Senegal - Dakar Fishing and Container Port Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14798 PERFORMANCE AUDIT REPORT REPUBLIC OF SENEGAL DAKAR FISHING PORT PROJECT (LOAN 1405-SE) AND DAKAR CONTAINER PORT PROJECT (CREDIT 1459-SE/SF 14-SE) JUNE 30, 1995 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EXCHANGE RATES Currency Unit = CFA Francs (CFAF) 1984 US$1.00 CFAF 392 1985 US$1.00 CFAF 449 1986 US$1.00 CFAF 346 1987 US$1.00 CFAF 301 1988 US$1.00 CFAF 298 1989 US$1.00 CFAF 319 1990 US$1.00 CFAF 272 1991 US$1.00 CFAF 282 1992 US$1.00 CFAF 265 ABBREVIATIONS AND ACRONYMS BADEA - Banque arabe pour le developpement 6conornique en Afrique DOPM - Direction de l'Oceanographie et des PEches Maritimes CCCE - Caisse Centrale de Coop6ration Economique CCEP - Centre Comptable des Etablissements Publics CFD - Caisse Frangaise de D6veloppement FAO - Food and Agricultural Organisation FOC - Financial Operations Comptroller GOS - Government of Senegal KF - Kuwait Fund for Arab Economic Development MTPT - Ministre des travaux publics et des transports OD - Operational Directive OED - Operations Evaluation Department PAD - Port autonome de Dakar PAR - Project Audit Report PB - Project Brief PCR - Project Completion Report PPAR - Project Performance Audit Report SAR - Staff Appraisal Report SONAPAD - Societe nationale du port autonome de Dakar TAC - Terminal A conteneurs TEU - Twenty Foot Equivalent Unit (container) TRP - Transport Department (Bank, Central Projects) TSAIP - Transport Sector Adjustment Investment Program WAPD2 - West Africa Regional Office, Programs Director, Department II WAPT - West Africa Regional Office, Transport Division Fiscal Year Government: January I - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 30, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Senegal Dakar Fishing Port Project (Loan 1405-SE) and Dakar Container Port Proiect (Credit 1459-SE/SF14-SE) Attached is the Performance Audit Report (PAR) on the Senegal: Dakar Fishing Port Project (Loan 1405-SE, approved in FY77) and the Dakar Container Port Project (Credit 1459-SE/SF 14-SE, approved in FY84), prepared by the Operations Evaluation Department. The main objectives of the projects were to develop facilities at the port of Dakar to accommodate increasing fish and container traffic and to continue to improve the finances, management, staffing and operations of the port authority, to make it an efficient corporation and, later, a sound government-owned stock company. These objectives were basically achieved. Civil works were satisfactorily implemented within the delays projected. Fish traffic is lower than expected but still well above what Dakar could have accommodated if the facilities had not been built. Container traffic is developing. Financial management of the port authority has been considerably reinforced, staff reductions have taken place, and greater cooperation with users is growing. However, Dakar Port's financial situation, which is sound, remains fragile after the devaluation of the CFA franc and the Audit advises that special attention be given to a recapitalization of the port authority. The positive results on both projects confirm that sustained efforts over a succession of projects are more effective than an isolated project. Another important finding is that Dakar Port is able to pay all indirect and direct taxes and duties, which is a better performance than most ports in Western Africa. The PAR rates the project outcome as satisfactory, its institutional development impact as substantial, and its sustainability as likely. 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 Contents Preface ............................................................ 3 Basic Data Sheets (to be provided) .. ....................................... 5 Evaluation Sum m ary ................................................. 9 1. Background ..................................................... 11 The Port of Dakar ................................................ 11 The Port Autonome de Dakar (PAD) ................................ 11 Port of Dakar Project (1967) ...................................... 12 2. Project Objectives, Design and Formulation .............................. 13 Identification and Formulation ........................................ 13 O bjectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Fishing Port Project . ......................................... 13 Container Port Project ......................................... 13 Preparation, Design and Components.................................... 14 Fishing Port Project . ......................................... 14 Container Port Project ......................................... 15 Project Appraisal . ................................................ 15 Fishing Port Project . ......................................... 15 Container Port Project ......................................... 16 Loan Conditionality and Board Approval ................................ . 17 General .................................................... 17 Fishing Port Project . ......................................... 17 Container Port Project ......................................... 18 (a) Conditions of Negotiations ............................... 18 (b) Lending Conditions.................................... 19 (c) Conditions of Effectiveness ............................. 20 3. Implementation ................................................... 21 Civil Works.....................................................21 Fishing Port Project..........................................21 Container Port Project.........................................21 Technical Assistance and Studies......................................21 Fishing Port Project..........................................21 Container Port Project.......................................... 22 Co-financing . ................................................... 23 Procurement ..................................................... 23 This report was prepared by Mr. A. Weckerle (Task Manager) and Mr. J. Grosdidier de Matons, (Consultant) who audited the project in April 1995. Mmes. Maryvonne Mauprivez and Stacy Ward provided administrative assistance. 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 wihout World Bank authorization. 2 Contents (Continued) 4. Borrower's Performance ............................................ 25 Compliance with Covenants ......................................... 25 Fishing Port Project ........................................... 25 Container Port Project ......................................... 26 Progress Reports ................................................. 27 Rating ........................................................ 28 5. Bank Performance ................................................. 29 G eneral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Appraisal and Supervision ........................................... 29 Compliance with Operational Directives (ODs) and Operational Manual Statements (OM S) . .............................................. 30 Project Files..................................................... 30 R ating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6. Project Results and Sustainability ..................................... 31 Physical Objectives ................................................ 31 Industry Objectives ................................................ 31 Economic Return ................................................ 31 Fishing Port Project ........................................... 31 Container Port Project ......................................... 32 Institutional Development Impact ..................................... 32 Fishing Port Project ........................................... 32 Container Port Project ......................................... 33 Sustainability ................................................... 35 Project Ratings .................................................. 35 7. Lessons Learned and Recommendations .................................. 37 General: Scope of institutional and operational appraisal ..................... 37 Studies and Technical Assistance ..................................... 37 Factors of performance: PAD's financial structure ......................... 37 Recommendation ................................................ 39 3 Preface 1. This is a Performance Audit Report (PAR) for (i) the Dakar Fishing Port Project (Ln 1405- SE), for which Loan 1405-SE for US$6.0 million was approved on April 19, 1977; and (ii) for the Dakar Container Port Project, for which Credit 1459-SE/SF-14-SE in the amount of US$2.65 equivalent from IDA and US$4.85 from the Special Fund administered by IDA was approved on April 17, 1984. 2. The main objectives of both projects, which were the second and third Bank Group projects for the port of Dakar, were to: (i) develop port facilities at the port to accommodate fish and container traffic; (ii) continue to improve the finances, management, staffing and operations of the port authority, the Port Autonome de Dakar, to make it an efficient statutory corporation and later a sound government-owned stock corporation. These objectives were basically reached. 3. The original closing date for Loan 1405-SE of June 30, 1981 was extended several times, to March 29, 1985 mainly for the completion of studies preparing the Container Port Project. At the closing date, US$5.64 million had been disbursed and the remaining US$0.36 million was canceled. Credit 1459-SE/SF-14-SE was closed on June 30, 1992 after three extensions from the original closing date of June 30, 1989, due mainly to delays in formulating and implementing management consultants' recommendations. It was fully disbursed. 4. The Project Completion Reports (PCRs) were issued for the Dakar Fishing Port Project, on March 30, 1987 (Report No. 6718); for the Dakar Container Port Project, on September 17, 1993 (Report No. 12327). 5. In the preparation of the PCR, OED reviewed the PCR, the Staff Appraisal (SAR) and President's Reports (PR), the legal documents, Bank files and consultants reports. They discussed the projects with Bank staff involved and/or working at present on Senegal transport projects. An OED mission visited Senegal in March 1995 and discussed project experience with the borrower, the implementing agencies and beneficiaries. The cooperation and assistance of all officials are gratefully acknowledged. 6. The PCRs provide a complete account of project preparation and implementation, with some contribution from the Port autonome de Dakar (PAD), the implementing agency. The Audit, in addition to verifying the findings of the PCRs focused the attention on Bank's approach to the financing of landlord port projects and on PAD's financial status and makes recommendations accordingly. 7. Following standard OED procedures, the draft PAR was sent to the Borrower for comments. No comments were received from the Borrower.  5 Basic Data Sheet DAKAR FISHING PORT PROJEFT (LOAN 1405-SE) Loan Position (Amount in US$ million) As of March 29, 1985 Loan Original Disbursed Cancelled Repaid Outstanding 1405-SE 6.0 5.64 .36 - Cumulative Estimated and Actual Disbursements FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 Appraisal 1.37 3.89 5.18 5.91 6.00 -- -- -- -- -- Estimate Actual 0 0 4.39 5.12 5.28 5.44 5.56 5.58 5.64 1.69 Actual as 74 85 88 91 93 94 % of 0 0 33 Estimate Project Dates Original Actual Initial Memorandum 12/30/85 Negotiations 11/87 Board Approval _ 12/08/87 Effectiveness (1st tranche) 06/16/88 06/06/88 (2nd tranche) 03/30/89 08/31/89 (3rd tranche) 06/30/89 (Cancelled) 09/30/89 Credit Closing 06/30/89 09/30/90 6 Mission Data Month/ No. of No. of Staff year weeks persons weeks Preparation 1 10/85 1.5 3 4.5 Preparation 2 06/86 3.0 6 14.0 Preparation 3 09/86 2.0 1 2.0 Appraisal 02/87 2.0 5 8.0 Preparation Post Ap. 01/88 1.0 1 1.0 Preparation Post Ap. 02/88 1.0 2 2.0 Supervision 1 03/88 1.0 1 1.0 Supervision II 05/88 0.5 3 1.5 Supervision III 07/88 2.0 5 9.0 Supervision IV 09/88 1.0 1 1.0 Supervision V 10/88 2.5 7 9.5 Supervision VI 01/89 2.0 2 4.0 Supervision VII 04/89 1.5 2 3.0 Supervision VIII 06/89 1.5 1 1.5 Supervision IX 10/89 1.0 4 3.0 Supervision X 03/90 1.5 3 4.5 Supervision XI 06/90 1.0 2 2.0 Supervision XII 09/90 1.5 2 3.0 7 DAKAR CONTAINER PORT PROJEFT (CREDIT 1459-SE) Loan Position (Amount in US$ million) As of March 29, 1985 Loan Original Disbursed Cancelled Repaid Outstanding 1459-SE 4.85 4.85 - Cumulative Estimated and Actual Disbursements FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 Appraisal estimate 0.7 3.2 6.4 7.4 7.5 - - - Actual 0.5 1.2 6.2 8.5 8.6 8.9 9.1 9.2 Actual 75% 38% 97% 115% 115% - - - Project Dates Original Actual Identification 1982 1982 Negotiations 2/1984 2/1984 Board Approval 4/17/84 4/17/84 Effectiveness 10/20/84 1/18/85 Credit Closing 06/30/89 06/30/92 Staff Inputs (staff weeks) Preparation 28.5 Appraisal 81.7 Negotiations 13.1 Supervision 57.5 PCR 8 Total 188 8 Mission Data Month/ No. of No. of Staff year weeks persons weeks Preparation 82/83 1.5 3 4.5 Appraisal 83/84 2.0 4 8.0 Supervision I 84 1.0 1 1.0 Supervision II 85 0.5 3 1.5 Supervision III 86 2.0 3 9.0 Supervision IV 87 1.0 3 1.0 Supervision V 88 2.5 4 9.5 Supervision VI 89 2.0 2 4.0 Supervision VII 90 1.0 1 Supervision VIII 91 2.0 2 Supervision IX 92 3.0 3 9 Evaluation Summary Background 1. The port of Dakar handles some 5.6 million tons/year. In 1977, the lack of a dedicated fishing port (fish traffic 80,000t) caused congestion in the commercial port and hampered management and supervision of operations. Also, many facilities had become obsolete as container traffic was developing and the port lacked dedicated container facilities. The port was managed as a landlord port by the Port Autonome de Dakar (PAD), a statutory corporation, in charge of infrastructure and marine services. Cargo handling, storage, towage etc were conducted efficiently by the local private sector. The Bank had assisted PAD with a loan in 1967 for extension and rehabilitation of facilities; the project had been successful and the rate of return higher than projected at appraisal. Institution building had been generally successful, PAD being one of the best managed of all statutory corporations. Sustainability was uncertain; finance and general management still needed to improve. In 1977, Government supervision had become tighter; finances and accounting of statutory corporations had been centralized in one government agency; PAD had no control on its cash reserves; receivables, mainly from the public sector, were accumulating (PAR, paras. 1.1 to 1. 7). Project Objectives, Design and Formulation 2. The Fishing Port Project (April 1977) aimed at (i) providing port facilities for a projected fish traffic of some 300,000t in 1990; (ii) ensuring control of fish landings and management of the fishing port; (iii) helping the development of the fishing industry; and (iv) planning for the construction of a container terminal. The Container Port Project aimed at (i) reducing freight costs for the external trade through development of containerization; and (ii) strengthening PAD's management (improvement of efficiency of operations, development of financial management systems, data processing and training, increased autonomy with a possible change in legal status). The objectives, albeit sound, lacked focus and precision (PAR, paras. 2.1 to 2.6). 3. Consultants helped designing the physical items of the projects; the design was satisfactory. The design of institutional development components was well geared to project objectives in the Fishing Port Project, less so in the Container Port Project. Project appraisal was thorough, but the details of cargo-handling and other operations would have been needed in the appraisal of the Container Port Project (PAR, paras. 2.7 to 2.17). Loan and Credit Conditionality 4. Conditionality of both projects aimed at (i) developing PAD's autonomy and reinforcing its finances, by providing more exceptions to applicable rules of supervision, reducing receivables, converting part of PAD's cash deposits in the Tr9sor in interest-bearing bonds, compensating reciprocal debts between the Trisor and PAD, and establishing cost accounting systems and cost based tariffs; (ii) reinforcing PAD's internal management (multi-year Plan of Action); (iii) changing its status from that of a statutory corporation to that of a stock company; and (iv) ensuring PAD's adequate monitoring of the operations of private port operators. A 6% rate of return on fixed assets was covenanted. The Audit considers that the conditionality of both projects was coherent from one project to another, but has reservations on the elaboration and wording of covenants; the rate of return was on the high side for a landlord port. Also, as the Government agreed in the Credit Agreement to relax supervision over PAD, it nevertheless introduced legislation in parliament which reinforced control (paras. 2.18 to 2.29). 10 Project Implementation 5. Physical items of the projects were implemented adequately and in time. The international contractors performed well but not the local contractors, which caused additional costs. Supervision by consultants and PAD staff was good. Costs were adequately controlled. Progress on financial and management rehabilitation was slow. Detailed identification of the necessary measures took time; the work was finally done, well beyond the original completion date (PAR, para. 3.1 to 3.13). 6. Not all covenants were complied with. PAD was transformed in a 100% government-owned company; even so, its autonomy is limited. Cash shortage in the Trisor prevented the conversion of cash deposits in Treasury Bonds. Receivables went up, not down. Reciprocal debts were compensated, much to the benefit of the Trisor, Government being strict on PAD's tax liability and actual payment. PAD's financial, management and tariffs systems were improved as covenanted. The financial rate of return was obtained until 1989-1990 when it declined below the percentage covenanted. Mainly, PAD no longer agrees with the relending conditions; they consider the interest rate to be too high, specially after the 100% devaluation of the CFA franc. Overall, however, the Audit considers that the performances of both Government and of PAD, which operated under difficult conditions, were generally satisfactory (PAR, paras. 4.1 to 4.14). 7. The Bank deployed the necessary efforts for the success of the project, both through headquarters staff and through its resident representative in Senegal. Reports were complete and the Audit found no deviation from standing instructions; the Audit rates its performance as satisfactory. However, the Bank erred strongly in its projections for fish traffic; it also did not take an accurate measure of PAD's financial and management problems; a better treatment of legal issues would have been of order (PAR, paras. 5.1 to 5.6). Project Results and Sustainability 8. Fish traffic projections, originally viewed as conservative, did not materialize. Traffic reached 190,000 t in 1994 vs 320,000 t projected, still 100% above traffic before project implementation. The project has a substantial impact in terms of added value to the economy and is financially profitable; it was instrumental in relieving congestion at commercial berths and permitting a better management of fishing port operations. Traffic at the container terminal is some 15% below projections; the economic rate of return projected has been reached, as productivity is higher than expected. There are indications that freight rates were reduced following the project, because it increased the number of operators and therefore developed competition. Institutional improvements were obtained. PAD has now a modem accounting and financial system; port users and PAD seem to cooperate well. The projects have a satisfactory outcome; their institutional impact is substantial. They are likely to be sustainable but much depends, however, on government policy regarding PAD (now SONAPAD)(PAR, paras. 6.1 to 6.13). The PAR confirms the PCR ratings for the Container Port Project. It rates the outcome, institutional impact and sustainability of the Fishing Port Project higher than the PCR (PAR, paras. 6.1 to 6.13). Recommendations 9. PAD (SONAPAD) provided cash resources to the Tr6sor to balance the deficits of other statutory corporations and nationalized industries and paid major amounts in the form of taxes, an exception among ports in Africa, including those who have been beneficiaries of Bank/IDA loans and credits. It is recommended to recapitalize SONAPAD to provide it with a sound financial structure (paras. 7.3 to 7.11). 11 1. Background The Port of Dakar 1.1 Senegal, with Dakar, its capital, is located at the extreme western part of the African continent. The country is a transit place in the region for air and shipping lines. With a traffic of 5.6 million tons, Dakar port was, in 1977, the third most important port on the West African coast, after Lagos and Abidjan. Traffic was mainly i) Senegalese imports and exports, of which 75% was dry and liquid bulk; ii) transit traffic to and from landlocked Mali (0.3 million tons); iii) fish traffic for local consumption, storage before re-export and as raw material for processing plants (0.3 million tons); and iv) ship traffic for bunkering, maintenance and repairs, a declining activity since the Suez canal had reopened in 1975 after eight years of closure, and because of competition by neighboring Las Palmas in the Canary Islands, where bunkers were cheaper 1. Lastly, despite large floating and dry docks and repair facilities, Dakar has not been able to establish itself as a major ship repair center. 1.2 The port of Dakar is protected by breakwaters and has 42 cargo and petroleum berths. It is landlocked by the city; its main commercial areas are separated by the ship repair zone; road traffic in and out the port uses the congested main streets of the city. The cargo mix requires different types of facilities, some of which had been rendered obsolete by the recent development of containerization and roll on-roll off. The fishing port area was too small, fishing vessels being accommodated whenever a berth was available in the commercial port, with associated road congestion related to ship loading and unloading, inadequate control movements of vessels and cargo, pollution, etc. The Port Autonome de Dakar (PAD) 1.3 Dakar port is a landlord port. The port authority, the Port Autonome de Dakar (PAD) develops and maintains all port facilities; provides marine services and pilotage; regulates private sector activities through licenses and concessions; and has authority to coordinate government agencies operating in the port (law and order police, customs, health, etc). Private companies conduct, cargo handling and storage, towage, etc; they lease land, sheds and facilities from PAD, employ dock labor and use their own cargo-handling equipment. Except for dedicated berths such as bulk oil, chemicals and phosphate rock berths, all berths are common user. 1.4 PAD was established as a statutory corporation in 1959-1960. In 1977, it was administered by a board of 17 directors, 15 representing government, 2 only the users. The Chairman and the General Manager were Government appointed. PAD's performance was generally satisfactory. But strict government procedures and supervision applied (as regard procurement, tariffs, commitment of expenses, etc). Management, where the engineering profession was prevalent, was not commercially oriented, not surprising since PAD, as a landlord port, had little commercial activity. Engineering performance was good, but maintenance was uneven; finance, economics and marketing were weaker; marine services, harbor master's office, daily control of ships and port users, etc., needed improvement. Operating performance by the private sector was good, despite a strong and increasing dock labor union impact on labor recruitment and on the daily organization of dock work. Bunker fuel exports, well representative of the bunkering function, declined from 1.0 million tons in 1973 to 375,000 t in 1978 and 120,000 t in 1987. 12 Port of Dakar Project (1967) 1.5 The Bank assisted PAD with Loan 493-SE (1967), for US$ 3.5 million to finance the extension of one general cargo berth, dredging and rehabilitation of facilities. The institutional building effort was substantial. Loan conditionality aimed at (i) asserting PAD's regulatory jurisdiction over private operators; (ii) developing PAD's accounting, auditing and management along corporate lines, with a relaxation of a priori government clearance of procurement decisions; (iii) improving financial discipline through cash flow and rate of return covenants; (iv) developing training of management, and implementing a staff attrition program; and (v) adding a Republic of Mali representative to PAD's board of directors. PAD statutes (finances and accounting) were modernized and PAD was given increased autonomy from government supervision. The project was successfully implemented, albeit with delays; the loan was closed in mid 1973. The economic rate of return was higher (40%) than projected (12%), project costs being lower and bunker traffic higher because of Suez Canal closure; but cargo traffic was 20 percent lower than projected. 1.6 PAD was considered as one of Senegal's best managed statutory corporations. Still, the PCR (August 1974) reported that, in a country-wide effort to better monitor government corporations, Government had restricted its autonomy (72-48 Act, June 12 1972 ') without consulting with the Bank as covenanted. PAD statistics, record keeping and accounting were now centralized in the Statutory Corporations Accounting Center (Centre comptable des 6tablissements publics - CCEP); billing was months behind and PAD not even kept informed of its actual financial situation; statistics were up to more than one year behind. All financial operations were now subject to a priori authorization of a Financial Operations Comptroller (FOC). The Bank had requested Senegal to issue a special decree to adapt the implementation of the legislation to PAD's case, as permitted by the 72- 48 Act. Decree 73-779 granting exceptions was issued in 1973; it was not enforced. 1.7 The PCR also reported that: (i) the covenanted 6% financial rate of return may have been too high for a landlord port which does not draw revenue from profitable cargo-handling, has plenty of low value traffic such as minerals; and operates in competition with heavily subsidized Las Palmas; (ii) PAD's management efforts were hampered by the poor performance of other agencies (police, railways, Customs) operating in port premises; (iii) accounts receivables were 23% of gross operating revenue, while Supplemental Letter No 4 had stipulated a 15% ratio of receivables to revenue; (iv) PAD's autonomy was limited by the a priori authorization of commitments; and (v) PAD's cash reserves were held as non-interest bearing deposits with the Trdsor acting as the only cashier for all government departments, agencies and statutory corporations '. The Bank raised these points with Government; they were to be followed up in future projects, already identified (para. 2.1). Altogether, (i) the outcome of the Dakar Port Project was satisfactory; (ii) the institutional impact was substantial; and (iii) sustainability, specially of institutional outcome, was uncertain. The project was audited. The Audit Memorandum (Dec 16, 1974) stated that it had been successful and that the borrower had satisfied loan conditions. This Audit considers that the Government's benign neglect for loan conditions regarding PAD's autonomy should have been a cause of concern for the future. 2 Act 72-48 (June 12, 1972), Decrees 72-842 and 965 bis. These repealed provisions in Act 66-27 (May 12, 1966), Decrees 66- 353 (May 16, 1966) and 66-413 (June 10, 1966) under which covenants in Loan Agreement 493-SE (1967) had been constructed. As early as 1973, the Bank had analyzed, in its five volumes report on The Economy ofSenegal that PAD was one of the three statutory corporations which registered "increasing net surpluses" and financed the deficits of all others. These deficits were "largely due to the absence of a firm policy by Government vis-a-vis these enterprises which are often poorly staffed and managed" (see Report 212-SE, Annex One, at paras 24 to 35 and 41). Apparently nothing had changed in 1977 and in 1983, when the projects under review were appraised. 13 2. Project Objectives, Design and Formulation Identification and Formulation 2.1 The last supervision and PCR missions (June/August 1974) for the Dakar Port Project identified needs for new facilities: (a) for fishing vessels which called in increasing numbers and caused congestion at general cargo berths; and (b) for container traffic which was rapidly developing and could not use old breakbulk berths (para. 1.2). A master plan had been completed; detailed engineering was necessary. There was a basis for two successive projects, one focused on fish traffic and on the design of a container terminal, and the second on construction of the terminal. Objectives Fishing Port Project 2.2 The Fishing Port Project (April 1977) aimed at (i) providing dedicated facilities allowing for the expected rapid expansion of the fleet over the next ten years; (ii) ensuring control over fish landings and exports and deriving adequate revenue from them; (iii) ensuring the non-restricted development of the fishing industry, with a plan of action for development of the fishing sector; (iv) planning the construction of a container terminal. 2.3 The Audit considers that the objectives of the Fishing Port Project were relevant to country's priorities but incomplete as regard PAD's autonomy (para. 1.6). The only financial autonomy enjoyed by PAD was the use of a small (US $ 33,000 equivalent) Revolving Fund for minor urgent expenses. The Bank tried to reconcile Government's policy of increased scrutiny of all statutory corporations with the regime applicable to PAD, but did not assess whether restrictions on PAD's autonomy were justified by PAD's own management. Container Port Project 2.4 The Container Port Project (March 1984) aimed at (i) reducing freight costs for Senegal's external trade and enhancing Dakar's position as port of transfer for neighboring countries through provision of container facilities; and (ii) rehabilitating and strengthening PAD. This would be obtained through (a) improved efficiency of port operations (cargo handling, dwell time of containers in storage areas, customs procedures, security); (b) improved data processing and management reporting; (c) development of personnel management and training; (d) reorganization of budgeting and accounting; and (e) increase of PAD's autonomy. 2.5 Objectives were in line with the on-going Technical Assistance Project to the para-public sector (Cr 1060-SE, 1980). Bank management considered that "by project end, the Port would function on a nearly fully commercial basis, with a possible change in its legal status" 4. The need to "rehabilitate" PAD and strengthen it under this project reflected less a recent deterioration of PAD's management, than PAD's somewhat weaker internal management than had been previously estimated. 4 West Africa II Programs Director to Vice-President, West Africa, Jan 13, 1984 (transmission of Loan Committee drafts). 14 2.6 The Audit considers that the relevance of the broad objective to reduce freight costs was not established since the level and components of freight rates had not been appraised. The mention that the port authority should operate "on a nearly full commercial basis" did not exactly reflect the situation. PAD (paras. 1.3 and 1.4) had no commercial activities; as a landlord port, its main objectives was less to operate commercially than to create the conditions under which private operators could operate commercially to optimize the use of port authority-owned port facilities. Objectives should then have been formulated more precisely, distinguishing between (i) objectives related to PAD's regulatory role; (ii) objectives related to PAD's internal management, which needed to be of the corporate type, rather than government; and (iii) objectives that PAD might have in marketing the port of Dakar as a shipping and services center, where it could play a so-called commercial role. The uncertain semantics of the objectives may reflect some lack of clarity of their definition. Preparation, Design and Components Fishing port Project 2.7 The Fishing Port Project was based on consultant studies, monitored by PAD for engineering, and by the Fisheries Department (Direction de l'Oc6anographie et des P6ches maritimes - DOPM) for traffic. Fish traffic had been 80,000 t in 1975. Based on fish resources, forecasts of demand, the Government's fisheries policy (territorial waters and 150 miles economic zone), traffic in 1983 was estimated at 218,000 t and 1990 traffic at 318,000 t. All agencies and experts considered these figures as conservative. Based on these projections, the January 1976 Project Brief (PB) stated that the lack of adequate facilities was the only impediment to traffic development. Engineering and design being straightforward, the PB focused on the institutional issues of (i) delays in billing and payments caused by the centralization of PAD's accounting function in CCEP; (ii) the absence of cost accounting at PAD; (iii) the need to develop a system of fishing port management. 2.8 Project components were: (a) Civil works: (i) construction of 1,495 n of new berths; (ii) reclamation of 10,5 ha of land; and (iii) paving, buildings, services and access road; (b) Technical assistance for: (i) supervision of construction; (ii) PAD's management and operations and planning of fishing port management; (iii) introduction of cost accounting and preparation of cost-based tariffs for PAD; (iv) introduction of ad valorem tariffs for fish; and (c) Consulting services for (i) preparation of the container port project; and (ii) a study of industrial and traditional fisheries and related activities, with a ten-year sectoral plan of action. Identified by the Food and Agricultural Organization (FAO) after project appraisal, the latter item was added after Yellow Cover Stage with the objective of 'putting some order in the maze of development programs... requested to many donors by the Senegalese... and cutting it down to afew down-to-earth projects" 1. Despite that this item was not appraised, the Audit finds reasonable its insertion in the 5 FAO to Bank, Oct 29, 1976, Loan 1405-SE Files, Vol. III. 15 project, as complementary to the earlier Fishing Port Studies (para. 2. 7). But it is questionable whether it should have been financed by PAD through the Credit (including interest differential), since Government derived revenue from the fishery industry (licenses). 2.9 Project design was satisfactory and well balanced and related to project objectives since it included both the construction of specialized facilities and the set-up of a specific management system. Ad valorem tariffs rather than cost based tariffs were innovative in a Bank port project. Such tariffs are well adapted to fish traffic. Before appraisal, Bank staff visited major fishing ports in Europe to ascertain that project design was adequate, specially as regard management and tariffs. The location of the fishing wharf in the middle of the port area has been later criticized but no other location was available when the project was designed. Container Port Project 2.10 The container port project was based on consultant studies conducted under the Fishing Port Project. Alternative locations in the port area were reviewed before selection of the site. As regard operations, the limited measures incorporated in project design did not cover all identified problems regarding customs, police, pilferage, dwell time of containers and dock labor. No port operations specialist was assigned to project design. PAD staff and technical assistants were recruited from the civil service and had little direct experience of operations. 2.11 Project components were: (a) Construction of 430 m of quay for two container vessels, with associated dredging (-12 m); reclaiming of a container storage area (8.2 ha); services, and road connections; (b) Rehabilitation and deferred maintenance of port facilities; and (c) Consulting services and technical assistance for (i) supervision of construction and training in supervision; (ii) a study of container terminal management, with training of PAD personnel; (iii) financial management and the study of a new tariff structure; (iv) the introduction of computerized management information systems; and (iv) associated training. Project Appraisal Fishing Port Project 2.12 The project was appraised in March 1976 with the assistance of two experts who had participated in the earlier studies. For the economic appraisal, they proposed to use an impact approach that would have computed the added value accruing in the economy from incremental fish catches generated by the investment, a methodology that had been used by the Bank in earlier fishing 16 port projects . The Bank differed and identified project benefits as (i) savings in fish handling costs, freezer cargo time, transshipment costs, waiting time of cargo ships, etc, (typically some 67% of benefits); ii) benefits accruing from the development of the processing industry (30% of benefits); and (iii) benefits from additional fuel sales by ships calling at Dakar (3% of benefits). Based on the conservative traffic projections (para. 2.7) and on an elaborate economic appraisal, the economic rate of return was estimated to be 23% (17% for Senegal). The risk was estimated to be nil since fish resources off the coast permitted 900,000 tons of catches annually without stock depletion. 2.13 There was no separate financial appraisal of the fishing port; whether it would be financially viable was unknown. The Audit considers the financial appraisal incomplete on that point. As regard PAD, the financial appraisal reflected Bank concern regarding (i) the magnitude of receivables; (ii) Government debts to PAD for maintenance of coastal lighthouses outside port limits, for the Dakar- Gor6e island ferry service and for other services rendered by PAD to Government or to the Dakar municipality; and (iii) the deposit of PAD cash, interest-free, in the Trisor (para. 1.7). It was proposed that the future management of the Fishing Port be shared between PAD and DOPM. This may have called for changes in PAD's legislation, but the appraisal did not identify that issue. Container Port Project 2.14 Appraisal took place in April 1983. An experienced consultant analyzed the distribution of tasks between PAD and the private sector; the inherent benefits and limitations of the landlord port system were identified. The private sector operating under competition was considered efficient; but PAD's limited involvement in operations (and, as the Audit considers from the record, the experience of its staff and the capacity of some of PAD departments) did not permit to monitor operations, to take corrective action when necessary and to have a strategic view of Dakar's commercial future. 2.15 A 23% economic rate of return for Senegal was predicted, based on savings on ship service time, handling costs and the avoidance of the existing double transport of containers in the port. The estimate was conservative, since i) only 50% of benefits on ship time was allocated to Senegal; and ii) out-of-port benefits (speed of delivery, reduction in cargo losses, etc) were not considered. 2.16 The financial appraisal elaborated on the financial performance and supervision of the Fishing Port Project. A considerable if undetermined amount of reciprocal debts between Government and PAD was identified, resulting either from Government not billing PAD properly, or from PAD failing to pay taxes. The appraisal focused on (i) full cost recovery, implying tariff increases; ii) payment of all taxes by PAD; iii) payments by debtors, specially by the public sector, and compensation of reciprocal debts with the Tr9sor; iv) total elimination of a priori Government authorization of PAD expense commitments; and v) first steps to be taken towards freeing PAD cash reserves from the currency pool at the Treasury. The Minister of Finance agreed on points i) to iii). However, it 6 In Yemen (PDRY), 2d Fisheries Development Project, Cr 932-YDR, 1979, project cost was US$ 48.5 million of which 41.0 were for port and other infrastructure; the economic return was based on gross value of fish production. In Yemen (YAR) Fisheries Development Project, Cr 1025-YAR, 1973, cost was US$ 24.0 million of which 14.3 were for port facilities; the economic return was computed on the basis of the value of incremental fish production. In Panama, Fishing Port Project, Ln 1114-PAN, 1975, project cost was USS 38.0 million for port facilities. Computation was based on (i) benefits to shrimp fishermen from additional catches; (ii) revenue earned by port authority from additional ship calls; (iii) benefits from net value added in the local economy; and (iv) benefits from the release of urban land for other purposes. But in the Port of Pisco Project in Peru, Ln 446-PU, 1966, the economic return was strictly based on savings on transport costs. 17 notified the appraisal mission that PAD, as a statutory corporation, had to follow established statutes on control of its financial operations; and that "managerial autonomy did not mean cash independence". This set the limits in which the appraisal mission had to operate. 2.17 The Audit formulates the following evaluation of the appraisal: (a) it was complete in all matters that it covered, but fell short of appraising the road access to the Port of Dakar, which proved later to be inadequate; (b) it adequately identified the main management issues, and the limitations imposed by the legislation applicable to all statutory corporations; the solutions proposed (an Action Plan (footnote 9(iii)) and changes in legislation were adequate, but the delay of implementation was underestimated (para 3.10); (c) as the Fishing Port Project, it lacked a financial appraisal of the container terminal, despite that consultants had conducted such an appraisal; and (d) the appraisal did not review port operations by the private sector, nor PAD's performance in monitoring operations, despite the fact that the development of containerization was likely to have a significant impact. Loan Conditionality and Board Approval General 2.18 Conditionality followed up on the improvements obtained under Loan 493-SE and was mainly to (i) develop PAD's autonomy, which had eroded over time; (ii) reinforce PAD's internal management; and (iii) ensure PAD's adequate monitoring of the operations of private operators. Generally, conditionality was consistent from one project to another and with the subsequent project, Credit 2266-SE (FY 1992) for adjustment of the transport sector. Details follow. The Audit finds that the Bank had to retreat on many points which it had considered important at the outset. It has reservations on that retreat process and the way it was handled and recorded in the legal documents. Fishing port Project 2.19 The Bank found that Senegal, by limiting PAD's financial autonomy, was in default on Supplemental Letter No 4 to Loan Agreement 493-SE. In the Decision Memorandum (May 18, 1976), the Bank's position was that: i) Government should agree to give PAD its own computer capacity for accounting, statistics and management information (condition of negotiations); and ii) financial autonomy should be given back to PAD (condition of effectiveness). The Minister of Public Works and Transport (Ministre des Travaux publics et des Transports, MTPT) "agreed in general" to the Bank's 'proposals"; whether this committed the Minister of Finance is not documented. The MTPT indicated that PAD would be authorized in future to establish a remote station, for direct entry of data, through a telephone, in CCEP computer system; and confirmed to the Bank the latest statutes on relief of a priori authorization on some of PAD's financial operations (para. 1.6). The Bank did not comment; no internal legal opinion was issued to state whether this satisfied conditionality under LA 494-SE, still applicable, and whether this would be satisfactory for future operations. 2.20 Not long after the Decision Meeting, an internal Bank comment on the Yellow Cover Staff Appraisal Report objected to the effectiveness condition, since "a decision on .... PAD financial autonomy can be taken only after the recommendations of the June 1976 public enterprise mission "7. The condition of effectiveness and, for unknown reasons, the conditions of negotiations were in fact Office Memorandum, August 18, 1976, Loan 1405-SE Files, Vol III. 18 dropped informally and not reported upon in Loan Committee documentation (Oct. 7, 1976). The report to the Loan Committee concentrated on the reduction of receivables, for which a program was to be agreed at negotiations. 2.21 The Government undertook in the Loan Agreement (i) to fully implement Decree 73-779 providing exception to applicable rules of control over PAD, left unimplemented for the last four years; (ii) to take all measures to maintain the existence of PAD and PAD's right to carry on its operations; and (iii) not to materially and adversely affect its management or operation of PAD's nor modify its governing legislation and statutes without the consent of the Bank. But, barely two months after loan signature, the National Assembly passed a major legislation (77-89 Act) on financial control of statutory corporations. This resulted in a much stricter a priori control than the existing one, that the Bank had considered excessive and tried to correct through the implementation of Decree 73-779. 2.22 The Audit could not locate a Bank review of and legal opinion on the 77-89 Act; it was not established, therefore, how its promulgation would affect, the validity and/or the implementation of the Loan Agreement. Given that in Senegal the executive branch has the initiative of bills, it can be assumed that the bill for the 77-89 Act was being drafted as the loan agreement was being signed. The Borrower had failed to inform the Bank accordingly. The Audit considers that the Bank's follow up of legal developments was unsatisfactory. Since the loan was not effective yet, the matter should have been raised immediately with the Government. 2.23 After negotiations, Bank staff reported that "all issues were settled with Government", not a surprising outcome since conditionality had eroded without clear management decisions. The issues of public sector management in Senegal may have justified a deviation from Bank policy regarding the autonomy of port management, and the acceptance of a default over earlier commitments, but the decision process was inadequate. Lastly, the Public Sector Review, invoked as a justification for delaying a decision on PAD's financial autonomy, seems to have played no role in that respect. 2.24 The covenanted rate of return on fixed assets was 6%, to be reduced to 4.75% when PAD, which enjoyed a temporary tax exemption during project execution, would be liable for income tax again. 25% of PAD's surplus cash maintained interest-free with the Treasury were to be converted into interest-bearing Treasury bonds as a step towards independence of cash management. The format of progress reports was agreed (Supplemental Letter No 3); the model used, borrowed from an earlier project, was not fully adjusted to report in detail on Dakar-specific issues, but it was generally satisfactory, although quite elaborate. Container Port Project (a) Conditions of Negotiations 2.25 The Decision Memorandum concentrated on PAD's financial situation, autonomy, and operations '. Conditions of negotiations were to be (i) the establishment of a separate account at the Tr9sor, as a Revolving Fund to pay project-related expenses without a priori authorization, "as a basic Decision Memorandum, May 27, 1983, Cr. 1459-SE Files, vol. V. Technical issues regarding the inclusion of taxes in project costs and a request by a co-financier that the civil works contract be a fixed price contract were settled and need not to be reported upon in detail by the Audit. 19 step towardsfull autonomy"; (ii) raising the ceiling of the Revolving Fund for current expenses (para. 2.3) to CFAF 100.0 million (US$ 330,000); (iii) with the assistance of consultants, the design of emergency measures for handling containers; (iv) tariffs adjustments and the completion of a tariff structure study as of July 1, 1983; (v) communication of a draft PAD/Government agreement for settlement of receivables and compensation of reciprocal debts. 2.26 The Revolving Fund for project expenses was established. Tariffs were adjusted as from July 1, 1983, but the tariff structure study was not even started by that date. Emergency operational measures were prepared, only because the consultants accepted to work without contract or advance payment. There is no evidence that conditions (ii) and (v) were met. Nevertheless, the West Africa Programs Department 2, by early 1984, recommended to call for negotiations; it considered that the only condition of negotiation not satisfied yet was the recruitment of financial experts, that was not, however, such a condition. (b) Lending Conditions 2.27 Bank Senior Management instructed the Region to seek changes in PAD statutes to secure increased autonomy, PAD becoming a 100 percent government-owned stock company. 2.28 Negotiations took place in February 1984. Section 4.04 (a) of the Project Agreement stipulated a 6% rate of return on PAD's fixed assets, starting fiscal year 1987-1988. The Credit and Project Agreement stipulated the maintenance of a special project account (para. 2.25), the transfer of 30 percent of PAD's revenue to that account and the opening of a PAD account in a commercial bank, so that PAD could have some control over part of its cash and smoothly pay its suppliers. The covenant under Loan 1405-SE on conversion of part of PAD's cash in interest bearing Treasury bonds was not carried forward in the conditionality of Credit 1458-SE, PAD concentrating on securing the necessary cash flow for its operations, investments and renewal of equipment,a reasonable approach. PAD was to take all necessary measures to reduce its accounts receivables to covenanted levels at covenanted dates; a satisfactory agreement should be concluded between the Government and PAD for the full settlement of reciprocal debts before June 30, 1987. The Audit considers that these arrangements were the best obtainable; but it has reservations on the wording and substance of some 20 of the Credit Documents '. These reflected a compromise, specially since co-lenders were anxious to start the project. In a separate letter, the Borrower committed itself to review with the Bank the suitability and modalities of change in PAD's legal status from a statutory corporation to a government-owned stock company, which would introduce more flexibility in management. (c) Conditions of Effectiveness 2.29 As a condition of effectiveness, (i) all reciprocal debts as of December 31, 1983 would be filly settled by June 30, 1987; and (ii) "appropriate arrangements" would be made to ensure settlement of reciprocal debts arising between January 1, 1984 and June 30, 1985. Bank missions helped PAD and Government to come to agreement to permit effectiveness, which nevertheless was delayed. The Audit finds that the agreement was worded in uncertain terms as to the date at which the settlement would be complete. This effectiveness condition confirmed a posteriori that the condition of negotiations relating to debt settlement (para. 2.28) had not been satisfied. As regard the effectiveness period, Bank missions reported that "PAD is to be complimented on their well- coordinated and methodical preparation for the upcoming project", on which the Audit agrees. 9 (i) Supplemental Letter No 2 (Representations) dated June 22, 1984 is based on financial statements dated June 1981, three years before, which makes irrelevant the statement, in the Letter, that there had been, since that date, "no change which had adversely affected PAD's financial condition and that "PAD has no outstanding....liabilities, including taxes, which might materially and adversely affect itsfinancial condition". In fact, all parties to the Agreement knew that PAD was a debtor of taxes for a substantial amount; (ii) Section 1.02(a) of the Development Credit Agreement defines PAD's statutes for the purposes of the Agreement, listing decrees from 1967 to 1974, including Decree 73-779 of August 13, 1973, granting exceptions to measures of control (para 1.6 supra), and a subsequent 74-138 Decree. The wording of Section 1.02(a) was obsolete, since it did not make reference to Act 77-89 which, on basic points, had superseded the earlier statutes listed in the Section (para. 2.21). An Annex to Supplemental Letter No 5 stipulated the "adaptation ofDecree 73-779 to present PAD's needs...." and "the taking of all necessary measures to speed up the review and approval of PAD's contracts, with due consideration to government contract legislation" But the legal issue, in 1983, was no longer the adaptation of Decree 73-779; it was the implementation of Act 77-89, to which the Credit Agreement made no reference. The Audit considers that these stipulations lack the necessary exactness. By the time of negotiations, the main sources of difficulties caused by the implementation of financial control were known and the documents should have been worded accordingly; and (iii) At negotiations, a Plan of Action for Port Operations and Management prepared by PAD was agreed upon. It included objectives and stipulated various measures and studies all to be implemented or completed by December 31, 1984. In fact, the Plan of Action missed a major point (paras. 2.9 and 2.14), that is the urgent need to improve the performance and the organization of day-to-day work and control on quays and wharves, as much as at headquarters. 21 3. Implementation Civil Works Fishing Port Project 3.1 Civil works were expected to commence in April 1977 and to be completed in 38 months, by June 1980. They started in December 1977 and were completed in 35 months, by June 1980 also. The agreed timetable schedule shown in the April 1977 SAR was inaccurate from the start; especially the contract award took place only in November 1977, that is, about 8 months later than originally envisaged. Based on the experience in earlier transport projects, this should have been expected. Government contract award procedures in Senegal were known to be slow and complex. The additional procedures resulting from tighter control on the finances of statutory corporations could only make things worse. 3.2 The Audit concurs with the PCR on the satisfactory execution of civil works, of supervision, and other related matters. Total costs of 4.45 million CFAF were below appraisal estimates of 5.17 million CFAF. The only point of concern was the siltation caused by material discharged by the city main drain (12,000 cu. m. annually), which necessitated additional dredging. The Audit reviewed the matter. Siltation is reported to be less a problem than acidity and abrasiveness of the outflow, which damages ship hulls. Except for periodic dredging, nothing can be done until the sewerage system of the City of Dakar is modernized. Container Port Project 3.3 The main civil works were well executed and completed in time by large international firms. Local firms obtained contracts and performed poorly. The local contractor for revetments and roads who benefitted from the local preference clause proved able to perform only 15% of the works on its own forces and subcontracted the rest to four other contractors. He was unable to coordinate them; the supervisory engineer had to take over. Inefficient supervision and poor performance of the other contractors selected for rehabilitation of services and deferred maintenance resulted in cancellation of contracts. The complexities and duration of procurement procedures prohibited re-bidding. PAD completed the works on force account; final cost was double of the original estimate. Technical Assistance and Studies Fishing Port Project 3.4 Civil works supervision was conducted by foreign engineering consultants assisted by a team from PAD. The performance of the consultants was fully satisfactory; they adequately trained their local counterparts. 3.5 Actual project execution differ from the SAR as regard technical assistance for organization of the fishing port. The agreed arrangements were, early in project execution and for unexplained reasons, replaced by the recruitment of consultants to recommend land use, organization, tariffs, port regulations, etc. Procurement procedures delayed the start of execution until June 1980, thirty months after start of the project. The PCR, which considers the results of the study as "adequate", reports 22 that the delay caused the fishing port to begin its operations without any guidelines. The study cast a light on and confirmed some of the weaknesses of PAD's operational management, such as leases of port land much below market price, poor control of fish landings, inadequate policing of port premises, etc. The Audit concurs and adds that the study outlined an adequate system of supervision of fishing port activities (para. 6.7). 3.6 Work on analytical accounting was slow, mainly due to the lack of qualified staff, the complexity of the task and the lack of in-house computer facilities. 3.7 The container facility feasibility study, completed in late 1980, included a revision of the port master plan. The PCR mentions that the study was updated in 1983. The record is that the study was not satisfactory and had to be much revised at a later date. The Fishing Sector Study was completed in 1982 and reviewed in the Bank. On a recommended investment in 79 industrial (as opposed to traditional canoes for local consumption) fishing vessels, the study found that 43 would have a financial return of some 4%. An overall program (fleet, port facilities, processing plants, etc) was for some CFAF 50.0 billion (US $ 166.0 million equivalent) over 1981-1990. The Audit finds no indication that the Bank discussed the report with Senegal. In Senegal, the Audit mission was unable to identify any impact from the study, which seems to have been lost of sight and has been since superseded by other studies such as the 1993 Plan d'action du Secteur de la p9che maritime. Container Port Project 3.8 Supervisory engineers for the civil works were seconded by the foreign port which participated in the container terminal study. Their performance was average and at times less than satisfactory; one of the engineers had to be replaced. The Audit established that the engineer may have not been selected on the basis of the best professional competence and aptitude for the job, but rather on his availability. Consulting may have been a marginal task for a large port authority; monitoring support by headquarters was more remote than by a full-fledged engineering firm, as the record also indicates in that case; this had an impact on the quality of services delivered. 3.9 PAD never had a tradition of strong financial management; close government control and lack of financial autonomy resulted in a weak institutional set-up. Recruitment of financial experts (the salary package being unattractive) and progress on financial and management rehabilitation were slow. The vision of financial issues was narrow and the financial function kept well below the engineering function, which resulted in lack of high caliber staff "o 3.10 In mid-1985, six months after the date covenanted for implementing Plan of Action measures, PAD at last selected a foreign port authority as management consultants. These started working in December 1985 on a Phase I, of diagnosis. Phase II of implementation was to follow some time in 1987 but was delayed by the shortage of financial resources; new financial arrangements (co financing by Caisse centrale de Coop6ration Economique, CCCE, France) were completed only by mid-1989. All civil works being completed, the execution of the Action Plan continued until June 1992, as the only project item remaining; it overlapped with the execution of the 1991 Transport Sector Adjustment Two years after start of the project , it was reported that "PAD was still a poorly organized and passive institution with little concern offinancial question"...(its main concern being) "the physical implementation of a nice new container terminal". 23 Project. The Audit had access to consultant reports on personnel management, organization, customs procedures, etc. They were satisfactory and instrumental for implementing the Plan of Action. 3.11 An expatriate civil engineer was appointed early in project execution as a Directeur de I'Exploitation and for the preparation of container berth operations. Except for the statement that he was to train a local counterpart, the Audit has been unable to locate his terms of reference, nor the evidence that he had an actual experience of operations in a terminal, nor information on his contribution to the project to develop a management system for the terminal, nor any report that he may have produced during his six-year stay in PAD, nor of any training of counterpart. Apparently, he was incorporated to the management structure as a senior adviser, not limited to operations. Specifications for a license to operate the terminal by a pool of cargo-handling companies were drafted, but not adopted; finally, the container terminal is leased to two operators, operating separately under a simple lease, with a fixed rent. A more sophisticated concession document would have permitted to define performance criteria, design a reporting system, and associate PAD to the profits to be derived from increased container traffic. Co-financing 3.12 The Fishing Port Project was co-financed with Banque Arabe de D6veloppement en Afrique (BADEA) and CCCE; the co-financiers agreed to follow Bank procedures for procurement and supervision. CCCE and the Kuweit Fund co-financed the Container Port Project. During construction, the Kuweit Fund stopped disbursing because Senegal was in default on earlier commitments. The matter was settled; project execution did not suffer. The co-financiers conducted no joint supervision. The Bank copied telexes and correspondence to them but there is little trace of exchanges of views on project execution and, specially, on institutional issues. Procurement 3.13 The Trisor was on average late by three months in paying contractors. The main contractor complained repeatedly. PAD was frustrated, since they had no control on disbursements by the Trisor. The Government was reluctant to accept local preference, not provided for in Senegalese procurement statutes; the Bank's resident mission helped settling the issue (para. 5. 1).  25 4. Borrower's Performance Compliance with Covenants Fishing Port Project 4.1 The 4.75% to 6% rates of return covenanted were met. Assets had not been revalued yet and the rates of return appeared greater than their economic value. 4.2 Section 4.02 stipulated that 25% of PAD's surplus cash would be converted in Treasury bonds. The PCR reports that the cash situation of the Treasury did not permit any conversion. However, two supervision reports (e.g. Supervision Report, Oct 3, 1980, Annex 2) mention conversion and report that "PAD is taking advantage of this". In fact, the cash situation at the Trisor did not permit any conversion; Section 4.02 was not implemented. 4.3 Section 4.05 stipulated that Decree 73-779 providing exceptions to Government control would be implemented before June 30, 1997. In fact, little or no financial autonomy was granted. The authorization to liaise directly PAD's terminal with the central computer (para. 2.19) was reported as evidence of increased autonomy. In fact, this did not work for technical and other reasons. A Supervision Mission reported that "broader financial autonomy is not a critical issue", which is contradictory with earlier assessments and with appraisal assumptions. Decree 73-779 was apparently not implemented and the matter was to be carried in Credit 1459-SE conditionality. 4.4 Section 4.03 stipulated that the Government would take all action necessary to ensure that PAD satisfy the requirements of the Project Agreement. The Audit finds that the inordinate delays in payment of PAD's suppliers by the Trisor, due to cash shortage at the Tr6sor, caused by the deficits of other state enterprises and financed from PAD cash assets, hampered management and operations. Unpaid suppliers no longer accepted PAD's orders. The Government was unable either to compensate PAD for expenses on coastal lighthouses outside port limits, or for the Dakar-Gor6e service, or to disburse the amounts due to PAD by other departments or statutory corporations. Therefore, PAD was unable to meet the conditions of Section 4.09 of the project Agreement to reduce its current receivables to a level satisfactory to the Bank. The Audit concludes that the Government has been in default on that Section and that the Bank has failed to review the matter, to notify the Government and act accordingly. The Audit finds no evidence that the program stipulated in Supplemental Letter No 5 was reviewed and used to monitor the amounts of receivables, nor that the imposition of special light dues was ever considered as a remedy. The condition regarding receivables was carried in Loan Agreement 1459-SE. It is now generally settled, through compensation against taxes. PAD now collects user dues for the Goree service and is somewhat compensated for lighthouse services. 4.5 Section 4.04 and Supplemental Letter No 6, relating to the implementation of the recommendations of the fisheries sector study, dealt with incentives for the industrial fishing fleet. The Bank reviewed the study, completed late in project cycle. The Audit found no trace of measures taken, of communication with the Bank, or of the development of incentives and of the signing of any agreement between Bank and Borrower for the determination of incentives. 26 4.6 The analytical accounting system stipulated in Section 4.04 of the Project Agreement was not completed by project completion and was carried in the Container Port Project. The Audit reviewed the system adopted. First established as a good budget monitoring framework, it is now a revenue and cost accounting system. The port is now divided in ten profit centers, each for a different type of traffic (fish, bulk grain, containers, etc), and for three different categories of revenue (leases of land and premises, wharfage on ships, wharfage on cargo). The system still needs to be improved by incorporating revenue from services to ships (pilotage and mooring). But it is a well advanced system, which places Dakar ahead of many ports. Over time, therefore, Section 4.04 has been fully complied with. 4.7 Ad valorem fish tariffs were introduced in the form of a tariff reflecting six categories of fish. The Audit found no evidence that the matter was reviewed and that the Bank formulated its acceptability of PAD's new fish tariffs. However, the Audit found these tariffs to be adequate; despite the fact that facilities are still being depreciated, the fishing port is a profitable venture. Other loan and project conditions were adequately reviewed by the PCR and call for no comment from the Audit. Container Port Project 4.8 The Trisor proved unable to replenish the special project account until 1987; however the record is that payments to contractors and suppliers improved. In 1987, PAD was established as a 100% government-owned stock company and regained control over its cash. The legal issue of compliance became moot. But 2.0 billion CFAF (US$ 7.0 million equivalent) of PAD's cash were frozen when a number of local commercial banks collapsed in 1991. According to a recent arrangement with the Trisor, these amounts have been used for early repayment of PAD's debt to Government on relending of a loan by CCCE (a debt on which Government obtained full relief from CCCE, now Caisse Frangaise de D6veloppement - CFD, (see para. 4.12). In the end, PAD had the choice between free use of its cash by the Trisor or heavy losses in unsafe government-controlled banks, hardly an encouragement to behave as a commercially-oriented entity and to build up savings. 4.9 The Audit reviewed PAD's actual and projected revenue accounts and balance sheets for the period 1987-1996. Table I indicates the rates of return (before income tax payments) showing that starting in 1990, and except for 1991, PAD was in default on the rate of return. Table 1 - Port autonome de Dakar Actual and projected financial rates of return 1987-1996 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 14.1% 13.3% 11.1% 5.0% 6.9% 2.0% 2.5% 2.7% 2.9% 2.9% Source: Actuals to 1991, PCR. Projected from 1992: PAD, Plan financier b moyen terme, Octobre 1992. For the period 1987 to 1991, figures differ between the 1993 PCR and PAD's Rapport d'activiti dated May 1992. Based on the Rapport d'activiti, the rates of return from 1987 to 1991 would be lower, in which case PAD was in default from 1990 on (4.1% in 1990 and 5.4% in 1991). The Audit mission was informed that the rates of return for 1993 and 1994 were of the order of 1%. The differences from one document to another reflect the imprecision of financial information during the 27 period under review, pointed out in supervision and audit reports. This was mainly because PAD's tax liability was unclear, accounting of foreign exchange losses inadequate, book-keeping of fixed assets did not fully reflect inventories, etc. 4.10 According to the Annex to Supplemental Letter No 5, the Borrower was to adapt Decree 73- 779 on exceptions to financial control "to adapt it to PAD's present needs"; according to Part 4 of same Letter, the Borrower was to take all measures to accelerate the review and award of contracts. The Audit finds no trace of a definition of PAD's needs nor of changes being introduced in procedures. The issue became moot when PAD was established as a stock company. 4.11 Consultants appointed by the Ministry of Finance were able, in June 30, 1987 to determine the amount of reciprocal debts. At that date, it was reported that an agreement remained to be worked out ", despite the rather vague Settlement Agreement dated September 26, 1984, the execution of which had been a condition of effectiveness. By project end, the matter was not settled. It was carried forward in the Transport Sector Adjustment Project. Reciprocal debts were settled, much at Government conditions. Progress on settlement of other debts was slow, specially since outside intervention on behalf of debtors hampered PAD's efforts. The situation has improved; in 1994, PAD's recovery ratio has reached 92%, resulting in a 187% increase in cash reserves. 4.12 The Audit mission was informed that PAD no longer concurs with IDA (and other) relending conditions, which they consider too severe, given that PAD pays taxes and were squeezed by the 100 percent devaluation of the CFA franc; they also argue that they can obtain commercial loans for infrastructure at better terms; finally, they are aware that Senegal has obtained relief of bilateral debts, while they continue to repay these debts to the Trisor at relending conditions. As regard IDA Credit 1459-SE, they have suspended payment of the interest differential and charged the corresponding amount to provisions; they consider that the interest should be some 4% only. Technically, they are in default under Section 3.01 (b) of the Development Credit Agreement. The matter was reviewed by the Transport Sector Adjustment Project supervision mission, prior to the Audit mission, but apparently will not be dealt with officially before the Government notifies IDA, which, therefore, has not taken a position yet. The Audit finds the reaction of PAD's management significant of a new loyalty towards their company. They are no longer passive civil servants. The Bank wanted them to manage commercially; they do; but the consequences of it have to be squarely faced. Progress Reports 4.13 The elaborate format for progress reports on the Fishing Port Project agreed upon at negotiations was not followed. An early Supervision Mission reported stoically that "quarterly progress reports are restricted to civil works". Progress reports for the Container Port Project were also for civil works only, but all the necessary financial and other information was duly collected during supervision missions. The Supervision Mission Report, November 16, 1986, Annex I, at 18 reports that PAD's net debt to the Trdsor is CFAF 3.06 billion (US$ 0.10 million equivalent). The Supervision Report dated August 25, 1987 reports a net debt of CFAF 1.1 billion (US$ 3.3 million equivalent), largely "to be negotiated with the Internal Revenue Service". See Credit 1459 File, vol. 10. and 11. 28 Rating 4.14 The Government was in default on a number of covenants, but was faced with a severe cash shortage and worsening economic and social conditions. Its performance must be measured accordingly. The Audit rates it unsatisfactory as regard the formulation and implementation of its legislation (para 2.21 and 2.22). Performance in other areas improved steadily over the implementation of the two projects. By establishing PAD as a stock company, the Government innovated markedly in a major institutional area. The Audit rates its performance as altogether satisfactory over the long period. PAD deployed the necessary efforts for the success of the projects: notably, it controlled tightly their implementation and established the port's finances and accounting systems on a sound basis. The Audit rates its performance as satisfactory. 29 5. Bank Performance General 5.1 During all phases of the projects, the Bank spared no effort for their success. Visits to Senegal were frequent. Bank staff assisted PAD at times well beyond their terms of reference. They prepared draft terms of reference for a study of localization and equipment of port facilities for Industries Chimiques du S6n6gal (producing phosphoric acid and fertilizers) and for updating the port master plan; and assisted PAD on the Dakar Marine ship repair complex project. The new (1978) Resident Mission in Senegal was efficient for liaison and follow-up between supervision missions and helped clarify many issues. It improved Bank's knowledge of PAD operations and management culture, and of its weaknesses. It showed that port operations at Dakar were conducted in a complex milieu, with established traditions, vested interests, under a centralized government, and a legalistic civil service. To the Audit mission, staff in PAD expressed their satisfaction for their good relations with Bank staff, and for the support provided in their own relations with Government. There were reservations, however, regarding the lack of flexibility on civil works design, resulting from conceptual differences between Bank and PAD's engineers. Different designs can indeed be equally sound and economical. Appraisal and Supervision 5.2 The design of the container terminal project was not fully related to project objectives regarding improvement of operations (para. 2.10). Lastly, there was a lack of finesse in the evaluation of PAD's financial, legal and management status (para 7.8). Staff Appraisal Reports and annexes were nearly complete. The following was lacking: (i) a risk analysis for the Fishing Port Project, specially as regard fish traffic; (ii) a review of competition by other fishing ports; (iii) a specific financial analysis of the fishing port and of the container terminal; and (iv) a review of operations. Supervision Reports were uneven. Excellent up to 1987, with detailed information, specially as regard finance, they are less complete from 1988 on, but still reasonably adequate for follow-up and monitoring. The PCRs are not fully complete (compliance with loan conditions, sustainability, detailed cost estimates). 5.3 The Audit finds unsatisfactory the overall treatment of borrower's obligations under loan documents (paras 2.18 to 2.24 andfootnote 9). First, under Loan Agreement 1405-SE, Government's only commitment was to implement its own legislation (the 73-779 Decree); a clear commitment to remedy specific shortcomings and stumbling blocks, which needed to be identified beforehand, would have been necessary. Second, the legislative process in Senegal (the 77-89 Act) was not followed up by the Bank as it should have been, despite that the Bank was associated to Government efforts to restore financial discipline in the public sector, which it supported at that time through studies and projects. Legal issues were neglected during project implementation. It was not proposed to amend loan documents and/or agree on new dates as the Borrower was falling behind on its commitments. No internal memorandum reflects the views of legal staff on project conditionality design and execution. Since the Aide-memoire after supervision mission replaced correspondence from headquarters, and since staff performing supervision generally did not mention defaults on covenants in the aide-memoire, neither the Borrower nor PAD were reminded that they were in default. This is not good loan administration, and may mislead borrowers on the importance of their legal commitments. 30 Compliance with Operational Manual Statements and Operational Directives 5.4 Except for the inadequate follow-up of legal issues during supervision, reported above (para 5.3), the Audit found no major deviation from applicable guidelines and operational memoranda. Project Files 5.5 Documents relating to project execution (plans, terms of reference, financial data, etc) are missing from the files. Loan 1405-SE has no "Official Documents" Files, these documents being filed in chronological order with project correspondence; for the good order of Files, the Audit completed and inserted a "Basic Documents" File. Rating 5.6 With the reservation formulated above, relating to legal issues, the Audit rates the Bank's performance as satisfactory. 31 6. Project Results and Sustainability Physical Objectives 6.1 The physical objective of the Fishing Port Project to provide facilities allowing for expansion of the fleet was reached (para 2.2.). So was the objective to design a plan for construction of a container terminal (para 2.2.iv). Industry Objectives 6.2 Based on documentation available, the Audit has been unable to establish whether the Bank- financed fishing industry study had an impact on the development of the fishing industry in Senegal. Economic Return Fishing Port Project 6.3 Fish traffic projections, viewed as conservative (para. 2. 7) proved optimistic. Traffic was projected to increase from 95,000 tons before project completion, to 154,000 t in 1980, 255,000 t in 1983 and 313,000 t in 1987. It was 103,000 tons on average from 1980 to 1986, 116,000 t in 1987, 120,000 t from 1987 to 1991 and 190,000 t in 1994, or some 60% of projections. Based on reports reviewed in the field by the Audit, it is clear that the projections were well above what can be actually caught without stock depletion. Indeed, the present tonnage may well be too high. The appraisal projections are not an adequate yardstick to measure project performance. Most of the production being exported after processing, the overvalued exchange rate had an impact on the slow build-up of traffic; the Audit was informed that the development of the processing industry (with the reopening of factories and re-commissioning of ships) was stimulated by the February 1994 devaluation, which partly explained the traffic increase of that year. 6.4 The PCR has been unable to compute a rate of return because information was not collected during project execution and after, on the components of the original rate of return. It concluded that, based on the methodology used at appraisal, the benefits of the project were minimal. The Audit questions the methodology, heavily biased towards savings in transportation and handling. In fact, the fishing port was rather an infrastructure investment associated to and captive from a specific industry. It might have been appraised as such, either by using the method proposed by consultants (para. 2.12) based on the value of incremental fish catches; or by using a financial return for operators as a proxy for the economic return; or by using revenue earned by PAD from additional calls by foreign vessels also as a proxy; or by a combination of any of the above. Based on cost accounting results for 1994, the Audit found that the discounted financial rate of return for SONAPAD is some 17.2%; from the latest figures available, it also found that the annual impact of the CFAF 5.0 billion investment would be in an additional US$ 140 million equivalent in added value to the economy of Senegal 12, based on the value of fish sold, processed and exported. Fish tonnage landed at Dakar doubled from 1974 to 1994; a fishing port built for accommodating such increase in traffic cannot be considered as having a zero rate of return. Taking in account all the practical aspects of fishing port " Data is however quite incomplete and no meaningful rate of return could be computed. 32 operations, capacity can be estimated at some 250,000t, which is likely to be sufficient in future, the projected 1990 traffic of 318,000t being unrealistic (re para 6.3 on stock depletion). 6.5 When commenting on the PCR, the Transportation Department (TRP) in Central Projects (CPS) objected that i) the disappointing traffic was due to a decline in catches, not to competition by other ports, and ii) that the PCR did not bring out strongly enough the project objective of removing vessels from indiscriminate use of general cargo berths all over the port, a major nuisance both for port operations in general and for fish traffic specially. This, according to TRP, was a major achievement. The Audit agrees with TRP on this point, based on actual experience of port operations. Whether traffic would have actually increased by 50% if the berthing conditions prevailing before the fishing wharf was built is indeed doubtful. Poor conditions at Dakar would probably have increased the competitiveness of Las Palmas, Abidjan and even of the ports of Morocco. Container Port Project 6.6 Traffic at Dakar port, fairly constant at about 5.3 m. tons since 1985 to date, is projected to be 5.5 m. tons in 1995 against 6.6 m. tons projected at appraisal, mainly due to disappointing bulk traffic. 1990 container traffic was 10% above projections with 99,400 twenty-foot-equivalent units (TEUs); it should be 98,000 TEUs in 1995, 15% below appraisal projections of 115,000 TEUs; break- bulk traffic increased by 7% in 1994, container traffic by 3% including a spectacular increased of 67% on containers in transit for redistribution to other ports. Based on an update of all costs, the PCR estimates the recomputed rate of return at between 25% and 29%. The Audit, which reviewed the PCR calculation, considers that the economic return may be underestimated, because (i) productivity in container handling used in the calculation seems lower than recent actual figures extracted from PAD statistics; and (ii) out-of-port benefits, such as speed of delivery, reduced cargo losses, etc were not included. Institutional Development Impact Fishing Port Project 6.7 The objective to ensure control over fish landings and exports (para 9.ii) has finally been reached, since the berthing of all fishing vessels in one area permits adequate control. The fishing port is under control by specific divisions of PAD's commercial department and harbor master's office. However, management of the fishing port, with its multiple activities resulting in conflicting requests for facilities and services for different types of fish traffic and industries, is a complex and evolving affair, which cannot be planed rigidly in advance. Guidelines can be formulated only as experience of actual conditions develop. The Audit is of the opinion that the best has been obtained from the technical assistance provided, given the circumstances. PAD is at present considering the establishment of the fishing port as a quasi-subsidiary, directly under the general manager. Cooperation with users is formalized, but, as is often the case in fishing ports, there is resistance to cost recovery, and lobbying for the elimination of charges on infrastructure, considered by fishermen as a "free" good. The matter appears to be well in hands. The tariffs applied are equivalent to ad valorem, by category of fish. 6.8 The Audit concurs with the PCR that the Fishing Port Project permitted to identify PAD's weaknesses in organization, administration, operations and finance. These had been underestimated, because PAD was relatively a good performer. Significantly, project progress reports issued by PAD included only reporting on the progress of civil works, reflecting PAD strong civil engineering culture. 33 Container Port Project 6.9 From the limited information available, it appears that the construction of the container terminal had a positive impact on freight rates. Where there was one operator, there are now two (plus three outside the terminal); competition caused a reduction of rates, which has been recorded. 6.10 Strengthening PAD's management was the second objective. Given the delay in the start and implementation of the Plan of Action, part of the information on the matter need to be extracted from the files of the 1991 Transport Sector Adjustment Project I (Cr 2226-SE), the execution of which largely overlaps with the project under review. The attainment of objectives is as follows, listed as in para. 2.4 above. The main institutional objectives were satisfactorily reached, even if some qualification is necessary. (a) reporting on cargo-handling performance and operations has been developed but still needs improvement. As reported above (para. 3.11) no system of container terminal management has been finally established, except for the simple lease of land at the terminal; basic information, such as the distribution of container dwell-time (no quantified objective set originally) is missing. 1991 to 1995 information indicates increasing problems with dock labor. Prevailing conditions of employment and remuneration were well adapted to breakbulk cargo; they are not to container handling. The matter has been identified with the contribution of users and is being dealt with; (b) by end 1991, when consultants reported on the Action Plan (para. 3.10), customs procedures had improved. A Comit de recherche et d'amilioration du fonctionnement du port (Port Fact-finding and Operational Improvement Committee) composed of PAD, Customs and port users was established in 1992. By June 1993, there had been improvement and simplification in the design and implementation of customs procedures 13; they are now computerized. However, the Audit found that there are differences between official procedures and actual practice. Customs escort, for example, is still necessary between the different terminals, despite that containers are now under seal. Improvements of facilitation procedures are likely to be slow, given the interests at stake. (c) the impact of the elaborate consultant recommendations on the personnel and training function has been uneven. Staff quality at management level has markedly improved, even if reinforcement is still necessary (fishing port, harbor master's office, operations, etc). Staff attrition has been sizeable (20% of staff), but the Audit considers that additional qualified staff would now be necessary in the above areas. A project to develop the maintenance function was discarded; it was decided to replace force account maintenance by maintenance under contract, an initiative that the Bank approved since force account maintenance was considered costly and inefficient. A new Director General appointed in 1993 took the sound decision to reduce the number of departments in SONAPAD from seven to four; (d) financial management and management information were noticeably improved. PAD has now modem systems of accounting and budget control; it issues reports and statistics at regular intervals; tariffs were increased in 1993, specially on ship services, known to have been undercharged, which the cost accounting system confirmed; 13 Sources: Port autonome de Dakar, Rapport du Directeur giniral au consel d'administration, May 1992, at 5; Etat d'avancement des recommendations du conseil interminisidriel de novembre 1991, June 1993, at R8. 34 (e) by Act 87-28 (Aug 18, 1987), PAD was established as a 100% government-owned stock corporation, the Soci6td Nationale du Port Autonome de Dakar (SONAPAD) which replaced the Port Autonome de Dakar, a statutory corporation. Its board of directors is similar to that of PAD, with a majority of government representatives and a few users and labor representatives; by law, government supervision on stock corporations is less strict than on statutory corporations, specially as regard procurement and cash management; the objective of increased autonomy appears to have been reached. A contrat-plan was signed in 1990 between the government and PAD, for the period 1990-1994. However, SONAPAD's autonomy is reported to be nominal and government interferes in fact with its management; a reading of Act 87-28 confirms that Government has considerable latitude to dictate its will to the company; it could not be different, since the company is 100% government-owned; its board does not represent shareholders who have risked their capital in a common venture; it is a corporation by name only. (f) new port operations, security, law and order by-laws were issued in 1993. However, despite the efforts of PAD staff, port premises (access, cleaning, etc) are not fully under control. Police powers are vested in the harbor master. In fact, he has little control on the actual performance of the police force, which is governmental, not port authority. A steady effort from SONAPAD is necessary to exercise its influence so that the police force is more effective. (g) SONAPAD developed an extension of the container terminal for storage of import containers. The location of the terminal makes it difficult to operate, since it is separated from the original terminal by a heavily trafficked road and the railway line to the phosphate and chemicals terminal. As a result, this US $ 3.0 million investment is sitting idle while arguments are being exchanged on how it could be operated at users' satisfaction, and at which tariffs. The problem does not reflect well on internal coordination within SONAPAD, under a previous management team. It underlines the importance of giving priority, in future civil works projects, to land access to port facilities, an issue that the projects under review underestimated. This will be included in the planned revision of the master plan for Dakar Port, to be conducted by consultants and self-financed by SONAPAD. 6.11 The main positive institutional impact of the projects (and of the 1967 Dakar Port Project which preceded them) is in the fact that the pure engineering culture which prevailed in or about 1965 has been slowly but firmly transformed in a much more refined managerial plus operational, plus engineering culture; this is to be credited largely to the Bank, whose efforts, however imperfect in some of their formulations, have been steady and well oriented during a long period. The development may have been even faster if major non-engineering positions had not been so long occupied by civil engineers, nationals or expatriates. However there is now evidence that the attention given to operations and engineering may now be inadequate compared to that given to finance. The operations and engineering functions need to be reinforced; teamwork need to be developed together with improved cooperation between departments. Maintenance, specially, needs to be adequately funded and to be developed if, in the near future, major and costly repairs of facilities are to be avoided. The Audit mission expressed its concern that many port structures show signs of considerable fatigue. Maintenance expenses recorded from 1993 to 1996 were some CFAF 600 million annually, that is 1.5% of fixed assets, not a high figure by any standard. 35 Sustainability 6.12 The Audit assessed sustainability as follows: (a) Physical components are sustainable, if maintained adequately (para. 6.10). (b) The change in legal status and statutes, the development of new relations with users to improve operations, financial and management information systems, reduction in staffing, appear to be sustainable. However, SONAPAD does not operate in a political and administrative vacuum, specially since it has, together with a relatively modest commercial role, major quasi governmental functions; its essence as a statutory entity has remained under the appearances of a commercial stock company. As in the past, it may, at any time, be submitted to new parliamentary legislation applicable to all state-owned entities, which may supersede earlier arrangements and affect international commitments. The vagaries of control over PAD during the period of project execution provides an example of the uncertainties surrounding SONAPAD's future. (c) The financial situation remains fragile (para. 4.9) and SONAPAD has been unable to generate an adequate rate of return on its assets. Project Ratings 6.13 These ratings confirm the PCR ratings for the Container Port Project. The PAR rates the outcome, institutional impact and sustainability of the Fishing Port Project higher than the PCR. Altogether, the audit rates the projects as (i) having a satisfactory outcome; (ii) having a substantial institutional impact; and (iii) likely to be sustainable, with a reservation as regard finances.  37 7. Lessons Learned and Recommendations General: Scope of institutional and operational appraisal 7.1 These two projects were part of a 30-year Bank's effort for the development of Dakar Port. Results are positive; they are not complete. An important lesson learned (or confirmed) is that long efforts over a succession of projects pay more than isolated projects. Still, many institutional and operational dimensions have been missed. The Bank faces the increasing complexity of institutional and operational issues. Even in straightforward port projects, considerable finesse and knowledge of legal, social and administrative systems of the borrower is necessary for the success of the institutional effort. Besides, the development of privatization makes also necessary a good knowledge of the local private sector, of its methods and attitudes, and of the cargo-handling industry, a very special area and trade. Research, collection of information, dissemination of findings, follow-up, and adequate staffing are called for. Studies and Technical assistance 7.2 Like earlier similar projects, these two projects raise, the issues of (i) insertion of studies, whose outcome may not be satisfactory, and which serve limited purpose at high cost, specially when cost is not charged to the beneficiary entity; and (ii) terms of reference, follow up, etc, of technical assistants. Both matters have since been reviewed by the Bank and guidelines have been issued. Factors of Performance: PAD's Financial Structure 7.3 From the PCR for the 1967 Dakar Port Project to the on-going Transport Sector Adjustment project, the Audit has found that PAD (and later SONAPAD) financial situation may have not obtained all the detailed attention, and maybe sympathy and fair treatment, that it deserves. The points enumerated below are significant. 7.4 PAD, as a landlord port, derived its resources from leases of land and facilities, quay and wharf dues and some ship services, mainly pilotage and mooring. Still, it was required to perform financially as well as other ports financed by the Bank Group in the Region, which, with the exception of two (Douala and Las Palmas) were service ports deriving major resources from cargo handling and storage (Monrovia, Banjul, Tema/Takoradi, Lagos, Matadi, etc). This basic difference and its consequences were neither evaluated nor considered. For unexplained reasons, lending conditions at Dakar were more severe than those agreed with these other ports. This applies both to taxes and to financial rates of return. Details follow. 7.5 IDA insisted that PAD pays all indirect and direct taxes and customs duties, which is in accordance with financial orthodoxy for revenue-earning entities; PAD complied. But IDA never objected (Loan 922-UNI, 1973) to the Nigeria Port Authority not paying income tax despite that it operates profitable cargo handling and storage. The same is true of the Gambia Port Authority in Gambia (Credit 187-GM, 1970), whose port of Banjul competes directly with Dakar; the port authority statutes, of which Schedule 4 to Credit Agreement 187-GM provides an outline, and which were acceptable to the Association, explicitly prohibit the levy of any tax, direct or indirect, and customs duties, on the Gambia Port Authority. The Office national des Transports in Kinshasa, which operates Matadi Port with a monopoly on cargo handling and storage was never submitted to direct taxation; the Association never objected nor even raised the issue (Cr 255, 292, and 571-ZR, 1971 to 1975 and later Credits). In Cameroon (Cr 229-CAM, 1970 and 676-CAM, 1976), the Association accepted that 38 the Office National des Ports et Voies Navigables pays no turnover tax (minimum 10% of turnover), no tax on investments, insurance, vehicles, and no customs dues. At Monrovia (Ln 619-LIB, 1969), where the port was a profitable service port, but, like Dakar, had to modernize and rehabilitate its facilities, the Bank required the Borrower to agree not to charge any tax, nor to require dividends from the port authority, not even to charge interests on outstanding loans, until the development program and financial projections of the port authority were known and its capacity to pay established. Lastly, in Ghana (Cr 1674-GH, 1986), the Association dealt with a service port authority that had all reasons to be profitable; however "in order not to lay undue burden on... its finances", customs duties and taxes on imported items of the project were treated as a loan to the port authority by the Government, to be paid back over time; no other tax payment was stipulated. 7.6 In Las Palmas in the Canary Islands, the Bank accepted (Ln 884-SP, 1973) (i) a low financial rate of return (3.5 to 5%); (ii) that half the cost of breakwaters would not be depreciated, would be considered a sunk cost and not taken in consideration for the calculation of the financial rate of return; (iii) that the Government pays subsidies in the form of a state grant equivalent to 90% of retained earnings over the project period; and (iv) that the port pays no direct taxes. In Banjul in Gambia, despite that the port authority, a service port, derived 50% of its revenue from cargo handling and storage, the Association projected, and accepted, a 3.0% rate of return on fixed assets. Under such generous conditions, Banjul and Las Palmas, of course, compete easily with Dakar. In Ghana (see above), there was no rate of return covenant. 7.7 The re-lending conditions also raise issues. First, the re-lending rate for infrastructure investments was the same as for equipment investments, while there are cases where, in railways projects, infrastructure is financed at IDA rates; why not for ports ? Second, that PAD borrowed at commercial rates through re-lending by Government was severe since, at the same time, the Trisor was drawing on PAD's cash reserves without paying interest. PAD also started repaying the IDA Credit well before the Government did it to IDA. 7.8 The Audit does not claim here that Dakar, as a landlord port, should not pay taxes, or should be permitted to borrow at IDA rates in all circumstances, but only that the financial analysis should show more discemement in evaluating the structure of charges, the conditions of taxation, the re- lending conditions and the rates of return to be required. Nor does it claim that different lending conditions are the only reasons why Dakar does not compete well with neighboring ports. But, before passing judgment on the relative performance of one or another port, there should be more coherence in the treatment of (i) similar ports; (ii) ports whose scope of activities are different; and (iii) competing ports. 7.9 In June 1994, a supervision mission for the Transport Sector Adjustment Project (Cr 2266-SE) reported negatively on SONAPAD, because SONAPAD had suggested, after reviewing its investment and major maintenance program for the five years to come, and among other measures (i) a waiver of debts and/or their conversion in equity; (ii) tax holidays for investments; (iii) re-lending of concessional loans at concessional conditions. The Bank mission observed that this would be "a return to a system of a government-owned corporation subsidized by Government". Based on the record, the Audit does not agree that PAD was part of that system but may be forced to be part of it by GOS's attitude as a shareholder. First, PAD never received a penny from the Trisor. Quite to the contrary, actual and projected financial statements show, apart from any corporate tax on 39 profits, that from 1991 to 1996, Government collected or will collect from 12 to 15% of the added value generated at SONAPAD 14 7.10 In the logic of corporatization, which was requested by the Bank itself, Government, as the sole shareholder, has to invest in its business through the issuing of equity, which, in a profitable venture such as PAD, is not a subsidy. On December 31, 1994, PAD's original equity, reflecting Government contribution in kind, not in cash, was 10% of the total equity-plus-long-term-debt (capitaux permanents). Accumulated earnings, reflecting SONAPAD's basically sound management over the years, made 25% of that total capital; the difference between the contribution of the sole shareholder and that of the company is significant. At the margin, the cost of borrowing foreign exchange is not based on concessional financing but on the commercial terms available to SONAPAD. The high costs of this source of funds should prompt the Government, as shareholder, to rely more on self financing and injection of equity in SONAPAD: The lack of Government equity may well force SONAPAD to finance too high a percentage of its future investments and rehabilitation through borrowing, resulting, in turn, in a request for the special conditions enumerated above. Recommendation: 7.11 The Association should review with Government the issue of SONAPAD's capitalization. Solutions to be considered include: (i) issuing equity in cash by the Government as sole shareholder; (ii) opening of SONAPAD's capital to other entities, which SONAPAD's statutes authorizes, provided these entities are public sector entities; (iii) opening SONAPAD's capital to private sector entities, or to the public, which would necessitate a change in legislation; and (iv) reviewing, as SONAPAD proposes, the transformation of debts in equity or other adequate arrangements. 14 The distribution is as follows: Staff 42%, Government 13%, Lenders 13%, Corporation 32%.   1MAGING Report No: 1479i Type: FLAP<.