordination within the port subsector and coherence between long-term planning and short-term programs. Second, the Bank's support to the port subsector would enhance Morocco's access to the kinds of international experience and expertise that are needed to increase operational efficiency, further develop modern cargo-handling and communication technologies, and improve environmental practices. Third, continued Bank involvement would also provide an operational context for ensuring the improvement of port procedures thus supporting the present trade facilitation strategy. Finally, the Bank could help improve the responsiveness of the logistics system to changing environments in international trade and transport markets, particularly the forthcoming unified European market. 5. Proiect Obiectives. The proposed project would broaden assistance provided under the ongoing Ports of Casablanca and Mohammedia Project to support better allocation of resources and utilization of existing port facilities. It has been designed to: (a) improve operational efficiency to cope with the growth and changing structu:e of foreign trade, especially through provision of adequate facilities for unicized cargo; (b) strengthen the economic viability of port sector investment, through improved screening and planning of subprojects; (c) improve the recovery of infrastructure costs through, inter alia, appropriate changes in port tariffs; and (d) promote foreign trade, by encouraging more coherent policies and institutional measures that would result in better coordination of port activities. These objectives are consistent with the Bank's country strategy for Morocco and fit in with corresponding actions at the macro level to rationalize the public investment program, liberalize the econom and provide support for resource mobilization. 6. Project Description. The project would encompass the main components of the country's port investment program: (a) construction of a new container terminal in the port of Casablanca, with the provision of specialized container- handling equipment; (b) facilities for Ro-Ro traffic in the port of Tangier; (c) adaptation of a berth for coal traffic in the port of Jorf Lasfar; (d) construction of a radar control tower and provision of related vessel traffic services for marine security; (e) maintenance dredging and breakwater strengthening works designed to ease a sizeable backlog accumulated over the years; (f) continued development of computerized management and operational systems for ODEP and for port operatiors; and (g) studies, technical assistance, and training in support of the institutional development component. This component would include measures to support a Contract -an between ODEP and the Government, currently under preparation, increased financial viability, the development of environmental studies, the establishment and monitoring of performance targets, the modernization of communications, and the reduction of container dwell times in the port of Casablanca. Additional technical assistance would be provided to help ODEP address trade facilitation issues and would supplement ongoing actions under the UNDP Trade Facilitation Project, which focuses on institutional and informational bottlenecks to trade transactions. In parallel with the project, the Ministry of Foreign Trade is also planning to carry out a complementary trade logistics study focussing on cost analysis and identification of constraints to the development of trade affecting selected key export and import cargoes. 7. Proiect Costs and Financing. The project would be implemented over a four-year period at a total estimated cost of US$282 million equivalent, with  - 3 - a foreign exchange component of US$151 million (541). It would provide funds for civil works including dredging, equipment, technical assistancs, and training. The project would be financed through two separate loans: one to ODEP for US$99 million with the guarantee of the Kingdom of Morocco and the other to the Kingdom of Morocco for US$33 million. The aggregate amount of these loans (US$132 million) would finance 87X of the foreign exchange costs of the project and 471 of the total port investment program. The remainder of foreign exchange costs would be covered by other loans (Schedule A) and internal cash generation. Possible cofinancing and bilateral assistance may reduce Bank and councerpart funding. Discussions between the Government and the Ex-Im Bank of Japan for a contribution of US$38 million to the project have been initiated. If a cofinancing agreement is obtained, the Bank intends to cancel an amount equivalent to Japanese participation. The rest of the program would be financed from budgetary resources (17%), ODEP (321), and ongoing World Bank and African Development Bank loans (41). In addition, the Government and ODEP expect bilateral sources to finance about US$11 million of specialized equipment. If bilateral financing materializes, it will reduce the shares of the Government and ODEP to 16X and 30%, respectively. 8. Agreed Actions. During negotiations, agreement was reached with the Government and ODEP on: (a) time-bound Dev-lopment Programs, to be carried out by the Government and ODEP, related to the efficiency of port services, port procedures, information systems for trade facilitation, investment planning, the environment and safety, and cost recovery; (b) annual reviews of the investment program for the port sector and ODEP, to be carried out by the Bank; (c) procedures and criteria related to the eligibility of subprojects to be financed by the Bank; (d) completion of a dredging study and an environmental study of maintenance dredging in four ports by December 31, 1991; (e) signature of a Contrazt Plan between ODEP and the Government by June 30, 1991; (f) ODEP's postponement of the procurement process for the coal terminal at Jorf Lasfar until a satisfactory agreement on the operation of the terminal has been signed with the National Electricity Board (ONE); (g) a new tariff structure for port dues related to container handling a d Ro-Ro traffic, to be implemented by September 30, 1991; and (h) an annual iate of return, to be attained by ODEP, on its revalued assets in operation of at least 71 and a debt service ratio of not less than 1.5, to be maintained throughout the project period. Cross- effectiveness conditions have been introduced under each loan in view of the integrated nature of ODEP/Government activities. 9. Environment. The project is not expected to have arny major environmental consequence requiring the preparation of a full-scale Envi onmental Assessment (EA). Environmental issues were, nonetheless, assessed in the course of project pre-appraisal with the result that potential impacts were identified particularly in the areas of dredging, reclamation, and dust release. Based on this assessrent, detailed analyses of potential impacts will be carried out and the necessary measures taken against possible negative environmental effects. An environmental study of dredging would be required in four selected ports prior to implementation of rehabilitation dredging in those ports. In addition, the project-financed technical assistance and training to Government and ODEP staff is expected to raise environmental awareness in the port subsector and strengthen the capacity to study environmental aspects and carry out appropriate actions.  - 4 - 10. Benefits. The project would enhance the international compe.titiveness of Morocco by increasing the overall efficiency of port operations fad supporting further growth in export trade. A reduction in trauisport and handling costs on a large part of the country's foreign trade flows would yield significant savings in foreign exchange. The consequeni. reduction in the cost of exports would then improve Morocco's comparative advantage in export trade. The economic rates of return of subprojects range from 19X to 50e. The economic rate of return on the overall port program is estimated at about 25Z. 11. Risks. The main project risk is the uncertainty regarding future traffic levels and distribution of general cargo traffic between containerized cargoes and Ro-Ro. To mitigate this risk, project design allows sufficient flexibility to cope with both types of cargoes. There is also some risk that delays would be encountered in the implementation of the institutional cnanges required in terms of trade facilitation and logistics. Although progress is now being made in i iroving documents and procedures related to trade flows, trade facilitation and logistics aspects would be closely monitored within the framewirk of the next phase of trade reforms. It is not anticipated that slow implementation of related measures iould frustrate the needed container and Ro- Ro investments proposed under the project. Primarily affecting the Government component is the possibility of a shortfall in budgetary allocations for the program. This risk has been considerably reduced with (a) the inclusion in the project of the essential core of the sector investment program and (b) the periodic reviews of the public inves'ment program under this project. 12. Recommendation. I am s sfied that the proposed loans will comply with the Articles of Agreement of Bank and recommend the Executive Directors approve them. Barber B. Conable President Attachments Washington DC November 29, 1990  U3or ppxzacco IAND . ScdN6 A Ia.ss gsia l.ocal . Foega ,Totl .....* US$ million -------- Clvil Works 74.2 78.2 152.4 Equipment 24.8 37.5 62.3 Training 1.0 1,1 2.1 Training ~~~~1.0 1.1' 2.1 Construction supervision 2.0 3.0 5.0 Studies 2.0 Sub-total 103.0 120.9 223.9 Physical Contingencies 9.0 9.3 18.3 Price Continge.ncies 19.0 20.8 39.8 Total Project Cost J 131.0 151.0 282.0 . al ~~ForinToa --------- US$ million --------- * IUbRD 21.1 110.9 132.0 Ongoing IBRD - 4.4 4.4 Ongoing African Development Bank 7 5.9 5.9 ODEP ~~~~~~~~~75.1 1.7 90.8 Government 34.8 14.1 48.9 Total 131.0 151.0 282.0 J Identifiable taxes ind duties amount to about US$79 million. Total project costs, net of taxes and duties, is about US$203 million eqg4vaent 2/ Discussions have been initiated for a Japan C-Ima Bank contribution of US$38 million. Bilateral sources are also expected to contribate for about US$11 million. Mainly indirect foreign exchange on locally pr~oqj fti lcs. c~~~~~~~--  -6- SBhgdule B Page 1 of 2 LUG= O mOgOCCO PORT SECTOR PROJECT PROCUREMENT METHOD AID DISBURSEMNS Procurement Methods Project Elemonts ICB