Colombia - Ports Rehabilitation Project

Document of The World Bank FOR OFICIAL USE ONLY Report No. 12624 PROJECT COMPLETION REPORT COLOMBIA PORT REHABILITATION PROJECT (LOAN 2635-CO) DECEMBER 23, 1993 Department III Infrastructure Division Latin America and the Caribbean Region This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Fiscal Year January I to December 31 CURRENCY EOUIVALENTS Currency Unit = Colombian Peso (Col$) Col$ = 100 centavos (ctv) Col$ 152.06 = US$1.00 (September 1, 1985) Col$ 1,000 = US$6.58 (September 1, 1985) AVERAGE EXCHANGE RATES 1980 1981 1982 1983 1984 47.3 54.5 64.1 78.9 100.8 SYSTEM OF WEIGHTS AND MEASURES I meter (mt) = 3.28 feet (ft) I Kilogram (kg) = 2.205 pounds (Ibs) I ton = 2,205 pounds (Ibs) ABBREVIATIONS COLPUERTOS Empresa Puertos de Colombia S.A. MOPT Ministry of Public Works and Transport FVN National Highways Fund FNCV National Rural Roads Fund DNP National Planning Department DAAC Civil Aeronautic Administrative Department FAN National Aeronautic Fund SENA National Apprenticeship Service UNDP United Nations Development Program  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation Decemer 23, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Colombia Ports Rehabilitation Proiect (Loan 2635-CO) Attached is a copy of the "Project Completion Report on Colombia - Ports Rehabilitation Project (Loan 2635-CO)", prepared by the Latin America and the Caribbean Regional Office. The borrower agency is under liquidation and did not provide comments. However, the PCR incorporates comments by the liquidator. The project had wide-ranging objectives: to provide physical ports capacity; to raise ports productivity and reduce ports costs; to strengthen ports management, administration and operations; to train staff; and to help establish financial viability of ports. COLPUERTOS, an umbrella organization managing public sector ports, was the lending beneficiary. Poorly prepared and appraised, the project quickly became known as a problem project and performed poorly on almost all scores. Neither borrower commitment nor capacity were adequate to ensure proper implementation. Without fundamental structural and systemic reform, which the project did not anticipate and for which it was not designed, COLPUERTOS was institutionally nonviable. Indeed, the visible shortcomings of the project may have contributed to the abolition of the ports agency, though it was not conceived for that purpose. The project helped increase physical ports capacity, but it did not demonstrably raise ports productivity or reduce ports costs. The effect on institution building and training was marginal. Financial viability was never within reach. The borrower was almost constantly in violation of essential loan covenants. PCR accounting of actual project costs is incomplete and unreliable. No ex-post economic rate of return was estimated due to lack of monitoring and evaluation data. Overall project outcome was unsatisfactory, and institutional development was negligible. Sustainability is uncertain. No audit is planned. Attachment 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.   FOR OFFICIAL USE ONLY COLONIBIA PORT REHABILITATION PROJECT (LOAN 2635-CO) PROJECT CONMPLETION REPORT Table of Contents Page No. Preface Evaluation Summarv I. PROJECT REVIEW FROM BANK'S PERSPECTI.VE ........................................ I 1. Project Identification ................................. 1 2. Background ................................. 1 3. Project Objectives and Description ................................. 2 4. Project Design and Organization .................................. 3 5. Project Implementation ................................. 4 6. Project Results ................................. 9 7. Project Sustainability ................................. 11 8. Bank Performance and Lessons Learned . ................................ 11 9. Borrower and Guarantor Performance and Lessons Learned ................................. 13 10. Bank-Borrower Relations ................................. 14 11. Performance of Consultants and Contractors ................................. 14 12. Project Documentation Data . ................................ 15 H.. PROJECT REVIEWV FROM BORROWVER'S PERSPECTIVE Not Available Because of the Liquidation of the Borrower. III. STATISTICAL INFORMATION ......................... 16 1. Related Bank Loans ................... . 16 2. Project Timetable ................... . 17 3. Loan Disbursement ................... . 17 4. Project Implementation ................... 18 5. Project Cost and Financing ................... 19 6. Project Results ................... . 20 7. Status of Loan Covenants ................... 21 8. Use of Bank Resources........... ......... 23 Annex.................................25 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.   COLOMBIA PROJECT COMPLEIION REPORT PORT REHABILITATION PROJECT (LOAN 2635-CO) PREFACE This is the Project Completion Report (PCR) on the Port Rehabilitation Project in Colombia financed under Loan 2635-CO for US$42.8 million. Loan 2635-CO was approved on November 25 1985, and the project was carried out from 1986 to 1992. The original closing date was December 31, 1991, and was extended once to February 28, 1992. The loan was partially cancelled (US$14.48 million), with the final disbursement made in July 1992. The PCR was prepared by the Infrastructure Division, Country Department III, of the Latin America and Caribbean Regional Office. It is based on the Staff Appraisal Report, the Loan and Guarantee Agreements and supplemental letters. information gleaned from the project files, materials obtained during the project completion mission, and discussions with Bank staff and consultants who were associated with the project. This report contains Parts I and III prepared by the Bank. Since the Borrower is currently under liquidation, with practically no staff in place able to comment on the project's implementation, achievements and difficulties, Part II could not be prepared. Comments were requested from the Guarantor and the Liquidator/Acting General Manager of the Borrower. The Advisor to the Director of the National Planning Department, who followed project implementation, conveyed the Government's absence of objection to the contents and tone of the report verbally, after review of the draft report. We received written comments from the Liquidator/Acting General Manager of the Borrower, which have been taken into account. A full translation of these comments is attached as an Annex.   - ii - COLOMBIA PROJECT COMPLETION REPORT PORT REHABILITATION PROJECT (LOAN 2635-CO) EVALUATION SUMMARY A. OBJECTIVES The project's objectives were to: (a) ensure sufficient port capacity to cope with traffic demand up to 1990, facilitating Colombia's foreign trade; (b) strengthen Colpuertos': (i) managerial, administrative and operational capabilities, to enable the enterprise to increase port productivity and reduce port costs; (ii) financial capabilities, to enable the enterprise to achieve long-term financial viability through the establishment of a cost-related tariff structure; (iii) training capabilities by supporting the enterprise's training schemes through appropriate technical assistance and equipment; and (iv) in the medium term, its planning capabilities through training of mid- and high-level managers and fellowships for young professionals in port planning and administration. B. IMPLEMENTATION (i) Project implementation was beset by numerous problems on a continuing basis: delays in contracting because of inexperience of Colpuertos' staff, disregard of Bank guidelines, inappropriate selection of contractors with insufficient experience and financial capacity, deficiencies in design, and major, recurring discontinuities in senior and operational management of Colpuertos. (ii) It became increasingly evident that the objectives related to strengthening the managerial, administrative and operational capabilities of the Borrower faced senous obstacles, that the basic objective of reducing port transport costs could not be met without fundamental structural and systemic reforms, and that Colpuertos as an institution was non-viable. As a result, when a new national Government took office in August 1990, one of its first decisions was to present a law to Congress (enacted in early 1991) to liquidate Colpuertos over 3 years and permit entry of the private sector into ports operations and (eventually) as shareholders or concessionaires for new port development. However, even after approval of this law, the process of liquidation was delayed by the absence of a  - iii - clear strategy for implementation and follow-up. Meanwhile, Colpuertos' management signed a fresh agreement with the union, ratifying and even extending labor benefits. (iii) For the reasons of institutional and financial non-viability and due to the repeated non-compliance with various of the principal covenants, following the adverse report of the external auditors on the financial statements for 1990, the Bank took the decision not to extend the closing date any further, after one extension for two months to February 28, 1992 (to permit a special effort to clean up the accounting and correct flaws noted by the auditors). The overall rating of the project ranges between 2 and 3 on a scale of 1-3, where 1 indicates no problems, 2, moderate, and 3, serious problems. C. RESULTS In spite of its other shortcomings, the project contributed through the rehabilitation of dilapidated port infrastructure and the acquisition of equipment to replace and supplement obsolete facilities to meet a large increase in port traffic. It is not possible to quantify the significance of this contribution on the basis of available data. As against the appraisal estimate of 4.5 million tons by 1990, Colpuertos' terminals handled an estimated 7.9 million tons of port traffic in 1992. The growth in containerized freight was especially rapid, and met partly by the investments of private operators and shippers, especially in Buenaventura and Cartagena. However, even if the project's physical targets had been totally attained, Colpuertos would not have been viable, either financially, because of its tremendous labor costs (especially pension obligations) unrelated to productivity, and institutional weakness, reflected inter alia, in the lack of professionalism and continuity in management. The actuarial studies under the project that permitted an estimate of the liabilities and cost structure because of the pension obligations and other labor costs, and the revaluation of assets carried out, established the lack of financial viability on a long-term basis. This conclusion, discussed by the Bank with its counterparts at the highest levels, contributed to the Government's decision to liquidate Colpuertos. The project thus contributed to the adoption of a systemic reform for the ports sector by focussing on the longer-term problems, although it failed to attain its objective of strengthening the management, administration, and operations of Colpuertos. Additionally, following passage of the law to liquidate Colpuertos, several studies were carried out under the technical assistance component of the project, to help define elements of the new ports structure with follow-up under the Bank's Public Sector Reform Loan. D. SUSTAINABILITY The sustainability of the new ports structure is probable, because of the entry of private operators, and the reduction already observed in port operating costs on a preliminary basis. Given the overall macro-policy emphasis in Colombia on modernization and internationalization of the economy in the last three years, the momentum has increased considerably for improvement of transport efficiency, and is unlikely to be reversed. The sustainability of the  - iv - civil works for ports infrastructure rehabilitation depends on an efficient maintenance planning and management system in the reformed ports sector, with the national Government continuing to keep ownership of the five national ports, while bidding out port operations and involving the private sector in development of new ports. E. ECONOMIC RATE OF RETURN With the liquidation of Colpuertos, lack of continuity of the Borrower's staff, and absence of relevant data from the Borrower, it has not been possible, despite repeated attempts to either obtain a reliable set of figures for total project investment, or attempt a calculation of the ERR, in comparison with the appraisal estimate of 38%. In retrospect, although the appraisal estimate was conservative if the project had been implemented as planned, it would seem reasonable to conclude that the actual ERR was quite different, although unquantifiable on the basis of the data available. F. LESSONS LEARNED (i) An institution such as Colpuertos, subject to frequent management changes and politization, with powerful vested interests which did not consider institutional and financial viability or efficiency as their primary goals, was incapable of successfully completing the project. Technical assistance for institutional strengthening through this project was in itself insufficient to address these major systemic flaws. (ii) The deficiencies of the studies and engineering designs, resulting from an incomplete planning process (pre-feasibility, feasibility, design) created upsets and substantial delays in the execution of the civil works. Even before commencing the process of contracting of civil works, complete studies and designs should have been carried out. (iii) The Borrower's inexperience in contracting, ignorance of the Bank's rules or unwillingness to comply with them, led to an inadequate selection of contractors, delays and problems in the processes of contracting and, of course, cost overruns. (iv) Non-compliance with the loan covenants was clearly seen in this project: specific covenants were directed at strengthening the Borrower administratively and financially in order to ensure viability over the long-term. However, these covenants were repeatedly unmet. The Bank did not resort to its remedies until late in the project, when it used its leverage to help improve covenant compliance in specific areas (accounting and auditing). Supervision of the project for a period seems to have had a somewhat narrow focus, and from early 1990 should probably have had a fresh emphasis to ensure closer coordination and consistency with preparation of the Public Sector Reform Loan.  - v - (v) Colpuertos demonstrated repeatedly its inability to maintain its accounting on an acceptable basis for a public company. There was thus an intrinsic inability to meet the Bank's stipulated accounting and audit covenants, with only late attempts at correction, and either repeated abstentions from opinion of the auditors or finally an adverse opinion. The deticiencies in basic accounting and financial management also made it very difficult to monitor implementation, even for Colpuertos's management, when the latter was so inclined. (vi) The project demonstrates that a weak coordinating unit with few effective personnel and without autonomy, does not help meet the objective ror which it was created, namely, to compensate for the weaknesses of the larger company in its institutional capacity, lack of managerial continuity, and the systemic flaws affecting the fundamental commitment to effective and efficient provision of public services.  COLOMBIA PROJECT COMPLETION REPORT PORT REHABILITATION PROJECT (LOAN 2635-CO) PART I. PROTECT REVIEW FROM BANK PERSPECTIVE 1. PROJECT IDENTIFICATION Project Name: PORT REHABILITATION PROJECT Loan Number: 2635-CO RVP Unit : LATIN AMERICA AND CARIBBEAN REGION, COUNTRY DEPARTMENT III Country : COLOMBIA Sector TRANSPORTATION Subsector : PORTS 2. BACKGROUND 2.1 The Bank has played an important role in the development of the Colombian transport sector since 1950. When this project was identified, the Bank had lent about US$551 million in 23 loans to the sector, mainly for the construction of an integrated highway network, the maintenance and rehabilitation of this network, the development of an improved highway organization, the construction of 670 Km. of the main railroad line, as well as for the rehabilitation and modernization of other lines, and a domestic aviation project directed to improve basic aviation infrastructure and sub-sector efficiency and planning. The Port Rehabilitation Project was the first Bank operation in the ports subsector. 2.2 The National Port Authority, Colpuertos, was created in 1959 as the public entity in charge of the management and operation of public ports in Colombia: Santa Marta, Barranquilla and Cartagena on the Atlantic coast, Buenaventura and Tumaco on the Pacific. Colpuertos was also responsible for the supervision and regulation of private berths located in the vicinity of the public Atlantic ports. In 1975, Colpuertos became a State-owned commercial  and industrial enterprise under the Ministry of Public Works and Transport, with financial and administrative autonomy. 2.3 Although the Port Rehabilitation Project was the first Bank operation in this sub- sector, it was closely linked with the Bank's strategy for the transport sector in Colombia, oriented to achieving a more balanced use of the existing transport alternatives, equitable treatment of the distinct modes of transport, reduction of total transport costs, adequate priority to export development, and strengthening of the planning, budgeting, financial and personnel management practices of sector agencies. 3. PROJECT OBJECTIVES AND DESCRIPTION 3.1 Project Objectives. As described in the appraisal report, the project's objectives were to (a) ensure sufficient port capacity to cope with traffic demand up to 1990, facilitating Colombia's foreign trade; (b) strengthen Colpuertos' (i) managerial, administrative and operational capabilities, to enable the enterprise to increase port productivity and reduce port costs; (ii) financial capabilities, to enable the enterprise to achieve long-term financial viability through the establishment of a cost-related tariff structure; (iii) training capabilities by supporting the enterprise's training schemes through appropriate technical assistance and equipment; and (iv) in the medium term, its planning capabilities through training of mid- and high- level managers and fellowships for young professionals in port planning and administration. 3.2 Project Description. The project intended to rehabilitate existing port installations and to upgrade port utilities, provide heavy cargo handling equipment, workshop machinery and tools, four second hand tugboats, training for management, operational, engineering and financial staff, and consulting services. The project comprised the following components at the three major ports of Buenaventura, Santa Marta, and Cartagena. (a) Civil Works for Rehabilitation of Existing Infrastructure: Civil works under the project consisted of repairs and reconstruction of about 1,250, 340 and 970 m of quays at the ports of Buenaventura, Cartagena and Santa Marta respectively; paving and repaving of about 63,000 and 39,000 m2, including upgrading of utilities, at Buenaventura and Cartagena respectively; construction of about 15,000 m2 of roofing at Buenaventura; demolition of 7,600 m 2 of sheds at Cartagena; and acquisition and installation of emergency power plants at all project ports. (b) Equipment: The procurement of heavy cargo handling equipment included the replacement of obsolete existing units and the coverage of the existing shortage  - 3 - for current traffic levels, and additional equipment to cope with traffic growth, specifically: (i) platforms, forklift trucks, and mobile cranes for general cargo to cover the Colpuertos shortage of such equipment; (ii) container-handling equipment supplementary to the equipment owned by Colpuertos and private rental companies, to handle 40- and 20-foot fully loaded containers; (iii) 15,000-lb. forklift trucks or similar vehicles to equip the ports with capability to handle empty 40- and 20-foot containers efficiently; (iv) yard tractors and trailers for container traffic; (v) workshop machinery and tools; and, (vi) four second-hand tugboats to partially replace the Colpuertos fleet. (c) Technical Assistance Services to : (i) strengthen and improve managerial, financial, administrative, operational, and maintenance capabilities of the enterprise and the project ports, (ii) prepare, coordinate, and supervise the implementation of Colpuertos' training program; and, (iii) conduct supplementary actuarial financial studies. (d) Training management, operational, and administrative personnel of the port terminals and in the Colpuertos central office. (e) Professional Services for Construction Supervision and Studies: (i) supervision of construction; (ii) engineering studies and design of a future port project to equip selected ports with full container and bulk-handling capabilities; (iii) feasibility studies for the long-term expansion of Colombia's port capacity on the Pacific coast; (iv) studies to reorganize dredging services of Colpuertos and to define institutional arrangements to permit the cost recovery of dredging activities. 4. PROJECT DESIGN AND ORGANIZATION 4.1 Conceptual Foundation: The project was designed as an intermediate step in the modernization of the Colombian ports, which would ensure sufficient port capacity to meet current traffic requirements and anticipated growth to 1990, and to generate economic benefits to the national economy through increased port productivity and reduction of port costs, facilitate foreign trade and contribute to export development. The conceptual basis for the project was clear and was apparently shared by the Borrower and the Government (the Guarantor). In retrospect, although the project concept was clear, the possibilities of successful project implementation were considerably limited by the institutional weakness of the Borrower, and the systemic causes of this weakness, which could not have been addressed by a primarily physical rehabilitation oriented loan with some technical assistance. The main component of the loan (83%) was dedicated to rehabilitate the existing port infrastructure, quays, storage areas and warehouses, and to purchase equipment for general and container cargo, tugboats, workshops and computers. The infrastructure facilities in three of the four main ports operated by Colpuertos-namely Buenaventura, Cartagena and Santa Marta- had deteriorated considerably due  - 4 - to poor maintenance, age, and in some cases, poor construction. In Colpuertos there was a shortage of equipment to handle heavy loads and containers, as well as tugboats, due to obsolescence of existing units and neglect of port equipment maintenance because of inappropriate maintenance facilities, shortage of spare parts, and lack of a consistent equipment maintenance policy. This situation, along with inadequate port operation planning, affected productivity, efficiency and costs. The remainder of the loan (17%) was dedicated to: i) institutional strengthening, which comprised management advisory services to strengthen managerial, financial, administrative, operational and maintenance capabilities of Colpuertos; ii) training for the mid- and top-level Borrower personnel; and iii) professional services for supervision and control, engineering services and studies for equipping selected ports with full container and bulk-handling capabilities, long term expansion of Colombia's port capacity on the Pacific coast, and reorganizing dredging services required for Colpuertos' operations. 4.2 The Bank was involved in the ports sub-sector since 1979, when, at the Government's request, arrangements were made to carry out a study to equip the ports with container-handling facilities. In 1980, UNDP agreed to finance a Port Modernization Study (PMS) based on terms of reference (TOR) prepared by the Bank; and during 1981, the study was carried out by consultants under the supervision of the Bank as the Executing Agency. The Government that took office in August 1982 decided to postpone all major investments in ports, until labor and other problems affecting Colpuertos had been dealt with and sufficient progress made. In November 1982, at the Government's request, the Bank and UNDP sent to Colombia a Technical Assistance Mission, to review the institutional and labor constraints affecting the ports. This mission recommended a plan of short- and medium-term actions to increase the ports' capacity and productivity. In accordance with the Government's decision to postpone major investments, and in line with the Technical Assistance Mission's recommendations, Colpuertos opted for an investment plan to rehabilitate the ports, replace old and obsolete equipment, and purchase some container handling equipment. Colpuertos and the Government requested Bank support to carry out this program, and in late 1983, submitted the 1984-1987 port investment plan to the Bank for review. Colpuertos asked the Bank to finance the foreign exchange cost component of its plan. The Colpuertos rehabilitation plan was reviewed and endorsed by Bank preparation missions. Engineering designs, updated cost estimates, and, economic evaluation of the project were prepared by Colpuertos' technical department, assisted by local consultants. The staff appraisal report was submitted on October 24, 1985. 4.3 The roles of MOPT and Colpuertos in project implementation had been well defined and understood during project preparation, in keeping with the institutional organization of the port subsector at that time. During project implementation, it became increasingly clear that this institutional context needed fundamental reforms as a pre-requisite for efficiency improvements. 5. PROJECT IMPLEMENTATION 5.1 The loan agreement was signed on February 20, 1986 and the project became effective three months later, on May 22, 1986. The original closing date of December 31, 1991 was extended once to February 28, 1992, with special focus on improving covenant compliance  - 5 - regarding accounting and audit deficiencies during this extension. Project execution started off with delays and procurement problems in purchasing and contracting, due to lack of experience with Bank procurement procedures or disregard of Bank Guidelines. Changes in senior and operational management and professionals of Colpuertos during the first years of implementation generated further delays in the contracting processes of technical assistance, studies, and the implementation of the training program. Problems with some of the contractors for the civil works were due to their insufficient experience and financial capacity, as well as to deficiencies in the designs, all of which contributed to implementation delays and cost over- runs. After these delays were overcome, project implementation began to advance somewhat more rapidly. Yet, it was evident that disbursements under the loan would have to be extended up to 1993 in order to complete the civil works and the technical assistance program. Some of the programmed civil works had not been completed by the loan closing date. The equipment acquisition program was developed in two stages, the first corresponded to that required for general cargo handling and was executed during the first two years, the second corresponded to the heavy equipment for container handling, which was executed between 1990 and 1992. Because of unsuccessful bidding processes, some light handling equipment was acquired directly by the Borrower. The tugs were never bought. 5.2 During project implementation, it became increasingly evident that the objectives related to strengthening the managerial, administrative and operational capabilities of the Borrower, as originally proposed, faced serious obstacles, that the basic objective of reducing port transport costs could not be met without fundamental structural and systemic reforms, and that Colpuertos as an institution was non-viable. As a result, when a new national Government took office in August 1990, one of its first decisions was to present a law to Congress (enacted in early 1991) to liquidate Colpuertos over 3 years (subsequently, the Government decided to accelerate the liquidation process) and permit entry of the private sector into ports operations and (eventually) as shareholders or concessionaires for new port development. However, even after approval of this law, the process of liquidation was delayed by the absence of a clear strategy for implementation and follow-up. Meanwhile, Colpuertos' management signed a fresh agreement with the union, ratifying and even extending these benefits. A subsequent attempt was made by the Government through Presidential Decree, to reduce the onerous burden of these liabilities to staff. This decree has been contested in a time consuming legal process. Meanwhile, in this confused situation, while some staff formally left the company, others continued to intervene in port operations, diminishing efficiency. 5.3 For the reasons of basic non-viability and due to the repeated non-compliance with various of the principal covenants, following the adverse report of the external auditors on the financial statements for 1990, the Bank took the decision not to extend the closing date any further after the extension for two months to February 28, 1992 to permit a special effort to clean up the accounting and correct flaws pointed by the auditors. Such an effort was, in any case, consistent with requirements of the law liquidating Colpuertos, which called for reliable calculations of assets and liabilities. This effort led to some improvement, but not to the required level of compliance. The overall rating by supervision missions of the project varies between 2 and 3 on a scale of 1-3, i.e. indicating moderate to serious problems.  5.4 Civil Works: During the preparation of the project, Colpuertos prepared the tender documents for the civil works and the acquisition of equipment in such a way that when the loan became effective the contracting of the principal civil works could be initiated quickly. Because of the problems regarding contracting, deficient designs, and poor selection of contractors mentioned in para. 5.1 above, some works were suspended and some contracts cancelled. These problems were compounded by the delays in decision making, cumbersome administrative and contracting processes. New tenders had to be issued and the contracting for the last civil works was only finished at the beginning of 1991. Despite these delays, a large number of the programmed works were either finished or in an advanced state, at the closing date of the loan, because of administrative reorganization, closer follow-up of execution, and more rapid implementation after 1989. The emergency power plants for the ports were not acquired. 5.5 Equipment: The equipment acquisition program consisted of equipment for cargo handling in the ports, 4 used tugs, machines for the workshops, and tools. The purchasing process for the cargo handling equipment was divided into 2 groups, the first of which was tendered, partially awarded, and received during the first two years of execution of the project and corresponded to the necessary replacements for the obsolete general cargo handling equipment. The second group corresponded to heavy lift cranes and handling equipment for fully loaded containers and encountered long delays in the tendering processes. Their acquisition was projected for 1988 and the award was only made in 1991. In 1987, Colpuertos acquired with its own funds some of the projected equipment to be obtained from the loan. The process of acquisition of tugs was complicated. Initially, the Borrower did not follow the procedures agreed with the Bank, changing the criteria on the type of tugs. Finally, after 4 years of changes and indecision, the Borrower terminated the negotiations and canceled the purchase. Neither the tools nor the workshop machinery were acquired as projected in the Appraisal Report. In general, the acquisition of equipment was not implemented as projected in the Appraisal Report. Specifications and quantities were changed, with the result that the expenditure for this item only reached 46.5% of the amount indicated in the Loan Agreement. This item of the project was the one that showed the most variation, with respect to the Loan Agreement. 5.6 Technical Assistance: Four technical assistance programs were listed in the Loan Agreement within the overall scheme of institutional strengthening. After an extended process of preparation of the terms of reference and selection of consultants, it was decided that the financial management systems study and the management information systems study should be integrated into one single technical assistance program. During 1988 the contracting of the other studies was initiated, dropping the study for port maintenance and repair services. The study of Port Operations and Planning Procedures was negotiated and started in 1989, while the Integrated Management Information and Financial Systems study was begun only at the end of 1990, due to a lengthy negotiation involving nearly 4 years of delay. The promulgation of Law 1/1991, requiring Colpuertos to be liquidated, resulted in these technical assistance programs, as originally designed, being of little value. It was decided to suspend further work on the  - 7 - Integrated Management Information and Financial Systems and Port Operations and Planning Procedures. Only preliminary work had been completed on the Integrated Management Information and Financial Systems Study until this point, and on the latter study, work had progressed to the point of recommendations. 5.7 Traininy: As with the other parts of the project there were long delays before the Borrower initiated the training program in January 1989, nearly 3 years after the start of the project. The 4-year program was modified in August 1991 (2 1/2 years after its start) in order to adjust it to the new circumstances due to the liquidation of Colpuertos. Using the resources of the training program, 16 studies related to different aspects of the restructuring of the national ports system were carried out (e.g. regarding port tariffs, restructuring of different ports, organization of the new Ports Superintendency). 5.8 Studies: The project studies covered feasibility and design of full container and bulk - handling ports facilities, expansion of port capacity on the Pacific coast, and dredging services required by the Borrower. Several delays in preparation and agreement on terms of reference and contracting resulted in the container and bulk - handling studies being contracted only during the second half of 1989, and the study on expansion of port capacity only in January 1991. As in the case of the technical assistance program noted above, due to the liquidation of Colpuertos, only the feasibility phase was executed, the second phase relating to the detailed design was cancelled. The study of the reorganization of dredging services was never implemented as the Borrower's commitment was weak. 5.9 Evaluation of Risks Associated with the Project: The Appraisal Report identified as main risks associated with the project: short-falls in forecasting traffic levels, failure to achieve productivity targets, and the timely establishment of a new pension scheme. (i) The traffic was higher than forecast; in 1990 the difference was 22.3%. Subsequently, partly due to the Government policy of reform of the foreign trade regime and the reduction of customs tariffs, the traffic grew 38.4% between 1991 and 1992. Consequently, in 1992 the difference between the forecast for 1990 and actual traffic was 68%. (ii) The productivity obtained in 1990, according to Colpuertos, was higher than targeted in the loan agreement. On the other hand, whatever productivity improvements were attained were totally incommensurate with a highly distorted and worsening cost structure. (iii) The establishment of a new pension scheme was never carried out as the necessary law did not obtain Congressional approval, and this failure greatly affected the financial viability of Colpuertos. (iv) The strength of the unions and politization of management were underestimated in considering the feasibility of changes in the labor cost and pension systems, down-sizing  - 8 - of the labor force on a systematic basis (although according to Colpuertos, the results in down-sizing exceeded the targets agreed with the Bank for the years 1988-90), and in negotiating salary increases and social benefits in keeping with the financial viability of the company. (v) The weak institutional capacity of the Borrower was not considered sufficiently as a risk. The lack of professional and managerial autonomy and continuity, and of political will to confront major structural issues was evident in the performance of the project during different administrations. As an example, the agreements with the labor union ratified by some of the administrations resulted in highly distorted operating costs and the accumulation of enormous liabilities, which will be met, in the last resort, by the general tax-payer. This incapacity to address a key structural issue on a timely basis severely affected the financial situation of the Borrower. (vi) The capacity of the users' representatives on the Board of Directors to oppose increases in port tariffs was underestimated. Although various attempts to adjust tariffs were frustrated, from the point of view of the users it was clearly inequitable to merely transfer to them the costs of inefficiency. As a net result, the financial situation of Colpuertos continued to worsen, and radical measures were adopted in the absence of any other alternative, at a point of acute crisis, only through the liquidation of Colpuertos. 5.10 Disbursements: Disbursements were not made during the first year of the project and only began very slowly in the second year (1987), with average performance well below the forecasts of the Appraisal Report. Disbursements during the project were about 34% below that estimated. 32% of disbursements were made after the initial closing date of the loan. 5.11 Covenant Compliance: From early on it could be observed that Colpuertos faced difficulties in complying with important covenants of the Loan Agreement, especially the ones relating to the treatment of the pension obligations (Section 4.03), the modification of the tariff structure (Sections 5.03, 5.04), the revaluation of assets (Section 5.02), the rationalization of the labor force (Section 4.01.(c)), assuring an internal generation of funds not less than 35% of the capital expenditure (Section 5.03.(a)), reviewing with the Bank, each year, the investment plan for the following 4 years (Section 5.05 (a)), informing the Bank of capital expenditures in excess of US$2 million, affording the Bank an opportunity to comment (Section 5.05 (b)), and not committing itself to such capital expenditures, unless technically and economically justified, and with the financing secured on terms that would not adversely affect Colpuertos' financial condition, or the carrying out of the project (Section 5.05 (c)). All these covenants were intended to strengthen Colpuertos' finances. Equally salient were the difficulties and delays in complying with the covenant requiring an accounting system that would adequately reflect the financial and operational situation of both the Borrower and the project (Section 5.01 (a)). The audited financial statements were always presented late to the Bank (Section 5.01 (b)), and until 1990, with an abstention from opinion by the auditors. The financial statements for 1990 received an adverse opinion from the auditors. Despite the special and intensive effort at this point, when the Bank used its leverage in response to a request for extension of the closing date,  -9- because of the long-standing and fundamental nature of the problems, compliance was not possible. Colpuertos submitted several volumes of accounting and financial data to the Bank in 1992, but despite a letter from the auditors indicating that efforts were in the right direction, the auditors again abstained from opinion on the accounts for 1991 in their report received in April 1993, which indicated numerous flaws. 6. PROJECT RESULTS 6.1 The project contributed to increasing port handling capacity, thereby helping to meet the traffic requirements up to 1990, and even beyond, although the extent of this contribution is not quantifiable from the data available. The Colpuertos terminals handled an estimated port traffic of about 7.9 million tons in 1992, as against the appraisal estimate of 4.5 million tons for 1990, the projected target date for the rehabilitation of the ports. With the rehabilitation of the quays, the use of a lighterage system was avoided, thereby eliminating these costs as well as the double handling of the cargo and cargo losses. Without the implementation of project components for the civil works for the rehabilitation of the piers (especially the 2 piers in the most important port, Buenaventura), the paving of various yards, the rehabilitation of the warehouses, and the procurement of port equipment to replace and supplement the deteriorated and obsolete existing equipment, the Colombian ports would not have had even the minimal physical capacity to meet the growing demand. The large increase in foreign trade during 1992 may have encountered even more serious infrastructure obstacles, following the introduction of macro and sectoral policies to modernize and open the economy. 6.2 The objective of increasing the operational efficiency and reducing costs, by acquiring new cargo handling equipment, was only partially attained. After enactment of the law to liquidate Colpuertos, the staff lost any residual motivation for improving performance. Subsequent delays in reaching decisions on staff separation led to continued operation of the equipment and moving of the cargo inefficiently for a further period by these un-motivated staff. In another crucial aspect, container traffic estimates fell short of actuals. The projections of containerized traffic for 1990, 1991 and 1992 were 1,030,000, 1,190,000, and 1,300,000 tons respectively, while the recorded container traffic for these years reached 1,313,000, 1,600,000, and 2,000,000 tons '. This wide variation indicates a deficit in container handling equipment which could have been acquired under the project. The private operators that entered port activities have acquired additional container handling equipment (top loaders) which has helped meet the need. Increases in productivity are not clearly attributable to the new equipment of Colpuertos. If the project had laid emphasis in the equipment acquisition component on a larger share for 20 and 40 ton. containers (TEUS and FEUS), its contribution to strengthening physical capacity would have been more relevant. The straddle carriers in Buenaventura could not be utilized initially due to the deficient paving of the container yards, and only entered into full use in 1992, when the paving of the yards was terminated. This delay obviously diminished the benefits of acquiring this equipment. 1 Estimated from partial information for 1992.  - 10 - 6.3 The project did not attain the objective of strengthening the management, administration, and operations of Colpuertos due to: (i) delays in starting the technical assistance programs; (ii) the frequent changes in management; (iii) the lack of timely decisions to solve the issue of labor costs, rationalize staffing on a systematic basis, modify the pension scheme, and readjust port tariffs. Even if the physical targets of the project had been totally attained, it is certain Colpuertos would have failed because of its financial problems, which originated from over- generous labor agreements, and in particular, because of the pension obligations, ultimately deriving from the institutional weakness of Colpuertos and systemic deficiencies. The objective of strengthening the capacity of port planning and improving the technical training program for the personnel of port operations, maintenance and finances of Colpuertos was only partially met. Although the technical assistance to Colpuertos did not produce any lasting institutional benefits for this entity, the training of staff was beneficial to some extent, as such staff with more specialized skills could be absorbed into either new Regional Port Authorities or by private port operators. 6.4 The actuarial studies that permitted an estimate of the pension obligations and other labor costs, as well as the revaluation of assets canied out as part of this project, established the lack of financial viability on a long term basis. This conclusion, made evident by the Bank to the highest levels of Government, contributed to the decisions taken for the eventual systemic change through the liquidation of Colpuertos and the entry of private sector operators into port operations. Thus, although the project could not attain its objectives of financial and institutional strengthening of Colpuertos, it contributed to the adoption of crucial institutional reform for the ports sector through focussing on important elements of the problems of a long-term nature. With respect to other studies, only partial results to the feasibility stage were achieved corresponding to the handling of bulk cargo and containers, and the study of port expansion on the Pacific coast. 6.5 The appraisal estimate noted that ship service time savings would be a principal project benefit, and for the overall calculation of the Economic Rate of Return (ERR), in order to avoid double counting, only considered such savings associated with the equipment procurement program. In addition, only benefits through reduction of ship waiting time associated with the quay improvements were considered for the overall economic analysis. In retrospect, it would seem reasonable to conclude that although the appraisal estimates were conservative if the project had been implemented as planned, the actual overall ERR was quite different, although unquantifiable on the basis of the data available. Port infrastructure rehabilitation (comprising quay repairs, paving of cargo handling areas, roof extension, improvement of road access, and cargo handling yard improvements) were estimated at 54% of total project costs at appraisal. Acquisition of container handling equipment and heavy load equipment for general cargo was estimated at 22% of project costs, and the acquisition of used tugs (11 % of estimated project costs) was identified as the least cost alternative. Although a large number of the programmed civil works were either finished, or in an advanced state, at the closing date of the loan, the delays and inefficiencies in implementation lowered, to an unquantifiable extent, the rate of return on these investments. Regarding equipment, given the wide variation in implementation  - 11 - with the original program, the non-implementation of labor rationalization on a systematic basis, the acquisition of additional unplanned light cargo handling equipment, and the non-acquisition of tugs, the rate of return on this component probably showed the widest variation with the appraisal estimate. Finally, the relative lack of success of the technical assistance and training programs further adversely affected the overall rate of return. 7. PROJECT SUSTAINABILITY 7.1 The project, as designed, was not sustainable. With the overall macro-policy environment in Colombia over the last three years oriented to modernization and internationalization of the economy ("apertura"), and accompanying sectoral policy reforms in a number of areas, the momentum has increased considerably for improvement of transport efficiency, and is unlikely to be reversed. Thle entry into the sector of private port operators, and the reduction of port transport costs already observed on a preliminary basis, further reinforces this conclusion. The sustainability of the new ports structure is, therefore, more probable than in the case of the earlier system. The sustainability of the civil works rehabilitation carried out under the project for infrastructure at three major national ports depends on an efficient maintenance planning and management system in the reformed ports sector, with the national Government continuing to keep ownership of the five national ports, while bidding out port operations and involving the private sector in development of new ports. Similarly, equipment acquired under the project, and some of the studies carried out relevant to planning port development would continue to be beneficial. 8. BANK PERFORMANCE AND LESSONS LEARNED 8.1 Preparation and Appraisal: The Appraisal Report clearly identified the problems and risks arising from the lax collective bargaining agreements, the pension system, the inadequate tariff structure, the weakness and lack of training of personnel in the financial area, and the financial weakness of Colpuertos in the long-term. The Bank proposed corrective measures and reached clear agreements as reflected in the loan covenants intended to correct this situation and to permit longer-term institutional and financial viability. The Appraisal Report, despite identifying the managerial weaknesses, the lack of autonomy and continuity in management because of politization, and the Borrower's poor long term planning, did not consider as high risks the institutional and managerial weakness of the Borrower and the systemic causes of the problems. One of the main causes for the unsatisfactory project results was precisely this combination of risks. 8.2 Supervision: The project supervision utilized 138 Bank staff-weeks during the implementation period, between the beginning of 1986 and 1992. About 19 supervision missions visited Colombia during these six years. There was thus a substantial investment of staff inputs into supervision. Despite this, the project was rated a problem from March, 1988. Rating varied between 2 and 3, indicating problems between serious and moderate. However, for most of this period the project was only rated 2, which would seem to understate the dimensions of the problems. The checking of the project files and of the supervision mission reports shows  - 12 - that the discussions with Colpuertos were largely related to the slow contracting of the studies and technical assistance, the problems in execution of the civil works, and compliance by Colpuertos and the Guarantor with the covenants for modifying the pension system and the adjustment of the tariffs. The dialogue also focused on the deterioration of Colpuertos' financial situation. The supervision was carried out by both regular Bank staff and a long-term consultant (port engineer), assisted in the later stages by a consultant from the Resident Mission. Despite the problems encountered during the implementation of the project, the preparation of a follow- on project was proposed, leading even to an updated project brief. This second project was estimated to require an investment of $170 million for civil works and the procurement of specialized handling equipment for bulk cargo and/or containers in the 4 principal terminals of Colpuertos, thus focussing once again on physical works, and demonstrating inconsistency. The Resident Mission focussed on elevating discussions of Colpuertos' deteriorating situation to the highest decision-making levels of the Government through its continuing dialogue, and calling for meetings at the ministerial level, involving the Bank's main interlocutors in the core economic ministries: the Ministry of Finance and Public Credit, and the National Planning Department, as well as the Ministry of Public Works, and the top management of Colpuertos. Various Country Implementation Review missions of the Bank also flagged this project for corrective action in discussing portfolio issues. Not all the supervision reports were found in the files. From very early on the Borrower encountered problems, and, in some cases, showed disinterest in complying with basic covenants for Colpuertos' own long term financial stability. This situation, however, did not lead to a recourse to its remedies by the Bank, until in end- 1991, the Bank decided to exercise its leverage through first, a limited extension of the closing date focussing on improving covenant compliance, and then refusing any further extension. Meanwhile, however, from early 1990, the Bank began preparing on a fast-track, the Public Sector Reform Loan, which was designed, inter alia, to help address the need for structural transformation of the ports sector. It would seem that coordination should have been closer between this effort and supervision of the Port Rehabilitation Project, through an early change of focus in the latter. 8.3 LESSONS: (i) A weak institution, with frequent management changes and politization, such as Colpuertos, was a high risk in considering successful implementation of the project. Technical assistance for institutional strengthening through the project itself was not an adequate vehicle to address major systemic deficiencies. The earlier Government decision to postpone confronting the difficult systemic issues (see para. 4.2 above) could have drawn the Bank's attention to their significance. (ii) The deficiencies of the studies and engineering designs, resulting from an incomplete planning process (pre-feasibility, feasibility, design), with responsibility vested in a technical department of the Borrower not specialized in design, created upsets and long delays in the execution of the civil works. Since the project involved a substantial civil works component, it was important before commencing the process of contracting to  - 13 - have complete and detailed studies and designs in order to assure implementation meeting the norms for quality and efficiency. (iii) The importance of rigorously enforcing the loan covenants is clearly seen in the project: The loan covenants were aimed at strengthening the Borrower administratively and financially in order to assure longer-term viability. These covenants were repeatedly breached. Despite the continuous requests from supervision missions for corrective actions, the response was inadequate and late. Earlier and firm follow-up by the Bank in invoking its remedies could have helped reinforce the response. Colpuertos' previous experience demonstrated repeatedly its inability to maintain its accounting correctly and up-to-date, and thereby reflect the investments made and the use of loan funds. With hindsight, it is appropriate to conclude that this should have been a priority area for correction before proceeding with the loan. The project raises the issue of the Borrower's commitment to crucial objectives and components of the project (relevant to institutional and financial viability), and the Guarantor's ability and commitment to address these issues except at a point of acute crisis. In the absence of such commitment and ability, the combination of technical assistance and loan conditionality (without prompt recourse to remedies), was inadequate to remedy the structural deficiencies through a project heavily oriented to physical infrastructure rehabilitation. However, the Bank's focus through this project on long-term viability issues did, ultimately, contribute to systemic changes, especially by pointing up the non- viability of the previous system. A weak coordinating unit, with few effective staff and without autonomy, does not meet the objective for which it was created, namely, to shield project implementation from adverse influences arising from the larger institution (Colpuertos) and the system within which Colpuertos operated. 9. BORROWER AND GUARANTOR PERFORMANCE AND LESSONS LEARNED 9.1 The performance of the Borrower was not satisfactory, and so the objectives and targets of the project as a whole were not met, despite some useful contributions to increasing physical capacity at ports, acquisition of equipment, studies still useful for port planning, and in the later stages of the project, for designing the new ports structure. The principal weaknesses of the Borrower and areas of importance regarding the Guarantor are the following: (i) There was no continuity of the Project Coordinating Unit and the personnel assigned to it for some periods did not have the necessary capacity to manage the project. This was evident in the lack of experience in contracting. Time and effort were wasted by not  - 14 - complying with Bank procedures. The process of contracting was not orderly or methodical. (ii) The lack of continuity in top management and the managerial staff of the Borrower notably affected the project. There were frequent changes of emphasis on the objectives and in physical targets, and limited continuity of commitment regarding the project as a whole. (iii) The institutional and administrative weakness of the Borrower was reflected by the inability to establish an appropriate accounting system to reflect the true financial position of the company, help management monitor effectively the use of funds, and the company's and the project's evolution. Even the revaluation of assets was delayed. The company's financial statements did not reflect the underlying large pension obligations. (iv) The Board of Directors and the Guarantor did not take timely decisions to modify the tariff system. Such decisions were, however, complicated by the need to address in parallel the underlying inefficiencies in the cost structure, without which these inefficiencies would have been transmitted to users. (v) The modification of the pension system, which would have brought it into line with normal practices for other employers, could only be effected by law. There was never a political decision to introduce such a law, with the result that only when Colpuertos was liquidated in 1991, the Government assumed the pension obligations and created a fund to meet pension and severance payments of staff. 10. BANK-BORROWER RELATIONS 10.1 The relationship between the Bank and the Borrower was always cordial and correct. There were fruitful and constructive discussions between the Bank, the Ministry of Public Works and Transport, and the National Planning Department which contributed to focus on longer-term issues and the eventual system changes. 11. PERFORMANCE OF CONSULTANTS AND CONTRACTORS 11.1 The performance of the consultants for the technical assistance and the studies in general was adequate, the final reports complied with the expectations and targets. Unfortunately, the institutional strengthening of Colpuertos, which was an important objective, was not attained for many reasons, noted earlier. Inter alia, there were delays in contracting the technical assistance. Contract difficulties were encountered, and the consultants hired for the Integrated Financial and Management Information System Study claimed damages for the suspension of later phases of the study with the decision to liquidate Colpuertos. The consultancy for supervision of works was not always contracted on a timely basis. For part of the time, such supervision was at times carried out by Colpuertos' personnel, with, at times, unsatisfactory results. As mentioned  - 15 - earlier, the detailed designs of the works, their specifications and cost estimates were prepared initially by the Technical Department of Colpuertos with the assistance of local consultants, and results of deficient quality. During the implementation of the project, the designs were complemented and modified by the supervision missions and individual consultants. The selection and initial hiring of contractors for the civil works was problematic with nearly all of the tendered works, due to the lack of experience and the limited managerial and financial capacity of the contractors. This situation forced the Borrower to cancel rehabilitation contracts for the piers and yards in Buenaventura, warehouse No. 8 in Cartagena, and to finish many of the works with major delays. In general, the suppliers of equipment delivered on time, with the exception of the suppliers for the 20' and 40' trailers, who did not deliver according to their contract. 11.2 The lessons obtained from this experience are the following: (i) The processes for tendering works in a weak Borrower, such as Colpuertos, should not be initiated without completing the prior stages of planning (feasibility and detailed design). (ii) During the first supervision missions, it was essential to insist on compliance with contract specifications and assuring an orderly and methodical contracting process throughout the project implementation period. (iii) The initiation of the works should not have been authorized without prior contracting of specialized and independent consultants for works' supervision. Equipment should not have been accepted without the corresponding certification from an inspection company. 12. PROJECT DOCUMENTATION DATA. 12.1 The information available in the Bank files, including those of the project preparation process, the audit reports, the supervision reports and the Aide-Memoires of missions were all useful. However, the information from the implementation period is not uniform. All the back- to-office and full reports were not found. Of some supervision missions, only the Aide- Memoires were found in the files. The supervision reports and the Aide-Memoires allow a global appreciation of the project's evolution. However, a sequential follow-up of the implementation and development of all components of the project is not readily feasible. 12.2 With the liquidation of Colpuertos and lack of continuity of the Borrower's staff, the data available from the Borrower do not allow a final conclusion on total project investments or estimation of the economic rate of return of the project, in comparison with appraisal estimates.  - 16 - PART III. STATISTICAL INFORMATION 1. RELATED BANK LOANS. Although the Port Rehabilitation Project was the first Bank operation in the ports sub-sector since 1950, the Bank had lent about US$551 million in 23 loans to the transport sector before this project. The related Bank loans made most recently before this operation in other transport sub-sectors are indicated in the following table: YEAR OF PROJECT NAME PURPOSE APPROVAL STATUS COMMENTARY Rural Roads Construction, 1982 Completed. In Due to high Project Rehabilitation and 1987, the loan devaluation, the 1960-CO Maintenance of was 100% final cost was Rural Roads disbursed. 17% below appraisal. Bank participation increased from 52% to 63%. Seventh Railway Rehabilitation and 1982 Completed. In Only a small part Project Modernization of 1988, the loan of the track, 2090-CO Colombian was 37.5% locomotive and Railways disbursed. rolling stock program was carried out late. Highway Sector Rehabilitation, 1982 Completed. In The undisbursed Project Paving and 1988, the loan portion in real 2121-CO Maintenance of was 98.2% terms was 14%, Primary Road disbursed. affecting training, Network paving, road safety, and maintenance.  - 17 - 2. Project Timetable. DATE PLANNED REVISED DATE ACTUAL DATE Identification 06/03/83 06/03/83 Preparation Mission 12/04/83 12/04/83 Appraisal Mission 10/14/84 10/14/84 Loan Negotiations 06/24/85 09/27/85 Board Approval 11/26/85 - 11/26/85 Loan Signature 02/20/86 - 02/20/86 Loan Effectiveness 05/09/86 - 05/09/86 Project Completion 12/31/91 Loan Closing 12/31/91 021/8/92 02/28/92 3. Loan Disbursement. Cumulative Estimated and Actual Disbursements (US$ millions) FY 86 87 88 89 90 91 92 93 Appraisal 5.0 16.0 29.0 36.0 40.0 42.8 42.8 42.8 Actual 0 5.6 12.9 14.9 17.9 19.2 27.4 28.3 Actual as % of 0 3.5 44.0 41.4 44.8 44.9 64.0 66.1 Estimate  - 18 - 4. Project Implementation. CATEGORY Unit Appraisal Actual A. CIVIL WORKS Quay Rehabilitation ML 3483 2306 Paving M2 102.700 92.480 Roofing M2 7.200 7.200 Sheds M' 17.200 17.200 Emergency power plants U 4 B. EQUIPMENT General Cargo: 6000 forklift trucks 9 15000 forklift trucks 30 30 30000 lbs platforms 85 85 16 ton. mobile cranes 9 40 ton. mobilen cranes 4 4 Cootainers: 4000 lbs. forklifl trucks 10 6 15000 lbs. forkliftl trucks 8 25000 lbs. forklift trucks 8 65000 lbs. forklift trucks 8 88000 lbs. forklift 4 5 wheel trailers 28 19 20' trailers 32 40' trailers 32 Straddle carriers 2 Towing Trucks 4 2 C. TECHNICAL ASSISTANCE Pori Maintenance Not implemented Integrated Management Cancelled during Information & Financial Systems execution. Port Operations and Planning Procedures. Phases 1-2 completed. D. TRAINING Partially implemented. 16 technical assistance consultancies for port reform were carned out additionally using funds from this component. E. STUDIES Containerization Feasibility study done Bulk Handling Feasibility study done Port Expansion Feasibility study done Dredging Services Not implemented.  - 19 - 5. Project Cost and Financing. A. Project Cost in US$ millon APPRAISAL ESTIMATE ACTUAL LocaL Foreign Local Foreign Totat l __________________________ Cost Cost Total Cost 1/ Cost 2/ A. Civil Works 12.10 11.10 23.20 12.50 12.70 25.20 B. Equipment - 17.20 17.20 6.20 9.56 15.76 C. InstitutionaL 0.60 3.00 3.60 l Development _1.30 _6.06 _7.36 D. Project 0.90 3.60 4.50 ] 1 ] Supervision and Studies Total Base Cost 13.60 34.90 48.50 E. Physical 1.40 2.80 4.20 Contingencies F. Price Contingencies 2.20 5.00 7.20 TOTAL PROJECT COST 17.20 42.80 60.00 20.00 28.32 48.32 1/ Based on Colpuertos' information. 2/ Based on actuaL Bank disbursements. B. Project Financing US$,000 SOURCE PROPOSED ACTUAL COMMENTS IBRD 1. CiviL Works 11,200 1/ 12,702 The information avaiLable in Cotpuertos is not 2. Goods 17,200 1/ 9,560 considered reliable. 3. Technical Assistance and Training 6,600 1/ 6,055 4. Unallocated 7,800 1/ Colpuertos 17,200 2/ 20,000 3/ l TOTAL 60,000 48,317 _ 1/ Based on Loan Agreement, Schedule 1. 2/ Appraisal Report estimate. 3/ Based on Cotpuertos' information.  - 20 - 6. Project Results. INDICATORS APPRAISAL OBJECTIVES ACTUAL RESULTS A. CIVIL WORKS Rehabilitation of quays, paving and roof Despite non-completion of alt the extension to reduce ship handling proposed civil works, the project services and waiting times, increase contributed to meeting a substantial efficiency in handling to meet the increase in port traffic. demands of traffic in 1990, and reduce _______ __ transport costs. B. EQUIPMENT Reduction of ship service time, The unforeseen increase of traffic and improving of efficiency and reduction in container cargo leads to the conclusion the service time and in cargo handling that a greater proportion of container costs. handling equipnent would have been more effective. With the liquidation of Colpuertos and the participation of private operators, it is difficult to establish what part of the increased productivity was attributable to the new equipment procured under the loan. C. TECHNICAL Strengthen Colpuertos: This objective was not attained. ASSISTANCE AND TRAINING - managerial, administrative and Colpuertos was liquidated by the national operational capabitities to increase Government and the studies for port productivity, institutional strengthening and training - financial capability to be able to had neither been finished nor achieve long term viability, implemented. - planning capability. The training received will benefit the ports sector as a whole, by increasing the availability of more highly-skilled staff, who could be absorbed by private port operators or regional port companies. D. PROFESSIONAL - Supervision of construction The supervision of construction was SERVICES FOR - Engineering studies and design deficient. CONSTRUCTION of a future port project to SUPERVISION equip selected ports with full The feasibility studies carried out will AND container and bulk-handling still be useful for future port planning. STUDIES. facilities. - Feasibility studies for the Long- term expansion of Colombia's port capacity on the Pacific cost. - Studies to reorganize dredging services and to define the Not implemented because of absence of institutional arrangements for Borrower coammitment. cost-recovery of dredging activities.  - 21 - 7. Status of Loan Covenants. LOAN COVENANTS LOAN AGREEMENT SECTION STATUS a) Condition for Loan Effectiveness. Furnishing a Four-Year 7.01 Fulfilled Program for Training b) Other Covenants - Maintain a committee responsible for management 3.01 (c) Fulfilled with delays of training program, and special unit responsible for operations. - Not Later than June 1986 furnish to the Bank, a 3.01 (d) FuLfiLLed with deLays plan of seminars and courses included in Part D. - Borrower to carry on operations and conduct its 4.01 (a) Not fulfilled. affairs in accordance with sound administrative, financial, engineering, ports and labor practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. - Labor rationalization plan 4.01 (c) Not fulfilled. (i) Study to be carried out (not later than December 31, 1987). (ii) Bank to be provided with opportunity to comnent. (iii) Plan of Action to be put into effect. - Refrain from acquiring additionaL Light cargo 4.02 (c) Not fuLfilled. handling equipment unless in a position to render services with said equipmient on terms and conditions equivalent to those provided by equipment rental conpanies. - Take all actions to enable arrangements for 4.03 Not fulfilled. handling liabilities under the Borrower's pension scheme (Section 3-02 of Guarantee Agreement). - Update regularly information on pension and labor 4.04 Not fulfilled on a obligations. timely or consistent basis. - Maintain records and separate accounts to reflect 5.01 (a) Not fulfilled. in accordance with sound accounting practices the Borrower's operations and financial condition.  - 22 - Continued... LOAN COVENANTS LOAN AGREEMENT SECTION STATUS Furnish audited financial statements 5.01 (b) Continuous delays, with the auditors no later than 4 months after the end abstaining from opinion and on the of each fiscaL year. 1990 statements issuing an adverse opinion. Carry out inventory & revaluation of 5.02 One preliminary revaluation carried fixed assets in operation each fiscal out in 1988, one inventory of fixed year by March 31 of the following assets carried out in 1991. year. - All measures to be taken to generate funds from internal sources to cover 5.03 (a) Not fulfilled. at least 35% of annual average Borrower's capital expenditures from 1986. - Adjustment of structure & level of 5.04 Not fulfilLed. Periodic proposals tariffs to reflect actual costs of for adjustment were never services by June 30, 1988. impLemented. - Review annually with the Bank 5.05 (a) Not fulfilled as stipulated, but investment plans for next 4 years. only occasionally. - Inform the Bank of any capital 5.05 (b) Colpuertos bought a trailer hopper expenditure over S2 million; and not dredge (US$11.5 million approx.) cofmfit itself to any capital without prior Bank agreement. This expenditure unless economically and 5.05 (c) purchase, and the operating costs, technically justified without adverse adversely impacted on the finances effects on its financial condition. of Colpuertos. c) Covenants of the Guarantor GUARANTEE AGREEMENT SECTION - Not later than June 30, 1987 3.01 Not fulfilled because of non- implement recomnendation of dredging implementation of the studies. studies included in part E.3. - Establish alternative mechanism to 3.02 Not fulfilled until law of 1991, cover pension obligations if law not when the Government took over passed. Colpuertos' liabilities for pension obligations with the liquidation of the Borrower. Take all necessary actions and give 3.03 all necessary approvals to enable the Please see comnents against Section Borrower to comply with Section 5.04 5.04 of the Loan Agreement, above. of the Loan Agreement (see above).  - 23 - 8. Use of Bank Resources. A. Staff Inputs (Weeks) STAGE OF PROJECT CYCLE FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 TOTAL - Through Appraisal 36.2 36.2 - Appraisal through Board 93.2 93.2 - Board Approval through Effectiveness 10.8 10.8 Supervision 7.3 20.7 16.4 31.1 29.2 11.4 11.1 127.2 TOTAL 36.2 93.2 18.1 20.7 16.4 31.1 29.2 11.4 11.1 267.4 B. Missions STAGE OF PROJECT NUMBER OF DAYS IN SPECIALIZATION PERFORMANCE TYPES OF CYCLE MONTH/YEAR PERSONS FIELD REPRESENTED 2/ RATING PROBLEMS STATUS 3/ 5/ Through Appraisal 03/83 - Appraisal 10/84 through Board 10/84 Approval 11/85 11/85 - Board ApprovaL through 02/86 1 4 EN 1 - Effectiveness 05/86 1 4 TS 1 TUU - Supervision 09/86 1 4 EN 1 10/86 1 EN 1 02/87 2 5 EN, EC 1 M 10/87 3 13 EN, EC, FA 1 T-M 03/88 2 18 EN, FA 3 F, M, P 07/88 2 17 EN, FA 2 F, M 10/88 3 12 EN, EC, FA 2 P 01/89 2 19 EN, FA 2 P 04/89 3 FRNA 1/ EN, FRS, PA FRNA 1/ FRNA 1/ 10/89 1 6 PS FRNA 1/ FRNA 1/ 04/90 2 14 PS, TRS 2 F 07/90 1 6 PS 2 F 10/90 1 3 PS FRNA 1/ F 12/90 2 7 PS, TRS 2 F 02/91 1 1 PS FRNA 1/ FRNA 1/ 04/91 1 18 EC 2 M 05/91 3 1 EC, PS FRNA 1/ FRNA 1/ 11/91 3 5 EC, PS 3 A, F, 1/ FRNA Full Report Not Available 2/ EC Economist; EN: Engineer; FA: FinanciaL Analyst; TRS: Transport Specialist; PS: Port Specialist 3/ 1 : No significant problems; 2: Moderate problems; 3: Major problems 4/ F : Financial; M : Managerial; P: Procurement, T: Technical, AA: Adverse Audit Report, TUU: Training unestablished.   - 25 - ANNEX Paap 1 o' 7 Comments by the Liquidator/Acting General Manager of the Borrower PORTS REHABILITATION PROJECT World Bank Loan Agreement 2635-CO Introduction On February 20, 1986, the International Bank for Reconstruction and Development and Empresa Puertos de Colombia (COLPUERTOS) entered into a loan agreement, which had the guarantee of the Government of Colombia, for partial funding of a ports rehabilitation project. This loan, identified as IBRD Loan No. 2635-CO, was designed to fund 71% of total project cost, estimated at US$60 million. The first stage of project implementation was marked by long delays, to the point that the initial studies on execution schedules and cost estimates for the various project components became invalid. In the circumstances, the Government, represented by the Ministry of Treasury and Public Credit, the National Planning Department and the Ministry of Public Works and Transportation, together with COLPUERTOS, proposed to the World Bank in 1989 that the loan be rescheduled, with extension of the execution period and a reallocation of proceeds among expenditure categories. The year 1989 thus saw the beginning of a new stage in project execution, supported fully by the abovementioned agencies. It was these entities which took the administrative and managerial steps that made it possible to continue with the various components of the project, at a rate acceptable to the Bank (which on several occasions indicated its satisfaction in this regard) and to comply with a good many of the loan covenants, as noted below: Proiect Management As required by one of the loan covenants, the Borrower set up the Ports Rehabilitation Project Coordination Unit, whose functions were specified in Order No. 000491 of October 23/89 and 041/91. Order 000493 of 1989 assigned responsibilities for management and supervision of the various project components and covenants detailed in the Loan Agreement. A further Order, No. 000492 of October 23/89, provided for establishment of a Project Operations Committee, assigning it the role of an advisory body to the Borrower as well as the following specific functions: to acquaint itself with and evaluate progress with overall implementation of the project, periodically and in a systematic manner; to pinpoint all situations and factors impeding normal project implementation; and to identify viable options for appropriate remedial action. COLPUERTOS was no stranger to the managerial and administrative problems typical of government departments and agencies. This factor, in conjunction with complex and time-consuming contracting practices and procedures, lack of experience - why deny it? - in administering projects of this type, and high staff tumover rates, interfered seriously with the taking of prompt, judicious decisions during the first stage of project implementation. This situation was rectified thanks to a joint commitment on the part of COLPUERTOS senior management and the authorities to implementation and completion of the project, an accord reflected in the volume of contracts awarded between 1991 and 1992 (for civil works contracts, as an example, refer to  - 26 ANNEX Page 2 of 7 Table No. 1). Steps to Recoup Lost Time A series of factors both internal and external to COLPUERTOS gave rise to unforeseen situations that impeded project execution and led to changes in initial execution schedules. In the second half of 1989, as a result of concerted efforts by the Ministry of Public Works and Transportation, the National Planning Department and COLPUERTOS, a return to normal project execution began, two of the main achievements being resolution of a series of legal, financial and technical difficulties that had arisen around various contracts, and streamlining of proceedings for the award of construction, purchasing and study contracts. In view of the need to ensure the co-financing of project execution, a rescheduling plan extending until the end of 1992 was drawn up and presented to the World Bank for consideration (letter No. 178608 of July 18, 1990). The proposed rescheduling/request for postponement until December 1992 was discussed at various meetings with World Bank missions. No formal response was ever obtained, although it was clear from working meetings with Bank missions, and from approval of the suggested rescheduling of project components - that there was de facto acceptance of the proposal. Results of Institutional Strengthening Component The objective here was to strengthen the managerial, operational and financial capability of COLPUERTOS. Contracting arrangements with consultants for the necessary technical assistance and study services were completed only at the end of 1989, under the following headings: improving port operations; feasibility and engineering design studies to equip selected ports with modernized systems for handling containers and bulk cargo; and expansion of port capacity. Since execution of these consulting contracts began only in 1990, their results or, in other words, progress with this component -were not observable prior to 1991 and 1992. In view of the promulgation of Law la of 1991, the World Bank recommended suspending the technical assistance arrangements for analysis, design, development and implementation of a comprehensive management information system. One of the objectives had been to set up a financial subsystem that would facilitate analysis and determination of the tariff structure, cost recording and analysis for accounting purposes, and budget formulation (inventory, capital assets, cash, taxation, etc.) - processes that it was anticipated would enable the institutional financial covenants incorporated in the Loan Agreement to be met. This suspension deprived COLPUERTOS of a tool considered to be indispensable as a means of providing the Bank with the kind of reports it expected and as a mechanism for monitoring progress with the project. To some degree, it also explains the shortcomings in the project accounts pointed out by the Audit Division of the Office of the Inspector-General of the Republic. Nevertheless, the infornation obtained from the consultants prior to the suspension, in conjunction with the study on medium- and long-term financial feasibility conducted by COLPUERTOS itself, provided a basis for governmental decisions on how to deal with the serious cost problem the agency was facing and what financial moves to make to eliminate it. It is worthwhile noting that the results of the studies on port improvement, modernization and expansion carried out as part of the project contributed significantly to formulation of a ports policy. This was the key requirement for the type of reorganization of Colombia's port system called for in the Maritime Ports Act (Law 01/91), which relies on the private sector to provide modern port infrastructure and  ANNEX - 27 - Page 3 of 7 operate it effectively and economically enough to give Colombian products a place on world markets. Training Procram In order to be able to meet its commitment to provide training for its personnel, COLPUERTOS applied for international technical assistance by entering into Agreement COL 86/005 with the United Nations. The executing agency named was the Office for Project Services. Administrative arrangements were entered into with a number of U.N. agencies such as ILO, UNCTAD and IMO to cover the international components of the training program. Finally, a Coordination Committee consisting of representatives of COLPUERTOS, UNDP and Colombia's National Planning Department was set up. Coordination of joint activities to be carried out by Colombian and international personnel was effected through UNDP. For purposes of execution of this project component, a schedule of disbursements was set up for COLPUERTOS and the World Bank. Two stages are clearly distinguishable in the history of the component: 1. First Period: This began with commencement of the project itself and lasted until revision "I" of the project document (January 1989 to July 1991). During this period, institutional technical training was provided in preparation for the massive technical instruction program targeting port personnel at all levels, and for the planned measures designed to improve the ability of the occupational health authorities to prevent accidents in the workplace. During this period, the Port Training School proposed as part of the project was established, with the approval of the National Board of Directors of COLPUERTOS, given as Resolution 0028A of June 22, 1989 with the result that training goals were exceeded by a wide margin. Under Order No. 000122 of March 5, 1990, local training committees were set up at each port. Under Order No. 000090 of February 16, 1990, the Central Training Board was established in Bogota, and objectives were formulated for the Port Training School. 2. Second Period: This began with port reforms (revision "K") in August 1991. Upon commencement of the port reform program, the initial project framework changed and activity was focused on preparations for establishment of the General Superintendency of Ports. This necessitated: studies on port operations and planning procedures; formulation of procedures and strategies for staff severance at COLPUERTOS; and determination as to what would be the best type of organization and structure for regional port corporations and port operating enterprises. Reorganization of COLPUERTOS Staffing Annex No. 2 to the Staff Appraisal Report recommended that in 1990 COLPUERTOS should have a staff of 8,202 individuals. However, the Board of Directors of COLPUERTOS, as part of the planned redistribution of functions and elimination of job positions, issued Resolutions like 008/90, which converted the Bocas de Ceniza office into a department answerable to the port of Barranquilla and eliminated some job positions, or like 009/90, which eliminated 159 unfilled positions at various ports and at headquarters. It was through these policies that the goals set by the Bank were achieved, as follows:  ANNEX Page 4 of 7 - 28 - Goals set by Size of Year World Bank Staff Difference 1988 8,603 8,420 (183) 1989 8,401 8,177 (224) 1990 8,202 7,776 (426) Under the Institutional Strengthening and Studies component of the project, COLPUERTOS launched programs focused on solving problems with port operations and on modernization of port infrastructure. These set the context which would be used in determining the optimal staffing figure for COLPUERTOS and incorporating it in a policy for the rationalization of staffing (and, by extension, of expenditure). With the promulgation of Law 01/91, which ordered the liquidatior of COLPUERTOS, the staffing rationalization study lost relevance, and the enterprise, applying the prescriptions of the Law, has been proceeding with staff severance plans. Achievement of Productivity Goals Comparison for 1990 of actual COLPUERTOS productivity figures with the goals set in Loan Agreement Schedule 6 gives the following results: BULK CARGO Metric ton/hour/winch PORT PRODUCTIVITY GOAL COLPUERTOS (WORLD BANK) PRODUCTIVITY Buenaventura 48.5 49 Cartagena 41.5 85 Barranquilla 35.5 39 Santa Marta 31.0 85 Source: Feasibility and engineering study on equipping ports with modem bulk cargo handling facilities, carried out by Frederick R. Harris of the HIDROTEC consortium.  ANNEX Page 5 of 7 - 29 - UNIFORM CARGO Metric ton/hour/winch PORT PRODUCTIVITY GOAL COLPUERTOS (WORLD BANK) PRODUCTIVITY Buenaventura 21 21 Cartagena 16 26 Barranquilla 14 27 Santa Marta 22 22 GENERAL CARGO Metric ton/hour/winch PORT PRODUCTIVITY GOAL COLPUERTOS (WORLD BANK) PRODUCTIVITY Buenaventura 12 18 Cartagena 12 25 Barranquilla 12 27 Santa Marta 15 27 Source: COLPUERTOS statistics for 1990. Inventory and Reappraisal of Capital Assets Here, COLPUERTOS commissioned a study on preliminary revaluation of capital assets, and on October 4, 1988 the World Bank acknowledged receipt of the contract document. Contract No. 19/91 was awarded to PRATCO, S.A., which executed the study, by conducting a physical survey of land, buildings, facilities and port operating equipment, and by making a technical appraisal of the shipping terminals of Buenaventura, Barranquilla, Santa Marta, Cartagena and Tumaco, as well as of headquarters. COLPUERTOS itself conducted a physical inventory of all movable property, office equipment, transportation equipment, and spare parts (for both office and transportation equipment). Social Liability Fund The Government, acting through the Ministry of Public Works and Transportation, introduced a Bill in Congress for establishment of a COLPUERTOS Pension Fund. However, as an opposing motion was introduced, the Bill was referred to Senate Committee No. 8. Althuugh it was agreed as part of the 1989-1990 Collective Labor Agreement to set up a special account for contributions to pensions, the contribution arrangements agreed upon met with strenuous opposition from port labor union officials and from the pensioners of Buenaventura. Under the Regulations issued pursuant to Law 01/91, Decree No.36 of January 3, 1992 was  ANNEX Page 6 of 7 - 30 - promulgated creating the Social Liabilities Fund of COLPUERTOS (in Liquidation) and prescribing its structure, organization and operations. Financial Reports for Loan 2635 CO - IBRD To implement the corrections recommended by the Office of the Inspector General of the Republic regarding COLPUERTOS' finiancial statements and those of the Loan 2635 CO - IBRD special account, the professional services of specialized accounting consultants were engaged. As a product of the study, two books with the data relating to implementation of this project were sent to the World Bank and the Office of the Inspector General of the Republic in May 1992, detailing: a. Breakdown of conversions (monetizaciones) and transfers in 1986-90. b. Breakdown of disbursements for the same period. c. Allocation of drawings and transfers by contract component. d. Summary of funds received and disbursements made. e. Table showing distribution of capitalizable interest, commitment fees and capitalizable expenditure among the different contracts partially financed by the World Bank. A further three books were then forwarded on June 26, 1992, with the following information: BOOK I. Statement of cumulative project investment and contracts up to December 31, 1991. BOOK II. Account of Banco de la Repiublica disbursements, transfers and conversions as of December 31, 1991. BOOK III. 1990 contracts adjusted to the 1991 exchange rate and amounts converted in 1991. These documents contain all the information required by the World Bank and the Financial and Operating Audit of the Office of the Inspector General of the Republic. It should be noted that all nonconverted amounts from previous years were included in Disbursement No. 29 and canceled by the World Bank. CANCELLATION OF LOAN 2635 CO - IBRD On March 26, 1992, the World Bank notified COLPUERTOS of its decision not to extend the closing date beyond February 28, 1992, on grounds of unsatisfactory accounting and audit procedures, notwithstanding the efforts that had been made to correct this situation and the progress achieved in the execution of the contracts included in the different components of the Ports Rehabilitation Project, and particularly the civil works. In order to cover the expenditures arising from the physical execution of the different contracts partially financed by the World Bank, the special account was not closed until some months later. In view of the importance of the civil works being carried out with cofinancing from international banks, and notwithstanding the fact that it is currently in liquidation, COLPUERTOS has  ANNEX - 31 - Page 7 of 7 diligently sought appropriate mechanisms which have enabled it to continue meeting its contractual commitments and thus ensure completion of the projects, which will contribute directly to the strengthening of the policy of modemization and intemationalization of the economy, which are key goals of the present government. --0--