Modernizing China's ports

NUMBER 20 OF P lrecis Operations Evaluation Department December 1991 Modernizing China's Ports China's major economic reforms of Negotiations were unusually However, much of the Chinese-made the 1980s substantially increased demands protracted. It became clear that the container equipment performed for the transport of raw materials, borrower had an unconventionally poorly, the Government did not evolve manufactured goods, and passengers. narrow perception of what the Bank's a long-term strategy, and the only one The Bank's first transport project in role should be: a source of finance for of the three studies to be completed China-and one of its earliest projects in specific project components and of was of poor quality. that country-was designed to expand and project-related, mostly technical, modernize the three largest seaports: advice. For its part, the Bank empha- Procurement was in accordance Shanghai, Tianjint, and Huangpu. Other sized its role as a development with the Bank's guidelines for interna- goals were for the Government to develop a institution concerned with China's tional competitive bidding, on schedule, long-term, integrated national port broader, longer-term, sectoral policies and at prices much below appraisal strategy, and for thle Bank to establish a and development, and tried to engage estimates. Some of the savings were strategic dialogue zvith China. the borrower in a constructive dia- used to buy additional port equipment. logue on these issues. In the end, the Bank financed $68 mil- An OED audit notes thzat the first of lion of equipment and $56 million of these goals was met, and that both After seven months, when the the Bank loan was cancelled. economiic and financial returns to the negotiations were concluded, the Bank project were good. * The long-term goals had made the following concessions: On the purchase of container were not met, hozoever. The borrozver handling equipment, the Bank gave in miaintainied a very restrictive view of the * preparation of a long-term master to borrower pressure. Contradicting role the Bank ought to play, and this, plan for each of the ports was deleted the position arrived at through the combined with inadequate supervision by from the project, as were three estuary Bank's formal decision-making the Bank, meant that important studies studies. process-that no equipment contracts were not done and that a constructive * the financial and operational should be awarded to Chinese Bank-borrower dialogue on sector issues information the Bank would receive manufacturers, because of their lack of did not develop. The audit makes from the borrower was to cover only appropriate management expertise recommendations on procurement and the four terminals the Bank was and lack of quality control-the Bank performance of Chinese equipment, helping to finance. The Bank, in line agreed to the award of contracts for supervision, and Bank-borrower dialogue. with normal practice, had expected to container handling equipment to three receive information on the whole of Chinese firms. each port development. Most of the container equipment Introduction Important reasons for these bought from Chinese firms (worth changes of position were the borrower's some 90 percent of the $10 million in The Three Ports Project (1982-88) persistence and the Bank's desire to end contracts awarded to these firms) had an estimated total cost of $427 a logjam of five other transport projects proved inferior. For example, the audit million, of which the Bank financed which could not move forward until the found in 1990 that two Chinese-made $124 million and the Government port negotiations were concluded. quay cranes had stood idle for a long financed the rest. The Bank financed the following components: Implementation ------ l "Project Perforrmance Audit Report. * construction and equipment of a The short-term, principal goal of China: Three Ports Project,' Report container terminal in each port and of the project, to create additional port No, 9695. Ilone 10, 1991. OED a coal terminal in Huangpu; capacity and avoid congestion, was rep7rts are available from the Internal * training of technical and opera- accomplished. The container and coal DOcLumeulls Unit and from Regional tional staff in all four terminals; terminals were built competently, Inlormation Serpices Centers. * three studies by the borrower. without major problems, and on time.  time, despite efforts by the port onsite and overseas. It focused on the Economic Returns authority and the manufacturer to get technical and operational staff ofa them to work properly. Locally made the ports, and was well done. ERR (%) transtainers could be used only in Port Appraisal Completion daylight, and had a utilization rate Outcome only a third as high as comparable Huangpu 39 37 foreign-supplied equipment. The project served its main Shanghai 23 48 objective well. Economic rates of Tianjin 21 24 Studies: The loan agreement return calculated at completion provided for the borrower to study the exceeded appraisal estimates in two of Average 29 34 complementary facilities and arrange- the three ports (see table). The finan- ments needed to handle the inland cial outcome was good, and better flow of containerized cargo to and than anticipated at appraisal. The from the three ports. The Bank's first project is considered fully sustainable. possibly with the help of the Bank. supervision mission discussed the Discuss these recommendations with scope and content of this containeriza- The borrower did not, however, Chinese authorities. tion study with the Chinese institute develop a long-term strategy for port that was to carry out the study. But development. Neither did a strategic Dialogue subsequent missions never met dialogue develop between Bank and directly with institute representatives, borrower during project execution, as An important reason why the and the record shows that the Bank's had been planned. An important Bank did not develop a long-term supervision of the study was haphaz- reason was that the Bank did not use dialogue with the borrower was the ard. When the study was delivered, it the opportunities afforded by the three inadequacy of its supervision. was described by its authors as "an studies or by the preparation of the exploratory attempt and inevitably PCR. Its supervision effort should Recommendation: Strengthen inadequate in certain areas." Its have given more systematic attention supervision processes and procedures, significance was negligible. to the three studies and the PCR, and to encourage development of a devoted enough staff resources to substantive dialogue with the bor- Two other studies provided for in assist borrower agencies in both rower. For supervision missions, the loan agreement were not done. preparation and follow up. adequate frequency, staff continuity, These were an operating cost study appropriate skills mix, and flexible (subsequently included in a 1989 Bank Recommendations timing are important. So are specific project) and an economic impact study terms of reference, shared with the (not mentioned in the Bank files Procuremnent borrower well in advance, to avoid covering the implementation period misunderstanding. Provisions need to nor in the project completion report). From the borrower's perspective, be made for appropriate reporting it is normally a logical objective, and after missions, and for sustained The borrower was required to clearly in the national interest, to follow-up on outstanding issues. prepare a project completion report ensure equipment orders for domestic (PCR). Though the Bank's final industry. But if the equipment is More time from Bank staff and supervisory mission discussed the substandard, the direct and indirect consultants may be needed if a sound format and content of a PCR, and it was costs to the economy, plus benefits dialogue is to develop. But the increase agreed that each of the ports would forgone, very likely outweigh the in costs would be well justified by the prepare such a report under supervi- benefits from local procurement. For improved understanding between the sion of the Ministry of Communica- the Bank, lack of resolve in procure- borrower and the Bank that should tions, the report was not written. Rather ment discussions jeopardizes its result. than helping the borrower prepare the reputation for sound, impartial, report, the Bank later had the report professional judgment and integrity. Traininig port personnel prepared by consultants. Recommendation: Review and Recommendation: Future training Suipervision by the Bank: There were compare in detail the performance initiatives should address the needs of too few missions (only one a year), experience of all Chinese and foreign financial managers and economic they lacked staff continuity and did container handling equipment planners, as well as technical staff. In not cover some important areas. No procured under the Three Ports the area of computer skills, data- economists participated in project Project. For the future, develop processing system managers from supervision after the second mission. recommendations on procurement foreign ports should visit Tianjin, procedures for Chinese equipment. Shanghai, and Huangpu to share their Training was financed by the Make specific suggestions on how knowledge of software for managing Government and took place both Chinese equipment can be improved, advanced port facilities. OED Prdcis is designed to help inform Bank managers and staff of new evaluation findings and recommendations for the Bank's current and future work programs. It is produced by the Operations Evaluation Department of the World Bank for distribution to the Bank's executive directors and staff. The views here are those of the Operations Evaluation staff and should notbe attributed to the World Bank or its affiliated organizations. Please address Lcomments or enquiries to the managing editor, Rachel Weaving, T7-015, World Bank, ext. 31719. December 1991