REST R CT ED
This Report has bien prepared for ASIAN DEVELOPMENT BANK the exclusive e of the Bank.
PROJECT COMPLETION REPORT
OF THE
HONIARA PORT DEVELOPMENT PROJECT (LOAN NO. 323-SOL (SF))
Lk
SOLOMON ISLANDS
August 1982 CURRENCY EQUIVALENTS As of September 1977 and February 1982—
Currency Unit - Solomon Islands Dollar (SI $) sI$1.oO - US$1.11
US$1.00 - SI$O.901 a! The currency conversion rates happened to be the same on these two dates even though there were considerable fluctuations during the period 1977-1982.
ABBREV IAT IONS
FCL (Container containing only one consignment of) Full Container Load FLT Forklift Truck LCL (Container containing a number of consignments each) Less than Container Load SIPA Solomon Islands Ports Authority TAMS Tariff, Accounting and Management Study TEU Twenty feet Equivalent Units (Standard Container of 20 x 8 x 8 feet in size)
NOTES
1 The fiscal year (FY) of the Solomon Islands Government coincides with the calendar year.
2. The fiscal year (Fl) of the Solomon Islands Ports Authority begins on 1 October.
3. Throughout this report, "$" refers to U.S. dollars and "SI$" to Solomon Islands dollars. PROJECT COMPLETION REPORT
HONIARA PORT DEVELOPMENT PROJECT (LOAN NO. 323-SOL(SF))
SOLOMON ISLANDS
Note: This Report was prepared by a Bank Mission which visited the Solomon Islands in March 1982. The Mission comprised Messrs. V. R. Mehta (Project Officer) Mission Chief and T. R. Heap, Consultant (Transport Economist). (i)
TABLE OF CONTENTS
Page I
Location Map (ii) Honiara Port Layout and General Plan of Works (iii) Basic Data Sheet (iv)
I. INTRODUCTION 1 A. Project Scope and Objectives 1 B. National and Sectoral Development Plans 2 C. Ports in the Solomon Islands 2 D. Bank's Sectoral Assistance 3
II. PROJECT FORMULATION AND APPRAISAL 4
III. PROJ ECT ThL1ENTAT ION 7 A. Loan Effectiveness 7 B. Implementation Schedule 7 C. Use of Consultants 10 D. Procurement and Construction Works 12 E. Project Changes 13 F. Project Costs 16 G. Disbursement 18
IV. OPERATING PERFORMANCE 20 A. Technical Performance 20 B. Financial Performance 25 C. Institutional Performance 30
V. ECONOMIC RE-EVALUATTON 33
VT. BANK PERFORMANCE 36 A. Project Formulation and Preparation 36 B. Project Implementation 37
VII. CONCLUSIONS 38 A. Overall Assessment 38 B. Lessons to be Learned 38 C. Follow-Up Action 39
APPENDIXES 40
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HONLARA PORT
LAYOUT AND GENERAL PLAN OF WORKS
PROJCCT COMPONENT APPRAISAL ACTUAL
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(iv)
BASIC DATA SHEET
Country/Loan No. /Project SOLOMON 1STANDS/323-SOL (SF)/Honiara Port Development Project
Borrower Government of Solomon Islands
Executing Agency Solomon Islands Ports Authority
A. Loan Data
Item Date/Amount
Appraisal Started 8 August 1977
Loan Negotiations 9 Noveither 1977 Board Approval 9 Deceither 1977
Loan Agreement Date 7 February 1978
Loan Effectiveness 27 July 1978 Closing Date (Original) 31 March 1981 31 March 1982 Closing Date (Actual) Loan Amount $2.03O million Disbursed $2.027 million Cancel led $O.003 million
B. Project Data
Expected During
Item Appraisal Actual
Total Project Cost ($ million) 2. 730 2.988' (-F 9.5%) Foreign Exchange Cost ($ million) 2.0 30 2.027 (- 0.15%) Local Cost ($ million) 0. 700 0.961 (+37%) Consultants Recruited 31 March 1978 25/28 July 1978 Consultants' Work Completed 31 July 1980 April 1982 Procurement Completed 31 January 1979 28 July 1980 Physical Works Completed 31 July 1980 19 April 1982 Disbursement Completed 31 Deceirber 1980 31 March 1982 Economic Rate of Return 17. 3% 20.3% Financial Rate of Return 9.2% 6.5%
C. Mission Data
No. of Total Loan Administration missions mounted: Missions Man-Days 3 22 Review Missions 2/ Special Loan Administration Missions 4 15 PCR Mission 1 35
1/ Estimated final cost. 2/ The purposes of these missions were as follows: (i) Control Officer - 1 man-day - disbursement procedures (ii) Project Engineer - 7 man-days - consultant's contract negotiations (iii) Project Engineers - 2 missions - 7 man-days - Review of detailed designs, revised cost estimates and scope changes. 1. INTRODUCTION
A. Project Scope and Objectives
1. The Honiara Port Development Project was undertaken by the Government of the Solomon Islands to improve port facilities forl?verseas shipping at the country's capital and principal port of Honiara. — The existing overseas wharf at Honiara was only 72 meters long and did not allow most oceangoing ships calling at the port to work all hatches simul-- taneously. Larger ships had to be moved along the wharf to work the end hatches, resulting in slower ship turnaround time than otherwise necessary. Traffic through the port increased sharply, from 49,500 tons in 1971 to 57,900 tons in 1976, with strong prospects of further growth. Containeri- zation of liner services also began in 1977. To meet increased traffic requirements, improvements to the port were needed. Further, some sections of the existing seawall (made of concrete filled drums providing temporary slope protection for reclaimed land at Point Cruz) had been seriously damaged by storms and heavy seas, resulting in flooding and erosion of the reclaimed land in the Port area. Against this background, the Project was given high priority by the Government.
2. The principal objectives of the Project were: (1) to increase the capacity and optimize the cargo handling capability of Honiara Port, to enable it to handle the forecast increases in traffic volumes, especially container traffic; (ii) to reduce ships' waiting time and associated costs such as congestion surcharges and freight rate increases; and (iii) to protect reclaimed land in the port area from flooding and erosion by storms and heavy seas.
3. The major components--' of the Project envisaged during Appraisal were:
(a) extension of the existing deepwater wharf by about 50 m;
(b) seawall protection work (approximately 820 m) at west side of Point Cruz;
(c) provision of container handling facilities, i.e., 9,000 sq. m. stacking area, a 40 m x 15 m shed and four short-masted forklift trucks;
(d) provision of engineering consultant services for detailed engineering design and construction supervision;
(e) provision of an engineering expert to assist the Solomon Islands Ports Authority (SIPA) on all engineering aspects of Project implementation and in establishing adequate engineering capability within SIPA.
1/ See Location Map on page (ii). 2/ See page (iii) for layout and general plan of works. -2-
4. A Technical Assistance grant I " of $50,000 was piggybacked on the Project loan to provide for a tariff, accounting and management study (TANS). The objective of this study was to review SIPA's tariff structure, its accounting and financial management system and the main aspects of port operations and recommend appropriate improvements.
B. National and Sectoral Development Plans
5. The Solomon Islands is composed of an archipelago of mountainous islands and coral atolls stretching about 1,500 km in a southeasterly direction from Papua New Guinea. About 80 per cent of the total land area of 28,500 sq. km . is accounted for by the six islands of Guadalcanal, Malaita, Santa Isabel, San Cristobal, New Georgia and Choiseul. Honiara, the capital city, is situated on Guadalcanal, which is the largest island and contains the only extensive plains in the country. The total popula- tion of the Solomon Islands is estimated at 235,000 in mid 1981.
6. The Government has accorded great importance to the development of the transport sector. The capital expenditures on the activities grouped by the Government under "economic infrastructure", which includes transport, communication and public utilities increased from SI$1.67 million in 1975 (35 per cent of total capital expenditure) to SI$17.13 million for 1981 (49 per cent of total capital expenditure). In the trans- port sector, sea transport is the most important mode of transportation due to the dispersion of population among the many widely separated islands. Consequently, provision of efficient overseas and local ports, wharves, etc., was one of the important objectives of transport sector investment in the National Development Plan, 1975-1979. No new national plan has yet been finalized, but the PCR Mission understood that the importance of the transport sector, of ports and shipping in particular, continues to be recognized by the Government.
C. Ports in the Solomon Islands
7. The nine major ports?i handling overseas cargo in the Solomon Islands are Honiara, Yandina, Gizo, Noro, Tulagi, Viru Harbor, Nila, Ringgi Cove and Graciosa Bay. Honiara is the principal international port and handles nearly all imports as well as a diverse range of export commodities; it also receives a number of noncargo ships each year, such as cruise ships, naval boats and survey ships. Each of the other ports primarily handles a single major export commodity and some limited imports such as capital plant materials, equipment and vehicles. Yandina mainly handles copra; Tulagi handles export of frozen fish and shipment of canned tuna from a local fish cannery to Honiara; the ports of Ringgi Cove, Viru Harbor, Nila and Graciosa Bay handle log exports. if T. A. No. 217-SOL. 2/ See Map, page (ii). -3-
Noro has been designated only recently as a major port, replacing Gizo as a principal copra buying and export port. Construction of a deepwater berth at Noro is also under examination although its economic and financial viability has still to be established.
D. Bank's Sectoral Assistance
8. This was the third Bank loan to the Solomon Islands and the only one extended so far to the transport sector in ijat country. The two 2/ - previous loans were for Beef Cattle Development— and Fisheries Development.-
1/ Loan No. 289-SOL(SF) approved on 21 Decetxber 1976 in an amount of $3.57 million. 2/ Loan No. 311-SOL(SF) approved on 13 October 1977 in an amount of $3.60 million. - 4 --
II. PROJECT FORMULATION AND APPRAISAL
9. The Project was identified by a Bank Project Identification Mission during discussions with the Government in February 1976. It was apparent that an extension to the existing 72 meter deepwater wharf together with improvements to other port facilities was necessary to increase port capacity and to optimize its cargo and container handling capability. Some sections of the existing seawall had been seriously damaged by waves and storms and seawall protection work was therefore urgently needed to prevent further flooding and erosion of the reclaimed land at the port.
10. While Project formulation was relatively straightfotward, it was felt that technical assistance was necessary to better define the Project scope and içs economic viability. In May 1976 the Bank approved a limited TAJ to formulate a port development project. The consulting firm of Wilton and Bell of Australia was selected for the study, in accordance with the Bank's Guidelines on the Use of Consultants. The Consultant commenced field investigations in January 1977 and submitted a final report to the Bank in August 1977. The same Consultant was previously engaged by SIPA to, inter alia, examine the feasibility of carrying out seawall protection for the reclaimed land at Point Cruz. This report was submitted by the Consultant to SIPA who sent it to the Bank in May 1977.
11. After examining various alternatives for the wharf extension of finger type, partial decking and continuous decking, the Consultant con- cluded that a finger type wharf supported on steel pipe piles, similar to the existing structure was the most suitable, and further th'at the least-cost and optimum operational advantages could be obtained by extending the wharf totally inshore. For seawall protection, various alternatives were consi- dered and eventually a rock armored seawall was recommended. In making this recommendation, the Consultant assumed that by the time of Project implementation, it would be economically feasible to obtain adequate quantities of igneous rock from a quarry then planned to be opened about 10 km from the Project site.
12. On receipt of the Consultant's two reports, the Government reiterated its high priority for port development and requested the Bank to finance the foreign exchange cost of a proposed Honiara Port develo - meat project. In response to this request, a Bank Appraisal Mission visited the Solomon Islands from 8 - 17 August 1977 and a Follow-Up Mission visited from 7 - 12 Septetrber 1977. Discussions regarditg the Project were held with SIPA, the Government and other agencies concerned and with representatives of local contractors. Following these discussions, an
1/ T.A. No. 167-SOL: Honiara Port Development Project, $50,000. (1-1/2 man-months for Port Operations and Management Expert, 1-1/2 man-months for Port Engineer, 2-1/4 man-months for Transport Economist). 2/ Including a coastal engineering expert as a staff consultant. -b-
overall project was developed encompassing not only the seawall and the wharf extension, but also establishment of necessary container handling facilities and provision of consultant services.
13. For the wharf extension, the Mission selected a full decking design instead of the finger type extension to enable smooth handling of general cargo and container traffic and to provide greater cargo and container handling space on the wharf. For the seawall, the Consultant's recommendation of a rock-armored seawall could not be accepted as no quarry for armor rocks had been establishedl ! nor was it likely to be operational before Project implementation was to begin and the Mission adopted an alternative of a reinforced concrete wall. Containerization in liner services had commenced, but the expected traffic levels were low and did not justity provision of specialized container handling equipment like gantry cranes, transtainers and straddle carriers. Provision of other limited facilities -- a 9,000 sq. in. container stacking area, a 40 in x 15 m container packing/unpacking shed and four short-masted forklift trucks (FLTs) for packing/unpacking containers -- was considered necessary and was included in the Project.
14. The Project envisaged engagement of an engineering consultant for detailed engineering design and construction supervision of works relating to the wharf extension, the seawall, the container shed and the container stacking area. As the volume of work within SIPA did not justify the employment of a full time senior port engineer, the Project also included provision for intermittent services of an engineering expert with a strong background in port works to assist and advise SIPA on all engineering aspects during the implementation of the Project; the expert would also help SIPA in establishing its n engineering capability. The Mission also recommended that the Bank extend, on a grant basis, technical assistance for a tariff, accounting and management study (TANS), including port-operations, for institution building within SIPA.
15. The Mission found the overall Project to be technically feasible, financially sound and economically viable. The estimated total cost of the Project as formulated was $2.73 million, with a foreign exchange component of $2.03 million. The technical assistance grant for the tariff, accounting and management study was estimated at $50,000.
16. Although appraisal cost estimates for the wharf extension and the seawall were based on the preliminary designs, other estimates, parti- cularly for the container stacking area and the container shed, were prepared on the basis of conceptual designs only.
1/ Establishment of a quarry for the port Project alone would have been extremely expensive. -6-
17. During appraisal and loan negotiations, the Borroc.er (the Government) and the Executing Agency (SIPA were fully apprised of the Bank's Guidelines for Procurement and Use of Consultants, standard loan conditions, and elements of project costs eligible for Bank financing.
18. Appraisal of the Project was requested by the Government 22 July 1977. Appraisal was completed in September and Board approval of the Loan for the Project was obtained on 9 December 1977. No major problems arose during the appraisal stage. -7-
III. PROJECT IMPLEMENTATION
A. Loan Effectiveness
19. The Loan Agreement was signed on 7 February 1978 and the date initially set for loan effectiveness, 90 days thereafter, was 8 May 1978. A condition for loan effectiveness was execution of a financing agreement in form and substance satisfactory to the Bank.
20. The draft financing agreement forwarded by the Government by post on 30 March 1978 did not arrive in Manila for more than one month. To pro- vide time for examination of documents, the date of effectiveness was extended by the Bank upon the Government's request by one month, to 8 June 1978. The Bank's concurrence with the draft agreement, with minor amendments, was telexed to the Government on 19 May 1978. The Government requested a further two-month extension of the date of effectiveness, to 8 August 1978, to allow for Bank review of the draft legal opinions and to provide sufficient allowance for postal delays. On receipt of the financing agreement and the legal opinion indicating that the agreement was binding on the contracting parties, the Bank declared the Loan effective from 27 July 1978 about eleven weeks behind schedule.
B. Implementation Schedule
21. A detailed implementation schedule was included in the Appraisal Report (see Appendix 1). Selection of the engineering expert was expected by the end of Februar y 1978, and that of the engineering consultants by the end of March 1978. The sched4le provided for tendering for the container shed and the container stacking area within one month of selection of the engineering consultant; there thus was insufficient time for its detailed engineering design before tendering. However, 12 months were pro- vided for detailed engineering for the wharf extension and the seawall. After start of construction, the container shed and the container stacking area were expected to be constructed in seven months (by January 1979), the wharf extension in ten months (by January 1980), and the seawall in sixteen months (by July 1980). Procurement of forklift trucks was expected to be completed in four months (by April 1978).
22. For the selection of the engineering consultant, SIPA submitted its recommended shortlist to the Batk for approval in November 1977. Invi- tations to consulting firms were issued in early January 1978 and proposals were evaluated by SIPA in March 1978. SIPA' original recommendations were lost in the mail 1/ however and two months elapsed before the loss was realized and copies obtained. Due to other engagements of the engineering consultant that was
1/ During the initial stages of Project implementation, communication between SIPA and the Bank were seriously disrupec due to postal strikes in Australia. This prompted the Bank to make greater use of telex communi- cations to avoid the adverse impact of slow and erratic postal services. -8-
finally selected as well as independence celebrations in the Solomon Islands, contract negotiations for consulting services could not be finalized until the end of July 1978; services commencing on 1 September 1978, a delay of five months. The selection and finalization of the contract with the engineering expert was similarly delayed; it was finalized only at the end of July 1978 and services commenced on 1 September 1978, a delay of six months.
23. Upon completion of detailed engineering designs for the Project components, it was found that a large Cost overrun was likely if works like the seawall and paving of the container stacking area were constructed as originally envisaged during Appraisal. This necessitated changes in scope (see paras 41-46) of work for some of the components and involved preparation of new detailed designs and contract documents. Project implementation was consequently delayed by a further six months at this stage.
24. A chronology of the finalization and implementation of each of the three contracts under the Project is given in Appendix 2. In Contract 1, FLTs were ordered in May 1979 and delivered in August-1979. Contract 2 for the container shed and container stacking area was awarded in July 1980 with completion scheduled in August 1981; the works were actually completed in December 1981. Contract 3 for the wharf extension and the seawall work was awarded in May 1980 with completion scheduled for December 1981. The wharf extension was completed as scheduled in December 1981, but the seawall was not completed until April 1982. In the case of the wharf extension, the Bank's flexible approach in permitting direct procurement of steel piles 1/ to meet the production deadlines of Australian steel mills obviated possible delays. The contractor also had to carry out additional work in Ci) driving longer piling, and (ii) working on the underside of wharf deck, where higher - than - predicted tide levels reduced working periods considerably; nonetheless, work was completed by December 1981. In the construction of the seawall, delay was due to wet weather, difficulty in obtaining underlayer rock, and delays in shipping of some minor items.
1/ Supply and driving of steel pipe piles was included as an item of work in Contract 3. In the ordinary course, such piles would have been procured by the Contractor from the steel mills who had a production schedule for the year with specific dates for specific products. The next date for production of steel pipe piles was due soon but it was apprehended that selection of a contractor and his ordering of the steel piles before this approaching date was not possible; supplies in that case could only be obtained in the next production phase, months later. This would have involved delay in the start of contractor's work. SIPA therefore approached the Bank for its direct procurement of steel piles from steel mills from the first available lot; the piles thus obtained were supplied to te contractor by necessary adlustment in the price of the contract for the cost of piles. - () -
25. The projected and actual rograms of work are shown in Table 1 below (see Appendix 1 for a graphical presentation):
Table 1: Projected and Actual Programs of Work
Contract! Projected Actual Activity Completion Completion Remarks
Procurement of 30 April 1978 23 August 1979 Late start of the forklift trucks engineering con- (Contract 1) sultant's services causing late pre- paration of speci- fications, and too optimistic a time- frame for tendering and supply in the original schedule.
Construction of the 31 January 1979 2 December 1981 container shed/the Late start of the container stacking area engineering consul- (Contract 2) tant's services, delay in tendering Construction of the 31 January 1980 4 December 1981 due to change in wharf extension scope of the works, (Contract 3) and longer - than - ant icipated con- The seawall 31 July 1980 19 April 1982 struction periods. (Contract 3)
26. In Contract 2 the time needed for detailed engineering(i.e.eparation of designs, drawings, bill of quantities, etc.) for the container shed and the container stacking area was not included in the original implementation schedule. Further, there was no provision fQr mobilization time for the contractor for Contract 2. Such mobilization is required even by local contractors -- to whom this contract was limited -- as they must get adequate quantities of construction materials like steel, cement and sheeting from abroad. The construction period for civil works in both Contracts 2 and 3 was too optimistic. Similarly, a period of four months for tendering and supply of FLTs was too optimistic. - 10 -
C. Use of Consultants
1. Consultant Services
27. For detailed engineering and construction supervision for the Project facilities, SIPA initially wished to retain Wilton and Bell as engineering consultant. However, at loan negotiations it was agreed that proposals would be invited from consulting firms in accordance with the Bank's Guidelines on the Uses of Consultants. About 30 man-months were estimated as the duration of detailed engineering, tendering and cons- truction supervision services. En addition to the engineering consultant an engineering expert was to assist and advise SIPA on all engineering aspects of the Project as well as in establishing adequate engineering capabilities within SIPA. About seven man-months including six site visits spread over the implementation period were envisaged for the services of the engineering expert.
28. The Technical Assistance grant approved in conjunction with the loan provided for the services of a financial analyst and a port opera- tions and shipping expert for a total of four man-months.
29. Considering the nature of works to be executed under the Project and the need for institutional improvements, the provision of the services of the engineering consultant , the engineering expert and other experts in TANS is considered appropriate.
2. Selection
30. SIPA's evaluation of consultants was sent to the Bank in March 1978. Wilton and Bell was ranked first and ENEX of New Zealand second, but SIPA recommended the engagement of the latter; however, no reason for bypassing Wilton and Bell was communicated to the Bank. SIPA later agreed to reconsider their earlier proposal and decided to engage the services of Wilton and Bell who commenced work on 1 September 1978. In the case of the engineering expert, the Bank concurred with SIPA's recommendations to appoint Mr. R. D. Evison of New Zealand, and his services also commenced on 1 September 1978.
31. Proposals for engagement of the experts under TA were invited by the Bank in July 1978. ENEX of New Zealand was selected in September 1978 and their services commenced on 1 November 1978.
3. Performance
32. The engineering consultant's Project planning was well organized, and disruption to regular ship and cargo operations at the existing wharf was minimal. The detailed designs were also generally satisfactory. However, the design report which should have been completed soon after completion of detailed engineering has yet to be received. Also the investigations in the preparation of SIPA-financed feasibility report for the seawall protec- tion proved to be inadequate and cost estimates were unrealistically low (see para 42). Further, a greater vigilance on the part of the engineering consultant in checking the actual tide levels (as compared with those pre- dicted) at the time of detailed engineering would have been helpful (see para 39). 'As built' drawings are to be submitted after completion of work and are due now. - 11 -
33. The engineering expert had problems in maintaining good working relationship with SIPA as the engineering consultant was initiall y pro- hibited by SIPA from forwarding any technical paper or proposal to him. The matter was subsequently resolved with the Bank's assistance. The quality of the work of the engineering expert was generally satisfactory.
34. One of the items under the Terms of Reference of the engineering expert was to assist SIPA in establishing its own engineering capability. The engineering expert advised the PCR Mission that he intended to make his recomendat ions on this aspect. It is unfortunate that nothing has been done so far in this regard, and SIPA must continue to engage outside consultants, sometimes even for simple technical matters. 1/ The Project offered a ver y good opportunity for on-the-job training of technical staff, but this was missed.
35. It was envisaged that through providing the services of an engineering expert, SIPA would have the capability to evaluate the tech- nical proposals of the engineering consultant. Such an arrangement was understandable at the detailed engineering stage, as SIPA did not have its own engineering capability. At the construction stage, the usefulness of the engineering expert was limited by the short duration of his inter- mittant trips and the fact that he was not a full-time SIPA staff member. The PCR Mission is of the view that a full-time expert would have been more useful for both Project implementation and overall planning including building up of technical capability. Possibly, an expert could have been engaged in 1979 for the entire period of Project implementation within the provision of $90,000.
3ô. The technical assistance experts made a number of useful recommendations concerning tariffs, accounting and management. These have mostly been implemented. TANS recommendations regarding container operations were not fully evaluated by SIPA because the container terminal was not fully operational.
1/ Some of these assignments were carried out by the engineering expert himself, on separate payment. - 12 -
D. Procurement and Construction Works
37. The Project components were divided into three bid packages, as follows:
Ci) procurements of four short-masted FLTs through international shopping procedures;
(ii) construction of the container shed and the container stacking area through tendering to local prequalified tenderers; and
(iii) construction of the wharf extension and the seawall by prequalif led tenderer under ICB procedures.
These packages were appropriate for the works to be undertaken and no difficulty was experienced by SIPA in complying with Bank guidelines or in obtaining the Bank approval of draft tender documents, bid evaluation reports and recommendations for award of contracts.
38. The successful bidders selected for the supply/construction works were as follows:
Contract No. Item Name of Contractor
1 Supply of four short-masted FLTs Toyo Umpanki Co., Japan
2 Construction of the container shed E.T. Investments Ltd., and the container stacking area Honiara
3 Construction of the wharf exten- John Holland sion and the seawall (Constructions) Pty. Ltd., Australia
39. The suppliers/contractors' performance on the whole was generally satisfactory. For Contract 1, the FLTs were supplied before the expira- tion of the contract. For Contract 2, the local contractor for construction of -. -
the container shed and the container ;tacking area had personnel problems and the firm was taken over including the contractual obligations, by another local contractor. 1/ This, however, did not affect the quality of work or the implementation schedule except for a two-month delay in completion. For contract 3, the need to drive longer piles 2/ for the wharf extension delayed the work. Higher than predicted tide levels further delayed fixing and stripping form work to and from the underside of the concrete wharf deck.3/ Greater attention on the part of the engineering consultant at the time of detailed engineering that the predicted and actual tide levels matched, could have made the conditions clear to the contractor at the time of tendering itself; the wharf extension works were nonetheless completed on schedule. The quality of work of both the wharf extension and the seawall is satisfactory.
E. Project Changes
40. During Project implementation, several changes were made in the design and scope of the Project.
1. The seawall
41. The initial feasibility study prepared in 1976-77 recommended protection works for the land area at Point Cruz in the form of an 820- meter long rock - armored seawall, which was estimated to cost $550,000 excluding contingencies of $54,000. This wall was originally designed to protect flooding and erosion from storms of up to 1 in 50-year return cycle intensity. At the time of Project appraisal, no quarry had been established nor was it likely that one would be operational before Project implementation. Consequently, a plan for a reinforced concrete wall (which is commonly used in other earthquake-prone countries) was adopted. The cost was estimated at $660,000, including contingencies of $160,000.
42. At the detailed design stage in 1979, the engineering consultant considered designs such as a rock-armored seawall, a reinforced concrete seawall and designs incorporating rubble-filled seawalls armored with pre- cast concrete armor units of varying shapes and sizes and concluded that it would not be economical to open up a quarry specifically for armor rock for the original design of a rock armored seawall. It was further concluded that a precast concrete-armored seawall using dolose armor units offered
1/ Concrete Industries, Honiara. 2/ 3,224 meters (36.2 in per pile in average) against the original total length of 2,600 meters (29.2 in per pile in average) due to unexpected subsoil conditions in coral reef. 3/ Honiara is not a standard observation port and tide levels at Honiara (Kukum) are predicted on the basis of observations at Dredger Harbor in PNG. Actual tide levels seem to be consistently higher than the predicted levels by about 0.24 meters. - 14 -
the most economical and satisfactory solution. However, the cost of the total 820-meter length of the seawall with this design was estimated at $1,051,000. This estimate cannot be directly compared with the estimates of costs in the Feasibility Report and the Appraisal Report as each design was different. However, a comparison of the Costs of the rock-armored seawall estimated at the feasibility and the detailed design stages, both prepared by the same engineering consulting firm throws light on the reasons for the increase.
Cost Estimates for Rock Armored Seawall
1976-77 Feasibility Report $ 554,000
1979 Detailed Design $1,488,000
For the same design of seawall, there was an increase of 169 per cent in the estimated cost. A part of the difference could be attributed to price escalation (about 40 per cent)I/ during this period, but it appears that in the Feasibility Report for the seawall the unit rates and cost estimates adopted were unrealistically low. As the Appraisal Mission also relied on updated unit rates of concrete, rocks, etc. of the Feasibility Report, its cost estimates too were low.
43. In view of the possibility of a substantial cost overrun and need to limit expenditure close to the original estimates, the question of phased construction of sections of the seawall in order of priority was considered. In two meetings in May 1979, representatives of the Bank, the Government and SIPA, in consultation with the engineering consultant and the engineering expert, concluded that the 270-meter southwest section of the seawall (Chainage 530 to 800), unprotected by any coral reef, was most vulnerable to erosion and flooding. It was proposed that protection works needed to be taken up on this section on a priority basis. For the rest of the seawall, with protection from the reef as well as with regular maintenance, concrete filled drums were expected to continue to provide reasonable protection. It was accordingly decided to initially take up the priority section of the western seawall, estimated at the detailed design stage to cost $516,000. It was also concluded that it would be fruitless to have a greater height for the new seawall as flooding could still occur from the other lower sections that would not be improved. The height of the new seawall was therefore reduced to match that of the existing seawall. The originally contemplated design of the section to be improved first has been otherwise retained and is still capable of withstanding the force of waves of 1-in-50 year storms so that when the other portions of the existing seawall are also improved this section would need only to be increased in height. ifl In the absence of any other data, this is based on the Honiara Retail Price Index prepared and issued by Statistics Office, Ministry of Finance, Honiara. - 15 -
2. The Container Shed
44. The Appraisal Mission considered that a shed 40 m x 15 m would be sufficient for packing and unpacking containers and providing temporary storage and delivery services to shippers and consignees. The TANS experts, however, recommended that the shed width be increased to 20 m for more - efficient working with FLTs and that a loading platform be constructed on • the delivery side of the shed to facilitate loading/unloading of small consignments to and from trucks. These recommendations were agreed to at - the May 1979 meetings and a shed 38 m x 30 m was proposed. The estimated - cost of the building as designed was $332,200, compared with the appraisal estimate of $277,500.
3. The Container Stacking Area
45. The Appraisal Report provided for concrete paving of an area about 9,000 sq.m. for handling and storage of containers. At that time all container handling in the Port area was assumed to be by arbilift_J with one-tier stacking of containers. However, in early 1980 SIPA acquired under its own financing a 25-ton capacity FLT to facilitate two-tier stacking of containers. This decision meant that the container stacking area could be used more efficiently but that its design load had to be much higher than originally anticipated, necessitating thicker concrete slabs. This increased the estimated cost of paving from $277,500 to $670,000. Adoption of other lower-cost flexible pavements and the resultant economies were examined by the engineering consultant but were ruled out in favor of a more easily maintainable 350 mm thick concrete pavement..! It was decided at the May 1979 meetings that the area to be paved would be restricted to that which could be accomplished using only the originally estimated funds. Priority was given to a 3,400-sq.m. area starting at the north end of the container shed. This reduction in area and its location, however, made it a paved island in an unpaved area. Areas between the wharf, the container shed and the container stacking area remained unpaved. SIPA has plans to pave an additional area of about 1,900 sq.m. (see para 65).
46. The changes in scope of works were necessitated when cost estimates prepared at the detailed design stage revealed substantial increases over earlier estimates. The issue was resolved first by reviewing the needs and establishing priorities of construction, and then by adjusting the scope of works to meet priorities within the available funds. Fortu- nately, this was possible without much adverse effect on the overall objectives of the Project.
1/ Arbilift - a single-axle four-wheeled rubber-tired container handling chassis operated in conjunction with a forklift truck. 2/ During the design stage, the required thickness of the concrete slab was also discussed. Due to lack of soil data for the area and possible lack of adequate quality control of concrete with the local contractors, the engineering consultant adopted a conservative approach in the slab design. - 16 -
F. Project Costs
47. The appraisal cost estimates were prepared by updating the estimates of earlier feasibility studies and by using, where possible, the actual costs of similar works in Honiara in 1977. Overall allowances for price and physical contingencies in the order of about 15 per cent and 10 per cent respectively were also included. The estimated and actual costs are shown in Table 2 below.
Table 2: Cost Estimates and Actual Expenditure ($'OOO equivalent)
Contract ppraisal Estimate Actual Cost Increase! No. Item Local Foreign Total Local Foreign Total Decrease %
1 Forklift Trucks 5 50 55 - 52 52 - 6.0
2 Container shed and stacking area 160 295 455 323' 19O-' 513' +12.7 b/ 3 Wharf extension- 304 856 1160 441 1069 1510 +30.2
3 Seawall' 200 460 660 139' 338--" 4771 -27.7
- Engineering consultant 30 280 310 33 320 353 +13.5
- Engineering expert - 90 90 23 61 84 - 6.6
TOTALS 699 2031 2730 961- ' 2O27-" 2988-" + 9.5
a! Actual costs with altered scope of works. b/ As the wharf extension and the seawall were included in the same Contract 3, expenses on conunon mobilization costs, daywork rates, etc. have been pro- portionately apportioned to the two components. C! Totals do not reconcile due to rounding of; these estimates may also undergo - changes as explained in para 48. 48. Payment for some minor items of work on the seawall which were completed in April 1982 have yet to be made. In addition, the contractor has given notice of a claim for $118,800 for additional work in connection with (i) increased piling costs. (ii) extra time and costs involved in working on the underside of deck where tide levels were higher than pre- dicted and (iii) increased accommodation costs for the contractor's expatriate staff due to a delay in availability of housing sites promised by the Government. Final settlement for these claims could be different but variations are not expected to be large. Payment has also to be made for the work to be done by the engineering consultant and the engineering expert up to the end of maintenance period. Provision for all these items is on the basis of maximum estimates and has been reflected in the Project costs (Table 2). - 17 -
49. The overall Project cost estimated at $2,988,000, is 9.5 per cent higher than the appraisal estimate. The cost overrun is being financed by SIPA from internally generated resources.
50. An overrun of 13.5 per cent in the services of the engineering consultant is attributable mainly to extra work due to the need to change the scope of work during detailed engineering stage, and to extending the period of their services by more than a year.
51. The increase in the cost of the wharf extension is largely attributable to additional unanticipated pile penetrations, escalation in wages and material costs, and the contractor's claims for unanticipated additional items of work.
52. The final costs of the seawall, the container shed and the container stacking area are not directly comparable with appraisal estimates due to changes in the scope of works at the detailed design stage (paras 41-46). The minor variations between the cost estimates at the detailed design stage and the actual costs are however shown below.
Cost Estimates at detailed Actual design stage Costs Variations
The container shed (38m x 20m) and the container stacking area (3400 m2) $ 559,700 $ 513,000 - 8.3%
The seawall (270 m) $ 516,000 $ 477,000 - 7.6%
- 18 -
G. Disbursement
53. The disbursement schedule prepared at the time of appraisal and actual disbursements are shown in Table 3 below (see Appendix 1 for graphical presentation).
Table 3: Comparison of Projected and Actual Loan Disbursements ($ '000)
Original Projection A c t u a 1 Year Quarter Amount Cumulative (%) Amount Cumulative (%)
1978 I - - - - II 41 2 - - III 183 11 - - IV 180 2Q 53 3
1979 I 276 33 4 3 II 315 49 56 5 III 272 62 12 6 IV 272 76 7 6
1980 I 304 91 - 6 II 92 95 61 9 III 67 98 633 41 IV 28 100 134 47
1981 I - - 260 60 II - - 292 74 III - - 275 88 IV - - 191 97
1982 I (Loan - - 48 100 closed)
TOTAL 2,030 100 2,027" 100
a/ Total does not reconcile due to rounding off. - 19 -
54. A yearwise comparison of percentage distribution of disbursements from the start of the Project is provided below.
At the End of Original Projection Actual
Year 1 33.5% 6.2% Year 2 75.8% 40.7% Year 3 100.0% 88.0% Year 4 (2 quarters) - 100.0%
55. The bulk of disbursements started only after the civil works contracts reached the construction stage. Some 88 per cent of disburse- ments were completed by the end of the third year leaving a balance of only 12 per cent for the last six months; 60 per cent of disbursements had been completed by the original Loan closing date of 31 March 1981. By the extended closing date of 31 March 1982 all the disbursements ($2,027,000) have been made. After the initial delay in claiming reimbursement for the purchase of FLTs, no undue delay was experienced in submitting disbursement applications.
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IV. OPERATING PERFORMANCE
A. Technical Performance
(1) Port Traffic
(a) Overall Cargo
56. The actual overseas port traffic at Honiara in the years 1977 to 1981 compared with forecasts made at the time of appraisal is shown in Table 4 below.
Table 4: Overall Cargo Traffic (Metric Tons)
IMPORTS a! EXPORTS TOTAL Difference Year Forecast Actual Forecast Actual Forecast Actual
1977 44,860 41,200 31,700 29,820 76,560 71,020 - 7.2 1978 52,930 48,050 42,650 32,230 95,580 80,280 -16.0 1979 54,090 57,070 46,650 43,290 100,740 100,360 - 0.4 1980 56,510 74,210 50,980 51,490 107,490 125,700 +16.9 1981 58,690 69,650 54,900 49,800 113,590 119,450 + 5.2
a/ Excluding petroleum and Liquefied Propane Gas (LPG) in bulk.
57. Imports over this five-year period have generally been increasing at a rate faster than forecast at the time of appraisal. Exports have also been increasing, but the growth rate has been slower than forecast. The total overseas traffic at the port has been increasing over the last five years generally in line with the forecast.
58. The PCR Mission carried out a commodity-vise analysis of imports and exports for forecasting future levels of traffic.!' The revised import projections are marginally higher than previous forecasts. Revised export forecasts are lower than the Appraisal Mission's forecasts due to market or capacity constraints. Rice exports are now expected to cease due to prices. Tuna exports are expected to cease in 1986 due to a shift of the cannery to Noro. Lower export levels are also forecast for palm oil, palm kernels and timber. Total cargo traffic projections for the future years (shown in Table 5) are consistently lower than originally forecast, but the divergence is not expected to be significant until 1990. The fluctua- tions are characteristic of a small economy depending on a few export commodities and vulnerable to external factors.
1/ See Appendixes 3 and 4. I. I - -
Table 5: Honiara Port: Comparison of Traffic Forecasts
(Metric Tons)
Year Imports-i" Exports Total
Appraisal PCR Appraisal PCR Appraisal PCR Diff
1982 59,310 61,160 58,080 45,370 117,390 106,530 - 9.3
1983 61,990 67,990 60,900 47,520 122,890 115,510 - 6.0
1984 66,830 69,010 63,100 49,720 129,930 118,730 - 8.6
1985 67,670 72,100 64,900 52,220 132,570 124,320 -
1990 76,070 80,760 89,500 58,180 165,570 138,940 -16. 1
1995 96,060 100,030 93, 150 64,340 189,210 164,370 -13. 1
2000 116,050 121,660 96,800 71,300 212,850 192 ,960 - 9.3
a! Excluding petroleum and LPG in bulk
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(b) Container Traffic
59. Container traffic at Honiara has been growing rapidly, as shown in Table 6 below.
Table 6: Container Traffic (TEUs) 1/
IMPORTS EXPORTS - TOTAL - Full Empty Total Full Empty Total Full Empty Total Year Number Tonnage Number Tonnage Number Tonna&e -. 1978 884 69 953 na 282 547 829 na 1166 616 1782 na 1979 1363 101 1464 na 357 1001 1358 na 1720 1102 2822 na 1980 1930 142 2072 36118 595 1353 1948 7257 2525 1495 4020 43375 1981 2066 258 2324 34979 887 1389 2276 11406 2953 1647 4600 46385
The table indicates that 50 per cent of imports (about 35,000 tons) and 34 per cent of exports (about 11,000 tons), excluding palm oil, were containerized in 1981. The imbalance between import and export tonnages results in a large number of empty containers in the outgoing container traffic.
60. For future projections of container traffic, containerization of imports has been assessed to grow at 2 per cent per annum 2/ up to 1986, and 1 per cent per annum thereafter up to the year 2000. Further containerization of exports is unlikely as copra, which is the only major noncontainerized export item at present, is unlikely to be containerized due to commodity's physical property of sweating in closed containers. Accordingly, containerization of exports has been assumed to remain steady at 41 per cent from 1982 through the year 2000. The forecast for future container traffic is shown in Table 7 below.
Table 7: Container Traffic
IMPORTS EXPORTS % Penetra- Penetra- TEUs Year tion TEUs Tons tion Full Empty Total Tons 1982 53 1906 32400 41 359 1547 1906 6100 Li 1983 55 2199 37390 41 393 1806 2199 6690 1984 57 2314 39340 41 413 1901 2314 7020 1985 59 2505 42540 41 444 2058 2502 7550 1990 65 3088 52490 41 477 2611 3088 8110 1995 70 4119 70020 41 553 3566 4119 9410 2000 75 5368 91250 41 644 4724 5368 10950
a! Empty containers in export traffic will remain at a high level due to continuing imbalance between import and export tonnages. b/ Container traffic for 1982-1984 is projected at levels lower than the actual traffic of 1981 due to a projected short-term slump in overall cargo, including containerizable traffic.
1/ Twenty feet Equivalent Units of containers (20 x 8 x 8 feet). 2/ This is based on the historical trends so far in the container operations in the port since 1977. 23
Cc) Interisland Traffic
61. Interisland cargo and passenger traffic is handled at a small ship's wharf and a number of jetties. Of these, the Kingfisher Jetty is the most extensively used. No record of interisland cargo or passenger traffic is maintained. A general shortage of interisland jetties was felt however and SIPA decided to build three internally fi,nanced new jetties to alleviate congestion for interisland vessels.! ! Simple documentation and procedures for collection of relevant data is essential for optimising future investments in interisland facilities; such data collection should be introduced by SIPA.
(2) Port Operations
62. Container services to Honiara, which began in 1977, have grown significantly. However, the road system of Honiara does not permit movement of containers beyond the Port boundaries and both LCL and FCL containers.?] must be packed or unpacked within the Port area and transported by conventional trucks.
63. In the pre-Project situation, handling of oceangoing ships at the 72-meter deepwater wharf involved moving almost all ships in order to load and unload end hatches. This resulted in operational inconveaLence and increased ship turnaround time. Average cargo handling rate in 1977 was about 42 tons per ship-hour at berth and increased to an average 66 tons/hour in 1981 as a result of containerization. Prior to completion of the Project, containers were unloaded/loaded by ships' cranes and moved in a limited area on the wharf by arbilifts operated by an eight ton FLT; the handling rate achieved was 5 TEUs per hour.
64. The extension of the wharf to a length of 120 meters now permits ships calling at Honiara to work all hatches simultaneously. The shipping pattern has changed since 1977 and almost all shipping lines carry containers either exclusively or with containers on deck and breakbulk cargo in the holds. Average cargo handling rates have increased to 84 tons/hour since commissioning of the wharf extension in December 1981. Greater maneuverability of arbilifts on the extended wharf deck permits faster handling of containers, now at an average rate of 15 TEUs per hour.
65. Some operational problems are still being experienced that must be resolved. FLTs carrying containers from the wharf to the container shed or the container stacking area have to traverse an unpaved gravel surface which causes heavy wear and tear on both FLTs and the road surface itself. Under future conditions of intensive utilization, the gravel surface could become a source of FLT breakdowns, affecting the container operations. In order to remove this constraint and provide paved access from the wharf to both the container shed and the container stacking area, SIPA has plans for 1982 to extend the container stacking area by about 1,900 sq.m., at a cost of SI$250,000 from its own resources. This will provide additional stacking area for 70 loaded TEUs.
1/ Expected to be ready in August 1982. LCL is a container containing a number of consignments each Less than Container Load. FCL is a container containing only one consignment of Full Container Load. - 2/,
66. The provision of a raised loading platform-' for loading/unloading of trucks on the western side of the container shed has also created a minor handicap in operations. The slope in the shed floor due to a higher platform on one side was objected to by the then Chief of Operations, SIPA as being too steep for pallet storage. To meet this objection, the slope was reduced, leaving a step from the shed floor to the platform. This has cuased some hindrance to the free movement of FLTs from the shed to the platform and vice versa. STPA plans to review the situation to see if modifications are necessary.
67. The optimum capacity of the wharf without the Project was assessed at 115,000 tons, including bulk palm oil handling but excluding bulk petroleum and LPG. Actual traffic in 1980 and 1981 exceeded this capacity. Traffic projected for 1983, after a drop in 1982 (see para 58), is expected to exceed the capacity. Completion of the new facilities is therefore timely. The extended wharf is now assessed to have an annual capacity of 190,000 tons, including bulk palm oil, and is expected to be able to handle projected traffic up to the year 2000 (see Appendix 5). For containers, the paved stacking area, with two-tier stacking 2/, has a capacity of 250 full TEUs. Extension of the container stacking area in 1982 will provide additional storage for 70 TEUs, giving a total stacking capacity of 320 full TEUs. The average dwell time of containers in the port is a month; based on this, the port's annual container handling capacity is estimated at 3,840 full TEUs, which is adequate for the port's projected requirements up to the year 1990.
68. The unloading of Liquefied Propane Gas (LPC) in the port area-- which is situated close to the main commercial center of the city, is extremely hazardous. The Government and SIPA are aware of the hazardous nature of the installation and operttiofls and are considering alternative sites. There are however only four ship calls per year, with each unloading operation lasting for only about three hours. Relocation of the LPG facility is expensive and may not get priority; in the meanwhile, SIPA has adopted a number of safety procedures for unloading operations based on the TANS report.
(3) Equipment
69. In 1979 four short-masted FLTs suitable for packing and unpacking operations inside containers were acquired under the Project. These trucks have performed satisfactorily and have been uUlized at an average of 2,280 hours per annum per FLT. 4/ The 25-ton FLT procured in 1980 by SIPA under its own financing had an annual utilization rate of 1,546 hours. It has recently been discovered that the mast of the FLT is higher than the container shed canopy and the 25-ton FLT can not take the containers right to the shed door. SIPA is now examining the possibility of modifying the canopy to accommodate the FLT.
1/ See para 44. 2/ SIPA acquired a 25-ton FLT for two-tier stacking of load containers in the Port for a more intensive utilization of the limited land at Point Cruz (see para 45). 3/ LPG tankers anchor on the western side of Point Cruz and the gas is pumped through a floating pipeline into storage tanks in the Port afea. 4/ This compares with an annual utilization of 2,400 hours at eight hours daily for 300 days a year. (The remaining 65 days are used for weekly preventive maintenance and repairs and overhaul). - 25 -
70. The total container handling equipment package of FLTs and arbilifts is appropriate and adequate for the present needs of the port. With the limitations on wharf loading due to structural strength of the pre-Project wharf, the arhilifts are an ideal substitute for the 25-ton FLT in handling loaded containers on the wharf. There appears to be no need to acquire any additional equipment such as tractors and trailers, even though these were recommended iii the TANS Report. At present, SIPA does not maintain any spares for arbilifts and spares are ordered from abroad only after a breakdown. It is essential that SIPA stock spare parts for the arbilifts and replenishes them as necessary to obviate breakdown of container operations, which are totally dependent on arbilifts. The maintenance of port equipment is otherwise satisfactory.
(4) Works
71. To ensure conformance to contract specifications, construction of civil works was closely monitored during Project implementation by a resident engineer of the engineering consultant. When a cyclonic storm hit the Solomon Islands in March 1982, tJie seawall eqsily withstood the storm and prevented flooding and erosion of port land i'. Since commissioning of the wharf extension in December 1981 all types of ships have been satisfactorily berthed and all kinds of cargoes adequately handled. The container shed is being utilized for packing and unpacking of containers and for storage of container cargo; the container stacking area has served satisfactorily with two-tier stacking of full containers by the 25-ton FLT.
B. Financial Performance
(1) Tariffs
72. SIPA enjoys substantial operational autonomy, but the Government exercises control over financial aspects such as setting the level of port tariffs and SIPA's borrowing of funds from external sources. At the time of appraisal, it was noted that there had been no systematic review of port tariff schedules for a number of years. The Government, SIPA and the Bank agreed to engage consultants to examine the main elements of port tariff rates and recommend a system of rates and dues based on the cost of services rendered and facilities provided.
73. The TANS experts, inter alia, examined the tariff structure and levels that were last revised in January 1975 (see para. 36). In accordance with theTAMS' recommendations, SIPA introduced revised tariffs on 1 November 1979. Rapidly escalating operating costs necessitated further revisions in March 1981 and January 1982. A summary of the changes in the major items of tariff is given in Appendix 6.
74. One financial problem became apparent in the handling of copra exports. Such exports from the Solomon Islands are channeled through the national Copra Board, and all copra handling at Floniara Port is done by SIPA
1/ Details about intensity of the storm are not yet available. - 26 -
on behalf of the Copra Board. This includes weighing and grading of copra on arrival at the port in interisland ships, storage in the copra shed, and shore and ship handling in loading export ships. The charges recovered by SIPA for all these services, including stevedoring, were increased from SI$8.75 since January 1975 to SI$ll.70 per ton in January 1982. According to a recent analysis by SIPA, there is still a shortfall of SI$2.80 per ton between the charges and the cost of handling services. SIPA's profitability has been considerably eroded in recent years due to a steep increase in its operational expenditures; it is essential that charges incurred in handling copra he recovered fully. SIPA indicated that it proposes to take up this matter when its agency agreement with the Copra Roard comes up for renegotiation in January 1983.
75. The overall impact of increases in tariffs on the revenues is shown in Table 8 below:
Table 8: Overall Revenue (SI$ '000)
REVENUE Year From Per From Per Revenue per (ending Sept.) Cargo Cent Ships Cent Total ton of traffic
1979 400 44 513 56 913 7.12 1980 603 44 771 56 1,373 8.94 1981 622 44 785 56 1,407 9.47 l982b/ 666 39 1,047 61 1,713 12.41 a! Including bulk petroleum and LPG. b/ Estimates.
As a result of increases in tariffs, revenue realization per ton of traffic has increased; the proportion of revenue derived from services to ships has also gone up. As a result of increased revenue, SIPA has been able to finance a proportion of the Project's capital cost that exceeds its original commitment. 1/
76. Land reclaimed at Point Cruz has in the past been rented by SIPA to other interests. However, the current rental rates are not appropriate compared with current commercial rates elsewhere. SIPA confirmed that as the seawall protection project has been completed, rental rates would be suitably revised upwards in 1984 when renewals of leases are to be negotiated. 2/ During the period 1975 to 1981, land values in 1-Loniara, as recorded by the Ministry of Lands and Survey, showed an increase of 75 per cent for small industrial sites and 325 per cent for commercial sites. SIPA proposes to take this into account in its rental revisions.
1/ Loan Agreement, Schedule 6, para 10, and Project Agreement, Section 2.02. 2/ Loan Agreement, Schedule 6, para 8. - 27 -
(2) Financial Results
77. SIPA's actual operating results during the years 1977-1981 compared with projections at the time of appraisal are shown in Appendix 7 and summarized in Table 9 below.
Table 9: Financial Results ( SI $' 000) I A11RAISAL ACTUAL 1977 1978 1979 1980 1981 1977 1978 1979 1980 1981
Revenue 741 921 966 1051 1119 681 789 942 1417 1501 Expenditure 419 676 707 771 780 578 491 674 878 1231 Net Profit for the Year 322 245 259 280 339 163 298 268 539 270 Cumulative Net Profit 1453 1698 1957 2237 1576 1295 1593 1860 2399 2669
78. On the basis of cargo traffic forecasts, an assumption of a real increase of 10 per cent in all but ship-related charges in 1983 and based on assumptions shown in Appendix 10, projections of operating results have been summarized in the Table 10 below (see Appendix 8 for details).
Table 10: Comparison of Revised Projections of Financial Results with those of the Appraisal Report: 1982 and 1990 (SI$' 000)
1982 Projections - 1990 Projections
Item Original Revised Difference Original Revised Difference
Total Cash Revenue 1,148 1,404 + 22.3 1,694 1,922 + 13.5
Total Cash Expenditure
before interest 391 887 +126.9 512 1,233 +140.8
Total Expenditure including interest
and depreciation 809 1,307 + 61.6 986 1,828 + 85.4
Net Profit 339 97 - 71.3 708 94 - 86.7
Cumulative Net Profit (General Reserve) 2,915 2,766 - 5.1 7,187 3,285 - 54.3
a! At 1977 constant prices. b/ At 1981 constant prices. - 28 -
79. Even though the liquidity position of SIPA is expected to remain satisfactory (see Appendix 9 for details) net profit is expected to be smaller and cumulative net profit in 1990 will also lag considerably behind earlier projections. This is due to the increase in operating expenditure outpacing the assumed tariff increases (Table 10 - para 78) ançl would indicate the need for further upward revision in port tariffs. With recently introduced improved financial management and control, includ- ing management reporting, SIPA can be expected to take timely corrective steps i.e. appropriate increase in tariffs and control of operating costs.
(3) Financial Internal Rate of Return
80. A revised FIRR for the Project has been calculated and is shown in Appendix 11. The assumptions for the analysis are shown in Appendix 10. The revised FIRR of 6.5 per cent compares with an internal rate of return of 9.2 per cent calculated by the Appraisal Mission. The drop of 2.7 per cent is due to a slightly higher Project cost (9.5 per cent), but is mainly the result of consistently lower net operating cash flows caused by the recent escalation of operating costs and reduced traffic projections.
(4) Compliance with Loan Covenants
81. SIPA's compliance with the loan covenants was satisfactory, as shown in Table 12. Rehabilitation of Kingfisher Jetty and construction of a new oil jetty were completed ahead of schedule. Reservation of the land area immediately behind the port area for future port and port-related use has been approved. SIPA has complied with provisions of tariff covenant and has carried out tariff revisions to provide revenues to cover its operating,adniinistrative and financial expenses and has been able to provide a greater proportion of internally generated resources for the Project than anticipated at the time of appraisal. The loan covenants were appropriate for financial and operational needs for the port.
- 21 -
Table 12: ADHERENCE TO LOAN COVENANTS
Items Covenants and Status
1. Project Office : SIPA shall establish a Project Office at the (LA, Schedule 6, para 1) Port which will have overall responsibility for implementation of the Project. Status: Complied with.
2. Project Director : The Manager of SIPA shall be appointed as (LA, Schedule 6, para 2) Project Director of the Project Office The Project Office and the Project Director shall be supported by the engineering expert to be provided to SIPA under the loan. Status: Complied with.
3. Inter-Island Shipping : Upon completion of the Project, SIPA shall (LA, Schedule 6, para 3) permit the use of the deepwater wharf by inter-island ships to the extent that such use will not interfere with the use of such wharf by ocean-going ships. Status: Complied with.
4. Kingfisher Jetty : SIPA shall complete rehabilitation of the (LA, Schedule 6, para 4) Kingfisher Jetty for use by inter-island ships by 31 March 1978. Status: Complied with. Rehabilitation cdnlpleted 8 February 1978.
5. Oil Jetty SIPA shall commence construction of an oil (LA, Schedule 6, para 5) jetty to he completed not later than 31 January 1980, thereto the handling of all oil, petroleum and other cargo of a similar hazardous nature shall be transferred before completion of the Project. Status: Complied with. Jetty rebuilt 1 November 1979.
6. MWPU Engineering Advice : The Government shall make available to SIPA (LA, Schedule 6, para 6) such engineering advice and assistance as is within the capacity of the Engineering Division of MWPU (i.e. Ministry of Works and Public Utilities). Status: Complied with.
7. Reservation of Land The Government shall ensure that the land (LA, Schedule 6, para 7) area immediately behind the Port will be reserved for long term Port and Port related use. The Government shall establish an appropriate land use plan for such reserved land area in consultation with all relevant authorities and shall submit the same to the Bank not later than 31 December 1978. Status: Complied with. 3()
(cont'n of Table 12):
8. Financial Matters SIPA shall revise the rental provisions in (LA, Schedule 6, pam 8) the lease contracts which it has made in respect of reclaimed land at Point Cruz upon the expiry of the period to which the present rental provisions apply. Status: Rentals based on current land values wi 11 he deterniined for all leases and applied as existing agreements mature in 1984.
9. Financing Agreement The Financing Agreement shall . . . contain (LA, Schedule 6, para 9) provision for a loan by the Government to STPA of $400,000 equivalent . . . in order to finance part of the local expenditures on the Project. Status: Being complied with. SIPA have elected to first utilize internal reserves before incurring interest-bearing debt. It is expected that an amount of about $200,000 only will be required as a loan from the Government.
10. SIPA Funds SIPA shall provide from its own resources (LA, Schedule 6, para 10) $300,000 equivalent in local currrency to finance part of the local expenditures on the Project. Status: Complied with. SIPA is utilizing development reserves to finance initial local expenditures on the Prolect. Its total contribution is expected to be over $700,000.
11. Tariff SIPA shall take all action necessary to (PA, Section 2.16) establish and maintain tariffs for the Port at such levels as may be required to provide SIPA with revenues at least sufficient to cover its operating, administrative and financial expenses. Status: Complied with. Revised tariffs introduced from 1 November 1979, 1 April 1981 and 29 January 1982.
C. Institutional Performance
(1) Financial Management
82. The TANS experts' recommendations included overhaul of the existing tariff system and a review of the relationship between tariffs and costs. - 31 -
The TANS experts proposed no changes in the basic recording systems that provide data for financial accounts except to make minor changes in the general ledger chart of accounts enabling cost data on container operations to be classified. More formal budgeting for capital expenditure and operating revenue and costs was suggested. A regular management reporting system to provide relevant current data to management was suggested. This system would concentrate on key areas where action would be required if actual results deviate from budget plan.
83. SIPA has accepted the TANS experts' recommendations for revision of tariffs. Revisions in the general ledger chart of accounts were carried out beginning with the financial year conunencing 1 October 1980. A detailed operating budget was prepared for the financial year commencing 1 October 1981. The management reporting system has also been introduced.
(2) Operations
84. In SIPA's present organization, port operations and engineering are areas of weakness, though to differing degrees. In operations, SIPA has regularly used the training facilities at the Port of Singapore to upgrade the skills of its pilots and its stevedoring, cargo handling and equipment handling staff. However, a well-defined container handling and operational system for the new facilities has yet to be designed. The TANS experts' recommendations in this regard were not evaluated in 1980, as the container facilities were not expected to be ready until late 1981. Recent heavy investments in improving and augmenting port capacity must be matched by optimum management of all port facilities in order to handle increasing traffic. Port operations must be structured in an efficient system. Expertise for planning port operations is neither available in SIPA 1/ nor even in the Solomon Islands, and in March 1982 SIPA advised the PCR Mission that a suitable expatriate would be employed until local personnel gain experience. The TANS
Report recommended appointment of an adviser to the Chief of Operations but 2/ SIPA is instead planning a new position of Controller of Planning and Operations, — to whom both the Chief of Operations and the Harbor Master will report. The PCR Mission supports this idea. 3/
85. The issue of a new stevedoring arrangement in Honiara Port has lately been a matter of some thought in SIPA. At present, SIPA provides all port-related services including stevedoring and cargo handling. As • a result, port operations are completely integrated and there is conside- rable sharing of equipment and resources among different port activities; when stevedores and cargo handling staff are not occupied with cargo handling work, they are employed elsewhere even in seawall construction. Lately, there have
1/ An expatriate from New Zealand was appointed Chief of Operations in 1980 but the experiment did not succeed due to the individual himself and the loose job description. 2/ Appointing an adviser to the Chief of Operations as recommended in the TANS Report was also considered. However, an adviser, while having responsibility for planning of the system, will not have direct responsibility for execution and success or failure of the system. On the other hand, the Controller will have direct responsibility not only for planning, but also for execution. An expert in total control of o'erations s therefore preferable. 3/ In July 1982, SIPA advised the Bank that it has since engaged a consultant to review the present and alternative methods of cargo handling organization in the Port and it has deferred considerations of the need to appoint a Controller of Planning and Operations. - 32 -
been proposals to SIPA to allow a local private stevedoring company--'to be formed for providing stevedoring to all overseas vessels in Honiara Port. SIPA has proposed engaging consultants to study this matter as well as other port operations. The general trend in other countries is to integrate stevedoring and shore cargo handling operations under one authority to achieve flexibility in deployment, greater productivity and improved ship turnaround time. In a small port like Honiara where it would be difficult to sustain more than one private stevedoring company, a single company could become unreasonable in its dealings with port users. Other potential problems like mismanagement of a single small company adversely affecting port and ship operations cannot be ruled out. As any wrong step can adversely affect port performance, it is essential that SIPA take al], these aspects into account and consult the Bank before taking any action.'
(3) Works
86. Due to its lack of in-house engineering capability, SIPA in the past has had to hire expatriate consultants, even for small technical jobs that do not necessarily require a high degree of expertise in port engineering. SIPA also does not have any personnel on its Board capable of evaluating technical proposals from the management. The engineering expert financed under the Bank loan was to, inter alia, assist SIPA in establishing an adequate engineering capability within itself. It is unfortunate that no such capability was built up during Project implementation (see para. 34 also). In the coming years, even if design work continues to be entrusted to consultants, SIPA will be needing engineering capability for construction work or for supervision of contracted construction work. Keeping this objective in view, SIPA has now decided to create a post of Works Engineer to be filled by a qualified local engineer. The Works Engineer will also be useful in supervising the maintenance of equipment and activity of the repair workshop.
87. At the time of appraisal, the Mi1iistry of Transport, Communications and Government Utilities (MTCGU) agreed-' to make available to SIPA such engineering advice and assistance as was w.thin the capacity of Engineering Division of MTCGU. The Engieering Division was not able to assign a priority to SIPA works and owing to its own workload and limLted resources, its assistance has been minor. While it may continue to be difficult for MTCCU to provide assistance to SIPA on specific works, it may be useful in future to associate the MTCGU Chief Engineer . / with the SIPA Board of Directors. The SIPA chairman and management welcomed the idea and agreed to approach the Government with such a proposal.
1/ Which if formed will take over the existing stevedoring labor. 2/ In July 1982, SIPA advised the Bank that it has since engaged a consultant to review the present and alternative methods of cargo handling organiza- tion in the Port, including the effect of privatising some of its services and that "the Bank shall be consulted closely before any changes are introduced". 3/ Loan Agreement, Schedule 6, para. 6. 7/ Designated as Undersecretary, (Technical) MTCGU. •1
V. ECONOMIC RE-EVALUATION
88. For economic re-evaluation of the Project, final capital costs, net of transfer items such as taxes and duties, and a reassessment of operating and maintenance costs of Project assets have been taken into account.
89. The Project benefits have been reassessed, keeping in view revised traffic forecasts and the reduction in scope of works of the container stacking area and the seawall. Unquantifiable external benefits like general developmental impact and the catalyst effect have been omitted.
90. The methodology for economic evaluation is detailed in Appendix 12. The salient features are:
1. The savings in ship time due to the wharf extension are assessed to be slightly lower than the appraisal estimates due to lower revised traffic projections. The revised projections are a result of improved cargo handling rates and faster ship turnaround time experienced at the 72-meter wharf even without the Project when compared with the appraisal estimates. The daily cost of ship time has been estimated on the basis of current-day prices of ships, now SI$5,000 against the SI$4,000 assumed in the Appraisal Report.
2. In the Appraisal Report, benefits of containerization were assumed for all container traffic. The PCR Mission has adopted a more conservative approach in assuming that some threshold level of container traffic would continue to be handled at Honiara even without the Project and consequently Project benefits have been evaluated by deducting the threshold level traffic from the total container traffic.
3. In the case of the seawall, erosion is fully prevented even with the reduced scope of works and as such there is no change in the benefits. Reduction in the scope of works has however reduced the level of protection from flooding. - 34 -
For this reason, a reduced level of benefits have been assumed, calculated at only 10 per cent of the value of stocks and plant held in the protected area. 1/ Further, in calculating benefits due to protection from flood damage, benefits have been assessed by assuming damage by storm in the 10th year of a 10-year return cycle. This approach provides the most conservative estimate of benefits and helps to indicate the minimum level of benefits.
91. Economic internal rates of return (EIRR)have been calculated separately for the wharf extension, seawall and also for the overall Project and comparison of these with the appraisal estimates is presented below. 2/
Appraisal PCR
The wharf extension/container handling facilities 18.3 23.0
The seawall 10.8 8.8
The overall project 17.3 20.3
1/ A storm of a return cycle of 1 in 50 years intensity is assumed to cause flooding damage to total stocks held in the land area. A storm of a return cycle of 1 in 10 years is expected to cause flooding damage to only 10 per cent of the stock- held in the land area. (This is consistent with reports of damage suffered in some previous actual storms which occurred on low tide -- Report on Reclamation Protection for Point Cruz and Harbour Development West of Point Cruz, Wilton & Bell, May 1977). Construction of a seawall meeting appraisal standards was expected to provide protection from flooding by storms of up to 1 in 50 years intensity. The reduced scope of the seawall provides protection from flooding by storms of up to 1 in 10 years intensity only, and benefits to the extent of 10 per cent of the value of stocks held in the land area can thus be attributed to the Project. 2/ The economic internal rates of return were also evaluated for cases with (i) an increase in costs and decrease in benefits (the wharf extension/container handling facilities), (ii) flood damage by storm in the 1st year of its 10-year return cycle (the seawall), and (iii) combination of (i) and (ii) for the overall Project. For details, see para 22 of Appendix 12 and Appendixes 13-15. - 35 -
92. The Project and its components remain viable even under adverse assumptions.
93. The generally improved EIRR is due to a very small increase in capital costs and a relatively greater increase in benefits, partly due to the effect of inflation on prices used to calculate benefits and partly due to a revision of land value based on an official valuation prepared by the Ministry of Lands and Surveys in 1981. - 36
VI. BANK PERFORMANCE
A. Project Formulation and Preparation
94. The growth of total traffic at the port from about 71,000 tons in 1977 to about 119,000 tons in 1981 was generally in line with the forecasts. The priority accorded to the Project by the Government and the Bank's approval of financing were fully justified. The optimum capacity of the wharf without improvement was already reached and completion of the Project was timely in serving the needs of increased port traffic. The need for seawall protection work was evident from the extensive damage by flooding and erosion caused by two severe storms in 1972 and 1977. The seawall has already withstood a cyclonic storm that occurred in March 1982, preventing erosion and flooding of port land.
95. A Bank-financed feasibility study for port development works and a SIPA-financed feasibility study for the seawall preceded the appraisal of the Project. However, when detailed designs and cost estimates were prepared, large variations in costs of some components came to light that could be attributed at least partly to inadequate investigations of the engineering consultant and unrealistically low unit rates and cost estimates in the feasibility report. In the absence of construction cost data for similar works, the Appraisal Mission's estimates were largely based on the updated unit rates of the feasibility reports and this led to underestimation of costs. The difficulties in this Project were nevertheless satisfactorily resolved by limiting the works to a scope allowed by the availability of funds. This did not have much adverse ef1ect on Project benefits (see paras 41-46).
96. In view of variations in estimates of the Project costs at the detailed design stage, the Government suggested that there be a procedure whereby consultants' detailed designs and cost estimates can be obtained before appraisal. It was pointed out by the Bank that it would be an ideal procedure in which an engineering loan preceded the construction loan but there are time costs involved in such a two-stage procedure and borrowers generally prefer to incorporate detailed engineering in the construction loan itself and in rare cases of a large variation, use their own resources or seek a supplementary loan.
97. The implementation schedule preparea at the time of appraisal was on the whole too optimistic and did not provide adequate time for - some of the activities, in particular, for the container shed and the - container stacking area. -
98. The idea of providing SIPA with the services of an engineering expert was understandable and useful as SIPA had no engineering capability and needed assistance to evaluate the engineering consultant's proposals. At the construction stage, the usefulness of a part-time expert was, however,1imited by the short duration of his intermittent trips and the fact that he was not a staff member of SIPA. A full-time expert - 37 - would have, been nwr ueu1 1otb. oject pleentatgn and oyeall planning, £ncludng bu1ding up SA's' cw' engnee.ring cap 1ty, and could possihl have been engaged wthn the Loan prov.son.
B. Project Implementation
99. Project implementation was generally satisfactory except for the Initial delays and the Bank's procedures and requirements were fully met. The Bank's supervision of the Project was generally adequate. The Bank's flexible approach in permitting direct procurement of steel piles on two occasions obviated possible delays in the construction of the wharf extension. When postal delays seriously disrupted the Bank's mail communications with SIPA, greater use was made of telex communications. There was no inception mission but an earlier Bank mission for Loan Negotiations in Honiara had apprised SIPA about various matters pertaining to project implementation, procurement, etc. Later there were three special missions by Project Engineers to help in contract negotiations and to resolve problems of costs and scope of Project components at the detailed engineering stage. There were Review Missions, one each in 1979, 1980 and 1981. A mission by one of the Bank's Control Officers was also arranged to familiarize the Government and SIPA with the Bank's loan disbursement and withdrawal procedures. The progress of implementation of the Project was monitored through monthly reports from the engineering consultant and quarterly reports from SIPA and the engineering expert. Guidance was provided to SIPA whenever it was sought or necessary. There was a gap of almost 16 months between the 1979 and 1980 Review Missions during which SIPA acquired the 25-ton FLT not compatible with the canopy of the container shed. In retrospect, the PCR Mission is of the view that this could have been avoided had there been more frequent review of the Project. The overall working relationship between the Bank, the Government and SIPA was cordial. - 38 -
VII. CONCLUSIONS
A. Overall Assessment
100. The Honiara Port Development Project was timely and generally well conceived. The Project facilities are now available as required to handle additional traffic, particularly the growing container traffic. The Project is likely to adequately fulfill its objectives and will provide economic benefits to the Solomon Islands' economy. The currently assessed EIRR of 20.3 per cent compares favorably with the appraisal estimate of 17.3 per cent. The seawall has already proved its effectiveness against a cyclonic storm.
101. Project implementation was generally satisfactory. Compliance with Loan covenants was satisfactory. The Bank's supervision of the Project was also adequate and included guidance to SIPA at a number of stages. There could have been more Review Missions, however. Consulting services for detailed engineering and construction supervision and for tariff, accounting and management studies were useful. Services of the engineering expert were also necessary in the initial detailed design stage but a full-time expert would have been more useful. The time provided for some of the activities in the initial implementation schedule was grossly inadequate.
102. At the detailed design stage, when cost estimates were prepared, large variations in costs that appeared for some components can be attributed at least partly to inadequate investigations of the engineering consultant and the unrealistically low unit rates and cost estimates in the feasibility reports. The appraisal cost estimates based on updated unit rates of the feasibility reports were consequently low. The problem of cost overruns was nevertheless satisfactorily resolved by a change in scope of some works. This did not seriously jeopardize cost benefits. The final cost of $2.988 million against the original $2.730 million indicates only a 9.5 per cent variation.
103. The Bank played a very significant role in preparation and implementation of this Project. SIPA is a small organization with limited capability. It has no technical capability, and without the Bank's assistance would have found it difficult to prepare and implement such a large Project. Organizational strengthening in port operations to optimize utilization of the Project facilities has been recommended in the Bank-financed TA. SIPA is taking necessary steps in this direction, including appointing a Controller of Planning and Operations.
B. Lessons to be Learned
104. Cost estimates and implementation schedules at the time of appraisal should be made with more care, and adequate time should be provided for these activities. - 39 -
105. The question of type and duration of engineering expertise to be provided to executing agencies should be examined in greater detail in the future to ensure that the most economical and practical arrangements are made.
106. The design of future marine works, especially in small countries that do not have their own tide level readings arid must depend on tide level predictions based on data collected at stations in other countrIes should include a check that the predicted and actual tide levels match at the Project site.
C. Follow-up Action
107. In order to ensure optimum utilization of the Project facilities, SIPA should take expeditious action to:
(i) introduce simple documentation and data-collection for interisland cargo and passenger traffic (para 61);
(ii) arrange extension of the paved container stacking area (para 65);
(iii) carry out modifications to the container shed canopy (para 69);
(iv) build up stocks of spare parts for arbilifts (para 70);
(v) increase tariffs, particularly for copra handling (para 74), and lease rentals for land (para 76); and
(vi) appoint a controller of planning and operations with properly defined job responsibilities (para 84).
108. It is essential that the Bank requests SIPA to take all relevant aspects into account and consult the Bank before changing the stevedoring system at the port (para 85).
109. SIPA should ensure that the engineering consultant (Wilton and Bell) submit to them the design report for detailed engineering for Contracts 2 and 3, together with as-built drawings (para 32) and likewise, the • engineering expert submits his recommendations for establishing SIPA's own engineering capability (para 34). The Bank will need to follow up on these matters with SIPA and if necessary with the Government.
- 40 -
LIST OF APPENDIXES
Appendix Page No.
1 Proposed/Actual Implementation and Disbursement Schedules 41
2 Chronology of Finalization and Implementation of Contracts 42
3 Traffic Forecasts - Imports 43
4 Traffic Forecasts - Exports 45
5 Estimated Capacity of the Extended Wharf 47
6 Changes in Schedule of Rates and Dues - Major Items 49
Comparison of Actual Financial Performance with 7 Appraisal Projections 50
8 Projected Income Account, 1982-1995 51
9 Projected Fund Flow Statement, 1982-1995 52
10 Assumptions for the Financial Analysis 53
11 Financial internal Rate of Return 55
12 Details of Economic Evaluation 56
13 Economic Internal Rate of Return for the Wharf Extension and the Container Handling Facilities (Base Case) 62
14 Economic Internal Rate of Return for the Seawall (Base Case) 63
15 Economic Internal Rate of Return for the Project 64
LOAN NO. 323-SOL (SF): HONIARA PORT DEVELOPMENT PROJECT PROPOSED/ACTUAL IMPLEMENTATION AND DISBURSEMENT SCHEDULES
2.03 100
90
•1.75
80
1.50
70
z
.25 60 I
z
ISJ Z 50 I.J 1.00 6
40 0.75
30
0.50
20
0.25 0 r
.0.00
• ri ORIGINAL IMPLEM(NTATION SCHEDULE ••• ORIGINAL DISBURSEMENT SCHEDULE
ACTUAL IMPLEMENTATION ACTUAL DISBURSEMENTS Reference in text: Para 21 , Page 7 Para 53 Page 18 Para 25, Page Q lOLocy OV FIKALIZATIc AID fl'WlflFAflO or acys
Contract lo. 1 Contract 2 Contract 10. 3
(i) Issup of prequalification invitation 25 Jone 1979 29 Septeer 1978 (ii) Last date for subsissicn of prequalification proposals (International shopping basis 10 July 1979 1 January 1979 (iii) Evaluation of prequalification proposals b y consultants 14 Septer 1979 19 February 1979 (iv) lank approval Mot required 16 October 1979 25 April and 31 July 1979 cv) Preparation of draft tender docrnta by canaultanta 15 Septewoer/13 October 1978 S March/24 Decanber 1979 3C March 1979 /l6July 1979 (vi) Subcisaio of (v) above to the Bank 17 October 1978 28 Deceuber 1979 25 June/18 July 1979 (vii) lank approval for (vi) above 4/30 )oveer 1978 2 February 1980 27 August 1979 (viii) Ieue of tenders 8 Deceaber 1978 19 February 1980 24 Srpter 1979 (ix) Last date f or sub.ission of bids 20 February 1979 15 April 1980 if January 1980 (x) Evaluation of offer by consultants 30 March 1979 13 June 1980 1L March 1980 (xi) Subziaaion of (4 above to the Bank 9 April 1979 13 June 1980 (irecr) 14 March 1980 (direct) (xii) Bank approval for(xi) above 20 April 1979 15 July 1980 2 April 1980 4:- (xiii) Award of contract 1 Mar 1979 28 July 1980 5 lay 1980 (xiv) Contractual date of ccsplstion of work/supplies Septer 1979 16 August 1981 29 Decer 1981 (xv) Actual date of cuspletion of work work/supplies 23 August 1979 7 Decsuber 1981 April 1982
Reference in Text: Para 24, Page 8
>4 4 j
Appendix 3 Page 1
HONIARA PORT TRAFFIC FORECASTS - IMPORTS
FOOD
1. Food imports of selected major food commodities increased at 1.7 per cent in 1969-1975 and 4.8 per cent during the bouyant 1976-1980 period. Taking into account this and the apparent increased propensity to consume imported goods as Solomon Islanders enter the cash economy, and making due allowance for the likely long-term effect of the food import taxes levied in December 1981, varying in level from 5-10 per cent, the growth in food imports is projected at 2 per cent per annum.
BEVERAGES AND TOBACCO
2. Beverages and tobacco imports exceeded the projected levels except in 1981, and future projections have been revised to increase at a steady average annual growth rate of 5 per cent per annum.
SELECTED MANUFACTURED GOODS
3. The present indications for import of selected manufactured goods support a revival of previous historical trend of growth rates. Renewed building activity in the housing sector in Honiara is expected due to the availability of land sites and housing demand associated with development projects. The average annual growth rate achieved for selected manufactured goods was 16.5 per cent for the period 1976- 1981, though this growth rate is misleading due to the exceptionally low import base in 1976. The period 1979-1981 indicated a slackening of this growth rate to 8.9 per cent annu4ly. It is assumed that future imports of these goods will continue at 7 per cent to 1990 and 5 per cent thereafter. On the assumption that the Project will be implemented in the near future, allowance has also been incorporated in these pro- jections for the Lungga hydroelectricity scheme cement requirements, assessed at. 2,000 tons annually between 1983 and 1986.
OTHERS
4. An examination of import cargo handled for the first five months of the year ending 30th September 1982 indicated that total imports are down 18 per cent from the previous year. This decline appears to have occurred mainly in respect of "other" import items. The higher actual imports in 1980 and 1981 as compared to forecasts have been assumed to be a result of a cyclical high due to the generally bouyant level of economic activity in Solomon Islands in these years. By 1982 the economy appears to have returned to forecast levels. Accordingly, it has been assumed that the appraisal projections for other imports would remain unaltered for the period 1982 to the year
Reference in text: Para 58, Page 20 - 44-
Appendix 3 Page 2
2000, representing an average annual increase of 5 per cent. In addition, allcMance for an additional 2,000 tons of imports in 1983 is incorporated to reflect the import of transport and construction equipment for the Lungga scheme.
PETROLEUM AND LPG BULK
5. Petroleum and LPG bulk imports have grown at an average annual rate of 9.6 per cent during 1975-1981. Projections for 1982 and onward have been revised at the previous rates assumed, which take into consi- deration historical trends and savings in diesel fuel resulting from the Lungga scheme. The assumed average annual growth rate used is 8 per cent for 1982-1990 and 5 per cent thereafter.
6. Actual traffic in 1975-81 and projections for 1982-2000 with the appraisal forecasts is shown below:
Appraisal Forecast Revised Forecast
1977 17,700 19 ,O8O' 1978 19,150 31,550' 1979 20,700 27 , 7 80 1980 22,300 27,990' 1981 24,100 29,170- 1982 21,350 31,500 1983 23,200 34,020 1984 25,100 36,750 1985 27,100 39 ,690 1990 33,700 52,520 1995 42 ,550 67,700 2000 51,400 85,400
L' Actuals. 45 -
Appendix 4 Page 1
HONIARA PORT TRAFFIC FORECASTS - EXPORTS
COPRA
1. The production of copra in Solomon Islands has remained fairly static over the last 20 years, although the three-year period, 1979- 1981, has seen record high levels of over 33,000 tons. This was true even in a year of low copra prices (1981), when production traditionally declines.
2. The Ministry of Agriculture was of the view that even though there is no new major coconut replanting scheme, past and current replanting activity would compensate for the declining yield of old coconut palms. Accordingly, copra exports have been projected on the basis that the 3 per cent per annum growth trend experienced between 1977 and 1981 would continue, projected from .i 1982 average base level of 14,000 tons. No allowance is made for the conversion of copra to oil via a crushing mill in Honiara, as the generally held view is that this project is unlikely to proceed in the foreseeable future.
PALM OIL
3. The development of the Solomon Islands Plantation Ltd. palm oil project is well advanced and will reach maturity in yields by 1986. An oil palm mill of capacity 20,800 tons annually has been completed and a total of 3,300 hectares of oil palm has been planted. At this stage, there are no firm plans for a major expansion of this acreage on the Guadalcanal Plains and customary land-holding isspes have deferred the second-phase development projected in the Appraisal Report that was expected to increase production to an export level of 25,700 tons of palm oil and 5,000 tons of kernel by 1990. The revised export projections have been based on expectations for the existing plantings reaching a stabilized level in 1989 of 18,800 tons of palm oil and 3,000 tons of palm kernels. The second-phase development is not committed at this time and no major initiatives were likely in the short rm, so considerations was omitted from the projections.
Reference in text: Para 58, Page 20 -
Appendix 4 Page 2
RICE
4. Since 1976 rice production project has been troubled by pest (brown hopper) eradication difficulties; the high production costs associated with mechanized rice production and high pesticide costs led the plantation company, Brewer Solomon Associates to decide in March 1982 to cease export rice production. Accordingly, no exports are incorporated in the projections of exports handled through Honiara; only 1,000 tons (of stocks) will be exported in 1982,
FISH
5. The tuna fish cannery at Tulagi has been operating at full capacity since 1979 but the higher production levels expected at the time of appraisal will not be realized. The cannery is an outmoded second- hand unit and is expected to cease production when a new processing plant, projected to coimnence production in 1986, is built at Noro. Accordingly, maximum capacity production at Tulagi and exports with transshipment, through Honiara Port is assumed only till 1985.
TIMBER
6. Timber production by Foxwood Timbers, located on the Guadalcanal Plains, has experienced setbacks through erratic supply of logs resulting from land rights and royalty pressures. In 1981, actual exports were 33 per cent less than projected. Despite setbacks in the 1982 financial year, Foxwood expect to reach export levels around 8,500 tons in 1983. Veneer production has been abandoned as uneconomical. Expansion is now not expected to proceed as rapidly as envisaged. Timber reserves beyond 1993 are considered in doubt, though Foxwood expressed optimism concerning negotiation for alternative sources. Accordingly, sawn timber exports have only been projected to expand slowly, to a level of 13,000 tons by the year 2000.
OTHER EXPORTS
7. Other exports include a mixture of general cargo, cocoa, green snail shells and sundry agricultural products. While this category increased at an annual average rate of 9 per cent between 1967 and 1976, export levels have fluctuated since then with a low 2,570 tons in 1981. The only export of potential significance is cocoa, which could involve up to 2,000 additional tons of export through Honiara Port by 1985. Given the above circumstances and accepting that new export commodities will evolve, "other" exports are projected to increase to 5,000 tons by 1985 and increase thereafter at S per cent per annum.
- 47 -
Appendix 5 Page 1
HONIARA PORT ESTIMATED CAPACITY OF THE EXTENDED WHARF
1. Higher cargo handling rates were expected since most ships could work all hatches simultaneously and the Appraisal Mission estimated the annual capacity of the extended wharf at 140,000 tons of general cargo plus 25,000 tons of bulk palm oil.
2. A preliminary analysis of cargo handling at Honiara was undertaken to indicate what changes have taken place since inauguration of the extended wharf on 4 December 1981. While data is scarce -- only 203 ship visits in the 2-1/2 months studied -- trends are becoming apparent. One advantage in this study is that as each shipping line has regular four or six-week service, direct comparisons of pre- and post- Project periods could be made.
3. The analysis is based on a weighted average of each line's share of cargo traffic over the five-month period October 1981-February 1982. The 1980-1981 distribution of traffic between lines was not used because a number of significant changes in liner services has caused a structural change in market shares since June 1981. The results obtained were as follows:
Cargo Handling Rates Ratio of Berth Time to Cargo Working Time Post ______Share of Post 1981 Project--' Line (ton/hr.) (ton/Hr.) % Change Cargo-2/ ____1981 Project-______i' ______Change
Bank Line 42 54 +29.7 19.1 2.02 1.93 + 4.7 Snfrna-Unilines 87 98 +13.0 19.6 1.87 1.73 + 8.1 Chief Container Service 114 132 +15.6 1TM 1.90 1.88 + 1.1 NEL 83 103 +23.8 12.2 1.79 2.19 -22.3 Daiwa/Bali Hi Line 91 59 -54.2 4.5 1.85 1.84 + 0.5 China Naviga- t ion/NGPL 100 101 + 0.7 5.6 1.39 1.38 + 0.7 Kyowa Line 40 38 -6.5 2.3 1.92 1.91 + 0.5 Forum Pacific Line 76 71 - 6.4 5.7 1.64 1.41 +16.3 Other Ships 45 54 +19.7 14.0 2.52 2.52
1/ Based on the period 15 December 1981 to 28 February 1982. 2/ Based on the period 1 October to 28 February 1982.
Reference in text: Para 67, Page 24. - 48 -
Appendix 5 Page 2
3. In calculating the cargo handling rates and the berth utilization ratio for the extended wharf account has been taken of both improved per- formance and instances where individual lines have experienced a decline. This provides some conservatism to this analysis in the absence of more data. The derived weighted averages were 84 tons per hour for the general cargo handling ratand ratio of a berth occupancy to cargo-handling time worked of 1.93. These compare with 66 tons per hour and 2.30 respectively for the pre-Project wharf.
4. Based on these revised averages, the capacity of the Extended Wharf was calculated as follows:
Hours available to Overseas Cargo Ships 7,584 hours
Total Berth Time 1 .93 Total Time Cargo Worked
Total Available Time for Cargo Vessels 3,930 hours
Cargo Handling Rate 84 tons/hour Total Cargo Potential 330,000 tons per annum
Wharf Capacity - assuming 50 per cent berth occupancy 165,000 tons per annum - assuming 60 per cent berth occupancy 198,000 tons per annum
The revised annual capacity is estimated at 170,000 tons of general cargo and 20,000 tons of bulk palm oil, which should not be exceeded until the year 2000, based on the revised traffic projections.
5. The lower capacity of the wharf extension estimated at the time of appraisal was expected to be exceeded in 1990. The longer adequacy of the extended wharf is partly due to the revised traffic projections. The lower revised traffic projection would by itself have extended the extended wharf capacity to 1995. The additional five years adequacy of the extended wharf is due to the higher handling rates associated with present cargo handling operations and the faster introduction of containerization. - 49 - Appendix 6
HONIARA PORT: CHANGES IN SCHEDULE OF RATES AND DUES - MAJOR ITEMS (SI $)
DATE OF_IMPLEMENTATION BASIS OF I Januar" 1 November 1 March 29 January "ATURE OF CHARGE CHARGING 1975 1979 1981 1982
COPRA Agency Commission S/ton 6.7 7.25 8.50 8.50 Stevedoring $/ton 2.00 2.50 3.00 3.20 8.75 9.75 11.50 11.70 HANDLING General Rate $/ton 2.80 3.00 3.50 3.80 Storage, transit sheds free storage days 10 7 7 7 7 to 12 days S/ten /day 0.50 0.50 0.50 0.50 13 to 19 days S/ten /day 0.50 1.00 1.00 1.00 20 to 30 days 5/ton /day 0.50 c,' 2.00 2.00 more than 30 dAys $/ton /day 0.50 ci 3.00 3.00 Storage, yard & container a! a/ at a!
STEVEDORING General Cargo S/ton 2.50 2.50 3.00 3.20 Containers 5/ unit 40.00 45.00 50.00 60.00 Bulk palm oil S/ton 0.50 0.50 0.50 0.75
SHIP CHARGES, OVERSEAS Pilotage $/neter length 1.50 260 2.50 3.00 Port dues S/meter length/ quarter O.0 1.00 1.00 2.00 Berth reservation S/visit 200 200 400 400 Berthage $/meter length/ 0.10 to 0.10 to hour 0.10 0.25 0.25 0.60 Wharfage/tonnage dues Inconing cargo $/ton I.)0 1.00 1.00 1.50 Outgoing cargo S/ton 0.50 0.50 0.50 0.75 Cargo not handled S/ton 0.30 0.50 0.50 0.75
SHIP CHARGES, LOCAL Port dues $/meter/quarter 0.10 0.10 0.10 0.10 Berthage First 4-hour period S/meter length b, 0.05 0.05 0.05 Second 4-hour period $/meter length b/ 0.10 0.10 0.10 Additional 4-hour period S/meter length b/ 0.15 0.15 0.15 a/ 50 per cent of storage, transit sheds rate. .b/ $0.25 per 12-hour period. ci After 19 days storage charges will double or each successive period of seven calendar days.
Source: SIFA
Reference in text: Para 73, Page 25,
So1.3W8( ISL.A8DS ?ES AUTHORIY: CONPA2A&1S08 0? ACrv.u. i:';ct.u. Pt21oJ!CE .xT Ai'krsA:. PROJECT1'S (5.I.$'OCO)
977 1978 1979 1980 98l Actual ?r.,jected 3 Differ- Actual ?ro.cted 2 Differ- Actual Projected 2 1)11 tsr Actual Projected 2 Differ- Actual ?roected 2 Differ- eec. esce eec. soc. ence
Total Cash 9eeue' 681 41 -8.1 789 921 -14.3 942 966 -2.5 1,417 1,051 + 34.8 1,501 1,119 + 34.1
Total Cash Eapeeditur. befors interest 509 298 i0.8 487 356 +36.8 666 332 +100.6 861 370 + 32.7 1,142 382 +199.0
Total eediture including interest sod depreciation cis 119 '23.6 -9I 676 17.4 674 707 - 4.7 873 771 + 13.9 1,231 780 4 57.8
Pet Profit 163 322 - 298 245 .-1.6 268 259 + 3.5 539 280 + 2.3 270 339 -20.4
cuaulatire Pet Profit (Ceneral Rezerve) 1.295 t,.53 -0.9 1 ,93 1,698 - 6.2 1,860 1,957 - 3.0 2,399 2,237 •'- 6.8' 2,669 2,376 + 3.6 J1 0 ai 1,gied net acoe. Lras le.aebo14 iand o*lp, uhic,a :epree.nta - adñitiona! .ash , revec.. and asao*6a14 rash 52pesGiture of iJ.$30,000 - $40,(l00 a*uua11.
Sources SIPL and appraisal satiesta.
Reference in text: Para 77, Page 27.
0. '-I,
•1
SOL ISLANDS PORTS AUTHORITY PROJECTED INCOME ACCOUNT FOR YEARS ENDING 30th SEPTEMBER (S. I. $ '000)
1982 1983 1984 1985 1986 1987 1988 1989 19?0 1991 1992 1993 1994 1995
REVENUES
Copra 164 185 192 197 203 208 215 221 228 236 242 250 257 265 Palm Oil. 12 14 15 15 17 17 17 17. 17 17 17 17 17 17 Handling, stevedoring and tonnage of non- containerized traffic 266 314 311 316 307 303 306 309 312 318 324 330 335 340 Handling, etc. of con- tainerized traffic 282 355 373 403 419 426 444 463 482 510 538 567 596 629 Shipbased Charges 450 495 500 508 514 514 520 527 534 542 550 558 567 576 Storage, hire and other charges 192 230 234 243 246 247 252 258 265 274 283 293 302 312 Total Operating Income 1,366 1,593 1,625 1,682 1,706 1,715 1,754 1,795 1,838 1,897 1,954 2,015 2,074 2,139 Add Income from Lease 38 38 38 76 76 76 76 84 84 84 84 84 92 2,231 TOL4I Cash Rivenue 1,404 1,631 1,663 1,758 1,782 1,791 1,830 1,871 1,922 1,981 2,038 2,099 2,158
LESS CASH EXPENSES
Repair and maintenance of civil structures 50 75 80 80 80 80 85 85 85 85 85 85 85 85 Repair, maintenance and fuel for cargo handling Lquipment, launches,etc. 95 105 108 113 115 115 119 122 126 131 136 142 148 154 Salaries of regulay staff 492 600 614 643 654 659 678 698 719 749 778 809 841 873 (eneral overheads 184 188 191 195 199 203 207 211 216 220 224 229 233 238 Other cargo-related exp. 66 72 74 78 79 79 82 84 87 90 94 98 101 105
Total Cash Expenses 887 1,040 1,067 1,109 1,127 1,136. 1,171 1,200 1,233 1,275 1,317 1,363 1,408 1,455 Net cash income before interest 517 591 596 649 655 55 659 671 689 706 721 736 750 776 LESS Interest 130 144 140 137 148 143 138 131 125 118 110 102 96 89 DeprecIation 290 400 430 430 445 445 460 . 460 470 470 490 510 510 520 Net Profit 97 47 26 82 2 67 61 80 94 118 121 124 144 167 Cumulative Net Profit 2,766 2,813 2,839 2,921 2,983 3,050 3,111 3,191 3,285 3,403 3,524 3,648 3,792 3,959 (Ceneral Reserve) - a/ Excludes salaries of staff. Soure: The PCR Mission estimates
Reference in text; Para 78, Page 27. -J. SLOMON ISLANDS PORTS /UTHORITY PROJECTED FUND FLOW STAT4ENT FOR TUE ?EAS_ENDING 3OthSEPTEER (S. I. $ '000)
1982 1983 1984 1985 I98b 1987 19l 1989 1990 1991 1992 1993 1994 1995
Lai Ca5h Revenue 1,404 1,631 1,663 1,758 1,782 1,791 1,830 1,871 1,922 1,981 2,038 2,099 2,158 2,231 - ADD 212 ------Covernment 184 ------__- - -
TOTAL SOURCES 1,800 1,631 1,663 1,758 1,782 1,791 1,830 1,871 1922 1,981 2,038 2,099 2,158 2,2l
I'I'LI (ATIONS
nh Operating Expnsea 887 1,040 1.067 1,109 1,127 1,136 1,171 1,200 1,233 1,275 1,317 1,363 1,408 1,655 aterest r-ayments 130 144 140 137 148 !43 138 131 125 118 110 102 96 89 .oan Repayments - 32 35 38 62 67 73 79 85 93 100 73 79 86 .pja1 Expenditurc 014 250 - 250 300 400 - 200 300 - - 300 300 - 200
TOTAL APPLICATIONS 2,031 1,466 1,242 1,534 1637 1,746 1,38 1,610 1,743 1,486 1,827 1,838 1,583 1,830_
alaice (231) 165 421 224 143 45 448 261 179 495 211 261 575 401
:urnulative Balance 409 574 995 1,219 L364 1,409 1857 2,118 2,297 2,792 3,003 3,264 3,839 4,240
ource: The PCR Mission estimate
Reference in text: Para 79, Page 28.
fl 53 -
Appendix 10 Page 1
ASSUMPTIONS FOR THE FINANCIAL ANALYSIS
1. The capital cost of the Project includes the cost of wharf extension, the container stacking area, the container shed, four FLTs, the seawall and engineering services. The replacement cost of equipment in later years is also included as part of the Project cost.
2. The Bank loan is from Special Funds and the amount would be re- lent by the Government to SIPA at an interest rate of 8.3 per cent per annum, repayable semi-annually in 25 years, with a grace period of four years. Of the local currency cost of the Project, amounting to $0.96 million, an amount of $0.2 million will be drawn down as a loan from the Government to SIPA, at an interest rate of 8.3 per cent per annum. The loan is repayable semi-annually in ten years, with a grace period of three years. The balance of the local currency portion of the Project ($0.76 million) will be met by SIPA from internally generated resources.
3. Revenue and expenditure projections are made at 1981 prices with the exception of rentals for leased land (see para 5 of this Appendix).
4. Revenue is expected on the basis of the present tariff structure. The base year is 1982 and projections have been made, considering the pro- jected traffic pattern. On advice from SIPA, a real increase of 10 per cent in the present tariff structure for all but ship-based charges has been assumed for 1983.
5. The next review of lease rents will be in 1984. It is assumed that a 100 per cent increase of rents would be realized, reflecting more closely other commercial rents. At subsequent five-year reviews, 10 per cent increases in rents have been assumed.
6. The Project tonnage of containerized cargo to the year 2000 could not be handled without further investment in another 25-ton FLT and an extension of the container stacking area in 199t. As such investments are not included in Project costs the Project income has been assumed to stay at constant levels from 1991.
7. Operating cost is projected in the following streams:
(i) Salaries of regular staff - the impact of inflation on staff salaries has been excluded. Provision for increases in staff strength and for routine annual increments is included.
(ii) Repairs and maintenance of civil structures have been projected on the basis of actual cost estimates of repair and maintenance provided by SIPA.
Reference in text: para. 78, page 27 para. 80, page 28 - 54 -
Appendix 10 Page 2
(iii) Expenditure on operational repairs and maintenance of equipment (other than staff salaries) has been provided by SIPA, estimated in proportion to cargo handling. The Project assumes labor cost savings of $35,000 per annum due to the introduction of bulk copra handling in 1983.
(iv) General overhead, other than staff costs, is assumed at an annual increase of two per cent, to cover increases in activity.
(v) Other cargo-related expenses are projected in proportion to projected levels of cargo to be handled.
(vi) For the purpose of depreciation, the following estimated service liveshave been used: wharves, jetties, buildings and seawall protection work - 25 years; other civil works - 50 years; cargo handling equipment, i.e. FLTs and vehicles - 5 years .i; 25-ton FLT - 7 years; and 9ther plant and equipment - 10 years.
8. The main pre-Project facilities of SIPA would reach their optimum capacity level by 1983 and cash flow ' from the Project is assessed on this basis.
9. As assumed at appraisal, the net cash income at the port from 1983 has been conservatively apportioned to the Project in the ratio of the length of the extension to the total length of the deepwater wharf after the Project. This is primarily for the reason that in a single wharf situation as in Honiara, the length of the wharf is a critical factor in dealing with traffic, cargo handling rates and wharf capacity.
1/ In view of lack of latest maintenance and overhaul facilities in the Solomon Islands and SIPA's experience of effective working life of 2-1/2 ton FLTs, the PCR Mission has adopted a conservative figure of five years compared with seven years adopted at the time of appraisal. I.
FINANCIAL INTERNAL RATE OF RETURN FOR THE PROJECT
C SI$ '000)
Base Case
Net Operating Net Cash Year Cash Flow Project F low
108 (143) 1980-" 689 (790) 1981 1,202 (1, 202) 1982 550 (550) 1983 230 230 1984 232 232 1985 253 48 205 1986 255 255 1987 255 255 LI' 1988 257 257 LI' 1989 262 262 1990 268 48 220 1991 275 275 1992 275 275 1993 275 275 1994 275 275 1995 275 48 227 1996 275 275 1997 275 275 1998 275 275 1999 275 275 2000 275 (857 )1 1, 132
a! Includes replacement provision for cargo handling equipment related to the Project with allowance for the replacement of four 2-1/2 tonne forklift trucks every five years. b/ Residual value of the Project of SI$857,000 is taken into account. C! At 1981 prices (deflation factor - 1.327) d/ At 1981 prices (deflation factor - 1.146) Internal Rate of Return: 6.5 per cent
Reference in text: Para 80, Page 28 - 56 -
Appendix 12 Pagel
DETAILS OF ECONOMIC EVALUATION
I. General
1. For the purpose of the economic evaluation the Project has been separated into two components. The wharf extension and the container handling facilities (four 2-1/2 ton FLTs, the container stacking area and the container shed) have been combined to form one component; the seawall is the other. These are similar to the components identified in the appraisal report.
II. Economic Costs
(i) Construction Costs
2. The economic costs for construction of the wharf extension, the container shed and the container stacking area have been based on final Project cost estimates corrected to 1981 price levels. Company and personal tax payments related to the Project were the only transfer costs to be deducted from the final cost of the Project and these totalled SI$119,600, with SI$24,200 for personal taxation and SI$95,400 for company tax. This calculated figure, based on income tax assessment statistics, compares with an Appraisal Report estimate of SI$155,300.
3. Replacement of the four 2-1/2 ton FLTs has been allowed every five years compared with seven years assumed by the Appraisal Mission. This change was based on actual SIPA experience of effective working life of 2-1/2 ton forklift trucks in Honiara Port.
(ii) Operating and Maintenance Costs
4. Operating costs have only been allowed for the four FLTs provided under the Project. Since these units have been in operation since 1979, their service records were reviewed to establish an annual operating cost of SI$7,800 per unit. It was assumed that there are no significant opera- ting costs associated with the seawall, the wharf extension, the container stacking area or the container shed.
5. As was done at appraisal, maintenance costs have been assumed as 1.0 per cent of the investment for the wharf extension, the container stacking area and the container shed, and 0.75 per cent for the seawall.
III. Economic Benefits
A. The Wharf Extension
(i) Increased Container Traffic
6. The Appraisal Mission considered that with the wharf extension and with the provision of some specialized container handling facilities
Referefice in text:Para9O, page 33 and Para9l, page 34 - 57 -
Appendix 12 Page 2 and equipment, increased container traffic could be expected at Honiara Port. Benefits, resulting from containerization were quantified in terms of expected savings resulting from reduced packaging costs, insurance costs and damage to cargo. At the time of appraisal these benefits for the total container traffic were assumed to accrue to the wharf extension! container handling facilities component of the Project.
7. It is reasonable to assume that without the wharf extension! container handling facilities, the ability of the port to handle a high volume of containerized cargo would be limited and that container ships calling at Honiara would incur significant delays due to the reduced ability of the port to handle containers. Additional costs associated with bottom damage to containers due to inadequate handling equipment and the absence of a paved area for stripping containers could also be assumed.
8. Prior to completion of the container handling facilities and the wharf extension, the port apparently experienced no major problems with handling a containerized cargo of some 46,000 tons (2,324 TEUs inward and 2,276 TEUs outward) in 1981. The only advantage derived from the Project would have been the use of the four 2-1!2 ton short-masted FLTs. It is, however, uncertain whether the port could handle significantly higher volumes of containerized cargo in the absence of the container handling facilities provided under the Project. The Mission was advised that at peak times, cargo had to be left inside LCL containers because there was no storage space in the existing transit sheds.
9. The Mission is of the view that in the absence of the container handling facilities provided under the Project, the increased tonnage of containerized cargo projected to pass through the port would have become increasingly unmanageable and would eventually have caused containerized liner services to cease calling at Honiara, instead using a break-bulk transhipment feeder service as an alternative (most likely through Papua New Guinea ports). If this occurred, the full benefit of containerization would be lost.
10. In the event that major containerized services ceased to call at Honiara, it is accepted that some smaller volume would still pass through the port in containers. While the exact tonnage of this threshold level could not be ascertained, it is assumed tobe around one quarter of the containerized tonnage in 1981, i.e., 11,500 tons per annum. Accordingly, the benefits assumed to accrue to the Project for economic appraisal are assumed only beyond the 11,500 tons per annum threshold level.
11. The projected tonnage of containerized cargo for the year 2000 could not be handled without further investment. SIPA is already-utilizing some 70 per cent of the available working hours of its 25-ton FLT and full capacity will be attained by 1992. An additional 25-ton FLT and an extension to the container stacking area would be required at that time. Consequently, the benefits resulting from this Project are assumed to remain at the 1991 level even after that year. - 58 -
Appendix 12 Page 3
12. The level of benefits associated with containerization depends upon a number of factors, including the type of cargo being containerized, the nature of the present packing, and claim possibili- ties. Discussions were held with shipping lines and their agents to quantify the level of benefits. Estimates of savings associated with containerization of cargo ranged from a high SI$20 per ton (being the difference in stevedoring costs in Australia between breakbulk and containerized cargo) to around SI$7 per ton, being the difference in freight cost for LCL or palletized cargo compared with FCL containers from Australia/New Zealand to Honiara. Special FCL container rates for commodities such as flour, sugar and soft drinks show a savings in freight costs of SI$37 per ton. To provide conservative analysis, the SI$7 per ton figure has been used in calculating the economic benefits associated with containerization.
13. The Appraisal Mission assumed a benefit of SI$45 per TEU, or around SI$3 per ton. Adjusting this level to reflect the increase in the Honiara price index since 1977 results in a comparable 1982 value of SI$5.
(ii) Savings in Ships' Waiting Time
14. With the Project, cargo handling rates are expected to increase, due to increased growth in containerization and the possi- bility of the ships' hatches being worked simultaneously. This will subsequently result in quicker turnaround for ships at the wharf and a reduced waiting time for ships calling at Honiara Port.!' 1 This approach gives a conservative estimate of the benefit. An alternative approach would have been to assume an additional transhipment cost. However, the benefit resulting from this approach would have been unrealistically high as the country, through a possible eventual decrease in traffic, would have suffered.
1/ As a practical approach, a model with (i) random arrival, (ii) cons- tant service time, (iii) single berth, (iv) first-come-first-served was adopted. The average ship waiting time obtained was then adjusted to a co-efficient of 0.5 to take into account partially scheduled arrivals. -59 -
Appendix 12 Page 4
15. The estimate of ship waiting time provided by the revised analysis is slightly lower than that estimated by the Appraisal Mission. This is due to a level of traffic lower than projected, and as a result of the improved cargo handling rates and faster ship turnaround experienced at the pre-Project 72 meter wharf.
16. The Appraisal Mission's estimate of the daily cost of ship time was SI$4,000. The PCR Mission's estimate of SI$5,000 per day is only 25 per cent higher and reflects an inflation rate of only 4.6 per cent annum. This is considerably lower than the average annual rate of increase in Honiara's price index and lower than the rate of escalation of ships' opera- ting costs over the period 1977 to 1981.
B. The Seawall
(1) Seawater Flooding Damage
17. With the seawall work, it is reasonable to assume that damage by flooding to virtually all stock and some of the plant and materials located on Point Cruz by storms of up to 1 in 10-year intensity will be avoided. The PCR Mission reviewed the level and value of stocks likely to be affected by a 10-year storm and revised the Appraisal Mission estimate of SI$2.1 million to SI$4.2 million. The increased value is partly due to general price increases due to inflation and partly due to increased tonnage of export commodities (notably palm oil and kernels) being stored on Point Cruz. In the event of storms of up to 1 in 10-year return cycle, the level of damage in the pre-Project situation has been taken at 10 per cent of the total value of stocks and plant, which was reported to be consistent with the past reports of damage suffered in some actual storms that occurred on low tide.!!
18. The protection of stocks and plant and equipment by the seawall component is taken as a Project benefit accruing in the year that expected flooding damage occurs. In the analysis, this has been assumed to occur either in the first year or the tenth year, to provide an indication of range of impact over the time period. The actual benefit within this range will depend on the year of occurrence.
(ii) Loss of Land and Buildings
19. The benefit derived from use of reclaimed land area made secure by the Project is difficult to assess accurately. If the protection works were not undertaken, the entire ten hectares of reclaimed land could be
1/ Report on Reclamation Protection for Point Cruz and Harbour Development West of Point Cruz - Wilton and Bell, May 1977.
- 60 -
Appendix 12 Page 5
eroded in time. The rate at which it would be eroded depends on a number of variable factors which are not easily assessed, namely, the composition of the reclaimed land, the structural characteristics of the pre-Project seawall and the occurrence of heavy storms. Over an evaluation period of 20 years, it is difficult to predict the area of reclamation susceptible to erosion in the event of no seawall protection works. However, for the purposes of these calculations, it has been assumed, conservatively, that erosion of about: two hectares of land will occur every ten years without the seawall, and that the construction of the seawall will totally stop erosion. As the entire area vulnerable to erosion has been protected by even the reduced length of the seawall, its benefits in prevention of erosion are the same as those of the originally contemplated seawall.
20. A valuation prepared by the Ministry of Lands and Surveys in 1981 established an unimproved value average of SI $ 1 60,800 per hectare. This value has been used in assessing the value of the two hectares of land subject to erosion. The Appraisal Mission conservatively valued the land at SI$25,500 in the absence of the official valuation.
21. The Appraisal Mission assumed for economic appraisal that the affected land area would be eroded gradually over a five year period. The PCR Mission calculated the rate of return for extreme alternatives of storms occurring on the year 10 and the year 1, again to provide an indication of the range of maximum and minimum benefits.
IV. Economic Internal Rates of Return
22. Based on the methodology and assumptions mentioned above, the revised economic internal rates of return (EIRR) has been calculated (for details, see Appendixes 13-15) and is summarized below:
Extension of Deepwater Wharf/Container Handling EIRR (%)
(i) Base Case 23.0
(ii) A 20 per cent increase in maintenance and operating costs and 10 per cent decrease in economic benefits 20.5
Seawall
(i) Base Case - Year 1 damage case 50.9 Year 10 damage case 8.8 (ii) A 20 per cent decrease in economic benefits - Year 1 damage case 38.8 - Year 10 damage case 6.9
- 61 -
Appendix 12 Page 6
Overall Project EIRR (%)
(1) Base Case - Year 1 damage case 25.0 - Year 10 damage case 20.3
(ii) A 20 per cent increase in maintenance and operating costs and a 10 per cent decrease in economic b ene fits - Year 1 damage case 22.0 - Year 10 damage case 18.1 I:cUNOMI(: INTERNAL_RATE OF RETURN (For the Whnrf IxIjon and the Cont;il inr II;indl i tig Facilities-Base Case) (SL$ '000)
C 0 S S B E N E F I T S Operating -& Waiting -- - Capital Maintenance Total Time Container Total Net Costs Costs - -- Costs Benefits Benefits Benefits Benefits
1979 a! 117 117 (117) 1980 / 585 35 620 (620) 1981 943 31 974 (974) 1982 436 50 486 188 189 377 (109) 1983 50 50 238 228 466 416 1984 50 50 255 244 499 449 1985 48 50 98 315 270 585 487 1986 50 50 340 287 627 577 1987 50 50 350 293 643 593 1988 50 50 385 309 694 644 1989 50 50 425 326 751 701 1990 48 50 98 455 344 799 701 1991 50 50 513 368 881 831 3' 1992 50 50 513 368 881 831 1993 50 50 513 368 881 831 1994 50 50 513 368 881 831 1995 48 50 98 513 368 881 783 1996 50 50 513 368 881 831 1997 50 50 513 368 881 831 1998 50 50 513 368 881 831 1999 50 50 513 368 881 831 2000 48 50 98 513 368 881 783 2001 50 50 513 368 881 831
Source: The PC Mission Estimates 5- EIRR = 23.0 per cent a! At prices (deflation factor 1981 1.3271 b/ At 1981 prices (deflation factor 1.146 I-
Reference in text: Para 91, Page 34.
I I t I
I - - ..: 4 I • I
ECONOMIC INTERNAL RATE OF RETURN (For the Seawall)-Base Case (SI$ '000)
Capital Maintenance Total Total Benefits Net Benefits Cost Costs Costs Year 1 Damage Year 10 Damage Year 1 Damage Year 10 Damage
1979 a! 27 - 27 - - (27) (27) 1980 b/ 166 - 166 - - (166) (166) 1981 - 200 - 200 - - (200) (200) 1982 87 4 91 857 - 766 (91) 1983 - 4 4 - - (4) (4) 1984 - 4 4 - - (4) (4) 1985 - 4 4 - - (4) (4) 1986 - 4 4 - - (4) (4) 1987 - 4 4 - - (4) (4) 1988 - 4 4 - - (4) (4) 1989 - 4 4 - - (4) (4) 1990 - 4 4 - - (4) (4) 1991 - 4 4 - 857 (4) 853 1992 - 4 4 857 - 853 (4) 1993 - 4 4 - - (4) (4) 1994 - 4 4 - - (4) (4) 1995 - 4 4 - - (4) (4) 1996 - 4 4 - - (4) (4) 1997 - 4 4 - - (4) (4) 1998 - 4 4 - - (4) (4) 1999 - 4 4 - - (4) (4) 2000 - 4 4 - - (4) (4) 2001 - 4 4 - 857 (4) 853
Source: The PCR ission Estimates EIRR = 50.9 per cent - Year 1 damage case x 8.8 per cent - Year 10 damage case a/ At 1981 prices (deflation factor 1.3271 b/ At 1981 prices Cdeflation factor 1.146)
Reference in text: Para 91 Page 34.
ECONOMIC I NTERNAL_RATE OF RETURN r the iT (ST$ '000)
Project Operating Maintenance Total Total Benefits Net Benefits Costs Costs Costs Year 1 Damage Year 10 Damage Year 1 Damage Year 10 Damage
1979 a! 143 '43 (143) (143) 1980 :_i 751 35 786 (786) (786) 1981 1,143 31 1,174 (1,174) (1,174) 1982 523 31 23 577 1,234 377 657 (200) 1983 31 23 54 466 466 412 412 1984 31 23 54 499 499 445 445 1985 48 31 23 102 585 585 483 483 1986 31 23 54 627 627 573 573 1987 31 23 54 643 643 589 589 1988 31 23 54 694 694 640 640 1989 31 23 54 751 751 697 697 1990 48 31 23 102 799 799 697 697 1991 31 23 54 881 1,738 827 1,684 1992 31 23 54 1,738 881 1,684 827 1993 31 23 54 881 881 827 827 1994 31 23 54 881 881 827 827 1995 48 31 23 102 881 881 827 827 1996 31 23 54 881 881 827 827 1997 31 23 54 881 881 827 827 1998 31 23 54 881 881 827 827 1999 31 23 54 881 881 827 827 2000 48 31 23 102 881 881 827 827 2001 31 23 54 881 1,738 827 1,684
EIRRSource: The PCR Mission estimates. = 25.0 per cent Year 1 damage case
a/ At 1981 prices (deflation factor 1.327) 20.3 per cent Year 10 damage case (D bI At 1981 prices (deflation factor 1.146)
Lu
Reference in text: Para 91, Page 34.